Derek Thompson

Four long years after his first presidential oath of office, Barack Obama's second term begins in an uncomfortably familiar place. The U.S. unemployment rate is 7.8 percent, according to this morning's BLS report, the exact same number as on that cold, historic day in January 2009.

Like a final chapter that sums up all the themes of a long book, December's jobs report was practically archetypal. After averaging just over 150,000 net new jobs per month 2011 and just over 150,000 monthly jobs in 2012, we added 155,000 net new jobs last month. Practically nothing changed -- not the unemployment rate (7.8 percent), nor the number of unemployed people (12.2 million), nor the number of long-term unemployed (4.2 million), nor the employment-population ratio (58.6 percent).

There's an instinct to call these sort of jobs reports "boring." They might be for the journalists paid to write about them each month. But the better words for the real stakeholders -- the unemployed, and all workers whose wages would be get a boost from full(er) employment -- might be "deeply frustrating." Just because job creation is thermostatic doesn't mean we should be resigned to the number on the thermostat. One hundred and fifty thousand jobs isn't the number we deserve, but, at a moment when deficit showdowns have replaced a viable jobs policy, it's the number we've settled for.

Here are two facts about taxes under the fiscal cliff deal.

Fact One: This year, the 1 percent will pay more in taxes than in any year since 1979.

Fact Two: We're still not raising enough revenue for the next ten years. Total tax revenue for the next decade will be 18 percent or 18.5 percent of the overall economy. Okay, so that's not far from our historical average. But the next decade's spending demands are nothing like our historical average. We're entering a historically unique moment where we've promised to pay health care and retirement insurance to tens of millions of Boomers, and that will require more money than we're currently collecting for the government -- even if we means-test or change benefits.

Fact One suggests we might be through raising taxes on the rich. Fact Two suggests we're not through raising taxes in total. And both facts together suggest that the next tax increase will have to come from families further down the ladder. Maybe we'll start by raising rates or limiting deductions for the 98th and 97th percentiles, who are hardly middle class, but also hardly millionaires. Or maybe under Republican leadership we'll start by clearing out deductions that force lower-income families, many of whom don't owe positive federal income tax, to take fewer benefits.

Right now, Washington doesn't need more money and most families can scarcely afford to pay more in taxes without threatening the shallow recovery. Still, it's impractical to think that revenue as a share of GDP will stay this low after the economy improves and interest rates rise and Medicare and Medicaid costs swell for the retiring Boomer generation. Taxes will have to keep rising and we might be running out of space at the top. 

One of the most dangerous misconceptions about the economy right now is that rising student debt and stagnating middle class wages prove that college isn't "worth it" any more

We're pushing up against a cost crisis in higher education, where the escalating price of college isn't reflected in similarly escalating income gains for graduates. But the price of not attending college -- that is, the wage difference between college graduates and high school graduates -- has doubled in the last 30 years. That suggests that the fundamental crisis in college is not costs but, well, advertising --better information in the hands of undecided customers. Getting a degree at a good school has never been more important. The challenge is getting that information to families and teenagers who don't know it, yet.

Poorer families without former college-graduates typically don't have a good understanding of local colleges; the difference between listed tuition price and net cost; financial aid opportunities; or the admissions process. News stories about college being unaffordable only serve to justify their indifference toward continuing their education past high school, according to 2001 report by the Advisory Committee on Student Financial Assistance. A separate study found that low-income teens overestimate tuition costs by 100% and repeatedly underestimate the lifetime gains among university graduates.

So cheers to this simple and revelatory new study from the University of Toronto. Researchers Philip Oreopoulos and Ryan Dunn asked low-income high schoolers in Toronto to take two surveys about the perceived benefits of higher education. Half were shown a simple 3 minute video about the returns of college and asked to calculate their possible financial-aid. "Those exposed to the video, especially those initially unsure about their own educational attainment, reported significantly higher expected returns, lower concerns about costs, and expressed greater likelihood of PSE attainment," the authors reported.

If a 3-minute video about college's internal rate of return does not exactly sound like an incendiary breakthrough in innovation, that's understandable. But the difference it made in these students' impressions of college is a good reminder that a little information can go a long way. For all we study and write about college, the vast majority of the families applying (and not applying) to school have basically no idea how it's meant to pay off. Compared to the level of detail investors receive with a mortgage or a 401(k) plan, a two- or four-year degree is essentially a black hole of data.  

Here's a graph I made last year with help from Kevin Carey that compared the elite "US News" problem of wild tuition inflation among select schools to the "real college problem," which is that more than 60 percent of 21-year-olds aren't currently enrolled in college.

That 60 percent imposes real costs -- not just on themselves, but also on the country -- in the form of lower wages, lower tax revenue, and more welfare services and resources demanded from government. It's fine to point out that college isn't perfect for everybody, or that, like every investment, it has varying returns, or that taking out $120,000 in debt on an art history degree from a mid-level institution is a risky bet. But the obsessive media focus on these kind of stories distracts news audiences from the bigger picture. We have an education crisis in this country that starts with tens of millions of young people who are electing to cut short their education before or just after high school. Solving that crisis starts with information about the real returns to a smart college investment, not scare-mongering.

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The fiscal cliff is done. But the era of cliffs has just begun.

Last night, the House of Representatives signed off on a deal to avert the massive tax hikes and spending cuts known, nearly posthumously, as the "fiscal cliff." Today we are a presidential signature away from the official end of this absurd national nightmare. But did the president make a bad deal? Did he make a secretly ingenious deal? What's in it, anyway? Those are questions. These are our answers ...

What's in the fiscal cliff deal?

The Tweet-length version of this deal is: No more payroll tax holiday, higher taxes for the super-rich, and we'll figure out the rest later.

The centerpiece of the deal is an increase in the top marginal rate to 39.6 percent on all income over $400,000 (for individuals) and $450,000 (for families). It is the first major tax increase since the early 1990s. The other rates from the Bush tax cuts are made permanent. Here's how it changes our taxes.

The end of the payroll tax holiday will reduce take-home pay for lower-income families by hundreds of dollars. But the tax changes at the top are measured in the hundreds of thousands of dollars.

Also in taxes: the Alternative Minimum Tax is permanently "fixed"; high-earners will pay 20 percent on income from capital gains and dividends; high earners will be privy to fewer deductions and exemptions; the estate tax is trimmed; and more. Crucially for the jobless, unemployment insurance is extended for the rest of the year.

What's not in the deal is just as important: payroll taxes, spending cuts, and the debt limit. The payroll tax holiday is officially over. That means payroll taxes will rise by 2 percentage points on all workers. There are no spending cuts in the fiscal cliff deal. But there is also no guarantee to raise the debt limit, in the next two months. Republicans want to use the debt limit debate for force spending cuts. President Obama has repeatedly promised not to negotiate over the debt limit, since failing to raise it could trigger a financial crisis.

What's the best reason for us to like it?

Deficits won't kill the U.S. economy in 2013. But austerity might. In a weak economy, we want taxes low and short-term deficits high. This deal preserves both.

Don't think of the U.S. as having "a deficit crisis." That's too simple. Think of us as having three deficit challenges. In the short term, we need high deficits to support weak growth. In the medium term, we need higher revenue and slightly less spending. In the long term, we need to make health care more affordable -- not just for the government, but for everybody.

This deal doesn't fix our health care problem, but that's a multi-decade problem that we don't have to "fix" (as if we even could) in January 2013. This deal doesn't raise taxes as much as we ultimately need to, nor does it touch spending, but that's okay for now, because those are medium-term goals. In the short term, we need more jobs, more spending, more economic activity, especially around housing. High deficits can't save an economy. But austerity can strangle it.

What's the best reason to hate it?

The fiscal cliff was a triple-whammy: taxes, spending, and the debt limit. This deal resolves the first, and most pressing issue, which was the threat of rising taxes on every family in a weak economy. But the deal doesn't solve the other two whammies: the automatic spending cuts passed in the Budget Control Act of 2011 (aka: the sequester) and the debt ceiling. We punted both of those debates by two months.

The Media Metaphor Committee hasn't yet settled on a scary-and-not-even-really-accurate topographical analogy for these debates, but ... I don't know, Budget Mountain? Debt Valley? I'll get back to you tomorrow. The upshot is that the era of perpetual crisis in Washington is far from over.

I heard that this bill increases our deficits by $3.9 trillion in the next ten years. Is that true?

Sort of, but that's really the wrong way to think about it.

The fiscal cliff deal raises taxes by about $600 billion in the next ten years compared to an extension of 2012 tax policy. But if Congress had done nothing to avert the fiscal cliff, the Bush/Obama tax cuts would have expired and taxes would have gone up on everybody dramatically, sucking the economy into a short, sharp recession. Compared to that tax hike, this deal reduces revenue (or increases the deficit) by nearly $4 trillion. So the folks saying this deal increases the deficit by $4 trillion are sort of right. But they're comparing this deal to an alternate reality that was always utterly inconceivable.

What did the GOP win/lose?

The GOP wins the permanent extension of 80% of the Bush tax cuts. They lose (potentially) the leverage to force cuts to spending -- in particular, to entitlements -- this year.

What did the Democrats win/lose?

The Democrats win the first major tax increase in 20 years without trading spending cuts or entitlement changes. They lose hundreds of billions in revenue from the president's initial (and seemingly non-negotiable) offer to raise taxes. They also lost the opportunity to take the debt ceiling off the table. Obama says he won't negotiate over the debt ceiling. But liberals should be forgiven if they suspect the president is incapable of not negotiating.

What did deficit hawks win/lose?

They won the first bipartisan plan to raise revenue over current policy in two decades. But they lost the grand bargain.

If you had to give the deal a grade, what would you give it?

B-minus. The deal isn't bad, just incomplete. It fulfills two-thirds of a campaign promise to raise taxes, but it opens the door to more showdowns over the budget. It preserves tall deficits now, but doesn't aim for the ultimate grand bargain: trading long-term deficit reduction for short-term stimulus.

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If you were to design, from scratch, a gift-giving holiday to warm the hearts of the coolest classical economists, it would look nothing like December 25. But gift-giving rituals have never been about the economics of efficiency ...

In 1881, George Blankenshop, a Canadian bureaucrat surveying the Indian population around modern-day Vancouver, sent a scathing note to the Canadian government regarding a ceremony called "potlatch." 

Tribes would gather to distribute, and occasionally even destroy, their accumulated fortunes at a tremendous feast and celebration called "potlatch," an ancient Indian custom. Blankeshop, a businessman and a Christian, considered the practice a violation of Christian capitalism and suggested the Canadian government criminalize the ceremony. Three years later, Canada did just that, declaring that "every Indian or person who engages or assists in celebrating the Indian festival known as the 'potlatch' ... is guilty of a misdemeanor, and liable to imprisonment for a term not exceeding six months and not less than two months."

A Canadian bureaucrat tattle-telling on Pacific Northwest Indians is not the typical beginning to a Christmas story. But it's a fitting beginning to the story of why Christmas doesn't make any sense, from a pure and undistilled economic standpoint ... and also why its economic inefficiency is utterly besides the point when it comes to the holidays.

If you were to design, from scratch, a gift-giving holiday to warm the hearts of the coolest classical economists, it would look nothing like the blind gift-giving we see on December 25. It would look more like middle school allowance. Children would scamper downstairs to look under the Christmas tree to find ... cash. Or perhaps, slightly more sentimental, a holidays-themed check with a message in the Memo line: "Just go buy whatever you want, Love Santa."

When it comes to efficient gifts, cash is king. The Ur text of economic Scrooge-yness is Joe Waldfogel's glum treatise "The Deadweight Loss of Christmas," which proceeds, with devastatingly glum logic, to explain how much of our Christmas gifts to friends and loved ones are wasted (i.e. deadweight loss). The impulse to buy our friends and family actual gifts "destroys" up to a third of their value. Typical example: Grandma buys you for $100. For you, it's worth more like $70. If she'd given you five $20 bills instead, you'd have in your hands a gift every agreed was worth $100.

The most reasonable objection to this argument, in addition to it being a total killjoy, is that the full value of gifts isn't captured in how much the recipient values the gift, or in how much the gifter spends. Gifts feel good to give. And they feel good to get. The neurological benefits of what academics call "prosocial spending" (and non-academics call "buying stuff for my friends") aren't accounted for in Waldfogel's math. It's not his fault. They're just not calculable.

Even an awful I-would-not-wear-that-reindeer-monstrosity-if-the-rest-of-my-clothes-somehow-caught-fire-simultaneously sweater from your grandmother sends a sweet message. A gift is a signal: I know you. Money is just money. One hundred dollars in cash doesn't really say anything, except, "Hey, I just went to the ATM and asked the machine for $100, so here." 

Many people prefer gifts that are demonstrably impractical and inefficient. In his behavioral economic guide to gift-giving, The Atlantic's Jordan Weissmann pointed to a finding that women tend to prize gifts, especially from spouses, that were sentimental and extravagant and sometime simply impractical. Practical gifts can lack a certain romance.

Gift-giving rituals simply aren't about the economics of efficiency. They've always been about signaling and the emotional rewards that have zilch to do with the sticker price. Nineteenth-century Canadians didn't understand potlatch, but it was the Indians themselves who, in their response to the anti-potlatch law, made the case for prosocial spending that couldn't be defended on purely "capitalist" grounds: "We work for our money and like to spend it as we please, in gathering our friends together and giving them food to eat, and when we give blankets or money, we dance and sing ... the 'potlatch' does that."

So, this Christmas don't be a Waldfogel (or a Blankenshop). Give lavishly. When it comes to the holidays, our rituals are smarter -- even, you might say, more economic -- than economists think.

The most important graph of 2012? We asked around for some suggestions last week. We got 34 responses. This was mine. It answers the question: What share of each recovery since 1970 came from selling houses and cars?

The message is that home and car sales power recoveries. This recovery is different from all others because we just. Aren't. Selling. Enough. Houses.

That might be changing. With home prices rising, construction hours-worked recovering, and multi-family homes making a sustained comeback, 2013 could be the year our economy breaks out of "new normal" growth and gets back to "normal normal" growth.

Behind my optimism is a trend that doesn't get a lot of play in some corners of the financial press. It's household formation. Household means is a group of people living together. It can be six roommates, a four-person nuclear family plus a grandmother in the guest room, or a a young couple of two. Formation means one more of those categories. More formations is good news. It suggests more people getting jobs, getting apartments, getting married, having kids, and (in all likelihood) spending more money to furnish their new households and express their independence.

This recovery, however, has been a story of few jobs, crowded apartments, low marriage-rates, and low birthrates. It all comes down to households. In 2007, household formation (in RED) went horizontal, clearly diverging from our two-decade growth trend (graphs below via Credit Suisse):

Unemployment among Millennials is about twice the national average, and real wages for young people have declined outright since 2007. As a result, one in three older teens and twentysomethings reported moving back in with their parents. That means they weren't starting new households. They weren't paying rent, taking out mortgages, buying furniture, paying separate utility bills -- all of which fall under the Housing Category, which accounts for nearly a fifth of GDP.

Consider Florida, our fourth-largest state economy and perhaps the worst-hit by the housing crash. The graph below shows the percentage of 25- to 34-year-olds who head a household (renting or owning). "In 2006, half of Floridian young adults had their own place," Credit Suisse reports.  Five years later, 20 percent of that group had moved in with their parents or somebody else. That's an astounding demographic shock to a real-estate-centric economy.

Okay, but here's the good news. Household formation is miserable now, but it's projected to pick up for a simple reason: an improving economy is bound to encourage young people to get out, buy apartments, and get married, eventually. How fast they start gobbling up apartments and houses is unclear. But Credit Suisse makes three projections: No recovery (unlikely), strong recovery (possible), and consensus recovery (plausible). Here's the impact of each recovery speed on US household formation over the next year.

And here is how that would translate into more spending on houses (or "residential investment"). Basically, a strong household recovery would coincide with a residential investment boom that took us to 2005 highs.

Housing probably isn't going to snap back to its pre-bubble peak in the next year. But even normal growth in residential investment would be huge. If residential investment simply returns to its long-term average (going back to the 1990s), "it would add 1.7 percentage points to overall growth in the coming year," Neil Irwin reported for the Washington Post, which would put overall growth in the coming year at about 3.2% -- almost twice as strong as economic growth in 2011, the year that supplies most of these graphs' data.

Housing is the key. And it all starts with formation.

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Yesterday, the party of the 1 percent became the party of the 0.3 percent.

Six weeks after Republicans failed to get out the vote and learned they can't win as a party for the rich, exclusively, Republican leadership couldn't find the votes to raise taxes on millionaires. Who said elections have consequences?

There was never a remote chance that John Boehner's Plan B would become law. It was always a symbolic vote to let Republicans say they're willing to spare 99.7 percent of the country from a tax increase in 2013. Today, the GOP was hoping to stand before a pool of reporters and tell Democrats: It's on you, now.

Instead, opening night for this little bit of theater was a smashing disaster and the symbolism worked entirely in the opposite direction. It was Republicans who sent the message that they'd rather let taxes go up on everybody than raise taxes for the top 0.3 percent of households. It was Republicans who made the symbolic display that they care more about immediate spending cuts in a weak economy than building an off-ramp before the fiscal cliff. And it was Republicans who appeared to have utterly no idea how to cope with the new inescapable political reality that taxes are going up, no matter what.

Plan B was designed to fail, right from the start. In addition to raising taxes on millionaires (Kryptonite to Republicans) it also cut tax benefits for lower-income families (Kryptonite to Democrats). In fact, taxes would go up by hundreds of dollars for the typical family making less than $50,000, according to the Tax Policy Center. As you can see in the chart below, it's really only families making between $200,000 and $1,000,000 dollars (the 97th to 99.7th percentile of taxpayers) who would get a break under Plan B.*

Now there are two key dates going forward: January 1 and January 3. On January 1, we're off the cliff. On January 3, the House of Representatives holds the next election for Speaker. In an atmosphere of GOP dissent, Boehner might need Democrats for both votes. He doesn't have enough GOP support to pass a bill that raises taxes, and he might not have enough GOP support to control his own caucus on January 4. The first political reality is that taxes are going up, no matter what. The second political reality is that Boehner will need Democratic votes to pass legislation.

"We've got to make sure that we are not the party of big business, big banks, big Wall Street bailouts, big corporate loopholes, big anything," Louisiana Governor Bobby Jindal said in November. "We cannot be, we must not be, the party that simply protects the rich so they get to keep their toys."

Jindal's comments were both utterly right and devastatingly prescient. The country would benefit from a party with a conservative, market-driven approach to economic inequality and social mobility. One day, it just might get one. But yesterday, in an attempt to show off how reasonable Republicans could be, Boehner accidentally revealed the stark unreasonableness of a party that's defining itself by a smaller number every month. Yesterday, the party of the 1 percent became the party of the 0.3 percent.

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*I will neither rule out, neither will I endorse, the remote possibility that some Republicans resisted voting for Plan B for this reason.

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The New York Times' miraculous mega-multi-media feature "Snow Fall" is a triumph of reporting, design, and creativity. It was immediately hailed by much of the Internet as the "future of journalism." It's not. And that's okay.

If you haven't read the feature yet, do. It's something like magic -- a visceral adventure story about a deadly avalanche that feels more like an interactive documentary that happens to have paragraphs than a newspaper story that happens to have interactives. Particularly ingenious is a section where a map traces doomed skiers' paths down the mountain face as you scroll down the corresponding paragraphs. Further along, an animated video follows the contours of the avalanche sweeping down the same glade, with a clicking sound whose frequency indicates the changing speed of the barreling snow pack. Not just clever. Utterly ingenious.

It's also exhaustively labor-intensive and rare for a reason. The project took six months for John Branch to report. The credits (like I said, it's more like a textual documentary than a news story) include a graphics and design team of 11, a photographer, three video people, and a researcher. As Andrew Kueneman, deputy director of digital design at the Times, told the Atlantic Wire's Rebecca Greenfield, "This story was not produced in our normal CMS ... We don't have the luxury of doing this type of design typically on the web. Now we just have more options and more tools."

Journalists will continue to find more options and build more tools to astonish us. Stuff like this will get better and better and slightly more frequent, one hopes. But it won't become, generally speaking, frequent.

There is no feasible way to make six-month sixteen-person multimedia projects the day-to-day future of journalism, nor is there a need to. Think about this morning. The top national news story is John Boehner's failure to corral votes in the House for a plan to avoid the fiscal cliff. I'm sure there are clever ways to render that story interactively, but, really, why waste the time? Practically everything there is to say about the House GOP intransigence, the odds of a deal this year, the future of Boehner as speaker, and the Democrats' next steps can be said really well with paragraphs. And maybe a timeline. To borrow a construction from venture capital: Text isn't broken.

It's my suspicion that "Snow Fall" won't change the architecture of journalism any more than movies changed the architecture of novels. Some stories yield themselves to dynamic visuals, and most don't, and readers are okay with that. In fact, according to Pew Research, young mobile readers prefer a "print-like experience" over tech features like audio, video, and complex graphics. The emergence of mobile devices reinforces the power and the ease of old, boring, columns of text. For all the ways the Internet is molding our brains, we seem to like reading stories just like our grandparents did.

Give "Snow Fall" the respect it deserves. It doesn't need to bear the augury of "journalism of the future." It's just a rare and sensational gift for readers in the present. That's quite enough.

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Emma Gardner of the Economist Group presents a visual look back at digital publishing in 2012. No visual struck me more than the graph below showing the extent of devastation to newspaper print ad sales since 2006: $20 billion in annual revenue, down the drain. In that time, digital ad growth has erased only 2% of the losses. How dreadful. [Quarterly figures below.]

Where did the digital money go? It went to new online marketplaces, and apps, and sites. And Google. Yeah, basically the money went to Google. In 2006, Google made $60 billion less than U.S. newspapers and magazines. Now it makes more ad money than all of U.S. print media combined. Wow.

Today, Instagram updated its terms of service, and the Internet exploded. The new terms said that businesses could pay Instagram to display your photos "in connection with paid or sponsored content," Nilay Patel explains. So, Miller Lite can use your photos of bars to advertise itself on the site.

If that sounds like whatever to you, then stay away from the tech blogs, which spent Tuesday afternoon in apoplexy. All day, I could feel myself getting angry that everybody was getting angry, and I couldn't quite figure out why. I think this is why:

There's a brilliant Louis CK interview with Conan O'Brien from a few years back, where he recalls listening to an imaginary friend complaining about the hour-long wait before his plane takes off. Louis CK unloads: "Oh really, what happened next? Did you fly through the air incredibly like a bird? Did you partake in the miracle of human flight, you non-contributing zero? Wow, you're flying! It's amazing!"

"Everything's amazing," he concludes, "and nobody's happy."

What the heck does this have to do with Instagram? Getting there.

We live in interesting times in the start-up world. Bio-tech is in a rut. Hardware is risky and expensive. So many of the smartest and most creative entrepreneurs of their generation have dedicated their lives to making you things for free. They're writing software, or creating online marketplaces, for you. Free. Of. Charge. Think about that. Think about how their brilliant software delights you, makes you literally happy, fills your spare time, organizes your work time, invents convenience where you never expected it, swallows your boredom in sepia tones, begs hours of your precious attention, does a bunch of other emotionally and productively and ontologically rewarding stuff ... and almost all of it is either vanishingly cheap or utterly free! Not since the cavemen, probably, did the brightest minds in the world turn their attention to making things that nobody had to pay for.

This is rare gift, made possible by at least two things: The duplicability of code, which drives the price of most software products to zero, and subsides from venture capitalists, who are happy to bankroll these ingenious inventors until they figure out a business model. Oops. I said it. Business model. Yes, so we all know these businesses are in fact business. I won't insult your intelligence with the pedantic reminder that "if you're not paying, you're not the customer, you're the product." Blah blah blah. People get that, I think. But they hate feeling like the product. It degrades them. And so every time one of these "two-sided" companies announces that they need to start attracting the second side (advertisers) in order to keep things happy for the first side (users), there is a freak-out of biblical proportions.

When digital users enter into a contract with a free company, they should have various expectations, including but not limited to: a right to privacy; a right to fair warning of changes to privacy; and a right not to be treated like an unwitting commodity. But they need to develop other expectations, too: That the road to digital monetization leads through a murky and un-mastered terrain; that every large free digital company trying to navigate this road is going to employ strategies like sponsored content that will initially make some people feel uncomfortable; that the content and information we upload to a site will never be truly our own, exclusively; and that we will be asked to pay with the only currency employable on a free site, which is our attention. 

The bottom line is that Instagram is the easiest, most elegant, and most popular photo-taking and -sharing application ever, and that is an achievement worth more than $0.0. Don't worry. They're not selling your photos. Still, everything is amazing, and nobody's happy.

Six in seven households have received some sort of government benefit, according to a new survey from Pew Research Center. Here are some highlights from the report, plus some extra bits of context. These graphs focus on government spending, as opposed to tax benefits -- such as the Earned Income Tax Credit and the lower rate on investment income -- which can also be considered forms of "government assistance," since a dollar not taxed can perform a similar role to a dollar spent.
 
1. The big picture is bigger than 'the 47%.' Fully 55% of all Americans -- including a majority of those self-identifying as Democrats, Republicans, liberals, moderates, and conservatives -- have received benefits from one of these six federal programs: Social Security, Medicare, Medicaid, welfare (TANF), unemployment benefits, and food stamps (SNAP).
2. ... Actually, it's more than the 70%.  If you broaden to households rather than individuals: "71% of adults are part of a household that has benefited" from at least one of those six programs.

3. In fact, it's the 86%. After you add veteran benefits and college assistance, 70% of individuals -- and 86% of households -- receive a government benefit of some kind. Put differently, one in seven households doesn't receive assistance from the federal government.

4. The demographic breakdown. Federal assistance is more likely to go to women than men (61% vs. 49%); to blacks than whites or Hispanics (64% vs. 56% vs. 50%); and to rural residents than urban or suburban (62% vs. 54% vs. 53%).


6. Food Stamps are bigger than you think. You might not guess it from the relative attention paid to each program, but there are nearly as many people on Food Stamps (SNAP) as there are on Medicare.
7. But nothing's bigger than Social Security ... for now. Although Medicare and Medicaid are projected to grow faster than Social Security in the next ten (and, especially, twenty) years, SS is still the biggest benefit program from the federal government.

The fiscal cliff bargain is coming into focus and it starts with a blockbuster trade. Republicans are ready to place their sacred cow, tax rates for the rich, on the altar for sacrifice. In exchange, Democrats are ready to place their sacred cow, benefits for the elderly, on the altar, as well. Sacrifices all around. There is a Mayan joke here, somewhere.

The deal to avoid automatic tax increases and spending cuts in early 2013 was never going to please everybody. A little screaming was inevitable. It seems only fair, six weeks after the Democrats' decisive victories in the Senate and White House, that Republicans be asked to scream a bit louder about the final compromise. And we're on track for just that. Boehner has opened to the door to higher tax rates above $1 million. Democrats wanted higher tax rates above $250,000. Most of the difference can be bridged with limited deductions for the richest 2 percent or so. In return, Democrats are seriously considering a proposal to slow the growth of Social Security benefits by switching to a different measure of inflation (full explainer here).

Basically, this is a progressive tax increase in exchange for a progressive benefit cut. That's not a bad deal for Democrats. It might even be a good trade.

Liberals would prefer to get their tax increases without giving up anything on entitlements. Second to that fantasy, changing the way we measure inflation is probably the least bad entitlement reform acceptable. It protects the poor more than moving the retirement age for Social Security or Medicare, and it changes Social Security payments very, very slowly. [Update: To protect the very poor who live very long, the solution is simple: Low-income SS rebates, which the administration is already seeking.]

Here's how it would work. Seniors would get the same initial Social Security benefit that they are projected to receive today. But under the new proposal, the checks would grow slower, pegged to a more conservative measure of inflation. That sounds like it would hit low- and high-income recipients equally. But the richer half of the country that reaches the age of 65 can expect to live more than five years longer than the poorer half. Since older recipients will see the bigger cut over time, it's fair to say that slowing the growth of Social Security benefits is a barely progressive, but clearly progressive, cut.

The switch to a new "chained" consumer price index would cut Social Security benefits, by about $100 billion over 10 years. It would also raise taxes by about $60 billion. Under a slower-growing measure of inflation, more households would move into higher brackets, taxing their top dollars at higher rates. Measuring the distribution of tax changes under chained-CPI is a bit controversial, but Marc Goldwein and Adam Rosenberg calculated that "more than 40 percent of the additional revenues generated by the chained CPI would come from the top quintile."

Trading a clearly progressive tax hike for a marginally progressive spending cut should be an acceptable exchange. But it is not yet a *good deal.* Ezra Klein reports that unemployment benefits and a dash of extra infrastructure spending is forthcoming. Good news. But I'm miffed that the White House is reportedly giving up on the payroll tax cut, which is great stimulus, and the debt ceiling, which is an awful gimmick that has been used to squeeze further cuts from the White House.

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We have to talk about the gender wage gap in Ireland. It's the highest in the world. But there's a catch. It's not men earning more than women. It's women -- those without children, at least -- earning more than men.

Irish women without kids earn 17 percent more than the typical male worker, according to new research from the OECD. Along with Australia, Luxembourg, and the Netherlands, it is one of four rich countries where women without children report higher wages than men. The graph below shows that gender pay gap. In Germany, the U.S., Korea, and Japan, by comparison, childless women average between 3% and 24% lower wages than men.

Once kids enter the picture, the picture changes.

The second graph here is the same as the first, but with red bars showing the gender gap that emerges when you compare female workers with children (many of whom move to part-time jobs) to all men. In Australia, women without children out-earn men more than any other country except Ireland; but after children, the wage gap plunges to U.S.-levels.

That leads us to the final graph: The cost of kids. I wanted to calculate and show how far women's earnings fall behind men's after they have children in each of these countries. This graph has the answer. In the Netherlands, women work almost 2 hours more per day than men, and female employment has climbed to over 70% if you factor in part-time workers, the cost of having children is about 7 percentage points compared to male earnings. In Korea, where more married women are expected to leave their jobs and female participation rates haven't much budged for 20 years, according to OECD, female earnings plummet compared to men after kids.

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BONUS GRAPH: More from OECD for you stat heads...

This month's Atlantic magazine predicts that we are on the verge of a U.S.-based manufacturing renaissance, as companies see the advantages to making more goods at home, such as more control over the final product, lower energy costs from moving goods across an ocean, and a falling "wage gap."

Simply put, U.S. factory workers are a much better deal than they were just ten years ago.

Here is a T. Rowe Price graph of unit labor costs -- basically, that's a measure of how productive our manufacturing workers are -- which shows that U.S. has spent the last ten years gaining on some of our key trading partners. (When these lines are going down, that means U.S. factory workers are getting cheaper relative to the competition...)

... so that's exactly what's happened. Chinese workers used to be a huge discount for American companies. But they've lost half of that productivity discount to the U.S. in a decade. Canada and Germany have lost about 40% of their advantage.

As Alan Tonelson wrote out to James Fallows in an email published on our site, one would expect U.S. manufacturing to grow faster than a sluggish U.S. economy if it's truly in a renaissance (as it did in 2010 and 2011). Instead, GDP has grown by about 2% percent in 2012, while manufacturing output "has actually fallen - by 0.54 percent."

He's got a point. Long story short about U.S. manufacturing: It's had an awful half-century, an awful, awful last decade, a pretty good last two years, and a rough 2012 (much of it thanks to trouble with overseas markets as opposed to production problems inside our own borders.) But our cover stories don't guarantee that manufacturing will lead the next phase of the recovery, starting in January, but rather that there are unmissable trends that portend a shift of factory activity back to the U.S. in the next few years. I think that's right, too.

And here is one truly unmissable trend: U.S. manufacturing workers haven't been this good a bargain in decades.

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We don't yet know if today's tragedy in Connecticut will spark a national debate over gun control, or whether, like many massacres before it, it will fade quietly without leaving its mark on a single law. If the past is any indication, the public response to these shootings isn't what you might think.

Three graphs tell the story. The first, from Quartz, shows that public support for gun control doesn't go up after mass shootings in the US. In fact, it has repeatedly gone down. Those down-ticks are part of a growing public aversion to gun control that dates back to the early 1990s.

So most Americans are against gun control right? Not so fast. The second graph, from a truly spectacular post by Ezra Klein, shows that there is broad public support for specific gun control policies, in particular: background checks; gun registration; banning high-capacity clips; and banning semi-automatics.

As a principle, "gun control" isn't popular. But specific gun control laws have national support. Yet, it gets more complicated. Even the term "national support" belies demographic gaps.

While nearly every demo -- men, women, white, blacks, Democrats, Republicans, north, south -- is more likely to support gun rights today than in the early 1990s, it remains true that fewer than half of the following demographics are clearly anti-gun-ownership-rights, in general: women, blacks, Democrats, and northeast residents. More than 55% of men and Republicans recently told Pew it was more important to protect rights of Americans to own guns.

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Now we are engaged in a great tug-of-war over a few points in the top tax rate in Washington. But even if the White House pulls hardest, it won't amount to much of a victory for the long-suffering middle class. The sources of their income stagnation are too deep, too varied, and too long-term for Clinton-era tax rates to cure them.

"There is a huge amount of focus on progressive taxes in our policy world but progressive taxes are not much of a solution to this," said Lawrence Mishel, president of the left-leaning Economic Policy Institute. "We need to get unemployment down rapidly. We need to greatly change our labor standards. We need to raise the minimum wage."

He's right: The middle class crisis -- and its resulting income inequality -- is the most important economic story of our time. There are a million ways to tell it, and here's another: an annotated slide show, culled from the amazing 2012 edition of the State of Working America from EPI.

Here we go:

ANNOTATED CHART-GUIDE TO THE MIDDLE CLASS CRISIS

The income of a typical working-age family grew considerably in the late 1990s. Around 2000, it stopped growing. In 2007, it started falling.

Adding to the mystery is the remarkable de-coupling of productivity from real hourly compensation for all workers, including college graduates. The break seems to have occurred in the 1970s and accelerated very recently. Productivity grew steadily in the 2000s. Compensation didn't. It even hit a wall for college graduates.

Where did the gains from productivity go? Well, they went to the top. Household income, adjusted for inflation, has grown 12X more for the top 1% than for the middle 20% ... and 24X more than the bottom 20%.

The full story of income inequality cannot simply be told with wages, where the 40-year growth gap between the top 10% and the rest is "only" about two-to-one.

To understand the full story, you have to look at capital income -- from assets like housing and stocks and bonds. This is where income growth for the top 1% has positively exploded, taking income inequality to record highs.

This is not a new trend. This is an old trend going back to before the Reagan administration. Since 1979, the top 5% took home more than half of total income growth. The top 1% took nearly 40%.

EPI's conclusion that health care costs and technology have nothing to do with stagnating wages for the middle class is controversial (see here and here for other takes). But its diagnosis for the three "wage gaps" is still compelling. Slide here, graphs to follow.

First, let's look at the gap between the super-super rich and the rest. About 60% of the increase in the top 1%'s share of total income seems to come from the expansion of the financial sector and the explosion in executive pay in non-financial compensation.

At the same time that their incomes have grown, effective tax rates on the super-super rich have fallen, especially since our laws give preference to income from capital gains. This is huge, because the top 1% has controlled more than 40% of stock market wealth since the 1980s. The next 9% owns another 40%. Stock wealth hasn't exactly democratized.

Since 1960, average effective tax rates have fallen dramatically for the top 0.1% -- much of it thanks to preferences for capital gains income. Progressive taxation won't fix the middle class crisis, Mishel pointed out to me over the phone, but it can discourage sky-high CEO salaries and provide more public funds to pay for infrastructure, education, and a safety net.

  We're moving from the tippy-top of income to the very bottom here. As taxes have fallen at the top, the minimum wage has fallen at the bottom. In 1964, the minimum wage was about 50% of the average worker's hourly earnings. By 2011, that figure fell to 37%.

Although the minimum wage probably has a light effect on middle-class wages, it goes a long way toward explaining the falling market wages of the very poor -- especially among women, for whom it explains about two-third of the "50/10 wage gap" change in the last 40 years.

  Explaining the stagnation of the middle class is more complicated. According to EPI, the story begins in manufacturing, where trade with less developed nations (who can produce cheaper goods with cheaper labor) hurt wages among the non-college-educated class that once relied on manufacturing jobs.

As manufacturing eroded, so did unions, whose coverage fell from 27% in the early 1970s to just 13% in the late 2000s. Without unions, middle class workers without skills to move into higher-paying jobs lacked the collective power to bargain for higher wages.

An under-rated source of income growth for the middle class in the last 30 years, in face of slow-growing hourly wages, has been increased hours and the rise of dual-earner households, where the mother and father supplement each others' income. As a result, household income might actually *understate* the middle-class crisis by counting the rising participation of women.

Upshot: Middle-class household income grew by about 19 percent between 1979 and 2007. But after accounting for rising health care costs ($1 buys less care every year), subtracting government transfers like unemployment insurance, and adjusting for rising hours worked ... you find that middle-class household income actually grew by only 4.9% across four decades.

So, there's your crisis. And it's not something we can fix with a tax tweak for the top 2%.

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Attention publishers: For all the attention given to "bold rich multi-media experiences," young mobile news readers still prefer stories the way their great-great-grandparents did: In columns of text.

In the eyes of employers, marketers, and brand gurus, Generation Y tends to be treated like a separate species, forged in the primordial stew of Internet, whose habits are so positively alien to the rest of the country that they've inspired a cottage industry: The How-Do-You-Solve-a-Problem-Like-Millennials? genre.

But a new report from the Pew Research Center (pdf) suggests that, when it comes to reading the news on mobile devices, young people aren't so different. First, they use their tablets and smartphones to read the news at nearly identical rates to 30- and 40-somethings. According to Pew, between 30 and 50 percent of practically every demographic, except seniors, uses mobile phones and tablets to read news -- whether it's men or women, college-educated or not, making less than $30,000 per year or more than $75,000. All told: Thirtysomethings and fortysomethings are just as likely as teens and twentysomethings to use their smartphones and tablets for news.

There are some small differences. Men are more likely to read longer articles. Women are more likely to use social media. Non-whites are more likely to watch videos. But the trends are consistent across the under-50 demographic. When it comes to reading the news, Millennials aren't the unique demographic. Seniors who haven't transitioned from print are.

Here's another surprise. Young mobile readers don't want apps and mobile browsers that look like the future. They want apps that look like the past: 58% of those under 50, and 60% of Millennials, prefer a "print-like experience" over tech features like audio, video, and complex graphics. That preference toward plain text "tends to hold up across age, gender and other groups." Pew reports: "Those under 40 prefer the print-like experience to the same degree as those 40 and over."

Publishers be warned: For all the attention given to *rich multi-media experiences* news-readers still enjoy reading the news the way their great-grandparents did: In columns of paragraphs.

Let's close with some happy news for digital publishers: Young people, especially non-whites, are considerably more likely to interact with ads on tablets than older readers (smartphones, with their impossible small screens and awful AdMob invaders, remain a separate challenge). Interested in text paragraphs and receptive to advertising? Maybe Millennials are easier than we thought.

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What if I told you we could raise taxes, cut entitlement spending, and break the cliff stalemate for good, by changing one obscure policy? Ladies and gentlemen: Meet chained CPI.

If you're growing weary of the fiscal cliff, I do not blame you. Budget deals can be powerfully wearying stuff. But they are rarely as complicated as they seem from a distance.

Take, for example, the new proposal that some Republicans and Democrats think might end this terrible cliff showdown for good. It would involve a simple change to the way we measure cost-of-living. The proposal is called chained consumer price index -- or chained CPI.

Please don't run away. Yes, this sounds like an awfully fusty and complicated idea. That's somewhat the point, as Matt Yglesias mischievously points out, since fusty and complicated ideas are the least likely to raise the ire of voters who don't understand them. But chained CPI, in addition to being key to a budget deal, is also simple to understand.

LESS SPENDING, MORE REVENUE

Each year, wages and prices tend to go up. You know that already. But by how much? Washington needs to know. Social Security checks are supposed to grow each year to keep up with the cost of living, and tax brackets are supposed to go up each year to avoid a stealth tax increase on households.

Today, Washington tracks cost-of-living changes with various inflation measures that calculate the price of a "basket of goods." That's good for keeping track of a finite set of prices. But what if people start buying stuff outside that small basket? A classic example: If the price of romaine lettuce skyrockets, today's inflation measure assumes your salads get much more expensive, and your cost-of-living would go up. In the real world, though, maybe we'd just buy more iceberg lettuce. Maybe we'd stop eating salad, altogether.

The simple idea is that Washington measures inflation too generously. It assumes that people don't substitute similar goods when one thing gets too expensive.

The solution is to build a "chain" between each month's basket of goods to provide "a more realistic measure of inflation," Marc Goldwein explained. This "chained" index would offer a more accurate picture of what consumers are actually buying. But we're not just changing measures for measurement's sake. It would also save between $200 billion and $300 billion over the next decade by very, very slowly cutting Social Security and raising taxes.

It's easy to see why a "more accurate" (i.e.: slower-growing) inflation measure would cut Social Security. Social Security recipients get a first check based on their life earnings. That check grows with inflation. Slower-rising inflation adjustments means slower-rising Social Security payments.

What does CPI have to do with tax revenue? Inflation touches wages, too: $50,000 in 1980 is $140,000 today. Nobody wants to tax middle-class families like they make 3X their income. So, as wages rise, the IRS raises tax brackets to keep up. But under a slower-growing measure of inflation, the IRS would keep up less. Some households would pass into higher brackets than they otherwise would. Their top dollars would be taxed at higher rates. Revenue would rise. Deficits would fall.

All told, chaining CPI would cut Social Security spending by about $112 billion in the next decade and taxes would go up by about $90 billion. The compounded savings, including on interest payments, would be about $300 billion. They would look like this:

A GOOD IDEA?

Putting a chain on CPI has attracted support from Republicans who'd like to cut Social Security, Democrats who want to appear receptive to entitlement fixes, and moderates everywhere who argue that our current inflation measure is too generous.

They all might be right.

But while some have argued that "chained CPI" isn't a spending cut or tax increase, it's clear that the outcome of chained CPI is, unavoidably, spending cuts and tax increases. It cuts Social Security the most for the people who live the longest (they do tend to be richer) and it raises taxes moderately on workers who earn a wage that is close to a new tax bracket. There is a real risk that low-income seniors who live long lives could see smaller Social Security checks than they would today. But if this moderate and slow-moving deficit saver is the linchpin to an otherwise fair deal, Republicans and Democrats can do much worse than adopting a chained CPI.

The unemployment rate in November fell to 7.7%, the lowest since the last full month of President George W. Bush's presidency. The economy added 146,000 jobs (97,000 if you count revisions to the last few months). That's basically equal to our 2012 average of 157,000 net new jobs per month ... which is basically equal to our 2011 average of 153,000 net new jobs per month.

Yes, this was a pretty average jobs report. But if the numbers hold -- in light of Hurricane Sandy and the fiscal cliff and trouble with manufacturing in response to iffy global demand -- this pretty-average report amounts to better-than-average news for the economy heading into 2013.

Beneath the roiling month-to-month numbers, the last two years have seen static, calm, and steady growth. The economy expanded by 1.8% annually for 24 months while we gained 150,000 jobs per month across eight seasons.

The Bureau of Labor Statistics produces this report from two separate surveys. The jobs-added figure comes from a survey of firms. The unemployment rate comes from a survey of households. While today's jobs-added figure was a pleasant surprise, the unemployment rate fell for a more disturbing reason. Half a million people left the workforce.

Why is our workforce shrinking even as the number of workers are growing? That sounds like a paradox. It's more like a simple math problem. America is getting older. More people are retiring as a share of the economy, because the boomer generation is bigger than the younger Generation X. Add to that the long-term trend of men working less -- read Jonathan Rauch on the decline the middle-class man -- and the continued weakness of the economy that might be discouraging some able-bodied men and women, and you've got your answer.

"Gangnam Style" is the most popular YouTube video of all-time. But its nearly 900 million views have made its artist, the K-pop sensation Psy, just $870,000, according to AV Club.

But don't cry for Psy. His single still managed to make more than $8 million in international downloads, endorsements, and commercials. This is the graph that tells you how a global dance sensation makes $8 million:

Clearly, the economics of superstars is alive and well in music. But just as it has for journalism, the Internet's effect on music has been to expand its reach far beyond its capacity to expand its revenue. The fact that a billion listens isn't even worth a million dollars tells two clear stories: Music has never been better for the people who listen to it -- and it's hardly been worse for the people who make it.