Blog | Economic Policy Institute http://www.jietou4.net.cn Research and Ideas for Shared Prosperity Tue, 10 Sep 2019 20:00:41 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.5 The road not taken: Housing and criminal justice 50 years after the Kerner Commission report http://www.jietou4.net.cn/blog/the-road-not-taken-housing-and-criminal-justice-50-years-after-the-kerner-commission-report/ Wed, 07 Aug 2019 18:03:09 +0000 http://www.jietou4.net.cn/?post_type=blog&p=173315 Last year, on the 50th anniversary of the?“Kerner Commission” report, the Economic Policy Institute, collaborating with the Haas Institute for a Fair and Inclusive Society at the University of California, Berkeley, and Johns Hopkins University’s 21st Century Cities Initiative, hosted a conference on “Race & Inequality In America,” not only to commemorate the report but to re-assess its findings and conclusions. The conference assembled prominent national experts in the fields of housing, employment and labor markets, criminal justice, health, and education to consider where the black-white divide has narrowed, where it has stayed the same, and where it has widened.

In The Road Not Taken we have now summarized the conclusions of these experts, adding some additional perspectives with the benefit of another year of hindsight. We focus particularly on how far we have come, or not come, in housing segregation and criminal justice disparities over the last 50 years. In particular, we examine the recommendations of the 1968 commission and note how few have ever been implemented.

The Road Not Taken notes that in some ways the last half century has seen progress—the desegregation of workplaces is perhaps the most conspicuous example, although here too, much remains to be done. In some areas, we’re about where we were—residential segregation has not diminished much, if at all. And in some areas, things have gotten much worse—the disparate incarceration of young black men, in particular.

We review the most important policies now needed to break us out of stagnation in the two most critical areas of criminal justice and housing. Reforms in both areas have been largely inadequate, partial or superficial. Unfortunately, many of the policies needed today are no different from those recommended by the Kerner Commission. Some are new. Our chief policy recommendations are these:

  • Create independent, separate, civilian-led agencies with the power to investigate and remediate accusations of police misconduct filed against local police departments, rather than allowing such complaints to be managed entirely by the departments themselves.
  • Expand de-escalation training and implement stricter standards or guidelines on the use of force by police in order to reduce the frequency of civilians killed or otherwise mistreated by police officers.
  • Roll back mandatory minimum sentencing laws that require incarceration for low-level offenses and that keep young men in prison far beyond the age where they are likely to re-offend.
  • Eliminate cash bail for low-level offenders who presently are jailed awaiting trial not because they are unlikely to appear in court but only because of their poverty and inability to afford to bail.
  • Improve police-community relations in low-income neighborhoods by re-instituting foot patrols and substituting summonses for arrests to control offenses against order and where offenses against property or persons are not involved.
  • Create mixed-income (and effectively, mixed-race) public housing, returning public housing to its early goals of providing high-quality affordable rental units for working and middle class families, not only for the poor, but for the poor as well.
  • Reform zoning rules that prevent the development of mixed-income (and, effectively, mixed-race) communities.
  • Reform subsidy policies for low-income, disproportionately black and Hispanic households, specifically the Low-Income Housing Tax Credit and the Housing Choice Voucher program, to avoid reinforcing segregation, and increase the funding of these programs so that all eligible low-income households can benefit.
  • Mandate inclusionary zoning so that developers must set aside a share of units that are affordable to both low-income and middle-class families, as well as to the affluent.
  • Prevent the displacement of existing residents from gentrifying neighborhoods by implementing tenant protections such as rent control, limits on condominium conversions and inclusionary zoning for new construction.
  • Protect minority and moderate-income homeowners in gentrifying neighborhoods by limiting property tax increases that would otherwise force families out of their homes as assessed values appreciate; to avoid starving local schools, recapture the lost property taxes when the homeowner sells.

Steps like these can, perhaps, halt the deterioration of our nation into two societies that are even more separate and unequal than the Kerner Commission ominously prophesied we were becoming, and may well have become. But it is not too late to do something about it.

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Why Eugene Scalia is the wrong person for the job http://www.jietou4.net.cn/blog/why-eugene-scalia-is-the-wrong-person-for-the-job/ Thu, 01 Aug 2019 18:07:24 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172711 Working women and men need and deserve a Secretary of Laborsomebody who will look out for their interests, protect them from unscrupulous employers, set strong health and safety standards, and safeguard their retirement security.

Unfortunately, corporate lawyer Eugene Scalia, the man named by President Trump to be the next Secretary of Labor, is not that person.

Scalia, a graduate of the University of Chicago Law School, is a partner at the Washington, D.C.-based law firm Gibson, Dunn & Crutcher, where he specializes in labor and employment law and administrative law. He is an active participant in the activities of the Federalist Society—a right-wing legal group. Scalia was nominated in 2001 by President George W. Bush to be Solicitor of Labor, but his nomination was blocked because of opposition over his extreme views against worker health and safety protections. Bush circumvented the Senate and installed Scalia as Solicitor through a recess appointment. Scalia returned to his law firm at the beginning of 2003.

Scalia has built his career representing corporations, financial institutions, and other business organizations—and fighting worker protections like health and safety regulations, retirement security, and collective bargaining rights. Scalia’s reputation as the go-to lawyer for corporations wanting to avoid worker and consumer protections is so notorious that a headline in a Bloomberg Businessweek profile on Scalia read, “Suing the Government? Call Scalia.”1 Here are just a few examples of cases where Scalia, on behalf of corporations and trade associations, has attacked worker and consumer protections:

Worker Health and Safety

Scalia led the fight on behalf of the U.S. Chamber of Commerce against regulations to protect workers from injuries caused by unsafe workplace design—known as ergonomics rules. According to Labor Department experts, the rules would have prevented 600,000 injuries a year. Scalia ridiculed the extensive science underlying the rules as “junk science par excellence2 and “quackery,”3 and suggested that unions supported the rules as a ploy to increase membership.4 The rules were adopted by the Labor Department in 2000 but were overturned by a Republican Congress after Bush was elected president in 2000.

Fighting ergonomic protections is where Scalia made his mark, but his attacks on worker health and safety protections did not stop there. On behalf of United Parcel Service (UPS), Scalia opposed rules that would have required employers, and not individual workers, to pay for protective equipment that was needed to keep them safe on the job. And he represented SeaWorld when it unsuccessfully tried to fight off an Occupational Safety and Health Administration (OSHA) citation and fine for failing to protect Dawn Brancheau, a trainer at SeaWorld who was killed on the job by a killer whale.5

Retirement Security

Eugene Scalia led the legal work attacking the Department of Labor’s fiduciary rule, which safeguarded workers’ retirement security by ensuring that investment advisers are acting in the best interest of workers and do not have a conflict of interest.6 The rule would have outlawed common practices such as financial advisers steering retirement savers toward investments that provide a good commission, but a lower rate of return. The Department of Labor estimated that conflicted investment advice costs workers $17 billion a year. Scalia attacked the rules on behalf of the U.S. Chamber of Commerce and other business interests, and persuaded a federal court to throw them out, leaving workers vulnerable once again to conflicted advice on their retirement investments.7

Health Care

In 2006, the Maryland legislature passed a law requiring large corporations to spend 8 percent of payroll on either providing private health insurance or paying into the state’s Medicaid fund. The legislature adopted the law to ensure that large corporations like Walmart were paying their fair share of health care costs for their 16,000 Maryland employees, after studies in other states showed large numbers of Walmart workers on publicly funded health care because of the low wages paid by Walmart. On behalf of Walmart and other business interests, Scalia got the law struck down.8

Collective Bargaining Rights

Scalia represented the Boeing Corporation when it was charged by the National Labor Relations Board with illegally transferring work to South Carolina from its unionized plant outside Seattle, Washington in retaliation for workers at the Washington plant exercising their rights under federal labor law, and specifically their right to strike. Boeing and Republicans in Congress embarked on a scorched-earth campaign against the NLRB complaint, holding an oversight hearing in South Carolina and subpoenaing the NLRB’s Acting General Counsel to appear, and introducing legislation to overturn the NLRB complaint even though it had not yet been adjudicated. Boeing eventually settled the complaint in connection with collective bargaining negotiations with the Machinists Union.9

Consumer Protections

On behalf of financial institutions and corporations, Scalia has attacked numerous pieces of the Dodd-Frank Act, that was enacted to protect consumers against Wall Street’s power. Scalia challenged the Securities and Exchange Commission’s “proxy access” rule that would have given large shareholders a chance to put alternative candidates forward for a corporation’s board of directors through the corporation’s proxy voting materials. On behalf of business groups, Scalia succeeded in getting the rule overturned, thus denying unions and other institutional shareholders access to the proxy system to inform shareholders about candidates.10

Workers with Disabilities

Workers at United Parcel Service who were returning to work following medical leave for on-the-job injuries sued UPS, alleging that the company had illegally failed to provide reasonable accommodations for their disabilities. Workers successfully won certification of a national class of similarly situated workers to pursue their claims, but Scalia, on behalf of UPS, got the class certification reversed on appeal.11

Wage Security

Dealers in a Las Vegas casino sued their employer after the employer instituted a new rule requiring the dealers to share their tips with their supervisors. Scalia got the lawsuit thrown out, arguing that the dealers did not have a right to sue for their wages—that their only remedy was through the state commissioner of labor.12

Defending Corporations Against Sexual Harassment Charges

Scalia represented the giant bank HSBC when it was sued for retaliating against an employee who reported sexual harassment of some of his co-workers by a manager. According to published reports, Scalia’s questioning of one of the sexual harassment victims was so aggressive that it brought the victim to tears.13

Working people do not need a deregulatory wrecking ball as Secretary of Labor. They need somebody who will stand up for strong worker protection rules and aggressive enforcement of them. Unfortunately, the Trump administration seems determined to push through its deregulatory agenda, tearing down worker and consumer protections at the behest of large corporations. Former Secretary of Labor Alex Acosta reportedly lost favor with the Trump White House because he moved too slowly on reversing worker protections issued during the Obama Administration.14 Given his history of attacking worker and consumer protections at the behest of big business, there is plenty of reason to worry that Eugene Scalia will drive the deregulatory train, to the detriment of working women and men.

Scalia will have a confirmation hearing when the Senate returns in September. It is essential that Senators press Scalia for his views on the role of government regulation—and the role of the Department of Labor—in protecting working women and men. Senators should ask him to identify worker protections that he would promote, and whether there are cases he has been involved in on behalf of working people, not corporations. Senators should discourage Scalia from further weakening worker protections adopted during the Obama administration. These rules were adopted after extensive public input and are supported by comprehensive evidence demonstrating their value and importance to working people. They should not be weakened or overturned simply because anti-regulatory ideologues want it.

At the end of the day, Scalia’s answers to these questions are unlikely to persuade skeptics that he is the right man for the job, because words at a hearing cannot overcome a long career of attacking worker protections on behalf of corporations. But Scalia should be required to state on the record what his intentions are as Secretary of Labor and what he plans to do to protect working people, and, if confirmed, he must be held accountable.


1. https://www.bloomberg.com/news/articles/2012-01-26/suing-the-government-call-scalia

2. Eugene Scalia, “Government ‘Ergonomic’ Regulation of ‘Repetitive Strain Injuries’” (Oct. 1997).

3. Eugene Scalia, “Ergonomics: OSHA’s Strange Campaign to Run American Business” (1994), at 14.

4. According to Scalia, ergonomics regulations were “a major concession to union leaders, who know that ergonomics regulations will force companies to give more rest periods, slow the pace of work, and then hire more workers (read: dues paying members) to maintain current levels of production.” (Eugene Scalia, “Gore, Unions Invite OSHA to Your Home,” Wall Street Journal, Jan. 5, 2000). See also “Government ‘Ergonomic’ Regulation, supra n. 1 (Ergonomics regulations “would reduce the pace of work, thereby pleasing current members. With the pace of work reduced, more workers would be needed to maintain the level of production; consequently, union membership (and dues) would increase, thereby pleasing union leaders.”)

5. https://caselaw.findlaw.com/us-dc-circuit/1663286.html

6. https://www.federalregister.gov/documents/2016/04/08/2016-07924/definition-of-the-term-fiduciary-conflict-of-interest-rule-retirement-investment-advice

7. U.S. Chamber of Commerce v. U.S. Department of Labor (5th Cir. 2018).

8. Retail Industry Leaders Ass’n v. Fielder, 475 F.3d 180 (4th Cir. 2007).

9. NLRB v. The Boeing Company, Case 19-CA-32431.

10. Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011). Scalia has brought challenges to several other SEC rules. 412 F.3d 133 (D.C. Cir. 2005), 443 F.3d 890 (D.C. Cir. 2006), American Petroleum Institute v. SEC, 2013 WL 3307114 (D.D.C., July 2, 2013), American Equity Inv. Life Ins. Co. v. SEC, 613 F.3d 166 (D.C. Cir. 2010).

11. Hohider v. UPS, 574 F.3d 169 (3d Cir. 2009).

12. Wynn v. Baldonado, 311 P.3d 1179 (Nev. 2013).

13. https://prospect.org/article/eugene-scalia-once-represented-big-bank-sexual-harassment-case-it-got-ugly

14. https://www.politico.com/story/2019/07/12/alexander-acosta-stepping-down-as-labor-secretary-1411998

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What to Watch on Jobs Day: Are there signs of wage acceleration? http://www.jietou4.net.cn/blog/what-to-watch-on-jobs-day-are-there-signs-of-wage-acceleration/ Thu, 01 Aug 2019 14:26:42 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172727 Remember that ad from the 1980s where that woman keeps asking “Where’s the beef?” I’m feeling a little like her these days, asking “Where’s the wage growth?” It’s true that the labor market continues to chug along. The unemployment rate has been at or below 4.0 percent for the last 16 months, yet, I still find myself looking for the beef—in this case, stronger wage growth.

Earlier this week in EPI’s Macroeconomic Newsletter, Josh Bivens posited two different ways to measure wage growth using the establishment survey (CES) data that’s released every jobs day. The first measure, as EPI typically uses in our nominal wage tracker, tracks growth each month relative to the same month the prior year. For the second, he looks at quarter to quarter changes (at an annualized rate for comparison). While year over year, it’s pretty clear that wage growth has flat-lined in recent months and has yet to reach the Federal Reserve’s target zone (given inflation targets and productivity potential), the second measure shows clearly that there’s actually been a deceleration in wage growth this year. The Employment Cost Index, released yesterday, also shows a marked deceleration in private sector wage growth.

While those data provide plenty of evidence of a slowdown in the rate of wage growth and sufficient justification for the Fed’s decision yesterday to cut interest rates, I decided to take a look at another survey to continue to investigate trends in wage growth over the last year as well as the last several. Using the Current Population Survey (CPS), we can see what’s happening across the wage distribution as well as growth by various demographic characteristics. To be clear, the CES is one of the most reliable measures of wage (and employment) growth because of its large sample size and benchmarking, but it only provides information on average wages for very large groups of workers. The CPS gives us texture at the cost of increased volatility.

Here, I examine annual averages for the year ending in June of each year, combining the first half data in the stated year with the second half data in the prior year. All wages are in 2019 dollars (meaning the average of July 2018 through June 2019). Using this metric, real average hourly wages in the CPS grew 2.4 percent between 2018 and 2019. Table 1 below shows real wages by wage percentile for the pooled 12-months ending in June 2000, 2007, 2017, 2018, and 2019, with annualized changes between each set of years shown at the bottom of the table. Compared to recent years, there appears to be somewhat more broadly based growth in wages across the distribution. The median finally is showing some signs of life, increasing 2.7 percent since last year, after a decline in between 2017 and 2018. The top—here limited to only the 95th percentile of the wage distribution—grew at 2.8 percent over the last year. (Other surveys are better at measuring the concentration of wage gains at the very top.)

This type of broad-based growth, with particular strength at the bottom of the wage distribution, is to be expected as unemployment stays quite low by historical standards. When the unemployment rate falls, even as more potential workers are drawn into the labor market, available workers of all types become scarcer and employers have to increase wages to attract and retain the workers they want.

Lower unemployment has, in the past, benefited low-wage workers more than middle-wage workers and middle-wage more than higher-wage workers.

The notable weakness in the last year was for the lowest wage workers; the 10th percentile wage fell in real terms between 2018 and 2019 after rising an average of nearly 3 percent in the previous four years. (There was a rise in the 10th percentile nominal wage, but inflation took away all of those gains.) Given that the economy continued to exhibit low unemployment and wage growth had been relatively strong at the bottom prior to this year, this result may be surprising. I’ve discussed before that there are two factors driving wage gains at the bottom in the years before 2019: a tightening labor market AND state-level minimum wage increases over the last several years.

A cursory examination of the latest minimum wage increases suggest that some of the latest increases are not only on top of a few years of increases in those same states, but also are now reaching a bit higher into the wage distribution and hence potentially bypassing workers at the (national) 10th percentile. For example, the latest minimum wage changes in California, Massachusetts, and Washington increased the minimum from $11 to $12 an hour. And, the minimum wages in Colorado, Oregon, New York, Maine, and Arizona are at or above $11 an hour. Even $11 an hour is higher than the 10th percentile of the national wage distribution (at $10.02). So, the latest state-level minimum wage action may actually not be very well captured by the 10th percentile. Further, the drop in the 10th percentile over the last year was on the heels of a relatively strong increase between 2017 and 2018. Taken together, wages grew 1 percent on average for the lowest wage workers over the last two years. The 20th percentile has done better over the last two years, and in fact exhibited the strongest growth (+2.6 percent annualized) over the last two years compared to any other decile, including the 95th percentile.

Table 1
Table 1

In general, the trends in wages for most workers over the last year, while welcome, still have left many of these workers just beginning to make up for lost ground. Figure A below shows cumulative real wage changes by decile since 2000 and 2007. Rising wage inequality continues to be a defining feature of the American economy. Because of the recent uptick in wages for the 20th and 30th percentiles over the last year on top of steady increases in prior years at the 10th percentile, wage growth is in the rough shape of a checkmark with stronger growth at the bottom attributed to several consecutive years of state-level minimum wage increases and a growing economy, while the fastest growth at and near the top is a continuation of the trends in growing inequality since the 1970s. In the last three to four decades of growing inequality, high-wage workers have had more leverage to bid up their wages faster than others. That trend has continued through the 2000s.

Figure A
Figure A

The longer term trend of rising inequality is troubling as is the recent slowdown in wage growth. Hopefully, the data that gets released on Friday will reverse this recent hiccup in wage growth and will show continued strength as the economy trudges on toward full employment.

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Not just ‘no heat’ but signs of cooling: The case for FOMC rate cuts has real merit http://www.jietou4.net.cn/blog/not-just-no-heat-but-clear-signs-of-cooling-the-case-for-fomc-rate-cuts-has-real-merit/ Tue, 30 Jul 2019 17:49:04 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172466

Josh Bivens, director of research at EPI

Federal Reserve Chair Jerome Powell’s July 10 testimony before the House Financial Services Committee was unlike any hearing featuring his predecessors.

Despite the vital importance of Fed decisions for the day-to-day lives of working families, congressional hearings featuring the Fed chair speaking about the state of the economy historically have disappointed. Disinterested and poorly informed questions posed by members of Congress have elicited opaque answers from Fed chairs.

This hearing was different. The questions were probing and informed, and Powell answered them with clarity.

Perhaps the most illuminating exchange occurred when Representative Steve Stivers (R-Ohio) asked Powell if the Fed was worried that low interest rates would cause the job market to run “hot.”

Some quick background throws Powell’s remarkable answer into sharp relief. One of the Fed’s two mandates—and the mandate that the Fed has unfortunately prioritized in recent decades—is to keep inflation under control. Traditionally, the perceived threat to controlled inflation in an expanding economy has been thought to come from the improving labor market. As unemployment falls and workers feel more confident, they can demand faster wage growth from employers. If wage growth (adjusted for inflation) exceeds economywide productivity growth, it puts upward pressure on prices (since labor costs are by far the largest component of prices).

Often in the Fed’s history, the response to Stivers’s question would have been, “Yes, unemployment this low definitely has us worried about overheating leading to inflation.” But too often this answer would have had very little empirical backing. For example, for a short spell in 2011 the estimated “natural rate” of unemployment below which inflation was forecast to begin accelerating was 2 full percentage points above today’s 3.7% rate. Yet no acceleration of inflation happened between 2011 and today.

‘To call something hot, you need to see some heat’

Powell’s answer to Stivers’s loaded question admirably reflected the facts.
We don’t have any basis or any evidence for calling this a hot labor market. We have wages moving up at 3%, which is good because it was 2% a year ago, but 3% barely covers productivity increases and inflation. And it certainly isn’t fast enough to put upward pressure on inflation. [However], we haven’t seen wages moving up as sharply as they have in the past. … 3.7% is a low unemployment rate, but to call something hot, you need to see some heat. While we hear reports of companies finding it hard to find qualified labor, we don’t see wages responding.

In this newsletter, I look for some “heat” in widely watched economic variables. But instead of seeing heat in these variables, I find pretty consistent cooling.

Wage growth has actually flattened recently

The most important indicator of a fast-warming job market is wage growth. Powell’s reference point for wage growth—the sum of productivity growth and inflation—is exactly the one EPI has used for years. Specifically, according to our Nominal Wage Tracker, as long as nominal wage growth is less than or equal to the Federal Reserve’s 2% overall price inflation target plus the growth rate of potential productivity, the labor market is not getting too “hot.” Our tracker usually looks at year-over-year changes in wages as our measure of growth. However, this measure could in theory miss (or at least obscure) quite recent accelerations or decelerations in the data.

Figure A presents our usual nominal wage growth measure for all (nonfarm) workers and a supplemental measure using a more timely (but more volatile) series measuring quarterly wage growth, and highlights a more recent period. The dark blue line in the graph measures growth relative to the same month in the previous year, and the light blue line shows wage growth measured as the average of the most recent three months relative to the average of the three preceding months. So, the last data point in this line is average wages in April, May, and June of 2019 as compared with average wages in January, February, and March of 2019. This growth is then expressed as an annualized rate to make it comparable with the other line.

Our original wage tracker shows clearly that wage growth steadily—but very slowly—improved in the years following the Great Recession. For example, growth was below 2% for much of 2010, but by December 2016 had risen to 2.7%. Moreover, as the figure shows, wage growth moved into a notably higher gear in 2018. From January 2018 to December 2018, year-over-year wage growth rose from 2.8% to 3.3%. And our more timely three-month measure of wage growth rose even faster in this period, consistent with wage growth acceleration.

One might even be tempted to call this evidence of heat. But in 2019, this growth has not just moderated but has actually decelerated slightly. In June 2019 wage growth was just 3.1%.

Figure A
Figure A

The quarterly growth numbers (expressed at annualized rates) make the deceleration even clearer, as the more timely three-month measure of wage growth has dipped sharply below the year-over-year measure throughout 2019. In June 2019, this three-month measure of wage growth was just 2.7%.

As we’ve argued before, a nominal wage target really is the most important real-time indicator the Fed should be watching to assess economic overheating. If there’s no ongoing heat in this variable, the case for tightening is much, much harder to make.

Any signs of ‘heat’ in GDP, residential investment, and other variables?

Recent reports have indicated that the Fed’s intentions extend beyond just holding pat on interest rates to cutting rates in the next Federal Open Markets Committee (FOMC) meeting. Can we use the “heat check” of quarterly changes to shed any light on the wisdom of this decision by focusing on some other variables as well?

Table 1 shows growth rates for a number of variables, including average hourly earnings. It shows the annual growth rate for 2016, 2017, and 2018; the growth rate over the past six months; and the last quarter’s growth (with these last two growth rates expressed in annualized terms to make them directly comparable to the others). Essentially, this table aims to show longer-run trends in these variables as well as what has happened to them in increasingly recent periods. An “overheating” economy would see growth rates that were higher the more recently they were measured. In almost all cases we see the opposite of this pattern: Growth accelerates from 2016 to 2018, but then begins to decelerate.

Table 1
Table 1

First, we examine growth in gross domestic product (GDP). Between 2016 and 2018 GDP growth accelerated from 1.6% to 2.9%. But in the latest six months, it decelerated to a 2.6% growth rate, and further decelerated to a 2.1% growth rate in the most recent quarter.

Next, we examine growth in the average hourly earnings measure shown in Figure A. Earnings accelerated from 2.6% to 3.0% between 2016 and 2018. But over the last six months the growth rate was 2.9%, and for the last quarter the growth rate was just 2.7%.

Growth in the price deflator for personal consumption expenditures excluding food and energy (the price inflation measure the Fed watches most closely) accelerated from 1.3% to 1.6% between 2016 and 2018. But the last six months’ growth was steady at this 1.6% rate, and growth ticked down slightly to 1.5% in the last quarter.

The next indicator we examine is residential investment—probably the component of GDP most sensitive to interest rate changes. As the Fed raised interest rates steadily (if slowly) between 2015 and 2018, this sector should be where we see evidence that these rate hikes have constrained growth. This is borne out in the data, as growth in residential investment slowed from 6.5% in 2016 to ?1.5% in 2018. In the last six months residential investment decelerated a bit more slowly, contracting at a 1.3% rate. The last quarter saw a 1.5% contraction.

The second most interest-sensitive component of GDP is nonresidential fixed investment (NRFI—or business investment). NRFI accelerated from 0.7% growth in 2016 to 6.4% growth in 2018. In those years, the NRFI trends were dominated by changes in the prices of energy goods and services, with faster price growth in the energy sector inducing more business investment. But more recent data show a pronounced slowdown. In the last six months, NRFI grew at just a 1.9% rate, while it contracted 0.6% in the latest quarter.

Cooling economy does provide some basis for a rate cut

By many measures, the U.S. economy seems to be cooling. A Fed decision this week to cut rates would have some real evidentiary basis behind it.

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It’s not trickling down: New data provides no evidence that the TCJA is working as its proponents claimed it would http://www.jietou4.net.cn/blog/its-not-trickling-down-new-data-provides-no-evidence-that-the-tcja-is-working-as-its-proponents-claimed-it-would/ Mon, 29 Jul 2019 22:02:22 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172380 The strongest economically-respectable argument from proponents of the Trump administration’s Tax Cuts and Jobs Act (TCJA) was that corporate tax cuts would eventually trickle down to workers’ wages. The theory goes that higher after-tax corporate profits are passed down to shareholders in the form of higher dividends. Higher dividends incentivize households to save more, or attract more savings from abroad. The increased savings push down interest rates, so that it’s easier for corporations to borrow money to invest in new plants and equipment. And this new capital stock gives workers more and better tools to work with, boosting their productivity, and eventually that increased productivity should boost wages.

We’ve explained plenty of times why, in practice, this theory was unlikely to hold (and that even this theory depends on the tax cut not being debt-financed to work—but the TCJA was indeed financed solely with debt). But the bottom-line linchpin for assessing if the TCJA is working as promised is the performance of investment. We now have 18 months of data on investment since the passage of the TCJA, plenty of time for its increased incentives for private investment to have taken hold. But the data doesn’t come close to supporting the story told by TCJA proponents.

Figure A
Figure A

The TCJA was supposed to boost investment. Instead after a few quarters of upward growth consistent with the pre-TCJA trend, the year-over-year change in nonresidential fixed investment seems to be falling off a cliff. Year-over-year growth in real, nonresidential fixed investment was 2.7 percent in 2019Q2—a far cry from not just the 6.9 percent growth in 2018Q3, but also the pre-TCJA growth of 5.4% in 2017Q4.

Previously it appeared that investment growth had simply stalled, instead of the boom the TCJA was supposed to create, but revisions paint a worse picture.? Meanwhile, real, residential fixed investment hasn’t posted a quarter of positive growth since the passage of the TCJA.

And to be clear, this was a story about the long-run. If the TCJA were to be working as advertised, we’d expect to see a significant permanent step-up in investment. As we’ve said, the failure of the TCJA shouldn’t come as a surprise. A clear-eyed look at the available evidence always suggested workers would not likely benefit significantly from a corporate rate cut.

With the TCJA’s corporate rate cut exacerbating decades of rising income inequality, and little evidence to be working as promised, it’s time for its repeal.

 

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Detailed estimates for policies in EPI’s ‘Budget for Shared Prosperity’ http://www.jietou4.net.cn/blog/detailed-estimates-for-policies-in-epis-budget-for-shared-prosperity/ Mon, 29 Jul 2019 20:58:39 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172376 On June 11, 2019, EPI participated in the Peter G. Peterson Foundation’s (PGPF) “Solutions Initiative.” This project entailed submitting our own model federal tax and budget plan. In a previous post, we described the big picture behind our proposals. And in a recent report, we described the size of the spending and revenue increases in our budget, while paying particular attention to the details of our proposals for raising revenues and the reasoning behind them.

But we also wanted to provide more specific scores for each proposal in the “Budget for Shared Prosperity.” Estimates for spending proposals were put together by EPI and reviewed by independent scorekeepers contracted by PGPF. Estimates for the tax policies in our budget were put together by the Tax Policy Center (TPC). More information on score-keeping can be found in the report for the “Solution’s Initiative.”

Table 1 provides 30-year scores for each of the proposals in the “Budget for Shared Prosperity” in billions of dollars, as well as the effect on debt and deficits. Table 2?provides the net effects of these proposals relative to CBO baseline as a percentage of GDP.?And Table 3?provides the net effects of these proposals relative to CBO baseline in billions of dollars.

Table 1
Table 1
Table 2
Table 2
Table 3
Table 3
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August Recess 2019: A look back at the House’s legislative victories that benefit working people http://www.jietou4.net.cn/blog/august-recess-2019-a-look-back-at-congresss-legislative-victories-that-benefit-working-people/ Fri, 26 Jul 2019 17:46:58 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172309 Today, Congress ended its legislative work for the summer. Members return to their districts after a busy week dominated by discussion of the Mueller report. While much of the focus of the 116th Congress has been on investigations of the Trump administration, the House of Representatives has passed several bills that would benefit working people. Just last week, the House passed the Raise the Wage Act which would raise the minimum wage to $15 an hour in 2025. This critical legislation would increase wages for over 33 million U.S. workers and lift 1.3 million people out of poverty–nearly half of them children. Workers in every congressional district in the country would benefit from this critical legislation. EPI recently released a map that shows the benefits of raising the minimum wage to $15 by 2025 by congressional district.

In March, the House passed the Paycheck Fairness Act, which would strengthen the Equal Pay Act of 1963 and guarantee that women can challenge pay discrimination and hold their employers accountable. Since the passage of the Equal Pay Act of 1963, millions of women have joined the workforce. However, more than five decades later, women are still earning less than their male counterparts. On average in 2018, women were paid 22.6 percent less than men, after controlling for race and ethnicity, education, age, and location. This gap is even larger for women of color, with black and Hispanic women being paid 34.9 and 34.3 percent less per hour than white men, respectively—even after controlling for education, age, and location. The Paycheck Fairness Act is crucial legislation in reducing these gender pay gaps and guaranteeing women receive equal pay for equal work.

In May, the House passed the Equality Act, which prohibits discrimination in housing, the workplace, and other settings on the basis of sex, gender identity and sexual orientation. While many states have enacted laws to protect LGBTQ Americans against discrimination regarding sexual orientation and gender identity, there is no federal law that would provide the same protections. There is, however, a glaring need: nearly two-thirds of LGBTQ Americans have experienced discrimination in their personal lives. The Equality Act amends the Civil Rights Act of 1964, the Fair Housing Act, the Equal Credit Opportunity, and the Jury Selection and Service Act to explicitly include sexual orientation and gender identity as protected characteristics. The Equality Act is a pivotal step toward ensuring equality for all Americans.

In addition to the bills the House has already passed this session, a number of others that have been introduced that would restore and strengthen workers’ rights.

  • Protecting the Right to Organize (PRO) Act: Unions are critical for increasing wages, improving working conditions, and combating income inequality in America. However, the erosion of labor laws and attacks on unions by special-interest groups have weakened union membership to just 10.7 percent in 2018. The result has been stagnant wages for working people, unsafe workplaces, and rising inequality. The Protecting the Right to Organize (PRO) Act, introduced by Rep. Bobby Scott (D–Va.) and Senator Patty Murray (D–Wash.), would strengthen the federal laws that protect workers’ right to organize a union and collectively bargain over wages, benefits, and better working conditions.
  • Public Service Freedom to Negotiate Act: Under current federal law, public service workers do not have the freedom to join in union and collectively bargain over wages or working conditions. The Public Service Freedom to Negotiate Act, introduced by Rep. Matt Cartwright (D–Penn.) and Sen. Mazie Hirono (D–Hawaii), would require states to provide public-service workers the freedom to join in union and collectively bargain. Ultimately, the bill would provide?17.3 million public employees?a national standard of bargaining rights.
  • Forced Arbitration Injustice Repeal (FAIR) Act and the Restoring Justice for Workers Act: According to a recent report by EPI and the Center on Popular Democracy, more than 80 percent of workplaces will subject their workers to mandatory arbitration with class and collective action waivers by 2024. The FAIR Act, introduced by Rep. Hank Johnson (D–Ga.) and Sen. Richard Blumenthal (D–Conn.), would eliminate forced arbitration in employment, consumer, and civil rights cases. The Restoring Justice for Workers Act, introduced by Reps. Jerrod Nadler (D–N.Y.) and Bobby Scott (D–Va.) and Senator Patty Murray (D–Wash.), would ban mandatory arbitration and class and collective action waivers in labor and employment matters.
  • Restoring Overtime Pay Act: In June, Reps. Mark Takano (D–Calif.) and Bobby Scott (D–Va.) and Sherrod Brown (D–Ohio) and Patty Murray (D–Wash.) introduced the Restoring Overtime Pay Act, which strengthens overtime protections by attaching the salary level to the 40th percentile of earnings of full-time salaried workers in the lowest wage census region. The bill also requires automatic updates every three years to ensure the level remains in line with the changes in our economy. If Congress were to enact the bill in 2019, the overtime salary level would increase from $23,660 per year to roughly $51,000 per year, making roughly 4.6 million workers newly eligible for overtime pay.
  • Wage Theft Prevention and Wage Recovery Act: Wage theft—the of failure of employers to pay workers money they are legally entitled to—is a widespread and deep-rooted problem that directly harms millions of U.S. workers each year. According to a recent study by EPI, employers steal over $15 billion from American workers’ paychecks each year through minimum wage violations alone. This month, Rep. Rosa DeLauro (D–Conn.) and Sen. Patty Murray (D–Wash.) introduced the Wage Theft Prevention and Wage Recovery Act, which would combat wage theft by strengthening current federal law and empowering employees to recover their lost wages. If enacted, the bill would ensure that workers across America receive a fair day’s wage for a fair day’s work and empower them to recover the lost wages they deserve.

The House has taken action on key workers’ rights measures. Chief among these is the Raise the Wage Act. When the Senate returns from recess, Majority Leader McConnell should allow votes on this critical bill. If he does not, he is preventing a raise for millions of U.S. workers. Further, the House should prioritize passage of the PRO Act, the Public Service Freedom to Negotiate Act, and the FAIR Act. Each of these measures would help unrig a system that is tilted toward corporate interests and help to make our economy more just.

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Affordability and quality—attainable goals for an effective early care and education system http://www.jietou4.net.cn/blog/affordability-and-quality-attainable-goals-for-an-effective-early-care-and-education-system/ Fri, 26 Jul 2019 17:45:17 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172314 Last month, Senator Warren (D-Mass.) and Representative Haaland (D-N.M.) introduced the Universal Child Care and Early Learning Act. The legislation sets out to tackle the two-pronged problem with the current early care and education (ECE) system in the Unites States today: affordability and quality. Current funding for the ECE system is insufficient because what parents can afford to pay is simply not enough to provide early educators with a fair wage and ensure high-quality care and education for young children.

The lack of affordability for families has been well-documented. EPI has consolidated information from a variety of sources and crunched the numbers on affordability for each state into handy child care fact sheets. There, you can see just how hard it is for families to pay for ECE for one, let alone two children. And, the problem of affordability isn’t limited to low-income families. In Arizona, the state with the median (middle) value of infant care costs across the nation, a typical family with children would have to pay 20 percent of their income for infant care. The cost is more than one year of in-state tuition for a four-year public college and greatly exceeds the recommended affordability standard of 7 percent.

The proposed legislation tackles affordability by setting limits on how much parents need to pay out of pocket for care. Those with incomes under 200 percent of the federal poverty line (about $40,000 for a two-parent one child family) are fully subsidized, while expenses are capped on a graduated basis up to 7 percent of income for the highest earners. This payment structure recognizes that affordability issues persist in not just the poorest of families but many middle-income families as well.

What is particularly groundbreaking about Senator Warren and Representative Haaland’s proposal is its focus on quality. The legislation sets standards for facilities, acknowledging not only that low ratios of children to teachers are important, but also that high-quality care is essential for social, emotional, and mental development. The problems with the current ECE system don’t end with ensuring affordability. Parents want high-quality options and are often faced with long waiting lists even when they can afford care. As it turns out, to get quality, you need to be willing to pay for it. Because you need to pay to attract and retain early educators, the proposed legislation requires that those workers have pay that is “comparable with the rates of compensation paid to employees of the corresponding local educational agency with similar training, seniority, and experience,” that is, on par with public school teachers.

In a report co-released earlier this week with the University of California, Berkeley’s Center for the Study of Child Care Employment, we discuss the importance of aligning costs with values and lay out the key principles for an effective ECE system. Our principles include the following requirements:

  • Young children—regardless of age or setting—need well-prepared teachers.
  • To attract and retain highly skilled teachers, an early care and education system must offer fair wages, benefits, and working conditions.
  • To provide high-quality care and education, reasonable limits should be placed on the number of children per teacher and sufficient staffing should be maintained to ensure adequate coverage at all times.
  • Teachers must be allotted adequate time during which they do not have responsibility for children, so that they can take care of other professional responsibilities as well as obtain further professional development.
  • Program administrators and other key personnel must also have fair pay and healthy working conditions.
  • To meet the increased demand for services anticipated once a stronger system is in place, the pipeline of highly qualified and committed teachers must be increased.

These principles strongly resemble the values which appear to guide the recently proposed legislation. Unfortunately, the current ECE system continues to shortchange children, families, and teachers. Creating a values-based budget for early care and education—like estimated for California’s ECE system—requires aligning costs with what is actually needed. Early care and education should no longer be financed through low teacher pay. The lack of adequate financial and professional supports to these early educators compromises the consistency and quality of care children receive. In acknowledgement of these facts, it is clear that Senator Warren and Representative Haaland’s Universal Child Care and Early Learning Act would vastly improve our current system to the benefit of all.

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Teachers need better professional development opportunities, more support http://www.jietou4.net.cn/blog/teachers-need-better-professional-development-opportunities-more-support-from-the-system/ Fri, 26 Jul 2019 16:45:37 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172298 We recently published a deep-dive into the professional development of teachers—strengths, shortcomings, places for improvement. What we found, in short, was reason for optimism on a few fronts, substantial room for improvement on a much larger number of aspects—and also room for learning more about these systems of supports.

The lastest report of our “Perfect Storm in the Teacher Labor Market” series?is devoted to examining the systems of professional supports available to teachers—i.e. the early career, ongoing professional development opportunities, and the learning communities they are part of.

Though in the report we keep the main two themes of “equity” and “quality” used in the teacher shortage series, this time, unlike in previous reports, we navigate grayer areas regarding the framing of the report and the straight correlations between the supports and the shortage. For one, because there is no set of supports deemed as ideal and universally valid in the field, because there is insufficient information about for whom, for what, and why these supports matter , and also because it is unlikely that lack of any specific resource or support can be a sole cause for expelling teachers from the classrooms or not attracting new ones to them (or at least these are less clear than in prior reports).

With these caveats in mind, we anchor this report on a) common sense on why professional supports may matter for teachers; b) evidence on standards and recommendations from evaluations in the United States., comparisons of supports across countries, and in the most important education regulation in the country; and c) information available at our level of analysis—U.S. K-12 teachers in public schools surveyed in several studies by the National Center for Education Statistics (the 2015–2016 National Teacher and Principal Survey, 2011–2012 Schools and Staffing Survey, and the 2012–2013 Teacher Follow-up Survey microdata).

In terms of the systems of supports currently in place, the best news from the analyses is that large shares of teachers participate in some sort of professional development opportunity. (By the way, this is something that, according to the new OECD’s TALIS study released in June, seems to be true in most countries). For example, large shares of first-year teachers work with a mentor (79.9 percent) or participate in teacher induction programs (72.7 percent). And large shares of teachers generally are accessing certain types of professional development, including workshops or training sessions (91.9 percent), activities focused on the subjects that teachers teach (85.1 percent), and to a lesser extent, had opportunities to observe or be observed by other teachers in their classrooms (67.0 percent).

However, most indicators we describe overshadow this news, and in almost all cases, features of the systems of supports that are currently in place can be significantly strengthened. First, we find limited access to some of the types of professional development that are highly valued and more effective, such as attending university courses related to teaching, presenting at workshops, or making observational visits to other schools, are available to less than a fourth of teachers. Likely, lack of resources that would allow teachers to participate in these opportunities are an obstacle in the way of getting more and better access to the various supports—as novice and veteran teachers largely don’t get the time and assistance they need to study, reflect, and prepare their practice.

For instance, among all teachers, only half have released time from teaching to participate in professional development (50.9 percent), and less than a third are reimbursed for conferences or workshop fees (28.2 percent), and among novice teachers, only 1 in 10 get a reduced teaching schedule (10.7 percent). Very importantly, a need to review the quality and usefulness of the supports became apparent in our analyses, given the fact that most teachers are not highly satisfied with their professional development experiences: only less than a third of teachers found any of the activities they accessed “very useful,” and over a third of novice teachers thought mentors were of little help.

Another concerning aspect in the systems of supports has to do with the fact that teachers are not by and large immersed in learning communities that nurture good outcomes for teachers and students alike (which we also discussed in our previous report, in connection with the schools’ climates then). More than two-thirds of teachers report that they have less than a great deal of influence over what they teach in the classroom (71.3 percent) or what instructional materials they use (74.5 percent), and just 11.1 percent of teachers have a great deal of influence determining the content of professional development programs, leaving significant for improvement in terms of taking teachers’ knowledge and judgment into consideration.

We know that good supports matter for teachers, students, and for the quality of education children receive for a number of reasons. Among others, good supports allow teachers to acquire new skills and update their knowledge, and strengthen their practice and their effectiveness in the classroom, all critical to issues of quality. We also show in our analysis that good systems of supports are implicated in the shortage because relative to teachers who quit teaching, larger shares of staying teachers had been assigned to a mentor (77.0 percent vs. 69.2 percent), found their subject-specific professional development activities very useful (27.4 percent vs. 19.5 percent), or worked in highly cooperative environments (38.7 percent vs. 33.9 percent).

As suggested earlier, this report came with more subtle elements and more caveats than the previous reports, but hopefully, acknowledging them as explicitly as possible can turn into an opportunity for strengthening the systems of supports as we move forward.

The aspect for hope is that these caveats offer practice, research, and policy an opportunity to work more closely on creating a fully cohesive story around the systems of professional supports available to teachers that is based on increasing what we know about what constitutes optimal professional development—i.e., what the contents need to be, what the style, where it should take place, when and for how long, who how teachers are assigned to the opportunities, why teachers want these supports, and whether there is a single optimal combination valid for all teachers at all times and in all settings—and on what exact roles they play in keeping teachers in the classroom and attracting new fellows into teaching. Though this was a moving target and brought some less stable aspects to the analyses than we wished for, their proper assessment would only positively contribute to strengthening the quality of education and to weakening the teacher shortage problem as well.

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Social Security expansion would likely bolster, not hurt, economic growth http://www.jietou4.net.cn/blog/social-security-expansion-would-likely-bolster-not-hurt-economic-growth/ Thu, 25 Jul 2019 14:57:05 +0000 http://www.jietou4.net.cn/?post_type=blog&p=172221 A recent analysis from the Penn Wharton Budget Model (PWBM) claims that expanding Social Security benefits along the lines of Rep. John Larson’s (D-Conn.) Social Security Act of 2100 (“the Act”) would slow economic growth. The model warrants a closer look, not just because it casts doubt on Social Security expansion, but because some of its dubious assumptions can be used against almost any policy that raises progressive taxes to pay for programs tilted in favor of low- and moderate-income Americans.

The Act, which has over 200 cosponsors, would increase payroll tax revenues to pay for expanded benefits while eliminating or greatly reducing Social Security’s long-term deficit. Among other things, the act would subject earnings above $400,000 to the Social Security payroll tax (earnings above $132,900 are not currently taxed); gradually raise the payroll tax rate; increase benefits in a progressive fashion;1 and change consumer price index used for the cost-of-living adjustment to better match the higher inflation faced by seniors.

The PWBM projects that the Act would reduce GDP by 2 percent in 2049. According to the analysis:

“The reason for the poorer economic performance [relative to alternative reforms suggested by the PWBM that combine revenue increases with benefit cuts] is that the Act does not reduce benefits and, in fact, increases benefits by 0.61 percent of future taxable payroll by 2049. Taxes that distort economic activity are then used to reduce the actuarial balance over time, including these new benefits. The Act, therefore, actually decreases the need for higher-income households to save more for their own retirement, whereas combined reforms generally increase the need.”

In other words, increasing payroll taxes and expanding benefits reduces after-tax pay and the need for private saving, shrinking the labor supply and the funds available for investment. Since the model ignores the positive effect of progressive redistribution on aggregate demand, these negative supply-side effects slow economic growth.

A positive impact

Other economists, however, notably former Council of Economic Advisors Chair Jason Furman and former Treasury Secretary Lawrence H. Summers, view the Act as having a positive impact on economic growth, despite the need to raise taxes:

Social Security benefits should in fact be raised for the majority of recipients. Despite the fact that Social Security is an efficient, defined benefit program, its benefits are not generous by global standards and leave too many seniors in or close to poverty. Expanding benefits only works, however, if people are willing to pay more during their working years—meaning that revenue, and not just from high-income households, has to be an important part of the solution, as in the plan advanced by Congressman John Larson. The advantage of this approach is that it would expand aggregate demand, as the additional spending by the elderly would outweigh any reductions in spending associated with higher payroll taxes, in part because the plan could lead households to save less.

In this Keynesian view, progressive redistribution increases aggregate demand and economic growth. Though Furman and Summers approve of increasing payroll tax revenues to pay for expanded benefits, they view the tax increase as dampening the expansionary impact of redistribution from working-age households to older beneficiaries who tend to spend the money more quickly. Though Furman and Summers don’t elaborate on their reasoning, the dampening effect doesn’t primarily stem from labor market distortions, but more likely from fiscal contraction (since eliminating Social Security’s projected shortfall shrinks the unified budget deficit).

Though the negative impact of taxes on work effort looms large in the PWBM, taxes have an ambiguous effect on work effort in standard microeconomic models. Payroll and income taxes make work less appealing by reducing the opportunity cost of leisure (the “substitution effect”), but also reduce take-home pay and therefore cause the demand for leisure and other normal goods to fall (the “income effect”). While most economists estimate that the substitution effect is dominant, the net effect on the labor supply may be quite small because of the offsetting income effect.

The PWBM, however, assumes that labor supply is very sensitive to tax increases. Thus, while a Congressional Budget Office (CBO) review of the literature found that the Frisch labor supply elasticity, which measures the responsiveness of labor supply to tax increases, ranged from 0.27 to 0.53, the PWBM assumes a Frisch elasticity of 0.5, close to CBO’s upper-bound estimate.

This appears to be a pattern with the PWBM, where important parameters fall within the range of respectable opinion but are tilted in the direction of finding negative effects of tax increases and budget deficits. In addition to a high labor supply elasticity, the PWBM assumes that the saving rate is highly sensitive to after-tax investment returns, and that investment, in turn, is highly dependent on domestic saving despite international capital flows. With assumptions that exaggerate the negative effects of taxes and deficits, spending cuts are left as the surefire way to boost economic growth, in line with the apparent preferences of some of PWBM’s funders, such as former Microsoft CEO Steve Ballmer.

Generally speaking, policies that increase saving will, all else equal, tend to boost growth in supply-side models, while those that tend to reduce saving—including expanding Social Security benefits—will have the opposite effect. Social Security reduces private saving because people would save more in its absence, though not enough to offset the loss of benefits. Social Security itself functions mostly as a pay-as-you-go program, with payroll taxes from workers going directly to retirees and other beneficiaries.2 The net effect of expanding a program that has little direct effect on government saving but indirectly reduces private saving is a reduction in national saving. However, since the Act raises taxes not only to expand benefits but also to close the projected shortfall, it is not at all clear that it reduces national saving relative to CBO baseline projections.

In addition, since wealthy people tend to save a greater share of their incomes and savings is assumed to drive investment in supply-side models, upward redistribution generally translates into greater investment and faster growth in supply-side models. The PWBM, for example, projects faster growth in the near term from the Trump tax cuts due to increased private saving and investment.3 In Keynesian models, on the other hand, regressive redistribution tends to decrease aggregate demand because high-income households tend to save more. Conversely, progressive redistribution, as in the Act, boosts economic growth except when the economy is already operating at full employment, which is likely to be the exception, not the rule.

Whether you believe the PWBM analysis or Furman and Summers depends on whether you think economic growth is, as a rule, demand- or supply-constrained. Many economists split the difference, viewing Keynesian models as “short-term” and supply-side models as “long-term.” This gives the latter, which are often based on theory rather than grounded in reality, more weight in policy discussions than they deserve, especially since the full employment assumption is rarely spelled out.4

Whereas Keynesians often take into account some supply-side effects, the reverse is generally not true of supply-side models, which preemptively rule out demand-side effects on employment and economic growth by assuming that the economy is operating at capacity in the long-run. In these models, the growth rate depends only on the size and productivity of the workforce, the level of investment, the return on capital, and perhaps technological change. Thus, the only effect on employment derives from more people choosing to enter the labor force or work more hours, often in response to tax cuts. But as John Maynard Keynes famously quipped about assuming that unemployment and underemployment can only be temporary deviations from the full-employment norm, “In the long run, we’re all dead.”

In recent years, many economists have pushed back against the idea that boosting aggregate demand only affects economic growth after temporary cyclical downturns. Summers in particular has revived the theory of “secular stagnation,” whereby mature economies can operate below capacity indefinitely (or, see this productive capacity itself eroded) due to a chronic shortfall of aggregate demand stemming from households’ increasing propensity to save and firms’ decreasing propensity to invest, a combination that can drive real interest rates toward zero and prevent the economy from self-correcting by generating ever-lower interest rates. Other economists, including former Fed Chairman Ben Bernanke, UC Berkeley economist Brad DeLong, Nobel Prize winner Paul Krugman and former International Monetary Fund chief economist Olivier Blanchard, have espoused similar “secular stagnation,” “savings glut,” or “liquidity trap” arguments that call into question whether what the United States needs right now is greater savings. Even if one thought that advanced country growth has been supply-constrained in the past, recent developments (particularly the rise of inequality that has transferred income from high-spending to low-spending households) may well have pushed these advanced economies into becoming demand-constrained.

In a recent paper, Summers and Bank of England economist ?ukasz Rachel estimate how expansionary social insurance programs have helped to prop up the U.S. economy. Summers and Rachel estimate that Social Security and Medicare expansions pushed the “neutral” (a.k.a. “equilibrium” or “natural”) real interest rate up by 3.2 percentage points over the past 40 years. Since Rachel, Summers and others estimate that the real neutral rate—the highest rate consistent with maintaining full employment—is now barely above zero, this suggests that past Social Security expansions, rather than being a drag on growth, have buoyed what would otherwise be an economy requiring large budget deficits to stay afloat.

To recap, both Keynesian and supply-side models are in agreement that the Act would have the intended effect of increasing retirement income, smoothing lifetime consumption, and redistributing from working-age and higher-income households to retirement-age and lower-income households. They also agree that expanding benefits will tend to reduce private saving, though supply-side models such as the PWBM emphasize this aspect more (and the effect of the Act on national saving is ambiguous because it also closes Social Security’s projected shortfall). However, the two types of models differ as to whether more saving or more spending is needed to boost economic growth.

If an otherwise useful policy slows growth, this is not by itself reason to dismiss it out of hand. Growth and distribution both matter if the goal is improving the lives of the greatest number of people, and Social Security is modestly redistributive toward people with lower incomes.5 Moreover, policies that have other benefits—in the case of Social Security, smoothing consumption over the life-cycle and insuring against death and disability—can improve wellbeing regardless of their effects on distribution or economic growth.

In this case, however, there is reason to doubt that the benefits of Social Security expansion come at the expense of economic growth. Rather, Social Security expansion is a win-win policy, except maybe for wealthy people trying to avoid paying payroll taxes on earnings above the current cap.

End Notes

1. The Act would increase the lowest benefit multiplier from 90 percent to 93 percent. The higher multiplier would apply to average indexed monthly earnings (AIME) up to $926. Therefore, all workers with AIMEs equal to or higher than $926 would see a $28 per month increase in benefits (those with lower earnings would see a smaller dollar increase but larger percentage increase than those with earnings above that threshold).

2. Social Security is an off-budget program with dedicated funding and a mostly pay-as-you-go structure, in contrast to advance-funded employer and individual retirement plans such as 401(k)s, IRAs and traditional pensions. However, Social Security can have a modest effect on the unified budget deficit, which includes off-budget programs, as funds are contributed to and later withdrawn from the Social Security trust fund to accommodate demographic bulges such as the Baby Boomers. The Social Security trust fund reduced the unified budget deficit when the Boomers were working and the trust fund was growing, and will increase the deficit as the Boomers retire and the trust fund shrinks. However, in contrast to other government programs, Social Security cannot increase the federal debt over the long run because funds can only be withdrawn that were saved in the first place.

3. In the out-years, the model projects that growth may be slower than it would have been without the Tax Cuts and Jobs Act due to higher interest rates caused by a rising debt level.

4. For example, advocates of the U.S.—Mexico–Canada Trade Agreement, the Trans-Pacific Partnership and other trade deals have touted supply-side employment gains from models that, by design, ignore potential demand-side job losses.

5. Social Security retirement and spousal benefits replace a larger share of pre-retirement earnings for low earners. Low-income workers and dependents are also more likely to receive disability and survivor benefits. However, this progressivity has been partially eroded by growing gaps in life expectancy between high- and low-income beneficiaries.

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