A picture is worth a thousand words; a pie chart is worth two thousand

Every once in a great while, there comes a brave rich person, writing for a publication dedicated to the wealthiest of wealthy Americans, willing to courageously call for the tax burden to the poor.

That man today is Ari Fleischer. Writing for the Wall Street Journal, he says:

If the tax forms you're filing this year show Uncle Sam entitled to any income tax, you increasingly stand alone. The income tax system is so bad, and increasingly reliant on a shrinking number of Americans to pay the nation's bills, that 40% of the country's households -- more than 44 million adults -- pay no income taxes at all. Not a penny.

My response, in graphic form:

(Image from Fair Economy)

The burden of the AMT on the People

It's tax time, so there are of course going to be quite a few editorials complaining about taxes right about now. Fully expect people to bemoan how the top 1% has to pay more taxes than any other 1% in the country and how everyone in the country is part of a middle class family just trying to get by. We have a couple of editorials in the latter category, talking trash about the alternative minimum tax.

The LA Times is saying that the AMT should be reduced. No explanation of why that would be a good thing; only a naming who the intended AMT payers were (as if Congressional intention from 1969 is the most valid reason to do anything nowadays). Here's a bit:

But when Congress created the AMT, it made a major mistake: It failed to index it to inflation. So a tax designed to affect only the affluent is increasingly being paid by middle-income taxpayers, including some married households with annual incomes as low as $100,000.

It says that providing for the lost revenue will be "unattractive" to presidential hopefuls. So I guess we just raise up our hands and give up the fact that they'll want to look good, decrease the tax, and increase the national debt.

The NY Times provides a few more numbers:

As a result, only an estimated 3 percent of alternative-tax payers for 2006 are tax-sheltering multimillionaires. Most people who owe the tax make between $200,000 and $500,000; nearly a fourth make $75,000 to $200,000. In those groups, the most common breaks are write-offs for children and for state and local taxes — hardly aggressive tax shelters. Yet, on average, the alternative tax has boosted those filers’ 2006 tax bills by an estimated $4,200.

Wait, didn't the LA Times just say that these were middle-income families? If someone's making between $75,000 and $500,000 a year, I would hardly consider them middle-income in a country where the average household income is $46,000, in a country with the largest GNP in the world. But, of course, no one wants to be labeled as wealthy, even if they are. I wonder what class I would consider myself in if I made half a million a year. I hope I would have the decency to not say that I was middle class.

In fact, the Boston Globe has joined the chorus and is calling people paying the AMT middle-income as well:

Meanwhile, millions of families of more modest means will be subject to the AMT, which in effect limits a taxpayer's ability to take deductions for dependents, state and local taxes, and other common items. The alternative minimum tax, coupled with President Bush's first-term tax cuts, have shifted the tax burden away from the wealthiest Americans and toward middle-class and upper-middle-class families.

But I digress. The NY Times does bring up the issue of the largest loophole in the AMT: capital investment.

Which brings us to the real hot-button issue. The alternative tax should be reformed so that it does what it is supposed to do: make wealthy taxpayers with excessive tax shelters pay up. The wealthier one is, the more of one’s income is from capital gains on the sale of investments rather than wages and salaries. Capital gains come with a huge advantage: they’re taxed at 15 percent versus a top rate of 35 percent for ordinary income. The lower rate for capital gains is one of the biggest breaks in the code. But under the law, capital gains are not classified as sheltered income subject to the alternative tax.

Funny how after years of an all-Republican government led by Bush that money made from not doing anything is taxed less than money made by doing something productive. It almost seems like we're rewarding people for being lazy.

Sure, the AMT should be set to adjust for inflation, because eventually $75,000/year will be middle class, and eventually the new poverty line. But let's not make it seem like people with incomes between 200 and 500 thousand dollars are struggling, working people who'll be broken by having to pay $4200 for a government that benefits them quite well. And let's have an alternative source of income in mind if we decide to cut that alternative tax.

It's a crock: Robert Frank on trickle-down economic theory

Check out this new Robert Frank column up at the NY Times about trickle down economic theory (you know the one, based on Ayn Rand's keen insight, that rich people, if they have to pay taxes, will stop working, so they deserve tax breaks at the expense of everyone else and the money they keep will "trickle down"). He takes it to task over the idea that it stimulates growth:

The surface plausibility of trickle-down theory owes much to the fact that it appears to follow from the time-honored belief that people respond to incentives. Because higher taxes on top earners reduce the reward for effort, it seems reasonable that they would induce people to work less, as trickle-down theorists claim. As every economics textbook makes clear, however, a decline in after-tax wages also exerts a second, opposing effect. By making people feel poorer, it provides them with an incentive to recoup their income loss by working harder than before. Economic theory says nothing about which of these offsetting effects may dominate.

Since, theoretically, anything can be proven in theory, it shouldn't be surprising that there are two theoretical justifications for seeing opposing effects from the same action. And people can be complicated that way.

So we instead look to historical data:

Trickle-down theory also predicts a positive correlation between inequality and economic growth, the idea being that income disparities strengthen motivation to get ahead. Yet when researchers track the data within individual countries over time, they find a negative correlation. In the decades immediately after World War II, for example, income inequality was low by historical standards, yet growth rates in most industrial countries were extremely high. In contrast, growth rates have been only about half as large in the years since 1973, a period in which inequality has been steadily rising.

The same pattern has been observed in cross-national data. For example, using data from the World Bank and the Organization for Economic Co-operation and Development for a sample of 65 industrial nations, the economists Alberto Alesina and Dani Rodrick found lower growth rates in countries where higher shares of national income went to the top 5 percent and the top 20 percent of earners. In contrast, larger shares for poor and middle-income groups were associated with higher growth rates. Again and again, the observed pattern is the opposite of the one predicted by trickle-down theory.

The whole thing is definitely worth a read.

Inspi(red) to give?

There's a great article up at The Advertising Age about Bono's Red brand (if you're not a subscriber you can read it here at Punk Planet). You know the Red brand - the one that Oprah devoted an entire show to, which was basically her going around a shopping a lot. You can get a Red iPod or a Red Motorola phone or Red jeans at The Gap, and part of the profits go to the Global Fund to fight AIDS in Africa.

Well, AdAge did some investigative journalism and found a few key numbers. First, they estimate the whole campaign has spent about $100 million on advertising. It's hard to get an exact number, since some of the advertising, like Oprah's entire show on the brand or Chris Rock's plug for it at the Grammy's, can't be measured in dollars and cents, and therefore things like that weren't included in the number. Second, they found that the campaign has raised only about $25 million for the Global Fund (the link above will say $18 million, but Red recently got a new sponsor).

So what's the beef here? The advertising money was spent by the companies that carry things with the Red brand, and the $25 million is a significant plus for the Global Fund. But it does seem like this whole thing is a complicated way to get out of actually helping people. Consider that for a $250 Red iPod, only $10 goes to the Global Fund, according to the Apple website. When Oprah ran into an Apple store on her show and bought 20 to support the Global Fund, wouldn't it have made more sense for her to just give the $5000 to the Global Fund instead of using that money for iPods and only $200 going to it and the other $4800 going to Apple, Inc.? And couldn't those companies, if they really wanted to help the Global Fund, have just given the $100 million to it, and depend on "free" advertising for Red?

The CEO of the Red brand defends the low numbers by pointing out that the corporations that carry Red products keep a lot of the profit for themselves. (He also contradicts the numbers but agrees that marketing cost more than the brand has raised. The Advertising Age says they did their research on those numbers.) He says:

Our goal is to create a model where private companies can do good and make money at the same time.

Now let's not kid ourselves by thinking that Red is doing anything new. Corporations have been giving a portion of the profits of specific items to charity forever. I just had a yogurt that gave three cents to research a cure for breast cancer, but I'm not about to stuff my fridge full of them in hopes that the $3.42 that would go to charity will be the $3.42 that gets the cure.

What they're doing is on-face good - giving money to charity - but one has to wonder if this is ultimately counterproductive. Red's CEO says that the advertising that's being done for Red could be driving up sales for these corporations in ways that can't be measured by increasing foot-traffic in store and accessory sales. Isn't the crazy crazy crazy shopping mentality and materialism that the marketing campaign is entirely based on a cause of the problems it's trying to fix?

Now, to criticize materialism in America means that you're going to get personally attacked. Saying that some people just have too much junk or money gets you labeled as an anti-capitalist pinko anarchist if you're liberal or a militant separatist gun-freak if you're conservative, a hypocrite if you're rich or sour grapes if you're poor, ignorant of the "real world" if you're educated or ignorant of economic theory if you're not. But what does that say about us if we're unwilling to have a real discussion of money and class and how it relates to the problems that we're supposedly trying to solve without just getting pissy?

Taking small steps here, isn't poverty most likely a large part of the reason that many African nations has such a crisis with AIDS? And could that poverty be somewhat related to huge subsidies that the US and European countries put on their agricultural products that make them cheaper than local products in many African countries so that the local people are better off supporting foreign business instead of local, never having the capital necessary for economic development? I mean, are you all going to give me that one? And aren't those subsidies there to maintain US and European economic domination over the Global South so that we can keep on buying things like iPods and red jeans? eh? EH?

Or maybe I'm just a anti-capitalist pinko anarchist hypocrite who doesn't know anything about the real world. But I actually think I'm onto something.

Especially with hearing Oprah declare that shopping is giving and Motorola using the slogan "Use Red, nobody's dead". If someone at home watching that decides to buy a Red iPod instead of donating that $250 to charity, thinking that she's being charitable by buying an iPod that she doesn't really need, doesn't that just take $240 away from charity? And don't tell me that the Red campaign is just diverting profits to charity on purchases that people would have otherwise made - not even the Red CEO believes that one.

And what about the colonization of socially responsible discourse by using all that save the world by shopping rhetoric? My theory on why Christian conservatives are generally anti-choice is because of the co-option of Jesus' social justice message by corporate America. Hard-core Christians are a real threat to the trickle-up economics such business owners depend on, so why not take that desire to create justice, pronounce disingenuously that the Bible says life begins at conception, and then declare conservatism Christian? It worked pretty well. And why not take charitable people's desire to help others, declare disingenuously that shopping is giving, and then pronounce materialism charitable?

Lord, if it's half that effective, we'll be hearing Paris Hilton being compared to Mother Teresa soon. But while I wait, I'll have another yogurt.

That's almost $2000 an hour!

The Consumerist has a graph up comparing corporate profits, workers' salary, and CEO compensation. It's definitely worth the click over there to go check it out.

There has been a lot of talk about CEO compensation, especially with Ford laying off workers and then paying their CEO, Alan Mulally, $39 million for four month's work. The junior high school teacher in me says that no one's work is worth anywhere near $39 million for four months, but Ford fires back by saying that's what it takes to get the big brains running a company. Besides the fact that workers' salaries have risen 4.3% and CEO compensation has risen nearly 300% since 1990, and there's no evidence that CEO's have been doing phenomenally better work since 1990, I'm willing to call that argument bunk.

Especially considering the assumptions that go into it. First, it assumes a completely free market in searching for these corporate leaders and completely rational actor making completely rational decisions when deciding what to pay them. We know that isn't true when they're all friends and on the boards of each other's companies, giving them vested interest in inflating CEO compensation.

Second, it assumes there there's a very small pool of talented people who have the ability to run these companies correctly. But in a country of 300 million people, does Ford really expect us to believe that they couldn't have found anyone to run the company for four months for $38 million? That's a steal at a million dollars in savings! If I could only find a coupon like that for vodka....

But the silliest part of this argument is that it overlooks the incompetence of many of these overcompensated CEO's. Ford posted nearly $13 billion in losses last year, the same year it paid Mulally $39 million, the same CEO at the helm when it was passed by both Toyota and then Daimler-Chrysler to become fourth largest auto manufacturer in the United States. While Ford says that they're just restructuring right now for larger profits in 2009, we have to take that with a grain of salt. The price of their stock and level of outside investment in them depends on a sunny outlook. While this may not and is probably not entirely Mulally's fault, it does show that he is not so terrifically brilliant that Ford had to pay $39 million to get him.

But that incompetence might be the goal. Mulally would receive nearly $28 million if the corporation went bankrupt. Yup.

Chain pharmacies and mistakes

ABC's 20/20 reported last week about errors pharmacists make when filling out prescriptions. They investigated a several chain drug stores that pride themselves in filling out scripts quickly. From The Blotter:

The ABC test was designed and supervised by Auburn's Dr. Betsy Flynn, a specialist in studying errors in neighborhood pharmacies who designed a similar undercover test for ABC News over a decade ago.

"The 22 percent error rate found in the study was unacceptable," said Flynn, who expressed her "surprise and disappointment" that "despite all of the implementation of technology over the past 12 years, the error rate was similar to the previous study."

Well, that wasn't the worst of it. The Blotter reports that they received letters from pharmacists putting the blame on working conditions. Here's one:

"What people don't know is that pharmacists are ALWAYS getting interrupted" by phone calls from patients and doctors, problems with insurance companies and other distractions, she wrote. "Next time you want to talk about chain drug stores, show the other side of the counter."

"There are just too many interruptions to focus on the task of checking for errors and drug interactions when filling a script," wrote "Doug," who said he was a pharmacist. The job's long hours without a pause are also difficult, he said. "I have to work 12-hour shifts," he wrote. "There are no lunch breaks or any breaks for that matter...I feel like I'm working in a sweat shop!"

Of course, this is referring specifically to chain pharmacies like Rite Aid and Walgreen's.

The drive to quicker and easier profits is resulting a huge number of mistakes, and apparenlty people are signing away their rights without knowing it:

Despite federal and state laws that require pharmacists to provide counseling to customers picking up new medications, patient counseling was only offered in 27 out of 100 purchases of new prescriptions, less than a third, in the ABC-Auburn Study.

Particularly alarming to the Auburn experts was the chain pharmacies' failure to warn patients of potentially harmful interactions when they purchased certain over-the-counter medications, such as adult strength aspirin with Coumadin, a blood thinner. In only eight cases out of 25 were the customers given a verbal warning.

Finally, the study revealed that some pharmacies appear to be misleading customers into signing away their right to patient counseling.

Although the ABC producers paid with cash and no insurance was involved, in most cases they were still asked to sign at the pharmacy counter to pick up their prescriptions. But with only a few exceptions, our producers were never told they were signing forms that also included language to waive the legal right to counseling with a pharmacist.

'Nuff said.

Hi! Welcome to the Panopticon!

Walmart must have confused itself with the Bush Administration. From the NY Times:

Wal-Mart's union-backed critics, whom Gabbard identified as among the surveillance targets, accused the retailer of being "paranoid, childish and desperate."

"They should stop playing with spy toys and take the criticism of their business model seriously. The success of the company depends on it," said Nu Wexler, spokesman for Wal-Mart Watch. According to the Wall Street Journal report, the company found personal photos of Wexler and tracked his plans to attend Wal-Mart's annual meeting.

Gabbard told the Wall Street Journal he was part of a large, sophisticated surveillance operation by the Threat Research and Analysis Group, a unit of Wal-Mart's Information Systems Division.[...]

Gabbard told the newspaper that Wal-Mart sent an employee to infiltrate an anti-Wal-Mart group to learn if it was going to protest at the annual shareholders' meeting and investigated McKinsey & Co. employees it believed leaked a memo about Wal-Mart's health care plans. It also uses software programs to read e-mails sent by workers using private e-mail accounts, he said.

Holy cow! Walmart has a "Threat Research and Analysis Group" that investigates poeple who don't like it? They send out spies to groups that might say something bad about them?

The article quotes a Walmart spokesperson as saying that its business practices have chaged as a result fo this outing, but then considering that they fired the whistle-blower and are probably spying on him now too, I wouldn't count on it.

Especially considering the spin they're putting on the whole thing:

"Like most major corporations, it is our corporate responsibility to have systems in place, including software systems, to monitor threats to our network, intellectual property and our people," Wal-Mart spokeswoman Sarah Clark said.

Well, they managed to take the empowering phrase "our people" and make it sound like slavery. Kudos on that.

What's important to note here is that basic freedoms of speech, association, and privacy were being violated by a private actor. Walmart's a powerful enough institution to be able to follow people and make their lives hell if they want to. A large corporation has become a locus of power, and it's using that power to take away freedoms from other people in an effort to ameliorate its public image in an anti-competitive way. Like people can't use their so-called dollar power to produce good social conditions if they don't know what businesses are actually doing.

And Cervarix makes two

Merck's $360-a-pop HPV vaccine, Gardasil, will now have some competition from GlaxoSmithKline. From the Philadelphia Inquirer:

The race for prestige and profits in cervical-cancer vaccines intensified yesterday when GlaxoSmithKline P.L.C. formally asked U.S. regulators to approve its vaccine, Cervarix.[...]

Both vaccines have been shown to completely block at least two strains of the human papillomavirus, or HPV, blamed for roughly 70 percent of cervical cancers.

Well, it's good that there's some competition now so that the price of the HPV vaccine will go down. I was beginning to think that the Texas governor Rick Perry's executive order requiring all girls in public schools was partly driven by a desire to hand sacks of cash over to Merck, considering its exorbitant price, but this should change things. Or not:

Doctors and policymakers who expect competition automatically to bring down vaccine prices are likely to be disappointed, at least initially.

Jean Stéphenne, president of GSK Biologicals, the company's Belgium-based vaccine division, said in an interview last month that GlaxoSmithKline aims to win over physicians and others by proving Cervarix is better, not by selling it for less.

"If you start a price war, you give the impression that your product is of lower quality," Stéphenne said during a trip to Philadelphia.

"For sure, at a certain point, we will compete to get a bigger market share" based on price, Stéphenne said. But he indicated the initial strategy would be matching Merck on price and beating it on effectiveness.

The strategy, while good for vaccine-makers and potentially the Philadelphia pharmaceutical sector, could prolong financial headaches across the nation's health-care system, where physicians and patients already face a cash crunch over Gardasil.

So basically two products that accomplish the same goal from two different companies will be pricing their products the same in order to prevent the appearance of inferiority. While they indicate that they may lower the price a year after Cervarix is approved, that puts it more than a year away with state legislatures passing laws for one of them to be used. They could score up a lot of their market before they lower prices in order to compete.

Moreover this shows how a couple of companies know that all that jazz about demand curves is bogus when you're talking about saving people's lives. State legislators, while caught up in the debate over abstinance and an HPV vaccine, aren't going to pass up this vaccine because of the price of either one. All it becomes is another burden on families putting their daughters through school or a burden on already cash-strapped state health agencies that might provide some funding for the vaccines.

No matter who picks up the burden of paying for Merck CEO Richard Clark's $8 million salary or GSK CEO Jean Pierre Garnier's $7 million salary, this whole story goes to show why the government needs to be able to negotiate drug prices with pharmaceutical companies. You know, just like any other major buyer does with a supplier.

Oh, and the Inquirer article had this little gem:

"We really don't know the effect of competition on prices, whether it gives us a better negotiating position. We think it does, but we don't have hard evidence," [the CDC's Lance] Rodewald said.

Yup.


(h/t Feministing)

What are we doing here? (Short version)

Neoclassical economics dominate mainstream economic debate through dogmatic power. These theories are based on several assumptions:

1. People act rationally to maximize utility.
2. People have all knowledge necessary to act rationally.
3. Competition increases efficiency and quality of life.
4. Economic growth is without limit.
5. All problems caused by growth can be solved with more growth.

These assumptions are constantly being proven inaccurate, so I'm taking those inaccuracies and making a blog of it to help promote progressive policy making.

Enjoy!

What are we doing here? (Long version)

Remember high school economics? All that Adam Smith, supply and demand curves, and TINSTAAFL? I'm sure we could all go on and on about all the crazy things that we learned in that class.

For example, I remember our teacher telling us about how when a nation has a negative trade deficit, the value of its currency decreases. That decrease makes exports from that nation cheaper, and other countries buy them up, helping its economy and increasing the value of its money, thus repeating the cycle. So poor countries have the means to become rich, and rich countries will inevitably lose wealth as they cannot produce exports as cheaply as the poor countries.

Makes sense in theory, right? And I uncritically filed it away in the back of my mind, as I'm sure most of my classmates did. Well, at least the ones who were paying attention.

How wrong could such a theory be? The answer, of course, is very, very wrong. And one only has to look at the perpetual poverty of some nations and compare it to the perpetual wealth of others to see that the theory has almost no predictive value. And a theory without predictive value isn't really worth much at all. This particular one doesn't take into account global racism, protectionist trade policies like farm subsidies, and other wholly irrational ways in which people work in contradiction to neoclassical economics.

This is just one example of the many ways in which economic theory has a big disconnect from reality. I could provide more examples, but that's the whole point of this blog.

Neoclassical economics is based on the following assumptions (this list is not complete):

1. People act rationally to maximize utility.
2. People have all knowledge necessary to act rationally.
3. Competition increases efficiency and quality of life.
4. Economic growth is without limit.
5. All problems caused by growth can be solved with more growth.

This leads to predictions that are ridiculous on face, like that people will buy from green companies if global warming is happening thus stopping it and that people will always seek and find the highest paying job for themselves and that the social welfare that people want for themselves or others can be handled entirely by charity. We can laugh all we want, but they're justified in theory.

The problem with them being wrong is not that they just slip into legislative and media policy-making debates. They dominate those debates. The neoclassicists and their dogma is at the center of the debates, often completely unquestioned.

Of course, neoclassical economists have resisted actually testing their theories but still want and very frequently get the same respect that other fields that do their homework get. Consider this from economist Robert Hanson:

Consider how differently the public treats physics and economics. Physicists can say that this week they think the universe has eleven dimensions, three of which are purple, and two of which are twisted clockwise, and reporters will quote them unskeptically, saying "Isn't that cool!" But if economists say, as they have for centuries, that a minimum wage raises unemployment, reporters treat them skeptically and feel they need to find a contrary quote to "balance" their story.

They can get pretty smarmy, too, like in a statement from several Republican members of Congress:

For many years it has been a matter of conventional wisdom among economists that the minimum wage causes fewer jobs to exist than would be the case without it. This is simply a matter of price theory, taught in every economics textbook, requiring no elaborate analysis to justify.

I'm not going to get into the ins and outs of the minimum wage right here, but what's important to note from these two quotations is that they pull their power from the dogmatic nature of neoclassical economics. The first points to how they have degrees and how there is a consensus amongst economists on the minimum wage (which is far from the truth), the second basically says that anyone who didn't uncritically learn neoclassical economics is an idiot for not believing it (it's everywhere so it's gotta be true!).

The irony, of course, is that both justifications for why neoclassical justifications of public policy should be considered true is that they've already been considered true by many others. It's a cyclical appeal to authority - it's true because we say it is, and by saying it is we're making it true. In that way the dogma is advanced not by truth or study alone, but by power. As Christopher Hayes put it:

As Nobel Laureate Joseph Stiglitz put it, the dominance of the neoclassical model is a “triumph of ideology over science.” In the popular press, however, such dissent is almost entirely absent. [...] For Thomas Friedman, people can’t “disagree” with neoclassical economics. They can only fail to understand it.

There are a lot of ideas about where that power might come from, but again, that's an issue I'll address later.

So that brings me to the main point: What are we doing here? Well, since a group of theories known as neoclassical economics have such power as theories even though they resist experimentation like other social scientific fields, someone's got to point out the news stories that contradict the numbered assumptions cited above. Theoretically, as someone once said, everything can be theoretically justified. So when the rich want some sort of law passed that would chiefly benefit them, they often rely on neoclassicism. That's why power instead of study is used often to advance it - economics can seem complicated and daunting, so the people who would be hurt by such policies are told to go home and not worry about it. If they do question some of the more laughable theories, they're labeled "flat-earthers" by the likes of Thomas Friedman.

That's why I'm starting up Street Economics. Economics related to basic public policy shouldn't be daunting. If you open your eyes and pay attention, you'll get lessons in economics every day. Here I intend to post about real instances where academic neoclassical economics falls flat on its face in the real world. This isn't to say that it can't ever be right, but just to say that it isn't right all the time and its dogmatic authority can and should be questioned frequently.

Most of all, this should be fun and painless. At least more painless than letting someone else control the economics debate.