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Posts Tagged ‘economy’

State of the Union: Don’t Let the TPP Sink Our Wages

Tuesday, January 12th, 2016

CD speaking at UCSD FairTrade RallyThe president will give his final State of the Union address tonight. Traditionally, this annual speech reviews the accomplishments of years past and sets out a “to-do” list for the year ahead. Although the White House has indicated that this year’s speech will be “nontraditional,” it has made clear the economy will be a major focus.

I hope the president will talk about the importance of the proposed overtime rule, which could raise wages for some 15 million of America’s working people. I also hope he talks about how the auto manufacturing industry has soared back to life since the so-called bailout, which saved 1.5 million jobs in its first year alone.

While the economy isn’t perfect, and most of us are still feeling the pinch of student loans, too-smallpaychecks, threats to retirement security and not enough voice in our workplaces, there are a lot of successes the president can look back on with pride in his speech.

On the other hand, there is also a new trade and economic deal on the horizon—the Trans-Pacific Partnership—that could poke a hole in the progress our economy has made since the president came in to office in 2009.

The thing that’s dangerous about the TPP, and the reason we should worry about it shrinking our paychecks, is not the idea of trade. Trade is good—but we shouldn’t confuse “trade” with so-called “trade agreements,” which set down rules not just for “trade,” but for food safety, Wall Street regulations, prescription medicines and investor rights. These are the kind of rules that should be made in public, in democratic fashion, not in a secretly negotiated agreement that can’t be amended. The TPP’s corporate giveaways are dangerous.

Existing trade rules (including those in the North American Free Trade Agreement and the U.S.–Korea trade deal) already cost the average U.S. worker $1,800 a year, according to the Economic Policy Institute, and preliminary studies on the TPP by Center for Economic and Policy Research and Tufts indicate that we can expect that figure to get worse.

Working people are deeply disappointed that the opportunities to put workers’ interests first and eliminate corporate entitlements in the TPP were largely ignored.  And more importantly, working people are disappointed because we know that all of these things mean fewer good jobs in our communities and fewer opportunities for our children.

The TPP is the latest example of the failed U.S. approach to trade that started with NAFTA, which drives down wages and creates special rights for corporations.  The TPP could have been different, but instead it is a collection of minor tweaks designed to get congressional votes rather than ensure workers’ wages rise.

The AFL-CIO wants trade agreements that grow our economy, create good jobs in America and give working people in all countries the chance to succeed when they work hard. Instead, passage of the TPP will mean lost jobs and lower wages.

Compared to eight years ago, the U.S. economy is afloat and heading toward improvement. The TPP will undermine that progress and give us rocky sailing ahead. There is simply no good argument for trading away our right to control our economy in exchange for more corporate power.

I hope the TPP doesn’t come up at all in the State of the Union speech. We’d be better off without it. But if it does—let’s be clear about what it really means for America’s working families.

Let’s raise our voices against this corporate giveaway and make it clear the TPP must go down to defeat!

This blog appeared on aflico.org on January 12, 2016.  Reprinted with permission.

Celeste Drake is a Trade & Globalization Policy Specialist at AFL-CIO.  Her experience with the labor movement was as a UFCW member while bagging groceries during college.  She also served as the Legislative Director for Representative Linda Sanches (D-CA).

What's This Friedrichs Case Really About?

Monday, January 11th, 2016
Jackie Tortora

You may have heard something about the upcoming U.S. Supreme Court case on Friedrichs v. California Teachers Association. The main thing you need to know is that this is an attack on working people’s freedom to come together and form unions, plain and simple. These are the nurses who make sure their patients have what they need to get well and the teachers who advocate for their students and class sizes.

Here’s a handy graphic you can share with your friends and family.

Friedrichs_3_800
This blog originally appeared at aflcio.org on January 5, 2016.  Reprinted with permission.
Jackie Tortora is the blog editor and social media manager at AFL-CIO.

 

Thomas Piketty Ran The Numbers On Income Inequality. Here’s What He Found.

Wednesday, January 6th, 2016

Bryce CovertSome of the top experts on income inequality released a study of new, more accurate data this week, revealing that Americans in the top 1 percent have done far better than everyone else for the last half century — and why they’ve gotten so far ahead.

At the American Economic Association conference this week, economists Emmanuel Saez, Gabriel Zucman, and Thomas Piketty released their preliminary research that uses a new analysis of tax, survey, and national accounts data. That’s more accurate, they say, than just looking at tax data, which misses huge chunks of the actual income people bring home.

The new analysis disputes previous findings that the bottom 90 percent of Americans have seen a slight decline in income since the late 1970s. Instead, the economists say, their income actually increased slightly, by 0.7 percent annually. But the data still corroborates the story of increasing inequality between most Americans and the richest. The incomes of the wealthiest 10 percent grew faster than everyone since 1980, they found. Worse, incomes for the top 1 percent grew about four times as fast as the bottom 90 percent in the same time period.

The data revealed other disturbing trends as well. Until 1980, income for the bottom 90 percent grew at the same pace as the rest of the economy. But after that point, incomes slowed down while the economy kept growing.

Along the same lines, income among the top 10 percent and the bottom 90 used to grow at about the same rate. But since 1980, it’s grown faster at the top and slower at the bottom.

Part of what’s happening is that the source of the top 1 percent’s income has changed. Up until the late 1990s, most of the growth was driven by the rich getting higher wages. But since then, it’s been driven by capital income — money made from returns on investment. That jibes with a past study that found that lowered tax rates on capital gains income are “by far the largest contributor” to growing income inequality

For everyone else, on the other hand, wage growth is more important to income. But wages for most Americans have been stagnant for the last 40 years, even as economic productivity continued to increase.

Things have gotten bad enough that now the top 10 percent of Americans are taking home about half of all of the country’s income, more than what they captured during the roaring 1920s. And the recession, rather than leveling the playing field, has only made things worse. Between 2009 and 2014, the top 1 percent took home 58 percent of all income growth.

This blog originally appeared at ThinkProgress.org on January 6, 2016. Reprinted with permission.

Bryce Covert is the Economic Policy Editor for ThinkProgress. She was previously editor of the Roosevelt Institute’s Next New Deal blog and a senior communications officer. She is also a contributor for The Nation and was previously a contributor for ForbesWoman. Her writing has appeared on The New York Times, The New York Daily News, The Nation, The Atlantic, The American Prospect, and others. She is also a board member of WAM!NYC, the New York Chapter of Women, Action & the Media.

The Economy: The New Normal Isn’t

Wednesday, December 9th, 2015

Robert-Borosage_The November jobs report – 211,000 jobs with the headline unemployment rate staying at 5 percent – met “expectations.” It is now virtually inevitable that the Federal Reserve will begin raising interest rates at its December 15-16 meetings, as Fed Chair Janet Yellen indicated in her congressional testimony yesterday.

The Federal Reserve action essentially declares this economy the new normal. The unemployment rate has dropped from its 10 percent depths in the Great Recession to 5 percent. The economy has enjoyed a record 69 months of private sector jobs growth. Fed Chair Janet Yellen suggests the U.S. economy has sufficient momentum to continue to grow.

While inflation remains far below the Fed “target” of 2 percent, Yellen anticipates that the dollar won’t continue to rise in value and oil won’t continue to fall, suggesting that inflation might pick up in future months. So, she argues, it is time for the Fed to begin – in baby steps and very cautiously – to raise interest rates.

But the new normal is neither normal nor acceptable. Nearly 16 million people are still in need of full-time work. The percentage of the civilian population working or actively looking for work remained virtually unchanged at 62.5 percent, near a 40-year low (back to when women began entering the workforce in large numbers).

African-Americans suffer unemployment rates at 9.4 percent, almost twice the national average. Only one in five of young African-Americans – ages 16 to 19 – are employed.

We still haven’t returned to the same levels of employment, counting new entrants, that we enjoyed before the recession in 2007. Wages are still stagnant, up barely over 2 percent for the year for non-supervisory workers, not close to keeping up with the cost of health care or college or child care.

Worse, the Fed is tightening against the threat of future inflation that exists only in its imagination. And it does so in a world dangerously close to global downturn. Europe verges on deflation, with the European bank extending extraordinary measures to fend off decline. China is slowing faster than expected or admitted. Japan is back in recession. Brazil is suffering the deepest downturn since the Great Depression, with other emerging market countries in decline.

The U.S. economy is not strong enough to be the buyer of last resort for a world desperate to export its way to recovery. The U.S. dollar has already dramatically increased in value, with the Euro and other currencies weakening. This makes imports cheaper and exports more expensive. Already U.S. manufacturing is getting hit.

The Fed is understandably eager to begin raising rates after keeping them near zero for seven years. Free money feeds the bankers’ casino, inflates bubbles, and makes it easier for corporations to doctor their balance sheets. What is missing is any sensible policy from the Congress to get this economy going. Corporations are parking over two trillion abroad to avoid paying taxes. If Congress weren’t ruled by ideologues and bounders, it would force them to pay their fair share of taxes and use that money to rebuild the country, putting people to work in work that needs to be done.

Both the Fed Chair Yellen and the IMF have been calling for action from the Congress without success. Instead, Congress turns itself inside out to pass a modest highway bill that won’t come close to addressing the continued decline in our infrastructure.

This world is closer to a global recession than to healthy normal economic growth. The Fed’s likely action will be modest. But at a time when we need far bolder action across the globe, the Fed is signaling success when it ought to be raising warning flags.

This blog originally appeared at OurFuture.org on December 4, 2015. Reprinted with permission.

About the Author: Robert Borosage is the Co-Director of the Campaign for America’s Future.

 

Demand Paid Sick Leave for All Employees to Ensure a Healthier and More Productive Workplace

Thursday, October 8th, 2015

grace baehrenIt’s a familiar situation: being sick and at work—or having a sick family member who requires care. While most of us would prefer to stay home and get well or provide care, for the majority of American workers taking a sick day means taking a pay-cut. Not only is the idea of losing pay unappealing, but many American workers simply cannot afford the loss. For some, taking an unexpected day off may even mean risking termination.

Up until now, the push for paid sick leave has been limited to the state and city levels of government. Progress was made with 4 states and Washington, D.C. mandating a paid sick leave accrual system for all employees, and multiple localities passing similar city ordinances (see our state and local paid sick leave laws page).

But now, change is happening at the federal level. On Labor Day, September 7, 2015, President Obama announced an executive order establishing paid sick leave for federal contractors. The order requires federal contractors to provide their employees with up to 7 days of paid sick leave per year beginning in 2017.

Additionally, the Family and Medical Insurance Leave Act, or “FAMILY” Act (House, Senate), is proposed legislation that aims to extend paid sick and family leave to all employees in the United States. These standards would provide all employees with at least some partial income, based on a monthly income benefit standard and subject to a capped amount, when such periods of leave are necessary.

If the foreseeable public health benefits aren’t enough to convince you that paid sick leave is beneficial for the workplace, take a look at this letter to Congress signed by over 200 business professors from universities throughout the United States. Among the benefits of paid sick leave discussed in this letter are more productive and engaged employees, as well as long term cost-saving for businesses who offer paid leave.

We need employers and employees everywhere to urge Congress to make legislative changes that support workers, families, employers, and our nation’s economy. Tell your members of Congress to support the Family and Medical Insurance Leave Act and make paid leave a reality for all!

About the Author: The author’s name is Grace Baehren. Grace Baehren is a student at The University of Hawaii’s William S. Richardson School of Law and an intern at Workplace Fairness.

Jobs Report: Conservative Economic Illusions Are Unmasked

Friday, October 2nd, 2015

Isaiah J. PooleThe surprisingly disappointing September unemployment report – 142,000 new jobs created compared to an expectation of more than 200,000 – should break once and for all two illusions about our ability to sustain a robust economy.

The first illusion is that there is no penalty for the continuing lack of public investment in the fundamentals of the real economy – from the schools that develop the skills and creativity of our future workforce to the transportation networks that enable us to move goods and people through our communities.

Years ago we should have had a place a major plan to bring all of our common assets – from schools to roads to water systems to our energy grid – into the 21st century. Not only would this have created millions of jobs, but it would have set the nation up for sustainable, more ecologically responsible, long-term growth. We should have taken advantage of the near-zero borrowing costs and the willingness of the markets – notwithstanding the sky-is-falling bleating of the chattering class – to allow the United States to take on more debt as long as it was wisely used to build for the future.

Labor Secretary Thomas Perez said in an interview on Bloomberg today that the federal spending constraints imposed by the Republican Congress – the “sequester caps” – mean the economy is producing 500,000 fewer jobs a year than it would if those constraints were lifted. Those jobs would range from construction workers to teachers to health care workers.

The second illusion is that we can continue down the road of corporate-driven so-called “free trade” – which has given us month after month of “enormous, humongous” trade deficits – and have a strong Main Street economy. Earlier this year, the White House Council of Economic Advisors issued a report that noted that during the second quarter of the year, “net exports subtracted nearly 2 full percentage points from quarterly GDP growth.” Of course it would: every month of trade deficits running between $40 billion and $50 billion represents that much less economic activity that would benefit American workers and the American economy. Plus, our strong dollar makes our exports more expensive and thus less attractive to potential foreign customers. It is no wonder, then, that this month’s jobs report reflects continued weakness in our manufacturing sector, which would be a source of good=paying jobs if it were stronger.

Federal Reserve chair Janet Yellen has warned repeatedly that there was a limit to what the Fed’s zero-interest-rate policy could accomplish without a pro-growth and pro-people fiscal policy to complement it. That was clear even with the sunnier initial summer jobs reports. Now that those reports have been revised to show that we’ve been averaging only an additional 167,000 jobs a month in this past three months – just enough to tread water – the truth of what Yellen has been saying is in even sharper relief.

How the Obama administration and Congress should respond is clear: End the senseless budget sequester caps, get a long-term transportation bill passed this month and don’t approve a Trans-Pacific Partnership trade bill that continues the pattern of chronic trade deficits and outsourced jobs. The political machinery in Washington seems almost hopelessly constipated, but we should still seize the professed shock of this month’s employment news to change the political conversation in a way that could lead to long-term change.

This blog was originally posted on Our Future on October 2, 2015. Reprinted with permission.

About the Author: Isaiah J. Poole has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.

Atlanta Fed Suggests We’re Still Far From Full Employment

Sunday, September 27th, 2015

Isaih J. PooleThe Federal Reserve’s decision last week not to increase interest rates was preceded by a considerable amount of commentary that our economy, with a 5.1 percent overall unemployment rate, was close to “full employment.”

If an economy has reached “full employment” at a rate of about 5 percent unemployment, that’s the same as saying that what we have now is about as good as it will ever get. That suggests that unemployment rates among African Americans and Latinos are doomed to be up to twice that of white Americans, or that the 10 states plus the District of Columbia where unemployment rates exceeded 6 percent in August will never catch up unless it’s at another state or region’s expense.

But this is not as good as it can get, according to two policy analysts at the Atlanta Fed this week.

The paper by John Robertson and Ellyn Terry published this week suggests looking beyond the unemployment rate and the employment-to-population ratio to what they call the utilization-to-population ratio. That measure, which they call the “ZPOP,” is defined as “the share of the working-age population that is working full time, is voluntarily working part-time, or doesn’t want to work any hours.”

Currently, that is about 91 percent of the working-age population. The remainder, currently about 9 percent, “are a roughly even mixture of the unemployed, those not in the labor force but wanting to work, and those working part-time but wanting full-time hours.”

The ZPOP is “currently about 1.5 percentage points below its prerecession level” of around 93 percent. When the ZPOP was at that level, just before the 2008 market crash, the overall unemployment rate was hovering around 4.7 percent. As their chart shows, the ZPOP almost reached 94 percent before the 2001 recession, which ended a period of 4 percent unemployment.

There’s a lot of wonkery here, but their conclusion is simple: The economy is in a far better state than it was during the recession at fully utilizing its labor force, but there is still in their words “some way to go.”

Mark Thoma at CBS Moneywatch makes the point that even this measure falls short in measuring the true state of the job market. “Just because a worker is employed doesn’t mean he or she is doing what they’re best at or employed in their most productive occupation,” he writes. “If an unemployed engineer takes a job waiting tables to feed the family, that worker will be defined as fully employed, but that worker’s potential is hardly fully utilized.”

He goes on to write, “Measuring how well workers are matched to jobs is extremely difficult, but it’s a consideration worth thinking about when trying to figure out how close the economy is to its potential output.”

That’s why the best policy would be to ignore the economists and policymakers who look at 5 percent unemployment as a signal to declare that the job market is healthy. Full employment is nothing less than every person who wants a job being able to find a job – especially the kind of job for which they are suited at the wages they deserve. Anything less wastes the potential of millions of people who are on the economy’s sidelines – and that reality demands far more of our attention than conjured-up fears of inflation.

This blog was originally posted on Our Future on September 23, 2015. Reprinted with permission.

About the Author: Isaiah J. Poole has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.

The Upsurge in Uncertain Work

Thursday, August 27th, 2015

Robert ReichAs Labor Day looms, more Americans than ever don’t know how much they’ll be earning next week or even tomorrow.

This varied group includes independent contractors, temporary workers, the self-employed, part-timers, freelancers, and free agents. Most file 1099s rather than W2s, for tax purposes.

On demand and on call – in the “share” economy, the “gig” economy, or, more prosaically, the “irregular” economy – the result is the same: no predictable earnings or hours.

It’s the biggest change in the American workforce in over a century, and it’s happening at lightening speed. It’s estimated that in five years over 40 percent of the American labor force will have uncertain work; in a decade, most of us.

Increasingly, businesses need only a relatively small pool of “talent” anchored in the enterprise –  innovators and strategists responsible for the firm’s unique competitive strength.

Everyone else is becoming fungible, sought only for their reliability and low cost.

Complex algorithms can now determine who’s needed to do what and when, and then measure the quality of what’s produced. Reliability can be measured in experience ratings. Software can seamlessly handle all transactions – contracts, billing, payments, taxes.

All this allows businesses to be highly nimble – immediately responsive to changes in consumer preferences, overall demand, and technologies.

While shifting all the risks of such changes to workers.

Whether we’re software programmers, journalists, Uber drivers, stenographers, child care workers, TaskRabbits, beauticians, plumbers, Airbnb’rs, adjunct professors, or contract nurses – increasingly, we’re on our own.

And what we’re paid, here and now, depends on what we’re worth here and now – in a spot-auction market that’s rapidly substituting for the old labor market where people held jobs that paid regular salaries and wages.

Even giant corporations are devolving into spot-auction networks. Amazon’s algorithms evaluate and pay workers for exactly what they contribute.

Apple directly employs fewer than 10 percent of the 1 million workers who design, make and sell iMacs and iPhones.

This giant risk-shift doesn’t necessarily mean lower pay. Contract workers typically make around $18 an hour, comparable to what they earned as “employees.”

Uber and other ride-share drivers earn around $25 per hour, more than double what the typical taxi driver takes home.

The problem is workers don’t know when they’ll earn it. A downturn in demand, or sudden change in consumer needs, or a personal injury or sickness, can make it impossible to pay the bills.

So they have to take whatever they can get, now: ride-shares in mornings and evenings, temp jobs on weekdays, freelance projects on weekends, Mechanical Turk or TaskRabbit tasks in between.

Which partly explains why Americans are putting in such long work hours – longer than in any other advanced economy.

And why we’re so stressed. According to polls, almost a quarter of American workers worry they won’t be earning enough in the future. That’s up from 15 percent a decade ago.

Irregular hours can also take a mental toll. Studies show people who do irregular work for a decade suffer an average cognitive decline of 6.5 years relative people with regular hours.

Such uncertainty can be hard on families, too. Children of parents working unpredictable schedules or outside standard daytime working hours are likely to have lower cognitive skills and more behavioral problems, according to new research.

For all these reasons, the upsurge in uncertain work makes the old economic measures – unemployment and income – look far better than Americans actually feel.

It also renders irrelevant many labor protections such as the minimum wage, worker safety, family and medical leave, and overtime – because there’s no clear “employer.”

And for the same reason eliminates employer-financed insurance – Social Security, workers compensation, unemployment benefits, and employer-provided health insurance under the Affordable Care Act.

What to do?  Courts are overflowing with lawsuits over whether companies have misclassified “employees” as “independent contractors,” resulting in a profusion of criteria and definitions.

We should aim instead for simplicity: Whatever party – contractor, client, customer, agent, or intermediary – pays more than half of someone’s income, or provides more than half their working hours, should be responsible for all the labor protections and insurance an employee is entitled to.

Presumably that party will share those costs and risks with its own clients, customers, owners, and investors. Which is the real point – to take these risks off the backs of individuals and spread them as widely as possible.

In addition, to restore some certainty to peoples’ lives, we’ll need to move away from unemployment insurance and toward income insurance.

Say, for example, your monthly income dips more than 50 percent below the average monthly income you’ve received from all the jobs you’ve taken over the preceding five years. Under one form of income insurance, you’d automatically receive half the difference for up to a year.

But that’s not all. Ultimately, we’ll need a guaranteed minimum basic income. But I’ll save this for another column.

This post appeared in Our Future on August 24, 2015. Originally posted at RobertReich.org. Reprinted with permission.

About the Author: Robert B. Reich, Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century.

Why the Hollowing Out of the Middle Class Matters

Tuesday, June 30th, 2015

david madlandFor the past several decades, the idea that high levels of inequality were good for the economy dominated political and economic thought. Politicians believed the trickle-down theory that enabling “job creators” to get richer would help us all, and economists provided cover for this line of thinking because they thought there was a tradeoff between growth and equity.

But, as inequality has risen to extreme levels in the United States, the foundations of the economy have weakened, and America is now experiencing the kinds of problems that plague less-developed countries. The United States now must confront high levels of societal distrust that make it hard to do business, governmental favors for privileged elites that distort the economy, and fewer opportunities for children of the middle class and the poor to get ahead—wasting vast quantities of human potential.

Fortunately, a new class of economists and policymakers are now challenging the old, flawed, ideas about inequality. Academics have begun to rethink their views about the decline of the middle class, and progressive politicians are finally starting to openly contest the logic underlying supply-side after years of failing to do so. There is a growing realization that a strong middle class is not merely the result of a strong economy—as was previously thought—but rather a source of America’s economic growth.

The new direction on economic policymaking cannot arrive soon enough, because our economy continues to suffer deeply from a financial crash caused in large part by high levels of inequality. Rebuilding the middle class is critical, as a strong middle class performs four vital functions in the US economy.

First, a strong middle class helps society run relatively smoothly, with higher levels of trust among its citizens. People need to be able to trust one another enough to do business with one another. When there is little trust, the cost of doing business shoots up—or, as economists put it, transaction costs increase.

Second, a strong middle class leads to better governance. A thriving economy depends on a well-functioning government that provides critical services, such as roads and schools, with relatively little corruption. As the middle class has weakened and inequality has risen, the wealthy have gained excessive political power and the middle class has become less civic-minded, leading to a host of governmental dysfunctions.

Third, the middle class is a source of stable consumer demand, which enables businesses to invest in new products and hire additional workers—thereby fueling growth. As consumer demand in the years prior to the Great Recession was based heavily on middle-class debt, the economy was unstable. And now that the middle class is so weak—burdened by stagnant incomes, high debt levels, and underwater mortgages—it can’t consume enough to keep the American economy going.

Finally, a strong middle class creates more human capital. In the modern economy, a skilled, healthy, and entrepreneurial workforce is a driver of economic growth—at least as much as the physical capital of factories and machines. As inequality has risen and the middle class has weakened, America has not developed the full human potential of its middle and working classes.

To have strong and sustainable growth, the economy needs to work for everyone. That’s why we need to focus policy on rebuilding our economy from the middle out.

 

About the Author: The author’s name is David Madland. David Madland is the author of Hollowed Out: Why the Economy Doesn’t Work Without a Strong Middle Class and the Managing Director for Economic Policy at the Center for American Progress. Follow Madland on Twitter: @DavidMadland

 

What Is the Federal Reserve Doing?

Friday, June 26th, 2015

William Spriggs

Last week, the U.S. Bureau of Labor Statistics issued its numbers for inflation and for real wage movements. The numbers reflected the weak numbers of the first quarter for economic growth: Zero inflation and zero real wage growth in the past three months. The economy is showing signs that it is fragile. It can be spoofed by international developments that raise the value of the dollar and slow U.S. export growth, or by bad weather—events, the Federal Reserve cannot control or easily predict.

So what is the Federal Reserve doing? At its June Open Market Committee Meeting, where Federal Reserve policy is set, the Fed stayed put on interest rates.  Yet, it gave indications that it was considering giving in to the stampede for the Fed to act sometime this year to raise interest rates in a deliberate move to slow the economy. A policy to slow the economy is based on beliefs, not on the hard data before us on wages or inflation. This is regrettable.

The deeper reality is that the Fed took unprecedented moves to build up huge reserves of U.S. Treasuries. What is really going on is more that the speculators on Wall Street are nervous. They are afraid that somehow, from some unknown source, inflationary pressures will rapidly appear and the Fed will quickly unwind its position with, for some of them, disastrous consequences on bets they have placed on bond prices. They would prefer the certainty of having the Fed start to unwind its position now, slowly divesting itself of its bond reserves and easing the economy to higher interest rates. This has nothing to do with the economy, and everything to do with Wall Street speculation. Unfortunately, the press plays sycophant to these speculators, who are constantly quoted as giving “economic” advice when they state with certainty the need for the Fed to raise interest rates.

Sources of global instability abound. The discussions over the Greek debt, the Eurozone bankers and the International Monetary Fund are far from a workable solution. In the meantime, the Swiss Franc is rising uncontrollably in response to that uncertainty. Iraq, Syria, Yemen and the ongoing conflict with ISL make the Mideast equally unpredictable. And, if snows were the issue in the first quarter, the California drought, the Texas floods and Midwest tornadoes so far this quarter should not make anyone confident that the current hurricane season is going to be a sleeper. Further incidents in Charleston and now Charlotte with violent attacks on African American churches and the constant stream of discontent with the ongoing and unresolved issue of police misconduct make the domestic situation equally volatile.  With so many uncontrollable and unpredictable risk factors that could slow the economy, the fears of Wall Street speculators should and must take a back seat.

These risks are not all unrelated. A more robust U.S. economy will help the world economy and help reduce some risks associated with weak economic performance; especially in the Eurozone. And a more robust U.S. economy will hopefully speed job growth to reduce the economic tensions that overlay the raw social tensions domestically.

The Fed must expand its view of measures of full-employment. The Wall Street gamblers base their assumptions on full employment from a time gone by. For instance, economists today still persist in viewing the high African American unemployment rate as a “structural” issue, since African American workers are assumed to be so low-skilled they cannot find jobs in a modern economy. So, they ignore the warning signs that job growth is frail when the African American unemployment stalls, as it has, at around 10%.

In May, the unemployment rate for adult African American workers (those older than 25) with associate degrees was 5.6%, which was higher or about the same as the unemployment rate for white, Asian and Hispanic high school graduates. Those numbers are inconsistent with full employment. They indicate a market where employers are very free to pick and choose which workers they want. A faster growing economy will force employers to be less choosy.

The slow economy cascaded higher educated workers down into jobs that require less education. If the economy does not speed up, that misallocation of productive capacity could become permanent, as employers may continue to seek only college graduates to serve coffee. This costs us in loss productivity growth.  It is another sign of a labor market that is not at full employment.

Locking in high African American unemployment and college degree requirements for entry-level jobs is not in the economy’s interest. And covering Wall Street bets isn’t either.

This blog was originally posted on AFL-CIO blog on June 26, 2015. Reprinted with permission.

About the Author: The author’s name is William E. Spriggs. William E. Spriggs is the Chief Economist for AFL-CIO. His is also a Professor at Howard University. Follow Spriggs on Twitter: @WSpriggs.

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