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For Thursday: Josh Bivens, Brad DeLong, Jeff Madrick, Ylan Mui: How Mainstream Economic Thinking Imperils America

Over at Equitable Growth:Josh Bivens, Brad DeLong, Jeff Madrick, Ylan Mui: How Mainstream Economic Thinking Imperils America:

Thursday, October 23, 2014
1:00 - 2: 30 p.m. ET
Economic Policy Institute
1333 H St., NW
Suite 300
Washington, DC 20005

Advice about what points I should try to hit would be most welcome...


On Jeff Madrick: How Mainstream Economic Thinking Imperils America

J. Bradford DeLong
U.C. Berkeley

For Delivery: 2014-10-23
Prepared: 2014-10-22

Jeff Madrick's Seven Bad Ideas

  1. The "Invisible Hand"
  2. Say's Law
  3. Friedman's Folly: Government's Limited Social Role
  4. Low Inflation Is All That Matters
  5. There Are No Bubbles
  6. Globalization Is Always Good
  7. Economics Is a Science

In Madrick's Introduction*

  • Praised in the Introduction: John Maynard Keynes, Dani Rodrik
  • Criticized in the Introduction:
    1. Adam Smith--no comment necessary...
    2. Olivier Blanchard--the de facto leader of the Sixth International: on the left of the spectrum of policymakers...
    3. Larry Summers--principal advocate of the Keynesian expansionary-fiscal solution to our troubles...
    4. Milton Friedman--when he was alive, the most powerful advocate of unlimited quantitative easing...
    5. Bob Rubin--on his watch big banks were bailed-in during financial crises, not bailed-out...
    6. Ben Bernanke--most left-wing central banker we had (although I will concede his attachment to 2%/year inflation target, and failure to reach it, are huge minuses)...
    7. Robert Lucas--underbriefed and destructive...

Reading Along

  • Madrick on Christina Romer:
    • "In a piece she wrote for The New York Times criticizing an increase in the minimum wage, Christina Romer, the former Obama adviser and considered by many to be a political liberal, implicitly made this same oversimplified assumption that workers usually get what they deserve. This is an example of Friedman’s broad influence..."
  • Romer:
    1. We have better policies available: expand the EITC is better targeted
    2. For the long-run, universal kindergarten and pre-K have more bang for the buck
    3. And these are expansionary fiscal policy--spending money gives a macroeconomic boost as well
    4. But if the choice is for a higher minimum wage or nothing, I'm for a higher minimum wage...

Food for Thought

  • Of these 8 whom Madrick criticizes...
  • ...Somewhere between 5 and 7 are to the left of current North Atlantic policymakers
  • Not excluding Obama

PFoJ vs. JPF, Perhaps?

  • A little misplaced ire, I think... NewImage
  • But I don't want to go there...
  • I would rather go to...

I See Four Yawning Gulfs

  1. Between:

    • the economic policies that those whom I regard as “serious” economists are advocating, and
    • those that are being implemented…
  2. Between:

    • what economics says, and
    • what right-of-center economists are telling their political masters it says…
  3. Between:

    • what economics says, and
    • what economics should say…
  4. Between:

    • my “inside” view of what I think economics says, and
    • Jeff Madrick’s "outside” view of what he thinks economics says...

As I See It:

  • The problem of where economics starts
  • the problem of the decreasing relevance of the Smithian model
    • The stringent requirements for market effectiveness
  • Current policies and current tasks

Where Economics Starts

  • Economics starts from the presumption:
    • that market success is the benchmark, and
    • that market failure is anomalous
  • It ought to start from the presumption:
    • that market construction is difficult
  • It ought to have:
    • a grammar of other forms of organization--
    • command, bureaucracy, charity, cooperative, regulated monopoly, yardsticks, etc.--
    • and where they succeed and where they fail

**Decreasing Relevance of the Smithies Model

  • We have a great deal of economic life where we know the market will not work well, and
  • These sectors will only grow in relative importance
    1. Pensions
    2. Health-care finance
    3. Education
    4. Infrastructure
    5. Research and development
    6. Information goods more generally

The Stringent Requirements for Market Effectiveness

  • Here are seven requirements:
    1. Distribution of wealth corresponding to fairness and utility
    2. Aggregate demand matched to potential supply
    3. Competition
    4. Calculation
    5. Rivalry
    6. Excludability
    7. Information symmetries
  • And, no, a night-watchman, a court, and cutting property rights at the joints will not get us there

Current Policy and Current Tasks

  • Policy is far to the right of even where the really existing economics profession is
    • At least, where the "serious" piece of it, in an intellectual sense, is
    • And it is not to the smart right either
  • Why?
  • How to fix it
    • Books like Jeff's, of course, but what else?
  • Two tasks:
    • Move the "serious" economics profession
    • Move policymaking to the "serious" economics profession
    • Both seem of equal importance and difficulty

.key | .pdf

Christina Romer: [The Minimum Wage, Employment and Income Distribution][refThe Minimum Wage, Employment and Income Distribution]: "If a higher minimum wage were the only anti-poverty initiative available...

...I would support it. It helps some low-income workers, and the costs in terms of employment and inefficiency are likely small. But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time. And pre-kindergarten education, which the president proposes to make universal, has been shown in rigorous studies to strengthen families and reduce poverty and crime. Why settle for half-measures when such truly first-rate policies are well understood and ready to go?