Economy

How to Fix Entitlements? More Immigrants

Gallup
Given Washington’s obsession with spending, this won’t enter the picture, but this figure—from a recent Gallup poll on immigration—is more important to the future of entitlement reform than any policy discussed by President Obama or Congress: As Kevin Drum noted yesterday, the “primary reason that Medicare (and Social Security) expenditures are rising over the next 30 years is simply because we’re going to have more old people.” We can solve this by cutting spending on services for old people, raising taxes on everyone else to support these services, or we can take the (relatively) easier option and let more people into the country . In general, more people means more workers and greater productive capacity. Yes, these people will consume services, but they’ll also be paying taxes. In other words, if the problem with government spending is that the United States is getting older, the obvious solution is to find ways to make the country younger . At the moment, the best way to do that...

Cyprus's Big Bluff

AP Photo/Petros Karadjias
The Cyprus banking crisis presents, in microcosm, everything that is perverse about the European leaders’ response to the continuing financial collapse. And bravo to the Cypriot Parliament for rejecting the EU’s insane demand to condition a bank bailout on a large tax on small depositors. If this crisis threatens to spread to other nations, it’s a good object lesson. Here is the punch line of this column: It's time for Europe’s small nations, who are getting slammed into permanent depression by the arrogance of Berlin and Brussels, to think about abandoning the euro. At least the threat would strengthen their bargaining position, and if they actually quit the euro, the result could hardly be worse than their permanent sentence to debtors’ prison. More on that in a moment. The back story: Cyprus, with just over a million people, is not a poor country. Its per capita GDP is actually above the European Union average. Cyprus has only used the euro since 2008. Once Cyprus was in the...

Banks Are Too Big to Fail Say ... Conservatives?

AP Photo/Jae C. Hong
AP Photo/Jae C. Hong M embers of the Federal Reserve don’t usually make the rounds at partisan gatherings. But amid the tri-cornered hats and “#StandWithRand” buttons of last week’s Conservative Political Action Conference (CPAC)—the largest annual gathering of conservatives in the country—was Richard Fisher, president of the Dallas Federal Reserve Bank. In a Saturday morning speech , Fisher quoted Revolutionary War hero Patrick Henry, who once said that while “Different men often see the same subject in different lights,” such quibbling had to be set aside in a time of “awful moment to this country.” Fisher described the current time as an era of economic injustice in which the nation’s largest banks threaten our financial stability and act with immunity. He said that the Dodd-Frank financial reform law did not go nearly far enough to fix the problem, and that mega-banks still profited from being “Too Big to Fail.” His solutions included a proposal to limit the total assets held by...

Forty Years Behind on Sick-Leave Policy, But Catching Up

AP Photo/Mary Altaffer
AP Photo/Mary Altaffer Emilio Palaguachi, center, speaks at a rally at New York's City Hall to call for a vote on paid-sick-days legislation, which has been held up by I t’s too late for Tonisha Howard , the mother of three in Milwaukee who was fired for leaving work to be with her hospitalized two-year-old. And for Felix Trinidad , who was so afraid of losing his job at Golden Farm fruit store in Brooklyn that he didn’t take time off to go to the doctor—even after he vomited blood. Trinidad, a father of two who had stomach cancer, continued to work until just days before his death at age 34. But for workers in Portland and perhaps Philadelphia, paid sick days just got much closer to becoming reality. Last Wednesday, the city council in Portland, Oregon, voted unanimously for a bill granting most employees up to 40 hours of paid sick leave per year. On Thursday, the Philadelphia City Council passed a similar law—and, with only one vote short of a veto-proof majority, advocates are...

The Contest Over the Real Economic Problem

flickr/Starley Shelton
“Our biggest problems over the next ten years are not deficits,” the president told House Republicans Wednesday, according to those who attended the meeting. The president needs to deliver the same message to the public, loudly and clearly. The biggest problems we face are unemployment, stagnant wages, slow growth, and widening inequality—not deficits. The major goal must be to get jobs and wages back, not balance the budget. Paul Ryan’s budget plan—essentially, the House Republican plan—is designed to lure the White House and Democrats, and the American public, into a debate over how to balance the federal budget in ten years, not over whether it’s worth doing. “This is an invitation,” Ryan explained when he unveiled the plan Tuesday. “Show us how to balance the budget. If you don’t like the way we’re proposing to balance our budget, how do you propose to balance the budget?” Until now the president has seemed all too willing to engage in that debate. His ongoing talk of a “grand...

The Motorbike Diaries

Tom D. Wu
I t’s 11 a.m. on a brisk Friday morning. In the middle of a short block of 40 th Road, just off Main Street in Queens, where colorful signs stand out against the densely packed four-story buildings, a handful of Chinese delivery workers dismount from their motorbikes. The dry pavement here is a welcome sight; much of the downtown area was buried under a foot of snow earlier in the week. The men, dressed in sneakers, blue jeans and puffy jackets, gather in a circle at one of the few empty parking spots. At the center of this congregation is Peter, a 25-year-old food delivery worker from Tianjin, China. Just ten minutes ago, Peter was pulled over by a traffic cop and fined $90 for not flipping down the eye shield on his motorcycle helmet. Peter vents to his impromptu support group in Mandarin: “I had it down, he was just out to get me. Nothing I could’ve done.” One of the workers asks Peter, “Is he bald and slow?” Without directly answering the question, Peter points to the southwest...

All Wall Street Regulators Should be Self-Funded

Systemic RIsk Council.org
When a crew that calls themselves the "Systemic Risk Council" speaks, it's a good idea to pay attention. After all, the last time people pooh-poohed deep-seated problems within the financial system, trillions of dollars vanished into thin air and millions of people were thrown out of work. Since its creation last year by the Pew Charitable Trusts and CFA Institute, the Systemic Risk Council —which is chaired by former FDIC head Sheila Bair and advised by Paul Volcker—has sought to keep up the pressure for financial reform. That's important because a) many of the rules mandated by Dodd-Frank haven't actually been written yet; b) Wall Street is working every day to weaken that law; and c) additional reforms, beyond Dodd-Frank, are still needed. Yet unfortunately, as Thomas Hedges wrote recently here in Policyshop, sequestration cuts are going to set back the entire process of financial regulation. The SEC and CFTC were already struggling to find the staff capacity to write mandated...

We Tried Austerity, and it Didn't Work

Wall Street Journal
From the beginning of President Obama's term, Republicans have attacked him for "growing the size of government" and creating a false recovery with higher spending. but it's hard to see what they're talking about. Yes, there's the Affordable Care Act and Dodd-Frank. At the same time, however, the United States has seen a record decline in the number of public workers—since the official end of the recession, state and local governments (as well as the federal government) have laid off hundreds of thousands of workers. In criticizing the administration, conservatives say they want steady cuts to the public sector, offset by private sector growth, and that's exactly what we've seen for the last three years. The results, unfortunately, have not been good. Here's The Wall Street Journal with more : Federal, state and local governments have shed nearly 750,000 jobs since June 2009, according to the Labor Department‘s establishment survey of employers. […] A separate tally of job losses...

Gone In 22 Seconds: How Frequent is High Frequency Trading?

Flickr/Ars Electronica
This is a story of journalists and economists, and the confusion that can ensue when they communicate. For me, the story starts with a book, Dark Pools , written by Wall Street Journal Reporter Scott Patterson. The book, published in the summer of 2012, is an account of the rise of high-frequency trading or “HFT.” That is automated trading of securities and derivatives using powerful computers driven by complex algorithms. It is widely accepted that trading activity in most markets is dominated by HFT. Firms that specialize in this practice trade in enormous volumes but start and end the day with few if any holdings. Their purpose is to profit from intra-day market moves, not from fundamental investment. They buy and sell in the blink of an eye, churning the markets constantly. Mr. Patterson’s book contains the following passage: At the end of World War II, the average holding period for a stock was four years. By 2000, it was eight months. By 2008, it was two months. And by 2011, it...

Why We Still Need Section 5

AP Photo/Harold Valentine
With the Supreme Court expected to strike down a key piece of the Voting Rights Act later this year, now is a crucial moment for discussing Section 5's inarguable successes both in terms of civil rights and in improving the economic lives of Southern blacks. Gavin Wright, a professor of American economic history at Stanford, has spent his career studying the economics of slavery, segregation, and the historical Southern economy. His recent book, Sharing the Prize , documents the economic impact that the civil rights acts of the mid-1960s had on Southerners, black and white. Presentations of Wright’s work are available here and here , and a summary of his writings can be found here . While his book has some technical arguments, Wright’s ideas can be easily understood as a chronicle of the often overlooked economic consequences of the struggle for civil rights. It’s difficult not to look at the large wealth and income disparities between blacks and whites today and conclude that the...

Life at the Bottom

Flickr/Sport Suburban
Flickr/SportsSuburban A female cashier at the McDonalds in Spokane, Washington. T he release of 2012 minimum-wage data last Wednesday—which shows that the number of minimum-wage workers has fallen but is still higher than any period since 1998—has underscored the importance of making good on Obama’s pledge of raising the federal minimum wage from $7.25 to $9 an hour. As many have pointed out, women stand to benefit disproportionately from the increase: Two-thirds of the country’s roughly 1.6 million minimum-wage workers are women. Perhaps unsurprisingly, the data show that work at the bottom of the pay scale tends to be highly segregated by gender—the three largest occupational groups, making up 67 percent of minimum-wage jobs, are 65 percent female—and includes jobs historically performed by women such as child care and home health services. According to experts, the problem is twofold: While essential, businesses tend to underpay for these types of work, a problem compounded by the...

Hello to 236,000 New Jobs

Economic Policy Institute
There are two things you can say about the recovery: It's slow, and it's remarkably durable. Even with the collapse of fiscal stimulus, the shocks of austerity, and a dysfunctional government, we've seen sluggish growth with just enough to bring down unemployment. And at times—such as the winter between 2011 and 2012—there were signs it was speeding up. If today's jobs report is any indication, the recovery is—again—speeding up. The economy created 236,000 jobs last month, the largest gain since November, and the second largest gain in over a year. Unemployment edged down to 7.7 percent from 7.9 percent, and average hourly earnings were up 0.2 percent. It should be said that part of the decline in unemployment owes itself to a smaller workforce—the household survey shows unemployment down by 300,000, but employment up by only 170,000. The overall employment-to-population ration is unchanged at 58.6 percent. Even still, this is a good report. Jobs are up significantly in construction...

When Public Is Better

Flickr/Mirsasha
L ong before we thought of founding The American Prospect in 1989, I came to know Paul Starr through a prescient article titled “Passive Intervention.” The piece was published in 1979, in a now-defunct journal, Working Papers for a New Society . As Paul and his co-author, Gøsta Esping-Andersen, observed, the American welfare state is built on terrible, even disabling compromises. Progressives often lack the votes to pass legislation to deliver public benefits directly. So they either create tax incentives or bribe the private sector to do the job, thus inflating a bloated system. “The problem is not too much government activism,” they wrote, “but too much passivity.” Their two emblematic examples were housing and health care. In housing, tax advantages became an inflation hedge for the affluent and drove up prices. Low-income homeownership programs, run through the private sector, had huge default rates. In health care, the political compromises necessary to enact Medicare excluded...

Few Waves in California

Flickr/msun523
Flickr/msun523 Cuts on overtime for customs inspectors at the Port of Long Beach in Long Beach, California, may hinder its ability to process cargo. I f the sequester had come to California 25 years ago, its effect would have been catastrophic. Today, its effects are decidedly less draconian. Nonetheless, California has a considerably less robust economy than that of the late '80s, and the sequester will cool off the state’s already tepid recovery. In considering the effects of the sequester, the difference between the California economy of 1942-1992 and its economy today is critical. For the half-century beginning with the attack on Pearl Harbor, California was the centerpiece of the American defense industry. Southern California in particular was a home base for much of the aviation industry even before World War II, but wartime and Cold War spending built up aviation and then aerospace to the point that they employed more Californians than any other industry. When the Cold War...

A Tale of Two Filibusters

Gage Skidmore / Flickr
Gage Skidmore / Flickr Today has been an interesting day for filibusters. This morning, the Senate filibustered President Obama's nomination of Caitlin Halligan to the DC Circuit Court of Appeals. Halligan isn't unqualified and she isn't a radical. Her only offense is that Obama wants her for one of the most important courts in the country. As such, Republicans successfully filibuster her nomination, by a vote of 51 to 41. Sixty votes are needed to break a filibuster and move to a final vote. Shortly after this vote went down, Senate Majority Whip Dick Durbin announced his intent to reintroduce filibuster reform, perhaps frustrated by the Halligan nomination and the general approach of the GOP, which is to filibuster anything that might provide an advantage to President Obama: “We have tried at the beginning of this Senate session to avoid this kind of filibuster confrontation. The last several years we have had over 400 filibusters — a record number of filibusters in the Senate,”...

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