Jeb Bush's Kumbaya Moment

 

We need men and women of good will forging consensus, starting to solve problems, kind of building back the muscles of consensus, compromise and solution-finding to fix these things . . .[We need] a way to reweave the web of civility . . . That is going to be first, second, third, fourth priority because everything falls into place once you get that done.  

Jeb Bush, as reported in the NewYork Times, July 27, 2015

            Uh-huh.

            With this bromide, Bush attempts to echo every major presidential nominee since at least his father.  Remember the “kinder, gentler nation” and the “uniter, not a divider” presidents? What about the president who didn't see a “red America or a blue America but only the United States of America?”

            It's a noble sentiment.  But as anyone who has spent even a small amount of time in the Tragic Commons knows, it does not and cannot work in the political America in which we live.

            The political America of today is a highly segregated place.  American communities remain segregated not only by race, but as Bill Bishop has demonstrated in The Big Sort, by partisan orientation as well.  And that's a big problem in a system like ours that bases legislative representation on geography.

            In more innocent times, our population was more randomly distributed across our country.  There were still gerrymandered districts, but they were gerrymandered a lot less effective. You could have liberals and conservatives in more or less equal numbers living in the same states and even in the same congressional districts.  And you could also have liberal Republicans and conservative Democrats. Except for the South, which has had a tradition of one-party hegemony since the Civil War, elections could be competitive and close.

            Not anymore.

            Over the last 40 years, liberals have tended to clump together in urban and semi-urban areas, aligning with the Democratic Party.  During the same period, conservatives have tended to clump together in rural and semi-rural areas, aligning with the Republican Party.  Liberal Republicans and conservative Democrats are dying breeds.  And this has set up an intractable collective action problem of mammoth proportions well known here in the Tragic Commons.

            The basic dynamic of the Tragic Commons is that unless you can be assured that everyone will put the needs of the community first, it is always more rational to put your own interests ahead of those of the community.  Instead of obtaining the larger gains you could have gotten through communal cooperation, you end up leaving those gains on the table and settling for less.

            Suppose you're a Republican Member of Congress.   Your district is so overwhelmingly Republican that even if you will eventually face a Democrat in the next election, winning the Republican primary all but guarantees you reelection.  What you really worry about is somebody who claims you're a Republican In Name Only (RINO) and runs against you as a “true conservative” in the primary.

            Now suppose and you are facing a vote on raising the debt ceiling. You're not stupid.  You know that if Congress refuses to raise the debt ceiling, the country faces financial catastrophe.  Maybe the folks back home understand that, maybe they don't.  But the Democrats (who have to answer to similar constituents on the left) are demanding a higher ceiling than you think you can sell to your constituents.

            So how do you vote?

            Well, the country's best interests are served by avoiding a financial crisis, and so it makes sense for the parties to split the difference and pass a debt ceiling increase.  But you like your job very much, thank you, and a compromise just isn't in your interest, even if it is in the country's interest.  You don't want to be called a RINO by playing nicely with the Democrats. You'll improve your chances of returning to Washington after the next election if you hang tough and let somebody else vote for a compromise (nobody would really let the U.S. default on its obligations, would they?).  You can always blame your colleagues for whatever happens.

            And, that's the way American democracy is supposed to work.  Elected representatives are supposed to respond to the demands of their constituents.  They get rewarded by reelection when they do what their constituents want, and they get booted from office when they don't.  I suppose we can take comfort that our government isn't broken.  But, it's cold comfort all the same.

            I hate to be cynical, but there are two Americas, one red and one blue.  The people in the Red America perceive the world and their place in it in very different terms than do the people in the Blue America.  And the people in both Americas are feeling more and more threatened by the people who live in the other America.  What makes it worse is that very few of the people in either America know enough about American government, economics, geography, history, or science to make well-informed choices when they get to the ballot box.

            Instead of doing their homework, these uninformed people simply jump on the party bandwagon, ever confident that after vanquishing the other party in the next election, the people running the country will be their people.  They believe that the other side will be consigned to the dustbin of history after then next election moldering in quiet impotence.  Of course, it never works out that way, and so our system encourages the “vanquished” to fight on until the next election by using every means available.

            More power to you, Mr. Bush, and to anyone who wants to sing Kumbaya with you. But once the song is over, the reality of a politically segregated America will remain.   

            And, you'll still be here in the Tragic Commons.

Where's the Outrage Against Clandestine Pay Cuts?

            Where’s the outrage?

            According to an article by Aaron Gregg in the Business Section of last Sunday’s Washington Post, Washington area companies have been dumbing down their compensation packages and replacing them with cheap life-style enhancers.

            Gregg was reporting on a survey by the Human Resources Association of the National Capital Area.  The survey found that D.C. metro companies were poised to spend only 26.3% of their compensation budgets on employee benefits.  This is the lowest percentage in 9 years.

            Employees are being asked to absorb higher health insurance deductibles and lower contributions to 401(k) plans.  In return, companies are expanding wellness programs, maternity leave, tuition reimbursements and telecommuting.

            This, of course, gives employers more flexibility in employee compensation down the road. “If you took a wellness program away, who would care?” asked Joan Passerino who served on the survey committee.

            Let’s get something straight.  Employee benefits are not merely the cherries on the sundae that consists of cash compensation.  Employee benefits are as much a part of an employee’s compensation package as his or her cash salary.

            I’ve had to manage employee compensation for the last twenty years at our small company.  Get out your green eyeshades, and let me tell you how businesses really look at it.

            Our employees do marvelous work for us, and we’re truly grateful.  But, when we consider our company’s finances, the gratitude we feel gets boiled down to a few line items on our profit and loss statement, right after the line items for telephones, office supplies and general insurance.

            From my standpoint in management, for any year, we only budget so much for employee compensation.  It doesn’t matter to us at all whether we pay our employees entirely in cash or with some combination of cash and benefits.  On the P &L, a benefits dollar looks exactly the same as a cash salary dollar.  All we care about is whether total employee cost is within budget and whether our employees are happy with their entire compensation packages.

            Until recently, our employees preferred to take part of their compensation in cash, part in the form of health benefits and part in the form of pension benefits.  Some of our employees had “pre-existing conditions” that would have prevented them from getting reasonably priced insurance outside of our group.  Under the Affordable Care Act, insurers can no longer take “pre-existing conditions” into account and so that incentive to have my company pay for insurance no longer exists.

            We have consistently paid 100% of our employees’ premiums.  We thought that was the more honest way to discuss employee compensation with our employees. When you look at employee compensation like that, everyone gets a clear idea about how much compensation our employees are getting in return for doing the great work they do for us.

            But when employers adopt health insurance plans with deductibles and co-pays higher than they were in previous years or they tell their employees that they’re going to reduce contributions to retirement plans, they frame their actions in terms of the general increase in prices and the need for greater “employee responsibility.”  They never frame these moves as the pay cuts that they really are.

            The most egregious example of this comes when the public, goaded on by politicians such as Republican presidential candidate Gov. Scott Walker of Wisconsin, turns a jaundiced eye upon the compensation of the teachers, firefighters, police and other public employees.  It’s a hard sell to insist that a teacher’s salary is too high and needs to be cut in order to balance the locality’s budget.  It’s much easier to complain that civil servants get benefits that are far more generous than are available in the private sector.

            Civil servants and the unions that represent them aren’t dumb.  They are simply taking advantage of the fact that the value of employee benefits aren’t taxable, and so these employees and their unions rationally choose to allocate as much of their earnings to benefits as they can. 

            And, employers who offer pensions and other deferred compensation benefits aren’t dumb either.  Money needed in the future doesn’t affect a current profit and loss statement or municipal budget.  Such employers are betting on the come, hoping that when the money is required it will be there.  That’s why, as of 2014, unfunded state pension liabilities amounted about $4.7 trillion and private unfunded pension liabilities for S & P 500 companies were in the hundreds of billions of dollars in 2012.

            I have little sympathy for employers whose profits have gone through the roof since the Great Recession.  And I also don’t have any sympathy for public officials who are too cowardly to raise the taxes they need to pay their employees fairly.  I don’t see why employees should have any sympathy either.           

Guns and What We Really Should Fear

            Nobody likes it when people die after being shot.  But, if there are going to be deaths by gunshot, the killings that took place last week in Lafayette, Louisiana are exactly the kind that gun rights advocates like the NRA like.

            On Thursday, July 23, John Russell Houser entered a movie theater showing Amy Schumer’s latest movie, Trainrwreck, and opened fire on the audience a few moments after the picture started.  Two people died and nine more were wounded as a result of the shooting spree.  Houser appeared to have had his escape planned, but before he could leave the scene, police appeared.  Rather than surrender, Houser committed suicide.

            Everyone agrees that Houser was suffering from mental problems and shouldn’t have been allowed to buy a gun. Even the NRA has supported federal legislation aimed at making it more difficult for people with mental illnesses to buy guns.  But under federal law, a person can only be prevented from buying a gun if the seller  knew or had reasonable cause to believe that the buyer “has been adjudicated as a mental defective or has been committed to any mental institution.” 

            Houser had apparently been involuntarily committed to a psychiatric hospital in 2008, but the owner of the pawn shop in Phoenix City, Alabama, that sold Houser the .40 caliber Hi-point semiautomatic pistol he used in the shooting didn’t know about the commitment because that information is not included onthe federal database used to determine a person’s eligibility to purchase a gun.

            All the same, Houser did apparently have a record of bipolar disorder and depression, and his wife had previously made allegations of domestic violence against him.  Under federal law, those aren’t grounds for denying a person the right to buy a gun.  It was enough, though, for the Alabama county where Russell lived to deny him a concealed carry permit.

            This tragic scenario plays almost directly into the basic gun rights meme.  Houser was a lone wolf. The shootings were random violence perpetrated by a stranger against innocent, law-abiding citizens who did not know him.  Had the theater not been a “gun free zone” where patrons could not bring their own weapons for self-defense, somebody might have been able to stop Houser from perpetrating some of the mayhem.  The factor outside of the basic meme is that Houser obtained his gun legally. 

            The lesson the gun rights advocates probably want people to take from this tragedy is the same one that they probably wanted people to take out of the shooting at the AME Church in Charleston, South Carolina: Be afraid of random violence. Be afraid of criminals who will think nothing of taking your life.

            That’s why, for example, the NRA is currently urging its members to contact the Los Angeles County City Council to register opposition to proposed ordinances that would ban magazines capable of holding more than 10 rounds and require gun owners to keep handguns under lock and key.

            “Remind the City Council that a criminal, by definition, does not respect and obey the law.  Criminals will certainly not respect and obey these flawed ordinances.  The only people who will be affected by these misguided anti-gun ordinances are the law-abiding gun owners whose Second Amendment rights and inherent right to self-defense are being infringed by them.”

            However awful and dramatic shootings like the ones that have occurred in Lafayette and Charleston, they are atypical and a distraction to making good public policy on guns.

            USAToday just published aninvestigation of the mass murders that took place in the United States between 2006 and 2011.  USAToday defines “mass murder” as any incident in which at least four people (excluding the perpetrator) were killed.  It found that there were over 280 of them, about one mass murder every two weeks.

            The chilling statistic is that, contrary to the meme, “about 57% of the victims knew the killer, even if they weren’t the main target.”  The largest share of these were immediate household members and close relatives. A third of the victims were children.

            Just 15% of the murders were public killings like the ones in Charleston and Lafayette, and another 11% occurred during robberies.  Over 52% were family killings while another 21% couldn’t be classified.

            In 75% of all cases, the victims died of gunshot wounds.  And in almost 73% of these gun deaths, the weapon of choice was a handgun.

            Human beings are notorious for their inability to evaluate risk.  We tend to exaggerate the dramatic and underestimate the likelihood of the mundane.  As President Obama noted last week in an interview with the BBC, “if you look at the number of Americans killed since 9/11 by terrorism, it’s less than 100.  If you look at the number that have been killed by gun violence, it’s in the tens of thousands.”

            Gun rights advocates would like to keep you petrified of the stranger or  the thug you don’t know who, at random, is willing to take your life.  But they never want to talk about your friend, parent, lover, neighbor or acquaintance who, in an episode of uncontrolled rage, changes his status (and according to USAToday’s report, it is overwhelmingly “his” status) from “law-abiding” to “criminal.”

            The USAToday report makes it clear that the big problem we need to address is not random, but rather, the huge number of deaths visited upon innocents by enraged people they know who are armed with handguns.

            Getting anything done about the plethora of handguns available to people who could snap is not likely to happen any time soon.  It’s in the interests of the gun manufacturers (who gun rights advocates like the NRA really represent) to keep us focused on the wrong problem for as long as they can.

             Fear, after all, is good for business.

The Great U-Turn: Answering Robert Reich’s Question

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            I’m a great fan of Robert Reich.  Reich is an economist and academic who served as Secretary of Labor in the Clinton administration.  Of late, he’s been using his considerable talents to advocate for policies that will address and reverse the high degree of economic inequality that grips our country.

            I came across an article Reich wrote in 2014 that I thought required an answer.  In the article, Reich highlights the highly favorable economic conditions that prevailed in the 1950s and 1960s when he (and I) grew up.  He pointed out that in those days, it only took one income for a family to live a comfortable middle class life.  CEO salaries were about 20 times average worker pay instead of the 200-300 times they are now. He noted that marginal tax rates were much higher than they are today, and that those high marginal rates enabled the government to invest in our country’s infrastructure and human capital.

            “It was a virtuous cycle,” he wrote. “As the economy grew, we prospered together.  And that broad-based prosperity enabled us to invest in our future, creating more and better jobs and a higher standard of living.”

            But, “then came the great U-turn, and for the last thirty years we’ve been heading in the opposite direction.  Why?”

            According to Reich, some have suggested that globalization and technology are to blame.  Others, he says, lay the blame squarely at the feet of Ronald Reagan or a greedy and selfish turn in our national character.

            Reich concludes that none of these provide adequate explanations for the “U-turn.”  Instead, he says “Perhaps the real problem is we forgot what we once achieved together. . .The collective erasure of the memory of that prior system of broad-based prosperity is due partly to the failure of my generation to retain and pass on the values on which that system was based.  It can also be understood as the greatest propaganda victory radical conservatism ever won.”

            Reich’s formulation begs the question.  What caused us to abandon the “values on which that system was based?”

            In my mind, it all boils down to trust.

            Here’s a graph I poached from an article by John Sides on The Monkey Cage.  It reports responses to a National Election Studies question about trust

in government that was asked every year between 1958 and 2008.  The graph tracks the percentage of survey respondents who said that you could “trust the government in Washington to do what is right,” “just about always” and “most of the time.”  Though there are some upward blips associated with particular moments in history, the unmistakable trend is downward.

            Sides argues that what was driving these responses was the economy.  In another graph, he shows a relatively close relationship between the positive change in real disposable income and the percentage of people who trusted the government.

            The economy is part of the answer. But I think a larger part of it has to do with the political shocks that have occurred over the last 50 years.

            The kind of trust we’re talking about here is the transactional kind and not the generalized kind that informs one’s judgment about whether most people can be trusted.  Transactional trust develops when people or institutions prove to be truthful or provide products and services as promised.

            Trust began to plummet in about 1964 or 1965 after the Kennedy assassination.  The governmental system that had presided over successful resolutions of World War II and the Korean War had staged a disastrous attempted invasion of Cuba, brought the world to the brink of nuclear war and couldn’t even protect the life of its young, vibrant and idealistic president.

            The trend continues downward through Lyndon Johnson’s Great Society that never was and the war in Vietnam.  We learned that the government had been lying to us about the latter in the Pentagon Papers in 1971, just two years before Richard Nixon would have to resign the Presidency in disgrace as a result of crimes he and his closest advisors committed during the Watergate Scandal.

            Revolutionaries in Iran took Americans hostage in 1979, and there was nothing we could do about it.  Our sole attempted rescue mission failed after American aircraft assigned to the mission crashed and burned in the Iranian desert.

            Is it really any wonder that in 1980, Ronald Reagan found a receptive audience willing to believe him when he said that the national government was to blame for the problems besetting our country? And, if you couldn't count on government, to help you, the sensible thing for you to do is to demand lower taxes and less government. You save your money and take care of yourself.

           No, Dr. Reich, we didn’t forget anything and we didn’t fail to transmit our values.  The Reagan era began after two decades of sad experience with politicians who had either lied to the public or failed to deliver what they promised.

            When people don’t trust the government to improve life here in the Tragic Commons, the rational play is to devote one’s resources to one’s own endeavors while leaving the "bleeding heart suckers" to worry about the general welfare.  This logic creates a vicious circle that encourages people to resist calls for greater contributions to the general welfare, leads people to conserve resources so that they can be devoted to one’s private welfare, makes the government less capable of solving the problems that plague us all, and ends up reducing trust in government even more.

            The U-turn is not a mystery.  It’s the result of the inexorable logic of the Tragic Commons.

Why Should Fox and CNN Decide?

            I’m troubled by the way that Fox News and CNN are going to select the Republican presidential candidates they will present in the upcoming presidential debates they plan to televise. 

            The networks are going to select the 10 candidates with the highest standing in an average of national polls.  There are 16 declared candidates and one more expected to declare in the near future. That means that seven candidates will be excluded from the debate.

            This table from fivethirtyeight.com gives us the current standings:

            If Fox News makes the cut based on these figures, George Pataki, Lindsey Graham, Carly Fiorina and Bobby Jindal will be watching the debate from home.

            Fox News hasn’t said whether it plans to round polling averages to the nearest full percentage point.  If it does round, then Rick Perry and John Kasich would be in a tie with Rick Santorum, and then both Perry and Kasich would be invited to participate.

            Being allowed to participate in the debate is a very big deal, even though most people will be streaming things like “So You Think You Can Dance” or whatever baseball game happens to be taking place that night.  The debaters will be seen by the national press and a large number of activists and donors who will be crucial to the campaigns when the first caucus participants brave the weather in Iowa early next year.

            Getting into the debate gives a candidate a chance to break through, to get some buzz from the media and to differentiate himself or herself from the pack.  The contestant who don’t get to participate will be “also-rans” who never even got a serious chance to run.

            Now, I don’t have a dog in this fight.  It doesn’t matter to me which of these 17 people will be standing at the podiums when the broadcast begins.  I can’t vote in the Republican primary that will be held here in Maryland next year, and in any event, I’m not likely to vote for any Republican candidate in a general election.

            But what does matter to me is the way that two private companies—Fox News and CNN—have made themselves the gatekeepers for this process and the crucial role that money will play in this process.

            Let’s face it.  As fascinating as I find politics, most Americans don’t share my enthusiasm.  They’re not likely to know (or care) much about politics, government or anything else useful for making sensible political decisions.  And they’re not likely to know anything about most of these people.

            That means that when a person responds to a pollster’s query about which of these candidates he or she would vote for if the election were to be held tomorrow, the response is likely to depend on name recognition.  After all, what are most people likely to know about what, say, George Pataki accomplished while he was governor (of New York, right?).

            How do you develop name recognition?  It helps if you’re already a celebrity, notorious or if you have a big checkbook that enables you to buy lots of advertising.  Donald Trump, for example, has been a reality show star for 14 years, has his name on a number of big, impressive buildings, and besides, he’s rich.  Even if he weren’t going around the country right now saying outlandish things about Mexicans and John McCain, it’s likely that he’d be doing well in the national polls.  Celebrity and notoriety also explain why Jeb Bush and Scott Walker are doing well.

            Though Rick Perry made a terrible impression as a presidential candidate last time around, he is a smart politician.  That’s why his super PAC has diverted $1 million from Iowa and New Hampshire, the first places to select delegates to the Republican National Convention, toward a national advertising campaign.  Erasing the impression of incompetence he earned during the 2012 Republican debates depends on a good performance in the debates this time around. Obviously, he’ll never get that chance if he’s not invited to the debate.      
   

            I’m not cynical enough to believe that Fox News and CNN, both broadcasters with national audiences, set this up to encourage Republican candidates to buy advertising time from them.  And I’m also not naïve enough to think that the best candidates will be propelled to the top of the list because of their success in a rigged marketplace of ideas.  Voters like what they like and want and want for their own reasons. It’s the media’s business to give the people what they want, not what the media thinks the people should have.

            But governance is an important business. Despite the media mantra that the Republican field of candidates is a clown car, there are some serious Republican contenders with ideas worthy of at least being discussed.  We do ourselves a disservice when we allow commercial concerns to decide who is entitled to be heard.

Guns and the Security Dilemma

            Is a gun an offensive weapon or a defensive one?  Some people think that it always depends on who is holding it.  If you’re one of the good guys, it’s a defensive weapon.  Guns in the hands of bad guys are always offensive weapons.

            That’s at least the frustrating way that several of the Republican presidential candidates think. Commenting on the shootings at the Marine Recruiting Center in Chattanooga last week, Wisconsin Governor Scott Walker opined that current laws preventing soldiers from carrying weapons in civilian areas were “outdated.”  New Jersey Governor Chris Christie couldn’t think of a reason that, in general members of the military shouldn’t be armed wherever they are so that they can protect themselves.  And Donald Trump roared “MILITARY LIVES MATTER! END GUN FREE ZONES! OUR SOLDIERS MUST BE ABLE TO PROTECT THEMSELVES! THIS HAS TO STOP!”

            Former Governor Jeb Bush provided the rationale: “It seems to me that if you have military bases or recruiting offices, these are symbols of American might. They're targets. This is how you garner attention. You go to places where there is vulnerability and it's a very powerful symbolic attack on our country.”

            So, soldiers good.  People seeking to “garner attention” by harming them bad.  Soldiers get to keep guns for self defense.

            This, of course, is just an echo of the basic National Rifle Association meme that the way to stop gun violence is for everyone to be armed. If law-abiding citizens (the good guys) are able to defend themselves against gun wielding bad guys, the bad guys will be deterred from attacking the good guys with their offensive weapon.

            NRA board member Charles Cotton (speaking for himself, of course, and not the NRA), used this meme to blame Clementa Pinckney, the murdered pastor of the Emanuel AME Church, for the deaths of eight members of his flock who had gathered at the church for Bible study.  Pastor Pinkney, who was also a South Carolina State Senator, “voted against concealed-carry.  Eight of his church members who might be alive if he had expressly allowed members to carry handguns in church are dead,” he wrote.

            Hmm.  It looks like none of these fine gentlemen have ever paid a visit to the Tragic Commons.

            What we have here is a game commonly played in the Tragic Commons by people who have more fear than sense.  We call the game the “Security Dilemma.”

            Every Security Dilemma requires at least equally two matched players.  They don’t trust each other very much (and why that might be could be interesting question to discuss over a drink or two, but it’s utterly irrelevant here).  It begins when one of the players takes an action the other perceives to be provocative. 

            For example, fearing the other player, the first player might try to create a weapon system that can blunt the other player’s attack.  For the first player, its action is defensive.  But for the other player, it’s provocative.  Because the first player now has a system that can neutralize an attack, the second player perceives himself to be vulnerable to an attack by the first player.

            The rational response to the first player’s action is for the second player either to harden its own defenses or create a more powerful weapon system to deter an attack by the first player.  You can see how this game leads to an arms race during which both players build weapon system upon weapon system, draining their treasuries and making the Tragic Commons a much more dangerous place.

            The game ends when one of the parties decides to chance a pre-emptive strike against the other.  Even if one party survives, its population and infrastructure have been decimated.  Everybody loses.  What fun!

            The Security Dilemma that the Republican candidates don’t understand is that by arming everyone to deter attacks, they only encourage the bad guys to get Kevlar vests (if you can obtain a gun on the black market you can certainly get bullet-proof vests and other goodies there too) and bigger, more destructive weapons.

            What they also don’t get is that arming everyone turns us all into players one and two.  Do we really want to live in a society where everyone expects a sudden attack by a fellow citizen and has at his or her fingertips, the ability to decide, in a split second, to launch a devastating pre-emptive strike?

            Governor Christie, there is a reason we don’t want our soldiers carrying weapons in civilian areas.  You might ask your friends in Texas who are petrified that a military training exercise now being conducted—OperationJade Helm--there is really a cover for an armed takeover of the state by the federal government.

            And, yes, Governor Bush, I understand that attacks on the American military are symbolic and attention grabbing.  But so are attacks on classrooms. And on members of Congress such as Gabby Giffords. And on people in movie theaters. And on the faithful studying the Bible in churches.   

Crisis in Savings

            Americans are not saving enough money.  They have little money for unplanned emergency expenses.  And, as for retirement—fuhgeddaboutit.  At a panel discussion hosted by the Bipartisan Policy Center, Sen. Susan Collins (R-ME) called the situation “urgent” and a “crisis.”

            “We have a tsunami of retirees facing this country who are going to lack the funds for a comfortable retirement, ” she said.  According to Collins, the average annual Social Security benefit is only abut $16,000, and about 25% of Social Security recipients have no other financial resources. 

            According to a June 2014 CBS News poll, the average amount of retirement savings Americans have is about $3,000; people nearing retirement have about $12,000.

            And it gets worse. A NeighborWorks survey released this year found that about a third of all Americans have no savings at all. 47% of all survey respondents said that while they did have some savings, those savings wouldn’t cover their monthly expenses for more than 90 days.

            The members of the Bipartisan Policy Center’s panel suggested a number of remedies.  Representative Derek Kilmer (D-WA), a second term Congressman, managed to get Congress to adopt a plan allowing banks to create “prize-linked savings accounts.”  Banks would be able to encourage people to save by giving them chances to win periodic lotteries for establishing savings accounts and for making deposits into them.  This makes “savings more fun,” he said.

            To reduce the cost to small businesses of establishing and maintaining retirement savings plans for their employees, Collins is working on a bill that would allow unrelated businesses to create pooled retirement plans that serve all of their employees.  Under current law, companies in different industries may not pool their retirement plans 

            David Johns, Deputy Director of the Brookings Institution’s Retirement Security Project, proposed creating savings plans that employees can opt out of that split savings between retirement accounts and passbook savings accounts.

            Kate Griffin, Vice President for Programs of the Corporation for Enterprise Development, spoke about the importance of teaching children from low income families how to same.  She said that poor children with savings accounts earmarked for college are more likely to graduate than poor children without them.

            And Jason J. Fichtner, Senior research Fellow at George Mason University’s Mercatus Center called for changing the tax code so that low-income savers who don’t have high enough incomes to pay income tax could still benefit from savings incentives in the tax code.

            All of these are good ideas.  They all appear to help Americans save.

            But, listening to the discussion, it was hard to shake the feeling that these proposals would have rather marginal effects.  Financial professionals say that people ought to be saving 15% of their incomes, not the 5%, on average, they’re saving now.  While something is always better than nothing, it is doubtful that the savings programs, tweeks, schemes and gimmicks discussed by the panel are likely to goose the savings rate up by the recommended 10 percentage points.

            Take a look at this graph from the St. Louis Federal Reserve Bank. 

It shows the trend in personal savings rate from 1959 until 2015 (gray bands represent recessions).  From the late 1950s until the recession that ended the Ford Administration, the savings rate was positive.  And that’s exactly what you would expect during a period when the economy was expanding and raising income for everyone.

            For the next 40 years, the trend is negative.

            What happened during those 40 years? There were severe recessions, large-scale layoffs, stagflation, globalization and the transfer of blue collar factory jobs to developing countries, a decline in the power of unions, wage stagnation and a widening of the income and wealth gaps that separate the rich from everyone else.

            According to the CBS poll, 80% of Americans with incomes of $50,000 or less say that its hard for them to both save for retirement and pay their day to day bills.  “There is a segment of the population who cannot afford food and rent and to save for retirement, and they rationally choose food over retirement savings,” said Anthony Webb, senior research economist with Boston College’s Center for Retirement Research.

            Indeed, according to a Washington Post Wonkblog analysis of the Consumer Expenditure Survey released by the Bureau of Labor Statistics in April, the poor save 12 cents for every dollar they spend on food, while “the wealthy sock away $3.07 in pensions and life insurance” for every dollar they spend on food.  The survey shows that poor Americans aren't wasting much money on delicacies, entertainment or other luxuries.

            The fact that Americans lack significant savings to cope with financial emergencies or to supplement the meager amounts they’ll receive from Social Security when they can no longer work is a serious national problem. But, in my mind, it’s a symptom of a more serious problem: Many Americans simply don’t earn enough to be able to afford the luxury of saving.

            If you want to do something significant about the savings problem, you have to do something significant to increase the likelihood that families will have enough money to pay their bills and to put money away.  When poor Americans don’t have to live from paycheck to paycheck, the savings problem will take care of itself.

The Flat Tax Scam

            We’re all equal.  Shouldn’t that mean we should all pay taxes at the same rate?  Well, no, but that’s apparently the way Republican Senator and presidential candidate Rand Paul (R-KY) sees things.

            It’s campaign season (seems a little early, doesn’t it?), and so its time for Republicans to trumpet this old canard one more time as a way they’d like to see the tax code reformed.

            Under Paul’s proposal, the entire Internal Revenue code would be repealed—including the provisions that fund Social Security, Medicare and Obamacare—and replaced with a flat 14.5% tax on individuals and businesses.

            Paul’s website is unclear about whether this tax would apply to gross income or net income, but because he’s proposing to eliminate the “more than 70,000 pages of the tax code," it’s a fair bet that he’s getting rid of most deductions and exclusions.  Under any case, though, he’d keep the mortgage interest deduction and the deduction for charitable giving.   

            He claims that under his plan, a family of 4 would pay no income tax on the first $50,000 of income.  He also claims that his plan would cut taxes by over $2 trillion and create 1.4 million jobs, apparently over 10 years.

            Others have already pointed out why this proposal shouldn’t be taken seriously.  The main reason is that Paul’s proposal is merely a “starve the beast” plan covered over with arguments about fairness and simplicity.  A tax cut of $2 trillion over 10 years would require a huge cut in federal spending, which is likely to result in a larger federal deficit when those cuts in things like the military budget, Social Security and Medicare aren’t made.

            My project today is to show why most flat tax proposals premised on the idea that fairness dictates that all Americans pay tax at the same rate are scams.

            Consider a society with only 39 citizens.  Its budget is in balance. It has a progressive income tax system like ours where people with higher incomes pay tax a higher rate.  Table 1 shows how the tax burden is distributed among the citizens.

Table 1

Taxpayers	Taxable Income	Tax Rate	Tax Amount	Tax Collected
27	$50,000	13%	$6,500	$175,500
9	$100,000	22%	$22,000	$198,000
3	$150,000	28%	$42,000	$126,000
				$499,500

            Table 1 simplifies a complex system.  The tax rates shown are “effective” tax rates and not "marginal" tax rates.  Effective tax rates are total taxes collected from a taxpayer as a percentage of his or her total income.  Marginal rates are the rates that apply to each layer of tax in a progressive system.

            Now suppose that the three taxpayers who make the most money insist that it’s unfair that they have to pay a higher percentage of their income in taxes. They propose a flat tax where everyone pays the same rate.  Since this is a fiscally responsible society, the plan has to be revenue neutral to keep the budget in balance.

            Keeping the system revenue neutral means that it still has to collect $499,500 in taxes.  All taxpayers together have $2.7 million in taxable income (calculation not shown). To collect the same amount of money as under the progressive system, the flat tax rate has to be $499,500/$2,700,000 or 18.5%.  The impact of the change appears in Table 2:

Table 2

Taxpayers	Taxable Income	Tax Rate	Tax Amount	Tax Collected
27	$50,000	18.5%	$9,250	$249,750
9	$100,000	18.5%	$18,500	$166,500
3	$150,000	18.5%	$27,750	$83,250
				$499,500

           

            The people in the highest earning groups have gotten a tax cut out of the flat tax.  The poorest element of society had its taxes raised.  Table 3 shows how big a tax cut or increase each group got in nominal and percentage terms.

Table 3

Taxable Income	Flat Rate	Initial Rate	Nominal Change	Flat Tax	Initial Tax	Change	Percent Change
$50,000	18.5%	13%	5.50%	$9,250	$6,500	$2,750	42.31%
$100,000	18.5%	22%	-3.50%	$18,500	$22,000	-$3,500	-15.91%
$150,000	18.5%	28%	-9.50%	$27,750	$42,000	-$14,250	-33.93%

            In nominal terms, the poorest element of society got a 5.5% tax increase while the richest element got a 9.5% cut.  In percentage terms, taxes on the poor went up by over 42% while taxes on the rich went down by close to 34%.

            And this is the thing that most people don’t understand about flat taxes.  Though they sound simple and fair, the people who really benefit are the few at the top of the income distribution.  Most people would see their taxes go up rather dramatically.

            There is no way out of the Tragic Commons.  We either find a way to protect and share it, or we will destroy it.  There has never been any evidence that reducing the burden on the richest will benefit anyone but the richest.  The people who derive the most benefit from the Tragic Commons are in a better position to accept its burdens than everyone else.  Justice requires that they should pay more.