Saturday, July 7, 2018

Krugman on the Job Guarantee

Krugman on the Job Guarantee -- DSA / Alexandria Ocasio-Cortez



More on a Job Guarantee (Wonkish)

By Paul Krugman

Opinion Columnist

July 5, 2018

As I wrote the other day, Alexandria Ocasio-Cortez may call herself a socialist and represent the left wing of the Democratic party, but her policy ideas are pretty reasonable. In fact, Medicare for All is totally reasonable; any arguments against it are essentially political rather than economic.

A federal jobs guarantee is more problematic, and a number of progressive economists with significant platforms have argued against it: Josh Bivens, Dean Baker, Larry Summers. (Yes, Larry Summers: whatever you think of his role in the Clinton and Obama administrations, he's a daring, unconventional thinker when not in office, with a strongly progressive lean.) And I myself don't think it's the best way to deal with the problem of low pay and inadequate employment; like Bivens and his colleagues at EPI, I'd go for a more targeted set of policies.

But I'm fine with candidates like AOC (can we start abbreviating?) proposing the jobs guarantee, for a couple of reasons. One is that realistically, a blanket jobs guarantee is unlikely to happen, so proposing one is more about highlighting the very real problems of wages and employment than about the specifics of a solution. Beyond that, some of the critiques are, I think, off base.

Here's the way some of the critiques seem to run: a large share of the U.S. work force – Baker says 25 percent, but it looks like around a third to me – makes less than $15 an hour. So offering these workers a higher wage would bring a huge rush into public employment, implying a very expensive program.

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What's wrong with this argument? The key point is that all those sub-$15 workers aren't just sitting around collecting paychecks: they're producing goods and (mostly) services that the public wants. The public will still want those services even if the government guarantees alternative employment, so the firms providing those services won't go away; they'll just have to raise wages enough to hold on to their employees, who would now have an alternative.

Now, that doesn't mean zero job loss. Employers might replace some workers with machines; they would have to raise prices, meaning that they would sell less; so private employment might go down.

But all this is true about increases in the minimum wage, too. And we have a lot of evidence on what minimum wage increases do, because we get a natural experiment every time a state raises its minimum wage but neighboring states don't. What this evidence shows is that minimum wage hikes have very little effect on employment.

So if we think of a job guarantee as a minimum wage hike backstopped by a public option for employment, we should notexpect a mass migration of workers from private to public jobs.


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OK, a couple of caveats. First, while we have a lot of evidence on minimum wage hikes, these have generally been modest, leaving wages well below the level of the proposed federal guarantee. And even the leftiest of economists would agree that a sufficiently high minimum wage – say, $30 an hour – would reduce employment. Is $15 an hour high enough to get us into job-destroying territory? In high-income regions, probably not. But in America's lagging, poorer regions there might be significant job losses.

Second, there are quite a few working-age adults who aren't in the labor force at all, and at least some of them aren't working because they see no job opportunities at all. A federal jobs guarantee might bring a substantial number of these non-working adults back into the work force. This would, of course, be a good thing from a social point of view – in fact, it's kind of the point of the whole program – but could mean having to find work and money for a lot of new public employees.

How many? At its peak in 2001 the prime-aged employment rate was almost 3 percentage points above its current level. If a job guarantee brought such employment back to its peak, that would mean 3 ½ million additional workers. So we could be talking about a lot of people.

So I don't want to minimize the potential problems with a job guarantee. But a wholesale migration from low-paid private to public employment isn't one of those problems.

And to repeat what I said Tuesday, whatever problems you may have with the specifics of AOC's proposals, they're far more sensible than, say, Larry Kudlow or Sam Brownback-style voodoo economics, which passes for mainstream economic thinking on the other side of the aisle.

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John Case
Harpers Ferry, WV
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Thursday, July 5, 2018

What to Watch on Jobs Day: Public sector jobs are threatened by austerity and attacks on collective bargaining



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What to Watch on Jobs Day: Public sector jobs are threatened by austerity and attacks on collective bargaining // Blog | Economic Policy Institute
https://www.epi.org/blog/what-to-watch-on-jobs-day-public-sector-jobs-are-threatened-by-austerity-and-attacks-on-collective-bargaining/

Last week, the U.S. Supreme Court ruled on Janus v. AFSCME Council 31. The Court's 5-4 decision bars unions from requiring state and local government workers who benefit from union representation to pay their fair share of that representation. As a result, public sector unions will be up against a classic free rider problem, in which all the workers in a bargaining unit will be legally entitled to union representation, even if they don't pay a penny for the benefits and services the union provides. This decision will have profound implications for all state and local government workers throughout the country, not just the share covered by a union contract.

To get a sense of the number of workers directly affected by this decision, let's take a look at state and local government employment. According to the Current Employment Statistics survey, there are nearly 20 million state and local workers in the economy today. This represents about 13 percent of the overall workforce. The majority of these state and local workers are in the education sector. State and local education workers top 10 million, representing 53 percent of all state and local government workers.

At the same time as attacks on public sector collective bargaining erode compensation and job quality, austerity has held back employment and wage growth. State and local workers—such as the teachers in West Virginia and Oklahoma who were recently protesting not just their low wages but lack of funding in the classroom—have already been hammered by years of austerity policy at all levels of government. In states like Wisconsin, tax cuts for the most well off in the early 2010s were financed by the layoffs and cuts to public employees' wage and benefits. As of the beginning of this school year, local public education employment was still lower than it was before the Great Recession, and much lower than where it could be if employment had kept up with the growth in school enrollment. This means, in this past school year, we experienced a shortfall of over 300,000 public educators.

In addition to educators, state and local public sector workers work as police officers and firefighters, in hospitals and libraries, and provide important services in public transit, waste management, and home health care. In these ways, the Janus decision affects not just those public sector workers directly but also the critical services they provide. This attack on public sector workers and their well-being not only lessens those workers' ability to make ends meet, but undermines the public services they provide.

On Friday, I will continue to track employment in both the public and private sector. As usual, I will also be closely examining labor force participation and nominal wage growth as the economy continues to slowly and steadily move towards full employment.


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Fighting Janus

Lnyx, potential auto tariffs, yield curves and recession



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Lnyx, potential auto tariffs, yield curves and recession // Jared Bernstein | On the Economy
http://jaredbernsteinblog.com/lnyx-potential-auto-tariffs-recession/

Happy 4th.

Now, down to biz.

Over at WaPo, I reflect on how to get back to WITT (we're-in-this-together), away from YOYO, and note how the Democratic Socialists are plowing similar ground.

Next, I see where the president is thinking about imposing 20% tariffs on imported cars and car parts. Oy. Once again, I don't see how this helps anyone, including American car producers and especially American workers/consumers.

Apparently, his motivation was seeing too many foreign cars on our streets. Look, I'm all for gut instinct, but you then need to check out whether your gut is accurate or if that was just a gas bubble. (A hint that it might have been the latter stems from the acronym of a bill the administration is allegedly working on to take us out of the WTO called the United States Fair and Reciprocal Tariff Act, aka: the US FART Act.)

The key reason Trump's instinct was wrong is because auto production is so thoroughly globalized. As such, the classic foreign/domestic distinction which provides the essential rationale for tariffs goes up in smoke. Consider:

–There are no American-made cars that do not contain foreign parts. Thus, tariffs will raise the prices of domestic cars, as well as imports.

–We have particularly close ties with Canada in this space. Many auto-workers there belong to American unions and joint projects abound (which is why I suspect the UAW may ultimately oppose these tariffs). The two most American cars, by content, are Hondas made by US/Canada.

–Trump specifically complains about seeing too many German cars. Well, the largest BMW plant in the world is in Spartanburg, SC.

–Talk about entrenched globalization: Volvo is a Chinese-owned company, HQ'ed in Sweden, with a big plant in SC.

–It's true that Europe charges a 10% tariff on US car exports, compared to our existing tariff of 2.5%. But we keep out their larger vehicles via a 25% tariff on light trucks/vans.

If Trump follows through on these auto tariffs, it represents the opening up of the biggest front yet in his trade war. I suspect he'll back down, but there's a decent chance he won't.

As I've always said in this debate, Trump exploited something real and important by elevating the negative side of globalization. But his and his team's lack of understanding of the policies necessary to actually help those hurt becomes clearer every week.

Finally, check out this Twitter thread. I'm writing this up for tomorrow in the WaPo, but here some extra wonkiness for OTE'ers.

Part of what has people worried about recession is the flattening of the yield curve. Well, copying some work of Fed economists, I ran two models below that use the yield curve to back out recession probabilities.

Source: my estimates of Fed model (see text).

Even the traditional model (blue line) doesn't show much, but the other line is flat. Whussup w/that?

Longer term interest rates, like the yield on the 10-year Treasury, can be broken up into the expectation of the average of future short-term rates and the term premium, or the extra yield investors require to lock up their money for the term of the loan. Since it's thought to be the first part–expected rates–that correlates with a future downturn, it makes sense to net out the term premium from the model. When you do so, you get the flat line in the model. (This is all written in shorthand for those familiar with these models, but they're simple and well-explained in the Fed link above if you want to pursue.)

To be very clear, none of this means a recession is not around the corner! I don't see it, but economists can't help you with this one. Therefore, as the thread stresses, it makes much more sense to focus on recession readiness, as we are seriously not ready.


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Tuesday, July 3, 2018

Summers nails Trump's "trade strategy"

IMF Report Describes Flaws in 2017 Tax Law



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IMF Report Describes Flaws in 2017 Tax Law // Center on Budget: Comprehensive News Feed
https://www.cbpp.org/blog/imf-report-describes-flaws-in-2017-tax-law

The International Monetary Fund's (IMF) recent report on America's economy echoes many of our criticisms of December's tax law: it's tilted to the top rather than the bottom, loses much-needed revenue, and creates a host of opportunities to game the tax code.


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House GOP Budget Retains Tax Cuts for the Wealthy, Proposes Deep Program Cuts for Millions of Americans



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House GOP Budget Retains Tax Cuts for the Wealthy, Proposes Deep Program Cuts for Millions of Americans // Center on Budget: Comprehensive News Feed
https://www.cbpp.org/research/federal-budget/house-gop-budget-retains-tax-cuts-for-the-wealthy-proposes-deep-program-cuts

Half of these cuts would likely come from programs that aid low- and moderate-income individuals and families.


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