Hillarynomics, the first in an endless series

After my previous post, burdened by the lack of a text for Hillary’s speech today, now I have the text and a bit more to offer. Most of what I said below holds up in light of the actual text. There’s a lot to like in the speech, but in my view there are some serious analytical shortcomings not necessarily visible to the naked eye.

The all-American value of being rewarded when you put in extraordinary effort is upheld.sloth But suppose you don’t feel like making an extraordinary effort, just an ordinary one? Suppose you work to live, not live to work? Don’t you deserve some modicum of economic security? To paraphrase the great Senator Roman Hruska, don’t slackers deserve some representation? (I recently came across this delightful piece on sloth from Thomas Pynchon.)

In a related vein, the middle class is said to need “growth and fairness.” In fact, economic growth is not the be-all and end-all for the working class. You can have growth along with increased inequality, where the benefits to growth are not broadly shared. Have HRC and her economic mavens been asleep for the past two years? I discount the qualifier of ‘fairness’ because its meaning in common political rhetoric has been watered down to the point of meaninglessness.

Several times HRC gives a shout-out to balanced budgets, even paying off the national debt. This is deeply wrong-headed economic policy, especially in the current period. Combined with her tax cut proposals, you have to wonder where any money for her spending initiatives would come from. It suggests she is under some delusion that the elimination of budget deficits under President Bill in the late 90s had something to do with the economic boom. For another view, see my friend Bob Pollin’s book, Contours of Descent.

The critique of the Republican economic policy appears to hinge on a bogus connection between the Bush tax cuts and the 2007-08 financial meltdown. Obama used to flog this horse too, as in “Well they cut taxes and look what happened.” This analysis glosses over the financial deregulation of the 90s in which Bill Clinton played no small part. It fundamentally misunderstands what happened to cause the financial system to blow up.

The rhetoric about “long-term economic value” refers to business investment. More investment is always welcome, but that’s not the biggest problem at the moment. Private investment has recovered reasonably well since 2008. The big shortfall in this mediocre recovery has been in public spending, including public investment, by Federal, state, and local governments.

And finally, there was this, to which I can only say yuck:

“No other country is better equipped to meet traditional threats from countries like Russia, North Korea, and Iran – and to deal with the rise of new powers like China.”

But I’m not doing foreign policy today.

I contend that the points above are not nit-picking but important weaknesses in the speech. I may be some kind of radical crackpot, but the points I make do not rely on any sort of radical economics. If we’re going to take a speech seriously, I think I’m justified in the issues I raise. They are not trivial.

Promises, promises

hillary_rays1I wanted to dissect the economic piece of Hillary’s speech, but thus far the text is not available. So I’m going by a slide from her web site. I come neither to praise nor condemn, but to illuminate. Of course in general the reliability of campaign promises is a long-standing joke. Nevertheless, they are signals that merit interpretation.

I don’t want to get sidetracked into the problem of how to pass anything good when the House of Representatives is controlled by loons. HRC will have to answer that question herself. My interest in this post is in policies that may not have immediate practical political relevance. You have to start by imagining things for them to have a chance in the real world. The Teabaggers understand that. In the states, they’ve done well for themselves crippling trade unions, gutting public education, brutalizing welfare recipients, and making abortion extremely difficult to obtain. Their vile dreams are coming true.

When it comes to promises, some need to be taken more seriously. There are clichés, but there can also be real markers that stick to the candidate and have some power when they are invoked later. Taking a look at the economic component of Ms Clinton’s “Four Fights” (“Building an economy for tomorrow”), we have the following bullet points (quoted verbatim, numbered by me):

1) Reward businesses that invest in long-term value;

2) Rewrite the tax code so that it rewards hard work and investments at home;

3) Give new incentives to companies that give their employees a fair share off the profits;

4) Unleash a new generation of entrepreneurs and business owners;

5) Restore America to the cutting edge of innovation;

6) Make America into the Clean Energy Superpower;

7) Connect workers to their jobs and businesses with 21st century infrastructure;

8) Establish an infrastructure bank;

9) Make college affordable to all;

10) Provide lifelong learning for all workers.

My take:

1) I’m only a Ph.D. economist. I have no idea what “long-term value” is supposed to mean here.

2) How? If we’re shifting the tax burden away from labor to “reward hard work,” it has to go to capital, posing a problem for rewarding investment. If we’re reducing taxes on both sides, we’re now into bankrupt 1980s style supply-side economics. (Side note: rewarding investments ‘at home’ instead of in, say, Malaysia, raises all sorts of technical problems.)

3) What incentives? Tax cuts? What’s a “fair share”? How do you replace the revenue? Maybe Paul Ryan knows.

4) Let’s note that most business start-ups FAIL. It’s wonderful that some are willing to take the risk, but the well-being of most depends on what they are paid working for somebody else. In any case, do I have to ask how this happens?

5) The “cutting edge of innovation” takes the prize in this list for vagueness. The vaguer the promise, the less vulnerable the promiser is to pressure later on.

6) This is one of the better ones, which I’m all for, since the results or lack thereof are relatively tangible, hence more pressure is implied on the promiser. Kind of like a promise to close Guantanamo. It’s pretty clear whether it gets done, or not, relatively speaking.

7) I like this one too. It can only mean more and better rail systems and broadband. Once again the results are susceptible to monitoring by ordinary citizens. As in #6 I’m not worried about finance, since such investments are best financed by borrowing, which for the Federal government is absurdly cheap these days.

8) I’m all for an infrastructure bank. Will it have any money? From where? If you’re promising a bank you’re promising that some capital will be available. Will the Gov be raising money by selling bonds to rich people that get favorable tax treatment or benefit from guarantees against default? That would take some of the juice out of this item. (Note: politically under most any circumstances, it’s hard to see any Congress surrendering investment decisions to an independent agency.)

9) This is good. I like the idea of hammering on this problem, even with no specific fixes, since it raises the odds of some remedies later.

10) Lifelong learning is just yesterday’s mashed potatoes. I don’t see a huge role for the government here. We might expect yet another tax credit of some type. What we really need is a tight labor market. That will cause wages to rise and pressure business firms to pay for worker training.

In summary, there is some hot air, some potentially wrong directions, and some constructive themes. Naturally, compared to any Republican candidate, this is all mother’s milk. More interesting would be how it plays in comparison to Bernie Sanders’ Twelve Point Program. A subject for another post.

You were born 20, 30, or 35 years ago. How screwed are you?

sharing-economy-hplead-bInteresting piece by Monica Potts here.

In my mid-30s (the mid-80s) I was dead broke with no professional work history (except as an unsuccessful professional revolutionary), but I had the beginnings of a credential, my MA (later Ph.D.) in econ. My GF and future wife had a law degree. We had both gotten our BAs in 1971 when college was cheap. We both had modest student loans. (I had tuition remission and a stipend as a TA.) We never owned a house until we hit 40. The parents had no money to speak of.

I might have liked to be a journalist but in the late 70s I researched jobs that were available, and econ was among them. It helped that I was actually interested in it.

At first in the article I thought, well writing is an increasingly tough business to get into, I feel for you, but you picked it. Ditto for those who enter and stay stuck in the ground floor of non-profits, which can be pretty unforgiving places. Ditto if you choose to live in high-rent cities.

BUT. What the piece raises is the extent to which the labor market more generally reflects greater pay dispersion (including more low-paid jobs) and less mobility. To what extent do entry-level jobs of many types increasingly suck? How much of this is a consequence of living in expensive places to live? Obviously, combined with high college costs and ballooning loan burdens this becomes a pervasive problem. And the Great Recession is the cherry on top of this shit sundae.

This all seems to explain Occupy, and Occupys to come. It’s not clear to me that the proliferation of sharing apps and gigs is cause so much as effect. If there were more jobs with benefits, there would be fewer people subletting their apartments and acting as informal taxi drivers. Nor is housing the great boon to wealth that is suggested. Sure in certain periods it is, others not so much. Sharing is not making people poorer; poorer people have more recourse to sharing.

Over-education combined with under-employment is fuel for the next revolt.

Expect little, and you will be rewarded: Summing up

magjrThe De Blasio platform is a worthy effort to establish a policy banner around which the left can rally. It raises some important goals, but misses some as well. In particular, it focuses on labor, which is the right focus, but from a narrow regulatory standpoint (particulars below). It is thin on goring the oxen of the 1%, and AWOL on the poorest of the poor.

The labor market needs more regulation, and the platform’s points are the right ones. A higher minimum wage, paid family leave, the right to organize, and more work-conditioned benefits like the EITC are key demands. What’s missing is a broader notion of how to tighten the labor market by raising employment and putting upward pressure on wages. In this realm, the most important levers are fiscal and monetary policy. Fiscal policy means more deficit finance, directly from the Federal government, and indirectly through the states, leveraged by Federal aid.

Everybody has their own favorite list of new spending initiatives. I think pre-K is among the most important, followed by infrastructure (more rail for metro regions, bridge repair, school repair, public broadband). From a labor market perspective, the composition is less central than the amount. Even the Center for American Progress (CAP) has proposed something in the neighborhood of a hundred billion a year. (It’s interesting to note that CAP, bound at the hip to the White House and HillaryLand, and Hillary herself, are a bit ahead of the platform in several ways.)

On the monetary policy side, the key battle is forestalling interest rate increases by the Federal Reserve. Broadly hinted at commencing this year, these increases may not do much damage, but they won’t be helpful at all. Democrats follow what I’ve called the Doctrine of Fed Supremacy: thou shalt not criticize the Fed because it should stay above politics. Which is utter bullshit. The Fed is neck-deep in politics, just not the kind to which you ordinary slobs have any access.

I’m always amused by the plethora of well-intentioned efforts to discover ways to reduce poverty by nudging changes in personal behavior. Like it’s some kind of treasure hunt. Reducing poverty is really simple: give people a consumption floor by establishing income guarantees (especially for those who lack them presently), and by fomenting labor market tightness with fiscal and monetary policy. The platform is mum on both of these fronts. In my view they are foundational.

In Part One I touched on the organizational context of the platform and of Bernie Sanders’ campaign. We have a pretty good idea of how this movie ends. Bernie raises a lot of good points, Hillary makes sympathetic noises, Hillary gets the nomination and Bernie urges us all to come to the aid of our party. What’s interesting is whether Bernie will use his limelight to build an organization that outlasts the campaign, something Jesse Jackson refused to do in the 80s. Obama has his OFA organization too, but it is lifeless.

Absent some post-election prospects for left organization, this entire enterprise of primaries and let’s stop crazy people from becoming president will amount to a holding action. Hillary could produce some incremental reforms and hopefully not start any new wars. Holding actions are better than retreats. In my book, that isn’t good enough. We should look for ways to do better.


Expect little, and you will be rewarded: Part Four

(Previous Parts One, Two, & Three, best read in sequence.)

My review of a proposed progressive platform around which the left should rally continues. In my first note, I discussed the political background of the effort. Then getting into policy regarding inequality, in Two I considered benefits of the platform for the bottom of the income distribution, and in Three, costs for the top. Today I focus on the broad middle, what some dinosaurs like me prefer to call the working class. Lifting the living standards and prospects of working people is the sine qua non of anti-inequality policy.

This is both the strongest and weakest part of the enterprise. Everything invoked, if vaguely in places, is relevant and important. Minimum wage, labor rights, an expanded Earned Income Tax Credit, these are all key in my book. But something huge is missing.

The most powerful force putting upward pressure on the entire spectrum of wages is high employment, made possible with the right monetary and fiscal  policies. We want employers on their knees, begging people to work and offering higher pay and better fringes to entice them.

For all the gory details on what is involved, I invite you read Jared Bernstein’s new book (free PDF version here). For a summary, I’d direct your attention to Appendix C, starting on page 330. To save you the trouble of reading, I’ll try to give you the gist myself.

To get higher employment, in short, we need more government spending financed by higher deficits. That’s where the greatest inadequacies lie. There is no need to assign blame for the shortfalls; we could spread it liberally over both parties. The platform cites some worthy and important uses for such spending, but somebody needs to shout from the rooftops that austerity sucks. Reducing the deficit in a time of low employment is not an achievement, it’s a blunder.

Indicators often cited that attest to the health of the economy are bogus. We could start with the stock market, a source of income to relatively few, nor a harbinger of better days to come. Or GDP growth, not relevant to the working class when the benefits are concentrated on those with high incomes. Most importantly, the unemployment rate is not as informative when people who would work, given the opportunity, leave the labor force. A better fix on the labor market can be found in the employment population ratio for working-age people, or in the rate of growth of labor compensation. In those terms, economic performance is below par.

In short, the not-so-hip progressives of NYC betray the same fear of deficits as your ordinary politicians of other political stripes. Failure of policy in this realm positively cripples the working class. We have to do better.


Expect little, and you will be rewarded: Part Three

I continue my desultory march through the platform of New York’s hip progressive Mayor Bill and friends. (Scroll down this page for Parts One and Deux.)

TAXIn my previous post I looked at how the platform treats the bottom of the income distribution, more specifically those outside the labor market, or with very tenuous connections to the labor market. On this score, the platform is found to be lacking. Remember, this is all supposed to be aspirational and not subject to abrupt dismissal on grounds of immediate political feasibility.

Today I look at what the platform does to compress the income or wealth distribution from the top. And the answer in this case as well is: not much. Some of the rich do get dinged here by the tax proposals, namely:

1. “Close the carried interest loophole.
2. “End tax breaks for companies that ship jobs overseas.
3. “Implement the “Buffett Rule” so millionaires pay their fair share.
4. “Close the CEO tax loophole that allows corporations to take advantage of “performance pay” write-offs.”

My instant appraisal: 1. the loophole is egregious but the benefits go to a small group; 2. hard to do for technical reasons; 3. A 30% minimum tax for millionaires, ok, but how; a tax on what? Interestingly, the White House blast on this provides zero details. 4. Provides more jobs for tax accountants.

The striking thing about the list is its neglect of the basic shortcoming of the Federal individual income tax: failure to fully include income from capital (capital gains, dividends, estates, etc) in the tax base. For how to do this, you’d have to rely on that commie source, the Congressional Budget Office. And what about taxing financial transactions? Why are we kissing up to Wall Street? I thought we were the 99 percent.

The pwoggie list seems to have been dreamed up by a PR person, about which fine, but who is going to educate the folks on what really needs to be done? If not here, where?

There are other ways the rich get richer with the assistance of the government. We could get into the weeds quickly in that case, so I can’t fault the platform for its concision. But as far as taxes go, they missed the big stuff.

My pet peeve about all of this is that under social-democracy, higher taxes will also be on the agenda for those between $100,000 and one million. If you’re serious about expanding the public sector with public revenues at about 40% of GDP, there is not enough money from the rich and corporations. It’s been a while since I did the numbers on this, but nobody has ever given me any reason to think otherwise. I realize this is a lot to ask of U.S. progressives, given their tendency to tell people we can have more social goods, but you won’t have to pay for them. Hey, if more social goods are desirable, shouldn’t people want to pay for them?

My next post will deal with the labor market.


Expect little, and you will be rewarded: Part Deux

o-FUCK-THE-POOR-570Last Monday I promised a follow-up to Ask Little, and You Will Be Rewarded: Part One. The object of examination was a progressive platform originating in the political apparatus of New York City Mayor Bill DeBlasio on the theme of reducing inequality. My interest is in considering what I take to be yawning substantive oversights in the platform.

I should repeat that I’m happy to see BdB breaking his own lance for this line of discussion, and others signing on. I don’t see anything in the list that I don’t like. What’s on point here is what is missing.

Lists like this are potentially endless, so I want to make clear I am not trying to edit at the margins. The frame is reducing inequality, so other good things, like eviscerating the defense budget, are not on point in this context.

If we’re talking about money, and aren’t we always, inequality could be reduced to tightening the distribution of income. This is not limited to raising the floor and lowering the ceiling, but to, for instance, reducing the distance between those at the 40th percentile and the 60th. I’d also note that the latter does not imply reducing the incomes of everybody above the median, though some haircuts will certainly be in order.

It is useful to start with the extremes, meaning floors and ceilings. On floors, the inevitable dilemma is that some people who aren’t working cannot. This will always be the case, not least in our current, slow-growth economy. I speak of the victims of welfare reform, those who fall through the holes of the safety net and never recover. Single persons without children, who are eligible for little in the way of public assistance. Those rotting away in barren institutional warehouses, the deinstitutionalized, the homeless.

Jesus would be interested in these people, even if our Christian loudmouths are not. What about our friends in the Big Apple? Not so much, I’m afraid. The two exceptions are references to supporting education, not prisons, and universal pre-K. The first is more of a cliché than a proposal, while the latter is very important but not immediately relevant to the least of thine. (And just to be difficult, some investment in prisons will be necessary to assist in the reintegration of our huge incarcerated population into society. Interestingly, Hillary Clinton’s recent speech on mass incarceration had more bite than this platform.) In 2012, there were more than 11 million below half the poverty line, mostly adult and mostly non-hispanic white. Maybe it’s time to re-racialize poverty.


Between 1995 and 2005, while overall child poverty declined significantly, the safety net became less effective at protecting children from deep poverty. The share of children living in deep poverty rose from 2.1 percent in 1995 to 3.0 percent in 2005.

The elephant in the room here is the dismal travesty of welfare reform, in which some Democrats remain invested. Who will speak of transforming the infernal Temporary Assistance for Needy Families block grant into a national guaranteed income for those without independent means or access to Social Security?

All the huffing and puffing about economic growth, jobs, public investment, and liberal yadda yadda yadda is not relevant to this end of the income spectrum. It would be nice if such people were not trapped in a political ghetto, considered indefensible and beyond help.

I understand the politics look to be somewhere between difficult and impossible. We need some political genius to weigh in; the least we could expect is some reference to the plight of the forgotten by the hip progressives of New York City.

When I began writing this, I thought I would wrap it up in a second post. But it turns out I’m just getting started. Stay tuned.

Lavatories of Democracy

*   A new law in Kansas requires people receiving public benefits to limit their ATM withdrawals to $25 a day. ($20 actually, insofar as ATMs do not dispense $5 bills.)

*  In Wisconsin, recipients of food stamps may be restricted from buying non-white potatoes and ketchup. Also, no shellfish.

*  In Missouri, there are efforts to prevent food stamp recipients from buying “cookies, chips, energy drinks, soft drinks, seafood or steak.”

The 1996 welfare reform allowed state governments to reduce enrollment in what used to be Aid to Families with Dependent Children, now Temporary Assistance for Needy Families. In 1994, there were over five million families receiving AFDC benefits. In 2000, it was reduced to 2.2 million, and in 2011 it was 1.9 million.

Now that AFDC has been hacked, state wingnuts are taking aim at food stamps. Since it’s a federal program they can’t alter benefit amounts. But since they administer the program, they are trying to reduce the value of the program to its million beneficiaries, currently over 46 million of them.


What does ObamaCare have to do with postal banking?

banking1_2For the self-employed, among others, a whole lot. To set the stage, consider the case of one Luis Lang, the now-famous self-employed ex-Republican who rejected the opportunity to sign up under the Affordable Care Act (ACA). (His GoFundMe page is here.) Then he got sick and saddled with the choice of crippling medical bills or going blind. His story is that it was risky to apply for subsidies when your future income is uncertain. If you underestimate income too much, you get a big tax bill the following tax filing season since the subsidy is means-tested (higher income, less subsidy). ACA subsidies are doled out monthly in the form of reduced premiums, so with higher-than-expected income you could be looking at the need to repay a loan from the Gov.

The underlying problem is that a worker’s accounting period (wherein he or she tries to balance in-go and out-go) is short. People spend as they get, except insofar as they can borrow to fill in gaps. When you borrow the piper must shortly be paid.

Of course, Medicare for all would be better. So would other permutations of public and private insurance. But the ACA is our world for the time being.

What does this have to do with banking? A postal savings bank is an institution that provides plain-vanilla financial services at low cost. For convenience its branches can be located in post offices, hence the name. Other countries have availed themselves of this simple device, including the U.S.A. in past years. Such a bank could provide low-cost insurance against an unpleasant ACA surprise, come April 15.

A related case is that of the Earned Income Tax Credit (EITC). In a book I’m reading, It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World, by Sarah Halpern-Meekin, Kathryn Edin, Laura Tach, and Jennifer Sykes, the use of the EITC as a convenient piggy bank for the working poor is elaborated. The credit functions as a nudge towards savings, since most people receive it for their year’s earnings the following February, after W-2s arrive and they have filed for the income tax. It’s used to pay off accumulated debt and big-ticket household purchases–appliance, auto repair, and the occasional special treat.

The bottom line is that earnings for the working poor besides being low are volatile. Volatility in and of itself is a burden that levies additional costs. In the semi-privatized world of the ACA, the interest in providing means-tested benefits is complicated by the underlying market model of linking subsidies to incomes. Short of expanding Medicaid and Medicare to drain the pool of uninsured and subsidized insured, a postal savings system would improve matters.

Not insignificantly, postal savings could also exterminate the world of usurious payday lending, check cashing, and installment loans, all of which cause burden the poor.