Category Archives: The Economy

Inequality 4.

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By and large, in recent years the upper income groups have collected most of the profits from economic growth while everyone else has lived with stagnant incomes. How much effect in monetary terms has that monopolization of growth had? According to one calculation, if the top one-percent still received the same share of income that they received in 1979, then every other family could have received a cheque for $7,105.[1]

However, compare this with another form of inequality. If incomes have stagnated for most people, so has educational attainment.          In 1900, about 11 percent of Americans aged 14 to 17 attended high school. By 1950, 75 percent of that age group attended high school. That was about double the European rate. The G.I. Bill (1944) carried the American lead forward into college education by financing college education for veterans (among other things). Then something started to go wrong in the 1970s. Male graduation rates for four-year colleges began to decline. Essentially, women have taken up the slack in educational attainment. Unfortunately, this coincided with the decline in heavy industry that paid good wages for people without a college education.

The educational differential both is and isn’t generational. Of Americans born between 1950 and 1959, 42 percent have a college degree. Of Americans born between 1980 and 1989, 44 percent have a college degree. However, only 30 percent of Americans reach a higher level of education than did their parents. Among 25-34 year-olds, 20 percent of men and 27 percent of women have made the big jump from parents who didn’t finish high school to having a college degree.

The differential is linked to social class. From the mid-1970s and the mid-1990s, college graduation rates for those in the top 25 percent of income groups rose from 36 percent to 54 percent; rates for those in the bottom 25 percent rose only from 5 percent to 9 percent. Between the early 1980s and the early 2000s, college attendance rates for people from the top 25 percent of income groups rose to be 15 to 25 percent higher than for those in the bottom 25 percent.

Why do these figures matter? They matter because, on average, Americans with a college degree are paid 74 percent more than those with only a high school degree. Between 1979 and 2012, the difference between the incomes of families headed by college graduates and families headed by high-school graduates grew by $30,000.

Education isn’t working as a vehicle for social mobility. It is starting to do the opposite.

The causes of this stagnation are complex. For one thing, middle class students go to much better schools than do lower class students. The middle class students come out less unprepared for college than do lower class students, usually markedly less unprepared. For another thing, college costs more in the United States than it does most places, and cuts in already inadequate support for public colleges have thrown even more of a burden on families.

If you think that a BA or more makes for a highly skilled work force, then expanding the percentage of Americans who are college graduates is vital for improving the quality of the American work force. If you think that international competitiveness in a globalized economy is vital for American prosperity, then improving the quality of the American labor force is essential.

Which of these two forms of inequality is worse for the country? This isn’t an attempt to divert attention from one form of inequality on behalf of the “one-percent.” It is an effort to get people to pay attention to complex fundamental problems.

[1] Eduardo Porter, “”Equation Is Simple: Education = Income,” NYT, 11 September 2014.

Our Kids.

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A new book by the Harvard political scientist Robert D. Putnam has instantly attracted attention (and criticism from the left), so it will be much in the news for a while.[1] Combining research in the scholarly literature with many interviews, Putnam explores the disintegration of America into polarized communities of rich and poor that threaten to become hereditary castes.

Broadly, “rich” kids have parents who finished college; grow up in two-parent families; get a lot more attention from their parents while young; get better quality day-care when their mothers get fed up and go back to work; get dragged to church on Sunday[2]; attend better schools and have more access to developmental extra-curricular activities; eat dinner as a family; are much more likely than are “poor” kids to graduate from college (and to attend better colleges at that).

Broadly, “poor” kids have parents who went no farther than high school; “are increasingly entering the world as an unplanned surprise”; grow up in increasing numbers in broken homes; get about a third less time from their parent; get lower quality day care when their stressed-out mothers have to go back to work; skip church in favor of watching cartoons; don’t eat dinner as a family; are much less likely to attend college (and to attend lesser colleges when they go).

Jason DeParle concludes that Putnam’s “research is prodigious. His spirit is generous. His judgments are thoughtful and fair.”[3] Nevertheless, Putnam’s approach frustrates DeParle. “What [Putnam] omits… is a discussion of the political and economic forces driving the changes he laments.” Doing what Putnam left undone, DeParle argues that income inequality has grown “radically”; that the wealthy exert great influence in politics in defense of their interests; that inequality “gives those at the top [the power] to pull up the ladder”; and that Putnam “overlooks the extent to which it’s … a story about interests and power.” How can it be that, “though Putnam is a political scientist, his account is politics-free”? Doesn’t Putnam read the Times, where all of these things are high-lighted?

What DeParle fails to acknowledge is that some element of success or failure is volitional or behavioral. People drop out of high-school or out of community college; people don’t use contraceptives[4]; and people reject the life structures pursued by the successful. How is more progressive taxation or broader government programs going to counter these behaviors?

Tellingly (but perhaps without having thought through the implications), DeParle remarks that “for most [of the poor kids] the troubles seem to date back generations.” That is, long before economic inequality became a grave issue. Probably the same is true for most of the rich kids: the advantages date back generations.

Perhaps we need to ask follow-on questions. What changed to make long-standing individual failings and family dysfunction into a social disaster? What changed to make conventional bourgeois behavior into such a life advantage? Here we might look for answers in the long-term evolution of the American economy away from heavy industry and toward an economy that disproportionately rewards education. We might also look at the white flight from cities in response to both disorder and integration. Or we can stick with conspiracy theories.

[1] Robert D. Putnam, Our Kids: The American Dream in Crisis (New York: Simon and Schuster, 2015).

[2] Or to synagogue on Saturday, or to the mosque on Friday. Faith doesn’t matter. Apparently what matters is making your kids endure difficulty.

[3] Jason DeParle, “No Way Up,” NYT Book Review, 8 March 2015.

[4] $19.99 for a pack of 20 Durex at Walgreen, so don’t start with the cost of birth-control pills.

Reponomics.

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To be fair (See: Demonomics), Josh Barro has savaged Republican tax plans in two recent “Upshot” pieces in recent days.[1] Since the Reagan years Republicans have been in thrall to “Supply Side Economics.” The doctrine behind tax cuts for high-income earners is that the untaxed income will flow to investment; investment leads to economic growth; and America needs both investment and growth. Democrats ridicule this as “trickle-down economics.”[2] Now, however, another school of thought has arisen among some Republican dissidents. They favor cutting taxes on the middle class. For example, some pushed for a substantial tax credit–$2,500—for each child long before President Obama discovered “middle class economics.” They also wanted to leave the top tax rate at 35 percent, and not cut the tax on capital gains.

Some Republican leaders have sought to paper over this feud by suggesting that both types of tax cuts be implemented. Not only would middle-class earners get their tax cut, but the taxes on capital gains and on dividend income would be cut to zero. Furthermore, the plan would offer corporations the option of having their profits taxed as if they are wages (at a lower rate than corporate profits).

Barro lashes this as the “Puppies and Rainbows Tax Plan.” He argues that the combined plan would cost at least $2.4 trillion in lost revenue over a decade.[3] If the Republicans can add the White House to their control of the Congress, they will find themselves responsible for controlling the deficit. Hence, they will have to settle for much smaller tax cuts than they currently envision. Moreover, they may have to choose between giving little dribs and drabs to both types of cuts or getting something noticeable for one type of cut. Which will they choose?

Then Barro found himself crossed by a report from the Tax Foundation that concluded that the combined tax cuts would stimulate so much investment that GDP would rise 15 percent and wages 13 percent over a decade. A wide range of economists quickly derided the forecasts. Barro argues that Republicans like economic analyses that predict high benefits from tax cuts. This matters, because the Congressional Budget Office has just adopted “dynamic scoring”[4] in estimating the impact of different budget plans. He is clearly worried that nonsensical assumptions about growth will be deployed to justify big tax cuts.

Barro comes across as a Democratic partisan, but he’s not alone in seeing the flaws in these plans.[5] A House Republican plan to eliminate deficits within a decade would allow an expansion of military spending beyond the levels set by the “sequester” under the guise of emergency war funds. (President Obama plans the same maneuver.) It also cuts a trillion dollars from entitlement programs (Medicare and Medicaid, Social Security) without specifying how—what with 24 Republican Senators up for re-election in 2016. It assumes a trillion dollars in revenues from taxes levied as part of the Affordable Care Act (ACA) even while proposing to repeal the ACA. Puppies and rainbows indeed.

[1] Josh Barro, “Something for Everyone In a Republican Tax Plan,” NYT, 12 March 2015; Josh Barro, “Under This Plan, Tax Cuts Still don’t Pay for Themselves,” NYT, 17 March 2015.

[2] Republican presidential candidate George H.W. Bush ridiculed it as “voodoo economics.” Bush didn’t inspire much enthusiasm among Republicans. He ended up as Reagan’s Vice President and one-term heir as President.

[3] Barro is silent on the cost in revenue from President Obama having fought hard to make 98 percent of the George W. Bush administration tax cuts permanent. On this score, as on many others, it’s like living during the Cheney Administration.

[4] Basically, assuming that tax cuts or increases will affect the growth rate of the economy. D’uh. Obviously they do. However, the essential question becomes how accurate is the model used to predict the effect.

[5] Nick Timiraos and Kristina Peterson, “House GOP Outlines Plan to End Deficits,” WSJ, 18 March 2015.

Demonomics.

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“Liberalism” has always been about freeing people from restraints in order to achieve their full potential as human beings. In the 19th Century, that meant free speech, free markets, representative government, and an end to government regulations that favored protected interests. By the end of the 19th Century, American liberals recognized that their initial plans had failed to foresee the rise of powerful organizations (big business, big labor), the destructive power of prejudices, and inequality of opportunity. What we think of as modern liberalism emerged from this recognition as liberals sought to create a strong state that could hold in check and mediate between powerful organized interests. It then went beyond this mission to attack the racial prejudices and economic disabilities that held back people from reaching their potential. Subsequently, liberals went on to endorse “expressive liberalism” that allowed people to enunciate their core identity (such as being gay) or controversial opinions.

What are we to make of the definition of current liberalism tossed off by Nate Cohn in the New York Times? Cohn defines the Democratic Party’s mission as one of simply “expanding the safety net.”[1] Apparently, there is no philosophy behind this mission, beyond winning elections by spending far more money out of tax revenues than the Koch brothers have at their disposal. In the absence of such a philosophy, Democrats turned to raiding the program of “reform conservatism” for ideas. Health care insurance reform (“RomneyCare”), earned income tax credits, and college tax credits all began as ideas on the right, but were taken over by Democrats without ideas of their own.

Recent efforts to define an agenda for the future have undermined the unity of the party. On the one hand, the Party focused on easing the plight of the poor through the expansion of health insurance to the small minority of Americans who desired it, but could not afford it, and by trying to raise the minimum wage. On the other hand, liberal activists on the left wing of the party have pushed it to embrace causes which—however sensible in the eyes of reasonable people—clash with the interests or values of many Democrats: climate-change, gun control, and amnesty for illegal immigrants. As a result, Cohn remarks, the Democratic Party lacked a “coherent message for the middle class… in 2014 or even 2012.”

The emerging agenda of the Democrats focuses on what Cohn labels the “parent agenda”: In fact, it is best seen as part of response to the “great wage slowdown” of recent decades. Under the banner of fairness and promoting equality, the “parent agenda” will seek to redistribute resources from the wealthy to the middle class. In part this will be accomplished through the tax system: an expanded earned income tax credit (a transfer payment), child tax-credits, universal preschool, and universal precollege. In part it will be done by the state substituting for the decrepit union movement that cannot bargain for employees: paid family leave is the initial idea, but others are likely to follow. It will require higher taxes on upper income groups, The great advantage to the “parent agenda” is that it can be presented as providing opportunities, rather than as outright redistribution. It isn’t liberalism or even redistribution. It’s just retribution.

All this seems to represent an intellectual exhaustion on the part of the Democratic Party. Doubtless it would be thrown into an even more stark relief if not for the intellectual exhaustion of the Republican Party. The Republicans cling to tax cuts and “patriotism” (i.e. high defense spending by the many and military service by the few) in place of creating an “opportunity society” that might liberate those whom the Democrats have abandoned.

[1] Nate Cohn, “The Parent Agenda, The Democrats’ New Focus,” NYT, 10 February 2015.

 

The Struggle for More Workers.

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The world’s population currently is about 7.2 billion people. For many years apocalyptic visions inspired by Thomas Malthus haunted the sleep of demographers. Then, fertility rates in many high birth-rate countries began to decline. Current estimates now project that the world’s population will “peak” at about 9 billion people.[1]

However, that consensus has just come under attack. Many countries in South Asia and Africa continue to experience rapidly rising populations. The African fertility rate, in particular, has failed to follow the downward track projected from early statistics. Some population experts now believe that the population of the world may reach a population of 12.3 billion people by 2100.[2] Moreover, their populations are rising without the economic growth to be able to provide them with a decent standard of living. Back to Malthus on steroids.

Conversely, many other countries find themselves with a birthrate below the replacement level. The working age population of Japan began to decline about 1997. There is no sign that it will start to rise again anytime soon. That means a shrinking population of workers will have to support a growing population of retirees. Enhanced productivity can off-set this problem, but—at the moment—it isn’t. Japan’s trade balance has shift from running export surpluses to import surpluses. What’s true of Japan is or soon will be true of many other countries with low birthrates and high life expectancy. Chinese couples will have to juggle running or working in sweat-shops with caring for their aging parents as well as their own children. The Italians find themselves in an even worse boat than do the Chinese.

What’s the solution to this two-headed problem? If one approaches it from a strictly economic perspective, then one solution is to foster the migration of surplus population from Africa and South Asia to population deficient countries. Brilliant! The further triumph of the equilibrium model.[3] Why haven’t we done this already? There are two big stumbling blocks: the educational differences and the cultural differences.

The Educational problem is simply stated: poor countries have poor school systems, but the developed countries need educated workers. Some migrants will need more education.

The Cultural problem is simply stated: immigrant-receiving countries will want the newcomers to adapt swiftly to established culture, rather than to adapt themselves to a foreign culture. To avoid the sort of social problems that have overtaken Britain, France, and Germany, there would have to be some flexibility on both sides.

Is it worth thinking about “Aid to Potential Immigrants” stations abroad? ICE, the Department of Labor, and the Department of Education could maintain offices in places like India, Taiwan, Israel, the Philippines, and South Africa. They could both recruit and evaluate immigrants. Travel costs could be subsidized in whole or in part.

Is it worth thinking about the possible resistance from population-surplus countries? It’s not like someone is going to up-date Emma Lazarus: “Give us your aged, your stupid, your weak of will.” Advanced economies will be trying to cherry-pick the “best and the brightest” people from societies that are struggling to raise their own standard of living. What population-surplus countries prefer to do is to get rid of their problems. That doesn’t mean that things can’t work out. Look at Mariel. Look at Australia.

[1] Tyler Cowan, “Rebalancing the Population Scales,” NYT, 9 November 2014.

[2] I’ll be long dead by then, so you deal with it.

[3] It’s a constant in human thought, like symmetry in ideals of Beauty and Justice. See: http://en.wikipedia.org/wiki/List_of_types_of_equilibrium

Climate of Fear XV.

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The “Lima Accord”: Almost 200 countries have agreed to burn less coal, oil, and gas.[1] By the end of March 2015 they will publish national plans to cut emissions after 2020 and will state what laws they will pass to achieve these goals.[2]

How will progress be judged? One solution, proposed by developed countries, would be to establish identical measurements for each country. This would allow easy comparisons between goals and achievements and between one country and another. Developing countries rejected this solution. In order to win the formal adherence of developing countries, the developed countries agreed to scrap the plan. However, economists in developed countries believe that it will be possible to find a way to synthesize disparate information. Countries that fall short of their goals will be identified. Todd Stern, a lead negotiator for the United States, put the best face on this that he could: “We see the sunlight as one of the most important parts of this [agreement].”[3]

How powerful is “peer pressure”? Peer pressure is all that will provide enforcement. The agreement includes neither specific targets nor any enforcement mechanism. It is, in effect, another executive agreement. Like other executive agreements, it is not binding beyond the end of President Obama’s term in office.[4] Countries that submit inadequate plans or which fail to meet their goals will be subjected to the withering moral condescension of foreigners.

The possibility exists that the United States will be one of those defaulters. President Obama’s policies already have the United States on-track toward a substantial reduction in emissions by 2025. Further regulations during his last two years in office can reduce emissions still more. Experts appear to doubt that the targets for 2025—a 28 percent reduction—can be brought within reach without Congressional action.

How have developing countries performed with regard to establishing worker-safety laws? This is another example of developing countries responding to pressure from developed countries—often operating through international organizations like the International Labor Office. Like emissions reduction, the worker safety laws work against existing strategies for international development. To take an extreme example, on 24 April 2013 a five story garment factory in Bangladesh collapsed.[5] The disaster killed 1,137 workers. Most were girls aged between 18 and 20 years. They had been working 12-14 hour shifts for 90-100 hours a week. They had been paid between 12 and 24 cents an hour. Most of the clothes they sewed were for export to developed countries. Naturally, this tragedy led to much international criticism.

Do “Name-and-Shame Campaigns”—peer pressure—work, either in domestic or international contexts? To take an extreme example, on 13 March 2015, a factory in Bangladesh collapsed. Fortunately, the building was still under construction and not full of people. At last report, four people had been killed, forty injured, and about one hundred were still missing.

So, the future is still a little cloudy.

[1] Coral Davenport, “A Climate Accord Based on Global Peer Pressure,” NYT, 15 December 2015.

[2] Countries that miss the 31 March deadlines will have until June to publish their plans. Countries that miss the June deadline will have until the next major climate conference in Paris in December 2015. Countries that miss the December deadline,…

[3] So, another step forward for solar power.

[4] However, since 1939, 94.3 % of all international agreements have been executive agreements, rather than treaties. Most appear to have been regarded as remaining valid after a change of government. See: Michael Crittenden and Byron Tau, “GOP Iran Letter Draws Obama Rebuke,” WSJ, 10 March 2015.

[5] See: http://www.globallabourrights.org/campaigns/factory-collapse-in-bangladesh

Red ink as far as the eye can see.

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The US government has been running deficits almost continuously since 1970.[1] So we’re used to them. Things even started to look like they were improving during the late 1990s. Hi-tech industries went through a rapid run-up in value. This produced a lot of extra tax revenue without anyone complaining about it. Bill Clinton left George W. Bush a budget surplus of $236 billion in 2001. By early in 2002 the government was back in deficit by $150 billion.[2]

What we’re not used to are the immense deficits of recent years: the 2009 deficit was $1.4 trillion, the 2010 deficit was $1.56 trillion.

Where did these gigantic deficits come from? They came from a combination of the Bush-era tax cuts with a massive expansion in government spending. Some of the spending could have been avoided: the Iraq war and the Medicare prescription drug benefit proposed by President Bush and passed by Congress in 2003. Some of the spending could not be avoided: enhanced national security after 9/11, the invasion of Afghanistan. However, the biggest source of the deficit is related to the 2007-2008 recession. On the one hand, tax revenues fell during the slow-down by $400 billion (17 percent of revenues). On the other hand, the government pumped money into the economy: $154 billion for the TARP under the Bush administration and $202 billion for the stimulus bill under the Obama administration. That is a total of $756 billion added to the deficit without even counting the lost revenue from years after 2007.

Things got better as the recession ended: government revenue rose while spending fell. Soon, things will get worse again. According to Congressional Budget Office (CBO) forecasts in January 2015, the deficit will start to rise in 2017 as the costs of Social Security, Medicare, and Medicaid increase.[3] The CBO projects that deficits will bottom-out at $467 billion in 2016. Then deficits are projected to rise: $486 billion in 2017; $953 billion in 2023; over a trillion dollars in 2025. The real burden of these rising deficits will depend on the growth of the economy. Here again, the CBO has bad news: projected growth rates for 2014-2018 are at 2.5%, while those for 2020-2025 will fall to 2.2%.

How large a share of the Gross Domestic Product (GDP) will be represented by the deficits? Between 2016 and 2025, Social Security will rise from 4.9% to 5.7% of GDP; health-care spending will rise from 5.3% to 6.2%; and paying the interest on the debt will rise from 1.5% to 3.0%. Discretionary spending—everything else—will fall from 9.2% to 7.4%.

Still, the absolute dollar amounts don’t matter. Ratios between debt and GDP do matter because it is the ability of the underlying economy to support the debt and maintain the credibility of the government’s ability to service the debt that makes deficits supportable. The 2009 deficit amounted to 10% of GDP and the total debt amounted to almost 100% of GDP.

Why does this matter? The government has to borrow the money from private lenders in order to cover a part of our national expenses. IF there is a fixed pool of private savings (capital) from which to borrow, then expanding government borrowing reduces the amount of capital that is available for all other borrowers. (Capital in-flows from the rest of a troubled world can off-set this in large measure–in the US.)  People investing in business or buying homes will compete with the government. The government can and will pay whatever interest rate it needs to in order to not go bankrupt. As a result, interest rates will go up and the total pool of capital available for private investment will go down. Capital is one of the factors of production determining the state of the economy. High interest rates slow down the economy.

[1] “Deficits as far as the eye can see,” The Week, 16 April 2010, p. 11.

[2] So the Bush tax cuts cost the United States Government about $400 billion a year in revenue.

[3] Jonathan Weissman, “Budget Forecast Sees End to Sharp Deficit Decline,” NYT, 27 January 2015.

Long Term Trends 2.

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Back in 1960, 72.2 percent of households included married couples; in 2012, 50.5 percent of households included married couples.[1] Actually, these stark-appearing numbers get a little blurry the nearer that you approach.[2] For one thing, divorce is partly responsible for the increasing number of households without a married couple. For another, there were 450,000 unmarried couples living together in 1960; there were 7.5 million in 2011. So, there are many marriages-in-all-but-name.

There appears to be some kind of reciprocal relationship between marriage and prosperity. Married people are better off financially, while people with early financial problems have trouble getting or staying married. Sharing living space and living costs allows couples to save a much higher share of their combined incomes than is possible for unmarried people. Couples often buy a house (a great investment) and save money for the education of their children. These savings compound over time.

We’re still left with a “chicken or egg” problem. Do serious people get married while frivolous people stay unmarried OR does getting married turn any bone-head into a solid citizen while economic barriers exclude willing candidates?

From one perspective, people are more or less consciously deciding to take a pass on a good thing. By one calculation, if the same share of families were married today as in 1980, “the growth in median incomes of families with children would be 44 percent higher.” In 1960 both the college educated and those with some college or less were about equally likely to marry. In 2011, 64 percent of college-educated Americans were married, while 48 percent with some college or less education were not married. Economists (other than Paul Krugman) have been explaining some of the growth in income-inequality by higher returns to more education. Thus, the decline in the marriage rate since 1970 might be taken as one of the many factors that explain the growth of income inequality.

From another perspective, however, economic difficulties for the less educated dissuade them from marriage. The decline of the old industrial base reduced the earning power of many men. At the same time, women’s liberation allowed many women to enter the labor force, often by means of a college education. As a result, marriage became less of a worthwhile investment for many women. Between 1970 and 2011 the chance that a woman in the bottom 65 percent of income earners would marry dropped by 20 percent.

So much for the fate of married couples. What about their children?[3] In 2013, 40 percent of babies were born outside of marriage. In 2014, 27 percent of children lived in fatherless homes. In one estimate, as of 2009, 35 percent of non-Hispanic white children and 41 percent of all children did not live with married parents.

If the unmarried and no-longer-married have less in the way of economic resources than do the married, then they will be less well-positioned to help their children succeed in many ways. They have less for band camp and football camp and ballet classes. They have less for books in the home and travel. They have less for college tuition assistance. They have less time and resources to shield their children from the negative effects of the culture or—in some cases—from the pull of the streets.

Is it possible for any government program or agency to substitute for a family?

[1] Andrew Yarrow, “Falling Marriage Rates Reveal Economic Fault Lines,” NYT, 8 February 2015.

[2] Kind of like a Chuck Close painting.

[3] Nicholas Eberstadt, “The Global Flight From the Family,” WSJ, 21-22 February 2015.

Long-Term Trends 1.

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The United States faces one long-term problem in how to support its existing entitlement programs (Social Security, Medicare/Medicaid) and other discretionary spending as the “Baby Boom” takes up the rocking chair. A growing economy will more easily support these programs without drastic tax increases or spending cuts. A second long-term problem is that the national debt accumulated by many years of deficit spending has reached 75 percent of Gross Domestic Product (GDP) and is primed to go higher. This alarms some people more than other people.

President Obama is committed to stabilizing the national debt as a share of GDP at around 73 percent of GDP between now and 2025. This will a lot easier with a growing economy than with a lame one. So, how to foster growth?

As the US economy emerges from the “Great Recession” its long-term future will be determined in part by the absolute number of workers employed and the productivity-per-worker.[1] According to some measures, the US economy is in trouble in these areas.

The “labor participation rate” (the share of the population in work or looking for work) However, between 1950 and 2000, the participation of men in the labor force fell from almost 90 percent to about 70 percent. Over the same period, women’s participation rose from about 30 percent to about 60 percent. Then over-all rate fell from 66 percent (2007) to 62.9 percent (2014). The conventional explanation is that the prolonged recession dumped people into despair. Still, it is worth considering a couple of other possible factors. For one thing, the recession also coincided with the early stages of the “baby boom” taking retirement. If so, then there is a limited chance of luring them back into the labor force. The Congressional Budget Office (CBO) projects a 62.0 percent participation rate by 2019. For another thing, the decline may reflect a cultural preference for parents to spend more time with young children in the absence of compelling incentives to try to work.

The Obama administration has proposed ways to get as much participation as possible out of the labor force that remains.[2] Increasing the labor force is one element of this strategy. The Obama administration has proposed increasing immigration in order to expand the labor force and offering expanded maternity leave in order to keep women in the labor force. Other measures would include a $500 tax “credit” for working couples. This could be used to off-set child-care and commuting costs. Perhaps that will lure stay-at-home Moms and Dads into the labor force. A separate proposal increases the child-care tax credit. A third measure would offer the Earned Income Tax Credit to workers without children. This proposal tries to draw more single men into the job market.

Increasing productivity is more of a problem. Productivity increased by about 1.3 percent/year from 1973 to 1981; by about 1.7 percent/year between 1981 and 1990; by about 2.1 percent/year between 1990 and 2000; and by about 2.7 percent/year between 2001 and 2007. Productivity gains had already begun to slow by 2004, even before the “Great Recession.” Since 2007, productivity has increased on an average of 1.3 percent per year.[3]

A bunch of these proposals have also been advanced in the past by Republicans like Rob Portman and Paul Ryan. (See: “RomneyCare.”) It will be interesting to see if the Republicans know how to take “Yes” for an answer.

[1] Greg Ip, “Economy’s Supply Side Sputters,” WSJ, 19 February 2015.

[2] Nick Timiraos, “Obama Sees 20 Rocky Years as Boomers Retire,” WSJ, 20 February 2015.

[3] There is an obvious problem with how Greg Ip slices up the periods. A full–decade average for 2001 to 2010 would both reduce the gains from 2001 to 2007 and would increase the numbers for 2007-2010.

Climate of Fear XIV.

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In November 2014, China and the United States reached a bi-lateral non-treaty agreement on reducing carbon emissions. President Obama committed the United States to cut carbon emission by 26-28 percent below the level of 2005 by 2025.[1] President Xi Jinping committed China to reach peak carbon emissions by or before 2030. In addition, China agreed to raise its nuclear, wind, and solar energy generation to about 20 percent of the total by 2030.

The Sino-American agreement prompted diplomats negotiating the draft framework for a new international climate-change agreement to change their own approach.[2] They adopted the idea of allowing each country to commit to reducing carbon emissions without specifying how or by how much they will do so. Countries are supposed to announce during March 2015 how much they will cut emissions after 2020. No one thinks they will set ambitious targets. All 196 nations will agree to sign the new agreement in Paris in November and December 2015.

 

All well and good. What are some of the key problems for which people should be looking during 2015?

Currently, China gets about 10 percent of its energy from non-carbon sources. Experts seem to believe that China will need to deploy an additional 800-1,000 gigawatts of “zero emission generation capacity” to get to 20 percent non-carbon energy-generation by 2030. This is more than all the coal-fired power plants that exist in China today. If China is going to massively expand its non-carbon energy generation just to get to 20 percent of the total, then that suggests that China will also massively expand its carbon energy generation at the same time.

The Obama Administration is pressing for a non-treaty agreement because of the doubts it could pass the Senate. However, a non-treaty is non-binding on all of the signatories. Furthermore, China has always resisted international monitoring of its economy.[3] This could end up like the Kellogg-Briand Pact (1928) “outlawing war.”

Reducing the amount of coal burned will have effects on several societies as well as on the environment. As of 2012, China got 81 percent of its electricity generation from coal; India got 71 percent; Australia got 69 percent; Indonesia got 48 percent; Germany got 44 percent; the UK got 39 percent; and the US got 38 percent. Shifting some of these countries off coal-burning will require heavy investment in new technologies. There is no sign that any cheap alternative to fossil fuels is at hand. Then coal is an important export for some counties. In 2013 Indonesia exported 426 million tons of coal; Australia 336 million tons; Russia 141 million tons; and the US 107 million tons. Dissuading countries from burning coal for energy will have an effect on the incomes of these countries. If coal turns out to be too dug- in[4] to be abandoned, then attention will have to turn to “clean coal” technologies, and to emissions capture and storage.

In the absence of serious commitments to substantially reduce carbon emissions, climate scientists now believe that it will be impossible to hold back some of the effects of climate change. Glaciers will melt, sea levels will rise, and problems with drought and harvests will increase.

[1] In June 2014, EPA proposed guidelines for existing power plants that would reduce emissions 30% below 2005 levels by 2030.

[2] Coral Davenport, “With Compromises, a Global Accord to Fight Climate Change Is in Sight,” NYT, 10 December 2014; William Mauldin, “Coal Clouds Talks on Climate,” WSJ, 13-14 December 2014.

[3] “A verbal contract isn’t worth the paper it’s printed on.”—attributed to Sam Goldwyn.

[4] HA! Is joke.