SCEPA Blog

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Sept. 9: Bread, Roses & Rest

Labor Day posterOn Wednesday, September 9th, SCEPA Director Teresa Ghilarducci will present King's College's annual Labor Day Lecture, titled, "Bread, Roses and Rest: Security Meaningful Retirement for All." Ghilarducci will discuss the need for retirement reform and how her state and federal Guaranteed Retirement Accounts (GRAs) can help ensure that all Americans are afforded the opportunity for a dignified retirement. The event is co-sponsored by the McGowan Center for Ethics and Social Responsibility at King's Collge and the Peace and Justice Center.

You can read more about the event in Northern Pennsylvania's Times Leader's article, "Clinton Appointee to Speak on Retirement Policy at King's."

Krugman Gets it Wrong on Internal Migration

Rick McGaheyby Rick McGahey, SCEPA Faculty Fellow

In today's New York Times, Paul Krugman confuses issues around internal population migration in the U.S. with issues of job creation and economic growth. He ends up in an unnecessary and defensive argument about whether low-wage and anti-regulation states like Texas are a superior economic model.

First, there just isn't that much net internal migration. The American Community Survey tells us that in 2012, net migration between New York State and Texas was 9,043 in favor of Texas (20,274 New Yorkers to Texas, but 11,231 Texans to New York State). That is less than one-half of one percent of the total population of New York State, hardly a big trend. In fact, researchers are trying to figure out why internal migration is declining, not rising—in 2011, Federal Reserve researchers noted that "by most measures, internal migration in the United States is at a thirty-year low." 

Second, outmigration and relocation is driven by a lot of things beyond relative taxation or regulation, including baby boomer retirements (oddly not mentioned in Krugman's column). If you just want to hold down migration, make New York a more attractive retirement location. Texas has had relatively strong job growth since the Great Recession, but analysts attribute much of that to natural gas and oil production, including virtually unregulated fracking. 

Krugman's column has produced a predictable set of online complaints about high taxes and repressive regulations in New York relative to the South. New York does need more housing density, although the region has many housing opportunities given our public transportation network. But Krugman's odd use of what in reality are vanishingly very small numbers on migration to Texas inadvertently contributes to a misguided narrative about how attractive Texas and other bottom-feeder states really are.

Heartfelt Condolences to the Family of Irene Schwartz

lilliesThe Schwartz Center for Economic Policy Analysis (SCEPA) at the New School for Social Research is deeply saddened by the death of Irene Schwartz, best friend and wife of Bernard Schwartz. Bernard and Irene paid special attention to The New School Economics Department's commitment to economic policy and social justice. Together they named a professorship and provided scholarships and other material support to our economics students and faculty. Bernard and Irene, compassionate for the plight of vulnerable elderly and for the aspiration of all workers to retire in dignity, also support SCEPA's Retirement Equity Laboratory.

We are grateful for Irene's love for Bernard that helped he and she be expansive and proactive in solving problems of injustice facing humanity. We send our deepest sympathies to her family and friends, especially to her husband, our mentor and friend Bernard Schwartz.

The Members of the Schwartz Center for Economic Policy Analysis at The New School for Social Research 

Oct. 3: SCEPA Presents an Evening with Thomas Piketty

Thomas Piketty's best-selling book, Capital in the Twenty-First Century, serves as a watershed example of the dual contradictions of capitalism and proves that the last century was characterized by a sharp divergence between social classes. He warns that the main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—threatens to generate extreme inequalities that stir discontent and undermine democratic values.

Much like Piketty's work, economists at The New School for Social Research strive to analyze the dynamics of capitalism using historical and empirical analysis and, through SCEPA, its policy implications. Following Piketty's remarks, New School Professor Anwar Shaikh and New School PhD Heather Boushey will present their own comments as well as join in a panel discussion to answer the question, where do we go from here?

Participants: 
Thomas Piketty, Professor of Economics at the Paris School of Economics 
Anwar Shaikh, Professor of Economics at The New School for Social Research
Heather Boushey, Executive Director and Chief Economist at the Washington Center for Equitable Growth

5:15pm, Friday, October 3, 2014*
The New School
66 West 12th Street, Auditorium
New York, NY

RSVP - REGISTRATION WILL BE REQUIRED AT THE DOOR
Livestream - Watch the event online

*SCEPA and The New School sincerely apologize that the Thomas Piketty discussion is set to take place on the eve of the Jewish holiday, Yom Kippur. Due to international travel schedules of those involved, the only day available to host the event is October 3rd. The discussion is scheduled to take place prior to the forecast sundown and will be live-streamed on our website. A recording of the discussion will be available on our website after the event.

The Political Economy of Unemployment Insurance

Ismael CidThis week's Worldly Philosopher, Ismael Cid-Martinez, discusses the politics and economics of unemployment insurance.

The debate surrounding unemployment insurance (UI) returns to Capitol Hill. This is not entirely surprising. Amid the good news, today's report confirmed that a large shadow continues to loom over our labor market. Examining monthly changes in each category of unemployment by duration, we observe that long-term unemployment remains stubbornly high when compared to previous recoveries (see graph).

Read more: The Political Economy of Unemployment Insurance

Thinking Beyond the Minimum Wage Fight

On June 23, 2014, SCEPA Director Teresa Ghilarducci appeared on MSNBC's UP with Steve Kornacki along with Neera Tanden from the Center for American Progress and Paul Sonn with the National Employment Law Project to discuss the bigger economic picture that necessitates raising the minimum wage. The panel discussed the facts that productivity gains have far eclipsed wage gains, that the federal minimum wage has been stagnant since 2009, and that the average hourly pay has declined over the past 12 months. The panel overwhelming agreed the best way to address these structural economic issues is through increased collective bargaining. A recent working paper by Teresa Ghilarducci and Joelle Saad-Lessler find two factors that significantly impact the likelihood of obtaining employer-offered benefits - time spent unemployed and union status. Therefore, attempts to raise wages must address the decline in workers' bargaining power and change the norms relating to benefits and wage provision. The City of Seattle has taken the largest step in addressing the wage gap by elevating their minimum wage to $15 an hour, while Massachusetts offers the highest state level minimum wage at $11 an hour. Teresa Ghilarducci ended the MSNBC panel with a summary of the advantages of unionization for both workers and employers.

Policy Debates In A Post-Piketty World

Raphaele ChappeThis week's Worldly Philosopher, Raphaele Chappe, writes on the policy implications of Thomas Piketty's analysis on inequality.

We are in a post-Piketty world. Since my last blog entry, Thomas Piketty has received nothing short of a rock star treatment upon his U.S. visit. What are the policy debates we face if Piketty is right?

As the ratio of capital to income (which Piketty terms "beta") increases, Piketty argues there is no natural mechanism that would lead r (the rate of return on capital) to adjust downwards so as to perfectly compensate the impact on the distribution, placing emphasis on policies that might reduce r.

Taxation is one way to reduce r and Piketty's proposal is a progressive world-wide tax on wealth although many agree that this may prove politically unfeasible, especially in the absence of international legal cooperation. Other tax possibilities for fighting inequality include increasing tax rates on capital gains and dividends (which have been getting favorable treatment in the tax code as compared with labor income1), or simply combating tax evasion for the wealthy (see The Price of Offshore Revisited).2 In my own research, I plan to run simulations to test the effectiveness of such tax proposals, and their impact on the wealth distribution.

We could also consider labor-focused policies designed to increase the share of national income going to labor, such as raising the minimum wage, or giving workers direct participation in management and profit through employee ownership or other means. (For the use of national income and product accounts (NIPA) as a framework for studying how inequality will be affected by fiscal and other initiatives such as raising the minimum wage, see SCEPA working paper 2013-1).

In order to advocate for the best policy solutions, we may wish to understand the drivers for high profit rates in recent decades.

Read more: Policy Debates In A Post-Piketty World

The Long-Run Consequences of Income Distribution

Rishabh KumarThis week's Worldly Philosopher, Rishabh Kumar, models the asymmetric distribution of income and examines its effect on the growth of the U.S. economy. 

In a previous post, I highlighted some demand side limitations stemming from the asymmetric distribution of income and consumption in the United States. This entry examines the effect of this asymmetry on the future of U.S. economic growth and the possibility of secular stagnation.

Read more: The Long-Run Consequences of Income Distribution

The Unemployment Report: Getting Used to Unemployment

by Rick McGahey, SCEPA Faculty Fellow

Rick McGaheyThis morning's May employment report continues the trend of slight improvement but subpar overall economic performance.  The unemployment rate stayed stuck at 6.3 percent while jobs increased by 217,000. So far in 2014, job creation has averaged 214,000 per month, and if that rate continues for the entire year, it will be the strongest year since 1999.

But it is still not a great number. True, if May’s job performance continues, then the Atlanta Fed predicts we will reach 5.5 percent unemployment in ten months. But any lowering in the unemployment rate is driven in part by weak labor force participation, which remains near its lowest level in over thirty years.

Heidi Shierholz at the Economic Policy Institute points out how weak our recovery remains, noting that we are six-and-one-half years away from the Great Recession’s start. If you take population growth since then into account, we still are short around 7 million jobs.

The ongoing weakness of the job market also can be seen in data on wages and hours worked. Over the last year, average hourly earnings have increased by 2.1 percent, virtually the same as the low two percent growth in overall inflation. And the average hours worked each week hasn’t increased at all in the past year. A tighter labor market should see increasing wages and hours, but we don’t have that, underscoring that many people still lack work, and employers aren’t hiring at a vigorous rate.

This month, we mark the five-year anniversary of the Great Recession’s technical end. Five years is a long time for an expansion; the eleven U.S. business cycle expansions in the post-World War II period have averaged 58.4 months, although more recent expansions have lasted longer. And other data point to macroeconomic weakness. Real GDP growth in the first quarter of 2014 actually fell by one percent, making the relatively consistent job gains this year harder to understand.

But policy makers feel no urgency for further economic stimulus. We are in danger of accepting slow job growth, wage stagnation, and inequality as a “new normal.” The U.S. should be borrowing more with today’s very low interest rates, creating jobs in infrastructure and public services, but instead we drift along with slow growth, low wages, and a lack of shared prosperity.

A Conference to Honor Economics Professor Ed Nell

Professor Ed NellOn May 3rd, the Economics Department of The New School for Social Research honored Professor Edward J. Nell's 39 years of teaching with a conference celebrating his many contributions to the field of economics. Prior to his retirement in 2013, Nell served as the Malcolm B. Smith Professor of Economics since 1969. He published more than twenty books and wrote hundreds of articles for leading journals on macroeconomic theory, monetary analysis and finance, economic methodology and philosophy, and transformational growth and development.

Below is a sample of the working papers contributed to the conference by former students inspired by Professor Nell.

Willi Semmler: "A New Chapter"
Anna Shoysta: "Edward Nell as the Worldly Philosopher: Shaping the Minds of the Future Economists"
David Laibman: "Democratic Planning and Incentives – Coming to Grips with (Yet Another) Impossibility Theorem"
Louis-Phillippe Rochon: "The Monetary Circuit and the State"
Sergio Parrinello: "A Search for Distinctive Features of Demand-led Growth Models"

Beyond Broke: Why Closing the Racial Wealth Gap is a Priority for National Economic Security

Darrick HamiltonSCEPA economist, Darrick Hamilton recently coauthored the report, "Beyond Broke: Why Closing the Racial Wealth Gap is Priority for National Economic Security" with the Center for Global Policy Solutions, the Carolina Population Center at UNC, the Research Network for Racial and Ethnic Inequality at Duke University, and Milano Graduate School of International Affairs at The New School.  The report evaluates wealth disparities across racial and ethnic categories by providing an in-depth analysis of housing and liquid wealth.

The report finds that:
• Between 2005 and 2011, the median net worth of households of color remained near 2009 levels, reflecting a drop of 58 percent for Latinos, 48 percent for Asians, 45 percent for African Americans but only 21 percent for whites.

• For most African Americans and Latinos, checking accounts are their only liquid asset.

• African Americans (38 percent) and Latinos (35 percent) are over twice as likely as whites (13 percent) to hold no financial assets at all and to have no or negative net worth.

This analysis provides new insight into the close interplay between race and place as it relates to America's persistent wealth gap. To address these issues, the report calls for Congress and the Administration to ensure that future mortgage settlements include the collection of racial/ethnic, gender, geographical and other demographic data to ensure that relief programs are transparent, fair, and target the hardest-hit communities. The report also calls for the Federal Housing Finance Agency to allow Freddie Mac and Fannie Mae to perform principal reduction and loan modifications for distressed homeowners.

This report is part of the Closing the Racial Wealth Gap Initiative, which seeks to build awareness and support for efforts to address racial and ethnic wealth inequalities based on structural factors.

Just Say Yes- Bernard Schwartz Autobiography and Vision for America

Bernard L. Schwartz - an investor, a retired industrialist, a progressive public policy advocate and a philanthropist - recently published his autobiography, 'JUST SAY YES: What I've Learned About Life, Luck, and the Pursuit of Opportunity.'

JUST SAY YES is a story about a boy raised in Depression-era Brooklyn who grew up to become a giant in the aerospace business, a confidante of U.S. presidents, and a renowned international deal maker. From this lifetime of experience, Schwartz finds himself increasingly concerned about the future of the United States and its citizens due to the ever-increasing gap between the country's have's and have-not's. "Far too much emphasis is put on money and profit, instead of treating clients and customers as human beings. Our political leaders must also come back to the table, and start working together to improve the lives of all citizens." Without this effort, Schwartz fears that our glory days will remain behind us. As an "optimist by nature," Schwartz believes that American politics and business can change for the better.

Bernard L. Schwartz on his new book, 'Just Say Yes' - An Interview with Charlie Rose at the New-York Historical Society from Bernard L. Schwartz Center on Vimeo.

Must the Rich Grow Richer? Long-Term Trends in the Capital Share in Income

Gregor This week's Worldly Philosopher, Gregor Semieniuk, writes on the theoretical assumptions underlying Thomas Piketty's forecast of a growing share of income going to the rich.

The future share of total income that accrues as return on capital need not keep rising. The New School's Lance Taylor argues that the capital share trajectory rather depends on the assumptions in your model of growth and distribution. Taylor critiques Thomas Piketty who asserts in his celebrated book that the share of national income going to rich capital owners should rise in the 21st century, and may only be reduced by cataclysmic events such as wars or revolutions (Piketty 2014, p. 233). This post summarizes Taylor's argument.

Read more: Must the Rich Grow Richer? Long-Term Trends in the Capital Share in Income

Financial Stress, Sovereign Debt and Economic Activity

The Journal of International Money and Finance, one of the top journals for international finance, published SCEPA economists, Christian R. Proaño, Christian Schoder and Willi Semmler's working paper, 'Financial Stress, Sovereign Debt and Economic Activity in Industrialized Countries: Evidence from Dynamic Threshold Regressions.' This paper is an expansion on their policy note, 'The Role of Financial Stress in Debt and Recovery' which studied the change in the sovereign debt and its impact on economic growth. Their study discovered that national debt was insignificant in determining the level of economic growth a country experiences as long as the financial market was stable. National debt was only detrimental to countries if there were high levels of instability and risk in the financial market. These findings explain why austerity policies have failed to promote economic growth, because economic growth depends first on financial market stability, and is only an issue if financial markets are unstable.

The Unemployment Report: Reported Gains, But Confusing Data

Rick McGaheyby Rick McGahey, SCEPA Faculty Fellow

April’s employment report is a strong one on its own terms. The unemployment rate dropped by almost half a percentage point, from 6.7 percent in March to 6.3 percent in April; this is the lowest rate since September 2008, when the economy was plunging into the Great Recession. And payroll employment leapt up by 288,000, the biggest gain since January 2012. So all is good, right?

There’s no denying the strength of these numbers, but several factors caution against a full-blown celebration just yet. First, the dramatic drop in the unemployment rate is due not only to job growth, but to continuing declines in the labor force. The measured labor force fell by 806,000 people between the March and April household surveys (the source of the unemployment rate), while that survey actually showed slightly lower total employment in April than in March.

So, based on the household survey alone, the drop in the unemployment rate was almost entirely due to the lower labor force. BLS Commissioner Erica Groshen says their analysis shows the lower seasonally adjusted rate mostly due to “fewer people entering the labor force than usual…” but that still underscores that April’s lower unemployment rate is more a function of fewer people looking for jobs than it is of vigorous job creation.

But what about that strong payroll employment number?

Read more: The Unemployment Report: Reported Gains, But Confusing Data

A Debate on Mainstream Economics: A Gadget is a Dangerous Thing

Anthony Bonenby Worldly Philosopher Anthony Bonen

Recently, Paul Krugman (here, here and here) has taken a keen interest in a heterodox economist’s critique of mainstream economics (and not for the first time). In reponse, Tom Palley has issued solid rejoinders to Krugman and Simon Wren-Lewis. However, I fear the brilliant and (rightfully) esteemed Nobel laureate has missed the key point of heterodox’s frustration with marginal productivity theory. So, I follow his call to “continue to debate how we do economics.”

A key issue in distribution debates is the fair remuneration of capital and labor. Marginal productivity theory says, very basically, that the real wage and the (real) rate of profit are equal to the marginal increase in production added by the last unit of labor and capital, respectively.

Many economists, Krugman points out, do not believe this to be a cardinal truth of capitalist economies. Rather, he says [my emphasis]: 

"there are plenty of economists who are willing to use marginal-product models (as gadgets, not as fundamental truth) who don’t at all accept the sanctity of the market distribution of income."

That word – gadget – really stunned me. It sounds benign, innocuous even. Yet marginal product models are no mere “gadget”. They are the entrée for modern macroeconomics.

Read more: A Debate on Mainstream Economics: A Gadget is a Dangerous Thing

Fast Food Failure: CEO-to-Worker Pay Disparity

Catherine RuetschlinDemos recently published a report by New School PhD Candidate in Economics, Catherine Ruetschlin, "Fast Food Failure: How CEO-to-Worker Pay Disparity Undermines the Industry and the Overall Economy."

The report studies CEO-to-worker compensation ratios across industries, finding Accommodation and Food Services to be the most unequal sector in the economy. This fact is driven by the extreme pay disparity of the fast food industry, which is also one of the fastest growing employers in the nation.

Demos' research supports the renewed call, started by Robert Reich's  Inequality for All and Thomas Piketty's Capital in the Twenty-First Century, among others, to question increasing inequality, it's link to economic instability and what is driving it.

Read more: Fast Food Failure: CEO-to-Worker Pay Disparity

Anwar Shaikh: Named an "Eminent Economist"

Anwar Shaikh'Eminent Economists in the World Today,' the sequel to 'Eminent Economists,' presents the ideas of influential economists of the last 50 years. SCEPA is proud to announce that Anwar Shaikh, economist and professor at The New School for Social Research, is included in this distinguished honor, which recognizes his work on the economic patterns of the developed world.

Shaikh has always held the belief that economics is a moral science and has dedicated his research to understanding inequality. His entry, "Order In and Through Disorder" is a brief autobiography that captures significant moments in his life that influenced his research. 

The Digital Revolution's Energy Costs

Gregor SemieniukThis week's Worldly Philosopher, Gregor Semieniuk, writes on the trade-off between increased computing power and climate change.

Many commentators believe that exponential increases in computing power will lead to tremendous improvements in human welfare - at almost no cost per additional unit, or "marginal" cost.

Erik Brynjolfsson and Andrew McAffee (BM hereafter) express this view in their new book, "The Second Machine Age," and give examples of new technologies that are only possible thanks to recent and ongoing advances in information technology: self-driving cars, real-time translation software, and smart robots that can be taught new movement routines by guiding their arms, rather than programming a new software.

While these innovations are truly breathtaking in their technological sophistication, the authors are wrong to assert that these products and services come at "almost zero marginal cost of reproduction" (BM p. 62). Information technology (IT) - and the "information economy" it fuels - is not energy-neutral. Rather, its energy needs are quite costly, coming from fossil fuels that emit greenhouse gases and continue to supply 80% of the world's energy.

Technologies' use of energy is also costly in its contribution to climate change, which is now widely agreed to have adverse consequences for human welfare (IPCC 2014 and Tony Bonen's blog; Duncan Foley (2013) examines IT's growth trajectory from a classical political economy perspective). Economists and policy makers need to re-examine the claim that life-improving digital technologies are cost-free after their initial development costs.

Read more: The Digital Revolution's Energy Costs

How Paul Ryan's Budget Fails

CNN logoSCEPA Faculty Fellow Rick McGahey's opinion piece on CNN.com today, "How Paul Ryan's Budget Fails," calls out the House-approved budget for using 'voodoo economics' to pose as 'balanced' while calling for tax cuts for millionaires.

In short, McGahey notes, the math fails, which leaves a budget meant more for political posturing than for the health of the nation's economy. 

"How can Ryan claim that his budget is balanced? By invoking what used to be called "voodoo economics" -- assuming budget cuts and unfair tax cuts will unleash economic growth and generate enough tax revenue.

Former Reagan administration economist Bruce Bartlett has criticized this approach as "just another way for Republicans to enact tax cuts and block tax increases. It is not about honest revenue-estimating; it's about using smoke and mirrors to institutionalize Republican ideology into the budget process."

Of course, Paul Ryan isn't stupid, so why the phony budget math and the return of voodoo economics? Because it serves his presidential ambitions."