Relevant and even prescient commentary on news, politics and the economy.

Senator Sanders on the The Transformation of American Society

This is an 11 minute clip of his speech, “The Lone Star Strategy.” It is worth a listen.

The Lone Star Strategy

Senator Bernie Sanders

Republicans’ efforts to cut food stamps and defund the Affordable Care Act are just “the beginning of the game,” Sanders said.

“All of these issues are related to something that is much, much larger and that is the transformation of American society in a radically different way than it is today,” Sanders said. “And what my Republican colleagues, almost without exception, want to do now is take us back to the 1920s where working people had virtually no protection on the job at all.”

I listened to Senator Ted Cruz who looks and sounds a lot like Bill Murray (sorry Bill) in “Meat Balls or Stripes”  .  .  .  fun to listen to and get a laugh ; but who takes him seriously? He needs to go home to Texas and watch the corn grow.


More from Senator Bernie Sanders on CSpan:


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Is a world of bubbles sustainable?

If capital can always flee from one bubble to another bubble in another country, there will always be bubbles.

Is it sustainable to always have bubbles somewhere that can give refuge to fleeing capital? …….. Probably yes, in spite of the problems left behind.

Many years ago, I was in the Zocalo, central park of Mexico City, during their national fiesta. There were music bands, games and skits being performed. I watched one skit where a farmer was talking to a policeman. The farmer was listing all the things that people produce, “Producimos comida, maiz…” (We the people produce food, corn, fiber for clothing.) We the people produce buildings and roads. Then the farmer turned to the policeman and asked him what he produced. “Qué produce Usted?”

The policeman looked confused and then started to tap his chin in deep thought pacing back and forth saying, “Produzco… produzco…” (I produce… I produce…) And then he stopped with a face of pride, raised his hand and said, “Produzco SEGURIDAD”. (I produce security.)

All of the people were silent for about 10 seconds as the actors held their poses. Those 10 seconds seemed like too long. It’s as if the people really wanted to believe that was true, and maybe it was… in an ideal world, the police would produce security. But after 10 seconds, the people came back to their reality, and remembered the corruption of the police. And everybody started to insult the policeman.

But for those 10 seconds, you could see the natural desire of the people to have security, which they truly wanted and would respect the police for.

Now I ask those who flee with capital from country to country investing in bubbles, what do they produce? and I don’t want to hear just the good things they produce, I want them to acknowledge the damage they do too.

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Inflation is a game of cat and mouse

I have been reading David Romer’s class notes called Short-run fluctuations. Part of his paper deals with a model to explain inflation in a liquidity trap. The model is based on real interest rates, output, expected inflation, Keynesian cross and IS-MP model stuff.

He writes… “An economy where the nominal interest rate is zero poses severe challenges for policymakers. If output is less than its natural rate, inflation will tend to fall. With the nominal interest rate stuck at zero, this will raise the real interest rate, and so depress the output further. Policymakers therefore face the risk of the economy spiraling off on a path of continually falling inflation and output, like what we just analyzed.”

I don’t see output falling like he describes. and How does he determine output’s natural rate? Does he use effective demand? His approach seems like the tail wagging the dog.  I mean… I don’t think he is seeing the root mechanism of inflation. I don’t like his explanation. So what does determine inflation?

Most have heard the standard definition of inflation… Too many dollars chasing too few goods. Let’s start here.

This definition comes specifically from demand-pull inflation, but is used for inflation in general.

Now imagine a cat chasing a mouse. If the cat is powerful, nimble and quick, the mouse will be caught. Now imagine dollars that are powerful, nimble and quick. Those dollars will catch the goods. Let’s say the dollars are so powerful, nimble and quick that even if you raised the price of the goods, the dollars can still catch them. You now have inflation.

Now imagine goods chasing dollars. That’s right, goods now have the power, nimbleness and quickness to chase dollars. Goods are now the cat. But would this scenario lead to inflation? No… This scenario would lead in the opposite direction… to low inflation. The goods have the power to keep their prices low by way of luring and baiting the weak dollars into their trap. Goods have become the predator upon dollars and are optimizing their profits.

Dollars are the money spent by consumers. Goods are the production of firms. The relative prowess between the two determines where inflation will go.

If the liquidity of consumer dollars is more powerful, nimble and quick then the capacity of firms to manage production, you will have inflation. Dollars will compete for the products, which in turn raises prices. On the other hand, if firms are powerful, nimble and quick in managing their suppliers, production and distribution (like wal-mart), then prices will be kept low, along with wages. Goods will have the power to compete with each other for consumer dollars at low prices.

(note: I have not shopped at a wal-mart in over 12 years. One reason for the decline in the US economy is the increased prowess of firms to prey upon the wealth of our middle class, while paying low wages to the poor class.)

Ok back to the subject of inflation… We can create an equation to simulate where inflation will go…

Inflation tendency = liquidity prowess of consumer dollars/production prowess of firms

  • If the numerator and denominator are equal, then inflation will be constant and most likely move to exactly where the Fed wants inflation to be. (Inflation tendency = 1)
  • If liquidity power of consumers is stronger, then inflation will tend to rise. The Fed will battle inflation, for example Volcker.  (Inflation tendency > 1)
  • If production prowess of firms is stronger, then inflation will tend to go lower. The Fed’s job in battling inflation is made easier. (Inflation tendency < 1)

But let’s look at cases when the liquidity prowess of consumer dollars is stronger.

  • Higher wages (higher labor share) relative to production capacity in the 1960’s and 1970’s led to episodes of inflation.
  • At the LRAS curve where we find the natural level of output, firms are constrained to produce more while labor increases its consumption dollars. Inflation tends to spike upward at the LRAS curve.

Let’s look at cases when the production prowess of firms is stronger.

  • Period from 1990 until the present. Real income has been lagging behind productivity. Labor share has been declining. This has given the edge to firms to be more nimble than consumers. Inflation has been trending lower over that whole time.
  • The period following an economic contraction. Firms control production and the utilization of labor. Unemployment is up and wage growth is slow, while firms are re-employing their factors of production. Inflation is low during this time.

It should be no mystery at the present moment why inflation is tracking low. Inflation tendency from the above equation would be less than 1. Firms have high profits, developed infrastructure, and access to capital. Consumers have low labor share of income and higher than normal unemployment. Total labor income is barely back to where it was before the crisis, while capital income has increased beyond that point. Firms are the current predator.

If the Fed truly wants inflation, the Fed will find a transmission mechanism to increase the prowess of labor’s liquidity in relation to the firms’ prowess to produce. But I don’t think that is likely, because the Fed seems to be working for firms and not consumers. The Fed and the firms it represents prefer low inflation, but they have gone too far.

We have had too much supply-side economics. Firms have become cats to all of us consumer mice.

David Romer has the wrong liquidity trap theory for low inflation. Inflation is low not because of the ZLB liquidity trap, but because the weak liquidity of consumers is falling into the trap set by the powerful, nimble and quick firms.


Related articles:

Effective demand model for monetary policy. Shows that low labor share is the cause of the persistent ZLB status of the Fed rate that David Romer says is the cause of low inflation.

Post on low inflation. Shows a more detailed approach to explaining low inflation.

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Kochcare vs. Obamacare: Finally, Finally, Obama Comes Out Swinging

Mr. Obama also singled out sponsors of a “cynical ad campaign” discouraging Americans from signing up for the new health care program by arguing that it would effectively put the government into the room when women undergo gynecological exams and men undergo colonoscopies.

“These are billionaires several times over,” Mr. Obama said, evidently referring to the conservative political activists Charles and David Koch, without naming them. “You know they’ve got good health care.” But if people who turn down the new health care subsidy get sick, he said, the Kochs would not care. “Are they going to pay for your health care?”

Obama Makes Impassioned Defense of Health Law, Peter Baker, New York Times, today

Damn!  A few days ago, when I first read about these silly Koch-sponsored ads, I thought I would post here commenting on the good news: The Koch brothers are promising to pay the medical expenses of young people who forego healthcare insurance now available to them via Obamacare!

That was how I interpreted the ads, anyway.  I mean, after all, the only other option for these newly christened “young healthies” who do have the option of gaining affordable healthcare insurance through Obamacare is to not have healthcare insurance at all. Sort of like the many millions of seniors who, without Medicare, would have no access to healthcare insurance at all, because of its high cost or because of preexisting conditions.

But since the Kochs aren’t urging seniors to forego Medicare in order to keep the government out of, say, the chemotherapy room or the coronary-bypass-operating room, I figured the difference was just that the Kochs aren’t willing to pick up the tab for the elderly, who will have no choice but to continue to let the government into the examining room with them and their doctor.  I mean, what other possible reason would there be for the Kochs to not run ad campaigns similar to those directed at young people but instead directed at Medicare recipients?

None, I thought!

But I was wrong.  According to Obama, the Kochs have no intention of paying the medical bills of the young people who, at their urging, and misunderstanding the ads just as I did, forego Obamacare in order to keep the government out of the physician’s examining room. And out of the delivery room. And out of the orthopedic surgery room.  Among other rooms.

How disappointing. All those young people who thought from that ad that they’d be inviting the Kochs into all those medical rooms, and that the Kochs would accept the invitation!  Or at least have United Health Care, WellPoint and Blue Cross Blue Shield stand in for them in those medical rooms. Only to hear the president say that that’s not what the Kochs meant.

Of course, what the Kochs actually are doing is trying to keep United Health Care, WellPoint and Blue Cross Blue Shield from being ushered into the examining room via Obamacare. And also from keeping their targets—the young currently-healthies—from themselves entering the examining room, at all, or from entering it and then having to pay large out-of-pocket retail costs (should they happen to have a savings account or a decent-sized regular paycheck, and can pay it).  Even if they suddenly become unhealthy.

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Maggie Mahar Healthbeat Blog: Reverse “Sticker Shock” Part 2 –Subsidies Mean Enormous Saving for Older Americans

In the past I have written about how government tax credits will help young adults (18-34) who must buy their own coverage because they don’t have access to “affordable, comprehensive” employer-sponsored coverage.

But older Americans forced to purchase their own insurance will save even more. Precisely because a 50-year-old’s premiums may be three times higher than a 20-year-old’s, his subsidies will be larger.

Subsidies are designed to fill the gap between the percentage of your income that you are expected to contribute toward the cost of a premium (with the government assuming that if you earn more, you can spend more on health insurance) and the actual rates that insurers in your market charge for a benchmark Silver plan..

Families USA estimates that while the majority of 18-34 year olds shopping in the Exchanges will qualify for help from the government, fully 30% of the those who receive tax credits will be 35 to 54, and 12.5% will be 55 or older.

Note that younger Americans will not be subsidizing these tax credits for their elders. Under the Affordable Care Act subsidies are funded by device-makers, drug-makers, hospitals—plus taxpayers earning over $200,000—and couples earning over $250,000) Very few twenty-somethings are that fortunate. A New KFF Report Offers Eye-Opening Final Numbers on Premiums and Subsidies for 40 –Year Olds and 60-Year-Olds in 17 States

In August the Kaiser Family Foundation (KFF) published an “Early Look at Premiums” in California, Colorado, Connecticut, DC, Indianapolis, Maryland, Maine, Montana, Nebraska, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Virginia, Vermont and the state of Washington.

The report reveals what a difference the tax credits will make for 60-year-olds, 40-year-olds and 25-year olds in the most populous city in each of these 17 states (Los Angeles, Denver, Hartford, Indianapolis, Baltimore, Portland, Maine, Billings, Omaha, Albuquerque, New York City, Cleveland, Portland, Oregon, Providence, Sioux Falls, Richmond, Burlington and Seattle.)

Thanks to the KFF report, the prices that I quote below are not estimates or averages. They are final rates that have been approved by those states. (In a very few cases KFF did not have final numbers; I don’t include those states in my discussion.)

Let me add that this report represents a major step forward for KFF. The Kaiser Family Foundation Calculator, which I have recommended in the past, is now outdated.

The calculator provides only a very rough estimate of what insurance is likely to cost in 2014, based on average premiums nationwide. Trouble is, rates vary widely depending on where you live. Premiums mirror how much health care providers in your area charge. In some cities, insurers are forced to pay hospitals and doctors with market clout 30% more than in others. As a result, the calculator’s estimates are back-of-the-envelope guesstimates. (KFF made that clear at the time.)

Now, KFF is collecting the actual rates that insurers will be charging, and it has come up with a formula to update its calculator. Using that formula, you will be able to find out what healthcare insurance will cost in your town, whether you will qualify for a government subsidy, and how large that tax credit will be.

I will be writing about how you can customize the calculator as soon as more state regulators report the premiums that carriers will be allowed to charge in cities throughout their states.

In the meantime take a look at to some of the eye-popping premiums in Kaiser’s August report. These numbers will change the lives of millions of older customers.

As the table below reveals, in 2014, a 60-old living on $28, 725 in Sioux Falls, South Dakota will be able to buy a Bronze Plan for just $44 a month.

Without help from the government, she would have to shell out $508 monthly, for the very same plan.



This table also shows that in 2014, a 60-year-old in Harford Ct. earning $28,725 would pay Nothing for a Bronze plan. Under Obamacare, his subsidy would cover the entire $423 monthly premium.

Imagine what the numbers in the chart above will mean to the 14% of Americans in their late 50’s and early 60s who were uninsured last year either because:

– they suffer from a “pre-existing condition” and can’t manage the premiums insurers charge anyone who is or has been sick (ranging from a Vet suffering from Gulf War Syndrome to someone with a bum leg injured 10 years ago in a skiing accident);

– or because they cannot afford to shell out 5 times what a 20-year-old would pay for a policy. (This is what carriers in many states now demand of 60-year-olds.)

Then there are the millions of older Americans who are underinsured. In theory they are “covered,” but their policy comes with a $5,000 to $10,000 deductible, which means that they cannot afford to use it and/or it does not cover the essential benefits that they need.

Older Americans Will Have Choices

The chart above shows that “Bronze: plans cost less than “Silver” policies. HealthBeat readers may remember that Bronze Plans are the least expensive policies that will be sold in the Exchanges. Like Silver, Gold and Platinum plans they cover all essential benefits and offer free preventive care.

Bronze premiums are lower than plans on the other three tiers because their co-pays and deductibles are higher. Though under Obamacare, total out-of-pocket spending is capped at $6,350 for an individual and $12,700 for a family. After that, their insurer must pick up all bills for essential care.

But people who receive tax credits don’t have to use the subsidy to buy a Bronze plan. If that single 60-year-old living in Sioux City preferred, she could choose a silver plan that carries a price tag of $561. After subtracting her subsidy, the table shows that the policy would cost her $193 monthly.

That is far more than the $44 she would pay for a Bronze plan. Nevertheless at 60, this might well be a wise choice. Since her income is less than $34,470, if she buys a Silver plan, she will qualify for a “cost-sharing subsidy” that will slash both her co-pays and deductible.(Click on “ cost-sharing subsidy” for a short explanation of who qualifies and how it works.)

Rather than facing the possibility of having to spend $6,350 out of pocket if she sees several specialists, takes two or three pricey prescription medications, is sent for a CAT scan and/or lands in an ER late one night, her exposure would be limited to half that amount –or $3,175 a year. Whatever happens to her, no insurer who sells her a silver plan in the Exchanges can ask her to pay more than $3,175 out of pocket. But, remember, she will be eligible for a cost-sharing subsidy only if she buys a Silver plan.)

Older Americans who live in areas where medical care is not as expensive will pay even less. The table shows that a 60-year old in Burlington, Vermont with income of $28,725 could use his subsidy to purchase a Bronze plan for $116. Without the tax credit it would cost him $336.

Meanwhile in Providence, Rhode Island he would wind up paying just $16 a month for a Bronze plan priced at $446. How could his premium be that low? He pays only $16 because in Providence the benchmark silver plan carries a relatively rich premium of $622, and, as I explained in an earlier post, that’s the price the IRS uses to calculates tax credits. As a result, the subsidy is larger in Providence than it would be in a city like Portland, Oregon where the benchmark silver plan is cheaper. In Providence, the subsidy covers more of the Bronze plan premium.

If You Are 40, How Much Will You Pay?

Kaiser’s “Early Look at Premiums” also offers a table indicating how much a single 40-year-old will be asked to lay out if she is purchasing her own coverage in her state’s Exchange. Once again, the table assumes that the individual shopping for insurance earns $28,725.



Because the 40-year-old is younger, premiums before subsidies are not as high as they are for a 60-year-old. Even so, under Obamacare, the vast majority of states will let carriers demand that a 40-something significantly more than a twenty-something. A single 40-year who isn’t eligible for a tax credit (because she earns more than $45,960) will have to pay somewhere between $140 a month (in Baltimore) to $250 (in Indianapolis) for the least expensive Bronze plan.

The benchmark silver plan could cost her as much as $328 (in Hartford, Ct). On the other hand she might pay as little as $228 in Baltimore.

Once again, subsidies make an enormous difference.
After applying the subsidy, a 40-year-old earning $28,750 in Hartford could pick up a Bronzer plan for $97; in Omaha she would pay $119

If she preferred the Silver plan it would cost her $193 in any of the 17 cities. The price of a benchmark Silver Plan is the same in each city because subsidies are pegged to the cost of the benchmark (second least expensive) Silver plan wherever you live. As I explained in an earlier HealthBeat post , when calculating subsidies the Affordable Care Act expects you to spend a certain percentage of your income on health insurance; the more you earn the more you are expected to contribute. In the case of someone earning $28,750 he or she is expected to cough up $193. The tax credit makes up the difference between $193 and the actual price of a silver plan in a particular city.

Why Such a Wide Range of Prices ?

All Bronze plans must cover the same benefits. Why then do we see such huge differences in “sticker prices” (before subsidies)?

Insurer’s premiums turn on four factors:

1) how much insurers have to pay doctors and hospitals in a particular city; in some places, health care providers have the market clout to charge 30% more than in other towns;

2) the network of healthcare providers that the carrier chooses to include in his plan—in a given city brand-name hospitals may be able to command steep reimbursements even for simple procedures;

3) whether state insurance regulators flexed their muscles when negotiating with insurers, rejecting proposed rates that they viewed as too high, forcing carriers to slash their premiums if they wanted to peddle their products on the state’s Exchange;

4) whether a particular carrier is interested in attracting single 40 year-olds — or whether the insurer views these aging “Bros” as potentially expensive customers.

Here, the actuary pricing an insurance company’s products faces many unknowns:

Just how healthy is the average uninsured or underinsured 40-year-old in this city? When he does have insurance, will he use it, or will he put off going to the doctor?

Some observers suggest that once the uninsured are covered, these new customers in the Exchanges will rush to see doctors who then will begin billing insurers for all sorts of tests and treatments.

But the truth is that most people don’t enjoy meeting a stranger, taking off their clothes, and facing questions such as: “How often do you drink? Have you thought about losing some weight?

My guess is that if a 40-year-old feels healthy, he may not be in a hurry to visit a doctor.

More Numbers: A Family of Four Earning $60,000, a 60-Year old Couple, a Single 25-year old .

While the charts above apply only to single 60-year-olds and single 40-year-olds earning $28,750, the Appendix of the Kaiser Report (beginning on p. 9) provides details on premiums, both before and after subsidies, for

a 60-year-old couple earning $30,000;

– a family of four with $60,000 in income that includes two 40-year-old adults,

and a 25-year-old earning $25,000.

The surprises range from the news that a family of four earning $60,000 and living in Washington D.C. will be able to buy a Bronze plan that covers the entire family for just $144 a month to the fact that after using their subsidy a 60-year-old couple living on $30,000 in Indianapolis will pay nothing for a Bronze plan. Meanwhile a 25-year-old earning $25,000 in Portland, Maine will be able to purchase a Bronze plan for $97 a month, and get free preventive care (including contraception).

Alternatively, she could decide not to buy insurance, pay a penalty, and get nothing in return.

Maggie Mahar Healthbeat Blog

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Improvement in employment will signal the end of the business cycle

An issue arose in the comments at a previous post, Labor share is chopped liver to Mr. Krugman.

The issue is whether increasing employment in order to increase wages and labor share is a good strategy for fiscal and monetary policy. Dean Baker, Paul Krugman and others put forth this strategy. It seems common understanding that if the government could increase employment, that wages would rise and labor share would rise. But we have to broaden our scope of this strategy to see its eventual outcome.

  1. Keynes talked about output rising and employment rising until a point which he called effective demand. At effective demand, firms will experience maximum profits and they will not have expectations of higher profits.
  2. When real output reaches the point of effective demand, it will slow down and normally signal an economic contraction. (see graph below)
  3. The effective demand limit establishes the LRAS curve for the economy. As real output reaches the LRAS curve, money increases in aggregate demand switch from increasing output to increasing prices.
  4. So normally inflation develops at the LRAS curve, as money increases in aggregate demand are diverted into higher prices and higher wages.
  5. Normally labor share will rise at the LRAS curve.
  6. Effective demand will increase with increasing labor share and a falling profit rate, but as effective demand increases a recession will eventually form.

The business cycle does its thing. There are natural limits to output, employment and demand.

Now, let’s look at a graph.

profit rate 4

Link to graph: Aggregate profit rate and effective labor share.

The blue line is the aggregate profit rate which is determined by the equation…

Aggregate profit rate = (1 – effective labor share) * real GDP/Value of capital goods

effective labor share = labor share index (business sector) multiplied by 0.766.

It should come as no surprise that these lines mirror each other, because labor share of income is the flip-side of profits for capital share of income; normally in the form of retained earnings.

But then we ask… is it a good thing to raise labor share through increasing employment? Well yes, because effective demand will increase, but you will see profit rates leveling off and then falling. and if you look at the red dashed lines in the graph which show the starts of recessions, whenever profit rates decline over time, you are heading toward a recession.

So it is not smart to just let the free market increase labor share at the LRAS curve and expect the economy to keep growing into a wonderful future. By the time labor share starts to rise in the free market, profit rates will have leveled off, output will be nearing its natural level and effective demand as described by Keynes will be signalling an eventual recession. To say that a recession won’t happen because there will still be too much spare capacity to reach potential is to be naive with Keynes’ concept of effective demand.

To be clear, the real problem I have with Dean Baker, Mr. Krugman and others is that they expect output to reach potential as projected by the CBO. They have rose colored glasses on and their optimism is just sure that employment will progressively snowball toward 6% unemployment, higher real wages and $17 trillion in real GDP (2009 dollars). But yet, effective demand will bite on profits way before that.

In the long term, labor share will have to rise by 5% to get back to a normal healthy economy, but it will take a continuous effort through booms and recessions to get there.

Let’s face it… we have fallen into a sub-optimal business cycle and a recession will come quicker than some expect.

Note: 1987 was a recession for those like me who graduated into its job market. There were also global financial problems at the time.

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Jon Chait tries to contrast cutting food stamps and welfare reform

Jon Chait argues that the SNAP cuts passed by the House are horrible and unlike the 1996 welfare reform.

Is the “work requirement” they plan to impose on food stamps like welfare reform? There are three highly salient differences. Welfare benefits were specifically designed in a way, dating from their origin as a replacement for a male breadwinner, that discouraged work. Second, welfare reform had funds for jobs and training programs. Third, it was passed in a full employment economy.

I comment. Basically, Chait tacitly accepts the praise of welfare reform based on false beliefs about the new TANF based program and the 1996 vintage AFDC program. This demonstrates (again) the total failure of welfare reform as political strategy as explained by Alex Pareene. (do click the link — his post is much better than this one). The post is based largely on the work of Joe Soss and Stanford Schram at U Wisconsin (pdf warning but do click it — the paper seem excellent to me).

In fact, by 1996 AFDC had become, in large part, a workfare program mandating availability for work for unemployed couples (in the 25 states where they could get benefits) and for single mothers with no children under three. The welfare reform debate was affected by the fact that the general public had no idea how small the AFDC program was, how low the benefits were, or how eligibility had been changed by two previous welfare reforms.

We still have reformed welfare (essentially unchanged since 1996). Where is the money for job training ? TANF is a block grant. There was money available for more than just cash transfers in the late 90s, because the economy was booming so the number of people eligible for TANF automatically declined (it also declined more because of the reform). This positive surprise freed up money for job training etc.

Currently the same law implies that extremely poor people aren’t getting TANF benefits, basicaly because state budgets are too tight. It also means that there is very little money for job training of TANF recipients. Significant funding was available only in 2009-10 (as part of the stimulus bill).

I think it is genuinely hard to argue that food stamp cuts are terrible and welfare reform was good. The main difference is that welfare reform was passed when the economy was booming. It was designed to last as it has. It is current policy. If it is bad policy during recessions, then it was bad law. Before welfare reform, the AFDC budget automatically increased in recessions (as the SNAP budget does). This was a a very good thing TANF is unusual in that it was so poorly designed that TANF roles did not increase due to the recession.

This was argued in 1996. You can’t say a bill which is designed to apply in good times and bad is a good bill because times happened to be good when it was passed.

Welfare reform is overwhelmingly popular and indefensible. Politicians have to say they support it, because it is so popular. Independent commetators such as you should face the facts.

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Mr. Mankiw is reading the wrong paper on minimum wages

Greg Mankiw reviews a paper written trying to support minimum wages. Mr. Mankiw is not in favor of minimum wages and was not sold by the paper.

The best paper that I know of on minimum wages was written by Bruce Kaufman. His paper was titled, Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy Debate.

Highlights from the paper…

The 3 positive roles for a minimum wage…

“IE (Institutional economics) pinpoints 3 positive economic roles for a minimum wage: first, to boost employment by augmenting household income and aggregate demand; second, to prevent ruinous deflation and “destructive competition” in labor markets; and third, to maintain a better balance between spending and production both by counteracting greater inequality in income and by promoting a more broad-based sharing of the fruits of productivity growth.”

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