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Raise the Fed rate or not, Labor is still falling behind

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Mark Thoma wrote today that the Fed should not raise rates too soon, because…

“If the Fed raises rates too soon, it is working class households who will be hurt the most by the slower recovery of employment.”

His thinking is not deep enough. He just sees that a rise in the Fed rate will slow down the “recovery” and thus less workers will be employed. But we are in the end phase of the business cycle. So let’s unpack why unemployment is falling.

Let’s look at a modified equation of profit rates.

Profit rate = (Productivity – Real compensation) * Total labor hours/Capital stock

Modified Profit rate = Capital share of income * Total labor hours/Capital stock

The difference between productivity and real compensation is the share of productivity that goes to capital.

Aggregate profit rates have not been rising. There is concern that they are vulnerable to falling. So why have profit rates not been rising? First, labor share is starting to tick slightly upward after its great decline after the crisis, which means capital share is ticking downward. There are pressures to raise real wages. Profit rates will decline under this scenario. However, second, Total labor hours have been accelerating in 2014, which has the effect to offset the effect of a slightly declining capital share. (link) Third, investment will need to be moderate. (link)

My point is that unemployment is falling not because the economy is recovering, but because the profit rates of firms are becoming vulnerable.

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Me v. William Cannon, Part II: The Jonathan Gruber Canard

Okay, well, as all you AB regular readers know, yesterday I posted a post deconstructing—and, yes, that’s what I did—a blog post on the Forbes website by William F. Cannon.  He blogs there on “health, freedom, and other uncertainties,” but his day job is Director of Health Policy Studies at the Cato Institute.

The studies apparently entail mostly studying such things as YouTube video of Jonathan Gruber speeches and interviews.  Which, at least in this instance, is academic.

Gruber, Cannon explained in a Jul 28, 2014 opinion piece on Politico, is “the MIT economist who helped congressional Democrats write the Patient Protection and Affordable Care Act in 2009.”  Or, as Wikipedia says, “In 2009–10 he served as a technical consultant to the Obama Administration and worked with both the administration and Congress to help craft the Patient Protection and Affordable Care Act (PPACA).”  I’ll let Cannon, in his Politico piece, help me explain further:

[Gruber] has been sharply critical of Halbig v. Burwell, a lawsuit alleging the Obama administration is illegally subsidizing health insurance for 5 million Americans in the 36 states with exchanges established by the federal government. The PPACA offers those subsidies to only those who enroll through an exchange “established by the State.” (Disclosure: I helped lay the groundwork for Halbig and three similar lawsuits.)

The occasion for his Forbes blog post yesterday was that:

Last week, the House Committee on Oversight and Government Reform subpoenaed documents from the Treasury Department and IRS that could have a huge impact on Pruitt v. BurwellHalbig v. BurwellKing v. Burwell, and Indiana v. IRS – four lawsuits that could have a huge impact on ObamaCare.

Those cases challenge the federal government’s ability to implement the Patient Protection and Affordable Care Act’s major taxing and spending provisions in the 36 states that failed to establish a health insurance “Exchange.” The federal government established fallback Exchanges within those states, but the PPACA says the IRS can implementthe law’s Exchange subsidies, employer mandate, and (to a large extent) its individual mandate only “through an Exchange established by the State.” Nevertheless, the IRS issued a regulation implementing those taxes and expenditures in states with federal Exchanges anyway. That regulation that is being challenged as illegal by taxpayers, employers, school districts, and states, who claim the IRS is taxing them without congressional authorization.

The occasion for my blog post here at AB yesterday was to point out that the issue is not whether some IRS administrator or HHS official initially used the statute’s “through an Exchange established by the State” phrase in drafting the agency regulations to implement the ACA.  The issue is instead, uh, what “established by the State” means within the statutory scheme.  The question, more specifically, is whether mandatory default delegation, by a state to the federal government, of the setup and operation of a state’s exchange is, y’know, the establishment of an exchange by the state.  Sorta like whether the delegation of, say, prison operations by a state to a private for-profit company is the establishment of a prison system by the state or is instead a rogue operation with coopted police powers to hold people against their will.  Which I think would be called false imprisonment, in tort law.

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US Postal Management’s Dysfunctional and Failing Culture

by: Mark Jamison; A retired Postmaster having served the town and community of Webster, N.C. Mark can also be read on Save The Post Office, a blog discussing the state of the USPS.

“In the following weeks, Mr. Green would go on to scream at me, ALL YOU ARE IS A LIABILITY, YOU EXIST ONLY TO REDUCE OVERTIME,’and enforce a rule no one ever explained to me: We had to be off the clock by 5 p.m. Before I broke my toe, the rule was you had to be off the street and back at the station by 6.

I tried to explain to Mr. Green, who strictly enforced the 5 p.m. deadline, that most days I wasn’t able to leave the station until after 10 a.m., often with more than eight hours’ worth of mail to deliver. When you factor in travel times to auxiliary routes, I could not finish by 5 p.m., even running between houses and never eating lunch. His response? ‘You’ll have to work off the clock.’ If I weren’t willing to do this, he explained, I might not be worth having around. He offered another alternative: Get the routes done faster than required or every morning admit to him that I wasn’t capable of doing my job. An often-toxic work environment had become untenable. Mr. Green didn’t behave this way just to CCAs; I watched him dress down carriers who had worked for the Post Office for decades.” “Blues on Wheels,” Jess Stoner The Morning News.

I worked for the Postal Service for thirty years, the last fourteen as Postmaster of Webster a small town in the mountains of North Carolina. Over the years, I became an increasingly outspoken critic of the Postal Service. While I was still employed, I began participating in cases before the Postal Regulatory Commission. I also began contributing to the website Save the Post Office, a site started and edited by Steve Hutkins, a professor at NYU who became concerned about changes to his local post office. STPO has done some of the most detailed and in depth reporting on postal issues and I would encourage anyone interested in the fate of the Postal Service to take a ramble through the site.

Last week the folks here at Angry Bear were kind enough to host an STPO post I did titled “What are People and the Post Office for?” The “crisis” surrounding the Postal Service is in some ways much more complex than what has been reported in the broader media. In some ways, though it is very simply an attempt to eliminate a well paid unionized work force while privatizing an essential national communications network.

One of the aspects of this issue largely ignored is the dysfunctional institutional management culture that has infected the Postal Service. Since postal reorganization in 1971, the management of the Postal Service has abandoned any pretense of fulfilling its public role while pursuing dreams of corporatization. One consequence of this behavior has been a terribly hostile workplace. The phrase “Going Postal” has entered the lexicon after multiple incidents of workplace violence. Stephen Musacco has a tremendous book “Going Postal: Shifting from Workplace Tragedies and Toxic Work Environments to a Safe and Healthy Organization” detailing the history of the failing postal management culture. I have also written about this at Save The Post Office.

Now there is a wonderful article by Jess Stoner in The Morning News. “Blues on Wheels” highlights the short tenure of Ms. Stoner as a CCA (City Carrier Associate), a temporary category of worker who delivers mail. The article chronicles in sad and brutal detail the difficult conditions under which mail carriers work.

One of the most popular memes in today’s society of the self is to claim that folks who do regular jobs are not worth the money they are being paid. To listen to some folks everybody else is lazy and overpaid and the problems of our society would all be solved is we simply bucked up, worked hard and paid people what they’re worth (which usually demeans anyone who performs physical labor of any sort) . It’s a toxic variation on the myth of meritocracy that ultimately treats human labor as merely an input to production and eschews any concept of human dignity or the value of honest labor.

Over the years, Congress has held hearings about the toxic postal work environment but they never amount to very much. In all the discussion over the last five years over about the Postal Service’s business model, it’s cash flows, it’s finances, and it’s long term liabilities; there has been virtually no attention paid to the fundamental lack of competence embodied in the culture of postal management. Toxic work environments are only part of the problem. Processing plant closures and arbitrary methods of scheduling have created situations where carriers are delivering mail late into the night. There are reams of OIG reports demonstrating wasteful and dishonest practices by postal management.

The Right tells us the privatizing the Postal Service is the answer; but, the current management of the Postal Service has already done everything they can to act like a private corporation. The treatment of employees at the Postal Service is a reflection of our disdain for the human element of labor across society. Regardless of what changes are made to the postal business model the plain and simple fact is that those changes will result in failure because the Postal Service has a corrupt and largely incompetent management culture. Mail delivered somewhat efficiently is more a testament to the efforts and pride of the hundreds of thousands of clerks, carriers, and mailhandlers that care about their communities; that and simple inertia.

It is far past the time for Congress to take a serious and unstinting look at the way the Postal Service is managed, the honesty of its projections, and the competence of its managers. Ms. Stoner’s piece touches on a small piece of the postal puzzle but it ought to serve as a wakeup call.

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The Halbig Subpoena. Oh, the Fright!

Last week, the House Committee on Oversight and Government Reform subpoenaed documents from the Treasury Department and IRS that could have a huge impact on Pruitt v. BurwellHalbig v. BurwellKing v. Burwell, and Indiana v. IRS – four lawsuits that could have a huge impact on ObamaCare.

Those cases challenge the federal government’s ability to implement the Patient Protection and Affordable Care Act’s major taxing and spending provisions in the 36 states that failed to establish a health insurance “Exchange.” The federal government established fallback Exchanges within those states, but the PPACA says the IRS can implementthe law’s Exchange subsidies, employer mandate, and (to a large extent) its individual mandate only “through an Exchange established by the State.” Nevertheless, the IRS issued a regulation implementing those taxes and expenditures in states with federal Exchanges anyway. That regulation that is being challenged as illegal by taxpayers, employers, school districts, and states, who claim the IRS is taxing them without congressional authorization.

The Halbig Subpoena, Michael F. Cannon, Forbes.com blogger on “health, freedom, and other uncertainties,” today

Oh, dear.  Scaaaaary.

I’m pressed for time, so for background I’ll quote from a Jan. 30 post of mine about Halbig:

Hmm.  Okay, let me take a crack at this.  The law gives each state the option of running its own exchange or instead allowing the federal government to run an exchange for the state–an operation that must be done separately for each state, because each state has its own insurance companies offering different policies than other states, and subject to state insurance laws and state agency oversight.

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Liberal Economists: Don’t Bring a Knife to a Gunfight

Jared Bernstein has offered a muscular and cogent response to my recent take-down of his CAP paper on inequality and growth. (I called it “week-kneed.”)

I’d like to respond to his many excellent points in just two ways.

1. My critique is primarily of his rhetoric, not his reasoning. Progressives, IMO, should be shouting the manifest reality from the rooftops: progressive administrations in the U. S., over many decades and looked at every which way from Sunday, have delivered resoundingly superior economic performance by pretty much every economic measure. (Occam’s explanation: better economic policies.) By contrast, the skyrocketing wealth and income concentrations delivered by the Reagan Revolution have been accompanied by stagnation, instability, and — by many important measures — decline.

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Lefty – Libertarian Cage Fight! Get Out the Popcorn…

Matt Bruenig and Demos have thrown down the gauntlet against libertarian ideology. Trevor Burrus at Cato has picked it up. Should be worth tuning in.

Matt pulls no punches. He’s emerged in the last year as one of the mediasphere’s most convincing voices for progressive ideas and policies, based (IMO) on air-tight arguments and thinking, backed by solid, well-presented facts and data. He’s front and center for DemosGordon Gamm Initiative to counter libertarian ideology.

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Contra Jared Bernstein: Stagnation, Spending, and The Velocity of Wealth — Five Graphs

I’ve said many times: every economic assertion should be preceded by the words “by this measure.” For big economic questions, you need to look at lots of different measures, lots of different way, to get a feel for what’s going on.

This has come home to me as I’ve considered Jared Bernstein’s ongoing takedown of liberal beliefs regarding inequality, marginal propensity to consume (MPC), and economic growth — epitomized in this remarkably weak-kneed December 2013 paper for the (supposedly) liberal Center for American Progress.

Bernstein is a strong voice for progressive policies. But in this paper and widely elsewhere, he repeatedly pooh-poohs the MPC argument.

That argument briefly stated: poorer people spend a higher percentage of their income/wealth each year, so if income and wealth are less concentrated, more widely distributed, there will be more spending.

Even briefer: extreme wealth concentration strangles growth. I built a little model depicting that arithmetic effect here.

But Bernstein repeatedly points to certain measures suggesting that things don’t seem to have worked out that way. Even as inequality has increased over the last 35 years, real per-capita consumer spending has continued to rise:

Screen shot 2014-08-30 at 9.21.25 AM

Okay, by these measures (and with y axes tweaked to depict these measures in a certain way), the MPC argument doesn’t look like it’s been borne out.

But even as he puts great weight on this display, he acknowledges that it isn’t very good evidence. You need a counterfactual: Sure, spending went up, but if inequality had remained the same, would it have gone up faster?

He attempts to answer that question with some regression analyses:

Screen shot 2014-08-30 at 9.30.53 AM

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"In theory GDP growth could continue indefinitely – if it weren’t linked to something real."

Dan here…Via Sandwichman at Econospeak comes William Rees’s response to Paul Krugman’s post on “the prophets of climate despair”:

“In theory GDP growth could continue indefinitely – if it weren’t linked to something real.”

William Rees, who along with Mathis Wackernagel developed Ecological Footprint analysis, commented on Paul Krugman’s flippant slur on “degrowth” as an odd bedfellow of “the prophets of climate despair.” The bottom line for Rees is that it is not really a choice between growth or degrowth but between planned, orderly degrowth or painful, chaotic degrowth imposed by nature. Growth in GDP could, “in theory,” go on indefinitely ONLY if it wasn’t linked to the biophysical world, which historically and currently it is. With permission, I reproduce Bill’s comments below:

One might like to think that ‘de-growth’ is a non-issue – that somehow the human enterprise can continue to expand – but this is not a realistic proposition. De-growth will happen probably in the next few decades; the relevant question is ‘by what means?’

Here’s why:

First, any analysis of this type should be based on available data, not mere assertion of preferences or beliefs. “Show me the numbers” is the first commandment of sustainability assessment.

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Other calls for carbon pricing

Dan here…I am no expert of the in and outs of private money moving to renewable strategies instead of relying on fossil fuels. The branding of climate change activism as demonstrated by the march in New York City and the move to “divest, reinvest” movement of money has begun to gain more momentum. sort of a topical thread.

Via Investors on climate change

World’s leading institutional investors managing $24 trillion call for carbon pricing, ambitious global climate deal

Ahead of the UN Secretary-General Ban Ki-moon’s Climate Summit at the United Nations to spur climate action and facilitate a global climate agreement in 2015, nearly 350 global institutional investors representing over $24 trillion in assets have called on government leaders to provide stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate change challenge, as well as develop plans to phase out subsidies for fossil fuels.

(media release)

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