From a post endorsing another round of a payroll tax cut:
Q: How do you hold the Social Security trust fund harmless without reimbursing it from the federal budget?
A: It’s a legitimate concern for at least two reasons. First, as you suggest whatever Social Security revenue is diverted from current workers paying into the system to the tax cut must be replaced from general revenue in the rest of the budget. That’s in the current legislation, and those transfers are actively being made. So I’d worry less about this.
Second, the full payroll tax rate has to go back up after the tax cut “holiday” ends, which is not the end of this year but should be (and probably will be) the end of next year. This is essential to avoid structural damage to Social Security. And here you’re right to worry a bit more, since we’ve been terrible of late in letting temporary tax cuts sunset. “It’s a tax increase!! Run for the hills!!”
Q: I am very concerned about the diminishing labor share of earnings (or, why wages remain low even when corporate profits rise)…what else could be behind it?
A: That’s a big question (and for those who haven’t followed this, see here for a picture of it). If you’re really interested, read the section on national income shares in Chapter 1 of any recent version of the book State of Working America, where we used to tackle it.
Certainly, as you suggest, inequality is a major factor as more growth ends up in profits rather than paychecks. But there’s been significant inequality growth within labor’s share of national income as well.
What’s behind it? Globalization, “labor-saving” technology, much diminished union power, declining minimum wages, “financialization” of growth, tax incentives favoring capital (though these numbers are all pretax, the incentives still play a role), and what Harold Meyerson the other day called shareholder vs. stakeholder capitalism.
Also, I think the graph in the link may significantly overstate this problem (I’ll try to look into this in coming weeks). This table from EPI shows a less dramatic trend—look at the last row, for example (“addendum”)—with labor’s share down a couple of points over the long run. That’s not nothing—these things tend to move pretty glacially–so even these smaller changes than in the graph are a signal that all those causes I just noted are in effect.
From the post that suggests the Greek debt problem is at its root insolvency not illiquidity.
Q: What actually leads you to believe they’ve misdiagnosed the issue? Whether they’re right or not, isn’t the intent to buy time to give the Greek government a chance to sort out its finances?
A: It’s certainly possible that if external resources continue to bail out Greece, the country would eventually “sort it out” just as if you continually bailed out a ship with lots of holes in it you could theoretically buy yourself the time to fill the holes. But as I watch this unfold month after month, I worry that think there are too many holes and the resources used to bail out the ship would be better put to use elsewhere. The evidence is the way the ongoing liquidity-centered bailouts haven’t seemed to right the ship.
This is not a radical view, held by only a few. Were it not for the fact that the banks of Europe have significant holding of Greek debt and would thus lose under the insolvency route, that route might already have been taken.
Q: I’m not sure I take as much comfort as you and Paul Krugman in those currently low bond rates. Couldn’t they reverse course in a minute?
A: That’s a legitimate concern, although as I noted in the post on why the bond market is a bit of a phantom menace right now, it’s not the case that global bond market has forgotten how to react to stress—see Greece, Portugal, etc. But you’re right—such things could turn quickly, which is another reason not to screw around with the debt ceiling.