Author: telegraph

Minimum Wage Vs. Purchasing Power

The following is a summary of the Congressional Research Service on the minimum wage.

The Fair Labor Standards Act (FLSA) of 1938 established the hourly minimum wage rate at 25 cents for covered workers. Since then, it has been raised 22 separate times, in part to keep up with rising prices. Most recently, in July 2009, it was increased to $7.25 an hour. Because there have been some extended periods between these adjustments while inflation generally has increased, the real value (purchasing power) of the minimum wage has decreased substantially over time.

The minimum wage is not indexed to the price level. It has been legislatively increased from time to time to make up for the loss in its real value caused by inflation. In nominal (current dollar) terms, the minimum wage has risen steadily from 25 cents to $7.25 an hour, where it has remained since its effective date of July 2009. As the legislated adjustments to the minimum wage standard have occurred at irregular intervals—sometimes increasing annually, other times not for several years—while prices have generally risen each year, the purchasing power (real or constant dollar value) of the minimum wage has varied considerably since its enactment.

 

 

For each time the minimum wage was changed, the graph above presents its nominal and real value. The inflation adjustments to the minimum wage are made using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Real values of the minimum wage are expressed in terms of July 2017 dollars, the latest month for which the index is available at the time of this Sanders Institute article’s preparation.

The peak value of the minimum wage in real terms was reached in 1968.  Although the nominal value of the minimum wage was increased between 1968 and 2009, these legislated adjustments did not enable the minimum wage to keep pace with the increase in consumer prices, so the real minimum wage fell.

Inequality For All: A Visual Story

This is a graphical look at economic inequality in terms of 3 questions: Part 1 – What is happening in terms of the distribution of income and wealth? / Part 2 – Why? / Part 3 – Is that a problem?

 

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Robert Reich Talks About The New Film ‘Inequality For All’

Bill Moyers talks with Economic analyst Robert Reich about the new film Inequality for All. Opening in theaters across the country next week, the film aims to be a game-changer in our national discussion of income inequality.

 

Movements Without Leaders

The history we grow up with shapes our sense of reality – it’s hard to shake. If you were young during the fight against Nazism, war seems a different, more virtuous animal than if you came of age during Vietnam.  I was born in 1960, and so the first great political character of my life was Martin Luther King, Jr. I had a shadowy, child’s sense of him when he was still alive, and then a mythic one as his legend grew; after all, he had a national holiday. As a result, I think, I imagined that he set the template for how great movements worked. They had a leader, capital L.

As time went on, I learned enough about the civil rights movement to know it was much more than Dr. King.  There were other great figures, from Ella Baker and Medgar Evers to Bob Moses, Fannie Lou Hamer, and Malcolm X, and there were tens of thousands more whom history doesn’t remember but who deserve great credit. And yet one’s early sense is hard to dislodge: the civil rights movement had his face on it; Gandhi carried the fight against empire; Susan B. Anthony, the battle for suffrage.

Which is why it’s a little disconcerting to look around and realize that most of the movements of the moment – even highly successful ones like the fight for gay marriage or immigrant’s rights – don’t really have easily discernible leaders. I know that there are highly capable people who have worked overtime for decades to make these movements succeed, and that they are well known to those within the struggle, but there aren’t particular people that the public at large identifies as the face of the fight. The world has changed in this way, and for the better.

It’s true, too, in the battle where I’ve spent most of my life: the fight to slow climate change and hence give the planet some margin for survival. We actually had a charismatic leader in Al Gore, but he was almost the exception that proved the rule. For one thing, a politician makes a problematic leader for a grassroots movement because boldness is hard when you still envision higher office; for another, even as he won the Nobel Prize for his remarkable work in spreading climate science, the other side used every trick and every dollar at their disposal to bring him down. He remains a vital figure in the rest of the world (partly because there he is perceived less as a politician than as a prophet), but at home his power to shape the fight has been diminished.

That doesn’t mean, however, that the movement is diminished.  In fact, it’s never been stronger. In the last few years, it has blocked the construction of dozens of coal-fired power plants, fought the oil industry to a draw on the Keystone pipeline, convinced a wide swath of American institutions to divest themselves of their fossil fuel stocks, and challenged practices like mountaintop-removal coal mining and fracking for natural gas. It may not be winning the way gay marriage has won, but the movement itself continues to grow quickly, and it’s starting to claim some victories.

That’s not despite its lack of clearly identifiable leaders, I think. It’s because of it.

A Movement for a New Planet

We live in a different world from that of the civil rights movement. Save perhaps for the spectacle of presidential elections, there’s no way for individual human beings to draw the same kind of focused and sustained attention they did back then. At the moment, you could make the three evening newscasts and the cover of Time (not Newsweek, alas) and still not connect with most people. Our focus is fragmented and segmented, which may be a boon or a problem, but mostly it’s just a fact. Our attention is dispersed.

When we started 350.org five years ago, we dimly recognized this new planetary architecture. Instead of trying to draw everyone to a central place – the Mall in Washington, D.C. – for a protest, we staged 24 hours of rallies around the planet: 5,200 demonstrations in 181 countries, what CNN called “the most widespread of day of political action in the planet’s history.” And we’ve gone on to do more of the same – about 20,000 demonstrations in every country but North Korea.

Part of me, though, continued to imagine that a real movement looked like the ones I’d grown up watching — or maybe some part of me wanted the glory of being a leader.  In any event, I’ve spent the last few years in constant motion around the country and the Earth. I’d come to think of myself as a “leader,” and indeed my forthcoming book, Oil and Honey: The Education of an Unlikely Activist, reflects on that growing sense of identity.

However, in recent months — and it’s the curse of an author that sometimes you change your mind after your book is in type – I’ve come to like the idea of capital L leaders less and less.  It seems to me to miss the particular promise of this moment: that we could conceive of, and pursue, movements in new ways.

For environmentalists, we have a useful analogy close at hand. We’re struggling to replace a brittle, top-heavy energy system, where a few huge power plants provide our electricity, with a dispersed and lightweight grid, where 10 million solar arrays on 10 million rooftops are linked together. The engineers call this “distributed generation,” and it comes with a myriad of benefits. It’s not as prone to catastrophic failure, for one. And it can make use of dispersed energy, instead of relying on a few pools of concentrated fuel. The same principle, it seems to me, applies to movements.

In the last few weeks, for instance, 350.org helped support a nationwide series of rallies called Summerheat. We didn’t organize them ourselves.  We knew great environmental justice groups all over the country, and we knew we could highlight their work, while making links between, say, standing up to a toxic Chevron refinery in Richmond, California, and standing up to the challenge of climate change.

From the shores of Lake Huron and Lake Michigan, where a tar-sands pipeline is proposed, to the Columbia River at Vancouver, Washington, where a big oil port is planned, from Utah’s Colorado Plateau, where the first U.S. tar-sands mine has been proposed, to the coal-fired power plant at Brayton Point on the Massachusetts coast and the fracking wells of rural Ohio — Summerheat demonstrated the local depth and global reach of this emerging fossil fuel resistance. I’ve had the pleasure of going to talk at all these places and more besides, but I wasn’t crucial to any of them.  I was, at best, a pollinator, not a queen bee.

Or consider a slightly older fight. In 2012, the Boston Globe magazine put a picture of me on its cover under the headline: “The Man Who Crushed the Keystone Pipeline.” I’ve got an all-too-healthy ego, but even I knew that it was over the top. I’d played a role in the fight, writing the letter that asked people to come to Washington to resist the pipeline, but it was effective because I’d gotten a dozen friends to sign it with me. And I’d been one of 1,253 people who went to jail in what was the largest civil disobedience action in this country in years.  It was their combined witness that got the ball rolling. And once it was rolling, the Keystone campaign became the exact model for the sort of loosely-linked well-distributed power system I’ve been describing.

The big environmental groups played key roles, supplying lots of data and information, while keeping track of straying members of Congress.  Among them were the Natural Resources Defense Council, Friends of the Earth, the League of Conservation Voters, and the National Wildlife Federation, none spending time looking for credit, all pitching in. The Sierra Club played a crucial role in pulling together the biggest climate rally yet, last February’s convergence on the Mall in Washington.

Organizations and individuals on the ground were no less crucial: the indigenous groups in Alberta and elsewhere that started the fight against the pipeline which was to bring Canadian tar sands to the U.S. Gulf Coast graciously welcomed the rest of us, without complaining about how late we were.  Then there were the ranchers and farmers of Nebraska, who roused a whole stadium of football fans at a Cornhuskers game to boo a pipeline commercial; the scientists who wrote letters, the religious leaders who conducted prayer vigils. And don’t forget the bloggers who helped make sense of it all for us.  One upstart website even won a Pulitzer Prize for its coverage of the struggle.

Non-experts quickly educated themselves on the subject, becoming specialists in the corruption of the State Department process that was to okay the building of that pipeline or in the chemical composition of the bitumen that would flow through it.  CREDO (half an activist organization, half a cell phone company), as well as Rainforest Action Network and The Other 98%, signed up 75,000 people pledged to civil disobedience if the pipeline were to get presidential approval.

And then there was the Hip Hop Caucus, whose head Lennox Yearwood has roused one big crowd after another, and the labor unions – nurses and transit workers, for instance – who have had the courage to stand up to the pipeline workers’ union which would benefit from the small number of jobs to be created if Keystone were built. Then there are groups of Kids Against KXL, and even a recent grandparents’ march from Camp David to the White House.  Some of the most effective resistance has come from groups like Rising Tide and the Tarsands Blockade in Texas, which have organized epic tree-sitting protests to slow construction of the southern portion of the pipeline.

The Indigenous Environmental Network has been every bit as effective in demonstrating to banks the folly of investing in Albertan tar sands production. First Nations people and British Columbians have even blocked a proposed pipeline that would take those same tar sands to the Pacific Ocean for shipping to Asia, just as inspired activists have kept the particularly carbon-dirty oil out of the European Union.

We don’t know if we’ll win the northern half of the Keystone fight or not, although President Obama’s recent pledge to decide whether it should be built – his is the ultimate decision – based on how much carbon dioxide it could put into the atmosphere means that he has no good-faith way of approving it. However, it’s already clear that this kind of full-spectrum resistance has the ability to take on the huge bundles of cash that are the energy industry’s sole argument.

What the Elders Said

This sprawling campaign exemplifies the only kind of movement that will ever be able to stand up to the power of the energy giants, the richest industry the planet has ever known. In fact, any movement that hopes to head off the worst future depredations of climate change will have to get much, much larger, incorporating among other obvious allies those in the human rights and social justice arenas.

The cause couldn’t be more compelling.  There’s never been a clearer threat to survival, or to justice, than the rapid rise in the planet’s temperature caused by and for the profit of a microscopic percentage of its citizens. Conversely, there can be no real answer to our climate woes that doesn’t address the insane inequalities and concentrations of power that are helping to drive us toward this disaster.

That’s why it’s such good news when people like Naomi Klein and Desmond Tutu join the climate struggle.  When they take part, it becomes ever clearer that what’s underway is not, in the end, an environmental battle at all, but an all-encompassing fight over power, hunger, and the future of humanity on this planet.

Expansion by geography is similarly a must for this movement. Recently, in Istanbul, 350.org and its allies trained 500 young people from 135 countries as climate-change organizers, and each of them is now organizing conferences and campaigns in their home countries.

This sort of planet-wide expansion suggests that the value of particular national leaders is going to be limited at best. That doesn’t mean, of course, that some people won’t have more purchase than others in such a movement. Sometimes such standing comes from living in the communities most immediately and directly affected by climate change or fossil fuel depredation.  When, for instance, the big climate rally finally did happen on the Mall this winter, the 50,000 in attendance may have been most affected by the words of Crystal Lameman, a young member of the Beaver Lake Cree Nation whose traditional territory has been poisoned by tar sands mining.

Sometimes it comes from charisma: Van Jones may be the most articulate and engaging environmental advocate ever. Sometimes it comes from getting things right for a long time: Jim Hansen, the greatest climate scientist, gets respect even from those who disagree with him about, say, nuclear power. Sometimes it comes from organizing ability: Jane Kleeb who did such work in the hard soil of Nebraska, or Clayton Thomas-Muller who has indefatigably (though no one is beyond fatigue) organized native North America. Sometimes it comes from sacrifice: Tim DeChristopher went to jail for two years for civil disobedience, and so most of us are going to listen to what he might have to say.

Sometimes it comes from dogged work on solutions: Wahleah Johns and Billy Parish figured out how to build solar farms on Navajo land and crowdfund solar panels on community centers. Sometimes truly unlikely figures emerge: investor Jeremy Grantham, or Tom Steyer, a Forbes 400 billionaire who quit his job running a giant hedge fund, sold his fossil fuel stocks, and put his money and connections effectively to work fighting Keystone and bedeviling climate-denying politicians (even Democrats!). We have organizational leaders like Mike Brune of the Sierra Club or Frances Beinecke of NRDC, or folks like Kenny Bruno or Tzeporah Berman who have helped knit together large coalitions; religious leaders like Jim Antal, who led the drive to convince the United Church of Christ to divest from fossil fuels; regional leaders like Mike Tidwell in the Chesapeake or Cherri Foytlin in the Gulf or K.C. Golden in Puget Sound.

Yet figures like these aren’t exactly “leaders” in the way we’ve normally imagined.  They are not charting the path for the movement to take. To use an analogy from the Internet age, it’s more as if they were well-regarded critics on Amazon.com review pages; or to use a more traditional image, as if they were elders, even if not in a strictly chronological sense. Elders don’t tell you what you must do, they say what they must say. A few of these elders are, like me, writers; many of them have a gift for condensing and crystallizing the complex. When Jim Hansen calls the Alberta tar sands the “biggest carbon bomb on the continent,” it resonates.

When you have that standing, you don’t end up leading a movement, but you do end up with people giving your ideas a special hearing, people who already assume that you’re not going to waste their energy on a pointless task. So when Naomi Klein and I hatched a plan for a fossil fuel divestment campaign last year, people paid serious attention, especially when Desmond Tutu lent his sonorous voice to the cause.

These elders-of-all-ages also play a sorting-out role in backing the ideas of others or downplaying those that seem less useful. There are days when I feel like the most useful work I’ve done is to spread a few good Kickstarter proposals via Twitter or write a blurb for a fine new book. Conversely, I was speaking in Washington recently to a group of grandparents who had just finished a seven-day climate march from Camp David. A young man demanded to know why I wasn’t backing sabotage of oil company equipment, which he insisted was the only way the industry could be damaged by our movement. I explained that I believed in nonviolent action, that we were doing genuine financial damage to the pipeline companies by slowing their construction schedules and inflating their carrying costs, and that in my estimation wrecking bulldozers would play into their hands.

But maybe he was right. I don’t actually know, which is why it’s a good thing that no one, myself included, is the boss of the movement. Remember those solar panels: the power to change these days is remarkably well distributed, leaving plenty of room for serendipity and revitalization. In fact, many movements had breakthroughs when they decided their elders were simply wrong. Dr. King didn’t like the idea of the Freedom Summer campaign at first, and yet it proved powerfully decisive.

The Coming of the Leaderless Movement

We may not need capital-L Leaders, but we certainly need small-l leaders by the tens of thousands.  You could say that, instead of a leaderless movement, we need a leader-full one. We see such leaders regularly at 350.org.  When I wrote earlier that we “staged” 5,200 rallies around the globe, I wasn’t completely accurate. It was more like throwing a potluck dinner. We set the date and the theme, but everywhere other people figured out what dishes to bring.

The thousands of images that accumulated in the Flickr account of that day’s events were astonishing.  Most of the people doing the work didn’t look like environmentalists were supposed to. They were largely poor, black, brown, Asian, and young, because that’s what the world mostly is.

Often the best insights are going to come from below: from people, that is, whose life experience means they understand how power works not because they exercise it but because they are subjected to it. That’s why frontline communities in places where global warming’s devastation is already increasingly obvious often produce such powerful ideas and initiatives.  We need to stop thinking of them as on the margins, since they are quite literally on the cutting edge.

We live in an age in which creative ideas can spring up just about anywhere and then, thanks to new forms of communication, spread remarkably quickly. This is in itself nothing new.  In the civil rights era, for instance, largely spontaneous sit-in campaigns by southern college students in 1960 reshuffled the deck locally and nationally, spreading like wildfire in the course of days and opening up new opportunities.

More recently, in the immigration rights campaign, it was four “Dreamers” walking from Florida to Washington D.C. who helped reopen a stale, deadlocked debate. When Lieutenant Dan Choi chained himself to the White House fence, that helped usher the gay rights movement into a new phase.

But Dan Choi doesn’t have to be Dan Choi forever, and Tim DeChristopher doesn’t have to keep going to jail over government oil and gas leases.  There are plenty of others who will arise in new moments, which is a good thing, since the physics of climate change means that the movement has to win some critical victories in the next few years but also last for generations. Think of each of these “leaders” as the equivalent of a pace line for a bike race: one moment someone is out front breaking the wind, only to peel away to the back of the line to rest for a while. In movement terms, when that happens you not only prevent burnout, you also get regular infusions of new ideas.

The ultimate in leaderlessness was, of course, the Occupy movement that swept the U.S. (and other areas of the world) in 2011-2012.  It, in turn, took cues from the Arab Spring, which absorbed some of its tricks from the Serbian organizers at Otpor, who exported many of the features of their campaign against Slobodan Milosevic in the 1990s around the planet.

Occupy was exciting, in part, because of its deep sense of democracy and democratic practice.  Those of us who are used to New England town meetings recognized its Athenian flavor. But town meetings usually occur one day a year.  Not that many people had the stomach for the endless discussions of the Occupy moment and, in many cases, the crowds began to dwindle even without police repression — only to surge back when there was a clear and present task (Occupy Sandy, say, in the months after that superstorm hit the East coast).

All around the Occupy movement, smart people have been grappling with the problem of democracy in action.  As the occupations wore on, its many leaders were often engaged as facilitators, trying to create a space that was both radically democratic and dramatically effective.  It proved a hard balancing act, even if a remarkably necessary one.

How to Save the Earth

Communities (and a movement is a community) will probably always have some kind of hierarchy, even if it’s an informal and shifting one. But the promise of this moment is a radically flattened version of hierarchy, with far more room for people to pop up and propose, encourage, support, drift for a while, then plunge back into the flow. That kind of trajectory catches what we’ll need in a time of increased climate stress — communities that place a premium on resiliency and adaptability, dramatically decentralized but deeply linked.

And it’s already happening. The Summerheat campaign ended in Richmond, California, where Chevron runs a refinery with casual disregard for the local residents.  When a section of it exploded last year, authorities sent a text message essentially requesting that people not breathe. As a result, a coalition of local environmental justice activists has waged an increasingly spirited fight against the plant.

Like the other oil giants, Chevron shows the same casual disregard for people around the world.  The company is, typically enough, suing journalists in an attempt to continue to cover up the horrors it’s responsible for in an oil patch of jungle in Ecuador. And of course, Chevron and the other big oil companies have shown a similar recklessness when it comes to our home planet.  Their reserves of oil and gas are already so large that, by themselves, they could take us several percent of the way past the two-degree Celsius temperature rise that the world has pledged to prevent, which would bring on the worst depredations of global warming — and yet they are now on the hunt in a major way for the next round of “unconventional” fossil fuels to burn.

In addition, as the 2012 election campaign was winding down, Chevron gave the largest corporate campaign donation in the post-Citizens United era. It came two weeks before the last election, and was clearly meant to insure that the House of Representatives would stay in the hands of climate deniers, and that nothing would shake the status quo.

And so our movement — global, national, and most of all local. Released from a paddy wagon after the Richmond protest, standing in a long line of handcuffees waiting to be booked, I saw lots of elders, doubtless focused on different parts of the Chevron equation.  Among them were Gopal Dayaneni, of the Movement Generation Justice and Ecology Project, who dreams of frontline communities leading in the construction of a just new world, and Bay Area native activist Pennie Opal Plant, who has spent her whole life in Richmond and dreams, I suspect, of kids who can breathe more easily in far less polluted air.

I continue to hope for local, national, and global action, and for things like a carbon tax-and-dividend scheme that would play a role in making just transitions easier. Such differing, overlapping dreams are anything but at odds.  They all make up part of the same larger story, complementary and complimentary to it. These are people I trust and follow; we have visions that point in the same general direction; and we have exactly the same enemies who have no vision at all, save profiting from the suffering of the planet.

I’m sure much of this thinking is old news to people who have been building movements for years. I haven’t.  I found myself, or maybe stuck myself, at the front of a movement almost by happenstance, and these thoughts reflect that experience.

What I do sense, however, is that it’s our job to rally a movement in the coming years big enough to stand up to all that money, to profits of a sort never before seen on this planet. Such a movement will need to stretch from California to Ecuador — to, in fact, every place with a thermometer; it will need to engage not just Chevron but every other fossil fuel company; it will need to prevent pipelines from being built and encourage windmills to be built in their place; it needs to remake the world in record time.

That won’t happen thanks to a paramount leader, or even dozens of them.  It can only happen with a spread-out and yet thoroughly interconnected movement, a new kind of engaged citizenry. Rooftop by rooftop, we’re aiming for a different world, one that runs on the renewable power that people produce themselves in their communities in small but significant batches. The movement that will get us to such a new world must run on that kind of power too.

The Dual Mandate: Right Goals, Wrong Institution?

The statutory objectives for monetary policy known as the “dual mandate” were imposed by Congress as part of the Federal Reserve by Act of 1913.  The mandate charges the Federal Reserve with responsibility for achieving two broad macroeconomic goals: “maximum employment and stable prices.”

Much has been made (especially by those on the left) of the benefits of having a dual mandate.  In contrast to the European Central Bank, which operates with a single mandate — price stability — the dual mandate is supposed to ensure a more balanced outcome in the public’s interest.

As Matt Yglesias put it:

“The idea of a “dual mandate” to pursue both price stability and maximum employment is that even if a pure look at inflation would lead the Fed to want tighter money, it ought to check out the employment situation and think twice before tightening if joblessness is widespread.”

But not everyone is so enamored with the idea of requiring the Fed to care as much about fighting unemployment as it does about restraining inflation. For example, not a single Republican expressed support for the dual mandate when the issue came up during a presidential debate on September 12, 2011.

“At the Republican presidential debate on Sept. 12, the major candidates argued that the Fed should instead focus squarely on the goal of long-run price stability.

Responding to a question about the Fed, Rick Santorum said: “make it a single charter instead of a dual charter” institution, and no candidate disagreed. Most piled on. “Its focus needs to be narrowed,” said Herman Cain. “We need to have a Fed that is working towards sound monetary policy,” said Rick Perry. “The Federal Reserve has a responsibility to preserve the value of our currency,” said Mitt Romney.”

Former Fed Chairman Paul Volker recently made a similar (but far more nuanced) argument with respect to the dual mandate.

“I know that it is fashionable to talk about a “dual mandate”—the claim that the Fed’s policy should be directed toward the two objectives of price stability and full employment. Fashionable or not, I find that mandate both operationally confusing and ultimately illusory. It is operationally confusing in breeding incessant debate in the Fed and the markets about which way policy should lean month-to-month or quarter-to-quarter with minute inspection of every passing statistic. It is illusory in the sense that it implies a trade-off between economic growth and price stability, a concept that I thought had long ago been refuted not just by Nobel Prize winners but by experience.

The Federal Reserve, after all, has only one basic instrument so far as economic management is concerned—managing the supply of money and liquidity. Asked to do too much—for example, to accommodate misguided fiscal policies, to deal with structural imbalances, or to square continuously the hypothetical circles of stability, growth, and full employment—it will inevitably fall short. If in the process of trying it loses sight of its basic responsibility for price stability, a matter that is within its range of influence, then those other goals will be beyond reach.”

Volker argues that the Fed would actually do a better job of maintaining high employment if  it was freed of its dual mandate and simply assigned  broad responsibility for maintaining price stability over time.  Perhaps this position is not surprising, given that there was not a single mention of “maximum employment” in any of the Fed’s written directives while Volker was Chairman of the Federal Reserve.  But his real beef stems from concerns about the “extraordinary” measures — Quantitative Easing (QE) in particular —  the Fed has adopted in an effort to carry out the employment side of its mandate.

Volker is basically worried that the Fed is under too much pressure to bring down unemployment and that recent policy has introduced substantial risks in terms of inflation, financial instability and future credibility.  On the unprecedented buying of Treasuries and mortgage backed securities, Volker says:

“The extraordinary commitment of Federal Reserve resources, alongside other instruments of government intervention, is now dominating the largest sector of our capital markets, that for residential mortgages. Indeed, it is not an exaggeration to note that the Federal Reserve, with assets of $3.5 trillion and growing, is, in effect, acting as the world’s largest financial intermediator.”

He’s also worried about the use of  “forward guidance” (i.e. the Fed’s promise to keep interest rates low for as long as unemployment remains above 6.5%, even if inflation creeps above its historical 2 percent target).

“The implicit assumption behind that siren call must be that the inflation rate can be manipulated to reach economic objectives—up today, maybe a little more tomorrow, and then pulled back on command. But all experience amply demonstrates that inflation, when deliberately started, is hard to control and reverse. Credibility is lost.”

It’s important to note that Volker isn’t suggesting that the dual mandate should be lifted so that the Fed can pursue a different set of policy goals.  Quite the contrary!  What he’s saying is that it would be easier for the Fed to deliver what everyone wants — higher employment and price stability — if we weren’t monitoring them so closely.  Apparently, monetary policy is sort of like using a urinal — it’s just harder to do it with someone watching.

Anyway, my point is this.  Nearly everyone seems to believe one or both of the following: (1) high levels of employment and low rates of inflation are worthwhile goals; and (2) the Fed is the right agency to deliver on these goals. I don’t dispute the former, but I often wonder about the latter.  Heck, even the current Fed Chairman sometimes sounds unconvinced.  An exasperated Ben Bernanke has confessed that, despite the extraordinary steps the Fed has taken to expedite the recovery, monetary policy is “not even the ideal tool.”

Whereas Bernanke has only hinted at the need for a fiscal partner, former Fed Chairman Marriner Eccles, openly advocated the use of fiscal policy as the most effective way to fight both unemployment and excessive inflation.   In the depths of the Great Depression, Eccles pushed for a payroll tax cut, calling it “the most important single step that can be taken” to stimulate consumer buying power. Years later, just prior to the near tripling of U.S. war expenditures, Eccles urged lawmakers to raise the payroll tax in order to stave off an inflationary episode. Indeed, Eccles considered adjustments in fiscal policy (in this case an increase in the payroll) to be “the most effective anti-inflationary means of reducing purchasing power.”

Discussions like these continued after the war.  Indeed, as Paul Samuelson notes in his classic text Economics (10th Ed), a serious debate took place after the national Commission on Money and Credit advocated greater reliance on fiscal policy to achieve the macro goals of full employment and price stability.  The problem, as Samuelson explained, was that the Commission recommended that the President be given unilateral authority to adjust tax rates in response to changing macro conditions. He explained the opposition thusly:

“Philosophically, some reformers dislike the need to have human beings decide policy. They speak of a ‘government of laws and not of men.’ They advocate setting up automatic rules and mechanisms that would go into action without ever depending on human decisions. . . we have not yet arrived at a stage where any nation is likely to create for itself a set of constitutional procedures that displace need for discretionary policy formation and responsible human intelligence.”

This is basically what the Taylor Rule was supposed to do — i.e. remove political pressures/human agency from monetary policy by automating decisions about whether and by how much to adjust the federal funds rate.  With waning evidence that the Fed has sufficient firepower to carry out its dual mandate, perhaps it’s time to develop a fiscal analogue to the Taylor Rule.

Slaying The “Zombies” Of Climate Science

One of the nation’s leading climate scientists explains how he goes about knocking down the “zombie theories” that plague our discussions about climate change. What is a zombie theory? Says Shepherd: “It’s one of those theories that scientists have refuted or disproven time and time again, but they live on like zombies in the blogs and on the radio stations.”

 

Effects Of Unauthorized Immigration On The Actuarial Status Of The Social Security Trust Funds

This actuarial note provides information related to projections of the effects of unauthorized immigrants on the U.S. labor force, and more specifically on the actuarial status of the Social Security (OASI and DI) Trust Funds. We have been modeling this important, yet elusive, population for many years.

We reported on these effects in a letter to Illinois Senator Dick Durbin in 2007. The nature and characteristics of this population have changed over the last decade and so we have modified our methods to better account for work activity and potential benefit receipt by unauthorized immigrants. All estimates and analysis reflect the intermediate assumptions and methods developed for the 2012 Trustees Reports.

The balance of this note provides:

  • A brief review of the nature of unauthorized immigration, how it has changed, and how our modeling has evolved;
  • A detailed discussion of the effects of unauthorized immigration on Social Security’s actuarial status;
  • Answers to some important questions regarding undocumented immigrants; and
  • A list of the major laws affecting both unauthorized immigrants and Social Security.

A Brief Review of Unauthorized Immigration

Legal immigration into the United States has been a major source of population growth and diversity. For over a century, legal immigration has been regulated and the numbers of legal immigrants have been limited by a succession of laws. Unauthorized immigration into the U.S. results from entering the country without legal authorization and from overstaying temporary visas. Both forms of immigration have contributed substantially to the population, directly and indirectly. The indirect contribution refers to the fact that children born in the U.S. to these immigrants are U.S. citizens. For the purpose of this discussion, we use the following terms:

  • Legal immigrants – U.S. residents born outside the U.S. who have been granted legal permanent resident (LPR) status or have become naturalized citizens.
  • Other immigrants – U.S. residents born outside the U.S. who have not attained LPR status or citizenship (this group includes those with temporary legal visas).
  • Unauthorized immigrants – Other immigrants residing in the U.S. without current papers documenting their legal status (i.e., either they entered the U.S. without legal documentation or they overstayed temporary visas).
  • Unauthorized workers – Other immigrants working in the U.S. without current visas granting them authorization to work.

In the beginning of 1989, there were an estimated 5 million unauthorized immigrants in the U.S. The Immigration Reform and Control Act of 1986 (IRCA) allowed unauthorized immigrants who could prove they had been residing here for 5 years to apply for LPR status. From 1989 through 1991, about half of these unauthorized immigrants were granted LPR status under IRCA. Since the mid 1990’s, however, the estimated number of persons entering the U.S. without authorization has averaged over 1 million per year, and the estimated number of unauthorized immigrants now totals more than 10 million. Individuals leave unauthorized status both by leaving the U.S. (emigration) and by applying for, and being granted, LPR status. In fact, about half of the individuals granted LPR status each year are estimated to come from the other immigrant population. Most of these individuals are residing as temporary legal immigrants with visas or have overstayed visas, rather than coming from the population that has never had temporary legal status.

In 2008, the Office of the Chief Actuary (OCACT) completely restructured the projection method for the other immigrant population. This restructuring had two objectives. The first was to model separately the annual flows of individuals: (1) entering the country in other immigrant status; (2) converting from other immigrant status to LPR status; and (3) leaving the U.S. from the other immigrant population. The second objective was to reflect administrative changes made by the Social Security Administration (SSA) since 2001, which made it more difficult for unauthorized immigrants to obtain Social Security numbers (SSN) through illegitimate means. Since 2001, SSA greatly increased scrutiny of applications for an SSN after birth, which reduced the incidence of illegitimate receipt of an SSN. For other immigrants entering the U.S. in 2001 and earlier, we assume that about one-third attained apparently legitimate SSNs through illegitimate means. For unauthorized immigrants entering the country after 2001, we believe that the granting of SSNs based on illegitimate documentation has been greatly reduced.

Laws enacted in 1996 and 2004 make Social Security benefits unavailable to unauthorized immigrants residing in the U.S. and to any noncitizen without a workauthorized SSN at some point in time. We project that these laws will significantly reduce benefit receipt among persons who remain in the unauthorized immigrant population in the future.

How The Participation Of Unauthorized Workers Affects Social Secuirty’s Financial Position

For the annual Trustees Reports, the President’s Budget, and other documents, OCACT projects the numbers of unauthorized immigrants residing in the United States, their earnings, and the implications of these earnings on Social Security financing. Our projections assume that unauthorized residents work at about the same rate as the rest of the population by age and sex, but earnings are less likely to be reported as taxable and even less likely to be credited for future benefit entitlement. Thus, our projections suggest that the presence of unauthorized workers in the United States has, on average, a positive effect on the financial status of the Social Security program. For the year 2010,1 we estimate that the excess of tax revenue paid to the Trust Funds over benefits paid from these funds based on earnings of unauthorized workers is about $12 billion.

While we cannot determine the precise effect on Social Security financing of earnings of unauthorized immigrants, program data fully capture this effect. The current overall financial status of the Social Security Trust Funds is well known, and it provides an excellent base upon which to make projections for the future. The difficulty lies in determining what portion of total taxes paid to and benefits received from the Social Security Trust Funds derive from the earnings of these immigrants. We can only estimate these amounts using the best available information.

Beyond the taxes paid and benefits received by unauthorized workers, the larger effect on the long-term actuarial status of the OASDI Trust Funds derives from the children born in the U.S. to these immigrants. These children are natural born citizens and add to the growth in the overall U.S. population. This contribution to future generations of workers is the largest part of the effect on the actuarial status both for legal and other immigrants.

Earnings of Unauthorized Immigrants in the United States

The Census Bureau estimates that the number of people living in the U.S. who were foreign born and not U.S. citizens was 21.7 million in January 2009. Of these, 12.6 million individuals were not legal permanent residents of the U.S. We refer to this group as other immigrants (other than legal permanent resident immigrants). Of this number, about 10.8 million resided in the U.S. in an unauthorized status. The remaining other immigrants resided in the U.S. in a temporary authorized status (for example students and workers with temporary visas).

In order to make projections of the financial status of the Social Security program, OCACT projects the number of other immigrants who are working under various classifications. OCACT assumes that other immigrants are as likely to work as legal permanent residents of the same age and sex. The estimated number of other immigrants working is 8.3 million in 2010. OCACT estimates 0.6 million of the 8.3 million other immigrant workers in 2010 had temporary work authorized at some point in the past and have overstayed the term of their visas. In addition, OCACT estimates that 0.7 million unauthorized workers in 2010 obtained fraudulent birth certificates at some point in the past and these birth certificates allowed the workers to get an SSN. Combining these two groups with the 1.3 million current visa holders with temporary authorization, we estimate 2.7 million other immigrants have SSNs in their name and thus can work, pay taxes, and have earnings credited to their record for potential benefits in the future.

OCACT estimates 1.8 million other immigrants worked and used an SSN that did not match their name in 2010. Their earnings may be credited to someone else’s record (when the SSN and name submitted to the employer match Social Security records) or may be credited to the Earnings Suspense File (when submitted with nonmatching SSN and name). Finally, OCACT estimates 3.9 million other immigrants worked in the underground economy in 2010.

Eliminating the current visa holders with temporary authorization (1.3 million other immigrants with legal work authorization), and those in the underground economy (3.9 million unauthorized workers), we estimate that there are about 3.1 million unauthorized immigrants working and paying Social Security taxes in 2010. With the average amount of OASDI taxable earnings for these immigrants assumed to be about 80 percent of the average level for all workers, we estimate $13 billion in payroll taxes from unauthorized immigrant workers and their employers in 2010.

Benefits Based on Earnings by Unauthorized Immigrants

Estimating the portion of all 2010 OASDI benefit payments that will be based on prior unauthorized earnings is even more problematic than estimating current unauthorized earnings. In general, we believe that the evidence indicates a relatively small portion of those who potentially could draw benefits do so.

The principal category of unauthorized immigrants who can currently draw a Social Security benefit includes those who have overstayed visas, or obtained an SSN through illegitimate means. For January 1, 2010, we estimate that there were 720 thousand other immigrants aged 62 and over. Assuming: (1) about 25 percent of these immigrants meet the insured requirements and have a functional SSN matching their name; and (2) they have a monthly benefit level about half the average, we estimate about 180 thousand beneficiaries received roughly $1 billion in benefits in 2010.

Three additional categories of workers account for a relatively small amount of the total OASDI benefit payments. First, individuals who began receiving benefits before 1997 and never obtained authorization to work, could potentially be receiving benefits. However, they met the difficult challenge of documenting their past earnings and establishing the earnings as taxable. Second, individuals who never obtained authorization to work, received an SSN before 2004, and now live abroad could potentially receive a benefit. However, they would have similar challenges in documenting past earnings. Third, individuals who currently have authorization to work but did not have authorization while residing here in the past would find it difficult to document the earlier earnings. In each of these cases, the requirement to document ownership of reported taxable earnings in the past is a high hurdle, and meeting this requirement seems to be more the exception than the rule.

Overall, therefore, we estimate that about $1 billion of OASDI benefit payments for 2010 derive from earnings in years where the worker was unauthorized.

Conclusion

While unauthorized immigrants worked and contributed as much as $13 billion in payroll taxes to the OASDI program in 2010, only about $1 billion in benefit payments during 2010 are attributable to unauthorized work. Thus, we estimate that earnings by unauthorized immigrants result in a net positive effect on Social Security financial status generally, and that this effect contributed roughly $12 billion to the cash flow of the program for 2010. We estimate that future years will experience a continuation of this positive impact on the trust funds.

While we expect the size of the unauthorized population to grow further in the future, several changes would limit the reporting of their earnings as taxable. Among these are issuance of SSNs at birth in recent years and greater scrutiny of birth certificates for individuals who only apply for SSNs at working ages. In addition, recent legislation requires that other immigrants receiving an SSN after 2003 cannot receive benefits unless the worker had legal work authorization at some point before retiring. Another recent change is the creation of a national-wide earnings verification system, which allows employers to check the legal status of their employees. While these changes will alter the future impact of earnings by unauthorized immigrants on the trust funds, we still expect significant effects that will benefit the financial status of the programs.

Answers To Specific Questions On Unauthorized Immigration

Question: To what extent has the economic downturn (that began in 2007) changed immigration trends in the U.S.?

Response: The economic downturn did not affect the number of persons attaining legal immigrant status, as there are always more applicants than can be allowed under the legal limits. However, the downturn did affect the numbers of other immigrants entering and leaving the country. For the intermediate projection of the 2008 Trustees Report (these projections did not include the downturn), we assumed 1.5 million other immigrants would enter the country in 2009. We now estimate that about 700 thousand other immigrants entered the country in 2009. In addition, due to the recession, we estimate that the number of other immigrants leaving the country was elevated in 2009, leaving only 40,000 net other immigrants for the year. We expect the effects of the recession on the number of other immigrants entering and leaving the country to be temporary. For 2015, we expect the number entering the country to return to 1.5 million and the net other immigration to be about 500,000.

Question: What is the total number of unauthorized workers now participating in the U.S. economy? How has this number changed in the past and how will it change in the future?

Response: We estimate that the number of unauthorized workers grew from 4.8 million in 2000 to 8.0 million in 2007, the peak of the last business cycle. The economy then fell into recession and the estimated number of unauthorized workers declined to 7.0 million in 2010. We project that the economy will recover and that the number of unauthorized workers will rise to 9.6 million in 2020.

Question: What is the number of workers who are entering the country illegally? What is the number of workers who have overstayed their visas? How have these numbers changed?

Response: The number of persons residing in the country without current legal authorization grew during the period 1990 to 2006 and the Department of Homeland Security (DHS) estimated the stock of unauthorized immigrants to be 11.8 million as of January 1, 2007. However, DHS estimated that this number declined to 10.8 million as of January 1, 2009. After the recovery from the recession, we assume the annual number of other immigrants (unauthorized and temporary visas) entering the U.S. will be 1.5 million per year. However, we assume that about one-third of those entering the country (largely those who have temporary visas or overstay temporary visas) will gain LPR status within a few years, and that the majority of the remaining 1 million other immigrants will eventually leave the country. We estimate the number of other immigrants who have entered the country legally with a temporary visa, have overstayed their visa (work or student), and are working using their legitimately acquired SSN to be 0.6 million in 2010, slightly above the 2000 level of 0.5 million.

Question: How many of the unauthorized workers have an SSN issued in their name and how many are reporting earnings under invalid numbers?

Response: Before 1980, many unauthorized workers obtained SSNs in their name using fraudulent identification, particularly birth certificates. After 2001, however, SSA became far more vigilant on identification, and the number of persons obtaining SSNs with fraudulent identification should now be relatively small. We estimate 0.7 million unauthorized workers in 2010 were working using fraudulent identification (most with SSNs obtained before 2001), and we project this number to decrease to less than 0.2 million in 2040. Increasingly in the future, earnings reported to SSA for unauthorized workers will be reported with an illegitimate SSN. In this case, the reported earnings show up with a mismatch between name and SSN and thus would be assigned to the Earnings Suspense File. Due to this mismatch, the worker (and employer) would be paying payroll taxes, but the earnings would not be credited toward later receipt of benefits. Our estimate for the current stock of these immigrants is 1.8 million in 2010, rising to 3.4 million by 2040.

Question: How many unauthorized workers are employed in the underground economy? How has this number changed in the past and how will it change in the future?

Response: The estimated number of unauthorized workers who are employed in the underground economy grew from 2.2 million in 2000 to 3.9 million in 2010. We project the number of these workers to grow to 9.0 million in 2040.

Wage reporting and wage levels

Question: Of the unauthorized workers paying OASDI taxes, what is the average level of earnings upon which the taxes are levied and how does that level compare with the broader U.S. labor force?

Response: We assume the average level of taxable earnings for these unauthorized workers equals about 80 percent of the average level for all workers. For 2010, we estimate this average level for these unauthorized workers to be about $34,000.

Question: What is the dollar amount of payroll taxes paid by unauthorized workers and their employers for the latest tax year?

Response: We estimate $13 billion in OASDI payroll taxes from unauthorized immigrant workers and their employers in 2010. This number reflects earnings for those with no recorded SSN, those who have obtained an SSN with fraudulent identification, and those with legitimate SSNs who have overstayed temporary visas.

Question: Does information in the Social Security Earnings Suspense File (ESF) provide insights into unauthorized workers’ labor force participation and earnings? What dollar amount or percentage of earnings in the ESF is the result of unauthorized work? How many items posted to the ESF are from unauthorized work? Since both legal and illegal workers may hold several jobs in any tax reporting year, how does that affect the estimate of unauthorized wage items and earnings reported by unauthorized workers?

Response: Viewing the history of the ESF, we attempt to separate the total dollar amount of taxable wages for each year between unauthorized workers and the rest of the population. However, because we cannot identify which individual “wage items” are for unauthorized immigrants and which are for legal residents, we have no way to determine specifically either the number of wage items reported per worker or the average total annual earnings per worker represented on the ESF. Historically, both the unauthorized population and the percent of total reported earnings that goes to the ESF have been rising and we estimate a continuation of these trends. We estimate earnings in the ESF for unauthorized immigrants will increase from less than 1 percent of total taxable payroll in 2000 to about 2 percent in 2040.

Benefits based on earnings by unauthorized workers

Question: How many unauthorized workers receive benefits from Social Security? How many fall under the category of overstayed visa or an SSN obtained through illegitimate means? What is their benefit level, their insured status, and the total amount of benefits they receive compared to authorized workers? What are the trends over time? How will these trends change in the future?

Response: Individuals who enter the country as unauthorized immigrants and remain in that status for life are relatively unlikely to receive benefits from the OASDI program. Those who work in the underground economy have no basis for expecting to be entitled for benefits. Those who have worked and paid payroll taxes without a matched SSN will have had their earnings placed in the suspense file and will have only a relatively remote possibility of obtaining credit for these earnings for the purpose of becoming entitled to a benefit. The relatively small and declining number of unauthorized immigrants who have an SSN with earnings credited in their name, may receive benefits in the future. However, to receive benefits they must meet the following three conditions: (1) work long enough to acquire insured status under the program; (2) receive legal work authorization at some time; and (3) receive legal resident status for the time of their benefit entitlement or, if not, are willing to leave the U.S. to receive a benefit.

Question: What categories of persons, who are or were unauthorized workers, may be eligible for benefits if they can document past earnings? To what degree are they successful in documenting such earnings?

Response: We estimate about 30 percent of the other immigrants who were living in the U.S. and were age 62 in 2000, would be eligible to receive retired-worker benefits. We project that the percent eligible to receive a retired-worker benefit will decline to around 10 percent at the end of the 75- year projection period. In addition, SSA authorized about 0.5 million checks to persons living abroad in December 2010. However, most of these individuals are U.S. citizens living abroad or persons receiving benefits under totalization agreements with other countries (based on authorized work).

Major Laws Affecting Unauthorized Immigration And Social Security

Immigration Reform and Control Act (IRCA) of 1986 allowed about ½ of the undocumented population in 1987 to become legal permanent residents over the period 1989-1991.

Effective December 1, 1996, the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 prohibits SSA from paying monthly Title II benefits to noncitizens who are in the United States for any month during which they are not lawfully authorized to be in the country. After 2000, SSA became more vigilant in issuing SSNs. Since September 2002, SSA verifies noncitizens’ immigration status with the Department of Homeland Security (DHS) before assigning an original SSN or issuing a replacement SSN card.

The Social Security Protection Act of 2004 restricts SSA from authorizing Title II benefits to noncitizen workers who received an original Social Security number (SSN) after January 1, 2004 unless they were issued an SSN for work purposes or were admitted into the United States as a nonimmigrant visitor for business or as an alien crewman.

The original report can be found here.

Danny Glover On “The House I Live In” And The War On Drugs

In this interview, Danny Glover talks about the documentary “The House I Live In” and the broader societal issues that are addressed in the documentary about the war on drugs that Glover summarizes with the statement: “The war on drugs is not a war on drugs itself, it is a war on people.”

 

Government Has Always Had The Power To Pay Its Bills

Until the idea of minting a $1 trillion platinum coin entered the mainstream consciousness, most people probably never gave much thought to the mechanics of government finance. Sure, everyone knew the government spent a lot of money and that money had to come from “somewhere”, but most people assumed there were limits to how much the government could afford to spend. After all, money doesn’t grow on trees.

Here’s the usual narrative. Like anyone else, the U.S. government must live within its means. It can spend more than it takes in, temporarily, if it can convince others to lend their money on affordable terms. But borrow too much, and your creditors will grow weary. You could even end up with debts you can’t afford to pay back.

Enter the coin. An idea so simple the mind is repelled. Through an obscure loophole, we find out that the secretary of the U.S. Treasury has the legal authority to conjure up its own money simply by handing over a coin and instructing the Federal Reserve to increase the balance in its account—in this case, by a cool trillion.

The idea sent chills throughout the financial world.

Opponents dismissed the coin in a hyperbolic tirade, calling it “silly” and likening such a move to the last refuge of a Banana Republic. Others claimed that the mere crediting of the Treasury’s account would somehow cause hyperinflation, despite the fact that the Treasury couldn’t spend a penny more than Congress had already intended.

And this is the real issue. The United States has made financial commitments to bondholders, retirees, the sick and disabled, its military personnel, etc. Some members of the GOP seem prepared to risk the full faith and credit of the nation by reneging on at least some of these commitments. What these Republicans either don’t know or don’t want anyone else to discover is that the United States is already the issuer of the currency. It isn’t like a household or a private business. It can always pay.

The coin appears to remove the constraints on government finance by allowing the government to just “print” money. But like Dorothy with her ruby slippers, that power has existed all along.

“[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit,” said Alan Greenspan in 1997.

If the coin reminds us of that power, it will have done its job.

What I Did Not Get To Say On NPR’s On Point This Morning

This morning, I appeared on Tom Ashbrook’s radio show, along with Paul Krugman and Stan Collender.  I wish there had been more time to explore Paul Krugman’s very important point that one sector’s deficit spending becomes another sector’s surplus.  This is a core point that we make all of the time on this blog.

Cutting the deficit cuts the non-government surplus dollar-for-dollar.  So any plan to cut $4 trillion in deficit spending is a plan to reduce the non-government surplus by $4 trillion.  The ordinary American will gleefully support deficit reduction (as polling shows), but I’m confident that you’d get a very different reaction if you asked them whether they support cutting their own surplus by trillions of dollars.  Almost no one recognizes that the former implies the latter.

The point I make all the time is this: as long as the country — any country — runs a current account deficit (which the US does), the government’s deficit will need to be at least as large as the current account deficit, or the private sector will be in deficit.  Bigger government deficits mean, ceteris paribus, bigger private sector surpluses.  And deficit reduction means a reduction in the private sector surplus as shown below.  It’s hard to make this point in a compelling way without the visuals, which is why it works better on C-SPAN than on NPR.  But Krugman brought it up, and it is a point that progressives should work hard to emphasize.

 

 

I also wanted to point out, but didn’t get a chance, that the deficit is currently falling at its fastest pace since the end of WWII.  So it’s a particularly odd time for lawmakers to be stirring up (and progressives  playing into) hysteria about our “budget problem.”  The so-called problem is taking care of itself (as it typically does when the denominator in the deficit/GDP equation is rising).

 

 

And so the problem remains trying to turn attention away from the phony deficit crisis back to the real jobs crisis that is still holding America back.