New York City Already Massively Redistributes Income -- From Poor To Rich

Our new Mayor Bill de Blasio talks endlessly about the great challenge of income inequality, and how he is supposedly going to address it.  But I've never heard him mention the obvious fact that New York City is already engaged in the redistribution of income on a massive scale, and that that redistribution predominantly goes from (relatively) poor to (relatively) rich, rather than in the opposite direction as you might think.  Moreover, the biggest decision that de Blasio has to make in the next few months is highly likely to increase rather than decrease this reverse income redistribution.

The reverse redistribution of income arises from the combined effects of City taxing and spending.  On the taxing side, some parts of the tax system are progressive, but the bigger items are somewhat regressive, and the net is at best a little progressive.  On the spending side, the money predominantly goes to the City workforce, which is overwhelmingly far into the top half of the income distribution.  Thus, lots of money is extracted from private sector workers in the bottom half of the income distribution and paid out to public sector workers in the top half of the income distribution.  And the biggest issue currently facing de Blasio is the demand of the City workers for pay increases and retroactive pay to move them still higher in the income distribution.  Since these workers and their unions are mainly responsible for putting de Blasio in office, it is very likely that he will go along with their demand at least to some degree.

Let's first look at the tax side.  In New York City, people tend to focus on the City income tax -- an unusual tax for a local government to have, and one that gives our tax system an apparent patina of progressiveness.  According to the Economist magazine here from November 2013, the top 1% of earners, about 35,000 people, pay 43% of the New York City income tax.  Now that's progressive!  Well, but the City income tax accounts for less than $10 billion of revenue per year, which is well under 20% of City-generated revenue.  The big money raisers are the property tax and the sales tax, together generating over $25 billion annually, or about half of City-generated revenue.  How do those stack up in progressiveness?  The answer is, they raise proportionately more money from the bottom half of the income distribution.  Here is a 50-state study from the Institute on Taxation and Economic Policy from January 2013.  Data for New York appears at pages 89 - 90 of the report.  According to these data, people in the lower three quintiles of the income distribution pay a far higher percentage of their income toward property and sales taxes in New York than those in the higher two quintiles.  Actually, we didn't need this study to know that; it's kind of how property and sales taxes work.  

Now let's look at the spending side.  Well over half of the money spent by New York City goes for the cost of its more than 300,000 employees.  And those employees, on average, earn far and away more than do, on average, the taxpayers who pay their salaries.  The City's Independent Budget Office just came out, on February 5, with a report addressing just this issue.  According to the summary of that report here, the so-called "median base salary" of a City employee in 2012 was $65,299.  That compares to what they call "median earnings" in 2012 for everybody else in the City of $34,019.  Oh, but wait:  the "median base salary" of the City employee does not include "overtime, pension, or fringe benefit costs."  For a City employee, believe it or not, those extras are now closing in on 80% of base salary; for uniformed services like police and fire, they far exceed base salary.  Look here at the summary of the City's financial plan for 2014, and you will see that the budgeted amount for worker salaries is $22.4 billion, while the budgeted amount for pensions and fringe benefits is $17.1 billion, or 76.3% as much as the salaries.  So the real median pay of a City worker is 1.76 times the $65,229, or about $115,000.  These pension and fringe benefit costs for City workers are wildly more than just about anyone in the private sector can hope for.

According to federal tax data for 2011 reported at Kiplinger here, it took an adjusted gross income of $120,136 to put a taxpayer in the top 10% of earners for that year.  Granted, that is AGI, which also does not count pensions and many fringe benefits.  Nobody is going to have data to enable us to make an exact comparison between City workers whose pensions and fringes are almost 80% of salary, and private workers whose pensions and fringes might be more like 25% of salary.  But, adding back all pensions and fringes for everybody at cost, a fair estimate is that the median City worker is around the 75th to 80th percentile of an income distribution that includes these items as part of the definition of income.

And now of course de Blasio needs to settle the contracts for essentially all City workers, which were left open by Bloomberg on his departure.  The unions are demanding not just salary increases, but also some $7 billion in "back pay" that they claim they are owed since the expiration of their previous contracts.  Well, it's just a question of how much more income redistribution from the poor to the rich you are willing to allow.  The amount already paid City workers in excess of what they would be paid if they all received the median for private sector workers is about $20 billion in round numbers.  By comparison, de Blasio's pre-K program, projected to cost around $0.5 billion, is chump change.

They're Still Claiming That The "Stimulus" Worked

The government intentionally wastes $1 trillion.  Is this a good idea or a bad idea?  Put that way, I don't think that many people would say it's a good idea.  Yet dress up the intentional waste with the hocus-pocus word "stimulus" and you can get endless seemingly intelligent people to claim it is the only reason that our economy has not gone to zero.

Thus on Monday we had Chairman of the Council of Economic Advisers Jason Furman issuing this whopper on the White House blog:

[T]he Recovery Act had a substantial positive impact on the economy, helped to avert a second Great Depression, and made targeted investments that will pay dividends long after the Act has fully phased out.

It's been Furman's job to say a lot of ridiculous stuff lately.  Of course Furman's proposition that only the stimulus "avert[ed] a second Great Depression" is completely un-falsifiable.  But can we compare the current five-years-and-still-not-back-to-pre-recession-employment-levels to times like 1946-47 when the government cut spending by over 50% and the economy went into the greatest boom of all time?  With that kind of spectacular counter-example, how can anyone possibly claim that the "stimulus" was good for the economy, versus a major cause of its endless sluggishness?

Needless to say, the parroters of the administration's talking points promptly took up the cause.  Here's Ruth Marcus in the Washington Post yesterday:

The treatment helped. The patient is recovering. . . .  That, in a nutshell, is the story of the $800 billion stimulus package President Obama signed five years ago, the centerpiece of a code-blue effort to defibrillate the cratering economy.  Rarely in the annals of U.S. public policy has there been a greater disconnect between the real-world effect of legislation and its political-world perception.  Substantively, the stimulus was a success.

Well OK Ruth, if you are so confident that government "stimulus" spending is what makes the economy go, how do you explain Venezuela?  That is the place where the government has tried to buy a growing real economy by vast deficit spending.  They admit in official statistics to a deficit of 8.5% of GDP in 2012, although I suspect that it was a multiple of that given independent reports of a surge in government spending of 67% in 2012.  By the end of 2013 Moody's was saying that Venezuela's public sector deficit was running at 15% of GDP.  Now that's some real "stimulus"!  How's it going?  From the Huffington Post on Tuesday:

At 56%, inflation in 2013 is the highest in the region, and many of the most basic items like milk, sugar, and toilet paper are extremely difficult to find.

Oh, and Toyota shut down all automobile production last week, while Ford's output has fallen 75% in the fourth quarter of 2013 compared to the first three quarters.  The official GDP, calculated at the official exchange rate of about 6.2, is around $300 billion, but at the black market exchange rate of about 50 the GDP looks more like $40 billion, smaller than it was when Chavez first took over in the late 90s.  Oops. 

Lots more examples of the Venezuelan economy going into crisis from CNBC (in November 2013) -- a source not exactly known as a champion of free market economics.  For instance:

As things stand, the country is running out of tools to prevent an extensive economic crisis. International currency reserves are at an eight-year low, falling 26 percent between the end of 2012 and mid-September, to $22 billion . . . .  In addition, China—Venezuela's main financier—has become stingier after "earlier loans to promote oil production failed to produce results," Fuentes said.  Meanwhile, Venezuelan bond yields are spiking. Yields on the country's 20-year benchmark bond have leaped more than 100 basis points this month, to 13.23 percent Monday from 12.15 percent at the end of October, according to Thomson Reuters.

Oh, and there is endless rioting in the streets.  The place is completely coming apart.  Is this really where the U.S. should be heading?

[ORIGINALLY posted February 20, 2014; updated February 21, 2014.]

The Horror Of Gentrification

Here in New York City we have going on a long-running process known as gentrification.  This process is associated with general growth in population and in the business community.  Here are some demographic data on New York City from Wikipedia.  After a period of rapid decline in the 70s (the City lost about 10% of its population during that decade), our population started growing again in the 80s, and by 2000 had surpassed the previous peak.  Since then, the population has continued to grow, if slowly -- from 2000 to 2010, we gained 167,000 people, about 2% in ten years, or .2% per year.  This is not exactly a population boom.  For comparison, during the decade of the 1920s New York's population went from about 5.6 million to over 6.9 million, a gain of over 20% during that one decade, or some ten times faster than the current pace of growth.  But anyway, today's newcomers have tended to be of somewhat higher income on average than those previously here.  Also, it is famously hard to build new housing in New York, so the newcomers are moving into areas that are relatively fully occupied.

There have been several noticeable consequences of this trend, that in combination are described by the word "gentrification."  One is that neighborhoods formerly considered slums have become acceptable places for the upscale to live.  In Manhattan, such neighborhoods include Harlem and the Lower East Side.  Across the East River, Brooklyn has large numbers of such neighborhoods, many in the parts relatively close to Manhattan such as Williamsburg, Bushwick, Fort Greene, and Gowanus.  A second consequence has been much unsubsidized private investment in the building stock to bring it into a better state of repair.  A third consequence has been an influx into these areas of retail uses, stores and restaurants, catering to the new, somewhat wealthier residents. 

And a fourth consequence is that the market prices of housing, whether to rent or own, have gone up in these areas.  Remember that it's hard to build here.  Some of the obstacles are inherent in the situation of a dense city, such as the need to buy out previous occupants, but other obstacles are put up by the government, including rules covering things like zoning, landmarks, and the environment.  Increased demand with little increase in supply means that prices are going to go up.   Increasing property values are a clear positive for the existing owners, as well as for the government whose property tax base increases. 

There are plenty of cities out there that would love to have these kinds of problems.  Consider, for example, Detroit, where the population has shrunk by well over half from its peak 60 years ago.  Large houses there can be bought for $10,000 or $20,000.  Vast stretches are vacant, with many abandoned homes and little or no retail at all.  For the city government, there's almost no property value left on which to levy a tax.  Closer to home, we have multiple cities that, while not so bad off as Detroit, have suffered badly from falling population, low property values and abandoned housing.     Within a 100 mile radius we have places like Newark, NJ, Philadelphia, PA, Bridgeport and Hartford, CT, all of which continued to lose population through the 2000 census and have seen only slight recoveries since.  All of them have lots of low-value, badly maintained properties that generate little or no property tax revenue. 

So you may be surprised to learn that the official position of the New York City groupthink is that gentrification is horrible and that the gentrifiers should feel deep shame and guilt.  Thus in New York Magazine of February 2 we have Justin Davidson writing an article titled "Is Gentrification All Bad?"  To his credit, Davidson gives at least some of the other side of the argument, but here is his summary of the official position:

In the popular imagination, gentrification and displacement are virtually synonymous, the input and output of a zero-sum game. One professional couple’s $2 million brownstone renovation in Bedford-Stuyvesant equals three families drifting toward Bayonne in search of barely adequate shelter. And so a sense of grievance and shame permeates virtually all discussions of neighborhood change. Even gentrifiers themselves are convinced they are doing something terrible. Young professionals whose moving trucks keep pulling up to curbs in Bushwick and Astoria carry with them trunkfuls of guilt.

Davidson quotes the January 1 inauguration speech of our new super-progressive Public Advocate Letitia James (close ally of Mayor Bill de Blasio):

"We live in a gilded age of inequality where decrepit homeless shelters and housing developments stand in the neglected shadow of gleaming multimillion-dollar condos,” she cried.

It's just more of the mindset that I can't seem to understand.  Here is my question:  If the city-run homeless shelters and public housing developments are "decrepit" even with the substantial tax revenues provided by the multimillion-dollar condos, how exactly are the shelters and projects going to be better when we stop the gentrification and drive the condos and their owners, and their tax revenue, away?

For a particular Greenwich Village perspective on gentrification, consider the strange case of the William Gottlieb estate.  Bill Gottlieb was a true Greenwich Village character who spent his lifetime accumulating dozens of older and generally run-down properties, mostly in my neighborhood of the West Village.  He died in 1999, and his heirs spent the next dozen years fighting over control of the properties.  Here is a brief summary of Gottlieb's business approach from our local newspaper The Villager in 2010:

William Gottlieb was renowned for amassing more than 100 properties, mostly in the West Village, the Meatpacking District and the Lower East Side, and for not selling, improving or even maintaining them.

Failing to maintain a hundred or so buildings for decades -- can that be a good thing?  Actually, Gottlieb was something of a hero around the Village, where any acts of neighborhood improvement are looked upon with fear by the rent-regulated incumbents.  In the 15 years since Gottlieb's death, whether by intent or incompetence or failure to come to agreement, Gottlieb's heirs have largely continued the practice of letting his buildings decay.   Consider this from the Observer in 2010:

WANDER AIMLESSLY through the genteel corridors of the West Village and take note of the more ramshackle buildings. Chances are they belong to [Gottlieb's heir] Mr. Bender.

But wait!  The firm still called William Gottlieb Real Estate, run by his heirs, now actually wants to build something new.  They recently revealed plans to erect a 180,000 square foot office building on a property next to the High Line park at 14th Street and Tenth Avenue, former site of a one-story industrial building.  Needless to say, the Greenwich Village Society for Historic Preservation  (sometimes known as the Greenwich Villagers Against Everything) immediately sprang into action to block a zoning variance needed for construction of the proposed building.  You might think that in the West Village and Meatpacking District it's way too late to stop gentrification, but these people will fight to their last breath.   This building will easily generate a couple of million dollars of property taxes per year.  If anybody was willing to build such a building in Newark or Hartford, the government would kiss that person's feet and probably throw millions of dollars of tax incentives at him.  Here we fight to keep these people out, and nobody would ever be so crass as to mention the property taxes to be paid as any relevant part of the discussion.

Climate Policy And Keeping The Poor Poor

Fifteen years and more of no global warming, and President Obama and Secretary of State Kerry are doubling down once again on their anti-carbon energy policies.  I'm old enough to remember the time when the government thought that getting cheap electricity to the people was a good idea.  Now the idea is to make it more expensive.

So we have John Kerry speaking yesterday in Jakarta, Indonesia:

“We should not allow a tiny minority of shoddy scientists and science and extreme ideologues to compete with scientific facts,” Kerry told the audience at a U.S. Embassy-run American Center in a shopping mall.  “Nor should we allow any room for those who think that the costs associated with doing the right thing outweigh the benefits.  The science is unequivocal, and those who refuse to believe it are simply burying their heads in the sand,” Kerry said. “We don’t have time for a meeting anywhere of the Flat Earth Society,”

Well, as John Hinderaker says today about Kerry (in the context of yet other idiocies, his remarks on Syria), "He doesn't have a high enough IQ for difficult work."  My question is, can we at least acknowledge that the "costs" of the war against carbon energy include intentionally keeping the poor poor?

At the Center for Global Development, Todd Moss has a recent post that examines what has been going on at the Overseas Private Investment Corporation (OPIC) in the way of financing electricity-generating projects in poor countries.  Turns out that for multiple years OPIC has been almost completely forbidden to invest in fossil fuel projects.

Indeed, over the past five years, OPIC has invested in more than 40 new energy projects and all but two (in Jordan and Togo) are in renewables. 

Of course, because so-called "renewables" are more expensive than carbon-based energy,  the consequence of that policy has been that the same amount of investment provides access to electricity to far fewer people.

The CGD analysis shows that a $10 billion OPIC portfolio focused on 100% off-grid renewables would provide energy access to 70 million less people than if that portfolio was 100% natural gas.

And it's not just in the poor countries.  Here in New York City, Con Edison utility bills have spiked this month.  Why?  According to Bloomberg Business Week, even as fracking brings down the price of natural gas, there is inadequate pipeline capacity to bring that gas to the major cities of the Northeast.  So it's the transmission costs that have spiked.  Here in Manhattan we have the so-called "Sane Energy Project" fighting tooth and nail to prevent construction of pipeline capacity to bring "fracked" gas into the city.  Well congratulations guys, your electricity and heating bill just doubled!  OK, we can't blame this one on Obama and Kerry.  But will these guys ever figure out that there is cause and effect here?

Trying To Understand The Progressive Agenda

Many on the Left are excited by our new Mayor Bill de Blasio.  Yesterday in his first budget presentation as mayor he emphasized once again that he intends to govern as a "progressive."  Here is Brent Budowsky in The Hill yesterday channeling the excitement:

[T]he left is lifted by the possibility that he could evolve into a modern-day Robert Kennedy or a New York City FDR, turning city government into a laboratory for big ideas put into action.

Well, forgive me, but I'm trying to get a handle on what the progressive program actually is and how it could possibly work, and I just can't figure it out.  When I listen to the self-described progressives, I hear soaring rhetoric about fairness and the crisis of income inequality.  But when I look at the actual programs proposed, every single one of them looks to do absolutely nothing about "fairness," absolutely nothing about income inequality, and instead constitutes a giveaway to one or another favored constituency, almost always labor unions that provide political support, and whose members are nearly all well into the top half of the income distribution.

Granted, I'm about the farthest thing from a progressive, but I'm trying to look at the world from their perspective.  If you take their rhetoric at face value, the overriding problem of the world today is the unfairness of unequal distribution of economic goods by the capitalist system.  In his victory speech after winning the election, de Blasio called income inequality "the defining challenge of our time."  President Obama used the exact same phrase -- "defining challenge of our time" -- in talking about income inequality in his speech on December 4.

Well, if I were a progressive, and my overriding concern was income inequality, the first thing I would do is recognize that addressing this problem in a way that would meaningfully swing the numbers will take huge resources, and we have limited resources, so we must use every dollar effectively in order to have enough to address income inequality.   I would also insist on getting accurate data on real income inequality so that I would have some metrics to know whether anything I did was working.  For example, I would insist on correcting the fraudulent data currently used by the government by which nearly $1 trillion annually in in-kind handouts to low income people are excluded from income data, and the incomes of high earners are counted pre-tax even though they pay half or more of that income to the government already.  And finally, I would apply whatever spending I could muster for curing income inequality to a program that actually raised the measured incomes of the poorest people.

Applying these principles to actual programs, the first thing I would notice as mayor of New York is that we are way overspending on unsustainable pensions and health benefits for employees -- over $17 billion in the budget put forth yesterday, almost 23% of the entire $75 billion budget, and fully a third of the $52 billion portion funded by city taxes.  The second thing I would notice is that we are spending about $20,000 to educate each public school child for a year, while the rest of the country does it for about half that.  Those two things alone constitute about $15 billion of annual overspending of city taxpayer funds when the entire city tax system only raises about $52 billion.  In other words, vast overspending on these major items -- all of which goes into the pockets of the union supporters of de Blasio -- crowds out more or less any hope of making a dent in income inequality.  Overspending on Medicaid (by comparison with competitor states like California and Texas) is another several billion.  I just can't think of how you can say that income inequality is your top priority when you let this kind of big money just slip away.

Nicole Gelinas of the Manhattan Institute has an op-ed in today's New York Post about de Blasio's budget presentation, headlined "Mayor goes minor-league," the theme of which is that he "missed the big picture."  Yes, and then some.  Not a mention of overspending on worker pensions or health benefits or public education.  Instead he talked about things like another $35 million for snow removal and $3 million for an inspector general for the Police Department.  OK, those things are a fraction of a tenth of a percent of the budget.

But de Blasio continued to show that he has no idea that resources are finite and you can't just throw money away on waste and expect to have anything left over for important things, let alone for massive projects like income inequality.  So, for example, Bloomberg had proposed saving $59 million by closing surplus firehouses.  That's appropriate and necessary -- fires in New York City are down by well over half since the early 90s according to Fire Department data here, but community opposition keeps all the firehouses open even with no fires to fight.  Well, that's another $59 million that won't be addressing income inequality, and instead will go to the unionized firemen.

And how about two more de Blasio signature causes, hospitals and pre-K education.  Long Island College Hospital continues to lose about $13 million per month, and is projected to lose over $200 million over the course of three years of ownership by SUNY.  Granted this is state rather than city money.  But remember, there are next to no patients in this hospital; the money just goes to de Blasio's SEIU healthcare union allies to do nothing.  Universal pre-K similarly cannot possibly have any measurable effect on income inequality until the beneficiaries enter the labor force 20 years hence; but in the meantime the teachers union gets thousands of new dues-paying members.

If the actual agenda is to address income inequality, none of this makes any sense whatsoever.  If the actual agenda is to pay off political supporters for putting you in office, then it makes sense.  Or maybe a progressive can offer me an alternative explanation.

Why Is Vladimir Pozner OK?

I'm not much of a sports fan, but last night I thought I would check out some of the winter Olympics.  And who was on there commenting for NBC but Vladimir Pozner.  VLADIMIR POZNER!!!  Am I the only one who remembers this guy?

It's now well over 20 years ago, but in the 1980s Vladimir Pozner was the official spokesperson for the Soviet Union on American television.  In those days ABC had a late-night news/public affairs program called Nightline, hosted by a guy named Ted Koppel.  Pozner was a regular guest.  They had him on whenever they wanted someone to deliver the official Soviet line on anything.  And to be fair to him, the guy was quite skilled.  He had a truly remarkable ability to make the most brutal repression, murder and torture sound reasonable.  But really, there was no mistaking what the guy was about.

I thought they gave Pozner way too much airtime at the time, but at least in the 1980s there was a legitimate reason to seek out the Soviet viewpoint on current events, however preposterous that viewpoint might be.  But there's no reason to be respectful to this guy today.  I can't think of why he is not completely reviled by every civilized person.  Instead, he's sitting there giving the "Russian perspective" on ice skating and such, with nobody being so impolite as to mention that he made his name as the apologist for the killing, repression and imprisonment of his own people by one of history's most brutal regimes.

Well, Pozner is just one example.  The past week saw an outpouring of astoundingly uncritical obituaries of Pete Seeger, the folk singer who died on January 27.  Seeger was a long-time unhidden communist, supporter of and sometime apologist for Stalin and his successors.  Some of the obituaries I read on Seeger never even mentioned the Communist association at all.  The rest barely touched on it.   Here's the New York Times obit, headlined "Pete Seeger, Champion of Folk Music and Social Change . . ."    Social change?  Read half way through the article and you'll come to one little line that says he joined the Young Communist League in the 30s, "but after two years he dropped out and moved to New York City."  That's it?  A somewhat more honest write-up can be found in the Atlantic here.  Excerpt:

As late as the 1970s, in his column in the left-wing folk magazine Sing Out!, Seeger was giving space to horrifying ideas. Dealing with the case of Wolf Biermann, a socialist singer expelled from East Germany for dissidence, he gave space to correspondents arguing that there might appropriately be limits on what artists should say in an ideal Marxist regime. In 1999, he accepted an award from Fidel Castro’s regime. 

And are we allowed to mention that he gave concerts supporting the Eastern European Communist regimes as late as the 80s?  From John Fund in National Review Online:

I recall interviewing East German dissidents in 1989 who were still angry at Seeger and Kris Kristofferson for the concerts they did on behalf of the Communist regime that built the Berlin Wall. He was hailed in the pages of Neues Deutschland, the Communist-party newspaper in East Berlin, as “the Karl Marx of the teenagers.”

So what if those guys killed 25 million (or maybe 50 million) people.  Seeger's OK because he was "one of us" and he was for "social justice."   For endless effusive praise of Seeger, read the NYT piece, or maybe the obit in The Villager here.

Supporting mass murderers may be quite OK, but on the other hand, advocating a 5% cut in the food stamp program because it fosters unnecessary dependency and is infected by massive fraud?  That's "devastating," "sheer meanness," "repugnant," "repulsive," "cruel," and "disastrous."  I hope you're starting to get a little understanding of how this works.