Category Archive for: Politics [Return to Main]

Saturday, June 25, 2016

The Institutional Design of the Eurozone

Brad Delong (The VoxEU column is in the post below this one):

In Which I Call for Academic Scribblers and Funct Economists to Enter into Utopian Frenzy with Respect to the Institutional Design of the Eurozone: From my perspective, this piece at Vox.eu makes many too many bows to conventional-wisdom idols with not just feet but bodies and heads of clay. Thus I cannot sign on to it.

Eleven observations:

  1. The situation is dire. The Eurozone as currently constituted has been a macroeconomic disaster.

  2. The forecast that the authors make is that on the current policy path "economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness" is not a real forecast. I think that this is not a real forecast: if it were a real forecast, it would have a date attached, no?

  3. Thus the framing of needed policy changes as things needed to improve "resiliency" just in case things do not "go as forecast" substantially underplays the seriousness of the problem. Fewer readers will pick up on the "things rarely go as forecast" to understand that the forecast is not a forecast.

  4. The first and most obvious feature of the Eurozone is that its interest rates are at the zero lower bound and its economy lacks aggregate demand. A depressed economy at the zero lower bound needs fiscal expansion. If for some reason normal fiscal expansion is feared to be unwise by some holding veto points, the economy needs helicopter drops--backed up by strong commitments by central banks to raise reserve requirements to curb the velocity of outside money should it suddenly become higher rather than lower than desirable.

  5. The bank regulatory system needs responsibility for banks’ rescue to be transferred from national governments to the ESM now. Without that transfer, nation-level governments will continue to make the political calculation that letting supervisory and regulatory standards slide is the more attractive course. It may be true "this is the kind of political step that seems unlikely to be feasible in the near term". But that does not keep it from being needed now. The purpose of a document like this is to set out what is needed--not to reassure people by claiming that whatever is not politically possible now is not needed now.

  6. Public debt is too high if and only if market interest rates now and forecast for the foreseeable future are about to undergo a rapid and massive jump upward. Right now g > r--which means that public debt is not too high but too low.

  7. How governments should hedge against interest rate increases in a world where g > r is an interesting research question. The obvious route is simply to sell consols. Then, when the real consol rate is higher than the societal return on additional government expenditures, we can talk about what the target debt-to-GDP ratio should be and how to get there. But those who are unwilling to advocate the sale of consols as the obvious way to manage public debt risk have, as long as g > r, no standing to complain that public debts are too high--let alone to set out the proposition that public debt is too high as a self-evident truth.

  8. A massively-underfunded ESM is not "the right institution to deal with [government debt] default". It is the wrong institution. It is worse than no institution at all, because it allows people to claim that there is a backstop when there is, in fact, no backstop.

  9. The "structural reform" agenda is more-or-less orthogonal to the macroeconomic institution redesign agenda. To even hint that energy that would otherwise be devoted to macroeconomic institution design should be diverted to lobby for structural reform is in its essence a call to do less on macroeconomic institution redesign. And that strikes me as unhealthy.

  10. Now I think that I do understand why the economists below--who are, by and large, among the best economists in the world in their wisdom and in their understanding of the European situation--have made the rhetorical choices that they have. They want to appeal to practical men, who believe they are exempt from any trace of utopian frenzy.

  11. But if the Eurozone is to be a good thing for Europe rather than a millstone around the neck of the continent, I think that utopian frenzy is needed.

Making the Eurozone More Resilient: What is Needed Now and What Can Wait?

Authors: Richard Baldwin, Charlie Bean, Thorsten Beck, Agnès Bénassy-Quéré, Olivier Blanchard, Peter Bofinger, Paul De Grauwe, Wouter den Haan, Barry Eichengreen, Lars Feld, Marcel Fratzscher, Francesco Giavazzi, Pierre-Olivier Gourinchas, Daniel Gros, Patrick Honohan, Sebnem Kalemli-Ozcan, Tommaso Monacelli, Elias Papaioannou, Paolo Pesenti, Christopher Pissarides, Guido Tabellini, Beatrice Weder di Mauro, Guntram Wolf, and Charles Wyplosz.

Making the Eurozone more resilient: What is needed now and what can wait?, VoxEU: The UK’s choice to leave the EU was, we believe, a historic mistake. But the choice was made; we must now turn to damage control – especially when it comes to the euro.
The Eurozone is growing, albeit slowly. If all goes as forecast, economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness.
But things rarely go as forecast – as we were so forcefully reminded last week. Brexit was the latest – but certainly not the last – shock that will challenge the monetary union.
The question is: Is the Eurozone resilient enough to withstand the bad shocks that it is likely to face in the months and years to come?
For many observers, the answer is “no”. To survive the next bad shock, they argue, Europe’s monetary union needs major reform and deeper political integration. As such deeper integration is extremely difficult in today’s political climate, pessimism is the order of the day.
We do not share this pessimism. The Eurozone’s construction has surely followed a convoluted process, but the fundamental architecture is now in place. Yes, some measures are needed to strengthen this architecture. And yes, more ambitious steps would improve resilience further, but these will have to wait for a political breakthrough.
The purpose of this essay is to identify what needs to be done soon, and what would be good to do but can probably wait. To avoid the mind-numbing details that often cloud discussions of Eurozone reform, we paint our arguments with a broad brush. (We will follow up with further documents with much greater detail on specific reform proposals.)
On banks and the financial system
Think of a good financial architecture for the Eurozone as achieving two main objectives in coping with another bad shock: 1) reducing the risk of bank defaults; and 2) containing the broader economic effects when defaults do occur.
This architecture is largely built. Both supervision and regulation are now largely centralised. Supervision is improving and stress tests are becoming more credible with each iteration. The Single Resolution Mechanism is in place and private-sector bail-in rules have been defined. The Single Resolution Fund can provide some recapitalisation funds if and when needed. If they turn out not to be enough, the European Stability Mechanism (ESM) can, within the context of a macroeconomic adjustment programme, add more. In the longer term, a euro-wide deposit insurance scheme could improve resiliency, but this will take time.
So what more needs to be done soon? Mostly to make sure that the rules in place can be enforced. Italy provides two cases in point. First, non-performing loans have steadily increased and are carried on the books at prices substantially above market prices. Second, the Italian government has proven very reluctant to apply the bail-in rules. The credibility of the rules is at stake. Either they have to be applied, or credibly modified.
What are the measures that would be good to take, but can probably wait?
Diversifying the portfolios of banks so that there are more resilient to domestic shocks would clearly be desirable. The focus has been on decreasing the proportion of domestic sovereign bonds in banks’ portfolios. This would be good, but domestic sovereign bonds represent a relatively small proportion of banks’ portfolios. Decreasing banks’ overexposure to domestic loans would also be an important step towards boosting resiliency. A different approach would be to transfer the responsibility for banks’ rescue from national governments to the ESM. But this is the kind of political step that seems unlikely to be feasible in the near term.
On public finances
Public debt is high, even if, for the time being, low interest rates imply a manageable debt service. Just as for the financial system, a resilient public finance architecture needs to:  1) reduce the risk of default; and 2) contain the adverse effects of default, if it were to occur nevertheless.
On both counts, much remains to be done.
Reducing the risk of default is best achieved through a combination of good rules and market discipline. Neither is really in place. The accumulation of rules has made them unwieldy, unenforceable, and open to too many exceptions. They can and should be simplified. In most countries, the level of expenditure – rather than the deficit – is the main problem. High expenditure makes it difficult to raise taxes and balance the budget, leading to dangerous debt dynamics. Thus, a focus on expenditure rules, linking expenditure reduction to debt levels, appears to be one of the most promising routes. Market discipline, on the other hand, will not work if the holders of the debt do not know what will happen if and when default takes place. This takes us to the second objective.
The Eurozone has put in place the right institution to deal with default, namely the ESM. Like the IMF, the ESM can, under a programme, help a country adjust. In its current form however, the ESM falls short of what is needed. First, the ESM’s ‘firepower’ is too small compared to the sort of shock-absorbing operations it may be called on to undertake in the case of a large Eurozone nation getting into debt trouble. Second, given its current decision-making procedures, markets cannot be sure that action will be taken promptly. Higher funding or higher leverage, and changes in governance such as replacing the requirement of unanimity by a more flexible one, are needed to make the ESM able to respond quickly and fully to a country in trouble. Third, the current structure is silent on who should negotiate a public debt restructuring in the extreme case where one was needed. Putting an explicit process in place should be a priority; the ESM is the natural place for it.
What other measures which would be good to have, but can probably wait? 
Initiatives to address the legacy of high public debt would bolster Eurozone resiliency and thus would be very useful. However, as low interest rates are likely for some time to come, debt service is manageable, and debt forecasts show that debt-to-GDP ratios will slowly decline (absent a bad shock). Since proposals for dealing with legacy national debts would require the sort of political willpower that seems in short supply for now, such plans cannot be realistically put on the ‘do now’ menu, even if they are may be necessary in the future.
Another set of measures would implement stronger risk sharing, and transfer schemes to further reduce the impact of domestic shocks on their own economy. Proposals run from euro bonds to fiscal transfer schemes for countries subject to bad shocks. These measures would make the Eurozone more resilient and thus may be desirable. But, equally clearly, they would require more fiscal and political integration than is realistic to assume at this point. We believe that the Eurozone can probably function without tighter fiscal integration at least for some time.
We end with two sets of remarks.
Solvency and liquidity
Whether it is with respect to banks or states, the two issues facing policymakers are how to deal with solvency and liquidity problems. We have argued that, when solvency is an issue, the ESM is the right structure to address it (assuming a public debt restructuring procedure is in place). With respect to liquidity, we believe that, in addition to the liquidity facilities of the ECB, which can address sudden stops on banks, the Outright Monetary Transactions (OMT) is the right structure to address sudden stops facing states. One step that could be taken soon is a clearer articulation of how to combine the two. This would clarify the role of the ECB, and eliminate a source of criticism about the allocation of roles between the ECB and other Eurozone structures such as the ESM. The resulting clarity would make it easier for markets and investors to be assured that Europe’s monetary union could deal effectively with any future shocks.
Structural reforms
In any country, at any point, some pro-growth structural and institutional reforms are desirable. Is there a particularly strong argument for them in the case of the Eurozone? To some extent, yes. The institutional problems of the euro are made worse by low growth, and demographic change. If the structural and institutional reforms delivered higher growth, this would be good by itself – ignoring distribution effects – and it would allow for faster improvement in bank and state balance sheets.
Those specific structural reforms which allow for faster adjustment of competitiveness, be it through faster cost adjustment or faster reallocation, would also improve the functioning of the monetary union. Implementing such reform is a slow and difficult process, but necessary nonetheless. The Eurozone will never be a well-functioning monetary union until it is much more of an economic union as well.
We have stressed that actions need to be taken soon, while others are more long term, but the long-term questions do need to be discussed without delay.
Do you support this view?
Starting next week, we will open this column to endorsement by economists. Details to be posted on Monday.

Friday, June 24, 2016

Paul Krugman: Brexit: The Morning After

"Worry about Britain":

Brexit: The Morning After, by Paul Krugman, NYTimes: Well, that was pretty awesome – and I mean that in the worst way. ...
That said, I’m finding myself less horrified by Brexit than one might have expected – in fact, less than I myself expected. The economic consequences will be bad, but not, I’d argue, as bad as many are claiming. The political consequences might be much more dire; but many of the bad things I fear would probably have happened even if Remain had won.
Start with the economics. Yes, Brexit will make Britain poorer. It’s hard to put a number on the trade effects..., but it will be substantial. ...
But right now all the talk is about financial repercussions – plunging markets, recession in Britain and maybe around the world, and so on. I still don’t see it. ...
A bigger issue might be fears of very bad political consequences, both in Europe and within the UK. Which brings me to the politics.
It seems clear that the European project – the whole effort to promote peace and growing political union through economic integration – is in deep, deep trouble. Brexit is probably just the beginning, as populist/separatist/xenophobic movements gain influence across the continent. Add to this the underlying weakness of the European economy,... a prime candidate for “secular stagnation”... Lots of people are now very pessimistic about Europe’s future, and I share their worries.
But those worries wouldn’t have gone away even if Remain had won. The big mistakes were the adoption of the euro without careful thought about how a single currency would work without a unified government; the disastrous framing of the euro crisis as a morality play brought on by irresponsible southerners; the establishment of free labor mobility among culturally diverse countries with very different income levels... Brexit is mainly a symptom of those problems, and the loss of official credibility that came with them. ...
Where I think there has been real additional damage done, damage that wouldn’t have happened but for Cameron’s policy malfeasance, is within the UK itself..., it looks all too likely that the vote will both empower the worst elements in British political life and lead to the breakup of the UK itself. Prime Minister Boris looks a lot more likely than President Donald; but he may find himself Prime Minister of England – full stop.
So calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain.

Thursday, June 23, 2016

A Shameless Deception in Paul Ryan’s Obamacare Replacement Plan

Republicans sabotage government programs, then complain they don't work:

A shameless deception in Paul Ryan’s Obamacare replacement plan, by By Stephen Stromberg: ... Paul Ryan (R-Wis.) released an Obamacare replacement plan on Wednesday that, among other things, complains that the ACA leaves people out. ... Then it blames the gap on “Obamacare’s poor design and incentives.”
This is an outrageous distortion. The coverage gap ... is the direct result of anti-Obamacare hysteria in Ryan’s party.
After the ACA passed, the Supreme Court ruled that the Medicaid expansion must be optional for states. The terms were so good for state leaders — the federal government promised to pay nearly the whole cost to cover lots of vulnerable people — it seemed inconceivable that any of them would refuse to expand Medicaid... But this thinking did not account for the anti-Obamacare tantrum... Nineteen states have refused to expand Medicaid in rote Republican opposition to the ACA. ...

Republicans ... could have simply expanded Medicaid in their states... Or Republicans in Congress could have agreed to extend eligibility for marketplace subsidies downward, solving this gross and unnecessary inequity without requiring the states to do a thing. ...

Republicans chose not only to create the gap, but also to keep it in place. Their continued inaction hurts low-income people in those 19 states. And Ryan has the nerve to complain about it — even to use it as evidence that the ACA is fatally flawed. ...

Monday, June 20, 2016

Paul Krugman: A Tale of Two Parties

 The Republican house of ideological cards:

A Tale of Two Parties, by Paul Krugman, NY Times: Do you remember what happened when the Berlin Wall fell? Until that moment, nobody realized just how decadent Communism had become. It had tanks, guns, and nukes, but nobody really believed in its ideology anymore; its officials and enforcers were mere careerists, who folded at the first shock.
It seems to me that you need to think about what happened to the G.O.P. this election cycle the same way.
The Republican establishment was easily overthrown because it was already hollow at the core. ... All it took was the huffing and puffing of a loud-mouthed showman...
But as Mr. Trump is finding out, the Democratic establishment is different.
...America’s two major parties are not at all symmetric. The G.O.P. is, or was until Mr. Trump arrived, a top-down hierarchical structure enforcing a strict, ideologically pure party line. The Democrats, by contrast, are a “coalition of social groups,” from teachers’ unions to Planned Parenthood, seeking specific benefits from government action. ...
Mr. Trump is flailing. He’s tried all the tactics that worked for him in the Republican contest — insults, derisive nicknames, boasts — but none of it is sticking. Conventional wisdom said that he would be helped by a terrorist attack, but the atrocity in Orlando seems to have hurt him instead: Mrs. Clinton’s response looked presidential, his didn’t.
Worse yet from his point of view, there’s a concerted effort by Democrats — Mrs. Clinton herself, Elizabeth Warren, President Obama, and more — to make the great ridiculer look ridiculous (which he is). And it seems to be working.
Why is Mrs. Clinton holding up so well against Mr. Trump, when establishment Republicans were so hapless? Partly it’s because America as a whole, unlike the Republican base, isn’t dominated by angry white men; partly it’s because, as anyone watching the Benghazi hearing realized, Mrs. Clinton herself is a lot tougher than anyone on the other side.
But a big factor, I’d argue, is that the Democratic establishment in general is fairly robust..., the various groups making up the party’s coalition really care about and believe in their positions — they’re not just saying what the Koch brothers pay them to say.
So pay no attention to anyone claiming that Trumpism reflects either the magical powers of the candidate or some broad, bipartisan upsurge of rage against the establishment. What worked in the primary won’t work in the general election, because only one party’s establishment was already dead inside.

Monday, June 13, 2016

Paul Krugman: A Party Agrift

The grift that keeps on grifting:

A Party Agrift, by Paul Krugman, NY Times: This is not a column about Donald Trump.
It’s not about the fraudulent scheme that was Trump University. It’s not about his history of failing to pay contractors, leading to hundreds of legal actions. It’s not about how he personally profited while running his casinos into the ground. It’s not even concerned with persistent questions about whether he is nearly as rich as he claims to be, and whether he’s ever done more than live off capital gains on his inheritance.
No, my question, as Democrats gleefully tear into the Trump business record, is why rival Republicans never did the same. ... Were they just incompetent, or is there something structural about the modern Republican Party that makes it unable to confront grifters?
The answer, I’d argue, is the latter. ...
Sometimes the political link is direct: dire warnings about the coming depression/hyperinflation, from which you can only protect yourself by buying Ron Paul’s DVDs (the “Ron Paul curriculum”) or gold shares hawked by Glenn Beck. ...
There’s also a notable pattern of conservative political stars engaging in what is supposed to be activism, but looks a lot like personal enrichment. For example, Sarah Palin’s SarahPAC gives only a few percent of what it raises to candidates, while spending heavily on consultants and Mrs. Palin’s travels.
Then there’s the issue of ideology. If your fundamental premise is that the profit motive is always good and government is the root of all evil, if you treat any suggestion that, say, some bankers misbehaved in the run-up to the financial crisis as proof that the speaker is anti-business if not a full-blown socialist, how can you condemn anyone’s business practices? ...
Even as the newspapers are filled with stories of defrauded students and stiffed contractors, Republicans .. are going all-out in efforts to repeal the so-called “fiduciary rule”... Paul Ryan ... has even made repealing that rule part of his “anti-poverty plan.” So the GOP is in effect defending the right of the financial industry to mislead its customers, which makes it hard to attack the likes of Donald Trump. ...
In the months ahead Republicans will claim that there are equivalent scandals on the Democratic side, but nothing ... rises remotely to the level of even one of the many Trump scams... They’ll also claim that Mr. Trump doesn’t reflect their party’s values. But the truth is that in a very deep sense he does. And that’s why they couldn’t stop him.

Friday, June 10, 2016

Paul Krugman: Hillary and the Horizontals

 "Group identity is an unavoidable part of politics":

Hillary and the Horizontals, by Paul Krugman, NY Times: I spent much of this politically momentous week at a workshop on inequality... As so often happens at conferences..., what really got me thinking was a question during coffee break: “Why don’t you talk more about horizontal inequality?”
What? Horizontal inequality is the term of art for inequality measured, not between individuals, but between racially or culturally defined groups. ... And like it or not, horizontal inequality, racial inequality above all, will define the general election. ...
Defining oneself at least in part by membership in a group is part of human nature. Even if you try to step away from such definitions, other people won’t..., a truth reconfirmed by the upsurge in vocal anti-Semitism unleashed by the Trump phenomenon.
So group identity is an unavoidable part of politics... Racial and ethnic minorities know that very well, which is one reason they overwhelmingly supported Hillary Clinton, who gets it, over Mr. Sanders, with his exclusive focus on individual inequality. And politicians know it too.
Indeed, the road to Trumpism began with ideological conservatives cynically exploiting America’s racial divisions. The modern Republican Party’s central policy agenda of cutting taxes on the rich while slashing benefits has never been very popular, even among its own voters. It won elections nonetheless by getting working-class whites to think of themselves as a group under siege, and to see government programs as giveaways to Those People. ...
And race-based political mobilization cuts both ways. Black and Hispanic support for Democrats makes obvious sense, given the fact that these are relatively low-income groups that benefit disproportionately from progressive policies. ... But the overwhelming nature of that support reflects group identity.
Furthermore, some groups with relatively high income, like Jews and, increasingly, Asian-Americans, also vote strongly Democratic. Why? The answer in both cases, surely, is the suspicion that the same racial animus that drives many people to vote Republican could, all too easily, turn against other groups with a long history of persecution. ...
The Republican nominee represents little more than the rage of white men over a changing nation. And he’ll be facing a woman — yes, gender is another important dimension in this story — who owes her nomination to the very groups his base hates and fears.
The odds are that Mrs. Clinton will prevail, because the country has already moved a long way in her direction. But one thing is for sure: It’s going to be ugly.

Wednesday, June 08, 2016

Bad Business

Simon Wren-Lewis:

Bad business: This post mainly uses examples from the UK, but I suspect much the same story could be told in many countries. The reaction to Obama's criticism of Wall Street was extraordinary, until perhaps you realize that in the US political support is sometimes a commodity that corporations and the wealthy can buy. I return to the US at the end of this post.
I am sure the employment regime that existed at 'Sports Direct' would horrify anyone. A system of discipline that penalized taking time off sick such that ambulances responding to emergency calls were regular visitors to the factory. Many of the staff were not paid the minimum wage. This is what can happen when the majority of workers are not represented by a union, and local jobs are scarce, or other employers are not much better. We know about it because of the work of investigative journalists, but there are few of them left so how many other cases do we not know about?
A long time ago the Conservative party represented business, and the Labor party represented employees through their links to trade unions. In the 1980s the power of the trade unions was significantly reduced, and Labor leaders even thought they could gain votes by attacking some union actions. Since then, Labor have avoided ever siding with workers in industrial disputes. This continues under the current leadership... As a result, we can ask who represents employees against exploitation by employers within the workplace, and who represents society against rent seeking by employers at the national level?
The Conservative party was and still is the party of business. ... In the last election business leaders did all they could to support the Conservatives, both financially and with explicit support. When this tight link between a political party and business is combined with an ideological belief among many in the party that regulations such as those that support employees are 'red tape' that needs to be cast aside, we get a mix which is potentially dangerous for employees and society. ...
An interesting question is why this should be seen as a problem for Labor. The answer has to be that approval by business is seen by many voters as a mark of economic competence. Of course economists know that running a business is very different from running the economy. ... But the media environment encourages a rather different view. ...
The result of all this may be that Labor wants to avoid appearing anti-business. ...Conservatives will throw the anti-business charge the moment Labor adopts any measures that restrict business freedom or threatens the incomes of business executives, and business leaders – for reasons already explained – will back them up. If this leads to a significant number of voters concluding that Labor are not competent to run the economy, we are in danger of hard wiring bad business. As Luigi Zingales observes in this perceptive article, although there is a deep distrust of crony capitalism among many Republican supporters, they still elected a crony capitalist.

Monday, June 06, 2016

A Pause That Distresses

If the economy goes into recession, Republicans will stand in the way of the needed response from monetary and fiscal policy:

A Pause That Distresses, by Paul Krugman, NY Times: Friday’s employment report was a major disappointment: only 38,000 jobs added, a big step down from the more than 200,000 a month average since January 2013. Special factors, notably the Verizon strike, explain part of the bad news, and in any case job growth is a noisy series... Still, all the evidence points to slowing growth. It’s not a recession, at least not yet, but it is definitely a pause in the economy’s progress. ...
So what is causing the economy to slow? My guess is that the biggest factor is the recent sharp rise in the dollar, which has made U.S. goods less competitive on world markets. The dollar’s rise, in turn, largely reflected misguided talk by the Federal Reserve about the need to raise interest rates. ...
Whatever the cause of a downturn, the economy can recover quickly if policy makers can and do take useful action. ...
But that won’t — in fact, can’t — happen this time. Short-term interest rates, which the Fed more or less controls, are still very low... We now know that it’s possible for rates to go slightly below zero, but there still isn’t much room for a rate cut.
That said, there are other policies that could easily reverse an economic downturn. ... For the simplest, most effective answer to a downturn would be fiscal stimulus...
But unless the coming election delivers Democratic control of the House, which is unlikely, Republicans would almost surely block anything along those lines. Partly, this would reflect ideology... It would also reflect an unwillingness to do anything that might help a Democrat in the White House. ...
If not fiscal stimulus, then what? For much of the past six years the Fed, unable to cut interest rates further, has tried to boost the economy through large-scale purchases of things like long-term government debt and mortgage-backed securities. But it’s unclear how much difference that made — and meanwhile, this policy faced constant attacks and vilification from the right, with claims that it was debasing the dollar and/or illegitimately bailing out a fiscally irresponsible president. We can guess that the Fed will be very reluctant to resume the program...
So the evidence of a U.S. slowdown should worry you. I don’t see anything like the 2008 crisis on the horizon (he says with fingers crossed behind his back), but even a smaller negative shock could turn into very bad news, given our political gridlock.

Sunday, June 05, 2016

The Economic Consequences of a Donald Trump Win Would be Severe

Larry Summers (Update: Washing Post link)

... What I find surprising is that US and global markets and financial policymakers seem much less sensitive to “Trump risk” than they are to “Brexit risk”. Options markets suggest only modestly elevated volatility in the period leading up to the presidential election. ...
Yet, as great as the risks of Brexit are to the British economy, I believe the risks to the US and global economies of Mr Trump’s election as president are far greater. If he is elected, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States. ...

Friday, June 03, 2016

Paul Krugman: The Id That Ate the Planet

Donald Trump is "mind-bogglingly petty":

The Id That Ate the Planet, by Paul Krugman, NY Times: ...Donald Trump’s personality endangers the whole planet. ...
The outlook for climate change if current policies continue has never looked worse, but the prospects for turning away from the path of destruction have never looked better. Everything depends on who ends up sitting in the White House for the next few years. ...
But what happens if the next president is a man who doesn’t believe in climate science, or indeed in inconvenient facts of any kind?
Republican hostility to climate science and climate action is usually attributed to ideology and the power of special interests, and both of these surely play important roles. ... Meanwhile, buying politicians is a pretty good business investment for fossil-fuel magnates like the Koch brothers.
But I’ve always had the sense that there was a third factor, which is basically psychological. There are some men — it’s almost always men — who become enraged at any suggestion that they must give up something they want for the common good..., for example, prominent conservatives suggesting violence against government officials because they don’t like the performance of phosphate-free detergent. But polluter’s rage isn’t about rational thought.
Which brings us to the presumptive Republican presidential nominee ...
No doubt Donald Trump hates environmental protection in part for the usual reasons. But there’s an extra layer of venom to his pro-pollution stances that is both personal and mind-bogglingly petty.
For example, he has repeatedly denounced restrictions intended to protect the ozone layer — one of the great success stories of global environmental policy — because, he claims, they’re the reason his hair spray doesn’t work as well as it used to. I am not making this up.
He’s also a bitter foe of wind power..., his real motivation seems to be ire over unsuccessful attempts to block an offshore wind farm near one of his British golf courses.
And if evidence gets in the way of his self-centeredness, never mind. Recently he assured audiences that there isn’t a drought in California, that officials have just refused to turn on the water.
I know how ridiculous it sounds. Can the planet really be in danger because a rich guy worries about his hairdo? But Republicans are rallying around this guy just as if he were a normal candidate. And if Democrats don’t rally the same way, he just might make it to the White House.

Tuesday, May 31, 2016

The Conservative Bias in Economics

I have a new column:

Yes, Nick Kristof, There Is a Conservative Bias in Economics: Nicholas Kristof recent reignited the debate over liberal bias in academia with his claim that “universities risk becoming liberal echo chambers and hostile environments for conservatives.” He does single out my profession, economics, as being better than most social science departments in representing conservative viewpoints: 
“Economists remain influential. I wonder if that isn’t partly because there is a critical mass of Republican economists who battle the Democratic economists and thus tether the discipline to the American mainstream.” 
But the extent to which conservative ideology is represented within the profession is much larger than a simple tally of the number of conservatives versus liberals indicates. ...

It was too long, so I cut this part:

In my 30 years of participating in the hiring of new faculty, I can’t recall a single time when the politics of the candidate came up in the discussion, or when there was resistance to the type of question the candidate’s research was addressing. The research may have been viewed as uninteresting, flawed, or otherwise unlikely to make a splash in the best journals, but all that mattered was the quality of the research and the likelihood it would help our department to get better. If an applicant is likely to publish important papers in the top journal in the field, they will be offered job. I don’t even know the politics of many of my colleagues, it’s just not something that comes up in the day-to-day work on research. And it wouldn’t be simple to characterize their views in any case as I suspect some would be liberal on social issues, but conservative with respect to economic policy.

Monday, May 30, 2016

Paul Krugman: Feel the Math

The current state of the race:

Feel the Math, by Paul Krugman, NY Times: ...So far, election commentary has been even worse than I imagined it would be..., bang-your-head-on-the-desk awful... I know this isn’t scientific, but based on conversations I’ve had recently, many people ... have been given a fundamentally wrong impression of the current state of play..., people aren’t being properly informed about the basic arithmetic of the situation.
Now, I’m not a political scientist or polling expert... But I am fairly numerate, and I assiduously follow real experts... And they’ve taught me some basic rules that I keep seeing violated.
First, at a certain point you have to stop reporting about the race for a party’s nomination as if it’s mainly about narrative and “momentum.” ... Eventually ... it all becomes a simple, concrete matter of delegate counts.
That’s why Hillary Clinton will be the Democratic nominee; she locked it up over a month ago with her big Mid-Atlantic wins...
And no, saying that the race is effectively over isn’t somehow aiding a nefarious plot to shut it down by prematurely declaring victory. ... You may think those people chose the wrong candidate, but choose her they did.
Second, polls can be really helpful at assessing the state of a race, but only if you fight the temptation to cherry-pick... What the polling experts keep telling us to do is rely on averages of polls rather than highlighting any one poll in particular. ...
Which brings us to the general election. Here’s what you should know, but may not be hearing clearly in the political reporting: Mrs. Clinton is clearly ahead, both in general election polls and in Electoral College projections based on state polls. ... So unless Bernie Sanders refuses to concede and insinuates that the nomination was somehow stolen by the candidate who won more votes, Mrs. Clinton is a clear favorite to win the White House.
Now, obviously things can and will change over the course of the general election campaign. Every one of the presidential elections I’ve covered at The Times felt at some point like a nail-biter. But the current state of the race should not be a source of dispute or confusion. Barring the equivalent of a meteor strike, Hillary Clinton will be the Democratic nominee; despite the reluctance of Sanders supporters to concede that reality, she’s currently ahead of Donald Trump. That’s what the math says, and anyone who says it doesn’t is misleading you.

Sunday, May 29, 2016

Trump's War on Data

Bill McBride at Calculated Risk:

The War on Data, Calculated Risk: People have different priorities and different values. But we share the same data. Over the last few days, we've heard a presidential contender make comments completing ignoring the data. This should concern everyone - ignoring data leads to irresponsible comments and poor policy decisions.

First, I live in California, and I was shocked to hear Donald Trump say there is no drought in the state. That is the opposite of what the data says! Here is an excerpt from Daniel Swain at the California Weather Blog (written 10 days ago discussing the data):

While the reservoirs in California’s wetter, more northern reaches have reached (or are nearing) capacity after a slightly wetter-than-average winter in that part of the state, multi-year water deficits remain enormous. The 2015-2016 winter did bring some drought relief to California, but nearly all long-term drought indicators continue to suggest that California remains in a significant drought. ...

... Mr. Trump's comments were incorrect and irresponsible.

Second, Mr. Trump was also quoted as saying that anyone who believes the unemployment rate is 5% is a "dummy".

Trump says he thinks the US unemployment rate is close to 20 percent and not the 5 percent reported by the Labor Department.

Anyone who believes the 5 percent is a “dummy,” he said.

I don't believe the headline U-3 unemployment rate tells the entire story, and that is why I also track U-6 (a measure of underemployment) and other measures. But U-3 is measured in a transparent way - and remains a key measure of unemployment - and is measured consistently.

When we use U-6 (includes "unemployed, plus all marginally attached workers plus total employed part time for economic reasons") we need to compare to previous readings of U-6, not previous readings of U-3. Currently U-6 is at 9.7%. U-6 bottomed in 2006 at 7.9% and in 2000 at 6.8%. So U-6 is still elevated and there is still slack in the labor market.

Also, some people think the participation rate will increase significantly as the labor market improves. I've written about the participation rate extensively... There is no huge hidden pool of workers that will suddenly show up in the labor force. Looking at the data, Mr. Trump's suggestion that unemployment is closer to 20% than 5% is absurd.

I guess Trump thinks I'm a "dummy"! I think he is reckless and irresponsible.

Tuesday, May 24, 2016

Prospect Theory & Populism

Chris Dillow:

Prospect theory & populism: Does prospect theory help explain support for Brexit in the UK and for Donald Trump in the US?
The bit of the theory I have in mind is the prediction that people are risk-seeking when they are losing, because they gamble to get even. This explains several phenomena: ...why (pdf) stock-pickers hold onto losing shares; why losing sports teams abandon their tactics in favour of risky all-out attack and “Hail Mary” passes; and why we sometimes get rogue traders – men who try to recoup losses by making riskier trades and so lose even more.
The same thing might explain support for Brexit and Trump. It’s generally agreed that both causes draw support from workers and the unemployed who feel that they’ve lost out under the existing order. ...
Of course, voting for Brexit, Trump or other populists is risky. But prospect theory tells us that those who feel they’ve lost might want to take risks. This might be because they feel they’ve nothing to lose: the threat of higher unemployment isn’t so scary if you’re already unemployed or if you think there’s a high chance of losing your job anyway. And/or it might be because they think that change carries upside risk.
This mechanism is amplified by another – distrust. The elite’s warnings that Brexit and Trump are risky are true. But many poorer workers and unemployed don’t trust elites...

Friday, May 20, 2016

Paul Krugman: Obama’s War on Inequality

Elections matter:

Obama’s War on Inequality, by Paul Krugman, NY Times: There were two big economic policy stories this week that you may have missed... Each tells you a lot about both what President Obama has accomplished and the stakes in this year’s election. ...
Donald Trump... — who has already declared that he will, in fact, slash taxes on the rich... — once again declared his intention to do away with Dodd-Frank... Just for the record, while Mr. Trump is sometimes described as a “populist,” almost every substantive policy he has announced would make the rich richer at workers’ expense.
The other story was about a policy change achieved through executive action: The Obama administration issued new guidelines on overtime pay, which will benefit an estimated 12.5 million workers. ...
Now, America isn’t about to become Denmark... But more has happened than you might think.
Most obviously, Obamacare provides aid and subsidies mainly to lower-income working Americans, and it pays for that aid partly with higher taxes at the top. That makes it an important redistributionist policy — the biggest such policy since the 1960s.
And between those extra Obamacare taxes and the expiration of the high-end Bush tax cuts... the average federal tax rate on the top 1 percent has risen quite a lot. In fact, it’s roughly back to what it was in 1979, pre-Ronald Reagan, something nobody seems to know. ...
Dodd-Frank actually has put a substantial crimp in the ability of Wall Street to make money hand over fist. It doesn’t go far enough, but it’s significant enough to have bankers howling, which is a good sign.
And while the move on overtime comes late in the game, it’s a pretty big deal, and could be the beginning of much broader action.
Again, nothing Mr. Obama has done will put more than a modest dent in American inequality. But his actions aren’t trivial, either.
And even these medium-size steps put the lie to the pessimism and fatalism one hears all too often on this subject. No, America isn’t an oligarchy in which both parties reliably serve the interests of the economic elite. Money talks on both sides of the aisle, but the influence of big donors hasn’t prevented the current president from doing a substantial amount to narrow income gaps — and he would have done much more if he’d faced less opposition in Congress.
And in this as in so much else, it matters hugely whom the nation chooses as his successor.

Tuesday, May 17, 2016

A General Theory of Austerity

Simon Wren-Lewis:

A General Theory of Austerity: ...I have just completed a working paper... It has the title of this post: in part an allusion to Keynes who had been here before, but also because its scope is ambitious. The first part of the paper tries to explain why austerity is nearly always unnecessary, and the second part tries to understand why the austerity mistake happened.
I start by making a distinction which helps a great deal. It is between fiscal consolidation, which is a policy decision, and austerity, which is an outcome where that fiscal consolidation leads to an increase in aggregate unemployment. If you understand why monetary policy can normally stop fiscal consolidation leading to austerity, but cannot when interest rates are stuck near zero, then you are a long way to understanding why austerity was a mistake. Fiscal consolidation in 2010 was around 3 years too early. A section of the paper is devoted to showing that the idea that markets prevented such a delay in consolidation is a complete myth. ...
None of this theory is at all new: hence the allusion to Keynes in the title. That makes the question of why policy makers made the mistake all the more pertinent. One set of arguments point to an unfortunate conjunction of events: austerity as an accident if you like. Basically Greece happened at a time when German orthodoxy was dominant. I argue that this explanation cannot play more than a minor role: mainly because it does not explain what happened in the US and UK, but also because it requires us to believe that macroeconomics in Germany is very special and that it had the power to completely dominate policy makers not only in Germany but the rest of the Eurozone.
The set of arguments that I think have more force, and which make up the general theory of the title, reflect political opportunism on the political right which is dominated by a ‘small state’ ideology. It is opportunism because it chose to ignore the (long understood) macroeconomics, and instead appeal to arguments based on equating governments to households, at a time when many households were in the process of reducing debt or saving more. But this explanation raises another question in turn: how was the economics known since Keynes lost to simplistic household analogies. ....
If my analysis is right, it means that we cannot be complacent that when the next liquidity trap recession hits the austerity mistake will not be made again. Indeed it may be even more likely to happen, as austerity has in many cases been successful in reducing the size of the state. My paper does not explore how to avoid future austerity, but it hopefully lays the groundwork for that discussion.

Friday, May 13, 2016

Paul Krugman: Trump and Taxes

Trumpworld:

Trump and Taxes, by Paul Krugman, NY Times: This seems to be the week for Trump tax mysteries. ... On the first mystery: Mr. Trump’s excuse, that he can’t release his returns while they’re being audited, is an obvious lie. ... Clearly, he must be hiding something. What?
It could be how little he pays in taxes... But I doubt it..., he’d probably boast that his ability to game the tax system shows how smart he is compared to all the losers out there.
So my guess ... is that the dirty secret ... is that he isn’t as rich as he claims to be. In Trumpworld, the revelation ... would be utterly humiliating. ...
Meanwhile, however, we can look at the candidate’s policy proposals. ... The story so far: Last fall Mr. Trump suggested that he would break with Republican orthodoxy by raising taxes on the wealthy. But then he unveiled a tax plan that would, in fact, lavish huge tax cuts on the rich..., adding around $10 trillion to the national debt over a decade.
Now, the inconsistency between Mr. Trump’s rhetoric and his specific proposals didn’t seem to hurt him in the Republican primaries. ...
Having secured the nomination, however, Mr. Trump apparently feels the need to seem more respectable. ...
But what’s really interesting is whom ... Mr. Trump has brought in to revise his plans: Larry Kudlow of CNBC and Stephen Moore of the Heritage Foundation. That news had economic analysts spitting out their morning coffee all across America. ...Mr. Kudlow has a record of being wrong about, well, everything. ... Mr. Moore has a comparable forecasting record, but he also has a remarkable inability to get facts straight. ...
So why would Mr. Trump turn to these of all people to, ahem, fix his numbers?
It could be ... an attempt to reassure insiders by bringing in ... influential members of the Republican establishment — which incidentally tells you a lot about their party.
But my guess is that the explanation is simpler: The candidate has no idea who is and isn’t competent. I mean, it’s not as if he has any independent knowledge of economics...
So he probably just went with a couple of guys he’s seen on TV...
Now, you might wonder how someone that careless and incurious was such a huge success in business. But one answer is, how successful was he, really? What’s in those tax returns?

Wednesday, May 11, 2016

Send In The Clowns

 Paul Krugman:

Send In The Clowns: Still boggled by reports that Trump, having realized that the numbers on his tax plan aren’t remotely credible, has decided to fix things by bringing in as experts … Larry Kudlow and Stephen Moore. I mean, at some level this was predictable. But it still tells you a lot about both Donald the Doofus and his chosen party.
Granted that Trump is deeply ignorant about policy; still, you might have thought that he would try to signal his independence from the establishment by, say, turning to some business economist. Instead, he turned to the usual suspects from the right-wing noise machine. And what a choice!
I mean, Kudlow is to economics what William Kristol is to political strategy: if he says something, you know it’s wrong. When he ridiculed “bubbleheads” who thought overvalued real estate could bring down the economy, you should have rushed for the bomb shelters; when he proclaimed Bush a huge success, because a rising stock market is the ultimate verdict on a presidency (unless the president is a Democrat), you should have known that the Bush era would end with epochal collapse.
And then there’s Moore, who has a similarly awesome forecasting record, and adds to it an impressive lack of even minimal technical competence. Seriously: read the CJR report on his mess-up over job numbers...
Of course, Moore remains the chief economist at Heritage. And maybe Trump believes that this is a certificate of quality, that anyone in that position must be a real expert.
Truly, Donald Trump, you know nothing.

 

Monday, May 09, 2016

Paul Krugman: The Making of an Ignoramus

Donald Trump is "frighteningly uninformed":

The Making of an Ignoramus, by Paul Krugman, NY Times: Truly, Donald Trump knows nothing. He is more ignorant about policy than you can possibly imagine...
Last week the presumptive Republican presidential nominee ... finally revealed his plan to make America great again. Basically, it involves running the country like a failing casino: he could, he asserted, “make a deal” with creditors that would reduce the debt burden if his outlandish promises of economic growth don’t work out.
The reaction from everyone who knows anything about finance or economics was a mix of amazed horror and horrified amazement. ...
So why is Mr. Trump even talking about this subject? Well, one possible answer is that lots of supposedly serious people have been hyping the alleged threat posed by federal debt for years. ...
A lot of this debt hysteria was really about trying to bully us into cutting Social Security and Medicare, which is why so many self-proclaimed fiscal hawks were also eager to cut taxes on the rich. But Mr. Trump apparently wasn’t in on that particular con, and takes the phony debt scare seriously. Sad!
Still..., how can he imagine that it would be O.K. for America to default? One answer is that he’s extrapolating from his own business career, in which he has done very well by running up debts, then walking away from them.
But it’s also true that much of the Republican Party shares his insouciance about default. Remember, the party’s congressional wing deliberately set about extracting concessions from President Obama, using the threat of gratuitous default via a refusal to raise the debt ceiling.
And quite a few Republican lawmakers defended that strategy of extortion by arguing that default wouldn’t be that bad...
In fact, it’s remarkable how many ridiculous Trumpisms were previously espoused by Mitt Romney in 2012, from his claim that the true unemployment rate vastly exceeds official figures to his claim that he can bring prosperity by starting a trade war with China.
None of this should be taken as an excuse for Mr. Trump. He really is frighteningly uninformed...
Oh, and just for the record: No, it’s not the same on the other side of the aisle. You may dislike Hillary Clinton, you may disagree sharply with her policies, but she and the people around her do know their facts. Nobody has a monopoly on wisdom, but in this election, one party has largely cornered the market in raw ignorance.

Saturday, May 07, 2016

Where Do Trump’s Bad Ideas Come From?

Paul Krugman:

Where Do Trump’s Bad Ideas Come From?: So everyone is having fun with Donald Trump’s suggestion that he’ll negotiate forgiveness on U.S. debt — making America great by running it like a failing Atlantic City casino. ... A number of people have also pointed out that willingness to trifle with the full faith and credit of the U.S. government didn’t start with Trump — it started with Republicans in the House, who casually tried to extort concessions by refusing to raise the debt limit.
But one thing I haven’t seen much discussion of is the question of why Trump imagines that we have a severe debt problem, requiring extraordinary measures. Here, after all, is what U.S. interest payments look like:

050716krugman1-tmagArticle

See the crisis? Neither do I.
But Trump, we can assume, doesn’t look at economic data, or for that matter employ anyone who can. Remember how unemployment is really 42 percent? What he does do is pick up stuff that everyone around him says.
And here’s the thing: claims that America is facing a debt crisis have been all over the political landscape for years... So it’s not really surprising that Trump, who doesn’t know much about policy, would pick up on all this buzz, and not get the memo that it’s all really about finding excuses to slash social programs. And he knows, or thinks he knows, a lot about being overextended on credit; so let’s declare bankruptcy and make a deal!
The point is that this isn’t coming solely from the would-be ignoramus-in-chief...

Friday, May 06, 2016

Paul Krugman: Truth and Trumpism

Don't believe everything you read:

Truth and Trumpism, by Paul Krugman, NY Times: How will the news media handle the battle between Hillary Clinton and Donald Trump? I suspect I know the answer — and it’s going to be deeply frustrating. But maybe, just maybe, flagging some common journalistic sins in advance can limit the damage. ...
First, and least harmful, will be the urge to make the election seem closer than it is, if only because a close race makes a better story. You can already see this tendency...
A more important vice in political coverage, which we’ve seen all too often in previous elections — but will be far more damaging if it happens this time — is false equivalence.
You might think that this would be impossible on substantive policy issues, where the asymmetry between the candidates is almost ridiculously obvious. ... But beware of news analyses that, in the name of “balance,” downplay this contrast. ...
And what about less quantifiable questions about behavior? I’ve already seen pundits suggest that both presumptive nominees fight dirty, that both have taken the “low road” in their campaigns. For the record, Mr. Trump has impugned his rivals’ manhood, called them liars and suggested that Ted Cruz’s father was associated with J.F.K.’s killer. On her side, Mrs. Clinton has suggested that Bernie Sanders hasn’t done his homework on some policy issues. These things are not the same.
Finally, I can almost guarantee that we’ll see attempts to sanitize the positions and motives of Trump supporters, to downplay the racism that is at the heart of the movement and pretend that what voters really care about are the priorities of D.C. insiders — a process I think of as “centrification.” ...
 I’m seeing suggestions that Trumpism is driven by concerns about political gridlock. No, it isn’t. It isn’t even mainly about “economic anxiety.”
Trump support in the primaries was strongly correlated with racial resentment: We’re looking at a movement of white men angry that they no longer dominate American society the way they used to. And to pretend otherwise is to give both the movement and the man who leads it a free pass.
In the end, bad reporting probably won’t change the election’s outcome, because the truth is that those angry white men are right about their declining role. ...
Still, the public has a right to be properly informed. The news media should do all it can to resist false equivalence and centrification, and report what’s really going on.

Thursday, May 05, 2016

Hofstadter on the American right

Daniel Little:

Hofstadter on the American right: Richard Hofstadter opened his 1963 Herbert Spencer Lecture at Oxford with these prescient words:

Although American political life has rarely been touched by the most acute varieties of class conflict, it has served again and again as an arena for uncommonly angry minds. Today this fact is most evident on the extreme right wing, which has shown, particularly in the Goldwater movement. how much political leverage can he got out of the animosities and passions of a small minority. Behind such move­ments there is a style of mind, not always right-wing in its affiliations, that has a long and varied history. I call it the paranoid style simply because no other word adequately evokes the qualities of heated exaggeration, suspiciousness, and conspiratorial fantasy that I have in mind. (3)

This lecture became the title essay of The Paranoid Style in American Politics. Its emphasis on "uncommonly angry minds" is of obvious relevance to the politics of the right in the United States today. There is more that has a great resonance today:

But there is a vital difference between the para­noid spokesman in politics and the clinical paranoiac: although they both tend to be overheated, oversuspicious, overaggres­sive, grandiose, and apocalyptic in expression, the clinical paranoid sees the hostile and conspiratorial world in which he feels himself to be living as directed specifically against him; whereas the spokesman of the paranoid style finds it directed against a nation, a culture, a way of life whose fate affects not himself alone but millions of others.... His sense that his political passions are unselfish and patriotic, in fact, goes far to intensify his feeling of righteousness and his moral indignation. (4)

Hofstadter mentions the particular objects of paranoid wrath in the 1950s and 1960s: gun control, fluoridation of municipal water, and international Communist conspiracy. Most especially, the paranoid philosophy is nativist; it directs fear and hostility against "others" (in the first half of the twentieth century in the United States, Masons, Catholics, and Mormons, for example; 9). We can hear these same strands of thought to be expressed in current political bigotry against immigrants, Muslims, and transgendered people.

Hofstadter offers perspective on this strand of American political thought from an historian's point of view. He takes up the American campaign against Illuminism and Masonry in the early part of the nineteenth century as an example.

The anti-Masonic movement of the late 1820's and 1830's took up and extended the obsession with conspiracy. At first blush, this movement may seem to be no more than an exten­sion or repetition of the anti-Masonic theme sounded in the earlier outcry against the Bavarian Illuminati--and, indeed, the works of writers like Robison and Barruel were often cited again as evidence of the sinister character of Masonry.  But whereas the panic of the 1790's was confined mainly to New England and linked to an ultra-conservative argument, the later anti-Masonic movement affected many parts of the northern United States and was altogether congenial to popu­lar democracy and rural egalitarianism. (14)

So what about the content of paranoid politics in the twentieth century?

If we now take the long jump to the contemporary right wing. we find some rather important differences from the nineteenth-century movements. The spokesmen of those earlier movements felt that they stood for causes and personal types that were still in possession of their country--that they were fending off threats to a still well-established way of life in which they played an important part. But the mod­ern right wing. as Daniel Bell has put it, feels dispossessed: America has been largely taken away from them and their kind, though they are determined to try to repossess it and to prevent the final destructive act of subversion. The old Amer­ican virtues have already been eaten away by cosmopolitans and intellectuals; the old competitive capitalism has been gradually undermined by socialist and communist schemers; the old national security and independence have been de­stroyed by treasonous plots, having as their most powerful agents not merely outsiders and foreigners but major states­men seated at the very centers of American power. Their predecessors discovered foreign conspiracies; the modem radical right finds that conspiracy also embraces betrayal at home. (23-24)

Hofstadter believed that mass media had a lot to do with the deepening influence of paranoid politics in the 1960s; it isn't difficult to argue that social media takes that influence to an even greater pitch in the current environment.

He closes the essay with yet another astute observation very relevant to contemporary right-wing rhetoric:

In American experience, ethnic and religious conflicts, with their threat of the submergence of whole systems of values, have plainly been the major focus for militant and suspicious minds of this sort, but elsewhere class conflicts have also mobilized such energies. The paranoid tendency is aroused by a confrontation of opposed interests which are (or are felt to be) totally irreconcilable, and thus by nature not susceptible to the normal political processes of bargain and compromise. The situation becomes worse when the representatives of a particular political interest--perhaps because of the very un­realistic and unrealizable nature of their demands--cannot make themselves felt in the political process. Feeling that they have no access to political bargaining or the making of deci­sions, they find their original conception of the world of power as omnipotent, sinister, and malicious fully confirmed. They see only the consequences of power--and this through distorting lenses--and have little chance to observe its actual machinery. L. B. Namier once said that "the crowning attain­ment of historical study" is to achieve "an intuitive sense of how things do not happen." It is precisely this kind of awareness that the paranoid fails to develop. He has a special resist­ance of his own, of course, to such awareness, but circumstances often deprive him of exposure to events that might enlighten him. We are all sufferers from history, but the paranoid is a double sufferer, since he is afflicted not only by the real world, with the rest of us, but by his fantasies as well. (39-40)

This is brilliant diagnosis of the political psychology of reaction, very much in line with Fritz Stern's analysis of the politics of cultural despair in the context of Weimar Germany (link). What Hofstadter does not clearly distinguish here is the political psychology of followers and leaders.  But much about mass political mobilization turns on this point. Much of what seems to have transpired in the current political season is the artful orchestration of messages of fear, resentment, and antagonism along the lines of paranoid politics that Hofstadter describes. Antagonism and suspicion appear to be powerful motivators in a mass movement, and scapegoating of minority groups is a familiar and repugnant strategy. These messages have succeeded in motivating followers and voters in support of candidates espousing these messages. What is unclear is what political values actually motivate the candidates; and it is fair enough to speculate that there is a substantial degree of cynical manipulation at work in the message mills of the right in creating a movement around these hateful and suspicious themes.

These are important historical observations by Hofstadter, and they seem to shed a great deal of light on the political rhetoric and successes of the right in the United States over the past fifty years. They capture important insights into the mentality and rhetoric of the political passions that have animated a lot of political activity, both electoral and social, throughout the past half century. They point to the underpinnings of suspicion, hatred, and alienation which seem to drive the bus on the extreme right. And what was on the "extreme" right a decade ago has become mainstream conservatism today. It seems crucial for the future of our democracy to reawaken the political values of trust, mutual acceptance, and equality which are so fundamental to stable and sustainable civic peace within a mass democracy. Significantly, this was the core political message of Barack Obama in 2008.

(There is a thread here that I haven't mentioned but may also be illuminating -- Hofstadter's analysis of American political consciousness seems to shed some indirect light on the Bernie Sanders phenomenon as well. Hofstadter notes several times above that class conflict has not been a prominent theme in American politics. But perhaps part of the appeal of the Sanders candidacy is exactly his ability to speak about the one percent in ways that resonate with younger voters; and this is a class-based message. Wouldn't it be interesting if large numbers of young and poor voters in the United States became active in support of their long-term economic interests.)

Tuesday, May 03, 2016

The Political Consequences of Slow Economic Growth

I have a new column:

How Slow Economic Growth Could Thwart a Clinton Presidency : Much has been written about the economic consequences of the slowdown in economic growth in recent years, but what about the political implications? If the slowdown continues, and there is reason to believe that it will, how will it affect the ability of the next president to implement his, or more likely her, economic agenda?
If Hillary Clinton wins in November and economic growth remains low, the call from Republicans for tax cuts will become louder than it already is. ...
If growth remains low we will also hear much more about how government regulation is stifling business activity. ...

And so on (it's already started, John Cochrane, calling for deregulation "While the current presidential front-runners are not championing economic growth, House Speaker Paul Ryan and other House members are.").

Tuesday, April 26, 2016

How Does Trade with China affect U.S. Elections?

At MoneyWatch:

How will global trade affect the U.S. elections?, by Mark Thoma: In textbook economic models, adjusting to changes in the economy is deceptively simple. If the labor market suffers a "shock" due, for example, to increased globalization, it adjusts quickly to restore full employment.
In the real world, it doesn't happen like this. It takes time for workers to find new jobs, if they can find them. New businesses and new job openings at existing businesses aren't created instantaneously. And wage adjustments, which create the incentives for workers to move and new jobs to be created, don't happen as fast as the textbooks generally assume.
And now, the effect of international trade and globalization has become a big issue in the presidential campaign. Recent research showing that a large number of manufacturing jobs have been lost to China helps explain why. But what evidence shows that trade with China actually changes voting behavior?
A recent paper from the National Bureaus of Economic Research attempts to answer this question. ...

Monday, April 25, 2016

Paul Krugman: The 8 A.M. Call

Are the presidential candidates prepared to handle an economic crisis?:

The 8 A.M. Call, by Paul Krugman, NY Times: Back in 2008, one of the ads Hillary Clinton ran during the contest for the Democratic nomination featured an imaginary scene in which the White House phone rings at 3 a.m. with news of a foreign crisis, and asked, “Who do you want answering that phone?” ... As it turned out ... Mr. Obama, a notably coolheaded type who listens to advice, handled foreign affairs pretty well...
That 3 a.m. call is one thing; but what about the 8 a.m. call – the one warning that financial markets will melt down as soon as they open? ...
At this point there are three candidates who have a serious chance of receiving their party’s presidential nomination. ... So what do we know about their economic policy skills?
Well, Mrs. Clinton isn’t just the most knowledgeable, well-informed candidate in this election, she’s arguably the best-prepared candidate on matters economic ever to run for president. ...
On the other side, I doubt that anyone will be shocked if I say that Mr. Trump doesn’t know much about economic policy, or for that matter any kind of policy. He still seems to imagine, for example, that China is taking advantage of America by keeping its currency weak — which was true once upon a time, but bears no resemblance to current reality.
Oh, and coping with crisis in the modern world requires a lot of international cooperation. Things like currency swap lines... How well do you think that kind of cooperation would work in a Trump administration?
Yet things could be worse. The Donald doesn’t know much, but Ted Cruz knows a lot that isn’t so..., he demands a gold standard to produce a “sound dollar.” He chose, as his senior economic adviser, Phil Gramm — an architect of financial deregulation who helped set the stage for the 2008 crisis, then dismissed warnings of recession when that crisis came, calling America a “nation of whiners.”
Mr. Cruz is ... utterly divorced from reality and impervious to evidence... A financial crisis with him in the White House could be, let’s say, an interesting experience.
I don’t know how much play the candidates’ readiness for economic emergencies will get in the general election. There will, after all, be so many horrifying positions, on everything from immigration to Planned Parenthood, to dissect. But let’s try to make some room for this issue. For that 8 a.m. call is probably coming, one way or another.

Sunday, April 24, 2016

Presidential Candidates and Fed Accountability

Carola Binder:

Presidential Candidates and Fed Accountability: In an interview with Fortune, Donald Trump gave his views on  Federal Reserve Chair Janet Yellen, who will come up for reappointment in 2018. "I don’t want to comment on reappointment, but I would be more inclined to put other people in," he remarked, despite his opinion that Yellen "has done a serviceable job." ...
Recently, Narayana Kocherlakota, who was President of the Federal Reserve Bank of Minneapolis from 2009 through 2015, has been urging Presidential candidates to address their views on the Fed. ...
The other candidate who has said most about the Fed is Bernie Sanders, who wrote an op-ed about the Fed in the New York Times in December. Sanders' remarks focus mainly on Fed governance and financial regulation, though he also comments on the Fed's interest rate policy...
I asked Bernanke whether he thought that the presidential candidates should talk about monetary policy and the (re)appointment of the Fed Chair. He agreed with Kocherlakota that candidates should talk about what they would like to see in a Fed Chair, but said that he does not think it's a good idea to politicize individual interest rate decisions, emphasizing that the Fed does not have goal independence, but does have instrument independence. In other words, Congress has given the Fed a monetary policy mandate—full employment and price stability—but does not specify what the Fed needs to do to try to achieve those goals.
Anyone who wants to is welcome to evaluate the Fed on how successfully they are achieving that mandate. Anyone who wants to is also welcome to evaluate the merits of the mandate itself. Different people will come to different evaluations depending on their own beliefs and preferences. But neither of these two evaluations requires an audit of monetary policy by the Government Accountability Office, as both Sanders and Trump have advocated.
Anyone who is dissatisfied with the mandate itself can go through the usual channels of political change in a democracy and pressure Congress to change the mandate. Congress, by design, is susceptible to such pressure: they need votes. Presidential candidates are in a good position to draw public attention to the Fed's mandate and urge change if they believe it is necessary. Sanders, for example, could propose redefining the Fed's full employment mandate to mean unemployment below 4 percent. I'm not quite sure what kind of mandate Trump would support. It is also fair game for any member of the public to evaluate the Fed on how successfully they are achieving their mandate. But Congress does not (or at least, should not) tell the Fed how to set interest rates to achieve its mandate, and Presidential candidates shouldn't either.

Thursday, April 21, 2016

John Kasich’s Interview with The Washington Post Editorial Board

This is pretty funny:

A transcript of John Kasich’s interview with The Washington Post editorial board:
... CATHERINE RAMPELL, COLUMNIST: On the balanced budget question, you have positioned yourself as the sole candidate of fiscal responsibility based on your record in Ohio and previously in Congress, but arguably of all of the candidates still standing you have released the least details about budgeting, about taxes. You’re the only candidate that the Tax Foundation, Tax Policy Center, Committee for a Responsible [Federal] Budget have said they can’t score your tax plan because it’s too thin on details.
KASICH:  Yes. Well,... look, I mean, we’re working through it. I’ve cut taxes in Ohio. It’s not confusing. I’m going to have a 28, 25 and 10 percent rate. We’re going to have an increase in the earned income tax credit.
RAMPELL:  Yes, but that doesn’t lead to surpluses. That doesn’t lead to – ...
KASICH: Well, you get the surpluses three ways:  ...Common sense regulations so you’re not crushing small business. ...
Two, lower taxes. ...
And the third thing is a fiscal plan. Now, I will tell you how we’ll run the fiscal plan. And I can lay out all – you’re going to send welfare and Medicaid and, you know, this job training and all that back to the states. ...
So it’s not that hard to budget. Entitlements?  I’ve already talked about Social Security. You’re going to have to means test it and say if you’ve had, you know, significant income over your lifetime; and we’re trying to put the details to what that number is, you’ll get Social Security. You’ll get less and people that depend on it will get what they need.
RAMPELL:  So to clarify, you’re saying you would balance through spending cuts?
KASICH:  No, no, no. You get it through economic growth. That’s the way you get it. Economic growth. Our tax plan, all that projects 3.9 percent economic growth. It’s not some flimsy put-together – you know... I don’t put together smoke and mirrors ... it’s one of the reasons why I got in trouble with conservatives – I have never operated from a – one of these dynamic models. Okay?  But there’s a legitimate amount of dynamic activity. And I just don’t get beyond what I think is a legitimate pale.
MARCUS:  Well, but you have a tax cut that – as far as I can see though it’s been unscoreable for the reasons that Catherine says – that most closely approximates Jeb Bush’s. Jeb Bush’s tax cut was scored on a non-dynamic basis by the Tax Policy Center as costing about $6.8 trillion. ...
KASICH: Well, look, I would tell you that look at the plan and see how they project it. I believe that we have not overused dynamic scoring...– I think that what we’ve done is a set of reasonable assumptions. Now, who’s working on it?  People like Kerry Knott, worked for [former congressman] Dick Armey. I mean, we got a lot of people looking at it. ...
MARCUS:  So, but your path to balance, which doesn’t include Social Security ... rests on sustained economic growth rate approaching four percent, which ... has not really been seen in ... recent American history. So –
KASICH:  You know why?  Because they over-regulate, over-tax and blow up the budget. ... Tax cuts matter because I believe they provide economic growth. I don’t think you should make numbers up. ...

This part was amusing too:

TOM TOLES, EDITORIAL CARTOONIST:  Do you support a market tax on carbon..., doesn’t it get to the problem in a significant way?

KASICH:  No.

STROMBERG:  So the economists are wrong on this, then?
KASICH:  Well, which economists?
STROMBERG:  Essentially all of them.
KASICH:  Well no, I can get you an economist out of Ohio University, and he wouldn’t agree with these economists. ...

A bit later:

KASICH:  ...Somebody comes to me and says, you know, some bunch of economists or scientists that say, “Look, this is a problem” — of course I’d listen to them. ...

Tuesday, April 19, 2016

Debunking Republican Health Care Myths

From the NY Times editorial board:

Debunking Republican Health Care Myths: “Disaster.” “Incredible economic burden.” “The biggest job-killer in this country.”
Central to the presidential campaigns of Donald Trump and Ted Cruz has been the claim that the Affordable Care Act has been a complete failure, and that the only way to save the country from this scourge is to replace it with something they design.
It’s worth examining the big myths they are peddling about the Affordable Care Act and also their ill-conceived plans of what might replace it. ...
In inventing problems that don’t exist and proposing solutions that won’t help, Donald Trump and Ted Cruz show that they don’t care about helping Americans get health care, which has never been their interest. They want to trash the Affordable Care Act, and they’re willing to mislead the public any way they can.

Friday, April 15, 2016

Paul Krugman: The Pastrami Principle

"We’re all real Americans":

The Pastrami Principle, bt Paul Krugman, NY Times: A couple of months ago, Jeb Bush (remember him?) posted a photo of his monogrammed handgun to Twitter, with the caption “America.” Bill de Blasio, New York’s mayor, responded with a picture of an immense pastrami sandwich, also captioned “America.” ...
Mr. Bush’s post was an awkward attempt to tap into the common Republican theme that only certain people — white, gun-owning, rural or small-town citizens — embody the true spirit of the nation. ...
Mr. de Blasio’s riposte, celebrating a characteristically New York delicacy, was a declaration that we’re also Americans — that everyone counts. ...
Which is why it’s disturbing to see ... attempts to delegitimize large groups of voters surfacing among some Democrats.
Quite a few people seem confused about the current state of the Democratic nomination race. But the essentials are simple: Hillary Clinton has a large lead in both pledged delegates and the popular vote so far....
So the Sanders campaign is arguing that superdelegates ... should give him the nomination even if he loses the popular vote. ...
But how can the campaign make the case that the party should defy the apparent will of its voters? By insisting that many of those voters shouldn’t count. Over the past week, Mr. Sanders has declared that Mrs. Clinton leads only because she has won in the “Deep South,” which is a “pretty conservative part of the country.” The tally so far, he says, “distorts reality” because it contains so many Southern states.
As it happens, this isn’t true... But never mind. ... Mrs. Clinton didn’t win big in the South on the strength of conservative voters; she won by getting an overwhelming majority of black voters. This puts a different spin on things, doesn’t it?
Is it possible that Mr. Sanders doesn’t know this... It’s more likely, however, that ... his effort to delegitimize a big part of the Democratic electorate is a cynical ploy ... aimed at misleading Sanders supporters, giving them an unrealistic view of the chances that their favorite can still win — and thereby keeping the flow of money and volunteers coming. ...
I’m not saying that Mr. Sanders should drop out. ... But trying to keep his campaign going by misleading his supporters is not O.K. And sneering at millions of voters is truly beyond the pale, especially for a progressive.
Remember the pastrami principle: We’re all real Americans. And African-Americans are very definitely real Democrats, deserving respect.

Tuesday, April 12, 2016

'Donald Trump's Fuzzy Deficit-Cutting Math'

At MoneyWatch:

Donald Trump's fuzzy deficit-cutting math, by Mark A. Thoma: Donald Trump has big -- huuuge -- plans for the economy. Do those plans have any merit?
Perhaps it's a mistake to take presidential candidates' economic proposals as serious policy rather than signals of tribal affiliation, opening bids in post-election negotiations or pandering for votes by telling various groups what they want to hear, even if the parts don't add up to a feasible whole.
Nevertheless, I'm taking Trump's proposals for taxes, the government debt, Medicare and Social Security as though they are genuine...

Sunday, April 10, 2016

Can Central Banks Make 3 Major Mistakes in a Row and Stay Independent?

Simon Wren-Lewis:

Can central banks make 3 major mistakes in a row and stay independent?: Mistake 1 If you are going to blame anyone for not seeing the financial crisis coming, it would have to be central banks. They had the data that showed a massive increase in financial sector leverage. That should have rung alarm bells...
Mistake 2 Of course the main culprit for the slow recovery from the Great Recession was austerity... But the slow recovery also reflects a failure of monetary policy. In my view the biggest failure occurred very early on in the recession. Monetary policy makers should have said very clearly, both to politicians and to the public, that with interest rates at their lower bound they could no longer do their job effectively, and that fiscal stimulus would have helped them do that job. Central banks might have had the power to prevent austerity happening, but they failed to use it. ...
What could be mistake 3 The third big mistake may be being made right now in the UK and US. It could be called supply side pessimism. Central bankers want to ‘normalise’ their situation... They want to declare that they are back in control. But this involves writing off the capacity that appears to have been lost as a result of the Great Recession.
The UK and US situations are different. ...
I think these differences are details. In both cases the central bank is treating potential output as something that is independent of its own decisions and the level of actual output. ...
Perhaps that is correct, but there has to be a fair chance that it is not. If it is not, by trying to adjust demand to this incorrectly perceived low level of supply central banks are wasting a huge amount of potential resources. Their excuses for doing this are not strong. It is not as if our models of aggregate supply and inflation are well developed and reliable... The real question to ask is whether firms with current technology would like to produce more if the demand for this output was there, and we do not have good data on that.
What central banks should be doing in these circumstances is allowing their economies to run hot for a time, even though this might produce some increase in inflation above target. If when that is done both price and wage inflation appear to be continuing to rise above target, while ‘supply’ shows no sign of increasing with demand, then pessimism will have been proved right and the central bank can easily pull things back. The costs of this experiment will not have been great...
It does not appear that the Bank of England or Fed are prepared to do that. If we subsequently find out that their supply side pessimism was incorrect ..., this could spell the end of central bank independence. ... The Great Moderation is becoming a distant memory clouded by more recent failures. ... Mainstream economics remains pretty committed to central bank independence. But as we have seen with austerity, at the end of the day what mainstream economics thinks is not decisive when it comes to political decisions on economic matters. ...

Friday, April 08, 2016

Paul Krugman: Sanders Over the Edge

Paul Krugman:

Sanders Over the Edge, by Paul Krugman, Commentary, NY Times: From the beginning, many and probably most liberal policy wonks were skeptical about Bernie Sanders. On many major issues — including the signature issues of his campaign, especially financial reform — he seemed to go for easy slogans over hard thinking. And his political theory of change, his waving away of limits, seemed utterly unrealistic.
Some Sanders supporters responded angrily when these concerns were raised... But intolerance and cultishness from some of a candidate’s supporters are one thing; what about the candidate himself? Unfortunately,... Mr. Sanders is starting to sound like his worst followers. Bernie is becoming a Bernie Bro.
Let me illustrate the point about issues by talking about bank reform..., were big banks really at the heart of the financial crisis...?
Many analysts concluded years ago that the answers to both questions were no. Predatory lending was largely carried out by smaller, non-Wall Street institutions like Countrywide Financial; the crisis itself was centered not on big banks but on “shadow banks” like Lehman Brothers that weren’t necessarily that big..., pounding the table about big banks misses the point. ...
And this absence of substance beyond the slogans seems to be true of his positions across the board.
You could argue that policy details are unimportant as long as a politician has the right values and character ... But ... the way Mr. Sanders is now campaigning raises serious character and values issues.
It’s one thing for the Sanders campaign to point to Hillary Clinton’s Wall Street connections, which are real, although the question should be whether they have distorted her positions, a case the campaign has never even tried to make. But recent attacks on Mrs. Clinton as a tool of the fossil fuel industry are just plain dishonest, and speak of a campaign that has lost its ethical moorings.
And then there was Wednesday’s rant about how Mrs. Clinton is not “qualified” to be president. ...
Is Mr. Sanders positioning himself to join the “Bernie or bust” crowd, walking away if he can’t pull off an extraordinary upset, and possibly helping put Donald Trump or Ted Cruz in the White House? If not, what does he think he’s doing?
The Sanders campaign has brought out a lot of idealism and energy that the progressive movement needs. It has also, however, brought out a streak of petulant self-righteousness among some supporters. Has it brought out that streak in the candidate, too?

Tuesday, April 05, 2016

What Bernie Sanders Gets Right

I have a new column:

What Bernie Sanders Gets Right: A little over a year ago, Bernie Sanders expressed one of the themes of his presidential campaign in a speech at the Brookings Institution:
We are moving rapidly away from our democratic heritage into an oligarchic form of society… billionaire families are now able to spend hundreds and hundreds of millions of dollars to purchase the candidates of their choice. The billionaire class now owns the economy, and they are working day and night to make certain that they own the United States government.
This gets at the heart of the justification for our economic system. According to economic theory, one of the wonders of capitalism is that the pursuit of self-interest by individuals in society is guided, as if by an invisible hand, to maximize the collective social interest. Ruthless, cutthroat competition between individuals and businesses is magically transformed through the marketplace into a harmonious outcome that is best for society as a whole.
But there are important questions about the extent to which this describes how our economy actually works. ...

Friday, April 01, 2016

Paul Krugman: Learning From Obama

 "The lesson of the Obama years":

Learning From Obama, by Paul Krugman, Commentary, NY Times: Like many political junkies, I’ve been spending far too much time looking at polls... But the primaries aren’t the only things being polled; we’re still getting updates on President Obama’s overall approval. And ... his approval has risen sharply while disapproval has plunged. ... What’s going on?
Well, one answer is that voters have lately been given a taste of what really bad leaders look like. But I’d like to think that the public is also starting to realize just how successful the Obama administration has been...
I know that it’s hard for many people on both sides to wrap their minds around the notion of Obama-as-success. On the left, those caught up in the enthusiasms of 2008 feel let down by the prosaic reality of governing in a deeply polarized political system. Meanwhile, conservative ideology predicts disaster from any attempt to tax the rich, help the less fortunate and rein in the excesses of the market...
But the successes are there for all to see.
Start with the economy..., it’s important news if the economy has performed well. And it has..., just imagine the boasting we’d be hearing if Mitt Romney occupied the White House.
Then there’s health reform, which has (don’t tell anyone) been meeting its goals. ...
Then there’s financial reform, which the left considers toothless and the right considers destructive. In fact, while the big banks haven’t been broken up, excessive leverage — the real threat to financial stability — has been greatly reduced. And as for the economic effects, have I mentioned how well we’ve done on job creation?
Last but one hopes not least, the Obama administration has used executive authority to take ... very significant action on climate change.
All in all, it’s quite a record. ...
The 2008 election didn’t bring the political transformation Obama enthusiasts expected, nor did it destroy the power of the vested interests: Wall Street, the medical-industrial complex and the fossil fuel lobby are all still out there, using their money to buy influence. But they have been pushed back in ways that have made American lives better and more secure.
The lesson of the Obama years, in other words, is that success doesn’t have to be complete to be very real. You say you want a revolution? Well, you can’t always get what you want — but if you try sometimes, you just might find, you get what you need.

Tuesday, March 29, 2016

'Trump, Cruz Tax-Cut Plans Would Force Historically Dramatic Cuts'

From the CBPP:

Trump, Cruz Tax-Cut Plans Would Force Historically Dramatic Cuts: The tax-cut proposals from Republican presidential candidates Donald Trump and Ted Cruz, in conjunction with their calls for balancing the budget, would dictate low levels of government spending not seen since about 1950, as we explain in a new paper.  Programs that receive support across the political spectrum and are important to the well-being of most Americans would dramatically shrink or disappear altogether.  Even if policymakers didn’t achieve budget balance under their tax-cut plans but simply offset the costs of the plans themselves, the consequences to essential programs — and to low- and middle-income Americans — would be severe. 
These conclusions emerge from an analysis of the Urban-Brookings Tax Policy Center’s (TPC) revenue estimates of the Trump and Cruz tax plans — which would reduce revenues by $9.5 trillion and $8.7 trillion over the next ten years, respectively, according to TPC — and CBPP estimates of what such revenue levels imply for government spending.  This analysis examines only the Trump and Cruz plans because TPC has not analyzed John Kasich’s proposals and because the proposals of Democratic candidates Hillary Clinton and Bernie Sanders would raise revenues, not reduce them.  The specific findings include...
As dramatic as these figures are, they understate the pressure that the two candidates’ proposals would place on many government programs.  Both have proposed large spending increases in certain areas, including Senator Cruz’s proposal to increase defense spending by $2.7 trillion over the next decade and Mr. Trump’s proposal to increase spending on veterans by $500 billion to $1 trillion over this period.  Offsetting the cost of such increases, as well as the tax cuts, would require even deeper cuts to other programs. ...

Monday, March 28, 2016

Paul Krugman: Trade, Labor, and Politics

Why have Republican been more protectionist than Democrats?:

Trade, Labor, and Politics, by Paul Krugman, Commentary, NY Times: There’s a lot of things about the 2016 election that nobody saw coming, and one of them is that international trade policy is likely to be a major issue... What’s more, the positions of the parties will be the reverse of what you might have expected: Republicans, who claim to stand for free markets, are likely to nominate a crude protectionist, leaving Democrats, with their skepticism about untrammeled markets, as the de facto defenders of relatively open trade.
But this isn’t as peculiar a development as it seems. ... It’s true that globalization puts downward pressure on the wages of many workers — but progressives can offer a variety of responses to that pressure, whereas on the right, protectionism is all they’ve got.
When I say that Republicans have been more protectionist than Democrats, I’m not talking about the distant past... Reagan, after all, imposed an import quota on automobiles that ended up costing consumers billions of dollars. And Mr. Bush imposed tariffs on steel that were in clear violation of international agreements, only to back down after the European Union threatened to impose retaliatory sanctions. ...
But protectionism isn’t the only way to fight that downward pressure. ... Consider, for example, the case of Denmark... As a member of the European Union, Denmark is subject to the same global trade agreements as we are... Yet Denmark has much lower inequality than we do. Why?
Part of the answer is that workers in Denmark, two-thirds of whom are unionized, still have a lot of bargaining power. If U.S. corporations were able to use the threat of imports to smash unions, it was only because our political environment supported union-busting. Even Canada, right next door, has seen nothing like the union collapse that took place here.
And the rest of the answer is that Denmark (and, to a lesser extent, Canada) has a much stronger social safety net than we do. In America, we’re constantly told ... we can’t even afford even the safety net we have; strange to say, other rich countries don’t seem to have that problem. ...
And there’s a lesson here that goes beyond this election. If you’re generally a supporter of open world markets — which you should be, mainly because market access is so important to poor countries — you need to know that whatever they may say, politicians who espouse rigid free-market ideology are not on your side.

Friday, March 25, 2016

Paul Krugman: Crazy About Money

 "Mr. Cruz has staked out positions on crucial issues that are, not to put too fine a point on it, crazy":

Crazy About Money, by Paul Krugman, Commentary, NY Times: In this year of Trump, the land is loud with the wails of political commentators ... crying out, “How can this be happening?” But a few brave souls are willing to whisper the awful truth: Many voters support Donald Trump because they actually agree with his ideas.
This is not, however, a column about Mr. Trump. It is, instead, about Ted Cruz, who has emerged as the favored candidate of the G.O.P. elite...
In a way, that’s quite a remarkable development. For Mr. Cruz has staked out positions on crucial issues that are, not to put too fine a point on it, crazy. How can elite Republicans back him?
The answer is the same for Mr. Cruz and the elite as it is for Mr. Trump and the base: Leading Republicans support Mr. Cruz, not despite his policy positions, but because of them. ... Establishment Republicans may wince at the candidate’s fondness for talking about “carpet bombing” or his choice of a noted anti-Muslim bigot and conspiracy theorist as an adviser.
But both Jeb Bush and Marco Rubio chose foreign policy teams dominated by the very people who pushed America into the Iraq debacle, and learned nothing from the experience. ...
And then there’s ... monetary policy. ... Mr. Cruz has staked out a distinctive position, by calling for a return to the gold standard. .... Mr. Cruz’s obsession with gold is one reason to believe that he would do even more economic damage in the White House than Mr. Trump...
Take, as a not at all arbitrary example, Paul Ryan,... the de facto leader of the Republican establishment ...Mr. Ryan is fundamentally a con man on his signature issue, fiscal policy. Incidentally, for what it’s worth, Mr. Cruz has been relatively honest by his party’s standards..., openly declaring his intention to raise taxes that hit the poor and the middle class even as he slashes them on the rich.
But Mr. Ryan seems to be a true believer on monetary policy... But what, exactly, is the nature of his monetary faith? The same as ... Mr. Cruz’s beliefs: Both men are devotees of Ayn Rand ...
The moral here is that we shouldn’t be surprised by the Republican establishment’s willingness to rally behind Mr. Cruz..., while his policy ideas are extreme, they reflect the same extremism that pervades the party’s elite.
There are no moderates, or for that matter, sensible people, anywhere in this story.

Will the Donor Class Still be at the Front of the Line When the Election is Over?

I have something at MoneyWatch:

Will Election 2016 Soothe Americans' Fears?:... The extent to which employment can recover further depends in large part on the availability of jobs and the wage rate, both of which will be affected by the course of monetary and fiscal policy. If the Fed raises interest rates too fast and too soon, wages and employment will be suppressed, and valuable members of the workforce will never return.
If Congress continues to serve the interests of the donor class rather than the working class, fails to provide the economy with the infrastructure it needs and the jobs that come with it, and forces further reductions in social services through tax cuts and demagoguery over the national debt, the discouragement so many people feel will only get worse. ...
Events in this year's presidential campaign have made it clear that people are unhappy with the present state of the economy. They believe policy has been tilted too much toward the interests of the financial industry, big business and the wealthy -- and that they've been forgotten.
But these problems won't be solved by closing the door to international trade and immigration, by enacting huge tax cuts for the wealthy or by embracing politics that divide us as a nation.
Policymakers at the Fed and in Congress must do all that they can to create jobs and opportunity for those who feel overlooked and forgotten. People are speaking clearly this election cycle: They want jobs, they want opportunity, they want wages to go up and they want inequality in to go down. ...

[The beginning was changed by the editor...]

Wednesday, March 23, 2016

'Cruz Seeks Economic Wisdom in the Wrong Place'

Barry Ritholtz:

Cruz Seeks Economic Wisdom in the Wrong Place:

Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action. -- former U.S. Senator Phil Gramm, Nov. 16, 2008

...Gramm has been brought on as a senior economic adviser to Republican presidential candidate Ted Cruz. This isn't a promising development for Cruz... Not to put too fine a point on it, but I believe -- as do many others -- that Gramm was one of the major figures who helped set the stage for the crisis. ...

Gramm was a key sponsor of the ... Gramm-Leach-Bliley Act, which effectively repealed the piece of the Glass-Steagall Act... The damage caused by rolling back Glass-Steagall pales compared with ... the Commodity Futures Modernization Act of 2000. Gramm was a co-sponsor of the legislation, which exempted many derivatives and swaps from regulation.  Not only was the law problematic, but it veered into potential conflict-of-interest territory. ...

We got a chance to see those consequences a few years later when American International Group failed, thanks in part to swaps ... on $441 billion of securities that turned out to be junk. AIG wasn't required to put up much in the way of collateral, set aside capital or hedge its risk on the swaps. Why would it, when the law said it didn’t have to? The taxpayers were then called upon to bailout AIG to the tune of more than $180 billion.

Maybe it isn't too surprising that Cruz would seek advice from Gramm. Cruz, after all, seems to want to hobble modern economic policy by returning to the gold standard. ... We have seen these movies before, and they end in tragedy and tears. 

He also talks about Gramm's sad performance in his brief appearance as one of McCain's advisors in 2008.

The State of American Politics

Paul Ryan, in a speech on the state of American politics, says:

We don’t lock ourselves in an echo chamber, where we take comfort in the dogmas and opinions we already hold.

Followed by:

... in 1981 the Kemp-Roth bill was signed into law, lowering tax rates, spurring growth, and putting millions of Americans back to work.

Bruce Bartlett:

... I was the staff economist for Rep. Jack Kemp (R-N.Y.) in 1977, and it was my job to draft what came to be the Kemp-Roth tax bill, which Reagan endorsed in 1980 and enacted the following year. ...
Republicans like to say that massive growth followed the Reagan tax cut. But average real GDP growth during Reagan’s eight years in the White House was only slightly above the rate of the previous eight years: 3.4 percent per year vs. 2.9 percent. The average unemployment rate was actually higher under Reagan than it was during the previous eight years: 7.5 percent vs. 6.6 percent. ...

Tuesday, March 22, 2016

'Trumpism, the Economic Wrecking Ball'

Alan Blinder:

Trumpism, the Economic Wrecking Ball: For much of the past six months, I’ve tried to ignore the political ascent of Donald Trump. Too horrible to be true, I assured myself. But the unthinkable has happened, and Mr. Trump is now the likely nominee of the Republican Party. So what might a Trump presidency bring?
To be frank, the most horrifying aspects of Trumpism are not his economic policies. The worst he could do there would be to precipitate a global depression. It’s far scarier to contemplate an erratic, blustering demagogue taking command of the most powerful military force on earth. Or the foreign-policy calamities that might befall us.
But I’m an economist, so I’ll stick with economics. ...
Let’s tote up the score. Mr. Trump’s tax plan is doable, if Congress is sufficiently pliant. But it would exacerbate income inequality and explode the federal deficit. Mr. Trump’s immigration plans are heartless, hugely expensive and incredibly disruptive to the U.S. economy. His positions on international trade display abysmal ignorance, are economically harmful and threaten America’s standing in the world.
And remember: These are the best parts of what Mr. Trump has to offer.

Why Republican Elites are Threatened

New Column:

Why Republican Elites are Threatened, by Mark Thoma: ... Donald Trump’s tax plan will result in a fall in revenue of 9.5 trillion dollars over the next ten years, yet somehow he will fulfill his promise to protect Social Security and Medicare and balance the budget? When push comes to shove (or worse – this is Trump after all), who do you think he will protect, social insurance programs the working class relies upon for economic security or his own and his party’s wealthy interests? Ted Cruz has proposed an 8.6 trillion dollar tax cut. How, exactly, will that be financed without large cuts to social insurance programs or huge increases in the budget deficit?
Republicans have fooled people into thinking budget deficits can be reduced substantially by eliminating waste and fraud in government, cutting foreign aid, or that it is the fault of lazy, undeserving “others” who sponge off of government programs. ...

I am very happy that the Republican con is starting to come to light. Members of the working class who support Trump are beginning to see that the elites in the Republican Party do not have their best interests at heart. I am not pleased at all, however, that people are still being led to believe that there are simple answers to budget problems that do not require raising taxes, or, alternatively, reducing their hard-earned benefits from programs such as Social Security or Medicare. ...

Monday, March 21, 2016

'Goodbye to Pluralism? Studying Power in Contemporary American Politics'

Paul Pierson:

Goodbye to Pluralism? Studying Power in Contemporary American Politics, by Paul Pierson: The efforts of contemporary political scientists to understand American politics reveal a striking paradox. On the one hand, “Americanists” have documented a rapid increase in the inequality of political resources. On the other, they have largely failed to detect inequalities of power. Most political scientists continue to insist that we lack clear evidence that the inequality of political resources translates systematically into markedly unequal influence over American government.
For most non-inhabitants of the political science village the inference is probably obvious: so much the worse for political science. I’m inclined to agree, but as a fellow villager I’m forced to pause. These are very smart folks working at this very hard, and they are inclined to let their data do the talking. Moreover, many of them went looking for unequal influence. Nonetheless, they were unable to track it down in a manner that met their standards of evidence. That leaves two possibilities. One is that they’re largely right – which would suggest that concerns about rapidly rising political inequality are overblown. Or they’re mostly wrong, which is the argument I want to make today.
This isn’t just a quarrel among villagers. Explaining why I think the political scientists are mostly wrong requires a careful examination of how power is exercised in the American political system. Political scientists have mostly missed unequal influence because they’ve looked in the wrong places. If influence is hiding then we need to know where it is hiding. Looking in the right places reveals not just political inequality, but a distinctive take on the processes that are at the heart of modern governance. This in turn has implications for how we think about whether influence has become more unequal, and what needs to be done if we in fact consider inequalities of power to be a problem.
After briefly describing the central paradox in a bit more detail, the bulk of this essay explores how best to think about influence and how best to assess its distribution. I then briefly apply the argument to one important realm in American society, the provision of health care, before drawing out a few tentative conclusions about the distribution of influence in contemporary American politics. ...

Paul Krugman: On Invincible Ignorance

Republicans are in denial:

On Invincible Ignorance, by Paul Krugman, Commentary, NY Times: Remember Paul Ryan? The speaker of the House... I was interested to read what Mr. Ryan said in a recent interview with John Harwood. What has he learned from recent events?
And the answer is, nothing.
Like just about everyone in the Republican establishment, Mr. Ryan is in denial about the roots of Trumpism, about the extent to which the party deliberately cultivated anger and racial backlash, only to lose control of the monster it created. ...
You might think that Republican thought leaders would be engaged in some soul-searching about their party’s obsession with cutting taxes on the wealthy. ...
But here’s what Mr. Ryan said about all those tax cuts for the top 1 percent: “I do not like the idea of buying into these distributional tables. What you’re talking about is what we call static distribution. It’s a ridiculous notion.”
Aha. The income mobility zombie strikes again.
Ever since income inequality began its sharp rise in the 1980s, one favorite conservative excuse has been that it doesn’t mean anything, ... statistics showing that many people who are in the top 1 percent in any given year are out of that category the next year.
But a closer look at the data shows that there is less to this observation than it seems. These days, it takes an income of around $400,000 a year to put you in the top 1 percent, and most of the fluctuation in incomes we see involves people going from, say, $350,000 to $450,000 or vice versa..., which means that tax cuts that mainly benefit the rich are indeed targeted at a small group of people, not the public at large.
And here’s the thing: This isn’t a new observation. ...
Appalled Republicans may rail against Donald Trump’s arrogant ignorance. But how different, really, are the party’s mainstream leaders? Their blinkered view of the world has the veneer of respectability, may go along with an appearance of thoughtfulness, but in reality it’s just as impervious to evidence — maybe even more so, because it has the power of groupthink behind it. ...
What we’re getting ... is at least the possibility of a cleansing shock — of a period in the political wilderness that will finally force the Republican establishment to rethink its premises. That’s a good thing — or it would be, if it didn’t also come with the risk of President Trump.

Friday, March 18, 2016

Paul Krugman: Republican Elite’s Reign of Disdain

Why have Republican elites "lost control of the nominating process"?:

Republican Elite’s Reign of Disdain, by Paul Krugman, Commentary, NY Times: ... There has been a lot of buzz over the past few days about an article by Kevin Williamson in National Review, vigorously defended by other members of the magazine’s staff, denying that the white working class — “the heart of Trump’s support” — is in any sense a victim of external forces. A lot has gone wrong in these Americans’ lives — “the welfare dependency, the drug and alcohol addiction, the family anarchy” — but “nobody did this to them. They failed themselves.”
O.K., we’re just talking about a couple of writers at a conservative magazine. But ... this attitude is widely shared on the right. ...
The ... writers at National Review are right to link these social ills to the Trump phenomenon. ... The question, however, is why this is happening. ...
Stripped down to its essence, the G.O.P. elite view is that working-class America faces a crisis, not of opportunity, but of values. ... And this crisis of values, they suggest, has been aided and abetted by social programs that make life too easy on slackers.
The problems with this diagnosis should be obvious. Tens of millions of people don’t suffer a collapse in values for no reason. Remember, several decades ago the sociologist William Julius Wilson argued that the social ills of America’s black community ... were the result of disappearing economic opportunity. If he was right, you would have expected declining opportunity to have the same effect on whites, and sure enough, that’s exactly what we’re seeing.
Meanwhile,... every other advanced country has a more generous social safety net than we do, yet the rise in mortality among middle-aged whites in America is unique: Everywhere else, it is continuing its historic decline.
But the Republican elite can’t handle the truth. It’s too committed to an Ayn Rand story line about heroic job creators versus moochers to admit either that trickle-down economics can fail to deliver good jobs, or that sometimes government aid is a crucial lifeline. So it ends up lashing out at its own voters when they refuse to buy into that story line.
Just to be clear, I’m not suggesting that Donald Trump has any better idea about what the country needs; he’s just peddling another fantasy, this one involving the supposed power of belligerence. But at least he’s acknowledging the real problems ordinary Americans face, not lecturing them on their moral failings. And that’s an important reason he’s winning.

Thursday, March 17, 2016

'House Republicans Cling to False Promise of Austerity in their Budget Resolution'

The EPI's Hunter Blair:

House Republicans cling to false promise of austerity in their budget resolution: This week, the House Budget Committee reported out, on a party-line vote, their fiscal year 2017 budget resolution. Infighting between House Republicans, centered on the idea that proposed spending cuts should be even more drastic, suggests that this year’s budget resolution is unlikely to pass. However, with all the media attention focused on the House Republican’s inability to come to an agreement, we shouldn’t lose sight of just how austere their budget resolution already is, and how much damage the cuts it calls for would do to the economy over both the short and long run.
For example, the cuts over the first two years would impose a significantly larger fiscal drag on economic recovery than previous Republican budgets. ...
GOP House budget resolutions for the past several years have been obsessed with eliminating the budget deficit by the end of the ten year budget window. This was already a quixotic and damaging goal, and it has become even more so thanks to changes in the CBO’s baseline. And while deficits are created from revenue minus spending, congressional Republicans’ outright refusal to raise any taxes means that spending cuts—and thereby low- and middle- income people—must bear the entire brunt of the budget resolution’s burden. They bear this burden to the tune of $6.5 trillion in spending cuts to vital programs over ten years—programs that overwhelmingly serve those most in need. The cuts would take away affordable health insurance coverage from the millions that have gained it under the Affordable Care Act and then further erode the safety net with cuts to Medicaid, unemployment benefits, and nutrition assistance. Besides making the economic lives of vulnerable populations harder, focusing cuts on this group imposes a large fiscal drag, since these are households that tend to spend (not save) additional dollars of resources back into the economy. ...
In years beyond 2017, the fiscal drag would remain considerable (and would likely damage growth and job creation), but we’re unable to forecast these impacts precisely because the Fed may have regained some scope to (at least partially) offset fiscal cuts in later years. Looking forward, while it is hard to precisely quantify by how much, the deeper budget cuts throughout the ten year window in the House GOP budget resolution would almost surely further hinder and delay a full economic recovery, especially in the near-term.1 ...
1.The cuts in fiscal 2017 of the House GOP budget resolution total $186 billion. We assume a very conservative multiplier of 1.25—Medicaid and SNAP have very high multipliers (between 1.5-2 or even higher), so 1.25 strikes us as quite conservative. This 1.25 multiplier implies that the House budget cuts will place a 1.2 percent drag on a GDP growth in the next year. This loss in GDP means, all else equal, that job-growth in the next year will be 1.4 million less. Putting that in context, job-growth in 2015 was 2.7 million, so the pace of job-growth would be cut by more than half in the coming year. We should note that we are quite confident about this impact for 2017, given that there is little scope or obvious appetite for monetary policymakers to provide enough stimulus with their policy tools to offset this fiscal drag. Cuts totaling $321 billion in fiscal 2018 will also likely drag significantly on growth, but uncertainty about other economic influences on recovery (particularly the response of the Federal Reserve) makes calculating exactly how much hard to quantify.

Monday, March 14, 2016

Paul Krugman: Trump Is No Accident

Establishment Republicans "had it coming":

Trump Is No Accident, by Paul Krugman, Commentary, NY Times: Establishment Republicans who are horrified by the rise of Donald Trump...
The truth is that the road to Trumpism began long ago, when movement conservatives — ideological warriors of the right — took over the G.O.P. And it really was a complete takeover. Nobody seeking a career within the party dares to question any aspect of the dominating ideology, for fear of facing not just primary challenges but excommunication.
You can see the continuing power of the orthodoxy in the way all of the surviving contenders for the Republican nomination, Mr. Trump included, have dutifully proposed huge tax cuts for the wealthy, even though a large majority of voters, including many Republicans, want to see taxes on the rich increased instead.
But how does a party in thrall to a basically unpopular ideology — or at any rate an ideology voters would dislike if they knew more about it — win elections? Obfuscation helps. But demagogy and appeals to tribalism help more. Racial dog whistles and suggestions that Democrats are un-American if not active traitors aren’t things that happen now and then, they’re an integral part of Republican political strategy.
During the Obama years Republican leaders cranked the volume on that strategy up to 11 (although it was pretty bad during the Clinton years too.) Establishment Republicans generally avoided saying in so many words that the president was a Kenyan Islamic atheist socialist friend of terrorists ... but they tacitly encouraged those who did, and accepted their endorsements. And now they’re paying the price.
For the underlying assumption behind the establishment strategy was that voters could be fooled again and again: persuaded to vote Republican out of rage against Those People, then ignored after the election while the party pursued its true, plutocrat-friendly priorities. Now comes Mr. Trump, turning the dog whistles into fully audible shouting, and telling the base that it can have the bait without the switch. And the establishment is being destroyed by the monster it created. ...
Let’s dispel with this fiction that the Trump phenomenon represents some kind of unpredictable intrusion into the normal course of Republican politics. On the contrary, the G.O.P. has spent decades encouraging and exploiting the very rage that is now carrying Mr. Trump to the nomination. That rage was bound to spin out of the establishment’s control sooner or later.
Donald Trump is not an accident. His party had it coming.

Sunday, March 13, 2016

'Thank You Donald Trump'

Kevin Grier:

Thank you Donald Trump: People, I believe that Donald Trump is teaching many of us a valuable lesson. He's performing an important public service, and I for one am grateful.

I'm one of those guys who thought, hey we really don't need affirmative action anymore, women are treated with respect and dignity now, facism is a relic of a bygone age.

But Trump is showing me/us that a large chunk of US adults (what like 25-30% or so?) are racist, sexist, xenophobic, economically illiterate morons.

I guess even in a red state like Oklahoma, living in a University town helps to insulate you from the "common man" (thank god).

But Trump's campaign has made it clear to me that we still have serious human rights / equality / logical reasoning issues in our country.

So I say to all you SJWs out there, live long and prosper. You have a lot of work left to do.

And to my libertarian friends I say, continued affirmative action and gender equity programs are needed and important.

We still have a very long way to go in this country. Trump is showing me/us just how far.

Friday, March 11, 2016

Paul Krugman: Trade and Tribulation

"Politicians should be honest and realistic about trade":

Trade and Tribulation, by Paul Krugman, Commentary NY Times: Why did Bernie Sanders win a narrow victory in Michigan, when polls showed Hillary Clinton with a huge lead? Nobody really knows, but there’s a lot of speculation that Mr. Sanders may have gained traction by hammering on the evils of trade agreements. Meanwhile, Donald Trump, while directing most of his fire against immigrants, has also been bashing the supposedly unfair trading practices of China and other nations.
So, has the protectionist moment finally arrived? Maybe, maybe not...
To make sense of the debate over trade, there are three things you need to know.
The first is that we have gotten to where we are — a largely free-trade world — through ... diplomacy, going all the way back to F.D.R. This process combines a series of quid pro quos — I’ll open my markets if you open yours — with rules to prevent backsliding.
The second is that protectionists almost always exaggerate the adverse effects of trade liberalization. Globalization is only one of several factors behind rising income inequality, and trade agreements are, in turn, only one factor in globalization. ...
And yes, Mr. Sanders is demagoguing the issue...
That said, not all free-trade advocates are paragons of intellectual honesty. In fact, the elite case for ever-freer trade ... is largely a scam..., in general, agreements that lead to more trade neither create nor destroy jobs; that they usually make countries more efficient and richer, but that the numbers aren’t huge; and that they can easily produce losers as well as winners. In principle ... the winners could compensate the losers, so that everyone gains. In practice, especially given the scorched-earth obstructionism of the G.O.P., that’s not going to happen.
Why, then, did we ever pursue these agreements? A large part of the answer is foreign policy... And anyone ragging on about those past deals, like Mr. Trump or Mr. Sanders, should be asked what, exactly, he proposes doing now. Are they saying that we should rip up America’s international agreements? Have they thought about what that would do to our credibility and standing in the world? ...
The larger point in this election season is, however, that politicians should be honest and realistic about trade, rather than taking cheap shots. Striking poses is easy; figuring out what we can and should do is a lot harder. But you know, that’s a would-be president’s job.