It’s all connected…4 referrals from today’s papers.

August 19th, 2016 at 8:49 am

Three articles, one blog post.

First, Dean Baker points to this great Bloomberg article by former Fed regional bank pres Narayana Kocherlakota (NK) on how, since black unemployment typical runs 2x the overall rate, Fed policy is especially consequential for them (and other minorities). It’s really just the old adage that when the economy sniffles, less advantaged workers catch pneumonia, and–a key theme of my own work–less advantaged workers are disproportionately helped when the economy is strong. Full employment is especially important for blacks, as I’ll show again in a moment.

The piece points out that these relationships came up in the minutes from the recent Fed meeting, something that hasn’t happened much at all in the past. Some, and not a little, credit for that goes to the activist group Fed Up, which continues to have real impact on these critical debates.

One could certainly ask “what took them so long?” As NK’s figure shows, this 2x relationship persists through the long history of this data series. But it’s still progress.

Second, I wanted to link to a piece I recently did that ties a lot of NK’s insights together, adding the unemployment/wage dimension. I took that ~2x relation and mapped it onto a wage/unemployment elasticity for low-wage workers in the spirit of Val Wilson’s work.

Source: my analysis

Source: my analysis


Until recently, growth in this expansion has been a spectator sport for many disadvantaged workers. One way to help them is for the Fed to accommodate very low unemployment. That could conceivably trigger inflationary concerns, but based on how weak that correlation is these days, lower unemployment seems an extremely favorable trade-off to the low-wage workers who would benefit disproportionately in terms of faster wage growth.

But I also don’t want to forget the larger picture:

Of course, life is more complicated than these relatively simple connections imply. It will take a lot more than just the Fed holding off on interest-rate increases to generate true racial economic justice. Getting there will also require, as a basic starting point, both criminal justice reform and direct job creation in neighborhoods that have historically been left behind (even when the rest of the country is at full employment).

Third, speaking of that larger picture, here’s a little piece in today’s WaPo (print edition) that thinks about the structural forces driving inequality–taxes and transfers can help and are helping. But we need to do much more and think much bigger to deal with the power imbalances behind these inequities.

Finally, one reason productivity is so low is that investment is so low. And one reason investment is so low is that public companies would rather do stuff that boosts their near-term stock price–share buybacks and dividend payouts–than their long-term productivity. It’s a big, serious, long-term problem that relates to the structural shifts alluded to in my WaPo piece, not to mention the institutional forces that NK and I document.

In other words, Buddha was right: it’s all connected…


Print Friendly, PDF & Email

4 comments in reply to "It’s all connected…4 referrals from today’s papers."

  1. Smith says:

    First the mistakes and omissions, followed by suggestions.
    1) Is poor economic performance disproportionately affecting blacks, or actually is the true indicator income level and educational attainment? I have no doubt that discrimination and racism affect access to employment. But emphasizing that aspect while ignoring the effects of poverty or just lower income environment, and less educational attainment is a mistake. The data (did some googling just now) seems to back me up. It also creates a missed opportunity of aligning the interests of whites and blacks suffering from higher unemployment.
    2) Inflation doesn’t seem to be as affected by unemployment dropping when the drop is caused by withdrawal from the labor market (over a million in past 4 years, not counting retiring boomer bulge) and declining oil prices. The dominance of corporate oligopoly ensures high inflation will accompany actual low unemployment unless big business is forced to yield power.
    3) The safety net does not lower poverty, it’s there to deal with the problem, more of it signals more of the problem, increasing it doesn’t help and may hinder by hiding root causes. Perfect example, rising minimum wage lessens inequality, higher EITC (a form of corporate welfare) does not.
    4) Corporations sitting on tons of cash can’t invest in new production when demand is low, unemployment is high (though hidden), the world economy teeters on the brink of recession, and there is so little competition. When google decides to make driverless cars, then everyone has to invest. (off topic, but how many thousands must die waiting for driver-less technology, instead of more immediate safer drive-able cars)

    Better education doesn’t necessarily mean more money, when New York, New Jersey are spending $20,000/per student per year. That’s not to say teachers aren’t under compensated and under staffed. Same for colleges and not to mention Clinton’s destructive means test for free public education. Educational reform would allow single parent households to work, and provide an environment in which to learn, not simply test.

    Corporate tax rates need to be raised, loop holes closed, and favorable foreign earning treatment ended with no tax holiday. Increased competition and threats of nationalization or public option, or cutting off federal contracts must be used to cut the power of big business.

    Instead of relying on a magical resurgence of unions, which gave us employer healthcare, union-won like concessions should be legislated, just like minimum wage and workman’s compensation and OT. Expand to vacation time, sick leave, an end to exempt status, and eventually enact single payer.

    Recognize that the 1% is willing to sacrifice some growth and some earnings/sales to keep low tax rates, a pliant and submissive labor force, and the 10% larger share of national income they’ve awarded themselves over the past 35 years. It took hard work and organization to achieve and won’t be reversed without a fight. No pain, no productivity gains

    • John San Vant says:

      Dude, they are investing in new product nor is demand low. Posts like these don’t try. Look at structure. The economy only needs to grow 2% to keep up with prime population age spending. Black wages have indeed accelerated rapidly lately due to the formation of the cycle.

      When you are a consumption based economy, you are more driven by demographics and credit markets. Pure and simple.

      • Smith says:

        I checked FRED, demand is low (around 1%, personal consumption expenditures percent change over last year), and business investment has been falling since 3Q 2015.
        Demographics and credit markets do not drive the economy. The needs of the 1% take precedence. That is why we don’t have a robust recovery. The 1% are doing just fine.
        These things can be looked up. If you want to make a general comment, there is no need to reply to mine which specifically addresses several issues. This is especially true if one is not actually addressing any of these issues, or seemingly anything mentioned in the comment.

    • Smith says:
      Regarding childcare, while Clinton’s tax credits are less tilted towards the rich than Trumps tax deductions, they are meaningless for those most in need. How are less well off parents expected to pay in advance for childcare and wait for the resulting tax refund some time in February. This is typical of Clinton’s neoliberalism that assumes all parents are well meaning with middle class values and are able to plan and save resources to take advantage of tax breaks. How many Americans can properly describe the difference between credits and deductions, and how the progressivity of marginal rates and standard deductions can skew benefits towards home owners and wealthier households. That’s before taking into account the multitude of eligible beneficiaries who never receive their EITC, and must pay for tax preparation.