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And the Fed and corporate governance structures. That is the implication of his column where he describes the debate over inequality as a debate “between people who think you need strong government to defeat oligarchy and those who think you need open competition.”
Actually, his side in this debate thinks you need a strong government to enforce patent and copyright monopolies, jailing any potential competitors. It believes you need a strong government, in the form of a central bank, to slow the economy any time the demand for labor gives ordinary workers enough bargaining power to push up wages and demand better conditions from employers. And Brooks believes that the government should set rules for corporate governance that essentially allow top management to set its own pay, since it effectively controls the boards that set their pay.
It is these and other man-made rules that have given us an economy in which a very small segment of the population enjoys the bulk of the gains from the economic growth of the last thirty five years. (You can get more of the story in The End of Loser Liberalism: Making Markets Progressive.) All of these rules could easily be different. For example, we could rely on tax credits rather than patent monopolies to fund research along with more direct funding through entities like the National Institutes of Health (which is strongly supported by the pharmaceutical industry).
It is undoubtedly convenient for Brooks’ side to pretend that the rules put in place to redistribute income upward are simply the natural workings of the market, but it is not true. It’s unfortunate that the NYT can’t find a columnist who would defend these rules on their merits rather than make an absurd claim that they are somehow facts of nature.
And the Fed and corporate governance structures. That is the implication of his column where he describes the debate over inequality as a debate “between people who think you need strong government to defeat oligarchy and those who think you need open competition.”
Actually, his side in this debate thinks you need a strong government to enforce patent and copyright monopolies, jailing any potential competitors. It believes you need a strong government, in the form of a central bank, to slow the economy any time the demand for labor gives ordinary workers enough bargaining power to push up wages and demand better conditions from employers. And Brooks believes that the government should set rules for corporate governance that essentially allow top management to set its own pay, since it effectively controls the boards that set their pay.
It is these and other man-made rules that have given us an economy in which a very small segment of the population enjoys the bulk of the gains from the economic growth of the last thirty five years. (You can get more of the story in The End of Loser Liberalism: Making Markets Progressive.) All of these rules could easily be different. For example, we could rely on tax credits rather than patent monopolies to fund research along with more direct funding through entities like the National Institutes of Health (which is strongly supported by the pharmaceutical industry).
It is undoubtedly convenient for Brooks’ side to pretend that the rules put in place to redistribute income upward are simply the natural workings of the market, but it is not true. It’s unfortunate that the NYT can’t find a columnist who would defend these rules on their merits rather than make an absurd claim that they are somehow facts of nature.
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The Labor Department reported that the Employment Cost Index rose by just 0.2 percent in the second quarter. This brings the growth in the index over the last year to 2.0 percent. This undermines any claim that wage growth is accelerating.
With inflation still well under the Fed’s target of 2.0 percent as an average rate of inflation (not a ceiling), and wage growth remaining flat or possibly even falling, the Fed would have little basis for raising interest rates to slow the economy. With this most recent report it seems likely that the Fed will put off a rate hike until the end of the year at soonest.
The Labor Department reported that the Employment Cost Index rose by just 0.2 percent in the second quarter. This brings the growth in the index over the last year to 2.0 percent. This undermines any claim that wage growth is accelerating.
With inflation still well under the Fed’s target of 2.0 percent as an average rate of inflation (not a ceiling), and wage growth remaining flat or possibly even falling, the Fed would have little basis for raising interest rates to slow the economy. With this most recent report it seems likely that the Fed will put off a rate hike until the end of the year at soonest.
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Steve Rattner is right that the baby boom generation failed millennials, but he has the reason wrong. He argues that we failed the millennials because they may have to pay higher taxes to support our and their Social Security and Medicare.
It’s hard to see the story here. We baby boomers have to pay much more in Social Security and Medicare taxes than did our parents and grandparents. Did they do us some horrible injustice? We do enjoy higher living standards and longer life spans, so what’s the injustice if we pay another 2-3 percentage points of our wages in taxes? If there is some moral wrong here, it’s difficult to see.
On the other hand there is the real problem that most millennials are not seeing real wage gains. This has nothing to with Social Security, it has to do with the fact that baby boomers let incompetent Wall Street types run the economy for their own benefit. This crew gave us the stock bubble in the 1990s and the housing bubble in the last decade. They also have given us an over-valued dollar. This creates a trade deficit that makes it virtually impossible to get to full employment without bubbles.
The net effect of the Wall Streeters policies has been the weak labor market of the last 14 years, which along with other policies has led to the bulk of the gains from economic growth going to the top one percent. Baby boomers should apologize for this upward redistribution, but the burden of Social Security is a molehill by comparison. If so much money was not being redistributed upward, real wages would be rising by 1.5-2.0 percent annually, taking 5-10 percent of these wage gains to cover the cost of longer retirements would not pose any obvious problems.
Addendum
I should have also pointed out that Rattner repeats the nonsense claim that Social Security could save any substantial amount of money by taking away benefits from wealthy seniors. If we define “wealthy” to be a non-Social Security income of $80,000 per person (less than half the cutoff for “wealthy” when President Obama raised taxes in 2013), the program could save just over 1 percent of its spending by phasing out benefits for higher income individuals. While it is possible to get lots of money by taxing rich people, it is not possible to get much money by taking away their Social Security since they don’t get much more than the rest of us. Rattner’s plan can only save much money for the program if he wants to take away benefits from middle income people.
Steve Rattner is right that the baby boom generation failed millennials, but he has the reason wrong. He argues that we failed the millennials because they may have to pay higher taxes to support our and their Social Security and Medicare.
It’s hard to see the story here. We baby boomers have to pay much more in Social Security and Medicare taxes than did our parents and grandparents. Did they do us some horrible injustice? We do enjoy higher living standards and longer life spans, so what’s the injustice if we pay another 2-3 percentage points of our wages in taxes? If there is some moral wrong here, it’s difficult to see.
On the other hand there is the real problem that most millennials are not seeing real wage gains. This has nothing to with Social Security, it has to do with the fact that baby boomers let incompetent Wall Street types run the economy for their own benefit. This crew gave us the stock bubble in the 1990s and the housing bubble in the last decade. They also have given us an over-valued dollar. This creates a trade deficit that makes it virtually impossible to get to full employment without bubbles.
The net effect of the Wall Streeters policies has been the weak labor market of the last 14 years, which along with other policies has led to the bulk of the gains from economic growth going to the top one percent. Baby boomers should apologize for this upward redistribution, but the burden of Social Security is a molehill by comparison. If so much money was not being redistributed upward, real wages would be rising by 1.5-2.0 percent annually, taking 5-10 percent of these wage gains to cover the cost of longer retirements would not pose any obvious problems.
Addendum
I should have also pointed out that Rattner repeats the nonsense claim that Social Security could save any substantial amount of money by taking away benefits from wealthy seniors. If we define “wealthy” to be a non-Social Security income of $80,000 per person (less than half the cutoff for “wealthy” when President Obama raised taxes in 2013), the program could save just over 1 percent of its spending by phasing out benefits for higher income individuals. While it is possible to get lots of money by taxing rich people, it is not possible to get much money by taking away their Social Security since they don’t get much more than the rest of us. Rattner’s plan can only save much money for the program if he wants to take away benefits from middle income people.
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I’m not kidding, this is what he criticized Senator Bernie Sanders for in a Vox piece today. He apparently views it as outrageous that Sanders, a candidate for the Democratic presidential nomination, doesn’t think that the United States should open its borders so that every person who in the world who wants to come and work in the United States has the opportunity to do so.
On the one hand Matthews has a point, there is an injustice in that people who were born in the United States are able to enjoy a better and longer life than people who had the misfortune to be born in a poor country in Africa, Asia, or elsewhere in the developing world. On the other hand, it is hard to see that as a greater injustice than saying that people who were born in wealthy and educated families in the United States, that could give their children the wealth and social training to enjoy a high living standard, have a right to a better standard of living than children who were born to less privileged families. Of course these children of privileged families will benefit from having more less-educated immigrants in the country since it will mean they have to pay less for their nannies and to have their lawn mowed and their house cleaned.
This problem can be solved much more easily than worldwide inequality. For example, let’s eliminate the patent and copyright monopolies that redistribute so much income upward to these privileged children. Let’s alter the licensing restrictions that ensure doctors and lawyers get outlandish pay. (We can use a lot more immigrants in these areas and the gains are large enough to have repatriations of a portion so that the home countries of these foreigners benefit as well.) And we can have the Fed not raise interest rates to keep the less privileged children from getting jobs.
Anyhow, we all have to decide for ourselves which injustices we find most worth fighting.
I’m not kidding, this is what he criticized Senator Bernie Sanders for in a Vox piece today. He apparently views it as outrageous that Sanders, a candidate for the Democratic presidential nomination, doesn’t think that the United States should open its borders so that every person who in the world who wants to come and work in the United States has the opportunity to do so.
On the one hand Matthews has a point, there is an injustice in that people who were born in the United States are able to enjoy a better and longer life than people who had the misfortune to be born in a poor country in Africa, Asia, or elsewhere in the developing world. On the other hand, it is hard to see that as a greater injustice than saying that people who were born in wealthy and educated families in the United States, that could give their children the wealth and social training to enjoy a high living standard, have a right to a better standard of living than children who were born to less privileged families. Of course these children of privileged families will benefit from having more less-educated immigrants in the country since it will mean they have to pay less for their nannies and to have their lawn mowed and their house cleaned.
This problem can be solved much more easily than worldwide inequality. For example, let’s eliminate the patent and copyright monopolies that redistribute so much income upward to these privileged children. Let’s alter the licensing restrictions that ensure doctors and lawyers get outlandish pay. (We can use a lot more immigrants in these areas and the gains are large enough to have repatriations of a portion so that the home countries of these foreigners benefit as well.) And we can have the Fed not raise interest rates to keep the less privileged children from getting jobs.
Anyhow, we all have to decide for ourselves which injustices we find most worth fighting.
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Clive Crooks apparently thought he stumbled on some new revelation when he read a piece by Robert Lawrence at the Peterson Institute for International Economics. Lawrence showed that we look at the pattern in average wages, and use a net measure of productivity (rather than gross), and a common deflator for adjusted wages and output, real wages kept pace with productivity growth, at least until the Great Recession.
I suppose Lawrence deserves some sort of congratulations, it took him less than a decade to replicate our work. Of course progressive economists had long known that the story of wage stagnation was overwhelmingly a story of redistribution among workers, from factory workers and retail clerks, to doctors, bankers, and CEOs. For this reason, the fact that average compensation had kept pace with productivity was hardly news to any of us, but I suppose the fact that Robert Lawrence and his centrist colleagues are now discovering this fact may qualify as news.
Clive Crooks apparently thought he stumbled on some new revelation when he read a piece by Robert Lawrence at the Peterson Institute for International Economics. Lawrence showed that we look at the pattern in average wages, and use a net measure of productivity (rather than gross), and a common deflator for adjusted wages and output, real wages kept pace with productivity growth, at least until the Great Recession.
I suppose Lawrence deserves some sort of congratulations, it took him less than a decade to replicate our work. Of course progressive economists had long known that the story of wage stagnation was overwhelmingly a story of redistribution among workers, from factory workers and retail clerks, to doctors, bankers, and CEOs. For this reason, the fact that average compensation had kept pace with productivity was hardly news to any of us, but I suppose the fact that Robert Lawrence and his centrist colleagues are now discovering this fact may qualify as news.
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Actually, after running many near hysterical pieces on the horrors of the Social Security disability program, yesterday’s editorial was reasonably moderate. Nonetheless, it concludes by telling readers:
“Though hardly the sole, or leading, cause of declining labor-force participation in the United States, SSDI is nevertheless a factor. Reforming it could raise the economy’s potential growth, as well as millions of people’s life prospects. The pending crisis creates an opportunity for bipartisan compromise, in which Congress diverts more money to SSDI — linked to structural changes. The last tax reallocation, 20 years ago, ‘was intended to create the time and opportunity for such reforms,’ as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here.”
There are a couple of points worth making here. First, the reason that the program is projected to face a shortfall next year, rather than a decade from now, is due to the fact that we had incompetent people at the Fed and Treasury who were not able to recognize a $8 trillion housing bubble and that its collapse would do serious damage to the economy. If they had recognized this fact, they would have taken steps to stem its growth before it posed such a danger to the economy. If we had stayed on the pre-recession growth path, the program would be fully funded through 2025.
The other obvious problem with the Post’s position is that it implies that the Disability program is too generous. In fact, the United States ranks near the bottom among wealthy countries in the share of GDP that goes to disability insurance.
There is a point that the program could be better structured to make it easier for people on disability to re-enter the labor market. Some steps have already been taken along these lines in recent years, but undoubtedly more can be done.
Note: The link to Eurostat data on spending on disability insurance as a share of GDP was broken. I replaced it with an link to OECD data, which is to a broader category (would include SSI), but should give the general story.
Actually, after running many near hysterical pieces on the horrors of the Social Security disability program, yesterday’s editorial was reasonably moderate. Nonetheless, it concludes by telling readers:
“Though hardly the sole, or leading, cause of declining labor-force participation in the United States, SSDI is nevertheless a factor. Reforming it could raise the economy’s potential growth, as well as millions of people’s life prospects. The pending crisis creates an opportunity for bipartisan compromise, in which Congress diverts more money to SSDI — linked to structural changes. The last tax reallocation, 20 years ago, ‘was intended to create the time and opportunity for such reforms,’ as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here.”
There are a couple of points worth making here. First, the reason that the program is projected to face a shortfall next year, rather than a decade from now, is due to the fact that we had incompetent people at the Fed and Treasury who were not able to recognize a $8 trillion housing bubble and that its collapse would do serious damage to the economy. If they had recognized this fact, they would have taken steps to stem its growth before it posed such a danger to the economy. If we had stayed on the pre-recession growth path, the program would be fully funded through 2025.
The other obvious problem with the Post’s position is that it implies that the Disability program is too generous. In fact, the United States ranks near the bottom among wealthy countries in the share of GDP that goes to disability insurance.
There is a point that the program could be better structured to make it easier for people on disability to re-enter the labor market. Some steps have already been taken along these lines in recent years, but undoubtedly more can be done.
Note: The link to Eurostat data on spending on disability insurance as a share of GDP was broken. I replaced it with an link to OECD data, which is to a broader category (would include SSI), but should give the general story.
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Paul Krugman rightly mocks Jeb Bush for taking credit for the strong growth in Florida during his tenure as governor. As Krugman points out, the reason for the strong growth was that Florida had one of the worst housing bubbles in the country. Its collapse gave Florida one of the worst downturns in the country. (I had made the same point a couple weeks earlier to a reporter fact-checking Bush’s claim on growth.) The weak banking regulation that facilitated the bubble is not the sort of thing you would think the Bush campaign wants to boast about.
But it is not just Governor Bush who is prone to boasting about bubble driven growth. The boom in the last four years of the Clinton presidency was largely driven by the stock bubble that developed in these years, with price to earning ratio rising to levels not seen since the 1920s. The collapse of this bubble gave us the recession in 2001. While this downturn was very mild if measured by GDP, from the standpoint of the labor market it was quite severe. We did not get back the jobs lost in the downturn until January of 2005. Until the more recent recession this was the longest period without job growth since the Great Depression.
The interesting lesson from the 1990s boom was that the economy could sustain much lower rates of unemployment than had been previously believed. The unemployment rate hit 4.0 percent as a year-round average in 2000, most economists had previously argued that the unemployment rate could not fall much below 6.0 percent without causing spiraling inflation. This indicated that as a supply side matter, the economy could support the high levels of employment/low levels of unemployment of the late 1990s.
However, the problem is the demand side. The channels to create the demand needed to get to low rates of unemployment — either larger budget deficits or lower trade deficits caused by a lower valued dollar — are blocked politically. (We could also look to reduce work hours through work-sharing, more vacation, paid family leave, etc.) This means that we may not see a strong labor market, like the one of the late 1990s, for some time.
But the key point here is that both parties are happy to take credit for bubble driven growth. Maybe there can be a quid pro quo where Jeb Bush will stop taking credit for the growth generated by the Florida housing bubble and the Democrats stop taken credit for the bubble driven growth of the Clinton years.
Paul Krugman rightly mocks Jeb Bush for taking credit for the strong growth in Florida during his tenure as governor. As Krugman points out, the reason for the strong growth was that Florida had one of the worst housing bubbles in the country. Its collapse gave Florida one of the worst downturns in the country. (I had made the same point a couple weeks earlier to a reporter fact-checking Bush’s claim on growth.) The weak banking regulation that facilitated the bubble is not the sort of thing you would think the Bush campaign wants to boast about.
But it is not just Governor Bush who is prone to boasting about bubble driven growth. The boom in the last four years of the Clinton presidency was largely driven by the stock bubble that developed in these years, with price to earning ratio rising to levels not seen since the 1920s. The collapse of this bubble gave us the recession in 2001. While this downturn was very mild if measured by GDP, from the standpoint of the labor market it was quite severe. We did not get back the jobs lost in the downturn until January of 2005. Until the more recent recession this was the longest period without job growth since the Great Depression.
The interesting lesson from the 1990s boom was that the economy could sustain much lower rates of unemployment than had been previously believed. The unemployment rate hit 4.0 percent as a year-round average in 2000, most economists had previously argued that the unemployment rate could not fall much below 6.0 percent without causing spiraling inflation. This indicated that as a supply side matter, the economy could support the high levels of employment/low levels of unemployment of the late 1990s.
However, the problem is the demand side. The channels to create the demand needed to get to low rates of unemployment — either larger budget deficits or lower trade deficits caused by a lower valued dollar — are blocked politically. (We could also look to reduce work hours through work-sharing, more vacation, paid family leave, etc.) This means that we may not see a strong labor market, like the one of the late 1990s, for some time.
But the key point here is that both parties are happy to take credit for bubble driven growth. Maybe there can be a quid pro quo where Jeb Bush will stop taking credit for the growth generated by the Florida housing bubble and the Democrats stop taken credit for the bubble driven growth of the Clinton years.
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In a Wonkblog post, Ana Swanson complained that people are not sufficiently worried about the wealth gap by age. This should rate high on the list of items for people not to worry about. The basic reason is simple, for most people wealth is not a very good measure of their well-being and furthermore, the meaning of “wealth” has changed substantially over time.
If that sounds strange, let me make it simpler. If we go back thirty years, most middle income retirees could count on getting a substantial amount of retirement income from a defined benefit pension. Today that is much less likely to be the case. This means that to maintain the same standard of living in retirement, someone reaching retirement age would need much more wealth today than was true thirty years ago. They are also likely to need considerably more money, relative to their income, to cover health care costs since Medicare covers a much smaller share of health care costs today than it did thirty years ago. For this reason, the sort of comparison of the wealth of retirees or near retirees shown in the figures in this blog are not very useful for showing trends in wealth through time.
There is a similar story for young people. Young people never had much wealth so whether a 30-year-old has 40 percent more or less of a net worth of $8,000 is not going to mean much for their life’s prospects. Furthermore, measured wealth may actually be inversely related to a young person’s economic prospects. While someone who accrued $30,000 in student loan debt getting a degree (or possibly not getting a degree) from Corinthian College is in bad shape, a person who ran up $150,000 in debt getting a Harvard MBA is likely to do just fine.
For these reasons, the wealth of young people is not a very useful measure. We can look at their income and see how that has changed over time. That does not look good for high school grads, nor even people with a college degree. This should provide a serious basis for concern about the economic well-being of the young, much more so than their lack of wealth.
In a Wonkblog post, Ana Swanson complained that people are not sufficiently worried about the wealth gap by age. This should rate high on the list of items for people not to worry about. The basic reason is simple, for most people wealth is not a very good measure of their well-being and furthermore, the meaning of “wealth” has changed substantially over time.
If that sounds strange, let me make it simpler. If we go back thirty years, most middle income retirees could count on getting a substantial amount of retirement income from a defined benefit pension. Today that is much less likely to be the case. This means that to maintain the same standard of living in retirement, someone reaching retirement age would need much more wealth today than was true thirty years ago. They are also likely to need considerably more money, relative to their income, to cover health care costs since Medicare covers a much smaller share of health care costs today than it did thirty years ago. For this reason, the sort of comparison of the wealth of retirees or near retirees shown in the figures in this blog are not very useful for showing trends in wealth through time.
There is a similar story for young people. Young people never had much wealth so whether a 30-year-old has 40 percent more or less of a net worth of $8,000 is not going to mean much for their life’s prospects. Furthermore, measured wealth may actually be inversely related to a young person’s economic prospects. While someone who accrued $30,000 in student loan debt getting a degree (or possibly not getting a degree) from Corinthian College is in bad shape, a person who ran up $150,000 in debt getting a Harvard MBA is likely to do just fine.
For these reasons, the wealth of young people is not a very useful measure. We can look at their income and see how that has changed over time. That does not look good for high school grads, nor even people with a college degree. This should provide a serious basis for concern about the economic well-being of the young, much more so than their lack of wealth.
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