J. Bradford DeLong's Grasping Reality with a Prehensile Tail

Support Health Care Reform!

Paul Starr lays down the party line:

Deal or Die on Health Caret: [T]he central provisions of the legislation... would extend health coverage to an estimated 33 million of the uninsured, raise standards of protection for millions... eliminate some of the most hated abuses of the insurance industry... create a new system of insurance exchanges that would enable people who buy policies individually or through small groups to get new choices and better prices for coverage.

Yet these provisions... are poorly understood by the public, including many of those who would benefit from the changes.... because the supporters of reform have been fixated on one goal -- saving the public option.... Strategists will argue about whether it ever made sense to include a public option in the bill, given the low probability it had of being enacted in a strong enough form to be significant and sustainable. If it turns out to have been useful, it was precisely because it could be dropped in the end and serve as evidence that moderate Democrats had won concessions....

[I]f Democrats succeed in getting a bill through Congress in the next several weeks, they can return to some of the issues in the reconciliation process next year. And at that point they won't necessarily need to have Lieberman on board.

If progressives in Congress can see that far ahead, they'll see their way to vote for a compromise.

A Very Odd Choice of Voices in a Front-Page New York Times Article...

Why do Jason DeParle and Robert Gebeloff think that Robert Rector is worth quoting?

It is a mystery:

The Safety Net - Food Stamp Use Soars, and Stigma Fades: Now nearly 12 percent of Americans receive aid — 28 percent of blacks, 15 percent of Latinos and 8 percent of whites. Benefits average about $130 a month for each person in the household, but vary with shelter and child care costs. In the promotion of the program, critics see a sleight of hand. “Some people like to camouflage this by calling it a nutrition program, but it’s really not different from cash welfare,” said Robert Rector of the Heritage Foundation, whose views have a following among conservatives on Capitol Hill. “Food stamps is quasi money.” Arguing that aid discourages work and marriage, Mr. Rector said food stamps should contain work requirements as strict as those placed on cash assistance. “The food stamp program is a fossil that repeats all the errors of the war on poverty,” he said...

Not, mind you, that Stacy Dean of CBPP sounds much better. The general pitch of the Food Stamps program is, was, and always has been "this program is here to help you"--except in the age of Ronald Reagan, who said: "She has eighty names, thirty addresses, twelve Social Security cards and is collecting veteran's benefits on four non-existing deceased husbands. And she is collecting Social Security on her cards. She's got Medicaid, getting food stamps, and she is collecting welfare under each of her names..." That's why the Food Stamps program has, historically, been much stronger than other social insurance programs.

DeParle and Gebeloff:

Support for the food stamp program reached a nadir in the mid-1990s when critics, likening the benefit to cash welfare, won significant restrictions and sought even more. But after use plunged for several years, President Bill Clinton began promoting the program, in part as a way to help the working poor. President George W. Bush expanded that effort, a strategy Mr. Obama has embraced. The revival was crowned last year with an upbeat change of name. What most people still call food stamps is technically the Supplemental Nutrition Assistance Program, or SNAP. By the time the recession began, in December 2007, “the whole message around this program had changed,” said Stacy Dean of the Center on Budget and Policy Priorities, a Washington group that has supported food stamp expansions. “The general pitch was, ‘This program is here to help you’”...

But I suppose that I should give DeParle and Gebeloff a pass for highlighting Food Stamp recipient Greg Dawson, who appears desperate to emphasize that unlike other Food Stamp recipients--who are immoral--he is a good guy. That is interesting as an attitude: it is valuable for the fact that the assertion is made even though the assertion is false:

With most of his co-workers laid off, Greg Dawson, a third-generation electrician in rural Martinsville, considers himself lucky to still have a job. He works the night shift for a contracting firm, installing freezer lights in a chain of grocery stores. But when his overtime income vanished and his expenses went up, Mr. Dawson started skimping on meals to feed his wife and five children. He tried to fill up on cereal and eggs. He ate a lot of Spam. Then he went to work with a grumbling stomach to shine lights on food he could not afford. When an outreach worker appeared at his son’s Head Start program, Mr. Dawson gave in. “It’s embarrassing,” said Mr. Dawson, 29, a taciturn man with a wispy goatee who is so uneasy about the monthly benefit of $300 that he has not told his parents. “I always thought it was people trying to milk the system. But we just felt like we really needed the help right now.”...

Like many new beneficiaries here, Mr. Dawson argues that people often abuse the program and is quick to say he is different. While some people “choose not to get married, just so they can apply for benefits,” he is a married, churchgoing man who works and owns his home. While “some people put piles of steaks in their carts,” he will not use the government’s money for luxuries like coffee or soda. “To me, that’s just morally wrong,” he said. He has noticed crowds of midnight shoppers once a month when benefits get renewed. While policy analysts, spotting similar crowds nationwide, have called them a sign of increased hunger, he sees idleness. “Generally, if you’re up at that hour and not working, what are you into?” he said.

Still, the program has filled the Dawsons’ home with fresh fruit, vegetables, bread and meat, and something they had not fully expected — an enormous sense of relief. “I know if I run out of milk, I could run down to the gas station,” said Mr. Dawson’s wife, Sheila...

Though why buying milk at the high-margin gas station is not morally wrong is beyond me...

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UPDATE: A bunch of commenters don't seem to get the last point: I don't think it's immoral to buy steak or coffee or soda with Food Stamps. I don't think it's immoral to shop at midnight. I don't think it's immoral to buy milk at the gas station because the local supermarket is only open 8-6 and the 24-hour market is 40 miles away.

But sauce for the goose is sauce for the gander as well.

Basic Background Deficit Math

Annual change in the U.S. federal debt-to-GDP ratio, and presidential term averages:

Source: CBO Current-Law Baseline

Ford had bad luck--his presidency coincided with a down phase of the business cycle. But other than Ford, the contrast between the Democrats and the old-style Republicans (Eisenhower and Nixon) on the one hand and the new-style Republicans on the other is quite striking.

Also worth noting is that after this recession is over we do not have a pre-2020 deficit problem--if output grows as projected, and if congress sticks to PAYGO, both of which are very big ifs.

We Write Letters on Health Care Cost Control to Ezekiel Emmanuel...

Ezekiel is doing the Lord's work on health care reform at OMB. His judgment is good. He is worth supporting--joggling his elbow is really not helpful given that he has the point on these sets of issues.

But I feel anxious--I don't think I can quite sign on with a good conscience to the whole thing. So I am signing on with a slightly, slightly bad conscience...

Dear Mr Emmanuel:

Any chance we could get "#1 Deficit Neutrality. Fiscally responsible health reform requires budget neutrality or deficit reduction over the coming years. The Congressional Budget Office (CBO) must project that the bill be at least deficit neutral over the ten-year budget window, and deficit-reducing thereafter..." changed?

As it stands, it seems to me that this point is not true. Deficit neutrality as CBO scores it over the next ten years is not very important from a public policy standpoint. And what is important is that it be likely to actually be deficit-reducing and substantially deficit-reducing after 2030 by putting us on a sensible cost- and spending-control path--rather than that CBO score it as deficit-reducing after 2030.

And a tax on employer-sponsored health plans is only worth doing in the context of universal or near-universal coverage--in the absence of a mandate or near-equivalent, the risks of producing an adverse-selection meltdown make me nervous.

The rest is fine.

If it's too late to negotiate changes, I will, however, sign on anyway...

Yours,

Brad DeLong

The context is:

Apologies for the mass email, but we are operating on an extremely tight political timeline. Some key cost control measures are under threat and might very well not be included in the Senate’s health reform bill. We are asking the country’s leading economists to sign onto a letter to Sen. Reid endorsing 4 key measures as essential to a fiscally responsible health reform bill....

Deficit neutrality. Fiscally responsible health reform requires budget neutrality or deficit reduction over the coming years. The Congressional Budget Office (CBO) must project that the bill be at least deficit neutral over the 10-year budget window, and deficit reducing thereafter. Of course, covering tens of millions of currently uninsured people will increase spending. But the draft health reform legislation contains offsetting savings sufficient to cover those costs and the seeds of further reforms that will lower the growth of spending. Deficit neutrality over the first decade means that, even during the start-up period, the legislation will not add to our deficits. In the second decade and beyond, the legislation should reduce deficits.

Excise tax on high-cost insurance plans. The Senate Finance Committee’s bill includes an excise tax on high-cost health insurance plans. Like any tax, the excise tax will raise federal revenues, but it has additional advantages that are essential. The excise tax will help curtail the growth of private health insurance premiums by creating incentives to limit the costs of plans to a tax-free amount. In addition, as employers and health plans redesign their benefits to reduce health care premiums, cash wages will increase. Analysis of the Senate Finance Committee’s proposal suggests that the excise tax on high-cost insurance plans would increase workers’ take-home pay by more than $300 billion over the next decade. This provision offers the most promising approach to reducing private-sector health care costs while also giving a much needed raise to the tens of millions of Americans who receive insurance through their employers.

Medicare Commission. Rising Medicare expenditures pose one of the most difficult fiscal challenges facing the federal government. Medicare is technically complex and the benefits it underwrites are of critical importance to tens of millions of elderly and disabled Americans. We believe that a commission of technical experts should be empowered to suggest changes in Medicare to improve the quality and value of services. In particular, such a commission should be charged with developing and suggesting to Congress plans to extend the solvency of the Medicare program and improve the quality of care delivered to Medicare beneficiaries. Creating such a commission will make sure that reforming the health care system does not end with this legislation, but continues in the future decades with new efforts to improve quality and contain costs.

Delivery system reforms. Successful reform will improve the care that individual patients receive by rewarding health care professionals for providing better care, not just more care. Studies have shown that hundreds of billions of dollars are spent on care that does nothing to improve health outcomes. This is largely a consequence of the distorted incentives associated with paying for volume rather than quality. Health care reform must take steps to change the way providers care for patients, to reward care that is better coordinated and meets the needs of each patient. In particular, the legislation should include additional funding for research into what tests and treatments work and which ones do not. It must also provide incentives for physicians and hospitals to focus on quality, such as bundled payments and accountable care organizations, as well as penalties for unnecessary re-admissions and health-facility acquired infections. Aggressive pilot projects should be rapidly introduced and evaluated, with the best strategies adopted quickly, and throughout the health care system...

"Criticizing the Health Care Bill for Not Doing Enough on Cost Control Is Like Criticizing the Yankees for Not Winning the Super Bowl..."

Ezra Klein talks to Jon Gruber:

Does health-care reform do enough on cost control?: My view is, even if the bill did no cost control it would be an incredible thing for this country. But politically, it sets the stage for cost control in two senses. First, it puts in place all the things we can do now. It does comparative effectiveness and pilots and all the rest. But second, once you get coverage off the table, the conversation gets more focused on cost control.... [I]n Massachusetts... Health Care for All... realized that they would lose all this coverage they'd gained if it didn't control costs. So they got behind real cost-control measures. A global budget, even. People say you can't do coverage without cost control. I think it's the opposite. You can't do cost control before coverage. We would do a huge amount for the cause of cost control just by covering people....

One of my frustrations with the cost-control discussion is that people set this up like a choice between this bill and a bill with more cost control. In reality, it seems more like a choice between this bill and nothing. And this bill does a lot more cost control than nothing.... Do you know Pascal's wager? Why not believe in God? I think of health-care reform similarly. We don't know if we'll really bend the cost curve. But if we do this and we don't do anything, we still go bankrupt in 100 years. We don't lose much. But if we do it and it works, then it's a savior.

It also moves the conversation on cost control.... It does real things... then it does real things to make cost control more politically viable.... To kill this bill for not doing enough on cost control would be like criticizing the Yankees for not winning the Super Bowl. They won the World Series! They did what they could do!

Econ 115 Lecture Notes: October 13, 2009: Tyrannies

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20091015 slouch 18.pdf

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Lecture Audio: Econ 115-13--Tyrannies (10.13.2009 12-51-22 PM)

The Gotha Program of 1875

Full text of "Gotha Programme":

I. Labor is the source of all wealth and all culture, and since universal productive labor is possible only through society, therefore to society, that is to all its members, belongs the collective product of labor. With the universal obligation to labor, according to equal justice, each should have in proportion to his reasonable needs.

In the present society the means of labor are the monopoly of the capitalist class; the servitude of the laboring class, which is the outgrowth of this, is the cause of misery and of slavery in all forms.

The liberation of labor demands the transformation of the means of production into the common property of society and the associative regulation of the collective labor with general employment and just distribution of the proceeds of labor.

The emancipation of labor must be the work of the laboring class, opposed to which all other classes are only a reactionary body.

II. Proceeding from this principle the Socialist Labor party of Germany seeks through all legal means the free state and the socialist society, the destruction of the iron law of wages, the overthrow of exploitation in all forms and the abolition of all social and political inequality. The Socialist Labor party of Germany, though working chiefly in national boundaries, is conscious of the international character of the labor movement and is resolved to fulfill every duty which is laid on the workers in order to realize the brotherhood of humanity.

The Socialist Labor party of Germany demands as a step to the solution of the social question the erection, with the help of the state, of socialistic productive establishments under the democratic control of the laboring people. These productive establishments are to place industry and agriculture in such relations that out of them the socialist organization of the whole may arise.

The Socialist Labor party of Germany demands as the foundation of the state:

1. Universal, equal and direct suffrage, with secret, obligatory voting by all citizens at all elections in state or community.
2. Direct legislation by the people. Decision as to peace or war by the people.
3. Common right to bear arms. Militia instead of the standing army.
4. Abolition of all laws of exception, especially all laws restricting the freedom of the press, of association and assemblage; above all, all laws restricting the freedom of public opinion, thought and investigation.
5. Legal judgment through the people. Free administration of law.
6. Universal and equal popular education by the state. Universal compulsory education. Free instruction in all forms of art. Declaration that religion is a private matter.

The Socialist Labor party of Germany demands within the present society:

1. The widest possible expansion of political rights and freedom according to the foregoing demands.
2. A progressive income tax for state and municipality instead of all those existing, especially in place of the indirect tax which burdens the people.
3. Unrestrained right of combination.
4. Shortening of the working day according to the needs of society. Abolition of Sunday labor.
5. Abolition of child labor and all female labor injurious to health and morality.
6. Protective laws for the life and health of the worker. Sanitary control of the homes of the workers. Supervision of the mines, factories, workshops and hand industries by an officer elected by the people. An effectual law of enforcement.
7. Regulation of prison labor.
8. Full autonomy in the management of all laborers' fraternal and mutual benefit funds.

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Source of English translation: Theodore S. Hamerow, ed., The Age of Bismarck: Documents and Interpretations. New York: Harper & Row, 1973, pp. 230-32.

Original German text printed in Protokoll des Vereinigungs-Kongresses der Sozialdemokraten Deutschlands, abgehalten zu Gotha vom 22. bis 27. Mai 1875 [Protocol of the Consolidation Congress of German Social Democrats, held at Gotha from May 22-27, 1875. Leipzig, 1875, pp. 78-79. Original German text reprinted in Hans Fenske, ed., Im Bismarckschen Reich 1871- 1890[ln the Bismarckian Reich 1871-1890]. Darmstadt: Wissenschaftliche Buchgesellschaft, 1978, pp. 141-42.

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The first workers' association in Germany, the General German Workers' Association [Allgemeiner Deutscher Arbeiterverein, or ADAV], was founded in 1863 by Ferdinand Lassalle (1825-1864). His idea of defeating capitalism through the establishment of producers' cooperatives was strongly opposed by several socialists who supported the teachings of Karl Marx (1818-1883). In August 1869, Wilhelm Liebknecht (1826-1900) and August Bebel (1840-1913) founded the Social Democratic Workers' Party [Sozialdemokratische Arbeiterpartei, SDAP], sometimes referred to as the Eisenach wing of German Social Democracy. Together with their followers, they endorsed Marx's teachings and his commitment to class struggle and revolution. The ADAV and the SDAP differed markedly in their views on socialist theory, the First International, the role of the state, trade unions, and universal suffrage--and on Bismarck.

Despite these differences, members of both parties knew that unity meant strength. At the socialist congress held in the central German city of Gotha from May 22-27, 1875, the Lassallean and Marxist wings debated a new program and founded the Socialist Workers' Party of Germany [Sozialistische Arbeiterpartei Deutschlands, SAPD], which was renamed the Social Democratic Party of Germany [Sozialdemokratische Partei Deutschlands, SPD] in 1890. The program contained some of Lassalle's controversial ideas, whereas socialist commitment to revolution did not appear in the text.

Why Health Care Reform Needs a Strong Public Plan: It Saves Lots of Money

Ezra Klein:

Ezra Klein - CBO: A Strong Public Plan Saves Lots of Money: According to Congress Daily, the CBO says attaching the public plan to Medicare rates will save even more money than originally thought:

In a bid to wrangle concessions from the Blue Dog Coalition on healthcare reform, House leaders Thursday released CBO estimates for liberals' preferred version of the public option that show $85 billion more in savings than for the version the Blue Dogs prefer. Rep. Stephanie Herseth Sandlin, D-S.D., a Blue Dog co-chair, said any possible new momentum toward a public option tethered to Medicare rates is, in part, "because of the cost issue" and the updated CBO score.

The original House bill required the public plan to pay providers 5 percent more than Medicare reimbursement rates. But as part of a package of concessions to Blue Dogs, the House Energy and Commerce Committee accepted an amendment that requires the HHS Secretary to negotiate rates with providers. That version of the plan will save only $25 billion. In total, a public plan based on Medicare rates would save $110 billion over 10 years. That is $20 billion more than earlier estimates, a spokesman for House Speaker Pelosi said.

In other words, the conservatives want to spend $85 billion more than the liberals do. Moreover, the CBO is estimating savings to the government. That is to say, the $85 billion reflects reduced federal spending on subsidies because premiums in the public plan will be lower. Savings to individuals and businesses paying lower premiums will be much larger than $85 billion, and politically, much more important. Meanwhile, a new New York Times poll shows that the public option is stil la god 20 percent more popular than health-care reform in general.

Charts from CBPP...

Contact Between the Obama Administration and Long Run Budgetary Reality

Diane Rogers:

First Glimmer of the OMB Budget Report: But what’s a nice little surprise for me is this from Peter [Orszag]:

As president, Obama has called for... extend[ing] some of the Bush tax cuts beyond their 2010 expiration date, for example. But in light of the new deficit figures, Orszag hinted that Obama may revisit some of those decisions when he submits his next budget in February. “Whatever their cause, the administration is very concerned about those outyear deficit figures,” Orszag said, “and getting those deficits under control is a top priority of this administration.”

Deficit Spending and the Recovery: Talking Points for KQED Forum Morning Appearance, September 4, 2009, 9 AM PDT, 88.5FM, San Francisco

Deficit Spending and the Recovery: Talking Points for KQED Forum Morning Appearance, September 4, 2009, 9 AM PDT, 88.5FM, San Francisco

http://www.kqed.org/epArchive/R909040900

Audio File: 20090904_DeLong_Taylor_Graybell_KQED_Forum

It truly is remarkable: the Republican-leaning economists who make a living by selling their analyses of the economy to manufacturing firms that need information about demand and to financial firms that need information about industry profits are overwhelmingly assessing that the Obama short-run deficit-spending program has been and is being and will be effective--they are seeing the same 0.5 within-quarter fiscal multiplier and the same 3% boost to the second-quarter growth rate that everybody else is seeing. It's only (a) the true ideologues and (b) those who have decided to make their living by pleasing Republican politicians who are saying that the stimulus is ineffective...

• -216,000 is a bad number. But it is a lot better than than -714,000 monthly numbers that greeted the Obama administration when it took office--it's less than 1/3 as bad.

• I went surfing on the internet this morning and found John Taylor [1] in 2003 as Undersecretary of the Treasury talking then about how Bush's deficit-spending plan would in the short run "creat[e]... more jobs... encourage [businesses] to invest... elimination of the double tax on dividends will... encourage investment and job creation.... The expansion of the child tax credit and the extension of the 10 percent income tax to more taxpayers are examples of how the tax cuts apply to all income tax payers..." The stuff about how deficit spending helps in the short run--"sustain[s] the recovery" was the phrase Taylor used--makes a lot of sense. Can I have the John Taylor from 2003 here to debate?

  • I should note that the parts of Taylor's 2003 speech that talk about how Bush's tax cuts and deficits are good for the economy in the long-run are politically-motivated bull. Destabilizing a government's finances so that everybody knows that taxes must go up or there must be a lot of inflation but no one is sure how or when is a very bad thing for a government to do. Deficit spending gives the economy a short-term boost when it needs it--like most of us need that one cup of coffee perks you up in the morning. But it's not a good idea to drink 24 cups a day, even if Starbucks will sell you the iced drink of your choice after 2 PM for only $2.

• It's a fact that the economists who make a living by selling their analyses of the economy to manufacturing firms that need information about demand and to financial firms that need information about profits are overwhelmingly assessing that the Obama short-run deficit-spending program has been and is being and will be effective. It's only those economists who make a living by pleasing Republican politicians who are skeptical.

• OECD yesterday reevaluated the state of the world economy and upped its assessments of the situation in those countries that did fiscal stimulus packages relative to those that did not.

• Deficit spending gives the economy a short-term boost when it needs it. It's not health to rely on it all the time. One cup of coffee perks you up in the morning when you nee it. 24 cups of coffee a day gives you a stroke. But that 24 cups of coffee a day gives you a stroke doesn't mean that you shouldn't drink that first cup that makes you awake and alert enough to be coherent on KQED.

• Claims that deficit spending doesn't work in the short run hinge on either (i) rapidly rising inflation so that increased spending doesn't mean increased production--we don't have rising inflation--or (ii) rapidly rising interest rates so that the rise in government spending is offset by falling private investment. We don't have rising interest rates.

• If in response to the Obama fiscal boost the Federal Reserve were about to raise interest rates and so reduce investment, it would say so. It doesn't. Ben Bernanke says that the stimulus is effective: "[CBO] estimates of the effects of the stimulus package on real GDP and employment... appropriately reflect... uncertainties.... [B]y the end of 2010... boost the level of real GDP between about 1 percent and a little more than 3 percent and [boost] the level of employment by between roughly 1 million and 3-1/2 million jobs..." If the Obama stimulus were not effective, it would be because Ben Bernanke at the Federal Reserve was taking steps to neutralize it. He isn't.

• You know, I know John McCain's three senior economic advisors--Mark Zandi, Douglas Holtz-Eakin, and Kevin Hassett. Had McCain won, there would have been a McCain short-run deficit-spending plan and Taylor would be here talking about how great it was and how much it had boosted employment. And I--I would not be here because I would have told KQED yesterday that the program was far from optimal but was effective, and they would have gone hunting for some moonbat to give "the opposing point of view."

• Consider Mark Zandi: Mark Zandi was one of John McCain's most senior economic advisors last fall. Mark Zandi's estimates of stimulus spend-out are that it amounted to $89 billion as of the end of June--$2 billion in February, $7 billion in March, $13 billion in April, $32 billion in May, and $35 billion in June; with (so far) about 60% of the spend-out coming in the form of tax cuts and about 40% in the form of aid to states (with a trivial amount in direct federal government spending).[2] In Zandi's assessment: “Early results suggest the stimulus is performing close to expectations.” The economy is not performing close to expectations as of last December, but the Obama deficit spending plan is.

• Three tranches to the plan: tax cuts, aid to states, infrastructure spending:

  • Tax cuts hit immediately but help short-term employment only to the extent that they are spent rather than saved. So far we really don't know--although there is suggesting cross-country and cross-state evidence suggesting that a considerable portion is being spent.

  • Aid to states is clearly a big win: it has helped states maintain spending and cut less. One big worry was that in this recession we would see it snowball as Fifty Little Herbert Hoovers started firing people left and right, and as they lost their incomes they would stop spending and those they bought from would lose their jobs, etc. That's happening. It would have been nice to have much more aid to states. But what we are doing is working.

  • Infrastructure comes later--so far only trivial amounts of direct federal spending. We will see. No reason to think it's going to be ineffective.

• Mark Zandi, a former senior McCain advisor and as good an economic forecaster as you, thinks that the stimulus package boosted the rate of GDP growth by 3% in the spring and by another 4% this summer--meaning that the $80 billion in stimulus spending in this third quarter of 2009 is boosting production and incomes by $65 billion. Because the $80 billion is being used to buy useful goods and services that in normal times have a value of about $60 billion, the stimulus package looks like a clear win: The government is losing $20 billion by being a hurried and hasty shopper, but we as a country are gaining $65 billion in incomes and production. That is a benefit-cost ratio better than 3 to 1.

• This is an old, old argument. Back in the Great Depression, Joseph Schumpeter--who was certainly no Democrat, not with a big "D" and not with a little "D"--argued that the economy was then undergoing a "healthy cold douche" and that there was "a presumption against" the government lifting a finger via expansionary monetary policy or New Deals or deficit-spending fiscal boosts to try to keep things from getting worse. John Maynard Keynes disagreed, writing then that: "Some austere and puritanical souls regard [the Depression] both as an inevitable and a desirable nemesis on so much 'overexpansion,' as they call it. ... It would, they feel, be a victory for the mammon of unrighteousness if ... prosperity was not subsequently balanced by universal bankruptcy. We need, they say, what they politely call a 'prolonged liquidation' to put us right.... I do not take this view.... And I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity." I think Keynes was a smart guy: right then, and right now.

• I was looking at the latest CBO "Economic and Budget Outlook."[4] What I took away from it was three things:

  • We have a huge problem after 2030 or so no matter what as the Baby Boomers retire--not because they are drawing Social Security but because CBO projects that private-sector health costs will continue to explode and Medicare as currently constituted pays doctors what the private sector does. We cannot afford that without raising everybody's federal taxes by 25%.
  • We have no problem until 2030 if congress sticks to its PAYGO budget rules.
  • We have a substantial problem starting in 2012 or so when the economy gets back to full employment if congress doesn't stick to its PAYGO rules. And you can tell that the CBO is not optimistic--the only time that congress stuck to PAYGO was when Clinton was president and made sticking to PAYGO a priority.

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[1] John B. Taylor, Undersecretary of the Treasury for International Affairs:

John B. Taylor Remarks before the Brazil-U.S. Business Council: President Bush['s]... recently announced program of tax cuts has the goal of raising economic growth, sustaining the recovery... creating more jobs... in the short run.... [M]ore generous expensing provisions for small businesses would encourage them to invest in the technology and other equipment they need to expand and create jobs.... [T]he elimination of the double tax on dividends will... encourage investment and job creation.... The expansion of the child tax credit and the extension of the 10 percent income tax to more taxpayers are examples of how the tax cuts apply to all income tax payers...

[2] Mark Zandi:

[3] Christina Romer:

[4] CBO:

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Notes:

http://www.kqed.org/radio/programs/forum/

"So who else do you have on the show?"

"John Taylor from Stanford and Michael Graybell from ProPublica. No alien lizard people this time!"

KQED misunderstands me: my point last September is that it makes more sense to put someone on who wants to warn us about the threat of the Alien Lizard People from North Polar Jupiter than to put someone on from the Club for Growth. Alien Lizard People are more entertaining than the Club for Growth. And they are equally informative.

John Taylor is behaving badly: claiming that Mark Zandi's and Larry Meyer's and Doug Elmendorf's assessments that the stimulus package is working are simply repeats of things they said last January and that they "haven't looked at the numbers"...

Contrast between Taylor 2009 and Taylor 2004 on short-run effects of fiscal policy is quite remarkable...

ProPublica guy thinks his job is looking for "gotcha" stories about stimulus money going for "lion cages at the National Zoo." Not the best focus if you are in the inform-America business, I must say...

Health Care Reform: Memories of 1994

The Week: After President Clinton's 43 percent plurality victory in the presidential election of 1992, I worked as a spear carrier in the U.S. Treasury Department under Secretary Lloyd Bentsen. The plurality view in the Treasury Department throughout 1993 and up through the middle of 1994 regarding the health-care reform situation had six analytical pieces:

(1) There were not even 50 votes available in the U.S. Senate for any health-care reform bill sponsored by President Clinton. It did not matter what the bill included or how good the policy might be, because key Democratic senators placed a higher priority on teaching the hick from Arkansas that he was not their boss; they were determined to vote against it. Thus even though the Democrats had a majority in the Senate, they could not pass Clinton's bill—whatever it was—even if the Republicans did not filibuster it.

(2) There were, on the other hand, 80 votes in the Senate for any health-care reform bill that would be blessed by Republican Senate leader Robert Dole.

(3) Dole was not a cruel or cynical or amoral man, and really did want to make the country a better place.

(4) Dole—with his own long-standing health problems stemming from his World War II injuries—was keenly aware of the importance of health care.

(5) Dole was smart: He understood how the American health-care financing system was broken and how much public good would be achieved by fixing it.

(6) Dole and Bentsen, who had represented Texas in the Senate before becoming Treasury chief, had worked well together throughout the mid- and late-1980s and into the 1990s trying to repair the damage done to America's budget by the supply-siders. (Dole, remember, was the guy who told this joke: "The bad news is that a bus went over the cliff. The good news is that it was loaded with supply-side economists.")

Therefore, we in the Treasury thought that sometime—probably in the second quarter of 1994—Bentsen's personal policy staff would start feeling out Dole's personal policy staff on the issue. Then President Clinton would invite Sen. Dole to a private Oval Office meeting, after which Clinton would tell the cameras that the health-care legislative process had gotten bogged down and that he was seeking Sen. Dole's wise counsel to break the logjam.

Dole would then announce the Dole Compromise. This would provide the nation with desperately needed health-care reform. And it would provide Sen. Dole with a capstone achievement to a senate career that had been too often misspent spinning his wheels and backtracking.

As we all know, that scenario never happened. The Republican congressional delegation believed that President Clinton was in some sense illegitimate—Mr. 43%—having been elected only because Ross Perot hated George H.W. Bush and sabotaged his reelection. It was their business, they thought, to make Clinton's presidency appear a failure. And Sen. Dole, they said, needed to understand that his path to the Republican nomination and the White House lay not in sharing credit with Clinton for health-care reform but instead in advancing the Republican project of making Clinton's presidency appear a failure by blocking every single White House initiative they could.

In the medium run this was a disaster for Robert Dole: He got the Republican nomination in 1996 but no presidential term, no capstone legislative achievement, and a retirement spent keenly and bitterly aware that he had opened the door to a group of Republican barons—Gingrich and company—whom he liked even less than he liked supply-side economists.

And it was a disaster for the Democratic congressional barons, as well: Yes, they proved that the hick from Arkansas did not run Washington. But they all lost their committee chairmanships after the 1994 midterm election and many of those in Republican-leaning states lost their seats. When the president of your party is unpopular, your chances for reelection decline—even if you have spent most of your time blocking his legislative initiatives.

The really interesting question is: What are America's senators now thinking, in the privacy of their vacation retreats or in the pandemonium of "town halls," about this ancient history? I have drawn what I think are appropriate lessons from it. First, Democratic senators do themselves no good either in the next world or in this  when they block sensible initiatives from Democratic presidents. (But what lessons are Democrats Landrieu, Nelson, and Lincoln drawing?) Second, Republican senators do themselves no good either in this world or in the next when they block sensible initiatives from Democratic presidents. (But what lessons are Republicans Grassley, Voinovich, and Hatch drawing?)

Added to the Pile This Morning

• Robert Skidelsky, Keynes: The Return of the Master
• Carmen Reinhart and Kenneth Rogoff, This Time Is Different: Eight Centuries of Financial Folly
• Tobias Schulze-Cleven, Flexible Markets, Protected Workers: Adjustment Pathways in Europe's New Economy

DeLong Smackdown Watch: Robert Greenstein on Think-Tank Effectiveness

As I said, I don't want to argue that CBPP or TPC or CEPR have underperformed, all I want to do is say that CAP has overperformed.

Whimper...

Robert Greenstein:

Washington Thinktanks in the Twenty-First Century: I greatly admire Brad DeLong’s economic expertise and analytical work. But, with all due respect, I think that his August 20 blogpost on the effectiveness of Washington think tanks missed some key points. (I would have written in response to his post much more quickly, but I’ve been traveling and have had limited access to the internet.)

DeLong seems to equate effectiveness mainly with media coverage, buzz in the blogosphere, and so on. But when it comes to shaping policy, that’s just part of the process. In my view, the truest test of an organization’s effectiveness is whether, through its efforts, policy improves or adverse policies are avoided. Measured that way, the Center on Budget and Policy Priorities (CBPP) — if you’ll allow me a moment of immodesty — is widely regarded by independent observers as having one of the most impressive track records among organizations that work on public policy.

For example, about $215 billion of the $787 billion stimulus law that the Administration and Congress enacted this year stemmed from ideas in our analyses or from polices that we designed — including many provisions to expand assistance for low- and moderate-income families as well as to provide state fiscal relief. Two pivotal Center analyses from last fall — showing the very large increase in poverty that would result from the recession and the stunning dimensions of state fiscal gaps — also played critical roles in helping to shape the public debate and the thinking of federal policymakers. The law devoted more resources to these matters than any previous stimulus bill in history.

Or, to take another example, at the start of 2008, every major climate-change bill would have boosted poverty substantially due to the increases in energy prices that it would have generated. We issued analyses that focused attention on this problem. And we designed a remedy that many members of Congress and policy organizations rallied around — one that is included in House-passed legislation and that the Congressional Budget Office says will fully shield the bottom fifth of the population from these higher energy prices.

Nor are our impacts limited to low-income issues. The National Journal described the Center as constituting the “cerebellum” of the successful efforts to stop President Bush’s privatization proposal for Social Security. The White House official in charge of Social Security for Bush later said that no organization was as effective in thwarting the Administration’s privatization plans as CBPP.

In addition, our policy impact extends to the state level, where we partnered with several funders to establish an effective network of 31 independent policy institutions that work on budgets, taxes, and social programs in their states. When anti-tax, anti-government groups put money and muscle in 2006 into an effort to pass ballot initiatives in 16 states to impose severe tax and spending limitations, CBPP and this network helped lead the opposition, produced the key analyses, and performed extensive public education and media outreach work. In the end, the anti-tax, anti-spending effort failed in all 16 states.

DeLong is surely right that CAP — which I greatly admire — outdistances other policy organizations in the extent to which its messages reach key audiences across the country. The Center’s work complements that of CAP and other policy organizations with the powerful effects that we have on specific policy debates and outcomes.

The impacts that I’m describing have been confirmed in a variety of independent assessments of non-profit organizations. Just last year, a survey of thousands of non-profit CEOs across the country culminated in Forces for Good, an Aspen Institute-published book, which identified the Center as among the 12 most effective non-profits in America. That survey included non-profits across the political spectrum, and it included both policy organizations and those that deliver services. That finding mirrors earlier surveys in which executive and legislative branch officials and journalists were asked to rate policy organizations on their effectiveness and consistently put the Center among the very top rated organizations.

A final note: the CEPR survey of media citations per budget dollar cited in some comments to DeLong’s August 20 post is problematic with respect to CBPP. The survey uses budget numbers that include, among other things, the costs of the extensive assistance that we provide to our state network, our entire international budget project (which works to improve budget deliberations in poor countries), and the budget of a nonprofit for which we serve as the fiscal agent. Together, those items represent about half of our budget. Comparing our media cites per budget dollar to those of other organizations that do not serve similar functions is like comparing apples to oranges. Moreover, media cites do not tell the full story of how policy organizations can shape media coverage and public debate. Organizations like the Center often have their greatest impact when editorial writers, columnists, and others use their policy conclusions and numbers without even citing the source of the information.

Everything Robert Greenstein writes is true.

Next Week's Budget News Today!

James Horney of the excellent CBPP has an excellent advance piece warning that most of the stories next week that are going to hung on the hook of the midsession review will be wrong:

Five Keys to Understanding New 2009 Deficit Estimates — Center on Budget and Policy Priorities: Next week, the President’s Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) will update their economic and budget projections for fiscal year 2009, which ends on September 30, and the next ten fiscal years. Some analysts and pundits will try to use the new projections to support their arguments that the February stimulus package is (or is not) working, that Congress must (or must not) proceed with health care reform, and that any number of other policies should (or should not) be pursued. In fact, however, it will be extremely hard to draw any reasonable conclusions about such questions. Instead, the new estimates are likely to provide more evidence that we are in a highly uncertain economic and budgetary environment, in which the estimates can fluctuate significantly for a variety of reasons that have little to do with the desirability of undertaking new policy actions such as health care reform.

Meanwhile, in email assorted budget mavens are using the rubber hose on me for my statement that CAP has overperformed and CBPP has not (overperformed, that is)...

One quibble. Horney writes:

The [new] estimates should, however, reinforce the message that the current fiscal path is unsustainable over coming decades...

But immediately follows that with:

The policy path was unsustainable before the economic downturn; in fact, the downturn will add relatively little to the size of the long-term problem. Changes in current policies — such as to ensure adequate revenues and help slow the rapid growth of public and private health care costs — must be made to keep deficits from growing rapidly in coming decades...

The second of these passages is correct. The midsession review tells us nothing about the size of the long-term fiscal gap or the urgency of action to close it.

The U.S. government is on an unsustainable fiscal trajectory as far as Medicare and Medicaid are concerned. Whether it is on an unsustainable fiscal trajectory as far as the rest of the budget is concerned depends on (a) what is finally done about Medicare and Medicaid, and (b) whether the economic growth rate over the next three decades is closer to 3.5% per year or to 2.0% per year. And we will learn nothing about either of those issues from the numbers to be released next week.

Science and Health with Key to the Proper Design of Socio-Political-Economic Systems

Megan McArdle thinks that any health care reform that might reduce pharmaceutical company profits is bad:

Health Care: A Lesson in Practical Philosophy: I think that taking someone's money is a real violation of property rights that shouldn't be done unless you're achieving major good.  I think keeping people alive is a major good.  I don't think keeping people equal merits the case.... [G]eometric progressions are a bitch.  If the innovation spurred by the private sector could save 1% of the people who currently die each year, the number of people we'd be killing along with the private sector would necessarily be hugely larger than the number of people we'd save by implementing such insurance, since the most grotesquely exaggerated estimates released by interest groups pin the latter figure at around 0.8% of deaths in America (a much smaller number than the number who are estimated to be killed by access to the system--nosocomial infections and treatment side effects). That's even before you consider the people in other countries who would be saved by these advances. When I talk about the utilitarian calculus of weighing the good of current uninsured against the good to people who are currently, and in the future, untreatable without further innovation...

I am not so sure.

Robert Waldmann, meanwhile, directs us to the Partnership for Public Service writing about that bureaucratized socialist hellhole that is the National Institutes of Health:

[Thomas] Waldmann['s] dedication to public science kept him at NIH. "I thought I was going to be here for two years, but I became so excited with the opportunities to do research and the ability to develop our own drugs and... do my own clinical trials.... It was not matched, not in industry, not in academia."... [T]he field of cytokines... molecules that control human immune responses.... Zenapax, which has been associated with complete remission in over 60 percent of patients with Hodgkin's lymphoma who did not respond to any other treatment.... "The challenge to get the product to meet quality control standards is extremely hard, but Tom has been unwavering.... He did it all himself.... He paved the way for others," Katz said. Katz said that Waldmann, throughout his long career, has been "committed to using science for the betterment of humanity."... 78, Waldmann has no plans to retire because he believes there are many medical breakthroughs on the horizon "We have just begun," he said.

And Susan Madrack directs us to an (unconfirmed by me: but Susan is careful) account of life in the utopia that is America's health insurance system today:

Suburban Guerrilla: Late this afternoon I was gobsmacked by a Facebook announcement that a high school friend had died. I tracked down the story, and it is an absolute textbook example of everything that’s wrong with our health care system - so knowing that we share a passion for this topic, I’ll share it with you.

She was 49 years old and in good health, other than a propensity to develop bronchitis. A couple of weeks ago, after a trip to Disneyland, she came down with a terrible flu. After running a high fever for four days she knew she should see a doctor, but she didn’t - no insurance. Her husband, who owns his own business, had cancer a year and a half ago and is not insurable on his own. She originally had insurance through her job, but had been placed on disability after developing carpal tunnel syndrome (she was a transcriber). Eventually she was no longer eligible for insurance through her employer, other than COBRA, which she could in no way afford - her husband’s business had been hard hit in the recession.

So. She waits six days before finally dragging herself to an urgent care clinic, but the wait is so long and she feels like shit on a stick so she goes back home. Eventually ends up in ICU with pneumonia, and, as it ends up, tested positive for H1N1. By then the infection had gone too far, her organs started failing, and after a week in the hospital she died this morning, leaving a teenage daughter and a husband who don’t know what hit them. As though grieving isn’t enough of a burden, imagine the hospital bills they’re going to face. This man is certain to lose his business, his home, and anything else he ever had - on top of losing his wife.

It’s heartbreaking, completely unnecessary, and absolutely infuriating.

And Nathan Newman tries to take his wife to the doctor:

Thank God for Private Medicine - irony alert: We went to the emergency room because she had intense pains, fever and other symptoms that her doctor said on the phone had a chance of being fatal if not treated immediately. So we ran to the local hospital-- luckily only two blocks from our home, one of the best in New York City (Columbia Presbyterian). With our lovely private health insurance --also one of the better ones (Oxford) -- the results were: a long wait to even see the triage nurse, and then being told my wife would have to wait EIGHT HOURS to see someone. The triage nurse didn't disagree with her doctor's diagnosis of the possibility of the fatal condition, but that was the timeline for everyone who wasn't basically bleeding to death on the spot.

I basically did what everyone knows you have to do with our screwed up system-- bargain and beg folks to jump the line. Which I did, getting her past the eight hour queue, but finding that there was another indeterminate queue even in the next internal waiting room. At that point, our 2-year old daughter was getting too anxious for me to stay; we asked whether my wife could rest at home and get a call when a doctor was available, since we were just a block or so away. But no, she had to stay, sitting up, suffering in pain, waiting.

I took our daughter home to put her to bed and my wife eventually got home, untreated, because it was unclear whether they would ever see her. So she decided that getting some sleep and rest trumped the CHANCE to see an emergency room doctor.

Now, she'll hopefully be able to see her regular doctor today, but I've had plenty of frustrations on care on day-to-day medicine that the emergency room insanity seemed to me not an aberration but pretty indicative of a system that spends crap loads of money but is not there for people when you need it, even if you have decent insurance. Some of the problems in emergency rooms we know are do precisely to the fact that many people don't have insurance, so they end up piling into emergency rooms as their only care-giving system. Which highlights once again what everyone, insured or not, has to gain from more universal coverage.

And yet we'll still have media cycles dominated by discussions of "death panels" even as the incredible number of stories of pain and suffering under our present system, most far worse than what I described above, gets downplayed. The insanity of the health care debate would be amusing, if it wasn't so deadly serious for so many people.

And nonpartisan tax professor Daniel Shaviro is finally driven by the Republican slime machine in the health care debate to join the Ancient, Hermetic, and Occult Order of the Shrill:

Start Making Sense: Healthcare reform: The current debate's lack of coherent content has been quite startling, and indeed dismaying insofar as one naively hoped for better.... In 1993, I was unsympathetic to the Clinton plan, but since then my view of how well the U.S. healthcare market functions has darkened. More on that in a moment. Unfortunately, I don't think the Administration has conveyed any clear sense of what it is trying to do, or why.

Concerning the other side in the debate, perhaps the less said, the better. I really can't say anything temperate at this point....

So we have a terrible healthcare system that surely could be vastly improved. I take the Administration to be addressing the adverse selection problem by extending health insurance to the uninsured population. Also, it may want to address under-treatment... which I think of as a distributional issue.... The Administration would also perhaps like to address the moral hazard problem.... Unfortunately, addressing it really requires bipartisanship, since cutting benefits is politically unpopular. And the Republicans couldn't make any clearer their unwillingness to cooperate in any sort of good faith effort to address waste and put healthcare outlays on a sustainable path.

One of the many offensive and odious aspects of the Republicans' hateful lying about death panels and the like is that they are actually the ones who want to provide less treatment. For those among them who are sane and believe in civil society, this mainly reflects concern about moral hazard and/or a libertarian distributional view. The rest, apparently a large majority of their number, do not bear discussing.

Welcome, Dan! Phnglui mglwnafh Cthulhu Rlyeh wgahnagl Ftagn!! Shaviro Ftagn!!

The deep-fried shoggoth tentacles are on the right. And the 65 million B.C. vintage of the chardonnay is from Hastur the Unspeakable's private cellars...

Mainstream Media Crashed-and-Burned Watch: Hamilton Nolan, Ian Shapira, some nameless Economist writer, and Ross Douthat

Ian Shapira writes:

Ian Shapira -- How Gawker Ripped Off My Newspaper Story: The more I toggled between my editor's e-mail and the eight-paragraph Gawker item, the angrier I got, and the more disenchanted I became with the journalism business. I enjoy reading Gawker and the growing number of news sites like it -- the Huffington Post, the Daily Beast and others -- but lately they're making me even more nervous about my precarious career as a newspaper reporter who enjoys, at least for the time being, a salary, a 401(k) and health insurance. I started thinking about all the labor that went into producing my 1,500-word article. The story wasn't Pulitzer material; it was just a reported look at one person capitalizing on angst in the workplace. With all the pontificating about the future of newspapers both in the media and in Capitol Hill hearings, I began wondering if most readers know exactly what is required to assemble a feature story for a publication such as The Post. Journalism at a major newspaper is different from what's usually required in the wild and riffy world of the Internet. And that wild world is killing real reporting...

But this is not a disease of the internet, Ian. For example:

Ross Douthat in the New York Times, today:

Blue-State Blues: Consider Texas and California. In the Bush years, liberal polemicists turned the president’s home state — pious, lightly regulated, stingy with public services and mad for sprawl — into a symbol of everything that was barbaric about Republican America. Meanwhile, California, always liberalism’s favorite laboratory, was passing global-warming legislation, pouring billions into stem-cell research, and seemed to be negotiating its way toward universal health care.

But flash forward to the current recession, and suddenly Texas looks like a model citizen.... Meanwhile, California... has become a fiscal disaster area. And it isn’t the only dark blue basket case. Eight states had unemployment over 11 percent in June; seven went for Barack Obama last November.... [T]he downturn has highlighted the weaknesses of liberal governance — the zeal for unsustainable social spending, the preference for regulation over job creation, the heavy reliance for tax revenue on the volatile incomes of the upper upper class...

The Economist, three weeks ago:

America's Future: California and Texas, the nation’s two biggest states, are the twin poles of the West, but very different ones. For most of the 20th century the home of Silicon Valley and Hollywood has been the brainier, sexier, trendier of the two: its suburbs and freeways, its fads and foibles, its marvellous miscegenation have spread around the world. Texas, once a part of the Confederacy, has trailed behind: its cliché has been a conservative Christian in cowboy boots, much like a certain recent president.

But twins can change places. Is that happening now?... California is in a funk.... Plenty of American states have budget crises; but California’s illustrate two more structural worries.... By contrast, Texas... has coped well with the recession, with an unemployment rate two points below the national average.... Texas also clearly offers a different model, based on small government.... [S]ome erstwhile weaknesses now seem strengths (flat, ugly countryside makes it easier for Dallas-Fort Worth to expand than mountain-and-sea-locked LA)...

Gawker's Hamilton Nolan gave you a link, Ian, in the very first paragraph, with an added explicit mention of the Post at the end--and some traffic and thus eyeballs for the Washington Post's web ads. I would classify Nolan as rude, however: instead of "Meet Anne Loehr..." linked to your article, it should have read "In the Washington Post Ian Shapira introduces us to Anne Loehr..." linked to your article. Ethics require links that inform people where you got your ideas and your facts rather than lifting them in light-fingered fashion. Manners require that you structure your piece so that even those who do not click through and do not read the notes learn where you got your facts and ideas from.

By contrast Ross Douthat of the New York Times didn't give the Economist either a link or an acknowledgement. My sense is that people who come out of the weblog world or out of academia are anxious to cite and link--they think it builds their credibility and also their intellectual community--while people who come out of the press are anxious not to cite or link but instead pretend that they did all the legwork themselves and now have the Olympian omniscient viewpoint--either because they are scared their editors will fire them if they figure out how much they borrow or their readers will go straight to the deeper sources if they give a hint of what those deeper sources are.

Marcy Wheeler has, I think, the smartest take on this:

Emptywheel » The Stealing Wars: What’s Good for Gawker Is Good for WaPo’s Slate: I think [Shapira] has got a point. He shows how Gawker took a story he worked eight hours on and--with 30 to 60 minutes of work--used much of his story for a post.... [T]he Gawker post in question practiced god-awful linking etiquette.... And it didn't add much.... Gawker did do what it does best--wrapping the appropriate layer of snark around the abursdities or the world otherwise presented as serious. But it did use a whole lot of Shapira's interview in the process....

[W]hat Shapira is complaining--rightly--about is that Gawker... did not use good etiquette according to the internet world's rules. Curiously, though... [h]e didn't acknowledge that the WaPo... does not... always credit those it steals stories from (not even after Nick Denton pointed out that even when newspapers lift Gawker's stories and credit them, they never give hot links).... But Shapira absolutely does not make the case when he glibly says Gawker is hurting the WaPo, when his evidence actually shows it is possible to make money online, but that for some reason WaPo can't monetize the links others give it:

Even if I owe Nolan for... traffic, are those extra eyeballs helping The Post.... [T]hose referring links... aren't doing much... to stop our potential slide.... Gawker and its ilk, with their relatively low overhead, might be depressing online ad revenue across the board.... The Post just completed its fourth round of buyouts since 2003... the newspaper division... continues losing money.....

There are a number of things that contribute.... Gawker treats things that should be treated with snark with snark, whereas WaPo... refuses to piss in the Village. WaPo has... levels... who--often as not--contribute nothing.... WaPo is apt to send three reporters out on a story that might merit one. WaPo wastes money producing videos no one finds funny.... WaPo has a nice big building....

But the most amusing part of Shapira's column is... "Gawker was the second-biggest referrer of visitors to my story online. (No. 1 was the "Today's Papers" feature on Slate, which is owned by The Post.)" Here's the original work Slate wrapped around its limited quote from Shapira's story:

Feel like getting mad this morning? Then head on over to the WP's Style page to once again see how there's never a shortage of people finding, um, creative ways to make money. And people gullible enough to hand over their hard-earned cash.

Totally fair use, good etiquette.... 756 words out of 1136 in that column derive from other newspapers: NYT, LAT, WSJ, and USA Today.... Daniel Politi... [did] just as Gawker's Hamilton Nolan did. And yet there Slate-owned-by-the-WaPo is, doing precisely what Shapira complains Gawker is doing, placing ads right next to content it appropriated from other reporters: A ginormous Economist ad and what appears to be an ad for an ABC station...

---

And, of course, there is another difference between Gawker's Hamilton Nolan and the New York Times's Ross Douthat. Hamilton Nolan's story is right. Ross Douthat's story is wrong.

Paul Krugman:

Texas is not the only red state - Paul Krugman Blog - NYTimes.com: There has been quite a lot of commentary on my colleague Ross Douthat’s use of a Texas-California comparison to claim that red states are doing better in the crisis than blue states. Some have pointed out that California, despite its liberal reputation, doesn’t have especially high taxes; others have pointed out that Texas, where almost a quarter of the population lacks health insurance, is hardly a model.

What I haven’t seen pointed out, however, is that Texas is not the only red state. Why not look at South Carolina, where taxes are almost as low as they are in Texas, but where the unemployment rate is 12.1%? Or Tennessee, which has some of the lowest taxes in the nation, and 11% unemployment?

Maybe a picture will help. Taxes as a percentage of income... current unemployment rate.... See the relationship? Neither do I.

Ezra Klein:

Should We Envy Texas?: Ross Douthat has a strange column today arguing that Texas -- yes, Texas -- represents the sort of "model" economy that Barack Obama promised but can't quite seem to achieve. "The president wants to govern America like a blue state," writes Douthat. "But for that to work, he’ll need the nation’s economy to start performing more like Texas." There are two problems with this column. The first is that it's wrong. The second is that it's misleading....

[T]he wrong. Red states are not, as Ross implies, obviously outperforming blue states.... The top performers... Washington, Wyoming, North Dakota, South Dakota, D.C., West Virginia, Iowa, Kansas, Oklahoma, New Mexico, and Colorado. Five states that went for Obama, six that went for McCain. Texas... is in the second quintile... with New York, Vermont, Massachusetts, New Hampshire, Minnesota, Mississippi, Montana, Utah, and Oregon. Six states that went for Obama. Four that went for McCain.... Texas's per-capita GDP has shrunk by $11 since 2007.... Massachusetts... [has] grown by $700. Compare that to Douthat's contention that Obama is "pushing a blue-state agenda during a recession that’s exposed some of the blue-state model’s weaknesses, and some of the red-state model’s strengths."

But let's talk about Texas for a second. "The Lone Star kept growing well after the country had dipped into recession," writes Douthat. "Its unemployment rate and foreclosure rate are both well below the national average. It’s one of only six states that didn’t run budget deficits in 2009."... About 24 states have unemployment and foreclosure rates beneath the national average. Not all of them are governed by Republicans or voted for McCain. Texas's balanced budget is a more interesting phenomenon, however. Douthat doesn't say why Texas managed to keep its books so clean.... Compared with, well, most everyone else, Texas has a lot of uninsured people and a lot of people beneath the poverty line. Fully 26.6 percent of Texas's kids... don't have health-care coverage.... A state like California sees its social services spending shoot up in a recession, because the programs are relatively generous and more people need them during an economic downturn. A state like Texas also sees a rise, but less so, because the programs are less generous and cover fewer people.... [I]t does point to the difficulties of naming a state where 24 percent of the residents are uninsured and 29 percent of the children live in poverty as a "model" for the nation. Compare that with Massachusetts, which is seeing more per-capita GDP growth and far fewer residents either in poverty or without health insurance, though it does have a slightly higher unemployment rate...

In Praise of Automatic Stabilizers

As social mechanisms that dampen both the magnitude and the utility cost of recessions. Mark Thoma writes:

Economist's View: Social Insurance and the Severity of Recessions: [O]ne thing... I don't think is getting enough attention, is the effect that automatic stabilizers have had in helping to ease the impact of the recession for individual households on and for the overall economy.

What are automatic stabilizers? Automatic stabilizers are taxes and transfers (e.g. unemployment compensation and food stamps) that automatically change with changes in economic conditions in a way that dampens economic cycles. For example, when the economy turns downward, the amount spent on food stamps automatically goes up as more people apply (or eligibility rules are eased), and the extra spending the food stamps helps to soften the downturn for the individuals receiving the help and for the businesses and employees where the money is spent (and then the multiplier process spreads the benefits more widely). Similarly, unemployment compensation, which obviously rises as jobs are eliminated, goes up when conditions deteriorate and that also provides a boost to demand. In addition, income tax as a share of GDP goes down in recessions and that helps to offset the fall in GDP as well.

How much worse would things be now if we had followed the advice of the hardcore rightwing and eliminated the welfare state programs that function so effectively as automatic stabilizers? It still wouldn't be like the pictures you see of the Great Depression because we are a much wealthier nation than we were then and thus have more private resources to rely upon. But even so, not everyone has wealth to rely upon and the recession would be much more evident, and the amount of human suffering would be much greater, without the social insurance programs we put in place in the years since the Great Depression -- programs that we, for the most part, now take for granted. I don't mean there is no suffering due to the downturn, there is and I don't want to minimize it - I wish our social insurance programs were even more generous than they are now for that reason - and I don't mean to say there are no signs at all of economic problems, there are, but we shouldn't overlook the important role that social insurance plays during recessions.

I think we can have a debate over the appropriate level and form of social insurance, as I said, I don't think it is generous enough and I would also broaden it to include health care. But I don't think there can be any doubt about the importance and effectiveness of social insurance in helping to limit the impact of economic downturns...

Greg Mankiw and the Tax Foundation Try and Fail to Fool Andrew Gelman

From Andrew Gelman:

The Monkey Cage: Income tax burden != tax burden: Greg Mankiw quotes a Tax Foundation report saying:

IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act. Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. [italics added]

It’s an interesting question what to make of this sort of statistic: the income distribution is more skewed than it used to be, so there are some super-rich people paying a lot of taxes. But what I wanted to focus on here was the shift from “income taxes” to “the tax burden.” This could be misleading.

Yep. It is.

Yet More Washington Post Crashed-and-Burned Watch (Anti-Social Insurance Puritanism Edition)

Why oh why can't we have a better press corps? Outsourced to Paul Krugman:

Kings of pain: Steve Benen is puzzled by David Broder’s negative view of proposals to give the independent Medicare advisory commission more power to determine what the program pays for:

I’m a little surprised by Broder’s apprehension. After all, the IMAC idea was proposed by the right, and accepted by the left, as part of a larger effort to save money and take political considerations out of the process. In other words, it’s an idea with bipartisan appeal, with an eye towards fiscal responsibility. Isn’t this exactly the kind of policymaking Broder says he wants?

Yes, it’s what he says he wants. But I’ve been watching commentary from Broder and other “centrist” pundits like Robert Samuelson, and I think I see a pattern. They complain a lot about rising public spending, but confronted with any actual proposal to control spending, they reject it — unless it has one crucial attribute: it must weaken the social safety net. Unless you end up slashing benefits, or denying health care to more people, it’s not what they’re looking for.

And so the cost-saving measures under consideration now — which are the first real effort to tackle Medicare costs, ever — are pooh-poohed, because they’re part of a plan that would expand coverage, not contract it.

H.L. Mencken once defined Puritanism thus: "Puritanism is the haunting fear that someone, somewhere, may be happy..."

David Broder, Robert Samuelson, Jonathan Rauch, Clive Crook have a slight variant. For them, their Puritanism is, as Dan Gross says,[1] that haunting fear that someone, somewhere, may be collecting on their social insurance...

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[1] http://www.slate.com/id/2219769/. Gross includes Niall Ferguson, George F. Will, and Andrew Sullivan among his Puritans...

Education and Equal Opportunity

He writes, in the FT:

The mobile society stalls at the gates of academe: Making it has been the American dream for two centuries. Horatio Alger, who died 110 years ago this month, wrote dozens of hugely popular novels (Struggling Upward, Strive and Succeed) that imprinted the aspiration on millions of minds. In their pages boys would rise from poverty to the middle class, often through the kindly intercession of older men but always with a display of grit. The theme spanned the 19th-century Atlantic: Samuel Smiles (1812-1904) promoted the theme of social advancement through individual striving in Self Help (1859) and other works. The career of his fellow Scot Andrew Carnegie, moving from real childhood rags to world-beating riches in early middle age, gave foundation to such exhortations.

But where the myth had reality, it now has less. Recent studies show that the US is near the top, and the UK in the upper levels, of the league of developed states in which the poor do not or cannot help themselves to rise. One much quoted study notes that “the idea of the US as ‘the land of opportunity’ persists; and clearly seems misplaced”.

Why? Education is at the root. In the land of opportunity, the immigrants of the 19th and early 20th century could rise – or at least their families could – with the burgeoning industrial economy. In 1914, Ford’s workers were three-quarters foreign-born, and their jobs did become as solid and middle-class as Alger imagined – if more through militant unions than kindly benefactors. Now, the good jobs need at least one college degree: a PhD is no longer synonymous with genteel scholarly shabbiness but can be leveraged into great wealth, personal and corporate.

George Borjas, the economist, reckons that where children of immigrant parents had, for much of the last century, easily surpassed the earnings of their fathers and mothers, they now more often stick at the same level. Because US immigrants are disproportionately little-educated Mexicans, and because they tend to stay in Hispanic enclaves, their ability and willingness to mount the academic ladder is limited. The lesson travels: acculturation to norms of ambition, improvement through education and willingness to integrate into the broader society (which means a loss of distinct identity) are good ideas for social mobility in all societies. Insofar as some communities – including indigenous working-class communities – wish to emphasise their difference, their place on the lower rungs of class society will remain.

Thus, curiously, the university becomes an ambiguous social factor. The more education it confers, the better the possibility for advancement up through the classes. But it also functions as a filter: the professions, and higher earnings, are now so routinely associated with the degrees it gives that those without its benison find the career and class bonds tighter than ever.... This week’s British Cabinet Office report on access to the professions presents the narrowing of access in stark terms, forecasting a kind of caste society in which professionals are drawn largely from the 30 per cent of the most highly educated (and higher social classes) of the population. This is true of all professions in wealthy countries – even as they have recruited more women, as the gender pay gap has fallen and as minority groups have seen their representation in the professions rise....

[I]ndividual and family mobility – another irony – seems better served in states with a strong social democratic tradition. In the Scandinavian countries, Denmark in particular, movement up (and down) is better lubricated. One cannot have everything. The international tables of top universities are dominated by the US and the UK, which cater for global as well as their own elites. Hard-driving and expensive private schools are embedded in the Anglo-American social fabrics; the Cabinet Office report shows that some professions – such as the judiciary and journalism – are at the higher levels dominated by their products. When this writer began in a provincial newsroom, he was one of two graduates; the route to national glory could still be trod by a school leaver with shorthand and sharp elbows. Now, it would be far more difficult....

[P]arents who push for entry to better schools, or better schooling in the one they get, are the real motor forces of a dynamic society. The antidote to social ossification would thus seem to be a new kind of class struggle, a storming of the frozen winter palaces that tutor and employ our increasingly entrenched elites.

[1] "Intergenerational mobility in Europe and North America": Blanden, Gregg and Machin (LSE, 2005)

Three preliminary points:

• First, although the myth of upward relative mobility through luck and pluck did have some reality, it never had much.

• Second, very few Ph.D.'s can be "leveraged into great wealth, personal and corporate"--engineering and biotech and finance only, and not all of engineering and biotech and finance. For the overwhelming majority, Ph.D.s are still "synonymous with genteel scholarly shabbiness": don't get a Ph.D. if you aren't driven to spend your life telling people what you know and trying to learn more--it will be ta mistake.

• Third, Borjas's findings about income across the generations are mostly due to the stagnation society-wide of all incomes in America save those of the very top of the income distribution; I have seen no evidence that little-educated Mexican-Americans are following any different a path from the one that little-educated Slovak-Americans or Polish-Americans or Greek-Americans or Italian-Americans or Chinese-Americans of a century ago--and the incomes of little-educated Mexican-Americans today are definitely converging to the English-speaking norm much faster than did the incomes of little-educated ex-slave African-Americans of a century and a half ago.

And two main points:

• First, the more unequal a society is in an "inequality of result" sense, the more important is equality of opportunity--the greater is the injustice done by the deprivation of equality of opportunity--and the harder it is to attain equality of opportunity as parents of greater relative wealth and status have more social power to deploy to gain an edge for their children. It is no mystery, no surprise, and no irony at all that intergenerational social mobility is greater in countries with a strong social-democratic tradition.

• Second, it is very difficult to have a great deal of power in this society if you are not exquisitely well-prepared to compete when you are 25--which requires that you have or be able to rapidly acquire patrons and that you went to and took advantage of a good college or did something else functionally equivalent, which requires that you applied yourself in high school, which is very hard to do unless you got a solid foundation in terms of basic skills and study habits in elementary school. This means that (i) people who are scared off from going to college because of the debt it incurs have a very small shot at large amounts of upward mobility, and (ii) the decisions people make when they are seven about how to spend their time shape their lives for the next seventy years. In even a half-good society, one should not be able--it should not be the rule--that one can greatly narrow the possibilities for one's life by what one does or fails to do at seven.

I am still not sure whether my beliefs that in a good society higher education--indeed, all education--is free to the students and that elementary-school teaching is a very high-status profession reflect my own biases produced by my own position within this society or whether my beliefs are a rational assessment of reality, but it is worth thinking about...

Something to Fear in Health Reform

Andrew Biggs: The problem is not that health spending is growing too rapidly--we want it to grow about as rapidly as it is. The problem is that the level of health spending is about twice what it should be. (I would add: and that the distribution of our health spending is all wrong as well.)

He writes:

A Dog in the Healthcare Fight: [S]pending on veterinary care... and national health expenditures (for people).... Two things are interesting here: first, the rate of growth of spending from 1984 to 2006 wasn’t all that different--and in both cases, spending grew faster than the rate of economic growth. As new technologies are developed for humans, we adopt them for Bowser and Fifi—because we can afford to and we think it’s worth it. I personally took my Alaskan Malamute to a Washington-area practice that was known as the “Mayo Clinic of veterinarians” —and I suspect this wasn’t because, like the real Mayo Clinic, it keeps costs low.

?But second, the level of spending was very, very different: we spend hundreds of times more on ourselves than on our pets. The main reason for this is obvious: we value our own lives and those of our families more than we do our pets or other animals. At the same time, however, veterinary care is one of the few areas of health where we are directly confronted with difficult decisions regarding the costs and benefits of additional treatments. As the famed RAND health experiment showed, out-of-pocket costs can significantly affect the level of health spending without changing health outcomes.

This again highlights that the real issue with healthcare may not be the rate of growth but the level of health spending--and the fact that so much of it seems to be wasteful. This distinction is important because it shapes our policy priorities. The level of spending has different causes than the rate of growth of spending, among them our healthcare system’s structural incentives to overspend. Rather than attempting merely to temper cost growth, plans that remove incentives for overspending, improve consumer choice, or pay doctors based on quality rather than quantity of service could reduce the overall level of spending.

Andrew is scared of a health reform focused on restraining the rate of growth of health spending that does so by slowing down the rate of adoption of new health techologies. The alternative--a health reform that gets us better value for our money and that leads us to spend less--gores powerful oxen because each dollar not spent will be a dollar that does not flow to the income of somebody who votes today. By constrast, the people who will die thirty years hence becaues we haven't invested in growing cloned kidneys don't know now who they are.

I am scared too.

The "Public Plan" and Health Reform

What form would this "public plan" take? Would it be administered by CMS and HHS? Would it offer Medicare reimbursement rates or something else?

And we aren't we simply letting people who want to sign up for FEHBP? Isn't that the simplest public plan?

Ezra Klein observes:

Why Health Reform Is Likely to Have a Public Plan: Huffington Post's Ryan Grim has been doing great work covering Sen. Ben Nelson's (D-Neb.) endless flips and flops on the public health insurance plan. A few weeks ago, you might remember that Nelson was talking about forming a "coalition of like-minded centrists opposed to the creation of a public plan, as a counterweight to Democrats pushing for it." Back then, the public plan was a "deal breaker."

Now? He's open to a public plan. Neat how that works. But Nelson isn't alone. Support for the public plan seems to have elevated in a few corners. Max Baucus (D-Mont.), previously cool to the idea, is now said to be fighting "tooth and nail" for its inclusion. Sen. Arlen Specter (D-Pa.), once a monosyllabic opponent ("no"), is now proclaiming himself open to the idea.

Meanwhile, the public plan's supporter -- Sens. Chuck Schumer (D-N.Y.), Ted Kennedy (D-Mass.), and others -- have organized and begun insisting, rather than merely mentioning, the idea. Liberal senators came together and signed a letter in support of the policy. The White House, which seemed relatively unsinterested in the issue a few months ago, has begun pushing hard for it.

And that, in my reporting, is what seems to be underneath the change. A few months ago, most observers thought the public plan was a bargaining chip. It had a lot of public supporters but few real friends. In recent weeks, that's begun to change. The White House seems genuinely intent on including a public plan -- or at least some form of public competition -- in the final bill. And that's changed the incentives for senators down the line. The public plan was safe to oppose so long as the powerful players weren't really interested in its survival. Indeed, when the policy was going to be bargained away anyway, the incentives were to try to convince the health industry that you'd been their key ally in that victory. But now that the White House has put some muscle behind the policy, opposition has potential consequences. And that's making the policy's opponents rethink their stridency.

A few months ago, I would have bet against the presence of a public plan in the final bill. Now I'd put my money in favor of it.

Upward Mobility: Reality and Illusion

Ezra Klein:

Ezra Klein : [Russell] Shorto... [thinks that in] the Netherlands.... [T]here's "a cultural tendency not to stand out or excel...the very antithesis of the American ideal of upward mobility." But... Americans are in the odd position of fervently believing in upward mobility while not actually having very much of it. Eruopeans, conversely, don't really believe in economic mobility but have plenty of it.... Brookings... examined the relative mobility in other Nordic countries. And the United States doesn't come out that well.... The United States believes itself to be uncommonly meritocratic. But compared to European countries who don't believe themselves very meritocratic, it actually exhibits less income mobility....

If you believe that your country is extremely mobile, you're likely to believe the results of the economic competition are relatively fair. As such, you won't want to slap the rich with particularly high tax rates and you won't be terribly concerned about spreading economic opportunity. After all, anyone can make it! On the other hand, if you don't believe your country is terribly mobile, then you're less likely to believe economic outcomes are fair. And if you don't believe the outcomes are fair, you're likely to tax the winners relatively heavily and plow those profits into things like universal health care and free college. Policies, in other words, that spread opportunity more widely and thus make your society more mobile. Put like that, it sort of makes sense. If you believe your society is already economically mobile, you don't spend a lot of time trying to solve the problem of insufficient economic mobility. if you don't believe that, then you implement policies meant to increase mobility. What's odd is that the public perceptions in Europe and America don't seem to be changing much in response to actual outcomes.

Notes for April 29 Econ 210a Class: "Thirty Glorious Years"

John Maynard Keynes (1926), "The End of Laissez Faire" http://tinyurl.com/dl20090112ad

Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://tinyurl.com/dl20090112z

Barry Eichengreen (1996), "Institutions and Economic Growth: Europe Since 1945," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945 (Cambridge University Press), pp. 38-72 http://tinyurl.com/dl20090112x

Mancur Olson (1996), "The Varieties of Eurosclerosis: The Rise and Decline of Nations Since 1982," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945, (Cambridge, Cambridge University Press), pp.73-94 http://tinyurl.com/dl20090112x

J. Bradford DeLong (1995), "America’s Only Peacetime Inflation: The 1970s," in Christina Romer and David Romer, eds., Reducing Inflation: Motivation and Strategy (University of Chicago Press), pp.-, http://tinyurl.com/dl20090112v

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The End of the Presumption of Laissez-Faire

John Maynard Keynes (1926), "The End of Laissez Faire" http://tinyurl.com/dl20090112ad

The idea of a divine harmony between private advantage and the public good is already apparent in Paley. But it was the economists who gave the notion a good scientific basis. Suppose that by the working of natural laws individuals pursuing their own interests with enlightenment in condition of freedom always tend to promote the general interest at the same time! Our philosophical difficulties are resolved-at least for the practical man, who can then concentrate his efforts on securing the necessary conditions of freedom. To the philosophical doctrine that the government has no right to interfere, and the divine that it has no need to interfere, there is added a scientific proof that its interference is inexpedient. This is the third current of thought, just discoverable in Adam Smith, who was ready in the main to allow the public good to rest on 'the natural effort of every individual to better his own condition', but not fully and self-consciously developed until the nineteenth century begins. The principle of laissez-faire had arrived to harmonise individualism and socialism, and to make at one Hume's egoism with the greatest good of the greatest number. The political philosopher could retire in favour of the business man - for the latter could attain the philosopher's summum bonum by just pursuing his own private profit. Yet some other ingredients were needed to complete the pudding. First the corruption and incompetence of eighteenth-century government, many legacies of which survived into the nineteenth. The individualism of the political philosophers pointed to laissez-faire. The divine or scientific harmony (as the case might be) between private interest and public advantage pointed to laissez-faire. But above all, the ineptitude of public administrators strongly prejudiced the practical man in favour of laissez-faire - a sentiment which has by no means disappeared. Almost everything which the State did in the eighteenth century in excess of its minimum functions was, or seemed, injurious or unsuccessful. On the other hand, material progress between 1750 and 1850 came from individual initiative, and owed almost nothing to the directive influence of organised society as a whole. Thus practical experience reinforced a priori reasonings. The philosophers and the economists told us that for sundry deep reasons unfettered private enterprise would promote the greatest good of the whole. What could suit the business man better? And could a practical observer, looking about him, deny that the blessings of improvement which distinguished the age he lived in were traceable to the activities of individuals ‘on the make’? Thus the ground was fertile for a doctrine that, whether on divine, natural, or scientific grounds, state action should be narrowly confined and economic life left, unregulated so far as may be, to the skill and good sense of individual citizens actuated by the admirable motive of trying to get on in the world...

Let us clear from the ground the metaphysical or general principles upon which, from time to time, laissez-faire has been founded. It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities. There is no ‘compact’ conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately. We cannot therefore settle on abstract grounds, but must handle on its merits in detail what Burke termed “one of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion.”...

I will illustrate what I have in mind by two examples. (1) I believe that in many cases the ideal size for the unit of control and organisation lies somewhere between the individual and the modern State.... (2).... The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.... Many of the greatest economic evils of our time are the fruits of risk, uncertainty, and ignorance. It is because particular individuals, fortunate in situation or in abilities, are able to take advantage of uncertainty and ignorance, and also because for the same reason big business is often a lottery, that great inequalities of wealth come about; and these same factors are also the cause of the unemployment of labour, or the disappointment of reasonable business expectations, and of the impairment of efficiency and production. Yet the cure lies outside the operations of individuals; it may even be to the interest of individuals to aggravate the disease. I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution, and partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know...

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Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://tinyurl.com/dl20090112z

In the spring of 2005 a panel of “conservative scholars and policy leaders” was asked to identify the most dangerous books of the 19th and 20th centuries. You can get a sense of the panel’s leanings by the fact that both Charles Darwin and Betty Friedan ranked high on the list. But The General Theory of Employment, Interest, and Money did very well, too. In fact, John Maynard Keynes beat out V.I. Lenin and Frantz Fanon. Keynes, who declared in the book’s oft-quoted conclusion that “soon or late, it is ideas, not vested interests, which are dangerous for good or evil,” [384] would probably have been pleased.... Stripped down, the conclusions of The General Theory might be expressed as four bullet points: (1) Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment. (2) The economy’s automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully. (3) Government policies to increase demand, by contrast, can reduce unemployment quickly. (4) Sometimes increasing the money supply won’t be enough to persuade the private sector to spend more, and government spending must step into the breach. To a modern practitioner of economic policy, none of this – except, possibly, the last point – sounds startling or even especially controversial. But these ideas weren’t just radical when Keynes proposed them; they were very nearly unthinkable. And the great achievement of The General Theory was precisely to make them thinkable...

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Barry Eichengreen (1996), "Institutions and Economic Growth: Europe Since 1945," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945 (Cambridge University Press), pp. 38-72 http://tinyurl.com/dl20090112x

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Mancur Olson (1996), "The Varieties of Eurosclerosis: The Rise and Decline of Nations Since 1982," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945, (Cambridge, Cambridge University Press), pp.73-94 http://tinyurl.com/dl20090112x

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J. Bradford DeLong (1995), "America’s Only Peacetime Inflation: The 1970s," in Christina Romer and David Romer, eds., Reducing Inflation: Motivation and Strategy (University of Chicago Press), pp.-, http://tinyurl.com/dl20090112v

More Congratulations to Emmanuel Saez

Peter Orszag congratulates Emmanuel Saez: "Emmanuel's energy, intelligence, and dedication are deeply impressive—as was his ability to explain, despite his French accent, a complicated research project that I worked on with him to a group of H&R Block workers administering it..." But perhaps Emmanuel's most impressive accomplishment is that he has been personally denounced on the editorial page of the Wall Street Journal.

OMB - Blog Post - Congratulations to Emmanuel Saez: SMy co-author and friend Emmanuel Saez was awarded the John Bates Clark Medal on Friday. The prize, which is awarded to the best American economist under the age of forty, is one of the highest honors the economics profession can bestow upon one of its own. Emmanuel is deeply deserving of the honor—his work on income inequality and taxation has helped to shape my own thinking on these matters, and it had no small influence on the President's Budget.

Emmanuel is perhaps best known for his detailed examination of how wages at the top end of the U.S. income distribution have evolved over the past century. He and his co-author Thomas Piketty discovered that the overall pattern for the share of income accruing to those in the top 10 percent is U-shaped (see chart 1 below). Thus, the share going to the top 10 percent was around 45 percent from the mid-1920s to 1940, but then declined to approximately 33 percent during World War II. Emmanuel attributes this fall-off to the sharp reduction in capital incomes brought about by the war and the revenue increases needed to finance the war effort. After the war, the share of income accruing to the top 10 percent remained essentially flat until the late 1970s, when it began climbing dramatically, ultimately surpassing its pre-war highs. Indeed, in 2006, the top 10 percent earned 50 percent of national income, a higher share than even in 1928, the peak year of the "roaring twenties" stock market bubble.

Chart 1: Share of Total U.S. Income Accruing to the Top 10%, 1917-2006

Perhaps even more interesting than his findings about the evolution in earnings for the top 10% is what he found when he isolated data from just the top 1 percent of earners—namely, that virtually all the historical fluctuation in the share of income going to the top 10 percent was due to fluctuations in income within the top percentile alone (see chart 2 below). Stated differently, the dramatic changes in income inequality seen in the United States over the last century are almost entirely a function of how well the very highest earners did at any given point in time.

Chart 2: Decomposing the Top 10% of U.S. Income Share into Three Groups, 1913-2006

And in the most recent past, the very highest earners did very well indeed, capturing almost three-quarters of total income growth in the economic expansion of 2002 to 2006, while the remaining 99 percent of the U.S. population split among themselves the final 25 percent of the increase. (What makes this trend all the more concerning is something that Emmanuel and his co-authors demonstrated in another paper: that this dramatic increase in incomes at the very top has not been mitigated by an increase in income mobility, which can be seen in the relatively stable probability of staying in the top 1 percent of earners from one year to the next since the early 1970s.)

Emmanuel's work on income inequality has helped to point the way for the Administration in its pledge to rebalance the tax code, with a tax cut going to 95 percent of working Americans while asking those at the very top to contribute more. The inequality that has arisen over the past three decades is not going to go away overnight, and it has been driven by many factors—including a decline in the growth rate of college-educated workers. But where the prior administration used changes in the tax code to exacerbate these trends, this Administration thinks that the tax code should be used to mitigate them because an economy in which all can enjoy success is one that is strong for us all.

Emmanuel's energy, intelligence, and dedication are deeply impressive—as was his ability to explain, despite his French accent, a complicated research project that I worked on with him to a group of H&R Block workers administering it. I look forward to reading his work for years and decades to come.

Why Does Tom Delay Think Texas Is a Wealthy State?

Matthew Yglesias:

Matthew Yglesias: Delay Claims Poorer-than-Average Texas is “Wealthy” Because Texans “Work Hard”: A few bloggers have noted that Tom DeLay went on a strange neo-secessionist binge yesterday on Hardball with Chris Matthews. This segment of the interview in which he lays out his substantive rationale has gotten less attention. But DeLay’s conceit is that Texas is a “wealthy state” because of it’s right-wing business-friendly policies, a situation that he specifically contrasts with the environment in California, New York, and New Jersey which have allegedly impoverished themselves with high taxes and overregulation.

One problem here is that Texas isn’t a wealthy state. Its median household income of $47,548 made it 28th in the country. Below average, in other words. New Jersey is second, California is eighth, and New York is nineteenth. Indeed, of the top ten states in per capita income nine are “blue” states.

The exception is Alaska, whose wealthy is due not to “hard work” on the part of the population or a business-friendly policy environment but to the combination of substantial natural resource wealth and a small population. Texas is like a poor man’s Alaska, with the substantial natural resource wealth but with the wealth spread across a much greater population. Absent oil, Texas would probably look more like its even poorer neighbors Louisiana (46), Oklahoma (44), Arkansas (49), and New Mexico (45). To some extent, I think the relative poverty of the South can really be attributable to the harmful consequences of Dixie-style conservative policies. But beyond that, it’s generally the case that state wealth is highly path-dependent—economic vibrancy attracts high-skilled workers which in turn leads to more economic vibrancy. But however you weigh that balance, the idea that Texas points us forward to a wealth-generating policy environment is absurd.

The conventional line of political argument was always that we are virtuous and hard-working and if we are poor it is because the evil others are manipulating the system to steal from us--and, indeed, that's what Tom Delay is about when he talks about welfare recipients. But there is no argument here that New Jersey and California are rich because they manipulate the system--instead, the idea that there are other states that are richer than Texas is simply something that Tom Delay has never learned.

After-Tax Income Changes from the CBO

via prospect.org

One would imagine that a shift in a single generation from the top living 8 to the top living 24 times as high as the middle would have produced a substantial leftward shift in economic politics, but instead the reverse has happened. Our social politics has moved steadily leftward; our economic politics here in the United States has not.

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Posted via web from http://braddelong.posterous.com/after-tax-income-changes-from-the-cbo at Brad DeLong's Scrapbook

Republicans: The Really, Really, Really Stupid Party

John Stuart Mill did not know the half of it.

Publius, of Obsidian Wings:

Obsidian Wings: The Regulatory Origins of the Internet: Patrick Ruffini argues that Obama's alleged regulatory overreaching could (or at least should) move Silicon Valley back into the Republican camp.  I'm not really diving into that, but I wanted to quibble with this statement:

The irony here is that many of the entreprenuers who succeeded in the most unregulated environment possible -- the Internet -- are at once hyper-capitalist and socially-liberal Obama voters. (Good luck creating Twitter or Facebook in any industry as tightly regulated as the auto or banking sectors in the Age of Obama.)

This really can't be repeated enough -- the Internet was regulated.  Regulation is what made it work.  Indeed, the Internet's phenomenal success stemmed directly from the underlying common carrier regulation that made it possible. There was no immaculate conception.  The Internet came about because of sustained federal funding for research and development.  Originally, the data services that ultimately evolved into what we now call "the Internet" depended entirely on access to the underlying phone networks. And so when these data services got going, the federal government faced a choice.  A crossroads, if you will.  The government could ensure that Internet/data services had nondiscriminatory access to the underlying phone networks on which they "rode."  Or, it could have allowed the phone companies (i.e., AT&T) to dictate the terms of access.  (This is basically how most wireless service in America works -- it's the "walled garden" approach.  And don't you loves it?).

Wisely, in the Computer Inquiries proceedings, the FCC opted for open, nondiscriminatory access.  The Twitters of yesteryear didn't need permission from AT&T to start their business.  The nondiscriminatory access that made the Internet successful didn't happen because AT&T was full of benevolent, far-seeing souls.  It was because of government regulation.  (On an aside, that's why the fight over net neutrality is actually a battle to maintain a ridiculously successful status quo).

Given that the Internet is probably the single greatest advance of mankind since the printing press, you could plausibly argue that the Internet is regulation's crown jewel.

Lessons from the New Deal: Banking Committee Hearing Transcript (March 31, 2009)

Download now or preview on posterous

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Posted via email from http://braddelong.posterous.com/banking-committee-hearing-tran at Brad DeLong's Scrapbook

FDR Done Did Good

On the Wall Street Journal editorial page, George Bittlingmayer and Thomas Hazlitt remind us that FDR's radical policies--regulating the banking system, abandoning the gold standard, abandoning the goal of balancing the short-term budget, and committing the government to an anti-laissez faire program of interventionist social democracy--were an extraordinary and immediate success:

GEORGE BITTLINGMAYER and THOMAS W. HAZLETT: [Roosevelt's] first step was to stem the banking panic with a national bank holiday (many states had already imposed their own). He closed troubled institutions, injected capital into the healthy ones, and reassured Americans that their deposits would be safe. His approach met with quick success. The New York Stock Exchange, closed during the bank holiday, opened up 15% on March 15. By July 3, the Dow Jones Industrial Average was 93% above its close on March 3, the day before Inauguration Day in 1933...

Michael Whitney of Service Employees International Union Makes a Catch

Interesting slip-up by the Wall Street Journal:

Wall Street Journal: Employee Free Choice Act "does not remove the secret ballot": Corporate front groups' one-line attack on the Employee Free Choice Act is the false claim that it somehow eliminates the secret ballot option.... But it seems one of their closest allies is finally willing to acknowledge the truth. In this morning's Wall Street Journal, the corporate-friendly editorial board admits:

"The bill doesn't remove the secret-ballot option from the National Labor Relations Act," wrote the WSJ.

There you have it. The Employee Free Choice Act "doesn't remove the secret ballot."... Think Progress has the dirt:

The acknowledgment by the WSJ that the legislation doesn't eliminate the option of a secret-ballot election is surprising given that it has been one of the most aggressive pushers of the false meme:

• "Democrats in the House passed the Employee Free Choice Act, a measure that rewrites the rules for union organizing by eliminating secret-ballot elections." [WSJ, 3/8/07]

• "Labor wants to trash the secret-ballot elections that have been in place since the 1930s." [WSJ, 10/17/08]

• "Mr. Pryor knew the GOP would block the bill, which gets rid of secret ballots in union elections." [WSJ, 1/2/09]

• "Big Labor's drive to eliminate secret ballots for union elections has united American business in opposition." [WSJ, 3/11/09]

It's great to see the Wall Street Journal has seen the light. Next time you hear a corporate-funded front group pushing this lie, tell them to read the Wall Street Journal to get the facts.

The Appeal to "Undecidability" as Last Gasp

Ross Douthat:

The Case For Small Government: I think the argument suffers from a problem that's common to both sides in the debates over the desirability of European-style social democracy - namely, the hope that what's ultimately a philosophical and moral controversy can have a tidy empirical resolution.... [T]he philosophical case for limited government - that human existence in the shadow of a nanny state doesn't conduce to "Aristotelian happiness"... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived - he's on firm (if obviously arguable) ground. But when he segues into the possibility that the emerging science of human nature will "prove" the limits of welfare-statism, and force liberals to give ground... there's an unwarranted hope that the right facts and figures can settle a debate that ultimately depends on the philosophical assumptions that you bring to it...

Matthew Yglesias calls bullshit:

Matthew Yglesias: Crippling Poverty is Not Service to Family: Left out of here is what the right always loves to leave out of discussions of economic policy choices: interest. If you’re poor in the United States and you live in a neighborhood where poor people can afford to live, you will almost certainly be living in a neighborhood that’s much more dangerous than the neighborhoods in which poor Dutch people live. You’ll also find yourself living in a country that’s much less friendly to the interests of people who can’t afford a car than is the Netherlands. Conversely, if a European executive meets an American executive and feels a twinge of jealousy, it’s not for the American’s greater level of “entrepreneurship” it’s for the fact that the U.S. social model leaves top executives much richer than European executives.... [I]ncome level is fairly predictive of voting behavior and this is neither a coincidence nor the reflection of an abstract disagreement about the value of “voluntarism.” It reflects the fact that politics is, among other things, a concrete contest over concrete economic interests.... I don’t think, for example, that America’s high child poverty rate reflects American preference for “service to one’s family” over “ease of life”...

As Milton Friedman put it back in 1953:

The basic objectives, shared, I am sure, by most economics, are political freedom, economic efficiency, and substantial equality of economic power. Thes objectives are not, of course, entirely consistent.... I believe--and at this stage agreement will be far less widespread--that all three objectives can best be realized by relying, as far as possible, on a market mechanism within a "competitive order" to organize the utilization of economic resources...

Friedman's argument against social democracy was that it would not do the job--that you would lose a lot of economic efficiency and some political liberty and in return get no equalization of economic power because the government would redistribute income and wealth the wrong way, and the beneficiaries would be the strong political claimants to governmental largess who would not be those with strong claims to more opportunity.

By the time you have resorted to arguing that "human existence in the shadow of a nanny state doesn't conduce to 'Aristotelian happiness'... because it strips human beings of the deeper sorts of agency and responsibility that ought to be involved in a life well lived..." you have lost the argument completely. And I have not even raised the point that Aristotle thought that Aristotelian happiness was possible only if you yourself owned lots of slaves:

Aristotle: There is in some cases a marked distinction between the two classes, rendering it expedient and right for the one to be slaves and the others to be masters.... The master is not called a master because he has science, but because he is of a certain character.... [T]here may be a science for the master and science for the slave. The science of the slave would be such as the man of Syracuse taught who made money by instructing slaves in their ordinary duties.... But all such branches of knowledge are servile. There is likewise a science of the master... not anything great or wonderful; for the master need only know how to order that which the slave must know how to execute. Hence those who are in a position which places them above toil have stewars who attend to their households while they occupy themselves with philosophy or with politics...

Let Us Rally to Protect the Delicate Flower of Rugged Individualism!

Henry Farrell on the hysterical opposition to Obama.

He first quotes Roger Cohen:

Let Us Rally to Protect the Delicate Flower of Rugged Individualism!: Two recent versions of the same argument. First, the simplified 800 word version, from Roger Cohen.

To paraphrase Mauriac, I love France, but I don’t want there to be two of them, least of all if one is in the United States. … I think President Obama’s counter-revolution goes in the right direction. … Still, the $3.6 trillion Obama budget made me a little queasy. There is a touch of France in its “étatisme” — the state as all-embracing solution rather than problem — and there’s more than a touch of France in the bash-the-rich righteousness.... Americans, at least in their imaginations, have always lived at the new frontier; French frontiers have not shifted much in centuries. Churn is the American way. … If America loses sight of these truths, it will cease to be itself...

And then Clive Crook:

I was hoping that Brooks would press Shields to say what exactly it is about France he objects to, what makes him recoil at the parallel. Where has France gone too far, in the view of an American liberal?... Presumably, liberals approve of the universal health care, the generous and extensive welfare state, the comprehensive worker protections, the stricter regulation, the vastly more-generous subsidies for higher education, the stronger unions, the higher taxes, and especially the higher taxes on the rich.... Perhaps some liberals privately long to make the United States over in the image of France, but the great majority, I imagine, are more interested in taking the things they regard as best in the European economic model—all the things I just listed—and combining those “socially enlightened” policies with the traditional economic virtues of the United States.... Color me skeptical. Culture shapes institutions and vice versa.... This unusually severe economic crisis has called American capitalism into question, highlighting its weaknesses and making it easier to forget its strengths.... Change the system and, with time, you will change the culture. How much you will change it is debatable, and so is whether change of that kind would be good, bad, or indifferent for the country’s economic and political prospects. But it would be an error to assume that the policy transformation that some liberals long for—and which Obama, if his budget is any guide, appears to be aiming for—would leave America’s unusual cultural traits unaffected....

[T]he American exception is alive and well, and that it is more than likely the secret of this country’s awesome success.... It would be a shame to see America revert to the Western European norm.... [H]is plan to enlarge government is married to an uncompromising assault on economic inequality. And if all of this is not enough to remind you of Europe, Obama has also expressed strong support for the Employee Free Choice Act, arguing that bigger and stronger unions are a vital part of sharing prosperity more widely.... The policies that Obama is proposing have all been tried elsewhere. Ideas that look bold and new in this country are old hat across the Atlantic. And we know something about how well they work.

And Henry Farrell puts his finger on it:

There is something very, very strange in my eyes about this kind of argument. On the one hand. a notion of a healthy American culture of can-do entrepreneurialism, which has survived for centuries and caused America to prosper. On the other, the claim that the combination of broader-if-not-quite-universal healthcare, a slightly easier time for unions, and a return to the relatively mild form of progressive taxation we saw in the 1990s would very probably lead to the destruction of said robust culture. Something here Does Not Compute....

The Obama proposals are not particularly radical departures from existing practice in the US. They are certainly nothing like traditional European social democracy. Even David Brooks effectively acknowledges this, when he says that they are potentially problematic in combination rather than individually. They aren’t going to set the US on a different national trajectory, let alone make it ‘French’ or ‘European.’ Some of us might like to see this happen, but it isn’t going to, even given the ideological trauma that the US is undergoing. And arguing that American individualism is likely to wilt if exposed to nasty foreign influences smacks more of a kind of capitalist-road José Bové-ism than any serious kind of intellectual analysis.

Top Marginal Tax Rates Over Time

via yglesias.thinkprogress.org

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Matthew Yglesias sends us to Steve Benen who sends us to John Cole.

Matt comments:

As we can see here, the United States has enjoyed three periods of prosperity over the past 100 years—there was the late-1920s, the late 1980s, and the 2000s. For the rest of our history, the entire period from FDR through to early Reagan, and then again in the dark days of Bill Clinton, we suffered from cataclysmic stagnation because “soak the rich” policies left businesses without incentive to invest. Our talented citizens unfortunately, but understandably, decided to “go Galt” en masse and the economy stagnated. And yes, please pay no attention to the fact that the three periods of ultra-low taxes were followed by a budget crisis (Reagan) and catastrophic global economic collapse (Coolidge-Hoover, Bush).

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Posted via web from http://braddelong.posterous.com/top-marginal-tax-rates-over-ti at Brad DeLong's Scrapbook

For the Employee Free Choice Act

Although its collapse has dominated recent media coverage, the financial sector is not the only segment of the U.S. economy running into serious trouble. The institutions that govern the labor market have also failed, producing the unusual and unhealthy situation in which hourly compensation for American workers has stagnated even as their productivity soared.

Indeed, from 2000 to 2007, the income of the median working-age household fell by $2,000- an unprecedented decline. In that time, virtually all of the nation’s economic growth went to a small number of wealthy Americans. An important reason for the shift from broadly-shared prosperity to growing inequality is the erosion of workers’ ability to form unions and bargain collectively.

A natural response of workers unable to improve their economic situation is to form unions to negotiate a fair share of the economy, and that desire is borne out by recent surveys. Millions of American workers – more than half of non-managers – have said they want a union at their work place. Yet only 7.5% of private sector workers are now represented by a union. And in all of 2007, fewer than 60,000 workers won union status through government-sanctioned elections. What explains this disconnect?

The problem is that the election process overseen by the National Labor Relations Board has become drawn out and acrimonious, with management campaigning fiercely to deter unionization, sometimes to the extent of violating the labor law. Union sympathizers are routinely threatened or even fired, and they have little effective recourse under the law. Even when workers overcome this pressure and vote for a union, they are unable to obtain contracts one-third of the time due to management resistance.

To remedy this situation, the Congress is considering the Employee Free Choice Act. This act would accomplish three things: It would give workers the choice of using majority sign-up-- a simple, established procedure in which workers sign cards to indicate their support for a union – or staging an NLRB election; it triples damages for employers who fire union supporters or break other labor laws; and it creates a process to ensure that newly unionized employees have a fair shot at obtaining a first contract by calling for arbitration after 120 days of unsuccessful bargaining.

The Employee Free Choice Act will better reflect worker desires than the current “war over representation.” The Act will also lower the level of acrimony and distrust that often accompanies union elections in our current system.

A rising tide lifts all boats only when labor and management bargain on relatively equal terms. In recent decades, most bargaining power has resided with management. The current recession will further weaken the ability of workers to bargain individually. More than ever, workers will need to act together.

The Employee Free Choice Act is not a panacea, but it would restore some balance to our labor markets.  As economists, we believe this is a critically important step in rebuilding our economy and strengthening our democracy by enhancing the voice of working people in the workplace.

Statement Endorsers

Henry J. Aaron, Brookings Institution
Katharine Abraham, University of Maryland
Philippe Aghion, Massachusetts Institute of Technology
Eileen Appelbaum, Rutgers University
Kenneth Arrow, Stanford University
Dean Baker, Center for Economic Policy and Research
Jagdish Bhagwati, Columbia University
Rebecca Blank, Brookings Institution
Joseph Blasi, Rutgers University
Alan S. Blinder, Princeton University
William A. Darity, Duke University
Brad DeLong, University of California/Berkeley
John DiNardo, University of Michigan
Henry Farber, Princeton University
Robert H. Frank, Cornell University
Richard Freeman, Harvard University
James K. Galbraith, University of Texas
Robert J. Gordon, Northwestern University
Heidi Hartmann, Institute for Women’s Policy Research
Lawrence Katz, Harvard University
Robert Lawrence, Harvard University
David Lee, Princeton University
Frank Levy, Massachusetts Institute of Technology
Lisa Lynch, Brandeis University
Ray Marshall, University of Texas
Lawrence Mishel, Economic Policy Institute
Robert Pollin, University of Massachusetts
William Rodgers, Rutgers University
Dani Rodrik, Harvard University
Jeffrey D. Sachs, Columbia University
Robert M. Solow, Massachusetts Institute of Technology
William Spriggs, Howard University
Peter Temin, Massachusetts Institute of Technology
Mark Thoma, University of Oregon
Lester C. Thurow, Massachusetts Institute of Technology
Laura Tyson, University of California/Berkeley
Paula B. Voos, Rutgers University
David Weil, Boston University
Edward Wolff, New York University

Scrapbook: Jacob Hacker: Yes We Can? The New Push for American Health Security

Download now or preview on posterous

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Posted via email from http://braddelong.posterous.com/scrapbook-jacob-hacker-yes-we at Brad DeLong's Scrapbook

Entitlement Summit: The Back of the Envelope Version

Paul Krugman:

Entitlements on the back of an envelope: Right now, the federal government spends about 9 percent of GDP on the three biggies, Social Security, Medicare and Medicaid, with the total roughly evenly divided between retirement and medical care. We have an aging population, which will tend to increase the share of GDP spent on these programs. Looking ahead to circa 2050, we’ll go from about 3 workers per retiree to 2. This would, other things equal, raise spending on the programs by about 4 percentage points of GDP. (Not 4.5, because only part of Medicaid is age-related). That is, we’d spend 6.75 percent of GDP on retirement, 6.25 percent on health care. Now, 4 percent of GDP is a lot, but not catastrophic: remember, the share of GDP spent by the government currently is 10 percentage points or more higher in a number of wealthy countries than it is here.

What makes the projections you actually see so scary is the assumption that “excess cost growth” in health care will continue — that is, health spending per person will continue to rise at close to 2 percent faster than GDP per capita. This means, circa 2050, that health care costs will be roughly double what pure demography would predict, adding another 6 plus percentage points to the entitlements projection. Looking beyond that, demography adds very little — it’s all health care.

So if excess cost growth in health care can be brought under control, the entitlement problem is manageable. If not, even savage cuts in Social Security will make little difference.

A Guide for the Perplexed Justin Fox on Fiscal Policy

Justin Fox is needlessly worried. He writes:

The uncertainty of stimulus :: The Curious Capitalist - TIME.com: From a Congressional Budget Office estimate released today on the impact of some amendment or other to the Senate stimulus bill:

The macroeconomic impacts of any economic stimulus program are very uncertain. Economic theories differ in their predictions about the effectiveness of stimulus. Furthermore, large fiscal stimulus is rarely attempted, so it is difficult to distinguish among alternative estimates of how large the macroeconomic effects would be. For those reasons, some economists remain skeptical that there would be any significant effects, while others expect very large ones.

It's sort of like that mutual fund boilerplate, "Past performance is no guarantee of future results." Except that we're not even sure of what the past performance was. (And I say this as somebody who thinks the stimulus legislation is on balance a good idea.)

Well, why should we be certain of what past performance was? There haven't been a great many uses of large-scale fiscal policy to try to cure depression. And in those cases in which it has been tried, a lot else has been going on.

But when fiscal boost was tried on a large enough scale, it certainly did the job. And it is reasonable to infer (with all the caveats provided by the CBO) that what is true in the very large will be true in the merely large as well. Eugene Fama says that it is theoretically impossible for fiscal stimulus to boost output: World War II proves him wrong. Robert Barro says that the multiplier is zero: World War II proves him wrong. Benn Steil says that Jacques Rueff in 1947 conclusively proved that fiscal policy could not boost employment: World War II proves him wrong.

The extent to which the Great Depression and World War II changed how economists thought--and how those who know their history still think--cannot be overstated. And even those economists who don't know their history should be forced to come up with a reason why the lessons of the Great Depression do not apply to today.

As I am going to say in class a couple of weeks from now:

The end in the Great Depression of laissez faire--the idea that the government should keep its hands off of the economy--as a doctrine for guiding economic policy did not mean the end of the market economy as a social resource allocation mechanism. "Keynesianism" and the doctrine of the "mixed economy" that it supported emerged in the nick of time, soon became the ruling ideologies in the industrial core of the world economy, and provided North America and western Europe with a Keynesian escape route from what had seemed the insoluble crises of the interwar period.

The Keynesian escape route opened up key ground in the middle between fascist-style regimentation and socialist-style national planning. Keynes argued that the market economy and capitalist order could be salvaged, and salvaged by relatively minor reforms. An activist welfare-state government with a commitment to full employment had the tools to eliminate Great Depressions, and could put economies back onto the road to Utopia. If only governments would reduce interest rates to get private agents or would themselves spend money freely (without raising taxes) in times when total demand was low, and raise interest rates to reduce private spending and themselves raise taxes (without raising spending) in times when total demand was high, then fiuctuations in employment and production could be greatly reduced, and Great Depressions avoided.

Belief in this escape route was strongly reinforced by facts. Those countries that had tried it by accident during the Depression--had infiated early, printed money, ensured low interest rates, and run large budget deficits--managed to survive the Depression much more easily than others. World War II provided final proof, were any necessary--"vindication by Mars," as John Kenneth Galbraith calls it. That component of unemployment, called "structural" or "permanent" during the 1930s, that was seemingly-immune to both the self-adjusting forces of the market and the armament of the New Deal vanished entirely in the 1940s as the federal budget deficit approached and then exceeded the levels that had long been recommended by John Maynard Keynes. And the United States fought World War II without reducing civilian consumption: all of U.S. war production came from new capacity or from capacity that stood idle at the end of the 1930s.

Demand expansion--deliberate attempts by governments to put the unemployed back to work by deficit spending and loose-money low interest rate policies--was successful in the 1930s and 1940s. It put the unemployed back to work. It did not contain within itself the seeds of a renewed Great Depression. It did not explode into hyperinflation. The coming of "stablization policy" enlarged the policy steps that could be undertaken without forcing a definitive break with the market-capitalist order, and without forcing a choice between Hitler's way and Stalin's.

In later years--in the second and third post-World War II generation--tasks of macroeconomic management would prove harder, and the truth of the doctrines of Keynes's disciples if not of the doctrines of Keynes himself would become less clear.

Best Anti-Stimulus Argument: from Kevin Murphy

Matthew Yglesias agrees that Kevin Murphy gives the:

Best Anti-Stimulus Argument I’ve Seen: Kevin Murphy’s slides here. I think he overstates the deadweight loss effect and is working with the wrong conception of “efficiency” for these purposes when he claims that government is inefficient, so the odds of a stimulus being successful therefore aren’t as bad as he indicates. And this doesn’t change the fact that I haven’t heard any better ideas than doing a big stimulus. But this is a sobering reminder that a big stimulus doesn’t guarantee success—very hard work needs to be done on making sure that stimulus funds target genuinely idle resources rather than diverting non-idle resources while leaving the idle ones as idle as ever.

Here is Kevin:

Evaluating the Fiscal Stimulus

Kevin M. Murphy
January 16, 2009

A Framework for Thinking about the Stimulus Package

• Let G = increase in government spending
• 1-α= value of a dollar of government spending (α measures the inefficiency of government)
• Let f equal the fraction of the output produced using “idle” resources
• Let λ be the relative value of “idle” resources
• Let d be the deadweight cost per dollar of revenue from the taxation required to pay for the spending

When Will the Stimulus Add Value?

• The net gain is the value of the output produced less the costs of the inputs and the deadweight loss

• In terms of the previous notation we have: Net Gain = (1-α)G –[(1-f)G + λfG] –dG

• Net gain = (f(1-λ) –α–d)G
• A positive net gain requires that: f(1-λ) > α+d
• Difference of opinion comes from different assumptions about f, λ, α, and d

My View * α likely to be large * Government in general is inefficient * The need to act quickly will make it more inefficient * The desire to spend a lot in a short period of time will make it more inefficient * Trying to be both stimulus and investment will make it even more inefficient * 1-f likely to be positive and may be large * With a large fraction of resources employed (roughly 93%) much will be drawn from other activities rather than “idle” resources * Ricardian equivalence implies that people will save to pay for future taxes reducing private spending * λ is non-zero and likely to be substantial * People place positive value on their time * Unemployed resources produce value through relocation (e.g. mobility & job search) * d is likely to be significant * Wide range of estimates of d * Estimates based on the analysis of taxable income imply d≈0.8 * With these parameters the stimulus package is likely to be a bad idea

As I read it, Kevin thinks α = 1/2, f = 1/2, λ = 1/2, d = 0.8, and gets 0.25 > 1.3. I would say that α = 0 (increasing income inequality and starvation of the non-health non-military public sector over the past generation have left a bunch of low hanging fruit), f = 1.5 (there are multipliers out there, and markets work if there is sufficient demand: as long as there are idle resources people will use them first as long as demand is available), λ = 1/5 (the cyclically unemployed are not having much fun), and d = 1/3. So I get 1.2 > 0.33.

More interesting, I think, is that there is an unemployment rate at which Kevin Murphy's priors would switch and he would become a stimulus advocate. What is it?

Tomorrow at 3 at Stanford: Liberals and Libertarians: Kissing Cousins or Distant Relatives?

Ah. Here it is:

Liberals and Libertarians: Kissing Cousins or Distant Relatives?: When Jan 13, 2009 3:00 pm (Tuesday). Where: Encina Hall, Philippines Conference Room (C330).

LIBERALS: Joshua Cohen / Political Science, Stanford University. Pamela Karlan / Law, Stanford University. Bradley DeLong / Economics, UC Berkeley

LIBERTARIANS: Brink Lindsay / Cato Institute. Will Wilkinson / Cato Institute, Blogger at FlyBottle. Virginia Postrel / Dynamist

That liberals and libertarians share philosophical origins is clearly implied by the common Latin root for both words, liberalis, meaning open or generous. Both philosophies advocate civil liberties, individual autonomy, limited state interference in private affairs, and a non-bellicose foreign policy. Where the two stances have diverged is with respect to fiscal and regulatory issues. Although liberals generally view markets as the best way of organizing production and distribution, they have been more sympathetic than libertarians to governmental involvement in the management of markets for the public good. Moreover, whereas both liberals and libertarians generally concur that the public sector should avoid excessive spending, the former have been more supportive of government programs to expand opportunity and provide social insurance.

During the 1960s and 1970s, when the public sector was expanding and government spending was rising sharply, libertarians leaned strongly toward a “fusionist” coalition with traditional social conservatives and generally supported the Republican realignment of the 1980s and 1990s. Since 2000, however, the Republican party has succumbed to ideologies that have shifted it steadily away from core libertarian principles by curtailing civil liberties, expanding government intrusions into private affairs, running up huge fiscal deficits, expanding federal control over local institutions such as schools, and launching costly military invasions in the absence of direct threats.

In the wake of these developments, the “fusionist” coalition between libertarians and conservative republicans has substantially frayed and perhaps the time has come to reconsider the historical estrangement between liberals and libertarians. Given shared positions with respect to civil liberties, state involvement in private affairs, fiscal responsibility, and the War in Iraq, it may be fruitful to search for common ground in other areas. Is there room for compromise on contested regulatory and fiscal issues, or are liberals and libertarians destined to be occasional tactical allies with fundamentally conflicting strategic visions? And regardless of possibilities for closer political cooperation, what libertarian insights do liberals need to do a better job of appreciating, and vice versa? 

Barack Obama the Sensible Centrist

Steve Benen is:

The Washington Monthly: reminded... of something Atrios said about a month ago, when he mentioned how satisfied he'd be if Obama's team convinces people that Obama is "a sensible centrist who wants to do sensible centrist things like build SUPERTRAINS, get out of Iraq, not torture people or invade random countries, strengthen labor protections, reduce income inequality, improve education, provide health care for people, and reduce poverty"...

Robert Waldmann on the "Fundamental Values" of Risky, Long-Duration Securities

Robert writes:

Comment on DeLong: What Has Happened to Milton Friedman's Chicago School? DRAFT: What does "impaction" as in "the impaction of information" mean ? Is it like an impact or an impacted wisdom tooth ? I seek wisdom not teeth. I see a fifth cause of the decline in asset values. I think many assets were over-valued in the past, because the ratings agencies were tricked or cashing in on their late lamented excellent reputations (or both). The loss of confidence in said agencies causes an increase in estimated risk not because risk has increased or risk aversion has increased but because the old estimates are now known to be bogus. More generally, risk modelling by traders was similarly complete nonsense. I don't know to what extent the traders were tricked and to what extent they were in on the scam (nor I suspect do they).

Structured finance created a huge illusion of wealth by creating an illusion of safety. The financial engineers knew how the agencies rated (the agencies explained for a consulting fee) and how traders estimate "value at risk". They knew people assumed (or pretended to assume) that all stochastic variables are normally distributed. Thus it was profitable to sell instruments with skewed returns (fat lower tails) unless the rare negative event occured during the testing period (in which case the instruments could be re-engineered). A senior tranche of a pool of moderately risky assets has a skewed distribution. Similarly money could be made by reducing own variance for a given beta by pooling assets and issuing claims on the pool. The variance of an average is less than the average variance. The covariance of an average and the market portfolio is the average covariance. Thus a claim on a pool of BBB rated corporate bonds was rated AAA. Turning BBB to AAA is worth a lot of money except for the fact that it was a scam (investors could pool themselves -- they don't seem to have understood that pre-pooling reduces the benefit to them of their own pooling -- or they were in on the scam).

The risk of a nationwide decline in house prices was estiamted at 0 by S&P (I am not exaggerating). Now there has been such a decline and they must admit that there is the risk of such a decline in the future. The current decline would cost 1 trillion. The future possible declines also cost money. So much of the wealth was an illusion which won't come back soon. This end of systematic miss-estimation of risk is not on your list.

Also institutions took huge gigantic bets against each other (as in AIG lost writing CDSs). This increases counterparty risk. No one knows if a counterparty is solvent. That reduces the value of a huge number of instruments. The damage could have been done without involving the housing industry or the stock market if, say, investment bank CEOs played a really high stakes poker game and all claimed to have won money. Also bankruptcy is costly. Even if the CEOs had played hundred billion ante poker on camera, wealth would have been destroyed and more wealth would have been shifted from investors to lawyers. This is another item not on your list. Finally, much of the strange new finance was designed to help agents avoid prudential rules and regulations which they considered to be costly. Now they have learned two things. First that the regulations weren't so pointless so they will have to pay that cost to avoid bankruptcy. Second they will be audited by banking regulators, trustees etc and found wanting. This last point is semi redundant as it amounts to an increase in perceived risk. However, it explains why I keep speculating that this that or the other operator was in on the scam.

Here Robert Waldmann raises a whole bunch of issues that I was attempting to defer to later. I claimed (correctly) that the collapse of global financial asset values over the past year and a half was overwhelmingly do to increases in the risk and information discounts, and not to changes in expected future cash flows. Robert raises the point that perhaps the current risk and information discounts are "right," or in some sense the appropriate "fundamental values," and that the previous low values of these discounts were in some sense "wrong" or "irrationally exuberant."

To make sense of this claim we need a definition of what "fundamental values" are.

Here is mine:

The fundamental values of asset prices are the money-metric values that the costate variables associated with the commodities would have in some reasonable utilitarian central-planning social-welfare-maximization exercise under reasonable utilitarian preferences.

This entails the following, leaving what happens in Mad-Max scenarios completely out of the picture:

1. Default discounts should be small (and in fact default discounts are small even now in the recession)--default is not a thing that should happen often to financial assets and should not be a big component of asset pricing in well-functioning asset markets that mimic some reasonable social-welfare-maximization calculation.
2. Information discounts should be small because they reflect knowledge held by one part of the system and not by another--and well-functioning asset markets should be liquid and full enough of information that they should be able to mimic the low information discounts found in some reasonable social-welfare-maximization calculation.
3. The proper duration discount--the safe real interest rate--in a social-welfare-maximization calculation is the utility cost of moving wealth ahead in time from one consumer to another or from early to late in a consumer's life. This should be governed by the rate of labor productivity growth divided by a reasonable utilitarian intertemporal elasticity of substitution. A reasonable utilitarian intertemporal elasticity of substitution is one. A reasonable estimate of the rate of productivity growth is 2 percent per year. The duration discount ought to be a real safe interest rate of 2 percent per year.
4. The proper risk discount is governed by the utilitarian diminishing marginal utility of wealth and the covariance of asset returns with wealth: it is the danger that when assets lose value you find yourselves in states of the world in which your marginal utility of wealth is high. The covariance of asset returns with wealth is low. A reasonable utilitarian diminishing marginal utility of wealth corresponds to a coefficient of relative risk aversion of 1. The risk discount for an equity beta = 1 portfolio ought to be on other order of a long-run real rate of 0.3% per year. The risk discount for financial assets as a whole ought to be on the order of a long-run real rate of 0.2% per year.

Thus my view of fundamental values: financial assets ought to be priced so that safe assets yield a 2% per year real return, and so that financial assets as a whole ought to yield an expected long-run return of 2.2% per year (with equities yielding an expected return of 2.3% per year).

Right now it looks to me as if safe assets yield a real return of -1% per year, and financial assets as a whole yield an expected long-run real return of 5% per year (with equities yielding an expected long-run rate of return of 8% per year). At the peak of the housing bubble as best as I could tell safe assets yielded a real rate of return of 2% per year (about at their fundamental values) and equities yielded an expected long-run real rate of return of 4% per year (about half their fundamental value).

The most important thing about asset prices, I think, is that even in booms and bubbles they don't reach their "fundamental" values. The first-order fact about asset markets is that they currently do and historically have done a really lousy job of mobilizing the long-run risk-bearing capacity of the global economy. The risk tolerance of those who participate in financial markets is a remarkably low fraction of the true fundamental global risk tolerance, the horizon of those who participate in financial markets is a remarkably low fraction of the true social investment-planning horizon, and in addition the views of those who participate in financial markets are extraordinarily more volatile than can be generated by the variation in rational expectations of future growth rates and appropriate fundametnal discounts.

Martin Wolf Puts It Better than Anyone Else I Have Seen

Martin Wolf on our current magneto trouble:

FT.com / Columnists / Martin Wolf - Keynes offers us the best way to think about the financial crisis: We are all Keynesians now. When Barack Obama takes office he will propose a gigantic fiscal stimulus package. Such packages are being offered by many other governments. Even Germany is being dragged, kicking and screaming, into this race.

The ghost of John Maynard Keynes, the father of macroeconomics, has returned.... Like all prophets, Keynes offered ambiguous lessons to his followers. Few still believe in the fiscal fine-tuning that his disciples propounded in the decades after the second world war. But nobody believes in the monetary targeting proposed by his celebrated intellectual adversary, Milton Friedman.... Now... it is easier for us to understand what remains relevant in his teaching....

Minsky... we should not take the pretensions of financiers seriously. “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.” Not for him, then, was the notion of “efficient markets”....

[T]he economy cannot be analysed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand....

The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions.... Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.

This same moralistic debate is with us, once again. Contemporary “liquidationists” insist that a collapse would lead to rebirth of a purified economy. Their leftwing opponents argue that the era of markets is over. And even I wish to see the punishment of financial alchemists who claimed that ever more debt turns economic lead into gold. Yet Keynes would have insisted that such approaches are foolish. Markets are neither infallible nor dispensable.... [T]he task for this new administration is to lead the US and the world towards a pragmatic resolution of the global economic crisis we all now confront....

The shorter-term challenge is to sustain aggregate demand, as Keynes would have recommended.... [T]he load will fall on the US, largely because the Europeans, Japanese and even the Chinese are too inert, too complacent, or too weak.... [T]his period of high government spending is, alas, likely to last for years....

No less pragmatic must be the attempt to construct a new system of global financial regulation and an approach to monetary policy that curbs credit booms and asset bubbles. As Minsky made clear, no permanent answer exists. But recognition of the systemic frailty of a complex financial system would be a good start.

As was the case in the 1930s, we also have a choice: it is to deal with these challenges co-operatively and pragmatically or let ideological blinkers and selfishness obstruct us...

Socialism in One Sector--the Housing Sector

Glenn Hubbard and Charlie Mayer call for the effective nationalization of the mortgage finance sector:

Low-Interest Mortgages Are the Answer: Recent news articles suggest that the Treasury Department is considering a plan to offer a 4.5% mortgage for home buyers for a period of time. Let's hope it does. It would help arrest the decline in house prices that is at the base of the ongoing financial crisis and recession.

Raising the demand for housing makes sense now. While fundamental factors clearly played a role in driving down house prices that were at excessive levels two years ago, we have argued in a paper (to be published in the Berkeley Electronic Journal of Economic Analysis and Policy) that in most markets house values are today lower than what is consistent with the average level of affordability in the past 20 years.

Nonetheless, without policy action house prices are likely to continue falling, thanks largely to the meltdown in mortgage markets and the weakening employment outlook. Conversely, we see little risk that increasing the demand for housing will touch off another housing bubble. And indexing the mortgage rate to the Treasury yield could avoid this outcome in the future. While the economy is contracting, low interest rates would spur housing activity. When economic activity improves, the U.S. Treasury yield and mortgage rates would rise.

A 4.5% mortgage rate is not too low. The 10-year U.S. Treasury yield closed at 2.3% on Dec. 12, 2008. Hence a 4.5% mortgage rate is 2.2% above the Treasury yield, above the 1.6% spread that would prevail in a normally functioning mortgage market.

Some have argued that lenders should earn more than the average 1.6% spread, to compensate for the fact that housing is a much riskier investment today. We don't think so. Recall that a mortgage can be thought of as a risk-free bond plus two possibilities that increase risk to lenders: default and/or prepayment. Historically, the risk of default adds about 0.25% to the interest rate. The remaining spread of the mortgage rate over the Treasury yield represents the risk of prepayment and underwriting costs. With falling house prices, the risk of default could indeed add 0.75% or more for a newly underwritten and fully documented loan. But 4.5% would be the lowest mortgage rate in more than 30 years -- so the additional risk to lenders of prepayment would be almost nil. And low mortgage rates would substantially reduce the risk of further house price declines...

The Treasury doesn't have the know-how to offer mortgages. Fannie and Freddie do.

All in all, I approve of the plan: having Fannie and Freddie buy up mortgages at market prices and refinance them at 4.5% could do a lot of good for the country and make a fortune for the government.

I am, however, gobsmacked to see Glenn Hubbard proposing it.

How Are We Going to Manage to Do All This

The Obama administration is going to be rebuilding and reconstructing five major sectors of the American t. It has no choice--there is no other option. It has to remake:

• Autos
• Housing finance
• High finance
• Energy
• And the big one—health care

On what principles and through what procedures is this extraordinary exercise in structural economic reform policy going to be accomplished? I get how to do the macroeconomics of Obama administration economic policy. I don’t get how to do the structural side…

Time for the Government to Buy Citigroup

No real point to merging it into JPMorgan Chase or Bank of America. And it is definitely too big to fail.

Who wants to be Deputy Assistant Secretary of the Treasury for Citigroup?

Peter Eavis:

Share Slump Tests Citi Limits: Following steep drops all week, Citi's shares shed another 26% Thursday, even after Prince Alwaleed bin Talal, a large and longtime shareholder, said he plans to increase his stake in the bank.... The market appears to be in a game of chicken with the government over Citi.... The political risk of giving banks basically free money is huge. And even that mightn't do the trick.... The only way to get that [leverage] ratio down is to slash assets -- almost impossible right now -- or issue a large amount of common stock. And that is the dilemma for the government. Citigroup's market value is $26 billion. If the government wanted to inject another, say, $25 billion through common stock it would end up controlling the bank...

Yep. Time to do it. Swedish model. No more of this "preferred stock capital injection" business. Common stock. And with commitment comes control.

"Third Ways" in Theory and Practice

Last week's reading:

John Maynard Keynes (1932), Essays in Persuasion (London: Macmillan).

This week's reading:

Wladimir S. Woytinsky (1961)Stormy Passage: A Personal History Trhough Two Russian Revoutions to Democracy and Freedom, 1905-1960/a> (New York: Vanguard Press).

Next week's reading:

Edmund Wilson (1940), *To the Finland Station: A Study in the Writing and Acting of History (New York: New York Review of Books).

---

Earlier readings:

Donald Sassoon (), One Hundred Years of Socialism
Janos Kornai (), Economics of Shortage
Milovan Djilas (), The New Class
Sheri Berman (), The Primacy of Politics
John Maynard Keynes (), Economic Consequences of the Peace
John Maynard Keynes (), A Tract on Monetary Reform
Kevin Lansing (2008), "Exploring the Causes of the Great Inflation," FRB San Francisco Economic Letters http://www.frbsf.org/econrsrch/wklyltr/2000/el2000-21.html
Alan S. Blinder (1982), "The Anatomy of Double-Digit Inflation in the 1970s," in Robert E. Hall, ed., Inflation: Causes and Effects (Chicago: Univ. of Chicago Press), pp. 261-282.
J. Bradford. DeLong (1997) "America's Peacetime Inflation: The 1970s" in C. Romer and D. Romer, eds, Reducing Inflation: Motivation and Strategy (Chicago: University of Chicago Press), pp. 247-276.
Robert Hetzel (1998) "Arthur Burns and Inflation," FRB Richmond Economic Quarterly http://www.rich.frb.org/eq/pdfs/winter1998/hetzel.pdf
Steven Braun (1984), "Productivity and the NIIRU (and Other Phillips Curve Issues)" (Washington: Federal Reserve Working Paper 34).
https://nber15.nber.org/c/2008/gif08/wheelock.pdf https://nber15.nber.org/c/2008/gif08/beyer.pdf https://nber15.nber.org/c/2008/gif08/blinder.pdf https://nber15.nber.org/c/2008/gif08/bordo.pdf
Thomas J. Sargent (1999) The Conquest of American Inflation (Princeton: Princeton University Press).

Peter Orsag: Health Care Reform More Urgent than Ever

Peter Orszag:

Director’s Blog: The Institute of Medicine of the National Academies of Sciences announced its new members this morning. I’m quite honored to be included in this group — along with Jose Escarce, who is on CBO’s Panel of Health Advisers. I view my inclusion as testimony to what the outstanding CBO health staff has taught me about health care and health policy, and look forward to continuing to learn from them and other innovators in the field.

While I’m on the topic of health care, I’d like to make a point related to the current turmoil in financial markets. Many observers have noted that addressing the problems in financial markets and the risks to the economy may displace health care reform on the policy agenda — and that may well be the case for some period of time. (As a small example, I know that over the past few months I have been spending less time on health care because the turmoil in financial markets and associated issues have consumed much more of our time and attention at CBO. This displacement is a matter of finite time and energy, not budgetary resources.)

Although it may not seem immediately relevant given our current difficulties, it will be crucial to address the nation’s looming fiscal gap — which is driven primarily by rising health care costs — as the economy eventually recovers from this current downturn. Indeed, our ability to address our current economic difficulties (through both financial market interventions and potential additional fiscal stimulus) would be severely impaired if investors were not so willing to invest substantial sums in Treasury securities without charging much higher interest rates. That willingness reflects the (currently accurate) view among investors that Treasury securities are extremely safe investments.

If we fail to put the nation on a sounder fiscal course over the next few decades, though, we will ultimately reach a point where investors would lose confidence and no longer be as willing to purchase Treasury debt at anything but exorbitant interest rates. If that were to occur, we would lack the kind of maneuvering room that we currently enjoy to address problems in the financial markets and the economy. So if you think the current economic crisis is serious, and it is, imagine what it would be like if we didn’t have the ability to undertake aggressive and innovative policy interventions because creditors were effectively unwilling to lend substantial additional sums to the Federal government…

American Individualism in Historical Perspective

Lessons from the Great Depression. Bruce Bartlett says that we should all go read Charles Beard's 1931 "The Myth of Rugged American Individualism":

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