The Federal Reserve’s Federal Open Market Committee will meet on October 27 and 28, and one of the discussion topics will be whether to raise the federal funds interest rate, the short-term rate banks pay on overnight loans. This rate has been close to ze

Eileen AppelbaumThe Huffington Post, October 23, 2015

With the costs of college tuition skyrocketing, the affordability of higher education is becoming a major issue in the 2016 presidential campaign. Some commentators have argued that the proper solution to rising costs is putting more money in the pockets of students. Specifically, they argue that colleges should expand their work-study programs so that students can get jobs and pay their tuition.

If students want to work full- or part-time jobs to pay for their textbooks, housing, tuition, etc., it would be unfair to deny them that opportunity. However, it should be noted that asking students to work their way through college is unlikely to have a large effect on college affordability, for one simple reason: most college students are already employed.

Yes folks, back in the good old days we just had the Soviet Union and the U.S.:

"I was born into the Cold War era. It was a dangerous time with two nuclear-armed superpowers each holding a gun to the other’s head, and the doctrine of “mutually assured destruction” kept both in check. But we now know that the dictators that both America and Russia propped up in the Middle East and Africa suppressed volcanic sectarian conflicts."

But now we have ISIS and Al Qaeda and so many other small radical groups. It is all so complicated. And when we get to the economy:

"Robots are milking cows and IBM’s Watson computer can beat you at 'Jeopardy!' and your doctor at radiology, so every decent job requires more technical and social skills — and continuous learning. In the West, a smaller number of young people, with billions in college tuition debts, will have to pay the Medicare and Social Security for the baby boomers now retiring, who will be living longer. 'Suddenly,' argues Dobbs, [Richard Dobbs, a director of the McKinsey Global Institute] 'the number of people who don’t believe they will be better off than their parents goes from zero to 25 percent or more.'

"'When you are advancing, you buy the system; you don’t care who’s a billionaire, because your life is improving. But when you stop advancing, added Dobbs, you can 'lose faith in the system — whether that be globalization, free trade, offshoring, immigration, traditional Republicans or traditional Democrats. Because in one way or another they can be perceived as not working for you.'"

Okay, we get it, Thomas Friedman is very confused. But that's not new. Let's try to look at the substance.

In recent months, members of the Federal Reserve (“Fed”) have been weighting the idea of raising interest rates. This is a tremendously important decision that can affect the labor market prospects for thousands or even millions of workers.

Some members of the Fed have been citing the low unemployment rate, which fell to 5.14 percent last quarter, as the main impetus for raising rates. These members argue that the labor market is nearing the “non-accelerating inflation rate of unemployment,” (NAIRU) at which unemployment becomes so low that it triggers accelerating inflation.

However, if the NAIRU is even lower than 5 percent, then a decision to raise interest rates based on a mistaken estimate of the NAIRU would needlessly throw many Americans out of work.

The drop in the estimates of the NAIRU from the Congressional Budget Office (CBO) should give us some cause for concern. The table below shows the history of CBO NAIRU estimates since the start of 2012.

October 2015, Nick Buffie and Dean Baker

The early signals from the Obama administration are that the nonsense will be flowing fast and thick in its effort to push the Trans-Pacific Partnership (TPP). We got an indication of the level of the nonsense factor in a CNN article reporting on the administration's efforts to promote the still secret agreement.

CNN cites a column that President Obama had in a New Hampshire newspaper that told readers:

"...trade is a substantial driver of New Hampshire's economy. Over 20,000 American jobs are currently supported by goods exports from New Hampshire, with 32 percent of Made in New Hampshire goods exports shipped to TPP partners."

What exactly does it mean for over 20,000 New Hampshire jobs to be supported by exports? Suppose the exports are car parts that are sent to Mexico to be assembled into a car that is shipped back to the United States. Are the workers in New Hampshire suppose to celebrate because their parts are being exported to Mexico (a TPP partner) rather than being shipped to be assembled in Ohio?

This is obviously a ridiculous thing to say and certainly President Obama knows it. He repeats the line because it has been focus group tested and he can apparently count on reporters not pointing out its absurdity.

Jake Johnston
VICE News, October 20, 2015

Dean Baker
LA Times, October 20, 2015

This post was originally published at Girl w/ Pen. Here’s what we know: Even with a college degree, young blacks still face lower employment rates and higher unemployment rates than their white counterparts. I’ve shown previously that young blacks are ent

In December 2007, the Congressional Budget Office (CBO) released an update to its Long-Term Budget Outlook. The 2007 edition indicated that greater spending on Medicare and Medicaid would lead to a substantial increase in federal spending over the coming decades, as shown in Figure 1:

Dean Baker
Truthout, October 19, 2015

I know this is getting old, but let's go over the latest version. Robert Samuelson is unhappy about the presidential candidates' "flight from reality," which to him means they don't want to cut Social Security and Medicare, restrict immigration of less-educated workers (he means Democrats here), and promote more rapid economic growth. I will focus on the Social Security and Medicare story.

Samuelson tells us:

"Inevitably, the costs of Social Security, Medicare (federal health insurance for the elderly) and nursing home care under Medicaid (a federal-state insurance program for the poor) will grow dramatically. From 1965 to 2014, spending on Social Security and the major federal health care programs averaged 6.5 percent of the economy (gross domestic product). By 2040, the CBO projects this spending to exceed 14 percent of GDP.

"If we do not trim Social Security and Medicare spending — by slowly raising eligibility ages, cutting benefits and increasing premiums for wealthier recipients — we face savage cuts in other government programs, much higher taxes, bigger deficits or all three."

There are several points worth mentioning here. First, giving us the average spending from 1965–2014 on these programs as a baseline is the columnist's version of three-card monte. Spending in 1970 is not relevant to the increase going forward. What matters is what we are spending in 2015. The answer to that question is 10.1 percent of GDP. This means that the 14.2 percent of GDP projected for 2040 is an increase of 4.1 percentage points of GDP, a bit more than half of the increase implied by Samuelson.

It is also worth mentioning that the increase in spending on these programs in the years since 1965 was much larger than what we expect to see going forward. So what's the problem?

George Will really takes it to Bernie Sanders in his column this morning.

"The fundamental producer of income inequality is freedom. Individuals have different aptitudes and attitudes. Not even universal free public education, even were it well done, could equalize the ability of individuals to add value to the economy."

Got that? Bill Gates is incredible rich because of his aptitude and attitude; the government's willingness to arrest anyone who infringes on the patent and copyright monopolies it gave him has nothing to do with his wealth. We're supposed to also ignore all the other millionaires and billionaires whose wealth depends on these government granted monopolies. 

And we should ignore the Wall Street boys who depend on their banks' too big to fail insurance or on the fact that the financial sector largely escapes the sort of taxation applied to the rest of the economy. And we shouldn't be bothered by the fact that Jeff Bezos got very rich in large part from avoiding the requirement to collect sales taxes which was imposed on his brick and mortar competitors. And, we need not pay attention to the tax scams that allow for much of the wealth of the private equity crew. 

Nor should we pay attention to Federal Reserve Board policies that deliberately slow the economy and reduce the rate of job creation any time workers are about to get substantial bargaining power. Nor should we pay attention to trade policies that put our manufacturing workers in direct competition with low-paid workers in Mexico and China, but protect our doctors, lawyers, and other professionals.

It's all about freedom. George Will has spoken.

No one reads the Post's opinion pages for serious economic analysis, and Bethany McLean's Outlook piece on Fannie Mae and Freddie Mac reminds us why. While the basic point is fine (we should keep Fannie and Freddie), the argument is more than a bit confused.

The problem starts near the beginning when McLean tells us that GSE stands for "government-supported entities." In fact the acronym is for "government sponsored enterprises." The government created Fannie and Freddie and then turned them into largely private companies. (I apologize if the "government-supported entities" was meant to be ironic, but it went over my head if that's the case.)

Getting to more substantive matters, McLean tells us:

"Since 2008, while Fannie and Freddie have sat in limbo, homeownership has plunged. This summer, the Census Bureau reported that the homeownership rate had fallen to 63.4 percent, the lowest level in 48 years. (It had peaked at 69 percent, in 2004.) 'Renter nation,' one blog called the United States. The decline is particularly pronounced in minority communities. At the Congressional Black Caucus Foundation’s annual legislative conference this year, housing advocates pointed out that the homeownership rate for the black population has decreased from nearly 50 percent in 2004 to about 43 percent, its lowest level in 20 years. It’s projected to continue to drop."

The story on homeownership rates is of course true, but it is not clear what it has to do with Fannie and Freddie being in "limbo." The GSEs continue to buy up the vast majority of newly issue mortgages in spite of their "limbo" status. Mortgage interest rates are at the lowest levels the country has seen in more than half a century. It's hard to see how the situation would be better for potential homebuyers if Fannie and Freddie were not in limbo.

Mike Konczal has picked up on my post responding to his piece on too big to fail. Just to give folks a quick orientation, the point of entry here was a Paul Krugman post saying that Dodd-Frank had largely ended too big to fail (TBTF), which linked to Mike's piece.

Before getting to any of the nitty-gritty, I am not sure that we are actually arguing over anything. Mike's intro says:

"My point isn’t to say that the subsidy is completely over. Nor, as I’ll explain in a bit, is it to say that TBTF is over. Instead, understanding this decline lets us know we should push forward with what we are doing. It debunks conservative narratives about Dodd-Frank being fundamentally a protective permanent bailout for the largest firms that we should scrap, and provides evidence against repealing it. And ideally it gets us to understand this subsidy as just one part of the more general TBTF problem that needs to be solved."

I'm actually pretty comfortable with that statement. I certainly don't want to repeal Dodd-Frank, nor do I in any way buy the right-wing line that Dodd-Frank institutionalized bailouts. So I'm not sure we're really in a very different position on this one. Perhaps I have more of a difference with Krugman than Mike here. I don't believe that Dodd-Frank ended TBTF as Krugman seems to imply in his post.

In terms of the studies, I was pointing out that the GAO study found limited evidence of only a very small TBTF subsidy in 2006. I believe that the markets saw the big banks as very much TBTF in 2006. I'm not sure if Mike is arguing that TBTF only came about during the crisis. That certainly is not my view.