With the Supreme Court hearing oral arguments in two separate cases about marriage equality this week, one of America’s most iconic companies is joining the fight. One of the popular ways Americans displayed support for equality was by posting a picture of an equal sign inside a red box on Facebook, Twitter, and other social networks, and Bud Light did the same, posting this picture to its Facebook page yesterday:

Bud Light’s support for equality isn’t unique in the American business community. NPR reported Monday that 278 businesses had signed on to a brief asking the Supreme Court to strike down the Defense of Marriage Act, including recognizable companies like Nike, Apple, Starbucks, and Citigroup. Not a single company filed briefs arguing that DOMA was good for business.

DOMA and the lack of equal marriage rights prohibit same-sex couples from taking advantage tax breaks and spousal benefits that are available to married couples. That hurts individuals and the larger economy, and for businesses, it hurts their bottom lines and impedes efforts to foster more inclusive work environments. As Goldman Sachs CEO Lloyd Blankfein argued, restrictions like DOMA mean people “can’t move around, they’re unhappy, and we can’t attract a whole set of very talented people.” Bud Light is just the latest brand to realize that equality is good for business.

The Supreme Court will today hear oral arguments in the case against the Defense of Marriage Act, the 1996 law that denies equal federal benefits to couples who are legally married under state law and also burdens families and the federal government.

The Congressional Budget Office estimates that DOMA increases the deficit by roughly $1 billion a year, and while that amount is small, striking it down would save far more than ending subsidies to NPR or some of the other “deficit reduction” ideas Republicans have pursued in the past.

Those savings would come from numerous sources. Tax revenues would rise by more than $400 million a year, and though costs on programs like Social Security and federal benefits would increase, costs for safety net programs like Medicare, Supplemental Security Income, Medicaid, and other programs would go down.

That’s significant, because the largest benefit from recognizing same-sex marriages comes from what it would do for individual couples and families. Same-sex couples aren’t allowed to file joint taxes, which prohibits them from claiming some tax credits and deductions that would benefit their families. They also aren’t eligible for spousal health, Social Security, or federal pension benefits, making it harder for some LGBT families to make ends meet. Older LGBT couples are more likely to live in poverty than married heterosexual seniors, which is why ending DOMA would reduce costs for programs like Medicaid and SSI — access to spousal benefits would lift many LGBT Americans out of poverty and off of the social safety net.

Striking down DOMA is important primarily to provide LGBT Americans equal protection under the law. But it’s also important because it will benefit the American economy by helping businesses, reducing the deficit, and lifting people out of poverty.

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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Rep. Dina Titus (D-NV) and three other House Democrats introduced legislation last week that would expand school lunch programs for low-income children to weekends and holidays. Titus plans to roll out the legislation at a Thursday event with area business leaders in her Las Vegas district.

The Weekends Without Hunger Act, co-sponsored by Reps. Marsha Fudge (D-OH), Zoe Lofgren (D-CA), and Terri Sewell (D-AL), is aimed at providing more nutritional assistance to the children who need it most, according to a release from Titus’ office:

While school meals help keep children healthy and ready to learn during days that school is in session, there is currently no targeted Federal child nutrition program available to provide these children with food during the weekend or extended holidays when they do not have access to school meals. Vacation from school should not mean hunger for children.

Efforts to expand school nutrition programs have paled in comparison to efforts to cut them in recent years. House Republicans like Rep. Steve King (R-IA) have targeted the nutrition standards in school lunch programs, while House GOP budgets have repeatedly slashed the programs in the last three years. Last year’s House budget, for instance would have knocked 280,000 children off of the school lunch program.

The top 10 percent of Americans have experienced rapid income growth over the last 40 years, but the bottom 90 percent haven’t been so lucky. In fact, average income rose just $59 from 1966 to 2011 for the bottom 90 percent once those incomes were adjusted for inflation.

That’s according to a new study of tax data from David Cay Johnston, who won a Pulitzer Prize for his writing about tax policy. While the bottom 90 percent’s incomes rose just $59, the top 10 percent fared much better, he found:

In 2011 the average AGI of the vast majority fell to $30,437 per taxpayer, its lowest level since 1966 when measured in 2011 dollars. The vast majority averaged a mere $59 more in 2011 than in 1966. For the top 10 percent, by the same measures, average income rose by $116,071 to $254,864, an increase of 84 percent over 1966.

The difference in those gains has reduced the share of income the bottom 90 percent holds as well. That segment held two-thirds of all household income in 1966 but just 51.8 percent in 2011, Cay Johnston found. Other studies have had similar results. One study found that pay for chief executives increased 127 times faster than worker pay over the last 30 years, and official data has shown worker wages stagnating since the 1970s. That has led to a sharp increase in American income inequality, which now rivals rates from countries like the Ivory Coast and Pakistan.

The biggest driver in that disparity, Cay Johnston wrote, was not that the rich were working harder, “but the shift of income from labor to capital and changes in federal income, gift, and estate tax rules.” Indeed, the estate tax has been eased over recent decades and federal income taxes have become more favorable to the wealthy thanks to breaks for investment income. A recent study, in fact, found that the capital gains tax cut, which benefits the wealthy but does virtually nothing for everyone else, was “by far” the biggest driver in the growth of American income inequality. (HT: Huffington Post)

Amid all the budget talk in Washington last week, Kentucky Sen. Rand Paul’s (R) was easy to lose in the shuffle. Paul’s budget failed miserably when put to a vote, but it did garner support from conservative groups and key Republican politicians, including Senate Minority Leader Mitch McConnell (R-KY).

Republican budgets have a knack for giving massive tax cuts to the wealthy while slashing social services — including entitlement programs — and Paul’s managed to go even farther. The budget, Paul estimates, would balance in five years, and it provides generous tax cuts to the rich while saving more than $9 trillion by gutting entitlements and the social safety net. And while the lopsided vote may make it seem even too radical for Republicans, it contains many proposals GOP presidential candidates were pushing in the 2012 primary elections:

1. Privatizes Social Security and Medicare: Paul’s budget would raise the Social Security eligibility age and gives workers the option of private accounts, an idea that would demolish workers’ savings during economic downturns. An October 2008 retiree, for instance, would have lost $26,000 in a private Social Security account during the Great Recession, according to one study. Paul’s plan would also privatize Medicare, going a step farther than even Paul Ryan’s House Republican budget did and driving up the cost of health care for seniors even more.

2. Institutes a flat tax: Paul would replace the current progressive tax system with a flat tax rate, effectively providing the wealthiest Americans with a massive tax cut while raising taxes on many middle- and lower-class families. This is a feature of all flat tax plans, and Paul’s would cut the tax rate paid by more than half, slicing it from 35 percent to just 17 percent.

3. Eliminates investment taxes: Paul’s plan finds a way to grant the wealthy an even bigger tax cut by also eliminating all taxes on capital gains, dividends, and other investment income. Republicans like Paul are convinced that cutting capital gains tax rates boosts economic growth; however, evidence does not support that notion. Instead, studies have found that low tax rates on investment income are the biggest driver of growing American income inequality.

4. Abolishes the Dept. of Education: Paul would eliminate in total the departments of Education, Energy, Commerce, and Housing and Urban Development, ideas conservatives have long pushed. The Department of Education alone manages federal student loan programs, funding for low-income schools, programs to help special needs students, and many other services. Eliminating it, to say nothing of the other agencies, would risk that “poor, special education and minority students would be underserved by public schools even more than they already are.”

5. Cuts Medicaid and the safety net: Paul would block grant funding for Medicaid, food stamps, the children’s health insurance program, and other nutrition assistance programs, essentially gutting America’s social safety net. While Republicans — including Paul Ryan — love the idea of leaving such programs to the states, the reality is that such reforms leave the programs more susceptible to budget cuts. The 1996 welfare reform law block granted that program, which has done nothing but fail to help families in need since.

Ed. note: This is the first post in a TP Ideas symposium on Branko Milanovic’s The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality. The second installment is here and the third is here.

There are a number of different ways to think about inequality.  One is to look at inequality among members of a particular nation–say, the United States.  That is the way we are most used to thinking about inequality.  Another way is to look at inequality among the nations of the world–how much do average incomes vary across countries and how much is this relationship changing?  Still another is to look at inequality among all individuals in the world, irrespective of country.

In Branko Milanovic’s terrific book, The Haves and the Have Nots: A Brief and Idiosyncratic History of Global Inequality, he provides the raw materials for thinking about all these aspects of inequality and how they have varied across time and space.  Milanovic is lead economist with the World Bank’s research division and one of the world’s leading experts on inequality; his depth of knowledge on this subject is nothing short of magisterial.  Here are some of the key findings in his book:

Start with inequality among people in a nation.  The way this is typically measured is with the Gini coefficient which, in essence, compares the income of  every person in a nation to every other person in that nation and summarizes these relationships.  Put on a 0-100 point scale, the lowest score, 0 gini points, means a society where everyone receives the same income (perfect equality) and 100 points means all the income of the nation is received by one person (perfect inequality).  As originally theorized by economist Simon Kuznets, the conventional expectation has been that as societies developed they went through a necessary period of high inequality during the transition from agriculture to industry, followed by a period of decreasing inequality facilitated by state redistribution and public services like education.  That expectation has been confounded however by the last quarter century when inequality has risen substantially in most advanced societies, particularly the United States.  Right now, the US gini sits in the mid to high 40′s, which would be good for a Latin American nation, but is quite poor for a developed nation.

Inequality between nations is a less familiar story.  Here too developments do not comport well with conventional economic theory.  According to neoclassical theory globalization should have resulted in decreasing inter-country inequality over time as capital flows to low wage countries seeking profits and these same countries appropriate advanced technology produced elsewhere without paying the costs of technology development.  But that has not happened: through periods of globalization and deglobalization, inequality between countries has increased steadily since the industrial revolution and is now at an all-time high.

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A slew of Republican governors have proposed massive tax cuts that they say will help generate job and economic growth in their states, with some pushing for the abolition of income taxes altogether. That is a misguided approach, though, according to an analysis of past tax cuts from the Center on Budget and Policy Priorities.

The five states that implemented deep tax cuts during the 1990s experienced slower job growth over the next economic cycle than states that did not, and none of those states experienced income growth that exceeded inflation, CBPP found:

Similarly, the five states that enacted the deepest tax cuts during the boom years of the middle and late 1990s saw job growth over the next full economic cycle (2000-2007) of less than 0.3 percent per year, on average, compared to 1.0 percent for the other states (see graph). They also had slower income growth than the rest of the nation on average.

CBPP’s report also noted that of eight major reports that studied the effects of state-level tax cuts on economic growth, six found that the cuts did not spur growth. Another found inconsistent results and only one supported the idea.

Still, Republicans in Kansas, Ohio, Indiana, Wisconsin, North Carolina, Louisiana, and Nebraska are pushing massive tax cuts that largely benefit corporations and the wealthy under the banner of boosting economic growth. Those tax cuts will leave lower and middle class families with higher tax rates and fewer services on which they depend. What they won’t deliver, however, is a stronger state-level economy.

For all the talk among conservatives about the “bloated” size of government, public sector job losses have plagued America’s economic recovery from the Great Recession. And with the automatic budget cuts that took effect on March 1 beginning to take effect, those losses are only going to make efforts to fully escape the throes of the recession even harder.

Governments at the state, local, and federal level have cut 740,000 jobs since the beginning of the recession, according to Department of Labor data. So even as the private sector has added 5.2 million jobs in that time, the public sector is still in the red, as this chart from the Wall Street Journal illustrates:

The losses that occurred at the state and local level were due to crimped budgets because of the recession, but they were exacerbated by budget cuts at the federal level too. Hundreds of thousands of teachers, firefighters, police officers, and other government workers have lost jobs as federal aid to states has been reduced and as states have cut aid to localities. The last three years were the worst on record for public sector job losses.

That will only get worse as sequestration continues to go into effect. Government agencies will begin furloughing workers at the beginning of April, and though that won’t have the same effect as all-out job losses, it will still reduce pay for those workers. Reduced aid to states and localities will mean that schools and government offices leave jobs vacant and cut existing staff. Government spending has traditionally pulled America out of economic downturns, and had it maintained its pre-recession employment level, the nation’s 7.8 percent unemployment rate would be a full point lower. Instead, budget cuts that lead to public sector job losses have only made the road to recovery longer than it should have been.

Financial firms that specialize in risky high-speed trading are boosting their lobbying efforts against proposals to rein in the practice, a Wall Street Journal analysis of lobbying records found. Three Democratic lawmakers introduced legislation that would institute a small tax, known as a financial transactions tax, on high-frequency trades, which reap major profits for firms but add volatility to financial markets.

In response, high-speed trading firms have more than doubled their lobbying efforts, the Journal found:

That follows a steep increase in registered lobbying by high-speed trading firms. Such spending averaged $2.3 million in 2011 and 2012, more than double the average from 2008 to 2010, according to an analysis by The Wall Street Journal of data compiled by OpenSecrets.org, part of the Center for Responsive Politics.

Eleven European countries recently adopted a financial transactions tax; the United Kingdom already has a limited version of the tax that Labour Party lawmakers have looked into expanding. Sens. Tom Harkin (D-IA) and Sheldon Whitehouse (D-RI) and Rep. Peter DeFazio (D-OR) in February reintroduced their plan to levy a 0.03 percent tax, which they say will raise $352 billion over the next decade, on high-speed trades. Such taxes aim to curb the explosion in high-frequency trading that has only grown since the financial crisis, as this chart from market analyst Nanex shows:

The financial industry argues that such a tax would limit growth potential, but as DeFazio told ThinkProgress last year, the U.S. had a financial transactions tax after World War II when it experienced its greatest period of economic growth. Many business leaders support the tax, including high-speed trading’s pioneer, who said last year that the growth in that trading “has absolutely no social value.”

The Federal Reserve released its statement from the latest Federal Open Market Committee meeting this past week. Its projections see economic growth reaching 3.8 percent at best over the next three years, hovering between two and three percent per year after that, and finally driving unemployment down to between five and six percent after 2015.

None of that is especially new or encouraging. But on Wednesday, Ryan Avent at The Economist pointed out another number in the report that hints at a more subtle, but possibly more pernicious problem. It’s the federal funds rate, which is the interest rate the Fed charges other banks when it lends them money — thereby guiding interest rates throughout the economy — and which has basically been at zero since the Great Recession:

If recovery proceeds as the Fed anticipates, its interest-rate target will remain at near zero until at least 2015. Perhaps more worrying, the FOMC’s best guess at the appropriate, long-run value of the fed funds rate is about 4 percent. That is strikingly low. In each of the past three recessions the Fed has responded by cutting the fed funds rate more than 4 percentage points. A fed funds rate at that level virtually guarantees that the next downturn will result in a relapse into [zero lower bound] territory.

The Fed has a dual mandate to control inflation and maximize employment, and the federal funds rate is the mechanism by which it does both. It can boost the economy by cutting the rate, or rein in inflation by raising the rate. So there’s an inherent balancing act, and the Fed needs room to go in both directions. That’s why, over the past 40 years, the rate only briefly dipped below the four percent mark, and spent most of the boom-time 90s at over five percent:

There’s an imbalance in the Fed’s policy toolkit, in that it can raise the rate as high as it wants to fight inflation, but it can’t cut it past zero to boost the economy and job growth. That’s the problem of the “zero lower bound” Avent refers to. If the rate doesn’t get above four percent, but the Fed needs to cut at least that much to boost the economy, then there’s just not going to be much room to maneuver when the next recession rolls around.

Some economists such as Paul Krugman argue that when monetary policy hits the zero lower bound, fiscal policy (i.e. stimulus spending) becomes the primary tool to help the economy. But others, like Scott Sumner, argue that quantitative easing and other forms of unconventional monetary policy can still work just as well if not better than fiscal policy when the federal funds rate is at zero.

Unfortunately, Republicans are vociferously opposed to both policies. They’ve relentlessly pressured the Fed and Chairman Ben Bernanke to end quantitative easing or even hike the federal funds rate, incessantly warning of runaway inflation that never materializes. There’s also been no real opposing pressure from Democrats or progressives to prioritize job growth. The Fed’s latest form of quantitative easing has been a big step in the right direction, but several members of the governing committee or so skittish they’ve proposed ending it as early as this year.

On top of that, the way the Fed is designed and governed saddles it with additional biases towards cutting inflation over pushing up employment. As an institution, it’s more attuned to the concerns of the financial industry, business owners and the wealthy. Those groups are generally indifferent to sluggish economic growth — they’re the last to lose their homes or livelihoods if the economy implodes or unemployment spikes — but they all have a vested interest in low and stable inflation.

So not surprisingly, for the last twenty years or more, low and stable inflation is exactly what the country got. Even after the Great Recession, the Fed consistently hit its two percent inflation target, even as its counterbalancing mandate to boost employment was essentially ignored:

Arguably, the fundamental problem is the Fed did too good a job at reining in inflation.

Inflation is the natural response of an economy to robust growth, as rising wages put upward pressure on other prices. A Fed devoted to controlling inflation above all else will inevitably also weigh down jobs and wages for working Americans. “Morning in America,” the economic boom of the Reagan years, was accompanied by four percent inflation on average — twice the level we’re seeing now.

The last few decades of low inflation also came alongside stagnating median wages, and a new form of “jobless” recovery that brings back economic growth, but not the job growth of previous post-war recoveries. The result has been a self-reinforcing downward spiral, as stalled wages bring more inequality and less inflation, eliminating the need for a higher federal funds rate and ultimately leaving the Fed with ever less ammunition to boost employment with each successive recession.

Certainly, the Fed’s preference for exceedingly low inflation is not the whole cause behind slow wage growth and rampant inequality. But it’s most likely a big part.