Archive for April, 2014

The Crime of Poverty

Sunday, April 27th, 2014

There was a rich man who dressed in purple garments and fine linen and dined sumptuously each day. And lying at his door was a poor man named Lazarus, covered with sores, who would gladly have eaten his fill of the scraps that fell from the rich man’s table. Dogs even used to come and lick his sores. When the poor man died, he was carried away by angels to the bosom of Abraham. The rich man also died and was buried, and from the netherworld, where he was in torment, he raised his eyes and saw Abraham far off and Lazarus at his side. Luke 16:19-23

There was a cost to income inequality even in Jesus time. This cautionary tale, however, seems to have been forgotten today, just as it was over 2000 years ago.

Income inequality is real and is larger now than in any other time in our industrialized history.

In practical terms, this is the result of government policies which favor the rich.

We’ve already discussed ways that income inequality can be reversed – primarily by reversing the government policies which caused its rise in the first place.

Let’s look for a moment at the other end of the spectrum – the real costs of poverty.

The direct result of concentrating more of the nation’s income in the hands of the wealthy is that less money is going into the hands of the poor.

Less money in the hands of the poor has caused an increase in crime, specifically homicides and robbery in poor neighborhoods. In the 2002 report entitled “Inequality and Violent Crime”, the World Bank says,

Income inequality … has a positive and significant effect on homicide rates … the results for robberies are similar to those for homicides.

AND

…when poverty falls … either because income growth rises or the distribution of income improves, then crimes rates tend to fall.

Seems a simple conclusion – poverty and crime are connected.

But the conservative response based on the “fairness” moral foundation, is that the poor are responsible for their own condition because of bad choices. If they break the law they should go to jail. The reality, however, is that our prisons are now overcrowded with people convicted mostly of non-violent minor drug crimes.

The United States has 25% of the world’s prisoners but only 5% of the world’s population. Incarceration rates over the last 20 years have risen while crime rates have dropped 40%. The direct taxpayer cost is $64B/year. The indirect costs are a generation of primarily minority men who are absent from their families and have difficulty finding work when they have served their time. That’s because, though drug use has no racial preference, 75% of the people in prison for non-violent drug offenses are black.

As a precursor to the rest of this discussion. It costs between $30K and $60K a year to house, feed, and guard each prisoner in our prison population. Roughly 50% of those released from prison will return within three years.

Criminologists have found that the single most effective tool to reduce recidivism is education. If we took the money that we are currently spending to keep non-violent offenders behind bars and spent it instead to provide support for them while they learned the skills necessary to secure a living-wage job, everyone benefits. Everyone, that is, except the corporations who profit from the prison industry.

The prison industry is only one example of the economic forces that are arrayed against the poor. The poor have no control over the economic bias that exists in this country. Their opportunity to change their circumstances is dramatically limited by violence, poor nutrition, poor schools, poor transportation, limited low wage jobs, single parent families, the high cost of child care, and all of the companies who have figured out how to profit from these conditions.

The conservative response is that we shouldn’t “reward” the poor for making bad decisions. Any attempt to level the playing field is regarded by many conservatives as “enabling” poverty rather than empowering the poor. The result is government programs “designed” to encourage work which actually punish the poor for having children. Support, for example, is tied to the number of children in the house rather than adults. But that support does not include the cost of child care and support is reduced by the amount of money earned. So many families find that when the costs of childcare are factored in, they can’t afford to work and also put food on the table. The supports are also not enough to allow one adult to work and the other to stay home with the children. The choice for many single mothers is to kick fathers, who may not be able to find a job because of past criminal records, out to support themselves while they stay home with the kids at least until they are old enough to go to school.

These programs could certainly be improved, But let’s look for just a moment at a more radical solution. What would it cost us as a country to simply eliminate poverty?

It is an intriguing idea. Just provide everyone sufficient support that they are no longer encumbered by the basic issues of survival in our society. Every adult, regardless of their background, is guaranteed a minimum stipend sufficient to support themselves.

In a September 2013 article for the American Prospect, Matt Bruenig stated:

Eradicating or dramatically cutting poverty is not the deeply complicated intractable problem people make it out to be. The dollars we are talking about are minuscule up against the size of our economy.

It would take only 1 percent of GDP, or a fourth of what we spend on defense every year, to lift every American below the poverty line up above it… In 2012, the number was $175.3 billion. That is how many dollars it would take to bring every person in the United States up to the poverty line.

What would happen if everyone in this country suddenly had enough to eat, had a safe place to live, and could afford to work and raise a family?

Violent crime rates would fall. That would save on what we currently invest in medical services, law enforcement, prison systems, and other civic support systems.

Corporations win because without poverty, Americans have more purchasing power. Democrats win because income inequality is credibly addressed. Republicans win due to a combination of reduced government costs and credible fiscal responsibility at all levels of income.

It is a simple, pay me now or pay me later, discussion. The challenge with this discussion, however, is that it touches the conservative moral foundation of “fairness”. Somebody getting something that they didn’t deserve.

Therein lies the fundamental challenge of our political age.

Conservatives believe that poverty in and of itself is a crime. Those who find themselves in poverty have no one but themselves to blame. The hardships associated with poverty are both a just punishment for bad choices as well as the disincentive that the poor need to change their circumstance.

If anyone doubts this, we need look no further than those who defended Mitt Romney after his famous “47%” speech.

In the rest of the Bible story, the rich man, now in eternal torment, begged Abraham that if he couldn’t be saved, at least warn his five brothers who still had time to mend their ways. Sending someone to them from beyond the grave would certainly do the trick.

He said, ‘Then I beg you, father, send him to my father’s house, for I have five brothers, so that he may warn them, lest they too come to this place of torment.’ Luke 16:27,28.

Abraham replied that Moses and the prophets HAVE been warning people.

Then Abraham said, ‘If they will not listen to Moses and the prophets, neither will they be persuaded if someone should rise from the dead.’ Luke 16:31

What we know now is that God did ALSO send someone who DID return from beyond the grave and DID provide the same warning.

Then shall they also answer him, saying, Lord, when saw we thee an hungered, or athirst, or a stranger, or naked, or sick, or in prison, and did not minister unto thee? Then shall he answer them, saying, Verily I say unto you, Inasmuch as ye did it not to one of the least of these, ye did it not to me. And these shall go away into everlasting punishment: but the righteous into life eternal. Matthew 25:44-46

And you know what? Abraham was right, the wealthy and the politicians and voters who support them have not listened to Jesus either.

The choice is really simple.

You can defend the position that poverty is the incentive that the poor need to alter their circumstances – but you do so at great peril to your own salvation.

OR

You can follow Jesus commands, embrace the poor, and generously tend to their needs. Great rewards have been promised those who follow this path.

Economic Resurrection

Saturday, April 19th, 2014

Easter is always a good time to contemplate rebirth. It is no accident that the Catholic Church chose to coopt the spring fertility celebrations with one that celebrates Jesus victory over death.

We have the same opportunity in this country.

We are struggling with some fundamental political differences between liberalism and conservatism. One of the most pervasive conservative ideas that Ronald Reagan popularized, is that government is too big and taxes inhibit economic progress. While that idea has propelled a political movement, it has proven to be a major economic failure. It has left our economy weaker and our government biased in favor of the wealthy.

We’ve built the case that income inequality exists and that it is bad for the economy. We’ve also attributed the historic proportions to which it has grown to government policies advocated by conservative Republicans starting with Ronald Reagan. Finally we’ve outline how this disparity produces a weaker less stable economy than one based on a robust middle class.

Even conservatives who are willing to accept all of the above facts, still respond fatalistically, “So what, that’s the way things are and you can’t change them.”

Here are some suggestions of how we can both narrow the income gap and improve the economy.

To get there we have to first identify two other facts which have acerbated the built-in bias toward the wealthy that became government policy 25 years ago.

Disruptive Technology
The accepted view is that disruptive changes in technology resulted in large job displacement. As a result, we now have a large mismatch between opportunities and skills. The reality is somewhat more nuanced, as Paul Krugman points out. When you look at the salary numbers for high skill tech jobs, they don’t reflect the sort of price pressure that one would normally expect if demand was outstripping supply. What we see instead is companies building the case for bringing in more foreign workers primarily from India and China. These workers are willing to work these jobs at lower wages which ends up holding down wages for the whole sector. So the reality is that technology is disruptive, but its major disruption is not that there aren’t enough qualified workers. It’s major disruption is that while productivity is increasing, the human contribution to overall output of our economy is decreasing. This has allowed companies to downsize their workforce which allows them to hold wages steady while increasing their profits. This results in a DECREASING share of profits going to working wages. Instead that money funds the outrageous growth in CEO salaries.

Globalization
Productivity gains through primarily robotics has made domestic manufacturing competitive with off shore low wage alternatives. So manufacturing is actually coming back to this country. But the reality is that we are now competing in a global market and must match the investments that our competitors in India and China are making in both education and infrastructure. That’s because our edge today in robotic manufacturing is not sustainable. Both education and infrastructure investments have suffered during this 25 year reign of government downsizing.

Income inequality makes these problems worse because the interests of the wealthy no longer align with the welfare of the nation.

Tax Wealth
This is the first and most obvious change that has to occur. Our problems began when the electorate was told that government was the problems and low taxes would revive the flagging American spirit. The only thing that low taxes did was increase the debt and create a new class of wealthy people.

We have to make education easier to obtain for everyone regardless of income. We have to make huge investments in our neglected crumbling infrastructure in order to remain globally competitive. We also have to continue to reform our healthcare system so that costs to care for our aging population don’t cripple our economy.

The first and most obvious way to do this is to increase taxes on those with the most disposable income.

Strengthen Unions
The reason that wages have stagnated for the middle class is that workers no longer have the power that they once did to bargain for a fair share of the profits corporations gained from their labor.

Hopefully the Reagan idea that free markets will fairly distribute economic rewards of productivity can finally be put to bed. One only needs to look at the huge gains that CEO’s have made at the expense of everyone else. Stronger unions will re-balance the huge advantages that corporations have gained over the last 25 years both in the marketplace and in politics.

Tax Bigness
Thanks to conservative judges sitting on the Supreme Court, anti-trust laws are no longer a protection against corporations becoming too big to fail. The numbers also prove that the biggest companies actually increase unemployment and reduce innovation. A tax that punishes companies from becoming too big would encourage companies break themselves up into smaller entities. Those smaller entities make our economy more robust and innovative.

Externalities
Externalities are those costs that companies pass on to the tax payer. When corporations pollute the air or water, generally tax payers foot the cleanup bill. We need a taxation system that fully burdens corporations and the wealthy for all of the costs that they create at the time that they create them. This includes carbon taxes for those companies that use fossil fuels. It includes infrastructure costs for those companies or wealthy individuals that choose to develop properties where there are no roads, sewers, or schools. It includes the environmental impacts of all extractive industries. It includes the costs that local economies suffer when large employers relocate. Changing the economics of how we deal with externalities will serve as a valuable foundation for addressing the serious costs of climate change mitigation.

Strengthen the Social Safety Net
This isn’t just putting more money into existing programs. It is recognizing the cost of low wage jobs. Today, low wage employers are subsidized by tax payers. That subsidy has to end. We already have examples of big box retailers, like Costco, who do pay a living wage and have no problem being competitive. Those who choose not to pay a living wage should at least be required to reimburse the government for the costs of making sure that their employees have enough to eat, can afford healthcare, and can afford a place to live.

As a country we should be able to guarantee that everyone has access to affordable healthcare. We should be able to provide high quality primary education regardless of income or location. Those who have the talent and interest in attending college should be able to do so without concern about how they are going to pay for it. Those who cannot support themselves should not be a burden on their families or their communities.

Social Wealth versus Personal Wealth
Social wealth are the investments that we as a country choose to make. They include things like public education, government sponsored research, mass transit, first responders, highways, dams, and parks. Libertarianism rejects these investments and suggests that the marketplace is a better arbiter of how money should be spent. But we have already seen that this model doesn’t work. Instead it divides the country into rich and poor. The rich have access to resources. The poor don’t.

Our country was built on the concept of democracy, not oligarchy. Unfortunately money has lately been allowed to warp government policy to benefit the rich at a staggering cost to the poor.

The pendulum has to swing back toward a larger sense of community.

Everyone should have an opportunity to get a world class education because that benefits the country. Talent is spread evenly across our population. Failing to give every citizen a chance to maximize their contribution to the country makes us a weaker country.

Everyone should have an opportunity to live in a safe community where they can enjoy life, liberty, and the pursuit of happiness. There is value to our economy for this too. Those who come from stable homes do better in school. Those who have a stable home are more productive employees. Stable communities increase in value and are able to support the sorts of local services that employ people.

Summary
None of these are new ideas.

All of these ideas are already in widespread use among our global competitors. As Tom Friedman points out in “The World is Flat”, China and India have made massive investments in education, particularly engineering. The results of those investments are obvious to anyone who works at a company that employs engineers. There are a lot of Chinese and Indians in the US work force.

If the United States wants to remain a competitive force in the global technical markets, it has to confront the realities of globalization.

Our 25 year experiment in “free market” capitalism has failed.

It is past time to rebalance our tax system and fund the investments that we need to make as a country that will keep us relevant and competitive in the future.

Next up, let’s focus on the other end of the spectrum – the poor. Figuring out how to reduce poverty will also narrow the income inequality gap, and at least from a financial perspective, it may be cheaper than you think.

7M votes for Obamacare

Saturday, April 5th, 2014

The Obamacare deadline has come and gone and guess what? 7M+ people signed up. Exactly what the CBO projected. That also means the CBO projection of $118B in deficit reduction gains credibility.

In spite of four years of Republican lies, fear, uncertainty, and doubt; people still signed up. In spite of self-inflicted wounds from a fumbled website launch; people still signed up. 7M people signed up even though 26 Republican states refused to expand Medicaid and Michigan signup just started. People need affordable healthcare.

Those opposed will continue to deny the facts in hopes that they can win another election, but the actions of 7M can’t be ignored. New Washington Post polls show ACA approval has rebounded. It is now 49% compared to 48% opposed. The fastest growing segment of that support? Self-described conservatives whose support rose from 17% to 39%.

The ACA does two basic things. It improves financial security through affordable medical insurance. It also transforms healthcare through a combination of reduced cost and increased value.

MANY previously uninsured people now have coverage because of ACA. Those include kids up to 26 and those living in states where Medicaid was expanded. Even those with canceled policies got new often better insurance – many through the same carriers and often for less net cost.

How are Republican’s reacting to those numbers? The New Republic’s Jonathan Cohn summarizes: “(Republicans) are doing what they almost always do when data confounds their previously held beliefs. They are challenging the statistics — primarily by suggesting that most of the people getting insurance already had coverage. Some, like Sen. John Barrasso of Wyoming, say the administration is ‘cook­ing the books.’ Others, like Sen. Ted Cruz, say that the number of people without insurance is actu­ally rising.”

As we’ve previously discussed, determining the number of uninsured is a challenge because the numbers have to come from a lot of different sources. Also even the definition is difficult because someone may be uninsured for a month as they transition from one policy to another. Best estimates, however, show the uninsured rate has dropped from an estimated 20.9 percent to 16.6 percent in the law’s first year — hardly the sudden revolution in American health care some dreamed of, but a creditable start.

There are certainly some whose premiums went up or didn’t have access to the same physicians or hospitals that they had before. Taxes on the wealthy also went up. While we don’t know the numbers yet, it is pretty good bet that those who have benefited will vastly outnumber those who didn’t. That may be why, according to fact-checkers, the Koch-funded Americans for Prosperity ads failed to document even one honest case of ACA harm. The most recent ad running here in Michigan continues that tradition.

Conservatives argue that the tradeoffs in the ACA are not worth it. House Republicans voted for repeals over 50 times. They even shut down the government. But they failed to pass even one alternative bill that comes close to ACA’s increased coverage. Rather than engage in tradeoff debate, conservatives cling to the fantasy that our healthcare system is the best in the world and those that can’t afford insurance should just use the emergency room. In fact, we do lead the world in the amount of money we spend on healthcare, but we are 35th in the results we get for that money. And ER care? It is 100x more expensive than a doctor’s office visit.

So where does that leave us?

Republicans will run against Obamacare again in 2014, but by November the outrage that conservatives feel may largely be old news to the rest of the electorate. By then another 2M people will have signed up through Medicaid in states like Michigan. They will join the 4.5M that have been enrolled by states that expanded Medicaid, and the 3M kids who are insured on their parents’ plans – all because of ACA.

Even if the Republicans take over the Senate in 2014, they won’t gain a veto proof majority. So the next opportunity to repeal this law will be in 2016 and will require that the Republicans either have veto proof majorities in the House and Senate, or win the White House and have functional majorities in the House and Senate. By 2017 the CBO projects that the laws benefits will extend to 36M people. It’s going to be A LOT harder to make the case to those folks that they should vote for someone who wants to take their insurance away.

“Wherever they go and whatever they do,” writes Ross Douthat in the New York Times, conservatives “will have to deal with the reality that Obamacare, thrice-buried, looks very much alive.”