Republican Base Supports Trump’s Views on Economics

Paul Krugman comments on Jeb Bush’s recent attacks on front-runner Donald Trump.

“Mr. Bush has chosen to attack Mr. Trump as a false conservative, a proposition that is supposedly demonstrated by his deviations from current Republican economic orthodoxy: his willingness to raise taxes on the rich, his positive words about universal health care … [These] are precisely the issues on which Mr. Trump happens to be right, and the Republican establishment has been proved utterly wrong.”

“So am I saying that Mr. Trump is better and more serious than he’s given credit for being? Not at all — he is exactly the ignorant blowhard he seems to be. It’s when it comes to his rivals that appearances can be deceiving.”

“Mr. Bush, in particular, may pose as a reasonable, thoughtful type … but his actual economic platform, which relies on the magic of tax cuts to deliver a doubling of America’s growth rate, is pure supply-side voodoo.”

“All indications are that Mr. Bush’s attacks on Mr. Trump are falling flat, because the Republican base doesn’t actually share the Republican establishment’s economic delusions.”

“But Mr. Trump, who is self-financing, didn’t need to genuflect to the big money, and it turns out that the base doesn’t mind his heresies. This is a real revelation, which may have a lasting impact on our politics.”

Could Plummeting Oil Prices Cause the Next Recession?

A. Gary Shilling, in Bloomberg View: “Oil-importing countries are obvious winners from falling crude prices. That includes the U.S., where — despite a surge in domestic production — imports still account for nearly 50 percent of petroleum consumption.”

“Lower oil prices, however, could come with a downside. As they work their way through the system, deflation could follow … The risk is that deflationary expectations could follow, encouraging consumers to withhold purchases in anticipation of even lower prices.”

“If that happens, excess capacity and inventories would build, forcing prices down more. When buyers’ suspicions are confirmed, they further delay consumption, in a vicious downward cycle. The result is little if any economic growth, as deflation-prone Japan has seen over the last two decades.”

“I believe the Fed will hold off on a rate hike until next year, at the earliest. But if it does move this year, and commodity prices tumble, China slumps and deflation sets in, it could soon wish it hadn’t.”

Small Student Debts, Big Problems

Susan Dynarski, in the New York Times, explains how “borrowers who owe the most are least likely to default. The reason for this strange pattern? The biggest borrowers tend to become the highest earners.”

“This fact about loan defaults is one way in which the national conversation about student debt is at odds with the data. In many people’s minds, the so-called student-debt crisis revolves around graduates of selective colleges or graduate programs who run up six figures in debt.”

“But such borrowers aren’t the real source of trouble. The vast majority of bachelor’s degree recipients do very well. Only 2 percent of undergraduates borrow more than $50,000, and they also aren’t the ones who tend to have problems with their debt.”

“Defaults are concentrated among the millions of students who drop out without a degree, and they tend to have smaller debts. That is where the serious problem with student debt is. Students who attended a two- or four-year college without earning a degree are struggling to find well-paying work to pay off the debt they accumulated.”

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“The United States also has income-based repayment options, but relatively few student borrowers — currently 19 percent of Direct Loan borrowers — are enrolled in them. The people who need these programs the most are not taking them up.”

What if We Faced Another Financial Crisis?

Clive Crook in Bloomberg: Investors are “asking whether 2008 might come round again. … On the face of it, the policy options for responding to another slump are fewer than last time. Governments have run big budget deficits to support demand, so there’s less so-called fiscal space for a new round of stimulus, or so the thinking goes. Interest rates are still at zero, and even the advocates of quantitative easing recognize that it ran into diminishing returns.”

Crook posits a “powerful remedy — one so politically toxic that it wasn’t used even in response to the crash of 2008. It goes by various names: helicopter money, overt monetary financing, quantitative easing for the people.”

The central bank “could drop cash from helicopters. More prosaically, it could mail checks to taxpayers. Equivalently, the government could cut taxes or build some bridges and cover the cost with bonds placed with the central bank. Each of these interventions, in effect, marries fiscal policy — meaning direct command over economic resources — to monetary policy.”

“When deflation is the problem, the prospect of inflation is the cure. Helicopter money would be a potent remedy for the sickness in question.”

A Federal Housing Policy That Favors the Wealthy

Vox: Federal and state “tax deductions tend to be larger for rich people, who tend to have more expensive houses. And rich people are also in higher tax brackets, making every dollar deducted worth more. As a result, these tax breaks provide the biggest financial benefit to the wealthiest taxpayers. The Urban Institute’s John McGinty, Benjamin Chartoff, and Pamela Blumenthal have created a helpful chart showing just how big these tax breaks get.”

Housing tax breaks for rich people are larger than housing subsidies for poor people.

“The blue bars show the value of these tax breaks for different income brackets … As you can see, the tax breaks provided to the richest Americans, on a per-person basis, dwarf the value of housing subsidies provided to those with low incomes.”

“Most households in the middle of the income distribution are too wealthy to qualify for federal housing subsidies. At the same time, they tend to have relatively small houses and be in low tax brackets, so they don’t get much benefit from housing-related tax breaks.”

Summers: Don’t Raise Interest Rates

Lawrence Summers argues that “a reasonable assessment of current conditions suggests that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives: price stability, full employment and financial stability.”

“The pressure to increase [rates] comes from a sense that the economy has normalized during the 6 years of recovery and so the extraordinary stimulus represented by 0 percent interest rates should be withdrawn. This has been a consistent theme for the Fed, with much talk of ‘headwinds’ that require low interest rates now but will abate in the not too distant future, allowing for normal growth and normal interest rates.”

“Whatever merit the theory of temporary headwinds had a few years ago, it is much less plausible as we approach the seventh anniversary of the collapse of Lehman Brothers … Much more plausible than ‘temporary headwinds’ is ‘secular stagnation’ or the very similar idea that Ben Bernanke has put forward of a ‘savings glut.’”

“New conditions require new policies. There is much that should be done, like major steps to promote both public and private investment, to raise the level of real interest rates consistent with full employment. But until and unless these new policies are implemented, inflation sharply accelerates or euphoria in markets breaks out, there is no case for the Fed to adjust policy interest rates.”

How Can the U.S. Prevent the Next Economic Crisis?

Wall Street Journal: “As the U.S. economic expansion ages and clouds gather overseas, policy makers worry about recession. Their concern isn’t that a downturn is imminent but whether they will have firepower to fight back when one does arrive.”

“With the U.S. expansion entering its seventh year, policy makers are planning how to respond to the next downturn, which history shows is inevitable. The current expansion is now 16 months longer than the average since World War II, and none has lasted longer than a decade.”

“The next downturn could further expand Fed bondholdings, but with the central bank’s balance sheet already exceeding $4 trillion, there are limits to how much more the Fed can buy.”

“Many economists believe relief from the next downturn will have to come from fiscal policy makers not the Fed, a daunting prospect given the philosophical divide between the two parties.”

Beware the Growing Global Glut

Paul Krugman asks “why does the world economy keep stumbling?”

“What we’re seeing is what happens when too much money is chasing too few investment opportunities,” or as Ben Bernanke argued more than a decade ago, “that a ballooning U.S. trade deficit was the result, not of domestic factors, but of a ‘global saving glut.'”

“What’s causing this global glut? Probably a mix of factors. Population growth is slowing worldwide, and for all the hype about the latest technology, it doesn’t seem to be creating either surging productivity or a lot of demand for business investment. The ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem. And low inflation around the world, which means low interest rates even when economies are booming, has reduced the room to cut rates when economies slump.”

There’s “a sort of emotional prejudice against the very notion of global glut. Politicians and technocrats alike want to view themselves as serious people making hard choices — choices like cutting popular programs and raising interest rates. They don’t like being told that we’re in a world where seemingly tough-minded policies will actually make things worse. But we are, and they will.”

The Most Common Job Held by Immigrants in Each State

Matthew Yglesias: Andy Kiersz at Business Insider crunched the numbers from the American Community Survey and the Minnesota Population Center to develop a map showing the most commonly held job by immigrants in every state in the union.

“But the most socially and economically significant trend is probably the large number of states that are full of immigrant health aides, nurses, or personal care aides. Given the aging of the population, there is going to be increasing demand for these kinds of services.”

Is an Increase in Renewables Worth the Price?

Christopher Flavelle in Bloomberg asks: “Is it even possible for the U.S. to increase so quickly the share of power it gets from renewables … by the end of the next decade? If so, what will it cost? And who would pay? ”

“One way to answer the first question is asking whether there’s precedent for so rapid a shift. The answer is yes, but with caveats — and those caveats suggest that the pace of change Clinton proposes could come at significant cost.”

“In 2014, six states got more than 20 percent of their electricity from renewable sources other than hydro power … But there’s a catch: Much of the new renewable capacity was in states with landscapes ideally suited to large wind farms, built to export clean power to other states.”


Who bears the costs? “Most states still have regulated electricity markets, where utility companies recover the expense of building and upgrading plants by adding those costs to customers’ monthly energy bills.”

“The debate over renewables, as with climate change more broadly, needs to move past whether policy has to change (it does) and toward how much we’re willing to pay for it — and who gets the tab. Leaving that discussion for later, or pretending it doesn’t need to happen, is the wrong way to turn promises into something real.”

An Uneven Housing Policy for America’s Poor

Gillian White in The Atlantic: “When you look at the nationwide statistics, it’s clear that voucher recipients are able to live in areas of less-concentrated poverty, and that they live in less-segregated neighborhoods than poor families who have no choice but to live in shelters, transitional housing, or traditional public-housing units. (Vouchers are a rent subsidy that people can use to live in privately owned housing.)”

But “finding better neighborhoods with landlords who will accept vouchers can be nearly impossible in some areas.”

Elizabeth Kneebone, a fellow at Brookings has found “that voucher holders in the 100 largest metro areas lived in neighborhoods where the poverty rate was an average of 10 percentage points higher and the minority population share was 21 percentage points higher than the average for all neighborhoods in the largest metros.”

Difference Between Regional Poverty Rate and Voucher-Holder Poverty Rate

“Part of the issue is that vouchers, made specifically to allow families to move away from highly concentrated areas of poverty and into areas of greater racial and economic integration, often wind up not being all that portable because of discriminatory housing practices, landlords who refuse to accept vouchers, or difficulty identifying and moving to neighborhoods with more economic promise.”

Minorities’ Wealth is Not Protected by a College Degree

New York Times: “A new report by the Federal Reserve Bank of St. Louis “raises troubling questions about the ability of a college education to narrow the racial and ethnic wealth gap. ‘Higher education alone cannot level the playing field,’ the report concludes.”

“Economists emphasize that college-educated blacks and Hispanics overall earn significantly more and are in a better position to accumulate wealth than blacks and Hispanics who do not get degrees.”

“But while these college grads had more assets, they suffered disproportionately during periods of financial trouble.”

“From 1992 to 2013, the median net worth of blacks who finished college dropped nearly 56 percent (adjusted for inflation). By comparison, the median net worth of whites with college degrees rose about 86 percent over the same period, which included three recessions.”

“There is not a simple answer to explain why a college degree has failed to help safeguard the assets of many minority families. Persistent discrimination and the types of training and jobs minorities get have played a role. Another central factor is the heavy debt many blacks and Hispanics accumulate to achieve middle-class status.”

Bloomberg: Coal is Dying of Natural Causes, Not Because of Obama

Michael Bloomberg: “Critics of the Environmental Protection Agency’s new Clean Power Plan are describing it in apocalyptic terms. But much of what they believe about the plan — that it will destroy the coal industry, kill jobs and raise costs for consumers — is wrong. And it’s important to understand why.”

“The overblown political rhetoric about the plan tends to obscure the market reality that the coal industry has been in steady decline for a decade, partly as a result of the natural gas boom, but mostly because consumers are demanding cleaner air and action on climate change.”

“The primary reason for the public revolt against coal is simple: It causes death, disease and debilitating respiratory problems … At the same time, jobs in the energy industry have multiplied, led by natural gas and renewable sources such as solar and wind. Today, there are nearly two people working in the solar industry for each person employed by the coal industry.”

“What has this meant for consumers’ pocketbooks? Very little. The transition away from coal has been almost undetectable in electricity bills: Residential rates have been essentially flat since 2006.”

“In short, reducing our nation’s coal consumption has meant a healthier country with more jobs — at no extra cost to consumers. Is there anyone who thinks that’s a bad deal?”