Why What The Fed Does, Especially Under Trump, Should Matter To You | Economics on Blog#42
For weeks now, the focus of the media has been almost exclusively on the shiny topic of the ongoing Russia investigations.
But what of all the other things that affect Americans more directly? With the notable exception of the Senate’s spectacular fail-whales in recent weeks, not much else is being reported on all the things the Trump oligarchy is rolling back and how those things affect everyone. Congress, for all of the ink that has been spilled, has yet to pass anything substantive of immediate significance.
Whether or not they get their act together, there is one thing Congress must pass, and that is a budget. The budget, we can be sure, will be full of pork, roll-backs of social safety net legislation, tax cuts for the wealthy, and as many things as they can include that will weaken the ACA, absent a bill that actually kills it. The Trump administration, for its part, has all kinds of tools at its disposal, through the Secretary of Health and Human Services (HHS), which are provided for in the ACA legislation by way of the authority granted to the Secretary of HHS to amend rules that were enacted into law. Congress doesn’t really need to kill the ACA. HHS already has the ability to cause it death by a thousand cuts, to the point where Obamacare might as well be dead. That said, failing a repeal, a budget that funds the ACA must pass Congress by the end of the summer. That is the law.
The budget is the primary tool the GOP will use in order to set up the U.S. economy for the next bubble. Between a new “budget-busting” military funding bill that was passed on July 14, huge planned additional tax cuts, all of the regulations various government agencies started furiously rolling back the instant cabinet nominees were confirmed, and the infrastructure bill we know we won’t get this year, we are being set up for the mother of all bubbles.
Why the mother of all bubbles? Because, in spite of appearances, both those the media and political figures have been (mis) representing, the recovery with all of the millions of jobs that are still being filled, has been a very limited one.
In “Will the Federal Reserve really have what it takes to fight off the next recession?” Jared Bernstein wrote:
“No one knows when the next recession is going to hit, there are no obvious destabilizing bubbles of which I’m aware, and the job market is percolating along at a good clip. We’re not at full employment, but we’re getting closer. As you know, the Fed is thinking about tightening. Bad idea, I’d argue, but not a sign of impending recession. The key point, though, is that we just can’t accurately call these things.
But I think I did succeed in getting her equally nervous about a different point: There is, of course, a recession out there somewhere. The problem isn’t that we don’t know where; it’s that we’re not ready for it.
There are two broad reasons why that’s true. One, you simply cannot trust our Congress to act quickly and forcefully on countercyclical, discretionary fiscal policy (“discretionary” meaning the stuff aside from the automatic stabilizers). Two, the Federal Reserve’s likely limited-firepower problem. The main countercyclical tool at the Fed’s disposal is the interest rate they control, the federal funds rate (FFR), a benchmark for borrowing costs throughout the economy.”
Nothing of any economic significance has changed since Bernstein wrote this in his August, 2016 Washington Post piece.
With no significant government or corporate reinvestment in the economy since the start of the Great Recession or since President Trump was inaugurated, with no enactment of fiscal policy to complement the Fed’s quantitative easing (QE) due to GOP obstruction, and now GOP infighting, the immediate and complete turn-about on legislation that was passed to prevent a recurrence of the Great Recession – all of these elements conspire to create the perfect storm for a depression.
Why a depression and not another severe recession? The short answer is that the recovery from the Great Recession didn’t restore the kind of robustness that allows for the lower-middle and working classes to replenish the wealth they lost, or for a new generation of workers, to get the same kind of start their elders did at their age.
The lack of a robust recovery is also why demand has remained relatively modest, with people refraining from spending – not so much because of uncertainty, though it is a factor – but, rather, because the millions of new jobs that were created in the recovery don’t pay high wages. Young people are taking these new jobs as many can find none in the fields they trained for. Older workers who are entering the gig workforce may be doing so out of a lack of choice.
One of many sectors that point us to a weak recovery as the cause of this is home sales. Millennials aren’t buying homes the way their parents did. Why? For one, millennials who’ve been graduating from colleges since the great recession have neither found the kinds of good jobs their parents graduated to that would support starting out on their own and paying their student debt. Those who did find jobs that match their new qualifications have rarely found the kinds of starting pay their parents did. Then, remember, the number of young people remaining at home is the highest it has ever been in our history.
Homelessness began to rise, exponentially, by the end of the year 2014, as a direct result of the discontinuation of long-term unemployment benefits for those who were laid off at the start of the Great Recession.
“… the safety net already suffered from Republican cuts that were agreed to by Democrats and took effect in 2014, in the budget that was passed and signed at the end of 2013. Those cuts ended long-term unemployment and reduced eligibility and benefits under TANF. The negative impact of those cuts was felt that same year, with homelessness rates beginning to rise so sharply that two years later, many large metropolitan areas declared states of emergency due to new housing crises. While the rate at which the economy has added new jobs has accelerated in that time period, there are still 95 million underemployed and unemployed according to the BLS’ last published jobs report for the year 2016.”
Then, as if these reasons, together, weren’t enough, there has been an ongoing affordable housing crisis for the last two years, and there is no visible end in sight, especially now that we see where the winds are blowing with the Trump administration and its plans for the economy.
Now, the Federal Reserve, which has been single-handedly propping up our economy since the start of the Great Recession, is finding that it needs to rethink implementing its plans to end post-recession easing. Since the start of the Great Recession, the Fed’s thinking had been that it would begin to stop pumping money into the economy and begin to raise interest rates once the economy hits full employment.
It has been generally agreed among economists that the nation is at full employment when unemployment is at 5% or below, and that once full employment is reached, there is a risk of rising inflation, once wages and the price of goods begin to rise.
But that consensus was reached before the advent of the “Gig Economy” and, 5% as the magic number is not one of the Ten Commandments. 5% is a ball-park that economists generally view as a safe level. There is also the matter of how we count the unemployed, and that math is highly, highly political.
“Full employment” as it has been imagined until now, has not been a concept that includes a reality in which so many Americans would end up working as freelancers and part-timers, making less than minimum wage, mostly receiving no employer-provided benefits at all. We’ve been nibbling at full employment for almost a year now, and the inflation remains much lower than the Fed has been projecting.
If on the one hand, 4.4% unemployment means that America is firmly in full employment territory, why then aren’t people spending money more freely? Why aren’t people earning more? The lack of progress in these two economic areas begs the question: “are we really at full employment?” Economist Jared Bernstein is one of the few voices who’ve been cautioning the Fed to rethink its strategy on raising interest rates and its interpretation of employment data. Here is Jared in an interview he gave to CoBank Outlook: 1.
OUTLOOK: How do you define “full employment”—and are we there yet?
Jared Bernstein: Full employment is that highly desired state in which there’s an extremely tight matchup between the number of job seekers and the number of jobs. If we were there now, that would be good news for workers, because tight labor markets deliver the bargaining power workers lack in weaker labor markets.
We’re getting close, but I don’t think we’re there yet. True, our current unemployment rate is low, and that’s widely considered to be the best indicator of full employment. But other indicators haven’t followed suit. Think of employment as a glass of water. When an economy reaches full employment, adding new jobs is like adding water to a glass that’s already at the brim. Instead of helping your employment rate, new jobs essentially spill over in the form of rising inflation. Yet our key inflation gauges are not accelerating—they’re decelerating. To me, that’s a key sign that we’re still not at full employment.
OUTLOOK: How do wages factor in?
JB: At full employment, wage growth should be accelerating. Employers should be bidding up wage offers to get and keep the workers they need. But for non-managerial workers especially—the folks who really depend on a tight labor market to give them bargaining clout—wage growth went from around 1.5 percent per year after the Great Recession to around 2.5 percent now, and it has been stalled there for more than a year. That’s a little peculiar considering how much the job market has tightened up. And because energy prices have gone up recently, the buying power of those workers’ paychecks has actually flattened out.
OUTLOOK: What signs will convince you we’ve reached that tipping point to full employment?JB: I don’t think we can use one indicator anymore. For full employment, we would need an unemployment rate in the neighborhood of 4 percent, along with wage growth of about 3 percent, and inflation would have to be creeping up instead of slowing down.
Larry Summers is another economist who has been sounding the alarm against raising rates too fast, and pointing out for several years now, that our economy is in a loop called Secular Stagnation. If you don’t know what that is, here is my best effort at translating the explanation from economese into English:
So, with secular stagnation defined, let’s look at what Larry Summers has been writing about interest rates:
In “5 reasons why the Fed may be making a mistake” (June 14):
“While I do not believe the Fed made a serious mistake Wednesday in raising rates, I believe that the “preemption of inflation based on the Phillips curve” paradigm within which it is operating is highly problematic. Much better would be a “shoot only when you see the whites of the eyes of inflation” paradigm of the kind I have advocated for the past several years.
Such a paradigm would be more credible, more likely to result in the Fed’s satisfying its dual mandate, reduce risks of recession, and increase the economy’s resilience when recession comes.
Many of my friends have recently issued a statement asserting that the Fed should change its inflation target. I suspect, for reasons I will write about in the next few days, that moving away from inflation targeting to something like nominal gross domestic product-level targeting would be a better idea.”
What’s more, as Reuters reports about other central banks:
“The Fed led the way in tightening monetary policy as the global economy recovered from the 2008 recession but must now determine how plans by other central banks’ plans may affect their own policy.
While a stronger European economy has been welcomed by the Fed, lessening risks to the global economy, a move by major central banks to all tighten monetary policy simultaneously has not been seen for a decade.
“The effects of ECB tapering are not limited” to euro zone countries, Cornerstone analyst Roberto Perli wrote recently.
Draghi’s comments in June drove up 10-year Treasury yields US10YT=RR by the most since the U.S. election last November, and a move by the ECB to stop printing money could prompt the Fed to slow its plans for fear that financial conditions would tighten too fast.
When Fed policymakers meet on July 25-26 they will need to decide a start date for reducing their bond holdings or leave more time to evaluate what Fed Governor Lael Brainard recently cited as a possible “turning point” in global monetary policy that may affect economic growth.
The Fed’s plan to reduce its portfolio may well push up longer term bond yields, driving up long term borrowing rates for business, and lead to higher mortgage rates for the housing industry.”
It’s been many years since central banks raised rates all at the same time, but at no time did they do so on the heels of the second worst recession on record, and what is by all accounts a weak recovery.
In “Interest rates are at inconceivable levels, and we must confront what that means” (July 6) Summers wrote:
“The Fed-funds futures market provides a window into market thinking regarding the likely path of monetary policy. Remarkably, the market does not now expect a full Fed tightening until early 2019. This is despite all the Fed speeches expressing optimism about the economy and a desire to normalize interest rates.
I believe these developments all reflect a growing awareness of the importance of the secular stagnation risks I have highlighted over the last several years. There is a growing sense that the world is demand-short — that the real interest rates necessary to equate investment and saving at full employment are very low and often may be unattainable given the bounds on nominal interest rate reductions. The result is very low long-term real rates, sluggish growth expectations, concerns about the ability even over the fairly long term to get inflation to average 2 percent, and a sense that the Fed and the world’s major central banks will not be able to normalize financial conditions in the foreseeable future.”
Is what constitutes “full employment” in the aftermath of the Great Recession the same as after previous downturns? My own sense is that it doesn’t appear to be. I write “appear” because the picture one gets from economic reporting in the media is one that, not unlike the picture we got during the general election, may well be warped by the bubble the media exists in, on the one hand, and the fact that much of it is owned by corporate interests, on the other. This now includes public media, and one must add in the consideration that public broadcasting depends more than ever on the upper middle class for funding, as the Trump administration and the Republican Congress are about to pull the plug on public funding.
Media reporting on economics has both been shallow and overly neglectful of those who aren’t faring as well as they should be. Their numbers, as best as one can glean, are hovering at around a hefty 95 or so million. While allusions are made that spending isn’t where one would expect it to be, given the now “low” unemployment, there are no explanations why. Similarly, the popular press has done a very poor job of explaining to readers the risks of inflation and deflation. The New York Times’ Binyamin Applebaum took some liberties in his analysis of Fed policy:
“A little inflation can brighten the economic mood, causing wages and corporate profits to rise more quickly. Economists like to point out that this is an illusion. If everyone is making more money, then no one can buy more stuff. Prices just go up. But the evidence suggests people enjoy the illusion and, importantly, they respond to the illusion by behaving in ways that increase actual economic growth, for example by working harder.
The Fed’s chairwoman, Janet L. Yellen, told Congress this month that she expects inflation to rebound. But she said the Fed could change course if weakness persists, by, for example, not moving forward with additional interest rate increases.
I would like to think that economics are about more than catering to whimsy. Managing an economy is a delicate balancing act. Too much going in one direction and we have one type of disaster. Too little going in another direction and we have a different type of disaster. Unchecked inflation is the scary monster that the media and right-aligned economists love to frighten American adults with. Republicans, Paul Ryan especially, spent the last six years sounding the alarms about inflation. In nearly nine years since the Great Recession and countless predictions of high inflation by conservatives in and out of the media and economic fields, not once have we ever come close.
In fact, the problem, at this moment, is that even the Fed had fallen victim to inflation-phobia and it is now finally waking up to the fact that we are at much greater risk of falling into deflation, just like Japan did. It took them a very long time to get out from under the worst of it.
The Wikipedia’s definition of deflation is a far more concise one than Applebaum’s glib lines let on:
“In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). … Deflation is distinct from disinflation, a slow-down in the inflation rate, i.e. when inflation declines to a lower rate but is still positive.
Economists generally believe that deflation is a problem in a modern economy because it may increase the real value of debt, especially if the deflation was unexpected. Deflation may also aggravate recessions and lead to a deflationary spiral.”
Paul Krugman wrote a great op-ed on the topic of deflation, in the context of Japan’s experience with it. I highlighted it here:
Deflation should frighten all Americans far more than any other economic phenomenon. It leads to deflationary spirals and those never end quickly. Inflation, on the other hand, is far easier to manage. That is what the Federal Reserve has been evaluating, with its internal discussions about raising or not raising the interest rate and watching the employment pictures for signs we’ve reached the point at which inflation could take off.
Applebaum goes on to remind readers about the Fed under Paul Volcker in the 1970’s and how he dealt with inflation but, quite oddly, says absolutely nothing about his successor, Alan Greenspan whose influence spanned the tenures of three presidents (1984-2006) and monetary policy has caused far more damage than any single economic player in the U.S. The tech bubble of the early 2000’s and the mortgage crisis of the Great Recession trace right back to Greenspan policy.
Applebaum ends his piece with a quote from the conservative think tank, The Peterson Institute’s Adam Posen:
“… the bottom line is that the last few years have raised doubts about all of the standard explanations. Policy makers are sailing without the guidance of a convincing model.”
This is a head-scratcher of an ending for a piece whose purpose is to explain why the Fed is reevaluating its plans for pulling back on Quantitative Easing. First of all, the Great Recession is the second-worst economic downturn since the Great Depression. There are no models other than what was successful to climb back out of the collapse of the 1920’s. That model was scuttled by Republicans in Congress and the Fed, alone, has propped the economy. That isn’t the way things are supposed to work. Fixing the recession always needed the three economic prongs of QE, Congress passing laws aimed at preventing another financial melt-down by re-regulating the banks and, in addition, pass laws specifically designed to promote reinvestment in the economy both through jobs and infrastructure legislation, as well as fiscal policy designed to make it unattractive for corporations to continue taking profit overseas. Aside from weak-tea banking regulations the Trump administration just rolled back, Congress did nothing else during the last six years of the Obama administration. When assessed against these historical facts, Posen’s statements seem intentionally deceiving, which makes Applebaum’s decision to quote them without any further analysis or some progressive economist’s counter-comment all the more puzzling.
In stark contrast, take The Intercept’s Zaid Jilani’s recent piece based on a New York Fed research paper, countering the popular media meme that millennials are more interested in buying avocado toast than saving up to buy a house:
“IN MAY, A MELBOURNE-BASED real estate mogul’s claim that millennials would be able to afford homes if only they cut back on discretionary expenses such as avocado toast went viral — with many heaping mockery on the suggestion.
Now the Federal Reserve has its own hot take to throw on the pile. Except this one is based on empirical research. In a paper published last week by the Federal Reserve Bank of New York, five researchers offered an explanation for declining home ownership rates among millennials that does not require avocado toast.
Looking at nine student cohorts, they concluded that the increase in public tuition and resulting student debt can account for anywhere between 11 and 35 percent of the decline in home ownership for 28- to 30-year-olds in the years between 2007 and 2015.”
Of the two journalists, Appelbaum has the reputation as an economic reporter. Neither one has degrees in economics. Jilani has a Master’s in public administration in addition to a degree in international studies. Appelbaum has a Bachelor’s degree in history. This isn’t an unusual state of affairs in economic reporting.
Marketplace did a piece on the financial instability of millennials of color.
Economist Jared Bernstein recently testified at the House Finance Committee. Here is a relevant portion of his blog post on his appearance:
“Here’s my testimony, which elaborates on these three points:
–Contrary to some of the claims made at the hearing, the Fed’s interventions were highly effective in reducing the damage from the Great Recession, reflating credit markets, and pulling the recovery forward. The Fed’s not perfect, for sure, but a lot of people and businesses would be a lot worse off today if the Fed had sat on the sidelines.
–Under certain conditions, particularly recessions or weak, demand-constrained recoveries, monetary and fiscal policy are critical complements. In this regard, the pivot to austerity budgets by both us (starting in around 2010) and European economies was a lasting economic mistake. Ben Bernanke made this very point to this very committee back in 2013:
“Although monetary policy is working to promote a more robust recovery, it cannot carry the entire burden of ensuring a speedier return to economic health. The economy’s performance both over the near term and in the longer run will depend importantly on the course of fiscal policy.”
–Title X of the CHOICE Act, the brainchild of the R’s on this committee, proposes to micromanage the Federal Reserve in ways that would be hugely detrimental to its independence and its ability to carry out its mandates. As a side point, perhaps interesting to monetary wonks here at OTE, the title’s insistence on the 1993 vintage of the Taylor rule is out of step with much research on the variables, values, and coefficients that would go into such a rule today.”
NPR’s Marketplace recently did a piece on the International Monetary Fund’s (IMF) downgraded expectations of the U.S. economy.
At the start of the segment, the listener is told:
“The International Monetary Fund on Monday downgraded its estimate of U.S. growth prospects. Only three months ago, the world financial body said it thought U.S. gross domestic product would grow by 2.3 percent this year and 2.5 percent next year. Now, it’s lowered its estimates to 2.1 percent. That’s bad news for the economy and the Trump administration, which has been using a growth rate of more like 3 percent in its budget and legislative proposals. Here’s why U.S. growth may be slowing.”
But the piece never quite explains why the economy hasn’t lived up to expectations. Nowhere in the segment is it mentioned that Congress hasn’t invested in America or that it hasn’t done anything to fix those parts of the tax code that encourage investments to be taken overseas. The journalist in this segment is Sabri Ben Achour, an international affairs and foreign service major.
The Washington Post’s Ana Swanson also covered the IMF downgrade:
“The Trump administration came into office six months ago with an ambitious plan to use tax cuts and other measures to boost economic growth to 3 percent or 4 percent, rates not seen in years. But while the administration has moved quickly to slash regulations on businesses, its plans for tax cuts have been bogged down by clashes in Congress and the administration over health care and other issues. The White House on Monday reiterated the administration is optimistic about its ability to achieve its 3 percent growth target.
The IMF said U.S. economic growth could pick up if the administration implements measures like overhauling the tax code — yet it could also fall if Trump’s budget, which consolidates many parts of the government as part of an overall spending reduction, is approved.
The fund also cautioned that government measures in the United States and Britain’s post-Brexit negotiations could end up worsening the current environment of policy uncertainty, harming private investment and weakening growth. It warned that the failure to make growth inclusive could lead to the further spread of protectionism, which could disrupt global supply chains and lower growth.”
Elsewhere on NPR, Steve Inskeep also covered the same general aspects of monetary and economic policy, namely the lack of inflation, on NPR’s Morning Edition:
Just as in the New York Times piece, Inskeep and his guest go over the basics of low interest rates and unemployment. Then, Inskeep asks Brooking’s David Wessel why worry about low inflation? The answer is a bit disjointed, if not entirely odd:
“Well, look, first of all, you have to remember that every price you pay is someone else’s income. So what the Fed is talking about is not just getting the prices you pay up but getting incomes and wages up more rapidly. But secondly, there’s some economic problems with too little inflation.
One of them is this. When there’s very little expected inflation, interest rates are very low – the ones in the markets. And when interest rates are very low, the Fed doesn’t have much maneuvering room. If a recession hits, and it wants to cut interest rates to give the economy a boost, they don’t really have much cushion to get the economy going again if we hit hard times.”
The problem with the (non) answer is that it is very narrow and does not explain for the listener what the consequences are to the economy as a whole, rather than laser-focus only what deflation does to the Fed’s ability to act in a new recession when interest rates are at or near zero.
We begin to get somewhere near the end of the segment when Inskeep asks Wessel about wages:
“INSKEEP: Well, David, now, we’re getting to a subject that I know has been of great concern to you over the years – wage stagnation. I think what you’re telling me is that it’s possible that very low inflation, which sounds like a good thing, is just a symptom of stagnant wages continuing, which is a very bad thing.
WESSEL: Yes, when we talk about wage stagnation, we usually mean inflation-adjusted wages. But you’re right. This is a symptom of an economy that just doesn’t seem to have much zip.”
Steve Inskeep is a communications major and veteran investigative reporter. David Wessel is an economist.
It is very disappointing to see how really shallow reporting has been on what is a crucial facet of economic reporting. While I realize that it is difficult to convey complex economic information in simple terms and short bites, it is nevertheless a journalist’s job to impart as well-rounded a tour of our national news as possible. There are many ways this used to be done, especially in our evening news broadcasts, which used to be divided into the main topics of breaking news, politics, economics, foreign news and sports and entertainment. Unless one watches CNBC (while minding the bent of those on-air), chances are that in-depth coverage of the Federal Reserve will be absent from one’s news diet. But understanding the place of the Fed in our economy and, in turn, the place of the Department of Treasury and Congress, are vital parts of knowing how to vote the next time around…
I’ll close this section with a quote from the well written, thorough reporting by the Washington Post’s Ana Swanson:
“While almost all members of the Federal Reserve voted to raise interest rates in June, the central bank appears to be divided over its longer-term plans as data continue to show that the economy is not vigorously responding to its rate increases, released minutes from the Fed’s closed-door June meeting reveal.
Even among Fed officials who supported increasing the benchmark interest rate in June, several “indicated they were less comfortable” with the Fed’s longer-term plan for raising rates, the meeting notes show.
The minutes also showed central bankers divided over precisely when to begin reducing the Fed’s massive balance sheet, a task they have indicated will begin before the end of the year. Some officials argued for beginning to shrink the balance sheet in the next few months, while others advocated waiting to see how the economy progresses.
The Federal Reserve chose to raise its benchmark interest rate by a quarter point, from 1 percent to 1.25 percent, at the conclusion of the June 13-14 meeting, the third such increase in six months. The decision was nearly unanimous, with eight members of the committee voting in favor and only one voting against it.
The interest rate increase was a vote of confidence in the economy. But economists and investors are increasingly questioning whether the economy is strong enough to warrant the Fed’s relatively ambitious pace of rate hikes, as the Fed continues to forecast another rate hike this year and three more rate hikes each in 2018 and 2019.”
In a separate, but related, piece, Swanson covers the topic of Fed Chair Janet Yellen’s succession, after February of next year, when her term ends. President Trump announced today that he is considering his economic adviser, Gary Cohn, for the job, if he doesn’t extend Ms. Yellen’s term by another four years.
“Cohn and Treasury Secretary Steven Mnuchin are leading the process of recommending whether to reappoint Yellen or pick someone else, so Cohn could be in the position of deciding whether to recommend himself for the job.
Cohn rose to the second-highest job at Goldman Sachs during a lengthy career and is considered an expert in financial markets. He has pushed for rolling back numerous regulations that were put in place after the financial crisis, and if he became Fed chairman he would have wide discretion to implement these changes.”
Ana Swanson, an anthropologist by training and a past economic writer for many prestigious publications, covers the economy, trade, and the federal reserve for the Washington Post.
Of interest, before I transition to a related topic, it is noteworthy to point out just how dismal our collective font of knowledge is on how government and, by extension, our economy works:
“Americans might be a little fuzzy on exactly what the Federal Reserve is and why the central bank’s activities matter, but many do believe it’s not working as well as it should.
“When we’re talking about the Fed, not everyone knows exactly what it does,” said Jill Gonzales, an analyst at WalletHub.
As it turns out, that’s an understatement. A recent WalletHub survey found that 16 percent of Americans think the Federal Reserve is in charge of consumer credit scores (it isn’t), and more than half have no idea when the Fed last raised interest rates (last month). Many have no idea who Fed chair Janet Yellen is.”
Last year’s election cycle, particularly the end of the primary process, should have forced a public discussion of the future of work and the ability of the average American to earn a living in a world that is increasingly without work. No such discussion took place as a part of the election, but it has been ongoing in progressive circles for quite some time, with various economists publishing work around the idea of a “Universal Basic Income.” In Europe and in one province in Canada, there is currently a trial in which some are given such an income. This discussion may seem far away as we live through the endless news cycles of Russia and repealing Obamacare, both are necessary and worthy discussions, but not as the only two things on the national agenda. We must prepare for a world without work and it means we need to first talk about what it means and what are the most useful approaches to examine.
Economist Jared Bernstein has written down his thoughts on UBI here and here. Economist Lawrence Summers gives us a good look at how far away we are from this kind of discussion with the Trump administration in general, and Steve Mnuchin’s rank ignorance, in particular.
I will be focusing on UBI and a world without work in my next economic post.
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Jared Bernstein interview by CoBank OutlookOutlook_0717
U.S. News & World Report:
“Sales continued to struggle in June. Part of the reason is slower price growth, especially for food and energy, but part was also weakness in real consumer spending. Even e-commerce sales slowed. E-commerce growth is expected to pick up again, but other retail spending is likely to remain subdued for a time.
Growth in sales excluding gasoline is likely to rise by 3.5% in 2017, falling below its 3.8% pace in 2016. Strong sales in e-commerce and building materials will not be enough to compensate for the slowdown of motor-vehicle and restaurant sales. Auto sales peaked in December, while restaurant receipts appear to have plateaued this spring.”
Jared Bernstein, and others, on Universal Basic Income