Scott Roland is an activist from Cedar Rapids. -promoted by Laura Belin
Whatever we think that we are doing, it is certainly not working. We are asked to embrace some variation of the status quo that offers us ruinous household debt, political corruption that has become normalized, stagnant growth rates, perilously insecure employment, a natural environment that is on a course to become barely inhabitable, and a health care system that leaves many just one medical emergency away from bankruptcy. As a society, we have fallen into a chasm, and have brought our diminished faith in American exceptionalism with us.
These problems have been exacerbated by a complacent political class, but politicians like Kimberly Graham offer us a credible path forward. Absurdly, some have painted her as an unrealistic radical, but in much of the developed world, she would be a mainstream social democrat. Her desire is not a destructive revolution, but decency: universal publicly financed health care, wages that ensure that households live above the threshold of poverty, elections that can’t be bought by the highest bidder, a system that does not leave students shackled in debt, and a Green New Deal to address the trillions in negative externality costs related to climate change.
A Green New Deal
Assuming that we transition entirely into a wind, water, and solar power system by 2050, Stanford’s Mark Jacobson has determined that the social costs connected to climate change, on a global scale, would decline from $76.1 trillion/year to $6.8 trillion/year. This will be primarily due to the reduction in air pollution deaths, corresponding illnesses, and because of the change in the anthropogenic contribution to climate change. Others, like Yi Meg Wei et al. have determined a cost range where the median would be $471 trillion. If we keep global temperatures at 1.5 Degrees Celsius or below, they believe that the net income benefits should amount to $422.1 trillion by 2100. To provide some context, In 2018 dollars, the global GDP is $85.93 trillion. Very disturbingly, the United States’ share of these costs would be 11%.
These calculations account for the long-term effects on total factor productivity (the ratio of aggregate output to inputs) and capital depreciation, which most climate damage assessment models treat as exogenous. Mistakenly, the more commonly used models also assume that there will be linear effects on long-term economic growth and that there will not be a catastrophic impact on GDP. When variables like this are incorporated into damage assessment formulas, the outcome is a social cost of carbon that is between $200/per tonne and $1000/per tonne. If we decompose the cost, we will also find that the human cost will be quite grave since air pollution will eventually result in 8.9 million deaths/year, which would be 15.64% of all causes of mortality, and that aggregate private energy costs would be $17.7 trillion/year.
If we are to meet the goal of limiting global warming to 1.5 degrees Celsius by 2050, then greenhouse gas emissions must decline by 8%/year by 2030 because of the feedback effects and the slow rate of biosequestration. More specifically, between the years of 1880 and 2000, only 53.8% to 58.3% of the radiated forcing from anthropogenically caused events will occur. Put differently, regardless of mitigation, we can expect temperatures to inevitably increase by 0.6 degrees Celsius this century because of human activities during this 120 year period. Therefore, if every inhabitant on the planet was to become carbon neutral right now and stay that way in perpetuity, global temperatures will still rise by 1.2 to 1.3 degrees Celsius. What makes this worse is that because carbon dioxide emissions have already reached a level of 37 gigatonnes, we are on a trajectory of annual increases of 0.25 to 0.32 degrees Celsius, which would lead to a temperature increase of 1.5 degrees Celsius by 2030. The IPCC’s estimates, which the Paris Climate Agreement is very dependent on, predicts that we will reach this threshold by 2040. If this is not enough, there is the fact that global decarbonization, by 2040, would only reduce temperatures by 0.1 degrees Celsius by 2100. This inertia is owing mainly to universal homeostatic mechanisms that help to maintain a constant steady-state and resist the creation of a new equilibrium.
Should the United States become carbon-neutral, this will not be needlessly expensive and will not come anywhere close to the $93 trillion sticker price that is claimed by Senator Joni Ernst and propaganda organs that masquerade as think tanks, like the American Action Forum. Rather, this estimate would be more than the global gross present value capital costs for carbon neutrality, which would be $73 trillion. In the United States, if we the lower operating costs of renewables and replace aging fossil plants, the median cost of generating 80% of all power from renewable energy would be $2.63 trillion. To reach a state of total neutrality, though, costs will accelerate to a total of $7.8 trillion, but with the social benefits, these expenditures do not represent a cost in the long run.
On the question of the Green New Deal, there has not been any ambiguity on Kimberly Graham’s support for this package. Indeed, since the inception of her campaign, she has been an unabashed supporter. When she reached this decision, she did not need to check first with an overpriced consultant. Nor has she been daunted by Republican attempts to weaponize this issue. Disgustingly, these people have relied on “research” that is financed by plutocrats, and have gone to great lengths to paint supporters as misguided radicals, rather than realists that are very much cognizant of the existential stakes. The use of the word “existential” would be appropriate because by 2300, unmitigated climate change will reduce the global gross per capita income of the planet to $1,000/year, and for the aforementioned reasons, we are fastly moving towards a point of no return. This is why Kimberly Graham has been endorsed by the Sunrise Movement of Iowa, which is an organization that does not offer its support to just anyone, but when we do, nothing less than our utmost is acceptable.
A Living Wage
One of the comparative advantages of Iowa is the lower cost of living, but according to MIT’s Living Wage project, the living wage for a household with two working adults and two children would be $15.30/hour. In New York County, it is $22.87. On a national level, the average poverty-wage would be $6.19/hour. Moreover, since 1979, there has only been a 6.1% change in the median wage. For the bottom 10% of the income distribution, wages have anemically grown by 1.1%. Now hypothetically, if a 1.1% annual increase was mandated, then the wage of this decile would be $14.68, rather than $9.97. Beyond this, we can also see the impact that wages have had on inequality since the household income of the top 10% is 13.67 times the amount earned by the bottom 10%, and in the United States, wages represent 99.8% of the median personal income. What is more, the Gini Coefficient, which is a standard measure of inequality, is at the highest value since the Great Depression, and at present, the top 1% of the income distribution captures 15.7% of the after-tax national income, which is up from 2.5% in the 70s. This can be correlated and causatively linked to conditions where one in five households has a zero to negative net worth. Where two out of five families cannot afford an emergency expense of $400. Or where four in five Americans claim that they live paycheck to paycheck. Compared to other advanced economies in the OECD, our minimum wage is 24% of the median wage. The organizational average is 53%, which in the United States, would be equal to $15.90/hour.
Nonetheless, there are some that are concerned about the disemployment effects. However, in analyses that use pair-matching of bordering counties to generate comparison group, there is, for each percentage increase in the minimum wage, a positive impact on employment. The reasons would be that employers generally have more of a need to fulfill output needs, and because the costs can be easily distributed through price changes or wage-determined increases in productivity. The productivity changes are tied to a rise in motivation, a lower turnover rate, an improvement in employee performance, fewer disciplinary issues, better physical health outcomes, less of a need for monitoring, and cognitive improvements that are linked to a reduced anxiety load over income security. In our very unique times, there should be no doubt that we need a productivity boost because even before the onset of the pandemic, this measure was growing at the lowest rate since the stagflationary period of the early 80s. For wage determination, though, the most critical element is the monopsony power of employers. This means that if they are able to set wages below what would prevail in a perfectly competitive market, they have the scope to raise wages and employment. With minimum wage increases, roughly 1/3 of the gains will go households with incomes in the bottom 15% of the income distribution, which would be close to the federal poverty line. Moreover, microsimulations have found that raising the minimum wage from $7.25/hour to $12/hour will reduce the poverty rate by 22% in the long run.
At the very least, Kimberly supports a minimum wage of $15/hour, but she is even more so committed to the idea of living wage that’s tied to a basket of goods and has a value that is determined by geography. One of the mechanisms for causing upward pressure on the wage rate would be her support of the passage of The Workplace Protection Act, which would eliminate “right to work for less” laws, aim to double the level of union membership, establish “just cause” requirements for the termination of workers, and allow unions to enact first contract provisions that make the formation of unions easier. Perhaps of the greatest consequence, though, would be her insistence on mandating union membership in the governance structure of corporate entities. This practice, which started in Germany, has been a tremendous success and in spite of the expectations of critics, has had a neutral effect on the level of employment. It has also been causally linked to a significant rise in sales, the capital stock, productivity, and wages.
Medicare for All
Since health care expenditures now represent 17.7% of GDP, the benefit of putting the entire country into a single risk pool should be obvious, but this is still not apparent to all of the candidates. Tragically, medical expenses bankrupt 500,000 people each year, and in the last decade, family insurance premiums have increased by 54%. On a per-capita basis, Sweden spends 34.7% as much as the United States does on prescription drugs, which is primarily because of its willingness to use the full scope of its monopsony power.
Right now, hospital and clinical services constitute 1/3rd of total health care expenditures, but these fees are incommensurate with positive health care outcomes. For example, the average cost of giving birth in Spain is $2333 and $14,910 in the United States, but neonatal mortality is more than twice as likely in the United States. More broadly, this disparity is confirmed by The Lancet’s Healthcare Access and Quality Index, where 28 other countries score higher than the United States.
In contrast, Medicare reimburses providers at lower fixed rates, and if we were to apply these fees negotiated by Medicare for all services, the estimated annual savings would be approximately $100 billion/year. Even with lower levels of compensation, though, the savings from administrative costs, which amounts to $768 billion/year, would offset this difference by $119 billion/year. Further, restrictions on negotiating prices for pharmaceuticals, supplies, and equipment has led spending to swell to $469 billion/year. However, based on the price differences enjoyed by the Department of Veterans Affairs, for instance, which is allowed to use its market power to influence prices, we should expect $188 billion in savings/year. In addition, using a comprehensive database would decrease fraudulent activities by $102 billion/year, and the decline in emergency room visits would lead to a $78.21 billion/year reduction in spending. To be sure, some expenditures will increase, like the elimination of $38.3 billion/year in uncompensated hospitalization fees. As well as insurance expansion, which will set us back $191 billion/year. Overall, though, the total system cost savings would be $458.51 billion/year. As for the economic impact, if we assume that half of the employee compensation that is devoted to employer-provided health insurance is shifted to wages, then there would be a 5.4% increase. In some sectors, there should also be a rise in employment because health care spending for each full-time equivalent job would be $129,000, and because the expansion of access will cost $191 billion, 1.48 million new jobs would need to be created to satisfy this demand.
To be fair, though, there is not a universal consensus on this analysis of the system costs, which relies heavily upon a study that Allison Galvani et al. published in The Lancet and is used because I consider it to be the most methodologically sound paper that I have encountered. If we want to look beyond this, though, there is a literature review of 90 studies that was conducted by the Public Library of Sciences, which includes critical assessments. Not surprisingly, their finding is that the median savings would be 3.46% of system costs, or $124.6 billion. On the subject of waste, another literature review of 71 articles in 54 peer-reviewed journals found that this constituted $760 billion to $935 billion in overall costs. By waste, they mean failures in care delivery, care coordination, quality, pricing, fraud, and administrative complexity. Therefore, you could say that in academia, there is somewhat of a consensus on the effect that Medicare for All will have on systemic costs.
These realities are very apparent to Kimberly, who fervently believes that a universal single-payer health care system is not only a human right but a norm that has a great deal of evidentiary support. Among advanced economies, the United States stands alone because it does not have this kind of system. In her opinion, if there is any valid excuse, it would be a country’s deep impoverishment, which appears to be the most common correlate for countries that do not offer universal care because, on average, their gross per capita income is $1424/year. Otherwise, she thinks that this deprivation is unconscionable. If you examine her speeches, you will find that one analogy that she is very fond of using would be the comparison of health care to a public library, which is a good available to all and collectively paid for by everyone that is able. In her mind, which is very astute, both transactions should only require an identity card.
When 53% of the donations given to Democratic candidates come from donors contributing more than $200, we cannot claim that just the Republicans lack moral restraint on campaign finance. The reality is that for both parties, the system that we have right now is essentially a wealth contest because, with $2.7 billion being spent in the last election cycle, expenditures are twenty-one times the level in 1972. Compared to other OECD countries, the differences could hardly be starker. In the United Kingdom, political parties are allowed to only spend $29.5 million in the year before the election. Germany, in contrast, only allows the contending parties to produce a single 90-second television advertisement. While in Norway, government subsidies cover 76.2% of all campaign finances.
What is more, the winners of House races are spending an average of $1.5 million, and to gain a Senate seat, the price would be $19.4 million. In an off-year, this would mean raising an average of $4000/day, which is an occupation that should take between 30% to 70% of a candidate’s time. One of the direct consequences of this is the limiting effect that it has on the socioeconomic, racial, and ethnic composition of Congress. Of more importance would be the likely impact that this has had on policy, and the fundamental fairness of our economic system. For example, since 1971, for instance, the Gini coefficient has increased by 34.8%, which is striking, because in the 30 years prior, the level of inequality remained relatively flat. This shift is reflected in laws like the Trump tax cuts, where on an individual level, 63.6% of the benefits went to the top 1% of the income distribution. This bias can also be seen in a study written by Larry Bartels et al., where they surveyed a group with a median wealth of $7.5 million. When we look at the results, it should be of no surprise that only 28% of this group believes that the federal government should make sure that everyone who is able to be admitted to college should be given resources that allow them to attend. When it comes to a job guarantee, the level of support is 19%. As for the unemployed, only 23% think that they should be provided a decent standard of living. On other issues, their views should be predictable, but what is most remarkable is the divergence between their opinions and the general public’s. Through regression analysis, you will see that there is a robust positive linear correlation with the rise in campaign spending and the top 10%’s share of total income. The range of the coefficients between the top 0.1% and the top 10% in the distribution would be between 0.8463 and 0.8866.
These days, you will very seldom find a member of Congress receiving a suitcase of cash. Yet there is still a pernicious culture of reciprocity where money serves as the lubricant. Just like common money launderers, a tremendous amount of effort is expended so that the causal relationship between donors and voting behavior is concealed. In Congress’ ecosystem, influence can be easily traded without a quid pro quo. However, Maplight, which is a non-profit that tracks money in politics, has confirmed this relationship, finding that corporate-friendly laws will receive 6 to 13 times more financial support. Other studies are coming closer to finding stronger methodologies, but the establishment is not making this easy.
Kimberly understands that it is not sufficient to say something like that you will not accept corporate PAC money because the same executives of these entities, and their minions, which includes lobbyists, end up either giving directly to the candidate or through conduits that few have the patience to trace. At a minimum, she believes that there must be an active effort to restrict donations based on demographics that contributes to the inequality of access and make a mockery of the idea of “one person, one vote.” It is plain to her that political expediency cannot be an excuse and that we will never truly win by becoming more like the Republicans. More crucially, she also realizes that real reform will only happen if we alter the way campaigns are funded, which would require moving from a system of large donor private financing to small-donor public financing, where each citizen would have a voucher of a limited value that could be used as they see fit. All of these approaches will help to restore integrity to our election process, but it takes the sort of will that most politicians do not have.
Since the median lifetime earnings for the holder of a Bachelors Degree is $964,000 more than someone with a high school diploma, there is clearly a high earning premium from a college education, but this must be weighed against the amount of debt that students incur and the cost of service. In recent years, though, this spread seems to be more driven by the sinking premium of a high school diploma. This becomes evident when inflationary adjustments are made to the data on earnings for those that have attained a Bachelor’s Degree and if we look at the effects across the income distribution. The results demonstrate that not only has there been no statistically significant change since 2000, but that nearly all of the gains are concentrated in the top 50% of the income distribution.
What makes this more troubling is the fact that forty-four million Americans have to carry the burden of a student debt load of $1.6 trillion, and that the average value is $35,000. As a share of GDP, this liability has doubled to 8% since 2006. Furthermore, in one decade, student borrowing has gone up by 89%, and the average account balance has changed by 77%. An analysis of the consumer price index will also reveal that since 1978, the cost of tuition has increased by 1335%, which would be 4.5 times the increase of all categories in this basket. The hardest hit would be those in the bottom two quintiles of the income distribution, whose annual payment ranges from 7% to 14% of their total income. Moreover, 6% of all borrowers owe more than $100,000, and 2% owe more than $200,000.
On the matter of defaults, the official rate is 10.1%, but this changes when we look at the percentage of those that have ever defaulted on a federal loan over extended periods, which is partially because federal default statistics tend to focus on the first three years after graduation. For students that began college in the year of 1996, the default rate was 18.2% after 12 years and 25.5% after 20 years. Over the latter period, only 50% of this group has managed to pay off their debt. If they started in 2004, the default rate is 27.2% after 12 years and 38.2% after 20 years. A significant portion of these groups went to for-profit institutions, online universities, and community colleges, which is highly problematic because the evidence clearly suggests that this does not lead to any serious improvement in earnings. Most sickeningly, even if an individual declares bankruptcy, this debt cannot be discharged.
As a remedy, if we were to elect to forgive a substantial percentage of these loans, there would be a considerable effect because, based on lawsuit filings that have been matched with credit bureau information, one study has found that this sort of relief will reduce indebtedness by 26% and decrease the incidence of default on other loans by 12%. It also changes geographical mobility, increases the probability of finding a new job, and on average, earnings increase by $4000, which represents about 16.67% of their income. In the aggregate, the macroeconomic effect would be to boost GDP by an average of $108 billion for ten years.
Kimberly Graham has made no secret about the debt that she continues to carry twenty years after attending law school, and how the principal has nearly tripled since this time. It is also abundantly clear to her that we have educational institutions that systematically ask students to borrow for an education that they know is structured in a predatory way and has agreements with terms that are very much in excess of what the borrower will be able to pay. To help resolve these problems, she proposes to roll back the principal of the loan to the original amount, deduct repayments on this quantity, limit interest to reasonable non-accrued rates so that they are much less punishing, and allow up to $50,000 of what is left to be forgiven. Whatever remains will be the responsibility of the borrower.
More Reasons for Broad Structural Change
It would be a vast understatement to say that the spread of the coronavirus has upended what some considered to be order. For the second quarter of 2020, the Atlanta Federal Reserve is projecting an annualized contraction equal to 51.2% of GDP, and the St. Louis Federal Reserve believes that the unemployment rate might reach as high as 40.6%. At the very least, we should expect a U-shaped growth curve, which The Conference Board predicts will lead to a 7.2% decline for 2020. Compared to the Great Recession, this would be almost three times the drop that we experienced in 2009. Due to what is likely to be a high savings rate, though, which is mostly attributable to the pandemic, the fiscal multiplier should be initially limited. However, over time, the factor should be close to 2 because of the scale of the crisis, the pent-up aggregate demand, zero lower bound interest rates that are likely to be binding for quite some time, Federal Reserve actions that are becoming closer to an actual policy of yield curve control, sovereign debt interest rates that are 1/14th of what they were 30 years ago, and the unlikelihood that taxes will rise sharply in the near-term. Also of importance would the influence that borrowing constraints and the larger income effect, because of households being strapped for cash, will have on increasing the multiplier. Just how much the multiplier will increase is debatable, but even with the more conservative balanced budget multiplier theorem, a $1 increase in spending that is offset by a $1 increase in taxes still raises GDP by $1.
As for concerns about debt, this should not be much of an issue if the economic growth rate is higher than the safe rate because then, newly incurred debt will just be rolled over. This should be comforting, because historically, the nominal growth rate has, for the most part, exceeded the yields of Treasury bonds with a maturity of one year and ten years, but much more so when you adjust for the tax payments paid on earned interest. Moreover, if we use an Okun coefficient of 0.5, assume that full employment is close to 3.4%, and that unemployment peaks at 30%, we could spend $11.4 trillion before there is any inflationary pressure. Nonetheless, because of the spread at the beginning, there will be a welfare cost, but this will be limited by other factors, like the aforementioned and a much lower marginal product of capital. Of more consequence would be that the more commonly used utility functions do not account for the transition period to the new steady-state equilibrium and the higher economic utility that will be enjoyed by the first generation of recipients. In the unlikely chance that inflation becomes harmful, though, this could be addressed with a hike on the marginal tax rates for higher earners or by issuing long-term bonds that are meant to target households directly.
Economic theory also tells us that government debt is more likely to have an impact on the accumulation of private capital stock, and not the natural interest rate because consumers respond to resource constraints by changing saving behavior or contributing to a positive change in the labor supply. The natural interest rate describes a condition where there will be full employment and maximal output, with inflation remaining constant. It is relevant to fiscal policy because austerity, for example, can lower the level of neutrality, but not if there is a transfer to agents that have a lower marginal propensity to consume, which would include groups like the less affluent. Therefore, it is used to determine the size of fiscal policy and its synergy with monetary policy. As a result of the COVID-19 pandemic, agents will self-insure against risks through precautionary saving unless their exposure is limited by expansionary fiscal policy. But with trends like rising economic inequality, declining productivity, diminished population growth, and a smaller level of fixed investment, we should expect the natural interest rate to be much lower than the historical average. After the onset of the Great Recession, it has been under 1%, and because of the current state of the business cycle, there will be a very sharp drop.
Since we have spent years chipping away at our weak welfare state in the name of “reform” and for the glorification of personal responsibility, even though biological stressors are more causative, the evident fragility of what we try to pass off as a social welfare state should be unsurprising. In contrast, members of the OECD are more resistant to these pressures because government expenditures represent 46% of GDP, and we spend 37.9%, but a disproportionate percentage of the amount we expend is tied to “national security” concerns. With all of this in mind, we should be confident that as a senator, Kimberly Graham will strive to make government spending, and the underlying economic theories, more consistent with the norms of advanced economies. Evidence, even if it is a hard truth, is taken very seriously by Kimberly.
We have yet to arrive at a broad consensus of the role of government in addressing inequities, market failures, and negative externalities, but in the grim backdrop of a coronavirus that has brought our already precarious state to its knees, there has been a descent into an existential crisis that might be unprecedented. Given the speed that this recession, which might become a depression, has accelerated, the informed opinion would be to conclude that the state has become paramount. Indeed, when we find ourselves in a situation where trillions in new expenditures are barely making a dent on output and unemployment, there cannot be a return to banal conversations like “how do we pay for it?” With this and a multitude of other factors in mind, I concluded, after conducting a meticulous analysis, that I could rely on Kimberly Graham to push back against a return to antiquated notions and put us on the path of rapid social progress. Compared to a significant number of other candidates nationwide, she will be an indefatigable advocate for the public, and unlike so many others that often disappoint, there will never be a price for her spirited advocacy.
 Based on author’s calculations from data found at https://data.worldbank.org/indicator/NY.GDP.PCAP.CD