Tuesday, February 6, 2018

Links for 01-13-18



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Links for 01-13-18 // Economist's View
http://economistsview.typepad.com/economistsview/2018/01/links-for-01-13-18.html

The search for the next president of the NY Fed is a big deal - Josh Bivens Tight money is not the answer to weak productivity growth - Obstfeld and Duval Does Retirement Raise the Risk of Death? - Tim Taylor Financial variables and macroeconomic forecast errors - Fed in Print Debt issuance activity after the global financial crisis - All About Finance The Fed Delivered $80.2 Billion in Profits to the Treasury in 2017 - NY Times Wall Street versus Main Street: IOER Edition - David Beckworth Ready or Not for the Next Recession? - Barry Eichengreen Measuring the "Free" Digital Economy - Tim Taylor Biased to the powerful - Stumbling and Mumbling What early-20th-century scholars got right about 21st-century politics - Vox Lowflation: Then and Now - MacroMania Now is the time for complacency: RBA vs Bank of England - Nicholas Gruen The Fed's Inflation Target and Policy Rules - John Taylor Unauthorized Immigration: Effects and Policy Responses - FRB Richmond GDP at risk - VoxEU
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The bottom line on Trump and the economy: We’re not in good hands



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The bottom line on Trump and the economy: We're not in good hands // Blog | Economic Policy Institute
http://www.epi.org/blog/the-bottom-line-on-trump-and-the-economy-were-not-in-good-hands/

If you follow the news, it's hard to avoid the constant claims that President Trump has made, taking credit for a strong economy. This claim raises a bunch of questions, but a tl;dr assessment of the Trump economy in 2018 is pretty simple: It's good, but not great. The Trump administration deserves zero credit for its pockets of strength. And everything they've done on economic policy indicates that they will be terrible macroeconomic managers, and will bungle any challenge that comes their way in the next few years.

The longer version of this is below.

The economy going into 2018: Good, but not great

By almost any measure, the economy today is stronger than it has been in a decade. But that's a really low bar! This decade began with the worst economic crisis since the Great Depression, and the economy's growth has been severely hamstrung ever since. After eight-and-a-half years of steady recovery, the unemployment rate today sits at 4.1 percent, lower even than its pre-Great Recession level. This is unambiguously good news. But other measures of health in the job market tell a bit less-rosy story.

For example, the share of "prime-age" adults (between the ages of 25 and 54) with a job remains below its pre-Great Recession peak even after years of improvement. We would need to add millions more jobs to push it back to levels it reached in the not-so-distant past of the early 2000s. Wage growth also remains distressingly weak, and this wage weakness has blunted the incentive for employers to make productivity-enhancing investments. After all, there's not much point in spending money to economize on labor costs when workers are cheap and easy to find.

If we manage to keep unemployment at its current level (or below) for another year or more, my guess is that we'll see the flywheel start to engage for wage growth. But this might be wrong—we may need to target even lower unemployment rates. Further, it's an open question (more on this below) how long we'll be able to maintain even today's low unemployment rate.

But what about the stock market, that's going gangbusters, right? It was, but that run up was irrelevant to the living standards of the vast majority of Americans. The wealthiest 10 percent of households own 85 percent of stock (with almost half of this held by just the top 1 percent). Meanwhile, just under half of Americans hold no stock at all, even indirectly through retirement accounts (see Box 6 in this report). Further, stock price increases mostly just transfer wealth from tomorrow's aspiring wealth builders (who will have to pay steep prices to invest in the stock markets) to today's wealth holders. And the past couple of days of large declines ought to make anybody (even Donald Trump) leery about claiming credit for stock market movements for a while.

In summary, the economy is stronger than it has been in a long time, and that's good. But popping champagne corks about the economic lot of typical American workers seems awfully premature.

Trump administration deserves zero credit for pockets of economic strength

How much credit does the Trump administration deserve for the economy's good news? None. This administration inherited a steadily improving economy, one that had posted 75 months of consecutive private-sector job growth. The past year has seen the recovery continue almost exactly on pre-Trump trends.

An analogy would be the Trump administration as a doctor who inherited a patient from a retiring partner in his medical practice. The patient is young, eats a healthy diet and exercises regularly. Does Dr. Trump deserve credit if this patient makes it through a year without a medical calamity? Of course not. Someday, of course, almost all of us will need a doctor to help us navigate a health crisis, and we sure hope that doctor doesn't turn out to be a quack.

Trump administration likely to bungle future economic challenges

So will we be able to rely on the Trump administration's judgement when the economic going gets tough? To answer this, we need to know the most likely crises the U.S. economy will need to navigate in coming years.

This is pretty straightforward, as recessions largely come for three reasons: first, the Federal Reserve makes a mistake and raises interest rates too far and too fast in an effort to get out in front of inflation; second, bubbles form in financial markets and then they pop; third, fiscal policymakers engage in excessive austerity.

Has the Trump administration shown much wisdom so far about avoiding these pitfalls? Nope.

The administration has made two appointments to the Fed's Board of Governors, and refused to re-appoint Janet Yellen as its Chair. The two new appointments—Randal Quarles and Marvin Goodfriend—have both been consistently wrong about the need to raise interest rates to avoid inflation in recent years. If the Fed had followed their advice, unemployment would be considerably higher today. Janet Yellen, conversely, consistently prioritized allowing unemployment to drift lower over any need to fight forecasted (as opposed to actual) inflation. In essence, the Yellen approach was "we'll fight inflation when it actually appears and not before." Given the benefits of lowering unemployment—particularly for the most vulnerable workers and communities—this approach paid huge dividends in recent years and is largely why unemployment sits at 4.1 percent today (#ThanksYellen). Trump's picks have clearly shifted the balance of the Fed towards people who have been both wrong and more callous about the impact of the Fed's actions on the economy and working people. The possibility of a Fed mistake leading to a recession is much higher now because of these picks.

The Fed is the nation's chief financial regulator, and these same appointments mean that it will likely loosen the reins on Wall Street regulations. In one of her last speeches, Janet Yellen made a full-throated call to maintain the enhanced regulatory safeguards put into place after the 2008 financial crisis. This speech could well have contributed to her replacement—the Trump administration seems determined to let Wall Street run riot again and a commitment to smart regulation doesn't really fit with this program. Besides the new finance-friendly picks at the Fed, the Trump administration also installed Mick Mulvaney as the new head of the Consumer Financial Protection Bureau (CFPB). Mulvaney was one of the largest recipients of contributions from payday lenders as a congressman, and as CFPB head he has already rolled back key regulations protecting borrowers from predatory lenders. He also issued a memo to CFPB staff informing them that they in fact "serve" payday lenders. Republicans in Congress have pushed the Financial CHOICE Act, which would strip away many of the key safeguards and protections of the Dodd-Frank Act that was passed in the wake of the financial crisis to rein in financial sector excesses. All in all, the Trump administration seems determined to let Wall Street go back to self-policing rather than engage in meaningful oversight. This is particularly worrisome given that several financial markets today, while not obvious bubbles, do look frothy. Further, the worrisome dynamic where big asset market gains lead to low savings rates and make further economic growth contingent on continued asset market inflation may have already started. 2017, in short, was a terrible time to switch to an administration that is much more lax as a financial regulator.

Finally, fiscal austerity has been holding back the U.S. recovery for several years. In the short-run, the recently passed Tax Cuts and Jobs Act (TCJA) will actually provide some mild relief from this austerity. As poorly designed and unfair as the TCJA was, anything that spread some money into the U.S. economy would have provided a mild fiscal boost. But the other side of the Republican fiscal agenda has been calls for mammoth cuts to federal spending. If these actually came to pass, this would all but guarantee a return to recession.

President Trump was handed an economy with lots of positive momentum. His administration has spent much of the first year claiming he deserved credit for these inherited trends while simultaneously chipping away at working people's ability to benefit from this improving economy. He has also given us every reason to believe that he's the wrong man for the job of leading the economy through future challenges. We deserve better leadership than this.


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Skimpy Health Plans Put Consumers, Insurance Markets at Risk



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Skimpy Health Plans Put Consumers, Insurance Markets at Risk // Center on Budget: Comprehensive News Feed
https://www.cbpp.org/blog/skimpy-health-plans-put-consumers-insurance-markets-at-risk

The Affordable Care Act's (ACA) critics are now proposing "alternative" health coverage options that offer skimpier benefits and operate separately from regular health insurance markets that serve individuals. While recent state-level and federal proposals differ in the details, they'd have a similar result: People who buy skimpy plans would face staggering costs when they get sick, and consumers who want comprehensive coverage could face drastic premium increases.


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Global Markets Sink, Suggesting Stock Rout Will Go On



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Global Markets Sink, Suggesting Stock Rout Will Go On // NYT > Business
https://www.nytimes.com/2018/02/06/business/dealbook/stock-market.html

Shares in Japan, Hong Kong and other Asian markets plunge after a sharp drop in the U.S., as futures markets signal another tough day ahead.
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Saturday, February 3, 2018

Job Growth Slows Modestly, But Black Unemployment Falls to Record Low



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Job Growth Slows Modestly, But Black Unemployment Falls to Record Low // Economist's View
http://economistsview.typepad.com/economistsview/2018/01/job-growth-slows-modestly-but-black-unemployment-falls-to-record-low.html

Dean Baker:

Job Growth Slows Modestly, But Black Unemployment Falls to Record Low: The Bureau of Labor Statistics reported slightly weaker than expected job growth in December, with the economy adding 148,000 jobs. There was a modest downward revision to the data for the prior two months, which brought the three-month average to 204,000. The unemployment rate remained unchanged at 4.1 percent for the third consecutive month.

The best news in this report was the drop in the unemployment rate for blacks to 6.8 percent, the lowest since these data were first collected in 1972. The previous low was 7.0 percent in April of 2000. This is consistent with the view that a low unemployment rate disproportionately benefits the most disadvantaged groups. The black unemployment rate averages close to twice the white unemployment rate. This ratio has been reduced somewhat as the labor market tightened. The unemployment rate for whites in December was 3.7 percent.

Healthy job growth has continued to pull more prime-age workers (ages 25 to 54) into the labor market with the employment-to-population ratio (EPOP) edging up to 79.1 percent. This is a new high for the recovery, but it is still more than a full percentage point below its pre-recession level and 2.8 percentage points below the peak high in 2000.

It is worth noting that the EPOPs of varying demographic groups have not followed a predictable pattern since 2000. In the last recovery, women in the 25-to-34 age group showed the sharpest falloff in EPOPs. At present, they are one of the groups closest to recovering their 2000 EPOP. While men in the 25 to 34 grouping now show the sharpest falloff in EPOPs among prime-age workers, their EPOPs pretty much moved with the EPOPs for other prime-age workers in the last recovery. This suggests caution in assuming that changes in these EPOPs are due to supply-side issues as opposed to the strength of the labor market.
In this respect, it is worth noting that less-educated workers continue to be the biggest gainers from the continuing expansion. The EPOP for workers with just a high school degree has risen by 0.6 percentage points over the last year. For workers without a high school degree it has risen by 0.5 percentage points. By contrast, for workers with a college degree it is unchanged.

Other news in the household survey was mixed. All the duration measures of unemployment fell, with the average and median duration hitting new lows for the recovery, albeit still slightly higher than pre-recession levels. On the other hand, the percent of unemployment due to voluntary quits edged down to 10.9 percent. By comparison, it was over 13.7 percent in 2000.

On the payroll side, a disproportionate share of the job growth occurred in the goods-producing sector with construction adding 30,000 jobs and manufacturing adding 25,000 jobs. Employment in the mining and logging sector overall was unchanged, although coal mining lost jobs for the third consecutive month.

Health care added 31,400 jobs and restaurants added 25,100 jobs, both in line with their averages over the last year. The professional and technical services lost 4,700 jobs, the first decline in more than two years. This was driven by a loss of 15,400 jobs in accounting, a decline that is sure to be reversed as a result of the new tax law. The big loser was retail, which lost 20,300 jobs. Employment in the sector is down by 66,500 over the last year or 0.4 percent.

The most troublesome item in this report is the continued weakness of wages. The average hourly wage rose 2.5 percent over the last year, but this may actually be slowing. The annual rate for the last three months compared with the prior three months has been just 1.7 percent.

The weakest wage growth has been in manufacturing, where wages have risen by just 1.6 percent over the last year, and mining and logging, where the increase has been just 0.3 percent. This is consistent with production shifting from higher-paying union sites to lower paying non-union sites. Wages in retail have risen by a weak 2.1 percent, while in accommodation and food services they have risen by 3.6 percent, likely reflecting the impact of higher minimum wages.

On the whole, this is a positive report, but it certainly indicates no basis for concern about the labor market overheating.


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Year one of the Trump administration: Normalizing itself by working for the top 1 percent



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Year one of the Trump administration: Normalizing itself by working for the top 1 percent // Blog | Economic Policy Institute
http://www.epi.org/blog/year-one-of-the-trump-administration/

Tomorrow, President Trump is set to deliver his first State of the Union speech, in which he will likely provide a triumphalist account of the economic policy changes made during the first year of his presidency. But despite big talk on the campaign trail about how he would stand up for the forgotten working man (for Trump, it was always men who were left behind), the first year of the Trump presidency has been no triumph for typical American workers. Instead the big winners over the past year have been the already rich.

This really shouldn't come as a surprise. Trump's was crystal clear in his inaugural address about who he considers the cause of American workers' disempowerment: foreigners. This diagnosis is stunning not just in how wrong and bigoted it is, but how cynically it attempts to distract from the privileged group that really was reaping gains that should have been broadly shared—the top 1 percent and their enablers. His agenda of continuing the upward redistribution of income to this top 1 percent while scapegoating immigrants and allegedly nefarious foreign governments is essentially the orthodoxy among the Republican Congressional majority, and it will do nothing to help America's workers.

The cynicism is clearest when considering the signature piece of legislation signed by Trump, the Tax Cuts and Jobs Act (TCJA). The TCJA provides a number of temporary tax cuts to households, most of which will accrue to those at the top of the income distribution. But it saves its permanent tax cuts for the nation's corporations, whose profits eventually flow overwhelmingly to the richest households in America. By 2027, when the household tax cuts have expired but the corporate tax cuts remain, the top 1 percent will see 83 percent of the gains from the TCJA. Corporations have been so giddy about the windfall they've reaped from the TCJA that they've mounted an absurdly transparent public relations campaign on its behalf, claiming that every bonus and wage increase they have bestowed since its passage was somehow the result of it—even those that occurred before the TCJA actually took effect. This is, needless to say, not how economics argues that tax cuts can potentially boost wages. It's also important to note that in any given year about half of all workers see raises, and nearly 40 percent receive bonuses. In short, it is extremely likely that not a single worker who wasn't a high-placed CEO or corporate manager has seen a raise because of the TCJA. And if they got a bonus this year because of the TCJA, it was a likely a one-time attempt by their employer to sneak in a deductible expense before the tax cuts made these deductions less profitable, and no future TCJA-linked bonuses will be seen again.

Meanwhile, although the composition of the Federal Reserve Board of Governors generates a lot less heat than debates over the TCJA, Trump's first two picks for new Fed governors—Randal Quarles and Marvin Goodfriend—are likely to do great damage to American workers. Both of these new governors have been fierce critics of Fed actions since the Great Recession that consistently pushed the economy more quickly towards recovery. Goodfriend, in particular, was notably wrong in his predictions. With the unemployment rate still at 7 percent in 2012, he argued that the Fed should have stopped trying to support further recovery because its efforts would fail to reduce unemployment any more, and would instead have just sparked out-of-control inflation. Since then, the unemployment rate has dropped 3 percentage points—allowing about 4.5 million workers to find jobs—and inflation is still below, not above, the Fed's stated target of 2 percent. Both Quarles and Goodfriend have also consistently argued that the regulatory safeguards put in place after the financial crisis of 2008 should be rolled back. Giving up on American workers with the unemployment rate still at 7 percent while wringing their hands over regulations that might restrict possibilities for Wall Street profit-making doesn't sound much like "standing up for the forgotten." Worse, the Trump administration has three more vacancies on the Fed Board of Governors left to fill. This is in part because while he was elevating friends of Wall Street in the Fed, President Trump also broke with a long precedent and failed to re-appoint the incumbent Fed Chair, Janet Yellen. Economic observers and economists are nearly united in their view that Yellen is easily the most-qualified person ever to have held the job of Fed Chair, and that her performance in that role was exemplary. Failing to re-appoint Yellen was simply a triumph of sexism and partisanship over merit.

Protecting Wall Street is a common theme in the first year of the Trump presidency. Besides his Fed picks, Trump has also installed Mick Mulvaney as the head of the Consumer Financial Protection Bureau (CFPB). Mulvaney is a long-time enemy of the CFPB, and has already rolled back regulations protecting borrowers from the worst abuses of payday lenders. As a congressman from South Carolina, Mulvaney ranked ninth among all his peers in how much money he raised from the payday lending industry. Their investment has paid off well. Besides the regulatory rollbacks, Mulvaney also released a memo to CFPB staff informing them that the Bureau exists to "serve" these and other financial institutions.

The attack on regulations that bolster the economic security of working Americans is another common theme in the first year of the Trump presidency. His administration has, for example, delayed key provisions of the fiduciary rule and signaled its intention to weaken it further. While "fiduciary rule" sounds wonkish, it's not. It's a rule that simply states that financial advisors are not allowed to cheat their clients by doing things like steering their money into vehicles that provide low rates of return to the clients but high fees to the advisors. It is the rock-bottom lowest standard that one could imagine for an industry that exists to help working Americans manage their financial decisions. Conflicted advice that steered money to financial vehicles that generated high fees for advisors rather than high returns for savers costs Americans about $17 billion each year. This is $17 billion transferred directly from working Americans to Wall Street firms. The fiduciary rule was designed to stop this transfer, but the Trump administration is working hard to make sure it continues.

Aside from the fiduciary rule, the Trump administration has also made clear its intention to undermine the improved threshold defining who is automatically entitled to overtime pay. Before 2016, only workers earning less than $23,660 a year were automatically eligible for overtime protections based on their pay. The Obama administration increased this threshold to roughly $47,500—a moderate level, given that if it had simply been adjusted for inflation over the past 40 years, it would be well over $50,000. The Trump administration argues that this is too high, and if they have their way millions of workers will lose the right to be paid anything for hours they work in excess of 40 per week.

A particularly recent regulatory attack on workers is the "tip stealing" rule, another rollback of an Obama-era regulation. In 2011, the Obama administration issued a rule that codified the long-standing DOL practice of safeguarding tips as the property of workers, not employers. The Trump administration has proposed a rule that would rescind portions of those regulations and allow restaurant owners to confiscate tips. The administration often claims that this rule would simply allow owners to pool tips and cut in back-of-the-house workers. But the rule as written explicitly allows owners to simply keep the money and not distribute it to employees. We estimate that as a result of the rule, $5.8 billion would be transferred from workers to employers, with nearly 80 percent of that—$4.6 billion— taken from women who are working in tipped jobs.

Further, by nominating Neil Gorsuch—who has a record of ruling against workers and siding with corporate interests— to the Supreme Court, Trump has stacked the Court against workers. Trump has also nominated Cheryl Stanton to serve as the administrator of the Wage and Hour Division at DOL and Rob Emanuel and Peter Robb to serve as member and general counsel of the NLRB, respectively. All three of these nominations to fill important posts at agencies that are supposed to protect workers' rights fall squarely in the "fox guarding the henhouse" category, as all have spent their careers representing employers, not workers.

Besides changing federal regulations, the Trump administration has also opened up room for states to change rules governing Medicaid eligibility. Specifically, they have changed rules to allow states to introduce work requirements for Medicaid recipients. It is hard to overstate how cruel and stupid this policy change would be. For one, the vast majority of non-elderly, non-disabled adults on Medicaid already live in households with a worker. For another, those non-elderly, non-disabled adult son Medicaid that don't work often don't because they are caring for a child or an elderly relative or going to school. Further, Medicaid eligibility is already restricted by an income test—those on Medicaid have very low incomes and clearly face large obstacles to finding steady work. These obstacles will balloon the next time there is a recession, and a work-requirement will end up simply punishing some of the most vulnerable families in America because of the business cycle. Finally, there are numerous well-documented advantages to large public insurance programs. Medicare and Medicaid, for example, have done a far better job than private-sector health insurance companies in restraining cost-growth, even for commonly-defined benefits. The long-run push in American health reform should be to enroll more, not fewer, people in these large public plans, as the most promising strategy for containing costs without simply denying care to people.

Finally, the most salient issue right now in American politics is the fate of the DREAMers—undocumented immigrants who were brought to the United States by their parents as children and who have lived their lives here and become as American as anybody else in the country. (They are called DREAMers after the DREAM Act—or, the Development, Relief, and Education for Alien Minors Act—which was proposed to provide them residency status followed by a (quite long) path to citizenship). There was once broad public agreement that the DREAMers should be protected and allowed to continue living in the United States permanently, eventually as full-fledged citizens. But because the congressional Republican majority is terrified of the loud and bigoted minority of voters who are opposed to helping the DREAMers, in 2012 the Obama administration started the Deferred Action for Childhood Arrivals (DACA) policy, which allowed DREAMers to be free of worry about forced removal from the United States, go to college, and obtain 2-year renewable work permits. The DACA status quo inherited by the Trump administration was far from optimal, but it at least protected DREAMers who met DACA's requirements—and kept us from becoming a country that would round up nearly a million people who had done nothing wrong and knew no other country, destroying their lives by exiling them to nations that were completely foreign to them. Months ago, the Trump administration tore up this status quo for no reason except to cater to their bigoted base voters. They now are seeking to use the manufactured crisis of ending DACA to leverage draconian changes to overall immigration policy in exchange for cleaning up the mess they made. The most recent immigration demands of the Trump administration in exchange for providing security to DREAMers are: clamping down on family re-unification immigration, ramping up arrests and deportations by Immigration and Customs Enforcement officials, further militarizing the border, and, crucially, providing no path to legalization for the more than 9 million unauthorized immigrants who aren't DREAMers. These demands would provide no relief to American workers hoping for better jobs and wage growth; indeed, the smart move to boost wages with immigration policy is to bring unauthorized immigrants out of the shadows and into legal status and citizenship so that they enjoy the full protections of employment law. If these workers could no longer be easily exploited, their wages would rise and put less intense downward pressure on the wages of U.S. workers. Instead, the Trump immigration demands are about indulging the bigotry and xenophobia of their base.

The first year of the Trump presidency has been a steady stream of attacks on the economic security of anybody who relies on work rather than wealth as a source of income. Recent weeks have seen much talk about the "normalization" of Trump, with many pointing out that the Trump economic agenda is actually not out-of-step at all with the preferences of more mainstream conservative Republican policymakers like House Speaker Paul Ryan. This does not make it any better. Instead it highlights how united the Republican majority in Congress is around the Trump agenda, and points out the need for an alternative that tries to restore economic leverage, bargaining power, and security to America's low- and middle-income families. The only silver lining of the Trump presidency is that his unique unlikability has made more Americans pay attention to policy debates. And when Americans pay attention, it turns out they really don't like the conservative Republican agenda.


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