Baum on Money: Krugman the Monetarist?
The new week begins with much of the U.S. under a deep-freeze alert. No need to bundle up for your daily reads on the U.S. economy.
To help the working poor, raise their skills.
That's a long term proposition, so Harvard economist Greg Mankiw has an interim solution. He asks readers of his New York Times Economic View column to choose between two plans to subsidize low-income workers. Plan A: Tax middle- and upper-income workers. Plan B: Tax businesses that hire low-wage workers. If you voted for Plan B, you voted for President Obama's proposal to raise the minimum wage, which has adverse effects on hiring. If you voted for Plan A, you voted for the earned-income tax credit, which is phased out as workers earnings increase. Mankiw sums up why Plan A is preferable. "If, as a nation, we decide we want to do more to supplement the incomes of low-wage workers, that’s fine. But let’s do it openly, without artifice, and with broad participation."
And here's a fix for the gender gap.
Harvard economist Claudia Goldin says flexibility is the key to fixing the gender gap. Her study of business-school and law-school graduates, presented at the annual American Economic Association annual meeting last weekend, found that women and men have equal salaries when they start out in their careers. Ten to 16 years later, women MBAs earn only 55 percent of what their male counterparts make. The reason? "Training prior to MBA receipt, (e.g., finance courses, GPA) accounts for 24 percent," Goldin says. "Career interruptions and job experience account for 30 percent, and differences in weekly hours are the remaining 30 percent." In other words, two-thirds of the penalty is due to taking time out; i.e. having babies and raising families. Which is why flexibility in hours and location would go a long way toward fixing this type of inequality.
Nothing like better data to make economists upbeat.
The AEA meeting featured some upbeat forecasts about the U.S. economy and the usual array of policy prescriptions to ensure those forecasts become reality. Larry Summers wants another dose of fiscal stimulus to combat secular stagnation. Martin Feldstein supported the idea of a multiyear program of investments in infrastructure. Carmen Reinhart and Ken Rogoff were more cautious, given the history of drawn-out recoveries from financial crises. Fed chairman Ben Bernanke, in his last major address on Friday, was optimistic about 2014, adding that "if the experience of the past few years teaches us anything, it is that we should be cautious in our forecasts."
Life without government spending was better than expected.
Unbeknownst to him, Paul Krugman has endorsed market monetarism, according to economist David Beckworth. With government spending contracting over the last two years, Krugman and other Keynesians said the U.S. would act as a natural test of the Fed's ability to offset fiscal tightening. Beckworth uses data from the IMF's 2013 fiscal monitor to compare the degree of fiscal austerity in advanced economies. The U.S. ranked first in austerity yet defied predictions of recession, thanks to the Fed. It will be interesting to see how Krugman explains life without government spending.
A new year and the same old Congress.
Congress gets back to work this week. The Senate begins today with the confirmation of Janet Yellen as Fed chairman and will move on to consider a three-month extension of unemployment benefits. Yellen is expected to find bipartisan support. Senate Republicans would like to find budgetary offsets for extended jobless benefits. The House reconvenes Tuesday. House Republicans will return to their favorite subject: more protest votes on parts of Obamacare.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)