We Need More Nuance from the CBO

Feb 20, 2014Jeff Madrick

The CBO's insistence on presenting just a single number makes its predictions misleading, and sometimes even useless.

I have long thought we need two Congressional Budget Offices, the current one and a real one. The problem with the current “bi-partisan” CBO is again apparent in the wake of its claims about the impact of the president’s proposed increase of the federal minimum wage to $10.10.

The CBO's insistence on presenting just a single number makes its predictions misleading, and sometimes even useless.

I have long thought we need two Congressional Budget Offices, the current one and a real one. The problem with the current “bi-partisan” CBO is again apparent in the wake of its claims about the impact of the president’s proposed increase of the federal minimum wage to $10.10.

But let’s take a step back. The CBO has long had little sensitivity to the impact of how it presents its invariably uncertain findings. To the contrary, it seems to respond to a demand from Congress and the general public for a concrete number, essential ambiguities aside. It has long presented one-number conclusions – the size of the budget deficit, the rate of economic growth, the impact on jobs of the minimum wage – as if people are educated enough in the uncertainties of economics that they won’t take the numbers too seriously. 

But, in fact, they do. The CBO economists disingenuously cover themselves by burying the extensive qualifications of the data and research, as well as alternative possibilities, in dense appendices and footnotes. In the process, they feed politicians and pundits with projections the poor naïfs think are written in stone – or are, most likely, perfect for use as political cover. Is this unwitting, or does the CBO enhance its influence with these easy-to-digest but misleading pronouncements?

But the CBO is worse than merely insensitive to its public relations impact. Their economists typically treat economic hypotheses as entirely true. A couple of centuries ago, John Stuart Mill pointed out that economics is hypothetical. CBO economists should go back and read this. They base forecasts on the imbedded idea that weak economies will automatically self-adjust within three or four years, for example. This is a neoclassical assumption, not a fact of life. They acknowledge that higher deficits can stimulate a weak economy but within a few years it will undercut growth. Evidence is highly ambiguous on this point. They have little compunction about making thirty-year forecasts, no less ten-year forecasts. No one knows what will happen in ten years. 

The bi-partisan label has become comical. The CBO does not necessarily lean Republican or Democrat, but it is not truly objective. Economics does not allow that.

A real CBO would present a range of projections and forecasts and make a priority of demonstrating how tentative most of its conclusions must be. The current CBO sometimes presents a secondary forecast if certain expected changes in the laws are actually made, but it should publish a range of likely outcomes with or without legal changes.

I guess I am merely stating the obvious, but the obvious has to be addressed at some point. The minimum wage debate is another clear example. Read the appendices and footnotes and you see the CBO took its job seriously; its economists read a lot of research. For those families below the poverty line, income would rise by $5 billion; for those from one to three times the poverty line, incomes would rise by $12 billion. These are mere estimates, let’s keep in mind. Nearly one million would be lifted out of poverty. Those who earn some seven times the poverty line or better would see their incomes reduced because business profits might come down due to higher wages and prices may go up for the products they buy, If true, these estimates suggest a pretty nice redistribution of the national income to lower-income families, not bad in a time of intense inequality.

But the headlines were created by the CBO’s claim that 500,000 jobs will be lost. Here’s the actual sentence: “Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects.” The sentence that follows has the tepid disclaimer that there could be a wide range of job losses. But then why make the declarative sentence above? It’s the one, of course, that anti-minimum wage politicians focused on, as did much of the media. But the 500,000 number is not a forecast, it is simply a midpoint on this wide distribution from essentially zero jobs lost to one million. Oh, yes, the CBO eventually says that, but as a writer myself, I have to ask why the CBO doesn’t present the uncertainty immediately.

The CBO, as is now widely reported, did no original research. It looked at existing studies. A recent one in particular, which showed substantial losses, used a highly dubious methodology. The study showed the biggest future job losses were in manufacturing, which has relatively few minimum-wage jobs. By contrast, it showed few prospective losses in retail and similar industries, which have many such minimum wage jobs. This is highly implausible. Economic critics concluded the methodology was flawed. Why did the CBO pay attention to it?

It’s high time to rethink the purpose and practical capabilities of the CBO. It should be forthright about the ambiguities of economic science, it should avoid single-note forecasts, and it should make sure policymakers understand the risks and sensitivities of what they are doing. In sum, it should not produce simple answers to complex questions.

Does any of this really need saying? Judging by the minimum wage brouhahah, it does. Ideally, we need a “shadow” CBO to challenge its findings and explain their many assumptions on a regular basis. That would be costly, I fear. But some review of the purpose of the CBO and what they emphasize would be very useful. 

Jeff Madrick is a Roosevelt Institute Senior Fellow and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

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Daily Digest - February 20: Monopoly Power is a Package Deal

Feb 20, 2014Rachel Goldfarb

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How to Tackle the Great American Cable Monopoly (FT)

Click here to receive the Daily Digest via email.

How to Tackle the Great American Cable Monopoly (FT)

Roosevelt Institute Fellow Susan Crawford points out that the real issue in the Comcast-Time Warner Cable merger is how much power that monopoly would have over markets like high-speed Internet access and TV programming.

Volkswagen Official Threatens to Block Expansion if Workers Won't Unionize (Chattanooga Times Free Press)

The head of VW's works council complained about anti-union efforts in Chattanooga when he suggested that the company doesn't have to invest further in the South, reports the Times Free Press.

  • Roosevelt Take: Roosevelt Institute Senior Fellow Richard Kirsch explains why the UAW effort in Chattanooga failed despite VW's neutrality.

Even Economists Cited By The CBO Disagree With Its Minimum Wage Report (HuffPo)

The general consensus seems to be that raising the minimum wage will have little effect on employment, reports Jillian Berman, and economists are questioning the CBO's methodology.

Gap to Raise Minimum Hourly Pay (NYT)

The clothing retailer cited the need to invest in staff as it announced that it will raise wages to $9 an hour this year and $10 next year, reports Steven Greenhouse.

Wal-Mart Says ‘Looking’ at Support of Federal Minimum Wage Rise (Bloomberg News)

Renee Dudley writes that Wal-Mart is considering whether an increased minimum wage could mean that shoppers have more money to spend. That’s what proponents have been saying all along.

Republicans' Favorite National-Debt Researchers Are Now Even More Discredited (TNR)

Danny Vinik reports on a new study showing that the trajectory of debt – growing or shrinking – is what affects growth. That makes long-term planning more important than any debt-to-GDP threshold.

  • Roosevelt Take: Roosevelt Institute Fellow Mike Konczal wrote about the data problems discovered in the Reinhart-Rogoff study on debt-to-GDP ratios, which first raised doubts about its conclusions.

New on Next New Deal

Solving California's Water Crisis Requires A Look Beyond This Year

Focusing on reactionary measures and short-term solutions will only lead to even bigger problems, writes Melia Ungson, the Roosevelt Institute | Campus Network's Senior Fellow for Energy and Environment.

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Daily Digest - February 19: The Misleading Math on the Minimum Wage

Feb 19, 2014Rachel Goldfarb

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In Its Minimum-Wage Report, the CBO Places Its Thumb on the Scale (TNR)

The new report, which predicts a $10.10 minimum wage could cost as many as 1 million jobs, overstates the potential downside and understates the benefits, argues Roosevelt Institute Fellow Mike Konczal.

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In Its Minimum-Wage Report, the CBO Places Its Thumb on the Scale (TNR)

The new report, which predicts a $10.10 minimum wage could cost as many as 1 million jobs, overstates the potential downside and understates the benefits, argues Roosevelt Institute Fellow Mike Konczal.

Student Debt May Hurt Housing Recovery by Hampering First-Time Buyers (WaPo)

Dina ElBoghdady reports that new rules could be keeping young would-be homeowners with student loans out of the market, and that has implications for the housing market and the broader economy.

Businesses Are Swimming in Money: Profit Protection Will Not Help With Economic Recovery (Pacific Standard)

Martin Hart-Landsberg uses charts to demonstrate just how much money businesses are sitting on today. He says this data shows that pro-business policy won't speed up the recovery for everyone else.

New on Next New Deal

In VW Vote, Republicans Fight the Really Radical Idea that Workers Should Have a Voice in Business

Roosevelt Institute Senior Fellow Richard Kirsch explains how the GOP influenced the United Auto Workers' loss at Volkswagen's Chattanooga plant, even though the company wasn't opposed to the union.

Finding Affordable Housing Solutions in Boston

Gavin O'Brien, a member of the Greater Boston chapter of Roosevelt Institute | Pipeline, lays out possible policy solutions to the soaring cost of living in Boston, from cooperative arrangements to affordable housing trusts.

Snowed Under: When Keeping Schools Open Puts Low-Income Students Further Behind

Attendance data doesn't support the claim that NYC schools needed to stay open during last week's snowstorm so kids could eat, says Sarah Pfeifer Vandekerckhove, the Roosevelt Institute's Director of Programmatic Operations.

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In VW Vote, Republicans Fight the Really Radical Idea that Workers Should Have a Voice in Business

Feb 18, 2014Richard Kirsch

When a company is not fighting against a union, why do that union's efforts fail - and what does that say about the U.S. model for labor?

When a company is not fighting against a union, why do that union's efforts fail - and what does that say about the U.S. model for labor?

Current management theory recognizes that businesses do better when employees are involved in decision-making. But that trend ran smack into the paternalistic view that workers are replaceable parts in the narrow vote by workers at Volkswagen (VW) in Chattanooga, Tennessee to reject the United Auto Workers (UAW). Here was a case where right-wing politicians, who usually worship at the alter of business, decided that a business that actually valued its employees’ ideas was un-American.

In many ways what is remarkable about the vote of workers at a VW plant in Tennessee to reject the UAW was how close it was. Despite an aggressive campaign against the union by the state’s Republican leadership, if just 43 workers out of 1,338 had switched their votes, the union would have been voted in. The 626 workers who voted yes stood up to a campaign of intimidation by elected officials and right wing organizations that threaten not just their jobs, but harm to communities in the rest of the State. When it is so much safer to say no, we should recognize the guts of the hundreds of workers who by voting yes, declared that they deserved respect at their workplace.

The main motivation for even having the union vote in Tennessee was not what most people assume, which would be to increase wages and benefits. While wages at the VW plant are far from enough to put workers comfortably in the middle-class, they are in line with wages paid to newly hired employees at plants represented by the UAW. In today’s era of diminished expectations by workers (and heightened ones by shareholders), VW workers in Tennessee were not organizing for a raise. Instead, they were calling for the establishment of European style works councils, which give workers a role in key decision-making at the factory.

Works councils are common throughout Western Europe, and are often legally required at businesses with as few as five employees. Typically elected by all the workers at a business, including union and non-union members, the works councils join management in a range of decisions, including: monitoring and enforcement of employment and occupational safety and health laws, setting work and production schedules, introducing new technology, and downsizing the plant. To facilitate their role, the members of the works council have the right to information about financial and business matters, employment levels and structural changes to the work environment.

Clearly, works councils would be a lot more revolutionary in U.S. businesses than voting in a union, because works councils establish a right to what was called in the early days of union organizing “industrial democracy.” They give workers a real voice at work. Companies like VW have found, in line with modern management theory, that giving workers a voice is good for business.

Organizing the southern auto plants established by foreign auto companies over the past two decades is a top priority of the United Auto Workers. The auto companies were attracted to the South by a combination of low wages, workers with manufacturing experience, both laws and a political climate that discourage unionization, access to growing markets, and huge state-government tax incentives.  In 2008, Tennessee awarded VW a package worth $577 million to build the plant in Chattanooga, the richest package ever awarded to a foreign auto manufacturer at the time.

The UAW decided to try a new strategy in its organizing effort at VW in Chattanooga, based on establishing a works council. The councils operate at every VW plant in the world, except those in China and the U.S. However, under American labor law, VW cannot establish a works council on its own. When the National Labor Relations Act was enacted in 1935, it was common for employers to set up unions they controlled, as a way to block unions that would really represent the workers. To prevent company-controlled unions, the NLRA prohibited the kind of joint management-worker decision-making bodies envisioned by a works council. For the UAW, VW’s openness to a works council presented a new avenue for organizing.

While much has been made in the press about VW signing a neutrality agreement with the UAW, that act does not mean that VW’s American managers welcomed the union. Under the neutrality accord, VW rejected common anti-union practices among U.S. employers, like refusing to allow the union to speak with workers on site, requiring workers to attend anti-union meetings and harassing union supporters. However, the UAW too made concessions, including agreeing not to meet with workers in their homes, which is one of the most powerful ways of building support and leadership for unions.

The main visible opposition at the factory came from salaried workers and low-level supervisors, who are not part of management but also were not eligible to vote in the union election, another barrier in American labor law. Mike Elk, who covered the vote for In These Times, reports many of these employees adopted the traditional view of American managers, that the union has no interest in producing quality cars and would interfere with corporate decisions. In the hierarchical American work culture, it is not surprising that workers who have been given some authority might be resentful of ceding some of their new power to a council that included hourly workers.

Still, the close vote made it absolutely clear that deciding factor was the strident opposition of Republican U.S. Senator Bob Corker, Republican Governor Bill Haslam and Republican legislative leaders, who said that a vote for the UAW would scare other auto manufacturers away from Tennessee and dry up any more state support for expanding production at the factory. They made these threats even though GM announced this summer that it will add 1,800 jobs to a UAW organized factory in Spring Hills, Tennessee.

The vote in Chattanooga should be seen as another skirmish in the growing debate about the role of workers in driving the 21st century economy. Southern politicians’ strong anti-union stance has roots in racist opposition to unions, which gave African-Americans a voice at work and better wages. Their virulent anti-union stance today continues the suppression of wages that has impeded the southern economy from the days of slavery. But today, the southern low-wage strategy has become a national model, led by the behemoth of southern companies, today’s largest employer, Walmart.

The vote at VW highlights how the U.S.’s antiquated labor laws block economic progress. If the law allowed the establishment of works councils without the requirement that a union win a majority vote, it would provide a new vehicle to improve the performance and competitiveness of U.S. firms. The continued strength of many European manufacturers, even facing global competition from firms in lower-wage countries, demonstrates that giving workers a voice strengthens business. That lesson, a foundational assumption in the high-tech sector, makes sense for American manufacturers too. If our goal is to build an economy of broadly shared prosperity, giving workers a real voice in business decisions is a far better way to compete than slashing wages.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, a Senior Adviser to USAction, and the author of Fighting for Our Health. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Daily Digest - February 18: Escape from Hooverville

Feb 18, 2014Rachel Goldfarb

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Worst. President. Ever. (All In With Chris Hayes)

Click here to receive the Daily Digest via email.

Worst. President. Ever. (All In With Chris Hayes)

In honor of Presidents' Day, Chris Hayes invites Roosevelt Institute Fellow Dorian Warren to discuss his pick for the worst: Herbert Hoover, Franklin D. Roosevelt's predecessor during the Great Depression.

The Silicon Valley Labor Scandals Prove Minimum Wage Hikes Don't Cost Jobs (TNR)

Roosevelt Institute Fellow Mike Konczal uses the coordinated efforts of Silicon Valley giants to control labor markets to demonstrate why raising the minimum wage will reduce job vacancies, not jobs.

Barons of Broadband (NYT)

Paul Krugman argues against the Comcast-Time Warner Cable merger, using Roosevelt Institute Fellow Susan Crawford's work to point out how the telecommunications industry already stifles innovation.

How Big Banks Are Cashing In On Food Stamps (TAP)

Electronic benefits transfer cards may be easier for the government, writes Virginia Eubanks, but they allow banks to make profits from the country's most unfortunate with fees galore.

The Stimulus Act was a Success — and We Need Another (WaPo)

George Zornick points out that the stimulus did its job – providing the economy with a temporary bump – just fine. Republicans who denounce it are ignoring the bill's intended purpose.

After Rejecting UAW, VW Workers May Still Get Works Council (Reuters)

Bernie Woodall and Amanda Becker report that Volkswagen is looking into whether a works council, elected workers who help set workplace rules, could be permitted at its Chattanooga plant under U.S. labor law, in lieu of a union.

New on Next New Deal

AOL's CEO Proves Women and Children Make Easy Scapegoats in the Workplace

Tim Armstrong's comments about "distressed babies" show that some companies still treat maternity care as an extravagance, even during times of profit, says Roosevelt Institute Fellow Andrea Flynn.

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Daily Digest - February 14: America Loses When Cable Giants Play Monopoly

Feb 14, 2014Rachel Goldfarb

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There will not be a new Daily Digest on Monday, February 17, in observance of Presidents' Day. The Daily Digest will return on Tuesday, February 18.

Comcast's Time Warner Deal Is Bad for America (Bloomberg Businessweek)

Click here to receive the Daily Digest via email.

There will not be a new Daily Digest on Monday, February 17, in observance of Presidents' Day. The Daily Digest will return on Tuesday, February 18.

Comcast's Time Warner Deal Is Bad for America (Bloomberg Businessweek)

A Comcast-Time Warner Cable monopoly won't just limit choice for consumers, says Roosevelt Institute Fellow Susan Crawford. The combined company will have no reason to upgrade infrastructure.

Just How Much Do Republicans Hate Unions? (TAP)

Volkswagen seems to be supportive of a union at its Chattanooga, TN plant. That means the GOP pushback is just about opposing organized labor in general, writes Paul Waldman.

It's Time to Kill the Debt Limit (The Daily Beast)

Jamelle Bouie says that the easiest way to stop the cycle of debt ceiling crises of the past few years would be to abolish it altogether, since it's a pointless and redundant concept anyway.

Should We Place A Tax On All College Graduates? (Forbes)

Josh Freedman considers this alternative model of funding for public higher education. He quotes Roosevelt Institute Fellow Mike Konczal to express concern about whether such taxes would lead to class-segregated schools.

How Credit-Card Debt Can Help the Poor (NYT)

Since good credit affects so many aspects of life in the U.S., Shaila Dewan writes that special loans that build credit alongside savings could make a big difference.

New on Next New Deal

Conservatives Concerned About the CBO and the Dignity of Work Should Consider a Higher Minimum Wage

Roosevelt Institute Fellow Mike Konczal suggests that a higher minimum wage could solve Republican concerns about people who choose to work less due to the Affordable Care Act and means-tested programs.

A New Medicare Penalty Puts the Focus on Community Health

Anisha Hegde, Roosevelt Institute | Campus Network Senior Fellow for Health Care, says that expanding community health resources and workers will help patients and reduce costs in the health care system.

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Daily Digest - February 13: Public Finance Can Help Weather the Storm

Feb 13, 2014Rachel Goldfarb

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Preparing for Disaster by Betting Against It (NYT)

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Preparing for Disaster by Betting Against It (NYT)

The Metropolitan Transit Association's catastrophe bond, a type of insurance to cover the costs of future storms like Hurricane Sandy, could be a model for disaster prep, says Roosevelt Institute Fellow Georgia Levenson Keohane.

A Comcast-Time Warner Cable Deal Would Combine Two of America’s Most-Reviled Companies (Quartz)

Adam Pasick reports on the newly-announced merger plan. He quotes Roosevelt Institute Fellow Susan Crawford, who predicts that the only way this will affect customers is through higher prices.

GOP Succumbs to Rare Outbreak of Sanity (The New Yorker)

John Cassidy says the moment passed after the House voted to raise the debt ceiling. Ted Cruz's reaction proved that nothing had changed, even as the debt ceiling increase passed the Senate.

I Can’t Find Enough Skilled Workers! (At the Crappy Wage I’m Offering…) (On The Economy)

When employers complain about a lack of skilled workers, Jared Bernstein says they're forgetting the second half of that equation. Case in point: regional airline pilots, who sometimes barely break minimum wage.

After Outcry, White House Extends $10.10 Minimum Wage to Some Disabled Workers (In These Times)

Mike Elk reports on the change, which follows public objections to keeping disabled workers' wages lower than the minimum. Disabled service and concessions workers will now get minimum wage, not less.

Up in Arms Over Union ‘Persuader’ Rule (The Hill)

Kevin Bogardus and Ben Goad report on the proposed regulation, which would require companies to disclose when they bring in legal consultants on union election strategy.

America Has Forgotten Its Three Biggest Economic Lessons (Salon)

According to Robert Reich, those lessons are that consumers create jobs, the rich do better with a smaller share of a growing economy, and taxes pay for public investment that helps everyone.

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Daily Digest - February 12: Higher Pay Won't Hurt Workers

Feb 12, 2014Rachel Goldfarb

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Who Would Benefit From a Minimum Wage Hike? (Your Call Radio)

The aggregate effects of a minimum wage increase wouldn't lead to job losses, says Roosevelt Institute Fellow Mike Konczal, and it's the easiest way to boost our economy.

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Who Would Benefit From a Minimum Wage Hike? (Your Call Radio)

The aggregate effects of a minimum wage increase wouldn't lead to job losses, says Roosevelt Institute Fellow Mike Konczal, and it's the easiest way to boost our economy.

Now That Boehner Has Backed Down, Let's Fix The Debt Ceiling For Good (TNR)

Since the House GOP has approved a clean debt limit increase, Eric Posner argues it's time to pass legislation that would end this game of chicken over the national debt forever.

Yellen Sets a Familiar Direction for the Fed (NYT)

Binyamin Appelbaum reports that the new Fed chair's testimony to the House Financial Services Committee emphasized that many policies will remain the same under her leadership.

What Do the Jobless Do When the Benefits End? (WaPo)

Ylan Mui interviews people about how they're getting by, and since none of her subjects have full-time work, the GOP theory that benefits keep people from taking jobs seems unlikely.

Why Democrats Will Win on Unemployment Insurance (The Atlantic)

Sarah Mimms writes that the Democrats will come out on top whether they get an extension on unemployment insurance or not. No extension? Then there's the campaign message for 2014.

Responsible Contractors Only: How to Ensure Obama’s Minimum Wage Order Is Enforced (PolicyShop)

Building a "responsible contractor" enforcement mechanism into his executive order will help the president to ensure workers actually get the raise he called for, writes Amy Traub.

Anatomy of a Hunger Crisis (MSNBC)

New York City's food pantries are already unable to handle the needs of the city's hungry, according to Ned Resnikoff, and the president has just signed another round of cuts to food stamps.

New on Next New Deal

The Three Big Questions Janet Yellen Should Answer in Today's Testimony

With the new Fed chair delivering her first testimony to Congress this week, Roosevelt Institute Fellow Mike Konczal lays out what we need to know about her views on the taper, financial reform, and unemployment.

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The Three Big Questions Janet Yellen Should Answer in Today's Testimony

Feb 11, 2014Mike Konczal

Janet Yellen has her first Humphrey-Hawkins testimony today, where she’ll give a prepared speech, already released online, and testify before the Republican-controlled House Financial Services committee. What are the points that she’ll need to cover?

The first element is how and when she’ll manage the so-called “taper” of monetary policy. At the end of 2012, the Federal Reserve started an extensive program of monetary stimulus designed to boost the economy. They declared that this would stay in full effect until unemployment dropped to 6.5 percent.

We are close to hitting that threshold. The unemployment rate is at 6.6 percent, and will fall below 6.5 percent very soon. Yellen, in her testimony, emphasizes a broader picture of unemployment than just the headline rate, including the amount of people working part-time against their choice and the amount of long-term unemployed.

What’s even more interesting, and a bit new, is her statement that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal.”

Hopefully Congress will ask her to consider these choices in light of the last two weak job reports. Isn’t it more appropriate to step on the gas rather than test the brakes? However, she’ll likely encounter a skeptical Congress, and as such it will be essential for Yellen to make the case that the weak job numbers, combined with the vagueness of what the headline unemployment rate is telling us, requires continued monetary action.

The second point is how she'll handle financial reform. Given that Yellen is considered a monetary dove, it’s been interesting to see the amount of questions she’s taken from Congress about where Dodd-Frank and other reforms stand. This will no doubt continue into this testimony.

Financial reform has hit an interesting point where much of the rule-writing from the Dodd-Frank Act is finished, and now there’s a transition to both enforcement and clean-up action. Yellen notes in her testimony that rules related to derivatives as well as capital requirements still remain in the works. It would be useful for Congress to ask her where she thinks capital requirements for the largest firms should ultimately end up. Does she think that this number is too high, or too low?

It would also be fascinating for someone to ask Yellen about the recent wave of “postal banking” coverage, and the role the government can play in providing essential banking services to unbanked and underbanked Americans.

The third and most important is how the Federal Reserve will transition to prevent periods of mass unemployment like we are currently experiencing. Is a 2 percent inflation target either high enough, or the right target, for the job?

Sadly, this will be the topic least covered of them all. However, it’s the one that is most essential for preventing the economy from falling back into the situation it now finds itself in.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Image via Federal Reserve

Janet Yellen has her first Humphrey-Hawkins testimony today, where she’ll give a prepared speech, already released online, and testify before the Republican-controlled House Financial Services committee. What are the points that she’ll need to cover?

The first element is how and when she’ll manage the so-called “taper” of monetary policy. At the end of 2012, the Federal Reserve started an extensive program of monetary stimulus designed to boost the economy. They declared that this would stay in full effect until unemployment dropped to 6.5 percent.

We are close to hitting that threshold. The unemployment rate is at 6.6 percent, and will fall below 6.5 percent very soon. Yellen, in her testimony, emphasizes a broader picture of unemployment than just the headline rate, including the amount of people working part-time against their choice and the amount of long-term unemployed.

What’s even more interesting, and a bit new, is her statement that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal.”

Hopefully Congress will ask her to consider these choices in light of the last two weak job reports. Isn’t it more appropriate to step on the gas rather than test the brakes? However, she’ll likely encounter a skeptical Congress, and as such it will be essential for Yellen to make the case that the weak job numbers, combined with the vagueness of what the headline unemployment rate is telling us, requires continued monetary action.

The second point is how she'll handle financial reform. Given that Yellen is considered a monetary dove, it’s been interesting to see the amount of questions she’s taken from Congress about where Dodd-Frank and other reforms stand. This will no doubt continue into this testimony.

Financial reform has hit an interesting point where much of the rule-writing from the Dodd-Frank Act is finished, and now there’s a transition to both enforcement and clean-up action. Yellen notes in her testimony that rules related to derivatives as well as capital requirements still remain in the works. It would be useful for Congress to ask her where she thinks capital requirements for the largest firms should ultimately end up. Does she think that this number is too high, or too low?

It would also be fascinating for someone to ask Yellen about the recent wave of “postal banking” coverage, and the role the government can play in providing essential banking services to unbanked and underbanked Americans.

The third and most important is how the Federal Reserve will transition to prevent periods of mass unemployment like we are currently experiencing. Is a 2 percent inflation target either high enough, or the right target, for the job?

Sadly, this will be the topic least covered of them all. However, it’s the one that is most essential for preventing the economy from falling back into the situation it now finds itself in.

Mike Konczal is a Fellow at the Roosevelt Institute.

Follow or contact the Rortybomb blog:

  
 
Image via Federal Reserve

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Daily Digest - February 11: Raising Wages from Coast to Coast

Feb 11, 2014Rachel Goldfarb

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The Minimum Wage Fight: From San Francisco to de Blasio’s New York (Reuters)

Mayor de Blasio and others should learn from San Francisco's example when it comes to lifting standards for low-wage workers, write Ken Jacobs and Michael Reich.

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The Minimum Wage Fight: From San Francisco to de Blasio’s New York (Reuters)

Mayor de Blasio and others should learn from San Francisco's example when it comes to lifting standards for low-wage workers, write Ken Jacobs and Michael Reich.

Horrible Bosses (TAP)

Paul Waldman writes that some employers are blaming the President and his health care policies for benefit cuts and stagnant wages. But workers should know: their bosses are lying.

Labor Battle at Kellogg Plant in Memphis Drags On (NYT)

As the lockout approaches four months, Steven Greenhouse says these workers are determined not to accept a contract that could replace them all with "casuals," or lower-paid temps.

New York AG To Put Heat On Banks for Foreclosed Properties (WSJ)

Eric Schneiderman wants to require banks to take better care of so-called "zombie properties" they've foreclosed on, reports Andrew R. Johnson, and his proposed bill would reduce neighborhood blight.

Obama's Partly to Blame for the Postal Service's Backward Ways (TNR)

Progressive reform, including postal banking, is in reach for the USPS, says David Dayen, if only the president would step up and fill the five empty seats on its Board of Governors.

Support the Student Loan Borrower Bill of Rights (Blog of the Century)

Jill Silos-Rooney says Senator Warren's proposal bets that college grads who have fewer struggles with debt will be better for the economy than government profits on student loans.

House GOP Rolls Dice on Debt Limit (Politico)

Jake Sherman and Ginger Gibson report on the GOP's plan to pass a debt ceiling increase by tying it to fixing military benefit cuts. That probably won't sway Democrats from a clean bill.

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