Winners Take All, but Can’t We Still Dream?, by Robert Frank: It’s clear that the lives of many creative artists are being transformed by digital technology. But competing schools of thought cite the very same technology in support of strikingly different conclusions.
One group, for example, says the ability to widely distribute the best performers’ products at low cost portends a world where even small differences in talent command huge differences in reward. That view is known as the “winner take all” theory.
In contrast, the “long tail” theory holds that the information revolution is letting sellers prosper even when their offerings appeal to only a small fraction of the market. This view foresees a golden age in which small-scale creative talent flourishes as never before.
These dueling theories strike close to home. My personal intellectual bets have given me a strong rooting interest in the winner-take-all view. But even the most flint-eyed economist has a romantic side. That part of me wants the long-tail outlook to prevail, and not just because of its hopeful message for underdogs. ...
Posted by Mark Thoma on Saturday, February 22, 2014 at 01:02 PM in Economics, Income Distribution |
Posted by Mark Thoma on Saturday, February 22, 2014 at 12:03 AM in Economics, Links |
Jeff Frankel has a follow-up to a post I highlighted a few days ago:
What Do Obamacare and the EITC Have in Common with Cap-and-Trade?: My preceding blog post described how market-oriented mechanisms to address environmentally damaging emissions, particularly the cap-and-trade system for SO2 in the United States, have recently been overtaken by less efficient regulatory approaches such as renewables mandates. One reason is that Republicans — who originally were supporters of cap-and-trade — turned against it, even demonized it.
One can draw an interesting analogy between the evolution of Republican political attitudes toward market mechanisms in the area of federal environmental regulation and hostility to the Affordable Care Act, also known as Obamacare. ... One can trace through the parallels between clean air and health care. ... A third example is the Earned-Income Tax Credit. ...
Posted by Mark Thoma on Friday, February 21, 2014 at 11:27 AM in Economics, Market Failure, Politics, Regulation |
Explainer: What "game theory" means for economists, by Mark Thoma: Coming upon the term "game theory" this week, your first thought would likely be about the Winter Olympics in Sochi. But here we're going to discuss how game theory applies in economics, where it's widely used in topics far removed from the ski slopes and ice rinks where elite athletes compete. ...
Posted by Mark Thoma on Friday, February 21, 2014 at 08:13 AM in Economics, Methodology |
The stimulus package was more effective than people realize:
The Stimulus Tragedy, by Paul Krugman, Commentary, NY Times: Five years have passed since President Obama signed the American Recovery and Reinvestment Act — the “stimulus” — into law. With the passage of time, it has become clear that the act did a vast amount of good. It helped end the economy’s plunge; it created or saved millions of jobs; it left behind an important legacy of public and private investment.
It was also a political disaster. And the consequences of that political disaster — the perception that stimulus failed — have haunted economic policy ever since.
Let’s start with the good stimulus did..., most careful studies have found evidence of strong positive effects on employment and output.
Even more important, I’d argue, is the huge natural experiment Europe has provided... You see,... austerity led to nasty, in some cases catastrophic, declines in output and employment. And private spending in countries imposing harsh austerity ended up falling..., amplifying the direct effects of government cutbacks.
All the evidence, then, points to substantial positive short-run effects from the Obama stimulus. And there were surely long-term benefits, too: big investments in everything from green energy to electronic medical records.
So why does everyone ... except those who have seriously studied the issue ... believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.
There’s no mystery about why: America was coping with the legacy of a giant housing bubble. ... And the stimulus was both too small and too short-lived...
There’s a long-running debate over whether the Obama administration could have gotten more. The administration compounded the damage with excessively optimistic forecasts, based on the false premise that the economy would quickly bounce back...
But that’s all water under the bridge. The important point is that U.S. fiscal policy went completely in the wrong direction after 2010. With the stimulus perceived as a failure, job creation almost disappeared from inside-the-Beltway discourse, replaced with obsessive concern over budget deficits. Government spending, which had been temporarily boosted both by the Recovery Act and by safety-net programs like food stamps and unemployment benefits, began falling... And this anti-stimulus has destroyed millions of jobs.
In other words, the overall narrative of the stimulus is tragic. A policy initiative that was good but not good enough ended up being seen as a failure, and set the stage for an immensely destructive wrong turn.
Posted by Mark Thoma on Friday, February 21, 2014 at 12:24 AM in Economics, Fiscal Policy, Politics |
Posted by Mark Thoma on Friday, February 21, 2014 at 12:03 AM in Economics, Links |
Moore's Law: At Least a Little Longer: One can argue that the primary driver of U.S. and even world economic growth in the last quarter-century is Moore's law--that is, the claim first advanced back in 1965 by Gordon Moore, one of the founders of Intel Corporation that the number of transistors on a computer chip would double every two years. But can it go on? Harald Bauer, Jan Veira, and Florian Weig of the McKinsey Global Institute consider the issues in "Moore’s law: Repeal or renewal?" a December 2013 paper. ...
The authors argue that technological advances already in the works are likely to sustain Moore's law for another 5-10 years. This As I've written before, the power of doubling is difficult to appreciate at an intuitive level, but it means that the increase is as big as everything that came before. Intel is now etching transistors at 22 nanometers, and as the company points out, you could fit 6,000 of these transistors across the width of a human hair; or if you prefer, it would take 6 million of these 22 nanometer transistors to cover the period at the end of a sentence. Also, a 22 nanometer transistor can switch on and off 100 billion times in a second.
The McKinsey analysts point out that while it is technologically possible for Moore's law to continue, the economic costs of further advances are becoming very high. They write: "A McKinsey analysis shows that moving from 32nm to 22nm nodes on 300-millimeter (mm) wafers causes typical fabrication costs to grow by roughly 40 percent. It also boosts the costs associated with process development by about 45 percent and with chip design by up to 50 percent. These dramatic increases will lead to process-development costs that exceed $1 billion for nodes below 20nm. In addition, the state-of-the art fabs needed to produce them will likely cost $10 billion or more. As a result, the number of companies capable of financing next-generation nodes and fabs will likely dwindle."
Of course, it's also possible to have performance improvements and cost decreases on chips already in production: for example, the cutting edge of computer chips today will probably look like a steady old cheap workhorse of a chip in about five years. I suspect that we are still near the beginning, and certainly not yet at the middle, of finding ways for information and communications technology to alter our work and personal lives. But the physical problems and higher costs of making silicon-based transistors at an ever-smaller scale won't be denied forever, either.
Posted by Mark Thoma on Thursday, February 20, 2014 at 12:17 PM in Economics, Productivity, Technology |
... I used to believe that no one could beat the market: in other words, that anyone who did beat the market was solely the beneficiary of random variation (a winner in Burton Malkiel’s coin-tossing tournament). I no longer believe this. I’ve seen too many studies that indicate that the distribution of risk-adjusted returns cannot be explained by dumb luck alone; most of the unexplained outcomes are at the negative end of the distribution, but there are also too many at the positive end. Besides, it makes sense: the idea that markets perfectly incorporate all available information sounds too much like magic to be true. ...
Posted by Mark Thoma on Thursday, February 20, 2014 at 08:31 AM in Economics, Financial System |
I started blogging during the Social Security wars of the Bush administration. Looks like it's a good thing reason prevailed:
How Well Did Social Security Mitigate the Effects of the Great Recession?, by William B. Peterman and Kamila Sommer: Abstract: This paper quantifies the welfare implications of the U.S. Social Security program during the Great Recession. We find that the average welfare losses due to the Great Recession for agents alive at the time of the shock are notably smaller in an economy with Social Security relative to an economy without a Social Security program. Moreover, Social Security is particularly effective at mitigating the welfare losses for agents who are poorer, less productive, or older at the time of the shock. Importantly, in addition to mitigating the welfare losses for these potentially more vulnerable agents, we do not find any specific age, income, wealth or ability group for which Social Security substantially exacerbates the welfare consequences of the Great Recession. Taken as a whole, our results indicate that the U.S. Social Security program is particularly effective at providing insurance against business cycle episodes like the Great Recession.
Posted by Mark Thoma on Thursday, February 20, 2014 at 12:24 AM in Economics, Social Insurance, Social Security |
Posted by Mark Thoma on Thursday, February 20, 2014 at 12:03 AM in Economics, Links |
Forget the minimum-wage job losses: it's government cuts that'll get you mad, by Heidi Moore: ...Which is worse: 500,000 Americans out of work, or 2m?... 500,000 is an estimate of the number of jobs the country might lose if the minimum wage gets raised to $10.10 an hour, according to a controversial analysis released Tuesday by the Congressional Budget Office. ...
What about those 2m jobs? That’s how much the economy will lose by 2019 because of federal budget cuts, as estimated by the Center for American Progress. And, well, I hate to break it to you, but Congress already voted on those last year, and it didn’t spur one fired shot.
Budget cuts, also known as austerity, are the most damaging economic decision Congress has made since the financial crisis. Former Federal Reserve chairman Ben Bernanke warned lawmakers several times that austerity measures would hurt the economy, but they largely ignored his warnings. Jobs lost to government budget cuts are part of the reason why the economy still looks so weak...
The cost of austerity doesn’t stop at 2m jobs, either. There could be as many as 7 million jobs that are never even created because of Washington budget cuts, according to the Economic Policy Institute. Those 7 million jobs would be the difference between the unhappy economy we have now ... and an actual recovery.
So, here’s the not-so-simple question: if everyone’s so angry about losing 500,000 jobs while paying the average worker more per hour, where’s the unstoppable outrage about the 2m jobs that already seem lost to austerity? ...
Posted by Mark Thoma on Wednesday, February 19, 2014 at 07:39 PM in Economics, Fiscal Policy, Unemployment |
The Rise and Fall of Cap-and-Trade: ...the political tide on both sides of the Atlantic has been against “cap and trade” over the last five years. In the United States, the highly successful trading system for allowances in emissions of SO2 (sulfur dioxide) has all but died since 2012. In the European Union as well, the Emissions Trading System was in effect overtaken by other kinds of regulation in 2013.
Cap-and-trade was originally considered a Republican idea. Market-friendly regulation was pushed by those who thought of themselves as pro-market, rather than by those who thought of themselves as pro-regulation. Most environmental organizations were opposed to the novel approach; many of them thought it immoral for corporations to be able to pay for the right to pollute. The pioneering use of the cap-and-trade approach to phase out lead from gasoline in the 1980s was a policy of Ronald Reagan’s Administration. Its successful use to reduce SO2 emissions from power plants in the 1990s was a policy of George H.W. Bush’s administration. The proposal to use cap-and-trade to reduce SO2 and other emissions further was a policy of George W. Bush’s administration ten years ago under, first, the Clear Skies Act proposed in 2002 and then the Clean Air Interstate Rule of 2005. (See Schmalensee and Stavins, 2013, pp.103-113.) ... Senator John McCain, had sponsored US legislative proposals to use cap-and-trade to address emissions of carbon dioxide and other greenhouse gases responsible for global warming. ...
Republican politicians have now forgotten that this approach was ever their policy. To defeat the last major climate bill in 2009, they worked themselves into a frenzy of anti-regulation rhetoric. ... The Republican rhetoric successfully stigmatized cap-and-trade. Schmalensee and Stavins (p.113) sum it up: “It is ironic that conservatives chose to demonize their own market-based creation.”
This stance left in its place alternative approaches that are less market-friendly (Stavins, 2011)... The non-market alternatives, such as “command and control” regulation requiring that particular energy sources or particular technologies be used, are less efficient. Nonetheless they are again the dominant regime. ...
There is nothing inevitable or irreversible about the recent trend away from cap-and-trade. ... Even in the US, where it began, there is still grounds for hope. ...
Posted by Mark Thoma on Wednesday, February 19, 2014 at 08:48 AM in Economics, Market Failure, Regulation |
From Liberty Street Econmics at the NY Fed:
Why Is the Job-Finding Rate Still Low?, by Victoria Gregory, Christina Patterson, Ayşegül Şahin, and Giorgio Topa: Fluctuations in unemployment are mostly driven by fluctuations in the job-finding prospects of unemployed workers—except at the onset of recessions, according to various research papers (see, for example, Shimer [2005, 2012] and Elsby, Hobijn, and Sahin ). With job losses back to their pre-recession levels, the job-finding rate is arguably one of the most important indicators to watch. This rate—defined as the fraction of unemployed workers in a given month who find jobs in the consecutive month—provides a good measure of how easy it is to find jobs in the economy. The ... the job-finding rate is still substantially below its pre-recession levels, suggesting that it is still difficult for the unemployed to find work. In this post, we explore the underlying reasons behind the low job-finding rate. ...
Posted by Mark Thoma on Wednesday, February 19, 2014 at 07:59 AM in Economics, Unemployment |
Posted by Mark Thoma on Wednesday, February 19, 2014 at 12:03 AM in Economics, Links |
Lincoln and Marx: Robin Blackburn has assembled a fascinating book drawing out some surprising connections between Abraham Lincoln and Karl Marx, An Unfinished Revolution: Karl Marx and Abraham Lincoln. Since both thinkers are highly original in their thinking about the worlds they inhabited, I’ve found the book to be absorbing. It consists of a brilliant hundred-page historical essay by Blackburn that draws out the themes in political theory that were of concern to both thinkers and demonstrates some surprising parallels. The book then provides several relevant speeches by Lincoln, several pieces of journalism by Marx about slavery and the American Civil War, letters by Marx including the centerpiece, a letter from Marx to Lincoln on behalf of the International Workingmen's Association; and several miscellaneous short articles by other people about Marx and Lincoln.
Blackburn is the perfect person to do this work. He is a recognized expert on Marx's thought, and he is also an expert on the history of New World slavery. (The American Crucible: Slavery, Emancipation and Human Rights, The Overthrow of Colonial Slavery: 1776-1848). So he is unusually well prepared to draw out the connections between the ideas of Marx and Lincoln on the topics of the Civil War, slavery, and economic competition between the North and the South. He also offers a very interesting analysis of the impact that the large immigration of German workers had on the politics of the North in the twelve years before the Civil War. Here is one illustrative incident:
As the Civil War unfolded, German Americans and their overseas friends furnished vital support to the Northern cause. At the outbreak of the war, a German American militia in St. Louis played a key role in preventing Missouri's governor from delivering the state--and the city's huge arsenal--into Confederate hands. [Marx's friend] Wedemeyer became a colonel, served as a staff officer in St. Louis for General John Frémont, and was put in charge of the city's defenses. (25)
The International Workingmen's Association itself came to have a substantial presence in the United States and brought with it a political agenda advocating racial and gender emancipation. After the suppression of the Paris Commune the headquarters of the IWA was moved to New York, and there were dozens of IWA sections in large Northern cities.
The IWA mustered a demonstration of 70,000 or more in New York in December 1871 to pay tribute to the Commune's tens of thousands of martyrs. The parade brought together the Skidmore Guards (a black militia), the female leadership of Section 12 (Woodhull and Claflin), an Irish band, a range of trade unions, supporters of Cuba's fight for independence marching under the Cuban flag, and a broad spectrum of socialist, feminist, Radical, and Reform politics. (77)
source: Robin Blackburn, An Unfinished Revolution, p. 99
The 1964 letter from Marx to Lincoln is on the occasion of Lincoln's re-election as President. The thrust of the letter is to express support for Lincoln in the effort to end slavery in the United States. Here is the closing paragraph of the letter:
The workingmen of Europe feel sure that as the American War of Independence initiated a new era of ascendancy for the middle class, so the American antislavery war will do for the working classes. They consider it an earnest of the epoch to come, that it fell to the lot of Abraham Lincoln, the single-minded son of the working class, to lead his country through the matchless struggle for the rescue of an enchained race and the reconstruction of a social world. (212)
A reply to this letter was received through the intermediary of Charles Francis Adams, United States Ambassador to Britain. The key lines of the reply are these:
[The government of the United States] strives to do equal and exact justice to all states and to all men, and it relies upon the beneficial results of that effort for support at home and for respect and goodwill throughout the world. Nations do not exist for themselves alone, but to promote the welfare and happiness of mankind by benevolent intercourse and example. It is in this relation that the United States regard their cause in the present conflict with slavery-maintaining insurgents as the cause of human nature, and they derive new encouragement to persevere from the testimony of the workingmen of Europe that the national attitude is favored with their enlightened approval and earnest sympathies. (214)
About one month following the assassination of President Lincoln, Marx sent another letter to President Andrew Johnson, also on behalf of the International Workingmen's Association. It contains a powerful elegy for the President and is perhaps the most moving prose to be found in Marx's writings.
It is not our part to call words of sorrow and horror, while the heart of two worlds heaves with emotions. Even the sycophants who, year after year and day by day, stuck to their Sisyphus work of morally assassinating Abraham Lincoln and the great republic he headed stand now aghast at this universal outburst of popular feeling, and rival with each other to strew rhetorical flowers on his open grave. They have now at last found out that he was a man neither to be browbeaten by adversity nor intoxicated by success; inflexibly pressing on to his great goal, never compromising it by blind haste; slowly maturing his steps, never retracing them; carried away by no surge of popular favor, disheartened by no slackening of the popular pulse; tempering stern acts by the gleams of a kind heart; illuminating scenes dark with passion by the smile of humor; doing his titanic work as humbly and homely as heaven-born rulers do little things with the grandiloquence of pomp and state; in one word, one of the rare men who succeed in becoming great, without ceasing to be good. Such, indeed, was the modesty of this great and good man, that the world only discovered him a hero after he had fallen a martyr. (214-215)
The "Unfinished Revolution" in Blackburn's title refers to the failure of two large forms of human emancipation in the United States following the Civil War that lay at the heart of the political philosophies of Marx and Lincoln -- the full emancipation of African Americans as the descendants of slaves, and the creation of a broad workers' movement that would successfully challenge the power of big business. "If the nonappearance of a US labor party marked a critical defeat for Karl Marx, the failure of the Republican Party to emerge from Reconstruction and its sequel as a party of bourgeois rectitude and reform registered a spectacular defeat for Lincoln's hopes for his party and country" (96). And Blackburn closes his introduction with some speculation about how Marx might have acted had he himself have relocated to America (as Engels briefly visited New York and Boston in 1887).
Just as he saw the importance of the slavery issue at the start of the Civil War, so he would surely have focused on "winning the battle of democracy," securing the basic rights of the producers -- including the freedmen -- in all sections as preparation for an ensuing social revolution.... Marx and Engels would have insisted that only the socialization of the great cartels and financial groups could enable the producers and their social allies to confront the challenges of modern society and to aspire to a society in which the free development of each is the precondition for the free development of all. (100)
The ideas that hold Marx and Lincoln together are emancipation and the basic dignity of the common working man and woman, and the vision of a society in which both freedom and dignity are possible for all.
Posted by Mark Thoma on Tuesday, February 18, 2014 at 07:42 PM in Economics |
... Wage inequality and stagnant earnings are issues firmly stapled to the political agenda. But lack of stability and predictability in incomes and other resources matters too, and the last few decades—and especially the last few years—of the US labor market and family life have been marked by increased risk and turbulence.
Public policy for social mobility needs to support not just the adequacy of incomes, but also their volatility, and fill a need for both wage insurance and family responsibility insurance. ...
Posted by Mark Thoma on Tuesday, February 18, 2014 at 12:40 PM in Economics, Social Insurance |
The Liberty Street Economics blog at the NY Fed analyzes the latest Household Debt and Credit Report (see Calculated Risk as well):
Just Released: Who’s Borrowing Now? The Young and the Riskless!, by Andrew Haughwout, Donghoon Lee, Wilbert van der Klaauw, and David Yun: According to today’s release of the New York Fed’s 2013:Q4 Household Debt and Credit Report, aggregate consumer debt increased by $241 billion in the fourth quarter, the largest quarter-to-quarter increase since 2007. More importantly, between 2012:Q4 and 2013:Q4, total household debt rose $180 billion, marking the first four-quarter increase in outstanding debt since 2008. As net household borrowing resumes, it is interesting to see who is driving these balance changes, and to compare some of today’s patterns with those of the boom period.
The next two charts show contributions to changes in debt balances by borrower age, first when household credit was expanding rapidly in 2006, and then in 2013. For each age group, the charts show the percentage change in aggregate debt outstanding for each type. Thus, summing the numbers for a given loan type produces the overall percentage growth for that type over the relevant four-quarter period.
A couple of things stand out. First, overall growth in debt remains considerably more muted in 2013 than it was in 2006, with the exception of auto loans, where 2013 data continued to reflect the strong growth we have been seeing since mid-2011, and student loans. (In the case of student loans, the percentage growth has moderated since 2006, but since the outstanding balance has doubled, the lower percentage growth is associated with comparable dollar increases.) Mortgage and home equity line of credit (HELOC) balances, in particular, grew much more slowly in 2013 than in 2006. Second, for all loan types and in both years, balance increases were mainly driven by younger age groups. Again, though, student loans are an exception: even older student loan borrowers continue to increase their borrowing.
The next two charts break down the same data, this time by Equifax risk score (or credit score) groups.
On the credit score breakdown we see stark differences in patterns for mortgages and HELOCs between the 2013 and 2006 cohorts. Notably, in 2013, balances fell for the lowest credit score borrowers—the result of charge-offs from previous foreclosures—while all groups, even those with subprime credit scores, increased their mortgage balances in 2006. Now, the modest mortgage balance increases we see are mainly coming from high credit score borrowers.
A similar picture emerges for credit card balances. Note, though, that credit card balances for subprime borrowers were falling in 2006, again mostly due to charge-offs, making the increased mortgage balance for that group in 2006 seem all the more remarkable.
There’s been a tremendous amount of attention to the growth of student loans in recent years, and these charts indicate some of the reason why. First, student loans grew the most of any debt product in both periods (in percentage terms). Second, the growth in educational debt, like that of auto loans, is concentrated among the lower and middle credit score groups.
But auto and student loans have been growing for some time, while overall debt continued to fall. In 2013, the increased credit card and mortgage debt among the young and the riskless led to a turnaround in the trajectory of overall debt.
For a more detailed look at net borrowing by age and credit score in 2006 and 2013, please take a look at our interactive graphic.
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
Posted by Mark Thoma on Tuesday, February 18, 2014 at 09:47 AM in Economics |
Posted by Mark Thoma on Tuesday, February 18, 2014 at 12:03 AM in Economics, Links |
Calculated Risk (aka Bill McBride):
The Stimulus Success: It is important for the future to set aside ideology and recognize that the American Recovery and Reinvestment Act of 2009 helped the economy.
The stimulus could have been structured differently, for example, why have tax incentives for businesses to invest when their is already too much capacity? And research suggests the cash-for-clunkers program was not very helpful.
And more importantly - knowing that recoveries from financial crisis are slow - investment in infrastructure could have been larger and lasted longer (not just "shovel ready" programs).
It is the details that should be debated - understanding what worked and what didn't work would be useful during the next financial crisis (when the next generation of financial wizards think they've discovered how to turn lead into gold) - but overall the program was obviously helpful. ...
It is sad today that extremist ideologues are arguing the stimulus failed. This is very dangerous for the future. ...
We should debate the actual impact of the stimulus. We should debate the effectiveness of each component of the stimulus. But we should also ridicule the ideologues ...
Posted by Mark Thoma on Monday, February 17, 2014 at 02:03 PM in Economics, Fiscal Policy |
We should be more worried than we are about monopoly power:
Barons of Broadband , by Paul Krugman, Commentary, NY Times: Last week’s big business news was the announcement that Comcast ... has reached a deal to acquire Time Warner... If regulators approve the deal, Comcast will be an overwhelmingly dominant player in the business...
So let me ask two questions about the proposed deal. First, why would we even think about letting it go through? Second, when and why did we stop worrying about monopoly power?
On the first question, broadband Internet and cable TV are already highly concentrated industries... Comcast perfectly fits the old notion of monopolists as robber barons...
And there are good reasons to believe ... that monopoly power has become a significant drag on the U.S. economy as a whole.
There used to be a bipartisan consensus in favor of tough antitrust enforcement. During the Reagan years, however, antitrust policy went into eclipse, and ever since measures of monopoly power... have been rising fast.
At first, arguments against policing monopoly power pointed to the alleged benefits of mergers in terms of economic efficiency. Later, it became common to assert that the world had changed in ways that made all those old-fashioned concerns about monopoly irrelevant. Aren’t we living in an era of global competition? Doesn’t ... creative destruction ... constantly tear down old industry giants and create new ones?
The truth, however, is that many goods and especially services aren’t subject to international competition: New Jersey families can’t subscribe to Korean broadband. Meanwhile, creative destruction has been oversold: Microsoft may be ... in decline, but it’s still enormously profitable thanks to the monopoly position it established decades ago.
Moreover, there’s good reason to believe that monopoly is itself a barrier to innovation...: why upgrade your network or provide better services when your customers have nowhere to go?
And the same phenomenon may be ... holding back the economy as a whole. One puzzle ... has been the disconnect between profits and investment. Profits are at a record high..., yet corporations aren’t reinvesting their returns in their businesses. Instead, they’re buying back shares, or accumulating huge piles of cash. This is exactly what you’d expect to see if a lot of those record profits represent monopoly rents.
It’s time, in other words, to go back to worrying about monopoly power, which we should have been doing all along. And the first step on the road back from our grand detour on this issue is obvious: Say no to Comcast.
Posted by Mark Thoma on Monday, February 17, 2014 at 12:24 AM in Economics, Market Failure, Technology |
Posted by Mark Thoma on Monday, February 17, 2014 at 12:03 AM in Economics, Links |
Two responses to Greg Mankiw's assertion that the income of the wealthy is deserved:
Iron Men of Wall Street: Greg Mankiw has written another defense of the 0.1 percent — and this one is kind of amazing. ... Mankiw invokes the strong role of financial fortunes in U.S. inequality to argue that the incomes are deserved...
Has Greg been living in a cave since 2006? We’re now in the seventh year of a slump brought on by Wall Street excess; the wizardly job of “allocating the economy’s investment resources” consisted, we now know, largely of funneling money into a real estate bubble, using fancy financial engineering to create the illusion of sound, safe investment. We also know that there is a real question whether hedge funds, in particular, actually destroy value for their investors.
One more thing: Mankiw argues that our tax system is fair because the top 0.1 percent pays a higher share of income in federal taxes than the middle class. This neglects the partial offset of this progressivity by regressive state and local taxes. But surely the main point is that to the extent that taxes on the 0.1 percent are high (they aren’t really, in historical context) that’s largely because Mitt Romney lost the 2012 election... It’s kind of funny to claim that our system is fair thanks to policies that you and your friends tried desperately to kill. ...
Inequality By Design: It's Not Just Talent and Hard Work: Greg Mankiw is out there defending the 1 percent again. He put forward the argument that the big bucks are simply their just desserts; the rewards for exceptional skill and hard work.
His opening act is Robert Downey Jr. who apparently got $50 million for his starring role in a single movie. This is a great place to start. There's no doubt that Robert Downey is an extremely talented actor, but of course there have been many actors over the years who have put in great performances for much less money. How is that Downey could earn so much more than a great actor from the 50s, 60s, or 70s? ...
In fact, a big part of the reason that Downey can collect huge paychecks is the extension and strengthening of copyrights. The United States has lengthened the period of copyrights from 28 years, with an option for a 28 year renewal, to 75 years in the 1976, and then to 95 years in 1998.
It also has stepped up copyright enforcement, imposing stiff fines on people who use the Internet to make unauthorized copies of copyrighted material. ... It is only because of government intervention in the form of copyright monopolies that he is able to collect $50 million. ...
So is Downey worth his $50 million, perhaps given the structure we have, but we could easily have a different structure which could quite possibly be a more efficient way to support and distribute creative work. (Here's my scheme.) ...
Then we get to the CEOs who Mankiw tells us get high pay because of what they contribute to their companies and the economy. If this is the case, how do we explain CEO's of companies like Lehman, Bear Stearns, and AIG walking away with hundreds of millions of dollars even though they drove their firms into bankruptcy? ... How do we explain the fact that CEOs of incredibly successful companies in Europe, Japan, and South Korea make on average around a tenth as much as our crew does?
That one doesn't seem to fit the just desserts story. The more likely explanation is the Pay Pals story, where the company's board of directors are paid off by CEOs to look the other way as they pilfer the company. ...
And then there is the financial sector where Mankiw tells us that the extraordinary pay is compensation for the volatility of paychecks. That's interesting, except the vast majority of comparably talented and hardworking people would be happy to get the pay the finance folks get in the bad years. Much of the big money on Wall Street stems from highly leveraged bets that beat the market by seconds or even milliseconds. This provides as much value to the economy as insider trading...
It would be interesting to see what would happen to the big fortunes in the financial sector if it had to pay a small transaction fee, effectively subjecting it to the same sort of sales tax that is paid in almost every other sector of the economy. It would also be interesting to see what would happen to the private equity folks if they lost the opportunity for the tax gaming that is their bread and butter....
If the 1 percent are able to extract vast sums from the economy it is because we have structured the economy for this purpose. It could easily be structured differently, but the 1 percent and its defenders aren't interested in changing things. And the 1 percent and its defenders have a great deal of influence on the direction of economic policy.
Posted by Mark Thoma on Sunday, February 16, 2014 at 09:46 AM in Economics, Income Distribution |
As a follow-up to the post below this one, Antonio Fatas:
The permanent scars of economic pessimism: Gavyn Davies at the Financial Times reflects on the growing pessimism of Central Banks regarding the growth potential of advanced economies. In the US, the Euro area or the UK, central banks are reducing their estimates of the output gap. They now think about some of the recent output losses as permanent as opposed to cyclical.
It output is not far from what we consider to be potential, there is less need for central banks to act and it is more likely that we will see an earlier normalization of monetary policy towards a neutral stance...
But it is important to understand that the permanent effects are the consequence of the recession itself. If we could manage to reduce the length and depth of the recessions we would be minimizing those permanent effects. And in that sense, accepting these changes as structural and unavoidable is too pessimistic, leads to inaction and just makes matters worse. If you read the evidence properly, you want to do the opposite, you want to be even more aggressive to avoid what it looks at a much bigger cost of recessions.
Posted by Mark Thoma on Sunday, February 16, 2014 at 09:31 AM in Economics, Fiscal Policy, Monetary Policy, Unemployment |
Some of the Federal Reserve regional banks appear to be moving toward the conclusion that we are closer to full employment than we thought (and hence the need for stimulus, while not yet eliminated, is diminished).
My view is that the Fed has been overly optimistic throughout this long ordeal called the Great Recession, and, therefore, given that inflation is not a problem, if the Fed is going to make a mistake, it ought to be on the side of doing too much for too long rather than ending stimulus too soon:
A Second Look at the Employment-to-Population Ratio, by Pat Higgins, Macroblog, FRB Atlanta: This analysis is a companion piece to my Atlanta Fed colleague John Robertson's recent macroblog post. John's blog highlighted some findings of a recent New York Fed study by Samuel Kapon and Joseph Tracy on the employment-to-population (E/P) ratio. Their work has received considerable attention in the media and blogosphere (for example, here, here, and here). Kapon and Tracy's final chart (reproduced below) has received particular scrutiny.
The blue line represents the authors' estimate of the demographically adjusted E/P ratio purged of business-cycle effects. This line can be thought of as "trend." The chart shows that as of November 2013, the E/P ratio was only –0.7 percentage point below trend. Was the "gap" between actual and trend E/P really this small?
Attempting to answer this question requires digging into the details of Kapon and Tracy's method for estimating trend. One key excerpt is the following:
To overlay our demographically adjusted E/P ratio with the actual E/P ratio, we need to adopt a normalization… [W]e adopt the normalization that over the thirty-one years in our data sample [1982–2013] any business-cycle deviations between the actual and the adjusted E/P ratios will average to zero.
This methodology seems reasonable since one might typically expect business cycle effects to average out over 30 years. However, the 1982–2013 sample period is somewhat unusual in that the unemployment rate was elevated at both the starting and ending points.
The chart below shows estimates of three labor market gaps derived from the Congressional Budget Office's (CBO) estimates—released on February 4, 2014—of the potential labor force and the long-term natural rate of unemployment. (This rate is often referred to as the nonaccelerating inflation rate of unemployment, or NAIRU, and refers to the level of unemployment below which inflation rises.)
On average, the trend E/P ratio is below the actual rate by 0.86 percentage point. If one were to normalize the Kapon and Tracy E/P trend so that its average value was equal to CBO's trend, then the November 2013 E/P gap is about 1.5 percentage points. Whether or not the CBO estimate is the right benchmark is a matter of taste. CBO's recent estimate of NAIRU in the fourth quarter of 2013—5.5 percent—is lower than the 6 percent median estimate from the Survey of Professional Forecasters in the third quarter of 2013.
A second, more subtle issue in the Kapon and Tracy analysis is their treatment of cohorts:
We divide these individuals into 280 different cohorts defined by each individual's decade of birth, sex, race/ethnicity, and educational attainment. We assume that individuals within a specific cohort have similar career employment rate profiles. We use the 10.2 million observations [of CPS microdata] to estimate these 280 career employment rate profiles.
A well-known 2006 Brookings paper by Stephanie Aaronson and other Fed economists modeled trend labor force participation rate(LFPR) using birth-year cohorts. With estimates of trend LFPR and NAIRU, we can back out a trend E/P ratio. The chart below, adapted from Aaronson et al., plots age-group LFPRs against birth year.
We see that successive birth-year cohorts born between 1925 and 1950 had steadily increasing labor force attachment. Attachment for more recently born cohorts has leveled off and even declined slightly. People born in the 1990s have very low labor force attachment by historical standards. The inclusion of the "1990s—decade of birth" dummy variable in the Kapon and Tracy research probably implies that their model is interpreting much of this decline as structural. However, an alternative interpretation is that the decline is cyclical, because persons born after 1990 have been in an environment of high unemployment for most of their short working lives.
To gauge the sensitivity of trend or structural LFPR to how the youngest cohorts are treated, I used a stripped-down version of a model similar to Aaronson et al. Monthly LFPRs are modeled as a function of age, sex, birth date, and the CBO's estimate of the output gap during the January 1981 to January 2014 period. Time series published by the U.S. Bureau of Labor Statistics for 30 different age-sex cells are used so that the regression has 11,550 observations. Structural LFPR is constructed with the fitted values of the regression with a value of 0 percent for the output gap at all points in time. The trend E/P ratio is then backed out with the CBO's estimate of NAIRU.
The model is run with two different assumptions: First, following the approach of Aaronson et al., people born after 1986 have the same birth-year cohort effects as those born in December 1986. Second, no constraints are placed on birth-year cohort effects. Trend values of LFPR and E/P (taking on board the CBO's NAIRU) are plotted in the two charts below:
The January 2014 E/P gap with unconstrained cohort effects, as in Kapon and Tracy, is –1.0 percent, well below the –1.7 percent gap in the model with constrained cohort effects. Ultimately, both models are still very consistent with Kapon and Tracy's bottom line:
It is important to control for changing demographic factors when looking at the behavior of the E/P ratio over time. This step is particularly important today when these demographic factors are exerting downward pressure on the actual E/P rate, suggesting that the recent lack of improvement in the E/P ratio does not imply a lack of progress in the labor market. The adjusted E/P rate corroborates the basic picture from the unemployment rate that the labor market has been recovering over the past few years, but that it still has a ways to go to reach a full recovery.
Posted by Mark Thoma on Sunday, February 16, 2014 at 09:20 AM in Economics, Monetary Policy, Unemployment |
Posted by Mark Thoma on Sunday, February 16, 2014 at 12:03 AM in Economics, Links |
On the proposed Comcast Time-Warner merger:
Monoposony Begets Monopoly, And Vice Versa: Nothing to see here, folks, says Comcast. The cable giant’s defenders insist that its already awesome market power won’t be increased if it acquires Time Warner, because they serve (i.e., are local monopolists in) different geographical areas...
But elsewhere in the business section, we see clear evidence that this is nonsense. Comcast’s size gives it monopsony as well as monopoly power — it is able to extract far more favorable deals from content providers than smaller rivals. And if it’s allowed to acquire Time Warner, it will be even more advantaged...
This would, in turn, make it even harder for potential competitors to enter markets served by ComcastTimeWarner, strengthening its monopoly position.
What possible justification could there be for approving this scheme?
Time to get real on Comcast-Time Warner, by Joshua Gans: ... with every potential harm to the public benefit is also opportunity. What would happen if, as part of the conditions to approve this merger (a) content assets were divested; and (b) Net Neutrality was enshrined? That may remove more structural impediments to competition and guarantee that this is a long-term win for consumers. It would be nice if someone were to propose that.
In general, I don't think that we pay enough attention to the problems that are associated with market power.
Posted by Mark Thoma on Saturday, February 15, 2014 at 02:11 PM in Economics, Market Failure, Regulation |
Paul Krugman continues the discussion on "whether New Keynesians made a Faustian bargain":
Microfoundations and Mephistopheles (Wonkish): Simon Wren-Lewis asks whether New Keynesians made a Faustian bargain by accepting the New Classical dictat that models must be grounded in intertemporal optimization — whether they purchased academic respectability at the expense of losing their ability to grapple usefully with the real world.
Wren-Lewis’s answer is no, because New Keynesians were only doing what they would have wanted to do even if there hadn’t been a de facto blockade of the journals against anything without rational-actor microfoundations. He has a point: long before anyone imagined doing anything like real business cycle theory, there had been a steady trend in macro toward grounding ideas in more or less rational behavior. The life-cycle model of consumption, for example, was clearly a step away from the Keynesian ad hoc consumption function toward modeling consumption choices as the result of rational, forward-looking behavior.
But I think we need to be careful about defining what, exactly, the bargain was. I would agree that being willing to use models with hyperrational, forward-looking agents was a natural step even for Keynesians. The Faustian bargain, however, was the willingness to accept the proposition that only models that were microfounded in that particular sense would be considered acceptable. ...
So it was the acceptance of the unique virtue of one concept of microfoundations that constituted the Faustian bargain. And one thing you should always know, when making deals with the devil, is that the devil cheats. New Keynesians thought that they had won some acceptance from the freshwater guys by adopting their methods; but when push came to shove, it turned out that there wasn’t any real dialogue, and never had been.
My view is that micro-founded models are useful for answering some questions, but other types of models are best for other questions. There is no one model that is best in every situation, the model that should be used depends upon the question being asked. I've made this point many times, most recently in this column, an also in this post from September 2011 that repeats arguments from September 2009:
New Old Keynesians?: Tyler Cowen uses the term "New Old Keynesian" to describe "Paul Krugman, Brad DeLong, Justin Wolfers and others." I don't know if I am part of the "and others" or not, but in any case I resist a being assigned a particular label.
Why? Because I believe the model we use depends upon the questions we ask (this is a point emphasized by Peter Diamond at the recent Nobel Meetings in Lindau, Germany, and echoed by other speakers who followed him). If I want to know how monetary authorities should respond to relatively mild shocks in the presence of price rigidities, the standard New Keynesian model is a good choice. But if I want to understand the implications of a breakdown in financial intermediation and the possible policy responses to it, those models aren't very informative. They weren't built to answer this question (some variations do get at this, but not in a fully satisfactory way).
Here's a discussion of this point from a post written two years ago:
There is no grand, unifying theoretical structure in economics. We do not have one model that rules them all. Instead, what we have are models that are good at answering some questions - the ones they were built to answer - and not so good at answering others.
If I want to think about inflation in the very long run, the classical model and the quantity theory is a very good guide. But the model is not very good at looking at the short-run. For questions about how output and other variables move over the business cycle and for advice on what to do about it, I find the Keynesian model in its modern form (i.e. the New Keynesian model) to be much more informative than other models that are presently available.
But the New Keynesian model has its limits. It was built to capture "ordinary" business cycles driven by pricesluggishness of the sort that can be captured by the Calvo model model of price rigidity. The standard versions of this model do not explain how financial collapse of the type we just witnessed come about, hence they have little to say about what to do about them (which makes me suspicious of the results touted by people using multipliers derived from DSGE models based upon ordinary price rigidities). For these types of disturbances, we need some other type of model, but it is not clear what model is needed. There is no generally accepted model of financial catastrophe that captures the variety of financial market failures we have seen in the past.
But what model do we use? Do we go back to old Keynes, to the 1978 model that Robert Gordon likes, do we take some of the variations of the New Keynesian model that include effects such as financial accelerators and try to enhance those, is that the right direction to proceed? Are the Austrians right? Do we focus on Minsky? Or do we need a model that we haven't discovered yet?
We don't know, and until we do, I will continue to use the model I think gives the best answer to the question being asked. The reason that many of us looked backward for a model to help us understand the present crisis is that none of the current models were capable of explaining what we were going through. The models were largely constructed to analyze policy is the context of a Great Moderation, i.e. within a fairly stable environment. They had little to say about financial meltdown. My first reaction was to ask if the New Keynesian model had any derivative forms that would allow us to gain insight into the crisis and what to do about it and, while there were some attempts in that direction, the work was somewhat isolated and had not gone through the type of thorough analysis needed to develop robust policy prescriptions. There was something to learn from these models, but they really weren't up to the task of delivering specific answers. That may come, but we aren't there yet.
So, if nothing in the present is adequate, you begin to look to the past. The Keynesian model was constructed to look at exactly the kinds of questions we needed to answer, and as long as you are aware of the limitations of this framework - the ones that modern theory has discovered - it does provide you with a means of thinking about how economies operate when they are running at less than full employment. This model had already worried about fiscal policy at the zero interest rate bound, it had already thought about Says law, the paradox of thrift, monetary versus fiscal policy, changing interest and investment elasticities in a crisis, etc., etc., etc. We were in the middle of a crisis and didn't have time to wait for new theory to be developed, we needed answers, answers that the elegant models that had been constructed over the last few decades simply could not provide. The Keyneisan model did provide answers. We knew the answers had limitations - we were aware of the theoretical developments in modern macro and what they implied about the old Keynesian model - but it also provided guidance at a time when guidance was needed, and it did so within a theoretical structure that was built to be useful at times like we were facing. I wish we had better answers, but we didn't, so we did the best we could. And the best we could involved at least asking what the Keynesian model would tell us, and then asking if that advice has any relevance today. Sometimes if didn't, but that was no reason to ignore the answers when it did.
[So, depending on the question being asked, I am a New Keynesian, an Old Keynesian, a Classicist, etc.]
Posted by Mark Thoma on Saturday, February 15, 2014 at 08:43 AM in Economics, Macroeconomics, Methodology |
Posted by Mark Thoma on Saturday, February 15, 2014 at 12:03 AM in Economics, Links |
Are New Keynesian DSGE models a Faustian bargain?: Some write as if this were true. The story is that after the New Classical counter revolution, Keynesian ideas could only be reintroduced into the academic mainstream by accepting a whole load of New Classical macro within DSGE models. This has turned out to be a Faustian bargain, because it has crippled the ability of New Keynesians to understand subsequent real world events. Is this how it happened? It is true that New Keynesian models are essentially RBC models plus sticky prices. But is this because New Keynesian economists were forced to accept the RBC structure, or did they voluntarily do so because they thought it was a good foundation on which to build? ...
Posted by Mark Thoma on Friday, February 14, 2014 at 04:29 PM in Economics, Macroeconomics, Methodology |
Another paper I need to read:
How Persistent are Monetary Policy Effects at the Zero Lower Bound?, by Christopher J. Neely, FRB St. Louis: Abstract Event studies show that Fed unconventional announcements of forward guidance and large scale asset purchases had large and desired effects on asset prices but do not tell us how long such effects last. Wright (2012) used a structural vector autoregression (SVAR) to argue that unconventional policies have very transient effects on asset prices, with half-lives of 3 months. This would suggest that unconventional policies can have only marginal effects on macroeconomic variables. The present paper shows, however, that the SVAR is unstable, forecasts very poorly and therefore delivers spurious inference about the duration of the unconventional monetary shocks. In addition, implied in-sample return predictability from the SVAR greatly exceeds that which is consistent with rational asset pricing and reasonable risk aversion. Restricted models that respect plausible predictability in asset returns are more stable and imply that the unconventional monetary policy shocks were fairly persistent but that our uncertainty about their effects increases with forecast horizon. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices.
Posted by Mark Thoma on Friday, February 14, 2014 at 04:28 PM in Economics, Monetary Policy |
Inequality, Dignity and Freedom, by Paul Krugman, Commentary, NY Times: Now that the Congressional Budget Office has explicitly denied saying that Obamacare destroys jobs, some (though by no means all) Republicans have stopped lying about that issue and turned to a different argument... — it’s still a bad thing because, as Representative Paul Ryan puts it, they’ll lose “the dignity of work.” ...
It’s all very well to talk in the abstract about the dignity of work, but to suggest that workers can have equal dignity despite huge inequality in pay is just silly. ...
In fact, the people who seem least inclined to respect the efforts of ordinary workers are the winners of the wealth lottery. ... And ... Republican politicians. ...
So what would give working Americans more dignity ... despite huge income disparities? How about assuring them that the essentials — health care, opportunity for their children, a minimal income — will be there even if their boss fires them or their jobs are shipped overseas?
Think about it: Has anything done as much to enhance the dignity of American seniors, to rescue them from the penury and dependence that were once so common among the elderly, as Social Security and Medicare? Inside the Beltway, fiscal scolds have turned “entitlements” into a bad word, but it’s precisely the fact that Americans are entitled to collect Social Security and ... Medicare, no questions asked, that makes these programs so empowering and liberating.
Conversely, the drive by conservatives to dismantle much of the social safety net, to replace it with minimal programs and private charity, is, in effect, an effort to strip away the dignity of lower-income workers.
And it’s ... an assault on their freedom. Modern American conservatives talk a lot about freedom, and deride liberals for advocating a “nanny state.” But when it comes to Americans down on their luck, conservatives become insultingly paternalistic, as comfortable congressmen lecture struggling families on the dignity of work. And they also become advocates of highly intrusive government. ...
The truth is that if you really care about the dignity and freedom of American workers, you should favor more, not fewer, entitlements, a stronger, not weaker, social safety net.
And you should, in particular, support and celebrate health reform. Never mind all those claims that Obamacare is slavery; the reality is that the Affordable Care Act will empower millions of Americans, giving them exactly the kind of dignity and freedom politicians only pretend to love.
Posted by Mark Thoma on Friday, February 14, 2014 at 12:24 AM in Economics |
Posted by Mark Thoma on Friday, February 14, 2014 at 12:03 AM in Economics, Links |
New paper from the IMF:
Debt and Growth: Is There a Magic Threshold?, by Andrea Pescatori ; Damiano Sandri ; John Simon [Free Full text]: Summary: Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility.
[Via Bruce Bartlett on Twitter.]
Posted by Mark Thoma on Thursday, February 13, 2014 at 02:49 PM in Academic Papers, Economics, Fiscal Policy |
... So, if you were a ranting leftist, you might say that political attitudes are shaped by class, and that ideological justifications for high inequality are just a veil for class interest. You might also say that “sound” economic policies are really just policies that redistribute income upwards. And it turns out that the econometric evidence more or less supports your rant.
Posted by Mark Thoma on Thursday, February 13, 2014 at 11:56 AM in Economics, Income Distribution, Politics |
Andrew Oswald has an excellent research record:
Money makes people right-wing and inegalitarian, by Andrew J Oswald, Vox EU: Why are you right-wing, left-wing, or in the middle? You probably believe that you made a genuine, calm, and ethical choice. But what were the deep causal forces upon those political preferences?
The scientific roots of people’s political views are poorly understood. One possibility (View 1) is that individuals’ attitudes to politics and redistribution are motivated by deeply moral views. Another possibility (View 2) – and this is perhaps some economists’ presumption -- is that voting choices are made out of self-interest and then come to be embroidered in the mind with a form of moral rhetoric. Testing between these two alternative theories is important intellectually. It is also inherently difficult. That is because so many of our attitudes as humans could stem from early in life and are close to being, in the eyes of the researcher, a ‘person fixed-effect’.
In most data sets, rich people typically lean right. The fact that high income and right-wing views are positively correlated in a cross-section has been repeatedly documented in quantitative social science (recently, for example, by Brooks and Brady 1999 and Gelman et al. 2007 in US data, and by Evans and Tilley 2012 in British data). An analogous result is reported, using quite different kinds of methods, in Karabarbounis (2011). Economists such as Di Tella and MacCulloch (2005) have also studied political views and their implications, and other influences have been examined using causal evidence on political views (such as in Oswald and Powdthavee 2010 and Erikson and Stoker 2011).
Fine – so the rich favour the right not the left. The difficulty is to know how to interpret this famous correlation of political science. Is it actually cause-and-effect, and if so in what direction? It would be nice to run a real randomised experiment where a treatment group are showered with cash, but that would be too expensive for social-science funding agencies. Hence it is necessary to look elsewhere for inspiration.
New evidence from the lottery
Our new study, Powdthavee and Oswald (2014), tries to get to the bottom of the issue. By looking at lottery winners through time, it provides longitudinal evidence consistent with the second, and some might argue more jaundiced, view, namely the View 2 of human beings. We exploit a panel data set in which people’s political attitudes are recorded annually. Our work builds upon an interesting cross-sectional examination by Doherty et al. (2007), which we learned about late in our own research.
In our data set, many hundreds of individuals serendipitously receive significant lottery windfalls. We find that the larger is their lottery win, the greater is that person’s subsequent tendency, after controlling for other influences, to switch their political views from left to right. We also provide evidence that lottery winners are more sympathetic to the belief that ordinary people ‘already get a fair share of society’s wealth’.
We are able to observe people before and after a win. Access to longitudinal information gives us advantages denied to most previous researchers on this topic. One reason this is important is because it seems plausible that personality might determine both the number of lottery tickets bought and the political attitudes of the person, and this might thereby lead to a possible spurious association between winning and right-leaning views. We provide, among other kinds of evidence, a simple graphical demonstration that winners disproportionately lean to the right having previously not been right-wing supporters.
The formal study draws upon a nationally representative sample from the British population. In our regression equations we focus particularly upon a sub-sample of people (a fairly large proportion, given the lottery’s popularity in the UK) who have ever had a lottery win. Within this group, we are especially interested in the observed longitudinal changes in political allegiance of the bigger winners compared to the smaller winners. Our key information stems from 541 observations on lottery wins larger than £500 and up to approximately £200,000. Figure 1 gives a flavour of our results; fixed-effects equations are given in the formal paper and have more tightly defined error bars.
Figure 1. Evidence on switchers: The percentage of people who switched right (conservative), and previously did not vote conservative, after a lottery win
Notes: There are 48,177 observations of £0 win (or people who did not participate in the lottery); 5,675 observations of small win, i.e., £1-£499; and, in this particular sub-sample, 354 observations of medium-large wins, i.e. £500+. Four standard error bars (2 above and 2 below). These are raw, unadjusted means in the data set. Source: BHPS Data, Waves 7-18.
The consequences of winning even a modest sum of money are fairly large – certainly a number of percentage points extra on your chances of favouring a Mrs Thatcher or a Ronald Regan. Thus money makes people right-wing and inegalitarian. Perhaps even you.
Brooks, C and D Brady (1999), "Income, economic voting, and long-term political change in the US, 1952-1996", Social Forces, 77, 1339-1374.
Di Tella, R and R MacCulloch (2005), "Partisan social happiness", Review of Economic Studies, 72, 367-393.
Doherty D, A S Gerber and D P Green (2006), "Personal income and attitudes toward redistribution: A study of lottery winners", Political Psychology, 27, 441-458.
Erikson, R S and L Stoker (2011) "Caught in the draft: The effects of Vietnam draft lottery status on political attitudes", American Political Science Review, 105, 221-237.
Evans, G and J Tilley (2012), "How parties shape class politics: Explaining the decline of the class basis of political support", British Journal of Political Science, 42, 137-161.
Gelman A, B Shor, J Bafumi and D Park (2007) Rich state, poor state, red state, blue state: What’s the matter with Connecticut? Quarterly Journal of Political Science, 2, 345-367.
Karabarbounis, L (2011) "One dollar, one vote", Economic Journal, 121, 621-651.
Oswald, A J and N Powdthavee (2010), "Daughters and left-wing voting", Review of Economics and Statistics, 92, 213-227.
Powdthavee, N and A J Oswald (2014), "Does money make people right-wing and inegalitarian: A longitudinal study of lottery winners", Warwick University Economics Working Paper 1039, February.
Posted by Mark Thoma on Thursday, February 13, 2014 at 12:24 AM in Economics, Politics |
Posted by Mark Thoma on Thursday, February 13, 2014 at 12:03 AM in Economics, Links |
I need to read this:
Is Increased Price Flexibility Stabilizing?, by Redux Saroj Bhattarai, Gauti Eggertsson, and Raphael Schoenle, NBER Working Paper No. 19886 February 2014 [Open Link]: Abstract We study the implications of increased price flexibility on output volatility. In a simple DSGE model, we show analytically that more flexible prices always amplify output volatility for supply shocks and also amplify output volatility for demand shocks if monetary policy does not respond strongly to inflation. More flexible prices often reduce welfare, even under optimal monetary policy if full efficiency cannot be attained. We estimate a medium-scale DSGE model using post-WWII U.S. data. In a counterfactual experiment we find that if prices and wages are fully flexible, the standard deviation of annualized output growth more than doubles.
Posted by Mark Thoma on Wednesday, February 12, 2014 at 04:08 PM in Academic Papers, Economics, Macroeconomics |
Why has the Phillips curve "generally underpredicted compensation growth since 2009"?:
The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth, by M. Henry Linder, Richard Peach, and Robert Rich: How tight is the labor market? The unemployment rate is down substantially from its October 2009 peak, but two-thirds of the decline is due to people dropping out of the labor force. In addition, an unusually large share of the unemployed has been out of work for twenty-seven weeks or more—the long-duration unemployed. These statistics suggest that there remains a great deal of slack in U.S. labor markets, which should be putting downward pressure on labor compensation. Instead, compensation growth has moved modestly higher since 2009. A potential explanation is that the long-duration unemployed exert less influence on wages than the short-duration unemployed, a hypothesis we examine here. While preliminary, our findings provide some support for this hypothesis and show that models taking into account unemployment duration produce more accurate forecasts of compensation growth. ...
Posted by Mark Thoma on Wednesday, February 12, 2014 at 08:21 AM in Economics, Unemployment |
Yellen's Debut as Chair, by Tim Duy: Janet Yellen made her first public comments as Federal Reserve Chair in a grueling, nearly day-long, testimony to the House Financial Services Committee. Her testimony made clear that we should expect a high degree of policy continuity. Indeed, she said so explicitly. The taper is still on, but so too is the expectation of near-zero interest rates into 2015. Data will need to get a lot more interesting in one direction or the other for the Fed to alter from its current path.
In here testimony, Yellen highlighted recent improvement in the economy, but then turned her attention to ongoing underemployment indicators:
Nevertheless, the recovery in the labor market is far from complete. The unemployment rate is still well above levels that Federal Open Market Committee (FOMC) participants estimate is consistent with maximum sustainable employment. Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.
A visual reminder of the issue:
This is a straightforward reminder of the Fed's view that the unemployment rate overstates improvement in labor markets and thus should be discounted when setting policy. Consequently, policymakers believe they have room to hold interest rates at rock bottom levels for an extended period. To be sure, there are challenges to this view, both internally and externally. For instance, Philadelphia Federal Reserve President Charles Plosser today reiterated his view that asset purchases should end soon and also fretted that the Fed will be behind the curve with respect to interest rates. Via Bloomberg:
“I’m worried that we’re going to be too late” to raise rates, Plosser told reporters after a speech at the University of Delaware in Newark. “I don’t want to chase the market, but we may have to end up having to do that” if investors act on anticipation of higher rates.
That remains a minority view at the Fed. Matthew Boesler at Business Insider points us at UBS economists Drew Matus and Kevin Cummins, who challenge Yellen's belief that the long-term unemployed will keep a lid on inflation:
We do not view the long-term unemployed as necessarily "ready for work" and therefore believe that their ability to restrain wage pressures is limited. In other words, the unusually high number of long-term unemployed suggests that the natural rate of unemployment has increased. Indeed, when we have tested various unemployment rates' ability to predict inflation we found that the standard unemployment rate outperforms all other broader measures reported by the Bureau of Labor Statistics. Although we disagree with Yellen regarding the long-term unemployed, our research does suggest that, perhaps unsurprisingly, the number of part-timers does have an impact on restraining inflation.
I tend to think that we will not see clarity on this issue until unemployment approaches even nearer to 6%. That level has traditionally been associated with rising wages pressures in the past:
The Fed would likely see a faster pace of wage gains as lending credence to the story that the drop in labor force participation is mostly a structural story. At that point the Fed may begin rethinking the expected path of interest rates, depending on their interest in overshooting. But in the absence of such early signs of inflationary pressures, the Fed will be content to raise rates only gradually.
With regards to monetary policy, Yellen reminds everyone that she helped design the current policy:
Turning to monetary policy, let me emphasize that I expect a great deal of continuity in the FOMC's approach to monetary policy. I served on the Committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve's statutory mandate of maximum employment and price stability.
Yellen makes clear that the current pace of tapering is likely to continue:
If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.
Later, during the question and answer period, Yellen does however, open the door for a pause in the taper. Via Pedro DaCosta and Victoria McGrane at the Wall Street Journal:
“I think what would cause the committee to consider a pause is a notable change in the outlook,” Ms. Yellen told lawmakers...
...“I was surprised that the jobs reports in December and January, the pace of job creation, was running under what I had anticipated. But we have to be very careful not to jump to conclusions in interpreting what those reports mean,” Ms. Yellen said. Recent bad weather may have been a drag on economic activity, she added, saying it would take some time to get a true sense of the underlying trend.
The January employment report was something of a mixed bag, with the unemployment rate edging down further to 6.6% while nonfarm payrolls disappointed again (!!!!) with a meager gain of 113k. That said, I still do not believe this should dramatically alter your perception of the underlying pace of activity. Variance in nonfarm payrolls is the norm, not the exception:
Her disappointment in the numbers raises the possibility - albeit not my central case - that another weak number in the February report could prompt a pause. My baseline case, however, is that even if it was weak, it would not effect the March outcome but instead, if repeated again, the outcome of the subsequent meeting. Remember, the Fed wants to end asset purchases. As long as they believe forward guidance is working, they will hesitate to pause the taper.
Yellen was not deterred by the recent turmoil in emerging markets:
We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook. We will, of course, continue to monitor the situation.
Yellen reiterates the current Evans rule framework for forward guidance, giving no indication that the thresholds are likely to be changed. Jon Hilsenrath at the Wall Street Journal interprets this to mean that when the 6.5% unemployment rate threshold is breached, the Fed will simply switch to qualitative forward guidance. I tend to agree.
Bottom Line: Circumstances have not change sufficiently to prompt the Federal Reserve deviate from the current path of policy.
Posted by Mark Thoma on Wednesday, February 12, 2014 at 12:24 AM in Economics, Fed Watch, Monetary Policy |
Posted by Mark Thoma on Wednesday, February 12, 2014 at 12:03 AM in Economics, Links |
We are, as they say, live:
Keynesian Economics in Abnormally Slow Recoveries, by Mark Thoma: In theory, Keynesian stabilization policy should “shave the peaks and fill the valleys.” That is, when the economy falls into a recession the government should use deficit spending to lift the economy back towards the full employment level. It should then pay for the policy – increase revenues or reduce spending – during boom periods when the economy is overheated and needs to be slowed down. But what if, like now, there is no boom following the bust? How should we pay for the programs that were put into place during the recession in that case? ...
Posted by Mark Thoma on Tuesday, February 11, 2014 at 08:19 AM in Economics, Fiscal Policy, Fiscal Times |
Martin Wolf on the "rise of intelligent machines":
Enslave the robots and free the poor, by Martin Wolf, Commentary, FT: ...we must reconsider leisure. For a long time the wealthiest lived a life of leisure at the expense of the toiling masses. The rise of intelligent machines makes it possible for many more people to live such lives without exploiting others. Today’s triumphant puritanism finds such idleness abhorrent. Well, then, let people enjoy themselves busily. What else is the true goal of the vast increases in prosperity we have created?
...we will need to redistribute income and wealth. ... The revenue could come from taxes on bads (pollution, for example) or on rents (including land and, above all, intellectual property). Property rights are a social creation. The idea that a small minority should overwhelming benefit from new technologies should be reconsidered. ...
Posted by Mark Thoma on Tuesday, February 11, 2014 at 08:10 AM in Economics, Income Distribution, Technology |
Inequality and Indignity: ... Let’s talk ... about dignity.
It’s all very well to talk vaguely about the dignity of work; but the idea that all workers can regard themselves as equal in dignity despite huge disparities in income is just foolish. When you’re in a world where 40 money managers make as much as 300,000 high school teachers, it’s just silly to imagine that there will be any sense, on either side, of equal dignity in work. ...
Now, one way to enhance the dignity of ordinary workers is through, yes, entitlements: make it part of their birthright, as American citizens, that they get certain basics such as a minimal income in retirement, support in times of unemployment, and essential health care.
But the Republican position is that none of these things should be provided, and that if somehow they do get provided, they should come only at the price of massive government intrusion into the recipient’s personal lives — making sure that you don’t take advantage of health reform to work less, requiring that you undergo drug tests to receive unemployment benefits or food stamps, and so on.
In short, while conservatives may preach the dignity of work, their actual agenda is to deny lower-income workers as much dignity — and personal freedom — as possible.
Posted by Mark Thoma on Tuesday, February 11, 2014 at 07:56 AM in Economics, Income Distribution, Social Insurance |
Posted by Mark Thoma on Tuesday, February 11, 2014 at 12:03 AM in Economics, Links |
In case you were wondering:
When Will the Fed End Its Zero Rate Policy?, by Jens Christensen, FRBSF Economic Letter: The severe shock of the 2007–08 financial crisis prompted the Federal Reserve to quickly lower its target for its primary policy rate, the overnight federal funds rate, near to zero, where it has remained since. Despite this highly stimulatory stance of conventional monetary policy, the economic recovery has been sluggish and inflation has been low. For that reason, the Federal Open Market Committee (FOMC), the Fed’s policy body, has provided additional monetary stimulus by using unconventional measures to push down longer-term interest rates. One element of this unconventional policy has been large-scale asset purchases (LSAPs). Another has been public guidance about how long the FOMC expects to keep its federal funds rate target exceptionally low. The effect of this forward guidance depends on how financial market participants interpret FOMC communications, in particular when they expect the Fed to exit from its near-zero rate policy, a shift often called “liftoff” (see Bauer and Rudebusch 2013).
This Economic Letter examines recent research estimating when bond investors expect liftoff to take place (see Christensen 2013). This research suggests that bond investor expectations for the date of exit have moved forward notably in recent months, probably because they anticipated the FOMC’s decision at its December 2013 meeting to cut back large-scale asset purchases. This research suggests that market participants expect the FOMC to start raising rates in the spring of 2015, but the exact timing is highly uncertain.
Unconventional monetary policy
Unconventional monetary policy designed to put downward pressure on longer-term interest rates has two aspects: large-scale asset purchases and forward guidance, that is, Fed communications about its expectations for future policy. LSAPs affect longer-term interest rates by shifting the term premium, the higher yield investors demand in exchange for holding a longer-duration debt security (see Gagnon et al. 2011). LSAPs were first announced in late 2008. The most recent program, initiated in September 2012, originally involved purchasing $40 billion in mortgage-backed securities (MBS) every month. It expanded in December 2012 to include $45 billion in monthly Treasury security purchases. The FOMC stated that it intended to continue the program until the outlook for the labor market improved substantially, provided inflation remained stable. Since then, the labor market has improved and the unemployment rate has dropped. As a result, the FOMC decided at its December 2013 meeting to reduce the pace at which it adds to its asset holdings to $75 billion per month.
Forward guidance affects longer-term rates by influencing market expectations about the level of short-term interest rates over an extended period. In August 2011, the FOMC stated that it intended to keep its federal funds rate target near zero until mid-2013, the first time it projected a liftoff date. More recently, Fed policymakers have indicated that they anticipate keeping the federal funds rate at that exceptionally low level at least as long as the unemployment rate remains above 6½%, inflation one to two years ahead is projected to be no more than one-half percentage point above the FOMC’s 2% longer-run target, and longer-term inflation expectations remain in check. In December 2013, the FOMC added that, based on current projections, it expects to maintain the zero interest rate policy well past when the unemployment rate falls below 6½%.
FOMC member projections of appropriate policy rate
FOMC projections versus Treasury market data
Forward guidance also includes a set of projections on future federal funds rate levels that each FOMC participant makes four times per year, released in conjunction with the FOMC statement. Based on their views of appropriate monetary policy, these policymakers also forecast overall inflation; core inflation, which excludes volatile food and energy prices; the unemployment rate; and output growth. Figure 1 shows FOMC median, 25th percentile, and 75th percentile federal funds rate projections made in September and December. Only minor changes occurred from September to December.
Treasury yield curves on three dates in 2013
The relatively stable FOMC projections stand in contrast to changes in the U.S. Treasury bond market over the same period. Figure 2 shows the Treasury yield curve, that is, yields on the full range of Treasury maturities, on the days of the September and December 2013 FOMC meetings as well as the December 27 reading. (The research is based on weekly Treasury yields recorded on Fridays. December 27 was the last Friday in 2013.) Medium- and longer-term Treasury yields increased notably during that period.
Other analysis suggests that much of this increase in longer-term Treasuries reflected an increase in the term premium. But did the rise in longer-term rates also involve a shift in the market’s views about expected short-term rates that seems out-of-step with FOMC guidance? To address this question, I use an innovative model of the Treasury yield curve developed in Christensen (2013) that delivers a distribution of estimates derived from Treasury security prices for the exit from the zero interest rate policy.
A model of the Treasury yield curve
In this model, it is assumed that the economy can be in one of two states: a normal state like that which prevailed before December 2008, and a state like the current one in which the monetary policy rate is stuck at its lower bound near zero. In the normal state, yield curve variation is captured by three factors that are not directly observable, but can be derived from the underlying data: the general level of rates; the slope of the yield curve; and the curvature, or shape, of the yield curve. Furthermore, it is assumed that, in the normal state, investors consider the possibility of the policy rate reaching zero to be negligible. This assumption implies that the transition to the zero-bound state that occurred in December 2008 was a surprise and did not affect bond prices before that, when the economy was in the normal state.
The zero-bound state is characterized by two key features. First, the shortest rate in the Treasury bond market is assumed to be constant at zero. Second, the state is viewed by bond investors and monetary policy makers as undesirable and temporary. They believe that the FOMC would like to return to normal as quickly as possible, consistent with the Fed’s price stability and maximum employment mandates. This implies that news about the U.S. economy prompts bond investors to revise their views about when the FOMC is likely to exit from its zero interest rate policy. In the model, that exit defines the transition from the zero-bound state to the normal state of the economy. One component of the variation of Treasury bond yields in the zero-bound state is how probable bond investors believe a return to the normal state to be. However, because bond investors are forward looking and consider the possibility of such a shift when they trade, the three factors that affect the yield curve in the normal state continue to affect it in the zero-bound state.
Intensity of exit time from the zero interest rate policy
To derive estimates of the date of the FOMC’s first federal funds rate increase, I use weekly Treasury yields starting in January 1985 of eight maturities ranging from three months to ten years. The novel feature of the model I use is consideration of the implicit probability bond investors attach to a transition back to the normal state. This allows the entire distribution of probable dates of exit from the zero-bound state to be examined. Figure 3 shows the likelihood of leaving the zero-bound state at any point in time as of December 27, 2013. The exit date distribution is heavily skewed so that very late exit times are significantly probable. Still, the median exit date is in March 2015. In other words, the economy is just as likely to remain in the zero-bound state at that date as to have exited before it. One takeaway is the considerable level of uncertainty about the exit date. The model suggests that there is about a one-in-three chance of remaining in the zero-bound state past 2015.
Median exit time from the zero interest rate policy
Figure 4 shows the variation in the estimated median exit time since December 16, 2008, when the economy shifted to the zero-bound state. Included are five dates from 2009 to 2012 of major FOMC announcements regarding LSAPs or guidance about future monetary policy. The estimated median exit time from the zero-bound state moved notably later in the weeks after each announcement, except when the FOMC extended its forward guidance in January 2012. This suggests that unconventional policies derive part of their effect by sending signals that bond market participants interpret to mean that the federal funds rate will remain at its zero bound longer than previously expected (see Christensen and Rudebusch 2012).
Consistent with these observations, Figure 4 also shows that the estimated median exit date from the near-zero federal funds rate moved forward significantly between the September and December 2013 FOMC meetings as market participants began anticipating the Fed’s decision to scale back LSAPs. According to the model, in anticipating the decision to trim LSAPs, the market also thought the first federal funds rate hike might come sooner than previously anticipated. This latter change in expectations held even though the FOMC’s projections of the appropriate future fed funds rate hardly changed from September to December. As of December 27, 2013, the median exit time for the market was estimated at one year and three months, which implies that the odds of keeping the near-zero interest rate policy past March 2015 are identical to the odds of exiting before that date.
A novel model of the Treasury yield curve allows an assessment of investor expectations of the exit date from the Fed’s near-zero interest rate policy. The results suggest that, as of the end of 2013, the expected exit date has moved forward notably since September 2013 despite only minor changes between September and December in FOMC participants’ projections of appropriate future monetary policy. However, the estimated distribution of the probable exit date is skewed so that the likelihood of an earlier or later exit is sizable. This finding is consistent with the inherent uncertainty about the outlook for inflation and unemployment, the economic variables that guide FOMC rate decisions.
Bauer, Michael, and Glenn Rudebusch. 2013. “Expectations for Monetary Policy Liftoff.” FRBSF Economic Letter 2013-34 (November 18).
Christensen, Jens H. E. 2013. “A Regime-Switching Model of the Yield Curve at the Zero Bound.” FRB San Francisco Working Paper 2013-34.
Christensen, Jens H. E., and Glenn D. Rudebusch. 2012. “The Response of Interest Rates to U.S. and U.K. Quantitative Easing.” Economic Journal 122, pp. F385–F414.
Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack. 2011. “The Financial Market Effects of the Federal Reserve’s Large-Scale Asset Purchases.” International Journal of Central Banking 7(1), pp. 3–43.
[Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.]
Posted by Mark Thoma on Monday, February 10, 2014 at 10:54 AM in Economics, Monetary Policy |
Why We Have a Debt Problem, Part 23: So, we have eleven aircraft carrier groups. No other country in the world has more than one. Everyone who has looked at the issue has agreed that we could do with fewer than eleven while still achieving our national security goals: Bush/Obama Defense Secretary Robert Gates, Obama Defense Secretary Chuck Hagel, and think tanks on the left and the right.
But apparently we can’t retire even one–even though we would save not just the annual operating costs, but most of the $4.7 billion it will cost to refurbish over the next five years. Instead, the Obama Administration has promised the Pentagon that it can simply have more money and not comply with the spending limits set in the 2011 debt ceiling agreement (and modified by Murray-Ryan).
Why? Well, legislators from states with Navy bases don’t want to reduce the Navy’s budget. More important, though, few people want to be for a smaller military–even when our military is irrationally large, given our other national priorities (healthcare, education, infrastructure, etc.). Instead of asking whether we need eleven times as many aircraft carriers as any other country, defenders insist that any reduction is a sign of weakness–conveniently overlooking the fact that we used to have fifteen carriers, and the world hasn’t ended. ...
Posted by Mark Thoma on Monday, February 10, 2014 at 09:10 AM in Economics, Fiscal Policy |
Why have politicians turned their backs on the unemployed?:
Writing Off the Unemployed, by Paul Krugman, Commentary, NY Times: Back in 1987 my Princeton colleague Alan Blinder published a very good book titled “Hard Heads, Soft Hearts.” It was, as you might guess, a call for tough-minded but compassionate economic policy. Unfortunately, what we actually got — especially, although not only, from Republicans — was the opposite. And it’s difficult to find a better example of the hardhearted, softheaded nature of today’s G.O.P. than ... the filibuster to block aid to the long-term unemployed.
What do we know about long-term unemployment in America?
First, it’s still at near-record levels. ... Yet extended unemployment benefits, which went into effect in 2008, have now been allowed to lapse. As a result, few of the long-term unemployed are receiving any kind of support.
Second, if you think the typical long-term unemployed American is one of Those People — nonwhite, poorly educated, etc. — you’re wrong... College graduates ... are actually a bit more likely than others to join the ranks of the long-term unemployed. ...
Third, in a weak job market long-term unemployment tends to be self-perpetuating, because employers in effect discriminate against the jobless. ...
What all of this suggests is that the long-term unemployed are mainly ... ordinary American workers who had the bad luck to lose their jobs ... at a time of extraordinary labor market weakness...
So how can politicians justify cutting off modest financial aid to their unlucky fellow citizens?
Some Republicans justified last week’s filibuster with the tired old argument that we can’t afford to increase the deficit. Actually, Democrats paired the benefits extension with measures to increase tax receipts. But in any case this is a bizarre objection at a time when federal deficits are not just falling, but clearly falling too fast, holding back economic recovery.
For the most part, however, Republicans justify refusal to help the unemployed by asserting that ... people aren’t trying hard enough to find jobs, and that extended benefits are part of the reason..., a fantasy at odds with all the evidence. ...
And this imperviousness to evidence goes along with a stunning lack of compassion. .... Being unemployed is always presented as a choice, as something that only happens to losers who don’t really want to work. ...
The result is that millions of Americans have in effect been written off — rejected by potential employers, abandoned by politicians whose fuzzy-mindedness is matched only by the hardness of their hearts.
Posted by Mark Thoma on Monday, February 10, 2014 at 12:24 AM in Economics, Social Insurance, Unemployment |
Posted by Mark Thoma on Monday, February 10, 2014 at 12:03 AM in Economics, Links |
Who benefits from benefits?: In the "debate" about welfare benefits, there's one point which is underweighted but so obvious that I'm embarrassed to mention it - that some form of welfare is beneficial not just to its recipients, but to capitalists.
Rightists like to point out - correctly - that the burden of taxes doesn't necessarily fall upon those who nominally pay it: corporation tax, for example, is paid by workers and not just capitalists.
But just as there's tax incidence, so there is benefit incidence; the benefits of benefits don't flow merely to their nominal recipients. ...
Posted by Mark Thoma on Sunday, February 9, 2014 at 08:52 AM in Economics, Social Insurance |
Posted by Mark Thoma on Sunday, February 9, 2014 at 12:03 AM in Economics, Links |