Unpacking Syriza’s Victory and the Role of Protest

Dear econo-missed,

Like many, I’ve been excited to follow Greek coalition party Syriza’s rise to power these last few months, especially their victory at the polls on January 25th. A lot of the speculation I’ve seen in the blogosphere has to do with the EU’s reaction to their anti-austerity agenda, which includes wanting to write down their debt and reverse some of the brutal and, from what I’ve heard, counter-productive austerity measures. Still, all I’ve seen from the party is a desire to remain in the Eurozone while negotiating better terms with Brussels and Germany.

So, if Syriza isn’t threatening to leave the Eurozone, what are the real threats here? Will they get kicked out? I’m having trouble discerning between anti-leftist / anti-Greek humbugs and genuine economic concern. What would you see as an ideal yet realistic path out of austerity for the country?

Sincerely,

Anti-Austerity Anne, Philadelphia

Dear Anti-Austerity Anne,

Like you, I’ve been following the inspiring developments in Greece relatively closely and haven’t always been able to discern between rhetoric and conditions on the ground. After opening a dangerous number of tabs in Google Chrome, I’ll do my best to summarize what I’ve read and add a few observations.

For those who have not been following closely, Syriza is a coalition leftist party that won 36.3 percent of the vote in elections on January 25th, taking 149 seats in the 300-seat parliament. Without an outright majority, the head of the party, Alexis Tsipras, formed a coalition with the populist right-wing Independent Greeks party, which has 13 seats in the new parliament. Despite significant differences, the government is united by its desire to end austerity, which is a term used to describe the ideologically motivated mix of budget cuts and social state reforms that often get forced onto countries as economic medicine. A member of the left flank of Syriza, economist Costas Lapavitsas, recently described Greek austerity as a “silent humanitarian crisis,” noting, “GDP has contracted by 25%, unemployment has shot above 25%, real wages have fallen by 30% and industrial output has declined by 35%.”

The new government is working to renegotiate its debt payment plan and reverse the “memorandums of understanding” that cut pensions and wages, increased taxes, and slashed the social state. On the other side of the negotiating table sit the European Commission, the European Central Bank, and the International Monetary Fund (a.k.a the “troika”). For a detailed, and jargon-laden internal history of the troika’s policies, see here. Another important player is the people of Europe, seeing as the troika’s authority to inflict austerity comes from the idea that citizens in richer European countries do not want it to end.

The next big deadline is February 28th, when the troika is set to determine if Greece is doing a good enough job following through on the memorandums. The parties need to reach an agreement before then unless there is an extension.

It is true that the troika has a lot of cards in its hands. In addition to holding the purse strings, 74 percent of Greeks do not want to leave the Euro, and it has more tools to deal with Greek exit now than it used to. But Syriza has two points of leverage worth noting: democracy, and the failures of austerity as an economic recovery policy.

As for the economics, it’s important to first describe the limitations of the Euro. Somewhat surprisingly given the polarization I tend to assume from economic debates, you can find people from across the political spectrum who will argue that the structure of the Euro was a raw bargain for many periphery countries from the start. Klaus Busch argues that there are four basic structural problems: monetary union without full economic union, lack of political union, focus on austerity, and incentives to destroying the social state. I recommend his explanation (pages 4-6), but a short summary is that creating a monetary union without other basic guarantees between states makes the system unstable.

For example, it is a problem that Greece has given the ECB control over monetary policy, which is when a central bank changes the amount of money in an economy to fight downturns or keep it from growing too fast. This would be less of a problem if Europeans with power in richer countries had more of an appetite to make sacrifices in order to help struggling countries like Greece. Similarly, one of the basic ways that economies adapt to crises is by letting the value of their currency fall, which makes exports cheaper. Because Greece does not have its own currency, this option is off the table.

The next big economic question to tackle is on the consequences of Greece exiting the Euro. The problem with trying to answer this question succinctly is that there are many different ways that Greece could exit. Generally, commentators seem to agree that the more an exit can be “managed,” the less damage it will cause in Greece and the rest of Europe. According to the Economist in 2012, “A precipitous exit without preparation would leave the country without notes and coin. The surrounding chaos would paralyze economic activity, causing consumers and businesses to stop spending.” Once there is a new currency to spend, other commentators worry about inflation (rising prices) and reactions to the devaluation (falling value) of citizens’ bank accounts (because without other measures, the ability of citizens to use their bank accounts to purchase exports would fall with the new currency in relation to the Euro). In contrast, Europe faces the threat of the crisis spreading both economically and politically as well as the loss of debt on Greece’s balance sheets, of which at least 77 percent is held outside of the private sector.

Almost by definition, a poorly managed exit would be bad for Greece in the short run, partially because without certain preparations, markets can make life very difficult for governments that they do not trust to support the interests of capital (i.e. leftist ones). Still, even a poorly managed exit could be better for Greece in the long run, but rather than delve into some deep uncertainties, it seems worth focusing on what a better exist could look like. For example, Stanislas Jourdan, describes how Greece could nationalize the banks, offer specialized banking licenses, and give citizens money to bolster a new currency as well as people’s wallets. In contrast, Roger Bootle and others offer less radical measures including preparing in secret, capital controls, and defaulting on much of the debt.

But what if a deal could be reached? A recent Center for Economic and Policy Research (disclosure: where I worked as an intern) paper argues that moderate fiscal stimulus could seriously help struggling Greeks. This partial reversal of austerity would be very difficult for the troika to swallow, but if the Greek government was allowed to pay back its debts over a more reasonable time frame, this solution could prove to be a partial success for Syriza and Europe.

If Syriza cannot reach a meaningful deal with the troika, then I’m of the opinion that they should carefully default. The party was swept into power with the slogan “Greece goes forward—Europe is changing” assuming that the troika would eventually bend to a government with a strong mandate from the people to end austerity. Currently, PM Alexis Tsipras is working hard to calm markets and signal his government’s intention to keep Greece in the Euro. Given Greeks’ current desire to stay in the Euro, this capitulation seems like it could be a political move to appear like a good partner now in order to justify harder bargaining or an exit later. Because Syriza needed to campaign on staying in the Euro in order to come to power, Tsipras cannot pivot until/unless the troika has demonstrated that Europe is not changing.

In your submission, you also questioned whether Syriza has any bargaining power if they are not currently threatening to default. While this is the line coming from the left flank of Syriza, who wants to see a pivot from Tsipras, succession is only one powerful tactic. Specifically, one wild card seems to be how much pressure people in Greece, around Europe, and throughout the world can create through various forms of protest. If huge numbers decide to act in solidarity with Greeks, it will become increasingly clear that the only legitimate resolution is an end to austerity. Considering, how many peripheral Euro countries in various states of crisis reacted positively to the Syriza victory, there’s a chance that the people demand a just solution that leaves the Euro intact.

Similarly, because austerity policies are deeply enmeshed in international institutions, people around the world would see huge gains from a Syriza victory. As with all solidarity actions, protesters could seriously benefit from a dent in austerity and global capitalism more generally.

On a final note, it is worth noting the performative nature of political economy and how rhetoric deeply shapes the conditions on the ground. So many of the potential solutions and pitfalls revolve around how different participants frame them. For example, one way to create space in negotiations for a just resolution is for people in Greece and around the world to continue to turn up the volume.

in solidarity,

ben wolcott

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When Mainstream Economics Is more Messianic than Dismal

In conversations about economic policy, commentators score major rhetorical points if they can portray themselves as “very serious.” They often succeed at this by acting “tough” and advocating hard sacrifices (almost always for other people). For example, Paul Krugman loves mentioning how Bowles and Simpson benefit from this strategy in the debate over budget deficits.

Underlying this bizarre rhetorical trick is the idea that mainstream economics is a dismal science. Because many economists dismally assume that “people are motivated principally by greed and that numerous constraints exist,” they effectively portray themselves as realists. And they’re able to get away with it through the classic pessimist’s argument: I would be an optimist if I could, but I’d rather be right.

While playing the pessimist card often works in economic debates, there’s a logical problem with classifying the discipline as dismal: mainstream economists are often unrealistically optimistic about the beneficial effects of individuals acting in their own self-interest (i.e. markets). When it comes to climate change, mainstream economics is more messianic than dismal.

I don’t know how many times I’ve heard that if we can get the price signals right with a carbon tax, we’ll be able to effectively deal with climate change. Let’s unpack this. The idea is that if we tax fuels that emit carbon dioxide at the right rate, we can perfectly balance the benefits of pollution with its costs and continue economic growth. While distributional issues worry leftists (who is “benefiting” from pollution and who is facing the costs today and in the future), more technical concerns should worry everyone.

At its core, a carbon tax attempts to use a market mechanism to correct for the fact that companies and consumers are not taking the social costs of pollution into account. Once they do so, GDP can go back to growing. Capitalism, saved from the crisis it created, can return to raising standards of living. But can a carbon tax and “green growth” save the system? Recent research suggests not: “decoupling [GDP and greenhouse gas emissions] as a main or single strategy to combine economic and environmental aims should be judged as taking a very large risk with our common future. To minimize this risk we need to seriously consider reducing our dependence on growth.” In short, the authors explain how continuing to prioritize economic growth will make it extremely difficult to meet international climate targets.

Furthermore, if we take any semblance of intergenerational equity as a starting point, the system needs technological progress to eventually break our unsustainable dependence on ecological services and natural resources. Otherwise, future generations will not have them. Recognizing the central role of finite natural resources in modern economic life, you have to be pretty optimistic to hope for this, let alone assume that it is inevitable. While a carbon tax would be an improvement over the status quo, it cannot internalize the root of the problem and support indefinite economic growth at the same time.

That mainstream economists’ faith in markets to solve wicked problems allows them to assume that infinite growth is not only possible but inevitable is nothing short of messianic. While mainstream economics can contribute to the conversation about climate change, its models and assumptions are silencing other essential schools of thought, which often point to contemporary damages on the front lines and intertemporal ethical issues.

So what do real solutions look like? First, we can recognize that GDP ≠ our standard of living. Living well is about much more than consumption. We can live better in general with less in total.

Second, we can attack the stories that support GDP growth. The degrowth movement and Naomi Klein’s recent book, This Changes Everything, certainly offer some examples. While I haven’t read Klein’s book yet, the Jacobin review offers choice quotes such as, “'[O]ur economic system and our planetary system are now at war… and it’s not the laws of nature that can be changed.’” Clearly, the messianic science deserves significant blame for its incessant cheerleading.

It’s long past time that we stop treating mainstream economic analysis about climate change as the only serious way to approach the problem. After all, mainstream economists break the number one rule about performing seriousness – they’re unwilling recognize the scope of the problem and advocate difficult changes. While religion is sometimes the opiate of the masses, mainstream economics is certainly the sleeping pill of the chattering classes when it comes to climate change.

Notes: I added a small addition about wicked problems.

IMF/World Bank Bashing and the Role of Nuanced Critiques

Dear econo-missed,

What’s the difference between the IMF and the World Bank? Are these institutions solely about accumulation, privatization, and neoliberalism? Are there other big international financial institutions whose basic functions demonstrate how resources get stolen from the Global South over time?

– With love from Philadelphia

Dear love from Philadelphia,

As the International Monetary Fund (IMF) says on its website, you’re not alone if you tend to blur the distinctions between the IMF and the World Bank – even John Maynard Keynes, the first Keynesian and one the designers of these two institutions, found the names confusing. While the IMF and the World Bank often collaborate, their stated purposes differ significantly. The IMF attempts to manage the global monetary system, and the World Bank works for economic and social “development” in the Global South. The history of these institutions contains many more failures than successes from a justice perspective, but acting in solidarity with the desires of people in the Global South is more nuanced than simply bashing these institutions and their attempts at “development.” To explain why, it is first helpful to contrast the two organizations.

Even though the IMF takes on many roles as it tries to manage global flows of money, it involves itself most intensely with countries in the Global South if they cannot finance their national budgets (including payments on past debts) with taxes or through more traditional lending. In these circumstances, the IMF decides to help the country in crisis only if politicians agree to certain conditions. While there is a long list of conditions that the IMF has historically favored, examples include cutting budgets, privatizing state companies, deregulating, and reducing barriers to foreign investment. These IMF prescriptions are called structural adjustment programs (which the World Bank also uses), and these programs impose conditions in an attempt to stabilize or address certain sectors of a country’s economy. The long-term goal is to reconstruct the economy for future economic “development” through integration with global markets (i.e. subordination to global capital). In general, the IMF forces governments to be accountable to foreign capital instead of their own people, subverting sovereignty. While every structural adjustment program looks somewhat different, Herbert Jauch explains how in Southern Africa, the programs have worsened poverty, destroyed infant industries, and ballooned debts.

In contrast to the IMF’s crisis management role, the World Bank tends to fund state or private sector projects that promote the power and reach of capital in order to support “development,” often with little regard to the social or environmental impacts. For example, the World Bank and the Inter-American Development Bank lent $400 million to fund the Chixoy Hydroelectric Dam in Guatemala between 1978 and 1989. This project is associated with the murder of 440 indigenous Guatemalans, the displacement of 3,500, and damage to 33 communities. (After decades of organizing, communities along the Chixoy River have won reparations from the Guatemalan government.) Similarly, the World Bank lent $45 million in 2004 to the Marlin mine project in Guatemala without going through a necessary community consultation process. In 2005, a majority of the people of Sipakapa, the municipality where part of the mine is located, voted against the project, but that did not stop its construction. A 42-day blockade to stop construction equipment ended in 2005 when 1,200 soldiers and 400 police fired volleys towards unarmed protesters, killing the farmer Raul Casto Bocel. Violence and threats against local activists have continued since. The Marlin mine is also associated with water contamination, skin diseases, lung problems, as well as other economic and health damages. Legal groups correctly argue that the 1997 Mining Law violates rights guaranteed to indigenous Guatemalans under their constitution and international law. While communities face tremendous environmental risks, profits fly out of Guatemala; a study from Tufts University found that the Guatemalan government only gets about six percent of revenues from the mine, significantly lower that what most countries receive. Needless to say, the government has not been using that money to address the environmental and social consequences of the mine.

While activists tend to focus on these two major International Financial Institutions (IFI), many others exist, often on a more regional level. I tend to agree with you that history shows how many of these financial institutions have effectively helped capital steal resources from the Global South over time either through unfair lending practices or through buying natural resources and labor at far below their value. One partial explanation for how some decently intentioned people from the Global North, hoping to reduce inequality and eliminate poverty, have helped create such a tragic history is that many in the “development” industry naively believe that expanding capital’s reach always helps the poor. The fundamental logic behind this ideology is that markets only allow mutually beneficial decisions to occur. It’s easy to see why this often isn’t the case. For example, this logic can break down because people who have the power to make deals with foreign capital can profit from decisions economically or politically that hurt others today or in a distant tomorrow. For example, an entrepreneur may decide to open a mine that tramples the rights of indigenous communities or a politician may allow fiscal problems to fester if they can gain in the short term.

That being said, it’s important to point out that history does not determine the past. Some respected critics of these two financial institutions, such as Joseph Stiglitz, argue that the “issue is fundamentally of reform.” It might surprise some that Stiglitz, who is the chair of the Socialist International Global Commission on Financial Issues, sees reform of these “development” institutions as possible or even desirable. I often get the feeling in conversations with friends that anyone vaguely left is supposed to abhor the idea of “development” and recognize all conceptions of it as culturally imperialist. While most manifestations of “development” are imperialist and need to be attacked, one of the frustrating internalizations of the post-development approach on the left is that many adopted a reflexive critique of anything called “development” without engaging in the messy work of imagining what it means to create space for “’local agency’ to assert itself,” as post-development theorist Arturo Escobar encourages.

On a personal level, conversations about development (desarrollo en español) in Guatemala over the past three months have shocked me. After attending numerous talks put together by leftist organizations, I have often heard people talk about development as the realization of local communities’ desires. In addition to organizing bravely against destructive “development” projects from organizations such as the World Bank, the intellectuals and activists I have talked to also have concrete ideas about what would support everyday Guatemalans. For example, rural communities across Guatemala recently blocked many major highways for three days in order to push for the passage of the Comprehensive Rural Development Act as security forces killed one protester. Clearly, development discourse in Guatemala is contested.

Oftentimes, leftists who talk about “development” seem content to critique existing institutions without offering alternatives. The lack of interest in presenting alternatives is problematic on two levels. First, it’s wrong; alternatives exist. While finding ways to give power to local groups so they can shape their future is difficult from the Global North, imperfect models and examples exist. For example, some organizations and even parts of the World Bank have been supporting Community Driven Development (CDD), which “provides control of the development process, resources and decision-making authority directly to community groups.” While Bebbington et al. describe how CDD projects need to understand communities as complex political entities, initiatives like this demonstrate the possibility of organizations such as the World Bank genuinely acting in solidarity with people in the Global South. Similarly, while the IMF is a deeply problematic institution today, there are many possible reforms that would allow the IMF to manage fiscal crises more democratically and write off odious or counterproductive debts. Refusing to research or offer alternatives to contemporary “development” institutions is wrong because it ignores how institutions from the Global North could support the self-determination of people around the world.

If “no one is free while others are oppressed,” leftists cannot ignore the fights going on around the world for positive change, which sometimes are termed development. In this vein, it is worth investigating the root of some leftists’ disinterest in supporting the aspirations of communities around the world. I have gotten the sense that many people feel that doing international solidarity work “right” can feel extremely daunting. While many reasons exist, guilt about the history and current reality of imperialism as well as the failures of the “development” industry can seriously discourage leftists from finding ways to act in solidarity. If guilt makes you feel that international solidarity is impossible, find ways to move beyond it. Impressive examples of solidarity on the left exist; just look at United Students Against Sweatshops’ (USAS) work with the Bangladeshi labor movement to use their position as students to pressure brands to sign the Bangladesh Safety Accord. The USAS article hyperlinked above explains that the accord has legal teeth “to adjust [brands’] pricing structures and constrain their ability to shift production to anywhere they please,” and unions “view the agreement as a vital step forward for workers in Bangladesh.” International solidarity isn’t only possible, it’s necessary in the fight for justice.

Second, disinterest in presenting alternatives is a rhetorical mistake. It’s much easier to convince someone that the terrible practices of the IMF and the World Bank must end if you can present alternative methods to support human development. Do you know how many liberals and progressives roll their eyes when they hear people bashing development? Rhetorically speaking, there’s often a wide gap between convincing someone and making a passionate argument. Because many people want to support human development, it can be helpful to have initiatives that you are willing to say “yes” to. If you want to convince someone to change their position radically, it often helps to come across as nuanced.

Ultimately, the roots of the unequal and exploitative economic landscape we see today come from the violent history of colonialism and imperialism. The Global North has “developed” at the tragic expense of the Global South, and addressing this injustice requires listening closely and acting in solidarity. There’s no way to fight global capitalism in the long-term without the workers of the world.

in solidarity,

ben wolcott

Notes: I have been very busy in Guatemala, and I wish that I had enough time to post more to this blog. I’d also like to appreciate and acknowledge the way that friends, teachers, and activists in Guatemala have shaped my thoughts through sharing theirs. Finally, I have made a few small edits.

My 77 Cents on the Gender Pay Gap

Dear econo-missed,

Recent arguments about the gender pay gap are driving me nuts. Is there any rhyme or reason to the argument of the “mythical gender gap”? I used to consider it a fact that in the US, women are paid less than men for the same work. Apparently, a woman’s 77 cents to a man’s dollar is not a rule that’s accepted by many economists.

So, what do you think? Is there room for error in the statistics behind the gender income gap?

Cheers,

Dizzied by Discrimination in Boone, NC

 

Dear Dizzied by Discrimination,

As many others have noted, The “mythical gender gap” is itself a myth. Still, that does not mean that classic and rhetorically powerful 77-cents-to-the-dollar statistic shows how much less employers pay women for the same work. In order to try to make sense of the dizzying array of arguments on both sides, I will start by explaining what this statistic does tell us.

This statistic says that if you separately order the incomes of working women and men in the country, the ratio of the woman’s wage whom is smack dab in the middle (the median) to the man in the same position is around 77 percent. Thus, it is perfectly reasonable to say that women on average make 77 cents to the dollar of men.

While accurate, the previous statement is not the only way to describe the discrimination that women face in the workplace. When people use statistics, they try to translate complex social realities into numerical representations. Statistical analysis is often a bit like trying to paint a forest with only one shade of green. While the painting might resemble a forest, it also lacks a certain nuance. Many audiences find numbers compelling, but it is unfair to expect that a single number can entirely capture a social phenomenon. Because any attempt to represent reality as a number will privilege certain information and ignore facets of the question, those on the right have found various ways to critique the 77-cent statistic.

Most conservative commentators respond that this 23-cent gap reflects differences in the choices that women make about education and work instead of discrimination. This kind of argument is called a straw man, which is just a fancy way of saying that conservatives are setting up and knocking down an argument that does not match what the left says. To be clear, people on the left who write about this issue do not argue that the entire 23-cent gap reflects discrimination. Instead, they tend to make the argument that a significant portion of the gap still exists even after you try to “control” for various differences using more rigorous statistical methods. I wish I could entirely avoid jargon, but in economic statistics, dependent variables you “control” for are the ones that you want to keep constant as you analyze how changes in the dependent variable of interest (gender) affect the independent variable (salary). In the pay gap literature, statisticians often control for things like race, occupation, marital status, and number of children. The idea is to quantify the gender pay gap while keeping other variables like occupation or race constant, so women and men can be compared from the same baseline. If this well-regarded method strikes you as a bit problematic in this context, you are in good company.

But first, a close look at those well-regarded statistical studies will give you mainstream tools to respond to the above conservative argument. According to the Department of Labor, “decades of research” show that even after controlling for differences between men and women, a significant portion of the pay gap remains. These more rigorous statistical studies generally tend to find a pay gap of around 10 cents instead of about 20 cents, and the DOL attributes this remaining gap to discrimination. To pick a few examples, Francine Blau and Lawrence Kahn find that 41 percent of the wage gap cannot be accounted for after controlling for a variety of differences while the Government Accountability Office under George W. Bush could only explain 52 percent of the initial gap with the other variables that they included.

While some commentators note that discovering a significant gap even after controlling for a long list variables is not the same thing as finding evidence of discrimination, using this argument to deny the strong likelihood of discrimination assumes that statistical analysis cannot speak to its existence. That a large and well-respected literature attempts to do just that exposes this argument as a mere distraction.

Conservatives also sometimes point to a few statistical studies that find a smaller gap than most on this issue. Still, cherry picking the studies that most support one’s preferred argument shouldn’t convince others. Without compelling criticisms of the overwhelming number of studies that find a significant gap, it makes sense to trust the general findings of the literature. Furthermore, part of this argument usually involves conservatives acknowledging that a gap exists but insisting that it is small enough that it does not present a significant social problem. While this argument is quite common, it often gets applied to pay gaps as large as 5 percent. You don’t need to know much about statistics to realize that a 5 percent pay cut certainly adds up over a lifetime.

All this is to say that you can easily make an argument for a significant pay gap in mainstream terms. Still, while using those studies can be rhetorically useful, it leads to misunderstandings about the issues involved. Unfortunately, any difference between women and men that could potentially lead to a non-discriminatory pay gap, such as hours worked, gets controlled for because statisticians know that not doing so leaves their results open to the criticism that they omitted essential variables. Almost all of the “choices” that statisticians control for have two elements: one that may reduce productivity and another that reduces women’s wages due to sexist social norms. By controlling for these choices, economists generally reduce the amount of the pay gap that is attributable to gender alone.

Furthermore, the above paragraph discusses how certain choices may reduce productivity because the existence of penalties for certain choices does not necessarily mean that those choices are actually less productive: the effect of discrimination and sexist social norms may dominate. For example, research shows the productivity costs of long work days, and other evidence implies that the challenges of motherhood enhance mothers’ cognitive skills, increasing their productivity. When statisticians control for “choices,” they ignore how wage penalties may be tied to discrimination.

For example, empirical studies control for occupation, but wages in many occupations are set by social norms and not workers’ productivity. For example, teachers are grossly underpaid, which is partly due to discrimination. When statistical studies control for occupation, they accept current occupational wages as being based on productivity, tacitly accepting sexist norms. Similarly, both biological realities and societal norms make it likely that women will spend more time out of the labor force. When statistical studies control for the choice to leave the labor force, they attribute returning workers’ lower wages to atrophying skills instead of discrimination. While untangling these two plausible explanations poses a methodological challenge, there’s nothing conceptually challenging about dealing with at least part of the problem. Paid family leave laws allow people to take time off and return to their previous position. Taking time off for family should be a choice to temporarily leave the workplace and not a choice to risk or abandon a career. Simply put, women should not be at a systematic disadvantage in the workplace if they decide to give birth.

Additionally, the effect of having children on the wages of men and women provides a poignant statistical case. Analysis from George W. Bush’s Government Accountability Office finds that mothers were penalized 2.5 percent of their wage for every child while fathers were awarded a 2.1 percent raise for every child. (To be clear, this statistic compares people with different numbers of children but the same work histories.) This is obvious evidence of discrimination. While conservatives often justify discrimination against mothers by saying that women with children work less hard due to fatigue, this argument’s foundations crumble since there is no logical reason that men with children should be more productive. If the motherhood penalty merely comes from being more tired due to having children, then we would expect men to have somewhat of a fatherhood penalty (instead of a raise) because parenting also taxes them. The fact that men gain from having children shatters the foundation of the conservative response and clearly points to the fact that some employers discriminate against mothers.

Beyond understating the problems involved, relying on a single statistic often ignores parts of these complex social issues. For example, the 77-cents statistic hides the fact that Hispanic women make 59 cents to every white man’s dollar. When it comes to workplace discrimination, it does not make much sense to analyze gender and ignore race because the two intersect. When complicated statistical studies control for race, they often ignore the ways that racial discrimination and gender discrimination in the workplace affect each other. While many commentators could do a better job of exploring various forms of workplace discrimination by moving beyond their focus on cisgendered white people, it is important to recognize that there are also fundamental limitations to what statistics can accomplish. Numbers alone cannot describe social reality. No one can paint a compelling forest with one shade of green.

Any single statistic can be attacked from a variety of angles. Still, this does not mean that statistics cannot meaningfully describe aspects of economic reality. While the 77-cent number does not control for a variety of variables and ignores the intersections of race and gender, it has the benefit of not giving into statisticians’ temptation to control for everything, a professional norm which deemphasizes many aspects of discrimination. On a more rhetorical note, dropping the 77-cent statistic would be giving up on the central image that Americans use to understand the pay gap. Doing so would be a political mistake, especially when it is easier and more honest to supplement the 77-cent statistic with other numbers and descriptions of discrimination in the workplace.

As a final note, the Paycheck Fairness Act lost an important Congressional vote in April; clearly, this issue is not going away. Neither can we.

 

in solidarity,

ben wolcott

 

tl:dr

The most rigorous statistical studies show that women still make only a fraction of what men do. While the 77-cent statistic and more rigorous studies have real limitations, they can both play an important role in making the case that discrimination occurs everyday in the workplace.

Economic Power and the Israeli Occupation

Dear econo-missed,

Is the Israeli occupation of the West Bank economically beneficial to either the state or to the private companies within it? How do economic benefits or lack thereof affect understandings of Israel and the occupation of the West Bank and Gaza Strip as colonial ventures? Are there other economic considerations?

Best,

Charlie

 

Dear Charlie,

Thanks for your question – I really appreciate the excuse to learn more about the economics of the occupation and Israel/Palestine more generally. While I don’t have an extensive knowledge about colonialism or Israel/Palestine, I’m happy to offer my thoughts and research. It also seems worth mentioning that I grew up in a socialist-Zionist youth movement (where I always connected more to the socialism than to the Zionism) and spent a gap year first on Kibbutz Ein Dor and then in Be’er Sheva.

Like many others on the left, I tend to ignore the economics of the occupation because I don’t need to know the costs or benefits of displacement, exploitation, and the violation of international law in order form an opinion. That being said, the economic details do affect the debate about whether or not the Zionist enterprise is colonialist. More importantly, economic estimates and comparisons can shed a slightly different light on the occupation that may convince equivocating commentators.

One part of the debate about whether or not the Zionist enterprise is colonialist depends on whether Israel in general gains from the occupation. (Certainly, some companies’ business strategies rely the occupation, and they benefit tremendously from it.) Shir Hever argues that the occupation stopped being profitable around the first Intifada mostly due to increasing security costs. In 2011, Hever estimated that the occupation cost around 9 billion dollars, which was about 9 percent of Israel’s budget at the time. On the other side of this debate, Noam Sheizaf notes that this reasoning ignores how much Israeli companies and Israelis in general gain from land grabs, natural resource extraction, and labor exploitation. Unfortunately, Sheizaf notes how difficult it is to calculate these economic benefits. Regardless, in order to come to a conclusion, one must also take a stance on highly political questions such as historic rights to land, the legacy of anti-Semitism in Europe, Britain’s pre-1948 policies, and various political movements from the left and the right that have identified as Zionist for over a hundred years. I don’t have the knowledge or desire to jump into any of those debates.

Furthermore, when it comes to Israel/Palestine, I tend to think that semantic debates about whether or not Zionism is a settler colonialist project can distract from other aspects of the conflict. The words we choose often matter, but those arguments can lead to more bickering over the boundaries of concepts than to discussions of the violence on the ground or ways to transform it into a just peace. While I’m not going to take a stance on your primary question, some economic facts about the present occupation help to shed light on the power differential and make equivocating about the morality of the occupation and blockade less tenable.

In the Gaza Strip and West Bank, it is possible to estimate the infrastructure damage from the most recent war and some of the economic costs of the occupation. For the former, the Palestinian Authority estimates that the most recent war will cost $7.8 billion to rebuild in Gaza. For context, Gaza’s gross domestic product was $2.4 billion in 2011. (In contrast, the military grant to Israel from the U.S. in 2011 was $3.0 billion, which is in line with the years before and after it.) While finding more recent data for Gaza’s GDP is difficult, the cost of rebuilding is on the order of three times the size of Gaza’s economy; in comparison, operations for the Iraq War cost around 1 percent of U.S. GDP during the most expensive years of the war. Importantly, the cost of rebuilding does not come close to the total economic cost of the war, which should include estimates for the cost of work disruptions, lost educational investments, services to process trauma, etc.

Similarly, it is possible to calculate a conservative estimate of the yearly costs of the occupation in the West Bank and Gaza Strip. In 2011, the United Nations helped fund a study by the Palestinian Ministry of National Economy and the Applied Research Institute to look into these questions. The authors recognize the limitations of the data, and they consistently make conservative empirical decisions, which mean that their estimates are likely much lower than the actual amount. Despite this, the study finds that the occupation cost the Palestinian economy $6.9 billion in 2010, or 84.9 percent of total Palestinian GDP. Without the occupation, these authors determine that the Palestinian economy would be almost twice as large and not reliant on foreign aid. The costs come from limited resource access, movement restrictions, the Gaza blockade, etc. The graph below helps put some of this in perspective.

occupation1

While Israeli spending on the occupation jumps out as a surprisingly large category in comparison, this was 9 percent of Israel’s budget and 3.9 percent of Israel’s GDP in 2011, both of which would soar over the other statistics if included. Also, it is worth pausing to reflect on the fact that all of the formal activity in the Palestinian economy (GDP) is about the same size as Israel’s spending on the occupation and only about three times the amount of money that the U.S. gives to fund the Israeli military. This matters because Israel’s economic power makes it relatively easy for the government to meaningfully improve the conditions of Palestinians or make certain economic concessions, which is somewhat similar to how their military power makes it easier for them to avoid breaking international law. Furthermore, the economic desperation of many Palestinians makes certain forms of violence understandable if not acceptable. Economic figures provide another way to talk about an imbalance of power.

in solidarity,

ben wolcott

Government Contractors and the Corporate Welfare State

Dear econo-missed,

There’s a lot of talk in the press about how inefficient and wasteful government is. But it seems an awful lot of our tax dollars don’t actually go to government, but rather are doled out by the government to private contractors. So I wonder how much of the alleged government waste and inefficiency may come from redirecting public funds to the private sector. What are your thoughts on this?

Is there any good research breaking down what percentage of government money is directed to the private sector versus what’s retained in the public sector (even for a particular department would be instructive if data for the entire government is hard to come by)?
Thanks,

Lauren

 

Hi Lauren,

Great question – research suggests that one of the ironies of the right is its twin commitment to slashing government budgets and outsourcing government jobs to private contractors. While proponents of government outsourcing argue that hiring private sector firms saves money, improves services, and offers flexibility for short projects, these arguments don’t stand well under closer scrutiny. This raises the question of why so many right-wing politicians always go to bat for the private sector (whose answer probably has something to do with lining their own pockets), but my response is going to focus on taking down the ideological argument.

While the question around savings is a somewhat difficult to comprehensively answer because the government does a poor job of collecting data, the nonpartisan watchdog Project on Government Oversight (POGO) released a well-researched report on this issue in 2011. They found that in 2010, a quarter (or $320 billion) of the $1.26 trillion federal discretionary spending budget went to private contractors.

This doesn’t pose a problem for the Heritage Foundation, which argues that federal employees earn more than private sector workers, so outsourcing saves tax dollars. But contractors aren’t your average private sector workers because the government is often the only buyer, and it struggles to get market rates, according to researchers at POGO. In their report, they estimate that contractors actually end up costing the government 1.83 times more on average than if federal employees had done the job. While it’s hard to estimate the total cost of federal outsourcing because of the data, it’s likely costing taxpayers tens of billions of dollars a year if not more than a hundred billion.

Despite recent coverage on out of control contractors in Iraq, another major argument for outsourcing is that contractors offer better services by streamlining the government. The idea is that shrinking the government allows it to take care of essential services while contractors motivated by profit can efficiently take care of tasks that they have expertise in. One fundamental problem with outsourcing is the limitations of a contract. It’s impossible to exactly specify all of the aspects of a service, and the pursuit of profit encourages contractors to follow the letter but the not the spirit of the contract. Evidence suggests that this mismatch between the incentives of the government and the contractor often leads to worse services.

Furthermore, proponents argue that governments need contractors when they have short-term projects. While these arguments often ignore how easily government agencies can hire temporary employees, POGO argues that it would not be difficult for the government to hire a pool of workers specifically to go from project to project to make it even easier.

Mainstream economists usually think of efficiency as achieving a certain goal with the least resources. This is easy to understand if you’re a company dealing with revenues and costs, but this framework gets much messier if you’re trying to maximize social goals instead of profits. It follows that it doesn’t make sense to call big government inefficient in an economic sense if there isn’t another way to meet agreed upon social goals. Furthermore, while firms can easily pursue profits, democratic institutions sometimes look inefficient in a broader sense (the idea being that money would better contribute to general welfare elsewhere) because of the costs of determining social goals and the inability to calculate the benefits. When you can’t easily put a dollar value on a goal, determining whether a program is worth it is inherently contestable. It’s perfectly reasonable to recognize the costs of a program and still argue that the benefits in terms of addressing inequality, structural racism, or environmental concerns are worth it.

That being said, evidence points to the conclusion that outsourcing does make the government less efficient in a standard economic sense. If you take the long view, perhaps it’s not so ironic then that the right both wants to slash government spending and raise costs through outsourcing. It doesn’t seem likely, but maybe tea party activists are betting that making the government less efficient will strengthen their case to turn back the clock.

 

in solidarity,

ben wolcott

Patently Absurd: the Ice Bucket Challenge in Another Context

This piece originally appeared on CEPR’s Blog on 8/28/14.

Social media and the commentariat are abuzz with updates and analysis on the Ice Bucket Challenge, an internet phenomenon where people do some combination of dumping cold water on themselves and donating money, raising over $90 million for the ALS Foundation so far.  While the ice bucket challenge has drawn support and criticism from various corners, it’s worth pointing out that foundations like the ALS Foundation, which fights “Lou Gehrig’s Disease on every front,” exist in their current imperfect form because of the structure of patent law.

Felix Salmon argues that donating money to disease-specific charities isn’t efficient.  Because of government underinvestment in basic research, numerous charities fundraise and funnel money towards specific research.  Salmon argues that it would be far more efficient for the government to fund basic medical research instead of having “a grab bag of disease-specific charities competing against each other”. 21 percent of the ALS’ Foundation’s budget goes to fundraising and administration.

Instead of arguing about whether people should or should not donate to the ALS Foundation or similar charities considering their inefficiencies, I want to develop a related point: private foundations shouldn’t have to lead basic medical research efforts.  Instead, the government should increase the $30 billion that currently goes through the National Institute of Health (NIH), so it can address this underfunded public good.

While NIH does conduct basic research, the U.S. heavily relies on the patent system to encourage private companies to come up with medical innovations.  Many people assume that patents are necessary to fund medical research, but this couldn’t be farther from the truth.  Researchers do not need massive financial incentives to do their job – you can simply pay them a wage.  That’s how the most of the economy functions.  Medical patents are nothing more than inefficient government-supported monopolies to help researchers recoup their costs.  For example, because people affected by some of the most socially and economically costly medical issues (HIV/AIDS for example) may not be able to pay high prices, there is little incentive for big pharmaceutical companies to conduct the risky research that would do the most good.  Patents create the wrong incentives for researchers and the companies that hire them.

The ten largest pharmaceutical companies capture a third of the market, and several have profit margins on the order of 30 percent.  Big pharma are big-time oligopolists who spend almost twice as much on promotion as on research and development.  That’s why Gilead Sciences sells Solvadi for $84,000 even though generics are available for less than $1,000 in Egypt.  While some of that money is going to recoup research costs, a significant portion is monopoly rent.

I’ve followed the back and forth between critics and supporters of the Ice Bucket Challenge. While they may fundamentally disagree about some issues, everyone outside of the pharmaceutical industry can probably agree that the ALS Foundation shouldn’t have to lead the fight for basic research.  The government should support public goods.  Medical patents certainly don’t.

Part 2: Returns to Whose College Degree?

This piece originally appeared on CEPR’s Blog on 8/27/14.

In a recent post, I argued that Avery and Turner’s research, cited by The New York Times’ David Leonhardt, ignores the experiences of students of color. For a variety of reasons, such as labor market discrimination, workers’ outcomes diverge significantly based on race. Research from CEPR, for example, showed that in 2013, recent black college graduates had more than double the unemployment rate (12.4 percent) of recent college graduates in general (5.6 percent), and more than half (55.9 percent) worked in jobs that do not require a college degree. Against this background, simply looking at the average return to college does not cut it; the payoffs are smaller and less certain for some groups of students than the overall average suggests.

Growing wage dispersion among college workers compounds this issue. While the rising difference between those with and without a college degree is well documented, fewer people discuss the substantial subset of college graduates who end up making less than high school graduates. John Schmitt and Heather Boushey found that for 25-34 year olds in 2009, one-in-five men with a college degree earned less than the average man with a high school degree. One-in-seven young college-educated women were in a similar position.

While the average person with a college degree outperforms the average high school graduate, it is likely that the marginal college enrollee (a person considering whether or not to attend college) will earn less than the current average college graduate, especially if we are talking about a large expansion in college enrollment. Furthermore, someone right at the margin between attending college or not would likely expect to have earnings as a high school graduate that are higher than the average high school grad even if they opted not to go to college. The potential student also cannot ignore the fairly high probability of leaving college before they earn a degree but after accumulating one or more years of debt, which can be especially high at for-profit colleges that also tend to target poor and minority students.

Considering these sobering facts, college doesn’t look like a “no-brainer” for everyone. As Schmitt and Boushey explain, individual students may rationally decide to avoid college even if this decision is socially unproductive.

Importantly, this blog post is not part of a financial advice column, and I would never discourage someone interested in applying to college from doing so. Instead, I and anyone else interested in increasing college enrollment needs to reconcile why it is that so many bright high school students decide to leave so much money on the table when they avoid college. The high price and weak economy are clear culprits. One way to increase the likelihood that students will decide to attend college is to lower the cost, thereby reducing the risk that they will end up with high debt and still have poor labor market prospects. Leonhardt ends his piece with the argument that 15 or 17 years of education should be the universal goal instead of 13. As the data clearly show, current policy is not likely to take us there.

Part 1: Returns to Whose College Degree?

This piece originally appeared in CEPR’s Blog on 8/25/14.

As college students head back to school and costs rise faster than inflation even using a conservative measure, it’s worth revisiting the dispute about the value of a degree. In May, David Leonhardt declared the debate closed, citing a paper by David Autor and explaining that the total cost of college is about negative $500,000 over the course of someone’s lifetime. (As Leonhardt notes, the original source for this estimate is a 2012 journal article by Avery and Turner.) To calculate the return to college, researchers basically subtract the costs of tuition and forgone wages from the average additional lifetime earnings associated with a college degree.

Leonhardt uses this half a million dollar number to argue that “from almost any individual’s perspective, college is a no-brainer.” Still, what does this say about the 30 percent of recent high school graduates in 2009 who decided against attending college or the share that started but never finished? Instead of blaming people without a college degree for their poor labor market prospects, it’s worth exploring why so many choose not to go to college or fail to finish even if they start. What factors including the system for financing a college education lead so many young people to leave so much money on the table?

While the returns to college argument justifies students paying any tuition as long as average wages can make up for it over the average person’s lifetime, the half a million dollar number deserves closer scrutiny. To start, the number is a rough average of the paper’s $590,000 estimate for men and $370,000 calculation for women. Clearly, while women benefit tremendously from college on average, men benefit more.

The issues get more complicated with a better understanding of Avery and Turner’s methodology. The appendix of their academic paper notes that they restrict the sample to white workers. While calculating new estimates for people of color is beyond the scope of this blog post, it’s fair to assume that the returns to college are lower for these students due to factors such as labor market discrimination. Therefore, an obvious way to encourage more students of color to attend college would be to increase funding for education and thus reduce the amount of money students must borrow.

The Economics of Gentrification and some other Thoughts

Dear econo-missed,

Can you explain some of the economics behind gentrification? How can I reconcile being a middle-class young person living in a historically working-class neighborhood with my progressive values? How much of gentrification is driven by individual decisions and how much is driven by the developers and land-use decisions by politicians and city planners?

Guilty in Petworth

 

Dear Guilty in Petworth,

I’m not an expert on gentrification, either as someone organizing on the frontlines or in an academic sense. That being said, I have some thoughts that come from struggling with similar questions, and I am happy to share where I’m at.

To start, it’s important that you’re asking this. A lot of people never take action because they don’t think that they know enough or feel held back by self-doubt. Guilt is a real emotion that can contribute to that, and I encourage you to try to find ways to move beyond it. (Personally, I’ve found this piece really helpful.) While guilt can make people interested in an issue, many find it hard to be a part of groups organizing towards solutions if the desire to do so comes from a place of guilt. I try to ground actions in my need to live in world without oppression and a sense of responsibility to fight for justice. It’s helpful to remember that while coming to terms with guilt is hard, it’s much tougher to be pushed out of a neighborhood that you’ve been a part of for years.

While an analysis of gentrification in a neighborhood should ground itself at the intersections of local economics, history, social relationships, and politics, it’s possible to note a few common economic causes. First, gentrification usually occurs in neighborhoods that local governments have historically neglected. Neil Smith argues that “rent gaps” drive gentrification. A rent gap opens up when there’s a difference between the potential value of land and its current profitability for its owners. Property owners have an incentive to earn larger returns even if the process of doing so leads to displacement due to unaffordable rents and the increasing cost of goods and services. In my mind, the big problem with gentrification is not change per se, but the economic disruption that often comes with it.

Some argue that another cause of gentrification is that cities’ job markets change, often away from manufacturing jobs and towards white-collar jobs. Tied to this deindustrialization, local businesses shift to meet the demands of the changing workforce. Others point out the increasing role of local and state governments in encouraging gentrification to boost tax revenue.

In contrast to the idea that gentrification causes displacement, some policy analysts have found surprising results suggesting that gentrification helps prior residents on average, which is probably in part due to new jobs and government funding. First, there is no average prior resident. Some residents will get better jobs and others will be displaced. Even if certain economic comparisons look better after a period of gentrification, this does not mean that cities should abandon displaced residents. Instead, local governments should recognize and support residents’ basic housing rights. The argument that prior residents of gentrifying neighborhoods are more successful also relies on comparing them to residents in neighborhoods that local governments have historically neglected. This comparison doesn’t make much sense because gentrifying neighborhoods tend to receive more local funding.

You’re also trying to come to terms with your role in this process, and like many, you want to know if it is reasonable to blame the economy instead of your own personal decisions. My general instinct is that both you and economic forces are partially responsible because neither would succeed in gentrification without the other. While your decision is not individually causing long-term residents to leave their homes, the choice to not live in gentrifying neighborhoods can be an important symbolic action (although this piece makes an interesting argument otherwise). The world is complicated enough that making value-based decisions is usually good even if you don’t see exactly how they will lead to structural change. Furthermore, while unorganized consumer activism cannot create real change on its own, it can be quite effective if pared with other forms of action.

Recognizing the need to organize for structural change questions the premise of what you wrote. Instead of asking who’s to blame for gentrification, it’s more helpful to ask how to support long-term residents who face displacement. The blame game that many of us are used to is part of a larger problem among people with progressive politics. Many of us worry so much about messing up or appearing to not have it all figured out, that we never take action. It’s pretty surprising that such smart and fun people haven’t yet internalized Wayne Gretzky’s famous quote about missing 100 percent of the shots you don’t take.

A progressive politics demands that cities recognize people’s basic housing rights. In order to live in a better city that takes care of all of its residents, you can find ways to support local groups fighting against gentrification and the underinvestment in poor communities regardless of where you live. That might be easier to do if you’re not gentrifying, but at the end of the day, it’s much more important to find ways to support local groups organizing for structural change. It’s one way to be a good neighbor, which is essential if you’re moving into a gentrifying neighborhood.

 

in solidarity,

ben wolcott

 

Note: Thanks a bunch to Alexa Ross for her insightful comments during my writing process.