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Will 'Running the Economy Hot' Really Help Workers? – Bloomberg

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Are they running too hot?

It’s an increasingly popular view, including within President Joe Biden’s administration, that the U.S. should allow labor markets to “overheat” to increase both employment and wages. It sounds like a good idea, especially after several decades in which ordinary workers have not always done well. But the economics do not withstand rigorous scrutiny.

One theory about the benefits of an overheated labor market stems from the work of Robert E. Lucas in the 1970s, which in turn built upon ideas from Milton Friedman. In Lucas’s model, if the central bank boosts the money supply and the rate of price inflation, some people will work more or expand their businesses because they think there is a real and enduring increase in the demand for their output.

That makes sense theoretically, but subsequent empirical studies showed the effect is typically small. In 1986, Lawrence H. Summers wrote a critique of these and related ideas, and the economics profession rightly decided to move on. Inflation does change people’s work and production plans, but not by very much.

A second argument has remained more robust: the Keynesian idea of money illusion, outlined in Keynes’s General Theory. According to Keynes, a central bank can boost the rate of employment by inflating. If nominal wages are sticky, and the rate of price inflation goes from 0% to 5%, inflation-adjusted wages will suddenly be 5% lower. Businesses will hire more workers.

Even if you are an unreconstructed Keynesian economist, you might notice a problem with this mechanism: It boosts employment but not real wages. In fact, it boosts employment by lowering real wages, which is a pretty typical economic mechanism. So if the idea is to “run labor markets hot to raise worker pay,” this approach isn’t going to help. Instead it will increase the temptation to solve employment problems by looking for ways to cut real wages, not raise them.

Another way to make labor markets “run hot” is through the supply side. In the current context, that might mean providing more vaccinations more rapidly. This will indeed create more jobs, especially for face-to-face employment, and over time it will raise worker pay, especially for those who are more productive in safe, face-to-face environments.

So smart supply-side remedies can increase both employment and pay in a sustainable fashion. But that has been known to economists since the days of Adam Smith. The new macroeconomics, as it is being formulated, is looking for a way to bring about the same effect through the demand side.

Another set of tactics to run labor markets hot invokes the notion of increasing returns to scale. That is, a boost to one part of the economy can stimulate other parts of the economy, causing many sectors to rise in unison. There is now a whole branch of macroeconomics on increasing returns to scale.

Still, the idea deserves closer examination. Increasing returns to supply-side benefits, such as vaccinations, are currently likely. But again, this is an old story, and it does not resuscitate the idea of running the labor market hot through demand-side macroeconomics.

How about increasing returns to scale from the demand side? Well, advocates of the $1.9 trillion American Rescue Plan have been saying that right now the multiplier is relatively low, to justify the large amount of money being spent. That puts them in a poor position to be arguing that the spillover effects are strongly positive.

Here is one way to look at the problem: Even with a partially vaccinated population, gains in one sector do not easily boost the ailing sectors of the economy. Just because I am making a lot of money running a pet store, for example, it doesn’t necessarily follow that I will book an expensive Caribbean cruise.

The upshot is that the most plausible demand-side mechanism for “running an economy hot” is the Keynesian story about money illusion — the idea that people tend to see their wealth and pay in nominal terms, not real terms. And that scenario will not be good for most of the workers who already have jobs, as in many cases their real wages will fall. Of course that is most workers, because even in bad times the unemployed are a clear minority.

Nonetheless, expect talk of “running the economy hot” to continue. It sounds good, and it conveys the notion that the economy is making up for years of neglect following the subpar recovery from the 2008 financial crisis. It allows politicians and officials to show determination and convey a sense that they are brave fighters for the working class.

Unfortunately, this kind of talk is the rhetorical equivalent of vaporware, promising something that will never ship. Simply wishing for better outcomes, and describing them with catchy language, does not suffice to bring them about.

    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Tyler Cowen at tcowen2@bloomberg.net

    To contact the editor responsible for this story:
    Michael Newman at mnewman43@bloomberg.net

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    Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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    VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

    Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

    The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

    “If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

    “Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

    Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

    The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

    The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

    Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

    More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

    Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

    “This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

    Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

    “We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

    Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

    Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

    Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

    “We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

    This report by The Canadian Press was first published Sept. 18, 2024.

    The Canadian Press. All rights reserved.

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    N.B. election: Parties’ answers on treaty rights, taxes, Indigenous participation

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    FREDERICTON – The six chiefs of the Wolastoqey Nation in New Brunswick distributed a survey on Indigenous issues to political parties ahead of the provincial election, which is scheduled to kick off Thursday. Here are some of the answers from the Progressive Conservative, Liberal and Green parties.

    Q: How does your party plan to demonstrate a renewed commitment to recognizing our joint treaty responsibilities and acknowledging that the lands and waters of this territory remain unceded?

    Progressive Conservative: The party respectfully disagrees with the assertion that land title has been unceded. This is a legal question that has not been determined by the courts.

    Liberal: When we form government, the first conversations the premier-designate will have is with First Nations leaders. We will publicly and explicitly acknowledge your treaty rights, and our joint responsibility as treaty people.

    Green: The Green Party acknowledges that New Brunswick is situated on the unceded and unsurrendered territories of the Wolastoqiyik, Mi’kmaq and Peskotomuhkati peoples, covered by the Treaties of Peace and Friendship. Our party is committed to establishing true nation-to-nation relationships with First Nations, grounded in mutual respect and co-operation as the treaties intended.

    Q: How does your party propose to approach the issue of provincial tax agreements with First Nations?

    Progressive Conservative: The government of New Brunswick operates in a balanced and fair manner with all organizations, institutions and local governments that represent the citizens of this province, including First Nations. Therefore, we cannot offer tax agreements that do not demonstrate a benefit to all citizens.

    Liberal: Recent discussions with First Nations chiefs shed light on the gaps that existed in the previous provincial tax agreements with First Nations. Our party is committed to negotiating and establishing new tax agreements with First Nations that address the local needs and priorities and ensure all parties have a fair deal.

    Green: The Green Party is committed to fostering a respectful relationship with First Nations in New Brunswick and strongly opposes Premier Blaine Higgs’s decision to end tax-sharing agreements. We believe reinstating these agreements is crucial for supporting the economic development and job creation in First Nation communities.

    Q: How will your party ensure more meaningful participation of Indigenous communities in provincial land use and resource management decision-making?

    Progressive Conservative: The government of New Brunswick has invested significant resources in developing a robust duty to consult and engagement process. We are interested in fully involving First Nations in the development of natural resources, including natural gas development. We believe that the development of natural gas is better for the environment — because it allows for the shutdown of coal-fired power plants all over the globe — and it allows for a meaningful step along the path to reconciliation.

    Liberal: Our party is focused on building strong relations with First Nations and their representatives based on mutual respect and a nation-to-nation relationship, with a shared understanding of treaty obligations and a recognition of your rights. This includes having First Nations at the table and engaged on all files, including land-use and resource management.

    Green: We will develop a new Crown lands management framework with First Nations, focusing on shared management that respects the Peace and Friendship Treaties. We will enhance consultation by developing parameters for meaningful consultation with First Nations that will include a dispute resolution mechanism, so the courts become the last resort, not the default in the face of disagreements.

    This report by The Canadian Press was first published Sept. 18, 2024.

    The Canadian Press. All rights reserved.

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    Canadian Coast Guard crew member lost at sea off Newfoundland

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    ST. JOHN’S, N.L. – A crew member of a Canadian Coast Guard ship has been lost at sea off southern Newfoundland.

    The agency said in a release Wednesday that an extensive search and rescue effort for the man was ended Tuesday evening.

    He was reported missing on Monday morning when the CCGS Vincent Massey arrived in St. John’s, N.L.

    The coast guard says there was an “immediate” search on the vessel for the crew member and when he wasn’t located the sea and air search began.

    Wednesday’s announcement said the agency was “devastated to confirm” the crew member had been lost at sea, adding that decisions to end searches are “never taken lightly.”

    The coast guard says the employee was last seen on board Sunday evening as the vessel sailed along the northeast coast of Newfoundland.

    Spokeswoman Kariane Charron says no other details are being provided at this time and that the RCMP will be investigating the matter as a missing person case.

    This report by The Canadian Press was first published Sept. 18, 2024.

    The Canadian Press. All rights reserved.

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