In a post on Wonkblog from yesterday morning, Dylan Matthews has an excellent interview with Michael Linden, a budget expert at the Center for American Progress. It’s definitely worth reading—not least for Linden’s correct (and therefore deeply depressing) point that in terms of discretionary spending, “We’ve already essentially adopted the Ryan budget.”

But, the simplistic Keynesian in me demands I disagree with something Dylan says about the influence of fiscal policy in the current economy:

“In 2009 it was easy to see how the multiplier on government spending, the GDP bang for the buck, would be pretty high. There were a lot of unused resources in the economy that government spending could spring into action. But during good economic times, the multiplier should be around 0. Obviously, we’re somewhere in between now, but where on the spectrum do you think we are?”

This is actually all pretty correct until that last sentence, particularly the “somewhere in between now”. Linden makes a very good empirical rebuttal to this by noting that today’s output gap is much, much closer to where it was in 2009 than zero, and, even this current output gap may well understate how much slack actually exists, since CBO has been steadily marking down potential output for reasons that may reverse if the economy recovered (see figure below from the famous DeLong/Summers fiscal policy paper).

I suspect Dylan knew he was heaving a softball question here, because he certainly knows there’s a lot of slack remaining in the economy. But it is important to note that the larger economic logic in his question isn’t quite right. Values of the multiplier really aren’t linear like that. If the multiplier on UI benefits in an economy with an output gap (a measure of economic slack) of 7 percent is 1.5 and the multiplier on these benefits in an economy with an output gap of zero is zero, this does not imply that the multiplier on these when the output gap is 3.5 percent is 0.75. I wish it did work like this, as it would make macroeconomic projections much easier.

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Last year’s U.S. Supreme Court’s decision in Arizona v. U.S. left only a narrow opening for states to pass and enforce immigration-related legislation. Nevertheless, the enactment of immigration-related state laws and resolutions in 2013 increased by 83 percent compared with the first half of 2012. California has been a leader, passing numerous laws that would benefit immigrant workers and protect labor standards for U.S. workers. Despite extensive media coverage of the TRUST Act and two other bills—one that would grant “domestic workers” overtime pay (which became law last week) and another permitting unauthorized immigrants to obtain drivers’ licenses—four others would protect the labor and employment rights of California’s unauthorized immigrant workers and temporary foreign workers (“guestworkers”). If Governor Jerry Brown signs these four bills, the new laws will ameliorate some of the worst abuses immigrants suffer, including human trafficking, wage theft, and employer retaliation against workers who organize or report illegal acts to authorities. Comprehensive federal immigration reform that protects vulnerable foreign workers from abuse remains a longshot in the near-term, so these are welcome developments for the state with the largest population of immigrants.

An estimated 1.85 million unauthorized immigrants work in California, meaning a tenth of the workforce is particularly vulnerable to exploitation on the basis of immigration status. It is difficult for unauthorized workers to enforce minimum wage and overtime laws because employers use the threat of deportation to prevent labor organizing and to keep workers from complaining. Employers can report the undocumented to Immigration and Customs Enforcement, or require them to update or provide documentation for their “I-9” file, or run their name through E-Verify, the government’s electronic employment verification system. This increases the likelihood they’ll be fired and/or deported.

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I have been getting versions of this question a lot. It is very hard to answer with any precision, so, below are some very imprecise thoughts.

First, the shutdown would have to go on for quite a long-time (say at least a month) to affect the trajectory of aggregate macroeconomic statistics like gross domestic product (GDP) or employment growth. For one, the majority of what the federal government spends money on (including the health insurance coverage expansions contained in the ACA!) will not be affected by the shutdown. Transfers payments like Social Security, Medicare, Medicaid, Food Stamps, etc…will continue to flow, as will essential discretionary spending.

Given the relatively restricted scope of the shutdown in terms of government spending, it stands to reason that it would have to go on for a a month or so before there would be enough of a mechanical fiscal drag to start significantly affecting the path of macroeconomic aggregates. A very, very rough back-of-the-envelope estimate would be that the strictly mechanical impact of a month of the shutdown would subtract 0.1-0.2 percentage points off of GDP growth for (fiscal) 2014.* So, if the government shutdown lasts a month and the economy was set to grow 3 percent in 2014 without the shutdown, the mechanical drag from the shutdown would result in actual growth of 2.8-2.9 percent. Of course, if one focused on the effect of the shutdown only in the fourth quarter of (calendar) 2013, it will matter quite a bit more (multiply that 0.1-0.2 by 4, so, a one-month shutdown would reduce fourth quarter GDP growth by about 0.4-0.8 percent, which is not peanuts for a quarterly growth number).

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People wrongly think the economy is like the weather, a natural force outside of our control. So thinking about problems like high unemployment and declining wages leave people feeling hopeless because they seem to result from large historic forces that we can’t affect like globalization.

The truth, however, is that the economy isn’t like the weather: It’s entirely man-made and the rules are set by politics, not God or nature. Globalization is real, but the terms of globalization—the rules for how the internationalization of trade and production operates and affects workers and companies—are set by politicians and the organizations they’ve created through international treaties. We can change those rules and shape globalization so it does less harm to working people in the United States and around the world.

One of those rules changes would prevent companies from manipulating their currencies to make their exports cheaper while simultaneously making goods imported from other countries more expensive. China, Japan, and other countries have done this for years, buying hundreds of billions of U.S. dollars to weaken their own currencies and making it cheaper and easier to export goods to the United States. This strategy has been very successful, and together, China, Singapore, Taiwan and several other countries, including Japan, export hundreds of billions of dollars more to the United States in manufactured goods than we send to them, leaving us with a huge trade deficit that costs jobs and undermines wages here. The Peterson Institute for International Economics estimates that foreign currency manipulation has cost the United States between one million and five million jobs.

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The core argument of the hysterical Republican diatribe against Obamacare is that it will push Americans down a slippery slope into the nightmare of, gasp, SOCIALIZED MEDICINE!! The phrase regularly trips from the lips of GOP reactionaries. Here’s Texas Senator Ted Cruz in his recent 22-hour speech: “Socialized medicine is—and has been everywhere it has been implemented in the world—a disaster. Obamacare–its intended purpose is to lead us unavoidably down that path.” Congressman Marlin Stutzman (R-IND) tells us, “Obamacare is a perfect tool to crush free enterprise and force all Americans into a socialist health care system.”

These mantras are not really about health care. They are conversation-stoppers. They are designed to flood the mind with murky images of indifferent bureaucratic sloth, incompetent if not sadistic doctors and nurses, dingy overcrowded waiting rooms and other grim scenes from a dystopian medical horror movie. The purpose is to convince the public that as bad as our health care system is, real change would make it worse.

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The National Parks–Yellowstone, Yosemite, Great Smokey Mountains and all the rest—are shutting down, along with much of the government, because what Politico called a “hard-line faction of House GOP lawmakers” can’t accept the results of the last election or the fact that Congress enacted the Affordable Care Act. They are carrying obstructionism to a disastrous new low.

This is a personal nuisance, since my wife and I planned a seven-night stay in Yellowstone that would have started Saturday night. Luckily, we checked ahead and learned that, as this Q and A from Bloomberg News recounts, everyone will be kicked out of the park, vacation be damned!

“Q. What about my trip to Yellowstone?

A. You’re out of luck. According to the Interior Department’s shutdown contingency plan: “All areas of the National Park and National Wildlife Refuge Systems would be closed and public access would be restricted.”

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At the beginning of the year, Andrew Fieldhouse and I tried to document lots of the ways that the GOP House had managed to smother a full recovery from the Great Recession. The list was pretty impressive, but a key theme was that the GOP kept using the leverage of various fiscal decision points (reaching the debt ceiling, the expiration of tax cuts, the drawdown of the Recovery Act, etc…) to push for austerity on the spending side of government. And their tactic worked—the current economic recovery has seen historically slow growth in public spending, and by now the entire gap between today’s economy and a healthy one can be attributed to this austerity, full stop.

When we wrote our list, I had hoped any strategic gain to the GOP Congress stemming from throttling the recovery was over—the 2012 election had come and gone, and going forward from there it is not exactly obvious why slow economic growth is damaging to just one party or the other.

Obviously, I was wrong.

The new exploitation of external fiscal deadlines (the need for a “continuing resolution” to fund federal governmental operations after October 1 and reaching the debt ceiling in mid-October) concerns both a further ratcheting down of spending, but also the delay of the Affordable Care Act (ACA).

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Paul Krugman and Mark Thoma have been discussing (see here and here) the views of the (increasingly influential) very rich on this fall’s fiscal debate. They hypothesize that rising inequality has led to exorbitantly large incomes for a select few, and that these select few don’t understand the value of social insurance because they reap little-to-no benefits from programs like Medicaid, and SNAP, for example. The top 1 percent, after all, rarely realize the benefits of social insurance, since the likelihood that they experience unexpected income losses to the extent that they fall below the middle class living standards is slim. More often, social insurance benefits those who may be in the middle and lower classes, and experience unexpected income losses (like a lay off). Complaining about insurance simply because you don’t think you will need it is a pretty pithy argument, but let’s ignore that for now.

Thoma and Krugman go further, noting that rising inequality seems to have confirmed the top one percent’s notion that they are the indispensable economic engine of the U.S. economy, who take risks and work the hardest and should justly reap the benefits. They push for lower taxes (even though their current tax rate is one of the lowest in history) because they don’t think anything should impede their productivity, and they demand respect for being the “job creators” in society. In the context of this fall’s showdowns over the federal budget and the debt ceiling, not only is this take wrong, but it is totally divorced from the reality the broad middle-class faces—a reality of high joblessness from an anemic recovery, and meager wage growth over the last 30 years.

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EPI co-founder and board member Robert Reich has a new documentary, open in theaters nationwide today, called Inequality for All. Everyone should go see this important film.

The film explores the growth of economic inequality, and draws heavily on the work that EPI has done over the past 25 years.

In the decades following World War II, workers’ wages by-and-large rose alongside productivity. But since the 1970s, that relationship has broken down. While CEOs and financial executives have seen their pay skyrocket, wages have been flat for ordinary Americans (even those with a college degree) for the past decade. Add to that a minimum wage that has less purchasing power than it did in 1963 and it’s easy to see why Americans are concerned with economic inequality. It’s a challenge that came about thanks to policies set by those with the most economic power, and it’s something that can be fixed.

That’s why earlier this year, we launched inequality.is. The site walks you through how inequality affects you, how it affects the economy, how we created it, and what we can do to fix it. It even features a guest appearance from Robert Reich. (See also this blog post from Elise Gould for more about the site.)

Once you see Inequality for All, come back here for a more in-depth look at how this came about—and what we can do about it:

• A Decade of Flat Wages
• CEO Pay in 2012 Was Extraordinarily High Relative to Typical Workers and Other High Earners
• The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes
• Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates
• Fix it and forget it: Index the minimum wage to growth in average wages
• Occupy Wall Streeters are right about skewed economic rewards in the United States
• Failure by Design
• Everybody wins, except for most of us

On Twitter, Atrios demanded more talk of the platinum coin as a solution to the looming showdown over the debt ceiling. For those who don’t remember what the platinum coin idea is all about, check this out—a very good explanation of the issue, as well as a link to a good Chris Hayes segment on it.

But the thirty-second version runs like this: currently, to fund governmental activities, the Treasury draws on an account at the Federal Reserve. The account is fed by both tax revenues and the proceeds from selling bonds (debt). But, because the United States has a statutorily imposed limit of how much outstanding debt is allowed, once this limit is reached on issuing new debt, Treasury can no longer sell bonds and deposit these proceeds, and  hence the account at the Federal Reserve will dwindle. By October 17 (current guesstimate) it will be too small to finance that day’s governmental activities. A suggested way around this has been to have Treasury mint a coin (which has to be platinum for a reason too boring to note in depth) with a denomination of $1 trillion, deposit it at the Federal Reserve and, voila, governmental outlays can continue.

It’s true that the idea of minting a trillion dollar platinum coin as a solution to our nation’s problems sounds like something out of the Simpsons. But, the thing to realize is that while it is indeed a phony accounting solution, what it resolves is a phony accounting problem.

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