Better Work Access and Encourage Worker Freedoms

Better Work Access and Encourage Worker Freedoms

Better Work Access and Encourage Worker Freedoms

The Manhattan Institute recently released a report arguing that now is a key time to reform our nation’s safety-net system. The goal should be not to offer more income guarantees but to minimize downside risk so that workers are able to move up the economic ladder. The report comes on the heels of new data from the U.S. government showing that inflation continued to run hot in August—the consumer price index rose 5.3% from a year before.

The Georgia Center for Opportunity’s (GCO) take: “The pandemic only heightened our awareness of existing issues, but the issues existed long before the pandemic,” said Erik Randolph, GCO’s director of research. “As such, we can’t let quick-fix solutions based on the current scenario be our only response. We do not need a stop-the-bleeding plan but systemic change that addresses long-standing issues.Policy prescriptions like simply raising the minimum wage ignore the main issue—wages not keeping up with inflation.

 

The need for changes that promote worker freedom and a sense of security that comes in work will drive markets and empower the actions of individuals. We should promote policies that open accessibility to better work access and encourage worker freedoms. We do this by creating a vibrant market where employers incentivize and compete for workers.”

 

Erik - statement

Press Release on the U.S. Senate’s Social Services Expansion

Press Release on the U.S. Senate’s Social Services Expansion

Press Release on the U.S. Senate’s Social Services Expansion

PEACHTREE CORNERS—The U.S. Senate approved an entirely partisan reconciliation bill of at least $3.5 trillion that irresponsibly includes the biggest expansion of social services. In his own words, Senate Budget Commit- tee Chairman Bernie Sanders said the budget reconciliation bill “will be the most consequential piece of legislation for working people, the elderly, the children, the sick and the poor since FDR and the New Deal of the 1930s.”

The Alliance for Opportunity, a three-state coalition to move people from dependence to the dignity of work and a flourishing life, believes we should learn from our history and expand pathways to success and opportunity with– out dictating a burdensome cradle-to-college path that will cost the American people trillions of dollars.

“When many are struggling from the consequences of the pandemic and government-imposed shutdowns, families want a return to normal with job opportunities so they can achieve their hopes and dreams,” said Kevin Roberts, Texas Public Policy Foundation Chief Executive Officer

We know that the governments’ closure of schools and the lack of affordable childcare has placed a huge burden on caretakers–who are largely women–over the last year. However, we should carefully consider options that pro- vide the freedom of sustainable, affordable options for caretakers rather than a costly system that removes choices for their families. Make no mistake, if the federal government funds one form of childcare, then other options are crowded out. Instead, there should be affordable solutions for parental freedom and a better utilization of existing funds for childcare under TANF and other state workforce programs.

“Despite spending trillions on social service programs, generations of Americans have become trapped in a cycle of government dependency leaving them unable to realize the full extent of the American dream. This expansion of social service programs will be no different. Instead of bankrupting future generations, it’s time to give Americans the opportunity to build a better life for themselves and their families,” said Daniel Erspamer, Chief Executive Officer at Pelican Institute for Public Policy.

“When writing public policy, we must carefully weigh the long term effects those policies might have on the very people we are attempting to help. What works in the short term may not help over the long haul,” said Randy Hicks, President and Chief Executive Officer of the Georgia Center for Opportunity

Americans can’t afford Sen. Bernie Sanders’ unprecedented spending and taxing along with continual borrowing against our future, especially at this critical time in the pandemic recovery. The Alliance for Opportunity urges an approach that puts families and local communities at the center of solutions for childcare, education, and middle class job opportunities, not politicians in D.C. or elsewhere.

Inflation’s Growing Problem: A warning shot for Congress

Inflation’s Growing Problem: A warning shot for Congress

Inflation’s Growing Problem: A warning shot for Congress

poor child in America inflation

The inflation rate in July—as measured by the seasonally-adjusted Consumer Price Index (CPI)—abated somewhat from June’s rate, increasing at 0.5% instead of 0.9%. But don’t cheer too much yet.

This is known by economists as disinflation, not deflation. The rate came down, but prices are still continuing to climb.

Annualized, the monthly inflation rates calculate to 5.8% for July and 11.4% for June. Both rates continue to exceed the Federal Reserve’s target of 2% annual inflation. Of course, as I discussed in this blog, the Fed’s 2% target rate is too high and compromises Congress’s original goal of promoting purchasing power that would benefit everyone.

Prices are Ratcheting Upwards

When the CPI inflation rate is viewed by its increase from the same month of the prior year, the trend is not good. 

Although the increase over the prior year held steady for July, prices were also increasing last year. That is, prices are still 5.3% higher than a year ago when prices were also increasing. The problem is compounding, and prices are ratcheting upwards.

Inflation not a problem?

Perhaps not surprisingly but definitely unfortunately, the Fed’s economists appear to have been caught off guard. When Fed Chairman Jerome Powell testified before Congress last month, he admitted as much as inflation has spiked higher than they anticipated. However, he still maintained that the inflation is based on temporary factors that will abate with time.

Mr. Powell’s comments may have been just for the inflation rate, and he may be overly optimistic. In the meantime, we must brace ourselves for an increase in the price level. 

To think that the price level may come down is probably unrealistic. That has not happened ever since we gave the Fed the responsibility to maintain purchasing power in 1946 that was dumbed down in 1978 to the weaker goal of “reasonable price stability.” Of course, this policy change happened during the complete failure of federal policymakers in both the Fed and Congress when the nation was suffering from double-digit inflation combined with stagnant economic growth.

Why does promoting purchasing power matter? 

Inflation hurts practically everyone. If your wages do not keep up, your purchasing power is eroding. 

This is truest for those in poverty, low-income families, and low-skilled labor. They will slip further behind, making income disparity worse and possibly causing Congress and state governments to spend more on safety-net programs that will only fuel inflation higher when Congress funds the increases with even more debt.

Businesses—who need predictability to make good entrepreneurial decisions—generally will also suffer, slowing down economic activity. 

Workers will have a harder time keeping up with rising prices and will demand higher wages, only fueling inflation further.  

More Cautious Approach to Government Spending is Needed

A likely major cause of the climbing price level is all the governmental debt-based spending to address the pandemic. Further debt-based spending will not ameliorate the problem but exacerbate it. 

Congress needs to exercise more restraint and caution now as it considers the expansive spending bills that appear likely to pass. It is very likely that they are setting up the nation for unpleasant economic times, hurting the poorest among us the worst. The growth in the Consumer Price Index is an omen for Congress to take a step back and trim those bills.

 

Inflation is running wild — poor and low-income Americans will be hurt the most | QUAD CITY TIMES

Inflation is running wild — poor and low-income Americans will be hurt the most | QUAD CITY TIMES

In The News

Inflation is running wild — poor and low-income Americans will be hurt the most | QUAD CITY TIMES

How can we help working families the most? Raising the minimum wage to $15 an hour is a popular solution, but it’s a short-sighted one given the reality that inflation — the silent assassin of Americans’ livelihoods, particularly for the poor — is now running the hottest it has in decades.

The Consumer Price Index has increased 5.4% since last year, as announced on July 13 by the U.S. Bureau of Labor Statistics. The monthly rate was 0.6% in May but 0.9% in June. If this rate persists, our nation will experience double-digit inflation. A 0.9% monthly rate translates to an 11.4% annual rate, a level not seen since the 1970s….

Promote Purchasing Power—Not the Minimum Wage

Promote Purchasing Power—Not the Minimum Wage

Promote Purchasing Power—Not the Minimum Wage

sad girl and mom

How to help working families the most

During a focus group session on working class families we recently conducted at the Georgia Center for Opportunity, Jazmine* made an observation more perceptive than most experts.

Our focus group consisted of working-class African-Americans who did not have a college degree and who were not employed in a managerial position nor on track to become a manager. 

Knowing financial stress up close, Jazmine essentially said that either the minimum wage should be increased or the cost of living should be lowered.

Her observation is a perfect segue from my prior blogs on:

 

The Success Sequence provides an outline of how to reverse the cycle of poverty in our communities. GCO uses this as a framework for much of our work.

Promoting Purchasing Power 

The Employment Act of 1946 declared it is the policy and responsibility of the federal government to:

         “promote maximum employment, production, and purchasing power.”

Promoting purchasing power means lowering the cost of living, as Jazmine suggested. 

Solidified in the 1951 Accord with the Treasury Department, the responsibility ultimately fell to the Federal Reserve to conduct monetary policy as we know it today.

How well has the Fed done with promoting purchasing power? Horribly, quite frankly.

Since 1951, prices have increased 3.4% annually on average, as measured by the geometric mean. In other words, the price level was tenfold higher in 2020 than in 1951. Prices doubled each generation.

It is widely accepted that the poor suffer most from inflation because they spend a higher portion of their income on necessities, and their income growth typically lags others. 

For example, according to the most recent mid-year consumer expenditure report from the Bureau of Labor Statistics, consumers in the lowest income quintile spend 82.2 percent of their income on housing, transportation, food, and healthcare, compared to 64.4 percent for the highest quintile. A five percent inflation rate would cost those in the lowest quintile an additional $1,156 for these items on a budget that is already tight, averaging $28,141. A 10% inflation rate would double those costs to $2,312.

Worse, those in the lowest quintile are unable to save for their future, and inflation erodes away the value of the little savings they do have. Consider that on average, those in the lowest quintile purchased only $563 in personal insurance or toward their pensions, compared to $19,736 for those in the highest quintile. This disparity guarantees the poor will be inadequately prepared for retirement or unforeseen loss or tragedy.

 

inflation

Prior to the federal government taking on the responsibility of promoting purchasing power, prices not only remained fairly stable but actually decreased during times of relative peace. Typically, they only increased dramatically during times of war. 

This pattern can be seen visually in the accompanying chart using the Consumer Price Index and related data from the Federal Reserve Bank of Minneapolis. For example, the price level increased 24% due to the War of 1812 but then deflated 57% over 47 years until the start of the Civil War, even after accounting for a slight bump up due to the Mexican War. 

The pattern was similar for the remainder of the century. Prices increased 74% during the Civil War but then deflated 47% to its pre-Civil War level until the start of the 20th Century.*  Although the price level rose somewhat during the progressive era, it was still 30% lower at the start of World War I than at the close of the Civil War.

 

inflation 2

America’s inflationary policy 

Unfortunately, a 1978 law changed promoting purchasing power to become the lame “reasonable price stability,” which is not the same thing.

Over the years, the Fed has allowed inflation as a matter of policy. In 2012, Fed Chairman Ben Bernanke explicitly stated for the first time an inflation target of 2% per year. If the Fed can somehow hold to this target, which it has not been able to do historically, it equates to doubling the price level every 35 years. Last August, it backed away from this policy. Because of all the pandemic spending and monetary expansions, the Fed approved a policy to allow inflation to rise “modestly” above its 2% target. 

It is not just the Fed that has shied away from promoting purchasing power. In 1978, and in the midst of the stagflation years, Congress legislated the modest goal that inflation should be 3% or less, but the target rate was supposed to come down to zero percent by 1988 unless it might have impeded employment.  

The Fed is not alone to blame for the inability of the federal government to control inflation. Congress’s lack of fiscal discipline resulting in soaring budget deficits place the Fed in a tenuous position to keep interest rates low so federal debt service costs also remain low. Furthermore, recent Fed direct purchases of Treasury debt because of all that federal spending adds to the money supply, eroding—not promoting—purchasing power.

 

How Congress can better help the average working family

If economics has any immutable law, it must be that you can’t get something out of nothing. This explains why the Consumer Price Index increased 5.4% since last year, as announced today by the Bureau of Labor Statistics. And the rate of increase appears to be accelerating. The monthly rate was 0.6% in May but 0.9% in June. If this June inflation rate persists, and hopefully it does not, we will have double digit inflation. A 0.9% monthly rate equates to an 11.4 % annual rate.  

Considering all the recent deficit spending by Congress and expansionary policies by the Fed, expect more of the same, or worse. In fact, according to a survey of economists in yesterday’s Wall Street Journal, “Americans should brace themselves” because economists are waking up to the prospect of higher inflation, expecting “brisk price increases for a while.”

Economic history indicates deflation should be the norm. In fact, innovation spawns increased productivity that allows prices to fall, which should show up as deflation. We have the opposite: productivity gains with inflation. This outcome places the blame squarely on monetary and fiscal policy. 

In the meantime, Jazmine and other hard working Americans struggle to keep up with rising prices. Instead of pushing for increases in the minimum wage that help some at the expense of others, Congress needs to renew our nation’s purchasing power policy and get its fiscal house in order. 

 

 

 *Jazmine’s last name withheld for confidentiality.

 

*This is not intuitive. It takes a smaller percent decrease to offset a percent increase, such as a 43% reduction will offset a 74% increase. For example, suppose you receive a 20 percent pay raise this week, but next week you receive a 20 percent pay cut. Are you back where you started? The answer is no; you are worse off. If your weekly pay was $100, the increase took you to $120, but then your pay cut took you to $96, even lower than your starting point.

 

Erik Randolph is the Director of Research at the Georgia Center for Opportunity.

 

Inflation is running wild — poor and low-income Americans will be hurt the most | QUAD CITY TIMES

Biden’s ‘Illusions Of Economic Magic’ Fail The Forgotten American | DAILY CALLER

In The News

Biden’s ‘Illusions Of Economic Magic’ Fail The Forgotten American | DAILY CALLER

In a very different time — yet in similar economic straits — then-presidential candidate Franklin D. Roosevelt spoke of the “forgotten man,” the American left behind by seismic trends and sweeping changes beyond his control.

“These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power,” FDR told Americans on April 7, 1932 in a radio address. He went on to call for policies “that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”…

team of economists at the Georgia Center for Opportunity have for the first time published a study that demonstrates how people receiving government assistance from multiple programs —such as the Earned Income Tax Credit, food stamps, free school lunches and Medicaid — face a difficult benefits cliff if they were to find work. The study calculates “benefit cliffs” for families in 888 counties across eight states. For example, a working single mom with two children in Memphis, Tennessee, would astoundingly lose more than $8,000 in combined earnings and benefits if her pay were bumped up less than $2 to a $15 hourly wage.