Public Policy and Governance – Page 94

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.

Comments

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?

Comments

The “Do Nothing” Senate

The 80th United States Congress met during the third and fourth years of Harry Truman’s presidency, from 1947-49. Republicans had a majority in both chambers. Truman famously nicknamed it the “Do Nothing Congress” and, during the 1948 election, campaigned as much against that “do nothing” body as he did against Dewey–and the strategy worked. Truman won, and the GOP lost nine seats in the Senate and 73 seats in the House.

Ironically, next to the sorry lot “serving” in today’s Senate, the 80th actually looks pretty good. It passed a total of 906 bills, including the Marshall Plan and the Taft–Hartley Act. It had, however, opposed most of Truman’s Fair Deal bills, and he was able to turn that opposition into electoral victory.

Fast forward to 2021. As a newsletter from the New York Times noted,

When Republicans controlled the White House and Congress in 2017 and 2018, the only major legislation they passed was a tax cut, and the only other big bill that came close was a repeal of Obamacare, without a replacement.

When Donald Trump ran for re-election, the party did not write a campaign platform.
During Barack Obama’s presidency, and now Biden’s, Republicans have almost uniformly opposed significant legislation, be it on health care, climate change, Wall Street regulation or economic stimulus.

As President Biden has pointed out, his proposed legislation has broad bipartisan support–among voters. It’s only among members of our genuinely “do nothing” Congress that it has encountered intransigent opposition.

Admittedly, the GOP is far from a “do nothing” party at the state and local level–and what the party is doing there makes it more accurately the “do nothing good” party. State-level GOP lawmakers have engaged in multiple, unprecedented attacks on the right to vote, filing more than 360 bills to restrict voting–everything from proposals to make mail-in voting harder, to turning minor voting errors into criminal offenses. According to one report, Michigan is even trying to stop the state’s top election official from providing a link to an absentee ballot application on a state government website.

If the United States was experiencing a period of widespread prosperity and tranquillity, a pause in legislative activity might be justifiable. There is no virtue in passing laws simply to look busy. But that is hardly the case. Substantial majorities of Americans–in both parties–identify pressing issues. Their priorities may differ, and they are proposing very different “fixes” for the issues they agree upon, but virtually all Americans believe that Congress needs to negotiate in good faith, compromise where possible, and act.

The reason for GOP intransigence is simple: for several years, Republicans in Congress have elevated party over nation. A Politico article from 2016 included a quote by former GOP Senator Voinovich that has been widely reported.It pretty much tells the tale.

Starting in 2009, the Republicans in Congress adopted a simple, coherent strategy of resisting anything Obama proposed. “If he was for it,” said former Ohio Senator George Voinovich, “we had to be against it.” No Republican senators and no House Republicans voted for the Affordable Care Act. After 2012, with healthy majorities, Republicans voted to repeal the law dozens of times, with no hope that such moves would have any effect other than to register opposition. The near debt default in 2011 to the Ted Cruz-led shutdown in 2013 to the current refusal to hold hearings for the Supreme Court seat vacated by Antonin Scalia’s death have continued that trend.

Today’s GOP is so radicalized, and its voters so misinformed (polls find that some two-thirds of self-identified Republicans think Trump won the election, despite a total lack of any credible evidence) that a Biden campaign modeled after Truman’s probably wouldn’t resonate. But it might be worth a try.

History–assuming America gets to have a history–will not be kind to the venal and self-interested poseurs occupying the halls of Congress. As Jennifer Rubin recently wrote in the Washington Post,

The Republican Party is descending into know-nothingism and nativism because of the silence of Republicans who know better. House Minority Leader Kevin McCarthy (R-Calif.) knows that November’s election was not fraudulent and that the disgraced former president incited the Jan. 6 insurrection. McCarthy is simply too cowardly to say so. Sen. Ted Cruz (R-Tex.) knows this, too; he just is too craven and ambitious to admit it. Instead of working on the country’s problems, he spends his time lashing out at Major League Baseball for opposing voter restrictions.

These pathetic excuses for public servants make the members of Truman’s “do nothing” Congress look like towering statesmen by comparison.

Comments

For Goodness Sakes, Indiana!

A couple of years ago, Indiana geniuses came up with the motto “Honest to goodness, Indiana!” After reading this scorching–and utterly accurate–description of what passes for governing in my state, I think that motto should be “For goodness sakes, Indiana!”

The article by Aaron Wren in Governing magazine looked at the traditional Red state tactics that brought disaster to Kansas and failed to improve economies in Red states generally. When Wren focused on Indiana, he laid out the state’s current status and the roots of our declining wellbeing.

Or look at Indiana. It has had Republican governors since 2005 and full Republican control of the state for over a decade. Its leadership loves to boast that its growth rate in population and jobs beats surrounding states, but that’s a low hurdle to jump. In reality, most of Indiana is stagnating or declining. Over half of the state’s counties are losing population, and the forecast for the prime working age population is grim: Virtually the entire state is projected to have a declining workforce in coming years. Indiana’s per capita income is only 86.2 percent of the national average, and that’s lower than it was when the GOP took over the governorship and the Legislature. Under Republican management, the state started out poor and got even poorer.

Why these poor results in states with the full panoply of red state best practices? It’s because the entire philosophy of governance in Kansas, Indiana and quite a few other Republican states is based on a fundamentally mistaken view of progress. Rather than investing to build up the skills and enhance the well-being of their citizens, they engaged in a race down to the bottom as a strategy to attract corporations.

Wren doesn’t simply make an assertion–he provides examples.

When local media reported on the horrific situations faced by many local renters, Indianapolis responded by passing an ordinance that required landlords to provide tenants with a list of their rights– including the right to have “functional plumbing, safe wiring and heat in the winter.” Indiana’s legislature just overturned that ordinance, as part of the legislature’s ongoing refusal to respect local control, and–as Wren says–at the behest of the property owners’ lobby.

Indiana is a great place to be a slumlord, but not such a good place to be a citizen who rents.

The article points out that this example is just one of many. The state’s nursing home industry has so many negatives, it has become, Wren says, “a giant scam.” He recounts how hospitals in the state used ownership of nursing facilities to overbill Medicare and siphon over a billion dollars from those homes. The money was used to fund building projects and generous salaries for hospital executives. Meanwhile, Indiana ranks 48th in nursing home staffing, and more than 20 percent of nursing home patients with COVID died (the national rate is 13 percent).

How did our legislature respond? It passed a bill providing expansive immunity from liability for nursing homes and other businesses.

In addition to overturning tenant protections, Indiana has flirted with canceling a transit expansion in Indianapolis that has been supported overwhelmingly by the voters, and gutted a bill that would have required employers to provide basic accommodations to pregnant women. (Expectant mothers can now ask for accommodations, but employers don’t have to actually provide any). Perusing the list of bills working their way through the state Legislature, it’s hard to see much that could even plausibly make a material improvement in the life of Hoosier citizens.

Wren points out that the most important factor in attracting high-wage employers is the availability of a skilled labor force – talent. What he doesn’t mention is the Indiana legislature’s continuing assault on public education, and the negative effects of that assault on efforts to produce a skilled labor force. Instead, the Republicans who have dominated state government continue to siphon dollars from public schools in favor of private, mostly religious schools via the nation’s largest voucher program.

Aaron Wren is no bleeding-heart liberal. When he lived in Indianapolis, I knew him slightly, and followed his observations on local governance. He was pro-business in the better sense of that term, supportive of governance that created a business-friendly environment, but highly critical of the crony capitalism that continues to characterize Republican politics in Indiana.

So long as Indiana’s gerrymandered districts continue to weight rural votes over urban ones, we will continue to rank among the bottom of states in numerous categories, and we’ll continue to have what the late Harrison Ullmann called “the world’s worst legislature.”

For goodness sakes, Indiana!

Comments

Stiglitz On The Environment

Today, I’m largely turning this blog over to Joseph Stiglitz, Nobel-prize winning economist who heads up economic research at the Roosevelt Foundation. Stiglitz recently testified before the Senate Budget Committee on what he–and President Biden–have both correctly termed an existential threat: climate change.

The following are excerpts from that testimony.The entire presentation is at the link.

Thank you for this opportunity to share with you some of my concerns about the large economic costs and huge risks of not taking strong actions now to deal with climate change, and the large benefits of doing so.

Some of the downside risks are already apparent. In one recent year, the magnitude of destruction associated with extreme weather events—which will inevitably occur more frequently, with ever more devastation as a result of climate change—was more than 1.5% of GDP, effectively wiping out more than 60% of the growth of that year.1 But this is only one dimension of what is occurring: Rising sea level will put much coastal property under water, destroying homes and property values. Forward-looking markets have already begun to price this in—but still far from adequately.2 3

Recent studies have documented the adverse effects of climate change on health.4 We pay for this in multiple ways, including higher health care costs and a less healthy population, which means a less productive workforce. But there is no way to accurately monetize the shorter life spans and the increased morbidity….

There are, of course, some sectors, some parts of our population, some locations that will be particularly hard hit. During the past year, we have seen the inequities associated with Covid-19. Those associated with climate change are equally severe, with people at the bottom of the income ladder often bearing the brunt of the costs, with fewer resources to respond. But there is an additional dimension of inequity that speaks to our future: While Covid-19 disproportionately affected older Americans, climate change is a risk that we impose on our children and grandchildren—on the future of our country….

Let me spend a few moments discussing the real risks our economy and society face if we do not take stronger actions than we have so far. We have been treating truly scarce resources, our environment, our water, our air, as if they were free. But economics teaches us that there is no such thing as a free lunch. We will have to pay the check someday. And delay is costly. Taking carbon out of the atmosphere is far more expensive than not putting it into the atmosphere. A smooth transition is far less costly than the one we will surely face if we do not take action urgently….

The longer we delay dealing with climate change, the larger the necessary adjustments will be, and the greater the potential for huge economic disruption—an economic disruption that could make the 2008 Great Recession look like child’s play by comparison.6 The danger of a crash is particularly acute for the U.S. economy, given that large U.S. banks are the largest financiers of fossil fuel….

Economics has, for good reason, been called the dismal science. The scenario of doom and gloom that I have painted is, unfortunately, all too real. But I want to end on a sunnier note. Doing something about climate change could be a real boon for the economy.

Too often, critics of taking action point to the job losses. Change is costly. But change provides opportunity. I am also firmly convinced that the opportunities afforded by addressing climate change are enormous. The number of jobs that will be lost in the old fossil fuel industries are dwarfed by those that will be created in the new industries. The value created in the new industries will also dwarf the value of the stranded assets in the fossil fuel and related sectors. As just two examples: the number of installers of solar panels already is a multiple of the number of coal miners; the auto company with the highest valuation today is Tesla…

The current focus on changing to a green economy is already stimulating enormous innovation, innovation that holds out the promise of significant increases in standards of living. The price of renewable energy has been plummeting, and in many areas outcompetes fossil fuels. The drive for a greener society is stimulating the design of new buildings and new ways of doing agriculture, which turn out actually to save resources, particularly if we value them appropriately….

Our country especially has much to gain, because innovation is a key comparative advantage. If we are ahead of the game—rather than a laggard—we will develop technology that will be in demand around the world. If we are behind the game, we will pay a high price. It is almost inevitable that other countries will demand cross-border adjustments that will put our companies at a disadvantage….

There is much more to be done to protect the economy from the risks I have described. For instance, we need immediately to end fossil fuel subsidies and require full disclosure of climate risks—both the risks of physical damage and the financial risks. Markets on their own don’t provide adequate disclosure, necessary both for the efficient allocation of scarce capital and for protecting investors. We need to change statutes governing fiduciary responsibility to mandate looking at these long-run risks, and especially where government is at risk, as in government insurance pension schemes…

There’s much more at the link, and it is definitely worth reading in its entirety.

Comments