General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsKrugman: Three Charts on Secular Stagnation
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Secular stagnation is the proposition that periods like the last five-plus years, when even zero policy interest rates arent enough to restore full employment, are going to be much more common in the future than in the past that the liquidity trap is becoming the new normal. Why might we think that?
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Beyond that, it does look as if it was getting steadily harder to get monetary traction even before the 2008 crisis. Heres the Fed funds rate minus core inflation, averaged over business cycles (peak to peak; I treat the double-dip recession of the early 80s as one cycle):
And this was true even though there was clearly unsustainable debt growth, especially during the Bush-era cycle:
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Finally, the growth of potential output is very likely to be much slower in the future than in the past, if only because of demography:
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http://krugman.blogs.nytimes.com/2014/05/07/three-charts-on-secular-stagnation
lumberjack_jeff
(33,224 posts)All economic problems trace back to that one thing.
ProSense
(116,464 posts)"Wealth inequality is the core problem. All economic problems trace back to that one thing."
...the starting point to address this is to increase the minimum wage and add more jobs.
lumberjack_jeff
(33,224 posts)Helpful, but it won't stop the erosion of household income, the steady drop in employment or any of the other social or economic ills.
ProSense
(116,464 posts)"I think raising the minimum wage constitutes treatment of the symptoms. Helpful, but it won't stop the erosion of household income, the steady drop in employment or any of the other social or economic ills."
...a couple of reasons. First, the fact that the minimum wage hasn't kept pace is a big part of the problem.
http://www.democraticunderground.com/10024911911
Second, increasing it will have a spillover effect.
http://www.epi.org/minimum-wage-statement/
Over 600 Economists Sign Letter In Support of $10.10 Minimum Wage
http://www.epi.org/press/600-economists-sign-letter-support-10-10/
The higher the wage, the more impact it would have.
The Minimum Wage Index: Why the GOP's Filibuster Will Hurt Workers
http://www.democraticunderground.com/10024911713
lumberjack_jeff
(33,224 posts)The employment to population ratio has dropped 10% since 2000. That's a huge pool of potential workers and unless that pool is absorbed into the workforce there's little upward pressure on wages once you get to $12 or $13/hour.
ProSense
(116,464 posts)"There's still a surplus of labor. The employment to population ratio has dropped 15% since 2000. That's a huge pool of potential workers and unless that pool is absorbed into the workforce there's little upward pressure on wages once you get to $12 or $13/hour."
...no one is arguing that the minimum wage should be increased in lieu of full employment. The point is that if the majority of workers returned to the workforce with the current minimum wage, the problems would persist. Raising the wage and indexing it to inflation will make a huge difference as the workforce returns to reasonable levels.
Participation Rate: Trends and Cohorts
http://www.democraticunderground.com/10024920090
ProSense
(116,464 posts)what your proposed solution would be. Wages have been stagnant and falling for decades. This was true even during times of decent job growth.
lumberjack_jeff
(33,224 posts)2) Reduce the work week to 32 hours and/or raise the overtime premium to 2x rather than 1.5x.
3) Halve the number of student visas then halve the number of H1B visas four years later. The STEM classes will be filled by citizens who will then have the training to do those jobs.
Wages have been falling because the size of the workforce is growing (creating a labor surplus). In 1970, few women and people over 65 were in the workforce. The gains in women's wages can't entirely mitigate for the drop among men. This is also one of the reasons for the big demand for college... because of the surplus of labor, there's nothing else for 18 year olds to do.
Raising the minimum wage is good because it improves the lives of people at the bottom end of the labor ladder, but I don't see it as a panacea for the economy generally.
ProSense
(116,464 posts)Last edited Wed May 7, 2014, 03:13 PM - Edit history (1)
"1) raise the tax rate on investment income to the same level as that on labor"
Raising the tax on investment income will increase the revenue stream. That's a good thing. After all, there are a lot of underfunded programs that would benefit. For example, the health care law did just that as part of its financing. It increased the payroll tax for high income earners and taxed investment income.
A new Net Investment Income Tax goes into effect starting in 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. The IRS and the Treasury Department have issued proposed regulations on the Net Investment Income Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Net Investment Income Tax, see our questions and answers.
Additional Medicare Tax
A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individuals wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individuals filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. The IRS and the Department of the Treasury have issued proposed regulations on the Additional Medicare Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Additional Medicare Tax, see our questions and answers.
http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions
http://www.democraticunderground.com/10024391415
"2) Reduce the work week to 32 hours and/or raise the overtime premium to 2x rather than 1.5x."
Altering the work week would be a major change, and I agree Realistically, I don't see it happening in the near future. Addressing "overtime" is possible.
President Obama just expanded the eligibility criteria via executive order.
How Obama's Reforms To Overtime Law Will Change People's Lives
http://www.democraticunderground.com/10024660707
" 3) Halve the number of student visas then halve the number of H1B visas four years later. The STEM classes will be filled by citizens who will then have the training to do those jobs. "
Agree. Anything that will help to increase the labor force is a good thing. Of course, creating more jobs will also help. There was some good news related to wages and H-2B visas earlier this year.
http://www.democraticunderground.com/10024450902
Wages have been falling because the size of the workforce is growing (creating a labor surplus). In 1970, few women and people over 65 were in the workforce. The gains in women's wages can't entirely mitigate for the drop among men. This is also one of the reasons for the big demand for college... because of the surplus of labor, there's nothing else for 18 year olds to do.
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Raising the minimum wage is good because it improves the lives of people at the bottom end of the labor ladder, but I don't see it as a panacea for the economy generally.
Again, these are structural things that aren't going to impact wage growth. There need to be jobs, and increasing the minimum wage will begin to reverse the gap in wages created over the last few decades.
Beearewhyain
(600 posts)A little bumper stickerish but I think it fits especially when so much repair is needed for our infrastructure.
ProSense
(116,464 posts)http://www.nbcnews.com/id/55123898/
ProSense
(116,464 posts)by Bill McBride
A frequent question is: "I've heard the participation rate for older workers is increasing, yet you say one of the reasons the overall participation rate has fallen is because people are retiring. Is this a contradiction?"
Answer: This isn't a contradiction. When we talk about an increasing participation rate for older workers, we are referring to people in a certain age group. As an example, for people in the "60 to 64" age group, the participation rate has increased over the last ten years from 51.1% in April 2004 to 55.7% in April 2014 (see table at bottom for changes in all 5 year age groups over the last 10 years).
However, when we talk about the overall participation rate, we also need to know how many people are in a particular age group at a given time. As an example, currently there is a large cohort that has recently moved into the "60 to 69" age group. To calculate the overall participation rate we need to multiple the participation rate for each age group by the number of people in the age group.
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In April 2004, the two largest groups were in the "40 to 44" and "45 to 49" age groups. These people are now the 50 to 59 age group.
In April 2004, there were also a large number of people in the 50 to 59 age group. These people are now 60 to 69.
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http://www.calculatedriskblog.com/2014/05/participation-rate-trends-and-cohorts.html
At the link, there is a detailed chart comparing the April 2004 to the April 2014 population, participation rate and labor force of each age group.