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December 24, 2007

Economist's View - 3 new articles

Paul Krugman: State of the Unions

Is it smart, in the current political and economic environment, for Democrats to distance themselves from unions?:

State of the Unions, by Paul Krugman, Commentary, NY Times: Once upon a time, back when America had a strong middle class, it also had a strong union movement.

These two facts were connected. Unions negotiated good wages and benefits for their workers, gains that often ended up being matched even by nonunion employers. They also provided an important counterbalance to the political influence of corporations and the economic elite.

Today, however, the American union movement is a shadow of its former self, except among government workers. ... Yet unions still matter politically. And right now they're at the heart of a nasty political scuffle among Democrats. ...

It's often assumed that the U.S. labor movement died a natural death, that it was made obsolete by globalization and technological change. But what really happened is that beginning in the 1970s, corporate America ... in effect declared war on organized labor. ...

But the times may be changing. A newly energized progressive movement seems to be on the ascendant, and unions are a key part of that movement. Most notably, the Service Employees International Union has played a key role in pushing for health care reform. And unions will be an important force in the Democrats' favor in next year's election.

Or maybe not — which brings us to the latest from Iowa.

Whoever receives the Democratic presidential nomination will receive labor's support in the general election. Meanwhile, however, unions are supporting favored candidates. Hillary Clinton ... has received the most union support. John Edwards, whose populist message resonates with labor, has also received considerable labor support.

But Barack Obama, though he has a solid pro-labor voting record, has not — in part, perhaps, because his message of "a new kind of politics" that will transcend bitter partisanship doesn't make much sense to union leaders who know, from ... confronting corporations and their political allies head on, that partisanship isn't going away anytime soon.

O.K., that's politics. But now Mr. Obama has lashed out at Mr. Edwards because two 527s — independent groups ...— are running ads on his rival's behalf. They are, Mr. Obama says, representative of the kind of "special interests" that "have too much influence in Washington."

The thing, though, is that both of these 527s represent union groups — in the case of the larger group, local branches of the S.E.I.U. who consider Mr. Edwards the strongest candidate on health reform. So Mr. Obama's attack raises a couple of questions.

First, does it make sense, in the current political and economic environment, for Democrats to lump unions in with corporate groups as examples of the special interests we need to stand up to?

Second, is Mr. Obama saying that if nominated, he'd be willing to run without support from labor 527s, which might be crucial to the Democrats? If not, how does he avoid having his own current words used against him by the Republican nominee?

Part of what happened here, I think, is that Mr. Obama, looking for a stick with which to beat an opponent who has lately acquired some momentum,... failed to think about how his rhetoric would affect the eventual ability of the Democratic nominee, whoever he or she is, to campaign effectively. In this sense, his latest gambit resembles his previous echoing of G.O.P. talking points on Social Security.

Beyond that, the episode illustrates what's wrong with campaigning on generalities about political transformation and trying to avoid sounding partisan.

It may be partisan to say that a 527 run by labor unions supporting health care reform isn't the same thing as a 527 run by insurance companies opposing it. But it's also the simple truth.

Update: Krugman has two follow ups posts to this column, Obama goes Harry and Louise and Oy, Kos.

"Different Market Baskets for Different Income Levels"

Richard Green wonders if there are measures of the cost of living that vary according to income group:

Different Market Baskets for Different Income Levels, by Richard Green: I keep reading stories about food pantries being under particular pressure this year. The stories would be more helpful if they could explain explicitly why the food stamp program (perhaps the most successful anti-poverty program in the US) isn't sufficient to prevent this. We do know that not everyone eligible for food stamps uses them, but this has always been true, and so wouldn't explain a change in demand at the pantries; we need to look elsewhere for an explanation.

My suspicion is that an accurate measure of CPI would vary by income group. The most obvious example is that low income people spend a higher fraction of income on heat, electricity and transportation than higher income people. Even if the entire CPI is flat, if the energy and transportation sectors see large rises in prices, it will likely have a particularly large impact on the bottom quintile of the income distribution, and hence cause real incomes within this group to fall. Of course, gas and heating oil prices gave risen a lot over the past couple of years.

When I look at the BLS web site, I don't find anything about different market baskets for different income classes--I do wonder if there is something out there.

Anyone? The best I can do is this 1998 working paper from the IMF ("Is the United States CPI Biased Across Income and Age Groups?," by S. Nuri Erbas and Chera L. Sayers) showing that the CPI understates the true cost of living for older and/or poorer households, and overstates the rate for younger and/or richer households. See, in particular, Table 3, Tables I2 and I3 in the appendix, and Chart 1.

I can think of public policy reasons to avoid having more than one measure, e.g. the potential for perverse incentives when earning additional income can change the CPI used to adjust income for changes in the cost of living, the cost of calculating more than one measure, and the difficult theoretical, statistical, and political problem of defining official income classes (how many income classes, where to draw the line between classes, what income measure to use, what exclusions to allow, etc.). But even if problems such as these prevent us from actually implementing cost of living measures that differ by income group, the extent to which the market basket and the associated cost of living varies across income (and other) groups is an interesting and important question.

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