Category Archive for: Politics [Return to Main]

Friday, February 21, 2014

Paul Krugman: The Stimulus Tragedy

The stimulus package was more effective than people realize:

The Stimulus Tragedy, by Paul Krugman, Commentary, NY Times: Five years have passed since President Obama signed the American Recovery and Reinvestment Act — the “stimulus” — into law. With the passage of time, it has become clear that the act did a vast amount of good. It helped end the economy’s plunge; it created or saved millions of jobs; it left behind an important legacy of public and private investment.
It was also a political disaster. And the consequences of that political disaster — the perception that stimulus failed — have haunted economic policy ever since.
Let’s start with the good stimulus did..., most careful studies have found evidence of strong positive effects on employment and output.
Even more important, I’d argue, is the huge natural experiment Europe has provided... You see,... austerity led to nasty, in some cases catastrophic, declines in output and employment. And private spending in countries imposing harsh austerity ended up falling..., amplifying the direct effects of government cutbacks.
All the evidence, then, points to substantial positive short-run effects from the Obama stimulus. And there were surely long-term benefits, too: big investments in everything from green energy to electronic medical records.
So why does everyone ... except those who have seriously studied the issue ... believe that the stimulus was a failure? Because the U.S. economy continued to perform poorly — not disastrously, but poorly — after the stimulus went into effect.
There’s no mystery about why: America was coping with the legacy of a giant housing bubble. ... And the stimulus was both too small and too short-lived...
There’s a long-running debate over whether the Obama administration could have gotten more. The administration compounded the damage with excessively optimistic forecasts, based on the false premise that the economy would quickly bounce back...
But that’s all water under the bridge. The important point is that U.S. fiscal policy went completely in the wrong direction after 2010. With the stimulus perceived as a failure, job creation almost disappeared from inside-the-Beltway discourse, replaced with obsessive concern over budget deficits. Government spending, which had been temporarily boosted both by the Recovery Act and by safety-net programs like food stamps and unemployment benefits, began falling... And this anti-stimulus has destroyed millions of jobs.
In other words, the overall narrative of the stimulus is tragic. A policy initiative that was good but not good enough ended up being seen as a failure, and set the stage for an immensely destructive wrong turn.

Thursday, February 13, 2014

'The Econometric Evidence More or Less Supports' Ranting Leftists

Paul Krugman:

... So, if you were a ranting leftist, you might say that political attitudes are shaped by class, and that ideological justifications for high inequality are just a veil for class interest. You might also say that “sound” economic policies are really just policies that redistribute income upwards. And it turns out that the econometric evidence more or less supports your rant.

More here.

"Money Makes People Right-Wing and Inegalitarian'

Andrew Oswald has an excellent research record:

Money makes people right-wing and inegalitarian, by Andrew J Oswald, Vox EU: Why are you right-wing, left-wing, or in the middle? You probably believe that you made a genuine, calm, and ethical choice. But what were the deep causal forces upon those political preferences?
The scientific roots of people’s political views are poorly understood. One possibility (View 1) is that individuals’ attitudes to politics and redistribution are motivated by deeply moral views. Another possibility (View 2) – and this is perhaps some economists’ presumption -- is that voting choices are made out of self-interest and then come to be embroidered in the mind with a form of moral rhetoric. Testing between these two alternative theories is important intellectually. It is also inherently difficult. That is because so many of our attitudes as humans could stem from early in life and are close to being, in the eyes of the researcher, a ‘person fixed-effect’.
In most data sets, rich people typically lean right. The fact that high income and right-wing views are positively correlated in a cross-section has been repeatedly documented in quantitative social science (recently, for example, by Brooks and Brady 1999 and Gelman et al. 2007 in US data, and by Evans and Tilley 2012 in British data). An analogous result is reported, using quite different kinds of methods, in Karabarbounis (2011). Economists such as Di Tella and MacCulloch (2005) have also studied political views and their implications, and other influences have been examined using causal evidence on political views (such as in Oswald and Powdthavee 2010 and Erikson and Stoker 2011).
Fine – so the rich favour the right not the left. The difficulty is to know how to interpret this famous correlation of political science. Is it actually cause-and-effect, and if so in what direction? It would be nice to run a real randomised experiment where a treatment group are showered with cash, but that would be too expensive for social-science funding agencies. Hence it is necessary to look elsewhere for inspiration.
New evidence from the lottery
Our new study, Powdthavee and Oswald (2014), tries to get to the bottom of the issue. By looking at lottery winners through time, it provides longitudinal evidence consistent with the second, and some might argue more jaundiced, view, namely the View 2 of human beings. We exploit a panel data set in which people’s political attitudes are recorded annually. Our work builds upon an interesting cross-sectional examination by Doherty et al. (2007), which we learned about late in our own research.
In our data set, many hundreds of individuals serendipitously receive significant lottery windfalls. We find that the larger is their lottery win, the greater is that person’s subsequent tendency, after controlling for other influences, to switch their political views from left to right. We also provide evidence that lottery winners are more sympathetic to the belief that ordinary people ‘already get a fair share of society’s wealth’.
We are able to observe people before and after a win. Access to longitudinal information gives us advantages denied to most previous researchers on this topic. One reason this is important is because it seems plausible that personality might determine both the number of lottery tickets bought and the political attitudes of the person, and this might thereby lead to a possible spurious association between winning and right-leaning views. We provide, among other kinds of evidence, a simple graphical demonstration that winners disproportionately lean to the right having previously not been right-wing supporters.
The formal study draws upon a nationally representative sample from the British population. In our regression equations we focus particularly upon a sub-sample of people (a fairly large proportion, given the lottery’s popularity in the UK) who have ever had a lottery win. Within this group, we are especially interested in the observed longitudinal changes in political allegiance of the bigger winners compared to the smaller winners. Our key information stems from 541 observations on lottery wins larger than £500 and up to approximately £200,000. Figure 1 gives a flavour of our results; fixed-effects equations are given in the formal paper and have more tightly defined error bars.

Figure 1. Evidence on switchers: The percentage of people who switched right (conservative), and previously did not vote conservative, after a lottery win

Oswald fig1 12 feb

Notes: There are 48,177 observations of £0 win (or people who did not participate in the lottery); 5,675 observations of small win, i.e., £1-£499; and, in this particular sub-sample, 354 observations of medium-large wins, i.e. £500+. Four standard error bars (2 above and 2 below). These are raw, unadjusted means in the data set. Source: BHPS Data, Waves 7-18.
The consequences of winning even a modest sum of money are fairly large – certainly a number of percentage points extra on your chances of favouring a Mrs Thatcher or a Ronald Regan. Thus money makes people right-wing and inegalitarian. Perhaps even you.
References
Brooks, C and D Brady (1999), "Income, economic voting, and long-term political change in the US, 1952-1996", Social Forces, 77, 1339-1374.
Di Tella, R and R MacCulloch (2005), "Partisan social happiness", Review of Economic Studies, 72, 367-393.
Doherty D, A S Gerber and D P Green (2006), "Personal income and attitudes toward redistribution: A study of lottery winners", Political Psychology, 27, 441-458.
Erikson, R S and L Stoker (2011) "Caught in the draft: The effects of Vietnam draft lottery status on political attitudes", American Political Science Review, 105, 221-237.
Evans, G and J Tilley (2012), "How parties shape class politics: Explaining the decline of the class basis of political support", British Journal of Political Science, 42, 137-161.
Gelman A, B Shor, J Bafumi and D Park (2007) Rich state, poor state, red state, blue state: What’s the matter with Connecticut? Quarterly Journal of Political Science, 2, 345-367.
Karabarbounis, L (2011) "One dollar, one vote", Economic Journal, 121, 621-651.
Oswald, A J and N Powdthavee (2010), "Daughters and left-wing voting", Review of Economics and Statistics, 92, 213-227.
Powdthavee, N and A J Oswald (2014), "Does money make people right-wing and inegalitarian: A longitudinal study of lottery winners", Warwick University Economics Working Paper 1039, February.

Friday, February 07, 2014

Paul Krugman: Health, Work, Lies

The CBO's report on Obamacare is --surprise -- being misrepresented:

Health, Work, Lies, by Paul Krugman, Commentary, NY Times: ... On Tuesday, the budget office released a report on the fiscal and economic ... effects of the Affordable Care Act. ...
The budget office has now increased its estimate of the size of these effects. It believes that health reform will reduce the number of hours worked in the economy by between 1.5 percent and 2 percent, which it unhelpfully noted “represents a decline in the number of full-time-equivalent workers of about 2.0 million.”
Why was this unhelpful? Because politicians and, I’m sorry to say, all too many news organizations immediately seized on the 2 million number and utterly misrepresented its meaning. For example, Representative Eric Cantor, the House majority leader, quickly posted this on his Twitter account: “Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced.”
Not a word of this claim was true. The budget office report didn’t say that people will lose their jobs. It declared explicitly that the predicted fall in hours worked will come “almost entirely because workers will choose to supply less labor”  ... Oh, and because labor supply will be reduced, wages will go up, not down.
We should add that the budget office believes that health reform will actually reduce unemployment over the next few years. ...
So was Mr. Cantor being dishonest? Or was he just ignorant of the policy basics...? It doesn’t matter — because even if it was ignorance, it was willful ignorance. Remember, the campaign against health reform has, at every stage, grabbed hold of any and every argument it could find against insuring the uninsured, with truth and logic never entering into the matter.
Think about it. We had the nonexistent death panels. We had false claims that the Affordable Care Act will cause the deficit to balloon. We had supposed horror stories about ordinary Americans facing huge rate increases, stories that collapsed under scrutiny. And now we have a fairly innocuous technical estimate misrepresented as a tale of massive economic damage.
Meanwhile, the reality is that American health reform — flawed and incomplete though it is — is making steady progress. No, millions of Americans won’t lose their jobs, but tens of millions will gain the security of knowing that they can get and afford the health care they need.

Friday, January 31, 2014

Democracy vs. Inequality

This was in today's links:

Democracy vs. Inequality, by Daron Acemoglu and James Robinson: ... That ... widening gaps between rich and poor should be taking place in established democracies is puzzling. The workhorse models of democracy are based on the idea that the median voter will use his democratic power to redistribute resources away from the rich towards himself. When the gap between the rich (or mean income in society) and the median voter (who is typically close to the median of the income distribution) is greater, this redistributive tendency should be greater. ...
These strong predictions notwithstanding, the evidence on this topic is decidedly mixed. Our recent paper, joint with Suresh Naidu and Pascual Restrepo, “Democracy, Redistribution and Inequality” revisits these questions. ...
First, democracy may be “captured” or “constrained”. ... Elites who see their de jure power eroded by democratization may sufficiently increase their investments in de facto power ... to continue their control of the political process. ...
Finally, consistent with Stigler’s “Director’s Law”, democracy may transfer political power to the middle class—-rather than the poor. If so, redistribution may increase and inequality may be curtailed only if the middle class is in favor of such redistribution. ...
What about the facts? This is where the previous literature has been pretty contentious. ... Overall, our results suggest that democracy does represent a real shift in political power away from elites and has first-order consequences for redistribution and government policy. But the impact of democracy on inequality may be more limited than one might have expected. ...
The ... Director’s s Law is unlikely to explain the inability of the US political system to confront inequality, since the middle classes have largely been losers in the widening inequality trends.
Could it be that US democracy is captured? This seems unlikely when looked at from the viewpoint of our typical models of captured democracies. But perhaps there are other ways of thinking about this problem that might relate the increasingly paralyzing gridlock in US politics to capture-related ideas. 

[There's quite a bit more in the original post.]

Wednesday, January 29, 2014

'The Fading of the Deficit'

Paul Krugman comments on the SOTU:

... I think the fading of the deficit both in reality and as an issue is important... Obama isn’t afraid of the big bad deficit any more, and he knows that there won’t be a Grand Bargain, so there’s nothing he can or should do on the front that absorbed so much of his energy for three years. ...

Glad thsi issue is falling off the political radar, but given how many households were hurt by the premature turn to deficit reduction endorsed by Obama, I have a hard time granting much credit to Obama for letting this issue fade.

Monday, January 27, 2014

'Obama’s Plan to End Discrimination Against the Long-term Unemployed'

Do you think this will work? I have my doubts:

Obama’s Plan to End Discrimination Against the Long-term Unemployed, by Jonathan Chait: In his State of the Union address tomorrow night, President Obama will announce that some of the largest firms in the United States have signed a pledge not to discriminate in hiring against the long-term unemployed, reports The Wall Street Journal. ...
Employers are simply using long-term unemployment as a heuristic, to weed out what they see as the weakest candidates. But this shortcut traps the unemployed in a cycle they cannot escape: The longer they’re unemployed, the progressively harder it becomes to acquire a job. ...
What Obama is trying to do in the State of the Union speech is to create a new kind of social norm in hiring. He’s arguing that employers should not let themselves use this kind of shortcut, and that more careful consideration can actually open up a wider pool of available talent. The administration has boiled down its recommendations to a series of best practices to avoid this form of discrimination.  ...
This isn’t going to revolutionize the job market. And it’s not as good as getting Congress to pass, say, a new infrastructure bill. But discrimination against the long-term unemployed is a kind of cultural problem in and of itself. And precisely, because it is a cultural problem, it’s the sort of thing a high-profile speech combined with concerted jawboning with corporate leaders has a hope of actually changing.

'A Tea Party Knight Is Out'

David Warsh wonders if the WSJ is "changing things somewhat in the orientation of its editorial board":

A Tea Party Knight Is Out, by David Warsh: News, goes an old saw, is what happens near an editor. That’s what commenced last September when Wall Street Journal editors got hung up in lane closings at the George Washington Bridge.

Whoever they were, the editors passed along their displeasure and, perhaps, suspicions to the paper’s transportation reporter, Ted Mann. After a month of working the phones, Mann broached the possibility that the tie-up was deliberate, with a story on October 2: Port Chief Fumed Over Bridge Jam/Patrick Foyle Fired Off an Email Message after Learning of Lane Closure..., it was clearly the WSJ that first put Gov. Christie in play. ...

Aggressive WSJ reporting on a frontrunner for the next Republican Party presidential nomination is evidence that Rupert Murdoch hasn’t monkeyed with the longstanding culture of the news pages. ...

I mention it here because ... Murdoch may have an interest in changing things somewhat in the orientation of its editorial board. I refer to the departure of Stephen Moore to the Heritage Foundation.

Moore was the board’s chief economic commentator, a founder of the Club for Growth, enthusiast of Tea Party ideals, possessor of a master’s degree from George Mason University and a disciple of Arthur Laffer and Julian Simon. ...

The WSJ editorial page is a position of enormous influence... Depending on how Moore is replaced, the opportunity exists for Murdoch’s paper to play a constructive role... – perhaps even to modulate the spirit of intransigence that dates back to 1972, when editor Robert Bartley and Jude Wanniski initiated a new era of political economic discourse in US politics.

It was Bartley’s unrelenting attacks on Bill Clinton in the 1990s that established the predicate that presidents who are Democrats not only have bad politics, but are not legitimate. Much of the present-day animosity toward Obama got its start with Bartley’s over-the-top opposition to Clinton. ...

I plan to pay much closer attention to the editorial page of the WSJ in the months to come. Something is going on there.

Sunday, January 26, 2014

'Why There’s No Outcry'

Robert Reich tries to explain why "we don’t have a revolution in America":

Why There’s No Outcry, by Robert Reich: People ask me all the time why we don’t have a revolution in America, or at least a major wave of reform similar to that of the Progressive Era or the New Deal or the Great Society.
Middle incomes are sinking, the ranks of the poor are swelling, almost all the economic gains are going to the top, and big money is corrupting our democracy. So why isn’t there more of a ruckus?
The answer is complex, but three reasons stand out.
First, the working class is paralyzed with fear it will lose the jobs and wages it already has. In earlier decades, the working class fomented reform. ... No longer... No one has any job security. ... Besides, their major means of organizing themselves — labor unions — have been decimated. ...
Second, students don’t dare rock the boat. In prior decades students were a major force for social change. ... But today’s students don’t want to make a ruckus. They’re laden with debt. ... To make matters worse, the job market for new graduates remains lousy. Which is why record numbers are still living at home.
Reformers and revolutionaries don’t look forward to living with mom and dad or worrying about credit ratings and job recommendations.
Third and finally, the American public has become so cynical about government that many no longer think reform is possible. ...
Change is coming anyway. ... At some point, working people, students, and the broad public will have had enough. They will reclaim our economy and our democracy. This has been the central lesson of American history.
Reform is less risky than revolution, but the longer we wait the more likely it will be the latter.

Apparently, Obama as "a little bit of FDR" might not be enough.

'Obama and the One Percent'

Paul Krugman:

Obama and the One Percent: Another week, another outburst by a one-percenter comparing progressive taxation to Nazi atrocities. I particularly liked the end:

Kristallnacht was unthinkable in 1930; is its descendent “progressive” radicalism unthinkable now?

Because it’s just obvious that San Francisco progressives are the political heirs of fascism, right?

You do wonder why the WSJ published this screed. ...

Anyway, thinking about this sort of thing makes me realize that there’s a danger, especially for progressives, of confusing the proposition that Obama’s billionaire haters are stark raving mad — which is true — with the proposition that Obama has done nothing that hurts the plutocrats’ interests, which is false. Actually, Obama has been tougher on the one percent than most progressives give him credit for.

Start with taxes..., taxes on wealthy Americans have basically been rolled back to pre-Reagan levels ...

Meanwhile, financial reform looks as if it will have significantly more teeth than expected.

So the one percent does have reason to be upset. No, Obama isn’t Hitler; but he is turning out to be a little bit of FDR, after all.

Friday, January 24, 2014

Paul Krugman: The Populist Imperative

Jobs and inequality are "closely linked":

The Populist Imperative, by Paul Krugman, Commentary, NY Times: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.”
John Maynard Keynes wrote that in 1936, but it applies to our own time, too. And, in a better world, our leaders would be doing all they could to address both faults.
Unfortunately,... we should count ourselves lucky when leaders confront even one of our two great economic failures. If ... President Obama devotes much of his State of the Union address to inequality, everyone should be cheering him on.
They won’t, of course. Instead, he will face two kinds of sniping. The usual suspects on the right will, as always when questions of income distribution comes up, shriek “Class warfare!” But there will also be seemingly more sober voices arguing that he has picked the wrong target, that jobs, not inequality, should be at the top of his agenda.
Here’s why they’re wrong.
First of all, jobs and inequality are closely linked if not identical issues. ...
Moreover, there’s an even stronger case to be made that high unemployment — by destroying workers’ bargaining power — has become a major source of rising inequality and stagnating incomes even for those lucky enough to have jobs.
Beyond that, as a political matter, inequality and macroeconomic policy are already inseparably linked. ... For example, two-thirds of the spending cuts proposed last year by Representative Paul Ryan, the chairman of the House Budget Committee, would have come at the expense of lower-income families.
The flip side of this attempt to use fiscal scare tactics to worsen inequality is that highlighting concerns about inequality can translate into pushback against job-destroying austerity, too.
But the most important reason for Mr. Obama to focus on inequality is political realism. Like it or not, the simple fact is that Americans “get” inequality; macroeconomics, not so much. ...
The point is that of the two great problems facing the U.S. economy, inequality is the one on which Mr. Obama is most likely to connect with voters. And he should seek that connection with a clear conscience: There’s no shame is acknowledging political reality, as long as you’re trying to do the right thing.
So I hope we’ll hear something about jobs Tuesday night, and some pushback against deficit hysteria. But if we mainly hear about inequality and social justice, that’s O.K.

Thursday, January 23, 2014

Don't Blame the Robots for our Wage or Job Problems

I'm a bit more sympathetic to the skill based technical change causing wage inequality arguments than Larry Mishel, technological change is at least part of the story in my view (but, importantly, not the whole story, unionization and relative bargaining power between workers and firms, political forces, etc. are also at work), but his arguments are certainly worth noting (and this extract may not fully reflect his views):

The Robots Are Here and More Are Coming: Do Not Blame Them for our Wage or Job Problems, , by Lawrence Mishel: The “robots are coming” narrative dominating discussions of the economy  was popularized by Erik Brynjolfsson and Andrew McAfee in their 2011 book, Race Against the Machine. They have built on that theme in the richer, deeper The Second Machine Age (W.W. Norton, 2014). The first half of the book provides a valuable window, at least for a non-technologist like me, into past developments and the future trajectory of digitization. Their claim is that digitization will do for mental power what the steam engine did for muscle power—that is, quite a bit, transforming our lives at work and play.
The remainder of the book dwells on the role of digitization in generating both bounty (more consumer choice and greater output, wealth, and income) and spread (greater inequalities of wages, income, and wealth). In treating these topics, they heavily rely on the work of others. As in their last book, they do not provide much direct evidence of the connection between technological change and wage inequality. I study these issues and believe they are wrong to tightly link digitization and robots to wage inequality and the slow job growth of the 2000s. Although the authors claim “technology is certainly not the only force causing this rise in spreads, but it is one of the main ones” my fear is that this book, like their last one, will fuel the mistaken narrative that technology is responsible for our job and wage problems and that we are powerless to obtain more equitable growth. ...
On wage inequality, the authors offer “skill-biased technical change” or SBTC as the explanation. In fact, they offer two distinct SBTC narratives, both of which cannot be simultaneously true and neither of which aptly explains wage trends.
In general, SBTC narratives are weak because they cannot explain one of the key inequality trends, the remarkable wage and income growth of the top 1.0 and 0.1 percent. ...
Specifically, the authors’ first SBTC narrative, the “race between technology and skills,” falls short because it doesn’t square with recent trends. Under this narrative, technological change makes employers value education more, and the more education or skills one has, the better one fares. Despite the absence of prima facie evidence for this popular narrative for two decades, it barrels along anyway. For instance, the wage gap between middle and low-wage workers has been stable or falling since 1987 or so, meaning that those with the least skills have done at least as well or better than those in the middle. ...
The second narrative is that technology is eroding jobs and wages in middle-wage occupations but expanding opportunities and wages among low- and high-wage occupations. This “job polarization” narrative, which emerged around 2006, was designed to overcome the flaw in the education narrative’s explanation of wage trends in the 1990s, when low-wage workers fared as well or better than middle-wage workers. The accumulating evidence now shows that job polarization has not occurred in the entire 2000s...
So, again, these two SBTC narratives can’t both be true—either middle-wage workers are doing better than low-wage workers or they’re not. And neither one can explain the trends of the 2000s, the period where one would expect digitization’s impact to be most evident. The robots are here and more will be coming but they are not responsible for our employment or our wage problems. Read the first half of the book to learn about technology but take the second half with a grain of salt. For understanding wage inequality you should look elsewhere.

Monday, January 20, 2014

Paul Krugman: The Undeserving Rich

The rise in inequality is being met with "a determined campaign of statistical obfuscation":

The Undeserving Rich, by Paul Krugman, Commentary, NY Times: The reality of rising American inequality is stark. ... While we can and should have a serious debate about what to do about this situation, the simple fact — American capitalism as currently constituted is undermining the foundations of middle-class society — shouldn’t be up for argument.
But it is, of course..., class warfare is already underway, with the plutocrats on offense. The result has been a determined campaign of statistical obfuscation. ... The story goes like this: America’s affluent are affluent because they made the right lifestyle choices. They got themselves good educations, they got and stayed married, and so on. Basically, affluence is a reward for adhering to the Victorian virtues.
What’s wrong with this story? Even on its own terms, it postulates opportunities that don’t exist. For example, how are children of the poor, or even the working class, supposed to get a good education in an era of declining support for and sharply rising tuition at public universities? Even social indicators like family stability are, to an important extent, economic phenomena: nothing takes a toll on family values like lack of employment opportunities.
But the main thing about this myth is that it misidentifies the winners from growing inequality. White-collar professionals, even if married to each other, are only doing O.K. The big winners are a much smaller group. ...
And who are these lucky few? Mainly they’re executives of some kind, especially, although not only, in finance. You can argue about whether these people deserve to be paid so well, but one thing is clear: They didn’t get where they are simply by being prudent, clean and sober.
So how can the myth of the deserving rich be sustained? Mainly through a strategy of distortion by dilution. You almost never see apologists for inequality willing to talk about the 1 percent, let alone the really big winners. Instead, they talk about the top 20 percent, or at best the top 5 percent. These may sound like innocent choices, but they’re not, because they involve lumping in married lawyers with the wolves of Wall Street. ...
Again, I know that these realities make some people, not all of them hired guns for the plutocracy, uncomfortable, and they’d prefer to paint a different picture. But even if the facts have a well-known populist bias, they’re still the facts — and they must be faced.

Thursday, January 16, 2014

'Democracy's Pains'

Daron Acemoglu and James Robinson:

Democracy's pains: Disillusionment with political leaders is spreading across the globe. In the United States, the approval ratings of the President and the Congress are at all-time lows, and probably for good reason. There is general dissatisfaction with the ruling class across much of Europe, particularly in the South. But this is much broader than a Western world phenomenon.
Protests and alternatives to the Congress Party’s domination of Indian politics are growing, fueling support for fringe activists...
In Turkey, hundreds of thousands poured into the streets in the summer to protest Prime Minister Erdoğan’s increasingly authoritarian rule, and the discontent is now spreading more broadly... Discontent with the rule of establishment politicians is also growing in Bangladesh, Cambodia and Indonesia.
So what’s going on? Two factors seem to be at work, one healthy, one unhealthy.
First, citizens seem to be increasingly unwilling to put up with the antics of unaccountable political elites, often all too willing to pursue policies that their voters do not approve of. ...
All in all, even if the details vary across countries and even if some of the discontent is driven by confused notions and sometimes even by unsavory characters and ideas, a greater unwillingness by the masses to let their political elites run amok is broadly welcome. Democracy will function better, and has a better chance of approximating our ideal “inclusive political institutions,” when complemented by non-electoral constraints, which includes not just the media but also the willingness of ordinary people to get up and protest in the streets.
The second sort is quite different, however. In several countries, vocal and well-organized minorities are proving unwilling to accept elected governments that have brought to power previously disempowered groups. ...[S]o long as elites and a vocal minority refuse to accept electoral results they don’t like, the path to a healthy democracy and truly inclusive institutions will be long, arduous and perhaps blocked for a long time.

Monday, January 13, 2014

Paul Krugman: Enemies of the Poor

Will Republicans ever care about the poor?:

Enemies of the Poor, by Paul Krugman, Commentary, NY Times: Suddenly it’s O.K., even mandatory, for politicians with national ambitions to talk about helping the poor. This is easy for Democrats, who can go back to being the party of F.D.R. and L.B.J. It’s much more difficult for Republicans, who are having a hard time shaking their reputation for reverse Robin-Hoodism, for being the party that takes from the poor and gives to the rich.
And the reason that reputation is so hard to shake is that it’s justified. It’s not much of an exaggeration to say that right now Republicans are doing all they can to hurt the poor, and they would have inflicted vast additional harm if they had won the 2012 election. Moreover, G.O.P. harshness toward the less fortunate isn’t just a matter of spite...; it’s deeply rooted in the party’s ideology...
Let’s start with the recent Republican track record.
The most important current policy development in America is the rollout of the Affordable Care Act, a k a Obamacare. Most Republican-controlled states are, however, refusing to implement a key part of the act, the expansion of Medicaid, thereby denying health coverage to almost five million low-income Americans. And the amazing thing is that ... the aid through would cost almost nothing; nearly all the costs ... would be paid by Washington.
Meanwhile, those Republican-controlled states are slashing unemployment benefits, education financing and more. As I said, it’s not much of an exaggeration to say that the G.O.P. is hurting the poor as much as it can.
What would Republicans have done if they had won the White House in 2012? Much more of the same. Bear in mind that every budget the G.O.P. has offered since it took over the House in 2010 involves savage cuts in Medicaid, food stamps and other antipoverty programs. ...
The point is that a party committed to small government and low taxes on the rich is, more or less necessarily, a party committed to hurting, not helping, the poor. ...
Republicans weren’t always like this. In fact, all of our major antipoverty programs — Medicaid, food stamps, the earned-income tax credit — used to have bipartisan support. And maybe someday moderation will return to the G.O.P.
For now, however, Republicans are in a deep sense enemies of America’s poor. And that will remain true no matter how hard the likes of Paul Ryan and Marco Rubio try to convince us otherwise.

Sunday, January 12, 2014

'Congress is a Millionaires' Club. Why that Matters...'

Kathleen Geier:

Congress is a millionaires' club. Why that matters, and what we can do about it: This week at the Monkey Cage blog, Duke University political scientist Nicholas Carnes wrote a fascinating pair of posts arguing that, when it comes to America's political system, class matters -- even more than a lot of us thought. ...
Carnes points out that, although millionaires make up only 3 percent of the population, they "have a majority in the House of Representatives, a filibuster-proof super-majority in the Senate, a 5 to 4 majority on the Supreme Court and a man in the White House." At the same time, working class people -- whom he defines as "people with manual-labor and service-industry jobs" -- make up more than half of the population, yet people from working class backgrounds have never held more than 2 percent of the seats in Congress. ...
Carnes performed simulations that showed that a number of important economic victories for the right "probably wouldn’t have passed if Congress had been made up of the same mix of classes as the nation it represents." The 2001 Bush tax cuts, for example... In general, the absence of working class legislators is associated with "tax policies [that] are more favorable to businesses, social safety net programs[that] are stingier, protections for workers [that] are weaker, and economic inequality [that] is significantly worse."
What can we do to alleviate this problem? According to Carnes' research, the issue isn't that voters are biased in favor of rich candidates. Nor is it the case that working class Americans lack the talents to govern. The most basic problem is that so few working class people run for office in the first place. ...
Of course, the chances of passing a reform like publicly financed elections would be dramatically improved if we elected more working class people to Congress in the first place. As is so often the case where economic inequality is concerned, unequal institutions become even more so because the self-dealing elites who dominate them tend to support policies that entrench their own power...

Thursday, January 09, 2014

'Why The Republican’s Old Divide-and-Conquer Strategy Is Backfiring'

It's been awhile since we've checked in with Robert Reich:

Why The Republican’s Old Divide-and-Conquer Strategy — Setting Working Class Against the Poor — Is Backfiring, by Robert Reich: For almost forty years Republicans have pursued a divide-and-conquer strategy intended to convince ... the working class that its hard-earned tax dollars were being siphoned off to pay for “welfare queens” ... and other nefarious loafers. The poor were “them” — lazy, dependent on government handouts, and overwhelmingly black — in sharp contrast to “us,” who were working ever harder, proudly independent..., and white.  
It was a cunning strategy designed to split the broad Democratic coalition that had supported the New Deal and Great Society, by using the cleavers of racial prejudice and economic anxiety. It also conveniently fueled resentment of government taxes and spending. 
The strategy also served to distract attention from the real cause of the working class’s shrinking paychecks — corporations that were busily busting unions, outsourcing abroad, and replacing jobs with automated equipment and, subsequently, computers and robotics.  
But the divide-and-conquer strategy is no longer convincing because the dividing line between poor and middle class has all but disappeared. “They” are fast becoming “us.”... Three decades of flattening wages and declining economic security have taken a broader toll..., unexpected poverty has become a real possibility for almost everyone these days. And there’s little margin of safety. ... 
Race is no longer a dividing line, either. ... Most people are now on the same losing side of the divide. ...
Which means Republican opposition to extended unemployment insurance, food stamps, jobs programs, and a higher minimum wage pose a real danger of backfiring on the GOP. ... It’s not hard to imagine a new political coalition of America’s poor and working middle class, bent not only on repairing the nation’s frayed safety nets but also on getting a fair share of the economies’ gains.

Wednesday, January 08, 2014

'On Fighting the Last War (On Poverty)'

Paul Krugman:

On Fighting the Last War (On Poverty), by Paul Krugman: ... I wanted ... to say something about the 50th anniversary of Lyndon Johnson’s War on Poverty. ...
The narrative in the 1970s was that the war on poverty had failed because of social disintegration: government attempts to help the poor were outpaced by the collapse of the family, rising crime, and so on. And on the right, and to some extent in the center, it was often argued that government aid was if anything promoting this social disintegration. ...
But that was a long time ago. These days crime is way down, so is teenage pregnancy, and so on; society did not collapse. What collapsed instead is economic opportunity. If progress against poverty has been disappointing over the past half century, the reason is not the decline of the family but the rise of extreme inequality. We’re a much richer nation than we were in 1964, but little if any of that increased wealth has trickled down to workers in the bottom half of the income distribution.
The trouble is that the American right is still living in the 1970s, or actually a Reaganite fantasy of the 1970s; its notion of an anti-poverty agenda is still all about getting those layabouts to go to work and stop living off welfare. The reality that lower-end jobs, even if you can get one, don’t pay enough to lift you out of poverty just hasn’t sunk in. And the idea of helping the poor by actually helping them remains anathema.
Will it ever be possible to move this debate away from welfare queens and all that? I don’t know. But for now, the key to understanding poverty arguments is that the main cause of persistent poverty now is high inequality of market income — but that the right can’t bring itself to acknowledge that reality.

Thursday, January 02, 2014

'Economics and the Immigration Debate'

Simon Wren-Lewis:

Economics and the Immigration debate: As the storm force winds blew, I wondered to what extent the debates on immigration and austerity shared a common feature. In both cases economists might feel like someone trying to walk against high winds: it is hard, perhaps painful, and you seem to be getting nowhere fast. To be less metaphorical, in both cases the economic arguments seem to be irrelevant to the public debate, and the politicians want to go in the opposite direction to the one suggested by the economics.
I have talked a great deal about austerity before, but not about immigration. A typical example of the economic arguments is this NIESR study by Lisenkova, Mérette and Sanchez-Martinez (pdf, blog post), which models the impact of the current UK government’s attempts to reduce net migration. (As this Bruegel post shows, the UK debate is fairly typical.) Although the paper uses an OLG model, and allows for some quite elaborate differences between migrants and natives, the basic results are intuitive. As migrants tend to be younger, reducing migration reduces GDP per capita (by about 2.5% in 2060), because there are less workers for each pensioner. For this and other reasons, migrants make less demands on the state, so a reduction in migration raises government spending per person (e.g. the elderly use the NHS more) which requires higher tax rates.  One interesting result is that although restricting migration raises pre-tax wages (less labour supply), after a time post-tax wages are lower because of the higher tax rate.
In short, migration is beneficial for the economy as a whole, and for households as a whole. For a short summary of other empirical evidence, see this article by Jonathan Portes, or this from the OECD. Yet the political debate presumes the opposite. It is taken as read that migration causes all kinds of harmful effects, and the debate revolves around measures to prevent these. ...
So you see why I think there is a potential parallel with the austerity debate. The evidence suggests that migrants make a net fiscal contribution relative to natives, just as all the evidence suggests that austerity is harmful in a liquidity trap. However the ‘public’ believe otherwise, and (by implication) economists should get real and stop going on about evidence so much.
There is a difference, however. ...

He goes on to explain the difference and why he believes that:

While I find the macroeconomics of austerity interesting (it’s my field), I believe the reasons why the economics is ignored are fairly straightforward and much less interesting. In the case of migration, I think understanding why the economics is ignored is much more of an intellectual challenge.

Monday, December 30, 2013

Paul Krugman: Fiscal Fever Breaks

The deficit scolds have been discredited:

Fiscal Fever Breaks, by Paul Krugman, Commentary, NY Times: In 2012 President Obama, ever hopeful that reason will prevail, predicted that his re-election would finally break the G.O.P.’s “fever.” It didn’t.
But the intransigence of the right wasn’t the only disease troubling America’s body politic in 2012. We were also suffering from fiscal fever... Instead of talking about mass unemployment and soaring inequality, Washington was almost exclusively focused on the alleged need to slash spending (which would worsen the jobs crisis) and hack away at the social safety net (which would worsen inequality).
So the good news is that this fever, unlike the fever of the Tea Party, has finally broken. ... What changed?...
First, the political premise behind “centrism” — that moderate Republicans would be willing to meet Democrats halfway in a Grand Bargain combining tax hikes and spending cuts — became untenable. There are no moderate Republicans. ...
Second, a combination of rising tax receipts and falling spending has caused federal borrowing to plunge. This is actually a bad thing, because premature deficit-cutting damages our still-weak economy... But a falling deficit has undermined the scare tactics so central to the “centrist” cause. Even longer-term projections of federal debt no longer look at all alarming.
Speaking of scare tactics, 2013 was the year journalists and the public finally grew weary of the boys who cried wolf... — for example, when Erskine Bowles and Alan Simpson ... warned that a severe fiscal crisis was likely within two years. But that was almost three years ago.
Finally, over the course of 2013 the intellectual case for debt panic collapsed. ... For ... several years fiscal scolds ... leaned heavily on a paper by ... Carmen Reinhart and Kenneth Rogoff, suggesting that government debt has severe negative effects on growth when it exceeds 90 percent of G.D.P. ...
Then Thomas Herndon, a graduate student at the University of Massachusetts, reworked the data, and found that the apparent cliff at 90 percent disappeared once you corrected a minor error and added a few more data points. ...
Still, does any of this matter? You could argue that it doesn’t — that fiscal scolds may have lost control of the conversation, but that we’re still doing terrible things like cutting off benefits to the long-term unemployed. But while policy remains terrible, we’re finally starting to talk about real issues like inequality, not a fake fiscal crisis. And that has to be a move in the right direction.

Thursday, December 26, 2013

British Economic Triumphalism in Perspective

Menzie Chinn: 

British Economic Triumphalism in Perspective, by Menzie Chinn: Prime Minister Chancellor of the Exchequer Osborne has lauded the recent UK growth numbers as validation for the policy of austerity [1] (recently relaxed, although he doesn't mention that). ...
I think it useful to compare the US and the UK. The former embarked upon a policy of fiscal stimulus, and then retrenchment, but nothing compared to the retrenchment implemented in the latter. And in the US, per capita GDP growth was much more rapid than in the UK.

Us-uk
Figure 1: Log per capita US GDP, in Ch.09$ (blue) and per capita UK GDP, in Ch.2010£ (red). UK population is annual midyear data from IMF WEO, interpolated using quadratic match. Source: BEA, ONS, IMF WEO (October).

The gap between the two series is 7.3% as of 2013Q3. So, the growth in the UK now is merely digging the economy out of a big hole dug for itself in the search of expansionary fiscal contraction. [2].

Saturday, December 21, 2013

'Don’t Mistake This for Gridlock'

Tyler Cowen:

Don’t Mistake This for Gridlock, by Tyler Cowen, Commentary, NY Times: Economic policy in the United States is ruled by gridlock. That’s the common belief, and it’s easy to see the evidence for it in the daily headlines. Immigration reform didn’t even come up for a vote in Congress this year, and the budget deal approved by the Senate last week managed to amend the sequestration but was far from a “grand fiscal bargain.” It was the best that could be accomplished, given gridlock.
Yes, there’s some truth to this view of our state of affairs. Still, the American political system allows for more change than its current reputation suggests.
The Affordable Care Act offers an example...

This is not a new debate. For example, Tyler Cowen and Larry Summers are in agreement, but here's another view:

Gridlock is no way to govern, by Norman J. Ornstein and Thomas E. Mann, Commentary, Washington Post: Larry Summers is a brilliant, award-winning economist. Monday, in his monthly op-ed column for The Post, he opined about politics and history [“Sometimes, gridlock is good for America,” April 15]. Our advice, as political scientists, is that Summers should stick to economics.
Summers painted a rosy scenario, saying that the frustration people feel at the slowness and gridlock of recent years is misplaced — that things were just as bad, if not worse, in the early 1960s; that the failures to enact health-care and welfare reform in the Nixon years were a good thing; and that more gridlock, not less, would have been helpful during the George W. Bush years. Summers also lauded the economic policies that have enabled the United States to avoid the double- or triple-dip recessions that have hit Europe, as well as passage of the Affordable Care Act and financial regulation, and advances in energy and the widespread acceptance of same-sex marriage.
We were left wondering what political system Summers has been living in the past several years. This level of partisan polarization, veering from ideological differences into tribalism, has not been seen in more than a century. The U.S. system has always moved slowly, but in times past major advances were achieved with some level of cooperation or restraint, if not consensus, between the parties. No more. ...

Larry Summers responds.

Saturday, December 14, 2013

'A Health Care Mystery Explained'

Paul Krugman:

A Health Care Mystery Explained: Ezra Klein is puzzled ... by Republican hypocrisy on health care. For many years the GOP has advocated things that are supposed to bring the magic of the marketplace and individual incentives to health care: higher deductibles to give people “skin in the game”, competition among private insurers via exchanges — competition that would include reducing costs by limiting networks — and, of course, for cuts in Medicare. Now the GOP complains bitterly that some Obamacare policies have high deductibles, that it relies on the horror of exchanges, that some networks are limited, and that there are cuts in Medicare.
Klein suggests that Republicans are really upset by other aspects of Obamacare, but are going after the easy targets even though they’re attacking their own ideas. ... I suspect that he knows that the issue is both bigger and simpler than he says. ...
The purpose of most health care reform is to help the unfortunate — people with pre-existing conditions, people who don’t get insurance through their jobs, people who just don’t earn enough to afford insurance. Cost control is also part of the picture, but not the dominant part. ...
And here’s the thing: Republicans don’t want to help the unfortunate. They’ll propound health-care ideas that will, they claim, help those with preexisting conditions and so on — but those aren’t really proposals, they’re diversionary tactics designed to stall real health reform. ...
Hence the rage of the right. Here they were, with a whole raft of ideas they could throw out, like chaff thrown out to confuse enemy radar, to divert and confuse any attempt to actually provide insurance to the uninsured. And those dastardly Democrats have gone ahead and actually incorporated those ideas into real reform.
Once you realize this, you also realize that people who warn that by opposing Obamacare Republicans are undermining their own proposals are missing the point. Yes, the Ryan plan to privatize Medicare looks a lot like Obamacare — but Ryan comes to Medicare not to save it, but to bury it, so the question of whether his plan could work is irrelevant.
There’s no mystery here; it’s just top-down class warfare as usual.

Friday, December 13, 2013

Paul Krugman: The Biggest Losers

Fiscal policy has been "deeply destructive":

The Biggest Losers, by Paul Krugman, Commentary, NY Times: The pundit consensus seems to be that Republicans lost in the just-concluded budget deal. Overall spending will be a bit higher than the level mandated by the sequester... Meanwhile, Democrats avoided making any concessions on Social Security or Medicare. ...
But if Republicans arguably lost this round, the unemployed lost even more: Extended benefits weren’t renewed, so 1.3 million workers will be cut off at the end of this month, and many more will see their benefits run out in the months that follow. And ... since Republicans took control of the House of Representatives in 2010..., a triumph of anti-government ideology that has had enormously destructive effects on American workers.
First, some facts about government spending..., the actual numbers show that over the past three years we’ve been living through an era of unprecedented government downsizing. Government employment is down sharply;... government spending..., has fallen almost 3 percent since 2010 and around 5 percent per capita. ...
There are three things you need to know about these harsh cuts.
First, they were unnecessary..., markets have never shown any concern at all about U.S. creditworthiness..., borrowing costs have stayed at near-record lows...
Second, the cuts did huge short-term economic damage. ... The recent cuts ... took place at the worst possible moment, the aftermath of a financial crisis. Families were struggling to cope with the debt they had run up during the housing bubble; businesses were reluctant to invest given the weakness of consumer demand. Under these conditions, government cutbacks simply swelled the ranks of the unemployed — and as family incomes fell, so did consumer spending, compounding the damage.
The result was to deepen and prolong America’s jobs crisis. Those cuts in government spending are the main reason we still have high unemployment, more than five years after Lehman Brothers fell.
Finally, if you look at ... major areas that were cut, you’ll notice that they mainly involve investing in the future. So we aren’t just looking at short-term harm, we’re also looking at a long-term degradation of our prospects, reinforced by the corrosive effects of sustained high unemployment.
So, about that budget deal: yes, it was a small victory for Democrats. It was also, possibly, a small step toward political sanity...
But the larger picture is one of years of deeply destructive policy, imposing gratuitous suffering on working Americans. And this deal didn’t do much to change that picture.

Wednesday, December 11, 2013

'Budget Deal Does Little to Address the Needs of the Economy'

Larry Mishel of the EPI:

Budget Deal Does Little to Address the Needs of the Economy: While all the details have yet to be released, it seems clear that the budget agreement announced by Senator Patty Murray and Representative Paul Ryan, which sets discretionary budget authority limits for fiscal years 2014 and 2015, will do essentially nothing to alter the disastrous trajectory that has characterized fiscal policy since 2011. I support reaching an agreement that will end the culture of periodic crises that has driven policy in recent years. However, this deal addresses the wrong set of priorities: deficit reduction ten years out rather than a stronger recovery now, and tweaking domestic spending for a few years as we continue to ignore the public investments our country needs.
The worst part of the budget deal by far is what it doesn’t address: unemployment insurance for America’s four million long-term unemployed workers. This deal asks essentially nothing of the richest Americans while placing terrible burdens on new federal employees and the unemployed, and continuing the fiscal policy drag on our still-unfinished recovery.

Public and Private Sector Payroll Jobs: Reagan, Bush, Clinton, Bush, Obama

Calculated Risk takes a look at public and private job growth for recent presidents:

Cr1

Cr2

Monday, December 09, 2013

'Republican Inflation Paranoia Is Political Suicide'

Ramesh Ponnuru is paranoid about Republican paranoia:

Republican Inflation Paranoia Is Political Suicide, by Ramesh Ponnuru: In the years since the financial crisis, Republican politicians have increasingly embraced a “hard money” critique of the Federal Reserve.
They’ve warned that its policies are too loose and dangerously inflationary, even as inflation has stayed well below historical levels. Now some conservatives are arguing that criticizing loose money should be a more prominent part of their case to voters. It’s a winning issue, they say, and Republicans should make the most of it.
They’re wrong on both counts. ...
Republicans do need to rethink their approach to economics. Intensifying their already excessive focus on inflation isn’t the way to do it.

Saturday, December 07, 2013

'Pathetic Centrists'

From today's links, Paul Krugman:

Pathetic Centrists: So progressive Democrats have seized on an op-ed by the group Third Way — an op-ed attacking Elizabeth Warren and Bill de Blasio for their terrible, horrible economic populism — as a way to start reclaiming the party from the “centrists”. And it’s working: the centrists are very much on the run.
Why? Part of the answer is that the Democratic party has become more progressive. But I would argue that the centrists are also suffering from their own intellectual bankruptcy.
I mean, going after Warren and de Blasio for not being willing to cut Social Security and their “staunch refusal to address the coming Medicare crisis” ??? Even aside from the question of exactly what the mayor of New York has to do with Medicare, this sounds as if they have been living in a cave for years, maybe reading an occasional screed from the Pete Peterson complex.
On Social Security, they’re still in the camp insisting that because the system might possibly have to pay lower benefits in the future, we must move now to cut future benefits. Oh, kay.
But anyway, they declare that Medicare is the bigger issue. So what’s this about “staunch refusal” to address Medicare? The Affordable Care Act contains lots of measures to limit Medicare costs and health care more generally — it’s Republicans, not progressive Democrats, who have been screaming against cost-saving measures (death panels!). And health cost growth has slowed dramatically, feeding into much better Medicare projections. ...
It’s just so tired and tiring. If being a “centrist” means fact-free denunciations of progressives for not being willing to cut entitlements, who needs these guys?

Some centrists, are, I think, motivated by the fear that the Democratic Party will lose the middle to Republicans if the "extremists" become the voice of the Party. So they adopt positions that are based upon what they think these at risk centrists Democrats and independents in the general voting population want to hear.

Friday, December 06, 2013

Paul Krugman: Obama Gets Real

Obama's speech on inequality and mobility was important:

Obama Gets Real, by Paul Krugman, Commentary, NY Times: Much of the media commentary on President Obama’s big inequality speech was cynical. You know the drill: it’s yet another “reboot” that will go nowhere..., and so on. But ... the speech may matter a lot more than the cynics imagine.
First..., Mr. Obama laid out a disturbing — and, unfortunately, all too accurate — vision of an America losing touch with its own ideals, an erstwhile land of opportunity becoming a class-ridden society. ... And he linked rising inequality with falling mobility, asserting that Horatio Alger stories are becoming rare precisely because the rich and the rest are now so far apart. ...
What struck me about this speech, however, was what he had to say about the sources of rising inequality. Much of our political and pundit class remains devoted to the notion that rising inequality, to the extent that it’s an issue at all, is all about workers lacking the right skills and education. But the president now seems to accept progressive arguments that education is at best one of a number of concerns, that America’s growing class inequality largely reflects political choices, like the failure to raise the minimum wage along with inflation and productivity.
And because the president was willing to assign much of the blame for rising inequality to bad policy, he was also more forthcoming than in the past about ways to change the nation’s trajectory, including a rise in the minimum wage, restoring labor’s bargaining power, and strengthening, not weakening, the safety net.
And there was this: “When it comes to our budget, we should not be stuck in a stale debate from two years ago or three years ago.  A relentlessly growing deficit of opportunity is a bigger threat to our future than our rapidly shrinking fiscal deficit.” Finally! Our political class has spent years obsessed with a fake problem — worrying about debt and deficits that never posed any threat to the nation’s future — while showing no interest in unemployment and stagnating wages. Mr. Obama, I’m sorry to say, bought into that diversion. Now, however,... we have the president of the United States breaking ranks, finally sounding like the progressive many of his supporters thought they were backing in 2008. This is going to change the discourse — and, eventually, I believe, actual policy.
So don’t believe the cynics. This was an important speech by a president who can still make a very big difference.

Wednesday, December 04, 2013

Remarks by the President on Economic Mobility

President Obama:

Remarks by the President on Economic Mobility, THEARC, Washington, D.C.: Thank you. (Applause.) Thank you, everybody. Thank you so much. Please, please have a seat. Thank you so much. Well, thank you, Neera, for the wonderful introduction and sharing a story that resonated with me. There were a lot of parallels in my life and probably resonated with some of you.
Over the past 10 years, the Center for American Progress has done incredible work to shape the debate over expanding opportunity for all Americans. And I could not be more grateful to CAP not only for giving me a lot of good policy ideas, but also giving me a lot of staff. (Laughter.) My friend, John Podesta, ran my transition; my Chief of Staff, Denis McDonough, did a stint at CAP. So you guys are obviously doing a good job training folks.
I also want to thank all the members of Congress and my administration who are here today for the wonderful work that they do. I want to thank Mayor Gray and everyone here at THEARC for having me. This center, which I’ve been to quite a bit, have had a chance to see some of the great work that’s done here. And all the nonprofits that call THEARC home offer access to everything from education, to health care, to a safe shelter from the streets, which means that you’re harnessing the power of community to expand opportunity for folks here in D.C. And your work reflects a tradition that runs through our history -- a belief that we’re greater together than we are on our own. And that’s what I’ve come here to talk about today.
Over the last two months, Washington has been dominated by some pretty contentious debates -- I think that’s fair to say. And between a reckless shutdown by congressional Republicans in an effort to repeal the Affordable Care Act, and admittedly poor execution on my administration’s part in implementing the latest stage of the new law, nobody has acquitted themselves very well these past few months. So it’s not surprising that the American people’s frustrations with Washington are at an all-time high.
But we know that people’s frustrations run deeper than these most recent political battles. Their frustration is rooted in their own daily battles -- to make ends meet, to pay for college, buy a home, save for retirement. It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them. And it’s rooted in the fear that their kids won’t be better off than they were. They may not follow the constant back-and-forth in Washington or all the policy details, but they experience in a very personal way the relentless, decades-long trend that I want to spend some time talking about today. And that is a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain -- that if you work hard, you have a chance to get ahead.
I believe this is the defining challenge of our time: Making sure our economy works for every working American. It’s why I ran for President. It was at the center of last year’s campaign. It drives everything I do in this office. And I know I’ve raised this issue before, and some will ask why I raise the issue again right now. I do it because the outcomes of the debates we’re having right now -- whether it’s health care, or the budget, or reforming our housing and financial systems -- all these things will have real, practical implications for every American. And I am convinced that the decisions we make on these issues over the next few years will determine whether or not our children will grow up in an America where opportunity is real.
Now, the premise that we’re all created equal is the opening line in the American story. And while we don’t promise equal outcomes, we have strived to deliver equal opportunity -- the idea that success doesn’t depend on being born into wealth or privilege, it depends on effort and merit. And with every chapter we’ve added to that story, we’ve worked hard to put those words into practice.
It was Abraham Lincoln, a self-described “poor man’s son,” who started a system of land grant colleges all over this country so that any poor man’s son could go learn something new.
When farms gave way to factories, a rich man’s son named Teddy Roosevelt fought for an eight-hour workday, protections for workers, and busted monopolies that kept prices high and wages low.
When millions lived in poverty, FDR fought for Social Security, and insurance for the unemployed, and a minimum wage.
When millions died without health insurance, LBJ fought for Medicare and Medicaid.
Together, we forged a New Deal, declared a War on Poverty in a great society. We built a ladder of opportunity to climb, and stretched out a safety net beneath so that if we fell, it wouldn’t be too far, and we could bounce back. And as a result, America built the largest middle class the world has ever known. And for the three decades after World War II, it was the engine of our prosperity.
Now, we can’t look at the past through rose-colored glasses. The economy didn’t always work for everyone. Racial discrimination locked millions out of poverty -- or out of opportunity. Women were too often confined to a handful of often poorly paid professions. And it was only through painstaking struggle that more women, and minorities, and Americans with disabilities began to win the right to more fairly and fully participate in the economy.
Nevertheless, during the post-World War II years, the economic ground felt stable and secure for most Americans, and the future looked brighter than the past. And for some, that meant following in your old man’s footsteps at the local plant, and you knew that a blue-collar job would let you buy a home, and a car, maybe a vacation once in a while, health care, a reliable pension. For others, it meant going to college -- in some cases, maybe the first in your family to go to college. And it meant graduating without taking on loads of debt, and being able to count on advancement through a vibrant job market.
Now, it’s true that those at the top, even in those years, claimed a much larger share of income than the rest: The top 10 percent consistently took home about one-third of our national income. But that kind of inequality took place in a dynamic market economy where everyone’s wages and incomes were growing. And because of upward mobility, the guy on the factory floor could picture his kid running the company some day.
But starting in the late ‘70s, this social compact began to unravel. Technology made it easier for companies to do more with less, eliminating certain job occupations. A more competitive world lets companies ship jobs anywhere. And as good manufacturing jobs automated or headed offshore, workers lost their leverage, jobs paid less and offered fewer benefits.
As values of community broke down, and competitive pressure increased, businesses lobbied Washington to weaken unions and the value of the minimum wage. As a trickle-down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither. And for a certain period of time, we could ignore this weakening economic foundation, in part because more families were relying on two earners as women entered the workforce. We took on more debt financed by a juiced-up housing market. But when the music stopped, and the crisis hit, millions of families were stripped of whatever cushion they had left.
And the result is an economy that’s become profoundly unequal, and families that are more insecure. I’ll just give you a few statistics. Since 1979, when I graduated from high school, our productivity is up by more than 90 percent, but the income of the typical family has increased by less than eight percent. Since 1979, our economy has more than doubled in size, but most of that growth has flowed to a fortunate few.

Continue reading "Remarks by the President on Economic Mobility" »

Friday, November 22, 2013

Paul Krugman: Expanding Social Security

Social Security benefits "should be expanded, not cut":

Expanding Social Security, by Paul Krugman, Commentary, NY Times: For many years there has been one overwhelming rule for people who wanted to be considered serious inside the Beltway. It was this: You must declare your willingness to cut Social Security in the name of “entitlement reform.” It wasn’t really about the numbers, which never supported the notion that Social Security faced an acute crisis. It was instead a sort of declaration of identity, a way to show that you were an establishment guy, willing to impose pain (on other people, as usual) in the name of fiscal responsibility.
But a funny thing has happened in the past year or so. Suddenly, we’re hearing open discussion of the idea that Social Security should be expanded, not cut. Talk of Social Security expansion has even reached the Senate, with Tom Harkin introducing legislation that would increase benefits. A few days ago Senator Elizabeth Warren gave a stirring floor speech making the case for expanded benefits.
Where is this coming from? One answer is that the fiscal scolds driving the cut-Social-Security orthodoxy have, deservedly, lost a lot of credibility over the past few years. ... Beyond that, America’s overall retirement system is in big trouble. ...
Many workers used to have defined-benefit retirement plans, plans in which their employers guaranteed a steady income after retirement. And a fair number of seniors ... are still collecting benefits from such plans.
Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s... The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.
As a result, we’re looking at a looming retirement crisis, with tens of millions of Americans facing a sharp decline in living standards at the end of their working lives. For many, the only thing protecting them from abject penury will be Social Security. Aren’t you glad we didn’t privatize the program?
So there’s a strong case for expanding, not contracting, Social Security. Yes, this would cost money, and it would require additional taxes...
Realistically, Social Security expansion won’t happen anytime soon. But it’s an idea that deserves to be on the table — and it’s a very good sign that it finally is.

Tuesday, November 19, 2013

'The Geezers Are Not Alright'

This editorial in the Washington Post really irritated me when I read it, so this response is nice to see:

The Geezers Are Not Alright: The Washington Post editorial board wants to cut Medicare and Social Security. That has been its consistent position as long as I can remember. And what it advocates, always, are cuts in benefits, not costs..., things like a rise in the Medicare age. These are the kind of moves that are considered serious inside the Beltway. And as you might imagine, the Post has gone wild over recent suggestions that Social Security should be expanded, not cut.

But perceived seriousness is not the same as actual seriousness, which depends on the facts. We now know that raising the Medicare age is a truly terrible idea, which would create a lot of hardship while making next to no dent in the budget deficit. And the central premise of the latest editorial — that the elderly are doing fine — just isn’t true.

The Post writes:

The bill’s authors warn of a looming “retirement crisis” because of low savings rates and disappearing private-sector pensions. In fact, the poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children.

This suggests that Social Security is doing a good job of fighting poverty as is and that those gains could be preserved in any attempt to trim the program.

Guys, you have to keep up here. It’s well-known that the official poverty measure is quite flawed... — and it’s especially flawed when it comes to the elderly... The Census Supplemental Poverty Measure puts senior poverty at 14.8 percent, only slightly lower than the rate for younger adults.

And some of today’s seniors are still benefiting from traditional defined-benefit retirement plans. In the future, income other than from Social Security will depend almost entirely on defined-contribution plans — basically 401(k)s. And 401(k)s are basically an experiment that failed, except for the already affluent.

Maybe you don’t believe that the failure of defined-contribution plans is a reason to expand the one major defined-benefit plan we have, aka Social Security. But don’t make that argument by claiming that all is well with America’s seniors. The geezers are not alright.

And even if the poverty rate among the elderly is tolerable as it is -- I'm not making that claim, but suppose it is -- the reason why advocates want to increase benefits is the fear that things will get worse in the future. Today's poverty rate doesn't tell us much about the "looming 'retirement crisis.'" Whether or not today's rate is in the tolerable range, should accept more poverty without trying to do something about it? Should we be happy about a large increase in the percentage that are in poverty just because we start from a tolerable figure? And what if today's figure isn't tolerable after all? In any case, this is about the rate of change in poverty among the elderly in the future, not the level now.

Paul Ryan, Poverty Warrior? Huh?

Jared Bernstein outlines Paul Ryan's "plan" to reduce poverty:

Paul Ryan, Poverty Warrior? Huh?: ... This AM’s WaPo printed a feature on Rep. Paul Ryan’s plans to fight poverty... Then you read page after page, trying to figure out what the dude is actually saying he’d do to lower poverty, and here’s what you’re left with: vouchers, tax credits, and volunteerism. ...

What are his accomplishments? He’s authored some of the harshest and most unrealistic budgets I’ve ever seen, and I’ve been on this beat for awhile–none of them have or are going anywhere legislatively. ...

Nor is he an accomplished legislator. ... Quick–or for that matter, take your time: name one piece of enacted legislation in which he played a significant role…I’m waiting…still waiting…

OK, time to get to work, and I’m sorry to start the day with negativity and snark. But the emperor in the empty suit has no clothes.

Ryan Poverty Plan

1. Cut spending on the poor, cut taxes on the wealthy
2. Shred safety net through block granting federal programs
3. Encourage entrepreneurism, sprinkle around some vouchers and tax credits
4. ???
5. Poverty falls

Thursday, November 14, 2013

'The Backbones of Banana Slugs'

Robert Reich:

Having the Backbone to Set Minimum Standards for Health Insurance: Democrats are showing once again they have the backbones of banana slugs.
The Affordable Care Act was meant to hold insurers to a higher standards. So it stands to reason that some insurers will have to cancel their lousy sub-standard policies.
But spineless Democrats (including my old boss Bill Clinton) are caving in to the Republican-fueled outrage that the President “misled” Americans into thinking they could keep their old lousy policies — and are now urging the White House to forget the new standards and let people keep what they had before.
And some congressional Republicans are all too eager to join them, and allow insurers to offer whatever crap they were offering before...

Monday, November 11, 2013

The View of Obama's Management Skills: How Much Does Politics Matter?

The end of the most recent entry by David Warsh at Economic Principals:

... Evidence is accumulating that Obama is simply not a good manager of the immensely complicate government over which he presides. (An unnamed White House aide solemnly avers to the Post team that the president ended every meeting with his health care staff with the admonition, “All that is well and good, but if the Web site doesn’t work, nothing else matters”) but a good manager would not just say it, but would also make it so.  His hand-picked point-person to oversee implementation was Nancy-Ann DeParle, a veteran manager of Medicare and Medicaid both in Tennessee and then in Washington during the Clinton years. In retrospect, the tip-off might have been when DeParle left the White House last August for a job in private equity. It is an angle yet to be explored.
But evidence is accumulating, too, of a long-simmering guerilla campaign by Clinton loyalists and other Democratic rivals to paint Obama as an indecisive leader and incompetent manager, as a means of creating a narrative for 2016 in which the next Democratic nominee runs against Obama’s shortcomings as well as whoever becomes the Republican nominee. A campaign to compare and contrast the styles of the Bill Clinton and Obama presidencies means that hardly anything  that is said about either one can be taken at face value.
Republicans, meanwhile, are heartened by the re-election victory of New Jersey Gov. Chris Christie. It is worth remembering that that individual mandate was originally a Republican idea for extending coverage to those who were previously insured – only one part of the nation’s enormous health care problems.  As MIT’s Gruber says, “It was only after president Obama put his name to it that it became the devil’s work.”
The GOP’s improvisational campaign against Obamacare is even nuttier than the long “Whitewater scandal” campaign that led to Bill Clinton’s impeachment – and even more counterproductive. It is hard to imagine a successful Republican candidate for the presidency who doesn’t somehow take back ownership of the individual mandate and promise to make it work. It will indeed be a governor who accomplishes that  – more than a few years off.

Paul Krugman: The Plot Against France

Fiscal scolds -- the same people who have been wrong about the virtues of austerity -- have made France their next target:

The Plot Against France, by Paul Krugman, Commentary, NY Times: On Friday Standard & Poor’s ... downgraded France. The move made headlines, with many reports suggesting that France is in crisis. But markets yawned...
So what’s going on here? The answer is that  ... there really are a lot of people trying to bad-mouth the place —... one clear demonstration that ... fiscal scolds don’t really care about deficits. Instead, they’re using debt fears to advance an ideological agenda. ...
Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties — who isn’t? — but in general performing as well as or better than most of its neighbors...
Meanwhile, French fiscal prospects look distinctly nonalarming. The budget deficit has fallen sharply since 2010... By the numbers, then, it’s hard to see why France deserves any particular opprobrium. So again, what’s going on?
Here’s a clue: Two months ago Olli Rehn, Europe’s commissioner for economic and monetary affairs — and one of the prime movers behind harsh austerity policies — dismissed France’s seemingly exemplary fiscal policy. Why? Because it was based on tax increases rather than spending cuts — and tax hikes, he declared, would “destroy growth and handicap the creation of jobs.”
In other words, never mind what I said about fiscal discipline, you’re supposed to be dismantling the safety net. S.& P.’s explanation of its downgrade, though less clearly stated, amounted to the same thing... Again, never mind the budget numbers, where are the tax cuts and deregulation?
You might think that Mr. Rehn and S.& P. were basing their demands on solid evidence... But they weren’t..., research at the I.M.F. suggests that when you’re trying to reduce deficits in a recession, the opposite is true: temporary tax hikes do much less damage than spending cuts.
Oh,... when people start talking about the wonders of “structural reform,” take it with a large heaping of salt. It’s mainly a code phrase for deregulation — and the evidence on the virtues of deregulation is decidedly mixed. ...
If all this sounds familiar to American readers, it should. U.S. fiscal scolds turn out, almost invariably, to be much more interested in slashing Medicare and Social Security than they are in actually cutting deficits. Europe’s austerians are now revealing themselves to be pretty much the same. France has committed the unforgivable sin of being fiscally responsible without inflicting pain on the poor and unlucky. And it must be punished.

Friday, November 08, 2013

Paul Krugman: The Mutilated Economy

Policy failures can be very costly:

The Mutilated Economy, by Paul Krugman, Commentary, NY Times: Five years and eleven months have now passed since the U.S. economy entered recession. ... Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment ... is four times what it was before the recession.
These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started. And many people have pleaded all along for policies that put job creation front and center. Their pleas have, however, been drowned out by the voices of conventional prudence. We can’t spend more money on jobs, say these voices, because that would mean more debt. We can’t even hire unemployed workers and put idle savings to work building roads, tunnels, schools. Never mind the short run, we have to think about the future!
The bitter irony, then, is that it turns out that by failing to address unemployment, we have ... been sacrificing the future, too. ... Or so say researchers from the Federal Reserve, and I’m sorry to say that I believe them. ...
According to the paper..., our seemingly endless slump has done long-term damage through multiple channels. The long-term unemployed eventually come to be seen as unemployable; business investment lags thanks to weak sales; new businesses don’t get started; and existing businesses skimp on research and development.
What’s more, the authors ... suggest that economic weakness has already reduced America’s economic potential by ... more than $1 trillion a year ... for multiple years. ... The ...evidence is overwhelming that ... by not even making unemployment a major policy priority ... we’ve done ourselves immense long-term damage.
And it is, as I said, a bitter irony, because one main reason we’ve done so little about unemployment is the preaching of deficit scolds, who have wrapped themselves in the mantle of long-run responsibility — which they have managed to get identified in the public mind almost entirely with holding down government debt. ...
Is there any chance of reversing this damage? The Fed researchers are pessimistic, and, once again, I fear that they’re probably right. America will probably spend decades paying for the mistaken priorities of the past few years.
It’s really a terrible story: a tale of self-inflicted harm, made all the worse because it was done in the name of responsibility. And the damage continues as we speak.

Sunday, November 03, 2013

Plutocrats vs. Populists

Chrystia Freeland:

Plutocrats vs. Populists, by Chrystia Freeland, Commentary, NY Times: Here's the puzzle of America today: the plutocrats have never been richer, and their economic power continues to grow, but the populists, the wilder the better, are taking over. The rise of the political extremes is most evident, of course, in the domination of the Republican Party by the Tea Party and in the astonishing ability of this small group to shut down the American government. But the centrists are losing out in more genteel political battles on the left, too — that is the story of Bill de Blasio’s dark-horse surge to the mayoralty in New York, and of the Democratic president’s inability to push through his choice to run the Federal Reserve, Lawrence H. Summers.
All of these are triumphs of populists over plutocrats: Mr. de Blasio is winning because he is offering New Yorkers a chance to reject the plutocratic politics of Michael R. Bloomberg. The left wing of the Democratic Party opposed the appointment of Mr. Summers as part of a wider backlash against the so-called Rubin Democrats ... and their sympathy for Wall Street. Even the Tea Party, which in its initial phase was to some extent the creation of plutocrats like Charles and David Koch, has slipped the leash of its very conservative backers and alienated more centrist corporate bosses and organizations.
The limits of plutocratic politics, at both ends of the ideological spectrum, are being tested. That’s a surprise. Political scientists like Larry M. Bartels and Martin Gilens have documented the frightening degree to which, in America, more money means a more effective political voice: Democratic and Republican politicians are more likely to agree with the views of their wealthier constituents and to listen to them than they are to those lower down the income scale. Money also drives political engagement: Citizens United, which removed some restrictions on political spending, strengthened these trends.
Why are the plutocrats, with their great wealth and a political system more likely to listen to them anyway, losing some control to the populists? The answer lies in the particular nature of plutocratic political power in the 21st century and its limitations in a wired mass democracy. ...[continue]...

Friday, November 01, 2013

Paul Krugman: A War on the Poor

Why do Republicans treat the poor so poorly?:

A War on the Poor, by Paul Krigman, Commentary, NY Times: ...Republican hostility toward the poor and unfortunate has now reached such a fever pitch that the party doesn’t really stand for anything else — and only willfully blind observers can fail to see that reality.
The big question is why. But, first, let’s talk a bit more about what’s eating the right.
I still sometimes see pundits claiming that the Tea Party movement is basically driven by concerns about budget deficits. That’s delusional. Read the founding rant by Rick Santelli of CNBC: There’s nary a mention of deficits. Instead, it’s a tirade against the possibility that the government might help “losers” avoid foreclosure. Or read transcripts from Rush Limbaugh or other right-wing talk radio hosts. There’s not much about fiscal responsibility, but there’s a lot about how the government is rewarding the lazy and undeserving.
Republicans in leadership positions try to modulate their language a bit, but it’s a matter more of tone than substance. They’re still clearly passionate about making sure that the poor and unlucky get as little help as possible, that — as Representative Paul Ryan ... put it — the safety net is becoming “a hammock that lulls able-bodied people to lives of dependency and complacency.” ...
The thing is, it wasn’t always this way. ...
So what’s this all about? One reason..., Daniel Little suggested in a recent essay, is market ideology: If the market is always right, then people who end up poor must deserve to be poor. I’d add that some leading Republicans are, in their minds, acting out adolescent libertarian fantasies. “It’s as if we’re living in an Ayn Rand novel right now,” declared Paul Ryan in 2009.
But there’s also, as Mr. Little says, the stain that won’t go away: race.
In a much-cited recent memo, Democracy Corps ... reported on the results of focus groups held with members of various Republican factions. They found the Republican base “very conscious of being white in a country that is increasingly minority” — and seeing the social safety net both as something that helps Those People, not people like themselves, and binds the rising nonwhite population to the Democratic Party. And, yes, the Medicaid expansion many states are rejecting would disproportionately have helped poor blacks.
So there is indeed a war on the poor, coinciding with and deepening the pain from a troubled economy. And that war is now the central, defining issue of American politics.

Thursday, October 31, 2013

'Where is the Outrage over Employer-Sponsored Coverage in the “Rate Shock” Debate?

Adrianna McIntyre at The Incidental Economist:

Where is the outrage over employer-sponsored coverage in the “rate shock” debate?, by Adrianna McIntyre: I’ve been keeping pretty close tabs on the “rate shock” debate... It’s a complicated issue, and prophecies about young adult enrollment, including my own, have relied on broad strokes and guesswork. But one thing in particular has been grating on me: when it comes to complaints about redistribution and overly-generous benefits in health insurance, why is the echo chamber limited to the individual market? Where is the outrage over employer-sponsored insurance? ...
Some 90% of people with private insurance receive it through an employer, and those plans are generally priced using “pure” experience-rating. This means the company serves as one giant risk pool, and a firm’s youngest employees have the exact same insurance premium as their eldest colleagues. The practice has roots in tradition and history; unions started negotiating these kinds of contracts after World War II, and other plans followed suit. But it’s also a matter of law: HIPAA and the ADA prohibit premium variation by health status. Age rating is constrained somewhat—though not entirely—by the Age Discrimination in Employment Act.
Yet, I’ve seen exactly zero Obamacare opponents railing to amend the employer-based practices that require most young healthies to pay more than their “fair share.” No one is plying Congress to amend HIPAA or the ADA so young invincibles can pay premiums appropriate to their health status. No one is calling out employers on their “redistributionist” policies, even though uniform insurance premiums force a substantial transfer from the young to the old. It makes histrionics over Obamacare’s 3:1 age band hard to take seriously. ...
I know many conservative wonks find fault in ties between employment and insurance, but they haven’t injected that into recent critiques. If messaging around rate shock is more than opportunistic hackery—if it’s genuinely about how “health insurance” ought to be conceived—why are they leaving the most prevalent and most redistributive form of private coverage unscathed? Surprise me.

Tuesday, October 29, 2013

'The Latest ACA Dust-Up Should Not be a Dust-Up'

Jared Bernstein tries to make clear that there's nothing new here:

The Latest ACA Dust-Up Should Not be a Dust-Up: Like Igor Volsky, you might ask yourself why this particularly story has any legs right now since it’s re-litigating an issue that was widely debated a few years. But the answer is obvious: tis the season to attack the Affordable Care Act, no matter if this one is a greatest hit from 2010.
At issue is the President’s claim when selling health care reform that if you like your current health plan, you can keep it. That point in turn was based on the provision that grandfathered existing plans in the individual market (neither employer-based or government provided) by granting exemptions from various standards and consumer protections that came into effect when the law was signed in 2010.
However, as clearly stated at the time, if such a plan were to significantly changes in ways that are inconsistent with consumer protections under the ACA, that it would lose its grandfathered status.
Like I said, this has been known since the law was written. In fact, go here to see a 2010 publication by my CBPP colleague Sarah Lueck that lists the ways plans can lose its grandfathered status, like eliminating benefits to treat certain conditions or significantly raising co-pays beyond what’s implied by the rate of medical price inflation. ...
So, did the President misspeak? In a way, sure. He should have said: “If you like your plan and it doesn’t get significantly worse such that it’s out of sync with what we’re trying to do here, you can keep it.”
And, in fact, such nuances were clear at the time and not buried in the weeds but discussed in the open. Not much to see here folks…move along.

Monday, October 28, 2013

'Millions of Dreams Ruined'

Dean Baker reminds us that:

... The United States is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date approaching $5tn.
These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement; young people getting out of school are facing the worst job market since the Great Depression, while buried in student loan debt. ...

We still have a substantial number of unemployed -- millions above full employment level (and that's not even including discouraged workers and the underemployed):

Unemployed
Yet how much have you heard from Washington lately -- from either party -- about the need to do something to help with this problem? Sure Republicans would stand in the way of doing more (though they favor doing less, e.g. cuts to unemployment compensation, food stamps, etc.), but that's partly a reflection of the Democrat's failure to make an issue of obstructionism in the press. Why haven't Democrats made an issue of helping the unemployed at every opportunity in the same way that Republicans make an issue of the debt, etc.?

Paul Krugman: The Big Kludge

Did Obamacare have to be so complicated?:

The Big Kludge, by Paul Krugman, Commentary, NY Times: The good news about HealthCare.gov, the portal to Obamacare’s health exchange, is that the administration is no longer minimizing its problems. That’s the first step toward fixing the mess — and it will get fixed... But while we wait for the geeks to do their stuff, let’s ask a related question: Why did this thing have to be so complicated in the first place? ...
Imagine ... a much simpler system in which the government just pays your major medical expenses..., you wouldn’t have to shop for insurance..., you’d be covered automatically by virtue of being an American.
Of course ... such a system ... already exists. It’s called Medicare..., and it’s enormously popular. So why didn’t we just extend that system to cover everyone?
The proximate answer was politics: Medicare for all just wasn’t going to happen, given both the power of the insurance industry and the reluctance of workers who currently have good insurance through their employers to trade that insurance for something new. Given these political realities, the Affordable Care Act was probably all we could get — and make no mistake, it will vastly improve the lives of tens of millions of Americans.
Still,... Obamacare is an immense kludge — a clumsy, ugly structure that more or less deals with a problem, but in an inefficient way. ... And the main reason that is happening, I’d argue, is ideology. ...
Republicans still dream of dismantling Medicare as we know it, instead giving seniors vouchers to buy private insurance. In effect..., they want to convert Medicare into Obamacare.
Why would we want to do ... these things? You might say, to reduce the burden on taxpayers — but Medicare is cheaper than private insurance...
No, the assault on Medicare is really about an ideology that is fundamentally hostile to the notion of the government helping people... And this ideology, at a fundamental level ... is why Obamacare ended up being a big kludge.
In saying this I don’t mean to excuse the officials and contractors who made such a mess of health reform’s first month. ... For now, the priority is to get this kludge working, and once that’s done, America will become a better place.
In the longer run, however, we have to tackle that ideology. A society committed to the notion that government is always bad will have bad government. And it doesn’t have to be that way.

Saturday, October 26, 2013

Democrats Will Have to Swallow Entitlement Cuts?

I honestly can't remember if I voted for Obama or Hillary in the primary, but if I voted for Obama, it was a mistake:

Obama's Top Economic Adviser Tells Democrats They'll Have to Swallow Entitlement Cuts, by Joshua Green: This morning, Gene Sperling, director of the White House’s National Economic Council, appeared before a Democratic business group for what was billed as a speech about the economy after the shutdown, followed by a Q&A session. The White House didn’t push this as a newsmaking event, so it didn’t get much billing. But I went anyway, and I was struck by what Sperling had to say, especially about the upcoming budget negotiations that are a product of the deal to reopen the government.
In his usual elliptical and prolix way, Sperling seemed to be laying out the contours of a bargain with Republicans that’s quite a bit different that what most Democrats seem prepared to accept. What stood out to me was how he kept winding back around to the importance of entitlement cuts as part of a deal, as if he were laying the groundwork to blunt liberal anger. Right now, the official Democratic position is that they’ll accept entitlement cuts only in exchange for new revenue—something most Republicans reject. If Sperling mentioned revenue at all, I missed it.
But he dwelt at length—and with some passion—on the need for more stimulus, though he avoided using that dreaded word. He seemed to hint at a budget deal that would trade near-term “investment” (the preferred euphemism for “stimulus’) for long-term entitlement reform. That would be an important shift and one that would certainly upset many Democrats. ...

Friday, October 25, 2013

Paul Krugman: Addicted to the Apocalypse

Why is Chicken Little so popular?:

Addicted to the Apocalypse, by Paul Krugman, Commentary, NY Times: Once upon a time, walking around shouting “The end is nigh” got you labeled a kook... These days, however,... you more or less have to subscribe to fantasies of fiscal apocalypse to be considered respectable.
And I do mean fantasies. Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency. Yet the scaremongers can’t bring themselves to let go.
Consider, for example, Stanley Druckenmiller... Or consider the deficit-scold organization Fix the Debt, led by the omnipresent Alan Simpson and Erskine Bowles. ... [gives examples of doomsaying] ...
As I’ve already suggested, there are two remarkable things about this kind of doomsaying. ... On the Chicken Little aspect: It’s actually awesome, in a way, to realize how long cries of looming disaster have filled our airwaves and op-ed pages. For example, I just reread an op-ed article by Alan Greenspan ... warning that our budget deficit will lead to soaring inflation and interest rates ... published in June 2010... — and both inflation and interest rates remain low. So has the ex-Maestro reconsidered his views after having been so wrong for so long? Not a bit. ...
Meanwhile, about that oft-prophesied, never-arriving debt crisis:... two and half years ago, Mr. Bowles warned that we were likely to face a fiscal crisis within around two years... They just assume that it would cause soaring interest rates and economic collapse, when both theory and evidence suggest otherwise. ...
Look at Japan, a country that, like America, has its own currency and borrows in that currency, and has much higher debt relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe has, in effect,... persuaded investors that deflation is over and inflation lies ahead, which reduces the attractiveness of Japanese bonds. And the effects on the Japanese economy have been entirely positive! ...
Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.
So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally have no idea what they’re talking about.

Thursday, October 24, 2013

'Gambling with Civilization'

In case you missed this in the daily links. From Paul Krugman:

Gambling with Civilization, by Paul Krugman, NYRB [Review of The Climate Casino: Risk, Uncertainty, and Economics for a Warming World, by William D. Nordhaus]:
1. Forty years ago a brilliant young Yale economist named William Nordhaus published a landmark paper, “The Allocation of Energy Resources,” that opened new frontiers in economic analysis. [1] Nordhaus argued that to think clearly about the economics of exhaustible resources like oil and coal, it was necessary to look far into the future, to assess their value as they become more scarce—and that this look into the future necessarily involved considering not just available resources and expected future economic growth, but likely future technologies as well. Moreover, he developed a method for incorporating all of this information—resource estimates, long-run economic forecasts, and engineers’ best guesses about the costs of future technologies—into a quantitative model of energy prices over the long term.
The resource and engineering data for Nordhaus’s paper were for the most part compiled by his research assistant, a twenty-year-old undergraduate... It was an invaluable apprenticeship. My reasons for bringing up this bit of intellectual history, however, go beyond personal disclosure—although readers of this review should know that Bill Nordhaus was my first professional mentor. For if one looks back at “The Allocation of Energy Resources,” one learns two crucial lessons. First, predictions are hard, especially about the distant future. Second, sometimes such predictions must be made nonetheless.
Looking back at “Allocation” after four decades, what’s striking is how wrong the technical experts were about future technologies. For many years all their errors seemed to have been on the side of overoptimism, especially on oil production and nuclear power. More recently, the surprises have come on the other side, with fracking having the biggest immediate impact on markets, but with the growing competitiveness of wind and solar power—neither of which figured in “Allocation” at all—perhaps the more fundamental news. For what it’s worth, current oil prices, adjusted for overall inflation, are about twice Nordhaus’s prediction, while coal and especially natural gas prices are well below his baseline.
So the future is uncertain, a reality acknowledged in the title of Nordhaus’s new book, The Climate Casino: Risk, Uncertainty, and Economics for a Warming World. Yet decisions must be made taking the future—and sometimes the very long-term future—into account. ... And as Nordhaus emphasizes, although perhaps not as strongly as some would like, when it comes to climate change uncertainty strengthens, not weakens, the case for action now.
Yet while uncertainty cannot be banished from the issue of global warming, one can and should make the best predictions possible. Following his work on energy futures, Nordhaus became a pioneer in the development of “integrated assessment models” (IAMs), which try to pull together what we know about two systems—the economy and the climate—map out their interactions, and let us do cost-benefit analysis of alternative policies. [2] At one level The Climate Casino is an effort to popularize the results of IAMs and their implications. But it is also, of course, a call for action. I’ll ask later in this review whether that call has much chance of succeeding. ...[continue]...

'A Very Expensive Tea Party'

Simon Johnson:

A Very Expensive Tea Party, by Simon Johnson, Commentary, NY Times: The recent government shutdown and confrontation over the federal debt ceiling gained the Republicans nothing,... – and may have cost them politically... But it slowed the economy and undermined confidence in public finances in a way that will have a significant negative impact on future budgets of the United States. None of this should make for an appealing strategy, but Tea Party Republicans are giving every indication that they want to do the same thing again early next year. Their more moderate colleagues need to take a firmer hand.
On the political gains from recent tactics, it is hard to find any good news for the Republican side as a whole. ...
The shutdown and debt ceiling brinkmanship did real damage to the economy. ... 
Members of the Tea Party movement express concern about the longer-run federal budget... But their tactics are directly worsening the budget over exactly the time horizon that they say they care about. ...
The major long-term issue the United States faces is rising health-care costs..., but an important part of our projected future deficits is interest costs...
The United States dollar is the world’s primary reserve currency and safe haven; the asset that major investors, such as central banks and big international companies, actually buy is United States Treasury debt. ...
Over a longer period of time, of course, investors get the message: United States Treasury debt is not so safe... Unwittingly and perhaps inadvertently, the Tea Party is helping to fulfill the prophecies of ... Arvind Subramanian, who has long predicted that the renminbi will eclipse the dollar... Speeding up such a transition will directly increase the interest cost of the national debt and exactly run counter to what Tea Party representatives claim they want to do. ...
In the American system,... the ... only force that can rein in Tea Party extremism – and get the nation off the road to fiscal ruin – is resurgence among Republican moderates. Unfortunately, their recent performance has not been impressive.

'Why the 1% Should Pay Tax at 80%'

Emmanuel Saez and Thomas Piketty:

Why the 1% should pay tax at 80%, by Emmanuel Saez and Thomas Piketty,  theguardian.com: In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today (pdf). A similar pattern is true of other English-speaking countries..., however, globalization and new technologies are not to blame. Other OECD countries ... have seen far less concentration of income among the mega rich.
At the same time, top income tax rates on upper income earners have declined significantly since the 1970s... At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large. ...
There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares...
The ... data show that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. ... What that tells us is that a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top (that is, scenario three), rather than increased productive effort....
By our calculations about the response of top earners to top tax rate cuts being due in part to increased rent-seeking behavior and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% (as opposed to the 57% allowed by the pure supply-side model). ...
In the end, the future of top tax rates depends on what the public believes about whether top pay fairly reflects productivity or whether top pay, rather unfairly, arises from rent-seeking. With higher income concentration, top earners have more economic resources to influence both social beliefs (through thinktanks and media) and policies (through lobbying)...
The job of economists should be to make a top rate tax level of 80% at least "thinkable" again.

Monday, October 21, 2013

Paul Krugman: Lousy Medicaid Arguments

Conservatives will use whatever arguments they can find to deny health care to the poor:

Lousy Medicaid Arguments, by Paul Krugman, Commentary, NY Times: For now, the big news about Obamacare is the debacle of HealthCare.gov, the Web portal through which Americans are supposed to buy insurance on the new health care exchanges. For now, at least, HealthCare.gov isn’t working for many users.
It’s important to realize, however, that this botch has nothing to do with the law’s substance, and will get fixed. After all, a number of states have successfully opened their own exchanges,...
In other words, the technical problems, while infuriating ... will not, in the end, be the big story. The real threat remains the effort of conservative groups to sabotage reform, especially by blocking the expansion of Medicaid. This effort relies heavily on lobbying, lavishly bankrolled by the usual suspects, including the omnipresent Koch brothers. But it’s not just money: the right has also rolled out some really lousy arguments. ...
Enter ... experts ... to declare that Medicaid actually hurts its recipients. Their evidence? Medicaid patients tend to be sicker than the uninsured, and slower to recover from surgery.
O.K., you know what to do: Google “spurious correlation health.” You are immediately led to the tale of certain Pacific Islanders who long believed that having lice made you healthy, because they observed that people with lice were, typically, healthier than those without. They were, of course, mixing up cause and effect: lice tend to infest the healthy, so they were a consequence, not a cause, of good health.
The application to Medicaid should be obvious. Sick people are likely to have low incomes; more generally, low-income Americans who qualify for Medicaid just tend in general to have poor health. So pointing to a correlation between Medicaid and poor health as evidence that Medicaid actually hurts its recipients is as foolish as claiming that lice make you healthy. It is, as I said, a lousy argument.
And the reliance on such arguments is itself deeply revealing, because it illustrates the right’s intellectual decline. I mean, this is the best argument their so-called experts can come up with for their policy priorities?
Meanwhile, many states are still planning to reject the Medicaid expansion, denying essential health care to millions of needy Americans. And they have no good excuse for this act of cruelty.

Sunday, October 20, 2013

Ideology and Macroeconomics

Arnold Kling:

Ideology and Macroeconomics, by Arnold Kling: Scott Sumner writes,

I am amazed by how many proponents of fiscal policy don’t understand that it’s symmetrical. Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms, with no overall change in the average level of government. Anyone who doesn’t even get to that level of understanding, who doesn’t think in terms of policy regimes, is simply not part of the serious conversation.

I agree with the first two sentences, but not with the last.

Yes, in theory, there should be economists who, as they argued for more stimulus in 2009, should at the same time have been arguing for entitlement reform or other reductions in future spending. Other things equal, the bigger debt that we have accumulated over the past five years would make a non-ideological macroeconomist want to propose tighter fiscal policy somewhere down the road.

But “nonideological” and macroeconomics are nearly oxymorons. ...

Huh? See here (from 2005, before the recession had even started):

... To use fiscal policy to stabilize the economy however, you have to spend more or tax less in the bad times (increase the deficit) and then do the hard thing which is to raise taxes or cut spending in the good times (decrease the deficit).  To keep the budget in balance the good has to be matched somewhere by the bad.  If you cut taxes for this disaster, or this recession, or this war, and don’t raise them later, what do you do next time?  Cut again?  Okay, what about the time after that?  It won’t work forever.  The priming of the economy during the bad times must be matched by a slowdown during the good.  Borrow when income is low, pay it back when income is high. 

Furthermore, in stabilization policy, it’s also not possible in the long-run to use both government spending and taxation at opposite points in the business cycle.  That is, suppose you cut taxes during the bad times, then cut spending during the good times to pay it back.  That will work for a recession or two, a hurricane or two, but it won’t work forever because eventually there will be nothing left to cut out of government.  The opposite will not work forever either.  If you increase spending during the bad times then increase taxes during the good, the size of government will grow indefinitely over the long-run.  In more graphic form:

G↑ (rec) → T↑ (boom) →  G↑ (rec)→  T↑ (boom)  → G↑  (rec) → T↑ (boom)  →  bloated government

T↓ (rec) → G↓ (boom) →  T↓ (rec)→  G↓ (boom)  → T↓ (rec) → G↓ (boom)  →  no government

These two policies, or some combination of them (increase G and cut T in recessions, do the opposite in booms) are sustainable:

G↑ (rec) → G↓ (boom) →  G↑ (rec) →  G↓ (boom)  → G↑ (rec) → G↓ (boom)  →  sustainable size of government

T↓ (rec) → T↑ (boom) →  T↓ (rec) →  T↑ (boom)  → T↓ (rec) → T↑ (boom)  →  sustainable size of government

The Democrats are accused of adopting the first strategy and bloating the government.  The Republicans claim to adopt the second strategy to shrink government, but they’ve bloated government themselves (take the second line and change it to T↓ (rec) → G↑ (boom) → etc., a clearly unsustainable path).  Neither party seems willing or able to use either the third and/or the fourth lines as a means of stabilizing the economy.  We are seeing that now, and maybe even less stable budgetary variations.  The WSJ and other members of the GOP seems to advocate T↓ (rec)→ T↓ (boom) → etc. which, without cuts in G, cause deficits rise no matter how much they claim otherwise. 

There are, of course, lots and lots of variations on these basic chains of events, e.g. to adjust the size of government the first or second strategies can be adopted temporarily, and you hope lawmakers would put all their cards on the table as they do so whichever direction government size is to be adjusted.  But fiscal policy that is sustainable in the long-run, through recession after recession, natural disaster after natural disaster, war after war, has to adopt some combination of the third and fourth lines.  ...

Or here (from 2008, a bit afer the recession started):

Short-run stabilization policy for the economy during a downturn involves either cutting taxes to stimulate consumption and investment (and sometimes net exports), or increasing government spending. Which of these is used and the specific policy adopted has important implications for the effectiveness of policy, but no matter how it is done it will raise the deficit, and the increase in the deficit is often used to oppose the policy.
Theoretically, however, there is no reason at all why short-run stabilization policy ought to impact the long-run budget picture. Ideally, the deficits that accumulate during bad times are paid for by raising taxes or cutting spending during the good times so that there is no net change in the budget in the long-run.
Historically, we have been pretty good at spending money in bad times, but not so good at paying for the spending when times are better. But if we are serious about stabilization, that's what we need to do. When output is below the long-run sustainable rate we increase economic activity by deficit spending, and when output exceeds the long-run sustainable rate, we decrease activity by running a surplus. Doing this fills the troughs with the shaved peaks from the booms and keeps the economy closer to the long-run trend value.
I've been wondering if the current crisis will change our attitude about paying for stabilization policy, i.e. if it will make us more willing to raise taxes and cut spending when times are good. One of the problems with the last two boom-bust cycles was unchecked exuberance. Any calls to raise taxes or interest rates were met with howls about how it would cut off the boom, and who would want to do that? But tempering the boom might have helped to reduce the size of the meltdown we are experiencing now and left us much better off.
When the next boom develops, will we be more willing to raise taxes, cut spending, and tighten Fed policy? Will we remember what happened when the previous two booms ended and be more willing to step in and slow down the booming economy, will we be less susceptible to the argument that doing so will eliminate creative and productive innovation (as opposed to misdirecting resources during the mania phase)? This doesn't mean creating a recession or slamming on the brakes so hard we hit our heads, it doesn't mean ending innovative activity, it simply means what it says, bringing the growth rate down to its sustainable rate, and attenuating the exuberance that leads to housing and dot.com bubbles. Will we be more willing to take the necessary steps the next time the economy begins to boom?
I doubt it.
And the problem is that if we aren't willing to pay our bills during the good times, then it will be much harder to spend the money we need to spend when times are bad -- our hands will be tied when it comes to stabilization policy. ...

I could go on, but I'll just simply note that Krugman has been arguing (more than once) that there is little evidence that expansionary fiscal policy in recessions is permanent.

Oh, and since we are talking about unwillingness to reverse policy for ideological reasons, are conservatives arguing that the tax cuts they call for in recessions ought to be reversed when the economy improves? Why aren't those who are so worried about reversing policy in good times only talking about the spending side of the equation? Could it be -- gasp -- that their ideology, there belief that government is too big, is the reason?