EPI: The U.S. economy could use some ‘overheating’: Biden’s relief and recovery plan meets the scale of the economic crisis [feedly]

The U.S. economy could use some 'overheating': Biden's relief and recovery plan meets the scale of the economic crisis
https://www.epi.org/blog/the-u-s-economy-could-use-some-overheating-bidens-relief-and-recovery-plan-meets-the-scale-of-the-economic-crisis/

Key takeaways:

• President-elect Biden's recently announced relief and recovery plan is highly unlikely to cause economic "overheating"—and it would be a sign of its success if it did.
• Economic "overheating" generally means large and prolonged increase in inflation and/or interest rates, but the U.S. economy has run far "too cold" for decades, largely due to the enormous rise in income inequality redistributing income to richer households that save most of their income. Unless inequality is substantially reversed, economic overheating is highly unlikely.
• Even when the unemployment rate was 3.7% in 2019, there was no sign at all of economic overheating. Any relief and recovery plan would have to push the unemployment far beneath this for an extended period of time before any real overheating could happen.
• Common metrics that deficit hawks often point to as evidence of economic overheating are not convincing.
  • The debt service burden is actually historically low in recent years due to the too-cold economy of recent decades.
  • The overall ratio of federal debt to GDP would actually likely be lower years from now if Congress passed the Biden plan, because such plans would increase GDP.

Recent proposals for large-scale fiscal relief and recovery from the economic effects of COVID-19 have drawn criticism that they could lead to "overheating" of the U.S. economy. These criticisms should be ignored. Proposals under discussion—including Biden's economic plan introduced tonight—are highly unlikely to lead to any durable uptick in inflation or interest rates (the normal indicators of "overheating") and even if they did, these higher interest rates and inflation would be a welcome sign of economic healing, not something to worry about.

Warnings about economic "overheating" normally mean that growth in spending by households, businesses, and governments (known as aggregate demand) will outpace growth in the economy's productive capacity—the stock of potential workers and capital that can be used to produce goods and services to satisfy aggregate demand. When demand growth outpaces growth in the economy's productive capacity, the result can be upward pressure on inflation (too much demand chasing too few goods and services, which drives up prices). In normal times, the Federal Reserve is the nation's inflation guard dog, and if upward pressure on inflation threatens to move it durably above what the Federal Reserve has announced as its inflation target (2%), the Fed will raise interest rates to slow growth in aggregate demand. The overheating concern is often directed at any deficit-financed fiscal plan, as the Biden relief and recovery plan appropriately is.

But profound changes in the U.S. and global economies over the past generation have made it much harder to "overheat" the economy and, in fact, have made a too-cold economy the bigger problem. Most notably, the huge rise in inequality has redistributed income to wealthier households that are much more likely to save it than spend it. All else equal, this has slowed aggregate demand growth and made it less necessary for the Fed to raise interest rates to fight off inflation driven by overheating (sometimes this chronic demand shortfall is called "secular stagnation," sometimes it is referenced as the "falling neutral rate of interest," but the upshot is clearly that demand growth is running too cold).

Some quick numbers to make the point: Between 1979 and 2000, the main interest rate controlled by the Fed averaged over 7%. Since 2000 it has averaged 1.7%, and since 2007 less than 1%. Overheating has become a far less pressing problem for the U.S. economy, even if too many economic observers and policymakers haven't fully realized it.

The 2019 labor market—the last year before the COVID-19 shock—also illustrates how hard it is to overheat the modern U.S. economy. The unemployment rate averaged 3.7% that year, the lowest level since 1969. Normally, this unemployment rate would be low enough to make economists worry that empowered workers would demand wage increases in excess of the economy's ability to deliver them, leading to wage-driven inflation. However, wage growth actually slowed in 2019, but for mostly good reasons: The high-pressure labor market was drawing in less experienced and credentialed workers who normally have more trouble finding steady work, and adding these lower-paid workers to wage data mechanically slowed measures of average wage growth. And yet, even as these workers were added to the workforce and wage growth slowed, productivity—or how much income is produced in the economy overall by an average hour of work—grew faster, expanding the economy's ability to produce goods and services and dampening inflationary pressures. This rise in productivity as labor markets tightened was predictable and provided a built-in check against overheating. In turn, core inflation in 2019 didn't accelerate measurably at all.

The Fed itself has been far more worried about too-low inflation than overheating in the last decade. They have stressed that their inflation target should not be interpreted as a hard ceiling above which inflation is never allowed to go. Instead, they have clarified that the 2% inflation target is a "flexible average inflation target" over time. Practically, this implies that long periods of inflation below 2% should be made up by extended periods above 2% before interest rates are raised. Given that inflation spent most of the past 14 years well below this target, it would take a relatively long period of inflation significantly higher than 2% before the Fed would begin steadily raising interest rates.

The upshot of this examination of the 2019 economy is that a relief and recovery plan could—and should—push the unemployment rate substantially lower than what prevailed pre-COVID before it was clear that the Federal Reserve would be hesitant to even begin raising interest rates. With that said, it is far from clear that even the admirably ambitious Biden plan would push the unemployment rate far beneath its 2019 level anytime soon. Because the chronic demand shortfalls of the last decade or more have led to historically low interest rates, they have significantly eroded one standard measure of the burden of federal debt: interest payments on this debt expressed as a share of overall gross domestic product (GDP). Despite a large rise in the overall debt as a share of GDP (more on this below) in recent years, falling interest rates have kept the debt service burden historically low. In fact, adjusted for inflation, the debt service "burden" is negative, meaning that investors are paying the Federal government for taking on its debt. Too often, commenters mistakenly treat this low debt service burden as a lucky fluke that could reverse any day. But it's not a fluke, it's the outcome of the bigger problem of the chronic shortfall in demand—a problem that was been with us (and growing) for decades and that will only be clearly solved when policymakers address its root causes, such as growing income inequality.

Those looking to whip up fears about federal debt often point to another (less informative) measure: the overall ratio of federal debt to GDP. Despite common claims, this measure tells us nothing about how "sustainable" the federal debt is, since it is entirely a backward-looking measure (i.e., the current stock of debt tells us only about deficits run in the past that resulted in this debt but tells us nothing about the likely trajectory of debt or GDP going forward). But setting aside this measure's irrelevance for debt sustainability, it is far from clear that the Biden relief and recovery plan will even increasethis measure in the medium term. What happens to the ratio depends on both the numerator (debt) and the denominator (GDP). If additions to debt are used to finance spending and investment and relief measures that raise GDP, then this will serve to reduce the debt ratio. The Biden plans will indeed raise GDP— the evidence showing that deficit-financed spending undertaken during times of economic distress boosts growth is huge and incontrovertible. This extra GDP growth will in turn boost tax revenues, which will put some downward pressure on debt growth relative to the status quo—that is, a nontrivial part of these spending and relief measures will be self-financing. In fact, when assessing the various influences together as a whole, it is highly likely that the debt ratio five years from now would be lower because the Biden relief and recovery plan will lead to a much faster recovery than if we hadn't acted.

The possibility of a lower debt ratio emerging due to the relief and recovery plan is not, obviously, the reason to undertake this. The plan should be undertaken because the U.S. economy remains deeply damaged, people are suffering, and it's time policymakers made a labor market with plenty of jobs and sustained upward pressure on wages a top priority. But the likely prospect of this package actually reducing the debt ratio just shows how misplaced typical anti-deficit arguments are in this time.

We've suffered from a too-cold economy for far too long—it's time to turn up the heat, a lot. To its credit, the Biden relief and recovery plan aims to do this.

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Dean Baker: On the Biden BILL: Debt and Deficits, Yet Again [feedly]

Debt and Deficits, Yet Again
http://feedproxy.google.com/~r/beat_the_press/~3/ZkvVHVCMHkA/

With a Democrat in the White House, the season of the deficit hawk has returned. So, it's worth going through the old arguments just to remind everyone that the best response to these people is ridicule.

It looks like President Biden will propose a robust stimulus package of well over $1 trillion. According to press accounts, the package is likely to include another check for $2,000. (I believe it is supposed to $1,400 above the $600 in the last package.) It is likely to include a refundable child tax credit that will do much to reduce child poverty.

It will also include money to state and local governments to make up massive pandemic induced shortfalls. There will also be money for mass transit and a down payment on green new deal programs. Biden also plans to increase the subsidies provided in the Affordable Care Act, to make its insurance more affordable. And, he is likely to ask for a reduction in the age of Medicare eligibility.  

In other words, this will be a really big deal. And, it will cost money. Biden will propose tax increases on the rich and corporations, but there is little doubt there will be a large increase in the deficit and the debt. So should we be worried?

The immediate issue is the deficit. The deficit hawks will be screaming that the Biden package will over-stimulate the economy, leading to rising interest rates and inflation. There is some truth to these claims, but we have to think clearly about what is at issue.

Interest rates have been extraordinarily low following the pandemic shutdown as the Federal Reserve Board sought to use the power it had to boost the economy. It set short-term interest rates to zero and brought the long-term interest rate on Treasury bonds down to 0.5 percent. Long-term rates have crept up over 1.0 percent, both due to economic recovery and the expectation that Biden will have a robust rescue package.

When Biden puts his proposal on the table, it is likely to push interest rates higher and they will rise further when we actually see the spending taking place. This should not bother us. We more typically have seen long-term interest rates in the 4-6 percent range and considerably higher in the decades of the 1970s and 1980s.

We saw interest rates first plummet in the Great Recession before recovering modestly in the recovery. They then plummeted again with the shutdown. Suppose interest rates return to the 4-6 percent range we saw before the Great Recession. What's the problem?

Interest rates in this range would have been considered normal, or even low, prior to the Great Recession. Higher interest rates will have some negative effects. We will see less construction, mortgage refinancing will slow sharply, and there will be a modest falloff in public and private investment. The dollar will also likely rise. This will make U.S. goods and services less competitive internationally, leading to a somewhat higher trade deficit.

These downsides are real, but if we are engaged in useful spending, like reducing child poverty, rescuing state and local governments so that they can maintain vital public services, slowing global warming, extending health care coverage, then these costs seem minor by comparison. In any case, it is hard to understand how having the same interest rates we saw in the 1990s and pre-Great Recession 00s is supposed to be a major catastrophe.

There is also the issue that we might see higher inflation. This also needs a big "so what?" The Fed sets a target of 2.0 percent inflation. This is supposed to be an average, not a ceiling. We have not hit this target since before the Great Recession. (The measure targeted by the Fed is the core Personal Consumption Expenditure Deflator (PCE), which is consistently 0.2-0.4 percentage points lower than the Consumer Price Index we more often see mentioned in the media.)

Suppose the inflation rate increases by 1.0 percentage point. The core PCE increased by 1.4 percentage points over the last year. A 1.0 percentage point increase puts us at 2.4 percent. This is totally consistent with the Fed's target of a 2.0 percent average inflation rate. (We can debate whether the 2.0 percent target is even appropriate, but let's ignore that for now.)

If we continue to push the economy too hard, we can see inflation rise further, hitting rates that should trouble us. But there are no models that show inflation just jumping from a modest level to more worrisome levels, barring some sort of catastrophe like a climate disaster or war. The Fed is totally prepared to take steps to slow the economy if inflation threatens to be a problem.

In short, there seems little basis for concern that too much spending will create a dangerous inflationary spiral. In addition to the valuable goals that will be furthered by this spending, we also can see the economy move back to full employment, with workers enjoying increased bargaining power.

As I and others (including Fed Chair Jerome Powell) have frequently argued, low unemployment disproportionately benefits the most disadvantaged in the labor market. The sharpest gains in employment and wages will be seen by Blacks, Hispanics, the less educated, people with disabilities, and people with criminal records. This is a really huge deal for those concerned about inequality and racial justice.

The Hit to the Stock Market

There is one issue with higher interest rates that should be noted. If long-term interest rates rise even back to pre-pandemic levels, it could lead to a substantial decline in the stock market. One of the reasons the stock market was so strong in 2020 was that there were few alternative options for investors. With long-term interest rates under 1.0 percent, the return from holding government bonds was extremely low. Also, investors took a risk of large capital losses on their bonds if interest rates rise. If the interest were 2.5 percent or 3.0 percent, holding bonds looks much better. Also, there is much less risk of a capital loss due to further rises in interest rates.

With bonds becoming a more attractive alternative, many investors will switch from stocks to bonds, putting downward pressure on stock prices. It wouldn't be unreasonable to see a 20 or 30 percent drop in stock prices. While the Donald Trump whiners will be screaming bloody murder, more serious people need not be concerned. The vast majority of stock is held by the richest of the population, with close to half held by the top one percent. A drop in stock prices would mostly be hitting the wealth of the relatively affluent and the very rich.

We should think of stock prices as being like wheat prices. A drop in wheat prices is bad news for wheat farmers, but for the rest of us, it might mean lower bread prices. We should think of the stock market the same way. Lower stock prices are not necessarily bad for the economy (they can be if the drop is due to a plunge in the economy), but they are bad news for the wealth holdings of the very rich.

Of course, not everyone who owns stock is rich. Plenty of middle-class people own stock. Also, pension funds are heavily invested in the stock market. While we may not be happy to see these folks take a hit, there are two points to keep in mind.

There was an extraordinary run-up in stock prices in the years following the Great Recession. If the market were to fall 20, or even 30, percent, investors would still be looking at a pretty good return in the last decade. They have little grounds for complaint.

The other point is that if we look at the annual returns to stockholders from dividends and share buybacks, there is little reason to think they would be hurt. If we look at a company like Apple or Walmart, their profits are likely to be just as good, or possibly even better, with a robust Biden rescue package. This means that on annual basis, these shareholders will be getting just as much money with lower stock prices as do with the current high stock prices. They have a loss of wealth, but their income from their stocks should be little affected.

Long and short, we should not be worried if we see a stock market correction in the next year or two. We need to worry about employment, wages, and other factors affecting the living standards of the bulk of the population. A drop in the stock market need not be a cause for concern.

 

The Debt and our Children

Perhaps the most pathetic argument against an ambitious rescue package is that the debt will be an enormous burden on our children. This argument usually begins and ends by pointing out that the debt is a really large number. (It is.) But throwing out a really big number doesn't tell us anything about the burden of the debt.

This is measured by the interest we pay. Last year, we paid $338 billion in interest, this year we are projected to pay $290 billion. Measured as a share of GDP, last year our interest payments came to around 1.6 percent, this year's payments are projected at 1.4 percent. By comparison, in the early and mid-1990s (a very prosperous decade) our interest burden was over 3.0 percent of GDP.

But even the 1.6 percent figure overstates the actual burden. The Federal Reserve Board currently holds trillions of dollars of government debt. The interest paid on the debt held by the Fed is refunded right back to the Treasury. Last year the Fed paid $88.5 billion to the Treasury, reducing the true interest burden by 0.4 percentage points, which leaves the interest burden at only slightly above 1.0 percentage point of GDP.

The deficit hawks rightly point out that if interest rates rise then the burden will be greater, but this ignores two points. First, interest rates are only likely to rise very much if inflation increases, in which case inflation will be eroding the real value of the debt and the burden on our children.

The other point is that higher interest rates will only gradually raise the interest burden. Much of the debt outstanding is long-term, which means that we will only see higher payments when a ten-year or thirty-year bond expires. So the idea we will suddenly be facing a crushing interest burden doesn't make any sense.

 

Debt Burden and the Burden of Government-Granted Patent and Copyright Monopolies

The deficit hawks not only exaggerate the burden of deficits and debt, they are not honest about them. Direct spending is only one way in which the government pays for things. It also pays for services by offering patent and copyright monopolies. By my calculations, these government-granted monopolies cost the economy over $1 trillion a year in higher prices for drugs, medical equipment, software, and other items.

This is a real burden that swamps the interest payments that the deficit hawks tell us will impoverish our children and grandchildren. I have never seen any economist other than myself make this point, so I will try to explain the issue in a way that even an economist can understand.

Suppose the government were to spend another $90 billion a year on developing prescription drugs, replacing what the industry currently spends. (This is in addition to the $45 billion we spend annually through the National Institutes of Health and other governmental agencies.) This $90 billion would be added to other spending and would add to the debt, with an implied future interest burden.

Suppose that to cover this spending, the government raised taxes on prescription drugs to cover the future interest cost. While the taxes will mean future deficits would be lower, they don't change the fact that the additional spending has added to our debt.

Instead of paying for the development of new drugs with direct spending, we pay for the development of new drugs by granting patent monopolies. These monopolies effectively allow drug companies to impose a tax on prescription drugs. It makes no sense to say that the interest we pay on the debt from direct government spending is a burden, but the patent rents that drug companies are allowed to collect are not a burden. In the case of prescription drugs alone, I calculated the burden in the form of higher drug prices to be close to $400 billion a year.

I'm not raising this point to say that our debt burdens are even higher than the deficit hawks claim, I'm raising the issue to make the point that our debt burden really doesn't tell us anything about the hardships we are imposing on future generations.

We will hand down a whole economy and society to future generations. If we had zero national debt, but massive amounts of patent and copyright rents, it would be hard to claim that we had served them well.

But the issue goes much further. If we fail to educate our children, with more than one-sixth growing up in poverty, we have not done well by future generations. If we leave them a decrepit infrastructure, we will not have served future generations well. And, if we destroy the natural environment by not arresting global warming and destroying the country's natural beauty, we will not have been fair to our children.

In short, the debt doesn't really measure anything. Highlighting the debt is a way for people with a political agenda to oppose spending that they don't like. It is not an honest complaint and doesn't deserve to be treated as such.

We should have a serious debate of whether the specific items being put forward by President-Elect Biden are a good use of resources. They will surely be grounds for real criticisms. But the complaint that they will add to the debt should simply be laughed out of the public debate.

The post Debt and Deficits, Yet Again appeared first on Center for Economic and Policy Research.

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The DeFazio Bill: Reducing the Financial Industry’s Tax on Retirement Savings [feedly]

The DeFazio Bill: Reducing the Financial Industry's Tax on Retirement Savings
http://feedproxy.google.com/~r/beat_the_press/~3/h8hHumfQ4TQ/

Representative Peter DeFazio, along with seven House co-sponsors, introduced the "Wall Street Tax Act" today. This bill would impose a tax of 0.1 percent of sales of stocks, bonds, options, and other derivatives. According to the Congressional Budget Office, it would raise almost $800 billion over the course of the next decade. This would be more than enough to cover the entire food stamp budget over this period. It would be almost enough to fully replace the annual research spending of the pharmaceutical industry, which would mean that all new drugs could be sold as cheap generics from the day they approved by the Food and Drug Administration. In short, this is real money.

The financial industry is already screaming bloody murder over this bill for an obvious reason – it comes out of their hide. The financial industry has been ripping off retirement savers for decades with exorbitant fees and excessive trading. It's not uncommon for an insurance company or brokerage house to charge people 1.0 percent a year or more for the privilege of letting them host your 401(k) or IRA. Just to be clear, this is simply what they charge for hosting the account. They charge additional fees for the various funds (e.g. stock or bond index or value fund) in which people actually invest their money.

This means that a person with $100,000 in a 401(k) may be paying $1,000 a year to an insurance company or a brokerage house, for essentially nothing. Then we add in the fees for the individual funds. If they actively trade your account, these can easily run to another 1.0 percent annually, and often considerably more. It would not be uncommon for someone to be handing the financial industry 2.0 percent of their 401(k) every year, or $2,000 for this person with $100,000 in their account.

The DeFazio bill will take a bite out of the industry's take. The story is a simple one. It will make it more costly to trade financial assets. The industry will be hyping the additional trading cost as the end of the world.

Some simple arithmetic shows that the additional costs are not much for retirement savers to get excited over. Suppose our investor with $100,000 in their account trades 25 percent each year. This would be $25,000 in trades. The DeFazio bill would tax these trades at a rate of 0.1 percent. That comes to $25 a year, assuming the industry fully passes on the tax to investors. That doesn't sound too devastating and in fact is trivial compared to the $1,000 to $2,000 that the financial industry might be pocketing off this person's account.

But wait, it gets better. When the cost of trading goes up, people do less trading – sort of like when the price of apples go up we expect people to buy fewer apples. Most research indicates the decline in the volume of trading will be roughly proportional to the percentage increase in the cost. This means, for example, if the DeFazio bill raises the cost of trading by 30 percent, then the amount an account is traded will be reduced by roughly 30 percent.[1]

If each trade costs the account holder 30 percent more, but they reduce their trading by 30 percent, then the total cost of trading will be essentially unchanged. That means the $25 cost to this investor that we just calculated is actually close to the zero. The $25 comes out of the pockets of the financial industry, since it will be collecting less money in fees and commissions on trading. And now you understand why they hate the DeFazio bill.

There is a part of this story that always leaves people uneasy. If accounts are trading less, then won't investors be earning less money? The answer to this is no.

Every trade has a winner and a loser. If I was lucky enough to sell shares of stock before the price fell, then I ended up ahead on the deal. But there was some sucker who had the misfortune to have bought the stock just before the price drop. On average, we end up winners half the time and losers half the time, so no, on average we don't gain from trading and we won't suffer from less trading.[2] (Yes, there are some very astute fund managers that consistently beat the market, you don't have one.)  

The financial industry doesn't like it when people point out that investors don't make money from trading, since it makes it clear what the real tax on retirement savings is – the industry's fees. But that is the reality, and DeFazio is proposing a bill that will substantially reduce the size of the financial industry's tax on our savings.

And, we can use this money for important public purposes, like providing child care or combatting global warming. This is a tax we need.

[1] I realize most people are not directly trading their account. This means that fund managers will reduce the amount they trade by roughly 30 percent.

[2] There is of course a value to being able to trade stocks, bonds and other financial assets, so there would be a problem if trading fell to zero or something close to it. But we don't have to worry about that story. Trading volume today is more than twice what it was in the 1990s, when almost everyone would agree we had very robust capital markets. This means that even if we saw sharp declines in volume we need not be concerned about being able to cash out of our 401(k) when we retired, or if we needed the money for an emergency.

The post The DeFazio Bill: Reducing the Financial Industry's Tax on Retirement Savings appeared first on Center for Economic and Policy Research.

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Enlighten Radio:Talkin Socialism: The Fascist Putsch

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Blog: Enlighten Radio
Post: Talkin Socialism: The Fascist Putsch
Link: https://www.enlightenradio.org/2021/01/talkin-socialism-fascist-putsch.html

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Equitable Growth: U.S. retail sector’s recession experiences highlight continuing labor market travails [feedly]

U.S. retail sector's recession experiences highlight continuing labor market travails
https://equitablegrowth.org/u-s-retail-sectors-recession-experiences-highlight-continuing-labor-market-travails/

The coronavirus pandemic and the ensuing economic recession has changed the structure of the U.S. labor market. Public health measures require limiting in-person services, and as a result, many industries saw sharp declines in employment in the springtime. Some industries, such as leisure and hospitality, then experienced a second downturn as the pandemic surged in the winter. Other industries that faced structural changes over the long term have seen some of those processes sped up.

In this column, we examine how the retail industry has been affected by the coronavirus recession, how this has been influenced by preexisting trends in the industry, and what this means for worker well-being of those employed across different types of retail jobs.

The latest Employment Situation Summary, released on January 8 by the Bureau of Labor Statistics, also known as the Jobs Report, shows that between mid-November and mid-December of 2020, the U.S. economy lost 140,000 nonfarm payroll jobs. Among the major U.S. industries, employment declines were especially large for the leisure and hospitality sector, which lost nearly half a million jobs. Government lost 20,000 jobs, making December the fourth consecutive month in which public-sector employment declined. But other industries saw important gains. The professional and business services and retail trade sectors added 161,000 and 121,000 jobs, respectively. (See Figure 1.)

Figure 1

Despite these gains, in December 2020, the retail sector employed 410,000 fewer workers than in February of that year. Moreover, the coronavirus recession hit some parts of the industry much harder than others. For instance, the number of jobs in sports, hobby, book, and music stores shrunk more than 17 percent between February 2020 and December 2020. Almost 1 in 4 clothing store jobs have been lost since the onset of the crisis. At the same time, garden supply stores, nonstore retailers, and general merchandise stores—which include warehouse clubs and supercenters—have actually grown amid the economic downturn. (See Figure 2.)

 Figure 2

This uneven effect on retail reflects two important features of the coronavirus recession. First, because the measures needed to contain the dual economic and health crises affected both demand for goods and services and the operations of many retailers, workers employed in nonessential businesses and holding jobs that require face-to-face interactions have generally been more exposed to layoffs. For the frontline retail workers who kept their jobs, going to work became much riskier. 

Second, and as with other economic trends, the downturn could be accelerating dynamics that were reshaping the retail sector well before the onset of the recession. Over the past decade, the sector's somewhat sluggish recovery from the Great Recession of 2007–2009 was marked by the growth of e-commerce and bankruptcies of well-known apparel and department stores that  media reports called a "retail apocalypse." Even though there is evidence that the degree to which the industry is declining is overstated, retail employment fell somewhat since reaching its peak in early 2017, and is not projected to grow in the next decade.

Additionally, the same parts of the industry that are being hardest hit by the current downturn—clothing, sporting goods, and personal care stores, for example—have shrunk relative to the size of the retail sector since at least 2007. (See Figure 3.)

Figure 3

What does this mean for U.S. retail workers? In the immediate term, continued job losses in the retail sector are hurting some of the most vulnerable workers in the U.S. economy. For instance, 2019 research shows that retail salespersons—a position in which women workers, Black workers, and Latinx workers make up a disproportionately large share of the workforce—represent more than 8 percent of all low-wage U.S. workers, a significantly higher share than any other single occupation. More broadly, the sector pays the second-lowest average wages of any major U.S. industry. Only a small fraction of workers has access to employer-provided benefits. In addition to poor compensation, features of bad-quality jobs, such as unpredictable schedules and high rates of turnover, are rife across the retail industry. 

As for longer-term implications, research from the Urban Institute finds that retail jobs are often the first rung in workers' career ladders, making good jobs in retail an important piece of career advancement and influencing lifetime earnings growth. And while many workers transition out of the retail sector when switching jobs, workers of color in general and Black women in particular are less likely than their White counterparts to exit service and retail occupations. As such, policymakers should prioritize measures that improve labor standards amid the cyclical downward pressures on job quality. 

One way to do this is to raise the wage floor. Even though more than one-fifth of retail jobs earn the minimum wage, nearly 30 states increased minimum wages at the beginning of this month. Maintaining minimum wage increases is a critical part of boosting wage growth in the eventual economic recovery. Research from Kevin Rinz and John Voorheis of the U.S. Census Bureau estimates that some of the worst earning losses of the Great Recession would have been partially offset if the federal minimum wage was increased at the magnitude of the increase in Seattle between 2013 and 2016.

In addition to maintaining and increasing job standards, the overall decline in job growth in December and the persistent decline of employment in retail through the coronavirus recession points to the continued need for direct relief to these hard-hit workers. Unemployment insurance systems need to be shored up and more generous unemployment benefits and direct stimulus payments need to be expanded. Research by Ammar Farooq of Uber Technologies Inc. and Adriana Kugler and Umberto Muratori of Georgetown University shows that Unemployment Insurance benefits improve job quality as workers have the time and financial security they need to move into employment opportunities that better match their skills and interests.

Protecting the economic well-being of workers on the bottom rungs of the wages ladder would power a more robust U.S. economic recovery and improve the resiliency of workers in the long-run so that future economic growth would be more broadly shared.

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Re: [socialist-econ] Angus Deaton: American Capitalism’s Poor Prognosis

I agree. It is almost hard to read here and in the book that his solution is just a less toxic dose of the poison (capitalism). At least push for (Nordic) social democracy.  

On Jan 13, 2021, at 10:21 AM, Samuel Webb <swebb1945@gmail.com> wrote:

too pessimistic and his solutions here as well as in his and Case's book leave a lot to be desired. sam 

On Wed, Jan 13, 2021 at 7:46 AM John Case <jcase4218@gmail.com> wrote:

One of the great modern economists who focused on poverty and the negative trends in capitalism. Recently, with Anne Case (no relation, AFAIK), author of Deaths of Despair

American Capitalism's Poor Prognosis

Jan 13, 2021ANGUS DEATON

The COVID-19 pandemic has both exposed and accelerated long-term trends that will render the US economy system even more unequal and dysfunctional than it already was. Worse, the Democrats' failure to secure a decisive victory in Congress has dimmed the prospects for badly needed reforms.

PRINCETON – Those who advocate taxing the rich to give to the poor often must endure wearied explanations of why such redistribution is a pointless policy. While the rich are indeed rich, there are supposedly too few of them to tax on a scale that would help the poor.



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Rarely does one hear about the opposite process – the upward redistribution whereby a few cents taken from everyone make a few individuals very rich indeed. Yet that is precisely what monopolists and rent seekers do, by overcharging consumers, underpaying taxes, and funding politicians who will protect the process of extraction from the many to benefit the few. Worse, the 2020 US election all but ensures that this "trickle-up" dynamic will continue.

The stock market's buoyancy during the COVID-19 pandemic has been the subject of much wonder. Obviously, with interest rates near zero, investors have few other places to find a positive return; and it is perfectly understandable that the market would celebrate good news like Pfizer's announcement that its vaccine candidate may be more than 90% effective.

The problem, of course, is that the stock market does not account for all future national income; it is concerned solely with the part that goes to profits. At any level of national income, the stock market will do better when profits rise or, by the same token, when the share accruing to labor falls. Since the 1970s, the share of wages in US national income has been shrinking. And since the onset of the pandemic, large tech firms have been doing exceptionally well, while many smaller firms have suffered or closed. Tellingly, on a day when vaccine euphoria drove up the Dow Jones Industrial Average by nearly 3%, the tech-heavy NASDAQ actually fell by 1.5%.

This perverse dynamic makes sense when one considers how the pandemic has accelerated the long-term shift in national income away from labor and toward capital. Not only are workers' jobs vanishing and becoming less secure, but small businesses are increasingly losing out to large businesses that employ few workers relative to their revenue. These developments in turn lift the market, which rewards those who have stock portfolios and defined-contribution pensions, while workers in retail, hospitality, and entertainment are left out in the cold.

If the Democratic Party had won a strong majority in the Senate in addition to winning the White House and holding on to the House of Representatives, there might have been a chance to reverse these trends through legislative action. The US health-care system's plundering of American households might have been checked by the introduction of a public option for health insurance, even if more radical alternatives (like "Medicare for All") remained out of reach. It might have been possible to replace or supplement employer-based health care – which is financed by what is effectively a poll tax on workers – with a system funded through general tax revenue.



Moreover, had the Democrats performed better, it would have been possible to pursue meaningful antitrust action against the Big Tech firms. There would have been at least some chance of passing climate legislation. And the long march of anti-union laws might have been slowed or even reversed. But now, the few congressional Republicans who were willing to congratulate Biden on his victory, and even some centrist Democrats, will oppose "socialist" measures like the Green New Deal or health-care reform.

Moreover, the courts will continue to advance the pro-business agenda. There has understandably been much attention lately on the issue of abortion. But it is worth remembering that the Supreme Court also heads a legal system that tends to adjudicate in favor of economic efficiency, with little or no concern for distribution.

Economists bear a good deal of responsibility for this. In the first half of the twentieth century, the failure of capitalism in the Great Depression allowed for the triumph of Keynesianism, with its role for the state. But that was soon followed by a counterrevolution that began with Friedrich von Hayek just before World War II, and culminated with Milton Friedman and his colleagues arguing – correctly enough – that the state, too, has problems. While George Stigler taught us about regulatory capture, James Buchanan showed that politicians cannot always be expected to act in the public interest, and Ronald Coase demonstrated that externalities can be ameliorated without resorting to state action.

Less convincingly, Friedman insisted that inequality is not a problem, and argued against efficient taxation – whether through pay-as-you-go collection, the inheritance tax, or closing down tax havens. The jurist Richard Posner, meanwhile, played a key role in bringing these ideas to the judiciary. Arguing that justice requires society to maximize its total wealth, he advocated favoring producers over consumers, and the wealthy over the needy. Inequality came to be seen not only as unproblematic, but as the hallmark of a just society.

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This conception of justice would be recognized as preposterous were it not so regularly applied by US courts. After reaping the spoiled harvest of these ideas for so long, it is time to reconsider – not by rejecting all of the insights of the post-Keynesian counterrevolution, but by building on and beyond them.

Returning to a more innovative and competitive form of capitalism requires that we reverse the demonization of the state. We currently have a system in which the few prosper at the expense of the many. For two-thirds of Americans without a bachelor's degree, life expectancy is falling, not least because pharmaceutical companies have been given a license (by paying off Congress) to addict and kill people for profit. Some of the world's largest – and previously admired – corporations routinely avoid paying taxes, reneging on their obligations to the social, economic, and state institutions that nurtured them, and without which they could not exist.

President Donald Trump's departure will diminish the crony capitalism and plundering of the public purse by his family and friends. But it will not fix a broken system. American capitalism's potential to foster innovation and well-being remains unlimited, but currently its flaws are literally draining the life from many Americans. The rent seekers are, and will likely remain, far too powerful for the country's good.

ANGUS DEATON

Writing for PS since 2015
14 Commentaries

Angus Deaton, the 2015 Nobel laureate in economics, is Professor Emeritus of Economics and International Affairs at the Princeton School of Public and International Affairs and Presidential Professor of Economics at the University of Southern California. He is the co-author of Deaths of Despair and the Future of Capitalism (Princeton University Press, 2020).

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John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

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Re: [socialist-econ] Angus Deaton: American Capitalism’s Poor Prognosis

too pessimistic and his solutions here as well as in his and Case's book leave a lot to be desired. sam 

On Wed, Jan 13, 2021 at 7:46 AM John Case <jcase4218@gmail.com> wrote:

One of the great modern economists who focused on poverty and the negative trends in capitalism. Recently, with Anne Case (no relation, AFAIK), author of Deaths of Despair

American Capitalism's Poor Prognosis

Jan 13, 2021ANGUS DEATON

The COVID-19 pandemic has both exposed and accelerated long-term trends that will render the US economy system even more unequal and dysfunctional than it already was. Worse, the Democrats' failure to secure a decisive victory in Congress has dimmed the prospects for badly needed reforms.

PRINCETON – Those who advocate taxing the rich to give to the poor often must endure wearied explanations of why such redistribution is a pointless policy. While the rich are indeed rich, there are supposedly too few of them to tax on a scale that would help the poor.



3Add to Bookmarks

PreviousNext

Rarely does one hear about the opposite process – the upward redistribution whereby a few cents taken from everyone make a few individuals very rich indeed. Yet that is precisely what monopolists and rent seekers do, by overcharging consumers, underpaying taxes, and funding politicians who will protect the process of extraction from the many to benefit the few. Worse, the 2020 US election all but ensures that this "trickle-up" dynamic will continue.

The stock market's buoyancy during the COVID-19 pandemic has been the subject of much wonder. Obviously, with interest rates near zero, investors have few other places to find a positive return; and it is perfectly understandable that the market would celebrate good news like Pfizer's announcement that its vaccine candidate may be more than 90% effective.

The problem, of course, is that the stock market does not account for all future national income; it is concerned solely with the part that goes to profits. At any level of national income, the stock market will do better when profits rise or, by the same token, when the share accruing to labor falls. Since the 1970s, the share of wages in US national income has been shrinking. And since the onset of the pandemic, large tech firms have been doing exceptionally well, while many smaller firms have suffered or closed. Tellingly, on a day when vaccine euphoria drove up the Dow Jones Industrial Average by nearly 3%, the tech-heavy NASDAQ actually fell by 1.5%.

This perverse dynamic makes sense when one considers how the pandemic has accelerated the long-term shift in national income away from labor and toward capital. Not only are workers' jobs vanishing and becoming less secure, but small businesses are increasingly losing out to large businesses that employ few workers relative to their revenue. These developments in turn lift the market, which rewards those who have stock portfolios and defined-contribution pensions, while workers in retail, hospitality, and entertainment are left out in the cold.

If the Democratic Party had won a strong majority in the Senate in addition to winning the White House and holding on to the House of Representatives, there might have been a chance to reverse these trends through legislative action. The US health-care system's plundering of American households might have been checked by the introduction of a public option for health insurance, even if more radical alternatives (like "Medicare for All") remained out of reach. It might have been possible to replace or supplement employer-based health care – which is financed by what is effectively a poll tax on workers – with a system funded through general tax revenue.



Moreover, had the Democrats performed better, it would have been possible to pursue meaningful antitrust action against the Big Tech firms. There would have been at least some chance of passing climate legislation. And the long march of anti-union laws might have been slowed or even reversed. But now, the few congressional Republicans who were willing to congratulate Biden on his victory, and even some centrist Democrats, will oppose "socialist" measures like the Green New Deal or health-care reform.

Moreover, the courts will continue to advance the pro-business agenda. There has understandably been much attention lately on the issue of abortion. But it is worth remembering that the Supreme Court also heads a legal system that tends to adjudicate in favor of economic efficiency, with little or no concern for distribution.

Economists bear a good deal of responsibility for this. In the first half of the twentieth century, the failure of capitalism in the Great Depression allowed for the triumph of Keynesianism, with its role for the state. But that was soon followed by a counterrevolution that began with Friedrich von Hayek just before World War II, and culminated with Milton Friedman and his colleagues arguing – correctly enough – that the state, too, has problems. While George Stigler taught us about regulatory capture, James Buchanan showed that politicians cannot always be expected to act in the public interest, and Ronald Coase demonstrated that externalities can be ameliorated without resorting to state action.

Less convincingly, Friedman insisted that inequality is not a problem, and argued against efficient taxation – whether through pay-as-you-go collection, the inheritance tax, or closing down tax havens. The jurist Richard Posner, meanwhile, played a key role in bringing these ideas to the judiciary. Arguing that justice requires society to maximize its total wealth, he advocated favoring producers over consumers, and the wealthy over the needy. Inequality came to be seen not only as unproblematic, but as the hallmark of a just society.

Make your inbox smarter.SELECT NEWSLETTERS

This conception of justice would be recognized as preposterous were it not so regularly applied by US courts. After reaping the spoiled harvest of these ideas for so long, it is time to reconsider – not by rejecting all of the insights of the post-Keynesian counterrevolution, but by building on and beyond them.

Returning to a more innovative and competitive form of capitalism requires that we reverse the demonization of the state. We currently have a system in which the few prosper at the expense of the many. For two-thirds of Americans without a bachelor's degree, life expectancy is falling, not least because pharmaceutical companies have been given a license (by paying off Congress) to addict and kill people for profit. Some of the world's largest – and previously admired – corporations routinely avoid paying taxes, reneging on their obligations to the social, economic, and state institutions that nurtured them, and without which they could not exist.

President Donald Trump's departure will diminish the crony capitalism and plundering of the public purse by his family and friends. But it will not fix a broken system. American capitalism's potential to foster innovation and well-being remains unlimited, but currently its flaws are literally draining the life from many Americans. The rent seekers are, and will likely remain, far too powerful for the country's good.

ANGUS DEATON

Writing for PS since 2015
14 Commentaries

Angus Deaton, the 2015 Nobel laureate in economics, is Professor Emeritus of Economics and International Affairs at the Princeton School of Public and International Affairs and Presidential Professor of Economics at the University of Southern California. He is the co-author of Deaths of Despair and the Future of Capitalism (Princeton University Press, 2020).

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

Facebook

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You received this message because you are subscribed to the Google Groups "Socialist Economics" group.
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To view this discussion on the web visit https://groups.google.com/d/msgid/socialist-economics/CADH2idLVQQEN39oj_KHZbymw631svzYwKAuXM%3D%2ByFO%3D9uoevdA%40mail.gmail.com.