For Thursday: 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
Washington, DC 20005
DRAFT PRESENTATION SLIDES:
On Jeff Madrick: How Mainstream Economic Thinking Imperils America
J. Bradford DeLong
For Delivery: 2014-10-23
Jeff Madrick's Seven Bad Ideas
- The "Invisible Hand"
- Say's Law
- Friedman's Folly: Government's Limited Social Role
- Low Inflation Is All That Matters
- There Are No Bubbles
- Globalization Is Always Good
- Economics Is a Science
In Madrick's Introduction*
- Praised in the Introduction: John Maynard Keynes, Dani Rodrik
- Criticized in the Introduction:
- Adam Smith--no comment necessary...
- Olivier Blanchard--the de facto leader of the Sixth International: on the left of the spectrum of policymakers...
- Larry Summers--principal advocate of the Keynesian expansionary-fiscal solution to our troubles...
- Milton Friedman--when he was alive, the most powerful advocate of unlimited quantitative easing...
- Bob Rubin--on his watch big banks were bailed-in during financial crises, not bailed-out...
- 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)...
- Robert Lucas--underbriefed and destructive...
- 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..."
- We have better policies available: expand the EITC is better targeted
- For the long-run, universal kindergarten and pre-K have more bang for the buck
- And these are expansionary fiscal policy--spending money gives a macroeconomic boost as well
- 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...
- But I don't want to go there...
- I would rather go to...
I See Four Yawning Gulfs
- the economic policies that those whom I regard as “serious” economists are advocating, and
- those that are being implemented…
- what economics says, and
- what right-of-center economists are telling their political masters it says…
- what economics says, and
- what economics should say…
- 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
- Health-care finance
- Research and development
- Information goods more generally
The Stringent Requirements for Market Effectiveness
- Here are seven requirements:
- Distribution of wealth corresponding to fairness and utility
- Aggregate demand matched to potential supply
- 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
- 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
...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?