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Pay by the Mile Insurance is an Alternative to Higher Gas TaxesCEPR / December 27, 2018
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In the Real World Contingent Work Is Not Increasing, In the WaPo, the Gig Economy Is EverywhereCEPR / December 27, 2018
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Latin America and the Caribbean
Is Haiti Awakening to Change?Jake Johnston
The New York Times, December 26, 2018
Jake Johnston / December 26, 2018
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Warren–Schakowsky Bill Is a Huge Step Toward Bringing Drug Costs DownDean Baker
Truthout, December 24, 2018
Dean Baker / December 24, 2018
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No, Donald Trump Is Not Leaving Us Poorly Prepared for the Next RecessionThere is a popular theme in the media these days that the Trump administration is leaving us poorly prepared for the next recession. The basic story is that high deficits and debt will leave us less room to have a large stimulus when the next recession hits. This is wrong, at least if we are talking about the economics.
Before laying out the argument, let me first say that I do not see a recession as imminent. The recent plunge in the stock market means that the rich have less wealth, not that we will have a recession.
Okay, I realize that not everyone with money in the stock market is rich, but the impact on spending is going to be barely noticeable to the economy. Furthermore, while middle class people are going to be upset to see their 401(k)s fall by 15 percent, they were fortunate to see the sharp rise the prior two years. Long and short, this is just not a big deal.
As far as other factors pushing us into a recession, I don't see it for reasons explained here. So I am not writing this because I think we are about to see a recession, but rather because I am trying to clear the path for when we eventually do.
The complainers in this picture say that because Trump's tax cuts mean the deficits are large even when the economy is near full employment, we won't be able to have even larger deficits when we are in a recession. They also say that high debt levels are leaving us near our borrowing limits. Both claims are just plain wrong.
First, as good Keynesians have long argued, our ability to run deficits is limited by the economy's economic capacity. This means that if we run very large deficits when the economy is near full employment, we would be seeing higher inflation as excess demand pushes up wages, which get passed on in prices.
We may be close to this point now, but higher interest rates, at least partly as a result of Federal Reserve Board policy, are leading to classic crowding out. Housing is falling and the value of the dollar has risen against other currencies, crowding out net exports. But inflation remains low and stable, so there is still likely room to expand further even with the unemployment rate at 3.7 percent.
CEPR / December 23, 2018
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Harvard’s Choice: Hedge Funds or ScholarshipsThe New York Times highlighted the findings of a remarkable study last week. The study, by Markov Processes International, examined the 10-year returns of the endowments of the eight Ivy League schools. The study found that all eight endowments had lower returns than a simple mix of 60 percent stock index funds and 40 percent bonds. In some cases, the gap was substantial. Harvard set the mark with its annual returns lagging a simple 60/40 portfolio by more than 3.0 percentage points.
This finding is remarkable because these endowments invest heavily in hedge funds and other “alternative” investments. A main feature of these alternative investments is the high fees paid to the people who manage them. A standard hedge fund contract pays the fund manager 2 percent of the assets under management every year, plus 20 percent of returns over a target rate.
If Harvard’s $40 billion endowment was entirely managed by hedge funds, they would get $800 million in fees, plus 20 percent of the endowment’s earnings over some threshold. This means that even if the hedge funds completely bombed, as seems to have been the case over the last decade, they would be pocketing $8 billion over the decade for costing the school money.
This should have people connected with Harvard and the other Ivy League schools up in arms. It is common for hedge fund partners to make more than $10 million a year and some pocket over $100 million. These exorbitant paychecks are justified by the outsized returns they get for university endowments and other investors. But how do you justify this sort of pay when they are making bad investment calls that actually lose the universities money?
CEPR / December 21, 2018
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Latin America and the Caribbean
El acuerdo de Argentina con el FMI: ¿Funcionará la “austeridad expansiva”?Mark Weisbrot and Lara Merling / December 20, 2018
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Labor Market Policy Research Reports, December 2018CEPR 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.
The Brookings Institution
Automation is likely to exacerbate existing deficiencies in the government approach to worker development and training. Current policies tend to target young people at the beginning of their working lives, leaving many older workers unable to upgrade their skills in the face of shifting labor market demands. The author calls for substantial reorientation in approaches to (and subsidization of) training throughout workers’ lives and points to the disruptive potential of automation and the likelihood of future recession as reasons for urgency.
Who Makes the Rules in the New Gilded Age?
The author makes a robust comparison between the digital information age of today and the Gilded Age that took place a few decades after the Civil War. Both then and now, the rules governing new technology were made by an elite few for their own benefit, resulting in societal instability and inequality. The comparison yields several takeaways for the reassertion of the public interest and the preservation of democracy.
CEPR and / December 20, 2018
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“Fort Trump” in Poland Is Another Dangerous, Delusional IdeaMark Weisbrot / December 20, 2018
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Thomas Friedman Shows Us Why Democracy is Facing Huge ProblemsCEPR / December 19, 2018
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Latin America and the Caribbean
Argentina’s Deal With the IMF: Will "Expansionary Austerity" Work?Mark Weisbrot and Lara Merling / December 18, 2018
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Recession Risks for the United States in 2019Dean Baker
The Hankyoreh, December 18, 2018
Dean Baker / December 18, 2018
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Ivy Leagues Are Handing Out Millions in Fees to Hedge Fund ManagersDean Baker
Truthout, December 17, 2018
Dean Baker / December 17, 2018
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What’s at Stake When Dems Vote on House RulesEileen Appelbaum / December 17, 2018
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Are We Really Spending One Fifth of the Budget on Farm Subsidies?CEPR / December 16, 2018
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How Large Does the NYT Think China's Trade Surplus with the U.S. Should Be?CEPR / December 15, 2018
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Hickel Response on Degrowth(This is the last piece in an exchange with Jason Hickel on growth. My last piece is here.)
Baker says “I am at a loss to understand why we would have a war on growth.” I don’t know why he is at a loss. I explained the reasons for this in my previous post. There are two I focus on.
Baker has, unfortunately, not engaged with these arguments.
Next, Baker says that “if we spend enough in other areas, it is possible to offset sharp reductions in the sectors of the economy that are heavy users of fossil fuels.” This argument is central to the standard vision of the Green New Deal (i.e., massive public investment in clean energy, which will generate millions of well-paid jobs and increase GDP growth). Again, there are two problems with this.
CEPR / December 13, 2018