6. ... In terms of conventional monetary and fiscal policy, academic economists got the response to the crisis right, and policymakers got it very wrong. Central banks, full of economists, relaxed monetary policy to its full extent. They created additional money, rightly ignoring those who said it would bring rapid inflation. Many economists, almost certainly a majority, supported fiscal stimulus for as long as interest rates were stuck at their lower bound, were ignored by policymakers in 2010, and have again been proved right.
7. So given all this, why do some continue to attack economists? On the left there are heterodox economists who want nothing less than revolution, the overthrow of mainstream economics. It is the same revolution that their counterparts were saying was about to happen in the early 1970s when I learnt my first economics. They want people to believe that the bowdlerised version of economics used by neoliberals to support their ideology is in fact mainstream economics.
8. The right on the other hand is uncomfortable when evidence based economics conflicts with their politics. Their response is to attack economists. This is not a new phenomenon, as I showed in connection with the famous letter from 364 economists. With austerity they cherry picked the minority of economists who supported it, and then implemented a policy that even some of them would have disagreed with. (Rogoff did not support the cuts in public investment in 2010/11 which did most of the damage to the UK economy.) The media did the rest of the job for them by hardly ever talking about the majority of economists who did not support austerity.
9. The economic costs of Brexit is just the latest example. Critics have focused on the most uncertain and least important predictions about Brexit, made only by a few, to attack all Brexit analysis. The fact that this prediction involved an unconditional macro forecast, while the assessment made by a number of groups about the long term cost involves a conditional projection based largely on trade equations, seems to have completely escaped the critics. More important, the fact that the predicted depreciation in sterling happened, and is in the process of already causing a large drop in living standards, is completely ignored by these critics.
10. Attacking economists over Brexit is designed to discredit those who point out awkward and uncomfortable truths. Continuing to attack economists over not predicting the financial crisis, but failing to ignore their successes, has the effect of distracting people from the group who actually caused this crisis, and the fact that very little has been done to prevent a similar crisis happening in the future.
Saturday, January 21, 2017
Monday, December 19, 2016
I have a new column:
When It Comes to Trumponomics, Economists Are on High Alert: Faith in macroeconomic models plummeted after the Great Recession, and for good reason. The models failed to foresee the economic problems that were coming, the severity of the recession was misjudged, and the models provided little guidance on how policymakers should respond to the economic crisis.
Macroeconomists have since overcome many of these problems. For example, the failure to integrate a meaningful financial sector into the models and working out how monetary and fiscal policy impact the economy when it is stuck at the zero bound. But even today, as Berkeley economist Brad DeLong points out (and as I pointed out long ago), macroeconomists cannot even agree on the importance of various explanations about the primary cause(s) of the recession.
Does that mean economics has little to offer when it comes to evaluating policy proposals from the Trump administration? Have macroeconomic models been tarnished to the point where the Trump administration can disregard economic analyses unfavorable to their proposals because the experts don’t know what they are talking about? ...
Thursday, October 13, 2016
How much bigger can the U.S. labor force get?: The U.S. labor market continues to recover from the still lingering effects of the Great Recession, but the question on the minds of many economists and analysts is how long can the healing continue? Or, in other words, has the U.S. economy hit “full employment”...? Understanding trends in the labor force participation rate is key for answering this question. ...
Views on labor force participation today vary on the extent to which structural forces or cyclical effects from the Great Recession of 2007-2009 are still affecting the participation rate. Many economists and analysts point to the role of structural forces or trends that long predate the Great Recession. But the long-term trend that gets cited the most is the aging of the working population as the Baby Boomer generation reaches retirement. The estimates on the effects of aging can vary quite a bit, but an estimate by the White House’s Council of Economic Advisers puts about half of the decline in participation from 2007 to 2014 into the “aging” category. When it comes to a policy response, it’s hard to change the age distribution of the population...
The importance of structural forces and demographics might give an impression that labor force participation or other trends are immutable and have to simply be endured. Regardless of how much slack remains in the labor market..., several structural factors can be addressed through policy actions.
Consider a new paper by Princeton University economist and former Council of Economic Advisers chairman Alan Krueger. The paper takes a direct look at the labor force participation rate and tries to understand what is depressing participation for men and women who are in prime working ages of 25 to 54. When it comes to prime-age men, health problems seem to be a huge barrier to labor market participation. According to the paper, almost 50 percent of men in this age group are taking medicine to control pain, and about 40 percent of this group say health issues are preventing them from taking a job. This is structural force that is not directly related to the Great Recession, but it certainly is amenable to a policy response.
As Krueger notes, such a trend means increased health insurance may help this trend or policymakers may want to look at pain-management interventions. When it comes to trends for prime-age women, there’s research pointing to the importance of family-friendly policies, or rather the lack thereof. ... Policies that help provide childcare and paid family and medical leave seem likely to help push back against these trends... And paid leave may also help male employment by allowing workers to take time off for their own health problems.
Of course, there is still the possibility that cyclical forces are pushing down the labor force participation rate. ... The only way we’ll really know is if policymakers, especially at the Federal Reserve, continue to be patient and help the current recovery continue.
Saturday, September 24, 2016
A colleague, Bruce Blonigen, has a new paper at the Economic Journal:
When Industrial Policy Harms Performance: Evidence from the World Steel Industry, by Romesh Vaitilingam RES: The use of industrial policies to support a country’s steel sector has damaging effects on the export competitiveness of downstream manufacturing sectors that make use of steel. That is the central finding of research by Professor Bruce Blonigen, published in the September 2016 issue of the Economic Journal.
His cross-country analysis indicates that sectors in which steel is a major input, such as fabricated metals and machinery, suffer particularly badly. He also finds that export subsidies and government ownership are the industrial policies that have the most harmful effects on downstream export competitiveness – and the effects are most evident in less developed countries. He concludes:
‘My results are concerning given the popularity of industrial policies, but they are consistent with a couple of possible explanations.’
‘The first is that governments are not seeking to improve the welfare of their country, but have other objectives in mind, such as responding to political lobbies.’
‘The other possibility is that policy-makers do not understand or recognize the entire range of industrial policy effects and the need to coordinate overlapping policies so they are not at cross-purposes. This may be why the harmful effects seem to be largest in less developed countries.’
Throughout history, governments have used industrial policies to guide the development of key sectors in their economies and to spur economic development. These policies can vary substantially from subsidizing production to limiting import competition to promoting export sales.
One practical concern is that a layering of industrial policies often accumulates over time, leading to the presence of multiple policies at cross-purposes with each other. An additional concern is that targeted industrial policies may result from political pressure by particular sectors without regard to how they will affect other parts of the economy.
Recent efforts by the South African government to target industrial policies at its lagging manufacturing sector illustrate these concerns. The government found that a prior policy program targeted at its steel sector, which is a source of key inputs to many manufacturing sectors, had led to uncompetitive steel prices and hurt downstream manufacturing sectors. Rather than eliminate the industrial policies in their steel sector, the government layered additional policies in the steel-using sectors in the hope of restoring the health of these downstream sectors.
Is this South African example typical? Evidence is scant to non-existent on the net effects of industrial policies on economic growth and development. While there are many studies of the effects of specific industrial policies, particularly import tariffs, the difficulty of collecting the wide variety of industrial policies in a consistent fashion has hindered systematic analysis.
Using a new hand-collected database of industrial policies used in the steel sector in major steel-producing countries, the author of this new study is able to overcome a number of these data difficulties and provide estimates of industrial policy effects in one of the sectors most often targeted by governments for industrial policies.
Because steel is a primary input in so many manufactured goods, the research focuses on how industrial policies in a country’s steel sector affect the export competitiveness of downstream manufacturing sectors that use steel. Professor Blonigen finds that:
• The use of industrial policies is harmful to downstream sectors. A one standard deviation increase in steel industrial policy usage leads to an immediate 1.2% decline in export competitiveness for the average downstream manufacturing sector.
• This effect is five times higher (or roughly 6%) for major steel-using downstream sectors, such as fabricated metals and machinery.
• The long-run effect of increased industrial policy usage for the average downstream sector is over a 15% decline in their exports.
• These industrial policy effects on downstream export performance are largely driven by less developed countries in the sample, though country-by-country regressions show a negative and significant effects of steel industry policies on downstream competitiveness in a few developed countries as well.
• In general, the negative effect of industrial policies on downstream export values operates through lowered export quantities. But there is also evidence that export prices increase (or do not fall as much) in differentiated goods sectors from higher input prices from the steel industry policies, which is most likely due to market power effects.
• Exploring the heterogeneous effects of different types of industrial policy, the research finds that export subsidies and government ownership have the most harmful effects on downstream export competitiveness.
Friday, September 16, 2016
Jason Furman (the text of the report is 18 pages long, including figures and tables):
Beyond Antitrust: The Role of Competition Policy in Promoting Inclusive Growth: Thank you very much for inviting me to today’s conference. Discussions of competition often center on issues of antitrust enforcement. Those are important issues, but I will not address them in my remarks today because they are enforcement questions that are within the purview of the Antitrust Division of the Justice Department and the Federal Trade Commission (FTC). I will argue, though, that public policy can play an important role in promoting competition that goes well beyond traditional antitrust enforcement.
The Administration has focused on competition policy in a wide range of areas, from airport slots to standards essential patents to spectrum allocation. Most recently, this past April, the President signed an Executive Order calling on agencies to identify creative actions that they can take to promote competition. The Executive Order calls on agencies to maintain a focus on competition policy in the future by submitting proposed actions on a semi-annual basis. The Administration is currently reviewing the first set of proposals from agencies on how we can use public policy to promote competition, a number of which will be announced in the coming months.
The first action undertaken as part of this Executive Order was the Administration filing in support of the Federal Communication Commission's (FCC) proposed rule to bring increased competition to the market for cable set-top boxes. We have been pleased to see FCC Chairman Wheeler actively listen to the many stakeholders involved to improve the proposal, and believe that he is charting out a responsible way to address their meaningful concerns while being responsive to Congress's explicit directive to ensure a healthy set-top marketplace.
In conjunction with the Executive Order, the Council of Economic Advisers (CEA) released an issue brief documenting some of the evidence suggesting a reduction in competition throughout the economy. Our findings are consistent with recent arguments from academic papers such as Bennett and Gartenberg (2016), and other observers, including The Economist and the Center for American Progress (CAP), stating that competition in the U.S. economy has declined in recent years (The Economist 2016; Jarsulic et al. 2016).
Part of the underlying motivation for the Administration’s efforts is the belief that competition can play an important and broader role not just in static, allocative efficiency but also in dynamic efficiency—making the economy more innovative and increasing productivity growth. In addition, there is also increasing evidence that greater competition or more evenly balanced power in some areas could also play a role in reducing some of the causes of inequality.
In my remarks today, I will start by quickly reviewing some of the evidence for greater concentration in the economy, then provide some broad macroeconomic motivation, before discussing a few specific areas that the Administration is working on, with a focus on some of the difficult questions raised by the rapid evolution of technology in recent years.
What Is the Evidence on the Trends in Concentration?
Some Pro -Competition Policy Applications
To the extent that these macroeconomic trends are related to decreased competition, then pro - competitive policies have potential to not only benefit consumers but also improve the state of the macroeconomy by, for example, increasing productivity and ensuring that the benefits of growth are widely shared. For these reasons, the Administration has taken several significant policy actions to promote competition. I will next briefly touch on four examples.
Intellectual Property and Patent Reform...
Increasing the Bargaining Power of Workers...
Reforming Occupational Licensing...
Reforming Land-Use Regulation...
The Future of Competition in the Digital Age
One topic we have been grappling with in a range of economic issue areas, including competition policy, is the ever-increasing role that digitization plays in our economy. The digital age has the potential to increase competition in many ways, but at the same time, changing technology will bring new challenges to policymakers, challenges that will come increasingly to the fore as the digital economy expands.
So far, internet markets have tended to favor digital giants that hold high market shares, a characteristic that is traditionally associated with low competition in brick-and-mortar markets. However, understanding the competitive implications of these new markets requires a closer analysis. The markets of the digital economy are in many ways different from “old economy” markets. Some of those differences are differences of degree—the internet lowers many costs for small businesses, increasing their ability to rapidly and inexpensively scale up, collect information on potential consumers, and create new products and ideas. These differences do not transform the structure of the market; instead, they merely lower the cost of doing business. Other differences, however, are differences of type: business models may be dramatically different due to digitization. These differences of type warrant closer consideration.
One type of business model that has flourished with digitization is the “platform” model, which relies heavily on network effects to grow because the primary product is access to other customers. Examples include payment platforms like PayPal, sales platforms like eBay, and social networks like Facebook. Switching costs for customers are particularly high in these markets—no one wants to be the first and only user of a platform—and these network effects can act as a barrier to entry.
However, it is not as clear whether these “quasi-monopolies” pose the same harm to consumers as traditional monopolies. In these markets, highly concentrated market share might not be as detrimental to customers as in traditional markets because the services provided by these businesses are more valuable to consumers as their consumer base grows. This means that determining the optimal level of competition in these new markets is a dramatically different and harder task.
Even the task of measuring competition is complicated in digital markets. Usually, economists use prices as indicators of the level of competition, but we cannot necessarily do that here because many markets are two-sided and there are different types of consumer harm. Businesses on the internet are often complementary, so companies may subsidize one side of the market by profiting from the other side of the market. For example, social media sites often offer free services to users and charge for ads. However, the lack of high prices for consumers does not mean that consumer harms or other risks could not occur. Industry watchers have raised concerns 18 about whether the large companies that dominate search and social networking may be able to acquire inefficient power in ads or control people’s access to news. Another concern is that instead of raising prices or reducing quantity, these companies may reduce innovation. Firms holding quasi-monopolies may lose the incentive to keep improving the quality of their products.
Switching costs are traditionally an indicator of competition, and many may assume that switching costs in internet markets are virtually zero because competition is just a click away. This may have been true in the early ages of the internet, but to automatically assume zero switching costs now would be to miss a large part of what is happening. For example, the original search engines were merely directories of websites, and their quality didn’t depend on how many users they had. However, search engines today collect data on the behavior of their users and use it to improve their services and tailor those services to individual users. Thus, in order for other firms to be competitive, they need a large user base and the data that comes with it. Furthermore, for each individual user looking to switch services, the incumbent, with its existing knowledge of that user, has a significant advantage over a competitor that does not yet know the user and therefore cannot tailor services to him or her.
Lastly, digitization could bring a new level of opacity to businesses. Traditionally, price fixing and collusion could be detected in the communications between businesses. The task of detecting undesirable price behavior becomes more difficult with the use of increasingly complex algorithms for setting prices. This type of algorithmic price setting can lead to undesirable price behavior, sometimes even unintentionally. The use of advanced machine learning algorithms to set prices and adapt product functionality would further increase opacity.
Competition policy in the digital age brings with it new challenges for policymakers. It will be imperative that agencies continue the great work and creative solutions that came out of the President’s Executive Order to promote competition and inclusive growth in the digital age.
Recent trends in concentration in a range of industries suggest decreasing levels of competition, and many concerning macroeconomic trends seem to suggest that this decrease not just due to increases in economies of scale, but rather that increases in barriers to entry are playing a role. For the sake of both consumers and the macroeconomy as a whole, the Administration has used and will continue to use public policy to address these concerns. Increasing competition has the potential to drive faster productivity and output growth, faster real wage growth, and increased equity. We have moved forward in areas such as intellectual property and patent reform, increasing worker bargaining power, and reforming occupational licensing and land use regulations. While these are examples of positive changes, our work in promoting competition does not end here. The President’s Executive Order will continue to encourage agencies to develop creative solutions for increasing competition by soliciting new ideas on a regular basis. In considering the future of competition policy, we must also keep in mind the way in which changes in the economy, such as digitization, will affect how we evaluate competition effectively.
Helping working families and the unemployed doesn't hurt the economy:
Obama’s Trickle-Up Economics, by Paul Krugman, NY Times: Only serious nerds like me eagerly await the annual Census Bureau reports on income, poverty and health insurance. But the just-released reports on 2015 justified the anticipation. ...
The reports showed strong progress on three fronts: rapid growth in the incomes of ordinary families — median income rose a remarkable 5.2 percent; a substantial decline in the poverty rate; and a significant further rise in health insurance coverage after 2014’s gains. ...
It’s true that the surge in median income comes after years of disappointment, and even now the typical family’s income, adjusted for inflation, is slightly lower than it was before the financial crisis. But the ... overall performance of the Obama economy has given the lie to much of the criticism leveled at President Obama’s policies. ...
Conservatives predicted disaster from these initiatives. Tax hikes on the rich, they insisted, would stall the economy. Obamacare’s combination of regulation and subsidies, they declared, would kill millions of jobs without increasing the number of Americans with insurance.
What happened instead after Mr. Obama was re-elected was the best job growth since the 1990s. But family incomes ... continued to lag. So there was still some statistical basis for the right’s Obama-bashing. Now that statistical basis is gone. ... And it should (but won’t) finally break the grip of trickle-down ideology on much of our political class.
You know how the argument goes: Any attempt to help working families directly, we’re told, will backfire by hurting the economy as a whole. So we must cut taxes on those “job creators” instead, counting on a rising tide to raise all boats.
It would be an exaggeration to say that the Obama administration has done the reverse, but there definitely was an element of trickle-up economics in its response to the Great Recession: Much of the stimulus involved expanding the social safety net, not just to protect the vulnerable, but to increase purchasing power and sustain demand. And in general Obama-era policies have tried to help families directly, rather than by showering benefits on the rich and hoping that the benefits trickle down.
Now the results of this policy experiment are in, and they’re not bad. They could have been better: The stimulus should have been bigger and more sustained, and Republican opposition hamstrung the administration’s economic policy after the first two years. Still, progressive policies have worked, and the critics of those policies have been proved wrong.
Monday, May 09, 2016
Donald Trump is "frighteningly uninformed":
The Making of an Ignoramus, by Paul Krugman, NY Times: Truly, Donald Trump knows nothing. He is more ignorant about policy than you can possibly imagine...
Last week the presumptive Republican presidential nominee ... finally revealed his plan to make America great again. Basically, it involves running the country like a failing casino: he could, he asserted, “make a deal” with creditors that would reduce the debt burden if his outlandish promises of economic growth don’t work out.
The reaction from everyone who knows anything about finance or economics was a mix of amazed horror and horrified amazement. ...
So why is Mr. Trump even talking about this subject? Well, one possible answer is that lots of supposedly serious people have been hyping the alleged threat posed by federal debt for years. ...
A lot of this debt hysteria was really about trying to bully us into cutting Social Security and Medicare, which is why so many self-proclaimed fiscal hawks were also eager to cut taxes on the rich. But Mr. Trump apparently wasn’t in on that particular con, and takes the phony debt scare seriously. Sad!
Still..., how can he imagine that it would be O.K. for America to default? One answer is that he’s extrapolating from his own business career, in which he has done very well by running up debts, then walking away from them.
But it’s also true that much of the Republican Party shares his insouciance about default. Remember, the party’s congressional wing deliberately set about extracting concessions from President Obama, using the threat of gratuitous default via a refusal to raise the debt ceiling.
And quite a few Republican lawmakers defended that strategy of extortion by arguing that default wouldn’t be that bad...
In fact, it’s remarkable how many ridiculous Trumpisms were previously espoused by Mitt Romney in 2012, from his claim that the true unemployment rate vastly exceeds official figures to his claim that he can bring prosperity by starting a trade war with China.
None of this should be taken as an excuse for Mr. Trump. He really is frighteningly uninformed...
Oh, and just for the record: No, it’s not the same on the other side of the aisle. You may dislike Hillary Clinton, you may disagree sharply with her policies, but she and the people around her do know their facts. Nobody has a monopoly on wisdom, but in this election, one party has largely cornered the market in raw ignorance.
Wednesday, April 20, 2016
101 Boosterism: I see that @drvox is writing a big piece on carbon pricing – and agonizing over length and time. I don’t want to step on his forthcoming message, but what he’s said so far helped crystallize something I’ve meant to write about for a while, a phenomenon I’ll call “101 boosterism.”
The name is a takeoff on Noah Smith’s clever writing about “101ism”, in which economics writers present Econ 101 stuff about supply, demand, and how great markets are as gospel, ignoring the many ways in which economists have learned to qualify those conclusions in the face of market imperfections. His point is that while Econ 101 can be a very useful guide, it is sometimes (often) misleading when applied to the real world.
My point is somewhat different: even when Econ 101 is right, that doesn’t always mean that it’s important – certainly not that it’s the most important thing about a situation. In particular, economists may delight in talking about issues where 101 refutes naïve intuition, but that doesn’t at all mean that these are the crucial policy issues we face. ...
He goes on to talk about this in the context of international trade and carbon pricing (too hard to excerpt without leaving out important parts of his discussion).
From Microeconomic Insights:
Did welfare reform lead some American families to work less?, by Patrick Kline (Berkeley), Melissa Tartari (Chicago): The landmark US welfare reform of 1996 provided strong incentives for poor women to work while receiving assistance – but it also provided incentives for some women to reduce their earnings to qualify for benefits. This research develops a new approach to detecting this ‘welfare opt-in’ effect and uses it to analyze data from a large randomized evaluation of welfare reform in Connecticut: the “Jobs First” program. The results reveal that the Jobs First program induced a substantial fraction of the women who were capable of lifting their families out of poverty without assistance to opt for welfare instead. ...
While our findings are specific to the sample of women in Connecticut’s Jobs First experiment, the welfare opt-in results indicate that sharp provisions for phasing out benefits can significantly depress the earnings of disadvantaged people even when the net effect of the program is to get more people working. These earnings reductions are inefficient insofar as they cost taxpayers money and trap low-skilled workers in jobs that they otherwise wouldn’t want.
An important question for policy-makers is whether these inefficiencies can be diminished by adopting smooth benefit phase in and phase out provisions such as those specified by the Earned Income Tax Credit (EITC). By phasing benefits out more gradually, such schemes replace a large distortion concentrated over a small number of relatively high earners with a small distortion spread over a larger number of people.
There are reasons to suspect that such a tradeoff could be worthwhile: economists often find disproportionately large behavioral responses to stronger incentives (Chetty, 2012). This could be because the program rules that generate strong incentives (for example, the Jobs First eligibility thresholds) are more salient or because households deem adjusting to weaker incentives to be ‘not worth the trouble’.
More research on these questions is necessary to inform the optimal design of welfare and other transfer programs.
Monday, February 29, 2016
"Salvation is clearly within our grasp":
Planet on the Ballot, by Paul Krugman, Commentary, NY Times: We now have a pretty good idea who will be on the ballot in November: Hillary Clinton, almost surely..., and Donald Trump, with high likelihood.... But even if there’s a stunning upset in what’s left of the primaries, we already know very well what will be at stake — namely, the fate of the planet.
Obviously, the partisan divide on environmental policy has been growing ever wider..., denial of climate science and opposition to anything that might avert catastrophe have become essential pillars of Republican identity..., even a blowout Democratic victory this year probably wouldn’t create a political environment in which anything ... could pass Congress.
But here’s the thing: the next president won’t need to pass comprehensive legislation... Dramatic progress in energy technology has put us in a position where executive action ... can achieve great things. All we need is an executive willing to take that action, and a Supreme Court that won’t stand in its way.
And this year’s election will determine whether those conditions hold.
Many people ... still seem oddly oblivious to the ongoing revolution in renewable energy...: the cost of electricity generated by wind and sun has dropped dramatically, while costs of storage ... are plunging as we speak.
The result is that we’re only a few years from a world in which carbon-neutral sources of energy could replace much of our consumption of fossil fuels at quite modest cost. ... All it would take to push us across the line would be moderately pro-environment policies. ...
I don’t know about you, but this situation makes me very nervous. As long as the prospect of effective action on climate seemed remote, sheer despair kept me, and I’m sure many others, comfortably numb — you knew nothing was going to happen, so you just soldiered on. Now, however, salvation is clearly within our grasp, but it remains all too possible that we’ll manage to snatch defeat from the jaws of victory. And this is by far the most important issue there is; it, er, trumps even such things as health care, financial reform, and inequality.
So I’m going to be hanging on by my fingernails all through this election. No doubt there will be plenty of entertainment along the way, given the freak show taking place on one side of the aisle. But I won’t forget that the stakes this time around are deadly serious. And neither should you.
Wednesday, July 29, 2015
Paul Krugman wonders if he has been advocating for the right type of policies:
Second-best Macroeconomics: The ... economic problems facing both the United States and Europe have been quite straightforward and comprehensible. ... So no worries: just hit the big macroeconomic That Was Easy button, and soon the troubles will be over.
Except that all the natural answers to our problems have been ruled out politically. Austerians not only block the use of fiscal policy, they drive it in the wrong direction; a rise in the inflation target is impossible given both central-banker prejudices and the power of the goldbug right. Exchange rate adjustment is blocked by the disappearance of European national currencies, plus extreme fear over technical difficulties in reintroducing them.
As a result, we’re stuck with highly problematic second-best policies like quantitative easing and internal devaluation. ... In case you don’t know, “second best” ... comes from a classic 1956 paper by Lipsey and Lancaster, which showed that policies which might seem to distort markets may nonetheless help the economy if markets are already distorted by other factors. ...
The problems with second best as a policy rationale are familiar. For one thing, it’s always better to address existing distortions directly, if you can — second best policies generally have undesirable side effects... There’s also a political economy concern,... in a complicated world you can come up with a second best rationale for practically anything. ...
But here we are, with anything resembling first-best macroeconomic policy ruled out by political prejudice, and the distortions we’re trying to correct are huge — one global depression can ruin your whole day. So we have quantitative easing, which is of uncertain effectiveness, probably distorts financial markets at least a bit, and gets trashed all the time by people stressing its real or presumed faults; someone like me is then put in the position of having to defend a policy I would never have chosen if there seemed to be a viable alternative. ...
Which makes me ask myself the question: Do people like me spend too much time being limited by what is presumed to be politically practical? Should we devote more time to trying to widen the range of options, to pointing out that we really would be much better off if we threw off the fetters of conventional deficit fears, the 2 percent inflation target, and the extremely ill-advised euro project?
Tuesday, June 02, 2015
I have argued many, many times that we did not do nearly enough to help households repair their balance sheets (especially when compared to the attention that bank balance sheets received), so I like this idea from Stanford's Mordecai Kurz:
Stabilizing Wage Policy by Mordecai Kurz, Department of Economics Stanford University, Stanford, CA. (This version: May 27, 2015): Summary: A rapid recovery from deflationary shocks that result in transition to the Zero Lower Bound (ZLB) requires that policy generate an inflationary counter-force. Monetary policy cannot achieve it and the lesson of the 2007-2015 Great Recession is that growing debt give rise to a political gridlock which prevents restoration to full employment with deficit financed public spending. Even optimal investments in needed public projects cannot be undertaken at a zero interest rate. Hence, failure of policy to arrest the massive damage of eight year’s Great Recession shows the need for new policy tools. I propose such policy under the ZLB called “Stabilizing Wage Policy” which requires public intervention in markets instead of deficit financed expenditures. Section 1 develops a New Keynesian model with diverse beliefs and inflexible wages. Section 2 presents the policy and studies its efficacy.
The integrated New Keynesian (NK) model economy consists of a lower sub-economy under a ZLB and upper sub-economy with positive rate, linked by random transition between them. Household-firm-managers hold heterogeneous beliefs and inflexible wage is based on a four quarter staggered wage structure so that mean wage is a relatively inflexible function of inflation, of unemployment and of a distributed lag of productivity. Equilibrium maps of the two sub-economies exhibit significant differences which emerge from the relative rates at which the nominal rate, prices and wage rate adjust to shocks. Two key results: first, decline to the ZLB lower subeconomy causes a powerful debt-deflation spiral. Second, output level, inflation and real wages rise in the lower sub-economy if all base wages are unexpectedly raised. Unemployment falls. This result is explored and explained since it is the key analytic result that motivates the policy.
A Stabilizing Wage Policy aims to repair households’ balance sheets, expedite recovery and exit from the ZLB. It raises base wages for policy duration with quarterly cost of living adjustment and a prohibition to alter base wages in order to nullify the policy. I use demand shocks to cause recession under a ZLB and a deleveraging rule to measure recovery. The rule is calibrated to repair damaged balance sheets of US households in 2007-2015. Sufficient deleveraging and a positive rate in the upper sub-economy without a wage policy are required for exit hence at exit time inflation and output in the lower sub-economy are irrelevant for exit decision. Simulations show effective policy selects high policy intensity at the outset and given the 2007-2015 experience, a constant 10% increased base wages raises equilibrium mean wage by about 5.5%, generates a controlled inflation of 5%-6% at exit time and attains recovery in a fraction of the time it takes for recovery without policy. Under a successful policy inflation exceeds the target at exit time and when policy terminates, inflation abates rapidly if the inflation target is intact. I suggest that a stabilizing wage policy with a constant 10% increased base wages could have been initiated in September 2008. If controlled inflation of 5% for 2.25 years would have been politically tolerated, the US would have recovered and exited the ZLB in 9 quarters and full employment restored by 2012. Lower policy intensity would have resulted in smaller increased mean wage, lower inflation but increased recession’s duration. The policy would not have required any federal budget expenditures, it would have reduced public deficits after 2010 and the US would have reached 2015 with a lower national debt.
The policy negates the effect of demand shocks which cause the recession and the binding ZLB. It attains it’s goal with strong temporary intervention in the market instead of generating demand with public expenditures. It does not solve other long term structural problems that persist after exit from the ZLB and which require other solutions.
Tuesday, May 12, 2015
The Rules are What Matter for Inequality: Our New Report: I’m very excited to announce the release of “Rewriting the Rules of the American Economy” (pdf report), Roosevelt Institute’s new inequality agenda report by Joe Stiglitz. I’m thrilled to be one of the co-authors...
As we argue, inequality is not inevitable: it is a choice that we’ve made with the rules that structure our economy. Over the past 35 years, the rules, or the regulatory, legal and institutional frameworks, that make up the economy and condition the market have changed. These rules are a major driver of the income distribution we see, including runaway top incomes and weak or precarious income growth for most others. Crucially, however, these changes in the rules have not made our economy better off than we would be otherwise; in many cases we are weaker for these changes. We also now know that “deregulation” is, in fact, “reregulation”—that is, a new set of rules for governing the economy that favor a specific set of actors, and that there's no way out of these difficult choices. But what were these changes? ...
This report describes what has happened, going far deeper than this summary here. It also has a policy agenda focused on both taming the top and growing the rest of the economy. Some may emphasize some pieces more than others; but no matter what this argument about the rules is what is missing in the current debates over the economy. ...
Monday, March 09, 2015
Publicly funded inequality, Brookings: One of the factors driving the massive rise in global inequality and the concentration of wealth at the very top of the income distribution is the interplay between innovation and global markets. In the hands of a capable entrepreneur, a technological breakthrough can be worth billions of dollars, owing to regulatory protections and the winner-take-all nature of global markets. What is often overlooked, however, is the role that public money plays in creating this modern concentration of private wealth.
As the development economist Dani Rodrik recently pointed out, much of the basic investment in new technologies in the United States has been financed with public funds. The funding can be direct, through institutions like the Defense Department or the National Institutes of Health (NIH), or indirect, via tax breaks, procurement practices, and subsidies to academic labs or research centers.
When a research avenue hits a dead end – as many inevitably do – the public sector bears the cost. For those that yield fruit, however, the situation is often very different. Once a new technology is established, private entrepreneurs, with the help of venture capital, adapt it to global market demand, build temporary or long-term monopoly positions, and thereby capture large profits. The government, which bore the burden of a large part of its development, sees little or no return. ...
A combination of measures and international agreements must be found that would allow taxpayers to obtain decent returns on their investments, without removing the incentives for savvy entrepreneurs to commercialize innovative products.
The seriousness of this problem should not be understated. The amounts involved contribute to the creation of a new aristocracy that can pass on its wealth through inheritance. If huge sums can be spent to protect privilege by financing election campaigns (as is now the case in the US), the implications of this problem, for both democracy and long-term economic efficiency, could become systemic. The possible solutions are far from simple, but they are well worth seeking.
["Several ways to change such a system" are also discussed.]
Saturday, January 10, 2015
This is silly (it's from a discussion of the costs of policy uncertainty from the Becker Friedman Institute):
If the Affordable Care Act has taught us anything, it’s this: A party in power can push through a major policy initiative in the teeth of strong political opposition, but it probably shouldn’t. A better strategy is to secure some support across the political aisle, even at the cost of compromise. Persistent attacks on the Affordable Care Act continue to generate uncertainty about its political durability and raise doubts about what the healthcare delivery landscape will look like in the U.S. for many years to come.
That simply wasn't a choice. Securing support across the political aisle was not an option. No amount of compromise would have mattered. Would the millions who now have health insurance, those who now have the option to change jobs without losing insurance, people with pre-existing conditions, etc., etc. be better off if the law had not passed? Because that was the choice Democrats faced, a highly imperfect bill that would do quite a bit of good even with its imperfections, or no bill at all. Bipartisan support for policy is surely a worthy goal, and sometimes a bit of compromise can bring it about. But other times there is no choice except to ram through legislation that one side believes has the potential to do considerable good.
Interesting that the authors didn't pick tax cuts for the wealthy as their example of policy uncertainty. The future prospects for this policy were just as uncertain under Obama, the policy had a high degree of opposition from the other side of the political aisle, and the tax cuts did far less good than the ACA beyond reducing the tax payments for a group of wealthy individuals who didn't need the help. And unlike the ACA and its documented success (if you look past Fox News), the promised trickle down and economic growth miracle never materialized. If we are looking for a case where the harm from policy uncertainty exceeds the benefits of the policy, this is a much better candidate than the ACA.
I do like some of their other recommendations though, e.g. to use automatic stabilizers:
Automatic stabilizers—unemployment insurance spending that goes up when employment falls, for example—offer some advantages over discretionary measures. The fiscal equivalent of an “advance directive,” they kick-in quickly in real time as economic fundamentals change. They don’t need to wait for a legislative act. And while every distribution of federal dollars involves some political infighting, a policy response developed in advance of actual need is more likely to be evaluated primarily on its economic rather than political merits. Finally, those bearing the brunt of the shock—wage earners and businesses—aren’t left wondering when or if some help is on the way.
Take some of the politicking out of policymaking. A Congress that indiscriminately exercises its right to debate, amend, and delay can produce excessive tug-of-war policymaking that comes with the cost of heightened uncertainty. Asking Congress to skip the dickering and bind itself to a simple up or down vote, as it already does with military base closures and fast-track trade authority, could minimize the drama—and cost—of indecision.
Though taking the politicking out of policymaking is probably wishful thinking, and it's hard to imagine Republicans going along with any expansion of automatic stabilizers (their proposals are likely to run in the other direction, reducing support for programs such as food stamps).
So long as we have political parties with differing ideological views, there will always be policy uncertainty. One side will always want to undo what the other puts into place. They will rarely agree, and a call for bipartisan support before anything can be done is a call to do nothing. I don't think that's the best approach.
But so long as we are engaged in wishful thinking, let me add to the list. What I'd add is more honesty in evaluating programs after they are put into place. More attention and responsiveness to the empirical evidence. If tax cuts don't trickle down or create growth, if austerity actually makes things worse, if fiscal policy multipliers are non-zero in deep recessions when we are stuck at the zero bound, if the ACA is working to provide health services to millions of people who dearly needed such help, etc., etc., then accept the evidence and adjust policy accordingly. I suppose it's too much to expect politicians to do this, but can we at least get economists to treat these issues honestly (and maybe the media would do better as a consequence)? I'd settle for that.
Friday, December 26, 2014
Sometimes, government is the best solution to our problems:
Tidings of Comfort, by Paul Krugman, Commentary, NY Times: ... All year Americans have been bombarded with dire news reports portraying a world out of control and a clueless government with no idea what to do.
Yet if you look back at what actually happened over the past year,... a number of major government policies worked just fine — and the biggest successes involved the most derided policies. You’ll never hear this on Fox News, but 2014 was a year in which the federal government, in particular, showed that it can do some important things very well...
Start with Ebola... Judging from news media coverage..., America was on the verge of turning into a real-life version of “The Walking Dead.” And many politicians dismissed the efforts of public health officials... As it turned out, however, the Centers for Disease Control and Prevention ... knew what they were doing..., there was no outbreak here.
Consider next the state of the economy. There’s no question that recovery from the 2008 crisis has been painfully slow and should have been much faster. In particular, the economy has been held back by unprecedented cuts in public spending and employment.
But the story you hear all the time portrays economic policy as an unmitigated disaster... So it comes as something of a shock when you look at the actual record and discover that growth and job creation have been substantially faster during the Obama recovery than they were during the Bush recovery last decade (even ignoring the crisis at the end)...
What’s more, recent data suggest that the economy is gathering strength... Maybe economic management hasn’t been that bad, after all.
Finally, there’s the hidden-in-plain-sight triumph of Obamacare, which is just finishing up its first year of full implementation. ... In fact, Year 1 surpassed expectations on every front. ... And all indications suggest that year two will be marked by further success.
And there’s more. For example, at the end of 2014, the Obama administration’s foreign policy, which tries to contain threats like Vladimir Putin’s Russia or the Islamic State rather than rushing into military confrontation, is looking pretty good.
The common theme here is that, over the past year, a U.S. government subjected to constant bad-mouthing, constantly accused of being ineffectual or worse, has, in fact, managed to accomplish a lot. On multiple fronts, government wasn’t the problem; it was the solution. Nobody knows it, but 2014 was the year of “Yes, we can.”
Wednesday, December 03, 2014
I was looking for an old post of mine on social insurance and entrepreneurship to complement this post today from Nick Bunker when I came across this from September of 2005 (slightly edited). Maybe I wasn't one of the people yelling loudly that the Great Recession was about to hit, but I did warn that "Things happen," so be ready when they do:
...The discussion concerning Social Security has, in my view, largely underplayed the role the government has to play in guaranteeing the social insurance aspect of the system, particularly from those in favor of private accounts. When all shocks that hit people are individual so that there are winners and losers, but overall the winners and losers balance, then it is possible for people to voluntarily enter into arrangements where the individual risks are shared and thus largely eliminated (abstracting for the moment from market failure problems in social insurance markets). Conversely, if people want to bear the risks individually, they can. This system works fine for time periods when shocks are small and idiosyncratic. But what about large disasters such as a hurricane that floods New Orleans, or a Great Depression that guts an entire economy?
The Social Security program grew out of a time when there was a large aggregate shock, a shock that resulted in the Great Depression. The Great Depression affected people collectively, it wasn’t just a few unlucky individuals balanced somewhere else by winners. It’s been hard for me to see how private accounts would help when stock market values fall, as they did after the crash of 1929, to one sixth their pre-crash values. Without some sort of social support from the government, such as it is, people would be much worse off after such events. How will personal accounts and individual accountability rebuild schools or bridges in New Orleans? How will private accounts or even the private sector rescue the elderly from rooftops or provide security against looters? They won’t. For large collective shocks the government, not the private sector induced purely by profit, must stand ready to act as the "insurer of last resort."
To have a social security system that falls apart when you most need it, when there are large disasters affecting entire regions or economies, is not optimal. Personal accounts would not have withstood the stock market crash associated with the Great Depression. Why do we want to implement a social support system that fails when it is needed the most? I don’t think any of us believes we should leave it to individuals to bear the full cost of the disaster caused by Hurricane Katrina, i.e. that government should not be involved at all. We all know that government has a role to play in this disaster, the cry from all sides is that the government is doing too little, not that it is doing too much. Things may not be perfect with government involved, and there is certainly room for improvement, but things would be even worse if government did not get involved at all. And just as the government has an essential role to play in this disaster, it will also have an essential role to play when the next big shock, whether it’s financial, natural, or human induced, hits us in the future. Social insurance systems aren’t just for the next few years, they must survive as long as the country does. Social insurance must survive the big shocks, and for that to happen the government must, in the end, provide the insurance.
If you think such large shocks cannot happen again, that big shocks such as a Great Depression will never, ever happen again to anyone ever, think about the events in any one hundred year time period. Things happen.
Friday, November 28, 2014
Economists vs politicians: ... I suspect that there is a greater distance now between the political parties and economist than there has been for years. ...
You might think this isn't a wholly bad thing. Many ideas are not worth adopting ... This, however, doesn't justify politicians' lack of interest in the settled, established knowledge that economists do have.
So, where is there such a gap between politicians and economists?
The fault might partly lie with economics. Many academics aren't as interested in closing the gap between academia and the "real world" as they should be. At least some of the discipline was discredited by the crisis, and I get the feeling that there aren't so many good new policy-relevant ideas now.
It might be that the voters are to blame. Maybe they don't want serious politicians who are interested in good ideas but rather, in our narcissistic age, they simply expect their demands to be met, however unreasonable. But is this the whole story? Janan Ganesh thinks not:There is...an unsatisfied demand for seriousness and leadership. Most people do not vote Ukip or parse an MP’s tweet for class meaning. The flight to frivolity in public life is not the voters’ doing. Many are in fact waiting for a leader to arrest it.
This leaves a third suspect - the media. ... Political journalists have been complicit in creating a hyperreal bubble of mediamacro which perpetuates witless ideas (such as conflating the economy with the deficit) to the exclusion of such good ones as might exist.
I'm not sure, then, how exactly to apportion blame for the divorce between politicians and economists. But I do suspect that, net, it is a bad thing.
[I left out his examples of "established knowledge that economists do have".]
Monday, November 03, 2014
Should policymakers listen to business leaders?:
Business vs. Economics, by Paul Krugman, Commentary, NY Times: The Bank of Japan ... has lately been making a big effort to end deflation, which has afflicted Japan’s economy for almost two decades. At first its efforts — which involve printing a lot of money and, even more important, trying to assure investors that it will keep printing money until inflation reaches 2 percent — seemed to be going well. But more recently the economy has lost momentum, and last week the bank announced new, even more aggressive monetary measures. ...
While the bank did the right thing, however,... the new stimulus was approved by only five of the bank board’s nine members, with those closest to business voting against. Which brings me to the subject of this column: the economic wisdom, or lack thereof, of business leaders.
Some of the people I’ve spoken to here argue that the opposition of many Japanese business leaders to the Bank of Japan’s actions shows that it’s on the wrong track. ... Actually,..., business leaders often give remarkably bad economic advice... Why? ...
National economic policy, even in small countries, needs to take into account kinds of feedback that rarely matter in business life. For example, even the biggest corporations sell only a small fraction of what they make to their own workers, whereas even very small countries mostly sell goods and services to themselves.
So think of what happens when a successful businessperson looks at a troubled economy and tries to apply the lessons of business experience. He or (rarely) she sees the troubled economy as something like a troubled company, which needs to cut costs and become competitive. To create jobs, the businessperson thinks, wages must come down, expenses must be reduced; in general, belts must be tightened. And surely gimmicks like deficit spending or printing more money can’t solve what must be a fundamental problem.
In reality, however, cutting wages and spending in a depressed economy just aggravates the real problem, which is inadequate demand. Deficit spending and aggressive money-printing, on the other hand, can help a lot.
But how can this kind of logic be sold to business leaders, especially when it comes from pointy-headed academic types? The fate of the world economy may hinge on the answer.
Here in Japan, the fight against deflation is all too likely to fail if conventional notions of prudence prevail. But can unconventionality triumph over the instincts of business leaders? Stay tuned.
Monday, October 27, 2014
David Hendry at Vox EU:
Climate change: Lessons for our future from the distant past, by David F. Hendry: Summary Climate change has been the main driver of mass extinctions over the last 500 million years. This column argues that current evidence provides a stark warning. Human activity is producing greenhouse gases, and as a consequence global temperatures and ocean heat content are rising. Such trends raise the risk of tipping points. Economic analysis offers a number of ideas, but a key problem is that distributions of climate variables can shift, invalidating stationarity-based analyses, and making action to avoid possible future shifts especially urgent.
Economic analysis offers many insights – externalities need to be either priced or regulated, and climate change is the largest ever worldwide externality. All approaches are affected by the possibility of abrupt changes and the resulting unknown uncertainty when distributions shift, making action more urgent to avoid possible future shifts. Adaptation is not meaningful if food, water, and land resources become inadequate. Conversely, mitigation steps need not be costly, and could stimulate innovation. International negotiations are more likely to succeed if the largest players act first in their own counties or groups – also creating opportunities for their societies as new technologies develop.
Planet Earth will survive whatever humanity is doing – the crucial issue is the effect of climate change on its present inhabitants. It is a risky strategy to do nothing if there are potentially huge costs when the costs of initial actions are small. The obvious time to start is now, and the obvious actions are the many low-cost implementations that mitigate greenhouse gases (see Stern 2008 for a list) – just in case.
Monday, October 13, 2014
Why didn't homeowners, unlike banks, get the debt relief they needed?:
Revenge of the Unforgiven, by Paul Krugman, Commentary, NY Times: Stop me if you’ve heard this before: The world economy appears to be stumbling. For a while, things seemed to be looking up, and there was talk about green shoots of recovery. But now growth is stalling, and the specter of deflation looms.
If this story sounds familiar, it should; it has played out repeatedly since 2008. ... Why does this keep happening? ... The answer, I’d suggest, is an excess of virtue. Righteousness is killing the world economy.
What, after all, is our fundamental economic problem? ... In the years leading up to the Great Recession, we had an explosion of credit..., debt levels that would once have been considered deeply unsound became the norm.
Then the music stopped, the money stopped flowing, and everyone began trying to “deleverage,” to reduce the level of debt. For each individual, this was prudent. But ... when everyone tries to pay down debt at the same time, you get a depressed economy.
So what can be done? Historically, the solution to high levels of debt has often involved writing off and forgiving much of that debt. ...
What’s striking about the past few years, however, is how little debt relief has actually taken place. ...
Why are debtors receiving so little relief? As I said, it’s about righteousness — the sense that any kind of debt forgiveness would involve rewarding bad behavior. In America, the famous Rick Santelli rant that gave birth to the Tea Party wasn’t about taxes or spending — it was a furious denunciation of proposals to help troubled homeowners. In Europe, austerity policies have been driven less by economic analysis than by Germany’s moral indignation over the notion that irresponsible borrowers might not face the full consequences of their actions.
So the policy response to a crisis of excessive debt has, in effect, been a demand that debtors pay off their debts in full. What does history say about that strategy? That’s easy: It doesn’t work. ...
But it has been very hard to get either the policy elite or the public to understand that sometimes debt relief is in everyone’s interest. Instead, the response to poor economic performance has essentially been that the beatings will continue until morale improves.
Maybe, just maybe, bad news — say, a recession in Germany — will finally bring an end to this destructive reign of virtue. But don’t count on it.
Wednesday, October 08, 2014
If the number of retweets of a link is any indication, there seems to be a lot of interest in this paper:
Busts hurt more than booms help: New lessons for growth policy from global wellbeing surveys, by Jan-Emmanuel De Neve and Michael I. Norton, Vox EU: Wellbeing measures allow us to distinguish higher incomes from higher happiness. This column looks at new welfare measures and macroeconomic fluctuations. It presents evidence that the life satisfaction of individuals is between two and eight times more sensitive to negative economic growth than it is to positive economic growth. Engineering economic ‘booms’ that risk even short ‘busts’ is unlikely to improve societal wellbeing in the long run.
To say it another way, "policymakers seeking to raise wellbeing should focus more on preventing busts than inculcating booms."
Tuesday, September 23, 2014
"Credibility": At the end of an interview with Ed Balls this morning, Sarah Monague (02h 22m in) gave us a wonderful example of the ideological presumptions of supposedly neutral BBC reporting. She asked Nick Robinson: "It's about economic credibility here, isn't it?"
What's going on here is a double ideological trick.
First, "credibility" is defined in terms of whether Labour's plans are sufficiently fiscally tight*. This imparts an austerity bias to political discourse. There's no necessary reason for this. We might instead define credibility in terms of whether the party is offering enough to working people, and decry the derisory rise in the minimum wage as lacking credibility from the point of view of the objective of improving the lot of the low-paid.
Which brings me to a second trick. Credible with whom? We might ask: are Balls' policies credible with bond markets - the guys who lend governments money - or will they instead cause a significant rise in borrowing costs? Or we could ask: are they credible with working people? ... The judges of what's credible seem to be her and Nick themselves - who, not uncoincidentally, are wealthy, public school-educated people.
This poses the question: what is the origin of this double bias? ...
Wednesday, June 25, 2014
Whoa! Whassup With That Big Negative Q1 GDP Revision?: Yes, you read those headlines right: real GDP contracted at a 2.9% rate according to revised data released this AM. That’s contracted, as in went down.
So, are we, like, back in recession (granting that a lot of people think we never left)?
Nope. That was a truly lousy quarter but it’s highly unlikely to be repeated any time soon. The particularly bad winter weather played a role; both residential and commercial building were negative. Heavy inventory buildups in earlier quarters were reversed, which usually implies a positive bounce-back in coming quarters. Exports were revised down and imports up, so the trade deficit subtracted a large 1.5 points from the bottom line; that drag will likely diminish in coming quarters.
Health care spending, a strong contributor in earlier estimates of Q1 growth, went from contributing 1 percentage point to growth in an earlier vintage of Q1 GDP to subtracting 0.16 points in this update, suggesting earlier estimates of the pace of increased coverage were overstated. That doesn’t mean they’re not happening; it just means they’ll be spread out over more quarters. [Update: check that--a colleague tells me that what's really happening here is that people didn't use as many services as first thought. I'll try to look further into this.] ...
Year-over-year—a good way to squeeze out some quarterly noise—real GDP is up 1.5%. That’s better than the headline number, but it too is actually a weak number. The trend over the last two years is 2.1% growth... I don’t believe today’s revisions really signal a decline in that trend rate and most analysts expect coming quarters to clock in at 2.5-3%. ...
I still think that policymakers should revise their priors (downward), particularly given their tendency to brush off any bad news as temporary changes that will surely be reversed in coming quarters.
Thursday, June 05, 2014
Energy Choices, by Paul Krugman: Nate Silver got a lot of grief when he chose Roger Pielke Jr., of all people, to write about environment for the new 538. Pielke is regarded among climate scientists as a concern troll – someone who pretends to be open-minded, but is actually committed to undermining the case for emissions limits any way he can. But is this fair?
Well, I’m happy to report that Pielke has a letter in today’s Financial Times about the economics of emissions caps – something I know a fair bit about – that abundantly confirms his bad reputation. Better still, the letter offers a teachable moment, a chance to explain why claims that we can’t limit emissions without destroying economic growth are nonsense. ...
Thursday, May 29, 2014
The Great Recession's "biggest policy mistake", by Mark Thoma, CBS News: Two recent books, Timothy Geithner's "Stress Test: Reflections on Financial Crises" and "House of Debt" by Atif Mian and Amir Sufi, have reignited a discussion over the Obama administration's policies and attitude on mortgage debt relief.
In contrast with the former New York Fed president and later Treasury Secretary's account about the efforts to save the U.S. economy from the collapsing housing market, others say the administration -- more particularly the Geithner-led Treasury -- did not push aggressively for mortgage debt relief .
As a result, very little was done to help households struggling with mortgage debt. Indeed, Mian and Sufi argue that "The fact that Secretary Geithner and the Obama administration did not push for debt write-downs more aggressively remains the biggest policy mistake of the Great Recession."
Who is correct? ...[continue]...
Monday, May 19, 2014
Springtime for Bankers, by Paul Krugman, Commentary, NY Times: By any normal standard, economic policy since the onset of the financial crisis has been a dismal failure. It’s true that we avoided a full replay of the Great Depression. But employment has taken more than six years to claw its way back to pre-crisis levels...
Now Timothy Geithner, who was Treasury secretary for four of those six years, has published a book, “Stress Test,” about his experiences. And basically, he thinks he did a heckuva job. ...
Much of Mr. Geithner’s book is devoted to a defense of the U.S. financial bailout, which he sees as a huge success story — which it was, if financial confidence is viewed as an end in itself. ... But where is the rebound in the real economy? Where are the jobs? ...
One reason for sluggish recovery is that U.S. policy “pivoted,” far too early, from a focus on jobs to a focus on budget deficits. Mr. Geithner denies ... any responsibility for this... That doesn’t match independent reporting, which portrays Mr. Geithner ridiculing fiscal stimulus as “sugar” that would yield no long-term benefit.
But fiscal austerity wasn’t the only reason recovery has been so disappointing..., the burden of high household debt, a legacy of the housing bubble, has been a big drag on the economy. And there was, arguably, a lot the Obama administration could have done to reduce debt burdens without Congressional approval. But it didn’t... Why? According to many accounts, the biggest roadblock was Mr. Geithner’s consistent opposition to mortgage debt relief — he was, if you like, all for bailing out banks but against bailing out families.
“Stress Test” asserts that no conceivable amount of mortgage debt relief could have done much to boost the economy. But the leading experts on this subject are ... Atif Mian and Amir Sufi, whose just-published book “House of Debt” argues very much the contrary. ...
In the end, the story of economic policy since 2008 has been that of a remarkable double standard. Bad loans always involve mistakes on both sides — if borrowers were irresponsible, so were the people who lent them money. But when crisis came, bankers were held harmless for their errors while families paid full price.
And refusing to help families in debt, it turns out, wasn’t just unfair; it was bad economics. Wall Street is back, but America isn’t, and the double standard is the main reason.
Thursday, May 15, 2014
This was in the daily links, but thought it deserved additional highlighting. It's from Miles Corak:
Joseph Fishkin’s book, “Bottlenecks,” explains why inequality lowers social mobility, by Miles Corak: [The Brookings Institution has been having an online discussion of Bottlenecks: A New Theory of Equal Opportunity, a book by Joseph Fishkin. This post is a re-blog of my contribution, "Money: a Bottleneck with Bite."]
... So far, it has been politically convenient to focus on upward mobility of children from the bottom of the income distribution, measured in some absolute sense, because it puts broader issues of the influence of inequality to one side.
The mobility-only approach puts the onus of the problem on the poor—their incomes, their work ethic, their schooling, their fertility choices, their parenting strategies—and abstracts from the broader context within which they must engage, define themselves, and raise their children. The rich are not part of this story.
But Professor Fishkin is right: “anyone concerned with equal opportunity ought also to be concerned with limiting inequality of income and wealth.” ...
The factors impacting on child development certainly include non-financial ones, including what social scientists clinically label the “unobserved parental characteristics”, which are correlated with income.
But inequality alters the rules of the game. It narrows the goals we pursue as individuals, shapes values, and more importantly it turns our pursuit of the good life into an arms race over positional goods, and changes both incentives and opportunities. That is what makes money a bottleneck that bites.
Bottlenecks outlines a theory of opportunity that gives us good reason to worry about outcomes, because to some important degree unequal outcomes lead to unequal opportunities. ...
Money is a significant bottleneck. Facing that fact can only be healthy, if somewhat more challenging, for the way we think about public policy. ...
Monday, May 12, 2014
How to Shrink Inequality: Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate. The pertinent question is ... at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy. We are near or have already reached that tipping point. ...But a return to the Gilded Age is not inevitable. ... There is no single solution for reversing widening inequality. ... Here are ten initiatives that could reverse the trends..:
1) Make work pay. ... [Min wage, EITC, etc.]
2) Unionize low-wage workers. ...
3) Invest in education. ...
4) Invest in infrastructure. ...
5) Pay for these investments with higher taxes on the wealthy. ...
6) Make the payroll tax progressive. ...
7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. ...
8) Constrain Wall Street. ...
9) Give all Americans a share in future economic gains. ... [Diversified index of stocks and bonds given to all at birth]
10) Get big money out of politics. ...
[The essay, which is much, much longer, also talks about how inequality has happened, how it threatens the foundations of our society, and why it has happened.]
Monday, April 07, 2014
Class interests stand in the way of raising the inflation target:
Oligarchs and Money, by Paul Krugman, Commentary, NY Times: Econonerds eagerly await each new edition of the International Monetary Fund’s World Economic Outlook. ... This latest report ... in effect makes a compelling case for raising inflation targets above 2 percent, the current norm in advanced countries. ...
First, let’s talk about the case for higher inflation. ... It’s good for debtors — and therefore good for the economy as a whole when an overhang of debt is holding back growth and job creation. It encourages people to spend rather than sit on cash — again, a good thing in a depressed economy. And it can serve as a kind of economic lubricant, making it easier to adjust wages and prices...
But ... would it be enough to get back to 2 percent, the official inflation target...? Almost certainly not.
You see, monetary experts ... thought that 2 percent was high enough to ... make liquidity traps ... very rare. But America has now been in a liquidity trap for more than five years. Clearly, the experts were wrong.
Furthermore,... there’s strong evidence that changes in the global economy are increasing the tendency of investors to hoard cash..., thereby increasing the risk of liquidity traps unless the inflation target is raised. But the report never dares to say this outright.
So why is the obvious unsayable? One answer is that serious people like to prove their seriousness by calling for tough choices and sacrifice (by other people, of course). They hate being told about answers that don’t involve more suffering.
And behind this attitude, one suspects, lies class bias. Doing what America did after World War II — using low interest rates and inflation to erode the debt burden — is often referred to as “financial repression,” which sounds bad. But who wouldn’t prefer modest inflation and a bit of asset erosion to mass unemployment? Well, you know who: the 0.1 percent... Modestly higher inflation, say 4 percent, would be good for the vast majority of people, but it would be bad for the superelite. And guess who gets to define conventional wisdom.
Now, I don’t think that class interest is all-powerful. Good arguments and good policies sometimes prevail even if they hurt the 0.1 percent — otherwise we would never have gotten health reform. But we do need to make clear what’s going on, and realize that in monetary policy as in so much else, what’s good for oligarchs isn’t good for America.
Tuesday, November 12, 2013
The Inequality of Climate Change, by Annie Lowrey, NY Times: ... “No nation will be immune to the impacts of climate change,” said a major World Bank report on the issue last year. “However, the distribution of impacts is likely to be inherently unequal and tilted against many of the world’s poorest regions, which have the least economic, institutional, scientific and technical capacity to cope and adapt.”
That is the firmly established view of numerous national governments, development and aid groups and the United Nations as well. ...
The reason is twofold. First..., poorer lower-latitude regions are expected to face desertification and more-intense storms. The increase in the sea level might be 15 to 20 percent higher in the tropics than the global average, meaning flooding for coastal cities in regions like southern Asia. Droughts are also expected to increase significantly in lower-latitude areas, including in Africa and the Middle East. (The United States and Australia might also be hard hit...) Moreover, in many countries, the vulnerable poor might cluster in areas where climate change might have a disproportionate impact, like flood zones and dry rural areas. ...
The second, more significant reason is that the poorer the country, the harder it might be for it to respond to a changing climate. ...
For that reason, many poorer countries hold rich countries like the United States responsible for climate change, and want them to help pay for its effects. ...
“Poverty reduction and climate change are linked,” said Dr. Jim Yong Kim, the president of the World Bank... He concluded: “If we don’t confront climate change, we won’t end poverty.”
Friday, November 08, 2013
Policy failures can be very costly:
The Mutilated Economy, by Paul Krugman, Commentary, NY Times: Five years and eleven months have now passed since the U.S. economy entered recession. ... Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment ... is four times what it was before the recession.
These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started. And many people have pleaded all along for policies that put job creation front and center. Their pleas have, however, been drowned out by the voices of conventional prudence. We can’t spend more money on jobs, say these voices, because that would mean more debt. We can’t even hire unemployed workers and put idle savings to work building roads, tunnels, schools. Never mind the short run, we have to think about the future!
The bitter irony, then, is that it turns out that by failing to address unemployment, we have ... been sacrificing the future, too. ... Or so say researchers from the Federal Reserve, and I’m sorry to say that I believe them. ...
According to the paper..., our seemingly endless slump has done long-term damage through multiple channels. The long-term unemployed eventually come to be seen as unemployable; business investment lags thanks to weak sales; new businesses don’t get started; and existing businesses skimp on research and development.
What’s more, the authors ... suggest that economic weakness has already reduced America’s economic potential by ... more than $1 trillion a year ... for multiple years. ... The ...evidence is overwhelming that ... by not even making unemployment a major policy priority ... we’ve done ourselves immense long-term damage.
And it is, as I said, a bitter irony, because one main reason we’ve done so little about unemployment is the preaching of deficit scolds, who have wrapped themselves in the mantle of long-run responsibility — which they have managed to get identified in the public mind almost entirely with holding down government debt. ...
Is there any chance of reversing this damage? The Fed researchers are pessimistic, and, once again, I fear that they’re probably right. America will probably spend decades paying for the mistaken priorities of the past few years.
It’s really a terrible story: a tale of self-inflicted harm, made all the worse because it was done in the name of responsibility. And the damage continues as we speak.
Thursday, October 24, 2013
In case you missed this in the daily links. From Paul Krugman:
Gambling with Civilization, by Paul Krugman, NYRB [Review of The Climate Casino: Risk, Uncertainty, and Economics for a Warming World, by William D. Nordhaus]:
1. Forty years ago a brilliant young Yale economist named William Nordhaus published a landmark paper, “The Allocation of Energy Resources,” that opened new frontiers in economic analysis.  Nordhaus argued that to think clearly about the economics of exhaustible resources like oil and coal, it was necessary to look far into the future, to assess their value as they become more scarce—and that this look into the future necessarily involved considering not just available resources and expected future economic growth, but likely future technologies as well. Moreover, he developed a method for incorporating all of this information—resource estimates, long-run economic forecasts, and engineers’ best guesses about the costs of future technologies—into a quantitative model of energy prices over the long term.
The resource and engineering data for Nordhaus’s paper were for the most part compiled by his research assistant, a twenty-year-old undergraduate... It was an invaluable apprenticeship. My reasons for bringing up this bit of intellectual history, however, go beyond personal disclosure—although readers of this review should know that Bill Nordhaus was my first professional mentor. For if one looks back at “The Allocation of Energy Resources,” one learns two crucial lessons. First, predictions are hard, especially about the distant future. Second, sometimes such predictions must be made nonetheless.
Looking back at “Allocation” after four decades, what’s striking is how wrong the technical experts were about future technologies. For many years all their errors seemed to have been on the side of overoptimism, especially on oil production and nuclear power. More recently, the surprises have come on the other side, with fracking having the biggest immediate impact on markets, but with the growing competitiveness of wind and solar power—neither of which figured in “Allocation” at all—perhaps the more fundamental news. For what it’s worth, current oil prices, adjusted for overall inflation, are about twice Nordhaus’s prediction, while coal and especially natural gas prices are well below his baseline.
So the future is uncertain, a reality acknowledged in the title of Nordhaus’s new book, The Climate Casino: Risk, Uncertainty, and Economics for a Warming World. Yet decisions must be made taking the future—and sometimes the very long-term future—into account. ... And as Nordhaus emphasizes, although perhaps not as strongly as some would like, when it comes to climate change uncertainty strengthens, not weakens, the case for action now.
Yet while uncertainty cannot be banished from the issue of global warming, one can and should make the best predictions possible. Following his work on energy futures, Nordhaus became a pioneer in the development of “integrated assessment models” (IAMs), which try to pull together what we know about two systems—the economy and the climate—map out their interactions, and let us do cost-benefit analysis of alternative policies.  At one level The Climate Casino is an effort to popularize the results of IAMs and their implications. But it is also, of course, a call for action. I’ll ask later in this review whether that call has much chance of succeeding. ...[continue]...
Monday, September 30, 2013
Speaking of the GOP undermining of the public's faith in the government's ability to solve important problems. This is from Nicholas Stern:
World leaders must act faster on climate change, by Nicholas Stern, Commentary, Financial Times: Governments and businesses should be left in no doubt about the dangers of delaying further cuts in greenhouse gas emissions following the publication of the new assessment report by the Intergovernmental Panel on Climate Change. ... [W]e are seeing fundamental changes to the world’s climate, which could soon be ... causing mass migration and endless conflict. This should focus minds...
But all governments must recognise that they themselves potentially pose the biggest threat. There is a danger that, through vacillation and confusion, they will create policy risk that undermines the confidence of the companies largely responsible for delivering the transition to low-carbon economic growth and development. ...
Some politicians will still seek to deny the science and downplay the risks. Many of them have vested financial interests in protecting the status quo, or ideological beliefs that mean they cannot acknowledge the logic of correcting market failures ... to strengthen the role of markets... Although they are small in number, they still have the power to create confusion and slow action.
But everywhere evidence is emerging of opportunities afforded by new energy sources that are more efficient and less polluting. No investor should fail to be impressed by how rapidly the costs of solar photovoltaics and other technologies are falling. ...
The new IPCC report should now convince all world leaders to accelerate their efforts to tackle climate change and create a safer and more prosperous world.
Given the (intentionally created) political climate surrounding attempts to address this problem, it's hard for me to imagine anything of significance happening anytime soon.
Tuesday, September 17, 2013
Heidi Moore chronicles the administration's failures in economic policy:
The Larry Summers flop: more proof Obama is getting bad economic advice, by Heidi Moore: Is President Obama the victim of bad economic advice?
The evidence points to "yes". The president's economic initiatives – food stamps, manufacturing, infrastructure, raising the debt ceiling, appointing a new chairman of the Federal Reserve – have mostly ended in either neglect or shambles. After five years, the Obama Administration's stated intentions to improve the fortunes of the middle class, boost manufacturing, reduce income inequality, and promote the recovery of the economy have come up severely short.
Despite this, the president believes he is negotiating his economic agenda with Congress from a position of strength, and almost every speech includes some self-congratulatory note about how far the economy has come. ...
The president could not be more wrong or misleading in the way in which he presents our economic progress. One can perfectly understand economist Dean Baker's horror when he realized, back in August, that Obama's economic team believes it is doing a good job.
It's time to end the delusion that this White House has accomplished even a fraction of what it should be doing to help the economy. It should have been focusing all its efforts on employment, perhaps by boosting job-retraining programs, providing tax incentives for employers or supporting a comprehensive infrastructure effort. Instead, the administration is falling victim to political distractions and lack of follow-through and wasting its meager political capital on the wrong fights.
The latest example is the debacle around Larry Summers. ...
To shut out the opposition to Summers, the president had to have been wearing earplugs. How closed is his economic circle? How well do they fit the profile of honest brokers about our economic situation? Loyalty is a great thing. But that kind of trust is clearly not working for Obama. Maybe he should stop relying on those he knows, and rely instead on those who know what they're doing.
Gridlock in Congress is real, and legislation involving additional fiscal policy measures or job creation would be difficult or impossible. But part of that is due to the administration's failure to lead the conversation, to hammer home at every opportunity how Congress is failing the middle class. The charge that the administration is guilty of "political distractions and lack of follow-through and wasting its meager political capital on the wrong fights" is accurate in my view, particularly the lack of follow through. How many times has the president announced some major effort at job creation, and that's the last we hear about it? I don't think people understand how awful Congress has been where fiscal policy is concerned. I suppose the administration is worried about being blamed for the poor economy, so instead it talks about "how far the economy has come" due to its policies. But why not just tell the truth? Why not point at Congress and call for job creation through infrastructure construction at every opportunity, and let people know that Congress is to blame if it doesn't happen? Yes, the other side will try to blame the administration is if admits the economy is doing poorly, but that will happen anyway and it's a debate the administration ought to be able to win.
Saturday, August 24, 2013
You may need a nudge to read this one:
Public Policies, Made to Fit People, by Richard Thaler, Commentary, NY Times: I have written here before about the potential gains to government from involving social and behavioral scientists in designing public policies. My enthusiasm comes in part from my experiences as an academic adviser to the Behavioral Insights Team created in Britain by Prime Minister David Cameron.
Thus I was pleased to hear reports that the White House is building a similar initiative here in the United States. Maya Shankar, a cognitive scientist and senior policy adviser at the White House Office of Science and Technology Policy, is coordinating this cross-agency group, called the Social and Behavioral Science Team; it is part of a larger effort to use evidence and innovation to promote government performance and efficiency. I am among a number of academics who have shared ideas with the administration about how research findings in social and behavioral science can improve policy.
It makes sense for social scientists to become more involved in policy, because many of society’s most challenging problems are, in essence, behavioral. Using social scientists’ findings to create plausible interventions, then testing their efficacy with randomized controlled trials, can improve — and sometimes save — people’s lives, all while reducing the need for more government spending to fix problems later.
Here are three examples of social science issues that have attracted the team’s attention ...
All of these examples show that the role of behavioral science in policy isn’t for the government to tell people how to think or act. It is to help them achieve their own goals. ...
Tuesday, July 30, 2013
We are, as they say, live:
Income Inequality: Obama vs.Limbaugh--Middle Out or Trickle Down?, by Mark A. Thoma: President Obama unveiled his latest initiative to enhance economic growth, create quality jobs, and reduce inequality last week, an approach he calls growing from the “middle out.” The basis of this approach is the idea that rising inequality has redirected income from the middle class to the top of the income distribution, and the reduced buying power of the middle class has reduced economic growth. Thus, the key to higher growth is to enact policies that increase the share of national income that flows to the middle class.
Of course, as with previous initiatives from the Obama administration to address our economic problems, a divided, gridlocked government means there is no chance of this initiative actually passing. In fact, the response from the political right was predictable, a claim that “trickle-down” supply-side policy is the key to fixing all that ails the economy. For example, Rush Limbaugh reacted the president’s speech by saying ...
But, as the column goes on to explain, this is a false debate (and there's a connection to inequality).
Thursday, July 04, 2013
Ha, visiting Belize during the rainy season may not have been the best idea I ever had. It's pouring rain, thunder, lightening, all tours are canceled, internet, phone, and TV are out (at least we have electricity now), and the roads (mostly dirt/gravel) are horrid. So instead of taking my mind off of things, nothing to do but sit in my room and think.
So I called a cab, went to the BTL (phone) store, got a sim chip, many gigs of data, and finally connected to the outside world once again.
This is supposed to continue for several more days and I want to preserve my data -- so, quickly, from Simon Wren-Lewis:
The Knowledge Transmission Mechanism: In a comment on my last post, Joseph Grossman asks “If the vast majority grasp and support the basic shape of the [fiscal] stimulus solution, and if we live in democracies, isn't it time to shift the analysis to expose the exact and precise mechanisms by which our electoral systems are failing miserably?” This is the question which, since 2010, I have asked myself almost every day. The question becomes even more relevant as the intellectual case for austerity crumbles, but the policy continues, and in some cases even appears to gain ground. ... I want to use this example to look at the question of the transmission of economic ideas more generally. So let’s break the question down.
First, do the vast majority of economists agree? In the case of fiscal policy, I think the honest answer here is: majority, probably yes, vast, almost certainly no. ...
However, what the majority - vast or not - of economists think would be irrelevant if no one listened to them. The transmission mechanism from economists to economic policy works along many channels. It may be direct. It may be mediated through the civil service. It may work through economists influencing popular opinion, which then influences policymakers. I think the last of these is the least important. ...
After a discussion of some of the problems in the transmission of ideas to policymakers, he Simon Wren-Lewis concludes:
My own current view is that these structural weaknesses are to a large extent inherent in liberal democratic societies, where restrictions on what money can do are very limited. That has led me to be much more favourably disposed to the delegation of economic decisions, even though this appears less democratic, and can be seen as representing arrogance and self-interest by the academic community. Yet the problem is real enough. And it is personal: when you study, teach and research in a subject where some of its most basic findings - understood for more than half a century- can be brushed aside so easily, and millions of people are worse off as a result, you have to ask yourself what the point is.
Thursday, June 13, 2013
Paul Krugman comments on the Alan Krueger speech (see the post below this one):
Is This (Still) The Age of the Superstar?: This will be a quick piece... Alan Krueger gave a fun talk at the Rock and Roll Hall of Fame, in which he used evidence of growing inequality among musical artists as a jumping off point for a discussion of broader inequality issues. As he notes, there is a widely known theory from Rosen actually called the superstar theory, which could explain the takeoff of the 1 percent, in rock and in life.
But I was struck by the fact that his chart of growing inequality in the music business cut off in 2003. A lot has happened in the decade since: basically, the music business has been hugely disrupted by the Internet. I’d be very curious to know whether that hasn’t changed the calculus...
And we also seem to be seeing a general shift in the sources of rising inequality, from inequality in compensation to good old-fashioned capital versus labor.
So I wonder if even Alan Krueger is now behind the curve here — and in any case I’d love to see how the trend for the music business looks since 2003.
A quick comment on this "quick piece". Inequality can arise for many reasons, e.g. differences in economic power that distort income shares, capture of the political system by the wealthy, skill-biased technical change, and so on, and the debate is often cast as one versus the other. But the causes are not mutually exclusive and may, in some cases, reinforce each other (e.g. economic inequality from skill-biased technical change leading to political inequality and a political bias against unions, or, changes in production techniques that make it harder to disrupt production with a strike can undermine union power). Endless debate on the one true cause of rising inequality is fruitless when there is, as I believe, evidence of multiple causes -- both sides can point to evidence favoring their position leading to a standoff that can forestall needed policy changes. Better to acknowledge that both sides have a point, and move on to the push for policies that are robust against the underlying cause (or separate policies to address each type of problem).
Wednesday, April 24, 2013
Chris Dillow takes on the idea that free market policies can solve our unemployment problem:
Unemployment and the Free Market, Stumbling and Mumbling: Bryan Caplan deserves praise for calling on free market economists to pay more attention to the "grave evil" of unemployment. I fear, though, that he overstates what free market policies can contribute to solving the problem.
My chart shows the problem. It shows the UK unemployment rate between 1855 (when data begins) and 1914. You can see that the jobless rate was often high - it averaged 4% - and volatile.
Note: data comes from the Bank of England.
And this was during a period of as free markets as one could practically get. This undermines at least three "free market" explanations for unemployment:
- "Welfare benefits mean the unemployed have little incentive to get work." In the 19th C, though, the only state support the unemployed got was in the Workhouse - and even as late as in my lifetime, this was spoken of with terror.
- "Big government and taxes deter job creation." But public spending in this time averaged only around 10% of GDP, and labour market regulation except for a few Factory Acts was nugatory by modern standards.
- "Wages are too rigid". But wages fell in nominal terms in 13 of the 59 years here, and in real terms in 12 of these years. Average nominal wages fell by 9% between 1874 and 1879, which is consistent with some sectors seeing very large falls.
There is, though, an alternative theory that fits these data. It's that a free market will see large swings in aggregate demand and employment, and that unemployment cannot be prevented by wage reductions alone. This was pointed out most famously - well famous in my house anyway - by Michal Kalecki in 1935... [long quote] ...
There's a good reason why almost all major economies abandoned free market economics. It's that such economies didn't and couldn't avoid mass unemployment.
I'll concede - much more than most lefties - that there's a big place for free market economics. But the labour market ain't it.
Saturday, April 20, 2013
Brad DeLong on the role of government in a market economy:
Economic Policy: Saturday Twentieth Century Economic History Weblogging: Note well: the economy will not manage itself, at least not in a good way.
As John Maynard Keynes shrilly stated back in 1926:
Let us clear… the ground…. It is not true that individuals possess a prescriptive 'natural liberty' in their economic activities. There is no 'compact' conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened… individuals… promot[ing] their own ends are too ignorant or too weak to attain even these. Experience does not show that… social unit[s] are always less clear-sighted than [individuals] act[ing] separately. We [must] therefore settle… on its merits… "determin[ing] what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion".
The management of economies by governments in the twentieth century was at best inept. And, as we have seen since 2007, little if anything has been durably learned about how to regulate the un-self-regulating market in order to maintain prosperity, or ensure opportunity, or produce substantial equality.
Before the start of the nineteenth century, there were markets but there was not really a market economy—and the peculiar dysfunctions that we have seen the market economy generate through its macroeconomic functioning were, if not absent, at least rare and in the background of attention. Wars, famines, government defaults were threats to life and livelihood. The idea that Alice might be poor and hungry because Bob would not buy stuff from her because Bob was unemployed because Carl wanted to deleverage because Dana was no longer a good credit risk because Alice had stopped paying rent to Dana--that and similar macroeconomic processes are a post-1800 phenomenon.
The problems of economic policy in the modern age are, speaking very broadly, threefold: first, the problem of attempts to replace the market with central planning--which is, for reasons well-outlined by the brilliant Friedrich von Hayek, a subclass of the problem of twentieth-century totalitarian tyranny--second, the problem of managing what Karl Polanyi called "fictitious commodities"; and, third, the problem of managing aggregate demand. ...[much more]...
Friday, April 05, 2013
We need to purge rotten economic policy out of our economic system:
The Urge to Purge, by Paul Krugman, Commentary, NY Times: When the Great Depression struck, many influential people argued that the government shouldn’t even try to limit the damage. According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to “Liquidate labor, liquidate stocks, liquidate the farmers. ... It will purge the rottenness out of the system.” Don’t try to hasten recovery, warned the famous economist Joseph Schumpeter, because “artificial stimulus leaves part of the work of depressions undone.”
Like many economists, I used to quote these past luminaries with a certain smugness. After all, modern macroeconomics had shown how wrong they were, and we wouldn’t repeat the mistakes of the 1930s, would we?
How naïve we were. It turns out that the urge to purge — the urge to see depression as a necessary and somehow even desirable punishment for past sins, while inveighing against any attempt to mitigate suffering — is as strong as ever. Indeed, Mellonism is everywhere these days. Turn on CNBC or read an op-ed page, and the odds are that you ... encounter an alleged expert ranting about the evils of budget deficits and money creation, and denouncing Keynesian economics as the root of all evil.
Now, the fact is that these ranters have been wrong about everything, at every stage of the crisis, while the Keynesians have been mostly right. ... But the Mellonites just keep coming. The latest example is David Stockman...
So what should we be doing? ... To deal with the crisis..., we need monetary and fiscal stimulus, to induce those who aren’t too deeply indebted to spend more while the debtors are cutting back.
But that prescription is, of course, anathema to Mellonites, who wrongly see it as more of the same policies that got us into this trap. And that, in turn, tells you why liquidationism is such a destructive doctrine: by turning our problems into a morality play of sin and retribution, it helps condemn us to a deeper and longer slump.
The bad news is that sin sells. Although the Mellonites have, as I said, been wrong about everything, the notion of macroeconomics as morality play has a visceral appeal that’s hard to fight. Disguise it with a bit of political cross-dressing, and even liberals can fall for it.
But they shouldn’t. Mellon was dead wrong in the 1930s, and his avatars are dead wrong today. Unemployment, not excessive money printing, is what ails us now — and policy should be doing more, not less.
Sunday, March 03, 2013
Christina Romer on the minimum wage (the article explains her arguemts in more detail):
The Business of the Minimum Wage, by Christina Romer, Commentary, NY Times: Raising the minimum wage, as President Obama proposed in his State of the Union address, tends to be more popular with the general public than with economists.
I don’t believe that’s because economists care less about the plight of the poor... Rather, economic analysis raises questions about whether a higher minimum wage will achieve better outcomes for the economy and reduce poverty. ...
[M]ost arguments for instituting or raising a minimum wage are based on fairness and redistribution. Even if workers are getting a competitive wage, many of us are deeply disturbed that some hard-working families still have very little. ...
It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families. For example, the ... earned-income tax credit... This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous. ...
So where does all of this leave us? The economics of the minimum wage are complicated, and it’s far from obvious what an increase would accomplish. If a higher minimum wage were the only anti-poverty initiative available, I would support it. ...
But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time. And pre-kindergarten education, which the president proposes to make universal, has been shown in rigorous studies to strengthen families and reduce poverty and crime. Why settle for half-measures when such truly first-rate policies are well understood and ready to go?
The point of the argument that the minimum wage and EITC are complements rather than substitutes (i.e. they fill different needs and hence work together) is to avoid setting one against the other in a political fight. The minimum wage costs the federal government nothing, while an expansion of the EITC would requite an increase in federal spending. My fear is that opponents of the minimum wage on the right will team up with well-meaning Democrats to say yes, we agree, the EITC is much, much better way to help the poor -- that's what we should do -- and use it as an excuse to block minimum wage legislation. Then, when it comes time to fund the EITC, we'll here that it's a good idea, but with the budget the way it is, we just can't afford it right now.
There was a time when I would have joined the "let's use the EITC rather than the minimum wage to attack this problem," but I've been convinced the minimum wage and the EITC really are complementary, and the political reality right now is that if we are going to help the poor at all in an environment where the right has whipped up so much fear of the government debt as a way of reducing support for social programs, the best bet is the minimum wage.
Wednesday, February 06, 2013
Not sure where to start with this one other than to note that Jagdish Bhagwati does not seem to like Al Gore:
Futurama, by Jagdish Bhagwati: ...Al Gore ... surely succeeded beyond his wildest expectations as the author of An Inconvenient Truth. But his phenomenal success had little to do with science (which has remained somewhat controversial: many of us remember for instance the not-too-distant scare about global cooling, also from climate scientists) and much to do with the photographs of polar bears caught on drifting ice as glaciers melted. An image like that is what we all need when we push our pet agendas. Alas, none of us is so fortunate. Nor is Gore as he turns now to writing about our future. ...
The problem Gore faces in the bulk of this book therefore is that his identification of problems, and his proposed solutions, are not compelling. His erudition is considerable but is necessarily limited since he casts his net wide, and he is both unfamiliar with important issues pertinent to his analysis and also shallow in his prescriptions for remedial policies. ...
Given Gore’s justified reputation on climate change, a disappointing feature of Gore’s book is in the chapter titled “The Edge.” I agree with him that the evidence on climate change, and the contribution to it by man-made carbon emissions, is about as good as science can provide; and he is persuasive in his sketch of the scenario of the dangers that global warming, unchecked, hold for mankind. Where he fails is in the remedies that he discusses. To focus on just one issue: there is now agreement from the last meeting at Cancún on the attempted renewal of Kyoto Protocol that $100 billion be found annually to create new technologies of mitigation and adaptation to climate change. It is expected that a significant share of this will be public funds. We have the precedent that public monies should largely be used to create public good: thus the new seeds under the green revolution were publicly financed and they were available to everyone virtually for free. Should we then not expect the green technologies developed with public funds to be available for free to Mars, China, and India?
But, to my knowledge, Gore has not embraced this proposal, which would make, say, India accept more ambitious targets of carbon reduction because it would reduce the cost of doing so. I would not make the ferocious charges that Gore levels at the opponents of climate change (see page 283). But may I wonder whether the reason for Gore’s omission is that he is heavily invested in green-energy stocks and would like to see public funds to be used only for private payoffs by these firms?
The good in the book is therefore offset by the bad. But even the bad will produce good if it irritates us into thinking harder about the many issues that Gore correctly insists we must confront.
Gore's sin is not embracing a particular proposal, and it must be because "he is heavily invested in green-energy stocks?" Pretty thin charge, and pretty speculative -- I expected a more compelling complaint. (Bhagwati agress with Gore on the science, says he's persuasive, etc., and acts like the know-it-all judge of all things related to climate change, yet he tosses out the global cooling thing? There's a reason this is called the "global cooling myth.")
In another part, I was surprised to hear a call for unions:
...The problem in this world of competition among similar products is that comparative advantage is now fragile: it has a “knife-edge” quality. One day you have it; the next day you do not. Almost every entrepreneur has a rival breathing down his neck; and this need not be from China or India, with their “low wages”—what Gore frets about—but may be Poland or France or Sweden. There are three implications.
First, firms need flexibility in firing if they are to hire.
Second, we can no longer assure economic security for workers by giving them lifetime employment. The security has to be for the worker herself, unrelated to specific occupation and employment.
Third, the volatility also means that we can no longer expect firms to provide training and hence “human capital” to blue-collar workers who can be expected to leave at the next sign of trouble at their plant or firm. We therefore have to provide this human capital through efforts by unions, employers, community colleges, etc.
Gore also accepts uncritically the notion that we are doomed to greater inequality in a globalized world of trade and multinational investment. The evidence is more mixed than he reports...
I think it would only be fair to note the incentives work the other way as well. With firms willing to fire workers at the drop of a hat -- older social obligations to retain workers through tough times are largely gone -- there's no incentive for workers to invest in themselves if the human capital is unique to the particular firm. Why bother if you are unlikely to be there for very long? (That is, I don't think the problem is workers who "leave at the next sign of trouble." f course they'll leave for another opportunity if they fear they'll be fired in the near future due to the "trouble.")
Sunday, January 27, 2013
I think of Robert Stavins as being on the optimistic side when it comes to action on climate change, but even he seems discouraged despite Obama's mention of this issue in his inaugural address:
The Second Term of the Obama Administration, by Robert Stavins: In his inaugural address on January 21st, President Obama surprised many people – including me – by the intensity and the length of his comments on global climate change. Since then, there has been a great deal of discussion in the press and in the blogosphere about what climate policy initiatives will be forthcoming from the administration in its second term. ...
Although I was certainly surprised by the strength and length of what the President said in his address, I confess that it did not change my thinking about what we should expect from the second term. Indeed, I will stand by an interview that was published by the Harvard Kennedy School on its website five days before the inauguration (plus something I wrote in a previous essay at this blog in December, 2012). Here it is, with a bit of editing to clarify things, and some hyperlinks inserted to help readers. ...
Q: In the Obama administration’s second term, are there openings/possibilities for compromises...?
A: It is conceivable – but in my view, unlikely – that there may be an opening for implicit (not explicit) “climate policy” through a carbon tax. At a minimum, we should ask whether the defeat of cap-and-trade in the U.S. Congress, the virtual unwillingness over the past 18 months of the Obama White House to utter the phrase “cap-and-trade” in public, and the defeat of Republican Presidential candidate Mitt Romney indicate that there is a new opening for serious consideration of a carbon-tax approach to meaningful CO2 emissions reductions in the United States.
First of all, there surely is such an opening in the policy wonk world. Economists and others in academia, including important Republican economists such as Harvard’s Greg Mankiw and Columbia’s Glenn Hubbard, remain enthusiastic supporters of a national carbon tax. And a much-publicized meeting in July, 2012, at the American Enterprise Institute in Washington, D.C. brought together a broad spectrum of Washington groups – ranging from Public Citizen to the R Street Institute – to talk about alternative paths forward for national climate policy. Reportedly, much of the discussion focused on carbon taxes.
Clearly, this “opening” is being embraced with enthusiasm in the policy wonk world. But what about in the real political world? The good news is that a carbon tax is not “cap-and-trade.” That presumably helps with the political messaging! But if conservatives were able to tarnish cap-and-trade as “cap-and-tax,” it surely will be considerably easier to label a tax – as a tax! Also, note that President Obama’s silence extends beyond disdain for cap-and-trade per se. Rather, it covers all carbon-pricing regimes.
So as a possible new front in the climate policy wars, I remain very skeptical that an explicit carbon tax proposal will gain favor in Washington. ...
A more promising possibility – though still unlikely – is that if Republicans and Democrats join to cooperate with the Obama White House to work constructively to address the short-term and long-term budgetary deficits the U.S. government faces,... then there could be a political opening for new energy taxes, even a carbon tax. ...
Those who recall the 1993 failure of the Clinton administration’s BTU-tax proposal – with a less polarized and more cooperative Congress than today’s – will not be optimistic. ... The key group to bring on board will presumably be conservative Republicans, and it is difficult to picture them being more willing to break their Grover Norquist pledges because it’s for a carbon tax.
Here's the surprising part (to me anyway), some optimism after all:
What remains most likely to happen is what I’ve been saying for several years, namely that despite the apparent inaction by the Federal government, the official U.S. international commitment — a 17 percent reduction of CO2 emissions below 2005 levels by the year 2020 – is nevertheless likely to be achieved! The reason is the combination of CO2 regulations which are now in place because of the Supreme Court decision [freeing the EPA to treat CO2 like other pollutants under the Clean Air Act], together with five other regulations or rules on SOX [sulfur compounds], NOX [nitrogen compounds], coal fly ash, particulates, and cooling water withdrawals. All of these will have profound effects on retirement of existing coal-fired electrical generation capacity, investment in new coal, and dispatch of such electricity.
Combined with that is Assembly Bill 32 (AB 32) in the state of California, which includes a CO2 cap-and-trade system that is more ambitious in percentage terms than Waxman-Markey was in the U.S. Congress, and which became binding on January 1, 2013. ... In other words, there will be actions having significant implications for climate, but most will not be called “climate policy,” and all will be within the regulatory and executive order domain, not new legislation. ...
Friday, January 25, 2013
Deficit hawks are losing their clout:
Deficit Hawks Down, by Paul Krugman, Commentary, NY Times: President Obama’s second Inaugural Address offered a lot for progressives to like. ... But arguably the most encouraging thing of all was what he didn’t say: He barely mentioned the budget deficit..., the latest sign that the self-styled deficit hawks — better described as deficit scolds — are losing their hold over political discourse. And that’s a very good thing.
Why have the deficit scolds lost their grip? I’d suggest four interrelated reasons.
First, they ... spent three years warning of imminent crisis — if we don’t slash the deficit now now now, we’ll turn into Greece... But that crisis keeps not happening ... So the credibility of the scolds has taken a ... well-deserved, hit.
Second, both deficits and public spending as a share of G.D.P. have started to decline..., and reasonable forecasts ... suggest that the federal deficit will be below 3 percent of G.D.P., a not very scary number, by 2015.
And it was, in fact, a good thing that the deficit was allowed to rise as the economy slumped. With private spending plunging..., the willingness of the government to keep spending was one of the main reasons we didn’t experience a full replay of the Great Depression. Which brings me to the third reason the deficit scolds have lost influence: the ... claim that we need to practice fiscal austerity even in a depressed economy, has failed decisively in practice. Consider ... the case of Britain. In 2010, when the new government of Prime Minister David Cameron turned to austerity policies,... the sudden, severe medicine ... threw the nation back into recession.
At this point, then, it’s clear that the deficit-scold movement was based on bad economic analysis. But ... there was also ... a lot of bad faith involved, as the scolds tried to exploit an economic (not fiscal) crisis on behalf of a political agenda that had nothing to do with deficits. And the growing transparency of that agenda is the fourth reason the deficit scolds have lost their clout. ... Prominent deficit scolds can no longer count on being treated as if their wisdom, probity and public-spiritedness were beyond question. But what difference will that make?
Sad to say, G.O.P. control of the House means that we won’t do what we should be doing: spend more, not less, until the recovery is complete. But the fading of deficit hysteria means that the president can turn his focus to real problems. And that’s a move in the right direction.
Friday, December 21, 2012
I think Justin Wolfer's claim that there are now three parties, the Democrats, the Republicans, and the Tea Party, at odds in the House is correct. That appears to be working in the president's favor, at least for the moment:
Playing Taxes Hold ’Em, by Paul Krugman, Commentary, NY Times: A few years back, there was a boom in poker television — shows in which you got to watch the betting and bluffing of expert card players. Since then, however, viewers seem to have lost interest. But I have a suggestion: Instead of featuring poker experts, why not have a show featuring poker incompetents — people who fold when they have a strong hand or don’t know how to quit while they’re ahead?
On second thought, that show already exists. It’s called budget negotiations, and it’s now in its second episode.
The first episode ran in 2011, as President Obama made his first attempt to cut a long-run fiscal deal — a so-called Grand Bargain... Mr. Obama was holding a fairly weak hand... The deal, if implemented, would have been a huge victory for Republicans... But ... Mr. Boehner and members of his party couldn’t bring themselves to accept even a modest rise in taxes. And their intransigence saved Mr. Obama from himself.
Now the game is on again — but with Mr. Obama holding a far stronger hand. ...
Yet earlier this week progressives suddenly had the sinking feeling that it was 2011 all over again, as the Obama administration made a budget offer that .. involved giving way on issues where it had promised to hold the line... Are we about to see another round of the president negotiating with himself, snatching policy and political defeat from the jaws of victory?
Well, probably not. Once again, the Republican crazies ... have saved the day. ... Mr. Boehner had evident problems getting his caucus to support Plan B, and he took the plan off the table Thursday night; it would have modestly raised taxes on the really wealthy, the top 0.1 percent, and even that was too much for many Republicans. ...
As in 2011, then, the Republican crazies are doing Mr. Obama a favor, heading off any temptation he may have felt to give away the store in pursuit of bipartisan dreams.
And there’s a broader lesson... This is no time for a Grand Bargain, because the Republican Party, as now constituted, is just not an entity with which the president can make a serious deal. If we’re going to get a grip on our nation’s problems ... the power of the G.O.P.’s extremists, and their willingness to hold the economy hostage if they don’t get their way, needs to be broken. And somehow I don’t think that’s going to happen in the next few days.
The introduction to this NBER Digest research summary says it well, "[There is no] compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the [recent] pattern of persistently high unemployment rates." I've noted this research before, but it's worth emphasizing again, particularly since one of the authors, Ed Lazear, was the Chairman of the President’s Council of Economic Advisers during the Bush Administration:
The U.S. Labor Market: Status Quo or a New Normal?, by Laurent Belsie, NBER Digest: The recession of 2007 to 2009 caused such high and persistent unemployment that it led many to conclude that the labor market had undergone structural changes, making it difficult or impossible to return to pre-recession employment levels. But in The United States Labor Market: Status Quo or A New Normal? (NBER Working Paper No. 18386), Edward Lazear and James Spletzer suggest that cyclical, not structural forces, are behind the surge in unemployment from 4.4 percent in the spring of 2007 to 10 percent in the fall of 2009, and the slow decline since then.
"[T]he current recession does not appear fundamentally different from prior ones, except that it is worse," they conclude. They fail to find "any compelling evidence that there have been changes in the structure of the labor market that are capable of explaining the pattern of persistently high unemployment rates." Instead, they note that "the evidence points to primarily cyclic factors."
The authors note that there are a number of ongoing, long-term industrial and demographic shifts in the labor market, but that none of these factors can explain the recent rise in unemployment. For example, the relative decline in U.S. manufacturing jobs has been under way for a half century, and the rise in female employment dates back to the second half of the twentieth century. The U.S. labor force is also aging, but again this is a long-term trend.
The authors' evidence suggests that long-term trends played a limited role in the recent recession and other past recessions. For example, in each of the business cycles between December 1979 and March 2012, the rise or fall in unemployment can be explained by changes in gender-specific unemployment rates, not by shifts in the gender composition of the workforce. Similarly, the aging of the workforce does not correlate very strongly with shifts in the unemployment rate during business cycle sub-periods. Since November 1982 the changing age composition of the workforce has lowered the unemployment rate by eight-tenths of a percentage point. This trend is reinforced by changes such as the rising education of the workforce and the shift toward service jobs, which have worked to lower unemployment over the last four decades.
The authors suggest that the rapid rise in unemployment during the 2007-9 recession can be explained almost entirely by the rise in unemployment within industries. Some industries such as construction, manufacturing, and retail trade saw unemployment soar. But these were the same industries that saw large decreases in unemployment during the recovery. The construction sector, for example, accounted for 19.4 percent of the increase in the national unemployment rate during the recession; this sector also accounted for 21.5 percent of the decline in the unemployment rate during the recovery.
The same phenomenon has occurred with mismatch -- the difference between vacancies and the number of unemployed in an industry, occupation, or location. Industrial mismatch rose during the 2007-9 recession, and then declined just as quickly. Occupational mismatch -- always higher than industrial mismatch and less sensitive to the business cycle -- rose during the recent recession but has since fallen below its pre-recession level. "There is no evidence that the recession resulted in a long-lasting skills gap that would require retraining experienced workers to work in different industries," the authors conclude. "Turning unemployed manufacturing and construction workers into nurses and teachers would not provide those workers with immediate jobs; there is already a surplus of unemployed even in the low unemployment industries."
There are at least two areas where this recession appears different than previous ones. First, the long-term unemployed make up a larger share of total unemployment than in past downturns, even those with comparably high unemployment rates. Second, there are more vacancies per unemployed person than even a couple of years ago. This shift of the Beveridge curve -- which measures the relationship between job openings and the unemployment rate -- may suggest that some permanent structural change is under way and is keeping the unemployed from filling the jobs that are available. The authors conclude that the reason for such a shift, if it has indeed occurred, won't be known until unemployment returns to normal levels.
On the Beveridge curve, see here.
Thursday, December 06, 2012
Don't say you weren't warned about the risks of climate change, though you might be able to say you weren't adequately warned:
Climate Science Predictions Prove Too Conservative, by Glenn Scherer and DailyClimate.org: Across two decades and thousands of pages of reports, the world's most authoritative voice on climate science has consistently understated the rate and intensity of climate change and the danger those impacts represent, say a growing number of studies on the topic.
This conservative bias, say some scientists, could have significant political implications, as reports from the group – the U.N. Intergovernmental Panel on Climate Change – influence policy and planning decisions worldwide, from national governments down to local town councils.
As the latest round of United Nations climate talks in Doha wrap up this week, climate experts warn that the IPCC's failure to adequately project the threats that rising global carbon emissions represent has serious consequences: The IPCC’s overly conservative reading of the science, they say, means governments and the public could be blindsided by the rapid onset of the flooding, extreme storms, drought, and other impacts associated with catastrophic global warming. ...
Joe Stiglitz lists things we should hope for (though not necessarily expect) in Obama's second term:
America’s Hope Against Hope, by Joseph Stiglitz, Commentary, Project Syndicate: After a hard-fought election campaign,... not much has changed... With America facing a “fiscal cliff”..., could there be anything worse than continued political gridlock?
In fact, the election had several salutary effects – beyond showing that unbridled corporate spending could not buy an election, and that demographic changes ... may doom Republican extremism. The Republicans’ explicit campaign of disenfranchisement in some states... backfired... In Massachusetts, Elizabeth Warren, a ... tireless warrior ... to protect ordinary citizens from banks’ abusive practices, won a seat in the Senate.
Some of Mitt Romney’s advisers seemed taken aback by Obama’s victory:... They were confident that Americans would forget how the Republicans’ deregulatory zeal had brought the economy to the brink of ruin, and ... how their intransigence in Congress had prevented more effective policies... Voters, they assumed, would focus only on the current economic malaise.
The Republicans should not have been caught off-guard ..., much of the rise in US economic inequality is attributable to a government in which the rich have disproportionate influence... Obviously, issues like reproductive rights and gay marriage have large economic consequences as well.
In terms of economic policy for the next four years, the main cause for post-election celebration is that the US has avoided measures that would have pushed it closer to recession, increased inequality, imposed further hardship on the elderly, and impeded access to health care for millions of Americans.
Beyond that, here is what Americans should hope for...[list/discussion]..., though I am not sanguine that they will get much of it. More likely, America will muddle through – here another little program for struggling students and homeowners, there the end of the Bush tax cuts for millionaires, but no wholesale tax reform, serious cutbacks in defense spending, or significant progress on global warming. ...