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Article Artículo

Government

World

Lip-Service Libertarianism in Silicon Valley

Silicon Valley has for some time prided itself on a supposedly novel approach to corporate practice. High-tech firms, and the luminaries who lead them, have espoused doctrines pledging to think differently, not be evil, or otherwise changing or breaking with traditional corporate behavior. While these firms may at times fail to live up to their high-minded ideals – accumulating vast cash reserves beyond the purview of the US tax code, and shifting their workforces overseas, much like their corporate peers outside of the Valley – they have gotten a pass from much of the public for their well-minded intentions (not to mention savvy marketing campaigns).

CEPR and Jeffrey Gianattasio / April 08, 2014

Article Artículo

Third Way Proposes to Tax Workers to Subsidize Wall Street

For those who have been worried about the plight of the poor boys and girls who work in the financial sector, Jonathan Cowan and Jim Kessler, respectively the president and vice-president of Third Way, have a plan to help. In a NYT column yesterday, headlined "Capitalize Workers!," Cowan and Kessler proposed a supplemental retirement system which would require employers to put 50 cents an hour into a retirement fund for all of their workers. Cowan and Kessler tell us that this should lead to an accumulation of $160,000 for a worker who works full-time from ages 22 to 67, leading to an annuity of $790 a month. What's not to like?

First, we should give Cowan and Kessler credit for effective recycling. Mandated savings plans like this are not exactly new, so getting this plan published in the NYT as a remarkable new idea to address inequality is a pretty good feat.

Getting to the substance, the requirement that employers pay 50 cents an hour for their workers' retirement is a nice little trick for the kiddies, but all the adults in the room know that this money will come out of workers' wages.(The assumption that employer side payments on wages are in the long-run deducted from wages is almost universally accepted among economists.) This deduction would actually be a substantial hit to low wage workers. Cowan and Kessler's proposal would effectively amount to a 5 percent tax on the wages of someone earning $10 an hour. That is not exactly trivial -- the Social Security trustees project that we could fully fund the program for the next 75 years with a tax increase that is a bit more than half this size. 

The next issue is the $160k accumulation that Cowan and Kessler project. They qualify this comment by saying:

"if stocks and bonds enjoy the same average rates of return as they did over the last 45 years."

That is a huge "if." Given current price to earnings ratios in the stock market and growth projections for the economy, it is almost inconceivable that stocks and bonds will enjoy the same average returns in the future as they did over the last 45 years. With the ratio of stock prices to trend earnings now approaching 20 to 1, we should anticipate real returns in the stock market going forward to average roughly 5 percent. If we assume real returns on bonds of 3.0 percent (this is probably a bit high), then a portfolio that is invested half in stock and half in bonds should produce a real return on 4.0 percent, before deducting fees.

Dean Baker / April 08, 2014

Article Artículo

Haiti

Latin America and the Caribbean

Venezuela

World

Transparently Untransparent – USAID’s Office of Transition Initiatives

By Jake Johnston

USAID’s Office of Transition Initiatives (OTI) has recently been in the news after a covert “Cuban Twitter” program “aimed at undermining Cuba's communist government,” was revealed last week by the Associated Press. As my colleague Dan Beeton has written on CEPR’s Americas Blog, this is not the only time OTI has been implicated in destabilization campaigns in Latin America.

OTI has also been extremely active in Haiti since the earthquake in 2010. Two private companies, Chemonics International and Development Alternatives Inc. (DAI) began operations on the ground in Haiti, with USAID OTI funding, within a week of the earthquake. When the project came to a close this past November, the total spending through OTI totaled nearly $150 million, making it the largest post-earthquake U.S. government funded program in Haiti. And yet, very little is known as to the exact nature of how that money was spent, despite multiple USAID Inspector General reports showing delays, improper oversight and other associated problems.

The OTI website is explicit in describing the difference between it and other branches of USAID:

While humanitarian aid is distributed on the basis of need alone, transition assistance is allocated with an eye to advancing U.S. foreign policy objectives and priorities.

The website adds:

OTI cannot create a transition or impose democracy, but it can identify and support key individuals and groups who are committed to peaceful, participatory reform. In short, it acts as a catalyst for change where there is sufficient indigenous political will. In most cases, a key event occurs - an election, a peace accord, or the rise of a nonviolent protest movement - that signals a fundamental realignment of power or direction. Before initiating a new country program, OTI analyzes the extent to which the ingredients for success are in place.

OTI Will “No Longer Post Monthly Written Reports From Our Partners.”

As OTI explains on its website, in “exchange for the flexibility granted OTI, Congress demands and deserves complete, accurate, and real-time information” concerning its activities. To this end, OTI posted monthly, quarterly and annual reports from its various programs on its website. It even explicitly states this on its website, noting that, “OTI posts reports on its website at least monthly for its country programs.” However, according to an e-mail from OTI today, the office will “no longer post monthly written reports from our partners.” The e-mail added that the website will be changed accordingly. The website was indeed updated today, however no changes to that specific language were made.

In reality, at least in the case of Haiti, these reporting requirements had not been posted publicly for multiple years. Even when they were posted, they often contained contradictory information. Following inquiries from HRRW into discrepancies between two quarterly reports in late 2011, I was copied on an e-mail intended for an OTI employee’s superiors. It stated, bluntly:

Given the recent CEPR blog on Haiti and Chemonics, do you think I should follow up with Jake below, or refer him to LPA [Legislative and Public Affairs]?

The e-mail came just days after I had posted the final installment of a three-part blog series on some of USAID’s largest contractors in Haiti, including Chemonics. I was referred to LPA. [Side note: The employee who sent that e-mail previously worked for Chemonics.]

Jake Johnston / April 07, 2014

Article Artículo

The Generation War Goes on Parade

Paul Taylor, a vice president at Pew and the author of a new book on generational conflict, took his generation war story to Parade Magazine this weekend. This magazine, which is distributed to millions of people with their Sunday paper, included a piece by Taylor that warned:

"By the time every boomer is collecting Social Security and Medicare, those two programs are projected to eat up about half our entire federal budget—and both the Social Security trust fund and one of Medicare’s two trust funds will be broke. That’s because the ratio of taxpayers to retirees will have fallen to its lowest level ever, about 2 to 1. (When Social Security first went into effect, the ratio was more than 20 to 1.) But renegotiating the social contract between the generations will be a tall order, because these days, young and old in America don’t look alike, act alike, or vote alike."

This comment is fundamentally misleading. First, the ratio of taxpayers to retirees at the time Social Security started has nothing to do with the time of day. Amazon had only a few thousand customers in the first months it was operating. So what?

When Social Security was first created its actuaries knew full well that life expectancies would increase and that the ratio of workers to retirees would decline, and they adjusted the program accordingly. This was done primarily through a series of tax increases that were scheduled decades in advance. In addition, the commission chaired by Alan Greenspan in 1983 increased the age at which workers qualify for full benefits from 65 to 67. This increase is phased in over the period from 2002 to 2022. It is remarkable that Taylor seems unaware of these facts.

While the program is still projected to face a shortfall over its 75-year planning horizon, close to half of this shortfall is attributable to the upward redistribution of income over the last three decades. This upward redistribution has worsened the finances of the program in two ways.

First, it increased the portion of wage income that went to workers who earned more than the wage cap. In 1983, when the Greenspan commission set the cap at its current level (which is indexed to average wages), only 10 percent of wage income was above the cap and escaped taxation. Now it is close the 18 percent of wage income.

Dean Baker / April 07, 2014