Three Things: No, No, and Hell to the NO on the Tax Bill [UPDATED]

NB: Update at the bottom of this post.

I don’t have three things. I just have three (or more) layers of pure rage about the so-called tax reform bill now returned to the Senate floor.

There is not one good thing about this bill. Nothing, nada, zippo, nil. How anyone could possibly think adding $1 trillion to the deficit — ostensibly to raid Social Security, Medicare, and Medicaid in the near future — is a positive is simply beyond my grasp.

And yet Senate Republicans are willing to set fire to the economy, torch people’s health care, wreak ruin upon academia and research, just to stay on their donors’ good side.

Super-wealthy donors are extorting performance from the GOP by withholding donations until they get their tax cuts. They are literally demanding the GOP obtains campaign contributions from the lowest and middle classes by increasing taxes or reducing benefits and transferring the funding to the uppermost class which does not need it but will instead convert the tax cuts to campaign contributions.

If these corrupt GOP senators continue blindly supporting this tax bill, they will stem consumption by the true engine of economic growth while encouraging greater anger across the largest percentage of citizens. I am reminded of the economic troubles in Germany before the 1929 market crash, the following wave of mass unemployment and a banking crisis leading to domination of National Socialism.

We know how that turned out.

This is an open thread. Bring your tax bill rage and off-topic stuff here.

UPDATE — 4:45 PM EST —

Looks like Senate GOP has been inundated with lobbyists’ requests for favors (read: quid pro quos for future donations) now being tacked onto the tax bill without any final draft bill available for reading by either the Senate or the public. Totally corrupt bunch of hacks.

As @Celeste_pewter says, keep calling; even if Sen. ‘Turtlehead’ McConnell says the GOP has 51 votes, they still need to get through conference committee. Congressional switchboard is (202) 224-3121. Here’s a script for your use.

Thanks to Sen. Ron Wyden who continues to fight for the individual mandate.

Boos and rotten tomatoes to Sens. Susan Collins and Lisa Murkowski, who sold out for rather meager tidbits — state/local tax write-offs for Collins, and drilling more oil for Murkowski. The cost to constituents’ health and financial well-being is a lousy trade-off .

Blogger since 2002, political activist since 2003, geek since birth. Opinions informed by mixed-race, multi-ethnic, cis-female condition, further shaped by kind friends of all persuasions. Sci-tech frenemy, wannabe artist, decent cook, determined author, successful troublemaker. Mother of invention and two excessively smart-assed young adult kids. Attended School of Hard Knocks; Rather Unfortunate Smallish Private Business School in Midwest; Affordable Mid-State Community College w/evening classes. Self-employed at Tiny Consulting Business; previously at Large-ish Chemical Company with HQ in Midwest in multiple marginalizing corporate drone roles, and at Rather Big IT Service Provider as a project manager, preceded by a motley assortment of gigs before the gig economy was a thing. Blogging experience includes a personal blog at the original blogs.salon.com, managing editor for a state-based news site, and a stint at Firedoglake before landing here at emptywheel as technology’s less-virginal-but-still-accursed Cassandra.

The Slow Death of Neoliberalism: Part 4B

Part 1.
Part 2.
Part 3.
Part 3A. This post at Naked Capitalism expands on Part 3, and adds a discussion of Simcha Barkai’s paper and methodology; I discuss other aspects in Part 4A.
Part 4A.

In Part 4A, I laid out the neoliberal theory of the person, and the beginning of an appraisal of the effect of that theory on elites. In this post I add to that appraisal, and take up the impact of this theory on the rest of us. In the next post I will offer a possible explanatory context, but not a solution.

The neoliberal theory of the person is the basis of the economics most of the elites learn as undergrads, and in business schools. Lawyers are taught neoliberal principles in anti-trust classes and in the jurisprudential aspects of other courses, through the impact of the law and economics movement. When elites get jobs in business or law or government, they are surrounded by others who are deeply enmeshed in neoliberalism, even if they can’t name it. They believe that the market, whatever that is, is a wonderful, if occasionally erratic, judge of worth. They earn what they make because the market rewards the productive, and everyone finds their level in that system of rewards, based on their personal merit and their productivity. As they rise in pay and prestige, that opinion is cemented. It’s like Calvinism, with the market substituted for the Almighty. And if the market rewards the productive and dumps on the “non-productive”, then that is right and just.

The farther elites get from the productive work of businesses, the more they come to regard employees as cogs in a machine, not fully human, merely factors of production. The ease with which they fire people is the result of their belief that elites are productive and the rest tools. Lawyers and politicians may see their employees as humans, if weak versions, but the rest of the working world vanishes, except when needed. In brief, the elites operationalize Karl Polanyi’s concept of labor as a fictitious commodity.

And how does this work out for the lesser people? They are forced to live and work in the neoliberal world. They learn to repeat its tropes. For a beautiful piece of research on this, see Coming Up Short: Working-Class Adulthood in an Age of Uncertainty, 2015, by Jennifer M. Silva, The people Silva interviewed describe themselves in the terms in the Mirowski quote in Part 4A, as bundles of skill sets, who must take risks and invest in themselves to get ahead; when it doesn’t work, they think it’s their fault, they blame themselves, and they struggle to find some other way forward.

I saw this many times in my 25 years of bankruptcy practice. People who file Chapter 7 always blamed themselves, and never could understand how their failures resulted from the cruel form of capitalism we enjoy in the US. Here’s a composite case. A young couple with two low-level jobs in a county near Nashville decide that the husband will go back to school so he can get a better job. The wife gets pregnant, suffers a bad miscarriage and can’t go on working. They don’t have insurance, and the bills pile up. He drops out to get a job to support them and tries to pay down the debt. She gets well enough to work, and then he loses his job. They can’t pay the medical and student debt. They get money from family, but it doesn’t work. They file Chapter 7, but they can’t discharge the student debt and they feel obligated to pay back their families. And when we talk to them, they blame themselves in words and phrases exactly like those Silva reports in her book.

In Part 4A, I describe two of the prevalent ideas that neoliberalism has given us, Bork’s antitrust revisionism and Posner’s Law and Economics. For the elites, the first was a boon. It was easy to explain how the markets would protect consumers after a merger. Corporations became larger and larger. Regulators allowed almost every merger, and the elites became more and more powerful, with more and more assets under their control. Combine the new wealth and power with their belief that they are superior, as shown by the rewards heaped on them by the all-knowing market, and suddenly elites are exerting even greater control over the government and using it to enrich themselves as managers and shareholders. According to Mirowski, this is a desired outcome of neoliberalism. See, e.g. point 10.

The Law and Economics movement supports this view. Courts following Posner look at economic efficiency above any other interest, and interpret the laws narrowly so as not to interfere with the sacred market. The consistent rulings in their favor support elites in thinking they are wonderful.

After the Great Crash, brought on by elites at gigantic banks, hedge funds, big law firms and other cheats and liars, not a single member of the elites went to jail, and they all got paid, and they all got to keep their ill-gotten gains. Many of the political elites defended their Wall Street friends. Pundits and academics and think-tankers sprang to the defense of Wall Street. Both of these groups pretended that it was everybody’s fault, or the fault of those evil subprime borrowers or nobody’s fault because it was all perfectly legal and the deals were between equally sophisticated and brilliant people, but it surely wasn’t the fault of the well-known people who organized and sold RMBSs and other deals. The prosecutors said they couldn’t indict any individual because responsibility was spread out among lots of people, or it was too hard to get a conviction, or because something something. When elites are not held accountable, it reinforces their sense of how wonderful they are.

But the effect of these two two neoliberal theories on the rest of us is bad. As I note in Part 4A, based on this paper by Simcha Barkai, increasing concentration is perhaps the most important cause of the wage-productivity gap. Wage stagnation as profits increased has left workers struggling to get ahead, to the point that less than half of US households can pay an unexpected $500 bill without borrowing or selling something.

In the same way, the law and economics movement has hurt workers. For example, Banks and other large corporations put arbitration clauses in all their contracts, and clauses that bar class actions, and courts routinely uphold these clauses, because it’s so efficient. That means that when you get cheated in one of Wells Fargo’s schemes, you have to arbitrate, and class actions are barred.

So far, the legacy political parties and the elites have been able to deflect the anger that is slowly building up in our society as frustration turns into pain. It’s dawning on all of us that the way we treat our people is disgusting, whether it’s cops killing unarmed Black people, sexual predators attacking women, unfair pay for people of color, massive corruption, lawsuits with utterly unjust results; the list is endless.

My prediction of the slow death of neoliberalism is based on my profound hope that people are realizing that neoliberalism is a nightmarish theory, the spell will be broken, and people will demand to be treated like human beings with natural rights that must be the central focus of social organization.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

[Photo: Annie Spratt via Unsplash]

The Slow Death of Neoliberalism: Part 4A The Nature of the Person

Part 1.
Part 2.
Part 3.
Part 3A. This post at Naked Capitalism expands on Part 3, and adds a discussion of Simcha Barkai’s paper and methodology; I discuss other aspects below.

In this post, I take up the nature of the person in neoliberal theory and neoliberal society. I begin by describing the nature of the person in theory, and then apply it to elites. In a separate post I will discuss the nature of the average person in neoliberal theory and society. Then I will try to put this in a general context, based on my initial readings on Critical Theory.

The nature of the person in a neoliberal society is simple: a utility-maximizing computing machine, only interested in satisfying wants and needs in a world of scarce resources, where survival depends on the ability to grab stuff ahead of other people. Somewhat more elegantly, Philip Mirowski explains it this way

Neoliberalism thoroughly revises what it means to be a human person. Classical liberalism identified “labor” as the critical original human infusion that both created and justified private property. Foucault correctly identifies the concept of “human capital” as the signal neoliberal departure that undermines centuries of political thought that parlayed humanism into stories of natural rights. Not only does neoliberalism deconstruct any special status for human labor, but it lays waste to older distinctions between production and consumption rooted in the labor theory of value, and reduces the human being to an arbitrary bundle of “investments,” skill sets, temporary alliances (family, sex, race), and fungible body parts. “Government of the self ” becomes the taproot of all social order, even though the identity of the self evanesces under the pressure of continual prosthetic tinkering; this is one possible way to understand the concept of “biopower.” Under this regime, the individual displays no necessary continuity from one “decision” to the next. The manager of You becomes the new ghost in the machine.

Mirowski could be describing corporations: they are in fact the Platonic Ideal of this version of human nature. They have only one goal: to succeed in the market, whatever that is, by grabbing everything they can, money, power, resources, everything. We should all aspire to be like corporations.

In the neoliberal universe, the market, whatever that is, is the perfect computer. It balances all desires with money and spits out the perfect answer. The market can do no wrong. It disciplines everyone to its demands. There is no need for external government oriented regulation. Any regulation will simply make everything worse. In fact, there is no need for or room for democratic control of any kind. The market also selects our leaders, as Thorstein Veblen observed over a century ago.

We’ve been living under this intellectual regime for half a century now, and we can see its impact all around us. On the corporate side let’s look at two of the main theoretical innovations, Robert Bork’s antitrust revisions and Richard Posner’s Law and Economics movement.

As far back as 1960, Bork was fretting that socialism would be enforced on the US through antitrust law. In his seminal 1978 book, The Antitrust Paradox, he claimed that the purpose of the Sherman Act, the crucial antitrust law, was to protect consumer welfare, and that the existing law protected inefficient firms and thus drove up consumer prices. That view was adopted by the Supreme Court in 1979. Supposedly it would protect consumers better than prior law focused on the dangers of concentrated money and power.

A recent paper by Simcha Barkai shows how that worked out. Barkai is now a professor at the London School of Economics. His paper, Declining Labor and Capital Shares, is here. The first two sections and the conclusion lay out the thesis in English, not econspeak. The labor share is declining. The cost of capital is low and little additional capital has not been added to the existing depreciating stock, so the capital share is low. Profits are up in an amount sufficient to cover both drops. The profit share has risen because of increased concentration, which occurred because of the adoption of Bork’s opinion. See Part 3A, Observations.

Across specifications, the profit share (equal to the ratio of profits to gross value added) has increased by more than 12 percentage points. To offer a sense of magnitude, the value of this increase in profits amounts to over $1.1 trillion in 2014, or $14 thousand for each of the approximately 81 million employees of the non-financial corporate sector. P. 3.

Profits go to the owners of firms, who distribute the money as they see fit. Profits are not distributed to the 99%; they go to shareholders and top management. This is terrible for consumers, whose wages have stagnated while profits soar. Bork was totally wrong, and wrong in ways that hurt people and society.

The second neoliberal innovation is the Law and Economics Movement, driven by Richard Posner, recently retired from the Seventh Circuit. This is from a 1987 speech he gave at the American Economic Association, behind pay-wall but available through your local library. According to Posner, these are the basic premises of Law and Economics:

1) People act as rational maximizers of their satisfactions in making such nonmarket decisions as whether to marry or divorce, commit or refrain from committing crimes, make an arrest, litigate or settle a lawsuit, drive a car carefully or carelessly, pollute (a nonmarket activity because pollution is not traded in the market), refuse to associate with people of a different race, fix a mandatory retirement age for employees.

2) Rules of law operate to impose prices on (sometimes subsidize) these nonmarket activities, thereby altering the amount or character of the activity.

A third premise, discussed at greater length later, guides some research in the economics of nonmarket law:

3) Common law, (i.e., judge-made) rules are often best explained as efforts, whether or not conscious, to bring about either Pareto or Kaldor-Hicks efficient outcomes. P. 5

You can find my discussion of Kaldor-Hicks efficiency here, with a link to a discussion of Pareto Efficiency. Posner is quite serious about this.

/

This is from [Posner’s] 1985 article in the Columbia Law Review, An Economic Theory of the Criminal Law:

My analysis can be summarized in the following propositions:
1. The major function of criminal law in a capitalist society is to prevent people from bypassing the system of voluntary, compensated exchange-the “market,” explicit or implicit-in situations where, because transaction costs are low, the market is a more efficient method of allocating resources than forced exchange. Market bypassing in such situations is inefficient — in the sense in which economists equate efficiency with wealth maximization — no matter how much utility it may confer on the offender. … (P. 1195, footnote omitted)

Posner carefully explains how this works with rape. I’m sure Weinstein, O’Reilly and all of the sexual predators heartily endorse his conclusions. It’s just sick to think in terms of the utility these predators gain balanced against the “disutility” to the people they attack. In Kaldor-Hicks terms, the predator can make everything right with a few bucks and/or a part in a movie, and Posner would be fine with that.

This analysis is explicitly inhuman: it takes no account of human dignity, or bodily autonomy and personhood of people under assault. The disutility caused by rich predators? What kind of person thinks like that?

To be precise, that is the exact mindset that neoliberalism calls out. That focus on economic efficiency defined in the most dehumanizing terms possible is at the core of the education of the elites and it perfectly explains their behavior in their institutional roles. All of them are sure they are perfection of humanity because they were selected by the perfect market. And it is therefore right and just that they should be in charge of everything. Screw democracy; as Posner put it in a 2007 opinion, the value of voting to the individual is elusive.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

M&M Mars Candy, Trump and The Estate Tax Giveaway

[Ed Note: This is a guest post by our tax law expert friend Bob Lord. It is a particularized abject story of exactly what kind of interests are pushing the Trump “Tax Cuts” agenda, why, and how ridiculously corrupt and insulting to the 99.5% of America the effort really is.]

The Mars family has made billions selling us M&Ms, Snickers, and countless other Halloween treats for a century now. But when it comes to paying tax, the Mars family seems to be all tricks and no treats.

In fact, the family’s latest tax trick may have cost the U.S. Treasury a whopping $10 billion. What could $10 billion do? That’s the cost of delivering prenatal care to hundreds of thousands of expectant moms under Medicaid, an essential program that President Trump and the GOP Congress plan to cut by up to $1 trillion.

According to the current U.S. tax code, any American worth $25 billion can expect 40 percent of that, or $10 billion, to go to Uncle Sam in estate tax, the federal levy on the personal fortunes of deep pockets who kick the bucket. Forrest Mars Jr. had a $25-billion fortune when he died in July 2016. But the Mars family has apparently been able to avoid estate tax on that entire $25 billion.

How do we know? Researchers at Forbes and Bloomberg, the two business publications that track America’s billionaire wealth, have some fascinating numbers for us.

Forest Jr. and his two siblings started 2016 with personal fortunes in the vicinity of $25 billion. Now if Forrest’s fortune had been subject to a significant estate tax after he passed on, the collective wealth of his four daughters in 2017 would be substantially less than that $25 billion.

The just-released 2017 Forbes list of America’s 400 richest shows otherwise. Forbes puts the wealth of each of Forest’s four daughters at $6.3 billion, for a total of $25.2 billion. That’s almost identical to the 2017 fortunes of their Aunt Jacqueline and their Uncle John, each at $25.5 billion. The Bloomberg Billionaires Index reports similar numbers.

Should any of this surprise us? Not really. We’re seeing Mars family history repeat itself. Eighteen years ago, Forrest Mars Sr., the original Mars family billionaire, died. The Forbes 400 lists from the years surrounding 1999 show that the Mars family lost no wealth to estate tax back then either.

But the Mars family must at least be paying oodles of income tax, right? Nope. How could that be? This particular tax-avoidance story starts over a century ago, when Frank Mars incorporated his candy business.

Back then, the value of the stock in Mars Inc. had only minimal value. But over the years the stock appreciated considerably in value. By 1988, that appreciation had made the Mars family the wealthiest clan in America. The Mars billionaires still rank as one of America’s wealthiest families, in no small part because none of the gains in the value of the family’s Mars stock have ever been subject to income tax.

Is the Mars family content with its current level of tax savings? Apparently not. The family has joined with 17 other billionaire families and collectively spent $500 million lobbying Congress for reduced taxes on billionaires and the companies they run.

These companies face corporate income tax on their profits. Mars, Inc. has had to pay these taxes over the years. Unlike Mars family members as individuals, the Mars company hasn’t been able to sidestep its tax bills. But the Mars and other billionaire families have found a friend in President Trump and the current Republican-led Congress. The pending Trump-GOP tax plan would take a meat axe to corporate tax rates.

The resulting corporate tax savings, if this plan gets adopted, will likely translate into a multi-billion-dollar tax savings for Mars, Inc. — and a corresponding bump in the net worth of Mars family members.

The real prize for the Mars in the Trump tax plan? That may be in the elimination of the estate tax that the Trump White House is now pushing. Wait, what? How would the repeal of the federal estate tax help a family that’s already avoiding the estate tax?

For America’s ultra-wealthy, repealing the estate tax turns out to be more about the federal income than the federal estate tax. As Mars family history makes painfully clear, tax avoidance vehicles available under current law allow even billionaires to zero out their estate tax.

But billionaires, under current law, do pay an appreciable income tax price for their estate tax avoidance. Assets on which estate tax is avoided carry an offsetting income tax disadvantage. That disadvantage would vanish in a simple estate tax repeal.

What does that mean? Let’s say we have a billionaire who paid $10 million for stock now worth $100 million and does nothing to avoid estate tax on that stock The billionaire never has to pay income tax on that gain. Those who inherit that stock from the billionaire’s taxable estate can sell it for $100 million and not pay any income tax on the gain either.

But if that billionaire stashed that stock into a trust to avoid estate tax, he would forfeit that income tax advantage. The untaxed gain associated with the stock would be passed to the trust beneficiaries. These beneficiaries would face an income tax on the previously untaxed gain when they sell the stock.

If the Trump-GOP estate tax repeal takes the same final form as the estate tax repeal bill introduced in the House of Representatives in 2015, wealthy Americans will get to have it both ways: zero estate tax and the elimination of any untaxed gain at death.

And that would allow the next generation of Mars family members to avoid income tax on over a century’s worth of economic gain. Quite a trick, huh?

So enjoy the candy, America. The Mars family will keep the cash.

Happy Halloween!

[Robert J. Lord, a tax lawyer in Phoenix, Arizona and former Congressional candidate, is an associate fellow at the Institute for Policy Studies.]

Bmaz is a rather large saguaro cactus in the Southwestern Sonoran desert. A lover of the Constitution, law, family, sports, food and spirits. As you might imagine, a bit prickly occasionally. Bmaz has attended all three state universities in Arizona, with both undergraduate and graduate degrees from Arizona State University, and with significant post-graduate work (in physics and organic chemistry, go figure) at both the University of Colorado in Boulder and the University of Arizona. Married, with both a lovely child and a giant Sasquatch dog. Bmaz has been a participant on the internet since the early 2000’s, including active participation in the precursor to Emptywheel, The Next Hurrah. Formally joined the Emptywheel blog as an original contributing member at its founding in 2007. Bmaz grew up around politics, education, sports and, most significantly, cars; notably around Formula One racing and Concours de Elegance automobile restoration and showing. Currently lives in the Cactus Patch with his lovely wife and beast of a dog, and practices both criminal and civil trial law.

The Slow Death of Neoliberalism: Part 3 The Phillips Curve and Critical Theory

Part 1.
Part 2.

I described attacks on the Phillips Curve in Part 2. This part discusses the history of the Phillips Curve in detail, and concludes with a discussion of the problems revealed by the failure. The Observations are the fun part if this is too long.

History of the Phillips Curve

This section is based on parts 1-3 of The History of the Phillips Curve: Consensus and Bifurcation by Robert Gordon, an economist at Northwestern, published in the 2008 in the journal Economica at p. 10 et seq. (behind paywall, but available online through your local library). In 1958, William Phillips published a paper which as Gordon puts it,

… replaced discontinuous and qualitative descriptions by a quantitative hypothesis based on an unusually long history of evidence. Since 1861 there had been a regular negative relationship in Britain between the unemployment rate and the growth rate of the nominal wage rate. P. 12.

Phillips fitted a curve to data from the period 1861-1913, and plotted data for the remaining periods, through 1957 against that curve to find disagreements. Phillips found that his curve was close across the entire time except for a couple of years that he explains away. Here’s the curve Phillips fitted to his data:

1) wt = -.90 + 9.64U-1.39

Gordon says “… the inflation rate would be expected to equal the growth rate of wages minus the long-term growth rate of productivity.” P. 12.

1a) p = w – k

For some reason p is inflation and k is productivity. Upper case letters are levels and lower case letters are rates of change. So equation 1 can be written

2) p = -.90 + 9.64U-1.39 – k.

Paul Samuelson and Robert Solow discussed the Phillips results in the US context in a 1960 article. They found no similar data for the US, but they did some estimates and suggested that the PC doesn’t fit their data for several periods, and that it can shift up and down. Phillips estimated that an unemployment rate of about 2.5% was consistent with zero-inflation, while Samuelson and Solow think it might have been 3% pre-World War II and was about 5-6% in the early 60s.

With this seal of approval, the idea was incorporated into econometric models in two equations. In one, the PC was embodied and other variables were added, including demand, unemployment, the rate of change of unemployment, taxes, expected inflation and others in different combinations. This result was fed into an equation that calculates inflation based on wage levels, price levels and trend productivity. Gordon explains that

The reduced form of this approach implied that the inflation rate depended on the level and rate of change of unemployment, perhaps other measures of demand, and lagged inflation.

This is followed by a long discussion of the views of the Chicago School, which Gordon dismisses as utter failures. Moving along to 1975, Gordon turns to efforts to modify the Phillips Curve by adding supply and demand shocks. The price of oil shot up in 1973 because of OPEC. The demand for oil doesn’t decrease quickly in the short run, so people spend more on oil and less on other things. The Phillips Curve didn’t predict the results. Gordon says

The required condition for continued full employment is the opening of a gap between the growth rate of nominal GDP and the growth rate of the nominal wage to make room for the increased nominal spending on oil. P. 21, cite omitted.

That means wages must fall, Gordon says, or we have to add money to the economy, but the latter would lead to inflation. What we actually did, he says, was wage rigidity, increased unemployment, and some nominal (meaning not adjusted for inflation) GDP growth. Gordon then developed and published this version of the Phillips Curve:

3. pt = Ept + b(Ut – UtN) + zt + et

The second U term is the “natural” rate of unemployment, which I’m not going to take up. The z term represents cost-push pressure from unions and supply monopolies. The e term is apparently a constant but it seems odd that it might vary over time. Gordon explains that this version incorporates inertia, the idea that if there’s inflation in one period, there will be inflation in the next. It also reflects supply and demand issues, like wage and price rigidity.

Gordon then mentions in passing that the wage equation (Equation 1a) is only valid if labor’s share of the GDP is fixed, but it isn’t. Here’s a chart from FRED

That problem, says Gordon, is “fruitfully ignored”. We don’t need to consider wages, we just look at prices. With these changes, we can understand the past by explaining away variations with negative or “beneficial supply shocks” and other variables. Gordon says that Equation 3 is foundation of the mainstream model. There is a related model, the New Keynesian Phillips Curve which is similar except that it incorporates future expectations of inflation, and makes no specific provision for supply and demand shocks. I assume these in some combination are the models used by the Fed, and heavily criticized as discussed in Part 2.

Observations

The concept is replaced by the formula, the cause by rules and
probability. Dialectic of Enlightenment, Horkheimer and Adorno,p. 3.

1. Phillips was working off empirical data when he fitted his curve, data about inflation and the rate of growth of wages. There are some theoretical issues in the preparation of that data. But the only abstract theory he adds to his data is Equation 1a, which Gordon says has a solid base in intuition. At the time he was writing, Phillips would only have seen data supporting that theory. We have new information:

As it happens, and perhaps not surprisingly, Phillips’ Equation 1 doesn’t work on US data. Gordon himself and others start adding things to make the Philips Curve work. They are convinced that there is a link between unemployment and inflation, and that they just need to add the relevant variables from their theoretical arsenal to get it to come out. Some focus on expectations, others on supply and demand shocks, and others add taxes or something else. Once they get those pesky variables set up, it’s just a matter of solving for constants. The point is to fit a curve to the actual data, not to use the actual data to see what’s happening. The concept connected to the real world is gone, replaced by the formula. The cause is replaced by the rules of economics.

2. If we set inflation at 0 in Equation 1a, the rate of wage growth is equal to the rate of productivity growth. As the above chart shows, this relationship broke about 50 years ago. If all the gains from productivity are not going to labor, they are going to capital. Of course, capital takes several forms, for example, housing, agricultural land and other domestic capital. See, Piketty, Capital in the Twenty-First Century, Figure 4.6. When you think about it, it seems almost impossible that some of the gains from productivity weren’t going to capital all along. But in the current economy, it’s obvious that companies like Facebook can provide vastly more services with disproportionally fewer additional employees, few of whom are well paid, so that most of the gains from increased sales go to capital. Or, suppose that manufacturing is outsourced, reducing labor costs. Some of the gains might go to cutting prices but surely some go to capital. Let’s rewrite Equation 1a to reflect this, using γ for the growth rate capital.

1b) p = w + γ – k.

Using Equation 1b instead of 1a, we would have this instead of Equation 2:

4) p = -.90 + 9.64U-1.39 + γ – k.

This equation focuses attention on the changes in the return to capital. That issue never seems to trouble most economists, but the rate of return to capital is the central focus of Piketty’s Capital In The Twenty-First Century. This chart from the Center on Budget and Political Priorities shows that top wealth started on its climb at the same time wages diverged from productivity, which supports the idea that gains from productivity are going to capital:

It also calls attention to the fact that nowhere in Gordon’s paper is there a mention of power, market power, political power, or social power, all of which Piketty talks about. Actually, hidden away in Gordon’s article is a backhanded reference to power. Equation 3 (Equation 7 in Gordon’s paper) includes a term “…zt to represent ‘cost-push pressure by unions, oil sheiks, or bauxite barons’”. P. 22. Obviously Gordon understands that the power to control the price of goods and services could create a negative supply shock, and the loss of control could produce a beneficial supply shock. P. 25. However, this is not explicit, and it certainly doesn’t deal with our current economy, in which almost all goods and services are dominated by a small number of gigantic companies exercising a significant degree of price control.

The tweaking Gordon describes might work for a while, but as the degree of price control through monopoly and oligopoly power increases, and γ becomes a bigger factor, the tweaks quit working.

3. Let’s put this in a larger context. For many economists, the Phillips Curve is structural. But why would you think so? It seems more likely that the relationship holds in a certain set of social conditions, including legislation and regulation, power conditions, and people’s attitudes. A logical use of the data is to work out the conditions that must exist to make it so. That’s how Piketty approaches his inequality data.

It’s a mistake to use a coincidence to predict the future. It seems to be a particular problem in economics. Even people who seem to know better continue to believe in the Phillips Curve. Here’s the President of the Boston Fed, Eric Rosengren:

A number of papers at the conference highlighted that some of the economic relationships that are frequently assumed to be stable over time have proven to be not so stable as we have come out of the financial crisis. These structural changes mean that if you tried to have a model that was fairly invariant to these changes, or a process that was invariant to these changes, there would start being big misses in monetary policy.

He goes on to explain that we have to raise interest rates because maybe not the Phillips Curve, but when employment goes up, inflation goes up. Rosengren knows there’s a problem, but he doesn’t have any idea of how to cope, so he keeps doing what he thinks he knows is right. It’s another example of Horkheimer and Adorno’s statement in action.

Updated to define γ more exactly.

Notre Dame undergrad (math); JD, Indiana University at Bloomington; 1st Lieutenant, US Army.; private practice in corporate and securities law; Assistant AG in Tennessee for consumer protection and securities; Blue Sky Securities Commissioner, Tennessee; private practice, bankruptcy and corporate law.

I have had a lifelong interest in economics. For most of my career, that interest was practical, focused on the problems in front of me. Lately I have been more interested in economics as a theory, especially its impact on the lives of people like those I met in my bankruptcy practice, and on the politics of money in the US. I also enjoy reading philosophers, starting in college and steadily expanding my reading ever since. I wrote at FireDogLake for a number of years.

Generally, I think the problem facing the US is the dominance of neoliberal discourse. I think it clouds the vision, and limits the kinds of problems that can be identified and solved. For example, the existence and danger of climate change can easily be identified in a scientific discussion. However, the problem does not fit the neoliberal discourse because science insists that the pursuit of individual and corporate self-interest will lead to devastation. In neoliberal discourse, the pursuit of self-interest always leads to Eden.

The neoliberal project has two prongs. One is the police function of crushing dissent and alternative views. The police function is provided by government agencies and private and institutional actors. The counterpart is the economic system , which is operated by government and by private and institutional actors. Some of these actors operate in both spheres. I focus on the second prong.

As Journalism and Democracy Struggle, New America Caves to Google

In my analysis of the role of outside influence peddling on last year’s election, I harped on a number of issues. In addition to focusing on the long-standing right wing noise machine (Breitbart didn’t need Vladimir Putin to learn how to rat-fuck), I also noted that all of our politics is too easily driven by paid influence, whether from Russia, Qatar, or Defense Contractors. Finally, and perhaps most importantly, to the extent that fake news affected the election, it did so because the United States has allowed a handful of companies — chiefly, Facebook and Google — to concentrate power in Silicon Valley.

So to sum up this part of my argument: First, the history of journalism is about the history of certain market conditions, conditions which always get at least influenced by the state, but which in so-called capitalist countries also tend to produce bottle necks of power. In the 50s, it was the elite. Now it’s Silicon Valley. And that’s true not just here! The bottle-neck of power for much of the world is Silicon Valley. To understand what dictates the kinds of stories you get from a particular media environment, you need to understand where the bottle-necks are. Today’s bottle-neck has created both what people like to call “fake news” and a whole bunch of other toxins.

If we’re going to account for the weaknesses of our democracy, we need to account for the way our discourse gets channeled through two enormous companies whose primary interest is profit, not democracy.

Recent events at New America, which describes itself as “a think tank and civic enterprise committed to renewing American politics, prosperity, and purpose in the Digital Age,” demonstrate the risk.

When one of the leading commenters on the risk of concentration, Barry Lynn, applauded the EU’s judgment against Google — which is a major funder for New America — the think tank pulled his statement and fired him and his team.

The New America Foundation has received more than $21 million from Google; its parent company’s executive chairman, Eric Schmidt; and his family’s foundation since the think tank’s founding in 1999. That money helped to establish New America as an elite voice in policy debates on the American left.

But not long after one of New America’s scholars posted a statement on the think tank’s website praising the European Union’s penalty against Google, Mr. Schmidt, who had chaired New America until 2016, communicated his displeasure with the statement to the group’s president, Anne-Marie Slaughter, according to the scholar.

The statement disappeared from New America’s website, only to be reposted without explanation a few hours later. But word of Mr. Schmidt’s displeasure rippled through New America, which employs more than 200 people, including dozens of researchers, writers and scholars, most of whom work in sleek Washington offices where the main conference room is called the “Eric Schmidt Ideas Lab.” The episode left some people concerned that Google intended to discontinue funding, while others worried whether the think tank could truly be independent if it had to worry about offending its donors.

Those worries seemed to be substantiated a couple of days later, when Ms. Slaughter summoned the scholar who wrote the critical statement, Barry Lynn, to her office. He ran a New America initiative called Open Markets that has led a growing chorus of liberal criticism of the market dominance of telecom and tech giants, including Google, which is now part of a larger corporate entity known as Alphabet, for which Mr. Schmidt serves as executive chairman.

Ms. Slaughter told Mr. Lynn that “the time has come for Open Markets and New America to part ways,” according to an email from Ms. Slaughter to Mr. Lynn. The email suggested that the entire Open Markets team — nearly 10 full-time employees and unpaid fellows — would be exiled from New America.

New America insists that Google didn’t pull the plug on some of the most important (and still meager) work criticizing concentration.

New America’s executive vice president, Tyra Mariani, said it was “a mutual decision for Barry to spin out his Open Markets program,” and that the move was not in any way influenced by Google or Mr. Schmidt.

But this is in no way the first time they’ve catered to Google’s preferred policies. I’ve run up against it indirectly in surveillance fights, and others have far more directly.

So here we have a think tank which is doing necessary work carving out space on the left for policy. But it can’t investigate one of the most basic threats to our democracy, because doing so would quickly identify the danger of Google.

I get the need to attract and keep funding. But if this lefty think tank can’t research one of the forces that led to the election of Donald Trump, what good can it do?

Update: Here’s a link to Lynn’s new site

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including Vice, Motherboard, the Nation, the Atlantic, Al Jazeera, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse in Grand Rapids, MI.

[Photo: STIL via Unsplash]

Angry Mom: Oh, Honey — If Anybody’s ‘Out of Touch’, It’s You

I wasn’t going to waste my time on the over-privileged, excessively-pampered trophy wife Treasury Secretary Steve Mnuchin stupidly took with him on a recent taxpayer-funded business trip.

But after thinking about her rude, snotty, and insanely ill-informed reply to someone who took issue with her gross display of wealth, I think I should expend a few words.

Mrs. Mnuchin believes she and her spouse contribute more to the country than whomever it was who critiqued her behavior.

No. They and their kind are leeches. Bloodsuckers. Literally part of the great vampire squid empire Matt Taibbi described.

They do not add value to this country. They chew at its foundations in great, monster-sized bites.

And they believe they are entitled to do so.

But they’re wealthy! Look at all the money they have, one might say.

What did they do to make that wealth? They inherited much of it, especially in his case — they had access to pre-existing capital.

Meanwhile, nearly half of this country’s citizens can’t put their hands on $400 or more in cash in the event of an emergency.

This, in spite of the fact roughly half of the country has some money in an investment account. Let me guess that much of this is a 401K established through an employer and it’s not liquid. It’s also money managed by financial industry professionals like Steve Mnuchin who don’t do a lot actively with the Average Joe’s 401K but use them in the aggregate to take positions in the stock market while skimming off a living through fees — and the Average Joe only has $104,000 saved by the time they retire, on which to live the rest of their life.

Yeah, but these Mnuchins must have worked hard to get through those private schools, one might say.

Prove it. How many times do these uber wealthy ever really show anybody their grades to get a six-figure entry-level job out of college? Mnuchin’s father was a partner at Goldman Sachs. Mnuchin himself rubbed shoulders with a network of uber wealthy as a member of Yale’s Skull and Bones society. With that background it’s not hard to get one’s foot in the door AND draw a salary more than twice that of the Average Joe.

Ditto for Mrs. Mnuchin, who also attended private schools in Scotland and a private university in the U.S.

Average Joe or Josephine doesn’t have either the family money to go to expensive private prep schools or attend a four-year university without being massively in debt. The Average Joe Junior who graduated last year had more than $37,000 of student loan debt which will take them on average 10-21 years to pay off.

(Gee, I wonder who benefits from the interest on these loans…Bueller? Bueller?)

Deplaning from her taxpayer-subsidized flight, Mrs. Mnuchin’s attire, from the top of her over-processed hair to the ends of her manicured toes, was roughly equal in cost to the average student loan debt — her Birkin handbag alone costs about $20,000.

The same Average Joe/Josephine/Junior also faces a job market with deeply entrenched wage stagnation, making savings difficult after paying on school loans.

They also face difficulty before they graduate if they hold down a minimum wage job; there’s no place in the U.S. where rent on a one-bedroom apartment is affordable for a full-time minimum wage worker, let alone one who is trying to go to school full-time.

After graduation, long-stagnant entry level wages may help ease the pinch, but then there’s the challenge of rising health care costs which have not abated even though the ACA makes access to health insurance easier.

Good luck finding a way to afford having children. Diapers alone will cost $750 to $1200 a year.

Don’t even get me started on transportation costs. And Boomer-aged pundits pule about Millennials killing all the things…

But surely these uber wealthy people must have earned some of their wealth, one might foolishly claim.

Oh, yes, definitely. They earned it by capturing legislatures and regulatory bodies, and by putting a squeeze play on both investment analysts and regulations. They’ve used them to insure they never actually pay taxes appropriate to the amount of public resources they or their investment portfolio consumed. They’ve demanded quarter-after-quarter profits off the backs of the Average Joe/Josephine/Junior, insisting corporate management maintain low wages to offset other rising costs like rent. They’ll reward upper management with ridiculous compensation packages if they can maintain profits and sack them if they don’t. And then because foreign investors are driving up the price of property, they sink those profits into the same bubble and continue to lean on corporate management for profits even as they increase other business costs through increased rents.

They earned that wealth by sucking the lifeblood out of the kind of people Mrs. Mnuchin talk down to so defensively, even after they’d just paid for her air travel.

I would be so incredibly embarrassed as a parent if my adult children ever acted like Mrs. Mnuchin — blind and stupid about her privilege, ungrateful to the people upon whom her lifestyle has been built, wasteful of an opportunity to be a better human.

And incredibly out of touch with Americans.

And I’d be just as embarrassed if my kids ever acted like Mr. Mnuchin, too, but that’s another chapter.

Blogger since 2002, political activist since 2003, geek since birth. Opinions informed by mixed-race, multi-ethnic, cis-female condition, further shaped by kind friends of all persuasions. Sci-tech frenemy, wannabe artist, decent cook, determined author, successful troublemaker. Mother of invention and two excessively smart-assed young adult kids. Attended School of Hard Knocks; Rather Unfortunate Smallish Private Business School in Midwest; Affordable Mid-State Community College w/evening classes. Self-employed at Tiny Consulting Business; previously at Large-ish Chemical Company with HQ in Midwest in multiple marginalizing corporate drone roles, and at Rather Big IT Service Provider as a project manager, preceded by a motley assortment of gigs before the gig economy was a thing. Blogging experience includes a personal blog at the original blogs.salon.com, managing editor for a state-based news site, and a stint at Firedoglake before landing here at emptywheel as technology’s less-virginal-but-still-accursed Cassandra.

Three Things: Non-Nuclear Proliferation

The entire social media universe has been panicking over Fearless Leader’s whacked-out statement on North Korea at the end of his bigly speech yesterday on opioids. His hyperbole was on par with his decades of hawkishness about nuclear weapons, so both unsurprising while infuriating.

What I want to know: did he say what he did to distract from the Trump-Russia investigation underway, and/or did he say what he did roughly 30 minutes before the stock market closed for somebody’s benefit? I’d love to know who might have been short selling yesterday afternoon and this morning after his recent petulant tweet hyping the stock market’s record highs. Things don’t look good today, either, in spite of calming noises from Secretary of Exxon Tillerson.

[source: Google Finance]

Whatever. Let’s look at some non-nuclear matters.

~ 3 ~

The New York Times’ op-ed, Our Broken Economy, trended yesterday morning on Twitter and is still making waves today. It’s a pretty good read with compelling charts, if not very deep. Morons across the internet have misinterpreted what it tells us, which is that income has stagnated or fallen for the majority of the U.S. while the income of the uppermost 1% to .01% has skyrocketed in less than a decade. Loss of leverage in wage negotiations due to union busting and the skyrocketing cost of secondary education have held back the lower 80%.

What has most recently ‘weaponized’ the growth of income, while destroying any illusion of the American dream? In my opinion, three things contributed the most:

— the loss of Glass-Steagall Act and the subsequent unmooring of the financial industry from risk-reducing practices which siloed capital;

Citizens United, which exacerbated the trend toward regulatory capture;

— the financial crash of 2008 and the subsequent loss of wealth for the lower 80% in terms of savings, investments, and property ownership.

But a fourth, rapidly growing factor is making difference and may also be exploding as an unintended consequence of legislation passed in 2007 requiring a larger percentage of margin on commodities trading. Algorithmic trading, conducted out of sight, skimming from every trade, on stocks rather than on commodities and at inhuman speed and scale, has increased unearned wealth but only for the very wealthiest.

Matt Bruenig says we must confront capital. Yes, but I think the appeal to do so is based in fairness, a universal ethic. A system which distorts pricing by not allocating true and full costs of the commons consumed to products and services  sold is unfair. It is not a ‘free market’ and certainly not a fair when the playing field isn’t level and not every business pays for what it consumes of the commons.

And it’s not fair when businesses deliberately suppress wages below workers’ real cost of living. That’s slavery. We don’t need charts to tell us something is wrong when the prevailing wage won’t provide meager shelter and food.

~ 2 ~

The effect of Michigan’s criminal state government on Flint doesn’t remain in Flint. More than 70 new cases of Legionnaires disease have been reported in southeastern Michigan; this time the state’s health authorities have been prompt about reporting them, unlike the shoddy reporting around cases 2-3 years ago directly related to the water in Flint.

I will bet good money many of these new cases have a link to Flint since the water system has still not been completely replaced.

Eclectablog reminds us Flint’s Water Crisis is now at Day 678 and the city has yet to be made whole though Michigan’s Gov. Rick Snyder admitted he knew that Flint’s drinking water was poisoned with lead. There are still Flint residents who cannot drink their tap water without the use of a water filter.

Given the outbreak of Legionnaires disease, I wonder how many more Michiganders may actually sicken and die because of Rick Snyder’s handling of Flint’s financial emergency and the water system.

~ 1 ~

You might already have read about the lawsuit filed against Disney for its failure to protect children’s privacy; I know Marcy tweeted about it. More than 40 applications Disney developed and sold collect information without consent about the kids using them, putting them at risk, in violation of the Children’s Online Privacy Protection Act (COPPA).

But here’s what really bugs me about this on top of the privacy problems: Disney not only had a history with violating COPPA; the government went after them in 2011 and 2014 for problems with Playdom and MarvelKids. Disney must have known competitors Mattel and VTech had problems with their network-enabled electronic toys breaching children’s privacy circa November 2015. Why did Disney fail to remediate their 43 applications more than 18 months ago when both Mattel and VTech were under fire?

Disclosure: I own Disney stock. And yes, I’m thinking shareholders should be pissed off about this failure to disclose a material risk in financial reports BEFORE parents filed a lawsuit.

~ 0 ~

That’s it for now. See you tomorrow if we haven’t already been fried to a crisp. This is an open thread – treat each other nicely.

Blogger since 2002, political activist since 2003, geek since birth. Opinions informed by mixed-race, multi-ethnic, cis-female condition, further shaped by kind friends of all persuasions. Sci-tech frenemy, wannabe artist, decent cook, determined author, successful troublemaker. Mother of invention and two excessively smart-assed young adult kids. Attended School of Hard Knocks; Rather Unfortunate Smallish Private Business School in Midwest; Affordable Mid-State Community College w/evening classes. Self-employed at Tiny Consulting Business; previously at Large-ish Chemical Company with HQ in Midwest in multiple marginalizing corporate drone roles, and at Rather Big IT Service Provider as a project manager, preceded by a motley assortment of gigs before the gig economy was a thing. Blogging experience includes a personal blog at the original blogs.salon.com, managing editor for a state-based news site, and a stint at Firedoglake before landing here at emptywheel as technology’s less-virginal-but-still-accursed Cassandra.

Three Things: Killing Oil, Too Money, Kaspersky’s World

Too much going on here today but the existing threads are getting too deep and a couple are drifting off-topic. Here’s three quick things to chew on and an open thread.

~ 3 ~

The marketplace will bring death to oil long before the government. (Bloomberg). But will governments — US and oil-producing countries alike — get in the way of alternative energy in spite of the market demanding more alternatives to fossil fuels? With this trend away from combustion engines pressing on them, fossil fuel producers are shifting toward increased LNG for use in electricity production; this only shifts CO2 creation from vehicles to power plants. Will the market put an end to that, too?

~ 2 ~

There’s too much money out there if Delta can order multiple planes configured for all-first class service. I just spoke with a friend earlier today about round-trip fares from a major Midwest airport to major cities in Europe; they were quite high even with a departure date more than a month out, and higher than they had seen in a while. Fuel prices haven’t increased that much over the last year; low oil prices are threatening pipelines as financing construction costs more than the return on oil. Somewhere between slack fuel prices, firm fares and demand, Delta’s making enough money to build these let-them-eat-cake planes.

One could argue that if buyers have the money they can have whatever they want — except that taxpayers finance the infrastructure including essential safety regulatory system which will now protect the few and not the many while increasing congestion. Too money — somebody needs to pay more taxes to support the infrastructure they’re using.

~ 1 ~

Kaspersky Labs is releasing around the globe a free version of their antivirus software (Reuters). It won’t replace the paid version of their AV software, providing only very basic protection. I’m not using it, though, for two reasons: if it’s like Kaspersky’s existing free tool, it will send messages back to the parent company about infections it finds — and possibly more. Congress and the U.S. intelligence community may have concerns about Kaspersky Lab’s vulnerability to the Russian government; I’m more concerned about Kaspersky Lab having been breached at least once in 2015, compromising data in their systems. Your mileage may vary; use under advisement.

~ 0 ~

That’s it for now. This is an open thread. Behave.

P.S. The fight against attacks on the health care system isn’t over. Call your senator at (202) 224-3121. Other tools for your use in this post.

Blogger since 2002, political activist since 2003, geek since birth. Opinions informed by mixed-race, multi-ethnic, cis-female condition, further shaped by kind friends of all persuasions. Sci-tech frenemy, wannabe artist, decent cook, determined author, successful troublemaker. Mother of invention and two excessively smart-assed young adult kids. Attended School of Hard Knocks; Rather Unfortunate Smallish Private Business School in Midwest; Affordable Mid-State Community College w/evening classes. Self-employed at Tiny Consulting Business; previously at Large-ish Chemical Company with HQ in Midwest in multiple marginalizing corporate drone roles, and at Rather Big IT Service Provider as a project manager, preceded by a motley assortment of gigs before the gig economy was a thing. Blogging experience includes a personal blog at the original blogs.salon.com, managing editor for a state-based news site, and a stint at Firedoglake before landing here at emptywheel as technology’s less-virginal-but-still-accursed Cassandra.

‘Look, You Can Live on Minimum Wage!’ Say Modern Slavers

[Sample budget via McDonald’s and VISA]

Jesus fecking Christ on a pogo stick. I can’t believe McDonald’s and VISA were stupid enough to put together this oh-so-helpful budget estimate showing how fast food workers can get by and still have money left over.

After looking it over, here’s my assessment: A couple corporations need to do drug testing among white-collar staff. Somebody had to be be out of their gourd to think this was accurate, let alone an effective marketing tool to promote their businesses.

As many folks have pointed out, an immediate glaring error on this ‘budget cheat sheet’ is the lack of heating/cooling expenses. Sure, some apartment complexes included HVAC in the rent they charge, but this can’t be assumed as a norm.

Every line item included is grossly flawed. I’ll look at three points:

1) First job’s NET salary of $1105 based on an estimated 21% income tax equals ~$1400 gross salary. Based on current federal minimum wage of $7.25 per hour, that’s ~193 hours worked in a month, or ~44.6 hours a week.

This is NOT a part-time job. Most fast food jobs are deliberately limited to under 32 hours a week to avoid paying unemployment taxes or other benefits.

2) Second job’s NET salary of $955 — HAHAHAHAHAHAH Right. That’s another ~167 hours of labor per month at current federal minimum wage and 21% income tax rate.

To make this sample budget work, either two people MUST live together, MUST work a combined ~83 hours a week at current federal minimum wage. Or one person must do all this and simply have no time to do anything beyond eat/sleep/bathe/maybe laundry.

If two people lived together to make this budget work, they MUST share a tiny/cheap/ratty car, or hope like hell there’s public transportation which costs less than $150 a month to get to/from ~83 hours of work, grocery store, school, so on.

The rest of the assumptions in this budget are just plain trash. Like health insurance for two people versus one. Or savings of $100 which is really half that, spread between two people, as is the discretionary daily spending.

Some trollish account said, “But nobody stays at minimum wage forever! They get pay increases!” Sure…now person working First Job only has to work 43 hours a week instead of ~44.6. The average wage at McDonald’s is $8.25 — but does that include assistant managers and shift managers? Does this include people who’ve worked at McD’s for years? Let’s be real: most fast food workers are closer to the federal minimum wage.

Perhaps with pay increase a person working BOTH jobs only has to work ~80 hours a week instead of ~83. Give me a fucking break.

3) Transportation and insurance combined = $250 — HAHAHAHAHAHAH Right, again. I checked Progressive’s website calculator for insurance on a vehicle only, assuming a 2007 4-door Honda Civic, personal use, unmarried single male driver age 18-24 living alone, who lived in the same rented home for 1-3 years, had driven for more than 3 years, had insurance for 1-3 years, assuming a 20-year old male student living in Lansing, Michigan. Car insurance alone was $219 per month AND +$400 was required upfront before coverage began.

Maybe bundling renter’s insurance would help but the cost McDonald’s and VISA used in their example budget for insurance and a used car loan is simply unmoored from reality.

And perhaps insurance is cheaper in other parts of the country, but I will bet good money some other line item in that budget increases. Like the cost of an annual automobile license (higher in FL than MI) or a mandatory vehicle emissions test (required in CA but not MI).

Roughly 50% of Americans can’t get their hands on $400 cash for an emergency. Imagine if your insurer dropped you and you’re a fast food worker living to this prospective budget. That’s where VISA comes in with an opportunity to finance your emergency, compounding the stranglehold minimum wage has on your life.

God help you if you’re trying to put yourself through college without scholarships or family assistance. Even the imaginary example student attending Lansing Community College will pay more than $65,500 for four years. How long will it take to get through a four-year degree if one works ~83 hours a week? How long will it take to pay off school loans if one manages to break out of fast food service work after graduation — let’s say they double or triple their wages to $14.50 or $21.75 hour? This prospective student faces somewhere between 12 and 15 years of payments ranging from $950 to $1050 per month, and payments may begin as early as NOW while attending school at $650 per month.

You will be in debt for much of your adult life. There will be no extra money for anything.

Maybe the rare avocado toast, if you can find one marked down in the Damaged bin or live someplace warm where fallen avocados can be found for free. And maybe if you can afford bread this week.

“But millennials buying pricey iPhones!” some out-of-touch jackass might say. Let’s say you’re a fast food worker who might have to change housing at any time because rent has increased dramatically in your city. Even my example dude in innocuous Lansing faces a +7% increase in rent each year though his wages have been stagnant. Your entire life — telephone, computer, internet access, records, more — resides in a single, portable device. Of course you’ll pay more for a phone which hails a tow truck when your ratty little car breaks down, or finds you a quick cash gig (or a plasma blood bank) to pay for repairs. That phone is your lifeline, the lifesaver you can count on unlike white-collar jerk-offs who have no clue what you’re going through to survive.

And God help you if you get sick or injured. You can’t count on your elected officials to make sure you’ll be healthy enough to show up to work those ~83 hours a week.

Indentured servitude, without a contract, that’s what this budget reflects. Product marketing by modern slavers.

And they can’t understand why millennials are killing so many things like fast food businesses. They simply can’t afford them.

Blogger since 2002, political activist since 2003, geek since birth. Opinions informed by mixed-race, multi-ethnic, cis-female condition, further shaped by kind friends of all persuasions. Sci-tech frenemy, wannabe artist, decent cook, determined author, successful troublemaker. Mother of invention and two excessively smart-assed young adult kids. Attended School of Hard Knocks; Rather Unfortunate Smallish Private Business School in Midwest; Affordable Mid-State Community College w/evening classes. Self-employed at Tiny Consulting Business; previously at Large-ish Chemical Company with HQ in Midwest in multiple marginalizing corporate drone roles, and at Rather Big IT Service Provider as a project manager, preceded by a motley assortment of gigs before the gig economy was a thing. Blogging experience includes a personal blog at the original blogs.salon.com, managing editor for a state-based news site, and a stint at Firedoglake before landing here at emptywheel as technology’s less-virginal-but-still-accursed Cassandra.