Strong and Weak Management: The Case of American Bus Companies and Regional Transit Authorities

By the end of the 2010’s, city officials in several American cities were rethinking bus service in a fundamental way; the passenger-fare revenue model was being questioned, and in some cases replaced with a model that fit better with serving poor people and changed local business environments. Yet the downside effects on the bus companies of trends, especially regarding ridership, may have been the result of internal organizational factors immune to a change in the revenue model. I contend that city officials and the managers of bus companies should resist the temptation to view a new model as a cure precisely because some problems, internal to the companies, could go on and silently undermine analysis of the new model such that it could erroneously be discontinued. To be sure, being willing to question a longstanding model is a mark of managerial strength. Indeed, it is precisely the managers of bus companies and regional authorities who are mired in longstanding assumptions who would tend to have the most difficulty in dealing with troublesome internal problems. 

Providers of goods or services must adjust to changing local environments, which in turn are impacted by broader trends. Bus companies and regional authorities in the U.S. faced increasing traffic congestion as well as decreasing ridership from 5.6 billion in 2008 to 4.67 billion in 2018.[1] Also, competition ranging from electric scooters to ride-hailing services like Uber and Lyft were literally driving people away from buses nationwide, according to transit officials. Light rail and subways, which do not have to fight street congestion, also saw ridership decline, but not as much as buses. There was also the argument that the very poor, including the homeless, who generally rely on bus service, are least equipped to pay for it. Many universities were already using the student-fee model for university bus service, spreading the cost wide enough that the students could afford the service. Alternatively, only students who used the service could have paid for it, which would have been particularly hard on poor students.

In the altered environment in which bus companies found themselves by 2020, the concept of free fares on some or all bus routes was drawing increasing support in several cities. “Advocates in Massachusetts claimed that free buses would speed up boarding times, draw more passengers, aid poor residents and help reduce greenhouse-gas emissions.”[2] Michelle Wu, a member of the Boston City Council who supports free transit, remarked, “If we’re truly treating it as a public good that has benefits to everyone when everyone uses it, then we should remove barriers.”[3] To the extent that poor people are especially in need of a public good, charging a user free can essentially privatize the good for the poor.

The poor may go without transportation needed for their very sustenance, or resort to fraud. In Phoenix, Arizona, for example, people needed only go to a convenience store to buy reduced-fare cards otherwise reserved for the elderly and disabled. As of 2020, enforcement on the buses was rare; few if any drivers asked to seek the accompanying ID of discount fare-riders. Even on the light rail, security employees intent on staring at passengers as if they were all conducive to violence would not bother to even ask to see the ID. In fact, passengers who had not paid were let out at the next platform, from which they could easily board the next train. Lest the shady passengers get all the blame (though surely they deserve a lot for their sordid attitude alone), the revenue model itself was culpable because it did not adequately take into account the extremely limited financial resources and vital transportation needs of the very poor. Such a regional transit authority and its bus operating companies would not likely be willing or able to address internal problems, such as rude drivers and horrendous (and risky) driving. Phoenix buses were widely known locally for these two things. Also, it was not uncommon to see three or four transit security employees in half of a light-rail train car staring at passengers as if the latter were prisoners.

Put another way, city and transit officials in the Phoenix metro would not be likely to analyze, let alone perceive the free-rides option because they were so preoccupied with, and yet unsuccessful at, stopping the ticket fraud in order to boost revenue from riders. Getting serious with bus drivers who were rude and/or bad drivers was something beyond the reach (and will) of the bus operating management and regional transit authority. Moreover, the political environment in Arizona was such that a majority of the voters would have balked at the prospect of paying for poor people to ride free. Minimizing tax increases fared much better in that political climate.

A world away, in Lawrence, Massachusetts, the region’s transit authority in September, 2019 stopped collecting money on three routes that go through the poorest parts of the city. Lawrence used $225,000 in reserves to waive fares for two years. Lawrence Mayor Dan Rivera explained the rationale for free rides. “We could support those citizens to mobilize themselves out of poverty.”[4] The regional transit agency said ridership on the three free lines climbed quickly—up about 24% in the first few months from a year earlier.

In Olympia, Washington’s capital, a ballot measure in 2019 that boosted transportation funding helped the Intercity Transit agency start offering free service on all buses in January, 2020, according to Ann Freeman-Manzanares, the system’s general manager. Fares there amounted to $2.7 million annually, a small portion of the agency’s budget, and some of that is spent maintaining fare boxes and collecting cash. “It actually was surprising to us when we started digging deep how much it costs to collect fares,” Ms. Freeman-Manzanares said.[5]

In Kansas City, the local transit authority was overhauling its bus service and already offered free rides to veterans and students. The authority aimed to completely cancel fares by May, 2020, Chief Executive Robbie Makinen said. The city council voted unanimously in December, 2019 to find about $8 million a year to cover free buses, which were already heavily supported by taxpayers.

Meanwhile in Phoenix, bus drivers regularly held up their buses waiting for passengers to dig for more coin—not having bothered to do so before boarding. Also, the fare machines on the buses were old, and thus particularly susceptible to breaking down, in spite of the priority on revenue from passengers. The bus operating companies and the regional authority erroneously accepted these intangible and tangible costs as necessary in part because the managers assumed the passenger-revenue model being used to be fixed rather than possibly replaced.

Generally speaking, a mind wetted to one way of thinking as if a blind card set in a highly rutted dirt road is likely to accept as necessary too many costs because another way of thinking, a broader one, would be necessary to take into account other models even though their costs would be lower. A mind willing and able to perceive and think beyond its groves is necessary. Though such a mind is likely to be more motivated and able to take on seemingly intractable internal problems, such as rude drivers and bad driving (e.g., accelerating too fast, and braking too hard), even being willing to think wider may not be sufficient. Hence it is possible that the continuing internal factors (i.e., problems within a bus company) could sabotage a new model’s perceived efficacy.

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[1] Jon Kamp, “Cities Offer Free Buses in Bid to Boost Flagging Ridership,” The Wall Street Journal, January 14, 2020.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

Increasing Income Inequality in the U.S.: Deregulation to Blame?

Most Americans have no idea how unequal wealth as well as income is in the United States. This is the thesis of Les Leopold, who wrote How to Make a Million Dollars an Hour. In an essay, he points out that the economic inequality increased through the twentieth century. His explanation hinges on financial deregulation. I submit that reducing the answer to deregulation does not work, for it does not go far enough.
In 1928, the top one percent of Americans earned more than 23% of all income. By the 1970’s the share had fallen to less than 9 percent. Leopold attributes this enabling of a middle class to the financial regulation erected as part of the New Deal in the context of the Great Depression. In 1970 the top 100 CEOs made $40 for every dollar earned by the average worker. By 2006, the CEOs were receiving $1,723 for every worker dollar. In the meantime was a period of deregulation beginning with Carter’s deregulation of the airline industry in the late 1970s and Reagan’s more widespread deregulation. Even Clinton got into the act, agreeing to shelve the Glass-Steagall Act, which since 1933 had kept commercial banking from the excesses of investment banking. The upshot of Leopold’s argument is that financial regulation strengthens the middle class and reduces inequality by tempering the wealth and income of those “on the top.” Deregulation has the reverse effect.

The increasing role of the financial sector in the second half of the 1900s means that finance itself could claim an increasing share of compensation.  

Leopold misses the increasing proportion of the financial sector in GDP from the end of World War II to 2002. The ending of the Glass-Steagall act in 1998 does not translate into more output on Wall Street relative to other sectors. Indeed, the trajectory of the increasing role of finance in the U.S. economy is independent of even the deregulatory period. Leopold’s explanation can be turned aside, moreover, by merely recognizing that the “young Turks” on Wall Street have generally been able to walk circles around the products of their regulators. Even though financial deregulation can open the floodgates to excessive risk-taking, such as in selling and trading sub-prime-mortgage-based derivatives and the related insurance swaps, I suspect that the rising compensation on Wall Street has had more to do with the increasing role of the financial sector in the American economy.
The larger question, which Leopold misses in his essay, is whether the “output” of Wall Street is as “real” as that of the manufacturing and retail sectors, for example. Is there any added value to brokering financial transactions, which in turn are means to investments in such things as plants and equipment used to “make real things”? Surely there is value to the function of intermediaries, but as that function takes on an increasing share of GDP, it is fair to ask whether the overall value of “production” is inferior.

Given the steady increase of the financial sector as a percent of GDP, one would expect a more steady divergence of these two lines. Reagan's deregulation fits the divergence pictured, though one would expect a further increase in divergence after the repeal of the Glass-Steagall Act in 1998.  Source: Les Leopold

As for the rising income and wealth of Wall Streeters, increasing risk, which is admittedly encouraged by deregulation, is likely only part of the story. If the financial products are premium goods as distinct from the goods sold at Walmart, for instance, then as the instruments are increasingly complex one would expect the compensation to increase as well.
Leopold is on firmest ground in his observation that Americans are largely oblivious to the extent of economic inequality in the United States. Few Americans have a sense of how much more economic inequality there is in the U.S. than in the E.U., where the ratio of CEO to average worker compensation is much lower. One question worth asking centers on what in American society, such as in what is valued in it, allows or even perpetuates such inequality, both in absolute and relative terms. The relative terms suggest that part of the explanation lies in cultural values having relative salience in American society. Possible candidates include property rights and the related notion of economic liberty, the value placed on wealth itself as a good thing, and the illusion of upward mobility that allows for sympathy for the rich from those “below.”
In short, beyond actual regulations, particular values esteemed in American society and the increasing role of the financial sector in the American GDP may provide us with a fuller explanation of why economic inequality increased so during the last quarter of the twentieth century and showed no signs of stopping during the first decade of the next century. Americans by in large were wholly unaware of the role of their values in facilitating the growing inequality, and even of the sheer extent of the inequality itself. In a culture where political equality has been so mythologized, the acceptance of so much economic inequality is perplexing. At the very least, the co-existence of the two seems like a highly unstable mixture from the standpoint of the viability of the American republics “for which we stand.” Yet absent a re-calibration of societal values, the mixture may be an enduring paradox of American society even if the democratic element succumbs.

Source:

Les Leopold, “Inequality Is Much Worse Than You Think,” The Huffington Post, February 7, 2013.

Congressional Cuts to Food Stamps: Violating a Human Right?

The natural right to food unconditionally in society is based, I submit, on the assumption that it is because a person without food is in society that he or she is without food. Were the person in an agrarian economy in which people live off the land, having enough food to eat would not be such a formidable problem. Rousseau makes this point in his Discourse on Inequality.[1]  Hence, Mandeville's finding of an equal distribution of food among city dwellers because farmers sold their surplus crops to buy frivolous vanities can be viewed as highly optimistic, and, along with that account, so too Adam Smith's claim that competitive markets satisfy the food needs of specialized factory-laborers by means of competitive markets. Hence the need for governments to supply food to the most vulnerable, whose incomes and other expenses, such as rent, keep people from being able to participate in (competitive?) food markets. 

During the debate in the U.S. House of Representatives in June 2013 on a proposed $20.5 billion in cuts over 10 years to the Supplemental Nutrition Assistance Program (SNAP), otherwise known as the food stamps program, proponents of the cuts denied that they would make it more difficult for the poor to feed themselves. Rep. Rick Crawford claimed that the cuts would be “eliminating abuse.”[1] For example, some drug addicts sell their “food stamps” for something like half value and use the cash to buy drugs. The addicts manage to get their food at pantries and soup kitchens. While such fraud exists, the proposed cuts would have hit bone. According to the Center on Budget and Policy Priorities, nearly 2 million people would lose SNAP eligibility were the cuts to become law.[2] After the debate, “Tea Party” Republicans wanting even more cut combined with Democrats against any cuts defeated the proposal. Three months later, the U.S. House voted 217 to 210 to cut food stamps by $40 billion.  Obama had already promised a veto, which the tally could not overcome. Even so, that no vote had been taken to suspend or end foreign aid to Egypt on account of the military coup or to cut corporate welfare is telling in what this says about priorities. Even as some House supporters of the bill insisted that the innocuous decrease in federal funding merely reflects increased enforcement of existing income limits, still other House supporters admitted that the cuts are oriented to getting as many able-bodied (i.e., non-disability) recipients as possible to get a job. "If you're a healthy adult and don't have someone relying on you to care for them, you ought to earn the benefits you receive," said Rep. Tim Huelskamp (R-Kan.). "Look for work. Start job training to improve your skills or do community service. But you can no longer sit on your couch or ride a surfboard like Jason in California and expect the federal taxpayer to feed you."[3] That is to say, rather than being a right, sustenance ought to be contingent on work. To the extent that the bill reflects this aim, more was involved in the cuts than merely strengthening enforcement of existing caps. In fact, the proposed decrease in funding could even take a pound of flesh out of the human right to sustenance in a society of interdependence.

I suspect that part of the argument on behalf of earning as a prerequisite reflects a failure to realize that the increased number of food recipients since 2007 was in large measure due to the post-financial-crisis economic downturn. In 2012, for example, the SNAP program spent around $80 billion on about 47 million Americans—one in seven.[4] According to the Congressional Budget Office, the increased cost and usage of the program over the previous few years was due to the recession following the financial crisis of 2008 and the subsequent nearly-jobless recovery.[5] Nevertheless, the ballooning cost made the program vulnerable politically to being “downsized.” Hence the debate on the U.S. House floor in June 2013 and the claim on the Hill that too many Americans had become dependent on the federal government for food. Meanwhile, people on food stamps were wondering how they were supposed to get off the aid when “there are no jobs.”[6]

A similar catch-22 or double-bind would also apply to the proposal by Rep. Steve Southerland “that would allow—but not require—individual states to test work requirements.”[7] The 1996 welfare law had included work requirements for food-stamp recipients, though most states would be granted waivers by the Obama administration. Getting recipients to attend mandatory weekly “check-in” meetings and fill out weekly job search forms, let alone actually find a job, turned out to be a lesson in futility for state employees. Members of Congress and the Clinton administration had put the front-line employees at the local level in an impossible position of fitting a federal uniform requirement with the actual conditions of the recipients. In regard to Southerland’s proposal in 2013, while it would accommodate the different conditions of the states and respect their portion of sovereignty, a work requirement would not fit with the children, elderly and disabled, who make up a significant number of the recipients. Again, it would seem that members of Congress are out of touch, with ordinary people potentially at risk of having to pay the price. Rather than expecting an answer from reason to unravel the "earnings/no jobs" double-bind, we need to look at the passions whose role is hinted at by the existence of the logical contradiction itself.

I contend that the earnings-rationale is in part actually exaggerated anger at real abuses. That is, the work ethic is in part a front here for an instinct to retaliate. Plato would point out at this point that a person talking reason to one's own undisciplined passion is necessary to render such a psyche just (i.e., passions and courage ruled by reason). Moreover, a polis (i.e., society) is just if and only if it is ruled by reason rather than passions such as resentment. As is often the case with vengeance, collateral damage unforeseen by the hypertrophic passion would result. The vote had the potential of triggering a wake-up call of sorts concerning the realization that what happens in Congress can really hit home on Main Street. Sadly, the most vulnerable can indeed fall through the cracks, with the resentment rejoicing as the human right takes a hit.

Even reducing the funding of the SNAP program by a certain percent can set in motion consequences unknown to members of Congress. For example, well into a month in which the state had halved recipient food benefits, I went to a food pantry. The place was inundated with people who had run out of food funds unexpectedly early. SNAP recipients who had never been to the pantry had to wait two hours just to be registered, after which they were told to go to the end of the “regular” line.  The pantry ran out of food, rationing portions to most of the first-times and turning away still others. Recipients I spoke with scoffed at the notion that they were enjoying “being dependent,” and, moreover, had much choice in the matter, given the lack of jobs. As for the pantry’s volunteers, they admitted that their procedure for the first-timers was unfair; however, this did not keep the volunteers from using the occasion nevertheless to spread their Christian beliefs to the frustrated first-timers standing in their second line. Were Congress to reduce funding to the states for the SNAP program, it would not take much for the situation on the ground to get out of hand. From my observations, food pantries should not be relied on to fill up the slack.

Fundamentally, because food is a daily requirement for human beings, I contend that a daily supply of food is a human right. To make fulfilling that need contingent at all does not match the lack of contingency in the daily need. Subjecting it to the politics in Congress or a work requirement essentially holds the SNAP recipients hostage. Even just referring to food as nutrition is problematic, as the latter is not strictly speaking as much of a need as food itself. Eating more nutritious food is a worthy goal, whereas eating food is a daily requirement. Distinguishing, or bracketing, those things that are necessary for daily sustenance from all other budget items can thus be justified on the basis of human physiology—and thus human rights.

In dealing with something as necessary and individual as food consumption, small changes in a federal law can have huge, unexpected consequences as front-line state employees translate the changes as they affect particular lives. For this reason, Rep. Ryan’s proposal to move the SNAP program to the states in a block grant makes sense.[8] Besides state legislators being closer to the local contexts, a fixed block grant is more in line than Congressional programs with the dual-sovereignty feature of modern federalism. To be sure, the state governments would have the sole responsibility to see to it that the most vulnerable are not inadvertently blown over by violent political winds making even minor state-wide changes to the programs. As a rule of thumb, representatives in Congress could do much worse than treat food as unconditional in terms of human consumption. Hence, if a person cannot secure enough food on his or her own, the role of government would be to make food-sustenance as close to unconditional in practice as possible.

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1. Ned Resnikoff, “House Debates $20.5 Billion Cuts to Food Stamps,” MSNBC, June 18, 2013.

2. Dottie Rosenbaum and Stacy Dean, “House Agricultural Committee Farm Bill Would Cut Nearly 2 Million People Off SNAP,” The Center on Budget and Policy Priorities, May 16, 2013. “By eliminating the categorical eligibility state option, which over 40 states have adopted, the bill would cut nearly 2 million low-income people off SNAP.”

3. Arthur Delaney and Michael McAuliff, "House Votes to Cut Food Stamps by $40 Billion," The Huffington Post, September 19, 2013.
4. Associated Press, “House GOP Considers Food Stamp Work Requirements, Cutting Spending for Feeding Program,” The Washington Post, July 24, 2013.

5. Dottie Rosenbaum and Stacy Dean, “House Agricultural Committee Farm Bill Would Cut Nearly 2 Million People Off SNAP,” The Center on Budget and Policy Priorities, May 16, 2013. “By eliminating the categorical eligibility state option, which over 40 states have adopted, the bill would cut nearly 2 million low-income people off SNAP.”

6.  I heard this complaint from several people when I visited a food pantry run by a non-profit organization.

7. Associated Press, “House GOP Considers Food Stamp Work Requirements, Cutting Spending for Feeding Program,” The Washington Post, July 24, 2013.

8. Ibid.

Sustenance: A Human Right in America?

In the fall of 2010, the following was said on Fox News: “The government should spend more on the war in Afghanistan in order to fight terrorism. The problem is that the government has gotten into entitlements.”  The latter presumably includes food stamps, public housing, Social Security, Medicare, and Medicaid.  To say that government ought to be engaged in defense and not in supplying needy citizens with food, shelter and health-care is distinct from saying that the federal government should concentrate on foreign policy and defense, while entitlements are formulated and funded by the state governments as their domestic programs. In other words, advocacy for a certain priority in government and for less government is distinct from advocacy for restoring balanced federalism.

Most Europeans in the E.U. undoubtedly view the redistributive right for sustenance resources as founded on human rights and thus as a legitimate part of government.  In contrast, Americans do not typically apply a human rights justification to entitlements for other Americans even as foreign aid may be justified in part on this basis.

For example, on June 3, 2011, Donald Trump told a forum in Washington, D.C.: "A certain Republican representative, two nights ago -– I watched on television -– Representative Cantor, who [sic] I like, said we don't want to give money to the tornado victims, . . . (a)nd yet, in Afghanistan we are spending ten billion dollars a month but we don't want to help the people that are devastated by tornadoes -- wiped out, killed, maimed, injured. We don't have money for them but we are spending ten billion dollars a month in Afghanistan. We are spending billions of dollars in Iraq where they have the second largest oil fields in the world … and we can't help people that got flooded in Mississippi that got hit horribly by tornadoes." The U.S. House Majority Leader was holding up funds for basic necessities at home as leverage in debt-ceiling negotiations with the Democrats, while allowing billions of dollars to continue to flow in foreign aid (and to the U.S. military in Iraq and Afghanistan).  Canter’s antipathy toward government aiding citizens who would otherwise be left to the state of nature represents a rather warped understanding of a social contract.

People such as Eric Canter believe that the market mechanism trumps any right to have one’s basic needs satisfied. Resources are viewed as commodities produced and distributed by private enterprise, even though the market does not guarantee that every citizen’s basic needs are met. Even so, it can be asked whether the right to survival (i.e., life) is part of the American social contract. If so, then relying on the market mechanism alone is not sufficient.

If life is not part of the social contract, then the hungry and homeless, as well as the untreated sick, are (and can legitimately behave as if) in the state of nature. As much as some of the rich do not want to be taxed so the least fortunate can survive, the prospect of the latter behaving as if in the state of nature must surely be even less palatable.

James Madison writes in Federalist #51, “the weaker individual is not secured against the violence of the stronger” in the state of nature. Nor is the weaker secured against starvation and sickness.  Without the police to protect their property, are the rich sufficiently strong to ward off the hungry and homeless? Who is the strong and who is the weak in a dog-eat-dog contest between two human beings—one with a bank account and the other with a left hook? Life, Thomas Hobbes writes, is “solitary, poor, nasty, brutish and short” in the state of nature are all equal in the sense that any one of us can be killed in our sleep. Suddenly having some of one’s tax directed on a human-rights basis may not sound so bad.

What keeps those whose survival is so tenuous from simply taking from the rich is of course the funded social contract that protects property with police force even as there is no guarantee for survival. Such a warped social contract is an aberration in terms of social contract theory.

  The social contract undergirding a political society is meant to alleviate the fear of the want of necessities (and self-defense) while working for the happiness of the members.  In other words, there is a right to shelter, food and medical care. Otherwise, the society is only marginal or partial in obviating the insecurity that exists in the state of nature.

Therefore, to say that government should merely defend citizens from the insecurity of foreign invasion does not go far enough from the standpoint of why government is instituted as part of a social contract that takes people out of the state of nature. However, to say that an empire-level government ought to be charged with protection from foreign invasion, while the individual republics are tasked with ascertaining their citizens with protection from starvation, the elements, and sickness. Without anxiety, foreign or domestic, every citizen—rich or poor—would be freed up from a basic insecurity that without a viable social contract is simply part of life.

Sources:

The Federalist, ed. Jacob E. Cooke, Hanover, N.H.: Wesleyan Press, 1961.

Sam Stein, “Trump Takes Aim at Cantor, Krauthammer, U.S. Foreign Policy,” The Huffington Post, June 3, 2011.

Uncovering the Root of Poverty: An Addictive Habit

Addictive pain-killers killed 64,000 residents in the U.S. in 2016, in part because physicians tended to rely on patients’ self-determined ratings of pain on a scale of 1 to 10.[1] Such subjective ratings were of course vulnerable to self-seeking motives willfully negligent or even reckless in terms of health. A habit or marked tendency in favor of choices at the expense of a person’s own long-term well-being stems, I submit, from weak impulse-control. This, plus the related lack of consideration for other people, either causes or is associated generally with poor people at least in the United States.

Poverty, it has been said, is the cruelest form of war, for such war can go on and on and wreck subtle though tremendous damage on the afflicted. Yet the mentality that can get a person into such a war and associated bad choices can be easily overlooked by elites that deign to study the problem of poverty.

The full essay is at "An Addictive Habit."

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[1] Gregory Korte, “U.S. Waging Tech War against Opioid Epidemic,” USA Today, November 24-26, 2017.

A Business Surtax on Income Inequality: Target the Proceeds

The medium compensation in 2015 for the 200 highest-paid executives at publicly-held companies in the U.S. was $19.3 million; five years earlier, the figure was $9.6 million.[1] CEO pay compared with the earnings of average workers surged from a multiple of 20 in 1965 to almost 300 in 2013.[2] “Income inequality is real, it is a national problem and the federal government isn’t doing anything about it,” said Charlie Hales, the mayor of Portland, Oregon in 2016 when that city passed a surtax on companies whose CEO’s earn more than 100 times the medium pay of their rank-and-file workers.[3] According to the law, set to take effect in 2017, companies whose ratios are between 100 and 249 would pay an additional 10 percent in taxes; companies with higher ratios would face a 25 percent surtax on the city’s business-license tax. Whether the new law would make a dent in reversing the increasing income-inequality was less than clear.

The most direct route to reversing the trend of growing inequality would be to use the proceeds from the surtax to increase the average incomes of the poor. Cash assistance to city residents below the poverty line, for instance, or increased rent subsidies would qualify. Alternatively, the city council could pass and fund a minimal-income level for local residents. As still another option, the financial assistance could be meted out more specifically to workers in the companies subject to the surtax, or local companies more generally. Unfortunately, the proceeds were set to go into city’s general fund, only part of which increases the incomes of the poor. “City officials in Portland estimated that the new tax would generate $2.5 million to $3.5 million a year for the city’s general fund, which pays for basic public services such as housing and police and firefighter salaries.”[4] If rental assistance is included and expanded, then the inequality of effective income could be impacted locally, though adding more police and firefighters and perhaps even buying more police cars and firetrucks would not affect the ratio.

In short, for the surtax to address the matter of income inequality most directly, the use of the tax revenue would have to be targeted to increasing the effective incomes of the poor (and middle class). Simply increasing the city’s budget dilutes the impact substantially.

On the CEO-pay end, the assumption that the surtax would result in lower CEO compensation figures is also subject to critique. What a board offers a prospective CEO must contend with what that particular labor market will bear. Furthermore, it is not clear that even 25% of a local license tax is enough money to motivate a board to reduce top executive salaries. It is also not clear that $2.5 to $3.5 million would appreciably raise income levels in a city the size of Portland—Oregon’s largest city. Were the city to increase the tax to motivate companies to bring down CEO pay and/or make a dent in the incomes of the city’s poor, companies could simply move; they could even stay in Oregon.

To be sure, Portland’s mayor at the time admitted that the surtax is “an imperfect instrument” with which to tackle the momentous problem of increasing income-inequality in the U.S.[5] A better instrument would be at the State or federal level, with the proceeds going to fund a minimum income for all citizens. Lest such a “Robin Hood” approach be too stark, proceeds could be targeted more closely to the worker-CEO ratio by increasing the incomes or disposable incomes of workers.

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[1] Gretchen Morgenson, “Portland Adopts Surcharge on C.E.O. Pay in Move vs. Income Inequality,” The New York Times, December 7, 2016.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

Corbyn as Labour Party Leader in Britain: Are Increased Deficits Implied or Avoidable?

The notion that a political party oriented to redressing the widening economic inequality during the years following the financial crisis of 2008 and the subsequent debt-crisis in the E.U. necessarily must increase government deficits to do so is, I submit, faulty. That is to say, being especially oriented to the plight of the poor, with the goal being the elimination of extreme poverty, can be consistent with fiscal responsibility. The election of a socialist as leader of Britain’s Labour party presents us with an interesting case of assumed fiscal irresponsibility.

Jeremy Corbyn upon being elected as leader of the British Labour Party (Jeff Mitchell/Getty)

Jeremy Corbyn was elected leader of Britain's opposition Labour party in September 2015. He won 59.5 percent of the ballots cast, or 251,417 votes, in the leadership, winning in the first round. He vowed to work toward justice for the poor. "I say thank you in advance to us all working together to achieve great victories, not just electorally for Labour, but emotionally for the whole of our society to show we don't have to be unequal, it doesn't have to be unfair, poverty isn't inevitable," he said.[1] He a impressed many Labour party members by repudiating the pro-business consensus of former leader Tony Blair—going instead with wealth taxes, nuclear disarmament and ambiguity about EU membership." Additionally, he promised to increase government investment though money-printing and renationalising vast swathes of the state’s economy. The Tories have used the economic crisis of 2008 to impose terrible burden on the poorest people in this country," he said. All this would not come without a cost.

For his part, Prime Minister David Cameron assumed that Corybn’s platform would mean larger government budget deficits—a problem the E.U. has struggled to address by levying penalties on wayward state governments. Cameron said—and this is crucial—"It's arguing at the extremes of the debate, simply wedded to more and more spending, more and more borrowing and more and more taxes. And in that regard they pose a clear threat to the financial security of every family in Britain." He is using rhetoric in characterizing Corbyn’s platform as extreme. In any case, Corybn said nothing about borrowing more and thus increasing the state’s public debt, yet Cameron assumed that it goes along with such a platform. To be sure, Cameron has a political incentive to make the inference, at least publically. According to Reuters, “The likely abandonment of the political center ground, particularly on the subject of balancing Britain's books, is seen by many as a gift for the Conservative Party that could herald a prolonged spell in power for the center-right party.” For the media to take the Prime Minister’s inference at face value, as if Corybn himself had said it, is hardly fair not only to him, but also to the residents of Britain.

I contend that the inference is invalid—that is to say, fiscal irresponsibility is not necessarily part of the mix in going with policies oriented to relieving poverty and even socialist policies—socialism being having the government own the means of production (regulation being government control over private property).  Corybn mentioned wealth taxes; he could also have pledged to reduce or end corporate tax-subsidies and even increase other taxes, including on business. He could also have vowed to decrease government spending in areas that do not affect the poor. Obviously, a downside goes with each of these measures, but this is not my point here. Rather, I submit that increasing government revenues and even decreasing government spending overall is consistent with having policies oriented to relieving and even eliminating the scourge of poverty, which dehumanizes people and limits them in so many ways, including in productiveness. Accordingly, Corybn could have said that he would work on behalf of human rights within Britain.

Regarding nationalizing economic sectors by printing money, government debt would not increase; rather, the means is inflationary. Were Corybn to change his position on using monetary policy for a large-scale fiscal purpose, we would be wrong in assuming that he must increase the state’s deficits to do so. Alternatively, he could prioritize the sectors to be nationalized and do so gradually. If even this approach would strain government finances, he could float government bonds specific to the government investments and use the revenue from them to pay off the bonds. This use of debt is acceptable in the business world, and thus qualitatively different than simply adding to the state’s deficit without a tie to future revenue. For anti-debt purists, the nationalization policy could be subordinated to the anti-poverty spending such that nationalizations occur only when the government can afford to pay for them—say from running a surplus, which I contend is consistent with an emphasis on anti-poverty measures.

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[1] William James and Michael Holden, “Socialist Elected UK Opposition Labour Leader,” Reuters, September 12, 2015. Source of all quotes in this essay.

Wall Street CEOs Suffering with Lower Pay: Self-Preservation or Greed?

As much as the titans on Wall Street pull in during a year, they still want more. It must be human nature. If so, nature may be at odds with narrowing economic inequality. Even as 2014's compensation figures show such a narrowing, I suspect that such a case is an exception rather than being indicative of a fundamental shift.

The CEOs of the five largest U.S. banks made on average 124 times the average worker at the banks in 2014. The corresponding figure for 2006 is 273 times. The CEOs were not hurting in 2014, however; collectively, they got $92.5 million ($18.5 million per CEO on average). The collective figure for 2006 is $173.6 million.[1] Meanwhile, the banks’ employees saw their compensation rise by 17% to $148,740 from $127,379. According to The Wall Street Journal, the increased reserve requirements under the Dodd-Frank Financial Reform law of 2010 made it costlier for the banks to increase profits by taking on more debt (i.e., leverage), and the CEO pay suffered accordingly.

Suffering may not be the best term to describe a CEO’s average pay of roughly $18 million per year. How much of that figure can even a person awash in luxury spend in a year? Doubtless, a significant amount is invested. Were I among that elite cadre, I would lean toward investing as much as I could so that one day I could live comfortably and with security of mind off the investment income. A job cannot be relied on in perpetuity. Even investing in just one company (e.g. Enron) or even one industry entails some risk. Moreover, I would diversify my portfolio internationally with security of mind foremost in mind.

I mention “security of mind” because the economizing instinct does not turn off after a certain level of income or wealth has been achieved because the future is almost by definition uncertain. Put another way, you never know for sure whether what you have stored away in a savings account will be enough even for survival needs. So the bank CEOs were probably scrambling in 2014 to come up with non-leveraged ways of increasing earnings per share as if $18 million were not enough. This is an instinctual rather than a rational dynamic although reason does confirm that nothing in the future is absolutely certain.

Profit-seeking activity and accumulated wealth do not necessarily indicate the presence of greed, or love of economic gain.[2] So it is possible to go on with the economizing instinct without necessarily being greedy. Where the instinct is exaggerated or multiplied into an obsession, however, love of gain is very likely in the mix. For the 5 CEOs, reaching the point of being able to live off very well diversified investment income is quite possible. At that point, whether or not the CEO continues on with the instinct may give us a sense of whether greed has taken over.

From my own experience, I have struggled with whether to stockpile too much food in case I ever need it. For instance, I spent Easter 2015 volunteering at a Christian church’s meal for the impoverished and food pantry. I was selected for heavy labor on the tables since I was the youngest among the volunteers (which really says something). Before the meal, I could go through the pantry myself to get some food supplies. Even though the volunteer taking me through the pantry would not have curtailed my appetite to stockpile, I kept well within the allotment that anyone would get.[3] The following day, however, I could have returned to the church and helped myself to still more, but I asked myself, How much is enough, really? Sure, I could have used the additional food, but I could not shake that question, so I did not avail myself of the church’s generously-stocked outdoor cabinet that was always open; I would not abuse the church’s openness, which I had seen so little of when I had volunteered at food pantries in my rather sordid hometown. My point here is that I felt the instinct to stockpile and I could see its relation to food-security, yet I could not cleft the presence of the economizing urge from what greed might have been in me at the time. At any rate, a normative constraint can indeed be efficacious against the instinct and/or greed, though I don’t think a society can rely on such a check.

That even a Wall Street CEO cannot be absolutely certain that he or she would not want for necessities ever again leaves open the possibility that the economizing instinct—being inherently without a limit (i.e., a maximizing variable)—could still be operating rather than or more so than love of gain. Distinguishing the motive of self-preservation, which Thomas Hobbes emphasizes in Leviathan, from loving economic gain (not to mention taking it as an end in itself) is difficult. Whether a person seems to be obsessing on getting as much money out of other people as possible, especially if coupled with a willful disregard for related harm, however, can be taken as a good indicator of greed.

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[1] Peter Rudegear, “Wall Street’s Pay Gap Slims,” The Wall Street Journal, April 6, 2015.

[2] Clement of Alexandria, a theologian in early Christianity, stressed that a person can be rich and yet cap his or her desire for more at the level of necessities. Augustine would disagree, and thus place limits on wealth before it can be taken as being indicative of underlying greed. See Skip Worden, God’s Gold: Beneath the Shifting Sands of Christian Thought on Profit-Seeking and Wealth,” ch.s 3 and 4.

[3] The ham supper was excellent, by the way. Just before the meal, people wanting food from the pantry were given tote bags with numbers attached, As they were called during the meal, the individuals would go to the pantry room and quickly return to their meal. I had the pleasure of sitting with a mix of low-income people and church members. I was impressed that everyone got into a discussion of the U.S. Civil War. We even had a confederate!  Our table was a microcosm of society re-integrated. In contrast, the Wall Street CEOs doubtless live in their own world, and sadly so do most poor people.

GDP and Poverty: Is Economic Growth the Answer?

From 1959 to 1973, the American economy grew 82 percent, per person. It is easy to assume this is why the poverty rate decreased from 22% to 11 percent.[1] From roughly 1985 to 1990 and then again from 1995 to 2000, heady growth rates are also correlated positively with declining poverty rates. But correlation is not causation. Indeed, had the correlation in the 1959-1973 period continued, the subsequent per capita growth would have ended poverty in 1986. What then are we to make of the relationship between GDP and poverty?

According to Heidi Shierholz, an economist at E.P.I., the “very tight relationship between overall growth and fewer and fewer Americans living in poverty” broke apart in the 1970s.[2] In spite of the OPEC oil cartel’s inflationary shocks in 1973 and 1979, the poverty rate remained relatively constant through the decade of “stagflation,” spiking only once Reagan took office—perhaps on account of David Stockman’s domestic budget cuts that hit the poor especially hard and Paul Volcker’s high interest rates at the Fed (to decrease the inflation rate) that increased the cost of borrowing money. To be sure, the recessions in the early 1980s and the early 1990s are associated with increases in the poverty rate, which even lags the subsequent recoveries, and the rate fell as the economy was humming along in the late 1980s and 1990s. Even so, eleven percent seems to be the rate’s floor. Perhaps this is why the relationship broke apart in the 1970s?

According to Thomas Piketty, the period from World War I to the 1970s is unusual economically because the shocks reduced returns on capital relative to the growth rates of income and GDP. The economist suggests that inequalities in income and even wealth narrow under this rather artificial arrangement; typically, returns on capital have outsized increases in income, thus increasing the inequalities. Perhaps the inverse relationship we are looking at holds only when the rate of return on capital is low relative to the GDP rate. However, as I indicate above, heady growth periods after the 1970s can be found in which the poverty rate is decreasing, and recessionary periods in which the rate is increasing.

So we are back to the 11 percent floor. When the relationship broke apart in the early 1970s, the poverty rate was indeed at 11 percent. Instead of continuing downward, the rate hovered, when up a bit, then slightly downward until just above 11 percent before heading starkly upward in 1981.[3] What might be behind the floor? It seems doubtful to me that 11 percent of the adults in America are simply unable to work for non-economic reasons. It seems more likely that the market mechanism, which can support wages at the minimum wage without any upward pressure (e.g., from labor shortages), functions at an equilibrium short not only of full employment, but rising wages (relative to returns on profits and stock appreciation) as well. In other words, we cannot look to the market to “grow” us out of poverty. While undoubtedly a help, the market is only part of the solution.

The question is thus how we can fill in the rest of the solution. What, outside of the economy, can make up the difference? As the source and enforcer of societal rules, government is not intrinsically the answer, for to be the “man in charge” does not in itself connote supplying materials (including jobs). Yet the government could direct that materials and or jobs be provided outside of private industry, such as by non-profit organizations receiving funds from tax revenues and thus directly under government oversight. Even now, the Full Employment Act of 1946 directs that everyone who wants a job should be able to have one—that this is a task of government to oversee. Lest employment be viewed as an end in itself rather than a means, we could stipulate that everyone has at least a minimum amount of money and wealth. Hence the unemployable veteran, for example, would not have to suffer in poverty. Lest breaking through the 11 percent floor make it more difficult for Walmart or McDonalds to pay cashiers the minimum wage of just over $7 an hour, we might remember that a part of the solution is not in itself more important than the solution itself.

That is to say, hits taken at the margins to part of the solution as the rest of the solution is added should not outweigh the solution itself, for the end is more important than any one of the means. Too often, I fear, the American public discourse obsesses on the downsides on the margins to a means, being all too willing to preempt a full solution just so the particular means is not slighted in any way. I suppose this is a sort of tunnel vision, with greed playing a supporting role. Death and taxes may be inevitable, but surely poverty is not. Indeed, it may be viewed as an artificial byproduct of human society and thus as fully within our powers and responsibility to eliminate rather than take as a given.

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[1] Neil Irwin, “Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined?” The New York Times, June 4, 2014.

[2] Ibid.

[3] Ibid.