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December 2019 real personal income and spending

December 2019 real personal income and spending

Real personal income and spending are both coincident indicators. They don’t tell us where the economy is going, but they do give us a snapshot of how ordinary Americans are doing.

In December, real income declined by less than -0.1%. Real spending rose by less than +0.1%:

Figure 1

Real personal spending excluding government transfer payments is one of the four indicators used by the NBER to determine if the economy is in recession or not. In December this was flat. Overall in 2019 there was a slow uptrend:

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SOCIAL SECURITY A Mystery Story

by Dale Coberly

A few years ago, now getting to be many years ago, I solved a crime. Not because I was a Great Detective, but because I happened to be standing across the street where I saw it committed and took the number of the getaway car. Since then I have tried to tell the police what I saw, but they don’t want to hear about it.

I don’t want to go too far with this parable, just wanted to let you know in advance that I don’t claim to be smarter than anyone else, but what I am talking about is not an opinion and is a verifiable fact.

So back to facts. Sometime in the late 1990’s I heard on public radio (“radio for intelligent people”) an expert claiming that Social Security was bankrupt, a huge burden that was going to crush the taxpayers, especially the young.

Intuitively that didn’t seem very likely to me. How much could it cost to pay for the basic needs of retired people? I did a few calculations and saw that it wasn’t likely to be very much and certainly not unreasonable.

The simple equation to set some parameters goes something like this: If you expect to live twenty years after you can no longer work, and you can live . . . comfortably . . . on about 40% of what you were making while you were working . . . the kids are grown, the house is paid for, you don’t need expensive vacations . . . you can save enough money while you are working for forty years (age 25 to 65) by putting away 20% of your wages:

20% of wages times 40 years equals 40% of wages times 20 years

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Everybody’s Talkin’ ‘Bout Taxes–especially Wealth Taxes and Mark-to-Market of Capital Gains

Everybody’s Talkin’ ‘Bout Taxes–especially Wealth Taxes and Mark-to-Market of Capital Gains

Not surprisingly for those of you who are members of the ABA Tax Section, there is a meeting of that group next week in Florida when a thousand tax lawyers (give or take a few) will be talking about everything from basis to wealth taxes; GILTI, BEAT, Dual BEIT, to EITC.  Yours truly will be on a panel of the Tax Policy and Simplification Committee, meeting Friday morning, to discuss how the tax system should respond to the wealth gap.  Joining me on the dais will be Roger Royse (moderator and panelist), Rich Prisinzano from the Penn Wharton Budget Model, and Dan Shaviro, Wayne Perry Professor of Taxation at NYU and a blogger at Start Making Sense.  We’ll talk about the income and wealth gap data, including the different perspectives of  Saez & Zucman, serving as wealth tax advisers to Senator and Democratic presidential candidate hopeful Elizabeth Warren; Penn Wharton Budget Model, applying a more standard budget model to determine harms and benefits of the Warren Wealth Tax; and Cato INstitute.  We’ll also discuss Sen. Ron Wyden’s proposal for a mark-to-market system of capital gains taxation (including a lookback charge of some kind for hard-to-value assets, Prof. (and former Cleary partner) Edward Kleinbard’s Dual Business Enterprise Income Tax proposal, and other means of making the regular tax system more progressive such as rates, removing the capital gains preference, and reinvigorating the estate tax that has been the object of a GOP murder squad for the last 20-30 years at least.

Meanwhile, today in Florida there was a Tax Policy Lecture at  the University of Florida on Taxing Wealth, with Alan Viard, resident scholar at the American Enterprise Institute, David Kamin, Professor at NYU School of Law, Janet Holtzblatt, Senior Fellow at the Tax Policy Center, and William Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy7 at the Brookings Institution.

Last fall, the Tax Policy Center held a program on Taxing Wealth (webcast recording available at this link) with Mark Mazur, Ian Simmons, Janet Holtzblatt, Beth Kaufman, Greg Leiserson, Victoria Perry, and Alan Viard.  Sony Kassam from Bloomberg Tax served as moderator.  The link has a series of power point presentations from that meeting as well, for your edification.

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Guns and Commas

Guns and Commas

I am glad that the large pro-gun rights rally in Richmond on Martin Luther King, Jr. Day ended without any violence as had been threatened by some people around the US.  That is nice, but it does not end the unpleasant situation legal situation that has arisen here in Virginia.  As of now 93 jurisdictions, mostly counties, have declared themselves “gun sanctuaries” where any gun control legislation passed by the Virginia government will not be enforced.  The bills currently having received majority support in the Assembly and Senate with support from Governor Northam include requiring uinversal background checks for all gun sales (while allowing intra-family gun transfeers without that), a one-gun per month limit on gun purchases, and an especially controversial “red flag” bill allowing for a person deemed to be a danger to themselves or others to have their guns temporarily taken.

I am located in the Shenandoah Valley where this “gun sanctuary” movement got going, with neighboring county to the south of me, Augusta, getting highlighted in an article about this in The Economist recently.  VA is the only state where cities and counties are distinct and separate from each other.  So I live in the City of Harrisonburg, which is surrounded by Rockingham County, which supported Trump with over 70 percent of the vote.  Rockingham County has joined Augusta in becoming one of these on a unanimous vote of its Board of Supervisors, although I know at least one of those not happy about this. But an angry gun-toting crowd showed up at the meeting.  In Harrisonburg such a crowd showed up at the city council, but left angrily after the council refused to go along with this garbage.

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A Stock Market Boom is Not the Basis of Shared Prosperity

(Dan here,,,at lunch the other day a friend asked about the great prices for stocks.  This post by Thomas Palley caught my attention as a well written post on the nuances between stocks and finance and the 80% who do not own many stocks and the economy of losers and winners. )

 

by Thomas Palley  (re-posted)

A Stock Market Boom is Not the Basis of Shared Prosperity

The US is currently enjoying another stock market boom which, if history is any guide, also stands to end in a bust. In the meantime, the boom is having a politically toxic effect by lending support to Donald Trump and obscuring the case for reversing the neoliberal economic paradigm.

For four decades the US economy has been trapped in a “Groundhog Day” cycle in which policy engineered new stock market booms cover the tracks of previous busts. But though each new boom ameliorates, it does not recuperate the prior damage done to income distribution and shared prosperity. Now, that cycle is in full swing again, clouding understanding of the economic problem and giving voters reason not to rock the boat for fear of losing what little they have.

The Groundhog Day boom-bust cycle links with John Kenneth Galbraith’s observations on the phenomenon of financial fraud via embezzlement, which he termed “the bezzle”:

“To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there is an inventory of undiscovered embezzlement in – or more precisely not in – the country’s businesses and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle (Galbraith, J.K., The Great Crash 1929, New York: Houghton Mifflin, 1954, p.152-53).”

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Bloomberg’s Plan for Addressing Economic Inequality: not a wealth tax

Bloomberg’s Plan for Addressing Economic Inequality: not a wealth tax

A bit ago (Jan 8, 2020), the New York Times described Michael Bloomberg’s plan1 for addressing the income and wealth inequality in the United States that has been a constant topic of discussion by Democratic candidates.  Briefly, as with the robber barons of Teddy Roosevelt’s age, the wealth of the global commerce titans and particularly the private equity fund buyers and sellers of companies (and layers off of employees) has exploded over the last four decades in the US, beginning in earnest with Ronald Reagan’s presidency.  Most of the benefits of productivity gains have gone to a very few people at the top, and the bottom 50% of the wealth distribution actually owns a smaller share of the nation’s wealth than 40 years ago.  The top 1% have gained enormously, and the top 0.5% have been even more enriched.  We have ultra multibillionaires like Jeff Bezos who can pay $9 billion to his wife in a divorce settlement and still be the wealthiest man in the world with more than $130 billion in net worth.  He earns about $78.5 billion a year (counting value of his Amazon shares) or more than $6.5 billion a month2 and thus exemplifies this new “gilded age” of ultrawealthy tycoons.  This exists at the same time that the Trump administration proposes work requirements that will eliminate food stamp aid for 700,000 of hungry Americans and, with other initiatives, will take  food stamps from 3.7 million beneficiaries who simply cannot get work that pays well enough to fund a sustainable lifestyle for themselves and their families.3  This will “save” the U.S. about $5.5 billion over five years–less than Bezos ‘earns’ in a month.  This disparity–$5.5 billion to feed 3.5 million hungry Americans versus provide a month’s additional wealth for a person already wallowing in wealth like Jeff Bezos–is why it is clear that the US needs to figure out how to respond to the inequality crisis in order to protect American democracy and ensure Americans have a decent standard of living.

Bloomberg’s plan seems to be a moderate stance like Obama and Biden that attempts to focus on factors other than the wealth gap and the accompanying power gap that wealth provides.  As the NY Times reports, he “frames the economic divide primarily in regional terms–and not along … rich-versus-everyone-else class lines.”1  The Times article notes that his plan is not unlike the charge Obama gave to Joe Biden for the Middle Class Task Force.1\

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The Democratic Debate in Des Moines: progressive candidates on means testing versus universality

The Democratic Debate in Des Moines: progressive candidates on means testing versus universality

Dana Chasin at 2020 Vision does a good job of encapsulating key issuesthat surface in the Democratic debates.

Let’s get this out first:  most listeners will admit that the debates seem both too long and too short, as mentioned on Stephen Henderson’s Detroit Today program this Wednesday 1/15 morning.  They are too short, because candidates are interrupted at the 30-second time limit and not allowed to develop nuanced, considered answers to questions.  They are too long, because they go on for 2 hours.  I’d add that they are problematic, because the media pundits have their own views of what creates energetic dialogue that makes good ‘copy’ for programming, versus the kinds of in-depth discussions about issues like climate change, health care, education, the Supreme Court, congressional oversight/checks and balances, tax policy, wealth inequality and income inequality, plutocracy and oligarchy, etc. that people want to hear.

One important distinction that Chasin notes for thinking about socio-economic programs is the distinction between means testing and universality.  A means-tested program is generally available to lower-income people and often phases out and is capped at some income level beyond which it is no available.  A universally offered program is one that is available to all, rich and poor alike.  So the Earned Income Tax Credit is a means-tested program that is capped (too low, in my view), and Social Security is a universally available program (though there is a graduated payout scale and the funding formula caps pay-ins to the program at a ridiculously low level that means the rich pay only a pittance into the program)

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What Is Up With Empirical Economics?

Tyler Cowen today flags a paper by Currie, Kleven, and Zwiers on changing practices in economics, and highlights the following:

Panel A illustrates a virtually linear rise in the fraction of papers, in both the NBER and top-five series, which make explicit reference to identification. This fraction has risen from around 4 percent to 50 percent of papers.

This caught my eye, because Matt Yglesias at Vox recently highlighted a study claiming to show large educational benefits from air filtering in schools:

This paper identifies the achievement impact of installing air filters in classrooms for the first time. To do so, I leverage a unique setting arising from the largest gas leak in United States history, whereby the offending gas company installed air filters in every classroom, office and common area for all schools within five miles of the leak (but not beyond). This variation allows me to compare student achievement in schools receiving air filters relative to those that did not using a spatial regression discontinuity design. I find substantial improvements in student achievement: air filter exposure led to a 0.20 standard deviation increase in mathematics and English scores, with test score improvements persisting into the following year. Air testing conducted inside schools during the leak (but before air filters were installed) showed no presence of natural gas pollutants, implying that the effectiveness of air filters came from removing common air pollutants and so these results should extend to other settings. The results indicate that air filter installation is a highly cost-effective policy to raise student achievement and, given that underprivileged students attend schools in highly polluted areas, one that can reduce the pervasive test score gaps that plague public education.

Kevin Drumm was quick to spot the problem in the paper (click through to see the data).

Then Andrew Gelman weighed in:

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For MLK Day: unemployment by race

For MLK Day: unemployment by race

In observance of Martin Luther King’s birthday, almost all US markets are closed and there is no economic data.

So on this day let’s see the extent to which economic opportunity in several neutral metrics has improved since the passage of the Civil Rights Acts in the 1960s.

Here in unemployment for African Americans (blue) vs. whites (red) since the former began to be measured in 1972 (white unemployment had been measured since the 1950s – interesting that black unemployment wasn’t even deemed worthy of being separately measured before the 1970s!):

Unemployment for whites made a 50 year low at 3.1% earlier in 2019. It was only lower, at 3.0%, in 1969 (not shown). African American unemployment made its all time low, at 5.4%, in August of last year.

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“What is the Most Useful Idea in Economics?”

NPR’s Planet Money went to the 2020 American Economic Association conference in San Diego where they asked economists, “what is the most useful idea in economics?” David Autor appears near the end of the episode (minute 16:00) to talk about the lump-of-labor fallacy. Almost exactly 87 years earlier, on January 18, 1933, Arthur Dahlberg appeared before a Senate subcommittee to give testimony on the thirty-hour work week bill. The lump-of-labor fallacy would be a useful idea indeed if it would show economists how little they have learned and how much they have forgotten in the intervening 87 years.

In his Planet Money interview, Autor rehearses the standard refrain about there not being a “finite” amount of work to be done so we are not in danger of running out of jobs. Then he introduces the caveat that although we will not run out of jobs, that doesn’t mean that there is nothing to worry about — some people will end up in worse jobs than they previously had or would have had. Autor’s remedy for this is to develop policy that will improve people’s skills so they qualify for better jobs or raise the productivity in personal service jobs so they pay more.

Eighty-seven years earlier, Dahlberg also disagreed with the idea that machines create technological unemployment. He also saw that the new jobs created by technological change would be different than the old ones. But Dahlberg carried his analysis several steps further than Autor. In Dahlberg’s view many of the new jobs would differ from those they replaced in that the demand for their products or services would not be spontaneous but would need to be artificially induced by, for example, advertising.

Autor acknowledges something similar when he mentions that a hundred years ago 70 percent of consumer spending was on necessities compared to only around 40 percent now. But Dahlberg raised the issue that wages are determined by bargaining and the shift away from spontaneously-demanded goods and services undermines labor’s relative bargaining power, resulting in a smaller labor share of income. Recipients of capital income may spend their larger share either on personal consumption or investment but eventually they will want to “cash in” on that investment. Spending on new investment will decline faster than spending on consumption rises. Dahlberg thus invoked the business cycle as the “slow-moving effect” of the introduction of labor-saving technology.

Here is a link to the transcript of the Planet Money interview with David Autor. Below is the transcript of Arthur Dahlberg’s testimony to the Senate subcommittee on the thirty-hour work week:

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