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Senator Elizabeth Warren Gets Indignant with Banker(s)

In 1998, the gov made it impossible to discharge federal student loans through bankruptcy except upon death, disability, or public service. The gov did provide certain measures to change payments then such as forbearance, economic forbearance (no interest for 3 years), and payment change. In 2005 private student loan originators lobbied to have the same privilege as federal loans of no discharge through bankruptcy. The difference for private student loans was their are no alternative measures. Either you pay or???

Watch and listen to Senator Warren deconstruct a banker.

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CRFB Analysis of the 2014 Trustees Report A reply by me a reply to me and agreement?

by Dale Coberly

CRFB Analysis of the 2014 Trustees Report

A reply by me

a reply to me

and agreement?

The Committee for a Responsible Budget (CRFB) published what they called an analysis of the 2014 Trustees Report. I read it and was at first disappointed that it seemed to be the same old attack on Social Security by misdirection and what a younger me would have called lies. But on reading more carefully I began to suspect that CRFB in its own way might be being as reasonable as the people on the other side who can’t think of anything but “tax the rich.” So I wrote CRFB:

My letter to CRFB:

I read the CRFB analysis. I think it comes up a little short. I hesitate to write another column accusing CRFB of “having it’s own facts.” But I’d like a chance to try to convince you that the facts are nowhere near as dire as you paint them…. IF the very reasonable step is taken of simply raising the payroll tax about eighty cents per week per year for both the worker and the employer.

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Heiner Flassbeck… a great economist speaks on wage share

At the 9:40 minute point of this video, Heiner Flassbeck says…

“… But even people who are asking for more expansionary fiscal policies like Larry Summers or Paul Krugman, they are not talking about intervention in the labor market, but this is what is absolutely needed because there is the imbalance. It has nothing to do with the market economy.”

I agree that economists focus too much on fiscal solutions. In my opinion, the real problem is low labor share, which expansionary fiscal policy has no guarantee to solve.

He goes on to say that economists are living in a fiction that the economy is a result of normal market processes. He points to capital’s dominance over labor as the source disrupting a normal market.

Between the 6 and 7 minute points, he says that we need to reinstate the rule that wages rise with productivity. Yet, he says something important just before the interviewer changed the subject (6:45 point). He said that if we reinstate that rule now, the wage share (labor share) will be stuck at its low level. I presume he would have gone on to say that he wants wages to rise a bit faster than productivity in order to raise labor share back up.

It just goes back to the equation of labor share.

labor share = real wages/productivity

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Is 6.2% the NAIRU?

News was released today that unemployment was 6.2% in July. How close are we to the natural rate of unemployment, or as some might say the NAIRU.

In my research into effective demand, I track the natural rate of unemployment. How do I determine the natural rate of unemployment? … By comparing unemployment to the UT index, which measures spare capacity of labor and capital up to the effective demand limit. The unemployment rate when spare capacity goes to 0% is the natural rate of unemployment.

update nat unemp poly

The graph shows data from 1967 to the 2nd quarter 2014. (quarterly data) The red dots represent recent data… The blue dots show past data… The yellow dots show the very slow return of employment during the recovery.

The graph shows that the natural rate of unemployment was roughly 4.75% in the past (y-intercept of the equation for the lower trend line). The recent data is moving in a polynomial path whose trend line is showing a natural rate of unemployment of 6.2%. So according to this graph, the unemployment rate of 6.2% is near a new natural rate which is higher than in the past.

At the natural rate, we would normally see a slowdown in output and a rise in inflation. We are seeing a slowdown in output, but inflation is muted because wage growth is still low.

Josh Zumbrun at the WSJ’s Real Time Economics wrote about the unemployment forecasts of the Brookings Institute. Here is a graph posted with that article.

wsj brookings

Economists on average were expecting a continued fall in the unemployment rate. The Brookings Institute is seeing the unemployment rate tick back up to 6.2% for many months more. The Brookings Institute was spot on for July’s 6.2% released today. But the broader picture is that the Brookings Institute is seeing unemployment stall around 6.2% for many months more, which agrees with my model given above.

The Brookings Institute is not saying that 6.2% is the natural rate however. I am saying that the natural rate is close to 6.2%. Now unemployment can still go below 6.2%, but when unemployment pushes below its natural level, the economy tends to overheat and become unstable. At which point, the economy would like to return to the natural level. The path of that process can involve inflation, reduced output, falling capacity utilization and even tighter monetary policy.

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How We Reduce Poverty, and How “The Market” Doesn’t

Matt Bruenig gives us a great breakdown of what poverty would look like if we relied on the market to solve it (as we did almost exclusively for thousands of years before the emergence of enlightened modern welfare states over the last two centuries).

The poverty rate among the elderly would be > 45%. (Old folks with long memories: sound familiar?)

Thanks to Social Security, Medicare, etc., it’s 9%.

Here are Matt’s numbers in graphical form for easy digestion:

Screen shot 2014-08-01 at 8.46.54 AM

Read the whole thing.

Cross-posted at Asymptosis.

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The USA is a Left of Center Nation

The USA is a left of center nation given the center defined by elites. This is my off topic thought (and comment) on a brilliant post on money and politics at The Monkey Cage. Ray LaRaja and Brian Schaffner note that parties give to centrist incumbents (likely to be in seriously contested seats) and argue that allowing more soft money controlled by parties would reduce polarization.

I note and steal their very first graph on issue opinions of people who don’t donate money to political campaigns (95% of the population) (click read more to see a thumbnail then click it to see the figure — sorry I am wordpressilliterate).

nondonors

I am interested in the fact that, according to the ideological scale, the average (and median and modal) non donor is well to the left of center. I am sure that when people here of the center, they think of the center of public opinion. But the center as defined by, well for example, LaRaja and Schaffner is to the right of the center of public opinion.

I asked them how they defined zero. I can think of many definitions which would give this result. One is sort issues as left or right based on House roll calls (Dems vote left) then look a the aveage or median representative — so we just learn the House is to the right of the country. Another is subjective and consists of choosing a set of issues where members of the elite perceive answering yes to half of the questions to be centrist.

My final guess is that the center perceived by political scientists and journalists is somewhere in between the average view and the weighted average of opinions weighted by the income of the opinion holder.

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