Weekly Reader: Everything Old is New Again

      Here is one final link to the “housing and affordability crisis” story, Underbuilding has led to ‘acute shortage’ of housing and “affordability crisis”, study says in the July 19 Washington Post  by Ilyce Glink and Samuel J. Tamkin. The study “Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing” written by members of Rosen Consulting Group and released by the National Association of Realtors (NAR). The report concludes that “there are now anywhere from 5 million to 6.8 million housing units (including single-family homes, townhouses, condos and rental units) missing from housing inventory. In short: Housing prices and rents are rising astronomically because the demand is so great, and the supply is so thin.” The WaPo story asks, “But is the shortage of housing caused by historic low interest rates or a lack of building, or both?”

     The story concludes, “For the first time in a dozen years, we’re starting to hear people talk about a housing bubble. But when you’re more than 5 million homes short, and builders are only building 1.5 million homes a year, it will take a long time for supply to catch up with demand. Too long. Which is why NAR is calling for once-in-a-generation (maybe lifetime?) push to build more housing. The problem is what happens after the music stops: When home sellers wake up to find that home prices and interest rates are so high, there suddenly aren’t enough buyers who can qualify for that mortgage.”

     Second, I believe in Senator Mark Warner and his ability to balance two big negotiations—the bipartisan infrastructure bill and the Democrats’ broader $3.5 trillion spending bill. But I am not certain that there are 10 Republican Senators who care more about reaching agreement on a bipartisan infrastructure bill and the ways to pay for it than they care about making the Biden Administration look bad. 

     Claudia Grisales of North Country Public Radio focused on Senator Warner’s role in navigating both infrastructure and spending bills on NPR Morning Edition  this morning. Senator Warner has been part of almost every bipartisan effort to deal with major issues in the past decade and participates on a number of bipartisan caucuses. He serves on the Senate Budget Committee which is developing the budget resolution that will be the vehicle for the Democrats’ $35 trillion spending bill. (Senator Tim Kaine also serves on the Senate Budget Committee, giving Virginia significant power on advocating for Virginia priorities. As Senator Warner said in this profile, in the bipartisan group, I am pushing for a slightly higher number and in the Democratic group, I am pushing for a slightly lower number.

      “I have to decide which hat I’m wearing,” Warner said of the Democratic package that he was not sure he would have been ready for this much change other than coming out of this enormously challenging last sixteen months. Senator Warner will likely be playing the middleman for weeks if not months to come. For the Democrats, if the bipartisan infrastructure negotiations break down and there is no bill, they could include elements of the bipartisan bill in their broader spending package. For the Republicans, if negotiations break down they can still attack the Democratic package. If I were to predict, I think the Democratic budget reconciliation package will pass the Senate (51-50 with the Vice President breaking the tie) and the House (by a razor-thin margin) but I would bet that the bipartisan package is jettisoned because they could not reach agreement on so-called “pay-fors” or how to pay for the package. It seems clear that the Democrats want to use some of the same “pay-fors” for the much larger Democratic package and you can’t count the same revenue offset twice. The Weekly Reader rarely makes predictions, so let’s see whether we get this right.

     The Washington Post story by Christine Emba on July 19 Biden’s child tax credit should be obvious. Yet the result is revolutionary . Ms. Emba writes “It’s almost too obvious to point out that the best way to lower poverty is to give money to people who need it. But in an America with a raging skepticism of government, a policy like this takes finesse to sell and some real magic to maintain. The Biden Administration clearly understands the curious psychology some Americans have about entitlements. Some people who benefit from them often resent their existence. The White House should build on those insights and push for more.”

     Emba observes, “The first smart move was universalizing the benefit. One of the reasons Social Security and Medicare remain so popular is that Americans don’t consider either ‘welfare’, relief sent to the needy at others’ expense. The child credit is designed to work the same way: The poorest Americans are eligible, but so is most of the middle class. It’s a strategy that produces buy-in up and down the income ladder. The second smart move? Taking credit. President Biden is literally putting his name on this benefit. American families all received a letter announcing the new policy, address to ‘My fellow American’ and signed by the President.”

     Emba’s final point was “this benefit is for the kids. That’s an indispensable step in selling it to lawmakers and voters. Kids are costly and come with all sorts of unexpected needs, and giving parents money for such things lifts a lot of boats….In a country that professes to love its kids (even if the evidence remains mixed:, they’re the perfect shield for a radical policy change.”

     Emba acknowledges the reality—the expanded CTC isn’t perfect. It is underpublicized, and it’s likely that a good number of beneficiaries aren’t aware of its availability. As recently as June 1, more than half of likely voters knew little or nothing about the upcoming credit, according to polling by Data for Progress, And the government’s steam-powered technology makes getting the benefit harder. If families were not required to file income tax for 2020, they must apply through the IRS’s creaky “non-filer portal”. The website is available only in English, does not work on cellphones and is the opposite of intuitive—all significant obstacles, especially for those who could use the benefit the most. Some estimates suggest the digital shortcomings of the IRS mean that 90 percent of children whose parents don’t regularly file taxes may not be set up to receive their benefits.

     Memo to the White House: Get this fixed. Emba concludes, “There were sure to be fumbles in a rollout of this size, but the expanded child tax credit is a watershed moment in how we think about helping others—and a template for effective anti-poverty policy in the future. ‘You’ve come a long way, baby,’ the slogan for a very different product once boasted. If the Biden Administration continues to play things wisely, it has the chance to go even further.”

Fourth, I believe that Black unemployment matters just as much as White unemployment . That is the title of a New York Times opinion column on July 19 by Professor William E. Spriggs. He is a professor of economics at Howard University and serves as chief economist for the AFL-CIO. Here are his basic points: 

• Black workers already had higher unemployment rates before COVID. Their unemployment rates did not skyrocket as much as other groups. Black job losses were not as extreme as might be expected because Black workers were overrepresented in the sectors deemed essential. Yet since April 2020, the ratio of Black to white unemployment has been on a path to return to its typical level—with Black workers experiencing twice the level of unemployment as their white neighbors. 
  
  
• Many economists he knows quietly think that the employment gap highlights the problem of longstanding strains in the Black community. Not long ago, the Federal Reserve based its policies on a mechanical rule about inflation risk and the level of unemployment. Central bankers slowed down the economy whenever the overall unemployment falls below about 6 percent. Every month from September 1975 to June 1997, the Black unemployment rate was in the double digits. Although economists tried to rationalize this disparity by saying it reflected difference in skill levels, that is just not believable. The unemployment rate for white high school dropouts is almost always below that of Black unemployment over all, averaged across all education levels. Why would white people who did not finish high school always have lower unemployment rates than Blacks, even as Black people increased their levels of educational attainment? 
  
  

• Since April, the unemployment levels for white high school dropouts has been below that of Blacks with associates degrees. Only last month did the Black unemployment rate fall below the unemployment rate for high school dropouts of all races. In the last two months, the Black unemployment rate has been going up because the increase in those looking for work has been much bigger than the success rate at which Black workers are finding jobs. The result has been a steep climb in long-term unemployment for Black workers—still the last hired, as the saying goes. 
  
  

• Asian Americans are also suffering from long-term unemployment, with jobless spells that are actually somewhat worse than for Black workers. Like Black workers, this is true even for highly educated Asian American workers—a clue that weak job networks and social discrimination are issues plaguing both groups. 
  
  

• Heather Boushey on the Council of Economic Advisers is among the senior advisers in the Biden Administration who better understand the pay gap in this manner, and its relationship to enduring, heightened Black unemployment. And the Federal Reserve seems to now understand that there are a lot more people of all colors left on the sidelines who can be employed without igniting inflation than previously understood: Ignoring the Black unemployment rate isn’t just a moral issue, it ignores potential growth in the economy. There will be doubters in the months to come, but the misdiagnosis of the past few decades is a dangerous one that we ought not repeat—for our economy, and the lives of real people.

Jim Schuyler VACAP