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Wednesday, February 27, 2019

Randy Wray: Response to Doug Henwood’s Trolling on MMT in Jacobin [feedly]

I will have to read more on MMT to make a judgement. but the Minsky part on full employment is the only "full employment under capitalism"  theory I know (or, more correctly, half capitalism, half socialism),

Ditto everything Wray says re: Henwood

Randy Wray: Response to Doug Henwood's Trolling on MMT in Jacobin
https://www.nakedcapitalism.com/2019/02/randy-wray-response-doug-henwoods-trolling-mmt-jacobin.html

Randy Wray: Response to Doug Henwood's Trolling on MMT in Jacobin

Yves here. Wray saves one of his best lines for late in the article: "As Kelton puts it, people like Henwood think money grows on rich people." But boy, is it a hard slog to deal with people who refuse to deal with MMT in good faith.

By Randy Wray. Originally published at New Economic Perspectives

Doug Henwood has posted up at Jacobinan MMT critique that amounts to little more than a character assassination. It is what I'd expect of him in his reincarnation as a Neoliberal critic of progressive thought. (https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping). It adopts all the usual troll methodology: guilt by association, taking statements out of context, and paraphrasing (wrongly) without citation.

According to Henwood, MMT is tainted by Warren Mosler's experience as a hedge fund manager. Beardsley Ruml (father of tax withholding and chairman of the NYFed, who argued correctly that "taxes for revenue are obsolete") is dismissed because he was chair of Macy's (and Director of the NYFed—Macy's still has a director on the NYFed) andbecause he argued that the corporate tax is a bad tax (his main arguments were later advanced by Musgrave&Musgravethetextbookon public finance, by Hyman Minsky, and by me in the second edition of my Primer).

Oh, Ruml must not know anything about either taxes or central banking because he was a corporate stooge. Never mind that he was a New Dealer who helped to organize the New Deal plans for projects all over the country. And a PhD who authored several books and who was the Dean of Social Sciences at the University of Chicago. He must be an ignoramus when it comes to taxes and central banking because he does not adopt Henwood's belief that the sovereign government of the United States must rely on the taxes that come from corporations and rich folk. Such is the depth of Henwood's argument against MMT. It amounts to little more than a series of baseless ad hominemattacks.

I used to respect Henwood in his earlier role as editor of the Left Business Observerand indeed we enjoyed a good relationship, often corresponding on progressive issues. He disappeared from the scene some decades ago and I thought he had died. However, he reappeared recently as a troll arguing in blog commentary against MMT. His rants were largely incoherent and as we say in economics, orthogonal to anything MMT actually says. He has apparently suffered the fate of many aging Marxists—after years of fighting the good fight against capitalism they realize they've accomplished little and decide to instead engage the progressives on the argument that all is hopeless.

Apparently, Jacobinassigned to him the task of destroying MMT. My name is mentioned 17 times in Henwood's article—I think that is more than anyone else. The magazine is publishing the attack without any offer of a response. That is quite typical when it comes to diatribes against MMT—dating all the way back to my first book in 1998 (Understanding Modern Money—the first academic book on MMT. The editor of the main Post Keynesian journal published a critique of the book—by Perry Mehrling, someone with no Post Keynesian credentials–without giving me an opportunity to respond in the same issue, and then declined to even let me have a response in a later issue. This is the way academics has dealt with MMT from the beginning—any critique, no matter how groundless, will be featured and no response will be allowed. And so it goes.

As Jacobindid not give me a chance to respond, I'm penning this for NEP. These are my responses and none of the other MMTers Henwood has trolled in his piece should be implicated. I'm sure that all of them—Kelton, Tcherneva, Mosler, Tymoigne, Fullwiler, Dantas, Galbraith, and Mitchell—can defend themselves ably and with more nuance and respect than I can. Me, I detest trolls and I cannot hide my distaste.

In any event, here are some of the topics I would address if I had been given a chance to respond.

  1. According to Henwood, Wray does not discuss the role of private money (and financial institutions) in the private economy. Henwood claims "absent" from Wray's work "is any sense of what money means in the private economy". In fact, My 1990 book (Money and Credit in Capitalist Economies"is one of the foundational books in the endogenous money literature (that Henwood discusses favorably). My work before and after that book has focused on the private financial sector and includes hundreds of articles, chapters, and books on the topic—including a book co-authored with Tymoigne on the global financial crisis (The Rise and Fall of Money Manager Capitalism, Routledge 2014), and a recent book on Minsky's approach to finance (Why Minsky Matters, Princeton, 2015). I'd wager that there are vanishingly few authors who have written more on the private banking system than me, and along with Bill Black, few who have taken such a critical perspective of private banking as practiced.
  2. In one place, Henwood seems to backtrack a bit, writing "Wray, who once wrote a book on the topic, now dismisses endogenous money as a "trivial advance" next to MMT". Yes, I do argue that in retrospect the endogenous money literature is trivial for several reasons. First, the modern endogenous money research (that began seriously around 1980) largely just recovered the pre-Friedmanian views that were common in the 1920s (and that were never lost in the UK); second the endogenous money approach was rather quickly adopted by heterodoxy; and third all the central banks of the rich, developed countries have also adopted the endogenous money approach. The policy recommendation that comes out of it is to direct central banks to target interest rates, not reserves or money supply. Central banks had usuallyadopted interest rates, anyway, outside of the relatively brief Monetarist experiment that began under Chairman Volcker—and although it is true that mainstream economists had taught that central banks could choose money targets, they recognized that if both the IS and LM curves are stable, choosing a money target is formally equivalent to choosing an interest rate target. By contrast, we have been pushing the MMT approach to fiscal finance since the early 1990s and it still remains highly controversial—and still attracts the same comments from trolls and others, like Bill Gates and Austin Goolsby who both recently announced "that's crazy!". Why? Because the implications of understanding fiscal finance are huge. By comparison, the implications of endogenous money are trivial—which is why it was relatively easy to get the theory adopted.
  3. Wray supposedly "shies away from" discussing use of tax increases to counter inflationary pressures. While I am (and MMT in general is) skeptical of use of discretionary tax hikes to fight inflation, we strongly support progressive income taxes that will automatically rise in a boom. MMT also supports use of a JG to cause government spending to rise countercyclically (rising in a downturn as workers are shed from the private sector and falling in an expansion). Together, these can help to stabilize spending and income at the aggregate level. We also argue that the countercyclical swings of employment in the JG pool can act as a bufferstock to help stabilize wages. If there were a prolonged stretch of inflation we would—of course—recommend pro-actively raising taxes and/or reducing spending. We've been very clear on this. Our argument has always been that a JG and progressive tax system help to stabilize aggregate demand, wages, and prices but if that is not sufficient, government still has at its disposal the usual methods of fighting inflation—everything except using unemployment (since austerity will not increase unemployment but will instead increase employment in the JG).
  4. According to Henwood "Wray has said MMT is compatible with a libertarian, small government view of the world". Yes, the descriptive part of MMT accurately describes how sovereign currency systems work, and such knowledge can be used by Austrians or Marxists to better understand the world they want to change. MMT proponents, however, are mostly progressives, who are not content with merely explaining the world but more importantly want to radically change it. Hence, we do have policy proposals—proposals that I expect both Austrians and Marxist will hate, such as the JG. As I've written before, it is strange that the far right and far left come together in favoring unemployment over employment in a JG. One of those strange but true alliances against progressive policy. Austrians oppose the JG on the basis that it expands the role of government; some of the Left opposes it because the JG ameliorates suffering, presumably reducing recruits for the coming revolution.
  5. Henwood: "Wray's explanation of the Weimar hyperinflation, one of the most dazzling of all time, is odd. The deficits, Wray explained in his book, were caused by the inflation, not the other way round." Yes, that is true; Henwood adopts the Monetarist explanation that "too much money" causes inflation. He confuses causation and correlation. Severe supply constraints can push up prices, increasing the amount of money that needs to be created both publicly and privately to finance purchases. Tax revenues fall behind spending so a deficit opens up as spending tries to keep pace with inflation. The money stock is a residual and it will grow rapidly with hyperinflation. That does not mean it is the cause. Mitchell has closely examined the hyperinflation cases from the MMT perspective; the argument is not at all odd and has the advantage that it is fact-based, unlike Henwood's Monetarist linking of money and inflation that has been so thoroughly discredited that even central bankers have dropped it.
  6. Henwood proclaims: "MMTers like Mitchell and Wray write as if borrowing abroad is just a bad choice, and not something forced on subordinate economies" and then goes on to argue that Mosler is "wrong" when he says that Turkey can buy capital equipment in its own currency (lira). Henwood does not understand foreign exchange markets—anyone (including Henwood) can exchange Turkish Lira for either dollars or euros in foreign exchange markets—including at airport counters around the world. Turkey can exchange lira for dollars to pay for imports of capital. (Might that affect exchange rates? Possibly. That is why floating the currency is important.) Nor does MMT argue that "borrowing abroad" is a "bad choice"—if that means issuing domestic currency debt held by foreigners. What we argue is that issuing debt in a foreign currency is a bad choice for any country that can issue its own currency. I'd go even further and argue that any country with its own currency should prohibit its government from issuing debt in a foreign currency, or from guaranteeing any such debt issued by its domestic firms. However, if private entities want to issue debt in foreign currencies, I do not necessarily advocate preventing that. What about the special case of a country that issues a currency that cannot be exchanged in forex markets (remember, Henwood wrongly proclaimed that Turkey is such a country—here I'm not talking about Turkey or any of the other many countries which do have currencies listed in forex markets; for a list of exchange rates of the 150 or so convertible currencies from the Aruban Florin to the Zambian Kwach, go here: https://www.oanda.com/currency/converter/)? I think it is most likely a mistake to issue debt in a foreign currency unless there is an identified source of the forex that will be needed to service the debt (for example, dedicated forex earned from exports). If you cannot exchange your currency in forex markets, and cannot earn forex, your best bet is international charity. Indebtedness in foreign currency will be a disaster.
  7. Henwood claims: "MMTers will sometimes say they want to tax the rich because they're too rich, but Wray said at a recent conference that he sees no point in framing the issue as taxing the rich to expand public services — presumably because government doesn't need to tax to spend" and has "has written that taxing the rich is "a fool's errand" because of their political power". The first part of that is correct—we do not need to tax the rich in order to expand public services. The second is dishonest reporting. He does not include a citation but what I actually argued is that trying to reduce inequality using taxes is not likely to be successful—because the rich influence the tax code and get exemptions. Like Rick Wolff, I argue for "predistribution"—prevent the growth of excessive income and wealth by controlling payments of high salaries in the first place. Eliminate the practices that lead to inequality—such as huge compensation for top management of public companies. I do like high taxes on high income and high wealth. I have argued they should be set so high as to be confiscatory. Not at a marginal income tax rate of 70%, but at 99%. Or even 125%. Or 1000%. Take it all. I am not confident that the effective tax rate will ever be that high—due to the exemptions the rich will write into the code—but we that doesn't mean we shouldn't aspire for better. It is amusing that Henwood refers to the barriers of "political power" when it suits his purpose (for example when he talks about the political infeasibility of the job guarantee) but objects if I notice that it is politically difficult to tax rich folks. All I'm arguing is that a) we don't need tax money to pay for the programs we want, and b) high tax rates on the rich, alone, will not be sufficient in our struggle to reduce inequality.
  8. He writes "Tymoigne and Wray's response to Palley barely addressed any of his substantive points" and Henwood objects to our mention of a video where Palley argued against the job guarantee because if poor people in South Africa got jobs they'd want food and that might increase imports and even cause inflation. First, we responded to Palley's critiques in 43 different places in that paper, including responding in detail to nine long quotes where we let him speak for himself (unlike Henwood, who loosely—often wrongly—paraphrases our arguments, often with no citations at all). The video is not an outlier—it is Palley's often repeated position. Given a choice, Palley prefers low inflation over jobs and income for the poor. He is perhaps the only Post Keynesian who still uses the ISLM framework augmented by a Phillips Curve. (For those who don't know what that framework is, it is the "bastardized" version of Keynesian economics that helped open the door to Neoliberalism.) I have been at meetings where Palley urged the AFL-CIO to forget about arguing for full employment because of the danger of inflation. That was not in 1974 or even in 1979 when there actually was some inflation. No, it was a generation later. Like the Neoliberals, Palley is still fighting the inflation battle decades after the danger disappeared. Henwood is free to defend that Neoliberal position if he likes, but it is disingenuous to criticize us for linking to a video where Palley makes his own case for the position he is well-known to hold.

Henwood and Jacobin align themselves against the new wave of activists who have embraced MMT and the Job Guarantee as integral to the Green New Deal program. These new progressives want to tax rich people, too, not because Uncle Sam needs the money but because the rich are too rich.

Henwood wants us to believe that Government needs inequality. We've got to cater to the rich. They get to veto our progressive policies. If there weren't rich folk, we'd never be able to afford a New Deal. We only get the policies they are willing to fund. If we actually did tax away their riches, government would go broke.

As Kelton puts it, people like Henwood think money grows on rich people.

For far too long left-leaning Democrats have had a close symbiotic relationship with the rich. They've needed the "good" rich folk, like George Soros, Bill Gates, Warren Buffet, Bob Rubin, to fund their think tanks and political campaigns. The centrist Clinton wing, has repaid the generosity of Wall Street's neoliberals with deregulation that allowed the CEOs to shovel money to themselves, vastly increasing inequality and their own power. And they in turn rewarded Hillary—who by her own account accepted whatever money they would throw in her direction.

Today's progressives won't fall into that trap. "How ya gonna pay for it?" Through a budget authorization. Uncle Sam can afford it without the help of the rich.

And, by the way, they're going to tax you anyway, because you've got too much—too much income, too much wealth, too much power. What will we do with the tax revenue? Burn it. Uncle Sam doesn't need your money.

In reality, taxes just lead to debits to bank accounts. We'll just knock 3 or 5 zeros off the accounts of the rich. Of course, double entry bookkeeping means we also need to knock zeros off the debts held by the rich—so we'll wipe zeros off the student loan debts, the mortgage debts, the auto loan debts, and the credit card debts of American households. Yes, debt cancellation, too.

The new breed of progressive politician—represented by Bernie and Alexandria—doesn't need corporate funding, either. And they certainly don't need Henwood's scolding.


 -- via my feedly newsfeed

Tuesday, February 26, 2019

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Trump, Trade and the Advantage of Autocrats [feedly]

Trump, Trade and the Advantage of Autocrats
https://www.nytimes.com/2019/02/25/opinion/trump-trade-china.html

There's been some good news on global trade lately: A full-scale U.S.-China trade war appears to be on hold, and may be avoided altogether.

The bad news is that if we do make a trade deal with China, it will basically be because the Chinese are offering Donald Trump a personal political payoff. At the same time, a much more dangerous trade conflict with Europe is looming. And the Europeans, who still have this peculiar thing called rule of law, can't bribe their way to trade peace.

The background: Last year the Trump administration imposed tariffs on a wide range of Chinese products, covering more than half of China's exports to the United States. But that might have been only the beginning: Trump had threatened to impose much higher tariffs on $200 billion of Chinese exports starting this Friday.

What was the motivation for these tariffs? Remarkably, there doesn't seem to be any strong constituency demanding protectionism; if anything, major industries have been lobbying against Trump's trade moves, and the stock market clearly dislikes trade conflict, going down when tensions rise and recovering when they ease.



So trade conflict is essentially Trump's personal vendetta — one that he is able to pursue because U.S. international trade law gives the president enormous discretion to impose tariffs on a variety of grounds. Predicting trade policy is therefore about figuring out what's going on in one man's mind.

Now, there are real reasons for the U.S. to be angry at China, and demand policy changes. Above all, China notoriously violates the spirit of international trade rules, de facto restricting foreign companies' access to its market unless they hand over valuable technology. So you could make a case for U.S. pressure on China — coordinated with other advanced economies! — to stop that practice.

But there has been little evidence that Trump is interested in dealing with the real China problem. I was at a trade policy conference over the weekend where experts were asked what Trump really wants; the most popular answer was "tweetable deliveries."

Sure enough, Trump has been crowing about what he portrays as big Chinese concessions, which all seem to involve China's government ordering companies to buy U.S. agricultural products. In particular, the postponement of the trade war came after a Chinese pledge to buy 10 million tons of soybeans. This will please farmers, although it's far from clear that it will even make up for the losses they've suffered from previous Trump actions.

The point, however, is that what China is offering doesn't at all get at the real U.S. national interests at stake. All it does is give Trump something to tweet about.




Oh, and by the way: China's biggest bank, which happens to be majority-owned by the Chinese government, currently occupies three whole floors in the Trump Tower in Manhattan. It has been planning to reduce its space; it will be interesting to see what happens to that plan now.

Meanwhile, the U.S. Commerce Department has prepared a report on imports of European automobiles that, according to the German press, concludes that these imports pose a threat to national security.

If this sounds ridiculous, that's because it is. Indeed, while the Europeans aren't angels, they do abide by global rules, and it's hard to accuse them of any major trade sins. Yes, they do have 10 percent tariffs on U.S. cars — but we impose 25 percent tariffs on their light trucks, which makes us more than even.

But a department headed by perhaps the most corrupt commerce secretary in history will, of course, conclude whatever Trump wants it to conclude. And this report gives the president the legal authority to get us into a trade war with the European Union.

If it happens, this trade war will be immensely damaging. The E.U. is America's biggest export market, directly accounting for around 2.6 million jobs. Moreover, our economies are very much intermeshed — which is why even the U.S. auto industryis horrified at the possibility that Trump will impose tariffs on cars.

But here's the thing: Unlike the Chinese government, the E.U. can't order private companies to make splashy purchases of U.S. goods. And it certainly can't steer business to Trump Organization properties. As a result, the chances of spiraling trade conflict remain high.

The point is that when it comes to dealing with Trump and his team, autocracies have an advantage over democracies that follow the rule of law. And trade disputes are arguably the least of it.
 -- via my feedly newsfeed

cepr: A Green New Deal is Fiscally Responsible. Climate Inaction is Not [feedly]

A Green New Deal is Fiscally Responsible. Climate Inaction is Not
http://cepr.net/publications/op-eds-columns/a-green-new-deal-is-fiscally-responsible-climate-inaction-is-not

In the coming days, the Senate majority leader, Mitch McConnell, plans to hold a vote on the Green New Deal resolution recently introduced by congresswoman Alexandria Ocasio-Cortez (D-NY) and Senator Edward Markey (D-MA). Despite polls showing broad bipartisan support for a Green New Deal, McConnell hopes his ploy will divide Democrats and boost the GOP talking point that the plan is fiscally irresponsible.

While McConnell and other critics seem to think that they can defeat the Green New Deal by repeating a tired mantra – "we can't afford to do it" – the real question is: how can we afford not to? Without bold action to tackle climate change, toxic pollution and economic and racial inequity, our society will only see rising fiscal burdens. A Green New Deal would not only help us avoid mounting costs – it also would stimulate broad-based demand in the economy by investing in real drivers of economic prosperity: workers and communities. That's in stark contrast to the GOP's expensive recent policy priority – the nearly $2tn tax cuts of 2018 – which did little more than enrich stateless mega-corporations and the wealthiest investors.

A Green New Deal is first and foremost about justice – prioritizing working people, communities of color and others who bear the brunt of stagnant wages, polluted air and water, and climate impacts. It's about acting at the speed and scale that equity and science demand. But if opponents want to debate the plan's straight economic merits, Green New Deal backers should welcome the opportunity. The plan is also about fiscal foresight.

While some people talk about the costs of climate change as far-off hypotheticals, there's growing evidence that costs are already here. On 6 February, the National Oceanic and Atmospheric Administration and NASA released findings that climate change impacts in 2018 directly resulted in 247 deaths and $91bn in damages. The longer-term fiscal implications are also becoming clearer. In November, 13 US federal agencies reported that, under current emissions trajectories, the US economy would bear more than $500bn per year in costs due to labor and agricultural losses, sea level rise and extreme weather impacts by the end of the century. This annual half-trillion-dollar burden didn't account for many unpredictable second-order costs of climate change, like the implications of mass forced migrations driven by water scarcity and flooding. These are risks that the Pentagon has been highlighting for a decade.

A Green New Deal would help to seriously reduce climate pollution and cut these long-term liabilities, whether by supporting a transition to 100% clean energy, expanding access to clean public transportation, or spurring innovation in clean manufacturing. While some impacts of climate change are now inevitable, a Green New Deal also would help communities mitigate costly damage by investing in urban green spaces to prevent flooding, restoring wetlands to buffer hurricanes, protecting houses from forest fires, and shielding coastlines from sea level rise. In addition to supporting community resilience, this would reduce long-run costs for the federal government and for the states and municipalities that tend to shoulder the biggest burdens in emergencies.

Of course, a Green New Deal isn't just about managing risks – it's also about creating economic opportunities. The plan would create millions of jobs with family-sustaining wages for workers whose inflation-adjusted pay hasn't budged since the 1970s. Whether replacing lead pipes, weatherizing homes, manufacturing components for light rail, or rehabilitating damaged ecosystems, a Green New Deal would put money in the pockets of the workers who are most impacted by rising economic inequality. Given that low-income workers tend to spend more of their available money than the wealthy, this targeted effort to boost working class wages would strengthen growth, reduce the income gap, and ultimately improve the nation's economic fundamentals.

Even people who deny the evidence that inequality is slowing economic growth must admit that a Green New Deal would address other long-term liabilities. The plan would invest in the kinds of infrastructure upgrades that nearly everyone agrees are needed – not only to create good jobs, slash pollution and build community resilience, but also to support economic growth. Renewal of our energy, water and transportation infrastructure is long overdue – and today's low borrowing costs make the investment all the more prudent. Looking to the long-term, a Green New Deal also would spur innovation and growth in advanced manufacturing through policies like "Buy Clean" that direct tax dollars for public projects to the most efficient, least polluting forms of production.

Contrast these forward-looking investments with a spending deal that many opponents of a Green New Deal so ardently championed: the Republican tax cuts of 2018. While backers of the GOP tax package billed it as a vision of fiscal responsibility – a program that would "pay for itself" according to the treasury secretary, Steve Mnuchin – the nonpartisan Congressional Budget Office estimates the deal will now add $1.9tn to the national debt over a decade.

And it's not as if this money has gone toward solving real challenges. Much of the large sum has gone to share buybacks that serve one purpose: lining the pockets of the richest investors. Recent economic analysis show that the short-term stimulus effect of the tax cuts has now been mostly exhausted.

Some in the GOP seem to think that fiscal responsibility means spending billions to prop up the financial interests of billionaires and corporate polluters. A Green New Deal offers a better definition: laying the groundwork for a more vibrant and equitable economy that sustains the communities and physical resources on which our society is built.

Mitch McConnell and fossil fuel lobbyists are hiding behind flimsy talking points to justify the costly path of continued inaction on climate and inequality. Backers of a Green New Deal should stand up to this hypocrisy and reclaim the mantle of real social and economic responsibility.


Justin Talbot-Zorn is the senior advisor for policy and strategy at the Center for Economic and Policy Research. Ben Beachy is the director of the Sierra Club's Living Economy Program. Rhiana Gunn-Wright is the policy director for New Consensus.


 -- via my feedly newsfeed

Monday, February 25, 2019

Jobs and Medicare for All [feedly]

A VERY important point, here, by Jack Metzgar  He highlights the precise issue in Medicare for All that Haunts the Green New Deal Resolution. What about the losers in the transitions and big reforms contemplated, and deemed "necessary". Who will pay the insurance industry workers the $58, 000 THEY need to make a manageable, not traumatic transition. Same with the GND resolution. Put the JOBS and INCOME protections and enhancements UP FRONT. Otherwise, as Brother Metzgar notes, the doors to backlash are opened. The losers costs are gonna be paid, paid, paid in one form or another. Pay them up front! That way you get more support, not division. Same with approaches to Amazon, IMO, btwl 
. Accept, that with change, there will be losers. Pay them. Make them winners.


Jobs and Medicare for All
https://workingclassstudies.wordpress.com/2019/02/25/jobs-medicare-for-all/

You can tell that Medicare for All is becoming a real possibility when it gets a rigorous cost-benefit analysis and when its advocates start seriously raising and addressing the inevitable downsides of the policy.  There is no greater downside to Medicare for All than the 1.8 million clerical and administrative jobs it will eliminate in the insurance industry and in health providers' offices.

In their nearly 200-page Economic Analysis of Medicare for All, researchers at the Political Economy Research Institute (PERI) at the University of Massachusetts provide a thorough cost-benefit analysis of Senator Bernie Sanders' proposal (Senate Bill 1804). And for the first time they've estimated the likely magnitude and character of jobs that will be lost and have taken a first crack at suggesting what to do about that job loss.  I want to critique their "just transition" program for these workers, but before I get to that, let me first marvel at the level of detail in their analysis.

It's an important moment.  Medicare for All is no longer just a fine sentiment, but a real policy with all the nuts and bolts and messiness of things that are real.  The PERI analysis is rightly focused on how much the new system will cost and how to pay for it.  They figure it will cost the government about $1 trillion a year above current costs, with nearly 60% of that being paid by employer contributions that will be lower than they are currently paying.  The rest is paid for with a sales tax on non-necessities, a small wealth tax, and taxing capital gains as ordinary income.  In the long-run, though more expensive for the government, Medicare for All will reduce the country's overall health expenditures by about $500 billion a year. Most of the savings will go to workers and households in lower premiums and out-of-pocket costs.  Plus, of course, everybody will be assured of access to the health care they need – a huge direct benefit to the more than one-third of us who are uninsured or underinsured while providing everyday peace of mind and life-planning stability, as well as more take-home pay, for all of us.

As the study is at pains to point out, however, the transition from the current system, which is both wasteful and of mediocre quality, to Medicare for All will be tricky.  The bulk of the savings comes from the dramatic reduction in paperwork and administration that will result from eliminating private health insurance. But this also means a huge job loss over a 2- to 4-year period – about 800,000 jobs in the insurance industry and a little more than 1 million in doctors' offices, clinics, hospitals, and other health providers.

The PERI analysis profiles these workforces by occupations, average wages, ages, educational credentials, and racial and gender composition. That analysis shows the median wage in health insurance is $54,400 but only about $39,400 in health care administration, where 92% of workers are women compared with only 55% in insurance.  The level of statistical detail PERI produces on these workers is itself refreshing, and is fairly rare in not treating dislocated workers as after-thoughts at best and chaff at worst – as so many industrial and extractive workers have been treated in public policy in the past.

It is also refreshing that the PERI authors insist on a "just transition" and open up that discussion.  Their program would use ERISA, the federal government regulatory agency for private pensions, to ensure that health insurance companies and providers cannot raid their currently solvent pension funds, thereby guaranteeing all workers their current pension benefits.  In addition, of the 1.8 million displaced workers, nearly 300,000 are 60 years or older and that part of the workforce is treated very generously – they will be paid 100% of their current salaries until age 65 if they choose to retire.

But the rest of the plan, though probably the most generous ever proposed for dislocated workers, is not just enough, and it leaves Medicare for All subject to political backlashes that could be offset by a more thorough program. It leaves about 1.5 million displaced workers, who would be guaranteed one-year's salary and would receive $10,000 each to pay for education or training and $10,000 each to cover relocation expenses.  This is historically generous, but it is not enough primarily because the American system of training is an ill-coordinated mess about which workers are highly, and rightly, cynical.  In the Rust Belt, for example, so-called Trade Adjustment Assistance training programs have been notoriously poorly funded and have often led not to jobs but to flooded labor markets for specific occupations, thereby pulling down wages in those occupations.  Likewise, the relocation assistance is very generous money-wise, but the U.S. does not have a nationally coordinated employment system that helps workers find out where they might be needed elsewhere in the country.  So, though very generous, the PERI proposal pretty much throws money at displaced workers and tells them to figure out what to do on their own.  Without a nationally coordinated training and employment system, I fear this "just transition" will be rightly seen as merely "buying off while selling out" these workers.  What's more, helping workers relocate does nothing for the communities those workers are leaving – an issue especially important in places where insurance or health care is concentrated, like Connecticut for insurance and Pittsburgh for health care.

What is needed is a jobs program for these (and other) workers – that is, a systematic effort to create and stimulate job creation.  Here's where Medicare for All could meet with a now widely discussed Green New Deal, which would create more than a million jobs.  However, these jobs, primarily in construction and manufacturing, are likely to disproportionately benefit men, while the dislocated workers in health and insurance administration are 75% women.

For administrative workers displaced by Medicare for All, we need a plan that matches existing skills with the training needed for jobs that can be productively created.  Maybe House Democrats could commission an audit of the number and kind of government jobs that are needed to greatly improve our government's functioning at all levels – beginning perhaps with the jobs that would support a competent national system of training and employment.  Or maybe create more positions like those 50,000 Internal Revenue Service auditors who would produce six times their own salaries by tracking down some of the $400 billion in tax fraud and avoidance that occurs each year.  Likewise, most federal and state government agencies are understaffed to adequately perform their jobs, often purposely so because of decades of Republican budget cuts.  And rare is the teachers' strike today that doesn't document the crying need for more librarians, social workers, and nurses, as well as for smaller class sizes that would require more teachers.  A 10% increase in government workers at all levels, phased in over a four-year period, would produce more than 2 million jobs.

I have no idea whether an increase of that magnitude would be realistic or desirable, but that's what an audit of employment needs would provide.  What I am sure of, however, is that even the generous amounts of money provided in the PERI proposal are political liabilities – not only among workers directly affected and their friends and neighbors, but also for all those who are sick to death of hearing about "retraining and relocation" that is almost always nothing but a tragically ineffective sop, something politicians say to make us think they care.  We need plans that provide training for specific jobs that we know are being created, with at least some jobs that can be located in places that need them most.

The Sanders bill and the PERI analysis, pushed by nurses' and other unions who have built a social movement for health care as a right, are making Medicare for All a real possibility.  But there is still time for them to design a much more just transition for the workers who will be dislocated so that all of us can enjoy better, cheaper, and more secure health care.

Jack Metzgar

Editor's Note:  An excellent summary of the PERI analysis is available in a video interview with chief author Robert Pollin at Common Dreams.

Jack Metzgar is a retired professor of Humanities from Roosevelt University in Chicago, where he is a core member of the Chicago Center for Working-Class Studies. His research interests include labor politics, working-class voting patterns, working-class culture, and popular and political discourse about class.  He is a former President of the Working-Class Studies Association.


 -- via my feedly newsfeed

Bernstein: The economic reasoning behind the Democrats’ bold agenda [feedly]

The economic reasoning behind the Democrats' bold agenda
https://www.washingtonpost.com/outlook/2019/02/25/economic-reasoning-behind-democrats-bold-agenda/

Jared Bernstein


Just because Congress is anchored in a toxic combination of partisan gridlock and Trumpian chaos doesn't mean policy debates are dead. Democrats are working overtime to craft an alternative to the status quo, including progressive tax reform, jobs programs, pushback on climate change, universal health care, expanded Social Security and more.

As it happens, economic conditions right now make this an excellent time for a bolder-the-better agenda.

First, the Federal Reserve recently announced that its previously planned interest-rate increases were on pause. After holding the benchmark rate they control at zero for an unprecedented six years, in late 2015, the Fed began raising rates. A few years later, even as interest rates and unemployment remained historically low, enough economic head winds developed that the bank realized it had better stop tapping the growth brakes.

There were lots of reasons for those head winds, including President Trump's trade war, global growth problems, stock market volatility and more. But there's always a lot of other stuff going on in global markets. The key fact is that the U.S. economy started to wobble with the Fed funds rate at 2.5 percent, a level that's but one-half of its long-term average.

Low inflation even at low unemployment means the Fed is correct to pause, and that the terms of the traditional trade-off of equally balanced inflation and employment risks have changed. In today's economy, the risks of weak demand, left-behind people and places, and stagnant low- and mid-level wages and incomes are greater than those of higher inflation. This is a symptom of structurally weak underlying demand and a rationale for stimulative policies.

Second, the U.S. economy is probably significantly slowing as we speak because of fading fiscal stimulus. The tax cuts and a big uptick in government spending, both of which were deficit-financed, added close to an extra point to gross domestic product growth in 2018 and most of this year. But as they leave the system, the Atlanta Fed is predicting that GDP growth fell to 1.4 percent last quarter (half the average growth rate this year), and forecasts for the next few years are well below 2018's pace.

These dynamics imply that a fiscal policy twofer is on offer. Increased investment in public goods, including education, infrastructure and the Green New Deal can help push back both on structural inequality and slower growth. At the same time, progressive tax policy, such as Sen. Elizabeth Warren's wealth tax or Sen. Bernie Sanders's estate tax expansion, can help support that fiscal agenda while also chipping away at wealth concentration.

But the broader point is that without the push of stimulative monetary or fiscal policy — or both — the U.S. economy will probably slow and the unemployment rate will rise. We're a bit like a bicycle that cruises along at a decent clip until it hits the slightest hill, and then, without a push, starts to shake.

Third, even as the heretofore stimulated U.S. economy was closing in on full employment, interest rates and inflation stayed very low and lots of people were/are still struggling to make ends meet.

Low interest and inflation at low unemployment imply that a supposedly high-pressure economy isn't showing up in traditional pressure gauges. Economist Larry Summers discusses this phenomenon under the rubric of "secular stagnation," meaning that even late in an expansion, economies underperform without an extra push. Such sluggishness is occurring not just here, but in Europe as well, as Euro area growth rates, inflation and interest rates all remain historically low.

The result is that both here and abroad, weak underlying growth alongside high levels of inequality means many households and communities remain left behind.

In other words, the Democrats' progressive agenda is not only a response to the upward redistribution that Republicans have successfully pushed since President Ronald Reagan. It is also a coherent and essential response to underlying stagnation that has grown to plague advanced economies.

Why that stagnation exists is not well answered. It may have to do with aging demographics, inequality, persistent U.S. trade deficits, the rise of unproductive finance, monopolistic concentration in key industries (retail, tech, health care), suboptimal public and private investment, and more.

But we needn't wait for a thorough diagnosis of causes if we know what will reverse them. -- via my feedly newsfeed

The very smart Simon Johnson believes that something like codetermination is essential if modern capitalism is going to... [feedly]

The very smart Simon Johnson believes that something like codetermination is essential if modern capitalism is going to...
https://www.bradford-delong.com/2019/02/simon-johnson-_saving-capitalism-from-economics-101-by-simon-johnson-project-syndicatehttpswwwproject-syndicate.html

The very smart Simon Johnson believes that something like codetermination is essential if modern capitalism is going to work: Simon JohnsonSaving Capitalism from Economics 101: "Warren is proposing a much broader rethink. Large corporations can still do well, but they need to be held accountable in a much more transparent way. Incentives for executives would be adjusted, and running these companies would no longer be so much about lining their own pockets.... The legitimacy of capitalism–private ownership and reliance on market mechanisms–would be greatly strengthened under the Accountable Capitalism Act. So, yes, like it or not, this will be on the final exam...  

 -- via my feedly newsfeed

Tim Taylor: Universal Basic Income: Preliminary Results from the Finnish Experiment [feedly]

I tend to favor the UBI approach, although the results are ambiguous in this first year study. However, I believe politically all guaranteed income has to be linked to work or service for able-bodied or able minded recipients.


Universal Basic Income: Preliminary Results from the Finnish Experiment
http://conversableeconomist.blogspot.com/2019/02/universal-basic-income-preliminary.html

The big selling points for a universal basic income are simplicity and work incentives. The simplicity arises because with a universal basic income, there are no qualifications to satisfy or forms to fill out. People just receive it, regardless of factors like income levels or whether they have a job. There are not bureaucratic costs of determining eligibility, and no stigma of applying for such benefits or in receiving them.

The gains for work incentives arise because many programs aimed at helping the poor have a built-in feature that as you earn more on the job, you receive less in government assistance. From one standpoint, this seems logical and fair. But economists have been quick to point out that if someone loses a dollar of government benefits every time they gain a dollar from working, the implicit tax rate is 100%. When there are a number of different programs aimed at the working poor, all phasing out on their own individual schedules as income rises, the result can be that low-income people face very high implicit tax rates--even in some situations close to 100%. But a universal basic income does not decline or phase out as someone earns more income. 

There are plenty of assertions about how a universal basic income would affect work incentives, but actual hard evidence is still accumulating. The province of Ontario announced that it would run a three- year experiment, but then cancelled it after one year. An organization called GiveDirectly is running a universal basic income experiment in Kenya, although results aren't available yet, but there is reason to be skeptical as to whether the cost and effects of such a program in a low-income country will offer natural lessons for high-income countries. A firm called YCombinator is planning to run a universal basic income experiment in two US cities starting in 2019, but details still seem sketchy. The city of Stockton in California has just started an experiment where 130 people will get monthly payments of $500 for the next 18 months.  The program in Alaska in which residents get a payment from the state based on oil royalties, typically $1000-$2000 per year, can be viewed as a form of a universal basic income, although it's clearly not enough to live on by itself.

Finland has been running an experiment with a university basic income for the last couple of years, and preliminary results on work behavior are now available. The report is  "The basic income experiment 2017–2018in Finland," edited by Olli Kangas, Signe Jauhiainen, Miska Simanainen, Minna Ylikännöand published by Finland's Ministry of Social Affairs and Health (February 2019). They write:
"[T]he amount of basic income was 560 euros per month. This corresponded to the monthly net amount of the basic unemployment allowance and the labour market subsidy provided by Kela (the Social Insurance Institution of Finland). Two thousand persons aged 25–58 years who received an unemployment benefit from Kela in November 2016 were selected for the actual experiment. They were selected through random sampling without any regional or other emphasis. ... Despite its deficiencies, the Finnish experiment is exceptional from an international perspective in that participation in the experiment was compulsory and it was designed as a randomised field experiment." 
The effects on employment during the first year of the experiment (that is in 2017) turn out to be essentially nonexistent
Of the persons who in November 2016 received an unemployment benefit from Kela, 57 per cent had no earnings or income from self-employment in 2017. The figures also reveal that the average income of those who had been in employment was only around 9,920 euros. ... [T]he experiment did not have any effect on employment status during the first year of the experiment. The number of annual days in employment for the group that received a basic income is on average about half a day higher than for the control group. Overall, receipt of any positive earnings or income from self-employment, either from the open labour market or the subsidised labour market, is about one percentage point more common in the treatment group. However, resulting earnings and incomes from self-employment turned out to be 21 euros smaller.
In other results based on phone surveys, those who received the universal basic income expressed greater confident in their own future, and they expressed a belief that it would be easier to accept a future job offer. It will be interesting to see if these attitudes lead to actually higher employment as the 2018 data becomes available .

It's important to note that like all practical experiments, the Finnish experiment was not a completely pure universal basic income. For example, the experiment targeted the long-term unemployed, not the working poor as a group, and those receiving the benefit still dealt with the government for other support programs, like housing assistance. In adidtion, the experiment would need to be considered in the context of Finland's overall labor market. So the results are preliminary in a number of ways. But it's hard to spin them as encouraging.

For those who would like a bunch of links to discussion of the Finnish experiment and broader recent discussions of a universal basic income, a useful starting point is the extended blog post at the Brueghel website byCatarina Midoes, "Universal basic income and the Finnish experiment" (February 18, 2019).

For a pragmatic discussion of how a true universal basic income--that is, a payment to everyone that does not phase out regardless of income--might work in a US context, interested readers might start with Universal Basic Income: A Thought Experiment" (July 29, 2014).  If one took all the money from US (nonhealth) antipoverty programs, as well as a number of tax breaks that tend to benefit the middle-and upper-class, one could fund a universal basic income for the US of about $5800 per year.  

 -- via my feedly newsfeed

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Prices Are Not Enough [feedly]

From triple crisis, a good discussion of tax vs cap and trade market approaches to emissions reduction. And their limitations.

Prices Are Not Enough
http://triplecrisis.com/prices-are-not-enough/

y Frank Ackerman

Fourth in a series on climate policy; find Part 1 here, Part 2 here, and Part 3 here.

We need a price on carbon emissions. This opinion, virtually unanimous among economists, is also shared by a growing number of advocates and policymakers. But unanimity disappears in the debate over how to price carbon: there is continuing controversy about the merits of taxes vs. cap-and-trade systems for pricing emissions, and about the role for complementary, non-price policies.

At the risk of spoiling the suspense, this blog post reaches two main conclusions: First, under either a carbon tax or a cap-and-trade system, the price level matters more than the mechanism used to reach that price. Second, under either approach, a reasonably high price is necessary but not sufficient for climate policy; other measures are needed to complement price incentives.

Why taxes and cap-and-trade systems are similar

A carbon tax raises the cost of fossil fuels directly, by taxing their carbon emissions from combustion. This is most easily done upstream, i.e. taxing the oil or gas well, coal mine, or fuel importer, who presumably passes the tax on to end users. There are only hundreds of upstream fuel producers and importers to keep track of, compared to millions of end users.

A cap-and-trade system accomplishes the same thing indirectly, by setting a cap on total allowable emissions, and issuing that many annual allowances. Companies that want to sell or use fossil fuels are required to hold allowances equal to their emissions. If the cap is low enough to make allowances a scarce resource, then the market will establish a price on allowances – in effect, a price on greenhouse gas emissions. Again, it is easier to apply allowance requirements, and thus induce carbon trading, at the upstream level rather than on millions of end users.

If the price of emissions is, for example, $50 per ton of carbon dioxide, then any firm that can reduce emissions for less than $50 a ton will do so – under either a tax or cap-and-trade system. Cutting emissions reduces tax payments, under a carbon tax; it reduces the need to buy allowances under a cap-and-trade system. The price, not the mechanism, is what matters for this incentive effect.

review of the economics literature on carbon taxes vs. cap-and-trade systems found a number of other points of similarity. Either system can be configured to achieve a desired distribution of the burden on households and industries, e.g. via free allocation of some allowances, or partial exemption from taxes. Money raised from either taxes or allowance auctions could be wholly or partially refunded to households.  Either approach can be manipulated to reduce effects on international competitiveness.

And problems raised with offsets – along the lines of credits given too casually for tree-planting – are not unique to cap and trade. A carbon tax could emerge from Congress riddled with obscure loopholes, which could be as damaging to the integrity of carbon pricing as any of the poorly written offset provisions of existing cap-and-trade systems. More positively speaking, either approach to carbon pricing can be carried out either with or without offsets and tax exemptions.

 

Why taxes and cap-and-trade systems are different

Compared to the numerous similarities between the two approaches, the list of differences is a shorter one. A carbon tax is easier and cheaper to administer. In theory, a carbon tax provides certainty about the price of emissions, while a cap-and-trade system provides certainty about the quantity of emissions (in practice, these certainties can be undone by too-frequent tinkering with tax rates or emissions caps).

Cap-and-trade systems have been more widely used in practice. The European Union's Emissions Trading System (EU ETS) is the world's largest carbon market. Others include the linked carbon market of California and several Canadian provinces, and the Regional Greenhouse Gas Initiative (RGGI) among states in the Northeast.

Numerous critics have pointed to potential flaws in cap-and-trade, such as overly generous, poorly monitored offsets. Many recent cap-and-trade systems, introduced in a conservative era, began with caps so high and prices so low that they have little effect (leaving them open to the criticism that the administrative costs are not justified by the skimpy results). The price must be high enough, and the cap must be low enough, to alter the behavior of major emitters.

The same applies, of course, to a carbon tax. Starting with a trivial level of carbon tax, in order to calm opponents of the measure, runs the risk of "proving" that a carbon price has no effect. The correct starting price under either system is the highest price that is politically acceptable; there is no hope of "getting the prices right" due to the uncertain and potentially disastrous scope of climate damages.

Perhaps the most salient difference between taxes and cap-and-trade is political rather than economic: in an era when people like to chant "no new taxes", the prospects for any initiative seem worse if it involves a new tax. This could explain why there is so much more experience to date with cap-and-trade systems.

 

Beyond price incentives

Some carbon emitters, for instance in electricity generation, have multiple choices among alternative technologies. In such cases, price incentives alone are powerful, and producers can respond incrementally, retiring and replacing individual plants when appropriate. Other sectors face barriers that an individual firm cannot usually overcome on its own. Electric vehicles are not practical without an extensive recharging and repair infrastructure, which is just beginning to exist in a few parts of the country. In this case, no reasonable level of carbon price can, by itself, bring an adequate nationwide electric vehicle infrastructure into existence. Policies that build and promote electric vehicle infrastructure are valuable complements to a carbon price: they create a combined incentive to move away from gasoline.

Yet another reason for combining non-price climate policies with a carbon price is that purely price-based decision-making can be exhausting. People could calculate for themselves the fuel saved by buying a more fuel-efficient car and subtract that from the sticker price of the vehicle, but it is not an easy calculation. Federal and state fuel economy standards make the process simpler, by setting a floor underneath vehicle fuel efficiency.

When buying a major appliance, it is possible in theory to read the energy efficiency sticker on the carton, calculate your average annual use of the appliance, convert it to dollars saved per year, and see if that savings justifies purchase of a more efficient appliance. But who does all that arithmetic? Even I don't want to do that calculation, and I have a PhD in economics and enjoy playing with numbers. My guess is that virtually no one does the calculation consistently and correctly. On the other hand, federal and state appliance efficiency standards have often set minimum levels of required efficiency, which increase over time. It's much more fun to buy something off the shelf that meets those standards, instead of settling in for an extended data-crunching session any time you need a new fridge, air conditioner, washing machine…

In short, the carbon price is what matters, not the mechanism used to adopt that price. And whatever the price, non-price climate policies are needed as well – both to build things that no one company can do on its own, and to make energy-efficient choices accessible to all, without heroic feats of calculation.

Frank Ackerman is principal economist at Synapse Energy Economics in Cambridge, Mass., and one of the founders of Dollars & Sense, which publishes Triple Crisis. 


 -- via my feedly newsfeed