Fidel Castro's obituary was written 97 years ago:
...the bourgeois state is an instrument of oppression of the working class; the socialist state, of the bourgeoisie. To a certain extent, he says, it is only the capitalist state stood on its head. This simplified view misses the most essential thing: bourgeois class rule has no need of the political training and education of the entire mass of the people, at least not beyond certain narrow limits. But for the proletarian dictatorship that is the life element, the very air without which it is not able to exist.
‘Thanks to the open and direct struggle for governmental power,’ writes Trotsky, ‘the laboring masses accumulate in the shortest time a considerable amount of political experience and advance quickly from one stage to another of their development.’
Over at Equitable Growth: One of the nice things about economics as an intellectual discipline is that you can effectively score intellectual-reputation points by taking on the work of giants a generation older than you--something that, IMHO, too-rarely happens in other disciplines. Here smart young whippersnapper Marshall Steinberg takes on the very sharp Tom Sargent's "The End of Four Big Inflations" account of Europe's post-WWI hyperinflations. READ MOAR
Over at Project Syndicate: Try Everything: When it became clear in late 2008 that the orgy of deregulation coupled with global imbalances was confronting the global economy with a shock at least as dangerous as the Great Crash that had initiated the Great Depression, I was alarmed but hopeful. We had, after all, seen this before. And we had models from the Great Depression for how to mitigate the damage--basically, try everything that might work to boost demand and production and reduce jobless workers, and reinforce success. READ MOAR
The big arguments against interpreting the echoes of the Populist Free Silver movement of the 1890s as an important part of the message sent by the author and received by the contemporary readers of L. Frank Baum's The Wizard of Oz are:
In my view, the echoes--Silver Slippers, Greenback City, Yellow Brick Road--are much better understood as a wink from Baum to the adults reading the book out loud to his principal audience rather than as evidence of the Wizard of Oz as monetary allegory.
As always, with things Ozish, read: Martin Gardner: The Royal Historian of Oz
From: David B. Parker (1994): "The Rise and Fall of The Wonderful Wizard of Oz as a 'Parable on Populism'", Journal of the Georgia Association of Historians 15: 49-63:
...for seeing The Wonderful Wizard of Oz as a Populist allegory. Citing Gardner, Littlefield mentioned Baum's support for Democratic candidates and, of course, the torchlight parades for Bryan. "No one who marched in even a few such parades could have been unaffected by Bryan's campaign," Littlefield asserted. If one begins with the assumption that Baum was a Bryan Democrat, it is easy to read a Populist (or at least a pro-silver) message into the book.
But was Baum a Bryan Democrat?
I am once again out of DeLong Smackdowns of sufficiently high quality...
That means that it is time to (shudder) read the next page in chapter 11 of David Graeber's Debt: My First 5000 Mistakes.
But I cannot face it.
However, a correspondent sends me a piece from an extremely sharp observer--Ann Leckie, author of the devastatingly-good Ancillary Justice.
She worries that the rot in the book begins much earlier than chapter 11:
Over at Equitable Growth: These days, when people come to me and ask if I will run a reading course for them on Karl Marx, this is what I tend to say:
The world is divided into those who take Karl Marx's work seriously and those who do not.
On the one hand, those who do not take Karl Marx's lifetime work-project seriously are further divided into three groups:
Those who ignore Marx completely.
Those who use selected snippets from his work as Holy Texts, and
Those modern "western Marxists" who find inspiration in the works that Karl Marx wrote exclusively before he was thirty. READ MOAR
J. Bradford DeLong on December 15, 2014 at 07:06 AM in Books, Economics: History, History, Long Form, Moral Responsibility, Philosophy: Moral, Political Economy, Politics, Streams: (BiWeekly) Honest Broker, Streams: Across the Wide Missouri, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (26)
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Thirty-Eight Columbia University Economics Professors Demonstrating Their Utter Cluelessness About the Macroeconomic Situation:
But the past generation has seen a third industrial revolution, a worthy information-age successor to the first of steam, iron, cotton, and machines and to the second of internal combustion, electricity, steel, and chemicals. Not everyone, but almost everyone in the North Atlantic and many and soon most in the world, can now if they wish have a smartphone--and so gain cheap access to the universe of human knowledge and entertainment to a degree that was far beyond the reach of all but the richest of a generation ago.
What is best in life?
What is best in life is to spend the 11 hours of a Northern Hemisphere polar winter's night one spends in the belly of an A340-300 in transit from SFX to ZRH (a) eating Swiss chocolate, and (b) reading Barry Eichengreen's (2015) brilliant and superb Hall of Mirrors: The Great Depression, The Great Recession, and the Uses-and Misuses-of History (Oxford: Oxford University Press: 0199392005).
More--hopefully much more--to follow...
...or in some other way degrades performance. I’ve been wary... in part because it appeals so much to my general leanings.... I continue to be skeptical, in part because there have been some pretty bad crises with lousy recoveries in countries that don’t have a lot of inequality. Consider, in particular, the post-1990 Swedish slump.... Just one piece of evidence. But I’m still having trouble with this one.
Over at Equitable Growth: Martin Wolf's column this week contains a very nice precis of the main argument of his recent The Shifts and the Shocks:
...over more than six years is pathetic by historical standards--occurred despite the most aggressive monetary policies in history.... Yet this has not been nearly enough.... How do we explain such weak demand?... Three sets.... The first... stresses the post-crisis overhang of private debt and the damage to confidence caused by the sudden disintegration of the financial system.... The second... argues that the pre-crisis demand was unsustainable because it relied on huge accumulations of private and public debt.... The implication of this is that economies suffer not just from a post-crisis balance-sheet recession, but from an inability to generate credit-driven demand on the pre-crisis scale. Behind the unsustainability of pre-crisis demand lie global imbalances, shifts in income distribution and structurally weak investment.... The third set... points to a slowdown in potential growth, due to some combination of demographic changes, slowing rises in productivity and weak investment... feeds directly into the second.... The reason that extreme policy has been so ineffective is that the economies suffer from such deep-seated ailments. It is not just about weak supply. But it is also not just about weak demand. Nor is it just about the debt overhang or financial shocks. Each economy also has a different combination of ailments...
The deep-seated ailments that Wolf identifies are, I think, sixfold: READ MOAR
...taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone. More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.
Situate it in its context: relative to the Anglo American economy, the Iberian economies, the pre-conquest era, and--recently--the Pacific Rim as an example of an economy that works well...
Before 1850, it was Latin America that was the prize: Mexico, Peru, the Silver Mountain, the Sugar Islands
It was Europe's most prosperous, civilized, and technologically progressive peoples that grasped that opportunity--Portuguese mariners, Aragonese merchants, backed by Castilian crusader steel.
Parliamentary liberties and freedom of speech considerably more advanced in the Castile of Isabella Trastamera and the Aragon of Ferdinand Trastamera than in the England of Henry Tudor.
Indeed, the Empire of Liberty had a better advocate in Simon Bolivar than in George Washington and his successors.
Simon Bolivar freed not just his slaves, but all the slaves of Venezuela.
George Washington freed his slaves--but only after his death. Thomas Jefferson freed his--if they were his descendants. James Madison and James Monroe did not free theirs. John Adams and John Quincy Adams had none, and the latter fought all his life for the petitions for freedom of the slaves in the United States to be heard in Congress. But Andrew Jackson spent his life trying to buy more slaves. Martin Van Buren's slave Tom ran away--and then, when he was found, Van Buren sold him for $50 to the slave-catcher. William Henry Harrison tried to turn Indian into slave territory when he was governor. John Tyler, James K. Polk, and Zachary Taylor--not until we get to Millard Filmore do we get another American President even close to as free-soil as the Adams's were: "God knows that I detest slavery, but it is an existing evil, for which we are not responsible, and we must endure it, and give it such protection as is guaranteed by the Constitution, till we can get rid of it without destroying the last hope of free government in the world..."
Indeed, look at U.S. politics in the first 20 years after the Constitutional Convention. Washington thought his own Secretary of State--Jefferson--was on the point of betraying the U.S, to France, and would gladly sacrifice liberty in America to advance the cause of the French Revolution. Jefferson was certain that John Adams was plotting to restore the British monarchy--and Adams would have, if the alternative was the coming to power of some American Robespierre--and that Alexander Hamilton was ready to become a military dictator. Hamilton was shot dead by Jefferson's running mate and vice president, Aaron Burr, whom Jefferson then tried for treason. Burr was not convicted solely because the Chief Justice, John Marshall, thought that if he set Burr free he might be able to cause Jefferson yet more trouble. A banana republic--the ideal type of a banana republic, in fact--save that they grew no bananas...
Living standards, natural resources, population densities, and rates of demographic expansion give Latin America an edge over Anglo America through the first quarter of the nineteenth century, at least.
The coming of the steam engine and then, a generation later, the telegraph ought to have brought the world together in terms of ironing out economic divergences.
The technologies of the Industrial Revolution? The first generation of industrial technologies circa 1780 were potentially profitable only in Britain, with its uniquely high real wages and uniquely low price of coal at the factory gate. But by 1850 steam engines, spinning jennies, power looms, and railroads were potentially profitable everywhere.
Yet the story of economic development is of a steadily-widening relative-income gap: a widening gap between Anglo America and the Southern Cone on the one hand and the rest of Latin America up until 1918 or so; then a widening gap between Anglo America and all of Latin America save Venezuela up to 1950 or so; and then relative stasis--average growth in Latin America at about the same pace as Anglo America, with on average neither widening nor closing of the relative gap (save Venezuela and, after 1958, the peculiar case of Cuba).
By 1950, down to perhaps a quarter of Anglo American levels...
No worse than rest of exNorth Atlantic world, but no better..:
Since 1950, relative parity is normal...
Theories of economic relative retardation and growth inevitably fall into two broad categories: "the rich are so good, and the poor are so bad" theories; and "the rich are so bad, and the poor are so good" theories.
International trade and the international economy in general as engines of extraction theories: comparative-advantage traps, debt traps, vulnerability to cyclical fluctuations traps. Escape from the trap via neo-mercantilist protection, inward focus on resource accumulation, and import-substitution industrialization--turn the global economy into your servant rather than your master through clever technocratic policies of one sort or another. Raul Prebisch. (Early) Fernando Henrique Cardoso. Immanuel Wallerstein.
Unorthodox Marxist class-structure-a-fetter-on-development theories: latifundia and neo-feudalism, but not just rural neofeudalism: the heyday of the PRI in Mexico as a "new class" bureaucracy variant of robber baronage and clientage, focused on extracting rents for political powerbroker and their clients from the most productive pressure points of the economy--natural resources, high-productivity export manufacturing, tourism. Hernando de Soto, The Other Path. Andrei Shleifer et al., "Legal Origins". Acemoglu, Johnson, and Robinson, "Comparative Origins". What makes these people unorthodox Marxists is that Karl Marx believed in progress, and so a "bourgeois revolution" as inevitable: superstructure could not indefinitely contain the pressures being generated by the economic changes of the base. In the end, all of the feudal and neo-feudal and aristocratic and caste and estate-based blockages to market capitalism--and thus prosperity--would be "steamed away". "All that is solid melts into air..." really does not do the German justice...
One-unfortunate-accident-after-another theories: The long nineteenth century required either fluency in English or an exceptionally-favorable geographic environment--which the Southern Code had--in order to successfully adapt and adopt the technologies of the Industrial Revolution. In the twentieth century bets on globalization crapped out with the coming of the Great Depression, Imperial Preference, and the Smooth-Hawley Tariff. Bets on import-substitution then missed the biggest expansion of world trade ever in the Thirty Glorious Years. The switch to "neoliberal" policies then got squashed by the oil shocks, the coming of monetarism, and more recently the rise of China. Plus collateral damage from the Cold War--the Cold War in Asia gave Japan and the rest of the Pacific Rim preferential access to Anglo-America's markets, the Cold War in Europe was fought on terrain where the propertied right that had bet on Naziism kept its head down, but the Cold War in Latin America was different...
But do we really have to choose? (17) can be evaded via clever technocrats pursuing state-led development--but, in Lant Pritchett's words, what can be worse than state-led development policies pursued by an anti-developmental state? The anti-developmental state that trapped Latin America in (17) and was the product of unfortunate early wealth concentration and frontier absence in history via (18) could have been surmounted except for the unfortunate accidents of (19)--which pre-dated the Cold War: it was FDR who said that while Somoza may be an SOB he is our SOB. And unfortunate accidents would not have had as large deleterious effects had the global economy of (17) been more genuinely open and stable.
From this perspective, Latin American relative retardation--even in the Southern Cone--from 1850-1950 looks overdetermined: it would have been a miracle had it not taken place.
Still, literacy, life expectancy, prosperity, etc. vastly better than in 1825--and, relatively, better than Africa, South Asia, non-coastal East Asia (for the moment?), and (perhaps?) Muscovy and its dependencies. Relative retardation is relative to the North Atlantic plus the Asian Pacific Rim only.
Nobody intelligent would say that they know the relative weight to be assigned to these different overdetermining factors. Only a strong desire to obtain tenure and to do so by publishing articles that establish or refute particular narrow theories could induce anybody sane to claim to do so.
Looking forward: But do the burdens of the past still lie on the future?
Chance of making the global economy your servant rather than your master? Here the news is bad: over the past two decades neither the North Atlantic nor the Pacific Rim has been able to master the global economy. Instead, episodes of policy disorder and macroeconomic stress that those of us who focused on the North Atlantic used to see as confined to Latin America are now global.
Class structure a fetter on development? As income inequality in the United States surpasses that of Brazil, and as rent-seeking in everything from Berkeley NIMBYism to the ability of a very narrow fossil fuel-complex interest group to block urgent action on global warming to the ability of the princes of Wall Street to extract their fortunes, it is not that Latin America has promise of attaining the kind of institutional successes seen in the post-WWII North Atlantic. Rather, the North Atlantic--plus Japan--appear to be copying institutional failure, or at least underperformance.
Could we pray for good luck? It is hard to see what else we can do.
God knows the North Atlantic broadly construed--extending to Tokyo and Moscow--has not been immune to history. But it was a history of grasping technological possibilities perhaps too well, and reactions to them. Now, perhaps, North Atlantic history is becoming more "normal"...
In the absence of even acceptable-quality DeLong Smackdowns this past week, what to do? Back to David Graeber! What do we have on the menu today? A continuation of our death march through chapter 11 of David Graeber's Debt, of course!
First we have:
Europe had a greater share of gold and silver mines than it had of population. That gave Europe a high price level, and so the things that Asia might have bought from Europe seemed to Asia to be too expensive. Europe produced little that the Middle East wanted to buy at the prevailing price level--but Graeber never bothered to acquire the literacy in economics he would have needed. So he does not grasp that...
As of 1500, the Portuguese and Spanish (and shortly thereafter the Dutch, and eventually the English and the French) had ships were better. A lot better. They could sail further in worse weather without sinking. Invention and technological change mattered. That mattered a lot.
Mediterranean naval wars were fought by Western Europeans, Egyptians with their ports on the Red Sea, and Turks--who by this time had ports on the Persian Gulf. What the Western Europeans learned, the Turks, Egyptians, etc. learned as well, with the Ottoman Muslims being rather better at Mediterranean oared galley-fighting up until the 1570s.
"The principle that the seas should be a zone of peaceful trade"? "Unarmed Indian Ocean merchants"? Why does Graeber say things like this that are simply not true?
This is depressing.
...Saez and... Zucman... uses a richer variety of sources.... The share of wealth held by the bottom 90% is an effective measure of 'middle class' wealth.... In the late 1920s the bottom 90% held just 16% of America’s wealth—-considerably less than that held by the top 0.1%, which controlled a quarter of total wealth just before the crash of 1929.... By the early 1980s the share of household wealth held by the middle class rose to 36%—roughly four times the share controlled by the top 0.1%.... From the early 1980s... these trends have reversed.... The 16,000 families making up the richest 0.01%, with an average net worth of $371m, now control 11.2% of total wealth—-back to the 1916 share, which is the highest on record.... The top 0.1%... hold 22% of America’s wealth.... The outsize fortunes of the few would not be too worrying were they largely the product of entrepreneurial activity.... The club of young rich includes not only Mark Zuckerbergs... but also Paris Hiltons.... The share of labour income earned by the top 0.1% appears to have peaked... held in the form of shares... levelled off... held in bonds has risen... hint[ing] that America’s biggest fortunes may be starting to have less to do with building businesses...
Most wealth will be deployed, at least at the relevant margin, not in productive entrepreneurial or labor-complementary activities but in at best parasitic rent-seeking activities.
Democratic politics will not save us--that only exceptional circumstances in the twentieth century allowed for a democratic politics of progressive social insurance to level society and so promote social welfare in the face of the Gramscian hegemony of the bourgeoisie.
Both of these seem to me to be quite plausible, and perhaps true. But I think Piketty would have been very well-advised to have spent a lot more time backing them up in his book than he in fact did...
Remember my six-part classification of things people do to add economic value?:
On October 28, 1793, Eli Whitney submitted a patent for his invention known as the cotton gin. Perhaps more than any technology in American history, this invention profoundly revolutionized American labor. Creating the modern cotton industry meant the transition from agricultural to industrial labor in the North with the rise of the factory system and the rapid expansion and intensification of slavery in the South to produce the cotton. The cotton gin went far to create the 19th century American economy and sharpened the divides between work and labor between regions of the United States, problems that would eventually lead to the Civil War.
Over at Project Syndicate: Over at Project Syndicate:
How true is this, really? The answer appears to be: true--with perhaps a very few caveats, but important caveats:
...less than 10% in the late 1970s but now exceeds 20%.... A large portion of this increase is due to an upsurge in the labor incomes earned by senior company executives and successful entrepreneurs. But... did wealth inequality rise as well?... The answer is a definitive yes.... We use comprehensive data on capital income—such as dividends, interest, rents, and business profits—that is reported on individual income tax returns since 1913. We then capitalize this income so that it matches the amount of wealth recorded in the Federal Reserve’s Flow of Funds.... In this way we obtain annual estimates of U.S. wealth inequality stretching back a century. Wealth inequality, it turns out, has followed a spectacular U-shape evolution over the past 100 years.... How can we explain the growing disparity in American wealth? The answer is that the combination of higher income inequality alongside a growing disparity in the ability to save for most Americans is fueling the explosion in wealth inequality. For the bottom 90 percent of families, real wage gains (after factoring in inflation) were very limited over the past three decades, but for their counterparts in the top 1 percent real wages grew fast. In addition, the saving rate of middle class and lower class families collapsed over the same period while it remained substantial at the top.... If income inequality stays high and if the saving rate of the bottom 90 percent of families remains low then wealth disparity will keep increasing. Ten or twenty years from now, all the gains in wealth democratization achieved during the New Deal and the post-war decades could be lost.... There are a number of specific policy reforms needed to rebuild middle class wealth.... Prudent financial regulation to rein in predatory lending, incentives to help people save... steps to boost the wages of the bottom 90 percent of workers are needed.... One final reform also needs to be on the policymaking agenda: the collection of better data on wealth... READ MOAR
....For sixty years, he was one of my closest friends. My debt to him, both personal and professional, is beyond measure. Despite deep sadness at his death, I cannot recall him without a smile rising to my lips. He was as quick of wit as of mind. His wit always had a point, and was never mean or nasty — though some of the objects of his wit no doubt felt its sting. His occasional humorous articles — such as “The History of Truth in Teaching” — have become classics and demonstrate that had he chosen to become a professional humorist rather than a professional economist, he would have achieved no less fame in the one field than he did in the other. His death has left the world a far less joyful place for Rose and me, as for so many others.
Let's quote Thomas Piketty:
...in the United States. The increase was largely the result of an unprecedented increase in wage inequality and in particular the emergence of extremely high remunerations at the summit of the wage hierarchy, particularly among top managers of large firms...
...They’re intrigued, but not convinced. Perhaps Mr. Piketty has isolated the forces that will drive wealth inequality in the future, but for now, they’re not convinced the forces he focuses on are central to understanding the recent rise in wealth inequality. At least that’s my reading of the latest survey run by the University of Chicago’s Initiative on Global Markets. I’ve written before about their Economic Experts panel, which is intended to be broadly representative of opinion among elite academic economists.... The expert economists were asked whether
the most powerful force pushing toward greater wealth inequality in the U.S. since the 1970s is the gap between the after-tax return on capital and the economic growth rate.
To translate, does the T-shirt slogan “r>g” explain why wealth has become more unequally distributed?... 18 percent... uncertain. The clear majority either disagreed (59 percent) or strongly disagreed (21 percent)....
But what was the point of this? We saw from the Piketty quote up at the top that Piketty does not think that "r>g" has been driving the rise in American inequality. Why is it an interesting question to ask?
Justin, in my view, buries the lead, for he does indeed point out later on in his article:
If surveyed, it is likely that he would have joined the majority view in disagreeing with the claim the survey asked about. In Mr. Piketty’s telling, rising incomes among the super-rich are responsible for the recent rise in wealth inequality...
Shouldn't the IGM Forum at the Booth Business School of the University of Chicago have found somebody who had actually read Piketty's Capital in the Twenty-First Century to decide on what questions to ask?
I am sure that it was always such--that intellectual standards in the academy were always not that high, and that a great many of the people making arguments always were people who hadn't done their homework. But I do seem to be reminded of it more and more these days, especially since the beginning of the financial crisis back in 2007...
The University of California Press has put out a new edition of Charles Kindleberger's World in Depression early next year.
J Bradford DeLong and Barry J. Eichengreen: New preface to Charles Kindleberger,* The World in Depression 1929-1939*:
The parallels between Europe in the 1930s and Europe today are stark, striking, and increasingly frightening. We see unemployment, youth unemployment especially, soaring to unprecedented heights. Financial instability and distress are widespread. There is growing political support for extremist parties of the far left and right.
During the past two weeks the drought of high-quality DeLong smackdowns on the internet has resumed. So it is time to turn back to the promise I made myself on April Fools Day 2013, and see whether the rest of the chapters of David Graeber's Debt: The First Five Thousand Mistakes are of as low quality as the utterly bolixed up chapter 12.
As you will recall, David Graeber is infamous for:
Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages...
and for having, concurrently and subsequently, offered three different explanations of how this howler came to be written and published:
He has claimed that it it all perfectly true, just not of Apple but of other companies (none of which he has ever named).
He has claimed that he had been misled by Richard Wolff, who taught him about Silicon Valley's communal garage laptop circles of the 1980s.
He has claimed that what he had written was coherent and accurate, but that (for some unexplained reason) his editor and publisher had bolixed it all up.
This passage is, in the words of the very sharp LizardBreath:
The Thirteenth Chime... that make[s] me wonder whether any fact in the book I don't know for certain to be true can be trusted...
And things have gone downhill from there...
Paul Krugman: Those Lazy Jobless - NYTimes.com Last week John Boehner, the speaker of the House, explained...
...People, he said, have “this idea” that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.” Holy 47 percent, Batman! It’s hardly the first time a prominent conservative has said something along these lines.... But it’s still amazing — and revealing — to hear this line being repeated now. For the blame-the-victim crowd has gotten everything it wanted: Benefits, especially for the long-term unemployed, have been slashed or eliminated. So now we have rants against the bums on welfare when they aren’t bums — they never were — and there’s no welfare. Why? First things first: I don’t know how many people realize just how successful the campaign against any kind of relief for those who can’t find jobs has been. But it’s a striking picture.... The total value of unemployment benefits is less than 0.25 percent of G.D.P., half what it was in 2003, when the unemployment rate was roughly the same as it is now.... Strange to say, this outbreak of anti-compassionate conservatism hasn’t produced a job surge.... Why is there so much animus against the unemployed, such a strong conviction that they’re getting away with something, at a time when they’re actually being treated with unprecedented harshness?...
Live Multi Bit Rate Player (1:16 video from September 19, 2014)
Q: How much of regional variation in real health-care (Medicare) costs is due to the fact that some regions have sicker populations than others?
A1 (micro): If we examine how much sicker people in different regions are, and multiply the difference in average sickness by how much extra treatment sicker people get on average, we get an incremental regional R2 ~ 0.1: an extra 10%-points of the regional real cost variation can be accounted for because some regions are sicker than others.
A2 (macro): If we just regress regional real costs on some plausible indicator of regional average sickness, we get an incremental regional R2 ~ 0.5: an extra 50%-points of the regional real cost variation can be accounted for because some regions are sicker than others. READ MOAR
Hyman Minsky: Minsky on the IS-LM obfuscation: "The glib assumption made by Professor Hicks...
...in his exposition of Keynes’s contribution that there is a simple, negatively sloped function, reflecting the productivity of increments to the stock of capital, that relates investment to the interest rate is a caricature of Keynes’s theory of investment... which relates the pace of investment not only to prospective yields but also to ongoing financial behavior.... The conclusion to our argument is that the missing step in the standard Keynesian theory was the explicit consideration of capitalist finance within a cyclical and speculative context... then the full power of the revolutionary insights and the alternative frame of analysis that Keynes developed becomes evident.... The greatness of The General Theory was that Keynes visualized [the imperfections of the monetary-financial system] as systematic rather than accidental or perhaps incidental attributes of capitalism.... Only a theory that was explicitly cyclical and overtly financial was capable of being useful... READ MOAR
J. Bradford DeLong
Professor of Economics, U.C. Berkeley
Research Associate, NBER
September 30, 2009
A Little Background
About a year and a half ago—in the days after the forced merger of Bear Stearns into J.P. MorganChase, say—there was a near consensus of economists that an additional dose of expansionary fiscal policy was unlikely to be necessary. The Congress had passed a first round of tax cut-based stimulus, the impact of which in the summer of 2008 is clearly visible in disposable personal income and perhaps visible in the tracks of estimated monthly real GDP. The near-consensus belief back then, however, was that that was the only expansionary discretionary fiscal policy move that was appropriate. READ MOAR
Over at Equitable Growth: My four biggest intellectual mistakes over the past decade--and all four are huge--are:
My belief from 2003-2007 that the serious threat to the American financial system came from universal banks that had used their derivatives books to sell lots of unhedged puts against the dollar rather than universal banks accepting lots of house-value puts without doing any due diligence about the quality of the underlying assets.
My fear from 2008-2010 that although nominal wages were downward-sticky they were not that downward-sticky and we were on the point of tipping over into absolute deflation.
My confidence in 2009-2010 that the major policymakers--Bernanke, Obama, and what turned out to be Geithner--both understood how to use the ample monetary, fiscal, banking, and housing finance tools at their disposal to effectively target nominal GDP and understood the urgency of doing whatever it took to return nominal GDP to its pre-2008 growth path.
My failure to even conceive that "Washington" starting in 2010 could possibly be sufficiently happy with the pace of recovery that serious measures to further boost demand would vanish from the agenda.
(1) and (2) and (3) I have written about elsewhere. Today we have a piece of (4) to deal with--why do so many people prioritize low-pressure economy policies that they regard as the only safeguard of hard money over economic recovery? Paul Krugman constitutes himself the συμποσιαρχ, decides that we will be drinking κρασί ακρατος, and poses the question: READ MOAR
OK. It's time to try to pull everything together on the Red States, the Republican Party, ObamaCare, "repeal and replace", and starting at the top of the evil tree and hitting every branch all the way down...
Let's start with a catch from Austin Frakt last January:
Austin Frakt: These two tweets tell you all you need to know about the politics of health reform: January 29, 2014 at 12:30 pm: Two of Avik Roy’s tweets yesterday...
...pertaining to the recently released Senate GOP health reform plan (the Patient CARE Act [of Burr (R-NC) Coburn (R-OK), and Hatch [R-UT) and discussion thereof, are very revealing.
@matthewherper: @Avik it still seems to me that this is going to hit a lot of voters harder. Even if it makes economic sense.
@Avik: .@matthewherper By repealing and replacing Ocare, the plan is more disruptive than it needs to be. But repeal needed for Right viability.
And, of course, it had no right-wing viability at all even so.
J. Bradford DeLong on September 02, 2014 at 07:46 AM in Economics: Health, Economics: History, History, Moral Responsibility, Obama Administration, Philosophy: Moral, Political Economy, Politics, Streams: Across the Wide Missouri, Streams: Cycle, Streams: Economics | Permalink | Comments (10)
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...But not only was Hamilton more progressive for his time, he has lessons for our response to climate change. Two hundred years ago, Alexander Hamilton was mortally wounded by then Vice President Aaron Burr in a duel at Weehawken, New Jersey. Their conflict, stemming from essays Hamilton had penned against Burr, was an episode in a larger clash between two political ideologies: that of Thomas Jefferson and the anti-Federalists, who argued for an agrarian economy and a weak central government, versus that of Hamilton and the Federalists, who championed a strong central state and an industrial economy.
John Maynard Keynes (1926): The End of Laissez-Faire } "Panarchy - Panarchie - Panarchia - Panarquia - Παναρχία - 泛无政府主义: I The disposition towards public affairs...
...which we conveniently sum up as individualism and laissez-faire, drew its sustenance from many different rivulets of thought and springs of feeling. For more than a hundred years our philosophers ruled us because, by a miracle, they nearly all agreed or seem to agree on this one thing. We do not dance even yet to a new tune. But a change is in the air. We hear but indistinctly what were once the clearest and most distinguishable voices which have ever instructed political mankind. The orchestra of diverse instruments, the chorus of articulate sound, is receding at last into the distance.
Sitting next to Lord Skidelsky in the Sala Maggioranza of the Italian Treasury (after they turned off the air conditioning, I took off my tie when he took off his jacket) impelled me to reread his Keynes biography.
And, after rereading, I find that I cannot improve on what I wrote about them three years ago: my thoughts then were totally enthusiastic and totally adulatory. And my thoughts are the same now. (I haven't yet reread volume three). In his first two volumes, Skidelsky gives us John Maynard Keynes's life, entire. And he does so with wit, charm, control, scope, and enthusiasm. You read these books and you know Keynes--who he was, what he did, and why it was so important. READ MOAR
Over at Equitable Growth: The Setup:
Let's start with Paul Krugman, who made me aware of this ebook by writing:
Paul Krugman: All About Zero: "Way back in 2008 I (and many others) argued...
...that the financial crisis had pushed us into a liquidity trap... in which the Fed and its counterparts elsewhere couldn’t restore full employment even by reducing short-term interest rates all the way to zero.... In practice the zero lower bound has huge adverse effects on policy effectiveness... [and] drastically changes the rules... [as] virtue becomes vice and prudence is folly. We want less saving, higher expected inflation, and more.... Liquidity-trap analysis has been overwhelmingly successful in its predictions: massive deficits didn’t drive up interest rates, enormous increases in the monetary base didn’t cause inflation, and fiscal austerity was associated with large declines in output and employment.... READ MOAR
Brad DeLong (2006): Milton Friedman, Friedrich Hayek, Augusto Pinochet, and Hu Jintao: Authoritarian Liberalism vs. Liberal Authoritarianism Jamie K. at Blood and Treasure writes:
Blood & Treasure: Hayekian dictatorship: Greg Grandin in Counterpunch sings of Friedman, Hayek, Pinochet, and someone closer to home:
Friedrich von Hayek, the Austrian émigré and University of Chicago professor whose 1944 Road to Serfdom dared to suggest that state planning would produce not "freedom and prosperity" but "bondage and misery," visited Pinochet's Chile a number of times. He was so impressed that he held a meeting of his famed Société Mont Pélérin there. He even recommended Chile to Thatcher as a model to complete her free-market revolution. The Prime Minister, at the nadir of Chile's 1982 financial collapse, agreed that Chile represented a "remarkable success" but believed that Britain's "democratic institutions and the need for a high degree of consent" make "some of the measures" taken by Pinochet "quite unacceptable."
So, as I said, just as I finish writing up my virtual office-hour thoughts on a framework for organizing one's thoughts on Friedrich A. von Hayek and twentieth century political economy, along comes the esteemed Lars P. Syll with a link to an excellent piece I had never read on the same thing by Equitable Growth's Fearless Leader Bob Solow.
It has been my experience that disagrees with Bob Solow at one's peril: not only has he already thought about and found reasons to object to your objection, but if you go further and find a reason to object his objection of your objection, he has already thought of a very good objection to that as well.
Solow sees a good, technocratic, information-theory focused economist Hayek, and a bad political pamphleteer Hayek. Solow sees the real Hayek as being the Good Hayek. He sees the Good Hayek as more moderate than Milton Friedman--committed to some level of professional technocratic economics guiding a social-insurance state providing basic incomes, implementing Pigovian taxes, enforcing standards and quality, and aggressively breaking-up monopolies. It is, Solow thinks, the Bad Hayek who is the problem. And the Bad Hayek is not the real Hayek, for the real Hayek had "not meant to provide a manifesto for the far right..."
I, by contrast, see not two but three Hayeks: the good Hayek, a bad macroeconomic business-cycle Hayek, and a profoundly problematic political-economy Hayek.
The Good Hayek was, I think, very very good--much better than Solow allows. Papers in mechanism design and information theory written forty and fifty years later are footnotes (often unacknowledged footnotes) to the Good Hayek.
The Bad Hayek was, I think, very very bad. To claim that the market economy exhibited large business-cycle fluctuations only because of policy errors produced by the existence of central banks (and, sometimes, because the potential availability of a lender of last resort allowed private bankers to engage in fractional-reserve banking) was just batty: contrary to all sound theory and all empirical evidence. Only an astonishing imperviousness to both thinking deeply and looking at the world could allow clinging to such a dead-ender position. Yet Hayek did. And his epigones do.
The Political Economy Hayek is, as I said, highly problematic. First of all, there is the dodging and weaving. Here is Hayek writing to Paul Samuelson:
I am afraid and glancing through the eleventh edition of your Economics I seem to have discovered the source of the false allegation about my book The Road to Serfdom which I constantly encounter, most resent, and can only regard as a malicious distortion.... You assert that I contend that 'each step away from the market system towards the social reform of the welfare state is inevitably a journey that must end in the totalitarian state' and that 'government modification of market laissez-faire must lead inevitably to political serfdom'.... How anyone who can just read my book in good faith can say this when ever since the first edition I say right at the beginning... 'Nor am I arguing that these developments are inevitable. If they were, there would be no point in writing this. They can be prevented if people realize in time where their efforts may lead...'
And here is Hayek writing a new forward for The Road to Serfdom in the mid-1950s:
Six years of socialist [i.e., Labour Party] government in England have not produced anything resembling a totalitarian state. But those who argue that this has disproved the thesis of The Road to Serfdom have really missed... that the most important change which extensive government control produces is a psychological change... necessarily a slow affair... not over a few years but perhaps over one or two generations.... The change undergone by the character of the British people... can hardly be mistaken... Is it too pessimistic to fear that a generation grown up under these conditions is unlikely to throw off the fetters to which it has grown used? Or does this description not rather fully bear out De Tocqueville’s prediction of the 'new kind of servitude'?... I have never accused the socialist parties of deliberately aiming at a totalitarian regime.... What the British experience convinces me... is that the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand... (I)
But we also have:
The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born... (II)
Yet, in 1956:
The most serious development is the growth of a measure of arbitrary administrative coercion and the progressive destruction of the cherished foundation of British liberty, the Rule of Law.... [E]conomic planning under the Labour government [has] carried it to a point which makes it doubtful whether it can be said that the Rule of Law still prevails in Britain... (III)
And, as Paul Samuelson wrote:
The Hayek I met on various occasions--at the LSE, at the University of Chicago, in Stockholm (1945), at Lake Constance-Lindau Nobel summer conferences--deﬁnitely bemoaned progressive income taxation, state-provided medical care and retirement pensions, ﬁat currencies remote from gold and subject to discretionary policy decisions by central bank and treasury agents.... This [is] what constitutes his predicted serfdoms... (IV)
To say the least, there is a difficulty in figuring out what the Political Economy Hayek believed. Solow takes the real Hayek to be (II) and regards (I), (III), and (IV) as line wobbles from the Bad Hayek that he, Solow, will overlook. But the Bad Hayek is not just "in the text": the Bad Hayek seems to me to be well-nigh omnipresent except when Hayek is playing the injured party in front of a social-democratic audience. I think you are more likely to find the Real Hayek in the "shut up and be glad you were born" passage in The Mirage of Social Justice:
While in a market order it may be a misfortune to have been born and bred in a village where... the only chance of making a living is fishing... it does not make sense to describe this as unjust. Who is supposed to have been unjust?--especially... if these local opportunities had not existed, the people in question would probably never have been born at all... [for lack of] the opportunities which enabled their ancestors to produce and rear children... (V)
And that in fact those who do not shut up and be grateful are guilty of moral fault, as in The Political Order of a Free People:
By the slogan... 'it is not your fault'... the demagoguery of unlimited democracy, assisted by a scientistic psychology, has come to the support of those who claim a share in the wealth of our society without submitting to the discipline to which it is due. It is not by conceding 'a right to equal concern and respect’ to those who break the code that civilization is maintained... (VI)
And then there is the (missing) letter from Hayek to Thatcher, apparently urging that Thatcher go all Pinochet-medieval on Neil Kinnock and Arthur Scargill, that elicited this reply:
The progression from Allende's Socialism to the free enterprise capitalist economy of the 1980s is a striking example of economic reform from which we can learn many lessons. However, I am sure you will agree that, in Britain with our democratic institutions and the need for a high degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution. At times the process may seem painfully slow. But I am certain we shall achieve our reforms in our own way and in our own time. Then they will endure. (VII)
Why, then, do I call the Political Economy Hayek just "problematic" and not "evil"? Because I think there are some passages of great value in The Constitution of Liberty and in the three-volume Law, Legislation, and Liberty. But it is, I think, important not to pretend that the Bad Hayek elements were some kind of anomaly
While Solow is much easier on Hayek than I would be, he is much harder on Milton Friedman. For Solow, it is Milton Friedman who is the real Mephistopheles here. It is Friedman who over and over again would frame the issues as freedom vs. socialism, when actually the issue is "which of the defects of a 'free', unregulated economy should be repaired by regulation, subsidization, or taxation? Which... tolerated... because the best available fix would have even more costly side-effects?" It was Friedman whose "rhetoric... irrelevant or, worse, misleading, or, even worse, intentionally misleading... made... [the] policy discussion more difficult to have... [and] did the market economy a disservice."
I disagree: I see Friedman and Hayek as being equally willing to call social democracy "socialism", and equally likely to see it as corrosive of individual freedom.
But I see Friedman as being much more moderate than Hayek--not just in terms of being a true social and personal libertarian, not just in having a more sophisticated view of social insurance, but also having both a belief in democracy and education as well as a willingness to (sometimes) mark his beliefs to market that Hayek definitely lacked. When stabilizing the growth of the money supply did not produce the smooth aggregate demand path that Friedman had expected, he changed his mind--and became a big advocate of quantitative easing...
The key paragraphs from Solow:
Robert Solow (2012): Hayek, Friedman, and the Illusions of Conservative Economics: "A Review of Angus Burgin...
...The Great Persuasion: Reinventing Free Markets since the Depression.... There was a Good Hayek and a Bad Hayek. The Good Hayek was a serious scholar who was particularly interested in the role of knowledge... [but] also knew that unrestricted laissez-faire is unworkable... monopoly power... better-informed actors can exploit the relatively ignorant... distribution of income... grossly unequal and... unfair... unemployment and underutilized capacity... environmental damage... the Good Hayek’s attempts to formulate and to propagate a modified version of laissez-faire that would work better....
The Bad Hayek.... The Road to Serfdom was a popular success but was not a good book.... Hayek’s implicit prediction is a failure.... The source of their alarm was not the danger from Soviet communism or Nazi Germany, but rather the... New Deal here and the Labor Party there... ameliorat[ing] and... revers[ing] the ravages of falling incomes and rising unemployment.... Lionel Robbins... Friedrich von Hayek... Frank Knight... Jacob Viner... Henry Simons.... What seems off-key (at least now, at least to me) is that they all felt themselves to be in a struggle between free markets and collectivism (or socialism) with no possible intermediate stopping point....
This apocalyptic tone survived into the period dominated by Milton Friedman... the language of the Tea Party Hayekians.... In 2004, Friedman told The Wall Street Journal that, although the battle of ideas had been won, 'currently, opinion is free market while practice is heavily socialist'. The point to keep in mind is that 'socialist practice' includes the Food and Drug Administration (FDA), the certification of doctors, and the public schools.... Of course for those of us trying to live on this planet, the issue is... between an extreme version of free markets and effective regulation of the shadow banking system, or between an extreme version of free markets and the level and progressivity of the personal income tax....
THE GOOD HAYEK... had not meant to provide a manifesto for the far right.... There is no reason to doubt Hayek’s sincerity in this (although the Bad Hayek occasionally made other appearances)... [that] Knight and moderates such as Viner thought that he had overreached suggests that the Bad Hayek really was there in the text....
In the spring of 1947, with a grant from the Volker Fund of Kansas City, who were the Koch Brothers of their time, Hayek was able to bring together... thirty-nine colleagues... the Mont Pèlerin Society... [which] Burgin... endows... with more significance than it ever really had.... They... could not agree on... the permissible, indeed the desirable, deviations from laissez-faire?... Good answers are available, and many of them involve government intervention.... The inability to agree about this sort of thing, or even to face up to it, seems to have dogged the MPS.... Maybe the main function of the MPS was to maintain the morale of the free-market fellowship....
Leadership... passed... to Milton Friedman... different in style and, to some extent, even in ideology.... As his ideas and his career evolved... he moved in a different, almost opposite, direction, toward a cruder government-can-do-no-right position, certainly not given to ethical worries or even to economic-theoretical fine points.... Under Milton Friedman’s influence, the free-market ideology shifted toward unmitigated laissez-faire. Whereas earlier advocates had worried about the stringent conditions that were needed for unregulated markets to work their magic, Friedman was the master of clever (sometimes too clever) arguments to the effect that those conditions were not really needed, or that they were actually met in real-world markets despite what looked a lot like evidence to the contrary. He was a natural-born debater: single-minded, earnestly persuasive, ingenious, and relentless....
Friedman’s... most important work... consumer expenditure... important and useful... anticipated in much less satisfactory form by James Duesenberry, and Franco Modigliani developed a similar and in some ways more satisfactory theory.... But monetarism... has not proved to be tenable analytically or empirically. His Monetary History of the United States, 1867–1960 (written with the late Anna Schwartz), while highly interesting, is not a towering intellectual achievement.
Burgin... attaches a lot of importance to the respectability conferred on the political right by the ideas of Hayek, Friedman, and the others.... I would not disagree, but... Thatcher profited from an ill-judged miners’ strike and, as Lyndon Johnson famously remarked, the passage of the Civil Rights Act lost the Solid South for the Democratic Party for at least a generation.
For a serious modern reader, the rhetoric is irrelevant or, worse, misleading, or, even worse, intentionally misleading.... The real issues are pragmatic. Which of the defects of a 'free', unregulated economy should be repaired by regulation, subsidization, or taxation? Which of them may have to be tolerated... because the best available fix would have even more costly side-effects? To the extent that the MPS circle made that kind of policy discussion more difficult to have, it did the market economy a disservice.
Over at Equitable Growth: One way to conceptualize it all is to think of it as the shape of a river:
The first current is the Adam Smith current, which makes the classical liberal bid: Smith claims that the system of natural liberty; with government restricted to the rule of law, infrastructure, defense, and education; is the best of all social arrangements.
This first current is then joined by the Karl Polanyi current: Polanyi says that, empirically, at least in the Industrial Age, the system of natural liberty fails to produce a good-enough society. The system of natural liberty turns land, labor, and finance into commodities. The market then moves them about the board in its typically disruptive fashion: "all that is solid melts into air", or perhaps "established and inherited social orders are steamed away". But land, finance, and labor--these three are not real commodities. They are, rather, "fictitious commodities", for nobody wants their ability to earn a living, or to live where they grew up, or to start a business to be subject to the disruptive wheel of market fortuna. READ MOAR:
J. Bradford DeLong on August 07, 2014 at 11:19 AM in Economics: Growth, Economics: History, Economics: Macro, History, Long Form, Philosophy: Moral, Political Economy, Politics, Streams: Across the Wide Missouri, Streams: Cycle, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink | Comments (27)
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Over at Equitable Growth: I have been meaning to pick on the very sharp and public-spirited Jeff Faux since he wrote this seven months ago:
Jeff Faux: NAFTA, Twenty Years After: A Disaster:
New Year’s Day, 2014, marks the 20th anniversary of the North American Free Trade Agreement (NAFTA). The Agreement created a common market for goods, services and investment capital with Canada and Mexico. And it opened the door through which American workers were shoved, unprepared, into a brutal global competition for jobs that has cut their living standards and is destroying their future. NAFTA’s birth was bi-partisan—conceived by Ronald Reagan, negotiated by George Bush I, and pushed through the US Congress by Bill Clinton in alliance with Congressional Republicans and corporate lobbyists....
NAFTA directly cost the United States a net loss of 700,000 jobs.... And the economic dislocation in Mexico increased the the flow of undocumented workers into the United States.... By any measure, NAFTA and its sequels has been a major contributor to the rising inequality of incomes and wealth that Barack Obama bemoans in his speeches.... The agreements traded away the interests of American workers in favor of the interests of American corporations.... NAFTA’s fundamental purpose was... to free multinational corporations from public regulation in the U.S., Mexico, Canada, and eventually all over the world.... The 20th anniversary of NAFTA stands as a grim reminder of how little our political leaders and TV talking heads—despite their crocodile tears over jobs and inequality—really care about the average American who must work for a living...READ MOAR
Over at Project Syndicate Ten years ago we had ridden the bust of the internet bubble, picked ourselves up, and continued on. It was true that it had turned out to be harder than people expected to profit from tutoring communications technologies. That, however spoke to the division of the surplus between consumers and producers--not the surplus from the technologies. The share of demand spent on such technologies looked to be rising. The mindshare of such technologies looked to be rising much more rapidly. READ MOAR at Equitable Growth
Karl Polanyi's The Great Transformation is certainly the right place to start in thinking about "neoliberalism" and its global spread. But you are right to notice and do need to keep thinking that Polanyi is talking about pre-World War II classical liberalism, and that modern post-1980 neoliberalism is somewhat different.
First, as I, at least, see it, there are three strands of thought that together make up the current of ideas and policies that people call "neoliberalism":
Robert Waldmann: Comment on Intellectual Origins of Reagan-Thatchernomics: "That is a long and interesting list...
...Somewhere the crime wave seems to have fallen between to stools (between 17 and 18). I think that, to be fair to both, especially Feldstein, you should number separately.
Huntington's willingness to criticize democracy and praise deference to superiors is amazingly frank...
Trying to be quicker on (18)-(30) which I will ascribe to "Mad Dog" (to avoid an concerns about context)
On (18) ["the democratic surge of the 1960s raised again in dramatic fashion the issue of whether the pendulum had swung too far..."]: His courage amazes me. Even George Will doesn't question Democracy so bluntly any more.
On (19) ["the vigor of democracy in the United States in the 1960s thus contributed to a democratic distemper... the expansion of governmental activity... and the reduction of governmental authority..."]: The word "distemper" is pejorative. Think of trying to tell a Tea Partier that a reduction in "government authority" is "distemper". I think they would lose their tempers. Again amazing frankness (I refer to Mad Dog, who may or may not have anything to do with a Harvard prof.)
Over at Equitable Growth: The intelligent Lars P. Syll depresses me by reminding me of some of the many economists of note and reputation who simply have not done their homework--or, rather, either they or I have not done our homework, and I am pretty confident it is not me--by linking to Robert Lucas:
Robert Lucas: Modern Macroeconomics: "I was convinced by Friedman and Schwartz...
...that the 1929-33 down turn was induced by monetary factors (declined is money and velocity both) I concluded that a good starting point for theory would be the working hypothesis that all depressions are mainly monetary in origin.... As I have written elsewhere, I now believe that the evidence on post-war recessions (up to but not including the one we are now in) overwhelmingly supports the dominant importance of real shocks... READ MOAR
From John Maynard Keynes's 1926 pamphlet The End of Laissez-Faire13: "The economists... furnished the scientific doctrine...
by which the practical man could solve the contradiction between egoism and socialism which emerged out of the philosophising of the eighteenth century and the decay of revealed religion. But... I hasten to qualify it. This is what the economists are supposed to have said. No such doctrine is really to be found in the writings of the greatest authorities. It is what the popularisers and the vulgarisers said.... The language of the economists lent itself to the laissez-faire interpretation. But the popularity of the doctrine must be laid at the door of the political philosophers of the day, whom it happened to suit, rather than of the political economists.
The policies that enabled the creation of our Second Gilded Age were born at the end of the 1970s out of a particular reading of the political economy of that moment.
Were the ideologues and the intellectuals of the right correct back when they claimed in the late 1970s that the economic problems of the 1970s were the result of "too much government" or of "an excess of democracy"? I think not. But in order to evaluate the argument we need to remember what it was.
Over at Department of "WTF?!" Chris House on Traditional Macroeconomic Models and the Great Recession,: Someone Who Remembers 1997-8 writes in comments:
I was more struck by this:
Chris House: Traditional Macroeconomic Models and the Great Recession:
Macroeconomists were caught completely off-guard by the financial crisis. None of the models we were accustomed to use provided insights or policy recommendations.... Neither the New Keynesian model nor its paleo-Keynesian antecedent feature a meaningful role for financial market failures. As a result, the policy response to the crisis was largely improvised. This is not to say that the improvised policy actions were bad. Improvisation guided by Ben Bernanke was about as good as we could hope for. Nevertheless, for the most part, the models we were accustomed to use to deal with business cycle fluctuations were simply incapable of making sense of what was going on.... While I typically do not grant much credence to heterodox economists, in this instance Professor Wray’s diagnosis is completely correct...
Has Chris House:
never heard of Walter Bagehot, Hyman Minsky, or Charlie Kindleberger?
not think that they were macroeconomists?
unaware of the debates and discussions and modeling exercises carried out around the 1997-98 East Asian financial crisis and the 1994-5 Mexican crisis?
unaware of all the credit-channel work on the Great Depression?
It is a great mystery...
Over at Equitable Growth: Most of American discussion about equitable growth these days revolves around rapidly growing inequality: that the rising tide has been lifting the big boats much more than the others, that trickle-down economics has not been trickling down, that enormous plutocratic wealth explosions at the top have been accompanied by stagnant wages in the middle and the bottom. But that is not the entire story. Equally important--at least I think it is equally important--is that the American economy has underperformed in real GDP growth since the end of the Social Democratic Era back in 1979.
If you go to Sam Williamson and company's Measuring Worth website--http://measuringworth.com--and look at the numbers he has scrubbed and put together, you can learn an enormous amount--or at least learn an enormous amount about what our current guesses as to the long-run shape of economic growth are... READ MOAR
Over at Equitable Growth: Chris Blattman: Links to Reviews of James Scott's "Seeing Like a State": "Daron Acemoglu and James Robinson...