The Post has an interesting piece on a St. Louis Federal Reserve Bank study which shows that African American and Hispanics with college degrees have far less wealth than their white counterparts. (Stay tuned for CEPR study showing this story with wages.) The study also shows a large decline in wealth for African Americans and Hispanics with college degrees over the last two decades.
It attributes much of this decline to subprime mortgages pushed by lenders during the bubble years:
“But African American and Hispanics were often steered into high-cost home loans that many could not afford once the housing market crashed. Those who managed to stave off a foreclosure still watched the value of their properties took a nosedive, especially if they lived in minority neighborhoods.”
While a subprime loan made it more difficult for homeowners to keep their homes in the crash, the loss of wealth was due to plunging house prices. Even if an African American or Hispanic family bought a house with a traditional fixed rate 30-year mortgage they still would have seen a huge hit to their wealth when the housing bubble collapsed.
This point is important because the warning signs were everywhere for economists and policy analysts to see. However, they chose to ignore them and encouraged minorities to buy homes at bubble-inflated prices where they were virtually guaranteed to see large losses. Unfortunately, most of the people who were involved in setting housing policy during the bubble years are still in the same business today. Most do not appear to have learned much from the experience.
The Post has an interesting piece on a St. Louis Federal Reserve Bank study which shows that African American and Hispanics with college degrees have far less wealth than their white counterparts. (Stay tuned for CEPR study showing this story with wages.) The study also shows a large decline in wealth for African Americans and Hispanics with college degrees over the last two decades.
It attributes much of this decline to subprime mortgages pushed by lenders during the bubble years:
“But African American and Hispanics were often steered into high-cost home loans that many could not afford once the housing market crashed. Those who managed to stave off a foreclosure still watched the value of their properties took a nosedive, especially if they lived in minority neighborhoods.”
While a subprime loan made it more difficult for homeowners to keep their homes in the crash, the loss of wealth was due to plunging house prices. Even if an African American or Hispanic family bought a house with a traditional fixed rate 30-year mortgage they still would have seen a huge hit to their wealth when the housing bubble collapsed.
This point is important because the warning signs were everywhere for economists and policy analysts to see. However, they chose to ignore them and encouraged minorities to buy homes at bubble-inflated prices where they were virtually guaranteed to see large losses. Unfortunately, most of the people who were involved in setting housing policy during the bubble years are still in the same business today. Most do not appear to have learned much from the experience.
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In an interesting piece on the decline of the political center, E.J. Dionne wrongly lists globalization as a villain. He tells readers:
“Globalization weakens the ability of moderate governments of both varieties to deliver on their promises. Capital can flee easily to more congenial climes, undercutting a nation’s tax base and its regulatory efforts.”
Globalization should also have the effect of reducing inequality by making it easier to take advantage of lower cost professional services (e.g. physicians services, lawyers’ services, dentists’ services) except that the United States has acted to maintain or even increase barriers to trade in these areas. It should also make it easier to circumvent patent and copyright monopolies that redistribute income upward, except we have consciously pursued policies to strengthen these forms of monopolies to limit the extent to which developing countries might provide vehicles for avoidance (in contrast to tax policy).
Also, governments with their own currency (e.g. the United States, the U.K., and the euro zone collectively) need not be restricted by their tax take in terms of spending, as long as they are below full employment. The decision not to use fiscal policy to bring economies to full employment is due to superstitions, not actual limits imposed by globalization.
In an interesting piece on the decline of the political center, E.J. Dionne wrongly lists globalization as a villain. He tells readers:
“Globalization weakens the ability of moderate governments of both varieties to deliver on their promises. Capital can flee easily to more congenial climes, undercutting a nation’s tax base and its regulatory efforts.”
Globalization should also have the effect of reducing inequality by making it easier to take advantage of lower cost professional services (e.g. physicians services, lawyers’ services, dentists’ services) except that the United States has acted to maintain or even increase barriers to trade in these areas. It should also make it easier to circumvent patent and copyright monopolies that redistribute income upward, except we have consciously pursued policies to strengthen these forms of monopolies to limit the extent to which developing countries might provide vehicles for avoidance (in contrast to tax policy).
Also, governments with their own currency (e.g. the United States, the U.K., and the euro zone collectively) need not be restricted by their tax take in terms of spending, as long as they are below full employment. The decision not to use fiscal policy to bring economies to full employment is due to superstitions, not actual limits imposed by globalization.
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Paul Krugman had a nice blogpost outlining some of the key issues in the literature on optimal currency unions. The question is what happens in a currency union like the euro zone, which is not optimal for many reasons, if there is free mobility of labor.
Krugman points to the experience of Portugal and argues that mobility of labor actually makes the situation worse, not better. The story is that much of Portugal’s prime age labor force is emigrating to other countries in the European Union, leaving behind a population of retirees, without a working age population to pay their benefits. This is similar to the story with Puerto Rico, although as Krugman points out, due to the fiscal union with the rest of the United States, retirees in Puerto Rico can still count on their Social Security and Medicare, as well as other payments that flow from Washington.
It is worth taking another step with this one to think about Detroit. There we have a situation where the the downturn in the auto industry is a big hit to the city and the region. However, white workers were able to escape many of the bad effects by stepping over the city lines and move to the suburbs. Due to discrimination in housing and lending, African Americans find the move to the suburbs much more difficult, therefore leaving many of them stuck dealing with the effects of the loss of much of the city’s employment base.
This picture is clearly somewhat exaggerated. People can move to other cities and many African Americans have moved to Detroit’s suburbs, but the reality of discrimination, certainly in the very recent past and which undoubtedly continues to some extent into the present, has made it considerably more difficult for African Americans in Detroit to escape the fallout from the collapse of the auto industry than for its white population.
Paul Krugman had a nice blogpost outlining some of the key issues in the literature on optimal currency unions. The question is what happens in a currency union like the euro zone, which is not optimal for many reasons, if there is free mobility of labor.
Krugman points to the experience of Portugal and argues that mobility of labor actually makes the situation worse, not better. The story is that much of Portugal’s prime age labor force is emigrating to other countries in the European Union, leaving behind a population of retirees, without a working age population to pay their benefits. This is similar to the story with Puerto Rico, although as Krugman points out, due to the fiscal union with the rest of the United States, retirees in Puerto Rico can still count on their Social Security and Medicare, as well as other payments that flow from Washington.
It is worth taking another step with this one to think about Detroit. There we have a situation where the the downturn in the auto industry is a big hit to the city and the region. However, white workers were able to escape many of the bad effects by stepping over the city lines and move to the suburbs. Due to discrimination in housing and lending, African Americans find the move to the suburbs much more difficult, therefore leaving many of them stuck dealing with the effects of the loss of much of the city’s employment base.
This picture is clearly somewhat exaggerated. People can move to other cities and many African Americans have moved to Detroit’s suburbs, but the reality of discrimination, certainly in the very recent past and which undoubtedly continues to some extent into the present, has made it considerably more difficult for African Americans in Detroit to escape the fallout from the collapse of the auto industry than for its white population.
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The NYT ran an article on the goal for greenhouse gas emission reduction set by the Australian government. The article noted criticism of the goal as being inadequate. In particular, it refers to criticism from the Marshall Islands’ government that this sort of action will not be sufficient to keep the islands from being destroyed by rising sea levels.
While it would be a tragedy if the Marshall Islands were destroyed and its 53,000 people had to be relocated, this would be a relatively minor consequence of the failure to address global warming. By comparison, Bangladesh has a population of almost 160 million, most of whom live in relatively low-lying areas that are subject to frequent flooding. With rising oceans, these floods would be much more severe.
No one has a plausible plan to locate the hundreds of millions of people in Bangladesh and other low-income countries whose lives will be put at risk from rising oceans. Similarly, hundreds of millions of people live in areas of Sub-Saharan Africa that will be faced with severe drought if world temperatures continue to rise.
If the point was to call attention to the consequences of the failure to address global warming, these situations probably deserve more attention than the fate of the Marshall Islands.
The NYT ran an article on the goal for greenhouse gas emission reduction set by the Australian government. The article noted criticism of the goal as being inadequate. In particular, it refers to criticism from the Marshall Islands’ government that this sort of action will not be sufficient to keep the islands from being destroyed by rising sea levels.
While it would be a tragedy if the Marshall Islands were destroyed and its 53,000 people had to be relocated, this would be a relatively minor consequence of the failure to address global warming. By comparison, Bangladesh has a population of almost 160 million, most of whom live in relatively low-lying areas that are subject to frequent flooding. With rising oceans, these floods would be much more severe.
No one has a plausible plan to locate the hundreds of millions of people in Bangladesh and other low-income countries whose lives will be put at risk from rising oceans. Similarly, hundreds of millions of people live in areas of Sub-Saharan Africa that will be faced with severe drought if world temperatures continue to rise.
If the point was to call attention to the consequences of the failure to address global warming, these situations probably deserve more attention than the fate of the Marshall Islands.
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Several of the articles discussing the decision of China’s central bank to lower the value of the yuan have referred to the assessment of the I.M.F. that the Chinese currency now reflects its market value. Many have pointed out that China’s central bank has stopped buying large amounts of foreign exchange to keep the yuan from rising, implying that the current value now reflects the market rate.
The problem with this story is that China’s central bank is still sitting on more than $4 trillion in foreign exchange reserves. If we apply the rule of thumb that it should keep around 6 months worth of imports on hand as a buffer, this implies $3 trillion of excess reserves. This large holding of excess reserves, helps keep up the price of the dollar and other reserve currencies relative to the yuan.
This is the same situation as the Fed is in with its holding of $3 trillion in assets as a result of its quantitative easing programs. There are few people who would argue that the Fed’s holding of these assets doesn’t have the effect of keeping interest rates down. It would be very difficult to come up with a story whereby the Fed’s holding of assets keeps interest rates down, but China’s central bank’s holdings of foreign exchange doesn’t keep the value of the yuan down.
Several of the articles discussing the decision of China’s central bank to lower the value of the yuan have referred to the assessment of the I.M.F. that the Chinese currency now reflects its market value. Many have pointed out that China’s central bank has stopped buying large amounts of foreign exchange to keep the yuan from rising, implying that the current value now reflects the market rate.
The problem with this story is that China’s central bank is still sitting on more than $4 trillion in foreign exchange reserves. If we apply the rule of thumb that it should keep around 6 months worth of imports on hand as a buffer, this implies $3 trillion of excess reserves. This large holding of excess reserves, helps keep up the price of the dollar and other reserve currencies relative to the yuan.
This is the same situation as the Fed is in with its holding of $3 trillion in assets as a result of its quantitative easing programs. There are few people who would argue that the Fed’s holding of these assets doesn’t have the effect of keeping interest rates down. It would be very difficult to come up with a story whereby the Fed’s holding of assets keeps interest rates down, but China’s central bank’s holdings of foreign exchange doesn’t keep the value of the yuan down.
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