Category Archive for: Politics [Return to Main]

Sunday, October 12, 2014

'In Defense of Obama'

In case you missed this from Paul Krugman:

In Defense of Obama, by Paul Krugman, Rolling Stone: When it comes to Barack Obama, I've always been out of sync. Back in 2008, when many liberals were wildly enthusiastic about his candidacy and his press was strongly favorable, I was skeptical. I worried that he was naive, that his talk about transcending the political divide was a dangerous illusion given the unyielding extremism of the modern American right. Furthermore, it seemed clear to me that, far from being the transformational figure his supporters imagined, he was rather conventional-minded: Even before taking office, he showed signs of paying far too much attention to what some of us would later take to calling Very Serious People, people who regarded cutting budget deficits and a willingness to slash Social Security as the very essence of political virtue.
And I wasn't wrong. Obama was indeed naive: He faced scorched-earth Republican opposition from Day One, and it took him years to start dealing with that opposition realistically. Furthermore, he came perilously close to doing terrible things to the U.S. safety net in pursuit of a budget Grand Bargain; we were saved from significant cuts to Social Security and a rise in the Medicare age only by Republican greed, the GOP's unwillingness to make even token concessions.
But now the shoe is on the other foot: Obama faces trash talk left, right and center – literally – and doesn't deserve it. Despite bitter opposition, despite having come close to self-inflicted disaster, Obama has emerged as one of the most consequential and, yes, successful presidents in American history. His health reform is imperfect but still a huge step forward – and it's working better than anyone expected. Financial reform fell far short of what should have happened, but it's much more effective than you'd think. Economic management has been half-crippled by Republican obstruction, but has nonetheless been much better than in other advanced countries. And environmental policy is starting to look like it could be a major legacy.
I'll go through those achievements shortly. First, however, let's take a moment to talk about the current wave of Obama-bashing. ...

Saturday, October 11, 2014

'Hiatt Hysterical Over Losing His Schtick'

Barkley Rosser feels "sorry for Fred." Sort of:

Hiatt Hysterical Over Losing His Schtick: Poor Fred Hiatt. For years, this Editor of the Editorial page of the Washington Post has made his named appearances on the editorial page (he daily bloviates the main ed lead anonymously) only to call for cutting Social Security, and occasionally Medicare as well. This has been his schtick for many years. Now it is over, but he fails to recognize it. ...
So, I feel sorry for Fred. Beating up on seniors who have paid in their taxes for what they are getting has been the one an only topic that has inspired him to write columns under his own name for many years. The new projections of lower deficits, good news to most of us, simply do not register with him. Actually, they probably do. But Krugman is right. As much as anybody, he is the longstanding VSP in DC who has been whining for years about cutting Social Security and Medicare, whose excuse for this argument has simply disappeared, but he and his pals simply are not willing to face the new facts.

Friday, October 10, 2014

Paul Krugman: Secret Deficit Lovers

Why isn't America celebrating the large fall in the deficit?:

Secret Deficit Lovers, by Paul Krugman, Commentary, NY Times: What if they balanced the budget and nobody knew or cared?
O.K., the federal budget hasn’t actually been balanced. But the Congressional Budget Office has tallied up the totals for fiscal 2014..., and reports that the deficit plunge of the past several years continues. ...
So where are the ticker-tape parades? For that matter, where are the front-page news reports? After all, talk about the evils of deficits and the grave fiscal danger facing America dominated Washington for years. Shouldn’t we be making a big deal of the fact that the alleged crisis is over?
Well, we aren’t, and once you understand why, you also understand what fiscal hysteria was really about.
First, ordinary Americans aren’t celebrating the deficit’s decline because they don’t know about it. That’s not mere speculation...
Why doesn’t the public know better? Probably because of the way much of the news media report this and other issues, with bad news played up and good news downplayed if it’s reported at all.
This has been glaringly obvious in the case of health reform, where every problem ... has been the subject of headlines, while in right-wing media — and to some extent in mainstream news sources — favorable developments go unremarked. As a result, many people — even, in my experience, liberals — have the impression that the rollout of Obamacare has been a disaster, and have no idea that enrollment is above expectations, costs are lower than expected, and the number of Americans without insurance has dropped sharply. Surely something similar has happened on the budget deficit. ...
Deficit scolds actually love big budget deficits, and hate it when those deficits get smaller. Why? Because fears of a fiscal crisis — fears that they feed assiduously — are their best hope of getting what they really want: big cuts in social programs. ...
But isn’t the falling deficit just a short-term blip, with the long-run outlook as dire as ever? Actually, no..., there has ... been a dramatic slowdown in the growth of health spending — and if that continues, the long-run fiscal outlook is much better than anyone thought possible not long ago. ...
So let’s say goodbye to fiscal hysteria. I know that the deficit scolds are having a hard time letting go; they’re still trying to bring back the days when Bowles and Simpson bestrode the Beltway like colossi. But those days aren’t coming back, and we should be glad.

Thursday, October 09, 2014

'Do We Need a Crisis to Reduce the Deficit?'

Simon Wren-Lewis:

Do we need a crisis to reduce the deficit?: The macroeconomic case for not cutting the deficit straight after a major recession is as watertight as these things get, at least outside of the Eurozone. (It is also true for the Eurozone, but just a bit more complicated, so its easier to just focus on the US and UK in this post.) If you want to bring the government deficit and debt down, you do so when interest rates are free to counter the impact on aggregate demand. As the problems of high government debt are long term there is no urgency for debt reduction, so the problem can wait. The costs of fiscal consolidation in a liquidity trap are large and immediate, as we have experienced to our cost.
Sometimes austerity proponents will admit this basic macroeconomic truth, but say that it ignores the politics. Politics means that it is very difficult for governments to reduce debt during booms, they say. Although it would be nice to wait for interest rates to rise before cutting the deficit, it will not happen if we do, so we have to cut now. Like all good myths, this is based on a half truth: in the 30 years before the recession, debt tended to rise as a share of GDP in most OECD countries. And it always sounds wise to say you cannot trust politicians.
However both the UK and US show that this is not some kind of iron law of politics. ...

Monday, October 06, 2014

'Is Keynesian Economics Left Wing?'

A small part of a much longer argument/post by Simon Wren-Lewis:

More asymmetries: Is Keynesian economics left wing?: ...So why is there this desire to deny the importance of Keynesian theory coming from the political right? Perhaps it is precisely because monetary policy is necessary to ensure aggregate demand is neither excessive nor deficient. Monetary policy is state intervention: by setting a market price, an arm of the state ensures the macroeconomy works. When this particular procedure fails to work, in a liquidity trap for example, state intervention of another kind is required (fiscal policy). While these statements are self-evident to many mainstream economists, to someone of a neoliberal or ordoliberal persuasion they are discomforting. At the macroeconomic level, things only work well because of state intervention. This was so discomforting that New Classical economists attempted to create an alternative theory of business cycles where booms and recessions were nothing to be concerned about, but just the optimal response of agents to exogenous shocks.
So my argument is that Keynesian theory is not left wing, because it is not about market failure - it is just about how the macroeconomy works. On the other hand anti-Keynesian views are often politically motivated, because the pivotal role the state plays in managing the macroeconomy does not fit the ideology. ...

Paul Krugman: Voodoo Economics, the Next Generation

Will Republicans "destroy the credibility of a very important institution"?:

Voodoo Economics, the Next Generation, by Paul Krugman, Commentary, NY Times: Even if Republicans take the Senate this year, gaining control of both houses of Congress, they won’t gain much in conventional terms: They’re already able to block legislation, and they still won’t be able to pass anything over the president’s veto. One thing they will be able to do, however, is impose their will on the Congressional Budget Office, heretofore a nonpartisan referee on policy proposals.
As a result, we may soon find ourselves in deep voodoo.
During his failed bid for the 1980 Republican presidential nomination George H. W. Bush famously described Ronald Reagan’s “supply side” doctrine — the claim that cutting taxes on high incomes would lead to spectacular economic growth, so that tax cuts would pay for themselves — as “voodoo economic policy.” Bush was right. ...
But now it looks as if voodoo is making a comeback. At the state level, Republican governors — and Gov. Sam Brownback of Kansas, in particular — have been going all in on tax cuts despite troubled budgets, with confident assertions that growth will solve all problems. It’s not happening... But the true believers show no sign of wavering.
Meanwhile, in Congress Paul Ryan, the chairman of the House Budget Committee, is dropping broad hints that after the election he and his colleagues will do what the Bushies never did, try to push the budget office into adopting “dynamic scoring,” that is, assuming a big economic payoff from tax cuts.
So why is this happening now? It’s not because voodoo economics has become any more credible. ... In fact,... researchers at the International Monetary Fund, surveying cross-country evidence, have found that redistribution of income from the affluent to the poor, which conservatives insist kills growth, actually seems to boost economies.
But facts won’t stop the voodoo comeback,... for years they have relied on magic asterisks — claims that they will make up for lost revenue by closing loopholes and slashing spending, details to follow. But this dodge has been losing effectiveness as the years go by and the specifics keep not coming. Inevitably, then, they’re feeling the pull of that old black magic — and if they take the Senate, they’ll be able to infuse voodoo into supposedly neutral analysis.
Would they actually do it? It would destroy the credibility of a very important institution, one that has served the country well. But have you seen any evidence that the modern conservative movement cares about such things?

Wednesday, October 01, 2014

The Unemployment Rate is an 'Inadequate Measure of Slack'

Jared Bernstein says there's more slack in the labor market than you'd think from just looking at the unemployment rate:

...So why not just look at the unemployment rate and call it a day? Because special factors in play right now make the jobless rate an inadequate measure of slack. In fact, at 6.1 percent last month, it’s within spitting distance of the rate many economists consider to be consistent with full employment, about 5.5 percent (I think that’s too high, but that’s a different argument).
There are at least two special factors that are distorting the unemployment rate’s signal. First, there are over seven million involuntary part-time workers, almost 5 percent of the labor force, who want, but can’t find, full-time jobs. That’s still up two percentage points from its pre-recession trough. Importantly, the unemployment rate doesn’t capture this dimension of slack at all...
The second special factor masking the extent of slack as measured by unemployment has to do with participation in the labor force. Once you give up looking for work, you’re no longer counted in the unemployment rate, so if a bunch of people exit the labor force because of the very slack we’re trying to measure, it artificially lowers unemployment, making a weak labor market look better.
That’s certainly happened over the recession and throughout the recovery...

There's still plenty of room, and plenty of time for fiscal policymakers to do more to help the unemployed (and with infrastructure, our future economic growth at the same time). Unfortunately, Congress has been captured by other interests. As for monetary policy, let's hope that the FOMC listens to Charles Evans' call for patience. Raising rates too late and risking a temporary outbreak of inflation is far less of a mistake than raising them too early and slowing the recovery of employment. And there's this too: Unemployment Hurts Happiness More Than Modest Inflation.

Monday, September 22, 2014

Paul Krugman: Those Lazy Jobless

Why are conservatives are blaming the victims of the recession despite "evidence and logic" to the contrary?:

Those Lazy Jobless, by Paul Krugman, Commentary, NY Times: Last week John Boehner, the speaker of the House, explained to an audience at the American Enterprise Institute what’s holding back employment in America: laziness. People, he said, have “this idea” that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.” Holy 47 percent, Batman!
It’s hardly the first time a prominent conservative has said something along these lines. Ever since a financial crisis plunged us into recession it has been a nonstop refrain on the right that the unemployed aren’t trying hard enough, that they are taking it easy thanks to generous unemployment benefits, which are constantly characterized as “paying people not to work.” And the urge to blame the victims of a depressed economy has proved impervious to logic and evidence.
But it’s still amazing — and revealing — to hear this line being repeated now. For the blame-the-victim crowd has gotten everything it wanted: Benefits, especially for the long-term unemployed, have been slashed or eliminated. So now we have rants against the bums on welfare when they aren’t bums — they never were — and there’s no welfare. Why? ...
Is it race? That’s always a hypothesis worth considering in American politics. It’s true that most of the unemployed are white, and they make up an even larger share of those receiving unemployment benefits. But conservatives may not know this, treating the unemployed as part of a vaguely defined, dark-skinned crowd of “takers.”
My guess, however, is that it’s mainly about the closed information loop of the modern right. In a nation where the Republican base gets what it thinks are facts from Fox News and Rush Limbaugh, where the party’s elite gets what it imagines to be policy analysis from the American Enterprise Institute or the Heritage Foundation, the right lives in its own intellectual universe, aware of neither the reality of unemployment nor what life is like for the jobless. You might think that personal experience — almost everyone has acquaintances or relatives who can’t find work — would still break through, but apparently not.
Whatever the explanation, Mr. Boehner was clearly saying what he and everyone around him really thinks, what they say to each other when they don’t expect others to hear. Some conservatives have been trying to reinvent their image, professing sympathy for the less fortunate. But what their party really believes is that if you’re poor or unemployed, it’s your own fault.

Sunday, September 21, 2014

'Climate Realities'

Robert Stavins:

Climate Realities: ...It is true that, in theory, we can avoid the worst consequences of climate change with an intensive global effort over the next several decades. But given real-world economic and, in particular, political realities, that seems unlikely..., let’s look at the sobering reality.
The world is now on track to more than double current greenhouse gas concentrations in the atmosphere by the end of the century. This would push up average global temperatures by three to eight degrees Celsius and could mean the disappearance of glaciers, droughts in the mid-to-low latitudes, decreased crop productivity, increased sea levels and flooding, vanishing islands and coastal wetlands, greater storm frequency and intensity, the risk of species extinction and a significant spread of infectious disease.
The United Nations has set a goal of keeping global temperatures from rising by no more than two degrees Celsius above preindustrial levels. ... Meeting this goal would require a worldwide reduction in greenhouse gas emissions of 40 to 70 percent by midcentury, according to the Intergovernmental Panel on Climate Change. That’s an immense challenge. ...
Of course, the political climate in the United States presents its own challenges. It will require immense effort — and profound good fortune — to find political openings that can resolve the debilitating partisan divide on climate change. But if destructive politics have been at the heart of the problem, the best hope may be that creative politics and leadership can help provide a solution.

He also talks about the cost of climate change (saying it will be large), as do Peter Dorman  (in response to Paul Krugman) and John Quiggin. See also Scientists Report Global Rise in Greenhouse Gas Emissions.

Friday, September 19, 2014

'The Political Economy of a Universal Basic Income'

Since I posted the original, it's only fair to post the response:

The political economy of a universal basic income, by Steve Waldman, Interfluidity: So you should read these two posts by Max Sawicky on proposals for a universal basic income, because you should read everything Max Sawicky writes. (Oh wait. Two more!) Sawicky is a guy I often agree with, but he is my mirror Spock on this issue. I think he is 180° wrong on almost every point. ...

Paul Krugman: Errors and Emissions

Don't pay any attention to "the prophets of climate despair":

Errors and Emissions, by Paul Krugman, Commentary, NY Times: This just in: Saving the planet would be cheap; it might even be free. But will anyone believe the good news?
I’ve just been reading two new reports on the economics of fighting climate change: a big study by a blue-ribbon international group, the New Climate Economy Project, and a working paper from the International Monetary Fund. Both claim that strong measures to limit carbon emissions would have hardly any negative effect on economic growth, and might actually lead to faster growth. This may sound too good to be true, but it isn’t. These are serious, careful analyses. ...
Enter the prophets of climate despair, who wave away all this analysis and declare that the only way to limit carbon emissions is to bring an end to economic growth.
You mostly hear this from people on the right, who normally say that free-market economies are endlessly flexible and creative. But when you propose putting a price on carbon, suddenly they insist that industry will be completely incapable of adapting to changed incentives. Why, it’s almost as if they’re looking for excuses to avoid confronting climate change, and, in particular, to avoid anything that hurts fossil-fuel interests, no matter how beneficial to everyone else.
But climate despair produces some odd bedfellows: Koch-fueled insistence that emission limits would kill economic growth is echoed by some who see this as an argument not against climate action, but against growth. ... To be fair, anti-growth environmentalism is a marginal position even on the left, but it’s widespread enough to call out nonetheless.
And you sometimes see hard scientists making arguments along the same lines, largely (I think) because they don’t understand what economic growth means. They think of it as a crude, physical thing, a matter simply of producing more stuff, and don’t take into account the many choices — about what to consume, about which technologies to use — that go into producing a dollar’s worth of G.D.P.
So here’s what you need to know: Climate despair is all wrong. The idea that economic growth and climate action are incompatible may sound hardheaded and realistic, but it’s actually a fuzzy-minded misconception. If we ever get past the special interests and ideology that have blocked action to save the planet, we’ll find that it’s cheaper and easier than almost anyone imagines.

Friday, September 05, 2014

Paul Krugman: The Deflation Caucus

Why is there so much fear of inflation, particularly on the political right?:

The Deflation Caucus, by Paul Krugman, Commentary, NY Times: On Thursday, the European Central Bank announced a series of new steps it was taking in an effort to boost Europe’s economy. ... But its epiphany may have come too late. It’s far from clear that the measures now on the table will be strong enough to reverse the downward spiral.
And there but for the grace of Bernanke go we. Things ... are far from O.K., but we seem ... to have steered clear of the kind of trap facing Europe. Why? One answer is that the Federal Reserve started doing the right thing years ago, buying trillions of dollars’ worth of bonds in order to avoid the situation its European counterpart now faces.
You can argue ... the Fed should have done even more. But Fed officials have faced fierce attacks... Pundits, politicians and plutocrats have accused them, over and over again, of “debasing” the dollar, and warned that soaring inflation is just around the corner..., but despite being wrong year after year, hardly any of the critics have admitted being wrong, or even changed their tune. And the question I’ve been trying to answer is why. What ... makes a powerful faction in our body politic — ...the deflation caucus — demand tight money even in a depressed, low-inflation economy? ...
One answer is ... truthiness — Stephen Colbert’s justly famed term for things that aren’t true, but feel true to some people. “The Fed is printing money, printing money leads to inflation, and inflation is always a bad thing” is a triply untrue statement, but it feels true to a lot of people. ...
Another answer is class interest. Inflation helps debtors and hurts creditors, deflation does the reverse. And the wealthy are much more likely than workers and the poor to be creditors... So perceived class interest is probably also a key motivation for the deflation caucus. ...
And the important thing to understand is that the dominance of creditor interests on both sides of the Atlantic, supported by false but viscerally appealing economic doctrines, has had tragic consequences. Our economies have been dragged down by the woes of debtors, who have been forced to slash spending. To avoid a deep, prolonged slump, we needed policies to offset this drag. What we got instead was an obsession with the evils of budget deficits and paranoia over inflation — and a slump that has gone on and on.

Thursday, September 04, 2014

'The US Economy Performs Better Under Democratic Presidents. Why?'

In case you missed this research from Blinder and Watson:

The US economy performs better under Democratic presidents. Why?, by Alan S. Blinder, Mark Watson: Economists and political scientists – not to mention the political commentariat – have devoted a huge amount of attention to the well-established fact that faster economic growth helps re-elect the incumbent party (see, for example, Fair 2011 for the US). But what about causation in the opposite direction – from election outcomes to economic performance? It turns out that the US economy grows faster – indeed, performs better by almost every metric – when a Democratic president occupies the White House.
This partisan gap has barely been noticed by researchers, but it is wide.1 Since the end of World War II, there have been 16 complete four-year presidential terms - seven Democratic and nine Republican. Growth of real GDP averaged 4.35% per annum under the Democratic presidents but only 2.54% under the Republicans. That partisan growth gap of 1.8 percentage points is large by any standard - it implies that real GDP grew by 18.6% during a typical Democratic four-year term, but only by 10.6% during a typical Republican term - and it is statistically significant despite the relative paucity of data.2 In fact, as Figure 1 shows, growth has always slowed down when a Republican president replaced a Democrat and always sped up when a Democrat replaced a Republican. There are no exceptions.3
Similar partisan gaps favouring Democrats – some larger, some smaller, and not always significant – appear in almost any macroeconomic indicator you can think of: the incidence of NBER recessions, employment growth, business investment growth, stock market returns, the profit share of GDP, and so on.

Figure 1. Average annualised GDP growth, by presidential term

The data hold more surprises. Here are a few:

  1. Even though the US Constitution assigns power over the budget (and most other economic powers) to Congress, not to the president, there is no difference in growth rates depending on which party controls Congress. It’s the presidency that matters.
  2. The Democratic growth advantage is concentrated in the first two years of a presidency, especially the first, even though Republicans bequeath much slower-growing economies to Democrats and US GDP growth is positively serially correlated (ρ ≈ 0.40 in quarterly data).
  3. As indicated both by time series models and by genuine ex ante forecasts, Democrats do not inherit economies that are poised for more rapid growth. Granger-causality runs from party-to-growth not from growth-to-party.

Trying to explain the partisan growth gap

Confronted with such stark partisan differences, a macroeconomist naturally wonders whether the explanation could be that fiscal policy was, on average, more expansionary under Democrats. We assess this possibility in a variety of ways and come up with the same answer: no. What about monetary policy, despite the Federal Reserve’s vaunted independence from politics? The answer here is that, if anything, monetary policy was more pro-growth under Republican presidents.4

If the partisan gap cannot be explained by differential monetary and fiscal policy, what does explain it? And do these explanatory factors suggest it was good luck or good policy? We searched over a wide variety of factors, mostly entered in the form of econometric ‘shocks’, that is, as residuals from regressions that include the variable’s own lags and the current and lagged values of GDP growth. Four showed econometric promise:5

  1. Oil price shocks;
  2. Total factor productivity (TFP) shocks, adjusted to remove cyclical influences;
  3. Foreign (that is, European) growth shocks;
  4. Shocks to consumer expectations of future economic conditions.

In addition, defence spending shocks mattered in samples that include the Korean War, but not much in samples that do not. Using all five of these variables enables us to explain about half of the partisan gap in GDP growth rates since 1947.

As we peruse the list of explanatory variables, the first (oil shocks) looks to be mainly good luck, although US foreign policy (rather than economic policy) certainly played a role. (Think about George W Bush’s invasion of Iraq, for example.) The second variable (TFP) should in principle measure improvements in technology – and so be mostly driven by luck. But a wide variety of economic policies, ranging from R&D spending to regulation and much else, might influence TFP in multiple, subtle ways. And TFP shocks affect the economy with long lags, so that a portion of the TFP-induced strong growth for Democrats was inherited from previous administrations. The third (real growth in Europe) should not have much to do with US economic policies. And when you couple the fourth variable (consumer expectations) with the observed fact that spending on consumer durables grows much faster under Democrats, you get a tantalising suggestion of a self-fulfilling prophecy – consumers, expecting faster growth under Democratic presidents, buy more durable goods on that belief, which makes the economy grow faster. Did they know something economists didn’t?6

These findings raise a host of questions. Among them:

  • Is the basic finding limited to post-World War II data?

We think not. We found a similar (though smaller) partisan growth gap in US data going all the way back to 1875. But the 1875–1947 data are dominated by the administration of Franklin D Roosevelt, during which real GDP grew at a heady 7.4% annual rate.

  • Are there similar partisan gaps in other countries?

We looked briefly at four other large democracies with stable two-party systems: Canada, the UK, France, and Germany. The Canadian data display a similar (though not quite as large) GDP growth gap in favour of Liberal over Conservative prime ministers. But that is not true in any of the three European countries.

Our best econometric efforts explained little more than half of the Democratic growth gap - our ‘glass’ wound up literally half full and half empty. What factors explain the rest? Hopefully, further research will cast some light on that question.

References

Alberto Alesina and Jeffrey Sachs (1988), “Political Parties and the Business Cycle in the United States, 1948–1984”, Journal of Money, Credit, and Banking, 20(1): 63–82.

Larry M Bartels (2008), Unequal Democracy: The Political Economy of the New Gilded Age, New York: Russell Sage Foundation, and Princeton, NJ: Princeton University Press.

Alan S Blinder and Mark W Watson (2014), “Presidents and the U.S. Economy: An Econometric Exploration”, NBER Working Paper 20324, July. 

Michael Comiskey and Lawrence C Marsh (2012), “Presidents, Parties, and the Business Cycle, 1949–2009”, Presidential Studies Quarterly, 42(1): 40–59.

Ray C Fair (2011), Predicting Presidential Elections and Other Things, Second Edition, Stanford, CA: Stanford University Press.

Endnotes

1 Alesina and Sachs (1988), Bartels (2008, Chapter 2), and Comiskey and Marsh (2012) are a few exceptions. There are not many.

2 In Blinder and Watson (2014), we compute standard errors in a variety of ways and find that the partisan gap is statistically significant at roughly a 1% significance level.

3 But the Carter-to-Reagan transition exhibits only a small slowdown.

4 This is true even though growth was decidedly faster under Fed chairmen who were first appointed by Democrats.

5 We omit from this list factors that we found help explain why Republican presidents should have shown a growth advantage.

6 The partisan growth gap does not rely on recent data. In fact, the estimate generally increases as we shorten the sample by eliminating more recent data.

Monday, August 18, 2014

Paul Krugman: Why We Fight

Why do wars still exist?

Why We Fight, y Paul Krugman, Commentary, NY Times: A century has passed since the start of World War I, which many people at the time declared was “the war to end all wars.” Unfortunately, wars just kept happening. And with the headlines from Ukraine getting scarier by the day, this seems like a good time to ask why.
Once upon a time wars were fought for fun and profit; when Rome overran Asia Minor or Spain conquered Peru, it was all about the gold and silver. And that kind of thing still happens. ...
If you’re a modern, wealthy nation, however, war — even easy, victorious war — doesn’t pay. And this has been true for a long time. ... Modern nations can’t enrich themselves by waging war. Yet wars keep happening. Why?
One answer is that leaders may not understand the arithmetic.... It’s only a guess, but it seems likely that Vladimir Putin thought that he could overthrow Ukraine’s government, or at least seize a large chunk of its territory, on the cheap — a bit of deniable aid to the rebels, and it would fall into his lap.
And for that matter, remember when the Bush administration predicted that overthrowing Saddam and installing a new government would cost only $50 billion or $60 billion?
The larger problem, however, is that governments all too often gain politically from war, even if the war in question makes no sense in terms of national interests. ...
And the fact is that nations almost always rally around their leaders in times of war, no matter how foolish the war... Argentina’s junta briefly became extremely popular during the Falklands War. For a time, the “war on terror” took President George W. Bush’s approval to dizzying heights, and Iraq probably won him the 2004 election. True to form, Mr. Putin’s approval ratings have soared since the Ukraine crisis began. ...
Most immediately, we have to worry about escalation in Ukraine. All-out war would be hugely against Russia’s interests — but Mr. Putin may feel that letting the rebellion collapse would be an unacceptable loss of face.
And if authoritarian regimes without deep legitimacy are tempted to rattle sabers when they can no longer deliver good performance, think about the incentives China’s rulers will face if and when that nation’s economic miracle comes to an end — something many economists believe will happen soon.
Starting a war is a very bad idea. But it keeps happening anyway.

Friday, August 08, 2014

'On Reaganolatry'

"It just isn't so":

On Reaganolatry, by Paul Krugman: The truly vile attack on Rick Perlstein’s new book has been revealing in a number of ways. ...
And why this determination to quash Perlstein? It’s all about Reaganolatry, the right’s need to see the man as perfect. ... Everyone on the right knows that Reagan presided over job creation on a scale never seen before or since; but it just isn’t so. In fact, if you look at monthly rates of job creation for the past six administrations, it’s actually startling:

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You may have known that Clinton was a better “job creator” than Reagan, but did you know that over the course of the Carter administration — January 1977 to January 1981 — the economy actually added jobs faster than it did under Reagan? Maybe you want to claim that the 1981-82 recession was Carter’s fault (although actually it was the Fed’s doing), so that you start counting from almost two years into Reagan’s term; but in that case why not give Obama the same courtesy? The general point is that the supposed awesomeness of Reagan’s economic record just doesn’t pop out of the data.
But don’t expect the Reaganlators to acknowledge that. Their whole sense of identity is bound up with their faith.

Tuesday, August 05, 2014

'Republican Craziness Is Undermining the South’s Massive Keynesian Stimulus'

Ha:

Someone needs to tell Republicans that you’re not actually supposed to govern according to the rhetoric used to gull the rubes.

More here.

Monday, July 28, 2014

'Presidents and the U.S. Economy: An Econometric Exploration'

Alan Blinder and Mark Watson:

Presidents and the U.S. Economy: An Econometric Exploration, by Alan S. Blinder and Mark W. Watson, NBER Working Paper No. 20324 [open link]: The U.S. economy has grown faster—and scored higher on many other macroeconomic metrics—when the President of the United States is a Democrat rather than a Republican. For many measures, including real GDP growth (on which we concentrate), the performance gap is both large and statistically significant, despite the fact that postwar history includes only 16 complete presidential terms. This paper asks why. The answer is not found in technical time series matters (such as differential trends or mean reversion), nor in systematically more expansionary monetary or fiscal policy under Democrats. Rather, it appears that the Democratic edge stems mainly from more benign oil shocks, superior TFP performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future. Many other potential explanations are examined but fail to explain the partisan growth gap.

Paul Krugman: Corporate Artful Dodgers

Congress should do something about "ever-more-aggressive corporate tax avoidance":

Corporate Artful Dodgers, by Paul Krugman, Commentary, NY Times: In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. ...
There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.
We’re not quite there yet: The federal government still gets a tenth of its revenue from corporate profits taxation. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s... Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.
Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.
The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” ... All they’re doing is dodging taxes on those profits.
And Congress could crack down on this tax dodge...
Opponents of a crackdown on inversion typically argue that instead of closing loopholes we should reform the whole system by which we tax profits, and maybe stop taxing profits altogether. They also tend to argue that taxing corporate profits hurts investment and job creation. But these are very bad arguments against ending the practice of inversion. ...
As for reforming the system: Yes, that would be a good idea. But..., there are big debates about the shape of reform, debates that would take years to resolve... Why let corporations avoid paying their fair share for years, while we wait for the logjam to break?
Finally, none of this has anything to do with investment and job creation. If and when Walgreen changes its “citizenship,” it will get to keep more of its profits — but it will have no incentive to invest those extra profits in its U.S. operations.
So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.

Saturday, July 26, 2014

'Are the Rich Coldhearted?'

Why are so many of the rich and powerful so callous and indifferent to the struggles of those who aren't so fortunate?:

Are the Rich Coldhearted?, by Michael Inzlicht and Sukhvinder Obhi, NY Times: ... Can people in high positions of power — presidents, bosses, celebrities, even dominant spouses — easily empathize with those beneath them?
Psychological research suggests the answer is no. ...
Why does power leave people seemingly coldhearted? Some, like the Princeton psychologist Susan Fiske, have suggested that powerful people don’t attend well to others around them because they don’t need them in order to access important resources; as powerful people, they already have plentiful access to those.
We suggest a different, albeit complementary, reason from cognitive neuroscience. On the basis of a study we recently published with the researcher Jeremy Hogeveen, in the Journal of Experimental Psychology: General, we contend that when people experience power, their brains fundamentally change how sensitive they are to the actions of others. ...
Does this mean that the powerful are heartless beings incapable of empathy? Hardly..., the bad news is that the powerful are, by default and at a neurological level, simply not motivated to care. But the good news is that they are, in theory, redeemable.

Friday, July 25, 2014

'Devolution Number Nine'

In case you missed this in today's links, it's worth noting explicitly:

Devolution Number Nine, by MaxSpeak: Rep. Paul Ryan (R-Crazy) has a new plan to fight poverty..., the common theme throughout the report is to convert Federal programs into block grants. A block grant is a fixed pot of money provided to a state or local government for broadly-defined purposes. Ryan’s report is at pains to assert that the conversion would not entail spending cuts. This could not be further from the truth.
The story goes back to the days of Richard Nixon. I told it here. ... The short version is that a program or programs converted to a block grant is being set up to wither away. Block grants are designed through formulas to grow slowly or not at all, despite the likelihood that whatever the included programs were aimed at typically costs more to deal with every year. There are also two malignant political dynamics at work. One is that ... block grants transfer control to state governments. They have the fun of spending the money, Congress has the fun of raising the taxes to pay for it. The other is that the more vague — “flexible” — the purposes of the grant, the less focused is its political support. ...
The transfer of program responsibility from the Federal government to the states is known as devolution. It is the standard way of attacking domestic spending for social purposes, going back to Richard Nixon’s dismantling of the original, more interesting War on Poverty launched by Lyndon Johnson. ...

Paul Krugman: Left Coast Rising

Beware of "anti-government propaganda":

Left Coast Rising, by Paul Krugman, Commentary, NY Times: The states, Justice Brandeis famously pointed out, are the laboratories of democracy. And it’s still true. For example, one reason we knew or should have known that Obamacare was workable was the post-2006 success of Romneycare in Massachusetts. More recently, Kansas went all-in on supply-side economics, slashing taxes on the affluent in the belief that this would spark a huge boom; the boom didn’t happen, but the budget deficit exploded, offering an object lesson to those willing to learn from experience.
And there’s an even bigger if less drastic experiment under way in the opposite direction. California has long suffered from political paralysis, with budget rules that allowed an increasingly extreme Republican minority to hamstring a Democratic majority; when the state’s housing bubble burst, it plunged into fiscal crisis. In 2012, however, Democratic dominance finally became strong enough to overcome the paralysis, and Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare.
I guess we’re not in Kansas anymore. (Sorry, I couldn’t help myself.)
Needless to say, conservatives predicted doom. A representative reaction: Daniel J. Mitchell of the Cato Institute declared that by voting for Proposition 30, which authorized those tax increases, “the looters and moochers of the Golden State” (yes, they really do think they’re living in an Ayn Rand novel) were committing “economic suicide.” ...
What has actually happened? There is ... no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent...
And, yes, the budget is back in surplus.
Has there been any soul-searching among the prophets of California doom, asking why they were so wrong? Not that I’m aware of. ...
So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need. Government programs, like Obamacare, can work if the people running them want them to work, and if they aren’t sabotaged from the right. In other words, California’s success is a demonstration that the extremist ideology still dominating much of American politics is nonsense.

Monday, July 21, 2014

'Truth or Consequences: Ponzi Schemes and Other Frauds'

Cecchetti & Schoenholtz:

... A well-functioning financial system is based on trust. Widespread belief in honesty and integrity are essential for intermediation. That is, when we make a bank deposit, purchase a share of stock or a bond, we need to believe that terms of the agreement are being accurately represented. Yes, the value of the stock can go up and down, but when you think you buy an equity share, you really do own it. Fraud can undermine confidence, and the result will be less saving, less investment, less wealth and less income.
Unfortunately, in a complex financial system, the possibilities for fraud are numerous and the incidence frequent. Most cases are smaller and more mundane than Madoff or Ponzi. But they are remarkably common even today, despite enormous public efforts to prevent or expose them. One website devoted to tracking financial frauds in the United States lists 67 Ponzi schemes worth an estimated $3 billion in 2013 alone. ...

See also: Four years after passage, House keeps trying to kill Dodd-Frank.

Friday, July 18, 2014

Paul Krugman: Addicted to Inflation

What does "inflation addiction" tell us?:

Addicted to Inflation, by Paul Krugman, Commentary, NY Times: The first step toward recovery is admitting that you have a problem. That goes for political movements as well as individuals. So I have some advice for so-called reform conservatives trying to rebuild the intellectual vitality of the right: You need to start by facing up to the fact that your movement is in the grip of some uncontrollable urges. In particular, it’s addicted to inflation — not the thing itself, but the claim that runaway inflation is either happening or about to happen. ...
Yet despite being consistently wrong for more than five years,... at best, the inflation-is-coming crowd admits that it hasn’t happened yet, but attributes the delay to unforeseeable circumstances. ... At worst, inflationistas resort to conspiracy theories: Inflation is already high, but the government is covering it up. The ... inflation conspiracy theorists have faced well-deserved ridicule even from fellow conservatives. Yet the conspiracy theory keeps resurfacing. It has, predictably, been rolled out to defend Mr. Santelli.
All of this is very frustrating to those reform conservatives. If you ask what new ideas they have to offer, they often mention “market monetarism,” which translates under current circumstances to the notion that the Fed should be doing more, not less. ... But this idea has achieved no traction at all with the rest of American conservatism, which is still obsessed with the phantom menace of runaway inflation.
And the roots of inflation addiction run deep. Reformers like to minimize the influence of libertarian fantasies — fantasies that invariably involve the notion that inflationary disaster looms unless we return to gold — on today’s conservative leaders. But to do that, you have to dismiss what these leaders have actually said. ...
More generally, modern American conservatism is deeply opposed to any form of government activism, and while monetary policy is sometimes treated as a technocratic affair, the truth is that printing dollars to fight a slump, or even to stabilize some broader definition of the money supply, is indeed an activist policy.
The point, then, is that inflation addiction is telling us something about the intellectual state of one side of our great national divide. The right’s obsessive focus on a problem we don’t have, its refusal to reconsider its premises despite overwhelming practical failure, tells you that we aren’t actually having any kind of rational debate. And that, in turn, bodes ill not just for would-be reformers, but for the nation.

Monday, July 14, 2014

Paul Krugman: Obamacare Fails to Fail

Why don't we hear more about the success of Obamacare?:

Obamacare Fails to Fail, by Paul Krugman, Commentary, NY Times: How many Americans know how health reform is going? For that matter, how many people in the news media are following the positive developments?
I suspect that the answer to the first question is “Not many,” while the answer to the second is “Possibly even fewer”... And if I’m right, it’s a remarkable thing — an immense policy success is improving the lives of millions of Americans, but it’s largely slipping under the radar.
How is that possible? Think relentless negativity without accountability. The Affordable Care Act has faced nonstop attacks from partisans and right-wing media, with mainstream news also tending to harp on the act’s troubles. Many of the attacks have involved predictions of disaster, none of which have come true. But absence of disaster doesn’t make a compelling headline, and the people who falsely predicted doom just keep coming back with dire new warnings. ...
Yes, there are losers from Obamacare. If you’re young, healthy, and affluent enough that you don’t qualify for a subsidy (and don’t get insurance from your employer), your premium probably did rise. And if you’re rich enough to pay the extra taxes that finance those subsidies, you have taken a financial hit. But it’s telling that even reform’s opponents aren’t trying to highlight these stories. Instead, they keep looking for older, sicker, middle-class victims, and keep failing to find them.
Oh,... the overwhelming majority of the newly insured, including 74 percent of Republicans, are satisfied with their coverage.
You might ask why, if health reform is going so well, it continues to poll badly. It’s crucial ... to realize that Obamacare, by design, by and large doesn’t affect Americans who already have good insurance. As a result, many peoples’ views are shaped by the mainly negative coverage in the news... Still, the latest tracking survey from the Kaiser Family Foundation shows that a rising number of Americans are hearing about reform from family and friends, which means that they’re starting to hear from the program’s beneficiaries.
And as I suggested earlier, people in the media — especially elite pundits — may be the last to hear the good news, simply because they’re in a socioeconomic bracket in which people generally have good coverage.
For the less fortunate, however, the Affordable Care Act has already made a big positive difference. The usual suspects will keep crying failure, but the truth is that health reform is — gasp! — working.

Monday, July 07, 2014

'The Myth of America’s Golden Age'

Joe Stiglitz:

...the American dream—the notion that we are living in the land of opportunity—is a myth. The life chances of a young American today are more dependent on the income and education of his parents than in many other advanced countries, including “old Europe.”...
Today, inequality is growing dramatically..., and the past three decades or so have proved conclusively that one of the major culprits is trickle-down economics... But it has taken us far too long as a country to understand this danger. ...
Only with a vibrant middle class can the economy fully recover and grow faster. The more inequality, the slower the growth—a conclusion now endorsed even by the IMF. ...
None of this is the outcome of inexorable economic forces, either; it’s the result of policies and politics... If our politics leads to preferential taxation of those who earn income from capital; to an education system in which the children of the rich have access to the best schools, but the children of the poor go to mediocre ones; to exclusive access by the wealthy to talented tax lawyers and offshore banking centers to avoid paying a fair share of taxes—then it is not surprising that there will be a high level of inequality and a low level of opportunity. And that these conditions will grow even worse.
And now it’s also clear that ... the richer you are, the more you are able to influence the political process and the economic decisions that stem from it, and to rig it all in favor of the 1 percent. Is it any wonder the rich keep getting richer?

Friday, July 04, 2014

'Freedoms Can Be Lost'

I would be interested in seeing a discussion in comments about all of the ways in which our freedom and liberty has been curtailed in recent years. It is prompted by this commentary in the local paper:

Between your picnicking and fireworking, today would be a good day to contemplate how freedom can be taken from a nation.
While we’re being horrified by brutal dictators far away, we must remember there’s another way freedoms can be lost — by persuasion. If people become convinced they need protection, they will sacrifice their freedoms. ...

It seems to me that the examples given can be improved upon. For example, the NSA isn't even mentioned. What would your list include?

Paul Krugman: Build We Won’t

Why has public investment collapsed?:

Build We Won’t, by Paul Krugman, Commentary, NY Times: You often find people talking about our economic difficulties as if they were complicated and mysterious, with no obvious solution. ... The basic story of what went wrong is, in fact, almost absurdly simple: We had an immense housing bubble, and, when the bubble burst, it left a huge hole in spending. Everything else is footnotes.
And the appropriate policy response was simple, too: Fill that hole in demand. In particular, the aftermath of the bursting bubble was (and still is) a very good time to invest in infrastructure. ... Since 2008,... our economy has been awash in unemployed workers ... and capital with no place to go (which is why government borrowing costs are at historic lows). Putting those idle resources to work building useful stuff should have been a no-brainer.
But what actually happened was exactly the opposite: an unprecedented plunge in infrastructure spending. ... In policy terms, this represents an almost surreally awful wrong turn; we’ve managed to weaken the economy in the short run even as we undermine its prospects for the long run. Well played!
And it’s about to get even worse. The federal highway trust fund ... is almost exhausted. Unless Congress agrees to top up the fund..., road work all across the country will have to be scaled back just a few weeks from now. If this were to happen, it would quickly cost us hundreds of thousands of jobs, which might derail the employment recovery that finally seems to be gaining steam. And it would also reduce long-run economic potential.
How did things go so wrong? As with so many of our problems, the answer is the combined effect of rigid ideology and scorched-earth political tactics. The highway fund crisis is just one example of a much broader problem. ... The collapse of public investment was ... a political choice.
What’s useful about the looming highway crisis is that it illustrates just how self-destructive that political choice has become. It’s one thing to block green investment, or high-speed rail, or even school construction. I’m for such things, but many on the right aren’t. But everyone from progressive think tanks to the United States Chamber of Commerce thinks we need good roads. Yet the combination of anti-tax ideology and deficit hysteria (itself mostly whipped up in an attempt to bully President Obama into spending cuts) means that we’re letting our highways, and our future, erode away.

Tuesday, July 01, 2014

Are Calls for Income Redistribution Based on Envy or Justice?

New column:

Are Calls for Income Redistribution Based on Envy or Justice?: The redistribution of income and wealth has come to the forefront of discussions about economics and capitalist systems thanks to Thomas Piketty’s book Capital in the Twenty-First Century. Is rising inequality an inevitable feature of capitalist systems, or is it the result of the particular institutions that shape how capitalism expresses itself? What, if anything, should be done to reverse the trend toward rising inequality?
The answer depends upon whether the calls for redistribution are based upon envy as the political right often asserts, or the desire for the justice...

Monday, June 30, 2014

Paul Krugman: Charlatans, Cranks and Kansas

"The enduring power of bad ideas":

Charlatans, Cranks and Kansas, by Paul Krugman, Commentary, NY Times: Two years ago Kansas embarked on a remarkable fiscal experiment: It sharply slashed income taxes without any clear idea of what would replace the lost revenue. Sam Brownback, the governor, proposed the legislation — in percentage terms, the largest tax cut in one year any state has ever enacted — in close consultation with the economist Arthur Laffer. And Mr. Brownback predicted that the cuts would jump-start an economic boom...
But Kansas isn’t booming — in fact, its economy is lagging both neighboring states and America as a whole. Meanwhile, the state’s budget has plunged deep into deficit, provoking a Moody’s downgrade of its debt.
There’s an important lesson here — but it’s not what you think. Yes, the Kansas debacle shows that tax cuts don’t have magical powers, but we already knew that. The real lesson from Kansas is the enduring power of bad ideas, as long as those ideas serve the interests of the right people. ...
For the Brownback tax cuts didn’t emerge out of thin air. They closely followed a blueprint laid out by the American Legislative Exchange Council, or ALEC, which has also supported a series of economic studies purporting to show that tax cuts for corporations and the wealthy will promote rapid economic growth. The studies are embarrassingly bad, and the council’s Board of Scholars — which includes both Mr. Laffer and Stephen Moore of the Heritage Foundation — doesn’t exactly shout credibility. ...
And what is ALEC? It’s a secretive group, financed by major corporations, that drafts model legislation for conservative state-level politicians.... And most of ALEC’s efforts are directed, not surprisingly, at privatization, deregulation, and tax cuts for corporations and the wealthy.
And I do mean for the wealthy. ...ALEC supports ... cutting taxes at the top while actually increasing taxes at the bottom, as well as cutting social services.
But how can you justify enriching the already wealthy while making life harder for those struggling to get by? The answer is, you need an economic theory claiming that such a policy is the key to prosperity for all. So supply-side economics fills a need backed by lots of money, and the fact that it keeps failing doesn’t matter.
And the Kansas debacle won’t matter either. Oh, it will briefly give states considering similar policies pause. But the effect won’t last long, because faith in tax-cut magic isn’t about evidence; it’s about finding reasons to give powerful interests what they want.

Friday, June 27, 2014

Paul Krugman: The Incompetence Dogma

Why heve predictions from "the enemies of health reform" been so wrong?:

The Incompetence Dogma, by Paul Krugman, Commentary, NY Times: Have you been following the news about Obamacare? The Affordable Care Act has receded from the front page, but information about how it’s going keeps coming in — and almost all the news is good. Indeed, health reform has been on a roll ever since March, when it became clear that enrollment would surpass expectations despite the teething problems of the federal website.
What’s interesting about this success story is that it has been accompanied at every step by cries of impending disaster. At this point, by my reckoning, the enemies of health reform are 0 for 6. That is, they made at least six distinct predictions about how Obamacare would fail — every one of which turned out to be wrong.
“To err is human,” wrote Seneca. “To persist is diabolical.” Everyone makes incorrect predictions. But to be that consistently, grossly wrong takes special effort. So what’s this all about?
Many readers won’t be surprised by the answer:... a dogmatic belief in public-sector incompetence — is now a central part of American conservatism, and the incompetence dogma has evidently made rational analysis of policy issues impossible.
It wasn’t always thus. If you go back two decades, to the last great fight over health reform, conservatives seem to have been relatively clearheaded about the policy prospects, albeit deeply cynical. ...
But that was before conservatives had fully retreated into their own intellectual universe. Fox News didn’t exist yet; policy analysts at right-wing think tanks had often begun their careers in relatively nonpolitical jobs. It was still possible to entertain the notion that reality wasn’t what you wanted it to be.
It’s different now. It’s hard to think of anyone on the American right who even considered the possibility that Obamacare might work, or at any rate who was willing to admit that possibility in public. Instead, even the supposed experts kept peddling improbable tales of looming disaster...
And let’s be clear: While it has been funny watching the right-wing cling to its delusions about health reform, it’s also scary. After all, these people retain considerable ability to engage in policy mischief, and one of these days they may regain the White House. And you really, really don’t want people who reject facts they don’t like in that position. I mean, they might do unthinkable things, like starting a war for no good reason. Oh, wait.

Monday, June 23, 2014

'Political Polarization and Income Inequality in the United States'

From the Liberty Street Economics blog at the NY Fed:

The Capitol Since the Nineteenth Century: Political Polarization and Income Inequality in the United States, by Rajashri Chakrabarti and Matt Mazewski, Liberty Street Economics: Even the most casual observer of American politics knows that today’s Republican and Democratic parties seem to disagree with one another on just about every issue under the sun. Some assume that this divide is merely an inevitable feature of a two-party system, while others reminisce about a golden era of bipartisan cooperation and hold out hope that a spirit of compromise might one day return to Washington. In this post, we present evidence that political polarization—or the trend toward more ideologically distinct and internally homogeneous parties—is not a recent development in the United States, although it has reached unprecedented levels in the last several years. We also show that polarization is strongly correlated with the extent of income inequality, but only weakly associated with the rate of economic growth. We offer several tentative explanations for these relationships, and discuss whether all forms of polarization are created equal. ...

Paul Krugman: The Big Green Test

Are Republicans willing to settle for second best solutions to climate change?:

The Big Green Test, by Paul Krugman, Commentary, NY Times: On Sunday Henry Paulson, the former Treasury secretary and a lifelong Republican, had an Op-Ed article about climate policy... In the article, he declared that man-made climate change is “the challenge of our time,” and called for a national tax on carbon emissions... Considering the prevalence of climate denial within today’s G.O.P., and the absolute opposition to any kind of tax increase, this was a brave stand to take.
But not nearly brave enough. Emissions taxes are the Economics 101 solution to pollution problems... But that isn’t going to happen in the foreseeable future. ... Yet there are a number of second-best things ... that we’re either doing already or might do soon. ... Let me give some examples of what I’m talking about.
First, consider rules like fuel efficiency standards, or “net metering” mandates requiring that utilities buy back the electricity generated by homeowners’ solar panels. Any economics student can tell you that such rules are inefficient compared with the clean incentives provided by an emissions tax. But we don’t have an emissions tax, and fuel efficiency rules and net metering reduce greenhouse gas emissions. So a question for conservative environmentalists: Do you support the continuation of such mandates, or are you with the business groups (spearheaded by the Koch brothers) campaigning to eliminate them and impose fees on home solar installations?
Second, consider government support for clean energy via subsidies and loan guarantees. ... Are you O.K. with things like loan guarantees for solar plants, even though we know that some loans will go bad, Solyndra-style?
Finally, what about the Environmental Protection Agency’s proposal that it use its regulatory authority to impose large reductions in emissions from power plants? ... Are you willing to support this partial approach? ...
In policy terms, climate action — if it happens at all — will probably look like health reform. That is, it will be an awkward compromise dictated in part by the need to appease special interests... It will be the subject of intense partisanship, relying overwhelmingly on support from just one party, and will be the subject of constant, hysterical attacks. And it will, if we’re lucky, nonetheless do the job.
Did I mention that health reform is clearly working, despite its flaws?
The question for Mr. Paulson and those of similar views is whether they’re willing to go along with that kind of imperfection. If they are, welcome aboard.

Monday, June 16, 2014

Paul Krugman: Yes He Could

"Mr. Obama is having a seriously good year":

Yes He Could, by Paul Krugma, Commentary, NY Times: Several times in recent weeks I’ve found myself in conversations with liberals who shake their heads sadly and express their disappointment with President Obama. Why? I suspect that they’re being influenced, often without realizing it, by the prevailing media narrative.
The truth is that these days much of the commentary you see on the Obama administration — and a lot of the reporting too — emphasizes the negative: the contrast between the extravagant hopes of 2008 and the prosaic realities of political trench warfare, the troubles at the Department of Veterans Affairs, the mess in Iraq, and so on. The accepted thing, it seems, is to portray Mr. Obama as floundering, his presidency as troubled if not failed.
But this is all wrong. You should judge leaders by their achievements, not their press, and in terms of policy substance Mr. Obama is having a seriously good year. ... First, health reform is now a reality — and despite a shambolic start, it’s looking like a big success story. ...
Then there’s climate policy. The Obama administration’s new rules on power plants won’t be enough in themselves to save the planet, but they’re a real start — and are by far the most important environmental initiative since the Clean Air Act. I’d add that this is an issue on which Mr. Obama is showing some real passion.
Oh, and financial reform, although it’s much weaker than it should have been, is real — just ask all those Wall Street types who, enraged by the new limits on their wheeling and dealing, have turned their backs on the Democrats.
Put it all together, and Mr. Obama is looking like a very consequential president indeed. There were huge missed opportunities early in his administration — inadequate stimulus, the failure to offer significant relief to distressed homeowners. Also, he wasted years in pursuit of a Grand Bargain on the budget that, aside from turning out to be impossible, would have moved America in the wrong direction. But in his second term he is making good on the promise of real change for the better. ...
There are, I suppose, some people who are disappointed that Mr. Obama didn’t manage to make our politics less bitter and polarized. But that was never likely. The real question was whether he (with help from Nancy Pelosi and others) could make real progress on important issues. And the answer, I’m happy to say, is yes, he could.

Saturday, June 14, 2014

'Does the Right Hold the Economy Hostage to Advance Its Militarist Agenda?'

Dean Baker:

Does the Right Hold the Economy Hostage to Advance Its Militarist Agenda?: That's one way to read Tyler Cowen's NYT column noting that wars have often been associated with major economic advances which carries the headline "the lack of major wars may be hurting economic growth." Tyler lays out his central argument:
"It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth."
This is all quite true, but a moment's reflection may give a bit different spin to the story. There has always been substantial support among liberals for the sort of government sponsored research that he describes here. The opposition has largely come from the right. However the right has been willing to go along with such spending in the context of meeting national defense needs. Its support made these accomplishments possible.
This brings up the suggestion Paul Krugman made a while back (jokingly) that maybe we need to convince the public that we face a threat from an attack from Mars. Krugman suggested this as a way to prompt traditional Keynesian stimulus, but perhaps we can also use the threat to promote an ambitious public investment agenda to bring us the next major set of technological breakthroughs.

Friday, June 13, 2014

Paul Krugman: The Fix Isn’t In

Is the Republican Party about to get "even more extreme"?:

The Fix Isn’t In, by Paul Krugman, Commentary, NY Times: How big a deal is the surprise primary defeat of Representative Eric Cantor, the House majority leader? Very. Movement conservatism, which dominated American politics from the election of Ronald Reagan to the election of Barack Obama — and which many pundits thought could make a comeback this year — is unraveling before our eyes.
I don’t mean that conservatism in general is dying. But what I and others mean by “movement conservatism,” ... is something more specific: an interlocking set of institutions and alliances that won elections by stoking cultural and racial anxiety but used these victories mainly to push an elitist economic agenda, meanwhile providing a support network for political and ideological loyalists.
By rejecting Mr. Cantor, the Republican base showed that it has gotten wise to the electoral bait and switch, and, by his fall, Mr. Cantor showed that the support network can no longer guarantee job security. For around three decades, the conservative fix was in; but no more.
To see what I mean by bait and switch, think about ... Thomas Frank’s book “What’s the Matter With Kansas?” in which Republicans would mobilize voters with social issues, but invariably turn postelection to serving the interests of corporations and the 1 percent.
In return for this service, businesses and the wealthy provided both lavish financial support for right-minded (in both senses) politicians and a safety net — “wing-nut welfare” — for loyalists. ...
So whither movement conservatism? Before the Virginia upset, there was a widespread media narrative to the effect that the Republican establishment was regaining control from the Tea Party, which was really a claim that good old-fashioned movement conservatism was on its way back. In reality, however, establishment figures who won primaries did so only by reinventing themselves as extremists. And Mr. Cantor’s defeat shows that lip service to extremism isn’t enough; the base needs to believe that you really mean it.
In the long run — which probably begins in 2016 — this will be bad news for the G.O.P., because the party is moving right on social issues at a time when the country at large is moving left. (Think about how quickly the ground has shifted on gay marriage.) Meanwhile, however, what we’re looking at is a party that will be even more extreme, even less interested in participating in normal governance, than it has been since 2008. An ugly political scene is about to get even uglier.

Wednesday, June 11, 2014

'Orphanides Points The Finger for Euro Woes At Politicians, Mainly German'

Via Real Time Economics at the WSJ:

Former ECB Official Orphanides Points The Finger for Euro Woes At Politicians, Mainly German, by David Wessel: Athanasios Orphanides has a theory on what went wrong in Europe: The governance of the euro-zone was incompatible with prudent management of a major crisis. Some big countries – notably Germany – exploited the flaws in the system to its advantage at the expense of others. The 2009 recession was triggered by the U.S., but the 2011 recession was made in Europe and was avoidable.
“Key decision makers exhibited neither political leadership nor political courage,” he says in a lecture turned into an Massachusetts Institute of Technology working paper. ...

Tuesday, June 10, 2014

'The Rich Have Advantages That Money Cannot Buy'

Larry Summers says:

The rich have advantages that money cannot buy, by Lawrence Summers: ... There is every reason to believe that taxes can be reformed to eliminate loopholes for the wealthy and become more progressive, while also promoting a more efficient allocation of investment. In areas ranging from local zoning laws to intellectual property protection, from financial regulation to energy subsidies, public policy now bestows great fortunes on those whose primary skill is working the political system rather than producing great products and services. There is a compelling case for policy measures to reduce profits from such rent-seeking activities as a number of economists, notably Dean Baker and the late Mancur Olson, have emphasised.
At the same time, unless one regards envy as a virtue, the primary reason for concern about inequality is that lower- and middle-income workers have too little – not that the rich have too much.
So in judging policies relating to inequality, the criterion should be what their impact will be on the middle class and the poor. ...
It is vital to remember, however, that important aspects of inequality are unlikely to be transformed just by limited income redistribution. Consider two fundamental components of life – health and the ability to provide opportunity for children.

He goes on to explain the vast difference between the rich and the poor in the areas of health and education, and I have no problem at all with his call to reduce inequality in these areas.

The question I have is whether we should not be worried "that the rich have too much." As he notes earlier, "public policy now bestows great fortunes on those whose primary skill is working the political system rather than producing great products and services." Those "great fortunes" give the ultra-wealthy the influence they need to capture the political system, and as the fortunes grow larger and larger it becomes harder and harder to change the system to eliminate this rent-seeking behavior (so I don't think "there is every reason to believe" that the system can be reformed). When this happens, when income flows to the top because they have captured the system -- income that could (and in my view should) be going elsewhere -- I think it's worth asking if they have "too much."

Wednesday, June 04, 2014

'Basic Social Institutions and Democratic Equality'

Daniel Little:

Basic social institutions and democratic equality, Understanding Society: We would like to think that it is possible for a society to embody basic institutions that work to preserve and enhance the wellbeing of all members of society in a fair way. We want social institutions to be beneficent (producing good outcomes for everyone), and we want them to be fair (treating all individuals and groups with equal consideration; creating comparable opportunities for everyone).  There is a particularly fundamental component of liberal optimism that holds that the institutions of a market-based democracy accomplish both goals.  Economic liberals maintain that the economic institutions of the market create efficient allocations of resources across activities, permitting the highest level of average wellbeing. Free public education permits all persons to develop their talents. And the political institutions of electoral democracy permit all groups to express and defend their interests in the arena of government and law.

But social critics cast doubt on all parts of this story, based on the role played by social inequalities within both sets of institutions. The market embodies and reproduces a set of economic inequalities that result in grave inequalities of wellbeing for different groups. Economic and social inequalities influence the quality of education available to young people. And electoral democracy permits the grossly disproportionate influence of wealth holders relative to other groups in society.  So instead of reducing inequalities among citizens, these basic institutions seem to amplify them.

If we look at the fundamentals of social life in the United States we are forced to recognize a number of unpalatable realities: extensive and increasing inequalities of income, wealth, education, health, and quality of life; persistent racial inequalities; a growing indifference among the affluent and powerful to the poverty and deprivation of others; and a political system that is rapidly approaching the asymptote of oligarchy. It is difficult to be optimistic about our political future if we are particularly concerned about equality and opportunity for all; the politics of our time seem to be taking us further and further from these ideals.

So how should progressives think about a better future for our country and our world? What institutional arrangements might do a better job of ensuring greater economic justice and political legitimacy in the next fifty years in this country and other democracies of western Europe and North America?

Martin O’Neill and Thad Williamson’s recent collection, Property-Owning Democracy: Rawls and Beyond contains an excellent range of reflections on this set of problems, centered around the idea of a property-owning democracy that is articulated within John Rawls’s A Theory of Justice. A range of talented contributors provide essays on different aspects and implications of the theory of property-owning democracy. The contributions by O'Neill and Williamson are especially good, and the volume is a major contribution to political theory for the 21st century.

Here is one of Rawls's early statements of the idea of a property-owning democracy in A Theory of Justice:

In property-owning democracy, ... the aim is to realize in the basic institutions the idea of society as a fair system of cooperation between citizens regarded as free and equal.  To do this, those institutions must, from the outset, put in the hands of citizens generally, and not only of a few, sufficient productive means for them to be fully cooperating members of society on a footing of equality. (140)

One thing that is striking about the discussions that recur throughout the essays in this volume is the important relationship they seem to have to Thomas Piketty’s arguments about rising inequalities in Capital in the Twenty-First Century. Piketty presents rising inequality as almost unavoidable; whereas the advocates for a property-owning democracy offer a vision of the future in which inequalities of assets are narrowed. The dissonance disappears, however, when we consider the possibility that the institutional arrangements of POD are in fact a powerful antidote to the economic imperatives identified by Piketty. And in fact the editors anticipate this possibility in their paraphrase of Rawls's reasons for preferring POD over welfare state capitalism:

Because capital is concentrated in private hands under welfare state capitalism, it will be difficult if not impossible to provide to call "the fair value of the political liberties"; that is to say, capitalist interests and the rich will have vastly more influence over the political process than other citizens, a condition which violates the requirement of equal political liberties. Second, Rawls suggests at points that welfare state capitalism produces a politics that tends to undermine the possibility of tax transfers sufficiently large to correct for the inequalities generated by market processes.(3)

These comments suggest that Rawls had an astute understanding of the ways that wealth and power and influence are connected; so he believed that a more equal prior distribution of assets is crucial for a just society.

The primary aim of this public activity is not to maximize economic growth (or to maximize utility) but rather to ensure that capital is widely distributed and that no group is allowed to dominate economic life; but Rawls also assumes that the economy needs to be successful in terms of conventional measures (i.e., by providing full employment, and lifting the living standards of the least well off over time). (4)

The editors make a point that is very incisive with respect to rising economic inequalities.

The concentration of capital and the emergence of finance as a driving sector of capitalism has generated not only instability and crisis; it also has led to extraordinary political power for private financial interests, with banking interest taking control in shaping not only policies immediately affecting that sector but economic (and thereby social) policy in general. (6)

In other words, attention to the idea of a property-owning democracy is in fact a very substantive rebuttal to the processes identified in Piketty's analysis of the tendencies of capital in the modern economy. As the editors put the point, the idea of a property-owning democracy provides a rich basis for the political programs of progressive movements in contemporary politics (5).

Two questions arise with respect to any political philosophy: is the end-state that it describes a genuinely desirable outcome; and is there a feasible path by which we can get from here to there? One might argue that POD is an appealing end-state; and yet it is an outcome that is virtually impossible to achieve within modern political and economic institutions. (Here is an earlier discussion of this idea; link.) These contributors give at least a moderate level of reason to believe that a progressive foundation for democratic action is available that may provide an effective counterweight to the conservative rhetoric that has dominated the scene for decades.

Friday, May 16, 2014

Paul Krugman: Points of No Return

Can anything reverse the growing hostility to science within the Republican Party?:

Points of No Return, by Paul Krugman, Commentary, NY Times: Recently two research teams, working independently and using different methods, reached an alarming conclusion: The West Antarctic ice sheet is doomed. ... Even if we took drastic action to limit global warming right now, this particular process of environmental change has reached a point of no return.
Meanwhile, Senator Marco Rubio of Florida — much of whose state is now fated to sink beneath the waves —... confidently declared the overwhelming scientific consensus on climate change false, although in a later interview he was unable to cite any sources for his skepticism.
So why would the senator make such a statement? The answer is that like that ice sheet, his party’s intellectual evolution (or maybe more accurately, its devolution) has reached a point of no return, in which allegiance to false doctrines has become a crucial badge of identity.
I’ve been thinking a lot lately about ... how support for a false dogma can become politically mandatory, and how overwhelming contrary evidence only makes such dogmas stronger and more extreme. ... To see how it works, consider a topic I know well: the recent history of inflation scares. ...
Inflation phobia has always been closely bound up with right-wing politics; to admit that this phobia was misguided would have meant conceding that one whole side of the political divide was fundamentally off base about how the economy works. So most of the inflationistas have responded to the failure of their prediction by becoming more, not less, extreme in their dogma...
The same kind of thing is clearly happening on the issue of global warming. ... As the evidence for a changing climate keeps accumulating, the Republican Party’s commitment to denial just gets stronger. ...
And truly crazy positions are becoming the norm. A decade ago, only the G.O.P.’s extremist fringe asserted that global warming was a hoax concocted by a vast global conspiracy of scientists (although even then that fringe included some powerful politicians). Today, such conspiracy theorizing is mainstream within the party, and rapidly becoming mandatory; witch hunts against scientists reporting evidence of warming have become standard operating procedure, and skepticism about climate science is turning into hostility toward science in general.
It’s hard to see what could reverse this growing hostility to inconvenient science. As I said, the process of intellectual devolution seems to have reached a point of no return. And that scares me more than the news about that ice sheet.

Monday, May 12, 2014

Paul Krugman: Crazy Climate Economics

Can you guess how conservatives will react if the EPA announces rules to combat climate change?:

Crazy Climate Economics, by Paul Krugman, Commentary, NY Times: Everywhere you look these days, you see Marxism on the rise. Well, O.K., maybe you don’t — but conservatives do. If you so much as mention income inequality, you’ll be denounced as the second coming of Joseph Stalin; Rick Santorum has declared that any use of the word “class” is “Marxism talk.” ...George Will says the only reason progressives favor trains is their goal of “diminishing Americans’ individualism in order to make them more amenable to collectivism.”
So it goes without saying that Obamacare, based on ideas originally developed at the Heritage Foundation, is a Marxist scheme... And just wait until the Environmental Protection Agency announces rules intended to slow the pace of climate change. ...
You can already get a taste of what’s coming in the ... recent Supreme Court ruling on power-plant pollution. ... Justice Scalia didn’t just dissent; he suggested that the E.P.A.’s proposed rule ... reflected the Marxist concept of “from each according to his ability.” ...
And you can just imagine what will happen when the E.P.A ... moves on to regulation of greenhouse gas emissions. ...
First, we’ll see any effort to limit pollution denounced as a tyrannical act. Pollution wasn’t always a deeply partisan issue... John McCain made ... cap-and-trade limits on greenhouse gases part of his presidential campaign. But when House Democrats actually passed a cap-and-trade bill in 2009, it was attacked as, you guessed it, Marxist. ...
Second, we’ll see claims that any effort to limit emissions will have ... “a devastating impact on our economy.” ... Now, the rules the E.P.A. is likely to impose won’t give the private sector as much flexibility as it would have had in dealing with an economywide carbon cap or emissions tax. But Republicans have only themselves to blame: Their scorched-earth opposition to any kind of climate policy has left executive action by the White House as the only route forward. ...
What about the argument that unilateral U.S. action won’t work...? ... U.S. action on climate is a necessary first step toward a broader international agreement, which will surely include sanctions on countries that don’t participate.
So the coming firestorm over new power-plant regulations won’t be a genuine debate... Instead, the airwaves will be filled with conspiracy theories and wild claims about costs, all of which should be ignored. Climate policy may finally be getting somewhere; let’s not let crazy climate economics get in the way.

Saturday, May 10, 2014

'Wrong Debates'

Gloomy European Economist Francesco Saraceno:

Wrong Debates: Paul Krugman has a short post on the Eurozone, today (I’d like him to write more about us; he has been too America-centered lately), pointing out that the myth of fiscal profligacy is, well, just a myth. in fact, he argues, the only fiscally irresponsible country, in the years 2000 was Greece. It is maybe worth reposting here a figure that from an old piece of this blog, that since then made it into all my classes on the Euro crisis: 

Fig1postmarch161

The figure shows the situation of public finances in 2007, against the Maastricht benchmark (3% deficit and 60% debt) before the crisis hit. As Krugman says, only one country of the so-called PIIGS  (the red dots) is clearly out of line, Greece. Portugal is virtually like France, and Spain and Ireland way better than most countries, including Germany. Italy has a stock of old debt, but its deficit in 2007 is under control.
So Krugman is right in reminding us that fiscal policy per se was not a problem before the crisis; And yet, what he calls fiscal myths, have shaped policies in the EMU, with a disproportionate emphasis on austerity. And even today,... continued fiscal consolidation is taken for granted. I will write more on this in the next days, but it is striking how we aim at the wrong target.

Thursday, May 08, 2014

'Pretending To Do Something Like Science'???

Paul Krugman:

Predictions and Prejudice: The 2008 crisis and its aftermath have been a testing time for economists — and the tests have been moral as well as intellectual. After all, economists made very different predictions about the effects of the various policy responses to the crisis; inevitably, some of those predictions would prove deeply wrong. So how would those who were wrong react?
The results have not been encouraging.
Brad DeLong reads Allan Meltzer in the Wall Street Journal, issuing dire warnings about the inflation to come. Newcomers to this debate may not be fully aware of the history here, so let’s recap. Meltzer began banging the inflation drum five full years ago, predicting that the Fed’s expansion of its balance sheet would cause runaway price increases; meanwhile, some of us pointed both to the theory of the liquidity trap and Japan’s experience to say that this was not going to happen. ...
Tests in economics don’t get more decisive; this is where you’re supposed to say, “OK, I was wrong, and here’s why”.
Not a chance. And the thing is, Meltzer isn’t alone. Can you think of any prominent figure on that side of the debate who has been willing to modify his beliefs in the face of overwhelming evidence? ...
Were the freshwater guys always just pretending to do something like science, when it was always politics? Is there simply too much money and too much vested interest behind their point of view?

Even if we do get a bit of inflation at some point, the people who have been warning about it repeatedly for the last half decade won't be able to say they predicted it in any real sense. Warning that there will be, say, a tornado every day for five years until one finally comes is not much of a track record, or helpful in any way. And if it never comes...

Monday, May 05, 2014

Paul Krugman: Inventing a Failure

Surprise! Republicans are opposed to Obamacare. But the lengths they'll go to to validate their beliefs in the face of evidence to the contrary is startling:

Inventing a Failure, by Paul Krugman, Commentary, NY Times: On Thursday, House Republicans released a deliberately misleading report on the status of health reform, crudely rigging the numbers to sustain the illusion of failure in the face of unexpected success. Are you shocked?
You aren’t, but ... the fact that this has become standard operating procedure for a major party bodes ill for America’s future.
About that report: The really big policy news of 2014, at least so far, is the spectacular recovery of the Affordable Care Act from its stumbling start... This is a problem for Republicans, who have bet the ranch on the proposition that health reform is an unfixable failure. ... How can they respond to good news?
Well,... they have ... continued to do what they’ve been doing ever since the news on Obamacare started turning positive: sling as much mud as possible at health reform, in the hope that some of it sticks. Premiums were soaring, they declared, when they have actually come in below projections. Millions of people were losing coverage, they insisted, when the great bulk of those whose policies were canceled simply replaced them with new policies. The Obama administration was cooking the books, they cried (projection, anyone?). And, of course, they keep peddling horror stories about people suffering terribly from Obamacare, not one of which has actually withstood scrutiny.
Now comes the latest claim — that many of the people who signed up for insurance aren’t actually paying their premiums. ... Previous attacks on Obamacare were pretty much fact-free; this time the claim was backed by an actual survey purporting to show that a third of enrollees hadn’t paid their first premium.
But the survey was rigged. (Are you surprised?) ...
So why are Republicans doing this? Sad to say, there’s method in their fraudulence.
First of all, it fires up the base. ... Beyond that, the constant harping on alleged failure works as innuendo even if each individual claim collapses in the face of evidence. ...
So Republicans are spreading disinformation about health reform because it works, and because they can — there is no sign that they pay any political price when their accusations are proved false.
And that observation should scare you. What happens to the Congressional Budget Office if a party that has learned that lying about numbers works takes full control of Congress? What happens if it regains the White House, too? Nothing good, that’s for sure.

'Britain’s Economic Growth is Not a Sign that Austerity Works'

Larry Summers:

Britain’s economic growth is not a sign that austerity works, by Lawrence Summers, Commentary, Washington Post: The British economy has experienced the most rapid growth in the Group of 7 over the past several months. ... Naturally enough, many have seized on Britain’s strong performance as evidence vindicating the austerity strategy that the country has followed since 2010 and rejecting the secular-stagnation idea that lack of demand constrains industrial growth over the medium term. ... Unfortunately, properly interpreted, the British experience refutes austerity advocates and confirms Keynes’s warning about the dangers of indiscriminate budget-cutting in the midst of a downturn. ...
Britain’s growth reflects a combination of the depth of the hole it found itself in, the moderation in the trend toward deeper and deeper austerity and the effects of possibly bubble-creating government loans. It may be better for the citizens of Britain than any alternative. But it certainly should not be seen as any kind of inspiration for other companies or countries. ...

Friday, May 02, 2014

Paul Krugman: Why Economics Failed

Why didn't fiscal policy makers listen to economists?:

Why Economics Failed, by Paul Krugman, Commentary, NY Times: On Wednesday, I wrapped up the class I’ve been teaching..: “The Great Recession: Causes and Consequences.” ...I found myself turning at the end to an agonizing question: Why, at the moment it was most needed and could have done the most good, did economics fail?
I don’t mean that economics was useless to policy makers. ... While ... few economists saw the crisis coming..., since the fall of Lehman Brothers, basic textbook macroeconomics has performed very well. ...
In what sense did economics work well? Economists who took their own textbooks seriously quickly diagnosed the nature of our economic malaise: We were suffering from inadequate demand ... and a depressed economy. ...
And the diagnosis ... had clear policy implications: ...this was no time to worry about budget deficits and cut spending... We needed more government spending, not less, to fill the hole left by inadequate private demand. But... Since 2010, we’ve seen a sharp decline in discretionary spending and an unprecedented decline in budget deficits, and the result has been anemic growth and long-term unemployment on a scale not seen since the 1930s.
So why didn’t we use the economic knowledge we had?
One answer is that most people find the logic of policy in a depressed economy counterintuitive. ... And even supposedly well-informed people balk at the notion that simple lack of demand can wreak so much havoc. Surely, they insist, we must have deep structural problems, like a work force that lacks the right skills; that sounds serious and wise, even though all the evidence says that it’s completely untrue.
Meanwhile, powerful political factions ... whose real goal is dismantling the social safety net have found promoting deficit panic an effective way to push their agenda. And such people have been aided and abetted by what I’ve come to think of as the trahison des nerds — the willingness of some economists to come up with analyses that tell powerful people what they want to hear, whether it’s that slashing government spending is actually expansionary, because of confidence, or that government debt somehow has dire effects on economic growth even if interest rates stay low.
Whatever the reasons basic economics got tossed aside, the result has been tragic. ... We have, all along, had the knowledge and the tools to restore full employment. But policy makers just keep finding reasons not to do the right thing.

Monday, April 28, 2014

Paul Krugman: High Plains Moochers

Let freedom ring. But first, get a clue about what freedom is:

High Plains Moochers, by Paul Krugman, Commentary, NY Times: It is, in a way, too bad that Cliven Bundy — the rancher who became a right-wing hero after refusing to pay fees for grazing his animals on federal land, and bringing in armed men to support his defiance — has turned out to be a crude racist. Why? Because his ranting has given conservatives an easy out, a way to dissociate themselves from his actions without facing up to the terrible wrong turn their movement has taken.
For at the heart of the standoff was a perversion of the concept of freedom, which for too much of the right has come to mean the freedom of the wealthy to do whatever they want...
Start with the narrow issue of land use. For historical reasons, the federal government owns a lot of land in the West... Like any landowner, the Bureau of Land Management charges fees for the use of its property. The only difference from private ownership is that by all accounts the government charges too little... In effect, the government is using its ownership of land to subsidize ranchers and mining companies at taxpayers’ expense.
It’s true that some of the people profiting from implicit taxpayer subsidies manage ... to convince themselves and others that they are rugged individualists. But they’re actually welfare queens of the purple sage.
And this ... means that treating Mr. Bundy as some kind of libertarian hero is, not to put too fine a point on it, crazy. Suppose he had been grazing his cattle on land belonging to one of his neighbors, and had refused to pay for the privilege. That would clearly have been theft — and brandishing guns ... would have turned it into armed robbery. The fact that ... the public owns the land shouldn’t make any difference.
So what were people like Sean Hannity of Fox News, who went all in on Mr. Bundy’s behalf, thinking? Partly, no doubt, it was the general demonization of government..., that government takes money from hard-working Americans and gives it to Those People. White people who wear cowboy hats while profiting from government subsidies just don’t fit the stereotype. ...
I’d like to think that the whole Bundy affair will cause at least some of the people who backed him to engage in self-reflection, and ask how they ended up lending support, even briefly, to someone like that. But I don’t expect it to happen.

Friday, April 25, 2014

Paul Krugman: The Piketty Panic

Money talks, but sometimes not very coherently:

The Piketty Panic, by Paul Krugman, Commentary, NY Times: “Capital in the Twenty-First Century,” the new book by ... Thomas Piketty, is ... serious, discourse-changing scholarship... And conservatives are terrified. ...
The really striking thing about the debate so far is that the right seems unable to mount any kind of substantive counterattack... Instead, the response has been all about name-calling — ...that Mr. Piketty is a Marxist...
For the past couple of decades, the conservative response to attempts to make soaring incomes at the top into a political issue has involved two lines of defense: first, denial that the rich are actually doing as well and the rest as badly as they are, but when denial fails, claims that those soaring incomes at the top are a justified reward for services rendered. Don’t call them the 1 percent, or the wealthy; call them “job creators.”
But how do you make that defense if the rich derive much of their income not from the work they do but from the assets they own? And what if great wealth comes increasingly not from enterprise but from inheritance?
What Mr. Piketty shows is that these are not idle questions. Western societies before World War I were indeed dominated by an oligarchy of inherited wealth — and his book makes a compelling case that we’re well on our way back toward that state.
So what’s a conservative, fearing that this diagnosis might be used to justify higher taxes on the wealthy, to do? He could try to refute Mr. Piketty in a substantive way, but, so far, I’ve seen no sign of that happening. Instead, as I said, it has been all about name-calling..., to ... denounce Mr. Piketty as a Marxist..., which only makes sense if the mere mention of unequal wealth makes you a Marxist. ...
And The Wall Street Journal’s review, predictably, goes the whole distance, somehow segueing from Mr. Piketty’s call for progressive taxation as a way to limit the concentration of wealth ... to the evils of Stalinism. ...
Now, the fact that apologists for America’s oligarchs are evidently at a loss for coherent arguments doesn’t mean that they are on the run politically. Money still talks — indeed, thanks in part to the Roberts court, it talks louder than ever. Still, ideas matter too, shaping both how we talk about society and, eventually, what we do. And the Piketty panic shows that the right has run out of ideas.

Wednesday, April 23, 2014

'Ukraine’s Path to Oligarchy: Lessons for the U.S.?'

After explaining why he believes Ukraine is an oligarchy, Berkeley's Yuriy Gorodnichenko says:

...One may draw parallels between the U.S and Ukraine but frankly, relative to Ukraine, the U.S. seems far from an oligarchy. However, certain recent developments do make me somewhat concerned. For example, income inequality has been rising rapidly over the last three decades, the influence of the rich and of corporations on electoral outcomes appears to be increasing, and the political process strikes me as increasingly dysfunctional. But the U.S.’s history of fighting corruption and the tradition of a free and oppositional press are powerful counterforces to oligarchy. Or so I hope.

Thursday, April 17, 2014

'Antitrust in the New Gilded Age'

Robert Reich:

Antitrust in the New Gilded Age, by Robert Reich: We’re in a new gilded age of wealth and power similar to the first gilded age when the nation’s antitrust laws were enacted. Those laws should prevent or bust up concentrations of economic power that not only harm consumers but also undermine our democracy — such as the pending Comcast acquisition of Time-Warner. ...
In many respects America is back to the same giant concentrations of wealth and economic power that endangered democracy a century ago. The floodgates of big money have been opened...
Remember, this is occurring in America’s new gilded age — similar to the first one in which a young Teddy Roosevelt castigated the “malefactors of great wealth, who were “equally careless of the working men, whom they oppress, and of the State, whose existence they imperil.”
It’s that same equal carelessness toward average Americans and toward our democracy that ought to be of primary concern to us now. Big money that engulfs government makes government incapable of protecting the rest of us against the further depredations of big money.
After becoming President in 1901, Roosevelt used the Sherman Act against forty-five giant companies, including the giant Northern Securities Company that threatened to dominate transportation in the Northwest. William Howard Taft continued to use it, busting up the Standard Oil Trust in 1911. 
In this new gilded age, we should remind ourselves of a central guiding purpose of America’s original antitrust law, and use it no less boldly. 

Wednesday, April 16, 2014

'Supply, Demand, and Unemployment Benefits'

When in need of a quick post, Paul Krugman is always a good source:

Supply, Demand, and Unemployment Benefits: Ben Casselman points out that we’ve had a sort of natural experiment in the alleged effects of unemployment benefits in reducing employment. Extended benefits were cancelled at the beginning of this year; have the long-term unemployed shown any tendency to find jobs faster? And the answer is no.
Let me ... ask, how was it, exactly, that reduced benefits were supposed to encourage employment in the first place?
Making the unemployed miserable arguably increases labor supply, as workers become ... more willing to take whatever job they can find. But the US labor market in 2014 isn’t constrained by supply, it’s constrained by demand: ...firms ... have no need for as many hours of work as workers are willing to give.
So make the long-term unemployed more desperate; so what? They can’t do anything to increase the amount of work demanded, and in fact their reduced purchasing power reduces labor demand.
You might imagine that the long-term unemployed, through their desperation, might take jobs away from existing workers — but ... there’s no evidence that this is happening. ...