It’s been nearly 17 years since the Onion ran its epic, “US Offers PlatinumPlus Preferred Citizenship.” It was biting at the time – and like many a good Onion satire, it’s only become more ironic.

Money buys influence, and always has – and thus as the wealth distribution becomes more unequal, influence becomes more unequal. The US Supreme Court, in cases such as Citizens United, has only made things worse by opening up more conduits through which money can buy influence.

Take two rather well-conceived TSA programs that allow travelers to escape long lines at US entry points and airport security. TSA’s Global Entry and PreCheck programs are available to just about everyone, subject to commonsense restrictions. If you undergo a background check, and satisfy TSA officials that you’re not a risk, you can cruise through airport security before the gate; and when returning from abroad, you can sail through US customs and immigration. It’s a win-win: TSA gets to focus its limited resources on catching bad guys, not wasting time and money harassing ordinary travelers; travelers save time and skip the extra hassles.

But Global Entry and PreCheck arent free – 5 year passes cost $100 and $85, respectively. That isnt a lot of money to frequent travelers, especially as a function of sky-high airfares; and it’s literally nothing to business travelers and-or carriers of pricey premium credit cards, who will have their fees paid for them. But to an ordinary American family that takes one vacation per year, it means shelling out $350-500, or waiting in line like everyone else.

Express toll lanes on highways are similarly efficient, in that they allow people who value their time more to buy a faster trip. We could apply the same logic to courts, the post office and DMV. And if you can pay a fee to get through airport security faster – why cant you pay to have the police or fire department respond more quickly to a distress call? (There’s evidence this is already happening, in effect – police respond faster to calls in more affluent neighborhoods.) Why not have a paid express lane at the ER of public hospitals?

Economics supports all of these measures because they make for a more efficient allocation of resources. But in the aggregate, they erode our civil society, because rich and poor cease to meaningfully share in the same public institutions. When it comes time to vote, they will naturally have different positions, because each has a radically different experience of government. And when it comes time to talk to one’s elected representatives, one must furthermore recognize that the same economic logic applies to political access. It is indeed economically efficient for politicians to listen to the highest bidders for their attention – because the person who is willing to pay most for a thing, ipso facto, values it most.

These programs – real and hypothetical – are all highly efficient uses of resources. And it’s a bit of a stretch to assert that our common experience of getting stuck in traffic, enduring the tedium of airport security, and waiting on line in DMV is what unites us as a people. But auctioning public services to the highest bidder – including face time with elected representatives – destroys our common experience of government, and as such undermines the basis we might have to agree on public policy. Within the same national boundaries, we see the emergence of two nations governed by two distinct governments: an affluent nation with a dutifully attentive government; and a second-class nation, with an indifferent one. PlatinumPlus citizenship for the few, and plain-vanilla citizenship for the rest.

 

Refs:

http://www.theonion.com/articles/us-offers-platinumplus-preferred-citizenship,889/

http://www.huffingtonpost.com/fodors/global-entry-vs-tsa-prech_b_5722612.html

http://www.huffingtonpost.com/george-hobica/tsa-precheck-expanding-br_b_3559419.html

http://www.huffingtonpost.com/dylan-ratigan/platinum-citizenship_b_1015571.html

 

 

Ten years ago, John Edwards’ stump speech described “two Americas” – one for the wealthy, and one for ordinary working people. It had enough resonance to secure the freshman senator his party’s nomination for VP. Those two Americas have only since diverged further, and the division is increasingly visible in everyday life.

Recently, in New York City, there was an uproar over a new residential skyscraper. In order to obtain lucrative tax breaks and zoning variances, the builder set aside a number of units for middle-income residents – a commonplace in New York. However the builder took the unusual step of creating entirely separate entrances: one for the rich and a “poor door” for the rest. The rich might suffer having the same address as commoners – but they neednt be subject to the indignity of riding in the same elevator.

In the gilded age, the rich built fabulous townhouses in American cities – splendid three- and four-story, single-family residences. Then came the Great Depression and World War II, which wiped out much of the wealth and income inequality in America. And a funny thing happened: as the economic facts shifted beneath those single-family townhouses, many were broken up into apartments and condos – reflecting the postwar demographic shift in America toward the rise of the middle class.

Over the past 25 years, that trend has been reversing, and townhouses in cities like New York and Chicago are being consolidated back into single-family residences. Meanwhile, “modest” million-dollar single-family homes in LA’s most desirable neighborhoods are being torn down for multimillion dollar McMansions. Consonant with the demographic changes in the US, the middle-class are literally being pushed out of town by the growing wealth concentration of the rich and super-rich.

One natural consequence of rising inequality is increased demand for private security. Unsatisfied with the protection offered by public police departments, as the rich get richer, they increasingly have the means and desire to procure their own police force. The number of private security workers in a given nation is roughly predicted by income inequality, and the US is indeed a world leader, with more than 1 million guards-for-hire – opposite fewer than 800,000 police officers. US private security workers have doubled in number since 1980, and have quintupled as a fraction of the workforce since the 19th century.

One of the most insidious manifestations of inequality is the tax code’s bias against work. Despite conservatives’ pretended esteem for “hardworking Americans”, their tax policies discriminate against workers, by shifting the tax burden onto them and off of investors. A hardworking American earning the minimum wage is subject to a flat 15.3% FICA tax on income – no exceptions, no deductions. Mitt Romney – poster-child for the rich who dont pay their fair share – paid a 14% tax rate on his $13.7 million income – less than that of any burger-flipper or supermarket stockboy, or indeed Romney’s own personal secretary. A worker making $100,000 per year will typically pay federal taxes on top of FICA, bringing his total federal tax burden north of 30%. But a wealthy heir living on portfolio earnings of up to $400,000 would pay less than 15%.

No one questions that wealth should be allowed to fetch what it can on the private markets – but we can fairly ask whether it should also buy preferential access to public services – on Monday, when the Field Guide returns.

 

Refs:

http://www.bloomberg.com/news/2014-02-25/google-buses-fuel-inequality-debate-as-boom-inflates-rents-tech.html

http://www.planetizen.com/node/64754

http://articles.latimes.com/2013/nov/17/business/la-fi-rv-living-nyc-20131117

http://nypost.com/2013/12/15/upper-west-siders-in-an-uproar-over-rv-invasion/

http://opinionator.blogs.nytimes.com/2014/02/15/one-nation-under-guard/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1

Thanks to LFG faithful Mary and Chuck for their input and inspiration on this series on inequality.

Wealth and income inequality in the US are now at their most extreme since the 1920s, in the last years of the gilded age. Their best and simplest measure – the Gini curve – graphically reveals the wide and burgeoning spread between winners and losers in the US economy, which suffers from much worse inequality than most other developed countries. However the Field Guide is stepping back from its usual quantitative treatment of the issues, to take a look at one way in which inequality physically manifests itself. Numbers are great, but sometimes nothing quite tells the story like… a story.

The New York Islanders are about to begin their final season in the Nassau Coliseum – the venue that’s been the team’s home since its 1972 inception. The Coliseum is the NHL’s second-oldest venue, and indeed it’s lacking the whistles and bells of a modern facility. But the beauty of the Coliseum is that there isnt a bad seat in the house – because it was built before the term “luxury box” was even a part of the lexicon.

It used to be that people with cash to burn would buy the expensive seats down close to the ice, while working people could afford the cheap seats all the way at the top – which in the Coliseum are decent seats. Ordinary middle class people would, not surprisingly, sit in great seats wrapping around the middle.

Like a metaphor for the country as a whole, that middle band of seats has disappeared from the modern sports arena. In its place are luxury boxes. The seats down low for the rich are still there – but middle class seating is drastically reduced, if it still exists at all; and the nose-bleed seats are now much higher up and farther away. Middle class people are forced to choose between paying exorbitant sums for the seats down close, or sitting in crappy seats under the rafters, 150 feet above the game. The worst arenas include LA’s Staples Center (home to the Kings, Clippers and Lakers) and Dallas’ American Airlines Center (home to the Mavs and Stars), each with multiple tiers of luxury boxes that have entirely eliminated the best, moderately priced seats, and pushed the upper tier into the stratosphere.

This phenomenon isnt specific to hockey and basketball. Take a look at the space occupied by luxury boxes in any modern stadium: that’s middle-class real estate usurped by the wealthy. In baseball, the Yankees tore down the house that Ruth built, to build the new Yankee Stadium. What did $1.89 billion buy? 10% fewer seats – but twice as many luxury boxes as the old, iconic park. Plus there are now “club seats” near the field, available for a cool $1 million, on a five year lease. To add injury to injury, taxpayers will be picking up 60% of the total cost. Across town, the Mets reduced seating capacity by 20% when they moved from Shea to Citifield – to gain more, better luxury boxes and “club seats.” Taxpayers will again take a big hit on a venue that clearly wasnt built for their enjoyment.

Things look even worse in the NFL. Because income from luxury boxes is exempted from revenue sharing, big market NFL teams now have an even bigger incentive to build more of them, eliminating ordinary seats as they go. While the new Yankee Stadium has a conspicuous 68 luxury boxes, MetLife, home to the Jets and Giants, has 218;  and the Cowboys’ new home has 300! One glance at designs for new stadiums in the works reveals that the worst is yet to come.

In the end, we couldnt resist throwing a few numbers out there. More images of American inequality on Friday, when the Field Guide returns.

 

Refs:

http://en.wikipedia.org/wiki/Luxury_box#Use_in_the_NFL

http://usatoday30.usatoday.com/money/economy/story/2012-02-04/cnbc-super-bowl-suites/52948968/1

http://www.nytimes.com/2008/11/05/nyregion/05stadiums.html?pagewanted=1&_r=0

http://www.forbes.com/2008/03/24/suites-sport-luxury-forbeslife-cx_ls_0325sports.html

A liberal and a conservative are having a heated debate. The conservative rails against government: that it’s always the problem, never the solution; that it sucks money out of private enterprise, and squanders it according to the prevailing political winds of the day. Not so, replies the liberal: government gives us public education, infrastructure, and many kinds of insurance that would not be supplied by private markets. Who’s right?

It would be great if we could simply do an experiment: take a country, jack up the size of its government, and then wait around for a few decades to see what happens to economic growth. We’re not talking about a few measly percentage points – we’re talking about tripling, quadrupling, even quintupling the size of government.

Unbeknownst to many, the experiment has already been done – in the US, and practically every other country in the West – and the results are in. Government, it turns out, is really good for growth.

Back in 1900, US government spending on all levels totaled 7.5% of GDP, as it had since the 1870s. By 1928, on the eve of the Great Depression, government spending had crept up to about 11%. By 1950, government spending reached 23% of GDP – triple what it was during most of the 19th century. In 1960 it reached 28%; in 1970, 30%, in 1980, 33%; in 1990, 35% – and remains at about 36% today, almost quintuple what it was in 1900.

How did that impact growth? We look at long-term measures – 25 and 50-year growth rates in real per capita GDP – so that the results dont get skewed by year-over-year ups and downs. During 1870-1928, the growth in per capita GDP for any given 25-year period ranged from a low of 12% (for 1889-1914) to a high of 82% (for 1877-1902). Through the 1920s, 25-year growth rates were below 40% every year except 1904-29, when it touched 42%.

By comparison, 25-year growth rates in per capita GDP during 1950-2008 never fell below 61% (1968-93), and peaked at 88% (1961-1986). Even when looking at 1950-2013 – to see the effects of the Great Recession – 25-year growth rates never drop below 44% – still better than the best 25-year growth rates seen during the so-called roaring 20s. 25-year growth as of 1932, Hoover’s last year in office: negative 8%.

50-year growth rates paint a more compelling picture. Between the 1870s and 1920s, real per capita GDP expanded about 125% over any given 50-year period (ranging from 114% to 143%). Between the 1950s and today, 50-year growth rates never fell below 167%, were often greater than 190%, and peaked at 209%. (50 year growth as of 1932: 36%. Those were the days….)

This isnt a close case. After the US tripled the size of its government – and while it was eventually quintupling the size of its government – economic growth dramatically accelerated. What’s more, the quality of that growth has also been far superior. In the 60 years between 1870 and 1930, the US went through 3 depressions (1873, 1893, 1929). Since then: not one depression. And if you think 2009’s Great Recession was bad, recessions in 1884, 1904, 1908, 1914 and 1920 were worse!

You might imagine an analogous experiment, in which we ask whether a certain food is good or bad for rats. So we feed them hundreds of pounds of the stuff for years on end. At the end of the study, the rats are bigger and healthier in every measurable way. Now imagine some joker standing up in the back of the room to rant about how this food nonetheless is really, really bad for rats. That’s a conservative. It was never about the facts, after all – theirs is just naked belief in a vacuum of fact.

Economics is a science, not a religion. Our theoretical constructs must in the end be based in fact, and surely must yield to the facts once they’re brought to light. Conservatives can bleat all they like about how government is bad for the economy – but they have no scientific arguments to offer; they can only recite their religious beliefs, which are not merely lacking any basis in fact, but persist in spite of them.

 

Refs:

data on the size of government:

http://www.usgovernmentspending.com/total_spending_2012USpn

data on real per capita GDP growth:

http://www.measuringworth.com/usgdp/

 

The Field Guide wishes a happy birthday to Rose. Have a lovely liberal Labor Day weekend – we’ll return Wednesday.

 

 

 

 

 

 

 

 

Perhaps it’s for the better that we, as individuals, have an exaggerated sense about the degree of control we exercise over our own destinies. Ignoring the room’s 800-pound gorilla – that our sense of free will and autonomy are almost certainly illusory – how our lives turn out is significantly not about innate talent, but dumb luck.

On Monday the Field Guide discussed some of the macro-level facts that almost entirely determine your quality of life, length of life and income: where you were born, who you were born to, and what sex organs you got. But there are many, many other “shocks” that individuals are subject to, which, while smaller in magnitude, have an enormous combined effect, to overwhelm the relatively minor contribution of individual talent. The world is a luckocracy.

Graduating in a recession year has a devastating effect on income. The effect follows an individual through their entire working life, reducing lifetime earnings by as much as 10%. Simply being in utero during a weak economy will also take a bite out of your lifetime wages and lifespan. The increased mortality that comes after you’re laid off stays with you for the rest of your (shortened) life. Exposure to radiation has been measured to reduce IQ not just for the person actually exposed, but for two generations to follow! Kindergarten class size is predictive of future income, even when controlling for other factors. Taken individually, each of these shocks are significant. But when you combine them over the course of a human life, their net effect is overwhelming.

It isnt practical to neutralize all the inequities of life – any cure would likely be worse. But one good policy guideline is to strive for “equality of opportunity” – to provide excellent education, nutrition and medical care to all young people, to give them the chance to fully realize their potential, that their talents might be more determinative of their level of success than the happenstance of their birth.

No matter an individual’s skills or industriousness, in the course of a life, sh** happens – and that’s what social insurance is for. Like every other form of insurance, social insurance is something every reasonable person should want to have – while hoping that they never need to use it! Next time you hear a conservative foolishly complaining that he’ll never “get his money back” on what he’s paid into social security – ask him if he’s also concerned his house will never burn down and his car will never get stolen – that he may never “get his money back” on his homeowners and auto insurance policies either. Or ask a billionaire if he’s distressed that he’ll never get to use Medicare or food stamps – because billionaires are covered by those social insurance programs too. (They’re just not very likely to use them – for which they should be happy.)

More than 40 years ago, the philosopher John Rawls posed an interesting solution to a problem many had struggled with. Rich people, like the infamous Koch brothers, commonly oppose social insurance programs. This may not be very nice, but it is superficially in their interest to not see their taxes go to support public programs that they’re not likely to benefit from directly. Poor people are frequently guilty of the opposite species of self-dealing: voting for politicians who promise to be generous with programs they expect to rely on. (Though trailer parks across the American heartland are filled with folks worried to death about estate taxes….)

Rawls’ novel resolution of the problem is the “veil of ignorance.” He would ask, “How generous would you want social insurance programs to be, if you didnt know your own circumstances?” Imagine you’re an unincorporated spirit, about to be cast at random into a live birth in the US. If you study the income distribution of Americans, you’ll find you’re much more likely to be born middle class or poor than super rich. If you’re perfectly rational, you’ll probably be glad to give up a little extra income in the event that you’re lucky enough to get tossed into a rich family – so you’ll have a little more insurance just in case you land at the bottom of the luckocracy, along with the 25% of American children who are born into poverty.

The fact is that the rise of social insurance coincides with the golden age of capitalism. Western economies never grew so rapidly – and without as many wild booms and busts – before the age of the welfare state. And so while insurance is extremely desirable for individuals, it’s also a big positive for the economy as a whole. Rawls called his book “A Theory of Justice” – but it’s also a formula for success, which we’ll discuss on Friday, when the Field Guide returns.