Over at Equitable Growth: Suppose you had told the Federal Reserve back in mid-2007: you are about to be hit by the biggest adverse-demand and credit-channel shock in history, which will create the largest overhang of undesired risky debt ever.
Would anyone at it then have said: "Good! Let's lower the price level seven years from now by 5% relative to expected trend, and lower nominal GDP seven years from now by 12% relative to currently-expected trend!"? READ MOAR
Democrat Lianne Thompson won the election for Seat Five on the Clatsop County (OR) Commission last May. Her victory, however, was set aside due to ballot errors: a bunch of Oregonians eligible to vote did not get their ballots. So there is a special election in mid-September. It is against a much better-funded Republican, Dale Barrett.
And Michael DeLong--the 24-year-old--is her campaign manager, working 24/7 for the next 35 days...
It would be a political contribution well-spent. And they could really use it...
Over at Equitable Growth 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.
Nevertheless... READ MOAR
Over at Equitable Growth: Science fiction writer Charlie Stross sends us to:
Haul Train: "The first significant change in rigid haul truck design for 60 years...
...ETF Mining Haul Trains are the answer to the demand for even larger payloads than current Ultra-Class Trucks offer. The innovative design results in the lowest cost per ton in the industry.... Unique to ETF, each truck irrespective of capacity can operate together with others of the same capacity as a ‘Haul Train’ two; three, four or more individual trucks can easily be linked together using a steel arm carrying an enclosed armoured data cable within its structure. Information data from the first operator controlled truck is transmitted via the link arm to the following trucks guiding and controlling all important operating functions like engine power, steering direction and brakes, just as if each unit had separate operators following each other.
The real operational advantage soon becomes very obvious, for every train there is just one operator, so as unit numbers increase payload capacity go ‘up’ while operator costs come ‘down’. Each haul train features ‘side dumping’ capability, each truck can dump individually or together at the same time at the dump area and crusher. If for any reason the mine plan should change requiring fewer units in the train each truck unit can be de-coupled, allowing each truck to operate independently. This unique configuration provides a mine wishing to increase operating capacity simply by increasing the number of trucks in the train. ETF Mining Haul Trains can be used on the same roads where current Large Haul Trucks are operating with existing haul road profiles and bend radius. Side-tippers are standard...
The remarkable thing about this advertisement is the stress on how the "enclosed armoured data cable" allows the mind to economize on * truck drivers*. Figuring out a way to--sometimes--remove four out of five truck drivers from the necessary resources to make the mine operate is a huge selling point. But, then, if you are paying $50,000/year for a skilled mine-truck driver, that is $500,000 over the ten-year life of a truck that costs $1,000,000 (or more). The cost of getting the human brain is not the bulk of the cost of running the truck, but it is a significant proportion, and economizing on it by replacing drivers and slaving the follower trucks to the leader is a powerful potential source of economy.
I do not know whether the lesson to draw is that human brains still add immense value--look at how much of the cost of even the most capital-intensive mining operations is skilled human labor--or that a great many things that humans do today that are well-paid are ripe for disruption as soon as our technologists can figure out how to use silicon to mimic the skills of we shoebox-sized 50-watt supercomputers well enough...
Over at Equitable Growth: Larry Kotlikoff strikes Robert Waldmann speechless:
Robert Waldmann: Should Economists Be Honest or Civil? "Kotlikoff offers Krugman this advice...
...I think public intellectuals, like Paul Krugman, have a responsibility to act like grownups in speaking with the public. If they start calling people with different views “'stupid', they demean themselves and convey the message that name calling rather than respectful debate is appropriate conduct.... What I’m writing about is not Paul Ryan. I’m writing about the level of national discourse. No one, and I mean no one, deserves to be called stupid.
Brad DeLong has already pointed out that Krugman did not call Congressman Ryan stupid. What Paul was really saying is that the Republican fiscal policy wonk was a con artist.... READ MOAR:
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:
Over at Equitable Growth: Coffee yesterday with Peter Gosselin. Back in the day, when he worked for the Los Angeles Times he was one of the very very very best reporters covering American healthcare and related subjects. Then he was Tim Geithner's speechwriter. Now he is doing something at
And at coffee he put me on the spot. He asked me what big thoughts I had about the implementation of the Affordable Care Act.
So I stammered something relatively incoherent...
Now, however, I have had a chance to regroup. I have had an opportunity to bring some things that were barely or unconscious into the full light of reason. So I would like to try to do a better job...
Ten points: READ MOAR
Archive Entry From Brad DeLong's Webjournal: Alternate History: The Cincinnati: The Constitutional Convention essentially reproduced the late-eighteenth century division of power in the British government at the time: instead of King, Lords, and Commons we had President, Senate, and House of Representatives.
There were some tweaks: Individual Presidents were weakened by making them stand for four-year terms, while the Presidency was strengthened by giving it a mighty plebiscitary base. Congress was weakened by depriving it of the power to pass Bills of Attainder and Ex Post Facto laws. The Presidency was weakened by depriving it of the ability to bribe members of Congress by offering them posts of trust and profit. And the government as a whole was weakened in its authoritarian powers by the Bill of Rights.
But for the most part it was the late eighteenth-century British Constitution, dry-cleaned, brushed, and patched.
What if things had gone differently? What if the Founders had taken as their model not late eighteenth-century Britain, but that other great example of good government: the Antonine dynasty of the Roman Empire, in which each Emperor "adopted" the leading military politician of the next generation as his successor?
My brother sketches out what might then have happened:
OK. Each Imperator--chosen by the Cincinnati--serves for no more than two 10-year terms, with the mandate of the Cincinnati being to choose the most impressive available military politician as his successor.
Then we get:
1810-1820: "Light Horse" Harry Lee
1820-1830: Andrew Jackson
1830-1840: Andrew Jackson
1840-1850: James K. Polk (a stretch)
1850-1860: Zachary Taylor
1860-1870: Robert E. Lee (struggles to find a good general as successor)
1870-1880: U.S. Grant
1880-1890: Phil Sheridan
1890-1900: Joshua Lawrence Chamberlain
1900-1910: Teddy Roosevelt
1910-1920: Teddy Roosevelt
1920-1930: John Pershing
1930-1940: Douglas MacArthur (uh-oh)
1940-1950: George Marshall
1950-1960: Dwight Eisenhower
1960-1970: Maxwell Taylor
1970-1980: Matthew Ridgeway
1980-1990: Alexander Haig (uh-oh)
1990-2000: Colin Powell
2000-2010: Colin Powell
Well, I've seen worse lists of rulers, but I'm not sure we make it through the Great Depression with MacArthur.
Perhaps the Republic falls in 1935 to an insurrection led by Huey Long in the role of the Tiberius Sempronius Gracchus. Perhaps not. Certainly a very different United States. An inferior one? Again, perhaps.
As a former Senior Treasury Official, I know the first rule of Treasury Secretaryship:
You do not, you never, you NEVER, you NEVER NEVER NEVER announce that Tax Policy is going to visit or revisit any relatively-technical issue until you have a plan, and that the first statement you make about the plan is the announcement of the plan--with a declaration that, if the plan is legislative, the law will be retroactive to the date of the announcement and, if the plan is administrative, that the plan will go into effect now.
This, from Jack Lew (and Barack Obama), is highly unprofessional:
Julie Hirschfeld Davis: Obama Weighing Options to Stop Corporate Tax Flight "The Obama administration is weighing plans to circumvent Congress...
...and act on its own to curtail tax benefits for United States companies that relocate overseas to lower their tax bills, seeking to stanch a recent wave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said on Tuesday. Treasury Department officials are rushing to assemble a broad array of options that would “change the economics of inversions,” Mr. Lew said. Options are still being developed.... The action comes in the face of a recent increase in United States companies reaching deals to reorganize overseas, creating an explosive political issue that Mr. Obama has seized on to talk about a lack of “economic patriotism”...
This ain't rocket science, people. You've had a good year to think hard about how to do the job and 5 1/2 to do on-the-job-learning.
Step up your game...
Over at Equitable Growth: The extremely sharp and hard-working Neil Irwin has a nice piece that gives his answer:
Neil Irwin: Why Is the Economy Still Weak? Blame These Five Sectors: "The economy keeps underperforming...
...producing around $800 billion a year less in goods and services than it would if the economy were at full health, and as a result millions of people aren’t working who would be if conditions were better. But why?... To get at an answer, we needed a more basic question: What would the economy look like right now if it were fully healthy, and how is the actual reality... different?... A handful of sectors, including housing, government spending and spending on durable goods, are at fault for the continuing underperformance of the American economy.... Six of 11 sectors we analyzed are doing fine... consumer spending on services... spending on nondurable goods... Business spending on intellectual property.... READ MOAR
Of all the weird things that have happened in the American public sphere in my life, the most weird was the War on Nate Silver--launched in the fall of 2012 by David Brooks, Joe Scarborough, Dylan Byers, and a remarkably large company.
The underlying argument appeared to be that Nate Silver was doing something wrong and unfair by using... evidence. By... counting things. By... using statistics. By... estimating probabilities...
A few of the "best" examples:
David Brooks on the PBS NewsHour:
What I hate are the forecasts, when they say so and so has a 66 percent chance of winning or a 32 percent chance of winning.... If you tell me you think you can quantify an event that is about to happen that you don’t expect, like the 47 percent comment or a debate performance, I think you think you are a wizard. That’s not possible...
**Over at Equitable Growth: Simon Wren-Lewis and Nick Rowe annoy each other by arguing over whose position is more politically hopeless, as well as whether the right way to think of aggregate demand deficiencies is as:
Start with Simon Wren-Lewis: **READ MOAR
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
The odd person out is Alberto Alesina. READ MOAR
The interesting thing is that two years earlier, Alberto Alesina agreed that "because of the American Recovery and Reinvestment Act of 2009, the U.S. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill."
I do wonder what pieces of evidence could possibly have made him more pessimistic about the effects of the ARRA on unemployment over the past 30 months. What do people think?
Back in February 2012, it was Caroline Hoxby who strongly disagreed with the statement that the ARRA had reduced the unemployment rate; Ed Lazear who disagreed; and Ken Judd who was uncertain. This time Hoxby does not answer, Lazear is off the panel, and Judd agrees that the ARRA lowered unemployment.
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
Over at Equitable Growth: I have been waiting to post this until now when there are only twelve months before the end date of my bet with Noah Smith on whether inflation would break 5% over any twelve-month period without a high-pressure labor market. I took the "no". He took the "yes" and did so, from my perspective, irrationally--he only took 50-1, while he should have demanded odds an order of magnitude greater. That the final twelve-month window of our bet is now running means it is time to set out my thoughts on the trahison des clercs of so much of the academic economics profession over the past seven years. READ MOAR
Over at Equitable Growth: I have said this before. But I seem to need to say it again...
The very intelligent and thoughtful David Beckworth, Simon Wren-Lewis, and Nick Rowe are agreeing on New Keynesian-Market Monetarist monetary-fiscal convergence. Underpinning all of their analyses there seems to me to be the assumption that all aggregate demand shortfalls spring from the same deep market failures. And I think that that is wrong.
Simon Wren-Lewis writes:
I really like David Beckworth’s Insurance proposal against ‘incompetent’ monetary policy. Here it is: 1) Target the level of nominal GDP (NGDP). 2) "The Fed and Treasury... agree... should a liquidity trap emerge anyhow... quickly work together to implement a helicopter drop...." Market Monetarists and New Keynesians [do not] suddenly agree about everything... for David this is an insurance against incompetence by the central bank, whereas Keynesians... view hitting the ZLB as unavoidable if the shock is big enough. However this difference is not critical... READ MOAR
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":
Casey Schoeneberger: Washington Center for Equitable Growth Announces Inaugural Class of Grantees: "Equitable Growth will award $481,000 to 15 grantees...
...with additional funding for two of those grantees provided by the Russell Sage Foundation.... “Motivating academic economists to investigate whether and how structural changes in the U.S. economy, particularly those related to the distribution of wealth and the provision of opportunity, affect economic growth is exceedingly important,” says Heather Boushey, executive director and chief economist at Equitable Growth.... Philip Cohen... economic inequality [and] women’s employment patterns.... Ariel Kalil... inequality... parenting and the acquisition of skills.... Jesse Rothstein... school finance reforms [and] educational equity.... Michael Barr... how families manage different kinds of debt.... Will Dobbie... the impact of debt forgiveness on economic stability and recoveries.... Timothy Smeeding... how inequality in the distribution of income and wealth affect consumption... David Howell... cross-country trends in “good jobs”... William Lester... how regional variations in labor market regulation influence business decisions.... Joan Williams... workplace scheduling practices conflict with family care-giving needs.... Young scholar grantees... Pascal Noel... Shayak Sarkar and Ryan Sakoda... Stefanie Stancheva... Vanessa Williamson at Harvard... Danny Yagan... Owen Zidar...
As we often say around here, since the days of Lyndon Johnson's Great Society discussions of equitable growth here in the United States have revolved around Arthur Okun's metaphor of the "leaky bucket": the market produces unequal distribution of income, and the government has a bucket that it can use to redistribute income from rich to poor, but the bucket leaks and so more is taken from the rich and is received by the poor. The efficiency-equity trade-off. Policies that would move toward more equity would also move toward slower economic growth.
But the question of whether our Bergson-Samuelson social welfare function has a higher value with a smaller pie more equally divided or a bigger pie with some slices much larger than others is only one of the ways that the question can be conceptualized.
A second way is to deny that the size of the pie has relevance because those who get the big slices are not "us" but "them". That was how David Lloyd-George did his political economy and politics in Wales and in London's East End back in 1909. To quote from George Dangerfield's great The Strange Death of Liberal England:
Lloyd George... one July evening in 1909... went down to Limehouse... a packed and partisan audience of East End cockneys.... England has scarcely known a greater demagogue than this pre-war Lloyd-George.... Without the magic of face and voice to support them, his speeches are not likely to survive; and one can only imagine the effect of this, the most famous passage in that famous Limehouse speech:
I was telling you I went down a coal-mine the other day. We sank into a pit half a mile deep. We then walked underneath the mountain, and we did about three quarters of a mile with rock and shale above us. The earth seemed to be straining--around us and above us--to crush us in. You could see the pit props bent and twisted and sundered until you saw their fibers split in resisting the pressure. Sometimes they give way and then there is mutilation and death. Often a spark ignites, the whole pit is deluged in fire, and the breath of life is scorched out of hundreds of breasts by the consuming flame. In the very next colliery to the one I descended, just a few years ago three hundred people lost their lives that way.
And yet when the Prime Minister and I knock at the door of these great landlords and say to them—-’Here, you know these poor fellows who have been digging up royalties at the risk of their lives, some of them are old, they have survived the perils of their trade, they are broken, they can earn no more. Won’t you give them something [Page 23] towards keeping them out of the workhouse?’—-they scowl at us and we say—’Only a ha’penny, just a copper.’ They say, ‘You thieves!’ And they turn their dogs on to us, and you can hear their bark every morning....
Lloyd George was having the time of his life. He kept his audience howling with alternate rage and laughter; moment by moment, sentence by sentence, he assaulted the landlords, and outraged the gentry, and invited the dispossessed, and cozened the dissatisfied; he shouted and implored and wheedled and mimicked. It was a great performance.
And yet this spirited voice was not quite the voice of revolution--though thus it sounded in the anxious imagination of the Conservative press.... It was also Liberalism’s extravagant last will and testament. All it really said was this--that the rich, who are beginning to get too much in their own hands, have got to pay... his revolutionary language [was] nothing more than the language of super-taxes and old age pensions.
But in the meantime, the speech had done its work. If their lordships had been violent about the Budget before, they were twice as violent now. Mr. Lloyd-George redoubled his efforts... and up and down the country certain noblemen emerged from the rustic obscurity to which history had consigned them and began to trade public insults with their persecutor...
My favorite passage from the Limehouse speech is different. Mine is Lloyd-George's claim that:
a fully-equipped duke cost[s] as much to keep up as two [naval] dreadnought [battleships]... [but is] much less easy to scrap...
Lloyd-George lived in a mental universe in which the dukes had their ownership of broad acres and their claims on GDP not because they did anything useful and entrepreneurial but rather because their very distant ancestor had laid Anglo-Saxon England waste in 1066 with King William the Bastard, or their distant ancestor had slept with King Charles II Stuart, or their not-so-distant ancestor had bribed enough members of Parliament to get an Enclosure Bill.
That was class war!
Or was it?
As Dangerfield points out, while the Tory squires and the titled members of the House of Lords in 1909 heard David Lloyd-George and thought "REVOLUTION!!", the policies of the so-called People's Budget of 1909 involved less income-tax progressivity ("supertaxes") and less social insurance ("old age pensions") than even the old Paul Ryan budget. And now that Paul Ryan has begun talking about how he wants to expand the EITC and the Ryan budget wasn't his budget but rather the House Republican Conference's budget, David Lloyd-George appears very far to his right indeed in everything but rhetoric.
I think that we here at Equitable Growth want to conceptualize the issues in yet a third way. If Arthur Okun was right, and if the bucket is indeed leaky, then the sharp reduction in the progressivity of the income tax and the reduction in union power to extract quasi-rents should both have given a significant boost to economic growth since 1980 or so. Yet that has not been the case. Is it the other factors reduced the underlying growth rate, and that Reaganomics actually did considerable good for growth but its effects have been masked? Is it that our Second Gilded Age is not gilded enough, and that growth will accelerate if we make just one more push to further widen the income distribution? Or is it that the leaky budget paradigm is wrong, and that there are at least as many channels by which greater inequality erodes investments, especially investments in human capital, and slows growth as channels by which it boosts growth?
We would really like to know which of these three is true. For unless we know, it will be hard to have an even semi-rational policy debate even were we to find a critical mass of people who wanted to have one.
So: in this round, half a million dollars out to some very smart and energetic people looking for answers to pieces of this big question. I am very interested to see and very hopeful about what the recipients will come up with.
Over at Equitable Growth: Lawrence Summers: Advantages the Rich Have That Money Cannot Buy: "The primary reason for concern about inequality is that lower- and middle-income workers have too little...
...not that the rich have too much... the criterion should be... [the] impact... on the middle class and the poor.... Important aspects of inequality are unlikely to be transformed just by limited income redistribution. Consider... health and... opportunity for children. Barry Bosworth and his colleagues... [the] cohort[s]... born in 1920 and... 1940.... The richest men gained roughly six years in life expectancy... the lowest... two years... lifestyle and variations in diet and stress [rather] than the ability to afford medical care.... READ MOAR
Over at Equitable Growth The estimable Neil Irwin and Tyler Cowen get, I think, things wrong here.
First, Tyler, commenting on Neil:
Tyler Cowen: Facts about non-residential investment: "One simple hypothesis is that it’s not worth spending more on American workers at current wage levels. As workers, while Americans are quite good, they are just not that much better than a variety of high-IQ individuals in cheaper countries, many of whom now have acceptable infrastructure to work with. READ MOAR
Over at Equitable Growth: Nicholas Bagley: ObamaCare and Halbig: What Does This Morning's Decision Mean?: "In a major setback for the Affordable Care Act...
...the D.C. Circuit just released a fractured opinion invalidating the IRS’s rule extending tax credits to federally facilitated exchanges.... About two-thirds of the states... declined to establish exchanges. In those states, the federal government stepped in and established the exchanges on the states’ behalf. In today’s opinion, the D.C. Circuit held that a federally facilitated exchange isn’t “established by the State under 1311.” As a result, the IRS can’t offer tax credits to those who purchase plans on such exchanges... the average estimated tax credit in 2014 is $4,700.... READ MOAR
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
Over at Equitable Growth: I have always understood expected-utility decision theory to be normative, not positive: it is how people ought to behave if they want to achieve their goals in risky environments, not how people do behave. One of the chief purposes of teaching expected-utility decision theory is in fact to make people aware that they really should be risk neutral over small gambles where they do know the probabilities--that they will be happier and achieve more of their goals in the long run if they in fact do so. READ MOAR
Over at the Equitablog: John Fernald: Productivity and Potential Output Before, During, and After the Great Recession: "U.S. labor and total-factor productivity growth...
...slowed prior to the Great Recession. The timing rules out explanations that focus on disruptions during or since the recession, and industry and state data rule out “bubble economy” stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about 3⁄4 of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.
But when I look at this graph:
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: Paul Krugman admonishes me for thinking I should try to work out what model underlies the Bank for International Settlements' 84th Annual Report. It is, he says, not so much a macroeconomic model or an analytical framework. Rather, he says, it is a mood: the rhetorical stance of austerity a outrance:
Paul Krugman: Liquidationism in the 21st Century: "The BIS position... [is] that of 1930s liquidationists like Schumpeter...
...who warned against any 'artificial stimulus' that might leave the 'work of depressions undone'. And in 2010-2011 it had an intellectually coherent--actually wrong, but coherent--story... that mass unemployment was the result of structural mismatch... [and] easy money would lead to a rapid rise in inflation.... it didn’t happen. So... it... look[ed] for new justifications for the same [policy] prescriptions... playing up the supposed damage low rates do to financial stability.... That over-indebtedness on the part of part of the private sector is exerting a persistent drag on the economy... is a reasonable story.... But the BIS... doesn’t understand that model... as if they were equivalent to... real structural problems... [which] makes a compelling case for... fiscal deficits to support demand while the private sector gets its balance sheets in order, for monetary policy to support the fiscal policy, for a rise in inflation targets both to encourage whoever isn’t debt-constrained to spend more and to erode the real value of the debt. The BIS, however, wants governments as well as households to retrench... and--in a clear sign that it isn’t being coherent--it includes a box declaring that deflation isn’t so bad, after all. Irving Fisher wept....
Are the BIS’s methods unsound? I don’t see any method at all. Instead, I see an attitude, looking for justification... READ MOAR
Over at Equitable Growth: Can anyone put forward a credible explanation for this?
Chris House (July 13, 2014): Traditional Macroeconomic Models and the Great Recession: "Commentators like Paul Krugman...
...should also own up to the mounting evidence that the older models (even the paleo-Keynesian models that some prefer) clearly failed.... They made clear predictions about inflation that were supposedly at the center of the New Keynesian mechanism--predictions that never materialized.
Paul Krugman (April 13, 2013): The Missing Deflation: "Keynesians.... One area where things haven’t worked out as [we] expected...
...however, is on the deflation front. Inflation has stayed very subdued; but coming in to the crisis I certainly thought that actual Japanese-style deflation was a real possibility. That hasn’t materialized (and for that matter, even Japan never had more than very gradual deflation). Why? READ MOAR
Writers with Drinks: An Evening of Oversharing About Money: 7:30 p.m. July 12 :: Make-Out Room :: 3225 22nd St. San Francisco, CA :: Price: $5-$20 http://writerswithdrinks.com: "If time is money, then consider this evening with Charlie Jane Anders, J. Bradford DeLong, Frances Lefkowitz, Farhad Manjoo, and Carol Queen to be a good investment..."
J. Bradford DeLong
A few short years ago we lived, for the school district, in Lafayette. Lafayette is close to here in space and time, but distant in attitude. Lafayette is a place an unkind observer based in and comfortable in San Francisco might describe as an unholy mix of the worst parts of northern and southern California. There we had a neighbor, Bie Bostrom. She had been the oldest Peace Corps volunteer in East Africa. She kept in touch with what had been her town: Ahero, population 10K, in Nyando District, Nyanza Province, Kenya. And there she funds and runs a one-elderly-woman one-town NGO with zero administrative overhead: Grandmothers Raising Grandchildren. That's http://grgahero.org: godzilla-rath of Khan (with an r)-godzilla-alien-hitchhiker-empire strikes back-rath of Khan-omen-dot-omen-rath of Khan-godzilla. No, I'm not going to hit you up--you've been hit up already coming here, at the door.
Over at Equitable Growth: I confess that I do not understand the recent BIS Annual Report. I have tried--I have tried very hard--to wrap my mind around just what the BIS position is. But I have failed.
So let me try to lay out how I see it--where I think we are, and what I think the three live macroeconomic-policy positions are:
First, where we are:
We had in the late-1990s a high-pressure full-employment low-inflation tight-fiscal equilibrium. It was, however, unsustainable: based on exaggerated beliefs not about the utility but the profitability of companies based on the high-tech computer and communications technologies of the 1990s. When expectations adjusted to the reality of profitability, the high investment part of the 1990s boom went away, and the economy fell into the minor recession of the early 2000s. READ MOAR:
Over at Equitable Growth: Let us focus on the macroeconomic costs of not expanding Medicaid. That is, let us leave to one side the question of exactly how much good getting people on Medicaid does for them. We know that it makes safety-net hospitals Financial stress level lower--there is less uncompensated care, and that flows through to corners that do not need to be cut. We know that it increases incomes of nurses and doctors somewhat. We know that patients on Medicaid go to the doctor more than the uninsured, and that by American standards at least the uninsured do not go to the doctor enough and do not take enough medicine. We know that the ex-uninsured are much happier, less stressed, and non-bankrupt. READ MOAR
Over at Equitable Growth: Note that when Adam Smith says "seems at first sight", he is not signaling that he is about engaging in pointless contrarianism and about to reverse field and explain that a prosperous working class is an inconvenience rather than an advantage to society. It was an age of lower irony in which often things are as they seem: he is saying, rather, that you do not need to take more than a first glance for the answer to be "abundantly clear":
Adam Smith: Smith: Wealth of Nations, Book I, Chapter 8: "Is this improvement in the circumstances of the lower ranks of the people...
...to be regarded as an advantage or as an inconveniency to the society? The answer seems at first sight abundantly plain. Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged. READ MOAR
Over at Equitable Growth: Attention Conservation:
Over at Equitable Growth: Back in the 1920s the Progressive-Republican founder of The 20th Century Fund--now The Century Foundation—-Edward Filene argued that America did not need any flavor of "socialism". What it needed instead, he argued, was "welfare capitalism".
Socialism imposed heavy taxes and used the resulting revenue to provide for social welfare. In so doing it incurred all the efficiency losses of bureaucracy. It added to those the losses from coalition-building political logrolling. It added on to those the efficiency losses that ensued from decisions made by politicians responsible to voters who were by and large not the entrepreneurial job creators. More important, in his view, the redistributive part of the social insurance state was simply not necessary. The efficiencies of scale of modern mass production would guarantee that even an unequal society would be a society of general abundance and prosperity. READ MOAR
James De Long: "There is no government known and recognized as 'Confederate States', and the Capitain of the steamer Sumter, his crew, and the men now in my custody are citizens of the federal government of the United States, which I represent in your empire, all owing allegiance to the same. The steamer Sumter is a feral vessel, and has been seized by traitors and rebels... has been engaged for the past eight or ten months in capturing, plundering, burning, and sinking... and these men that I have in custody... come to this place without any passport, or any government empowered to give them passports save the government I represent, and were on their way to Cadiz for the purpose of devising means to renew their depredations....
"I have no doubt that if your excellency had been aware of these facts you would not have adhered to the representations made to you by a pirate. Shall seventy-six years of uninterrupted friendship that has existed between your government and that of the United States be brought to an end for the sake of pirates?..."
William Seward: "These prisoners were taken virtually in the act of open revolutionary war against the government.... Their arrest... was necessary as a means of suppressing the insurrection.... Every Christian state holds its subjects or citizens found in Morocco with their property as exclusively subject to its own laws.... The treaty and laws of the United States... confer on the consul authority to arrest, hold, and detain, try, and punish, or send home for trial and punishment any American citizen, when he may deem such a proceeding necessary to the ends of justice....
"The utmost that in this respect can be pretended is that some Christian nations, including the United States, have informally manifested their approval of the right of asylum granted by the Sultan of Turkey to the Hungarian refugees in the late civil war in Austria. But they were no longer combatants... demanded... not on the grounds of apprehension of danger... but to punish them for the treason....
"It remains to say that the President disapproves of the circular letter written by the consul, Mr. De Long.... The letter was, doubtless, written under high excitement, and was inspired by motives eminently loyal and patriotic; yet its tone was improper..."
Over at Project Syndicate: [The Federal Reserve Needs to Fulfill Its Proper Global Role:]
As the W/Ynet ratio rises the net rate of profit is likely to fall, and so it is highly unreasonable to imagine that the net savings rate out of income snet will not fall rapidly and substantially and so greatly attenuate any rise in W/Ynet. Thus substantially rising W/Y is not a problem that we should expect to see.
Should the W/Ynet ratio rise substantially, the net rate of profit is likely to fall, and so the share of income earned from wealth will rise only slightly--and may not rise at all. This is not a problem: this is wealthholders providing workers with lots of capital services at a cut-rate price. Thus rising W/Y is likely to rather than lowers working-class incomes and is unlikely to worsen the income distribution, and so the prospect is not a problem.
Even should the W/Ynet ratio rise substantially and even should the net rate of profit not fall, wealth is unlikely to become or remain highly concentrated. A high W/Y and a high r x W/Y is a big problem only if wealth becomes and remains highly concentrated, and that we are unlikely to see.
Even should the W/Ynet ratio rise substantially and even should the net rate of profit not fall and even should wealth become and remain highly concentrated, plutocrats are highly likely to get into status games of spend-my-money-to-change-the-world, and so we are unlikely not have a world in which heirs and heiresses exercise undo influence over our priorities. Even should the distribution of wealth and of income become markedly more unequal, it is unlikely to distort society's choices and lead to a grossly unequal distribution of utility. READ MOAR:
Over at Equitable Growth: In relatively short order after John Paulson and company figured out how to sell mortgage finance short--howto collect the money from selling MBS to addled investors without having to first finance the construction of five-bedroom houses with swimming pools in the desert between Los Angeles and Albuquerque--the housing bubble reached its peak.
It seems at least plausible that if Paulson and company had been in business in 2004 the bad bets of MBS buyers would have gone into the pockets of short sellers rather than being wasted financing the construction of houses people really do not want to live it. And it seems at least plausible that if the supply of MBS had not been limited by housing construction, the price peaks would have been lower, the losses when MBS prices returned to fundamentals would have been less, and that even with all of the portfolio and risk-management dysfunction in the too-big-to-fail money-center banks and all the regulatory dysfunction at the Federal Reserve the bubble collapse would not have taken down our too-big-to-fail money-center banks, and we would not be in our current mess. READ MOAR
Over at Equitable Growth: I am on the hop from event to event right now, so I do not have time to give the keen-witted Greg a full and comprehensive answer to his question--nevertheless, the question does deserve a full, comprehensive, yet short answer. So may we crowdsource this?
On Wed, Jun 25, 2014 at 8:58 AM, Greg Ip wrote:
... 2) Separate but related, I am trying to describe the origins of stabilization policy. Keynes created a world in which such policy was needed; I assume it displaced a classical view of the business cycle which contained no role for government intervention. Can you point me to an article, by you or anyone else, that describes the classical view of the business cycle - and how Keynes displaced it?
2) You know, that is a remarkably hard question. There are really, three different 'classical' theories of the business cycle: READ MOAR
Over at Equitable Growth: In the 1970s and 1980s CEOs received about three times the average earnings of the top 0.1%-ile and about 45 times the earnings of the average worker. Today CEOs receive about 5 tuies the earnings of the top 0.1%-ile and about 300 times the earnings of the average worker. I am now convinced that there is an extra, corporate-control and finance-driven story to CEO pay that does not apply to the earnings of the top 0.1%-ile in general. What might it be? A self-reinforcing iron oligarchy of effective control rights redirecting cash flows in which CEOs, board members, and financiers all of whom form a social network in which it is impolite not to treat each other as well as possible seems inadequate as an explanation, but that seems to be what we have... READ MOAR
Mishel and Davis:
Peter Lindert: Making the Most of Capital in the 21st Century: "Thomas Piketty... has transported us to a higher understanding...
of historical movements in inequality.... The main path to follow is the income inequality history so well paved by Piketty and his team, supported by the book’s history of twentieth-century shocks and political responses. Less promising is the book’s emphasis on wealth, capital, and the rate of return. Following the income route to better inequality predictions requires merging his team’s history of top income shares with the history of inequality movements within the lower 90 percent. It also invites a merger with other scholarship that has shown positive growth effects of the kind of democracy Piketty calls for...
Over at Equitable Growth: The extremely wise Robert Skidelsky has an excellent rant against Anglo-Saxon economics departments:
Robert Skidesky: Knocking the scientific halo off mainstream economists' teaching and research: "The growing discontent of economics students...
...with the university curriculum.... Students at the University of Manchester advocated an approach 'that begins with economic phenomena and then gives students a toolkit to evaluate how well different perspectives can explain it'.... Andrew Haldane, Executive Director for Financial Stability at the Bank of England, wrote the introduction.... Students have little awareness of neoclassical theory’s limits, much less alternatives to it.... The deeper message is that mainstream economics is in fact an ideology--the ideology of the free market.... READ MOAR
Mike Konczal (2011): Examining the Limitations of a Neoliberal Safety Net: "What are the differences between our current [social democratic] approach and the Romney [neoliberal] approach?...
...The first difference is that the unemployment insurance savings accounts don’t actually involve what the liberal government does best: social insurance. There’s no risk pooling.... Whether or not you view the ideology of insurance as sound actuarial reasoning or as a form of solidarity doesn’t matter because the actual mechanisms of insurance don’t exist.... The second is that redistribution in the Romney suggestion is quietly upwards, towards the richest, instead of obviously towards those in need.... The third is that it weakens the power of the unemployed.... A fourth is that it is hard to scale outwards in cases of emergency.... And the fifth and last point is that it removes the idea of the government from the equation of people dealing with economic risks. Like much of the 'submerged' state, people will look at private savings accounts and think that the government isn’t doing anything.... There’s no social to this program and thus no politics and thus no real political constituency for it.... This is my quick read, and I’d really enjoy your thoughts. What do you think about the difference of the two approaches?
Over at Equitable Growth: The Estimable Andrew Kelly writes some words well worth reading:
Andrew Kelly: Let's Clarify The "College Is Worth It" Conversation: "The current debate about higher education has reached an odd status quo....
We’re questioning whether college is “worth it” at the same time that completing some form of postsecondary education is more important to economic success than ever before....
In trying to make sense of the noise.... Going to College ≠ Completing College.... That wage premium shows the value of completing college, not the value of going to college. What if you’re one of the 45 percent of students who don’t finish a degree within six years?... Millennials with some college or an associate’s degree out-earn their high school-educated peers by just $2,000.... Tell a prospective student that yes, completing college is, on average, worth the time and money. But not all postsecondary options are created equal, so choose the one that reflects your talents and abilities and gives you the best chance of success. And if you choose to go, work your tail off to make sure you finish.... READ MOAR
Over at Equitable Growth: It is quite clear that history has not evolved over the past 25 years ago as Francis Fukuyama thought it would back when he proclaimed its end. The inadequate and disappointing North Atlantic response to the fall of the Berlin Wall plus the failures of "transition"; the coming of a new set of wars of religion, hot, lukewarm, and cold; the failure of "convergence" in emerging economies outside of the Big Two, China and India; Japan's two lost decades; America's and Europe's (so far) one lost decade; the upward-spiral in North Atlantic income and wealth inequality to Gilded Age heights. READ MOAR:
...it stemmed from a financial shock. Housing prices stopped going up, and then Lehman Brothers fell, triggering paralysis in the credit markets. This spilled onto Main Street, and the effects still linger in terms of elevated unemployment and sluggish economic growth. But this history of the recession can’t be right, say... Amir Sufi... and Atif Mian.... Consumer purchases dropped sharply well before the September 2008 Lehman bankruptcy, and most deeply in places where home prices fell the most.... Steeper declines in net worth... led to far sharper reductions in consumer spending, and bigger job losses. But even those with no debt suffer when fire-sale foreclosures drop home prices, and lower overall demand spreads out across the country.... The normal channels of fiscal and monetary policy have difficulty dealing with highly leveraged household balance sheets. House of Debt correlates these features of recessions, and really targets debt as the core problem, arguing that it needs to be restructured during crises and prevented during better times.... READ MOAR
Over at Equitable Growth: Matt Rognlie has a first-rate exposition of his critique of Piketty:
Matt Rognlie: A note on Piketty and diminishing returns to capital: "Capital in the Twenty-First Century predicts...
...a rise in capital’s share of income and the gap r - g between capital returns and growth.... Neither outcome is likely given realistically diminishing returns to capital accumulation. Instead--all else equal--more capital will erode the economywide return on capital.... Piketty (2014)’s inference of a high elasticity from time series is unsound, assuming a constant real price of capital despite the dominant role of rising prices in pushing up the capital/income ratio. Recent trends in both capital wealth and income are driven almost entirely by housing, with underlying mechanisms quite different from those emphasized in Capital.... READ MOAR
...say that crises are rare events, though they have been happening with increasing frequency as we change the rules to reflect beliefs in perfect markets. I would argue that economists, like doctors, have much to learn from pathology.We see more clearly in these unusual events how the economy really functions. In the aftermath of the Great Depression, a peculiar doctrine came to be accepted, the so-called “neoclassical synthesis.” It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief. The idea was always suspect...
The thing is that the originator of what Joe Stiglitz calls "the neoclassical synthesis"--the *fons et origo of what Stiglitz regards as a major intellectual error--was none other than John Maynard Keynes himself READ MOAR: