I’ll miss Mose

November 16th, 2016 at 8:48 am

I see where one of my favorite jazz vocalists, Mose Allison, just joined the eternal big band. I learned a lot about the blues listening to Mose.

Here, compliments of my old pal Sue M, is a timely remembrance of Mose reflecting on global dysfunction. Listening to this, seems like he looked around and decided, “I”m outta here.”

Speaking of overtime pay, a few years back I featured Mose’s great critique of people who talk more than they should: “Your mind’s on vacation but your mouth is working overtime.”

CBOs report on the overtime rule makes some questionable assumptions

November 15th, 2016 at 2:42 pm

by JB and Ben Spielberg.

The Congressional Budget Office just released an analysis of the impact of repealing the new overtime rule. The rule, scheduled to go into effect in a few weeks (December 1, 2016), raises the salary threshold below which salaried workers must receive overtime pay when they work more than 40 hours a week. CBO’s study finds that by repealing the new rule, 3.9 million workers would lose their eligibility for time-and-a-half pay for working overtime and 900,000 workers would “work more hours and have lower earnings than they will under the scheduled changes.” Affected workers would lose $650 in 2017.

While we always applaud CBO for their careful work, their evaluation of the new overtime rule makes many assumptions that go beyond the evidence.

Their most consequential assumption is that getting rid of the new OT rule by lowering the threshold under which salaried workers must be paid OT would lead to slower inflation. This drives the positive income results for most families.

But a) we are aware of no analysis of the rule that expects to find faster inflation, and b) the magnitudes of the employment and wage numbers seem too small to change the path of economy-wide price growth, so we strongly question this assumption.

On the first point, neither the Department of Labor, the National Retail Federation, Goldman Sachs, nor the Chamber of Commerce discussed an economy-wide price effect in their studies of the overtime rule. Thus, CBO’s finding that repealing the rule would lower price growth in some reliably measurable way seems well beyond their usual mainstream, research-based approach.

On the second point, it seems unlikely that less than 1 million workers working around 20 million more hours in total (about 0.01% of total hours) would move the price index down in any measurable way. The assumption that it would appears to come from the reduction in labor costs, which according to Table 3 range from $1.5 to $2.5 billion (though we argue below that CBOs estimated compliance costs, which consistently dwarf the payroll costs, are inflated).

But consider the minimum wage literature. In recent testimony, minimum wage scholar Arin Dube presents evidence that recent minimum wage increases (and proposals for increases) may raise the price level by less than half a percent. According to research by David Cooper, the total wage increase for the type of proposals Dube is considering is around $32 billion. If an intervention that is around 16 times the size of the one CBO is investigating here barely moves the needle on inflation, it’s hard to believe the price effects cited (though never shown; I’ve asked CBO for these data) in the piece.

CBO notes that there are two ways in which repealing the overtime rule will invoke new management costs for employers: it will increase the need for application of the duties test, and it could increase employee turnover. Repealing the higher threshold would mean that any salaried worker between $23,700 and $47,500 that wasn’t already identified as OT-eligible (i.e., before the new rule went into effect) would have to undergo the duties test of their eligibility.

CBO claims that the reduced costs in managing worker hours that will result from repeal will be much larger than the sum of those added duties test costs and the costs of increased turnover. But we know of no empirical justification for that determination, and the report does not show the budget agency’s estimate of either cost. In fact, CBO notes in the appendix that they “found no academic studies that provided a quantitative evaluation of the nonpayroll costs to employers of complying with the FLSA.”

In addition, Ross Eisenbrey points out that CBO significantly over-estimates the number of firms that would face “familiarization” costs, assuming that number to be almost double the number of workers affected by the rule.  To better account for the much smaller number of firms that would face any compliance costs at all, these costs should be reduced by significantly more than half.

Ross also notes various assumptions that inflate CBO’s estimates, including the assumption that firms are not tracking the time of currently exempt employees and that it will be costly to adapt firms’ existing timekeeping systems to the new rule: “Should [under the new rule] the employer choose to convert a heretofore salaried exempt employee to nonexempt it should not incur any measurable cost in incorporating that employee into the system.” By overestimating these costs, CBO credits the repeal with more savings than are warranted.

Even without these methodological questions, CBO’s report is limited in its ability to tell us whether the overtime rule is a good idea. That it helps more people balance their work and family lives and provides workers with a tool against exploitation by employers may be outcomes outside of CBO’s purview, but these are outcomes that should be at the forefront of policymakers’ minds.

It’s harder than Trump thinks to pull a thread or two out of the ACA.

November 12th, 2016 at 9:07 am

All the papers this AM tell me of softening in some of president-elect Trump’s positions, including health care, immigration, trade, and more. Some of his aides are straight-up saying that a lot of that stuff was just campaign talk.

He wouldn’t be the first to make such pivots. Moreover, his campaign wasn’t exactly policy driven and many of his voters won’t be surprised to hear that no, Mexico isn’t going to pay for the wall. During the campaign, almost every Trump supporter I met told me they didn’t believe everything he said. They just thought he’d shake things up.

It’s too early to know what to make of this alleged pivot; my instinct is not to make too much out of it. Trump may well turn out to be not that interested in wonky minutiae and will outsource it to people that are, like Ryan and Pence, which in turn implies the death of many progressive accomplishments. I’ve got a piece coming out on the wide swath of damage they could do if they wanted to, and their history suggests that they (e.g., Ryan) do, in fact, want to.

But speaking of wonkery, let’s take a shallow dive into Trump’s softening on health care, which in at least one key aspect, doesn’t make much sense. He reports that in his meeting with President Obama, the President convinced him that parts of the Affordable Care Act are worth preserving, including the requirement that insurers cover those with pre-existing conditions.

But for that part of the law to work, you need healthy people to subsidize sicker people, as the latter must be covered. That implies mandates, and if you mandate coverage, you must have individual subsidies and “community rating” (no individual underwriting; some variation within geo-areas allowed based on age and tobacco use). Without such provisions, the pre-existing condition requirement is meaningless, as insurers will offer unaffordable care to such persons.

In other words, there are lots of interacting, moving parts to the ACA, and it’s hard to pull out one thread.

One other item that caught my eye this morning. A Trump economic advisor claimed that the 45 percent tariff on China would only be used as an offsetting tax against currency manipulation. So if China reduces the value of yuan 45 percent relative to the dollar, they’ll raise the tariff. That would take legislation, and is actually much like a bill proposed by Sandy Levin, Sherrod Brown and others in years past. I should note that this bill always got big Congressional majorities but the leadership and the Obama administration opposed and blocked it.

It is said: You campaign in poetry, govern in prose. The poetry didn’t rhyme and some of the prose isn’t making a ton of sense. So, I’ll be carefully watching this alleged pivot.

Fellow progressives: the macro-economy doesn’t care which party signs the stimulus check.

November 11th, 2016 at 10:54 am

I’m crunching on other stuff so this will be brief, but I’ve been reading a fair bit of commentary about how Trump’s fiscal plans–infrastructure investment and tax cuts–won’t help the economy; “they’ll be recessionary, they’ll deliver higher inflation and interest rates, they’ll force the Fed to move from brake-tapping to brake-slamming.”

I yield to no one in my concerns about the damage that could be done by the incoming administration and their Republican friends in the House and Senate. But some of this recent analysis seems driven more by political bias than economics.

The details matter, for sure, and let’s separate out an infrastructure plan from a big, regressive tax cut, sky-high tariffs, whacking Obamacare, and other bad ideas. But I and others have long argued that investment in neglected public goods–roads, bridges, water systems, airports, shipping ports, broadband, public schools, mass transit (DC Metro!)–would help generated needed demand in places that are still suffering from economic slack and could help boost lagging productivity as well.

That argument is not rendered invalid because Republicans pass the plan.

Of course, the plan matters. During the campaign, I’ve heard some characteristically muddled stuff from team Trump about leveraging private investment through tax credits, which implies infrastructure usage that spins off some kind of investor payouts–ie, user fees. Also, bridges to nowhere might create a few jobs but they won’t help the economy over the longer term.

So if we’re talking about either of those, I retract my endorsement of these potential public investments. But a smart infrastructure plan could help. And if it did lead to greater resource utilization, as I suspect it would–that’s the Keynesian point–and that in turn boosted inflation and interest rates, that’s a feature, not a bug. The very low levels of those variables in recent years have not been a signal that things are great; they’re symptoms of secular stagnation.

Yes, all this could lead the Fed to step up their rate hike schedule, which in turn, could lead to some ugliness between them and the new administration. But my hope is that they’d remain in data driven mode, allowing the economy to finally get to full employment. There are a lot of moving parts to these scenarios we’re all spinning out, and “wait-and-see” is a much more prudent path than “kill-it-before-it-grows.”

Finally, on numerous grounds, I’d strongly oppose the highly regressive tax cut I believe is coming. First, while it too would be somewhat stimulative, its impact will be wasted on tax cuts for the rich. Since they’re not income-constrained in the first place, they’re less likely to spend the marginal dollar they get from the cut, so the multiplier is low relative to a tax cut targeted at the middle class.

Second, trillions in “permanent” tax cuts*, infrastructure spending, and bumping up the defense budget (another Trump priority) will force strong pressure to cut spending in other areas that will inevitably ding the most vulnerable. We’re going to need more revenue in the future, not less.

So yeah, while a near-term rise in the budget deficit won’t bother me in the slightest if it’s money well spent/invested, a big, long-term jump in the structural debt would be both very bad news and very bad policy.

[*Like GW Bush, the Trump admin will pretend their tax cut will sunset in the budget window for scoring purposes, but their intention will be for it to be permanent, and they’ll stage the death scene from Camille when we actually try to follow the law they wrote and let the cuts sunset.]

Trump and the mandate question

November 10th, 2016 at 8:42 am

I recognize that I’m playing to my crowd here and that I’m talking about a term– a political mandate–that does not have a formal definition. But I strongly objected when, in a TV debate last night, some guy argued that Trump has a mandate.

My response was that if you lost the popular vote, you don’t have a mandate. Last I looked, the national tally was (rounding) 59,612,000 for Trump and 59,814,000 for Clinton.

To be clear, he’s the legitimate president elect, though I’d sincerely welcome a national debate about the role of the electoral college. Twice in recent years, the president lost the popular vote.

That said, if you look at the red/blue map of the vote by county, as well as the Congressional and state outcomes, there’s certainly a case to made that…actually, I have no idea what the case to be made is re mandates. Trump absolutely rocked the anti-establishment vote while the vast majority of incumbents held their seats.

It’s all a muddle. Get down to the level of state ballots, and the American people seem to want get high on pot, earn higher minimum wages, and send an extremely harsh message to establishment DC.

I see no mandate in there. Instead, I like where Larry Mishel is on this. Among Trump’s various appeals, some of which were racist, sexist, and hateful, one that was very familiar to me (and Larry) was to working people who’ve long been left behind by a political system run by and for elites. I wouldn’t call it a mandate, but I would say Trump made an implicit bargain with those working class voters to help them claim a larger share of the economy’s growth.

I plan to carefully track the extent to which he and his new administration follow through on that bargain.