Economy

The Joys of Recession

(Flickr/jima)
The Social Security Trustees have just projected that the date by which the system will no longer be able to meet all of its payouts has been moved up three years from 2036 to 2033. This has prompted the usual clucking about the need for drastic benefit cuts of partial privatization right now. What nobody seems to have noticed is that the primary reason for the pessimistic forecast is the lousy economy, particularly the high unemployment and depressed wages. Social Security is of course financed by payroll taxes. There’s no better way to put the system into the red than to have a recession and to have 93 percent of the gains to go to the top one percent (whose payroll taxes are capped). In the late 1990s, when we had full employment, in one three-year period Social Security’s Year of Reckoning was set back by eight years, from 2029 to 2037. Full employment would solve all the system’s problems. And if wages rose with productivity growth, as they did until the late 1970s, Social...

The Case of the Vanishing Middle Class

Timothy Noah's The Great Divergence deftly explores the roots and resurgence of American inequality.

D id Timothy Noah catch a wave or anticipate one? In 2010, Noah, a longtime public-policy reporter now at The New Republic , wrote a ten-part series in Slate about American economic inequality. This was at a time when the most discussed issue in U.S. politics was how much government Tea Partiers aimed to slash and how quickly we must balance the budget—even in the face of the worst downturn in eight decades. Then, about a year after the Slate series, Occupy Wall Street and its proxies around the country seemingly awakened the nation to the vast disparity of wealth between the top 1 percent and the rest of us. This was just in time for The Great Divergence , Noah’s expanded book on the subject, to refer to the movement in an introduction. On the other hand, important ideas may lie dormant for ages, unacknowledged beyond a few specialists—and then, suddenly, they pervade “the air around us,” as an old professor of mine used to say. So it is with the issue of inequality, whose current...

France Reacts Against Austerity

François Hollande and Nicolas Sarkozy will face off in a May 6 runoff election after the Socialist challenger won 28.6 percent of the vote in the first round of the French presidential elections yesterday. Sarkozy, who won 27.1 percent of the vote, was hoping a victory would give his campaign momentum, but being tied to the policies of the euro crisis will not help him—especially since Hollande is framing his challenge as a “ reaction against austerity ." Sarkozy is suffering presidential ratings lower than any seen since the 1950s. If Hollande wins, he would attempt to chart French economic policy away from the austere status quo set by European Union leaders, and Paul Krugman thinks a change of thinking might be just the risky prescription the still wavering European economy needs: "An Hollande victory would shake things up, and offer at least the possibility of something better." The Latest Geithner to Europe: Take Strong Action on Debt Crisis The Wall Street Journal Bridging the...

The Man the Banks Fear Most

Wall Street's gone largely unpunished for its role in 
wrecking the economy—until New York Attorney General 
Eric Schneiderman came along.

Steven Moors
Steve Moors I n February 2011, one month after he’d been sworn in as New York state’s attorney general, Eric Schneiderman sat down with the staff attorney who’d been delegated to track the negotiations that the 50 state attorneys general and the Obama administration were conducting with five of the country’s biggest banks. A few months earlier, the story had broken that the banks had been “robo-signing” thousands of notices foreclosing on homes. Instead of assessing how far behind in their payments the homeowners had fallen or seeking to modify the terms of their mortgages, the banks had employed junior staffers, some hired right off the street, to sign hundreds of foreclosure documents daily, though the banks’ title to many of the properties was uncertain. Even when the banks’ claims to ownership were clear, robo-signing violated numerous state laws requiring due diligence before a bank can foreclose on a home. The scandal had prompted a number of banks—Bank of America most...

A New Kind of Gold Standard?

(Flickr/tao_zhyn)
In the latest issue of the magazine, I have a piece examining a strange and growing trend in some conservative circles—pushing states to adopt alternative currencies to the federal dollar. The basic concern is one you've probably heard from Ron Paul: The Federal Reserve can't be trusted, the national debt is out of control, so the U.S. dollar, backed only by faith in the government, may become worthless. (The story outlines some of the more obvious economic problems with this theory.) To deal with the concern, problem-solving state lawmakers have started introducing bills to create a second currency, one of gold and silver. Sounds like a fringe concept right? Well, not entirely. In the 2011-2012 legislative cycle, 17 states saw some form of the legislation introduced, either implmenting a second currency or at least prompting a study of one. The famous (and failed) "doomsday bill" in Wyoming included one such study. Utah already passed its version last year, so you can now start...

Budget Battle Royale

Today's Balance Sheet

This year's budget battle is on the verge of hitting fever pitch as both parties struggle to frame the issue. House Republicans are trying to cut spending by more than the amount agreed upon in last summer's $1.047 trillion spending cap; some of their recent proposals would cut food stamps, child tax credit refunds that benefit the working class, and state social service block grants. The White House responded yesterday by sending a letter to the House and Senate Appropriations Committees bluntly announcing that Obama will not sign any new appropriations bills until the House agrees to stick to the agreed spending targets. It doesn't look like the threat will deter the House Republicans from moving forward with their measures. Democrats in the House and Senate are unsurprisingly against the House Republican's plan. “Taking a meat-ax to nutrition programs that feed millions of working families in this country in order to avoid defense cuts is not a serious way to achieve deficit...

Spain's Fiscal Fanaticism

The country's newly elected conservative government is pursuing austerity with zeal.

(AP Photo/Daniel Ochoa de Olza)
(AP Photo/Daniel Ochoa de Olza) Spain's Finance Minister Cristobal Montoro speaks during a press conference following the conservative government's weekly Cabinet meeting at the Moncloa Palace, in Madrid, Friday, March 30, 2012. Spain's government unveiled on Friday a euro 27 billion ($36 billion) deficit-reduction package including spending cuts and tax hikes on large companies, as it scrambles to convince the EU and investors that it won't need a bailout. It is a well-known maxim that to keep repeating the same action and expect a different result is a symptom of madness. It is hard to find a different way to account for the persistence of Eurozone leaders in inflicting punishing austerity on countries belonging to the common currency, a strategy that has proved both fiscally ineffective and socially destructive. In recent days, the focus of the crisis has returned to Spain, and for good reason. The country suffers from the highest unemployment rate in Europe: 24 percent, and it’s...

Mad Money

With right-wing fears rising over the Federal Reserve’s monetary policy, Republican state legislators want to 
create their own currencies.

(Eric Palma)
Eric Palma I n January 2011, the advocacy group Utah Sound Money released a 30-second ad designed to stir up support for a new bill in the state legislature. “The almighty dollar’s not looking so almighty these days,” the announcer intones as storm clouds fill the screen. “The feds have us tap-dancing at the edge of financial ruin.” A small map of the U.S. totters along a rising red graph of debt. Suddenly, blue skies open as a giant gold coin floats down, using the Constitution as a parachute. “Restoring an inflation-proof, sound-money option offers a time-tested option,” the announcer concludes over the laughter of children at play. Viewers are then urged to support the Utah Sound Money Act. Sponsored by Representative Brad Galvez, a Republican, the bill would make gold and silver coins from the U.S. Mint legal tender in the state. Although no businesses or individuals are compelled to use them, Galvez’s bill requires the state to accept the coins for tax payments or any government...

Top Ten Tax Facts

Think you know a lot about government revenue? Think again.

(Flickr/401K)
This piece is the fifth in a six-part series on taxation, and a joint project by The American Prospect and its publishing partner, Demos. 1. The government has collected less in taxes as a proportion of the economy in the past three years than it has in any three-year period since World War II, and tax rates are at historic lows . 2. One out of three multi-millionaires pays a lower percentage of their income in taxes than the vast majority of people making $60,000 a year. 3. Chairman Paul Ryan’s budget proposal, which has been praised by Governor Romney, would deliver benefits to people with incomes over $1 million that are 10 times greater than the benefits to those earning $40,000 or less. 4. Corporate income taxes for the past three years have hovered at just over 1 percent of GDP , lower than for any three-year period since World War II. The average for OECD countries is 3.5 percent. 5. The Bush tax cuts added $1.7 trillion to the nation’s debt between 2001 and 2008, which is more...

Talking about Labor Law Reform with Richard Kahlenberg

A conversation with the Century Foundation’s Richard Kahlenberg

(AP Photo.Rutland Herald, Cassandra Hotaling Hahn)
For a company trying to ward off unionization, firing a union activist is a great investment. While the National Labor Relations Act bans such retaliation, its process is slow and its penalties are minimal. Every time Democrats have controlled the presidency and Congress, unions have pushed reforms to the law—and every time they’ve come up short. In their new book, Why Labor Organizing Should Be a Civil Right , the Century Foundation’s Richard Kahlenberg and labor lawyer Moshe Marvit propose a new approach to labor law reform: add protection against anti-union discrimination to the Civil Rights Act. The Prospect talked to Kahlenberg about why he expects his proposal to succeed where others failed, the relationship between law and culture, and whether Ann Coulter has a point. Why is this better than the Employee Free Choice Act? I’m in favor of EFCA and traditional labor law reform, but we’ve been at the issue now for close to 50 years, and traditional labor law reform has not passed...

With Corporate Taxes, Less Is More

The federal government can lower rates for companies while increasing revenue.

(Flickr/rexboggs5)
This piece is the fifth in a six-part series on taxation, and a joint project by The American Prospect and its publishing partner, Demos. There is no shortage of alarmism when it comes to corporate taxes. Earlier this year, Mitt Romney said that the U.S. tax code “looks like it was devised by our worst enemy to tie us in knots.” A more recent memo drafted by the Senate Republican Caucus claimed that the “corporate income tax harms workers, consumers, job creation, investment, and innovation” (you have to wonder what else exactly is left). These statements are enough to scare anyone into thinking that the entire U.S. economy will crumble if corporate tax rates aren’t slashed tomorrow. But, as Republicans often claim, are U.S. corporate tax rates really among the highest in the world? And are workers really so dependent on protecting corporate profits? More important, is there any reason the U.S. shouldn’t raise more revenues from corporations during this time of great fiscal need?...

Can Occupy Our Homes Move Congress?

A conversation with Representative Keith Ellison.

(AP Photo/Alex Brandon)
With Occupy Our Homes—the growing movement to fight foreclosures and evictions—community organizations and Occupy activists have teamed up in cities throughout the country to defend at-risk homeowners, pressure banks to renegotiate mortgages, and keep families in their homes. This effort has resulted in some impressive local victories. At the same time, the scope of the foreclosure crisis calls out for federal remedies. Rep. Keith Ellison (D-Minnesota) has proposed one such remedy. In late February, Ellison released a statement with fellow Congressional Progressive Caucus co-chair Raúl Grijalva (D-Arizona) calling on Freddie Mac and Fannie Mae to write down mortgage principal amounts for homeowners at risk of foreclosure. The Prospect spoke with Ellison about debt forgiveness for struggling families and about how grassroots housing activism is affecting discussion in Congress. Could you elaborate on your proposal for principal reduction? Underwater mortgages are holding people in...

An E-Book a Day Keeps Amazon at Bay

Today's Balance Sheet

The Economist
The Department of Justice is going after Apple and five publishing companies, suing them for colluding to raise e-book prices. Amazon, the current leader in e-book sales thanks to the Kindle and the company's early domination of the market, takes a loss on their $9.99 books in order to pull in customers. Apple took a different route with its e-book store, allowing publishers to set the price and then taking a commission, also known as agency pricing . These publishers became unwilling to offer Amazon wholesale priced e-books, and prices rose from $9.99 to $12.99 and $14.99. Three publishers have already settled with the Justice Department, and have allowed Amazon and other retailers to return to what they call the "wretched $9.99 price point." A group of 16 states filed its own suit against publishers, and came to a settlement of $51 million with two publishers is set to provide restitution to consumers who bought the higher-priced e-books. Apple and the two other publishers are set...

The Weakness of the Buffett Rule

Pete Souza/The White House
Now that America's burning hunger for Mitt Romney has overflowed, and he really is the Republican nominee-to-be, the Obama campaign must settle on its anti-Romney strategy. Or more properly, they will reveal to us the anti-Romney strategy they settled on many months ago. One central component will be an argument about taxes, contrasting Obama's approach with the Republican one, and the cornerstone of that argument looks to be the "Buffett Rule." Which is kind of unfortunate. The Buffett Rule is, I'm quite sure, good politics. Believe you me, the Obama campaign wouldn't be going whole-hog on it if they hadn't already polled and focus-grouped it within an inch of its life. What it isn't is particularly good policy. The fairness principle at play—that rich people shouldn't pay lower tax rates on their income than the rest of us—is perfectly sound. The problem is the way they've decided to implement that principle. I use the term "implement" loosely, because the chances that the Buffett...

Taxing Wall Street Speculation

There's another, better way to go after the 1 percent than the Obama administration's proposed "Buffett rule."

(Flickr/401K)
This piece is the third in a six-part series on taxation, and a joint project by The American Prospect and its publishing partner, Demos. As the White House mounts a major campaign to sell the “Buffett Tax” this week, there is another, better tax on the 1 percent that Washington should be considering: A financial-transaction tax—better known as a financial speculation tax (FST). A financial-speculation tax has been discussed, from time to time intensely, ever since the financial crisis of 2008 riveted attention on the markets that drove the economy to the edge of a Great Depression-quality abyss. One motivation was to make the perpetrators pay, as the public focused on bonuses at levels befitting Croesus and callous disregard for the responsibility borne by the banks for the great recession. But the financial-transaction tax is also good policy. Under the concept, financial transactions—purchases and sales of equity shares and bonds and the execution of derivatives—are taxed based, at...

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