The left and Cash Transfers to the Poor: A Rejoinder to Slander

This seems so elementary that it should not have to be pointed out. Lately it has not been in my nature to get in the way of an over the top, gross generalization founded on spurious sampling techniques paired with the terrorism of gotcha journalism, however, today I am feeling frisky.

Some Guy (SG) has a blog post up about how lefties hate direct cash transfers to the poor. I can’t make heads or tails of this claim including the two random citations of lefties provided: one an individual the other a think tank (now there is rigour if I ever saw it). Unfortunately even the random citations provided were poor choice because in the one case SG failed to read the article—I suspect he is hoping you will too.

But alas we all now know that economists are to be debated not trusted. Inter alia, Duncan Cameron argued for an increase in direct cash transfers to the working, unemployed and non working poor:

“By any measure, minimum wages, welfare payments, unemployment assistance have all declined since at least the inflationary period of the 1970s. All these programs need dramatic improvements.”

There is then some irony that SG should have given his post the title: “An overlooked anti-poverty strategy: giving money to poor people.” Seemingly for SG, an increase in the cash benefits to the poor, working poor and unemployed do not quality as “giving money to the poor” (I will explain why below). And unintended irony of all irony the research reported on SG”s blog on minimum wages concludes that increases in minimum wages under a 40-45% of an average hourly wages threshold has little to a positive effect on employment. Although having an indeterminate effect on poverty.

Hence, I suppose the need for direct cash transfers of one form or another. Like uhm maybe an increase in cash benefits for welfare and EI recipients as Duncan argued? No No No No! Shrieked the vanilla economist! I will explain why further on.

In order to solve this murder mystery we will have to return to the scene of the crime. What seems to have stuck in the quick of SG was this offending remark by Duncan on EITCs as a generalized strategy for poverty reduction:

“Not even the Toronto Star editorial board seems to have noticed the problem is much wider than the working poor, and the solution greater than an earned income tax credit — aka a handout — so that lousy employers can continue to pay poverty wages.”

Clearly EITCs are SG’s preferred poverty reduction strategy—no matter that EITC’s do not have robust evidence to support the claim that they reduce poverty. In the US for example, where the program is much more robust than in Canada, the maximum benefit is around 2,700$ per year for a family with two children and around 500$ for a family without kids. And here is the kicker the EITC is phased out fully at 37,000$ for a two child two working parent family and 24,000$ for two individual no children family. I find some irony in the fact that my middle class baby manual tells me that children cost around 10,000$ a year. Therefore the idea that a 1,300$ (max) a year per child EITC in the US could be held up as major strategy to combat poverty is well simply farcical—albeit better than a kick in the ass I suppose. In any case, this is clearly where the unintended irony of a virgin gives way to self-satirisation—hardly edifying.

But the more important question is why would an economist be flogging EITCs as (a) the only form direct cash transfers should take; and (b), at the same time misrepresent the scheme as a poverty reduction scheme? The second is easier (i.e., more simple) to explain than the first. Classic misdirection—the first learned trick of magicians, pick pockets and con-artists (all of which I have infinite respect for outside of the academy).

However, the first question is more painfully answered. You see back in some early graduate seminar vanilla economists (well actually all economists because all economists have to be able to converse with vanilla economists but the reverse is not true—although some vanilla economist are capable of cross paradigm conversations) are given a tutorial on welfare policy analysis. The problem is that traditional cash transfers from say welfare or EI create an incentive for poor people not to work. All things being equal, why work if your welfare benefits will be clawed back and your earned income will be taxed? The basic thrust of the EITC is that it makes it so that work pays. And this is the real thrust of the EITC—making sure the incentive structure is designed so that the poor have an incentive to work and not layabout on the dole. It is about getting people off of welfare—which may or may not be a good thing—but it is not about poverty alleviation.

As an aside it was this I think Duncan was reacting to. Somewhat perversely, EITC’s act as a subsidy to minimum wage employers in two ways. On the one hand, they increase the labour supply of minimum wage workers thereby ensuring increased slack in their labour markets and thus downward pressure on average minimum wages. And on the other hand, they provide a subsidy to employers because the tax credit mitigates workers demand for higher wages. Perhaps this is why the program enjoys such bi-partisan support in the US.

In sum, EITCs are politically palatable because they “reward hard work” and shun the welfare system while giving the appearance of a concern about poverty. they keep in tact and rejuvenate that old Victorian separation between deserving and undeserving poor (never mind that the welfare system already reproduces this logic through extensive monitoring and what has been over the last twenty years increasing paltry benefit rates with increasingly restrictive qualification criteria).  They are, if taken in isolation as the only tool, a politically expedient, ideologically driven, and an ineffective poverty alleviation strategy sometimes garbed up in progressive rhetoric.

I welcome an honest conversation about a robust poverty alleviation strategy for Canada.  If only vanilla economists would try to meaningfully participate by jettisoning their predetermined policy preferences and erroneous characterizations of other members of the policy community. I for one am ready for a new conversation on poverty reduction in which everything is on the table–and not just facile ideological preferences masquerading as the new true social science.

Last in First out: Harper contradicted again

The FP reports that The CEO of TD bank directly contradicted Harper’s rosy prediction that Canada would be the first country out of the recession.  What is more, he argued that Canadian Banks would not be leading the way as they were going to be forced to deal with the collapse of securitization and foreign funding.

Canada can’t lead global recovery: Clark

Mr. Clark said he did not agree with the U. S. government’s two-pronged approach of addressing the financial crisis and the recession. “They have the view that you can’t have the economy work if the banks don’t; I would say the banks won’t work if the economy doesn’t work,” he said. He added this period of reintermediation, which was fuelled by a “false boom” in consumer demand by artificially inflated credit markets, would hurt Canada, and he did not believe the country could lead the world in recovery.

“Just because our banks didn’t collapse, Canadians are running around saying, wow, aren’t we terrific. But the reality is this economy is going to get whacked just as hard as economies around the world.”

I am not sure that Canadians were running around talking about how terrific our national banks were and drawing the conclusion that we would experience a mild recession and be the first to recover but I do know it has been the Cons talking points for the last month.

Delong is Wrong Again

What is up with Brad Delong?  It is like he is itching for a job in the Obama administration.  By his own admission he is no macro-economist but surely he knows the difference between effective demand at the level of the grass roots and supply push.  Then again maybe he is a macro-economists…of the fresh water variety.  Just read the following:

Even after central banks have pushed government bond prices as high as they can go, they should keep buying government bonds for cash, in the hope that people whose pockets are full of cash will spend more of it, and that this will directly pull people out of joblessness and into employment.

Here is a rather old fashioned idea: temporarily beef-up both the number of those covered by UI and the level of the replacement wage so that unemployed workers will have cash to spend on things like mortgages, rents, food and transportation.  Surely this seems better than hoping those who already have pockets full of cash will spend more of it and pull people out of employment.  And while unemployed workers are spending their UI, the Obama administration can find a little bit of breathing room to come up with a coherent plan to the financial mess instead of playing hanky panky ad hocery with the Fed, the Treasury and Wall street.

Dude trickle down is so like…the eighties.

Krugman is getting closer

In his latest Op-ed Krugman seems to be getting closer to the nub of it.  Just a little further Paul you are almost home.

Much discussion of the toxic-asset plan has focused on the details and the arithmetic, and rightly so. Beyond that, however, what’s striking is the vision expressed both in the content of the financial plan and in statements by administration officials. In essence, the administration seems to believe that once investors calm down, securitization — and the business of finance — can resume where it left off a year or two ago.

To be fair, officials are calling for more regulation. Indeed, on Thursday Tim Geithner, the Treasury secretary, laid out plans for enhanced regulation that would have been considered radical not long ago.

But the underlying vision remains that of a financial system more or less the same as it was two years ago, albeit somewhat tamed by new rules.

As you can guess, I don’t share that vision. I don’t think this is just a financial panic; I believe that it represents the failure of a whole model of banking, of an overgrown financial sector that did more harm than good. I don’t think the Obama administration can bring securitization back to life, and I don’t believe it should try.

Once krugman integrates some notion of stagnant wages and the privatization of debt via the massive extension of consumer credit he will arrive at an indictment of a growth model that goes well beyond a bloated financial sector.  He will, in short, end up indicting the very neoliberal growth model he once so proudly shilled for.

Decline in Canadian GDP bodes for an ill-wind

The GDP numbers released on Monday painted a none too pretty picture of the health of the Canadian economy. It perhaps was no shock that the figures released were worse than the BOC had predicted. However, the Globe managed to turn the devastation into hope arguing that:

The glimmer of hope comes from the fact that Canada’s descent into recession last year was faster and deeper than the two previous economic contractions in the early 1990s and the early 1980s.

That suggests a significant portion of the hurt that typically accompanies a downturn has already been felt….

Like Andrew Jackson over at the PEF, I find this alchemy quite odd. Let us actually throw up a graph of real quarterly GDP growth starting with the first quarter 0f 1962 and terminating in the last quarter. First off, as the graph clearly indicates the -0.85% contraction is historically unprecedented for the first quarter of a recession.

Now both the BOC and the wanna-be bulls have argued the steep decline means that we have already absorbed the pain so a quick turnaround is in order. I beg to differ. The recession of the early 80s started with a strong unprecedented contraction in q/q growth and then proceeded to stay in negative territory for the next 5 quarters 4 of which were lower than the initial historically low first quarter drop. The recession of the 1990s started with relatively mild contraction of growth in the first quarter and then snowballed downhill for another three quarters with each quarter being worse than the next.

The example of the early 80s suggests that recession that start with a bang are long and difficult (2 quarters longer), and the recession of the early 90s suggests that recessions that start with a whimper are nonetheless 4 quarter affairs with each quarter worse than the last. Nothing from the last two recessions supports the wanna-be Bulls position.

And quite frankly disseminating overly optimistic predictions is really quite irresponsible. Families are busy trying to figure how to position themselves to shore up their finances and make training and career decision in light of the recession. If families think that in 9 months out the fairytale economy will be back they will fail to make good decisions and suffer all that more hardship than they would have had “experts” and elites provided them with a more cautionary tale.

There is a repeated pattern here: “experts” read business economists, BOC economists and most academic economists have been behind the curve. First clinging to stories of the end of the business cycle, then clinging to fantasies of continentally and globally de-link Canadian economy, then clinging to the story of at best six month slow down, and now clinging to a fairytale turnaround in 9 months. And for the most part the government has gone along for the ride pricing each of the 4 successive stories in and deriving policy accordingly. After getting the optimism wrong for so long is not a little pessimism finally warranted not to mention better fiscal policy?

Economic Forecasts: Roubini makes the Bear’s Case

There are lots of rosy forecasts flirting around predicting a quick turnaround in the Canadian economy.  They all rely on some notion that global effective demand is going to raise commodity prices and thus restore growth in Canada.  So much of this hinges on what the prospects are for future global growth, not just if house prices stop falling and house and car sales pick up a little in the US.

Roubini who has been consistently ahead of the game has an expanded Q&A in the Financial Times. It needs to be read in full.  The point I would make is that any analysis which discounts uncertainty, does not take a more global dynamic approach, and which relies on a couple of discrete sectors is likely to give a false sense of security (or insecurity).

In many ways Roubini makes the point that has been made on this blog several times:  the neoliberal growth model is crumbling and there is no simple sense in which we return to 2006.

The basic difference between the bears and the wanna-be bulls seems to resolve itself to whether or not the present crisis is viewed as deeply systematic or superficially located in some auxillary system.  That is, whether the problem is with the starter of the engine or with the engine itself.

Mr. Gardner you got some splainin’ to do

Over at the Ottawa Citizen there is worthwhile attempt to keep the economy in perspective.  The watch phrase seems to be “do not panic.”  The implicit premise being that panic is driving bogus assessments of the extent of the turmoil unfolding in the economy and the labour market.  At least that was the premise of Gardner’s blog post:  StatsCan, you got some splainin’ to do .

For my part I am quite happy to the see that someone in the press is actually taking a look at the numbers.  The problem is, in this case, Mr. Gardner does not seem to be generating his own numbers.  He claims that Stats Can erred when it stated that:

This drop in employment exceeds any monthly decline during the previous economic downturns of the 1980s and 1990s.

Mr. Gardner argues that based on the Stats Can press release that reporters went about generating seriously flawed headlines.  I quote:

In one news story after another, we were told that the monthly job loss figure was worse than any in the recessions of the early 1990s or the early 1980s. This isn’t just bad, we were effectively told. This is unprecendentedly (sic) bad.

Mr Gardner goes on to say:

But that conclusion is based on a grade-school mistake: The labour market isn’t the same size today as it was in the early 1990s or early 1980s. It’s bigger. A lot bigger. For the stat to tell us how bad this drop was relative to those in other recessions, it has to take that into account.
Do that and it’s not the worst drop since the data were first gathered in 1976. It’s the third worst.

Now when I first read this I thought that Mr.Gardner’s conjecture was likely right.  The labour force is a lot bigger so all things being equal a large drop-off in unemployment might be relatively less severe than at other periods in the past.  It would have been nice if Mr. Gardner had presented his readers with the data or the formula by which he arrived at his conclusion.

So this morning I took a virtual walk over to Stats Can and pulled three series to be exact: Labour Force 15+; Employment; and Unemployment. All monthly and seasonally adjusted going back to 1976.

Why unemployment when this relates to Stats Can’s claim about employment?  Charity and balance is the answer.

So let us see if we can verify Gardner’s claim that Stats Can got it wrong and the press is full of a bunch of gloomsters.

In this graph two measures of employment loss are plotted.  One is the absolute loss of jobs (in black).  Here Stats Can is correct the 129,000 jobs was the most jobs ever shed since 1976.  But what of Mr Gardner’s point about the changing size of the Labour market?  The second measure captures this.  The pink line is the percent change in employment month over month.  Given that employment already accounts for 92% + of the total labour force it is by definition an ok approximation of the relative size of the Labour force.  And here again we are in Historic Territory: the fall in employment was the largest relative fall since 1976.

But what if something really funky was going on with the labour force? That is, what if we used the labour force to generate our relative assessment.  This seems to be Mr. Gardner’s acid test.  Always dutiful I did that too. Here the  change in employment was calculated as the absolute change in employment divided by the labour force.

Here again it would seem, according to the Stats Can data, that January was indeed a unprecedented happening.  No matter how one cuts-it, the Stats Can conclusion that “this drop in employment exceeds any monthly decline during the previous economic downturns of the 1980s and 1990s”  was exactly right.

To be fair to Mr. Gardner we could, however, take a different look at the employment situation and see if one could generate a much less novel conclusion.  For that I took a look at unemployment.  What I did was simply take the monthly unemployment rate and subtract Ti from T-i.  This will tell us if the jump in unemployment in January was higher than during any other time since 1976 (remember this has nothing to do with the Stats Can claim; that was purely about employment).

Clearly by this metric no records were being set (yet). The problem is, however, this metric does not take into account the changing size of the labour force. Well it in fact does, it is just that if the labour force is contracting it understates the unemployment level.

How to account for Mr. Gardner’s claim that if we adjust for labour market size “it’s not the worst [employment] drop since the data were first gathered in 1976. It’s the third worst”?

I must confess I do not really know because Mr. Gardner does not present any data nor the formula he used to arrive at his conclusion.  I am racking my brain to see if I can find some exotic data manipulation exercise  to get to that conclusion based on the Stats Can data.  But even if I did find a way and could manipulate the data I would be far away from dealing with the basis of Stats Can’s claim.

Now, if I’ve misunderstood something, I’d be delighted to be corrected. But if I’m right, I think Mr.Gardner got some splainin’ to do.

Neoliberalism: prelude to a kiss

Forward

Over the 1990s and 2000s the term “neoliberalism” has gained rapid popular and academic acceptance.  Indeed, neoliberalism is by now a very well established object of inquiry as an economic theory, public policy paradigm and more broadly speaking as an ideology.  Yet for all the studies and references to neoliberalism, like its mainstream twin globalization, it remains a rather nebulous term.  David Harvey a prominent Marxist geographer has popularly (2005: Ch. 1) described the origins of neoliberalism as originating in a shadowy meeting-hall of conservative malcontents waiting in the wings to stem the tide of rising state interventionism after the WWII.  Bob Jessop (2002) employs the term neoliberalism in at least four senses. Now I do not mean to suggest that Harvey is pushing a simplistic conspiratorial view of neoliberalism nor do I mean to suggest that Jessop is being inconsistent or intellectually incoherent.   What I do mean to suggest, however, is that neoliberalism is nebulous precisely because capitalism—most notably in the wake of the collapse of its mirrored doppelganger: socialism—has become increasingly ubiquitous as a mode of production.  And to the extent that capitalism and its contemporary ideological and philosophical precipitates have become hegemonic, neoliberalism has become ubiquitous as an ideology, an economic theory and as a strategy of accumulation.   That is to say, that “neoliberalism” as critical instance of its mirror twin “globalization” has risen in prominence both in a popular and in an academic sense precisely because they touch on significant aspects of global capitalist social reality.  Neoliberalism is thus understood as a complex political economic phenomena which has broad and variegated spatial and temporal scales.  In short, the term neoliberalism attempts to capture, in a phrase, the essence of our times and like all words, at some level, they fail us miserably; but at other levels they are the key to our liberation.

Political economists on the financial crises: Audio and Video

Greg Albo, a political economist at York university, makes a fine overview of the present crisis and its historical roots going back to the mid 1970s.

MP3 available at Rabble

For a video presentation on the crisis and in particular its relation to the real economy see the following video with Leo Panitch.

La crise financière : peut-être est-elle une indication de la fin du modèle capitaliste américain?

L’éruption

Ces deux dernières semaines, il y’a eu une grosse crise financière. Pendant la première semaine de la crise, entre la Fed et le trésor américain,  le gouvernement américain a donné environ 1,2 billion* de support pour les marchés financiers.  En fait, le gouvernement a provoqué la nationalisation de deux des plus grandes institutions du marché hypothécaire aux États-Unis—Freddie Mac et Fannie Mai. Une semaine après  avoir été contraint de nationaliser AIG qui était la plus grande compagnie d’assurance dans le monde.  Par conséquent, entre ces deux actions, le gouvernement américain est devenu la plus grande compagnie d’hypothèques et d’assurances dans le monde.

Cependant, il reste un problème, les marchés de crédit sont encore brisés. Il y’ avait un problème de liquidité.  A cause de ça, le secrétaire du trésor monsieur Paulson et son «chum» Ben Bernake, le chef de la Fed, ont fait une proposition pour le plus grand plan de sauvetage économique depuis la grande Dépression des années trente : un cadeau de 700 milliards pour la bourse financière.

En raison de tout cela, on peut se poser la question : est-elle une indication de la fin du modèle capitaliste américain?

Les origines du problème

La sagesse conventionnelle pense que l’origine du problème vient du marché de l’immobilier : particulier avec «sub-prime». Il est vrai que la bulle immobilière, et son krach, a été la cause immédiate.  Mais les apparences sont souvent trompeuses.

Je dirais, le contraire.  La racine du problème provient du modèle néolibéral américain qui a été exporté avec succès dans le monde entier pendant les trois dernières décennies.  Il suffit de décrire qu’à la base du modèle de croissance néolibérale, il y’a la nécessité de réprimer la croissance des salaires à côté de l’élargissement de la consommation.

Il est clair qu’il existe une contradiction avec le modèle de croissance néolibérale.  Si nous supposons une main-d’œuvre stable (quant à la taille) la consommation ne peut augmenter que grâce à des salaires plus élevés ou par l’intermédiaire de l’expansion du crédit à la consommation. Comme les prix de l’immobilier ont augmenté et les salaires sont restés stables, les familles ont commencé à augmenter leur consommation par l’emprunt sur la valeur croissante de leurs maisons.  Lorsque les prix ont diminué, des familles se sont retrouvées avec des leurs propres capitaux négatifs et leurs finances ont plongé dans le chaos.

La consommation est maintenant en stagnation et l’économie américaine est en train de sombrer dans une récession économique. C’est l’autre côté de la crise financière. Dans la mesure où les politiques du gouvernement américain ont peu fait pour changer la dynamique au cœur du modèle néolibéral, il n’est pas évident qu’une stabilité des marchés financiers sera suffisante pour réparer le modèle. Toutefois, si le gouvernement prend les mesures nécessaires pour rétablir la croissance des salaires alors le modèle néolibéral mourra. Avec un peu d’ironie, la solution ultime de la crise est la disparition du néolibéralisme.

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10¹² a trillion…..un billion de…