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

When People will not be Judged by the Color of their Skin, But On Where Their Ancestors Were Judged by the Color of their Skin

The Wall Street Journal had a piece that made reference to this story in the Cornell Daily Sun:

Martha E. Pollack, nearing the six-month mark of her presidency, is facing her first major test at Cornell after hundreds of black students, responding to the arrest of a student who may be charged with a hate crime, marched into her office last week and hand-delivered a series of demands.

The most interesting of the demand is:

We demand that Cornell Admissions to come up with a plan to actively increase the presence of underrepresented Black students on this campus. We define underrepresented Black students as Black Americans who have several generations (more than two) in this country.  The Black student population at Cornell disproportionately represents international or first-generation African or Caribbean students. While these students have a right to flourish at Cornell, there is a lack of investment in Black students whose families were affected directly by the African Holocaust in America. Cornell must work to actively support students whose families have been impacted for generations by white supremacy and American fascism

That brings to mind this piece in the NY Times in 2004, or this one in the Chicago Tribune by Pullitzer Prize winner Clarence Page:

Harvard law professor Lani Guinier and Henry Louis Gates Jr., chairman of Harvard’s African and African-American studies department, reported that 8 percent, or about 530, of Harvard’s undergraduates are black, but somewhere between one-half and two-thirds of them are “West Indian and African immigrants or their children, or to a lesser extent, children of biracial couples.”

Not counting those who are classified as “foreign students,” Guinier and Gates said, only about a third of the students classified as “black” at the nation’s most prestigious university were from families in which all four grandparents were born in this country.

I was not surprised by those findings. Like many other African-Americans, I have been noticing for years how the children of black immigrant families tend to be much better represented among high school honor-roll achievers than their native-American black counterparts are.

Now that they are showing up in disproportionate numbers at selective colleges like Harvard, both advocates and opponents of affirmative action are raising a howl in their various ways.

Page goes on:

Now Harvard has to ask itself what its affirmative action plan is supposed to accomplish. If its goal is simply “diversity,” it may not matter how American the roots of its black and brown faces happen to be. But if its goal is to address historical racial inequalities in American life, Harvard may have to take black ethnicity into account in the way that some institutions have argued over which nationalities should be counted as “Hispanic.”

A bigger question to me is this: Why are black students whose families have been in America for generations being left behind by newcomers, including black newcomers from other countries?

Gates plans to organize a study group around that question. I can offer the group one easy possibility, no charge: Immigrant kids work harder.

They work harder, in part, because their parents work harder–and their parents work harder because of their relentless optimism: Where others might see a dead-end job, immigrants of all colors see an entry-level opportunity.

I don’t want to comment on Page’s conclusions; that may be a post for another time. I do note that what probably derailed the thought process brought up by Lani Guinier, Henry Louis Gates Jr., and Clarence Page was the meteoric rise of Barack Obama. But Barack Obama is no longer president. Furthermore, it isn’t clear that Americans descended from American slaves are better off relative to other Americans after eight years of Obama than they were before his presidency.

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Odds and Ends October 23, 2017

Hurricane Relief: Interesting developments going on in the Senate. Senator John Cornyn (R-TX) is taking to task administration officials and conservative movement leaders by holding up the confirmation of Russ Vought as the right hand man to Mick Mulvaney’s at the Office of Management and Budget.

Wonder why he would do this? Apparently Senator Coryn believes there should be more funding for Texas’ hurricane relief. He has made it clear that Vought will be held up until he gets more funding for Texas.

Congress has already approved two emergency supplemental appropriations without corresponding revenue/budget offsets. Did anyone hear lately, what is going on in Puerto Rico? Same here, nada. I did not hear anything either even after a couple of notes sent to my Senators Stabenow and Peters. I guess Puerto Ricans as US citizens are not white enough.

Tax Reform Budget Resolution: If the Senate gets its way and it probably will, the Tax Reform Budget Resolution just passed by the Senate will create a $1.5 Trillion deficit. The Senate and the House now have to agree upon what will go forward as a Budget Resolution so they can do their magic and prevent Democrats and the majority of the nation any voice in giving aid to the wealthiest and richest in income 1% of the taxpaying households. On the table to pay for all of this give away is a $1 trillion cut in Medicaid and a $400 billion cut in Medicare. Two of the heroes who killed the ACA repeal-and-replace, etc. bills, Senators McCain and Collins, can be seen yukking it up as they leave the Senate. I wrote on this earlier. Gotta look good for those wealthy donors in the 2018 elections.

CSR Rescue: Another surprise ACA Bill to rescue the CSR where if nothing happened, those who received the CSR and anyone up to 400% FPL might and probably would be better off. Senate Health Committee Chairman Lamar Alexander (R-TN)

“If they don’t, there will be chaos in this country and millions of Americans will be hurt.”

As if concern for constituents being hurt and running around confused due to all the chaos created by supposition, conjecture, and innuendo was ever a concern for Trump or Republicans? The elimination of the CSR subsidy would be included in premium subsidy increases. The only issue here is the confusion which has been created by Trump and Republicans attacking the ACA. The CBO has estimated this confusion would smooth out over a couple of years if other factors do not disrupt the market place exchanges.

Twelve Republicans and 12 Democrats initially signed on to the bill, which would continue ObamaCare’s insurer subsidies for two years and give states more flexibility to waive ObamaCare rules. The giving of states greater flexibility is a mistake as history has shown states tend to punish those who can not find jobs and the low in income by cutting their healthcare. Here again McCain and Collins are in support.

Reported today, Schumer and the rest of the Democrats have rolled in support of Alexander’s bill. We are going back to 2010 when garbage healthcare policies which covered little will be put in place.

More on this later.

Going to Bat for Trump: I am lost in this one. Trump’s personal handler John Kelly took Representative Frederica S. Wilson (D – FL) to task for publicizing the call between Mr. Trump and Myeshia Johnson, whose husband, Sgt. La David T. Johnson was killed in an ambush in Niger. I am sorry; but, this sounds to me like an excuse for DT for getting it wrong in what he said to Mrs. Johnson. Donald Trump has problms saying “good morning” in passing.

This was a mistake. “ Every morning, I wake up in my office and scroll Twitter to see which tweets I will have to pretend that I didn’t see later,” said Representative Paul Ryan, who is often asked what he thinks about Trump’s controversial tweets. For months, he responded by saying he didn’t respond to the president’s tweets.”

“A handful of armchair psychoanalysts — reporters for major news organizations, no less — have decided that it all began at the 2011 White House Correspondents’ Association dinner, where Trump was the butt of jokes by President Obama and “Saturday Night Live” comedian Seth Meyers.

Trump was so humiliated by the experience, they say, that it triggered some deep, previously hidden yearning for revenge.”

We can see this in Trump’s efforts to erase Obama’s legacy whether it hurts people or not. This is not about politics, it is revenge. Paul Ryan should watch his step.

Calling out President Trump: “We’ve seen our discourse degraded by casual cruelty,” former President Bush said during a 16-minute address at “The Spirit of Liberty” event. “Bullying and prejudice in our public life sets a national tone and provides permission for cruelty and bigotry. The only way to pass along civic values is to first live up to them.”

Bush started two wars, at least one under false pretenses, and never suffered any consequences for the hundreds of thousands of lives lost in the process, Bush was responsible for the lacking response to Hurricane Katrina and the suffering, deaths, and displacement that resulted from it, Bush savaged the environment by backing out of the Kyoto Protocol and weakening the Clean Water Act, Bush ginned up homophobia by pushing in 2004 for a constitutional amendment banning same-sex marriage, Debt held by the public increased from $3.5 trillion to nearly $6 trillion and gross federal debt rose from $5.6 trillion to nearly $10 trillion, the financial crisis in 2007/8.

Is this the best we can find to speak for us?

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Now Amazon wants to break the bank

Now Amazon wants to break the bank

On Thursday (October 19), the first stage of the Amazon sweepstakes for a second headquarters, dubbed “HQ2,” was completed as cities submitted their bids to the Internet giant. With a possible $5 billion investment and eventually 50,000 jobs at salaries over $100,000, this is one of the very best economic development projects to come along in a long time.

BUT IS IT?* I have a hard time understanding how this project even makes economic sense. Why does a company need two headquarters? Doesn’t that defeat the whole idea of having a headquarters as a centralized coordination site? Dean Barber has gone so far to suggest that Amazon will “A/B test” the two headquarters: See which one does better, and close the other one (h/t Greg LeRoy). I can believe it, but as long-time readers know, this is an area where we’re looking at the terrible information  asymmetry that bedevils governments in site selection bidding wars. In other words, we have no idea whether Amazon intends to close its existing headquarters in Seattle or close HQ2 if it doesn’t work as well as the current headquarters. This is kind of an important point for assessing the impact of HQ2 on the United States as a whole. And then there’s the effect that subsidizing Amazon will have on its competitors, which will reduce net job creation and net benefits for the country as a whole. On top of everything, unemployment is pretty low in most states, so why would they want to shell out billions of dollars for this project?

I’m not going to try to prognosticate the HQ2 location (I almost said “the winner,” but there is a good chance of overbidding in a public auction with so many competitors), because there is no way to wave away the information asymmetry problem. I think we can be confident that it will be a place that is already a tech hub. CNN offers eight plausible contenders (Atlanta, Pittsburgh, Toronto, Dallas, Austin, Boston, San Jose, and Washington, DC), while the New York Times predicts Denver. Instead, I want to highlight some specific bids that caught my eye.

One of the good stories is Toronto. Both the city and the province of Ontario were quick off the mark to say that while they would certainly do things like facilitating land assembly, there would be no cash subsidies for Amazon. The city’s application to the company emphasizes its abundance of tech talent. As a sign that this “no subsidies” talk is not empty, we can point to the announcement earlier this month that Ontario had secured a new investment from Thomson Reuters, adding 400 jobs over two years, scheduled to eventually grow to 1,500 jobs. This project received no financial support at all, only what provincial officials described as “concierge service” (h/t Carpentry of the Heart).

Another major city not getting involved in the bidding war is San Jose. Like Ontario officials, Mayor Sam Liccardo argues that talent availability is the key to attracting businesses. While this tells us nothing about incentives the state of California might provide, it is good to see two of the major potential sites taking an anti-subsidy position.

At the other end of the spectrum, New Jersey is offering $5 billion over 10 years, and Newark will provide another $2 billion over 20 years. This is crazy on a number of levels. First of all, it has a nominal aid intensity of 140%: New Jersey and Newark will pay all the costs of the project and give Amazon some more money on top of that. Second, this is 18 times bigger than the largest subsidy the state has given in the past ($390 million). (We saw the same situation with Nevada and Tesla, but that was only 13 times the state’s formerly largest incentive package.) Whether the state is really capable of managing a deal of that size is doubtful; indeed, the $390 million American Dream retail/entertainment project has been under construction for more than 10 years. Third, while not all of the approximately 50 bids have yet been revealed, currently the second-highest bid is $500 million from Worcester, Massachusetts (state support is currently unknown), 1/14 the size of Newark’s package. This is reminiscent of the disparity in bids between North Carolina and Virginia for a Dell manufacturing facility in 2004: $300 million (nominal) vs. $37 million! Fourth, and finally, this project requires the legislature to tear up the current geographic targeting of the state’s Grow NJ subsidy fund, currently restricted to the four poorest cities in the state, Passaic, Paterson, Camden, and Trenton.

Now, we wait. Amazon does not plan to announce its decision until next year. There is plenty of time to announce a list of finalists and subject them to more pressure. I am going to guess that when all first-round bids are revealed, the number 2 bid will be over $1 billion; indeed, there may be several $1+ billion bids. This is going to get ugly before we’re done.

*Bonus points if you recognize the literary allusion.

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Treasury Secretary Mnuchin’s Forked Tongue on Tax Cuts for the Wealthy

Treasury Secretary Mnuchin’s Forked Tongue on Tax Cuts for the Wealthy

Shortly before the inauguration, Steve Mnuchin discussed the incoming administration’s tax plans and announced the Mnuchin Rule–that “[a]ny reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class.”   EXCLUSIVE: Steve Mnuchin says there will be ‘no absolute tax cut for the upper class’, CNBC Squawk Box (Nov. 30, 2016).  At the same time, he argued that those who foresaw a tax cut for the rich accompanied by a tax increase for many in the middle class were wrong:  “When we work with Congress and go through this, it will be very clear.  This is a middle-income tax cut.” Id.

Contrast that with the so-called “tax reform” “framework” that the Trump administration has put out with the GOP establishment in Congress and for which both the House and Senate have made provisions in their budget document by including a (likely significantly underestimated) tax-cut-caused federal deficit of 1.5 trillion dollars.

As this blog and many tax and economic experts have noted (see, e.g., Nunns et al, An Analysis of Donald Trump’s Revised Tax Plan, Tax Policy Center (Oct. 18, 2016), Trump’s tax plan has always favored the wealthy.  In fact, the recently released “tax reform” “framework” is heavily tilted in favor of the wealthy, because the corporate statutory rate cut from 35% to 20%, the elimination of the AMT, the elimination of the estate tax, and the 25% pass-through rate for taxpayers all represent huge tax cuts for wealthy taxpayers who are the ones most likely to have been impacted by those tax provisions.  Meanwhile, there is actually an increase in rate for the lowest-income taxpayers from 10% to 12%, and the elimination of personal exemptions (and possibly other provisions) which may or may not be entirely offset by the proposed doubling of the standard deduction and possibly some increase in the child tax credit.  Thus, some poor families who can afford it least may pay more in taxes, middle income families may get a small tax cut, and wealthy families who don’t need the money at all will get a huge tax cut.  See, e.g.,  earlier A Taxing Matter posts on this issue here and here.

And these “massive” tax cuts for the wealthy, combined with massive increases in the deficit (and borrowing) to fund the tax cuts, likely won’t even trickle down as more jobs for working Americans.  There’s very little support from past tax cuts for businesses and for the wealthy for any kind of economic stimulus, either in terms of more jobs or higher wages.  See, e.g., White House math on corporate tax cuts is ‘absolutely crazy’, Mother Jones (Oct. 17, 2017).   In fact, there is much more support for tax increases on the wealthy resulting in more jobs than vice versa.

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The Sharing Economy – Including the @$$holes

A friend of mine who has made it into his sixth decade without ever sullying himself with gainful employment is now doing deliveries, shared-economy style. (Packages, not people via Uber or Lyft.) I thought he was going to rail against the system when he described what is new in his life, but his attitude surprised me. Transcribed, to the best my of my recollection, his comments were:

So I went down for orientation. There were a bunch of people just like me. Basically, @$$holes who don’t deal well with people. @$$holes who don’t want a job, and couldn’t keep a job if they could get one. What I love about the shared economy is that it allows @$$holes like me to participate. I work when I want, and I’m getting somewhat regular income for the first time in my life.

Obviously, not everyone in the sharing economy is an @$$hole. I’ve met some nice people while taking Lyft, for instance, or staying somewhere through airBNB. And my wife is a superhost on airBNB. I’d be afraid to call her an @$$hole. On the other hand, the only person with whom I have an acquaintance who regularly drives for Uber and/or Lyft has a personality that is best described with words like “volatile” and “belligerent.” In any case, I don’t think he is capable of holding down an actual job but he doesn’t seem to have a problem driving strangers around on short trips.

So maybe one unexpected benefit of the sharing economy is that it has made some otherwise unemployable people into productive citizens.

Update: 10/22/2017, 4:57 AM – corrected first sentence by changing word “fifth” to “sixth.”

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Labor Market Slack and Weak Wage Growth

by Hale Stewart (originally published at Bonddad blog)

Labor Market Slack and Weak Wage Growth

From the IMF’s latest World Economic Outlook:

Sluggishness in core inflation in advanced economies—a surprise in view of stronger than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6). As shown in Chapter 2, muted growth in nominal wages in recent years partly reflects sluggishness in labor productivity.1 However, the analysis also reveals continued spare capacity in labor markets as a key drag: wage growth has been particularly soft where unemployment and the share of workers involuntarily working part-time remain high. The corollary of this finding is that, once firms and workers become more confident in the outlook, and labor markets tighten, wages should accelerate. In the short term, higher wages should feed into higher unit labor costs (unless productivity picks up), and higher Sluggishness in core inflation in advanced economies—a surprise in view of stronger-than expected activity—has coincided with slow transmission of declining unemployment rates into faster wage growth. Real wages in most large advanced economies have moved broadly with labor productivity in recent years, as indicated by flat labor income shares (Figure 1.4, panel 6). 

     Consider the following chart from the Atlanta Fed:

For the longest time, I’ve been staring at the lower left-hand corner of that chart and thinking, “weak wages are really about low utilization.”  Let’s place that data into context:

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Cost Sharing Reductions and the Constitution

Republican Representatives who sued the Obama administration, Judge Rosemarry Collyer who decided they were right, Donald Trump and lawyers representing the Trump administration argue that the Department of Health and Human Services (HHS) can not compensate insurance companies for the expence of cost sharing reductions (CSRs) for people with income under 250% of the poverty line who purchase silver plans on ACA exchanges. The argument is that compensation for CSRs might be good policy, but the Constitution makes it clear that only Congress can choose such good policy.

I’m not an lawyer but I do not understand how anyone can make such an argument. Following Mark Joseph Stern, I quote from the ACA

(3) Methods for reducing cost-sharing
(A) In general
An issuer of a qualified health plan making reductions under this subsection shall notify the Secretary of such reductions and the Secretary shall make periodic and timely payments to the issuer equal to the value of the reductions.

(3) Payment
The Secretary shall pay to the issuer of a qualified health plan the amount necessary to reflect the increase in actuarial value of the plan required by reason of this subsection.

Tnat seems very clear to me. The whole case seems to rest on the fact that the ACA never says funds are appropriated for this purpose. My (non lawyer’s) understanding of precedent is that the Constitutional requirement that funds be disbursed only as appropriated by law by Congress has not been interpreted as requiring the approriate use of the appropriate “appropriated”.

Just to cut and paste a bit from Stern

When Congress passed the ACA, after all, it instructed HHS to make these payments. And in doing so, it effectively appropriated the necessary funds. As Georgetown University law professor David Super explained to my colleague Jordan Weissmann in 2015: “The Supreme Court has been very clear that you do not have to have a law that says ‘appropriations’ across the top. You just need a law directing that the money be spent.”

I don’t see an arguable case against paying the money.

Certainly, I don’t see how anyone can argue that the payments are not allowed and required without addressing the bits of the law which I cut and pasted.

It seems to me that to pretend they don’t exist is to lie by omission, and that lying to a judge is contempt of court, even if one isn’t under oath.

Lawyers help me. I sure wouldn’t want Trump administration lawyers to be disbarred.

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New Bill to Restore the ACA CSR

Senate Health Committee Chairman Lamar Alexander (R-TN) “Unless they are replaced with something else temporarily, there will be chaos in this country and millions of Americans will be hurt.”

Twelve Republicans and 12 Democrats signed on to the bill, which would continue ObamaCare’s insurer subsidies for two years and give states more flexibility to waive ObamaCare rules.

Senator Alexander is talking about the impact of Trump canceling the CSR which pays for deducible and co-pays directly to insurance companies for the insured between 138% and 250% FPL. And no, neither the CSR or the Risk Corridor Program bailouts for insurance companies. All of these are lies and misconceptions coming from the mouths of Republicans and the President.

Here is what will happen:

– Premiums for benchmark plans sold on the Affordable Care Act exchanges will rise about 20 percent next year and about 25 percent by 2020. The cost to consumers, however, would stay the same or even decline.
– People with lower incomes who buy insurance on the exchanges get a tax credit (subsidy directly to the insurance company), so their costs remain stable as a share of their income. When premiums rise, those government subsidies rise as well.
– For people with incomes below 200 percent of the federal poverty level, the out-of-pocket cost of insurance would remain about the same because of the bigger tax credits (subsidies offsetting premium increases to the insurance company).
– For those with incomes between 200 percent and 400 percent of the federal poverty level, the cost to buy insurance could actually get cheaper. Some Gold plans may be cheaper than the Silver plans. 85 percent of people who bought Obamacare insurance got a tax credit.

Kaiser Family Foundation Vice president Larry Levitt: “The CBO analysis makes it clear. The ending cost-sharing subsidies would be a perfect example of cutting off your nose to spite your face. Premiums would rise and the government would end up spending more in the end through tax credits that help people pay their premiums.”

The CBO report confirms earlier analyses, including this one by Kaiser and this one from the consulting firm Oliver Wyman suggested eliminating the cost-sharing payments could make policies cheaper for some individuals.

In the end, the elimination of the CSR may cause a cumulative deficit of $194 billion from 2017 through 2026, CBO and JCT estimate. While it may be chaotic in the beginning as people will not know what to do, premium subsidies paid directly to the insurance companies will pickup the difference, and the CBO assumes the chaotic conditions will level out over a period of 2-3 years.

Giving states more control over the ACA in areas such as the 10 essential benefits or cheaper than Bronze plans would spell the end for the ACA and we would be back to garbage healthcare polices.

If you are prone to do so, it would be helpful to write your sponsoring Senator and tell them you are opposed to this bill by Senator Alexander. The  Democratic co-sponsors include Sens. Jeanne Shaheen (D-NH), Joe Donnelly (D-IN), Amy Klobuchar (D-MN.), Heidi Heitkamp (D-ND), Al Franken (D-MN), Joe Manchin (D-WVA.), Tom Carper (D-DE.), Tammy Baldwin (D-WI.), Claire McCaskill (D-MS), and Maggie Hassan (D-NH).

There will be issues; but, the greater issue is with Republicans and states tampering with the ACA offerings.

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“Hurricane adjusting” initial claims has proven its value

“Hurricane adjusting” initial claims has proven its value

For the last month, I deduced a “hurricane adjusted” number for initial claims, which showed that the previous underlying positive trend was intact, with the four week average remaining in the 230,000’s.

That approach was borne out by this week’s report, which, at 222,000, was the lowest since 1973.

Although I haven’t gone through the entire formal exercise, here’s how the numbers from the three affected jurisdictions compared in last week’s report compared with one year previously:

FL 13,861 (+6508 from 2016)
TX 16,656 (-225 from 2016)
PR 250 (-2409 from 2016) (DoL estimate)

Net change: +3904 from 2016

Since the seasonal adjustment last week was only ~6%, (244,000 vs. 229,289 NSA), this means last week’s “hurricane adjusted” number was on the order of 239,000 or 240,000.

Natural disasters will continue to strike. I am confident that the method I used in 2012 after Sandy, and again this past month, is a good way to distill the underlying trend from the disaster disturbance.

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Silicon Valley is not your friend

Vis New York Times

Growth becomes the overriding motivation — something treasured for its own sake, not for anything it brings to the world. Facebook and Google can point to a greater utility that comes from being the central repository of all people, all information, but such market dominance has obvious drawbacks, and not just the lack of competition. As we’ve seen, the extreme concentration of wealth and power is a threat to our democracy by making some people and companies unaccountable.

In addition to their power, tech companies have a tool that other powerful industries don’t: the generally benign feelings of the public. To oppose Silicon Valley can appear to be opposing progress, even if progress has been defined as online monopolies; propaganda that distorts elections; driverless cars and trucks that threaten to erase the jobs of millions of people; the Uberization of work life, where each of us must fend for ourselves in a pitiless market.

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