Krugman: Trump Declares War on California [feedly]

Trump Declares War on California

Paul Krugman (text only, no links)
https://www.nytimes.com/2019/09/19/opinion/trump-california.html

I'm on a number of right-wing mailing lists, and I try to at least skim what they're going on about in any given week; this often gives me advance warning about the next wave of manufactured outrage. Lately I've been seeing dire warnings that if Democrats win next year they'll try to turn America into (cue scary background music) California, which the writers portray as a socialist hellhole.

Sure enough, this week Donald Trump effectively declared war on California on two fronts. He's trying to take away the Golden State's ability to regulate pollution generated by its 15 million cars, and, more bizarrely, he's seeking to have the Environmental Protection Agency declare that California's homeless population constitutes an environmental threat.

More about these policy moves in a moment. First, let's talk about two Californias: the real state on America's left coast, and the fantasy state of the right's imagination.

The real California certainly has some big problems. In particular, it has sky-high housing costs, which in turn are probably the main reason it has a large population of homeless residents.


But in many other dimensions California does very well. It has a booming economy, which has been creating jobs at a much faster pace than the nation as a whole.

It has the nation's second-highest life expectancy, comparable to that in European nations with much higher life expectancy than America as a whole. This is, by the way, a relatively new development: Back in 1990, life expectancy in California was only average.

At the same time, California, having enthusiastically implemented Obamacare and tried to make it work, has seen a sharp drop in the number of residents without health insurance. And crime, although it has ticked up slightly in the past few years, remains near a historic low.

That is, as I said, California's reality. But it's a reality the right refuses to accept, because it wasn't what was supposed to happen.

You see, modern California — once a hotbed of conservatism — has become a very liberal, very Democratic state, in part thanks to rapidly rising Hispanic and Asian populations. And since the early years of this decade, when Democrats won first the governorship, then a supermajority in the State Legislature, liberals have been in a position to pursue their agenda, raising taxes on high incomes and increasing social spending.


Conservatives confidently predicted disaster, declaring that the state was committing "economic suicide." You might think that the failure of that disaster to materialize, especially combined with the way California has outperformed states like Kansas and North Carolina that turned hard right while it was turning left, might induce them to reconsider their worldview. That is, you might think that if you haven't been paying any attention to the right-wing mind-set.

[For an even deeper look at what's on Paul Krugman's mind, sign up for his weekly newsletter.]

What is happening instead, of course, is that the usual suspects are trying to portray California as a terrible place — beset by violent crime and rampant disease — in sheer denial of reality. And they have seized on the issue of homelessness, which is, to be fair, a genuine problem. Furthermore, it's a problem brought on by bad policy — not high taxes or excessively generous social programs, but the runaway NIMBYism that has prevented California from building remotely enough new housing to accommodate its rising population.

The striking thing about the right's new focus on homelessness, however, is that it's hard to detect any concern about the plight of the homeless themselves. Instead, it's all about the discomfort and alleged threat the homeless create for the affluent.

Which brings me to Trump's war on California.

The attempt to kill the state's emissions rules makes a kind of twisted sense given Trump's policy priorities. His administration is clearly dedicated to the cause of making America polluted again, and in particular to ensuring that the planet cooks as quickly as possible. California is such a big player that it can effectively block part of that agenda, as shown by the willingness of automakers to abide by its emissions rules. Hence the attempt to strip away that power, never mind past rhetoric about states' rights.

Declaring the homeless an environmental threat, however, aside from being almost surreal coming from an administration that in general loves pollution, is pure nonsense. It can be understood only as an attempt both to punish an anti-Trump state and to blacken its reputation.

What should you take away from Trump's war on California?

First, it's yet another illustration of the intellectual imperviousness of the modern right, which never, ever lets awkward facts disturb its preconceptions.

More ominously, the apparent weaponization of the Environmental Protection Agency is more evidence that Trump — whose party fundamentally doesn't believe in democracy — is following the modern authoritarian playbook, in which every institution is corrupted, every function of government is perverted into a tool for rewarding friends and punishing enemies.

It's an ugly story, and it's scary, too.

The Times is committed to publishing a diversity of letters to the editor. We'd like to hear what you think about this or any of our articles. Here are some tips. And here's our email: letters@nytimes.com.

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Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman
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Piketty: What is a fair pension system? [feedly]

What is a fair pension system?

Thomas Piketty

https://www.lemonde.fr/blog/piketty/2019/09/10/what-is-a-fair-pension-system/

Even if the timing remains vague and the conditions uncertain, the government does seem to have decided to launch a vast reform of the retirement pensions system, with the key element being the unification of the rules applied at the moment in the various systems operating (civil servants, private sector employees, local authority employees, self-employed, special schemes, etc).

Let's make it clear: setting up a universal system is in itself an excellent thing, and a reform of this type is long overdue in France. The young generations, particularly those who have gone through multiple changes in status (private and public employees, self-employed, working abroad, etc.,), frequently have no idea of the retirement rights which they have accumulated. This situation is a source of unbearable uncertainties and economic anxiety, whereas our retirement system is globally well financed.

But, having announced this aim of clarification and unification of rights, the truth is that we have not said very much. There are in effect many ways of unifying the rules. Now there is no guarantee that those in power are capable of generating a viable consensus in this respect. The principle of justice invoked by the government seems simple and plausible: one Euro contributed should give rise to the same rights to retirement, no matter what the scheme, and the level of salary or of earned income. The problem is that this principle amounts to making the inequalities in income as they exist at present sacrosanct, including when they are of mammoth proportions (under-paid piece work for some, excessive salaries for others), and to perpetuating them at the age of retirement and dependency which is in no way particularly "fair".

Aware of the difficulty, the High Commissioner Jean-Paul Delevoye's Plan stipulates that a quarter of the contributions will continue to be allocated to "solidarity', that is to say, for example, to subsidies for children and interruptions of career, or to finance a minimum retirement pension for the lowest salaries. The difficulty is that the way this calculation has been made is highly controversial. In particular, this estimate purely and simply takes no account of social inequalities in life expectancy. For example, if a low wage earner spends 10 years in retirement while a highly-paid manager spends 20 years, we have forgotten to take into account the fact that a large share of the contributions of the low wage earner serves in practice to pay the retirement of the highly-paid manager (which is in no way compensated for by the allowance for strenuous and tedious work)

More generally, there are naturally multiple parameters to be fixed to define what one considers to be "solidarity". The government's proposals are respectable but they are far from being the only ones possible. It is essential that a broad public debate take place and that alternative proposals should emerge. The Delevoye Plan for example provides for a replacement rate equal to 85% for a full career (43 years of contributions) at Minimum Wage level. This rate would then very rapidly fall to 70%, to only 1,5 Smic (Minimum Wage) before stabilising at this precise level of 70% until approximately 7 Smic ( 120,000 Euros gross annual salary). This is one possible choice, but there are others. One could thus imagine that the replacement rate would go gradually from 85% of the Smic to 75%-80% around 1.5 – 2 Smic, before gradually falling to around 50%-60%, approximately 5-7 Smic.

Similarly the government's project provides for a financing of the system by a retirement contribution of which the global rate would be fixed at 28.1% on all the gross incomes below 120,000 Euros per annum, before falling suddenly to only 2.8% beyond this threshold. The official justification is that retirement rights in the new system would be capped at this wage level. The Delevoye Report goes as far as congratulating themselves because the super-managers will nevertheless be subject to this contribution (which will not be capped) of 2.8%, to mark their solidarity with the older generations. In passing, once again no account is taken of the salaries between 100,000 Euros and 200,000 Euros which usually correspond to very long life expectancies and which benefit greatly from the contributions paid by the lower waged with shorter life expectancies. In any event, this contribution of 2.8% to solidarity by those earning over 120,000 Euros is much too low, particularly given the levels of remuneration; their very legitimacy is open to challenge.

More generally it is perhaps time to abandon the old idea according to which reduction of inequalities should be left to income tax, while the retirement schemes should content themselves with reproducing them. In a world in which fabulous salaries and questions of retirement and dependency have taken on a new importance, the most legible norms of justice could be that all levels of salary (including the highest) should finance the retirement scheme at the same rates (even if the pensions themselves are capped) while leaving to income tax the task of applying higher levels to the top incomes

To be clear: the present government has a big problem with the very concept of social justice. As everyone knows, it has chosen from the outset to grant huge fiscal gifts to the richest (suppression of the wealth tax (the ISF), the flat tax on dividends and incomes). If today it does not demand a significant effort from the most privileged it will have considerable difficulty in convincing the public that its pension reform is well-founded.

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Josh Bivens: Why is the economy so weak? Trade gets headlines, but it’s more about past Fed rate hikes and the TCJA’s waste [feedly]

Why is the economy so weak? Trade gets headlines, but it's more about past Fed rate hikes and the TCJA's waste
https://www.epi.org/blog/why-is-the-economy-so-weak-trade-gets-headlines-but-its-more-about-past-fed-rate-hikes-and-the-tcjas-waste/

Josh Bivens, director of research at EPI

The Federal Reserve meets this week against a backdrop of mounting evidence of a slowing economy. Since the last Federal Open Market Committee (FOMC) meeting, revised data on gross domestic product (the widest measure of the nation's economic activity) and job growth have shown that 2018 saw much slower growth than previously reported.

Between April 2018 and March 2019, for example, the economy created 500,000 fewer jobs than had originally been reported. Only 105,000 jobs were created in August if temporary Census positions are excluded: this is roughly half the pace of growth that characterized pre-revision estimates of average job growth in 2018.

These clear signs of an economic slowdown raise the obvious question, "Why has growth faltered?"

While many pundits and economists have blamed the escalating trade conflict between the Trump administration and China, there are much more obvious sources of this slowdown: the Fed's own premature interest rate increases between December 2015 and 2018 and the utter waste of fiscal resources that was the Tax Cuts and Jobs Act (TCJA) passed at the end of 2017.

To be clear, the Trump administration's trade conflict is stupid and destructive, and its attempt to pin the blame for the slowdown on the Fed is self-serving. And the Trump administration's scapegoating others for the weak economy takes real hubris given that its signature economic policy initiative—the TCJA—has been such an obvious failure in terms of spurring growth.

But the evidence is growing that the Fed did indeed raise interest rates too soon in the recovery and that this premature liftoff has begun dragging on growth. Worse, because raising rates slows growth more powerfully than lowering rates spurs growth, the Fed likely lacks the ability to offset this earlier mistake by pulling down rates going forward. The FOMC should certainly reduce rates at this week's meeting, but it will need help from other policy levers—particularly effective fiscal stimulus—in the coming year.

Evidence of premature interest rate hikes

As Figure A below shows, after seven years of holding the effective federal funds rate at essentially zero, in December 2015 the Federal Reserve raised this rate by a quarter point. While many argued that a quarter-point increase in interest rates would not snuff out the ongoing recovery, I noted that raising rates while unemployment remained elevated and there was no sign of inflation made little economic sense. Worse, by increasing interest rates before any sign of inflation appeared in the data, the Fed clearly signaled that it was not eager to aggressively plumb just how low unemployment could be allowed to fall. This was a troubling signal: the Fed's failure to aggressively target as low an unemployment rate as possible in recent decades has been a major reason why wage growth over this time has been so anemic. It took a year before the Fed followed up the December 2015 rate increase with another in December 2016, but in 2017 and 2018, it undertook seven quarter-point increases in the federal funds rate.

Figure A

Given this short history of interest rates, it makes sense to look at the evidence on the effect of these rate hikes on growth. The most obvious place to look is at the performance of "interest-sensitive" components of gross domestic product since the rate hikes began in 2015. Generally, residential investment, business fixed investment, durable goods purchases, and net exports are thought to be the components of GDP that will be slowed by interest rate hikes.

Figure B charts how the average contribution of various components of GDP made to overall GDP growth changed between two time periods: the era of zero federal funds rates (from the second quarter of 2009 to the end of 2015) and the era of rising federal funds rates (from the first quarter of 2016 to the most recent quarter available, the second quarter of 2019). For three of these components (residential investment, business fixed investment, and net exports) their contributions to growth slowed notably as interest rates rose. For durable goods, the contribution to growth is roughly the same in both periods, but this is striking given that personal consumption expenditures besides durable goods saw a sharp upswing in the latter period. In short, there is ample evidence that rising interest rates have worked as expected in slowing interest-sensitive components of GDP growth.

Figure B

To its credit, the Fed seems to have recognized that past rate hikes have dragged too much on growth and reduced rates at the last FOMC meeting in July. But research has shown that rate cuts spur growth less powerfully than equivalent rate increases restrain growth. This problem of "pushing on a string" was a prime argument made by those arguing that the Fed should err on the side of letting growth continue and letting unemployment continue to fall. If the economy continues to slow, the Fed will need help from fiscal policymakers to avert a recession; rate cuts by themselves are unlikely to do that job.

Very little sign of 'trade war' fingerprints on growth slowdown

The slight deceleration of net exports' contribution to growth shown in Figure B may make some think there is a trade war–based explanation. There may be some influence of trade conflict on slowing growth, but this influence is likely pretty weak. For one, tariffs do not reliably reduce net exports—they instead reduce both exports and imports, with their effect on the trade balance (which is what matters for short-run growth) largely ambiguous. What is not ambiguous is the effect of a strengthening dollar on net exports—it reliably slows them. And since 2014, the dollar has risen sharply, driven strongly by developments in monetary policy in both the United States and its trading partners. It is important to realize that interest rate cuts made by the European Central Bank (ECB) late last week will put further upward pressure on the dollar going forward.

Some have noted that aside from the direct effect of tariffs, policy-induced uncertainty stemming from the Trump administration's trade conflict might be holding back other components of growth, such as business fixed investment. Perhaps. But "uncertainty" is an awfully hard influence to define. And some of the only attempts to empirically measure this uncertainty actually show it is lower today than at many points in the last decade or more. Memories are short, but as recently as 2011 a Republican-led Congress seriously threatened to drive the federal government into totally unnecessary default on its debt if the Republican Party's policy preferences were not signed into law by the Obama administration. This episode, it hardly needs to be said, created plenty of policy uncertainty.

The squandered opportunity of 2018's TCJA

So if the recent economic slowdown is mostly not the fault of the Trump administration's trade conflict, and it is mostly the fault of a too-hawkish Federal Reserve, does the president have a leg to stand on in scapegoating of Fed chair Jerome Powell? Not really. The reason why is simple: if President Trump had wanted faster growth, he should not have championed the waste of fiscal resources that was the TCJA, and instead should have used those resources to do things that actually would have created jobs and growth.

The TCJA is a debt-financed tax cut that will cost $150 billion annually over the next 10 years (before interest costs are added). Because the lion's share of these tax cuts are accruing to rich households (mostly because the TCJA is primarily a corporate tax cut and owners of corporations are rich households), they have done very little to spur growth in aggregate demand (spending by households, businesses, and governments) in the short run. Rich households' spending is not constrained by too-low disposable income, so boosting this disposable income largely does not lead to more spending. Poorer and moderate-income households, on the other hand, are indeed income-constrained in their current spending, so tax cuts or direct transfers to them would have boosted demand growth significantly. Direct spending—say on infrastructure or providing needed public investments like high-quality early child care—would have stimulated demand even more.

For a time, many credited the slight acceleration in growth in 2018 to fiscal stimulus generally. But revisions to 2018 data show this acceleration was even more subdued than previously thought. Further, the growth in government spending brought forth by a budget deal in 2018 actually provided much more stimulus than the more-expensive TCJA (see Figure B for this increase in government spending's contribution to growth). The major component of GDP that has accelerated in recent years is consumption spending. Even if the entirety of the pickup in consumer spending shown in Figure B was attributed to the TCJA (and much of this pickup was surely driven by other factors, like tightening labor markets finally pushing up wage growth modestly), it would indicate that the TCJA was deeply inefficient as stimulus. TCJA proponents long argued that the main benefit stemming from it would not be short-run stimulus but a long-run increase in investment. This is awfully hard to see in the data—and as shown in Figure B investment (both business and residential) has been a prime source of weakness, not strength in recent years.

Essentially, President Trump and the Republican-led Congress largely squandered $150 billion in potential fiscal stimulus by prioritizing tax cuts for the rich over anything that would have plausibly created faster growth and jobs (see Table 1 in this report for a list of more and less effective fiscal policies to spur near-term growth). They are hence really the only economic observers in the world who have no standing to criticize the Fed for its clearly too-aggressive path of interest rate increases in recent years.

Despite bad-faith jawboning from President Trump, the Fed should cut rates

But just because President Trump calls for something—an interest rate cut in this case—doesn't always mean it's the wrong thing to do. The economy really is weakening, and this weakness has been led by sectors adversely affected by the Fed's interest rate increases in recent years. Unfortunately, we could well find, a year from now, that rate cuts alone were not sufficient to avoid a recession—or even just a prolonged slowdown that pushes up unemployment. In that case, the Fed will need help from fiscal policymakers. But in the meantime, the Fed should take its role as the early-warning system on economic slowdowns seriously by cutting rates this week. This rate cut would provide a clear alert to other policymakers.

 -- via my feedly newsfeed

Tim Taylor: A Road Stop on the Development Journey [feedly]

Tim Taylor reviews a new collection of essays on economic development, which is actually a different subject matter than economics per se. Thing of 3D Geometry equations (spheres, cubes, etc), where every dimension now has a time series added! Every object or item swims in the rivers of time. Where, indeed, are we going?

A Road Stop on the Development Journey
http://conversableeconomist.blogspot.com/2019/09/a-road-stop-on-development-journey.html

Economic development is a journey that has no final destination, at least not this side of utopia. But it can still be useful to take a road stop along the journey, see where we've been, and contemplate what comes next. Nancy H. Chau and Ravi Kanbur offer such an overview in their essay "The Past, Present, and Future of Economic Development," which appears in a collection of essays called
Towards a New Enlightenment? A Transcendent Decade (2018, pp. 311-325). It was published by Open Mind, which in turn is a nonprofit run by the Spanish bank BBVA (although it does have a US presence, mainly in the south and west).

(In the shade of this parenthesis, I'll add that if even or especially if your interests run beyond economics, the book may be worth checking out. It includes essays on the status of physics, anthropology, fintech, nanotechnology, robotics, artificial intelligence, gene editing, social media, cybersecurity, and more.)

It's worth remembering and even marveling at some of the extraordinary gains in the standard of living for so much of the globe in the last three or four decades. Chau and Kanbur write:

The six decades after the end of World War II, until the crisis of 2008, were a golden age in terms of the narrow measure of economic development, real per capita income (or gross domestic product, GDP). This multiplied by a factor of four for the world as a whole between 1950 and 2008. For comparison, before this period it took a thousand years for world per capita GDP to multiply by a factor of fifteen. Between the year 1000 and 1978, China's income per capita GDP increased by a factor of two; but it multiplied six-fold in the next thirty years. India's per capita income increased five-fold since independence in 1947, having increased a mere twenty percent in the previous millennium. Of course, the crisis of 2008 caused a major dent in the long-term trend, but it was just that. Even allowing for the sharp decreases in output as the result of the crisis, postwar economic growth is spectacular compared to what was achieved in the previous thousand years. ...

But, World Bank calculations, using their global poverty line of $1.90 (in purchasing power parity) per person per day, the fraction of world population in poverty in 2013 was almost a quarter of what it was in 1981—forty-two percent compared to eleven percent. The large countries of the world—China, India, but also Vietnam, Bangladesh, and so on—have contributed to this unprecedented global poverty decline. Indeed, China's performance in reducing poverty, with hundreds of millions being lifted above the poverty line in three decades, has been called the most spectacular poverty reduction in all of human history. ...

Global averages of social indicators have improved dramatically as well. Primary school completion rates have risen from just over seventy percent in 1970 to ninety percent. now as we approach the end of the second decade of the 2000s. Maternal mortality has halved, from 400 to 200 per 100,000 live births over the last quarter century. Infant mortality is now a quarter of what it was half a century ago (30 compared to 120, per 1,000 live births). These improvements in mortality have contributed to improving life expectancy, up from fifty years in 1960 to seventy years in 2010.

It used to be that the world's poorest people were heavily clustered in the world's poorest countries. But as the economies of countries like China and India have grown, this is no longer true: "[F]orty years ago ninety percent of the world's poor lived in low-income countries. Today, three quarters of the world's poor live in middle-income countries." In this way, the task of thinking about how to help the world's poorest has changed its nature. 

Of course, Chau and Kanbur also note remaining problems in the world's development journey. A number of countries still lag behind. There are environmental concerns over air quality, availability of clean water, and climate change. I was especially struck by their comments about the evolution of labor markets in emerging economies. 

[L]abor market institutions in emerging markets have also seen significant developments. Present-day labor contracts no longer resemble the textbook single employer single worker setting that forms the basis for many policy prescriptions. Instead, workers often confront wage bargains constrained by fixed-term, or temporary contracts. Alternatively, labor contracts are increasingly mired in the ambiguities created in multi-employer relationships, where workers must answer to their factory supervisors in addition to layers of middleman subcontractors. These developments have created wage inequities within establishments, where fixed-term and subcontracted workers face a significant wage discount relative to regular workers, with little access to non-wage benefits. Strikingly, rising employment opportunities can now generate little or even negative wage gains, as the contractual composition of workers changes with employment growth. ...
[A]nother prominent challenge that has arisen since the 1980s is the global decline in the labor share. The labor share refers to payment to workers as a share of gross national product at the national level, or as a share of total revenue at the firm level. Its downward trend globally is evident using observations from macroeconomic data (Karababounis and Neiman, 2013; Grossman et al., 2017) as well as from firm-level data (Autor et al., 2017). A decline in the labor share is symptomatic of overall economic growth outstripping total labor income. Between the late 1970s and the 2000s the labor share has declined by nearly five percentage points from 54.7% to 49.9% in advanced economies. By 2015, the figure rebounded slightly and stood at 50.9%. In emerging markets, the labor share likewise declined from 39.2% to 37.3% between 1993 and 2015 (IMF, 2017).

A running theme in work on economic development is that there is a substantial gap in low- and middle-income countries between those who have a steady formal job with a steady paycheck, and those who are scrambling between multiple informal jobs. Thinking about how to encourage an economic environment where employers provide steady and secure jobs is just one of the ways in which issues in modern development economics often have interesting overlaps with the economic policy issues of high-income countries. 

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Bloomberg: Mass downgrades on growth estimates

Intensifying trade conflicts have sent global growth momentum tumbling toward lows last seen during the financial crisis, and governments are not doing enough to prevent long-term damage, the OECD said in its latest outlook.

The Paris-based organization cut almost all economic forecasts it made just four months ago, as protectionist policies take an increasing toll on confidence and investment, and risks continue to mount on financial markets. It sees world growth at a mere 2.9% this year.

The OECD lowered its growth forecasts for most major economies

Source: Organisation for Economic Cooperation and Development

"Our fear is that we are entering an era where growth is stuck at a very low level," OECD Chief Economist Laurence Boone said. "Governments should absolutely take advantage of low rates to invest in the future now so that this sluggish growth doesn't become the new normal."

	2019 GDP REVISION	2020 GDP REVISION
World	2.9% (3.2%)	3% (3.4%)
Euro area	1.1% (1.2%)	1% (1.4%)
Japan	1% (0.7%)	0.6% (0.6%)
U.K.	1% (1.2%)	0.9% (1%)
U.S.	2.4% (2.8%)	2% (2.3%)

The OECD is the latest institution sounding the alarm over the state of the global economy. In the past two weeks, the Federal Reserve, the European Central Bank, the People's Bank of China and numerous of their peers have eased policy to shore up demand, urging governments at the same time that fiscal stimulus will be needed to ensure their efforts won't be futile.

Lower Track

OECD sees global economic growth slowing to post-crisis pace

Source: Organization for Economic Cooperation and Development

Manufacturing has born the brunt of the economic crisis brought about by a tit-for-tat trade war between the U.S. and China. The services sector has proved unusually resilient to the malaise so far, but the OECD warned that "persistent weakness" in industry will weigh on the labor market, household incomes and spending.

Additional risks stem from a sharper slowdown in China and a no-deal Brexit that could push the U.K. into a recession and would considerably reduce growth in Europe, according to the report.

What Bloomberg's Economists Say

"Trump's brinkmanship on trade with China has left consumers, businesses and financial markets on edge. Not knowing whether the next Presidential tweet will ease or exacerbate tensions makes for an environment of extreme uncertainty, pushing businesses to turn cautious on investment and hiring, and households to swing from spending to saving."

--Dan Hanson, Jamie Rush and Tom Orlik.

Read the GLOBAL INSIGHT

The OECD said "collective effort is urgent," and the effectiveness of monetary policy could be enhanced by "stronger fiscal and structural policy support."

It's a point central bankers have made for months, and their requests are getting more intense. Following the ECB's latest monetary stimulus push, President Mario Draghi said it's "high time" for fiscal policy to take charge, signaling there's not much more his institution can do.

"The takeaway for the euro zone today is do not rely on monetary policy to do the job alone," Boone said. "Start investing to do the structural reforms that need to be done for more sustainable growth, and do it now."

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

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The Official U.S. Poverty Rate is Based on a Hopelessly Out-of-Date Metric [feedly]

The Official U.S. Poverty Rate is Based on a Hopelessly Out-of-Date Metric
http://cepr.net/publications/op-eds-columns/the-official-u-s-poverty-rate-is-based-on-a-hopelessly-out-of-date-metric

The poverty rate in the United States fell to 11.8 percent in 2018, according to data released last week by the Census Bureau — the lowest it's been since 2001. But this estimate significantly understates the extent of economic deprivation in the United States today. Our official poverty line hasn't kept up with economic change. Nor has it been modified to take into account widely held views among Americans about what counts as "poor."

A better, more modern measure of poverty would set the threshold at half of median disposable income — that is, median income after taxes and transfers, adjusted for household size, a standard commonly used in other wealthy nations. According to the Organization for Economic Cooperation and Development — which includes 34 wealthy democracies — 17.8 percent of Americans were poor according to this standard in 2017, the most recent year available for the United States.

To be sure, there is no such thing as a purely scientific measure of poverty. Poverty is a social and political concept, not merely a technical one. At its core, it is about not having enough income to afford what's needed to live at a minimally decent level. But there's no purely scientific way to determine what goods and services are "necessary" or what it means to live at a "minimally decent level." Both depend in part on shared social understandings and evolve over time as mainstream living standards evolve.

At a minimum, we should set the poverty line in a way that is both transparent and also roughly consistent with the public's evolving understanding of what is necessary for a minimally decent life. The official poverty line used by the Census Bureau fails that test. It was set in the early 1960s at three times the value of an "economy food plan" developed by the Agriculture Department.

The plan was meant for "temporary or emergency use when funds are low" and assumed "that the housewife will be a careful shopper, a skillful cook, and a good manager who will prepare all the family's meals at home." The decision to multiply the cost of the economy food plan by three was based on a 1955 food consumption survey showing that families spent about one-third of their income on food at that time. Since then, the measure has stayed the same, adjusted only for inflation.

No expert today would argue that multiplying by three the cost of an antiquated government food plan — one that assumes the existence of a frugal "housewife" — is a sensible way to measure poverty in 2019, even if you adjust it for inflation. However meaningful this was as a measure of poverty in the 1960s, which is debatable, it makes even less sense to apply it today to an American population in which most people were born after 1980.

In 2018, the official poverty threshold for a family of two adults and two children was $25,465 or about $2,100 a month. If it had been set at half of median disposable income, it would have been $38,098, or $3,175 monthly. Ask yourself: If you were part of a couple raising two children, could you afford the basics on $25,000 a year without going into debt or being evicted? Do you think other people would view you as no longer poor if your family's income was a bit over $25,000?

For context, if you were living on $25,000 a year in Baltimore, and paying the Housing and Urban Development Department's "fair market rent" for a two-bedroom apartment in that city, $1,411 in 2018, you'd be spending just over two-thirds of your income on rent and utilities alone. (HUD's fair market rent, used to set the value of benefits such as housing vouchers, is set at the 40th percentile of actual market rent.)

As it happens, when the official poverty line was first developed in the early 1960s, it was equal to roughly half of median disposable income. (Median disposable income back then was roughly $6,200 for a four-person family, and the official poverty threshold was $3,166.) Research using Gallup and other public opinion data, from the 1960s to the present, has found that, even as median income rose, most Americans continued to believe a family was "poor" if their income fell below roughly half of median disposable income. In other words, Americans for decades have instinctively thought of poverty partly as a matter of relative, not just absolute, deprivation.

This common-sense notion is backed up by research documenting that relative deprivation is bad for health, well-being and social participation. And the negative impact of low income on health and well-being isn't limited to those who are most absolutely deprived: It is apparent at every step of the income ladder.

Many of our international peers' measure poverty in relative terms, as well. In addition to the OECD, which uses half of median disposable income for its comparisons of poverty in member countries, Canada, Ireland and the United Kingdom use similar measures in their domestic statistical reports on poverty. But the United States continues to use an idiosyncratic measure developed during the Kennedy and Johnson administrations. One side effect is that, because median income has outpaced inflation over time, the official poverty line has fallen further and further behind mainstream living standards.

To be sure, some critics, including in the Trump administration, seem to think the real problem with the official poverty line is that it's too generous. They argue, among other things, that the consumer price index often overstates inflation, as it affects the things that workers and their families must purchase to get by; therefore, they say, the official threshold for poverty has risen to a higher level than it ought to have.

But when the public thinks about what it means to be poor in 2019, they don't start by trying to imagine what it meant to be poor in the early 1960s (or the early 1900s for matter), and then update that for inflation. Instead, they start by thinking about today's economy and today's society, and, when they do that, most of them conclude that families need much more income to avoid poverty than the Census Bureau says they do.

There is one other important criticism of the current poverty line, namely that it doesn't take taxes and certain in-kind transfers into account, including the Earned Income Tax Credit and food stamps. But adopting a relative poverty measure set to a percentage of disposable income addresses this issue, too.

Finally, if we set a new poverty threshold using a relative approach, how should it be updated each year? In the United Kingdom, which uses 60 percent of median income, the threshold is adjusted each year to remain equal to that amount. But the U.K. also tracks poverty using a threshold set to 60 percent of median income in a previous base year (15 years ago in their most recent report) — adjusting that poverty line for inflation. Tracking poverty over time in these two distinct ways may ease concerns that some have about measuring poverty in a relative fashion.

The dominant framework for measuring poverty in the United States is too technocratic and too ideologically conservative. There's never going to be unanimity on what counts as "poor," but we ought to give more weight to the views of ordinary Americans on that subject — which would also mean shifting toward the kind of metric used by our economic peer countries.

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Shawn Fremstad is a Senior Policy Fellow at the Center for Economic Policy and Research.

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Lane Kenworthy: Prospects for economic democracy [feedly]

A very provocative post from Lane Kenworthy, an expert economist and commentator on economics and democracy subjects. His observation, backed by new data studies, that institutionalization of union membership WITH unemployment and retraining benefits is s KEY differentiator in maintaining worker influence in democracy.  The implication is suggestive that labor law reform needs to shoot a bit higher than card-check and arbitration to find sustainable footings in the advanced tech economies.

Prospects for economic democracy
https://lanekenworthy.net/2019/09/14/prospects-for-economic-democracy/

The most prominent forms of employee voice are worker participation, labor unions, works councils, board-level employee representation, and worker control. What do we know about them? My take is here.

One bit:

What are the prospects for a revitalization of unions in the United States? When asked, many workers say they would like to have a union or union-like organization represent them. We can point to various aspects of US labor policy that, if changed, seemingly would facilitate an increase in union membership — the 1949 Taft-Hartley Act's permission for states to implement anti-union "right to work" laws, the lack of a Canadian-style card check procedure for forming a union, weak enforcement of labor laws under Republican administrations, and more. And there is no shortage of proposals for how the American labor movement could organize more effectively.

Yet optimism about unions' future in America must reckon with the story told by the chart below. In a handful of countries, procedures established nearly a century ago require that workers be a member of a labor union in order to have access to unemployment insurance, and unionization rates there have remained fairly high. In virtually every other rich democratic nation, despite policies and governments far less hostile to unions than in the US, union membership has fallen just as sharply as it has here.

Unionization 
Share of employees who are union members. 5-country average: Bel, Den, Fin, Nor, Swe. 15-country average: Asl, Aus, Can, Fr, Ger, Ire, It, Ja, Kor, Nth, NZ, Por, Sp, Swi, UK. The thin lines are for individual countries. Data source: Jelle Visser, "ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention, and Social Pacts," version 6.0, 2019, Amsterdam Institute for Advanced Labour Studies, series ud, ud_s.

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