Income soars at the top, falls for the lower half

David Cay Johnston @ Al Jazeera:

Last year the median wage hit its lowest level since 1998, revealing that at least half of American workers are being left behind as the economy slowly recovers from the Great Recession.

But at the top, wages soared — the latest indication in a long-running trend of increasing inequality, with income gains going to top earners while the majority of workers see stagnant or falling wages...

The cruelty of cutting food stamps

Dorothy Samuels @ NYTs:

Even as negotiations proceed in Congress over a new farm bill likely to contain a

large cut in food stamps, needy Americans who rely on the program are confronting an immediate drop in benefits.

As of today, the boost to the federal food stamps program included in the 2009 Economic Recovery Act expires, abruptly slashing benefit levels that were already inadequate for millions of poor children and their families, as well as impoverished disabled and elderly people, who will now find it significantly harder to afford adequate food.

Melissa Harris Perry: The case against education privatization

"EU Economist Backs Austerity's Critics"

 Matina Stevis @ WSJ:

Coordinated austerity in euro-area countries has stifled economic recovery and deepened the crisis across the currency bloc, according to a new technical paper prepared by an economist at the European Commission.

Spending cuts in Germany in particular have made things worse for the weaker members of the euro area through “spillovers” – the economic impact on economies connected to Germany’s– the paper says, adding that limited stimulus programs in richer countries could help the whole of the currency bloc.

The paper, which doesn’t necessarily represent the views of the powers-that-be at the Commission, presents some inconvenient conclusions for European authorities from one of their own economists. The European Union and national governments have come under fire from outside economists for pursuing austerity across the euro zone. These critics have argued that Germany in particular should be running bigger deficits to help drag the bloc’s weaker members out of their slumps.

"Washington is still stuck in the wrong conversation"

Ryan Cooper @ WaPo Plumline explains how the Beltway is still stuck on Stupid...or worse:

With the shutdown and debt ceiling crisis over and budget negotiations beginning, it’s worth noting that we’re stuck back in the same old rut we’ve been stuck in since Republicans took the House in 2010. Republicans want cuts to social insurance, or say they do, and Democrats want a bit of new tax revenue in return. On a policy level, this is nuts. We’re trading austerity for…more austerity. Democrats and Republicans ought to consider bringing in other ideas. Almost anything else would be better.

"Republicans are delusional about US spending and deficits"

Dean Baker @ The Guardian:

It is understandable that the public is disgusted with Washington; they have every right to be. At a time when the country continues to suffer from the worst patch of unemployment since the Great Depression, the government is shut down over concerns about the budget deficit.

There is no doubt that the Republicans deserve the blame for the shutdown and the risk of debt default. They decided that it was worth shutting down the government and risking default in order stop Obamacare. That is what they said as loudly and as clearly as possible in the days and weeks leading up to the shutdown. In fact, this is what Senator Ted Cruz said for 21 straight hours on the floor of the US Senate.

Going to the wall for something that is incredibly important is a reasonable tactic. However, the public apparently did not agree with the Republicans. Polls show that they overwhelmingly oppose their tactic of shutting down the government and risking default over Obamacare. As a result, the Republicans are now claiming that the dispute is actually over spending.

Anywhere outside of Washington DC and totalitarian states, you don't get to rewrite history. However, given the national media's concept of impartiality, they now feel an obligation to accept that the Republicans' claim that this is a dispute over spending levels.

But that is only the beginning of the reason that people should detest budget reporters. The more important reason is that they have spread incredible nonsense about the deficit and spending problems facing the country, causing most of the public to be completely confused on these issues. If budget reporters were held to the same standards as school teachers, with the expectation that they would be able to convey information, they would all be fired in a minute.

Contrary to the widely repeated stories of out-of-control deficits and spending, deficits have plunged in the last four years falling from 10.1% of GDP in 2009 to just 4% of GDP in 2013. The Congressional Budget Office projects the deficit to be just 3.4% of GDP in 2014. The latest projections show the debt-to-GDP ratio falling for the rest of the decade.

Truth in the Age of Niallism

This is too much fun not to post. Matthew O'Brien at Atlantic on Niall Ferguson's latest:

Here are three facts about how the 10-year budget outlook has changed in the past year: 1) the fiscal cliff deal raised $600 billion in new revenue; 2) the sequester, if left in place, cut spending by $1.2 trillion; 3) the CBO revised its projection for federal healthcare spending down by $600 billion. 

Harvard historian Niall Ferguson has a counterfactual take. Here's how he described how our debt trajectory changed the past year: 

A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year. 

This isn't a difference of opinion. It's incorrect. But it's incorrect for reasons that will escape casual readers.

"Debt Threat" nonsense from academic clown Niall Ferguson

Niall Ferguson, the egregious blowhard Harvard professor who gets everything wrong, strikes again via the Wall Street Journal with remarkable stupidity. Increasingly it appears Ferguson isn't simply in error, so much as a right-wing troll of the FOX & FRIENDS school of aggressive disinformation. UC economist Brad DeLong takes Fergie apart:

Niall Ferguson: The Shutdown Is a Sideshow. Debt Is the Threat:

Only a fantasist can seriously believe "this is not a crisis." The fiscal arithmetic of excessive federal borrowing is nasty even when relatively optimistic assumptions are made about growth and interest rates. Currently, net interest payments on the federal debt are around 8% of GDP…

DeLong responds:  Um…. No. Not 8. Only 1/6 of 8.

Look at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44521-LTBO2013.pdf. Currently, net interest payments on the federal debt are not 8% but only one-sixth that--1.3% of GDP:



The fantasy is the 8% number, and the belief that the debt is, right now, a crisis.

Moreover, 1.3% is the wrong number to look at. We want to adjust for inflation at 2%/year, and that gets us to 1.3% - 2% x 80% = -0.3% of GDP. We want our concept of budget balance to be not a stable real value, but a constant debt-to-GDP ratio. Making that adjustment tells us that right now the U.S. could run a primary deficit of 0.3% + 2.5% x 80% = 2.3% of GDP without seeing any increase in the debt-to-GDP ratio.

That's right: rather than the debt forcing us to cut spending on programs below the level of taxes (i.e., run a primary surplus) in order to keep the debt-to-GDP ratio from growing, right now the United States can have spending on programs exceed taxes by 2.3% of GDP (i.e., run a primary deficit) and still keep its debt-to-GDP ratio stable. In terms of real resources, right now the debt is not a burden. It does not reduce how much the U.S. can afford to spend on programs. It is a profit center. It is providing a net addition to federal resources to the tune of 2.3% of GDP.

That's how far the federal debt is today from being a burden on the economy.

Everything you need to know about the rationale behind the GOP's government shutdown...

Via Politicalwire: Extra Bonus Quote of the Day

"We're not going to be disrespected, We have to get something out of this. And I don't know what that even is."

-- Rep. Marlin Stutzman (R-IN), quoted by the Washington Examiner, on the government shutdown.

"How a Debt-Ceiling Crisis Could Become a Financial Crisis"

Annie Lowrey @ NYTs Economix:

Come mid-October, the United States will have only $30 billion of cash on hand. On any given day, its net payments can reach as high as $60 billion. That means that unless Congress raises the debt ceiling, allowing the Treasury to issue new debt, the United States may find itself unable to make all of its payments — stiffing government contractors, or state and local governments, or even its bondholders.

Economists widely agree that such an unprecedented event would have profound effects for the markets, likely precipitating a stock-market sell-off and setting off a round of global financial turbulence. But it has always been a little unclear just how it may play out. The Treasury might announce it would be forced to delay some payments, promising to do what it could to make sure bondholders were made whole. But then what?

"The Austerians Have a Lot To Answer For"

 Professor Krugman @ NYTs:

Right now the official unemployment rate is 7.3 percent. That’s bad, and many people — myself included — think it understates the true badness of the situation. On the other hand, there are some reasonable people (like Bob Gordon) arguing that at this point, possibly thanks to long-run damage from the Great Recession, “full employment” is now a number north of 6 percent. So there’s considerable uncertainty about just how depressed we are relative to potential.

But we’re clearly still well below potential. And we’ve also had exactly the wrong fiscal policy given that reality plus the zero lower bound on interest rates, with unprecedented austerity. So, how much of our depressed economy can be explained by the bad fiscal policy?

To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking.

Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.

Stiglitz on inequality...again

Nobel Prize-winning Joe Stiglitz addressed the recent AFL-CIO convention:

I'm an economist-- I study how economies work and don't work. It’s been clear to me that our economy has been sick for a long time.  One of the reasons it's been so sick is inequality, and I decided to write an article and a book about it.

Two years ago, I wrote an article for Vanity Fair called, "Of the 1%, by the 1%, for the 1%,” which really got to the gist of it.  For too long, the hardworking and rule-abiding had seen their paychecks shrink or stay the same, while the rule-breakers raked in huge profits and wealth.  It made our economy sick, and our politics sick, too.  

You all know the facts:  while the productivity of America's workers has soared, wages have stagnated. You've worked hard – since 1979, your output per hour has increased 40%, but pay has barely increased. Meanwhile, the top 1% take home more than 20% of the national income.

The Great Recession made things worse.  Some say that the recession ended in 2009.  But for most Americans, that's simply wrong:  95% of the gains from 2009 to 2012 went to the upper 1%.  The rest — the 99% — never really recovered.

"Why Janet Yellen, Not Larry Summers should lead the Fed"

An appointment of Larry Summers to the Fed Chair fits perfectly the definition of insanity attributed to Albert Einstein: "Insanity is doing the same thing over and over again and expecting different results."

In that vein, Joseph Stiglitz argues contra Mr. Summers @ NYTs, with a great in-depth analysis of the background and the stakes in this appointment:

The controversy over the choice of the next head of the Federal Reserve has become unusually heated. The country is fortunate to have an enormously qualified candidate: the Fed’s current vice chairwoman, Janet L. Yellen. There is concern that the president might turn to another candidate, Lawrence H. Summers. Since I have worked closely with both of these individuals for more than three decades, both inside and outside of government, I have perhaps a distinct perspective.

But why, one might ask, is this a matter for a column usually devoted to understanding the growing divide between rich and poor in the United States and around the world? The reason is simple: What the Fed does has as much to do with the growth of inequality as virtually anything else. The good news is that both of the leading candidates talk as if they care about inequality. The bad news is that the policies that have been pushed by one of the candidates, Mr. Summers, have much to do with the woes faced by the middle and the bottom.

Corey Booker's bona fides...

Corey Booker, soon-to-be Senator from New Jersey has enormous star-power.  There are things to admire about Booker - he seems to have done a good job as Mayor of Newark against steep odds. He strikes me as slightly ridiculous in the degree of his obsession with ephemeral social media, but that's probably generational.  (Politicians in their mid-40s like Booker tend to be desperate to comport to an older person's notion of what younger potential voters are all about.)

But IMHO Booker is absolutely not the kind of Democrat we need more of on the national

scene - he's way too cozy with the 1%, clearly open to cutting bad deals for the young folks he's eager to impress around their long-term Social Security benefits, babbling right-wing nonsense on the Sunday morning idiot gabfests about deficits as a major problem when we need to be focused on when unemployment has been the burning issue for five years, shamelessly pointing fingers regarding the origins of the financial crisis of 2008 without mentioning the word "banks."

 Noam Sheiber @ TNR has a good break-down of Bookers' deep flaws as an incoming high-profile Democrat addressing issues at the national level:

Exactly what kind of senator will Cory Booker make once he coasts to (a near-certain) victory this fall? On the one hand, Booker—the Newark mayor and reigning viceroy of Twitter—has a habit of lionizing the tech and finance executives who are his biggest campaign donors. Last year on “Meet the Press,” he famously criticized President Obama’s “nauseating” assault on the private-equity industry. Booker’s ease around business moguls is such that he betrayed no sheepishness when The New York Times disclosed that several had funded his personal Internet venture, potentially worth millions to him, while he was ensconced in City Hall.

Reagan, the Republicans and Chemical Weapons

Never forget...never again...

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"Are the rich getting too much of the economic pie?"

Derek Thompson @ The Atlantic:

"Not Really Labor’s Day"

Economist Nancy Folbre @ NYT's Economix:

The annual holiday supposedly celebrating labor has long lacked much celebratory feel. Over the last 30 years, employment has become more precarious and real wages for most workers have stagnated. Since 2008, in particular, the corrosive impact of persistent unemployment and declining wages on American workers has been felt at holiday picnics and parades.

The seasonally adjusted July unemployment rate of 7.4 percent showed a slight decline from last year’s 8.2 percent, but the gains came largely as a result of declining labor force participation rather than job creation.

The larger measure of underemployment (known as U-6) that includes people working part time because they cannot find full-time work, and those who want a job and have looked for one in the last 12 months but have given up currently looking, was a seasonally adjusted 14 percent in July, compared with 14.9 percent a year earlier.

Public policies could help. As Jared Bernstein explained in an earlier Economix post, the federal government could become an employer of last resort. A new report from the Urban Institute outlines several specific strategies to lower long-term unemployment in particular.

Scary Thought on Labor Day Weekend: Obama's Economic Team Think They Are Doing a Good Job

Dean Baker @ Center for Economic & Policy Research:

Ezra Klein gives us some terrifying news in a Bloomberg column today. President Obama's economic team think they are doing a great job, hence the desire to bring back former teammate Larry Summers as Fed chair. This is terrifying because the economy this Labor Day is described by a set of statistics that can only be described as horrible.

We are almost 9 million jobs below the trend level of employment. The number of people involuntarily working part-time is still up by almost 4 million from its pre-recession level. Wages have been stagnant for a decade and show no signs of increasing any time soon.

And, according to the Congressional Budget Office, the economy is still operating more than $1 trillion (6 percent) below its potential. Oh, and by the way, the financial sector is more concentrated than ever, with top honchos drawing the same sort of paychecks they did before the crisis.

I could go on but what's the point? This is an economy that under other circumstances we would all say is awful. The Obama team can pat themselves on the back for saying its better than a second Great Depression, but that's a bit like saying that the 1962 Mets didn't lose all their games. Horrible is horrible.

" The Audacity of the Fight for Higher Wages"

Jared Bernstein @ NYT's Economix:

I was struck Thursday by the juxtaposition of two stories in the news (two and half, really).

First, the banks had another banner quarter in terms of profits, up $42 billion, or 23 percent from last year.  News reports emphasized lower loan losses, meaning the banks had to mark down or charge off fewer nonperforming loans.  That increases the share of their capital that they can put to work spinning off profits, something they are very good at.

A classic case of it takes money to make money.

At the other end of the economy were the striking fast-food workers, calling for an increase in their pay to $15 an hour (the average for these workers is around $9, up from $8.66 in 2009).

I also noted — this is the half-a-report I mentioned above — that in the upward revision to second-quarter gross domestic product that came out on Thursday, corporate profits were  again up near record highs as a share of national income while compensation fell again and is now at the lowest share it has been since the year I was born (1955 — ancient history, I know).

And yet, what I mostly heard about this was about the audacity and the economic illiteracy of the strikers.  Don’t they realize that it’s still a tough economy?  Don’t they get that their employers are not the big corporations but the franchisees who can’t afford to pay more?  Don’t they get that the increase will just have to be passed on in prices?

"Japan's pump-primed recovery proves US deficit hawks wrong"

Dean Baker @ The Guardian:

Many of the people who ridicule efforts at using government spending to boost the economy and create jobs like to turn to Japan to warn countries from following that route. After all, Japan's budget deficit last year was more than 10% of GDP. That would be more than $1.6tn in the US economy today. Its gross debt is more than 245% of GDP. That would imply a debt of almost $40tn in the United States, which would mean a debt of $125,000 for every man, women, and child in the country.

Those are the sorts of numbers that policy types in Washington find really scary. Fortunately for the Japanese people, the folks currently running their economy are more interested in sound economic policy than pushing scare stories about debt and deficits. Rather than rushing to reduce the deficit, Japan's new prime minister, Shinzo Abe, went in the opposite direction. He deliberately increased spending to create jobs.

He also appointed a new head of Japan's central bank who is committed to raising the inflation rate. Japan has been suffering from near-zero inflation, or even deflation, since the collapse of its stock and housing bubbles in 1990. Abe's pick as head of the central bank has committed the bank to raising the inflation rate to 2%. Implicit in this commitment is the notion that the bank will buy up as many Japanese government bonds as needed to reach its inflation target.

In other words, the bank is prepared to print lots of money.

While we are still in the early days of Abe's program (he just took office at the end of 2012), the preliminary signs are positive. The economy grew at a 2.4% annual rate in the second quarter, after growing at a 3.6% rate in the first quarter. By comparison, GDP in the United States grew at an average rate of just 1.4% in these two quarters.