Our Fiscal Policy Is A Mess. Here’s How to Clean it Up.
The Murray-Ryan budget deal is marginally better than nothing; it prevents another federal government shutdown in January and provides a slight boost to discretionary spending over the next two years, relative to where we’d be absent this deal.
However, the deal demonstrates yet again that U.S. fiscal policy is a mess. Instead of dealing with the economic challenges of today—a sputtering economy, a jobs gap of nearly 8 million separating us from a pre-Great Recession labor market, long-term unemployment still at crisis levels, and nearly three job seekers for every job opening—policymakers are still acting as if future deficits are the single greatest threat to American living standards. No single fact exemplifies Congress’s preoccupation with deficit reduction than this: The Murray-Ryan deal will cut the ten-year deficit by about $23 billion—roughly the same amount as it would cost to extend federal emergency unemployment insurance for another year, a policy that would save 310,000 jobs in 2014.
It has indeed come to this. Given a clear choice, Congress would rather make symbolic gestures toward reducing the medium-term deficit—which is by no means a dire concern—than take on today’s economic challenges and help the most vulnerable among us.
Apple Fails to Deliver on Key Labor Rights Promises, but the Company’s Chosen Labor Rights Monitor Finds Little Fault
The third and final verification assessment by the Fair Labor Association (FLA) of remediation steps at three Foxconn factories making Apple products led to a raft of stories with headlines touting the progress on worker rights at Apple’s largest supplier Foxconn. While some reforms reported – such as reducing work weeks somewhat (though not to levels in accordance with Chinese law) and certain safety and health improvements – do represent steps forward, progress has been scant in fundamental areas and critical promises have apparently gone unfulfilled. Unfortunately, it is still accurate to describe Apple’s supply chain as rife with labor rights abuses.
The FLA ignores crucial reforms promised by Apple and Foxconn, including increasing wages enough to offset reductions in work hours, providing back pay for uncompensated work time, and making progress towards a livable wage standard. On March 29, 2012, the FLA described the basic remedial actions to be undertaken by Foxconn and Apple, including the promises that compensation at Foxconn factories would increase enough to offset any reduction in overtime hours; that Foxconn and Apple would provide retroactive pay for the many circumstances in which workers had not been compensated for all their overtime hours; and that a study would be undertaken to determine the amount of compensation necessary to provide for basic needs (according to the FLA’s own survey, nearly two-thirds of workers said their compensation did not provide them enough to meet their basic needs).
The FLA has not reported progress regarding any of these critical promises; indeed, the final report does not mention them at all.
Law To End Abuse of Farmworkers Needs Strengthening
Farmworker Justice, the tiny but tireless organization that advocates for migrant and seasonal farmworkers, held a briefing on Capitol Hill yesterday to celebrate the 30th anniversary of the Migrant and Seasonal Agricultural Protection Act (AWPA), a federal law designed to help farmworkers get paid and obtain safe transportation to the fields without fear of retaliation. I worked on the legislation and the implementing regulations 30 years ago as a staffer for Rep. Bill Ford, so I listened with mixed emotions as lawyers familiar with the Act outlined both how the law has helped and where it has fallen short.
AWPA did not change the basic powerlessness of migrant farmworkers, especially the undocumented workers from Mexico and Central America who do most of the farm work in the West and Southwest. As Hector Sanchez of the Labor Council for Latin American Advancement and Mary Bauer, a legal aid attorney from Virginia, put it, farmworkers still live and work in Third World conditions here in the U.S., the richest country on earth. They are often housed in shacks, trailers, cars, or even chicken coops with no plumbing.
Truth As Well As Reconciliation
In the last week, we’ve paid great attention to Nelson Mandela’s call for forgiveness and reconciliation between South Africa’s former white rulers and its exploited black majority. But we’ve paid less attention to the condition that Mandela insisted must underlie reconciliation—truth. The Truth and Reconciliation Commission that Mandela established, and that Bishop Desmond Tutu chaired, was designed to contribute to cleansing wounds of the country’s racist history by exposing it to a disinfecting bright light. As for those Afrikaners who committed even the worst acts of violence against blacks, they could be forgiven and move on only if they acknowledged the full details of their crimes.
In the current issue of the School Administrator, I write that we do a much worse job of facing up to our racial history in the United States, leading us to make less progress than necessary in remedying racial inequality. We have many celebrations of the civil rights movement and its heroes, but we do very little to explain to young people why that movement was so necessary. Earlier this week, the New York Times described how the Alabama Historical Association has placed many commemorative markers around Montgomery to commemorate civil rights heroes like Martin Luther King, Jr., and Rosa Parks, but declined—because of “the potential for controversy”—to call attention to the city’s slave markets and their role in the spread of slavery before the Civil War. Throughout our nation, this fear of confronting the past makes it more difficult to address and remedy the ongoing existence of urban ghettos, the persistence of the black-white achievement gap, and the continued under-representation of African Americans in higher education and better-paying jobs.
How to Raise $1 Trillion in Revenue Without Waiting on “Tax Reform”
Tax increases were considered a dead issue in the discussions leading up to the recent budget deal negotiated by Sen. Murray and Rep. Ryan. The main justification for this position was that tax reform is imminent, and changes to the tax system could be better handled by the experts on the Ways and Means Committee. This argument has been repeated over and over, but it is meaningless. To begin with, the House GOP leadership has made it clear that tax reform will have to be revenue neutral—that is, no revenue increases—so waiting for a tax reform bill in the context of a budget deal makes no sense. Second, the House GOP leadership has made it clear that tax reform will not be considered, let alone introduced, this year. The prospects for tax reform in the next year or the next Congress are, at best, dim. So there was no serious excuse for not increasing tax revenues in the budget deal.
Wholesale tax reform, however, is not needed to increase tax revenues; just a few tweaks to the tax system could raise enough revenue to extend unemployment insurance benefits for the long-term unemployed and provide substantial relief from the sequester over the next 10 years. The table below lists six tax changes, with revenue estimates, courtesy of the Congressional Budget Office and the Joint Committee on Taxation. The six changes, which would increase taxes on those taxpayers most able to pay, are:
Avoiding a Government Shutdown Falls Far Short of What American Families Need
Reactions to last night’s budget deal epitomize what’s wrong with American tax and budget policy these days. On the one hand, policymakers are given a pat on the back for simply keeping the government from grinding to a shuddering halt. This is a low bar indeed. On the other hand, the criticisms lobbed against the deal are completely backwards—claiming that the deal is insufficiently ambitious in closing long-run budget deficits.
The deal is indeed insufficiently ambitious, especially when held up against all of the ways intelligent fiscal policy could help American living standards. I recently tried to provide some detail on what fiscal policy would look like if the living standards of low- and moderate-income families actually entered into policymakers’ calculations. For anybody interested in seeing just how far short the deal brokered yesterday was in meeting the economic needs of American families, take a look at that paper, Taking “Middle-Out” Economics Seriously in this Fall’s Fiscal Debates.
The very short version of how yesterday’s deal fell short is as follows:
Unemployment Insurance Isn’t the Problem, It’s the Solution
On Monday, Paul Krugman dissected the Republican view that emergency unemployment insurance should be ended, throwing 1.3 million jobless workers into immediate financial crisis. Sen. Rand Paul (R-KY), for example, claims that unemployment compensation keeps workers from taking jobs and that people should be cut off from unemployment benefits after six months to keep them from becoming dependent. The fact is, as Krugman points out, there are far more people looking for work than there are job openings, and for two out of three unemployed workers it is literally impossible to find a job, no matter how hard they work or how small a paycheck they are willing to work for.
The notion that people would rather get unemployment compensation than a job ignores how low weekly benefits actually are. In many states with unemployment rates above the national average, the average pay replacement rate is far lower than the national average. Mississippi, for example, has 8.5% unemployment and a UI pay replacement rate of 28.6%. Tennessee’s unemployment rate is 8.4% and its UI pay replacement rate is 28.2%. And Arizona’s unemployment is 8.2%, while its UI pay replacement rate is a near-rock bottom 24.9%. It’s hard to argue that such stingy benefits are keeping anyone from taking a job. The average weekly benefit in Mississippi in 2013 was $194, which works out to less than $5 an hour for a 40-hour work week.
Leaving Extended Unemployment Benefits Out of the Budget Deal is Cruel and Stupid
The budget deal announced last night by conference chairs Senator Patty Murray (D-WA) and Representative Paul Ryan (R-WI) is better than another government shutdown, but nicer words than this are hard to find to say about it.
By far the worst aspect of it is the failure to extend the Emergency Unemployment Compensation program (EUC) in 2014. Without these extensions, 1.3 million workers will have their benefits cut off at the end of 2013, and another 850,000 workers will exhaust normal UI benefits over the first quarter of 2014.
The share of long-term unemployed workers in the total labor force was 2.6 percent in November—double the share of June 2008, when President Bush first signed the UI extensions into law.
Besides cutting off a vital lifeline to millions of Americans, cutting these extensions also continues the disastrous march towards budget austerity; a march that has been by far the primary contributor to our failure to recover from the Great Recession. Cutting these UI extensions in 2014 will create a fiscal drag on the U.S. economy that will reduce job growth by more than 300,000 over the year.
Shockingly Little Progress on Breaking the Glass Ceiling
When my daughter was in sixth grade she was shocked—SHOCKED—that there were so few women in powerful places, either in the private sector or the public sector. She thought that half of all the top jobs should go to women: half the Senate, half the House, half the CEOs, just like the student council at her school, where there was one boy and one girl for each grade.
I assured her that things were getting better and that by the time she grew up there would be women at the top of every enterprise. She is 22 now, and about to enter the workforce full time. Are we there yet? There are more women in the Senate and in the House, but a new study confirms that women are still not making progress on corporate boards.
In 1995, I worked on the release of the “Glass Ceiling” report (pdf) at the U.S. Department of Labor. Reviewing the report today, it’s clear that we’ve made shockingly little progress since then. I can find some hope in the fact that the recently named CEO of General Motors is Mary Barra. She is not just any old new CEO—she busted through the glass ceiling in one of the most male-dominated industries. But overall, there are so few women in corporate boardrooms that it’s hard to even argue for the need for a ladies room.
Ratio of Job Seekers Remains Extremely Elevated—No Time to Cut Unemployment Benefits
The Job Openings and Labor Turnover data released this morning by the Bureau of Labor Statistics showed that the ratio of job seekers to job openings remained unchanged in October at 2.9-to-1, which is equal to the worst month of the early 2000s downturn. A ratio of 2.9-to-1 means that for nearly two out of every three job seekers, there are no jobs available, no matter what they do.
The Emergency Unemployment Compensation program, which has provided support to millions of Americans who lost their job through no fault of their own during the Great Recession and its aftermath, should not be allowed to expire on December 28, 2013, as it is set to do. Allowing these benefits to expire would cut a crucial lifeline to millions of unemployed workers and their families at a time when job opportunities remain historically weak.
More Than Three-Quarters of Workers Missing from the Labor Force Are Under Age 55
A blog post by Pedro Nicolaci da Costa in the Wall Street Journal highlights findings from a paper from the Federal Reserve Bank of Philadelphia that much of the shrinking of the U.S. workforce has been due to workers retiring early, and that given that people who retire early are less likely to reenter the labor force when job opportunities improve, improving economic conditions may not draw these workers back in.
I’ve looked at the breakdown by age of the 5.6 million “missing workers”—potential workers who, because of weak job opportunities in the aftermath of the Great Recession, are neither employed nor actively seeking work. More than three-quarters of missing workers are under age 55 and are therefore unlikely to be early retirees. That means that even if all of the missing workers age 55 and over are early retirees who will never reenter the labor force no matter how strong job opportunities are (a very strong assumption), that still leaves 4.3 million missing workers under the age of 55 who are likely to re-enter the labor force when job opportunities strengthen. In other words, weak labor force participation rate remains a key component of the total slack in the labor market.
Roughly half of missing workers are of prime working age: Missing workers,* by age and gender, July 2014
| Missing workers | |
|---|---|
| Men under 25 | 630,000 |
| Women under 25 | 420,000 |
| Men 25–54 | 1,850,000 |
| Women 25–54 | 1,380,000 |
| Men 55+ | 580,000 |
| Women 55+ | 1,000,000 |
* Potential workers who, due to weak job opportunities, are neither employed nor actively seeking work
Source: EPI analysis of Mitra Toossi, “Labor Force Projections to 2016: More Workers in Their Golden Years,” Bureau of Labor Statistics Monthly Labor Review, November 2007; and Current Population Survey public data series
NAFTA’s Impact on U.S. Workers
The North American Free Trade Agreement (NATFA) was the door through which American workers were shoved into the neoliberal global labor market.
By establishing the principle that U.S. corporations could relocate production elsewhere and sell back into the United States, NAFTA undercut the bargaining power of American workers, which had driven the expansion of the middle class since the end of World War II. The result has been 20 years of stagnant wages and the upward redistribution of income, wealth and political power.
NAFTA affected U.S. workers in four principal ways. First, it caused the loss of some 700,000 jobs as production moved to Mexico. Most of these losses came in California, Texas, Michigan, and other states where manufacturing is concentrated. To be sure, there were some job gains along the border in service and retail sectors resulting from increased trucking activity, but these gains are small in relation to the loses, and are in lower paying occupations. The vast majority of workers who lost jobs from NAFTA suffered a permanent loss of income.
Lies, Damn Lies, and Retirement Savings
The American Benefits Council, the American Council of Life Insurers, and the Investment Company Institute released a study this week entitled (no joke): Our Strong Retirement System: An American Success Story (pdf). College professors may want to bookmark this study for textbook examples of cherry-picked data, outdated findings, and hypothetical scenarios contradicted by real-world outcomes. To cite one example: the authors tout the fact that 401(k) participants with at least 30 years’ tenure with the same employer (an unrepresentative group to say the least) have significant savings in their accounts. The authors devote a later section of the report to the unsubstantiated claim that “the 401(k) is a good fit for America’s mobile workforce.”
Mostly, though, the report simply ignores the biggest economic challenge of our time: inequality. As Natalie Sabadish and I note in our Retirement Inequality Chartbook, it doesn’t matter if the “average” household has $86,000 saved in retirement accounts (pdf) if the median (50th percentile) household has only $2,500 while the 99th percentile household has $1.3 million (pdf). Simply put, Mitt Romney’s gargantuan IRA doesn’t make up for the fact that most families have virtually nothing saved for retirement, any more than Romney’s lavish Bain Capital compensation made up for the fact that most workers haven’t seen a real raise in years.
What to Watch on Jobs Day: Even Without Furloughed Workers, Government Employment is Still Too Low
Much of the focus last jobs day was on the government shutdown and its impact on the employment data for October. The November job numbers will likely show at least some reversal of October’s trends in the household survey data, including the increase in unemployment, decline in employment, and decline in labor force participation, as these movements were in part driven by the temporary furlough of government workers (while the BLS stated, and we reported, that the shutdown did not affect the labor force participation rate, further analysis suggests that it likely had some impact). Because of these distortions in the October household survey, the change from October to November will provide little information about the underlying labor market trend. Instead, it’s important to focus on shifts over longer time periods.
The talk about the government shutdown is largely a distraction from the larger issue, namely just how many jobs the economy needs to create to return to pre-recession levels of employment.
In addition to the economic ramifications of the 800,000 furloughed government employees in October, we still face a 1.43 million jobs shortfall in public sector employment. The graph below illustrates the public sector jobs gap from January 2000 through September 2013. In an effort to not overstate the jobs gap which may have temporarily occurred because of the government shutdown, we are omitting October’s numbers. On Friday, this will be updated through November 2013.
Overall, it’s clear that austerity driven job losses in the public sector have been an enormous drain on the recovery.
Economic Populism Still the Right—and the Winning—Choice
In yesterday’s Wall Street Journal, the centrist think tank Third Way’s Jon Cowan and Jim Kessler call economic populism a “dead end for Democrats,” pointing to one lonely data point—Coloradans’ vote against raising taxes to increase education funding—to call into question the entirety of progressives’ economic policy agenda.
Call me crazy, but I’m not prepared to cede the direction of American politics to the 1.3 million people who turned out to vote on a school-tax measure—just 36 percent of registered Colorado voters. For one thing, a similar school-tax measure was defeated by an almost identical margin in the state just two years ago, and yet this result didn’t portend doom to Democrats running state-wide in 2012. And for another, aside from living in a swing state, I’m not sure why these voters are more representative of America than the New Yorkers who on the same day as the Colorado vote elected Bill de Blasio mayor in a landslide, or the Californians who in 2012 voted to increase their income taxes to fund public education.
In any event, Colorado’s vote against a tax increase has very little to do with Americans’ attitudes toward Social Security and Medicare, as Cowan and Kessler presume, and even less in common with the reality of these programs’ fiscal future.
President Obama Hits the Right Notes
President Obama hit all the right notes in his speech today addressing income inequality. I was pretty tough on him last July in a similar speech where I said he was better at the diagnosis of the problem than in proposing solutions. In particular, I pointed out he failed to acknowledge that to generate expanded opportunity and a broader middle class requires broad-based wage growth. After all, a good working definition of the middle class is people and families that rely almost exclusively on the income from work—wages and benefits. They don’t have income from owning stocks or other financial assets and don’t receive much ‘transfer income’ from the government.
Today, the president did better; he said “growth alone does not guarantee higher wages and incomes” and said, “the third part of this middle-class economics is empowering our workers.” He followed this with recommendations to strengthen collective bargaining, achieve pay equity for women, rebuild manufacturing and raise the minimum wage. I appreciate that. He noted the need to continue to combat racial discrimination while also asserting the increased prominence of class as a determinant of well-being. Providing more skills and better education is always critical for social mobility and improved productivity. He urged a strengthening of our social safety net, including retirement savings and Social Security. He called for maintaining the unemployment benefits needed to protect the long-term unemployed. And, he said that the Affordable Care Act was an important cornerstone in providing economic security, which it surely is. These are the basic ingredients needed to generate a different set of outcomes than the disheartening ones produced over the last few decades. Bravo!
It was nice to see the President use our research on the pay disparity between CEOs and typical workers (273:1) and the wealth disparity between the top one percent and the median household (288:1).
Sure, there are a few misguided distractions in the speech—more exports, but nothing about trade deficits which involves imports, the need for corporate tax reform—but no reason to dwell on those items at this moment. You always want to see improvement and this speech definitely improves on the July speech. It’s great that he said ”our number one priority is to restore opportunity and broad-based growth for all Americans” and an A+ speech would have inserted ‘wage’ before growth.
The Stem, the Flower, and Corporate Greed
In his New York Times column this morning, David Brooks uses a garden metaphor to instruct us on the different functions of the public and private sector. He writes that the government is like the “stem,” providing us with the essential but rather uninteresting infrastructure to allow the “flower” of private life to bloom. Thus, we need parks, public transportation and public safety, but people can provide their own picnic.
Putting aside that there might be other things we need for a picnic—such as safe food and a job with a day off—Brooks’ division of responsibility is reasonable. But the political context of his column is nonsense. What we face today is not some theoretical ignorance of the right balance between things that are private and things that are public; all but the most libertarian understand the public’s role in providing “stem” functions. The reality is that everywhere we look, essential public functions are being undermined, if not destroyed, by privatization.
Apple Ignores Code of Conduct as Factory Workers in China Work Illegal, Excessive Overtime
Apple’s ugly labor problems aren’t limited to its Foxconn factories, and they aren’t going away.
The labor rights group Students and Scholars Against Corporate Misbehaviour (SACOM) first exposed the wave of employee suicides at Apple’s Chinese contractor, Foxconn, and the grueling conditions in which hundreds of thousands of employees work. SACOM has regularly revealed Apple’s failure to abide by its so-called code of conduct, and along with another watchdog group, China Labor Watch, has monitored Apple’s failure to live up to its announced intention to clean up sweatshop conditions at its factories in China and to stop the use of indentured student labor.
In April, China Labor Watch reported that two more Apple/Foxconn workers had committed suicide by jumping from buildings to their death. China Labor Watch also found labor law violations at ten other Apple suppliers, including Pegatron.
Now SACOM has released a new report that details the serious labor rights violations at another Apple supplier, Biel Crystal, which reportedly makes 60 percent of Apple’s touch screens. SACOM reports that five Biel Crystal workers employed at its Huizhou factory have killed themselves since 2011. One possible cause is the stress of working horrific hours—11 hours a day, seven days a week, with only a day off in a month. This is a gross violation of Chinese labor law, which limits overtime to 39 hours a month. The Biel Crystal employees work more than twice as much overtime as the law allows.
When will American consumers wake up to Apple’s crushing exploitation of Chinese workers?
Help Bring the Facts to the Fight for Working People: Support EPI on Giving Tuesday
This year, EPI is delighted to join the growing ranks of nonprofits participating in Giving Tuesday.
While Americans have embraced the bargain-hunting possibilities of Black Friday, Small Business Saturday, and Cyber Monday, Giving Tuesday seeks to round out the week that follows Thanksgiving by returning to a theme of giving back. Giving Tuesday, which started last year—largely through the initiative of New York City’s 92nd St Y—is a day to support nonprofit organizations and kick off the season of annual giving by donating to a charity of your choice.
Of course we hope you will consider a donation to EPI. But the bigger message here is to take time to give back in some way. You can share who you’re giving to and help promote the nonprofits near and dear to your heart using the hashtag #GivingTuesday.
We are deeply grateful for the contributions from supporters we receive throughout the year that fund our research and activities, including this blog. We wish you safe travels and happy holidays, from the EPI family to yours.
“PISA Day”—An Ideological and Hyperventilated Exercise
National average scores of students on the 2012 Program for International Student Assessment (PISA) will be released Tuesday, and we urge commentators and education policymakers to avoid jumping to quick conclusions from a superficial “horse race” examination of these scores.
Typically, The U.S. Department of Education (ED) is given an advance look at test score data by the Organization for Economic Cooperation and Development (OECD) and issues press releases with conclusions based on its preliminary review of the results. The OECD itself also provides a publicized interpretation of the results. This year, ED and the OECD are planning a highly orchestrated event, “PISA Day,” to manipulate coverage of this release.
It is usual practice for research organizations (and in some cases, the government) to provide advance copies of their reports to objective journalists. That way, journalists have an opportunity to review the data and can write about them in a more informed fashion. Sometimes, journalists are permitted to share this embargoed information with diverse experts who can help the journalists understand possibly alternative interpretations.
In this case, however, the OECD and ED have instead given their PISA report to selected advocacy groups that can be counted on, for the most part, to echo official interpretations and participate as a chorus in the official release.1 These are groups whose interpretation of the data has typically been aligned with that of the OECD and ED—that American schools are in decline and that international test scores portend an economic disaster for the United States, unless the school reform programs favored by the administration are followed.
Still a “Perfect Match”—Increasing Tax Fairness to Finance Job Creation
Last year, EPI fiscal policy analyst Ethan Pollack released a report showing that a number of revenue increases called for in the Congressional Progressive Caucus’s (CPC) annual budget could support truly significant job-creation programs. Ethan specifically estimated job gains stemming from using the revenue to support infrastructure projects.
Besides national numbers, he also broke down job-gains by every state. We decided to update these numbers with revenue estimates the last CPC budget, just to remind people that even if it is decided (mistakenly) that the budget deficit is too large and cannot be allowed to rise to support job creation programs, these programs can still be funded with progressive tax increases and create jobs (less efficiently than if funded by deficits, but still significant job creators on net).
Our call for financing deficit neutral job programs with progressive tax increases is not simply an ideological preference. Rather, progressive tax increases (i.e., raising money from high-income households and corporations) impose a much smaller drag on economic recovery than broader based increases, allowing for the greatest job gains when paired with infrastructure spending. This is an extremely well documented piece of empirical economics.
Below we have replicated the tables for revenue and job creation using updated numbers. We only show numbers for 2014 through 2016, as the job creation numbers depend on the assumption that the economy is not at full employment. Beyond 2016 it’s impossible to assess this assumption one way or the other.
Giving Thanks for Small Things: A Little Light in the Dark Corridors of Power
The post originally appeared on the Huffington Post.
The deeper you are in the inner sanctums of power, the slower you are to get disturbing news from the rest of the world. So, I suppose it should be no surprise that it has taken so long for a prominent member of the American policy elite to suggest openly to his colleagues that the core assumption upon which they have been managing the economic crisis might be dead wrong.
Four and a half years after the current “recovery” began, economic pain remains widespread. Wages and incomes are still falling, the share of jobless working age people has not declined, and hunger and homelessness are rising.
Yet the Washington/Wall Street message to the rest of America remains: Have patience.
True, acknowledges the official story, we’re in the slowest recovery since the 1930s. But capitalist markets always fluctuate around a long-term trend of expansion at full employment. It follows that what goes down must come up. So, after previously assuring us that a deep recession would mean a strong recovery, they now tell us the deep recession is the reason for the weak one. Anyway, the accepted wisdom continues; as long as the Federal Reserve keeps the cost of capital (i.e., interest rates) low, sooner or later the natural workings of the market will return us to pre-2008 prosperity.
Unpaid Internships: Bad for Business, Bad for Interns
Yesterday’s NYT column by David Carr about internships doesn’t just bury the lede, it takes it hostage and heads off in the opposite direction before revealing that Carr thinks businesses ought to pay their interns and will be rewarded for it. Carr starts out by seeming to make fun of young people who think they’re too good to get someone else’s coffee and drycleaning and seems in particular to have no patience for an intern who moved to New York to work for Vogue only to find herself being abused and undervalued—and crying into her pillow at night. He argues that lawsuits enforcing interns’ right to be paid might be ill-conceived.
But the column takes an abrupt turn when Carr describes the experience of The Atlantic Media, which ended its practice of hiring unpaid interns soon after the Labor Department issued a Fact Sheet declaring most unpaid internships at for-profit companies illegal. The Atlantic began paying its interns (Carr doesn’t mention that it provided backpay to previous interns who had been unpaid) rather than doing away with internships altogether. It created year-long fellowships involving mentoring and education, substantive work, and honest compensation. Far from suffering financially, the company has thrived. The fellows are diverse, smart, creative, and bring new energy to the company.
On Social Security, Elizabeth Warren Gets It Mostly Right
Huffington Post reports a recent floor speech where Sen. Elizabeth Warren (D-Mass.) condemned the notion that we ought to be cutting back on Social Security benefits rather than expanding them:
“Sen. Elizabeth Warren (D-Mass.) recently joined the push to increase Social Security benefits, saying the program can be kept solvent for many years with “some modest adjustments.”
“The suggestion that we have become a country where those living in poverty fight each other for a handful of crumbs tossed off the tables of the very wealthy is fundamentally wrong,” Warren said in a Senate floor speech on Monday. “This is about our values, and our values tell us that we don’t build a future by first deciding who among our most vulnerable will be left to starve.”
She added, “We don’t build a future for our children by cutting basic retirement benefits for their grandparents.”
I agree with Warren: It’s morally wrong to cut Social Security benefits when seniors are already struggling and the generations coming behind us will have fewer pensions and lousier savings in their 401(k)s, if they have any savings at all. We are a wealthy nation, but our wealth is being shifted away from the majority and into the pockets of a smaller and smaller slice of upper income earners and rich families. As EPI’s State of Working America reveals, from 1983 (when the last major Social Security reform was enacted) through 2010, the wealth of the bottom 60 percent of Americans actually declined. Even as the nation’s wealth increased by 63 percent, the bottom 60 percent of families were made poorer because a range of policies froze their wages, shipped their jobs overseas, lowered the minimum wage (after adjustment for inflation), and indebted them by raising the price of education.
Further, as much as I agree with Sen. Warren on the merits and understand why she felt the need to push back on the “grandparents vs. grandchildren” framing, I don’t think she went far enough in her argument here—because it is actually the grandchildren who are really the most at risk. Maya MacGuineas and Alan Simpson pretend that if we don’t cut “entitlements” (earned benefits) like Social Security now, we will somehow bankrupt our grandchildren. So their solution is….to cut the grandchildren’s income. Raising the retirement age for the generations coming behind us means cheating them, cutting their benefits when we should be raising taxes now to fund their future benefits. They are the ones who will lose the ability to retire while they can still enjoy it. They are the janitors, cashiers, factory workers, construction workers, and nurses’ aides who will be forced to work even longer in physical jobs or see their benefits cut to levels even closer to poverty. Already, the average benefit is just a little more than the poverty threshold, $14,760 vs. $11,490.
Besides being morally wrong, cutting Social Security is economically incoherent. As EPI has shown repeatedly, retirement insecurity is growing and essentially every “leg of the retirement stool” besides Social Security is failing American workers and retirees. In short, the next generations will need a strong Social Security system more than ever. If they are to have what they need, Social Security must be expanded, not cut back. Its funding must be shored up by scrapping the cap, the arbitrary limit that lets the top earners escape taxation on salaries over $113,700 a year, while the bottom 90 percent pay on every nickel they earn. Additional benefits will require higher payroll taxes, but those taxes will be a fair price for better financial security for the elderly. For some details on this, see Monique Morrissey’s presentation at the National Academy for Social Insurance from earlier this year.
In Debate Over ”Secular Stagnation,” Don’t Let Legitimate Concerns Over Inequality Let Austerity Off the Hook
The debate over “secular stagnation” started by Larry Summers and Paul Krugman continues on. Contributions from Jared Bernstein, Dean Baker, and Daniel Davies are worth reading (as are plenty I’m missing, for sure).
The root question being discussed is whether or not the shortfall in aggregate demand that drove the Great Recession and continues to depress the U.S. economy (and other advanced economies) is something that will afflict us for a long time, and if so what to do about it.
Historically, the prospect of demand shortfalls lasting a decade is not something that worried macroeconomists. The general assumption was that economies were pretty resilient, and so long as the Federal Reserve cut short-term interest rates as downturns loomed, recessions would be short and recoveries rapid. And for recessions in the U.S. before 1990, that seemed borne out by the data. Yet the last three recoveries have been slow—and each one slower than the last. And the recovery following the 2001 recession really only happened when an enormous asset bubble in housing pumped hundreds of billions of dollars of demand into the economy, and even with this enormous (and ephemeral) boost, the recovery was still anemic. Hence the concerns over “secular stagnation,” or, demand shortfalls that linger on for a long time.
Yesterday’s addition to all of this, from the BBC, discusses an implicit debate between Krugman and Joseph Stiglitz about whether or not the inequality is a key influence depressing demand and making recovery so hard.
Responding to an Uninformed Critique
Earlier this year, we published an analysis of international test score data in which we showed that these data hide many complex issues, and that glib conclusions regarding the meaning and policy implications of international test data should be avoided. We showed that it is more appropriate to compare student performance across countries by comparing students with similar social class backgrounds, and we showed that comparative information is more useful if it includes test data trends over time as well as levels in the current year. We also presented apparent anomalies in test data (for example, periods in which performance on one international test goes up but performance on another international test, purporting to measure the same subject, goes down, or carelessness in sampling methodology) that should caution analysts from relying too heavily on test score data.
Upon the release of our report, we were attacked by several promoters of the conventional idea that international test data show that American schools are in collapse and are threatening our economic security. Prominent among these was Marc Tucker, president of one of the leading education-scold organizations, the National Center on Education and the Economy. Tucker attacked our report without having bothered to read it, and was subsequently forced to issue an apology for misrepresenting our findings (“We misstated the conclusions presented by Martin Carnoy and Richard Rothstein in the report described in this newsletter. We believe we have stated those conclusions accurately here, and apologize to the authors for the error”).
He apparently didn’t learn anything from this embarrassing episode, because now, two weeks before release of new international test score data, he has again attacked our earlier report, again based on his own misrepresentations of what the report actually says. The occasion of his current critique is Valerie Strauss’ Answer Sheet blog at The Washington Post.
Our Debt is Not a Problem We Need to Solve Right this Second
Yesterday, the Committee for a Responsible Federal Budget released a report entitled “Our Debt Problems Are Very Far from Solved,” which implicitly argues that—despite dramatic drops in our near-term deficits and vast improvements in the medium-term outlook of the federal government’s balance sheets—long-term deficit reduction should remain our top economic policy priority for now.
Concentrating on deficit reduction above all else would be a mistake for a number of reasons: such a focus ignores recent changes in facts about our fiscal outlook; it calls for painful and unnecessary policy changes; and it sets aside the issues that should be our focus, namely returning to a broadly-shared economic growth. To be clear, there are policies that would reduce long-term deficits while helping to meet these other challenges, but there are also policies that would reduce long-term deficits while making these challenges even worse. It matters, a lot, which set of policies we choose. Prioritizing deficit reduction, in and of itself, as the pre-eminent policy goal going forward makes for a much worse debate.
Either AEI Has Forgotten Basic Statistics or They Are Advocating For More Collective Bargaining
Admittedly, I don’t read the American Enterprise Institute’s blog very much. Today, however, someone alerted me that they published this post suggesting that minimum wage laws are at least partially to blame for Europe’s employment woes. In it, Dr. Mark Perry presents a table of countries in Western Europe, their country-wide statutory minimum wage, if they have one, and their respective “jobless rates.”1 He then asserts:
“[M]inimum wage proponents… argue that other countries have minimum wage laws apparently without any adverse consequences on employment levels or jobless rates. The empirical evidence from Western Europe seems to suggest otherwise. Labor markets in the group of countries with no minimum wage laws are much healthier and doing much better than the group of countries with minimum wage legislation, measured by the jobless rates in Western Europe.”
To paraphrase, “Look: minimum wage, higher joblessness; no minimum wage, lower joblessness… just saying.” Although this argument has something of a timeless quality to it (pdf), it’s wrong, tissue-paper thin, and not something we would expect from any serious researcher.
Brief Discussion of Senator Baucus’s Discussion Draft
Senate Finance Committee Chairman Max Baucus released his international business tax reform discussion draft yesterday. This is an ambitious and fairly thorough proposal and the Senator is to be commended on offering such a detailed draft with legislative language.
But from the start it fails in one crucial area—revenue. Senator Baucus apparently is looking for additional revenue for short-term deficit reduction, but the international tax reform discussion draft is intended to be long-term revenue neutral (more on this below). Corporate taxes already provide too little revenue; corporate tax revenue, which was about 4 percent of GDP in the 1950s, is equal to about 1.5 percent of GDP today. If corporate tax revenue as a percent of GDP had been at its 60-year average last year, corporate tax revenues would have been 43 percent higher, or about $120 billion. Meanwhile, corporate profits are currently at an all-time high.
Revenue aside (and it’s a big aside), it is difficult to fully assess the policy merits of a discussion draft that offers two options and is necessarily incomplete until the rest of the corporate income tax proposal is released. Nonetheless, I have a few comments, based on what has been released and my reading between the lines.