SCEPA Blog

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Kyle MooreThis week's Worldly Philosopher, Kyle Moore, discusses how the disparity in morbidity between Black and White individuals can result in unequal retirement time and benefits.

The New England Journal of Medicine recently published two articles calling on the medical and public health fields to engage in the #BlackLivesMatter movement. In a previous post, I spoke about the importance of the #BlackLivesMatter movement to economic policy in general and retirement policy in particular. Policymakers and the public need to understand how different racial group's health status effects retirement. Otherwise, they run the risk of enacting policies, such as raising the retirement age, that are likely to have a disparate impact on communities of color.

Blacks Don't Make it to Retirement Without Health Limitations
Black Disparity in Retirement Age

We know that being sick increases the chance that a person will retire early. We also know a lot about the differences in morbidity between Blacks and Whites. For example:

  1. Blacks have a 36% higher chance than Whites of developing a work-limiting health condition during their working careers.
  2. Blacks develop activity limitations caused by chronic conditions around age 61 – six years before Social Security's normal retirement age - while Whites develop these limitations around 67.

SCEPA Economists at DFG ConferenceThe German Research Foundation (DFG) awarded grants to seven SCEPA economists to support research on wealth and disparity in the United States and Germany. SCEPA Faculty Fellows Willi Semmler, Mark Setterfield, Christian Proaño, Teresa Ghilarducci, Rick McGahey, Research Economist Joelle Saad-Lessler, and NSSR Dean William Milberg are among the experts chosen for funding.

Semmler and Setterfield will research the trends, policies, and macroeconomic implications of inequality. Proaño's research focuses on experimental economics, entrepreneurship, and inequality. Milberg will analyze research from Lederer and other German University in Exile scholars who studied labor markets and inequalities. Ghilarducci, McGahey, and Saad-Lessler will research employment and retirement outcome inequalities in the two countries.

Scott Carter

On March 17, 2015, Scott Carter, New School economics alumnus and Professor of Economics at the University of Tulsa, discussed the need to make public Piero Sraffa’s unpublished notes on his book, “Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory.”

Piero Sraffa (1898-1983) was an Italian economist at the University of Cambridge known for his criticism of mainstream economics. Citing an insight made by Ajit Sinha, Carter noted that the Prelude's text can be considered as a ‘masterpiece of minimalist art.’ At only 99 pages, it fueled the neo-Ricardian school of economic thought with a critique of the neo-classical theory of value.

Written over 30 years and originally comprised over 7,000 pages, Carter is working to assemble the work into an online timeline and database.

On March 10, 2015, David Kotz, Professor of Economics at University of Massachusetts Amherst and Distinguished Professor of Economics at Shanghai University of Finance and Economics presented a seminar on his new book, "The Rise and Fall of Neoliberal Capitalism." 

Kotz began studying neoliberal capitalism in the 1990s and was one of the few academic economists to predict the economic collapse of 2008. His presentation provided a historical trajectory of neoliberal capitalism from the Carter administration through the aftermath of the Great Recession.  

Wage Stagnation: The Unsustainable Outcome of Neoliberalism
Kotz imageKotz's analysis reveals that neoliberalism provided a long period of economic growth with low inflation, but that the corresponding decrease in wages had three significant side effects, including increasing inequality, asset bubbles, and financial institutions' increasingly risky behavior.

This precarious situation was initially supported by the growth in housing values. However, once the bubble burst, the unsustainability of neoliberal capitalism became clear in the rising household and financial debt, the spread of toxic financial assests and capacity in excess of demand. The recession and financial crisis that followed resulted in the structural crisis we experience today - stagnation.

Austerity: A Doomed Answer to the Structural Crisis
According to Kotz, labor force participation has been dropping since 2007. And while the profit rate bounced back immediately after the recession due to the federal rescue of financial institutions, capital accumulation did not. Kotz points to austerity policies, or curtailing public spending, as a doomed attempt to" double-down" on neoliberalism, but the conditions necessary to promote consumer spending are no longer present. According to Kotz's reading of history, "stagnation will continue unless and until there is a major institutional restructuring." 

The Real Answer: Restructuring 
Kotz gives us three potential scenerios for the future. First is a nationalist form of capitalism that relies on military growth to prop up spending and demand. Second is a return to neoliberalism's predecessor, regulated capitalism, which was built on a coalition between labor and capitol. Third is a transition to an alternative socialist system. 

Of the many possible critiques of the first two options, Kotz highlights that any system that rapidly accelerates economic growth will also accelerate climate change. However, the third option holds open the door to a transition beyond capitalism that increases social welfare while decreasing the production of goods. 

The event was part of the Spring 2015 Seminar Series hosted by The New School Economics Department. 

Rick McGaheyby Rick McGahey, SCEPA Faculty Fellow

Read Rick's comments in today's International Business Times, "Unemployment Report: Six Years After The Great Recession, Are The Good Jobs Ever Coming Back?"

This morning's employment report for February continues the story of this recovery: job growth trending upward, but still lots of slack in the labor market, and no signs of inflationary pressure. Jobs are growing, but wages and hours are not, and many of the jobs are low-wage.

295,000 jobs were added in February, in line with the three-month average of 288,000. Over the past year, job growth has averaged 266,000 per month. The unemployment rate ticked down slightly to 5.5% from 5.7 in January; over the past year, the rate has fallen by 1.2%, so we are seeing an improving labor market. But the labor force participation rate remained essentially unchanged, and is stuck at its lowest level in 37 years.

Wages and hours also remain flat, tempering any interpretation that we have a booming labor market. Average hourly wages were up by three cents, and have only risen by 2% in the past year. And average hours worked also remained flat—in February 2015 hours were 34.6, only two-tenths more than one year ago.

So we are seeing some job growth. But it isn't very strong, and the jobs aren't very good. Labor force participation, wages, and hours all are signaling a labor market with a lot of slack, and no significant upward cost pressures. The Federal Reserve should not be considering raising interest rates when faced with these numbers.

Anthony Bonen

This week's Worldly Philosopher, Anthony Bonen, discusses how even the best models for estimating the costs of adapting to climate change are still a guessing game. 

Estimates of the social cost of carbon (SCC) focus almost exclusively on the net benefit/loss of mitigating climate change. The cost of adapting to the unmitigated impacts of climate change remains an even more elusive figure. Properly calculated, however, SCC should include both dimensions.

As discussed in an earlier SCEPA working paper, SCC model estimates of mitigation costs are notoriously difficult to pin down. But, after being asked to give a presentation on adaptation, I soon learned that there is far less certainty in these costs. For developing countries, estimating the cost of climate change adaptation is essential. Their success or failure in saving lives, reducing poverty and becoming resilient to climate change depends in large measure on how much support – financial, logistic and political – the industrialized world is willing to provide.

Systematic efforts to estimate the global cost of adapting to climate change began in earnest only in 2006 with a World Bank study of investment flows in the developing world [1].1 The second generation of adaptation estimates relies on impact-level assessments. The best example of these more detailed, but still top-down, studies is the World Bank's report [2]. The IPCC's chapter on the Economics of Adaptation [3] calls it "[t]he most recent and most comprehensive to date global adaptation costs [in which] costs range from US$70 to more than US$100 billion annually by 2050." The conservative estimates for each of the 6 sectors are reproduced in Table 1.
Table 1

David HowellBrad DeLong, a widely-read economist and blogger, cites SCEPA economist David Howell's work investigating the causes of wage inequality and unshared productivity growth as today's "Morning Must-Read." Howell's research with the Washington Center for Equitable Growth asks, what happened to shared growth?

"Most economists continue to explain the explosion of earnings inequality with conventional supply-and-demand stories, in which worker compensation is believed to accurately reflect the contribution workers make to production. Thus, in this view, CEOs and financiers have received skyrocketing salaries, especially since the mid-1990s, because they are now contributing dramatically more to their firms and to the economy as a whole.

Similarly, the bottom 90 percent have seen stagnant and falling wages because they've fallen behind in the "race between education and technology." The computerization of the workplace requires greater cognitive skills, but workers have not kept up, as indicated by the slowdown in college graduation rates. Assuming (nearly) perfectly competitive markets, the explosion in wage inequality in this view must reflect a similarly explosive increase in skill mismatch (too many low skill workers, too few high skill ones).

Such arguments leave little or no room for labor market institutions and public policies in determining changes in the distribution of earnings up and down the income ladder. An alternative view is that institutionally-driven bargaining power is a critical piece of the story, whether it is the noncompetitive "rents" earned by top managers and financiers, or the collapsing power of hourly wage employees."

Sandy DarityOn April 21, 2015, William "Sandy" Darity will present "Does Racism Make You Sick?: Health, Wealth, and Race in America" at SCEPA's Annual Robert Heilbroner Memorial Lecture on the Future of Capitalism. Sandy Darity is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics and the Director of the Duke Consortium on Social Equity at Duke University. His research focuses on inequality by race, class and ethnicity.

6:00pm, Tuesday, April 21, 2015
The New School, Wollman Hall
65 West 11th Street, Room 500, New York
RSVP

Panelists:
Anwar Shaikh, Professor and Chair of the Economics Department at The New School for Social Research
Teresa Ghilarducci, Professor and Director of Schwartz Center for Economic Policy Analysis
Moderator:
Darrick Hamilton, Associate Professor of Urban Policy at The New School for Public Engagement

The Robert Heilbroner Memorial Lecture on the Future of Capitalism:
In 1963, Robert Heilbroner earned a Ph.D. in Economics from the New School for Social Research, where he was subsequently appointed Norman Thomas Professor of Economics in 1971. He taught at The New School for the next 20 years. Each year, SCEPA hosts a lecture by a distinguished scholar on long-term economic trends to honor Heilbroner's life work.

This annual lecture is used to gain a greater understanding of questions of economic justice and how the profit-seeking activities of private firms might also serve broader social goals. To use his words, "capitalism's uniqueness in history lies in its continuously self-generated change, but it is this very dynamism that is the system's chief enemy."

Join the conversation on Twitter with @SCEPA_economics using #Darity

Cole Strangler of the International Business Times provides context for the Department of Labor's January employment report in his article, Job Growth Still Hasn't Translated Into Wage Gains. He describes real people's experiences with wage stagnation and illustrates the balance between business and labor.

"Standard economic theory holds that, at some point, sinking unemployment will translate into wage gains: When companies have a smaller pool of talent to choose from, they tend to offer more attractive salaries. By the same token, when workers have a sense of job security, they're more likely to ask for a raise.

This hasn't happened.

"I haven't run any empirical work on this, but I'd want to see the unemployment rate a lot closer to 5 percent, maybe even slightly below, before I would expect to see that we'd get significant wage pressure," said Richard McGahey, an economist at the New School and former economic policy adviser for Sen. Edward Kennedy.

Shrinking union density has boosted the share of profits going to bosses rather than workers, McGahey said."

rick mcgaheyby Rick McGahey, SCEPA Faculty Fellow

Employment for the first month of 2015 continued the steady growth from last year. 257,000 new jobs were added, and although the unemployment rate ticked up one-tenth of a percent to 5.7, that resulted from people entering the labor force to look for jobs—what economists call "labor force participation." Participation in December was at an historic low, so there's a long way to go to restore healthy levels there. 

Average hourly wages in January rose to $24.75, up half a percent from December (December's average wage rate actually declined). But wages are only 2.2% higher than one year ago. Weekly hours worked, however, were flat, at an average of 34.6 hours per week, the same as December, and virtually unchanged from last January's level of 34.4.

So jobs are being added at a steady pace—260,000 per month in 2014, the highest average monthly level since 1999. But the wage and hour data are not signaling any huge economic rebound or inflationary pressures. Make no mistake, this is still a lukewarm economy and labor market, and we are now 67 months into the recovery, above the 58-month average for recoveries since 1945. 

The weak wage and hour data are part of a longer running economic trend—declines in the "labor share" of GDP. The share of gross domestic income going to employee compensation peaked in 1970 at 58.4%, and has been on a steady decline since then. In recent years, that share rose to 55.3% in 2008, just before the Great Recession, falling to 52.1% in 2013. A weaker labor share means weaker overall consumption and consumer demand, and the economy will not grow strongly.

There are various theories about why the labor share has declined. Some blame technological substitution, especially the spread of information technology into all sectors of the economy. Other scholars emphasize the loss of good-paying jobs to trade and corporate outsourcing (NSSR Dean Will Milberg's recent book with Deborah Winkler makes a strong case for this). Labor share also is reduced by declining union power, and economic "financialization," as businesses retain profits, hoarding cash, buying back stock and paying dividends instead of making new productive investments. 

But all these factors pull in the same direction - a continuing shift in power towards business and away from labor. These longer-term forces are undercutting workers' bargaining power, so the steady job growth we are now seeing is not translating into higher wages. We need greater government investment to compensate for weak overall demand, and the Federal Reserve should not raise interest rates, as annual wage growth is very modest and well within their already conservative inflation targets.

Ozlem OmerThis week's Worldly Philosopher, Ozlem Omer, discusses the flaws in the latest IMF policy recommendations for Turkey.

The IMF is the master at providing shallow or inappropriate one-size-fits-all policy recommendations for developing countries that fail to address the underlying causes of economic under-performance.

The December 2014 IMF Report is no exception. In it, the IMF warns Turkey that its persistent and large external debts make the country vulnerable to foreigners' willingness to lend - even though the Turkish economy has been growing 6% per year since 2010. The report criticizes Turkey's high inflation and foreign exchange rates, low interest rates, low levels of domestic savings, high external deficit, and, of course, increasing levels of private external debt. It predicts Turkey will likely face a dangerous reversal of capital flow. If foreign pension funds, rich foreign investors, and other countries stop lending money in Turkey, the nation could experience economic and social shocks exceeding the fallout from the 2009 recession.

The IMF suggests Turkey "curb its current account deficit and reduce the external deficit by boosting savings without decreasing investment—and lowering inflation to preserve competitiveness." In short, it calls for Turkish austerity.

Wrong advice.

This week's Worldly Philosopher, Ismael Cid, discusses how the decline in employer-sponsored retirement plans has forced a growing number of Americans to postpone retirement. 

In his 1930 essay, "Economics Possibilities for Our Grandchildren," economist John Maynard Keynes predicted a future of increased living standards and 15-hour workweeks. He envisioned a rise in living standards - equivalent to what we have experienced over the last 85 years – that would allow us to devote our energies to non-economic purposes. In his words, "the lilies of the field who toil not, neither do they spin."

A future of longer and healthier lives proved right. Unfortunately, however, reality does not bear out Keynes' vision of security and leisure. In fact, it is the opposite. Increased life expectancies and the challenges of a graying population have encouraged some economists to champion a retirement policy described as "work until you drop."

SCEPA Director and retirement expert Teresa Ghilarducci recently described the growing problem of retirement insecurity behind this new reality. Rather than a savings problem, SCEPA research documents the underlying structural problem: employer sponsorship of retirement plans for prime-aged (25-64) workers declined from 61% to 53% from 2002 to 2012.

Raphaele ChappeThis week's Worldly Philosopher, Raphaele Chappe, questions the inequality in investor returns.

As discussed at great length in prior posts, Piketty has argued that inequality is directly linked to the return on capital r exceeding the growth rate of the economy g. Yet a fascinating (perhaps controversial, and less discussed) claim is that the average rate of return on capital is not the same for all investors depending on the size of the portfolio – in short, contrary to the efficient market hypothesis, some investors do earn higher returns in the long run. 

Piketty points to the fact that the wealthiest individuals in the world have earned annual returns of 6.8% per year since 1987, compared to the world average of 2.1%. Using university endowments as a case study, he also points to higher endowments earning higher returns in the long run (see Tables 12.1 and 12.2 in Piketty, 2013). Other research confirms that rich universities are getting better returns and do seem to benefit from better asset selection abilities.

Finance tells us that higher returns for wealthier investors could be achieved in two ways. First, by taking on more "risk" and investing in stocks with higher "beta," or products with embedded leverage (such as derivatives). Second, by getting a higher return per unit of risk than what should be expected given the beta. This second component is known as the "alpha," measuring the return above the risk-adjusted performance of a benchmark index and (supposedly) a measure of the skill of the active asset manager. We can imagine that factors such as better information (or even insider information), arbitrage opportunities, or advanced tax planning can generate considerable alpha. Piketty points to significant economies of scale associated with the size of the portfolio.

Do higher returns to high net-worth individuals or institutions come from an ability to take more risk or from higher alphas?

rick mcgaheyby Rick McGahey, SCEPA Faculty Fellow

This morning's release of the November employment report is one of the strongest we have seen for some time. But a closer look at the underlying numbers, especially in historic context, shows a continuing weak labor market, with the labor share still playing second fiddle to profits and corporate dominance.

Total payroll employment grew by a very robust 321,000 jobs, with gains in virtually every major sector of the economy. The "diffusion index" which measures how growth is spread across sectors was 69.7 percent (50 percent would show half of all industries gaining jobs, and half declining). And the September and October jobs numbers were revised upwards by a total of 44,000, so we now have a three-month average jobs increase of 278,000 per month.

Average hourly earnings also rose, by nine cents per hour, to $24.66, the biggest monthly increase since June 2013. In the past twelve months, hourly earnings have risen by 2.1 percent. The only lagging jobs indicator is average hours worked, which at 34.6 hours per week is essentially unchanged from a year ago.

The unemployment data, based on household surveys, is less exciting. The unemployment rate (5.8 percent), labor force participation (62.8), and employment-to-population ratio (59.2 percent) were all essentially flat. In the next few months, if job and wage growth continues, we should see improvements in all three of those ratios.

Is it time to declare victory?

This week's Worldly Philosopher, Kyle Moore, exposes the disproportionate burden raising the retirement age would put on Black Americans.

Recent years have seen a spike in both traditional and social media coverage of violence against black youths. The creation of the viral hashtag #BlackLivesMatter, most recently associated with the Ferguson, MO police killing of unarmed black teenager Michael Brown, captures this shift in public attention towards the long prevalent issue.

There is another segment of the black population whose lives are being undervalued in 2014. Elderly blacks' lives are not properly accounted for as changes to retirement policy are considered in Washington. Policymakers are using the fact that the "average" American's life span is increasing to justify raising the retirement age to 70, in spite of black Americans not sharing equally in this increase in life span. If black lives do indeed matter for the old as well as the young, then policymakers will have to grapple with the persistent and growing disparities in life span and sickness between the elderly black and white populations.

Black Americans Live Shorter Lives than White Americans—For Men, the Gap is Growing
Even though the "average" American is living longer at age 65, there are still significant gaps in life span between elderly black and white American men and women. In a policy note on racial disparities in longevity (life span) and mortality (risk of death), I look at the creation of a gap in expected years of life between black and white men at age 65. Starting in 1950, this gap in longevity has grown steadily to almost two years in 2010. For women the changes have been more mixed, with a gap in life span growing between 1950 and 1980, and shrinking between 1980 and 2010 to a one year difference.

Black Americans Don't Make it to Retirement Without Activity Limitations
In a follow-up note on racial disparities in morbidity (sickness), I look at black and white Americans' expected years free from activity limitations in relation to the current full retirement age. While Whites can expect to live 67 years without being somehow debilitated by sickness, just barely reaching the current full retirement age, Blacks can only expect about 61 years. This means elderly Blacks face the reality of having to either work while physically impaired, or applying for often stigmatized disability benefits.

If #BlackLivesMatter to Policymakers, Retirement Policy Should Account for Racial Disparities
Throughout the two policy briefs mentioned and a longer white paper on the subject, I discuss what researchers consider to be the major causes for these trends, and potential ways to reverse them. Differences in socioeconomic status account for over two-thirds of the gap in life span and for a significant portion of the differences in activity limitations as well. That being said, measures to address gaps in income and education level could go a long way towards increasing black American life spans and decreasing their rates of sickness.

The creation of the viral hashtag #BlackLivesMatter provides an opportunity to hold our government responsible for ensuring that black American life is adequately valued, no matter the age. Just as both traditional and social media have brought attention to young black life being cut short through direct violence, we should also direct our attention to the conditions leading to elderly black life being cut short indirectly. These conditions, as well as the realities faced by elderly black Americans, need to inform policymakers' decisions as they consider changes to retirement policy.

It is a fact that the "average" American is living longer. Unfortunately, it is also a fact that white women and men have longer life expectancies at birth than black women and men. However, in 1950, the United States could claim racial equity in one important respect – should they reach age 65, both black and white men could expect to live twelve additional years to age 77.

Sixty years later, this racial equity is now a racial gap. In 2010, white men at age 65 were projected to live almost 2 years longer than black men, while white women could expect to live one year longer than black women.

graph

SCEPA's new Policy Note, "The Racial Longevity Gap Past Age 65: Implications for Raising the Retirement Age," documents this new racial gap in post-65 life expectancy. The research warns of the potential to disportionately burden black Americans under proposals to raise the retirement age and offers policy proposals to address the income gaps that decrease life expectancy. 

Tony BonenThis week's Worldly Philosopher, Anthony Bonen, discusses the need for and possibilities of opening the field of economics to a diversity of approaches.

Last month, the University of Massachusetts Amherst hosted an eclectic group of New Schoolers at the 11th Annual Economics Graduate Student Workshop. As in past years, the discussions were engaging and, dare I say, inspiring. Representing as we do, marginal groups in the economics discipline, the engagement of UMass-Amherst and The New School's economics departments strengthens our ability to commit to economic pluralism. Although pluralistic and interdisciplinary approaches are desperately needed, their pursuit is not (*ahem*) optimal for the academic-career-minded graduate student. It is therefore essential that we be exposed to regular reminders that we – both our department and university – are not alone.

This year, the topics ranged from field studies of collective action in community-driven development in Brazil to critiques of Marxian models of technical change and an empirical analysis of how capital controls affect the real exchange rate.

Jessica Carrick-Hagenbarth's field study in Brazil evaluated eight cases of participatory development projects that supported income and infrastructure, such as fence building, irrigation and bee raising. Through a survey and interviews with project participants, she showed that strong links to extant social movements and community institutions helped avoid elite capture and free riding. Jangho Yang's Marxian critique argued that capital and labor are qualitatively different entities. Taking this incompatibility seriously shows that structural changes in the economy are not predetermined. Such changes are, instead, evolutionary. Finally, Juan Montecino's econometric analysis of exchange rate regimes posited that capital controls could be used to maintain under- or over-valuated currencies. He demonstrated that, by controlling (to some extent) the flow of capital into and out of an economy, policymakers could effect soft – if blunt – industrial policy.

The diversity of approaches represented in this sample is, unfortunately, rare in economics. When the conference comes back to New York City next year, we hope to bring together an even broader array of students from different departments in NSSR and from divisions across The New School. In so doing we would bring the university and the economics discipline closer to the ideals espoused by one of its founders.

This week's Worldly Philosopher, Anthony Bonen, discusses how economic modeling can help policy makers seeking to mitigate climate change by translating carbon emissions into social and economic costs.

On October 3, 2014, SCEPA hosted a discussion with Thomas Piketty, leading economist and best-selling author of "Capital in the Twenty-First Century." This is a brief interview prior to the discussion in which Piketty shares his unique view on economic science and what it means to be an economist.

Rethinking Economics Conference LogoThe 2014 Rethinking Economics NYC conference was an entirely student-run conference in New York City from September 12-14, 2014 at The New School, NYU and Columbia University.

Rethinking Economics is a global movement to create fresh economic narratives that challenge and enrich the predominant narratives in economics. The movement unites all who support new ways of thinking. The Rethinking Economics conference asked students to consider economic schools of thought beyond the mainstream neo-classical approach. The conference focused on the concept of economic pluralism: the belief that economics should be a more interdisciplinary subject that embraces useful ideas from various schools of thought and subject fields. The New York conference brought together students and thinkers from North America in order to engage in student-led workshops and a series of interesting speakers including Deirdre McCloskey, Philip Mirowski, Michael Sandel, Dean Baker, Richard Wolff, Julie Nelson, Paul Krugman, Neva Goodwin, James Galbraith and many more.