CPD IN THE NEWS

Democratic presidential candidate Sen. Bernie Sanders, I-Vt., holds a town hall meeting at the Luis Muñoz Marin Foundation in Trujillo Alto, Puerto Rico, Monday, May 16, 2016. Sanders arrived in Puerto Rico on Monday to talk about the U.S. territory's worsening debt crisis ahead of the June 5 primary.

The race for the Democratic nomination is in its final throes, and Sen. Bernie Sanders (I-VT) and Hillary Clinton are fighting it out for every last remaining delegate. Puerto Rico’s June 5 primary — in which 67 delegates are up for grabs — will carry more political weight than usual, and the campaigns are lavishing attention on the island.

As he campaigned in the territory’s capital on Monday, Sanders laid out a bold proposal to help Puerto Rico dig itself out from $72 billion dollars in debt, but economists and former government officials tell ThinkProgress the plan is legally impossible.

Both Sanders and Clinton have urged Congress to pass a bill giving Puerto Rico the ability to declare bankruptcy and restructure its debt. But Sanders went further this week, demanding that the Federal Reserve act unilaterally to help the island if Congress continues to drag its feet on a bill to restructure the massive debt the Puerto Rican government says it cannot pay.

Ironically, the reforms Congress passed to rein in Wall Street following the 2008 financial crisis — reforms Sanders supported — are part of why the Federal Reserve can’t do what Sanders is now demanding.

“If the Federal Reserve could bail out Wall Street, it can help the 3.5 million American citizens in Puerto Rico improve its economy and lift its children out of poverty,” he said. “Under current law, the Federal Reserve has the authority.”

Some progressive groups, like the Center for Popular Democracy, are voicing support for Sanders’ plan. In an e-mail to ThinkProgress, the director of the CPD’s “Fed Up” campaign said that if the U.S. government could find a way to prop up Wall Street during the 2008 crash, it can do the same for Puerto Rico.

“When the financial crisis hit Wall Street, they used all of their most creative legal minds and institutional power to design solutions that would protect the big banks from collapse; if they wanted to, Fed officials could similarly find appropriate solutions here.”

But other economic experts and former Federal Reserve board members told ThinkProgress that Sanders is mistaken. Ironically, the reforms Congress passed to rein in Wall Street following the 2008 financial crisis — reforms Sanders supported — are part of why the Federal Reserve can’t do what Sanders is now demanding.

“The type of assistance Senator Sanders is asking the Fed to provide would not be legally possible,” said Donald Kohn, who served on the Federal Reserve’s Board of Governors from 2002 to 2010. “[It is] not what the Congress intended. Among other things, [the law] requires that any facility be broadly based and not intended for a particular troubled borrower.”

The reforms in the 2010 Dodd-Frank bill sharply curtailed the central bank’s ability to make emergency loans to struggling banks, partnerships, or corporations in order to keep them afloat. While questioning whether the Puerto Rican government counts as a bank, partnership, or corporation in the first place, Kohn also cited another section of the law saying the Federal Reserve must “prohibit borrowing from programs and facilities by borrowers that are insolvent,” as Puerto Rico will soon be, and that emergency lending powers are “not to aid a failing financial company.”

The Federal Reserve has given Congress the same message, and other fiscal policy experts agree. University of Pennsylvania professor Peter Conti-Brown, an expert on the Fed’s legal authority, told the Washington Examiner that Dodd-Frank “specifically forbids this kind of targeted bailout,” while Cato Institute director of financial regulation studies Mark Calabria added that “the intent and clear language forbids ‘one-off’ rescues to single entities.”

Warren Gunnels with the Sanders campaign argued in an e-mail to ThinkProgress that because only a fraction of Dodd-Frank’s reforms have been finalized and implemented, the Federal Reserve can still step in. “The Federal Reserve has the authority to facilitate an orderly restructuring of Puerto Rico’s debt through a reverse auction process that will lead to major haircuts for Wall Street vulture funds,” he said.

Still, most experts say it falls on Congress to act to rescue Puerto Rico. House Republicans introduced a bill this week that would allow Puerto Rico to restructure its debt, but would also implement an un-elected control board to oversee the island’s budget and cut the minimum wage from $7.25 to $4.25 an hour for workers under 25.

We don’t need more austerity for children in Puerto Rico who are going hungry.

Sanders blasted the proposal as undemocratic and a further burden on the poor. “We need austerity for billionaire Wall Street hedge fund managers who have exacerbated the financial crisis in Puerto Rico. We don’t need more austerity for children in Puerto Rico who are going hungry,” he said.

Regardless of the feasibility of Sanders’ Federal Reserve proposal, his pro-sovereignty and anti-austerity message resonated with Puerto Ricans on and off the island. Two prominent officials, including the mayor of the capital of San Juan, rescinded their endorsements for Hillary Clinton after Sanders’ visit, while other community leaders sang his praises.

“Bernie Sanders is the only candidate dedicated to the people of Puerto Rico,” said Jose Nicolas Medina, an attorney in San Juan. “Much of our problems are due the policies of Clinton. As first lady and as Senator, Hillary did nothing to help the situation of Puerto Rico. So we punish the Clintons with our votes.”

Others watching Sanders’ speeches told ThinkProgress they were inspired by his promise to allow Puerto Ricans to vote for either independence or statehood during his first year in the White House, and his characterization of the current U.S.-Puerto Rican relationship as “colonial-like treatment.”

“To have a candidate for president finally admit that Puerto Rico is a colony is historic,” said Phillip Arroyo, the former chair of the Young Democrats of America’s Hispanic Caucus and a Puerto Rican living in Florida. “He has planted a seed in the mind of the new generation. It will ultimately bear fruit regardless of whether he’s elected.”

BY ALICE OLLSTEIN

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The border wall with Mexico, Donald Trump's proposed monument to nativism and bigotry is, according to an October story from NBC News, at least 10 months away from "meaningful construction." It currently has no funding from Congress nor from Mexico, contrary to reports from Trump's fever dreams. This reality hasn't dimmed the visions of dollar signs in the eyes of America's largest corporations, which, according to a new report from Make the Road New York, the Center for Popular Democracy, New York Communities for Change, and the Partnership for Working Families, are behind a company making one of the wall prototypes and stand to benefit handsomely.

Read the full article here.

Political activism on the left around monetary policy doesn’t have much infrastructure, but the Center for Popular Democracy, through a group called the Fed Up Campaign, has begun to change that.

Read the full article here.

Economic Policy Institute Blog - March 4, 2015, by Josh Bivens - Update: Binyamin Appelbaum has made a useful change to his article that I comment on below, noting that Black workers do indeed stand to benefit disproportionately from any demand boost that keeps overall unemployment rates falling in coming years. Again, however, I think that while he makes an important point, it still doesn’t strike me as right to frame it as about the limits of monetary policy. His point (as I read it) is that the gap in unemployment rates between Black and White workers is an economic problem that policymakers should seek to end, but this end-goal of no racial unemployment gap at all cannot be achieved with any single policy lever. 

But while an expansionary monetary policy is not a sufficient condition to erase the racial unemployment gap, it is a necessary condition. That is, the first step towards tearing down racial bias in hiring is to rob employers of the economic power they can use to indulge this bias. And the best way to rob them of this economic power is to have tight labor markets that force employers to compete to hire workers. So, macroeconomic policy (which is dominated by the Federal Reserve) is just crucial to meeting the long-run goal of ending racial unemployment gaps. 

Finally, while the existence of a racial unemployment gap in both good and bad times is a terrible problem, it’s an even bigger problem when the respective White and Black unemployment rates are 5.3 and 11.3 percent (like they were in 2014) than when they are 3.5 and 7.6 percent (like they were in 2000). So while ending the racial unemployment gap entirely should be the long-game, we also need to be keenly aware of what can alleviate economic pain in the short run. And that short-run is just dominated by what the Fed decides to do. 

Simply put, the most effective policy lever to reduce the black unemployment rate in the next few years is for the Fed to keep its foot off the economic brakes by keeping short-term interest rates low until we see real signs of healthy wage growth for American workers.

Binyamin Appelbaum gets one deeply wrong in the New York Times, riffing off a report released by the Center for Popular Democracy with (full disclosure) data assistance from EPI and concludes with a version of the old saying that the Fed’s “hammer” can’t effectively address non-nail problems like excessive unemployment.

Appelbaum notes that the report shows that Black unemployment rates are significantly higher than White (or overall) unemployment rates in both recessions and recoveries. Fair enough. And if his conclusions had simply been that because the gap persists in both booms and busts that monetary policy alone cannot completely erase these unemployment gaps, that would also have been fair enough.

But instead he pushed this idea way too far, and ended getting something completely wrong. In his words (brackets and emphasis added by me):

“The same factors [that keep unemployment rates higher for Black workers in both good times and bad] help to explain why black workers are quicker to lose jobs and slower to return to work. Any given level of economic stimulus, as a result, helps black workers less than it helps white workers.”

This is totally backwards. Because Black unemployment is almost exactly double White unemployment in both recessions and booms, this means that Black workers are indeed “quicker to lose jobs” during recoveries, but they are actually faster, not “slower” to return to work. And any given level of economic stimulus reduces Black unemployment by twice as many percentage points as it reduces White unemployment, helping Black workers more than it helps White workers. In short, as the CPD report shows, the stakes regarding at what pace the economy improves and overall unemployment falls are highest for Black workers. And this means that the stakes regarding Fed decisions are highest for Black workers.

He also notes, “And it follows that the level of stimulus necessary to reduce excessive black unemployment may well be excessive for the economy as a whole.”

Maybe, though lots depends on both instances of “excessive” in that sentence. Regarding current debates over the Fed (ie, what they do in the next 6-12 months) we know that current Black unemployment is indeed “excessive” and we also know that it will be significantly reduced (at twice the pace of the overall rate!) the longer the Fed allows the recovery to proceed without braking it by raising interest rates.

And worries about “excessive” overall aggregate demand growth and monetary stimulus are still completely theoretical. This demand growth can be labeled “excessive” with respect to the Fed’s 2 percent inflation target only when there is a sustained period of wage-growth that is about double its current pace (which really hasn’t picked up since the recession’s trough).

The late 1990s offers a good reminder on both these points. First, when overall unemployment fell far enough to average just over 4 percent for two full years in 1999 and 2000, Black unemployment fell to levels (7.0 percent for a month, and below 8 percent for a majority of months in 1999 and 2000)) far lower than the 11.3 percent it averaged during 2014. And there was no evidence from that earlier period that these levels of overall unemployment and demand-growth were excessive – inflation actually fell in the late 90s, even as wages rose across-the-board.

What CPD and EPI (and others) are calling for when they ask the Fed to keep its foot off of the economic brakes in the name of helping the lot of the most vulnerable workers is precisely to probe the limits of excessive stimulus. That is, the Fed should be much more willing to experiment with very low rates of unemployment even if it risks a period of above-average inflation. If the Fed pursued this it would do more to help the most vulnerable workers than nearly any other single policy. So in this regard, the economic health of minority communities is one problem that the Fed’s policy hammer is very well designed to help.

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