Are $18 Big Macs the price of falling inequality?

“If the burgeoning bargaining power of less-skilled workers comes at middle-class consumers’ expense in the short run, almost everyone stands to benefit from rising working-class wages in the long term.
Middle-class households can more easily afford servants in many developing countries than they can in the United States. Yet America’s middle class is nevertheless far wealthier than its counterparts in India or Pakistan. Even the privileged are generally better off in an economy with high levels of labor productivity than in one with a large pool of hyper-exploitable workers.

And there’s reason to believe that rising working-class wages are a key driver of productivity gains. When workers’ time is cheap, businesses have little incentive to develop labor-saving technologies or production methods. As wage bills rise, by contrast, innovation often becomes imperative.

Ironically, conservatives often cite this reality as an argument against increasing the minimum wage. Specifically, right-wing economists and commentators have often warned that raising the wage floor will cause employers to automate jobs away. Yet this is another way of saying that minimum wage hikes increase investment in productivity-enhancing technology (which is the ostensible aim of just about every Republican tax cut plan).

In any case, it is true that when wages rise at the bottom of the labor market, firms invest in labor-saving technology. In 2018, Grace Lordan and David Neumark demonstrated this empirically. Those economists reviewed 35 years of government census data, identified jobs that could be automated given existing technology, and found that after minimum wage increases were enacted, “the share of automatable employment held by low-skilled workers” declined. In other words, minimum wage hikes spurred capital investment and increased productivity by mechanizing tasks that did not require uniquely human skills.

The notion that high wages spur productivity gains is consistent with the American economy’s broader historical record. As Neil Irwin observed in 2018, productivity booms have tended to follow labor market booms, while deep recessions have given way to productivity slumps.

This relationship between wage gains and productivity can be witnessed within today’s food service industry. As Bloomberg’s Justin Fox notes, as restaurant wages jumped between 2020 and 2021, the sector’s output per worker hour soared by 21 percent.

In the short term, these productivity gains have not been sufficient to reduce restaurants’ operating costs and, thus, prices. But in the long term, when businesses increase the labor efficiency of their production processes, their wares tend to become more affordable.

A world of cheap burgers and high working-class wages is therefore possible. Middle-class consumers need not see the rising fortunes of less-skilled workers as a threat to their standard of living.

For the moment, though, there is a genuine tension between boosting compensation for America’s most vulnerable workers and minimizing the cost of labor-intensive services for the nation’s consumers. Precisely how liberals can best navigate this tension isn’t easy to say. At the very least, though, we should not encourage our fellow Americans to mistake the symptoms of rising worker power for those of a deepening economic crisis.”

https://www.vox.com/politics/2024/1/9/24027094/fast-food-prices-wages-mcdonalds

Do we really live in an “age of inequality”?

“Piketty, Saez, and Zucman estimate that the top 1 percent earned 9.1 percent of national income in 1960, rising dramatically to 15.1 percent by 2019. Auten and Splinter, by contrast, show a very small increase: 8.1 percent in 1960 to 8.8 in 2019. The share is now actually lower, they find, than it was in the mid-1960s.
Auten and Splinter reach similar conclusions about the top 10 and top 0.1 percent: per their estimates, the former grew from 29.2 to 29.7 percent from 1960 to 2019, the latter from 2.5 to 3 percent.

How can two research teams, both looking directly at US tax data, reach such different conclusions? It’s not that one group are craven “inequality deniers,” to borrow an ugly term that Piketty has slurred Auten and Splinter with, or that the other group is “thoroughly discredited,” as billionaire libertarian economist Cliff Asness has described Piketty, Saez, and Zucman. The disagreement is, at root, about how to deal with the limitations of tax data, by far the best source of information on who earns what in America.

Neither side has a monopoly on truth. On some issues, Auten and Splinter made judgment calls that seem more reasonable to me; on others, Piketty, Saez, and Zucman do; on still more, it’s wildly unclear which assumptions are most appropriate to make.”

“No one factor explains more than 1.6 points of this disagreement, and even those are offset by a couple of areas (like dealing with owner-occupied housing and Social Security) where Auten and Splinter make decisions that show a larger increase in the top 1 percent’s share than PSZ.”

“Both teams show that income inequality has increased in the US in the past half-century. While Auten and Splinter show at most modest increases in the top 1 percent’s share of income after taxes, they do find substantial increases before taxes. Moreover, that’s only one way to measure inequality. The most comprehensive measure is something called the Gini coefficient, which attempts to summarize the whole scale of inequality across the income spectrum, not just at the very top. An increase in the coefficient means that inequality has risen.
Before taxes and government safety net programs, Auten and Splinter estimate that the Gini coefficient for the US grew 25 percent since 1962 and 23 percent since 1979. After taxes and transfer programs, the increases are 10 percent since 1962 and 16 percent since 1979. More progressive tax and spending policy reversed some of the increase, but the increase is real and significant.

To give a sense of the scale here, the after-tax/transfer figure grew from 0.355 in 1979 to 0.417 in 2019, a 0.062 increase. If that number means nothing to you (it means nothing to me!) then consider that this increase is akin to the gap between the US and countries like Australia, Spain, and Switzerland today. That is, if this increase in inequality hadn’t happened, the US would be close to many other rich countries as opposed to the rather unequal outlier it is today.

You can also see signs of a general increase in inequality across some other measures. Take wealth, for instance. A recent rigorous attempt by economists Matt Smith, Owen Zidar, and Eric Zwick to track wealth inequality (that is, the gap in net worth, rather than income, between rich and poor) in the US over recent decades shows a pronounced increase”

https://www.vox.com/future-perfect/2024/1/11/23984135/inequality-auten-splinter-piketty-saez-zucman-tax-data

Democrats Say They’re Fighting Inequality. But Many of Their Policies Favor the Rich.

“The State and Local Tax (SALT) deduction cap, part of the 2017 Tax Cuts and Jobs Act (TCJA), placed a $10,000 limit on the amount of state and local taxes that can be deducted from federal taxable income. This move predominantly affected high earners in high-tax states like New York, California, and many others that are Democratic strongholds.

That’s a tax hike on the rich. This shouldn’t bother Democrats, who are usually happy to demonstrate their egalitarian chops by clamoring for that very thing. Yet this time, by demanding repeal of the SALT cap, they are on the front lines of a battle to restore tax breaks for the rich. As it turns out, when affluent Californians and Northeasterners felt the pinch, Democrats were ready to cha-cha for tax relief.”

https://reason.com/2023/10/26/democrats-say-theyre-fighting-inequality-but-many-of-their-policies-favor-the-rich/

How cars fuel racial inequality

“As of 2021, about 11 million Americans had their driver’s licenses suspended due to nonpayment of fines and fees. It took Moseley-Sayles nearly a decade — by which time she’d paid off her initial ticket plus an additional $5,000 in warrant fees and other fines — to get her license reinstated. In the interim, she faced a conundrum that millions who have suspended licenses must contend with each year: Taking away a license doesn’t take away a person’s need to drive. Moseley-Sayles had to keep using her car and hope that she wasn’t pulled over and arrested for it.”

The wealthy get a free lunch on capital gains taxes. Let’s fix that. VIDEO SOURCES.

How could changing capital gains taxes more revenue? Grace Enda and William G. Gale. 2020 1 14. Brookings. The rich benefit as Democrats retreat from tax on unrealized capital gains Greg Iacurci. CNBC. 2021 12 29. https://www.cnbc.com/2021/12/29/the-rich-benefit-as-democrats-forgo-tax-on-unrealized-capital-gains.html The Many Problems With Taxing

After the latest clash with Israel, Gazans’ struggle continues

“Israeli forces launched a preemptive strike against PIJ targets on August 5, Reuters reported, after one of the group’s leaders, Bassam al-Saadi, was arrested in the Occupied West Bank. Israel claims to have hit a number of PIJ targets. However, several civilians, including 17 children, were killed in the clashes, both by Israeli weapons and possibly by errant PIJ rockets intended for Israeli targets. A ceasefire brokered by Egypt, Qatar, Jordan, the US, the UN, and the Palestinian Authority between Israel and the PIJ last Sunday has thus far held; however, an attack on worshipers in Jerusalem’s Old City late on Sunday could portend more violence. At least eight people, including US citizens, were injured in the attack, which was allegedly carried out by a Palestinian resident of East Jerusalem, according to Israeli authorities. They have not yet released his name, and there is no indication that he is affiliated with any larger group, according to Reuters.

Despite the ceasefire, the aftermath of even short-term hostilities in Gaza goes far beyond active bombardments and shelling; the combination of years of violence, a brutal blockade, and state repression has created an enduring crisis. What’s more, there’s little chance to recover before violence breaks out again.

According to initial UN reporting, 360 Palestinians have been injured in the fighting, and Gazans experienced a tightened Israeli blockade of goods and services that led to 20-plus-hour rolling blackouts each day. There were no Israeli deaths or serious injuries, the Associated Press reported”

“The Gaza strip is home to around 2 million Palestinians and has been governed by Hamas since 2007, when the group took control from the Fatah-led Palestinian Authority, which governs the West Bank. The two groups have had no success in creating a unity government over the past 15 years, despite repeated attempts, weakening the Palestinian resistance and further disenfranchising ordinary Palestinians. Although Fatah and Hamas agreed to hold elections in 2021, which would be the first since 2006, those elections have been postponed indefinitely.”