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“What is the Most Useful Idea in Economics?”

NPR’s Planet Money went to the 2020 American Economic Association conference in San Diego where they asked economists, “what is the most useful idea in economics?” David Autor appears near the end of the episode (minute 16:00) to talk about the lump-of-labor fallacy. Almost exactly 87 years earlier, on January 18, 1933, Arthur Dahlberg appeared before a Senate subcommittee to give testimony on the thirty-hour work week bill. The lump-of-labor fallacy would be a useful idea indeed if it would show economists how little they have learned and how much they have forgotten in the intervening 87 years.

In his Planet Money interview, Autor rehearses the standard refrain about there not being a “finite” amount of work to be done so we are not in danger of running out of jobs. Then he introduces the caveat that although we will not run out of jobs, that doesn’t mean that there is nothing to worry about — some people will end up in worse jobs than they previously had or would have had. Autor’s remedy for this is to develop policy that will improve people’s skills so they qualify for better jobs or raise the productivity in personal service jobs so they pay more.

Eighty-seven years earlier, Dahlberg also disagreed with the idea that machines create technological unemployment. He also saw that the new jobs created by technological change would be different than the old ones. But Dahlberg carried his analysis several steps further than Autor. In Dahlberg’s view many of the new jobs would differ from those they replaced in that the demand for their products or services would not be spontaneous but would need to be artificially induced by, for example, advertising.

Autor acknowledges something similar when he mentions that a hundred years ago 70 percent of consumer spending was on necessities compared to only around 40 percent now. But Dahlberg raised the issue that wages are determined by bargaining and the shift away from spontaneously-demanded goods and services undermines labor’s relative bargaining power, resulting in a smaller labor share of income. Recipients of capital income may spend their larger share either on personal consumption or investment but eventually they will want to “cash in” on that investment. Spending on new investment will decline faster than spending on consumption rises. Dahlberg thus invoked the business cycle as the “slow-moving effect” of the introduction of labor-saving technology.

Here is a link to the transcript of the Planet Money interview with David Autor. Below is the transcript of Arthur Dahlberg’s testimony to the Senate subcommittee on the thirty-hour work week:

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For MLK Day: Letter From a Birmingham Jail

There is no better way to honor Dr. King than to read his Letter From a Birmingham Jail.  It is full of moral insight, deeply moving, and an astonishing piece of political advocacy.  Here are the opening paragraphs:

While confined here in the Birmingham city jail, I came across your recent statement calling my present activities “unwise and untimely.” Seldom do I pause to answer criticism of my work and ideas. If I sought to answer all the criticisms that cross my desk, my secretaries would have little time for anything other than such correspondence in the course of the day, and I would have no time for constructive work. But since I feel that you are men of genuine good will and that your criticisms are sincerely set forth, I want to try to answer your statement in what I hope will be patient and reasonable terms.

I think I should indicate why I am here in Birmingham, since you have been influenced by the view which argues against “outsiders coming in.” I have the honor of serving as president of the Southern Christian Leadership Conference, an organization operating in every southern state, with headquarters in Atlanta, Georgia. We have some eighty five affiliated organizations across the South, and one of them is the Alabama Christian Movement for Human Rights. Frequently we share staff, educational and financial resources with our affiliates. Several months ago the affiliate here in Birmingham asked us to be on call to engage in a nonviolent direct action program if such were deemed necessary. We readily consented, and when the hour came we lived up to our promise. So I, along with several members of my staff, am here because I was invited here. I am here because I have organizational ties here.

But more basically, I am in Birmingham because injustice is here . . .

Read the rest here.

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CRS: Social Security: What Would Happen If the Trust Funds Ran Out?

(Dan here…reposted due to discussion in a previous thread)

CRS: Social Security: What Would Happen If the Trust Funds Ran Out?

Very interesting paper that I missed in real time.

Social Security: What Would Happen If the Trust Funds Ran Out?

Almost everyone who addresses this question assumes that the answer is pretty simple: if either of the Social Security Trust Funds goes to zero than benefits will automatically drop from ‘Scheduled’ to ‘Payable’ which translates to a 22-25% overnight cut depending on which Trust Fund we are talking about. But I had an interesting conversation with Andrew Biggs some years back. Andrew is a very prominent advocate of Social Security ‘reform’ which he sells on the basis that the system is ‘unsustainable’. As such he and I and Coberly and he have had some vigorous debates over the years, and mostly he is firmly in the ‘bad guy’ category on policy. For all that he is a nice guy and really, really knows the numbers and laws in play. Not least because he spent some time as the Principal Deputy Commissioner of Social Security (the no. 2) during the Bush Administration.

With that as background Biggs told me that the situation at Trust Fund Depletion was not as clear-cut as almost everyone assumed and had been the topic of some high end discussion at SSA. And their conclusion as related by Biggs to me mirrored that of the Congressional Research Service in this Report from last year.

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Housing BOOM! 2

Housing BOOM! 2

Housing is a very important long leading indicator, and it reflects both the consumer and producer sides of the economy. And this morning, at least in terms of starts, it hit a grand slam.

Total housing starts were 1.608 million units annualized, the highest number since the end of 2006. The less volatile and slightly more leading permits declined slightly to 1.416 million units annualized, but the three month average of each made new expansion highs:

The story is the same with the less volatile single family starts and permits:

 

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Rep Jayapal and Sen Sanders’ Have Introduced Medicare for All Bills: Part 1

I have exchanged emails with Kip Sullivan several times and believe he has the clearest explanation on Single Payer. I have found him to be a good source for the two Single Payer bills in Congress today. Unfortunately, it is a long explanation and it can not be summed up on one page or in the amount of time you would spend watching the news at 10 PM. To compensate for the length of the presentation, I have broken it down into two parts. I hope you take some time and read it.

Rep Jayapal and Sen Sanders Have Introduced Medicare For All Bills: One Is a Lot Better Than the Other,” Healthcare for All Minnesota, Kip Sullivan, May 8, 2019

Two bills that are called “Medicare for all” bills by their supporters have just been introduced in Congress. On February 27, Representative Pramila Jayapal introduced the Medicare For All Act of 2019, HR 1384, in the House of Representatives. On April 10, Senator Bernie Sanders introduced a bill bearing the same name in the Senate, S 1129. The cost-containment section in Representative Jayapal’s bill will cut health care costs substantially without slashing the incomes of doctors and hospitals. Senator Sanders’ bill cannot do that.

In this article, I explain the differences in the cost containment sections of the two bills and call upon Senator Sanders to correct two defects in his bill that minimize its ability to reduce costs. Defect number one: S 1129 authorizes a new form of insurance company called the “accountable care organization” (ACO). Defect number two: S 1129 fails to authorize budgets for hospitals. Representative Jayapal’s bill, on the other hand, explicitly repeals the federal law authorizing ACOs, and it authorizes budgets for individual hospitals.

I write this essay as both a long-time organizer, writer and speaker for a single-payer (the older name for “Medicare for all” system) and a strong supporter of Senator Sanders. Bernie’s enthusiastic support for a “single payer” solution to the American health care crisis has added millions of new supporters to the single-payer movement. But precisely because he is now the most recognizable face of the single-payer movement, it is extremely important that all of us, whether we’re already in the single-payer movement or we just long for a sane and humane health care system, encourage Bernie to fix the defects in his bill.

To explain the two defects in S 1129, I must first explain why a single-payer bill like Representative Jayapal’s will be effective at cutting the high cost of American health care. I begin by explaining the origin and meaning of the “single payer” label. I will then describe the two defects in S 1129 in more detail.

Past the leap, the origin of Single Payer

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News and Words that Caught My Eye this Week

Teacher of the Year‘ kneels during college football championship attended by Trump,”ABC News, January 16, 2020

During a ceremony honoring the 2019 “Teachers of the Year,” one in particular stood out.

The honoree from Minnesota, Kelly Holstine, chose to kneel during the national anthem at the NCAA football championship game on Monday, where the ceremony took place, “to stand up for marginalized and oppressed people,” according to a tweet she wrote, which included a photograph of her kneeling.

“Like many before, I respectfully kneeled during Nat’l Anthem because, ‘No one is free until we are all free,'” she wrote, referencing former San Francisco 49ers quarterback Colin Kaepernick and citing a quote from Dr. Martin Luther King, Jr.

Virginia school board refuses to ban Confederate flag” from the dress code, Today, Alyssa Newcomb, January 16, 2020

A Virginia school board is refusing a dress code ban on clothing showing the Confederate flag, despite the appeals of the board’s only black member.

The Franklin County School Board in Rocky Mount, Virginia, voted 7-1 on Monday against formally writing a ban on the Confederate flag into the dress code. The board cited Tinker vs. Des Moines, a 1969 case that ruled students were allowed to wear black armbands to protest the Vietnam War and did not lose their right to free expression, even while attending school.

“In Franklin County, we do not have any documented cases of a substantial disruption caused by the Confederate flag

The Miseducation of the American Boy,” The Atlantic, Peggy Orenstein, January 15, 2020

I knew nothing about Cole before meeting him; he was just a name on a list of boys at a private school outside Boston who had volunteered to talk with me (or perhaps had had their arm twisted a bit by a counselor). The afternoon of our first interview, I was running late. As I rushed down a hallway at the school, I noticed a boy sitting outside the library, waiting—it had to be him. He was staring impassively ahead, both feet planted on the floor, hands resting loosely on his thighs.

My first reaction was Oh no.

It was totally unfair, a scarlet letter of personal bias. Cole would later describe himself to me as a “typical tall white athlete” guy, and that is exactly what I saw. At 18, he stood more than 6 feet tall, with broad shoulders and short-clipped hair.

Additional after the Leap

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Dan Shaviro (NYU) and Tim Smeeding (WISC) on NPR’s Detroit Today Show

Dan Shaviro (NYU) and Tim Smeeding (WISC) on NPR’s Detroit Today Show

For those of you who may not have the opportunity to tune into Stephen Henderson’s radio program Detroit Today on NPR, it might be useful to have a short summary of the January 9 discussion of the “wealth gap” from that program.

Background

Tax lawyers have traditionally talked of the “tax gap”1  and frequently mentioned the growing “income gap” between the top 1% of the income distribution and the remaining 99%, but the “wealth gap”2 discussion among tax lawyers, tax policy thinkers, economic analysts and indeed progressive legislators about the relative net assets of different segments of the population has become increasingly important as people have recognized the trend of increasing wealth for the top 0.1% in the US and stagnating wealth for most of the US population.  The wealth gap is even more significant when race/ethnicity is taken into account: the 400 wealthiest families in 2015 owned as much as the country’s entire African-American population plus 1/3 of the Latino population.4  The median white household in 2011 had about $111 thousand in wealth, while the median black household had $7 thousand and the median Latino household had $8 thousand, with the impact of slavery and post-WWII homeownership policies being the underlying source of most of the disparities.3 See also How Ameria’s Vast Racial Wealth Gap Grew: By Plunder, New York Times, Aug. 14, 2019.  The generational wealth gap is also worrisome: older Americans’ wealth grew between 1989 and 2013 but all other age groups had their wealth decline. The gender wealth gap underlies the power distinction that lies at the bottom of the MeToo movement: women earn less than men for the same work at the same level, and they save less and are more likely to live in poverty in old age.

That means that children in this country born to families in the top 10% of the wealth distribution have enormous advantages from birth:  they are essentially guaranteed the best medical, educational, and institutional support imaginable, with every opportunity for learning and advancement laid before them.  Their parents can afford to ensure they are able to get into top colleges (e.g., Harvard alumni preferences for their children), meet the “right” people for success in their preferred field (the “connections” that wealthy families build), take a preferred non-paying internship in another city with family funds supporting living expenses and more, all the way up the ladders of success.  Children born into families in the bottom half of the wealth distribution face a struggle at every point along that ladder:  schools that are inadequately funded after decades of Republican concentration on assessment and hurdles rather than support and educational opportunities; lack of exposure to different possibilities and the people who can open doors into those possibilities; lack of funding to make it possible to accept an opportunity when it presents itself.

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The US-China Nothing Burger Trade Deal

The US-China Nothing Burger Trade Deal

There has been much hype about the signing of Phase One (and probably only) US-China trade deal.  However based on a front page story in today’s Washington Post, there is not much there.  The US did not raise tariffs as planned, but tarifsf still remain on two thirds of the sectors that had them, although some were halved.  But numerous US sectors see no change at all and are now viewing the  situation as not likely to improve, with them suffering losses of business likely to return.  Among those are chemicals, apparel retailers, and auto parts. In these and other sectors there is not much reduction of uncertainty regarding US-China trade, so not likely much increase in investment.

The main items in it besides no worsening of tariffs, China has made promises not to pressure US firms to turn over technology and also to increase imports from the US by $200 billion over the next two years, especially in energy and agriculture. So maybe US soybean farmers will no longer need the bailouts of billions of $ Trump has been providing to them.  However, such promises have been made in the past.

As it is, I am watching commentators on Bloomberg, and about the most any of them are willing to say is that this “puts a floor” on the “deterioration” of US-China trade relations.  That is far from some dramatic breakthrough, and most of the tariffs put on as part of the US-China trade war remain in place.

Barkley Rosser

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Real wages declined slightly in Q4 2019; nearly flat since last January

Real wages declined slightly in Q4 2019; nearly flat since last January

In December consumer inflation was +0.2%. Since in last Friday’s jobs report average hourly earnings also increased +0.1%, real average hourly earnings declined slightly:

In a longer term perspective, this means that real wages also declined from 97.8% to 97.5% of their all time high in January 1973:

 

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