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Nicaragua: Improvements in Social and Economic Well-Being and the Nov. 6 Elections Print
Written by Daniel McCurdy   
Monday, 14 November 2011 10:45

Last Sunday, Nicaraguan President Daniel Ortega was re-elected by a large margin. His party, the Sandinista National Liberation Front (FSLN), won an unprecedented majority in the National Assembly.  The major media, which are generally hostile to Ortega (and to most of the left governments in Latin America), mostly missed the main economic changes that might explain this result.  These include a significant reduction in poverty and inequality and a considerable increase in access to health care and education.

Given that the world economic downturn occurred right as Ortega’s government social and economic programs were taking effect, it is surprising that poverty decreased at the rate that it did during this period. The latest household survey, published in 2009 by the Nicaraguan National Institute of Information and Development (INIDE), showed that while poverty decreased by only 9 percent between 1993 and 2002 (an average annual improvement of 1% per year), this rate of improvement tripled after 2005, decreasing by 12 percent in the four-year period between 2005 and 2009 (an average annual improvement of about 3% per year).


There was an even more pronounced change in the levels of extreme poverty, which had declined at a slow pace between 1993 and 2002 and had risen alarmingly between 2002 and 2005. In the four years after 2005, extreme poverty witnessed an average annual decline of 4.0 percent, compared with a 4.4 average annual rate increase between 2002 and 2005.



Quick Thoughts on the Obama Administration's Opposition to a Financial Speculation Tax Print
Written by Dean Baker   
Thursday, 10 November 2011 07:01

The Obama administration has staked out grounds in opposition to the financial speculation tax is being considered by the European Union and was recently proposed in Congress by Senator Tom Harkin and Representative Peter Defazio. There are three main arguments that have been given:

  1. It is not enforceable;
  2. That it will be passed on to ordinary investors; and
  3. That is will raise the cost of capital, thereby reducing output and employment.

Each of these can be quickly dismissed.

On the first point, financial transactions taxes actually exist in the world and raise considerable revenue. The U.K. has a 0.5 percent tax on stock trades and raised between 0.2-0.3 percent of GDP annually ($30 billion to $40 billion a year in the United States). There will be some flight to tax havens, but the extent of this flight will largely depend on the willingness of the United States government to counter it. There have been many questions raised by the competency of the Obama administration, but surely it could limit this route to evasion, if it chose. People are not running guns for Al Queda from the Cayman Islands.

As far as the second point, since most investors trade infrequently, the amount of the tax would be trivial -- considerably less than borkerage commissions and other fees charged by the financial institutions that manage 401(k)s and similar accounts. Furthermore, the response to a tax would be a decline in trading. Most research indicates that the decline in trading volume should roughly offset the increase in the cost per trade due to the tax. This means that for the typical investor they will be spending no more on their trades after the tax than before.

Finally the claims, based on dubious models, that the tax will lead to a substantial decline in GDP and jobs are just silly. The implication is that financial transactions costs have a large impact on productivity. The model implied that the 0.1 percent increase in the transactions costs for stock trades from the tax being considered by the EU would lead to a 1.76 percent decline in output.

Since transactions costs have fallen by around 5 times this amount over the last 30 years, this would mean that declining transactions account for about 8 percentage points of the increase in productivity growth over this period. This would be around 15 percent of the productivity growth over this period. If this was true then it is remarkable that none of the standard growth models includes financial transactions costs as an important contributing cost.

If this is true, then the U.S. should anticipate slower productivity growth in the years ahead, since there is little room for transactions costs to decline further, now that they getting close to zero. This claim would also mean that the U.K. could quickly see a a jump in its GDP of close to 9 percent if it got rid of its tax. (There was no notable jump when it reduced the tax from 1.0 to 0.5 back in 1986.)

In short, it highly unlikely that anyone really believes this claim about the impact of a financial speculation tax on growth and jobs. But hey, it's a good thing to say if you want to protect Wall Street.

What Political Compromises Could Create Jobs? Print
Written by Dean Baker   
Wednesday, 09 November 2011 10:00

The political deadlock between President Obama and Congress makes it almost impossible for any further job creation bills to be approved before the next election. If Congress were willing, the best solution would be a large stimulus program. Since Congress is not willing, here are some policies that President Obama could pursue on his own to reduce unemployment.

1. Work sharing

This one should be a simple and non-partisan issue. As it stands now, workers who lose their job can get up to 99 weeks of unemployment benefits. These benefits are typically about half of their wages. However if they have their hours reduced, then they get nothing. This effectively makes it better for many workers to get laid off than to have their hours reduced.

Work sharing allows workers to use their unemployment insurance to partially offset a reduction in hours. For example, a worker who has his hours reduced by 20 percent would have 10 percent of his total wages made up by unemployment benefits.

There are already 23 states that have work-sharing programs. But many employers and workers don't know the programs exist, and the take up rate is low. President Obama could try to increase the take up rate by both promoting the program and encouraging the Labor Department to be flexible in enforcing the rules for Unemployment Insurance program, so that states can have the ability to be more flexible in their administration of the program. If just 5 percent of layoffs/dismissals can be prevented through work sharing, this would translate into 1.1 million additional jobs by the end of a year.



Occupy the House Education and Workforce Committee Print
Written by Kris Warner   
Tuesday, 08 November 2011 09:45
"They have continuously sought to strip employees of the right to negotiate for better pay and safer working conditions."

That is one of the statements from the Declaration of the Occupation of New York City. Recent events have only proven it to be true.

The National Labor Relations Board (NLRB) is the government agency tasked with enforcing the provisions of the National Labor Relations Act, under which private-sector employees have the right to join together as a labor union. One of the major activities of the NLRB is to conduct union representation elections, in which workers vote on whether or not to form a union at their workplace. In June of this year, the NLRB proposed rules to reform procedures concerning these elections, so as to "reduce unnecessary litigation, streamline pre- and post-election procedures, and facilitate the use of electronic communications and document filing."

CEPR Co-Director Dean Baker testified at a public hearing about these proposed changes, along with about 60 other speakers. In his testimony, Dean highlighted the research of CEPR Senior Economist John Schmitt and Senior Research Associate Ben Zipperer, in which they found "that in the 2000s workers were illegally fired in over 1-in-4 (26 percent) of union election campaigns, up sharply from about 16 percent in the late 1990s." 

It is likely that fewer workers would be illegally fired for supporting efforts to organize their workplaces if these proposed rules were implemented and union elections happened more quickly than they do now. However, congressional Republicans, who have already kicked their attacks against the NLRB into high gear, have now also drafted legislation that would prevent these needed reforms from being made and would, in many cases, increase the amount of time from the filing of an election petition to the actual election.

It is times like these that I'm glad CEPR has a collection of accurate, independent research about the benefits of unions to workers. This year we've also begun to alert our blog readers to the latest research on labor market policy from other organizations. And, of course, we will continue to conduct research about unions and more general issues affecting workers, like our new paper about trends in unionization rates in 21 wealthy countries from 1960 to the present, by Domestic Intern Alexandra Mitukiewicz and Senior Economist John Schmitt. It will be released in the next few days - so keep an eye out.
Labor Market Policy Research Reports, Oct. 31 – Nov. 4, 2011 Print
Written by Alexandra Mitukiewicz   
Friday, 04 November 2011 15:15

Two new reports were released this week, by CEPR and NELP.

Center for Economic and Policy Research

Maintaining and Improving Social Security for Poorly Compensated Workers
Shawn Fremstad

National Employment Law Project

Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries
Sarah Leberstein

New Jobs Report Continues Pattern of Weak Growth Print
Written by Dean Baker   
Friday, 04 November 2011 14:30

The economy generated just 80,000 jobs in October, according to the latest Bureau of Labor Statistics' employment report. The latest jobs numbers continue a pattern of weak job growth. While upward revisions for the prior two months brought the three-month average to 114,000 jobs, this is only slightly higher than the 90,000 necessary to keep pace with the growth of the labor force. With this pace, it would take more than 33 years to return to pre-recession employment rates. And there is zero evidence in the latest jobs report of anything to suggest a boost to the labor market is on the horizon.

The data in the household survey was slightly more encouraging. While the unemployment rate edged down to 9.0 percent, the employment-to-population ratio (EPOP) increased by 0.1 percentage points to 58.4 percent. This is up from a low of 58.1 percent in July. This is a turn in the right direction; although this figure is still just bringing the EPOP back to its May level. It is still 5.0 percentage points below the pre-recession peaks hit in 2006.

For more, check out the latest Jobs Byte.

NYT Misleads on Poverty Trends Print
Written by Shawn Fremstad   
Friday, 04 November 2011 09:45

In a post yesterday, I wrote that the new poverty measure proposed by the Obama Administration—known as the Supplemental Poverty Measure (SPM)—likely increases the poverty rate by a modest amount compared with the official rate (less than 1 percent), while producing lower poverty rates in most (34) states. A story in today's New York Times by Jason DeParle and Sabrina Tavernise goes considerably further, saying that the "bleak portrait of poverty" painted by official poverty statistics "missed the mark" with the implication being that poverty is "less bleak" than official statistics suggest.

Oddly missing from the article is any clear mention of the fact that the Supplemental Poverty Measure actually paints a modestly "bleaker" portrait of poverty in 2009, a fact confirmed by Census officials in a media webinar this morning. In fact, as the table below shows, some 2.4 million more people lived in poverty in 2009 than under the official measure.

People in Poverty in 2009: Official vs. Obama SPM
  Number Percent
Official Poverty 44,029,000 14.50%
Obama Supplemental Poverty Measure 46,471,000 15.30%
Difference (Obama minus Official) 2,442,000 0.8
Source: Table 1 in Short, Census (2011)


#OWS: Freeze or Fade? Print
Written by Alexandra Mitukiewicz   
Thursday, 03 November 2011 13:00

The unexpected Halloween storms were the first but certainly won't be the last winter storms to create uncomfortable conditions for the #OWS protesters. Will the cold weather freeze out the movement? Mother Nature may be unpredictable but the movement is looking towards the long-term. On occupywallst.org the protestors are asking for winter donations, bundling up to survive future Nor’easters. To date, #OWS has collected almost half a million dollars in donations, allocating money carefully and democratically. Working groups approved by the #OWS general assembly are allowed to spend $100 a day for expenses such as materials to clean up Zuccotti Park, tents, and medical care. In the name of full transparency and disclosure, #OWS has posted their financial report, complete with the step-by-step process of allocating money, info on the #OWS bank account, and a balance sheet and income statement. The allocation process is monitored by the finance committee, made up of bookkeepers and entrepreneurs, and advised by CPAs. Within a matter of weeks, Zuccotti Park has turned into a democratic micro-economy.

While the movement is preparing to survive the winter season, the mainstream media has lost some interest. As seen in the graph below from a recent PEJ news coverage index report, last week’s coverage of #OWS is about half what it was back in mid-October (down to about 5% of weekly “newshole” coverage, compared to 10% just a few weeks ago). This week’s coverage is up slightly from last week’s, due to the controversial eviction of Occupy Oakland, during which an Iraq war veteran was wounded.



New Obama Poverty Measure Lowers Poverty Rates in Most States and Among Children Print
Written by Shawn Fremstad   
Thursday, 03 November 2011 11:00

On Friday, November 4, the Census Bureau is holding a webinar on the Obama Administration's proposed "supplemental" poverty measure. The webinar is in advance of the release of new research on the measure on Monday.

Media stories about the Obama measure have generally focused on the likelihood that it would produce a national poverty rate in recent years that is modestly higher than the outdated official poverty rate. Conservatives like Robert Rector and Robert Samuelson have seized on this to claim that the measure is part of a liberal plot "to promote income redistribution."

Alas, no. In fact, Obama's new poverty measure, like so many of the Administration's proposals, gives up too much to conservatives — without actually getting their support in return — and does too little to advance progressive priorities. For reasons I have detailed in a 2010 report and at a Brookings forum, it is at best a centrist compromise proposal that leans right, not a progressive initiative. While the Obama poverty measure is based on recommendations made by the National Academy of Sciences in 1995, those recommendations left a lot of wiggle room for policymakers, including on fundamental issues such as where to actually set the poverty threshold. However, on these issues, the Administration has consistently adopted a conservative reading of the NAS recommendations.



CEPR News October 2011 Print
Written by Dawn Lobell   
Monday, 31 October 2011 14:15

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

CEPR on the Financial Transaction Tax
CEPR Co-director Dean Baker was one of the first to call for the adoption of a Financial Transaction Tax, or FTT (also referred to as the financial speculation tax or FST). CEPR continued to arm allies in the fight for the FTT in October, updating its paper titled "The Facts and Myths About a Financial Speculation Tax." On Friday October 21st, CEPR co-sponsored a congressional briefing on the FTT with Senator Tom Harkin and Representative Peter DeFazio, who will soon introduce new FTT legislation. CEPR Co-director Dean Baker was part of a panel that includes John Fullerton, Former Managing Director, J.P. Morgan Co.; and Damon Silvers, Director of Policy and Special Counsel, AFL-CIO. Americans for Financial Reform, AFL-CIO and The Center for Media and Democracy were also co-sponsors.

Dean was quoted in this Christian Science Monitor article on the FTT. And he was mentioned at a press conference in the Vatican City. Professor Leonardo Becchetti (Second University of Rome and member of the Scientific Committee of Zero Zero Cinque) presented the Pontifical Council for Justice and Peace note "For a reform of the international financial system in the perspective of a public authority with a universal jurisdiction." Professor Becchetti referred to Dean’s blog post "Ken Rogoff Misses the Boat on Financial Speculation Taxes."

Dean will take part in a teach-in on the FTT at #OccupyDC this Saturday, October 29th at 2PM. The teach-in is part of a global march for the "Robin Hood Tax." CEPR Co-director Mark Weisbrot is scheduled to participate in a teach-in on Sunday, October 30th at 12:30PM. More information can be found here.



Labor Market Policy Research Reports, Oct. 17 – 28, 2011 Print
Written by Alexandra Mitukiewicz   
Friday, 28 October 2011 14:45

Five new labor market research reports were released this week and last week – one report discusses paid sick days while the rest focus on unemployment in the U.S.

Center for American Progress

Creating Unemployment: How Congressional Budget Decisions Are Putting Americans out of Work and Increasing the Risk of a Second Recession
Scott Lilly


State of Young America
Joint Publication by Demos and Young Invincibles        

Employment Policy Research Network

Unemployment Insurance and Job Search in the Great Recession
Jesse Rothstein

Institute for Women’s Policy Research

Denver Paid Sick Days Would Promote Children’s School Success
Sarah Towne, Rhiana Gunn-Wright, Kevin Miller, Ph.D., and Barbara Gault, Ph.D.

National Employment Law Project

What Is Causing Record-High Teen Unemployment? Range of Economic Factors Drives High Teen Unemployment, But Minimum Wage Not One of Them
Anne Thompson

#OWS: Who Supports the Movement? Print
Written by Alexandra Mitukiewicz   
Friday, 28 October 2011 12:45

Last week, a report was released examining the support for the #OWS movement. The report, “Mainstream Support for a Mainstream Movement” by Héctor R. Cordero-Guzmán Ph.D, analyzes data gathered from an anonymous survey posted October 5th on occupywallst.org, concluding that those involved in the #OWS movement are representative of the 99 percent. To see how Cordero-Guzmán’s 99 percent compares with the U.S. 100 percent, I decided to compare the results with nationally representative data from the American Community Survey (ACS) and Current Population Survey (CPS).

The survey is not perfect. The results are conditional on visiting occupywallst.org on October 5th – of the 350,346 visits to the website on the 5th, only 1,619 individuals completed the survey. However, despite this non-random design, Cordero-Guzmán is providing us with data that has been in short supply since the start of #OWS movement. There has been a lot of discussion on who is actually participating and supporting the protests, and thanks to this survey we have a first look at the make-up of the #OWS 99 percent.

According to the survey, there is great support for the movement, with little outright disapproval of #OWS (see the figure with responses to Question 3, below). By October 5th, early in the protest, a quarter of respondents had participated in the protests (see the figure for Question 4). Since then there has been growth in the movement, with demonstrations springing up in both U.S. and international cities, and greater participation.



Strong Investment Gives GDP a Boost, But Growth Remains Weak Print
Written by Dean Baker   
Thursday, 27 October 2011 15:30

Strong investment, particularly in non-residential structures and equipment and software, boosted GDP growth in the third quarter, according to the latest Bureau of Economic Analysis' report on the Gross Domestic Product. Non-residential investment grew at a 16.3 percent annual rate, accounting for 1.54 percentage points of the 2.5 percent GDP growth in the quarter. Non-residential structures saw a 13.3 percent growth rate, while equipment and software investment rose at a 17.4 percent annual rate. Consumption growth was weak at 2.4 percent, but considerably better than the 0.7 percent rate reported for the second quarter. Growth for the quarter was depressed by a sharp decline in inventories. Final demand grew at a somewhat more respectable 3.6 percent rate.

The economy is settling into a pattern of sustained weak growth, which is grossly inadequate. Investment growth is likely to remain relatively healthy as equipment and software investment stays strong, while structure investment becomes at least a small positive in the growth data. Housing has bottomed and will likely be a small positive going forward. Consumption growth is likely to be in a 2-3 percent range. Consumers still have not fully adjusted to their loss of housing wealth (at 4.1 percent, the saving rate in the quarter was well below the 8 percent pre-bubble average), so consumption is likely to trail income growth. Given a backdrop of 9 percent unemployment, this growth rate is very disappointing. Unfortunately because many analysts have raised fears of a double-dip recession, some may view this growth rate as being good.

For more, read the latest GDP Byte.

The Military Spending Fairy Print
Written by Dean Baker   
Wednesday, 26 October 2011 04:05

Faced with the prospect of cuts to the Defense Department's budget, the defense industry is pushing the story of the military spending fairy on members of Congress. They are telling them that these cuts will lead to the loss of more than 1 million jobs over the next decade.

Believers in the military spending fairy say things like "the government can't create jobs," but also think that military spending creates jobs. Under the military spending fairy story, if the government spends $1 billion dollars paying people to do research or to build items related to the civilian economy it is just a drag on the private economy; however if the same spending goes to military related purposes, then it creates jobs.

It's not clear exactly how the military fairy blesses projects to make them helpful to the economy rather than harmful. For example, the highways were built in the 50s ostensibly in part for defense purposes. They made it easier to move troops and military equipment around the country in the event of an attack. Government subsidized student loans were also originally dubbed as defense loans since they were ostensibly intended in part to produce more graduates in science and engineering who could help us compete with the Soviet Union in defense related technologies. 



House Prices Unchanged in August, While Tax Credit Leaves Some Underwater Print
Written by Dean Baker   
Tuesday, 25 October 2011 12:30

The Case-Shiller 20-City index in August rose by just 0.2 percent from its July level, with prices rising in 10 of the cities and declining in the other 10. Most of the changes in prices were modest. Washington, D.C., saw the largest gain, at 1.6 percent, while Atlanta saw the largest drop, at 2.4 percent. Cities in the Midwest — such as Cleveland, Chicago, Minneapolis and Detroit — have shown strong price growth over the last few months. Prices in Cleveland rose at a 10.4 percent annual rate between May and August. Prices in Chicago and Minneapolis rose at a 29.1 percent and 29.3 percent rate, respectively, and prices in Detroit rose at a 55.9 percent rate over this period.

Much of the movement continues to be focused on the bottom end of the market, which in most cities is again doing worse than more highly priced homes. Most of the story with bottom-tier homes over the last two and half years can be explained by the first-time buyers tax credit. Predictably, the credit had the largest effect on the bottom tier of the market both because this is where first-time buyers are concentrated and also because the credit would be a large share of the house price. A good example is Minneapolis, where prices of bottom-tier homes rose by 30.6 percent from a pre-tax-credit level to a tax credit peak in 2010. Since then, prices in the bottom end of the market have fallen by 26.4 percent. This means that anyone who took advantage of the credit to buy a bottom-tier house in the summer of 2010 is almost certainly underwater and has lost considerably more equity in their home than they received from the credit.

For more, check out the latest Housing Market Monitor.

One Poverty Roll Please, Hold the Mayo! Print
Written by Shawn Fremstad   
Tuesday, 25 October 2011 11:15

Today's New York Times has a story on the disproportionate increase in income poverty among people living in the suburbs. Over the last 10 years, the number of people with incomes below the austere U.S. poverty line ($22,350 for a family of four) has increased by 53 percent in the suburbs, compared with a 26 percent increase in cities.

While the story was good, I was struck by a puzzling reference to "the poverty roll", which the story says has increased by 5 million in the suburbs. Searching for "poverty roll(s)" in NYT stories since 1851, I found about a dozen more stories and references that use the term, just about all of them from the 1990s and 2000s. This strange use of "roll" seems to be limited to poverty; there are no NYT stories referencing the growth in the "billionaire rolls" or the "Latino rolls" or noting the decline in the "middle-class rolls." 

What is a "poverty roll" exactly? The NYT uses it to mean "people with incomes below the poverty line." But this is very different from the actual definition of "roll" that seems most relevant here: "an official list or register of names." Thankfully, the United States doesn't keep any such list or register of the names of people living below the poverty line. A kind of poverty roll, known as a "Parochial List" — a list of "paupers" receiving relief from their local parish and of workhouse inmates — was kept under the English poor laws in the 18th and 19th century, so perhaps the NYT wants to evoke those happy times of progress for the working class.

So, the NYT is abusing the English langauge. Should we care? In this case, I think we should. One of the important progressive achievements of the 20th century was the "depauperization of poverty." This effort, as historian Alice O'Connor explains in Poverty Knowledge (p. 18): "recast public understanding of poverty by emphasizing its roots in unemployment, low wages, labor exploitation, political disenfranchisement, and more generally in the social disruptions association with large-scale urbanization and industrial capitalism." Modern statistical approaches to measuring poverty — which do away with the sorts of moral categorization that prevailed in earlier times — are a product of this movement. 

Terms like "poverty rolls" effectively repauperize poverty in a way that isn't helpful to progressive efforts to reduce it.  When people read a reference like "on the poverty roll," what most of them actually hear is something like "on the dole." Referring to the one-in-seven Americans who have extremely low incomes as being on some sort of imaginary "roll" dehumanizes them, and implies that they are a kind of passive and inert mass.  The Times would never use the term for other groups, they shouldn't use it to describe people with low incomes.

#OccupyThePress: Where is #OWS Headed? Print
Written by Alexandra Mitukiewicz   
Thursday, 20 October 2011 10:00

With all the recent attention and coverage of the Occupy Wall Street (#OWS) protest, there is great interest in what exactly is being protested and the movement’s future plans. Here is a roundup of recent articles and blog posts discussing the issues and agenda of #OWS.

#OWS issues:

Mike Konczal uses posts from the #OWS-related “We are the 99%” Tumblr to gather data and identify the common concerns of blog’s posters. His quantitative approach presents the concerns in a simple manner with informative, easy-to-follow charts.

While Henry Blodget does not touch upon all the popular #OWS issues, he does paint a great story through charts about unemployment, corporate profits, income inequality and the financial sector.

Mary Pilon highlights another major #OWS issue, student-loan debt, in the WSJ blog Real Time Economics.

Catherine Rampell’s NYT Economix blog post uses annual income statistics for the top 1%, providing more information about who makes up the 99% and 1% in the United States.



Ending Loser Liberalism and Restructuring the Market Economy Print
Written by Dean Baker   
Wednesday, 19 October 2011 15:00

The growing nationwide response to the Occupy Wall Street movement displays a widespread discontent with the direction the country is taking. The economy is experiencing the worst downturn since the Great Depression, after a decade of bubble-driven growth. The banks who were the main culprits in driving the bubble are largely back on their feet, with top executives again enjoying the same sort of pay and bonuses as they had before the crash. Meanwhile the bulk of the working population continues to suffer the fallout from the crash in the form of unemployment, underemployment, and underwater mortgages. It’s not surprising that people are unhappy with this situation.

What is most important to understand is that this outcome is not just an accident of the market. The banks - who took great risk in extending the credit that fueled the bubble - are back on their feet because of extensive support from the government. This includes not only the $700 billion that Congress appropriated through the TARP, but the trillions more that were lent by the Fed through its special facilities at the peak of the crisis. In addition, an even larger amount of guarantees provided by both the Fed and the FDIC ensured that the banks could survive the crisis that they had helped to bring on.

The extensive government intervention that has allowed the financial industry to survive largely intact is not an exception. In other areas of the economy the interventions may be less transparent, but it is easy to identify ways in which the government has structured the market to redistribute income upward.



Research for the 99% Print
Tuesday, 18 October 2011 09:30

The #occupywallstreet protests in New York City - and those around the country - have sparked a much-needed dialogue about inequality in the United States. The level of inequality in our economy has been growing for decades, and has reached a level not seen since prior to the Great Depression:

Share of Total Income, Top 1% of U.S. Income Earners

In a research paper from 2009, CEPR Senior Economist John Schmitt took a careful look at this sorry state of affairs and concluded that it "is not due to chance circumstances but is the direct result of a set of policies designed first and foremost to increase inequality." CEPR Co-Director Dean Baker's most recent book, The End of Loser Liberalism: Making Markets Progressive, examined the role of the government in "structuring the market in ways that ensure that income will flow upwards" and argues that progressives need to focus on preventing this, rather than acting after the fact on ways to re-redistribute income.

Going hand in hand with inequality is poverty, and CEPR Senior Research Associate Shawn Fremstad has written extensively on both of these subjects. In his most recent CEPR paper, he talked about how to frame the discussion on poverty. Previously, he examined how poverty is measured in the U.S. and concluded that the current poverty measure "is outdated and has failed to keep up with public consensus on the minimum amount of income needed to 'get along' in the United States in the 21st Century." He also looked at competing measures and presented one that was inclusive and more aligned with current views on poverty. 

In related work, CEPR recently co-sponsored an event on "Jobs, Inequality, and the Public Sector: Improving the Economic Competitiveness and Innovative Capacity of the U.S.", Schmitt summarized two reports on economic insecurity by the Institute for Women's Policy Research, and Fremstad reminded National Review Editor Rich Lowry of what "a more substantive conservative intellectual" had to say on the topic of the social contract and taxes.

For more of our work on inequality and poverty, please go here.

Clearing the Air on "Too Big To Fail" Print
Monday, 17 October 2011 16:23

With Occupy Wall Street continuing to build steam, Cato's Mark Calabria chose to engage in a little friendly fire. I like to believe that libertarians and progressives could come together to rewrite the rules of a rigged system, but Calabria seems interested in thickening the fog of war rather than clearing the air.

Cato's Mark Calabria leveled a strange charge at Joseph Stiglitz, suggesting that in 2002 Stiglitz and his coauthors (Jonathan and Peter Orszag) "sold their work to the highest bidder defending the system" of socialized losses and privatized gains. The paper analyzed the taxpayer risk of guaranteeing the debt of Government-Sponsored Enterprises (GSEs—primarily Fannie Mae and Freddie Mac) and found that under one of the two capital standards, the expected costs to taxpayers would be very low.

Of course, in 2011 this appears laughably naïve, given the many billions of dollars of support to Fannie and Freddie in the wake of the housing bust. However, Calabria's charge is utterly bizarre for several reasons. First, Stiglitz, Orszag, and Orszag specifically address the importance of "too big to fail" in taxpayer risk. Second, Calabria ignores the fact that risks grew considerably since the publication of the paper. Third, Calabria abuses some math in order to make it appear that the authors downplayed the potential costs.

Far from avoiding the question of "socialized losses and privatized gains," Stiglitz, Orszag, and Orszag rightly point out that the risk to taxpayers is far from limited to GSEs. They write,

"In the absence of Fannie Mae and Freddie Mac, mortgage risk would likely be held by large banks and other types of financial institutions, which themselves benefit from the perception that they are 'too big to fail.' Fannie Mae and Freddie Mac are among the largest financial institutions in the country. Even in the absence of a GSE charter it is likely that they would continue to benefit from their size, since the government has intervened on behalf of other large institutions in the past."


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