Must-Read: : Beating a Dead Robotic Horse: “People are not horses, they are apes…
…And apes are intelligent, creative, and social. The last one is very important, because it means we have a built-in demand for being around other people. A demand that we routinely pay to have supplied. We will always find ways to pay other people to interact with us. The horse agument, though, is a form of strong robo-pessimism. When I go after it, it makes it seem as if I have a real distinct difference from someone like Richard, a weak robo-pessimist. I don’t. I think I am a weak robo-optimist…
Must-Read: : Middle-Aged White Death Trends: All About Women in the South: “Remember that increasing death rate among middle-aged non-Hispanic whites?…
…It’s all about women in the south (and, to a lesser extent, women in the midwest)….
Must-Read: And Duncan Black comes up with a very good phrase to describe what we think the Federal Reserve is doing based on what we think is its misspecified and erroneous view of the inflation process: “taking away the punchbowl before the DJ even shows up to the party”:
: Time To Increase Interest Rates!: “As I’ve said, I don’t think small upticks in interest rates by the Fed…
…will really destroy the economy. They just signal that the Fed will never let wages (for most of us) rise ever again. They’re taking away the punchbowl before the DJ even shows up to the party. Killing inflation is easy and you don’t have to pre-kill it. The best argument for Fed actions is that they need to increase rates so that they’ll be able to decrease them again if the economy sours. There’s a bit of an obvious problem with this reasoning. Exciting days at the dog track probably do get their attention. Wonder why that is.
How many FOMC members would have voted to raise interest rates back a month and a half ago if they had known that from then until now would say a 50 basis-point downward lurch in the 5-year ahead 5-year forward inflation breakeven? 4? 3? 2? 1? If they do not reverse that December rise at the next FOMC meeting, it seems as if something is wrong…
Must-Read: Olivier Blanchard says that he and Paul Krugman differ not at all on the analytics but, rather, substantially on “tone”. When I read Olivier, I find his tone so measured and reasonable that casual and even more-attentive-than-casual readers are likely to completely miss the point.
When Olivier believes that the Federal Reserve did right to raise interest rates last month. But when he says “each of the last three conclusions presents challenges for the conduct of monetary policy”, what he means the conclusion I draw is: The Federal Reserve has made and is making three mistakes in its assessment of the relationship between inflation and unemployment:
Why the Federal Reserve is working today as if the Phillips-Curve relationship is still what it was in the years around 1980 is a great mystery. But it is, I think–and I think Olivier thinks, though with his reasonable tone it is hard to tell–leading the Federal Reserve to place bad monetary-policy bets right now:
: The US Phillips Curve: Back to the 60s?: “The US Phillips curve is alive…
…(I wish I could say “alive and well,” but it would be an overstatement: the relation has never been very tight.) Inflation expectations, however, have become steadily more anchored, leading to a relation between the unemployment rate and the level… rather than the change in in inflation… [that] resembles more the Phillips curve of the 1960s than the accelerationist Phillips curve of the later period. The slope of the Phillips curve… has substantially declined…. The standard error of the residual… is large…. Each of the last three conclusions presents challenges for the conduct of monetary policy…
Must-Read: There is an alternative branch of the quantum-mechanical wave-function multiverse in which we reality-based economists got behind the “safe asset shortage” view of our current malaise back in 2009. Savers, you see, love to hold safe assets. And in 2007-9 the private-sector financial intermediaries permanently broke saver trust in their ability to create and credibility to identify such safe assets. If, then, we seek to escape secular stagnation, the government must take of the task of providing safe assets for people to hold and then using the financing for useful and productive purposes. That could have been an effective counter-narrative to demands for austerity–not least because it appears to be a correct analysis…
: The Dead Hand of Austerity; Left and Right: “Those who care to see know the real damage that austerity has had on people’s lives…
…The cost on the left could not be greater. Austerity and the reaction to it were central to Labour losing the election. The Conservatives managed to pin the blame for Osborne’s austerity on Labour, and as the recent Beckett report acknowledges (rather tellingly): ‘Whether implicitly or explicitly (opinion and evidence differ somewhat), it was decided not to concentrate on countering the myth…’ It was also central in the revolution of the ranks that happened subsequently. Austerity is a trap for the left as long as they refuse to challenge it. You cannot say that you will spend more doing worthwhile things, and when (inevitably) asked how you will pay for it try and change the subject. Voters may not be experts on economics, but they can sense weakness and vulnerability….
That dead hand… touches the reformist right… as [well]…. There were genuine hopes on all sides that Universal Credit (UC) might achieve the aim of simplifying the benefit system…. But as a result of austerity, and those cuts to tax credit that the Chancellor was forced to postpone, UC will now be seen as a way of cutting benefits and will be either extremely unpopular and/or be quickly killed…. The years of austerity will be seen as wasted years, when no new progress was achieved and plenty that had been achieved in the past setback. Recovery from recessions need not be like this, and indeed has not been like this in the past. They can be a time of renewal and reform…. In the UK that dead hand continues, seen or unseen, to dominate policy and debate. And with its architect set to become Prince Minister and large parts of the opposition still too timid to challenge it, it looks like another five wasted years lie ahead for us.
Paid leave, which allows workers to take time away from work for personal medical reasons or to care for family members, is increasingly popular among policymakers. In fact, presidential candidates from both major parties support the idea of paid leave, even if the mechanisms for funding and delivering paid leave differ quite a bit.
But while the idea itself is catching on, actual instances of paid leave programs in the United States are relatively rare among the states. So far, just three states have implemented comprehensive paid leave programs: California has had a program for more than a decade, with only New Jersey and Rhode Island joining the ranks relatively recently. (New York and Hawaii have more limited temporary disability insurance programs.) Looking at these states’ experiences can be instructive when thinking about what a federal policy might look like.
In a recently released report, four researchers—Ann Bartel of Columbia Business School; Maya Rossin-Slater of the University of California, Santa Barbara; Christopher Ruhm of the University of Virginia; and Jane Waldfogel of the Columbia School of Social Work—explore how the new paid leave program affects employers in Rhode Island, which in 2014 became the most recent state to implement a paid leave program. Called Temporary Caregiver Insurance, the program was an expansion of its already existing temporary disability insurance program. It gives workers in Rhode Island four weeks of paid leave and is financed by a payroll tax on employees. The payout is a certain percentage of workers’ pay, capped at $795 a week.
In short, Rhode Island decided to take a social-insurance-style approach to the program instead of one that would rely on individual employers to give their workers leave on their own. It’s like the difference between Social Security and the 401(k) system.
The researchers surveyed employers before and after the implementation of the Temporary Caregiver Insurance program and found that it really doesn’t affect the employers much, at least according to their survey responses. For the most part, employers feel pretty positive about the program: 61 percent of employers said they were either “strongly in favor” or “somewhat in favor” of it.
(The authors note their sample size isn’t particularly large, but their results are very much in line with studies of California’s much bigger program.)
Why would employers like such a program? When economists, analysts, and policymakers talk about the economic ramifications of paid leave programs, they usually talk about the potential benefits for labor force growth. A robust paid leave program might be able to boost the U.S. labor force participation rate—which has been on the decline since 2000—by allowing workers time to temporarily step back from the labor force instead of dropping out entirely.
Stronger labor force attachment also helps employers. Turnover can be quite costly for employers, with the cost of replacing a worker registering at somewhere around 20 percent of their annual salary. So it could be quite beneficial for employers if workers come back to the job after a temporary leave. Of course, the Temporary Caregiver Insurance program doesn’t require employers to administer the benefits (as they do with employer-sponsored paid leave programs), but rather leaves that to the state government. (I’m sure employers appreciate having one less HR process to run.)
To be fair, this is just the experience of one state of only three that have implemented paid leave programs. But their positive experiences, along with those of other countries with similar programs, show the large potential for the concept in the United States.
Wal-Mart Stores Inc. announced late last week that it will close 154 of its stores nationwide, sparing the District of Columbia (where I live) yet also disclosing that the discount retailer will not be expanding as promised in the city. The decision to close about 3 percent of its stores nationwide means as many as 10,000 workers in the United States could lose their jobs, according to The New York Times. The move also means that Washington, D.C. will not see the creation of scores of new jobs in parts of town that desperately need new employment opportunities.
It’s been a tough year for Walmart as competition from online retailers has hit its bottom line. But instead of focusing on the failure of Walmart’s business model—and its management—local leaders are using the company’s announcement as an opportunity to focus on driving down benefits for workers.
Take the District of Columbia. Although Walmart isn’t closing any stores in D.C., its representatives told Mayor Muriel Bowser that the company will not move forward with two Supercenters planned for east of the Anacostia River—one in Skyland Town Center in Southeast, and the other in Capitol Gateway Marketplace in Northeast.
Not following through on these two stores violates a “handshake” agreement that former Mayor Vincent Gray made with Walmart in 2013. Having Walmart operate in the District was contentious from the start. Many were concerned about the company’s employment practices, including its low wages, limited benefits, unpredictable schedules, and anti-union policies. Gray negotiated that in order for Walmart to become a retailer in the District, the company had to build at least two stores in Washington’s poorest neighborhoods.
While Walmart got what it wanted, the District did not. Walmart got to open stores in up-and-coming, gentrifying parts of our city. They opened one near Union Station, one in the Brightwood neighborhood along Georgia Avenue, and a third in the Fort Totten neighborhood. But residents of the neighborhoods who needed access to a large grocery store and new jobs the most have been left out. Further, the District had already committed $90 million to make the Skyland development possible and spent resources working through the District’s permit process.
But that’s not the story that Councilmember Jack Evans told The Washington Post. Evans, who represents Ward 2 where I live, was in the meeting with the Mayor and the Walmart officials. While Walmart’s public statements were about the tough times in retail, Evans said Walmart’s change of plans in D.C. were because of the District’s rising minimum wages and the potential that the District City Council will vote for a paid family and medical leave bill this session.
In fact, Walmart was very explicit about its reasoning. It is losing customers to online retailers and hasn’t figured out a sound strategy to compete with the likes of Amazon. The company added that it also has had problems figuring out how to compete in urban markets like the District of Columbia. Walmart built its success on large, suburban locations, but hasn’t been able to dominate urban markets in the same way. In 2011, it began a strategy of creating smaller “Express Stores” that the company hoped would appeal to urban consumers. But Friday’s announcement included an end to those urban small stores, too.
Councilmember Evans should not be encouraging his colleagues to temper their support for reducing economic inequality and strengthening families living in Washington, D.C. Instead, this is an opportunity to point out that a firm’s bottom line isn’t just about labor market policy. Good economics isn’t just the short-term corporate bottom line but rather a vibrant economy where families are economically secure, good jobs are available, and firms are innovative and constantly adjusting their business models to meet long-term objectives. Always-low wages are simply not a path to consistently strong firm performance or strong, sustainable economic growth.
The District of Columbia should support policies that create living wages and give workers the time and income support they need when they have to be away from work because they have a new child or a family member has a serious illness. Ideas such as the paid family leave bill before the D.C. Council would be one such step forward that would both reduce inequality and support working families as well as strengthen our economy. Walmart’s failure to adjust its business strategies is its problem, not that of the citizens of the District of Columbia.
Heather Boushey is Executive Director and Chief Economist at the Washington Center for Equitable Growth.
The Martin Luther King Jr. holiday this year sparked some reflection from former Federal Reserve Bank of Minneapolis president Narayana Kocherlakota. He notes that as the president of a regional reserve bank and a member of the Federal Open Markets Committee, he heard quite a bit about regional variation in the economy. In fact, the Federal Reserve system with its regional banks was set up to foster this kind of appreciation.
But Kocherlakota is also aware that he wasn’t reminded of other kinds of variations and inequality, particularly when it came to race. Looking through the meeting transcripts of 2010 FOMC meetings, he realized the committee never talked about the state of the labor market for African Americans—even though the unemployment rate for black Americans never dipped below 15.5 percent that year. (The overall U.S. unemployment rate averaged 9.6 percent in 2010, and 8.7 percent for white Americans.)
Kocherlakota argues that the Federal Reserve’s “vision of economic diversity” has a blind spot when it comes to the matters of race. But is the solution merely to have more information about the levels of racial inequality in the country? As Stephen Williamson, a vice president at the Federal Reserve Bank of St. Louis, points out, the Federal Reserve system is quite aware of the variety of inequalities in the United States. The central bank and the regional banks collect data on inequality and host conferences about wealth and income inequality and its interaction with monetary policy.
So what is there to do? Williamson argues that while monetary policy definitely has distribution effects, the Federal Reserve needs to focus on its mandate as legislated by Congress. That is, the central bank needs to stick to its job: maximizing employment and stabilizing inflation. But it’s important to note the relative weighting the bank gives on its two mandates.
Consider, for example, the distribution effects of promoting maximum employment. Specifically, think about the potential effects on racial inequality if the Federal Reserve put more emphasis on full employment in the United States. Jared Bernstein points out that the black unemployment rate is usually about twice the unemployment rate for white workers. And tighter labor markets disproportionately help black workers: A 1 percentage point decline in the overall U.S. unemployment rate often translates to a 2 percentage point decline in the black unemployment rate. So while promoting maximum unemployment and drawing more workers into the U.S. labor force, the Federal Reserve would also help chip away at some of the racial inequality in the country.
Of course, this isn’t to say that the Federal Reserve has to tackle the problem on its own. But the Fed should be aware that in upholding its dual mandate, it can make progress in dealing with significant inequalities in the U.S. economy.