TAXES | What Trump's Returns Show about Tax Laws

Gene Steuerle of the Urban Institute this week has posted a fine summary of lessons from Trump's tax returns as reported by The New York Times. 

Trump's returns show how U.S. tax laws can break the link between wealth and income, increasing wealth concentration. 

His  returns illustrate many ways individuals and businesses with large  accumulated assets can shelter income that would otherwise generate tax liabilities. Steuerle says tax policies since the early 1990s have hiked the ratio of household wealth to income, generating $25 trillion of nominal wealth above normal growth. The Fed's recent buying of debt has further protected wealth holders.

Examples: 

• Underreported capital gains. Income from appreciated property is not included in taxable income until the underlying asset is sold. Steuerle found in the 1980s less than one-third of net income from capital reported.
• Tax exemptions for real estate owners. Large real estate investors typically use a pass-through business and are thereby able to claim exemptions from corporate and individual taxation. If property is held until death, no income tax is owed on accrued but unrealized gains. Gains can be deferred or excluded from tax at death, but property owners can immediately deduct almost all expenses on their tax returns. Investors in real estate can swap real estate properties with another owner and defer recognition of capital gains income.
• Incentives for risky lending. Lending officers at an institution like Deutsche Bank make big money on loans even if their loans go sour. They earn bonuses by boosting the bank's cash flow. By the time the loan sours, it is usually too late to claw back bonuses.
• Incentives for risky borrowing.  Borrowers can write off nominal interest costs that are a multiple of the real cost of borrowing. Near-zero-interest federal fund rates, while taxpayers deduct their nominal interest costs, mean that in real terms some investors are being paid to borrow money.
• Tax incentives to declare bankruptcy.  An owner of two companies where #1 earns $5 million and #2 loses $6 million has an incentive to declare bankruptcy on #2 and avoid taxes on #1. Others bear the bankruptcy cost.

NY STATE | County Deaths from COVID (2)

April 3, 2020—In one week, the death rate from COVID-19 per 100,000 population tripled in New York City. It was between 5.5 and 5.8 deaths per 100,000 population in the Bronx, Staten Island (Richmond County) and Queens, and was 3.2 to 3.5 in Brooklyn and Manhattan. See prior post, one week ago.

Rockland again had the highest death rate outside of New York City, rising from 1.6 to 13.5, a huge increase of nearly tenfold. Nassau, which had been behind Suffolk last week, rose from 0.7 deaths per 100,000 to 10.3, an increase of nearly 15-fold. Suffolk's death rate rose five-fold. Westchester's death rate rose from 0.1 per 100,000 to 7.1, a 71-fold increase...

Sources: New York Times Interactive for population data except NYS and NYC, Cases per 100,000 pop. and Deaths. NY State Population from World Population Review as of 2020-02-17, retrieved 2020-04-03.  NY City population as of 2019, Census estimate. Death rates computed by JTM.

The Centers for Disease Control and Prevention (CDC) has found the same pattern emerging in the United States as has prevailed in other countries in Asia and Europe, namely the hardest hit are the older age groups.

Especially vulnerable are those 85 and older, for whom the death rate is more than 10 percent of the number of confirmed cases.

This is why so many cases and deaths are being found in nursing homes.

METRO DEATHS | NY area likely to pass 10,000 deaths

Italy's lockdown.

April 3, 2020—On a Zoom chat this morning, someone asked about the future for the U.S. and New York City economy. I suggested that  it depends on how we manage the pandemic at the NY City, State and Federal level.

The number to watch, I said, is the death rate, because by now everyone is aware that the "confirmed cases" number is dependent on how many tests are done. Shortages of testing kits reduce the number of confirmed cases but also, by delaying proper care and isolation, contribute to higher death rates. The number of cases is not a good measure of the outcome of the disease.

Chart 1. Virus Cases by Country, David
Leonhardt, NY Times, March 31, 2020.

Whichever measure we use, the  prognosis for the United States is for the disease to worsen before it gets better.

Let's look first at the number of cases. Did the United States get ahead of the curve between the time that the disease started in China and then spread to Italy? The chart at right, by David Leonhardt in the NY Times on March 31, suggests not.

In fact, by this point in the progress of the virus, China and Italy and even Spain were both doing better based on cases. But this chart is subject to testing bias. If the United States is "not flattening," the reason may simply be that the United States has stepped up the rate of testing.

Deaths in a democratic country are hard to fake or hide. People are paid to track them. A death from the coronavirus follows a gruesome pattern that should now be not hard to diagnose. Population numbers are closely watched. So, horrible though they are, the death rates are "good"  measures of the spread of COVID-19.

Table 2. Top lines, NY Times Upshot 
table, March 27, 2020.

The table at right shows the top seven lines of a table published as an Upshot in the New York Times. As the accompanying text in the story points out, the death rates lag cases, so they are not the best measure of the challenges being faced at the moment in the hospitals.

Because China was ahead of Europe, and Europe has been ahead of the United States, in facing the coronavirus, the Lombardy and Wuhan death rates are worth looking at as a guide to what might happen in the New York City area.

If there is a bias in the death rates in Lombardy and Wuhan, it is probably on the low side:

• Yes, Italy has an unusually elderly population, second in the world after Japan. This would tend to raise the death rates relative to New York — the median age in Lombardy is about 45, whereas it is 38 in New York. But Lombardy numbers may be considerably understated because many deaths that did not occur in hospitals were not counted by the health care reporting system — i.e., they might not have been counted if they occurred where people live, even if they were in nursing homes. 
• The Wuhan numbers may also be undercounted. A classified U.S. report suggests that C.I.A. insiders believe that Chinese cases and deaths from the virus may have been systematically underreported.

What do the death-rate numbers tell us? It is not in the Upshot story, but if the progress of the disease in the New York area matches that of Lombardy, we can expect a death rate of approximately 0.5 per thousand applied to a New York City metro area population of 20 million, or 10,000 deaths.

Chart 2. New York deaths higher than
Lombardy at same point. Upshot,
NY Times, April 3, 2020.

The math is not hard to follow. Lombardy suffered 5,000 deaths, in round numbers. It has half the 20 million population of the New York City Metro Statistical Area.* So one would expect, all else equal, that the New York metro area would end up with double the Lombardy deaths, or 10,000.

Today, April 3, the New York Times published another Upshot chart showing how we are doing on death rates relative to the Lombardy region. It should not make us complacent.

Upshot shows on the chart that the NY City death rate until the last observation has been doubling every two and a half days. It has been on a trajectory well above Lombardy's for a week, until the latest day. Governor Cuomo has noted in his 11 a.m. daily updates a marked improvement in the State trajectory in the last few days. If he is right, it is a breakthrough and he should get credit for it. The Governor's recent moves have improved the odds that the State's hospital system will be able to handle the coming peak load of patients. Meanwhile, we should watch the numbers carefully. It still seems likely that the New York metro area will exceed Lombardy's death rate.

* The NY metro is the statistical area (MSA), not the Combined Statistical Area (CSA), which would add another 3 million people. The NY MSA is composed of four Metropolitan Divisions; one of them is Nassau-Suffolk, two counties that together constitute Long Island as a Metropolitan Division.

CHINA | Seeking Influence in Latin America

July 29, 2018–The New York Times today has a three-page lead article on “China’s long, quiet push into Latin America.” 

This was the subject of a post five months ago by Heidi Fiske. Heidi’s article focuses on Mexico.

https://cityeconomist.blogspot.com/2018/03/heidi-fiske-risk-of-trumps-trashing.html.  

ART BIZ | Met Charge Is Criticized

The Metropolitan Museum of Art, the world's largest cultural institution,
has been having financial difficulties. Their solution is to impose a
mandatory fee for non-residents of NY State, for the first time since 1970.
Welcome signs and verse below by JT Marlin.
The Metropolitan Museum of Art
Is now charging at the gate.
Prove that you're from the State...
Or twenty-five bucks is the rate.

A panel of senior art critics for The New York Times has denounced the move by the world’s largest cultural institution, the Metropolitan Museum of Art ("The Met", also confusingly the nickname of the Metropolitan Opera) to start, on March 1, charging a fee for admission to out-of-staters. 

This policy reverses one established in 1970 that a voluntary donation to the Met is all that is required for admission. The new policy imposes two new entry barriers. Either produce acceptable identification to prove you are a resident of NY State, OR pay $25 to be admitted.

The Met says that the fee is needed to ensure a steadier flow of revenue, because the number of visitors paying the "suggested donation" of $25 is sharply declining.

ELECTRICITY | Going Off the Grid

July 30, 2017 – An article by Diane Cardwell in today's issue of The New York 

Times describes how the Green Mountain electric utility in Vermont is helping 

customers go off the electric grid.

A 2015 article in Home Power Magazine lists four motivations for going off the grid:

1. Environmental concerns—a desire to use less energy and make as much as possible from renewable sources;

2. Independence from the electrical utility for philosophical reasons or to eliminate vulnerability from utility outages;

3. Political/social values, such as taking responsibility for your energy impacts;

4. Cost—depending on how far you are from the grid, it may make economic sense to stay disconnected.

There is a new strength to motivation #2 that stems from the increased exposure to hacking that was revealed by the 2016 election cycle – the danger of one or more of the U.S. regional power grids being blacked out by hackers. So what Green Mountain is doing is great news.

Another problem with using renewable energy to go off the grid is storage, since solar energy works only with sun and wind energy only with wind. Batteries are needed to store energy during the non-windy, non-sunny periods. The good news is that battery costs are coming down and availability is going up, and with the advent of the Volt and Tesla and other brands batteries will be included with every purchase of a new electric car. 

The Washington Post warned two years ago that going off the grid means that households that have invested in renewable energy are not going to be paid for the energy they send back to the grid. Where the feed-in tariff is high, this is a significant consideration. 

However, when the feed-in tariff is very low, this is not a consideration. PSEG on Long Island, for example, is charging something like 25 cents a kWh (what the consumer pays is subject to all kinds of variables), which is saved by using solar. But when it pays out for fed-in excess energy, it pays less than a nickel per kWh.

PSEG also shuts down renewable-energy suppliers whenever its service goes down, which adds to the user's incentive to go off the grid. The argument by the utilities is that all feeding in must be halted in order to protect the line workers from shock. As long as this argument is used, the consumer of electricity on Long Island will be looking for a way to get off the grid entirely.

JOBS | March Disappoints (Updated Apr 8, 2017)

The 1990s saw steady job growth with Bill
Clinton and in 2009-2016 with Obama.
Sources: BLS, FRED (St Louis Fed).

March 7, 2017—The BLS reported this morning on the March jobs data.

Total nonfarm payroll employment rose by only 98,000 in March, following gains averaging 217,500 in January-February 2017.

Professional and business services continued to grow (+56,000), as did mining (+11,000). These are good-paying jobs:

• Services to buildings and dwellings (+17,000) and architectural and engineering services (+7,000) did well. 
• Most of the gain in mining occurred in support activities (+9,000). Mining employment has risen by 35,000 since a recent low in October 2016.

However, retail trade lost jobs (-30,000). Competition from the Internet is likely hurting bricks-and-mortar retailers. Employment in general merchandise stores declined by 35,000 in March and has declined by 89,000 since a recent high in October 2016. The good news is that with higher levels of technology the jobs that remain are better paid.

Health care continues to create jobs, as it has for decades, added 14,000 in March, with gains in hospitals (+9,000) and outpatient care centers (+6,000). In the first 3 months of this year, health care added an average of 20,000 jobs per month, compared with an average monthly gain of 32,000 in 2016.

Financial activities, the best-paying jobs, continued to trend up in March (+9,000) and jobs in the sector have increased by 178,000 over the past 12 months.

Construction employment changed little in March (+6,000), following a gain of 59,000 in February. It has been trending up since late last summer, largely among specialty trade contractors and in residential building.

Postscript (Saturday, Apr 8, 2017)

Neil Irwin in The New York Times today (p. B2) says that "it was a mistake" for Trump to point out the strong growth in jobs in February, because he drew attention to a number that in March didn't work out so well for the new administration.

Irwin goes on to say that payroll jobs are not the best economic indicator...

What? Trump promises more jobs, and he shouldn't focus on the monthly job numbers? I have been working with the job numbers for a long time, and I don't think Irwin is correct in advising the President to shift attention away from them, certainly not at this early stage.

Trump's biggest campaign commitment was to "Jobs, Jobs, Jobs". The number he has to beat is payroll jobs as shown in the chart below. Sure, these numbers are revised periodically, but they are the coin of the realm. BLS collects job numbers from each state based on unemployment insurance filings within each state. If a monthly number is out of line, it gets looked at more carefully. These numbers are well grounded.

Irwin's two alt monthly job numbers, by contrast, are not so well grounded—

• Yes, the employment/population number is a good way of comparing long-term job-creating performance, because it eliminates issues involved in unemployment questions asked of the survey respondents in each sampled household. ("Who is not working? Have they been recently looking for work?") It is more resistant to survey-question creep. But the denominator, population, is not a reliable number for month-to-month comparisons.
• No, probably, to Irwin's proposal to pick age groups within the employment/population ratio. It would require tagging each unemployment insurance report with a year of birth and dividing the monthly job change according to age groups. Maybe this could be done—or the numbers could be estimated based on a sample—but will the new information be worth the effort? Might be something for a state government with a strong Unemployment Insurance staff to experiment with.
• Yes, finally, tracking wages is indeed important. We know that real wages over the long term have been falling in manufacturing as American factories compete with lower-wage supplies in other countries. But the real hourly earnings of private-sector employees is an aggregate of many different private-sector stories and is less useful for measuring the President's progress toward his stated goal than the aggregate job numbers. A rise in wages may simply reflect fewer jobs in a low-paying industry and more jobs in a higher-paying industry. The quarterly census of jobs and wages is conducted only quarterly and is published with a substantial lag that diminishes the value of the numbers. (But better late than never, and better late than inaccurate.)

Related Posts

Phony Numbers? . Job Numbers for Trump to Beat . Economic Hotspots

Job Growth by Month since the post-Glass-Steagall Meltdown of 2008.

NYC | Universities and City Invest in Tech

March 22, 2017—David W. Chen writes wide-ranging stories that put New York City in a global economic context. 

He interviewed me in 2008 during the fiscal meltdown and again this month in a story about university technology centers in New York City. 

The new story appears in The New York Times online today and will be in the printed edition tomorrow, Thursday.

SOCIALISM | Who Funded the Brave Magazines in 1910-1922?

Art Young (1866-1943)

January 22, 2017–In today's New York Times a photo takes up nearly half of p. 10, the first page of a section called "The Inauguration". The photo is of Inez Milholland on horseback, about to set off 104 years ago, on March 3, 1913, from Capitol Hill up Pennsylvania Avenue to Lafayette Square, where there was a viewing stand in front of the Treasury Building.

She and her 5,000 or more (the National Park Service estimated 8,000) fellow suffragist marchers attracted the attention of the rest of Washington and a crowd of half a million people gathered around, many of the onlookers deeply hostile. Violence ensued that the D.C. police did little to break up until cavalry arrived from Fort Myer. When President-Elect Woodrow Wilson arrived at the VIP entrance at Union Station, no one was there to greet him except a White House driver and a staff member from the outgoing President (Taft).

The march alone established Inez as a brave woman. But little remembered is the role she played in directing funding to in-your-face socialist publications, especially The Masses. I have just been reading Art Young's long and interesting first (1928) autobiography, My Life and Times, available online (http://bit.ly/2jSuoeO – the download is slow because the file is large), and he has some interesting things to say in this connection.

Inez Milholland was the daughter of a newspaperman who became wealthy by investing in underground tubes for moving mail in big cities. Her socialist views deeply upset him.

These views motivated her to help her friend Max Eastman start The Masses, and after her death in 1916 influenced her widower, Eugen Boissevain, to fund other socialist publications.

Boissevain made a small fortune with two of his five brothers, importing coffee from Java in what was then the Dutch East Indies.

The socialist publications in the 1911-1922 period covered by Art Young coincided with the creation of the traditions and energy that emanated for the rest of the century from Greenwich Village.

These traditions were also wrapped up with the energy of New York University. Inez Milholland attended NYU Law School – and thereby became part of the Triangle Shirtwaist Company strike in 1909 and a witness to the fire in 1911 – because her application to Harvard Law School and other more prestigious school was rejected because of her gender. The Harvard Law School faculty decided she could do the work, but the administration did not admit women for another four decades–not until 1950.

1. The Masses, 1911-17


Art Young shows how The Masses got started with a $2,000 contribution (equal to about $50,000 today says the BLS inflation calculator) from Alva Belmont, whose support was enlisted by Inez. Max Eastman hadn't thought of approaching her, because he knew that Alva wasn't a socialist. But Inez knew that Alva was a supporter of suffragist causes and correctly perceived that she would be open to supporting other issues if properly presented. (See Young, previously cited 1928 Autobiography, p. 297.)

Inez explained to him that Alva was a "militant" – which would be enough for her to want to enable militancy of other kinds.

Alva's gift was quickly matched by $1,000 from popular novelist John Fox and then another $2,000 from civil rights lawyer Amos Pinchot. That was sufficient to get the magazine under way. Belmont made subsequent contributions.

The magazine was ended when Woodrow Wilson's Postmaster General invoked wartime laws against sedition and refused to mail it. The magazine was succeeded by another one led by Max Eastman, The Liberator, and later by The New Masses.

2. Good Morning, 1919-22


Cartoonist Art Young, a mainstay of The Masses, created his own magazine in 1919. He needed $4,500 to get it going, and received $1,000 of it (equal to about $25,000 today according to the BLS) from Inez's widower Eugen Boissevain. Eugen asked Art: "Are you sure this is enough?" (See his previously cited 1928 autobiography, p. 356.)

Art's magazine competed with Max Eastman's new magazine The Liberator. It only lasted three years. The value of these magazines is that they show an alternative point of view to the prevailing mood of capitalist acquisitiveness that lasted until FDR's election in 1932.

3. John Reed's Trip to Russia

Eugen Boissevain is credited by Max Eastman in his book Great Companions with contributing and raising the money that John Reed needed to go to Russia and write the book that became Seven Days that Shook the World.

GLASS-STEAGALL | Bipartisan Support (Updated March 12, 2017)

Sen. Carter Glass, Feb. 1933

July 27, 2016—Andrew Ross Sorkin (New York Times, July 26, p. B1) considers it "an extremely odd political dovetail" that both Democratic and Republican platforms include planks calling for the restoration of the 1933 Banking Act, widely referred to as Glass-Steagall.

The GOP platform is not consistent. It has some anti-regulatory provisions diametrically opposed to a restored Glass-Steagall Act. But a coalition between Republicans and Democrats on major financial issues is not odd at all:

• The coalition that brought down the Philadelphia-based Hamiltonian Second Bank of the United States united Old Republicans opposed to growing Federal power and Jacksonian Democrats opposed to the reining-in of bank lending.
• The coalition that created the Federal Reserve in 1913 included Republican Senator Nelson Aldrich and several Wall Street bankers, who drafted a privately controlled plan at a "duck hunt" in November 1910, and Democratic Congressman Carter Glass of Virginia, who with President Woodrow Wilson added provisions for greater public control.
  
• FDR's Republican Treasury Secretary, the unjustly forgotten Will Woodin, calmed the financial markets in 1933 and got both houses of Congress to agree in a single day to an Emergency Banking Act and then to the 1933 Glass-Steagall Act.

When I was working as a financial economist at the Federal Reserve Board in 1964-66, Bray Hammond's history of banking was still fresh in the minds of researchers there. Hammond had been Assistant Secretary to the Board of Governors of the Federal Reserve System through 1950. He  wrote Banking from the Revolution to the Civil War (key chapter posted here) that won a Pulitzer for history in 1958.

Today's Main Street coalition has coalesced in reaction to the 2008 meltdown. It is broad and deep but it is the same coming-together that has stood the United States well since the Revolution.

Glass-Steagall was named after Sen. Glass, now chairman of the Senate Banking Committee, and Rep. Henry Steagall of Alabama, chairman of the House counterpart committee. Working under pressure from FDR and Woodin, Glass and Steagall fashioned a law that was a powerful bargain. The banks originally got deposit insurance up to $2,500 per account holder from Steagall in return for strict regulations designed by Glass to separate insured from non-insured financial institutions.

Woodin and FDR were both fully aware of the hazard that investment bankers would try to get access to insured deposits to speculate with, which is why they deeply opposed deposit insurance unless accompanied by strong regulation of banks covered by such government-backed insurance.

Deposit insurance coverage was ultimately expanded. Depositors were allowed to have different insured accounts at the same bank (retirement, joint, etc.). Coverage was raised in steps to $40,000 and, in 1980–in a move that the FDIC itself opposed–to $100,000. The increase to $250,000 was in response to the 2008 meltdown and arguably encouraged the same disregard of risk that caused the meltdown. In practice, when a small bank gets into trouble the FDIC arranges a takeover. If the bank is too big the fail or be taken over, the 2008 Lehman takeaway is that the Fed is likely to finance the bank's losses to preserve the financial system.

Meanwhile, while the regulations installed by Carter Glass lasted more than half a century. Their erosion in steps through 1999 in the name of "modernization" paved the way for the 2008 crisis.

COST OF 9/11 | Gulf War II–a Non Sequitur?

New York Times, Sept. 12, 2001.

A New York Times story by Andrew Ross Sorkin published online on Nov. 16, 2015 and in print on Nov. 17 (pp. B1 and B4) estimates the total cost of 9/11 to the USA as potentially "as high as $3.3 trillion."

$3.3 Trillion?

That seemed like a lot to me. The final estimates of the total cost to New York City came in at $70-$80 billion, after the initial estimates of deaths were cut in half and the damage to the hotel next to the World Trade Center was found not to be as bad as feared.

Much of the damage was, of course, paid for by insurance payouts–and, of course, terrorism insurance premiums then soared, or deductibles, or both.

Federal assistance to the City also helped, with $20 billion promised and a good portion of that delivered.

The Basic Costs: Physical and Economic

The total cost is defined as the "economic cost of Sept. 11" to the entire United States. The estimate starts with $178 billion for the physical and economic costs–$55 billion for physical losses and $123 billion for economic losses. These numbers are in the ballpark, although shifting the focus from New York City to the nation cancels out economic costs to NYC that were premised on corporations moving jobs out of New York City (e.g., for New Jersey or Westchester). Many of these jobs came back, but that was not at all the most likely scenario back in 2001 when I worked on these numbers as chief economist for the NYC Comptroller's Office.

These two basic physical and economic cost numbers are relatively easy to understand from examples:

• When buildings are destroyed, America's wealth declines and resources are diverted from the rest of the economy to replace them. 
• When airports are closed all across the United States, the impact on the national economy is also obvious (think about the impact on tourism in Hawaii and Nevada, for example).

Costs of the U.S. Response to 9/11

Sorkin goes on to hike the number from $178 billion to $3.28 trillion, with two other "costs"that are the sum of the consequences of two decisions by the then-President of the United States:

1. To go to war in Iraq ($2.516 trillion). The Second Gulf War began with the President's decision to retaliate against Iraq for building alleged weapons of mass destruction. The decision was controversial at the time and still is. The $2.5 trillion price tag for the second Gulf War may even be a lowball estimate if the United States stays in Iraq and Afghanistan and keeps spending in this arena. Whether one considers the decision war as justified or not, the spending on it cannot be described as an inevitable consequence of 9/11. It was a consequence of how the nation responded.
2. To create the Department of Homeland Security ($589 billion). The new department is a reshuffling of existing agencies. Something had to be done at the Federal level to respond to the failures of intelligence that allowed successful acts of destruction on 9/11. But the size of new domestic security spending grew because of the same controversial information that led to the Second Gulf War. 

These "costs" are real. The numbers are in line with those that Linda Bilmes and Joe Stiglitz put forward as the cost of the Second Gulf War (the beginning of the First Gulf War just celebrated its 25th anniversary). But it is inappropriate to call them the "costs of 9/11". The 9/11 attack may have created a climate that created support in Congress for going to war again in Iraq and overhauling domestic security agencies. But it was not a sufficient cause. It was not a consequence of 9/11 in the same way as destruction of buildings and interruption of economic activity. It was a non sequitur.

JOBS | "Nonemployment"

Data before the 1960s show the importance of women
 entering the workforce in far greater numbers. Fewer men
have worked since then. The departure from the workforce
 of many women since 2000 is a puzzle.

The New York Times series by its Upshot staff on "nonemployment" is another reminder of what a great newspaper can do to put in front of the public the data and research that a democratic society needs to make decisions about public policy.

I have posted at least four times on the subject in the last year and a half.

The term "nonemployed" appears to have been formally introduced in 1997 by two University of Chicago economists as a broader category of nonworking people than the unemployed. They aren't working but are self-described in surveys by the Census Bureau for the Bureau of Labor Statistics as currently available for work and actively looking within the four weeks prior to the survey.

Two articles in the Times series on nonemployment have appeared. The first, by David Leonhardt, introduces the topic and stresses "the Decline of Work" as the theme. The central number he puts in front of us is that back in the 1960s only 5 percent of men in their prime working years of 25 to 54 did not work. Today, the number has more than tripled, to 16 percent. Is this a terribly worrisome number?

• Up till 2000, the relaxed response might have been: "Sure, relatively fewer men are working, but a far higher percentage of women are working, so that's the reason." It is natural that some men of prime work age might stay home to look after their elderly parents or children.
• But, since 2000, the share of women who are working has also been declining. So it is fair to say that since 2000 "the Decline of Work" applies to the population as a whole. A team composed of the Times, the Kaiser Family Foundation and CBS has set about trying to find explanations of the decline through polling.

The second report in the series shows highlights from their findings, as reported by Gregor ("driven by data") Aisch and Josh Katz as well as David Leonhardt. For example:

• Of men aged 25-54, 64 percent would like to have a job. 
• But only 45 percent have been actively looking in the last year (a looser definition than that of the BLS, which wants to know if they have been looking in the prior four weeks).
• In other words, about 30 percent of those nonemployed who say they would like to have a job have not looked for work within the prior year.
• Why not? Well one reason is that one-third of the nonemployed have been convicted of a crime. Nearly half of the nonemployed say they suffer from a disability or from general health problems and 43 percent say that not being employed in itself is bad for their mental health.

An amazingly useful chart shows the nonemployed status in every county in the United States, shaded to show where the nonworking status is most prevalent. The numbers are more complete than the unemployment numbers of the BLS, which by definition covers only the "civilian noninstitutional" population. The BLS therefore excludes the military plus institutionalized populations such as those who are incarcerated, presumably because of the difficulties inherent in conducting random-sample surveys of such populations.

This chart should be pondered by every elected official in the United States.

The research brims with public-policy implications. It supports bipartisan efforts to reduce the sky-high U.S. incarceration rates and to lower the high barriers to re-entry in the job market resulting from licensing requirements that are not related to job performance. I believe it supports programs for more apprenticeships among younger workers and Kurzarbeit-type programs to keep older workers work-ready during a recession.

Surely not by coincidence, the Times editorializes in favor of Mayor de Blasio's plan to try to keep the mentally ill who do not pose a risk to others out of jail because 40 percent of the 11,000 people in jail in New York City are mentally ill - an increase from a few years ago when the figure was 25 percent. Many of the inmates were arrested and convicted of low-level crimes such as not paying a fare or trespassing. These mentally ill inmates are expensive to incarcerate because they stay twice as long as  other inmates since they find it harder to obtain bail.

The Times is making an important contribution to public policy formulation for our recovery from the Great Recession. As the economy picks up we will need workers and the sooner we identify the reasons why people are not working and address them, the better prepared we will be to put them to work.

However, I wish that the Times would help the public understand how the concept of nonemployment fits together with something that has been measured and reported regularly since the Full Employment Act was passed after World War II, namely the civilian employment-population ratio. This indicator, which is presented at the top of this post, pretty fairly presents the extent of the nonemployment problem over time, although it omits the institutional populations that bulk large in some parts of the country.

HARVARD | Admissions, The Asian Quota (Comment)

Harvard Yard, 18th century.

A NY Times op-ed today, "Is Harvard Unfair to Asian-Americans?" by Yascha Mounk suggests that the answer to the question is yes, Harvard is unfair, or at very least opaque.

Based on the circumstantial evidence that Asians are a flat share of undergraduates for 20 years, despite the fact that Asians are "the fastest-growing racial group in America", there seems to be a quota for Asian applicants at Harvard.

If so, it would be reminiscent of the quota in place for Jews in the 1920s-1950s.

The topic of the admissions process to Ivy League colleges is of intense interest to Americans. The most-read article in the history of the New Republic was one in July this year on this subject, questioning the process.

The op-ed takes us back to Harvard President A. Lawrence Lowell, who warned that the "Jewish invasion" of Harvard College in 1922 (when Jews were 21.5 percent of freshmen, three times the rate at the turn of the century), would "ruin the college." He wanted the Jewish quota to be 15 percent.  The faculty objected, so he imposed a de facto cap on Jewish admissions by taking sports and character (and geographical distribution) into account in the admissions process that was pursued into the 1950s.

I wrote a letter to the East Hampton Star about this two years ago, where I noted the changes that had taken place in the 1950s. Catholics may have been very briefly favored as the Kennedy family rose in importance. Portsmouth Priory (now Abbey) School, with a senior class then of 35 boys, had seven alumni in the Harvard Class of 1962–more than twice the number of African Americans in the class. (Portsmouth also had an exceptionally qualified headmaster, Fr. Leo van Winkle, an atomic scientist with a Yale doctorate.)

Our Harvard class elected the first African American Class Marshal–Haywood Burns. Affirmative action for Catholics, if that is what occurred, was overtaken in the 1960s by a realization that Harvard should participate in affirmative action for African Americans. This in turn was overtaken by the huge upheaval when women pressed for equal status. The Harvard Class of 1963 was the first to offer Radcliffe students a Harvard diploma. The same objections to women were raised that had been raised about Jews. The quota today, I suggested in my letter, was applied to Asians.

The op-ed by Mounk accepts that the admissions process does not lend itself to "one right answer" to the problem of allocating spaces in elite schools. The author simply asks for more transparency about the process...

Comment

I frankly doubt we will voluntarily get much more transparency about the process currently in place– the choices are too difficult and controversial–but we might get more transparency about the past and about the process, which will be helpful in addressing the issues being raised today.

Meanwhile, an advocacy group has filed a law suit against Harvard for discriminating against Asians. The Economist doubts it will win, but if it makes a good case it may lead to changes in policies of Harvard and other Ivy League colleges–if not changes in the selection criteria and process, then perhaps more disclosure of the criteria.

JOBS | Which David Brooks Should We Listen To?

David Brooks tackles every problem with earnestness and when he figures out the answer he expresses his dismay, often enough that Congress doesn't get it or hasn't acted.

In his Op-Ed today, he is on to the low labor force participation rate, the "lowest in decades".

He has read another book and he is distraught at the options facing young people: "Millions are in part-time or low-wage jobs that don’t come close to fulfilling their capacities. Millions more are in dysfunctional or unhealthy workplaces, but they don’t feel they can leave."

Transcending his University of Chicago roots, he favors favors a crash program of infrastructure investment.

The federal government should borrow money at current interest rates to build infrastructure, including better bus networks so workers can get to distant jobs. The fact that the federal government has not passed major infrastructure legislation is mind-boggling...

He warns Congress that young people are watching.

[O]ver the past five years, the political class has done essentially nothing. That will fill future generations with astonishment and should fill the current generation with rage... 

It makes sense to me. Borrowing resources today is appropriate to pay for the infrastructure needs of the future, just so long as the projects themselves are worthwhile. This was President Obama's intent when he came into office in 2009, to use stimulus money to accelerate state and local "shovel-ready" projects.

But nearly two and a half years ago Brooks was distressed at our era of indebtedness. He was appalled that any generation would "borrow money from the future to spend on itself". His article pillories debt of all kinds - Federal, state, local, business, personal. The title of his Op-Ed piece is "The Debt Indulgence".

Mr. Brooks, you are a reasonable person and you are seriously trying to come up with answers to big problems. But if we borrow to create jobs for our young people, won't we just be indulging ourselves in more debt?

R.I.P. | Sep. 3–Andrew Kay, Kaypro-IBM (Comment)

Andrew Kay (1919-2014)
Inventor of the Kaypro

September 7, 2014–Andrew F. Kay was born January 22, 1919 and died four days ago, on September 3. 

He was President and CEO of Kay Computers, a personal computer firm. He invented the Kaypro computer, which was once among a small handful of top contenders in the personal computer business.

The only other facts in his astonishingly short eight-line Wiki entry miss the fascination of his story (in contrast with the Gary Kildall Wiki, which is long and interesting).

The last Wiki paragraph is devoted to Kay's founding a chapter of the Rotary Club and board membership of a nonprofit that helps children with their vocabulary:

Mr. Kay also served as Senior Business Advisor to Accelerated Composites, LLC. A 1940 graduate of MIT, he started his career with Bendix followed by two years at Jet Propulsion Laboratory. He later founded Non-Linear Systems, a manufacturer of digital instrumentation, in 1952. NLS developed a reputation for providing rugged durability in critical applications for everything from submarines to spacecraft. At NLS he invented the digital voltmeter. 

He was also a founder of the Rotary Club of Del Mar, California. As a member of the Board of Directors of Johnson O'Connor Research Institute, he pursued the advancement of education with particular attention to the development of "a thinking vocabulary" as a basic component of creating leadership capabilities for managers in science and technology fields.

The lengthy and well-written obit in the New York Times by John Markoff does more justice to Kay's contributions, and tells the story of the Kaypro II, which like the Osborne 1, had for a couple of years the potential to take over the industry.

The Osborne 1 was the star of the 1981 West Coast Computer Faire in California. The Kaypro II was the star of the 1982 Faire even though it weighed 5 pounds more.

Comment

I owned both an Osborne 3 (still do) and a Kaypro II then and so did most of my friends. The Kaypro was all-metal, which made it impact-resistant but also heavy. It was nick-named "Darth Vader's lunch box". I lugged the lighter portable Osborne 3 computer and thousands of miles in a backpack in 1986, when Alice and I and our two children, 9 and 12, spent a summer in Japan courtesy of the Japan Foundation.

Both the Osborne and the Kaypro could have won out, but they made classic mistakes, mostly in marketing, that opened the door for Microsoft to team up with IBM.

Kaypro's Operating System, CP/M.  Kaypro was based on CP/M (Control Program for Microcomputers), a computer operating system (OS) invented in 1973 by Seattle-born Gary Kildall, who had a Ph.D. in computer science from the University of Washington. An OS allocates storage, schedules tasks, and presents the boot-up and default interface to the user between applications (i.e., special programs for special needs). Early computers all had two disk drives so that the OS and app could be in one drive and the user's data in the other. A good OS makes it easy for third-party software writers to create apps for the computer.

Gary Kildall (1942-1994)
Inventory of CP/M,
Kaypro's OS

Kildall's CP/M allowed files to be read and written to and from an eight-inch floppy disk, the first disk operating system (DOS) for a microcomputer. If Andrew Kay had realized how valuable the OS could turn out to be, he might have pre-empted Microsoft by buying up the rights from Kildall and marketing them, keeping his Kaypro on track. Kay might have worked out a deal that made the Kaypro a real competitor with IBM.

What happened instead was the consequence of the fateful outcome of an approach by IBM in 1980 to Bill Gates of Microsoft, to discuss the state of home computers and what Microsoft products could contribute. Gates gave IBM a few ideas on what would make a great home computer, including Basic written into the ROM chip. Microsoft had already produced several versions of Basic for different computer systems beginning with the Altair, so it would be easy enough for Microsoft to write a version for IBM.

Writing an OS for an IBM computer would be a first for Microsoft, so Gates kindly suggested to IBM that it investigate buying the rights to CP/M from Gary Kildall, whose CP/M was now a standard OS, selling more than 600,000 copies. It was bundled with the Kaypro and other computers.

IBM tried to contact Gary Kildall for a meeting. They got an appointment with Dorothy Kildall, Gary's wife and business partner since 1976, when the two of them formed a research and mail-order sales company, Intergalactic Digital Research (they later dropped Intergalactic from the name), to design and sell software for PCs.  Kildall rewrote CP/M as BIOS (Basic Input/Output System) to make it compatible with different computers. By 1978, the company's product was the standard for most PCs and was generating $100,000 a month. In 1981, its popularity peaked but revenues continued to rise to $44.6 million in 1983.

The legend, subsequently denied, is that Gary Kildall couldn't bother meeting with IBM, went flying instead, and Dorothy Kildall refused to sign a non-disclosure agreement. IBM walked away exasperated. The Wiki entry on Gary Kildall provides a pretty balanced picture of the Roshomon-like stories of what happened that day in 1980.

Looking back at it, IBM's exasperation with Kildall and vice versa, if that's what it was, cost IBM billions of dollars in revenue and the Kildalls a bigger fortune and a bigger place in history (for what that's worth). There should be a name for that - the "Kildall effect". From the vantage point of today, that exasperation truly killed all for both sides of the negotiation. The beneficiary was someone not at the table, Bill Gates and Microsoft.

Paterson's QDOS and Microsoft's MS-DOS. IBM returned to Bill Gates and gave Microsoft the contract to write a new operating system, which would become MS-DOS and would eventually end the use of CP/M and the Kaypro II. Microsoft developed The "Microsoft Disk Operating System" or MS-DOS.

MS-DOS was based on QDOS, the "Quick and Dirty Operating System" written by Tim Paterson of Seattle Computer Products, for use on their fledgling Intel 8086-based computer.

QDOS was a great name the cleverness of which has been insufficiently appreciated. QDOS is pronounced the same way as the Greek word (κῦδος) for praise or fame, kudos (the Anglicized use of the word often incorrectly treats it as a plural of "kudo"). MS-DOS deep-sixed the great pun in the original at the same time as it eclipsed the fame of Kildall. Microsoft traded the pun for the marketing clout it borrowed from IBM.

QDOS appears to have been reverse-engineered by Tim Paterson from Gary Kildall's CP/M. Tim Paterson purchased a CP/M manual and used it to write QDOS in only six weeks. QDOS could well have been different enough from CP/M to be a legally different product, but we will never know because IBM with its army of lawyers was not a great target for a law suit as central as that.

In the end Gates (i.e., Microsoft) bought the rights to QDOS from Tim Paterson for only $50,000, keeping his mouth tightly shut about the request from IBM that Microsoft made write their PC-DOS. Bill Gates even persuaded IBM to allow Microsoft to sell/lease MS-DOS separately to other computer manufacturers.

Virtually all of Microsoft's subsequent success comes from that one deal, which has been called the deal of the 20th century. Think of the markup - buying something for $50,000 and selling it to IBM for total revenue of about $1 trillion in average annual installments over the next 50 years of $20 billion.

It's now 34 years since that deal and in the last two years, Microsoft revenue averaged about $80 billion. It's conservative to allocate only one-fourth of that revenue to the licenses that originate from its MS-DOS licenses.

In 1981, Tim Paterson saw the light and quit Seattle Computer Products to go to work for Gates.

The Aftermath–Kildall's Decline. Gary Kildall, the inventor of CP/M, is the same age as me and died 20 years ago, the same year as my father. He made a deal with IBM that he decided was administered unfairly. He lashed out at Microsoft as MS-DOS took off and he was personally convinced it was copied from CP/M code. He and his wife Dorothy were divorced in 1983. He remarried in 1986 and five years later gave up control of his company. He started to have problems with alcohol and took up hanging around with other motorcyclists, a deadly combination as he reportedly died in an assault in a bikers' bar.

The decline of his company and the inevitable comparisons with Bill Gates and Microsoft were hard for him to take. But he sold his company to Novell in 1991 for a reported $120 million so he made out better financially than Osborne.

After his death he was given many generous recognitions, including praise from Bill Gates, who–to be fair– did not start competing with Kildall until after IBM was rebuffed (if that is the right word).

FED | Does This Look Like Recovery?

Civilian employment/population ratio, 2003-2013

Paul Krugman in his NY Times blog today has a terrific chart from the FRED database at the St. Louis Fed website.

It shows that the key ratio of employment to population is still depressed–more than four percentage points below the level in 2007. Mr. Bernanke: Does this look like recovery?

Why is the employment-population ratio the best indicator to look at? Because, compared with the unemployment rate, it has:

• A more reliable numerator (number of employed civilians in the USA) and 
• A more reliable denominator (U.S. civilian population). 

You can take this number to the bank. The unemployment rate, by contrast, is based on a small 70,000-or-so monthly sample of U.S. households and depends on someone knowing and saying whether someone else in the household has been looking for work or not.

Krugman notes that there may be a downward bias from the aging of the population, but that could be exaggerated. People are also working to a later age, because (1) as younger people remain unemployed, older people in their family feel they must keep working to keep up the family income, (2) Social Security eligibility is being delayed, (3) 401k expectations are way down because of the financial meltdown and continuing low interest rates on bonds, and (4) people are living longer and lot of them like to keep working.

The Even Longer War

Afghanistan War Became Longest  U.S. War Ever. But Isn't
the Gulf War  Longer than All 20th Century Wars Combined?

The "Long War" is a term used by Philip Bobbitt in his (long - 1,000 pages) 2002 book to label the battle between fascist and communist  forces in the 20th century. The fight was over which system would replace the colonial system of the previous century. The Long War takes place between 1914 and 1990.

Unlike the 20th century wars, however, the current "War on Terror" has continued uninterrupted since 1990.

Last month, on May 23, President Obama said that the United States can't continue in a state of perpetual war. "This war, like all wars, must end." The New York Times editorial board agreed.

How long have we been at war in the Gulf and how does that compare with how long we were actually at war during the 1914-1990 period?

One answer is a list of wartime periods on a Veterans Administration web site, where it is posted for administrative purposes, to comply with the law on computing pensions and pension eligibility. The VA needs to know whether the United States is at war or not when someone is on active military duty. Under current law, the VA recognizes the following wartime periods:

World War I  - April 6, 1917 – November 11, 1918 - 1.5 years
World War II - December 7, 1941 – December 31, 1946 - 4 years
Korean War ("conflict") - June 27, 1950 – January 31, 1955 - 4.5 years
Vietnam War ("era")  I February 28, 1961-August 4, 1964 - 3.5 years (only in Vietnam)
__________________ II August 5,1964-May 7, 1975 - 10.5 years (region-wide)
Gulf War I August 2, 1990-September 10, 2001, 11 years
________II September 11, 2001, followed by the "Authorization for Use of Military Force" that continues through a future date to be set by law or by Presidential Proclamation.

If I understand the VA website correctly, we can conclude from it the following:

• In August 2013, the Gulf War will have continued for 23 years.
• If we count the Vietnam War as having started only in Phase II (i.e., in August 1964), we have now been at war in the Gulf longer than all four of the prior wars combined. 
• If we count the Vietnam War as having started in Phase I, in February 1961, then the four prior wars add up to 24 years and their duration will be exceeded by the present Gulf War in August 2014.

So our current Gulf War is now, or will be within about a year, longer than the actual U.S. wartime periods in the  "Long War".

SICK LEAVE | NYC Debate

Share of workers included in NYC Paid Sick Leave proposal,
based on the size (by number of employees) of reporting
establishments excluded from the law. If only companies with
fewer than 5 employees are excluded, 92 percent of all employees
will be covered. CityEconomist chart based on BLS data. 

The New York Times this morning has a story by Vivian Yee on the issue of paid sick leave.

On Sunday morning, March 24, at 8 am, MSNBC host Chris Hayes is hosting a round table with several Democratic mayoral candidates.

He says the norovirus has been spread in NYC by food workers, because 80 percent don't have paid sick leave days (see Politicker at http://bit.ly/16PAZLm.)

Speaker Chris Quinn has a scheduling conflict and can't make the event. But her office has done some good research on paid sick leave issues. The research should be in front of the discussion even if she can't make it. For example, a simulation shows that there is a big drop-off – from 9 percent to 2 percent – in the risk of multiple absences (5 percent of employees or more) with 20 or more employees, assuming five days' sick leave per year.

This suggests that the legitimate concerns of small businesses can be addressed by exempting firms with fewer than 20 employees. That would cover 72.7 percent of all NYC employees, based on NY state data on size of establishments, 2011 data. In Connecticut, the cutoff is 50 employees, but this seems unnecessarily high, since it would exclude 56.8 percent of employees assuming the same size distribution of companies.

In New Jersey, the percentage of workers covered falls only from 83 percent to 80 percent by reducing coverage from establishments of fewer than 10 employees to firms of fewer than 20 employees, so it has many fewer establishments in the 10-19 employee range than New York State..

Krugman vs. Taylor on the Zero-Bound Fed

Here's how I see the Great Debate about monetary policy, with John Taylor opening with an op-ed in the Wall Street Journal (http://on.wsj.com/VY0Iet) on the Fed being a drag on the economy through its continued zero-interest rate FOMC directive and Paul Krugman lambasting him via his NY Times perch for arguing that the low interest rates are inhibiting lending. (http://nyti.ms/VwkXU7):

Taylor is a "hard money" man (consistent with the dour mien of John Calvin, although Krugman says he has Calvin of Calvin & Hobbes in mind), unhappy at low interest rates that don't sufficiently reward prudent savers/debt-holders, so that banks withhold loans. Krugman has maintained consistently that the economy has not been stimulated enough on the fiscal side after the meltdown in 2008 and therefore staying at the zero-interest-rate bound at the short end of the market is a consequence; he is a continued-easy-money man.

Krugman's answer to Taylor's argument is that his theoretical framework is one of a ceiling, which is inappropriate. In fact the FOMC directs open market operations (buying short-term Treasury bills to put cash into the economy), and the equivalent in the longer end of the bond market, Quantitative Easing (buying longer-term Treasurys to bring down longer-term rates) also operates in the open market for debt.

The Fed does not regulate interest rates. It just buys and sells Treasurys.

For those who don't have time to pore through this exchange and its 60+ comments, I excerpt three comments that were posted around 9 am this morning to exemplify the struggle that the commentators have to be fair and to try to figure out who is right.

Justin - Brooklyn, NY: Can anyone kindly explain what this sentence is purporting to say? (I know that Krugman is refuting it, but this went over my head.): "low rates engineered by the Fed are just like a price ceiling that reduces the supply of loans, and therefore reduces overall lending."

AndyfromTucson - Tucson AZ: The reasoning is that the interest rate is the price paid for borrowing money, and so if the government caps the price at an artificially low level then it will reduce the supply of loans. Like if the government put a $5000 cap on the price of new automobiles all the car manufacturers would cut production. What Krugman is saying is that interest rates are not a legal cap, so this analysis doesn't work. Jan. 30, 2013 at 9:41 a.m.
save10percent - Denver, CO: My understanding of it is that as the price goes down (talking about the cost of taking out a loan, which is the interest paid), the quantity demanded goes up, but the quantity supplied goes down (econ 101). Taylor is saying that the fed sets the price ceiling too low and therefore banks aren't lending (less supply). Krugman says that the fed does not set a price ceiling for the interest on loans that banks make, so Taylor's argument doesn't make sense.

I have no doubt that Taylor will be back with an involved explanation why he was misunderstood. Meanwhile the winner of the debate pro tem is Paul Krugman and as one commentator observes, we can be glad that Gov. Mitt Romney did not win the presidential election, because if he had, Prof. Taylor was in line to become his Treasury Secretary.