The Inflation Puzzle: Why Has it Move So Little for 25 Years? [feedly]

Essence of the puzzle, via Sherlock Holmes:

Inspector Gregory asks Holmes, "Is there any point to which you would wish to draw my attention?"

"To the curious incident of the dog in the night-time."
"The dog did nothing in the night-time."
"That was the curious incident," remarked Sherlock Holmes.

The Inflation Puzzle: Why Has it Move So Little for 25 Years?
http://conversableeconomist.blogspot.com/2020/01/the-inflation-puzzle-why-has-it-move-so.html

 -- via my feedly newsfeed

The Trump administration’s new housing rules will worsen segregation [feedly]

The Trump administration's new housing rules will worsen segregation
https://www.epi.org/blog/the-trump-administrations-new-housing-rules-will-worsen-segregation/

In "The Neighborhoods We Will Not Share," an article published online at The New York Times, I describe how the Trump administration has proposed a rule that will make it virtually impossible to challenge many policies that reinforce residential racial segregation.

This is no small matter. Segregation underlies many of our most serious social problems. Educators can't seem to make significant progress in their efforts to close the racial gap in academic achievement that persists in large part because we enroll the most socially and economically disadvantaged children in poorly resourced schools, located in poorly resourced neighborhoods. Health disparities by race stem, in part, from so many African Americans consigned to areas where they have less access to healthy air and healthy foods, and are more subject to stressful conditions. Black men's high and unjustifiable rates of incarceration depend significantly on their concentration in segregated neighborhoods without good employment opportunities in the formal economy or the transportation to access good jobs. And segregation prevents us from overcoming our very dangerous and frightening political polarization, highly correlated with race. How can we ever develop the common national identity essential to the preservation of our democracy if so many African Americans and whites live so far from each other that we have no ability to understand and empathize with each other's life experiences?

In my book The Color of Law, I described how 20th century federal, state, and local policies—explicitly racial—created, reinforced, and sustained racial boundaries in every metropolitan area in the United States. These unconstitutional government activities still predict today's segregated landscape. For example, the explicit exclusion of black working class families from single-family homes, for which white working class family purchases were subsidized, bears substantial responsibility for the black-white wealth gap—while black family incomes are about about 60% of white family incomes, the median black household wealth is less than 10%of white household wealth, an enormous disparity that was propelled by the equity appreciation of white property while African Americans were consigned to neighborhoods where no similar appreciation occurred. The wealth gap predicts much of our contemporary racial inequality.

The Fair Housing Act of 1968 prohibited ongoing racial discrimination in housing but did little to explicitly prohibit policies that reinforce segregation where the racial intent is either masked, unconscious, or even absent. But federal courts, up to the Supreme Court have found that residential policies with a "disparate impact" on African Americans (and other protected groups) violate the Fair Housing Act if there is a reasonable nondiscriminatory alternative to accomplish a legitimate public purpose.

It is this court-sanctioned policy that the administration is now proposing to undermine. The rule has been through a required public comment period, and when finally released will effectively reduce the Fair Housing Act to legislation that only prohibits racial discrimination where policy proponents openly admit that bigotry is their intent.

The process of creating this rule has largely escaped public notice because it accomplishes its purpose in highly technical ways, not easily explained. For example, it changes the order in which complainants or defendants are required to submit different kinds of evidence in a Fair Housing Act proceeding at the Department of Housing and Urban Development. It will not be obvious to anyone but an experienced lawyer why such a change is fatal to the Fair Housing Act's purpose.

In the article I published on Monday, I attempt to explain why this matters by describing two situations in which it should be obvious to everyone that a Fair Housing Act violation occurred, but where this would be virtually impossible to prove under the new rule. One of these involves homeowners in Syracuse's low-income and predominantly African American neighborhoods who have been paying property taxes at an effectively higher rate than residents of wealthier and predominantly white neighborhoods. The other concerns policies enacted by a predominantly white New Orleans suburb, St. Bernard Parish, to prevent black families from returning to the community after Hurricane Katrina.

Recently, the Trump administration has announced two additional rule revisions that further entrench segregation. One effectively relieves suburban communities of an affirmative obligation to remove policies and practices that create or perpetuate segregation. The other relieves retail banks that take deposits from residents of low-income neighborhoods of an obligation to extend mortgage and other credit to residents of those neighborhoods.

The Trump administration's hostility to justice for racial minorities continues unabated.

Suggested further reading:

Poor black children are much more likely to attend high-poverty schools than poor white children

Toxic stress and children's outcomes

Mass incarceration and children's outcomes

The Color of Law

Historical Income Tables: Households

The racial wealth gap

FR-6111-P-02 HUD's Implementation of the Fair Housing Act's Disparate Impact Standard

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Proposed Rule

 

 -- via my feedly newsfeed

Everybody's Talkin' 'Bout Taxes--especially Wealth Taxes and Mark-to-Market of Capital Gains [feedly]

Linda Beale takes you on a deep dive into the issues in making Sen. Warren's wealth tax work, as well as how the complexities can drive you back into defense position, given the aggressiveness of Trump assaults.

Everybody's Talkin' 'Bout Taxes--especially Wealth Taxes and Mark-to-Market of Capital Gains
https://ataxingmatter.blogs.com/tax/2020/01/everybodys-talkin-bout-taxes.html

Not surprisingly for those of you who are members of the ABA Tax Section, there is a meeting of that group next week in Florida when a thousand tax lawyers (give or take a few) will be talking about everything from basis to wealth taxes; GILTI, BEAT, Dual BEIT, to EITC.  Yours truly will be on a panel of the Tax Policy and Simplification Committee, meeting Friday morning, to discuss how the tax system should respond to the wealth gap.  Joining me on the dais will be Roger Royse (moderator and panelist), Rich Prisinzano from the Penn Wharton Budget Model, and Dan Shaviro, Wayne Perry Professor of Taxation at NYU and a blogger at Start Making Sense.  We'll talk about the income and wealth gap data, including the different perspectives of  Saez & Zucman, serving as wealth tax advisers to Senator and Democratic presidential candidate hopeful Elizabeth Warren; Penn Wharton Budget Model, applying a more standard budget model to determine harms and benefits of the Warren Wealth Tax; and Cato INstitute.  We'll also discuss Sen. Ron Wyden's proposal for a mark-to-market system of capital gains taxation (including a lookback charge of some kind for hard-to-value assets, Prof. (and former Cleary partner) Edward Kleinbard's Dual Business Enterprise Income Tax proposal, and other means of making the regular tax system more progressive such as rates, removing the capital gains preference, and reinvigorating the estate tax that has been the object of a GOP murder squad for the last 20-30 years at least.

Meanwhile, today in Florida there was a Tax Policy Lecture at  the University of Florida on Taxing Wealth, with Alan Viard, resident scholar at the American Enterprise Institute, David Kamin, Professor at NYU School of Law, Janet Holtzblatt, Senior Fellow at the Tax Policy Center, and William Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy7 at the Brookings Institution. 

Last fall, the Tax Policy Center held a program on Taxing Wealth (webcast recording available at this link) with Mark Mazur, Ian Simmons, Janet Holtzblatt, Beth Kaufman, Greg Leiserson, Victoria Perry, and Alan Viard.  Sony Kassam from Bloomberg Tax served as moderator.  The link has a series of power point presentations from that meeting as well, for your edification.

Ian Simmons, for example, includes the letter from billionairesdated June 24, 2019, asking that "[t]he next dollar of new tax revenue should come from the most financially fortunate, not from middle-income and lower-income Americans."  Such a tax "enjoys the support of a majority of Americans--Republicans, Independents, and Democrats."  It's not a new idea, since all those millions of middle-income Americans who own their home "already pay a wealth tax each year in the form of property taxes on their primary form of wealth--their home."   The billionaires are asking "to pay a small wealth tax on the primary source of our wealth as well"--such as Elizabeth Warren's proposal, which would tax "only 75,000 of the wealthiest families in the country" (those with assets over $50 million) and would generate an estimated $3 trillion over ten years to "fund smart investments in our future, like clean energy innovation to mitigate climate change, universal child care, student loan debt relief, infrastructure modernization, tax credits for low-income families, public health solutions, and other vital needs."  All this is necessary because of the wealth gap: "[t]he top 1/10 of 1% of households now have almost as much wealth as all Americans in the bottom 90%." The signatories support a wealth tax because:

• it's a powerful tool for solving our climate crisis
• it's an economic winner for America through increased public investments
• it will make Americans healthier, addressing the difference in longevity (15 years) between the richest and the poorest Americans
• It's fair -- "[t]axing extraordinary wealth should be a greater priority than taxing hard work."
• It strengthens American freedom and democracy, since high levels of economic inequality lead to political power and pluotocracy and higher levels of distrust in democratic institutions
• It is patriotic -- 'The richest 1/10 of the richest 1% should be proud to pay a bit more of our fortune forward to America's future."

Janet Holtzblatt discussed whether wealth should be taxed, with a set of powerful powerpoint charts.  As she notes, there are a number of reasons to think taxing the wealthy is a good idea because it (slide 4) :

• curbs the accumulation of power that comes with the accumulation of wealth--and, I will add, this is power to get laws and regulations written in your favor, including tax laws, as well as power that allows pollution, rent-seeking, on-demand schedules for workers and other 'evils' that come with plutocracy
• ensures that the wealth pay their fair share of taxes
• finances new initiatives (child care, student debt relieve, climate change policies, housing initiatives)
• provides better data for research on wealth inequality

Those not supportive (or, as JH puts it, "less optimistic") suggest that (slides 5, 7)

• even with a wealth tax, the rich remain the richest and the most powerful
• incremental changes to current tax system would be more easily implemented
• wealth taxes would have a negative impact on savings, investment, entrepreneurship
• wealth taxes won't raise as much revenue as claimed
• OECD countries with wealth taxes haven't been all that successful (in 1990 12 had them, in 2018 only 3 still retained wealth taxes: Norway, Switzerland, and Spain)

There are lots of issues with wealth taxes: (slides 8-20)

• on what assets
• at what rate (tax burden will depend partly on rate of returns on investments
• using what exemption threshold (liquidity constraints at lower thresholds; taxing  middle income instead of wealthy)
• using what means to prevent tax avoidance (dependents' wealth with parents? include assets in family-run foundations? restrictive limits for trusts? exit taxes?)
• and tax evasion (enhance IRS enforcement, enhance penalties, enhance IRS access to third party data--but the wealthy have resources to battle IRS claims)
• assuming what actual amounts of tax revenues could be raised ("street fights over revenue estimates...among top public finance economists") (Slide 15)
  • how much wealth is there?  JH notes several 2016 estimates between 86.9 trillion and 101.2 trillion (slides 16-17) {Zucman  says just under $115 trillion]
    
    • Fed Reserve Survey of Consumer Finance ( 3 year intervals; leaves out Forbes 400 and some pension wealth)
    • estate tax data (adjusted for mortality probabilities and population)
    • income tax data (capitalized using assumed rates of returns)
  • how is that wealth distributed between the top 0.1% and the rest?  Bricker 2016 study estimates range from about 15% to 22%  (Slide 18)
  • how much wealth is hidden by "tax net misreporting rates"?  IRS 2016 misreporting: farms 71%; nonfarm proprietors 64%; CGs 27%; PS/SCorps/Estates/Trusts 16%  (slide 19)
  • how much tax revenues?  between 815 billion and  1.098 trillion between 2021-2030 (slide 22, Urban-Brookings TPC Microsimulation Model [ with lower thresholds and rates than those proposed by Warren]
  • who pays?  40,000 tax units in the top 1% minus the top 0.1%; 127,000 tax units in the top 0.1%,with those in the top 0.1% paying between 97% and 100% on the different options considered

Greg Leiserson discussed the idea of mark-to-market taxation (an idea that Ron Wyden has endorsed), in "Taxing wealth by taxing investment income: An introduction to mark-to-market taxation" (Sept 11, 2019).  The key to MTM taxation is that a tax is assessed annually on investments, whether or not they are sold or otherwise disposed of ('through a transaction that results in "realization" for federal income tax purposes).  The burden of such a tax falls predominantly on the wealthy, since those are the primary owners of bonds, stocks, real estate empires, and pass-through businesses that produce investment income, as well as the appreciation of those assets that is taxed currently as a capital gain on disposition.  Leiserson provides a chart (below) showing the nominal investment income of US households and nonprofits including an offset for inflation.

As he notes, much of this income is taxed at preferential capital gains rates, and much of the income tax is deferred because capital gains and losses are generally taxed only when the asset is sold.  Deferral amounts to a reduction in taxes paid under time-value-of-money principles.  But yet another way in which owners of investment assets escape taxation is the estate tax: appreciation in property in the estate (such as unrealized capital gains from stock that has appreciated in value significantly over decades) is never taxed, since the heirs get a step up in basis to market value, so that if the asset were then immediately sold, there would be no gain remaining.

MTM taxation eliminates the deferral advantage.  MTM taxation combined with elimination of the preferential rate for capital gains would  eliminate the preferential treatment of capital gains that exists in current law.  Leiserson notes the difficulties for a MTM system: which assets are covered, rate of tax applied, and whether there are special rules for volatility. Further, "[i]f a comprehensive system of mark-to-market taxation is enacted, then there would be no unrealized gains at death going forward, because gains will have been taxed on an annual basis, including in the year the person dies" so long as the system applies over some transition period to gains accrued prior to enactment.  Otherwise, the system would have to tax gains at death (repealing step-up in basis rule) or at any other disposition, including gifts, to ensure fair and equal treatment.  He suggests other measures--such as limiting the home sales capital gain exclusion or requiring mandatory distributions of pension account balances above a threshold, that would be reasonable in a MTM context.

One difficulty with MTM taxation is valuation of assets that are not regularly traded.  Ron Wyden's proposal suggests a lookback charge--an additional tax payment for assets not subject to MTM taxation that is collected upon disposition to account for the deferral value while still relying on realization as a trigger for taxation. Wyden and Leiserson suggest different possible methods.  One is to take the gain upon sale and allocate it ratably to each year between purchase and sale, compute the tax on each year's income at the rate applicable in that year, and then calculate interest on those unpaid taxes for the years til payment. Unrealized gains would be deemed realized on death or gift and taxed accordingly.

Three key ideas here:

• To protect lower and middle income taxpayers from the tax, there could be a lifetime gain  exemption threshold ($0.5 million, say) that has to be reached before the rules apply or an asset value threshold ($2 million; $10 million, etc.).  Under the latter, taxpayers would fall into and out of the MTM regime as assets fluctuate.  (The asset approach is suggested by Wyden.)
• The revenue raised is significant though it depends on the particular model.  Leiserson suggests MTM combined with elimination of the preferential rate on capital gains "could easily raise $1 trillion over the next decade--and potentially much more."  He notes that just eliminating the preferential CG rate gives a much lower estimate--that's because of "the ease of tax avoidance under current law such as the ready opportunity to defer tax by not selling assets and potentially avoid tax entirely through step up in basis--all while simply borrowing against these same assets to finance any spending."
• "The wealthiest 1 percent of families holds 31 percent of all wealth, and the wealthiest 10 percent holds 70 percent of all wealth."  "The highest-income 1 percent of families receives 75 percent of the benefit of the preferential rates for capital gains and dividends under current law." The wealthiest 10% would bear the burden of MTM reforms.

 

Of course, while everybody is talking about taxes, some of that talk is the same old endless market fundamentalist myth (Reaganomics) about how tax cuts are what make the economy grow and will actually pay for themselves -- in spite of near 4 decades of evidence to the contrary, where highest growth rates have generally been in times of higher tax rates, with some consideration for stimulus impact of tax cuts after periods of recessions.  See, e.g., NY Times editorial, There's No Such Thing as a Free Tax Cut (Jan 22, 2020).  The op-ed notes that Treasury Secretary Steven Mnuchin "repeated the risible fantasy that the Trump administration's 2017 tax cuts will bolster economic growth sufficiently for the government to recoup the revenue it lost by lowering tax rates" [in the 2017 tax legislation] even though 2 years in, the "budget deficit has topped $1 trillion." This is because, as most of us who haven't drunk the Laffer-curve tax cut kool-aid know and the Times op-ed reiterates, "businesses responded to increased demand more than they did to the lower tax rates."  Nonetheless, we should not be surprised that the Trump Administration is talking about two "big ideas" for taxes if the man gets reelected:  1) cutting Medicare and Social Security: see, e.g., Trump Opens Door to Cuts to Medicare and Other Entitlement Programs, NY Times (Jan 22, 2020) and 2) passing another tax cut bill: see Steven Mnuchin Confirms Trump's New Tax Plan is Imminent, USNews (Jan 23, 2020).  Those two ideas go hand in hand. 

Though Trump doesn't dare state what he is really doing to his base, who he has deceived with typical right-wing rhetoric into thinking that he is trying to rightsize the economy to serve them when he instead engages in class warfare to stuff his own pockets, he is hip to hip with Newt Gingrich's desire to "starve the government" to create a huge deficit (we are up to $1 trillion in our new "gilded age economy") that then provides cover for the wealthy to suck in even more of the country's wealth by downsizing Medicare and Social Security, programs essential for those who are not among the wealthy. 

 -- via my feedly newsfeed

The Politics of Pensions: No Bailout for You [feedly]

The Politics of Pensions: No Bailout for You
https://workingclassstudies.wordpress.com/2020/01/20/the-politics-of-pensions-no-bailout-for-you/

Photo by Andrew Rush, Pittsburgh Post-Gazette

On December 24 last year, the New York Times reported that a multi-billion-dollar bailout of the United Mine Workers Health & Retirement Fund which was slated to go broke in 2023 had been rolled into the $1.4 trillion bi-partisan spending bill passed by Congress and signed by President Trump. The last-minute deal will ensure that thousands of retired miners living in some of the nation's most impoverished communities continue to receive the modest benefits they earned during their years working in Appalachia's coal mines.

The decision to insert the Miner's Pension Protection Act into the must-pass budget bill was clearly good news for the 100,000 retirees who depend on pensions that average $595.00 per month. It was also something of a Christmas miracle.

The legislation had been blocked by Senate Majority Leader Mitch McConnell, Rob Portman of Ohio and other powerful Republicans who opposed the bailout on "principle" even though thousands of retired miners residing in their states would have been devastated if the fund had gone belly-up. Observers speculate that McConnell, who is up for election this year, was scared into a change of heart after Democrat Andy Beshear was elected governor of Kentucky in November. Donald Trump's need to throw miners a bone after failing to deliver on his promise to resurrect the flagging but "beautiful" coal industry also played a role in moving the proposal along.

Frankly, we could care less about what melted McConnell's cold, cold heart—assuming he has one. We're just happy miners and their families will continue to get their checks. But this incident along with the impending collapse of hundreds of other severely underfunded multi-employer (ME) pension funds, provides a frame for comparing the disparate ways leaders of both major political parties deal with Wall Street and Main Street. You won't be surprised to learn who gets the short end of the stick.

It's an easy and disheartening comparison to make. Simply contrast the way the federal government reacted when the financial markets began to meltdown in 2007 to what's been done to address the pension crisis. In the former instance, Bush, Obama, and Congress met behind closed doors and cooked up the Troubled Asset Relief Program, a more than $6 trillion taxpayer bailout of the big banks, speculators, mortgage brokers, and other miscreants whose criminal behavior, greed, and avarice brought the world economy to the brink of disaster and cost 10,000,000 Americans their homes. Of course, no one who engaged in the criminal activity that Fortune's Michael Collins and others have identified ever went to jail. They just went out and bought new Maseratis, Gulfstream Vs, and bespoke suits.

Now let's look at how the feds have dealt with the pension crisis which has been precipitated by the effects of deindustrialization, the sharp decline in union membership, chronic underfunding, poor investment decisions, employer pullouts, lax regulation, and serial bankruptcies. Today,  approximately 1,400 multi-employer plans covering 10.6 million Americans are underfunded by $638 billion. More than 100, including the mammoth Teamsters Central State Pension Fund which has $40.5 billion in unfunded liabilities, could go broke in the next five years. Unless something is done millions of men and women who contributed trillions of dollars in deferred wages to ME plans will, through no fault of their own, receive drastically reduced benefits—if they receive any at all.

Federal officials have floated a number of proposals for dealing with the dilemma.  Most have one thing in common: they punish the innocent victims. For example, Congress and the Obama administration launched a sneak attack against workers and retirees by slipping the Multiemployer Pension Reform Act (MPRA) of 2014 into a must-pass omnibus budget bill at the last possible moment. This "reform" legislation gave ME plan trustees the authority to seek approval from the Treasury Department to reduce benefit levels without seeking prior approval from active workers or retirees.

Shortly after the bill passed, the Central States board asked Treasury for permission to slash benefits by as much as $2,000 per month for current and future retirees. The hundreds of thousands of people who would have been affected were understandably outraged by both the proposed cuts and what they viewed as a betrayal by Congressional Democrats and Obama. That outrage and the resentment it fueled persists to this day, even though Treasury and Special Master Ken Feinberg ultimately rejected the Central States' application in 2016. Since then more than 25 ME plans covering more than 108,000 workers have sought approval to slash benefits.

There is some good news, however. Earlier this year the Democratic majority in the House passed the "Butch Lewis Act," which would provide billions of dollars in loans to the troubled ME plans. Unfortunately, the good news ends there because the Senate Republicans who leapt at the opportunity to throw trillions to their Wall Street buddies are adamantly opposed to a taxpayer funded bail out that will help working-class retirees and ensure that men and women who are on the job today will receive promised benefits tomorrow.

Their alternative? Chuck Grassley's Multiemployer Pension Recapitalization and Reform Plan. Not only will this little beauty result in benefit cuts, it imposes a monthly fee on those greedy retirees who had the temerity to live long enough to collect the pensions they earned. This will teach them.

We have some better ideas. First, a TARP-like relief program for America's pension systems. If we can afford $6,000,000,000 to bailout the robber barons we can afford to ensure that working- and middle-class families get their pension checks every month. And we'll even do one better than TARP, which did little to rein-in the excesses that nearly blew up banking system. In exchange for the money, we'd require pension plans to accept tight new regulations that would protect workers and their deferred wages going forward.

Second, we need to reform the bankruptcy laws so that ME plans would be considered secured creditors in line for payment ahead of banks, hedge funds, and stockholders. This is critical because serial bankruptcies were largely responsible for undermining the UMW fund.  Requiring companies to meet their obligation to retirees and workers would go a long way to strengthening plans that have been weakened by corporate greed.

Finally, the Democratic candidates for office should start talking about the crisis, making clear how it impacts hundreds of thousands of people in swing states like Michigan, Wisconsin, and Pennsylvania – including many working-class voters who abandoned the Democratic Party in 2016. Hillary Clinton ignored David Betras and Leo Jennings, whose "Blue Collar" memo to her campaign, the Democratic National Committee, and the Ohio Democratic Party offered this advice:

Want to move Ohio's 50,000 retired Teamsters and their family members to the HRC camp: use them in ads in which they talk about how much they appreciate the fact she will find a way to keep the Central States Pension Fund solvent that doesn't involve gutting their monthly check and health care benefits…these workers and their family members are scared to death of what may happen and that means they will respond to and vote for the candidate who pledges to fix the problem.

The response from the Clinton campaign: crickets.

The crisis has worsened since then, but so has the opportunity to use it to win working-class votes that could be the difference between victory and defeat in the primary and general elections. We hope it's not ignored again.

Marc Dann and Leo Jennings III

Marc Dann served as Attorney General of the State of Ohio and now leads DannLaw, which specializes in protecting consumers from various forms of predatory financing. Leo Jennings III is a leading Northeast Ohio political consultant and media specialist.

 -- via my feedly newsfeed

Dr. King knew that full employment raises the price of prejudice [feedly]

Dr. King knew that full employment raises the price of prejudice
http://jaredbernsteinblog.com/dr-king-knew-that-full-employment-raises-the-price-of-prejudice/

There are so many reasons to celebrate the life, work, and legacy of Martin Luther King, Jr., whose birthday we celebrate today. The dimension I like to elevate is Dr. King's profound understanding of the importance of full employment to the opportunities of black Americans. Remember, the full name of the March on Washington was the March on Washington for Jobs and Freedom (my bold). A sign some of the marchers held that day told of a simple but powerful equation: "Civil Rights Plus Full Employment Equals Freedom."

Dr. King's insight was born of the recognition that racial discrimination by employers is costless in slack labor markets. With abundant excess labor, racist employers could handily indulge their prejudices. But when the job market tightens up and stays tight, that strategy becomes increasingly costly until avoiding non-white hires means an inability to meet consumer demand and leaving profits on the table.

In fact, last year, with overall unemployment near a fifty-year low at 3.7 percent (the average for 2019), the black jobless rate was 6.1 percent, its lowest on record, with data going back to the early 1970s. The average black rate since then was twice last year's level, about 12 percent.

We mustn't, of course, overlook the racial context that so motivated King: the 2019 white jobless rate was 3.3 percent, not quite half the black rate, but close to it. As followers of these data know, that ratio has been persistent.

It's common, though incorrect, to suggest that the elevated black/white jobless-rate ratio is a function of educational differences. In fact, as economist Valerie Wilson often emphasizes, racial unemployment gaps persist at each education level. Using BLS data for those 25 and up for 2018, the ratio of black-to-white unemployment is around 1.5-2 across education groups (with lower ratios for those with more education).

Another way to show this persistence—and belie the claim that it's all just about educational attainment—is to imagine that blacks had the same educational attainment as whites. That is, calculate the total black unemployment rate for the 25+ group using white labor force shares by education but black jobless rates. The resulting rate for 2018—5.1 percent—is just slightly below the actual black rate of 5.3 percent. In other words, at least by this simple simulation, even if blacks had white attainments, their unemployment would still be well about whites' 2.9 percent unemployment rate.

Much research has found this gap to be associated with racial discrimination, against which, as Dr. King argued, full employment remains a potent weapon. We thus must ply macro policy get to and stay at full employment for long enough so that those victimized by racial prejudice can get a foothold in the job market. Moreover, in order to push back against last hired, first fired dynamics, we need micro policies to cement these racial gains.

At the macro level, this implies using fiscal and monetary policy to achieve and sustain truly full employment. There's of course been a sharp debate as to what is the lowest unemployment rate consistent with stable prices. Clearly, based on especially inflation (both realized and expected) but also wage data, we're not there yet, and I much endorse Fed Chair Jay Powell's view of being data dependent on this, versus trying to estimate a "natural rate."

If you must have a number, though, the little exercise above suggests that any target that includes black workers is biased up by racial prejudice. If some employers resist hiring workers of color for prejudicial reasons, that says nothing about the correlation between unemployment and inflation. Thus, a simple metric, purged of this racist impulse might be the white rate. Last year, that was 3.3 percent; 2.7 for the 25+ group. Such rates, for the record, are at least a full point below most estimates of the natural rate.

The tight labor market has helped propel an almost 10 percentage point gain in prime-age (25-54) black employment rates (the comparable white rate is up just 4 points). How do we sustain these gains when the inevitable downturn hits?

By liberal [sic] application of fiscal policy designed to keep recent entrants in the job market! Subsidized employment opportunities, including public jobs if, in a deeper recession, private sector employment is not available. Also helpful would be infrastructure projects with local hiring ordinances, as would apprenticeship programs targeting persons of color.

The key is to be driven by King's insight that in slack labor markets, the price of prejudice falls. Yes, the larger project must be to prosecute such illegal practices—that's why we have an EEOC. But while we celebrate Dr. King's legacy, we must acknowledge that his work is far from complete, a fact that is glaringly obvious in the age of Trump. And one way to fight back, as Dr. King taught us, is through the relentless pursuit of racial justice and opportunity through full employment labor markets.

 -- via my feedly newsfeed

Chris Dillow: A case for nationalizing pensions [feedly]

A case for nationalizing pensions
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2020/01/a-case-for-nationalizing-pensions.html

One of the fundamental questions in politics is: what should be done by the state, and what by the private sector? In at least one respect, I suspect that we have the mix wrong because there is a strong case for nationalizing pension provision – stronger, I suspect, than is the case for nationalizing utilities.

I say so because, as I point out in the day job, retirees and those approaching retirement face enormous uncertainties if they are managing their own pension: how long will I live? What will my spending needs be? And what will be investment returns? (Yes, equity returns have been great in recent decades, but we have no assurance whatsoever that the future will resemble the past.)

The state, however, is much better placed than the private sector to bear these risks. It can obviously pool longevity risk. And tax revenues are more stable than investment returns: in the financial crisis they fell only 3.4 per cent peak-to trough whereas MSCI's world index in sterling terms fell eight times as much*. In particular, there is one source of risk to equity returns that the state can pool whereas retirees cannot – distribution risk, the danger of a shift in incomes from profits to wages. This would clobber (pdf) share prices, but not tax revenues.

And then, of course, there are deadweight costs. A private pension fund manager might easily charge a management fee of 0.5 per cent per year. On a £100,000 pension pot invested over 20 years, that can add up to over £20,000. State pensions are cheaper to administer. Fund managers are rich, civil servants are not, That's a clue.

A common objection to a higher state pension is that it is unaffordable. This is nonsense in both fact and theory.

It's nonsense in fact because spending on the UK state pension is projected to stay low. The OBR estimates that spending on pensions and other old-age benefits will rise from around six per cent of GDP now to 7.9 per cent in 2057-58. This would mean the state will spend less then than many European countries do today - among them Germany, which is not noted for fiscal profligacy.

It's nonsense in theory too because, in a closed economy, all pensioners' incomes must come from value-added created by current workers. The question is whether they pay pensioners via the tax system, or via the dividends and interest their employers pay**. For a given level of pensions, the burden is the same – only the name changes.

Granted, private pensions change this calculation by investing overseas and so extracting pensioners' incomes from foreign workers. But the state can do this too. As Eric Lonergan has argued, we could set up a sovereign wealth fund which borrows at current gilt yields (almost minus 2% real) to buy higher yielding assets. Over time, this should give us all a big pension pot.

Even without that, however, we can achieve a sort of creeping nationalization over time by slightly strengthening the triple lock, one of George Osborne's few laudable achievements in office. If we could look forward to a more generous state pension, we'd have less need to buy a private one so the latter would gradually wither.

We should regard the privatization of pensions as an example of how technocratic economic rationality can conflict with the logic of capitalism. Technocratic rationality says there's a case for high state pensions. The logic of capitalism, however, requires that capitalist firms have sources of profits.

Another issue here is of course political risk: can we trust future governments to continue to raise pensions? Doing so requires there to be strong public demand for such a rise so that governments will fear a backlash if they do backslide. In this respect, the British can learn a lot from French protesters against pension cuts. We must regard a high and rising state pension not as a benefit but as an entitlement.

Which brings me to an under-appreciated point. The problem here is not merely one of economic privatization. A feature of modern British capitalism – neoliberalism if you like – has been a form of psychological privatization. What should be regarded as social problems have become individual ones. We see this with a lot of discussion of personal debt and mental health – an insufficient awareness of the social pressures which generate these. The same has happened with pensions. The question: "how can we as a society provide a decent income for older people?" has become: "how can I provide for my pension?" For too many – even the well-informed and affluent – this is too difficult a question.

* Of course, returns on more balanced portfolios were far more stable than equities – especially if they held decent quantities of non-sterling cash. But there are huge uncertainties about future risks and returns to balanced portfolios as well.

** OK, so taxes might deter investment, if they are badly designed. But so too do dividends and interest: high equity returns and bond yields mean a high cost of capital, by definition.

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When it comes to pay, US business leaders are world champs [feedly]

When it comes to pay, US business leaders are world champs
https://economicfront.wordpress.com/2020/01/17/when-it-comes-to-pay-us-business-leaders-are-world-champs/

US CEOs not only draw the highest salaries (including bonuses and equity awards, etc.), but they are king of the hill when it comes to lording it over their employees, as illustrated by the high ratio of CEO to worker earnings.

And this record-breaking performance is no one-off.  The share of net wealth held by the top 0.1 percent has been steadily climbing and now rivals that of the bottom 90 percent.

Who cares that wages stagnate, life expectancy falls, economic insecurity grows, social services are gutted in favor of militarism, and climate-generated crises multiply?  Not those at the top, who are doing just fine.

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