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

Wow! Yellin confirms 2% inflation is the Fed’s ceiling

Wow! Yellin confirms 2% inflation is the Fed’s ceiling

You may have already seen this elsewhere, but in case you didn’t, Janet Yellin all but officially confirmed the other day that 2% isn’t in fact the Fed’s target, it’s their ceiling. Per the New York Times:

Given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” Ms. Yellen told the National Association for Business Economics .

Let me just remind you one more time that in the past 50 years, during recessions the inflation rate has typically fallen by more than 2%.   That means that if the Fed is “successful,” the next recession will tip over into outright deflation, including deflation in even nominal wages.

Now imagine a wage-price deflationary spiral beginning with Donald Trump as president and the GOP in control of both houses of Congress.

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Worse Than The Usual Hypocrisy: Trump, Puerto Rico, And The Jones Act

Worse Than The Usual Hypocrisy: Trump, Puerto Rico, And The Jones Act

The Jones Act was passed 97 years ago to protect US shipping within the US from foreign-made ships.  I doubt I ever would have supported such an act, but at least back then there were plenty of US-made ships to fulfill the demand. Despite the Jones Act, the US shipping industry has collapsed in the last century so that the number of such ships is far below demand in normal circumstances, so that intra-US shipping costs are far higher than those outside the US.  Puerto Rico was covered by he Jones Act and remains so.

After Hurricanes Harvey and Irma the Jones Act was temporarily suspended for Texas, Louisiana, and Florida on orders of President Trump, going through the Department of Homeland Security.  The Jones Act is not being suspended for Puerto Rico in the wake of Hurrican Maria, although damage to PR seems to be far greater than what happened on the mainland during Harvey and Irma (with those areas also accessible to supplies and aid by ground transportation, not relying nearly as much on ocean shipping).  The supposed reason is that PR’s ports are damaged, which is certainly the case, but even if suspending the Jones Act will only slightly speed up deliveries, it will certainly reduce the costs of supplies, allowing cheaper natural gas from Pennsylvania in place of more expensive oil from Venezuela, for example.

Which brings us to the worse then usual hypocrisy on the part of our president.  While he has been all worked up over football players kneeling and moved to get aid to Texas and Florida as rapidly as possible while expressing lots of sympathetic sentiments for the victims in those states, his initial reaction to Hurricane Maria, after several days delay, was to talk about how bad their infrastructure was before the hurricane and how they have a massive debt situation.  Of course, if he were really concerned about helping them, he could suspend their debt, but at a minimum, given that he is aware that they are poor and debt ridden, on top of having 80% of their crops destroyed and all their power out among other problems, he is insisting that they pay top dollar on supplies brought in by water, where almost all supplies will come.  His refusal to suspend the Jones Act for Puerto Rico after having done so for mainland US territories is far worse than the usual hypocrisy from any president, even this far more hypocritical than pretty much all others one.

Barkley Rosser

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Gentrification

by Peter Dorman (originally published at Econospeak)

Gentrification

This is the bane of urban development, right? Old housing stock, built for yesterday’s working class, is spiffed up and priced far out of reach of today’s regular folk. High end shops replace hardware stores, bric-a-brac recyclers and appliance repair centers; a tide of designer coffee flushes out the cheap, refillable kind. Who can afford to live there?

But wait! Those refurbished old houses are beautiful. It’s a pleasure to peruse delicate artisanal fabrics and custom-designed furniture. The food is fresher, healthier and tastier. And what’s the alternative—to put a blanket over everything old and keep out all improvements? Is gentrification even a problem?

It is. It’s wrong if whole neighborhoods are uprooted, unable to afford housing and services available to them for generations, and the dynamism of city life is crippled if only those who have already made it can make their home there.

Regulations that restrict the development of new housing have rightly come under attack. Encouraging infilling and greater density benefits the environment and keeps housing costs down, but that only moderates the impact of gentrification. The luxury apartments that replace old single family houses are still beyond the means of most of us.

My hypothesis is that the basis of gentrification as an urban problem, rather than a type of broad-based development that benefits everyone, is extreme inequality of income. Gentrified neighborhoods are those outfitted for the upper echelon to spend their money on, and prices are geared to what the traffic will bear. The rest of us can’t afford it.

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Insanely Concentrated Wealth Is Strangling Our Prosperity

Dan here…Angry Bear Steve Roth’s clear and thorough writing continues…please go to the original for more graphs…I could not include the largest in the Angry Bear format in its proper place.  Go straight to read more to view the whole post….

By Steve Roth (originally published at Evonomics)

Insanely Concentrated Wealth Is Strangling Our Prosperity

Remember Smaug the dragon, in The Hobbit? He hoarded up a vast pile of wealth, and then he just hung out in his cave, sitting on it (with occasional forays to further pillage and immolate the local populace).

That’s what you should think of when you consider the mind-boggling hoards of wealth that the very rich have amassed in America over the last forty years. The picture at right only shows the very tippy-top of the scale. In 1976 the richest people had $35 million each (in 2014 dollars). In 2014 they had $420 million each — a twelvefold increase. You can be sure it’s gotten even more extreme since then.

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A thought for Sunday: the most important issue in the 2016 election was…

A thought for Sunday: the most important issue in the 2016 election was . . .

This is a post I’ve been meaning to write for several months. For a while after the election last year, there was a debate about whether the “economic anxiety” in the (white) working class was the most important factor vs. was it simply a matter of racism. The consensus has nearly settled on the narrative that racism was decisive, to the point where “economic anxiety” has become a taunt, and some who embrace identity politics actively disparage progressive economic issues.

I’m here to show you data that – in part – disputes that consensus. What was the most important issue in the 2016 presidential election?  The below data on that issue all comes from the Voter Study Group, from its survey published several months ago: “Insights from the 2016 Voter survey.”

In the below graphs, the potency of various issues are examined in terms of how well they lined up on a liberal/conservative or favorable/unfavorable axis, but for simplicity’s sake it is pretty clear that they correlate with a vote for Clinton (left) or Trump (right).  The more vertical the line, the more decisive the factor, whereas a horizontal line means that the factor made essentially no difference in whether a vote was for one candidate or the other.  the 2016 results are in red, vs. the 2012 results in gray. What I’ve done is to delete the names of the nine factors they tested, so you won’t be swayed by any pre-existing opinion you might have had about the factor.  Here they are:
I’ll give away one finding right away.  The most decisive factor, shown at the right of the lowermost column, is party affiliation. D’s voted for Clinton. R’s voted for Trump.
But after that, it’s pretty clear that the close runner-up for most decisive factor in how people voted is the issue at the left of the middle column, which was …
the economy!
That’s right. The single most decisive factor in the 2016 vote was how people felt about the economy.

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The asterisk in real median household income

The asterisk in real median household income

This is a follow-up to the post I wrote last week about the latest data on real median household income.
One of the things I notes is that “households” includes the millions that are composed of retirees, a burgeoning demographic due both to healthier longevities and the demographics of the Boomer generation.
This morning Jared Bernstein helpfully includes a graph of real median household income excluding those over age 65:

Households headed by working age adults did finally surpass their 2007 income, but were still 3.4% below the all-time highs of incomes of 2000.

But mainly I wanted to follow up on that break in the graph in 2013.  It was caused by a change in methodology by the Census Bureau.

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Carbon Gridlock Redux in Washington State

byPeter Dorman (originally published at Econospeak)

Carbon Gridlock Redux in Washington State

A year ago—it already seems like another era—an initiative to set up a carbon tax in Washington State, I-732, was defeated by the voters.  The proposal was to use the money for tax reductions in accordance with the standard economic view that taxing “bads” rather than goods generates a double dividend.  I disagree with that (I think the deadweight loss case against taxes is weak), but I agree that carbon prices operate like a sales tax and are regressive, so it’s a good idea to return the money according to an egalitarian formula, preferably equal rebates per person.

But most of the political left sees it differently.  When they look at carbon pricing they see a big new revenue stream that can be used to fund all the things they have been unable to get in a period of conservative (or neoliberal) political dominance.  They want infrastructure, mass transit, community development projects and environmental restoration, and for them returning the money is unthinkable.  So the left in Washington State, including unions, social justice organizations and most of the environmental activist community, opposed 732, denouncing it as a corporate subterfuge.  A carbon tax is always going to face headwinds, but with the left as well as much of the right in opposition, it was doomed.

So here we are again, looking at another round of state carbon tax initiatives for 2018.  The group that organized the left campaign against 732, the Alliance for Jobs and Clean Energy, is drafting their version, which will surely funnel most of the money to the causes (and in some cases the organizations) of their constituents.  But, perhaps in a play to get a bigger voice in the process, the Affiliated Tribes of Northwest Indians, an umbrella group of 57 tribal governments in the region, has just announced it has begun drafting its own initiative, one that earmarks most of the money for environmental purposes, with a chunk dedicated to the tribes.  The prospect is for heated backroom meetings, where the leadership of various organizations push and pull to divvy up the potential carbon cash.  Whether the product of this process can survive at the polls is another question.

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Obamacare Could Die

Obamacare Could Die

We are at this very odd moment now.  We thought ACA was saved by a narrow vote some months ago, when John McCain joined Susan Collins and Lisa Murkowski to block the last version of Trumpcare.  Whew!  No need to worry about millions of people having their health insurance taken away!  Time to start pushing for single payer, Medicare for all, hah hah!  But, ooops!

So here we are with only 12 days to go before the window in which the US Senate can pass a repeal and replace of ACA using budget resolution, and thus with only a majority vote.  But, hey, here we have Cassidy-Graham, which would turn the whole thing into block grants to the states, allowing them to allow insurance companies to charge more for preexisting conditions and pretty much get rid of all those things people have liked about ACA once they began to realize that it might disappear.  But now hardly anybody is aware of what is going down at all, with near zero media attention, since we all moved on to Korea and DACA and whatever..   But this stealth Cassidy-Graham bill could very well pass.

It looks like Collinis and Murkowski will again vote no, realizing that it slashes the Medicaid expansion, among other things, and would kill insurance for many people in their states who currently have health insurance thanks to ACA.  But one of the co-sponsors, Lindsey Graham of SC, is John McCain’s closest ally and friend in the Senate, maybe in all of Washington now.  Reports have it that McCain is in fact thinking seriously of voting for this bill, which most reports say is actually worse than what got shot down previously by McCain’s swing vote.  The only other reported possible negative vote is  Rand Paul, who is claiming this bill still contains too  much of ACA, but he voted for the “slim repeal” after  similar complaining last time.  He could easily vote for this.

The hard bottom line is that we could wake up in a week or so with this awful bill passed, ready to whiz through the House for Trump to sign, and Obamacare dead after all, with millions set to lose their insurance, with barely anybody even knowing what is up.  This is a seriously bad business.

Barkley Rosser

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Does Single Payer Pay for Itself?

by ProGrowthLiberal (originally published at Econospeak)

Does Single Payer Pay for Itself?

Was this the message of the title of the latest from Dean Baker:

The economies of a single system can be viewed as analogous to the Social Security system, which has administrative costs that are less than 1/20th as much as privatized systems in places like Chile and the United Kingdom. The analogous institution in the health-care sector is of course Medicare, which has administrative costs of less than 2 percent of benefits in the traditional fee-for-service portion of the program, roughly a tenth the cost for private insurers.

I will agree that the 20% gross margins received by the health insurance companies are obscene. This margin breaks down into a 14% operating expense to premium revenue ratio and a 6% operating margin. I would imagine competition could cut the former in half and the latter by a factor of two-thirds. I’m suggesting a 2% operating margin is reasonable as the reserve to premium revenue ratio is close to 25% for health insurance and an 8% cost of capital is more than reasonable. But Dean is arguing that we can live on a 1% gross margin, which seems to be very ambitious. OK- governments might be able to lower the cost of capital but nearly eliminating administrative costs sounds incredible. But what do I know – so I did a Google search and came across this interesting discussion:

The correct way to estimate administrative savings is to use actual data from real world experience with single-payer systems such as that in Canada or Scotland, rather than using projections of costs in Vermont’s non-single-payer plan. In our study published in the New England Journal of Medicine we found that the administrative costs of insurers and providers accounted for 16.7 percent of total health care expenditures in Canada, versus. 31.0 percent in the U.S. – a difference of 14.3 percent. In subsequent studies, we have found that U.S. hospital administrative costs have continued to rise, while Canada’s have not. Moreover, hospital administrative costs in Scotland’s single-payer system were virtually identical those in Canada.

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