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Archive for the ‘Economy’ Category

Delaware and Maryland utility commissions have one more shot to convince electric grid regulators to lower the cost of the Artificial Island Transmission Line.  Governors Markell and Hogan have joined forces to fight the burdensome cost of this project, but a new approach is needed.  If we want to win this fight we need to negotiate using an alternative approach.  More local power generation could replace the transmission line.  This could lead to lower electric rates instead of higher rates, to a more robust economy, and to improved electric reliability.

 

The Artificial Island project is a technical response to importation of power.  Maryland and Delaware are the second and fifth highest electricity importing states in the country.  In 2015 Maryland imported 41% of its power, and Delaware imported 32%.

 

Importing power lowers electric grid reliability.  It also adds cost.  Regional grid manager, PJM Interconnection, is responsible for maintaining reliability with a combination of pricing mechanisms, and transmission line policy.  There are line charges to compensate for longer power transmission distances, congestion charges to encourage lower peak demand, and capacity charges to encourage more local generation.  See the graph below to see how these premiums can go.  These premium charges roughly equal the added monthly costs of the proposed transmission line, are already added to our electric bills, and most of the cost will continue even if the new transmission line is built!

 

Cost Premiums in Delaware & Maryland for Grid Congestion and Transmission Cost

dave stevenson Artificial Island

Source: PJM Interconnection Real Time Statistics

So, how do we boost local generation?  Start by asking electric generation and distribution companies already invested in the state what state policies would encourage more generation.  State policies led to lower local generation in very real ways and changed policies can help reverse the trend.  Prepare to kill some sacred cows when we hear the answers.

 

Maryland and Delaware are the only two states in the thirteen state PJM region with a tax on carbon dioxide emissions from power plants.  The cost of that tax is passed on as a hidden tax on electric bills.  Our generating facilities burning coal and natural gas have to charge more, and lose bids to supply power.  Consequently, local power plants operate less frequently.  For example, the Indian River power plant in Millsboro, Delaware, is only operating 20% of the time compared to an average of 55% for coal fired plants nationally.

 

The tax was designed to reduce emissions but all it has really done is shifted the emissions out of state, and discouraged power plant construction locally.  The revenue was supposed to be used for energy efficiency and renewable energy projects, but after a decade of work only a quarter of annual tax revenue is being spent on such projects.  Ending the tax would lower electricity prices and would allow more power to be generated locally.

 

In Delaware we only need to build the equivalent of three to four new power plants to become self-sufficient.  Calpine recently completed a new natural gas fired power unit in Dover and has the permits needed for a second unit.  What incentive does Calpine need to build the second unit?

 

Exelon recently acquired Delmarva Power, the state’s largest electric distribution company, and is one of the largest generation companies in the nation.  A decade ago distribution companies owned all the generation facilities as well with a guaranteed rate of return regulated by the Public Service Commission.  Delaware and Maryland joined a handful of other states in deregulating the price of generated power thinking this would increase competition and lower electric cost.  The actual result was the sale of generating facilities and a 70% increase in electric rates in the deregulated states.  Partial reregulation might encourage distribution companies to build at least some new generation capacity.

 

Exelon is one of the largest builders of large scale solar farms in the country.  A little known fact is utility scale solar is now essentially competitive with conventional power plants during high demand daylight hours.  Delaware policy has emphasized building smaller scale systems that actually add cost to our electric bills.  Yes, in this case bigger is better and a policy change is needed.

 

Land acquisition is a barrier to building more solar.  The state could offer marginal state owned open space land for long term lease for solar farms to lower start-up costs.  The revenue could be used for state park operations.

 

No doubt a dialogue to boost local power generation would uncover more opportunities.  The result would not only avoid the added cost of the Artificial Island project but might lower existing electric rates by as much as 15% removing a barrier to job creation, and could lead to up to a billion dollars in new construction projects.   

David T. Stevenson, Director

Center for Energy Competitiveness

                               

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AEI interviewed University of Chicago economist Steven Kaplan about income inequality and the perception of unfairness in American’s economy. Below is a portion of the interview.

JP: I want to start off with a quote from presidential candidate Bernie Sanders. He gave a big speech recently on democratic socialism and what it means. And here’s just a few sentences of what he said.

Democratic socialism means that in a democratic, civilized society the wealthiest people and the largest corporations must pay their fair share of taxes. Yes, innovation, entrepreneurship, and business success should be rewarded. But greed for the sake of greed is not something that public policy should support. It’s not acceptable that in a rigged economy in the last two years, the wealthiest 15 Americans saw their wealth increase by $170 billion, more wealth than is owned by the bottom 130 million Americans.

But let’s not forget what Pope Francis has stated. We have created new idols. The worship of the golden calf of old has found a new and heartless image in the cult of money and the dictatorship of an economy which is faceless and lacking any truly humane goal.

So from your research, what do we really know about income inequality and what’s driving it in the United States today?      

SK: There is, I think, some truth in what he’s saying and then some real problems in what he’s saying. So here is my view of what’s happened in the last really 30-35 years. We’ve had a huge amount of technological change. And that has coincided with globalization. And they’re related. Technology allows you to do a lot of things overseas that you couldn’t do before. And so the combination of technological change and globalization has put pressure on the middle class and particularly the less skilled in the developed countries. So it’s the U.S. and Western Europe.

And I think there’s some anxiety and clearly anger about that happening. And at the same time, the people at the top have done very well in the United States. So that’s, I think, the problem that Bernie Sanders has stated. Now what he doesn’t state, and I think is extremely important to recognize is that the world is hugely better off – hugely. And Angus Deaton, who recently won the Nobel Prize in economics and is, you know, archconservative, wrote a book called “The Great Escape.” And that book starts by saying, and I quote, “Life is better now than at almost any time in history. More people are richer and fewer people live in dire poverty. Lives are longer and parents no longer routinely watch a quarter of their children die.”

So the system and capitalism in particular, around the world, has been spectacularly successful over the last 30 or 35 years. The number of people who are living above the poverty level – actually, take the number of people living below the poverty level – has declined in absolute terms and has declined hugely in relative terms.

The world is so much better off. And I think for Sanders and politicians to say that that’s terrible is really just morally abhorrent. … So now the question is, okay, we have this – so it’s great. Around the world, I would not give this up. This has been spectacular. Now, you do have the issue of what do you do in the United States and Western Europe, where you have had – it has been uneven in how the benefits have been distributed.

Folks on the left, they don’t much talk about the role of capitalism bringing  hundreds of millions of people in Asia out of really deep, extreme poverty. They focus really more on the U.S. story and they’ll even concede that there’s been economic growth. But they also that it really hasn’t helped the vast majority of the middle class for 30 or 40 years. They talk about stagnant wages. If the median person, the average person, they’re not getting richer, what’s the point of it?

So the median person in the world is much better off. Let’s be clear. So now, let’s go to the median person in the US and try to figure out what to do about him or her.

So first of all, the after-tax numbers are much better than the pre-tax numbers. And this is also, you know, kind of ignored to some extent, is that if you look at – I think these are Congressional Budget Office numbers or they’re not the IRS numbers that are pre-tax that get a lot of play – the increase in inequality, when you include taxes and transfers, is not as high as it is pre-tax. And that’s because there is a safety net. There are transfers.

But even that said, let’s say there has been an increase. Now the question is what do you do about it. And the real issue is you do have this headwind of technological change and globalization. And so now the question is, what do you do about it?

And one set of proposals which I think Bernie Sanders and Hillary Clinton and the Democrats in general push [is] to raise the minimum wage. And that’s precisely the wrong thing to do here because if you’ve got a headwind of technology and globalization, which is making it harder to hire people and it makes jobs more difficult to create, raising the minimum wage exacerbates that. It’s exactly the wrong thing to do.

If you want to encourage job creation, I think job creation is the most important thing. And I know your boss at AEI, Arthur Brooks, is very articulate on this, the way you encourage jobs is, you know, have an Earned Income Tax Credit or something of that nature, rather than raising the minimum wage. Because raising the minimum wage, you just put more headwinds into job creation.

I would say the same thing about mandated leaves, which is also a big campaign plank among the Democrats. Because, again, that makes jobs more expensive. It makes employment more expensive. And what are companies going to do in response to making jobs more expensive? Well, let’s apply more technology. Let’s try to find jobs in places where the costs are lower. So that is – you know – it is a real conundrum what to do with technology and globalization, but the answer is to make it easier to hire, rather than harder.

At the same time, where I think the Republicans sometimes are not quite so sensitive is [that] you do need to have safety net. If you think this is going on, you really want to make sure you have a solid safety net, so that people do not, you know, go too far down.

Read the rest of the interview here

to perhaps answer their own question, AEI posed some graphs on income earns in America:

income1

They wrote:

“Perhaps the stagnation and decline in US household income that gets so much media and political attention isn’t necessarily the result of the usual negative factors that get cited so frequently: stagnating wages, reduced economic and employment opportunities for the average, middle-class American, the increased share of rising income or wealth going to the top X%, the hollowing out of the middle class, the claims that the middle class is shrinking/losing ground/disappearing/declining, etc. Rather, perhaps there’s a less-nefarious, demographic-driven reason that household incomes have been stagnating/declining in recent years — the increase in the share of US households with no earners, which is largely driven by the aging US population and the increasing number of retired workers, and to a lesser extent by the increasing number and share of disabled workers. Finally, there’s been nearly a six percentage point decline in the share of US households with two or more earners since 1999, which could be another demographic change that has contributed to a decline in median household income.”

We’d love to hear your opinions on what AEI is presenting. Enter them in the comment section, and don’t forget to follow our feed.

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The Pew Research Center recently published a report called “The American Middle Class is losing ground.” They cite data from the U.S. Census Bureau and the Federal Reserve Board of Governors to determine household incomes to suggest the Americans who once made up the majority of hardworking, moderate income Americans comprise now less than half the adult population.

Share of adults living in middle-income households is falling

Approximately 120.8 million American adults are considered “middle class”, which Pew defines as their income is 50-66% the media income based on household size.

Who is “middle income” and “upper income”?

 

These findings emerge from a new Pew Research Center analysis of data from the U.S. Census Bureau and the Federal Reserve Board of Governors. In this study, which examines the changing size, demographic composition and economic fortunes of the American middle class, “middle-income” Americans are defined as adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars for a household of three.3 Under this definition, the middle class made up 50% of the U.S. adult population in 2015, down from 61% in 1971.

Basically what’s happened is that those who once comprised the solid middle class of Americans- people who made enough to live comfortably but not enough to live luxuriously- had eroded. An increasing number of people either move into the top 10% (often known as the ‘professional’ class due to the high number of post-graduate degrees this group has earned) or into the bottom 30%, the ‘working poor’, families struggling to pay for even the most basic of expenses.

Older people, married couples and black adults improved their income status more than other groups from 1971 to 2015

 

 

 

 

 

 

 

 

Black adults, many of whom start with little or nothing, have gained because the number who were well-to-do in 1971 was very small. Those with less than a bachelor’s degree have been hurt economically, as have younger adults and the unmarried (many of whom are young). Older, married White couples are the most likely to do well, though not having children has helped some married couples.

Predicting the future is tough, but the data suggests America already is a class-based system, and will become even more so as the earnings between college graduates (particularly those with a master’s or doctorate or equivelant) increase much faster than those near the bottom (fast-food workers, construction workers, those whose jobs can be more easily replaced via computer or immigration) can keep up, which will widen income inequality. The Minimum Wage argument will actually serve to hasten this gap, as business owners obtain the means and desire to replace so-called ‘low-skilled’ workers with automation.

The positive is that the number of ‘upper middle’ and ‘highest’ has grown as a percentage, which suggests that for some there is economic mobility that was not present in 1971.

What do you think? What does the data suggest about American earnings and our future?

 

 

 

 

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Objective Truths Regarding Minimum Wage

Lenzini Photo portrait

Guest post by Matthew Lenzini, chairman of the Colonial Region Republicans.

I can’t recall a time when both of my parents didn’t work. My father for most of my childhood worked nights and weekends managing a Diner in South Philadelphia. My mother waited tables as a night shift waitress at the Philadelphia Airport Marriott. My first job in High School paid $4.75 an hour and truth be told, given my skill set at the time, I was probably overpaid. My parents instilled a sense of hard work and frugality in me that exists to this day. We never had much money and though I have been able to find some success in my life, I am a firm believer in adding value to society and living below my means. I believe that personal growth and success are core American Values. I believe that we live in the land of opportunity and that with hard work and a little luck, everyone has the ability to better their circumstances. This by no means, guarantees success but unlike many countries in the world, we all have a shot at the American Dream.

There has been a tremendous amount of discourse on the national stage regarding the federal minimum wage. Economically speaking, raising the minimum wage is actually bad for growth and harms those that we are most seeking to help, entry level workers and the working poor. I believe that much of what has been cast in the media is misleading. It is either intentionally misleading for political reasons or misguided due to misinformation and a lack of understanding. Unfortunately, feel good economic policies, catch the attention of the press and politicians oft present what appear to be efforts geared at helping the public but, are in fact bad policies based on popular demand, rather than sound judgement. I’d like to take a more objective and analytical look at unwinding four popular myths surrounding minimum wage in America that when analyzed, are in fact wrong and misleading:

  1. Minimum wage has not kept up with inflationary pressures
  2. Increases to minimum wage will improve the economy and decrease unemployment
  3. Minimum wage earners are on average 35 years old
  4. Raising the minimum wage helps working families

Myth 1: Minimum Wage has not kept up with Inflationary Pressures

The first minimum wage was enacted in the United States in 1938. At the time, the rate was set to $0.25 cents an hour.  There is a popular myth that the minimum wage rate has not kept up with inflation.

Objective Truth 1: Minimum Wage has kept up with inflation and the Consumer Price Index

If the 1938 wage were adjusted for annual inflation through 2015, the minimum wage rate would currently be around $4.90 give or take a few pennies. The federal government has reset minimum wage a number of times; typically during or after periods of rapid inflation. The table below highlights a few of the federal adjustments to minimum wage and the inflation adjusted wage today if there were no additional adjustments to the wage by the federal government.

Lenzini 1

                                  Lenzini 2 

                                   Lenzini 3

I’d like to note a few things regarding the table above. Inflation adjusted, the minimum wage has fluctuated some but typically stays within one or two standard deviations of the average, which is approximately $8.20. We have had an inflation adjusted range high of $10.07 in 1981 and a low of $4.97 in 1939. All in all, the current rate of $7.25 is well within one standard deviation, which is about +/- $1.25 of the average (this is well within tolerance limits for statistical measurements).

Now, there is an argument that rather than using inflation, one should use the Consumer Price Index. After all, the cost of goods and services changes over time. CPI uses a baseline year (1984) as an index. As such, 1984 has an index of 100 and all other years are adjusted using a percentage of the index. For instance, 1939 has an index of 13.9. If we take the 1981 wage of $3.35 and multiply it by 13.9 percent, we have a 1939 equivalent rate of $0.47. If we were to use similar dates to our inflation based analysis, we would get the following CPI adjusted rates. Again, we find that the federal rates are within a reasonable level of tolerance of the average. The greatest deviation occurring in 1939, one of the first years that a minimum wage ever existed which also happens to occur in the midst of the great depression.

Lenzini 4

Myth 2: Increases to minimum wage will improve the economy and decrease unemployment

The U.S. labor participation rate is currently sitting below 63 percent. The last time the rate was this low, was in the late 1970s when we had according to President Carter, a crisis of confidence. The reason I use the labor participation rate instead of the more popular unemployment rate is that the unemployment rate only represents people that are actively seeking work. Anyone that has given up the hope of finding work, does not show up in the U.S. unemployment figures. The “real” rate of unemployment is closer to 10 or 11 percent. The unemployment rate has improved for the wrong reason; people have stopped looking for jobs. A number of legislators have pushed for an increase in the minimum wage. Their thought process is that a higher minimum wage will improve the economy and get people back to work. Unfortunately, that is very far from the economic reality.

Objective Truth 2: Increasing the Minimum Wage will actually increase unemployment rates

The labor market reacts similarly to any other market. It is primarily driven by the laws of supply and demand. Without a minimum wage (which is effectively an artificial floor on the price of labor), the market would settle at a rate where the demand for labor and the supply for labor meet. In other words, without an artificial floor, we would reach the maximum economic output and we would have the lowest level of unemployment (excluding externalities such as a disincentive to work because one could “make” more on government subsidies aka welfare).

Artificial floors create economic loss. Essentially, supply will be higher than demand and the gap, essentially becomes unemployment. The higher the wage, the more people will be willing to work so there is more supply. However, given the higher wage, a business with limited resources will be able to hire fewer people. The graphic below highlights the conceptual increase in unemployment when the artificial floor is raised. This is not unique to labor, it is an economic reality for all goods and services. The unemployment rate is the gap that exists between the supply of labor and the demand for labor.

Lenzini 5

Howard Schultz the CEO of Starbucks was asked about the $15 minimum wage in Seattle. He said that Starbucks would adapt. They can leverage technology and automation allowing them to hire fewer people but smaller companies don’t have that option – “I wouldn’t want to see the unintended consequences of job loss as a result of going that high. That would not be the case at Starbucks, but I suspect that most companies, especially small- and mid-sized companies, would not be able to afford it.” The net effect will be one of a few scenarios: a) the company uses more technology to maintain its margins b) the company raises prices c) the company goes out of business. None of these bode well for the employees or the consumer.

Myth 3: Minimum wage earners are on average are 35 years old

There is a myth that the average age of a minimum wage earner is 35 years old. I believe that this is a purposely misleading statistic, put forth by certain politicians seeking populist support for re-election.

Objective Truth 3: The distribution of minimum wage earners is skewed

If you have four 17 year olds and two 68 year old retirees (who are most likely working to have a second income above any retirement benefits), you have an average of about 35. When we look at the underlying data, we do in fact see that the distribution is skewed towards young people who are working in their first job and older Americans who may be working to supplement their income. So let’s also be clear that only about 4.3% of all working Americans earn the minimum wage. Most other workers earn more than the current rate. That number is down significantly from the 1980 high, where 15% of working Americans earned the minimum wage. 50% of minimum wage earners are under the age of 24 and 25% of minimum wage earners are teenagers.

Lenzini 6 Lenzini 7

The vast majority 64% are part time employees who mostly occupy low skill jobs in the food services or retail spaces. Only about 20% of those that receive minimum wage are married and only 13% of minimum wage earners are married and over the age of 25. The vast majority, nearly 80% do not have a college education and most do not have a high school diploma. So the argument that too many Americans are trying to support their families on minimum wage is just not true. The percent of family head of household minimum wage earners is actually the lowest it has been since the metrics have been tracked, and the path to higher wages is and always should be improving your skill set.

Myth 4: Raising the minimum wage helps working families

A common element that is often missed in the debate surrounding minimum wage is the role of the earned income tax credits. Many supporters of raising the minimum wage will state that the intent is to help young working heads of household, support their family.

Objective Truth 4: Raising the minimum wage hurts those we intend to help

Unfortunately, by raising the minimum wage, we do the exact opposite, as mentioned above, when we raise the wage uniformly, we actually create higher levels of unemployment. A better targeted approach to helping families, is to continue to leverage the earned income tax credit. The earned income tax credit provides a financial benefit to those that are heads of their household and those with children. In essence, it is a much better way to pinpoint those working adults while still allowing businesses to employ as many people as possible (for instance high school students in their first job who have minimal skills and few responsibilities). The graphic below, is from the United States Treasury Department.

In 2014, a married minimum wage earner with two children, receives an additional $5,460 dollars of tax credits.   Assuming that the average work year consists of 2080 hours at 40 hours a week, this would equate to an additional $2.63 an hour above the minimum wage. If we were to add the two, the hourly wage would be $9.88 an hour. This figure does not include any other state benefits, housing assistance, education assistance or other government program support.

Lenzini 9

Summary: I have only touched on a few of the more common misconceptions that surround the minimum wage debate in America. The truth of the matter is, that many politicians will push for an increased minimum wage rate either because they know it will get votes or because they are ill-informed. The minimum wage has been raised in the past. It will be raised again. We cannot however afford to do so arbitrarily and without thoughtful and informed decision making. Plenty of ideas feel good but they have to make sense in the longer run. We need to do away with feel good economics and political ideologies that are crafted on ideals that are not grounded in economic truths. Policies that pander to populist ideas that will only hurt those that we intend to help.

Matthew can be reached at Lenzinml@yahoo.com

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Bernice Whaley, director of the Delaware Economic Development Office (DEDO), recently provided a glowing assessment of Delaware’s economy in a News Journal article. Ms. Whaley cites a current unemployment rate of 4.7% and growth over the last two years of 4% in Delaware jobs and 6.5% in personal income. And she notes recent increases in high technology employment in the state.

It might be helpful to put these statistics in perspective relevant to the average Delaware household.

The Delaware unemployment rate has thankfully fallen from a high of 8.7% in 2009 to 4.7% today. Two things are worth noting. First, in the year prior to the recession the state’s unemployment rate was 3.4%. Second, according to the most recent Census data, the percent of Delaware residents age 16 to 64 working dropped from 80.7% in 2009 to 76.7% in 2013. In other words, one major reason for a lower Delaware unemployment rate is that a large number of working age individuals have simply stopped looking for employment.

Total jobs in Delaware have expanded by almost 4% (2% per year) over the past two years. While it took more time to get there, this is similar to the job growth rate following the last recession in Delaware. Many of the jobs being added, however, are lower paying positions in such industries as temporary services and restaurants. The result from the Census is that between 2009 and 2013 the inflation adjusted median earnings of working Delaware residents with a high school degree has dropped 7% while that of residents with a bachelor’s degree or more has dropped almost 3%.

The earnings of Delaware workers are on average moving backwards.

Delaware personal income has grown at least 6.5% over the past two years. This compares to 13.8% growth following the last recession. More disturbing, the slowest growing component of Delaware personal income during the past two years has been earnings by residents while the fastest growing component has been transfer payments (e.g., Social Security, Medicaid, Medicare, food stamps, TANF).

Finally, growth in high technology industries in Delaware is positive, but it provides few opportunities for the almost two-thirds of working age Delaware residents who have less than an associate’s degree. Tests of Delaware public school students from 4th grade through high school evidence that the majority of students are not proficient in reading or math.

Obviously it is the job of DEDO to be positive and sell Delaware. And in all fairness DEDO has little control over the poor performing public schools, the green energy policies that have driven Delaware electric rates 35% above the nation, and the lack of a right-to-work law.

Nevertheless, a victory lap seems premature.

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United States one dollar bills are curled and inspected.

Today’s post is on income inequality. Since we’re heating up in election season, candidates are pushing forth their economic plans for America.

The dangerous separation of the American upper middle class

click here for the full article

“The American upper middle class is separating, slowly but surely, from the rest of society. This separation is most obvious in terms of income—where the top fifth have been prospering while the majority lags behind. But the separation is not just economic. Gaps are growing on a whole range of dimensions, including family structure, education, lifestyle, and geography. Indeed, these dimensions of advantage appear to be clustering more tightly together, each thereby amplifying the effect of the other.

For many, the most attractive class dividing line is the one between those at the very, very top and everybody else.  It is true that the top 1 percent is pulling away very dramatically from the bottom 99 percent. But the top 1 percent is by definition a small group. It is not plausible to claim that the individual or family in the 95th or 99th percentile are in any way part of mainstream America, even if many of them think so: over a third of the demonstrators on the May Day ‘Occupy’ march in 2011 had annual earnings of more than $100,000.

For others, the most important division is at the other end of the spectrum: the poverty line. The poor have not fallen behind the middle class in recent decades. But they have not caught up either. There is a case to be made that whatever is happening towards the top of the distribution, the gap we should care most about is between families struggling to put food on the table and those with adequate, middling incomes.”

Senator Bernie Sanders has made addressing income inequality one of the principle components of his campaign, and even other populist candidates like Donald Trump have called for raising taxes on the rich, or at least certain groups of wealthy Americans. Most voters, particularly Republican voters, oppose raising taxes on the rich, but here’s the question:

Is income inequality a problem in America?

The answer is, it could be: One of the ways America has been able to become the most powerful nation on earth in such a short period of time is because we are one of the few societies where economic mobility is possible. Someone born poor, even without tremendous musical, athletic, dancing, or tech genius talent can still earn a solid living and move from the bottom 10% to the top 1%. Herman Cain and Ben Carson are two such examples. Abraham Lincoln went from being born in a one-room cabin to President of the United States. That gives people hope that they too can achieve the “American Dream”, however it is defined for them. For some, earning a salary of $250,000 or more per year is unrealistic. But they may find happiness moving from $20,000 a year to $60,000 a year.

However, the American Dream only works if people believe economic mobility is feasible for them. And right now, many Americans do not believe it’s possible, or at least is becoming more difficult. Some Conservatives and “1%ers” will just say those people don’t work hard enough, or make poor decisions which cause them to stumble. Those may be true for some people, but not for all.

And that’s not the point of this discussion. It’s ‘do you believe you can move up the economic ladder’? And if people are answering no, then the question is, ‘why?’ and if people think the system is rigged against them, populist candidates like Sanders and Trump will absolutely win because the “hard work+perseverance=success” mantra will ring hollow to people who believe we are slowly moving away from an economically mobile society to one based primarily on who your parents are or who believe some people are ‘privileged’. That’s part of the reason entrepreneurship activity is down overall. Onerous government does hamper economic activity, but if people do not believe they can succeed, most will not even try.

This is something both major political parties will have to come to terms with. Certainly no productive society can function under Communism, where everyone (except the Party leaders) is equally poor and miserable. But too much inequality fuels populist and radical candidates who promise to fix the problem.

So take a look at the above graphic and try to answer for yourself, “is income inequality a problem in America”?

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That’s the premise behind an article on CBS news by Aimee Picchi which is based on a book co-written by Sociologist Professor Kathryn Edin of Johns Hopkins University. A sample:

“By one dismal measure, America is joining the likes of Third World countries.

The number of U.S. residents who are struggling to survive on just $2 a day has more than doubled since 1996, placing 1.5 million households and 3 million children in this desperate economic situation. That’s according to “$2.00 a Day: Living on Almost Nothing in America,” a book from publisher Houghton Mifflin Harcourt that will be released on Sept. 1.

The measure of poverty isn’t arbitrary — it’s the threshold the World Bank uses to measure global poverty in the developed world. While it may be the norm to see families in developing countries such as Bangladesh and Ethiopia struggle to survive on such meager income, the growing ranks of America’s ultrapoor may be shocking, given that the U.S. is considered one of the most developed capitalist countries in the world.

“Most of us would say we would have trouble understanding how families in the county as rich as ours could live on so little,” said author Kathryn Edin, who spoke on a conference call to discuss the book, which she wrote with Luke Shaefer. Edin is the Bloomberg Distinguished Professor of Sociology at Johns Hopkins University. “These families, contrary to what many would expect, are workers, and their slide into poverty is a failure of the labor market and our safety net, as well as their own personal circumstances.”

Despite questionable statistics from the U.S. Department of Labor, most Americans do not believe the recovering economy has really boosted their well-being. True, there are more jobs now than in 2009 at the bottom of the recession. However, many of these jobs, as CRI has said here and here and, oh what the heck, just read here, are not the kinds of blue-collar jobs which were lost during the Great Recession. By this we mean jobs which paid at the absolute minimum, $35,000 and helped families earn at least a basic standard of living, even on just one income. The jobs we are seeing growth in are jobs in sectors like retail, restaurant, and tourism, which are generally minimum wage jobs.

The exact numbers receive EBT benefits (also known as ‘food stamps’), TANF (Temporary Assistance for Needy Families), Affordable Housing, student loans, etc., varies from month to month. But one thing that has absolutely happened is, more and more Americans are becoming poor, increasing numbers of working and middle class Americans are finding themselves sliding downward and not up, and the future looks bleak, because our deficit is so large there is no real way to ever pay most of it off. That’s why in poll after poll, the majority of Americans believe the so-called “Millennial Generation” will be the first generation to be worse off than their parents.

It should surprise no one that presidential candidates like Donald Trump and Bernie Sanders are stealing the show. The rhetoric each espouses, while different in ideology, basically says the same thing: the ruling class (Berni’s ‘billionaire class’ and Donald’s ‘political class’) has changed America from a free-market oriented society to one that is a combination of socialism and crony capitalism, the exact same system countries such as Canada, Sweden, Germany, France, the UK, Belgium, the Netherlands, Italy, Spain, and Portugal have. The days when a person could confidently and reasonably believe s/he could work hard, save money, invest wisely, and earn a higher standard of living are fading. Yes, there are indeed people who do overcome the odds and become millionaires or billionaires, even from humble beginnings. But for those who lack some superstar athletic, musical, or coding talent, those opportunities seem more and more distant as the majority of Americans work harder and harder for less value per hour.

The question of who to blame for this economic malaise floats around. People who identify as conservatives or libertarians generally put the blame on the government, believing government policies aimed at keeping people dependent on government, discouraging work opportunities for the poor (this post from ZeroHedge explains it, and mind their language), and federal reserve dollars being pumped into the system causing inflation are the main source. Throw in Statist politicians from both parties taxing and spending and pushing a tax code which actually harms people trying to acquire wealth through work rather than the already-rich and people whose income comes from the stock market, and there’s your answer.

People who identify as liberal or socialist will put the blame on Big Business. According to the Brookings Institute, the average age of a business in America is sixteen years- the highest it’s ever been. Despite claims of “new entrepreneurial activity” by our elected officials, fewer people are attempting startups. The biggest reason, besides bureaucratic red tape and high taxes? Business cronyism, where large firms use the government to rig policies in their favor and against their competitors, especially small competitors. As access to capital for small business owners, especially young people and people of color, declines, you will see fewer people taking risks to create jobs. That leaves us more dependent on corporatism for our daily bread.

In our view, both the left and the right make fair points, which then brings us to the next step: the solution. In our view, only a truly fair marketplace, where a person reasonably believes he or she can compete either for a job or in business, will help people climb the economic ladder. The reason Trump and Sanders are hitting cords with a segment of the population is because (and the political pundits miss this, for the most part) the majority of Americans, whose household income is less than $55,000 a year, are becoming frustrated and resentful that opportunities are being taken away and incomes are declining due to government policies which discourage work and entrepreneurship, and corporate entities who raid the treasury for their own gain, depriving would-be entrepreneurs and workers of the funds they need to either start a business, take care of their families, or save for retirement. The economic mobility ladder is slowly but surely being lifted up by those who already “made it” and are using the government to keep everyone else away, or dependent on the government administrators for their basic needs.

We hope the public at large begins putting the pieces together and starts to vote for candidates who will oppose the so-called Ruling Class and their wealthy financiers, and instead turns to candidates with quality solutions that will give people opportunity and real hope. That is change we could believe in.

CRI will continue to conduct research on policies which we believe best help all Delawareans achieve what they can and believe they can move up the economic mobility ladder. If you agree that Delaware needs a real change in how our government does business, then visit caesarrodney.org and learn about what you can do today to help.

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