Tuesday, February 25, 2014

Leave Social Security Alone

The big discussion in the blogosphere last week was about President Obama’s latest budget proposal, which won’t be asking to cut Social Security benefits by switching to the use of the chained Consumer Price Index (CPI). This is a bold move on the President’s part, who only offered up chained CPI to Republicans last year as part of a “Grand Bargain” on the budget. But the chance to consider that offer is long gone, and the President has now officially removed it from the table.

Conservatives, predictably, cried hot tears of anger. But this is very good news. Why?

I’ll get to that in a minute, but first, what is the CPI anyway?

Friday, February 21, 2014

Fighting Recessions: Monetary Policy and the Babysitting Co-op Crisis

During the Great Depression of the 1930s, the average income of an American family dropped by 40 percent from 1929 to 1932.  According to the Bureau of Labor Statistics, in our most recent recession, the number of job openings decreased by 44 percent and the resulting employment decline was greater than that of any recession in recent decades.  But what usually causes a recession, and how do we get out of it?

I’ll get to that in a minute.  But first, some background.

In 1977, Joan and Richard James Sweeney published an article in The Journal of Money, Credit and Banking titled “Monetary Theory and the Great Capitol Hill Baby Sitting Co-op Crisis.”  The point of the article was to explain how economies can find themselves in a recession by drawing an analogy to—you guessed it—a babysitting co-op.  This allegory, popularized in “Peddling Prosperity” by Princeton Economist and New York Times columnist Paul Krugman, is admittedly simpler than the complex economy we actually experience.  But sometimes understanding more sophisticated concepts means first building an intuitive framework—the same way architects use models to communicate design ideas to clients.

Tuesday, February 18, 2014

Who Cares if People Work Less?

In a post Tim wrote partly as a reply to my piece on the Congressional Budget Office’s (CBO) recent revelation that Obamacare will drive Americans to work less, he asks why we should care.

While acknowledging that Obamacare will cause workers to “withdraw their labor,” Tim maintains that these workers “will also take home a proportionally smaller share of the economic pie because they will be earning less. So the question is, why do you care how much other people work?”


If people were freely making choices, conservatives would not object. After all, Milton Friedman taught that free people make the best choices for themselves given the incentives they face in the private marketplace.

Monday, February 17, 2014

CBOghazi

Republicans recently applauded a report from the Congressional Budget Office (CBO) purportedly showing that the Affordable Care Act (aka Obamacare) will cause the loss of over two million jobs.  Here’s House Majority Leader Eric Cantor (R-VA): “Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced.”

Understandably, the liberal blogosphere erupted.  What the report really showed was that Obamacare will reduce the number of hours worked in the economy by between 1.5 and 2 percent, amounting to the equivalent of about 2 million jobs.  Why? In large part, it’s because Obamacare reduces the number of Americans stuck in “job lock”—the feeling of being trapped in your current job because you aren’t sure you can get health insurance coverage elsewhere if you leave.  Now that Americans can get subsidized health insurance on the individual market, many no longer feel compelled to work a full-time job, so can now retire, spend more time with their families, etc.  That’s very different from suggesting people will lose their jobs.

Sunday, February 16, 2014

Minimum Wage: Minimum Idea

Tim recently argued that raising the minimum wage is sound economics. However, doing so would hurt many poor people.

The crux of his argument is that low-wage workers are not paid their proper value for their contribution—in economic jargon, their “marginal product”—and that therefore an increase in the minimum wage would render little, if any, job loss. He further bolsters his case by stating that studies since 2000 demonstrate “little to no employment response to modest increases in the minimum wage.” In fact, he reasons, “a higher minimum wage may even save some employers money in the long term because it reduces costs associated with higher turnover and vacancies by making minimum wage jobs more desirable.”

These points do not support the case for raising the minimum wage.

Friday, February 14, 2014

Why Government Spending Stimulates

Four years ago, the conservative-leaning Heritage Foundation published a report asserting that fiscal stimulus—increasing government expenditures to fight a recession—could never work because government cannot increase output or employment.  While this argument has been refuted time and time again, it remains something that everyone on the right, including my colleague David Weinberger, just “knows” to be true.  But this argument is wrong, and it’s important to understand why.

The argument in favor of fiscal stimulus goes something like this.  In a depressed economy, there are “idle resources”—unemployed labor, factories and machines that aren’t being used, etc.  If the private sector is unwilling to utilize those resources, then government should do so by investing in things like roads and bridges, even if that means borrowing money to finance those investments.  As a result, total employment and income will rise, alleviating the effects of the economic downturn.

Who is Ignorant?

A couple years ago, Nicholas Kristoff, a liberal writer for The New York Times, observed that conservatives know the left better than liberals know the right:
One academic study asked 2,000 Americans to fill out questionnaires about moral questions. In some cases, they were asked to fill them out as they thought a “typical liberal” or a “typical conservative” would respond. 
Moderates and conservatives were adept at guessing how liberals would answer questions. Liberals, especially those who described themselves as “very liberal,” were least able to put themselves in the minds of their adversaries and guess how conservatives would answer.
He then candidly confessed that he needed the help of a book to “demystify the right.” So why is it that conservatives understand liberals better than the reverse?

Tuesday, February 11, 2014

When Unemployment is Celebrated

In light of recent news that Obamacare discourages employment, the left has applauded the notion that working less is a good thing. But why should we celebrate forced unemployment?

Work disincentives have, until now, been universally recognized as negative for both individuals and society. Liberals, for instance, have agreed that unemployment benefits and food stamps may discourage work to some degree, but have maintained that, on the whole, the benefits simply outweigh the costs. 

Farm Bill Illustrates Venality of House GOP

On Friday, President Obama signed the farm bill into law, ending a four-year long Congressional fight that dragged on longer than anyone in Washington expected.  But contrary to what defenders of the bill claim, this was not a hard-won triumph for bipartisanship. At best, the bill is a mixed blessing; at worst, it’s a giant giveaway to the farm lobby.

Historically, the farm bill combines agricultural subsidies with nutritional aid to low-income Americans in the form of food stamps (commonly known as the Supplemental Nutrition Assistance Program, or SNAP).  Long ago, these programs received bipartisan support on the grounds that they assisted poor farmers and helped low-income Americans purchase food.  But while SNAP remains vital to the social safety net, agricultural subsidies have become a bloated entitlement that mainly benefits corporations and wealthy individuals

Friday, February 7, 2014

The Minimum Wage: It's Time For a Raise

President Obama laid out several policy proposals in the State of the Union last week—something that can’t be said for the Republican response delivered by Representative Cathy McMorris Rodgers (R-WA).  While it’s no secret that Republicans oppose the President’s agenda in general, one particular proposal threw the usual suspects on the right into a tizzy: raising the minimum wage.

The President announced he would be increasing the minimum wage for federal contractors by executive order, and asked Congress to raise the federal minimum for everyone else to $10.10 per hour.  Predictably, Republican leaders are opposed.  What’s less known is that so are a majority of economists.