Watching You (Economic) Language

The words inflation, recession, and stagflation have been tossed about by lots of political commentators who apparently either flunked college economics or rinsed their brains out too thoroughly with beer to remember any of it.  Perhaps, as an economist, I can shed a bit of right on these terms and how we measure and predict recessions and their companion ,expansions.

No, we are NOT in a recession. The stock market has  taken a nosedive, and while it matters—the value of all our pensions and retirement savings are down from their highs of 2021—it’s not even close to a gauge of our overall economic health. The stock market had been rising rather spectacularly over the last few years and was overdue for a correction.  Let’s look, instead. at the indictors that measure a recession–the unemployment rate and the rate of growth of GDP. A recession may mean too little money in circulation to enable consumers to buy an excessive stock of goods. That situation can result if excessive optimism about sales runs ahead of the ability of the economy to find buyers, resulting in rising inventories of unsold goods.  As firms cut back on production and lay off workers, inflation subsides, unemployment rises, and we are in a recession. GDP is projected to grow a respectable 3.5 percent for 2022, with a projected  slowdown in inflation, and the unemployment rate remains an impressively low 3.6 percent. A recession is officially defined as two successive quarters (= six months) of falling output, or GDP. That has not yet happened. If we were in a recession, we would see little or no inflation, rising unemployment, and a backlog of unsold goods and services. Sorry, guys, not a recession.

Inflation rarely accompanies a recession.  Inflation means rising prices of goods and services over a period of time, is sometimes described as the result of too much money chasing too few goods.  Inflation can result from too much money in the economy, the result of low interest rates at the Federal Reserve and a lot of pumping recovery money into the economy under both the Trump and Biden administrations in 2020 and 2021.  Now that interest rates are back to more historically normal levels and most of that extra cash pumped into the economy has been spent, too much money is not a continuing problem.

Inflation can also result from  competition for too few goods relative to consumer demand, and that’s a large part of what we are observing right now.  The pandemic. The labor shortage, due to lack of immigrants and the great resignation (people dropping out of the labor force during the pandemic), which drives up wage costs and therefore prices. The supply chain bottleneck. The loss of fossil fuels and wheat from Russia and Ukraine during the current war.   We have seen all kinds of shortages in the last year, but the biggest ones are a shortage of workers, shortages of many foodstuffs due to climate change, drought, and the Russian war against Ukraine, and the shortage of fossil fuels, which affects not only household transportation but also the cost of goods being shipped long distances in a global economic network. Some of these bottlenecks, particularly in air transportation, are due to layoffs of key personnel during the travel doldrums of the pandemic and the ability to ramp up again when demand returns.  It’s hard to produce truck drivers, pilots, and mechanics after many of them have retired, changed occupations, or just don’t want the job anymore. Labor markets work pretty well at attracting new workers by raising wages and benefits and improving working conditions, but the shocks of the last few years  are going to impact the economy for some time to come.

There’s been lots of vague references to stagflation.  That isn’t happening either.  In the 1970s, a series of supply shocks to the world economy resulted in rising prices, interest rates and unemployment rates. The monetary and fiscal tools that governments use to try to dampen fluctuations in economic activity are not very useful with stagflation. The tools to fight inflation are higher interest rates, less government spending or borrowing, higher taxes. The tools to fight slow growth and rising unemployment are lower interest rates, government deficits, increased government spending, lower taxes.

 Fortunately, stagflation is NOT our current problem.  It’s a whole lot easier to prescribe policies when you have the either of the more normal situations–high unemployment and stable prices, or low unemployment and inflation.  However, those tools tend to focus on pumping up or tamping down demand, and that’s not the problem right now.  What we are facing now, not just in the US but across the globe, is a supply problem, shortages of not only goods and services but also workers, and especially workers with specialized skills.  The Federal Reserve is cautiously raising interest rates and the federal government has reduced its budget deficits, but the real challenge is trying to lure more workers into the labor market and work on some of the supply problems that have created empty shelves and car lots at dealers and flight cancellations.

The good news is that we know which tools are useful.  The bad news is it will take some time to address the supply issues.  The other good news is rising wages and low unemployment.  As a general rule, working class and lower income households are better with a little inflation as long as wages keep pace, and for the past year wages have risen pretty dramatically, especially at the bottom of the scale. Signing bonuses and a de facto minimum wage approaching $15 an hour can do a lot to offset rising prices.  Low to middle income households have little in the way of financial assets that lose purchasing power during inflation, while wealthier families have more job security and more to lose from inflation in the value of their investment portfolios.  In fact, the average person on the bottom of the pyramid has more debt than assets, and the value of the dollars paid back are less than the value of the dollars borrowed. Maybe the self-interest of the talking heads class and their sponsors is the reason why we hear a drumbeat about inflation but no mention of low unemployment rates and opportunities to find a decent job at a reasonable salary?

What is there to take away from this quick trip through what old-time economists (like me) used to call business cycle theory? It’s not a recession yet, and I can’t see one being declared before the November elections. Anyone calling it stagflation needs to go back to school for remedial economics. We know what tools to use on inflation, but their effectiveness depends on getting past supply problems, and that takes time.  Treating workers well in both earnings and working conditions is always good business policy, but even more so right now. We could use a few more of those hard-working  immigrants to fill the labor ranks and more investment in skills at the next level to rebuild our labor force.  The stock market isn’t the economy, and the health of the stock market  matters more to those who have been getting all the tax cuts and contributed al the big money to political campaigns than to the bottom 90 percent.

See?  Economics isn’t all that dismal.  Sometimes it’s actually hopeful—and helpful.

How About a Girlcott?

One way of getting the attention of public officials is voting and advocacy.  On the issue of a woman’s right to choose, I have done my due diligence, contacting my state legislators and some others who ae willing to accept email from people outside their local district.  But there are other forms of pressure that are often effective, including economic pressure.  Chambers of Commerce and state  Departments of Commerce live in fear of being boycotted.  In an environment where there is a shortage of skilled labor, firms must pay attention to the concerns of their female employees. Votes, matter, but so do voice and dollars.

Here ae some pressure points.

  1. Travel. Abortion laws will be a factor in my travel decisions.  I can tolerate certain limited restrictions on abortion , but not the six weeks’ gestation (which as any woman knows, is actually about four weeks!), the criminal penalties, and the efforts to prevent travel and telemedicine and pills by mail. I’m glad I made it to South Dakota in May while abortions were still legal, but henceforth I will be more vigilant about where I spend my tourist dollars.
  2. Meetings and conventions.  Ditto.  If you belong to any organizations that have events, trips, etc., encourage them to focus on those destinations where women are still considered people with the right to make their own decisions
  3. Business firms and mobile workers. Firms looking to relocate or expand should be made aware of the conditions their female employees, or their employees’ wives and daughters, will face if they  need an abortion.  I have lived in South Carolina since before Roe v. Wade, and it’s too late in my life to relocate, but I would strongly urge anyone (or firm) that is mobile to locate, relocate, or expand in a state where women are treated as fully human.
  4. Shop and invest. I am a firm believer in the power of the group who refuse to patronize forms that are openly opposed to a woman’s right to choose. Some of them we know about—Hobby Lobby, for example. Others have to be sought out.  If you are a socially responsible investor, find out if your companies support a woman’s right to choose in all ways, not just by a health plan that covers abortion. Cross state lines to shop if you need to.  I can do that; I live close to the North Carolina line, and right now they have a Democratic governor and no trigger law. Check when you shop online to see where the firm is located.  And it’s not enough to boycott, you need to tell them why you are boycotting.
  5. Silence is consent. I once had a tire slashed for having an ERA bumper sticker on my car.  Speak up.  If you leave your hairdresser or your formerly favorite restaurant because they are openly anti-choice, tell them why you won’t be returning.
  6. If you’ve got a religion, speak from your faith.  Progressive Christians, Muslims, Hindus, Buddhists, and other faith traditions do not share the distorted, mistranslated, overly literalized reading of selected passages of the Bible used to keep women barefoot and pregnant. The view that the embryo is a full-fledged human being from the moment of conception is not science. It’s a religious view, one of many religious views, all of which are supposedly protected by the First Amendment.  My religion calls me that I respect the inherent worth and dignity of every person, including pregnant women. It calls me to practice compassion in human relations, and to affirm democracy as the guiding process in our common life.
  7. Find strength in numbers. There are all kinds of organizations that work to support reproductive choice, starting with Planned Parenthood and the Women’s Rights Empowerment Network. Give them your support, financial and vocal, for protecting women from this disastrous Supreme Court decision as well as more that may be on the way.

Surely somewehre on this laundry list you can find one or more ways to protest this disastrous Court decision as an expression of commitment to the lives of those already born.

The Rise of the American Taliban

As an economist, I have been watching this drama unfold since the late 70s, although it began earlier—a deliberate effort to rouse the passions of people who felt marginalized by people of color, immigrants, non Christians, and women and wanted to “take their country back.”  Perhaps to 1861. This is the war (Civil war? War of the Rebellion? War Between the States? War of Northern Aggression?)  that is a fire still smoldering 167 years after it supposedly ended. So it’s been a long time coming. But it’s here, and the misogyny has just proved itself as powerful as the racism. The purpose of this concerted, well-funded effort was to distract citizens and voters fromt he growing inequiality, deterioration of public services, land lack of basic protections enjoyed in other advanced nations by blaming it on the current whipping boy–people of color, immigrants, refugees, imaginary socialists,, welfare queesns…

And I am angry, very angry.  I am the grandmother of four granddaughters of child-bearing age living in a red state.  They have been stripped of the rights that their mothers and grandmothers enjoyed. I was married in Connecticut before Griswold in 1968 made contraception legal there, but my husband and I cheerfully defied the law and no one cared.  It was legal to sell condoms for avoiding STDs and birth control pills to restore menstrual regularity, which were apparently epidemic among the tate’s citizens. These blue laws were like prohibition, driving what was legal in other states underground and making the sales and use of these products a little harder but no less prevalent. But today’s penalties are much more stringent, and legislators are looking to find every possible escape rout and to shut abortions and perhaps evetually contraceptiondown.

What can we do? 

  1. Most of my blog readers are South Carolinians.  Talk to your legislators, who will reconvene for a special session later in the fall.  Abortion is on the agenda.  Try to urge them to vote no or better yet, to soften the impact with more time and exceptions.  Look for ways to hold the putative fathers accountable with DNA tests and obligations (or in the case of rape or incest, legal penalties). If you are not from South Carolina, do what you can where you live to keep a woman’s right to choose alive.
  2. Seek out ways to support women seeking abortions if they need to travel.
  3. 3. Harness the power of the vote—in remaining primaries if your state hasn’t primaries already, in candidate events and putting those running on the spot about what they will and will not support (don’t let them do a mealy-mouthed Susan Collins on you).
  4. Help people register and get to the polls. Now what the registration deadlines are, what’s available in early voting and/or mail-in voting, how to find their ballot, and drive them to the polls.
  5. Take every opportunity to remind people of the Martin Niemoller quote on the rise of Naziism:

First they came for the socialists, and I did not speak out—
     Because I was not a socialist.

Then they came for the trade unionists, and I did not speak out—
     Because I was not a trade unionist.

Then they came for the Jews, and I did not speak out—
     Because I was not a Jew.

Then they came for me—and there was no one left to speak for me.Be aware that this court decision is part of a larger systemic effort to undermine democracy and replace it with an oligarchy of rich, greedy old white men! Yes, there are plenty of good, caring, compassionate old white men. I was married to one. But those are characteristics shared by the beneficiaries of cutting taxes and services, gerrymandering, enhancing minority rule, discouraging voting, and fomenting hatred against the “other.” And creating hare-brained theological justifications for forbidding abortion and contraception that are so out of touch with a Christianity of love, respect, compassion, and second chances, as well as with most other major religions.

Democracy is a fragile system that we take for granted and let fall  into disrepair.  Roe v. Wade overturned and the very unveiled threats in Thomas’s opinion should a clarion call for really stopping the steal—not just the attempted theft of the election but the attack on our human rights. It is of a piece with the plot to overturn the 2020 election.

I have hope that telemedicine and nonsurgical abortion with the 25 or so states that still think women and people of color and LGBTQ people are full fledged human beings.  I fantasize about he right of a woman to demand a DNA test for the putative father and use it to required financial support—unless it was rape or incest in which case there need to be criminal penalties. I find myself wondering if Native American sovereignty extends to developing abortion clinics on reservations. And I refuse to surrender to despair.  It is my country too. Any yours.

Tyranny of the Minority

I write as we are in the midst of a long and contentious midterm primary season. Perhaps it is a good time to reflect on the way we choose candidates for the November election. Let’s begin with presidential primaries, which are run by the two major parties,. with the collaboration of state governments. Democratic presidential primaries generally allocate delegates proportionally among c candidates, which is why it takes so long for Democrats to settle on a candidate–but does make voters feel that their votes are reflected. Republican presidential primaries are winner take all, even if the winner only gets 25 percent of the vote in a crowded field. This system tends to favor more extreme candidates. The Democrats are not without flaws. They still have too many superdelegates that have too much say in a close contest. But the idea that a candidate could never win majority support of his or her own party’s voters and still get the nomination seems undemocratic with a small d.

State primaries are more diverse. Some have closed primaries, only for voters registered with that party. Others have open primaries that allow independents to vote,or sometimes do not rquire require party registration at all. In states that lean heavily towrd one party, that open primary gives everyone a say in the choice of the canddiates most likely to win in the general election. Open primaries tend to favor more centrist and less extreme candidates.

Many states also required a majority of 50 percent to be nominated, requiring a runoff vote between the two top contenders. if no one succeeds in topping 50 percent. Other; states give the nomination to the highest vote getter–even if, Like Dr. Oz in Pennsylvania this year, that is only one-third of Republican voters. Again, this practice favors less moderate and more extreme candidates. My home state of South Carolina and Georgia both have open primaries and runoffs. The chief drawback to runoffs is the low turnout in primaries generally, which is even lower in a runoff. This year in South Carolina the only statewide race to generate a runoff was the Republican primary for Superintendent of Education. Far fewer voters are likely to participate in the runoff.

There are two recent innovations which may address all of these challenges while increasing participation while lowering the cost of running elections. One is the jungle primary. The other is ranked voting. California was a pioneer in the jungle primary, in which all candidates–Republican, Democratic, Independent, minor party–for a particular office (say, Secretary of State) are on the ballot in a primary open to all registered voters. The top two vote getters advance to the November general election. The two finalists could be from the same parity, different parties, or even independents. The general election replaces the runoff. Variants of this system are in use in Louisiana, Wyoming, and Alaska. This system also favors less extreme candidates, making the possibility of compromise and collaboration in legislative bodies more likely.

Ranked voting is used in many contexts, including some municipal elections and nongovernmental organizations. Its main advantage is to eliminate the need for a runoff if no candidate receives a majority, while still ensuring that the winner is the preferred choice of a majority of voters. Confronted with a ballot with candidates A, B, C , and D, each voter assigns each candidate number from 1 (first choice) to 4 (fourth choice). All the first choice votes are tallied. If candidate B is the first choice of 50 percent or more, she wins. If no one gets 50 percent the second choices are added in, The vote count ends when someone receives a majority.

Many features of our present electoral process, intentionally or otherwise, favor candidates with minority support and perhaps more extreme positions than the mainstream of American voters. I’m pretty happy with the way my state runs elections, even though I seldom get what I want–because I am in a minority. I don’t whine. I don’t’ try to change the rules in order to get the outcome I want. Instead, I work within the system to encourage people to vote and try to persuade them to consider the candidates I support. Isn’t that the kind of playing nicely with others we were supposed to have learned in kindergarten?

The Whole Truth

My state of South Carolina, like many other states, has wrestled with the many places, statues, monuments and buildings named for people in leadership roles in what is euphemistically called in the South “the recent unpleasantness.” Or less euphemistically, The War of Northern Aggression. When the General Assembly reluctantly consented to hauling down the Stars and Bars flying over the State House, they also passed the Heritage Act, forbidding any entities from removing monuments or changing names of anything on public property without a 2/3 vote of the legislature. Lest we forget…protect our heritage–.the usual platitudes were trotted out.

I have come to the conclusion that these guardians of Civil War culture may have a point. We don’t need to erase that history. We just need to tell it true. Not the whitewashed (literally!) version. The warts and all version. Every monument, every park, every building should have, prominently displayed, a balanced biography of the honoree’s name.

I will use my own university where I am an emeritus professor to illustrate students my proposal, but it obviously applies to many public institutions and places. Clemson University, for example, may have to tolerate a prominent building named fir a racist violent 19th century governor who led the process of creating a constitution that perpetuated disenfranchisement of black voters and personally advocated and practiced physical and economic violence toward the state’s black majority. He also played a prominent role in the establishment of the college.

In front of that building is a statue of Thomas Greene Clemson, for whom the college is named, He bequeathed the land to the state for a “high seminary of learning for the agricultural and mechanical arts.” Surely his plaudits should acknowledge that neither African-American citizens or– heaven forbid, women–were welcome in its hallowed halls, or that Clemson himself was a slave owner who fought for the Confederacy.

I have mixed emotions about Clemson’s father-in-law, John C. Calhoun, who served in the U.S. Senate and as vice president under both Adams and Jackson. He was the original owner of the land on which the college was built–not counting, of course, the previous inhabitants, the Cherokees, who were sent west on the Trail of Tears to facilitate Calhoun and others access to mining for gold in nearby Georgia. But he also made useful contributions to ending the Mexican war, resisted high tariffs, and contributed to political theory. All three of these men were complex people in which good is mixed with not so good in varying forms and degrees.

.Universities are supposed to search for truth, proclaim truth, protect truth. Truth in historical markers would be a good place affirm that commitment.

Your Money, Your Values,Your Planet

This is the first in a series of blog posts that reflects the title of a book my friend Catherine Mobley and I wrote about ten years ago.  The premise of that book (Our Money, Our Values) was the need to be clear about what our values are and use our money—spending, saving/investing and giving it away—in ways that promote those values. One of my values, and probably one of yours, is to honor and respect that planet that sustains our lives.  How does our use of money express our gratitude and concern for Mother Earth, promote sustainability, and counter climate change?

In terms of spending, all of us need to be more conscious of our carbon footprint and other impacts on the planet and other living things  Tolerate higher indoor temperatures in the summer and lower in the winter. Drive less in a  fuel-efficient vehicle. Fly less. Stop mowing lawns and have a yard full of native plants that provide habitats for birds and bees and other critters. To the extent feasible,  buy organically produced food and cook more of it yourself. Shop less, recycle more. You know the consumer drill. 

Beyond the consumer drill, however, all of us are engaged with firms and organizations whose practices also impact the planet.  Why do stores have to be too cold in the summer, too warm in the winter?  Which is better for the planet, shopping locally or online? (Does that recall to mind the unsettled debate over cloth versus disposable diapers?) Are there any trees near the store or shopping center, or is it just surrounded by acres of paved impervious surfaces? What role does local government regulations play in making these properties more earth friendly? Does your state and local government regulate in ways that make it easier or harder to promote renewable energy? And how sustainable are these local governments’ own practices? How do they make it easier to recycle? Are their newer buildings examples of green construction? How many trees surround City Hall?

Saving and investing also have implications for the planet.  There is a long history of financial services for socially responsible investing, either on your own (with a lot of investigative work) or in mutual funds that invest in firms committed  to a variety of good practices. These firms recognize that they have more stakeholders than shareholders, and those stakeholders matter—their workers, their customers, their suppliers, their communities. All these stakeholders have, or should have, an interest in corporate practices that are promote sustainability.

What can you do?  You can try investing in B-corporations, which have charters of incorporation that require them to be accountable to all those stakeholders, not just their investors.  Or you can seek of socially responsible mutual funds and choose those whose particular investment strategies mirror your own values, specifically sustainability and wise use of limited national resources. You should also remember that if you have a pension fund, it is an investor too, investing your money.  Find out what role sustainability and energy conservation play in their management of those assets, which can be very substantial.  Your collegiate alma mater or your religious community (including pension funds) is also are likely to have endowments that are invested in financial assets.  They, too, should be held accountable to the planet for how those funds are invested.

Finally, you probably give some of your money to various good causes. It’s easy to succumb to the countless requests for money from lots of places, many of which are deserving charities. At least some of those resources should be focused on the twin needs of the poor and the environment.  Include the planet in your charitable giving! My two personal favorite programs promote solar power (it doesn’t take much to charge a cell phone and a light so children can do their homework at night) and planting trees, both in sub-Saharan Africa. How did I find them? Both  are run by charitable organizations that can be accessed through an umbrella organization called Global Giving.  I want to improve  the lives of people around the globe, but I want to do it in ways that makes the recipients more able to thrive in a healthier planetary environment.

As Kermit the frog would say, it’s not easy being green. But it is important. Consider these three ways in which your money can work for you and your planet. How can you put your money where your values are?

By What Authority?

Many years ago, Clemson University briefly hosted a visiting economics professor from Russia who had emigrated because he was Jewish and felt unwelcome there.  He visited some of our classes to talk about life under communism.  One student asked whether the people of the USSR didn’t want more freedom.  No, he said. I think most people prefer to be told what to do, think and believe. 

Surely not, I thought. Some people, yes, but not most. Maybe the Soviet Union is different,  having had little experience of anything but authoritarian governments. Bur psychological research confirms that there are people who are drawn to authoritarians, seeking out authority in religion, or customs, or laws. They stick to familiar gender roles and resist diversity—whether in race, politics, sexual or gender orientation, religion, or just about anything else. They gravitate to authority figures in politics, join cults, listen only to select media, and blindly follow doctors’ orders—even that last one is not always a good thing.  In response to authoritarians moving into silos and echo chambers, those of us who do not share their worldview are driven to seek safety and affirmation by building our own silos and listening only to our own echo chambers.

I (and I imagine my readers) tend to think that authority must be earned and tested against our own values and perceptions.  But reading Anne Applebaum’s Twilight of Democracy, I am apparently in a minority.  I like diversity.  I try to seek out and listen to  other viewpoints in order to reflect more deeply on my own.  The same is true of my family members and most of my close friends. But the facts suggest we are a minority, or at worst, a silent and ineffective majority attempting to hold back the tidal waves of history. Worldwide, authoritarian regimes are taking power and stamping out resistance once they gain it by whatever means, including stealing elections and gaining control of the media. Emmanuel Macron and Volodymyr Zelenskyy are the exceptions, not the rule.

The division of society into  liberal-conservative, Republican-Democrat, religious-secular, and other binary categories is quite different from  this particular tension between authoritarians and libertarians. I do not use the term libertarian in it more recent sense of pro-free market and anti-government, but rather in the sense of questioning authority and looking for common ground between two extremes. I describe myself as both pro-life and pro-choice, pro-market and pro-government, each with their particular strengths and weaknesses and more useful as partners than opponents.  I look with sympathy and gratitude on those Republicans who are pro-free market but anti-authoritarian like Susan Collins. Lisa Murkowski, and Mitt Romney.

I am somewhere on the spectrum from pessimism to hope to optimism between the latter two. My inborn optimism has retreated to hope. But theologian Joanna Macy reminds us that hope by itself is not worth much unless it is activist hope.  Pessimism is just giving up.  Optimism is the unjustified belief, like Dr. Pangloss in Candide, that “all is [or will be} for the best in this best of all possible worlds.” Active hope is the most powerful response. Those of us who truly believe in democracy have to earn it by resistance and support.  We need to be “woke” not just to the sufferings of the oppressed but to the very real threats to tear down what protections they already have in our laws, our courts, our constitution that are now all under attack.

Where is the resistance? In the 1950s (actually 1949) there was Orwell’s 1984. In the1960s there was a Broadway play by Ionescu called Rhinoceros.  Each cast member gradually turned into a rhinoceros, following the herd, trying to conform. In the 1970s, it was The Stepford Wives .Then the anti-authoritarianism that is another deep current in American culture turned to folk music and sitcoms on the wave of civil rights, the women’s movement, and environmentalism. Since 1980, however, the tide has steadily turned, to push back,the fragmenting a society, culture and economy that had previously been perceived (inaccurately) as a unified nation (or plantation) peacefully overseen by old wealthy white men.

Where and how do we begin to revive the resistance?  Free and fair elections historically have been the most common casualty of the rise of authoritarianism around the world,aided by control of the media.T

here is a rich array of electoral tools forged in the Jim Crow era and enhanced by modern technology and gerrymandered state legislatures to suppress the vote, purge the rolls, limit access to the polls, discourage mail in ballots, and target those voters least likely to support their party and its candidates—poor, people of color, young people. Carol Anderson’s One Person, No Vote offers, a powerful account of these methods of undermining democratic elections in the last 50 years .  But there are also stories of hope. Anderson tells the story of one Native American community that resisted efforts to keep them from voting, with election officials using as a pretext the  lack of suitable IDs and mailing addresses.  A labor-intensive volunteer effort overcame those obstacles, provided everyone with a legal street address, ensured that tribal IDs were accepted, and reclaimed their right to vote.

What can you do to push back against the tide?

What ever happened to money?

Bitcoin, as most of you know, is a way of making payments and storing financial assets that escapes the oversight of governments (at least so far) because it is a digital currency that rests in virtual world. Creating bitcoin takes real resources with significant consequences for the health and well being of humans and the earth’s climate.  It expends enormous amounts of electricity to “mine” the components of the bitcoins, which are crated on giant computers located in “mining” cities near cheap electricity.  The electricity used could be put to far more important ventures, while creating a block of bitcoin greatly enriches its creators. The market price of a bitcoin is currently over $40,000.

Recently a team of economists estimated the costs of producing bitcoin that are imposed on people other than the owners/creators.  The primary cost to creators is the amortization of the capital equipment required and the electricity and workers to produce it. The costs in increased mortality, climate change, and health damages from these operations amount to 37-49% of the coin’s value, depending on where the production is located. However, those costs are not borne by the producer, but by the rest of us. They are what economists call externalities.  Noise and air and water pollution are familiar examples of externalities.  Because the owners do not have to pay these external costs in the absence of regulation, they will overproduce goods and services that create negative externalities.

The process used by economists to determine those numbers is called cost-benefit analysis. Economists add up the costs of producing X and the benefits of producing X and either subtract the costs from the benefits or take the ratio of benefits to costs to determine whether a project is worthwhile.  When used in public sector projects, like building a highway or creating a new park, all costs and benefits are included, so the externalities are part of the cost.  For a private firm, however, the decision makers only include the costs they actually have to pay.  The purpose of much regulation, especially environmental regulation, is to require that the firm bear those costs as well—sometimes known as full-cost pricing. Bitcoin is not regulated and does not bear these costs..

The bitcoin industry is gulping up huge amounts of electric power, and that electric power creates significant externalities in its production, especially if it is derived from fossil fuels. In the Christian Bible there is a famous quotation: “The love of money is the root of all evil.”  (I Timothy 6:10.) I’m pretty sure the author of this quotation could not foresee bitcoins, but he certainly would have supported the idea that producing a form of money that does great harm to innocent bystanders—humans, animals, earth—while greatly enriching its creator would be a clear application of the evil that money can do..

The Cheerful Taxpayer

Income Tax Day, for many years March 15th, is now in April.  It would have fallen on the 15th except that Emancipation Day was a legal holiday in the nation’s capital, so tax filing was deferred to Easter Monday, which isn’t a holiday in very many places.

Many years ago, I was team teaching an introductory economics class with my dean, with whom I coauthored a principles textbook.  In the first class I asked them what words came to mind that they associated with economics.  One of them said, taxes. My co-author immediately responded with “taxation is theft”—a classic libertarian response.  I quoted Oliver Wendell Holmes:  “Taxes are the price we pay for a civilized society.” In a later reprise of this incident  with another conservative colleague,  he said, “The price is too high,” I responded “…or perhaps, the amount of civilization we get is too low.” Most of us may share the sentiments of  a less noted philosopher, the late Senator Russell Long, who is famous for observing that most people’s idea of a good tax system is “Don’t tax you. Don’t tax me. Tax that man there under the tree.”

So, what is a fair way to tax people?  Historically, there are three ways to tax. The government can tax what we earn, what we spend, or what we own.  These three are known as income taxes, sales and use taxes, and property or wealth taxes.   It’s a good idea to have more than one way to tax, because it’s not hard to evade one but very difficult to evade all three. FYI, tax evasion is illegal. That’s how Al Capone wound up in jail. )Tax avoidance, however,  is perfectly legal—another quote from Oliver Wendell Holmes, “There is nothing illegal in a man (sic} so arranging his affairs in order to minimize his taxes.” There is also a gray area that might be described in Brooklyn speech as tax “avoision.” More damaging to the revenue system than evasion, avoidance, or avoision ,is aversion, which is a resistance to paying taxes in order to fund government services.  The result is underfunding of the Social Security system and looming and accumulating budget deficits that become an excuse for reducing public services.

When I used to teach taxation in undergraduate classes, I reminded them of Scrooge McDuck (a reference that would be lost on most contemporary students). He spent nothing, did not have a job, and simply held an enormous amount of wealth. If he invested it he would at least, so he paid no sales taxes or social security taxes. Perhaps he had to pay income taxes on his investment earnings—it was never clear in the comic strip how he became so rich. Current proposals suggest a billionaires’ tax aimed at what people own rather than just what they earn.  Scrooge McDuck would be in trouble.

 There’s also a fourth source of government revenue, fees for public services, from admission to parks and highway tolls to tuition at public colleges and city water and sewer services. These fees have become increasingly popular as an alternative because people feel they have some control over consumption, but they also tend to be very regressive (= take a larger share of income from those at the bottom of the scale).

Since April is the month for income tax, let’s concentrate on that kind of tax for the rest of this post. The federal government required a constitutional amendment (the 16th) to institute an income tax in 1916. The rates became steeply progressive during World War II and gradually cruised back down with a series of tax legislation that widened brackets and reduced rates.  The most recent such bill was Trump’s highly touted tax cut that was heavily slanted toward the wealthy.

The average American paid 13.3 percent of adjusted gross income n federal income taxes in 2019.  A second important tax on income for those who are working is the Social Security Tax, which is 6.2 percent of earnings each for employer and employee, or 12.4 percent for a self-employed person.  Unlike the income tax, there is a cap on the amount of one’s earned income that is subject to Social Security tax, earnings of up to $147,000. For poorer households that have limited income derived entirely from wage earnings, the Social Security tax is clearly regressive.  

Only 19 percent of Americans, including many entry-level workers and retirees, paid neither type of income or wage  tax. As we have reduced reliance on the income tax (but not the Social Security tax), the tax system as a whole–federal, state, and local—has become increasingly regressive. At the same time, in part because of the tax system, the distribution of income and wealth has become increasingly unequal.

If we want a civilized society, one that provides a safety net for those going through difficult times and a certain basic amount of security from disasters, misfortunes, and other hazards of human life, we have to be willing to pay or fair share without demonizing those who turn to the government to see them through those difficult times. So ,pay your taxes with as much cheer as you can muster and be grateful to live in a country that tries to respond to the needs of its citizens, or at least its voters. We are all in this together.  Or for a final quote from a famous American, Ben Franklin, “We must all hang together or we will all hang separately.”

More Than One Principle

More Than One Principle

I have been reading two interesting books on the evolution of 20th century American economics in the late 20th century that have confirmed some of my worst suspicions of the harm that has been done by my profession. One was Democracy in Chains by Nancy McLean, a history of the growth of the anti-government public choice school.  The other is The Economists’ Hour by Binyamin Applebaum, a history of the growing influence of monetarism and market-worship  and its influence on public policy. It would be a shame if these books were read only by economists, because their critiques are very discouraging about the future of our democracy, our society, and our economy.

As an economist, I was assured by my mentors and colleagues that our profession was value-free, merely a set of tools for making decisions. We told our students in lectures and textbooks that there were six measures of a well-functioning economy: efficiency, equity, and freedom for microeconomics and  growth, price stability, and full employment for macroeconomics. But when push came to shove, the pursuit of some of these indicators trumped the others, suggesting that they were not neutral measures of performance but in fact values that should guide our economic policies.

Efficiency and freedom trumped equity, price stability and growth trumped full employment. Over time, those priorities have resulted in low inflation, and growing inequality.  Growth, supposedly, would resolve that conflict.  In the Kennedy years, the favorite saying was “A rising tide lifts all boats.” And one dissident remarked, “but not those already under water.”  One might reasonably ask whose interests were served by that rank ordering. The law is on the side of the rich. Or, ,as Anatole France wryly observed, “The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread.”  

Who gains from freedom? Those who have the most control over resources, who want to be able to  use them as they see fit.  Who gains from efficiency? Those who control the increased profits resulting from greater efficiency. Who gains from equity? The rest of us.  Who gains from growth? Despite trickle-down and supply-side theories, there is no mechanism that ensures that the gains from economic growth will be widely shared across all sectors of society.  Price stability is highly prized by those who are lenders or owners of other financial assets, but a bit of inflation reduces the burden on debtors. Full employment empowers workers, but a “reserve army of the unemployed” (to borrow a phrase from Karl Marx) ensures  that the labor market will favor the owners over the workers.  What happens when unemployment is low? Well, for one thing, Amazon loses a union election!  And wages rise, as we have observed in the last six months, as employers have to compete for a dwindling supply of workers.

Who loses from creating mistrust in government, promotion of individualism rather than community, demonizing the poor and undermining democracy? Ultimately, all of us.  Economics has become a very short-sighted profession whose cost-benefit analysis does not lend itself to the promotion of peace, equality, democracy, environmental sustainability, and trust in one another, our institutions, and even our survival.

It was not always so.  As late as the 1960s, economics affirmed all six of those goals as qualified positives along with a need to find a balance in tradeoffs among them.  The government was seen, not as a power-hungry monster but rather as the check on the excesses of capitalism, a balancing mechanism that guaranteed access to the basic necessities of life and opportunity for all who were willing to work. No, it was not a golden age by any means, particularly in is failings of racism and sexism. But it was an era when the best minds went into science, engineer, medicine, teaching and other helping professions, not into finance.  As poet William Wordsworth observed, “Getting and spending, we lay waste our powers.” Perhaps it is time to reclaim our society from the economists and restore the pursuit of material wealth to its proper sphere as a means to an end rather than an end in itself.