Author Archives: James Kwak

Why Are We Beating Up on Single Payer?

By James Kwak

Single-payer health care has emerged as the primary symbol of the differences between Bernie Sanders and Hillary Clinton. For his supporters, Sanders’s plan is the centerpiece of his vision of a European-style, social-democratic society in which health care is a right that is fully funded by largely progressive taxes. For Clinton supporters, it is the best example of Sanders’s misguided utopianism—a naive plan that has no chance of passage and that would be less effective than incremental improvements to Obamacare.

The Clinton camp has been ecstatic about a critical analysis of Sanders’s plan by Kenneth Thorpe, a health care expert who has supported single payer in the past. Thorpe argues that the plan is underfunded by more than $1 trillion and, if fully funded, would cause most people to pay more for health care than they do today. Thorpe’s analysis was publicized by Dylan Matthews and highlighted by Paul Krugman as further evidence that all the serious people support Clinton. Clinton herself likes to say, “The numbers just don’t add up.”

I have a few points to make about Thorpe’s analysis and what we should take from it. The first, simplest, and most obvious is this: Even if Sanders’s plan has problems, if the goal is single payer, then Sanders is the only choice. We know a Clinton nomination will bring us no closer to single payer. A Sanders nomination will bring it within the spectrum of future possibilities, even if it won’t be passed in the next two years. (Remember Newt Gingrich’s crazy plan to voucherize Medicare in 1995? Well, now it’s not that far from passage.) A Sanders presidency would make it possible to develop a better, more realistic plan; that’s what advocates of single payer should be hoping for.

Continue reading

Donald Trump Is Running as a Conservative Republican

This guest post was written by Lawrence Glickman, Professor of History at Cornell University (and a friend from long ago when we were both graduate students at Berkeley).

As the summer of Trump turned into a phenomenon for all seasons, the Donald’s typical stump speech has grown into a bloated piece of performance art, lasting about one hour. A lot of that time is filled with bluster about how well he is doing in the polls, about how The Art of the Deal is his favorite, I mean second favorite book, after the Bible. And usually there are several more comments along the lines of, “by the way did I mention I’m doing well on the polls.”

In his speech in Des Moines on February 1, the evening of the Iowa caucus, Trump had to radically distill his campaign pitch into a two minute appeal. Presumably the pithiness forced him to highlight the most important parts of his campaign message. So what did he say? What can his candidacy be boiled down to? It turns out that for all the talk about Trump’s “populism” and his embrace of unorthodox positions, he offered talking points would have been familiar at a Rubio, Cruz, or for that matter, Jeb! rally.

Trump began by saying that “Obamacare is going to be repealed and replaced.” Then, he observed about the government that “everything that we’re doing has been wrong.” After condemning our unsustainable debt (“we owe 19 trillion dollars”) he discussed misplaced and wasteful priorities: “the budget that we just approved…funds everything that all of us in this room don’t want to see it fund.” He complained about the Iran deal and discussed the need to “build a wall” along the Mexican border.

Other than Trump’s signature claim that “Mexico is going to pay for the wall,” there was nothing outside the Republican mainstream in his litany. Compared to the other Republican candidates, who regularly spout apocalyptic rhetoric about ISIS or about dangerous trends in government overreach, his view that “we’re in trouble” seems completely in tune with the GOP chorus. Trump, being Trump, did toot his own horn, although, he assured the audience, not in a “braggadocious way” by talking about his “great, great company.” But that was only to highlight his credentials to run the country “the way it’s supposed to be run,” presumably in a business-like manner.

Continue reading

The Future of the Democratic Party

What liberals can learn from conservatives

The future of the Democratic Party is the theme of the lead article in yesterday’s New York Times. The story more or less writes itself: you have Hillary Clinton, the face of the moderate Democratic establishment (and the spouse of the man who created it), versus Bernie Sanders, a socialist, in a battle most people thought she would have wrapped up months ago.

A lot of liberals like me spend our time wondering what the conservatives have done right—and why we can’t do it ourselves. The financial crisis and Great Recession should have debunked the ideology of deregulation, reinforced growing feelings of economic insecurity, and made people recognize the importance of the social safety net. Instead, we got the Tea Party and the most conservative Congress in living memory.

Seen in the broader sweep of history, conservatives have been relentlessly pushing the nation’s political agenda to the right on most issues (gay rights being almost the only exception), even as public opinion on most social and economic issues remains largely unchanged. Marco Rubio—just four years ago a darling of the Tea Party—is now the last hope of the Republican “moderate” establishment: what other proof is needed of the success of conservative ideology? Sure, extremism makes it hard for Republicans to win presidential elections. But although Democrats have won four and a half out of the past six contests, the result has been lower taxes on the wealthy, smaller government, no progress on climate change or gun control, and a solidly conservative federal judiciary.

So why can’t we do the same?

Continue reading

Mark Zuckerberg’s $45 Billion Loophole

Much of the Internet is giddy over Mark Zuckerberg and Priscilla Chan’s “pledge” to give “99%” of their Facebook stock to “charity.” Bill and Melinda Gates said, “The example you’re setting today is an inspiration to us and the world.” Unfortunately, it’s not a very good example.

Since the last gilded age, the super-rich have generally given to charitable organizations or to their own charitable foundations. That’s why we have the University of Chicago, Carnegie Hall, and the Getty Center, to name a few. Today’s new class of gazillionaires has largely followed in their footsteps: Gates created the Bill and Melinda Gates Foundation, Stephen Schwarzman gave $150 million to Yale, John Paulson gave $100 million to Central Park, and so on.

Well, Mark Zuckerberg has found a different way.

Instead, he’s creating an LLC that he owns (the Chan Zuckerberg Initiative), giving his stock to the LLC, and telling us all that the LLC will do wonderful things for the world.

Quick primer: A limited liability company is just a type of business organization, like a partnership or a corporation. It has owners, who control it, either directly or through managers whom they appoint. It can do anything that any other profit-seeking business can do. It doesn’t pay taxes; instead, its profits, losses, or deductions simply get transferred to its owners’ tax returns. Its primary advantage is that it is extremely flexible: you can design an LLC more or less any way you want.

So let’s say Zuckerberg and Chan give 99% of their stock to their LLC. What does that really mean?

First off, “give” is the wrong word to use in this context. That implies that the money is irrevocably going from them to something else.

In this case, they are investing in their own company. Because it’s an LLC, they still have complete control of the money.

That means they can, among other things:

  • Write checks from the LLC to themselves as its owners, pay themselves salaries for running the LLC, borrow money from the LLC, borrow money personally using LLC shares as collateral, sell some of their shares in the LLC to other people, or take cash right back out in many other ways.
  • Use the LLC to buy houses they live in, offices that they work in, etc..
  • Invest in profit-making companies.
  • Contribute to political campaigns or super PACs, engage in direct political activity, or lobby legislators.
  • Pay for his own political campaigns, if he so chooses.
  • Give money to charitable foundations or operating 501(c)(3) nonprofit organizations.

Essentially, Zuckerberg can do everything with the LLC’s money that he can do with his own money. So on the most substantive level, he hasn’t done anything except announce some vague intentions. The “99%” claim made a lot of headlines, but there’s a lot less there than meets the eye. A lot of things that other billionaires do with their own money—like invest in other companies—Zuckerberg can now do with the LLC’s money. The only thing he seems to be saying is that he and his family will restrict their personal consumption to 1% of his fortune (about $450 million), but even that is not entirely clear. He certainly retains the ability to take money back out whenever he wants, and the LLC will almost certainly do some things that really are personal consumption (like political contributions). In addition, whenever the LLC makes a contribution to a real charity, the associated tax deduction will flow back up to Zuckerberg and Chan. So to the extent that they have to sell stock to pay for their consumption, they will never pay tax on those sales. (Put another way, their remaining $450 million, as well as any money they make in the future, is now all after-tax money.)

Is this really so bad, though? I mean, he says he will use the LLC to make the world a better place.

But compare what he’s doing to what past tycoons, up to and including Bill Gates and Warren Buffett, have done. They donated directly to charitable organizations or to charitable foundations. There are a lot of criticisms you can make of the current “charity” system that exists because of the tax deduction for contributions: a lot of recipient organizations do little good for society, some do harm (like the NRA’s 501(c)(3)), and the tax deduction directs money from productive investments to mega-rich institutions like Harvard University. But Gates and his predecessors at least agreed to play by certain rules: not to take the money back if they changed their minds, not to use it to further increase their wealth, not to use it influence the political system (although that rule has some loopholes), and so on. The idea was that if you became a multi-billionaire, you would relinquish some of your control over a large chunk of your wealth and irrevocably dedicate it to attempting to improve society, according to rules that society has agreed on. That’s what the Giving Pledge was all about.

Mark Zuckerberg doesn’t want to play by the rules. He thinks he can do a better job. Maybe he can, although I don’t have any reason to believe that’s true. This is the next step in the privatization of philanthropy. No more Giving Pledge. Instead, we’ll have the Keeping Pledge:

I pledge to keep all of my wealth and use a lot of it to make the world better place, as long as I get to define “a lot” and “better.”

Mark Zuckerberg isn’t the first person to make the Keeping Pledge. The Koch brothers already did: they’ve given away lots of money to charity, but they’re keeping even more to spend on politics, because they believe that that’s the most effective way to make the world a better place (as they see it).

Zuckerberg’s LLC’s investments may end up having as much positive impact on the world as the Gates Foundation’s (although I’m not sure how high a bar that is to begin with). Most likely we’ll never be able to evaluate it in any kind of definitive way. But it is certain to have a different impact in the short term. Other super-rich people will feel no pressure to sign onto the Giving Pledge or donate their money to the traditional charity system. Instead, they will create their own LLCs, maintain complete control over their money, and spend it on their own pet projects and political issues. That’s not a good thing.

Also posted on Medium.

Request from Two JMU Professors for Help with a Research Project

By James Kwak 

I received the following this morning and thought it was interesting.

We are writing to ask your help in bringing some empirical measurement to the long-standing question: On matters of economic policy, do liberals understand conservatives better than conservatives understand liberals, or is the reverse true?  In response to Krugman’s claim that liberals have the edge in understanding rival views (http://fivebooks.com/interviews/paul-krugman-on-inspiration-liberal-economist), Caplan disagreed and suggested a type of ideological Turing test to measure the ability of individuals to “state opposing views as clearly and persuasively as their proponents” (http://econlog.econlib.org/archives/2011/06/the_ideological.html).  Specifically, could it be determined whether one is conservative or liberal through an online question-and-answer exchange?

Although we are unable to conduct the ideal test, we have developed a multiple-choice version of this Turing-like economic policy test. At http://econturingtest.com, we have posted a ten-question economic policy test. Respondents will take the test and then anonymously report some information about themselves. With the statistical results, we hope we can shed some light on this research question.

We have received approval from our Institutional Review Board (approval No. 16-016) to offer this online survey. Now all we need is traffic to the website, and that’s why we’re appealing to you now. We are asking the top 30 economics blogs in 2012 and 2013 according to the Onalytica rankings to post a note for us. When our study is complete, we will be providing results to all who ask and seeking appropriate publication outlets.

Thanks in advance for any help you may be able to offer. If you have questions, please let us know.

Sincerely,
William Wood and Angela Smith
James Madison University-Economics

My thoughts after taking it are after the break …

Continue reading

Talking About Inequality …

By James Kwak

How about this?

In Georgia, you can get a life sentence for a second or succeeding drug offense.

Right now, there are 375 people serving those life sentences. 369 of them—more than 98%—are African-American.

There’s no population base rate that can explain that discrepancy. One justice on the Georgia Supreme Court found that an African-American with two or more drug priors is 28 times as likely to get a life sentence than a white person with the same record.

Or this?

Continue reading

60% of Ted Cruz‘s Tax Cut Goes to the Top 1%

By James Kwak

I haven’t been commenting on Republican tax plans this season because, well, it takes a lot to impress me when it comes to absurd tax cut proposals. Ted Cruz has done it.

The major components of Cruz’s plan amount to this:

  • A flat 10% tax on individual income (labor and investments)—down from top rates today of 43.4% on labor and 23.8% on capital gains and dividends
  • No payroll taxes (15.3% for most people today), corporate income tax (average rate about 13% today), or estate tax
  • A 19% value-added tax (16% of gross business receipts, including the tax)

There are two big things that are crazy about this plan.

The first is that it eliminates an enormous amount of tax revenue: $3.6 trillion over ten years, according to the right-wing Tax Foundation’s “static” analysis—that is, before the growth fairy waves her magic wand. To put that in context, that’s more than we plan to spend on the military over the next ten years.

The second is the astonishingly naked handout to the very rich:

60% of the tax cut goes to the top 1%.

That leaves only 40% for everyone else.

Continue reading