Sunday, March 7, 2021

[The Washington Post] Biden stimulus showers money on Americans, sharply cutting poverty and favoring individuals over businesses

Good breakdown of benefits from WAPO.

https://www.washingtonpost.com/business/2021/03/06/biden-stimulus-poverty-checks/

March 6, 2021 at 4:02 p.m. EST

President Biden's stimulus package, which passed the Senate on Saturday, represents one of the most generous expansions of aid to the poor in recent history, while also showering thousands or, in some cases, tens of thousands of dollars on Americans families navigating the coronavirus pandemic.

The roughly $1.9 trillion American Rescue Plan, which only Democrats supported, spends most of the money on low-income and middle-class Americans and state and local governments, with very little funding going toward companies. The plan is one of the largest federal responses to a downturn Congress has enacted and economists estimate it will boost growth this year to the highest level in decades and reduce the number of Americans living in poverty by a third.

This round of aid enjoys wide support across the country, polls show, and it is likely to be felt quickly by low- and moderate-income Americans who stand to receive not just larger checks than before, but money from expanded tax credits, particularly geared toward parents; enhanced unemployment; rental assistance; food aid and health insurance subsidies.

But the ambitious legislation entails risks — both economic and political. The bill, which the House is expected to pass and send to Biden within daysinjects the economy with so much money that some economists from both parties are warning that growth could overheat, leading to a bout of hard-to-contain inflation. Meanwhile, some businesses are saying that government aid has been so generous that they're already having trouble getting unemployed workers to return to work — a problem that could be exacerbated by the legislation.

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Unlike many other significant anti-poverty measures passed by Congress in history, this one has a short time horizon, with almost all the relief for families going away over the coming year. That could be an abrupt awakening for Americans who have grown accustomed to financial support since Congress moved swiftly to create a stronger safety net at the start of the pandemic a year ago. It also lacks the bipartisan imprint of former President Trump's bills, which directed money in larger measure to companies as well as individuals.

"This legislative package likely represents the most effective set of policies for reducing child poverty ever in one bill, especially among Black and Latinx children," said Indivar Dutta-Gupta, co-executive director of the Georgetown Center on Poverty and Inequality. "The Biden administration is seeing this more like a wartime mobilization. They'll deal with any downside risks later on."

The total numbers are staggering. Cumulatively, the government will hand out $2.2 trillion to workers and families between the relief passed last year and this latest bill, according to the Committee for a Responsible Federal Budget, a nonpartisan group. That's equivalent to what the government spends annually on Social Security, Medicare and Medicaid combined.

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Exactly how much money Americans are set to receive depends on a number of factors including whether they are unemployed, their household income, whether they have children or other dependents, and the state they live in.

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According to calculations by Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a Massachusetts family of four that had an income of about $53,000 before the pandemic and has one parent unemployed stands to receive more than $22,000 from this package. That's in addition to the unemployment assistance and child tax credit the family would be eligible for without the pandemic.

In total, this family of four is set to have received more than $50,000 from the relief bills Congress has passed since the crisis began, a large amount that more than replaces the family's lost income during the crisis.

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The Democratic stimulus package also provides significant funding for vaccine distribution and state and local governments. Business and health leaders say getting most Americans vaccinated is key to the economic recovery. But most of the attention on the bill has focused on its overall price tag and the payments that are set to go to about 150 million American households.

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The latest stimulus will reduce poverty by a third, lifting nearly 13 million Americans out of it, according to an analysis by Columbia University's Center on Poverty and Social Policy. Black Americans, Hispanic Americans and poor families with children are set to benefit the most. Child poverty would be reduced by more than half, the researchers predict.

Who will get a third stimulus check and why?
Economic stimulus or economic relief: Here's what we know about who might qualify for the next round of coronavirus checks and how much they'll get. (Monica Rodman, Sarah Hashemi, Monica Akhtar/The Washington Post)

The magnitude of aid, especially combined with last year's relief, is much greater than the U.S. government has responded to other economic crises. The response to the Great Recession was about $1.8 trillion over several years and the most optimistic estimates are that about 6 million Americans were kept out of poverty in 2009 because of efforts by Congress at the time.

Biden and his top officials have repeatedly said they have learned lessons from the mistakes made during the Great Recession response. This time around they want to go big enough to ensure jobs return swiftly. They want a package that, in the words of White House press secretary Jen Psaki, will get families "talking about it at their dinner tables."

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Many economists say the package is far from perfect, but they broadly agree that this crisis has been an unprecedented hit on low-income workers and their children and the aid should be targeted most toward them.

Recent history has shown that giving money to poorer families delivers the greatest boost to the economy, because those Americans are the most likely to spend the money right away.

"History and a strong body of research would tell us the only way to avoid more lasting scars on households and the economy is by not doing too little," said Ellen Zentner, chief economist at Morgan Stanley. She pointed out that giving money to low-income households "is much more stimulative than past policies in a downturn."

Still, one of the biggest criticisms of the bill is that it is too large overall at a time when the Congressional Budget Office projects the economy is running roughly $700 billion below potential — a concept that tries to measure what a completely healthy economy would like.

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"I don't think there's any justification from an economic standpoint or a bottom-up standpoint for $1.9 trillion in further covid relief," Goldwein said. "A package half that size would still be a safe boost to the economy."

Goldwein and others are especially critical of Democrats' decision to allot $350 billion to state and local aid, even though many states are no longer running deficits and independent estimates suggest the need is far less than that amount. Many economists also question the need to send $1,400 to people who have not lost their jobs.

"To me the part that's the hardest to justify is the $1,400 checks to everyone," said Greg Mankiw, a Harvard University professor who served as President George W. Bush's chief economist from 2003 to 2005. "They are making large payments to people who don't need them."

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Mankiw points out that two of his adult children who have not lost jobs have been receiving the payments. And a family of four who didn't lose any income in this crisis would still receive an additional $5,600. Some economists are also concerned that the money, along with enhanced unemployment benefits until early September, are discouraging some people from returning to work.

"Many small businesses complain they are not able to reconnect with employees because of these benefits," said Lindsey Piegza, chief economist at the investment firm Stifel. "We want to be leery of getting a short-term boost that ends up creating longer-term roadblocks."

But the mantra of the White House and the Federal Reserve has been that it's better to err on the side of doing too much than too little. Treasury Secretary Janet Yellen has made the case that it's not just the jobless who are struggling. Many people have taken a pay cut or are working fewer hours and many families have had to juggle jobs with child-care and elder-care responsibilities, which brings more costs.

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"Any time you try to design a targeted system in the scale of the U.S. economy, you end up missing people," Neel Kashkari, president and chief executive of the Federal Reserve Bank of Minneapolis, said in a Friday interview. This bill "really, in my mind, is not meant to be stimulus, it's meant to be relief for those families who've lost jobs."

Kashkari led the bank bailout, known as the Troubled Asset Relief Program (TARP), in the wake of the 2008-09 financial crisis. Back then, he said, the government was so concerned about targeting aid to deserving families that a lot of struggling homeowners didn't get money fast enough and the nation ended up with a massive foreclosure problem. He doesn't want to see that repeated.

Democrats say the American Rescue Plan corrects the flaws, not just of the Great Recession response but also the Cares Act and the covid relief bill from December. They argue that last year's bills cut aid off too soon and did not give enough help to struggling families, which is how the nation ended up with millions of Americans facing eviction, relying on food banks and unable to afford diapers.

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On Friday, the Labor Department reported that the official unemployment rate is 6.2 percent, but the White House said the true rate is 9.5 percent because so many Americans, especially mothers, have stopped working or even looking for a job while they care for children. People are not counted in the official unemployment statistics if they have not looked for a job in the past month.

To address the needs of low-income families, this bill does more than provide stimulus funds and extended unemployment aid. It also expands three key tax credits — the child tax credit, the earned income tax credit, and the child and dependent care tax credit — that advocates for the poor have long urged the government to do to help reduce poverty. These programs make up about $150 billion of the bill.

Under this more generous child tax credit plan, parents would receive $3,000 a year for every child ages 6 to 17 and $3,600 a year for every child under 6. The current credit is $2,000, and the poorest families can get a refund from the government for only $1,400. The stimulus bill also expands the child and dependent care tax credit so eligible families can deduct up to 50 percent of their costs, up from 20 to 35 percent before.

For people without children, the legislation expands the earned income tax credit, which helps supplement wages for the working poor.

These tax changes, along with another round of cash payments, will boost incomes of the bottom 20 percent of Americans by 33 percent, according to Steve Wamhoff, a tax expert at the liberal Institute on Taxation and Economic Policy. That's more than double what the March 2020 Cares Act did for the poorest Americans.

Many liberals hope these policies can be made permanent so this income boost does not disappear in 2022. The bill also provides more generous subsidies to help people afford health insurance and another attempt to expand Medicaid in states that have not yet done so.

"Most of us believe these programs like the child allowance will be made permanent," said Diane Whitmore Schanzenbach, director of Northwestern University's Institute for Policy Research.

If these programs do stick around, it raises questions about whether Democrats should be paying for them and not treating them like they are emergency relief. But advocates on the left point out that if America's safety net were better, not as many people would have fallen into such a difficult situation during the pandemic and the nation would not need as large of a response.

"We wouldn't have had to take such big steps if our policies even before the crisis had been more supportive of low-income workers and low-income kids," said Sharon Parrott, president of the left-leaning Center on Budget and Policy Priorities. "If all we do is recover back to 2019, then most low-paid workers still won't have access to health insurance and benefits and millions of children will still be in poverty."

Jeff Stein contributed to this report.

Saturday, March 6, 2021

Biz Insider: US economy adds 379,000 payrolls in February, smashing forecasts as virus cases tumble [feedly]

Looks like the vaccinations are having an impact, at least on biz hiring and recalls. Perhaps too soon to tell if this, like "de-masking" neanderthalism, will track, or just ruin, recovery.

US economy adds 379,000 payrolls in February, smashing forecasts as virus cases tumble

https://www.businessinsider.com/february-jobs-report-379000-payrolls-unemployment-rate-labor-market-recovery-2021-3?utm_source=feedly&utm_medium=webfeeds

Ben Hasty/MediaNews Group/Reading Eagle/Getty Images

  • The US added 379,000 jobs in February, beating the consensus estimate of 200,000 additions.
  • The reading marked a second straight month of labor-market expansion and came in well above January's revised sum of 166,000.
  • The unemployment rate dropped to 6.2% from 6.3%, putting it lower than forecasts.
  • Visit the Business section of Insider for more stories.

The US labor-market recovery accelerated in February as daily COVID-19 cases swiftly declined and the pace of vaccinations improved.

Businesses added 379,000 payrolls last month, the Bureau of Labor Statistics announced Friday. Economists surveyed by Bloomberg expected a gain of 200,000 payrolls.

The increase follows a revised 166,000-payroll jump in January. The labor market has now grown for two straight months after contracting in December as virus cases surged.

The US unemployment rate fell to 6.2% from 6.3%, according to the government report. Economists expected the rate to drop to stay steady at 6.3%. The U-6 unemployment rate - which includes workers marginally attached to the labor force and those employed part-time for economic reasons - remained at 11.1%.

The labor force participation was also unchanged at 61.4%. A falling participation rate can drag the benchmark U-3 unemployment rate lower, but such declines signal deep scarring in the labor market.

The bigger picture

Jobless claims data and private-payrolls reports offer some detail as to how the labor market fared through February, but the BLS release paints the clearest picture yet as to how the pandemic has affected workers and the unemployed.

Roughly 13.3 million Americans cited the pandemic as the main reason their employer stopped operations. That's down from 14.8 million people in January.

The number of people saying COVID-19 was the primary reason they didn't seek employment dropped to 4.2 million from 4.7 million.

About 22.7% of Americans said they telecommuted because of the health crisis. That compares to 23.2% in January.

Roughly 2.2 million Americans said their job loss was temporary, down from 2.7 million the month prior. The number of temporary layoffs peaked at 18 million in April, and while the sum has declined significantly, it still sits well above levels seen before the pandemic.

Filling the hole

The Friday reading affirms that, while the economy is far from fully recovered, the pace of improvement is picking up, most likely tied to the steady decline in daily new COVID-19 cases. The US reported 54,349 new cases on the last day of February, down from the January peak of 295,121 cases. Hospitalizations and daily virus deaths have similarly tumbled from their early 2021 highs, according to The COVID Tracking Project.

All the while, the country has ramped up the distribution and administration of coronavirus vaccines. The US has so far administered more than 82.6 million doses, according to Bloomberg data. The average daily pace of vaccinations climbed above 2 million on March 3 and has so far held the level. At the current rate, inoculating three-quarters of the US population would take roughly six months, but the Biden administration has a rosier outlook.

The president on Tuesday announced the US will have enough vaccines for every adult by the end of May. While distributing the shots will likely last beyond May, the new timeline marks a two-month improvement to the administration's previous forecast.

Still, other data tracking the labor market points to a sluggish rebound. Initial jobless claims totaled 745,000 last week, according to Labor Department data published Thursday. That was below the median economist estimate of 750,000 claims but a slight increase from the previous week's revised sum of 736,000. Weekly claims counts have hovered in the same territory since the fall as lingering economic restrictions hinder stronger job growth.

Continuing claims, which track Americans receiving unemployment benefits, fell to 4.3 million for the week that ended February 20. The reading landed in line with economist projections.

Other corners of the economy are faring much better amid the warmer weather and falling case counts. Retail sales grew 5.3% in January, trouncing the 1% growth estimate from surveyed economists. The strong increase suggests the stimulus passed at the end of 2020 efficiently lifted consumer spending in a matter of weeks.

All signs point to another fiscal boost being approved over the next few days. Senate Democrats voted to advance their $1.9 trillion stimulus plan on Thursday, kicking off a period of debate before a final floor vote. President Joe Biden has said he aims to sign the bill before expanded unemployment benefits lapse on March 14. The new package includes $1,400 direct payments, a $400 supplement to federal unemployment insurance, and aid for state and local governments.

The bill isn't yet a done deal. Sen. Ron Johnson of Wisconsin forced a read-out of the entire 628-page bill on Thursday, as Republicans seek to at least drag out its passage into law. Not a single Republican senator voted to advance the bill on Thursday.

A process known as "vote-a-rama" will start after the 20 hours of debate and give Republicans the chance to further impede a final vote by introducing potentially hundreds of amendments to the bill.


 -- via my feedly newsfeed

Thursday, March 4, 2021

Too Much Choice Is Hurting America [feedly]

Krugman touches on an important aspect of needed restructured capitalism -- there are places -- like parasitical financial, health care/ insurance/pharma and energy monopolies and oligopolies -- where it simply does not work, not for the public, and not for the areas of the economy where capitalism DOES still works -- like restaurants [how diverse will state produced restaurant choices, or entertainments ever be?]. 🙂


Too Much Choice Is Hurting America
https://www.nytimes.com/2021/03/01/opinion/deregulation-health-care-electricity.html


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Dan Patrick, the lieutenant governor of Texas, is clearly what my father would have called a piece of work.

Early in the pandemic he made headlines by saying that older Americans should be willing to risk death so that younger people could "get back to work." More recently, he suggested that Texans who found themselves with $17,000 electricity bills after the February freeze had only themselves to blame, because they didn't "read the fine print."

Funny, isn't it, how politicians who denounce liberal elitists sneer when ordinary Americans get into trouble?

But something else struck me about Patrick's take on supersize power bills: How did we become a country where families can face ruin unless they carefully study something as mundane, as normally routine, as their electricity contract?



As The Times's Margot Sanger-Katz has documented, many people end up with heavy financial burdens because they chose the wrong health insurance plan — yet even experts have a very hard time figuring out which plan is best. Using an out-of-network health care provider can also lead to huge medical bills.

Wait, there's more. One cause of the 2008 financial crisis was the proliferation of novel financial arrangements, like interest-only loans, that looked like good deals but exposed borrowers to huge risks.

What these stories have in common is that they're snapshots of a country in which many of us are actually offered too many choices, in ways that can do a lot of harm.

It's true that both Economics 101 and conservative ideology say that more choice is always a good thing. Milton Friedman's famous and influential 1980 TV series extolling the wonders of capitalism was titled "Free to Choose."



The spread of this ideology has turned America into a land where many aspects of life that used to be just part of the background now require potentially fateful decisions. You don't get a company pension, you have to decide how to invest your 401(k). When you turn 65, you don't just get put on Medicare, you also decide which of many Medicare Advantage plans to sign up for. You don't just get power and phone service, you also have to choose from a wide variety of options.

Some, maybe even most, of this expansion of choice was good. I don't miss the days when all home phones were owned by AT&T and customers weren't allowed to substitute their own handsets.

But the argument that more choice is always good rests on the assumption that people have more or less unlimited capacity to do due diligence on every aspect of their lives — and the real world isn't like that. People have children to raise, jobs to do, lives to live and limited ability to process information.

And in the real world, too much choice can be a big problem.

The lesson of subprime mortgages, health insurance and now Texas electricity is that sometimes people offered too much choice will make bigger mistakes than they imagined possible. But that's not all. Too much choice creates space for predators who exploit our all-too-human limitations.

Before the subprime mortgage crisis, Edward Gramlich, a Federal Reserve official who warned in vain about the potential for disaster, asked, "Why are the most risky loan products sold to the least sophisticated borrowers?" The question, he suggested, "answers itself — the least sophisticated borrowers are probably duped into taking these products."

Similarly, there's clearly a lot of profiteering in medical billing, with the victims disproportionately those least able to understand what's happening.

Beyond all that, I'd suggest that an excess of choice is taking a psychological toll on many Americans, even when they don't end up experiencing disaster.



There's a growing body of research suggesting that the costs of poverty go beyond the trouble low-income families have in affording necessities. The poor also face a heavy "cognitive burden" — the constant need to make difficult choices that the affluent don't confront, like whether to buy food or pay the rent. Because people have limited "bandwidth" for processing complex issues, the financial burdens placed on the poor all too often degrade their ability to make good decisions on other issues, sometimes leading to self-destructive life choices.

What I'm suggesting is that a society that turns what should be routine concerns into make-or-break decisions — a society in which you can ruin your life by choosing the wrong electric company or health insurer — imposes poverty-like cognitive burdens even on the middle class.

And it's all unnecessary. We're a rich country — and citizens of other rich countries don't worry about being bankrupted by medical expenses. It wouldn't take much to protect Americans against being scammed by mortgage lenders or losing their life savings to fluctuations in the wholesale price of electricity.

So the next time some politician tries to sell a new policy — typically deregulation — by claiming that it will increase choice, be skeptical. Having more options isn't automatically good, and in America we probably have more choices than we should.

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman


 -- via my feedly newsfeed

Monday, March 1, 2021

China Charges Ahead With a National Digital Currency [feedly]

China Charges Ahead With a National Digital Currency
https://www.nytimes.com/2021/03/01/technology/china-national-digital-currency.html

 -- via my feedly newsfeed

Annabelle Huang recently won a government lottery to try China's latest economics experiment: a national digital currency.

After joining the lottery through the social media app WeChat, Ms. Huang, 28, a business strategist in Shenzhen, received a digital envelope with 200 electronic Chinese yuan, or eCNY, worth around $30. To spend it, she went to a convenience store near her office and picked out some nuts and yogurt. Then she pulled up a QR code for the digital currency from inside her bank app, which the store scanned for payment.

"The journey of how you pay, it's very similar" to that of other Chinese payments apps, Ms. Huang said of the eCNY experience, though she added that it wasn't quite as smooth.

China has charged ahead with a bold effort to remake the way that government-backed money works, rolling out its own digital currency with different qualities than cash or digital deposits. The country's central bank, which began testing eCNY last year in four cities, recently expanded those trials to bigger cities such as Beijing and Shanghai, according to government presentations.

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The effort is one of several by central banks around the world to try new forms of digital money that can move faster and give even the most disadvantaged people access to online financial tools. Many countries have taken action as cryptocurrencies such as Bitcoin, which has recently soared in value, have become more popular.

Image
Annabelle Huang's screenshot of the eCNY app.

But while Bitcoin was designed to be decentralized so that no company or government could control it, digital currencies created by central banks give governments more of a financial grip. These currencies can enable direct handouts of money that expire if not used by a particular date and can make it easier for governments to track financial transactions to stamp out tax evasion and crack down on dissidents.

Over the last 12 months, more than 60 countries have experimented with national digital currencies, up from just over 40 a year earlier, according to the Bank for International Settlements. The countries include Sweden, which is conducting real-world trials of a digital krona, and the Bahamas, which has made a digital currency, the Sand Dollar, available to all citizens.

In contrast, the United States has moved slowly and done just basic research. At a New York Times event last week, Treasury Secretary Janet L. Yellen indicated that might change when she said an American digital currency was "absolutely worth looking at" because it "could result in faster, safer and cheaper payments."

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Yet no major power is as far along as China. Its early moves could signal where the rest of the world goes with digital currencies.

"This is about more than just money," said Yaya Fanusie, a fellow at the Center on Economic and Financial Power, a think tank, and an author of a recent paper on the Chinese currency. "It's about developing new tools to collect data and leverage that data so that the Chinese economy is more intelligent and based on real-time information."

While the Chinese government has not said if and when it will officially introduce the eCNY nationwide, several officials have mentioned having it ready for tourists visiting for the 2022 Olympics in Beijing. Recent articles and speeches from officials at the People's Bank of China, which is the country's central bank, underscored the project's ambitions and the desire to be first.

"The right to issue and control digital currencies will become a 'new battlefield' of competition between sovereign states," read an article in China Finance, the magazine of the central bank, in September. "China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate to seize the first track."

The People's Bank of China did not respond to a request for comment.

The development of a national digital currency began in 2014, when the People's Bank of China set up an internal group to work on one, shortly after Bitcoin gained attention in the country. In 2016, the central bank created a division called the Digital Currency Institute. Last year, it began trials of eCNY in the cities of Shenzhen, Suzhou, Xiongan and Chengdu, according to research from Sino Global Capital, a financial investment firm.

People invited to the trial through a lottery on WeChat or other apps were able to click on a link and get a balance of 200 electronic yuan, which was sometimes displayed in their bank app over a picture of an old-fashioned Chinese bank note with Mao Zedong's face. To spend the money, users can use an eCNY app to scan a retailer's QR code or produce a QR code that the retailer can scan.

The design of eCNY borrows only a few minor technical elements from Bitcoin and does not use the so-called blockchain technology, a ledger-like system, which most cryptocurrencies rely on, officials from the People's Bank of China have said.

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In a hint of the currency's unusual nature, recipients have only a few weeks to spend the digital money before it disappears. So far, only a limited number of retailers have taken the currency. But early users said the experience was so similar to Chinese digital payment options like Alipay and WeChat Pay that it would not be hard to switch to it if it rolled out nationwide.

"I'm totally fine to pay with the eCNY, since it's smooth and fast enough," said Yifan Gao, 30, a financial analyst in Shenzen, who recently used her 200 eCNY to buy snacks at a 7-Eleven.

Ms. Gao added that the eCNY would become mainstream only if people could send it to friends, which was not possible with the trial version.

Eswar Prasad, the former head of the International Monetary Fund's China division, said one of the most important factors driving the eCNY was the success of WeChat Pay and Alipay. Both have given rise to a new alternate financial system that has worried Chinese officials and led to a recent crackdown on Jack Ma, the founder of Alibaba and Ant Financial, which owns Alipay.

"The eCNY is really a defensive mechanism to keep central bank money relevant," Mr. Prasad said.

If the eCNY is successful, it will give the central bank new powers, including novel types of monetary policy to help grow the economy. In one scenario that economists have discussed, a central bank could program its digital currency to slowly lose value so that consumers are encouraged to spend it immediately.

Some economists said China's digital currency would also make it easier for the renminbi to compete with the U.S. dollar as a global currency because it can move internationally with fewer barriers. But Chinese officials and analysts have said that many other changes would be necessary for that to happen.

Beyond those ambitions, the eCNY could immediately give the Chinese government more power to monitor finance flows because a digital currency system can record every transaction. That poses privacy concerns, with China having used many tools in the past to crack down on dissidents.

The Great Divergence: A Fork in the Road for the Global Economy [feedly]

Personally, I think the Great Divergence was ignited long ago, but this is nonetheless a sobering report and the pandemic corruptions aggravating inequality trends across the world.

The Great Divergence: A Fork in the Road for the Global Economy
https://blogs.imf.org/2021/02/24/the-great-divergence-a-fork-in-the-road-for-the-global-economy/

As G20 finance ministers and central bank governors meet virtually this week, the world continues to climb back from the worst recession in peacetime since the Great Depression.

The IMF recently projected global GDP growth at 5.5 per cent this year and 4.2 per cent in 2022. But it is going to be a long and uncertain ascent. Most of the world is facing a slow rollout of vaccines even as new virus mutations are spreading—and the prospects for recovery are diverging dangerously across countries and regions.

Indeed, the global economy is at a fork in the road. The question is: will policymakers take action to prevent this Great Divergence?

There is a major risk that most developing countries will languish for years to come.

As our note to the G20 meeting points out, there is a major risk that as advanced economies and a few emerging markets recover faster, most developing countries will languish for years to come. This would not only worsen the human tragedy of the pandemic, but also the economic suffering of the most vulnerable.

We estimate that, by the end of 2022, cumulative per capita income will be 13 percent below pre-crisis projections in advanced economies—compared with 18 percent for low-income countries and 22 percent for emerging and developing countries excluding China. This projected hit to per capita income will increase by millions the number of extremely poor people in the developing world.

In other words, the convergence between countries can no longer be taken for granted. Before the crisis, we forecast that income gaps between advanced economies and 110 emerging and developing countries would narrow over 2020–22. But we now estimate that only 52 economies will be catching up during that period, while 58 are set to fall behind.

This is partly because of the uneven access to vaccines. Even in the best-case scenario, most developing economies are expected to reach widespread vaccine coverage only by end-2022 or beyond. Some are especially exposed to hard-hit sectors such as tourism and oil exports, and most of them are held back by the limited room in their budgets.

Last year, advanced economies on average deployed about 24 percent of GDP in fiscal measures, compared with only 6 percent in emerging markets and less than 2 percent in low-income countries. Cross-country comparisons also show how more sizable crisis support was often associated with a smaller loss in employment.

And it is not just divergence across countries. We also see an accelerated divergence within countries: the young, the low-skilled, women, and informal workers have been disproportionately affected by job losses. And millions of children are still facing disruptions to education. Allowing them to become a lost generation would be an unforgiveable mistake.

It would also deepen the long-term economic scars of the crisis, which would make it even more difficult to reduce inequality and boost growth and jobs. Think of the challenges ahead: for G20 economies alone (excluding India and Saudi Arabia due to data limitations), total employment losses are projected at more than 25 million this year and close to 20 million in 2022, relative to pre-crisis projections.

So again, we stand at a fork in the road—and if we are to reverse this dangerous divergence between and within countries, we must take strong policy actions now. I see three priorities:

First, step up efforts to end the health crisis.

We know that the pandemic is not over anywhere until it is over everywhere. While new infections worldwide have recently declined, we are concerned that multiple rounds of vaccinations may be needed to preserve immunity against new variants.

That is why we need much stronger international collaboration to accelerate the vaccine rollout in poorer countries. Additional financing to secure doses and pay for logistics is critical. So, too, is timely reallocation of excess vaccines from surplus to deficit countries, and a significant scaling up of vaccine production capacity for 2022 and beyond. Insuring vaccine producers against the downside risks of overproduction may be an option worth considering.

We also need to ensure greater access to therapies and testing, including virus sequencing, while steering clear of restrictions on exports of medical supplies. The economic arguments for coordinated action are overwhelming. Faster progress in ending the health crisis could raise global income cumulatively by $9 trillion over 2020–25. That would benefit all countries, including around $4 trillion for advanced economies—which beats by far any measure of vaccine-related costs.

Second, step up the fight against the economic crisis.

Led by G20 countries, the world has taken unprecedented and synchronized measures, including nearly $14 trillion in fiscal actions. Governments need to build on these efforts by continuing to provide fiscal support—appropriately calibrated and targeted to the stage of the pandemic, the state of their economies, and their policy space.

The key is to help maintain livelihoods, while seeking to ensure that otherwise viable companies do not go under. This requires not just fiscal measures, but also maintaining favorable financial conditions through accommodative monetary and financial policies, which support the flow of credit to households and firms.

The considerable monetary easing by major central banks has also enabled several developing economies to regain access to global capital markets and borrow at record-low rates to support spending, despite their historic recessions. Given the gravity of the crisis, there is no alternative to continued monetary policy support. But there are legitimate concerns around unintended consequences, including excessive risk-taking and market exuberance.

One risk going forward—especially in the face of diverging recoveries—is the potential for market volatility in response to changing financial conditions. Major central banks will need to carefully communicate their monetary policy plans to prevent excess volatility in financial markets, both at home and in the rest of the world.

Third, step up support to vulnerable countries.

Given their limited resources and policy space, many emerging market and low-income nations could soon be faced with an excruciating choice between maintaining macroeconomic stability, tackling the health crisis, and meeting peoples' basic needs.

Their increased vulnerability not only affects their own prospects for recovery from the crisis, but also the speed and scale of the global recovery; and it can be a destabilizing force in a number of already fragile areas. Vulnerable countries will need substantial support as part of a comprehensive effort:

The first step begins at home, with governments raising more domestic revenue, making public spending more efficient, and improving the business environment. At the same time, international efforts are critical to further scale up concessional financing and leverage private finance, including through stronger risk-sharing instruments.

Another option under consideration is a new SDR allocation to help address the global long-term need for reserves. This could add a substantial, direct liquidity boost to countries, without adding to debt burdens. It could also expand the capacity of bilateral donors to provide new resources for concessional support, including for health spending. An SDR allocation served the world well in tackling the global financial crisis in 2009—it could serve us well again now.

Following a comprehensive approach also means dealing with debt. The G20's debt service suspension initiative (DSSI) quickly freed up vital resources. And the new Common Framework can go even further: facilitating timely and orderly debt treatments for DSSI-eligible countries, with broad creditor participation including the private sector. These treatments should involve debt service reprofiling to help countries facing large financing needs, and deeper relief where debt burdens have become unsustainable. With the first requests in, the Common Framework should be swiftly operationalized by all creditors—official and private.

For its part, the IMF has stepped up in an unprecedented manner by providing over $105 billion in new financing to 85 countries and debt service relief for our poorest members. We aim to do even more to support our 190 member countries in 2021 and beyond.

That includes supporting efforts to modernize international corporate taxation. We need a system that is truly fit for the digital economy and that is more attuned to the needs of developing countries. Here multilateral efforts will be essential to help ensure that highly profitable firms pay tax in markets where they do business and thereby strengthen public finances.

These policy measures can help address the Great Divergence. Given their resources, advanced economies will continue to invest in human capital, digital infrastructure, and the transition to the new climate economy. It is vital that poorer countries have the support they need to make similar investments, especially in the job-rich climate adaptation measures that will be essential as our planet gets warmer.

The alternative—to leave poorer countries behind—would only entrench abject inequality. Even worse, it would represent a major threat to global economic and social stability. And it would rank as a historic missed opportunity.

We can take inspiration from the spectacular international cooperation that has given us effective vaccines in record time. That spirit is now more important than ever to overcome this crisis and secure a strong and inclusive recovery.


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Executive action to combat wage theft against U.S. workers [feedly]

An issue every labor council and community allies could develop.
Executive action to combat wage theft against U.S. workers
https://equitablegrowth.org/executive-action-to-combat-wage-theft-against-u-s-workers/

Executive action to combat wage theft against U.S. workers 
from Equitable Growth

Overview

Wage theft against U.S. workers exacerbates the long-run problem of low and stagnant wages. When companies commit wage theft, they impoverish families and deprive workers of the just compensation for their hard work, robbing workers of the value they contribute to economic growth and exacerbating economic inequality.

The odds that a low-wage worker will be illegally paid less than the minimum wage ranges from 10 percent to 22 percent, depending on overall economic conditions, and each violation costs that worker an average of 20 percent of the pay they deserve. Women, people of color, and noncitizens are especially vulnerable to wage theft and especially likely to feel they are not in a position to report the crime and get justice.

Cracking down on lawbreaking companies that don't pay workers what they are owed is a straightforward way for the Biden administration to raise the incomes and living standards of U.S. workers and their families.

Executive action

The Wage and Hour Division of the U.S. Department of Labor is the principal agency tasked with detecting, deterring, and punishing wage theft under the Fair Labor Standards Act. The Biden administration can take several steps to enhance the power and effectiveness of this important agency:

  • Ask for a large increase for the budget of the Wage and Hour Division in the president's fiscal year 2022 budget request
  • Prioritize strategic enforcement to use resources as effectively as possible
  • Pursue co-enforcement with community-based organizations
  • Protect workers from misclassification as independent contractors

We will discuss each in order below.

INCREASE THE BUDGET AND INSTITUTIONAL CAPACITY OF THE WAGE AND HOUR DIVISION

One of the central problems facing U.S. workers is that the Wage and Hour Division of the U.S. Department of Labor does not have the resources necessary to fulfill its responsibilities. As of May 1, 2020, the division employed 779 investigators to protect more than 143 million workers, which is fewer than the 1,000 investigators it employed back in 1948 when it was only responsible for safeguarding the rights of 22.6 million workers.

President Joe Biden's first budget should request that Congress more appropriately fund the Wage and Hour Division. For instance, the International Labor Organization recommends a benchmark of one investigator per 10,000 workers, which would require roughly 13,500 more investigators to be hired. Currently, this may be out of reach. But, at the very least, the Biden administration's first budget request for the division should, in real terms, exceed the FY2016 request for $332,543,000 to fund 2,044 full-time staff. 

The Wage and Hour Division can also work better with state and local agencies. A grant program should be created to support state and local enforcement agencies to facilitate sharing of innovative strategies and practices. Such a program would promote more effective enforcement at all levels while enhancing the potential for coordinating across agencies. In addition, the division should review and update its Memoranda of Understanding with state enforcement agencies that allow for reciprocal information-sharing and maximize coordinated interagency enforcement efforts.

PRIORITIZE STRATEGIC ENFORCEMENT

No matter what the funding situation is, the Wage and Hour Division can also more effectively use its resources to police illegal conduct by businesses. Strategic enforcement differs from reactive, complaint-based enforcement in that agencies proactively and visibly target high-violation industries and maximize the use of enforcement powers to increase the real and perceived costs of noncompliance with labor laws, without waiting for vulnerable workers to initiate complaints.

The division should reprioritize its personnel and other resources toward pursuing proactive investigations to better reach those industries with high violation rates but in which few complaints are filed. Under the Obama administration, roughly half of all investigations were initiated proactively. This is especially important today, amid the coronavirus recession. Research demonstrates that wage violations increase when the unemployment rate is high. (See Figure 1.)

Figure 1

Even though U.S. workers are more likely to experience wage violations during moments of economic contraction, that does not mean they are more likely to initiate complaints. The scarcity of jobs means that workers may not be able to find alternatives to their current employment situation, making them more afraid to complain about wage theft, lest they be fired or retaliated against. The power differential between workers and employers in economic downturns simultaneously emboldens employers who treat workers poorly and raises the stakes for workers who complain. This problem is most acute among low-wage workers who face the largest power differential vis-à-vis their employers.

Research on minimum wage enforcement suggests that workers in industries with the worst conditions are much less likely to complain about wage theft. Most wage theft goes unreported, and it is especially present in industries where women and people of color are overrepresented. (See Figure 2.)

Figure 2

The Wage and Hour Division needs to prioritize strategic enforcement, so its limited budget has the maximum impact on the most-vulnerable workers and most wage-theft-prone sectors. It can do this in several ways, according to the authors of the essay "Strategic enforcement and co-enforcement of U.S. labor standards are needed to protect workers through the coronavirus recession" in Equitable Growth's new book of essays, Boosting Wages for U.S. Workers in the New Economy:

  • "First, the use of proactive investigations in targeted industries means enforcement resources are more likely to identify and reach vulnerable workers who are unlikely to complain."
  • "Likewise, industry research to identify industry structure, influential employers, and widespread noncompliant industry practices helps agencies target employers that are likely to get the attention of others in the industry."
  • "Strategic enforcement includes … assessing high damages and penalties in addition to back wages owed." These measures deter future violations by changing the cost-benefit calculation some employers make when they decide that violating the law is worth the risk of being caught.

By not only increasing the budgets of enforcers, but also by using those limited resources more strategically, the U.S. Department of Labor can ensure that its investments in enforcement have maximum impact.

PURSUE CO-ENFORCEMENT WITH COMMUNITY-BASED ORGANIZATIONS

One of the central problems with complaint-based investigations is that some classes of workers are less likely to report wage theft than others. Power dynamics at workplaces and in the community mean that women, noncitizens, and people of color risk more when they report abuses. Indeed, this is the pattern that the data show. (See Figure 3.)

Figure 3

In a co-enforcement model, labor agencies enter formal partnerships with civil society organizations that have strong relationships with low-wage workers and deep knowledge of high-violation sectors to help uncover violations that would otherwise go unreported and provide support to vulnerable workers so that they face lower levels of risk when they speak up. As explained by the same labor market scholars cited above:

Problems will remain hidden unless workers speak up, yet vulnerable workers will not speak up in isolation …Without a connection to the workforce on which the agency can build an investigation, proactive investigations can be daunting and the agency may be unable to establish violations are occurring. Worker organizations have access to information on labor standards compliance that would be difficult, if not impossible, for state officials to gather on their own.

To that end, the Wage and Hour Division should engage in thoughtful outreach to worker organizations. To do so, the division should hire at least one community outreach and resource planning specialist for each of its 54 district offices. These CORPS workers are full-time Wage and Hour Division staff charged with working with worker centers, unions, and community organizations on campaigns related to the division's targeted industries before and after investigations. These officers should also, when possible, facilitate partnerships on enforcement actions, which they have not prioritized in the past.

PROTECT WORKERS FROM MISCLASSIFICATION AS INDEPENDENT CONTRACTORS

Wage theft is much easier to monitor and prosecute when employment relations are well-defined and an employer's responsibility to its workers is clear. Lax rules under the Fair Labor Standards Act about whether workers should be classified as an employee or as an independent contractor naturally advantage employers, who are more able to litigate these legal grey areas. Classifying workers as independent contractors is a common way for companies to evade their legal responsibilities and oversight by the Wage and Hour Division.

Misclassifying workers as independent contractors, rather than as employees, allows employers to disregard most safety net protections the United States has established for workers, including wage laws, but also health and safety regulations, protection from discrimination, and the right to organize in a union. The research clearly establishes that the independent contractor classification further reduces low-wage workers' total earnings. Misclassification can economically disadvantage workers by:

  • Outright lowering their pay below the minimum wage or overtime threshold (often by forcing them into complex and ever-changing pay schemes)
  • Forcing contractors to perform work tasks while not being paid
  • Forcing workers to purchase, use, and maintain personal resources or equipment (their own cars, for instance) to accomplish their job

Though wage theft from contractors usually operates through these more elaborate and ostensibly legal channels, worker misclassification also breeds outright wage theft, as a recent case by the Federal Trade Commission against Amazon.com Inc. shows.

The Wage and Hour Division should clarify who is an employee under the Fair Labor Standards Act and who is an independent contractor. To do so, it should follow the lead of states such as Massachusetts and California, and adopt a simple test called the "ABC test" to determine employment status. Typically, the ABC test has three factors, all of which the alleged employer must demonstrate in order for the worker to be an independent contractor:

  • The worker is free, under contract and in fact, from control or direction by the company.
  • The service provided is outside the alleged employer's usual course of business.
  • The worker is customarily engaged in an independently established trade, occupation, profession, or business.

A rebuttable presumption of employee status and the ABC test should replace the economic realities test under the Fair Labor Standards Act.

Late in the Trump administration, the Wage and Hour Division released an independent contractor rule that made it easier for employers to misclassify their workers as contractors, lowering their pay in direct opposition to the goals of the Fair Labor Standards Act. Thankfully, this rule has now been delayed by the new leadership of the Wage and Hour Division. The division should go further and revoke or revise the proposed rule, and establish a new independent contractor rule that protects workers along the lines of the ABC test, fulfilling the intent of the Fair Labor Standards Act to correct "labor conditions detrimental to the … general well-being of workers."

Experts to consult

  • Kate Bahn, director of labor market policy, Washington Center for Equitable Growth
  • Janice Fine, professor of labor studies and employment relations, Rutgers University, and director of research and strategy, Center for Innovation in Worker Organization
  • Alix Gould-Werth, director of family economic security policy, Washington Center for Equitable Growth
  • Corey Husak, senior manager, government and external relations, Washington Center for Equitable Growth
  • Jenn Round, senior fellow, Center for Innovation in Worker Organization, Rutgers University
  • David Weil, dean and professor, Heller School for Social Policy and Management, Brandeis University



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