On December 4, 2013 The New York Times published an op-ed, "Federal Law Requires Job Creation" written by William Darity.
Darity's op-ed holds the United States accountable to comply with the Full Employment and Balanced Growth Act of 1978, commonly known as the Humphrey-Hawkins Act. The law mandates that if the private sector does not create full employment, the public sector is responsible for offsetting the missing jobs.
Darity's piece reflects research done with co-authors Alan Aja, Daniel Bustillo and Darrick Hamilton for an essay published in The New School's Fall 2013 edition of the Social Research journal, "Austerity: Failed Economics but Persistent Policy." In their article, "Jobs Instead of Austerity: A Bold Policy Proposal for Economic Justice," the authors discuss austerity policies measures and the subsequent job losses resulting from these policies. They put forth full employment policies to stimulate the economy, bridge the inequality gap and prevent another recession.
This volume includes thirteen essays by leading economists offering tools to escape austerity's ill-advised vision and concrete policies to create economic growth and prosperity for all people, rather than just a wealthy few.
Darity and his co-authors argue the only way to accomplish and enforce full employment is through Keynesian stimulus spending and the creation of a federal job guarantee. To do so, they call for the creation of a "National Investment Employment Corps" to both fulfill the mandate of the federal job guarantee and address the nation's need for environmentally-friendly infrastructure. This would simultaneously put the United States on the road to full employment while mitigating against the adverse effects of climate change.
They estimate that after 25 years, we could finally achieve the Humphrey-Hawkins Act mandate of zero unemployment.
Lance Taylor, SCEPA Faculty Fellow and Emeritus Professor of Economics at The New School for Social Research, will join the keynote panel for the annual conference hosted by the Institute for New Economic Thinking (INET) and the Centre for International Governance Innovation (CIGI).
The conference will be in Toronto, Canada, from April 10-12. The event will highlight INET and CIGI's work to promote "new economic thinking" by identifying pervasive flaws in existing economic paradigms, promoting innovative interdisciplinary research, creating a strong global community for young scholars, and pushing the economics discipline to meaningfully address challenges of the 21st century.
Taylor will join the panel discussion, "Innovation and Inequality: Cause or Cure," to discuss his work with Professor Duncan Foley on an INET grant investigating the long-term consequences of economic growth, including the effects on climate change, the shift toward a service-centered economy, and the potential for financial and fiscal instability.
On December 10, 2013, SCEPA Director Teresa Ghilarducci will testify before the Nebraska Legislature’s Retirement Systems Committee hosted by its chairperson, Senator Jeremy Nordquist. The hearing discusses LR344, legislation calling for an interim study to examine the availability and adequacy of retirement savings of Nebraska’s private sector workers.
In the last 10 years, Nebraska has seen a decline of 9% in the number of employers offering retirement plans to their workers, dropping from 66% to 57%. As a remedy to a looming retirement crisis caused by a lack of retirement income, Ghilarducci proposes opening the state's public pension system to private sector employees by creating State GRAs. This would provide residents access to professional money managers and allow them to choose among a variety of investments, including a guaranteed fund similar to the Thrift Savings Plans offered to federal employees and the TIAA-CREF plan offered to university professors.
by Rick McGahey, SCEPA Faculty Fellow
This morning's November employment report has some welcome news, but let's not get too excited.
The unemployment rate moved down to 7 percent, the lowest level in five years. Unemployment was 7.3 last month, and 7.8 percent one year ago. The labor force increased slightly, so the dropping rate is due to increased employment.
On the jobs side, the economy added 203,000 net new jobs, and October numbers were revised upward to 200,000. These are net jobs. Direct federal government jobs fell again; direct federal employment has fallen by 92,000 jobs in the past year due to continuing budget cuts and austerity.
The job numbers come when other signs also point to a strengthening economy. Earlier this week, third quarter GDP was calculated at a 3.6 percent annual growth rate, well above the estimates of 2.8 percent. Are we finally seeing a stronger economy that doesn't need fiscal stimulus? Can the Federal Reserve start "tapering" its quantitative easing (QE) program?
While the numbers are welcome, we shouldn't get too excited about them, and certainly shouldn't ease off calls for more fiscal stimulus. Let's take the job gains in November. Is 203,000 a big number? Not especially. The average monthly job growth over the past year has been 195,000, and it would take almost two and one-half years at this rate to reach full employment. Jared Bernstein points out that the good numbers also are driven in part by an unusually large number of workers coming back from temporary layoffs largely due to the government shutdown.
How about the GDP increase? It is much stronger—double the 1.8 percent growth rate in the first half of 2013. But almost half of the third quarter increase is inventory buildup in anticipation of the holiday shopping season. It remains to be seen how strong sales will actually be, and if that inventory clears.
Will households buy that inventory? October's personal income numbers are a cause for concern. Real disposable personal income fell by 0.2 percent in October, after rising by 0.3 percent in September, and 0.4 percent in August. The October number may be a blip, but if real personal income stays down, then weak consumer demand will not lift the economy, clear the inventory gains, or contribute to growth.
All in all, November's employment report represents baby steps in the right direction. But the economy remains weak, and needs continuing government help, not increased austerity.
The New School Economics Professor (and SCEPA Faculty Fellow) Anwar Shaikh was honored by the Pescarabruzzo Foundation, which recently awarded him the International NordSud award. The award, established to encourage economic innovation through dialogue and collaboration, is for his published work in the Journal of Post-Keynesian Economics, titled "Reflexivity, Path Dependence, and Disequilibrium Dynamics." The paper discusses George Soros's theory of reflectivity and focuses on the interactions between expected, actual and fundamental variables.
On October 25, 2013, Lance Taylor, economics professor emeritus at The New School for Social Research, gave a presentation at a Berlin conference hosted by the Research Network Macroeconomics and Macroeconomic Policies (FMM) titled, "The Jobs Crisis: Causes, Cure, Constraints."
Taylor's presentation provides a long-run analysis of economic growth and CO₂ emissions from his research paper, "Greenhouse Gas Accumulation and Demand-Driven Economic Growth," coauthored by Duncan Foley, Jonathan Cogliano and Rishabh Kumar.
His demand-driven growth model analyzes how economic growth through capital accumulation requires an increase in energy consumption. Increased energy consumption releases harmful greenhouse gases and reduces growth through the adverse effects of climate change, such as natural disasters and an increasing business costs. A possible solution would be increased spending on mitigation to reduce climate change damages. The model shows that investment in mitigating greenhouse gases to a "good," steady-state would cost 1.25% of the global GDP, roughly equal to military spending. On the distribution side, greenhouse gases cut into the profit share in any scenario - moderately in a mitigated scenario, but precipitously on an unmitigated, "business-as-usual" path.
Despite the mainstream interpretation that the October jobs report is a reason to ease off what little stimulus we are giving the economy, a broader view reinforces the fact that stimulus is the antidote for austerity policies that have failed to create prosperity.
Following a debilitating federal shutdown that failed to resolve conflicts over government spending and economic recovery, SCEPA economists both edited and contributed to an upcoming journal publication that critiques the mainstream acceptance of austerity policies.
“Austerity: Failed Economics But Persistent Policy,” is the November 1st issue of Social Research: An International Quarterly, a publication produced by The New School’s Center for Public Scholarship. The volume includes thirteen essays by leading economists, including Teresa Ghilarducci (co-editor), Robert Pollin, Rick McGahey (co-editor), and Willi Semmler, offering tools to escape austerity’s ill-advised vision and concrete policies to create economic growth and prosperity for all people, rather than just a wealthy few.
The volume describes austerity policies both here and abroad, how implementation has restricted economic growth, and why government officials continue to support these policies in spite of their poor track record. Specifically, authors argue that austerity policies hamper economic recovery, but remain popular among elites as a tool to lower labor costs and taxes while increasing profits. A real path to economic recovery and long-term fiscal health requires refocusing the debate from how to eliminate debt to how to eliminate mass unemployment.
Alternative policy proposals include a federal loan guarantee program for small businesses (Pollin), creation of a permanent federal government job guarantee program (Hamilton), and an expansion of Social Security to stabilize the economy and bolster the bargaining power of labor (Ghilarducci).
Predictions of the 5th IPCC Report
In September, the United Nation’s Intergovernmental Panel on Climate Change (IPCC) published the first of four reports providing updates on the scientific community’s knowledge of climate change and its effects. The report from the first Working Group, Climate Change 2013: The Physical Science Basis, strengthens the panel’s degree of certainty that climate change is man-made and is the cause of melting ice, rising global sea levels and various forms of extreme weather.
SCEPA’s Economics of Climate Change lecture series presented a panel discussion with leading climate change scientists on the major findings of the report. They discussed its local and global predictions and what it forecasts for urban areas, agriculture, food production, and developing economies.
Peter Schlosser, What Does the the 5th Assessment Report Tell Us?
Professor of Earth and Environmental Sciences, Columbia University
Deputy Director and Director of Research, The Earth Institute at Columbia University
Robert Kopp, Local and Global Impacts of Extreme Weather
Assistant Professor, Department of Earth & Planetary Sciences, Rutgers University
Associate Director, Rutgers Energy Institute
Wolfram Schlenker, Effects of Weather Change on Agricultural, Food Production & the Developing World
Associate Professor, School of International and Public Affairs, Columbia University
SCEPA's Economics of Climate Change project, led by New School Professor of Economics Willi Semmler, is generously supported by the Fritz Thyssen Foundation and the German Research Foundation (DFG).
The New School - University of Massachusetts Amherst
Economics Graduate Student Workshop 2013
On November 9 and 10, SCEPA and The New School's economics department joined with the economics department of the University of Massachusetts Amherst to host a graduate student workshop. The topics included development, growth and distribution economics, financial economics, methodology, economics of banking, long-run growth patterns, and inequality. The workshop culminated with a roundtable focused on rethinking microeconomics.
On October 28, 2013, SCEPA Research Assistant Kate Bahn presented SCEPA's report, "Are Connecticut Workers Ready for Retirement?" at the first meeting of the state's Retirement Security Plan Roundtable. The ongoing series is spearheaded by Connecticut State Senate Majority Leader Martin M. Looney and House Majority Leader Joseph Aresimowicz. The series will focus on how to prevent a looming retirement crisis in the state by establishing a state-administered retirement saving plan for low-income, private sector workers. This proposal, modeled after SCEPA's State GRA plan, was described in Senate bill senate SB 54.
Bahn's presentation documented the decline in employer-sponsored retirement plans in the state, making it harder for Connecticut residents to prepare for retirement and leaving them vulnerable to downward mobility as they get older.
On July 5, 2013, Vice Chairman of the Greenwich Democratic Town Committee Bill Gaston cited SCEPA's "Are Connecticut Workers Ready for Retirement?" in an op-ed, Growing Potholes in the Road to Retirement. He quotes our documentation of a dangerous downward trend in employee access to retirement plans through their employer.
• 50 percent of Connecticut's working-age residents are not covered by any employer-sponsored plan
• Between 2000 and 2010, employers offering a retirement plan declined from 66 percent to 59 percent.
• Four out of 10 workers residing in Connecticut do not have access to a retirement plan at work
Gaston acknowledges that the current system, dominated by what Thomas Friedman's calls the "401(k) world," works for the wealthy, but not the middle class. He cites significant research into why this failure is not individual but structural, including the switch from DB plans to high-risk, high-fee DC plans that serve Wall Street better than Main Street.
Gaston calls for a "voluntary, portable, state-administered defined benefit plan, funded by workers and their employers." SCEPA has testified before the Connecticut legislation in support of such legislation, which is modeled on SCEPA Director Teresa Ghilarducci's State GRA plan.
by Christian Proaño, SCEPA Faculty Fellow
If the U.S. Congress doesn’t reach an agreement on the debt ceiling before October 17, the unthinkable may happen - U.S. government defaulting on its debt.
The domestic and global economic consequences of such an event depend on how the financial markets would assess this situation. Would they consider it as an odd and isolated event which would not affect the U.S. government’s long-run ability to meet its financial obligations? Or would they interpret it as the final demonstration of the lack of viability in the country’s public finances and political system?
The following two scenarios map out the consequences of a U.S. default based on possible market reactions.
The Not-So-Good Scenario
This scenario assumes that markets barely react, if at all, to a U.S. debt default. In this rather improbable case, the risk premium on long-term government bonds would not increase significantly and the term structure of interest rates (both government and corporate bonds) would not be significantly affected. Given the continuing confidence in the U.S. government and its fiscal solvency, there would be no particular re-valuation of outstanding U.S. government debt, and no particular effect on the balance sheets of U.S. government creditors. Credit needs of the private sector (households and firms) would be met by banks and other financial intermediaries, and there would be no disruption of the credit flow in the economy. The international value of the U.S. dollar would also remain stable because there is still not an alternative currency which could substitute the U.S. dollar as the world currency in the short term.
Independently of the reaction of the financial markets, one negative development could not be avoided. According to CNBC, the Treasury would only have enough money on hand to fund Social Security payments until Oct. 25th. After that, if the U.S. government does not find other financing sources, these payments would come to a halt, directly affecting more than sixty million Americans.
The Really-Bad Scenario
The more pessimistic, and, unfortunately, more realistic scenario, a default on U.S. government debt would greatly affect global markets. U.S. government bonds would no longer be considered quasi-riskless assets and, subsequently, would no longer provide a baseline for the pricing of all remaining risky financial assets. This would introduce unprecedented volatility across all financial markets. Banks’ balance sheets would take a severe hit. Similar to the onset of the 2007-08 financial crisis, liquidity could be maintained only through massive interventions of behalf of the world’s main central banks. Similar to the 2007-08 crisis, but much larger, the U.S. economy would experience a credit crunch leading us back into a recession. Further, stock markets throughout the world would experience heavy losses as investors flee to safer assets, such as gold and other commodities.
Despite the similarities between this really-bad scenario and the 2007-08 crisis, there is one reality that makes the prospects of a default on U.S. government debt appear more dangerous. In contrast to the previous crisis, the implementation of large-scale countercyclical fiscal programs aimed at the stabilization of aggregate demand would be much less feasible. This would be due to both the fragile fiscal stance in a majority of countries (a direct result of the 2007-08 financial crisis) and a lack of political willingness. In other words, if a default on U.S. government debt becomes a reality on October 17 and the markets react as outlined in this last scenario, then a severe and long-lasting worldwide economic recession could also become a reality shortly thereafter.
On October 25, 2013, SCEPA was honored to welcome Robert L. Gordon, a distinguished economist from Northwestern University and brother of SCEPA founder David Gordon, to present the annual Irene & Bernard L. Schwartz Lecture.
Professor Gordon has rocked the economics profession and the employment policy debates at the highest levels with his recent – and controversial - work predicting an end to economic growth as we know it. He writes, "Our best days may be behind us." He debated his theory in a recent TED talk and was featured in New York Magazine, where he is described as a "declinist and an accidental social theorist."
Gordon's work demonstrates the shrinking impact of innovation due to the "headwinds" of debt, demographic change, diminishing educational returns, and inequality. Focusing on inequality, Gordon will compare his own policy recommendations with those put forward by his brother in his book, Fat and Mean.
New School economists David Howell, Professor of Economics and Public Policy, and Anwar Shaikh, Professor of Economics, joined Gordon in this debate on inequality.
On October 15, 2013, SCEPA hosted three New School economists on the economic fallout of the government shut down. Professors Teresa Ghilarducci, Rick McGahey and Christian Proaño discussed the causes of the shutdown, the economic implications of increasing or not increasing the debt ceiling, and what will happen if an agreement is not reached by the deadline of October 17.
Teresa Ghilarducci, "Economists Agree that Defaulting is Stupid"
Chair of the Economics Department at The New School for Social Research and Director of the Schwartz Center for Economic Policy Analysis
Rick McGahey, "Why Congress is Allowing a Default"
Professor of Professional Practice in Public Policy and Economics and Director of Environmental Policy and Sustainability Management
Christian Proaño, "The Dire Economic Consequences of a Default"
Assistant Professor of Economics
Economic growth starts with clusters of economic activity – groups of companies and other institutions working in similar fields. This takes place primarily in cities, which are the source of innovation, bringing together concentrations of capital investment, highly educated labor forces, advanced infrastructure, and institutions such as universities that create innovation and jobs. The challenge remains how to connect these forces for job creation, especially for the unemployed.
Here are a few of the many resources that provide ideas and examples of how market economies can jumpstart job creation at decent wages and working conditions:
- Los Angeles has figured out a way to create jobs and achieve economic growth through smart investment. Each time LA provides subsidies to private companies or plans infrastructure development, the contracts are contingent on providing jobs at livable wages and environmental improvement.
- The Annie E. Casey Foundation promotes economic growth with equity. Their report, "Big Ideas for Job Creation," describes nonconventional but practical policies for creating demand and investment.
- PolicyLink works in Detroit and other cities with large pockets of unemployment. Its economists argue that equity is not a consequence or output growth, but that polices promoting economic equity can foster growth and improve social conditions.
- "Back to Full Employment," a book from New School graduate and professor at U Mass. Amherst Robert Pollin, argues that a nation can use a green platform to stimulate job creation with revenue from a tax on financial transactions.
- Green For All is a leader in combining environmental concerns with job creation, focusing on how environmental improvements can create employment for low-income and poor populations.
- Brookings Metropolitan Policy Program, headed by Bruce Katz, concentrates on how cities are the center of metropolitan regions and those regions, in turn, create economic growth for a nation.
On October 23, 2013, the Maryland legislature will hold a hearing on Senate Bill 1051, the Maryland Private Sector Employees Pension Plan sponsored by Senator James Rosapepe. The bill will be heard in Annapolis by the Maryland Joint Committee on Pensions. SCEPA submitted written testimony regarding the state of future retirees in Maryland based on our March 2013 report, "Are Maryland Workers Ready for Retirement?" The report received headlines in the state last spring for its findings that '40% of older households in Maryland are ill-prepared for retirement' and that '49% of those working in Maryland are not enrolled in an employee-sponsored retirement plan.'
SCEPA testified at a hearing in the Maryland House of Delegates on similar legislation sponsored by Delegate Tom Hucker that would increase access to a retirement savings plans by giving workers the option of opening an individual Guaranteed Retirement Account (GRA) through the existing Maryland State Retirement and Pension System. The Guaranteed Retirement Account (GRA) is based on Ghilarducci's STATE GRA plan, which was recently enacted in California.
Carol Hymowitz of Bloomberg News introduces us to Tom Palome, former Vice President for Oral-B, in her September 23, 2013, article, "At 77 He Prepares Burgers Earning in a Week His Former Hourly Wage."
At age 77, Tom is working two minimum wage jobs just to make ends meet. At the height of his career he was making over six figures a year, paid off his mortgage and put his kids through college.
Like 60% of seniors, Tom did not have enough saved for retirement. After his employer relocated to the west coast, Tom opened a consulting firm. Because he was self-employed, he didn't have a 401(k) account or tax-deferred IRA. Without a retirement savings plan, he managed to save $90,000. Investment experts estimate that retirement savings should be 10-20 times more than their annual working salary. So, while not nearly enough for retirement, he lost most of it in the 2008 financial crisis.
This article describes our ridiculous approach to retirement, where "59 percent of households 65 and older currently have no retirement account assets, according to Federal Reserve data analyzed by the National Institute on Retirement Security."
"'People who built successful careers, put their kids through college and saved what they could, are still facing downward mobility," said Teresa Ghilarducci, an economist at The New School, who has studied the finances of seniors."
"It's about to get worse. Right behind the current legions of elderly workers is the looming baby boomer generation, who began turning 65 in 2011 and are reaching that age at a rate of about 8,000 a day. They're the first generation expected to fund their own retirements, even as they live longer lives."
Outsourcing Economics, the title of a new book by Will Milberg and Deborah Winkler, has a double meaning. First, it is about the economics of outsourcing. Second, it examines the way economists have understood globalization as a pure market phenomenon and as a result, they have "outsourced" its negative social side effects to other disciplines to articulate and repair. This book discusses the embedded relationship that exists between the state and the market, and by what means the structure of the relationship dictates the distribution of gains from globalization. Milberg and Winkler demonstrate how the power and profits generated as a result of globalization creates a power asymmetry, with a concentration of wealth and income among a few at the top.
Additionally, they find that offshoring allows firms to reduce domestic investment and focus on finance and short-run stock movements. They point out that the term 'development' has become synonymous with 'upgrading' in global value chains. However, upgrading allows a larger firm to easily move their operations to less expensive states or firms. This forces offshore firms to keep their costs as low as possible, causing investment instability through increased capital mobility without improving wages or labor standards. As a result, offshoring reduces employment and increases income inequality in countries without worker protection policies.
The Center for European Economic Research, one of the leading research institutes in Germany, appointed SCEPA Faculty Fellow Willi Semmler as a Research Associate. This summer, he was the keynote speaker for their Conference on Recent Developments in Macroeconomics.
His keynote speech was based on his paper, "The Macroeconomics of the Fiscal Consolidation in the European Union," that found the European Union's austerity policies neglected to take into account the consequences of reducing social safety nets. Fiscal austerity was imposed in the European Union assuming the multiplier effect would be weak, and fiscal consolidation would be swift. The multiplier effect measures the impact government spending or tax cuts has on the overall economic activity of a state.
Semmler argues that the effects of the fiscal multiplier are larger in recession and weaker during economic expansions. This means that government spending increases can stimulate the economy in a recession, but also that spending cuts and financial market stress can make the effects of austerity policies even more severe. Semmler shows that the size of the multiplier and the success of debt stabilization depend on a country's system of government and economic environment, including financial stress, credit spreads, the vulnerability of the banking system, monetary policy actions, the state of internal and external demand, exchange rates and so on.