Paths to full employment, part 1: “ban-the-box!”

January 27th, 2015 at 1:28 pm

I hope to make this a bit of a series over at PostEverything, with a new path to enlightenment full employment each week or so, where “path” means policy idea.

This one is a touch odd to start with because it’s more of a supply-side than demand side policy, though I’m quite certain it will bring down the unemployment rate. That is, I’m not proposing creating new labor supply here–I’m, or actually NELP et al are, thinking of ways to help those in the labor market, or sometimes on its fringes to find work.

And the magnitudes here are just astoundingly large.

We understand much of the economy’s hydraulics; we just don’t always apply what we know.

January 25th, 2015 at 10:18 am

Over at the WaPo. And I got more words to fool around with than usual!

I tried, you’ll let me know how successfully, to bring some nuance to the argument, as the point is decidedly not “look, we’ve done all this great policy and the US recovery is stellar!”

It’s that contrary to what I think is probably conventional wisdom, many economists actually understand the basic hydraulics, as it were, of both the macroeconomy and critical sub-systems like health care quite well. We basically can diagnose problems and prescribe solutions that if implemented, will roughly have their intended effect. The piece considers the Recovery Act, Fed actions, Obamacare, the bailouts–all worked in much the way I would have expected–plus and minus.

A key part of the argument is the mistakes made along the way, both here and more so in Europe. For example, the fact of inadequate stimulus actually underscores my point: there were prominent economists at the time who, based on known hydraulics since Keynes (and not just the need for fiscal stimulus but the fact that multipliers are amplified when the Fed’s stuck at the zero lower bound), recognized that inadequacy and proscribed the implied actions. Some of those economists worked for Obama at the time!

And, as the piece explicitly underscores, none of this is to deny the economic amnesia among many in my trade.

Europe is a poignant and tragic example. They’ve consistently bucked the “known hydraulics” at tremendous cost to their citizens.

Obviously, knowledge that doesn’t get implemented because of politics and bad economics is wasted, so I’m not trying to tell a happy story here. But I do think I’m broadly right about this.

Some figures that didn’t make it into the paper:

recov2 recov1

Friday Musical Interlude: Haydn played by Alica de Larrocha, with the score!

January 23rd, 2015 at 7:21 pm

No, not the CBO score…the music. Ms. A de L is my favorite classical pianist–her technique and dynamics are impeccable and to my ears she gets the music the way the composer meant it. And this is just a blissful concerto by Haydn, so really–just about as good as it gets on a rainy Fri night in DC–and you can follow along if you’re so inclined.

Enjoy!

A bit of nuance on gas tax polling

January 23rd, 2015 at 6:32 pm

I was talking with a friend about how with gas prices so low, this would be a good time to phase in a slight increase in the federal gas tax—stuck at 18.4 cents per gallon since 1993—when he pointed out that the idea polls terribly. So I looked into that and found that the story is slightly more nuanced.

Just to remind you—and I’ve been going on about this for a while—it is through this tax that we fund the Highway Trust Fund, which is slated to go broke (again) in May. The HTF funds repairs and improvements to our highways, roads, bridges, and mass transit systems. So think of the gas tax as a user fee, and think of those of us who consume those resources yet oppose an increase in a tax that hasn’t even been adjusted for inflation over 20 years as magical thinkers.

But if either the President or members of Congress were to support even an inflation adjustment, they’d be on the wrong side of the people, right? Recent surveys of Georgia, New Jersey, and Utah residents do in fact find, as my friend suggested, that substantial majorities opposed gas tax increases. That doesn’t surprise me because, all else equal, people would rather pay less at the pump.

But all else isn’t quite equal. Researchers at the U.S. Department of Transportation have examined the question of how framing this question influences participant responses.  Though only around 20 percent of survey respondents typically supported a 10-cent increase in the federal gas tax when told it would fund general improvements and maintenance for the transportation system, the number jumped to 50 percent in 2013 when participants heard the funds would be used to combat global warming (and note that as a tax on carbon, a federal gas tax is legitimately viewed in this light); 67 percent supported a tax that would specifically target road maintenance projects.

So perhaps the issue can be framed in a way—a legitimate way—to make it go down easier. And perhaps phasing in something like this bipartisan proposal from Senators Bob Corker and Chris Murphy—an extra six cents per gallon a year over two years (before indexing it to inflation)—would be virtually impossible for most people to even notice. And perhaps sometimes policy makers should do the right thing even if it doesn’t poll well.

I’d like to see this poll result: do you believe people should pay for things they consume? Bottom line: we want transportation infrastructure, we must pay for it.

1) The deficit is down because of less spending and more revenues 2) themes in tax reform to worry about.

January 22nd, 2015 at 3:44 pm

The picture I’m about to show you is not a shocker if you follow this sort of thing but I made it for a presentation this AM and damnit, I’m gonna use it!

It shows federal gov’t spending and receipts since 2007, in dollars adjusted for both inflation and population growth. The deficit/GDP ratio’s in there as well.

Here’s what I DON’T see: out-of-control spending!  Federal spending rose going into the downturn, as it must, due to automatic stabilizers (UI, food stamps) and the Recovery Act. Then it quickly charted a path back to pre-recession levels. To be fair, I’m not sure if even Fox/Tea Party types rail at Obama as a big spender anymore but…there it is.

These reductions in outlays were partly due to the fading of temporary stimulus, and more recently the improving economy taking pressure of the stabilizers. But the largest factor was spending cuts through a variety of budget measures over the past few years, cuts slated to amount to over $3 trillion over the next decade when you factor in interest savings.

The result was a smaller deficit every year since 2009, despite the fact that the economy still needed fiscal support. So, no–we’re not Europe…but neither have we eschewed fiscal austerity.

On the revenues side, the recovery is predictably boosting tax receipts which are climbing back to their historical average of around 18% of GDP, which is where CBO expects them to stay over the next decade.

But two things.

First, there are two themes percolating in tax policy world. One is the desire for tax reform that both sides seem to broadly agree should be revenue neutral. A more recent theme–one I’ve supported–introduces progressive tax policies that close tax loopholes at the top of the scale and use those revenues to help boost earnings and opportunities for middle- and low-income households.

Second, we face a number of future fiscal challenges that the private sector will not, by design, meet. Here’s a list I put up at the presentation today:

  • Aging demographics
  • Climate
  • Poverty, inequality
  • Geopolitics
  • Infrastructure
  • Human capital
  • “Secular stagnation,” lower potential growth.

So, while one should appreciate the lack of anything alarming in the figure below, one might well join me in worrying that a) revenue neutrality is an insufficient goal, b) hitting the historical average in terms of revenues/GDP is likely to be inadequate to meet our future fiscal challenges, and c) with an election coming and all this talk of tax cutting heating up, there’s a danger of doing damage to even that historical average revenue figure.

Anyway, that’s what I see in the figure. What do you see?

spend_rec_gdp

Sources: Treas, NIPA