Thomas Pikety: Will money creation save us? [feedly]

As expected from Brother Piketty,  a much clearer summary and critique of MMT (modern monetary (creation) theory) than from some.

Will money creation save us?
https://www.lemonde.fr/blog/piketty/2019/07/09/will-money-creation-save-us/

Before the 2007-2008 crisis the balance sheet of the European Central Bank (that is, the totality of securities owned and loans granted by the ECB) was approximately 1000 billion Euros, or barely 10% of the GDP of the Euro zone. In 2019 it had risen to 4700 billion Euros, or 40% of the GDP of the zone. Thus between 2008 and 2018, the ECB has implemented a monetary creation equivalent to over one and a half years of the French GDP, one year of German GDP, or 30% of the GDP of the Euro zone (or 3% of GDP in additional monetary creation each year for 10 years). These considerable resources are for example three times higher than the total budget of the European Union during the same period (1% of GDP per annum, all categories of expenditure taken together, from agriculture to Erasmus to the regional funds and research). These resources have enabled the ECB to intervene massively on the financial markets, to buy public and private debt securities and to make loans to the banking sector to guarantee solvency.

These policies have probably prevented the "great recession" in 2008 from becoming the "great depression" as was the case between 1929 and 1935. At the time, the central banks were shaped by a liberal orthodoxy based on non-intervention and had allowed a wave of bank failures to take place. This precipitated the collapse of the economy, the explosion of unemployment, the rise of Nazism and the march towards war. The fact that on this point at least history has taught us a lesson and that in 2008 (almost) nobody suggested a repetition of this « liquidationist » experience is obviously a good thing. Confronted with the extreme weaknesses of global financial capitalism, the central banks were in fact the only public institutions capable of avoiding a cascade of bank failures in the emergency.

The problem is that not all problems can be settled by monetary creation and the boards of directors of central banks and that these episodes have profoundly and permanently disrupted the collective representations in this respect. Before 2008, the prevailing opinion was that it was forbidden (or at least highly unadvisable) to carry out a monetary creation of such magnitude. This conception had been imposed in the 1980s following the "stagflation" of the 1970s (a mix of slow growth and high inflation).  This was the climate in which the Maastricht Treaty (1992) which was to give birth to the Euro in 1999-2002 was conceived. The huge monetary creation which has taken place since 2008 has shattered this consensus. Following the creation in the click of a mouse, by the ECB of 30% of the GDP to save the banks, in Europe today, many voices clamour (for example with the project of the finance-climate pact) for a repetition of the same thing to finance the energy transition, to reduce inequalities or invest in research and training. Similar demands are also being expressed in the United States and in other regions of the world. They are natural and legitimate and it will not be possible to simply dismiss them.

Several points must however be clarified. It is very possible that the central banks may again increase the size of their balance sheets (these have already risen to 100% of GDP in Japan and in Switzerland) in order to deal with financial crises to come, or simply to follow the evolution of the balance sheets in the private sector (over 1000% of GDP at present, as compared with 300% in the 1970s). There is nothing in the slightest reassuring about this rational of a never-ending high-speed chase: it would be better to set up the regulations required to end this hyper-financialisation and to reduce private balance sheets.

Furthermore, in a context of sluggish growth, of near-zero interest rates and non-existent inflation, it is legitimate for the public authorities to take on more debt to invest in the climate and in training, with the support of central banks. It is particularly paradoxical to observe that the total public expenditure in education (primary, secondary and higher) has been stagnating in the richer countries at around 5% of GDP since the 1980s, whereas the proportion of an age group entering higher education has risen from less than 20% to over 50%. In the European context this will however demand an in-depth intellectual and political reform. The questions of investment, debt and of money must be discussed openly in the context of a parliamentary body in place of the automatic budgetary rules (constantly circumvented) and the usual closed doors. These discussions involve the whole of society and cannot be left to councils of ministers of finance or governors of central banks.

Finally, and above all, the monetary expansion which took place in the period 2008-2018 must not lead to a new form of monetarist illusion. The considerable challenges which are ours (global warming, the rise of inequalities) do not simply demand that we mobilise adequate resources. They also demand that we build new norms of justice in the distribution of effort, which involves the adoption by elected assemblies of progressive taxes on income, financial assets and carbon emissions and by the implementation of a new system of financial transparency. The creation of money can help, provided that it is not a fetish and remains in its proper place: namely a tool within a collective system in which taxes and parliaments must retain the main role.

 -- via my feedly newsfeed

US Multinationals Expand their Foreign-based Research and Development [feedly]

US Multinationals Expand their Foreign-based Research and Development
http://conversableeconomist.blogspot.com/2019/07/us-multinationals-expand-their-foreign.html

decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries (such as Germany, Japan, and Canada) to many parts of the developing world ..."

Lee G. Branstetter, Britta Glennon, andJ. Bradford Jensen discuss this shift in "The Rise of Global Innovation by US Multinationals Poses Risks and Opportunities" (June 2019, Peterson Institute for International Economics,  Policy Brief 19-9).

Here's the quadrupling in foreign-based R&D by US multinationals in the last couple of decades:

Another measure looks at what share of the patents files by US multinationals are based on cross-border collaboration. It used to be less than 2%; it's now more than 10%--and rising. 

It used to be that almost all the foreign R&D of US multinationals was in five high-income countries Germany, the UK, Japan, Canada, and France.Now, less than half is in those five countries.

The shift here shouldn't be exaggerated. "While US MNCs' foreign R&D expenditures have increased dramatically, they still conducted about 83 percent of their R&D in the United States in 2015 (down from 92 percent in 1989)."

But the shift is still a real one. Of course, it's driven in part by the fact that US multinationals are building supply chains across borders and selling output in other countries. Emerging market have been growing faster than the US economy in recent decades, and with some stops and starts, will probably continue this pattern of faster "catch-up" growth in the next few decades. Another factor is that an interconnected world economy, research is more likely to cross borders than research in older industries.

Your reaction to US multinationals expanding their overseas R&D efforts may be shaped by whether you are a half-empty or a half-full kind of person. US multinationals accounted for 57% of total US R&D spending in 2015. 

The half-empty concern would be that when US companies shift their R&D overseas, there is a danger of losing US-based technological leadership, with potentially negative consequences for US workers and the US economy. There is a legitimate concern that technology developed outside the US may offer less benefit to the US economy, and may be harder to protect with intellectual property rules.

The half-full response is that centers of technological excellence are developing all around the world, with or without participation by US firms. If US firms wish to stay at the technological cutting edge, they need to  engaged with the researchers and expertise all around the world. not to be separated from it. Also, if US multinationals by basing some of the R&D in other countries, US multinationals are building connections to supply chains and to consumers in those markets. 

 -- via my feedly newsfeed

A way out from rock bottom: Economic policies can reduce deaths of despair

Research shows a strong connection between low wages and the diseases of despair: addictions, abuse, suicide.

A way out from rock bottom: Economic policies can reduce deaths of despair

William H. Dow, Anna Godøy, Chris Lowenstein, Michael Reich 07 July 2019

Policymakers and researchers have sought to understand the causes of and effective policy responses to recent increases in mortality due to alcohol, drugs, and suicide in the US. This column examines the role of the minimum wage and the earned income tax credit – the two most important policy levers for raising incomes for low-wage workers – as tools to combat these trends. It finds that both policies significantly reduce non-drug suicides among adults without a college degree, and that the effect is stronger among women. The findings point to the role of economic policies as important determinants of health. 

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Since 2014, overall life expectancy in the US has fallen for three years in a row, reversing a century-long trend of steadily declining mortality rates. This decrease in life expectancy reflects a dramatic increase in deaths from so-called 'deaths of despair' – alcohol, drugs, and suicide – among Americans without a college degree (Case and Deaton 2015, 2017). Between 1999 and 2017, the age-adjusted rate of drug overdose deaths increased by 256%, while suicides grew by 33% (Hedegaard et al. 2017, 2018). 

In their pioneering work first highlighting these trends, Case and Deaton point to declining economic opportunity among working class non-Hispanic whites – combined with an increase in chronic pain, social distress, and the deterioration of institutions such as marriage and childbearing – as primary drivers of these trends. Case (2019) further notes that inflows of cheap heroin and fentanyl interacted with ongoing poor economic conditions among less-educated workers to perpetuate mortality due to these causes. Other scholars have questioned the explanatory focus on distress and despair, especially for drug-related deaths (Roux 2017, Ruhm 2019, Finkelstein et al. 2016). These researchers point instead to place-specific and 'supply-side' factors of the drug environment, particularly the role of new, highly addictive and risky drugs. Others have also pointed to the role of the obesity epidemic and the lagged effects of the HIV/AIDS crisis as drivers of these trends (Masters et al. 2018). 

We contribute to this discussion by examining how two economic policies that increase after-tax incomes of low-income Americans – the minimum wage and the earned income tax credit (EITC) – causally affect deaths of despair. 

Our study

To estimate the causal effects of minimum wages and the EITC on mortality, we adopt a quasi-experimental approach, leveraging state-level variation in state economic policies over a 16-year period from 1999-2015. Our primary data source consists of geocoded CDC Multiple Causes of Death files linked with state-level demographic, economic, and policy variables from a variety of sources (see Dow et al. 2019 for a full description of data sources and methods). 

The restricted-access mortality files we use contain various demographic characteristics including race, ethnicity, age, gender, and education. Education is of particular relevance to our analysis as it serves as a proxy for exposure to the EITC and the minimum wage. We focus specifically on mortality among adults aged 18-64 without a college degree, as this is the population most likely to be affected by minimum wage changes and the EITC. While the term 'deaths of despair' typically includes deaths from drug overdoses, suicides, and alcohol-related illness (Case and Deaton 2015), we focus here on drug overdose deaths and non-drug suicides, which are more likely to be responsive to recent policy changes in the short-run. 

Our analysis follows the standard difference-in-differences approach to estimate models of cause-specific mortality over time. Our estimates suggest that both policies significantly reduce non-drug suicides among our lower-educated sample (adults without a college degree). Specifically, we highlight three findings. First, a 10% increase in the minimum wage reduces suicide deaths by 3.6%, while a 10% higher maximum EITC reduces suicides by 5.5%. Based on the average annual suicide rate in this population over the study period, this translates to a reduction in over 1,200 suicides annually.

Second, the effect of these policies on reducing suicide is stronger among women. A 10% increase in minimum wages (state EITC credits) leads to a 4.6% (7.4%) reduction in suicide deaths. This is consistent with differences in exposure to these policies, as women are more likely to work minimum wage jobs and to be eligible for the EITC.

Third, we do not find any differential effects of minimum wages on suicide for white non-Hispanic and other racial/ethnic groups, yet there is suggestive evidence that the EITC may have larger effects among people of colour. 

Overall, we find that the reduction in suicides is greater among the groups that are more likely to be affected by higher minimum wages and generous EITCs. We find no significant effects of these two policies among adults with a bachelor's degree or higher – a population less likely to work minimum wage jobs or to be eligible for the EITC. This finding lends support to our hypothesised mechanism that these policies reduce suicides by lifting low-income groups out of poverty. Importantly, neither policy significantly affected drug-related deaths, which have increased in the US with the greater availability of illegal opioids, heroin, and fentanyl. These null effects are consistent with the arguments made by Ruhm (2019), Finkelstein (2016), and others highlighting the supply-side drivers of the dramatic increase in drug overdose fatalities. It is likely that other policies are needed to combat these trends.

Evidence of causality

Our study provides the first causal evidence of the beneficial effects of these policies on fatalities attributable to non-drug suicide. Underlying our study design is the fundamental assumption that we can obtain causal estimates of policy effects by comparing states that have different minimum wages and EITC rates within the same year. For this approach to be valid, the parallel trends assumption must hold – that is, changes in state minimum wages and EITC rates should be uncorrelated with unobserved drivers of mortality. 

We provide strong evidence of the parallel trends assumption by estimating an event study model that captures the time path of effects around the time of minimum wage or EITC change. The intuition behind these models is that higher minimum wages or EITC rates should not have any effects on mortality in the years leading up to the policy changes, but we should observe a discontinuous shift in the outcome at the time of implementation. This pattern is shown in Figure 1 plotting the estimated effects (and their 95% confidence intervals) for the minimum wage (panel A) and EITC (panel B), each stratified by gender.

Figure 1 Event study models of non-drug suicide

Concluding remarks

Our finding that minimum wage increases and EITC expansions significantly reduce suicide rates are consistent with recent research identifying economic correlates of suicide – non-employment, lack of health insurance, home foreclosures, and debt crises (Reeves et al. 2012, Chang et al. 2013). 

More generally, these findings further an emerging body of literature examining the relationship between economic policies and related health behaviours and outcomes. For example, recent research has found that minimum wage increases lead to reduced self-reported depression among women (Horn et al. 2017), reductions in suicide (Gertner et al. 2019), and do not have harmful effects on teen alcoholism or drunk driving fatalities (Sabia et al. 2019). In general, a majority of the recent papers on the effects of minimum wages on health have identified beneficial effects, though many of these studies use questionable methods that cast doubt on their validity as credible causal analyses (Leigh and Du 2018, Leigh et al. 2019). 

Expansions of the EITC have been found to significantly improve the health of mothers and birth outcomes (Evans and Garthwaite 2014, Hoynes et al. 2015, Markowitz et al. 2017), and a recent study by Lenhart (2019) finds that EITC expansions improve self-reported health. Taken together, these findings point to a substantial public health benefit of increasing the minimum wage and expanding the EITC. 

The minimum wage and the EITC each raise incomes for low-wage workers. Economists have generally found that minimum wage policies increase income and reduce poverty, while having very little to no negative effects on employment. The new findings in this study suggest that the benefits of minimum wage and EITC policies are broader than previously thought and can help combat the high and increasing levels of deaths of despair.

References

Case, A, and A Deaton (2015), "Rising Morbidity and Mortality in Midlife among White non-Hispanic Americans in the 21st century" PNAS, 112 (49), 15078-15083. 

Case, A, and A Deaton (2017), "Mortality and Morbidity in the 21st Century" Brookings Papers on Economic Activity, 397- 477.

Case, A (2019), "Deaths of Despair and the Future of Capitalism" Haas Institute Lecture, University of California, Berkeley, March 1.

Chang, S-S, D Stuckler, P Yip, and D Gunnell (2013), "Impact of 2008 global economic crisis on suicide: time trend study in 54 countries", BMJ, 347 (2013), f5239.

Cooper, D, M J Luengo-Prado, and J A Parker (2019), "The local aggregate effects of minimum wage increases", NBER Working Paper no. 25761.

Dow, W H, A Godøy, C A Lowenstein, M Reich (2019), "Can Economic Policies Reduce Deaths of Despair?" NBER Working paper no. 25787.

Evans, W, and C Garthwaith (2014), "Giving Mom a Break: The Impact of Higher EITC Payments on Maternal Health", American Economic Journal: Economic Policy, 6 (2), 258-290.

Gertner, A, J Rotter, and P Shafer (2019), "Association between State Minimum Wages and Suicide Rates in the US", American Journal of Preventive Medicine,56 (5), 648-54.

Hedegaard, H, S Curtin, and M Warner (2018), "Suicide Mortality in the United States, 1999-2017", NCHS Data Brief no. 330, 1–8.

Hedegaard, H, M Warner, and A Miniño (2017), "Drug Overdose Deaths in the United States, 1999-2016", NCHS Data Brief no. 294.

Hoynes, H, D Miller, and D Simon (2015), "Income, the Earned Income Tax Credit, and Infant Health", American Economic Journal: Economic Policy, 7 (1), 172-211.

Leigh, P, and J Du (2018), "Effects of Minimum Wages on Population Health", Health Affairs, October 4.

Leigh, P, W Leigh, and J Du (2019), "Minimum Wages and Public Health: A Literature Review", Preventive Medicine, 118, 122-34.

Lenhart, O (2019), "The effects of income on health: new evidence from the Earned Income Tax Credit", Review of Economics of the Household, 17 (2), 377-410.

Markowitz, S, K A Komro, M D Livingston, O Lenhart, and A C Wagenaar (2017), "Effects of state-level Earned Income Tax Credit laws in the US on maternal health behaviors and infant health outcomes", Social Science & Medicine, 194, 67-75.

Masters, R, A Tilstra, and D Simon (2018), "Explaining Recent Mortality Trends among Younger and Middle-Aged White Americans", International Journal of Epidemiology, 47 (1), 81–88.

Reeves, A, D Stuckler, M McKee, D Gunnell, S-S Chang and S Basu (2012), "Increase in State Suicide rates in the USA During Economic Recession", The Lancet 380, 9856, 1813-1814.

Roux, A (2017), "Despair as a Cause of Death: More Complex Than It First Appears", American Journal of Public Health, 107 (10), 1566–67.

Ruhm, C J  (2019), "Drivers of the fatal drug epidemic", Journal of Health Economics, 64, 25-42.

Sabia, J J, M M Pitts, and L M Argys (2019), "Are minimum wages a silent killer? New evidence on drunk driving fatalities", Review of Economics and Statistics, 101 (1), 192-199.

--

John Case
Harpers Ferry, WV

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Dean Baker: The Financial Industry Preys on 401(k) Fees. It Doesn’t Have to Be This Way. [feedly]

Dean Baker: The Financial Industry Preys on 401(k) Fees. It Doesn't Have to Be This Way.
http://cepr.net/publications/op-eds-columns/the-financial-industry-preys-on-401-k-fees-it-doesn-t-have-to-be-this-wayDean Baker

Truthout, July 8, 2019

See article on the original site

Many people studying retirement income have long warned about the risk to future retirees from the collapse of the traditional defined benefit pension. Middle-class workers have generally been able to enjoy reasonably comfortable retirements due to the income these defined pensions provided, in addition to their Social Security.

However, with defined benefit pensions rapidly disappearing, and Social Security benefits replacing a smaller share of income, the prospects for future retirees looks considerably worse. An increase in the percentage of health care costs not covered by Medicare also does not help.

Conservatives have long argued that the loss of defined benefit pensions was no big deal since 401(k)s and IRAs would fill the gap. Many actually claimed that these retirement instruments were superior to pensions since workers have more control over these defined contribution systems, where workers decide how much they want to contribute and how quickly they draw it down.

That claim is harder to make now that 401(k)s have been in existence for almost four decades. The situation for near-retirees does not look very good. They are going to have to work until age 67 to collect full Social Security benefits.

Last year, economist David Rosnick looked at the most recent Survey of Consumer Finance from the Federal Reserve Board. It showed that the middle quintile of households in the 55 to 64 age range had, on average, just $99,000 in retirement savings.

That amount of retirement savings could provide a boost of roughly $5,000 to $6,000 a year above Social Security income. That is roughly half as much as the middle quintile of current retirees receives from defined benefit pensions. (This group of current retirees already gets over $2,000 a year, on average, from defined contribution plans like 401(k)s or 403(b)s.) It is also worth noting that the homeowners in this group now have an average of just 58.5 percent of their home paid off, compared to 81.0 percent in 1989. We can expect a serious decline in retiree living standards.

There are two reasons why 401(k)s have not filled the gap created by the loss of traditional pensions. The first is simply that many workers don't have them at their workplace. Either employers don't enroll workers until they are employed for a year or two, or businesses find the paperwork associated with a 401(k) to be too big of a headache. As a result, only 50 percent of workers currently contribute to a 401(k).

The second big problem is that financial industry fees eat up much of what gets contributed to these accounts. Average expenses of 401(k)s run over 1.0 percent of holdings and in some companies as much as 2.0 percent. This is a huge deal.

For someone saving $3,000 a year, the 1.0 percent pulled out by financial industry fees will reduce retirement savings by almost $30,000 after 30 years. A worker paying 2.0 percent in annual fees will have handed almost $50,000 to the financial industry after 30 years.

The losses would be even larger for workers making bigger contributions. A worker putting $6,000 into their account for 30 years, and paying 2.0 percent in fees, will have made a gift of $100,000 to the financial industry.

This is where the Oregon story comes in. Oregon has established a system of state-managed accounts where employers who do not have their own retirement plan are required to enroll their employees. The plan has a default 5 percent contribution from workers. While workers can opt out of this contribution, the overwhelming majority have chosen not to do so. By having workers contribute every year, and by having a system with far lower costs than privately managed 401(k)s, workers can expect retirement incomes of close to 80 percent of their working income when the system is fully phased in.

It is great to see this system in place in Oregon, but similar systems will also soon be in operation in California, New York, Illinois and several other states. These systems will likely require adjustments as time goes on, but by ensuring that workers contribute in most years of employment and that costs are low, workers can use these systems to replace the retirement that used to come from traditional pensions.

Ideally, this sort of system could be implemented nationally, but with the current president and Congress, that is out of the question. Even if the Democrats retake the White House in 2020, they may not have the ability to get a system like this through Congress.

As a result, we are likely to see the same sort of divide with retirement income that we already see with minimum wages, paid family and sick leave, and other benefits for workers and families. Progressive states are moving forward with measures that ensure their residents a decent standard of living. Meanwhile, the states controlled by Republicans are going as fast as they can in the opposite direction.

This is not a good story for the tens of millions of workers and their families that happen to live in Republican states. But we should at least be glad that workers in some states are benefiting from progressive policies and hope that the rest of the country will follow the same path before too long.

 -- via my feedly newsfeed

Obamacare Mess Irks Judges. It’s Complicated, U.S. Lawyer Admits [feedly]

Moderator: just one more example of the trial ahead getting either Medicare for All or the Green New Deal done: Unless the fascist, "the people are entitled to Nothing", trend is smashed -- and I mean smashed, removed from office, and prosecuted -- even Obamacare will not survive. Trump must be defeated by a healthy margin, and the victors must NOT temporize. This COULD happen in the 2020 election and aftermath. If it does not, it will still have to happen later, but the term "trial" is going to take on some old meanings again

Obamacare Mess Irks Judges. It's Complicated, U.S. Lawyer Admits
https://www.bloomberg.com/news/articles/2019-07-09/obamacare-court-fight-pits-blue-states-against-red-plus-trump

The U.S. appeals court judges tasked with deciding the fate of the hot potato known as Obamacare had some choice words Tuesday for Congress and the Trump administration.

"Why does Congress want the judiciary to be a taxidermist for every big-game legislative accomplishment it achieves?" the rookie on the panel, Kurt Engelhardt, an appointee of President Donald Trump, asked the lawyer representing the U.S. House of Representatives during a lively hearing in New Orleans.

Another judge didn't understand how the federal government thinks it can administer a law it believes is completely unconstitutional in just parts of the country.

"You want to strike it down, only in certain states, in its entirety?" U.S. Circuit Judge Jennifer Elrod, appointed by President George W. Bush, asked a lawyer for the Justice Department.

"A lot of this stuff has to be sorted out, and it's complicated," replied the attorney, August Flentje, as he shifted uncomfortably. "We haven't gone down that road yet."

The third judge, Carolyn King, a Jimmy Carter appointee, didn't utter a word during a 90-minute hearing that's supposed to help the court decide whether President Barack Obama's signature health-care law, the Affordable Care Act, lives or dies. The panel didn't issue a ruling Tuesday.

Texas and 18 other mostly Republican states asked the court to do what Trump and a GOP-controlled Congress couldn't in 2017 -- kill Obamacare.

Access to health care for millions of Americans through the Affordable Care Act hangs on the court's decision. The fight may well escalate to the Supreme Court in time to become a political test for the 2020 elections.

California and 19 other mostly Democratic states, along with the District of Columbia and the U.S. House of Representatives, now controlled by Democrats, jumped in to defend the law after the Trump administration decided to side with the red states that want it struck down.

More: Obamacare's Survival May Hinge on Some Technical Legal Questions

More than 20 million Americans obtained health coverage starting in 2014 through the ACA's independent insurance exchanges, federal subsidies or expanded Medicaid. The exchanges must take all applicants and charge them the same rate, regardless of pre-existing health conditions. Citizens who chose not to buy health insurance had to pay a penalty, a provision the U.S. Supreme Court upheld in 2012 as lawful under Congress's taxing authority.

With Trump's encouragement, Republican lawmakers repeatedly tried to repeal the law, ultimately failing in July 2017 when the late John McCain, the maverick from Arizona, made a thumbs-down gesture on the Senate floor. The GOP succeeded only in eliminating the penalty later that year, leaving the rest of the ACA intact.

A judge in Fort Worth, Texas, concluded in December that wiping out the penalty undermined the ACA's constitutional basis and invalidated the whole law. Although the federal government initially said some parts of the ACA might be worth keeping, the Trump administration shifted in March and said it would no longer defend any part of Obamacare in court.

How Obamacare Lives On, Despite Trump's Best Efforts: QuickTake

Engelhardt voiced frustration that lawmakers haven't resolved the situation on their own.

"Can't they do this tomorrow?" asked the former Louisiana trial judge, who joined the appeals court last year. "There's a political solution and you're asking this court to roll up its sleeves and get involved in it."

Samuel Siegel, the lawyer representing California, responded that it isn't the appeals court's job "to do what Congress repeatedly refused to do, which is to repeal the Affordable Care Act."

Douglas Letter, a lawyer for the House of Representatives, told the judges there's no need for Congress to take further action if lawmakers believe the law is already clear. When Congress eliminated the tax penalty for not buying health insurance, but left the rest of Obamacare intact, Congress created the version of Obamacare it wanted, he said.

If one part of the ACA is subsequently declared unlawful, that's no reason to toss out the entire law, Letter told the panel. Instead, the House's lawyer said, it is the judges' responsibility to "save everything you can unless it is evident Congress didn't mean that and would've preferred no statute."

Texas Solicitor General Kyle Hawkins warned the judges that "congressional intent is not monolithic, and it's a very difficult and dangerous game" to try to second-guess what Congress really meant.

"I'm not in a position to psychoanalyze Congress, and this court is not in a position to engage in psychoanalytical tasks," Hawkins said.

While the red states and the Trump administration are technically adversaries in this challenge, their lawyers sat at the same table during the hearing and told the judges they both think Obamacare is unlawful. However, Hawkins took pains to highlight inconsistencies that have developed in the Trump administration's position, which left Flentje, the Justice Department lawyer, occasionally struggling to explain himself.

When the challenge was in the lower court, the Justice Department said it didn't need a specific judicial order halting the ACA because the federal government would treat the judge's decision as a nationwide injunction. Later, the Trump administration shifted gears and said it will keep enforcing Obamacare until a court orders it to stop. And last week, the administration shifted positions again to insist that lower-judge's order only blocks Obamacare in states that sued to overturn it.

Several times, Flentje seemed to almost beg the judges to resolve the impasse between the White House and Congress, as the Supreme Court did when Obama refused to defend the federal law denying recognition to same-sex marriages.

"The courts then said this was a reasonable way to let the judicial branch have the final say," Flentje said. "The Supreme Court discussed this conundrum and said it's a reasonable way, especially when we have a complicated statute that covers a lot of ground."

The case is Texas v. U.S., 19-10011, U.S. Court of Appeals for the Fifth Circuit (New Orleans). -- via my feedly newsfeed

Growing Old in America: Baby Boomer Nightmare [feedly]

Growing Old in America: Baby Boomer Nightmare
https://economicfront.wordpress.com/2019/07/05/growing-old-in-america-baby-boomer-nightmare/

Despite its reputation as the wealthiest generation, baby boomers (generally considered to be those born between 1946 and 1964) are facing a retirement nightmare.  A 2016 St. Louis Federal Reserve study of the retirement readiness of U.S. families came to the same conclusion but put it more gently: "It could be worrisome that, for many American households, the total balances of their retirement accounts may not be sufficient to ensure a solid life in retirement."

The investment industry, always ready to deflect blame, argues that the problem is the result of the fact that Americans just don't save enough.  But even Barron's, a sister publication of the Wall Street Journal that specializes in financial news, understands what is really happening.  As a recent article in the magazine points out:

Too few Americans are saving for retirement. Those who do save are putting away too little. It is only a matter of time before this sparks an economic and political crisis. . . .

But America's retirement crisis wasn't created because of character flaws or personal irresponsibility. Nor can it realistically be fixed by technocratic fixes.

The ugly, unspoken truth is that many people are just not earning enough money. They barely have enough to cover their daily expenses; they don't have enough left over to be able to save.

The promised golden years are out of reach for most boomers.

Baby boomers are moving rapidly towards retirement.  Those born in 1946 are now 73, those born in 1964 are now 55.  Despite being celebrated for their good economic fortune, especially in contrast to millennials, most boomers face a future that doesn't include retirement with dignity or, in the words of the St. Louis Fed, a solid life.

Although labeled the wealthiest generation, a Stanford Center on Longevity examination of retirement preparedness found that "baby boomers are in a financially weaker position than earlier generations of retirees, in terms of home equity accumulation, financial wealth, and total wealth."

The Stanford Center study divided the boomer generation into two groups, the early boomers (born 1948-1953) and mid-boomers (1954-1959), and compared them to early (before 1942) and later born (1942-47) members of the previous "silent generation."  The following are some of its key findings:

• Holding age fixed, mid-boomers age around 55-60 years old had saved less than previous generations at the same age.

• Holding age fixed, a 50-year old mid-boomer had saved less in any retirement plans, including workplace plans and Individual Retirement Account plans, than a 50-year old from prior generations.

• Holding age fixed, boomers age 55-60 had a higher debt burden than prior generations at the same age, evidenced in a higher debt-to-net worth ratio, a lower liquid-asset to all asset ratio, and a higher loan-to-value ratio.

But boomer problems are not just comparative.  For example, the Stanford study also found that approximately 30 percent of baby boomers had no money saved in retirement plans in 2014, when they were age 58, on average, "leaving them little time to start saving for retirement."  And, the median balance for those who held a retirement account was only $200,000, far too small an amount to generate the income needed to carry a person through a 20- to 30-year retirement.

Looking just at retirement age boomers, a 2018 PBS News Hour report notedthat:

Nearly half of Americans nearing retirement age (65 years old) have less than $25,000 put away, according to the Employee Benefit Research Institute's annual survey. One in four don't even have $1,000 saved.

Adding to the retirement nightmare is the fact that many boomers also remain deep in debt.  A CNBC story reports that:

One-third of homeowners over the age of 65 were still paying off a mortgage in 2012, compared with less than a quarter of people in 1998 — and the median amount they owed nearly doubled to $82,000 from $44,000.

Meanwhile, the number of people aged 60 and older with student debt quadrupled between 2005 and 2015, to 2.8 million from 700,000.

One reason for low boomer financial balances is that this generation was hit hard by the Great Recession and the following years of low interest rates, and has yet to recover. Boomer median household net worth was $224,100 in 2007 and only $184,200 in 2016.

African American and Latinx baby boomers face even greater problems, earning less money and having far less retirement savings than white Americans.  According to Forbes, "The average white family had more than $130,000 in liquid retirement savings (cash in accounts such as 401(k)s, 403(b)s and IRAs) vs. $19,000 for the average African American in 2013, the most recent data available."

Latinx retirement savings also trails that of whites.  For example, in 2014, among working individuals age 55 to 64, only 32.2 percent of Latinx had money in a retirement account compared with 58.5 percent of whites. The average Latinx account held $42,335 while the average white account held $103,526.

With private pensions and personal savings inadequate to fund a secure retirement, it is no wonder that so many boomers strongly defend Social Security, the so-called third leg (in addition to private pensions and personal savings) of the retirement "stool."  But, as important as it is, the average Social Security check in 2018 was only $1,422 a month or $17,064 a year.

It should therefore come as no surprise that research by the Institute on Assets and Social Policy finds that one-third of seniors have no money left over at the end of the month or are in debt after meeting necessary expenses.  Or that growing numbers of seniors are making the decision to forego retirement altogether, by either continuing to work to returning to the labor force.

Saying goodbye to retirement

According to the 2019 report titled Boomer Expectations for Retirement, one-third of boomers plan to retire at age 70 or not at all.  And one-third of employed boomers ages 67-72 postponed retirement.

Thus, while labor force participation rates are declining for many age cohorts, they are growing for boomers and older workers. In fact, between April 2000 and January 2018, "there has been essentially no net growth of employment for workers under age 55. Over that same time, employment for workers over age 55 has doubled."

The figure below shows labor force participation rates for six age 50-plus cohorts since the turn of the century. As Jill Mislinski states: "The pattern is clear: The older the cohort, the greater the growth."

Sadly, many of these older workers have had little choice but to accept low-paid, physically demanding work at some of America's richest companies (e.g., Walmart and Amazon) who are delighted to take advantage of their desperation.

Jessica Bruder's 2017 book, Nomadland: Survival in Twenty First Century America, describes mostly white baby boomers who, strapped for money, decide to buy used RVs and travel.  We learn about the friendships they make, and also the minimum wage seasonal jobs they are forced to take to survive. Zhandarka Kurti draws on Bruder's work to highlight their experience with Amazon:

With its motivational slogan of "work hard, have fun, make history," Amazon recruits seasonal workers at various "nomad friendly events" including "RV shows and rallies—in more than a dozen states across America." Older workers are drawn to the opportunity to make good money in a relatively short time. . . . Also ironically, Walmart and Amazon, the two competing retail giants and also the country's largest employers, allow their workers to park overnight, an attractive perk for many older nomads who struggle with food security let alone rent. . . .

While most of the nomads are made aware of the physical aspects of the job [working in Amazon fulfillment centers] during the training seminars, they are nonetheless surprised by just how much pain they are in after a day's work. . . . Older workers constantly complain of chronic pain from work and Amazon's solution is to offer free over-the-counter pain killers. . . . Amazon leaves older workers so physically tired that they have little occasion to enjoy their leisure time. Instead they spent the remainder of their "free" time nursing themselves back to health to survive another workday. . . .

In many ways older workers are Amazon's dream labor force. "They love retirees because we're dependable. We'll show up and work hard, and are basically slave labor" one 78 year-old workamper who previously worked as a teacher in California's community colleges confides in Bruder. Older workers are what Bruder calls "plug-and-play labor" in that they are only around for a short time, are often too tired to complain about the non-existent benefits and are generally appreciative of the jobs regardless of the pain they endure. . . . Amazon also receives federal tax credits to hire older disadvantaged workers and the company predicts that by 2020 one in every four workampers in the US would have worked for Amazon.

It is clear that leading American businesses do not favor bringing back pensions, or boosting wages, or paying higher taxes to strengthen and expand social security and other social services.  Thus, if existing trends are not challenged and reversed, the boomer generation (or at least a significant minority) may well be the last to experience some sort of satisfactory retirement. This development is yet another sign of a failed system.  Boomers need to find ways to help younger generations keep the goal of a satisfying retirement alive, and join in a common fight for the structural changes required to realize it.

 -- via my feedly newsfeed

Trump Is Losing His Trade Wars [feedly]

Trump Is Losing His Trade Wars
https://www.nytimes.com/2019/07/04/opinion/trump-trade-wars.html

Donald Trump's declaration that "trade wars are good, and easy to win" will surely go down in the history books as a classic utterance — but not in a good way. Instead it will go alongside Dick Cheney's prediction, on the eve of the Iraq war, that "we will, in fact, be welcomed as liberators." That is, it will be used to illustrate the arrogance and ignorance that so often drives crucial policy decisions.

For the reality is that Trump isn't winning his trade wars. True, his tariffs have hurt China and other foreign economies. But they've hurt America too; economists at the New York Fed estimate that the average household will end up paying more than $1,000 a year in higher prices.

And there's no hint that the tariffs are achieving Trump's presumed goal, which is to pressure other countries into making significant policy changes.

What, after all, is a trade war? Neither economists nor historians use the term for situations in which a country imposes tariffs for domestic political reasons, as the United States routinely did until the 1930s. No, it's only a "trade war" if the goal of the tariffs is coercion — imposing pain on other countries to force them to change their policies in our favor.


And while the pain is real, the coercion just isn't happening.

All the tariffs Trump imposed on Canada and Mexico in an attempt to force a renegotiation of the North American Free Trade Agreement led to a new agreement so similar to the old one that you need a magnifying glass to see the differences. (And the new one may not even make it through Congress.)

And at the recent G20 summit, Trump agreed to a pause in the China trade war, holding off on new tariffs, in return, as far as we can tell, for some vaguely conciliatory language.

But why are Trump's trade wars failing? Mexico is a small economy next to a giant, so you might think — Trump almost certainly did think — that it would be easy to browbeat. China is an economic superpower in its own right, but it sells far more to us than it buys in return, which you might imagine makes it vulnerable to U.S. pressure. So why can't Trump impose his economic will?

There are, I'd argue, three reasons.

First, belief that we can easily win trade wars reflects the same kind of solipsism that has so disastrously warped our Iran policy. Too many Americans in positions of power seem unable to grasp the reality that we're not the only country with a distinctive culture, history and identity, proud of our independence and extremely unwilling to make concessions that feel like giving in to foreign bullies. "Millions for defense, but not one cent for tribute" isn't a uniquely American sentiment.

In particular, the idea that China of all nations will agree to a deal that looks like a humiliating capitulation to America is just crazy.

Second, Trump's "tariff men" are living in the past, out of touch with the realities of the modern economy. They talk nostalgically about the policies of William McKinley. But back then the question, "Where was this thing made?" generally had a simple answer. These days, almost every manufactured good is the product of a global value chain that crosses multiple national borders.

This raises the stakes: U.S. business was hysterical at the prospect of disrupting Nafta, because so much of its production relies on Mexican inputs. It also scrambles the effects of tariffs: when you tax goods assembled in China but with many of the components from Korea or Japan, assembly doesn't shift to America, it just moves to other Asian countries like Vietnam.

Finally, Trump's trade war is unpopular — in fact, it polls remarkably poorly — and so is he.

This leaves him politically vulnerable to foreign retaliation. China may not buy as much from America as it sells, but its agricultural market is crucial to farm-state voters Trump desperately needs to hold on to. So Trump's vision of an easy trade victory is turning into a political war of attrition that he, personally, is probably less able to sustain than China's leadership, even though China's economy is feeling the pain.

So how will this end? Trade wars almost never have clear victors, but they often leave long-lasting scars on the world economy. The light-truck tariffs America imposed in 1964 in an unsuccessful effort to force Europe to buy our frozen chickens are still in place, 55 years later.

Trump's trade wars are vastly bigger than the trade wars of the past, but they'll probably have the same result. No doubt Trump will try to spin some trivial foreign concessions as a great victory, but the actual result will just be to make everyone poorer. At the same time, Trump's casual trashing of past trade agreements has badly damaged American credibility, and weakened the international rule of law.

Oh, and did I mention that McKinley's tariffs were deeply unpopular, even at the time? In fact, in his final speech on the subject, McKinley offered what sounds like a direct response to — and rejection of — Trumpism, declaring that "commercial wars are unprofitable," and calling for "good will and friendly trade relations."

 -- via my feedly newsfeed