MONEY real estate

NYC Apartment Building Will Have Separate Door for Lower Rent Tenants. What’s Up With That?

Rich door and poor door
New Yorkers are calling it the "poor door." Sarina Finkelstein—Marcus Lindström/Bronxgebiet/Getty Images

A new luxury high-rise on the Upper West Side of Manhattan will include a separate entrance for tenants in "affordable" housing units.

New York City has approved plans for a new luxury high-rise on the Upper West Side of Manhattan that will include a separate entrance for tenants in “affordable” housing, reports the New York Post. Even the conservative Post manages to see the class angle, calling this a plan for a “poor door.” (The quotation marks are the Post‘s.)

This controversy has been roiling in New York for a while. The Daily Mail unearths a 2013 quotation in a real-estate trade paper from the developer of another project (not the one on the West Side) defending separate entrances. It’s one for the ages:

‘No one ever said that the goal was full integration of these populations,’ said David Von Spreckelsen, senior vice president at Toll Brothers. ‘So now you have politicians talking about that, saying how horrible those back doors are. I think it’s unfair to expect very high-income homeowners who paid a fortune to live in their building to have to be in the same boat as low-income renters, who are very fortunate to live in a new building in a great neighborhood.’

Let’s keep the rich and not-so-rich in separate boats. Nice. You can make arguments for what the developers are doing here—here’s one—but, wow, that’s not it.

If you don’t live in New York and you aren’t familiar with the crazy real estate market here, this story might need a little translation. Your questions answered:

If the developers don’t want to mix different tenants, why include “affordable” units at all?

Because they are getting subsidies—pretty valuable ones—to build them.

There is not enough of any kind of housing in NYC, but housing for people with low-to-middle incomes is especially scarce. The long-term answer to that is to build lots more housing, and there’s a case to be made that building in NYC should just be a lot easier than it is. The fear on the other side is that new construction will mostly go to the luxury end of the market.

One stop-gap has been to encourage developers to encourage builders to include various kinds of affordable units in their projects. There may be tax benefits passed on to buyers of condos in buildings with affordable units, for example. The Upper West Side project, developed by a group called Extell, got zoning rights to build more units, says the blog West Side Rag, and Extell can sell those rights to other nearby developers.

West Side Rag also says the developer argues that, since the affordable units are in a separate part of the building, it legally must have its own entrance. That could have been avoided had the affordable units been mixed throughout the building. But this particular high-rise offers coveted views, including of the Hudson River. Spreading the units around would presumably have meant giving up some prime spots to affordable units, cutting profits for the developer.

What’s “affordable”?

To qualify for these units, a tenant would need to earn less than 60% of the area’s median income, adjusted for family size, says West Side Rag. For a family of four, that’s about $52,ooo a year. That’s twice the Federal poverty line and above the median U.S. household income, though making ends meet in NYC on that much, with a couple of kids, isn’t easy. That family could rent a two bedroom under this program for about $1,100 a month. So yeah, New York’s version of affordable is different than in other places.

MONEY Social Security

Why Taxing the Rich is the Wrong Way to Fix Social Security

ERROL FLYNN as Robin Hood
Errol Flynn, as Robin Hood, leading an early fight against income inequality. WARNER BROS/RGA/Ronald Grant Archive/Mary Evans—Everett Collection

It may feel good to jack up payments by wealthier earners, but Social Security is a safety net, not a tax collector.

How do you categorize the money that comes out of your paycheck to fund Social Security? Do you consider that deduction to be a tax, or a mandatory contribution into a retirement account, or an insurance premium?

For many people, the answer is a tax. That’s what I heard from the majority of readers who responded to my most recent column, “3 Ways to Fix Social Security and Medicare.” It’s an understandable view. After all, the Social Security payroll deduction is commonly referred to as a FICA tax. (FICA is the acronym for Federal Insurance Contributions Act.) And because it’s called a tax, these readers think that Social Security reforms should focus on making wealthier wage earners pay more into the system. Making all wage income subject to payroll taxes would solve between 75% and 80% of the system’s funding shortfall.

I don’t agree with this approach, as I’ll explain. Still, these readers have plenty of company, including some leading critics of Social Security, who argue that payroll taxes are less progressive than the federal income tax. Everyone who works in a job that is covered under Social Security rules pays the same rate: 7.65% of their earned income up to an annual ceiling of $117,000 in 2014; the level is increased annually for inflation. Employers pay another 7.65%. (These totals include 6.2% for Social Security and 1.45% for Medicare.)

The way Social Security’s benefits are designed, at this year’s $117,000 income level, you receive the maximum credit—those earning higher salaries would not qualify for any more benefits. That’s why requiring wealthier people to pay even higher taxes without any additional income would break the implicit bond between your contributions and the benefits you may receive. And the move would certainly undermine support for the program.

Whatever Social Security lacks in progressive taxation it more than makes up for in the benefits it pays out, which are heavily weighted toward lower earners. Here’s how: The program breaks a person’s lifetime earnings history into three dollar segments that are divided by so-called “bend points.” Adjusted annually for inflation, the bend points are $816 and $4,917 in 2014. For the first $816 of your lifetime average monthly Social Security earnings, 90% are credited toward your monthly benefits. Between $816 and $4,917 in earnings, only 32% are applied to benefit entitlements. And for average monthly lifetime earnings above $4,917, only 15% are counted in determining your monthly retirement benefit.

Add it all up, and lower-income retirees wind up with Social Security benefits that make up a much higher portion of their pre-retirement incomes, typically 50% or more, than wealthier households, which may receive less than 20% of income from these benefits.

That payout usually exceeds the amount that lower-income beneficiaries put in, according to research by the Urban Institute, a Washington non-profit. (That’s notwithstanding the mantra of groups pushing to protect and even expand Social Security: “It’s Your Money; You Paid for It.”) The difference between the amount lower-income households pay and the benefits they eventually receive comes out of the pockets of higher-paid workers.

Of course, balancing Social Security by jacking up payments by wealthier earners feels good to many people and may even seem fair. But let’s try a thought experiment. What if Social Security worked like a 401(k) plan—you contributed a percentage of your salary, often matched by an employer contribution, and the account grows tax-deferred until you withdrew it at retirement. If I put $5,000 a year into my 401(k), but you earn more and can put $20,000 into yours, is this unfair? Should some of your contributions be placed instead inside my 401(k) simply because you make more money?

If you think Social Security is different from a 401(k), then you must also be viewing it at least in part as a welfare program that should be taking assets from the top 10% and distributing them to the other 90%. I don’t share this view, but I would support boosting the earnings ceiling by a hefty amount. Payroll taxes used to catch 90% of all wages. After years of lopsided wage gains by wealthier persons, only a little more than 80% of wages is currently subject to payroll taxes. It would be a reasonable move to restore the original level of taxation.

Even so, Social Security’s primary mission is to provide retirement security—a safety net that would help keep aging Americans out of poverty. It was not supposed to be a tax collector. That’s why I think the best way to look at the program is as a form of insurance for longevity, rather than an investment that should give you a better-than-break-even rate of return.

So if you believe that wealthy people should pay higher taxes, change the tax code. Don’t look to Social Security to do this work for you.

The Committee for a Responsible Federal Budget, a Washington non-profit, has a Social Security calculator showing reform options and their impact. If you use this tool, we’d like to hear how you would reform Social Security, so please share your ideas. We’ve all got a stake in this.

Philip Moeller is an expert on retirement, aging and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

TIME Race

Study: Little Progress for African-American Men on Racial Equality Since 1970

Rates of incarceration and unemployment remain high

In recent years, the U.S. has celebrated the 50th anniversaries of the March on Washington, the Civil Rights Act and a number of other landmark accomplishments considered pivotal in making the U.S. a better place for African Americans.

But despite a deep reverence for those accomplishments, a new study suggests that African-American men today face such high levels of unemployment and incarceration that they are in little better position when compared with white men than a half-century ago.

The working paper, by University of Chicago researchers Derek Neal and Armin Rick, is based on preliminary findings and has not yet been peer-reviewed.

“The growth of incarceration rates among black men in recent decades combined with the sharp drop in black employment rates during the Great Recession have left most black men in a position relative to white men that is really no better than the position they occupied only a few years after the Civil Rights Act,” the study reads.

The study uses census data to show that more than 10% of black men in their 30s will be incarcerated at some point during a calendar year. This number was around 2% for white males of the same age group.

The study attributes the corrosive impact of incarceration on the African-American community, at least in part, to the institution of more punitive criminal-justice policies.

African-American men also appear to face a more difficult employment situation. More than a third of African-American men between the ages of 25 and 49 lacked employment in 2010.

“The Great Recession period of 2008–2010 was quite bleak for black men,” the study reads. “Recent levels of labor market inequality between black and white prime-age men are likely not materially different than those observed in 1970.”

[FiveThirtyEight]

TIME Terrorism

#BringBackOurGirls Still Hasn’t Brought Them Back

Nigerian mothers, with some girls who escaped Boko Haram, are covered in sheets to hide their identity Aderogba Obisesan—AFP/Getty Images

Some women escaped, but Boko Haram continues to kidnap and kill

Despite the encouraging news that 63 girls and women have reportedly escaped the grip of Boko Haram, the militant Islamic group still holds the more than 200 schoolgirls it kidnapped in April captive.

The hostages who escaped were taken from the Kummabza village on June 18 after four days of fighting, in which more than 30 of the village men were killed and all homes were burned. Vigilantes from the region now say 63 women and girls slipped away when the fighters guarding them were called out to help in an attack on military barracks and police headquarters in another town, Damboa, that was tougher than the terrorists had expected.

“The women seized that rare opportunity to escape when they realized they were alone in the camp,” Bukar Kyari, a local vigilante fighting Boko Haram in Maiduguri, the capital of Borno state, told CNN. “But we still have five women, including a nursing mother, missing.”

Meanwhile, in Chibok, the home of the schoolgirls whose April 14 kidnapping by the group sparked off the #bringbackourgirls campaign, things have not improved. According to a Nigerian newspaper, 50 people were killed and five churches razed there on June 29, when the town came under attack again. After the initial kidnappings, says the paper, about 20 soldiers were dispatched there. Villagers have opined they are not getting much support from their local government because Chibok is a mostly Christian town in a mostly Muslim region.

If we were to be Kanuri, the state government would have since come to our aid. – See more at: http://www.vanguardngr.com/2014/07/chibok-prone-boko-haram-attacks/#sthash.3HD51a1Z.dpuf
Speaking to our correspondent, a 66-year old resident, Mr. Ezekiel Inuwa, a retired civil servant but now living in Kautikari, and lost one of his sons in last Sunday deadly attacks on three communities in Chibok LGA, during church service that claimed over 50 lives, said, “If we were to be Kanuri, the state government would have since come to our aid. – See more at: http://www.vanguardngr.com/2014/07/chibok-prone-boko-haram-attacks/#sthash.3HD51a1Z.dpuf

The future looks increasingly difficult for the Chibok abductees the longer they are away. (At publication, they have been gone for 84 days.) If recent history is any guide, even if they return, they face a tough time resuming their former lives. If they come back with children, as other abductees have, those children will be considered tainted by their Boko Haram lineage. Even if they aren’t pregnant or mothers, the girls are quite likely to have difficulty finding husbands, as the suspicion of impurity tends to scare off suitors. (Notice how the returned abductees in the photo are covered in sheets to protect their identity.) In northern Nigeria, unmarried women do not have many options.

It’s purely speculation, but if the experience of the girls who were taken by the Lord’s Resistance Army in Uganda is any guide, the girls’ captors could very well use the threat of shame and alienation from the community as a method of dissuading their captives from running away. Some of the kidnapped Ugandan girls were gone for as long as a decade.

On Sunday, June 29, no fewer than 50 people, mostly Christian worshippers, were killed in Chibok, while five churches, including Cocin, EYN and Deeper Life Bible Church, in Kwada village, about 10 kilometres from Chibok LGA, were razed when some gunmen laid ambush to the village during church service. – See more at: http://www.vanguardngr.com/2014/07/chibok-prone-boko-haram-attacks/#sthash.3HD51a1Z.dpu
On Sunday, June 29, no fewer than 50 people, mostly Christian worshippers, were killed in Chibok, while five churches, including Cocin, EYN and Deeper Life Bible Church, in Kwada village, about 10 kilometres from Chibok LGA, were razed when some gunmen laid ambush to the village during church service. – See more at: http://www.vanguardngr.com/2014/07/chibok-prone-boko-haram-attacks/#sthash.3HD51a1Z.dpu
MONEY The Economy

Wealth Inequality Doubled Over Last 10 Years, Study Finds

An analysis by researchers at the University of Michigan shows a drastic increase in wealth inequality since 2003.

A new study finds wealth inequality among U.S. households has nearly doubled over the past decade.

The analysis, performed by researchers at the University of Michigan, shows households in the 95th percentile of net worth had 13 times the wealth of the median household in 2003. By 2013, this disparity had increased almost twofold, with the wealthiest 5% of Americans holding 24 times that of the median.

In dollars terms, the median wealth of a US household was $87,992 in 2003, and by 2013 had decreased 36% to $56,335. In contrast, the richest 10% actually saw their net worth increase from 2003 to 2013, with the highest gains going to the top 5%. The median wealth of the households in the top five percent grew over 12% during the same time period, from $1,192,639 to $1,364,834.

The study also shows similar wealth inequality growth between median and poor households. In 2013, the 50th percentile held 17.6 times the wealth of the least wealthy 25%—over twice the disparity found in 2003.

A principal reason for the rapid increase in wealth disparity over the last 10 years is the different ways various economic groups invest their money. According to the study’s lead author, Fabian T. Pfeffer, more than half of the median household’s wealth in 2007 was in home equity. By comparison, the median household in the richest 5th percentile held only 16% of their wealth in home equity, with the lion’s share being kept in real assets, including business assets (49%) and financial instruments like stocks and bonds (25%).

Pfeffer explains that because stocks have recovered more quickly than the real estate market—the S&P reached its pre-recession high in March of 2013, while home prices are still far from their 2006 peak—average households were hurt far more than richer Americans when the housing bubble popped. When home equity is excluded from household wealth, the impact of the housing crash on average Americans is especially clear. A median household’s total net worth declined by $42,000 between 2007 and 2013, but their wealth held in non-real estate assets declined by only $6,900. The Great Recession’s disproportionate impact on real estate allowed the richest households, who could afford to diversify their investments, to grow wealth even during a deflating housing market.

Source: YCharts

Another concern for middle class households is that many sold off investments during the recession in order meet expenses, and are now less able to enjoy the benefits of a recovering economy. “Part of the lack of recovery is that they [median American households] had to divest,” says Pfeffer. “The troubles will stay with them for the next couple of decades as they try to reclaim these assets.”

Will wealth inequality continue to increase at its current pace? Pfeffer believes it would take another deep recession for inequality to double again in the next 10 years, but says his research confirms what economists like best-selling author Thomas Piketty have been saying for years: that returns to capital have been increasing at a rapid pace over the last century, creating a persistently swelling gap between the wealth of the haves and the have-nots. “I don’t see many hopefully signs that we’re going to get back to where we were 10 years ago,” Pfeffer says.

Some have claimed inequality is less important as long as all Americans see wealth gains over time. The rich may get richer faster, but that might not matter if the poor and middle class are also seeing their wealth increase. Pfeffer disagrees. A rising tide may lift all boats, but the Michigan professor points out that wealth not only tends to determine political influence, but also that wealth inequality greatly affects the opportunities available to the children of the middle class, especially in terms of education. “The further families pull apart [in net worth], the more disparate the opportunities become for their offspring,” he says.

TIME Executive Pay

CEO Pay Tops $10-Million Mark

First time median passes $10-million threshold

+ READ ARTICLE

CEO pay had long since crossed the six and the seven-figure thresholds, but now it’s all about eight figures.

Median CEO pay hit a record high of $10.5 million in 2013, an 8.8% rise over 2012, according to a new joint study by the Associated Press and Equilar, an executive pay research firm. Compensation packages, buoyed by soaring stock prices, reaped the gains from the market. CEO pay continued its fourth consecutive year of gains since the recession.

The typical CEO now makes 257 times the salary of an average worker, the AP reports. In 2009, CEOs made an average of 181 times as much. More than two-thirds of CEOs in the S&P 500 received a pay raise, with the heads of banks receiving the biggest hikes, averaging 22%.

The highest-paid CEO, with a total payout of $68.3 million, was Anthony Petrello of Nabors Industries, an oil and gas drilling company.

[AP]

 

TIME Earnings

Swiss Voters Reject a $25 Minimum Wage

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A man arrives to casts his ballot during a referendum on May 18, 2014 in Bulle, western Switzerland. FABRICE COFFRINI—AFP/Getty Images

The country showed that minimum wage hikes, while generally popular, do have their outer limits

Swiss voters resoundingly rejected a bill on Sunday that would have vaulted the nation’s minimum wage to $25 an hour, the highest wage floor in the world.

The Minimum Wage Initiative, advocated by the Swiss Trades Union Confederation, suffered an overwhelming defeat at the polls, with 76% of Swiss voters opposing the bill. It marks an unusual defeat for a policy that typically polls well the world over.

In the US, 71% of voters back President Barack Obama’s proposal for a minimum wage hike. In Germany, 81% of voters supported a similar proposal from German Chancellor Angela Merkel.

But the scale of Switzerland’s proposed hike, vaulting it two times ahead of the most generous minimum wage rate in the world ($10.66 an hour, compliments of Luxembourg), clearly had Swiss voters on edge.

Untitled
Source: OECD

The referendum offers an interesting test case of where in the voters’ mind a wage hike leaves the realm of economic reality and soars into Alpine-high levels of wishful thinking. After all, if the Swiss bill became U.S. law tomorrow, it would require instant wage renegotiations for 620 occupations across the country, all of which pay less than $25 an hour on average. A sampling of those occupations is below.

MinWages
Source: Bureau of Labor Statistics

Workers in jobs ranging from flipping burgers to preparing taxes to writing articles like this one would be vaulted up the pay ladder, but would they be able to keep their jobs along the way?

Swiss voters registered their doubts at the polls on Sunday, effectively setting an outer boundary for public debates on wage floors – $10, yes, but $25? Come back down to earth.

TIME Religion

Pope Francis’ Tweet About Inequality Is the Wake-Up Call We All Need

It challenges us to fully recognize the equality of all and create conditions that reflect a total commitment to human dignity.

There is a common root to most (or perhaps all) grave forms of social injustice: the rejection of human equality and the influence of this rejection on human relationships and institutions.

Human persons are fundamentally equal in their worth and dignity. A person’s worth is not dependent on their lineage, how they fit in some utopian scheme, how much they produce or consume, their autonomy or independence, or their race, intelligence, age, religion, ethnicity, gender, sexual orientation, or socioeconomic status. Human worth is innate and cannot be forfeited. And it is equal in each person.

This is a radical notion. It cannot be reconciled with utilitarian thinking. It conflicts with the desires of many powerful people. It seems farcical if one is a strict materialist. It is not based on a person’s capacity to feel pain or engage in critical thinking or some other capricious standard.

This belief in human equality is rooted in the recognition that each person is made in the image of God. Each person is a loved child of God. Each person is called to communion with God and others.

When one recognizes this objective truth, the evil of inequality—of rejecting the equal worth of all and the treatment that necessarily corresponds with its recognition—can be seen as the true foundation of social injustice. It defines how we view our relationships with others and the social structures that exist (and have the capacity to either foster human flourishing or perpetuate injustice). One sees that social evil is rooted in the rejection of equality.

A belief in human equality leads one to recognize the obscenity of people starving while others live in excess. One can see the evil in human beings being used as sexual objects to satiate an individual’s animalistic impulses. Pride, lust, envy, and other sins are enabled and multiplied when equality is denied.

There becomes a way to “rationally” justify using children as human shields, terminating the life of one’s own child, remaining indifferent to people sleeping on the streets and living in abject poverty. People are enslaved, raped, murdered, persecuted, and subject to countless other forms of dehumanization and depersonalization when the fundamental equality of all is denied.

And this inequality and injustice fosters greater evil. High poverty rates can result in high crime rates. Repression and violence can produce endless cycles of conflict. As Pope Francis has written, “Just as goodness tends to spread, the toleration of evil, which is injustice, tends to expand its baneful influence and quietly to undermine any political and social system, no matter how solid it may appear.”

Is this what Pope Francis had in mind when he tweeted “Inequality is the root of social evil,” or was he more focused on the specific impact of economic inequality?

Unlike a considerable number of his critics (including those who pretend they aren’t critics), I think Pope Francis is almost always quite clear in his messaging. I’m pleased that the “what Francis really meant” industry seems to be dying down. But there is a bit of ambiguity in the tweet. Is it about economic inequality alone? If so, does it ignore other possible sources of injustice and social evil? Does it rule out the possibility that some level of economic inequality is inevitable and desirable if we prefer to not live under the communism of a totalitarian regime?

Ultimately, it’s not particularly important, as Pope Francis believes in this personalist understanding of human equality (thus his opposition to a ‘throwaway culture’) and, like his predecessors, recognizes the current reality of gross economic inequality—both across borders and within countries (which certainly includes the US)—as a serious obstacle to social justice and the common good. It’s a mistake to focus on the semantics rather than the core message.

In Evangelii Gaudium, Pope Francis uses language that is very similar to his tweet within the context of talking about the economy, saying, “Inequality is the root of social ills.” And he is not thinking of a hypothetical utopian free market but the state of the world today. He condemns the libertarian mindset that focuses so much on autonomy and individualism and calls for the creation of more just social structures and policies that address the structural causes of poverty. He is explicit in his rejection of an approach that relies too heavily on free markets: “We can no longer trust in the unseen forces and the invisible hand of the market.”

This is nothing new in Catholic Social Teaching. Pope Paul VI condemned the “flagrant inequalities” in both the enjoyment of possessions and the exercise of power. In Caritas in Veritate, Pope Benedict XVI writes, “The dignity of the individual and the demands of justice require, particularly today, that economic choices do not cause disparities in wealth to increase in an excessive and morally unacceptable manner.”

Pope Francis’ tweet should challenge everyone across the political and ideological spectrum. It challenges us to fully recognize the equality of all and create conditions that reflect a total commitment to human dignity. In particular it should challenge us to confront the injustice of economic inequality in our society and globally. While the challenge may be greater for those conservatives and libertarians who have embraced economic libertarianism, liberals and communitarians must be willing to abandon stale formulas and seek innovative strategies for ensuring that every person has access to those needs that are necessary for human flourishing.

Is economic inequality the root of social evil? Is the love of money really the root of all evil? This strong language is not an empirical claim to be taken literally or analyzed scientifically, but a wake-up call to open our eyes to the gravity of the threat economic inequality and injustice poses to human dignity and the common good. We would be wise to respond to this call to action rather than to fixate on the phrasing of the pope’s tweets.

Robert Christian is the editor of Millennial, and a PhD Candidate in Politics at The Catholic University of America. He is a senior fellow at Democrats For Life of America. This piece originally appeared on Millennial.

TIME

Here’s Why This Best-Selling Book Is Freaking Out the Super-Wealthy

FRANCE-ECONOMY-PIKETTY
Thomas Piketty FRED DUFOUR—AFP/Getty Images

There are many reasons why French academic Thomas Piketty’s 685-page tome, “Capital in the 21st Century,” has vaulted to the top of the Amazon.com best seller list and is being discussed with equal fervor by the world’s top economic policy makers and middle class Americans who wonder why they haven’t gotten a raise in years. The main reason is that it proves, irrefutably and clearly, what we’ve all suspected for some time now—the rich ARE getting richer compared to everyone else, and their wealth isn’t trickling down. In fact, it’s trickling up.

Piketty’s 15 years of painstaking data collection—he poured over centuries worth of tax records in places like France, the U.S., Germany, Japan and the U.K—provides clear proof that in lieu of major events like World Wars or government interventions like the New Deal, the rich take a greater and greater share of the world’s economic pie. That’s because the gains on capital (meaning, investments) outpace those on GDP. Result: people with lots of investments take a bigger chunk of the world’s wealth, relative to everyone else, with every passing year. The only time that really changes is when the rich lose a bundle (as they often do in times of global conflict) or growth gets jump started via rebuilding (as it sometimes does after wars).

This is particularly true in times of slow growth like what we’ve seen over the last few years. I’ve written any number of columns and blogs about how quantitative easing has buoyed the stock market, but not really provided the kind of kick that we needed to boost wage growth in the real economy, because it mostly benefits people who hold stocks–that’s the wealthiest 25 % of us. Meanwhile, consumption and wage growth remain stagnant. And as Piketty’s book makes so uncomfortably clear, it’s likely to get worse before it gets better. No wonder I saw an advertisement for a storage company on the subway the other day that read, “The French aristocracy didn’t see it coming, either.”

That’s one of Piketty’s biggest messages–inequality will slowly but surely undermine the population’s faith in the system. He doesn’t believe, as Marx did, that capitalism would simply burn itself out over time. In fact, he says that the more perfect and advanced markets become (at least, in economic terms), the better they work and the more fully they serve the rich. But he does believe that rising inequality leads to a less perfect union, and a likelihood of major social unrest that mirrors the sort that his native France went through in the late 1700s. Indeed, the subsequent detailed collection of wealth data in the form of elaborate income and tax records made France a particularly rich data collection ground for his book. (Bureaucracy is good for something!)

My feeling about this book is similar to that of New York Times’ columnist Paul Krugman. It’s going to be remembered as the economic tome of our era. Basically, Piketty has finally put to death, with data, the fallacies of trickle down economics and the Laffer curve, as well as the increasingly fantastical notion that we can all just bootstrap our way to the Forbes 400 list. It’s telling and important that Piketty credits his work to the fact that he didn’t forge his economic career in the States, as so many top thinkers do, because he was put off by the profession’s obsession with unrealistic mathematical models, which blossomed in the 1980s to the exclusion of almost all other ideas and disciplines, and the false ideologies that they were used to justify. “The truth is that economics should ever have sought to divorce itself from the other social sciences and can only advance in conjunction with them,” he argues.

Indeed, had more top economists followed the lead of other social scientists and ditched their black box models in favor of spending time in the field—meaning on Main Street, where trickle down theory hasn’t ever really worked—they might have come to the same conclusions that Piketty has. We can only hope that the politicians crafting today’s economic programs will take this book to heart.

TIME San Francisco

What The Twitter Tax Break Means For San Francisco

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AFP/Getty Images

A deal brokered between the city and the company is rankling residents

San Francisco Mayor Ed Lee and other city leaders stood on the third floor of a charity called St. Anthony’s on Friday morning, two stories above a bustling dining room where homeless residents were queuing up for hot meals. “This will be a day where we’re celebrating something,” said St. Anthony’s executive director Barry Stenger. “You won’t have tech companies and activists fighting each other about housing or something like that. Police won’t have to worry about separating somebody in a brawl.”

On the surface, they were all gathered to extoll the launch of a website called Link-SF, a portal that can connect those in need with the closest shelter, food or medical care. But that website was produced pro bono by a software company called Zendesk, in return for the same controversial tax break that inspired about 450 union members to protest outside Twitter’s headquarters earlier this month. That made the meeting a political opportunity for the mayor, a chance to prove that the tax break he brokered was paying off, and to emphasize that the tech companies bolstering the city’s economy aren’t so out-of-touch and navel-gazing as some residents believe—that they care about San Franciscans, not just profits.

“Services can now be accessed with the use of technology,” Lee said. “All the technology companies are registering that as they evolve, they want to be part of the success of the city.”

It was a far cry from the chants of the union protestors. “Twitter you’re no good,” they shouted, “pay your taxes like you should.”

The story of the so-called Twitter tax break goes back to 2011. The social media company, then located in a San Francisco neighborhood known as SoMa—the epicenter of startups—had told the city it was planning to relocate outside of town, where so many other tech giants are. Google, Facebook, LinkedIn, Apple and Yahoo might all be associated with the City by the Bay, but their main campuses are located south in Silicon Valley, where they do not have to funnel money into San Francisco coffers. Twitter said the deal-breaker was a payroll tax levied only inside city limits; with plans to double their staff, the company felt it couldn’t justify the cost, Colin Crowell, Twitter’s Vice President of Public Policy, said in a recent interview with TIME. “We were ready to go,” he said, “did not want to go.”

Twitter indicated it was interested in moving into a sprawling building on Market Street that had once housed a giant furniture mart full of showrooms and was virtually empty at the time. The mid-Market area, historically home to a thriving theater district, had become blighted over the years, with nearly one in every three storefronts sitting vacant. City officials saw Twitter as a potential “proof point” for other companies, that might draw more jobs and investment to the mid-Market artery. Lee, who was elected with the help of the tech industry, and other city leaders pushed for a compromise: for any company that agreed to locate in a specified geographic area around that building, the payroll tax would be waived for all new jobs they created for six years.

Angry residents continue to see the tax break as an example of politicians coddling the booming tech sector while many low-income residents are hurting—unable to afford skyrocketing rents that are in part pushed upward by well-paid tech workers flocking to town. “Twitter held San Francisco hostage,” Sarah Sherburn-Zimmer said at a recent meeting of housing rights advocates. At protests she helped organize this winter, people passed out fliers demanding that officials “End the two-tier system!” that many discontented citizens also see in the so-called Google buses, private shuttles currently using public bus stops for free. “As the city gives tax breaks and the use of public assets to rich tech companies for no measurable return,” the flier goes on, “evictions and rents continue to rise.”

A payroll tax is particularly problematic for a tech startup, Crowell said. Young tech businesses may have big ideas without any monetization plans and may need to go on a hiring spree before they start raking in money. Even during the time of its IPO this past November, Twitter hadn’t outlined any solid paths to profits. “The mayor and several supervisors recognized that this was a problem not just for Twitter but would be a problem for any similarly situated company like Twitter,” Crowell said. “It wasn’t just that we were saying it was bad.” With the break in place, Twitter agreed to move in and has since increased their local staff from 800 to 1,500. Prior to the IPO, the Securities and Exchange Commission estimated that the break could be worth up to $56 million; the city initially estimated that it would be worth $22 million.

Other businesses did indeed move in after Twitter and take advantage of the same deal, like the luxury-goods discount website One Kings Lane and music streaming service Spotify. Another handful announced that they’d be moving to the mid-Market area but not taking the break, such as sound company Dolby and Jack Dorsey’s Square. The area is showing signs of new life, with check cashing shops and shuttered storefronts now followed by upscale cafes that sell $65 beers. New tony apartment buildings are going up and construction workers are hammering away on renovations.

Mayor Ed Lee has zero regrets about the tax break. “I am absolutely convinced that Twitter would have moved out of the city. We would have lost not only the jobs that they had,” he told TIME for a magazine story in December, “but what they expected to create. … You look at the corridor, literally just two years ago, one of every three storefronts was vacant and dark, unattractive and blighted. Now you see the opposite. You see vibrancy, you see people walking along Market Street, wanting to be here, live here, work here, play here.”

But recent changes brought on by new investment also threaten to make the area less affordable for people and organizations that were there in pre-Twitter days. In the tax break’s wake came stories about nonprofits being priced out of the area, more familiarly know as the Tenderloin. Jeannie Kim, the owner of Sam’s Diner on Market Street, which has added servers to cater to new tech-worker crowds, sees the area as “definitely gentrifying.” Yes, there are more customers, she said, but prices for everything else are going up too. “It’s difficult because all these people are moving in, they have the money and paying $15 for breakfast is not a big deal,” she said. “But we also have people who work here and live here and they don’t make that kind of money.”

Companies that take part in the tax break deal also have to propose and agree to “community benefit agreements,” promises to help low-income neighbors in the Tenderloin—which some have taken to calling the “Twitterloin”—who would inevitably be affected by their presence. Creating Link-SF was satisfying part of Zendesk’s “CBA” from 2012. In their 2014 proposal, Twitter has vowed to send its employees out to volunteer in the area, provide pro bono legal assistance in eviction proceedings, donate at least $50,000 worth of computers and IT equipment to local schools and provide more than $300,000 worth of grants to groups like digital literacy non-profits.

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Katy Steinmetz / TIME

For many angry about the tax break, these seem like small efforts that distract from the real point: that a company which minted an estimated 1,600 instant millionaires in their IPO was given special treatment and isn’t paying “their fair share of taxes,” as one eviction protestor said. The union protestors argued that the cash the city isn’t getting from those companies should have been used to improve city services. “We want to get rid of the Twitter tax break,” City Supervisor David Campos recently told the San Francisco Examiner. “I don’t know a single worker who gets a tax break from City Hall.”

Twitter’s Crowell said that is just one perspective and not the one they take. “There are some who focus on what they believe is the lost tax revenue from all the companies participating in the temporary payroll tax exemption,” he said. “But if the limited tax exemption didn’t exist, there’d most likely be no revenue at all from these companies—because they wouldn’t have stayed in the city.” Plus, he says, given the philanthropic efforts and job creation spurred by companies like Twitter, “this is a net overall plus for the city.”

Companies like Twitter and city officials who supported the tax break felt validated by a 2012 vote, in which citizens opted to switch from a payroll-tax model to a tax on gross receipts. “It was universally recognized that taxing jobs is not a smart way to promote job creation,” Crowell said. The shift from the former model to the new one will begin this year and end in 2018. For many years, large businesses have had to pay a 1.5 percent tax on their payroll expenses.

On some level, anger about the Twitter tax break is really anger about much bigger issues like inequality and changes that are happening in the city as tech wealth explodes. “They’re natural tensions,” said Gaby Peña, a Twitter employee who lives in the Mission District. “As a city evolves, there’s always some people who will want it to stay the same, some people who will want it to change. So long as each community finds commonalities and solutions as opposed to dwelling on the tension, I think we can go ahead.”

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