A tale of two studies: poor research leads to poor findings on minimum wage

Seattle’s economy is booming: construction everywhere, crowded streets and transit, housing costs soaring, bustling neighborhood restaurants, and a 2.6% unemployment rate. Much of this growth is driven by high wage-tech jobs and the spillover effect of all those workers eating out, shopping, and paying premium prices.

It’s in this context that Seattle instituted its higher minimum wage ordinance in 2015. In the past week, two studies have come out with very different conclusions on the impacts of those wage increases on low wage work – one says it’s positive, and the other negative. But the two studies are not created equal.

The first study, led by Michael Reich and Sylvia Allegretto based at the University of California, Berkeley, concludes that the 2015 and 2016 increases to $11 and $13 an hour had the intended effects of raising incomes for low-wage workers without having discernible impact on the number of jobs. These findings are consistent with the bulk of economic studies of minimum wage increases over the past couple of decades.

In the second, a University of Washington team concluded that the 2016 wage increase reduced the number of low-wage jobs by 9% and actually lowered the incomes of low-wage workers. This diverges from the majority of economic research. Across the U.S., city, state, and federal governments have changed minimum wages dozens of times over the past two decades. Multiple economists from across the ideological spectrum have studied these changes, and even opponents of minimum wage increases have not found impacts anywhere near the scale of the UW team.

The UW’s counter-intuitive findings underscore several methodological flaws:

  • They limit their study only to single-site establishments, because their data could not distinguish whether employees of multi-site chains – think Molly Moon’s, Mud Bay, Mod Pizza, Starbucks – actually worked inside or outside the city limits. That leaves 40% of workers excluded from their study. It also means that leaving a job at small business for a job at a larger company counts incorrectly as a job loss.
  • The UW team created a control by comparing Seattle’s employment statistics with other parts of the state. But there is no place in Washington that has a similar economy to Seattle. Seattle has an economy more like San Francisco or New York than Everett or Spokane. The Berkeley team used the more accepted methodology of generating a control from similar areas across the country, rather than just the state. Moreover, the Berkeley team compared numbers for the previous 5 years, while the UW only looked at the previous 9 months.
  • The UW study focused on jobs paying $19 an hour or less, making the assumption that fewer jobs in this bracket meant lost opportunity for workers who used to be in this pay range. But what we’re seeing in Seattle is that jobs that used to pay $18 an hour now pay $20 due to competition for employees. In the UW study, this was unaccounted for and incorrectly counted as job loss.

The quality of a study hinges on the quality of its methods. But the UW study was too myopic in its lens. It eschewed all of the hallmarks of good science – including all the data, equivalent control group, breadth of time. There’s a reason its findings go against what the vast majority of previous studies found: the UW study isn’t as academically rigorous.

If something seems too bad to be true, it probably is.

Originally published at EOIOnline

Bloomberg: Sweden's economic miracle based on high taxes

Sweden’s economy has outperformed its OECD peers over the past two decades

High taxes, strong unions and an equal distribution of wealth.

That’s the recipe for success in a globalized world, according to Magdalena Andersson, the Social Democratic economist who’s also Sweden’s finance minister.

The 50-year-old has been raising taxes and spending more on welfare since winning power in 2014. She’s also overseen an economic boom, with Swedish growth rates topping 4 percent early last year, that has turned budget deficits into surpluses.

….

The numbers are compelling. Sweden has one of the world’s highest tax burdens, with tax revenue about 43 percent of GDP, according to OECD data. The equivalent figure for the U.S. is about 26 percent. Sweden’s economy has grown almost twice as fast as America’s, expanding 3.1 percent last year, compared with 1.6 percent in the U.S.

Sweden has the highest labor force participation in the European Union. Andersson attributes this to tax-funded parental leave and affordable daycare, which make it easier for both parents to work.

In contrast to most of its European peers, Sweden has budget surpluses. The EU average will be a shortfall of 1.6 percent in 2018, while the estimated deficit in the U.S. of 5.7 percent of GDP, EU Commission data published in February show.

A Reverse-Trump Tax Plan Delivers an Economic Miracle in Sweden

Can conservatives manage what baboons can do?

Robert Sapolsky — MacArthur fellow and professor of biology, neuroscience, and neurosurgery at Stanford University — pursued decades long research into baboon societies. He found that most baboon troops were dominated by aggressive alpha males who abused other members of the troop, had pick of the females, and enjoyed good health and low levels of stress hormones. The submissive members of the troop endured much abuse, had high stress hormone levels, and had poor indicators of health. Baboon

Sapolsky admitted, “I don’t really like baboons…They’re these scheming Machiavellian backstabbing bastards.”

Then tragedy befell the troop that he was studying: the members started eating garbage from a human settlement. Some of the meat they consumer was contaminated with tuberculosis. Half the males in the troop died. Significantly, the ones who died weren’t the submissive ones. The ones who died were the dominant ones. Thereafter the troop’s social system changed. They became much less aggressive and much more nurturing. They groomed each other and became more laid back.

The takeaway message from this research is that if baboons can learn to cooperate, then so can humans. An aggressive market system that embodies a cutthroat survival-of-the-fittest ethos is not in any way a necessary — or healthy — way to organize human societies. It’s destructive to the well-being of the majority of humans, causing unnecessary stress. Indeed, there is a slew of research recently about how cooperation, and not just competition, contribute to the survival and thriving of groups.

For more details see “No Time for Bullies: Baboons Retool Their Culture” or watch the video below.

Four solutions for Washington state’s budget dilemma

Adopting a budget will be the main task of Washington’s legislature in 2015. The state’s elected leaders face a big challenge. Income inequality is constricting family budgets and the whole economy, here in Washington and nationwide. Washington also has an outdated tax system that no longer fits our economy.

As a result, public revenues from sales and business taxes are growing a lot more slowly than the costs of educating our kids and providing basic services and infrastructure. To pass a state budget that provides a solid platform for thriving families and broadly shared prosperity, our legislature must raise progressive new sources of revenue and approve new policies to tackle inequality.

Washington’s economy needs a stronger foundation

Our state budget sets the foundation on which our economy and state residents can thrive. But the combination of recession, growing income inequality, and an outdated and inflexible tax system is undercutting that foundation.

  • Washington has the 4th highest number of kids per teacher among all the states, and ranks 42nd in our level of investment in K-12 education.
  • The share of state funding for higher education has fallen steadily for two decades, and plummeted with the recession. Among all states, Washington had the 9th highest tuition hikes between 2008 and 2012.
  • Early learning, mental health services, child protection, senior health, state parks, and other key services have been underfunded through the recession.

Over the past 20 years, Washington’s budget has declined as a percentage of the state’s economy. If revenues came in today at the rate they did in the year 2000, Washington would have an additional $3 billion each year to invest in education and other priorities. Many economists agree that cutbacks in government spending have prolonged the recession.

WA Budget Overview 2015 - chart 1

Improving services for an opportunity economy?

Washington is projected to collect about $2.7 billion more in 2015-17 than in the 2013-15 biennium – enough to cover the growing population of school kids and others, but no improvement in services. However, both the voters and the courts have told the legislature that services must improve.

In November 2014, Washington voters passed Initiative 1351 to lower class sizes in all grades. That requires more teachers, more class rooms – and more money. In the McCleary decision, the Supreme Court said the legislature must invest enough to insure that all kids have access to an education that will fully prepare them for life in the 21st century. Together those come to about $4 billion in added costs for 2015-17.

We also must invest more in early learning and higher education if we want to help all kids achieve their potential. Then there’s everything else the state does, like protect mentally ill people, children, and seniors. Most state services were cut to the bone during the Great Recession and also need more funding to protect public health and safety.

Income inequality and a flawed tax structure

Most other states modernized their tax systems years ago with a state income tax, so they can reap some benefit from the skyrocketing wealth of the 1% and plow those resources back into early learning, small class sizes, and affordable college educations. But Washington still relies on a 1930’s-style system based on the sales tax. As a result, we have the most regressive tax structure in the nation, with low and moderate income households and small businesses paying too much, and the wealthiest individuals and corporations paying relatively little.

Sales tax revenues are growing more slowly than Washington’s population and economy for two main reasons. One is that people now spend more of their income than in earlier years on things that aren’t taxed: either services, such as health care and education, or on goods purchased over the internet, where sales tax collection is spotty. The other reason is the growing concentration of wealth among the top 1 or 2%, while incomes stagnate for the majority. Wealthy people simply cannot spend all their income.

WA Budget Overview 2015 - chart 4

Solutions for Washington’s budget dilemma

1. Progressive new revenues: Governor Inslee has proposed two new revenue sources for the state that will begin to address the fundamental shortcomings of our tax system. One is a 7% tax on capital gains from selling stocks and bonds. Retirement accounts and the first $25,000 would be exempt, so only the wealthiest would pay. The other is a new carbon tax that would be paid by the largest corporate polluters in the state. It would provide new money for education and transportation projects, while reducing pollution and slowing climate change.

2. Ending tax breaks: Washington’s tax code is full of special preferences for industries ranging from aerospace manufacturing to agriculture. Governor Inslee proposed ending a few tax breaks in his draft budget, but also added some new ones, including for high tech companies. A much more rigorous evaluation is necessary of which tax breaks actually create jobs and middle class consumers rather than merely padding shareholder profits and adding to the problems caused by income inequality.

3. Tackling systemic tax reform: Ultimately to provide educational opportunity for all in our state, while protecting public health and safety and establishing the foundations for thriving communities, Washington will have to modernize its whole tax structure. Over a decade ago, a bipartisan Tax Structure Study Committee recommended adopting a personal income tax, lowering the sales tax, and reforming business taxes to make the system less regressive, more stable, and better able to fund essential services.

4. Tackling income inequality: Providing individual opportunity and raising incomes for low and moderate income working families will also help our state’s revenue picture. More money in the pockets of hard working families means more economic activity, more jobs, and more public revenue. The 2015 legislature can help rebalance our economy by:

  • increasing the state minimum wage to $12;
  • passing statewide paid sick and safe leave so workers don’t lose income when they get sick or have a sick child;
  • approving family and medical leave insurance, to provide paid leave for new parents and workers with serious health conditions or seriously ill family members;
  • strengthening equal pay opportunity for women; and
  • fully funding educational reforms from early learning through university.

Excerpted from Washington 2015 Budget Guide: Solutions for building an opportunity economy in the Evergreen State »

David Stockman on the corruption of capitalism and the GOP

I’m reading David Stockman’s book The Great Deformation — the Corruption of Capitalism in America. Stockman was Reagan’s Director of the Office of Management and Budget. He criticizes the GOP for its militarism and its whoring for the rich. He says there was no need to bail out Wall Street. The speculators who would have lost out deserved to lose and the contagion wouldn’t have spread beyond the canyons of Wall Street. The Great Deformation

Progressives would agree with much of what Stockman has to say.

“[T]he Republican Party was hijacked by modern imperialists during the Reagan era. As a consequence, the conservative party cannot perform its natural function as watchdog of the public purse because it is constantly seeking legislative action to provision a vast war machine of invasion and occupation.” (p 688)

“The Republican Party has totally abdicated its job in our democracy, which is to act as the guardian of fiscal discipline and responsibility. They’re on an anti-tax jihad — one that benefits the prosperous classes.”  “How the GOP Became the Party of the Rich”. Rolling Stone.

But Stockman is a true conservative.  He doesn’t believe the government should be involved in bailing out business or stimulating the economy.  He opposes Keynesian macro-economic policies and thinks that government does more harm than good when it meddles.  He also opposes Social Security, Medicare, Medicaid, and the minimum wage.

“At the heart of the Great Deformation is a rogue central bank that has abandoned every vestige of sound money. In so doing, it has enabled politicians to enjoy ‘deficits without tears’ by monetizing massive amounts of public debt.”

Stockman calls the bailout, the stimulus, and the Fed’s printing of money “a de facto coup d’etat by Wall Street” whose purpose was to re-inflate the financial bubble.

“The Detroit-based auto industry was debt-enfeebled house of cards that had been a Wall Street playpen of deal making and LBOs for years, including my own. ”  He thinks the there needs to be a rollback of the “preposterous $100,000 per year cost of UAW jobs.”

Stockman spent twenty years after leaving the White House in the leveraged buyout business.  He was indicted for fraud when a business he invested in went bankrupt. After a two year battle, prosecutors decided to drop charges. Stockman says the business failure was due to stupidity (his) and market decline, not fraud.

In the last chapter, Stockman proposes the following radical policy changes which, he admits, have almost no chance of being enacted in the current political climate.  Some of the changes (such as overturning Citizens United, the establishment of federally funded elections, and a wealth tax on the rich) would be eagerly welcomed by progressives. Other changes (such as the elimination of Social Security, Medicare, and income taxes) would be strongly opposed by progressives.

  1. An end to the Feds expansionist monetary policy and a return to a gold-backed dollar.
  2. An end to deposit insurance and an end to Fed’s lending federally insured money to speculating banks.
  3. Adopt “Super Glass-Stegall II”, erecting a wall between investment banking government funds (“insured deposits or access to the Fed discount window”).
  4. An Omnibus Amendment that limits Congress members to a single term of six years in office and eliminates the Electoral College (“bringing the nation into the modern world of one person, one vote”).
  5. Require Congress to balance the budget, except in case of a declared war.
  6. End Keyesian macroeconomic expansionism and allow the free market to set wages and levels of production.
  7. Abolish social insurance bailouts, and economic subsidies.
  8. “Eliminate the Departments of Energy, Education, Commerce, Labor, Agriculture, HUD, Homeland Security, the SBA, DOT, and the Ex-Im Bank.” Also eliminate Fannie Mae, Freddie Mae, the FHA, the homeowner’s tax deduction, and subsidies for Amtrak.
  9. “Erect a study cash-based means-tested safety net and abolish the minimum wage.”
  10. Abolish all forms of health insurance, including Medicare, Medicaid and Obamacare, and replace them with “cash-based transfer payments.”  Also eliminate tax subsidies for employer-funded health insurance. All these forms of insurance, says Stockman, mostly serve to prop up the corrupt medical-industrial complex. “The cancerous growth of the medical care complex would be halted and reversed.”  He believes the free market will devise innovations to provide efficient care. “The one necessary concession to socialism would be a system of federally licensed catastrophic insurance funds would automatically cover the means-tested safety-net population.”
  11. “Replace the warfare state with genuine national defense.”
  12. Establish a 30% wealth tax on the rich in order to reclaim the trillions they extorted from the US Treasury and the middle class. “Needless to say, $14 trillion of national debt reduction could never be achieved under any known ordinary fiscal device; it would require a one-time wealth tax, essentially a recapture of part of the windfall wealth gain that has accrued to the top of the economic ladder during the age of bubble finance.”
  13. Repeal the Sixteenth Amendment (income taxes) and finance “the beast” via consumption taxes.

By the way, Stockman isn’t the only former Reagan economic adviser to argue against GOP tax policy. Former Labor Secretary Barry Bluestone thinks the GOP tickle-down economic policy is a failure. He says “The wealthiest people spend maybe 30% of their income. Poor people spend 100%, working people spend 98%, so as we move money away from working families towards very wealthy families, we take more and more consumption out of the economy, means slower and slower growth, means higher and higher an extended unemployment.”

TPP Protest, Federal Office Bldg, Seattle, Tues Nov 11, 5PM

Both parties may be counting on us to be exhausted and out of the loop when it comes to this ghastly Trade Agreement which has been kept out of the public eye. And in the spirit of compromise, it could easily be passed to show a country weary with gridlock that compromise is possible. Furthermore our representatives from WA believe that TRADE is good for our State which it is. BUT now is not the time to compromise on this potential corporate take-over.

Why can’t our trade negotiators deliver a trade policy that raises living standards in communities at home and abroad? Following the 2014 elections the U.S. government is going to make a push to pass the new mega-trade agreement, the Trans Pacific Partnership, using Fast Track. This agreement, negotiated by corporate lobbyists while the public is kept in the dark, threatens everything from food safety and access to medicines to green energy policy, internet freedom, and labor rights. It also gives corporations ‘investor-states’ rights so they can sue localities, countries, states for depriving them of their hypothetical profits if they insist on sticking to the democratically-determined laws and regulations.

Everything we work for [GMO labeling, environmental protection, food-safety laws] can be overturned or cost us millions of dollars in ‘damages’ we will pay to these corporations!!! We need a new, transparent, accountable, and democratic process, not an antiquated and extreme Fast Track procedure. Help us send a message that Washingtonians want trade policy that lifts up people and the planet, not just the corporate bottom line!

As if pushing Fast Track for a secretive pact weren’t bad enough, the corporations behind the TPP are now hoping to sneak the Fast Track vote into the Lame Duck session — after the elections, when political accountability is at its lowest. The good news is that we’ve stopped Fast Track before and we can do it again. If we all speak out loudly enough, we can derail Fast Track this November and into the future. Join groups across Washington State and the U.S. to Stop the Sneak Attack on Democracy!

Rep. McDermott, Stop the Sneak Attack on Democracy! a Light Brigade Action
http://pol.moveon.org/event/moveonaction/142598
Tuesday, Nov. 11, 2014
5 – 6:30 PM
Federal Building, 915 Second Ave, Seattle

We will be outdoors, so dress for the weather. We will have light boards, flashlights, petitions, and more information on how to stay involved and next steps in the campaign!

The November 8 – 14 Week of Action against Fast Track comes as President Obama and other heads of state visit Asia to discuss the TPP, and right as the Lame Duck session of Congress begins to get underway. It’s a time of year when a lot of people take a break after the elections, and start getting ready for the holidays. We need your help remaining vigilant so that Fast Track does not sneak through then or ever.

And if you can’t make this event – Sign our PETITION to Stop Fast Track and the TPP!
• Here is the link to our petition: https://www.change.org/p/u-s-house-of-representatives-we-urge-you-to-publicly-oppose-fast-track-and-promote-a-more-transparent-and-accountable-process-2?just_created=true
• We ask that you circulate this link to your contacts so that we can gather as many signatures as possible.

Stop the TPP -- the ultimate corporate power grab

The “Race to the Top” mentality is creating an economy – and society – where only the winners matter

One of the things I do in the fall is volunteer as a coach for cross country runners at Ballard High School. I usually end up coaching the kids at the end of the pack. That’s how it should be. Because with cross country, it’s not just about the fastest runners, it is also about the kids in the middle and the kids who can barely finish — everyone who wants to put their best effort out there to compete for their best time.

Here’s the thing, though: Life is a little different than a cross country race. In a meet, every kid begins at the same starting line. In life, that is rarely the case. Too often, America’s “Race to the Top”-style public policies put a few kids on the starting line or the inside lane — usually those who were born with the luck or heritage to get a strong start in life — and most others a few hundred meters back, or in the far outside lane.

Competition can push us to work harder and get better — and that’s a good thing. But when this “race” mentality runs unchecked, the danger is we start to believe the winners are the only ones who matter. And when our economy, our educational institutions, and our government are creating social and economic injustice — especially by continually giving more advantages to those born with a head start in life — then we’re no longer living in a democracy.

There was a name for this mentality a century ago: Social Darwinism. It was the excuse for the favoritism of the market and the adulation of the wealthy. “Race to the Top” may sound more civil, but it is the same thing. Suddenly, it’s just another day when The New York Times sponsors an International Luxury Conference in Miami, while more than a fifth of Florida residents lack health coverage and 1 out of 7 people there live in poverty.

American democracy began with the exhortation to life, liberty and the pursuit of happiness. To actually make progress toward those ideals, we all need certain things, including a good education, affordable and accessible health care, respect for work at all levels and a secure retirement.

In a true democracy, these foundations are not just for the winning few, or the top half, or even the top 80 percent. They have to be a reality for all of us: the poorest who can’t make ends meet; the middle class family undermined by stagnating wages, skyrocketing housing costs and college tuition; the kids who took a wrong turn and ended up in prison; the people too ill to work; the developmentally disabled; the alcoholic; the ex-spouse; the person who yelled at you in road rage this morning; the co-worker who gets you to do all the work.

Because when these are cordoned off only for the wealthy, the winners, or the “good” people, it’s not a democracy at all. Only when they are shared and enjoyed by all — the good, the bad, working poor people and pampered trust fund babies — are we truly fulfilling the promise of America’s ideals.

At the end of the day, we’re all in this together. Our economy will fail to function for most of us if the gains continue only going to the top. Our society will break down if we continue disempowering people based on their race, gender or sexual orientation.

In high school — especially in a diverse one — it’s hard to get by if you only learn algebra and English. You also have to learn how to get along with the winners, the losers, the best test takers, the cheaters, the kids late for class, and the smokers in the alleys. (Or if not get along, understand that all these kids are part of your world.)

Cross country running provides a big envelope to take in a lot of different kids. There is no bench. Everyone gets to run. Some are stars, some are in the middle of the pack, some come in at the very end, every single race. But they all finish. That’s the beauty and spirit of cross country. And with the right public policies in place, it can be part of the American Dream, too.

Originally published at EOI Online