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Article Artículo

It's Monday and Robert Samuelson Wants to Cut Social Security!

I guess we can always count on The Washington Post to print misleading pieces calling for cuts in Social Security. After all, what are newspapers for? Anyhow, Robert Samuelson gives us one of his usual tirades, misrepresenting most of the key items in the debate.

The basis of his outrage is a bill proposed by Representative John Larson to increase Social Security. The proposal is for a modest overall increase in benefits with a larger increase for the poor. The proposal also calls for indexing benefits to a cost of living index designed to monitor the expenses faced by seniors, instead of the population as a whole. Samuelson complains that this could lead to higher benefits.

The gist of Samuelson's argument is that seniors are doing very well right now. He cites a recently done study by C. Adam Bee and Joshua Mitchell, two economists who were at the Census Bureau at the time, that found, based on tax filings that seniors had higher incomes than we had realized.

While the study did show seniors were doing better than earlier survey data, the picture is not altogether positive. For example, the average income for seniors in the bottom decile is just $7,500, for the second decile it's $13,000. It probably would not seem too outrageous to most people to want to give these people somewhat higher benefits. Even for the 5th decile, the average income was only $32,500. (These figures are all in 2012 dollars, so add about 15 percent to put them in today's dollars.)

But perhaps more importantly, the main reason Bee and Mitchell found higher income levels than previous data is under-reported pension income. Samuelson misleading reports the issue by saying that most of the "underreporting involve income from IRAs, 401(k) plans and traditional pensions." Actually, for middle-income households under-reporting of 401(k) income was pretty much irrelevant. The problem was missed pension income.

CEPR / February 11, 2019

Article Artículo

The Robots Taking the Jobs Industry

(This piece first appeared as a post on my Patreon page.)

There is an old saying that the economy is too simple for economists to understand. There is plenty of evidence of this all around. After all, almost no economists could see the $8 trillion housing bubble, the collapse of which gave us the great recession. Back in the stock bubble days of the late 1990s, leading economists in both political parties wanted to put Social Security money in the stock market based on assumptions of returns which were at the least incredibly implausible, if not altogether impossible.

The endless scare stories of robots taking all the jobs, or the threat of automation, fit this model. While this is a recurring theme in major media outlets, it basically makes zero sense.

Replacing human labor with technology is a very old story. It’s called “productivity growth.” We’ve been seeing it pretty much as long as we have had a capitalist economy. In fact, this is what allows for sustained improvements in living standards. If we had not seen massive productivity growth in agriculture, then the bulk of the country would still be working on farms. Otherwise, we would be going hungry.

However, thanks to a massive improvement in technology, less than 2 percent of our workforce is now employed in agriculture. And, we can still export large amounts of food.

CEPR / February 08, 2019

Article Artículo

Latin America and the Caribbean

Sanctions

Venezuela

World

What’s the Deal with Sanctions in Venezuela, and Why’s It So Hard for Media to Understand?
Last week, the US formally adopted sanctions on Venezuelan national oil company PDVSA, as well as on CITGO, its US-based distribution arm, as part of its press for regime change in Caracas. National Security Advisor John Bolton estimated the actions would affect some $7 billion in assets and would block $11 billion in revenue to the Venezuelan government over the next year. The State Department was quick to add, “These new sanctions do not target the innocent people of Venezuela…” But of course

CEPR and Alexander Campbell / February 04, 2019

Article Artículo

Low Unemployment: The Recipe for Higher Wages

(This post originally appeared on my Patreon page.)

Back in 2013, Jared Bernstein and I wrote a book called Getting Back to Full Employment: A Better Bargain for Working People (free download). The main point of the book was that low unemployment rates disproportionately benefited those who are most disadvantaged in the labor market. For this reason, we argued for using macroeconomic policy to get the unemployment rate as low as possible, until inflation became a clear problem.

At that time the unemployment rate was still close to 7.0 percent. It was still coming down from its Great Recession peak of 10.0 percent, but there were many economists, including many at the Federal Reserve Board, who argued that it should not be allowed to fall below a range between of 5.0–5.5 percent, because lower rates of unemployment could trigger spiraling inflation.

In fact, this was pretty much the consensus view in the economics profession. At the time, the Congressional Budget Office (CBO) put the non-accelerating inflation rate (NAIRU) of unemployment at 5.5 percent. The NAIRU is essentially the target rate of unemployment for policymakers since they want to prevent the accelerating inflation that would result if the unemployment went much lower. CBO’s numbers are also important in this respect, not only because it is seen as an authoritative source, but also by design it tries to produce estimates that are well within the consensus in the economics profession.

Our argument was directed at these people. We felt the evidence that unemployment rates this high should pose any sort of floor for macroeconomic policy were weak. We also pointed out that economists had been badly mistaken two decades earlier, in the 1990s, when they argued that the unemployment rate could not get below 6.0 percent without triggering spiraling inflation.

Fortunately, the Greenspan Fed ignored that view and allowed the unemployment to fall to 4.0 percent as a year-round average in 2000. This gave us the late 1990s boom, the only period of sustained real wage growth for those at the middle and bottom of the wage ladder since the early 1970s. Given the enormous gains from allowing the unemployment rate to fall further, we felt the Fed should take the small risk of accelerating inflation, and allow the unemployment to continue to decline below the conventional estimates of the NAIRU.

Thankfully, Janet Yellen, who was then Fed chair, agreed with this position. (It helped that our friends with the Fed Up Coalition were also pushing hard in this direction.) She held the Fed’s key federal funds rate at zero until December of 2015, at which point the unemployment rate had fallen to 5.0 percent. Since then, the Fed has had a path of moderate rate hikes (faster than I would have liked), that have not prevented the unemployment rate from falling further.

CEPR / February 01, 2019

Article Artículo

United States

Workers

Labor Market Policy Research Reports, January 2019

CEPR regularly publishes a curated collection of original research from academic institutions and nonprofits on the state of the US labor market. The compilation is part of our ongoing effort to promote informed debate on the most important economic and social issues that affect people's lives.

CEPR and Adewale Maye / January 29, 2019