Category Archive for: Politics [Return to Main]

Tuesday, July 07, 2015

'Why Germany Wants Rid of Greece'

Simon Wren-Lewis:

Why Germany wants rid of Greece: When I recently visited Berlin, it quickly became clear the extent to which Germany had created a fantasy story about Greece. It was an image of Greeks as a privileged and lazy people, who kept on taking ‘bailouts’ while refusing to do anything to correct their situation. I heard this fantasy from talking to people who were otherwise well informed and knowledgeable about economics.
So powerful has this fantasy become, it is now driving German policy (and policy in a few other countries as well) in totally irrational ways. ... What is driving Germany’s desperate need to rid itself of the Greek problem? ...
 Germany is a country where the ideas of Keynes, and therefore mainstream macroeconomics in the rest of the world, are considered profoundly wrong and are described as ‘Anglo-Saxon economics’. Greece then becomes a kind of experiment to see which is right: the German view, or ‘Anglo-Saxon economics’.
The results of the experiment are not to Germany’s liking. ... Confronting this reality has been too much for Germany. So instead it has created its fantasy, a fantasy that allows it to cast its failed experiment to one side, blaming the character of the patient.
The only thing particularly German about this process is the minority status of Keynesian economics within German economic policy advice. In the past I have drawn parallels between what is going on here and the much more universal tendency for poverty to be explained in terms of the personal failings of the poor. These attempts to deflect criticism of economic systems are encouraged by political interests and a media that supports them, as we are currently seeing in the UK. So much easier to pretend that the problems of Greece lie with its people, or culture, or politicians, or its resistance to particular ‘structural reforms’, than to admit that Greece’s real problem is of your making.

Monday, July 06, 2015

Paul Krugman: Ending Greece’s Bleeding

What should Greece do now?:

Ending Greece’s Bleeding, by Paul Krugman, Commentary, NY Times: Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. ...
A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.
But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable...?
The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds... The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency.
Specifically, if the money doesn’t start flowing..., Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.
Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth. ...
Imagine, for a moment, that Greece had never adopted the euro... What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue ... to encourage exports and to break out of the cycle of deflation. ...
Would Greek exit from the euro work...? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.
And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.

Saturday, July 04, 2015

'Professor Hubbard’s Claim about Wage and Compensation Stagnation Is Not True'

Larry Mishel:

Professor Hubbard’s Claim about Wage and Compensation Stagnation Is Not True: ...A New York Times editorial points out ... that Glenn Hubbard, a leading conservative economist and key adviser to GOP candidate Jeb Bush, does not seem to believe there is a wage stagnation problem. As an earlier New York Times article pointed out: “Mr. Hubbard argued that ‘compensation didn’t stagnate,’ citing large increases that employers have paid out in health and pension benefits.”

Hubbard is definitely mistaken, as the New York Times indicates and as I demonstrate below by examining actual wage and benefit trends. Shifting the discussion from wages to compensation (wages and benefits) does not alter any of the salient facts about stagnant pay in recent years, especially for the typical worker or for low-wage workers, and not even for the ‘average’ worker (including high wage as well as low and middle-wage workers). In fact, there has been an even greater growth of inequality in total compensation than there has been in wages alone.

The intuition behind Hubbard’s claim is that the costs of benefits provided by employers–especially those for health care insurance–have risen rapidly, suggesting that compensation has risen far more quickly than wages. What this ignores, of course, is that many workers in the bottom half receive very few health or pension benefits and employers provide fewer and fewer workers with health insurance and pension benefits each year. Hubbard’s intuition also ignores that employers have actually cut back on some benefits, particularly pensions, with a concomitant decline in the quality of those benefits (such as by providing defined contribution rather than defined benefit plans). ...

Friday, July 03, 2015

Paul Krugman: Europe’s Many Economic Disasters

Was the creation of the euro a mistake? Should it be eliminated?:

Europe’s Many Economic Disasters, by Paul Krugman, Commentary, NY Times:  ... Why are there so many economic disasters in Europe? Actually, what’s striking at this point is how much the origin stories of European crises differ. Yes, the Greek government borrowed too much. But the Spanish government didn’t — Spain’s story is all about private lending and a housing bubble. And Finland’s story doesn’t involve debt at all. It is, instead, about weak demand for forest products, still a major national export, and the stumbles of Finnish manufacturing, in particular of its erstwhile national champion Nokia.
What all of these economies have in common, however, is that by joining the eurozone they put themselves into an economic straitjacket. ...
Does this mean that creating the euro was a mistake? Well, yes. But that’s not the same as saying that it should be eliminated now that it exists. The urgent thing now is to loosen that straitjacket. This would involve action on multiple fronts...
But there are many European officials and politicians who are opposed to anything and everything that might make the euro workable, who still believe that all would be well if everyone exhibited sufficient discipline. And that’s why there is even more at stake in Sunday’s Greek referendum than most observers realize.
One of the great risks if the Greek public votes yes — that is, votes to accept the demands of the creditors, and hence repudiates the Greek government’s position and probably brings the government down — is that it will empower and encourage the architects of European failure. The creditors will have demonstrated their strength, their ability to humiliate anyone who challenges demands for austerity without end. And they will continue to claim that imposing mass unemployment is the only responsible course of action.
What if Greece votes no? This will lead to scary, unknown terrain. Greece might well leave the euro, which would be hugely disruptive in the short run. But it will also offer Greece itself a chance for real recovery. And it will serve as a salutary shock to the complacency of Europe’s elites.
Or to put it a bit differently, it’s reasonable to fear the consequences of a “no” vote, because nobody knows what would come next. But you should be even more afraid of the consequences of a “yes,” because in that case we do know what comes next — more austerity, more disasters and eventually a crisis much worse than anything we’ve seen so far.

Thursday, July 02, 2015

'Poverty & Ideology'

Chris Dillow:

... Two big facts, however, suggest that the link between child poverty and parental failure is weak. One comes from the DWP's own report:

Children  in  families where at least one adult was in work made up around 64 per cent of all children  in  low  income  [before housing costs]  in  2013/14 (p46 of this pdf).

Think what it means to be in work. It means you've impressed an employer sufficiently to get hired, and you are managing to turn up roughly on time most days. You have, in short, got your shit together. And yet you're still unable to get your family out of relative poverty.

Secondly, Andrew Dickerson and Gurleen Popli point out that there is zero correlation between material child poverty and a measure of parental involvement based upon facts such as whether parents read to their children or given them regular meal times and bed times. There is, therefore, no link between bad parenting (on this measure) and material poverty.

These two facts suggest another, bigger reason for child poverty. Quite simply, it has become harder for less skilled people to provide for their families. ...

Wednesday, July 01, 2015

'Path to Grexit Tragedy Paved by Political Incompetence'

Barry Eichengreen:

Path to Grexit tragedy paved by political incompetence: Since our last episode, the crisis in Greece has escalated further. Negotiations between the government and its creditors collapsed over the weekend, and restrictions on bank withdrawals will now follow.
The next step is for the government to issue the equivalent of IOUs to pay salaries and pensions. The country is seemingly on the slippery slope to exiting the euro.
Many of us doubted that it would come to this. In particular, I doubted that it would come to this.
Nearly a decade ago, I analyzed scenarios for a country leaving the eurozone. I concluded that this was exceedingly unlikely to happen. The probability of a Grexit, or any Otherexit, I confidently asserted, was vanishingly small.
My friend and UC Berkeley colleague Brad DeLong regularly reminds us of the need to “mark our views to market.” So where did this prediction go wrong?
Why a euro exit didn’t make sense
My analysis was based on a comparison of economic costs and benefits of a country exiting the euro. The costs, I concluded, would be severe and heavily front-loaded.
Raising the possibility, however remote, of exit from the euro would ignite a bank run in said country. The authorities would be forced to shutter the financial system. Economic activity would grind to a halt. Losing access to not just their savings but also imported petrol, medicines and foodstuffs, angry citizens would take to the streets.
Not only would any subsequent benefits, by comparison, be delayed, but they would be disappointingly small.
With the government printing money to finance its spending, inflation would accelerate, and any improvement in export competitiveness due to depreciation of the newly reintroduced national currency would prove ephemeral.
In Greece’s case, moreover, there is the problem that the country’s leading export, refined petroleum, is priced in dollars and relies on imported oil, which is also priced in dollars. So much for the advantages of a depreciated currency.
Agricultural exports for their part will take several harvests to ramp up. And attracting more tourists won’t be easy against a drumbeat of political unrest.
What went wrong?
How did Greece end up in this pickle? Some say that the specter of a bank run was no longer a deterrent to exit once that bank run started anyway due to the deep depression into which the Greek economy had sunk.
But what is remarkable is how the so-called bank run remained a jog – it was still perfectly manageable until the Greek government called its referendum on the terms of the bail out deal offered by international creditors, negotiations broke down and exit became a real possibility.
Nonperforming loans — ones that are in default or close to it — were already rising, to be sure, but the banks still had all the liquidity they needed. The European Central Bank supported the Greek banking system with emergency liquidity assistance (ELA) right up to the very end of June. Only when Greece stopped negotiating did the Central Bank stop increasing ELA. And only then did a full-fledged bank run break out.
So I stand by the economic argument. Where I need to mark my views to market, however, is for underestimating the role of politics. In particular, I underestimated the extent of political incompetence – not just of the Greek government but even more so of its creditors.
In January Syriza had run on a platform of no more spending cuts or tax increases but also of keeping the euro. It should have anticipated that some compromise would be needed to square this circle. In the event, that realization was strangely late in coming.
And Prime Minister Alexis Tsipras and his government should have had the courage of its convictions. If it was unwilling to accept the creditors’ final offer, then it should have stated its refusal, pure and simple. If it preferred to continue negotiating, then it should have continued negotiating. The decision to call a referendum in midstream only heightened uncertainty. It was a transparent effort to evade responsibility. It was the action of leaders more interested in retaining office than in minimizing the cost to the country of the crisis.
A hard lesson learned
Still, this incompetence pales in comparison with that of the European Commission, the ECB and the IMF.
The three institutions opposed debt restructuring in 2010 when the crisis still could have been resolved at low cost. They continued to resist it in 2015, when a debt write-down was the obvious concession to Mr Tsipras & Company. The cost would have been small. Pretending instead that Greece’s debts could be repaid hardly enhanced their credibility.
Instead, the creditors first calculated the size of the primary budget surpluses that Greece would have to run in order to hypothetically repay its debt. They then required the government to raise taxes and cut spending sufficiently to produce those surpluses.
They ignored the fact that, in so doing, they consigned the country to an even deeper depression. By privileging their own balance sheets, they got the Greek government and the outcome they deserved.
The implication is clear. Never underestimate the ability of politicians to do the wrong thing. I will try to remember next time.

Monday, June 29, 2015

Stiglitz: Troika has 'Kind of Criminal Responsibility'

From Time:

Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout: ... “They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview.
Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.
Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion. ...

Paul Krugman: Greece Over the Brink

Just say no:

Greece Over the Brink, by Paul Krugman, Commentary, NY Times: It has been obvious for some time that the creation of the euro was a terrible mistake. Europe never had the preconditions for a successful single currency....
Leaving a currency union is, however, a much harder and more frightening decision than never entering in the first place...
But the situation in Greece has now reached what looks like a point of no return. Banks are temporarily closed and the government has imposed capital controls... It seems highly likely that the government will soon have to start paying pensions and wages in scrip, in effect creating a parallel currency. And next week the country will hold a referendum on whether to accept the demands of the “troika” ... for yet more austerity.
Greece should vote “no,” and the Greek government should be ready, if necessary, to leave the euro.
To understand why I say this, you need to realize that most ... of what you’ve heard about Greek profligacy and irresponsibility is false. Yes, the Greek government was spending beyond its means in the late 2000s. But ... all the austerity measures ... been more than enough to eliminate the original deficit and turn it into a large surplus.
So why didn’t this happen? Because the Greek economy collapsed, largely as a result of those very austerity measures, dragging revenues down with it.
And this collapse, in turn, had a lot to do with the euro, which trapped Greece in an economic straitjacket. Cases of successful austerity ... typically involve large currency devaluations... But Greece, without its own currency, didn’t have that option. ...
It’s easy to get lost in the details, but the essential point now is that Greece has been presented with a take-it-or-leave-it offer that is effectively indistinguishable from the policies of the past five years. ...
Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.
So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

Sunday, June 28, 2015

'Former Finance Minister of Cyprus on the Greek Crisis'

Branko Milanovic:

Former Finance Minister of Cyprus on the Greek crisis: While on vacations in Greece, I had a chance today (Sunday 28 June) to have a long discussion with Michael Sarris who was Cypriot Minister of Finance between 2005 and 2008 when the Euro was introduced in Cyprus and then again Minister of Finance during the March 2013 crisis when Cyprus faced negotiations with “the institutions” very similar to those faced today by Greece.  Very few people in the world have as informed and first-hand knowledge of the situation as Michael Sarris does. Here are my questions and his answers. ...

Saturday, June 27, 2015

Greece: It’s the Politics, Stupid!

Gloomy European Economist Francesco Saraceno:

It’s the Politics, Stupid!: I have been silent on Greece, because scores of excellent economists from all sides commented at length...
But last week has transformed in certainty what had been a fear since the beginning. The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path. No, they were interested in a complete and public defeat of the “radical” Greek government. ...
What happened...? Well, contrary to what is heard in European circles, most of the concessions came from the Greek government. On retirement age, on the size of budget surplus (yes, the Greek government gave up its intention to stop austerity, and just obtained to soften it), on VAT, on privatizations, we are today much closer to the Troika initial positions than to the initial Greek position. Much closer.
The point that the Greek government made repeatedly is that some reforms, like improving the tax collection capacity, actually demanded an increase of resources, and hence of public spending. Reforms need to be disconnected from austerity, to maximize their chance to work.  Syriza, precisely like the Papandreou government in 2010 asked for time and possibly money. It got neither.
Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large coroporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.
What the past week made clear is that this, and only this was the objective of the creditors. This has been since the beginning about politics. Creditors cannot afford that an alternative to policies followed since 2010 in Greece and in the rest of the Eurozone materializes.
Austerity and structural reforms need to be the only way to go. Otherwise people could start asking questions; a risk you don’t want to run a few months before Spanish elections. Syriza needed to be made an example. You cannot  survive in Europe, if you don’t embrace the Brussels-Berlin Consensus. Tsipras, like Papandreou, was left with the only option too ask for the Greek people’s opinion, because there has been no negotiation, just a huge smoke screen. Those of us who were discussing pros and cons of the different options on the table, well, we were wasting our time.
And if Greece needs to go down to prove it, so be it. If we transform the euro in a club in which countries come and go, so be it.
The darkest moment for the EU.

Thursday, June 25, 2015

'Breaking Greece'

Paul Krugman:

Breaking Greece: I’ve been staying fairly quiet on Greece... But given reports from the negotiations in Brussels, something must be said...
This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.
The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity. ...
At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

Monday, June 22, 2015

Paul Krugman: Slavery’s Long Shadow

Race still matters:

Slavery’s Long Shadow, by Paul Krugman, Commentary, NY Times: America is a much less racist nation than it used to be, and I’m not just talking about the still remarkable fact that an African-American occupies the White House. ...
Yet racial hatred is still a potent force in our society, as we’ve just been reminded to our horror. And I’m sorry to say this, but the racial divide is still a defining feature of our political economy, the reason America is unique among advanced nations in its harsh treatment of the less fortunate and its willingness to tolerate unnecessary suffering among its citizens. ...
Now,... you might wonder if things have changed... Unfortunately, the answer is that they haven’t, as you can see by looking at how states are implementing — or refusing to implement — Obamacare.
For those who haven’t been following this issue, in 2012 the Supreme Court gave individual states the option, if they so chose, of blocking the Affordable Care Act’s expansion of Medicaid, a key part of the plan to provide health insurance to lower-income Americans. But why would any state choose to exercise that option? After all, states were being offered a federally-funded program that would provide major benefits to millions of their citizens, pour billions into their economies, and help support their health-care providers. Who would turn down such an offer?
The answer is, 22 states at this point, although some may eventually change their minds. And what do these states have in common? Mainly, a history of slaveholding...
And it’s not just health reform: a history of slavery is a strong predictor of everything from gun control (or rather its absence), to low minimum wages and hostility to unions, to tax policy.
So will it always be thus? Is America doomed to live forever politically in the shadow of slavery?
I’d like to think not. For one thing, our country is growing more ethnically diverse, and the old black-white polarity is slowly becoming outdated. For another, as I said, we really have become much less racist, and in general a much more tolerant society on many fronts. Over time, we should expect to see the influence of dog-whistle politics decline.
But that hasn’t happened yet. Every once in a while you hear a chorus of voices declaring that race is no longer a problem in America. That’s wishful thinking; we are still haunted by our nation’s original sin.

Friday, June 19, 2015

Paul Krugman: Voodoo, Jeb! Style

 Selling tax cuts for the wealthy with unrealistic promises about growth:

Voodoo, Jeb! Style, by Paul Krugman, Commentary, NY Times: On Monday Jeb Bush — or I guess that’s Jeb!,... gave us a first view of his policy goals. First, he says that if elected he would double America’s rate of economic growth to 4 percent. Second, he would make it possible for every American to lose as much weight as he or she wants, without any need for dieting or exercise.
O.K., he didn’t actually make that second promise. But he might as well have. It would have been just as realistic as promising 4 percent growth, and considerably less irresponsible. ...
Mr. Bush ... believes that the growth in Florida’s economy during his time as governor offers a role model for the nation as a whole. Why is that funny? Because everyone except Mr. Bush knows that, during those years, Florida was booming thanks to the mother of all housing bubbles. When the bubble burst, the state plunged into a deep slump... The key to Mr. Bush’s record of success, then, was good political timing: He managed to leave office before the unsustainable nature of the boom he now invokes became obvious.
But Mr. Bush’s economic promises reflect more than self-aggrandizement. They also reflect his party’s habit of boasting about its ability to deliver rapid economic growth, even though there’s no evidence at all to justify such boasts. It’s as if a bunch of relatively short men made a regular practice of swaggering around, telling everyone they see that they’re 6 feet 2 inches tall. ...
Why, then, all the boasting about growth? The short answer, surely, is that it’s mainly about finding ways to sell tax cuts for the wealthy..., low taxes on the rich are an overriding policy priority on the right — and promises of growth miracles let conservatives claim that everyone will benefit from trickle-down, and maybe even that tax cuts will pay for themselves.
There is, of course, a term for basing a national program on this kind of self-serving (and plutocrat-serving) wishful thinking. Way back in 1980, George H.W. Bush, running against Reagan for the presidential nomination, famously called it “voodoo economic policy.” And while Reaganolatry is now obligatory in the G.O.P., the truth is that he was right.
So what does it say about the state of the party that Mr. Bush’s son — often portrayed as the moderate, reasonable member of the family — has chosen to make himself a high priest of voodoo economics? Nothing good.

Wednesday, June 17, 2015

'TPP Versus NAFTA'

Paul Krugman:

TPP Versus NAFTA: Many people — myself included — thought that TPP would, in the end, follow the model of NAFTA: a Democratic president would push the agreement through Congress, but the bulk of the votes would be Republican. But it doesn’t seem to be going that way. Why?
Lydia DePillis suggests that procedural differences and the changed political environment are what changed. Maybe. But I’d suggest three additional factors.
First, while non-trade issues like dispute settlement and intellectual property already loomed large in NAFTA, it was nonetheless more of a genuine trade agreement than TPP...
Despite this, the real case for NAFTA involved foreign policy — which is also true for TPP (administration officials tell me that it’s really about geopolitics.) But that case was much more compelling for NAFTA, which was about rewarding Mexican reformers. ...
Finally, I think it’s fair to say that the liberal intelligentsia has been somewhat radicalized by Republican extremism; making common cause with those who share your basic values matters more than it seemed to a couple of decades ago. ...
So it really is a different game, and TPP supporters need to realize that old rules no longer apply.

Monday, June 15, 2015

Paul Krugman: Democrats Being Democrats

"The Democratic Party is becoming more assertive about its traditional values":

Democrats Being Democrats, by Paul Krugman, Commentary, NY Times: On Friday, House Democrats shocked almost everyone by rejecting key provisions needed to complete the Trans-Pacific Partnership, an agreement the White House wants but much of the party doesn’t. On Saturday Hillary Clinton formally began her campaign for president, and surprised most observers with an unapologetically liberal and populist speech.
These are, of course, related events. The Democratic Party is becoming more assertive about its traditional values...
Democrats, despite defeats in midterm elections, believe — rightly or wrongly — that the political wind is at their backs. Growing ethnic diversity is producing what should be a more favorable electorate; growing tolerance is turning social issues, once a source of Republican strength, into a Democratic advantage instead. ...
But the party’s change isn’t just about politics, it’s also about policy.
On one side, the success of Obamacare and related policies — millions covered for substantially less than expected, surprisingly effective cost control for Medicare — have helped to inoculate the party against blanket assertions that government programs never work. And on the other side, the Davos Democrats who used to be a powerful force arguing against progressive policies have lost much of their credibility.
I’m referring to the kind of people — many, though not all, from Wall Street — who go to lots of international meetings where they assure each other that prosperity is all about competing in the global economy, and that this means supporting trade agreements and cutting social spending. ...
As it turns out, however,... the purported wise men blithely assured us that we had nothing to fear from financial deregulation; we did. After crisis struck, thanks in large part to that very deregulation, they warned us that we should be very afraid of bond investors, who would punish America for its budget deficits; they didn’t. So why believe them when they insist that we must approve an unpopular trade deal? ...
As I said, you can describe all of this as a move to the left, but there’s more to it than that...
Of course, changes in ideology matter only to the extent that they can influence policy. And while the electoral odds probably favor Mrs. Clinton, and Democrats could retake the Senate, they have very little chance of retaking the House. So changes in the Democratic Party may take a while to change America as a whole. But something important is happening, and in the long run it will matter a great deal.

Saturday, June 13, 2015

'Decline and Fall of the Davos Democrats'

Paul Krugman:

Decline and Fall of the Davos Democrats: OK, I didn’t see that coming: even though I have come out as a lukewarm opponent of TPP, I assumed that it would happen anyway... But no, or not so far. ...
Or to put it another way, one way to see this is as the last stand of the Davos Democrats.
If you talk to administration officials — or at least if I talk to them (they may be telling me what they think I want to hear) — they offer a fairly sophisticated defense of this deal. ...
I’m not fully convinced, but this is a reasonable discussion.
But the overall selling of TPP, to some extent by the administration and much more so by its business allies, has been nothing like this. Instead, it has been all lectures from Those Who Know How the Global Economy Works — the kind of people who go to Davos and participate in earnest panels on the skills gap and the case for putting Alan Simpson in charge of everything — to the ignorant hippies who don’t. You know, ignorant hippies like Joseph Stiglitz and Elizabeth Warren.
This kind of thing worked in the 1990s, when Davos Man actually did seem to know how the world works. But now Davos Democrats are known as the people who told us to trust unregulated finance and fear invisible bond vigilantes. They just don’t have the credibility to pull off arguments from authority any more. And it doesn’t say much for their perspicacity that they apparently had no idea that the world has changed.
TPP’s Democratic supporters thought they could dictate to their party like it’s 1999. They can’t.

Friday, June 12, 2015

Paul Krugman: Seriously Bad Ideas

Why do bad ideas prevail?:

Seriously Bad Ideas, by Paul Krugman, Commentary, NY Times: One thing we’ve learned in the years since the financial crisis is that seriously bad ideas — by which I mean bad ideas that appeal to the prejudices of Very Serious People — have remarkable staying power. ...
What makes something qualify as a seriously bad idea? In general, to sound serious it must invoke big causes to explain big events... It must also absolve corporate interests and the wealthy from responsibility for what went wrong, and call for hard choices and sacrifice on the part of the little people. ...
And the ultimate example of a seriously bad idea is the determination, in the teeth of all the evidence, to declare government spending that helps the less fortunate a crucial cause of our economic problems. In the United States, I’m happy to say, this idea seems to be on the ropes... Here in Britain, however, it still reigns supreme. In particular, one important factor in the recent Conservative election triumph was the way Britain’s news media told voters, again and again, that excessive government spending under Labour caused the financial crisis. It takes almost no homework to show that this claim is absurd...
The ... really bad news is that Britain’s leaders seem to believe their own propaganda. On Wednesday, George Osborne, the chancellor of the Exchequer and the architect of the government’s austerity policies, announced his intention to make these policies permanent. Britain, he said, should have a law requiring that the government run a budget surplus ... when the economy is growing.
It’s a remarkable proposal, and I mean that in the worst way. ... For Britain does not have a public debt problem. ... Meanwhile, Britain’s real economy is still ailing..., surely the combination of a still-weak economy, terrible productivity performance and negative borrowing costs says that this is a time to increase investment in things like infrastructure. ... Yet the Osborne proposal would kill any such initiative.
But Mr. Osborne sounds very serious, and, if history is any guide, the Labour Party won’t make any effective counterarguments.
Now, some readers are probably thinking that I’m giving the likes of Mr. Osborne too much credit for sincerity. Isn’t all this deficit obsession just an excuse to slash social programs? And I’m sure that’s part of it. But I don’t think that’s the whole story. Seriously bad ideas, I’d argue, have a life of their own. And they rule our world.

Tuesday, June 09, 2015

'The Party of Fiscal Responsibility in Action'

Paul Krugman:

The Party of Fiscal Responsibility in Action: One of the greatest confidence tricks ever pulled in American politics was the way Republicans managed, for a while anyway, to convince centrists that they were apostles of fiscal responsibility. Paul Ryan presented budgets that combined huge tax cuts for the rich with not quite as huge benefit cuts for the poor, added some magic asterisks — basically deficit-increasing redistribution from the have-nots to the haves, with added fraudulence — and received awards for fiscal responsibility.
Anyway, at this point we have evidence of what such politicians actually do in office, thanks to the many US states where Republicans control both the governor’s office and the legislature. And the result is an epidemic of fiscal crisis, despite a recovering economy. Yes, some Democrat-controlled states are also having problems. But they didn’t go around pretending to be the nation’s fiscal saviors, and the biggest state controlled by Democrats, California — which was supposed to be a basket case — is in quite good fiscal shape.
And yes, I think this observation is a lot more important than Marco Rubio’s personal financial difficulties, although those are pretty bizarre.

Monday, June 08, 2015

'Why the Mortgage Interest Tax Deduction Should Disappear, But Won't'

Cecchetti & Schoenholtz:

Why the mortgage interest tax deduction should disappear, but won't: In the run-up to the 2012 U.S. Presidential election, Planet Money asked five economists from across the political spectrum for proposals that they would like to see in the platform of the candidates. The diverse group agreed, first and foremost, on the wisdom of eliminating the tax deductibility of mortgage interest. 
The vast majority of economists probably agree. We certainly do. But it won’t happen, because politicians with aspirations for reelection find it toxic. ...
The ... tax deductibility of mortgage interest ... raises inequality and reduces economic efficiency.
The source of increased inequality is simple. The private benefits of the mortgage interest deduction rise both with a person’s income and with the cost of their house. The higher your income, the higher your marginal tax rate; and the bigger your house, the bigger the possible mortgage. When either rises, the value of the tax deduction rises, too. ...
Aside from inequality concerns, there are other powerful reasons to dislike the mortgage interest deduction. Above all, it is inefficient. By subsidizing bigger, more expensive houses, the policy misallocates scarce savings away from productive investments that raise living standards through income- and job-creating innovations. It also makes our financial system more vulnerable: as we wrote in an earlier post, it encourages people to take on risks – in the form of large, subsidized mortgages – that they are not equipped to bear. In the recent crisis, risky mortgage debt was sufficient to put the entire financial system at risk. ...
Unfortunately, the tax deductibility of mortgage interest is here to stay. Nearly 50 million U.S. households currently have mortgages, and politicians don’t wish to alienate them.  
But the borrowers are only the most obvious beneficiaries.  In fact, all homeowners would suffer if the mortgage deduction were eliminated. The reason is that the value of everyone’s house would fall...
A simple computation allows us to estimate the economy-wide impact. ... If the subsidy were eliminated, homeowners would lose ... about $4.1 trillion. ... For comparison, the plunge of real estate value from the 2006 peak to the 2011 trough was $6.4 trillion. ...
Aside from the contractionary impact on the economy, many people would see such a drop in house prices as dramatically unfair. It’s true that the biggest losers in monetary terms would be the owners of the most valuable (oversized) houses; but the less well-off would suffer, too. While it is a progressive policy, all 80 million households that own homes would take a hit.
It is tempting to just give up and admit political defeat, but there may be a way out. Our suggestion is to build on past reforms that capped the tax deduction by limiting the size of eligible mortgages. ... Since roughly 10% of U.S. homes are worth more than $500,000, our proposal is to set the limit at the interest payments on a $400,000 mortgage (indexed appropriately). This would promote both efficiency and equality. ...
Policies that provide asset owners large “rents” (payments unwarranted by the scarcity of the asset itself) are incredibly difficult to eliminate, even when they are both unfair and inefficient. Such rents create an entire ecosystem of beneficiaries (in this case, ranging from construction firms and workers, to real estate brokers, to mortgage lenders and borrowers) who constitute a powerful political constituency blocking almost any reform. ...

Sunday, June 07, 2015

'Austerity as a Knowledge Transmission Mechanism failure'

Related to the post after this one, from Simon Wren-Lewis:

Austerity as a Knowledge Transmission Mechanism failure: In this post I talked about the Knowledge Transmission Mechanism: the process by which academic ideas do or do not get translated into economic policy. I pointed to the importance of what I called ‘policy intermediaries’ in this process: civil servants, think tanks, policy entrepreneurs, the media, and occasionally financial sector economists and central banks. Here I want to ask whether thinking about these intermediaries could help explain the continuing popularity amongst policy makers of austerity during a liquidity trap, even though there is an academic consensus behind the idea that austerity now would harm output. ...

'The Economic Consequences of Austerity'

From today's links, Amartya Sen on the turn to austerity during the Great Recession (there's a lot more in the full text):

The economic consequences of austerity, by Amartya Sen: ...As it is quite common these days to blame economists for failing to see the real world, I take this opportunity to note that very few professionally trained economists were persuaded by the direction in which those in charge of European finances decided to take Europe. The European debacle demonstrated, in effect, that you do not need economists to generate a holy mess: the financial sector can generate its own gory calamity with the greatest of elegance and ease. Further, if the policy of austerity deepened Europe’s economic problems, it did not help in the aimed objective of reducing the ratio of debt to GDP to any significant extent – in fact, sometimes quite the contrary. ...
If failing to understand some basic Keynesian relations is a part of the explanation of what happened, there was also another, and more subtle, story behind the confounded economics of austerity. There was an odd confusion in policy thinking between the real need for institutional reform in Europe and the imagined need for austerity – two quite different things. There can be little doubt that Europe has needed, for quite some time, many serious institutional reforms – from the avoidance of tax evasion and the fixing of more reasonable retiring ages to sensible working hours and the elimination of institutional rigidities, including those in the labour markets. But the real (and strong) case for institutional reform has to be distinguished from an imagined case for indiscriminate austerity, which does not do anything to change a system while hugely inflicting pain. ...
An analogy can help to make the point clearer: it is as if a person had asked for an antibiotic for his fever, and been given a mixed tablet with antibiotic and rat poison. You cannot have the antibiotic without also having the rat poison. We were in effect being told that if you want economic reform then you must also have, along with it, economic austerity, although there is absolutely no reason whatsoever why the two must be put together as a chemical compound. For example, having sensible retiring ages, which many European countries do not (a much-needed institutional reform), is not similar to cutting severely the pensions on which the lives of the working poor may depend (a favourite of austeritarians). The compounding of the two – not least in the demands made on Greece – has made it much harder to pursue institutional reforms. ...

Friday, May 22, 2015

Paul Krugman: Trade and Trust

The Obama administration is risking its credibility over the trade deal:

Trade and Trust, by Pau Krugman, Commentary, NY Times: One of the Obama administration’s underrated virtues is its intellectual honesty. Yes, Republicans see deception and sinister ulterior motives everywhere, but they’re just projecting. The truth is that, in the policy areas I follow, this White House has been remarkably clear and straightforward about what it’s doing and why.
Every area, that is, except one: international trade and investment.
I don’t know why the president has chosen to make the proposed Trans-Pacific Partnership such a policy priority. Still, there is an argument to be made for such a deal, and some reasonable, well-intentioned people are supporting the initiative.
But other reasonable, well-intentioned people have serious questions about what’s going on. ...
The administration’s main analytical defense of the trade deal came earlier this month, in a report from the Council of Economic Advisers. Strangely, however, the report didn’t actually analyze the Pacific trade pact. Instead, it was a paean to the virtues of free trade, which was irrelevant to the question at hand.
First of all, whatever you may say about the benefits of free trade, most of those benefits have already been realized. ...
In any case, the Pacific trade deal isn’t really about trade. Some already low tariffs would come down, but the main thrust of the proposed deal involves strengthening intellectual property rights — things like drug patents and movie copyrights — and changing the way companies and countries settle disputes. And it’s by no means clear that either of those changes is good for America. ...
As I see it, the big problem here is one of trust.
International economic agreements are, inevitably, complex, and you don’t want to find out at the last minute ... that a lot of bad stuff has been incorporated into the text. So you want reassurance that the people negotiating the deal are listening to valid concerns, that they are serving the national interest rather than the interests of well-connected corporations.
Instead of addressing real concerns, however, the Obama administration has been dismissive, trying to portray skeptics as uninformed hacks who don’t understand the virtues of trade. But they’re not...
It’s really disappointing and disheartening to see this kind of thing from a White House that has, as I said, been quite forthright on other issues. And the fact that the administration evidently doesn’t feel that it can make an honest case for the Trans-Pacific Partnership suggests that this isn’t a deal we should support.

Thursday, May 21, 2015

'Conservatives and Keynes'

This, from Paul Krugman, is sort of a setup for the post below this one:

Conservatives and Keynes: ...the debate over business-cycle economics has always been a left-right thing. Specifically, the right has always been deeply hostile to the notion that expansionary fiscal policy can ever be helpful or austerity harmful; most of the time it has been hostile to expansionary monetary policy too... So the politicization of the macro debate isn’t some happenstance, it evidently has deep roots.
Oh, and some of us have been discussing those roots in articles and blog posts for years now. We’ve noted that after World War II there was a concerted, disgraceful effort by conservatives and business interests to prevent the teaching of Keynesian economics in the universities, an effort that succeeded in killing the first real Keynesian textbook. Samuelson, luckily, managed to get past that barrier — and many were the complaints. ...
What’s it all about, then? The best stories seem to involve ulterior political motives. Keynesian economics, if true, would mean that governments don’t have to be deeply concerned about business confidence, and don’t have to respond to recessions by slashing social programs. Therefore it must not be true, and must be opposed. ...
If you think I’m being too flip, too conspiracy-minded, or both, OK — but what’s your explanation? For conservative hostility to Keynes is not an intellectual fad of the moment. It has absolutely consistent for generations, and is clearly very deep-seated.

 

Tuesday, May 19, 2015

Restoring the Public’s Trust in Economists

I have a new column:

Restoring the Public’s Trust in Economists: The belief that economics has become politicized is a big reason the general public has lost faith in the ability of economists to give advice on important policy questions. For most issues, like raising the minimum wage, the effects of government spending, international trade, whether CEOs deserve their high compensation, etc., etc., it seems as though economists who also happen to be Republicans will mostly line up on one side of the issue, while economists who are Democrats mostly take the other. Members of the general public, not knowing who to believe and unable to rely upon the press to sort it out, either throw up their hands in frustration or follow the side that agrees with their preconceived notions and ideological beliefs.
But why is it so hard to sort out? Why can’t the press do a better job of avoiding “he said – she said” reporting and give the public direct and specific answers to these important policy questions? One reason is the “mathiness” that has infected our economic models, something economist Paul Romer recently identified as a big problem with economic theory. ...

Monday, May 18, 2015

Paul Krugman: Errors and Lies

"The Iraq war wasn’t an innocent mistake":

Errors and Lies, by Paul Krugman, Commentary, NY Times: Surprise! It turns out that there’s something to be said for having the brother of a failed president make his own run for the White House. Thanks to Jeb Bush, we may finally have the frank discussion of the Iraq invasion we should have had a decade ago...
The Iraq war wasn’t an innocent mistake, a venture undertaken on the basis of intelligence that turned out to be wrong. America invaded Iraq because the Bush administration wanted a war. The public justifications for the invasion were nothing but pretexts, and falsified pretexts at that. We were, in a fundamental sense, lied into war. ...
This was, in short, a war the White House wanted, and all of the supposed mistakes that, as Jeb puts it, “were made” by someone unnamed actually flowed from this underlying desire. ...
Now, you can understand why many political and media figures would prefer not to talk about any of this. Some of them ... may have fallen for the obvious lies, which doesn’t say much about their judgment. More, I suspect, were complicit: they realized that the official case for war was a pretext, but had their own reasons for wanting a war, or, alternatively, allowed themselves to be intimidated into going along. ...
On top of these personal motives, our news media in general have a hard time coping with policy dishonesty. Reporters are reluctant to call politicians on their lies, even when these involve mundane issues like budget numbers, for fear of seeming partisan. In fact, the bigger the lie, the clearer it is that major political figures are engaged in outright fraud, the more hesitant the reporting. And it doesn’t get much bigger — indeed, more or less criminal — than lying America into war.
But truth matters, and not just because those who refuse to learn from history are doomed in some general sense to repeat it. The campaign of lies that took us into Iraq was recent enough that it’s still important to hold the guilty individuals accountable. Never mind Jeb Bush’s verbal stumbles. Think, instead, about his foreign-policy team, led by people who were directly involved in concocting a false case for war.
So let’s get the Iraq story right. Yes, from a national point of view the invasion was a mistake. But (with apologies to Talleyrand) it was worse than a mistake, it was a crime.

Friday, May 15, 2015

Paul Krugman: Fraternity of Failure

Mistakes were made:

Fraternity of Failure, by Paul Krugman, Commentary, NY Times: Jeb Bush wants to stop talking about past controversies. And you can see why. ... The big “Let’s move on” story of the past few days involved Mr. Bush’s response when asked ... whether, knowing what he knows now, he would have supported the 2003 invasion of Iraq. He answered that yes, he would. ...
Then he tried to walk it back. He “interpreted the question wrong,” and isn’t interested in engaging “hypotheticals.” Anyway, “going back in time” is a “disservice” to those who served in the war.
Take a moment to savor the cowardice and vileness of that last remark. ... Mr. Bush is trying to hide behind the troops, pretending that any criticism ... is an attack on the courage and patriotism of those who paid the price for their superiors’ mistakes. That’s sinking very low, and it tells us a lot ... about the candidate’s character...
Wait, there’s more: Incredibly, Mr. Bush resorted to the old passive-voice dodge, admitting only that “mistakes were made.” Indeed. By whom? Well, earlier this year Mr. Bush released a list of his chief advisers on foreign policy, and it was a who’s-who of mistake-makers ... in the Iraq disaster and other debacles. ...
In Bushworld, in other words, playing a central role in catastrophic policy failure doesn’t disqualify you from future influence. ...
Take my usual focus, economic policy. ... Having been completely wrong about the economy, like having been completely wrong about Iraq, seems to be a required credential.
What’s going on here? My best explanation is that we’re witnessing the effects of extreme tribalism. On the modern right, everything is a political litmus test. Anyone who tried to think through the pros and cons of the Iraq war was, by definition, an enemy of President George W. Bush and probably hated America; anyone who questioned whether the Federal Reserve was really debasing the currency was surely an enemy of capitalism and freedom.
It doesn’t matter that the skeptics have been proved right. Simply raising questions about the orthodoxies of the moment leads to excommunication, from which there is no coming back. So the only “experts” left standing are those who made all the approved mistakes. It’s kind of a fraternity of failure: men and women united by a shared history of getting everything wrong, and refusing to admit it. Will they get the chance to add more chapters to their reign of error?

Thursday, May 14, 2015

'Fighting for History'

"Progressives need to fight back":

Fighting for History, by Paul Krugman: ...Progressives ... are much too willing to cede history to the other side. Legends about the past matter. Really bad economics flourishes in part because Republicans constantly extol the Reagan record, while Democrats rarely mention how shabby that record was compared with the growth in jobs and incomes under Clinton. The combination of lies, incompetence, and corruption that made the Iraq venture the moral and policy disaster it was should not be allowed to slip into the mists. ...
There’s a reason conservatives constantly publish books and articles glorifying Harding and Coolidge while sliming FDR; there’s a reason they’re still running against Jimmy Carter; and there’s a reason they’re doing their best to rehabilitate W. And progressives need to fight back.

'Defend Workers and the Environment Before Voting Fast Track'

Jeff Sachs weighs in on the TPP, TTIP, and TPA:

Defend Workers and the Environment Before Voting Fast Track: President Barack Obama is making a full-court press for two new international business agreements, one with Asian-Pacific countries known as Trans-Pacific Partnership (TPP) and the other with European countries known as the Trans-Atlantic Trade and Investment Partnership (TTIP). To secure these, he is calling on Congress to pass Trade Promotion Authority (TPA), also known as "fast track," so that when TPP and TTIP come up for a Congressional vote, they can only be voted up or down, without amendments. ...
The president portrays TPP and TTIP as part of an overall program of "middle-class economics" in which "everybody gets a fair shot, everyone does his fair share, and everybody plays by the same set of rules." That means "making sure that everybody has got a good education," "women are getting paid the same as men for doing the same work," "making sure that folks have to have sick leave and family leave," and "increasing the minimum wage across the country." It means pushing for investments in infrastructure and faster Internet.
The problem, however, is that the president has not succeeded in getting any of those middle-class policies in place. ...
If the U.S. were a fairer society, in which Obama's vision of everybody getting a fair shot truly applied, then TPP and TTIP would be much easier calls. The losers from trade and offshoring would reliably get help from the winners; workers hit by the agreements would have a clear path to new skills, re-training, family support, adjustment assistance, a higher minimum wage, and all of the other protections that the president rightly seeks but can't secure. Yet America today is not that kind of society. The TPP and TTIP would hand another gift to the multinational companies that are lobbying so hard for the two agreements without providing real protections for workers (and for the environment as well). ...
Obama and the Republicans in Congress have not made the case to American workers that trade policies under TPP and TTIP will be part of a fair, middle-class, and environmentally sustainable economy.

Wednesday, May 13, 2015

'Wyoming’s War on Microbiology'

Mike the Mad Biologist:

Wyoming’s War on Microbiology: Well, they’re not calling it that, but this Wyoming law is definitely not going to make our water cleaner, or stop the spread of antibiotic resistance genes...:
…the new law makes it a crime to gather data about the condition of the environment across most of the state if you plan to share that data with the state or federal government. The reason? The state wants to conceal the fact that many of its streams are contaminated by E. coli bacteria, strains of which can cause serious health problems, even death. ... Rather than engaging in an honest public debate about the cause or extent of the problem, Wyoming prefers to pretend the problem doesn’t exist. And under the new law, the state threatens anyone who would challenge that belief by producing information to the contrary with a term in jail...
The new law is of breathtaking scope. It makes it a crime to “collect resource data” from any “open land,” meaning any land outside of a city or town, whether it’s federal, state, or privately owned. The statute defines the word collect as any method to “preserve information in any form,” including taking a “photograph” so long as the person gathering that information intends to submit it to a federal or state agency. In other words, if you discover an environmental disaster in Wyoming, even one that poses an imminent threat to public health, you’re obliged, according to this law, to keep it to yourself.
While this law will probably be ruled unconstitutional, its intent is horrendous...
For me personally, the timing is ironic, as I’ve spent the last week involved in various agriculture-related microbiology meetings, and the constant refrain was “we need more data on what people are doing” (e.g., how are they using antibiotics?). In the areas of food and water safety, we desperately need more data. ...

Tuesday, May 12, 2015

'The Rules are What Matter for Inequality'

Mike Konczal:

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. ...

Friday, May 08, 2015

Paul Krugman: Triumph of the Unthinking

 Why do bad economic ideas resonate with voters?:

Triumph of the Unthinking, by Paul Krugman, Commentary, NY Times: “Words,” wrote John Maynard Keynes, “ought to be a little wild, for they are the assault of thoughts on the unthinking.” I’ve always loved that quote, and have tried to apply it to my own writing. But I have to admit that in the long slump that followed the 2008 financial crisis — a slump that we had both the tools and the knowledge to end quickly, but didn’t — the unthinking were quite successful in fending off unwelcome thoughts.
And nowhere was the triumph of inanity more complete than in Keynes’s homeland, which is going to the polls as I write this. Britain’s election should be a referendum on a failed economic doctrine, but it isn’t, because nobody with influence is challenging transparently false claims and bad ideas.
Before I bash the Brits, however, let me admit that we’ve done pretty badly ourselves. ...
It’s true that in practice Mr. Obama pushed through a stimulus that, while too small and short-lived, helped diminish the depth and duration of the slump. But when Republicans began talking nonsense, declaring that the government should match the belt-tightening of ordinary families — a recipe for full-on depression — Mr. Obama didn’t challenge their position. Instead,... the very same nonsense became a standard line in his speeches, even though his economists knew better, and so did he...
Like Mr. Obama and company,... Labour hasn’t tried to push back, probably because they considered this a political fight they couldn’t win. But why?
Mr. Wren-Lewis suggests that it has a lot to do with the power of misleading analogies between governments and households, and also with the malign influence of economists working for the financial industry, who in Britain as in America constantly peddle scare stories about deficits and pay no price for being consistently wrong. If U.S. experience is any guide, my guess is that Britain also suffers from the desire of public figures to sound serious, a pose which they associate with stern talk about the need to make hard choices (at other people’s expense, of course.)
Still, it’s quite amazing. The fact is that Britain and America didn’t need to make hard choices in the aftermath of crisis. What they needed, instead, was hard thinking...
But hard thinking has been virtually excluded from British public discourse. As a result, we just have to hope that whoever ends up running Britain’s economy isn’t as foolish as he pretends to be.

Thursday, May 07, 2015

'When Bosses Recruit Employees into Politics'

Is a secret ballot enough to protect against this?:

When Bosses Recruit Employees into Politics - Evidence from a New National Survey, by Alexander Hertel-Fernandez, Harvard University: ...As part of my doctoral research on the many facets of shifting business involvement in U.S. politics, I recently commissioned the research firm SRSS to conduct a nationwide, statistically representative telephone survey of more than 1,000 U.S. employees. Survey respondents were asked whether their bosses or supervisors had tried to engage them in politics and, if so, how and with what kinds of messages. Overall, a quarter of employees reported that their bosses have tried to engage them in politics...
Startlingly, about seven percent of employees reported clearly coercive kinds of political contact at work – messages that made workers uncomfortable or included threats of plant closures, cuts in hours, or layoffs. Given the overall margin of error in my survey, the bottom line result is that somewhere between 3% and 10% of all U.S. employees – about 4 to 14 million Americans – are experiencing intimidating forms of political contact at work...
Most commentary about Citizens United has focused on the new leeway it grants corporations to spend on elections. However, Citizens United also makes it legal for corporate managers to campaign for their preferred political candidates in the workplace. Businesses can even go so far as to mandate that their workers participate in politics in certain ways – such as attending a rally for a favored politician. That happened during the 2012 election, when an Ohio coal mine required its workers to attend a rally for Republican presidential candidate Mitt Romney. Miners were not paid for their time, but some said they were afraid they could lose their jobs if they did not participate in the rally. ...
What can be done to curb the most coercive political communications from employers while leaving constructive firm efforts untouched? ... A precedent exists in the state of Oregon, where the Worker Freedom Act prohibits employers from holding mandatory meetings at work related to political issues, and protects employees from retaliation if they choose not to receive workplace political communications. ... My national survey revealed broad bipartisan support for such legal guidelines... The United States has long prided itself on being a model democracy, so the upward creep of workplace political intimidation should be a major concern for anyone who cares about citizen rights in the workplace as well as at the ballot box.

I don't think employers ought to be able to force employees to attend a rally, etc., and workers ought to be protected if they refuse.

Wednesday, May 06, 2015

'The GOP’s War on Science Gets Worse'

Elizabeth Kolbert at the New Yorker:

The G.O.P.’s War on Science Gets Worse: During last fall’s midterm election campaign, “I’m not a scientist” became a standard Republican answer to questions about climate change. ... Now, it seems, they are trying to go one better. They are trying to prevent even scientists from being scientists.
Last week, the House Science, Space, and Technology Committee, headed by Texas Republican Lamar Smith, approved a bill that would slash at least three hundred million dollars from NASA’s earth-science budget. “Earth science, of course, includes climate science,” Representative Eddie Bernice Johnson, a Texas Democrat who is also on the committee, noted. ... Defunding NASA’s earth-science program takes willed ignorance one giant leap further. It means that not only will climate studies be ignored; some potentially useful data won’t even be collected. ...
The vote on the NASA bill came just a week after the same House committee approved major funding cuts to the National Science Foundation’s geosciences program, as well as cuts to Department of Energy programs that support research into new energy sources. ...
“It’s hard to believe that in order to serve an ideological agenda, the majority is willing to slash the science that helps us have a better understanding of our home planet,” Representative Johnson wrote. Hard to believe, but, unfortunately, true.

Friday, May 01, 2015

'The Political Roots of Widening Inequality'

Robert Reich:

The Political Roots of Widening Inequality: For the past quarter-century I’ve offered in articles, books, and lectures an explanation for why average working people in advanced nations like the United States have failed to gain ground and are under increasing economic stress: Put simply, globalization and technological change have made most of us less competitive. The tasks we used to do can now be done more cheaply by lower-paid workers abroad or by computer-driven machines.
My solution—and I’m hardly alone in suggesting this—has been an activist government that raises taxes on the wealthy, invests the proceeds in excellent schools and other means people need to become more productive, and redistributes to the needy. These recommendations have been vigorously opposed by those who believe the economy will function better for everyone if government is smaller and if taxes and redistributions are curtailed.
While the explanation I offered a quarter-century ago for what has happened is still relevant—indeed, it has become the standard, widely accepted explanation—I’ve come to believe it overlooks a critically important phenomenon: the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. And the governmental solutions I have propounded, while I believe them still useful, are in some ways beside the point because they take insufficient account of the government’s more basic role in setting the rules of the economic game.
Worse yet, the ensuing debate over the merits of the “free market” versus an activist government has diverted attention from how the market has come to be organized differently from the way it was a half-century ago, why its current organization is failing to deliver the widely shared prosperity it delivered then, and what the basic rules of the market should be. It has allowed America to cling to the meritocratic tautology that individuals are paid what they’re “worth” in the market, without examining the legal and political institutions that define the market. The tautology is easily confused for a moral claim that people deserve what they are paid. Yet this claim has meaning only if the legal and political institutions defining the market are morally justifiable. ...

There's quite a bit more in the article.

'Ten Facts about U.S. Trade'

Since I've posted quite a few things skeptical of the trade agreements the Obama administration has been promoting, including an article of my own, it's fair to give the White House's response. However, the response is speaking in general about trade, and I also think it's fair to ask the degree to which the TPP and the TTIP will provide these benefits, and how the benefits will stack up against the costs (the benefit side is covered to some degree on pages 45 and 46 of the full report):

Ten Facts about U.S. Trade, The White House: President Obama’s top priority is to make sure the United States builds on its economic momentum by continuing to grow businesses, create jobs, and expand the middle class. That is why the President is committed to free and fair trade agreements that level the playing field and benefit American businesses and workers. This report presents original empirical evidence, alongside a summary of the extensive economic literature, on a broad range of effects of enhanced U.S. trade and U.S. free trade agreements (FTAs).[1] Highlights from this report include:
1. U.S. businesses must overcome an average tariff hurdle of 6.8 percent, in addition to numerous non - tariff barriers (NTBs) , to serve the roughly 95 percent of the world’s customers outside our borders. The United States is already one of the most open markets in the world, meaning that the main impact of new trade agreements would be to decrease foreign barriers to U.S. exports. In 2014, almost 70 percent of U.S. imports crossed our borders duty - free, but many of our trading partners maintain higher tariffs that create steep barriers to U.S. exports.
2. Exporters pay higher wages, and the average industry’s export growth over the past twenty years translated into $1,300 higher annual earnings for the typical employee. Studies of U.S. manufacturing industries document that, on average, export - intensive industries pay workers up to 18 percent more than non - export - intensive industries. Controlling for industry, location, and worker characteristics, CEA finds that the average industry’s increase in exports in the 1990s and 2000s translated into an additional $1,300 in annual earnings for the typical middle - class worker.
3. Middle - class Americans gain more than a quarter of their purchasing power from trade. Trade allows U.S. consumers to buy a wider variety of goods at lower prices, raising real wages and helping families purchase more with their current incomes. This is especially important for middle - class consumers who spend a larger share of their disposable income on heavily - traded food and clothing items. Compared to a world with no trade, median - income consumers gain an estimated 29 percent of their purchasing power from trade.
4. Over the past twenty years, the average industry’s increase in exports translated into 8 percent higher labor productivity, or almost a quarter of the total productivity increase over that time. About half of all U.S. imports are inputs that businesses use to produce final goods, which lowers firms’ production costs by making a greater variety of inputs available at lower prices. Additionally, economic research shows that trade increases productivity for businesses and the economy as a whole.
5. When countries make trade deals with China, outsourcing of American jobs increases, while U.S. trade agreements do not change the rate of U.S. investment abroad. Trade agreements with China offer countries preferential access to the vast Chinese market while accepting low labor and environmental standards. U.S. FTAs, on the other hand, raise standards across the board and help U.S. businesses export to foreign markets while still producing goods here. U.S. foreign direct investment (FDI) in FTA partner countries shows little to no change after completion of a trade agreement. However, China’s completion of a trade agreement increases U.S. FDI in China’s FTA partners.
6. Trade raises labor standards and incomes abroad, helping developing countries lift people out of poverty and expanding markets for U.S. exports. Research suggests that trade has helped decrease poverty by raising wages around the world and also finds that expanding U.S. market access promotes higher - quality employment in less - developed countries as workers shift from informal to formal employment. Enforceable labor standards, which form a central part of trade agreements the United States is currently negotiating, have also complemented trade’s direct effects.
7. For every 1 percent increase in income as a result of trade liberalization, pollution concentrations fall by 1 percent. This happens because the adoption of clean technologies spread through trade more than offsets emissions resulting from increased transportation or production. Current trade agreements amplify these effects: the Administration includes environmental commitments as a core part of its values - driven trade approach, including commitments to protect oceans, combat wildlife trafficking, and eliminate illegal logging.
8. Trade helps lower the gender wage gap , with a 10 percentage point decrease in tariffs leading to a 1 percentage point drop in the wage gap. CEA studied the relationship between tariffs and the gender wage gap, finding that industries with larger tariff declines saw greater reductions in the wage gap. Trade also decreases discrimination based on race and immigration status and is correlated with better human - rights conditions.
9. The United States has a $43 billion surplus in agricultural trade and is a worldwide leader in agriculture , employing almost 1.5 million American workers. In 2014, one - half of the wheat, rice, and soybeans produced in the United States was exported, along with over two - thirds of almonds and walnuts and four - fifths of cotton and pistachios. The U.S. Department of Agriculture (USDA) estimates that every $1 in agricultural exports stimulates another $1.22 in related business activity, so that agricultural exports increased total economic output by almost $350 billion in 2014.
10. The United States is the global leader in services exports. Over the past 34 years, real U.S. services exports have grown more than seven - fold, particularly in areas like insurance and financial services. As a result , knocking down barriers to services trade is especially important for the American workforce. Compared to the average across 40 other countries, including most advanced economies and large emerging markets, the United States has lower trade barriers in 14 out of 18 different service sectors. By one estimate, if U.S. services reached the same export potential as manufactured good s, total U.S. exports could increase by as much as $800 billion.
[ 1] This report complements work already published in Chapter 7 of the Council of Economic Advisers’ (CEA) 2015 Economic Report of the President.

Paul Krugman: Ideology and Integrity

 "Never being able to say that you were wrong is a serious character flaw":

Ideology and Integrity, by Paul Krugman, Commentary, NY Times: The 2016 campaign should be almost entirely about issues. The parties are far apart on everything from the environment to fiscal policy to health care, and history tells us that what politicians say during a campaign is a good guide to how they will govern.
Nonetheless, many in the news media will try to make the campaign about personalities and character instead. ... But the character trait that will matter most isn’t one the press likes to focus on. ...
You see, you shouldn’t care whether a candidate is someone you’d like to have a beer with. Nor should you care about politicians’ sex lives, or even their spending habits unless they involve clear corruption. No, what you should really look for, in a world that keeps throwing nasty surprises at us, is intellectual integrity: the willingness to face facts even if they’re at odds with one’s preconceptions, the willingness to admit mistakes and change course. ...
As you might guess, I’m thinking in particular about the sphere of economics... Did I predict runaway inflation that never arrived? Well, the government is cooking the books, and besides, I never said what I said. ...
So what’s the state of intellectual integrity at this point in the election cycle? Pretty bad, at least on the Republican side of the field.
Jeb Bush, for example, has declared that “I’m my own man” on foreign policy, but the list of advisers circulated by his aides included the likes of Paul Wolfowitz, who predicted that Iraqis would welcome us as liberators, and shows no signs of having learned from the blood bath that actually took place.
Meanwhile, as far as I can tell no important Republican figure has admitted that none of the terrible consequences that were supposed to follow health reform ... has actually happened. ...
We’re talking about never admitting error, and never revising one’s views. Never being able to say that you were wrong is a serious character flaw.... But moral cowardice should be outright disqualifying in anyone seeking high office. ... We really, really don’t want the job of responding to that crisis dictated by someone who still can’t bring himself to admit that invading Iraq was a disaster but health reform wasn’t.
I still think this election should turn almost entirely on the issues. But if we must talk about character, let’s talk about what matters, namely intellectual integrity.

Thursday, April 30, 2015

'WSJ Editorial Page Watch: The Slow-Growth Fed?'

Ben Bernanke:

WSJ Editorial Page Watch: The Slow-Growth Fed?: For the second year in a row, the first-quarter Gross Domestic Product figures were disappointing. TheWall Street Journal, in an editorial entitled "The Slow-Growth Fed," uses the opportunity to argue (again) for tighter monetary policy..., (the WSJ concludes), monetary policy is not working and efforts to use it to support the recovery should be discontinued.
It's generous of the WSJ writers to note, as they do, that "economic forecasting isn't easy." They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006...
The WSJ ... argues that, because monetary policy has not been a panacea for our economic troubles, we should stop using it. I agree that monetary policy is no panacea, and as Fed chairman I frequently said so. With short-term interest rates pinned near zero, monetary policy is not as powerful or as predictable as at other times. But the right inference is not that we should stop using monetary policy, but rather that we should bring to bear other policy tools as well. I am waiting for the WSJ to argue for a well-structured program of public infrastructure development, which would support growth in the near term by creating jobs and in the longer term by making our economy more productive. We shouldn't be giving up on monetary policy, which for the past few years has been pretty much the only game in town as far as economic policy goes. Instead, we should be looking for a better balance between monetary and other growth-promoting policies, including fiscal policy.

Infrastructure construction, which can be viewed as a supply-side policy with beneficial demand side effects, ought to be a no-brainer on both sides of the political divide.

Monday, April 27, 2015

Paul Krugman: Nobody Said That

 Why don't prognosticators accept responsibility for their prediction errors?:

Nobody Said That, by Paul Krugman, Commentary, NY Times: Imagine yourself as a regular commentator on public affairs — maybe a paid pundit, maybe a supposed expert in some area, maybe just an opinionated billionaire. You weigh in on a major policy initiative that’s about to happen, making strong predictions of disaster. The Obama stimulus, you declare, will cause soaring interest rates; the Fed’s bond purchases will “debase the dollar” and cause high inflation; the Affordable Care Act will collapse in a vicious circle of declining enrollment and surging costs.
But nothing you predicted actually comes to pass. What do you do?
You might admit that you were wrong, and try to figure out why. But almost nobody does that; we live in an age of unacknowledged error.
Alternatively, you might insist that sinister forces are covering up the grim reality. Quite a few well-known pundits are, or at some point were, “inflation truthers,” claiming that the government is lying about the pace of price increases. There have also been many prominent Obamacare truthers declaring that the White House is cooking the books, that the policies are worthless, and so on.
Finally, there’s a third option: You can pretend that you didn’t make the predictions you did. I see that a lot when it comes to people who issued dire warnings about interest rates and inflation, and now claim that they did no such thing. Where I’m seeing it most, however, is on the health care front. Obamacare is working better than even its supporters expected — but its enemies say that the good news proves nothing, because nobody predicted anything different. ...
It’s both easy and entirely appropriate to ridicule this kind of thing. But there are some serious stakes here, and they go beyond the issue of health reform, important as it is.
You see, in a polarized political environment, policy debates always involve more than just the specific issue on the table. They are also clashes of world views. Predictions of debt disaster, a debased dollar, and Obama death spirals reflect the same ideology, and the utter failure of these predictions should inspire major doubts about that ideology.
And there’s also a moral issue involved. Refusing to accept responsibility for past errors is a serious character flaw in one’s private life. It rises to the level of real wrongdoing when policies that affect millions of lives are at stake.

Friday, April 24, 2015

Paul Krugman: Zombies of 2016

Some bad ideas just won't die:

Zombies of 2016, by Paul Krugman, Commentary, NY Times: Last week,...Chris Christie ... gave a speech in which he tried to position himself as a tough-minded fiscal realist. In fact, however, his supposedly tough-minded policy idea was a classic zombie — an idea that should have died long ago in the face of evidence that undermines its basic premise, but somehow just keeps shambling along.
...Mr. Christie ... thought he was being smart and brave by proposing that we raise the age of eligibility for both Social Security and Medicare to 69. Doesn’t this make sense now that Americans are living longer?
No, it doesn’t..., almost all the rise in life expectancy has taken place among the affluent. The bottom half of workers,... who rely on Social Security most, have seen their life expectancy at age 65 rise only a bit more than a year since the 1970s. Furthermore,... many ... still have to perform manual labor.
And while raising the retirement age would impose a great deal of hardship, it would save remarkably little money. ...
And there are plenty of other zombies out there. Consider, for example, the zombification of the debate over health reform. ...
Finally, one of the interesting political developments ... has been the triumphant return of voodoo economics, the “supply-side” claim that tax cuts for the rich stimulate the economy so much that they pay for themselves.
In the real world, this doctrine has an unblemished record of failure..
In the world of Republican politics, however, voodoo’s grip has never been stronger. Would-be presidential candidates must audition in front of prominent supply-siders to prove their fealty to failed doctrine. ... Supply-side economics, it’s now clear, is the ultimate zombie: no amount of evidence or logic can kill it.
So why has the Republican Party experienced a zombie apocalypse? One reason, surely, is the fact that most Republican politicians represent states or districts that will never, ever vote for a Democrat, so the only thing they fear is a challenge from the far right. Another is the need to tell Big Money what it wants to hear: a candidate saying anything realistic about Obamacare or tax cuts won’t survive the Sheldon Adelson/Koch brothers primary.
Whatever the reasons, the result is clear. Pundits will try to pretend that we’re having a serious policy debate, but, as far as issues go, 2016 is already set up to be the election of the living dead.

Thursday, April 23, 2015

'Mediamacro Myth: 2010 Britain Faced a Financial Crisis'

Simon Wren-Lewis is attempting to debunk a series of "mediamacro myths". This is the first in the series:

Mediamacro myth 1: 2010 Britain faced a financial crisis: The idea that the Coalition rescued Britain from a crisis is routinely put forward as fact by both the Conservatives and Nick Clegg. Every time the media let such statements pass (as they invariably do), the language seems to get more florid: Clegg’s latest is that the coalition was born in the “midst of an economic firestorm”. [1]
The facts say this is pure nonsense. The economy had begun to recover from the recession, and this recovery might have continued if it had not been hit on the head by domestic and Eurozone austerity. As Larry Elliott makes clear (see also here), there was no sign of any market panic, either in the markets for Sterling or government debt. ...
So where is the half-truth that gives the ‘firestorm’ myth some credence? It is of course the Eurozone crisis, and the idea that the UK could suffer a similar fate to the Eurozone periphery. But academic macroeconomists understand that the situation of a country with its own central bank, like the UK, is quite different from a country without, because the central bank can (and in the UK will) act as a lender of last resort, so the government will never ‘run out of money’. That simple fact is sufficient to prevent any crisis happening for an economy like the UK. ...
Why is it so important to keep up the pretence that in 2010 the UK economy was ‘on the brink’ of a financial crisis? Because only then can the pain of the subsequent few years be excused. The truth is that the failure to recover until 2013 was not the inevitable cost of rescuing the economy from crisis, but an avoidable choice by the Coalition government. The delayed recovery, and the damage that did to living standards, was at least in part a direct consequence of attempts to reduce the deficit far too early, and there was no impending crisis that forced the government's hand. [3]

Tuesday, April 21, 2015

An Economic Agenda for Hillary Clinton

I have a new column:

An Economic Agenda for Hillary Clinton: As Hillary Clinton campaigns for the nomination for president, what should be on her economic agenda? Setting aside the political reality that Republicans will attempt to block most anything she tries to do, here is a list of objectives:...

Monday, April 13, 2015

Paul Krugman: It Takes a Party

In the upcoming presidential elections, political parties matter more than the particular candidates:

It Takes a Party, by Paul Krugman, Commentary, NY Times: So Hillary Clinton is officially running, to nobody’s surprise. And you know what’s coming: endless attempts to psychoanalyze the candidate,... endless thumb-sucking about her “positioning” on this or that issue.
Please pay no attention..., there has never been a time ... when the alleged personal traits of candidates mattered less. As we head into 2016, each party is quite unified on major policy issues — and these unified positions are very far from each other. ...
For example, any Democrat would, if elected, seek to maintain the basic U.S. social insurance programs — Social Security, Medicare, and Medicaid..., while also preserving and extending the Affordable Care Act. Any Republican would seek to destroy Obamacare, make deep cuts in Medicaid, and probably try to convert Medicare into a voucher system.
Any Democrat would retain the tax hikes on high-income Americans..., and possibly seek more. Any Republican would try to cut taxes on the wealthy ... while slashing programs that aid low-income families.
Any Democrat would try to preserve the 2010 financial reform... Any Republican would seek to roll it back...
And any Democrat would try to move forward on climate policy, through executive action if necessary, while any Republican ... would block efforts to limit greenhouse gas emissions.
How did the parties get this far apart? Political scientists suggest that it has a lot to do with income inequality. As the wealthy grow richer..., their policy preferences have moved to the right — and they have pulled the Republican Party ever further in their direction. Meanwhile, the influence of big money on Democrats has at least eroded a bit, now that Wall Street, furious over regulations and modest tax hikes, has deserted the party en masse. The result is a level of political polarization not seen since the Civil War. ...
As you can probably tell, I’m dreading the next 18 months, which will be full of sound bites and fury, signifying nothing. O.K., I guess we might learn a few things — Where will Ms. Clinton come out on ... the Trans-Pacific Partnership? ... — but the differences between the parties are so clear and dramatic that it’s hard to see how anyone who has been paying attention could be undecided even now, or be induced to change his or her mind between now and the election.
One thing is for sure: American voters will be getting a real choice. May the best party win.

Monday, April 06, 2015

Paul Krugman: Economics and Elections

Why don't voters penalize politicians for poor economic decisions?:

Economics and Elections, by Paul Krugman, Commentary, NY Times: Britain’s economic performance since the financial crisis struck has been startlingly bad. ... Yet as Britain prepares to go to the polls, the leaders of the coalition government that has ruled the country since 2010 are posing as the guardians of prosperity, the people who really know how to run the economy. And they are, by and large, getting away with it. ... Voters have fairly short memories, and they judge economic policy ... by recent growth. Over five years, the coalition’s record looks terrible. But over the past couple of quarters it looks pretty good, and that’s what matters politically. ...
This is ... a distressing result, because it says that there is little or no political reward for good policy. ... In fact, the evidence suggests that the politically smart thing might well be to impose a pointless depression on your country for much of your time in office, solely to leave room for a roaring recovery just before voters go to the polls.
Actually, that’s a pretty good description of what the current British government has done, although it’s not clear that it was deliberate.
The point, then, is that elections — which are supposed to hold politicians accountable — don’t seem to fulfill that function very well when it comes to economic policy. But can anything be done about this weakness?
One possible answer ... might be to remove economic policy making from the political sphere and turn it over to nonpartisan elite commissions. This presumes, however, that elites know what they are doing... After all, American elites spent years in the thrall of Bowles-Simpsonism, a completely misplaced obsession over budget deficits. European elites, with their commitment to punitive austerity, have been even worse.
A better, more democratic answer would be to seek a better-informed electorate. ... So reporting on economic issues could and should be vastly better. But political scientists would surely scoff at the idea that this would make much difference...
What, then, should those of us who study economic policy and care about real-world outcomes do? The answer, surely, is that we should do our jobs: Try to get it right, and explain our answers as clearly as we can. Realistically, the political impact will usually be marginal at best. Bad things will happen to good ideas, and vice versa. So be it. Elections determine who has the power, not who has the truth.

'Time US Leadership Woke Up To the New Economic Era'

Larry Summers:

Time US leadership woke up to new economic era: This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. ... This failure of strategy and tactics was a long time coming, and it should lead to a comprehensive review of the US approach to global economics. ...
Largely because of resistance from the right, the US stands alone in the world in failing to approve the International Monetary Fund governance reforms that Washington itself pushed for in 2009. ...
Meanwhile, pressures from the left have led to pervasive restrictions on infrastructure projects financed through existing development banks, which consequently have receded as funders, even as many developing countries now see infrastructure finance as their principle external funding need.
With US commitments unhonoured and US-backed policies blocking the kinds of finance other countries want to provide or receive through the existing institutions, the way was clear for China to establish the Asian Infrastructure Investment Bank. There is room for argument about the tactical approach that should have been taken once the initiative was put forward. But the larger question now is one of strategy. ...
What is crucial is that the events of the past month will be seen by future historians not as the end of an era, but as a salutary wake up call.

Monday, March 30, 2015

Paul Krugman: Imaginary Health Care Horrors

Why doesn't the public know how successful Obamacare has been?:

Imaginary Health Care Horrors, by Paul Krugman, Commentary, NY Times: ...Representative Pete Sessions of Texas, the chairman of the House Rules Committee, recently ... declared the cost of Obamacare “unconscionable.” If you do “simple multiplication,” he insisted, you find that the coverage expansion is costing $5 million per recipient. But ... the actual cost per newly insured American is about $4,000.
Now, everyone makes mistakes. But this wasn’t a forgivable error..., one indisputable fact is that it’s costing taxpayers much less than expected — about 20 percent less...
But that is, of course, how it’s been all along with Obamacare. Before the law went into effect, opponents predicted disaster on all levels. What has happened instead is that the law is working pretty well. So how have the prophets of disaster responded? By pretending that the bad things they said would happen have, in fact, happened. ...
Remember, Obamacare was also supposed to be a huge job-killer. ... Well, Obamacare went into effect fully at the beginning of 2014 — and private-sector job growth actually accelerated, to a pace we haven’t seen since the Clinton years. ...
Finally, there’s the never-ending hunt for ... for ordinary, hard-working Americans who have suffered hardship thanks to health reform. ... Remarkably, however, they haven’t been able to find those stories. ...
In reality, the only people hurt by health reform are Americans with very high incomes, who have seen their taxes go up, and a relatively small number of people who have seen their premiums rise because they’re young and healthy...
In short, when it comes to the facts, the attack ... has come up empty-handed. But the public doesn’t know that. ...
And the favorable experiences of the roughly 16 million Americans who have gained insurance ... have had little effect on public perceptions. Partly that’s because the Affordable Care Act, by design, has had almost no effect on those who already had good health insurance..., they have seen no change in their status.
At a deeper level, however, what we’re looking at here is the impact of post-truth politics. We live in an era in which politicians and the supposed experts who serve them never feel obliged to acknowledge uncomfortable facts, in which no argument is ever dropped, no matter how overwhelming the evidence that it’s wrong.
And the result is that imaginary disasters can overshadow real successes. Obamacare isn’t perfect, but it has dramatically improved the lives of millions. Someone should tell the voters.

Friday, March 27, 2015

Paul Krugman: Mornings in Blue America

Conservatives have GNDS (good news derangement syndrome):

Mornings in Blue America, by Paul Krugman, Commentary, NY Times: ...remember how Obamacare was supposed to be a gigantic job killer? Well, in the first year of the Affordable Care Act..., the U.S. economy .,, added 3.3 million jobs — the biggest gain since the 1990s. ...
But recent job growth ... has big political implications — implications so disturbing to many on the right that they are in frantic denial, claiming that the recovery is somehow bogus. Why can’t they handle the good news? The answer actually comes on three levels: Obama Derangement Syndrome, or O.D.S.; Reaganolatry; and the confidence con.
Not much need be said about O.D.S. It is, by now, a fixed idea on the right that this president is both evil and incompetent, that everything touched by the atheist Islamic Marxist Kenyan Democrat — mostly that last item — must go terribly wrong. When good news arrives about the budget, or the economy, or Obamacare ... it must be denied.
At a deeper level, modern conservative ideology utterly depends on the proposition that conservatives, and only they, possess the secret key to prosperity. As a result, you often have politicians on the right making claims like this one, from Senator Rand Paul: “When is the last time in our country we created millions of jobs? It was under Ronald Reagan.”
Actually, if creating “millions of jobs” means adding two million or more jobs in a given year, we’ve done that ... eight times under Bill Clinton, twice under George W. Bush, and three times, so far, under Barack Obama. ...
Which brings us to the last point: the confidence con.
One enduring puzzle of political economy is why business interests so often oppose policies to fight unemployment. After all, boosting the economy with expansionary monetary and fiscal policy is good for profits...
As a number of observers have pointed out, however, for big businesses to admit that government policies can create jobs would be to devalue one of their favorite political arguments — the claim that to achieve prosperity politicians must preserve business confidence, among other things, by refraining from any criticism of what businesspeople do. ...
So, as I said at the beginning, the fact that we’re now seeing mornings in blue America — solid job growth both at the national level and in states that have defied the right’s tax-cutting, deregulatory orthodoxy — is a big problem for conservatives. Although they would never admit it, events have proved their most cherished beliefs wrong.

Thursday, March 26, 2015

'Fiscal policy Procyclicality and Output Forecast Errors: Bad Luck or Bad Decisions?'

Why do developing countries pursue destabilizing, procyclical fiscal policy? This is from Guillermo Vuletin and Leopoldo Avellan at Brookings:

Fiscal policy procyclicality and output forecast errors: Bad luck or bad decisions?: It is well-known that government spending has historically been procyclical in the developing world (Tornell and Lane, 1999; Kaminsky, Reinhart, and Vegh, 2004; Frankel, Vegh, and Vuletin, 2013).[1] Thus, government spending in these regions typically increases during periods of expansion and decreases during periods of recession. Unfortunately, this procyclical fiscal behavior reinforces output fluctuations, exacerbating booms and aggravating busts. Traditional explanations for this undesirable behavior have mostly revolved around the explicit or implicit notion that fiscal procyclicality is the deliberate result of political economy distortions and weak institutions (e.g., policymakers' short-sightedness and political pressure to spend when resources are available in good times, leaving few resources to spend in bad times).
Since the global financial crisis and, more recently, the sudden severe drop in commodity prices, important and frequent revisions in output growth forecasts around the world have become a new norm. This trend, in turn, has triggered heated debates in both policy and academic circles and the media about how governments should handle these frequent reassessments.
As a consequence of this debate, two strands of the fiscal procyclicality literature related to output forecast errors have been increasingly gaining support. While different in origin and nature, both strands put the emphasis (or even blame) on output forecast errors in determining fiscal procyclicality. These strands include:
1. Over-optimism in output forecasts (Frankel, 2011a; Frankel, 2011b; Frankel and Schreger, 2013). ...
2. Real-time data and misinformation literature (Forni and Momigliano, 2004; Golinelli and Momigliano, 2006 and 2008; Bernoth, Hughes Hallett, and Lewis, 2008; Cimadomo, 2012; Croushore and van Norden, 2013). ...
A recent paper by Avellan and Vuletin (2015) takes issue with these views and shows that, in fact, traditional political economy arguments and weak institutions help explain how governments handle unanticipated output fluctuations. ...

Wednesday, March 25, 2015

The 'Audit' the Fed Crowd

Audit the Fed?:

The "Audit" the Fed Crowd, by David Andolfatto: Alex Pollock says that It's High Time to "Audit" the Federal Reserve. ...just the other day, Senator Rand Paul, a leader in "Audit-the-Fed" movement (a significant step down from his father's "End-the-Fed" movement) was making statements like this one:

“[An] audit of the Fed will finally allow the American people to know exactly how their money is being spent by Washington.”

Of course, the Fed does not control how money is being spent by Washington. The Fed prints money to buy government securities. It sometimes extends loans against high-grade collateral. Everything you want to know about these purchases and loans is publicly available. ...

Let's be honest here. There is nothing new to discover in further auditing. This movement is motivated by what they perceive to be bad monetary policy. It doesn't even make sense to say we want to "audit" the Fed's policy because the policy is already transparent (which is what permits critics to label it "bad").

There is, of course, nothing wrong with critiquing Fed policy. Indeed, there are many economists working inside the Fed that critique various aspects of Fed policy all the time. And, as we all know, members of the FOMC can hold very different opinions ("hawks" and "doves"). Thoughtful critiques of policy should be welcomed. Policymakers and researchers at the Fed do welcome them.

Moreover, I'm all for full accountability. The Fed should be accountable to the American people--it is, after all, a creation of the American people through their representatives in Congress. But as I have said, the issue here is not about accountability. It is about a group of individuals who want to see their preferred monetary policy adopted. That's fair enough. I just ask that they be honest about their motives. It has nothing to do with audits or accountability.

Monday, March 23, 2015

'Congressional Budget Plans Get Two-Thirds of Cuts From Programs for People With Low or Moderate Incomes'

The true goal of Republican's "deficit fetishism":

Congressional Budget Plans Get Two-Thirds of Cuts From Programs for People With Low or Moderate Incomes, by Richard Kogan and Isaac Shapiro, CBPP: The budgets adopted on March 19 by the House Budget Committee and the Senate Budget Committee each cut more than $3 trillion over ten years (2016-2025) from programs that serve people of limited means. These deep reductions amount to 69 percent of the cuts to non-defense spending in both the House and Senate plans.
Each budget plan derives more than two-thirds of its non-defense budget cuts from programs for people with low or modest incomes even though these programs constitute less than one-quarter of federal program costs. Moreover, spending on these programs is already scheduled to decline as a share of the economy between now and 2025.[1]
The bipartisan deficit reduction plan that Alan Simpson and Erskine Bowles (co-chairs of the National Commission on Federal Policy) issued in 2010 adhered to the basic principle that deficit reduction should not increase poverty or widen inequality. The new Congressional plans chart a radically different course, imposing their most severe cuts on people on the lower rungs of the economic ladder. ...

'When Reasonable Policy Discussions Become Unreasonable Personal Attacks'

I don't think Robert Stavins is happy about a story challenging his credibility and reputation:

When Reasonable Policy Discussions Become Unreasonable Personal Attacks: Recently I was reminded of the controversy that erupted late in 2014 about remarks made by the distinguished health economist, Jonathan Gruber... Professor Gruber, one of the country’s leading experts on health policy, had played an important role in the construction of the Obama administration’s Patient Protection and Affordable Care Act, subsequently derided by its political opponents as “Obamacare.”
A brief but intense political controversy and media feeding-frenzy erupted when videos surfaced in which Professor Gruber – largely in a series of academic seminars and conferences – explained how the Act was crafted and marketed in ways that would make it easier to develop political support. For example, he noted that insurance companies were taxed instead of patients, fundamentally the same thing economically, but vastly more palatable politically. He went on to note that this was possible because of “the lack of economic understanding of the American voter.” His key point was that the program’s “lack of transparency is a huge political advantage.” Is that a controversial or even unique observation?
A Truism of Political Economy
Any economist who has worked on the development or analysis of public policy – in areas ranging from health care policy to environmental policy to financial regulation – recognizes the truth of the key insight Gruber was communicating to his audiences. It is inevitably in the interests of the advocates of a policy to make the policy’s benefits transparent and to make its costs vague, even unobservable; just as it is in the interests of the opponents of a policy to make that policy’s benefits obscure and its costs as clear as the light of day.
The specific construction of hundreds of public policies are explained by this truism. ...
So, the central lesson Professor Gruber was offering is hardly controversial... He doesn’t need me to defend him, but he was unfairly demonized, simply because people disagreed with him politically regarding the merits of the public policy he had helped develop and support.
Unfortunately, I was reminded of this recently when I found myself subject to attempted demonization, because someone did not agree with a policy I supported. What happened to me is trivial compared with what Professor Gruber has gone through, but it prompts me to write about it today. ...
A young and – I’m sure – well-intentioned climate activist and journalist, writing in the Huffington Post, implied that my assessment in the New York Times of the Washington political debates regarding Keystone XL and my support for Harvard’s divestment policy, are because “Stavins has done consulting work for Chevron, Exelon, Duke Energy and the Western States Petroleum Association.”
The author of the Huffington Post piece selected those three companies and one trade association from a list of 92 “Outside Activities” that I voluntarily provide as a means of public disclosure. The author chose not to note that the vast majority of my outside engagements are with universities, think tanks, environmental advocacy NGOs, foundations, the U.S. Environmental Protection Agency, other federal agencies and departments, international organizations, and environment ministries around the world (not to mention a set of Major League Baseball teams, but that’s another story altogether). ...
It is nothing less than absurd – and, frankly, quite insulting – for someone to suggest that my views on divestment and my New York Times quote on the politics of Keystone XL are somehow due to my having worked with an oil company, a trade association, and two electric utilities. This was an unfortunate move to question my credibility and damage my reputation in a misguided attempt to demonize me, rather than engage in reasonable discussion and debate. Unfortunately, most of those who have read the activist/journalist’s original commentary and have possibly repeated his claims to others will not see the response you have just read.
This is surely nothing compared with what Professor Gruber has gone through, but it has certainly increased my empathy for him, as well as my admiration.