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.
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.
On June 24, 2013, University of Massachusetts Amherst Economics Professor Nancy Folbre described the retirement crisis as sinking rowboats. Her point is clear - our current 401(k)-dominated retirement system doesn't work for the individual doing yeoman's work trying to get to retirement security.
She backs up this statement with numerous reports and data, including the National Institute on Retirement Security, books by Jacob Hacker and SCEPA Director Teresa Ghilarducci, the Center for Retirement Research at Boston College, the Transamerica Center for Retirement Studies, and the Economic Policy Institute (EPI). These sources support Folbre's conclusion, that we need a retirement security system that puts us all in the same boat...an ocean liner.
Every country is worried about investing retirement funds correctly, and every country wants to minimize risks to the taxpayer so there aren’t large, unknown bills in the future. In the United States, we use our tax code far more than other countries to encourage savings and other socially beneficial behavior. We spend billions of dollars to incentivize saving for retirement through 401(k)’s and I.R.A.’s. That costs us a huge amount of money without much effect in creating a secure retirement system. In fact, America’s voluntary system means that nearly six out of 10 workers are not in pension or 401(k) plans.
Is austerity good for business? Not if you want people to have enough money to be customers, says SCEPA Director Teresa Ghilarducci.
On April 24, 2013, Ghilarducci joined host Chris Hayes and Bloomberg View Writer Josh Barro on the MSNBC program, All In With Chris Hayes. The three discussed the idea that employers are lobbying for austerity measures as a means to keep unemployment high and wages low. According to Ghilarducci, employers face a conflict of interest in times of crisis: while high unemployment decrease workers' bargaining power, lowering wages, it also erodes consumer spending, leading to less sales. For this reason, corporate interests largely support austerity measures, while small- and medium-sized firms feel the consequences when their customers can't afford to spend. Ghilarducci says strengthening worker protections, not eliminating them, is the solution. "We do need policies. You need minimum wage policies. You need other kinds of protections. However, how does that happen? It happens when people are on the street. That's always happened."
On April 15, 2012, researchers at the Political Economy Research Institute published a paper that found that the Reinhart and Rogoff's influential paper Growth in the Time of Debt contained faulty research methods, including coding errors. Despite initial concerns about causation in their research - high public debt could be the consequence and not the cause of slow growth - this paper has informed austerity measures in the United States and Europe.
Before the knowledge of coding errors came to light, SCEPA research revealed that cutting government spending in a crisis comes with serious risks. SCEPA research found empirical evidence that reducing deficits will inhibit economic activity in the short-run, and may lead to higher debt-to-GDP ratios in the medium-run. SCEPA has also hosted a number of events on austerity politics and economics held in late 2011, "Do Budget Cuts Lead to Growth" SCEPA also held a second panel discussion on this theme "What the US Should Learn From Austerity's Fallout in Europe and Latin America" (April 17, 2012). The continued crisis in Europe demonstrates the realization of this risks.
In addition, SCEPA research also reminds us that the increase in U.S. fiscal deficits and U.S. government debt after the recession was not only the result of the fiscal stimulus program. Due to the operation of automatic stabilizers, the severe downturn in economic activity substantially reduced government revenues and increased spending, contributing to a higher fiscal deficit
On March 22, 2013, SCEPA Faculty Fellow Rick McGahey testified at the New York City Council's hearing in favor of legislation to provide mandatory paid sick leave to all city workers, including city employees. Dr. McGahey testified that providing paid sick days for workers would benefit workers and businesses and that any negative economic impact would be slight and more than offset by positive gains for workers and businesses. In his testimony, titled, "The Economic Effects of Paid Sick Leave," he stated:
- In cities that have enacted paid sick day requirements, the implementation has been straightforward, with minimal impact on businesses.
- Empirical evidence from increases in the minimum wage strongly suggests that a policy of paid sick days will not have discernible effects on employment.
- There are economic benefits to workers and to businesses, through increased productivity and decreased turnover.
- To encourage good quality jobs and support good employers, the policy should be as uniform as possible, with no significant carve-outs for specific sectors.
SCEPA Faculty Fellow Sanjay Reddy's "Randomise This! On Poor Economic" reviews the highly influential and widely read book Poor Economics by Abhijit Banerjee and Esther Duflo for the Review of Agrarian Studies. Professor Reddy writes that the book captures the dominant view in development economics - which he disagrees with - for two reasons. First, because it presents randomized clinical trials as a scientific way of identifying “what works” in development. Second, because it emphasizes that individual households can make choices to overcome poverty. Reddy writes that the book fails to present an accurate picture of poverty or posit real solutions because it aims to "fix" the problem of poverty through small, technocratic interventions while neglecting larger issues of history, politics, and society.