Robert Samuelson used his column today to urge Mitt Romney to make the welfare state the major issue in the presidential race. For some reason Samuelson’s indictment of the welfare state missed many of the largest items.
For example, in listing the beneficiaries of government largess, Samuelson missed obvious ones like homeowners who benefit from the mortgage interest deduction, the deduction for property taxes, and the subsidy provided by government guarantees of mortgage debt. He also misses the benefit provided by the tax deduction for employer provided health insurance.
While most people may not have a sufficient understanding of the tax and budget system, Samuelson surely knows that if we give someone a $4,000 tax break by making their mortgage interest tax deductible, it is the same thing as if the government wrote them a $4,000 check as a housing subsidy. In both cases they fit the bill as “takers.”
Of course the really big beneficiaries of government largess are the folks who Samuelson neglects altogether. These would be people like the top executives at the Wall Street banks who benefit from the $60 billion in too big to fail insurance that is provided at no cost by the government. He would also talk about the hundreds of billions of dollars that the government transfers to the pharmaceutical industry each year by providing patent monopolies on prescription drugs. A similar amount goes to the tech industry. Samuelson could also talk about the selective protectionism in U.S. trade policy that redistributes income from most of us to highly paid professionals like doctors and lawyers.
These highly distortionary government interventions do not feature prominently on Samuelson’s list. He only seems interested in attacking government interventions that primarily benefit lower and middle class people.
Robert Samuelson used his column today to urge Mitt Romney to make the welfare state the major issue in the presidential race. For some reason Samuelson’s indictment of the welfare state missed many of the largest items.
For example, in listing the beneficiaries of government largess, Samuelson missed obvious ones like homeowners who benefit from the mortgage interest deduction, the deduction for property taxes, and the subsidy provided by government guarantees of mortgage debt. He also misses the benefit provided by the tax deduction for employer provided health insurance.
While most people may not have a sufficient understanding of the tax and budget system, Samuelson surely knows that if we give someone a $4,000 tax break by making their mortgage interest tax deductible, it is the same thing as if the government wrote them a $4,000 check as a housing subsidy. In both cases they fit the bill as “takers.”
Of course the really big beneficiaries of government largess are the folks who Samuelson neglects altogether. These would be people like the top executives at the Wall Street banks who benefit from the $60 billion in too big to fail insurance that is provided at no cost by the government. He would also talk about the hundreds of billions of dollars that the government transfers to the pharmaceutical industry each year by providing patent monopolies on prescription drugs. A similar amount goes to the tech industry. Samuelson could also talk about the selective protectionism in U.S. trade policy that redistributes income from most of us to highly paid professionals like doctors and lawyers.
These highly distortionary government interventions do not feature prominently on Samuelson’s list. He only seems interested in attacking government interventions that primarily benefit lower and middle class people.
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Ever since Governor Romney’s comment about writing off the 47 percent of households who don’t pay federal income tax became public, news stories and opinion pieces have been dominated by discussions of who does and does not pay taxes. This is great news for the one percent.
The obsession with taxes means that the one percent are playing a game that they can only win. The vast majority of the upward redistribution of income over the last three decades has been in before tax income. This has been brought about through a variety of changes in laws and institutions that had the effect of restructuring markets in ways that redistribute income upward.
For example, we have a trade policy that is designed to put downward pressure on the wages of manufacturing workers by putting them in direct competition with low-wage workers in the developing world. (Highly paid professionals like doctors and lawyers are still largely protected from such competition.) This downward pressure is amplified by the over-valued dollar, a policy that had its origins in the Clinton administration.
The implicit government insurance provided to too big to fail banks transfers around $60 billion a year to the shareholders and top executives at the big banks. Patent and copyright monopolies redistribute hundreds of billions a year from consumers to drug companies and the tech and entertainment industry.
Anti-union laws weaken the power of workers trying to organize for collective action, thereby reducing their ability to secure wage increases. (Chicago Mayor Rahm Emanuel was going to court to have union leaders thrown in jail if the teachers continued their strike.) And a Federal Reserve Board that throws workers out of work to meet inflation targets protects the wealth of creditors at the cost of undermining the bargaining power of workers.
These and other areas of public policy are the key factors determining the relative well-being of the rich and the rest of us. As long as we are obsessed with a discussion of whether the Bush tax cuts to the wealthy will continue, the policies responsible for the bulk of the upward redistribution over the last three decades will never be discussed. The current debate may be good news for President Obama’s re-election prospects, but it is not a positive development for those who don’t like to see the perpetuation of government policies that redistribute money upward. (Yes, this is all a plug for my free book, The End of Loser Liberalism: Making Markets Progressive.)
Ever since Governor Romney’s comment about writing off the 47 percent of households who don’t pay federal income tax became public, news stories and opinion pieces have been dominated by discussions of who does and does not pay taxes. This is great news for the one percent.
The obsession with taxes means that the one percent are playing a game that they can only win. The vast majority of the upward redistribution of income over the last three decades has been in before tax income. This has been brought about through a variety of changes in laws and institutions that had the effect of restructuring markets in ways that redistribute income upward.
For example, we have a trade policy that is designed to put downward pressure on the wages of manufacturing workers by putting them in direct competition with low-wage workers in the developing world. (Highly paid professionals like doctors and lawyers are still largely protected from such competition.) This downward pressure is amplified by the over-valued dollar, a policy that had its origins in the Clinton administration.
The implicit government insurance provided to too big to fail banks transfers around $60 billion a year to the shareholders and top executives at the big banks. Patent and copyright monopolies redistribute hundreds of billions a year from consumers to drug companies and the tech and entertainment industry.
Anti-union laws weaken the power of workers trying to organize for collective action, thereby reducing their ability to secure wage increases. (Chicago Mayor Rahm Emanuel was going to court to have union leaders thrown in jail if the teachers continued their strike.) And a Federal Reserve Board that throws workers out of work to meet inflation targets protects the wealth of creditors at the cost of undermining the bargaining power of workers.
These and other areas of public policy are the key factors determining the relative well-being of the rich and the rest of us. As long as we are obsessed with a discussion of whether the Bush tax cuts to the wealthy will continue, the policies responsible for the bulk of the upward redistribution over the last three decades will never be discussed. The current debate may be good news for President Obama’s re-election prospects, but it is not a positive development for those who don’t like to see the perpetuation of government policies that redistribute money upward. (Yes, this is all a plug for my free book, The End of Loser Liberalism: Making Markets Progressive.)
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Morning Edition had a segment this morning in which it touted new research from John List, a University of Chicago economist, that found that student test scores rose the most when teachers were given a bonus at the start of the year which they would lose, if their students didn’t score at a certain level. The argument is that teachers will more fear losing money they have already received than they value getting a bonus at the end of the year.
While this is an interesting result, there is an important problem with this approach that was not mentioned in the discussion (apart from issues raised about teachers teaching to tests). In general, workers do not like pay systems where their pay can be cut in ways that are unpredictable. (Test results are highly erratic, even the best teachers often have classes that do poorly.)
It is likely that if school systems had pay structures where the pay of teachers who did not meet certain standards was retroactively cut by 5-10 percent at the end of the year, they would have a more difficult time attracting teachers. This means that schools would have to offer higher average pay to attract the same teachers. Whether or not the higher pay offset whatever benefits came from this mechanism for structuring compensation would have to be examined, but it certainly is not obvious that it would.
Morning Edition had a segment this morning in which it touted new research from John List, a University of Chicago economist, that found that student test scores rose the most when teachers were given a bonus at the start of the year which they would lose, if their students didn’t score at a certain level. The argument is that teachers will more fear losing money they have already received than they value getting a bonus at the end of the year.
While this is an interesting result, there is an important problem with this approach that was not mentioned in the discussion (apart from issues raised about teachers teaching to tests). In general, workers do not like pay systems where their pay can be cut in ways that are unpredictable. (Test results are highly erratic, even the best teachers often have classes that do poorly.)
It is likely that if school systems had pay structures where the pay of teachers who did not meet certain standards was retroactively cut by 5-10 percent at the end of the year, they would have a more difficult time attracting teachers. This means that schools would have to offer higher average pay to attract the same teachers. Whether or not the higher pay offset whatever benefits came from this mechanism for structuring compensation would have to be examined, but it certainly is not obvious that it would.
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The NYT article on the decision by the Obama administration to file a WTO case against China told readers that the subsidies in dispute come to at least $1 billion since 2009. By comparison, China has exported $56 billion of car parts over this period. This implies that the subsidies have been around 2 percent of the price of the goods.
By comparison, if the dollar is 20 percent over-valued against the yuan, this would imply an effective subsidy of 20 percent of the price. In this case, the impact of an over-valued currency would be an order of magnitude larger than the impact of what the Obama administration claims are illegal subsidies.
The NYT article on the decision by the Obama administration to file a WTO case against China told readers that the subsidies in dispute come to at least $1 billion since 2009. By comparison, China has exported $56 billion of car parts over this period. This implies that the subsidies have been around 2 percent of the price of the goods.
By comparison, if the dollar is 20 percent over-valued against the yuan, this would imply an effective subsidy of 20 percent of the price. In this case, the impact of an over-valued currency would be an order of magnitude larger than the impact of what the Obama administration claims are illegal subsidies.
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Since we seem destined to have a national debate on the topic of government freeloaders in the wake of the Romney fundraising video, it might be worth asking how we think about someone getting hundreds of thousands of dollars a year for sitting on a corporate board for which they did little obvious work. Erskine Bowles, a possible future Treasury Secretary, is of course the poster child for such people.
Mr. Bowles has earned millions of dollars sitting on corporate boards over the last decade. The stock prices of the companies on whose boards he sat have mostly plummeted. Since 2003 the Erskine Bowles stock index has lost more than one third of its value. By comparison, the S&P 500 has risen by more than 50 percent. If Mr. Bowles was trying to serve shareholders, he has not done a very good job.
If people think that this is a private matter, with Mr. Bowles just ripping off shareholders while Governor Romney’s freeloaders are ripping off taxpayers, think again. One of the companies on whose board Mr. Bowles sat, General Motors, went bankrupt with substantial costs to the government. Another, Morgan Stanley, would have gone bankrupt without extraordinary assistance from the Fed and Treasury, which continues to this day in the form of implicit too big to fail insurance.
So, if we want to have a debate about people who freeload on the rest of the country, we should have folks like Erskine Bowles at center stage. Of course he is in a much higher income bracket than the folks who get Social Security or unemployment insurance from the government, but that fact should not be allowed to color the debate.
Since we seem destined to have a national debate on the topic of government freeloaders in the wake of the Romney fundraising video, it might be worth asking how we think about someone getting hundreds of thousands of dollars a year for sitting on a corporate board for which they did little obvious work. Erskine Bowles, a possible future Treasury Secretary, is of course the poster child for such people.
Mr. Bowles has earned millions of dollars sitting on corporate boards over the last decade. The stock prices of the companies on whose boards he sat have mostly plummeted. Since 2003 the Erskine Bowles stock index has lost more than one third of its value. By comparison, the S&P 500 has risen by more than 50 percent. If Mr. Bowles was trying to serve shareholders, he has not done a very good job.
If people think that this is a private matter, with Mr. Bowles just ripping off shareholders while Governor Romney’s freeloaders are ripping off taxpayers, think again. One of the companies on whose board Mr. Bowles sat, General Motors, went bankrupt with substantial costs to the government. Another, Morgan Stanley, would have gone bankrupt without extraordinary assistance from the Fed and Treasury, which continues to this day in the form of implicit too big to fail insurance.
So, if we want to have a debate about people who freeload on the rest of the country, we should have folks like Erskine Bowles at center stage. Of course he is in a much higher income bracket than the folks who get Social Security or unemployment insurance from the government, but that fact should not be allowed to color the debate.
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We know that the Washington Post’s editors really liked the report produced by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson, the co-chairs of President Obama’s deficit commission, but that should not be a reason to misrepresent the report to readers. An article today referred to the report as “the report of the Simpson-Bowles deficit-reduction commission.”
Of course there was no report approved by the commission. According to the commission’s by-laws, a report would need the vote of 14 members to be approved. There was no report that received 14 votes, therefore there is no report from the commission. The Post is substituting its wishful thinking for the truth.
We know that the Washington Post’s editors really liked the report produced by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson, the co-chairs of President Obama’s deficit commission, but that should not be a reason to misrepresent the report to readers. An article today referred to the report as “the report of the Simpson-Bowles deficit-reduction commission.”
Of course there was no report approved by the commission. According to the commission’s by-laws, a report would need the vote of 14 members to be approved. There was no report that received 14 votes, therefore there is no report from the commission. The Post is substituting its wishful thinking for the truth.
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Thanks to the liberal media most of the public probably has not heard about President Obama’s big tax hike on working people, Dennis Cauchon at USA Today is on the case. Just 16 days into his term in office, President Obama signed a bill that raised a tax that primarily hits working people. To date this tax hike has meant more than $30 billion out of taxpayers’ pockets.
If you missed this one, it’s probably because you don’t smoke. Obama raised the tobacco tax. It had the effect of leading to a sharp decline in smoking, with the number of smokers down by close to 3 million since 2009.
This sort of tax is always a mixed bag. There are many people who are genuinely hooked on cigarettes and are already struggling to pay their bills. Making their lives more difficult can’t be a good thing.
On the other hand, insofar as higher cigarette prices get people to stop smoking or even better keeps them from ever starting, it’s hard not to see that as a huge positive. Millions of people will enjoy longer healthier lives because of this tax increase. That’s certainly good news.
Anyhow USA Today deserves credit for giving this one some attention. It matters a lot more than many other items that have arisen in the presidential campaign.
Thanks to the liberal media most of the public probably has not heard about President Obama’s big tax hike on working people, Dennis Cauchon at USA Today is on the case. Just 16 days into his term in office, President Obama signed a bill that raised a tax that primarily hits working people. To date this tax hike has meant more than $30 billion out of taxpayers’ pockets.
If you missed this one, it’s probably because you don’t smoke. Obama raised the tobacco tax. It had the effect of leading to a sharp decline in smoking, with the number of smokers down by close to 3 million since 2009.
This sort of tax is always a mixed bag. There are many people who are genuinely hooked on cigarettes and are already struggling to pay their bills. Making their lives more difficult can’t be a good thing.
On the other hand, insofar as higher cigarette prices get people to stop smoking or even better keeps them from ever starting, it’s hard not to see that as a huge positive. Millions of people will enjoy longer healthier lives because of this tax increase. That’s certainly good news.
Anyhow USA Today deserves credit for giving this one some attention. It matters a lot more than many other items that have arisen in the presidential campaign.
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Bill Gates is a huge beneficiary of government largess. So are Pfizer and Merck. If you don’t immediately understand why, then you haven’t been reading BTP enough.
Gates and Microsoft are incredibly wealthy because of the copyright and patent monopolies given to them by the government. Without these government enforced monopolies, we would all be getting Windows and Word for free (they’re worth it). The same applies to Pfizer and Merck. These companies’ drugs would be selling for $5 per prescription if we had a free market in prescription drugs. Government patent monopolies make drugs expensive and allow drug companies and select high level employees to get very rich.
There are many other ways in which the government structures markets that advantage some groups within society to the detriment of others. The financial sector presents many other obvious examples with its too big to fail insurance and enormous bailouts of the last few years that kept the Wall Street giants from going belly up.
The response to Governor Romney’s now famous comment about the 47 percent of households who freeload on the government is causing an enormous distraction. The tax and benefit sides of the ledger are the least important way in which the government affects the distribution of income. The far more important route is how the government structures markets to affect the before tax distribution of income.
This affects every area of the economy. For example, Chicago Mayor Rahm Emanuel is now trying to use the power of the government to throw striking teachers in jail if they continue their strike. Trade policy for the last three decades has been designed to undermine the bargaining power of manufacturing workers, as has been the high dollar policy that is a legacy of the Clinton years. The failure of the Fed to act more aggressively to try to boost the economy is denying tens of millions of workers employment or full-time employment at decent wages.
The list of ways in which government policy affects the pre-tax distribution of income is long. (Read my free book, The End of Loser Liberalism: Making Markets Progressive to get the whole story.) The leadership of both parties would like to keep the public’s focus exclusively on explicit tax and transfer policy, but this is just for children. The real story is what lies behind the curtain.
Bill Gates is a huge beneficiary of government largess. So are Pfizer and Merck. If you don’t immediately understand why, then you haven’t been reading BTP enough.
Gates and Microsoft are incredibly wealthy because of the copyright and patent monopolies given to them by the government. Without these government enforced monopolies, we would all be getting Windows and Word for free (they’re worth it). The same applies to Pfizer and Merck. These companies’ drugs would be selling for $5 per prescription if we had a free market in prescription drugs. Government patent monopolies make drugs expensive and allow drug companies and select high level employees to get very rich.
There are many other ways in which the government structures markets that advantage some groups within society to the detriment of others. The financial sector presents many other obvious examples with its too big to fail insurance and enormous bailouts of the last few years that kept the Wall Street giants from going belly up.
The response to Governor Romney’s now famous comment about the 47 percent of households who freeload on the government is causing an enormous distraction. The tax and benefit sides of the ledger are the least important way in which the government affects the distribution of income. The far more important route is how the government structures markets to affect the before tax distribution of income.
This affects every area of the economy. For example, Chicago Mayor Rahm Emanuel is now trying to use the power of the government to throw striking teachers in jail if they continue their strike. Trade policy for the last three decades has been designed to undermine the bargaining power of manufacturing workers, as has been the high dollar policy that is a legacy of the Clinton years. The failure of the Fed to act more aggressively to try to boost the economy is denying tens of millions of workers employment or full-time employment at decent wages.
The list of ways in which government policy affects the pre-tax distribution of income is long. (Read my free book, The End of Loser Liberalism: Making Markets Progressive to get the whole story.) The leadership of both parties would like to keep the public’s focus exclusively on explicit tax and transfer policy, but this is just for children. The real story is what lies behind the curtain.
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The NYT had an editorial discussing how unprepared most workers are for retirement. While most of the points in the piece are well-taken, it would have been worth saying a bit about homeownership, since housing equity is the main source of wealth for most middle income people.
Many families were badly burned by buying a home in the middle of the housing bubble. So-called experts who should have known better and warned people, didn’t. This should have people very very angry.
However even in more normal times homeownership is not the slam dunk investment that its proponents claim. First, there are large transactions costs associated with buying and selling a home, typically around 10 percent of the purchase price. This means that anyone who cannot anticipate being in the same place for at least 5 years is almost certainly better off renting.
Even over the longer term homeownership is hardly risk free. In many areas where the economy is not diversified, if the major industry goes down, house prices will plummet with it. In this case, owning a home is sort of like putting all your savings in your employers stock. There are a lot of unemployed autoworkers in the Detroit area who have a home that is now worth $15,000-$20,000.
In short, there is a lot of silliness about homeownership that really needs to be attacked. Homeownership might be the dream of realtors, builders, and mortgage bankers, but that doesn’t make it the American Dream. And remember, anyone who tells you not to worry about house prices because “you can always live in your home,” is really trying to tell you that they don’t have a clue what they are talking about.
The NYT had an editorial discussing how unprepared most workers are for retirement. While most of the points in the piece are well-taken, it would have been worth saying a bit about homeownership, since housing equity is the main source of wealth for most middle income people.
Many families were badly burned by buying a home in the middle of the housing bubble. So-called experts who should have known better and warned people, didn’t. This should have people very very angry.
However even in more normal times homeownership is not the slam dunk investment that its proponents claim. First, there are large transactions costs associated with buying and selling a home, typically around 10 percent of the purchase price. This means that anyone who cannot anticipate being in the same place for at least 5 years is almost certainly better off renting.
Even over the longer term homeownership is hardly risk free. In many areas where the economy is not diversified, if the major industry goes down, house prices will plummet with it. In this case, owning a home is sort of like putting all your savings in your employers stock. There are a lot of unemployed autoworkers in the Detroit area who have a home that is now worth $15,000-$20,000.
In short, there is a lot of silliness about homeownership that really needs to be attacked. Homeownership might be the dream of realtors, builders, and mortgage bankers, but that doesn’t make it the American Dream. And remember, anyone who tells you not to worry about house prices because “you can always live in your home,” is really trying to tell you that they don’t have a clue what they are talking about.
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