Category: Equitablog

Must-Read: Lawrence Summers: 5 reasons the Fed may be making a mistake

Posted on by Brad DeLong

Must-Read: Lawrence Summers: 5 reasons the Fed may be making a mistake http://delong.typepad.com/summers5-reasons.zip: “The… paradigm… is highly problematic.  Much better would be a “shoot only when you see the whites of the eyes of inflation” paradigm…

…more credible, more likely to result in the Fed’s satisfying its dual mandate, reduce risks of recession, and increase the economy’s resilience when recession comes. Many of my friends have recently issued a statement asserting that the Fed should change its inflation target…. I think that this issue is logically subsequent to the question of how policy should be made in the near term with the given 2 percent inflation target…. First, the Fed is not credible with the markets…. Markets do not share the Fed’s view that inflation acceleration is a major risk.  Indeed they do not believe the Fed will attain its 2 percent inflation target for a long time to come….Second, the Fed regularly proclaims that it has a symmetric commitment…. So why would the Fed want to be projecting only 2 percent inflation entering the 11th year of recovery with an unemployment rate clearly below their estimate of the NAIRU?… The PCE core price level is a full 4.3 percent where it would be had it risen by the Fed’s target amount over the past decade…. Policy should be set with a view to modestly raise target inflation, perhaps 2.3 or even 2.5 percent inflation, during a boom with the expectation that inflation will decline during the next recession…. Third… we have little ability to judge when inflation will accelerate in a major way. The Phillips curve is at most barely present in data for the past 25 years. And as Staiger, Stock and Watson demonstrated years ago, the NAIRU, assuming such a thing exists, can only be estimated with extreme imprecision…. In recent months both overall and core inflation have come down along with market and survey measures of inflation expectations… contrary to all the Fed staff models….

Fourth… there is good reason to believe that a given level of rates is much less expansionary than it used to be given the structural forces operating to raise saving propensities and reduce investment propensities. I am not sure that a 2 percent funds rate is especially expansionary in the current environment…. Fifth, a “whites of their eyes” paradigm… require[s] the Fed… simply needs to assert that its objective is to assure that inflation averages 2 percent over long periods of time… inflation is… very difficult to forecast… focus on inflation and inflation expectations data rather than measures of output and employment in forecasting inflation. With these principles internalized, the Fed would lower its interest-rate forecasts to those of the market and be more credible. It would allow inflation to get closer to target and give employment and output more room to run…

Should-Read: David Cutler and Emily Gee: Coverage Losses Under the ACA Repeal Bill for Congressional Districts in All States

Posted on by Brad DeLong

Should-Read: David Cutler and Emily Gee: Coverage Losses Under the ACA Repeal Bill for Congressional Districts in All States: “Within a decade, on average, an additional 55,000 more individuals in each congressional district, or nearly 8 percent… would lack coverage… https://www.americanprogress.org/issues/healthcare/news/2017/03/21/428914/coverage-losses-aca-repeal-bill-congressional-districts-states/

…We provide estimates of coverage losses for all 435 congressional districts of the 115th Congress as well as the District of Columbia… people who would be uninsured under the House bill instead of having health insurance through the workplace, Medicaid, and the exchanges and other private coverage. Our numbers reflect that states that have expanded Medicaid to low-income adults under the ACA would face drastic cuts to federal matching funds for the program starting in 2020 and that expansion would no longer be a viable option by 2026 for states that have not already done so.

Should-Read: Dodge Cahan and Niklas Potrafke: The Democratic-Republican Presidential Growth Gap and the Partisan Balance of the State Governments

Posted on by Brad DeLong

Should-Read: Dodge Cahan and Niklas Potrafke: The Democratic-Republican Presidential Growth Gap and the Partisan Balance of the State Governments: “Higher economic growth was generated during Democratic presidencies compared to Republican presidencies… http://econpapers.repec.org/paper/cesceswps/_5f6517.htm

…Blinder and Watson (2016) explain that the Democratic-Republican presidential growth gap (D-R growth gap) can hardly be attributed to the policies under Democratic presidents, but Democratic presidents–at least partly–just had good luck, although a substantial gap remains unexplained. A natural place to look for an explanation is the partisan balance at the state level. We show that pronounced national GDP growth was generated when a larger share of US states had Democratic governors and unified Democratic state governments. However, this fact does not explain the D-R growth gap. To the contrary, given the tendency of electoral support at the state level to swing away from the party of the incumbent president, this works against the D-R growth gap. In fact, the D-R presidential growth gap at the national level might have been even larger were it not for the mitigating dynamics of state politics (by about 0.3-0.6 percentage points). These results suggest that the D-R growth gap is an even bigger puzzle than Blinder and Watson’s findings would suggest…

Conservation easements and tax policies in the United States

Posted on by Meghan Miller
A group of birds migrate, March 2015, in Montgomery, Alabama.

When President Donald Trump was asked a question about the biggest winners from his proposed tax cuts being the wealthiest Americans during a conversation with The Economist last month, he pointed to how that might not be the case because those at the top may lose several tax deductions. Musing on the number of deductions currently available, he remarked that “they have deductions for birds flying across America.”

At first glance, this seemed outlandish. But it turned out that President Trump was referring to a 2009 case involving Alabama’s Kiva Dunes resort and golf course, migratory birds, and the resulting conservation easement used to claim a charitable deduction.

Conservations easements, in theory, have good, environmentally oriented intentions. Created in the 1970s, conservation easements are voluntary legal agreements by which the landowner donates his or her land—or a piece of the land—to a public charity, trust, or government agency in order to restrict further development and protect it for conservation or historical preservation purposes. By donating the easement, the landowner can claim the value of the easement as a charitable deduction. This tax deduction for donations of conservation easements, in practice, has kindled significant abuse, according to a new report by Adam Looney at the Urban-Brookings Tax Policy Center.

Looney relies on administrative data from the Internal Revenue Service to explore the increasing use of conservation easements in charitable deductions by taxpayers and real estate developers and expose how they are misusing them. Between 2010 and 2012, he finds that taxpayers claimed an average of $1.05 billion in charitable deductions on conservation easement donations. By 2014, this value reached $3.2 billion.

Along with the rise in charitable deductions claimed, the data show that deductions for conservation easement donations are taken by taxpayers in states that have small shares of conserved land. What’s more, the donated easement land is concentrated in places with large real estate developments, including golf and country clubs, and high-cost resort areas, such as Martha’s Vineyard in Massachusetts and Jackson Hole in Wyoming. In many ways, this indicates that conservation easements are not being used for the purposes for which they were established.

To make matters worse, some landowners may be illegally abusing the provision. Some donate their conservation easements and get highly inflated appraisals for their easement land, which allows them to take a larger deduction. Others donate land that may not qualify for conservation status in the first place.

Donors aren’t the only ones taking advantage of the conservation easement loophole, though. Recipient organizations—the donees—are equally responsible for utilizing it. Looney spotlights two important trends about the donees. First, there are very few donee organizations that handle the majority of the donations, and second, many fail to report these donations as gifts on their tax returns.

Misusing or even scamming the conservation easement provision has cost the federal government several billions of dollars in revenue and may not even be effectively providing conservation benefits. To address these issues, Looney offers some policy solutions that could help ensure that illegal abuses do not persist. In the short term, he argues for increasing the transparency by making easement donations be “listed transactions” at the Internal Revenue Service, requiring donees to include the value of the donation on their tax returns, and creating a more rigorous standard for conservation purposes and who qualifies as a donee organization. To close the loophole altogether, Looney suggest employing an allocated tax credit for donee organizations, where organizations would approach landowners about potential land for conservation or historic preservation.

Conservation easements are just another example of the inequities inherent in the federal tax deduction for charitable contributions. Finding ways to limit the abuse of conservation easements can not only preserve the progressive federal tax system but also more honestly create safe habitats for those migrating birds across America.

A research roundup on unpredictable schedules in the United States

Posted on by Meghan Miller
A clerk checks out a customer’s groceries at a grocery store in Houston, May 2007.

 

For Americans with a 9-to-5 job, it can be hard to imagine the life of a worker with an unpredictable, constantly shifting schedule. But this is the reality for 17 percent of workers in the United States, whose schedules are often a product of “lean labor strategies” that try to align the number of staff working with consumer demand in as close to real time as possible. In doing so, employers may variously give workers only a few days’ notice of their schedule for the coming week, no choice but to work last-minute overtime if things are busy, or the choice to be sent home early without pay when business is slow.

Unpredictable scheduling practices shift the risk of doing business onto workers and their families. And while these kinds of strategies may appear to make good business sense by reducing labor costs, there is growing evidence of the negative economic ramifications not only for workers and their families but also for businesses and the broader U.S. economy. Here’s a brief snapshot of that research:

  1. Unpredictable schedules have hidden costs for businesses, such as turnover and absenteeism. According to research by the University of Chicago’s Susan J. Lambert and Julia R. Henly and the University of Wisconsin-Madison’s Anna Haley-Lock, many workers who have unpredictable schedules are fired or forced to quit to find a job that has more hours and predictability. Other research demonstrates how the resulting high turnover, even in the service industry, can be costly and hurt customer service and overall profitability.
  1. Understaffing can be costly but is not accounted for. Many businesses see labor as a “cost driver” rather than a “sales driver,” which is why many firms have adopted scheduling practices that try to minimize the number of people working. But doing so has left many businesses understaffed. While this may cut down on labor costs in a way that is direct and easy to see, researchers from the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School find that understaffing is costly. In a study of large retail stores, they “establish[ed] the presence of systematic understaffing during peak hours.”
  1. Volatility of hours creates volatility of earnings. Hourly workers with unpredictable schedules may be unable to predict how much they will make from week to week. Research finds that among those who self-reported volatile monthly incomes, 40 percent blamed irregular work schedules, which experts say is one of the leading drivers of the rise in income volatility over the past few decades. Other research also finds a strong association between volatile hours and financial instability.
  1. Unpredictable scheduling disproportionately affects women and people of color. Women and racial and ethnic minorities are more likely to work in the low-wage, hourly jobs in which schedule volatility is prevalent, while other research confirms that black and Latino workers are less likely to receive sufficient notice of their schedules compared with white workers. Nonwhite workers also spend more time and money commuting compared with their white counterparts, which makes being turned away during slow periods more costly.
  1. Unpredictable schedules harm the health of workers—and their families. Research by the University of Pennsylvania’s Kristen Harknett and the University of California, Berkeley’s, Daniel Schneider finds that variability of work hours—but not nonstandard work hours—is associated with financial instability as well as a host of physical and mental health issues. These workers are more stressed out, less likely to have good-quality sleep, and more likely to report “serious psychological distress.” They also spend less time with their children, which other research shows adds stress to these workers’ work-life experiences in ways that can harm kids’ mental and physical health—with lasting effects into adulthood. This means that unpredictable schedules not only hurt today’s workers but can have an effect on our future workforce as well.

Must-Read: David Grabowski, Jonathan Gruber, and Vincent Mor: You’re Probably Going to Need Medicaid

Posted on by Brad DeLong

Must-Read: David Grabowski, Jonathan Gruber, and Vincent Mor: You’re Probably Going to Need Medicaid: “Imagine your mother needs to move into a nursing home… https://www.nytimes.com/2017/06/13/opinion/youre-probably-going-to-need-medicaid.html?ref=opinion&_r=0

…It’s going to cost her almost $100,000 a year. Very few people have private insurance to cover this. Your mother will most likely run out her savings until she qualifies for Medicaid.

This is not a rare event. Roughly one in three people now turning 65 will require nursing home care at some point during his or her life. Over three-quarters of long-stay nursing home residents will eventually be covered by Medicaid. Many American voters think Medicaid is only for low-income adults and their children—for people who aren’t “like them.” But Medicaid is not “somebody else’s” insurance. It is insurance for all of our mothers and fathers and, eventually, for ourselves.

The American Health Care Act that passed the House and is now being debated by the Senate would reduce spending on Medicaid by over $800 billion, the largest single reduction in a social insurance program in our nation’s history. The budget released by President Trump last month would up the ante by slashing another $600 billion over 10 years from the program. Whether the Senate adopts cuts of quite this magnitude or not, any legislation that passes the Republican Congress is likely to include the largest cuts to the Medicaid program since its inception.

Much focus has rightly been placed on the enormous damage this would do to lower-income families and youth. But what has been largely missing from public discussion is the radical implications that such cuts would have for older and disabled Americans.

Medicaid is our nation’s largest safety net for low-income people, accounting for one-sixth of all health care spending in the United States. But few people seem to know that nearly two-thirds of that spending is focused on older and disabled adults—primarily through spending on long-term care services such as nursing homes.

Indeed, Medicaid pays nearly half of nursing home costs for those who need assistance because of medical conditions like Alzheimer’s or stroke. In some states, overall spending on older and disabled adults amounts to as much as three-quarters of Medicaid spending. As a result, there is no way that the program can shrink by 25 percent (as under the A.H.C.A.) or almost 50 percent (as under the Trump budget), without hurting these people.

A large body of research, some of it by us, has shown that cuts to nursing home reimbursement can have devastating effects on vulnerable patients. Many nursing homes would stop admitting Medicaid recipients and those who don’t have enough assets to ensure that they won’t eventually end up on Medicaid. Older and disabled Medicaid beneficiaries can’t pay out of pocket for services and they do not typically have family members able to care for them. The nursing home is a last resort. Where will they go instead?

Those who are admitted to a nursing home may not fare much better. Lowering Medicaid reimbursement rates lead to reductions in staffing, particularly of nurses. Research by one of us shows that a cut in the reimbursement rate of around 10 percent leads to a functional decline of nursing home residents (that is, a decline in their ability to walk or use the bathroom by themselves) of almost 10 percent. It also raises the odds that they will be in persistent pain by 5 percent, and the odds of getting a bedsore by 2 percent.

Finally, these cuts would just shift costs to the rest of the government. Lower-quality nursing home care leads to more hospitalizations, and for Americans over 65, these are paid for by another government program, Medicare. One-quarter of nursing home residents are hospitalized each year, and the daily cost of caring for them more than quadruples when they move to the hospital. Research shows that a reduction in nursing home reimbursements of around 10 percent leads to a 5 percent rise in the odds that residents will be hospitalized. So care for seniors suffers, and the taxpayer pays.

Mr. Trump and the Republicans would lower spending on the frailest and most vulnerable people in our health care system. They would like most Americans to believe that these cuts will not affect them, only their “undeserving” neighbors. But that hides the truth that draconian cuts to Medicaid affect all of our families. They are a direct attack on our elderly, our disabled and our dignity.

Should-Read: Laura Tyson: Labor Markets in the Age of Automation

Posted on by Brad DeLong

Should-Read: Laura Tyson: Labor Markets in the Age of Automation: “Skill-biased and labor-displacing intelligent machines and automation drive income inequality in several other ways… https://www.project-syndicate.org/commentary/automation-labor-market-inequality-by-laura-tyson-2017-06

…including winner-take-all effects that bring massive benefits to superstars and the luckiest few, as well as rents from imperfect competition and first-mover advantages in networked systems. Returns to digital capital tend to exceed the returns to physical capital and reflect power-law distributions, with an outsize share of returns again accruing to relatively few actors…. Whether the benefits of smart machines are distributed broadly will depend not on their design, but on the design of the policies surrounding them…. Unfortunately, Trump’s team hasn’t gotten the message…

Must-Read: Barry Ritholtz: Tax Reform Is Dead

Posted on by Brad DeLong

Must-Read: The misperceptions of the Overclass are on display here in the very sharp Barry Ritholtz’s offhand observation that “Ronald Reagan… oversaw a… ‘once in a generation’ economic boost that resonated for the next 30 years…”

There was no such thing as far as economic growth was concerned: what Reagan presided over was the recovery to normal levels of activity from the 1979-1982 Volcker Deflation. The growth of the economy’s productive potential he presided over was the same then-thought sub-par rate of growth as Carter. It was Clinton who presided over what looked to be a speed-up—hopes for which, have, alas!, been catastrophically dashed under his now-three successors.

But Reagan did not just preside over but initiated the enormous upward shift in the distribution of wealth that has so benefitted people like Barry Ritholtz, and me. But it was not an economic boost for the country—just one for people like him and me, purchased with what has been the worst more-than-a-generation in terms of economic growth that America’s middle and working classes have ever experienced:

Barry Ritholtz: Tax Reform Is Dead: “The long-awaited ‘pivot towards being presidential’ hasn’t arrived, and by all indications never will… http://ritholtz.com/2017/06/tax-reform-dead/

…Those of us who harbored hopes for a comprehensive corporate tax reform, for repatriation of trillions of overseas dollars, for an infrastructure plan, and perhaps even for a lowered personal income tax rate, are coming to recognize the folly of our wishful thinking. That window of opportunity now looks like casements in South Florida during hurricane season…. %he self-inflicted wounds of the most undisciplined presidency in history are increasingly likely to blow its chances of passing any of the aforementioned economic stimulus measures. The trifecta of tax reform, repatriation and infrastructure investment could put the U.S. on very strong footing for the next several decades. Such was the legacy of Ronald Reagan, who oversaw a similar “once in a generation” economic boost that resonated for the next 30 years. Trump is no Reagan…

Must-Read: Nick Bunker: On Twitter

Posted on by Brad DeLong

Must-Read: The joke here: At the very top of the ADP Employment Report website https://www.adpemploymentreport.com it says: CHANGE IN US NONFARM PRIVATE SECTOR EMPLOYMENT. PRIVATE.

ADP has no government jobs subset, because ADP doesn’t do any payroll processing for governments.

Yet neither Trump OMB Director Mark Mulvaney nor beat-sweetener-writer journamalist Alex Pappas have a clue. Clown show:

Nick Bunker: On Twitter: “That staffer was probably looking for a long time…” https://t.co/VTYtRS4TJU https://t.co/mvFkKu2i3b https://twitter.com/nick_bunker/status/874363647858024448

Nick Bunker on Twitter That staffer was probably looking for a long time https t co VTYtRS4TJU https t co mvFkKu2i3b

No, It Is Really Not Harder to Make the Case for Free Trade These Days…

Posted on by Brad DeLong

Hoisted from Ten Years Ago: Still, I think, true today. Thus I continue to hoist my neoliberal freak flag here: Is It Really Harder to Make the Case for Free Trade These Days? http://delong.typepad.com/sdj/2007/04/is_it_really_ha.html: Paul Krugman wonders if it is harder to make the case for free trade these days. There are more losers from trade liberalization, he thinks, and it is much less clear that the losers are in some sense undeserving.

Mark Thoma writes:

Economist’s View: Krugman: Distribution and Trade Policy: Paul Krugman adds a few more thoughts via email related to the recent trade policy discussion:

Paul Krugman: Another thought or two on distribution and trade policy: The problem of losers from trade isn’t new, obviously, either as a fact or concept. But if you look at the history of trade policy – say, in Matt Destler’s book it’s hard to avoid the sense that the issue has gotten bigger and harder. His final chapters have a definite sense both of nostalgia for the good old days and foreboding.

I’d put it like this: in the old days, when GATT negotiations were mainly with other advanced countries, the groups hurt tended to be highly specific and local – the left-handed widget makers of Northern South Dakota, worried about competition from their counterparts in Upper Lower Swabia. Economists could in good conscience argue that while individual groups were hurt by trade liberalization in their specific sector, the great majority of Americans benefitted from general trade liberalization. And politicians made trade deals by packaging together the interests of exporters, to offset the parochial interests of import-competing industries

But now we’re talking about broad swaths of the population hurt by trade. It’s a good bet that almost all US workers with a high school degree or less are hurt by Chinese manufactured exports, at least slightly. You could in principle put together win-win packages – say, trade liberalization together with an increase in the EITC paid for with higher taxes on high-income Americans, who come out winners from trade. But the reality is that we don’t make those deals.

For those who like their jargon, by the way, I’m basically saying that the right model for thinking about this has gone from many-good specific factors to Heckscher-Ohlin.

I don’t have answers to this. The moral case for open markets is their importance to poor countries: America would do OK even in a highly protectionist world, but Bangladesh wouldn’t. The domestic politics of trade, however, are now very hard, and getting harder.

Well, I think I have answers:

  1. The kinds of win-win deals that Paul says we don’t make are in fact deals that Democratic presidents do make–when they aren’t blocked from making them, that is.
  2. In an American family, both potential workers have to be working in export or import-competing manufacturing for the family as a whole to be injured by imports of manufactured goods from China. Construction workers benefit from expanded trade with China both through higher relative wages and through lower relative prices. Service-sector workers benefit through lower relative prices.
  3. The losers are not undeserving of their previous relative good fortune, but the winners are not unjustly enriched either–and odds are that there are more and bigger winners.
  4. Politics is much healthier when everybody knows that trade restrictions are temporary and fragile than when people believe that trade restrictions are permanent and durable–and thus really worth lobbying for when they are to your material advantage.
  5. A richer world is a safer world for Americans: foreigners working making textiles for export to the United States are not foreigners in caves planning to attack the Great Satan. One important import that we buy through freer trade is a safer, richer, more peaceful world.

The narrow pure-economics case for freer trade is harder to make thsee days because it is less true than it was in the 1960s or the 1950s or the 1930s or the 1910s. But the broader political-economy case for freer trade is still strong and true.