economics on main street: concepts for american voters
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Economics on Main Street: Concepts for American Voters. May 2012 note: course website. Income Inequality & Jobless Recoveries. Reconsidering Income Inequality. Economic Growth is a Good Thing But It’s Not the Only Thing. quantity of goods vs quality of life - PowerPoint PPT PresentationTRANSCRIPT
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Economics on Main Street:Concepts for American Voters
May 2012
note: course website
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Income Inequality& Jobless Recoveries
Reconsidering Income Inequality
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Economic Growth is a Good ThingBut It’s Not the Only Thing
• quantity of goods vs quality of life(environmental sustainability, nature of work,traditions, nature of communities, happiness)
• assigning value to household production(GDP ignores non-traded goods and services,pursuit of measured growth may be misguided)
• distribution of gains(how are the gains from growth distributed? why important as a societal goal? what are implications?)
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Market Efficiency is a Good ThingBut It’s Not the Only Thing
• markets are not always efficient(monopoly, asymmetric information, third party costs or risks, third party benefits)
• efficiency measures total gains(makes no promise as to distribution of gains)
• income matters(command over goods & services)(part of consumer response to price changes)
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Regulate Prices to Achieve Equity?• beware of unintended consequences
(price gouging laws – winners but shortage of ice)(minimum wage – potential tradeoff with jobs)
• whose definition of equity?(alternative non-price allocation mechanisms)
• letting prices move freely(probably more effective to redistribute income)(taxes & transfers, vouchers, public provision)
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Income Redistribution Concerns• government as a leaky bucket
(taxing productive activities, quantity distortion)(disincentives for recipients, AFDC vs EITC)
• inequality as an incentive system(return to invest in education, innovation, effort)(but . . . how much inequality is sufficient for this?)
• equal outcomes vs equal opportunity(willing to accept inequality if “income mobility”)
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What Do the Numbers Say?
• recall economic growth patterns(nearly 2.5% post WWII through 1979,less than 2.0% from 1979 to present)
• have those gains been broadly shared?(labor productivity vs labor compensation)(distribution of income gains over time)(share going to top 1%, historical context)
• an uncomfortable reality check
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Contributing Factors
• individual characteristicsregion, race, age, household compositioneducation, education, education
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Contributing Factors
• individual characteristicsregion, race, age, household, education
• labor market opportunitiesU.S. manufacturing & technological changeindustry & occupational shifts, earningsreward-based pay & other compensation issues
• tax policyhistorically low rates on top marginal income
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And Now . . . Some Really Bad News
• opportunities across generationsincome mobility & national self-imagehowever . . . recent international comparisonsU.S. inferior mobility across generations
• conditions for recessionincome on main street, spending on main streetextreme inequality vs. reliable consumer spendingdemand-deficient core of slow recovery
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General Policy Implications? • tax policy
increase taxation of high income individuals(wasn’t this on the table in 2008 election?)
• safety nettransfer income or purchasing power(recession surge vs. upcoming budget plans)
• human capitalexpand access, not family income, multi-dimensions(ongoing trends and upcoming budget plans)
• jobsSR-LR key to sustainable approach (more after break)
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Income Inequality& Jobless Recoveries
Where are the jobs?
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Unemployment Rate for U.S.monthly, seasonally adjusted, 1968-2010
Prof Rich graduates from college
My Dad between
jobs
Oct 2009 10.1%
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notice “jobless recoveries”
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sometimes there’s just no need for words
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Employment to Population Ratio for U.S.monthly, seasonally adjusted, 1968-2010
Dec 2009 58.2%
here’s that 1980’s recession again
note on age composition
and gender LFP
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robust job growth will be slow to reduce the unemployment
ratelost production in short term,
reduced capacity in long term?
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The job seekers ratio (number of unemployed workers per job opening)Dec. 2000–Feb. 2012
Source: Author's analysis of Job Openings and Labor Turnover Survey data and Current Population Survey data. Note: Shaded areas denote recessions.
this is my happy slide
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Economics of Unemployment• frictional, structural, demand-deficient
• frictionalimperfect information, labor market flowssearch, distribution of opportunities, imperfect match
• public policyUI policy goals – promote productive searchIL-ES efforts – improve search outcomeslabor market information (IDES, ALMIS, ISU)
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Economics of Unemployment• structural
industry & occupation change, labor market transitionschanges in consumer demand, technology, trade, etc.mismatch of worker skills & employer requirementsobserved by industry-occupation-region-localconsider required adjustments & constraints
• public policylabor market information (employment projections)education (K12, CC, HE, CE), training (public, firm, indiv)mobility (LMI, portable HCI, relocation, public transit)
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Economics of Unemployment• demand-deficient
labor markets over the business cycle, fluctuations in aggregate demand, employment loss, limited wage flexibility (various causes), unemployment outcomes
jobless recoveries from recent downturns (1990-present)
• public policyminimize fluctuations in aggregate demand(monetary – manage interest rates to balance activity)(fiscal – stimulus spending (pyramids, tanks, schools) )(automatic stabilizers (ex: income tax, UI, FS, GS) )
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a
k
U.S. GDP in 2009about 8-10% below potential
with similar drops incapacity utilization and
employment/population ratio (still 5-7% below potential)(eventual impact on PPF)
m
g
Consumption Goods
Capital Goods(and other sources of econ growth)
Recession and Stimulus
underutilizedresources ina recession
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a
k
stimulus throughdeficit spending(school repairs,
bridge construction,UI & food stamps,
tax cuts, etc).
m
g
Consumption Goods
Capital Goods(and other sources of econ growth)
Recession and Stimulus
underutilizedresources ina recession
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a
k
does nature of stimulus matter?
(consume vs investand future growth)
m
g
Consumption Goods
Capital Goods(and other sources of econ growth)
Recession and Stimulus
underutilizedresources ina recession
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GDP Would Have Been Lower Without the Recovery Act...
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...And Unemployment Would Have Been Higher
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Sessions & Topics
• Income Inequality & Jobless Recoveriescompeting views on how to strengthen the recoveryactivists: TARP, automatic stabilizers, ARRA, AJA, moreausterians: overtaxed job creators, disincentives from over-regulation, uncertainty from deficits & debt
• Public Goods & Sustainable Social Contractsrole of government, about deficit spending & debt,concerns going forward, work the problem (hands-on)