How to fix a recession

In a recession the government should reduce spending to avoid a costly deficit, whereas during boom times it should increase investment in the public sector to boost growth, efficiency and perpetuate the common good further. Right? Wrong! You just got a 0 on this quiz.
It is during a recession that government increases spending and during boom times that the deficit incurred during the recession is paid of. In other words, when private sector spending goes down and economy slows, government increases spending. This is the time to build new colleges and universities, k-12 schools, highways, police stations, dispatch centers, parks, etc... Won't this create a deficit? Yes, it most likely will, as tax revenues decline during a recession. But, as any economist knows, not all deficits are created equal. First, investment in schools, infrastructure and the like is exactly that: an investment. Investments have returns, so does social sector spending. Part of the cost of a deficit derived from making these investments will be off-set through their returns, i.e. a healthier, more educated labor force, fewer traffic jams, less damage to private property, etc... Second, spending should slow or kept level during boom years, when tax revenues increase. It is then that the state repays the deficit incurred during the bust cycle.
But why not just make these investments during the boom years and avoid a deficit altogether? Because you won't to lessen severity of the bust cycle. When government spends, there is what economists call a "multiplier effect." For example if the state of California spends $100 billion to build new highway, its spending causes a ripple effect through the economy. Contractors are hired, they have more business, more income and demand more goods. Thus, the real effect on the economy may be upward of say, $300 billion. When the government spends, be it by hiring teachers, contractors to build public projects, etc... Jobs and income are created and aggregate demand for goods increases. When demand increases, supply will follow. This in turn, creates more jobs and further increases demand, and voila: we're out of the bust cycle. That is not to mention the long-term benefits we stand to reap from a better infrastructure and public institutions, i.e. a healthier, more educated population, etc...

With the stimulus package, the government followed the above logic (though more money needs to be allocated to public sector expansion). Putting money in the hands of consumers so they may increase aggregate demand (it is important to note that those checks are send only to households below a certain income threshold. Why? Because the rich spend a lower percentage of their income, as they already have enough to satisfy their materialistic desires. Thus, $500 in the hands of a poor person is more likely to be injected into the economy). Increasing investment in the public sector, however, may also yield more long-term benefits and should be added to our anti-recession agenda. What the government should not do is reduce spending. Doing so, will worsen the recession. The process I described above will take place in reverse: less public sector employment, less income, less aggregate demand... you get the idea. Now, is the time to invest in the public sector; now is the time to build those new highways, colleges and schools; now is the time to hire new civil servants.

Why markets fail

Why not let the market provide second generation rights and an equitable distribution of resources? Because it cannot. There is little doubt that the market is the greatest tool humanity has found for the allocation of resources to date. Introductory economics textbooks tell students how efficiently the market can muster the complex task of adjusting the allocation of resources without any central management. Yet, these textbooks also tell students that "there is no question that government must be involved" (Case & Fair, 2007, p. 350). The market only distributes goods efficiently under certain conditions. As Stiglitz noted in his 1998 Lecture on Economics in Government,

"Today, many of us look at the fundamental theorem not as a description of the world, but as an explication of the conditions under which a market equilibrium will be Pareto efficient... The importance of some of the more explicit assumptions-like the lack of externalities and the completeness of markets-has long been known... In particular, it has been shown that in the presence of imperfect information or incomplete markets, the economy will not be Pareto efficient; in other words, there will always be some intervention by which the government can make everyone better off" (pp. 3-4).

Barr (2004) identifies the conditions under which markets function efficiently as follows (pp. 73-81):

Perfect information. Consumers and suppliers must be well-informed about the nature of the product and prices. Information must be easily accessible and comprehensible. Furthermore, the time horizon must not be too long, as individuals need to have adequate information about the future in order to make efficient decisions about the future.

Perfect competition in product, factor and capital markets. Individuals must be price-takers with equal power.

Complete markets. Markets that "would provide all the goods and services for which individuals are prepared to pay a price that covers their production cost." Missing markets arise when the market does not provide a certain good or service. For example the market cannot insure against the risk of inflation.

Absence of market failures, which result from externalities, increasing returns to scale which cause firms to exit an industry and leave a monopoly in place, and the nature of public goods. "Pure public goods exhibit three technical characteristics, non-rivalness in consumption, non-excludability, and non-rejectablity, which together imply that the market is likely to produce inefficiently."

In the face of inadequate information, public goods, externalities, increasing returns to scale, missing markets and imperfect competition, government intervention is warranted on the grounds of efficiency. In some cases, such intervention will be small, in others public production of a given good may be warranted (Barr, 2004, p. 72). Even in the case of food - a privately produced and funded good, the government must impose labeling laws to alleviate the problem of inadequate information, enforce anti-trust policies and grant income transfers to the poor, so no one is denied their right to adequate nutrition.

References:
Barr, N. (2004). Economics of the welfare state. New York: Oxford University Press (USA).
Stiglitz, J. (1998). Distinguished lecture on economics in government: The private uses of public interests: Incentives and institutions. The Journal of Economic Perspectives, 12(2), 3-22.
Joseph Stiglitz is a Nobel Prize Laureate and professor of economics at Columbia University. Nicholas Barr is professor of public economics at the London School of Economics.

Does being black still mean being poor?

Unfortunately, yes, it still does to a considerable extent.

While the welfare state lessens overall poverty, pockets of poverty still exist and are in need of further attention from the state. African Americans, especially African American women, are a good example. In 2006, roughly half of all African American children, 49.7%, and 44.5% of African American single mothers lived below the official poverty line set by the U.S. government at three times what is needed to sustain a nutritious diet. By comparison the overall national poverty rate was clocked at 11.7% (U.S. Census Bureau, 2007cd). One of the reasons for the high incidence of poverty among members of this group was lacking labor force participation. A plurality, 44.4%, of poor African Americans lived in households whose householder did not participate in the labor force. The most common reasons for not being able to work were illness of disability (34.9%), school (24.4%), "home or family reasons" (18.6), being retired (18.9%), and 6.2% were unable to find work. African American women, mirror their overall ethnic community in this respect (U.S. Census Bureau, 2007e). Moller (2002) found that the U.S. welfare state is binary: individuals with a considerable work history have access to better service than those who do not. Furthermore, the U.S. lacks a universal federal minimum income, as found in all other developed countries. African American women, especially single mothers, typically qualify only for less generous benefits than white women and other demographics, as they may lack sufficient work experience and many live in those states with the least generous benefits. Moller concludes that this most vulnerable of demographics is still "denied the opportunity and support to maintain economic stability" (p. 478). The research by Moller and U.S. Census Bureau data suggest that many African American women are a) dependent on the welfare state for an opportunity to lead productive and b) require great welfare state assistance. Not surprisingly, Abramovitz (2001) found that African American activists, feminists in particular, have made state intervention for the sake of "economic justice" one of their primary objectives.

Sources:
Moller, S. (2002). Supporting poor single mothers: Gender and race in the U.S. welfare state. Gender and Society, 16(4), 465-484.
Abramovitz, M. (2001). Learning from the History of Poor and Working-Class Women's Activism. Annals of the American Academy of Political and Social Science, 577, pp. 118-113
Census Bureau. (d) (August 28, 2007). POV03: People in Families with Related Children Under 18 by Family Structure, Age, and Sex, Iterated by Income-to-Poverty Ratio and Race: 2006 Below 100% of Poverty - All Races. Retrieved April 27, 2008 from the Current Population Survey: http://pubdb3.census.gov/macro/032007/pov/new03_100_01.htm
U.S. Census Bureau. (e) (August 28, 2007). POV24: Reason For Not Working or Reason For Spending Time Out of The Labor Force -- Poverty Status of People Who Did Not Work or Who Spent Time Out of the Labor Force: 2006 Below 100% of poverty -- Black Alone. Retrieved April 27, 2008 from the Current Population Survey: http://pubdb3.census.gov/macro/032007/pov/new24_100_06.htm
The above is from the rough-rough draft of a paper I am working on.

What is social justice?

American philosopher John Rawls (1972) stipulated that resources should be distributed in such a manner as to maximize benefit for the least advantaged members of society. Any inequality can only be justified if they are beneficial to the weakest members of society. A perhaps more familiar conception of social justice articulated by David Miller. According to Miller, social justice consists of three components: rights, deserts and needs. The first consists of largely of negative first-generation rights, such as equality before the law and freedom of speech. The second consists of "the recognition of each person's action and qualities," which implies proportional compensation for one's contributions to society. Any judgment on what constitutes due recognition for a given action or quality, will inevitably be made relative to other members of society (e.g. it is not possible to determine whether or not my income constitutes a just reward without comparing myself to others). The third component of justice consists of "the prerequisites for fulfilling individual plans in life." This component underlines the close, complex relationship between social justice and positive freedom. The former cannot exist without the latter, nor can the latter exist without the former. Different ideologies emphasize different elements of social justice. Libertarians emphasize the deserts element, while democratic socialists emphasize the needs elements. I adopt the modern liberal approach of attempting emphasize all three as equally as possible, while, similar to democratic socialists, assigning the needs elements a slight priority.

Why we are all supported by tax funds

All rights, both negative (private property, abortion, etc...) and positive (education, health care, etc...) require government action financed by the taxpayer. In their great book The Cost of Rights (1999, W. W. Norton), political scientists Stephen Holmes (Princeton & NYU law) and Cass R. Sunstein (University of Chicago), explain why:

"All rights are claims to an affirmative governmental response. All rights... amount to entitlements defined and safeguarded by the law" (p. 44).

Thus all rights, even negative rights have direct budgetary costs; costs paid by the taxpayer, for these rights are created and maintained by government. Anyone who ownes so much as a bike or toothbursh is taking advantage of a government entitlement. Again I will let professors Holmes and Sunstain explain:

"Staring hard at costs shatters the libertarian fiction that individuals who excercise their rights, in the classical eighteenth-century sense, are just going about their business, immaculately independent of the government and the taxpaying community... 'private wealth,' as we know it, exsists only because of government institutions" (p. 29).

Thus, "the simple insight that rights have costs points the way towards an appreciation of the inevitability of government and of the various good things that government does, many of which are so taken for granted that, to the casual observer, they do not appear to involve government at all... Public policy should not be made on the basis of some imaginary hostility between freedom and the tax collector, for if these two were genuinely at odds, all of our basic liberties would be candidates for abolition" (p. 31).

The official UN chater on human rights

In 1948 the leaders of the world agreed that the following constitute basic inalianable human rights to which every person is entitled. You are entitled to each of the following. As a some whose passion is political-economy my favorites are Articles 22 through 26. I beleive it is imperative that more people read this official charter on human rights which has been in effect for 60 years:

Now, Therefore THE GENERAL ASSEMBLY proclaims THIS UNIVERSAL DECLARATION OF HUMAN RIGHTS as a common standard of achievement for all peoples and all nations, to the end that every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms and by progressive measures, national and international, to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction.

Article 1.
All human beings are born free and equal in dignity and rights.They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.
Article 2.
Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. Furthermore, no distinction shall be made on the basis of the political, jurisdictional or international status of the country or territory to which a person belongs, whether it be independent, trust, non-self-governing or under any other limitation of sovereignty.
Article 3.
Everyone has the right to life, liberty and security of person.
Article 4.
No one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms.
Article 5.
No one shall be subjected to torture or to cruel, inhuman or degrading treatment or punishment.
Article 6.
Everyone has the right to recognition everywhere as a person before the law.
Article 7.
All are equal before the law and are entitled without any discrimination to equal protection of the law. All are entitled to equal protection against any discrimination in violation of this Declaration and against any incitement to such discrimination.
Article 8.
Everyone has the right to an effective remedy by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by law.
Article 9.
No one shall be subjected to arbitrary arrest, detention or exile.
Article 10.
Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.
Article 11.
(1) Everyone charged with a penal offence has the right to be presumed innocent until proved guilty according to law in a public trial at which he has had all the guarantees necessary for his defence.
(2) No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a penal offence, under national or international law, at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the penal offence was committed.
Article 12.
No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.
Article 13.
(1) Everyone has the right to freedom of movement and residence within the borders of each state.
(2) Everyone has the right to leave any country, including his own, and to return to his country.
Article 14.
(1) Everyone has the right to seek and to enjoy in other countries asylum from persecution.
(2) This right may not be invoked in the case of prosecutions genuinely arising from non-political crimes or from acts contrary to the purposes and principles of the United Nations.
Article 15.
(1) Everyone has the right to a nationality.
(2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.
Article 16.
(1) Men and women of full age, without any limitation due to race, nationality or religion, have the right to marry and to found a family. They are entitled to equal rights as to marriage, during marriage and at its dissolution.
(2) Marriage shall be entered into only with the free and full consent of the intending spouses.
(3) The family is the natural and fundamental group unit of society and is entitled to protection by society and the State.
Article 17.
(1) Everyone has the right to own property alone as well as in association with others.
(2) No one shall be arbitrarily deprived of his property.
Article 18.
Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief, and freedom, either alone or in community with others and in public or private, to manifest his religion or belief in teaching, practice, worship and observance.
Article 19.
Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.
Article 20.
(1) Everyone has the right to freedom of peaceful assembly and association.
(2) No one may be compelled to belong to an association.
Article 21.
(1) Everyone has the right to take part in the government of his country, directly or through freely chosen representatives.
(2) Everyone has the right of equal access to public service in his country.
(3) The will of the people shall be the basis of the authority of government; this will shall be expressed in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures.
Article 22.
Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.
Article 23.
(1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
(2) Everyone, without any discrimination, has the right to equal pay for equal work.
(3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
(4) Everyone has the right to form and to join trade unions for the protection of his interests.
Article 24.
Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.
Article 25.
(1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.
Article 26.
(1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.
(2) Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace.
(3) Parents have a prior right to choose the kind of education that shall be given to their children.
Article 27.
(1) Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.
(2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.
Article 28.
Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realized.
Article 29.
(1) Everyone has duties to the community in which alone the free and full development of his personality is possible.
(2) In the exercise of his rights and freedoms, everyone shall be subject only to such limitations as are determined by law solely for the purpose of securing due recognition and respect for the rights and freedoms of others and of meeting the just requirements of morality, public order and the general welfare in a democratic society.
(3) These rights and freedoms may in no case be exercised contrary to the purposes and principles of the United Nations.
Article 30.
Nothing in this Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.

Bush's legacy of red ink

The Bush administration has accumulated record amounts of debt, and most of it cannot be blamed on terrorists, but domestic economic policy. I do warn you, the topic of budget policy is one that involves numbers and percentages, and lots of them, so if you have a weak stomach for percentages and numbers, have a bottle of Bepto ready. Unfortunately it is this rather dry information, that is so essential to making wise policy decisions.

While the Clinton administration managed to lower public debt, the Bush administration has reversed this trend and rivals the Reagan and first Bush administration for deficit spending. The Department of the Treasury releases a statement of public debt on the last day of each month. The most recent statement, issued on October 31st, puts the nation's current debt at roughly $9 trillion, 69% of GDP, or $29,964 per person; enough to purchase a new $45,000 Mercedes-Benz E-Class for each of the nation's 196 million licensed drivers (though that would not be a wise use of tax funds). Annual deficit as percentage of GDP averaged 1.2% over U.S. history, from 1797 to 2006. During the 1980s the annual deficit rose significantly, averaging 4.3% of GDP under the Reagan and Bush Sr. administrations. Clinton managed to lower annual deficits to an average of just 0.1% of GDP, while Bush has once again increased the annual deficit to 2.3% of GDP. Increased annual deficits manifest themselves an increased overall debt burden. As annual deficits rise, so does overall debt. Between 2001 and 2006, public debt as a percentage of GDP increased 4.4%, compared to a 16.4% decrease under Clinton and an astounding 70.4% decrease during the liberal consensus, "from Truman through Carter." Once again, only the Reagan and first Bush administration has fared worse than the current Bush administration increasing the debt burden as percentage of GDP by 23.6%. Overall, public debt has risen by roughly $3.4 trillion, 60%, between September 30, 2007 and October 31, 2007 (U.S. Treasury, 2007).Where does this deficit come from? The answer is complex. On first look it seems as though the new debt is used for social services nearly as much as the nation's military engagements in the Middle East and Central Asia. Yet, upon further inspection it becomes clear that had it not been for the Bush tax cuts the bulk of new deficit spending cut have been avoided. While U.S. military involvement in Iraq was bound to over-strain public coffers, there would have been plenty of revenue to pay for current social services had the president not cut taxes for the rich. "Together, tax cuts and the spending increases for [national security and war] account for 84 percent of the increases in debt racked up by Congress and the President," between 2001 and 2006. During this period the U.S. borrowed $2.3 trillion. At a cost of $1.16 trillion the Bush tax cuts comprise 51% of new debt, followed by "Defense, international and homeland security, incl. wars in Iraq and Afghanistan" at a cost of $767 billion, comprising 33% of new debt. "Entitlements... [and] Domestic discretionary programs, incl. Katrina relief" only accounted for 16% of new debt at a cost of $368 billion (Economists Fiedler & Kogan, Center for Budget and Policy Priorities, 2006). Unfortunately it is likely that "over the next 10 years, the administration's tax cuts are a larger and larger part of the deficit problem" (Economists Gale & Orszag, Brookings Institution, 2003). While revenue has been increasing, revenue increases could have been substantially larger, had it not been for the Bush tax cuts. It is the War in Iraq, the Bush tax cuts and, to a much lesser extent, natural disasters and the war in Afghanistan, that have caused most of new U.S. debt. The result has been more debt, greater inequality and fewer funds that are urgently needed for investment in infrastructure and social services.

The effects of the Bush tax cuts, the mains cause of new U.S. debt, have aided in further increasing income inequality. Inequality has already risen dramatically since the early 1980s with the top 1% receiving far larger gains than the rest of the population. Between 1979 and 2004 the increases in average net income among the top 1% have "dwarfed those of middle- and low-income households." The average after-tax income of the top 1% increased by an inflation adjusted 176%, compared to 69% for the top quintile overall, 29% for fourth quintile, 21% for the middle quintile, 17% for the second quintile and 6% for the bottom quintile, respectively. The total increase in average income for the rich was $554,000 during this 25 year span. Nearly a quarter of that increase took place in 2004 alone, when the average after-tax income of the top 1% climed by $146,000, "the largest increase in 15 years, measured both in percentage terms and in real dollars." By the end of 2004, "the top one percent of the population received 14.0 percent of the national after-tax income... nearly double its 7.5 percent share in 1979" (Economists Aron-Dine & Sherman, Economic Policy Institute, 2006). The top 1% continued to pull ahead of the bottom 99% in 2005. Their average incomes rose by $136,000, while "average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent." As a result, in 2005, the share of income held by the top 1% reached a level not seen since 1928 .

While the Bush administration claims that the Bush tax helped spur economic growth, such is not the case. Compared to the average for business cycles between 1949 and 2000, the 2001 to 2005 business cycle showed lackluster performance. GDP growth was 17.6% below average, GDI (Gross Domestic Income) growth was 36% below average, growth in the number of paid jobs created was 28.5% below average and growth in average salaries was 55% below average. Only investment in the housing market rose above average, creating the infamous "housing bubble" (Price, Center for Budget and Policy Priorities, 2005). Having failed to generate the economic growth needed to pay for them; the Bush tax cuts have done little more than increase after-tax income inequality and force the country in to go into debt for the lack of revenue. Considering their role in the creation of new debt since 2001, the Bush tax cuts may be best described as the U.S. going into debt in order to pay for further increasing inequality.

Mind the opportunity cost!

The reason I chose to study political economy is probably the same reason that few things get my blood boiling as much as the Bush tax cuts. I think it is a weird obsession with (in)efficiency that leads to this behavior - but perhaps I should consult a shrink, for no one with an interest in such a dull topic can be considered normal. Then again, I hope that self-depreciating humors is a sign of mental health. Anywho, my latest thoughts on that giant mother of all wastes of money: the Bush tax cuts:

While, the Bush administration's tax cuts may not have produced the economic growth its proponents promised (I have writen about this before and won't again here; for some good info see Gale & Orzsag, 2004; Price, 2005 & Price & Ratner, 2005), they did leave American society with a large bill. As of December 2006, the Bush tax cuts have cost $1.16 trillion (Fielder & Kogan, 2006). For comparison, the 2006 gross domestic product of South Korea is the 13th largest in the world at an estimated $1.15 trillion (World Bank, 2007). Adding to the $1.16 trillion direct cost of the Bush tax cuts are the opportunity cost, consisting of the foregone benefits that could have been derived from spending these roughly $1.2 trillion on social services or infrastructure. In a recent New York Times article, David Leonhardt (2007) seeks to discover "What $1.2 Trillion Can Buy." He finds that $1.2 trillion are sufficient to enact a universal preschool program, double cancer research funding, enact the suggestions of the 9/11 commission, end the genocide in Darfur, aid in the reconstruction of New Orleans, provide "treatment for every American whose diabetes or heart disease is now going unmanaged and [fund] a global immunization campaign to save millions of children's lives." Moreover, U.S. infrastructure is in dire need of attention. According to the American Society of Civil Engineers (2005), the nation's D-grade infrastructure is in need of an overhaul that would cost $1.6 trillion over the span of four years. We will not, however, enjoy the benefits of a universal preschool system, better cancer treatments and a more modern infrastructure. No we decided that the top eaners in this country who have pulling ahead of everyone else and seen their share of income doubbled since 1979 (I have also writen on this; for good info see Aron-Dine, 2007; Aron-Dine & Sherman, 2007; Aron-Dine & Kogan, 2006; Saez & Piketty, 2003 & Yellen, 2006) need a further tax break (despite the top tax rate being roughly half that of the 1960s and less than half of that during the 50s when the economy boomed). I suppose the Bush cronies beleive it is more important that multi-millionaires can buy Bentleys, $6,000 shower curtains and 30,000 sq. ft. houses, rather than using the money to save the millions of lifes through funding an immunization campaign. Either Bush has lost his moral compass or he needs to retake econ 101 and re-read that section on that pesky little thing called opportunity cost or c) all of the above.

In the post I refered to the following - I am probably the only person using APA to cite sources in my blog, but upon the following are really great sources of information on the topic:

Aron-Dine, A. (October 24, 2007). New Data Show Income Concentration Jumped again in 2005: Income share of top 1% at highest level since 1929. Retrieved November 5, 2007 from the Center on Budget and Policy Priorities: http://www.cbpp.org/3-29-07inc.htm
Aron-Dine, A. & Kogan, R. (June 5, 2006). A Mere $300 Billion: Should a $300 billion Deficit Be Considered a Victory? Retrieved October 5, 2007 from the Center on Budget and Policy Priorities: http://www.cbpp.org/5-22-06bud.htm
Aron-Dine, A. & Sherman, A. (January 23, 2007). New CBO Data Show Income Inequality Continues to Widen: After-tax-income for Top 1 Percent Rose by $146,000 in 2004. Retrived November 5, 2007 from the Center on Budget Policy and Priorities: http://www.cbpp.org/1-23-07inc.htm
Fielder, M. & Kogan, R. (December 13, 2006). For Surplus to Deficit: Legislation Enacted Over the Last Six Years Has Raised the Debt by $2.3 Trillion. Retrieved from the Economic Policy Institute: http://www.cbpp.org/12-13-06bud.htm
Gale, W. G. & Orszag, P. R. (November 7, 2005). The Great Tax Shift. Retrieved November 7, 2007 from the Brookings Institution: http://www.brookings.edu/articles/2005/0504taxes_gale.aspx
Leonhardt, D. (January 17, 2007). What $1.2 trillion Can Buy. New York Times. Retrieved from: http://www.nytimes.com/2007/01/17/business/17leonhardt.html?_r=2&adxnnl=1&oref=slogin&adxnnlx=1194484674-n0qQOCs3J4moD+ikNFKJ4g
Price, L. (October 25, 2005). The Boom That Wasn't: The economy has little to show for $860 billion in tax cuts. Retrieved November 7, 2007 from the Economic Policy Institute: http://www.epi.org/briefingpapers/168/bp168.pdf
Price, L. & Ratner, D. (October 26, 2005). Economy pays price for Bush's tax cuts. Retrieved October 5, 2007 from the Economic Policy Institute: Economic Snapshots: http://www.epi.org/content.cfm/webfeatures_snapshots_20051026
Yellen, J. (November 6, 2006). Speech to the Center for the Study of Democracy2006-2007 Economics of Governance LectureUniversity of California, Irvine. Retrieved November 5, 2007 from the Federal Reserve Bank of San Francisco: http://www.frbsf.org/news/speeches/2006/1106.html

It's no fun agreeing with Winston Churchill

Democracy has been on my mind recently. Whether I like it or not, the more I think about it, the more I agree with Winston Churchill that, "that democracy is the worst form of government except all the others that have been tried." That is to say, that I embrace democracy on the same grounds as capitalism. Because there is no viable alternative to it.
As much as I hate elitism and condescendence, I cannot help but come to the conclusion that democracy vests vast amounts of authority and power in the hands of those who may well lack the information required to use that power as well as humanly possible. Allow me to explain using an analogy:

One would not consult a lawyer, if one becomes ill - one consults a physician. One would not, however, consult a physician for legal advice, nor would one consult a physician or an attorney for designing a bridge - one would consult a civil engineer. It is not that the attorney or the physician lack the mental capability to design a bridge; they simply have a different specialty. Thy physician acquired profound knowledge of the human body, and uses it so save lives; the attorney acquired profound knowledge of the law and uses it to settle conflicts; the civil engineer required profound knowledge on, well, civil engineering, and uses it to maintain and erect new pieces of our infrastructure.

As I said above, no sane person would seek a lawyer for medical advice. Yet democracy routinely asks people to make important decisions that are outside of their area of expertise. A lawyer, a doctor or an engineer is not an economist, sociologist or political scientist. They did read thousands upon thousands of pages about the welfare state, taxation and the principles and theories on social justice and freedom. They did not spend year after year become familiar with theories, economic and political cause-and-effect relationships found in our society and the plethora of data that are often unknown to most, including highly educated, laypersons. Having an engineer make decisions regarding welfare reform is similarly idiotic as having a lawyer make decisions regarding medical treatment.*

Or is it? Well, it is idiotic in the sense that the engineer lacks the same knowledge about the welfare state as the social scientists, but it is genius in the sense that it guards against tyranny. A society run by expert would not work. Power corrupts even those who understand it best (which in turn means that political scientists might be worse abusers of power than others). These experts would soon form an elite, which like all elites, would aim to exploit the masses for its own benefit (there are ethical concerns as well, but that would balloon the length of this entry). The only way to guard against such an Orwellian nightmare is democracy, for it distributes power widely (at least better than any other system). True, democracy forces people to make decisions that are outside their area of expertise, but it is the only system proven to prevent the most overt forms of tyranny. No system, imaginable or attempted, comes close to democracy. Democracy is simply the best we have.

Footnote:
*It does need to be noted that many people do make sound policy decision even though they lack knowledge to accurately understand a given policy proposal and its estimated effects upon society, especially since some people chose to educate themselves, with varying success, in matters of public policy - similarly many people can settle their conflicts without a lawyer).

How's the average Joe doin'?

Over the past couple of years, the middle class squeeze has once again come to the fore-front of the public's conscious (it has made occasional appearances for over a century). In a recent research paper, still undergoing review for publication ,I examined loads of data and studies on the subject. My research supports Princeton economist Paul Krugman in his assertion that we have entered a second gilded age. That is, we are in an age where the middle class and the average Joe are rapidly falling behind the rich, with the average household not having seen an increase in average income since the late 1990s.

According to Emmanuel Saez, professor of economics at the University of California, Berkley, "the economy is growing but only a few are enjoying the benefits" According to Janet Yellen, economist at UC Berkley and former CEO of the Federal Reserve in San Francisco, "the growth [in real income] was heavily concentrated at the very tip of the top, that is, the top 1 percent." According to data from the Congressional Budget Office (CBO), between 1979 and 2004, the average after-tax household income of the top 1% increased by an inflation adjusted 176%, compared to 69% for the top quintile overall (a group that includes the top 1%), 29% for the fourth quintile, 21% for the middle quintile, 17% for the second quintile and 6% for the bottom quintile, respectively. In constant 2004 dollars, the absolute increase in mean income of the top 1% for this 25 year time span amounts to over half a million dollars, having jumped from $314,000 to $867,800. Between 2003 and 2004 alone, the mean income of the top 1% rose by $146,000.

Wages for middle and working class adult men, however, have remained roughly stagnant since the early 1970s, contributing to the growing disparity. Only, women have seen a significant increase in their median annual earnings, gradually closing the gender gap (though they still earn considerably less than men). Median gross annual earnings for men, age 25 or older, hit their high point in 1973 at $37,298 and have decreased by 4% to $35,758 in 2005. Even among men with a post-graduate education wages only increased by 5.6% between 1973 and 2005. Stagnating wages for the vast majority of men, including the well-educated, have caused much of the middle class to fall behind the rich, whose incomes have not stagnated. Median household income did increase by an impressive 30%, but only because women entered the labor force in ever-greater numbers and dual earner households have become a common feature of our political-economy.

Over the past decade, however, median household income has remained completely stagnant after adjusted for inflation - it's made a lovely home for itself in flatsville. The picture is clear: the top 1% have become the main benefactors of the economy and the middle class is falling behind, with the average American family profitng from women's rights and entrance into the labor force in the 70s, 80s and 90s but getting nothing out of the growth that has been taking place over the past decade.