Growth, what growth?

2006/07/14 at 13:29

Over at The American Prospect’s blog, Ezra Klein takes a closer look at U.S. economy growth. In 2004, the economy grew by a respectable 2.4%, but real income growth was as follows:

  • Richest 1%: 12.5%
  • Everyone else: 1.5%

Klein observes:

In fact, it’s no longer just the middle class and the poor who’re falling behind. The distribution has grown so uneven that the 95th percentile is making meager headway — even the merely rich are falling behind. It’s the richest of the rich making headway. But they now account for so much wealth and holdings that their acceleration can effortlessly outweigh everyone else’s deterioration. Add in that the reliable income growth conveyors of yesterday, like education and hours worked, no longer heavily correlate with income increases (earnings dropped for college graduates in 2004) and you’ve got a real problem on your hands…

An effective flat tax

2006/04/19 at 09:33

As a firm believer in progressive taxation, I find this article really disheartening. The heart of the matter:

A decade ago, when publishing magnate Steve Forbes ran for president, he vowed to deliver a new era of prosperity with just a simple change in the federal income tax: Instead of people with more money paying higher rates, all would pay the same “flat” tax rate — unleashing “the fantastic growth waiting to burst forth in our economy.”
Forbes’ “flat tax” plan was dismissed as simplistic by many mainstream economists and viewed with horror by the legions of special interests that benefit from all the deductions and loopholes that flat tax advocates would eliminate.
But this weekend, as millions of Americans faced the perennial deadline for filing their federal tax returns, most of them were operating in something very close to the world Forbes and other flat-tax visionaries proposed. Without any fanfare or philosophical debate, millionaires and middle-class Americans now pay taxes at almost the same rates.*

In addition to outlining briefly the history of U.S. federal taxation and explaining how we’ve gone from sharply progressive taxation to the current situation, the article asks the most important question: What have we gained from this change?

Advocates of the flat tax have long argued that it would stimulate economic activity and thus ultimately benefit everyone. Bush shares that view, though he has not officially advocated a flat tax.
And in recent years lower tax rates do seem to have contributed to healthy economic growth. The economy has been producing goods and services at a rising pace since the end of the 2001 recession. Unemployment is a low 4.7 percent.
But the health of the economy as a whole has not translated into gains for most workers. Because of global competition, the decline of manufacturing, weaker labor unions, immigration and other factors, most workers have not been able to obtain higher pay.
Instead, “flatter” income tax rates have contributed to an economic landscape that David Kelly, economic adviser to Putnam Investments, likens to an hourglass. Some from the traditional middle class are rising into the top, while others are being squeezed out into the bottom.
Average family net worth has continued to grow, in large part because of rising home prices, but at a rate that sagged from 29 percent between 1998 and 2001 down to 6 percent between 2001 and 2004. And for most Americans, whatever nominal pay increases they got in the last three years were more than offset by higher costs of things such as health care.
Meantime, the disparity between the wealthiest Americans and everyone else has grown.

Okay, so that bit is not a direct cause and effect analysis, but the general gist is that this flattening of effective taxation rates has been one contributing factor to the trend of the rich getting richer of the last few years.
* The article mentions income tax, dividend taxation, and social security and medicare taxes, but it’s a little too general on the details for me. I’d like to see a more detailed breakdown on the types of taxes paid by each income group.

Of lawnmowers and video games

2006/04/11 at 15:11

A while back, I read an interesting Fast Company article about how the manufacturer of Snapper power lawn equipment turned down Wal-Mart as a retail outlet. This interesting piece shows the muscle that Wal-Mart–and in this case, I think, the big home improvement outlets–can exert over their suppliers. Or not, in this case.
Today, there’s an article about the influence that Wal-Mart holds over video game developers:

Publisher sales reps inform Wal-Mart buyers of games in development; the games’ subjects, titles, artwork and packaging are vetted and sometimes vetoed by Wal-Mart. If Wal-Mart tells a top-end publisher it won’t carry a certain game, the publisher kills that game. In short, every triple-A game sold at retail in North America is managed start to finish, top to bottom, with the publisher’s gaze fixed squarely on Wal-Mart, and no other.

Crazy.

A good analogy

2006/01/31 at 09:32

Here’s a great analogy from Fred Clark, a.k.a. Slacktivist:

I might be less skeptical of the Bush administration’s claim to be planning to cut the federal deficit in half over the next five (now four) years if they produced even the hint of something resembling a plan or an explanation of how they intend to do this.
It doesn’t help their credibility on this point that they’re also playing “Mom, I’m pregnant” every year with their deficit projections.
My friend Michelle got a tattoo, a modest, but conspicuous little dolphin on her ankle. This was bound to freak out her mom. So before showing her mom the ink, she told her she was pregnant. After letting her really freak out over that for a bit, she said, “Relax, mom, I’m not pregnant. I just got a tattoo and I didn’t want you to blow this out of proportion.”
No offense to Michelle, but this is a pretty dishonest trick. In her defense, she only did it once. The Bush administration has done this same thing year after year.
They project record-shattering deficits of half a trillion dollars or so, so that later, when the merely record-breaking figure of around $400 billion comes out they can claim that they’ve actually reduced the deficit from their previous, Mom-I’m-pregnant projection.

Two bad tastes that taste worse together

2006/01/04 at 15:22

Mindless sports team loyalty meets mindless consumerism:

Academy Sports gears up for Longhorn sales
Academy Sports & Outdoors Ltd. is so sure that the undefeated University of Texas Longhorns will win the Rose Bowl that the retail chain already has purchased official Longhorns Rose Bowl Championship merchandise.
Academy stores will open at 6 a.m. Thursday to cater to Longhorn fans scrambling to be the first to buy Texas Rose Bowl Championship gear, including the official locker-room cap.
The Rose Bowl, pitting UT against the University of Southern California, is being played tonight in Pasadena, Calif.
Katy-based Academy is hoping to see the same long lines that formed — at one time reaching 102,000 people in one night — when the retailer was peddling Houston Astros apparel and products during the team’s World Series run.

The price of a healthy child

2005/09/22 at 10:27

My friend Susan’s daughter Sophie was diagnosed with leukenia eight months ago. Susan and her husband Randall have been keeping a blog about Sophie’s health. In yesterday’s entry, Randall totalled up the insurance claims so far (not including co-pays and other expenses that they’ve borne themselves). He writes:

The grand total (and still counting) is $173, 670.35. Basically that amounts to over $700 a day. We are incredibly, incredibly thankful for the terrific insurance coverage that we have, but can you possibly imagine how families manage without the kind of coverage that we have, or, worse yet, without any coverage at all? Granted, you cannot put a price on having a healthy, thriving child, but I fear for those who have to make tough decisions that we have never had to make in this process. There is no wonder that an experience like this can devastate families financially for years and years and years.

Choose CostCo over Sam’s Club

2005/07/12 at 09:45

If you like to shop at warehouse ‘club’ stores, and have a CostCo in your area, I urge you to support them over Sam’s Club because CostCo is a forward-looking corporation that views better pay for its employees as an important part of its corporate strategy.

Mortgage insanity

2005/06/27 at 16:17

This Business Week article attempts to answer a question that I’ve wondered about:

One of the more puzzling aspects of the current housing boom is that mortgage lenders have been offering ever-sweeter deals on loans. These days it’s increasingly easy to qualify for a loan with little or no money down. . . Why have lenders been so liberal when they run the risk that many of their marginal customers will go into default?

The answer, according to the article, is just shortsighted greed:

Many lenders are just plain desperate for business, according to some experts. In a bid for market share, mortgage lenders are offering highly favorable terms to borrowers. That’s forcing the rest of the industry to match their terms or lose customers.

I find this answer believable, but incomplete. Still searching…

Putting stock in property

2005/03/28 at 21:41

This LA Times article discusses middle class investors who are putting their money into real estate:

The astounding rise in home values is enticing many middle-class Californians to bet on dirt, gambling their retirements that they can do better with property than with any other investment.

They’re cashing in retirement funds, selling stock and taking out second mortgages. They’re pouring the money into real estate, often in distant states, often without seeing the property.

Back in the 80s in Texas we had the oil boom and bust. In the late 80s, I sat on a civil jury. In the case, the plaintiff was a fairly small investor who had bought a house for rental property when the economy was good. He was suing the bank that had repossessed (or was in the act of repossessing) the property. This guy really had no case, but apparently his young lawyer had convinced him that if they took it before a jury, the lawyer’s astounding power of persuasion might win.
The plaintiff’s lawyer played the little guy vs. big faceless corporation card. His primary claim was that the plaintiff did not know that the house backed up to a major expressway (Mopac) and was therefore less valuable than he thought.
After a more deliberation than the case deserved, we found in favor of the bank.
At the time, I kept thinking: who buys a house–even as rental property–without walking the property enough to know that the back yard abuts a freeway? I’m still sure that the plaintiff’s claim of ignorance was a lie, but after reading this article, I understand that the investor probably thought he couldn’t go wrong with real estate. I’m afraid the people investiing in real estate in the current boom markets will find themselves in the same boat as this guy did.