Take the last train to Factville

September 19th, 2016 at 9:19 am

…and I’ll meet you at the (polling) station (the boomers will get this reference; you youngsters get off my lawn!).

Over at WaPo, I tout a recent spate of CBPP papers that struck me as particularly germane re what we’re not talking about when we’re talking about birthers.

That piece examines what IMHO are a set of facts that have bearing on the current political economy, and argues we need to catch the train referenced above. What it doesn’t offer is any ideas as to how we make that happen, i.e., a theory of change that would re-elevate rational discourse (to be clear, no one’s claiming we’ve ever had purely fact and evidence-based national policy discussion, but we are clearly at a low ebb).

That’s actually much more challenging than the analysis you see in my piece. It likely involves getting so much money out of politics, improved media coverage (calling out lies/distortions in real time), and some institutional change that would balance capital’s long ascendant power relative to labor’s–basically, the Koch’s et al can outspend the unions. It also matters how you present this stuff to people, most of whom have little time or interest in quintiles and non-defense discretionary spending.

All’s I’m saying is, sure, it’s important to think about the facts. But it’s probably even more important to think about how to get in play.

My comments on CBPP’s Census Data press call today

September 13th, 2016 at 2:27 pm

Someone asked me to post them, so here they are:

First, just so this doesn’t get lost in the mix, let me say why I think these data are so important. After all, given that they’re for last year, they don’t exactly move markets. What’s the big deal?

The big deal is that these Census data give us the most granular look to date at the impact of the job market and public policy on the living standards of low- and middle-income families. You can get an update on the stock market every minute. We learn about the extent of child poverty once a year.

So, what does this granular look show us? Bob took you through some of the results we view as important, so let me add some brief observations on what’s behind these historically notable improvements.

Of course, there’s the tightening job market. In 2015, employers added almost 3 million jobs, on net. The unemployment rate fell almost a point overall, and almost two points for African-Americans. The real hourly pay of mid-wage workers went up 2% in 2015 compared to less than half that in 2014.

You know the old adage: when the economy sniffles, the least advantaged catch pneumonia. Well, that works in reverse, too. The benefits of closing in on full employment disproportionately flow to the least advantaged.

So we find in today’s data that while households throughout the pay scale saw real gains, the largest gains accrued to those households at the bottom of the income scale. I’m sure you’ve heard the topline income number: real median HH income up 5.2 percent, the largest one-year gain on record in this series, which starts in the mid-1960s, and the first real gain since 2007.

But real HH income went up 8 percent at the 10th percentile and 6 percent at the 20th percentile. Poverty rates for whites fell about one percentage point; the rate for blacks and Hispanics fell twice that much (though from much higher levels).

Meanwhile, income gains at the 90th and 95th percentiles were between 2 and 4 percent, below those of lower income households. This too is a familiar pattern of the benefits of full employment. It’s not that tight labor markets don’t help the wealthy. It’s that they tend to do well in good times and bad, while less well-off households depend on tight job markets to give them the bargaining clout they otherwise lack.

So a big part of the story today is that strong labor markets make a big difference in helping to connect low- and middle-income working families to the broader economy. That also points the way forward. I’m glad to see a great year in these data, but middle- and low-income HH’s need a lot more than one good year.

Another factor behind today’s very positive results is public policy. This is most evident of course with the health coverage results, as the fingerprints of health care reform are all over the sharp improvement in coverage we see both in today’s Census Bureau data as well as in other data sources.

In other words, in 2015, after six years of an economic expansion, both the economy and public policy were finally pulling for the middle class and the poor. Given the powerful forces of inequality pushing the other way, the results show the extent to which this one-two punch–full employment and progressive policies–can lift the living standards of working families.

While Bob and my review of the Census data has been largely positive I want to offer two caveats. First, one good year does not reverse decades of stagnation. This fact is particularly visible in the real median earnings trend of ft/fy men. In 1979, these guys earned about $52,000 per year in today’s dollars. In 2015, they earned about $51,000 (which includes their 1.5% real gain last year). The trend for women is much more favorable over time, which implies some partial closure of the gender pay gap, but their median pay has been largely flat since 2000 (which includes their solid 2.7% in 2015). So let’s be careful not to overlook the deep, long-term challenges still facing many middle-income workers.

Finally, inflation was very low last year, about 0.1%. Such uniquely low price growth helped to boost real incomes and lower poverty rates last year. This year, inflation has climbed a bit and is running slightly north of 1%. To be clear, based on continued improvement in the labor market, as well as the continuation of important, progressive policies, including the Affordable Care Act and minimum wage increases, I expect the positive trends you see today to be ongoing as we speak. But based on higher inflation, next year’s report may not be quite as stellar as this year’s version.*

*[I did not say this on the call, but there’s also likely to be a strong “regression to the mean” effect: outlier results are often followed by ones that are somewhat attenuated.]


Strong job market, Obamacare helping to sharply lift low/middle-incomes and health coverage

September 13th, 2016 at 12:15 pm

I’ve got a longer piece out at WaPo, but let me highlight a few things here re the Census Bureau’s release this AM of poverty, income, and health coverage data for 2015.

Though these data are for last year and thus don’t move markets, they’re important as they provide a rare, granular look at the extent to which economic growth and policy changes are reaching the middle class and the poor.

The highlights are:

–Largest one-year drop in poverty since 1968, from 14.8 to 13.5 percent (see WaPo piece for important info on shortcomings of the poverty measure and data from a superior measure);

–Largest one-year increase in median household income, up 5.2 percent from $53,700 in 2014 to $56,500 in 2015, a gain of $2,800. That’s the first real gain since 2007, and the largest gain on record back to 1967, when these data begin.

–The Affordable Care Act continues to reduce the share of the population without health coverage as the Medicaid expansion and state exchanges diffuse across the land. The share without coverage fell last year to 9.1 percent, down from the 2014 uninsured rate of 10.4 percent, meaning 4 million more people got health coverage. As the figure shows, gains for minorities have been particularly large.

Source: Census Bureau

Source: Census Bureau

As I wrote at the WaPo: “Such a trifecta — lower poverty, higher middle-class incomes and more people covered by health insurance — is rare in this annual report. In fact, since 1988 (the first year for which Census data on health insurance are available), the only other year that brought simultaneous official progress on poverty, median income and health insurance was 1999.”

What this tells you is not that we’re out of the woods or that inequality’s been laid to rest. See, for example, the median male earnings figure in the WaPo piece showing very long-term wage stagnation: a good year doesn’t unwind such a long, damaging trend. But these data do underscore an extremely important truth: when both a strong job market and helpful public policy push in what I think of as a progressive direction, they lift the living standards of middle- and low-income people.

Read this now: Fed governor Lael Brainard’s speech on the “new normal”/asymmetric risk

September 12th, 2016 at 2:50 pm

Don’t have time to do justice to this speech given today by Fed governor Lael Brainard, but it’s just a beautiful merging of common sense and very smart, contemporary macro and monetary policy.

I’m try to give more commentary later, but for now, I’ll pull some key quotes (my bold in every case):

With the Phillips curve appearing to be a less reliable guidepost than it has been in the past, the anchoring role of inflation expectations remains critically important. On expected similar to realized inflation, recent developments suggest some reasons to be concerned more about undershooting than overshooting.

…we cannot rule out that the sustained period of undershooting the inflation target along with global disinflationary pressures are weighing on inflation expectations.

The apparent flatness of the Phillips curve together with evidence that inflation expectations may have softened on the downside and the persistent undershooting of inflation relative to our target should be important considerations in our policy deliberations. In particular, to the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling.

This uncertainty about the true state of the economy suggests we should be open to the possibility of material further progress in the labor market. 

We cannot rule out that estimates of the natural unemployment rate may move even lower.

Of particular significance, the prime-age labor force participation rate, despite improvement this year, remains about 1-1/2 percentage points below its pre-crisis level, suggesting room for further gains.

…in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market.

The experiences of these economies [Europe, Japan; JB] highlight the risk of becoming trapped in a low-growth, low-inflation, low-inflation-expectations environment and suggest that policy should be oriented toward minimizing the risk of the U.S. economy slipping into such a situation.

The fact that many advanced economies are suffering from deficient demand and have policy rates at or near the zero bound and that the U.S. dollar is a favored safe-haven asset may imply that adverse foreign demand shocks have a particularly strong effect on the value of the dollar, effectively transmitting the weakness to the U.S. economy.

From a risk-management perspective, therefore, the asymmetry in the conventional policy toolkit would lead me to expect policy to be tilted somewhat in favor of guarding against downside risks relative to preemptively raising rates to guard against upside risks.

In today’s new normal, the costs to the economy of greater-than-expected strength in demand are likely to be lower than the costs of significant unexpected weakness.

For the time being, the most effective way to address these concerns is to ensure that our policy actions align with our commitment to achieving the existing inflation target, which the Committee has recently clarified is symmetric around 2 percent--and not a ceiling-along with maximum employment.

I really love the clarity, foresight, global perspective and balanced risk assessment.