Reinhart and Rogoff couldn’t justify austerity before it was debunked

Last week, The Century Foundation hosted a Twitter chat forum in which Mike Konczal of the Roosevelt Institute, TCF fellow Mark Thoma and I discussed the Reinhart and Rogoff kerfuffle and its implications for the policy debate over austerity (here’s the Storified “transcript”). Nearly every facet of this incident has been thoroughly covered in the blogosphere—see Mike’s post for a summary of the Herndon, Ash, and Pollin (2013) paper debunking R&R; Arindrajit Dube’s post on reverse causation; my colleague Josh Bivens’ post on R&R’s response to reverse causation criticism; Paul Krugman on R&R’s obfuscating rebuttal; and Dean Baker’s post on R&R’s purported role in the policy debate.

But what’s gone entirely missing, as far as I can tell, and what I struggled to explain in sub-140-character increments, is that R&R’s reported finding—that “median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower [and slightly negative]”—couldn’t justify austerity even before it was debunked.

Back in early 2010, pundits and policymakers immediately seized on R&R’s now-invalidated results to justify austerity policies, so the paper’s methodological debunking has been correctly interpreted as a major defeat for the austerity movement. But the Beltway interpretation of R&R was based on a false premise from the get-go. Robert Samuelson’s predictably unhelpful addition to the R&R debate—his half-hearted defense of R&R’s “minor mistakes” is scattered with objectively inaccurate revisionist history—perfectly encapsulates this widely propagated false dichotomy: “It’s ‘austerity’ versus ‘stimulus.’ If debt exceeding 90 percent of GDP is hazardous, then the case for austerity seems stronger.” (Emphasis added.)

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The missing workers: how many are there and who are they?

Jim Tankersley at the Washington Post and Ben Casselman at the Wall Street Journal are in a “wonkfeud” about labor force participation. It started when Casselman estimated that there are currently around 3 million “missing workers” in the US (workers who are not in the labor force but who would be if job opportunities were strong). Tankersley did not dispute that figure, but pointed out that because it only counts workers who are missing due to the weak labor market in the Great Recession and its aftermath, it is a substantial undercount of the total number of missing workers because labor force participation was also weak in the decade leading up to the Great Recession.

To Tankersley’s point I will just add that while I don’t have an estimate of the number of missing workers from the 2000-2007 business cycle, it was indeed the weakest full business cycle in terms of job growth in at least three generations, and the labor market had not yet come close to regaining the health of the late 1990s before the Great Recession began at the end of 2007. It is an important reminder that estimates like the one below of how many jobs we need to get back to the labor market health of 2007 are conservative indeed, since while 2007 was the last year before the Great Recession hit, it was no labor market paradise by any stretch.

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Why do so many people want to only pursue the expensive ways to fix job-quality?

John Schmitt and Janelle Jones have written an excellent paper on what it would take to improve job-quality in the U.S., backed with actual data, rather than hand-waving about training-this and skills-that. I would, however, slightly tweak one line in the press release for the paper: “The authors note that restoring the link between economic growth and job quality will be a heavy lift.”

I think a distinction is in order between things that are a heavy economic lift versus those that are a heavy political lift. Schmitt and Jones, for example, show that increasing the share of U.S. workers represented by a union by 25 percent would have a larger impact on boosting good jobs (and reducing bad jobs) than would boosting the share of U.S. workers with a 4-year college degree by 25 percent.

But boosting the share of workers with a 4-year college degree is indeed a heavy economic lift—it takes real resources (books, labs, classrooms and most expensively teachers) to provide the skills and education needed to qualify for a college degree. But boosting the share of workers with union representation really doesn’t cost much at all—there is really no serious research linking economy-wide productivity declines to increased unionization. Instead, boosting the share of union workers in the U.S. would redistribute money, but would not cost the U.S. economy anything in the aggregate. And given that so much of the decline in unionization seems to be policy-driven (PDF), the real lever to make this increase happen is essentially the costless act of changing the policy stance towards unionization (there is no CBO score, for example, for the Employee Free Choice Act because it doesn’t cost anything).

But of course we’re not going to see a more hospitable policy/legal environment for unionization anytime soon—it’s too heavy a political lift.

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What we read today

Here’s what we’re reading and talking about this afternoon:

(Final?) Notes on the Reinhart/Rogoff saga

Robert Samuelson and Anders Aslund have a go at defending the R&R results, and the authors themselves further respond. A couple of notes on all of this.

As pointed out elsewhere, the claim that the UMASS paper actually supports R&R’s alleged core finding of a significant relationship between high debt and slow growth is flat wrong.1 Yes, the midpoint average growth rate of high-debt countries (over 90 percent of GDP) is lower than the average growth of lower-debt countries, but the differences are not statistically significant. Really, people should give up on this one.

More importantly, the real argument all along has been two-way causality: data showing that there is lower growth at high debt levels does not show that high debt causes low growth. A finding of statistical association between high debt and slow growth would surprise precisely nobody, but there is a better case to be made that slow growth leads to high debt rather than vice-versa. Arin Dube demonstrated this very well in his note on Reinhart and Rogoff’s entire data-set, and for the U.S. John Irons and I did the same with Granger causality tests on the U.S. data in July 2010, nearly three years ago. Paul Krugman kindly referred to our results in his blog saying “John Irons and Josh Bivens have the best takedown yet of the Reinhart-Rogoff paper (pdf) claiming that debt over 90 percent of GDP leads to drastically slower growth.” So the causality problem has been well known for some time. By the way, we compiled the data we used ourselves because emails to Reinhart and Rogoff requesting their data went unreturned. Perhaps if they had shared their data at that time their actual weighting procedure would have become clear much sooner and even their spreadsheet error could have been corrected. Kudos to the UMASS authors for being more persistent than us and for the work they did.

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Workers Memorial Day thoughts

How many times have you heard business lobbyists and spokesmen say: “Regulations are killing jobs”? Or how about, “Excessive regulations are driving manufacturers overseas”?

Well think about what’s been happening in Bangladesh, where so many US clothing retailers and garment makers, from Wal-Mart to L.L.Bean, have gone to escape livable wages and regulation. That lack of regulations is killing workers, not in ones and twos, as happens here in the United States several times every day, but hundreds at a time. Factory fires as devastating as the Triangle Shirtwaist fire of a century ago have now been followed by a building collapse that has so far claimed 300 lives, the workers crushed, bleeding to death or suffocating.

Several stories I’ve read report that only one business (a bank) heeded the warnings of police that the eight-story factory building was so unsafe that it had to be evacuated. The other businesses shrugged off the warnings and ordered more than 2,000 people to work in mortal danger.

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How far from full recovery are we, Part II: Housing to the rescue?

I noted a while back that the uptick in residential construction was a genuine bright spot in the economy, and one that would all else equal make one expect better GDP growth in 2013 than 2012. But just how much should we realistically expect from residential investment in driving growth?

Not much. Residential investment is only about 2.7 percent of the overall economy (as of the first quarter of 2013), so even extraordinarily fast growth in this sector would not be enough to drag the rest of the economy with it. As a demonstration, look at 2012—the most rapid growth of residential investment in the past two decades—in the figure below (which shows a rolling 4-quarter average of growth rates of residential investment since 1989).

housing blog A

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What we read (and watched) today

Here’s what we read (and watched) today:

$100 billion to Apple shareholders, any to Apple workers?

In conjunction with its April 23 quarterly earnings report, Apple issued a separate announcement that it is doubling its “capital return program” and will return $100 billion to shareholders by the end of 2015. This decision reflects the enormous size of the company’s existing cash reserve and, according to Apple’s chief financial officer, the fact that “We [Apple] continue to generate cash in excess of our needs….”

Missing from yesterday’s announcement, as well as from the last few months of discussion over what Apple should do with its cash reserve, was how those resources could also be deployed to make necessary improvements in the compensation and treatment of the workers making Apple’s products abroad, or selling its products in the United States. This neglect is unfortunate. These workers contribute directly to Apple’s enviable financial position, even though they frequently live and work under harsh conditions for meager pay. As I detailed in a previous analysis, Apple could also use its cash reserve to:

  • Fulfill its promise to retroactively pay the factory workers making its products for previously uncompensated work time
  • Boost the pay of the factory workers making its products to offset the reductions in excessive overtime Apple has (appropriately) helped spur
  • Ensure that all the workers making its products are paid a livable wage, a step Apple is theoretically obliged to take as a member of the Fair Labor Association
  • Reduce health and safety threats at the factories making its products
  • Provide compensation for the labor rights violations the workers making its products have endured
  • Narrow the gap between the pay of the workers at Apple stores and comparable college graduates

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How far from full labor market recovery are we? Part I

Last year around this time, I wrote a blog looking at the behavior of the unemployment rate over and after the Great Recession. I found that relative to its past historical relationship with output growth, the overall unemployment rate rose too rapidly during recession and then fell too rapidly between 2011 and 2012. I then approvingly quoted Ben Bernanke, who noted: “further significant improvements in unemployment will likely require faster economic growth than we experienced during the past year.”

In last year’s blog post, I noted that going forward the historical relationship between output growth and unemployment suggested that two straight years of 2.7 percent growth would be needed to reduce unemployment by even 0.4 percentage points. The growth rate for 2012 came in well under this at 2.2 percent. And what happened to unemployment in 2012? It fell by 0.8 percentage points.

So, another year has passed where the overall unemployment rate significantly over-performed relative to most other economic aggregates. The figure below shows the two-year change in unemployment, both actual and what is predicted from a simple regression of the two-year change on the two-year difference in growth rates of actual gross domestic product versus potential gross domestic product as measured by the CBO.1 What this captures is that the economy must grow faster than underlying trend growth (or growth in potential GDP) in order for unemployment to decline. The figure confirms that the actual unemployment rate rose more rapidly than predicted during the Great Recession, but then fell more rapidly than predicted in 2011 and 2012. By the end of 2012, the actual unemployment was a nearly 1.5 percentage points below what it would have been had the simple Okun’s relationship between output growth and unemployment continued to hold.

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What we read today

Fox News wannabe: Washington Post disses France

In a story headlined, “France Drowning in Rules and Regulations, critics say,” WaPo writer Edward Cody presents a caricature of a country with one of the highest standards of living in the world. Based on little more than interviews with disgruntled officials in one small town, Cody variously describes France’s regulatory regime as “strangling,” “smothering,” or “burying” the economy. For example:

“France and its southern European neighbors, such as Italy and Greece, are increasingly being buried in such norms, rules and directives. In the past two decades, the number of legal do’s and don’ts has become so great that businessmen and economists1 warn that it is smothering growth just as the continent tries to dig out of its worst slump in a generation.”

But France is not Italy or Greece, and the truth is almost the opposite of Cody’s claim that, compared with the Scandinavian countries, France discourages business. In fact, the World Bank measures the nations of the world on the ease of starting a new business, and France ranks well above all four of the Scandinavian countries. France also ranks about 80 places ahead of Europe’s economic powerhouse, Germany.

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More on missing downward price pressure (hint, blame corporate profits)

Paul Krugman has been writing (and linking to helpful pieces) about the “missing deflation” of recent years. Despite lots of hand-wringing that activist macroeconomic policy (especially the large degree of easing done by the Federal Reserve) is laying the powder for an explosion of inflation, it’s clear that this is the wrong worry and that the extraordinary degree of economic slack actually argues that disinflation is much more likely, and is actually a problem (by the way, Ken Rogoff is totally right about this one).

But Krugman notes it’s actually a puzzle that disinflation (a reduction in the rate of price-growth) has not been ongoing and has not pushed over into outright deflation (falling prices) like in Japan. And even in Japan, prolonged economic weakness has not led to accelerating deflation, instead their deflation has been slow and steady. So what’s happening?

Krugman and others have usefully pointed to downward nominal wage rigidity as the key reason—for whatever reasons, workers seem to really not like, and employers seem to indulge their preference for, outright nominal wage cuts. Wages holding steady while inflation reduces their purchasing power? That happens—and it’s happening a lot these days. But outright nominal wage reductions are rare, and this rarity could well be providing a (useful) floor to disinflation.

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Kids vs. seniors: an Urban myth

Are we spending too much on seniors and too little on kids? Many will recognize this as a classic either-or fallacy (what about tax breaks for the wealthy…?) But with Ron Brownstein, Ezra Klein and Charlie Cook all repeating the Urban Institute statistic that federal spending on seniors is nearly seven times that on children, the idea that seniors are crowding out children’s programs is catching on in Washington. Meanwhile, Urban’s estimate that state and local governments spend nine times more on kids than on seniors hasn’t gotten the same attention. Overall, it appears that government spending on seniors is roughly double (or less) that on children, though this measure includes Social Security, which is almost entirely funded through worker contributions.

Few progressives would dispute the need to spend more on children, especially low-income children. This should be the take-away from the Urban Institute’s “Kids’ Share” reports, the latest of which was published last July but is still frequently cited. Unfortunately, its findings are used mainly to justify cuts to Social Security and Medicare rather than expanding worthy kids’ programs.

Reporters love the generational warfare angle, which Urban isn’t above exploiting. The report is rife with selective comparisons to federal spending on elderly and disabled adults, as if there were only three groups of recipients of government spending and the size of the government pie was, by necessity, fixed or shrinking.

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A slight bit of substance on the Reinhart and Rogoff 90 percent debt threshold

Three quick notes on the debate over the Reinhart and Rogoff kerfuffle.

First, in their response, they move far from what has been interpreted (often with their encouragement) as the key claim of their paper—that there exists a clear, well-defined threshold for a nation’s public debt (90 percent of total gross domestic product) above which debt exerts a “secular drag on growth.” In commenting on the Herndon, Ash and Pollin (HAP) paper which demonstrates that a few improvements to the paper’s methodology (including correcting a coding error) makes this well-defined threshold disappear, Reinhart and Rogoff (R&R, hereafter) point to the HAP finding that as debt ratios rise in their sample, growth rates are slightly (and not statistically significant) lower. R&R try to cast this as somehow supportive of their own original finding. But it’s really not. Nobody has denied that there could be a statistical association between high levels of debt and slow growth—the key argument was that the causality could easily run from slow growth to higher debt ratios. What R&R claimed, and more importantly what became crucially important in fiscal policy debates, was that 90 percent was a bright line of debt that policymakers dare not flirt with. In some arenas they have been more judicious than that, but in others they wrote things like:

“…we find that very high debt levels of 90% of GDP are a long-term secular drag on economic growth.”

This 90 percent line has been hugely influential—fears of debt stabilizing at some higher ratio essentially drive the now-ubiquitous calls for aggressive 10-year deficit reduction targets.

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Gang of Eight bill delivers on bold, broad legalization of undocumented workers

Over the next several days and weeks, I’ll be reviewing the provisions of the 844-page comprehensive immigration reform bill, the Border Security, Economic Opportunity, and Immigration Modernization Act, with an eye on those elements that will particularly affect the operation and outcomes of the labor market.

Let’s start with the most important provision first. Secure Borders delivers on its most important goal: granting legal status to almost all of the eleven million immigrants currently here without authorization to work. Every undocumented immigrant who came before January 2012, who passes a criminal background check and pays $500 will be given a provisional status that will allow them to work.

That single, dramatic step will change their lives for the better, improve the labor market prospects of every other legal resident with whom they compete for jobs, and free their employers from the taint and guilt of an illegal employment relationship. It won’t make these immigrants full citizens or give them the full rights of other residents of the United States, but it will remove them from the precarious status of working illegally, with the terrifying threat of discovery and deportation always hanging over their heads. They will be free to join unions, to ask for, demand, or strike for higher pay, and will be free to quit and look for a better job with another employer. The job lock and fear that keep so many of the undocumented underpaid or underemployed will end immediately.

For that, I take my hat off to the Gang of Eight.

The Reinhart and Rogoff magical 90 percent threshold loses its magic?

One of the most influential findings in the never-ending debate over American fiscal policy came from a 2010 paper by economists Carmen Reinhart and Kenneth Rogoff—“Growth in a Time of Debt.” They claimed to have identified a clear debt ratio (total public debt divided by  gross domestic product) threshold above which countries’ economic growth would significantly slow. This 90 percent debt ratio has been referenced by budget writers, policymakers and others arguing for steep reductions in budget deficits soon.

We didn’t buy it. In the same year their paper was released, I co-authored a paper (along with John Irons) looking at the historical record for the U.S., and found very little evidence that such a threshold existed (and we weren’t alone in our skepticism). Further, we noted that the causality of any such finding was deeply in doubt—slow growth could lead to high debt as surely (actually, much more surely) as high debt could impede growth.

Most importantly (if not most thrillingly), we argued (in the first bullet-point!) that “there is no compelling theoretical reason why the stock of debt at a given point in time should harm contemporaneous economic growth.”

And it turns out that there is no longer any compelling empirical reason to think that the 90 percent threshold is operable any more either, as a new working paper by Herndon, Ash and Pollin makes clear. After receiving the original Reinhart and Rogoff data set (collegially provided by the original authors), they found a number of errors that, when corrected, essentially overturn the finding that debt ratios of over 90 percent are associated with slower growth. Mike Konczal reviews the paper in some detail here.

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The Working Families Flexibility Act is a fraud

The Republican majority on the House Education and Workforce Committee could raise the minimum wage, cover more employees with overtime protection, pass paid sick days legislation, pass a paid family leave bill, or do a host of other things to make life easier for America’s working families. Instead, as Judith Lichtman of the National Partnership for Women and Families testified last week, they have chosen to weaken overtime protections and shift more power from employees to their bosses.

The Republicans have trotted out a bill introduced back in 1995 and unsuccessfully pushed again by business lobbyists in 2003. They call H.R. 1406 the Working Families Flexibility Act, apparently because it will bend and twist working families even more than they already are as they try to balance the needs of home and work. Rather than give employees the flexibility to take a paid day off when they or their kids are sick, the bill gives their employers the flexibility not to pay them overtime when it is earned.

Lichtman does a great job of pointing out what a sham the bill is, and the National Partnership has also published a good fact sheet that points out that the bill greatly increases the risk that employees will work overtime but never get paid for it. The chance that thousands of businesses will fail each year while holding millions of dollars of unpaid overtime credits in leave banks is very real. Half a million businesses fail in an average year.

Judy Lichtman politely calls H.R. 1406 “smoke and mirrors.” I think it’s fair to call it a fraud, for the truth is that the law already permits the only benefit the bill claims to provide, time off for employees who work overtime. Nothing in current law prevents an employer that makes an employee work overtime from paying for that overtime and then providing unpaid compensatory time off to the employee at a later date.

What we read today (Tax Day edition)

Happy tax day! Here are a few stories we found interesting in the past couple weeks:

Tax Day 2013: For the vast major, it’s all about the expired payroll tax cut

Around the enactment of the lame-duck budget deal, which permanently extended the Bush-era tax cuts and most  expiring income tax provisions for roughly 99 percent of households, policymakers were claiming to be preventing the largest tax hike in American history. Yet every worker saw their taxes go up between 2012 and 2013.

And during the “fiscal cliff” policy debates, some conservatives (wrongly) warned that full expiration of the Bush tax cuts would push the economy back into recession. Neither event occurred, but enough other fiscal retrenchment is slated for 2013 that the labor market will likely experience renewed deterioration—in large part because the expiring two-percentage-point Social Security payroll tax cut went ignored during the policy debate.

So with tax day upon us, here’s a brief overview of the budgetary and economic impacts of tax changes for 2013. Notably, the relatively well targeted payroll tax cut’s expiration is the tax change overwhelmingly felt by the vast majority of households, whereas other tax changes were rather progressively targeted. Correspondingly, the expiration of the payroll tax cut will exert a fairly sizable drag on economic growth in 2013, whereas tax changes more targeted to upper-income households pose only about one-fifth as much of a drag per dollar.

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How High Should Top Income Tax Rates Be? Getting the Fight Right

A version of this post originally appeared at the Fiscal Times.

Over at Forbes, Tim Worstall didn’t take kindly to an op-ed I authored for The Fiscal Times pointing out that research by two economists, Peter Diamond and Emmanuel Saez, indicates that individual income tax rates are currently well below their revenue-maximizing rates. He accuses me of misrepresenting their work … by completely misrepresenting their work, as well as mine. The crux of his ire with my “propaganda” is this paragraph in my piece:

“Most importantly, recent economic research has shown that productive economic activity is relatively unresponsive to increases in the top income tax rate, and the top income tax rate is well below the levels where it maximizes revenue. Economists Peter Diamond and Emmanuel Saez estimate that the revenue maximizing income tax rate is 73 percent (combing federal, state and local taxes).”

Worstall: “No, that is not what that paper says. What it does say is that in a tax system with no allowances then that peak of the Laffer Curve, that revenue [maximizing] rate, is 73 percent. What it also says is that the peak in a system with allowances is more like 54 percent.”

Nope, that’s totally wrong. What the paper says — it’s on page 7 — is that in today’s system the best estimate of the revenue-maximizing rate is 73 percent. Period.

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Dark Age budgeting: Social Security back on the table

There was once a time in the mid-2000s—a golden era, if you will—when it finally seemed widely recognized that long-run federal spending trends were driven near-entirely by rising health care costs. An equally important corollary recognition was that these health care costs were driven in turn near-entirely by rising per beneficiary cost-growth, a function of our dysfunctional health system and not a function of demographics. Lots of people deserve credit for getting this truth out, and Peter Orszag’s tenure at the Congressional Budget Office was especially useful in drumming this truth home to the Very Serious People™. Figures and bullet-points like this one seemed to help…

health care

Recognizing that demographics alone do not constitute a coming budget crisis was hugely important, because it was (a) correct and (b) focused attention on where it belonged in budget issues: reforming health care. It also relieved pressure stemming from efforts to cut Social Security. This is crucially important because Social Security is the only leg of our retirement system that is not a frank disaster, so defanging efforts to chip away at it was a huge policy win.

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Will the birthday bump prevent an increase in senior poverty from the chained CPI?

The president has proposed cutting the cost-of-living adjustment for Social Security by tying it to a “chained” consumer price index that rises more slowly than the current one, but with a partially offsetting benefit enhancement intended to protect vulnerable beneficiaries. In a fact sheet about the chained CPI belatedly released by the Office of Management and Budget, the White House claims: “Because of the benefit enhancement for the very elderly, the Budget proposal would not increase the poverty rate for Social Security beneficiaries, and would slightly reduce poverty among the very elderly according to SSA [Social Security Administration] estimates.”

This claim deserves scrutiny, since the SSA estimates aren’t shown and the description of the “benefit enhancement” was slow to be released and remains sketchy. While we await further information, a quick look at the benefit enhancement casts some doubt on this claim, since retirees with average benefits would see a benefit cut until their late 90s, and few retirees live that long.1

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The Obama budget’s misguidedly lower revenue target

President Barack Obama’s fiscal year 2014 budget request, released Wednesday, is a more centrist blueprint than his fiscal 2013 request—which was the most progressive and ambitious with regards to job creation and taxation to date. As I argued in a U.S. News debate club series, the contrast is most conspicuous and consequential on three fronts: proposing less ambitious revenue targets, largely abandoning the American Jobs Acts, and identifying benefit cuts (not just efficiency savings) in social insurance programs that the president would exchange for the more modest revenue increases.

Of these, the pre-compromise on Republicans’ third rail—raising new revenue—is perhaps the most perplexing, because unlike scaling back stimulus or cutting Social Security benefits it works directly against the administration’s prioritization of deficit reduction (a priority regrettably at odds with ensuring faster economic recovery). Remember that the “ten dollars in spending cuts for a dollar in revenue” formulation—an empirical policy slam-dunk for the GOP and twice as conservative as the five-to-one ratio for deficit-reduction measures enacted in the 112th Congress—was heretical during the GOP presidential primary campaign. The political hurdle on taxes is getting Republicans to accept the first penny of revenue and buck Grover Norquist’s Taxpayer Protection Pledge. Given this, scaling back revenue proposals accomplishes nothing.

At first blush, the president’s budget doesn’t appear to have given away much on the revenue front. The OMB Summary tables show revenue averaging 19.1 percent of GDP over FY2014-2023, seemingly roughly in line with revenues at 19.2 percent of GDP over FY2013-2022 in his previous budget request (and revised to 19.1 percent in the Mid-Session Review). But it’s important to dig deeper and figure out what’s going on here.

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President’s budget “compromises” on job-growth too

Yesterday the president released his FY2014 budget request. While there is a lot to be commended in the budget (canceling sequestration cuts, calling for an (admittedly insufficient) increase in the minimum wage, infrastructure investment, creating a “Buffett rule”) there is also plenty to dislike. Perhaps the most controversial measure is the inclusion of the chained CPI to measure the cost of living adjustment for Social Security (and to index tax brackets and other programs). This is a not a policy favorite of EPI’s (see here and here for why).

Less commented on is the dramatic scaling back of stimulus efforts in this year’s budget relative to previous versions. In last year’s FY2013 budget request, the president included a section within his proposals dedicated to “temporary tax relief and investments to create jobs and jumpstart growth.” While perhaps not as robust and exhaustive as we would like to see in an effort to insure a full economic recovery, last year’s budget was not too shabby on stimulus. It included $178 billion in stimulus proposals for FY2012, and $355 billion over FY2012-2022. Examples of stimulus in the FY2013 request included a two-year payroll tax holiday, an extension of unemployment insurance benefits, some business and energy tax credits, investment in surface transportation priorities, and a number of different policies aimed on hiring and supporting teachers and first responders and rehabilitating and rebuilding neighborhoods and schools (many of these policies were seen in his September 2011 American Jobs Act proposal).

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Leaked ESPN memo asks employees to take one for the team

Sports website Deadspin just published a leaked internal memo circulated by ESPN that gives us a small window into the sports entertainment giant’s questionable (at best) labor practices.

ESPN staffers are currently preparing to put on a new international X Games competition in Foz do Iguaçu, Brazil. In advance of their trip, ESPN operations manager Severn Sandt sent out a memo outlining ESPN’s expectations of its staff.

Citing extreme budget constraints, ESPN is asking its employees to take one for the team on their time sheets. Singling out hourly employees, the memo encourages,

“…Don’t push OT. If it’s 9:10, take the 9:00 out – don’t push for 9:30.”

The legality of this admonition aside, let’s put it into a broader business context. ESPN is owned mostly by The Walt Disney Company, and accounts for almost half of the entire value of the Disney empire. With a valuation of $40 billion, according to Wunderlich, ESPN is by no means suffering from prohibitive financial constraints.

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How to stomp on promising developments in the economy: Austerity

Luckily people seem to be taking the correct lesson from Friday’s job report: the economic recovery is (yet again) assuredly not on track. The first three months of 2013 saw average job gains of 168,000, down from the 183,000 monthly average for 2012.

This is a real shame, because there are some real reasons to think that 2013 could have turned out better than 2012 in the economy. Housing has stopped dragging on growth, and the state and local sector has gone from utter freefall to almost-stabilization.

Take the improvement from 2011 to  2012 in both of these—this combined boost was roughly 0.5% of GDP. Imagine for a second that this rate of improvement characterized 2013 as well—we’re a full half-point of GDP ahead of the game, right?

                           The Good News: Housing and SL Spending Improve
2010 2011 2012 2011-2012 swing
Residential investment -0.14 0.09 0.34 0.25
State and local spending -0.47 -0.33 -0.13 0.20
Source: BEA NIPA table 1.1.2

Sadly, we have DC policymakers who have decided to stomp on any improvement with steep cuts and the repeal of the payroll tax cut without any useful replacement. As we estimated here, the combined effect of the payroll tax cut ending and the sequester (and spending cuts baked into the cake even before the sequester kicked in) are likely to subtract more than 1.5% off of GDP growth for the year.1

Frustrated about the slow pace of recovery? Blame those in Congress insisting on damaging cuts.

1 Note that the number for the sequester in that table is slightly high—the 2-month deferral negotiated in December will slightly reduce its drag in 2013).



These days, Republicans in Congress jostle for the right flank like crazed jockeys determined to race as fast as possible even if showboating by the outer rail costs them the prize. They often appear to be paying more attention to upcoming horse auctions (Republican primaries) than winning the purse.

If Republicans’ mix of grit and speed at the expense of strategy has its opportunity costs, the Democrats’ habit of playing follow-the-leader has them tripping over themselves while failing to notice how far they drifted rightward as they try to cajole Republicans to join them in what they still believe to be the center of the track.

Hasn’t anyone noticed that the shortest route is by the inner rail, which is wide open? Especially when it comes to popular social insurance programs, good progressive policy also happens to be good politics. Well, Bernie Sanders has figured this out, but he can’t be everywhere.

Now that the president’s plan to offer up Social Security cuts in his budget has been officially “leaked,” it’s too late to get him to change his mind and time to revolt. There’s not much new to say on the topic of a chained CPI, since even supporters have all but conceded that it’s a benefit cut rather than a technical fix, as Larry Mishel recently noted. But if progressives need a prod to break their habit of loyalty to a misguided but beleaguered president, Dean Baker at CEPR has pointed out that a COLA cut would have a bigger impact on low-income beneficiaries than the recent tax increases in the American Taxpayer Relief Act had on the wealthy. If Democrats go along with this, progressives need to break with the party and follow Senator Sanders’ independent lead.

No, New Tax Cuts Will Not Pay for Themselves

If the Laffer curve hypothesis is the first commandment of the modern conservative movement, then its economist namesake, Arthur Laffer, is its chief apostle. Laffer argued that it is theoretically possible to raise more government revenue by lowering tax rates, thereby offering a “free lunch” for legislators. The understandable political allure of Laffer’s suggestion is directly responsible for a three-decade experiment with “supply-side” economics, an experiment whose failure has eroded inflation-adjusted incomes and living standards of the vast majority.

But the Laffer curve is merely an economic model, one originally sketched out on a napkin. The model has zero scope for informing good public policy without rigorous, accompanying empirical research on behavioral responses to tax changes.

And modern economic research isn’t on Laffer’s side.

Laffer’s proposition is based on the simple observation that the government will collect zero revenue if the tax rate is at either zero or at 100 percent. A revenue maximizing rate must lie between these bounds, and the Laffer curve is typically depicted as a symmetrical, concave function between these revenueless rates (implying a revenue maximizing rate of 50 percent).Read more


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