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Article Artículo

United States

Workers

The Black-White Unemployment Gap Isn’t Really About Education

In 2015, the unemployment rate for black Americans aged 25 and older was 7.8 percent. For white Americans, it was just 3.8 percent. This large gap in unemployment rates persists even when controlling for educational attainment.

Figure 1 shows the average 2015 unemployment rates by race and educational attainment. The black unemployment rate is considerably higher than the white rate within each educational group.

CEPR and Nicolas Buffie / March 03, 2016

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Health and Social Programs

Should Poor Workers Receive Less Social Security Because Rich Workers Are Living Longer?

During the 2016 campaign, a number of presidential candidates have proposed raising the retirement age to 70. Others want to raise the retirement age a bit less, and some don’t favor raising it at all.

When candidates talk about “raising the retirement age,” what they are referring to is the Social Security Full Retirement Age (SSFRA). This is the age at which retirees can begin receiving full Social Security benefits. Starting at age 62, retirees can receive partial benefits.

From 1937 through 2002, the SSFRA was 65. Based on a law from 1983, the SSFRA was gradually raised to 66 by 2009 and will be raised to 67 by 2027. While the age for receiving partial benefits wasn’t lifted, the amount of benefits was reduced. Figure 1 below shows how the SSFRA has and will increase according to current law.

CEPR and Nicolas Buffie / March 03, 2016

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Effects of Rising Wage Inequality Swamp Higher Social Security Taxes

A little over a week ago, CEPR released a blog post looking at the Congressional Budget Office’s (CBO) projections for wage growth over the next decade. Based on the data presented in their 2016 Budget and Economic Outlook, CBO expects wage inequality to rise substantially over the next decade.

It is striking that this projection of a continuing rise in inequality has gotten so little attention. By contrast, the media constantly talk about the projected shortfalls in the Social Security Trust Fund, making the point that if the projections prove correct then in 2034 we will either have to cut benefits or raise taxes.

Dean Baker and Nicolas Buffie / March 01, 2016

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The Fact Checker’s Judgment on Clinton’s Claim That Republicans Want to Turn Social Security Over to Wall Street

Glenn Kessler, the Washington Post’s Fact Checker, gave former Secretary of State Hillary Clinton three Pinocchios for saying that the Republicans wanted to turn Social Security money over to Wall Street. I am afraid that I see this one a bit differently.

First, as a small point, the piece comments:

“We have explained before that “privatization” is one of those pejorative political labels used by opponents of the Bush plan…”

That’s not how I remember the story. In the 1990s many conservatives openly talked about their plans to “privatize” Social Security. At some point, they apparently ran focus groups and discovered that the term “privatization” did not poll well. At that point, they switched directions and starting talking about “personal accounts,” rather than privatizing Social Security. While the advocates of a policy certainly have the right to assign whatever name they like to the policy, it seems a bit extreme to criticize its opponents for using the term that advocates themselves had used in the recent past.

The piece then notes that President Clinton had openly advocated investing Social Security money in a stock index fund, therefore:

“One could certainly say that the first president who wanted to ‘give the Social Security trust fund to Wall Street’ was Bill Clinton.”

It is worth making an important distinction between the possible meanings of turning Social Security over to Wall Street. On the one hand, there is the possibility of directly investing some of the trust fund in the stock market. On the other hand, there are proposals to turn over the administration of individuals' Social Security to private financial firms. These routes have very different meanings and implications.

Dean Baker / February 29, 2016

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The Fed’s Bubble Promotion Strategy and Current Fed Policy

Neil Irwin had an interesting piece on the Federal Reserve Board’s interest rate policy and its relationship to the stock market. The piece essentially argues that if the Fed were to make its interest rate decision based on economic data that it would hike rates at its next meeting. By contrast if it bases its decision on the stock market, it will leave rates where they are. It also argues that the Fed had acted to prop up the stock market in the 1997 following the East Asian financial crisis.

This is interesting analysis but there are some additional pieces that needed to be added to this puzzle. First, it is far from clear that the stock market was the main concern when Greenspan cut rates in 1997. There was a massive outflow of capital from developing countries following the East Asian financial crisis in the summer of that year.

At that time, many countries in the developing world had fixed their exchange rate to the dollar, as did Russia. This outflow of capital made it difficult for them to maintain the value of their currency. A reduction in interest rates by the Fed helped to alleviate some of the pressure on these currencies. (It didn’t work; most of them eventually devalued their currency against the dollar.)

Greenspan was also concerned about a stock bubble since the summer of 1996. (We know this from Fed minutes.) He decided not to act against the bubble, deciding it would be best to just let the bubble run its course. The recession that resulted from its eventual collapse in 2000–2002 gave us the longest period without net job growth since the Great Depression, at least until the 2008 recession.

Anyhow, while it is clear that Greenspan didn’t act against a stock bubble, it is a bit stronger claim to assert that he deliberately propped it up. It is also worth noting both that the price to trend earnings ratios were far higher in the 1990s (peaking at over 30 to 1) than what we are seeing at present. Furthermore, this was in a much higher interest rate environment, with interest rates on Treasury bonds in the 5.0–6.0 percent range, as opposed to 2.0 percent today. In other words, there was a clear case for a bubble in the late 1990s, which is not true today.

Dean Baker / February 28, 2016