Category: Equitablog

Must-Read: Larry Summers: Fed’s Current Strategy Ill Adapted to the Realities

Posted on by Brad DeLong

Must-Read: Larry Summers is right.

If the Phillips Curve today still had the short-run slope in the gearing of expected inflation to recent past inflation that it appeared to have at the start of the 1980s, there might–but only might–be a case for the Federal Reserve’s current policy.

There is no reason for internal comity between the Board of Governors and the regional bank presidents to be a concern: Bernanke and Yellen have now had three full regional bank-appointment cycles to get bank presidents who are on the same page as the Board of Governors. The Federal Reserve always has and is understood to have the freedom to raise interest rates to maintain price stability when incoming data suggests that it is threatened: there is no need for talk to highball the chances of future rate increases when the current data flow does not suggest it will be needed. Thus I see no reasons at all to support a Fed policy posture other than that one that Larry Summers recommends: “signal[ling] its commitment to accelerating growth and avoiding a return to recession, even at some cost in terms of other risks…”

Larry Summers: Fed’s Current Strategy Ill Adapted to the Realities: “The current hawkish inclination of the Fed, with its chronic hope and belief that conditions will soon permit interest rate increases, is misguided…

…The greater danger is of too little rather than too much demand. A new Fed paradigm is therefore in order…. I would guess that from here the annual probability of recession is 25-30 percent. This seems to me the only way to interpret the yield curve. Markets anticipate only about 65 basis point of increase in short rates over the next 3 years. Whereas the Fed dots suggest that rates will normalize at 3.3 points, the market thinks that even 5 years from now they will be about 1.25 percent. Markets are thinking that recession will come at some point and when it does rates will go to near zero…. This implies that if the Fed is serious… about having a symmetric 2 percent inflation target then its near-term target should be in excess of 2 percent. Prior to the next recession–which will presumably be deflationary–the Fed should want inflation to be above its long term target…. The Fed’s dots forecasts refer to a modal scenario of continued recovery… [with] inflation rising to 2 percent only in 2018. Why shouldn’t they prefer a path with more demand, inflation at target sooner, more stimulus as recession insurance, and a small margin of extra inflation as a buffer against the next recession?….

The logic that led to the adoption of the 2 percent inflation target years ago suggests that it is too low now…. The case for a positive inflation target balances the benefits of stable money with the output cost of lowering inflation and two ways that positive inflation is helpful—the periodic need to have negative real rates, and inflation’s role in facilitating downward adjustment in real wages given nominal rigidities. All of the factors pointing towards a higher inflation target have gained force in recent years…. Experience has proven that Yellen was correct to be skeptical of the idea very low inflation rates would improve productivity. And it is plausible that the error in price indices has increased with the introduction of new categories of innovative and often free products…. If a two percent inflation target reflected a proper balance when it first came into vogue decades ago, a higher target is probably appropriate today….

Long term inflation expectations are depressed and declining…. The Fed has in the past counterbalanced declines in market inflation expectation measures by pointing to the relative stability in surveys-based measures. This argument is much harder to make now that consumer expectations of inflation have broken decisively below their all-time lows even as gas prices have been rising…. The Fed’s summary employment conditions index has been flashing yellow since the beginning of the year. Declines in this measure have presaged recession half of the time and uniformly been followed by rate reductions rather than rate increases….

The right concern for the Fed now should be to signal its commitment to accelerating growth and avoiding a return to recession, even at some cost in terms of other risks. This is not the Fed’s policy posture. Watching the Fed over the last year there is a Groundhog Day aspect. One senses they really want to raise rates and achieve a more ‘normal’ stance. But at the same time they do not want to tighten when the economy may be slowing or create financial turmoil. So they keep holding out the prospect of future rate increases and then find themselves unable to deliver. But they always revert to holding out the prospect of rate increases soon, partly for internal comity and partly to preserve optionality. Over the last 12 months nominal GDP has risen at a rate of only 3.3 percent. We hardly seem in danger of demand running away. Today we learned that Germany has followed Japan into negative 10 year rates. We are only one recession away from joining the club…

The United State of Women: How women are reshaping the American economy

Posted on by Bridget Ansel

Heather Boushey, executive director and chief economist at the Washington Center for Equitable Growth, gives remarks at the White House United State of Women Summit on June 14, 2016.

Let’s get right to the point. Women are not just half the population; we are half the economy. We are economic powerhouses. At least that’s what the numbers show. In the United States, 74 million women work outside the home. That’s six-in-ten women.

Since 1979, because of women’s added hours of work, our economy grew by 11 percent more than it would have otherwise. This is the equivalent to $1.7 trillion, equal to what we spend in a year on Social Security, Medicare, and Medicaid combined.

Women’s talents add to our nation’s productivity. And, their earnings boost family incomes.

Across the world, when women have access to education and jobs, we can see the positive effect on the economy. But, too often that power remains untapped. Economists estimate that the gender gap in employment leads to losses in GDP of 20 percent in Greece, Italy, and Japan to nearly 35 percent in the Gulf States and Iran. The International Labour Organization estimates that there are 865 million women who have the potential to contribute more to their economies. Most live in emerging or developing economies.

Here in the United States, we have solid evidence that women contributing their talents to American business and their family’s income has been good for our economy. This difference in how women spend their days changes everything. Women are not only their family’s caregiver, they are their family’s breadwinner.

The American Wife has become the American Worker. Only one in five children live in a family with a full-time, stay-at-home caregiver. Two out of every three mothers earns so much that she’s either the primary breadwinner or a co-breadwinner for her family. This is even though women earn only 79 on the male dollar—and women of color have an even larger pay gap.

We can all picture the “Leave it to Beaver” family. June’s at home caring for the Beav while Ward’s at work. Actually, can we? How many of you have even seen that show? How many see your family in that fictionalized portrait? Yep, that family’s experience is seriously outdated. Yet our workplace policies still presume that’s what a family looks like. They assume we all have a magical silent partner at home taking care of all of life while we’re at work. But that’s fantasy.

Caregiving—whether for a child or an aging parent—remains time-consuming and is increasingly expensive. To reconcile this, we need to rethink our nation’s basic labor standards and social protections. The United States stands with only Papua New Guinea in not having paid leave for mothers. And, I hear that Papua New Guinea is about to fix this!

California, New Jersey, Rhode Island and—soon—New York have universal, statewide paid family leave programs. In those states, a worker has the right to stay home—with pay—when they have a new child or to care for a seriously ill family member. Or when the worker herself is ill. On top of this, nearly three dozen places—five states, one county, 26 cities, and the District of Columbia (which, of course, is not a state)—have put in place the right for workers to earn paid sick days. That’s progress, but only for the lucky few who live in the right place.

Over 75 years ago, the first woman to lead a federal agency—Frances Perkins—helped craft into law two pieces of legislation that continue to define the rules that govern the boundaries between work and life. The Social Security Act gives us a set of insurance programs for when we cannot work, because we are a senior citizen, are too disabled to work, or when we’ve lost a job through no fault of our own. But we don’t have the same right to income support when we cannot work because we need to care for a family member for a few weeks  months. And, too often, those that have it earn the most. That’s not fair. To improve our economy, that needs to be fixed.

Every worker needs access to paid family and medical leave, including men. While women continue to do more care, men are increasingly stepping up and they’re realizing that it’s hard. In some surveys, men report more work-life conflict that women do.

The truth is, without the added hours of women, most families would have seen their incomes fall in recent decades. Women’s earnings have boosted family incomes, while also improving our overall economy through improving productivity. That’s why today’s workers also need predictable schedules and the right to talk to their boss about their schedule without fear of retaliation.

Putting sane rules on hours was another idea Mrs. Perkins championed. The Fair Labor Standards Act eradicated child labor and established the minimum wage and 8-hour workday. Recently, the Obama administration updated the overtime rules to cover an additional 4 million people.

This is a much-needed step forward. However, without a silent partner at home, chaotic or unpredictable schedules can wreak havoc on family life. And, it can mean that for an employee to be their most productive, they may need a little flexibility. With fewer than one in ten private sector employees having a union to help them negotiate schedules, most of us are on our own.

New rules that update our labor standards could fix this. Vermont and San Francisco are doing just that. They followed the lead of the United Kingdom and New Zealand, offering workers the right to request flexibility. And, San Francisco also added rules on predictability.

As many states and localities have recognized, the American Wife is the American Worker. That’s good for families and the economy.

We need new federal rules.

We can fix this.

The United States is and remains one of the richest nations the world has ever seen.

So, let’s do it.

 

Must-Read: Simon Wren-Lewis: Brexit and Democracy

Posted on by Brad DeLong

Must-Read: Some nice backup from the wise Simon Wren-Lewis. The frame of eurocrats vs. democrats is much, much, much too simple to be more than misleading. We want democracy where democracy belongs, with technocracy where it is needed–always acknowledging that circumstances alter cases, mechanism design is complex, and that democracy’s key benefits are as a legitimacy machine and an anti rent-seeking machine, not as a wise leader or wise policy selection machine:

Simon Wren-Lewis: Brexit and Democracy: “Germany… believed a union-wide demonstration of austerity was required…

…I strongly disagree…have thought a lot about why it happened, but a lack of democracy is not high on my list of culprits…. Democracy was overridden in Greece so cruelly… not [as] the result of actions of unelected bureaucrats, but of elected finance ministers… because of pressure from their own electorates. This exercise in raw political power worked because the Greek people wanted to stay in the Euro. The ‘bad equilibrium’ Evans-Pritchard talks about happens in part because of democracy…. Union governments should not lend money directly to other union governments, precisely because governments are democratic and so find it hard to accept write-offs…

Must-Reads: June 14, 2016

Posted on by Brad DeLong

Should Reads:

ObamaCare Increases the Salience of Antitrust in Health Insurance Markets

Posted on by Brad DeLong

From Last January: ObamaCare Increases the Salience of Antitrust in Health Insurance Markets from “Important” to “Essential”: As the extremely-sharp Aaron Edlin has taught me, apropos of the current wave of proposed health insurance mergers–Aetna-Humana, Anthem-Cigna, and Centene-HealthNet:

The coming of ObamaCare makes any willingness on the part of antitrust authority to allow these mergers to go through extremely dangerous and destructive policy indeed.

The imposition of the individual mandate to purchase health insurance makes maintaining competition in health insurance markets significantly more important. Usually, the exercise of market power and the ability to easily collude implicitly or explicitly made possible by large market shares are curved by the possibility of exit. The ‘exit the market and buy something else’ option for consumers is the one competitor that the firm cannot acquire and merge with. It is the one competitor with which the firm cannot collude, implicitly or explicitly.

Imposing an individual mandate to purchase is a wise policy in a market place where the major market failure is adverse selection. It threatens to be a catastrophic policy in the marketplace where the major market failure is the exercise of sellers market power.

We see this flashpoint–and it is a dangerous flashpoint–in health insurance right now. But the issues are actually much broader. Here is the wise Kevin Drum:

Kevin Drum: Our Four-Decade Antitrust Experiment Has Failed: “We have four airlines serving 80 percent of all passengers…

…We have four cable and Internet companies providing most of the nation’s cell-phone and television service. We have four big commercial banks, five big insurance companies (only three if two proposed mergers go through this year), and a handful of producers selling every major consumer product. Even when you think you have a choice, like in the array of online travel-booking sites, two companies (Expedia and Priceline) own all the subsidiaries…. Over the past few decades, America has undergone a sea change in antitrust law. It’s now all about ‘consumer welfare’—which means, in practice, that big mergers are fine as long as the mergees can make a credible case that the combined entity will be good for consumers. You will be unsurprised to learn that high-powered marketing departments are very good at collecting data to show exactly that, and that high-powered attorneys are extremely good at turning this data into bulletproof legal arguments. The result is that very few mergers are ever turned down.

But this siren call has led us down a long, blind alley. It turns out that in the short term, plenty of big mergers really can be good for consumers. In the longer term, though, very few are…. We’d be better off returning to an older, cruder rule: ensuring that there are plenty of competitors in every market and refusing to allow any single company to become too dominant. As near as I can tell, there’s a real tipping point around the number three or four. If a market is dominated by four companies or less, that’s when it starts to wither….

Needless to say, even a crude market share rule doesn’t make things simple. You’ll still have arguments over what counts as a single market (online advertising or the entire advertising industry?). You’ll have arguments over just how big a single company should be allowed to get (30 percent share or 50 percent share?). You’ll have industries where it’s not easy to have lots of competitors. And you’ll have some industries where the returns to scale to are so potent that small companies just flatly can’t compete. There’s no easy panacea. But ‘consumer welfare’ is an open invitation to thousand-page regulatory filings that dive deep down a rabbit hole and never come up for air…. Competition is the core engine of capitalism. If you have plenty of it, you can make do without a lot of other regulations. But once you allow competition to wither, there’s little choice left…. The federal government should do its best to ensure that markets have plenty of competition, and then it can afford to get out of the way and regulate fairly lightly. Other companies will do their work for them. What’s not to like?

U.S. labor market frictions and occupational licensing

Posted on by Bridget Ansel
Nurse Mary Pitman checks a patient’s chart at the Indian River Memorial Hospital recovery room in Vero Beach, Fla.

Occupational licensing in recent years jumped out of obscurity into a prominent position in discussions about problems in the U.S. labor market. Between 25 and 30 percent of U.S. workers must have a license to work in their jobs, a five-fold increase since the 1950s. Such a big increase in licensing did increase wages for licensed workers, but the fear is that the gain for those workers comes at the expense of workers locked out of potential jobs. What’s more, occupational licensing might also be partially responsible for one of the most troubling trends in the U.S. labor market: declining labor market fluidity. State-by-state differences in licensing may stop workers from moving to a new job.

In fact, despite the good amount of policy conversation about the effects of licensing on geographic mobility in particular, there hasn’t been much research on the relationship. But that’s starting to change. New research on one particularly important licensed profession—nursing—indicates that licensing may not be as large a problem as some policymakers and economists have assumed.

Now, though, a new working paper released by the National Bureau of Economic Research investigates this very question. The new paper by Christina DePasquale of Emory University and Kevin M. Stange of the University of Michigan looks at the effect of a key policy reform to nursing licenses. The program, called the Nurse Licensure Compact, allows a nurse with a license in one state to go and work in another state that’s opted into the compact. Only 25 states have opted into the compact and their entrance has been staggered, so DePasquale and Stange can look at the differences in labor market outcomes between nurses in states that signed onto the compact and workers in bordering states who didn’t.

Furthermore, the two economists can run an analysis that does that comparison as well as comparing nurses to non-nurse health care workers to control for underlying differences that may have caused the state to join the Nurse Licensure Compact. When all is said and done, the researchers find a very small effect of this easing of licensing on nurse’s labor market outcomes.

Specifically, the Nursing Licensure Compact neither increases nurses’ labor force participation and employment nor boosts the likelihood of them working across state lines. DePasquale and Stange find very minimal effects on nurses moving across state lines while the slight evidence they find for this effect is from young workers and it isn’t particularly strong in a statistical sense.

So what should policymakers take away from this research? First off, a reminder that this new paper looks only at the nursing labor market. Nursing is only one profession, so we shouldn’t jump to extrapolate these results to the whole labor market. Yet, as the two authors point out, nursing is the second-largest licensed profession after teachers. So perhaps their findings should make us more skeptical about occupational licensing being a major reason behind declining labor market fluidity. Licensing may have a role, but it may not be the main culprit.

Must-Read: Dani Rodrik: Brexit and the Globalization Trilemma

Posted on by Brad DeLong

Must-Read: Time to fly my Neoliberal Freak Flag again!

I see this very differently than the extremely-sharp leader of the Seventh Social-Democratic International Dani Rodrik does. The Greek and the Spanish electorates vote loudly that they want to stay in the EU and even in the Eurozone at all costs, rather than threaten to exercise their exit option. The German electorate votes loudly that they want fiscal austerity at all costs. The policies are a result of those–democratic–decisions. The problem is not that Europe has too little democracy. The problem is that it has the wrong kind. Issues of fiscal stance are technocratic issues of economic governance in order to balance aggregate demand with potential output–to make the demand for safe, liquid, stores of value at full employment equal to the supply of such assets provided by governments with the exorbitant privilege of issuing reserve currencies and whatever other actors (if any) maintain credibility as safe borrowers. They are not properly what Angela Merkel and company have turned them into: things for the Germany electorate to vote on as it participates in what Dani Rodrik rightly calls a morality play about prudence and fecklessness. The monetary issue of whether to stay in the Eurozone or to pursue adjustment-through-depreciation is also a technocratic issue of economic governance in order to maximize speed and minimize the pain of structural adjustment. It is not properly what it has become: a thing for the Greek and Spanish electorates to vote on in a different morality play, one of whether the Mediterranean is or is not a full part of “Europe”.

Harry Dexter White and John Maynard Keynes were good democrats. Neither would say that Europe’s economic problems now are the result of a deficiency of democracy. They would say that it is the fault of their IMF–that their IMF should have blown the whistle, declared a fundamental disequilibrium, and required one of:

  1. the shrinkage of the eurozone and the depreciation of the peso and the drachma back in 2010
  2. a wipeout of Greek and Spanish external debts, and a fiscal transfer program from the German government to Greece and Spain and to German banks if German authorities wished to avoid such a shrinking of the eurozone.

We did not have such an IMF back in 2010. But that we did not have such an IMF is not the result of a deficiency of democracy in Europe.

Or so I think: I could be wrong here.

Dani:

Dani Rodrik: Brexit and the Globalization Trilemma: “My personal hope is that Britain will choose to remain in the EU…

…without Britain the EU will likely become less democratic and more wrong-headed…. Exit poses significant economic risk to Britain…. But there are also serious questions posed about the nature of democracy and self-government in the EU as presently constituted. Ambrose Evans-Pritchard (AEP) has now written a remarkable piece that… has little in common with the jingoistic and nativist tone of the Brexit campaign….

Stripped of distractions, it comes down to an elemental choice: whether to restore the full self-government of this nation, or to continue living under a higher supranational regime, ruled by a European Council that we do not elect in any meaningful sense, and that the British people can never remove, even when it persists in error…. We are deciding whether to be guided by a Commission with quasi-executive powers that operates more like the priesthood of the 13th Century papacy than a modern civil service; and whether to submit to a European Court (ECJ) that claims sweeping supremacy, with no right of appeal….

The trouble is that the EU is more of a technocracy than a democracy (AEP calls it a nomenklatura). An obvious alternative to Brexit would be to construct a full-fledged European democracy…. But as AEP says,

I do not think this is remotely possible, or would be desirable if it were, but it is not on offer anyway. Six years into the eurozone crisis there is no a flicker of fiscal union: no eurobonds, no Hamiltonian redemption fund, no pooling of debt, and no budget transfers. The banking union belies its name. Germany and the creditor states have dug in their heels….

Democracy is compatible with deep economic integration only if democracy is appropriately transnationalized as well…. The tension that arises between democracy and globalization is not straightforwardly a consequence of the fact that the latter constrains national sovereignty…. External constraints… can enhance rather than limit democracy. But there are also many circumstances under which external rules do not satisfy the conditions of democratic delegation…. It is clear that the EU rules needed to underpin a single European market have extended significantly beyond what can be supported by democratic legitimacy. Whether Britain’s opt out remains effective or not, the political trilemma is at work….

When I was asked to contribute to a special millennial issue of the Journal of Economic Perspectives… I viewed the EU as the only part of the world economy that could successfully combine hyperglobalization (‘the single market’) with democracy through the creation of a European demos and polity…. I now have to admit that I was wrong in this view (or hope, perhaps). The manner in which Germany and Angela Merkel, in particular, reacted to the crisis in Greece and other indebted countries buried any chance of a democratic Europe…. She treated it as a morality play, pitting responsible northerners against lazy, profligate southerners, and to be dealt with by European technocrats accountable to no one serving up disastrous economic remedies…. My generation of Turks looked at the European Union as an example to emulate and a beacon of democracy. It saddens me greatly that it has now come to stand for a style of rule-making and governance so antithetical to democracy that even informed and reasonable observers like AEP view departure from it as the only option for repairing democracy.

Must-Read: Judith Shulevitz: How to Fix Feminism

Posted on by Brad DeLong

Must-Read: Judith Shulevitz: How to Fix Feminism: “IN an important new book, ‘Finding Time’…

…Heather Boushey argues that the failure of government and businesses to replace the services provided by ‘America’s silent partner’–the stay-at-home wife–is dampening productivity and checking long-term economic growth. A company that withholds family leave may drive away a hard-to-replace executive. Overstressed parents lack the time and patience to help children develop the skills they need to succeed. ‘Today’s children are tomorrow’s work force,’ Ms. Boushey writes. ‘What happens inside families is just as important to making the economy hum along as what happens inside firms.’

Knowing that motherhood can derail a career, women are waiting longer and longer to have children…. I recently got into an argument with a professor friend about the plausibility of restructuring higher education and the professions so that women–and men–wouldn’t have to hustle for positions like partner or associate professor just as they reach peak fertility. Many universities, I said, now stop the tenure clock for a year when assistant professors have children. My friend laughed. A year is nothing when it comes to a baby, she said. She’d never have won tenure if she’d had her son first. I didn’t know what to say. At least she had a child, unlike friends who waited until too late….

What if child-rearing weren’t an interruption to a career but a respected precursor to it, like universal service or the draft?… American families, particularly low-income families, can’t do without a double income, given wage stagnation and the cost of children in a country that won’t help parents raise them. But having to work should not be confused with wanting to work…. Marissa Mayer, now chief executive of Yahoo, reported that when she was in Google’s employ, she slept under her desk, one disgusted feminist, Sarah Leonard, wrote, ‘If feminism means the right to sleep under my desk, then screw it.’… Feminism… should not mean… a politics of the possible. We’re fighting for 12 weeks of leave when we need to rethink the basic chronology of our lives…

This is, I would note, what Larry Summers said eleven years ago we should think very hard about, as an economy, as a society, and as a culture:

Larry Summers (2005): Remarks at NBER Conference on Diversifying the Science & Engineering Workforce: “[In] major corporations… [at] large law firms… [in] prominent teaching hospitals, and… [in] other prominent professional service organizations, as well as… in higher education…

…the story is fundamentally the same. Twenty or twenty-five years ago, we started to see very substantial increases in the number of women who were in graduate school in this field. Now the people who went to graduate school when that started are forty, forty-five, fifty years old. If you look at the top cohort in our activity, it is not only nothing like fifty-fifty, it is nothing like what we thought it was when we started having a third of the women, a third of the law school class being female, twenty or twenty-five years ago. And the relatively few women who are in the highest ranking places are disproportionately either unmarried or without children, with the emphasis differing depending on just who you talk to…. That is a reality…. What does one make of that?…

Speaking completely descriptively and non-normatively… the most prestigious activities in our society expect of people who are going to rise to leadership positions in their forties near total commitments to their work… a large number of hours in the office… a flexibility of schedules… a continuity of effort…. That is a level of commitment that a much higher fraction of married men have been historically prepared to make than of married women. That’s not a judgment about how it should be…. That expectation is meeting with the choices that people make and is contributing substantially to the outcomes that we observe….

What fraction of young women in their mid-twenties make a decision that they don’t want to have a job that they think about eighty hours a week? What fraction of young men make a decision that they’re unwilling to have a job that they think about eighty hours a week?… That has got to be a large part of what is observed.

Now that begs entirely the normative questions…. Is our society right to expect that level of effort from people who hold the most prominent jobs? Is our society right to have familial arrangements in which women are asked to make that choice and asked more to make that choice than men? Is our society right to ask of anybody to have a prominent job at this level of intensity?…

To buttress conviction and theory with anecdote, a young woman who worked very closely with me at the Treasury and who has subsequently gone on to work at Google highly successfully, is a 1994 graduate of Harvard Business School. She reports that of her first year section, there were twenty-two women, of whom three are working full time at this point. That may, the dean of the Business School reports to me, that that is not an implausible observation given their experience with their alumnae…