Recent days have seen some signs that the technology explanation for poor labor market outcomes for many workers is stirring again (maybe John Quiggin needs to add a chapter to his magnum opus?).

The Center for Economic and Policy Research’s David Rosnick and Dean Baker do a good job stomping on an awfully weak version of this argument put forward by a recent OECD report. Some of their report is wonky, but it’s worth reading and the takeaways are pretty clear:

• The OECD intentionally misses the largest increase in inequality by looking at the 90/10 ratio of wages—but most of the action in income concentration has taken place well above the 90thpercentile
• The OECD’s “technology” variable is the subject of some odd adjustments—and more sensible treatments of it make its influence on measured inequality fade away
• Adding in a variable ignored by the OECD—financial intermediation as a share of the economy—adds significantly to the explanation of rising inequality, as rising financial shares are associated (not shockingly) with increased inequality

What is really dismaying is the degree to which analytical discipline is allowed to collapse so long as one is telling a well-accepted story about inequality. If the same degree of evidence marshaled by this study in the cause of blaming technology was instead put in the cause of blaming, say, de-unionization for the rise in inequality, it would be met by some widespread jeers among economists (as it should be—the OECD technology evidence is weak). But it’s always safe to be conventionally wrong, I guess.

Anyway, check out Rosnick and Baker’s paper for the full scoop.

Robert Samuelson’s Washington Post column today is, to be charitable, baffling. He mostly agrees that Keynesians have it right about what the economy needs today: more stimulus, or fiscal support, or spending, or whatever you want to call it. But in a desire to tell us that it is actually Keynesians’ own fault for why we can’t have it, he blames … John F. Kennedy for destroying the nation’s fiscal norms so completely that we somehow can’t afford economic stimulus five decades later.

To be clear, I buy none of this argument that anything keeps us from pursuing more expansionary policy today except for today’s policymakers (and I particularly don’t buy the part of Samuelson’s argument about some magical and well-defined “threshold” of public debt above which we just can’t afford more stimulus and the economy tanks). And, even if there was some reason to think that rising debt/GDP ratios do hamper future policymakers’ response to recessions, the notion that public debt rapidly shrank as a share of overall GDP during the 1960s really should give Samuelson at least some pause about his thesis.

But even if I did believe that some past president had destroyed the historic norm of fiscal probity that preceded their inauguration, I have to ask: Why Kennedy, when there’s much clearer suspects in our more-recent past? The figure below shows net lending by the federal government for the six quarters before the inaugurations of Kennedy, Ronald Reagan, and George W. Bush, as well as what happened during their two terms in office (why six quarters before? I wanted some measure of the alleged fiscal “norms” they inherited, and the Bureau of Economic Analysis data that the chart is based on starts in the middle of 1959, so this simplified my choice).

Again, I actually think concern about budget deficits per se is way overblown in policy debates (for lots of reasons—for example, the budget is affected by the business cycle, which ran differently for all three presidents compared—though, strikingly, all had recessions early in their terms and saw the economy either back in recession (Bush) or within one (Kennedy) or two years (Reagan) of reentering recession by the time their tenures ended. Oh, and wars—wars affect budget deficits).

But if you’re making the argument that running deficits that are  larger than the historic norms you inherited is some mammoth economic sin, I ask again: Why Kennedy and not Reagan or Bush?

The point of Samuelson’s column is pretty obviously to blame Keynesians for today’s troubles even though they are exactly right about how to solve them.

Republican presidential nominee Mitt Romney is stirring controversy with his equivocation over whether or not the individual mandate in the Affordable Care Act (ACA)—and hence the mandate in his Massachusetts health care reform, the model for much of ACA—is a tax or a penalty. But Romney was unequivocal about one thing in his response to the Supreme Court’s decision to uphold the ACA—and unequivocally dishonest—when he claimed: “ObamaCare adds trillions to our deficits and to our national debt, and pushes those obligations onto coming generations.”

This is patently false, and the former Massachusetts governor should know better. ACA is the most substantial piece of deficit-reduction legislation of the past decade, if not decades. Beyond the first decade, when ACA is gradually being implemented, health reform is projected to lower annual budget deficits by roughly half a percent of GDP, according to the Congressional Budget Office (CBO). Put in perspective, half a percent of projected GDP for 2022 is $125 billion; if ACA is fully implemented, we’re looking at well over $1 trillion of net deficit reduction in the second decade. Passage of ACA was the largest force driving CBO’s dramatic recent improvements in long-term public debt projections: between 2009 and 2010 (pre- and post-ACA enactment), their extended baseline projection for public debt in 2083 was revised sharply downwards from 306 percent of GDP to just 111 percent—a decrease of nearly two-thirds. Since those estimates, ACA is likely to produce even more long-term deficit reduction because the long-term care insurance program (CLASS Act) has been scrapped and some states may be sufficiently principled and foolish to refuse tens of billions of federal dollars for the Medicaid expansion. (Note: neither is a policy success in my book.) Read more

The Obama administration announced yesterday that it has filed a complaint at the World Trade Organization (WTO) with China over its tariffs on large vehicles exported from the United States to China. This is the seventh complaint filed by the administration against China, and the White House noted that “the previous six have all been successful.”1  The Obama administration should be applauded for its continuing support of the U.S. auto industry, and for this action, which will help preserve U.S. jobs supported by about $3 billion of U.S. exports in 2011.

Much more needs to be done to stop unfair trade and industrial policies in China’s auto industry, which the Chinese government has targeted as a “pillar industry,” for development. Between 2001 and 2011, according to a report by EPI Research Associate Usha Haley, “the Chinese auto parts industry has received about $27.5 billion in subsidies.”  U.S. imports of auto parts (including tires) increased more than 600 percent between 2001 and 2011, and are on track to reach $14.5 billion in 2012. The rapid growth of subsidized and unfairly traded auto parts from China puts at risk every job both directly and indirectly supported by the U.S. auto–parts industry. The U.S. auto parts industry directly and indirectly supported 1.6 million jobs in 2009, with jobs at risk in every state.

Adding insult to injury, China continues to manipulate its currency. This magnifies the benefits of subsidies and other unfair trade policies that benefit China’s auto-parts exports.  Currency manipulation artificially reduces the costs of China’s exports and inflates the costs of exports from the United States (and other countries) in China and all other countries where they compete with China.  I estimated last year that a 25-to-30 percent appreciation of China’s yuan and other manipulated Asian currencies would support the creation of up to 2.25 million U.S. jobs, stimulating up to $286 billion in GDP growth (1.9 percent) and reducing federal budget deficits by up to $71 billion per year. Read more

This morning’s release of the June 2012 employment situation report by the Bureau of Labor Statistics marked three years since the official start of the recovery from the Great Recession in June 2009.  That makes this a useful moment to assess how this recovery stacks up against earlier ones, and to identify obvious policy measures that could ameliorate glaring weaknesses in the current recovery.

The figure below shows that while jobs fell much further and faster during the Great Recession than in the previous two recessions (marked by the lines to the left of the zero point on the x-axis), job growth in the current recovery is similar to job growth by this point in the previous two recoveries, just slightly lagging job growth following the recession of 1990-91 and outpacing job growth following the recovery after the 2001 recession.1

Of course, three years into recovery from those recessions, unemployment was not stuck at levels anywhere near as high as today’s 8.2 percent. But it is important to note that it is the historic length and severity of the Great Recession that explains why the economy is so much worse three years into the current recovery than it was three years into the recoveries of the early 1990s and 2000s, and that there is not something atypically weak about the current recovery relative to those earlier ones.2

Further, the most glaring weakness in the current recovery relative to previous ones is the unprecedented public-sector job loss seen over the last three years. The figure below shows that private sector job growth in the current recovery is close to that of the recovery following the early 1990s recession and is substantially stronger than the recovery following the early 2000s recession.

Yet, as the figure below shows, the public sector has seen massive job loss in the current recovery—largely due to budget cuts at the state and local level — which represents a serious drag that was not weighing on earlier recoveries.

How many more jobs would we have if the public sector hadn’t been shedding jobs for the last three years? The simplest answer is that the public sector has shed 627,000 jobs since June 2009.  However, this raw job-loss figure understates the drag of public-sector employment relative to how the economy functions normally. Read more

Imagine going to a fast-food restaurant and unknowingly consuming food contaminated with toxic chemicals. Or buying cooking oil laden with carcinogens. Or purchasing medicine that makes you sick because it contains excessive levels of the heavy metal chromium.

Sadly, these are not hypothetical situations but real problems discovered in recent years in China. The Chinese financial newspaper Caixin Online declares that “these publicized food safety scandals represent only a fraction of [the] unsafe food production practices.” Caixin concludes that food safety in China is “governed by the law of the jungle.”

China’s food safety problems are not limited to small mom-and-pop businesses. The bad fast-food referred to above was the result of a toxic chemical being added to chicken served at McDonald’s and KFC restaurants. The carcinogenic food oil was found in Wal-Mart. A big business is not a guarantee of a safe product.

In the early 20^th century, the United States faced food and drug crises similar to the ones in China today. These crises in the United States led to the creation of the Food and Drug Administration and to dramatic improvements in American health and life expectancy. While the United States still has its share of contaminated food, the rate of problems in the United States is far below that of China. As Caixin states, “the size and severity of the food safety crisis” in China “is unique.” There is less toxic food in the United States, in part, because we have a stronger regulatory and enforcement system.

These days, conservatives regularly condemn regulation, but the fact of the matter is that regulations save lives. Last month, my colleague Ross Eisenbrey illustrated how good Occupational Safety and Health Administration (OSHA) standards save lives in the workplace. Experts in China believe that achieving real food safety there will require much more action and involvement by the Chinese government.

In a column about the Supreme Court’s health care decision today, David Brooks offers up a series of recommendations about how to improve the nation’s health care system that he’s positive are not already in the Affordable Care Act (ACA). It’s worth quoting at length because it’s so revealing:

“Crucially, we haven’t addressed the structural perversities that are driving the health care system to bankruptcy. Obamacare or no Obamacare, American health care is still distorted by the fee-for-service system that rewards quantity over quality and creates a gigantic incentive for inefficiency and waste. Obamacare or no Obamacare, the system is still distorted by the tax exclusion for employer-provided plans that prevents transparency, hides the relationship between cost and value and encourages overspending. … Republicans tend to believe that the perverse incentives can only be corrected if we repeal Obamacare and move to a defined-benefit plan — if we get rid of the employer tax credit and give people subsidies to select their own plans within regulated markets.”

Let’s take these in turn:

“Obamacare or no Obamacare, American health care is still distorted by the fee-for-service system that rewards quantity over quality … inefficiency and waste”

Actually, no. The ACA has introduced pretty sweeping reforms to payment delivery; see the Independent Payments Advisory Board (IPAB), created precisely to engage the issues Brooks raises.

“Obamacare or no Obamacare, the system is still distorted by the tax exclusion for employer-provided plans that prevents transparency…”

Again, no. The ACA does indeed limit the value of this tax exclusion over time. Read more

Social Security is a hybrid between a pay-as-you-go and an advance-funded pension system, with most benefits paid out of current taxes but some potentially paid out of trust fund savings. Under ordinary circumstances, the trust fund serves more like a checking than a saving account, though substantial savings may be amassed in advance of bigger-than-usual outlays like the Baby Boomer retirement. This (mostly) pay-as-you-go design allowed Social Security to start paying out benefits shortly after its inception and helps insulate the system from financial market fluctuations.

Nobel Prize-winning economist Robert Solow highlighted the system’s pay-as-you-go properties in a characteristically simple and elegant model presented at a National Academy of Social Insurance gathering last week. Headlining a panel on the Baby Boomers, Solow framed a discussion in terms of basic economic constraints (math-phobes can skip the equations):

1. Labor Productivity x Hours Worked Per Worker x Active Workers = Gross National Product

2. Gross National Product = Labor Income + Capital Income

3. Labor Income = Active Worker Share + Retiree Share

Where:

Labor Income = Wage x Hours Worked Per Worker x Active Workers

Active Worker Share = Labor Income – Social Security Taxes

Retiree Share = Social Security Benefit x Retirees

With some rearranging, it follows from Equation 3 that:

4. (Social Security Benefit/Wage) = (Active Workers/Retirees) x (Social Security Taxes/Labor Income)

Solow emphasized that most of the factors in his simple model were determined outside the Social Security system, with the obvious exceptions of the first and last terms in Equation 4.1 This suggests that a decline in the worker-beneficiary ratio requires a reduction in benefits, an increase in the effective tax rate, or both. Read more

A story in Tuesday’s Wall Street Journal  highlights a truth about the economy that Washington’s policy makers have chosen to ignore. The value of our currency relative to our competitor nations’ currencies is a huge driver of factory location. Despite its positive connotations, a strong dollar is bad for U.S. exports and U.S. manufacturers. For years, Japan bought U.S. treasurys as a way to cheapen its own currency and strengthen ours, just as China does. The result was that Japanese imports to the U.S. were artificially cheaper and Japanese cars built in Japan had a price advantage even overseas, when competing with U.S.-built cars. (The same would be true for refrigerators or construction equipment, or any other manufactured goods.)

But lately, Japan has been unable to prevent its currency from strengthening against the dollar, so much so that the advantage has been flipped, and it is beginning to make more sense for Japanese automakers to build their cars in the U.S. than in Japan. As a result, Nissan is closing plants in Japan and moving lines to Tennessee and Mississippi, and Honda plans to export cars from the U.S. in large numbers—150,000 a year by 2017.

What is true for Japan is true in spades for China, which for years has maintained a weak yuan relative to the dollar. Other countries in Asia have also followed China’s lead. If China let its currency strengthen, products made in China would be much more expensive here, leading many producers to move manufacturing operations back to the U.S. By the same token, products made in the U.S. get an immediate price advantage and would once again be competitive in world markets.

The Obama administration and Congress should agree to legislation that would force China and other Asia currency manipulators to give up their tactics and give our manufacturers a fair chance to compete. As EPI’s senior trade economist Robert Scott has shown, no other single legislative action is likely to create more jobs, do more to correct our trade deficit, or do more for our budget deficit.

China Labor Watch just released a new report investigating working conditions at 10 of Apple’s suppliers in China, including the Foxconn factory in Shenzhen. The New York-based group was able to collect this information even though local authorities in China sometimes literally kicked its investigators out of town. As others have also determined, including the Fair Labor Association in a study sponsored by Apple, CLW found working conditions at the Foxconn factory to be severe, with workers employed long hours at low pay under harsh living conditions. The CLW report also breaks new ground in three areas.  The report finds:

• Deplorable labor practices are not just characteristic of Foxconn factories, but exist in factories throughout Apple’s supply chain. The report documents, for instance, that employees in most of the factories typically work 11 hours a day and can only take one day off a month (low wage levels and management pressure compel them to work such hours); that employee dorms are frequently overcrowded, dirty and lacking in facilities; and that there is little ability for workers at Apple suppliers to push for reasonable working conditions on their own.
• As bad as working conditions at Foxconn are, they are even worse at some of the other factories in China that supply Apple. The report flags the three Riteng factories investigated as particularly difficult places to work. The table below includes key findings from the report. It indicates: Riteng workers typically work 12 hours per day nearly every day of the year (including weekends and holidays), compared to 10 hours per day at the Foxconn factories, with some days off.  The average wage for the Riteng workers amounts to $1.28 per hour, or well below the already quite low average hourly wage of $1.65 for Foxconn workers. Health and safety conditions are much worse at the Riteng factories than at the Foxconn factory, and living conditions are worse for the Riteng workers as well.

Table 1

Riteng vs. Foxconn

	Riteng (Shanghai)	Foxconn (Shenzhen)
Approximate number of workers	20,000	120,000
Percent of workers that are dispatched	50%	8%
Average number of hours worked per day	11.8	10
Average number of days worked per month	29.4	23.9
Average hourly wage (RMB)	8.2	10.5
Average hourly wage in U.S. dollars	$1.28	$1.65
Percent rating factory’s performance on work safety and health as ‘bad’	50%	2%
Percent rating dorm conditions as ‘bad’ or ‘very bad’	76%	21%
Percent indicating food is unsanitary	67%	39%

Source: China Labor Watch

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• Certain serious labor problems have so far been neglected in the discussion of work practices at Apple suppliers in China.  In particular, the new report documents the troubling yet common practice by Apple suppliers of using dispatched labor. This practice enables factories to reduce the compensation and benefits they provide to their workers, makes it even easier to compel workers to work exceptionally long overtime hours, and creates damaging uncertainty over who is responsible for any worker injuries.

In recent months, stories about when the next iPhone will be released or whether Apple will add a television to its product line have helped push the troubling issues concerning how Apple’s products are made to the sidelines. The new CLW report is a needed reminder that those issues should not be forgotten. Apple has the responsibility to ensure that basic labor standards are met not just at Foxconn factories, but also at the factories of other suppliers that have received less media attention. And, as I summarized previously, Apple easily has the resources to advance any necessary changes.