I don't understand how anybody can be surprised by this. You help lower income people, suddenly there's a whole new market for products that were previously out of their reach. You cut back investment in the lower classes (austerity), or implement "means tested" benefits, the economy suffers, and people suffer.
It seems like, idk, maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing.
The article refers to changes in tax policy that go beyond pandemic stimulus.
Focusing only on pandemic stimulus misses the big picture.
Either way, injecting money into the economy at this scale creates significant inflation. This inflation reduces inflation-adjusted incomes. It doesn’t matter all that much if it’s going to people or businesses, it’s going to cause inflation.
This is a real decline not inflation adjusted. When the child tax credit and the stimulus money was given out, the lower half of the individuals spent their money quickly. This is a long standing economic fact as your income grows your ability to spend it all efficiently and especially quickly declines. There are huge differences in the velocity of income circulation between the bottom quintile and the top quintile. It gets easier to wait to make a big purchase when your not hand to mouth so the 2017 tax cuts along with their punitive incremental middle class tax hikes every odd tax year through 2017. That tax bill made the wealthy tax cuts permanent but has a stealth increase every odd tax year, which are reductions in temporary adjustments to pull the wool over our eyes. The GOP gamed the way the CBO scores bills actual costs with this monstrosity. The top quintile isn't creating jobs they are enjoying their higher interest rates while they wait for bargains to materialize later.
This is inflation adjusted, though TFA doesn't make it clear. The full report says "To adjust for changes in the cost of living over time, historical income and earnings estimates in this report are expressed in real or 2022 dollars."
I dunno why this always gets brought up. What causes inflation? Money moving in the economy. Don't want to cause inflation? Give your money to rich people, they will just sit on it. Same as burning it. Give it to poor people and they use the money to get the things that they need. Moving the money. Causing inflation. Which means your assets are less valuable, and poor people move up.
It's only reflecting the relative shift of the country.
You reach your hand down to lift someone up, and shock and horror, you are no longer above them.
> Causing inflation. Which means your assets are less valuable, and poor people move up.
You’ve got it backwards. Assets tend to track inflation. Rich people do just fine. Wages do not. Poor people suffer the brunt of it. Inflation increases the inequality.
> Give your money to rich people, they will just sit on it
Which does precious little for the economy, so there's bo economic reasoning for doing this. If you want an economic stimulus, give money to poor people instead.
Do you know how they calculate median real income? By taking into account inflation.
"Real median household income fell by 2.3% from $76,330 in 2021 to $74,580 in 2022. Income estimates are expressed in real or 2022 dollars to reflect changes in the cost of living. Between 2021 and 2022, inflation rose 7.8%; this is the largest annual increase in the cost-of-living adjustment since 1981."
After tax is used because inflation adjusted before tax median income only dropped by 2.3%. Inflation may have represented at most 1/4th of the drop ignoring all other causes, but 3/4 comes from changes in tax policy.
Household income after taxes has nothing to do with inflation as far as I know. What scares me most about this article is people taking home 8.8% less while everything inflated around them and the median price of a home went from 320k in 2020 to 480k by the end of 2022.
Except the before tax incomes only fell by 2.3% so inflation was largely irrelevant. The real story is our median household is worse off by 6.5% due to changes in tax policy. That’s a huge shift.
Because inflation also raised people’s nominal before tax incomes. The net effect from inflation accounting from both the impact on wages and expenses was therefore negative 2.3%.
"Our analysis of the relative importance of supply-side versus demand-side factors finds 60 percent of U.S. inflation over the 2019-21 period was due to the jump in demand for goods while 40 percent owed to supply-side issues that magnified the impact of this higher demand."
I've always found it interesting that econ discourse usually takes such a rigid view for the causes of phenomenon, if this were another quantitative discipline I imagine there'd be a softer position. Anywho, just chiming in to opine that the models for economics folks argue about is likely more nuanced than portrayed.
The supply chain disruptions caused by the Pandemic is the one major factor that's often overlooked and specifically the longer term disruption that event caused to the Supply Chain Economy Of scale and all that can not be reestablished overnight.
The disruptions caused by all those pandemic related restaurant closings drastically altered the Agricultural supply chain economy of scale as farmers were forced to discard all that food/dairy production for lack of any functioning restaurant industry to purchase that production. And the Trucking/Shipping interests in that Agricultural supply chains losing all that business and having layoffs there and some interests going out of business as the result and Independent Truckers finding work in other market goods transportation/shipping if they could at that time.
So just measure the time it will take to reestablish a longer term Agricultural products supply chain economy of scale and that's a good part of the reason that food prices remain higher to this day regardless of the supply of money in the economy!
> There’s no free lunch. Inflation was up above 6% and people saw their buying power drop by 8%. That’s about it right there.
Except that only a portion of the inflation may have been caused by all that money. Or have you forgotten the geopolitical events that caused a spike in food (grain) prices and especially energy costs?
On the flip side we don't have high unemployed that takes over a decade to slowly go down (like Obama had to deal with post-2008 because the GOP didn't want to spend). Biden was there for the long slog to get people working again.
Yes, inflation was high for ~18 months: would have a not-hot economy be better or worse than that?
> which in turn was partly caused by putting money in the pockets of the people
Folks with no or little economics education have no concept of supply driven inflation, which is exactly what you get when a pandemic cripples global JIT supply chains.
> It seems like, idk, maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing.
There may never again be a Great Society middle class, regardless of economic policy. Most of the discussion I've seen about how to return to the post-war golden age misses how important the post-war aspect was for US success.
The US was the only industrialized country left intact after WWII, making it an export superpower on top of being a military superpower. Confidence in the American economy lead to the Bretton Woods system, enshrining the dollar as the global reserve currency, giving Americans enormous buying power, and leading to the US controlling over two-thirds of the world's gold by the 1950s. Compared to Europe and Japan, the US also had vastly more room to grow its agricultural and mineral production, and thus its economy.
Those unique advantages have dimished. Other countries have caught up in industrialization and the delta between the US and the rest of the world has shrunk. For the middle class to be rich again, the US would have to get comparatively richer relative to the rest of the world market, but the trend is in the opposite direction. Even significantly reducing the wealth gap wouldn't bring back the comparative wealth of the middle class of previous decades.
You are not surprised, yet your explanation is entirely about indirect effects, even though the cause is removal of tax credits and that $1400 EIP checks were sent out in 2021 but not 2022.
> postwar great society that JFK and LBJ were championing
IMO most of the wealth generation at that time actually came from being (1) the only country manufacturing at scale post-war that was untouched by war and (2) cheap energy (which has the highest correlation with improving the life of the poor).
In economics that's called the marginal propensity to spend! And on the lower rungs of the economic ladder the marginal propensity to spend versus the marginal propensity to save is nearly 100% toward spending there and nearly 0% for any savings. So any extra income given via Tax rebates and other methods of income redistribution for lower income households will almost 100% be assured to be immediately spent for some discretionary products purchases as long as the costs of Housing/Food and other necessaries is not eating up all of that beforehand.
>> maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing
That's the exact opposite of what LBJ was championing. He stated that his "War on Poverty" was meant to shrink the number of people on welfare, not increase it. Referring to poor people, LBJ said he wanted to "make taxpayers out of them instead of tax-eaters".
The war on poverty was not intended to be a forever war.
I don’t see how this fixes housing problems. If there are 5k housing units available, what is the “ socially inclusive minimum wage” such that everyone can afford housing?
This formula assumes all property and services are in abundance, but that is not reality.
I think you're not stretching those mental muscles quite far enough. Keeping people fed, housed, and secured is kind of the point of having a society. If the housing doesn't exist, we build it. If the food doesn't exist, we grow it. If we don't have security, we make it. Those who don't have occupations can be enlisted to help with those efforts. The last time we did this it was called the new deal, and it revitalized america. It's time for a new new deal
> I think you're not stretching those mental muscles quite far enough.
I think you're not reading the news enough...
> If the housing doesn't exist, we build it.
Where? Cities (and Nimbies) don't allow new housing to be built. Cities like NYC, LA, SF, Seattle are partially or fully surrounded by water. How do we "grow" the land?
Why? Cities cap rent prices, so it doesn't make sense for a builder or investor to spend $1m getting permits and building property to make $1k/mo in rent.
> If the food doesn't exist, we grow it.
This is easy for the USA, but doesn't help for countries like Sri Lanka that physically can't grow their own food.
There's no reason that we shouldn't fix involuntary unemployment because the same policy doesn't also automatically fix other problems.
A federal Job Guarantee does have the potential to ease housing pressures by increasing mobility and allowing people access to lower cost housing options that can ease local housing pressures in larger cities.
There seem to be a million different issues with a proposal like this, not the least of which is that the allocation of the labor amounts to a corporate or municipal handout.
If you pay a living wage to a zillion people, they have to be assigned some sort of valuable work to do if it's not just a UBI system. The government already pays everyone to do the work the government wants done, so the target of this inflation-funded labor value would be, what, precisely? There's only so much garbage that needs picking up.
And yet if we look around, in any city or town in the US, it’s easy to see there’s still garbage needing to be picked up; old buildings falling apart; sidewalks and roads in need of repair; the need for more libraries and parks, more librarians, more teachers, more doctors, more first responders, more social workers, more… everything?
At best, the public realm meets, but almost never exceeds our, needs. Oftentimes it doesn’t even do that! Sure— if you’re fortunate enough, you can avoid the system altogether (private school, private healthcare, personal assistant to organize your DMV appointment, etc), but that just proves the point: what is there to be proud of?
There’s so much that needs to be done and yet we’re not doing any of it. Instead we’re mostly coasting on the infrastructure (imagine if building highways then took as long as high speed rail today), (what’s left of the) social safety net, and institutions we created in the 50s and 60s.
Have them join the union then, or make it a program sponsored by the city workers (who else to better manage it anyways than those normally responsible for trash pickup?).
That was also apparently one of the reasons that NYC could “never” have containerized trash pickup like literally any other city in the US. Surprise! Despite that, and a million other “intractable issues”, the city has essentially switched to trash containerization pickup overnight, and everyone is better for it.
The amount of work that needs to be done is nearly infinite. It's just that we don't currently value the work as highly as the cash it would take to pay the worker.
In a world where we decided to do this, there is plenty these people could be doing to contribute greatly to society.
Ok, who gets priority? Whose bridges get fixed first? Population centers? Rural places without a lot of traffic? Which states? What about the environmental considerations for the dams? Who gets the power generated?
This is what I mean by a "municipal handout" - this is a firehose of value, and the people you point it at will be enriched. The allocation of that value is not trivial, as everyone who holds USD is paying for the labor via inflation of the money supply.
There are already plenty of lists of dangerously unmaintained bridges and roads that lack the funding required to keep them safely operational. Start there. Trust me, finding infrastructure to work on in the US is not a problem.
> There seem to be a million different issues with a proposal like this, not the least of which is that the allocation of the labor amounts to a corporate or municipal handout.
What do you mean by "corporate or municipal handout"?
> If you pay a living wage to a zillion people
Are there currently a zillion unemployed people?
> they have to be assigned some sort of valuable work to do if it's not just a UBI system
There's not a dearth of valuable work to be done (especially once you divorce "value" from "profitable for the private sector") however in an economic sense the only real requirement to prevent this from being a UBI is the requirement to somehow show up. That is, the JG must be purchasing foregone output, so people shouldn't be able to work full time and then also collect a full time JG wage without doing any extra work. Of course someone can work both a full time job AND also work full time for a JG if they have the desire to work 80 hours. This may not be implemented in the program due to health concerns but economically speaking it's viable. The specific mechanisms by which this is achieved are implementation details.
> The government already pays everyone to do the work the government wants done
Yes this is done through permanent government programs, and the tax base is set up to accomodate this spending.
However there are errors and people end up involuntarily unemployed. A JG eliminates that problem.
> so the target of this inflation-funded labor
What do you mean by "inflation-funded labor"? I think this might be answered on the page under the heading:
Won't "printing money" to create jobs for all unemployed people cause hyper inflation?
> value would be, what, precisely? There's only so much garbage that needs picking up
There are two headings on the page that address this:
If the government creates jobs for all unemployed people won't they just be "bullshit jobs"?
This was largely due to how cost-of-living adjustments are calculated and implemented in the tax code. Changes are calculated on chained CPI Oct-Sep, and the adjusted brackets and standard deductions go into effect the following January. Because of the timing, the 2022 adjustments were very small, but the 2023 adjustments were very large. On average, everyone got a 1.5 percentage point tax hike to their effective tax rate in 2022, and then the same as a cut in 2023.
How does that explain an 8.8% drop? I get that it's a factor, but I wouldn't call it "largely."
I mean it's right there in the article, "the expiration of expansions to refundable tax credits had a particularly important impact on SPM poverty."
I'm not sure how the top ranked comments, both of them, get things so wrong.
However you are definitely onto something sophisticated so... can you comment on the substance of the article instead of this kind of arcane thing that couldn't be the biggest factor?
Nominal incomes were up 2.3% in 2022, but after tax incomes were down 0.3%. Wage inflation had pushed people into higher tax brackets, and the standard deduction covered a smaller portion. That did not get corrected until Jan 2023, when brackets and deductions all went up over 7%. So the big takeaway is that nominal wage gains in 2022 were all eaten up by higher taxes, and that’s before we layer in inflation.
With the lowered effective tax rate, we see a much bigger gain in after-tax income, up 8.1% YoY in H1 2023. Now layer in inflation, much reduced from 2022:
Things look much brighter with less inflation, and brackets/deductions that caught up with inflation
Keep in mind these data are from BEA’s monthly personal income tables. The article is from a separate Census Bureau survey, that tells largely the same story with different numbers
It’s a little strange to call the government sending or not sending checks to people that didn’t owe any taxes to begin a change in tax policy. They are changes in social spending policy.
> In 2021, 9.6 million people were kept out of poverty due to refundable tax credits. This number declined to 6.4 million in 2022 as the pandemic era expansions expired. The effect declined for each of the major age groups, with 3.5 million children lifted out of poverty in 2022 compared to 4.9 million in 2021.
Purposefully casting millions of people back into poverty for political purposes is one of those American things I hate.
The virtue signaling put me off as well. Although I'm not sure it's specific to America.
The data is the data, and the way it's phrased with "kept out" and "lifted out" both to say the same thing which as I understand the data is that each of these groups were either over or under the poverty line as a result of the incentives. Adding extra weight and flower to the movement is a distraction with the intent of persuasion.
It’s virtue signaling to say that policy shifts brought a million+ kids back under the poverty line? Seems like pedantry. If the data is the data, then the statements in the article are either correct, misleading or false.
It was a smashing success at stamping out poverty and should have been continued. The right went on a campaign with all the typical tropes: “people need the dignity of work”, “this is why nobody wants to work now” etc.
So again: letting the program lapse put kids back under the poverty line. And it was done to win political points.
But it's not Covid aid anymore. It was aid that was begun during Covid, and now that Covid is over, there's pressure from people (see elsewhere in this thread for example) to keep those programs in place.
In 2019 you couldn't have enacted those aid programs, in 2020 they were enacted, purportedly temporarily due to Covid, and now there is pressure to make them permanent.
That's no conspiracy, it's not a conspiracy when you say out loud in public what your strategy is. Politicians use a crisis to enact policies they couldn't otherwise enact. They admit this.
An example on the other end of the political spectrum would be the second US invasion of Iraq, after 9/11. Before 9/11, an invasion of Iraq with the goal of regime change would have been unthinkable. Iraq was completely unrelated to 9/11, but the crisis was used to enact policies that wouldn't have otherwise been possible. Again, this is no conspiracy, Donald Rumsfeld said it out loud, someone's notes of that meeting read "Need to move swiftly – Near term target needs – go massive – sweep it all up. Things related and not."
What I am saying is, keep this in mind the next time there is a crisis.
"Nothing is so permanent as a temporary government program"
Student loan payments are kicking in once again and that's going to remove Billions in discretionary spending from the economy! So maybe the Fed/US Treasury Department needs to be taking that into consideration for any possibilities of future Interest Rate hikes, So the money supply after the return of Student Loan Payments will see a large volume of cash flow taken out of any discretionary spending dependent consumer market segments each and every month from now on. And the multiplier effect of that discretionary spending void makes that even more than just a simple dollar for dollar calculation there.
The article explains that the difference is mostly due to tax changes (hence the "After Taxes" qualifier in the title):
This dramatic difference can be attributed to key changes in federal tax policy.
In 2022, several policies enacted by the American Rescue Plan Act (ARPA) expired, including an expansion of the Earned Income Tax Credit (EITC) for filers without children and full refundability of the Child Tax Credit (CTC) and Child and Dependent Care Tax Credit (CDCTC). ARPA also increased the maximum amount of CTC.
In 2020 and 2021, most households also received Economic Impact Payments (EIP) that were no longer issued in 2022.
The rollback of these tax policies had the largest effect on post-tax income among the nation’s lowest-income households.
In 2021, for example, post-tax income at the 10th percentile, meaning at the bottom of the income distribution, was 17.1% higher than the corresponding pretax income estimate, reflecting the substantial boost that lower-income households received that year from the EIP and expanded CTC.
In contrast, the 2022 estimates of pretax and post-tax income at the 10th percentile were not significantly different (Figure 1).
Stimmies. As per the article, 2021 was anomalous because more than 25% of people had post-tax incomes that were actually higher than their pretax incomes.
The line graph shows a huge gap between expectation and resulting income, after taxes. The anomalous part is the expectation change, not the income, as I understand it.
The horizontal bar chart is a vertical distribution based on income bracket, not based on aggregate count. The numbers are % change, not a % of total (which would be just under 25%).
It seems like, idk, maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing.