Month: September 2012

Yesterday the U.S. Bureau of the Census released its annual report on \”Income, Poverty, and Health Insurance Coverage in the United States: 2011,\” this year written by Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith. One finding is that the official U.S. poverty rate barely budged from 2010 to 2011, which if not positive news, is at least non-negative news. Here\’s a figure showing the number of people in poverty and the poverty rate since 1959:

But the theme I want to take up here is that the official U.S. measure of poverty is based on money income before taxes, not on consumption levels. This subject is taken up in some detail by Bruce D. Meyer and James X. Sullivan in \”Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure,\” which appears in the most recent issue of my own Journal of Economic Perspectives. (Like all articles in JEP from the current issue back through the start of the journal in 1987, it is freely available on-line courtesy of the American Economic Association.)

One set of problems is clear: some of the largest government programs to help those in poverty have zero effect on the officially measured poverty rate. For example, Food stamps are technically a noncash benefit (even if in many ways they are similar to receiving cash), so they are not counted in the definition of income used for calculating the poverty rate. The Earned Income Tax Credit operates through the tax system, it is not covered in the definition of \”money income before taxes\” used to measure poverty. The same is true of the child credit given through the tax code. Medicaid assistance for those with low incomes is not cash assistance, so it doesn\’t reduce the measured poverty rate, either.

The fact that many anti-poverty programs have no effect on officially measured poverty is no secret. The Census report itself carefully notes: \”The poverty estimates in this report compare the official poverty thresholds to money income before taxes, not including the value of noncash benefits. The money income measure does not completely capture the economic well-being of individuals and families, and there are many questions about the adequacy of the official poverty thresholds. Families and individuals also derive economic well-being from noncash benefits, such as food and housing subsidies,and their disposable income is determined by both taxes paid and tax credits received.\” As an example, the report points out that if EITC benefits were included as income, the number of children in poverty would fall by 3 million.

But there is a deeper issue with the official poverty rate, which is that it is measured on the basis of income, not on the basis of consumption. In a given year, a household\’s level of income and its level of consumption don\’t always match up. It\’s easy to imagine an example, especially in the last few years with sustained high unemployment rates, that some households had low income in a given year, but were able to draw on past savings, or perhaps to borrow based on credit cards or home equity. It\’s possible that measured by income, such households appears to be in poverty, but if measured by consumption (and especially if they own their own homes), they would not appear quite as badly off.

Meyer and Sullivan look at how those classified as \”poor\” would be different if using a poverty rate based on consumption, vs. a  poverty rate based on income. They emphasize the poverty rate can be the same whether it is based on consumption or on income: it\’s just a matter of where the official poverty line of consumption or income is set. Thus, the poverty rate is not automatically higher or lower because it is based on income or consumption. (For those who care about these details, the official poverty meausure looks at income as measured by the Current Population Survey, while Meyer and Sullivan look at consumption as measured by the Consumer Expenditure Survey.)

Meyer and Sullivan offer a fascinating comparison: they look at 25 characteristics that seem intuitively related to household well-being: total consumption; total assets; whether the household has health insurance; whether it owns a home or a car; how many rooms, bedrooms, and bathrooms in the living space; whether the living space has a dishwasher, air conditioner, microwave, washer, dryer, television, or computer, whether the head of household is a college graduate; and others. It turns out that if one looks at poverty by income and by consumption, with the poverty rates set to be equal in both categories, 84% of the people are included in either definition. But those who are \”poor\” by the consumption definition of poverty are worse off in 21 of the 25 categories of household well-being.

Why is this? In part, it\’s because the total value of consumption includes the funds received Food Stamps, the Earned Income Tax credit, and so on.  Some of those who fall below the poverty line when these are not considered, in the official income-before-taxes  poverty measure, rise above the poverty line when these are  included. In addition, consumption poverty better captures those who don\’t have other resources to fall back on, so those whose income is temporarily low enough to fall below the poverty line, but have other ways to keep their consumption from falling as much, don\’t show up as falling below a consumption-based poverty line.

Setting a poverty line is a political decision, not a law of nature. Some decisions will always be second-guessed, and those who care about the details of what happens with different poverty lines can go to the Census Bureau website and construct alternative measures of the poverty rate based on different measures of income or different ways of defining poverty. But that said,  it seems downright peculiar to have an official income-based measure of poverty that isn\’t affected at all by several of the largest anti-poverty programs. And it seems peculiar to base our official measure of poverty on income, when the fundamental concept of poverty is really about having a shortfall of consumption.  

I know that after the last few years of arguments over the  Patient Protection and Affordable Care Act of 2010, many of us are burned out with arguments over the U.S. health care system. We all know that the U.S. system has some of the finest and most innovative care in the world, along with extremely high costs and tens of millions of people without health insurance. But still, most people don\’t realize just how screwed up the U.S. health care system has become.

For chapter and verse, I recommend the Institute of Medicine Report, Best Care at Lower Cost: The Path to Continuously Learning Health Care in America. The Institute of Medicine is an independent, nonprofit organization, \”the health arm of the National Academy of Sciences.\” The report is chock-full of interesting insights and comments; all quotations here are from the prepublication copy uncorrected proofs, which is available with free registration here. As is my custom, I\’ll delete citations and footnotes for readability. Here are a couple of palate cleansers, as the restauranteurs would say, before plunging into the main course:

\”The tragic life of Dr. Ignaz Semmelweis offers an example of the challenges faced in
building a truly learning health care system. The Hungarian physician observed that simply
washing hands could drastically reduce high rates of maternal death during childbirth. But since
he could not prove a connection between hand washing and the spread of infection, he was
ridiculed and ignored. Hounded out of his profession, he died in a mental hospital. More than
165 years later, half of clinicians still do not regularly wash their hands before seeing patients.\”

• \”If banking were like health care, automated teller machine (ATM) transactions would take not seconds but perhaps days or longer as a result of unavailable or misplaced records.
• If home building were like health care, carpenters, electricians, and plumbers each would work with different blueprints, with very little coordination. 
• If shopping were like health care, product prices would not be posted, and the price charged would vary widely within the same store, depending on the source of payment.
• If automobile manufacturing were like health care, warranties for cars that require manufacturers to pay for defects would not exist. As a result, few factories would seek to monitor and improve production line performance and product quality.
• If airline travel were like health care, each pilot would be free to design his or her own preflight safety check, or not to perform one at all.\”

And what are some consequences of this system, which has focused so heavily on procedures for the direct delivery of care, but so little on developing a genuinely integrated system for figuring out how and when to use these procedures? One problem is 75,000 deaths each year that should have been preventable.

 \”One way to measure this impact is through mortality amenable to health care, defined as the number of deaths that should not occur in the presence of timely and effective health care. Examples of amenable mortality include childhood infections, surgical complications, and diabetes. The level of amenable mortality varies almost threefold among states, ranging from 64 to 158 deaths per 100,000
population. If all states had provided care of the quality delivered by the highest-performing state, 75,000 fewer deaths would have occurred across the country in 2005.\”

 Another problem is that perhaps a quarter or so of the $2.8 trillion that the U.S. will spend this year on health care is essentially excess costs. Here\’s the breakdown from the IOM report into unnecessary services, inefficiently delivered services, excess administrative costs, prices that are too high, missed prevention opportunities, and fraud. As the report points out, several studies with independent methodologies have found that the U.S. health care system could save something like $750 billion per year with no negative effect on health. Even saving half that amount, of course, would have extraordinary consequences for helping people see bigger raises in their paychecks and putting a huge dent in federal budget deficits.

How can the U.S. health care system simultaneously waste one-fourth or so of the king\’s ransom that it spends each year, while still allowing 75,000 preventable deaths each year? The long answer is in the IOM report. The shorter answer, I would say, is that health care is increasingly complex in a way that requires systematic attention to collecting information and coordinating care–and the fragmented and helter-skelter U.S. health care system has not been good at these tasks.

Here are some examples of these problems of growing complexity and lack of coordination, many more of which are scattered through the IOM report:

\”The prevalence of chronic conditions, for example, has increased over time. In 2000, 125 million
people suffered from such conditions; by 2020, that number is projected to grow to an estimated
157 million … Almost half of those over 65 receive treatment for at least one chronic disease, and more than 20 percent receive treatment for multiple chronic diseases; fully 75 million people in the United States have multiple chronic conditions. Managing these multiple conditions requires a holistic approach, as the use of various clinical practice guidelines developed for single diseases may have adverse effects. For example, existing clinical practice guidelines would suggest that a hypothetical 79-year-old woman with osteoporosis, osteoarthritis, type 2 diabetes, hypertension, and chronic obstructive pulmonary disease should take as many as 19 doses of medication per day. Such guidelines might also make conflicting recommendations for the woman’s care.\”

\”Care delivery also has become increasingly demanding. It would take an estimated 21 hours a day for individual primary care physicians to provide all of the care recommended to meet their patients’ acute, preventive, and chronic disease management needs. Clinicians in intensive care units, who care for the sickest patients in a hospital, must manage in the range of 180 activities per patient per day—from replacing intravenous fluids, to administering drugs, to monitoring patients’ vital signs. In addition, rising administrative burdens and inefficient workflows mean that hospital nurses spend only about 30 percent of their time in direct patient care.\”

\”As illustrated in Figure 2-8, a medication order at one academic medical center can be filled in 786 different ways, involving a number of different health care professionals and technological channels. Another study found that inefficient medication administration practices at one hospital caused nurses to waste 50 minutes per shift looking for the keys to the narcotics cabinet …

\”Another study found that in a single year in fee-for-service Medicare, the typical primary care physician had to coordinate with 229 other physicians in 117 different practices. Further, the rate at which physicians refer patients has doubled over the past decade, and the number of primary care visits resulting in a referral has increased by nearly 160 percent …\”

\”Projections are for 90 percent of office-based physicians to have access to fully operational electronic health records by 2019, up from 34 percent in 2011 …\”

In short, the sharply rising complexity of what modern medicine can do, interacting with systems of health care provision and health care finance that were already growing outdated by the tail end of the 20th century, is costing enormous amounts and failing to deliver. I know full well the difficulties of collecting, organizing, and feeding back health information, and of reorganizing existing health care systems. But the financial and health costs of failing to push for such change are enormous. And frankly, both the 2010 health care legislation  and the Republican alternatives offer little more than tinkering around the edges and hoping for the best, while the U.S. health care system runs amok.

The U.S. Census Bureau has published \”Small Area Health Insurance Estimates (SAHIE): 2010 Highlights.\”  The document itself is only eight pages long with a few tables and figures. But it links to a nice interactive tool that lets you look at those with or without health insurance broken down by income, sex, race, age, and state or country. You can either generate data tables or maps.

Here\’s a basic table showing the share of those below 138% of the poverty line who lack health insurance on a state-by-state basis. The table is striking because, after all, Medicaid provides public health insurance for many of those below the poverty line. But it\’s worth remembering, as I discuss in an earlier post on \”Medicaid in Transition,\” that Medicaid is aimed at the \”deserving\” poor, which covers low-income families with children, along with the poor who were also disabled or elderly, but it doesn\’t automatically cover everyone below the poverty line. Even more, the vast majority of Medicaid\’s spending is not on low-income families of able-bodied adults with children, but instead on those with low incomes who are also blind, disabled, and elderly. Thus, this table is showing how many of the poor and near-poor don\’t have health insurance.

The table is also striking to me because it demonstrates the large size of cross-state differences in health insurance coverage. Some states have made a commitment to providing or encouraging health insurance in one way or another: for example, Hawaii, Massachusetts, Maine, and Vermont all have less than 20% of their under-65, under 138% of the poverty line population uninsured. Other states have not pushed hard in this direction: Florida, Nevada and Texas have more than 40% of their share of this specific population without health insurance.

Here\’s map generated with the SAFIE interactive data tool, showing the percentage of those lacking health insurance for all income levels on a county-by-county basis. The map shows that areas with relatively low proportions of those without health insurance are largely concentrated in the central and northeastern portions of the United States.

As I watch the election season unfold, it\’s interesting to me that many of the states which seem likely to support Obama are states that already have a relatively low population of those without health insurance, while many of those states that seem likely to support Romney have a relatively high population of those without health insurance. To some extent, the argument over providing health insurance for the uninsured is actually an argument that states which have not already taken steps to reduce the number of uninsured should be prodded and subsidized to do so.

One of the most infamous statements of technological pessimism is often attributed to Charles Duell, head of the U.S. Patent Office back in 1898, who allegedly proposed closing up the patent office because \”everything that can be invented has been invented.\”

But the quotation is apocryphal, as has been known for decades. Indeed, Duell gave a speech to Congress in 1899 about how America\’s economic future depended on innovation. However, there was apparently also an article in 1899 in the the comedy magazine Punch which was imagining a conversation where, at some point in the future, a genius asks about the patent office and a boy responds: \”Everything that can be invented has been invented.\”

The story came to mind because the Robert J. Gordon has a working paper out called \”Is U.S. Economic Growth Over? Faltering Innovation Confronts Six Headwinds?\” (It\’s National Bureau of Economic Research working paper #18315. NBER working papers aren\’t freely available on-line, but many academics will have access through their library systems.) Like all of Gordon\’s work, the main theses are genuinely thoughtful and provocative. But my eye was drawn to a paragraph about classic predictions of technological pessimism. Gordon writes:

\”There are four classic examples in the past of innovation pessimism that turned out to be wildly wrong. In 1876, an internal memo at Western Union, the telegraph monopolists, said, “The telephone has too many shortcomings to be considered as a serious means of communication.” In 1927, a year before The Jazz Singer, the head of Warner Brothers said, “Who the hell wants to hear actors talk?” In 1943, Thomas Watson, then president of IBM, said, “I think there is a world market for maybe five computers.” And in 1981, in the most famous of these ill-fated quotes, Bill Gates himself said in defense of the capacity of the first floppy disks, “640 kilobytes ought to be enough for anyone.”

The paragraph has no footnotes or citations, and in fact, technology writer Kevin Maney wrote an article in USA Today back in 2005 that debunked all four of these quotations: some didn\’t happen, some are taken at least partially out of context.

For example, that memo from Western Union about how the telephone would never work? The quotation was real enough, but it occurred when Bell was trying to sell his telephone patents to Western Union. Instead of buying the patents, Western Union tried to start its own telephone company, and its handset actually worked fairly well. But then Bell sued for patent infringement, and drove Western Union out of the market. In short, Western Union believed in the telephone and tried to become a phone company, and statements to the contrary were positioning for a patent battle.

And that statement about \”who the hell wants to hear actors talk?\” Turns out that Warner Bros. was investing heavily in music, thinking that musical scores would be more important than dialog. And indeed, \”The Jazz Singer\” was about to be a huge hit. Even today, one can argue that for a lot of movie hits, the background of sound is more important than any specific dialog spoken by the actors.

Watson\’s statement about how the world needs only five computers? There is no primary source or secondary source from that time frame which reports any such comment. And if you think about it, how plausible is it that the head of a computer company would announce that his world market was a total of five sales?

Bill Gates on how 640 kilobytes ought to be enough for anyone? Gates has always denied saying this, and there\’s no independent source which says he did. And again, how plausible is it that the visionary  head of a company selling operating systems for computers  would state that people have near-term limits on how much computer power or memory they would need?

In the journalism business, an ultra-convenient quotation is sometimes referred to as \”too good to check.\” I remember a Peggy Noonan column from a few years back in the Wall Street Journal that explained the concept by telling a classic Margaret Thatcher story. Noonan wrote:

\”The story as I was told it is that in the early years of her prime ministership, Margaret Thatcher held a meeting with her aides and staff, all of whom were dominated by her, even awed. When it was over she invited her cabinet chiefs to join her at dinner in a nearby restaurant. They went, arrayed themselves around the table, jockeyed for her attention. A young waiter came and asked if they\’d like to hear the specials. Mrs. Thatcher said, \”I will have beef.\”

Yes, said the waiter. \”And the vegetables?\”

\”They will have beef too.\”

Too good to check, as they say. It is certainly apocryphal, but I don\’t want it to be.\”

Of course, not all statements of technological pessimism are wrong. The great scientist Lord Kelvin did give a speech in 1895 declaring that \”heavier-than-air flying machines are impossible.\”

 I\’ve always been struck that John Stuart Mill, one of the great economists of his time, wrote in his Principles of Political Economy in 1848 that the richer countries of the world already have plenty of material wealth, and there is little reason to desire or expect much more. Instead, the focus should be on a better distribution of income and on reducing the amount of work that is necessary. Here\’s Mill from Book IV, Chapter VI. I boldfaced one line in particular: 

“[T]he best state for human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back by the efforts of others to push themselves forward. … ”

“I know not why it should be a matter of congratulation that persons who are already richer than any one needs to be, should have doubled their means of consuming things which give little or no pleasure except as representative of wealth; or that numbers of individuals should pass over, every year, from the middle classes into a richer class, or from the class of occupied rich to that of the unoccupied. It is only in the backward countries of the world that increased production is still an important object; in those most advanced, what is economically needed is a better distribution … “

“It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the Art of Living, and much more likelihood of its being improved, when minds ceased to be engrossed by the art of getting on. Even the industrial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, industrial improvements would produce their legitimate effect, that of abridging labor.”

If Mill, one of the truly towering minds of his time (or any time), could fall into the error of thinking there was no particular need to increase production from the levels in 1848–when per capita GDP in the U.S. was something like 1/20 of its current level–then anyone can fall into such an error. I am no expert in predicting future growth rates, and surely there are plenty of reasons to be pessimistic about the long-term growth trajectory for the U.S. economy. But I suspect that those who are alive 150 years from now will look back at the current standard of living for an average person and view it as extraordinarily and unbelievably low–much the same way that today we look back at the standard of living in 1848.

The Gallup global survey offers an intriguing take on the global labor situation by taking the share of the population with full-time payroll jobs divided by the population over the age of 15. That is, this calculation does not include self-employed, the part-time, the unemployed or those out of the labor force for whatever reason. Here\’s a table showing the results. Only three countries in the world have a ratio of full-time payroll employment to population above 50%: Sweden, Belarus, and Israel. The United States has a ratio of 41%. A number of countries in the world have ratios below 20%, and there are even 20 countries in the world with a ratio below 10%. The lowest five countries on this metric are Central African Republic, Guinea, Burkina Faso, Congo (Kinshasa), and Lesotho.

Here are some thoughts:

1) The share of the population with full-time payroll jobs is strongly correlated with per capita GDP. In that sense, it is a measurement of economic development. Here\’s a figure from Gallup. (The vertical axis shows the logarithm of per capita GDP. For those not used to thinking in logs, a per capita GDP of $400 has a log of 6; a per capita GDP of $4,000 has a log of 8.2 , and a per capita GDP of $40,000 has a log of 10.6.)

2) Those with payroll jobs view themselves as more likely to be \”thriving,\” in Gallup\’s term, than others. Indeed, survey results from earlier this year suggest that for the world as a whole, the self-employed are less likely to be thriving than the unemployed.

3) There is a large difference between being \”self-employed\” in a developed economy like the United States vs. a less developed economy like the Central African Republic. As Gallup writes: \”Not including the self-employed in Payroll to Population percentages may seem counterintuitive given the importance placed on entrepreneurship for creating jobs. However, self-employment in the developing world tends to be subsistence work and does little to help people rise out of poverty or contribute to the economic wellbeing of the country.\” Of course, a successful entrepreneur may start out as self-employed, but when that person hires other people to full-time jobs, their effect on the economy will show up in this measure.  But many of the low-income countries around the world just don\’t have many firms that act to organize and direct the efforts of labor, letting workers specialize and build up skills.
 

4) The ratio of full-time payroll jobs to population can be extremely different from the more standard measure of the labor force participation rate, which is calculated by taking all of those in the labor force, employed and unemployed, and dividing by population. I looked up World Bank statistics on the labor force participation rate for some countries with less than 10% of their over-15 population has a full-time payroll job. The labor force participation rate for the over-15 population in the Central African Republic is 79%; in Guinea, 72%;  and in Burkina Faso, 84%. For the United States, the comparable labor force participation rate is 64%. But of course, the U.S. has retirement and disability programs, along with higher incomes and longer life expectancies, which all combine to allow a larger share of its population to be out of the labor force.

5) Looking at full-time payroll jobs/population also emphasizes why it can be so problematic to have non-wage benefits like health insurance or a retirement fund delivered through a long-term employer-employee relationship. Especially in low-income economies, but also in high-income economies like the United States, many people will not have a full-time employer-employee relationship for large portions of their lives. Those of us who have been fortunate enough to have employers and jobs for most of our adult lives should recognize that many do not share our experience. Creating a fertile economic environment for employers to hire employees is an important  task here in the United States, with our prolonged high rate of unemployment, but it\’s even more crucial for low-income economies all around the world. 

Hat tip to Phil Izzo at the Wall Street Journal\’s \”Real Time Economics\” blog, where I first saw the Gallup survey reported.

Those who teach introductory economics are always looking for a supply and demand story, preferably with a bit of a twist.Thus, my eyes lit up at the reports last week (for example, here
and here) of an enormous theft of millions of dollars of maple syrup from the St. Louis-De-Blandford maple syrup storage facility in Quebec. Apparently about  10 million pounds of maple syrup were taken: enough to fill 15,000 barrels. To understand the importance of this story, you need to know that Quebec is the Saudi Arabia of maple syrup, and the theft decreased their stock of maple syrup reserves by about one third.

 The New England Field Office of the U.S. Department of Agriculture explains developments in the maple syrup market in its \”Maple Syrup 2012\” newsletter from last June. In 2011, Canada produced 10.3 million gallons of maple syrup, with 9.2 million of that coming from Quebec alone. U.S. production was about 2.8 million gallons, with Vermont leading the way at 1.1 million gallons. From 2009-2011, the average price per gallon was about $37-$38.

But the 2012 maple syrup season in New England (Maine excepted) was ruined by drought. Here\’s the USDA description:

\”The 2012 maple syrup season in New England was considered too warm. A series of heat waves in March ended the season for many, and resulted in a significant drop in maple syrup production. …  Mild winter temperatures got the 2012 season off to an unusually early start and many maple producers were caught off guard for the first sap runs in January and February. March temperatures were highly volatile with a historic heat wave that brought summer-like temperatures in the 70s and 80s across New England. The heat wave forced early budding of maple trees, marking the end of the maple syrup season. …The sugar content of the sap was significantly below average in New England, requiring approximately 48 gallons of sap to produce 1 gallon of syrup. …  United States maple syrup production in 2012 totaled 1.91 million gallons, down 32 percent from 2011, and the lowest production since 2007. The number of taps was estimated at 9.77 million, 2 percent above the
2011 total of 9.58 million. Yield per tap was estimated at 0.195 gallons per tap, down 33 percent from the previous season’s yield.\”

One might usually expect that the drop in U.S. maple syrup production would drive up the price. However, the price of maple syrup is largely determined by the Quebec Farmers\’ Union. Before the theft, there was plenty of maple syrup in reserve to buffer a bad year or two. But now, instead of prices rising with a bad harvest, it\’s possible that prices will fall as the maple syrup thieves seek to unload their booty on unsuspecting breakfast-eaters. However, the USDA does not yet have maple syrup prices available for this year. 

I keep reading news coverage about campaign contributions: how much each side is getting, who is giving the money, whether the money is going directly to candidates or to other organizations like political parties or political action committees, and so on. But when I worry about the influence of money in politics, I worry a lot more about spending on lobbying than I do about spending on campaigns.

Here\’s some basic data from the always-useful Open Secrets website run by the Center for Responsive Politics. The first table shows total reported spending on lobbying, year by year, although the 2012 spending is only for part of the year so far.  The second table shows total campaign spending, both for congressional and presidential races.

Here are some thoughts:

1) My guess is that a lot of spending on what I might think of as lobbying activities goes unreported: this is only spending from by registered lobbyists. Nonetheless, the amount of spending by lobbyists is consistently high, and comparable in size to campaign spending. For example, total spending on the 2010 campaign and on lobbying in 2010 were roughly similar, at about $3.5 billion. But spending on lobbying was also that high in 2009 and 2011, when there were no elections at all.

2) Spending on lobbying is much more concentrated. Open Secrets reports that the total of lobbying spending is spread over about 12,000 lobbyist in the last few years. In contrast, in the 2008 presidential campaign about 1.3 million Americans gave more than $200 to political candidates, parties, or PACs, and of that group, about 280,000 gave more than $2,300, and about 1,000 gave more than $95,000. It\’s true that a fairly small percentage of Americans give any money at all to political campaigns, but it\’s also true that the 1 million-plus individuals who do give are a much broader cross-section of society than are the lobbyists.

3) In many ways, spending on lobbying is better-targeted and less publicly clear than are campaign contributions. Lobbyists are often focused on the fine print that might be inserted in a broader piece of legislation–that exception or added provision that means so much to their employer. A campaign contribution gets spent on much more general purposes: advertising or travel costs or website maintenance or some other form of outreach to voters. In addition, Campaign contributions come from many different directions, representing many different interests. The public knows the outcome of political campaigns on Election Day, but the public never finds out about the success of many lobbying efforts, which may involve something as subtle as just leaving something out, or changing a word like \”required\” to a word like \”recommended.\”

4) Some years back in the Winter 2003 issue of my own Journal of Economic Perspectives, Stephen Ansolabehere, John M. de Figueiredo and James M. Snyder Jr. asked a classic social science question, \”Why is There so Little Money in U.S. Politics?\” (The article is freely available on-line, like all JEP articles from the current issue back to 1994, courtesy of the American Economic Association.)  In 2012, the U.S. government will collect something like $2.5 trillion in taxes and will probably spend more than $3.5 trillion. Yet the campaign spending that shapes who will vote on these levels of taxes and spending is just $6 billion–about two-tenths of 1% of federal spending. For comparison, total sales of hair care products in the U.S. are about $7 billion per year, and sales of toothpaste are $2 billion per year. Proctor & Gamble alone spent something like $4.6 billion on advertising in 2010. It\’s probably not reasonable to think that a free-and-open U.S. national election in a $15 trillion economy should spend a whole lot less than what the country spends on hair care and toothpaste, or what one company spends on advertising.

Ansolabehere, Figueiredo and Snyder argue most campaign contributions, most of the time, should be viewed as a consumption good, not as an investment with an expected return. After all, most people and companies don\’t give anything to campaigns, which suggests that they don\’t think the money they give will affect the outcome. It\’s very hard to find evidence that campaign contributions cause politicians to vote in a way that the people of their district or state would object to: that is, politicians respond much more to their constituencies than to their campaign donors. Lots of people give money to causes they believe in, from United Way to various charities, and for the ideologically committed, political contributions often fall into the same general category.

5) I\’ll close by noting that concern over the effect of political contributions on election outcomes is often highly partisan. For example, I don\’t know a lot of Democrats who believe that President Obama\’s 2008 victory was noticeably tainted by his decision to break his earlier campaign pledge and become the first presidential candidate to forego matching funds so that he could vastly outspend John McCain by $745 million to $368 million (again, amounts according to the Open Secrets website). And I don\’t know any Republicans who have ever felt that a Republican victory was tainted by outspending the opposition.

Democracy can be in some ways a rowdy and unedifying process. But I distrust attempts by incumbent politicians to regulate the quantity or quality of spending on campaigns, which often seems to end up helping the incumbents remain in office. I\’d rather rely on voters on election day to separate the wheat from the chaff. And those who want to reduce the role of money in politics might perhaps reallocate some time away from worrying about campaign contributions to encourage those incumbent politicians to restrict and publicize the efforts of lobbyists.

 [Originally published on this blog on Labor Day, 2011]

It\’s clear that the first Labor Day celebration was held on Tuesday, September 5, 1882, and organized by the Central Labor Union, an early trade union organization operating in the greater New York City area in the 1880s. By the early 1890s, more than 20 states had adopted the holiday. On June 28, 1894, President Grover Cleveland signed into law: \’\’The first Monday of  September in each year, being the day celebrated and known as Labor\’s Holiday, is hereby made a legal public holiday, to all intents and purposes,  in the same manner as Christmas, the first day of January, the twenty-second day of February, the thirtieth day of May, and the fourth day of July are now made by law public holidays.\”

What is less well-known, at least to me, is that the very first Labor Day parade almost didn\’t happen, and that historians now dispute which person is most responsible for that first Labor Day. The U.S. Department of Labor tells how first Labor Day almost didn\’t happen, for lack of a band: 

\”On the morning of September 5, 1882, a crowd of spectators filled the sidewalks of lower Manhattan near city hall and along Broadway. They had come early, well before the Labor Day Parade marchers, to claim the best vantage points from which to view the first Labor Day Parade. A newspaper account of the day described \”…men on horseback, men wearing regalia, men with society aprons, and men with flags, musical instruments, badges, and all the other paraphernalia of a procession.\”

The police, wary that a riot would break out, were out in force that morning as well. By 9 a.m., columns of police and club-wielding officers on horseback surrounded city hall.

By 10 a.m., the Grand Marshall of the parade, William McCabe, his aides and their police escort were all in place for the start of the parade. There was only one problem: none of the men had moved. The few marchers that had shown up had no music.

According to McCabe, the spectators began to suggest that he give up the idea of parading, but he was determined to start on time with the few marchers that had shown up. Suddenly, Mathew Maguire of the Central Labor Union of New York (and probably the father of Labor Day) ran across the lawn and told McCabe that two hundred marchers from the Jewelers Union of Newark Two had just crossed the ferry — and they had a band!

Just after 10 a.m., the marching jewelers turned onto lower Broadway — they were playing \”When I First Put This Uniform On,\” from Patience, an opera by Gilbert and Sullivan. The police escort then took its place in the street. When the jewelers marched past McCabe and his aides, they followed in behind. Then, spectators began to join the march. Eventually there were 700 men in line in the first of three divisions of Labor Day marchers.

With all of the pieces in place, the parade marched through lower Manhattan. The New York Tribune reported that, \”The windows and roofs and even the lamp posts and awning frames were occupied by persons anxious to get a good view of the first parade in New York of workingmen of all trades united in one organization.\”

At noon, the marchers arrived at Reservoir Park, the termination point of the parade. While some returned to work, most continued on to the post-parade party at Wendel\’s Elm Park at 92nd Street and Ninth Avenue; even some unions that had not participated in the parade showed up to join in the post-parade festivities that included speeches, a picnic, an abundance of cigars and, \”Lager beer kegs… mounted in every conceivable place.\”

From 1 p.m. until 9 p.m. that night, nearly 25,000 union members and their families filled the park and celebrated the very first, and almost entirely disastrous, Labor Day.\”

As to the originator of Labor Day, the traditional story I learned back in the day gave credit to Peter McGuire, the founder of the Carpenters Union and a co-founder of the American Federation of Labor. At a meeting of the Central Labor Union of New York on May 8, 1882, the story went, he recommended that Labor Day be designated to honor \”those who from rude nature have delved and carved all the grandeur we behold.\” McGuire also typically received credit for suggesting the first Monday in September for the holiday, \”as it would come at the most pleasant season of the year, nearly midway between the Fourth of July and Thanksgiving, and would fill a wide gap in the chronology of legal holidays.\” He envisioned that the day would begin with a parade, \”which would publicly show the strength and esprit de corps of the trade and labor organizations,\” and then continue with \”a picnic or festival in some grove.

But in recent years, the International Association of Machinists have also staked their claim, because one of their members named Matthew Maguire, a machinist, was serving as secretary of the Central Labor Union in New York in 1882 and who clearly played a major role in organizing the day. The U.S. Department of Labor has a quick summary of the controversy.

 \”According to the New Jersey Historical Society, after President Cleveland signed into law the creation of a national Labor Day, The Paterson (N.J.) Morning Call published an opinion piece entitled, \”Honor to Whom Honor is Due,\” which stated that \”the souvenir pen should go to Alderman Matthew Maguire of this city, who is the undisputed author of Labor Day as a holiday.\” This editorial also referred to Maguire as the \”Father of the Labor Day holiday. …

According to The First Labor Day Parade, by Ted Watts, Maguire held some political beliefs that were considered fairly radical for the day and also for Samuel Gompers and his American Federation of Labor. Allegedly, Gompers did not want Labor Day to become associated with the sort of \”radical\” politics of Matthew Maguire, so in a 1897 interview, Gompers\’ close friend Peter J. McGuire was assigned the credit for the origination of Labor Day.\”