ES EN
Menu Menú

Publications

Publicaciones

Search Publications

Buscar publicaciones

Filters Filtro de búsqueda

to a

clear selection Quitar los filtros

none

Article Artículo

The Importance of Kicking Up: Changing Market Structures So the Rich Don’t Get All the Money

Most progressives focus their efforts on getting better pay and benefits for those at the bottom and middle. This includes policies like raising the minimum wage, stronger overtime rules, and better Medicaid benefits. This is good and important work, which I have often engaged in myself.

However, it is also important to address the other side of the equation, all the money going to the rich. Many want to do this by having a more progressive tax structure. That would be good and could help to reduce inequality. But for both economic and political reasons, a better approach is to change market structures so the money doesn’t go to the rich in the first place.

There is far too little recognition of the extent to which the market is malleable. The idea that the market just generates inequality is nonsense. The market will generate inequality if we design it to generate inequality, as has been the case over the last four decades. If we design it differently, it will lead to more equal outcomes.

My favorite example is patent and copyright monopolies. This is both because they are economically important, but also because the issues should be easy to understand. These monopolies are quite obviously creations of government. It is not somehow a fact of nature or a given of the market that I can have someone arrested if they make a copy of my book or sell a drug I developed without my permission.[1]

It is amazing to me how many people, including economist people, fail to see that these monopolies are government created and can be weakened or strengthened as we choose. The basic story is straightforward, these monopolies are ways in which the government provides incentives for innovating and creative work. But, if we are worried that the people who innovate and do creative work are getting too much money at the expense of everyone else, then it is a really simple thing to make these incentives less generous.

It is frankly mindboggling that this point seems to never come up in debates on inequality. I have heard any number of liberal economists do handwringing exercises over the concern that the spread of robots, artificial intelligence, and other new technologies will redistribute income from people who work with their hands to the people who “own” these technologies.

CEPR / March 22, 2019

Article Artículo

Trillion Dollar Wall Street Bailouts, Bernie Sanders, and the Washington Post

Glenn Kessler, the Washington Post Fact Checker gave Bernie Sanders two Pinocchios yesterday for saying that the Wall Street banks got a trillion dollar bailout. Kessler raises several points of contention. First, whether the Wall Street banks actually got that much money. Second, whether it can really be called a bailout since the government made a profit on the loans. Third, that the bailout was necessary to keep the financial system running.

Taking these in turn, Kessler points out that the money that went from the TARP to the Wall Street banks, the congressionally approved bailout, was in the low hundreds of billions, far less than $1 trillion. He does note that a much larger amount of loans went from the Federal Reserve Board to the banks. However, the piece points out both that the Fed is nominally independent of the government and that many of these loans were short-term so that rolling them over would count twice. (If a bank got overnight loans for $1 billion for a week, this would count as $7 billion.)

Sanders seems on pretty solid ground here when including the Fed loans. First, the reason the Fed has the power it does is because it is the central bank of the United States. It is true that when it was established in 1913 it was set up as a mixed public–private entity, with the banks having a direct voice in setting policy. However, its ability to print an essentially unlimited amount of money is due to the fact that it is the central bank of the United States. All the other major central banks (e.g. the European Central Bank, the Bank of England, The Bank of Japan) are fully public institutions. The fact that the United States allows private banks to have a voice in setting Fed policy doesn't really change the fact that it is a government institution and therefore loans from the Fed should be seen as coming from the government.

CEPR / March 19, 2019

Article Artículo

Federal Reserve Board Policy and the 3.8 Percent Unemployment Rate

Last week’s job report, in spite of the slow job growth for February, was actually pretty good news. As many of us pointed out, the most likely reason that the Labor Department reported only 20,000 new jobs in February, is that the economy reportedly added 311,000 jobs in January.

There is always a substantial element of error in these numbers. If we envision that there is some underlying rate of job growth of say, 180,000 a month, if we get a number like January’s strong figure, it is reasonable to expect that job growth in subsequent months will be slower. Either the rapid growth in January was due to error in the survey, or alternatively many businesses may have decided that January was a good time to hire. In both cases, it is reasonable to expect slower growth in future months.

If this just sounds like hand waving to cover up a bad story, consider that the non-seasonally adjusted change in employment in February was a plus 827,000 jobs. In other words, if we just looked at the raw data, the economy actually added a ton of jobs in February. Of course, the economy always adds lots of jobs in February. In 2018 it added 1,236,000 and in 2017 it added 1,030,000. This is why we have seasonal adjustments. But the adjustment is never perfect, and it is one of the factors that leads to error in the headline numbers that get so much attention.

So we should not be too troubled by the weak job growth reported for February. However, as I noted in my jobs report, there was a drop in average weekly hours, which could presage lower hiring in future months. Also, several sectors, notably construction (both residential and non-residential) and manufacturing seem to be weakening, so there are some grounds for concern about slowing growth, apart from the 20,000 jobs reported for February.

But I actually wanted to focus on the good news in the report, specifically the edging down of the unemployment rate to 3.8 percent and the modest acceleration in the rate of growth in the average hourly wage to 3.4 percent over the last year. These items are very good news, especially when we consider that they were the result of policy, specifically the Federal Reserve Board’s decision to allow the unemployment rate to fall below the 5.5 percent unemployment rate that most economists had considered a floor.

CEPR / March 15, 2019

Article Artículo

Turning Class Conflict into Generational Conflict: Huffington Post Edition

There continues to be a large market for pieces saying the big conflict in the US is generational rather than class. The Huffington Post made its latest contribution today.

The piece is more than a bit confused, but its headline explicitly gives the intention "America's Defining Divide Is Not Left vs. Right. It's Old vs. Young." Beyond this basic point, as in worry about age, not class, it is difficult to figure out what the article is talking about.

The subhead tells readers, "voters over retirement age will continue to dominate US politics until at least 2060." This might lead us to believe that the piece is talking older voters generically, as in people over age 65 or age 62, but then much of the discussion focuses on the baby boomers. By 2060, the youngest baby boomer will be age 96 and the oldest will be 114. It doesn't seem plausible that the survivors among this group will be dominating politics. Most of the baby boomers will have died off by 2040 and their influence will be radically diminished by 2030.

But even as a story describing the baby boomers the piece gets many things wrong. It tells readers:

"Four out of five older families own homes, compared to just one in four younger families. Most own stocks and a large plurality are business owners. Nearly 1 in 9 older households are millionaires and, according to a 2015 study, are the only age group in America whose net worth has increased since 1989.

"Politically speaking, this means older households have a profoundly different narrative of the U.S. economy than every other cohort. Gen Xers and millennials, who have seen their incomes stagnate and their living costs explode, are gravitating toward candidates who prioritize issues like student debt and income inequality. Older voters, by contrast, will be more likely to vote for candidates who promise to boost the stock market, lower taxes and push up property values."

While most older people own stock, they do not own very much. In 2016, the average amount of wealth outside of a home for the middle quintile of people between the ages of 55 and 65 $99,200. For the fourth quintile, it was just $25,400. If two-thirds of this wealth was invested in the stock market, it still does not imply a very large stake in the market for most of this cohort.

CEPR / March 13, 2019