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Article Artículo

The Washington Post Thinks It Is a New Idea to Tell People to Worry About Mobility and Not Inequality

Just when you thought economic commentary in the Washington Post couldn't get any more insipid, Roger Lowenstein proves otherwise. In a business section "perspective" he tells readers:

"But what if inequality is the wrong metric. Herewith a modest proposition: economic inequality is not the best yardstick. What we should be paying attention to is social mobility."

Wow, what a novel new idea, as though right-wingers have not been pushing this line since the dawn of time: "don't worry that your standard of living is awful, the important thing is that your kids will be able to get rich." (It doesn't help his story that his poster child for the rich being good is Lloyd Blankfein, who made his fortune shuffling financial assets at Goldman Sachs and benefitted from a massive government bailout.)

But let's be generous and try to take Lowenstein's story seriously. He goes on:

"Rising inequality, although a fact, is also very hard to find a culprit for. Not that economists haven’t tried."

Really? There are plenty of really good explanations for rising inequality, many of which are in my [free] book Rigged. I suppose in the Age of Trump it is appropriate that the Post has a business columnist determined to flaunt his ignorance.

CEPR / July 23, 2018

Article Artículo

Trump Does the Unthinkable: Criticizes the Fed

Greetings to all from Utah!

Much of the business press has been in an uproar because Donald Trump has criticized the Fed's policy of raising interest rates. Trump complains that interest rate hikes will slow the economy and increase the trade deficit by raising the value of the dollar.

The business press is outraged not necessarily because they disagree with what Trump says (although many surely do) but they argue it violates some fundamental principle of government for the president to talk about the Fed. The outraged reporter gang might want to study up some on the meaning of democracy.

First of all, one will be hard-pressed to find any written law or constitutional principle that suggests that it is inappropriate for the president or any politician to talk about Fed policy. Robert Rubin, President Clinton's Treasury Secretary was and is fond of saying that presidents and other political figures should not talk about the Fed.

In this respect, it is worth noting that Robert Rubin was co-chair of Goldman Sachs before joining the Clinton administration and then went Citigroup after leaving his post as Treasury Secretary. Rubin pocketed more than $120 million for his years at Citigroup. Citigroup was at the center of the housing bubble and would have gone bankrupt without massive government aid in 2008–2010.

This is worth mentioning in the context of politicians talking about the Fed because as it stands now, the Fed tends to be overly responsive to the concerns of the financial industry. Its structure gives the industry a direct voice in the Fed's conduct of policy. It is understandable that flacks for the industry would not like to see its cozy relationship with the Fed threatened by input from the larger society, but it is difficult to see why anyone who believes in democracy would share this view.

There is an issue as to whether we want to see the president or members of Congress directly setting interest rates. My answer would be no in the same way that we would not want the president or members of Congress to decide which drugs get approved for public use. It is appropriate that this authority rests with experts at the Food and Drug Administration (FDA).

Nonetheless, it is the responsibility of the Congress and the president to monitor the FDA. If it went five years without approving any new drugs or began approving drugs that led to a surge in illnesses and death, it would absolutely be the responsibility of Congress and president to determine how the FDA was exercising its responsibilities.

In the same vein, the Fed is charged with maintaining full employment and price stability. If it fails badly in meeting these targets, then it certainly is reasonable for political figures to be raising questions about the conduct of its policy. The Fed's structure guarantees it a high degree of independence from immediate political pressures, so no one at the Fed has to worry about losing their job because Donald Trump or a powerful member of Congress is unhappy with their actions.

CEPR / July 23, 2018

Article Artículo

Haiti

Latin America and the Caribbean

World

Own Goal: Fuel Price Increase Generates Crisis in Haiti

It was 2:15 on Friday afternoon, July 6th, when I got the first WhatsApp message. The Haitian government was going to announce that fuel prices would increase the following day by up to 50 percent. It was also somewhere around the 13th minute of the World Cup quarterfinal match between Belgium and Brazil, the national team adopted by most Haitian soccer fans. Eyes across the country were glued to the TV when the official announcement came late in the game’s second half. Minutes later, Brazil had lost the match. And soon after, thousands of Haitians were in the streets, though not because of the game’s disappointing result.

Roadblocks and burning tires went up in smoke throughout the capital, and soon demonstrations had broken out across the country. By Saturday morning the situation had worsened. International airlines canceled flights in and out of Haiti. Parking lots at many private businesses were turned into car cemeteries. Digicel, the leading cell provider in Haiti, said its fiber optic cables were destroyed, blocking international phone calls, internet usage and other services. Helicopters could be seen evacuating individuals from their rooftops. At least three people were killed.

Less than 24 hours after the initial announcement, the government was forced to cancel the price increases. But the aftershocks of that initial decision have continued to reverberate.

The heads of both chambers of parliament (erstwhile allies of the president) as well as the most powerful private business organization have since called for Prime Minister Jack Guy Lafontant, a doctor and political novice, to resign. The Jovenel Moise administration is now facing its most significant test yet. But how the government found itself backed into this corner is about far more than fuel prices, and reveals as much about the failures of the international community as it does those of Haiti.

The price increase was not a surprise. In late 2017, faced with an increasing budget deficit, and a lack of donor funds, the government sought the assistance of the International Monetary Fund (IMF). Before the government could sign a financing deal with the IMF however, it first had to complete a 6-month reform program. If that program was successful, the government could then sign a long-term deal with the IMF, and budget support from other donors would begin to flow again.

On June 20, the IMF issued a statement welcoming “the government's intention to eliminate fuel price subsidies,” a key step in completing the program. The IMF also noted that it “agreed on the importance of implementing key social measures to mitigate the impact of the subsidy reform on the most vulnerable segments of the population.”

According to World Bank research, 90 percent of the benefits from the subsidy go toward the wealthiest segments of the population. But, in a country with 60 percent youth unemployment, a majority of citizens living on less than $2.40 a day, and stubborn double-digit inflation, any increase in the cost of living can be catastrophic. And to make matters worse, kerosene, the fuel that the poor most rely on, was to see the greatest increase.

Jake Johnston / July 11, 2018

Article Artículo

Affordable Care Act

Economic Growth

United States

Serious Damage? The Story on Auto Insurance and Inflation

At a time when we have a president grabbing kids away from their parents and a Supreme Court about to move even further to the right, the impact of auto insurance on inflation may not seem the most pressing matter. But there are aspects to the issue that are informative about how we measure and think about inflation.

First, the importance of auto insurance in overall inflation seems to have gone largely unnoticed. In the last year, it has passed medical care as a driver of inflation. The motor vehicle insurance component of the consumer price index (CPI), which has a weight of 2.4 percent in the overall index, has added more than 0.21 percentage points to the inflation rate over the last year. By contrast, medical care has added just 0.19 percentage points.

Dean Baker and Matt Harmon / July 11, 2018