Social Science Knowledge and Public Policy: A View from the Trenches during the Great Recession Lesser Depression of 2007-????http://tinyurl.com/dl20160323b
SSSA Conference :: Las Vegas, NV :: March 24, 2016 4 PM
Category: Equitablog
Must-read: Branko Milanovic: Global Inequality: A New Approach for the Age of Globalization
Must-Read: : Global Inequality: A New Approach for the Age of Globalization: “When: 03/29/2016 9:30 am – 11:00 am. Where: 1500 K Street Northwest, Washington, DC, United States…
…Please join the Washington Center for Equitable Growth on Tuesday, March 29 at 9:30a.m. for a presentation by Branko Milanovic on the findings of his new book, ‘Global Inequality: A New Approach for the Age of Globalization.’
‘Global Inequality’ is a comprehensive addition to the growing popular literature on inequality, expanding the scope of existing research in both time and space. Milanovic argues that inequality is historically not just an inverted-U shape, as Simon Kuznets claimed, nor a right-side-up U, as Thomas Piketty contends, but both.
The implications of Milanovic’s research for the current inequality debate pertain to the simultaneous decline of inequality between countries, as average incomes in the developing world grow rapidly, and the rise of inequality within countries, with the emergence of a global plutocracy and the stagnation or even decline of labor incomes for the middle class of developed economies. Milanovic connects all of these trends to the rise in globalization and pro-rich economic policies adopted around the world, and speculates about what sorts of forces might emerge to counteract the global trend, as they have in past periods.
Copies of ‘Global Inequality’ will be available for purchase at the event.
Registration and breakfast: 9:00 a.m. Presentation and discussion: 9:30 a.m. – 11:00 a.m. Welcome: Heather Boushey, Executive Director and Chief Economist, Washington Center for Equitable Growth. Featured author: Branko Milanovic, author, ‘Global Inequality: A New Approach for the Age of Globalization’; Senior Scholar, Luxembourg Income Study Center; Visiting Presidential Professor, Graduate Center, City University of New York. Discussant: Suresh Naidu, Assistant Professor of Economics and Public Affairs, Columbia University. Moderator: Marshall Steinbaum, Research Economist, Washington Center for Equitable Growth.
Must-read: John Maynard Keynes: “A somewhat comprehensive socialization of investment…
Must-Read: (1936): The General Theory of Employment, Interest and Money: “It seems unlikely that the influence of banking policy on the rate of interest…
…will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary…
Must-reads: March 23, 2016
How low-income tax credits might be improved
The federal tax code of the United States has many purposes—the main one, of course, being to help fund the federal government. Yet it also helps determine the shape and level of income inequality, both before and after income is redistributed. Most conversations about the tax code invariably drift to the subject of top marginal tax rates and their effects on economic growth and inequality. But the tax code has become not only a tool to take in money from households, but also a way to give them money.
As the federal government has placed less emphasis on dispersing cash in the form of traditional welfare, it has instead begun handing out cash through tax code programs like the Earned Income Tax Credit or the Child Tax Credit—the major tax code provisions that are oriented toward the lower half of the income distribution. A new working paper by economists Hilary Hoynes and Jesse Rothstein of the University of California, Berkeley takes a deeper look at the two tax credits, showing that while they accomplish many of their goals, they can be improved even further.
The Earned Income Tax Credit has come to replace traditional welfare programs as the major poverty-fighting cash-transfer program. In other words, the program is explicitly about redistributing funds toward those at the low end of the wage distribution. But the Child Tax Credit, while in theory targeting the low end of the distribution and amplifying some of the effects of the Earned Income Tax Credit, seems more focused on “horizontal” concerns by reducing taxes for families with children compared to those without them.
One concern about the Child Tax Credit is that it’s not “fully refundable.” Whereas a person can get the full value of the Earned Income Tax Credit even if they don’t pay any federal income tax, the Child Tax Credit is only refundable for people with annual incomes over a certain level. Thanks to a 2009 reform made permanent in 2015, that income level is now only $3,000 instead of the previous threshold of $11,500.
But even with that reform, the Child Tax Credit is still far less targeted at low-income workers than the Earned Income Tax Credit. According to Hoynes and Rothstein’s calculations using a tax model, 60 percent of the benefits of Earned Income Tax Credit goes to tax filers earning less than $30,000 a year. On the other hand, only about 20 percent of Child Tax Credit benefits go to this group—and another 20 percent of the benefits from the credit goes to families making more than $100,000 a year.
Lowering the income threshold, however, made the Child Tax Credit much more progressive: More than 70 percent of the new benefits went to families making less than $30,000 a year. Making the tax credit fully refundable like the Earned Income Tax Credit would further increase its progressivity. Likewise, policymakers could also make the Earned Income Tax Credit more progressive by expanding the credit for workers without children.
Again, both the Earned Income Tax Credit and the Child Tax Credit have been successful at achieving their stated goals. But Hoynes and Rothstein’s research reminds us that just because a program may work well, that doesn’t mean it can’t work better.
Must-read: Martin Wolf: “China’s Struggle for a New Normal”
Must-Read: : China’s Struggle for a New Normal: “Beijing must be decisive and yet responsive to the needs of the people…
…At present, it seems strangely indecisive on the economy and yet increasingly authoritarian on the politics. Only a fool would consider political instability anything but a disaster for China and the world. Equally, the desire of President Xi Jinping to attack corruption and so strengthen the legitimacy of the Communist party is understandable…. [But] its political institutions must surely move beyond the ‘democratic centralism’ invented by Vladimir Lenin a century ago. The challenges are daunting. It is only the successes of the recent past that provide confidence in those of the future.
A world off-balance on monetary policy
Nouriel Roubini writes:
: “Worries about a hard landing in China… China is more likely to have a bumpy landing than a hard one…
…[but] investors’ concerns have yet to be laid to rest…. Emerging markets are in serious trouble…. The Fed probably erred in exiting its zero-interest-rate policy in December…
And it is not clear how the Federal Reserve can correct what is now widely-recognized as a probable error.
First, the Federal Reserve would have to be willing to admit that the asymmetric loss function meant that exiting zero last December was a probable error.
It was a probable error in retrospect today, and was unwise in prospect last December. Right now we are worried about global deflation. It is difficult to envision an alternative counterfactual scenario today in which we are equally worried about global inflation and equally regret that the Federal Reserve did not exist zero last December. When there is a substantial loss associate with a Type A error and only a minor loss associated with a Type B error, one risks making the Type B error unless the odds are overwhelming. The odds last December were to overwhelming.
The problem for the Federal Reserve is that admitting it made a policy error last December requires an all-but-explicit climbdown from the last two years’ worth of public risk judgments, and an explanation of why, given the obvious asymmetries, those public risk judgments were explained. And there is no face-saving way to undertake such a climbdown.
Second, the Federal Reserve would have to take steps to neutralize the contractionary pressure its policy move in December and the previous telegraphing of that move have put on the world economy. And that would be a difficult task indeed.
It looks like Ben Bernanke is about to go through the options. And that will definitely be worth reading.
Must-read: Ed Balls: “Echoes of the 1930s must focus finance ministers’ minds”
Must-Read: : Echoes of the 1930s must focus finance ministers’ minds: “The lesson of the global financial crisis of 2009 is that…
…when the G20 gets going, it can act in a decisive and co-ordinated way. However, we should not have to wait for the crisis to hit before our financial leaders take the action needed to deal with it…. One problem is focus. Back in 2009, the whole world was alive to the risk of global depression. Not so today. Europe is focused on Brexit and the refugee crisis; America is in pre-election paralysis; meanwhile Asian countries are trying to convince everyone there is no need for panic…. Stagnating growth, fragile investor confidence, fears of competitive devaluation spreading mistrust, isolationist politicians flourishing in the polls–the echoes of the 1930s should be enough to focus minds on making the case for co-operation, open markets and finding new policies to deliver more inclusive economic growth…. Listen to the OECD and IMF on fiscal activism. Countries with room for manoeuvre should boost growth through infrastructure spending. That includes the US, Germany and, yes, Britain too. Medium-term fiscal consolidation is vital. But a slide in growth will make things worse. And the cost of funding these investments is very low.
Must-read: German Lopez: John Ehrlichman: “Real Reason for the Drug War Was to Criminalize Black People and Hippies”
Must-Read: Is this plausible? In my experience, when X quotes Y saying that Y and his posse are mustachio-twirling villains, it is usually either:
- X is misquoting Y.
- Y has had a major change of heart and is trying to shock his posse into recognition that, however well-intentioned they had been, their course of action had been disastrous.
But it is rarely the case that Y and his posse actually were the conscious and malevolent mustachio-twirling villains that Y’s quote says they were.
Of course, for Richard Nixon one does have to make exceptions:
: [Nixon Official John Ehrlichman: Real Reason for the Drug War Was to Criminalize Black People and Hippies: “A new report by Dan Baum for Harper’s Magazine…
… John Ehrlichman, who served as domestic policy chief for President Richard Nixon when the administration declared its war on drugs in 1971. According to Baum, Ehrlichman said in 1994 that the drug war was a ploy to undermine Nixon’s political opposition–meaning, black people and critics of the Vietnam War:
At the time, I was writing a book about the politics of drug prohibition. I started to ask Ehrlichman a series of earnest, wonky questions that he impatiently waved away. ‘You want to know what this was really all about?’ he asked with the bluntness of a man who, after public disgrace and a stretch in federal prison, had little left to protect:
The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people. You understand what I’m saying? We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.
This is an incredibly blunt, shocking response — one with troubling implications for the 45-year-old war on drugs. But it’s not implausible. Although black Americans aren’t more likely to use or sell drugs, they’re much more likely to be arrested for them. And when black people are convicted of drug charges, they generally face longer prison sentences for the same crimes, according to a 2012 report from the US Sentencing Commission. Ehrlichman claimed this was a goal of the drug war, not an unintended consequence. And Baum cites this as one of many reasons to end the drug war once and for all.
Must-view: Employment-to-population 25-54
Must-View: Without nominal wage growth of 4%/year or significantly rising inflation, no way I am going to believe that the U.S. economy is in any sense at “full employment” with an essentially zero output gap right now:
Just saying. That is all.