Daily Digest - November 24: How to Win Minimum Wage Fights

Nov 23, 2014Rachel Goldfarb

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The Fight for $15.37 an Hour (NYT)

Steven Greenhouse explains how the Los Angeles Alliance for a New Economy won its campaign to get hotel workers in L.A. a significantly higher minimum wage.

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The Fight for $15.37 an Hour (NYT)

Steven Greenhouse explains how the Los Angeles Alliance for a New Economy won its campaign to get hotel workers in L.A. a significantly higher minimum wage.

Elizabeth Warren Tells NY Fed President: Fix Your Problems, Or We’ll Find Someone Who Will (Buzzfeed)

At the Senate Banking Committee on Friday, the four senators in attendance – all Democrats – pushed back hard on William Dudley's framing of his work as a "fire warden," reports Matthew Zeitlin.

What’s a CEO Really Worth? Too Many Companies Simply Don’t Know (WSJ)

Paul Vigna writes about a new report examining how executive compensation lines up with company performance. It turns out that most companies don't measure success very accurately.

  • Roosevelt Take: In her primer on the CEO pay debate, Roosevelt Institute Fellow Susan Holmberg lays out the main theories for the skyrocketing in executive pay and potential policy solutions.

Obama's Executive Action Is About Labor Policy, Not Just Immigration (AJAM)

E. Tammy Kim explains how work authorization will transform opportunities for many undocumented workers, who will have new opportunities to organize or fight wage theft without fear.

The Antitax Push Has Done Harm to State and Local Government (WaPo)

Catherine Rampell says the piecemeal way that state and local governments create new revenue sources are far worse for the economy and inequality than raising taxes would be.

  • Roosevelt Take: Roosevelt Institute Fellow Saqib Bhatti explains the impact of predatory financial deals taken on by state and local governments struggling to fund public services.

The GOP Controls Congress So Now It Can Change How Math Works (MoJo)

The Republicans' preferred method of calculating budget projections uses impossible predictions about economic growth, writes Erika Eichelberger, making tax cuts appear less costly.

New on Next New Deal

Bigger Health Care Providers Mean Bigger Profits, But Not Always Better Care

Roosevelt Institute | Campus Network Senior Fellow for Health Care Emily Cerciello calls on state attorneys general to consider whether hospitals that buy up physicians' practices are violating anti-trust laws.

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Daily Digest - November 20: From the Banks to the Fed and Back Again

Nov 20, 2014Rachel Goldfarb

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New Scrutiny of Goldman’s Ties to the New York Fed After a Leak (NYT)

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New Scrutiny of Goldman’s Ties to the New York Fed After a Leak (NYT)

The leak has led to questions regarding the conflict of interest that arises when people advise the same banks they used to regulate, write Jessica Silver-Greenberg, Ben Protess, and Peter Eavis.

Are Financial Whistleblowers Worth It? Study Says Yes – to the Tune of $21.27bn (The Guardian)

Jana Kasperkevic reports on a new study that proves the value of financial whistleblowers. Rewards encourage whistleblowers to step up, and companies in such cases pay heavier penalties.

Loan Servicer Busted for Backdating, But Foreclosure Victims Say Shenanigans Haven’t Stopped (In These Times)

Ocwen Financial has admitted to a "glitch" involving back-dated loan modification letters, but Joel Sucher says the slow work to fix the problem follows familiar patterns.

Lenders Shift to Help Struggling Student Borrowers (WSJ)

Annamaria Andriotis reports on the plans of two major private student loan providers to lower interest rates, extend repayment periods, and modify loans.

Why It's So Hard for Millennials to Find a Place to Live and Work (The Atlantic)

Derek Thompson explains that cities that provide the best opportunity for economic mobility and cities that have affordable housing hardly overlap at all today.

New on Next New Deal

A Dem Who Can Explain that Fairness is Prosperity Will Sweep in 2016

Roosevelt Institute Senior Fellow Richard Kirsch argues that Democrats who focus on economic policies that emphasize fairness (which are the best ones for economic growth) will succeed.

Leadership Wanted: Governor Cuomo, Homeless Students Need College Support

Roosevelt Institute | Campus Network Leadership Director Kevin Stump proposes a new program to support homeless youth in achieving their college goals.

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In Blowout Aftermath, Remember GDP Growth Was Slower in 2013 Than in 2012

Nov 5, 2014Mike Konczal

In the aftermath of the electoral blowout, a reminder: the Great Recession isn't over. In fact, GDP growth was slower in 2013 than in 2012. Let's go to the FRED data:

There's dotted lines added at the end of 2012 to give you a sense that throughout 2013 the economy didn't speed up. Even though we were another year into the "recovery" GDP growth slowed down a bit.

There's a lot of reasons people haven't discussed it this way. I saw a lot of people using year-over-year GDP growth for 2013, proclaiming it a major success. A problem with using that method for a single point is that it's very sensitive to what is happening around the end points, and indeed the quarter before and after that data point featured negative or near zero growth. Averaging it out (or even doing year-over-year on a longer scale) shows a much worse story. Also much of the celebrated convergence between the two years was really the BEA finding more austerity in 2012. (I added a line going back to 2011 to show that the overall growth rate has been lower since then. According to David Beckworth, this is the point when fiscal tightening began.)

Other people were hoping that the Evans Rule and open-ended purchases could stabilize "expectations" of inflation regardless of underlying changes in economic activity (I was one of them), a process that didn't happen. And yet others knew the sequestration was put into place and was unlikely to be moved, so might as well make lemonade out of the austerity.

And that's overall growth. Wages are even uglier. (Note in an election meant to repudiate liberalism, minimum wage hikes passed with flying colors.) The Federal Reserve's Survey of Consumer Finances is not a bomb-throwing document, but it's hard not to read class war into their latest one. From 2010 to 2013, a year after the Recession ended until last year, median incomes fell:

When 45 percent of the electorate puts the economy as the top issue in exit polls, and the economy performs like it does here, it's no wonder we're having wave election after wave election of discontentment.

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In the aftermath of the electoral blowout, a reminder: the Great Recession isn't over. In fact, GDP growth was slower in 2013 than in 2012. Let's go to the FRED data:

There's dotted lines added at the end of 2012 to give you a sense that throughout 2013 the economy didn't speed up. Even though we were another year into the "recovery" GDP growth slowed down a bit.

There's a lot of reasons people haven't discussed it this way. I saw a lot of people using year-over-year GDP growth for 2013, proclaiming it a major success. A problem with using that method for a single point is that it's very sensitive to what is happening around the end points, and indeed the quarter before and after that data point featured negative or near zero growth. Averaging it out (or even doing year-over-year on a longer scale) shows a much worse story. Also much of the celebrated convergence between the two years was really the BEA finding more austerity in 2012. (I added a line going back to 2011 to show that the overall growth rate has been lower since then. According to David Beckworth, this is the point when fiscal tightening began.)

Other people were hoping that the Evans Rule and open-ended purchases could stabilize "expectations" of inflation regardless of underlying changes in economic activity (I was one of them), a process that didn't happen. And yet others knew the sequestration was put into place and was unlikely to be moved, so might as well make lemonade out of the austerity.

And that's overall growth. Wages are even uglier. (Note in an election meant to repudiate liberalism, minimum wage hikes passed with flying colors.) The Federal Reserve's Survey of Consumer Finances is not a bomb-throwing document, but it's hard not to read class war into their latest one. From 2010 to 2013, a year after the Recession ended until last year, median incomes fell:

When 45 percent of the electorate puts the economy as the top issue in exit polls, and the economy performs like it does here, it's no wonder we're having wave election after wave election of discontentment.

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Daily Digest - October 31: Proof That Big Telecoms Are Slowing Your Internet

Oct 31, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Cliff and the Slope (Medium)

Roosevelt Institute Fellow Susan Crawford breaks down a new study explaining how Internet service providers' fights with Netflix have caused major connectivity problems for unrelated users.

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Cliff and the Slope (Medium)

Roosevelt Institute Fellow Susan Crawford breaks down a new study explaining how Internet service providers' fights with Netflix have caused major connectivity problems for unrelated users.

Janet Yellen’s Remarks Trigger Inequality Debate (MSNBC)

Ned Resnikoff looks at discussions that have followed the Federal Reserve Chair's recent comments on inequality, referencing Roosevelt Institute Fellow Mike Konczal.

Yes, the Federal Reserve is Politicized — and That's a Good Thing (The Week)

Ryan Cooper says the Fed ignoring inequality would be political too – favoring the wealthy. He quotes Roosevelt Institute Chief Economist Joseph Stiglitz and Mike Konczal on the links between inequality and monetary policy.

Economic Lessons Not Learned (NYT)

Teresa Tritch says that major role of increased defense spending in last quarter's economic growth should serve as a reminder of the importance of government spending.

New on Next New Deal

Did the Federal Reserve Do QE Backwards?

Roosevelt Institute Fellow Mike Konczal suggests that if the Federal Reserve had set a price for long-term securities instead of buying a quantity, its goals would have been clearer and easier achieved.

Election 2014: Women's Rights in the Balance

In her series on the close-call races that could have major impact on women, Roosevelt Institute Fellow Andrea Flynn has looked at Wisconsin, Colorado, and Florida, with more to come today.

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Did the Federal Reserve Do QE Backwards?

Oct 30, 2014Mike Konczal

QE3 is over. Economists will debate the significance of it for some time to come. What sticks out to me now is that it might have been entirely backwards: what if the Fed had set the price instead of the quantity?

To put this in context for those who don’t know the background, let’s talk about carbon cooking the planet. Going back to Weitzman in the 1970s (nice summary by E. Glen Weyl), economists have focused on the relative tradeoff of price versus quantity regulations. We could regulate carbon by changing the price, say through carbon taxes. We could also regulate it by changing the quantity, say by capping the amount of carbon in the air. In theory, these two choices have identical outcomes. But, of course, they don't. It depends on the risk involved in slight deviations from the goal. If carbon above a certain level is very costly to society, then it’s better to target the quantity rather than the price, hence setting a cap on carbon (and trading it) rather than just taxing it.

This same debate on the tradeoff between price and quantity intervention is relevant for monetary policy, too. And here, I fear the Federal Reserve targeted the wrong one.

Starting in December 2012, the Federal Reserve started buying $45 billion a month of long-term Treasuries. Part of the reason was to push down the interest rates on those Treasuries and boost the economy.

But what if the Fed had done that backwards? What if it had picked a price for long-term securities, and then figured out how much it would have to buy to get there? Then it would have said, “we aim to set the 10-year Treasury rate at 1.5 percent for the rest of the year” instead of “we will buy $45 billion a month of long-term Treasuries.”

This is what the Fed does with short-term interest rates. Taking a random example from 2006, it doesn’t say, “we’ll sell an extra amount in order to raise the interest rate.” Instead, it just declares, “the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5-1/2 percent.” It announces the price.

Remember, the Federal Reserve also did QE with mortgage-backed securities, buying $40 billion a month in order to bring down the mortgage rate. But what if it just set the mortgage rate? That’s what Joseph Gagnon of the Peterson Institute (who also helped execute the first QE), argued for in September 2012, when he wrote, “the Fed should promise to hold the prime mortgage rate below 3 percent for at least 12 months. It can do this by unlimited purchases of agency mortgage-backed securities.” (He reiterated that argument to me in 2013.) Set the price, and then commit to unlimited purchases. That’s good advice, and we could have done it with Treasuries as well.

What difference would this have made? The first is that it would be far easier to understand what the Federal Reserve was trying to do over time. What was the deal with the tapering? I’ve read a lot of commentary about it, but I still don’t really know. Do stocks matter, or flows? I’m reading a lot of guesswork. But if the Federal Reserve were to target specific long-term interest rates, it would be absolutely clear what they were communicating at each moment.

The second is that it might have been easier. People hear “trillions of dollars” and think of deficits instead of asset swaps; focusing on rates might have made it possible for people to be less worried about QE. The actual volume of purchases might also have been lower, because the markets are unlikely to go against the Fed on these issues.

And the third is that if low interest rates are the new normal, through secular stagnation or otherwise, these tools will need to be formalized. We should look to avoid the herky-jerky nature of Federal Reserve policy in the past several years, and we can do this by looking to the past.

Policy used to be conducted this way. Providing evidence that there’s been a great loss of knowledge in macroeconomics, JW Mason recently wrote up this great 1955 article by Alvin Hansen (of secular stagnation fame), in which Hansen takes it for granted that economists believe intervention along the entirety of the rate structure is appropriate action.

He even finds Keynes arguing along these lines in The General Theory: “Perhaps a complex offer by the central bank to buy and sell at stated prices gilt-edged bonds of all maturities, in place of the single bank rate for short-term bills, is the most important practical improvement which can be made in the technique of monetary management.”

The normal economic argument against this is that all the action can be done with the short-rate. But, of course, that is precisely the problem at the zero lower bound and in a period of persistent low interest rates.

Sadly for everyone who imagines a non-political Federal Reserve, the real argument is political. And it’s political in two ways. The first is that the Federal Reserve would be accused of planning the economy by setting long-term interest rates. So it essentially has to sneak around this argument by adjusting quantities. But, in a technical sense, they are the same policy. One is just opaque, which gives political cover but is harder for the market to understand.

And the second political dimension is that if the Federal Reserve acknowledges the power it has over interest rates, it also owns the recession in a very obvious way.

This has always been a tension. As Greta R. Krippner found in her excellent Capitalizing on Crisis, in 1982 Frank Morris of the Boston Fed argued against ending their disaster tour with monetarism by saying, "I think it would be a big mistake to acknowledge that we were willing to peg interest rates again. The presence of an [M1] target has sheltered the central bank from a direct sense of responsibility for interest rates." His view was that the Fed could avoid ownership of the economy if it only just adjusted quantities.

But the Federal Reserve did have ownership then, as it does now. It has tools it can use, and will need to use again. It’s important for it to use the right tools going forward.

Follow or contact the Rortybomb blog:
 
  

 

QE3 is over. Economists will debate the significance of it for some time to come. What sticks out to me now is that it might have been entirely backwards: what if the Fed had set the price instead of the quantity?

To put this in context for those who don’t know the background, let’s talk about carbon cooking the planet. Going back to Weitzman in the 1970s (nice summary by E. Glen Weyl), economists have focused on the relative tradeoff of price versus quantity regulations. We could regulate carbon by changing the price, say through carbon taxes. We could also regulate it by changing the quantity, say by capping the amount of carbon in the air. In theory, these two choices have identical outcomes. But, of course, they don't. It depends on the risk involved in slight deviations from the goal. If carbon above a certain level is very costly to society, then it’s better to target the quantity rather than the price, hence setting a cap on carbon (and trading it) rather than just taxing it.

This same debate on the tradeoff between price and quantity intervention is relevant for monetary policy, too. And here, I fear the Federal Reserve targeted the wrong one.

Starting in December 2012, the Federal Reserve started buying $45 billion a month of long-term Treasuries. Part of the reason was to push down the interest rates on those Treasuries and boost the economy.

But what if the Fed had done that backwards? What if it had picked a price for long-term securities, and then figured out how much it would have to buy to get there? Then it would have said, “we aim to set the 10-year Treasury rate at 1.5 percent for the rest of the year” instead of “we will buy $45 billion a month of long-term Treasuries.”

This is what the Fed does with short-term interest rates. Taking a random example from 2006, it doesn’t say, “we’ll sell an extra amount in order to raise the interest rate.” Instead, it just declares, “the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 5-1/2 percent.” It announces the price.

Remember, the Federal Reserve also did QE with mortgage-backed securities, buying $40 billion a month in order to bring down the mortgage rate. But what if it just set the mortgage rate? That’s what Joseph Gagnon of the Peterson Institute (who also helped execute the first QE), argued for in September 2012, when he wrote, “the Fed should promise to hold the prime mortgage rate below 3 percent for at least 12 months. It can do this by unlimited purchases of agency mortgage-backed securities.” (He reiterated that argument to me in 2013.) Set the price, and then commit to unlimited purchases. That’s good advice, and we could have done it with Treasuries as well.

What difference would this have made? The first is that it would be far easier to understand what the Federal Reserve was trying to do over time. What was the deal with the tapering? I’ve read a lot of commentary about it, but I still don’t really know. Do stocks matter, or flows? I’m reading a lot of guesswork. But if the Federal Reserve were to target specific long-term interest rates, it would be absolutely clear what they were communicating at each moment.

The second is that it might have been easier. People hear “trillions of dollars” and think of deficits instead of asset swaps; focusing on rates might have made it possible for people to be less worried about QE. The actual volume of purchases might also have been lower, because the markets are unlikely to go against the Fed on these issues.

And the third is that if low interest rates are the new normal, through secular stagnation or otherwise, these tools will need to be formalized. We should look to avoid the herky-jerky nature of Federal Reserve policy in the past several years, and we can do this by looking to the past.

Policy used to be conducted this way. Providing evidence that there’s been a great loss of knowledge in macroeconomics, JW Mason recently wrote up this great 1955 article by Alvin Hansen (of secular stagnation fame), in which Hansen takes it for granted that economists believe intervention along the entirety of the rate structure is appropriate action.

He even finds Keynes arguing along these lines in The General Theory: “Perhaps a complex offer by the central bank to buy and sell at stated prices gilt-edged bonds of all maturities, in place of the single bank rate for short-term bills, is the most important practical improvement which can be made in the technique of monetary management.”

The normal economic argument against this is that all the action can be done with the short-rate. But, of course, that is precisely the problem at the zero lower bound and in a period of persistent low interest rates.

Sadly for everyone who imagines a non-political Federal Reserve, the real argument is political. And it’s political in two ways. The first is that the Federal Reserve would be accused of planning the economy by setting long-term interest rates. So it essentially has to sneak around this argument by adjusting quantities. But, in a technical sense, they are the same policy. One is just opaque, which gives political cover but is harder for the market to understand.

And the second political dimension is that if the Federal Reserve acknowledges the power it has over interest rates, it also owns the recession in a very obvious way.

This has always been a tension. As Greta R. Krippner found in her excellent Capitalizing on Crisis, in 1982 Frank Morris of the Boston Fed argued against ending their disaster tour with monetarism by saying, "I think it would be a big mistake to acknowledge that we were willing to peg interest rates again. The presence of an [M1] target has sheltered the central bank from a direct sense of responsibility for interest rates." His view was that the Fed could avoid ownership of the economy if it only just adjusted quantities.

But the Federal Reserve did have ownership then, as it does now. It has tools it can use, and will need to use again. It’s important for it to use the right tools going forward.

Follow or contact the Rortybomb blog:
 
  

 

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Daily Digest - October 29: We Need Better Internet Access to Reduce Inequality

Oct 29, 2014Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Digital Divide Exacerbates U.S. Inequality (Financial Times)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Digital Divide Exacerbates U.S. Inequality (Financial Times)

David Crow quotes Roosevelt Institute Fellow Susan Crawford on how the digital divide contributes to inequality in light of new data on broadband access throughout the country.

High-income Households Pay a Large Share of US Taxes—But This Doesn’t Make Our Tax System Progressive (Working Economics)

Joshua Smith draws on a recent blog post by Roosevelt Institute Fellow Mike Konczal to consider what we call a progressive tax system, and whether it lives up to its billing.

Lobbyists, Bearing Gifts, Pursue Attorneys General (NYT)

Eric Lipton investigates corporations' extensive lobbying of attorneys general throughout the country. In many cases, the lobbyists represent corporations under investigation.

Fed Set to End QE3, But Not the QE Concept (WSJ)

Pedro da Costa says that the Federal Reserve is almost certain to end the current bond-buying program, but this last resort option will remain in the policy tool kit.

Students Pressure Harvard Over Safety at a University-Owned Hotel (Bloomberg Businessweek)

Student protests at Harvard support workers' attempts to unionize, reports Natalie Kitroeff. The hotel reported 75 percent more on-the-job injuries than the statewide average last year.

New on Next New Deal

It's Essential the Federal Reserve Discusses Inequality

Roosevelt Institute Fellow Mike Konczal responds to right-wing critics who say Janet Yellen shouldn't talk about inequality, offering five reasons why it's actually integral to the monetary policy debate.

California Community Colleges Building the Workforce of Tomorrow

Rachel Kanakaole, head of the San Bernadino Valley Community College chapter of the Campus Network, examines a new program offering career-focused bachelor's degrees at campuses like hers.

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It's Essential the Federal Reserve Discusses Inequality

Oct 28, 2014Mike Konczal

Janet Yellen gave a reasonable speech on inequality last week, and she barely managed to finish it before the right-wing went nuts.

It’s attracted the standard set of overall criticisms, like people asserting that low rates give banks increasingly “wide spreads” on lending -- a claim made with no evidence, and without addressing that spreads might have fallen overall. One notes that Bernanke has also given similar inequality speeches (though the right also went off the deep end when it came to Bernanke), and Jonathan Chait notes how aggressive Greenspan was with discussing controversial policies to crickets on the right.

But I also just saw that Michael Strain has written a column arguing that by even “by focusing on income inequality [Yellen] has waded into politically choppy waters.” Putting the specifics of the speech to the side, it’s simply impossible to talk about the efficacy of monetary policy and full employment during the Great Recession without discussing inequality, or discussing economic issues where inequality is in the background.

Here are five inequality-related issues off the top of my head that are important in monetary policy and full employment. The arguments may or not be convincing (I’m not sure where I stand on some), but to rule these topics entirely out of bounds will just lead to a worse understanding of what the Federal Reserve needs to do.

The Not-Rich. The material conditions of the poorest and everyday Americans are an essential part of any story of inequality. If the poor are doing great, do we really care if the rich are doing even better? Yet in this recession everyday Americans are doing terribly, and it has macroeconomic consequences.

Between the end of the recession in 2009 and 2013, median wages fell an additional 5 percent. One element of monetary policy is changing the relative interest in saving, yet according to recent work by Zucman and Saez, 90 percent of Americans aren’t able to save any money right now. If that is the case, it’s that much harder to make monetary policy work.

Indeed, one effect of committing to low rates in the future is making it more attractive to invest where debt servicing is difficult. For example, through things like subprime auto loans, which are booming (and unregulated under Dodd-Frank because of auto-dealership Republicans). Meanwhile, policy tools that we know flatten low-end inequality between the 10 and 50 percentile -- like the minimum wage, which has fallen in value -- could potentially boost aggregate demand.

Expectations. The most influential theories about how monetary policy can work when we are at the zero lower bound, as we’ve been for the past several years, involve “expectations” of future inflation and wage growth.

One problem with changing people’s expectations of the future is that those expectations are closely linked to their experiences of the past. And if people’s strong expectations of the future are low or zero nominal growth in incomes because everything around them screams inequality, because income growth and inflation rates have been falling for decades, strongly worded statements and press releases from Janet Yellen are going to have less effect.

The Rich. The debate around secular stagnation is ongoing. Here’s the Vox explainer. Larry Summers recently argued that the term emphasizes “the difficulty of maintaining sufficient demand to permit normal levels of output.” Why is this so difficult? “[R]ising inequality, lower capital costs, slowing population growth, foreign reserve accumulation, and greater costs of financial intermediation." There’s no sense in which you can try to understand the persistence of low interest rates and their effect on the recovery without considering growing inequality across the Western world.

Who Does the Economy Work For? To understand how well changes in the interest-sensitive components of investment might work, a major monetary channel, you need to have some idea of how the economy is evolving. And stories about how the economy works now are going to be tied to stories about inequality.

The Roosevelt Institute will have some exciting work by JW Mason on this soon, but if the economy is increasingly built around disgorging the cash to shareholders, we should question how this helps or impedes full output. What if low rates cause, say, the Olive Garden to focus less on building, investing, and hiring, and more on reworking its corporate structure so it can rent its buildings back from another corporate entity? Both are in theory interest-sensitive, but the first brings us closer to full output, and the second merely slices the pie a different way in order to give more to capital owners.

Alternatively, if you believe (dubious) stories about how the economy is experiencing trouble as a result of major shifts brought about by technology and low skills, then we have a different story about inequality and the weak recovery.

Inequality in Political and Market Power. We should also consider the political and economic power of industry, especially the financial sector. Regulations are an important component to keeping worries about financial instability in check, but a powerful financial sector makes regulations useless.

But let’s look at another issue: monetary policy’s influence on underwater mortgage financing, a major demand booster in the wake of a housing collapse. As the Federal Reserve Bank of New York found, the spread between primary and secondary rates increased during the Great Recession, especially into 2012 as HARP was revamped and more aggressive zero-bound policies were adopted. The Fed is, obviously, cautious about claiming pricing power from the banks, but it does look like the market power of finance was able to capture lower rates and keep demand lower than it needed to be. The share of the top 0.1 percent of earners working in finance doubled during the past 30 years, and it’s hard not to see that not being related to displays of market and political power like this.

These ideas haven’t had their tires kicked. This is a blog, after all. (As I noted, I’m not even sure if I find them all convincing.) They need to be modeled, debated, given some empirical handles, and so forth. But they are all stories that need to be addressed, and it’s impossible to do any of that if there’s massive outrage at even the suggestion that inequality matters.

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Janet Yellen gave a reasonable speech on inequality last week, and she barely managed to finish it before the right-wing went nuts.

It’s attracted the standard set of overall criticisms, like people asserting that low rates give banks increasingly “wide spreads” on lending -- a claim made with no evidence, and without addressing that spreads might have fallen overall. One notes that Bernanke has also given similar inequality speeches (though the right also went off the deep end when it came to Bernanke), and Jonathan Chait notes how aggressive Greenspan was with discussing controversial policies to crickets on the right.

But I also just saw that Michael Strain has written a column arguing that by even “by focusing on income inequality [Yellen] has waded into politically choppy waters.” Putting the specifics of the speech to the side, it’s simply impossible to talk about the efficacy of monetary policy and full employment during the Great Recession without discussing inequality, or discussing economic issues where inequality is in the background.

Here are five inequality-related issues off the top of my head that are important in monetary policy and full employment. The arguments may or not be convincing (I’m not sure where I stand on some), but to rule these topics entirely out of bounds will just lead to a worse understanding of what the Federal Reserve needs to do.

The Not-Rich. The material conditions of the poorest and everyday Americans are an essential part of any story of inequality. If the poor are doing great, do we really care if the rich are doing even better? Yet in this recession everyday Americans are doing terribly, and it has macroeconomic consequences.

Between the end of the recession in 2009 and 2013, median wages fell an additional 5 percent. One element of monetary policy is changing the relative interest in saving, yet according to recent work by Zucman and Saez, 90 percent of Americans aren’t able to save any money right now. If that is the case, it’s that much harder to make monetary policy work.

Indeed, one effect of committing to low rates in the future is making it more attractive to invest where debt servicing is difficult. For example, through things like subprime auto loans, which are booming (and unregulated under Dodd-Frank because of auto-dealership Republicans). Meanwhile, policy tools that we know flatten low-end inequality between the 10 and 50 percentile -- like the minimum wage, which has fallen in value -- could potentially boost aggregate demand.

Expectations. The most influential theories about how monetary policy can work when we are at the zero lower bound, as we’ve been for the past several years, involve “expectations” of future inflation and wage growth.

One problem with changing people’s expectations of the future is that those expectations are closely linked to their experiences of the past. And if people’s strong expectations of the future are low or zero nominal growth in incomes because everything around them screams inequality, because income growth and inflation rates have been falling for decades, strongly worded statements and press releases from Janet Yellen are going to have less effect.

The Rich. The debate around secular stagnation is ongoing. Here’s the Vox explainer. Larry Summers recently argued that the term emphasizes “the difficulty of maintaining sufficient demand to permit normal levels of output.” Why is this so difficult? “[R]ising inequality, lower capital costs, slowing population growth, foreign reserve accumulation, and greater costs of financial intermediation." There’s no sense in which you can try to understand the persistence of low interest rates and their effect on the recovery without considering growing inequality across the Western world.

Who Does the Economy Work For? To understand how well changes in the interest-sensitive components of investment might work, a major monetary channel, you need to have some idea of how the economy is evolving. And stories about how the economy works now are going to be tied to stories about inequality.

The Roosevelt Institute will have some exciting work by JW Mason on this soon, but if the economy is increasingly built around disgorging the cash to shareholders, we should question how this helps or impedes full output. What if low rates cause, say, the Olive Garden to focus less on building, investing, and hiring, and more on reworking its corporate structure so it can rent its buildings back from another corporate entity? Both are in theory interest-sensitive, but the first brings us closer to full output, and the second merely slices the pie a different way in order to give more to capital owners.

Alternatively, if you believe (dubious) stories about how the economy is experiencing trouble as a result of major shifts brought about by technology and low skills, then we have a different story about inequality and the weak recovery.

Inequality in Political and Market Power. We should also consider the political and economic power of industry, especially the financial sector. Regulations are an important component to keeping worries about financial instability in check, but a powerful financial sector makes regulations useless.

But let’s look at another issue: monetary policy’s influence on underwater mortgage financing, a major demand booster in the wake of a housing collapse. As the Federal Reserve Bank of New York found, the spread between primary and secondary rates increased during the Great Recession, especially into 2012 as HARP was revamped and more aggressive zero-bound policies were adopted. The Fed is, obviously, cautious about claiming pricing power from the banks, but it does look like the market power of finance was able to capture lower rates and keep demand lower than it needed to be. The share of the top 0.1 percent of earners working in finance doubled during the past 30 years, and it’s hard not to see that not being related to displays of market and political power like this.

These ideas haven’t had their tires kicked. This is a blog, after all. (As I noted, I’m not even sure if I find them all convincing.) They need to be modeled, debated, given some empirical handles, and so forth. But they are all stories that need to be addressed, and it’s impossible to do any of that if there’s massive outrage at even the suggestion that inequality matters.

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Daily Digest - October 28: The Fed's Top Priority Should Be Wages, Not Inflation

Oct 28, 2014Rachel Goldfarb

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Fed Can Influence Banks to Spread Opportunity (NYT)

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Fed Can Influence Banks to Spread Opportunity (NYT)

Roosevelt Institute Chief Economist Joseph Stiglitz writes that the Federal Reserve should hold back on interest rate increases until wage growth has made up for workers' recession losses.

How 'Flexible' Schedules Have Become a Trap for Working Parents (Vox)

Roosevelt Institute Fellow Andrea Flynn and Elizabeth Weingarten explain how erratic scheduling practices prevent the financial stability working parents need.

What's a 'Living Wage' in Wisconsin? (Bloomberg Businessweek)

Because Wisconsin's minimum wage law says it should also be a living wage, a group of low-wage workers are suing to have it raised, reports Josh Eidelson.

The Other Side of the Growing Disconnect Between Where You Live and Work (Pacific Standard)

Jim Russell looks at an example of a company bringing in lower-paid workers from other countries to explain how global wages hurt people's ability to pay rent in expensive cities.

Efforts to Regulate CEO Pay Gain Traction (Boston Globe)

Katie Johnston looks at some state-level efforts, including a Massachusetts initiative to fine hospitals that pay executives more than 100 times their lowest-paid employees.

How a Divided Senate Could Threaten Social Security (The Nation)

John Nichols says that if the independents running for Senate were to emphasize ending gridlock above all else, their compromises could cause unacceptable harm.

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Daily Digest - September 30: Incarceration Keeps Growing, No Matter the Cost

Sep 30, 2014Rachel Goldfarb

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The Score: Why Prisons Thrive Even When Budgets Shrink (The Nation)

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The Score: Why Prisons Thrive Even When Budgets Shrink (The Nation)

Roosevelt Institute Fellow Mike Konczal and Bryce Covert look at the growth of incarceration even in times when presidents preach against "big government," which the prison system certainly is.

Europe’s Austerity Zombies (Project Syndicate)

Roosevelt Institute Chief Economist Joseph Stiglitz says that European countries' continued push for austerity, which isn't fixing their economies, is tragic in light of the people who suffer without work.

Revisiting the Lehman Brothers Bailout That Never Was (NYT)

James B. Stewart and Peter Eavis report on previously unknown analysis from the New York Federal Reserve suggesting that the Fed could bail out Lehman Brothers. The analysis never reached top officials.

It’s the Inequality, Stupid (In These Times)

Emphasizing inequality is the best chance that Democrats have of engaging working-class voters who swing elections, writes David Moberg.

New York Mayor de Blasio Plans Expansion of Living Wage (Reuters)

De Blasio plans to sign an executive order that will expand the law to cover an additional 18,000 jobs and increase the living wage to $13.13 for workers without benefits, writes Alex Dobuzinskis.

California Pension Fund Gives the Boot to Hedge Funds (AJAM)

Dean Baker praises California's public pension fund for ending investments in hedge funds, which charge high fees. He says that funds should make the contracts that lay out these fees public.

Killing the "Nuclear Option" Will Not Save the Senate. It Will Ruin Obama's Final Two Years. (TNR)

When Senate Republicans say that they want to revoke the Democrats' "nuclear option," which eliminated filibusters on presidential appointments, they're planning a blockade, writes Brian Beutler.

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Daily Digest - September 18: The Hashtag of Democracy

Sep 18, 2014Rachel Goldfarb

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From #Ferguson to #OfficerFriendly (Bloomberg View)

Roosevelt Institute Fellow Susan Crawford explains what the New York Police Department will need to do in order to make its new social media initiatives successful.

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From #Ferguson to #OfficerFriendly (Bloomberg View)

Roosevelt Institute Fellow Susan Crawford explains what the New York Police Department will need to do in order to make its new social media initiatives successful.

Census Report Shows Rise in Full-Time Work, Undercutting Claims by Health Reform Opponents (Off the Charts)

Paul N. Van de Water says the Census Bureau report proves that the Affordable Care Act isn't leading to a large increase in part-time work. In fact, part-time work has decreased.

Fed Signals No Hurry to Raise Interest Rates (NYT)

Binyamin Appelbaum reports on the Federal Reserve's latest policy statement, which affirms the necessity of continued stimulus in the form of near-zero short-term interest rates.

What Cutting Jobless Benefits Wrought (U.S. News & World Report)

Pat Garofalo points to the cutting of federal extended unemployment benefits as one of the sources of our continually too-high poverty rate.

The Occupy Movement Takes on Student Debt (New Yorker)

Rolling Jubilee, which buys up debt and cancels it, may be among the Occupy movement's biggest successes, writes Vauhini Vara, but its real hope is for debtors to organize.

Meet the Domestic Worker Organizer Who Won the 'Genius' Grant (Bloomberg Businessweek)

Josh Eidelson profiles Ai-jen Poo, director of the National Domestic Workers Alliance, who plans to use her MacArthur "Genius Grant" to endow an organizing fellowship for domestic workers.

Want to Live in a State with No Income Tax? Make Sure You're Super Rich First (The Guardian)

Siri Srinivas looks at a new report on state-level taxes, which shows that most Americans think fair taxes should be progressive by nature, emphasizing income and property taxes over sales tax.

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