The Triumph of the One Percent

crossposted from Dissent

The election of Donald Trump, and the daily infliction of another huckster, ideologue, paranoid, or unrepentant one-percenter cabinet appointment, has upended the politics of inequality. The defining issue of our time, not an insignificant source of Trump’s victory, is disappearing from the national political radar. So it is dismally appropriate, in the days between the appointments of Ben Carson at Housing and Urban Development and Andrew Puzder at Labor, that Thomas Piketty and colleagues have released updated and revised estimates of the share of national income going to top earners.

Making novel use of tax returns, this research first highlighted the now-iconic “suspension bridge” of top income shares—high at the tail end of the Gilded Age and through the laissez-faire 1920s, descending sharply through the shocks of the Great Depression and the Second World War (and the policies that accompanied both), and then rising again as the postwar political and economic compact was dismantled. The new paper adds to this story in three important ways. First, drawing on a wider range of income data (combining tax, survey, and national accounts), it offers a more complete picture of income distribution—capturing not just the top 10 percent but (for the last half-century) the bottom 50 percent and the middle 40 percent as well. Second, it traces those shares before and after taxes and transfers, offering a clear view of the distributional impact of government programs. And third, it teases apart household or tax unit income measures, and then uses individual incomes to suggest the ways in gender inequality has shaped these larger trends.

Here a couple of glimpses at the new data. The first graphic shows the share of national income claimed by the top 10 percent and top 1 percent of earners, with a toggle for the pre-tax and post-tax estimates.

Thanks to Piketty’s landmark 2013 book, the basic trajectory of top incomes is by now well known. But it is even starker if we express those incomes in real (inflation-adjusted) dollars. The second graphic traces average incomes—pre- and post-tax—for the top 10, 5, 1, 0.5, 0.1, and 0.01 percent of earners. Across most of this history, the impact of the tax system on those incomes is slight. I have calculated a crude effective tax rate (the difference between pre- and post-tax incomes as a percentage of pre-tax incomes) for each top income group. While rates spike for those at the very top of the income distribution during the World War II era, they fall off quickly—and since the 1970s have settled in at less than 20 percent for the top 10 percent of earners, and less than 30 percent for the top 0.01 percent.

Beginning in the 1960s, the survey and tax data is robust enough to generate an income share for the bottom 50 percent of the distribution as well. The final graphic traces the real average income of the bottom 50 percent in the lower panel, and the real average income of top income groups in the upper panel. The grey bars show the ratio between the two. The real average income of the bottom 50 percent is essentially flat, peaking at $16,632 in 1979 and stagnating thereafter ($16,197 in 2014). In 1979, the average one-percenter earned 28 times the income of the average earner from the bottom 50 percent; by 2014, this ratio had ballooned to 81 times. In 1979, the average ten-percenter earned 9 times the income of the average earner from the bottom 50 percent; by 2014, this ratio had ballooned to 19 times.

These trends are dismal, and show no sign of abating. As the economy has slowly recovered from the Great Recession, wages have scarcely budged. Income gains since 2007 have flowed almost exclusively to the richest 1 percent. While this new data brings us through those dismal years (to 2014), it is also clearly a harbinger of worse to come. By all indications, the incoming administration is not just indifferent to the root causes—growing wage inequality, financialization, the collapse of progressive taxation—but eager to double down on all of them.

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Red Lines, Black Lives

crossposted from Dissent

When Ta-Nehisi Coates’s made his influential “Case for Reparations” in the pages of the Atlantic in 2014, his focus, perhaps surprisingly, was not on slavery. It was on housing discrimination—all of the measures that, from the 1870s on, prevented former slaves and their descendants from getting their “forty acres and a mule,” from owning land and building wealth. While rooted in Jim Crow and the lost promise of Reconstruction, this disadvantage fully flowered in the middle years of the twentieth century—an era in which federal programs opened new opportunities for white families, but allowed the southern Congressional veto and local discrimination in both North and South to shut out most black families. It was an era, as Ira Katznelson and others have shown, “when affirmative action was white.”

A new resource hosted by the Digital Scholarship Lab at the University of Richmond reveals the extent of the government’s role in fueling and enforcing midcentury housing discrimination. In the 1930s, the New Deal’s Home Owners’ Loan Corporation (HOLC) financed or refinanced nearly one in every five residential mortgages in the United States. The HOLC, aimed at relieving distressed borrowers and lenders alike, revolutionized home finance and home ownership by offering long-term, low-down-payment options at a time when the standard commercial loan expected 50 percent down at sale and a payoff in three to five years. This intervention (and infusion) steadied banking and construction sectors rocked by the Depression. And, by dramatically changing the terms of home finance, the HOLC put homeownership within reach of much of the working class. Between 1930 and 1960, the homeownership rate grew from 48 to 62 percent.

But the benefits, notoriously, were far from even. HOLC lending was guided by a hastily assembled library of “residential security” maps which rated the creditworthiness of virtually every urban neighborhood in the country. Lacking the capacity to survey cities themselves, the New Deal turned to local real-estate and finance interests whose first principle and guiding motive was the maintenance of racial segregation. The textual area descriptions which accompanied the HOLC maps echoed private real-estate appraisals of the era, which used the threat of racial “incursion” or “invasion” as the primary marker of property value and leaned on the strength (or weakness) of local restrictions such as race-restrictive deed covenants. In other words, the maps became the basis for three decades’ worth of relentless, federally endorsed redlining.

Following the lead of Kenneth Jackson’s Crabgrass Frontier (1985), a generation of scholarship has documented the motives and the impact of the HOLC’s redlining practices in particular settings. Now, a team of scholars working with the Digital Scholarship Lab at the University of Richmond has made the entire corpus of HOLC maps—and the accompanying area descriptions—accessible. The resulting database, Mapping Inequality: Redlining in New Deal America, is a remarkable accomplishment of publicly engaged scholarship. Geo-referenced on a national map, the 150-odd city maps offer a damning overview of the relentless scope of federal support for local segregation. Each city map in turn allows users to browse the area descriptions, which catalogued detrimental influences such as “colored population” or “absence of restrictions.” This was the fruit, as Robert Weaver (who would later serve as the first Secretary of Housing and Urban Development under Lyndon Johnson) noted bitterly in 1948, of turning a federal program “over to the real estate and home finance boys.”
Full HOLC map of Cleveland, 1939 (courtesy of Mapping Inequality)

In some respects, the maps presented here overstate the impact of the HOLC. Perhaps best understood as an inventory of existing practice in real estate and home finance, the HOLC did not invent redlining—indeed, as Jim Greer and others have suggested, it is unclear how just how widely used or distributed the maps were. What’s more, as Todd Michney and Amy Hillier have shown for a number of cities, the HOLC “red zones” that so often accompanied African-American occupancy did not preclude federal mortgage underwriting in those neighborhoods—although they did worsen its terms. In this sense, the HOLC maps succored subprime lending as much as direct disinvestment.

But in other respects, this presentation of the HOLC maps probably understates their impact. Alongside the easy equation of race and credit risk in established neighborhoods, the HOLC (and its parent agency the Federal Housing Administration) flooded the suburbs with subsidies for developers who—building cul-de-sacs in the cornfields outside St. Louis or Chicago or Des Moines—could easily meet federal guidelines for home size, lot size, setback and the like. These developments, many of which were “protected” by race-restrictive deed covenants before the soil was turned, were closed to African Americans. In this sense, the Federal Housing Administration discouraged investment in older city neighborhoods not by prohibiting it, but simply by ensuring that it was easier and more lucrative elsewhere.

Even if the HOLC just inventoried and codified what realtors and banks and developers were already doing, it had a profound impact nevertheless. Our expectation of public (especially federal) programs is that they will bring with them a commitment to equal protection—an argument made consistently, if not always successfully, with the growing scope of federal contracts, subsidies, social policies, and labor standards after the 1930s. But in housing, the federal government was not just timid in confronting racial segregation; it actively encouraged, subsidized, and sanctified it. It was as if the federal government decided to monitor voting registration in Mississippi in 1963, and outsourced the job to the local Klan.

By laundering housing policy through the systematic and candid racism of local real-estate and finance interest, the HOLC also opened a gap between black and white ownership that has never closed. In the new world of home finance, white families bought homes at higher rates, they bought them earlier in life, they bought them on better terms, and they bought them in neighborhoods where housing value appreciated reliably. This yielded, of course, a widening of the racial wealth gap even as other disparities (wages, income) closed slowly in the civil rights era and after. Today, median African-American family wealth is less than one-tenth that of white families—a gap largely attributable to disparate access to housing subsides such as the HOLC, and their impact across generations.

In turn, this segregation and stratification of opportunity have hardened the inequalities that—especially in the American context—flow from housing. Declining or stagnant home values sap the funding of local services, especially schools, that rely on local property taxes. Our public policies in the last half century made it hard for African Americans to escape central cities but easy or natural for jobs to do so—resulting in an enduring mismatch between residential and economic opportunities. And the “neighborhood effects” of segregation and concentrated poverty are pernicious and persistent across a range of social and individual outcomes—including public health, cognitive ability, social mobility, and civic engagement.

The HOLC maps collected at Mapping Inequality provide much more than an accessible archive of a sordid moment in the history of American public policy—although that alone would be worth the price of admission. They document the motives and scale of discriminatory practices that have always animated the American real-estate industry (“just one of those things” that everyone was doing, as Donald Trump lamely offered in defense of his own history of racial bias), and which persist to the present. And they shine a light into the long shadow of systematic housing segregation and discrimination whose consequences—in neighborhoods, and in the opportunities that one generation can offer to the next—are unabated.

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Right to Work (For Less)

cross-posted from Dissent

The 1935 National Labor Relations Act transformed the landscape of American labor relations, establishing basic collective bargaining rights and outlawing an array of unfair labor practices. The law emboldened activists to organize across the core of the industrial economy, and the tight labor markets of the war years cemented those gains. When the Depression hit in 1929, only one in ten workers were covered by union contracts; by 1945, fully a third of the workforce—skilled and unskilled alike—enjoyed that security.

It wasn’t long before business interests pushed back, winning “antidiscrimination” (read: anti-union) amendments to state constitutions in Florida (1944), Arkansas (1944), Nebraska (1946), and Arizona (1946) and then scoring a broader victory with the passage of the Taft-Hartley Act in 1947. Taft-Hartley allowed states—through the passage of so-call “right to work” laws—to evade the union security clause (Section 8.A.3) of the NLRA. Under “right to work” (RTW), workers covered by union contracts could not be required to join the union and pay dues. In short order, most of the deep South—where starkly racialized labor markets and low-wage, “low-road” economic development were the norm—had embraced RTW. Over the following decade, several states in the midwest and mountain West followed suit (see map below); by 1960, nineteen states had passed RTW laws, and another four joined the list over the next half-century (while Indiana repealed its law in 1965).

In recent years, the right has rediscovered RTW, taking the battle to states that were once union strongholds in an effort to deal a final blow to the labor movement and to signal a “business-friendly” legislative and regulatory climate. Indiana and Michigan succumbed in 2012. Wisconsin in 2015. West Virginia in February of this year.

It is difficult to plumb the full impact of RTW. The timing and location of the laws’ passage makes it almost impossible to untangle the driving forces behind rates of economic growth or job creation across states. The economic trajectories of Minnesota and Mississippi since 1954 (when the latter passed its RTW law) are profoundly different, but it is quite an explanatory leap to pin that difference—good or bad—on one detail of state labor law. And before-and-after analysis of states that have more recently passed RTW are inconclusive at best.

While there is no credible evidence that RTW laws boosts investment or job growth, their impact on a state’s workers are a little clearer. RTW makes both new organizing and, as we have begun to see in Scott Walker’s Wisconsin, holding onto past gains more difficult. Even if union coverage (the reach of the contract) remains the same, dues-paying membership slips. And by undermining bargaining power, it dampens wages. The work of Elise Gould and Heidi Sherholz (updated by Gould and Will Kimball in 2015) controls for an array of individual (education and employment status, for example) and state variables (cost of living, unemployment rate), and finds that wages in RTW states are a little over 3 percent lower than in non-RTW states (a $1500 deficit for a typical full-time worker). The compensation penalty—taking into account lower rates of employer-provided health and pension coverage—is even wider.

This cascade of disadvantage for workers in RTW states, from lower unionization rates to lesser bargaining power to lower wages, is illustrated in the two graphs below. In these visualizations of the data, the states are strung like pearls along each annual measure. The RTW states are red, the others blue. The “box-and-whisker” for each year traces the variability across the states: the centerpoint of each box is the median state on that measure; the top and bottom of the box mark off the seventy-fifth and twenty-fifth percentiles (the “interquartile range”); the top and bottom whiskers reach out to values that are no more than 1.5 times the interquartile range; outliers in the data fall beyond the whiskers.

In the graph of union density, unsurprisingly, RTW states cluster below the median. In many settings, the passage of RTW in the 1940s or ‘50s locked in low unionization rates in states (especially in the South) that had evaded the first wave of post-NLRA organizing. In other settings, RTW set the conditions for economic development in states (especially in the southwest) where postwar economic growth was most intense. As telling as the general pattern are some of the exceptions, including pockets of organizational solidarity (hotel workers in Nevada, manufacturing workers in Iowa) despite a RTW climate.

On wages, we see much the same pattern: a wide variation across states, the RTW states dripping off the bottom of the scale. The distinction between RTW states and the rest is perhaps most pronounced for men and women at the median, sixtieth and seventieth wage percentiles (a wage range, in 2015 dollars, that runs from about $15/hour to $30/hour). I make no claim here that RTW alone is dampening wages (this is a crude measure that does not control for other economic and policy differences across states). But it is clear, I think, that RTW is a potent marker of the broader climate that workers face in a state. Anti-labor legislation, in most of these settings, is accompanied by regressive and austere fiscal regimes, by woeful underinvestment in education, and by social policies that combine meager cash assistance with generous subsidies or incentives for participation in the low-wage labor market. This, in the end, is not about “rights” at all; it’s about power—the diminished power of unions to represent their members and bargain for living wages, and the naked power of business interests to turn states into laboratories of austerity and neoliberalism.

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The Pension Pinch

crossposted from Dissent

The American system of retirement famously rests on three legs: personal savings and assets, employment-based pensions, and Social Security. Like any tripod, the system is efficiently stable when all three legs are strong, but also vulnerable to weakness in any one of them. Over the last generation, a combination of wage stagnationdeclining job quality, and recessionary damage has chiseled away at family resources and job-based benefits. The malevolent misdirection of market fundamentalism, of course, is to sharpen its saws for Social Security—the only leg of this stool still bearing any weight.

Family savings—including not just retirement savings but also other asset cushionslike home ownership—are increasingly shaky. The personal savings rate, whichhovered at or above 10 percent from the 1960s to the mid-1980s, is now a meager 4.8 percent. According to a recent survey by the National Institute on Retirement Security, 45 percent of working-age Americans have no retirement account assets, 62 percent of near-retirement households (ages 55-64) have retirement savings that amount to less than a year of annual income, and the median retirement savings for those households is a paltry $14,500. These numbers, not surprisingly, are also sharply skewed by race, income, and educational attainment.

So what about job-based pensions? Our retirement system (like out health care system) is premised on the notion that public policy need only mop up around the edges, or supplement, employment-based plans. But private pension coverage grew modestly through the middle years of the last century and plateaued at only about half of the workforce. Coverage at work was a sort of lottery, largely dependent on job characteristics like industry, firm size, and union coverage. And such coverage widened labor-market inequalities, as pension plans followed high wages and job tenure.

But even for those workers claiming coverage, retirement security has been whittled away. The private pension of the last generation was usually a defined-benefit plan, financed largely (often wholly) by the employer, and promising a lifetime annuity based on years of service and earnings. Most coverage today takes the form of a defined-contribution plan, such as a 401(k), to which the worker is often the only contributor, and whose retirement benefits depend (often disastrously) on the performance of private equity or company stock. The graphic below captures to slow displacement of defined-benefit pensions, by number of plans, number of participants, contributions, assets, and benefits.

A retirement system should both facilitate savings, managing the risk of retirement across a lifespan, and even out some of the inequality generated by the market, managing the risk of retirement across a diverse population. Our public-private hybrid accomplishes neither. Personal retirement savings and job-based coverage masquerade as private achievements, but depend heavily on the tax advantages that accrue to both; indeed the exclusion of pension contributions and earningsrepresents a tax expenditure of over 1 percent of GDP, in the range of $1.7 trillion. By the same token, Social Security benefits are shaped largely by private employment and earnings history; the benefit structure softens market inequities but also sustains them. Our public-private social insurance system is an artifact of patterns of employment and labor force participation that are no longer with us. What was once a source of security (at least for many) is now just another eddy of inequality, eroding retirement savings at one bank of the income stream and depositing them at the other.

Although the retirement security crisis is dire, the solutions are well within reach. One tack would be to further encourage, subsidize, or mandate job-based pension savings. This could be accomplished by making it easier for small businesses (very few of whom offer pensions) to establish plans; or by mandating modest retirement plans (jointly financed, conservatively-invested) for all workers—with a refundable tax credit to make the plans accessible to part-time and low-wage workers. Another tack would be to decouple retirement security from work. The Obama administration’s recently launched myRA program (which features no minimum deposit, no fees, and a modest return backed by Treasury bonds) takes a step in this direction—although low-income workers are unlikely to claim the tax advantages, and there is no mechanism for employer contributions. And, of course, any of this should be accompanied by recommitting to Social Security, ensuring its future by raising (or removing) the cap on taxed earnings, and nudging the payroll tax rate up 2 or 3 percent. But try telling that to Paul Ryan.

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