Unrigging the economy to grow the middle class: Pennsylvania takes the lead on overtime [feedly]

Unrigging the economy to grow the middle class: Pennsylvania takes the lead on overtime
http://www.epi.org/blog/unrigging-the-economy-to-grow-the-middle-class-pennsylvania-takes-the-lead-on-overtime/

Yesterday, Pennsylvania Governor Tom Wolf became the first state executive to take action to provide workers overtime protections that help guarantee fair pay for hard work, since a 2016 federal rule to do this at the national level was blocked in the courts by corporate interests. As part of his "Jobs That Pay" initiative, Wolf proposed a state rule change that will modernize the state's overtime policies, providing new or strengthened overtime protections to 460,000 more middle-income workers by 2023 and ultimately putting close to $53 million more each year into Pennsylvanians' paychecks.

The Keystone Research Center (KRC), a member of the Economic Analysis and Research Network (EARN), advocated for the Wolf administration to take this action. Stephen Herzenberg, KRC economist and executive director, applauded Wolf's leadership.

On overtime pay, the governor has authority to act without the state legislature. On another vital measure to improve the lives of working families, raising the minimum wage, legislative action is required—and Pennsylvania still lags its neighboring states. Unlike these six contiguous states, the Pennsylvania legislature has failed to increase the minimum wage above the federal level of $7.25.

Nationally, millions of low- and moderately-paid working people are working overtime but not getting paid for it. Federal law guarantees certain workers overtime pay, meaning when they work more than 40 hours in a week they get 1.5 times their regular pay for the extra hours. This guarantee applies automatically to salaried workers making below a specified income threshold, because detailed studies of job duties show that most lower-paid salaried workers do not perform sufficient executive, "administrative," or professional duties required by federal law to be exempt from overtime. But as the federal government has failed to update this income threshold over the last few decades, it had been allowed to erode dramatically with inflation.

As a result, the percentage of full-time salaried workers who are automatically eligible for overtime based on their pay dropped from more than 60 percent in 1975 to less than 7 percent in 2016. Recognizing the problem this caused, the Obama administration undertook a lengthy regulatory process to increase the threshold to $47,476 annually and to automatically increase it every three years thereafter. If this rule had not been blocked, the new income threshold would have resulted in 33 percent of full-time salaried workers being automatically eligible for overtime based on their pay.

The Obama administration's overtime regulations would have provided new or strengthened protections to 12.5 million more U.S. workers. While the Trump administration appealed the Texas court decision to protect its authority to set an overtime standard, it failed to fight for the $47,476 salary threshold that was established through careful economic analysis in the 2016 rule. Under federal law, therefore, it remains legal for companies to force many low-paid salaried employees to work many hours above a 40 hour workweek—for free.

Similar to other areas of economic policy vital to working families—such as the minimum wage, but also paid family and medical level and paid sick leave—Washington is unlikely to adequately address the problem of exploited low-paid McDonald's supervisors, Walmart department heads, and office managers. Now, more than ever, the solutions will arise from states and cities. EARN partner organizations across the country are joining with allies and state officials to take the lead on improving the wages and lives of working families. In the absence of effective federal action on behalf of working people, state leaders are the best hope for presenting a vision and a road map for improving the economic prospects of all Americans.

 -- via my feedly newsfeed

Marxism as anti-ideology [feedly]

Marxism as anti-ideology
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2018/01/marxism-as-anti-ideology.html

 -- via my feedly newsfeed

Sam Bowles has a nice piece in the FT on the case for pluralism in economics by integration – "marshalling the insights of differing schools of thought and academic disciplines into a common paradigm." I'd add only that the points at which the marshalling should occur must be determined by the facts. We learn about economics from the real world, not just from schools of thought.

I want to suggest something that some of you might think paradoxical – that Marxists are well-placed to do this because we are, in a sense, less ideological than others.

Take, for example, the question: do higher minimum wages destroy lots of jobs? As a Marxist, I can accept either answer. If they do, we have (more?) evidence that actually-existing capitalism is incompatible with decent living standards. If they don't then we have a way of making workers better off. Either way, I'm happy. I can allow myself to be guided by the evidence in a way that either free marketeers or their social democratic opponents might not be.

Or another example: could fiscal policy not just stabilize aggregate demand but increasetrend growth? If it does, then fine: we've a way of making people better off. If not, then my prior that capitalism is prone to stagnation and crisis is strengthened.

Here's a third example. Are financial markets informationally efficient or not? I can accept either answer. If they're efficient, then fund managers are ripping people off and we have another example of the exploitative nature of capitalism. If they're inefficient then we have another mechanism whereby capitalism can generate instability. (In fact, both might be true, as markets might well be micro efficient but macro inefficient). Being a Marxist has, I suspect, made me less bad at my day job than I otherwise would be.

A fourth example is Brexit. Being in or out of the EU is orthogonal to my Marxism. Again, therefore, I'm happy to be guided by the evidence on whether Brexit will make us better off or not.

There's another thing here. As a Marxist, I haven't invested my human capital in only one paradigm. Marxist economists must be pluralists simply because we must run our Marxism alongside the orthodox/mainstream/whatever economics we learn at university and in my day job. Integrating different perspectives – which might of course mean ditching large parts of some – does not therefore threaten the destruction of my human capital as much as it does specialists in one paradigm.

On a lot of issues, then, we Marxists can be intellectually flexible simply because there are a lot of fights in which we have no dog.

But, you might ask, if this is the case, isn't your Marxism just an unfalsifiable pseudo-science?

No. There are some claims which – if true – would weaken my Marxism perhaps to the point of refutation, for example: if capitalism could deliver sustained full employment with good working conditions and satisfying jobs; if it could be shown that capitalism were non-exploitative; if the capitalist state were genuinely neutral; or if capitalistic relations of production were never fetters upon growth. These claims, however, have not been satisfactorily established.

I'll turn the question around to centrists, Tories, libertarians or social democrats. What equivalent claims (if they could be established) would falsify your political position?

What I'm trying to do here is weaken the prior of many anti-Marxists. Many of you have traditionally seen Marxism as a fanatical ideology opposed to the cool-headed rationality of mainstream politics.

I'll concede that there might be something in this: the worst advert for Marxism has often been those who profess to be Marxists.

For me, though, the opposite is the case: in some respects, Marxism takes the ideology and fanaticism out of some debates.

Dani Rodrik: Has Global Finance Reformed Itself More Than It Appears? [feedly]

Has Global Finance Reformed Itself More Than It Appears?
http://rodrik.typepad.com/dani_rodriks_weblog/2018/01/has-global-finance-reformed-itself-more-than-it-appears.html

The answer is yes, according to Ilene Grabel in her fascinating new book When Things Don't Fall Apart. I wrote a preface for the book, which is reproduced below. It explains why I liked the book so much.

It happens only rarely and is all the more pleasurable because of it. You pick up a manuscript that fundamentally changes the way you look at certain things. This is one such book. Ilene Grabel has produced a daring and delightful reinterpretation of developments in global finance since the Asian financial crisis of 1997–1998.

The book addresses, and resolves, a long-standing puzzle: Why has our present model of financial globalization been so resilient, despite an abysmal track record that includes the most severe global financial crisis since the Great Depression, recurrent sovereign debt crises (in Latin America, East Asia, Russia, and Turkey), and many other disappointments (such as capital flowing "uphill" from poorer to richer nations)? How is it that we have not jettisoned this model for something that is more sensible and works better?

Professor Grabel's insight is that those of us who were looking for signs of change have had the wrong idea about how real reform often happens. We have been mistaken in searching for evidence of wholesale, programmatic reconsideration of the rules of global finance. Systems of governance rarely change through established blueprints, a master plan, or radical reforms. And besides, such a reform path would suffer from the same kind of hubris that the neoliberal playbook produced.

Instead, she suggests, it is the cracks in the consensus, the local heresies, and the small departures and innovations that matter and lead us in an altogether novel direction. Inconsistency, ambiguity, and incoherence are useful and productive—they are a feature, not a bug.

Thus, Professor Grabel builds a case for a gradual, evolutionary change in the global financial system and argues that there is at least as much evidence for this alternative thesis as there is for the regime-continuity thesis. The Asian financial crisis may have given the IMF new powers, but it also set in motion defensive moves on the part of developing countries, such as self-insurance through reserve accumulation and mutual swap arrangements. The G-20 and Financial Stability Board may have been largely ineffective to date, but there are signs they can evolve into experimental, networked forms of global financial governance accommodating greater developing-country influence. The IMF itself has not been overhauled, but it has changed: it no longer treats capital controls as taboo, has distanced itself from austerity, and pays increasing attention to social safety nets. And look at the new institutions that have been created—regional reserve pooling arrangements, development and infrastructure banks—and the forum-shopping benefits they confer to client states.

Put all of this together and we have what Professor Grabel calls a move toward "a more complex, fragmented, and pluripolar direction" in international financial governance, "driven in large part by initiatives from below rather than from above." The evolving system is one that provides greater policy space, enables "unscripted innovations," and makes "pragmatic adjustments not dictated by an overarching scheme of economic organization."

The book's deeper argument about how regimes really change is as interesting as the specific details of the case of international finance. Here looms the large figure of Albert Hirschman. As Professor Grabel is happy to remind us at every turn, her argument is very much a Hirschmanian one. Hirschmanian motifs—the advantages of improvisation, surprise, incrementalism, and pragmatism—are all over the book.

But to say that the book owes a debt to Hirschman is to undersell it. The Hirschmanian perspective has rarely been deployed so well and to such great effect. The reason Hirschman never developed a school of thought, as he himself well recognized, is that his thinking did not lend itself to emulation and replication. The flashes of brilliance, the unexpected turn of argument, and the relish of paradox that characterized his style spawned admirers but not followers.  But we have all of those in this book. Professor Grabel has produced not only an extensively researched book but also one that is tremendously fun to read.

My colleague Roberto Mangabeira Unger likes to say that universal orthodoxy cannot be defeated solely by local heresies; overcoming it requires a universalizable heresy. Professor Grabel disagrees, as would Albert Hirschman. She would be the first to acknowledge that the incremental innovations she discusses in the book do not, in her words, "come close to displacing neoliberalism from top to bottom." But the neoliberal consensus is gone, the institutions that uphold it have become more agnostic and flexible, and new arrangements have sprung up. We do not yet know where the international financial system will end up. Professor Grabel says this is as it should be: enjoy the Hirschmanian moment, and keep your fingers crossed that sanity and common sense will prevail.

 -- via my feedly newsfeed

Dean Baker: State Employer-Side Payroll Taxes and Loser Liberalism [feedly]

Dean derives considerable pleasure from inciting food fights between factions of the rich....

State Employer-Side Payroll Taxes and Loser Liberalism
http://cepr.net/publications/op-eds-columns/state-employer-side-payroll-taxes-and-loser-liberalism

State Employer-Side Payroll Taxes and Loser Liberalism

Dean Baker
Truthout, January 15, 2018

See article on original site

There's an old line that the definition of a liberal is someone who won't take their own side in an argument. The line certainly describes the response of many liberals to the new Republican tax scheme. By capping the deduction for state and local taxes, the Republican tax bill raises taxes on higher-income people in liberal states. Many liberals seem to think this is just fine.

The basic logic of the "this is just fine" gang is that higher-income people have been the winners in the economy over the last four decades. Insofar as we need more revenue for the government, they should be the ones to provide it. Therefore we should not be upset about a provision in the Republican tax plan that means higher taxes for people with money.

But this provision is not raising taxes for all wealthy people; it is raising taxes for a subgroup of higher-income people. That is a very different story. Presumably, we would not think it's ok if the bill just raised taxes on higher-income people of Polish or Italian ancestry, even though as high-income people they may be able to afford a larger tax burden.

In this case, the subgroup of high-income people are those who live in relatively liberal states that provide better services to their population. The reason that states like California and New York have higher taxes is that they have relatively good education and Medicaid systems, and try to provide some income support to their poor.

The Republican plan is to make higher-income people pay a higher price for living in liberal states. In many cases, this relatively powerful group will put pressure on state and local governments to reduce their tax burden, which will force cutbacks in services. The rich will certainly object to any efforts to raise their state and local tax burden further to meet new needs going forward.

There are several routes that have been proposed to circumvent the cap on the deduction for state and local taxes. One being seriously considered in California is to set up state-run charities to which people can contribute and get a 100 percent credit against their state taxes. Since charitable contributions are still fully deductible under the new law, this would effectively preserve the deductibility of state income taxes.

There is a debate among tax experts as to whether this sort of set up would be legal, but it does maintain a certain symmetry in how tax law treats different types of contributions. Under the new law, a high-income person can give to the charity of their choosing and effectively get the government to kick in 37 cents of every dollar.

This means that if a rich person gives $1 million to the "Religious School for the Education of White Nationalists," the taxpayers will chip in $370,000 for the cause. In that situation, it certainly seems reasonable that a $100,000 payment by a high-income person to support Los Angeles public schools should at least get the same 37 percent subsidy.

If that route doesn't pass legal muster, there is an alternative route that is not legally suspect. This involves substituting an employer-side payroll tax for a portion of the state income tax.

To take a simple case, suppose that a state has an income tax of 5 percent. The state could get rid of the income tax and replace it with an employer-side payroll tax of five percent.

The conventional view among economists is that an employer-side payroll tax comes out of wages, which means that employers will eventually reduce workers' pay by the amount of the tax. So a lawyer who had been getting $200,000 a year will see her wages lowered $10,000 as a result of the five percent tax.

This leaves the worker with the same amount of money as she would have had after paying her state taxes, but instead of paying federal income taxes on $200,000 in wages, she would only pay it on $190,000 in wages. This effectively preserves the deductibility of her state income taxes.

An additional benefit of going this route is that the tax is deductible on income taxes for people who don't itemize. That would be a pure gain for people in states like California and New York. We can also leave a portion of the income tax in place for very higher-earners and have a lower cutoff under which the tax is not collected to preserve progressivity.

There will be complicating factors in making this switch, but no tax system, including the current one, is perfect. The key point is that liberal states have the weapons they need to fight back against this pernicious Republican tax plan. The question is whether they will try or just accept yet another massive defeat without a battle.

 -- via my feedly newsfeed

DACA Relief Can’t Wait Until March 5 [feedly]

DACA Relief Can't Wait Until March 5
https://www.cbpp.org/blog/daca-relief-cant-wait-until-march-5

There's a widespread misunderstanding about when President Trump's withdrawal of DACA status for young immigrants will put them at risk of deportation. Even some key policymakers assume that nothing bad will happen until March 5, and, thus, there's no pressing need for policymakers to act before then. But that's not the case, and policymakers should act expeditiously to protect these young immigrants.

As Vox's Dara Lind explained in a highly informative article ("Thousands of immigrants are losing their DACA protections already"), substantial numbers of young immigrants protected under DACA (the Deferred Action for Childhood Arrivals program) have already been affected, and more may be affected with each passing week.

As Lind explained, President Trump's September 5 Executive Order gave people whose DACA status would come up for renewal before March 5 — DACA renewals run for two years at a time — only until October 5 to submit their renewal applications. Moreover, the Administration did not notify immigrants of the October 5 deadline and, as a result, not all of the affected DACA holders applied before the artificial deadline. While 132,000 of the 154,000 affected individuals submitted their renewal applications by October 5, the other 22,000 did not. With each passing week, more of these young 22,000 individuals have been seeing their DACA protections end because their existing two-year DACA status expired without being renewed.

Moreover, some of these 22,000 people did, in fact, submit renewal applications by October 5, but their applications weren't received by then due to Postal Service delays. Lind documents the case of a renewal application that was mailed in mid-September but wasn't delivered to the U.S. Citizenship and Immigration Services (CIS) until October 6, a day late. CIS said at first that it wouldn't consider such applications. It then said that it would, but only for those who could submit proof that they submitted their applications before the deadline, leaving a number of these individuals unprotected.

Finally, while a federal court has issued a ruling to block the President's order and enable young immigrants with DACA status to once again file renewal applications, that could end quickly. The Administration has vowed to appeal directly to the U.S. Supreme Court to overturn the lower court's ruling.

In short, policymakers don't have until March 5 to act. The President and lawmakers of both parties say they want to avoid the dire effects of a DACA cut-off, and a large majority of the public agrees, according to polling. When DACA holders lose DACA protections, the impact is harsh – they lose their protection from deportation, their authorization to work legally, and more. For all these reasons, the time for policymakers to act is now.

 -- via my feedly newsfeed

Dani Rodrik: Telling interests and ideas apart [feedly]

Moderator: I find even Rodriks notes very interesting -- in addition to being very open and engaging as an  economist, he demonstrates great flexibility in seeking the truth of the multifaceted conflicts and ideologies in international relations and economics.

Telling interests and ideas apart
http://rodrik.typepad.com/dani_rodriks_weblog/2018/01/telling-interests-and-ideas-apart.html

A long standing debate in the social sciences is whether behavior is driven by "interests" or "ideas." The debate is central in political science, where it plays out as an argument between realists and constructivists. It is less well articulated in economics, to the discipline's detriment. (See here for my thoughts on what economists would gain by taking the role of ideas seriously.)

As constructivists like to point out, interests are "congealed ideas." Or to put it differently, we don't have interests; we have ideas about what our interests are. Perhaps it's all about interests in the short run and it's all about ideas in the long-run.     

But if so, is there an analytically meaningful distinction between ideas and interests? And could we ever distinguish empirically between cases where outcomes are driven by interests as opposed to ideas?

I have never seen a good treatment of these questions. The two sides of the debate tend to talk across each other. In particular, both realists and constructivists tend to associate the interest-based perspective with rational-choice modeling, which is neither correct nor helpful.

A couple of years ago, I taught a seminar at HKS where the students and I discussed these questions in different domains – civil conflict, international trade, finance, human rights, and many others. It was a useful experience which helped my thinking along, though it also showed how tough it is to sort out the issues involved.

I plan to return to teaching and writing on this topic, but in the meantime here are a few ideas.

Let me begin my interest-based theories. Such theories are characterized by:

·        a parsimonious specification of agents' characteristics

o   based on economic (industry, occupation, etc.), social (class), or personal (dominant ethnic/identity marker) status;

·        a mapping from these characteristics to behavior through a payoff function;

·        usually, though not always, a game in which agents interact. 

Therefore we can say outcomes are "interest-based" when they are the direct result of agents' ex ante characteristics. More specifically,

·        these characteristics must be salient ex ante

·        there must be a tight mapping from these characteristics to perceived payoffs

·        the setting must not admit plausible alternative "causal models"

An important note: the payoffs need not be exclusively material/economic. Saying that behavior is driven by interests does not imply that individuals care exclusively or mostly about their incomes/consumption. These interests could also be defined in terms of cultural values or identities. A Catholic group that is lobbying against abortion is acting in its own interest. Yes, this is a result of some strongly held ideas (interests are indeed "congealed interests"). But individuals or groups favoring their material interest do so also because they think (they have the "idea" that) this is what they should be striving for.     

When are outcomes driven by ideas instead? When behavior cannot be directly predicted by interests as defined above, and when we can trace the impact of prevailing discourses/narratives on changing how interests are perceived. In particular,  

·        we must show ideas have independent traction, by delineating causal chain from ideas to how

o   they shape worldviews,

o   render salient identities, or

o   expand strategy (policy) space

·        importantly, we must also show influence of those ideas cannot be predicted from ex ante salient characteristics/markers of agents.

This way of thinking provides us with a way to testing interest-based arguments. We ask:

·        Are the individual characteristics that define preferences (and produce behavior in question) ex ante salient?

o   such as social, ethnic, or class identity, occupation, sector, weights on material versus other goals, etc. 

·        Is the strategy space ex ante determinate?

·        Are all the relevant options already on the table?

·        Is there unique, plausible model of the world?

o   or are there alternative models that could be plausibly considered?

Applying the framework

I provide two brief applications to show how this works. In the first case, the Reagan income tax cut of 1981, evidence suggests it was ideas that was dominant. In the second case, German support for austerity policies in the euro zone, I argue it was interest.

Reagan tax cut of 1981

This is typically viewed as the result of big business interest in low taxes. And it is true that business eventually became a supporter of low taxes on personal incomes. But as Monica Prasad among others has shown, business opposed those tax cuts in 1980. They were more concerned about cutting the deficit than about the provision of supply-side incentives. In Prasad's (2012) words, "the record could not be clearer that business groups opposed Kemp-Roth."

Ideas appear to have played a crucial role in changing perceptions of interests; it was all about selling a new model of how the world works. Here the policy entrepreneurship of Jack Kemp, Art Laffer, Jude Wanniski was particularly important. The Laffer curve may have been a gimmick, but it was effective in packaging, marketing and framing the tax cut proposal.

Most importantly, it convinced Reagan not only that personal tax cuts would improve incentives, but they would raise revenue. Business remained skeptical, and became a convert to the idea afterwards, once the tax cuts were passed. In other words, income tax cuts did become an interest for big business, but only eventually. It is difficult to attribute the actual reform to interests of big business or any other organized group. It was ideas that seem to have made the difference.  

German support of austerity policies in euro zone

This is typically presented as the result of peculiar German ideas on economics: "Americans are from Keynes; Germans are from Hayek." But one can present a counterargument that stresses the primacy of interests instead.

Note that Germany had strong ex ante salient characteristics that produced an "interest" in austerity:

•       Germany was structurally a strong country (with a current account surplus and full employment)

•        therefore was not in need of explicit stimulus unlike e other countries in the euro zone

•        in any case there were already strong counter-cyclical stabilizers in Germany, which did produce the intended fiscal expansion

•       euro-wide expansionary policies would mainly serve to help/bail out indebted countries

•       the hyperinflation experience had produced very high weight on inflation avoidance

•        yes, an idea, but one already embodied in ex ante preferences

•       Germany had no apparent desire for deepening political integration (which austerity policies would serve to undermine)

Therefore it was in Germany's interest to pursue austerity policies.

***

You can agree or disagree with the arguments in these specific cases. What I am more interested in is the analytical distinction between interest- and ideas-based outcomes. It seems to me that any meaningful, non-tautological distinction must rely on the empirical leverage provided by interest-based theories' reliance on a parsimonious set of attributes/characteristics of agents.

If we can predict outcomes based on these characteristics, by showing that they were salient ex ante and that they directly led to the behavior in question, we can argue that interests win the day. (Once again, these interests need not be material or selfish.) If we need to appeal instead to reconceptualization of objective functions or altered worldviews, and can show that specific ideas were responsible for that, then it is ideas that have the 

 -- via my feedly newsfeed

Paul Krugman: Know-Nothings for the 21st Century [feedly]

Paul Krugman: Know-Nothings for the 21st Century
http://economistsview.typepad.com/economistsview/2018/01/paul-krugman-know-nothings-for-the-21st-century.html

"So will our modern know-nothings prevail?":

Know-Nothings for the 21st Century, by Paul Krugman, NY Times: These days calling someone a "know-nothing" could mean one of two things..., you might be comparing that person to a member of the Know Nothing party of the 1850s, a bigoted, xenophobic, anti-immigrant group that at its peak included more than a hundred members of Congress and eight governors. More likely, however, you're suggesting that said person is willfully ignorant, someone who rejects facts that might conflict with his or her prejudices.

The sad thing is that America is currently ruled by people who fit both definitions. ...

The parallels between anti-immigrant agitation in the mid-19th century and Trumpism are obvious. ...

After all, Ireland and Germany, the main sources of that era's immigration wave, were the shithole countries of the day. Half of Ireland's population emigrated in the face of famine, while Germans were fleeing both economic and political turmoil. Immigrants ... were portrayed as drunken criminals if not subhuman. They were also seen as subversives: Catholics whose first loyalty was to the pope. A few decades later..., immigration ... of Italians, Jews and many other peoples inspired similar prejudice.

And here we are again..., there are always new groups to hate.

But today's Republicans ... aren't just Know-Nothings, they're also know-nothings. The range of issues on which conservatives insist that the facts have a well-known liberal bias just keeps widening.

One result of this embrace of ignorance is a remarkable estrangement between modern conservatives and highly educated Americans... Remarkably, a clear majority of Republicans now say that colleges and universities have a negative effect on America. ...

Think of where we'd be as a nation if we hadn't experienced those great waves of immigrants driven by the dream of a better life. Think of where we'd be if we hadn't led the world, first in universal basic education, then in the creation of great institutions of higher education. Surely we'd be a shrunken, stagnant, second-rate society.

And that's what we'll become if modern know-nothingism prevails. ...

Trumpism is as an attempt to narrow regional disparities, not by bringing the lagging regions up, but by cutting the growing regions down. For that's what attacks on education and immigration, key drivers of the new economy's success stories, would do.

So will our modern know-nothings prevail? I have no idea. What's clear, however, is that if they do, they won't make America great again — they'll kill the very things that made it great.

 -- via my feedly newsfeed