The problem with the current structure of our safety net programs

All predominantly capitalist societies, in one form or another, have some type of safety net in place. The rationale for them are diverse, but nonetheless compelling. Most obvious is the safety net’s role in preventing citizens from experiencing the suffering of abject poverty, to the extent that their very survival is at stake. Besides this, safety nets play crucial roles in stabilizing the business cycle, reducing structural unemployment (arguably, by allowing people time to find jobs that best match their skill-sets), and boosting productivity by boosting citizen well-being.

America’s complicated web of social assistance programs also serve these crucial purposes, albeit oftentimes inefficiently and rather ineffectively. Multiple programs tend to overlap, and many are desperately under-funded and poorly designed. Yet arguably the most damaging aspect of America’s social safety model isn’t the public element; rather, its the usage of the private sector for purposes of social justice.

Take, for example, the current structure of our post-World War 2 healthcare system. Utilizing tax exemptions, the government essentially subsidizes employer-sponsored health coverage for employees, incentivizing employers and employees alike to obtain generous employer coverage. In other words, the government uses the private sector to achieve the goal of public health. The ACA worsens this via the “employer mandate”, forcing employers with 50 or more “full-time employees” to provide coverage to their employees or pay a penalty. Rather than ensuring skimpy but adequate government insurance for all citizens as a safety net baseline, the government uses the private sector to do its bidding so as to avoid the label of “government takeover of healthcare” and to give the appearance of limited government.

Arguably, the same might be said for the imposition of the minimum wage. Rather than guarantee its citizens a bare minimum financial safety net, it forces businesses to look after employee’s personal well-being themselves (which, obviously, one can make an argument that businesses looking out for their employees and not “taking advantage” of them is a good thing that is to be desired; but the point that the government seems to offload its responsibilities to its citizens by placing it on the shoulders of businesses shouldn’t be automatically ignored).

This (arguably, uniquely American) structure likely has many ill-effects. First, rightly or wrongly, it places the responsibility of minimum standards on institutions whose foremost goal is the achievement of profit (which is not a criticism; it is, rather, the natural aim of businesses) which, although oftentimes in alignment with the goal of worker well-being, is not always so, especially in industries with large quantities of lower-skilled labor. Second, this model inherently has rather large amounts of red tape imposed upon businesses that make it much more difficult to function efficiently and without liability. This can often create scenarios of costs vastly outweighing the benefits, hurting citizens more than it helps. Third, it is an incomplete safety net model, as many people are temporarily (or for longer periods of time) disenfranchised from the labor market, and therefore have little to no interaction with the businesses  the government attempts to use to achieve social goals.

None of this is to say there is zero need for internal regulation of businesses or that businesses can’t play a role in the social safety net. But we should consider the idea that there are many circumstances in which the government ought to play a role in provisioning social assistance that is entirely independent and separated from private business – both for the benefit of business, and the benefit of society as a whole. Right now, in my opinion, we have too much government manipulation of the private sector for social aims – and not so much to show for it.

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Defining Definitions in our Election Discourse

This post’s main purpose is to serve as an outlet of frustration over the muddling of definitions that is particularly prevalent in this election cycle. Prior to 2015, Americans’ understanding of the meaning and beliefs of different political ideologies already seemed confused (in my opinion). However, the rhetoric of political candidates has not helped. In particular, my complaints lie mainly with Bernie (who, for some inexplicable reason, has still not conceded to Clinton’s insurmountable delegate lead in the Democratic nomination). People seem to think he has done a service for the country by helping to “de-stigmatize” the word socialism, which is considered to be a much more prevalent ideology and economic system in Western European countries. However, I think that he has actually made things worse for political discourse by 1) confusing people about what pure, traditional economic socialism really is 2) by confirming the false belief among many that American liberals are actually best defined as socialists, when I’d argued they’re much more pro-capitalism than pro-socialism and 3) Potentially de-emphasizing needed attention on the very real destructiveness that pure socialist economics has historically wrought on societies and the many lessons that they entail. I will begin by laying out the different terms and what I think the definitions truly are before proceeding to the other arguments noted above.

  1. Socialism: Bernie Sanders likens himself as a socialist at heart. But is he really best described as that? My definition of socialism falls along with the economic, traditional definition of socialism. Particularly, it entails the “common ownership and control of the means of production”, typically by the state (although historically, many variations of socialism have appeared in which other entities, institutions, or the masses themselves own and control the means of production). The means of production are any economic inputs (typically tangible and physical) used to create economic value or output. They can include machinery, factories, roads, infrastructure, educational institutions, etc. In my mind, if Bernie Sanders was truly a socialist, he would advocate for the government to both own and control virtually all of the means of production (including businesses, factories, etc.) This would entail a program of large-scale nationalizations of industry. Aside from “nationalizing” (better termed as a national replacement) of health insurance and 100% public funding/control of tertiary education, however, he has no such program, and largely keeps in place private ownership and control of the means of production (e.g., he allows for businesses to continue to be privately owned and operated). Consideration of the fact that all societies have different ratios of private and public ownership of the means of production leads to the important point that these ideologies and policies do lie along a spectrum. But in describing whether he better fits a socialist mold or a capitalist mold, he’s arguably more pro-capitalism than pro-socialism in general. Only his advocacy of nationalized health insurance and tertiary education would make him truly relativelymore socialist than other candidates, per my definition. Instead, his policies reflect interventionism within the confines of a predominantly capitalist economic framework that he’d like to keep intact (e.g. the taxation and regulation of a capitalist economy, with other interventions in the form of government spending). As a result, he’s much better described as a social democrat or an American liberal than a socialist…
  2. Social Democracy/American Liberalism: First, it’s important to note that these two terms are not the same. But they are quite similar. Essentially, both argue, in consideration of my definition of socialism, in a capitalist mixed economy with heavy amounts of government intervention (taxation, spending, regulation). Although these ideologies do entail some elements of pure socialism (e.g. public roads, public schools, national health insurance, etc.), they are far from pure USSR-style socialism, as private industry is still prevalent (indeed, dominate) within their prescribed economic systems. Now, granted, the taxation and regulation of capitalist institutions that they advocate for entails some control of these private means of production by the state. But not full control by any means, and certainly not actual ownership, as pure, traditional socialism would entail. It is also true that social democracy did start out as an ideology of gradual reform of capitalism into a system of socialism via democratic means over time. Now, however, like American liberalism, it’s essentially the definition stated above, with an emphasis on income redistribution and social justice. Therefore, in social democracy and American liberalism, capitalism still reigns, and given Bernie’s proposals, he best fits within these categories (which, by the way, I’m far from the first person to notice or argue).

A few things to derive from above:

1) These terms are all pretty vague and overlapping, even utilizing the narrowest of definitions. There’s technically no 100% correct description to be found for different candidates and economic systems.

2) Economic systems typically contain a mixture of capitalist and socialist elements. In my view, it’s the extent that some elements dominate that truly characterizes systems and people’s political ideologies (e.g., if more common ownership of the means of production prevails in an economy or a person advocates for mostly common ownership, it’s a socialist economy or the person is socialist, respectively). This observation of non-purity can also lend support for a dialogue of relativity (e.g., someone or some economy is relatively more socialist or relatively more capitalist than another).

3) In my opinion, the taxation, regulation, and spending of social democratic and American liberal policy aren’t exactly socialist elements (at least, not pure elements; perhaps quasi-elements). Rather, I would argue they are forms of interventionism within a fundamentally/overwhelmingly capitalist framework (private ownership of the means of production). Thus, Bernie is a social democrat/American liberal, and American liberals are not truly socialists.

4) It should be clear that, even in overwhelmingly capitalist America, true socialist elements do exist that actually serve useful functions. Public roads, public schools, public infrastructure, etc. are indeed prevalent in all overwhelmingly capitalist economies and can technically be characterized as true examples of socialist ownership and control. What really matters is what economic means of production are private versus public and balance of the ratios in determining economic and societal well-being.

All of this is also not to say that the taxation, spending, and regulation advocated for by social democrats and American liberals do not have some negative consequences, even if such interventions are not really “socialism” (e.g. system is still mostly privately owned/controlled). And it’s especially not to say that purely applied, across the board economic socialism is not destructive, when it clearly has been in the past (USSR, China, Vietnam, etc.) The economic misallocation of resources stemming from predominate state socialist ownership and control (and the ensuing incentive and signalling problems) brought upon massive economic hardship and destruction of human well-being in multiple countries throughout the 20th century. That’s what’s truly concerning to me. Although socialism shouldn’t be the taboo word it has been, considering it is found to be functioning within American society at this very moment, people should be very weary of the extent of its application and for which segments of the economy it is applied to. The very same can be said for capitalism, too. Thus, we need to shy away from puritanical, black versus white thinking – with its all-or-nothing propositions – and finally let informed, pragmatic thinking lead the way.

Thesaurus

American Freedom: it’s time to put a ring on it

Well, this is it. Any day now (possibly within just hours of this posting), the Supreme Court will finally determine the constitutional status of gay marriage nationwide; and in the process, will likely end up overturning the few remaining barriers to a new era of positive freedom for the United States. Though being deliberated on by just nine elderly justices, I’m confident their determination will reflect both the overwhelming tide of public opinion and the true meaning of liberty as intended by the Constitution. It is something that is inevitable; it is something that is unprecedented; and simultaneously, at the same time, it is something that is long, long overdue.

To many, this will be a bitter pill to swallow (surprise!) . I know, because at one point, that would’ve been my situation. Social conservatism is a very powerful force in this country. That’s not at all inherently a bad thing (I’d argue much of that sentiment is actually a force for much good), and many well-meaning, good people, people whom I love very much, hold very traditional, socially conservative values.  And they have a right to do so.  But the ideology and core beliefs that they espouse has a tendency (sometimes, but not always) to overrule independent thinking, or the ability to think of different possibilities and to adapt accordingly (although to be fair, that’s generally true for all ideologies).  The value system that structures “traditionalists'” world, in reaction to a non-traditional concept, tells them no, or that it’s wrong, and that no other reality can or ever should exist.  Whether it be for moral or religious or status quo reasons, preservation of “tradition” (as constructed) is key.  Anything else is a threat, and is labeled as wrong and undesirable accordingly.

I deeply understand all of this; again, like I said, I was at that point once.  But I strongly challenge all those who still hold “traditional” views to seriously rethink their positions; if not on every social issue (which is understandable), then at the very least on this issue of gay marriage.  Because the arguments for gay marriage are simply overwhelming on all angles – from a societal, economic, and moral standpoint.  Now, it should go without saying I won’t be able to address anywhere near the full amount of arguments both sides pose (nor do I really want to), and I’m certainly not an expert on anything.  But here are a few brief things that I think people who oppose gay marriage should consider (and yes, full disclosure, my opinion is injected into many of these arguments):

1)  First and foremost, having “unconventional” attractions is simply NOT a choice.  Too many people, too many studies, too many instances in the animal kingdom confirm this.  And I have no idea why someone would EVER choose (given rampant societal discrimination) to have “unconventional” attractions.  It’s a perfectly natural thing that just is.  If this cannot be swallowed, spend some time on it (especially if you want to even begin considering gay marriage pros/cons).  If second-hand sources don’t suit you, then please, go out and meet people who have these “unconventional” attractions (there are many such people – more than you’d think – and whether they identify as LGBTQ or not).  Your perspective will be transformed; perhaps not instantly, but inevitably, it will be.

2) America is (quite simply) built for freedom (including religious) and the pursuit of happiness.  If you object to gay marriage, you can freely say so, refuse to endorse it, say you think it is wrong, etc.  Those are all legitimate beliefs you are entitled to personally have.  But America’s promise is to allow all people to live their lives as they see fit to pursue happiness (as long as they are not harming anyone else).  If you object on religious grounds, that’s fine; but America is not about forcing people (via the government, of all institutions) to be confined to your beliefs, or for you to be forced to follow theirs.  Let’s not deny any group of people their right to pursue happiness; especially those who are not harming others or infringing upon anyone else’s rights.

3) Gay marriage does NOT harm anything, including the institution of marriage.  Quite the contrary; it bestows countless benefits from almost every angle imaginable.  To put it in a rambling, incoherent sort of way: economically, expanded marriage rights increases people’s financial security, decreasing expenditures on social assistance programs. This reduces the budget deficit, resulting in lower-than-status-quo-trajectory debt levels.  Psychologically/economically, expanded marriage rights boosts happiness/self esteem, leading to higher productivity and more economic growth. This allows for more tax revenues/less social expenditures, again resulting in a lower budget deficit and lower-than-status-quo-trajectory debt levels.  Socially, expanded marriage rights helps to save (not destroy) the institution of marriage, which is already crumbling due to 50% + divorce rates among “traditional” marriages.  Socially again, expanded marriage rights helps to reinvigorate the nuclear family (again, crumbling largely due to high divorce rates).  Again from a social standpoint, marriage is not an unchanging institution (it has changed countless times over centuries and millenia).  Thus, the expansion of marriage rights does not constitute an attack on marriage.   Socially/morally, expanded marriage rights allows for continued/easier discussion on the inherent humanity and entitlement to equality of LGBTQ people, providing progress towards further acceptance and integration (among other economic, psychological, social benefits, etc.).  Morally, it also represents a basic expansion of positive freedoms (freedoms to do something, not from something), which, especially in this case , is a very good thing.    And the list can go on and on and on.

Nothing I’m writing here is in any way revolutionary, or is something that hasn’t been said before. Really, all I’m doing is simply adding my voice to the voices of millions of my (far more courageous) fellow millennials in calling for full marriage equality within the United States, and providing a short list of supporting rationales. But I felt like I should at least go on record expressing said support, mere hours/days before a ruling, even if it ultimately does nothing to change the minds of naysayers.  Because right now, fifteen years into the 21st century, it is time for American freedom to start reaching its fullest extent possible – and for us to finally do the right thing, and put a ring on it. Those who have been denied the right to marry whom they love, simply because of who they are, surely deserve nothing less than that.

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Not yet, Janet: America’s still not ready for a higher target rate

A common observation of my blog by readers is the fact that I don’t oftentimes take strong positions on the issues I discuss.  At first,  I took these comments with great pride, because being impartial and presenting multiple possibilities to a question is the defining hallmark of the economics profession.  President Harry Truman once remarked: “Give me a one-handed economist! All my economics say, ”On the one hand, on the other…”.  But, as the Truman quote suggests, this is not always a splendid thing.  People want precise answers and opinions; and although I do oftentimes think in ways that incorporates both sides of an argument, I am not without biases of my own.  So to mix it up a bit, I’m going to prominently infuse those biases into the posts I make.

And what a perfect time to do so, because policymakers (particularly of the monetary kind) have some big decisions to make soon.  The context can be painted as the following: the American economy is finally operating close to (or much closer to) its productive capacity.  Official employment is almost “full” (with U3 at 5.5% in May), and wages are finally beginning to rise at a faster clip (nominal wages are up 2.3% year-over-year in May, the fastest since 09′).  But inflation remains very subdued, with year-over-year core PCE and CPI inflation rates still hovering between 1 and 2% (below the Fed’s 2% target).  The Fed, under the direction of chair Janet Yellen, has indicated (currently and historically) that it’s target for the Federal Funds rate (the key rate on overnight bank loans) will be raised once these thresholds are approached.  But there’s a few reasons why I think it needs to wait longer:

1) Historically, inflation hasn’t spiked when unemployment fell below its estimated “NAIRU” rate.  As noted elsewhere on this blog, as the U.S. economy reaches it’s productive capacity (equilibrium), this is likely to push up wages as employers compete more for a scarcer supply of workers. This helps to produce “wage-push” inflation; businesses hike prices to pay for higher wages (at least partially), and workers use their higher wages to push up aggregate demand in an economy already producing at capacity.  These capacity constraints also help to produce the “too much money chasing too few goods” explanation of inflation.  This means that, theoretically, we should see a rise in inflation very soon.

Except we probably won’t.  Why?  Due to historical experience and the readings of several other economic indicators, I don’t think the economy is actually near full capacity yet.  In other words, our estimates of the non-accelerating inflation rate of unemployment (NAIRU) are too high.  The experience of the 1990’s (as elaborated on by Jared Bernstein and Dean Baker) provides support for this view.  Near the end of the decade, unemployment plummeted – from 5.6% in 1995 all the way down to 4% by year 2000.  NAIRU estimates for the year 2000 were consistently higher than the actual unemployment rates achieved; starting at 5.4% in 1994, those estimates actually increased to 5.8% in 1996 before dropping back down to 5.2% by year 2000.  In other words, economists expected inflation to start accelerating once U3 unemployment reached and fell below these rates.  Yet, as the charts below demonstrate, inflation (especially PCE less food & energy) barely budged during the 1990s – and actual unemployment rates were far below NAIRU estimates!  Part of that was no doubt due to the late 90’s productivity spurt, but productivity is still growing at a decent (if not stellar) clip right now, meaning more output can be produced with a given (or less) amount of input.  As more output can be squeezed out of given inputs, there is less of a need to raise prices to maintain profitability.  If now is anything like the late 90’s, productivity growth can absorb wage growth/cost pressures for a while before businesses will have to raise prices to maintain profits.  In other words, unemployment could fall a ways further from its current 5.5% rate before we start to see inflationary pressures, which means that our current NAIRU estimates (around 5-5.5%) are too high.  This would make sense; I feel like, ever since the 1970s hyperinflation episode, policymakers have been overly cautious in making sure that policy tightening begins before inflation gets too high.  Thus the artificially high NAIRU estimates.

Source:

Source: “The Unemployment Rate at Full Employment: How Low Can You Go?” by Jared Bernstein and Dean Baker. http://economix.blogs.nytimes.com/2013/11/20/the-unemployment-rate-at-full-employment-how-low-can-you-go/?_r=1

Source:

Source: “The Unemployment Rate at Full Employment: How Low Can You Go?” by Jared Bernstein and Dean Baker. http://economix.blogs.nytimes.com/2013/11/20/the-unemployment-rate-at-full-employment-how-low-can-you-go/?_r=1

Additionally, there are the countless other indicators that suggest the economy is still being underutilized.  The more comprehensive U6 unemployment rate, which, as the BLS describes, measures “…total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force”, still stands at 10.8% in May 2015 (seasonally adjusted).  The employment-to-population ratio has also yet to recover from the recession, standing at 59.4% in May 2015 (down from a cyclical high of 63.4% back in December 2006).

2) It’d be good to have a long period of low unemployment after the disastrous labor market of the past few years.  As everyone (especially recent college graduates) knows, the job market hasn’t been stellar for a while; it’s only just getting back to “normal”.  U3 hit a 3-decade high of 10.0% as recently as late 2009, the U-6 measures were even higher, and worst of all, long-term unemployment as a share of the unemployed hit both a record high and stayed high for a record amount of time (see chart below).  Such high rates of unemployment for such long periods of time undoubtedly have helped destroy millions of household finances over the years while also threatening to create structural unemployment (as skills atrophy and people become less “employable”).  I think, like a yo-yo, such high and extended periods of unemployment should swing the opposite way: exceptionally low unemployment for an exceptionally long period of time.  This will aid households in naturally repairing their finances (which did appear to actually “improve” over the years, but it seems personal bankruptcy and/or exceptionally painful (destructive?) saving were the main reasons).  It will allow workers to practice their skills and boost their self-esteem (which can create a virtuous cycle of higher productivity).  Additionally, it can also help to generate wage pressures so wages can “catch up” the ground they lost (as in, the growth that would have occurred had the economy been operating at full capacity since 2007).  Some might argue that this could threaten profits too much; however, coming at the heels of several years of record profits and high volumes of cash reserves, I think employers would be able to healthy absorb wage hikes for a fairly long period of time before this became an issue.

3) Continued loose policy would help counteract an over-appreciation of the dollar.  The U.S. dollar has gained rapidly against a basket of currencies since last fall (up by a full 21% against the Euro since this time last year).  There are many reasons for its rapid rise – a collapse in oil prices, investor confidence in the strength of the U.S. economy, and – ironically enough – investor expectations of a target rate hike.  The concern is that either this appreciation continues or that its rapid rise has already done too much damage.  Stronger currencies make exports more expensive (by boosting the relative prices of exporters and decreasing their competitiveness) while simultaneously making it relatively cheaper to import.  Though the latter is good for consumers, the combination of lower exports and higher imports wreaks havoc on the trade balance (which, for America, is almost always in deficit), thereby lowering GDP growth.  Arguably one of the biggest forces restraining the dollar from rising much further is a continuation of loose monetary policy.  End it, and the dollar rise alone could stall a still rather mediocre recovery (by historical standards).  Along with the other reasons above, it’d be preferable to continue a low target rate at least until some of the other pressures are alleviated.

4) Even if it did threaten to raise inflation a bit above current targets, this wouldn’t necessarily be a bad thing.  Look, too much inflation is bad.  Everyone knows that rising prices squeeze family budgets and distorts economic decision making (shifting future demand into the present to avoid higher future prices, leading to a negative feedback loop of higher inflation).  It’s literally a hidden (or not-so-hidden) tax that eats up the purchasing power of savings and investments.  But a little bit of inflation is not a bad thing.  Stable, fairly low inflation can actually benefit an economy.  It makes wages less sticky by placing pressure on employers to raise them (so employees can maintain cost-of-living).  By lowering the purchasing power of dollars spent on repaying fixed-amount burdens, it also reduces the real debt of indebted consumers who, after becoming extremely over-leveraged during the 2000s, could still use some relief so they can resume healthy (but moderate) spending.  This reduction in real debt burdens also goes for the federal government (whose $18 trillion tab, while manageable in a $17 trillion economy, could still use some relief).  Inflation a bit above the current target of 2% (say, 3 or 4%) would still be manageable; and in my opinion, is absolutely worth it if low unemployment can be attained.  Now, this does present a credibility problem for the Fed; it’s consistently stated that 2% target figure, and if inflation were to rise higher than that, then it could spook investors and lead to concerns that the Fed will not contain it (and that another Weimar Republic-style meltdown is on its way).  So perhaps the Fed should inform investors of a new, slightly higher target rate, while making it clear that absolutely no higher rates will ever be tolerated.  It might help to remind economic agents that these targets didn’t even exist as recently as 40 years ago, so it’s hardly like they’ve remained consistent.

5) A recession can still be handled by both fiscal and monetary policy, even if rates start out at zero.  So what if the Fed can’t lower nominal rates any further?  They have Q.E. and a general unlimited capacity to purchase securities, emergency lending capabilities, operation twist, forward guidance, etc., etc.  And there are tens of thousands of governments in the United States that theoretically have the capability to engage in expansionary fiscal policy (though the Federal government, with its unique status of having no balanced operating budget requirement, will probably remain the most potent public sector actor).  If you raised rates now and caused a recession, you probably still wouldn’t be able to cut them that far anyway (since they probably won’t reach that high before equilibrium is breached).

6) Savings rates were plummeting anyway…and the boost to equities is (arguably) still good.  Due to a myriad of factors (wage stagnation, cultural shifts, a global savings glut, etc.), Americans no longer save the way they used to.  Indeed, in 2005, the savings rate went negative for the first time since the Great Depression, and in recent years has only climbed back up to around 5%.  Too many trends outside of the Fed’s control will continue to keep downward pressure on savings rates.  And there’s no guarantee that a rise in the effective Fed Funds rate would necessarily translate into higher interest rates for savers (in savings accounts, C.D.’s, etc.)  Additionally, the effect of the Fed continue to purchase securities to maintain a low effective Fed Funds rate is to lower the yield (and boost the price) of bonds/securities, making equities relatively more attractive (for their higher returns).  This has allowed the stock market to soar, bolstering the “wealth effect” for households (prompting them to spend more) and increasing the returns to retirement accounts tied to the equity markets.  And we can’t forget the impact of low rates making long-term borrowing (e.g. for mortgages) easier, translating into higher house prices (and thus greatly boosting the wealth-effect for the middle class).

Overall, then, the argument against raising rates now is clear.  Now granted, the target rate will have to be raised eventually (probably within the next year or so) – these positive effects will not last forever, and there is a risk of overshooting targets and objectives if rates stay low too long.  But it’s time to break from the past policy hyper-conservatism and boldly declare a new approach; today’s challenging economic environment requires nothing less.

A Spring Cleaning for American Monetary Policy

The past several months have witnessed profound transformations in the state of America’s economic outlook. Output growth has accelerated, with annualized GDP growth rates of 4.6%, 5.0%, and 2.2% in Q2, Q3, and Q4 of 2014, respectively.  This has been accompanied by similarly impressive gains in the pace of job creation, with a full year’s worth of monthly net employment gains of over 200,000, and an unemployment rate increasingly dipping into “natural rate” territory (estimated to be between 5.2 & 5.5%, though recently revised to around 5.1%).  Oil prices have plunged since late 2014, helping to spur aggregate demand.  And the FY 2016 budget released by the Obama administration in early February continued the turnaround in federal fiscal policy, with large increases in proposed discretionary spending initiatives promising to accelerate (if implemented) the transition towards a more accomodative policy stance.

Real GDP Growth has trended upward in recent quarters.  Photo courtesy of the Bureau of Economic Analysis.

Real GDP Growth has trended upward in recent quarters. Photo courtesy of the Bureau of Economic Analysis.

Monthly net payroll growth has steadily increased as output growth has accelerated

Monthly net payroll growth has steadily increased as output growth has accelerated

The U3 unemployment rate measure is slowly converging towards the estimated natural rate of unemployment (NAIRU).

The U3 unemployment rate measure is slowly converging towards the estimated natural rate of unemployment (NAIRU).

All of this points towards an economy that is rapidly strengthening and should continue to do so as the year continues.  The impacts of oil & natural gas price declines have yet to fully ripple through the economy in the form of increased manufacturing competitiveness and higher consumption.  Firming employment figures should boost aggregate demand as more earnings are recycled into discretionary household purchases.  Higher stock and housing prices will continue to translate into “wealth-effect” consumer spending.  And rising retail sales should further spur investment, boosting current and long-run growth in the process.  Ceteris paribus – all else held equal (such as geopolitical happenings) – and there is little reason to expect for strong economic growth not to continue.

With the arrival of Spring on March 20th and the accompanying wave of household cleaning, as well as this unexpected barrage of good economic news, it is a good time to take stock of the current policy trajectory.  Considering it is in the news so much, and bears so much direct import on the macroeconomy, of primary concern is the stance of monetary policy.  How soon should the Fed tighten?

Currently, the main policy tool that is modulated by the Federal Reserve, the Federal Funds Target Rate, is set in a range from 0 – 0.25% – the lowest levels in its history.  This has been the case since late 2008, and the 6+ years since then has likewise marked the longest period of accomodative policy in history.

This is set to change.

Rumor has it that a long-awaited hike in interest rates (read: Fed Funds Target Rate) will proceed by the middle to late-middle of this year, though the rate of increase will be fairly gradual, perhaps around 50 basis points to .75% by late this year.  This has been the assumption of investors for awhile now, and seems to be the likeliest course of action.  But is it a good course of action?

My views are mixed, but side with pessimists who feel that even these gradual steps are too rapid.  First among my concerns is that the American economy is still no where close to “full employment”, one of the key elements of the Fed’s dual mandate.  The Economic Policy Institute estimates that U3 rates closer to 4.0% (instead of 5 – 5.5%) are more consistent with NAIRU (n0n-accelerating inflation rate of unemployment).  This would make sense, for though unemployment is now within reach of the Fed’s estimates for NAIRU, inflation has continued to trend down (turning into outright deflation in recent months as lower oil prices feed into general prices), and wage growth remains stagnant (at 2% nominal growth, real wage growth is too low to feed into wage-push inflation).

fredgraph

Rates of inflation are well below the Fed’s 2% annual target

 

Nominal Wage Growth Tracker

As demonstrated by the Economic Policy Institute’s Nominal Wage Tracker, wages are rising too slowly to be consistent with target wage and inflation growth.

 

We would expect wage growth to strengthen as we near the natural full rate of unemployment.  Rising demand for workers while the labor supply becomes more scarce boosts the bargaining power of workers to negotiate higher wages.  This wage growth is partially a pre-requisite for higher rates of inflation (closer to the 2% target).  Higher wages means that prices usually must be increased for businesses to maintain profits, and these higher prices then necessitate further wage hikes, creating a positive upward spiral that feeds into rising inflation.  Since both nominal wage growth and inflation rates are well below target, it appears that full employment has not yet been reached.

Some will argue that the existence of monetary policy impact lags (how long it takes for a policy change to have an effect) would justify a rate increase now, as several months from now, it may well be that full employment is reached and wage and price increases are accelerating, to the point that tighter policy is needed to mitigate.  However, even if it were so that we reach full employment on current trajectory (which, if EPI is right and NAIRU is closer to 4.0%, will be a ways into the future), I still think holding off on an increase is justifiable.  For one thing, wage growth has been subpar for many years – allowing it to catch up back to pre-recession trends wouldn’t be a bad idea.  This is especially true if the Fed is worried about the sustainability of the expansion.  Wage increases are necessary for increases in consumer spending (the driving force of the U.S. economy) to be sustained.  Allowing for months, if not a few years, of above-average wage & inflation growth might not be a bad thing for the sake of sustainability.

Given the existence of multiple tools to combat inflationary pressures and to prevent higher inflation rates from being too ingrained, I think the biggest drawback of this proposal of delayed tightening is that the Fed risks overshooting its employment target (meaning that unemployment is below its natural rate for an extended period of time).  Technically, this would be a violation of its dual mandate.  However, invoking the argument about this policy helping to produce long-run economic sustainability (to maintain full employment and stable prices), a temporary overshooting of the dual mandate targets might be statutorily justified.  It all depends on the timeframe the Fed chooses to create policy, which historically has been rather short (within months/a few years).  This is the difficult balancing act the Fed must consider, and which is statutorily ambiguous.

If it were to think more of the possible long-run consequences of its policies (especially as it relates to the dual mandate), an already difficult task suddenly becomes much, much more complex.  Further thinking and a cleaning of its future policy stance is in order…

TBC

The Imperative of Tax Reform in a Distracted World

Taxes. Nobody likes them, nobody wants them, and they’re only considered good when they’re going one direction: down. But they are fundamentally necessary for any society to function. In fact, if levied at moderate rates and the revenues they generate are properly spent, taxes are key for societal prosperity.

In America’s case, taxes are generally somewhat lower, especially at the federal level, compared to other developed countries . This is not to say that Americans don’t pay a significant amount of tax. Being a country with a sizeable tax burden and one that is relatively low tax are not mutually exclusive concepts. Still, at the federal level, marginal income tax rates and top rates are generally lower than those prevailing in Europe, and a Federal sales tax simply does not exist (also unlike Europe). When factoring in state and local taxes, levels are equalized a bit more, but burdens still are generally lower in America.

Figure-2

Americans’ average tax burdens generally lower than peer countries

However, looking at rates and the revenue bite is only a part of the burden story. As is often said, America’s federal tax code is, quite simply, horrendous. In addition to the normal complexities of a progressive system (e.g. different rates for different brackets at various stages of income generation), the tax code is stuffed with various deductions, exemptions, credits, and loopholes that impose a not-so-insignificant burden on all Americans.  In the aggregate, this complexity is in itself a massive tax (or set of taxes). Precious time and real dollars must be spent to navigate and understand the code, resources that could be used for far more productive uses. The real tragedy of all this complexity is that it ultimately benefits no one in the end. The government does not generate revenue from complexity (indeed, it loses revenue from the loopholes and from reduced economic activity). Society as a whole wastes resources that could otherwise generate positive returns to try and minimize their burdens. The result is the potential for slower growth and lower living standards than would have been the case.

In this way, the net economic burden of America’s federal tax code could actually be on par with (or even exceed) the burden experienced in European countries (especially when including state and local codes). It is naturally rather difficult to put a value on this non-revenue burden, though most estimates place it at at least a few hundred billion dollars annually for the country as a whole.

Since personal income taxes represent a sizeable portion of the federal tax code (and its various complexities), many proposed “solutions” to the federal tax code burden (assuming it is labeled as a problem) focus on restructuring the federal income tax. One of the most popular proposals is replacing the current structure with a flat personal income tax.

policybasics-taxrevenues-f1

The Income Tax is the single largest source of Federal Tax Revenue

There are many laudable benefits to a flat tax. For one, it would be much easier for each taxpayer to calculate his or her “effective tax rate”. With a progressive income tax, rates change as income progresses. For (hypothetical) example, each dollar of taxable income within the $1 to $9,999 range would have a rate applied to each dollar, say, 10%. However, dollars within the $10, 000 through $19,999 bracket would have a different rate, say 15%, applied to each dollar. Naturally then, this makes calculating the effective tax rate (the total amount of tax as a percentage of total income) rather difficult. With a flat tax, however, there are no brackets – for all taxable income, the same rate is applied to each dollar. This makes the flat tax rate and effective tax rate essentially equal (assuming no credits, deductions, exemptions, or loopholes). In this way, unlike the current income tax structure, an individual can know with much greater certainty how much of their income will be withheld.  The need to outsource tax liability calculations to a firm is reduced, if not eliminated, freeing up resources and largely destroying a major source of federal lobbying efforts.

Second, in my view, a flat tax conceivably has something for everyone to like. It is simple, transparent, and does not penalize people who generate more income, which is especially important to conservatives . They see it as being neutral and as a means to boost individual productivity, efficiency, savings, and investment. However, a flat tax still makes people with higher income pay more in absolute amounts. The difference is that the proportion of income that goes to taxes is the same for everyone. For a simplistic example, let’s say there are two individuals A and B. Say A has a taxable income of $100 and B has a taxable income of $1000. If a flat rate of 10% is applied, A will pay $10 in tax while B will pay $100. B, being higher income, still pays more than A in taxes. But the proportion payed is the same for both A and B. This seems fair and attractive to both ends of the American political spectrum.

Third, the elimination of brackets and all of the other complexities riddling the current code would likely boost public confidence in the government and would reduce the feeling that a person is being unfairly taxed at arbitrary rates within arbitrary brackets.  This increased confidence might boost tax collection and faith in political institutions, which has been severely lacking in recent years.

Of course, the flat tax has many drawbacks. One of the most important concerns raised by critics of the flat tax is that it lacks the counter-cyclical elements of progressive income taxes.  For example: during a recession, incomes generally fall.  Falling incomes will place individuals in lower top tax brackets (meaning they have to “progress” through less brackets).  This means a lower effective tax rate – in essence, the structure of a progressive tax code means that it provides an effective tax cut during recessions or periods of slow economic activity.  In other words, it acts as an automatic stabilizer.  This is not so for flat taxes – the rate is always the same, regardless of changes in income.  The only route for effective tax cuts in a flat-tax world is via discretionary fiscal policy – actual legislative action – to reduce the applied rate.  This runs into the problems of policy lags – recognition lags, implementation lags, and impact lags.  It takes time for policymakers to identify economic conditions and the need for change, more time to actually make and implement a policy change, and even more time for an implemented change to have an affect – by which point, the policy change may be inappropriate for the macroeconomic environment.  If policymakers ever move towards a flat tax one day, they may have to consider a revamp of federal automatic stabilization systems for smoothing out the business cycle – and if not, the onus of economic stabilization will continue shifting towards monetary policy.

A second and virtually identical concern is the lack of progressiveness of flat taxes.  The US income tax code is currently considered among the most progressive in the developed world.  However, overall progressiveness in America’s redistribution systems is rather low, as many other federal, state, and local taxes are regressive, and “social assistance” programs, regardless of their impact of work incentives, are fairly skimpy by rich country standards.  Make the income tax code flat, and you remove a major source of progressiveness in America’s redistribution systems and would almost certainly increase after-tax income inequality.  Depending on your views regarding redistribution and income inequality, this could be either a good thing or a bad thing.

Regardless of whether a flat tax is pursued or not, it is (quietly) agreed by both the American Left and the American Right that the tax code needs radical simplification.  Right now, though, the imperative of tax reform has been pushed to the side to make way for a focus on ISIS, poverty reduction, immigration, and healthcare issues (to name a few), and ironically, the complexities that tax reform would attempt to solve helps to further ensure that such reform never takes place.  It is overcoming this entrenched policy stagnation that is the great task of our times.

Caught Between Iraq and a Hard Place

Just a few years ago, things were looking up for the Middle East.  The Arab Spring , in which peoples across the region rose up to overturn oppressive and authoritarian governments (many of them dictatorships), spread like wildfires in 2011 and 2012 across the region, raising the prospects of the establishment of liberal democratic institutions.  World oil prices, having plunged during the Great Recession (with some indices reaching a low of approximately $30/barrel in late 2008 and early 2009), rebounded sharply as the aughts came to a close, propping up the region’s oil-dependent economy.  After a brief conflict with Gaza, the Israeli-Palestinian conflict grew quieter, and there existed emerging optimism that American-led interventions would finally be drawing to a close.

What a difference a few years can make.  The Arab Spring has collapsed, having produced only one quasi-legitimate democracy (Tunisia).  Many authoritarian governments remain intact, and even the ones that were overthrown (such as the regime of Egyptian President Hosni Mubarak) were replaced by illiberal “democracies” that have since slid back towards authoritarian tendencies (or outright coup d’états).  Oil prices gains have stalled, having yet to reach their mid-2008 peak, and the Israeli-Palestinian conflict has yet again reared its ugly head.

Of the many fires now consuming the region, however, none are quite as disheartening as the disintegration of Iraq.  The steady march of the so-called “Islamic State” (IS) across much of northern and central Iraq has caused horrific casualties and undermined the already struggling legitimacy of the regime in Baghdad (which has pretty much collapsed with Nouri al-Maliki’s resignation on August 14th, 2014) .  That this follows a multi-trillion dollar 9-year American-led war there, whose purported objectives was to establish a peaceful, legitimate Iraqi liberal democracy, makes this disintegration especially galling.

Barely two and a half years after pulling out the last American troops there, the US is (according to Vox.com) yet again contemplating sending in troops of some form or another, mainly to help save the minority Yazidi population currently trapped by the IS.  The decision as to whether to pursue further intervention into the broader conflict, however, is muddied by a few complicated factors:

  • Who exactly are the “good guys” and “bad guys” here?  This seems like a ridiculous question, especially considering the horrific brutality of IS tactics and the fanatical ideology they espouse.  However, just as in the Syrian Civil War, the existing alternatives to IS rule (including the pre-IS status quo) aren’t exactly ideal either.  Indeed, the (now nonexistent) Shia-dominated government of Nouri al-Maliki has reportedly continued to persecute Iraq’s Sunni minority, and has not formed a government representative or inclusive of Sunnis.  While most Sunnis do not appear to favor IS either, many are frustrated with the regime in Baghdad.  If the US intervenes in support of the Iraqi government, it would be doing this with full knowledge that it, like the IS, has also committed many abuses.  A choice has to be made between the lesser of two evils – you really can’t win here.
  • The IS is providing needed social services to many Iraqis.  According to PBS, the IS has established and funded a variety of social services to much of the population in its territorial control.  While this is obviously a tactic to buy-off the population and garner support, it does provide a modicum of short-term human security (and thus, potentially, stability).  Also, some services, such as healthcare, education, power, and water, etc.  have the potential to promote economic development and diversification (and thus long-run stability), although whether growth & development or quality services come first is admittedly a longstanding chicken-and-egg controversy in the economics profession.  Diversification, especially, is key to long-term economic prosperity in Iraq, which still disproportionately relies on oil production to generate wealth and to provide fiscal resources.  Such dependency reflects a classic case of the resource curse, whereby the resource at hand (in this case, oil) stunts development in the long run by appreciating the currency and making industrial exports uncompetitive.  Thus, ironically, the IS could be indirectly (and inadvertently) promoting the long-run social and economic well-being of the country via its provision of these services, and efforts to stop it could do the opposite.  Of course, this ignores the profound violence and economic disruption caused by the IS, not to mention the groups’ many other non-negligible negative qualities.  But it is something to consider by the Americans and the Iraqi state (and other involved actors) as they consider how to move forward.  Perhaps a reshuffling of Iraqi budgetary priorities is in order?
  • Substantial American opposition to US military intervention.  Simply put, Americans are really, really war-weary.  They are tired of the very real human and financial costs of war, and feel like Iraq (among other interventions) is a hopeless basket case that should just solve its own problems.  The difficulty that Barack Obama and the American government faces is the conflict between pragmatic action (which, given the uncertainty and number of variables involved, has yet to be defined) and appeasing the electorate (mostly for the sake of his party, as he is no longer eligible for reelection, although presidential legacy is always an influencing factor as well).
  • Would US intervention help or hurt Iraqi, American, and global interests?   What exactly are those interests in the first place?  These questions are very, very broad.  First, it must be asked which Iraqi domestic scenario is in the interests of the Iraqi people.  A Shia-dominated government?  A Sunni government?  A mixed government?  State partition?  Some have even questioned, especially since the Iraq war, whether democracy is even in Iraq’s best interest at this time, considering cultural factors and lack of established democratic precedent in the country.  This relates to the debate as to whether growth and form of government are best compatible, and which should be emphasized first.  For America and the globe, there are questions as to whether a certain Iraqi domestic situation is best for regional stability, especially when it comes to providing a counterbalance to the hostile Shia-dominated government of Iran.  How about oil price stability?  Since the commodity price surge of the 2000s, the global economy has certainly adjusted to higher prices and more prepared for price shocks via structural efficiency gains (note that the Great Recession was preceded by an oil price shock in which prices exceeded $100/barrel; prices have since consistently been around $100/barrel, and yet global growth has long since resumed).  Thus, conflict in Iraq might not be as much of an economic red flag as it once was.  But it still is important.  Considering all of these different questions (a non-exhaustive list which has been provided here),  it then has to be determined whether American military intervention of any form would help or hurt all of those interests.

Personally, I have no concrete opinion as to what course of action I think should be pursued.  Like so many subjects in the realm of public policy, each action has its costs and benefits, the net effect of which is extremely difficult to ascertain.  Literally millions, if not billions, of variables are at play here.  Yet in the end, a choice must be made by America’s leaders, even if that choice is ultimately to do nothing.  Regardless of what they choose, they can be assured to face unflinching judgement by millions of people with an understandable yet fatally simplistic view of the world who, like the rest of humanity, are limited in the amount and scope of information available to them.  That is the unfortunate reality of politics – a reality that, in this case, is further exacerbated by the life-and-death nature of the situation. It is an unenviable position for any policymaker to be in.  Invoking the old phrase, they are truly caught – caught between a rock and a hard place.

On America’s “Great Stagnation”

This posting will briefly discuss the historically weak growth since the end of the 2007-2009 “Great Recession” (though a greater period of time, reaching into the 2000’s or “aughts” or even further back, can also be included in the definition).  It argues that, though we may have reason to be alarmed at slower long-run economic growth, by many measures living standards have improved at a rapid rate, and will continue to do so into the foreseeable future.


Since the end of the last business cycle trough in June 2009, countless observers have noted – and lamented – the historically anemic growth rate of America’s economy.  In the 19 quarters since the beginning of the recovery, GDP growth has averaged around 2% annually – well below the 4% average for recoveries after 1960, and barely enough to generate the jobs needed to absorb entries into the labor market.  Indeed, in the first quarter of 2014, the economy logged (at a seasonally adjusted annual rate) of  -1%; in other words, it registered an actual contraction, the first quarter since 2011 to do so.  Although the particular severity of Q1’s stagnation  is likely temporary, it nonetheless does well to highlight the unique sluggishness that has characterized this recovery since the beginning.  Also highlighting the recovery’s weakness is the economy’s failure to quickly return to potential output, reflected in the continued existence of a large output gap (see charts 1& 2).

Real vs. Potential

 

bivens-figure2

It is true that economic growth remains far from normal – especially considering the depth of the preceding recession, which usually are followed by sharp “bounceback” recoveries (as pent-up consumer & investor demand is unleashed).

However, there are a couple of things to keep in mind:

1) This was not a “normal” recession.  Normally, recessions are sparked by mild shocks in aggregate demand or aggregate supply, oftentimes instigated by a contractionary monetary policy.  This time, however, there was an extreme shock to aggregate demand as a plummet in housing prices pushed down household consumption (the “wealth” effect) and the deterioration in the balance sheets of financial institutions caused a freeze in credit markets.  “Balance-sheet” recessions like these are typically severe, and have long-lasting effects.  Growth tends to be much weaker in decade following financial crises than normal recessions as households and institutions “deleverage” their debts to repair their balance sheets.  Since the United States had not, until now, experienced a true financial crisis since the Great Depression, this sluggish recovery can be considered historically unique.

2) Growth and potential growth have been slowing for decades.  When one looks at real GDP and potential GDP over long periods of time (see chart), it becomes clear that long-term growth has been slowing for decades.  Especially recently, after each subsequent recession the recoveries have been weaker than the one preceding them.  Although it only shows data through 2011, the second chart below clearly demonstrates this pattern.

2.1.1-GDP-gap-OPT

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3) As the population continues to age and retire, sluggish growth is only to be expected – unless productivity growth accelerates.  An economy essentially grows for two reasons: the population/labor force is increasing and/or labor productivity (ouput/hour or, more generally, the amount of output with a set of given inputs) grows.  The latter is especially important in helping to boost living standards, as more efficient production allows for more income to be distributed and for goods and services to be produced at lower costs.  Historically, especially during the “golden age of capitalism” from the 1940s-1970s, the economy has benefited from both labor force growth and productivity growth.  Beginning in the 70s, however, the 2nd factor – productivity growth – began a to register a marked slowdown, even as the labor force continued to expand (especially with an increase in the participation of women).  The reasons for this slowdown are unclear.  Was US inflation distorting incentives and resource allocation?  Were technological waves delivering less of an impact as earlier technological waves?  And are these changes driven more by changes in the accumulation of capital stock or total factor productivity (TFP)?  Regardless, this slowdown in productivity has continued to the present day, interrupted only by a brief revival in the late 90s and early 2000s (see neat chart below that I made using data from the Bureau of Labor Statistics; as a note, the data represents quarterly % changes at annualized rates, and labor productivity is defined as output/hour).

Capture

All of this points to a couple of things.  Comparing this recovery to past ones should be used with a grain of salt, because

a) it follows a historically unique financial crisis, unlike other recoveries, and thus can be expected to be slow in the short-term

b) the growth trajectory has long been slowing, making many recoveries naturally more sluggish than those that preceded them, suggesting that, even without the financial crisis, stagnation could have been expected anyway

While some parts of this decline in long-term growth appear natural (such as a decline in labor force participation due to ageing populations), other parts – such as the productivity element – may or may not be.  This is because productivity growth can arguably be more strongly influenced by deliberate policy/non-policy actions than labor force participation can (at least when considering that most older baby boomers will have to retire at some point soon). Should the public and/or private sectors, for instance, be investing more in public and private capital?  Maybe.  But the urgency of that question depends on how much that sluggishness is translating into a stagnation in actual living standards.

Certainly, there are good arguments that American living standards have shown signs of stagnation as of late (and not just following the 2007-2009 recession).  For instance, as the chart below demonstrates, median household income (the income level of the theoretical household in the exact center of a data set of all household incomes) has registered virtually no net growth since the late 1980s.

Capture2

Other trends are worrying as well.  Poverty rates as defined by the Census Bureau have made almost no net progress since the 1970s, and the prevalence of health insurance and retirement plans (think defined-benefit pensions) have evaporated (at least until recently).  Combined with a worrying increase in health care costs and tertiary education tuition, and the typical American household has indeed seemingly experienced a “stagnation” for a fairly long period of time.

However, despite all of this negative “evidence”, I personally would still contend that living standards have still registered marvelous improvements, and will continue to do so.  First of all, GDP & productivity growth figures do not account for a crucial aspect of capitalism that is often under-appreciated: a long-run rapid improvement in product quality and capability.  While such figures may capture value-added in the production process, they cannot completely account for improvements in product capability and the additional satisfaction these new capabilities give to consumers.  For example, think about cars.  Economic statistics may reflect the total output of cars, the efficiency of their production, etc, but they oftentimes may completely ignore how much the typical car has changed.  For example, many cars are now equipped with sensory technology that makes driving smoother and more comfortable.  Anti-lock brakes, air conditioning, and even GPS systems, all once reserved for those with the most cash, are now becoming increasingly widespread and standardized with the industry, improving the driving experience of millions of consumers.

Additionally, I think too much emphasis is placed on incomes when it is often ignored how dramatically consumer costs have actually fallen in many industries.  For example, according to statisticbrain.com, the average price/MB of RAM has decreased from approximately $411 million in 1957 to less than six-thousandths of a dollar in 2013.  This has greatly increased the purchasing power of the typical consumer, and has been replicated in many other sectors of the economy.

While it is true that some very important industries that impact the middle class – namely healthcare and education – have shown rising costs, which is a concern that should be addressed, even here this largely reflects increases in quality.  New (albeit costly) technology and healthcare procedures, for example, have given consumers innovative and state-of-the-art choices.  These technologies and procedures have greatly increased the quality of life of people, something the statistics cannot ever fully reflect.

Overall, while I do think America has entered a “Great Stagnation” (not just in the short-run but over the past couple of decades) in terms of economic growth, I do not think this fact should be assumed to be entirely a bad thing.  Indeed, I think it is somewhat misleading – despite slower growth, many elements of living standards (which I only briefly touched upon) continue to make rapid progress, even if many other components of such standards have stalled (e.g. household income, health insurance coverage, etc.)  While it is certainly no excuse for complacency – we would do well to figure out ways to sustainably boost long-run growth – it is reason to think twice about repeated observations of a supposed “decline” in American affluence and its middle class.  The trends are a bit more complex than that.