Four years ago, some of us watched with a mixture of incredulity and horror as elite discussion of economic policy went completely off the rails. Over the course of just a few months, influential people all over the Western world convinced themselves and each other that budget deficits were an existential threat, trumping any and all concern about mass unemployment. The result was a turn to fiscal austerity that deepened and prolonged the economic crisis, inflicting immense suffering.
And now it’s happening again. Suddenly, it seems as if all the serious people are telling each other that despite high unemployment there’s hardly any “slack” in labor markets — as evidenced by a supposed surge in wages — and that the Federal Reserve needs to start raising interest rates very soon to head off the danger of inflation.
To be fair, those making the case for monetary tightening are more thoughtful and less overtly political than the archons of austerity who drove the last wrong turn in policy. But the advice they’re giving could be just as destructive.
O.K., where is this coming from?
The starting point for this turn in elite opinion is the assertion that wages, after stagnating for years, have started to rise rapidly. And it’s true that one popular measure of wages has indeed picked up, with an especially large bump last month.
But that bump is probably a snow-related statistical illusion. As economists at Goldman Sachs have pointed out, average wages normally jump in bad weather — not because anyone’s wages actually rise, but because the workers idled by snow and storms tend to be less well-paid than those who aren’t affected.
Beyond that, we have multiple measures of wages, and only one of them is showing a notable uptick. It’s far from clear that the alleged wage acceleration is even happening.
And what’s wrong with rising wages, anyway? In the past, wage increases of around 4 percent a year — more than twice the current rate — have been consistent with low inflation. And there’s a very good case for raising the Fed’s inflation target, which would mean seeking faster wage growth, say 5 percent or 6 percent per year. Why? Because even the International Monetary Fund now warns against the dangers of “lowflation”: too low an inflation rate puts the economy at risk of Japanification, of getting caught in a trap of economic stagnation and intractable debt.
Over all, then, while it’s possible to argue that we’re running out of labor slack, it’s also possible to argue the opposite, and either way the prudent thing would surely be to wait: Wait until there’s solid evidence of rising wages, then wait some more until wage growth is at least back to precrisis levels and preferably higher.
Yet for some reason there’s a growing drumbeat of demands that we not wait, that we get ready to raise interest rates right away or at least very soon. What’s that about?
Part of the answer, I’d submit, is that for some people it’s always 1979. That is, they’re eternally vigilant against the danger of a runaway wage-price spiral, and somehow they haven’t noticed that nothing like that has happened for decades. Maybe it’s a generational thing. Maybe it’s because a 1970s-style crisis fits their ideological preconceptions, but the phantom menace of stagflation still has an outsized influence on economic debate.
Then there’s sado-monetarism: the sense, all too common in banking circles, that inflicting pain is ipso facto good. There are some people and institutions — for example, the Basel-based Bank for International Settlements — that always want to see interest rates go up. Their rationale is ever-changing — it’s commodity prices; no, it’s financial stability; no, it’s wages — but the recommended policy is always the same.
Finally, although the current monetary debate isn’t as openly political as the previous fiscal debate, it’s hard to escape the suspicion that class interests are playing a role. A fair number of commentators seem oddly upset by the notion of workers getting raises, especially while returns to bondholders remain low. It’s almost as if they identify with the investor class, and feel uncomfortable with anything that brings us close to full employment, and thereby gives workers more bargaining power.
Whatever the underlying motives, tightening the monetary screws anytime soon would be a very, very bad idea. We are slowly, painfully, emerging from the worst slump since the Great Depression. It wouldn’t take much to abort the recovery, and, if that were to happen, we would almost certainly be Japanified, stuck in a trap that might last decades.
Is wage growth actually taking off? That’s far from clear. But if it is, we should see rising wages as a development to cheer and promote, not a threat to be squashed with tight money.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 13, 2014
If there is one clear loser in President Obama’s budget this year, it’s U.S. multinationals.
With six new ideas designed to plug some major leaks in the tax code, the 2015 budget proposes a total of more than $276 billion in higher taxes on overseas earnings for U.S. multinationals over the next decade, about $120 billion more than last year’s budget. (A sample of the policy just to give you an idea of how deep in the guts the administration is going: “Create a new category of Subpart F income for transactions involving digital goods or services.”)
So much for the White House’s attempts to strike common ground with big company chief executives, who have been howling for years about paying too much in taxes with the federal corporate tax rate at 35 percent. The companies have also poured money into an endless parade of coalitions with names like ACT, RATE, WIN, TIE AND LIFT.
The trouble with the executives’ complaints is that many companies don’t pay nearly the 35 percent rate. GE, for instance, in its most recent annual filing said it paid an effective tax rate of 4.2 percent. (See this graphic we ran last year showing taxes paid by companies in the Dow 30.) These firms insist that the high rate is merely forcing them to find complex ways to lower their tax bills. But with this budget, it’s clear the administration isn’t buying it.
“The problem is not an international tax system that unacceptably handicaps U.S. businesses,” said Ed Kleinbard, a professor at the University of Southern California’s Gould School of Law who has done extensive research on the way companies shuffle their income overseas to lower their tax bills. “Instead the problem is an international tax system both in the United States and other countries that U.S. multinational firms have demonstrated they are highly skilled at gaming.”
The president’s budget is the latest sign for corporate tax lobbyists that the winds are perhaps shifting against them. Last month’s tax reform plan from House Ways and Means Chairman Dave Camp (R-Mich.) also included a number of ideas unpopular with business, including a bank tax. His section on international tax reform was somewhat more generous to big firms, giving them a lower rate on overseas earnings with anti-abuse measures that Kleinbard says don’t go far enough.
Of course, expectations are low that either the president or Camp’s policies will ever make the leap to reality. But after spending hundreds of millions of dollars on lobbyists, corporate America is not exactly seeing its worldview reflected in these blue prints.
By: Jia Lynn Yang, WonkBlog, The Washington Post, March 5, 2014
“Christie To CPAC, I’m One Of You”: An Invitation To Mainstream Voters, Forget Everything You Thought You Knew About Me
New Jersey Gov. Chris Christie’s (R) carefully cultivated “brand” includes a few key pillars. The first is that he’s a different kind of politician with no use for “politics as usual.” The second is that he’s a tough leader who won’t back down when conditions heat up. And finally, the blue-state Republican has tried to distance himself from much of the extremism that’s come to define contemporary conservatism.
Christie’s multiple, ongoing scandals have effectively destroyed the first pillar. Christie’s approach to governing has knocked down the second, too.
As for the third, the governor threw it out the window with his speech to the Conservative Political Action Conference (CPAC) yesterday.
Before digging in, it’s worth appreciating the context. CPAC is generally considered the premier conservative event in the country held every year, and ambitious Republicans are always eager to curry favor with conference attendees. Last year, Christie wasn’t invited – he was deemed insufficiently conservative.
Yesterday, in his first appearance in the national spotlight since his scandals erupted, the governor did his best to make up for lost time. Benjy Sarlin helped capture Christie’s pitch:
New Jersey Gov. Chris Christie may not always get along with the grassroots right, but he hates the press and thinks President Obama is a failure. Isn’t that enough?
When the governor is making the case for his presidential ambitions, he emphasizes how mainstream he is. When Christie is wooing CPAC, where “mainstream” is a basically a dirty word, he effectively tells the far-right activists that he and they are on the same team.
Mitt Romney’s transition from moderate Republican to conservative champion took a few years. Christie’s trying to play both roles at the same time, hoping audiences don’t notice the contradictions.
The governor’s CPAC message was practically an invitation to mainstream voters to forget everything they thought they knew about him. CPAC Christie wants to take away a woman’s right to choose. CPAC Christie hates the media (which, incidentally, has spent years fawning over the governor and giving him a national profile).
CPAC Christie loves the Koch brothers and considers them “great Americans.” CPAC Christie is certain the United States doesn’t have “an income inequality problem.”
CPAC Christie wants conservatives to believe Democrats are “intolerant” people who refuse to let anti-abortion speakers appear at their national convention (a bizarre claim that is plainly untrue). CPAC Christie got huge applause condemning President Obama for refusing to work with Republicans on debt reduction, which was a rather brazen lie given that Obama has made multiple attempts at a compromise, only to be rebuffed by GOP leaders who refuse to make concessions.
CPAC Christie, in other words, bears no meaningful resemblance to New Jersey Christie.
By most accounts, the governor was well received yesterday, which no doubt gave him a morale boost after months of struggling through several scandals. But in electoral terms, it was a Pyrrhic victory – by moving sharply to the right, Christie satisfied far-right activists and alienated everyone else simultaneously.
By: Steve Benen, The Maddow Blog, March 7, 2014