Out of Africa

Sitting in Heathrow on my way back from research and vacation in South Africa.

The research is the beginning of a project on investment incentives for renewable energy in South Africa, in cooperation with the South African Institute of International Affairs and the International Institute for Sustainable Development. As South Africa tries to reach universal electrification, its commitments under the Kyoto Protocol (p. viii) enable it to access funds from the Global Environmental Facility and foreign private donors. As a result, it is one of the most active countries for renewable energy projects, particularly wind and solar. In fact, it was one of the top 10 recipients of renewable energy foreign direct investment in 2011.

On a more personal level, since I played my tiny part in anti-apartheid solidarity actions in the 1970s and 1980s, I visited several of the most important anti-apartheid sites, which the country is actively promoting for tourism, such as Constitution Hill in Johannesburg (formerly a prison that housed Mahatma Gandhi and numerous other anti-apartheid activists, now the site of the country's Constitutional Court), Soweto, and Robben Island.While I risked little more than disciplinary probation at college, it was sobering to see the places where fighting for basic justice could cost you your life.

Next week I'll post my long-delayed review of the great Good Jobs First report, Megadeals.

U.S. Median Wealth Only 27th in World

As I discussed last week, U.S. median wealth per adult is lower than many other countries. To be exact, it comes in at #27 for 2012, at $38,786 per adult. This is more than 1/4 lower than had been reported by Credit Suisse's Global Wealth Databook for 2011. I contacted one of the authors, Professor James Davies of the University of Western Ontario, to find out the reason for the big change for the United States as well as the even bigger change for Denmark.

Professor Davies was kind enough to lay out the technical issues for me. First, of all, data for mean wealth is more reliable than median wealth. For rich countries like the United States, there is usually household balance sheet information which provides high-quality information on total wealth and, when combined with population data, wealth per adult.

Wealth distribution data is more difficult to estimate accurately, although it is known to be more unequally distributed than income for every country, as the 2012 Databook reports. The reason Denmark had such a sharp increase in its estimated median wealth is that its wealth distribution survey information was becomingly increasingly questionable, so the authors changed to a different estimation method that is not comparable with previous figures.

Finally, Professor Davies said it was unlikely that U.S. wealth per adult dropped by 1/4 in one year, but that the new lower estimate is more accurate. The research team is still working on ways to make distribution estimates more accurate, such that year-to-year changes will be more meaningful. As he wrote to me, "We haven't emphasized year-to-year changes in the shape of the wealth distributions since we are still improving our approach to that and making changes each year."

That leaves the United States still with low levels of median wealth for rich countries. as Les Leopold reported on Alternet.  In total, it trails 20 OECD countries and six non-OECD countries.

These low levels of wealth contribute, of course, to the coming retirement crisis as Americans have low levels of savings to supplement Social Security, while almost half of private sector workers have no retirement plan of any type.  A solution to the crisis will require a tremendous push politically, but otherwise millions of Americans will be condemned to poverty in their old age.

Here is the list of the top 27 countries by median wealth per adult.

Country                        Median Wealth
                                     Per Adult

1. Australia                   $193,653
2. Luxembourg              $153,967
3. Japan                        $141,410
4. Italy                          $123,710
5. Belgium                    $119,937
6. United Kingdom         $115,245
7. Iceland                      $ 95,685
8. Singapore                  $ 95,542 (non-OECD)
9. Switzerland                $ 87,137
10. Denmark                  $ 87,121
11. Austria                     $ 81,649
12. Canada                    $ 81,610
13. France                     $ 81,274
14. Norway                    $ 79,376
15. Finland                    $ 73,487
16. New Zealand            $ 63,000
17. Netherlands              $ 61,880
18. Ireland                      $ 60,953
19. Qatar                       $ 57,027 (non-OECD)
20. Spain                      $ 53,292
21. United Arab Emir.     $ 47,998 (non-OECD)
22. Taiwan                     $ 45,451 (non-OECD)
23. Germany                 $ 42,222
24. Sweden                   $ 41,367
25. Cyprus                     $ 40,535 (non-OECD)
26. Kuwait                     $ 40,346 (non-OECD)
27. United States           $ 38,786

Cross-posted at Angry Bear.

U.S. Median Wealth Falls by 1/4 in One Year (Maybe)

Les Leopold's report on Alternet that the United States is only 27th in median wealth per adult (h/t @papicek) is getting lots of well-deserved notice. But his article, based on the October 2012 Credit Suisse Global Wealth Databook, missed a big point. (I missed it, too, when the 2012 edition came out.)

As I reported last July, the 2011 Global Wealth Databook estimated that U.S. median wealth per adult was $52,752. But by 2012, the figure had fallen to $38,786, a decline of 26.5%. This is, obviously, a huge number. Moreover, mean wealth per adult had grown by 1.0%, from $259,796 in 2011 (revised upward from $248,395) to $262,351 in 2012. This represents a substantial increase in wealth inequality in the United States.

What could have caused such a sharp decline in median net worth? It's hard to tell. The 2012 Databook does not give information for median debt per adult, only mean debt. Moreover, it does not publish updated information for median wealth for 2011, only for mean wealth. Thus, it is impossible how much, if any, of the change is due to data revisions. On the other hand, if the 2012 measurement was taken relatively early in 2012, it may have reflected the dip in home prices, a major component of middle-class wealth, as reflected in the Case-Shiller national home price index. Moreover, declining median wealth is not an isolated phenomenon, though it is less severe in other countries, as the table below shows.

Country          2011 Median Wealth     2012 Median Wealth     Change

Australia       $221,704                        $193,653                        -  12.7%
Belgium        $133,572                        $119,937                        -  10.2%
Canada         $89,014                          $81,610                         -    8.3%
France          $90,271                          $81,274                         -  10.0%

At the same time, there's at least one example of an even sharper swing, Denmark, which Leopold appears to have missed. According to the 2011 Databook, median wealth was $25,692; in the 2012 Databook, it was $87,121, an increase of 239.1%! And this came at a time when mean wealth per adult fell 14.1%.

Do I believe this? Probably not. So it seems possible that the U.S. decline might be measurement error. Even if that's the case, the main point both I and Leopold made remains true: the wealth of the U.S. middle class is surpassed in a substantial number of countries around the world.

For an update, see here.

"Technology Causes Inequality" Refuted

I'm getting to this a little late due to extensive travel (in South Africa now), but David Cay Johnston has a nice writeup of a recent paper on inequality based on the World Top Incomes Database. The paper, by Facundo Alvaredo et al., is important because it largely refutes the idea that technological change is the big reason for diverging incomes between skilled and unskilled workers. As Johnston writes:

That [sharply different levels of increased inequality] is significant because it means that new technologies and the ability of top talent to work on a global scale cannot explain the diverging fortunes of the top 1 percent and those below, since the Japanese have access to the same technologies and global markets as Americans. The answer must lie elsewhere. The authors point to government policy.

As the paper shows, the income share of the top 1% in the U.S. declined from a high of around 24% just before the Great Depression to a low of about 9% in the late 1970s. Since then, it has soared all the way back to about 23% just before the Great Recession, but falling back to 20% in 2010. Other English-speaking countries have had similar "U shaped" patterns, as the authors describe them (i.e., reaching Great Depression levels again), but the share of the 1% is much less in other countries. For example, in Australia, even though the 1% share is close to what it was in the 1920s, it is still only 10% of total income, compared to 20% in the U.S. This difference is part of the reason that median wealth is so much higher in Australia.

The paper gives examples of other countries where the 1% share is permanently below its 1920s level, such as Germany, Japan, France, and Sweden. In all four cases, that share is only about 10%. As Johnston emphasizes, these countries are all essentially equal to the U.S. technologically (remember back in the 1980s when so many people thought Japan was poised to eclipse the U.S. in technology?), so their substantially lower levels of inequality stand in direct contradiction to frequent economists' claims that technology is the problem (Richard Freeman has a balanced analysis).

It is also important to point out, as Johnston does, that lower tax rates on the 1% have an impact on this. One suggestion the paper makes is that lower tax rates give CEOs and other top managers more incentive to bargain for higher income, so the effect even shows up in pre-tax income. Obviously, lower tax rates make post-tax income even more unequally distributed.

A New, Progressive Tax That Even Republicans Like

No, there are no typos in the headline. A new tax is sweeping the states, having already passed in both Democratic (Washington) and Republican (Virginia) controlled legislatures, and is on the fast track in states like New Jersey (Democratic legislature, Republican governor) and North Carolina (Republican legislature and governor).

I know, I know, Republicans are the party of "no new taxes" and the Norquist pledge. So I've got to be pulling your leg. But no: Washington and Virginia have both passed new fees on electric and hybrid vehicles because they pay less in gasoline taxes since they obviously use little or no gasoline. New Jersey (see link above) is considering a tax on every mile an owner drives (talk about government intrusion and paperwork!), regardless of whether the car is gas or electric, to make sure that electric car owners pay their fair share for road  upkeep. North Carolina plans a fee of $100/year on electric vehicles and $50/year on hybrids.

If you have seen the story on North Carolina's "Moral Monday" protests, you know that the Republican legislature is passing laws to restrict voting rights and to cut [insert almost any program here, not to mention taxes] as fast as is humanly possible So I have little doubt that North Carolina will have this law approved by the end of the legislative session.

I'm just not sure Republicans have thought through all the implications of these taxes. Most significantly, they are progressive in nature, as they would only be paid by people rich enough to afford high-priced cars like the Tesla and the Chevy Volt. And Republicans like their taxes as regressive as possible, as state after state has reduced personal and corporate income taxes while raising the sales tax

Better not tell them. Their heads might explode.

Andrew Cuomo Reinvents the Enterprise Zone. Why?

Via @WNYPlanner, we learn that New York Governor Andrew Cuomo has proposed "Tax-Free New York," a plan that would let any business opening on State University of New York (SUNY) campuses outside New York City, some private colleges upstate, some areas adjacent to SUNY campuses, and an additional 20 "strategically located state properties" be entirely tax-free. According to the proposal:

Tax-Free NY will entice companies to bring their ventures to Upstate New York by offering new businesses the opportunity to operate completely tax-free – including no income tax for employees, no sales, property or business tax – while also partnering with the world-class higher education institutions in the SUNY system.

 In effect, we are looking at a new incarnation of the enterprise zone, though thankfully without regulatory incentives to go with the fiscal incentives. Unfortunately, enterprise zones don't work very well, so the lack of regulatory exemptions is cold comfort.

Another strike against this program is that it explicitly allows companies to use it if they relocate from other states. Of course, relocation from within the state is prohibited:

Protecting Against Fraud: Tax-Free NY will include a series of provisions to protect against fraud. Businesses will have to submit certification to ESD [Empire State Development], and falsifying certifications will be a crime. The initiative will include strict provisions to guard against "shirtchanging," or when a company reincorporates under a new name and claims its existing employees are now new jobs. The initiative will also include measures to prevent self-dealing and conflicts of interest. In cases of fraud, the state will be empowered to claw-back benefits granted to the business.

 Proving once again, as Good Jobs First reported in "The Job Creation Shell Game," that states already know how to write anti-piracy language. They just don't apply it to themselves.

Finally, as Citizens for Tax Justice points out, this program would exacerbate the state's fiscal problems: "With the state budget office projecting (PDF) shortfalls ranging up to $3 billion per year in the coming years, removing entire companies from the tax rolls is hardly fiscally responsible."

Hopefully the state legislature will reject this poorly thought-out proposal.

First-Ever Report on Local Subsidy Transparency Released

Today, Good Jobs First released the first-ever report (report, press release) on local subsidy transparency in the United States, "Show Us the Local Subsidies." This is a welcome development, even if the bottom line is that the glass is nowhere near half full yet.

The report analyzes 64 incentive programs in the country's 25 largest cities and 25 largest counties. Of these, only 1/3 (21) report the name of the subsidy recipient online. Of these, a mere 10 list the amount of the subsidy initially awarded, and only six the actual number of dollars ultimately disbursed.

Memphis/Shelby County, New York City, and Austin each had a program that earned a perfect score for their online disclosure, and Chicago was not far behind. But 20 cities and counties, out of the 36 that had locally-controlled subsidy programs, did not report at all.

Why is local transparency so important? The reason is simple: there are thousands of local governments giving subsidies, so it is difficult to obtain information on them all. Without information, there is no way to hold firms to any commitments they might make in return for the subsidies, nor any way to hold governments accountable for giving the subsidies. From the standpoint of a researcher, it means it is virtually impossible to make a particularly reliable estimate of how much they all add up to.

In fact, since local subsidy reporting is so bad, when I made my estimates of state and local subsidies in Competing for Capital and Investment Incentives and the Global Competition for Capital, I could not find a better approach than to simply assume that they were about equal to state subsidies, as several experts suggested to me. While one would think that most cities give less than states (though Kansas City has given several $100+ million tax increment financing subsidies), the fact that there are so many more cities than states offsets this consideration. In fact, in Missouri local subsidies exceed state subsidies, and they did so in California until the state abolished TIF last year. So this assumption is not as outlandish as it seems at first glance. The resulting estimate is that there is $25-35 billion in local subsidies annually, enough to hire every laid-off local worker in the country.

That's why a serious push for local level transparency is so welcome. When Greg LeRoy and Good Jobs First began promoting state disclosure in the late 1990s, the number of states with company-specific reporting was in the single digits. As the new report notes, even in 2007, only 23 states had reached some level of transparency. This year, we are up to 46 states and the District of Columbia. Good Jobs First is promising a new state transparency report card later this year.

Thus, while the glass is very far from half-full on local transparency, the fact that there is enough to report on, and that more is surely on the way, is very good news indeed.