Hey, What’d I Miss? OTE Summary 3/30 – 4/10

April 10th, 2014 at 2:45 pm
  • Over at NYT Economix blog: distinguishing who the real job creators are in today’s economy and explaining three critical labor market trends from March’s jobs report.
  • Highlighting Federal Reserve Chair Janet Yellen’s decision to wisely continue to target broader measures of labor market slack.
  • Noting the passivity and transference inherent in today’s budget linguistics.
  • Analyzing the relationship between wage inequality among female workers and the minimum wage.
  • Evaluating the Congressional Progressive Caucus’ vision for creating jobs and improving our productive infrastructure.
  • Pointing out Representative Paul Ryan’s very choosy way of deciding what’s a budget cut and what isn’t.
  • On March’s employment numbers: previewing the data ahead of Jobs Day, highlighting my first impressions of a broadly positive jobs report, and illustrating the data’s favorable trend of labor force participation.

Music: Chicago blues guitarist Elvin Bishop reflects upon “the things that he used to do” in this week’s musical interlude.

Rep. Ryan: It’s Only a Cut When I Say It’s a Cut!

April 10th, 2014 at 11:47 am

One of DC’s sillier arguments–a very competitive category–is the claim that you’re not really cutting a program when you reduce its growth rate.

Apparently, Congressman Ryan was unhappy with a new CBPP post pointing out that most–69%–of his budget cuts come from programs that serve low or moderate income people.  As CBPP’s Bob Greenstein points out: [my bold, btw]

Responding to the 69 percent figure, the Chairman shifted direction in a new piece that he inserted this week in the Congressional Record.  He claimed these cuts aren’t really “cuts” at all; instead, they are simply smaller spending increases than would otherwise occur.  “A smaller increase is not a spending cut,” he wrote.

Well, two problems:

First, the Chairman is trying to have it both ways.  At the very start of his “Pathway to Prosperity,” he writes, “The House Republican budget cuts spending by $5.1 trillion over the next ten years.”  Apparently, he wants to brag to congressional budget cutters that his plan cuts spending deeply, while convincing critics of his budget cuts that they aren’t really “cuts” at all.

Second, the latter argument — that a cut isn’t really a “cut” — makes little sense.  For many programs, it costs more to provide the same services for its beneficiaries from year to year, because of inflation.  In addition, the population is aging and, thus, more people qualify for programs for elderly Americans each year.  For these reasons, the cost of providing the same level of benefits and services to people who qualify rises for various programs from year to year in nominal dollars — that is, in dollars not adjusted for inflation, population growth, or the population’s aging.

A budget allocation that doesn’t cover cost increases due to these factors means either that eligible recipients will see their services or benefits cut, or that some people who would otherwise qualify for those services or benefits are turned away.

So if Rep. Ryan himself is comfortable calling it a cut, so are we.  Because that’s what it is.

The Congressional Progressive Caucus Budget: A Vision for Our Time

April 9th, 2014 at 11:01 pm

To open our full employment event last week, Larry Summers presented an extremely compelling case for the importance of using fiscal policy to close our persistent output gaps, lower unemployment, and repair some of the economic damage resulting from “austerity,” i.e., reducing budget deficits in weak economies.

At the same time Larry was presenting this argument, two very different budgetary visions were introduced.  Republican budget chairman Paul Ryan presented a vision highly inconsistent with Summer’s comments, and more consistent with austerity–a budget that cuts spending deeply and disinvests in human and physical capital.

On the other side of the aisle in the House we find the Congressional Progressive Caucus’s “Better Off Budget,” a vision much more consistent with the ideas laid out by Summers in terms of investing significant resources in the near term to both generate jobs and improve our productive infrastructure, followed by balanced deficit and debt reduction in the longer term.

I’ve already critiqued Mr. Ryan’s vision.  Let me say a few brief words about the CPC’s vision.

First, broadly speaking, here’s what the budget does in the near term from an analysis of its projected impact by Joshua Smith of the Economic Policy Institute:

Accelerating and sustaining economic growth, promoting economic opportunity, and pushing back against the sharp rise in income inequality remain the most pressing economic challenges confronting policymakers. To directly address these issues, the Better Off Budget invests heavily in front-loaded job creation measures aimed not only at putting people back to work, but also at addressing the deficit in physical infrastructure and human capital investments. In stark contrast to the current austerity trajectory for fiscal policy—notably the expiration of emergency unemployment insurance, cuts to the Supplemental Nutrition Assistance Program (food stamps), and the continuation of discretionary spending caps and sequestration spending cuts—the Better Off Budget substantially increases near-term budget deficits to finance targeted stimulus, including infrastructure investment, aid to state and local governments, targeted tax credits, and public works programs. These types of investments would yield enormous returns—particularly by reducing long-run economic scarring that is resulting from underutilization of productive resources—and, as the name “Better Off Budget” implies, raise national income and living standards.

As Smith notes, the CPC plan would raise budget deficits relative to current law by over 2% of GDP right away, and almost another percent next year.  But after that, their budget reduces deficits and debt levels below both current law and the President’s budget, largely through progressive taxation (see figures A&B here):

[From the CPC’s website]

  • Returns to Clinton tax rates for households making over $250,000 and implements new brackets for those making over $1 million.
  • Equalizes tax rates for investment income and income from a hard day’s work.
  • Eliminates the ability of U.S. corporations to defer taxes on offshore profits.
  • Enacts a Financial Transaction tax on various financial market transactions.
  • Implements Chairman Dave Camp’s financial institution excise tax.

The likelihood that any of this is going to happen is tiny, though certainly the same could be said about much of Rep. Ryan’s budget as well.  So why am I highlighting this plan?

In part, after all the ink spilled around the Ryan budget, to provide equal time for a progressive vision.  But more so, because it’s useful to lay out such a vision—to articulate all of its moving parts—in order to see that it’s really quite simple.

To hear the rhetoric these days, you’d think faster job creation was impossible—we’re stuck with structural unemployment, depressed labor force participation, and weak wage growth.  You’d think growth deficits and debt were inevitable unless we’re willing to sacrifice our social insurance programs and our safety net.  You’d think investment in opportunity and mobility targeted at the least advantaged among us had to be sacrificed in order to achieve fiscal balance.  You’d think we have to disinvest in our children today in order to save them from inheriting “mountains of debt” tomorrow.

Nope.

We can stimulate faster growth—EPI’s modelling of the CPC’s plan says it will generate over four million jobs—protect and even expand vital programs, and get the national debt as a share of GDP on a solidly downward trajectory.   No question, to achieve this means that both revenues and outlays will be higher at the end of the budget window than their historical averages; outlays would be about 2% of GDP above that average and receipts, about 3% higher.  That’s not a trivial difference.

But it is one reasonable version of what it will take to achieve the goals of moving toward full employment in the near term, toward retirement security, poverty reduction, and adequate investment in the medium term, and toward significant debt reduction in the long term.

Take a look for yourself at these materials.  They are neither shocking nor revolutionary.  They’re merely an option—a smart and progressive one—to achieve a set of venerable goals.  The fact that they’re so far out of the current mainstream to even warrant a decent hearing is far more a troubling sign of the times than a critique of the CPC’s efforts.

Minimum Wages and Women’s Wage Inequality: They’re Intimately Related

April 9th, 2014 at 1:57 pm

I think this is a pretty remarkable picture that hasn’t gotten enough attention, perhaps because it’s a touch complex.  It shows the relationship between wage inequality among women workers and the minimum wage, and the fit is very tight.

The blue line shows the gap in pay between middle- and low-wage women, i.e., the 50-10 gap, where 50 means the median wage and 10 means the 10th percentile.  Over the course of the 1980s, the median female real wage grew 8% while the 10th percent wage fell 17%.  The red line is the real minimum wage, inverted on the right side axis, so you can clearly see the negative correlation.  Note that the real minimum fell 30% over the 1980s.

Basically, for many years, the pay of the lowest paid women workers was in no small part set by the minimum wage, and it remains a key labor market support for low-earning women.  As we document here, 58% of the beneficiaries of the proposed increase in the federal minimum wage are women.

What happened at the end of the slide, when the real minimum goes up (down in the inverted graph) but the 50-10 wage gap stays flat?  That’s good old macro, folks: over the period where the inequality index has been flat, real wages fell for both median and low-wage women (e.g., from 2004-13, down 3% for low-wage and 2% for median).

So higher minimum wages help both raise living standards and dampen inequality, especially for women workers, but they can’t take the place of full employment.

minwg_ineq

Source: CEA. Slide #7.