Tag: fairness

The Percentage Fallacy: A Modest Proposal

~ purplesage41 ~ 2 Comments

Have you noticed how many financial choices are calibrated, not in dollars and cents, but in percentages?  Raises. Cost of living adjustments. Tips for servers. Taxes. One of the insidious effects of such percentage adjustments is to widen the gap between the haves and the have-nots, hie rich and the poor.

A few examples.  You and a friend go out to lunch, paying separately. You are hungry, she is not. The effort by the server is not proportional to the dollar value of your order.  Your bill for food including tax is $45, hers is $20. You both give a 20% tip. You add $9, she adds $4. Does that make any sense? If you are paying the waiter for his service, shouldn’t the tip each of you pay represent the quality of service and not the price of the meal? I’m not trying to stiff servers here, just being a little more egalitarian.  I don’t tip at drive-in windows or fast food restaurants where the service is minimal, but I will probably tip more at a fancy restaurant than a pizza joint. Perhaps it should be a function of how long we spend sitting there, preventing someone else from claiming that space and generate another tip. Or, if there is a single payer, perhaps the tip should reflect the number of people served rather than the total cost.

Second example. Social Security, or anything that else is adjusted for the increase in the cost of a representative basket of goods and services purchased by the average household.  Let’s take this coming year, where the COLA for Social Security will be 2.7%. The average monthly Social Security benefit in July 2025 was just over $2000. A 2.7% raise is another $54 a month for a single individual.  The maximum benefit is $6000, resulting in a raise of $162 a month.  Don’t these two retirees pay the same price for a gallon of gas or a loaf of bread?  And what if you are down at the lower end of the scale, say a monthly benefit of $1000 a month?. Your raise is a stingy $27 a month. In fact, it probably won’t even cover the increase in your Medicare premium except maybe for those at the top of the scale..

A similar inequity exists when an employer, often a state government, proclaims percentage raises across the board.  The $15,000 a year custodian gets a 5% raise to $15,750 and the $90,000 engineer sees his salary rise to $94,500. Basic costs go up for both, but the difference in COLA widens the income gap.

There is a place for percentages.  I give 10% of my income to charity, a guideline set by Hebrew scriptures that has had remarkable staying power. The tithe embodies the idea is that one has been blessed, the more one is expected to contribute. And I certainly understand the rationale for other kinds of raises, for meritorious performance or to retain a valued employee in a competitive market.  But if it is a COLA, both the poor and the rich see the increase in price of bread, the rent or mortgage for housing, the gallon of gas, the kilowatt of electricity. Wealthier households have more flexibility in adjusting to inflation.

So, what’s the answer?  For tips, it’s a matter of personal preference. If I am taking my daughter and granddaughter to lunch, I tip on the basis of the number served. If it’s just me, I usually tip $4-5 unless the service is exceptional. For a COLA, a solution is even simpler. The average Social Security recipient’s monthly check is $2,000. The COLA is 2.7% of $54 a month. Why shouldn’t everyone get the same dollar amount? should one person get $27 and another $162 and someone else get $27 a month when the basket of goods being priced is the same? In a nation of rapidly rising inequality, why do we let COLAs exacerbate the gap?

Diversity, Equity, and Inclusion

~ purplesage41 ~ 3 Comments


In 1967, I was a 26-year-old newly hired part-time assistant professor of economics at a southern state university. I just happened to be in the neighborhood because my husband was a new faculty member in the physics department. Part-time was my choice: I had two daughters, ages three and one, and a dissertation to finish.
I sat down for a chat with my department head. Holley, he said, you know that you are the only woman among six men. I nodded, and he went on. “You are liberal, we are conservative. You are a Yankee, we are Southerners. Your degree is from a Northern University, we ae all products of southern Universities.” He paused, and I waited. Finally, he said, “You know, if you were just black, you’d be perfect.” I wasn’t a “DEI hire,” as far as he was concerned. I was just a blessing that had dropped unexpectedly into his domain, and he was grateful.
In the late 1960s, acceptance of diversity as a desirable situation was widely affirmed, especially in colleges and universities. What went wrong? What made DEI the official abbreviation for highway to hell?
Diversity is a fact, something that can be described and measured. Equity is a value, an affirmation that as a society we believe that everyone should have a fair chance at opportunities. Inclusion is an act, an effort to make everyone welcome in the candidate pool. Later came measurement and with measurement, quotas. What percentage of your faculty/staff/student population is nonwhite? Female? How do you accommodate people with disabilities? DEI became a slogan for governments, firms, and organizations. Look, we have a black CEO! You can trust us.
Then it became a game, and beyond that, a backlash. Many years after that chat with my department head, I had another conversation late in the evening with a younger male friend who felt that DEI had shortchanged him. He said, I wanted to go to Princeton, and I had a1300 on my SAT, but they gave that place to some woman instead. I paused for a moment and said, “I really wanted to go to Yale in 1959, and I had 1500 on my SATs, but Yale was not admitting women until ten years later.” There is no easy way to counteract the effects of past discrimination. Life is short, and changing attitudes, beliefs and misconceptions is slow work, with a temptation for governments to respond with mandates and measurements.
My own education was enriched by learning from professors and colleagues of a different culture (southern), gender (men), age, and political values. It was also enriched by student diversity, especially in the last 15 years of my long career when I was teaching students from all over the world in a Ph.D. program in Policy Studies.
The backlash against DEI has been a long time in coming, but today it is in overdrive. For those of us who believe that equity is a value that addresses the fact of diversity that is best served by efforts to include a more diverse array of employees, customers, investors, colleagues, etc., what can we do?
First, we can share our own positive experiences of diversity, and I do whenever there is an opportunity. What stories do you have to tell?

Second, as an economist, I believe in the power of money. We can shop with and invest in firms that are intentionally inclusive. The president administration has done us a great favor by making clear who is and who is not on board with DEI so that we can direct our dollars accordingly. We know that Target, Walmart, amazon, the Washington Post and Lowe’s do not share DEI value and have in fact deleted the ones that were once part of their corporate credo.

On the investing side, there are three kinds of positive signals from companies, mutual funds and other investment instruments> DEI, ESG, and B-corporations. ESG stands for environment, social, and governance—a commitment by the form to minimize environmental damage in their work, to be attuned to the needs of communities, minorities, workers, and suppliers, and to practice transparency and accountability in their governance. A B-corporation actually has environmental and social goals written into its corporate charter and is required to account for them annually to their shareholders. If you are interested in the investment side, google socially responsible investing and see what you can find. A number of mutual funds offer socially responsible investing in both their own management activities and in choosing what firms to invest in.

Third, there is money that we give away. Some of it can go to organizations who do good work among the “outcasts”—immigrants, former convicts, impoverished families, victims of domestic abuse, global giving to help people in other countries. Charity Navigator can help you evaluate which nonprofits to support. Other nonprofits like ACLU will direct your funds toward resisting the backlash, as will your campaign contributions to candidates who represent or support e inclusion as an action that acknowledges diversity and values equity.

Sexism, racism, xenophobia, ageism, and other forms of targeting marginalized groups is not new. It has been around at least since the Greeks referred to all non-Greeks as barbarians. But the facts of life can be changed by the determined efforts of good people who care about the world we are handing off to future generations. DEI backlash is only a symptom of a much deeper malaise, but for me, it is a good place to strengthen and deepen my work for The Resistance. I hope the same is true for you.

Saving Social Security

~ purplesage41 ~ Leave a comment

There are a lot of small steps that could be taken to save Social Security.  Raising the retirement age is not such a hot idea. It penalizes workers who work in more strenuous and low wage jobs, often accompanied by lower life expectancy. It assumes that all potential retirees ae equally able to continue working even if they are in declining health (but not bad enough to qualify for disability). 

Let’s explore a couple of options that would shift more of the cost to those who need Social Security least. First, remove or at least greatly increase the cap on how much of your wages and salary are subject to social security taxes.  Second, put a cap on the amount of your income that is counted toward determining your benefits.  And finally, rethink the COLA.

The first two are not complicated.  There has always been a cap on the amount of earnings that are taxed, although there is no good reason for it. Higher income workers often have additional non-wage, non-salary income that is only subject to ordinary income tax, not Social Security taxes.  Average workers seldom do. Those who don’t work at all but live off their income from capital don’t contribute anything. Whatever happened to the social part of Social Security, which suggests we are all in this together?

For 2024, that cap on social security taxes is set at a wage and salary income of $168,600, adjusted each year based on the percentage increase in average wages. I don’t see any particular need for a cap, other than lobbyists for wealthier citizens appearing to have the ear of Congress. But if there is a cap, it should be set at something like 80th percentile of wage and salary income. (That’s the amount that has 80% making less and 20% making more.)  That way, when people get outrageous salaries for heading a nonprofit, a corporation, a university, or a football program, they will be carrying a fairer share of the cost of keeping our old folks out of poverty.

We don’t want the very wealthy to get more benefits just because they increase their contributions, so the wage /salary base used to compute the monthly check should be capped at some at something like the 60th percentile of the individual’s average wage and salary income used to determine benefits.

Lastly, the COLA or cost of living adjustment , which is based on the inflation rate for the 12 months ending the previous June 30th.  COLAs are a great engine of inequality.  In South Carolina, pension reform a decade ago included a cap on increases..  We state retirees get a one percent increase every year regardless of actual inflation, but there is a cap is of $500. That’s one percent of $50,000. Any pension greater than that gets the same $500 a year raise.

Think about it.  Jane’s Social security benefit check is $2,000, just a shade above the average of $1907.  average, about $1900.  Dick’s check is the maximum of $4873, which we will round down to $4800 for easy calculation. . Both must contend with higher prices for housing, groceries, and insurance. This year’s 2.5% COLA gives Jane $50 more a month while Dick gets an extra $120.  The percentage gap between their incomes is unchanged, but percentages don’t pay the electric bill. The dollar gap has risen from $2800 to $2870, and that gap grows year after year.A cap on the COLA like South Carolina’s (about $5 a month) would be more equalizing. Or setting the cap at the COLA percentage of the average benefit and give that to everyone, which would do ven more fot those at the bottom of the scale. Let’s think creatively here!

After we survive the election, let’s go back to thinking about how a civilized society that believes in fairness would shore up Social Security with more revenue and slower growth of overall benefit, with the scales tipped toward the lower half of the income spectrum.  And January is not too soon to get started. We can call it The Other Project 2025.