Public Policy and Governance – Page 104

Forgiveness

One of the problems inherent in all public policy discussions is the degree to which various aspects of our communal lives are connected–and the even greater degree to which those connections are unseen and/or under-appreciated.

As an example, a recent study from the Brookings Institution detailed the multiple ways in which student loan debt affects Americans, and illustrates the way lack of understanding of those connections distorts discussion of proposals to forgive at least some portion of it.

There is one element of student debt that is widely understood, of course–its size. In the last quarter of 2020, the Federal Reserve calculated the national student debt at $1.7 trillion, spread across 45 million borrowers. That is a monumental amount, and a monumental burden on both the borrowers and the economy.

Research suggests that forgiveness of some or all of that burden would prompt a variety of economically consequential behaviors–everything from eating out more frequently to making large purchases that the level of debt currently doesn’t permit: houses, cars, appliances and furnishings. Respondents to one survey also cited returning to school, and saving more for emergencies.

In a study cited by Brookings,

Higher amounts of student debt forgiveness were associated with other investment behaviors like starting a business or savings for a down payment on a home, as well as a willingness to spend more on entertainment….

These results [of the study cited] show two things. First, they show how extensively student debt affects debt holders. The responses to this experiment indicate that student debt is strongly influencing decisions that can have large implications for household economic stability (e.g., emergency savings) and mobility (e.g., saving for a down payment on a home, starting a business). In addition, student debt may be altering the structure of families themselves. Roughly 7 percent of respondents reported that they would be more likely to get married (results not shown) or have children if their student debt were forgiven, indicating that this debt burden is affecting even fundamental decisions about debt holders’ life trajectories.

Second, these results show that the level of student debt forgiveness matters. In particular, setting a student debt forgiveness target too low may not lead to broad-based changes in households’ economic behaviors. However, setting a student debt forgiveness amount at a point where the average debt holder would have more than a quarter of their debt forgiven may yield large changes in savings behaviors, human capital investments (e.g., returning to school), and business starts, without leading to large changes in labor supply.

It is undisputed that even a modest amount of debt forgiveness would remove what is currently a large drag on the economy. There are, obviously, other considerations: many people who have dutifully paid off their loans object to what they see as unfairness of giving later-comers relief that was unavailable to them. Others argue that any forgiveness should prioritize low-income borrowers, and avoid “bailing out” higher income folks.

Going forward, my own preference would be to replace the current, complicated student loan environment with a program that pays for at least two years of college in return for a year or two of military or civic service (a la Americorp).

Whatever the policy approach, we need to recognize that debt of 1.7 trillion dollars constitutes an enormous drag on Amreica’s economic growth. It isn’t simply an impediment to business formation–it prevents many individuals from taking lower-paying but gratifying jobs in the nonprofit sector– and it is a significant fiscal and psychic burden to individuals. It has become unsupportable.

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Enforcing The Rule Of Law

Americans spend a lot of time arguing about legislation. For that matter, this blog is predominantly focused on what we call “public policy,” which is essentially a term meaning “laws and regulations.” What tends to get much less attention is an equally important aspect of the rule of law: enforcement.

With the exception of policing–the enforcement of criminal laws–we tend to ignore the behaviors of those who have been authorized to enforce the laws once they’ve been passed. For one thing, it is much harder to ferret out the degree of enforcement. If Congress or a state legislature passes a measure, reporting that fact– or opining about its wisdom– is fairly simple. Figuring out whether the law is being fairly and evenly applied–or applied at all–requires considerably more effort.

Take tax law. Bills to raise or lower taxes receive widespread reporting and discussion. But enforcement–or the lack thereof–is equally important, and gets much less attention. When we are talking about taxes, however, there are two equally effective methods for reducing tax liability for the mega-rich: lower rates, and inadequate investigation and application of those rates. When staff levels at the IRS are kept too low, when the agency lacks the ability to audit more than a handful of returns, the millionaires and billionaires can be confident that the odds favor the significant success of various tax avoidance ploys.

President Biden has moved to beef up IRS’ staffing, which has been decimated by the former guy’s administration, and six former IRS commissions have applauded that move in a column for The Washington Post.They provide the context.

As former IRS commissioners, we know the challenges of administering the tax system, which has grown in size and complexity, particularly in recent years.

Yet, during the past decade, budget cuts have substantially diminished the IRS workforce. In real terms, the IRS budget is smaller than it was in 2010, and it has 21,000 fewer employees. The IRS has fewer auditors today than at any time since World War II. Moreover, the agency has struggled to keep pace as complicated tax structures, such as partnerships and pass-throughs, have grown in popularity. Workforce attrition has been most pronounced among agents who examine these complicated tax filings: Thirty-five percent fewer revenue agents handle these returns today than a decade ago.

Their essay goes on to remind readers that, despite its reduced workforce, the IRS has seen its responsibilities increase. The agency administers significant provisions of the Affordable Care Act, and during the pandemic, it has been the IRS that has delivered three rounds of federal payments to hundreds of millions of taxpayers. Now, the agency is preparing to deliver periodic payments of the recently-enacted expanded child tax credit.

Thanks to its expanding authority and reduced staffing, the former commissioners report that

There has also been a substantial decline in enforcement scrutiny of high-earners and large corporations with complex returns: Audit rates for millionaires have fallen more than 70 percent since 2011; audits of large corporations decreased from essentially 100 percent a decade ago to less than 50 percent, according to the most recent IRS estimates.

This situation is no fault of the IRS or its committed workforce, who are dedicated to fair implementation of the tax code and the strongest possible support for taxpayers. Provided appropriate resources, the IRS can make good on its commitments.

The former Commissioners agree that the changes and additional resources that President Biden proposes would “produce a great deal of revenue by reducing the enormous gap between taxes legally owed and taxes actually paid — much of it through increased voluntary compliance.”

The Biden proposal includes provisions on third-party reporting, leveraging information from financial services providers to learn basic information about account inflows and outflows. This information could assist taxpayers in filing accurate returns and help the IRS better focus collection efforts. Research shows that when the IRS has access to third-party reporting, compliance rates top 95 percent. Without third-party information reporting, compliance rates are below 50 percent. Reliable information is critical to an effective and fair tax system.

The statistics cited in the essay demonstrate the importance of effective enforcement. It isn’t simply tax rates that favor the rich–lax enforcement costs an enormous amount that the rest of us must make up. Estimates are that uncollected taxes from those sources are equal to the total taxes paid by the lower 90 percent of individual taxpayers.

It is long past time to give the IRS the resources it needs to ensure that corporations and billionaires pay their taxes. If enforcement is fair across the board, the rest of us will feel a lot better about paying ours.

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Is Resistance Futile?

In the wake of the 2016 Presidential election, we saw a battle among figures in what the late Molly Ivins called “the chattering classes” over the nature of Trump’s support. Nice people who want to think well of their fellow Americans identified economic insecurity, while not-so-nice others (including me) attributed the bulk of Trump votes to racism.

The ensuing research validated the racism connection, but of course, neither interpretation explained all votes or described all motives. It turned out that most Trump voters were not economically insecure, and researchers confirmed that “racial resentment” was the most robust predictor of Trump support, but there was one group for which economic insecurity was a motivating factor–prior Obama voters who switched to Trump. And the source of that insecurity was the steady increase in automation and AI–artificial intelligence.

Thomas Edsall reports on a recent study of –as he puts it–an “era in which vast swaths of the population are potentially vulnerable to the threat — or promise — of a Fourth Industrial Revolution.”

This revolution is driven by unprecedented levels of technological innovation as artificial intelligence joins forces with automation and takes aim not only at employment in what remains of the nation’s manufacturing heartland, but increasingly at the white collar, managerial and professional occupational structure.

The technological innovations we’ve experienced have ushered in an economy that rewards college-educated workers and disadvantages others, contributing to economic inequality. The scholars Edsall quotes predict that these advances in technology are likely to create additional social upheaval as they steadily affect the future of jobs.

Researchers find that exposure to automation correlates with support for Trump.

The strong association of 2016 Electoral College outcomes and state automation exposure very much suggests that the spread of workplace automation and associated worker anxiety about the future may have played some role in the Trump backlash and Republican appeals.

The study Edsall cites found that so-called “heartland states” like Indiana and Kentucky, both of which have heavy manufacturing histories and low educational attainment,

contain not only the nation’s highest employment-weighted automation risks, but also registered some of the widest Trump victory margins. By contrast, all but one of the states with the least exposure to automation, and possessing the highest levels of educational attainment, voted for Hillary Clinton.

That gets us back to the relationship between populism and automation. Edsall quotes an economist at Harvard’s Kennedy School, who studied those Obama-to-Trump voters.

Switchers to Trump are different both from Trump voters and from other Obama voters in identifiable respects related to social identity and views on the economy in particular. They differ from regular Trump voters in that they exhibit greater economic insecurity, do not associate themselves with an upper social class and they look favorably on financial regulation. They differ from others who voted for Obama in 2012 in that they exhibit greater racial hostility, more economic insecurity and more negative attitudes toward trade agreements and immigration.

In my last book, I addressed the threat automation poses to millions of jobs, and cautioned that humans tend to get meaning and purpose from employment. Edsall quotes from a 2017 paper in which economists Anton Korinek and Joseph E. Stiglitz went further, warning that artificial intelligence has the potential to create a high-tech dystopian future.

Without extraordinary interventions, Korinek and Stiglitz foresee two scenarios: both of which could have disastrous consequences:

In the first, “man and machine will merge, i.e., that humans will ‘enhance’ themselves with ever more advanced technology so that their physical and mental capabilities are increasingly determined by the state of the art in technology and A.I. rather than by traditional human biology.”

Unchecked, this “will lead to massive increases in human inequality,” they write, because intelligence is not distributed equally among humans and “if intelligence becomes a matter of ability‐to‐pay, it is conceivable that the wealthiest (enhanced) humans will become orders of magnitude more productive — ’more intelligent’ — than the unenhanced, leaving the majority of the population further and further behind.”

In the second scenario, “artificially intelligent entities will develop separately from humans, with their own objectives and behavior, aided by the intelligent machines.”

Unlike the Borg, Korinek and Stiglitz do not conclude that resistance to these possible consequences is futile. Instead, they advocate for government intervention and redistribution to counter the threats, leading Edsall to conclude with “the” question:

If fully enacted, could Biden’s $6 trillion-plus package of stimulus, infrastructure and social expenditure represent a preliminary step toward providing the social insurance and redistribution necessary to protect American workers from the threat of technological innovation? Can spending on this scale curb the resentment or heal the anguish over wrenching dislocations of race, culture and class?

I guess we’ll see.

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The Great Compression

In a recent newsletter, Paul Krugman referenced a 1991 economics paper in glowing terms. He said that he’s read many economics papers during his career, but very few that changed the way he sees the world.

This one, evidently, did.

Krugman began his discussion by reminiscing; as a Baby Boomer, he’d grown up at a time when extremes of wealth and poverty were far less pronounced than they are these days–a time when middle managers and better-paid blue-collar workers were more or less financial equals. It was a time, as he reminds us, when C.E.O.s of major companies were paid “around 20 times as much as the average worker, compared with more than 200 to 1 today.”

Although female and Black workers certainly weren’t equal, the extremes of wealth we see today–the enormous gap between the rich and the rest– were inconceivable, and the middle class was substantial. (I still remember a long-ago political science class that attributed national stability to the existence of a sizable middle-class, among other things.)

And we took it for granted. A more or less middle-class society, almost everyone assumed, was the state toward which an advanced economy naturally evolved.

Not so much, we learned as the boomers turned middle-aged. The future of inequality wasn’t what we expected it to be; America today has more or less returned to Gilded Age disparities in income and wealth.

The question, of course, is “why did this happen? Why isn’t the future of inequality what we expected?

The paper he was praising–“The Great Compression”– was written by Claudia Goldin and Robert Margo, and it showed that, as Krugman put it, America had gone to bed in 1939 in the Gilded Age and woke up in 1945 as the middle-class nation of his childhood, where wages were–as the paper labeled them–“compressed.”

Some of the reasons for that compression of wages are obvious: World War II required a controlled economy. Wage increases were regulated– and the rules tended to be more generous to less well-paid workers. But those rules, and the economic controls, were lifted after the war.

Why didn’t things spring back to where they had been before once wage and price controls had been lifted?

One answer, as Krugman demonstrates, was the emergence of unions.

A strong union movement, it seems, was able to lock in the new wage norms created by the war for several decades after the war was over. And the rise of unions was clearly linked to politics: first the New Deal, then the war, created favorable environments for union organizing.

Another important element was public policy. Policy, as Krugman and many other economists can attest, can shape a fairer, flatter, more inclusive economy.

What does this tell us about the future of inequality? On one side, it’s encouraging: high inequality isn’t something unavoidable, the necessary consequence of implacable technological forces: political action can create a much less unequal society. On the other side, both the politics of the New Deal and, even more so, the policy environment of World War II, were pretty unique. Progressives are, in general, delighted with how activist the Biden administration is proving; but despite Republican cries of “socialism,” its actions are far more modest than what happened in the ’30s and ’40s.

The big question is how much of the Great Compression we can achieve through less dramatic policies, in a political environment where spending one percent of G.D.P. on infrastructure seems radical. No, I don’t know the answer.

Our ability to fashion public policies that reinvigorate and regrow that all-important, stabilizing middle class depends significantly on a widespread recognition of the economic reality that everyone does better when everyone does better.

Even the most creative entrepreneur cannot innovate and profit in the absence of a supportive physical and social infrastructure and enough people with the wherewithal to pay for his product.

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Shame On Indiana–Again

During this year’s session of the Indiana General Assembly, environmental organizations followed–and lobbied against–an effort to roll back Indiana’s already inadequate regulations of the state’s wetlands. As usual, when there is a conflict between science and profit, profit won.

After the bill emerged from the legislative process, 110 organizations and individuals wrote a letter to Governor Eric Holcomb, “respectfully requesting” that he veto it. Governor Holcomb has proved to be far more rational than Republican members of the state legislature–more in the mold of Republicans of days-gone-by– and he had even allowed members of his administration to testify against the bill as it proceeded through the House and Senate, so there was some reason for optimism.

That optimism was dashed. Holcomb is defending his decision to sign the measure by saying that, in its amended form, the bill was less objectionable. Environmental scientists beg to differ, asserting that it ‘puts wellbeing of millions of Hoosiers at risk, now and well into the future.”

Indiana’s existing wetlands law was written in 2003, and it was admittedly due for review and revision now that the state had several years of experience with it. But experts say that rather than improving and fine-tuning the existing law, the changes made by this particular legislation will do “substantial harm to Indiana’s water future.”

According to the environmentalists and other concerned citizens who petitioned Holcomb, the legislation he has now signed puts the vast majority of Indiana’s wetlands–and there are at least 500,000 that are under state rather than federal jurisdiction– in jeopardy. Indiana already ranks fourth among the states with the greatest loss of wetlands . The likely negative results of this measure will be increased flooding and erosion, loss of groundwater recharge and water supplies, water purification, safe recreation and tourism opportunities, and loss of the diverse wildlife that (according to the letter) “makes Indiana special.”

I am sorely tempted to offer some snark about what I think “makes Indiana special,” but I’ll restrain myself. Let’s just say it is neither respect for expertise or appreciation of nature’s bounties…

The signatories to the letter appended background information detailing the function of wetlands, and offering policy alternatives. They should have saved their pixels.

The letter was signed by a diverse number of organizations, as well as by science professors in relevant fields, and–notably–by several Indiana cities and mayors, and by religious organizations. (The latter evidently take seriously the biblical admonition to be “stewards” of the Earth.)

The letter, the list of signatories, and the science-heavy addendum are widely available online, and the addendum, especially, details the science bolstering the very serious concerns expressed. Our legislators, however, have a history of ignoring science (if you doubt that, take a look at the number of medically-inaccurate assertions they’ve included in their various attacks on reproductive choice) and they have routinely privileged the short term economic interests of their supporters over the long term best interests of Indiana citizens.

In this case, according to those who followed the bill, the legislative priority was protection of land developers who might find themselves unable to pave over or otherwise wrest profit from every inch of property they own, even under Indiana’s relatively weak regulations.

Oh, Indiana….will Hoosiers ever grow up?

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