Economics as a discipline wields some ideological power through mystification. What is frequently referred to in media as “basic” economics is in fact loaded with ideological assumptions that often bear little resemblance to reality. Data for Progress (@DataProgress) is proud to host “econo-missed,” an economics advice column for the left, featuring a cast of young economics grad students and practitioners. This econo-missed comes Miles Goodrich (@mmilesgoodrich) an organizer at Sunrise. He explores the need for non-market solutions to climate change.Read More
Economics as a discipline wields some ideological power through mystification. What is frequently referred to in media as “basic” economics is in fact loaded with ideological assumptions that often bear little resemblance to reality. Data for Progress (@DataProgress) is proud to host “econo-missed,” an economics advice column for the left, featuring a cast of young economics grad students and practitioners. This econo-missed comes Michael Paarlberg (@MPaarlberg) who is a professor of political science at Virginia Commonwealth University and an associate fellow at the Institute for Policy Studies in Washington, DC. He explores the impact of a tipped minimum wage increase.
Earlier this month, the Washington, DC City Council overturned the results of a June referendum in which a majority of DC voters chose to raise the minimum wage for tipped workers in the city. The tipped minimum wage largely affects restaurant servers and bartenders, and is significantly lower than the minimum wage for all other workers: the federal tipped minimum wage is $2.13, compared to $7.25 for everyone else (in DC, it’s currently $3.89 vs. $13.25).Read More
Economics as a discipline wields some ideological power through mystification. What is frequently referred to in media as “basic” economics is in fact loaded with ideological assumptions that often bear little resemblance to reality. Data for Progress (@DataProgress) is proud to host “econo-missed,” an economics advice column for the left, featuring a cast of young economics grad students and practitioners. This econo-missed comes from Pete Harrison (@PeteHarrisonNYC) who is a co-founder of homeBody. He explores an idea gaining traction in New York politics, the idea of Universal Rent Control (URC).
I live in a major city and I’m increasingly engaged in local politics. But I’m still trying to get a sense of the issues - I hadn’t thought much about them before. Candidates I like like Zellnor Myrie and Julia Salazar talk about the idea of universal rent control? I’ve heard from economists that rent control is bad because it distorts free markets, which have never failed anyone. - Definitely Not Sean, New York
Universal rent control (URC) at this point is a fairly broad term, but in the context of New York City, it’s essentially a series of policy proposals that aim to fix the many flaws in current rent regulation laws (which, for the purpose of this blog, includes rent stabilization and rent control policies, but not Section 8 or public housing policies). These laws only apply to some, mostly older buildings and have tons of loopholes that allow units to be deregulated. Universal rent control would expand protections to every rental unit and remove those loopholes. It would “distort” the housing market, but, as we’ll discuss, it could also fix the bigger issue distorting it.
The URC fight has been embraced by a group of insurgent state candidates on the left and has the support of many leading activist groups in the city and upstate (full disclosure: I volunteer for the Ocasio-Cortez and Salazar campaigns). With these laws up for renewal in Albany next year, this framing marks an important shift away from previous (mostly losing) battles over the issue and is quite timely.
What really excites me about URC goes to the second question about rent control and markets. URC would of course impact rent costs, but what it could do to land costs is potentially even more important.
Rent regulations are one of economists’ favorite “gotcha” concepts because they go against every basic market theory that says the highest and best use of an asset is intrinsically the best for a society. The scale of displacement in NYC puts that concept to bed. New York City has been a vibrant place historically because it has been possible to be poor and working class here. Without protecting these New Yorkers, that vibrancy will end.
Rent regulations limit how much a landlord can charge for an apartment and how much they can increase rent over time. They are often blamed for raising rents and/or lowering supply in cities overall but these arguments vastly overstate their impact compared to more pressing issues like rising construction costs and, especially, skyrocketing land costs.
Land costs are the key here. Economists argue that rent regulations create terrible inefficiencies in markets, but they should also be worried about rent-seeking behavior doing the same. An “economic rent” is the extra wealth earned from an asset used in its present form (not to be confused with the “rent” we pay each month) and rent-seeking is the attempt to manipulate circumstances to increase that rent without creating new value from it. Owning land, particularly in a city like NYC, is a “gotcha” example of rent-seeking behavior run amok.
The economic value of housing is mostly tied to the value of the land its on, which has little to do with a landlord’s investment and more to do with surrounding public investment. From the tenant’s perspective then, why should she pay more for something the landlord didn’t even create? You don’t need to be a Georgist to see that this is inefficient. It robs the tenant and the economy of more productive use of her income (while completely ignoring the overall well-being of her community.)
To be clear, current rent regulation laws in NYC aren’t designed to challenge rent-seeking behavior. Given the patchwork history of legislation and the oafishly corrupt nature of Albany politics, they don’t have a cohesive goal, let alone design. They limit the rent increase for some renters to some degree, but they ignore or create a host of other problems.
Universal rent control does challenge rent-seeking behavior. Doing so could fundamentally change the economic calculus in NYC real estate and the potential value of land by making housing more of a utility than a commodity. Keep in mind URC is still just a series of broadly defined proposals, but conceptually it offers a glimpse at a more equitable and democratic future.
To start with, less than half of all rental units in NYC fall under current rent regulations, which severely limits the political power of renters as a united front against the well funded and organized real estate industry. There is little incentive for market-rate tenants to cooperate with rent-regulated tenants. This leaves a smaller, poorer, and older population to fight for tenants’ rights for everyone.
URC calls for extending rent regulations to all rental units in New York, which would radically change this political dynamic. The sheer number of renters as a political constituency could offset the financial power of the real estate industry in Albany and create more protections and, most importantly, real innovation in affordable housing.
Another problem with current laws is loopholes - too many perverse means and motive for landlords to force rent increases and/or to force out tenants. The most disastrous policy, vacancy decontrol, allows apartments to leave rent regulations altogether when they hit $2,733/m. The city lost an estimated 147,500 affordable units over the last 24 years to this alone.
URC would end vacancy decontrol and remove loopholes around vacancy bonuses, preferential rents, and major capital improvements. In effect, they would permanently prevent the speculative (and cynical) calculations that some landlords make to get passed regulations.
It’s not that landlords can’t still make a profit, but there would be a cap. This would suppress the speculative value of land across the city. It would certainly scare off the worst actors in the market and likely create space for local landlords, non-profits, and models like community land trusts to enter the market instead. This would be a net positive for NYC.
Rent regulations attempt to maximize the value of shelter over financial value, which is a foreign concept at this stage of late capitalism America. Most economists think that’s a mistake, but keeping wealth and power in local communities rather than private equity firms or foreign investors is more democratic, better for the economy, and better for the life of the city in the long run. Universal rent control can help rebalance our economic priorities in NYC.
To submit a questions to econo-missed please email email@example.com with “econo-missed” in the subject line.
Economics as a discipline wields some ideological power through mystification. What is frequently referred to in media as “basic” economics is in fact loaded with ideological assumptions that often bear little resemblance to reality. Data for Progress (@DataProgress) is proud to host “econo-missed,” an economics advice column for the left, featuring a cast of young economics grad students and practitioners. Our latest comes from Ben Wolcott (@bbwolcott), a public policy grad student and campaign researcher at Make The Road, who originally started econo-missed and has graciously offered us the name. - Sean
For years, many folks on the left have been objecting to free-trade policies of both Republican and Democratic administrations, saying that lowering trade barriers hurts American workers. Now President Trump has scuttled the Trans-Pacific Partnership and raised tariffs on foreign imports, but I don't see anyone on the left applauding. What gives?
-- Bemused in Bethesda
Trump’s trade moves infuriate most mainstream economists, but beyond schadenfreude, there isn’t much to cheer from the left. That’s because Trump’s trade policy appears more driven by trying to score “points” in a xenophobic zero-sum game than helping American workers. Even when Trump’s policy preferences momentarily align with the left, such as when he scuttled the Trans-Pacific Partnership, he’s mostly trying to score short-term wins than help working people in the US or abroad.
For decades, the left has railed against free trade, a term that encompases institutions, policies, and politics that allow capital to move around the world as freely as possible in order to maximize profit. Unbridled free trade attacks economic sovereignty and encourages a race to the bottom in labor and environmental standards. Political elites sign free trade deals to create opportunities for the rich to get richer while trading away fundamental rights to control capital without being dragged in front of an international trade tribunal. Rather than simply reduce tariffs, most of these trade agreements come with huge strings attached, like imposing aggressive intellectual property rights restrictions. Unfortunately, unlike other kinds of international law, trade law has teeth. For example, intellectual property rights allow corporations to benefit from rent-seeking while depriving low-income countries of medicine.
Free trade has been a disruptive economic force for decades. It’s much easier to oppose the expansion of that force than it is to know how to transform it. While Trump has taken up some of the left’s criticisms, there are various ways to try to transform it. His piecemeal attempts to move towards a different system have been more corporatist and xenophobic than leftist.
First, Trump supports corporate boondoggles to prop up companies, such as when he declared mission accomplished at Carrier after getting the state of Indiana to give $7 million to entice the furnace maker to keep 1,100 jobs. While Trump strode through the plant, he said, “Companies are not going to leave the United States any more without consequences. Not going to happen.” One-off deals make for good photo ops, but they aren’t policy, and they don’t change companies’ incentives.
Second, Trump has also been a big proponent of raising tariffs, tweeting, “Trade wars are good, and easy to win.” Tariffs function like a sales tax on foreign goods, and trade wars escalate when targeted countries respond by raising their own tariffs. In the past year, the price of washing machines in the US has gone up 13 percent, and Paul Krugman estimates that “all-out trade war could mean tariffs in the 30-60 percent range… [and] a 2-3% reduction in World GDP.” Given how many jobs could be lost as tariffs escalate, it’s not a tool to take lightly.
While conservative economists oppose tariffs in any instance, they can play an important role in both trade negotiations and in protecting strategic industries from excessive global competition. Unfortunately, the motivation behind Trump’s tariffs remains unclear, and it seems that Trump mostly wants to look like he’s standing up to China and other countries. In contrast, a successful leftist trade agenda would be a part of broader industrial policy designed to challenge the supremacy of capital and create good jobs for working people in the long-term.
If Trump has been consistent about anything on trade, it’s that the rest of the world has been taking advantage of the United States. Trump’s revisionist history is dangerous: the US wrote the rules of international trade so American companies could open and exploit foreign markets.
While Trump tries to score points by playing to xenophobia, a leftist trade platform would both fight to protect jobs domestically and aim to dismantle the institutions that undergird US imperialism, which prioritize the profit of multinational corporations above all else.
- Ben Wolcott (@bbwolcott), campaign researcher at Make The Road.
To submit a questions to econo-missed please email firstname.lastname@example.org with “econo-missed” in the subject line.
Economics as a discipline wields some ideological power through mystification. What is frequently referred to in media as “basic” economics is in fact loaded with ideological assumptions that often bear little resemblance to reality. Data for Progress (@DataProgress) is proud to host “econo-missed,” an economics advice column for the left, featuring a cast of young economics grad students and practitioners. Our second comes from Amanda Novello (@NovelloAmanda), a policy associate with the Bernard L. Schwartz Rediscovering Government Initiative at The Century Foundation. She was previously a researcher and Assistant Director at the Schwartz Center for Economic Policy Analysis at The New School for Social Research. - Sean
I feel like whenever I hear or see a quote from an economist, they’re skeptical of ideas I like like a higher minimum wage and Medicare for All. I’m always hearing that economics proves that government is bad and markets are good. Are the libertarians just louder? Are there economists who are more skeptical about laissez-faire economics?
Definitely not Sean
Dear Definitely Not Sean,
This is a timely question, because mainstream economics has failed us in so many ways, but this truth seems only to be recognized after large and mostly unexpected economic shocks. After the 2009 recession, Nobel Prize winner Paul Krugman wrote a New York Times article entitled “How did economists get it so wrong?” wondering why economics has such a blind spot for failure and crisis. Krugman correctly pointed out that “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” However by lumping the whole economics profession into one group, Krugman perpetuates the fallacy that economics is one uniform bloc and that some economists whose work is largely ignored had indeed predicted the financial crisis. These economists were largely dismissed for not falling into what Krugman calls the “economics profession.”
So let’s acknowledge there are many types of economics, and seek to understand and apply them, before there’s another crisis.
Left economics understands power
Let’s take labor as an example. Many leftist economic thinkers view production as a social relation. The ability to gain employment is an outcome of societal structures like racism and sexism, and the distribution of earnings from production is inherently a question of power, not merely the product of a benign and objective “market” process. Labor markets are deeply intertwined with broader institutions (like the prison system), social norms (such as gendered distribution of domestic care) and other systems (such as racist ideology) that affect employment and compensation. There is increasing evidence that the left’s view of labor is closer to reality, with research showing that many labor markets have monopsonistic qualities, which in simple terms means employees have difficulty leaving their jobs due to geography, non-compete agreements and other factors.
In contrast, mainstream economics positions labor as an input in the production process, which can be quantified and optimized, eg. maximized for productivity, or minimized for cost. Wages, in widely taught models, are equal to the value of a worker’s labor. These unrealistic assumptions don’t reflect what we actually observe in the world, and this theoretical schism has important political and policy implications. For some, a job and a good wage are rights, for others, businesses should do what’s best for profits and investors. Combative policy debates like the need for stronger unions vs. anti-union right-to-work laws are rooted in this divide.
The role of government
The left believes the government has a role to play in the economy beyond simply correcting “market failures.” Prominent leftist economists like Stephanie Kelton and Mariana Mazzucato argue for a government role in economic equity and shared prosperity through policies like guaranteed public employment and investment in innovation. The government shouldn’t merely mitigate product market failures, but should use its power to end poverty.
On the other hand, mainstream economics teaches that government crowds out private investment (research shows this isn’t true), raising the wage would reduce employment (wrong) and that putting money in the hands of capital leads to more economic growth (also no). As we have seen post-Trump-cuts, tax cuts lead to further enrichment of the already deeply unequal, equilibrium.
Limitations to left economics: public awareness and lack of resources
History and historically entrenched power determines both final outcomes but also the range of outcomes that are deemed acceptable. Structural inequalities have been ushered in by policies ranging from predatory international development to domestic financial deregulation, meanwhile poverty caused by these policies is blamed on the poor.
Policy is masked by theory or beliefs, but the theory seems to be created to support opportunistic outcomes for those who hold power to decide them. The purely rational agent-based theories that undergird deregulation have been strongly advocated for by particular (mostly conservative) groups such as the Koch Network which have spent loads of money to have specific theoretical foundations taught in schools, preached in churches, and legitimized by think tanks.
There have been others who question the centrality of the rational agent, the holy grail of the free market, believe in public rather than corporate welfare, and the need for government to not only regulate, but to make markets and provide opportunity. This “alternative” history exists but is less present - it is alternative because of sheer public awareness which exists because it of a lack of capital.
Financial capital is an important factor in what becomes mainstream. I went through a whole undergraduate economics program at a top university without hearing the words “union” or “redistribution,” which now feels ludicrous. Then I went to The New School for Social Research for graduate school, which has been called the University in Exile, for exiled scholars of critical theory and classical economics. In the New School economics department, we study Marxist economics, Keynesian and post-Keynesian economics, Bayesian statistics, ecological and feminist economics, among others topics. There are only a few other economics programs in the US that teach that there are different schools of thought in economics. But after finishing at the New School and thinking about doing a PhD there, I understood this problem on a personal level.
There’s barely any funding for PhDs and most have to pay their tuition, which is pretty unheard of for an economics doctorate. Why? Two reasons. First, because while those who treat economics like science go on to be bankers and consultants, those who study economics as a social science might not make the kind of money to fund an endowment. And second, perhaps because of this lack of future payout, The New School is just one of many institutions that doesn’t deem heterodox economics valuable enough to warrant the funding that goes to other programs, in this case, like Parsons.
Unfortunately, a combination of these factors leaves mainstream economics schools well funded by opportunistic benefactors, whether they’re alumni or a lobbying group, while heterodox programs struggle or fail to support their students and their research.
The horizon for economics of the left
Using elements of different schools of thought, and defining the left of the economics world, is difficult. Race, class, and power, elements that define the left, are sticky, ugly, and stressful, and don’t provide easily quantifiable building blocks like mainstream economics does. Without unifying building blocks, we’re prone to continuing to produce graduates from fancy schools who go into the world believing that economics is a hard science, and that the world can be understood with existing models in which human behavior can be easily predicted.
Ultimately the mainstream and the left in economics are not so different from the mainstream and the left politically, and there is room for a stronger consensus on non-mainstream economics that would bolster the left politically. It’s worth exploring and strengthening these connections, because at the heart of our economic and political divides is a fundamental difference in opinion regarding how society at large should be organized. And whether we continue to promote wealth creation within a capitalistic system, or a distributive system that holds justice as a pinnacle, will determine the extent to which we can achieve a healthy, civilized society.
Fortunately the political left in many ways is upholding, if not the theory and empirics, the traditions and values of non-mainstream economics. Calls from the left to confront a half century of neoliberal economic policy are more sustained and perhaps successful than other times in recent history, with some policies like the federal job guarantee making it to the mainstream. After 2008 the 99 percent, supported by research about inequality, began to organize.
There’s hope for change stemming from a new generation of economists, in particular the thousands of young and aspiring economists researching and writing for groups like Rethinking Economics, the Young Scholars Initiative (YSI), Developing Economics, the Minskys, the Modern Money Network, and more. But ideas and policies are path dependent, and it will take a real progressive movement, supplemented by demands by students in schools, to bring left economics to the forefront.
To submit a questions to econo-missed please email email@example.com with “econo-missed” in the subject line.
Economics as a discipline wields some ideological power through mystification. What is frequently referred to in media as “basic” economics is in fact loaded with ideological assumptions that often bear little resemblance to reality. Data for Progress (@DataProgress) is proud to host “econo-missed,” an economics advice column for the left, featuring a cast of young economics grad students and practitioners. Our first comes from Ben Wolcott (@bbwolcott), a public policy grad student and campaign researcher at Make The Road, who originally started econo-missed and has graciously offered us the name. - Sean
Why are people saying that the economy is at full employment and what does that have to do with the Federal Reserve raising interest rates? The New York Times just said:
It was the 92nd consecutive month of job creation. Most economists expect the momentum to continue, but a deeper drop in the unemployment rate or a big bump up in average hourly earnings would stoke fears of inflation and, in turn, a more hawkish Federal Reserve.
Fed policymakers are almost certain to raise interest rates when they meet this month, with at least one additional increase likely in the second half of 2018.
What’s going on here? It sounds to me like the Federal Reserve is choking off the economy just when workers are about to get a raise.
-- Baffled in Brooklyn
I swear economists intentionally made macroeconomics impenetrable, so working people wouldn’t be able to understand it. When social movements fought for full employment, they pushed for an economy where anyone who who wanted a job could get one. Economists used to agree with activists on this common sense definition, but it radically differs from how mainstream economists define full employment today. Instead, they say the economy is at full employment when the employment rate is at or below the “natural” non-accelerating inflation rate of unemployment (NAIRU). Theoretically, that’s the unemployment rate below which the economy would start to experience rising inflation. The Congressional Budget Office currently pegs NAIRU at 4.7 percent, which is below the latest reported unemployment rate of 3.8 percent, so congratulations and welcome to full employment!
Full employment is supposed to be great for working people because in addition to there being lots of jobs, wage growth is supposed to rise. The 1% hates this, and will look for any excuse to say hyperinflation is around the corner because rising wages will lead to rising prices. These inflation hawks tell the Federal Reserve to raise interest rates in order to slow down the economy and intentionally kill jobs. Those attacks hurt all working people and disproportionately impact those who typically face discrimination in the labor market because it’s harder for employers to discriminate when unemployment is low. It’s also worth mentioning that because of racism in the labor market, black unemployment is always significantly higher than the reported unemployment rate. Despite being at a record low of 19.8 percent, black teen unemployment is still astronomically high compared to the national unemployment rate.
Because estimates of NAIRU are just attempts to pin down a theoretical concept, progressive economists (who fight for progressive ends within the constraints of mainstream economic discourse) say that the Federal Reserve shouldn’t treat it as a iron law of economics. At this point, there aren’t even many academic economists who are even willing to defend NAIRU. For all the inflation hawks squawking and the Federal Reserve’s terrible decisions to regularly raise interest rates since December 2015, there actually hasn’t been significant evidence of increasing wage growth let alone significant inflation. Doesn’t sound like we’ve reached full employment at all.
Instead of adhering to the empirically-disproven nonsense of NAIRU, let’s define full employment the same way economists originally did. Will we inevitably get hyperinflation if we ensure everyone has access to work on decent terms? That's an empirical question, and signs point to "no." Many leftist economists argue that everyone who wants a job can have one without leading to hyperinflation. In order to recognize everyone’s right to a job and achieve full employment, the government should implement a job guarantee. While the government currently raises interest rates and controls inflation on the backs of the unemployed, there are less inhumane ways to control inflation through a job guarantee. This would give workers significant more ability to bargain and organize without the threat of unemployment.
In other words, NAIRU is as natural as capitalism, which is to say, not at all.
- Ben Wolcott