Post 6: The Economy is Doing Super Awesome, Right?

It’s the first Friday of the month, which means the US Department of Labor just released their jobs numbers for the month of October. Wooooo!

The economy added 250,000 jobs over the past month, which is even more than expected, leaving the unemployment rate at a still staggering 3.7%. This rate, the same as September’s, is the lowest since 1969. Wages are slowly growing too, up 3.1% from the previous year.

Real wages, however, are still improving at a desperately slow rate, indicating that the relationship between low unemployment and high wages may be different now than before (in 2000, for example).

Interestingly, labor force participation rose from 62.7% to 62.9%. This data point seems to confirm the idea that low labor force participation, particularly as a result of the recession a decade ago, means that the labor market is not actually as tight as unemployment numbers indicate.

How will this news impact voters in next week’s elections? Will this news inspire confidence in the President and his party, tax cuts, and tariffs? The Times reports that confidence is high among business leaders and consumers, but does this attitude reflect the average voter’s? In a time of growing inequality, it is possible that these macro effects will do very little for the lower or downwardly mobile classes.

The Times also cites a report from the Center for Financial Services Innovation that found a quarter of Americans can’t cover all of their expenses and a third can’t pay all of their bills on time. We should not be surprised if the message of a booming economy doesn’t seem to resonate with poll-goers on Tuesday.

PS This second article from the Times from a week and a half ago shows that weak wage growth is not a result of inflation, affected men and women in every age group, hurt all skill levels of workers, and hurt almost all occupations they examined, except for mining.


Post 5: Bringing Down the ‘Haus

First, a disclaimer: I understand that Jacobin was not on the suggested list of policy news sites for the class, and that it reveals my identity as a raving leftist. (Although now that the Trump administration just put out a report against socialism, maybe the #resistance folks will get on board!)

Moving on.

The latest rage and despair inducing climate news comes to us courtesy of the United Nations Intergovernmental Panel on Climate Change (IPCC), and the overarching message is consistent with what we’ve been hearing for a while now. Generally, we’re in deep, deep trouble, and specifically (according to the IPCC), we have 12 years left to prevent catastrophic climate consequences.

The climate will be in ruins, and it will only take Trump four terms to get us there, can you believe it?

Climate change (an externality), planning policy for the future (generational accounting), and cost benefit analysis are all topics we’ve recently covered in class, so I was fascinated when I saw that one of the contentious topics in the economics of climate planning was the discount rate.

The economist William Nordhaus won the Riksbank Prize in Economic Sciences (Economics Nobel Prize) this year for his work on climate change in which he uses a high discount rate. On the other hand, rival economist Nicholas Stern argues for a low discount rate. The discount rate, we know, is used to measure the opportunity cost, or the next best use of funds to be invested, but in this debate, the interpretation changes slightly. Here, the discount rate is used to value the relative price of present and future action. A high discount rate implicitly advocates for upfront benefits and future costs and a low discount rate suggests that future benefits are more valuable, and more worthy of the upfront costs. The discount rate values the future!

Using a relatively high discount rate, as Nordhaus does, prioritizes economic growth, which supposedly leads to improved ability to deal with climate change because we’re richer in the future because we invested in economic growth over dramatic immediate climate action. However, the science is and was clear – immediate and drastic action is required to stop the warming already taking place from causing catastrophic consequences for the planet. There’s no time to wait.

Post 4: Accounting for Mass Incarceration

Popular political wisdom now holds that mass incarceration is an issue that people from all sides of the political spectrum can get behind. Last month, the Center for American Progress hosted a bipartisan conference called “Smart on Crime,” a reference to Kamala Harris’s 2009 book. I think the phrase must predate the book, but I couldn’t find earlier references.

The logic goes like this: Democrats (we hope) see the racial injustice, barbaric prison conditions, and over-incarceration of our citizens compared to the world, plus the devastation wrought on people, families, and communities by incarceration and Republicans see an opportunity to cut spending.

I truly believe ending mass incarceration is one of the country’s most pressing problems and one of our most gruesome violations of human rights and dignity, not to mention an effective way of continuing to oppress poor and black/brown people, but I’m skeptical of the money-saving strategy. Don’t get me wrong – I’m excited that in the post The New Jim Crow era we’re able to debate the flaws in Michelle Alexander’s argument (mass incarceration is not primarily a drug problem) and the strategies for reform and/or abolition of prisons, and that prison abolition as entered the conversation at all. We just need to understand exactly what we’re dealing with, and the “ending mass incarceration benefits all of us taxpayers” isn’t going to bring us freedom.

There are three basic accounting reasons for this. First, as John Pfaff and Marie Gottschalk discuss, is the basic difference between average and marginal costs. Larry Krasner, the new DA of Philadelphia, has instructed his prosecutors to justify the cost of a jail stay, if they recommend incarceration, listing the financial cost of the sentence in their argument. They multiply the cost of keeping a person in a cage for a day by the number of days. This seems straightforward enough. However, the lion’s share of prison costs are not the marginal costs of this additional person, but rather the fixed costs, the largest of which (at least ⅔) is staff salaries. In order to effect large-scale savings, entire facilities need to close so that staffing and facilities cuts can be made.

Another accounting problem is that prisons cost a lot of money, but in the scale of our state and national budgets, they actually don’t. A few percent of a state budget pales in comparison to small tweaks in military spending, and other larger programs (such as corporate subsidies).

Finally, and most importantly, even if we’re still just talking in crude economic terms, the most important impact falls not on the taxpayer but on the incarcerated people themselves. What is the value of their lost earnings from time in prison? The welfare they will need with reduced labor market power? The physical and mental healthcare needs from the physical and mental deterioration caused by prison time? The costs of children separated from their parents? These costs, the real costs, don’t even register for our penny-pinching bipartisan dealmakers.

Post 3: Bernie vs. Bezos

Bernie Sanders, the most popular politician in America, recently announced a strategy for reducing inequality by going after employers. His Stop BEZOS bill would make employers pay the cost of government subsidies received by their employees with low incomes such as SNAP, Medicaid, and others. “Corporate welfare,” according to Sanders, does little more than publicly subsidize profits for companies like Amazon that can afford to pay their workers more.

Despite being the most popular politician in America, Sanders’ colleagues don’t always treat him that way. His BEZOS proposal was immediately criticized from all sides. Even liberals argued that this idea would discourage employers from hiring people on public assistance. Perhaps another idea worthy of consideration is reforming another form of corporate welfare, the Earned Income Tax Credit.

The Earned Income Tax Credit (EITC) is a textbook example of a welfare program that “encourages work.” It’s literally in my textbook. The old neoclassical economic (and not-so-subtly racist and classist) logic goes like this: giving people cash with no work requirement breeds laziness and dependence because there’s no incentive to work. These people, molded in our mind’s eye by Reagan’s “welfare queens,” mooch off of our hard work because we let them. The EITC is different because it has a work requirement. Recipients of the EITC get the assistance they need, but only if they work. Two problems solved – helping the poor and incentivizing them to work. It’s no surprise then, that the EITC is a popular program across the broad range of centrists sitting in Congress.

However, the EITC punishes people who can’t work, or can’t find work. It publicly subsidizes wages for low income workers, instead of simply raising the minimum wage for employers, and acts to lower wages. Additionally, one dollar spent on the EITC only raises wages by about 70 cents, with the remainder scooped up by employers. As Joshua Mound suggests in this article, reforming the EITC might not be an easy strategy, but would more directly address corporations whose employees rely on welfare programs. I would also say that minimum wage increases could also be effective.

Post 2: 2017 Census Bureau Poverty Numbers Released

Last Wednesday, September 12th, the US Census Bureau released its annual report on poverty in America.

While we’ve been hearing for a while that the economy still in a healthy upswing since the recession nearly a decade ago, the numbers show another reality. Unemployment is unbelievably low, and the economy is growing at a robust rate, but the recovery hasn’t helped everyone. Even as incomes grew slightly in the past year, the poverty rate only fell slightly to 12.3%, with over 40 million Americans living below the official poverty line. The supplemental poverty measure, more reflective of the actual cost of living in America, is even higher, at 13.9%. That’s not any better than 2016.

Not only are things not improving for the poor, they’re getting worse. The number of people living below half of the poverty line has increased from 3.5% to 5.7% since 1975.

Evidently, the growth of the recovery hasn’t been shared. However, this isn’t stopping the current administration from celebrating victory (and an end) in the War on Poverty and readying to shrink welfare programs such as food and housing assistance.


Post 1: CA Governor Jerry Brown – Climate Hero or Villain?

The Global Climate Action Summit, currently taking place in San Francisco, aims to bring leaders together in creating bold, transformative solutions to climate change. The summit is a stern rebuke to the Trump administration, led by California Governor Jerry Brown, and an opportunity for groups to come together to create plans to reduce carbon emissions.

So why was the conference met by thousands of protesting environmental and indigenous activists? And why is Jerry Brown a target of the protests?

The activists point out that Brown is trying to appease both sides, including approving multiple new oil and gas drilling operations (a proposition also questioned in connection to Brown’s sister, who sits on the board of an energy corporation) even as global temperature records are set year after year. Additionally, they cite environmental justice concerns, as the poorest Californians are often those subjected to industrial air and water pollution.

I am particularly interested in the criticisms of cap-and-trade, the policy by which corporations trade “pollution permits” to ensure that pollution reduction goals are met, but theoretically allowing the most efficient market distribution of pollution. Cap-and-trade is the textbook example (in our textbook!) of why this flexible market-based solution is preferable (more efficient) than direct emissions regulations. The textbook is written by one of the economists who created our current market-based healthcare system, a system that still excludes many people from adequate healthcare, which is arguably a human rights violation, but back to the story at hand.

From what I can tell, the argument is this: Carbon trading and carbon taxing are tools that may be useful, but the market efficiency of the solution isn’t nearly as important as a scope and speed of carbon emission reduction necessary if we’re going to make progress against the climate crisis. New drilling, and business-friendly cap-and-trade policies won’t cut it.