The Federal Aviation Administration last week announced that it was closing 149 air traffic control towers at small regional airports across the country due to automatic budget cuts that went into effect on March 1. The FAA took the brunt of 60 percent of the cuts from the Dept. of Transportation, and though it originally proposed 189 closures, it narrowed it down to avoid some pain from the lost funding.

Still, the closures have one Texas Republican congressman fuming. Rep. Blake Farenthold (R) wrote a letter to FAA head Michael Huerta this week saying he was “deeply troubled” by the closure of airports that help the Texas economy, the Houston Chronicle reports:

“I am deeply troubled for your public statements and proposed actions regarding the effect of the sequester on smaller, local airports. These airports have long played a vital role in economies across the country,” Farenthold said.

There’s a small problem with Farenthold’s anger: he voted for the Budget Control Act of 2011, the law that instituted caps on federal spending and, eventually, the automatic budget cuts that caused the airport closures. Since then, he has repeatedly blamed Democrats for failing to replace it with smarter cuts, but House Republicans refused to negotiate with President Obama and Democrats over a replacement that included new revenues in addition to cuts.

What is more problematic, however, is that Farenthold has only now realized that budget cuts are harming programs that help the economy. In fact, Republican efforts to cut the budget have held back the country’s recovery from the Great Recession, and Republicans continue to demand more even though spending on domestic programs is now at lower levels than it was before the recession.

The National Basketball Association’s Sacramento Kings are contemplating leaving their home city for Seattle after a group of investors there crafted a proposal to buy the team from its current owners. But now Sacramento’s mayor, a former NBA All-Star himself, has countered that proposal with a plan that would finance more than half of a new $447 million arena for the team.

The desire for a new arena is why the Kings have considered moving to nearly every city in the United States that would give them money to build one, especially after Sacramento Mayor Kevin Johnson walked away from a deal last year because the team’s ownership was demanding too large a share from taxpayers. But with the Kings’ threats to leave now a real possibility, Johnson is back at the table and ready to hand over $258 million in tax dollars to keep the Kings in town. And he’s giving the city council very little time to consider a deal he promises will help the city’s finances, Yahoo reports:

City officials reached a preliminary agreement Saturday with the investment group that hopes to keep the Kings from moving, but the late negotiations leave little time for council members to study the proposal before the vote. [...]

Johnson, a former NBA all-star, said the deal would avoid new taxes and ensure a net impact to the city’s general fund.

That’s a bold promise considering the evidence that exists against public financing of sports stadiums. A 2012 study, for instance, found that taxpayer-financed arenas do not foster economic growth in the cities where they were built. Johnson’s proposal, meanwhile, hinges largely on future revenues generated by parking, and financing plans that depend on future revenues rarely, if ever, work out for cities.

The most likely outcome from Sacramento’s proposal is that projected revenues fall far short of projections, just as they have for a Louisville arena built in 2008 and a Minnesota football stadium that is already running behind projections even before it gets built. That, despite Johnson’s promises not to raise taxes, will leave taxpayers footing the bill, whether through higher taxes or through cuts to public services. And in a city that already has a $5.6 million funding gap for public schools, further cuts to services likely aren’t worth the cost of a new arena that does nothing but keep a bad NBA team in town.

Marking the 20th anniversary of the Family and Medical Leave Act in Boston yesterday, House Minority Leader Nancy Pelosi (D-CA) called for federal legislation that would allow workers to earn paid sick leave each year. The FMLA allows workers unpaid leave to care for family members or newborn children, but Pelosi said she wanted legislation that would require workers to earn up to seven paid sick days each year, the Associated Press reports:

Pelosi said federal laws should guarantee that workers can earn paid time off.

“It’s not just about women, it’s about families,” Pelosi said Monday. “Many men take advantage of the Family and Medical Leave Act.”

Three million Americans missed work because of illness in February, and many of them likely did so without leave. 40 percent of private sector workers and 80 percent of low-income workers do not receive paid sick days, increasing the spread of costly illnesses and driving down productivity in a way that hurts both businesses and the overall economy. Nearly 80 percent of America’s food workers receive no paid sick leave.

Massachusetts state lawmakers are pushing a proposal to give workers one hour of paid leave for every 30 hours worked. Passing paid sick leave into law would make it just the second state to require paid sick days. Portland joined Seattle, Washington DC, and San Francisco as the fourth American city to require paid sick leave earlier this month. Philadelphia also approved a paid sick leave provision this month, though it is likely to veto it for a second time.

The push for federal paid sick leave legislation began in 2004, and the Healthy Families Act, which would allow workers to earn seven sick days a year, has been regularly re-introduced since then. It has not advanced, however, as opponents of paid sick leave continue to use misleading studies to claim that it will hurt American businesses.

In a previous post, I wrote about the emerging view of human nature as fundamentally cooperative and group-oriented rather than simply self-interested as most conservatives believe.  I noted that this paradigm shift has important implications for progressives in a political sense.  We should not shy away from appeals to cooperative instincts and the common good because they are “fuzzy” and “soft”.  Instead they should be front and center because they touch something deep within our basic nature.

But that’s not all the implications of these new findings.  There are also very important implications for economic policy.  Start with middle class economics.  This school of thought, associated with progressive economists like Robert Reich, Joseph Stiglitz, Paul Krugman and progressive institutions like (ahem) the Center for American Progress, ties progressive policy proposals directly to the interests and capabilities of the middle class. Since the middle class as a group embraces a huge swathe of American society, this is a very promising framework for a group-oriented appeal.

The new theory of human nature also casts considerable doubt on the standard model of economics, based around neoclassical assumptions that people are solely motivated by self-interested concerns.  As we have just seen, they aren’t, which poses a rather fundamental problem for mainstream economics.  The problem deepens when the other key part of the standard economic model is recalled: people rationally, efficiently and effectively pursue that self-interest at all times, carefully calculating probabilities and assessing costs and benefits so they can get the best possible deal for themselves—like a sort of self-interested Mr. Spock.  People aren’t like that either, as the evolving science of behavioral economics has clearly established.

Behavioral economics has found, based on observation of actual people making decisions, that people don’t understand probability, under- and over-estimate risk, respond heavily to how choices are framed and generally fail, in a wide variety of contexts, to “rationally” pursue their goals.  These results, now widely accepted even within mainstream economics, have been well-summarized by Cass Sustein and Richard Thaler in their book Nudge and by Daniel Kahneman in his book Thinking Fast and Slow.

So we’re not purely self-interested and we do a spotty job of pursuing that self-interest when we try.  What does this say about standard models of the economy based on aggregating the assumed efficient, self-interested actions of millions and “proving” that everything works out for the best if those efficient, self-interested individuals are left alone?  Nothing good.

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The idea that the United States has an out of control spending problem has gripped Washington D.C. for most of the economic recovery, and nowhere is that more evident than in recent budget negotiations, where the conversation has been almost solely about when budgets will balance and by how much they will reduce the debt. House Republicans offered a budget that contains draconian levels of spending cuts to domestic spending, other Republicans, like Kentucky Sen. Rand Paul, offered even bigger cuts.

The government, however, has no such spending problem, according to the Congressional Budget Office. Excluding wars and disaster relief funding, in fact, America’s discretionary spending has grown at a slower rate than inflation since 2007 and now makes up a smaller share of the economy than it did before the Great Recession, CBO director Doug Elmendorf wrote today:

Excluding appropriations for those purposes, discretionary budget authority rose from $892 billion in 2007 to $987 in 2013, an increase of about 11 percent. During that period, prices (as measured by the consumer price index for urban consumers) rose by 13 percent, and nominal gross domestic product (GDP) increased by 16 percent. As a result, discretionary appropriations—based on the House-passed appropriations for 2013 and excluding funding for overseas contingency operations and hurricane relief—declined by 2.2 percent in real (inflation-adjusted) terms between 2007 and 2013 and dropped from 6.4 percent of GDP to 6.2 percent of GDP over that period.

As we’ve pointed out before, spending levels have plateaued in recent years as Washington has focused on reducing debt and deficits, and that has resulted in a slower economic recovery from the recession. Government spending has typically driven recoveries in the past; this time, spending cuts have hampered recovery efforts. Further spending cuts to programs that help Americans stay on their feet would only exacerbate that problem.

With low borrowing costs and high unemployment, the U.S. has a chance to make investments that help boost growth and put more people back to work. Instead, too many lawmakers are focused on preventing a spending and debt crisis that doesn’t actually exist.

Daron Acemoglu, an economist at MIT, and James Robinson, a political scientist and economist at Harvard, provide an interesting academic analysis of how mainstream (i.e., mainly conservative) economic policies centered on privatization, deregulation, and free trade lead to unwanted social outcomes.

Echoing warnings from progressives about the consequences of right-wing policies, Acemoglu and Robinson (authors of Why Nations Fail) use the financial crisis to show “how economic policy designed with a disregard for political implications can be injurious to social welfare.”  For example, the orgy of financial sector deregulation that started in the U.S. during the 1980s drastically tilted the political environment towards the interests of finance and encouraged the “moral hazard” of big banks taking excessive risks with the full knowledge that the government would have no choice but to bail them out when their bets went bad.  The financial crisis of 2007-2008 was the end result of this mainstream economic advice.

Similarly, conservative economists for decades have argued against the collective bargaining power of unions on efficiency grounds.  But steps to reduce union negotiating strength that began with the Taft-Hartley Act in 1947 – as well as numerous free trade agreements — not only reduced wages and leverage for workers, they also led to higher levels of inequality, outlandish CEO pay, and future deregulation by shifting the political equilibrium too far away from the needs of workers. The long term demise of the middle class was the end result of this economic thinking.

Outside of the U.S., the authors cite the “loan-for-shares” scheme of privatization in Russia to further the argument.  Although the textbook case for privatization initially led to economic gains for Russia, it later undermined democratic reforms and led to the rise of a new authoritarian government under Putin:

Not only did this type of privatization massively enrich and empower the oligarchs, but it also failed to create a large number of small shareholders. In 1994, workers owned 50 percent of the average Russian enterprise; by 1999, this figure had dropped to 36 percent. By 2005, 71 percent of medium and large industry and communications enterprises had a single shareholder who owned half the stock.

The unequal distribution of privatized assets in turn produced a backlash “against the process of economic and political reform in Russia, ultimately re-creating authoritarianism and firmly entrenching a form of state-led crony capitalism.”

Acemoglu and Robinson conclude their article by saying, “Our argument is that economic policy should not just focus on removing market failures and correcting distortions but, particularly when it will impact the distribution of income and rents in society in a direction that further strengthens already dominant groups, its implications for future political equilibrium should be factored in.”

Although their argument is not entirely novel, it does have important implications for how progressives should think about the current right-wing obsession with deficits, taxes, and spending. Conservatives often talk about the “unintended consequences” of liberal policies. What’s that old saying about glass houses?

One of every six American children has a parent that is either unemployed or underemployed, according to a new study from First Focus and the Urban Institute. Overall, 6.2 million children live in homes where at least one parent is unemployed; the total rises to 12.1 million when underemployment is included too. While that number has decreased slightly in the last two years, it is still substantially higher than pre-recession levels, the report found:

The effects of parental unemployment on children are far-reaching: children with at least one unemployed parent are more likely to fall into poverty, especially if their parents are among the long-term unemployed. Unemployment is linked to lower math scores and poorer school attendance, and parental job loss increases the risk of a child being held back in school by 15 percent. Low-income students whose parents lose jobs are less likely to attend college, and one study found that boys whose fathers lost jobs earned 9 percent less over their lifetimes than boys whose fathers did not.

One problem that exacerbates the effects of parental unemployment is the weakness of America’s social safety net, which ranks among the stingiest in the industrialized world. More families with unemployed parents qualify for the Supplemental Nutrition Assistance Program (food stamps) than do unemployment insurance, even though SNAP is a less beneficial program. As the report states, “in July 2012, SNAP monthly benefits averaged about $278 per household, less than the average weekly benefit of $299 for unemployment benefits (the monthly equivalent of $1,286)”:

That situation is only deteriorating further, as eight states have cut unemployment insurance programs below the typical 26 weeks. That costs jobless workers access to federal benefits as well, since the federal program is partially dependent on state eligibility standards. The 1996 welfare reform law made TANF less likely to help children in need. And SNAP has been the subject of cuts since it was expanded in 2009, though those cuts have so far been avoided. All in all, America’s social safety net isn’t robust enough to help families — and especially children — who need it most.
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