Economy

How Do Americans Live?

The chart below, based on new 2014 American Community Survey data on the characteristics of occupied housing, breaks down the differences in how Americans live in major American cities.

Emily Badger and Christopher Ingraham: “These figures tell us not just about the physical character of each city, but the potential they have for new housing as many places (Detroit not withstanding) look for space to fit a growing urban population. Higher density, in all of these cities, doesn’t have to mean Manhattan-style mega-rises.”

Explaining the Fed’s Policy on Interest Rates: Follow the Money

Paul Krugman asks why the Fed has faced constant criticism for its low-rate policy.

“The answer is that the story keeps changing. In 2010-2011 the Fed’s critics issued dire warnings about looming inflation. You might have expected some change in tune when inflation failed to materialize. Instead, however, those who used to demand higher rates to head off inflation are still demanding higher rates, but for different reasons. The justification du jour is ‘financial stability,’ the claim that low interest rates breed bubbles and crashes.”

“Well, when you see ever-changing rationales for never-changing policy demands, it’s a good bet that there’s an ulterior motive. And the rate rage of the bankers — combined with the plunge in bank stocks that followed the Fed’s decision not to hike — offers a powerful clue to the nature of that motive. It’s the bank profits, stupid.”

“Bankers are different from you and me: they have a lot more influence. Monetary officials meet with them all the time, and in many cases expect to join their ranks when they come out on the other side of the revolving door … So we shouldn’t be surprised to see institutions that cater to bankers, not to mention much of the financial press, spinning elaborate justifications for a rate hike that makes no sense in terms of basic economics.”

What Do the Richest Places in America Have in Common?

Washington Post: “Kansas City, St. Louis and and Baltimore are missing holes on a map of American prosperity. They are relatively low-income, encircled by wealth. Cross their county lines into the suburbs, and households there make, in many cases, nearly twice as much. Same with Detroit, Philadelphia, Cleveland and Dallas.”

“The pattern is a classic American one, built through decades of postwar wealthy flight to the suburbs and disinvestment in cities. But it’s striking today how deeply entrenched this geometry remains at the county level, especially in an era when poverty is expanding into the suburbs and wealthier households are moving back in.”

For instance “the income gap between Philadelphia County and Bucks County next door is $40,000, reflecting the much higher poverty rates in many central cities … Among the top 25 highest-earning counties in the U.S., every one of them lies outside a major city.”

“The highest-earning counties in America are notable not just for their suburban settings, but also their remarkable concentration on the east and west coasts. Where there is one super-rich county there, invariably there are several others nearby. Wealth doesn’t just cluster at the neighborhood level or in particular suburbs. It carves out entire domains of the biggest metropolitan areas on the coasts.”

The Fed Made the Right Decision for the Wrong Reasons

New York Times Editorial Board: “The Federal Reserve did the right thing on Thursday when it opted not to begin raising interest rates. By holding steady, the Fed is acknowledging, correctly, that the economy shows no signs of overheating.”

“In one important respect, however, the Fed appears to be doing the right thing for the wrong reasons.”

“Judging from its statement and its economic projections, the Fed believes that the labor market has largely returned to health. That suggests it will be poised to raise rates as soon as the global headwinds abate.”

“Congress long ago punted on its responsibility to use fiscal policy to help the economy. That has put an undue burden on the Fed, in effect making the Fed’s near-zero interest rate the only source of steady policy support for a struggling economy.”

“The Fed should not have been put in that position, but that is the position it is in. It should not compound the problem of inadequate congressional action by removing its support before the labor market has truly recovered.”

A Healthy Economy? Look Closer.

Neil Irwin shows how the recent Census data is an “important corrective” of the true health of the economy.

“The median American household in 2014 had a lower income, in inflation-adjusted terms, than it did in 2013. The $53,657 the household in the middle of the income distribution earned last year was down 1.5 percent from the year before, though the census said that shift was not statistically significant.”

“But even if that drop is a statistical blip and you assume that middle-class incomes were really flat, flat isn’t anything to celebrate in the current environment. The 2014 real median income number is 6.5 percent below its 2007, pre-crisis level. It is 7.2 percent below the number in 1999.”

“A middle-income American family, in other words, makes substantially less money in inflation-adjusted terms than it did 15 years ago. And there is no evidence that is reversing … If you were to sum up the latest census numbers on incomes in the United States in 2014, it would be with these three words: ‘not statistically different.’ The announcement includes the phrase six times in its discussion of incomes, and that fact sums up a lot.”

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Liftoff on Interest Rates Is Risky Business

Matt O’Brien: “You can raise rates any time you want, but you can never leave the zero bound.”

“That, at least, has been the case for almost every country that has tried to increase interest rates from zero the last few decades. It hasn’t been long until they’ve found themselves back where they began, at zero, with their economies still stuck in stall speed … The lesson is that raising rates too soon might mean that they are actually lower in the long run, since you will have to reverse course when you otherwise might have been ready to raise them.”

“Liftoff, in other words, isn’t the kind of thing you want to get wrong. If you do, you might get stuck at zero for, well, who knows how long.”

Lawrence Summers cautions that “monetary policy should seek to avoid major surprises. Right now the fed funds futures market is assigning only a 28 percent chance to a September tightening. In the last 20 years, the Fed has never tightened without guiding the futures market to at least a 70 percent chance of a tightening. So a move now, given how expectations have been managed, would be an extraordinary shock at a highly uncertain time.”

A Government Shutdown Could Threaten a Healthy Economy

Washington Post: “The U.S. economy is entering an uncertain and perilous autumn, facing risks from abroad and from policymakers in Washington in what promises to be another tumultuous chapter in the nation’s slow-going recovery.”

“The irony is that 2015 is expected to mark the first time in four years year that the federal government is actually boosting economic growth, rather than detracting from it, according to an analysis by Macroeconomic Advisers. But if a budget deal is not struck and the spending cuts outlined in a compromise report laid out this summer are enacted, the country could be headed back into recession, the report found.”

“Already, the economy has been growing, albeit slower, for a longer period than the post-World War II average. The unemployment rate, which peaked at about 10 percent just after the recession, is now about half that, and many analysts believe it is nearing its lowest sustainable level.”

“More important will likely be the volatility a poisonous political climate could inject into already skittish financial markets. Worse, the mounting rancor in Washington could carry over into difficult debates later in the year. Beyond approving a stop gap measure to avert a government shut down now, lawmakers must negotiate a long-term budget deal, fund federal highway and transit projects and lift the national borrowing limit to avoid what would be a catastrophic default.”

You Can’t Live on the Minimum Wage

Washington Post: “A professor at MIT created a new interactive map that shows where it’s hardest for those earning the minimum wage to get by. Amy Glasmeier created a tool called ‘The Living Wage Calculator,’ which shows the hourly rate that an individual needs to earn to support their family for every county in the country. She then used the information to create the map pictured below, which shows the difference between the minimum wage and the amount of money needed to meet a minimum standard of living around the U.S. ”

This new map by Esri shows where the gap is starkest between minimum wage and living wage. - VIA ESRI

“The darker red areas indicate a large gap between what someone makes earning the minimum wage and what they need to survive, while the orange areas are a smaller gap.”

“The map shows that the East Coast, especially the high-cost urban areas of Washington and New York, are some of the most challenging places for minimum-wage workers to make ends meet … Perhaps more surprisingly, the map shows that life is relatively hard for those earning the minimum wage in Wisconsin, Colorado, New York, Florida and Maine.”

“The only state in which there is not a gap is Washington State, where in some places … the cost of living is actually lower than the minimum wage.”

Summers: America Needs Strong Unions

Lawrence Summers comments on a a new study on unions and social mobility by Harvard colleague Richard Freeman and collaborators that shows “a significant correlation across American metropolitan areas between the extent of union membership and social mobility.”

“Chetty’s celebrated ‘equal opportunity map,’ “shows the average percentile rank of children who grow up in below-median income families across areas of the U.S. (absolute upward mobility). Lighter colors represent areas where children from low-income families are more likely to move up in the income distribution.”

Mobility

“The map demonstrates that equality of opportunity is particularly bad in the old confederacy and particularly good in some of the old bastions of abolitionism. It is not therefore surprising that unions, which were concentrated in the North, turn out to be correlated with equal opportunity. More impressive is the research result that looking across families, fathers who are union members have children who earn at least 15 percent more than those who are not in union families, and that this stands up even with various control variables added. The implication is that supporting unions not only helps workers who are members themselves but also helps their children and communities as well.”

“Strengthening collective worker voice has to be an important component of any realistic American inclusive growth agenda.”

 

How Large is America’s Climate Debt?

Phys Org: “All countries have contributed to recent climate change, but some much more so than others. Those that have contributed more than their fair share have accumulated a climate debt, owed to countries that have contributed less to historical warming.”

“This is the implication of a new study published in Nature Climate Change, in which Concordia University researcher Damon Matthews shows how national carbon and climate debts could be used to decide who should pay for the global costs of climate mitigation and damages. The countries that have accumulated the largest carbon debts on account of higher than average per-capita carbon dioxide (CO2) emissions are the United States, Russia, Japan, Germany, Canada, the United Kingdom and Australia.”

“The U.S. alone carries 40 per cent of the cumulative world debt, while Canada carries about four per cent.”

 

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Inside Climate News: “The study concludes  the carbon debt of high-emitting countries totals 250 billion metric tons of carbon dioxide since 1990. The U.S. government calculates the social cost of CO2 emissions –including property damage from increased flooding, reduced agricultural productivity and adverse effects on human health– is about $40 per metric ton of CO2. Multiplying the two figures  produces the $10 trillion figure.”

 

Jeb Bush Inherits Voodoo Economics

John Cassidy in The New Yorker: “On Wednesday, Jeb Bush, the G.O.P. establishment’s standard-bearer, announced, as the centerpiece of his 2016 campaign, a plan to cut federal income-tax rates across the board.”

“Of course, Bush hasn’t said yet where he would cut spending, nor has he specified the income thresholds at which the new tax rates would kick in … [but] by raising standard deductions and expanding the earned-income tax credit, the Bush plan would boost the post-tax incomes of many low-income households. These measures, combined with a promise to eliminate the ‘carried interest’ deduction enjoyed by hedge-fund and private-equity fund managers, are where the G.O.P. candidate doffs his hat to concerns about wage stagnation and rising inequality.”

“Because Bush is intending to slash the top rate of income tax, eliminate the estate tax, and reduce the tax rate on capital gains and dividends, the impact of his progressive measures would be small compared to the gains that would be enjoyed by the ultra-wealthy.”

“Jeb talks about simplifying the tax code, boosting American competitiveness, stimulating growth, and restoring ‘the opportunity for every American to rise and achieve earned success.’ That’s how voodoo economics is always marketed. But, despite the welcome addition of a few populist touches, such as pledging to euthanize the carried-interest deduction, Bush is writing the same old tired script.”

The Nation’s Healthcare Checkup

Kaiser Family Foundation 9/10/15 newsletter: “A new brief on the Peterson-Kaiser Health System Tracker finds that the quality of the U.S. health system is improving in many areas, but comparable countries continue to outperform the United States on key measures.”

Findings include:

  • The U.S. health system has improved on a wide variety of quality measures, including mortality amenable to health care; the number of hospital-acquired infections; and the percentage of children receiving all recommended doses of vaccines.
  • The U.S. has worsened on other measures, including health-related quality of life.
  • The U.S. outperforms countries of comparable wealth on some measures … but, on a large number of measures, comparable countries outperform the U.S., including life expectancy at birth; cost-related barriers to health care access; … and burden of disease, which takes into account years of life lost due to premature death and years of life lost to poor health or disability.

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Americans Could Use a Raise

Matthew Yglesias: “The labor market is a lot healthier in 2015 than it was five years ago, and with the unemployment rate falling, a lot of people are expecting the Federal Reserve to start acting to slow economic growth before workers demanding raises can generate inflation.”

A new report from the National Employment Law Project shows “that inflation-adjusted wages fell substantially between 2009 and 2014 for almost every occupation under the sun.”

“One cut at this sorted different occupations into quintiles based on their average 2014 wages and then looked at how each quintile has fared. Researchers found that the rich have gotten poorer, and the poor have gotten a lot poorer:”

 

Extreme Wealth Inequality is Not Random

Mark Buchanan, in Bloomberg View, argues that chance alone can’t explain the dramatic increase in wealth inequality.

“In a recent paper … a group of U.S. and French economists and mathematicians finds that the experience of the U.S. doesn’t fit into such a simple model. Over the past four decades, inequality has increased much too quickly. If tax levels or investment income were the only drivers, the change should have taken a few centuries. Mathematically, there must be another driver, something that empowers the wealthy to take an increasingly large share of the pie.”

“The economists offer a couple candidates, such as the emergence of ‘superstar entrepreneurs or managers’ who possess special skills or hold key positions, or ‘superstar shocks,’ such as better information or investment advice that give the rich an edge in getting richer. These factors, they calculate, would be enough to account for the rapid change in inequality witnessed in recent years.”

“Their research provides compelling evidence that recent trends in inequality really do reflect something new and different in the workings of capitalism. It suggests that the wealthy have, solely by virtue of their status, gained the ability to steer even more money their way.”