Fiscal Cliff nonsense from the Right

Organizing McDonalds and Walmart, and Why Austerity Economics Hurts Low-Wage Workers the Most

Organizing makes economic sense.

Unlike industrial jobs, these can’t be outsourced abroad. Nor are they likely to be replaced by automated machinery and computers. The service these workers provide is personal and direct: Someone has to be on hand to help customers and dole out the burgers.

And any wage gains they receive aren’t likely to be passed on to consumers in higher prices because big-box retailers and fast-food chains have to compete intensely for consumers. They have no choice but to keep their prices low. 

That means wage gains are likely to come out of profits – which, in turn, would affect the return to shareholders and the total compensation of top executives.

That wouldn’t be such a bad thing. 

According to a recent report by the National Employment Law Project, most low-wage workers are employed by large corporations that have been enjoying healthy profits. Three-quarters of these employers (the fifty biggest employers of low-wage workers) are raking in higher revenues now than they did before the recession.

McDonald’s — bellwether for the fast-food industry — posted strong results during the recession by attracting cash-strapped customers, and its sales have continued to rise.

Its CEO, Jim Skinner, got $8.8 million last year. In addition to annual bonuses, McDonald’s also gives its executives a long-term bonus once every three years; Skinner received an $8.3 million long-term bonus in 2009 and is due for another this year. The value of Skinner’s other perks — including personal use of the company aircraft, physical exams and security — rose 19% to $752,000.

Yum!Brands, which operates and licenses Taco Bell, KFC, and Pizza Hut, has also done wonderfully well. Its CEO, David Novak, received $29.67 million in total compensation last year, placing him number 23 on Forbes’ list of highest paid chief executives.

Walmart – the trendsetter for big-box retailers – is also doing well. And it pays its executives handsomely. The total compensation for Walmart’s CEO, Michael Duke, was $18.7 million last year – putting him number 82 on Forbes’ list.

The wealth of the Walton family – which still owns the lion’s share of Walmart stock — now exceeds the wealth of the bottom 40 percent of American families combined, according to an analysis by the Economic Policy Institute.

Last week, Walmart announced that the next Wal-Mart dividend will be issued December 27 instead of January 2, after the Bush tax cut for dividends expires — thereby saving the Walmart family as much as $180 million. (According to the online weekly “Too Much,” this $180 million would be enough to give 72,000 Wal-Mart workers now making $8 an hour a 20 percent annual pay hike. That hike would still leave those workers making under the poverty line for a family of three.)

America is becoming more unequal by the day. So wouldn’t it be sensible to encourage unionization at fast-food and big-box retailers?

Yes, but here’s the problem.

The unemployment rate among people with just a high school degree – which describes most (but not all) fast-food and big-box retail workers – is still in the stratosphere. The Bureau of Labor Statistics puts it at 12.2 percent, and that’s conservative estimate. It was 7.7 percent at the start of 2008.

High unemployment makes it much harder to organize a union because workers are even more fearful than usual of losing their jobs. Eight dollars an hour is better than no dollars an hour. And employers at big-box and fast-food chains have not been reluctant to give the boot to employees associated with attempts to organize for higher wages.

Meanwhile, only half of the people who lose their jobs qualify for unemployment insurance these days. Retail workers in big-boxes and fast-food chains rarely qualify because they haven’t been on the job long enough or are there only part-time. This makes the risk of job loss even greater.

Which brings us back to what’s happening in Washington.

Washington’s obsession with deficit reduction makes it all the more likely these workers will face continuing high unemployment – even higher if the nation succumbs to deficit hysteria. That’s because cutting government spending reduces overall demand, which hits low-wage workers hardest. They and their families are the biggest casualties of austerity economics.

And if the spending cuts Washington is contemplating fall on low-wage workers whose families are under the poverty line – reducing not only the availability of unemployment insurance but also food stamps, housing assistance, infant and child nutrition, child health care, and Medicaid – it will be even worse. (It’s worth recalling, in this regard, that 62 percent of the cuts in the Republican budget engineered by Paul Ryan fell on America’s poor.)

By contrast, low levels of unemployment invite wage gains and make it easier to organize unions. The last time America’s low-wage workers got a real raise (apart from the last hike in the minimum wage) was the late 1990s when unemployment dropped to 4 percent nationally – compelling employers to raise wages in order to recruit and retain them, and prompting a round of labor organizing.

That’s one reason why job growth must be the nation’s number one priority. Not deficit reduction.

Yet neither side in the current “fiscal cliff” negotiations is talking about America’s low-wage workers. They’re invisible in official Washington. 

Not only are they unorganized for the purpose of getting a larger share of the profits at Walmart, McDonalds, and other giant firms, they’re also unorganized for the purpose of being heard in our nation’s capital. There’s no national association of low-wage workers. They don’t contribute much to political campaigns. They have no Super-PAC. They don’t have Washington lobbyists.

But if this nation is to reverse the scourge of widening inequalty, Washington needs to start paying attention to them. And the rest of us should do everything we can to pressure Washington and big-box retailers and fast-food chains to raise their pay.i

I think Nader is onto something here.

Ralph Nader on a simple way to avoid the fiscal cliff: Tax stock trades

http://www.washingtonpost.com/opinions/ralph-nader-why-a-tax-on-stock-tr...

How could that be?

New study badly undermines GOP position on sequester

In a rational world, a new study that came out today on income equality would constitute a major blow to the GOP argument on the sequester.

The new study was performed by Thomas Hungerford of the non-partisan Congressional Research Service. Though the study is not a CRS product, Hungerford’s data is widely cited on both sides; he’s an impeccably objective analyst.

Here’s what Hungerford found: The single greatest driver of income inequality over a recent 15 year period was runaway income from capital gains and dividends.

This finding is directly relevant to the current debate, because Obama and Democrats want to offset the sequester in part by closing loopholes enjoyed by the wealthy, such as the one that keeps tax rates on capital gains and dividends low. Dems want to do this in order to prevent a scenario where the sequester is averted only by deep spending cuts to social programs that could hurt a whole lot of poor and middle class Americans. Republicans oppose closing any such loopholes and want to avert the sequester with only deep spending cuts.

Hungerford’s report, like all serious examinations of inequality, is very complicated. He looks at a bunch of recent data on inequality from the period from 1991-2006 — measured by the so-called “Gini index” — and calculates the degree to which various factors exacerbated it. Hungerford found that over that period, the rise in the Gini index (a story that’s been widely told elsewhere, one that’s largely been driven by the runaway wealth of the top one percent and top 0.1 percent) was driven mainly by the rise in capital gains and dividends income.

“By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends,” the report concludes.

Or, as Hungerford put it in an interview with me: “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends."

http://www.washingtonpost.com/blogs/plum-line/wp/2013/02/20/new-study-ba...

The US sequester: your essential guide to the looming spending cuts

The sequester is scheduled to kick in on March 1, with $85bn in cuts set to hit a variety of programs. We give you the lowdown

http://www.guardian.co.uk/world/2013/feb/22/us-sequester-guide-spending-...

L'affair Reinhart/Rogoff Reinhart and Rogoff’s defense is misleading and here’s why

By Matt Phillips @MatthewPhillips 6 hours ago

Economics calls itself a “science”, but it’s pretty much always a political proxy war. Which helps explain the bone-crunching social media pile-on that Harvard economists Ken Rogoff and Carmen Reinhart received in recent days after some other researchers questioned their influential findings that high government debt is a drag on economic growth.

The source of those questions was a paper by University of Massachusetts economists Thomas Herndon, Michael Ash and Robert Pollin, hereinafter HAP. And today Reinhart and Rogoff (R+R) issued a pretty stark acknowledgement of errors  that was remarkable for its candor.

For instance: “Herndon, Ash and Pollin accurately point out the coding error that omits several countries from the averages in figure 2. Full stop. HAP are on point.” In the world of economics, that’s about as straightforward a mea culpa as you get. (Check out this post for a full list of the links on the affair.)

But while admitting this mistake, R+R contend that their conclusion of slower economic growth for high-debt countries still holds up if you look at other metrics. They also suggest that HAP reach the same conclusion, namely that countries with debt-to-GDP ratios over 90% will have slower growth:

Do Herndon et al. get dramatically different results on the relatively short post war sample they focus on? Not really. They, too, find lower growth associated with periods when debt is over 90% (they find 0-30 debt/GDP , 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; over 90, 2.2%. Put differently, growth at high debt levels is a little more than half of the growth rate at the lowest levels of debt.

R+R go on to argue that while the above differences in GDP growth may not look like very much, they add up:

It is very misleading to think of 1% growth differences without recognizing that the typical high debt episode lasts well over a decade (23 years on average in the full sample.) … It is utterly misleading to speak of a 1% growth differential that lasts 10-25 years as small. If a country grows at 1% below trend for 23 years, output will be roughly 25% below trend at the end of the period, with massive cumulative effects.

But those statements are pretty misleading themselves. That’s because HAP’s key point isn’t that the decline from 3.2% growth to 2.2% growth for countries over 90% debt-to-GDP is small. It isn’t small. If your country grew at 1% less a year, it would indeed, as R+R say, be a good deal poorer two decades hence.

No, HAP’s point is that 1% is statistically insignificant. That, given the statistical margins of error that arise when you do a calculation like this with a limited set of data, “[d]ifferences in average GDP growth in the categories 30-60 percent, 60-90 percent, and 90-120 percent cannot be statistically distinguished.”

If that’s true, you can’t even really speak of a 1% growth difference for high and low debt countries. Why? Because statistically speaking there is not enough evidence to suggest it really exists, even with average growth data that the economists collected.

Think about it in terms of public opinion polling during election season. A typical opinion poll canvasses about 1,000 people. The “margin of error” for asking that many people if they’ll vote for person A or person B is about 3% either way. So if person A polls 51% and person B polls 49%, person A’s lead isn’t statistically significant. There’s no confidence that person A will actually win when all the votes are counted.

In other words, R+R seem to be claiming that even though their lead shrank considerably after redoing the math—so much so that it now falls within the margin of error—they’re still clearly in the lead. But statistically speaking, according to the new paper, that’s just not true.

http://qz.com/75439/reinhart-and-rogoffs-defense-is-misleading-and-heres...