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Piketty and Policy Print
Written by John Schmitt   
Tuesday, 22 April 2014 09:22

Early on in his (rightly) highly complimentary review of Thomas Piketty'sCapital in the 21st Century, Paul Krugman declares: “This is a book that will change both the way we think about society and the way we do economics.” Krugman is certainly correct about the impact that Capital in the 21st Century will have on the way we think about the world. But, I wonder whether the book will have much impact on the progressive policy agenda in the United States.

Last week, when Piketty was in Washington, DC, I attended one of his book events (at the Economic Policy Institute with co-sponsorship from the Washington Center for Equitable Growth) and watched another (at the Urban Institute) online. At those events, as in the book, Piketty warned that unless we can lower the rate of return to capital (r) below the rate of growth (g) in the overall economy, it will be very hard to block rising inequality in income and wealth at a national and a global scale. Piketty's preferred policy for getting “r” below “g” is a steep, global, progressive wealth tax.

At the first event, EPI's Josh Bivens argued that one important implication of the book is that if we want to combat inequality, we should pursue policies that lower r by raising the bargaining power of workers relative to the owners of capital and what Piketty calls “supermanagers.” Among other options, Bivens specifically mentioned full-employment macroeconomic policy, increased unionization, and a higher minimum wage. These policies, he said, would “push r and g closer together” helping to reduce inequality. In her comments at the same event, Betsey Stevenson, one of the members of the Council of Economic Advisors, pushed policies that would raise the growth rate (g), including universal preschool programs and other measures.

At the second event, my colleague, Dean Baker called for policies aimed at lowering the return to capital by greatly reducing economic rents in the financial sector and other parts of the economy that benefit substantially from various forms of government protections, including pharmaceuticals and health care.

In both sessions, Piketty had the same polite, but blunt, response. The policies proposed by Bivens, Stevenson, and Baker were all well and good, but ultimately they are only “complements” and “not substitutes” for his global, progressive wealth tax. At EPI, he said (about minute 58:00): “These are all very useful policy options” but “...we are not going to replace progressive taxation by a pre-school program and patent law [reform], and whatever.” (The “whatever” here reads harsher in print than it sounded live or on the video. I believe Piketty meant it more in the spirit of “and the other policies you mention.”)

At the Urban Institute, Piketty referred to Dean's list of proposals, including a financial transactions tax, patent law reform, a universal public health system, and other policies, and said (about minute 53:00): “...I don't think it is going to be enough to change much [the] r-g finding I am showing.” He continued: “I am in favor of your better patent law [and] public health system... But, do you really, seriously believe that a public health system is going to bring down [the high rate of accumulation of wealth]?”

(An important reason Piketty believes that Dean's proposals are not substitutes for Piketty's preferred progressive wealth tax is because he does not think that economic rents stemming from imperfect competition are an important part of the return to capital. Rents could be significant in “subsectors” of the economy, Piketty says, but his analysis suggests that r will exceed g, even if the economy is perfectly competitive.)

Back to my initial question: does Capital in the 21st Century point progressive policy in a new direction? Piketty makes one core recommendation: a high, progressive, tax on wealth, preferably implemented on a global scale to minimize evasion. I know very few on the left that would disagree with that as a policy goal. I know even fewer people of any political stripe who think that such a policy stands much of a chance of happening any time soon.

By Piketty's reading of his own book, however, nothing short of a global progressive wealth tax (or a repeat of a succession of cataclysmic events such as World War I, the Great Depression, and World War II) will be enough to prevent the further rise of inequality.

So, what is to be done?

Well, if Piketty is right, we push for a global wealth tax and the useful --but insufficient-- policies that progressives have advocated for decades.

If Piketty is wrong, we push for a --highly improbable-- global wealth tax and the useful policies that progressives have advocated for decades.

Let's call this Piketty's Wager.

 
Labor Market Research Reports, April 7 – April 18, 2014 Print
Written by Jeffrey Gianattasio   
Friday, 18 April 2014 15:54

The following reports on labor market policy were recently released:

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Lip-Service Libertarianism in Silicon Valley Print
Written by Jeffrey Gianattasio   
Tuesday, 08 April 2014 14:44

Silicon Valley has for some time prided itself on a supposedly novel approach to corporate practice. High-tech firms, and the luminaries who lead them, have espoused doctrines pledging to think differently, not be evil, or otherwise changing or breaking with traditional corporate behavior. While these firms may at times fail to live up to their high-minded ideals – accumulating vast cash reserves beyond the purview of the US tax code, and shifting their workforces overseas, much like their corporate peers outside of the Valley – they have gotten a pass from much of the public for their well-minded intentions (not to mention savvy marketing campaigns).

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Baker, Bernstein and Summers kicking off national dialogue on #FullEmployment on April 2nd Print
Written by Nicole Woo   
Tuesday, 01 April 2014 16:28

Tomorrow morning, an impressive lineup of economics heavy-hitters will be at the National Press Club in Washington, DC to talk about the importance of full employment as a goal for this nation.

Lawrence Summers, former U.S. Treasury Secretary, will deliver the keynote address. This conversation is especially crucial in the context of continuing high unemployment and growing inequality, even after 5 years of economic recovery.

Convened by Jared Bernstein, Senior Fellow at the Center on Budget and Policy Priorities and previously Vice President Biden’s chief economic adviser, CEPR co-director Dean Baker will be one of the featured panelists.  They'll be joined by economists Laurence Ball, Kevin Hassett, and Susan Houseman, and other renowned public policy experts.

Jared and Dean are also co-authors of the timely and relevant book, Getting Back to Full Employment: A Better Bargain for Working People. Recently they gave a book talk, moderated by AFL-CIO President Richard Trumka:

 
Employment Changes by State and Sector Print
Written by Colin Gordon   
Tuesday, 01 April 2014 10:36

This graphic below traces almost twenty years (January 1995 to February 2014) of gains and losses in US manufacturing, finance, and public employment. Job growth (or loss) is indexed, with three choices for a base point: the start of the series (January 1995), the end of the boom of the late 1990s (January 2000), and the onset of the last recession (December 2007). On each graph, the national numbers are represented by the red line and job trajectories in the states (mouse over the graph, or filter the state list, to identify particular states.

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CEPR News March 2014 Print
Written by Dawn Lobell   
Monday, 31 March 2014 00:00

The following newsletter highlights CEPR's latest research, publications, events and much more.

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Raising the Minimum Wage Does not ‘Kill Jobs’ – Preliminary Evidence from 2014 Print
Written by Jeffrey Gianattasio and Nicole Woo   
Friday, 28 March 2014 10:41

At the beginning of 2014, thirteen states increased their minimum wage. Of these thirteen states, four passed legislation raising the minimum wage (Connecticut, New Jersey, New York, and Rhode Island). In the other nine, the minimum wage automatically increased in line with inflation at the beginning of the year (Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont, and Washington State).

Earlier this week, Goldman Sachs conducted a simple evaluation of the impact of these minimum-wage increases on state employment levels. Goldman Sachs compared the employment change between December and January in the 13 states where the minimum wage increased with the employment change in the remainder of the states, where the minimum wage remained constant. They concluded that “January's state-level payrolls data failed to show a negative impact of state-level hikes (in the minimum wage). Relative to recent averages, the group of states that had hikes at the start of 2014 in fact performed better than states without hikes. While this is only one month's data, it suggests that the negative impact of a higher federal minimum wage--if any--would likely be small relative to normal volatility.”

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Discussing 'Capital' in the Nation’s Capital – Piketty to Visit DC in April Print
Written by Jeffrey Gianattasio   
Tuesday, 25 March 2014 15:57

Thomas Piketty’s provocative new book, Capital in the Twenty-First Century, has struck a chord among prominent economists and political scientists in these trying times. Piketty’s sweeping account of economic theory and history highlights the special character of capital accumulation as the driver of economic inequality, and he challenges us to place distributional questions at the center of the economic debate. Positing that broad-based economic growth is largely a relic of the short 20th century, he contends that the returns on capital will continue to outpace the economic gains accessible to the majority of society, ultimately threatening the foundation of our liberal-democratic states.

Piketty will be visiting Washington DC this April to discuss Capital, with stops in New York in Boston to follow. Be sure to attend one of the discussions of what is already shaping up to be a seminal work of political economy. You can find a list of these speaking events at the bottom of this post.

In case you have not gotten your hands on a copy of the book, or are as of yet unconvinced that you should read it, I have included below a sampling of reviews of Capital in the Twenty-First Century.

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Labor Market Policy Research Reports, March 15-21, 2014 Print
Written by Jeffrey Gianattasio   
Friday, 21 March 2014 13:29

The following reports on labor market policy were recently released:

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Employers Report Modest Use of Paid Sick Days Print
Written by Alan Barber   
Wednesday, 19 March 2014 13:56

Maybe you’ve had that early morning moment of anxiety when you wake up with a fever and a cough that won’t stop and you think ‘Should I go to work today?’  If you’re lucky, your employer offers a few paid days off in case of illness and you can roll over to get some much needed rest. Unfortunately, that is not the case for everyone. More than 41 million working Americans, in industries from fast food to health, education and social services, face the dilemma of taking time to recover from an illness or losing a day’s pay.

Currently, only seven cities in the United States and the state of Connecticut have laws mandating some type of paid sick leave. Yes, that is as bad as it sounds. To give a little context,

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Will Paul Ryan Go for the Full Murray By Taking on White Working-Class "Culture"? Print
Written by Shawn Fremstad   
Thursday, 13 March 2014 13:25

In a discussion yesterday with Bill Bennett, Rep. Paul Ryan told him: “your buddy Charles Murray or Bob Putnam at Harvard, those guys have written books on this, which is we have got this tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning to value the culture of work, and so there is a real culture problem here that has to be dealt with.” [italics mine]

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California and Texas: How Many Jobs Were Created on Bill Gates’ Estate? Print
Written by Dean Baker   
Thursday, 13 March 2014 09:54

If it’s not immediately apparent how the rate of job creation on Bill Gates’ estate is relevant to the pace of job growth in California and Texas then you have to think about the issues more carefully. In recent weeks, many proponents of low taxes have been touting the faster pace of job growth in low tax Texas compared with high tax California as proof of the economic superiority of the low tax model.

There is little doubt that Texas has seen faster job growth in recent decades. Since the business cycle peak in 1981 employment has grown by 56.0 percent in California, compared to 77.9 percent in Texas. If our only measure of economic success is job creation, there is no doubt that Texas wins the prize, but it is a bit more complicated.

First there is the issue of oil, which is important but by no means the only factor explaining differences in growth. By using 1981 as a base year, we are comparing a near peak oil price with another period of high prices. But Texas’ growth pattern does look a bit like an OPEC country. If we take the low oil price year of 2000 as the end point, California wins the job growth prize 48.6 percent to 47.1 percent. So clearly the price of oil (and gas) plays a big part in the economic performance of Texas.

However there is another very important factor in the story, building restrictions. In general, California imposes relatively tight restrictions on building, whereas regulations in Texas are considerably more lax. The result is that, relative to the size of its population, much more housing has been built in Texas over the last three decades than in California. And this has meant that housing is considerably cheaper in Texas than in California.

Just to take a couple of examples, according to the Department of Housing and Urban Development, the fair market rent for a two-bedroom apartment in Los Angeles County is $1,398 a month. In Harris County, which includes Houston, it’s just $926 a month. The fair market rent for a two-bedroom apartment in Santa Clara County, which includes San Jose, is $1,649 a month. It was just $894 in Dallas County in 2010, the most recent year available.

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A Budget that Would Make Our Economy #BetterOff Print
Written by Nicole Woo   
Wednesday, 12 March 2014 14:37

This morning, one of the largest caucuses in Congress, the Congressional Progressive Caucus, released the Better Off Budget. The headline numbers are impressive: 8.8 million jobs by 2017, and $4 trillion in deficit reduction over the next 10 years.

Budget experts and journalists have posted good summaries of the dozens of proposals in the Better Off Budget, such as investments in infrastructure and clean energy; the reversal of sequestration and other spending cuts; and funding for the long-term unemployed, rehiring of state employees, and public works and job training programs.

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What Did CBO Really Say about the Minimum Wage? Print
Written by Nicole Woo   
Tuesday, 11 March 2014 15:04

Tomorrow morning (March 12), the Senate Health, Education, Labor & Pensions Committee will hold a hearing titled "From Poverty to Opportunity: How a Fair Minimum Wage Will Help Working Families Succeed." The witnesses will range from the Secretary to Labor, to a renowned economist, to a Catholic nun.

Douglas Elmendorf, director of the Congressional Budget Office, will also be testifying.  He'll likely be presenting the results of a recent CBO study on the effects of a minimum wage increase. That report generated a lot of media attention, mostly for its projection that a raise to $10.10 per hour would "reduce total employment by about 500,000 workers, or 0.3 percent."

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Is It Really Time for the Fed to Worry About Inflation Print
Written by David Rosnick   
Friday, 07 March 2014 15:18

Ylan Mui at The Washington Post’s Wonkblog had a piece Thursday titled “This is why the Fed should start worrying about inflation again.” The main bit of evidence is a graph attributed to Kevin Logan showing a negative relationship between the unemployment rate and increasing rates of inflation. But this graph actually says far less than Mui says. 

Indeed there is a relationship between unemployment and inflation. The Federal Reserve is tasked with balancing inflation and unemployment, and when the Fed fears inflation, it raises interest rates with the intent of slowing the economy and creating unemployment. To some extent, then, the relationship is the Fed’s doing.

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JOBS FLASH: Jobs Picture Mixed in February Print
Written by Dean Baker   
Friday, 07 March 2014 08:47
The Labor Department reported that the economy added 175,000 jobs in February with modest upward revisions to the prior two months' data. This brings the 3-month average to 129,000. While this is considerably weaker than the fall months, weather has undoubtedly played a role in slowing job creation. The mix of jobs in February was somewhat peculiar with the professional and business services category accounting for more than half of the total (79,000 jobs). This was driven in part by an unusual jump in accounting bookkeeping services of 15,700 jobs which partially offset the decline of 30,800 reported in December. Manufacturing employment has slowed to a crawl, adding 6,000 for the second consecutive month, following a 7,000 rise in December.
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Paul Ryan’s Poverty Report Shows Extent of His Disconnect with the Working Class and Real-World Economic Issues Print
Written by Shawn Fremstad   
Tuesday, 04 March 2014 15:32

Reading Paul Ryan’s new report, The War on Poverty: 50 Years Later, I was most struck by how disconnected it is from the real-world economic concerns of today’s diverse working class (a term I use to designate people in roughly the bottom third of income/wealth distribution). Here are just a few of the real issues of concern to working-class people, none of which receive any mention in Ryan’s report:

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CEPR News February 2014 Print
Written by Dawn Lobell   
Friday, 28 February 2014 14:21

The following newsletter highlights CEPR's latest research, publications, events and much more.

Read more...

 

 
Nick Kristof Parachutes Back Into Appalachia and the Results Aren’t Pretty Print
Written by Shawn Fremstad   
Tuesday, 25 February 2014 10:32

In his Sunday column Nicholas Kristof returns to West Virginia and calls for an “integrated set of early interventions”, including family planning, home visitation programs, support for breastfeeding, lead-poisoning prevention, and screenings for hearing and visual impairments, and pre-K. So far so good, these are all worthy social programs that we should be investing much more in as a nation.

But Kristof goes astray when he argues that “American antipoverty efforts over the last half-century haven’t been more effective [because] they mostly treat symptoms, not causes” and, in an accompanying blog post, to say he’s frustrated the current inequality debate is “mostly about the minimum wage and unemployment benefits” which “to [his] thinking are useful but not the most cost-effective measures.”

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Take this Job and... Print
Written by CEPR   
Friday, 21 February 2014 16:03

There’s been a lot of hand wringing in Washington policy circles about the Affordable Care Act. One of the main complaints from the DC elite crowd is that the ACA will slow growth and devastate the economy.

But here at CEPR we deal in facts. And we see the fact that some workers are recognizing their new freedom as a result of being able to buy affordable insurance on the individual market as a good thing. This was one of the points of the Affordable Care Act. People who were once stuck in jobs they hated because they needed the health insurance can now find affordable health care. Older workers in physically demanding jobs can cut back on their hours. People can quit their unsatisfying jobs to realize their dream of starting a small business .

Read more...

 

 
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