CPD IN THE NEWS

Community organizer Wintana Melekin was grabbing a soda in late June at a coffee shop near her office when she heard Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, had just been in.

Seeing her chance, she dashed out the door after Kashkari, caught up and asked if he would meet with her organization, Neighborhoods Organizing for Change, to discuss racial and economic disparities in the Twin Cities.

He agreed, and to confirm that he meant it, retweeted Melekin’s tweet saying he was willing to meet.

On Wednesday, the meeting happened. Kashkari sat down with about a dozen people at NOC’s offices in north Minneapolis and committed to an ongoing collaboration between the Minneapolis Fed and some of the state’s most outspoken critics of a status quo in which blacks are not enjoying the benefits of economic growth.

“Some of the racial disparities are a crisis, and we need to treat them like a crisis,” Kashkari said. “One of the things I learned in 2008 is you don’t tackle a crisis with incremental solutions. You tackle a crisis with overwhelming force, and so if this is a crisis, and I think certainly parts of this are, then we need to bring overwhelming force.”

Kashkari, who became president of the Minneapolis Fed at the start of the year, is a former investment banker and Treasury official in the George W. Bush administration. He was appointed the first chief of the bank bailout program known as TARP at the end of the Bush term and start of President Obama’s administration.

Though his everyday work is at the very top of the national economy, Kashkari has a record of trying to understand its depths. As a candidate for governor in California two years ago, Kashkari spent a week living on the streets of Fresno, a midsize city, with just $40. He tried unsuccessfully to find work during that week and wound up in a homeless shelter.

It’s not clear how Kashkari and the nation’s central bank can directly address the challenges that were brought up at Wednesday’s meeting. The Fed controls interest rates, with the goal of creating maximum employment, but monetary policy can’t be targeted at segments of the population or certain states or cities. As Kashkari pointed out, black unemployment in the United States stubbornly tracks at roughly twice the level of white unemployment.

“There’s something structural in the U.S. economy, in good times and bad, that black unemployment is almost always twice as high as white unemployment,” Kashkari said.

He said driving unemployment downward will help everyone, and he is for low interest rates as long as they aren’t driving inflation upward. But he has not heard a satisfying answer for why the disparity in Minnesota is worse than in most places, though he committed to working with NOC to understand why it is.

From NOC’s perspective, the meeting with Kashkari was historic. Never before has a Fed president met face to face with its members in Minneapolis. As local ambassadors for the national Fed Up campaign, the organization has a fresh interest in the Fed and has taken the position that interest rates should remain low.

For Anthony Newby, the head of the organization, the meeting was a good starting point. Kashkari’s comment that the economic plight of black Minnesotans is a crisis requiring a response of “overwhelming force” was particularly satisfying.

“It sets the tone for how the Fed could, in unusual and unorthodox ways, use its power and position to solve some of these equity problems,” Newby said.

Kashkari agreed to spend a day with Rosheeda Credit, a mother of five at the meeting who said she struggles to pay for rent and child care. “The crime rate is high here, and the rent is high here and we’re not getting paid enough to work here,” Credit said.

He heard from Tenice Hodges, a former teacher who moved back to Minneapolis two months ago to help her sister’s family. She is living out of her car until she can get a teaching job because she can’t afford the city’s high rents with her restaurant wages.

“We are struggling out here,” Hodges said. “Yes, I’m employed. I work every day. But can I go out and get an apartment right now? No. I don’t have $1,100 by myself, or $2,200 for a deposit.”

Kashkari committed to looking closely at the résumés of people of color that NOC submitted for various board appointments at the Minneapolis Fed. He also said he will work with NOC on research and meet with people from the organization again in the future. He also committed to attending a workshop put on by groups affiliated with NOC at the Jackson Hole Economic Policy Symposium, an annual conference in Wyoming where central bankers from around the world gather.

Kashkari, who has drawn national attention by calling for a transformative solution to the problem of banks that are too big to fail, explained that his role as a regional Fed president is to understand the problems people face in his district. While the tools of monetary policy are limited, and much of the heavy lifting that causes social change much happen in Congress, he said it is important for him to meet with people as he did Wednesday to understand their concerns.

“I appreciate that you think it is business as usual,” Newby told Kashkari. “I don’t think it is business as usual.”

By ADAM BELZ

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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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The Center for Popular Democracy awarded Walgreens its “worst employer” prize because of its treatment of the retail chain’s employees.

Read the full article here.

Two Federal Reserve bank presidents on Wednesday met separately with community and labor groups that are pushing for continued near-zero interest rates just as U.S. central bankers appear to be only weeks away from raising them.

Representatives of the groups said that by airing their concerns about labor market health to Richmond Fed President Jeffrey Lacker and Dallas Fed President Rob Kaplan, they hope to help shape policymakers' understanding of the economy, if not necessarily their views on monetary policy.

The views of Kaplan, the new president of the Dallas Fed, are unclear, but his predecessor Richard Fisher made the regional Fed bank's name synonymous with opposition to easy monetary policy.

Lacker is a policy hawk who cast the lone dissents on the Fed's decisions in September and October to continue the central bank's low-rate policies.

"Our expectation isn't that we are going to be able to change his mind," said Michael De Los Santos, who is organizing the meeting with Lacker.

To Lacker, the near-normal unemployment rate of 5.1 percent means the labor market no longer needs the lift provided by exceptionally low interest rates.

"We want to be able to present our side of the statistics," said De Los Santos, who is director of operations at Action NC, a community and activist group. Attending the meeting will be a young man from Charlotte who has struggled to pay for college and is worried about finding full-time employment, and a fast food worker from Richmond, Virginia who has trouble making ends meet, he said.

Kaplan will likewise meet with workers who have struggled to find adequate jobs and income, said Shawn Sebastian of the Center for Popular Democracy, which organized the meeting in Dallas.

A Dallas Fed spokesman did not immediately respond to a request for comment. A Richmond Fed spokesman confirmed the meeting and deferred any comment until after it is over.

Including today's meetings, members of the so-called Fed Up Coalition have had sit-down meetings with nine of the Fed's 12 regional Fed bank presidents, and four of the five Washington-based Board of Governors. (Reporting by Ann Saphir in San Francisco; Editing by Christian Plumb)

Source: Reuters