Tag: Inflation

You’re The Real Job Creator – An Interview With Stephanie Kelton

Posted on December 1, 2017

As the GOP tax plan, officially known as the Tax Cuts and Jobs Act, awaits reconciliation with the House, the threat of a mounting deficit is once again in the news.

According to the bipartisan Joint Committee on Taxation and the Congressional Budget Office, the tax plan will add roughly $1 trillion to the deficit over the next ten years—almost enough money to abolish student loan debt ($1.4 trillion). Democrats, who in the past two decades have grown increasingly cautious about federal spending, were quick to note the hypocrisy of the even more hawkish Republican party. What happened to protecting our children from the crushing burden of the national debt?

But while there are many things to fear in the Tax Cuts and Jobs Act—a windfall for the rich at the expense of the poor, permission to drill in a wildlife refuge—the growing deficit should not be one of them. On the contrary, obsessing over the deficit could further imperil those whom the tax bill leaves worst off. In this interview, Stephanie Kelton, a professor of economics at Stony Brook University and former economic advisor to Bernie Sanders, explains why.

You recently shared a video in which you explain what the federal budget deficit is and what it’s not. I was hoping you could elaborate on that: How does the deficit differ from what people think it is?
It would be easier to answer if we could figure out what people think it is, so let’s start there. I think the most accurate way to portray it is that people think deficits are bad because they think they’re evidence that the government is overspending. In fact, when I served on the US Senate Budget Committee as the chief economist for the Democrats, I sat through many, many hearings called by the majority where the chairman, Senator Mike Enzi, would repeat variations on that phrase: “a deficit is evidence of overspending.”

I’d sit in the backbenches behind Senator Sanders and just kind of shake my head. Because as all economists know, a deficit isn’t evidence of overspending, inflation is evidence of overspending. A deficit is just evidence that the government put more money into the economy than it took out.

In the video, I try to explain it with very simple numbers. Say the government puts $100 into the economy and takes $90 out. The government’s books will show a deficit of $10. If the government spends more than it takes out in a given period of time, say a fiscal year, it’s recorded as a government deficit. OK. But what about the rest of the books in the economy? If all we do is focus on the government’s ledger, we’re looking at the picture with one eye shut. What people should understand is that when the government runs a deficit, it’s adding dollars to the economy. Somebody gets those dollars. If the government adds $100 and only takes back $90, somebody in the economy ends up with $10 they wouldn’t have had otherwise.

The real question to ask is: Why did the government run the deficit? What was it trying to achieve? Was it the product of spending to repair crumbling infrastructure, or to better fund schools, or to give greater aid to the sick and the poor? Or if the deficit increased because the government cut taxes, why did they do that? To lift the incomes of households that haven’t seen real wage gains for many decades? Once you know, you can at least have a conversation: “Well, that’s where the money went.” But to just look at the deficit and say that it’s good or bad without any further information is crazy.

Of course, that’s what we all do. We judge the government’s behavior as if smaller deficits are by definition good, bigger deficits are by definition bad, and a balanced budget is by definition the goal. All of that, in my view, is just getting it wrong.

One point of confusion is where the money for the federal budget comes from. Most people assume the US government runs on taxpayer dollars, because that’s how it works on the state level: local schools are paid for by taxpayers, et cetera. But you’ve written before that unlike individuals or local governments, the federal government doesn’t need to “get” money from anywhere before it can spend it. Can you say more about the difference?
It is absolutely true that states, municipalities, and local governments depend on tax revenue in order to fund themselves. It is absolutely untrue that the federal government of the United States depends on tax revenue to fund itself. The United States government is the issuer of our currency—the US dollar. It has to spend dollars before the rest of us can get any. Households, local governments, private businesses, state governments—they are all users of the dollar. They have to get dollars in order to spend them. That’s the big difference.

Not only do people tend to think of the government like a household—believing it can’t go on spending more than it takes in, taking on more and more debt and never paying off all its debt—they also assume they can draw parallels between the federal budget and a state budget. For example, many people who should and probably do know better have used Kansas to argue that massive tax cuts will leave the federal government without the revenue it needs to operate, just as they did in the state of Kansas. Governor Brownback massively cut taxes on the advice of Arthur Laffer, Reagan’s former economic adviser, who was hired as a consultant to the Republicans and was paid a hefty sum of $75,000. The experiment did not work the way Brownback and other Republicans told voters it would. It didn’t attract companies and businesses and jobs, it didn’t create so much growth that revenues exploded. Instead it bled the coffers—because the state does need revenue from taxes to fund itself. You can’t do Reaganomics at the state level. When revenues crashed in Kansas, they ended up cutting funding for schools and other programs. It was a disaster.

You wrote in the Times that the reason to oppose the GOP tax bill is not the projected deficit but the fact that it’s a tax break for the rich. I can understand being fixated on cutting taxes as a way to lift your income, if you’re a regular person and haven’t seen any real wage growth in decades, but why would any non-rich person support this bill when it’s not even a tax break for them?
It’s kind of interesting. Anecdotally, some people have written me and said they’re talking to low-income people who are OK, actually, with the fact that most of the benefits go to those at the very top. People are saying, “Well, they are the people who hire people like me.” So the Republicans have been effective, I think, in selling this trickle-down idea that the wealthy and businesses are the real job-creators in the economy. I don’t know if that’s representative of millions of Americans or whether I’m just seeing an exception to the rule, but I am hearing, second-hand, poor people saying basically they don’t mind.

And yet there’s no good reason to believe that the people getting these tax cuts will spend in a way that creates jobs. You mentioned something in your video called “the marginal propensity to consume.” Can you explain that?
The marginal propensity to consume is the likelihood that if you get an extra margin, that extra dollar, you will spend it or spend part of it into the economy. A very poor person has an MPC of 99 percent or more: give them an extra dollar, or an extra $100, and they will spend virtually all of it, just because they’re surviving on so little. But if you give a tax break to someone like Oprah Winfrey or Bill Gates, and they get an additional dollar or $100 or $1,000, their MPC is something like 0.01 percent. They’re only going to spend a penny out of any additional $100 they get, because they already have enough to buy whatever it is they want to buy.

And when I say spend, I mean buying newly produced goods and services in the economy so that it adds to the GDP. Say you’re Jay Leno—you’re a car guy, you have lots and lots of money, and you get a windfall from these Republican tax cuts. If you go out and buy a classic Corvette convertible or whatever manufactured in the 1950s, that’s not adding to the GDP, because that car was already added to GDP the year it was first purchased. If you buy somebody else’s mansion, that doesn’t add to GDP. If you buy stocks and bonds and investments, or you buy a Picasso, that doesn’t boost GDP.

As a result of this bill, the ultra-rich—I’m talking about the one-tenth of 1 percent—will see on average about a quarter of a million dollars in additional income per year. People like Bill Gates and Oprah will get a lot more, but the average household in the one-tenth of 1 percent will see about a quarter of a million dollars. How much of that quarter million will they turn around and spend into the economy, creating demand that leads to higher sales that tell business they can produce more and hire people?

Remember a few weeks ago when John Bussey from the Wall Street Journal asked that room full of CEOs how many of them intended to create new jobs with money they’d save from the tax cuts, and only a handful raised their hands? Gary Cohn, Trump’s economic adviser, was embarrassed. He said, “Why aren’t the other hands up?” Well, the answer is that businesses don’t hire when profits go up, they hire when sales go up. That’s what drives hiring and investment. Businesses do not want to hire; the last thing they want to do is put another employee on payroll, train them, and provide them with health care. You have to make them hire. You have to swamp them with customers and create such strong demand for their product that they have no choice but to add staff.

This is where I would put the focus. The Republicans are doing the old trickle-down thing, “We’ll give the money to the people at the very top and somehow it will incentivize them to go out and start businesses in the US, or bring businesses domiciled abroad back home.” No, it won’t. The real job creators are the American consumers. It’s a shame that more consumers don’t know that: You’re the real job creator. If people have rising income, secure jobs, better pay, higher wages, they’re spending more in the economy—that’s the demand that tells these businesses it’s OK to produce more and hire more.

So in sum: it’s OK to run a deficit for good reasons; the federal government is not funded by taxpayer dollars, unlike local governments; and consumers, not rich people, create jobs. These are simple enough ideas. So why are we stuck in this austerity, trickle-down framework? Is part of the issue that Democrats also buy into it?
Exactly. Look what happened over the course of the past eight years or so. The Democrats had an opportunity to come in and really restructure things. Rahm Emanuel famously said, “you never want a serious crisis to go to waste” . . . Well, they did waste a good crisis. The economy was crashing and nearly a million people a month were losing their jobs. You lose your job you lose your income, you lose your income and guess what? You don’t pay income tax, because you can’t pay income tax on income you don’t have. Tax revenue is falling off a cliff, and spending to support the unemployed is automatically increasing. We call them the “automatic stabilizers”: unemployment compensation, food stamps, Medicaid. And so the deficit explodes.

The Obama Administration sees this happening and they panic. They say, “We have to fix it!” They turn the away from fixing the fundamental problems in the economy—away from homeowners, from joblessness—and turn their attention to the deficit. Obama famously formed the bipartisan deficit reduction commission, and thank God we didn’t do what the commission was proposing, which included entitlement reform and all kinds of stuff . . .

It seems to me that the Democrats, especially the progressive wing of the Democrats, like to repeat this talking point about how the rich aren’t paying their fair share: “The problem in this country is that the rich aren’t paying their fair share.” I don’t like that. I don’t like it because basically, it says that income is flowing up to the rich and our job is to take some of it away from them. I prefer to say: the problem is not that the wealthy don’t pay their fair share, the problem is that they’re taking more than their fair share—that’s why they’re so damn rich. That’s why real wages have stagnated for the median household for decades, because people at the top are taking more than their fair share. You don’t want to let that continue and then take back taxes and redistribute to the bottom. You want pre-distribution, not redistribution. Focus on the problem at its origin.

Americans really do believe that we should not be “punishing success.” They don’t like the idea that someone who’s worked hard and has been successful would be punished. So while a lot can be accomplished through the tax codes, there are other ways to change the distribution of wealth before anyone gets all of it.

So are politicians who fixate on the debt or the deficit lying to us about it, or do they not understand economics? I mean, Barack Obama is a smart guy. Did he not understand what was happening?
So much of it is politics. If you read some of the reports about the conversations that took place between Obama and his advisors about the stimulus—between Christina Romer [former Chair of the Council of Economic Advisers], Tim Geithner [former Treasury Secretary], and Larry Summers [former Director of the National Economic Council]—you see it. It’s clear that the economy is melting down and that it’s going to take more than simply the Fed to prevent the economy from spiraling into a depression. They start batting around these numbers, thinking, “How much do you think it’s going to take?” They had a low-end number and a high-end number. The low-end number was about $750 billion, the high end was $1.8 trillion. Christina Romer—the only female in the room—was pushing for the $1.8 trillion, and she was right. She even went down to $1.3 trillion under pressure.

This became public when Obama said, “We’re looking for something in the range of . . .” and gave these numbers. At the time, in January 2009, I was part of a panel with [former Clinton labor secretary] Bob Reich, [economist] Jamie Galbraith, and others, and we all came out and said it has to be $1.3 or trillion, at least, to keep this recession from becoming the kind that takes forever to claw our way out of.

But they didn’t listen to Romer. Larry Summers had a lot to do with it, reportedly. What I read many, many times was that he was concerned about “sticker shock.” A trillion was too big a number. People could not accept that. And he said, “We can’t do this, we can’t go to voters with a trillion.” So they settled on $787 billion. And Obama said, “our attitude is that with the legislative process, we’ll start with the low end and see what happens”—which was exactly the wrong strategy. That’s not how you negotiate. You never start with the low number.

Back to sticker shock: Why doesn’t someone like Obama just get up onstage and say, “By the way, this is how the economy works, all the economists will tell you”?
I’m pretty sure nobody’s told him. I don’t know that he understands. I don’t think Larry Summers, you know, sat him down and walked him through monetary operations. For example: two days ago, Larry Summers went on television and said, “If these tax cuts pass, the US is going to be living on a shoestring for decades to come because of the increases to the deficit that will result. We are not going to be able to defend ourselves militarily—we won’t have the ability to go to war if we need to protect ourselves.”

Now, I don’t think for a second that Larry Summers believes that. Not for a second. He’s too smart. That’s a political argument. But it’s a dangerous one. If you’re on record saying, “If the Republicans pass this bill”—which they are about to do, by the way; this bill is passing—“if the Republicans pass this bill the US will be broke,” aren’t you setting up the Republicans to then say, “Uh oh, we cut taxes and now we’re broke, we better cut social security, Medicare, Pell Grant, all the social services”? You just told them you’re out of money. And you told North Korea that we won’t be able to defend ourselves. It’s obviously intended to shake people up and scare some senators into opposing the bill, to get voters worried so that they turn the pressure up. But it’s a crazy statement to have made.

So yes, I think no one around Obama either understood or was going to explain this to him.

What do we do now? What is the next move for people who are getting screwed by this bill?
What do you do? You better sweep the House, you better take back the Senate, and take back the White House in 2020, and hold your resistance at a very high level. I mean, people have to be prepared to stand up and fight back. There’s three more years before there’s any chance of changing course. If you win the House in 2018, you can at least stop a lot of stuff from happening. That has to happen. That’s the quickest way to stop the pain for the poor and the middle class—because we can expect more of this for three more years if we don’t.

So, that’s number one. To the extent that people are able, in an environment like this, to organize, to protect themselves in the workplace, to form unions—those are safeguards. Communities are doing more. States like New York, California, and Tennessee are moving to make public colleges and universities tuition-free. Fight for $15 has made the greatest inroads in blue states. In places where it’s still possible to make gains in policy—environmental, economic, racial, and social justice policy—those fights will continue. But at the national level it’s going to be very difficult if 2018 comes to pass and the Republicans still have the Senate, the House, and of course the White House.

Many people on the left argue that the Democrats need a more inspiring platform to run on, one that includes big spending policies to fix the economy and repair the social safety net. The Center for American Progress recently floated the idea of a job guarantee, which is a longstanding proposal on the left. What other good ideas should the Democrats be stealing?
Here’s the great thing: they don’t have to steal them, they just have to remember them. The most beloved President of all time, the guy who won four times—FDR—left us with a blueprint for an agenda that the Democrats have ready-made for them, and that is the Second Bill of Rights. This should be considered the unfinished business of the Democratic Party.

People are so damn frustrated. They go year after year, working harder and harder, and never get ahead. There’s so much anxiety. Work has become more precarious, people don’t know their hours ahead of time, bosses schedule changes at the last minute. A third or so of the working population is engaged in some kind of freelance employment. These are not the kinds of jobs that people had forty years ago, when they had a job for life and got regular pay increases and had a pension. People don’t have safety and security.

So what is the Second Bill of Rights? It’s a safety and security contract. It’s a social contract. And it says, as a citizen of the country, you have a right to employment at a decent wage. You have a right to health care. You have a right to a secure retirement. You have a right to an education. There’s also a right to housing on that list.

If you stood as a party for those basic rights, those fundamental rights, you could win. Everything else is up to you. You could still have a capitalist economy, where people still have to compete and work hard if they want more than the basics, so there are still plenty of incentives to be innovative and invest and all that—but the basics are guaranteed. It removes that insecurity, that anxiety that you won’t be able to send your kids to college or aren’t going to have money to survive on for retirement. If you look at surveys, when you ask peope “At what age do you expect to retire?” A share of the population says, “I’m never going to be able to retire, I’m going to work until I die, because I can’t afford it. I don’t have anything set aside. I don’t have a 401k or a pension or whatever. I can’t live on social security, so I’m never going to retire.” I don’t think the Democrats need to steal ideas. I think they need to remember what this party once stood for and champion a bold agenda.

What about journalists and talking heads, what can they do? How are they contributing to misconceptions about federal spending?
Journalists have been very bad. They have just repeated the same talking points that the Republicans got from Peter Peterson. “Fix the Debt” is an absolutely toxic campaign, and it came out of the Peterson Foundation.

What’s the Peterson Foundation?
The Peterson Foundation is Peter Peterson’s nonprofit umbrella organization. He’s a billionaire whose dream in life seems to be the evisceration of what remains of the New Deal or the Great Society. If it had to do with LBJ or FDR, Peterson wants no trace of it. So, Medicare, which came from LBJ—gone. Social security, from FDR—gone. He wants to gut entitlements.

Underneath the Peterson Foundation is “Fix the Debt,” his $60 million campaign to convince people that the deficit is a national crisis as a way to justify austerity and privatization. Joe Scarborough and half the people who sit at the table every morning on MSNBC with Scarborough, either are or have been affiliated with Fix the Debt. Senators from the state of Virginia, Tim Kaine and Mark Warner, both Democrats—Fix the Debt gave them awards. So anyone who comes under the spell of this Pete Peterson “Fix the Debt” stuff gets their talking points from him. It’s Republicans and Democrats. Angus King, Independent. Paul Ryan is dogmatic: “How can we do this to our children and grandchildren?” And then you have Democrats repeating exactly the same arguments.

So Peterson is a very bad guy. Bernie always talks about Pete Peterson. And I mean, he is my nemesis. I wake up every single day, and the motivation for crawling out of bed is to do battle with this faction. Because it’s powerful! And it’s incredibly destructive. It’s mind-warping and it’s brain-washing. Fix the Debt goes out and gets these people to be talking heads—they recruit them, pay them, train them, send them out—and then suddenly you have an army of pundits and people writing in the Wall Street Journal and the New York Times pushing this hysteria. So that’s all anybody’s ever heard: that deficits are bad, the debt is bad, and the US faces a long-term debt crisis. Even a guy like Paul Krugman, the most he can do is muster, “Well, it’s only a long-run problem, not a short-run problem,” which is the same as saying “we have a deficit crisis, it’s just not here yet.”

Very few people are trying to explain anything to any American other than that. They argue about when it’s coming—“How fast is the sky falling?”—but not enough are saying that the national debt is not a national crisis. The fact that 21 percent of all children in the United States live in poverty—that’s a crisis. The fact that our infrastructure is graded at a D+, that’s a crisis. The fact that income inequality is at 1920s levels is a crisis. The fact that wages haven’t increased in real terms, that’s a crisis. Those are real crises. The national debt is not a crisis.

Senator Bernie Sanders’ Economic Advisor Stephanie Kelton Shreds Trumponomics

Posted on March 24, 2017

Though Barack Obama presided over a recovery from the 2008 economic recession, the economic benefits disproportionately went to the wealthiest top 10 percent of Americans.

Though Democrats point to the job creation and low unemployment rate Obama passed onto Trump as an indication that Obama’s economic policies, the status quo, needed no revisions, that “America is already great,” in reality the benefits of this economy and the experiences under it weren’t felt by large demographics of Americans in the working, middle and low income classes. These persistent economic anxieties, coupled with an anti-political climate incited by the establishment corrupting American politics through massive corporate lobbying and campaign donations, enabled the rise of Donald Trump.

All early signs of Trump’s Administration have made it clear, through filling his cabinet with billionaires and Wall Street bankers, that he has no intention to representing or improving the lives of working, middle class, or low income Americans. Promises to “drain the swamp” have been broken with filling of the swamp with even more wealthy and establishment elites. Even without enacting any policy or legislation to help those in economic need, the continued economic recovery may help Trump feign the appearance of helping these demographics, but as Bernie Sanders Former Chief Economic Advisor Stephanie Kelton, a Professor of Economics at University of Missouri-Kansas City, notes in a recent paper, there may be no more room for economic recovery given the economy has reached its true employment potential, or as Kelton puts it, ” output is near its full employment ceiling not because the economy rose to its potential but because we lowered the definition of what we believe our nation’s productive capacity to be. It’s a bit like giving up on the idea that your child is capable of achieving straight As, relaxing the goal to a 2.0 GPA, and then celebrating when he presents you with across-the-board Cs.”

Kelton compared the current output gap with the 2007 estimate of potential GDP, which indicates based on previous definitions of America’s productive capacity that the current GDP gap would be close to 14 percent and not closer to zero. She cites several economist who have noted that the U.S. labor market is still far from full employment, though its unclear if Trumponomics will squeeze out more growth from the economy because, “less than three months into the Trump presidency, there is no formal budget and no precise blueprint that describes the full range of policies and programs that the administration intends to pursue.” Despite this, an economic agenda is beginning to take shape, one that is likely to center around massive spending cuts to compensate for increases in defense spending.

Like Reagan, massive spending cuts and an economic agenda predicated on increasing the wealth and income of the top 1 percent resulted in economic growth, and helped Reagan get re-elected in a landslide. Trump’s Administration is shaping to be similar in its pro-business model that will provide gains to wealthy who have aligned with the Trump Administration and filled his cabinet. Already Trump has promised massive tax cuts for the rich, and the Obamacare repeal effort will provide even more tax cuts to the wealthy. Kelton added, “taken together, Trumponomics includes a hefty serving of Reagan-inspired trickledown economics along with a side of protectionism, a dash of military Keynesianism and a social agenda that is anti-worker and anti-immigrant.”

Trump’s promises to “Make America Great Again” come up far short in every simulation conducted by Goldman Sachs and Moody’s, Though an economic doomsday scenario may not result immediately from Trumponomics, with some initial growth possible, Trump’s economic policies will be a disaster for the sick, working, middle class, and low income Americans.

Interview With Nina Turner: Right-To-Work Laws Are Weakening The Middle Class And The Economy

Posted on March 4, 2017

During her time in the Ohio Senate, Turner fought for legislation that would level the playing field for women and men—including introducing the “Viagra bill,” which would subject men to the same scrupulous levels of regulations women face over their reproductive choices—and her dedication has continued into her postlegislative role.

The Canton plant first opened in 2003, and Mississippi residents hoped it would be a boon to their local economy. Though Nissan says the factory has added $2.9 billion each year to the state’s economy, and created 25,000 jobs, the state still remains the poorest in the nation, and workers have spent nearly a decade and a half fighting for better conditions and fairer treatment. The Japanese automaker is currently facing fines at several of its U.S. plants for safety violations—including the one in Canton—and workers say the company has tried to hinder their attempts to join the United Automobile Workers union (it doesn’t help that Mississippi is a right-to-work state, meaning the law gives workers the option not to join a union, or allows them not to pay union dues if they do). And because 80 percent of the plant’s employees are African American, protesters argue that not only is it a fairness and safety issue—the plant’s difficult relationship with its workers is a civil rights one.

“I’ve had a long history with the UAW, particularly in my home state of Ohio,” Turner recently told Glamour. “In places like Ohio [and 27 other states, including Mississippi], these antiworker’s rights bills were filed back in 2011. It was a really big deal in Ohio and motivated me to cement my relationship—or ’street cred,’ if you will—with the labor community in my stance to protect their right to collectively bargain.”

There is a trend now in dissuading people from unionizing, and more right-to-work policies, like those in Ohio and Wisconsin, are being passed at the state level. What do you think this implicates for workers across the country?
It’s a dangerous trend. Workers’ wages are not keeping up with inflation. Their wages are not on pace with the amount of work that they do. We work harder and longer in this country, and still people’s wages are not keeping up with that. Labor unions have a long history of benefitting all workers, even those who are not members of unions, because everyone’s wages go up. If we don’t increase membership—and membership in labor unions is going down because of the attacks against organized labor—it’s something every single American, whether they’re officially in a union or not, should be concerned about. It’s a spiral. It’s a weakening of the middle class, and our economy can’t sustain that.

For the workers and their families, being able to bring home a living wage helps their families and, by extension, helps our economy. Seventy percent of our economy is consumer-based. We know that when lower- and middle-class families have money and disposable income, they spend it. That puts money back into the economy. It’s a win-win for everybody: not just for the individual, not just production at a specific company (like Nissan), but for the greater good. I look at what’s happening at plants like Nissan and what is happening across the country at the hands of some of my Republican sisters and brothers, and it becomes a moral question. Are we the type of country that will make progress and move forward, or are we going to go backward—and take middle- and working-class families with us? The one percent and the 10 percent are doing just fine, but the people who are bearing the brunt of this economy are the ones who suffer.

For women who are in these kinds of jobs, there is also the added factor of covering child care. What kind of effect do these working conditions have on them?
If a mother or a caregiver does not have a job that pays a living wage and they cannot afford child care, that is unacceptable. I’ve talked to my constituents over the years, and child care can almost bankrupt a family, even a two-parent household in which both parents are working. That keeps a parent from being at ease, and it really stifles the social and economic growth of a family. Women are hit hard across the board, but particularly in homes where the mother is the head of the household and the only wage earner. It hurts her, and it hurts her children. I’m always amazed to hear my more conservative colleagues talking about how they care about life. They’re pro-life, but when it comes down to safe work environments that allow for unions, being able to pay for child care, having family leave—they don’t care about any of that. That’s where I argue that they’re not pro-life; they’re pro-birth.

There’s a lot of grassroots activism happening across the country. Do you see a connection between these actions, Saturday’s Nissan rally, and what you and Senator Sanders are doing with Our Revolution?
I absolutely do. People are awake. That hashtag #staywoke is real, and I hope it continues. My hope for this country and the activists is that they never, ever go back to sleep, and they keep fighting for social justice, equality, and decency. It reminds me a lot of President Franklin Roosevelt’s Four Freedoms. Being a progressive himself, he was talking about the fact that we should provide jobs for everyone who wants one. People do have a right to live in decent housing. They do have a right to education. FDR was preaching this gospel in the thirties, and Dr. Martin Luther King did the same thing in the 1960s with the Poor People’s March on Washington. Folks in this country have these rights, and it’s the job of this country to answer this call. We need groups like the Women’s March reminding elected officials that they have a responsibility to create pathways of opportunity, and if—and when—they aren’t doing that, everyday people are going to put a little “extra” on their ordinary and extraordinary things will happen. At this moment the not-so-quiet voices rumbling across the country and the world are saying we absolutely and unequivocally deserve better.

Another point I want to make is that it’s important for women to understand that it’s bad enough that we don’t make dollar-for-dollar what men do, but when you distill that down to women of color, our Latinas and our African American women, it’s even less than that 78 cents. When you have mega-corporations that have record profits, but they don’t want to share even a little bit of that with their workers, we are actually putting our communities at peril. What happens to women happens to the entire nation. People work hard. But when you’re working long hours, you don’t get to spend time with your kids, you don’t get a chance to take a vacation every now and then, you don’t get a chance to make a big purchase (which helps the economy). There’s something wrong with that. This isn’t about wages; this about quality of life. If workers are overworked, or—like at this Nissan plant—companies hire temps at low wages, this fundamentally comes down to the quality of life for a person. It’s bigger than wages. They should be able to spend time with their families. And if they’re single, they should be able to have fun and not spend every day of their life working 12 to 15 hours a day and never get a chance to take care of their well-being. To me, that’s part of living a good life.

On Wednesday, March 8, activists and feminist leaders are calling for women to go on strike to protest the current administration and years of policy that have kept women from being equal members of society. Will you be participating in any demonstrations?
You know, I’m not sure. I can’t say definitively if I will be there physically, but I will definitely be there in spirit. I’m glad to see people coming together like this, and we have to keep this unity going. What happens to one directly happens to all indirectly. It may be Nissan workers today, but it could be somebody else somewhere else tomorrow. We have an obligation to each other to not only push our politicians but to push companies to do right by their workers. They wouldn’t even have successful companies without their workers. They are the glue that keeps things together. How, in the twenty-first century, we have mega-corporations that have lost sight of that boggles my mind.

Glamour: Last week a new DNC chair was selected. I know you’ve been involved with the DNC at the Ohio state level. What are your thoughts on new chair Tom Perez and deputy chair Keith Ellison? How can they keep up the grassroots efforts that are going on and fulfill the hopes of more progressive Democrats?
I am a member of the DNC from Ohio, so I was there in living color this past weekend. I supported Congressman Keith Ellison, and I am disappointed he did not win. I saw forces work to malign Congressman Ellison’s credibility, and I saw a tinge of Islamophobia within my own party, which causes me great dismay. I do hope that Chairman Perez and his decision to make Congressman Ellison the deputy chair, a position that does not really exist, is real. That relationship is going to have to be real for progressives who were disheartened by the direction the DNC took in 2016 during the presidential election and the direction they see the DNC taking now. I want to be clear—I want Chairman Perez to be successful. If he is successful in making sure the DNC recaptures its integrity, that is a good thing. And by integrity, I mean making sure what happened to Bernie Sanders doesn’t happen to another candidate, where you have staffers and even the chairperson putting their thumbs on the scale for one candidate in a primary over the other. We really are going to have to answer the cries of everyday women and men who are calling out for elected leaders to do something different. They want to be treated fairly, and they need a political party who represents them. It’s shameful that the elites basically have one-and-a-half political parties. Working class men and women have zero parties—or they have half a party. That’s exactly what progressives are upset about. I hope that the DNC can take a different turn and restore the party’s integrity. I’m hopeful, but I won’t hold my breath.

There’s some movement online to recruit you to run for governor of Ohio. Would you have any interest in that—or running for any office again?
We’ll see. I’m keeping my options open at this point, but I’m very humbled by the fact that grassroots efforts are rising up all over the country but particularly in my home state of Ohio. I barely have words. To know that so many people across the state, from the rural areas to the urban areas, see something in my leadership and really believe I am someone for the people means a lot to me. That’s how I want people to see me and my public service. Even if they disagree with me, I want them to know I was authentic in my public service. I stand for all people even if it causes me political heartburn—and I’m going to do that no matter what my future holds.

With the current administration just weeks into their presidency and the Republicans in control of both chambers of Congress, what are your hopes for Our Revolution and what it can achieve over the next four years?
My hope is that we help progressives win at local and state levels of government. Democrats have lost over 1,000 seats since 2009. It’s very easy for people to get up in arms about Mr. Trump, but the fact of the matter is that the Democrats took their eye off the ball starting in 2009. I see Our Revolution as being a great champion on that state and local space, because we have to get more progressives elected to those levels of government. Though we don’t control the Congress or the presidency, and we are certainly outnumbered on the state level, there is a chance for us starting this year, and in 2018, to win back some of those state seats. There are states that have started initiatives to do away with Citizen’s United. The overflow of big money in politics drowns out the voices of everyday people. That is part of the conundrum in this country: The more money you have the more speech you have. That leaves everyday people out of the equation. I also see local areas trying to push for universal health care and a single payer system. I’m so inspired by states that do that, and that’s where Our Revolution can do its greatest work—to support those people who wouldn’t normally have the support of establishment types to run and help them win.

In terms of President Trump, I really do hope that he does accomplish some of the things he said on the campaign trail. If he is willing to make investments in infrastructure, but not on the backs of the middle class and the working class, and put people back to work, that would be a good thing. If he’s serious about making Obamacare better, and not pulling the rug out from 20 million Americans who benefit from it, that would be a good thing too. I would love to see more investment to help our veterans. He’s talking about investing in the military—I imagine he wants to invest on the war side, but what we really need is to take care of our veterans, and invest in the VA hospitals, provide better mental health treatment, and help them find housing. That is a stain on America for all of us—Republican and Democrat. No administration in recent times has been able to tackle the needs of our veterans. On that, I do want to see him successful. But in terms of his travel ban and immigration policy, I don’t want to see him successful.

That is why we need this rising. We need people to fight back. So many people are depressed, and they’ve become preoccupied with the negatives of this presidency. That can cripple people mentally. We’ve had to overcome a lot in this country to become a nation of progress. We still have a lot of progress to be made. My role is to remind people that everyday people can make a difference. And if we get people out there doing things to make this country a better place, we can bring change. Decide what your role is going to be, whether it’s helping a candidate, fighting for an issue, or running for office yourself. We have the power to overcome these challenges and keep moving as a nation—and Mr. Trump does not control that.

This interview has been edited and condensed.

Facing Up To Income Inequality

Posted on October 2, 2016

The Census Bureau recently announced a heartening 5 percent gain in the median household income between 2014 and 2015, the largest one-year gain on record. Yet a look at the longer-term trends offers a sobering perspective. The jump in household income merely helps to make up for lost ground; the median earnings in 2015 were actually lower than back in 1999 — 16 years ago.

While household median incomes have stagnated since the late 1990s, the inflation-adjusted earnings of poorer households have stagnated for even longer, roughly 40 years. Meanwhile, households at or near the top of the income distribution have enjoyed sizeable increases of living standards. The result is a stark widening of the gap between rich and poor households.

There is perhaps no issue in America more contentious than income inequality. Everybody has a theory as to why the gap between rich and poor has widened and what should be done — if anything — to close it. A full explanation should help us understand why the United States stands out for having an especially high and rising inequality of income.

There are three main factors at play: technology, trade, and politics. Technological innovations have raised the demand for highly trained workers, thereby pushing up the incomes of college-educated workers relative to high-school-educated workers. Global trade has exposed the wages of industrial workers to tough international competition from workers at much lower pay scales. And our federal politics has tended, during the past 35 years, to weaken the political role of the working class, diminish union bargaining power, and cap or cut the government benefits received by working-class families.

Consider technology. Throughout modern history, ingenious machines have been invented to replace heavy physical labor. This has been hugely beneficial: Most (though not all) American workers have been lucky to escape the hard toil, drudgery, dangers, and diseases of heavy farm work, mining, and heavy industry. Farm jobs have been lost, but with some exceptions, their backbreaking drudgery has been transformed into office jobs. Farm workers and miners combined now account for less than 1 percent of the labor force.

Yet the office jobs required more skills than the farm jobs that disappeared. The new office jobs needed a high school education, and, more recently, a college degree. So who benefited? Middle-class and upper-class kids fortunate enough to receive the education and skills for the new office jobs. And who lost? Mostly poorer kids who couldn’t afford the education to meet the rising demands for skilled work.

Now the race between education and technology has again heated up. The machines are getting smarter and better faster than ever before — indeed, faster than countless households can help their kids to stay in the job market. Sure, there are still good jobs available, as long as you’ve graduated with a degree in computer science from MIT, or at least a nod in that direction.

Globalization is closely related to technology and, indeed, is made possible by it. It has a similar effect, of squeezing incomes of lower-skilled workers. Not only are the assembly-line robots competing for American jobs; so too are the lower-waged workers half a world away from the United States. American workers in so-called “traded-goods” sectors, meaning the sectors in direct competition with imports, have therefore faced an additional whammy of intense downward pressure on wages.

For a long time, economists resisted the public’s concern about trade depressing wages of lower-skilled workers. Twenty-two years ago I coauthored a paper arguing that rising trade with China and other low-wage countries was squeezing the earnings of America’s lower-skilled workers. The paper was met with skepticism. A generation later, the economics profession has mostly come around to recognize that globalization is a culprit in the rise of income inequality. This doesn’t mean that global trade should be ended, since trade does indeed expand the overall economy. It does, however, suggest that open trade should be accompanied by policies to improve the lot of lower-wage, lower-skilled workers, especially those directly hit by global trade but also those indirectly affected.

Many analyses of rising income inequality stop at this point, emphasizing the twin roles of technology and trade, and perhaps debating their relative importance. Yet the third part of the story — the role of politics — is perhaps the most vital of all. Politics shows up in two ways. First, politics helps to determine the bargaining power of workers versus corporations: how the overall pie is divided between capital and labor. Second, politics determines whether the federal budget is used to spread the benefits of a rising economy to the workers and households left behind.

Unfortunately, US politics has tended to put the government’s muscle on behalf of big business and against the working class. Remember the Reagan revolution: tax cuts for the rich and the companies, and union-busting for the workers? Remember the Clinton program to “end welfare as we know it,” a program that pushed poor and working-class moms into long-distance commuting for desperately low wages, while their kids were often left back in dangerous and squalid conditions? Remember the case of the federal minimum wage, which has been kept so low for so long by Congress that its inflation-adjusted value peaked in 1968?

There is no deep mystery as to why federal politics has turned its back on the poor and working class. The political system has become “pay to play,” with federal election cycles now costing up to $10 billion, largely financed by the well-heeled class in the Hamptons and the C-suites of Wall Street and Big Oil, certainly not the little guy on unemployment benefits. As the insightful political scientist Martin Gilens has persuasively shown, when it comes to federal public policy, only the views of the rich actually have sway in Washington.

So in the end, the inequality of income in the United States is high and rising while in other countries facing the same technological and trade forces, the inequality remains lower, and the rise in inequality has tended to be less stark. What explains the difference in outcomes? In the other countries, democratic politics offers voice and representation to average voters rather than to the rich. Votes and voters matter more than dollars.

To delve more deeply into the comparison between the United States and other countries, it is useful to measure the inequality of income in each country in two different ways. The first way measures the inequality of “market incomes” of households, that is, the income of households measured before taxes and government benefits are taken into account. The second measures the inequality of “disposable income,” taking into account the taxes paid and transfers received by the household.

The difference between the two measures shows the extent of income redistribution achieved through government taxation and spending. In all of the high-income countries, the inequality of market income is greater than the inequality of disposable income. The taxes paid by the relatively rich and the transfers made to the relatively poor help to offset some of the inequality of the marketplace.

The accompanying chart offers just this comparison for the high-income countries. For each country, two measures of inequality based on the “Gini coefficient” are calculated. The Gini coefficient is a measure of income inequality that varies between 0 (full-income equality across households) and 1 (full-income inequality, in which one household has all of the income). Countries as a whole tend to have a Gini coefficient of disposable income somewhere between 0.25 (low inequality) and 0.60 (very high inequality).

In the figure, we see the two values of the Gini coefficient for each country: a higher value (more inequality) based on market income and a lower value (less inequality) based on disposable income (that is, after taxes and transfers). We can see that in every country, the tax-and-transfer system shifts at least some income from the rich to the poor, thereby pushing down the Gini coefficient. Yet the amount of net redistribution is very different in different countries, and is especially low in the United States.

Compare, for example, the United States and Denmark. In the United States, the Gini coefficient on market income is a very high 0.51, and on disposable income, 0.40, still quite high. In Denmark, by comparison, the Gini coefficient on market income is a bit lower than the United States, at 0.43. Yet Denmark’s Gini coefficient on disposable income is far lower, only 0.25. America’s tax-and-transfer system reduces the Gini coefficient by only 0.11. Denmark’s tax-and-transfer system reduces the Gini coefficient by 0.18, half-again as high as in the United States.

How does Denmark end up with so much lower inequality of disposable income from its budget policies? Denmark taxes more heavily than the United States and uses the greater tax revenue to provide free health care, child care, sick leave, maternity and paternity leave, guaranteed vacations, free university tuition, early childhood programs, and much more. Denmark taxes a hefty 51 percent of national income and provides a robust range of high-quality public services. The United States taxes a far lower 31 percent and offers a rickety social safety net. In the United States, people are left to sink or swim. Many sink.

So, many Americans would suspect, Denmark is miserable and being crushed by taxes, right? Well, not so right. Denmark actually comes out number 1 in the world happiness rankings, while the United States comes in 13th. Denmark’s life expectancy is also higher, its poverty lower, and its citizens’ trust in government and in each other vastly higher than the equivalent trust in the United States.

So herin lies a key lesson for the United States. America’s inequality of disposable income is the highest among the rich countries. America is paying a heavy price in lost well-being for its high and rising inequality of income, and for its failure to shift more benefits to the poor and working class.

We have become a country of huge distrust of government and of each other; we have become a country with a huge underclass of people who can’t afford their prescription drugs, tuition payments, or rents or mortgage payments. Despite a roughly threefold increase in national income per person over the past 50 years, Americans report to survey takers no higher level of happiness than they did back in 1960. The fraying of America’s social ties, the increased loneliness and distrust, eats away at the American dream and the American spirit. It’s even contributing to a rise in the death rates among middle-aged, white, non-Hispanic Americans, a shocking recent reversal of very long-term trends of rising longevity.

The current trends will tend to get even worse unless and until American politics changes direction. As I will describe in a later column, the coming generation of yet smarter machines and robots will claim additional jobs among the lower-skilled workers and those performing rote activities. Wages will be pushed lower except for those with higher training and skills. Capital owners (who will own the robots and the software systems to operate them) will reap large profits while many young people will be unable to find gainful employment. The advance in technology could thereby contribute to a further downward spiral in social cohesion.

That is, unless we decide to do things differently. Twenty-eight countries in the Organization for Economic Cooperation and Development have lower inequality of disposable income than the United States, even though these countries share the same technologies and compete in the same global marketplace as the United States. These income comparisons underscore that America’s high inequality is a choice, not an irreversible law of the modern world economy.

The Dual Mandate: Right Goals, Wrong Institution?

Posted on August 7, 2013

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.