AEIdeas » James Pethokoukis http://www.aei-ideas.org The public policy blog of the American Enterprise Institute Sun, 20 Apr 2014 01:22:37 +0000 en-US hourly 1 America’s (very) progressive federal tax system http://www.aei-ideas.org/2014/04/americas-very-progressive-federal-tax-system/ http://www.aei-ideas.org/2014/04/americas-very-progressive-federal-tax-system/#comments Fri, 18 Apr 2014 15:40:54 +0000 http://www.aei-ideas.org/?p=128134 From Veronique de Rugy at Mercatus.

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Please, enough with the state film subsidies http://www.aei-ideas.org/2014/04/please-enough-with-the-state-film-subsidies/ http://www.aei-ideas.org/2014/04/please-enough-with-the-state-film-subsidies/#comments Fri, 18 Apr 2014 14:55:06 +0000 http://www.aei-ideas.org/?p=128124 read more >]]> This New York Times headline “Hollywood Begs for a Tax Break in Some States, Including California”  was all I needed to read about this notorious and indisputably bad idea. From the Center on Budget and Policy Priorities:

State film subsidies are a wasteful, ineffective, and unfair instrument of economic development. While they appear to be a “quick fix” that provides jobs and business to state residents with only a short lag, in reality they benefit mostly non-residents, especially well-paid non-resident film and TV professionals. Some residents benefit from these subsidies, but most end up paying for them in the form of fewer services — such as education, healthcare, and police and fire protection — or higher taxes elsewhere. The benefits to the few are highly visible; the costs to the majority are hidden because they are spread so widely and detached from the subsidies.

State governments cannot afford to fritter away scarce public funds on film subsidies, or, for that matter, any other wasteful tax break. Instead, policymakers should broaden the base of their taxes to create a fairer and more neutral tax system. Economic development funds should be targeted on programs that are much more likely to be effective in the long run, such as support of education and training, enhancement of public safety, and maintenance and improvement of public infrastructure. Effective public support of economic development may not be glamorous, but at its best, it creates lasting benefits for residents from all walks of life.

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‘Without abandoning principles, we need practical policies based on moral empathy’ http://www.aei-ideas.org/2014/04/without-abandoning-principles-we-need-practical-policies-based-on-moral-empathy/ http://www.aei-ideas.org/2014/04/without-abandoning-principles-we-need-practical-policies-based-on-moral-empathy/#comments Fri, 18 Apr 2014 14:38:38 +0000 http://www.aei-ideas.org/?p=128117 read more >]]> My boss Arthur Brooks tells New York Times readers what he learned from the Dalai Lama in Dharamsala, India, and what the Dalai Lama can teach Washington. Read the whole thing, of course, but this I think is the main takeaway: “Without abandoning principles, we need practical policies based on moral empathy.”

Policymakers need to (a) deeply understand the actual problems faced by their fellow citizens, (b) carefully formulate plans with potential to ameliorate those problems, and care enough to push those plans in the face of special-interest opposition. Oh, and all of the above needs to be informed by values. Which values, exactly? Well, these would be a great start …

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Jacking up investment taxes to reduce income inequality is a bad idea http://www.aei-ideas.org/2014/04/jacking-up-investment-taxes-to-reduce-income-inequality-is-a-bad-idea/ http://www.aei-ideas.org/2014/04/jacking-up-investment-taxes-to-reduce-income-inequality-is-a-bad-idea/#comments Fri, 18 Apr 2014 13:47:34 +0000 http://www.aei-ideas.org/?p=128109 read more >]]> New York Times columnist Floyd Norris hates that investment income gets special tax treatment. He just doesn’t see a persuasive reason for it. So Norris counts it a good thing how the 2013 tax hikes on investment income will narrow the gap in tax rates between “the superrich and the very rich.” And if he had his way, investment income would be taxed at the same rates as labor income:

Of course, ordinary Americans also are eligible for preferential tax rates on dividends and capital gains, and for most of us they remain at 15 percent. The catch is that few of us have a lot of investments in taxable accounts and therefore derive little benefit from those breaks. … If Congress ever gets serious about increasing tax revenue enough to pay for the spending bills it passes, the big tax advantage given to unearned income may have to be reduced, if not eliminated.  … This year, that tax advantage has been reduced, even if only for some of the highest-paid Americans. It is a start toward a tax policy that no longer discriminates against people who have to work for a living because they do not have dividend checks to support them.

Here’s the thing, though: The capital gains preference reduces some key distortions and inefficiencies in the tax code: the lock-in effect (investors retain assets they would otherwise sell because of high tax rates), the bias against equity-financed investment by C corporations versus debt financing, and the penalty on savings. Indeed, many economists think shifting the US to a consumption tax, which would not tax investment income, would boost economic growth. Another possible, pro-growth reform–one I am surprised Norris fails to mention–would be to tax at ordinary rates an individual’s investments gains as they accrue and then match that with an elimination of the corporate income tax. Finally, if you are worried that the tax code discriminates against wage earners, why not expand capital ownership whether through expanded entrepreneurship, Social Security reform, or government-seeded personal stock portfolios. Lots of the doomsaying on inequality assumes weak economic growth. Let’s not accidentally make that a self-fulfilling prophecy.

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On Europe’s taxi cartels … http://www.aei-ideas.org/2014/04/on-europes-tax-cartels/ http://www.aei-ideas.org/2014/04/on-europes-tax-cartels/#comments Thu, 17 Apr 2014 18:34:23 +0000 http://www.aei-ideas.org/?p=128080 read more >]]> The FT on tax cartels trying to crush app-enabled taxi services in Europe:

Reining in these apps in this way is completely absurd. Internet-based technologies are revolutionising industries and shifting employment patterns across the world. Why should taxi drivers be exempt? Neelie Kroes, the EU digital commissioner, described the Brussels court’s decision as “crazy” and “outrageous”. She was right to do so.

The views of the taxi lobbyists cannot be completely dismissed. Licensed taxi drivers in many cities have paid large sums of money to acquire their permits, often through auction. In Paris, drivers pay more than €200,000 to acquire one of the limited number of state taxi licences. In Florence, the cost of permits was recently put at €300,000. New York yellow cab medallions have been sold at auction for close to $1m. Many drivers view these licences as an asset that will guarantee their pension. Having made that investment, they will fight hard against any attempt to devalue it.

At the same time, city regulators will be wary of allowing a taxi free-for-all. A completely unlicensed taxi market has very low costs of entry. If too many drivers enter this market, urban congestion will result. Arguments about the safety of an unregulated market also have some validity.

Still, “e-hailing” is bedding in and the cartels will have to respond. Licensed drivers appeal to some as a service that is more secure and regulated. But one thing they could do is learn some lessons from the taxi-app business. Hailo, a London-based app company, now has 60 per cent of the city’s black cab drivers on its books. It has neatly fused licensed taxis with new technology.

Ultimately, however, licensed taxis will only survive if they go further. There need to be more permits, lower fares and faster pickups. If the taxi cartels fail to change, they will be “apped” to death.

 

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Charles Murray on crony capitalism and the superrich http://www.aei-ideas.org/2014/04/charles-murray-on-crony-capitalism-and-the-superrich/ http://www.aei-ideas.org/2014/04/charles-murray-on-crony-capitalism-and-the-superrich/#comments Thu, 17 Apr 2014 17:42:02 +0000 http://www.aei-ideas.org/?p=128063 read more >]]> Here is a really interesting exchange on inequality between AEI’s Charles Murray and the Wall Street Journal’s Mary Kissel (via RealClearPolitics):

MARY KISSEL, WSJ: Why are these themes that are so divisive, income inequality, fairness, why do Democrats use them? Why do they work?

CHARLES MURRAY: Partly they use them for their own reasons, but they do it partly because the American upper class has given them a wide open target.

KISSEL: You’re blaming the 1 percent, why?

MURRAY: Yeah, to a great extent. I’ll give you some examples: the 25,000 square foot homes, the private jets, but more than that, the sense that a lot of Americans have that the game is rigged now. And the problem is, a lot of that is true.

KISSEL: But Charles, we’re a capitalist society, what’s rigged? I mean, if you make a lot of money, what is wrong with building a big home or owning a private jet? We would support that on the editorial page.

MURRAY: There’s a couple of things, one is that it’s an American tradition that you don’t get too big for your britches once you get rich.

KISSEL: I thought that was a Social Democratic tradition in Britain or Australia. The tall poppy syndrome.

MURRAY: No, that was very capitalist, that you were one of the people once you got successful. That’s not nostalgia, that’s true. Back in the 1960s or 50s, when I was growing up, the executives of the Maytag company, in the town where I lived, wouldn’t buy Cadillacs, that was getting too fancy, too flamboyant.

There’s another thing that’s going on, Mary, which is even bigger: capitalism in bed with the government. Big time. The American people look at the way people make zillions of bucks because they can get the regulations they want to, because they get the government to support their technology. They see that going on, plus the crony capitalism. And the number of these capitalists are enthusiastically in favor of real competition is depressingly small.

KISSEL: Alright, but when the Democrats say the game is rigged, I’m thinking of Massachusetts Senator Liz Warren, this is a theme she uses all the time. She’s not talking about less regulation, she’s talking about more.

MURRAY: Yeah, yeah. I have no truck with the Warrens of the world. I’m actually speaking as someone who loves competition and free enterprise. And I’m saying to the people who are supposedly on my side, you guys better practice what you preach. Because a lot of you aren’t.

KISSEL: Do you think that the Occupy Wall Street movement on the left, and the Tea Party on the right are both reactions to that same thing, that kind of cronyism?

MURRAY: It’s the same thing, there is a new upper class no that is increasingly really happy being a new upper class. They have left behind the American tradition of saying hey, we’re just folks. They are, actually, rather enjoying the position. It’s Un-American, Mary.

Plenty of center-right folks don’t even think inequality is worth talking about, that doing so accepts a left-wing worldview. But Murray is right in that there can be unseemly aspect to all this: As Murray writes in Coming Apart:

Recently I asked a successful entrepreneur, an ardent proponent of free markets, what he thought about the bonus of several hundred million dollars that a board had decided to award a departing CEO of a large company as a thank-you gift. He looked at me sharply and said, “It’s obscene.” That is a reasonable way for people to react whether they are liberal, conservative, or libertarian — the issue is not what should be legal but what is seemly.

And Murray is bang on in lamenting how crony capitalism is driving inequality, not to mention making the US economy less efficient, whether it is “too big to fail’ backstops for the megabanks or strict patent and copyright law. Murray wants the wealthy to preach the values they practice, such as work and marriage, and business community to practice what its preaches about competition and markets.

 

 

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What UK conservatives know about economic policy that many US conservatives don’t http://www.aei-ideas.org/2014/04/what-uk-conservatives-know-about-economic-policy-that-many-us-conservatives-dont/ http://www.aei-ideas.org/2014/04/what-uk-conservatives-know-about-economic-policy-that-many-us-conservatives-dont/#comments Thu, 17 Apr 2014 16:31:07 +0000 http://www.aei-ideas.org/?p=128050 read more >]]> How refreshing to hear a center-right politician talk good sense about monetary policy. Here is George Osborne, the UK’s chancellor of the exchequer, who spoke at AEI last week:

Proponents of the “secular stagnation” argument say that over recent decades monetary policy has had to work harder and harder to sustain growth, and has now reached its limits. Demand, they say, can only be sustained with further fiscal stimulus and higher government debt.

This argument is difficult to defend in light of recent developments. The evidence increasingly shows that monetary policy, broadly defined and effectively deployed, can work, but with two caveats. Banks need to be well capitalized so that the monetary-transmission system is working. And fiscal policy must be credible.

Quibbles with Osborne about how exactly monetary policy works are more than offset by general agreement about the potential effectiveness of monetary policy. While Republicans have been quick to point to Europe as cautionary tale of fiscal excess, the real lesson is one of the dangers of monetary restraint. As economist Michael Darda recently put it:

Both the U.S. and euro area have had sharp fiscal consolidations; however, the U.S. has enjoyed steady, albeit unspectacular, growth, whereas the euro are fell into a two-year double-dip recession. Given similar fiscal adjustments in both regions, the difference in economic performance over the last few years is largely explained by relative monetary policies. In other words, the Fed has done a better job sustaining NGDP growth with QE and forward guidance, whereas the ECB made the fateful error of tightening monetary policy twice in 2011, precipitating a double-dip recession that has just recently begun to abate.

Three charts from Darda: The first showing fiscal austerity in the form of declining deficits between the US and Eurozone; the second showing unemployment; the final showing industrial production

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Why work is the best weapon in the war on poverty: A Q&A with Robert Doar http://www.aei-ideas.org/2014/04/why-work-is-the-best-weapon-in-the-war-on-poverty-a-qa-with-robert-doar/ http://www.aei-ideas.org/2014/04/why-work-is-the-best-weapon-in-the-war-on-poverty-a-qa-with-robert-doar/#comments Wed, 16 Apr 2014 15:01:59 +0000 http://www.aei-ideas.org/?p=127921 read more >]]> What’s the best way to reduce poverty and increase economic mobility?

On this episode of Ricochet’s Money & Politics Podcast, I chat with AEI’s  Robert Doar. Before joining AEI, Doar was commissioner of New York City’s Human Resources Administration, the largest local social services agency in the United States. In the podcast, Doar gives his take on what the War on Poverty accomplished and also left undone. Also, he explains why work needs to be at the heart of smart reform.

 

We just recently marked the 50th anniversary of the War on Poverty. Where are we now versus fifty years ago?

In terms of material well-being for low-income Americans, because we have significant transfer payment programs that are not counted in the official poverty measure, low-income Americans are doing better. They have more things. They have higher resources and they can consume more products. That’s definitely true, and that can be seen as a success.

On the other hand, if we’re looking at only what low-income Americans can earn or are earning on their own, the last four or five years have been very bad years. And we’ve gone backwards. And so when you look at it from that perspective, which is the way the official measure does look at it, we’re kind of back to where we started at in the late ’60s, which is not good. So they’re materially perhaps better off. We provide a lot of assistance. It’s not counted in the official measure. And in that regard, the official measure overstates their weakness of their material well-being.

But we really want Americans to be independent of public assistance. We want them to be able to earn and work for their own livelihood and not be dependent on government assistance programs. That’s what they want as well. And right now, our economy and our public assistance programs and our public policies are not set up to make them happen as well as they should.

It’s always tough looking at economic figures, either in the middle of a business cycle or right after a recession. So how were we doing on those poverty measures right before the recession?

A lot of people focused on the 50 years of the War on Poverty. I often focus on really 1996 to the present because that’s the post-welfare reform period. We’ve made a transformational change in the way we provided assistance to Americans on welfare where we made real work requirements, real time limits for assistance and real expectations of personal responsibility, which was a big and important change from what we’ve done before.

And what happened was that there were very significant increases in labor force participation for never-married mothers, who were often likely to be on welfare—big jump from roughly 50%  to more than 65%, and remarkable reductions in child poverty so that in the wake of welfare reform, African-American child poverty, for instance, reached its lowest point.

But since about 2000 and a little later, things have sort of crept back up nationally, partly I think due to the weakness of the economy and partly due to a lessening of certain work requirements and an emphasis on self-sufficiency. And, from my perspective, we’re back to where we were nationally. Some cities have done better.  The city that I worked in, New York City, did not see an increase in poverty between 2000 and 2012, while the 20 other largest American cities did.  But I think partly that had to do with the fact that New York City just had a stronger economy than the rest of the country.  And we had stronger work requirements.

The one other big change, Jim, is that—and I think this is good—we’re much more willing to reward work with forms of public assistance that are supports for working people. So the Earned Income Tax Credit, child care assistance, child support enforcement collections, even public health insurance can—when it goes to working individuals—can make work pay and make wages, which have been stagnant, go further in places where the cost of living is too high or makes survival difficult.

So I don’t know if that answers your question, but the frustration I feel about the slowness of this recovery is pretty strong. This is a very weak recovery and it is hurting the poorest Americans the worst.

To what extent is the problem merely one of cranking up GDP growth versus structural reform and better anti-poverty programs? Which is the bigger issue here? 

What we used to always say is that there were three legs to the welfare reform stool that made it stand up and work. And one of them is a stronger economy. The other is strong work requirements. And the third are generous work supports.

My view is that of those three the economy is struggling the most. I do feel there’s been a lessening of our focus on work requirements over the years, although welfare caseloads—strictly cash assistance caseloads—are still much lower than they would have been without welfare reform.

And then on work supports, we’ve been generous with them, but we may have in some cases not enforced the work requirements as strongly as we should in programs that are not cash welfare.

For instance: The food stamp program does not have as strong a work requirement and there are a lot of people that are not taking cash welfare but are taking food stamps. And the extent to which they’re working or being required to work is really an issue. And I think that it’s pretty well documented that the key ingredient for a family, an able-bodied individual is to be in the workforce, is to be getting up, going to work, earning a fair wage, and there’s not enough of that among low-income Americans right now.

I’m curious about the work requirements. What is demanded of people before they get those sorts of assistance? 

Well, if you’re talking about cash welfare, very much is the classic TANF, the old AFTC program, which in New York City the number of recipients had gotten to be 1.1 million in 1995, the requirement is pretty stringent. You need to go to a place where you’re going to be engaged in searching for work and preparing for work and then we want you—we also have a workfare requirement where you can actually do work-like activities in the parks or in city agencies or sometimes in not-for-profit organizations.

And the idea is that if you are receiving cash welfare, then you need to be active and doing something every day. What that does is it gets people in the habit of doing the things that working Americans do, which is very important, establishes a discipline and a way of life which I think is healthier and better and stronger. But if they actually had a job on their own or off the books or somewhere else, they just say, “Well, fine, I don’t need this.  I’ll just go to work.” And so that’s what happens.

Hundreds of thousands of people came into our offices and were in our offices for a while. Or when they saw what they were being faced with, they just walked out of the offices, and we found them hired someplace else, on their own sometimes and sometimes with our help. So in cash welfare, it’s a very strong requirement.

The various other forms of public assistance, the requirements are not so strong.  There’s an expectation. So, for instance, in Medicaid, you can’t eat public health insurance. You can’t use it to pay your rent. And if you don’t get sick, you don’t really use it at all. So the expectation is someone who’s only on Medicaid and on nothing else and is working age population, the expectation is that they’re working. And we believe that’s true because you just can’t survive on Medicaid alone for all of the needs of your household.

Food stamps are a little different. And there, some people are working and some people are not working. And some places in New York City, we had a very work strong requirement for what are called able-bodied adults without dependents, which is a classic bureaucratese language for single individuals without children, who really – there’s no reason why they shouldn’t be working and they’re not in any way disabled.

New York City is one of the few places in the whole country that maintained that work requirement for them. And I think that not only sent a good message about the expectations of people receiving public assistance, but also helps get people in employment because we had programs set up to help them move as rapidly as possible into a paying job.

How typical is the New York City experience and approach to these work requirements versus what you see nationwide?

In the able-bodied issue with food stamps, we were unique. I think we may have been even the only place that maintained a strong able-bodied requirement after President Obama said the whole country could not require that.

Our work welfare requirements—we had probably the biggest what’s called “work experience” program in the country so we were unique in the extent to which we put people into work-like activities in the parks and maintenance and other programs. So that was unique. The emphasis on our work requirement and time limits for federally funded assistance, not unique at all.

If you look at the caseloads, most of the TANF caseloads around the country rose a little bit in the wake of the recession. Ours didn’t really, but they didn’t go anywhere back to where they used to go in the area prior to welfare reform.

So what are the arguments against work requirements or easing work requirements? 

There are two—there’s the old welfare rights arguments, and entitlement rights is that the government owes everybody a basic level of existence regardless of what they do. I don’t think most Americans believe that or agree with that. We certainly didn’t in New York.

Another argument is that there may not be enough work or enough employment opportunities in the community, and that often gets made. I am skeptical about that because at the low end of the wage scale, there are opportunities, and there’s a lot of turnover and churning in that part of the labor market. And if we start using the excuse at least for cash welfare that we’re not going to require people to work because there just aren’t any jobs, that doesn’t mean you can’t engage them in what I call a workfare or work-like activities so that they get into the habit of having a regular daily activity.

But some people think that’s an infringement on their freedom. And then those would be the ones. Lately there has been some commentary that the way to lift people of poverty is just give them more money. But I don’t think that will send the right messages about the importance of work and structuring your life in a way that is productive for not only yourself, but for your community and your family.

AEI’s own Charles Murray has written a lot about what’s been going in working-class America, where you’ve seen less work, higher divorce rates, real dysfunction. What’s going on there? Is it a cultural issue? Is it an economic issue?

I am very distressed and disappointed and sad about the extent to which children are being raised in single-parent families without two married parents. I don’t want to lecture or stigmatize anyone. I just want to be honest about the facts about how to best structure your life so that your children can prosper and flourish in American society.

And the way that should happen is: graduate from high school, get married, and then have children, and raise those children together with a partner who can help you do all the things that parents need to do. It’s not just academic research that shows this, although this most recent, very sophisticated Harvard study that came out about mobility clearly showed that the biggest correlation to lack of mobility was living in communities where there are a lot of single-parent families. And I didn’t think that got enough attention.

But it’s not just academics that feel that way. It’s people—it’s parents. It’s common sense. Raising children is tough enough with two parents married. Raising them on their own and getting them ready for school and getting them ready to prosper and succeed in society is – it’s a commitment when you get married to raise your children so they’re most likely to succeed. So that’s the biggest problem.

And to some extent, American elites, American opinion-makers, American leaders, universities, academics, politicians, whoever leads our country, seems to be afraid to talk about that in an honest way, although they live that way. And that’s another thing that Charles shows in his work: to the extent to which well-educated Americans, college graduates do follow this pattern of life and are structuring their life and they’re having children in the context of marriage, that’s been very successful for them. But we don’t seem to want to preach what we practice.

Well, you mentioned the three legs, which are a growing economy, work requirements, and the third leg — work supports. Tell us a little bit about that. 

I’m glad you brought that up. So the little adage I used to say is being off welfare doesn’t mean you’re off of assistance. And it goes like this: the American people will provide assistance to struggling Americans if they’re working.

It turns out that for economic reasons and other factors, wages at the low end have not kept up with the cost of living or have not grown as rapidly as we’d like to see. And so there are places where what you earn may not be enough for you to be able to afford what you need in order to raise a family successfully.

The biggest one is the Earned Income Tax Credit, which is a federal program that often has the state, and in New York City, we also had a city version, which rewards workers at the low end of the wage scale with an annual refund of up to $5,000. That not only draws them into the workforce, but it makes them feel like staying in the workforce, and it makes work pay.

Childcare assistance for low-income Americans is also fairly common. I know there’s a lot of talk about pre-k, but there are forms of childcare assistance for low-income working families that provide some assistance.

Child support collection isn’t an actual government transfer, but it is a commitment to make sure that the absent parent is providing financial support to the family that he brought into an existence – he or she. It’s usually a guy. And that’s a very important program. It provides an enormous amount of assistance from that absent parent directly into the family household that is raising the children in. And so that’s a big support.

And public health insurance—and this one is where guys on the right get a little nervous. But the extent to which employers are not providing health insurance to people in their workforce who make low wages, workers feel more comfortable staying in the workforce if they can feel comfortable about their health insurance status for themselves and their children. And Medicaid and Child Health Plus and that provision of health care insurance has, I think, allowed working people to not quit the job and go on welfare just to get Medicaid. And I think it’s been better for those families than without.

Those are the big work supports. They are a form of government dependency. They’re not quite self-sufficiency, but that is a sort of recognition of the global forces on the labor markets that have changed the compensation for work so that families at the low end of the wage scale need a little assistance.

And I think Republicans, in my own personal opinion, have to become comfortable with the proper administration of those programs. So let me be clear. Those programs can be abused and dollars can be wasted in many ways, and we want to make sure they’re done correctly. But if they’re done correctly, helping people at the low-end of the wage scale stay working because we’re providing them this additional assistance, it seems to me is consistent with our values.

And do you think we’re doing enough, that the gap between what work pays and what welfare pays is …

That’s a good question. Let me tell you one thing about that. The biggest cost of those by far is the health care insurance. And the extent to which these programs are health care – public health insurance Medicaid program is so much more expensive—is really making it hard to devote other kinds of resources to struggling people.

So if you want my opinion, I’d say we need to provide people avenues to get health insurance. And sometimes we need to subsidize that, but we’ve got to be careful about allowing the health care programs to just bankrupt our country. So there I think we may be doing too much in terms of spending.

In the area of the Earned Income Tax Credit, the weakness with the Earned Income Tax Credit is that it is only focused on households with children in them. There is a single EITC, but it is very small. Single individuals without children in the households get really no benefit from the EITC. I think that’s something we should be thinking about and certainly non-custodial parents, they don’t have a child in the household, they want to work, they want to support their kids. They could use some work support assistance as well.

So I think on the work support side, we need to be careful that we don’t do too much. And then, in other places, I think we could do still more.

When we think about the poor, you often hear the phrase, there’s the deserving poor and the undeserving poor.  Do you see it like that?  Are there people we shouldn’t be helping because they’re not willing to meet whatever societal requirements that we put on them?  Are there people we just shouldn’t help, and they’re on their own?

I don’t really use that phrase in this way, but I do believe that poor Americans, the key to their advancement is going to be that they at least make a step toward self-sufficiency and personal responsibility. And then in return for that step, we provide assistance.

So I ran programs that if you failed to comply with a requirement or you failed to do what you were supposed to do on a certain day, we terminated benefits and we closed cases. And I think you have to have standards and you have to have rules and you have to enforce them because people watch those things very carefully and they respond to that kind of messaging.

And so I don’t divide people between deserving and undeserving. I think everybody is deserving of assistance, but I do say to people who I want to provide assistance to, “I need you to help yourself,” and to act like we shouldn’t say that is very disparaging of the people we’re trying to help.

The greatest surprise in post-welfare reform period was the extent to which people who others had said could not do it did it.  So a lot of times, the people in my business talk about how many people they’ve got jobs for.  The person that gets a job is a person who gets the job.  And labor force participation by never-married single mothers in the wake of welfare reform went up from less than 50% to almost 70% – a remarkable jump. And I think we need to be conscious of the fact that low-income Americans can do the things that we want them to do, but we have to have the guts to ask them and not lower our expectations for what they can achieve.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

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How to think about inflation and deflation http://www.aei-ideas.org/2014/04/how-to-think-about-inflation-and-deflation/ http://www.aei-ideas.org/2014/04/how-to-think-about-inflation-and-deflation/#comments Tue, 15 Apr 2014 15:37:44 +0000 http://www.aei-ideas.org/?p=127903 read more >]]> The March consumer inflation numbers showed prices rising faster than expected and up from last month. In the 12 months through March, consumer prices increased 1.5% versus 1.1% in February. The core CPI, which strips out the volatile energy and food bits, rose 1.7% versus 1.6% in February.

Analysis from IHS Global Insight: “Overall, the consumer inflation story is relatively bland. However, the direction of food prices is somewhat worrisome. Average consumers will have no cause to consider inflation rampant, but living standards will suffer as a larger percentage of household budgets are spent on grocery store bills, leaving less for discretionary spending.”

Overall, inflation really is benign, especially given the Fed’s avowed 2% target. In fact, some economists have been worried that inflation has been too low, maybe risking outright deflation. As AEI economist John Makin wrote in a recent report, “Inflation is falling in the United States, Europe, and China, suggesting a real threat of impending deflation that could cripple the global economy.” To get some more insight on inflation, I asked a few questions of Makin, and economist/blogger Scott Sumner of Bentley University:

PETHOKOUKIS: There seems to be concern out that that inflation is running too low. But isn’t low inflation a good thing? Isn’t that the great Volcker victory of the 1980s? Along those lines, are some kinds of inflation and deflation good or bad?

MAKIN: Low and steady inflation is a very good thing. Volcker withstood immense heat for the pain tied to bringing inflation down from 10% to about 3%. But the benefits were substantial– avoiding destabilizing higher inflation and setting the stage for a huge equity bull market after 1982′ when he relaxed tightening. The drop in inflation cut tax receipts so much that the deficit rose faster than expected – a constructive form of fiscal stimulus.

Relative price changes, brought about by rapid price increases or decreases in some goods/ services are good and self-correcting. But when most prices are rising or falling consistently, movements can become self- reinforcing and damaging to the economy. Higher inflation is usually more volatile. That boosts uncertainty in a way that has been shown empirically to harm growth. Disinflation is fine, until and if it turns into deflation which almost always is associated with lower growth, weaker investment and higher unemployment — as in the Great Depression and In Japan after 1997.

SUMNER: Never reason from a price change. Whether inflation is good or bad depends on whether it is supply or demand-side inflation, and whether aggregate demand is currently excessive.

In short: (a) Supply side inflation is bad, but it isn’t really the inflation that hurts, it’s the fall in real GDP from the adverse supply shock. Thus holding nominal GDP constant, higher prices mean less real output, which is bad; (b) Demand side inflation can boost both prices and output, which can be good. But only if the economy is currently depressed from an adverse demand shock. In my view that’s been true of the US economy since late 2008, although it becomes a bit less true as unemployment falls back closer to its natural rate (which is hard to estimate.)

In my view it makes more sense to talk about boosting nominal spending than boosting inflation, because that language better conveys what the central bank is actually trying to do.

In terms of the trend rate of inflation, Volcker was surely wise to bring it down from double digits. But all he did is bring it down to 4% in late 1982, where it remained throughout the rest of the 1980s. Today it’s about 1.5%, so a bit higher inflation would be needed if the Fed is serious about its 2% long run target. There are costs and benefits from a lower or higher trend rate, and no one (including me) knows what trend rate of inflation is optimal. I suspect it’s close to 2%, but the exact rate depends on other aspects of policy. Under current (inept) Fed policy it’s probably close to 3%, as that makes the zero bound on interest rates less likely.

PETHOKOUKIS: It looks like the ECB might start a quantitative-easing, or bond buying program. Would that help the EZ economy?

MAKIN: The usual criticism of incipient QE or other anti-deflation measures is that they won’t work. Japan suffered under this delusion for 15 years until late 2012. Successful reflation requires a higher inflation target from the central bank that it is committed to meeting with substantial money printing until prices start to rise– the exchange rate starts to fall. A central bank has to credibly promise higher inflation to beat deflation. Many cannot bring themselves to do it, as is I fear, the case with the ECB.

SUMNER: QE would help in the eurozone, but I’d prefer they set a nominal GDP target, or if they continue to inflation target they should do level targeting of prices, which means promising to catch-up for any shortfalls from their inflation target (assumed to be about 1.9%).

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

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No, Walmart isn’t ripping off taxpayers http://www.aei-ideas.org/2014/04/no-walmart-isnt-ripping-off-taxpayers/ http://www.aei-ideas.org/2014/04/no-walmart-isnt-ripping-off-taxpayers/#comments Mon, 14 Apr 2014 20:42:13 +0000 http://www.aei-ideas.org/?p=127885 read more >]]> Tell me how economic stuff works, Team Gawker:

A new report estimates that U.S. taxpayers spend more than $6 billion each year to provide government benefits to low-paid Walmart workers. The Walton family, which owns Walmart, is worth $149 billion, and is always working to pay lower taxes.

I think I’m supposed to be outraged that Walmart isn’t paying some employees enough that they don’t need government anti-poverty benefits. But businesses generally aren’t going to pay workers more than they are worth. If a worker can only generate $8 in value to a company, then the firm isn’t going to pay them $10. Nor should they for some humanitarian reason. If American society thinks some of their fellow Americans deserve higher living standards than their skill set currently warrants, then society should pitch in and subsidize their wages through the Earned Income Tax Credit or even a new, broader direct wage subsidy. After all, Walmart isn’t to blame for a dysfunctional education  and worker training system. More from Mike Strain:

Liberals, in supporting minimum-wage increases, implicitly argue that the employers of low-skill workers, together with consumers of the products and services the workers help provide, should bear the burden of ensuring that low-skill workers don’t live in poverty. Conservatives should reject this argument, insisting that all of society is responsible for helping the working poor …

Not to mention that wage subsidies are far better targeted than the minimum wage.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

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