Tuesday, August 3, 2021

Black women face a persistent pay gap, including in essential occupations during the pandemic [feedly]

Black women face a persistent pay gap, including in essential occupations during the pandemic
https://www.epi.org/blog/black-women-face-a-persistent-pay-gap-including-in-essential-occupations-during-the-pandemic/

This year, Black Women's Equal Pay Day arrives 10 days earlier than in 2020 (August 13). If this seems inconsistent with current realities, it is. That's because the August 3, 2021 date is based on the comparison of median annual earnings for full-time, year-round workers reported in the 2020 Annual Social and Economic Supplement of the Current Population Survey (CPS). Since the reference year in that survey is the previous year—2019—the earlier date is more a statement about pay equity during the pre-COVID period of historically low unemployment than the impact of the pandemic. 

Based on hourly wages available for 2020, the pandemic's effect on pay inequality in 2020 is challenging to interpret since job losses were concentrated among low-wage occupations, which has the effect of skewing the distribution toward a higher average that is less representative of the workforce as a whole. These lower-paying jobs were concentrated in leisure and hospitality and education and health services—industries that employ a disproportionate share of women.

In fact, the pandemic's effect on pay equity during 2020 is less about a relative difference in dollars per hour and more a matter of a disproportionate share of women—and Black women in particular—becoming unemployed and thus wageless. Nearly 1 in 5 Black women (18.3%) lost their jobs between February 2020 and April 2020, compared with 13.2% of white men (see figure below). As of June 2021, Black women's employment was still 5.1 percentage points below February 2020 levels, while white men were down 3.7 percentage points.

The fact that we are talking about this every year reflects the stubborn, structural nature of pay inequities which is manifold. Occupational segregation limits Black women's access to higher-paying occupations. But, even when employed in the same occupation, pay discrimination results in lower earnings for women relative to men, including among essential workers as we show below. The lack of a national paid leave policy means that women are more likely to take unpaid time out of the workforce and have breaks in their work and earnings history. The combination of these factors means that, on average, women start their careers with a pay gap that they are never able to close.

The infographics below take a closer look at average hourly earnings of Black women and non-Hispanic white men employed in major occupations at the center of national efforts to address the public health and economic effects of COVID-19, based on our previous analysis of CPS microdata from 2014-2019. These occupations include front-line workers in health care and essential businesses like grocery stores, those who have borne the brunt of job losses in the restaurant industry, and teachers and child care workers. As these figures show, equal pay for Black women workers is long overdue.



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Monday, August 2, 2021

The Austrian Business Cycle [feedly]

The Austrian Business Cycle
https://thenextrecession.wordpress.com/2021/08/01/the-austrian-business-cycle/

The Austrian school of economics is outside the mainstream. The Austrians start from micro-assumptions. This is not the neoclassical view of rational, fully informed human agents, maximizing their utility and profits. On the contrary, human actions are speculative and there is no guarantee of success in investment. According to Karl Menger, the founder of this school of thought, the further out in time the results of any investment are, the more difficult it is to be sure of success.  Thus it is easier to estimate the returns on investment for goods that are for immediate consumption than for those needed for capital goods. Saving rather than consumption is a speculative decision to gain extra returns down the road.

Austrians reckon that the cost of saving can be measured by the 'market interest rate', which prices the time involved in delivering future output from savings now. 'Business cycles,' as the Austrians call booms and slumps under capitalist production, are primarily caused by periodic credit expansion and contraction of central banks. Business cycles would not be a feature of a truly "free market" economy. As long as capitalists were free to make their own forecasts and investment allocations based on market prices, rather than by bureaucrats, there would be no business cycles. Cycles are due to the manipulation of credit by state institutions. This differs from the neoclassical/monetarist school, which sees recessions as minor interruptions from growth caused by imperfections in market information or markets—not busts caused by artificial credit booms.

The boom phase in the Austrian business cycle takes place because the central bank supplies more money than the public wishes to hold at the current rate of interest and thus the latter starts to fall. Loanable funds exceed demand and then start to be used in non-productive areas, as in the case of the boom 2002–2007 in the housing market. These mistakes during the boom are only revealed by the market in the bust.

The Great Recession was a product of the excessive money creation and artificially low interest rates caused by central banks that on that occasion went into housing. The recession was necessary to correct the mistakes and the malinvestment caused by interference with market interest rates. The recession is the economy attempting to shed capital and labour from where it is no longer profitable. No amount of government spending and interference will avoid that correction.

Crucial to the Austrian Business Cycle Theory (ABCT) is the notion of a "natural rate of interest" ie how much it would cost to borrow if it wasn't for government interference.  In 'free markets', the supply and demand for funds to invest will set a rate of interest that brings investment and savings into line, as long as the markets for funds are fully competitive and everybody has clear knowledge on all transactions. 

Already, you can see that these assumptions are not realistic.  Even if the assumption of perfect competition was realistic, there is no reason to think that there is one interest rate for an economy. Rather there is one rate for houses, another for cars, another hotel construction etc. This point was even accepted by the Austrian school guru, Fredrick Hayek, who acknowledged that there is no one 'natural rate' of interest.

But without one natural rate of interest, you can't claim the government is forcing rates too low and therefore the theory crumbles. Yes, the central bank controls a component of the interest rate that helps determine the spread at which banks can lend, but the central bank does not determine the rates at which banks lend to customers.  It merely influences the spread.  Aiming at the Fed's supposed "control" over interest rates misunderstands how banks actually create money and influence economic output.

The primary flaw in the Austrian view of the central bank has been most obvious since Quantitative Easing started in 2008.  Austrian economists came out at the time saying that the increase in reserves in the banking system was the equivalent of "money printing" and that this would "devalue the dollar", crash T-bonds and cause hyperinflation. None of this came about.  

Marx denied the concept of a natural rate of interest.  For him, the return on capital, whether exhibited in the interest earned on lending money, or dividends from holding shares, or rents from owning property, came from the surplus-value appropriated from the labour of the working class and appropriated by the productive sectors of capital.  Interest was only a part of that surplus value.  The rate of interest would thus fluctuate between zero and the average rate of profit from capitalist production in an economy.  In boom times, it would move towards the average rate of profit and in slumps it would fall towards zero.  But the decisive driver of investment would be profitability, not the interest rate.  If profitability was low, then holders of money would increasingly hoard money or speculate in financial assets rather than invest in productive ones. 

What matters is not whether the market rate of interest is above or below some 'natural' rate but whether it is so high that it is squeezing any profit for investment in productive assets.  Actually, the main exponent of the 'natural rate of interest', Knut Wicksell conceded this point. According to Wicksell, the natural rate is "never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low."

The leading proponents of the Austrian School usually shy away from considering empirical evidence for their theory.  For them, the logic is enough.  But a reader of my blog recently sent me a bag of empirical studies that purport to prove that the Austrian school business cycle theory is correct: namely that when the market rate of interest is driven below the 'natural rate' there will be excessive credit expansion that will eventually lead to a bust and crisis.

In one of these studies, Austrian economist James Keeler proxies the market and 'natural' interest rates by using short- and long-term interest rates in yield curves.   The natural rate of interest is proxied by the long-term bond yield, and if the short term rate remains well below the long term rate, credit will expand to the point when there is a bust.  That happens when the short-term rate shoots up and exceeds the long or vice versa ie there is an inverse yield curve.  This is what his empirical study shows. Indeed, JP Morgan reckons on this basis the current probability of a slump in the US economy within a year is about 40-60%.

But while it may be that an inverted yield curve correlates with recessions, all it really shows is that investors are 'fearful' of recession and act accordingly.  The question is why at a certain point, investors fear a recession and and start buying long-term bonds driving down the yield below the short-term rate.  Moreover, when you look at corporate bonds in the capitalist sector, there is no inverted curve.  Longer-term corporate bonds generally have a much higher yield than short-term bonds.

Another Austrian study by Ismans & Mougeot (2009) examined four countries, France, Germany, Great Britain, and USA between 1980 and 2006. This found that "the maxima of the ratio of consumption expenditures to investment expenditures are often reached during the quarters of recession or during the quarters just after recessions. This observation corroborates the Austrian hypothesis of overinvestment liquidation marking crisis."  But again the study relies on short and long-term interest rates and argues that "the term spread inversions mark the turning points of the aggregate economic activity. When the term spread decreases, the structure of production becomes less roundabout as entrepreneurs reallocate resources away from production goods to consumption goods."  In other words, when short-term interest rates rise or long-term rates fall, investors stop investing in capital goods and business investment falls while consumption rises or stays the same.  Again, why does the yield curve to start to invert?  Which is the causal direction?  Is it falling investment in productive goods and services that drives long-term yields down or vice versa?

Carilli & Dempster attempt to answer this query in another study by carrying out a Granger causality test on two chosen indices of the 'natural interest rate' : 1) the real growth rate in GDP 2) the personal savings-consumption ratio. But they find that there is a marked lack of correlation between interest rates and economic activity. 

Indeed, there is little evidence that the rate of interest is the driving force of capitalist investment and the price signal that capitalists look for to make investment decisions.  A recent study by Dartmouth College, found that:

"First, profits and stock returns both have strong predictive power for investment growth, persisting many quarters into the future. Second, interest rates and the default spread—our proxies for discount rates—are at best weakly correlated with current and future investment. In short, changes in profitability and stock prices appear to be much more important for investment than changes in interest rates and volatility."

Similarly, the US Fed concluded in their own study that: "A fundamental tenet of investment theory and the traditional theory of monetary policy transmission is that investment expenditures by businesses are negatively affected by interest rates. Yet, a large body of empirical research offer mixed evidence, at best, for a substantial interest-rate effect on investment…., we find that most firms claim to be quite insensitive to decreases in interest rates, and only mildly more responsive to interest rate increases."

Some economists in the Austrian school have tried to gauge when the tipping point into recession might be by measuring the divergence between the growth in credit and GDP growth (see Borio and White, Asset prices, financial and monetary stability, BIS 2002).  Apparently, there is a point when credit loses its traction on economic growth and asset prices and then growth collapses. But why? The Austrians cannot answer this because they ignore the fundamental flaw in the capitalist process identified by Marx in his law of profitability.

What drives capitalist economies and capital accumulation are changes in profits and profitability.  Economic growth in a capitalist economy is driven not by consumption as the Austrians claim, but by business investment. That is the swing factor causing booms and slumps in capitalist economies.  And business investment is driven mainly by one thing: profits or profitability – not interest rates, not 'confidence' and not consumer demand. It is when the rate of profit starts to fall; and then more immediately, when the mass of profits turns down. Then the huge expansion of credit designed to keep profitability up can no longer deliver.


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An Earn-and-Learn Career Path [feedly]

An Earn-and-Learn Career Path
https://conversableeconomist.wpcomstaging.com/2021/07/31/an-earn-and-learn-career-path/

interesting take on apprenticeships from Tim Taylor

What paths can high school students take in accumulating hard and soft skills so that they can make the transition to a career and job? The main answer in US society is "go to college." But for a large share of high school graduates, being told that they now need to attend several more years of classes is not what they want to hear.

Historically, a common alternative career path was that companies hired young workers who had little to offer other than energy and flexibility, and then trained and promoted those workers. Unions often played a role in advocating and supporting this training, too. But in the last few decades, it seems that a lot of companies have exited the job training business. Their general sense is that young adults aren't likely to stay with the company, so in effect, you are training them for their next employer. Instead, better just to require that new hires already have experience.

The earn-and-learn career path tries to steer between these extremes. Yes, it involves additional learning, because that's what 21st century jobs are like, but it seeks to have that learning take place more in the workplace than in the classroom. Also, instead of paying to learn, you get paid while learning. On the other side, firms that participate in this kind of training don't need to take on the entire responsibility and cost of doing so.

Annelies Goger sketches this framework in "Desegregating work and learning through 'earn-and-learn' models" (Brookings Institution, December 9, 2020). She points out the gigantic difference in public support for higher education vs. public support for an earn-and-learn approach.

The earn-and-learn programs under the public workforce system—authorized under the Workforce Innovation and Opportunity Act (WIOA)—are underused and hard to scale. Publicly funded job training options are tiny overall compared to investments in traditional public higher education or classroom-based job training. Funding for public higher education was $385 billion in 2017-18, compared to about $14 billion for employment services and training across 43 programs. The net result is that higher education is the main provider of publicly funded training for most Americans, and most of the $14 billion for employment services and training goes to services (most of which isn't training) for special populations such as veterans and people with disabilities.

This difference in public support is even more stark when you recognize that those with a college education are likely to end up with  higher average incomes during their lives, so that we are doing more to subsidize the training of the relatively high earners of the future than we are to subsidize the training of the middle- and lower-level earners.

What do the earn-and-learn programs look like in practice? Here's a graphic:

Fig1

I won't try to go through these choices one at a time: for present purposes, the salient fact is that they are all small in size. As long-time readers know, I'm a fan of a dramatic expansion of apprenticeships (for example, hereherehere, and here). But as Goger writes:

For example, the U.S. had roughly 238,000 new registered apprentices in 2018. However, if the U.S. had the same share of new apprentices per capita as Germany, we would have 2 million new apprentices per year; if we had the same share as the United Kingdom or Switzerland, that number would be 3 million.



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Senators finalized a $1 trillion version of Biden's infrastructure plan after weeks of wrangling. Passing it will be a race against time. [feedly]

Senators finalized a $1 trillion version of Biden's infrastructure plan after weeks of wrangling. Passing it will be a race against time.
https://www.businessinsider.com/senators-finalise-1-trillion-infrastructure-bill-hope-to-fast-track-2021-8?utm_source=feedly&utm_medium=webfeeds

Senate Majority Leader Chuck Schumer (D-NY) speaks during a news conference about climate change outside the U.S. Capitol on July 28, 2021 in Washington, DC.

Drew Angerer/Getty Images

  • Bipartisan Senators working on a trillion-dollar infrastructure bill published its text late Sunday.
  • The bill is due to be fast-tracked for a vote in the Senate this week, but may face opposition.
  • Biden supports the package, though it is smaller than the White House had hoped.
  • See more stories on Insider's business page.

The final version of a $1 trillion infrastructure bill - hammered out by a bipartisan group of Senators - was released late on Sunday night.

The full text came in at 2,702 pages. Despite its size and cost, its proponents hope to fast-track it through the Senate for an expected vote this week.

Senate Majority leader Chuck Schumer wants the bill passed before senators leave on their August break next week, and held a special legislative weekend to get the process started.

The bill would see a huge injection of investment in the so-called "hard infrastructure," of roads, bridges, and broadband.

If passed it would be the biggest package of its kind for decades. It includes $550 billion in new spending on infrastructure, as well as $450 billion in funds previously approved.

Senators raced last week to complete the final details of the vast text before the planned vote this week. It followed months of negotiations between Democrats and Republicans that saw an earlier $2 trillion plan put forward by President Joe Biden whittled down to secure wider support.

If the bill passes the Senate it would then need to be approved by the House of Representatives. Some progressives have said it now falls short of their spending demands and have threatened to block it.

Democrats hold a slender majority in both the Senate, where Vice President Kamala Harris holds the tie-breaker vote, and the House, where Democrats have a 220-212 majority.

In the Senate, two test votes on the bill indicated broad bipartisan support, suggesting it is likely to pass. But some Republicans could object to the bill on the basis that some of the details of how it's going to be funded are unclear.

At least 10 GOP Senators and every Democrat would need to support the bill for it to reach the necessary level of 60 votes.

Sen. Susan Collins, the Maine Republican who was part of the group that brokered the deal, said on CNN on Sunday that she though enough GOP Senators would back it.

"This bill is good for America," said Collins. "Every senator can look at bridges and roads and need for more broadband, waterways in their states, seaports, airports, and see the benefits, the very concrete benefits, no pun intended, of this legislation."

Democrats aim to later pass an even broader $3.5 trillion spending bill containing a number of environmental measures. Those more contentious provisions would be presented under the mechanism of budget reconciliation, which allows bills on certain topics to pass with 50 instead of 60 votes.

In an interview on CNN's "State of the Union" Sunday, Rep. Alexandria Ocasio-Cortez of New York, one of the House's leading progressives, said that there was enough opposition in the House to stop the bill passing.

She suggested that progressives would only pass the bipartisan bill once the larger spending bill was through.

"So, we really need to see that language and see what's put in there ... when it reaches the House," Ocasio-Cortez said. "Bipartisan doesn't always mean that it's in the interests of the public good, frankly. Sometimes, there's a lot of corporate lobbyist giveaways in some of these bills."

Read the original article on Business Insider

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China’s Progressive Authoritarianism - Bloomberg

China's Progressive Authoritarianism

by Malcolm Scott

<p>Push for 'Common Prosperity' reshapes the policy outlook</p>

https://www.bloomberg.com/news/newsletters/2021-08-02/what-s-happening-in-the-world-economy-a-new-economic-order-emerges-in-china?sref=woWS9Szx

Hello. Today we look at China's crackdown on big tech and what it means for the economy, the week ahead in global economics and the interplay between evictions and virus infections in America.

Progressive Authoritarianism

A sweeping new vision for the world's second-largest economy is emerging from the crackdown on big tech — one where the interests of investors take a distant third place to ensuring social stability and national security.

In a flurry of action Friday, Chinese authorities summoned the country's largest technology companies for a lecture on data security, vowed better oversight of overseas share listings and accused ride-hailing companies of stifling competition.

That follows  new requirements for data security reviews ahead of overseas IPOs, directives for food-delivery firms to pay staff a living wage and escalating curbs on unaffordable housing, and a crackdown on tutoring companies. Add it all up, and it's leading to a growing realization that the old rules of Chinese business no longer apply and leaving investors wondering which sector will be the next target for regulators.

relates to China's Progressive Authoritarianism

For decades, even as they kept strict control over strategic sectors like banking and oil, China's leaders gave entrepreneurs and investors freedom to drive the adoption of new technologies and open up fresh opportunities for growth. Deng Xiaoping set the tone back in the mid-1980s when he said it was OK if some got rich first. Now, with growth slowing and relations with the U.S. hostile, they're emphasizing different goals.

Bloomberg News's Tom Hancock and Bloomberg Economics's Tom Orlik describe the new order as progressive authoritarianism

China this year began a "new development phase," according to President Xi Jinping. It puts three priorities ahead of unfettered growth:

  • National security, which includes control of data and greater self-reliance in technology
  • Common prosperity, which aims to curb inequalities that have soared in recent decades
  • Stability, which means tamping down discontent among China's middle class 

The events of recent weeks, where markets have been rocked by the regulatory onslaught, show investors had better get themselves acquainted with those new priorities as the focus on common prosperity suggests they'll have to settle for a smaller share of the spoils in the future.

 Malcolm Scott

Wednesday, July 28, 2021

Enlighten Radio:Talkin Socialism: Storm over Cuba

The Red Caboose has sent you a link to a blog:



Blog: Enlighten Radio
Post: Talkin Socialism: Storm over Cuba
Link: https://www.enlightenradio.org/2021/07/talkin-socialism-storm-over-cuba.html

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