Oren Levin-Waldman

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  • 20 Dec 2017 8:44 AM | Mike Lillich (Administrator)

    First published online in the Yonkers Tribune.


    By Oren M. Levin-Waldman


     It isn’t uncommon for politicians to mask naked self-interests in the language of the public good. We are now being told that if either of the GOP tax bills are signed into law it will be good for the economy, resulting in both economic growth and higher wages. After all, who could possibly argue with that? This is despite the fact most tax cuts will go to corporations and the super wealthy. Of course, it would be impolitic to speak the truth, which is that these bills are nothing more than supply-side tax cuts masquerading as tax reform.


    Why go to all the trouble of dressing it up as something it is not? Because it sounds so much better to couch it as a matter of the larger public interest that allegedly benefits all than it does to justify it on the grounds that the wealthy ought to get tax cuts and that the middle class ought to in fact pay for them. But this isn’t the only issue where politicians justify selfish interests in the language of the public good.


    Opposition to increases in the minimum wage have long been presented as a matter of the larger public interest. Raising the minimum wage, it is claimed, will result in lower employment. It may, but the argument is disingenuous at best because it will impact different groups differently. And yet, to the extent that there will be lower employment, it is more likely the case that fewer low-wage jobs will be created in the future than actual jobs eliminated.


    Still, it sounds so much better in opposition to appear to be concerned with minimizing unemployment than to be concerned with maximizing profit at the expense of low-wage workers. Unfortunately both opposition to the minimum wage and support for essentially supply-side tax cuts suffer from a similar problem. Both sets of arguments assume economics to be dispositive — that public policy is driven by economics models and data.


    Public policy, however, is driven by ideology and interest groups, and these groups conveniently put economics models in the service of their ideologies. To cloak self-interests in economic models and social science methodology is to give them an imprimatur of legitimacy. It lends the ideological objective some authority because now the argument is perceived as coming from experts. And yet, it is also inherently undemocratic.


    Let’s consider the tax proposal for a moment. In some neoclassical economics circles it is a fundamental tenet of welfare economics that if tax cuts are to be given they should preferably be given to the wealthy before the poor. Because as rational actors, the wealthy are presumed to be more rational and will spend their money more responsibly. The wealthy, it is alleged, will invest the new savings from these tax into enterprises which will create jobs. The poor, it is assumed will simply waste their savings and not use their new savings responsibly.


    If we take this argument to its logical conclusion, the wealthy, and even the only affluent, are more responsible than the poor and maybe even some in the middle class. Therefore, when it comes to policymaking their voice should carry more weight. So if members of Congress are responsive to the affluent and wealthy over the poor and even some of the middle class, they can then be said to be acting rationally too.


    Ironically, this is a view consistent with progressivism. While current progressive politics is aligned with policies supporting the poor, progressives in history were very much elitists who believed that the public should defer to the authority of the experts. But if only there was data to support these assumptions.


    Yes, in theory corporate tax cuts should result in new investment because firms will have more money to invest and create jobs. But what evidence is there that these savings in corporate taxes will be invested into serious economic development rather than growth that benefits investors and shareholders? Out of 42 so-called top economists polled by the University of Chicago’s Booth School of Business, only one said that either of the GOP tax bills will benefit the economy.


    The reality is that the argument that these tax bills will benefit the economy is based on assumption; not evidence. What is clear is that the triggers in the Senate version, at least, will eliminate tax cuts to individuals, particularly in the middle class, by 2027, but the corporate tax cuts will be permanent. Well as Abraham Lincoln famously said: You can fool some of the people some of the time, but you cannot fool all the people all of the time.

    One would like to think that alone would have sufficed to defeat these bills. Perhaps H.L. Mencken was right when he observed that nobody ever lost money underestimating the intelligence of the American public. Only by banking on it could Trump win the presidency. And yet, the subterfuge we see with these tax bills is really no different from the assumptions regularly made by the Federal Reserve Board.


    The Fed regularly assumes that if money is pumped into the economy through lower interest rates and reserve requirements, then firms will invest and create jobs. What monetary policy misses, along with the more respected neoclassical assumptions behind these bills, is that investors having more money, whether through cheaper money or tax cuts, don’t necessarily create jobs. They certainly won’t if there is no reason to do so, and the principal reason to do so would be an increase in aggregate demand for goods and services.


    More money in the hands of consumers will create jobs because consumers will be able to demand more goods and services in the aggregates. Job creation comes from the grassroots; not from corporations. A tax reform that would lower individual rates, even with absolutely no deductions, might generate growth because consumers would have greater purchasing power. A high minimum wage would also give consumers greater purchasing power.


    It is possible that a corporate tax cut would generate growth if properly targeted. Simply giving to all corporations isn’t targeting. Giving a 15 percent cut in the corporate only to those who agree to invest that money in serious economic development would be an example of targeting and perhaps in the service of the public good. Of course, nobody is talking about that because policy isn’t driven by the public good; but self-interests. Until that happens, different groups will continue to put one over on the public by cloaking their naked self-interests in the language of the public good. Regrettably, it is the middle class who will suffer.


  • 01 Dec 2017 11:43 AM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune


    The Republicans have now passed their version of a tax reform bill. It collapses seven brackets into four and eliminates many deductions, as well as cuts corporate tax rates. Those living in high tax blue states like New York, New Jersey, and California will be hit particularly hard with the loss of state and local tax reductions. Although the senate version is slightly better for the middle class than the House version, the non-partisan Congressional Budget Office (CBO) estimates that by 2027 even the Senate version would end up hurting the middle class.


    I have noted many times in this space that the reason that rising income inequality is a problem is because it speaks to the disappearance of the middle class. If one wants to see what the consequences are of a diminishing middle class, one need look no further than the GOP tax bills. The unfortunate reality is that these bills hurt the middle class because the middle class no longer has a voice in Congress to speak on its behalf.


    One of the major adverse impacts of income inequality is that it may adversely affect individuals’ ability to participate in the democratic process on the same footing as equals. Those lacking in wealth and income often don’t enjoy the same access to political and policy officials as those who possess wealth and income. With a greater concentration of wealth at the top, those at the top are in a better position to use their wealth toward the attainment of their political and other ideological objectives. Moreover, as members need to raise even larger sums of money just to get elected, it is only inevitable that they will court wealthier donors.


    This clearly will impact how members of Congress respond to different groups. Many studies show that members of Congress tend to be much more responsive to affluent constituents than to non-affluent constituents. Indeed, members were found in many cases to be non-responsive at all to poor constituents and those in the middle.


    The wealthiest Americans tend to exert more political influence than those who are less fortunate. They also tend to be much more active in politics than the typical citizen. We often see the gap between the policy preferences of the wealthy and those of other citizens when it comes to social programs and income support. And we are seeing it now with the tax bills. Eliminating deductions for state and local taxes, as well as capping those for property taxes, will fall hardest on the middle class.


    Meanwhile, the wealthy will see their overall taxes decline because taxes on estates, corporate earnings will be less. Those affluent who are pushed into a higher tax bracket may still have enough deductions to effectively pay less. Even if the typical working class family takes the standard deduction of $24,000, the loss of these key itemized deductions still pushes many into a higher tax bracket.


    The only ones who will claim victory if this bill, or even a compromise bill, is passed, following the Senate’s passage of a different bill, will be the Republican party and the wealthy whose interests they have always served. And while the Democrats in Congress are quick to fault this bill for doing nothing for the middle class and poor, it isn’t as though they really offered an alternative that speaks for the middle class.


    Then again, why would we expect them to? They too court the wealthy donors and are no more responsive to the less affluent than are the Republicans. If nothing else the absence of a middle class and its impact on congressional behavior does illustrate the continuing relevance of Anthony Downs’ characterization of the American political system written sixty years ago.

    Downs was clear that government as an entity serves its own interest and that individual members of government, whether as members of the Legislative, the Executive, and even the Judiciary, serve their own respective interests. Those who are elected have as their primary goal their own reelection. And those who are appointed still seek to retain power and will cozy up to those who are seen as being essential to maintaining it.


    This means that members of Congress will pursue policies that serve the interests of the wealthiest members of society. From time to time they will offer something to the poor as a way of purchasing their quiescence so that they can continue to serve the interests of the wealthy. Arguably, exempting incomes below a certain threshold is one way of purchasing the poor’s quiescence. It isn’t as though the Democrats have shied away from this strategy, rather they have only countered that the quiescence purchase in this tax bill isn’t generous enough.


    Who, then, is speaking for the middle class? At least the poor get something, even if it pales in comparison to what the wealthy get. Because the middle class no longer has voice, and it really cannot have voice because it is almost non-existent, we get policies that inevitably will favor the wealthy.


    Perhaps the cautionary tale is that the Democrats with their politics of resistance will end up doing more to aid and abet the wealthy than their rhetoric would suggest. Of course the Senate version will seek to maintain some of the deductions that the House version eliminates, but that only ensures higher tax rates. A bill that truly served the interests of the middle class would set four low tax rates with absolutely no deductions.


    We all know that this will never happen, not because it isn’t economically viable, but because it assaults the very Washington swamp that keeps all members of Congress, regardless of political party, in power. The current tax code is one designed for social engineering rather than the simple generation of revenue. This has long been the case, and the so-called tax reform bills will be no different. Many interest groups exist to lobby for special treatment through the tax code. These same groups make contributions and have political action committees (PACs) in place to do their bidding.


    At the end of the day when we stop to consider the consequences of a disappearing middle class, it isn’t only that we get uneven policy like the tax proposals currently swirling around Washington, we fail to drain the swamp. It would almost be funny if it weren’t pathetic that Donald Trump who campaigned on draining the swamp really doesn’t get it.


    He thought the swamp was comprised mainly of bureaucrats who because they are protected by civil service rules cannot be removed. Well there may be some of that but the swamp is also made up of the vast array of interest groups that only reinforce Downs’ argument that politicians’ self-interests always come first. Until we can find a way to restore the middle class, we will never be able to penetrate the iron triangles in Congress that prevent any serious reforms. We certainly won’t get policies that benefit the middle class.


  • 12 Nov 2017 4:43 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune


    In his blockbuster book Capital in the Twenty-First Century Thomas Piketty observes that the history of the distribution of wealth has always been deeply political and cannot be reduced to so-called neutral economic mechanisms. But much of this has been obscured by the economic discipline’s “childish passion for mathematics,” an obsession that has only served to create the appearance of being scientific, without having to answer the far more complex question posed by the real world in which we live. The same critique, however, applies to the minimum wage debate.


    When it comes to the minimum wage debate, the question that we as a society should be asking is why has there been a tendency to defer to the neoclassical economics model that holds that increases in the minimum wage will lower employment. We know that there are other models that predict otherwise. The efficiency wage model holds that increasing the minimum wage will lead to greater productivity and efficiency. The macroeconomic model holds that higher wages increase purchasing power which over time will lead to economic growth. And yet, the neoclassical model has become the reigning orthodoxy. Why?


    Arguably the case could be made that we have a long history going back to the Progressive period in American history of deferring to expertise. Policy decisions based on scientific models, we assume, must be correct. Therefore, if the model says that minimum wage increases will lead to lower employment, and these are “scientifically” trained experts telling us this, it must be true. Unfortunately, that does not explain why we defer to this model when others are just as valid. It also does not explain why we continue to persist in believing this model when a wealth of empirical evidence, grounded in equally scientific methodology, says otherwise.


    If nothing else, neoclassical economics has succeeded in making efficiency the unquestioned objective of economic theory, largely because there is a parallel with utilitarianism in liberal thought. Utilitarianism assumes the greatest happiness will be achieved when the greatest number of people are happy, or in economic terms are made better off. That is, they will only be happy when the greatest benefit occurs with the least amount of pain, which similarly translates to the least cost. Applied to the minimum wage, we all will be better off when the greatest number of people are employed, even if the wages they earn are too little to live on.


    The first reason the orthodoxy is so entrenched is because of our commitment to a particular definition of efficiency. Why this definition? Because the experts said so. The second reason has to do with the composition of the minimum wage labor market itself. Because only a small fraction of the labor market actually earns the statutory minimum wage, the potential benefits are presumed to be so small that they could not possibly offset the more likely larger costs.


    Of course, this misses the obvious reality that the minimum wage labor market is considerably larger when constructed in terms of who earns the “effective” minimum wage — various wage ranges around the statutory minimum. If a larger number of people are affected by the issue, not only might there be a greater sense of political urgency, but the reigning understanding of efficiency may be called into question. Is the economy really efficient when a sizeable number of workers have to rely on various publically provided subsidies to subsist?


    A third reason for the prevalence of the orthodoxy has to do with ideology and a general anti-labor bias generally built into economics models. Because the economics profession produces what society takes for economic knowledge, it has assumed the role of determining society’s vision of how the economy works. The reigning model of competitive markets assumes unemployment to be caused by high and rigid wages. And because labor market institutions like the minimum wage serve to raise wages, they obviously are forces driving up unemployment.


    Competitive market theory is also anti-labor because it treats labor as a commodity. Workers are simply inputs in the production process, and as such have no personalities of their own. Therefore, as competitive market theory assumes a full employment economy, the minimum wage orthodoxy is not only a product of those assumptions, but it nicely serves the interests of those who believe that all government interventions, whatever their form, greatly undermine free market ideology and free choice.


    A fourth reason the orthodoxy may be so entrenched is because there is simply a crisis in vision, as Piketty alludes to. Modern economic thought simply lacks a sense of how society ought to be ordered and how modern scientific analysis ought to be put in the service of that vision. Because of this we often miss the potential for the minimum wage to serve other policy interests, such as making for a more just and democratic society precisely because it may help restore the middle class.


    Lastly, the orthodoxy may be so entrenched because it well serves a set of economic interests. Various studies in the political science literature have found that when it comes to the minimum wage, members of Congress tend to be far more responsive to the wealthy than they are to the poor or even the middle class. To the extent that this is true, minimum wage advocates do nobody any favors when they present it as an anti-poverty measure. Moreover, as long as elections in this country continue to be financed through private donations, especially soft money, then it is a foregone conclusion that the model that best serves those interests will continue to reign supreme.


    At the end of the day, the minimum wage orthodoxy predicated on competitive market theory reigns supreme because it politically serves wealthy interests to whom policymakers are more responsive to because they also happen to be in the top 1 percent of the income distribution. It would appear that minimum wage policy, along with other social policies, has fallen victim to the polarization of the U.S. that is intimately tied to the growth in income inequality. On the one hand, we cannot raise the minimum wage because legislative bodies being more responsive to the wealthy is a consequence of growing income inequality. But on the other hand, a higher minimum wage that helps the middle class through its ripple effects will reduce the gap between the top and the bottom. It is for this reason that the minimum wage has to be marketed as middle class issues, whose benefits can be said to extend to all.

  • 12 Nov 2017 4:43 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune


    In his blockbuster book Capital in the Twenty-First Century Thomas Piketty observes that the history of the distribution of wealth has always been deeply political and cannot be reduced to so-called neutral economic mechanisms. But much of this has been obscured by the economic discipline’s “childish passion for mathematics,” an obsession that has only served to create the appearance of being scientific, without having to answer the far more complex question posed by the real world in which we live. The same critique, however, applies to the minimum wage debate.


    When it comes to the minimum wage debate, the question that we as a society should be asking is why has there been a tendency to defer to the neoclassical economics model that holds that increases in the minimum wage will lower employment. We know that there are other models that predict otherwise. The efficiency wage model holds that increasing the minimum wage will lead to greater productivity and efficiency. The macroeconomic model holds that higher wages increase purchasing power which over time will lead to economic growth. And yet, the neoclassical model has become the reigning orthodoxy. Why?


    Arguably the case could be made that we have a long history going back to the Progressive period in American history of deferring to expertise. Policy decisions based on scientific models, we assume, must be correct. Therefore, if the model says that minimum wage increases will lead to lower employment, and these are “scientifically” trained experts telling us this, it must be true. Unfortunately, that does not explain why we defer to this model when others are just as valid. It also does not explain why we continue to persist in believing this model when a wealth of empirical evidence, grounded in equally scientific methodology, says otherwise.


    If nothing else, neoclassical economics has succeeded in making efficiency the unquestioned objective of economic theory, largely because there is a parallel with utilitarianism in liberal thought. Utilitarianism assumes the greatest happiness will be achieved when the greatest number of people are happy, or in economic terms are made better off. That is, they will only be happy when the greatest benefit occurs with the least amount of pain, which similarly translates to the least cost. Applied to the minimum wage, we all will be better off when the greatest number of people are employed, even if the wages they earn are too little to live on.


    The first reason the orthodoxy is so entrenched is because of our commitment to a particular definition of efficiency. Why this definition? Because the experts said so. The second reason has to do with the composition of the minimum wage labor market itself. Because only a small fraction of the labor market actually earns the statutory minimum wage, the potential benefits are presumed to be so small that they could not possibly offset the more likely larger costs.


    Of course, this misses the obvious reality that the minimum wage labor market is considerably larger when constructed in terms of who earns the “effective” minimum wage — various wage ranges around the statutory minimum. If a larger number of people are affected by the issue, not only might there be a greater sense of political urgency, but the reigning understanding of efficiency may be called into question. Is the economy really efficient when a sizeable number of workers have to rely on various publically provided subsidies to subsist?


    A third reason for the prevalence of the orthodoxy has to do with ideology and a general anti-labor bias generally built into economics models. Because the economics profession produces what society takes for economic knowledge, it has assumed the role of determining society’s vision of how the economy works. The reigning model of competitive markets assumes unemployment to be caused by high and rigid wages. And because labor market institutions like the minimum wage serve to raise wages, they obviously are forces driving up unemployment.


    Competitive market theory is also anti-labor because it treats labor as a commodity. Workers are simply inputs in the production process, and as such have no personalities of their own. Therefore, as competitive market theory assumes a full employment economy, the minimum wage orthodoxy is not only a product of those assumptions, but it nicely serves the interests of those who believe that all government interventions, whatever their form, greatly undermine free market ideology and free choice.


    A fourth reason the orthodoxy may be so entrenched is because there is simply a crisis in vision, as Piketty alludes to. Modern economic thought simply lacks a sense of how society ought to be ordered and how modern scientific analysis ought to be put in the service of that vision. Because of this we often miss the potential for the minimum wage to serve other policy interests, such as making for a more just and democratic society precisely because it may help restore the middle class.


    Lastly, the orthodoxy may be so entrenched because it well serves a set of economic interests. Various studies in the political science literature have found that when it comes to the minimum wage, members of Congress tend to be far more responsive to the wealthy than they are to the poor or even the middle class. To the extent that this is true, minimum wage advocates do nobody any favors when they present it as an anti-poverty measure. Moreover, as long as elections in this country continue to be financed through private donations, especially soft money, then it is a foregone conclusion that the model that best serves those interests will continue to reign supreme.


    At the end of the day, the minimum wage orthodoxy predicated on competitive market theory reigns supreme because it politically serves wealthy interests to whom policymakers are more responsive to because they also happen to be in the top 1 percent of the income distribution. It would appear that minimum wage policy, along with other social policies, has fallen victim to the polarization of the U.S. that is intimately tied to the growth in income inequality. On the one hand, we cannot raise the minimum wage because legislative bodies being more responsive to the wealthy is a consequence of growing income inequality. But on the other hand, a higher minimum wage that helps the middle class through its ripple effects will reduce the gap between the top and the bottom. It is for this reason that the minimum wage has to be marketed as middle class issues, whose benefits can be said to extend to all.

  • 29 Oct 2017 9:10 AM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune


    In his famous treatise Exit, Voice, and Loyalty, Albert O. Hirschman discussed the options that consumers had in the face of deteriorating quality of goods. Of course, they could remain loyal and continue to buy these goods. But they could also express their displeasure through voice in the hopes that producers would respond by improving their quality. As a last resort in response to a non-responsive producer, they could exit whereby they would purchase from somebody else.


    These alternative actions clearly have application in the labor market and help us to understand why they really cannot function without wage floors. First of all, let’s consider the neoclassical assumption that employers and workers freely negotiate over wages and working conditions. Each is assumed to be equal in bargaining power, which is why workers when they are dissatisfied are always free to walk away.


    The question, then, is what happens in the face of deteriorating working conditions and declining wages? The first option is for workers to remain loyal to their employers in the hope that both will improve. In the real world where it is understood that there is an asymmetrical power imbalance between workers and their employers, loyalty may be the only option, particularly for low-skilled workers in a labor market where there are few opportunities.


    Loyalty, then, does not mean what it is conventionally assumed to mean; rather workers are loyal because they have no other choice. They are essentially prisoners to their employers and are subject to exploitation because neither voice nor exit is an option. The only negotiation on the part of the worker is to either accept or reject, whereby rejection may be tantamount to starving. How would they be able to acquire voice, and just what would voice look like?


    Voice in the labor market might be seen as a situation whereby workers are able to seriously negotiate their pay and working conditions as true equals. But the only way to do that in the real world would be for them to negotiate collectively as part of a collective bargaining unit. Workers, in other words, acquire voice through unionization, which is historically how low skilled workers acquired voice.


    If workers are organized they can exercise exit through the strike mechanism, which, of course, is a mechanism that only strengthens voice. Low-skilled workers cannot really exercise the exit option because there are few opportunities, and hence no place to go. Skilled workers in a market where there is a high demand for skilled labor by contrast can more easily exercise the exit option. If they become dissatisfied with their working conditions or wages, they can pick up and go elsewhere. That they can even threaten to do so in and of itself gives them a degree of voice that low-skilled workers simply don’t have.


    Neoclassical economists might respond that low-skilled workers always have the option of exit when their working conditions become exploitive. Moreover, they also can seek training in order to acquire the type of skills that will really enable them to exercise their exit option. And yet, if they cannot afford the necessary training, or they simply do not have the natural endowments that would enable them to develop, they are left with no choice but to continue barely subsisting in the low-wage economy.


    Given the realities of the low-wage labor market, there are perhaps two paths open to them. Unions could attempt to organize low-wage service workers on an industry-wide basis so that exercising the exit option (striking) would truly give them voice. If all workers in say the fast food industry went out on strike, as opposed to a couple of stores, employers might be forced to take notice.


    Organizing low-wage service workers might be difficult because low-wage workers fearing retribution might be reluctant to join. Walmart, for example, is well known for closing down entire stores in response to unionization efforts, thereby making it even more difficult in other stores. Moreover, low-wage workers may be reluctant to exercise an exit option because striking is more costly to them. Already earning barely subsistence wages, losing wages during a strike becomes even more expensive.


    Of course, low-wage workers could be afforded a measure of voice through a wage floor. By creating a floor beneath which employers cannot pay them, they are given a degree of monopoly power. Voice may be achieved when workers feel that they are in a position to freely negotiate with their employers. But voice might also be achieved when workers feel more confident because they behave more autonomously, which has only been possible because higher wages indeed enabled them to be more autonomous.


    A wage floor can certainly afford low-wage workers greater voice to the degree that earning a more liveable wage will enable them to be more autonomous. Just feeling better about themselves because higher wages will contribute to their self-esteem can go a long way towards making them more autonomous. A wage floor, however, does not necessarily afford them exit. Although they can always technically exit for other jobs, what awaits them will still be in the low-wage labor market.

    It is possible, however, that a wage floor that is sufficiently high, such as $15.00 an hour, for instance, might increase their exit options. Though other jobs out there would only be paying the same $15.00 an hour, they might be more likely to exercise that option, especially in the face of otherwise exploitive working conditions.


    What of the employer? We have already said that low-wage workers don’t have real loyalty to their employers; rather their loyalty is only a function of their fear of losing their jobs. Employers do have the ability to build loyalty among their workers by paying them efficiency wages — wages that make workers want to stay. A sufficiently high wage floor could be conceived of as an efficiency wage and could go a long way to enabling them to exercise exit, in which case they will achieve greater voice.


    A good labor market where there would not be domination is one where workers will enjoy voice. In an economy where labor market institutions, most notably unions, continue to decline, wage floors may be the only means by which workers can be afforded a degree of voice. Of course, a more expansive one like a universal basic income, whereby low-skilled workers would no longer have to work unless they wanted to, would offer even more voice because it enables them to exercise exit. In the face of these options, employers might in turn find that they have no choice but to build loyalty.

  • 17 Oct 2017 9:53 AM | Mike Lillich (Administrator)

    First published online in the Yonkers Tribune.


    By Oren M. Levin-Waldman


    During the eighteenth century republican thinkers used to talk about free labor as both the basis for personal autonomy and citizenship. Free labor meant that one worked for one’s self and was not subject to the control of say an employer. Slavery was certainly contrary to free labor, but so too was working for others as a wage laborer. Why? Because wage workers subject to the control of those who owned capital were seen as being no different from slaves.


    Of course, there were differences. The chattel slave was owned and was never free to leave his or her master. The wage laborer was always free to seek employment elsewhere. And yet, the wage laborer had few options available if s/he wanted to eat: accept low wages and the control of the employer during working hours as a condition of employment or starve.


    Although free labor was certainly the ideal, the economy was changing. In an agrarian economy where each person could farm his or her plot of land, then certainly that person could be free. In an industrializing economy where the only options for earning subsistence were to work for others in factories, it was no longer so clear. Freedom was essentially redefined to include wage laborers because they weren’t subject to living on the dole.


    Still, questions remain: What does it mean to be free? And can one truly be free while earning low wages? We are now living in a global post-industrial service sector economy where the wages for unskilled workers are extremely low. Workers work because they need to eat. This means that they are needs traders; not wants traders. Because workers have no choice but to accept such low wages in order to eat, they are not only subject to their employers’ control, they are subject to being dominated.


    At the heart of republican freedom is non-domination. Is the payment of low wages the same as domination? Can an individual be truly autonomous if they are forced to accept low wages? Even if those wages are subsidized by the state, is one truly free? If they are receiving subsidies from the government, then they are subject to government control.


    Milton Friedman’s opposition to wage floors was based on two arguments: first it was inefficient because it prevented wages from dropping to a level that wage labor would be demanded by employers. As a result, there would be less employment with the labor market not working at its full capacity. And second a wage floor infringed the liberty of workers who now were not free to work for less than the wage floor.


    Of course, Friedman was opposed to all public assistance programs because recipients subject to the rules of the bureaucracy in exchange for their benefits could no longer be considered to be free. Therefore, Friedman proposed a negative income tax so that poor people could enjoy greater freedom, because dependency was considered to be the same as domination.


    We are still left with a quandary. If low wages are considered to be unfree because the low-wage worker is subject to the domination of his/her employer, and government subsidies are also considered to be a form of domination, then what? The forces of globalism, after all, are only pushing down wages further. Are we not almost at the point where most of the labor force might be in need of subsidies and/or other social supports that we can say that they are all subject to domination?


    When the market place is allowed to determine wages in the absence of wage floors and/or other institutions that bolster wages, there is nothing to stop the employer from arbitrarily lowering workers’ wages. Indeed, according to the laws of supply and demand an oversupply of low-skilled workers should force down wages. Moreover, periods of recession should force down wages even more.


    Although the laws of supply and demand may not be arbitrary, being forced to accept lower wages may appear to be arbitrary to workers forced to accept lower wages. What makes a work environment one where there is domination is that it can indeed be arbitrary. A minimum wage floor prevents the arbitrary payment of wages below that floor. A minimum wage floor, however, may not be enough.


    A minimum wage floor still does solve the problem that low-skilled workers are barely making subsistence and therefore may continue to be subject to the control of their employers. They are still forced to work in less than ideal circumstances because they are needs traders who need to work. We are, then, left with perhaps the inevitability of a universal basic income (UBI).


    Several weeks ago I argued in this space that a UBI might be inevitable given the march of technology in a global economy. If globalism will force down wages and mandating higher wage floors will lead to the substitution of technology for workers, then we will be left with more workers either out of work or in need of more supports because their wages are insufficient.


    A UBI, however, could address both that issue and the issue of domination in the workplace by effectively changing the nature of work. In a global economy without a basic income, workers are at the mercy of market forces which to them will appear to be no less than arbitrary. They will continue to be needs traders which will subject them to control and domination.


    A UBI, then, will transform workers into wants traders and force employers to raise wages and offer working conditions where the potential for domination is less just to attract those who opt to work because they choose to, rather than have to. As a variation on Friedman’s negative income tax, the UBI will actually afford workers greater freedom. The changing nature of the economy may have necessitated a UBI in order to truly have free labor.

  • 12 Sep 2017 10:17 AM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online in the Yonkers Tribune.


    As troubling as the events of Charlottesville have been, there are issues that go beyond marching White Supremacists and Neo-Nazis, as repulsive as they are. In response to the first group there were counter-protests from some on the left who were also violent. There is absolutely no excuse for hate groups carrying torches reminiscent of the Klu Klux Klan in the South. But there is also no excuse for violent responses. And yet, we are likely to see more such clashes in the months and maybe years to come.


    Some will argue that two extremes on either side is a symptom of the absence of a viable political center where it is clear that there are shared core values. In the U.S. those values are liberty, freedom, democracy, free expression and assembly, rule of law, peaceful transfer of power, and equal opportunity. This last value specifically speaks to the ability to achieve upward socioeconomic mobility. Although these are indeed core American values shared across the political spectrum, there are nonetheless sharp divisions over how to bring these values to fruition.


    And yet, it isn’t so much that the political center has fallen out as it is that middle class has, and that the greatest challenge the new global economy poses is that of opportunity. If anybody wants to be reminded of history, there is no question that the roots of Anti-Semitism were deeply rooted in Weimar Germany following World War I. But the principal reason for Hitler’s rise was the runaway inflation brought about by the imposition of oppressive reparations by the victorious powers. Moreover, this coupled with the humiliation of Germany being forced to accept full blame for the war.


    Obviously the travails of the middle class in the U.S. don’t really compare to the circumstances of Germany following World War I. But most models of democracy are united in one basic theme, which is that in the absence of a middle class, in which case there are two extremes in wealth and income, the circumstances are ripe for social strife, violence, and even revolution. Moreover, we have to assume that world leaders following World War II, not wanting to repeat the mistakes of the post World War I aftermath, understood this all too well.


    The U.S. Marshall Plan to rebuild war torn Europe, including Germany and Japan, rested on an assumption that there had to be economic opportunity and prosperity if another war was to be avoided. These were understood to be essential ingredients if democracy, especially in those countries where there had been no tradition of it, was to flourish.

    A broad middle class has long been deemed essential to the maintenance of democracy. When there are extremes in wealth and income, the political process often becomes skewed to representing the interests of the more affluent and wealthy. The system becomes less responsive, and ultimately non-responsive, to those at the bottom of the income distribution. Democracy, however, requires the representation of all on an equal basis.


    Extremes in wealth and income in the U.S. have only resulted in a polarization in American politics. This polarization has enabled those at the top of the income distribution to be able to devote more time and resources to supporting political parties and/or candidates who are strongly opposed to redistribution, which includes any types of policies that might benefit the poor, the blue collar working class, and even the middle class.


    Econometric models of democracy maintain that democracy prevails when there is less inequality. Why? Because economic equality effectively reduces the pressure for redistribution, which could occur as a byproduct of mass revolution and the subsequent creation of an authoritarian regime. Authoritarianism, on the other hand, tends to be prevalent in those countries where inequality is high. The redistributive demands of the worse-off citizens on the wealthy are particularly intense in highly unequal societies.


    The assumption is that through redistribution public officials can avoid strife and head off potential violence. This is based on the further assumption that unrest is often a consequence of inequality. Arguably these models assume authoritarian regimes, which are more likely to democratize in response to great inequality. Democratization is likely to occur in order to prevent a revolution which is considered to be a credible threat when society is considered to be sufficiently unequal.


    Of course, in a democratic society, or at least a nominally democratic one, the next logical response to inequality would be redistribution. In An Economic Theory of Democracy Anthony Downs argues that public officials pursue policies that benefit themselves. They are more likely to be responsive to the wealthy because they will contribute to their campaigns. Because the poor may become restless, public officials then purchase their quiescence with programs that enhance their money utility. By purchasing the quiescence of the poor, they are free to pursue those policies of greater benefit to the wealthy.


    Downs’s logic would imply redistribution, but what happens when public officials simply respond to the wealthy and ignore those at the bottom? After all, a global economy where capital is mobile requires that business climates be favorable to investment. That means lower taxes. Redistribution, however, only fuels the perception that the business climate is unfavorable to investment.


    The reality is that there has not been greater redistribution in response to growing inequality. Rather we have seen greater polarization. It is because of the lack of response to the plight of the middle class that we have such polarization in American politics. If the models are correct, it is only a foregone conclusion that there will be more violence. The violence may not begin as a traditional revolution, but as fringe groups protesting and counter-protesting one another.


    It does not help when the concerns of the working class are dismissed or deflected by identity politics, or simply a politics of “resistance.” On the contrary, those who feel that their concerns are being ignored are more likely to join fringe groups, if for no other reason that it gives them a sense of identity. If we need any more evidence for why more needs to be done to restore the middle class, we need look no further than the events of the last few weeks.

  • 17 Aug 2017 12:30 PM | Mike Lillich (Administrator)

    By Oren M. Levin-Waldman


    First published online by the Yonkers Journal.


    In his now famous A Theory of Justice written more that forty five years ago, John Rawls asks us to imagine ourselves living under a veil of ignorance. Under this veil, we have no knowledge of our abilities, attributes and resources and similarly we have no knowledge of the abilities, attributes and resources of others. Under such a veil, just what governing arrangements would we choose?


    These governing arrangements include the economic along with the political, and the sum total is about choosing a theory of justice that will be deemed to be fair. Rawls rejects the utilitarian theory which asserts the greatest happiness for the greatest number, which also accords most closely with pure democracy. Rather he asserts the principle of the priority of the right over the good.


    This is often taken to mean what is correct over the whims of the masses. Or it means that people would choose a set of arrangements that protect their rights from those that might seek to take them away because it would suit the preferences of the many. In other words, most people, he assumed, would opt for procedural justice rather than substantive justice.


    What exactly does this mean? If the priority is of the right over the good then society does not have to be equal in terms of outcomes, but it does have to be equal in terms of standing before the law, access, and opportunity. Once the veil is removed it will become apparent that not all are equal in terms of their endowments and that those with more abilities and talent will have more.


    And yet, the very nature of the global economy seriously challenges many of the assumptions behind the veil of ignorance. If we didn’t know that the forces of globalism would drive down the wages of those without any special skills, then it makes sense to choose arrangements that still speak to equality of opportunity.


    If, however, we knew what the outcome of a global economy would have been, we might have chosen a set of arrangements that not only would ensure that each has the same thing, but would fully redistribute wealth and income from the wealthy to the poor. In other words, it is possible that even under a veil of ignorance in a global economy that if presented with a scenario of rising inequality we would opt for a simple formula of over taxation of the wealthy and redistribution.


    Still, it doesn’t follow that redistribution needs to be the response to rising inequality. Perhaps under the veil of ignorance we could be told that there is rising inequality and one set of arrangements that could be chosen are institutions that would guarantee liveable wages and would ensure that wages would continue to rise? Might this not be another version of the priority of the right over the good?


    Amidst all the debates over what types of economic policies ought to be pursued is the question of which are most likely to increase people’s dependence on the state and which are more likely to ensure greater personal autonomy. For some reason, policies like the minimum wage are often presented as state interventions that infringe the freedom of workers to work for wages below the established floor.


    And yet, if we are all paid poverty wages, we cannot be autonomous, especially if we have to rely on social supports from the state to make up the difference. Nobel laureate and philosopher Amartya Sen has defined poverty not only as having little money, but of being deprived of one’s capabilities.


    It is hard to know what this means exactly. Are we deprived of our capabilities because our poverty rendered us unable to develop the skills necessary to command higher wages? Or are we deprived of our capabilities because poverty leaves us unable to function as truly independent and autonomous individuals? We do know that those with more resources — higher income — are more likely to participate in the civic affairs of their communities.


    Data from the Current Population Survey (CPS) shows that as family income increases from below $30,000 a year to just between $30,000 and $60,000 a year, civic participation increases exponentially. Already there would appear to be an argument for a $15 an hour minimum wage. We also know from some studies that it is at $15 an hour that individual reliance on social supports from the state would begin to decrease.


    If we assume that the development of capabilities entails individuals being able to develop themselves because they now have greater autonomy to do so, then the priority of the right over the good has to consist of choosing institutions that will prop up wages, especially in the greater global economy.


    After all, we do have to assume that people still want to be free and not have their rights trampled upon on the whim of the many. A set of arrangements that simply redistributes on the grounds that one who has been successful owes it to others to surrender one’s wealth is not a system that is protecting one’s rights.


    Of course, the retort might well be what about the rights of the masses not to be in poverty? Fair enough. But that obligation is not on those with wealth, but on society as a whole. Society can fulfill its obligation to protect the rights of all to live autonomous lives by simply establishing and maintaining labor market institutions that will ensure that everybody can earn a liveable wage.


    The median voter theorem holds that the more inequality there is, the greater will be the distance between the median wage and society’s average income. What the median voter theorem does is determine the tax rate for the purposes of redistribution. But the same objectives could just as easily be accomplished with higher minimum wages and strengthening collective bargaining.


    In other words, the median voter theorem follows the logic of utilitarianism whereas support of labor market institutions follows the logic of priority of the right over the good. Were we to apply Rawls’s theory of justice to addressing growing income inequality, it stands to reason that under the veil of ignorance that most might opt for strengthening institutions, because it would also accord with our well established tradition of procedural justice.




  • 08 Aug 2017 12:27 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published in the Yonkers Tribune.


    Among the discussions that were held when policymakers first legislated a minimum wage was what constitutes a liveable wage. Should a minimum wage be a living wage, i.e. enough to support a worker and her family? Some early reformers contended that it should be a “family” wage. What we achieved through our incremental policymaking process was a wage to provide no more than minimal sustenance. And yet, the question remains: could the minimum wage be viewed as a first step on the way to a Universal Basic Income (UBI)?


    he idea of a UBI is not new, but has captured the imagination of some, particularly in the Silicon Valley, who have perhaps raised a question that nobody really wants to address: does technology render work, especially low-skilled work, obsolete that all citizens will need to have a minimum basic income as a matter of right? In other words, does the process of creative destruction that Joseph Schumpeter identified make a UBI inevitable?


    Schumpeter’s theory of creative destruction holds that the old and obsolete are replaced by the new and technologically more advanced. Just as auto manufacturing replaced buggy whip manufacturing and this was a measure of progress, high technology companies requiring highly skilled workers replacing low-skilled manufacturing is also considered to be progress. It is commonly assumed that everybody will be reabsorbed into the economy. But those who unable to acquire the skills needed for the new economy have been reabsorbed into the low-skilled service economy.


    Let’s consider for a moment just what is going on. By many measures the Industrial Revolution that resulted in manufacturing replacing the old commercial craft economy was considered progress. And yet, highly paid craftsmen who were independent were now forced to accept barely subsistence wages as low-skilled assembly line workers in the factories.


    It was through labor market institutions like unions that these low-skilled jobs were transformed into middle class jobs. In other words, the economic transformations that were occurring in Nineteenth Century America made labor market institutions that would bolster wages inevitable.

    Now that we are in a more global economy where the effect has been to exert even more downward pressure on wages, especially at the low end, labor market institutions are more critical. A higher minimum wage could no doubt have the same effect of transforming low-skilled service jobs into middle class jobs.


    The critic, however, will respond that mandating a higher minimum wage, especially a $15.00 an hour minimum will only be counterproductive as employers will find it more cost-effective to substitute technology for workers. Therefore, wages should remain low, and if necessary these workers can receive subsidies.





    Subsidies? If we are going to have to subsidize their low pay, then why not simply provide workers with a universal basic income which allows them to live in dignity? Of course, if people then want to supplement their UBI with even low-wage work, they can do so. In other words, isn’t technology that resulted in our well integrated global economy only making it a foregone conclusion that everybody will need to receive a UBI?

    Of course, the concept raises some serious questions. The first and obvious one is just how much would this cost and who would pay for it? If people receive a UBI would they not have less incentive to work? If as a result of fewer people working, we have fewer tax payers, then the first question of how we pay for it is even more important? If more people receive a UBI and opt not to work, does that not make us more dependent on the state, thereby eroding personal autonomy even further?


    It is possible that there could be hidden benefits to the economy. The concept would transform the nature of work as we have understood it. Until now, work has been understood as that which is necessary because workers are needs traders who have to work in order to make a living. But if everybody were to receive a UBI, workers would be working because they want to.


    Workers, just like their employers, would become wants traders and could use their desire to work as a new protection against exploitation. The employer, after all, can exploit because he has the power to do so and the worker needing wages is at his mercy. With a UBI, workers who are exploited simply walk away. It is now conceivable that employers who still need actual workers will be forced to pay higher wages in order to attract workers who otherwise don’t really need to work.


    Therefore, it is possible that a UBI could result in supply-side effects in that more workers will be attracted into the labor market as employers are offering higher wages. We could also see more flexible scheduling, more family friendly workplaces as employers seek to make work more attractive. Workers working because they want to could be beneficial to society as a whole.


    Of course, high paying employers have already been doing this, but now low-paying employers would be forced to offer similar inducements. There are those who will argue that a UBI is exactly what is needed in the face of rising inequality, but those with skills who continue to work for high technology companies will continue to receive higher wages on top of their UBIs. There will always be income inequality.

    On one level, a higher minimum wage could be viewed as a first step on the way to a UBI. It helps us figure out the level for this UBI. On another level, the UBI renders the minimum wage obsolete. Workers will get their UBIs from the state and their employers will be forced to pay them wages that make them want to work. Because they want to work, they will be more efficient, in which case the wages they are paid are efficiency wages.


    Will the labor force be smaller? It is possible that fewer people will want to work. But it is also possible that more people will be working, except that they will be working part-time because they want a better balance between work and family. Still, we are left with the question of cost.

    And yet, when we consider the costs of the current welfare state, it may be that a UBI, which would replace all social programs might not cost that much more. The real challenge is that by creating a greater role for government it challenges American conceptions of independence. But then again, those conceptions have been under assault from the march of technology which may be making the UBI inevitable.

  • 11 Jun 2017 12:01 PM | Mike Lillich (Administrator)

    By Oren Levin-Waldman


    First published online by the Yonkers Tribune


    As Congress takes up the GOP proposal for tax reform, some fundamental differences between red states and blue states will be put front and center. A huge difference between them is that blue states have higher tax burdens than do red states, and the cost of living in blue states tends to be higher, too. The blue state/red state divide is usually visible during presidential elections, but the GOP proposal to eliminate state and local tax deductions does again highlight that divide.


    Eliminating the state and local tax deduction would result in blue state residents paying more taxes than red state residents. With the deduction, higher state and local taxes can be offset by a deduction that effectively reduces the federal liability. One way to look at the elimination of this deduction is that all taxpayers would be treated equally. Instead of blue state residents effectively paying lower federal taxes, they would now all be paying at the same rate.


    Another way to look at it is that the elimination of the deduction does not treat people equally because states can still tax more than others. The deduction was but one way to equalize the differences. And yet, the differences raise some interesting constitutional issues. Under the American system of federalism, states are sovereign and can according to their respective laws, whether by statute or state constitution, impose taxes. The taxes they impose cannot be limited by the federal government.


    The Equal Protection Clause of the Fourteenth Amendment, however, says that states cannot treat individuals differently. This is usually thought to mean that states cannot create invidious classifications between people. It has not meant that states are all required to have the same tax rate because not having the same rate would effectively be treating blue state residents differently from red state residents. That would involve a broader conception of the Equal Protection Clause, and one which has no real basis in American constitutional jurisprudence.


    But that does not mean that politically speaking blue state residents are not being treated differently from red state residents. They are subject to higher taxes under the current system. If reform is passed, they will no longer have the federal deduction to mitigate those differences.


    Perhaps the question we ought to ask is just what are the likely consequences of eliminating deductions? One possible consequence is more migration of both people and capital from blue states to red states because the taxes will indeed be lower. Of course this begs the question: have taxes in blue states been higher because of larger populations in need of services, or have they been higher because the deduction only encouraged blue state politicians to impose higher taxes?


    In other words, might they have had higher taxes because they figured that with the deduction they would be little noticed by their residents? In other words, the deduction has meant that residents in red states have effectively been subsidizing blue states. To the extent that is true, the deduction may have also been distorting state spending priorities because politicians simply assumed that they could raise their taxes and the deduction would simply mitigate the additional pain they may have experienced.


    Still, one wonders why blue state residents may have been content to pay higher taxes when they simply could have left to go to red states. After all, red states, compared to blue, have lower costs of living and lower levels of income inequality.

    If we borrow from public choice theory we might gain a bit of understanding into why blue state residents have been willing to pay higher taxes. The basic premise, as put forth by Anthony Downs in An Economic Theory of Democracy sixty years ago is that each person and or group is a rational actor acting according to self interest. Individuals vote on the basis of which candidate and/or political party will best serve their interests. Public officials seeking to be elected also pursue policies that serve their’s.


    Because wealthier people are more likely to participate and contribute to political campaigns, public officials are more likely to put their interests over those of everybody else. But because poor people can band together, their interests cannot simply be ignored. Therefore, public officials will purchase the quiescence of those at the bottom with programs that might increase their money utility. This then frees public officials to pursue those policies favored by the wealthy. In essence the money utility of all is increased at a cost to all.


    This idea has become the basis of the median voter theorem put forth by Alan Meltzer and Scott Richard. According to the Meltzer-Richard construct, the greater the distance between the median voter’s income and society’s average income, the more inequality there is. In response to growing inequality, public officials will opt for redistribution in order to stave off the potential for violence. The median voter is effectively choosing the rate of taxation for the purposes of redistribution.


    States that have higher taxes may be purchasing the quiescence of low-income voters with programs, but pursuing other policies favorable to the rich. Both groups are increasing their money utility. The federal tax deduction no doubt helps public officials to do this at the state and local level. In other words, it may be that voters in these states are opting, as counter-intuitive as that may seem, for higher taxes.


    Why would the median voter opt for higher taxes? Why similarly would the blue state voter? Because the blue state voter expects to get something in exchange that boosts his money utility. So too does the median voter. If we understand what is going on, we can now understand why tax reform with a few flat tax rates and absolutely no deductions is almost an impossibility despite the fact that such an approach might be more in the public interest.


    Those on the left have been calling for more taxes on the wealthy is response to growing income inequality. This is certainly assumed by the median voter theorem. But to boost the tax rates of the wealthy does not really mean they will be paying more taxes because they have enough deductions to offset the higher marginal tax rates the left would gladly impose. Not only do they serve their money utility interests, but they have the added bonus of appearing to speak the language of the public interest: compassion for the poor.


    Simply put, tax reform is not in their interests and it certainly isn’t in their interests if they are high tax blue states. And yet, all of this rent seeking — the seeking of personal advantage — is ultimately contrary to the public interest. What is the effect of this? To distort voting generally. To distort spending priorities. To distort democracy altogether. One does not support policy because it is in the public interest, but because there is a payoff.


    The tax code in all its complexity has become a means to distribute goods to all that come along at a cost to us all. The federal tax deduction for state and local taxes is effectively a payoff to blue states who are further incentivized to spend money on programs because the deductions allow them to raise taxes. In the end, tax reform will be difficult, if not altogether impossible to achieve.


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