How to Solve the Inflation Problem, and some others...

(c) by Mark Dempsey

My brother and I have been debating inflation recently. He's a retired acupuncturist and one of the many blessings of my life has been to have our relationship. His economic opinions are not as in-depth as mine--I correspond with contemporary heterodox economists--but my brother's rather conventional economic opinions are such a small part of him that they're as peripheral to the whole of him as his shoelaces. Kind of beside the point.

That said, here's part of our debate:

Brother says: " ... Although economic policy and the stock market are related, I see them as two separate things. In other words, we can change our economic theories and still have our stock market."

My reply:  First, markets and public policy are inextricably intertwined. Economics is not a debate about how many angels can dance on the head of a pin, it's the attempt to describe the dynamics of interactions we call "markets." Whether conscious or unconscious, religious or scientific, economic theories are what make all markets and their outcomes happen.

You cannot have a stock market, or any market for that matter, without guiding regulations, and some theory justifying the regulations. Modern science at least lets us aspire to have our theories predict the effect of the regulations in the real world.

Politics, and its handmaiden, orthodox economics, on the other hand, often work very hard to conceal those policy effects. "Without lies, there wouldn't be any politics" - says Will Rogers. The underpinnings of these policies can be everything from "Pharoah is a god" to "All men [except negroes] are created equal."

A few examples of how public policy shapes markets:

• It used to be illegal to sell at less than the "Manufacturer's Suggested Retail" price. Imagine the consequences for Walmart and other discounters if that were still true.
• It used to be illegal to pay C-suite executives with stock. Currently, they have every motivation in the world to manipulate their stock.
• Stock buy-backs used to be illegal too.

See Matt Stoller's Goliath for many more of these, and you'll see why Walmart wiped out mom-and-pop stores. Public policy is critical in shaping markets, including the stock market, and determines the shape of entire societies--which is one reason politics is so hotly contested. Those policies determine who survives and who thrives, economically speaking. 

There’s a libertarian strain of economics that denies regulations are necessary. Koch-funded professor James Buchannan’s “public choice” economics says the state always screws things up. Always! See Nancy MacLean's Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America for an in depth look. Not pretty.

This libertarian way of thinking denies that 75% of pharmaceutical innovation is from government-funded research (that's true, though). It also denies that 80% of those inventions on your cell phone came from government-funded research (also true). 

So let's just say libertarianism is a philosophy for amateurs.

In our culture's common mythos, the common belief that currency evolved from barter has made it intellectually respectable to believe that markets are separate from states and public policy. In this myth, Robinson Crusoe and Friday bartered goods in which they specialized (e.g. coconuts for Robinson Crusoe, fish for Friday), making their bartering more convenient by using seashells as "coins," and in the end, marking their cave walls with credit/debit entries to record their mutual obligations for days when there were no fish or coconuts to be found.

Note that at no point in this mythical economy does any authority--political or religious--guide these transactions. It's just a "willing buyer and willing seller"--a phrase you'll hear from libertarians frequently. The theory implies that minimizing government and regulation is what we need to do to make markets function most effectively and efficiently. Note that the history this myth suggests is barter came first, then "coins," then finally credit.

However, this is just a myth, as true as Santa Claus and the tooth fairy. Archaeological discoveries debunk the Robinson Crusoe myth. The historical sequence is credit, then money, and not much barter. 

Discoveries of credit predate even writing, dating from before 3500 BC--imagine bar tabs from Babylon on clay tablets. Coins made their first appearance in 800 - 600 BC, coincidentally around the time archaeologists believe the Midas myth appeared. 

As for barter: “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.” - says anthropologist Caroline Humphrey from Barter and Economic Disintegration.

But does humanity really need an authority regulating and issuing the exchange of goods, services and money? Says David Graeber in Debt: The First 5,000 Years: "There are no economic markets without states in the history of the world. States create and encourage markets." 

In other words, down here on planet earth, humanity has done the opposite of the Robinson Crusoe myth, relying on religious, legal, or regulatory authority in all cases. Emile Durkheim, one of the founders of sociology, even notes that all states have a covert religion, otherwise people would be dishonest when it was to their advantage even for arms-length transactions when their dishonesty couldn't be discovered. Having arms-length transactions (e.g. buying goods from China) is kind of the point of markets.

How does a state create a market? For a simplified example, imagine the king wants to employ 1,000 soldiers. It's a logistical nightmare to feed, arm, house, and deploy all these soldiers. To create a market, the king uses his power to create currency–let's call that currency "crowns"--and pays the soldiers' salaries in crowns. Then he taxes the entire kingdom, payable only in crowns. Presto! A market!

Nevertheless, the Robinson Crusoe myth still appears in some conventional economics texts. One bit of its agenda is to de-legitimize state authority while advising deregulation and de-supervision to make markets "efficient." Gold-bugs and/or cryptocurrency fans also omit the state from the currency's authentication (both are difficult to counterfeit) and value. These stories are believable but only superficially, and history certainly does not validate them. They pointedly ignore the context or system in which markers for obligation (currency) appear, and context is really everything here.

For the libertarian myth-makers, everything devolves to individual responsibility. "There is no such thing as society," said Margaret Thatcher, one of modernity's most prolific mythmakers, "there are only individuals and families"--a statement roughly equivalent to saying "You have no body, only cells, and organs." 

If you watch Call the Midwife you'll see socialist post-World-War-II Britain's government supplied healthcare and housing, and Thatcher came up as a reaction to that. One of Thatcher's most popular moves was to sell council (public) housing to those who occupied them at a discount. This was temporarily profitable for those families who bought their homes, but in the long run childhood poverty tripled in the U.K. after Thatcher and her policies were done with it. Cheap homes were the bait.

Thatcher also said something like "There's no such thing as public money, just money the state takes from your income or savings"--which, if true, means we must adopt austerity, the origin of that increase in childhood poverty. Apparently, Thatcher believed pounds grew on billionaires. That’s an obvious myth--our central bank, the Federal Reserve, is the monopoly provider of non-counterfeit dollars and the Bank of England is the monopoly provider of pounds--but how much traction has this particular myth gained in popular opinion?

Even a "liberal" like Nancy Pelosi believes we must tax more if we’re to have more federal programs. I'd suggest people who believe this particular myth must also answer the question: Where do taxpayers get the dollars with which they pay taxes if the government doesn’t spend them first? 

Federal fiscal policy is not “tax and spend,” it must be “spent first, then retrieve some dollars in taxes”--otherwise no one has dollars they can use to pay taxes. Tax revenue does not (and cannot) provision federal programs, but taxes are important–they make dollars something that’s in demand.

And what do we call the dollars left out in the economy, not retrieved in taxes? Answer #1: the dollar financial assets of the private sector (i.e. people’s savings). Answer #2: National debt. They are exactly the same thing, just as your bank account is your asset and the bank's liability. 

Incidentally, the obligation is from the central bank to the holders of dollars and other debt obligations. What does the central bank ("the Fed") owe us for our dollars? Answer: that many dollars' relief from an inevitable liability--taxes.

Reducing national debt is a very bad idea. It impairs people’s ability to pay their obligations. Every time we’ve adopted “Fiscal Responsibility™” and significantly reduced national debt there’s a wave of asset forfeitures and foreclosures–a Great Depression-sized hole in the economy. This is historical fact, not theoretical observation.

Brother says: "Your point about raising interest rates to blunt inflation is a good one and I agree with you that it hurts lower-income families more. But, what's the alternative?..."

My reply: Sometimes it's better to do nothing rather than keep digging a deeper hole. Currently, inflation stems largely from shortages and supply chain problems--everything from COVID to jammed ports to Russian sanctions. Doing nothing would be preferable to harming workers, and increasing unemployment by raising interest rates, as I'll explain in a bit. (see Inflation Hurts Everyone, But So Does Unemployment by economist Stephanie Kelton too. Excerpt: "the accounting and consulting firm RSM has estimated that [raising rates] could involve the loss of 5.3 million jobs, which would drive unemployment up to a whopping 6.7 percent.")

And there are remedies besides raising interest rates to increase unemployment and cause a recession. One would be to permit Ukraine to make peace...but that's not on the agenda, in fact sabotaging peace negotiations is the current U.S. strategy. That's right, the U.S. could end this war (and could have prevented it) in a hot minute. It doesn't excuse Putin, but his attack was not unprovoked, as all the editorial pages in mainstream media would have you believe.

Meanwhile, "What if we're fighting inflation all wrong?" says "...it’s a scam to say that we need to balance things like inflation on the backs of the unemployed...As a well-known economist, Olivier Blanchard put it recently, it’s kind of difficult to explain to people that Russia invaded Ukraine, so you need to lose your job." More from that same source:

"The other important part about [raising interest rates to quell inflation] is it sets us up to be in an even worse situation for next time. If you think rent is a problem, raising interest rates is going to make it a lot more expensive to build apartment buildings and provide housing for people. The same can be true for certain parts of the economy — oil and gas, certain commodity investments.

"We go through these cycles where there is a little bit of price pressure and because the Federal Reserve has been given [sole!] responsibility for it, we use their interest rate policy. It is the only tool that we have, instead of using other policy tools that could potentially push through bottlenecks. That leads to a negative dynamic, especially for ordinary people."

Who does inflation help? Answer: debtors (they pay the creditors back with cheaper money). Of course, the poor may suffer more than the rich, but they're more likely to be debtors too.

Besides supporting negotiations about Ukraine, is there another alternative? How about we stop giving money to Ukraine and give that same money to our poor? I've read that for half the recent $40 billion in arms sent to Ukraine we could have solved homelessness.

How to end the war? Reassuring Russia that NATO won't accept Ukraine as a member would be a start. Incidentally, Russia has declared it suspects the U.S. is not "agreement capable." (Ask a native American what they mean.)

I'll add that there is no coherent theory of inflation in any economics of which I'm aware. Chicago school Milton Friedman's statement "Inflation is always and everywhere a monetary phenomenon" is just baloney. Here's a chart of the growth in money supply vs. inflation:



CPI (Consumer Price Index, the blue line) and growth in the money supply (the red line) have virtually no connection. Nevertheless, the Fed, and its 300 PhD economists, is still advocating baloney, increasing interest rates, and increasing unemployment.

Friedman's economics didn't work when they tried it in the early Reagan administration, so discounting his pronouncements is not unscientific. See Paul Krugman's Peddling Prosperity for a detailed account of Friedman's failings. Among other things, Friedman believed the Fed could manage the money supply. Anyone with an elementary understanding of how banks work could tell you that would be impossible.

What's the difficulty of a coherent inflation theory? One example: If the Fed gave every family a million dollars it could be inflationary...or not. It depends on whether the recipients spent the money, bidding up prices, or "unspent" the money, paying off loans. If the recipients just put the dollars under a mattress it wouldn't be inflationary. No one would be bidding up the price of goods or services.

Another solution for current inflation: the U.S. buys surplus soybeans, how about buying surplus labor with a job guarantee? Who else is bidding for the unemployed? A job guarantee would work to end inflation, provide a living wage as a floor for workers, and replace all kinds of "welfare" programs as a social safety net.

The orthodox (neoclassical economics) Friedmanite advice to not give families money (Welfare! Eeek! Inflationary! Job guarantee! Eeek! Ditto!) prevents solving two primarily systemic problems we now face: education and crime. Incidentally, the neoclassicals now dominate academic economics and the editorial pages of even the most “liberal” papers, so you'll seldom hear the respectable, orthodox, neoclassical economists even mention these alternative remedies, even though their suggested remedies have been cruel and ineffective.

Systemic Problems

So you understand what "systemic problems" are, here's an example for you: I throw nine bones out my back door and release ten dogs to retrieve a bone. I don't care how deserving, intelligent, well-trained, etc. those dogs are, one is going to come up short. None of the dogs who got the bone could help the poor tenth dog who came back without one. The system, not the individual, needs to change before everyone gets a bone. Just about every big problem the country faces now is either wholly or in large part systemic–COVID, climate, unemployment, immigration, education, crime, etc.--and public policy guides the system. 

Education

The solution proposed by "reformers" for current U.S. education problems is to ignore the systemic context of education and view school problems as individual responsibility only. By their lights, we need to fess up, and sternly shake our index fingers at the (individual) malefactors: Bad students (and bad families)! Bad teachers! Bad administrators! Those individuals are the source of the problems.

The billionaire fans of non-systemic solutions have funded self-serving solutions like Michelle Rhee's "Students First" organization. They even sponsored a film -- Waiting for Superman -- about Rhee firing tenured teachers who didn't "add value" as she managed the Washington D.C. school system. "Adding value" is MBA-speak for not improving test scores.

The non-systemic solutions the reformers propose are: 1. Merit pay for teachers (because they're so financially motivated, doncha know) 2. (Union-busting) Charter Schools, and 3. Testing, testing, testing to see if teachers are "adding value" week by week, minute by minute.

The nostalgia for an America where 70% of workers had defined-benefit pensions, could work one job to support their household, could send their kids to a state college from which they could graduate with little or no debt... that "Greatness" was once available to everyone, deserving or not. Not anymore. Systemic changes have eliminated it as even a possibility.

Waiting for Superman even touts the Finnish schools as the ones to emulate--and Finland has very good schools indeed. Oddly enough the film omits to mention that Finland's teachers are well-paid, tenured, and unionized.

As for the three "solutions" promoted by the individual responsibility billionaires (merit pay, charter schools, and testing), no science validates that these are effective or that they even correlate with better educational outcomes. What does science suggest is behind better student achievement? Answer: reduced childhood poverty. In Finland, childhood poverty afflicts 2% of the population; in the U.S. 23% of children are poor (at the time of the film). 

A more recent Washington Post editorial page notes that childhood poverty has declined from 28% in 1993 to 11% today.[update*] Why? Answer: Pandemic relief and some revisions to the child tax credit. If nothing else, this should tell us public policy, not academic success, shapes who is poor and who is not. If you doubt poverty is a problem, before the beginning of the pandemic, the Fed published a report saying 40% of Americans couldn't pay for a $400 emergency without selling something or borrowing. Sixty-five percent of seniors have only Social Security to fund their retirement. Public policy has managed to impoverish the American population.

If you think "that's only fair, American workers are less productive so they don't deserve a raise"...think again:

Crime

Poverty plays a role in crime too. U.S. population increased 42% from 1982 to 2017. U.S. spending on policing increased 187% during that period. During this period, Clinton and Newt Gingrich also turned AFDC into TANF, reducing welfare rolls dramatically. Before that transformation 76% of those needing public assistance got it. After: 26%. The attacks on the poor have been unrelenting.

There's good evidence that better welfare reduces crime significantly. It certainly makes sense that poor people would be less desperate if they had a good safety net. 

Nevertheless, panicky headlines aside, crime is in decline thanks to an aging population. So...do we have room to defund the police? Gee, we've only been spending four times as much as the population grew on Imperial Storm Troops...er, I mean cops. 

In California, police only solve 15% of crimes. Meanwhile, the very wealthy criminals on Wall Street who perpetrated what's arguably the largest theft in human history (the subprime/derivatives meltdown) are all free with slap-on-the-wrist fines. (Thanks Obama!) The FBI estimates white collar crime costs the economy $1 trillion annually. The "blue-collar" crimes of robbery, mugging, etc. cost $12 billion annually. Yet who gets punished? Doesn't justice include fairness too?

In Sacramento County, the jail is full, not of convicts, but people awaiting trial. You're not "innocent until proven guilty" in Sacramento, you're "incarcerated if you can't make bail." The people too poor to make bail are 60 - 80% of the County jail population.

The common term for this situation is "class warfare." Many people deny such a thing exists, but wealthy stock-picker Warren Buffet says we do have class warfare "and my class is winning."

Incidentally, why so many votes for Trump? Trump won 74 million votes, nearly five million more than any previous presidential candidate. Says Thomas Greene (from Noteworthy): “Trump will not be defeated by educating voters, by exposing his many foibles and inadequacies. Highlighting what’s wrong with him is futile; his supporters didn’t elect him because they mistook him for a competent administrator or a decent man. They’re angry, not stupid. Trump is an agent of disruption — indeed, of revenge.....Workers now sense that economic justice — a condition in which labor and capital recognize and value each other — is permanently out of reach; the class war is over and it was an absolute rout: insatiable parasites control everything now, and even drain us gratuitously as if exacting reparations for the money and effort they spent taming us. The economy itself, and the institutions protecting it, must be attacked, and actually crippled, to get the attention of the smug patricians in charge. Two decades of appealing to justice, proportion, and common decency have yielded nothing."

And if you think petty criminals and low-achieving students are not sensing the victory of the smug patricians, then I'd say you're overlooking an essential element of our current condition.

Rather than embrace a rather cheap remedy for crime--certainly cheaper than spending four times more on policing than population growth and building more prisons--U.S. public policy demonizes and attacks poor people. The U.S. currently has 5% of the world's population, but 25% of its prisoners. That's five times the world's per-capita average, and seven times the age-demographics-identical Canadian incarceration rate. So is crime way worse in Canada? Nope. About the same. "Lock 'em up and throw away the key" doesn't work and (bonus!) it's enormously expensive. America's motto is no longer e Pluribus Unum ("from many, one). It's "The beatings will continue until morale improves."

It's no accident that Canadian crime is relatively low, despite its relatively low incarceration rate. Among other things, Canada has single-payer healthcare while the U.S. records a half million medical bankruptcies annually and experiences an estimated 40,000 annual deaths because of the lack of access to healthcare. No Canadian has to start cooking meth to pay his spouse's medical bills (the plot of Breaking Bad). Oh yes, and single-payer is roughly half as expensive as what the U.S. enjoys in healthcare now, and it produces better outcomes, as I'm sure you know.

Poverty

So...my point is that poverty and its attendent problems have expanded massively thanks to some very subtle public policy changes, including those like raising Fed Funds rates that ensure continuing employment is always at uncertain. These changes have been backed by perfectly respectable economists and their theories. Polish economist Michal Kalecki calls this exploitive policy "Labor Discipline." The message Labor Discipline sends is this: "You had better take whatever crappy job is on offer, or you will suffer the indignity of poverty (and we'll make sure the public realm available to the poor is crappy too), perhaps even homelessness and starvation. And if you're extra ornery, we'll put you in a cage."

What public policy changed? For one thing Reagan cut taxes for the wealthy (the top marginal income tax brackets) roughly in half, and (less well publicized) with his successor raised payroll taxes eight-fold. This worsened the U.S. economic divide and impoverished large sectors of the population. The marketing of Reagan's policy was flawless, though. The Wall St. Journal called the Reagan recovery "Morning in America." Turns out Morning in America was an average business cycle recovery that enormously favored the rich.

How are the poor doing? Investigative reporter David Cay Johnstone reports that real, median income for the bottom 90% of incomes has increased by only $59 since 1972. If that were an inch on a bar graph, the bar for the top 10% would be 141 feet high. The bar for the top 0.1% would be five miles high.

That pervasive poverty is at the root of schools' underperformance, crime, and lots of other problems (homelessness, food insecurity, etc.). It's systemic, guided by public policy, not individual responsibility, and certainly not by the Fed funds rate.

Speaking of housing, the U.S. has experienced a massive increase in homelessness and unaffordable housing as the result of several public policy changes. Richard Nixon stopped the federal government building affordable housing, and Ronald Reagan--as he was cutting taxes on the wealthy roughly in half (justified as "trickle down")--reduced HUD's affordable housing budget by 75%.

It's not as though the country doesn’t have the resources--San Francisco has five times its homeless population in vacant homes. But we've started to believe that public policy is separate from the market, and the unregulated [genuflects] sacred market will always make the right decision. It’s a relatively unconscious subsidy for real estate speculation (as is prop 13).

The belief my brother states that "an intervention by the feds seems reasonable as a way of curbing the mindset that often happens when inflation starts spiraling out of control" is something straight out of Milton Friedman's playbook. It treats the Federal Reserve (our central bank) as the only potential problem solver, even though there are other, less-harmful alternatives. 

Yet so far the only public policy intervention currently under consideration is raising interest rates. That won’t cure COVID or solve these other supply problems. It will cause unemployment, and suppress any upward wage pressure. I'd suggest that endorsing the Fed's "hard-line approach" amounts to pushing a string. The Fed's policy is designed to keep employment insecure--but wages are not the problem. See the graph below.

“In a nutshell, wages are falling as corporate profits are rising. This chart shows the disparity as a percentage of total U.S. GDP. Since the mid-'70s, wages as a percentage of GDP have fallen 7%, while corporate profits have risen 7%” (Wealth Daily)



(Corporate profits are the blue line, wages are the red. The graph is from the St. Louis Fed.)

Among other remedies, we could curb house inflation by building housing with public money and diminish energy inflation by making peace in Ukraine.

Yes, I know governing can be done badly, but other countries demonstrate that is not the case universally, and it is not always the case here. Seventy-five percent of pharmaceutical innovations and 80% of the inventions in your iPhone are the result of government-funded research. So even our own government is not always clueless.

I always ask my right-wing (invariably white male) friends if they'd feel the same way about individual responsibility if they were born black and female in Somalia. My father told me that most of the wealthy people he knew were, in effect, born on third base, but they all wanted to act like they hit a triple. We often don't deserve our current circumstances, and neither do the poor. Taking care of even the undeserving is smart public policy, and the Christian thing to do. In light of all the scripture advising us to be loving and generous, Reverend William Barber says making Christianity about preventing gay marriage and abortion amounts to theological malpractice.

In any case, thinking of things systemically is both liberating (solutions are possible!) and discouraging (but we're doing everything in our power to ignore systemic solutions!).

So I encourage you to take a look at things systemically. Big systems do respond to small perturbations, too. This is called "The Butterfly Effect." A butterfly in the Amazon flaps her wings and through a series of causes and effects, triggers a hurricane. Even knowing the systemic nature of the problem, that little bit of consciousness, can be that small perturbation.

Ignorance and unconsciousness is not a winning life strategy. It's not even a good strategy to cross the living room without bumping into the furniture.

The idea that the stock market is a systemic process has been described even in older (heterodox) economics--e.g. Hyman Minsky. The very conditions of a rising market create behaviors that ultimately undermine stability. The new bit of business that started our correspondence is that modern physics, which can predict chaotic systems like the weather, can now predict market failures, and suggest market-correcting systemic remedies. That seems like a good thing, at least to me.

Steve Keen outlines several of these market-disequilibrium-correcting remedies in his latest (The New Economics: A Manifesto). None of the remedies include raising Fed Funds rates. 

There are plenty of examples of countries self-sabotaging throughout history. The U.S. is going through one now.

So...solutions are possible, just not available in conventional wisdom. The U.S. can alleviate poverty, promote justice, and make peace, not war if we look at reality using current tools rather than the DSGE models of orthodox economics that emanate from the 18th century.

Steve Keen notes that if you took a scientist from that 18th century to a modern lab, you would blow his mind. If you did the same thing with an economist from that same period, taking him to a modern economics class, he would feel right at home. The monopoly on public attention from such orthodox economists is what's deceptive, and even the "liberal" Sacramento Bee regularly publishes their theories and dire warnings. This serves the oligarchy, but not much else.

H.G. Wells said, "Civilization is a race between education and catastrophe." So far, humanity has been embracing catastrophe as a kind of cultural death wish. I'd sure like it if even some people could awaken from this nightmare...but I'm not counting on it.

Apologies if this offends, but it's something I've looked into and...who knows?...you might even agree (although I'm not holding out for that).

[* A recent splashy New York Times piece by Jason DeParle, based on a study using data from Columbia University, contained an eye-popping conclusion: American child poverty has fallen by nearly three-fifths over the past quarter-century, from 28 percent in 1993 to 11 percent in 2019. The principal mechanism was expansions of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), which provide money to some of the working poor. Sounds pretty good!

Unfortunately, these figures are simply inaccurate. As Matt Bruenig explains at the People’s Policy Project, the study assumes perfect uptake of these credits through a tax simulation, and we know for a fact that this isn’t true. Another study using IRS administrative data found that this assumption overstates the actual anti–child poverty effect of the EITC by 67 percent.…

The EITC in particular exemplifies all the pathologies of America’s default mode of policy. The first is the work requirement: The credit “phases in” starting at your first dollar of labor income, meaning if you don’t work that much, you get very little, and if you don’t work at all, you get nothing. That means for the very poorest people in the country—typically single mothers who only have access to jobs that don’t pay enough for child care—it is no help at all. And contrary to neoliberal notions of poor people being largely able-bodied adults who refuse to look for jobs, about 86 percent of people who don’t work are children, students, the elderly, or disabled—that is, people who either can’t work, or shouldn’t be working.

The second pathology is complexity and concomitant administrative burden. The EITC has a different phase-in schedule depending on whether you are single or married, or whether you have zero, one, two, or three or more children—eight different calculations may be required of applicants. That adds a large bureaucratic headache for both low-income tax filers (who often struggle to fill out complicated forms) and the IRS. That obstacle in turn prevents about 22 percent of eligible people from actually getting the benefit, and fuels a purely parasitic sector of tax prep firms, which about 60 percent of EITC recipients use. As Bruenig points out, the resulting fees eat up something like 13 to 22 percent of the average EITC benefit.]

[update #2: "Under today’s neoliberal system, the government allows employers to pay wages that are too low to survive on, and then the government uses taxpayer money to bail out the underpaid workers, with programs like the Earned Income Tax Credit (EITC)—a subsidy to poverty-wage workers—and in-kind benefits like food stamps and housing vouchers. The Labor Center at Berkeley has calculated that welfare for low-wage American workers costs taxpayers $150 billion each year. As Teresa Ghilarducci and Aida Farmand noted in The American Prospect in 2019, “The heavy reliance on the EITC, rather than the minimum wage and the strength of trade unions, is one major reason why the U.S. leads the OECD in the share of jobs that pay poverty wages—a full 25.3 percent of jobs are poverty jobs, compared to 3 percent of jobs in Norway.”"