The caricature of Ryan and people like him is that… they talk big about dignity while ignoring the difficulty of getting essentials like food and health care. Well, it’s not a caricature: Ryan says never mind having enough to eat, it’s about spirituality:
The left is making a big mistake…. What they’re offering people is a full stomach and an empty soul. People don’t just want a life of comfort. They want a life of dignity, they want a life of self determination…
Um, yes, but how dignified can you be on an empty stomach? How much self-determination do you have? And who is supposed to value dignity over having enough to eat? Children…. Affluent politicians have no business lecturing people having trouble buying food or having trouble paying for health care about dignity, is just stunning. READ THE WHOLE THING
Over at the Washington Center for Equitable Growth: Reading the Federal Reserve’s 2008 Meeting Transcripts: Over at Project Syndicate: Revisiting the Fed’s Crisis: It has been busy days: reading through the transcripts from the 2008 Federal Reserve Open Market Committee meetings in the interstices between pieces of the day job. As I read, I find myself asking the same overarching question: how did the FOMC get into the mindset that it had in 2008?
Oh, there are five voices that seem to me to broadly see and understand the situation.... William Dudley.... Janet Yellen... Eric Rosengren... Rick Mishkin and Don Kohn... get it. But the other members of the FOMC?... The old Federal Reserve had a charismatic, autocratic, bullying, professional central banker at its head: Benjamin Strong, Marriner Eccles, William McChesney Martin, Paul Volcker, Alan Greenspan. When it worked–and it did not always work–the Chair ruled the FOMC with an iron hand and with the near-lockstep voting support of the Governors.... If the Bernanke Fed had been the old Fed–if Rosengren, Yellen, and Mishkin and Kohn on the one hand; and Geithner, Plosser, Fisher, and so forth on the other; had to make their cases to Bernanke in private; and if he had then said “this is what we are going to do” rather than building a within-meeting consensus–would we then have had better monetary policy decisions in 2008? READ MORE
Over at the Washington Center for Equitable Growth: One of the many, many interesting things in the Federal Reserve's 2008 transcripts is the staff briefing materials for the mid-December FOMC meeting, which include:
What Effect Will a Minimum Wage Increase Have?: Tuesday Focus: February 25, 2014: First of all, it seems very clear to me that whatever disemployment effects a minimum wage increase would have are swamped for any reasonable greatest-good-of-the-greatest number calculation by the positive effects on income distribution and on the effectiveness of the EITC as an anti-poverty program that the minimum wage increase would have.
Second, I agree with my colleague Michael Reich that the CBO’s relatively high–but still low in both absolute and relative to the size of the economy terms, for it is high only relative to other studies and to the consensus view around here–estimate of the disemployment effect of the minimum wage increase is puzzling. READ MORE
Over at the Washington Center for Equitable Growth: : The Value of Choosing the Right Parents: Creg Clark: Friday Focus: February 21, 2014:
It was Samuel Bowles and Herb Gintis who first taught me that very strange things are going on in the inheritance of inequality in America. They found that although measures of cognitive performance like IQ are strongly inherited, “the genetic transmission of IQ appears to be relatively unimportant”: high IQ-parents do have higher-than-average IQ-children, but that is now why the children of rich parents are richer than average. Moreover, “the combined inheritance processes operating through superior cognitive performance and educational attainments of those with well-off parents… explain at most half” of the intergenerational inheritance of inequality.
And Greg Clark has been doing a lot of work on this, so let me turn the microphone over to him:
Greg Clark: Your Fate? Thank Your Ancestors: Mobility has always been slow: When you look across centuries… social mobility is much slower than many of us believe, or want to believe. This is true in Sweden, a social welfare state; England, where industrial capitalism was born; the United States, one of the most heterogeneous societies in history; and India, a fairly new democracy hobbled by the legacy of caste. Capitalism has not led to pervasive, rapid mobility. Nor have democratization, mass public education, the decline of nepotism, redistributive taxation, the emancipation of women, or even, as in China, socialist revolution.... The fortunes of high-status families inexorably fall, and those of low-status families rise, toward the average… but the process can take 10 to 15 generations…. We came to these conclusions after examining reams of data on surnames... in eight countries–Chile, China, England, India, Japan, South Korea, Sweden and the United States–going back centuries….
As the political theorist John Rawls suggested in his landmark work “A Theory of Justice” (1971), innate differences in talent and drive mean that, to create a fair society, the disadvantages of low social status should be limited. We are not suggesting that the fact of slow mobility means that policies to lift up the lives of the disadvantaged are for naught–quite the opposite. Sweden is, for the less well off, a better place to live than the United States, and that is a good thing…. What governments can do is ameliorate the effects of life’s inherent unfairness. Where we will fall within the social spectrum is largely fated at birth. Given that fact, we have to decide how much reward, or punishment, should be attached to what is ultimately fickle and arbitrary, the lottery of your lineage. READ MORE
This is the first and it will be the only fundraiser for domestic causes on this weblog. If this weblog has ever been of use or entertainment to you, you owe me, and I am asking for you to pay it forward now and contribute to Ceasefire Oregon: $1, $10, $100, $1000, $10,000, $100,000--whatever it is worth to you.
And let me give the microphone to Gabby Giffords and then to Mike DeLong:
Last night pieces by the thoughtful and knowledgeable Uwe Reinhardt, the smart and hard-working Marty Lederman, and that brilliant man of unsound methods Richard Epstein collided on my computer screen, and then held an all-night insomniac hoedown.
This is the result:
The first part of our lesson for today consists of a piece based on his AEA presentation by the terrifyingly brilliant Lawrence Summers: Strategies for sustainable growth: "Last month I argued that the U.S. and global economies may be in a period... in which sluggish growth and output, and employment levels well below potential... coincide... with problematically low real interest rates....
This I had planned to push across the line on Sunday. But it is not done--and it is not going to be done by Sunday unless inspiration strikes. Why not? Because I find myself a Bear of Too-Little Brain to think these issues through sufficiently clearly.
Therefore let me push the first draft out the door now, in the hope that somebody smarter than I am will give me an intellectual nudge...
The first part of our lesson for today consists of a piece based on his AEA presentation by the terrifyingly brilliant Lawrence Summers: Strategies for sustainable growth: "Last month I argued that the U.S. and global economies may be in a period... in which sluggish growth and output, and employment levels well below potential... coincide... with problematically low real interest rates....
Since 1950 and before 2007, the way to bet was that, whatever the current gap between U.S. real GDP and potential output was, the U.S. economy would close 2/5 of that gap over the course of the next year with roughly neutral policy. Unusually stimulative policies given the state of the economy would push it up; unusually contractionary policies given the state of the economy would push it down; but the way to bet was that the output gap in a year would be only 60% of its current value, in two years 35%, in three years 20%.
Then came 2008.
Real GDP fell 7.5% below potential output. But--in spite of policies that would have been classified as very stimulative indeed back in 2007--the economy did not then bounce back, closing 2/5 of the gap vis-a-vis potential in each year. Instead, over the past four years the gap has been closed at a pace of only 1/12 per year--and that gap-closing has been accomplished not by real GDP growing faster than the pre-2007 trend but rather by potential output growing more slowly post- than pre-2007.
And toward the end of 2012 two shifts took place in macroeconomic policy:
Surely even the American Enterprise Institute can do better than this?
At times under Podesta, CAP’s lobbying dovetailed nicely with the White House agenda, the interests of CAP’s corporate donors, and the lobbying of the Podesta Group, still under Tony’s control. For instance, Walmart gave large donations (at least $500,000) to CAP. In 2009, CAP organized Walmart and the Service Employees’ International Union in support of Obamacare’s employer mandate. Walmart, of course, can afford the costs of insuring full-time employees more so than smaller competitors can (and is dexterous at moving employees to part-time)...
Does Carney really believe that Wal-Mart thinks an employer mandate will boost its profits? Could he possibly be that ignorant?
And, if not, what is he trying to say?
Now Wal-Mart does have an interest in rational, pro-growth (and also pro-equity: Wal-Mart does not profit when income distribution becomes more unequal--the top 1% do not shop there) policy. Is that what Carney opposes?
UPDATE: T.P. Carney protests:
@TPCarney: That's not what I argued, @delong. Once again, you would benefit from a dose of charity in your reading/blogging.
But if Carney is not arguing that Podesta lobbied for the ACA as a way of boosting Wal-Mart's rivals' relative costs and thus boosting Wal-Mart's profits, what is he arguing?
As I see it, Wal-Mart wants, in this order: (1) low capital gains taxes, (2) prosperity, (3) reduced income inequality to make its customers richer, and (4) freedom from regulations it finds burdensome. And, way behind, (5): if there are going to be burdensome regulations, let them burden its competitors more than they burden it. There are cases in which companies pursue competitive advantage and higher profits by lobbying for regulations that will be highly burdensome to competitors--cough, SEC, cough FDA--but the ACA's employer mandate really is not an example of them.
Wal-Mart has many competitive advantages vis-a-vis its rivals. But running a social insurance scheme is not high among them--it would rather focus its attention and energy on other things.
So why, then, does Wal-Mart fund CAP, if it is not a sinister plot to get CAP to lobby for the Affordable Care Act so that the ACA will then tangle its competitors up in bureaucracy and thus allow Wal-Mart to raise its prices and earn higher profits?
Wal-Mart wants to appear to be and to some degree is interested in being a good corporate citizen--engaged in positive-sum gift-exchange relationships with America as a whole, giving something back in return for Americans' beneficence in patronizing its stores.
Wal-Mart is interested in rational economic policy, because to a large degree what is good for America is good for Wal-Mart--and to an even larger degree what is good for the bottom 50% (at least what is good for those who don't work at Wal-Mart) is good for Wal-Mart.
Wal-Mart wants a seat at the table: wants to make sure that aspects of the situation that are bad for Wal-Mart as a productive and as a profit-making enterprise are not overlooked in the center-left policy debate.
But if Carney writes that John Podesta is a bad actor because:
Under Podesta, CAP’s lobbying dovetailed nicely with the White House agenda, the interests of CAP’s corporate donors, and the lobbying of the Podesta Group... Walmart gave large donations (at least $500,000) to CAP... because it (1) wants to appear to be and to some degree is interested in being a good corporate citizen; (2) is interested in rational economic policy, especially in what is good for its customers in the bottom 50%; and (3) wants a seat at the table to make sure effects on it as a productive and as a profit-making enterprise are not overlooked in the center-left policy debate...
then people laugh at Carney.
So Carney has to write, instead:
Under Podesta, CAP’s lobbying dovetailed nicely with the White House agenda, the interests of CAP’s corporate donors, and the lobbying of the Podesta Group.... Walmart gave large donations... to CAP.... CAP organized Walmart and the Service Employees’ International Union in support of Obamacare’s employer mandate. Walmart, of course, can afford the costs of insuring full-time employees more so than smaller competitors can (and is dexterous at moving employees to part-time)...
My advice to Carney? That it was extremely uncharitable of him to write that paragraph. And he should use the strike tag on it.
The thoughtful and hard-working John Aziz on Twitter:
John B. Taylor: "There is little evidence of a savings glut" http://t.co/tquaxSCfbs
Er, what? http://t.co/hv7bP40M1x
Indeed. I cannot follow it either.
John Aziz provides some context and explanation
John Aziz (April 30, 2013): A Visual Representation of the Zero Bound:
This graph shows savings at depository institutions as a percentage of GDP against the Federal Funds Rate. The actual cause of the desire to save rather than consume or invest is uncertain... demographic trend... psychological trend... shortage of “safe” assets... anticipation of deflation.... But whatever it is, we know that there is an extraordinary savings glut. There have been a lot of assertions that interest rates at present are unnaturally or artificially low. Well, what can we expect in the context of such a glut?... Theoretically, lower[ing] interest rates ceteris paribus should inhibit the desire to save, by lowering the reward for doing so. But interest rates cannot fall below zero, at least not within our current monetary system.... Even tripling the monetary base — an act that Bernanke at least believes stimulates an interest rate cut at the zero bound — has not discouraged the saving of greater and greater levels of the national income.... Investors are not finding better investment opportunities for their savings and the structure of production does not appear to be adjusting very fast to open up new opportunities for all of that idle cash.
Noah Smith has a nice post this morning:
Noah Smith: Risk premia or behavioral craziness?:
John Cochrane is quite critical of Robert Shiller.... He... thinks that Shiller is trying to make finance less quantitative and more literary (I somehow doubt this, given that Shiller is first and foremost an econometrician, and not that literary of a guy).
But the most interesting criticism is about Shiller's interpretation of his own work. Shiller showed... stock prices mean-revert. He interprets this as meaning that the market is inefficient and irrational... "behavioral craziness". But others--such as Gene Fama--interpret long-run predictability as being due to predictable, slow swings in risk premia.
Who is right? As Cochrane astutely notes, we can't tell who is right just by looking at the markets themselves. We have to have some other kind of corroborating evidence. If it's behavioral craziness, then we should be able to observe evidence of the craziness elsewhere in the world. If it's predictably varying risk premia, then we should be able to measure risk premia using some independent data source...
As I like to say, we are moving into a twenty-first century in which we are highly likely to spend a greater share of our collective income on:
Historical experience teaches us that whenever we try to supply any of these four needs via an un- or a lightly-regulated market, it does not go so well. This suggests that we are likely to be happy in the twenty-first century only if we shift our collective economic cognition and organization to place somewhat less emphasis on the market and more on... something.
The problem is that we have--or, at least, from where I sit I think we have--very good ideas about the success and failure modes of markets (i.e., Friedrich Hayek (1947), Individualism and Economic Order; Kenneth Arrow (1969), "The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Non-market Allocation"). We know rather less about the success and failure modes of politics (i.e., James Buchanan and Gordon Tullock, The Calculus of Consent; Mancur Olson, The Logic of Collective Action; Josiah Ober, Democracy and Knowledge: Innovation and Learning in Classical Athens).
And, IMHO at least, we know very little about the success and failure modes of bureaucracy.
So I would like to call for people to think, and think hard, so that a generation hence we know as much about the success and failure modes of bureaucracy and politics as we do about markets--and, I hope at least, have evolved some more tweaks to make all three modes of social organization and cognition less subject to failure.
Alas, I have no special insight into how to start thinking about these matters. But Cosma Shalizi has the best diving board I have found:
Review of Edwin Hutchins, Cognition in the Wild: Human beings coordinate their actions to do things which would be hard or impossible for them individually. This is not a particularly recondite fact, and the recognition of it is ancient; it is in the fifth book of Lucretius's De Rerum Natura, for instance.... The nineteenth century, and to a lesser degree this one, have witnessed a dramatic expansion in the numbers of us engaged in administration, bureaucracy, management, oversight--that is to say, in formally-organized tasks of collective cognition and control. We did not invent bureaucracy, the mainstay of the ancient empires, but we're much, much better at it... corrupt, inefficient institutions which work poorly; every election, Piffleburg [WI]'s citizens mutter something like "what do we pay taxes for anyway?" Yet to run any one of these institutions at the level of honesty, efficiency and efficacy which makes Piffleburg grumble would have demanded the full powers and attention of even the ablest Roman propraetor or Tang magistrate. That all of those institutions, plus the ones not restricted to a single city, could be run at once, and while governed by a very ordinary slice of common humanity, would have seemed to such officials flatly impossible.
The immediate question this raises, of why we are so much better at collective endeavors than the ancients, can be answered fairly simply. To a first approximation, the answer is: brute force and massive literacy. We teach nearly everyone to read and write, and to do it, by historical standards, at a high level. This lets us staff large bureaucracies (by some estimates, over 40% of the US workforce does data-handling), which lets us run an industrial economy (the trains run on time), which makes us rich enough to afford to educate everyone and keep them in bureaucratic employment, with some surplus left over to expand the system.
This would do us no good if our ideas of administration were as shabby as those of our ancestors in the dark ages, but they're not: we inherited those of the ancient empires, and have had quite a while to improve upon them (and improvements are made easier and faster by the large number of administrators and the high standard of literacy). Among the improvements are many techniques (standardized procedures, standardized parts, standardized credentials and jobs, explicit qualifications for jobs and goods, files, standardized categories) and devices (forms, punch cards, punch card tabulators, adding machines, card catalogs, and, recently, computers) for making the administration of people and things easier. (We've been over parts of this before, looking at James Beniger's book on The Control Revolution and Ernest Gellner's Nations and Nationalism.)
All this is in the realm of technique; when it comes to theory, we are quite at a loss. We can see, in a rough, common-sensical way, what makes us better at running things than the Romans were, but we don't understand how either they or us pull off the trick at all. That is to say, we don't really have a good theory about how collective action and cognition work, when and why they do, how they can be made to work better, why they fail, what they can and cannot accomplish, and so forth.
Intellectually, these are large, tempting problems; technologically, they have obvious relevance to the design of parallel and distributed computers; economically, they could mean real money, not just billions; and, in general, it'd be nice to know what it is we've gotten ourselves into.
Now, in a sense, this problem has been approached by many of the social sciences.... Much of the most interesting research on these problems has been done by economists. The great Friedrich Hayek (that is, Friedrich Hayek the profound social scientist, not to be confused with his evil twin, Friedrich Hayek the right-wing ideologue) was apparently the first to point out that markets perform a kind of collective cognition or calculation which would be beyond the scope of the individual actors in the markets. Since his time, the economists have devoted considerable thought to how the way a group is put together--its procedures, the distribution of power, resources, beliefs and preferences within it--effects the decisions it arrives at, the courses of action open to it. Some of this work, like Arrow's Social Choice and Individual Values and Olson's Logic of Collective Action--is now classical, and, under various names, it's an active, thriving area of inquiry....
[But still] we know next to nothing about how collective cognition works, or when it works, or how to make it work better; we have some ideas about it, but at best they've the status of artisanal rules of thumb...
Over at Bloomberg News, the smart and very industrious Carmen Reinhart lays out why she fears the debt--thinks that expansionary fiscal policy to rebalance an economy is unwise even when monetary policy is hobbled by the zero lower bound on interest rates and even when long-term interest rates remain low:
Carmen Reinhart: Of Debt, Growth, Interest Rates and History:
Vincent Reinhart, Kenneth Rogoff and I... examined 26 high-debt episodes between 1800 and 2011, looking both at growth rates and at levels of real interest rates. We found that in 23 of the 26 high-debt cases, growth was low as compared with the relevant country’s performance in periods when debt was less. Table 1... sets out this result. You’ll notice it makes clear that the U.K.’s high-debt episode of 1830-1868 is one of the three exceptions...
This gives me an excuse to once again--but for the first time in this space--explain why I cannot follow her to this conclusion.
First, note that I have drawn in red pen all over the Reinhart-Reinhart-Rogoff Table 1. I have scribbled because the fact that growth was slow in Australia, Canada, and the United States as they demobilized from World War II is not a consequence of the fact that World War II left them with high debt-to-GDP ratios. Those data points deserve asterisks. Similarly, Japan's transition from fast growth before 1990 to slow growth afterwards was not a consequence of high debt. That point deserves an asterisk as well.
So what we are left with are three cases in which (a) interest rates remained relatively low or fell and growth accelerated--the UK 1830-1868, Belgium 1920-1926, and the Netherlands 1932-1954--and three cases in which interest rates remained relatively low or fell and growth decelerated--France 1920-1945, New Zealand 1881-1951, Netherlands 1886-1898, and the United Kingdom 1917-1964.
And if I were feeling grinchy, I would point out that high-debt New Zealand's growth tracks non-high-debt Australia's growth exactly from 1881-1951:
And I would demand that that datapoint be asterisked too, leaving us 3-to-3.
Thus the claim fails that historic experience tells us that even if interest rates remain low it is dangerous for growth to undertake debt accumulation of the magnitude we have seen in the North Atlantic since 2007 (or are contemplating when we contemplate expansionary fiscal policy as a way of boosting employment and getting economies moving again).
The claim that such policies are dangerous for long-run growth rests, rather, on the belief that (a) our debt is about to trigger a transition to a period of destructively high interest rates, or (b) we dare not risk the possibility that our debt might trigger a transition to a period of destructively high interest rates. And assessing those arguments requires that we move away from history into theory, for history does not tell us a great deal about the conditions under which countries like the United States today that have the exorbitant privilege of providing safe asset reserves to the global financial system see their interest rates spike.
More on that anon. But for this Monday I just want you to focus on the Paul Krugman chart showing how Britain's high nineteenth-century debt level was perfectly compatible with the then-unprecedented growth acceleration that was the British Industrial Revolution, for that was the impetus for Carmen's Bloomberg column:
Paul Krugman: Three Centuries of Debt and Interest Rates - NYTimes.com:
Aha--somehow I didn’t know this existed. The Bank of England has produced some very, very long-term series; spreadsheet can be downloaded here. Here’s debt and interest rates... the blue line is the ratio of public debt to GDP... the red line is the yield on long-term government debt, measured on the left. You might think that these data, and the relationship they show--or, actually, don’t show--should have some impact on our current debate, especially given the tendency of many players to reject modeling and appeal to what they claim are the lessons of history.
Or are they claiming that this time is different?
And, yes, for those of you following at home without a program, this last line from Paul is a... subtweet... subblog... reference to Carmen Reinhart and Ken Rogoff (and by association Vince Reinhart)--remember that the title of the excellent 2008 Reinhart-Rogoff book about financial crises and their impacts in historical perspective is This Time Is Different: Eight Centuries of Financial Folly
Let me for one set out how I, at least, see this "equitable growth" business--how I see the conversation we should be having. There are four sequential questions:
What should we be doing to boost the productive potential of the American economy, And also the world economy? how do we best boost our resources--labor, skills, capital, infrastructure, ideas, and others?
What should we be doing to ensure that that productive potential was turned into actual useful goods and services produced?
what should we be doing in order to distribute those useful goods and services to the people who ought to have in some sense--who need them the most, who would enjoy them the most, and who deserve them the most?
Call these: "accumulation", "production", and "distribution". Or, if you want to give them economists' names: Smith-Solow, North-Keynes, Ricardo-Galbraith.
And then there is (4): what are the interactions and linkages? How does (1) constrain (2) and (3)? How does (2) constrain (3)? How does what we choose to do in (3) feedback onto (1) and (2)? And how does what we choose to do in (2) feedback onto (1)? That these linkages and interactions are key is obvious: you cannot produce where the productive potential is not there; you cannot distribute what is not produced. Moreover, if you are getting the distribution wrong it is very unlikely that you are providing people with the right incentives to make stuff and to build productive potential; it if you are not producing you are giving people no incentive to build productive potential at all.
When you take this as an organizing framework, America's big economic problems jump out at you.
For accumulation, we need to deal with the facts that America is no longer making the best-in-class investment in education; that our national savings rate is distressingly low; and that we are moving into a world in which our system of property--especially intellectual property--looks less and less likely to provide appropriate signals and rewards for activities that boost our productive capabilities
For production, we need to deal with the facts that there is an enormous gap between our productive potential and actual output with huge amounts of slack of both labor and capital; that a great deal of our output is actually value-subtracting in the long run--cooking the planet, convincing people to bear financial risks they do not understand, and playing hot-potato with health insurance claims are none of them likely to be activities that add true value, yet these may be a tenth of what our measured output is; and that we should at least think about whether we are on a path that properly allocates burdens to present and future generations.
For distribution, we need to deal with the facts that our income and wealth distributions have taken extraordinary upward leaps in the past generation that greatly diminish the utilitarian welfare generated by a unit of GDP; that our economy is shifting more of its relative effort into sectors and categories--pensions, education, health care, non-rival and non-excludible non-commodities, and other sectors in which externalities are rife--in which we do not expect the market to do well, but have little confidence that government will do better, and hence seek new modes of organization.
The way I put it back in 1993 when I came to Washington for the first time as a grownup to work for Alicia Munnell in Lloyd Bentsen's Treasury, we then saw America as having six big problems requiring immediate action:
Since then we have added:
(7) Properly reregulating finance so it doesn't do to us what it did to us in 2008; and (8) Restoring aggregate demand to its proper level.
None of these seemed to us in the Clinton administration to be partisan Democratic issues. Indeed, none of these are partisan Democratic issues.
So why have we made so little progress in the past two decades? The long-run fiscal situation remains discouraging, if not as dire as we two decades ago feared it would be right now--and we Clintonites remember that George W. Bush and his cronies took our hard work at (1) and casually and gleefully smashed most of it with a baseball bat. But health-care financing remains a mess, even if some of us have hope that ObamaCare will do for the country what RomneyCare did for Massachusetts and start us going forward at last. But global warming? Middle-class society with equality of opportunity? A system in which more of those who should get more education do so? Pensions? We are nowheresville relative to twenty years ago. Thus insights and ideas are desperately needed.
Let me try to bring four things together...
The coming of the internet has created at least the potential for a much better public-sphere conversation on economic policy than we had a generation ago. Go back to William Greider's The Education of David Stockman, and reflect that the ignorance about budgetary issues in which they maneuver and about which they lament would not be possible in the internet age of today.
We, as of yet, do not have such a public-sphere conversation. At best, the conversation resembles a soccer game of seven-year-olds--twenty people in a huddle kicking the ball in random directions, with few people playing their positions and focusing on what is truly important.
Over the past generation our politics and policy making has arguably degenerated. It is now clearly inadequate. We no longer (if we ever did) have a bipartisan technocratic center with serious votes committed to economic growth, equal opportunity, and an efficient well-functioning government that can tack left or right as necessary to assemble legislative coalitions to support good governance.
Where the conversation has been guided, it has been directed in directions that I, at least, think are unhelpful. We are moving forward into a world in which a longer-living population and technological advances create opportunities to promote the general welfare via larger expenditures on pensions and health care. But Peter Peterson and company have driven the budgetary conversation to focus on entitlement cuts rather than entitlement right-sizing, right-funding, and right-managing. Similarly, the John M. Olin Foundation--with really very little money--has driven the legal conversation to focus on restoring a classical-liberal order that, in my view at least, never really existed in the first place and that could not have functioned past 1870 if it had.
Taking these things together, it seems to me that it would be a good idea if I signed on to this Washington Center for Equitable Growth, and tried to drive the conversation to what is important.
My promise to you: If you share our interest in public policy that leads to growth-with-equity—and would like to see a 21st century that is an American Century in a these-are-people-to-emulate rather than we-fear-their-drones-and-their-blackmail sense—then:
Let us try to focus our conversation on what is truly important, for all of our sakes.
Alan Blinder is the latest economist out of the gate with an analytical account of the recent economic downturn. His 2013 After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead (New York: Penguin) is, I think, the best of accounts--at least the best for those without the substantial background and experience in finance needed to successfully crack the works of Gary Gorton. It is the best for four reasons:
Come January 1, 2014, the Affordable Care Act gets implemented. Or, rather, it gets implemented from the Potomac River up north to Campobello Island and the Great Lakes, over to the Strait of St. Juan de Fuca, and down to the Gulf of California, plus some other places--New Mexico, Colorado. Elsewhere, in the south, along the prairie, Republican legislators refuse to answer constituents' questions as to how to negotiate the new, changed bureaucracy; refuse the federal dollars earmarked to expand their state-level Medicaid programs; and refuse to lift a finger to implement the "marketplaces" that are supposed to give individuals and small businesses the same access to health insurance at competitive prices that employees of large businesses get via their companies' benefits departments.
In the "blue states"--where 60% of the country's population making 70% of the nation's income and owning 80% of the nation's wealth live--the implementation of the Affordable Care Act is likely to be like the implementation of RomneyCare was in Massachusetts: a somewhat bumpy ride, but a clear success that nobody wishes to repeal after the fact. In the "red states" where the Republican political infrastructure digs in its heels? Who knows?
I think that prediction stands up rather well. States are, by and large, doing a good job where they want to expand Medicaid and operate their exchange-marketplaces to give small businesses and individuals a benefits department so they can buy affordable insurance. But HHS is not doing a good job where it has to do heavy lifting.
Date: May 11, 2010
To: Larry Summers
From: David Cutler
Subject: Urgent Need for Changes in Health Reform Implementation
I am writing to relay my concern about the way the Administration is implementing the new health reform legislation. I am concerned that the personnel and processes you have in place are not up to the task, and that health reform will be unsuccessful as a result.
Lance Knobel: So, Brad, one of your areas is economic history. I am curious: as we face this increasing automation, robotization, is this something that’s likely to be something we have seen before in economic history or is this time going to be different?
Brad DeLong: Well, it is always going to be different, because history does not repeat itself--although it does rhyme. The question is: how is it going to be different?
Looking back at all the major transformations in history before--as we have seen entire categories of things we do to add value to our society vanish--we always found new valued things for people to do. Technological unemployment has been a yearly thing, a decade thing, a generational thing perhaps--but never before more than a generational thing.
[Sarcasm]Yes, I know: "small businesses and families are tightening their belts. Their government should, too".
Deficit spending leads to national default. More debt means rising expectations of inflation, and so the Federal Reserve has to tighten and raise unemployment above the natural rate in order to hit its inflation target once inflation expectations have become de-anchored due to high debt.
“I’m from a district that pretty much ignores Washington. If you say government is going to shut down, they say, ‘OK, which part can we shut down?’”
--Rep. Tim Huelskamp, R-Fowler, to Associated Press
Farm subsidies! Shut down farm subsidies! Move farm subsidies from the "mandatory entitlements" to the "discretionary appropriations" side of the budget, and Congressman Huelskamp would switch his attachment to government shutdowns with the force of twenty mules!
In an average year, Congressman Huelskamp's First District collects roughly $1.5 billion in farm commodity and crop instance subsidies. There are about 20,000 farmers in the First District.
You do the math: That's $75,000/year per farmer in the district. That's $9,000/year for every family of four living in the district--a district where mean household income is $50,000/year.
I tell you, the Californias and the New Yorks and the Massachusettses... the Bostons and the San Franciscos and the Los Angeleses and the New York Cities... Those Americans who live in such places know that we work hard, and are smart. But we also know that we have been very lucky. And we know that we are Americans. And so we don't really mind having our net tax dollars flow out of our communities to pay for a Medicaid beneficiary in Salinas, KS, or a Social Security recipient in Emporia, KS. We even don't mind that much paying to keep the farms going--we can envision futures in which global warming disrupts crop production in other places and the world is very glad to have Kansas agriculture on-line and tuned-up.
But we do mind Congressman Huelskamp's and his constituents pretending that it does not happen: that the First is a self-reliant rugged-individualist district, rather than one that feeds much more greedily than most via redistribution of what the rest of us produce.
As the Duke of Wellington said of the generals of the British army, I say of the Kansas congressional delegation: they may or may not scare our adversaries, but they certainly frighten me...
Let me start by saying that I have enormous respect for Ezra Klein, whose work in creating and maintaining WonkBlog has, I would argue, made him the brightest spot and the greatest hero twenty-first century American journalism has seen.
And let me start by saying that I also have enormous respect for Jim Tankersley: a smart, honorable, and hard-working reporter who knows immense amounts about the American economy and about public policy, and who tries his best to inform his readers on both print and screen within the limits of the institutional role allotted him.
And let me say that his 1700 word piece on the economy and politics of Tea-Party hub Rome, Georgia can be and has been read with enormous profit by me and people like me.
Brad DeLong : James Scott and Friedrich Hayek: October 24, 2007:
JAMES SCOTT AND FRIEDRICH HAYEK
My review of James Scott (1998), Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (New Haven: Yale University Press: 0300070160):
There is a lot that is excellent in James Scott's Seeing Like a State:
On one level, it is an extraordinary well-written and well-argued tour through the various forms of damage that have been done in the twentieth century by centrally-planned social-engineering projects--by what James Scott calls "high modernism" and the attempt to use high modernist principles and practices to build utopia. As such, every economist who reads it will see it as marking the final stage in the intellectual struggle that the Austrian tradition has long waged against apostles of central planning. Heaven knows that I am no Austrian--I am a monetarist-Keynesian, a liberal, and a social democrat--but within economics even monetarist-Keynesian liberal social democrats acknowledge that the Austrians won total and decisive victory in their intellectual war with the central planners long, long ago. This book marks the final stage because it shows the spread of what every economist would see as "Austrian ideas" into political science, sociology, and anthropology as well. No one can finish reading Scott without believing--as Austrians have argued for three-quarters of a century--that centrally-planned social-engineering is not an appropriate mechanism for building a better society.
Nobel prize winner Eugene Fama was on CNBC earlier today to discuss the Federal Reserve and its extraordinary monetary policy. Pragmatic Capitalism's Cullen Roche flagged this heated exchanged between Fama and CNBC's Rick Santelli. Santelli asked specifically about the effects of the Fed's quantitative easing program and the risks associated with it. [Fama answered:]
What they are doing... the effects are being greatly inflated by the accounts. What they've doing is issuing a lot of short-term debt--$85 billion a month--and using it to buyback long-term debt with the goal of lowering the interest on long-term debt. Now they take credit for lowering interest on short-term debt. But in fact what they've been doing should've raised rates on short-term debt.
The profound cluelessness as to what is going on in financial markets today is mind-numbing. I mean, we could understand a finance economist not understanding labor market institutions or events, or an industrial organization specialist not understanding monetary economics. But this is cluelessness about finance on the part of a finance economist.
It goes on.
After reading Suzanne Somers on ObamaCare in the Wall Street Journal, Anil Dash writes:
Next the WSJ will run a denial of income inequality penned by the General Lee from Dukes of Hazzard. (The car will get its math wrong.)
I am afraid all I can offer him today is John Taylor, whose thesis really is: Blame Barack Obama for the shutdown and debt-ceiling debacles of October:
It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. I believe this gets the causality backward..... [It's the Obama] economic policy changes... growing out of the 2008 financial crisis...
These debacles were, in John Taylor's mind, really not the fault of the Tea Party, the House Republican "grownups" who decided to bless the Tea Party, or the Senate Republican "grownups" who decided not to tell their fellow party members to sit down and behave like grownups.
Besides, John Taylor says, noticing that the Tea Party exists is rude:
Claiming that one political party has been hijacked by extremists... prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects...
At present, 24 States (and DC) have decided to move ahead with the Medicaid expansion provided for in Obamacare... 21 have rejected expansion... 6 are still considering their options. If the current decisions hold, it will result in a self-imposed redistribution of money from poorer (and typically Red states), to richer (and typically Blue ones). According to an analysis I [and Callie Gable] have done... in 2016... the 24 expanding states will receive $30.3 Billion... those not expanding will forego... $35.0 Billion... the fence sitters have... $15.2 Billion at stake....
The rejectors have 1/3 of the wealth of the nation--call it $5 trillion/year. They are throwing 0.7% of that away to make a political point. If this federal money was, say, to host an Air Force wing they would be begging for it. But since it is simply to help their poor afford to go to the doctor and make the lives of their medical professionals easier by not forcing them to play a shell game to raise the resources to treat the uninsured...
I am increasingly convinced that the Republicans of the Prairies and the South just do not understand how to play the game of economic growth or, indeed, of capitalism in the 21st century. Betting your economic growth strategy on low wages, a lack of infrastructure, low taxes, union-busting, natural resources, and the direction of farm subsidies, defense spending, and NASA to your districts carries you only so far, after all.
In the short-run of our currently-depressed economy we want to apply the within-monetary-union Keynesian multiplier to these flows: Medicaid-rejcting red states are thus making themselves 2% poorer in the short-run. For medical-care hubs like Dallas, Omaha, Atlanta, and Kansas City, the effects are likely to be larger: 3% less in terms of economic activity relative to the baseline, while the Bostons, the Denvers, and the Albuquerques will be on baseline. In the long-run--should they continue this insane and self-destructive policy--we want to apply Enrico Moretti's long-run regional economic distribution multipliers--which means that we are talking a fall relative to baseline growth of 6% of regional GDP as far as medical-hub cities are concerned.
Doctors of Overland Park, Kansas, and businessmen and -women of Kansas City, Dallas, Omaha, and Atlanta to the red courtesy phone, please...
J. Bradford DeLong: Project Syndicate: Greenspan Has Left the Building:
When I first went to Washington as a grownup in 1993 to work for the Clinton Treasury Department, we saw America as having three problems that urgently needed action that year: (1) rebalancing the federal budget so that the debt-to-GDP ratio was no longer on an upward, explosive trajectory; (2) beginning to deal with global warming via the slow ramp-up of a carbon tax; and (3) beginning the reform of our extraordinarily inefficient and extraordinary expensive national health financing system. Behind those three were three more important long-run policy challenges for America: (4) updating our pension system to deal with the aging of America and the decline of defined-benefit pensions; (5) improving our education system so that more of the people who should be going to college would feel that they could risk doing so; and (6) reversing the erosion of America as a middle-class society.
None of these--well, except maybe for (6)--were partisan Democratic issues.
I found myself procrastinating this morning by trying to work through why I found myself in so much disagreement with the able, intelligent, hard-working, and honest Antonio Fatas in his Dealing with a Sudden Stop:
A country with a current account deficit must have a matching capital inflow to finance the excess of spending above its income (this is an accounting identity). During the financial crisis many European countries faced a sudden stop.... This is something that any textbook discusses although normally in the context of emerging markets [by the way, it is not easy to use the IS-LM model to deal with sudden stops given that the IS-LM model is not the best model to analyze current account imbalances and situations where there is no price at which capital will fund a current account deficit]....
Four things create value:
And let me know that, as far back as we can tell, your status and standard of living depends on (a) the value you directly add and (b) what you are able to grab (and persuade others that you are right to grab) from our joint-product common store.
It is this:
Take the expectational Phillips Curve:
π = E(π) + β(u* - u)
where π is the inflation rate, E(π) is the market's expectation of inflation, u* is the natural rate of unemployment, and u is the unemployment rate.
This equation tells us that if expected inflation rises and the central bank does not want actual inflation to rise, it must take steps to drive the unemployment rate to:
u = u* + (E(π) - π)/β
The true size of the American subprime problem was hidden for years by the defective bookkeeping of the GSEs…. Not until the summer of 2007 did the full magnitude of the subprime problem begin to become apparent…. Had Fannie and Freddie not existed, a housing bubble could still have taken hold. But had such a bubble developed, it is likely that in and of itself, it would not have wreaked such devastation in late 2008…. Even given the excess[ive MBS holdings] of the GSEs, had the share of financial assets funded by equity been significantly higher in September 2008, arguably the deflation of asset prices would not have fostered a default contagion, if at all, much beyond that of the dot-com boom…"
Alan Greenspan's publisher did not send me a copy of his new The Map and the Territory. So at the moment I am running on the two different books read by Larry Summers and Steve Pearlstein:
Larry Summers: The Map and the Territory:
It was my privilege to work closely with Alan Greenspan for the eight years I served at the Treasury during the Clinton administration. His new book, The Map and the Territory, brings me back to fond memories of our conversations over the years. I haven’t always agreed with my friend but he has always left me wiser and with something to ponder. I have been struck… by the way… his approach… draws both on commitments to an individualist, libertarian philosophy and on extensive and deep immersion in economic statistics…. The range of topics and arguments makes this book a very important statement, whether one ultimately agrees or disagrees with the author. I found myself doing plenty of both. Greenspan’s range, vision and boldness is especially important at a time like the present, when Washington is preoccupied with the political and petty….
Michael Bordo and Harold James: EZ crisis and historical trilemmas:
Supranational commitments however do not change the problems posed by the adjustment requirement, and the asymmetric character of crisis adjustment is more apparent in the modern era (and in the interwar experience) than it was under the classic gold standard. A design that intentionally excluded a contingent clause made the system at first apparently more robust, but aggravated the eventual adjustment issue. That is why the initial crisis may not have been so acute as some of the gold standard sudden stops, but the recovery or bounce back is painfully slow and protracted. The instability is increased by the heightened complexity and length of credit chains, and by the fact of the mediation of credits through small country banking centres.
That is one of Kansas Governor Sam Brownback's constant applause lines--that he wants Kansas to be a lot less like California and a lot more like Texas.
And so I was reading Bryan Burrough on Erica Grieder: ‘Big, Hot, Cheap and Right’: What America Can Learn from the Strange Genius of Texas, and ran across Burrough's claim:
AS a Texas-raised journalist, I can tell you two things with confidence about my native state. One, its economy has been humming nicely for years…
And I think: which years are those? The Texas unemployment rate jumped 4.5% points to above 8% in the depths of the Lesser Depression, and is still 6.5%. That's not "humming"--at least not unless you view the experience of the unemployed and of those who fear they might lose their jobs as of no account.
Felix Salmon: The default has already begun:
There’s a spectrum of default severities. At one end, you have the outright repudiation of sovereign debt, a la Ecuador in 2008; at the other end, you have the sequester, which involves telling a large number… that the resources which were promised them will not, in fact, arrive. Both of them involve the government going back on its promises, but some promises are far more binding, and far more important…. Right now, with the shutdown, we’ve already reached the point at which the government is breaking very important promises indeed: we promised to pay hundreds of thousands of government employees a certain amount on certain dates, in return for their honest work. We have broken that promise. Indeed, by Treasury’s own definition, it’s reasonable to say that we have already defaulted: surely, by any sensible conception, the salaries of government employees constitute “legal obligations of the US“.
It is in some part Robert Shiller's fault that I am an economist.
Brad DeLong (September 19, 2007): What Planet Does He Live on? Robert Lucas on Mortgages and Monetary Policy:
Perhaps the strangest thing about Robert Lucas's "Mortgages and Monetary Policy" was his insistence that he was:
skeptical about the argument that the subprime mortgage problem will contaminate the whole mortgage market, that housing construction will come to a halt, and that the economy will slip into a recession. Every step in this chain is questionable and none has been quantified. If we have learned anything from the past 20 years it is that there is a lot of stability built into the real economy.
What planet did he live on? There was not "a lot of stability built into the real economy" in Japan in the 1990s. Nor was there "a lot of stability built into the real economy" in Mexico in 1994-1995. Nor was there "a lot of stability built into the real economy" in Korea, Malaysia, Indonesia, and Thailand in 1997-1998.
On this planet, the lesson of twenty years before 2007 was that very small shocks in financial markets can snowball and destabilize the real economy.
Aaron Edlin asks whether anybody has updated Campbell and Shiller's original 1996 mean-reversion regressions to include the extra decade and a half of data we have obtained since.
On the horizon, I see the eurozone breakup vigilantes approaching in the form of Ken Rogoff's latest: Three Wrongs Do Not Make a Right. But first, focus on his conclusion:
High return infrastructure projects pay for themselves in the long run, and are a reasonable risk for the short run… [as are] effective expenditures aimed at making education more effective…. Monetary policy should have been even more aggressive after the crisis…. Debt overhang is a huge problem…. I have long clearly favoured sharply writing down debts… at the ultimate expense of taxpayers in the core of Europe…
Hold tight to that: Ken Rogoff believes, along with the rest of us, that since 2010 European governments (including Britain's) should have spent more, that central banks should have eased more, and that banking policy should have written-off more.
Collection: African American Newspapers
Publication: THE NATIONAL ERA
Date: February 1, 1855
Title: SLAVE CASE.
CAMBRIDGE, O., Jan. 12, 1855.
To the Editor of The National Era: Enclosed I send you an account of a recent “Slave Case,” which occurred at this place. Having seen no notice of it in your paper, I clipped the enclosed account from the Guernsey Jeffersonian, thinking that you had not, perhaps, heard of it.
Yours truly, E. SMITH.
So what do economists have to say when they speak as public intellectuals in the public square? As I see it, economists have five things to teach at the "micro" level--of how individuals act, and of their well-being as they try to make their way in the world. These are: the deep roots of markets in human psychology and society, the extroardinary power of markets as decentralized mechanisms for getting large groups of humans to work broadly together rather than at cross-purposes, the ways in which markets can powerfully reinforce and amplify the harm done by domination and oppression, the manifold other ways in which the market can go wrong because it is somewhat paradoxically so effective, and how the market needs the state to underpin and manage it on the “micro” level.
Somehow this engulfs Noah Smith--on weblogging hiatus. He responds at the appropriate level, properly focusing on the ethology of the Egyptian plover::