Category: Equitablog

Sahil Kapur: How Tea Party Absolutism Cost The GOP A Huge Win On Entitlements: “Back in the summer of 2011, Republicans had it within their grasp.

A dejected President Barack Obama placed the crown jewels of liberalism on the chopping block, offering Republicans hundreds of billions of dollars in cuts to Social Security and Medicare benefits. House Speaker John Boehner wanted to seal the so-called grand bargain, and was willing to reciprocate with the $800 billion in new tax revenues that the president sought in return. Democratic leaders were grudgingly willing to support Obama on… a lopsided deal for conservatives. But the Ohio Republican, facing a tea party mutiny… walk[ed] away….

Continue reading “Afternoon Must Read: Sahil Kapur: How Tea Party Absolutism Cost The GOP A Huge Win On Entitlements” →

Must-Reads:

1. Stan Collender: Does Anyone Else Realize The Federal Debt Ceiling Was ELIMINATED?: “Most reports said the GOP folded its debt ceiling tent and went home. Three years after Senate Minority Leader Mitch McConnell (R-KY) began to insist that Congress would never allow the  government’s borrowing limit to be raised again unless Republicans got something something in return, and long after House Speaker John Boehner (R-OH) said there would be no debt ceiling increase unless he got a dollar in spending cuts for every dollar of increased borrowing authority, congressional Republicans allowed the government to borrow more…. But… far more significant: the federal debt ceiling wasn’t just raised, it was eliminated until March 2015… the federal government has no statutory limit whatsoever on the amount it may borrow over the next 13 months…. Congressional Republicans and Democrats alike should now be able to realize that the debt ceiling… no longer serves any practical purpose…. something that both parties join together to offer in the lame duck session of Congress that is virtually inevitable this year.”

2. Bill McBride: Calculated Risk: The Stimulus Success: “It is important for the future to set aside ideology and recognize that the American Recovery and Reinvestment Act of 2009 helped the economy. The stimulus could have been structured differently… why have tax incentives for businesses to invest when there is already too much capacity?… Recoveries from financial crisis are slow [so] investment in infrastructure could have been larger and lasted longer (not just “shovel ready” programs)… but overall the program was obviously helpful.  Note: One of the reasons I was able to anticipate the bottom of the recession was that I correctly analyzed the impact of the stimulus. It is sad today that extremist ideologues are arguing the stimulus failed. This is very dangerous for the future…. From the White House: ‘The Recovery Act, by itself, saved or created about 6 million job-years, where a job-year is defined as one full-time job for one year. This translates to an average of 1.6 million jobs a year for four years through the end of 2012. This estimate is within the range of estimates provided by the Congressional Budget Office and other outside organizations.’ This impact is in line with analysis from the CBO and others. We should debate the actual impact of the stimulus. We should debate the effectiveness of each component of the stimulus. But we should also ridicule the ideologues … Rubio’s comments are not just wrong but dangerous (if enough people believe him).”

3. The Epicurean Dealmaker: Occupy Galt’s Gulch: “‘Each of us in this room has warmed ourself at fires we did not build, and each of us has drunk from wells we did not dig.’ — Mark Shields, as heard, October 1997…. The exposure and ridicule of hubris among the Great and Good, the not-so-great and not-so-good, and the patently pathetic yet surprisingly lucky has been an overarching concern and even gleeful entertainment in these pages…. To date, what has typically stayed my hand is an acknowledgement that any efforts to puncture the iron-clad self regard of the self-appointed financial elite would be doubly futile… my targets have historically been both too impervious and too self-evidently ridiculous to bother. What has tipped my hand at last has been the appearance, at Megan McArdle’s blog site, of a really excellent guest post by entrepreneur and investor Jim Manzi. Mr. Manzi’s capitalist credentials are indisputable, so I was both impressed and heartened to read the words he excerpted there from his newly published book: ‘Many entrepreneurs hold the opinion that “I did it all on my own”…. The entrepreneur relies on an ecosystem of venture capitalists, risk-taking purchasers, and so on. This ecosystem itself rests on a deeper foundation of collective, government-led enterprise. The delivery of our software, for example, depended on the existence of the Internet, which is the product of a series of government-sponsored R&D efforts, in combination with subsequent massive private commercial development. Government funding has been essential to much of the university science that entrepreneurs have exploited. Honest courts and police are required for functioning capital markets and protection of assets; physical infrastructure is required for the roads and running water without which we would not spend much time thinking about artificial intelligence software. At the absolute foundation, national armed forces protect the whole system against external aggression. All of our exciting technical and economic innovations ultimately require men to stand watch all night looking through Starlight scopes mounted on assault rifles—and die if necessary—to protect our commercial, law-bound society. Would you do this to protect a billionaire hedge-fund manager who sees his country as nothing more than lines on a map?'”

4. Sven Jari Stehn and Jan Hatzius: Fed Should Target Wage Growth: “Low inflation should be indicative of the size of the employment gap. This approach, however, relies on a tight link between slack and price inflation. And the experience of the last couple of years suggests that price inflation is not very responsive to the employment gap at low levels of inflation and seems to fluctuate quite randomly when we are in the neighborhood of price stability. The behavior of core PCE inflation between 2011 and 2013 is a good example: core inflation rose by a full percentage point during 2011 and then dropped by the same amount in 2013, without any compelling macroeconomic explanation…. While such a [wage-targeting] policy is not perfect — because the wage inflation process, too, is subject to uncertainty — the error band around the paths for the funds rate and unemployment rate is lowered significantly and more so than in the case of increased focus on price inflation. The intuition is simple: because the wage inflation process is more stable than the price inflation process in our estimated model, the former provides a better cross check of labor market slack and thus there is a stronger case for Fed officials to focus on it.”

5. Judy Feder: The Inevitability of Disruption in Health Reform: “Concern about even modest disruption of existing health insurance coverage by the ACA regenerates the belief that “there’s got to be a better way” to make coverage available, adequate and affordable. But this brief shows that disruption is inevitable in any health reform and that the ACA’s disruption is remarkably limited—far less than single payer proposals on the left or market-based proposals on the right. Further, unlike even many narrowly targeted reform alternatives, the ACA improves the pooling of risk that is essential to effective insurance.”

6. Jason Furman and Betsey Stevenson: Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers: “The new Congressional Budget Office (CBO) report finds that 16.5 million workers would get a raise from increasing the minimum wage to $10.10 per hour and this would help millions of hard-working families, reduce poverty, and increase the overall wages going to lower-income households. On employment, CBO’s central estimate is that raising the minimum wage to $10.10 per hour would lead to a 0.3 percent decrease in employment and CBO acknowledges that the employment impact could be essentially zero. But even these estimates do not reflect the overall consensus view of economists which is that raising the minimum wage has little or no negative effect on employment.  For example, seven Nobel Prize winners and more than 600 other economists recently stated that: ‘In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.'”

Continue reading “Things to Read at Lunchtime on February 21, 2014” →

It was Samuel Bowles and Herb Gintis who first taught me that very strange things are going on in the inheritance of inequality in America. They found that although measures of cognitive performance like IQ are strongly inherited, “the genetic transmission of IQ appears to be relatively unimportant”: high IQ-parents do have higher-than-average IQ-children, but that is now why the children of rich parents are richer than average. Moreover, “the combined inheritance processes operating through superior cognitive performance and educational attainments of those with well-off parents… explain at most half” of the intergenerational inheritance of inequality.

And Greg Clark has been doing a lot of work on this, so let me turn the microphone over to him:

Greg Clark: Your Fate? Thank Your Ancestors: “Mobility has always been slow.

When you look across centuries… social mobility is much slower than many of us believe, or want to believe. This is true in Sweden, a social welfare state; England, where industrial capitalism was born; the United States, one of the most heterogeneous societies in history; and India, a fairly new democracy hobbled by the legacy of caste. Capitalism has not led to pervasive, rapid mobility. Nor have democratization, mass public education, the decline of nepotism, redistributive taxation, the emancipation of women, or even, as in China, socialist revolution.

Continue reading “The Value of Choosing the Right Parents: Creg Clark: Friday Focus: February 21, 2014” →

Let me start with Chris Dillow:

Chris Dillow: The Macroeconomic Challenge: “In discussing macroeconomics’ Faustian bargain, Simon [Wren-Lewis] asks:

By putting all our macroeconomic model building eggs in one microfounded basket, have we significantly slowed down the pace at which macroeconomists can say something helpful about the rapidly changing real world?

Continue reading “Macroeconomics’s “Faustian Bargain”?: Thursday Focus: February 20, 2014″ →

Courtesy of Digby:

Jason Furman and Betsey Stevenson: Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers: “The new Congressional Budget Office (CBO) report finds that 16.5 million workers would get a raise from increasing the minimum wage to $10.10 per hour and this would help millions of hard-working families, reduce poverty, and increase the overall wages going to lower-income households.

On employment, CBO’s central estimate is that raising the minimum wage to $10.10 per hour would lead to a 0.3 percent decrease in employment and CBO acknowledges that the employment impact could be essentially zero. But even these estimates do not reflect the overall consensus view of economists which is that raising the minimum wage has little or no negative effect on employment.  For example, seven Nobel Prize winners and more than 600 other economists recently stated that: “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

I would say that, at current levels, the effectiveness of raising the minimum wage at making work pay is a positive that far, far, far outweighs what the overwhelming bulk of the evidence says is a very, very minor disemployment effect.

I still believe demand curves slope down…

Judy Feder: The Inevitability of Disruption in Health Reform:

Concern about even modest disruption of existing health insurance coverage by the ACA regenerates the belief that “there’s got to be a better way” to make coverage available, adequate and affordable. But this brief shows that disruption is inevitable in any health reform and that the ACA’s disruption is remarkably limited—far less than single payer proposals on the left or market-based proposals on the right. Further, unlike even many narrowly targeted reform alternatives, the ACA improves the pooling of risk that is essential to effective insurance.

Stan Collender: Does Anyone Else Realize The Federal Debt Ceiling Was ELIMINATED?: “Most reports said the GOP folded its debt ceiling tent and went home.

Three years after Senate Minority Leader Mitch McConnell (R-KY) began to insist that Congress would never allow the  government’s borrowing limit to be raised again unless Republicans got something something in return, and long after House Speaker John Boehner (R-OH) said there would be no debt ceiling increase unless he got a dollar in spending cuts for every dollar of increased borrowing authority, congressional Republicans allowed the government to borrow more…. But… far more significant: the federal debt ceiling wasn’t just raised, it was eliminated until March 2015… the federal government has no statutory limit whatsoever on the amount it may borrow over the next 13 months…. Congressional Republicans and Democrats alike should now be able to realize that the debt ceiling… no longer serves any practical purpose…. something that both parties join together to offer in the lame duck session of Congress that is virtually inevitable this year.

And we are live at the D.C. Circuit Court of Appeals:

Jenner & Block: On February 17, 2014, Jenner & Block filed an amicus brief in the U.S. Court of Appeals for the D.C. Circuit in the case of Halbig v. Sibelius, which challenges the availability of premium subsidies under the Affordable Care Act (ACA) to low or moderate income persons buying coverage through federal exchanges in the 36 states that declined to establish their own insurance exchanges.  The brief, arguing in support of the economic underpinnings of the ACA, was submitted on behalf of a group of 48 internationally recognized economic scholars, including two Nobel Laureates and economists who served in the administrations of Presidents Johnson, Ford, Carter, George H.W. Bush, Clinton, George W. Bush and Obama.

The brief is notable for addressing a key issue: “[N]amely, whether Congress intended the negative economic consequences that would flow from Appellants’ proffered interpretation of the statute.”  It argues that reform of the health care system is essential to constraining the growth of health care spending and to extending health insurance coverage.  It states that premium subsidies are essential to achieving the universal health care coverage that Congress sought to establish under the ACA.  Interpreting the law as proposed by those challenging this provision would “thwart Congress’s goal of bringing affordable health care to all Americans.”

According to the brief, “Congress – correctly – structured the ACA as a series of interlocking reforms, of which premium subsidies are essential components.  If those subsidies are unavailable to the many who will buy insurance on the federal Exchange, the other components of the ACA will not work, and the legislation will fail to achieve its goal of expanding coverage.  The best available economic modeling demonstrates that, without these subsidies, average premiums would double and an estimated 6.5 million fewer Americans would have health insurance.  These increased premiums would burden not just those who would otherwise have been eligible for the subsidies, but the remaining enrollees as well.”

The amici include Peter Diamond and Eric Maskin, both recipients of the Nobel Prize in Economic Sciences; Henry Aaron, a former assistant secretary of the Department of Health Education & Welfare; Alice Rivlin, former director of the Congressional Budget Office; and Lawrence Summers, former director of the National Economic Council.

Full brief here: http://cdn.jenner.com/system/assets/assets/7762/original/Economic_20Scholars_20Amicus_20Brief_20in_20Halbig_20v._20Sibelius.pdf

Bill McBride: Calculated Risk: The Stimulus Success: “It is important for the future to set aside ideology and recognize that the American Recovery and Reinvestment Act of 2009 helped the economy.

The stimulus could have been structured differently… why have tax incentives for businesses to invest when there is already too much capacity?… Recoveries from financial crisis are slow [so] investment in infrastructure could have been larger and lasted longer (not just “shovel ready” programs)… but overall the program was obviously helpful.  Note: One of the reasons I was able to anticipate the bottom of the recession was that I correctly analyzed the impact of the stimulus. It is sad today that extremist ideologues are arguing the stimulus failed. This is very dangerous for the future…. From the White House:

The Recovery Act, by itself, saved or created about 6 million job-years, where a job-year is defined as one full-time job for one year. This translates to an average of 1.6 million jobs a year for four years through the end of 2012. This estimate is within the range of estimates provided by the Congressional Budget Office and other outside organizations.

This impact is in line with analysis from the CBO and others. We should debate the actual impact of the stimulus. We should debate the effectiveness of each component of the stimulus. But we should also ridicule the ideologues … Rubio’s comments are not just wrong but dangerous (if enough people believe him).