The Supreme Court’s role in economic policy, explained

“in the American system, essentially every law and regulatory undertaking is subject to litigation and second-guessing by the courts. That means Supreme Court appointments have vast and wide-ranging authority over economic issues — authority that is often ignored by politicians and the media, but not by people with money at stake.

The US Chamber of Commerce, for example, did not enthusiastically back Brett Kavanaugh’s nomination because they liked his thinking on abortion, but because they like his hostility toward regulatory agencies. And while progressives often appreciated that Kavanaugh’s predecessor Anthony Kennedy sided with liberals like Ruth Bader Ginsburg on some abortion and LGBTQ rights cases, it’s telling that Kennedy himself — like Sandra Day O’Connor before him — strategically timed his retirement to be replaced by a Republican president and a GOP Senate.”

“though the bulk of the law was spared by John Robert’s judiciousness, he did cost millions of people health insurance by inventing a new doctrine (that Congress could not threaten to take away previously provided matching funds to create an incentive for states to accept new matching funds) to block aspects of Medicaid expansion.

What makes Ginsburg’s departure from the bench alarming in this regard is that post-Lopez, essentially all new progressive legislation has been a crapshoot. There’s inevitably a lawsuit to strike down anything, but on any given issue, a Roberts or (more rarely) Gorsuch or Kavanaugh might defect. With a sixth conservative justice, it would be that much easier to stop any new law that you like, since you only need to get five of them. There are many conservative legal theorists — including Thomas on the bench and Georgetown professor Randy Barnett in the scholarly world — who believe that essentially all modern economic regulation is unconstitutional. There are plenty of smart conservative lawyers to write up a brief arguing that any new law should be struck down. As for using old laws to address new problems, well, there’s a fix for that, too.”

“Conservative jurists, in other words, are preparing to sharply limit regulators’ ability to promulgate new rules, arguing that each new change in policy should be achieved through the passage of a new law.

That sounds nice, but it’s completely out of touch with how the American political system actually functions.”

“the business community and the Supreme Court bar and the conservative legal movement are all well aware that there is a huge economic and regulatory element. Their strategy is to put in place a judicial roadblock to democratic governance of the economy.”

We can end America’s unemployment nightmare

“Erin Suggs applied for unemployment in March as soon as the California salon she works at shut down. She figured her case would be pretty straightforward — she works on commission, meaning she’s counted as a regular employee, not self-employed.

But it took the 50-year-old mother of two more than two months to get her benefits, during which time she estimates she and her husband called California’s Employment Development Department, which administers the state’s unemployment system, upward of 3,000 times. It turned out that in filling out the forms, she checked one box wrong. “It just put me in pending hell for 10 weeks,” she says. “There was no way of fixing it.”

Her experience is hardly unique. In California alone, more than 6 million people, or one-third of the state’s workers, have filed for unemployment benefits, and hundreds of thousands of them have been stuck in a weeks- or even months-long backlog. Meanwhile, nearly 1 million people across the United States continue to file new unemployment claims each week, and some 29 million people are receiving some sort of unemployment assistance. And for many of them, navigating the system has been a nightmare.

The coronavirus has brought home the many shortcomings of the American unemployment insurance system and revealed it to be fundamentally — and often intentionally — broken, chipped away over time to ensure that the jobless don’t use it too much, lest anyone get used to it. Unemployment insurance operates under a hybrid state-federal setup that has resulted in an awkward push-and-pull between the federal government, state governments, and employers. No one quite wants to take full responsibility of it, but everyone wants a say.”

” A reimagined unemployment system would treat the jobless like customers, not criminals, while helping them stay afloat as they find their next gig. It would be easier to navigate, pay people more consistently, regardless of where they live, and take into account the wage stagnation of decades past. It would be easier to ramp up in times of crisis and better serve the modern workforce — groups such as gig workers, short-term employees, and people looking for jobs.”

“unemployment insurance has never worked super smoothly in the US. The first state in the country to put an unemployment insurance program in place was Wisconsin in 1932, and the federal program became law under the Social Security Act of 1935. It was set up as a mixed federal-state endeavor for reasons that wouldn’t surprise the average political observer today: There was disagreement over what level of government should be in charge of running the program, and proponents of unemployment insurance were nervous it might be undone by the Supreme Court, which had struck down multiple pieces of legislation. The hope was that this model would give it a better chance with the court, and even if the federal component were struck down, the state components could live on.

“It was designed to have this very broken and fractured structure,” Konczal said.”

” In the US, unemployment insurance is meant to work by replacing about half of a worker’s wages (up to a certain cap) for about 26 weeks. It is intended for those who involuntarily lost their jobs, meaning they were laid off or fired, and not people who quit. Those who quit their jobs can wind up collecting benefits, namely if they can explain that they did so for good cause, such as experiencing sexual harassment, but it often winds up being a battle adjudicated by the state.

The program is financed through state and federal payroll taxes that are supposed to fund administrative systems and the benefits themselves.

Many states have kept those taxes pretty low, resulting in a system that is chronically underfunded. And during periods of stress, the impact of that underfunding really shows.”

“Years of disinvestment in technology and administration led to problems like those now affecting Suggs and millions of unemployed workers across the country. You make one mistake, or your case has one little quirk, and you’re sucked into a bureaucratic black box disaster with no clear end in sight. And then, once the economy gets better, everyone moves on and forgets, and the political impetus to fix these problems fades.”

The Export-Import Bank’s China Program Lacks Vision

“Vast research shows that, while subsidies might prop up the direct recipients, governments that subsidize harm their economies overall. That said, in the name of national security or geopolitical concerns, these principles may sometimes be traded off against other concerns.

But this doesn’t mean that all subsidies should get a free pass. There must be a concrete strategy behind the effort to use subsidies in this way. For instance, China mostly operates in lower-income nations. If Ex-Im is serious about competing with China, that’s where its loans should be going, rather than continuing to finance foreign borrowers in rich countries such as Italy, France, or the United Arab Emirates, where they’re served well by a commercial banking market.

Ex-Im’s recent annual conference was full of bold statements about fighting China as mandated by Congress during the agency’s reauthorization process back in December 2019. Unfortunately, despite much bluster from its leadership, there’s been no fundamental change in the way Ex-Im operates or in which companies Ex-Im extends financing to with taxpayer backing.”

“the Export-Import Bank’s failure ultimately lies with the policymakers who believe an agency that has been devoted to serving well-connected companies for so long would actually change.”

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.”