The first chapter of Robert Reich's new book, Supercapitalism, is available to read at alternet.org now. In it, Reich makes some challenging points.

His thesis is that the new deregulated, global economy benefits consumers at the expense of workers. With Wal-Mart as his primary example, he lists many of the products whose prices have been significantly reduced by technology, regulatory retrenchment, and presumably deunionization or the lack or unionization in new industries. Better jobs may mean higher prices.

Provocative stuff, particularly given the author's credentials. I'm pretty convinced now that I'm going to pick up a copy of the book, because I'm hoping he'll answer a few questions.

First, which goods would be more expensive under greater governmental intervention and unionization? It isn't obvious that all prices would go up uniformly. For instance, if prices go up too much on certain types of food, people may stop buying them, or seek out better deals elsewhere. But let's say prices go up on futons or plasma-screen TVs to offset new costs. People with lots of flexibility in their discretionary income might not care and still buy that stuff.

Second, Reich advocates for large transfers of wealth through tax and budget bills. What's the political feasibility of such massive transfers, as compared to transfers achieved by intervention? How does Reich propose we pursue either?

Third, how much has deregulation contributed to increasing prices? Health care is a great example of where regulations might lower prices. But if we accept Reich's premise, will lower prices in health care hurt workers in that field? How would those costs be distributed among health care workers, or any other profession where costs have been going up?

Interesting stuff, nonetheless.

Harold Meyerson, in today's Washington Post:

Which is why a poll released this month by the Pew Research Center reveals a transformation of Americans' sense of their country and themselves that is startling. Pew asked Americans if their country was divided between haves and have-nots. In 1988, when Gallup asked that question, 26 percent of respondents said yes, while 71 percent said no. In 2001, when Pew asked it, 44 percent said yes and 53 percent said no. But when Pew asked it again this summer, the number of Americans who agreed that we live in a nation divided into haves and have-nots had risen to 48 percent -- exactly the same as the number of Americans who disagreed.

Take a look at the Pew study itself- it's pretty interesting.

The results seem to mirror what's been found on other studies of inequality and public perceptions. Perceptions of inequality are high during recessions (like in 2001) and during cycles where growth isn't shared equally (2007). But it's interesting that in 1988 people weren't that aware of inequality, so defined.

Pew's next step might be to see how much people care about inequality, and what they prefer to do about it. Perhaps then we can put to rest the myth that Americans are all happy-go-lucky capitalists who are satisfied however the just hand of the "market" rewards them.

The DC city council has capped payday loan rates...via DMIblog.

The D.C. Council voted 12 to 1 yesterday to approve legislation that would require payday loan stores to charge the same annual percentage rate as banks and credit unions, a limit that the payday lending industry says will put them out of business in the city.

The council was not swayed by the industry's fervent lobbying during the past month or the cautionary words yesterday of council member Marion Barry (D-Ward 8), an original co-sponsor of the legislation. Barry warned that some residents would have nowhere else to go for emergency loans.

Over a three year period (that included the Hurricane Katrina disaster), did the ABC nightly news run more stories about Michael Jackson or poverty?

If you guessed Michael Jackson, you'd be right. See FAIR's study on poverty stories on network news shows for more.

FAIR's study examined the three weeknight network newscasts—ABC World News, CBS Evening News and NBC Nightly News—over a 38-month period (9/11/03— 10/30/06). We considered every story mentioning the words "poverty," "low income," "homeless," "welfare" or "food stamps," compiling a list of all stories that dealt with issues of poverty in more than a passing manner.

It was a short list. During the more than three years studied, there were just 58 stories about poverty on the three network newscasts, including just 191 quoted sources. For perspective, a FAIR study of network newscasts (Extra!, 5—6/02) found that in just one year (2001), the three networks included a total of 14,632 sources. Assuming that the nightly news still features a like number of sources per year, that would amount to some 46,000 sources over the 38 months of FAIR's study, making sources appearing in poverty stories just 0.4 percent of overall sources.

This really is a problem. Studies have shown that the sheer quantity of media stories on poverty and inequality can have a significant affect on public opinion and policy preferences. When the media focus is elsewhere, raw trends in inequality and poverty generally don't have nearly as much impact on public perceptions these days.

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Studying public opinion on economic inequality can make you both hopeful and cynical. On the one hand, we sincerely don't like extreme and rising inequality, for uniquely American reasons. But on the other, we support legislation -the 2001 and 2003 tax cuts being most notable- that make society even more unequal. And we don't support a lot of legislation that would level the playing field. This inconsistency can bring you down a road you don't want to follow- where you doubt the capacity of the public to act in its own interest.

But let's leave that to the fringe right-wing of folks like Prof. Bryan Caplan, who proposed distributing the franchise on probably the same basis as he determines eligibility for high-level economics courses.

The public can and does act in its own best interests, if it's given the chance.

Why should anybody be so cheery? Well, there's an interesting paper by Profs. Jacob Hacker and Paul Pierson on the tax cuts and public opinion that makes the case that these inconsistencies are less evidence of cognitive failure than of manipulation and a broken system. They found that the tax cuts were supported on their own, but not when they had to be weighed against alternative uses of the same money.

When asked about these competing uses, voters consistently saw tax cuts as a lower priority than plausible alternative uses of the forecasted surpluses...Versus Social Security, tax cuts lost by a 74 to 21 percent margin. Versus Medicare, the margin is 65 to 25 percent. Even when Social Security is take out of consideration, 69 percent of respondents preferred using extra monies on "education, the environment, health care, crime-fighting, and military defense," rather than a tax cut, which garnered just 22 percent support.

Agenda management proved crucial in moving the legislation, and so did efforts to minimize the potential cost of the tax cuts and mislead the public about its distribution. Tax cut proponents used deceitful frames, policy designs, cost estimates, and other gimmicks.

The administration and its allies came into office determined to overstate the surplus and understate the size of the tax cuts, hiding the true budgetary effects of the tax cuts would minimize the danger of the fiscal tradeoffs becoming salient. budget estimates of the Congressional Budget Office (CBO) that overstated the surplus under any plausible scenario were a great help....[the architects of the tax cut] added in numerous unrealistic assumptions of their own. Most notably, supporters of the tax cut refrained from discounting revenues that were almost certain to dissipate. The key example is the the Alternative Minimum Tax (AMT)...

In the end, how did they get away with all this (emph. mine)?

Yet even in today's political system not all matters lend themselves to the dynamic we have unearthed in this case. not all issues make voters eyes glaze over in the way that details of tax policy do. On matters such as abortion or the environment, extreme policy initiatives run up against opposition that is knowledge-rich, well organized, and poised to react.

With respect to economic and class issues, however, the situation is different. As the passage of the 2001 tax cut starkly displays, it is here that the political resources that voters need to ensure responsiveness have eroded the most. The decline of unions and locally rooted Democratic Party organizations, coupled with widespread disillusionment about the political process, has left lower- and middle-income citizens dependent on the media and a race-horse-obsessed discourse shorn of much content. It is now possible for policy makers to venture far from the average voter on important matters. But there is nothing random about the kinds of adventures that are possible, the types of voters most likely to benefit, or the citizens most likely to pay the price.

The rationality of the public should not concern us, but the state of civil society probably should.

You may recall a couple of weeks ago Bob Samuelson wrote a column blaming illegal immigration for the apparent lack of progress in fighting poverty. Today, Executive Director of the Center on Budget and Policy Priorities Robert Greenstein pens on op-ed in the Washington Post chiding Samuelson's carelessness with his use of Census Bureau poverty data.

Poverty, race, ethnicity and immigration are complicated and controversial issues, and they arouse strong passions. That's all the more reason that we should be careful how we use data to tell a story. We should not oversimplify a complicated story, as the normally careful Samuelson has done here.

From Inclusion and CEPR, a great report on how unions can raise incomes and benefits for low-wage workers. Unionized workers in low-wage jobs made 16 percent more than non-unionized workers, and were 25 percent more likely to get health insurance, and 25 percent more likely to get a pension. And that matters a lot:

These union effects are large by any measure. To put these findings into perspective, between 1996 and 2000, a period of sustained, low unemployment that helped to produce the best wage growth for low-wage workers in the last three decades, the real wage of 10th percentile workers (who make more than 10 percent of workers, but less than 90 percent of workers), rose, in total, about 12 percent. The union wage effect was one third larger (16 percent) than the full impact of four years of historically rapid real wage growth.

Ensuring shared prosperity is anti-poverty policy, and union promotion is anti-poverty policy.

Martin Feldstein is resigning as the head of the National Bureau of Economic Research, which as I understand is the commanding heights of the economics profession. To get your head around how he and his peers think, take a look at this excerpt from an address he wrote a few months ago:

So economic policy changes occur as the ideas of the economics profession change and as those ideas become more widely diffused. By the late 1970s, many economists had abandoned their old Keynesian views as a result both of experience — especially the poor economic performance of the late 1960s and the 1970s— and of new economic analysis and research. The result has been a return to the traditional pre-Keynesian supply side policies that emphasize incentives, capital accumulation, and price stability.

What of the future? The battle for good economic policies is never over. There are always those who want to turn back the intellectual clock and return to counterproductive policies. They are always willing to sacrifice economic efficiency and growth in order to redistribute income more equally. In the extreme, some dislike inequality so much that they favor policies that will hurt those with higher incomes even when such policies would not help those who areless well off. Fortunately, such spiteful egalitarianism is rare in the United States.

Redistribution is a harmful trade-off or born of unvirtuous envy. Supply-side economics is good, everything else is bad. These are the fundamental assumptions of the dominant paradigm in economics. Whenever I read a mainstream economist's work, I try to keep in mind the fact that very few of them ever think critically about these assumptions. It is an unfortunate discredit to a profession that's supposed foster open inquiry, I think.

Have a happy retirement, Prof. Feldstein.

Doing the work of his moneyed constituency, Joint Economic Committee ranking member Rep. Jim Saxton (R-NJ) issued a press release this week proclaiming that inequality in American remains unchanged since 2001. Citing the Census Bureau's latest Gini Coefficient, a numerical measure of income inequality, Saxon warns Congress about enacting any legislation aimed at curbing inequality.

"Despite all the discussion about income inequality, the fact is that it hasn't changed in recent years, according to the Census Bureau measure...Congress should consider this fact before acting on the assumption that income inequality is surging."

Indeed. Congress should consider the Census statistic...because it's critically flawed.

Center on Budget and Policy priorities explains:

The Census data fail to capture a substantial amount of income at the top of the income scale, in part because the Census Bureau records income only up to certain specified levels. For example, earnings above $999,999 are not counted; if an individual has a job paying $5 million, his or her earnings are recorded by Census as $999,999. In addition, the Census data leave out all capital gains income, which flows disproportionately to the most affluent households.

[Research] which incorporates Internal Revenue Service data that reflect actual incomes at the top of the income scale finds that the top one percent of households received nearly half — 49 percent — of the overall increase in household income that occurred in 2005. (Moreover, the top one percent of households received 19.3 percent of all income in 2005. This tied with 2000 as the largest percentage going to the top one percent of households since 1929.)

The Washington Monthly has two interesting articles on how to reduce the cost of health care- and at the same time, expand coverage and improve quality. Proof once again that there are humane and just ways to deal with the long-term fiscal gap.

Jason Furman, of the Brookings Institution's Hamilton Project, testified to Congress on the real "dynamic" affect of the regressive Bush tax cuts- they'll be a net loss for three-quarters of all taxpayers, who'll be burdened with paying them off in taxes and benefit cuts over the long haul. In other words, tax cuts don't pay for themselves- people do.

Prof. Larry Bartels's book on political and economic inequality- definitely worth a reading/skimming for anyone interested in the subject (on the off chance that people care, I've continued the blog series on inequality and public opinion in this week's Watcher, coming out later today. This doesn't rule out the possibility of more posting, but I'm pretty spent on the subject).

David Brooks in the NYT today promotes Stuart Butler's plan for reforming the health insurance system. Skepticism is advised, on political grounds.

The principle political obstacle holding back an efficient and fair benefit system is public fragmentation. Some of us get most benefits from the government- some of us get them from the private sector (with help from the government that often goes unrecognized). And most people don't want to lose what they have, even if it might be for a better deal later on.

This system is both unequal and inefficient. It creates smaller risk pools and prevents effective management of a dysfunctional health market. It distributes bigger benefits to higher paid workers, and fewer to low-paid workers. An increasing number of people are being left out of the system entirely.

But what Butler and Brooks have in mind is a further fragmentation of the public. They envision a system of many small "insurance exchanges" managed by different private social groups. While the proposal might have merits, it would serve to divide up the benefit system even further, and hinder reform later on. One can easily imagine that some exchanges will offer better benefits than others- that some people will like the system, and some won't- but that the people who like the system will defend it and keep anything better from taking shape, just like what we have today.

It might be refreshing to see conservatives recognize and meet the need for an expanded benefit system, and one where the public is playing a larger role than handing out tax breaks. But in the long-term, proposals like theirs will only make the benefit system more unequal and inefficient (a cynic might say that was the plan all along). What's really needed is a plan to move us away, in incremental steps, from a decentralized system and fragmented public.

(For more on this dynamic, check out the book The Divided Welfare State)

Why do Americans think inequality is a bad thing?

There are, at least, five distinct explanations. A. It's in the majority's self-interest to redistribute. B. The public thinks unequal market outcomes are undeserved. C. It believes in unconditional equality. D. It believes in redistribution according to need. E. It believes unequal market outcomes are inefficient.

A good paper on the subject argues that it's mostly B. The authors, drawing on 1998 survey data, found a strong preference for redistribution by dessert. Preferred conceptions of justice, however, varied by race and education. Educated whites had a stronger preference for redistribution, and racial minorities more likely to favor redistribution by need or unconditional equality. But:

Despite this heterogeneity in the value of distributing income according to desert, differences in demand for governmental redistribution turn out to be mostly driven by differences in the beliefs about the fairness of the market system. We find that differences in those beliefs are not only more powerful than differences in preferences, they are also a stronger determinant of political attitudes than the pre-fiscal income of individuals.

If much of the public believes that many market outcomes are unfair, what do they believe is a fair outcome? What makes someone deserving? For one, work and self-reliance seem to be quite important. Those who believe that poverty is caused by lack of effort tend to be unfavorably predisposed to redistributive policy. Unfortunately, according to this paper, these people are a majority.

Americans have much stronger beliefs that poverty is caused by laziness; sixty percent of Americans say the poor are lazy, compared to just 27% of Europeans. The authors argue that this could be an important explanation for the small size of the American welfare state compared to the average European welfare state. Our interpretation of these findings is that people are willing to help the poor, but they withdraw support when they perceive that the poor may cheat or fail to cooperate by not trying hard enough to be self-sufficient and morally upstanding.

Variations of this attitude are even present among the working class in the context of policies that would redistribute wealth to themselves. Stan Greenberg wrote about a focus group in 1996:

The grievances of the downscale electorate are rooted in behavior that offends these virtues. They see the world through this prism: those who support their personal efforts and those that undermine them; those who respect their virtue and those who disregard or take advantage of it; those who live by the same values and those who do not. It is the tension between virtue and grievance -- rather than between labor and capital -- that animates the working- and lower-middle-class electorate and that creates political energy. Political and economic messages will have to be rooted in this discourse about virtue if they are to capture the attention of downscale America.

The American public may have to be convinced that redistributive policy will benefit the deserving as most Americans understand the term, or that those who are receiving these benefits are considered deserving. Data on productivity, opportunity, and work hours could change people's minds, because the public may not know about them (I couldn't find any study that on this). Plenty of poor people and working class people are far from lazy. And the divergence between worker productivity and the median wage has two implications: most workers are not getting the fruit of their labors, and those rewards are going to people who didn't earn them. Figures on income mobility are also a great measure of circumstances beyond an individuals control that influence how much they make.

But cultural attitudes may not be the most significant barrier, since public opinion is, of course, firmly opposed to growing inequality. Public perceptions of the market and public policy -the means of reducing inequality- may be more important. After all, it's redistributive policy that's doesn't resonate enough. Why might this be, and what can we do about that? In Part IV.

Part I and Part II.

In his Washington Post column this week, Bob Samuelson abuses Census Bureau's Income, Poverty, and Health insurance Coverage in the United States 2006 to launch a critique of immigration policy.

The gist of his "reasoning" is this: From 1990 to 2006, the number of poor people increased by 2.9 million people. In those same years, the number of poor Hispanic people increased by 3.2 million while the number of poor whites and blacks and fell by 0.6 million and 0.8 million respectively. If we subtract out the increase in poor Hispanic individuals from the increase in the total number of poor individuals, we are actually left with a net decrease in the number of people in poverty from 1990 to 2006. Ergo, satisfactory progress has been made in poverty remediation, and flawed immigration policies are primarily responsible for strained social services, health care, and public education systems.

Why is it important to get this story straight?

One reason is truthfulness. It's usually held that we've made little, if any, progress against poverty. That's simply untrue.

...

We shouldn't think that our massive efforts to mitigate poverty have had no effect. Immigration hides our grudging progress.

A second reason is that immigration affects government policy. By default, our present policy is to import poor people. This imposes strains on local schools, public services and health care.

Samuelson, however, is simply peddling statistical misdirection and obfuscation.

As I wrote in Part I, Americans have a schizophrenic attitude toward inequality: mostly, we don't like it, but we also support policies that make it worse. How could that be?

For one, inequality can be too abstract and normatively ambiguous, as Prof. Leslie McCall argues. It is conceivable that growing inequality is a just desert, if certain people are working harder. And in day to day life, most people aren't forced to think about inequality. The term economic inequality, as opposed to poverty or racial inequality, does not mean much to the general public. Moral and conceptual ambiguity may make the public susceptible to taking action that's out of step with their beliefs.

Furthermore, policies that impact inequality- for better or worse- are complex. Prof. Larry Bartels argues that the tax cut packages may have been too nuanced for the public to easily grasp their implications.

Another culprit could be the narrow set of policy options available to address inequality. Prof. McCall speculated that political elites may not be offering policies that would significantly reverse inequality. A skewed tax cut may be the public's only hope for some governmental assistance, even if it does worsen inequality.

Negative public perceptions of government, particularly taxes, may be somewhat responsible. Pollster and strategist Stan Greenberg has done lots of interesting work on this subject. The public often blames government for social problems, and does not see how the government could or does make these problems better. Policymakers could tap or cultivate these attitudes to redistribute wealth upward, against the wishes of supporters.

Perceptions of social groups may also matter. Our privatized-hybrid welfare state is an institutional arrangement conducive to the perception (and perhaps reality) that a smaller government is advantageous. Interest groups that use governmental power to redistribute wealth to themselves are seen as undeserving by groups that do not receive the same government benefits or protections. Profs. Jacob Hacker and Paul Starr have written considerably on this dynamic. Racial minorities and immigrants also tend to take the blame for worsening economic conditions, and any redistribution they may receive could be seen as undeserved.

So what to do? I'd suggest an examination of why the public cares about inequality, as well as public attitudes toward government. That, for Part III.

It's a truism that Americans don't really seem to mind that inequality has increased so dramatically over the last three decades. After all, few policies have been enacted to reverse this trend, and American public opinion has generally become more conservative on fiscal policy. But in significant ways, public opinion studies don't support this truism. The public mostly opposes growing inequality, a fact that has held steady for the least three decades, with some variation in scope and intensity.

The issue has two parts, as Prof. Leslie McCall wrote in 2003: do Americans know, and do they care, about inequality? McCall found that, with some variation over time, a majority of Americans were both aware of and opposed to rising inequality. Yet during the period when Americans grew most intolerant of inequality -between 1992 and 1996- their political identification become more conservative.

...let me summarize the results in terms of whether they account for the large, unexplained increase in intense opposition to inequality that occurred in 1992 and 1996...Thus, on net, the population shifted towards groups that were more likely to be tolerant of inequality over the course of the 1990s...In sum, although we know much more about who 23 opposes inequality and who tolerates inequality in all four years, the substantial increase in intense opposition to inequality in 1992 and 1996 is still largely unexplained.

McCall also found that public knowledge of inequality is highly correlated with how much the media paid attention to it. And as media and political elites come to accept growing inequality, mostly as an inevitable byproduct of a growing economy, public concern tends to diminish as well.

Prof. Larry Bartels's 2004 study of public opinion also found that a significant portion of the public has mixed to negative feelings about inequality. However, public reasoning about inequality often fails when it comes to policy decisions. Many Americans who didn't like inequality still supported the Bush tax cuts of 2001 and 2003, whose benefits skewed highly to the wealthy. Indeed, even well-informed citizens, aware of what they would or would not gain, were still likely to favor a repeal of the estate tax.

At the same time, these results highlight the real limits of political education as a transforming force. In the case of the inheritance tax, even well-informed citizens who recognized and regretted the increasing gap in incomes between rich and poor in contemporary America were only about as likely to oppose repeal as they were to favor it. And less well-informed, less sophisticated people were correspondingly more likely to favor repeal, even if they recognized and regretted the fact that economic inequality has increased. Viewed from this perspective, the results in Table 7 suggest that, even if every person in America could be made to see that economic inequality has increased and made to feel that that is a bad thing, the overall distribution of public opinion about the inheritance tax would change very little.46

Bartels also found that support for the tax cuts may arise from an "unenlightened" sense of self-interest. People who felt that they were taxed too high -regardless of how much they would benefit from the Bush tax cuts- were much more likely to support the cuts.

In sum, the American public finds rising inequality objectionable, but supports parties and policies that would make it worse. Why do Americans have this schizophrenic attitude toward inequality? I'll bring together some of the answers to that question in part II.

In the Huffington Post, Sen. Bernie Sanders (D-VT) objects to OMB Director nominee Jim Nussle.

The Senate votes Tuesday on the nomination of former Iowa Congressman James Nussle to be the White House budget director. Personally, I like Jim Nussle. We came to Washington together and I worked with him for 16 years in the House of Representatives. He's smart. He is passionate. My strong opposition to Jim Nussle becoming Director of the Office of Management and Budget has much less to do with Mr. Nussle and much more to do with the current failed trickle-down economic policies of the Bush administration. The problem is that the president and his advisors have become increasingly isolated and out of touch with the economic realities facing ordinary Americans. While the middle class continues to shrink, poverty is increasing, the gap between the rich and everyone else is growing wider and wider, and millions of Americans are working longer hours for lower wages.

OMB Watch has released a statement on the Nussle nomination.