Discouraged Workers, Worker Mobility and the Rise in Social Security Disability Claims

The Federal Reserve Bank of Richmond’s publication Regional Focus, second/third quarter 2012 edition has three very enlightening articles regarding discourage workers, worker mobility and Social Security disability claims on the rise. Links to the articles appear below:


Where Have All The Workers Gone? Why are more people leaving the labor force, and what are they doing?

http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/cover_story.pdf

　

Pulling Up Stakes, Have Americans lost the urge to move?

http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/feature1.pdf

　

The Sharp Rise in Disability Claims. Are federal disability benefits becoming a general safety net?

 http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/feature3.pdf

California Exodus: When “Everybody Else” is in Fact “Everybody”.

An economic proposition worth revisiting from time to time is: all capital and all human capital is mobile, most capital and most human capital, over time, will migrate to an environment of lowest tax and lowest regulation [regulation being a form of tax].

It is useful to see economic propositions in action. Consider the following:



Orange County Register -- "In 2011, 254 California companies moved some or all of their work and jobs out of state, 26% more than in 2010, according to Irvine business consultant Joe Vranich who has been tracking these departures since 2009.

The pace is accelerating, Vranich said. An average of 4.9 businesses left California each week of 2011, compared to 3.9 per week (202 total) in 2010 and one a week (51 total) in 2009. In what he calls "disinvestment events," Vranich counts companies that move jobs, facilities or headquarters out of California and "in carefully selected instances, companies making major capital investments in plants elsewhere that in the past would have been built in California," Vranich said.

For all California departures, the top destinations were Texas, Arizona, Colorado, Nevada and a tie for Utah and Florida, Vranich said." (1)

Another economic proposition worth revisiting in regards to the California situation is: firms are merely collections of households. That is, a firm is made up of a collection of households which are: employees, managers, owners, and suppliers. Depending on the size of the firm the group of employees, managers, owners, and suppliers could represent a handful of households to thousands of households. Hence the 4.9 firms leaving California on a weekly basis in 2011 represents many more households that are leaving as the firm is merely a collection of households. (2)

Although firms are leaving which represents households leaving, other cases exist where the household leaves which is either unassociated with a firm or disassociates with a firm. An example of a household exodus accentuating a firm exodus is on display in Michigan where a household leaves the state of Michigan every 12 minutes. (3)

Considering the firms being a collection of households and individual households on their own accord, in fact, do in the real world exercise the phenomena of all capital and all human capital is mobile, most capital and most human capital, over time, will migrate to an environment of lowest tax and lowest regulation [regulation being a form of tax] and that to one degree or another firm/household movement/migration is influenced by such phenomena, one needs to note the following news story:


California Dems Fight Each Other - Allysia Finley, The Wall Street Journal, Political Diary, 03/06/2012

"Democrats say that California is ungovernable because Republicans refuse to raise taxes. But as Democratic Gov. Jerry Brown is learning, it's really the factious left that makes the state so hard to govern. Thousands of union workers, liberal activists and college students "occupied" the state capitol on Monday in support of a millionaires tax ballot initiative, which is backed by, among others, the California Nurses Association, the California Teachers Association, and the University of California Student Association. The governor has proposed his own ballot initiative, which raises the sales tax and income taxes on those earning more than $250,000.



While Mr. Brown's got the support of the Service Employees International Union and the CTA, his liberal critics complain that the initiative hits the middle class and doesn't soak the rich enough. Hence they're rallying around the more progressive "millionaires tax." Their ballot measure would raise the rates on those earning more than $1 million by two percentage points and on those earning more than $2 million by five percentage points. Helping their cause are projections which show that the millionaires tax would raise $3 billion more in revenue per year than the governor's initiative.



In a conference call preceding the Sacramento rally, President Obama's former green czar Van Jones complained that the wealthy "can't just take, take, take, and give nothing back" and argued that hiking taxes on the very rich is a "moral question." When a reporter noted that the top 1% in California already pay nearly 50% of the income taxes, Mr. Jones insisted that wealthy "people should be happy, enthusiastic to invest in the next generation."


The governor fears that if the dueling initiatives appear on the November ballot, Californians will vote both of them down. So he and the SEIU have been negotiating with the millionaires tax supporters to get them to drop their initiative. However, neither Mr. Brown nor his liberal frenemies showed any indication of giving in when I spoke with them late last week. Republicans can only hope that the stalemate continues since it may be their best shot at stopping a huge tax hike in the fall."


The above story would lead one to think the migration away from California will accelerate even further, in both areas of firm and individual household accord. However, the overall trend begs an examination of a political economy observation posed over 160 years ago by French Economist Frederic Bastiat:

Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

　

Keeping Bastiat’s observation in mind and keeping the other economic propositions mention above in mind, consider this public choice theory proposition:

Those that collectively bargain through unions and/or associations, in a public setting [unionized public employee collective bargaining], make a conscious choice about increased taxes and union dues in relation to increased wages gained in collective bargaining. The public sector worker gives up X in the form of union dues and Y in the form of increased taxes [outflows of wages] in order to experience his/her own raise/rise in wages as a result of collective bargaining. Its completely rational given the public choice theory of the widely dispersed, diffused, and unrepresented voter. How so?

The voter-taxpayer is widely dispersed and diffused group. The taxpayer is poorly represented by the politico who uses taxpayer dollars for dependent political constituency building exercises. For instance, assume a widely dispersed and a diffused group of one million taxpayer-voters. When each of these one million taxpayer-voters, on an individual basis, are confronted with a $2 increase in tax, each individual voter-taxpayer is likely to make a rational decision that their time is worth more than the $2 tax increase hence they do not actively oppose the tax increase. However, the $2 times one million voter-taxpayers [$2,000,000] is then directed to a specific group by politico enablers and hence a dependent political constituency building exercise occurs. The receiving group gains the $2 million, the politico receives the voting support currently and in the future of the now dependent receiving group, and this is all done at the greater taxpayer-voter expense.

Coming half-circle, the receiving group as well as the politico enabler are well aware of the phenomena of a small incremental tax increase will generally not be opposed by the widely dispersed and diffused taxpayer-voter group [the $2 tax increase vs. time spent to oppose phenomena mentioned above]. That is to say, the bestowing of taxpayer-voter dollars on special interest groups is a methodical-purposeful exercise.

Now we come back to the “How so“ of the rational decision of the individual recipients making up the greater special interest who collect benefits yet are also experiencing the $2 incremental tax increase discussed above. The greater collection of voter-taxpayers, that widely dispersed and diffused group who do not oppose incremental tax increases based on cost-benefit [$2 vs. time], is also made up of a subset of voter-taxpayers, who in fact, become individual recipients of the proceeds of the incremental tax increase. The subset displays the exact opposite attributes of the greater group in that this subset sees the cost-benefit as time being more valuable than the incremental $2 tax increase [time > $2]. Hence this subset beats the drum in support of a tax increase. They promote, campaign for, volunteer time, etc. to support the tax increase that they themselves will also experience (the $2). However, the $2 tax increase to this subset group is a rational cost as they perceive the benefit bestowed upon them as greater than $2 [much greater in most cases].

Coming full circle back to Bastiat’s observation of Government is the great fiction through which everybody endeavors to live at the expense of everybody else, what happens when the greater collection of voter-taxpayers, that widely dispersed and diffused group who do not oppose incremental tax increases based on cost-benefit, merely exercise the phenomena of all capital and all human capital is mobile, most capital and most human capital, over time, will migrate to an environment of lowest tax and lowest regulation [regulation being form of tax] and that to one degree or another firm/household movement/migration occurs? Stated alternatively, what happens when the highly diffused and dispersed taxpayer-voters merely walk away?

When large numbers of voter-taxpayers, in mass numbers, migrate away from the purposely built “…endeavors to live at the expense of everybody else” system, the remaining taxpayer-voter group becomes more and more made up of the individual recipients of the proceeds of the incremental tax increase [the individuals of the special interest]. Hence the greater group of taxpayer-voters might be considered 90% givers and 10% giver-receivers before the in mass exodus, and after exodus 75% givers and 25% giver-receivers. Hence the giver-receiver remains and is not part of the exodus as its rational to remain due to the money bestowed upon them by the greater number of taxpayers. However, as the universe of taxpayers shrink, the recipient sub-group begins to make up a greater and greater percentage of the total taxpayer group.

What if the growing percentage of “giver-receivers” perceive they have even greater political clout and support more and more tax increases that are funneled back to them? One would expect a further exodus to occur and the 75% givers and 25% giver-receivers to change to 65% givers and 35% giver-receivers, then 50-50, then 25-75%. As one can see a theoretical point occurs when the group of remaining taxpayers are in fact 100% giver-receivers. That is, one’s tax level is exactly equal to one’s recipient level.

Hence one arrives at the “action phase” of Bastiat’s observation. That is, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else” and hence over time we end with the fiction fully revealed as giver-receivers equals giver-receivers. That is, one’s tax level is exactly equal to one’s recipient level and “everybody else” is in fact “everybody”.


Notes:

(1) Report: 254 companies left California in 2011, The Orange County Register, 03/05/2012

http://www.ocregister.com/articles/moved-342887-companies-texas.html


(2) From Economic Man to Economic System, Harold Demsetz


(3) Leaving Michigan Behind: Eight-year population exodus staggers state, The Detroit News, 04/02/2009

http://www.detroitnews.com/article/20090402/METRO/904020403/Leaving+Michigan+Behind++Eight-year+population+exodus+staggers+state?fark









　

　

　

“Spillover into the local community": Politico Mantra and Politico Reality

Spillover effect: a secondary effect that follows from a primary effect, and may be far removed in time or place from the event that caused the primary effect”. (1)

In the Foreground

 The politico and spillover effects

Spillover effects are positive or negative externalities [neighborhood effects] of a particular action e.g. burning coal for electricity has the positive externality of power-on-demand while soot is depicted as a negative externality. Other times political proponents of proposed private sector investment or proposed public sector spending co-op the concept of “spillover” to mean some positive external economic activity that arises from a primary economic activity e.g. a computer maker builds a new assembly plant which then attracts suppliers to situate nearby or a downtown revitalization plan based on X causes businesses associated with X to be attracted to the downtown area as well. The phenomena are many times termed/framed as "spillover into the local community".

Note: "spillover into the local community", in the main, is a politico proposition-phrase that frames only the positive aspect of spill-over effects and purposely leaves out any negative externalities of such spillover effects such as traffic congestion, the taxpayer cost of additional social overhead capital, tax relief for the attracted primary event and hence taxpayer cost for attraction by low or zero tax rates for a specified period, etc.

Failure to diversify an economy’s portfolio of primary effects

A potential as well as real life reoccurring long-term problem with the depicted spillover effect is the concentration of particular spillover activities associated with the primary event. That is to say, the first stage spillover effect as described/depicted is many times a concentrated single end result. For example, a natural gas find, a valuable coal seam, the opening of a large auto assembly plant, or the attracting of an entire sub-sector such as textiles becomes associated with a concentrated first stage spillover effect that lacks diversification within the economy at hand. For example, the primary effect described above is followed by a first stage item which is generally the primary event’s direct suppliers. The primary and the first stage secondary effect create a robust economy that causes no perceived need to diversify the economy further. That is, the robust economy is concentrated around the primary first stage and secondary events.

 Over time ancillary items pop-up regarding the primary and first stage secondary events such as additional housing, auto dealer, grocery stores, retail strip centers, etc. However these items are not additional primary events. Hence we have an economy based on one prime event and the prime events suppliers. Occasionally the economy seems so well situated that the need to diversify and find additional and alternate primary effect and associated spill over effect items are put aside in favor of additional duplicates of the initial primary and first stage secondary events e.g. Buffalo as a steel center, Detroit as an auto assembly center, greater North Carolina as a textile center.

Hence the primary driver and first stage secondary events create such a robust economy that the mind-set becomes “what goes up continues to go up”. Over time exogenous events such as aggregate regulation, taxes, technology, changes in demand preferences, etc. can cause a decline in the concentrated primary event which causes the reverse process of the primary first stage secondary events. The economy begins to deteriorate, deterioration increasing at an increasing rate e.g. Detroit.

In the Background

Spillover effects and politicos through the mechanism of government

From the discussion above it becomes obvious that diversification is very important within an economy’s portfolio of primary effects. However, regardless of the amount of diversification, the politico’s mantra of “spill over into the local community" comes with a lesser known phenomena that empowers the politico and simultaneously drives away the very primary effect, secondary primary suppliers, and ancillary items that the politico trumpets with the manta "spillover into the local community".

When politicos want to attract a primary effect and sing the praises of “spill over into the local community" caused by the primary effect, the politico also sees the entire exercise as potential tax revenue the politico can use for political constituency building purposes. That is, the politico rejects the concept that all capital and all human capital is mobile, and most capital and most human capital migrates to the lowest environment of tax and regulation. The politico substitutes mobility with “fixed”. That is, the politico sees the primary effect, primary suppliers, and ancillary items as tax revenue generators that can fund political constituency building exercises.

The politico, with the mind set of primary effect, primary suppliers, and ancillary items as tax revenue generators, begins a long march of raising taxes on the very concept of “spill over into the local community" and the revenue is used for political constituency building. The politico thinks they can raise taxes and further raise taxes, and raise tax even more as the taxed entities are perceived as “fixed”. That the “fixed” entity will not/cannot move and hence is a constant target of tax. The politico then takes increased tax revenue and builds politico monuments [public structures that supposedly benefit the greater public], increases redistribution to build a dependent constituency base, and increases size and scope of government to create yet another dependent constituency base of the public sector dependent on the politico to maintain funding.

The fallacy of “fixed” entities and escalating taxes on such entities ends by the entities merely following the economic phenomena that: all capital and all human capital is mobile, and most capital and most human capital migrates to the lowest environment of tax and regulation. Over time, most capital and human capital migrate away leaving the locale with no tax base yet the associated cost of maintaining prior build politico monuments, a redistribution system with politico build constituency dependent on continue redistribution of a tax dollar stream and a bloated public sector. That is, the economy begins to deteriorate, deterioration increasing at an increasing rate. A phenomena that can be in place of or in concert with the failure to diversify primary effects as discussed above.

That is, purposely, the politico creates a situation that causes the primary source to pass like the wind through the trees.

Notes:　

(1) http://www.businessdictionary.com/definition/spillover-effect.html