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History > 2016 > USA > Economy (I)
Illustration: Eiko Ojala
Subprime Reasoning on Housing
NYT JAN. 27, 2016
http://www.nytimes.com/2016/01/27/opinion/subprime-reasoning-on-housing.html
Jobs Roar Back
With Gain of 287,000 in June,
Easing Worry
JULY 8, 2016
The New York Times
By PATRICIA COHEN
Quashing worries that job growth is flagging, the government on
Friday reported that employers increased payrolls by 287,000 in June, an
arresting surge that could reframe the economic debate just weeks before
Republicans and Democrats gather for their conventions.
The official unemployment rate did rise to 4.9 percent, from 4.7 percent, but
that was largely because more Americans rejoined the work force. And average
hourly earnings ticked up again, continuing a pattern of rising wages that
brought the yearly gain to 2.6 percent.
“Wow, this one takes my breath away,” said Diane Swonk, an independent economist
in Chicago.
An unexpectedly grim employment report in May combined with Britain’s vote to
leave the European Union had fanned wider concerns that the American economy was
in danger of stalling. During its meeting last month, the Federal Reserve
unanimously decided to postpone increasing the benchmark interest rate.
But the latest Labor Department report, Ms. Swonk said, gives the Fed “a
cushion” to consider a bump in rates later this year.
Financial markets rallied on the announcement, with the Standard & Poor’s
500-stock index gaining 1.5 percent to end the day just short of the record
close it recorded last year.
But the political response was relatively muted, in deference to the shootings
of police officers in Dallas. Both presidential candidates canceled campaign
events, and the presumptive Republican nominee, Donald J. Trump, tweeted that he
had postponed a scheduled speech on economic opportunity.
At the moment, though, the Democrats are best poised to take advantage of the
positive employment news.
Lynn Vavreck, a professor of political science at University of California, Los
Angeles, said that when it came to presidential elections, the economic trend
was more important than any particular number. “As long as it’s going in the
right direction,” she said, “that’s a good sign for the incumbent party.”
Concerns persist about the vitality of the economic recovery, which reached the
seven-year point this month. And perhaps nothing highlights the reality that
every monthly jobs report provides only a fleeting and incomplete picture more
than the giddy swing between May’s revised gain of 11,000 and June’s 287,000. (A
strike by more than 35,000 Verizon workers had artificially held down May’s
totals.)
Still, Friday’s report, showing the largest single monthly job expansion since
October 2015, helped whisk away some of the cloudiest forecasts. The three-month
average of monthly gains rose to 147,000, after taking into account the Labor
Department’s revised estimates that showed 6,000 fewer jobs were created in
April and May than previously reported. June’s figures will be subject to two
more revisions.
“This report should ease any fears that a persistent slowdown or recession is
coming soon in the U.S.,” said Dean Maki, chief economist at Point72 Asset
Management. “The service sector is where the real strength is, with 256,000
hires. But the gains were widespread across sectors.”
Mr. Maki pointed out that the vigorous report was in line with several other
encouraging signs. New claims for unemployment benefits have stayed at
rock-bottom levels. Consumer spending is strong. The manufacturing and service
industry indexes have jumped. And the number of unfilled jobs, 5.8 million in
April, is at a record since the survey began.
Hillary Clinton, the Democratic standard-bearer, has emphasized the steady
economic improvements during President Obama’s two terms and the steep decline
in the jobless rate from the recession’s peak of 10 percent.
While acknowledging the economy “isn’t yet where we want it to be,” Mrs. Clinton
has argued that the United States is “stronger and better positioned than anyone
in the world.” She has endorsed a higher minimum wage, expanded paid leave, more
money for job training and a multibillion-dollar infrastructure plan.
Many Americans, though, particularly those with fewer skills and less education,
have yet to enjoy the recovery’s rewards. Their deep-rooted discontent with the
economy has been repeatedly voiced by Mr. Trump, who has opposed what he calls
“job killing” trade deals. He has promised to impose high tariffs as a way of
reversing the decline in manufacturing jobs, and to deport immigrants.
There are other weak spots. Republicans can point out that real median household
income is lower than it was a decade ago. And a broader measure of unemployment
that includes discouraged job seekers, as well as those who would prefer to work
full time instead of part time, is still nearly twice the official jobless rate,
despite ticking down to 9.6 percent in June.
The proportion of people employed or actively looking for work has also been
dragging along at low levels, suggesting that more people would return to the
work force if desirable jobs were available.
Tom Perez, the labor secretary, conceded there was “still a lot of work to do.”
Unemployment for African-Americans, for example, whose jobless rate is typically
about twice that of white Americans, rose last month to 8.6 percent from 8.2
percent.
But Mr. Perez said that the broad-based job growth across sectors showed that
the economy was resilient.
Though the jobless rate, which is based on a separate survey of households, rose
in June, it “went up for a good reason,’’ Mr. Perez said. ‘‘We’ve got more
people looking for work and re-entering the work force.”
The tighter labor market is nudging up wages. David Lukes, chief executive of
Equity One, a commercial real estate investment company, is one of several
employers who said they had increased salaries and benefits to retain current
staff members and attract new ones.
“I’ve had the troubling experience of losing good employees,” said Mr. Lukes,
who has offered perks like flexible hours and stock incentives to keep the
competition at bay. “Reward programs are much more important than they were
three, four and five years ago.”
He said that for the kind of workers he was looking for — administrators, sales
representatives, accountants, paralegals, construction managers — the labor pool
is not that deep.
Given that the jobless rate has consistently been at 5 percent or lower since
last fall, several economists argue it is time to adjust the benchmarks for what
is labeled a strong or weak report.
“There’s no question that job growth is significantly slower today than it was
one or two years ago,” when the average monthly gain routinely topped 200,000,
Andrew Chamberlain, chief economist at Glassdoor Economic Research said. “But
that is to be expected at this point in the economic cycle.”
Taking account of the growing numbers of retiring baby boomers and the
population growth, a monthly gain of 75,000 to 100,000 jobs is sufficient to
keep the unemployment rate steady, Mr. Maki at Point72 Asset Management said.
Ian Siegel, co-founder and chief executive of ZipRecruiter, which aggregates job
postings and distributes them to job seekers, said that demand was down from the
peaks of 2015, but hiring was still strong in health care and warehousing.
Skilled workers in particular have more employment options.
“I travel all over the country and everywhere I go, I sit down with C.E.O.s and
ask them what their No. 1 problem is,” Steve Rick, chief economist at CUNA
Mutual Group, which provides insurance and financial services for credit unions
nationwide, said. “They say, ‘Just finding qualified people, from a teller to a
mortgage home officer.’”
Correction: July 8, 2016
Because of an editing error, an earlier version of this article
misstated when the economic recovery began. It was in June 2009; it is not in
its seventh month.
Follow Patricia Cohen on Twitter:@PatcohenNYT
A version of this article appears in print on July 9, 2016, on page A1 of the
New York edition with the headline: Jobs Surge, Easing Worries and Reframing the
Political Debate.
Jobs Roar Back With Gain of 287,000 in June, Easing Worry,
NYT, July 8, 2016,
http://www.nytimes.com/2016/07/09/
business/economy/jobs-report-unemployment-wages.html
Why I Was Wrong
About Welfare Reform
JUNE 18, 2016
The New York Times
Nicholas Kristof
TULSA, Okla. — IN 1996, President Bill Clinton signed a
controversial compromise bill for welfare reform, promising to “end welfare as
we know it.”
I was sympathetic to that goal at the time, but I’ve decided that I was wrong.
What I’ve found in my reporting over the years is that welfare “reform” is a
misnomer and that cash welfare is essentially dead, leaving some families with
children utterly destitute.
Every year I hold a “win a trip” contest to choose a university student to
accompany me on a reporting trip to cover global poverty in places like Congo or
Myanmar. This year we decided to journey as well to Tulsa, in the heartland of
America, because the embarrassing truth is that welfare reform has resulted in a
layer of destitution that echoes poverty in countries like Bangladesh.
Recent research finds that because of welfare reform, roughly three million
American children live in households with incomes of less than $2 per person per
day, a global metric of extreme poverty. That’s one American child in 25. They
would be counted as extremely poor if they lived in Africa, and they are our
neighbors in the most powerful nation in the world.
So my win-a-trip winner, Cassidy McDonald, an aspiring journalist from the
University of Notre Dame, and I interviewed families in Tulsa. Extreme poverty
is not the same in the U.S. as in Africa, for America has better safety nets
from the government and from churches and charities. But it’s still staggering,
and instead of mitigating the problem, “welfare reform” has exacerbated it.
One of the people I met was Hailey, a toddler with blond hair, a winning smile
and worrying prospects. She was born with drugs in her system to a young woman
addicted to opioids, the family says, so she is cared for by her grandmother,
Bobbie Ingraham, 47. Ingraham is clearly devoted to the girl, but she is
struggling herself.
Ingraham acknowledges that for most of her life she battled drug addictions and
committed crimes (mostly writing fake prescriptions for pain pills), and married
a man who beat her and is now in prison. Ingraham recounts a litany of health
issues — she spent eight days in the hospital this spring — that make it
difficult for her to find a job.
She receives food stamps, and she has a home that she inherited from her
grandmother. But she has zero cash income from work or benefits — zero! — so she
can’t make utility payments, and her electricity, gas and water have been cut
off.
These days, Ingraham says, she’s avoiding drugs and crime — she says she has
been “clean” for 13 months — and she cried as she spoke of trying to raise a
toddler on nothing more than food stamps and church clothing donations. “I just
love this baby so much,” she says.
I supported welfare reform because initially it seemed to be working. Liberal
predictions of children sleeping on grates did not come to pass, and on the
contrary, there was a burst of employment for low-income single mothers as
people moved from welfare to work.
But the employment bump stalled, and the replacement program for welfare, called
Temporary Assistance for Needy Families, or TANF, has pretty much collapsed,
especially in Republican states like Oklahoma. There are now more postage stamp
collectors in America than there are families collecting cash welfare, and so
kids like Hailey grow up in chaotic households in which there is simply no
money.
“Welfare is dead,” declares an important book, “$2 a Day,” an exposé of extreme
poverty by Kathryn J. Edin and H. Luke Shaefer. It is their research that finds
that roughly three million American children live in households earning less
than $2 per person per day.
Yet it’s also true that the old welfare system was a wreck, creating dependency
and cycles of poverty, as the real experts on poverty sometimes acknowledge.
“I think welfare reform was good,” Ashley Hene, 29, told me, even though she has
run into the replacement program’s time limits. “Everybody was taking advantage
of it.”
Stephanie Johnson, 35, who is raising four children through odd jobs, agreed.
“If it was readily available, I’d abuse it; I’d say they’re giving me free
money,” she said. “People use these systems as a crutch more than a
steppingstone.”
So here’s where I come down. Welfare reform has failed, but the solution is not
a reversion to the old program. Rather, let’s build new programs targeting
children in particular and drawing from the growing base of evidence of what
works.
That starts with free long-acting birth control for young women who want it (70
percent of pregnancies among young single women are unplanned). Follow that with
high-quality early-childhood programs and prekindergarten, drug treatment,
parenting coaching and financial literacy training, and a much greater emphasis
on jobs programs to usher the poor into the labor force and bring them income.
President Franklin Roosevelt relied on aggressive jobs programs in the 1930s.
Let’s turn to them again for people who can’t find work in the private sector.
These measures won’t solve America’s poverty problem, but at least they’ll give
Hailey a fighting chance.
Ross Douthat is off this month.
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A version of this op-ed appears in print on June 19, 2016,
on page SR11 of the New York edition with the headline:
Why I Was Wrong About Welfare Reform.
Why I Was Wrong About Welfare Reform,
NYT, June 18, 2016,
http://www.nytimes.com/2016/06/19/
opinion/sunday/why-i-was-wrong-about-welfare-reform.html
The Racist Roots of a Way to Sell Homes
APRIL 29, 2016
The New York
Times
By THE
EDITORIAL BOARD
From the 1930s
through the 1960s, most African-Americans could not get mortgages because the
government had deemed neighborhoods where they lived ineligible for federal
mortgage insurance, the Depression-era innovation that made mortgages widely
affordable.
The situation exposed black families to hucksters who peddled homeownership
through contracts for deed, in which a home seller gives a buyer a high-interest
loan, coupled with a pledge to turn over the deed after 20 to 40 years of
monthly installment payments. These contracts enriched the sellers by draining
the buyers, who built no equity and were often evicted for minor or alleged
infractions, at which point the owner would enter into a contract with another
buyer. In the process, families and neighborhoods were ruined.
Contracts for deed are making a comeback. They are increasingly being used by
investment firms that have bought thousands of foreclosed homes and want to sell
them to lower-income buyers “as is,” according to a recent report in The Times
by Alexandra Stevenson and Matthew Goldstein. Many of the homes are in Alabama,
Georgia, Michigan, Missouri and Ohio. In one example in the article, investors
who bought foreclosed homes at an average price of $8,000 issued a contract on
one in Ohio in 2011 for $36,300 at 10 percent interest.
Contracts for deed make gouging possible, because unlike traditional mortgages,
there is no appraisal or inspection to ensure that the loan amount is
reasonable. They also let an investor swiftly evict buyers for missed payments,
rather than giving them time to catch up, as required under a mortgage. And they
usually require the buyer to pay hefty upfront fees. Unlike a rental security
deposit, however, the fee is almost never refundable.
Contracts for deed are similar in some ways to the subprime lending that
contributed to the housing bust in this century. Investors in the contracts
include some of the Wall Street players who inflated the mortgage bubble,
including Daniel Sparks, the former Goldman Sachs executive, whose department
was betting on a crash in 2007 even as the bank was selling toxic mortgage
securities. The stated rationale for contracts for deed is that low-income
buyers cannot qualify for mortgages — the same line that was used to justify
subprime lending.
What became evident from the crash was that many subprime borrowers who were
wiped out — and who were disproportionately black and Hispanic — could have
qualified for better terms and were misled.
Even for buyers truly unable to get mortgages, contracts for deed nearly always
inflict harm. The exception is a few programs where public agencies or
nonprofits use interest-free contracts to sell homes to needy families and then
help them refinance into traditional mortgages. Federal housing agencies could
foster that approach by selling more of their foreclosed properties to
nonprofits.
The Consumer Financial Protection Bureau must assert its authority over these
contracts, which are legally murky and hard to track. Some states do not require
that they be recorded, and in states that do, noncompliance is high. The
bureau’s mandate is to stop unfair, deceptive or predatory lending. Contracts
for deed are all three.
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Today newsletter.
A version of this editorial appears in print on April 29, 2016,
on page A20 of the New York edition with the headline:
A Home Sale Tactic Rooted in Racism.
The Racist
Roots of a Way to Sell Homes,
NYT, April 29, 2016,
http://www.nytimes.com/2016/04/29/
opinion/the-racist-roots-of-a-way-to-sell-homes.html
How the Other Fifth Lives
APRIL 27, 2016
The New York Times
The Opinion Pages | Campaign Stops
Thomas B. Edsall
For years now, people have been talking about the insulated world
of the top 1 percent of Americans, but the top 20 percent of the income
distribution is also steadily separating itself — by geography and by education
as well as by income.
This self-segregation of a privileged fifth of the population is changing the
American social order and the American political system, creating a
self-perpetuating class at the top, which is ever more difficult to break into.
The accompanying chart, taken from “The Continuing Increase in Income
Segregation,” a March 2016 paper by Sean F. Reardon, a professor of education at
Stanford, and Kendra Bischoff, a professor of sociology at Cornell, demonstrates
the accelerating geographic isolation of the well-to-do — the upper middle and
upper classes (a pattern of isolation that also applies to the poor, with
devastating effect).
In hard numbers, the percentage of families with children living in very
affluent neighborhoods more than doubled between 1970 and 2012, from 6.6 percent
to 15.7 percent.
At the same time, the percentage of families with children living in traditional
middle class neighborhoods with median incomes between 80 and 125 percent of the
surrounding metropolitan area fell from 64.7 percent in 1970 to 40.5 percent.
Reardon and Bischoff write:
Segregation of affluence not only concentrates income and wealth in a small
number of communities, but also concentrates social capital and political power.
As a result, any self-interested investment the rich make in their own
communities has little chance of “spilling over” to benefit middle‐ and
low-income families. In addition, it is increasingly unlikely that high‐income
families interact with middle‐ and low‐income families, eroding some of the
social empathy that might lead to support for broader public investment in
social programs to help the poor and middle class.
Geographic segregation dovetails with the growing economic spread between the
top 20 percent and the bottom 80 percent: The top quintile is, in effect,
disengaging from everyone with lower incomes.
Timothy Smeeding, a professor of public affairs and economics at the University
of Wisconsin, has explored how the top quintile is pulling away from the rest of
society. In an essay published earlier this year, “Gates, Gaps, and
Intergenerational Mobility: The Importance of an Even Start,” Smeeding finds
that the gap between the average income of households with children in the top
quintile and households with children in the middle quintile has grown, in
inflation-adjusted dollars, from $68,600 to $169,300 — that’s 147 percent.
In an earlier paper, Smeeding and two co-authors wrote that
we have seen a threefold increase between 1972 and 2007 in top-decile spending
on children, an increase that suggests that parents at the top may be investing
in ever more high-quality day care and babysitting, private schooling, books and
tutoring, and college tuition and fees.
The bottom line, Smeeding wrote in an email, is this:
The well-to-do are isolated from the day to day struggles of the middle class
and below to provide these key services (health, education, job search and other
opportunities) to aid the upward mobility of their children. But the upper
middle class are happy to take advantage of tax subsidies for their own housing,
preschool for their kids, and saving for college which benefit them.
Political leverage is another factor separating the top 20 percent from the rest
of America. The top quintile is equipped to exercise much more influence over
politics and policy than its share of the electorate would suggest. Although by
definition this group represents 20 percent of all Americans, it represents
about 30 percent of the electorate, in part because of high turnout levels. The
accompanying chart, which shows voting patterns by income in the 2012 and 2014
elections, illustrates this phenomenon (it was created by Sean McElwee, a policy
analyst at Demos, a liberal think tank).
Equally or perhaps more important, the affluent dominate the small percentage of
the electorate that makes campaign contributions.
In a September 2015 essay, “The Dangerous Separation of the American Upper
Middle Class,” Richard Reeves, a senior fellow at Brookings, writes:
The top fifth have been prospering while the majority lags behind. But the
separation is not just economic. Gaps are growing on a whole range of
dimensions, including family structure, education, lifestyle, and geography.
Indeed, these dimensions of advantage appear to be clustering more tightly
together, each thereby amplifying the effect of the other.
The same pattern emerges in the case of education. Reeves cites data showing
that 56 percent of heads of households in the top quintile have college or
advanced degrees, compared with 34 percent in the third and fourth quintiles and
17 percent in the bottom two quintiles.
Similar patterns emerge in the percent of married households.
“Family structure, as a marker and predictor of family stability, makes a
difference to the life chances of the next generation,” Reeves writes:
To the extent that upper middle class Americans are able to form planned,
stable, committed families, their children will benefit — and be more likely to
retain their childhood class status when they become adults.
Using 2013 census data, Reeves finds that 83 percent of affluent heads of
household between the ages of 35 and 40 are married, compared with 65 percent in
the third and fourth income quintiles and 33 percent in the bottom two.
As the top 20 percent becomes more isolated and entrenched, reforms designed to
open opportunities for those in the middle and on the bottom “can all run into
the solid wall of rational, self-interested upper middle class resistance,”
Reeves argues.
At the same time that lifestyle and consumption habits of the affluent diverge
from those of the middle and working class, wealthy voters are becoming
increasingly Democratic, often motivated by their culturally liberal views. A
comparison of exit poll data from 1984 and 1988 to data from the 2008 and 2012
elections reveals the changing partisan makeup of the top quintile.
In the 1980s, voters in the top ranks of the income ladder lined up in favor of
Republican presidential candidates by 2-1. In 1988, for example, George H.W.
Bush crushed Michael Dukakis among voters making $100,000 or more by an
impressive 34 points, 67-33.
Move forward to 2008 and 2012. In 2008, voters from families making $100,000 to
$200,000 split their votes 51-48 in favor of John McCain, while those making in
excess of $200,000 cast a slight 52-46 majority for Barack Obama.
In his first term, Obama raised taxes on the rich and criticized excessive
C.E.O. pay. As a result, he lost ground among the well-to-do, but still
performed far better than earlier Democrats had done, losing among voters making
$100,000 or more by nine points, 45-54.
In other words, Democrats are now competitive among the top 20 percent. This has
changed the economic makeup of the Democratic Party and is certain to intensify
tensions between the traditional downscale wing and the emergent upscale wing.
The Republican Party in 2016 is an example of what can happen when the dominant
wing fails to address the concerns of the majority. The rebellion against the
Republican establishment is on the verge of producing the nomination of a man
who is anathema to the majority of elected officials and party activists, a
candidate with the potential to drag the party into minority status for years to
come.
The “truly advantaged” wing of the Democratic Party — a phrase coined in this
newspaper by Robert Sampson, a sociologist at Harvard — has provided the
Democratic Party with crucial margins of victory where its candidates have
prevailed. These upscale Democrats have helped fill the gap left by the
departure of white working class voters to the Republican Party.
At the same time, the priorities of the truly advantaged wing — voters with
annual incomes in the top quintile, who now make up an estimated 26 percent of
the Democratic general election vote — are focused on social and environmental
issues: the protection and advancement of women’s rights, reproductive rights,
gay and transgender rights and climate change, and less on redistributive
economic issues.
The tension within the current Democratic coalition is exemplified in, of all
places, a 2012 poll of students and faculty at Phillips Exeter Academy in New
Hampshire, a prestigious private boarding school founded in 1781. As Democrats
have entered the ranks of the top quintile, their children have effectively
realigned the student bodies of prep schools in New England and other
northeastern states.
The Exeter survey found decisive majority support in the student body for Obama
over Mitt Romney, but the more interesting finding was that among Exeter
students old enough to vote, nine out of 10 identified themselves as liberal on
social issues.
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In the case of economic policy, however, these students were split, 30 percent
conservative, 33 percent liberal and the rest moderate or unwilling to say.
“Morally, I am a Democrat,” one of the participants commented, “but my wallet
says I am a Republican.”
A Democrat whose wallet tells him he is a Republican is unlikely to be a strong
ally of less well-off Democrats in pressing for tax hikes on the rich, increased
spending on the safety net or a much higher minimum wage.
Bernie Sanders has tried to capitalize on this built-in tension within the
Democratic primary electorate, but Hillary Clinton has so far been able to skate
over intraparty conflicts. In the New York primary, for example, she did better
among voters making $100,000 or more than among the less affluent, while
simultaneously carrying African-Americans and moderate Democrats of all races by
decisive margins.
For years, Grover Norquist, a leader of the anti-tax movement, boasted that the
right has built a rock-solid “leave us alone coalition,” only to see Trump crack
it wide open this year.
Bernie Sanders is unlikely to do the same to the center-left coalition. His
support is heavily concentrated among young, well-educated, white, very liberal,
independent voters and it is not broad enough to defeat Clinton, as Tuesday’s
primary results demonstrated.
Anticipating this development, Tad Devine, a top adviser to Sanders, said on
Saturday, “If we think we have to, you know, take a different way or
re-evaluate, you know, we’ll do it then.”
Sanders’s extraordinary performance to date, however, points to the
vulnerability of a liberal alliance in which the economic interests of those on
the top — often empowered to make policy — diverge ever more sharply from those
in the middle and on the bottom.
As the influence of affluent Democratic voters and donors grows, the leverage of
the poor declines. This was evident in the days leading up to the New York
primary when, as Ginia Bellafante of The Times reported, both Clinton and
Sanders, under strong pressure from local activists, agreed to tour local
housing projects. Bellafante noted that their reluctance reflects how “liberal
candidates on the national stage view public housing as a malady from which it
is safest to maintain a distance.”
The lack of leverage of those on the bottom rungs can be seen in Pew survey in
which dealing with the problems of the poor and needy ranked 10th on a list of
public priorities, well behind terrorism, education, Social Security and the
deficit. This 10th place ranking is likely to drop further as the gap widens
between the bottom and the top fifth of voters in the country.
It turns out that the United States has a double-edged problem — the parallel
isolation of the top and bottom fifths of its population. For the top, the
separation from the middle and lower classes means less understanding and
sympathy for the majority of the electorate, combined with the comfort of living
in a cocoon.
For those at the bottom, especially the families who are concentrated in
extremely high poverty neighborhoods, isolation means bad schools, high crime,
high unemployment and high government dependency.
The trends at the top and the bottom are undermining cohesive politics, but more
important they are undermining social interconnection as they fracture the
United States more and more into a class and race hierarchy.
How the Other Fifth Lives,
NYT, April 27, 2016,
http://www.nytimes.com/2016/04/27/
opinion/campaign-stops/how-the-other-fifth-lives.html
The Mirage of a Return
to Manufacturing Greatness
APRIL 26, 2016
The New York Times
Eduardo Porter
Half a century ago, harvesting California’s 2.2 million tons of
tomatoes for ketchup required as many as 45,000 workers. In the 1960s, though,
scientists and engineers at the University of California, Davis, developed an
oblong tomato that lent itself to being machine-picked and an efficient
mechanical harvester to do the job in one pass through a field.
The battle to save jobs was on.
How could a publicly funded university invest in research that cut farmworker
jobs only to help large-scale growers? That was the question raised in a lawsuit
filed by a farmworker advocacy group against U.C. Davis in 1979.
César Chavez’s United Farm Workers union made stopping mechanization its No. 1
legislative priority. In 1980, President Jimmy Carter’s agriculture secretary,
Robert Bergland, declared that the federal government would no longer finance
research that could lead to the “replacing of an adequate and willing work force
with machines.”
These days, the battle to save American jobs has a different flavor. It echoes
in Hillary Clinton’s promise “to win the global competition for manufacturing
jobs and production.” It lives in Donald Trump’s call to break Nafta and impose
a 45 percent tariff against Chinese imports, and in Bernie Sanders’s rallying
cry against trade agreements.
Manufacturing Fizzles
Manufacturing powered the economic development of today’s advanced nations. But
in the developing world, industrial employment is peaking prematurely, before
poor countries have had a chance to get rich.
Its outcome, however, will probably be similar. The freeze on research may have
slowed the mechanization of California’s harvests, but by the year 2000, only
5,000 harvest workers were employed in California to pick and sort what was by
then a 12-million-ton crop of tomatoes.
In America’s factories, jobs are inevitably disappearing, too. But despite the
political rhetoric, the problem is not mainly globalization. Manufacturing jobs
are on the decline in factories around the world.
“The observation is uncontroversial,” said Joseph Stiglitz, the Nobel-winning
economist at Columbia University. “Global employment in manufacturing is going
down because productivity increases are exceeding increases in demand for
manufactured products by a significant amount.”
The consequences of this dynamic are often misunderstood, not least by
politicians offering slogans to fix them.
No matter how high the tariffs Mr. Trump wants to raise to encircle the American
economy, he will not be able to produce a manufacturing renaissance at home.
Neither would changing tax rules to limit corporate flight from the United
States, as Mrs. Clinton proposes.
“The likelihood that we will get a manufacturing recovery is close to nil,”
Professor Stiglitz said. “We are more likely to have a smaller share of a
shrinking pie.”
Look at it this way: Over the course of the 20th century, farm employment in the
United States dropped to 2 percent of the work force from 41 percent, even as
output soared. Since 1950, manufacturing’s share has shrunk to 8.5 percent of
nonfarm jobs, from 24 percent. It still has a ways to go.
The shrinking of manufacturing employment is global. In other words, strategies
to restore manufacturing jobs in one country will amount to destroying them in
another, in a worldwide zero-sum game.
The loss of such jobs has created plenty of problems in the United States. For
the countless workers living in less developed reaches of the world, though, it
adds up to a potential disaster.
Japan’s long stagnation can be read as a consequence of a decades-long
development strategy that left the nation overly dependent on manufacturing.
“They are focused on a dead-end business,” said Bruce Greenwald, an expert on
investment strategy at Columbia Business School. “They are not eliminating hours
of work in manufacturing fast enough to keep pace with the reduction in work
needed.”
The richest countries today started deindustrializing when they were already
well off and benefited from fairly skilled and productive work forces that could
make the transition into well-paid service jobs, as increasingly affluent
consumers devoted less of their incomes to physical goods and more to leisure,
advanced health care and other services.
Poorer countries have more limited options. If the demise of manufacturing jobs
in the United States forced many workers into low-paid retail jobs and the like,
imagine the challenge in a country like India, where factory employment has
already topped out, yet income per person is only one twenty-fifth of what it
was in the United States at its peak.
“Developing countries are suffering premature deindustrialization,” said Dani
Rodrik, a leading expert on the international economy who teaches at Harvard’s
Kennedy School. “Both employment and output deindustrialization is setting in at
much lower levels of income.”
This is even happening in a manufacturing behemoth like China — which appears to
have maxed out the industrial export strategy at a much lower income level than
its successful Asian predecessors, like Japan and Taiwan.
For poorer countries in Asia, Africa and Latin America, the decline of
manufacturing as a bountiful source of jobs puts an end to the prime path to
riches that the modern world has followed.
Photo
A textile factory in Ahmedabad, India. Credit Amit Dave/Reuters
Manufacturing, Professor Rodrik points out, has unique advantages. For one
thing, it can quickly employ lots of unskilled workers. “Setting up a factory to
make toys puts you on a productivity escalator in a way that traditional
agriculture and services didn’t do,” he said.
Moreover, production isn’t constrained by a small domestic market: Exports of
goods can easily flow around the world, allowing industry room to grow and
giving developing countries time to ride up the ladder of income, skills and
sophistication.
The natural resources that dominate the exports of many poor countries don’t
have these features. They employ few workers and offer little added value. They
do not encourage acquiring skills, and they expose countries to violent swings
in commodity prices.
High-end services such as finance and programming do pay well. But these aren’t
the service sectors most poor countries build. A majority of service jobs in
most poor countries are generally limited to housework, mom and pop retail and
the like. Since these sectors offer little productivity growth and are generally
isolated from foreign competition, they cannot pull a nation out of poverty.
The first large transition from agriculture to industry in the early 20th
century — well lubricated by public spending on world wars — liberated workers
from their chains far more effectively than Karl Marx’s revolution ever did.
The current transition, from manufacturing to services, is more problematic. In
poor countries, Mr. Rodrik says, workers may have to pare back their aspirations
of development. Who knows “how will political systems manage?” he asks.
In the United States, the political challenge is no less daunting. Low pay
married to high profits in much of the service economy are contributing to a
widening income chasm that is rending society in all sorts of ways. Used to the
prosperity once delivered by manufacturing, American workers are rebelling
against the changing tide.
Note to Mrs. Clinton, Mr. Sanders and Mr. Trump: A grab at the world’s
manufacturing jobs is the wrong answer. Walls will damage prosperity, not
enhance it. Promises to recapture industrial-era greatness ring hollow.
The United States, though, does have options: health care, education and clean
energy, just to name a few. They present big economic and political challenges,
of course — not least the enormous inefficiency of private American medicine and
Republicans’ blanket opposition to more public spending.
Yet just as the federal government once provided a critical push to move the
economy from its agricultural past into its industrial future, so, too, could it
help build a postindustrial tomorrow.
Email: eporter@nytimes.com; Twitter: @portereduardo
A version of this article appears in print on April 27, 2016,
on page B1 of the New York edition with the headline:
Moving On From Farm and Factory.
The Mirage of a Return to Manufacturing Greatness,
NYT, April 26, 2016,
http://www.nytimes.com/2016/04/27/
business/economy/the-mirage-of-a-return-to-manufacturing-greatness.html
Handouts Are Often Better
Than a Hand Up
APRIL 7, 2016
The New York Times
The Opinion Pages
Op-Ed Contributor
By JEFF MADRICK
WHEN we talk about how the United States can be more competitive
with the rest of the world, childhood poverty rarely comes up. Yet America has a
higher rate of childhood poverty than all but a few developed nations.
Children are America’s poorest age group. In 2013, more than 12 million children
lived below the poverty line, which for a family of four is slightly more than
$24,000 a year. This comes to roughly 17 percent of American children. A third
of these kids are white, another third are Latino, and about one-quarter are
black, while the rest are American Indian and Asian-American.
On average, children in poverty have lower I.Q. scores than their wealthier
peers. Recent research has made it clear that just the stress of growing up in a
poor family can be toxic to the growing brain.
It almost goes without saying that the cost to the American economy is severe.
We need quick-acting, powerful solutions. Cash allowances, ideally paid to a
child’s parents on a monthly basis, are a clean, direct way to raise a high
proportion of children out of poverty.
The United States once had a welfare program — Aid for Families With Dependent
Children — that provided cash to families in need, but A.F.D.C. was hardly
generous. Not only were the benefits paltry, the incentives were perverse: If
you worked, you frequently lost most or all of your benefits. According to
calculations by the Center on Budget and Policy Priorities, A.F.D.C. pulled only
10 percent of children out of poverty in the 1990s.
Even so, many argued that without a work requirement, the program encouraged
poor people to remain on welfare. In 1996, legislation put forward by
congressional Republicans and ultimately supported by President Bill Clinton
ended A.F.D.C. — “welfare as we know it” — and put Temporary Assistance for
Needy Families in its place.
But the welfare payments to families with children under T.A.N.F. — in part
because of the program’s rules about work and looking for work and in part
because the time period during which you can receive welfare is capped — reach a
much smaller number of families than A.F.D.C. did. According to the Center on
Budget and Policy Priorities, only 23 out of 100 poor families receive any
T.A.N.F. benefits at all. In some states, which set their own rules for
eligibility, remarkably few families get T.A.N.F. payments.
One result, according to the social scientists Kathryn J. Edin and H. Luke
Shaefer, is that in 2011, 1.5 million families with children lived on $2 per
person a day. Though food stamps help ease the burden, they are inadequate. To
survive, these families depend on food banks, collect aluminum cans for refunds,
do the occasional odd job and live in crowded, unsafe quarters.
This is not to say that America has not tried to reduce poverty. Besides food
stamps, the earned-income tax credit and the child tax credit also aid poor
parents substantially. The problem is that these programs still leave the rate
of childhood poverty unconscionably high.
Per-child cash allowances may have the greatest impact. They do not change if
you find work; they are generally larger than standard welfare payments; and
they don’t have eligibility requirements.
Many other prosperous nations provide such allowances, as do some developing
ones. Cash allowances in Europe and Canada, for example, are usually
unconditional. In Canada the allowance is up to about $230 a month per child.
How is this money used? A book by Jane Waldfogel, a social scientist at
Columbia, shows that in Britain the cash allowance is largely spent by parents
on the needs of the children. The program has helped cut child poverty sharply
there.
Other so-called natural experiments corroborate these findings. For example, a
Cherokee tribe in North Carolina built a profitable casino and distributed a
portion of its profits each year to every enrolled citizen. The cash raised
families around the federal poverty line over it, increased school attendance
and graduation rates, and decreased criminal behavior among teenagers.
A new study completed by researchers at Columbia (sponsored by the Schwartz
Rediscovering Government Initiative, where I work) has extensively modeled just
how much cash allowances could reduce child poverty in the United States.
The results are eye-opening. A per-child allowance of $2,500 a year for kids
under 6 (leaving the child tax credit intact) would raise more than three
million poor children out of poverty. Its annual cost, the researchers estimate,
would be $17.7 billion.
Given the general stagnation of wages over the past several decades, it might
well make sense to provide a cash allowance not just to the poor, but to all
children. A universal child allowance in America of $2,500 a year would lift 5.5
million out of poverty, roughly reducing the poverty rate by a third. The price
tag would come to $109.3 billion a year (reduced in part because higher-income
families would pay income tax on the allowance).
To cut child poverty in half, it would cost us $200 billion a year, about 1.1
percent of gross domestic product, or one-fourth of the cost of Social Security.
If America makes cutting childhood poverty a priority, it can afford to do so.
Why not just expand the child tax credit? That’s a good idea and perhaps more
politically practicable. But the Columbia research shows that a dollar spent on
cash allowances reduces child poverty more than the equivalent increase in the
tax credit because the benefits reach the very poorest families, who don’t
qualify for the tax credit. We should supplement new cash allowances with new
jobs programs, but direct cash payments to parents is a widely tested and
powerful weapon to combat the poverty that afflicts so many right now.
Jeff Madrick is director of the Bernard L. Schwartz Rediscovering
Government Initiative at the Century Foundation.
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for the Opinion Today newsletter.
A version of this op-ed appears in print on April 7, 2016, on page A27 of the
New York edition with the headline: Handouts Are Often Better Than a Hand Up.
Handouts Are Often Better Than a Hand Up,
NYT, April 7, 2016,
http://www.nytimes.com/2016/04/07/
opinion/handouts-are-often-better-than-a-hand-up.html
A Better Way to Control the Banks
FEB. 26, 2016
The New York
Times
The Opinion
Pages | Editorial
By THE
EDITORIAL BOARD
Nearly eight
years after the financial crisis, behemoth banks still dominate the global
economy. They are still immensely complex, highly leveraged and politically
powerful. They are still difficult, if not impossible, to manage and supervise.
For those reasons, they remain a threat to the economy, and the notion of
breaking them up appeals to many voters, policy makers and politicians.
In his campaign for the Democratic presidential nomination, Senator Bernie
Sanders has made breaking up the banks a central plank of his economic agenda.
The idea has merit. Smaller, more manageable banks would allow for better
internal controls over dubious ethical behavior and better regulatory oversight
of risky business practices that seem entrenched despite efforts at reform.
But it is also a distraction. It offers a distant and politically uncertain
solution to the problem of too-big-to-fail banks that the incremental Dodd-Frank
financial reforms of 2010 have already begun to address. In the process, it
plays into the hands of Republican critics of Dodd-Frank, who want to repeal the
post-crisis reforms and block any further regulation. That’s why Hillary
Clinton’s plan — to defend and build on Dodd-Frank — makes more sense at this
time.
What gets lost in the discussion is that Dodd-Frank, properly executed, would
help to create the conditions for breaking up large and complex banks. That’s
because the banks would face rising regulatory costs, which means they might
well be worth more to investors if taken apart. Essentially, effective
regulation and market forces would work together to make banks smaller and
safer.
For example, Dodd-Frank and related regulations require big banks to hold
considerably more capital now than they were required to hold before the crisis.
The aim is to ensure that banks can absorb any losses they may generate, instead
of relying on taxpayers to pick up the bill.
Even so, the capital requirements are not strong enough, in part because they do
not require banks to fully account for potential losses from the trading of
derivatives, a multitrillion-dollar activity.
Recent data provided by the banks to the Federal Reserve show that capital at
big American banks recently averaged a healthy 13 percent of assets. But if
derivatives and other holdings were fully included — as is required under
international accounting rules but not under American ones — capital would come
to a feeble 5.7 percent.
Mrs. Clinton has vowed to fight for higher capital requirements, which can be
accomplished without new legislation if regulators willing to impose them are
appointed. Of course, that would not be as blunt a way to shrink the banks as
simply requiring them to stop their riskiest trading. Still, it would not
preclude breaking up the banks at some later date. And it would make the journey
from here to there a safer one.
As campaign slogans go, “more capital” does not have the same ring to it as
“break up the banks.” But both are paths to the same destination. Mr. Sanders
has the right goal. Mrs. Clinton has the right means.
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York Times Opinion section on Facebook and Twitter, and sign up for the Opinion
Today newsletter.
A version of this editorial appears in print on February 27, 2016, on page A22
of the New York edition with the headline: A Better Way to Control the Banks.
A Better Way
to Control the Banks,
NYT, FEB. 26, 2016,
http://www.nytimes.com/2016/02/27/
opinion/a-better-way-to-control-the-banks.html
When States Fight
to Overturn Good
Local Labor Laws
FEB. 19, 2016
The Opinion Pages | Editorial
By THE EDITORIAL BOARD
Local government is theoretically a cornerstone of democracy. But
as a practical matter, conservative state legislatures have often blocked
progressive local laws. Many states, for example, have laws on their books to
pre-empt local restrictions on guns and pesticides.
The latest backlash involves state efforts to pre-empt an increasing number of
pro-labor laws passed by cities and counties. State lawmakers in Alabama, Idaho,
Illinois, Minnesota, Montana, Pennsylvania and Washington have introduced
legislation this year to curb or outlaw local minimum-wage increases. In
Indiana, Kansas and New Mexico, state legislators have taken aim at local
fair-scheduling laws, which require employers to give reasonable notice of
workers’ hours. Bills in Pennsylvania and Washington target local laws requiring
paid leave for employees. In other states, bills would pre-empt
municipal-contracting rules that require private-sector contractors to adhere to
local laws on compensation and other labor issues.
In Alabama, a pre-emption effort introduced this month seeks to nullify a law
passed last year by the Birmingham City Council for a citywide minimum wage of
$10.10 an hour by mid-2017. If enacted, the state bill would also torpedo
efforts to adopt local minimum wages in Huntsville and Tuscaloosa.
Like other pre-emption attempts, the Alabama effort is championed almost
entirely by Republicans, and the hypocrisy is obvious. Small government is a
supreme Republican virtue only until localities pass pro-labor legislation. Then
the party’s anti-worker, pro-corporate bias takes over.
Another problem for Republicans is that laws to support workers are popular with
voters and needed by their constituents. But even that has not led Republicans,
and the rare Democrats who side with them on anti-worker measures, to give up.
Last year, pre-emption bills were considered in 17 states and enacted in four of
them — Indiana, Michigan, Missouri and West Virginia. Five states that
considered but did not pass pre-emption bills last year have put them back on
the legislative agendas this year.
Every weekday, get thought-provoking commentary from Op-Ed columnists, The Times
editorial board and contributing writers from around the world.
The backlash testifies both to the successes of labor advocates and the strength
of the forces arrayed against them. Birmingham’s endangered minimum-wage law,
for instance, is a huge breakthrough because it counters longstanding Southern
hostility to minimum wages; Alabama, along with Louisiana, Mississippi, South
Carolina and Tennessee, has no state minimum wage. This week, Hillary Clinton
released a statement in support of Birmingham and against the reaction from
Alabama state lawmakers.
In Kentucky, where the state minimum is set at the federal level of $7.25 an
hour, Louisville raised its minimum last year to $9 by mid-2017. Lexington is
considering a similar move. So far, the slight Democratic majority in the
Kentucky House has stopped any pre-emption bills from being introduced.
The real needs of real people are driving pro-labor legislation on the local
level. The question in some states is whether those needs and those people will
prevail over the interests of low-wage employers and the lawmakers who do their
bidding.
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Twitter, and sign up for the Opinion Today newsletter.
A version of this editorial appears in print on February 19, 2016, on page A30
of the New York edition with the headline: When States Fight Good Local Labor
Laws.
When States Fight to Overturn Good Local Labor Laws,
NYT, FEB. 19, 2016,
http://www.nytimes.com/2016/02/19/
opinion/when-states-fight-to-overturn-good-local-labor-laws.html
The Corporate Tax Dodge Continues
JAN. 29, 2016
The New York Times
By THE EDITORIAL BOARD
Johnson Controls, an industrial and auto parts supplier
headquartered in Milwaukee, announced this week that is was selling itself to
Tyco International, a maker of fire safety products based in Ireland. The deal
will let Johnson Controls pass itself off as Irish and, in the process, cut its
taxes in the United States by at least $150 million a year.
Johnson Controls is not the first American company to avoid taxes by merging
with a smaller company in a low-tax nation, and it won’t be the last. Nor is it
the biggest. That distinction goes to Pfizer, which is in the process of
becoming Irish, having merged last year with a smaller company based in Dublin.
Johnson Controls is, however, the latest and quite possibly the most brazen tax
dodger. The company would not exist as it is today but for American taxpayers,
who paid $80 billion in 2008 to bail out the auto industry. Johnson Controls’s
president personally begged Congress for the bailout, which came on top of huge
tax breaks that the company has received over the years, including at least $149
million from Michigan alone from 1992 to 2009, according to The Times.
What’s galling about this and similar maneuvers is that Congress has done
nothing to stop them. Since 2008, some three dozen American companies have used
gaps and loopholes in the law to change their tax nationalities, a process known
as “inverting.”
Inverted companies keep the benefits of being American, but have a much lower
tax bill. They remain majority-owned by shareholders of the American company.
They normally keep their headquarters and top executives in the United States.
They also keep the protections on securities and patents provided by American
laws, as well as their contracts and connections with the federal government and
its research agencies.
Legislative remedies are available. One would be to deny investors the use of
low capital gains tax rates when they sell stock in an inverted company, on the
sensible ground that the company’s reduced tax bill is enough of a break.
Corporate boards would surely think twice about approving an inversion if it
meant higher taxes for investors.
But Congress won’t lift a finger. Many lawmakers, chiefly Republicans, seize
upon the wave of inversions as proof that corporate taxes in the United States
are too high. Reform the corporate code by slashing rates, they argue, and
inversions will end. Granted, corporate tax reform is needed. But allowing
inversions to proceed in order to make a partisan point is not the way to
approach it.
As Congress dithers, consumers and taxpayer-advocacy groups can show disapproval
by identifying and publicizing the products made by inverted companies and
similarly identifying and publicizing replacement products from less offensive
competitors. In addition, advocates of ethical investing, which applies social
as well as financial criteria in selecting investments, could screen out
inverted companies. The White House should reform federal contracting rules to
make it harder for inverted companies to win contracts. It also needs to be more
vocal in criticizing Ireland, the Netherlands and other inversion destinations
for their beggar-thy-neighbor tax policies.
Congress is on the wrong side of the inversion issue. Censure has to come from
elsewhere.
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Twitter, and sign up for the Opinion Today newsletter.
A version of this editorial appears in print on January 30, 2016, on page A20 of
the New York edition with the headline: The Corporate Tax Dodge Continues.
The Corporate Tax Dodge Continues,
NYT, JAN. 29, 2016,
http://www.nytimes.com/2016/01/30/
opinion/the-corporate-tax-dodge-continues.html
Subprime Reasoning on Housing
JAN. 27, 2016
The New York
Times
By DAVID
BECKWORTH
and RAMESH
PONNURU
IT has become
part of the accepted history of our time: The bursting of the housing bubble was
the primary cause of a financial crisis, a sharp recession and prolonged slow
growth. The story makes intuitive sense, since the economic crisis included a
collapse in the prices of housing and related securities. The movie “The Big
Short,” which is based on a book by Michael Lewis, takes this cause-and-effect
relationship as a given.
But there is an alternative story. In recent months, Senator Ted Cruz has become
the most prominent politician to give voice to the theory that the Federal
Reserve caused the crisis by tightening monetary policy in 2008. While Mr. Cruz
(who is an old friend of one of the authors of this article) has been criticized
for making this claim, he shouldn’t back down. He’s right, and our understanding
of the great recession needs to be revised.
What the housing-centric view underemphasizes is that the housing bust started
in early 2006, more than two years before the economic crisis. In 2006 and 2007,
construction employment fell, but overall employment continued to grow, as did
the economy generally. Money and labor merely shifted from housing to other
sectors of the economy.
This housing decline caused financial stress by sowing uncertainty about the
value of bonds backed by subprime mortgages. These bonds served as collateral
for institutional investors who parked their money overnight with financial
firms on Wall Street in the “shadow banking” system. As their concerns about the
bonds grew, investors began to pull money out of this system.
In retrospect, economists have concluded that a recession began in December
2007. But this recession started very mildly. Through early 2008, even as
investors kept pulling money out of the shadow banks, key economic indicators
such as inflation and nominal spending — the total amount of dollars being spent
throughout the economy — barely budged. It looked as if the economy would be
relatively unscathed, as many forecasters were saying at the time. The problem
was manageable: According to Gary Gorton, an economist at Yale, roughly 6
percent of banking assets were tied to subprime mortgages in 2007.
It took a bigger shock to the economy to bring the financial system down. That
shock was tighter money. Through acts and omissions, the Fed kept interest rates
and expected interest rates higher than appropriate, depressing the economy.
This point is easy to miss because the Fed lowered interest rates between
September 2007 and April 2008. But raising rates is not the only route to
tighter money.
Between late April and early October, the Fed kept the interest rate over which
it has most direct control, the federal funds rate, at 2 percent. But when the
economy weakens, the “natural” interest rate — the rate that keeps the economy
on an even keel — falls. By staying in place, the Fed’s target interest rate was
rising relative to that natural rate. The gap between expected interest rates
and the natural rate was rising even more. Fed officials spent the late spring
and summer of 2008 warning that rates would have to rise to combat inflation.
Futures markets showed a sharp increase in expected interest rates.
Market indicators of expected inflation fell sharply that summer, a sign that
the economy was getting weaker and monetary policy tighter. Nominal spending
showed the change. After growing for years at a relatively steady rate, it began
to drop.
In their early August meeting, some Fed policy makers nonetheless anticipated
that they would raise rates soon. Inflation expectations and nominal spending
kept falling. In mid-September, shortly after the collapse of Lehman Brothers,
the Fed refused to cut interest rates further, citing the risk of inflation. (To
his credit, Chairman Ben Bernanke subsequently admitted that not cutting rates
then was a mistake.) It did not cut rates until weeks after the crisis had
become undeniable.
It was against this backdrop of tighter money that the financial stress of 2007
turned into something far worse in 2008. With nominal spending falling at the
fastest rate since the Depression, households, businesses and banks all had
incomes lower than they had expected. That made servicing debts and paying wages
harder than expected. It also lowered asset values, since those were premised on
expected streams of future income.
And, of course, the crashing economy made the housing crisis worse, too. That’s
why the standard account of the crisis took hold. It’s true, after all, that
housing fell and then, along with the economy, plummeted. Untangling cause and
effect is tricky. But the timeline is a better match for the theory that the Fed
is to blame. The economy started to tank not right after housing began to fall,
but right after money tightened.
We could have had a decline in housing without a Great Recession. That’s what we
went through for two years. What we could not have had without a Great Recession
was a decline in nominal spending. If it had cut rates faster, or merely
refrained from talking up future rate increases, the Fed might have kept that
decline from happening or at least moderated it. Australia had a housing boom
and debt bubble, too, but kept a steadier monetary policy. The consequence was a
mild correction, but nothing like our Great Recession.
It took decades for the Fed’s responsibility for the Great Depression to be
widely accepted and it may take that long for most people to see its
responsibility this time around. The Fed of 2008 feared inflation too much and
recession too little. It placed too little weight on market expectations about
future conditions and on how its behavior affected those expectations. If these
mistakes go unrecognized, they could well be repeated.
David
Beckworth is a former economist at the Treasury Department and a visiting
scholar at the Mercatus Center; Ramesh Ponnuru is a columnist for Bloomberg View
and a visiting fellow at the American Enterprise Institute.
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for the Opinion Today newsletter.
A version of this op-ed appears in print on January 27, 2016,
on page A27 of the
New York edition with the headline: Subprime Reasoning on Housing.
Subprime
Reasoning on Housing,
NYT, JAN. 27, 2016,
http://www.nytimes.com/2016/01/27/
opinion/subprime-reasoning-on-housing.html
|
