The Easy Part Of The Economic Recovery Might Be Over

“The economy is certainly improving: The August report shows that the labor force participation rate increased a bit and millions more furloughed workers returned to their jobs.

But there are a bunch of clues in this month’s report that the growth we’re seeing now isn’t as robust as it looks, and that it probably isn’t sustainable without a dramatic change in public health conditions:

A significant chunk of the jobs gained in August were added thanks to a once-in-a-decade phenomenon that has nothing to do with the current recession — a slew of temporary hiring for the U.S. Census.

Private-sector job growth is slowing overall, and the industries that were hit hardest by the pandemic — like leisure and hospitality — appear to be stalling out well below their pre-pandemic peak.

Getting people back to work will likely be harder and harder in the coming months, because a growing share of unemployed people have lost their jobs permanently.

The recovery is arriving faster for some groups than others — which means that workers of color, in particular, are still suffering much higher levels of unemployment than white workers.”

A Payroll Tax Holiday Is No Free Lunch

“An actual payroll tax holiday does mean an increase in take-home wages for some. According to recently published Internal Revenue Service (IRS) guidance on the president’s order, employers can temporarily stop withholding the employee’s 6.2 percent share of Social Security taxes for workers earning under $104,000 per year. That means more money in their paychecks for those eligible workers.

This could be significant. A little-known fact is that, for a majority of American taxpayers, the largest share of their federal tax bill is the payroll tax, not the income tax. In the way it’s designed, the payroll tax is regressive, so it hits lower-income earners harder. But a temporary reprieve is pretty much where the good news ends for the employees.

For one thing, as noted, the benefit may be short-lived. According to the IRS, unless Congress decides to go ahead and forgive the tax, it will eventually need to be collected by employers and sent to Uncle Sam. This is guaranteed to become a massive headache for employers, who will ultimately have to collect the deferred taxes from their employees. As a result, some large companies such as UPS have already announced that they will continue to collect the payroll tax from their employees and send the money to the federal government as usual.”

“as some point out, those tax deferrals will eventually become due, and employers may then have to withhold twice the amount of payroll taxes from employees’ paychecks starting in January.

This will create quite a bit of pressure on Congress to waive the deferred taxes next year. But even if that happens, somebody somewhere at some point will have to pay. There’s no such thing as a free tax holiday.”

A simpler, more useful way to tax carbon

“Kaufman and his co-authors propose an alternative design framework for a carbon tax: a near-term to net zero (NT2NZ) approach.

In a nutshell, rather than asking what the optimal carbon price is in some econo-metaphysical sense, the approach begins by asking: Given other policies in place and a reasonable set of assumptions, what price on carbon is required to drive emissions to net zero on schedule?”

The Senate just failed to pass more stimulus for a struggling economy. Here’s why.

“The 52-47 vote, which was intended to demonstrate Republican unity and support for the stimulus while putting pressure on Democrats, was only mildly successful in that aim, with 52 Republicans supporting the bill and Sen. Rand Paul voting against it. No Democratic senators, who’ve long pushed for a more expansive stimulus package, voted in favor of it. As a result, the bill was unable to meet the 60-vote threshold it needed to advance.

Republicans’ legislation contained roughly $650 billion in aid, according to the Wall Street Journal, including funding for school reopenings, the US Postal Service, and a weekly $300 supplement to unemployment insurance. Democrats’ more expansive HEROES Act, meanwhile, contained $3 trillion in aid including money for a $600 weekly unemployment supplement, another round of $1,200 stimulus payments, and support for state and local governments, in addition to funding for schools and USPS.

Since Thursday’s vote was a strategic maneuver aimed more at sending a message than producing actual policy, it wasn’t expected to pass to begin with. Instead, it was intended to give vulnerable Republican senators something to point toward as evidence they’ve backed more aid going into the election this fall.

The vote was also a way to get Democrats “on the record” opposing stimulus, according to Senate Majority Leader Mitch McConnell — a framing that could be used to cast blame in the coming months, though it ignores the fact that the Democrat-led House passed its own stimulus package months ago.”

Why Stimulus Spending Fails

“the belief is that when the government takes a dollar out of your pocket, puts that dollar through the political process, and decides where to spend it (based on input from special interest groups), the economy will somehow return more money in growth than the money invested, even after Washington bureaucrats take their cut. It’s magic! Sadly, these arguments ignore recent empirical evidence that the costs of increased government spending far outweigh the benefits to the economy.

For starters, contrary to the claims of pro-government spending proponents, economists are far from having reached a consensus about the actual return on government spending. While some economists find that a dollar spent by the government generates more of a return than the dollar spent, others find that the return is less than one dollar. And yet others find that if you take into account the future taxes needed to pay for the dollar that’s spent, the multiplier is actually negative, and the economy takes a hit.”

“there are narrow cases when government spending can stimulate the economy, but for that to happen, the environment in which the spending takes place is important. Work by economists Ethan Ilzetzki, Enrique Mendoza, and Carlos Vegh on the impact of government fiscal stimulus shows that it “depends on key country characteristics, including the level of development, the exchange rate regime, openness to trade, and public indebtedness.” Many other economists have found the same. Unfortunately for the proponents of fiscal stimulus, the United States has the features of a country where stimulus by spending does have an impact and, in fact, can have a negative impact on growth.”

“even if you had a country with little debt and the right environment, implementing the spending correctly is a key to getting a multiplier that’s larger than one. As former Treasury Secretary and former Director of the National Economic Council Larry Summers has explained, stimulus spending needs to be timely, targeted, and temporary. Unfortunately, evidence from the last recession shows that it rarely is.”

What it would take to end child poverty in America

“In 2019, about one in six children in America — 12 million kids nationwide — lived in poverty. That’s a rate about two or three times higher than in peer countries. And that was before the worst economic and public health crisis in modern history.

The scale of child poverty in America is a disgrace, not only because of the suffering it creates and the potential it drains from our society, but also because it’s easily avoidable. Child poverty is not an inevitability; it’s a policy choice. And we’ve been making the wrong choice for far too long.”

“For the first time in my life, I had money in my savings”: Workers on the relief of the $600 weekly benefit

“The CARES Act represented a near-unprecedented, if temporary, expansion of the social safety net. According to one estimate by University of Chicago economists in May, as many as 68 percent of newly unemployed workers were on track to collect a higher salary under the enhanced benefits (that is, if they were able to actually get through to swamped unemployment offices to apply). But while some lawmakers have tried to use this phenomenon as a reason to slash the extra benefits — insisting, against all evidence, that it’s convincing people not to return to work at all — the fact that so many workers outearned their salaries with a $600 per week boost (an average of $15 an hour for a 40-hour workweek) only highlights the failures of the American labor system.

The numbers tell a clear story: The US is generally not kind to the working class. According to MIT’s Living Wage Calculator, a true living wage shakes out to about $16.54 per hour — but no state has a minimum wage that high. According to the researchers, two adults in a family of four would each have to work 75 hours a week at minimum wage to meet that living standard.

The average American worker also puts in 1,779 hours a year — not the most hours among the countries in the 37-member Organisation for Economic Co-operation and Development index, but well above peers like Japan (1,644) and Germany (1,386). The OECD Work-Life Balance rankings found that US workers have less leisure time and face higher rates of gender inequity in the workforce than many of the countries on the list. And in normal times, we spend the second-least on unemployment aid after the Slovak Republic.”

“As lawmakers continue to grapple with how much, and for how long, they ought to aid unemployed Americans, Vox talked to three workers about the extra benefits. For each, they offered a much-needed hiatus from the grind of the American labor system. They paid bills, helped out friends, and pursued long-neglected interests. Receiving the extra money didn’t change their minds about their desire for employment — but after years of panicking and overworking themselves, it finally gave them the chance to breathe.”

Trump’s New Tariffs on Canadian Aluminum Are Indefensible

“When President Donald Trump imposed 10 percent tariffs on imported aluminum in March 2018, it was (predictably) American aluminum-consuming companies that suffered the most.

Companies like Whirlpool Corp., for example. The appliance manufacturer—which had previously been a cheerleader for Trump’s tariffs on imported washing machines—saw its sales and stock prices tumble in the months after Trump’s aluminum tariffs took effect, as the import taxes added to the company’s input costs. It takes a lot of aluminum to build a washing machine, after all.”

“Those tariffs had been lifted in 2019 as Trump sought to negotiate the United States–Mexico–Canada Agreement (USMCA), which officially took effect last month. But with the new trade deal in place, Trump has quickly returned to his old tricks. “Canada was taking advantage of us, as usual,” he said Thursday during a largely off-the-cuff speech at the plant. The new tariffs are slated to take effect on August 16.

Ostensibly, the justification for reimposing these tariffs is the claim that imports have increased dramatically in recent months. In reality, that’s a bunch of nonsense. The Aluminium Association says the claims of a surge in aluminum imports “are grossly exaggerated.” In fact, aluminum imports from Canada are below 2017 levels—the last year before Trump’s first round of tariffs took effect.

And even if aluminum imports were increasing, that’s not something to get upset about. The United States literally does not produce enough aluminum to meet its domestic needs, so imports are essential for supporting the 97 percent of American aluminum industry jobs that are in downstream production. And when more aluminum—or anything else—is traded back and forth between the United States and Canada, both countries benefit from the transaction. That’s how trade works.

It’s not exactly clear what Trump hopes the reinstated tariffs will accomplish, but the one thing that should be obvious is that American aluminum-consuming industries will once again be punished by the president’s trade policies.”

As Bastiat Would Say, Peer Past the Obvious With Pandemic Policies

“Take, for example, the massive amount of additional debt the federal government has imposed on future generations of Americans during the COVID-19 crisis. That which is seen is the money flowing from the federal government to the unemployed, to those taking leave due to rescue money given to businesses during the pandemic. While we might be aware in the abstract that there is an accompanying rise in U.S. government indebtedness, that which is not seen is the increase in taxes that must be paid by future generations. Nor do we see the slower economic growth that will be caused by the need to pay off this debt.

Even less obvious are the unseen effects of making permanent the supposedly temporary creation of federal paid-leave entitlements. While it’s easy to point to all the advantages of such a move for the 35 percent of women who didn’t have any such benefits pre-COVID-19, it’s more difficult to see the lower wages and employment that will result. Also hidden from our vision is the increase in employment discrimination fueled by this policy: When governments arbitrarily increase employers’ costs to hire certain groups, fewer members of those groups get hired. The academic literature is clear that such legislation inflicts very real negative effects on women.

Also harder to spot are the unseen effects of rent-control legislation. Such regulations exist in states and cities nationwide, though it wouldn’t be surprising to see more such policies implemented in this crisis’s wake. The benefits are easy to see. The rules promise to make housing in high-value rent markets more affordable for middle- and lower-class families. But once such legislation is implemented, reality kicks in.

We see rents going up more slowly than they likely would have otherwise. When paired with eviction protections, this policy gives an illusion of control to tenants who were already in rental homes when the regulation was adopted. What is unseen, however, is significant. Rent-control statutes reduce the incentives for property owners to supply their facilities as residential housing, and they make it less attractive for developers to build rental housing. Rent control even diminishes landlords’ willingness to maintain the quality of their units. The final result is less and lower-quality housing for ordinary people.”