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Pluralistic: Why the Fed wants to crush workers (19 Jan 2023)

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A vintage postcard illustration of the Federal Reserve building in Washington, DC. The building is spattered with blood. In the foreground is a medieval woodcut of a physician bleeding a woman into a bowl while another woman holds a bowl to catch the blood. The physician's head has been replaced with that of Federal Reserve Chairman Jerome Powell.

Why the Fed wants to crush workers (permalink)

The US Federal Reserve has two imperatives: keeping employment high and inflation low. But when these come into conflict – when unemployment falls to near-zero – the Fed forgets all about full employment and cranks up interest rates to "cool the economy" (that is, "to destroy jobs and increase unemployment").

An economy "cools down" when workers have less money, which means that the prices offered for goods and services go down, as fewer workers have less money to spend. As with every macroeconomic policy, raising interest rates has "distributional effects," which is economist-speak for "winners and losers."

Predicting who wins and who loses when interest rates go up requires that we understand the economic relations between different kinds of rich people, as well as relations between rich people and working people. Writing today for The American Prospect's superb Great Inflation Myths series, Gerald Epstein and Aaron Medlin break it down:

https://prospect.org/economy/2023-01-19-inflation-federal-reserve-protects-one-percent/

Recall that the Fed has two priorities: full employment and low interest rates. But when it weighs these priorities, it does so through "finance colored" glasses: as an institution, the Fed requires help from banks to carry out its policies, while Fed employees rely on those banks for cushy, high-paid jobs when they rotate out of public service.

Inflation is bad for banks, whose fortunes rise and fall based on the value of the interest payments they collect from debtors. When the value of the dollar declines, lenders lose and borrowers win. Think of it this way: say you borrow $10,000 to buy a car, at a moment when $10k is two months' wages for the average US worker. Then inflation hits: prices go up, workers demand higher pay to keep pace, and a couple years later, $10k is one month's wages.

If your wages kept pace with inflation, you're now getting twice as many dollars as you were when you took out the loan. Don't get too excited: these dollars buy the same quantity of goods as your pre-inflation salary. However, the share of your income that's eaten by that monthly car-loan payment has been cut in half. You just got a real-terms 50% discount on your car loan!

Inflation is great news for borrowers, bad news for lenders, and any given financial institution is more likely to be a lender than a borrower. The finance sector is the creditor sector, and the Fed is institutionally and personally loyal to the finance sector. When creditors and debtors have opposing interests, the Fed helps creditors win.

The US is a debtor nation. Not the national debt – federal debt and deficits are just scorekeeping. The US government spends money into existence and taxes it out of existence, every single day. If the USG has a deficit, that means it spent more than than it taxed, which is another way of saying that it left more dollars in the economy this year than it took out of it. If the US runs a "balanced budget," then every dollar that was created this year was matched by another dollar that was annihilated. If the US runs a "surplus," then there are fewer dollars left for us to use than there were at the start of the year.

The US debt that matters isn't the federal debt, it's the private sector's debt. Your debt and mine. We are a debtor nation. Half of Americans have less than $400 in the bank.

https://www.fool.com/the-ascent/personal-finance/articles/49-of-americans-couldnt-cover-a-400-emergency-expense-today-up-from-32-in-november/

Most Americans have little to no retirement savings. Decades of wage stagnation has left Americans with less buying power, and the economy has been running on consumer debt for a generation. Meanwhile, working Americans have been burdened with forms of inflation the Fed doesn't give a shit about, like skyrocketing costs for housing and higher education.

When politicians jawbone about "inflation," they're talking about the inflation that matters to creditors. Debtors – the bottom 90% – have been burdened with three decades' worth of steadily mounting inflation that no one talks about. Yesterday, the Prospect ran Nancy Folbre's outstanding piece on "care inflation" – the skyrocketing costs of day-care, nursing homes, eldercare, etc:

https://prospect.org/economy/2023-01-18-inflation-unfair-costs-of-care/

As Folbre wrote, these costs are doubly burdensome, because they fall on family members (almost entirely women), who have to sacrifice their own earning potential to care for children, or aging people, or disabled family members. The cost of care has increased every year since 1997:

https://pluralistic.net/2023/01/18/wages-for-housework/#low-wage-workers-vs-poor-consumers

So while politicians and economists talk about rescuing "savers" from having their nest-eggs whittled away by inflation, these savers represent a minuscule and dwindling proportion of the public. The real beneficiaries of interest rate hikes isn't savers, it's lenders.

Full employment is bad for the wealthy. When everyone has a job, wages go up, because bosses can't threaten workers with "exile to the reserve army of the unemployed." If workers are afraid of ending up jobless and homeless, then executives seeking to increase their own firms' profits can shift money from workers to shareholders without their workers quitting (and if the workers do quit, there are plenty more desperate for their jobs).

What's more, those same executives own huge portfolios of "financialized" assets – that is, they own claims on the interest payments that borrowers in the economy pay to creditors.

The purpose of raising interest rates is to "cool the economy," a euphemism for increasing unemployment and reducing wages. Fighting inflation helps creditors and hurts debtors. The same people who benefit from increased unemployment also benefit from low inflation.

Thus: "the current Fed policy of rapidly raising interest rates to fight inflation by throwing people out of work serves as a wealth protection device for the top one percent."

Now, it's also true that high interest rates tend to tank the stock market, and rich people also own a lot of stock. This is where it's important to draw distinctions within the capital class: the merely rich do things for a living (and thus care about companies' productive capacity), while the super-rich own things for a living, and care about debt service.

Epstein and Medlin are economists at UMass Amherst, and they built a model that looks at the distributional outcomes (that is, the winners and losers) from interest rate hikes, using data from 40 years' worth of Fed rate hikes:

https://peri.umass.edu/images/Medlin_Epstein_PERI_inflation_conf_WP.pdf

They concluded that "The net impact of the Fed’s restrictive monetary policy on the wealth of the top one percent depends on the timing and balance of [lower inflation and higher interest]. It turns out that in recent decades the outcome has, on balance, worked out quite well for the wealthy."

How well? "Without intervention by the Fed, a 6 percent acceleration of inflation would erode their wealth by around 30 percent in real terms after three years…when the Fed intervenes with an aggressive tightening, the 1%'s wealth only declines about 16 percent after three years. That is a 14 percent net gain in real terms."

This is why you see a split between the one-percenters and the ten-percenters in whether the Fed should continue to jack interest rates up. For the 1%, inflation hikes produce massive, long term gains. For the 10%, those gains are smaller and take longer to materialize.

Meanwhile, when there is mass unemployment, both groups benefit from lower wages and are happy to keep interest rates at zero, a rate that (in the absence of a wealth tax) creates massive asset bubbles that drive up the value of houses, stocks and other things that rich people own lots more of than everyone else.

This explains a lot about the current enthusiasm for high interest rates, despite high interest rates' ability to cause inflation, as Joseph Stiglitz and Ira Regmi wrote in their recent Roosevelt Institute paper:

https://rooseveltinstitute.org/wp-content/uploads/2022/12/RI_CausesofandResponsestoTodaysInflation_Report_202212.pdf

The two esteemed economists compared interest rate hikes to medieval bloodletting, where "doctors" did "more of the same when their therapy failed until the patient either had a miraculous recovery (for which the bloodletters took credit) or died (which was more likely)."

As they document, workers today aren't recreating the dread "wage-price spiral" of the 1970s: despite low levels of unemployment, workers wages still aren't keeping up with inflation. Inflation itself is falling, for the fairly obvious reason that covid supply-chain shocks are dwindling and substitutes for Russian gas are coming online.

Economic activity is "largely below trend," and with healthy levels of sales in "non-traded goods" (imports), meaning that the stuff that American workers are consuming isn't coming out of America's pool of resources or manufactured goods, and that spending is leaving the US economy, rather than contributing to an American firm's buying power.

Despite this, the Fed has a substantial cheering section for continued interest rates, composed of the ultra-rich and their lickspittle Renfields. While the specifics are quite modern, the underlying dynamic is as old as civilization itself.

Historian Michael Hudson specializes in the role that debt and credit played in different societies. As he's written, ancient civilizations long ago discovered that without periodic debt cancellation, an ever larger share of a societies' productive capacity gets diverted to the whims of a small elite of lenders, until civilization itself collapses:

https://www.nakedcapitalism.com/2022/07/michael-hudson-from-junk-economics-to-a-false-view-of-history-where-western-civilization-took-a-wrong-turn.html

Here's how that dynamic goes: to produce things, you need inputs. Farmers need seed, fertilizer, and farm-hands to produce crops. Crucially, you need to acquire these inputs before the crops come in – which means you need to be able to buy inputs before you sell the crops. You have to borrow.

In good years, this works out fine. You borrow money, buy your inputs, produce and sell your goods, and repay the debt. But even the best-prepared producer can get a bad beat: floods, droughts, blights, pandemics…Play the game long enough and eventually you'll find yourself unable to repay the debt.

In the next round, you go into things owing more money than you can cover, even if you have a bumper crop. You sell your crop, pay as much of the debt as you can, and go into the next season having to borrow more on top of the overhang from the last crisis. This continues over time, until you get another crisis, which you have no reserves to cover because they've all been eaten up paying off the last crisis. You go further into debt.

Over the long run, this dynamic produces a society of creditors whose wealth increases every year, who can make coercive claims on the productive labor of everyone else, who not only owes them money, but will owe even more as a result of doing the work that is demanded of them.

Successful ancient civilizations fought this with Jubilee: periodic festivals of debt-forgiveness, which were announced when new monarchs assumed their thrones, or after successful wars, or just whenever the creditor class was getting too powerful and threatened the crown.

Of course, creditors hated this and fought it bitterly, just as our modern one-percenters do. When rulers managed to hold them at bay, their nations prospered. But when creditors captured the state and abolished Jubilee, as happened in ancient Rome, the state collapsed:

https://pluralistic.net/2022/07/08/jubilant/#construire-des-passerelles

Are we speedrunning the collapse of Rome? It's not for me to say, but I strongly recommend reading Margaret Coker's in-depth Propublica investigation on how title lenders (loansharks that hit desperate, low-income borrowers with triple-digit interest loans) fired any employee who explained to a borrower that they needed to make more than the minimum payment, or they'd never pay off their debts:

https://www.propublica.org/article/inside-sales-practices-of-biggest-title-lender-in-us


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This day in history (permalink)

#20yrsago Robbie Williams: “‘Piracy’ is great” http://news.bbc.co.uk/2/hi/entertainment/2673983.stm

#15yrsago Florida school board approves McDonald’s report-cards and school-bus audio ads https://web.archive.org/web/20080121065543/https://consumerist.com/346745/bus-radio-advertises-to-school+bound-kids

#15yrsago World of Warcraft limits your wealth to 2^31 copper https://web.archive.org/web/20080117214357/http://www.wowinsider.com/2008/01/16/apparently-you-can-have-too-much-gold/

#10yrsago How the vile Daily Mail handles Creative Commons licenses https://memex.craphound.com/2013/01/19/how-the-vile-daily-mail-handles-creative-commons-licenses/

#5yrsago Trump’s “consumer protection bureau” will let the $50B payday lending industry gouge the poorest Americans with triple-digit interest rates https://www.latimes.com/business/lazarus/la-fi-lazarus-cfpb-payday-lenders-20180119-story.html

#5yrsago The Republican candidate for Pennsylvania’s 18th District is a torture advocate who worked at Abu Ghraib https://theintercept.com/2018/01/19/gop-candidate-for-pennsylvania-special-election-is-a-former-abu-ghraib-interrogation-consultant/

#5yrsago It’s Poe’s birthday, so here’s Neil Gaiman reading The Raven https://www.youtube.com/watch?v=2jSHKPp-66w

#5yrsago America’s large hospital chains will start manufacturing generic drugs in order to beat shkrelic price-gouging https://arstechnica.com/science/2018/01/peeved-by-price-gouging-and-shortages-hospitals-will-now-make-their-own-drugs/



Colophon (permalink)

Currently writing:

  • Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. Yesterday's progress: 523 words (96026 words total)

  • The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. FIRST DRAFT COMPLETE, WAITING FOR EDITORIAL REVIEW

  • A Little Brother short story about DIY insulin PLANNING

  • The Internet Con: How to Seize the Means of Computation, a nonfiction book about interoperability for Verso. REVISIONS COMPLETE – AWAITING COPYEDIT

  • Vigilant, Little Brother short story about remote invigilation. ON SUBMISSION

  • Moral Hazard, a short story for MIT Tech Review's 12 Tomorrows. FIRST DRAFT COMPLETE, ACCEPTED FOR PUBLICATION

  • Spill, a Little Brother short story about pipeline protests. ON SUBMISSION

  • A post-GND utopian novel, "The Lost Cause." FINISHED

  • A cyberpunk noir thriller novel, "Red Team Blues." FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: Daddy-Daughter Podcast, 2022 Edition https://craphound.com/podcast/2022/12/12/daddy-daughter-podcast-2022-edition/

Upcoming appearances:

Recent appearances:

Latest books:

Upcoming books:

  • Red Team Blues: "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books, April 2023

This work licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.

https://creativecommons.org/licenses/by/4.0/

Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.


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"When life gives you SARS, you make sarsaparilla" -Joey "Accordion Guy" DeVilla

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cjheinz
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Jubilee!

Pluralistic: Care Inflation (18 Jan 2023)

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Today's links



The old woman in the shoe. She stands before her shoe, wearing a fierce expression and brandishing a switch, as a line of downtrodden children file into the shoe. Behind her is a three-dimensional 'line-goes-up' graphic with a dollar-sign at the tip of its surging, rightmost arrow.

Care Inflation (permalink)

You can be forgiven for thinking that the Great Inflation Story is how a recent once-in-a-century pandemic, combined with a senseless war, combined with monopolistic price-gouging, temporarily drove prices up by less than ten percent, prompting calls to crush worker power and suppress wages in order to "reduce demand" for scarce goods:

https://pluralistic.net/2022/12/14/medieval-bloodletters/#its-the-stupid-economy

But for all the attention we gave to this transient inflation, there has been precious little alarm over the soaring inflation in "Care Labor" – daycare, preschool, nursing homes and medical services – whose price growth has outpaced the Consumer Price Index (CPI) every year since 1997.

Care inflation has severe knock-on effects for the rest of the economy. When workers can't find someone to look after their kids, their elderly relatives, or a sick or disabled partner, they are often forced out of the workforce, or they give up good jobs and accept lower wages and worse working conditions so they can take the time to do care labor.

Writing for The American Prospect, Nancy Folbre unpacks the causes and effects of this massive, long-term inflation, and offers a compelling explanation for why it garners so little attention (spoiler: because it mostly harms women, especially low-waged women):

https://prospect.org/economy/2023-01-18-inflation-unfair-costs-of-care/

It's a subject Folbre is eminently qualified to write on. She is an emeritus professor of economics at UMass Amherst, where she directs the Program on Gender and Care Work. Her blog, Care Talk, is a must-read on this subject:

https://blogs.umass.edu/folbre/

Folbre notes that workforce participation by working-aged people has declined since 1999, as an ever-larger slice of our productive capacity has been sidelined by the need to stay home and do care work. This unwaged care work can't pay the bills, leaving workers to fill in the gaps with insecure, low-paid jobs. This, in turn, leaves workers dependent on community ties that make it impossible to relocate in search of better jobs.

Despite a quarter century of price increases, "child care workers and nursing home aides have been and remain among the most poorly paid workers in the US." In health care, workers other than MDs have seen only modest, subinflationary pay increases.

Unlike manufacturing and customer service, care work can't be offshored. You can't ship your toddlers, elderly parents, or disabled spouse to a poor country where low-waged workers will take care of them. The declining pool of low-waged immigrant labor only partially offsets this disparity between the price of care and other services.

Leaving care work to the market – rather than subsidizing care through public services – enriches a small pool of shareholders, especially backers of the private equity funds that have "rolled up" smaller care facilities and practices, slashing wages and jacking up prices:

https://pluralistic.net/2022/12/16/schumpeterian-terrorism/#deliberately-broken

For anyone who doesn't own a private equity fund, the rising price of care work exacts a terrible toll. Public investment in care work has a "high social payoff" – it is necessary to produce the next generation of productive workers and the goods and services they will provide to each other and everyone else:

https://onlinelibrary.wiley.com/doi/pdfdirect/10.1002/hec.3995

The rising price of care is an example of what AFL-CIO Chief Economist William Spriggs calls "inequality inflation." When care is left up to the market, affluent families bid up the price of decent care. Poor families drop out of the market altogether, because it's cheaper for them to forego waged work than it is to outbid a professional family for care work.

This "pits low-wage workers providing care services against low-income consumers" – any time a care worker gets a raise, it gets harder for low-waged families to afford care work. The care work market gets hollowed out, with a high-end servicing the richest 10 percent of households, and Medicaid providing stopgap service for the very poorest, while everyone else is out in the cold.

(This has political consequences. As Folbre writes, "No wonder families with incomes just above the official thresholds for public assistance are politically disenchanted.")

The unwillingness to commit public funds to care work produces inexorable pressure to reduce the labor costs of care. For decades, care workers have seen their colleagues laid off and been told to work longer hours to pick up the slack, yielding a care sector filled with burned-out, demoralized workers.

And, as Folbre points out, care workers are disproportionately female – as are the workers who leave the waged workforce to work for free providing care to their family members. Unpaid "women's work" is badly accounted for in tradition economics, which gives politicians cover for inaction as women are forced out of the labor market by failures in the care economy.

The (predominantly) women who do unpaid care work are heavily reliant on programs like Temporary Assistance for Needy Families (TANF), which is not indexed to inflation and has fallen in real terms every year since 1996 – a total drop of 40% in a generation.

Even if you don't care about gender equity, equity for disabled people, or a dignified old age for our elders, this should concern you: "Our economic system runs on human capabilities, and these are not a costless resource supplied by some self-sacrificing Mother Nature. Our own production, development, and maintenance requires both personal commitments and public support."

Public investment in care work would do more to curb this critical form of inflation than any interest rate hike. "[Care workers] will never be as cheap to produce as television sets, cars, or even robots. We will remain more valuable, even if we can’t be bought and sold."

Folbre's excellent piece is part of an equally excellent series at the Prospect: The Great Inflation Myths is a riveting, ongoing series of articles that demystify inflation through a political economy lens, probing the causes and effects of inflation on real human lives, beyond esoteric economic equations and jargon:

https://prospect.org/great-inflation-myths


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This day in history (permalink)

#20yrsago Eric Eldred Act: A bookkeeping change that would feed the public domain https://web.archive.org/web/20030201110456/https://cyberlaw.stanford.edu/lessig/blog/archives/2003_01.shtml

#20yrsago Bernstein’s patent-policy work-to-rule https://cr.yp.to/patents/tarzian.html

#20yrsago Civil liberties in gamespace https://web.archive.org/web/20030110002343/https://www.legendmud.org/raph/gaming/playerrights.html

#15yrsago Can the Smithsonian’s public domain images join the Library of Congress’s “Commons”? https://groups.google.com/g/open-government/c/VJ5UL8UdhIw?pli=1

#15yrsago Lawyer claims he owns “cyberlawyer” — actual cyberlawyers laugh and laugh https://www.eff.org/deeplinks/2008/01/cyberlaw-and-cyberlawgs

#10yrsago TSA terminates its contract with Rapiscan, maker of pornoscanners https://www.latimes.com/business/la-xpm-2013-jan-17-la-fi-mo-fullbody-scanner-contract-20130117-story.html

#10yrsago Dan Bull song tribute to Aaron Swartz https://www.youtube.com/watch?v=Qb0tCgNzbjk

#10yrsago Debunking DoJ statement on Aaron Swartz’s prosecution https://www.techdirt.com/2013/01/17/carmen-ortiz-releases-totally-bogus-statement-concerning-aaron-swartz-prosecution/

#5yrsago EFF to NSA: you scammed your way to another six years of warrantless spying, and you’d better enjoy it while it lasts https://www.eff.org/deeplinks/2018/01/open-letter-our-community-congresss-vote-extend-nsa-spying-eff-executive-director

#5yrsago Amazon’s useless “transparency reports” won’t disclose whether they’re handing data from always-on Alexa mics to governments https://www.zdnet.com/article/amazon-the-least-transparent-tech-company/

#5yrsago Hawai’i emergency notification system password revealed in photo about problems with Hawai’ian emergency notification system https://qz.com/1181763/hawaiis-emergency-management-agency-accidentally-revealed-an-internal-password

#5yrsago Trials confirm the use of psilocybin for depression without the “dulling” effects of traditional antidepressants https://www.medicalnewstoday.com/articles/320636

#5yrsago Leaseholders in building sheathed in flammable Grenfell cladding sent a £2m bill for repairs https://www.theguardian.com/uk-news/2018/jan/17/citiscape-croydon-2m-recladding-bill-prompted-grenfell-disaster



Colophon (permalink)

Today's top sources:

Currently writing:

  • Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. Yesterday's progress: 504 words (95504 words total)

  • The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. FIRST DRAFT COMPLETE, WAITING FOR EDITORIAL REVIEW

  • A Little Brother short story about DIY insulin PLANNING

  • The Internet Con: How to Seize the Means of Computation, a nonfiction book about interoperability for Verso. REVISIONS COMPLETE – AWAITING COPYEDIT

  • Vigilant, Little Brother short story about remote invigilation. ON SUBMISSION

  • Moral Hazard, a short story for MIT Tech Review's 12 Tomorrows. FIRST DRAFT COMPLETE, ACCEPTED FOR PUBLICATION

  • Spill, a Little Brother short story about pipeline protests. ON SUBMISSION

  • A post-GND utopian novel, "The Lost Cause." FINISHED

  • A cyberpunk noir thriller novel, "Red Team Blues." FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: Daddy-Daughter Podcast, 2022 Edition https://craphound.com/podcast/2022/12/12/daddy-daughter-podcast-2022-edition/

Upcoming appearances:

Recent appearances:

Latest books:

Upcoming books:

  • Red Team Blues: "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books, April 2023

This work licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.

https://creativecommons.org/licenses/by/4.0/

Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.


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A little perspective on twitter’s meltdown

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The following is from Kara Swisher, tech expert journalist:

A few things: 1. Depending on how much critical staff has left & where — it’s possible tho not probable the service could shut down at any time & for a short or long time. Relax as it used to do this a lot with the dreaded fail whale logo (see old & new one). It usually restores.

2. That said, I downloaded my archive recently — and you should as it is a record of you. It is likely that there are big security issues & your info could get hacked. This is also not uncommon, but a pain. If you have a credit card loaded in, be on alert.

3. There are alternatives like Mastodon, http://Post.news, LinkedIn, Insta, TikTok, but they’re all different and is not easy to recreate your social network here elsewhere. In fact, you will not. Accept this. Btw Twitter is not going away either — it may just get suckier.

4. I’m giving feedback & advice to former Waze ceo @noam as he has $$$ from vcs, knows how to build a network, I like the concept & he’s not a horse’s ass (it’s a low bar these days). The service is built but in early beta, so it lacks the features it needs. This is also common.

5. With all these services, you can crosspost to Twitter, which I reiterate will not disappear. You can stay. But it may get worse & obvi Elon is acting badly. This might signal he’s way over his skis or he’s playing Spock chess none of us mere mortals can grok. Skis IMHO.

6. In stages of grief, this is anger part since why the fuck has a billionaire manchild done this to something you love & been such a menace to employees? Who knows? But it’s not your problem but his & his bankers. You have used lots of online services you don’t anymore. Whatev!

7. Will life go on? Why yes & so may Twitter if Elon gets his head out of his red-pilled ass, focuses and stops with a performative weak sauce Trump impersonation. Even Trump sucks at being Trump these days (see last speech). In any case, you can stay or go. It’s a free Internet.

Trump Speaking GIF

8. Where you go next is not like here. Suck it up, kids. We will meet again. Put down your phones and hug your kid. Read a news website directly. Learn to text. Or speak to people. But don’t panic. It’s a long life. We will find @DougJBalloon somewhere.

9. I met my wife @katzish for the first time on DMs after we got set up. We now have two more kids and so for this alone, Twitter has been worth it. Btw: Sol just turned 1, so wish him a happy bday!

10. Oh Elon, I say in the most mom voice ever: I expected better. Oh, and no matter what your flying monkeys say — remember they all get paid for by you in some way — I’m not the asshole. Happy to talk any time, tho I warn you, I am all out of fucks:

https://podcasts.apple.com/us/podcast/on-with-kara-swisher/id1643307527?i=1000586088919

Originally tweeted by Kara Swisher (@karaswisher) on November 18, 2022.

I am over at Mastodon under the handle @digby@mastodon.social

I am a little befuddled but I’ll figure it out eventually. I’m also on @digby@counter.social. And whatever else comes up I guess until we all figure out what’s happening.

For those of you not on twitter and you don’t give a damn about any of this — now back to our scheduled programming.

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"he’s playing Spock chess none of us mere mortals can grok" is the most 60s thing I have read in a minute.
The Belly of the Beast

Pluralistic: 13 Oct 2022 US health insurers get more and more federal funding, deliver less and less care

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The cover for the audiobook edition of my novella 'Radicalized,' which features a vicious-looking mousetrap, baited with a pill.

US health insurers get more and more federal funding, deliver less and less care (permalink)

The American healthcare system is the worst of all possible worlds. Unlike every other wealthy country, the US leaves its health insurance to the private sector, where your health and your life are a distant second to shareholder profits. But it's worse, because the majority of the money those terrible, "private" insurance companies "earn" comes from public subsidies.

In other words, the US has a privately run health care sector that is publicly financed, without any public accountability or duty to the public good. Insurance companies take ever more billions from the federal government and deliver ever less care to their customers.

Cigna-exec-turned-whistleblower Wendell Potter has just published a new report that breaks down share of federal subsidies in the largest US insurers' bottom lines:

  • Humana: 91%
  • Molina: 89%
  • Centene: 86%
  • Aetna: 73%
  • Unitedhealth: 72%
  • Elevancehealth: 68%
  • Cigna: 42%

https://wendellpotter.substack.com/p/the-majority-of-big-insurers-health

See that? The vast majority of US insurers' income is public funding. That's because of Medicare Advantage, a privatized Medicare service that 27 million older people have been tricked into signing up for, which consistently delivers worse service with higher out-of-pockets, while billing the US government for billions.

You should not sign up for Medicare Advantage, nor let anyone you love do so. Medicare Advantage will deny you care you are entitled to and leave you to sicken and die, while draining the last of your savings in co-pays:

https://www.nytimes.com/2022/04/28/health/medicare-advantage-plans-report.html

The insurers aren't done. They raised their prices by 24% in a single year:

https://wendellpotter.substack.com/p/the-price-of-health-insurance-has

Despite these massive profits, spiraling fees, and mounting premiums, the Biden admin is on track to let the insurers raise their prices again, though not by as much as originally announced:

https://www.cnn.com/2022/09/27/politics/medicare-premiums-biden/index.html

You don't have to be on Medicare to be part of the health insurance scam. If you've got an Obamacare subsidy, you are helping to transfer billions in public money to insurers, even as these ACA plans grow steadily worse. ACA plans deny one in five claims:

https://www.kff.org/private-insurance/issue-brief/claims-denials-and-appeals-in-aca-marketplace-plans/

Meanwhile, the out-of-pocket expenses your ACA insurer can rook you for just went up to $14,700/year:

https://www.healthcare.gov/glossary/out-of-pocket-maximum-limit/#:~:text=For%20the%202022%20plan%20year,and%20%2417%2C400%20for%20a%20family.

ACA coverage is so poor that many of the people paying for it are best understood as "functionally uninsured":

https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2022/07/27/functionally-uninsured-the-fiction-of-healthcare-coverage/?sh=5e6547a2680b

ACA was sold as a brokered compromise between public healthcare advocates and private healthcare cultists. It created a situation where private insurers could grow larger, more powerful, more profitable, and less accountable to government, patients or doctors, so that care would steadily erode and prices mount.

ACA set the stage for Medicare privatization through Medicare Advantage. It was the template for the public-private-partnership from hell, teeing up a future where we finally get the wildly popular Medicare For All, but delivered by the same murdering profiteers who run the private system it was supposed to replace: Medicare Advantage For All.

As David Sirota writes in The Lever, Biden's 2020 campaign recognized this, and promised us a public option where "premiums could be substantially lower than those of private plans," but "Biden hasn’t once mentioned a public option since becoming president."

https://www.levernews.com/health-insurers-get-government-cash-then-jack-up-prices/

When Congress votes to give billions in public money to the health insurance industry, it also votes to give millions to itself – our legislature is awash in health insurance company dark money, and Democrats – including members of the Progressive Caucus – are carrying its water:

https://bettermedicarealliance.org/wp-content/uploads/2022/01/final_2022_house_ma_letter_.pdf

Giving for-profit insurance companies more public money will not translate into better care. The CEOs of every one of those publicly subsidized insurance companies took home more than $20 million in pay last year. 86% of Centene revenues came from the public coffers. Its (recently deceased) CEO Michael Neidorff paid himself $20.6 million.

It doesn't have to be this way. We know how to fix this. Biden laid it out in 2020:

Giving Americans a new choice, a public health insurance option like Medicare. If your insurance company isn’t doing right by you, you should have another, better choice. Whether you’re covered through your employer, buying your insurance on your own, or going without coverage altogether, Biden will give you the choice to purchase a public health insurance option like Medicare. As in Medicare, the Biden public option will reduce costs for patients by negotiating lower prices from hospitals and other health care providers. It also will better coordinate among all of a patient’s doctors to improve the efficacy and quality of their care, and cover primary care without any co-payments. And it will bring relief to small businesses struggling to afford coverage for their employees.

https://joebiden.com/healthcare/

People are angry at their insurers, and justifiably so. Cigna isn't just raising prices and co-pays, it's committing mass-scale fraud: "exaggerat[ing] the illnesses of its Medicare members to obtain higher payments from the federal government." Also credibly accused of Medicare fraud: Unitedhealth and Elevance.

https://www.modernhealthcare.com/insurance/doj-joins-cigna-medicare-advantage-fraud-case

In 2019, I published Radicalized, a collection of four novellas subtitled "four tales of our present moment." The title story, "Radicalized," was frightening and upsetting to write, but I couldn't stop myself. It's a story about angry men who watch the people they love the most slowly and agonizingly murdered by care-denying insurance companies, who meet on message boards where they plot to murder health-care executives.

https://us.macmillan.com/books/9781250228598/radicalized

Having grown up in Canada and then spent more than a decade in the UK – and now become a US citizen – it's incredible to me that Americans tolerate this ghastly, worsening system. Not that I want to see terrorist violence! The very idea is sickening and terrifying.

But it is baffling to me that there are Americans who shoot each other over road-rage and yet as far as I know, the $20m/year vampire CEOs of profiteering, fraud-addicted insurance companies are living in comfort and safety.

It's one of the great paradoxes of the American psyche: all of that macho, don't-tread-on-me posturing turns to vapor when the person who's literally condemning your family to die is a distant corporate executive.

All that anger has to be out there, somewhere, channeled by cynical operators into scapegoating and nihilism. It's a ticking time-bomb. Imagine the political win that would accrue to the party that made saving your life and the lives of the people you love its political centerpiece. A party that met astroturf with naming names, hauling insurance execs into Congress to confront grieving mothers, fathers, children and spouses. A party that refused to let Lucy yank the football again with a "compromise" that gives us a privately managed, publicly funded service that only serves shareholders and executives.


Hey look at this (permalink)



This day in history (permalink)

#15yrsago First-ever patent-suit filed against Linux https://www.groklaw.net/article.php?story=20071011205044141

#15yrsago HOWTO cite blogs in formal academic medical papers https://www.ncbi.nlm.nih.gov/books/NBK7266/

#10yrsago California AG publicly shames United Airlines on Twitter over crappy privacy policy https://www.latimes.com/business/la-xpm-2012-oct-12-la-fi-tn-californias-top-cop-to-united-airlines-mobile-privacy-policy-20121012-story.html

#10yrsago Videos from the HOPE 2004 conference: Jello Biafra, Woz, Schneier, Mitnick and more https://web.archive.org/web/20121030001822/https://www.2600.com/news/view/article/12284

#10yrsago UK surveillance bill: 19,000 letters opposing, 0 in favour https://web.archive.org/web/20121015000000*/http://blogs.computerworlduk.com/open-enterprise/2012/10/uk-snoopers-charter-19000-emails-against-0-in-favour/index.htm

#10yrsago Myhrvold patents 3D printing DRM https://web.archive.org/web/20121014042712/https://www.technologyreview.com/view/429566/nathan-myhrvolds-cunning-plan-to-prevent-3-d/

#10yrsago Scanning whole books is fair use https://arstechnica.com/tech-policy/2012/10/court-rules-book-scanning-is-fair-use-suggesting-google-books-victory/

#10yrsago Photos from backstage at Disneyland https://imgur.com/a/TJQYm

#5yrsago How do you dump the firmware from a “secure” voting machine? With a $15 open source hardware board https://blog.adafruit.com/2017/10/11/ft232h-breakout-on-cspan-from-adafruit-used-to-dump-firmware-off-accuvote-tsx-securelyfitz-essvote/

#5yrsago Portland police stage bizarre sensory deprivation stunt against ICE protesters https://www.youtube.com/watch?v=iUKpfU04vKw

#5yrsago The US has quit UNESCO, the UN agency that protects world heritage sites and teaches poor children to read https://www.vice.com/en/article/gy5aj9/the-us-has-withdrawn-from-a-un-agency-that-teaches-kids-to-read-and-protects-ruins

#5yrsago China’s 1 percenters are now worth as much as the GDP of the United Kingdom https://www.scmp.com/business/china-business/article/2115040/chinas-richest-2130-people-control-combined-wealth-us26

#5yrsago Here are the three most common dishonest arguments used to derail universal healthcare proposals https://www.latimes.com/opinion/op-ed/la-oe-johnson-concern-trolls-single-payer-20170921-story.html

#5yrsago Yet another Trump official accused of defrauding taxpayers with dirty travel expenses https://www.cnn.com/2017/10/11/politics/zinkes-travel-continues-to-raise-ethical-questions/index.html

#5yrsago Trump’s FCC redefines “effective competition” to include having only one ISP in your county https://www.techdirt.com/2017/10/12/groups-battle-trump-fccs-claim-that-one-isp-market-means-theres-effective-competition/

#5yrsago Here’s what hospital food looks like in Japan https://web.archive.org/web/20171006062957/https://imgur.com/gallery/hq8rV

#5yrsago Chinese internet censors really enjoy the work https://www.scmp.com/news/china/policies-politics/article/2113377/its-seen-cool-place-work-how-chinas-censorship-machine

#5yrsago You are the elevator captain: a guide to Japan’s unspoken elevator etiquette https://medium.com/japan-init/elevator-etiquette-in-japan-3cab23474e8c

#5yrsago Equifax is serving malware to visitors https://arstechnica.com/information-technology/2017/10/equifax-website-hacked-again-this-time-to-redirect-to-fake-flash-update/

#5yrsago How the University of New Hampshire spun blowing a frugal librarian’s donation on a stupid football scoreboard https://deadspin.com/how-unh-turned-a-quiet-benefactor-into-a-football-marke-1819064622

#1yrago There are no corporate criminals in America: Because America doesn't have corporate crime prosecutions https://pluralistic.net/2021/10/12/no-criminals-no-crimes/#get-out-of-jail-free-card

#1yrago This Thing Between Us, a neck-hair-stand-up cuycuy horror: Gus Moreno's debut novel https://pluralistic.net/2021/10/12/no-criminals-no-crimes/#cuycuy

#1yrago India funded a starving kids' app, but not food: Solutionism at its worst https://pluralistic.net/2021/10/13/theres-an-app-for-that/#solutionism

#1yrago Adobe uses copyfraud to preserve spyware: A free-as-in-surveillance-free Flash installer is gone thanks to a bogus copyright claim https://pluralistic.net/2021/10/13/theres-an-app-for-that/#gnash

#1yrago Charter uses bad credit threats to corral ex-subscribers: "Resubscribe or we'll keep trashing your credit report." https://pluralistic.net/2021/10/13/theres-an-app-for-that/#thugs-charter



Colophon (permalink)

Today's top sources: Naked Capitalism (https://www.nakedcapitalism.com/).

Currently writing:

  • The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. Yesterday's progress: 500 words (49235 words total)

  • The Internet Con: How to Seize the Means of Computation, a nonfiction book about interoperability for Verso. Yesterday's progress: 516 words (45618 words total)

  • Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. (92849 words total) – ON PAUSE

  • A Little Brother short story about DIY insulin PLANNING

  • Vigilant, Little Brother short story about remote invigilation. FIRST DRAFT COMPLETE, WAITING FOR EXPERT REVIEW

  • Moral Hazard, a short story for MIT Tech Review's 12 Tomorrows. FIRST DRAFT COMPLETE, ACCEPTED FOR PUBLICATION

  • Spill, a Little Brother short story about pipeline protests. FINAL DRAFT COMPLETE

  • A post-GND utopian novel, "The Lost Cause." FINISHED

  • A cyberpunk noir thriller novel, "Red Team Blues." FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: Sound Money https://craphound.com/news/2022/09/11/sound-money/

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Upcoming books:

  • Red Team Blues: "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books, April 2023

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"When life gives you SARS, you make sarsaparilla" -Joey "Accordion Guy" DeVilla

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The Good News About the Economy You are Not Hearing

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The media keep telling us that the economy is a losing issue for Democrats. I know that this is the Republicans’ talking point, but that is not what the data show.

For tens of millions of people, there is a huge amount of good news about the economy over the last year and a half. That doesn’t mean that tens of millions of people are not struggling, they are. And, that is always true in the US economy.

The fact that a country as rich as ours does not have decent welfare state provisions that can ensure people adequate housing, food, and health care is an outrage. But that is a longer-term story, not something that just happened in the last year and a half. When the media suddenly choose to emphasize the struggling population, in ways that they have not done in the past, that is a political decision on their part, not one responding to a new economic reality.

Anyhow, with that issue out of the way, I’m going to emphasize some of the positive aspects of the economy which are getting little attention from media.

People Quitting Crappy Jobs

We have heard a great deal about the bad news from a tight labor market: rapidly rising wages are creating inflationary pressures, which the Fed is combatting with its aggressive path of interest rate hikes. For some reason, the flip side of this picture has gotten much less attention.

The tight labor market has meant that millions of workers have been able to quit jobs that they don’t like. In the last year, there were 51.5 million voluntary quits from jobs. That is 9.3 million more than the number of people who quit their jobs in the year before the pandemic hit. (This number is for total quits, since some people quit more than once, the actual number of people who quit jobs would be somewhat lower.)

The increase was seen most clearly in the lowest paying jobs. The quit rate in the hotel and restaurant sector, meaning the percentage of workers who quit their job each month, has averaged almost 6.0 percent in the last year. That is 25 percent higher than the 4.8 percent average in the year before the pandemic.

It is also important to remember that we had a very strong labor market in the year before the pandemic, with the lowest unemployment rates in half a century. So workers have felt far more freedom to quit jobs they don’t like in the last year than has been the case for a very long time.

Rising Real Wages at the Bottom

Inflation has taken a toll on workers in the last year and a half, but the impact has been hugely exaggerated. If we look at the real average hourly wage for all workers since the start of the pandemic in February of 2020, it was down by 0.7 percent, as of August. (We don’t have inflation data yet for September.)

This is bad, but hardly unprecedented. For example, real average hourly wages dropped a full 1.0 percent in the year from November 2006 to November 2007, which was before the start of the Great Recession.

The picture looks somewhat better if we look at the data for production and nonsupervisory workers, which excludes most higher end workers. This series also goes back much further, historically. As of September, the real average hourly wage was down by less than 0.1 percent from its February 2020 level. That’s the wrong direction, but not exactly a crisis.

By comparison, this measure fell by 3.8 percent from January of 1980 to January of 1989, a period in which the media were touting “morning in America.”

The story looks better if we look to the lowest paid workers. Real average hour earnings for production and nonsupervisory in the leisure and hospitality industry (hotels and restaurants), rose by 3.9 percent from February 2020 to August. (Arin Dube and David Autor have been doing careful analysis with the Current Population Survey documenting the sharp increase in pay for low end workers during the pandemic recovery.)

To be clear, we should want to see a better picture on wage growth, with workers across the board seeing pay hikes.  But the experience in the last year and a half hardly stands out as being especially bad by any historical measure. Furthermore, we have been through a worldwide pandemic and are now seeing the largest conflict in Europe since World War II. It would be a bit nuts to think we could pass through these events without any disruption to the economy.

The Benefits of Increased Work from Home

There has been a huge surge in the number of people working from home since the start of the pandemic. During the shutdown period in the spring of 2020, this was largely because there was no alternative. However, for the most part, people working from home at present are doing it by choice. In 2021, there were roughly 19 million more people (12.7 percent of the workforce) who reported that they primarily worked from home than in 2019.

This is a huge benefit for these workers. The average amount of time spent commuting in 2019 was 27.6 minutes for a one-way trip, or 55.2 minutes for the round-trip. If we assume an eight-hour work day, time spent commuting added an average of 11.5 percent to the length of the workday. We can think of this as equivalent to an 11.5 percent reduction in the hourly pay rate, compared to a situation where no time is spent commuting.

Commuting to work doesn’t just take time, it is expensive. The average commuting distance to work is more than 15 miles. That means 30 miles for the round-trip. At federal government’s mileage reimbursement rate of 62.5 cents per mile, this comes $18.75 a day or almost $4,900 a year. That is 7.0 percent of the annual pay of a worker earning $70,000 a year.

It’s not just travel expenses that people save by being able to work at home. They can save on paying for business clothes, dry cleaning, and buying a purchased lunch at work. For many families, working from home may also save on childcare, insofar as they are able to care for young children without seriously disrupting their work.

In short, the option to work from home can mean large savings in time and money. Also avoiding traffic jams may mean a major quality of life improvement. It is true that the option to work from home is available primarily to the top half of earners, and especially the top fifth, but this is still a very large number that extends far beyond just the rich.

Also, these higher paid workers have on average not seen their pay keep pace with inflation since the start of the pandemic. Insofar as they are able to save time and money by working from home, many are still likely coming out well ahead of where they were before the pandemic, if they can work from home at least part of the time.  

Mortgage Refinancing

While the Fed’s rate hikes have pretty much put an end to the refinancing boom we saw in 2020 and 2021, this boom has meant much more money in the pockets of tens of millions of homeowners. More than 17 million homeowners refinanced their mortgages in 2020 and 2021 combined. The average amount of money in a refinance mortgage was close to $250,000. If people refinancing saved an average of 1.0 percentage points on their interest rate, this would imply savings of $2,500 a year.

Savings of this magnitude go a long way towards covering the increases in the price of milk and meat. For some reason, there is very little mention of the money saved by refinancing in media discussions of economic well-being during the pandemic recovery.

While homeownership, like the option to work from home, also skews towards the higher end of the income distribution, it goes much further down. Nearly two-thirds of households are homeowners. Furthermore, those most likely in a situation to benefit from refinancing are younger families, as older homeowners have likely paid off most or all of their mortgage. This means that a large share of very middle-income families are likely to be among the group that has benefitted from refinancing a mortgage at a lower interest rate in the last two and a half years.

Telemedicine

There has been a huge surge in telemedicine since the start of the pandemic which will likely continue going forward. According to a recent survey by the Department of Health and Human Services, almost one-in-four adults reported having a remote appointment with a health care professional in the four weeks prior to the survey.

While telemedicine will never completely replace in-person visits, it can provide enormous benefits to patients. It saves the time and expense that are involved in physically visiting a doctor or other health care professional. This is an especially big deal for patients who are in bad health, who are the ones most likely to be having appointments with health care professionals.

Telemedicine also radically increases the access of patients to specialists who may be in other parts of the country. A person with a rare condition, can use telemedicine to have an appointment with a leading expert on the other side of the country, rather than undertaking an expensive and exhausting trip to visit them in person.

It is likely that we will see increased use of remote services in a wide variety of areas going forward, saving large amounts of time and money on in-person visits. Also, the remote provision of many of these services, such as college classes, is likely to improve through time as better technologies are developed and people become more accustomed to using these tools.

The Score on Living Standards

If we try to get a fuller picture of the economic situation it is hard to find the dismal economy that is front and center in economic reporting. As noted, the lowest paid workers have seen pay gains that have exceeded inflation since the start of the pandemic, so the story of increased suffering among this group is not accurate, based on the data we have.

Tens of millions of more middle-income workers have seen their pay slightly lag inflation, but this is not a phenomenon unique to the Biden presidency. There have been many periods in the last half century where the typical worker’s pay has not kept pace with prices, most notably the eight years of the Reagan presidency, which are often described as the “Reagan boom.”

In addition, millions of middle-income workers have been able to save thousands of dollars in annual interest payments by refinancing their mortgages at the low rates available in 2020 and 2021. A large share of the people in the top 40 percent of wage earners have also benefited by the explosion in remote work. These people have been able to save a large amount of time and money on commuting costs.

It is worth pointing out an oddity in our economic accounting. The money that workers save on commuting by working from home does not appear as a reduction in the cost of living in the consumer price index or other measures of inflation. For purposes of accounting, the money people spend on their drive to and from work is treated no differently than the money spent on items that actually provide direct benefit, like food, clothing, or shelter.

If a worker can save $4,000 a year on expenses associated with working in an office, this does not show up as a benefit anywhere in our accounts. Similarly, if a patient can substitute a remote video conference for a three-day cross-country trip to visit a specialist, this does not appear as any sort of gain. Tens of millions of people are experiencing these benefits as a result of changes brought on by the pandemic, but they are not picked up in our usual measures of living standards.

Just to go back to a point made the beginning, there are tens of millions of people who are struggling in today’s economy. Almost 12.0 percent of the population is living below the poverty line, that translates into almost 40 million people. We can add in people living at less than twice the poverty line and get more than 80 million people who are facing serious hardship.

But the point is that this is always true. With the poor quality of its welfare state, and its large number of low-paying jobs, the United States will always have a huge number of people struggling to get by even in the best of times. The decision made by the media to put these struggling people at the center of the economic story during Biden’s presidency is a political decision, not one driven by economic reality.   

The post The Good News About the Economy You are Not Hearing appeared first on Center for Economic and Policy Research.

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The Market Did Not Cause Inequality, No Matter How Much the New York Times Insists

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It is a complete article of faith in intellectual circles that the market is responsible for the rise in inequality that we have seen in the United States and elsewhere over the last half-century. Intellectual types literally cannot even consider the alternative that inequality was the result of government policies, not the natural workings of the market.

The standard line is that technology and globalization were responsible for the increasing gap in income between people with college, especially advanced, degrees and non-college-educated workers. This belief that market forces drove inequality and not policy is apparently central to the identity of its beneficiaries, who determine what appears in major news outlets.

In this way, the belief in the market causes of inequality can be similar to the belief among Trumpers that the 2020 election was stolen from Trump. They simply do not even want to see the issue debated.

Spencer Bokat-Lindell: The Latest Perp

My current prompt to make my standard complaint is a column by New York Times columnist Spencer Bokat-Lindell which raises the question, “Is liberal democracy dying?” While the causes of growing inequality are not directly the piece’s topic, the issue comes up at several points.

For example, in discussing the rise of authoritarian sentiments among the masses, he tells readers:

“How does class come into the picture? Some scholars have theorized a link between democratic backsliding and the Great Recession, if not global free-market capitalism itself.”

Later the piece continues with a similar theme:

“Yet there are also those who believe technocratic fixes are unequal to the problem [of rising support for authoritarianism]. In a 2016 essay, the Indian writer Pankaj Mishra presented the declining health of democracy around the world as a crisis for the ideology of modern market-based liberalism itself: A ‘religion of technology and G.D.P. and the crude 19th-century calculus of self-interest,’ it can neither account for nor provide an answer to the anger of those who feel left behind by the disruptions and inequalities wrought by globalized capitalism.”

To be clear, I am not picking on Bokat-Lindell because he is the exception. I am picking on him because he is repeating a dogma that goes almost entirely unquestioned in major media outlets, including the New York Times.

Let’s Say Policy, not the Market, Drove Inequality

I will briefly restate my case for how policy drove inequality (this can be found in Rigged [it’s free]), but first, let’s think about the rise of right-wing populism, assuming it is true. This means that we had government policies that prevented more than half of the workforce from seeing any substantial gains from productivity growth over the last half-century. This is a period in which productivity more than doubled.

While the bottom 60 percent of the workforce saw little gains from productivity growth, the top ten percent were doing great. Those in the 90-95th percentile of the wage distribution saw gains at least in step with productivity growth. Workers in the 95th to 99th percentile had wage gains that far outstripped productivity growth, and those in the top 1 percent were getting wage gains that were close to double the rate of productivity growth.

Now, suppose that that massive upward redistribution was all by design. The government put in place policies designed to take money from the bottom 60 percent of the population and give it to those at the top.

Furthermore, suppose that the mechanisms that caused this upward redistribution were prohibited from being discussed. We instead had people like Bokat-Lindell, and thousands of others, filling news stories, columns, and other ruminations on inequality in major media outlets as simply an unfortunate outcome of natural market processes. The idea that government policies actually caused inequality would virtually never be discussed or even contemplated.

In this scenario, would it be surprising that tens of millions of people would be angry at the government for acting to make them worse off? Is it surprising that they might distrust mainstream news outlets like the New York Times or National Public Radio, which endlessly tell them they are losers, but they feel very badly about that fact?

To my mind, in this scenario, it is not the least bit surprising that tens of millions would turn to a despicable demagogue like Donald Trump, or his foreign equivalents, who tell them it is not their fault. Their explanations might be nonsensical racism and/or nationalism, but he is at least pointing his finger somewhat in the right direction. (Trump’s rich backers of course benefitted hugely from the upward redistribution of the last half century.)

The right-wing populists are blaming the people who have benefitted from upward redistribution along with the targeted minority groups. Howard Jarvis, the originator of California’s anti-tax initiative Proposition 13, laid out the case perfectly. He said that “in the battle of us against them, I’m for us.” Jarvis made it very clear, “them” in this story were welfare cheats (read minorities) and pointy-headed bureaucrats (read professionals). “Us” was good old white guys. This is the theme that Trump and other right-wing populists harp on endlessly.

Against this red meat, mainstream liberals want to have policies that modestly increase the size of the welfare state, subject of course to budget limits. And, we also have to worry about inflation. If that gets too high, well the Fed will just have to raise interest rates and throw millions of working-class people out of work and push down the pay of those able to keep their jobs.

Pretty amazing that the working class isn’t signing up to get Democrats elected, huh?

The Story on Policy and Inequality

I know I give this all the time, but for the folks who have never read my other stuff, and don’t intend to, let me give the super-brief version. Let’s start with intellectual property. This is the clearest case and probably the most important in terms of upward redistribution.

Imagine a world where there are no government-granted patent or copyright monopolies or related protections. This means that anyone who wants to can manufacture any drug they want, without getting the permission of the patent holder. (This has nothing to with safety requirements, which could be left in place.)

Everyone would be able to make copies of software they liked, and even resell them. They could make and sell copies of books, recorded music, movies, and video games and never have to worry about compensating a copyright holder.

Now, I know many people are screaming that in this world no one would ever innovate, develop new drugs, perform music, or make movies. Stop screaming for a moment and think about the issue at hand. We could have a market economy without government-granted patent and copyright monopolies.

These monopolies are government policies to promote innovation and creative work. We can and should argue about whether these government-granted monopolies are the best mechanisms for promoting innovation, but the fact that patents and copyrights are government policy, and are not inherent features of the market is not a debatable point.

This means that the extent to which people are able to benefit from these monopolies is determined by the government, not the market. Bill Gates is one of the richest people in the world because the government will arrest people who make copies of Microsoft’s software without his permission. It was not the market that made Bill Gates insanely rich, it was a government policy.

The same story applies to the idea that technology has benefitted more educated workers at the expense of those without college degrees. There would be much less money to be shared by all those software designers, computer engineers, and biotech inventors in a world without patent and copyright monopolies.

The fact that these people have done very well in the last half-century was due to the decision to not only have these government-granted monopolies, but also policy choices that made them longer and stronger. Just to take the case of prescription drugs, Congress approved the Bayh-Dole Act in 1980, which made it much easier for drug companies to get control of government-funded research.

In the last four decades, spending on prescription drugs exploded from 0.4 percent of GDP to 2.2 percent of GDP. The difference comes to $450 billion a year, more than ten times the money at stake in the Inflation Reduction Act.  

To be clear, we had other changes to policy beyond Bayh-Dole. Also, there were undoubtedly many important drugs that were incentivized by this and other policy changes that strengthened intellectual property in drugs. But, we are paying a huge amount more for drugs as a result of policy changes, not the natural workings of the market.

There is a similar story with medical equipment, computers, software, and a wide range of other items. To be clear, I don’t dispute that we should provide incentives for innovation and creative work (my preferred route with prescription drugs is more direct public funding, as we do with NIH), but the structure and size of these incentives are a matter of public policy. It is not a market outcome as the New York Times tells us.

There are other areas where policy has quite obviously shaped distribution. We could have structured globalization differently. Instead of focusing on removing barriers to trade in manufactured goods, so that our manufacturing workers had to compete with low-cost labor in the developing world, we could have focused on promoting free trade in professional services.

In this scenario, our trade teams would be working 24-7 to develop mechanisms that would allow smart ambitious kids in India, Mexico, and elsewhere to train to U.S. standards and then practice medicine in the United States, just like a native-born doctor. How much would doctors here earn, if a half million foreign-educated doctors were working here? My guess is that the sum would be substantially less than the $300,000 plus a year that the average doctor makes now. We could tell the same story for other highly-paid professionals.

The fact that globalization, as we pursued it, was designed to lower the pay of less-educated workers and not the most highly educated and highly paid, was a policy choice. It was not a natural outcome of the market.

When the Elite Lie About Taking Money from the Bottom Half, is it a Surprise the Masses are Mad?

I could go on with other economic policies that allowed for the massive upward redistribution of the last half century, those who are interested can look at Rigged, but the basic point should be clear. The upward redistribution of the last half century was the result of policies designed by the sort of people who write for and edit publications like the New York Times. They refuse to acknowledge this fact.

Let me just preempt a silly comment I have heard when raising this point. I AM ABSOLUTELY CERTAIN THAT ALMOST NO WORKING-CLASS PEOPLE VOTE BASED ON PATENT POLICY. (All caps to make it more difficult to ignore.)

The argument is that working-class voters see themselves as being screwed in the economy of the last half century and are convinced that it was something that was done to them by the elites. They are entirely right in this view, even if they (like our public intellectuals) have little understanding of the processes. And, you can’t make this claim in polite circles. And, for that reason, they are very angry.

The post The Market Did Not Cause Inequality, No Matter How Much the New York Times Insists appeared first on Center for Economic and Policy Research.

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