Category Archive for: Politics [Return to Main]

Monday, June 22, 2015

Paul Krugman: Slavery’s Long Shadow

Race still matters:

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 For one thing, our country is growing more ethnically diverse, and the old black-white polarity is slowly becoming outdated.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

Friday, June 19, 2015

Paul Krugman: Voodoo, Jeb! Style

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

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

Wednesday, June 17, 2015

'TPP Versus NAFTA'

Paul Krugman:

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

Monday, June 15, 2015

Paul Krugman: Democrats Being Democrats

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

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

Saturday, June 13, 2015

'Decline and Fall of the Davos Democrats'

Paul Krugman:

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

Friday, June 12, 2015

Paul Krugman: Seriously Bad Ideas

Why do bad ideas prevail?:

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

Tuesday, June 09, 2015

'The Party of Fiscal Responsibility in Action'

Paul Krugman:

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

Monday, June 08, 2015

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

Cecchetti & Schoenholtz:

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

Sunday, June 07, 2015

'Austerity as a Knowledge Transmission Mechanism failure'

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

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

'The Economic Consequences of Austerity'

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

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

Friday, May 22, 2015

Paul Krugman: Trade and Trust

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

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

Thursday, May 21, 2015

'Conservatives and Keynes'

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

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

 

Tuesday, May 19, 2015

Restoring the Public’s Trust in Economists

I have a new column:

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

Monday, May 18, 2015

Paul Krugman: Errors and Lies

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

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

Friday, May 15, 2015

Paul Krugman: Fraternity of Failure

Mistakes were made:

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

Thursday, May 14, 2015

'Fighting for History'

"Progressives need to fight back":

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

'Defend Workers and the Environment Before Voting Fast Track'

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

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

Wednesday, May 13, 2015

'Wyoming’s War on Microbiology'

Mike the Mad Biologist:

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

Tuesday, May 12, 2015

'The Rules are What Matter for Inequality'

Mike Konczal:

The Rules are What Matter for Inequality: Our New Report: I’m very excited to announce the release of “Rewriting the Rules of the American Economy” (pdf report), Roosevelt Institute’s new inequality agenda report by Joe Stiglitz. I’m thrilled to be one of the co-authors...
As we argue, inequality is not inevitable: it is a choice that we’ve made with the rules that structure our economy. Over the past 35 years, the rules, or the regulatory, legal and institutional frameworks, that make up the economy and condition the market have changed. These rules are a major driver of the income distribution we see, including runaway top incomes and weak or precarious income growth for most others. Crucially, however, these changes in the rules have not made our economy better off than we would be otherwise; in many cases we are weaker for these changes. We also now know that “deregulation” is, in fact, “reregulation”—that is, a new set of rules for governing the economy that favor a specific set of actors, and that there's no way out of these difficult choices. But what were these changes? ...
This report describes what has happened, going far deeper than this summary here. It also has a policy agenda focused on both taming the top and growing the rest of the economy. Some may emphasize some pieces more than others; but no matter what this argument about the rules is what is missing in the current debates over the economy. ...

Friday, May 08, 2015

Paul Krugman: Triumph of the Unthinking

 Why do bad economic ideas resonate with voters?:

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

Thursday, May 07, 2015

'When Bosses Recruit Employees into Politics'

Is a secret ballot enough to protect against this?:

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

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

Wednesday, May 06, 2015

'The GOP’s War on Science Gets Worse'

Elizabeth Kolbert at the New Yorker:

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

Friday, May 01, 2015

'The Political Roots of Widening Inequality'

Robert Reich:

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

There's quite a bit more in the article.

'Ten Facts about U.S. Trade'

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

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

Paul Krugman: Ideology and Integrity

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

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

Thursday, April 30, 2015

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

Ben Bernanke:

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

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

Monday, April 27, 2015

Paul Krugman: Nobody Said That

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

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

Friday, April 24, 2015

Paul Krugman: Zombies of 2016

Some bad ideas just won't die:

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

Thursday, April 23, 2015

'Mediamacro Myth: 2010 Britain Faced a Financial Crisis'

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

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

Tuesday, April 21, 2015

An Economic Agenda for Hillary Clinton

I have a new column:

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

Monday, April 13, 2015

Paul Krugman: It Takes a Party

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

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

Monday, April 06, 2015

Paul Krugman: Economics and Elections

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

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

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

Larry Summers:

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

Monday, March 30, 2015

Paul Krugman: Imaginary Health Care Horrors

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

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

Friday, March 27, 2015

Paul Krugman: Mornings in Blue America

Conservatives have GNDS (good news derangement syndrome):

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

Thursday, March 26, 2015

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

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

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

Wednesday, March 25, 2015

The 'Audit' the Fed Crowd

Audit the Fed?:

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

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

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

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

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

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

Monday, March 23, 2015

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

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

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

'When Reasonable Policy Discussions Become Unreasonable Personal Attacks'

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

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

Sunday, March 22, 2015

'Controlling the Past'

Simon Wren-Lewis:

Controlling the past: In his novel 1984 George Orwell wrote: “Who controls the past controls the future: who controls the present controls the past.” We are not quite in this Orwellian world yet, which means attempts to rewrite history can at least be contested. A few days ago the UK Prime Minister in Brussels said this:
“When I first came here as prime minister five years ago, Britain and Greece were virtually in the same boat, we had similar sized budget deficits. The reason we are in a different position is we took long-term difficult decisions and we had all of the hard work and effort of the British people. I am determined we do not go backwards.”
In other words if only those lazy Greeks had taken the difficult decisions that the UK took, they too could be like the UK today.
This is such as travesty of the truth, as well as a huge insult to the Greek people, that it is difficult to know where to begin. ...
The real travesty ... is in the implication that somehow Greece failed to take the ‘difficult decisions’ that the UK took. ‘Difficult decisions’ is code for austerity. A good measure of austerity is the underlying primary balance. According to the OECD, the UK underlying primary balance was -7% in 2009, and it fell to -3.5% in 2014: a fiscal contraction worth 3.5% of GDP. In Greece it was -12.1% in 2009, and was turned into a surplus of 7.6% by 2014: a fiscal contraction worth 19.7% of GDP! So Greece had far more austerity, which is of course why Greek GDP has fallen by 25% over the same period. A far more accurate statement would be that the UK started taking the same ‘difficult decisions’ as Greece took, albeit in a much milder form, but realized the folly of this and stopped. Greece did not get that choice. And I have not even mentioned the small matter of being in or out of a currency union. ...

Saturday, March 21, 2015

The New Brand of Authoritarianism

From Vox EU:

The new authoritarianism, by Sergei Guriev, Daniel Treisman, Vox EU: The changing dictatorships Dictatorships are not what they used to be. The totalitarian tyrants of the past – such as Hitler, Stalin, Mao, or Pol Pot – employed terror, indoctrination, and isolation to monopolize power. Although less ideological, many 20th-century military regimes also relied on mass violence to intimidate dissidents. Pinochet’s agents, for instance, are thought to have tortured and killed tens of thousands of Chileans (Roht-Arriaza 2005).

However, in recent decades new types of authoritarianism have emerged that seem better adapted to a world of open borders, global media, and knowledge-based economies. From the Peru of Alberto Fujimori to the Hungary of Viktor Orban, illiberal regimes have managed to consolidate power without fencing off their countries or resorting to mass murder. Some bloody military regimes and totalitarian states remain – such as Syria and North Korea – but the balance has shifted.

The new autocracies often simulate democracy, holding elections that the incumbents almost always win, bribing and censoring the private press rather than abolishing it, and replacing comprehensive political ideologies with an amorphous resentment of the West (Gandhi 2008, Levitsky and Way 2010). Their leaders often enjoy genuine popularity – at least after eliminating any plausible rivals. State propaganda aims not to ‘engineer human souls’ but to boost the dictator’s ratings. Political opponents are harassed and defamed, charged with fabricated crimes, and encouraged to emigrate, rather than being murdered en masse.

Dictatorships and information

In a recent paper, we argue that the distinctive feature of such new dictatorships is a preoccupation with information (Guriev and Treisman 2015). Although they do use violence at times, they maintain power less by terrorizing victims than by manipulating beliefs. Of course, surveillance and propaganda were important to the old-style dictatorships, too. But violence came first. “Words are fine things, but muskets are even better,” Mussolini quipped. Compare that to the confession of Fujimori’s security chief, Vladimir Montesinos: “The addiction to information is like an addiction to drugs”. Killing members of the elite struck Montesinos as foolish: “Remember why Pinochet had his problems. We will not be so clumsy” (McMillan and Zoido 2004).

We study the logic of a dictatorship in which the leader survives by manipulating information. Our key assumption is that citizens care about effective government and economic prosperity; first and foremost, they want to select a competent rather than incompetent ruler. However, the general public does not know the competence of the ruler; only the dictator himself and members of an ‘informed elite’ observe this directly. Ordinary citizens make what inferences they can, based on their living standards – which depend in part on the leader’s competence – and on messages sent by the state and independent media. The latter carry reports on the leader’s quality sent by the informed elite. If a sufficient number of citizens come to believe their ruler is incompetent, they revolt and overthrow him.

The challenge for an incompetent dictator is, then, to fool the public into thinking he is competent. He chooses from among a repertoire of tools – propaganda, repression of protests, co-optation of the elite, and censorship of their messages. All such tools cost money, which must come from taxing the citizens, depressing their living standards, and indirectly lowering their estimate of the dictator’s competence. Hence the trade-off.

Certain findings emerge from the logic of this game.

  • First, we show how modern autocracies can survive while employing relatively little violence against the public.

Repression is not necessary if mass beliefs can be manipulated sufficiently. Dictators win a confidence game rather than an armed combat. Indeed, since in our model repression is only used if equilibria based on non-violent methods no longer exist, violence can signal to opposition forces that the regime is vulnerable.

  • Second, since members of the informed elite must coordinate among themselves on whether to sell out to the regime, two alternative equilibria often exist under identical circumstances – one based on a co-opted elite, the other based on a censored private media.

Since both bribing the elite and censoring the media are ways of preventing the sending of embarrassing messages, they serve as substitutes. Propaganda, by contrast, complements all the other tools.

Propaganda and a leader’s competency

Why does anyone believe such propaganda? Given the dictator’s obvious incentive to lie, this is a perennial puzzle of authoritarian regimes. We offer an answer. We think of propaganda as consisting of claims by the ruler that he is competent. Of course, genuinely competent rulers also make such claims. However, backing them up with convincing evidence is costlier for the incompetent dictators – who have to manufacture such evidence – than for their competent counterparts, who can simply reveal their true characteristics. Since faking the evidence is costly, incompetent dictators sometimes choose to spend their resources on other things. It follows that the public, observing credible claims that the ruler is competent, rationally increases its estimate that he really is.

Moreover, if incompetent dictators survive, they may over time acquire a reputation for competence, as a result of Bayesian updating by the citizens. Such reputations can withstand temporary economic downturns if these are not too large. This helps to explain why some clearly inept authoritarian leaders nevertheless hold on to power – and even popularity – for extended periods (cf. Hugo Chavez). While a major economic crisis results in their overthrow, more gradual deteriorations may fail to tarnish their reputations significantly.

A final implication is that regimes that focus on censorship and propaganda may boost relative spending on these as the economy crashes. As Turkey’s growth rate fell from 7.8% in 2010 to 0.8% in 2012, the number of journalists in jail increased from four to 49. Declines in press freedom were also witnessed after the Global Crisis in countries such as Hungary and Russia. Conversely, although this may be changing now, in both Singapore and China during the recent decades of rapid growth, the regime’s information control strategy shifted from one of more overt intimidation to one that often used economic incentives and legal penalties to encourage self-censorship (Esarey 2005, Rodan 1998).  

The kind of information-based dictatorship we identify is more compatible with a modernized setting than with the rural underpinnings of totalitarianism in Asia or the traditional societies in which monarchs retain legitimacy. Yet, modernization ultimately undermines the informational equilibria on which such dictators rely. As education and information spread to broader segments of the population, it becomes harder to control how this informed elite communicates with the masses. This may be a key mechanism explaining the long-noted tendency for richer countries to open up politically.

References

Esarey, A (2005), “Cornering the market: state strategies for controlling China's commercial media”, Asian Perspective 29(4): 37-83.

Gandhi, J (2008), Political Institutions under Dictatorship, New York: Cambridge University Press.

Guriev, S and D Treisman (2015), “How Modern Dictators Survive: Cooptation, Censorship, Propaganda, and Repression”, CEPR Discussion Paper, DP10454.

Levitsky, S, and L A Way (2010), Competitive authoritarianism: hybrid regimes after the cold war, New York: Cambridge University Press.

McMillan, J, and P Zoido (2004), “How to subvert democracy: Montesinos in Peru”, Journal of Economic Perspectives 18(4): 69-92.

Rodan, G (1998), “The Internet and political control in Singapore”, Political Science Quarterly 113(1): 63-89.

Roht-Arriaza, N (2005), The Pinochet Effect: Transnational Justice in the Age of Human Rights, Philadelphia: University of Pennsylvania Press. 

Friday, March 20, 2015

Paul Krugman: Trillion Dollar Fraudsters

Why do Republicans use "magic asterisks" in their budget proposals?:

Trillion Dollar Fraudsters, by Paul Krugman, Commentary, NY Times: By now it’s a Republican Party tradition: Every year the party produces a budget that allegedly slashes deficits, but which turns out to contain a trillion-dollar “magic asterisk” — a line that promises huge spending cuts and/or revenue increases, but without explaining where the money is supposed to come from.
But the just-released budgets from the House and Senate majorities break new ground. Each contains not one but two trillion-dollar magic asterisks: one on spending, one on revenue. And that’s actually an understatement. If either budget were to become law, it would leave the federal government several trillion dollars deeper in debt than claimed, and that’s just in the first decade. ...
The modern G.O.P.’s raw fiscal dishonesty is something new in American politics... And the question we should ask is why.
One answer you sometimes hear is that what Republicans really believe is that tax cuts for the rich would generate a huge boom and a surge in revenue, but they’re afraid that the public won’t find such claims credible. So magic asterisks are really stand-ins for their belief in the magic of supply-side economics, a belief that remains intact even though proponents in that doctrine have been wrong about everything for decades.
But I’m partial to a more cynical explanation. Think about what these budgets would do if you ignore the mysterious trillions in unspecified spending cuts and revenue enhancements. What you’re left with is huge transfers of income from the poor and the working class, who would see severe benefit cuts, to the rich, who would see big tax cuts. And the simplest way to understand these budgets is surely to suppose that they are intended to do what they would, in fact, actually do: make the rich richer and ordinary families poorer.
But this is, of course, not a policy direction the public would support... So the budgets must be sold as courageous efforts to eliminate deficits and pay down debt — which means that they must include trillions in imaginary, unexplained savings.
Does this mean that all those politicians declaiming about the evils of budget deficits and their determination to end the scourge of debt were never sincere? Yes, it does.
Look, I know that it’s hard to keep up the outrage after so many years of fiscal fraudulence. But please try. We’re looking at an enormous, destructive con job, and you should be very, very angry.

Tuesday, March 17, 2015

'Tax Cuts Still Don’t Pay for Themselves'

I get tired of saying that tax cuts don't pay for themselves, so I'll turn it over to Josh Barro:

Tax Cuts Still Don’t Pay for Themselves: Last week, I wrote about the new tax plan from Senator Marco Rubio and Senator Mike Lee... It calls for big tax credits for middle-income families with children, corporate tax cuts and complete elimination of the capital gains tax — and as a result would cost trillions of dollars in revenue over a decade.
Or would it? The Tax Foundation released a report last week arguing the Rubio-Lee plan would generate so much business investment that, within a decade, federal tax receipts would be higher than if taxes hadn’t been cut at all. ...
I discussed the Tax Foundation report with 10 public finance economists ranging across the ideological spectrum, all of whom said its estimates of the economic effects of tax cuts were too aggressive. “This would not pass muster as an undergraduate’s model at a top university,” said Laurence Kotlikoff, a Boston University professor whom the Tax Foundation specifically encouraged me to call. ...
[T]he House adopted a rule in January that requires “dynamic scoring” of tax bills... In principle, dynamic scoring is fine. Tax policy really does affect the economy... But as the Tax Foundation report shows, dynamic scoring can be misused: You can get essentially any answer you want ... by changing the assumptions...
The crucial thing to watch, in the guts of future C.B.O. reports that rely on dynamic scoring, will be whether the new dynamic assumptions are more reasonable than zero — or whether, like the Tax Foundation assumptions, they take us farther away from accuracy, and make unsupportable promises of tax cuts paying for themselves.

Thursday, March 12, 2015

Monetary and Fiscal Policy in a Post-Inflation World

Alice Rivlin:

Thoughts about monetary and fiscal policy in a post-inflation world, Brookings: ... Why are we still so focused on fighting inflation? Why are so many people in this room devoting so much time and attention to guessing when the Federal Reserve will start raising short-term interest rates and get back to its “normal” job of protecting us from inflation? Is inflation an important threat to our economic well-being? Is when to raise interest rates the most urgent question facing the Fed at the moment? Or are we suffering from cultural lag?
Collecting linguistic evidence of cultural lags is a minor hobby of mine. I smile when I catch myself referring to the refrigerator as the “ice box,” because that was what my mother called it... I am amused when young people tell me their phones are “ringing off the hook.” Have they ever used a phone with a receiver on a hook? When bureaucrats say they are eager to break out of their silos, I wonder if they if they have ever lived on a farm or anywhere close to a silo. So when politicians and financial journalists ask me earnestly, as they do, whether the Federal Reserve isn’t risking devastating “run-away” inflation by buying all those bonds, I suspect cultural lag. What Inflation? We should be so lucky! Central banks have amply proved that they know how to stop inflation—Paul Volcker showed that. They have been much less successful in getting little inflation going.
A lecture in honor of Paul Volcker is the perfect occasion for raising the fundamental question: are the major advanced economies (US, Europe, Japan) facing a new normal for which current tools of monetary, fiscal, and regulatory policy need to be restructured? ...
Over-coming cultural lag in order to prosper in a post-inflation world will take significant shifts in the mind-set of economists, economic policy-makers, politicians and the public. I see four major challenges to current thinking:
  • We have to recognize that the main job of central banks is avoiding financial crisis.
  • We will have to get used to central banks operating at quite low interest rates much of the time and managing big balance sheets without apologies.
  • We have to rehabilitate budget policy to make it useable again and move to a sustainable debt track at the same time
  • We have to find constitutional ways of reducing the power of big money in politics and economic policy—or change the Constitution.

I will get back to these four challenges, but first a very quick tour through the macro-policy landscape of the last five or six decades. ...

And, later in the essay (it is relatively long, and I don't agree with every single point that is made, e.g. when she defends ‘Simpson-Bowlesism’ and discusses the need to rein in entitlement spending, and when she argues against selling the idea "that unspecified government spending would add to aggregate demand and accelerate the recovery without adverse consequences to the long-run debt... Unspecified spending and near-term debt increase are what the public and elected officials fear, and they are skeptical of fee lunches. Instead, we have to make the case for very specific public investments that can be shown to have positive impacts on productivity growth and future prosperity" -- deficit spending in a recession has a role to play in stimulating the economy in the short-run, we shouldn't focus only on the long-run growth potential of policy -- but I do agree with the the general thrust of her comments):

... Political polarization has led to angry confrontations over the budget for the last several years complete with threats to shut down the government or default on the national debt and bizarre budget decision processes, such as the Super Committee, the fiscal cliff, and sequestration. These shenanigans are unworthy of a mature democracy and horrendously destructive of confidence in rational economic governance. The result has been worse than gridlock. It has been insanely counterproductive budget policy at a time when the federal budget could have been contributing both to faster recovery and to longer run productivity growth.
I believe the Great Recession would have been longer and deeper without the stimulus package of 2009.[8] If the stimulus had been larger and lasted longer, recovery would have been more robust and the Fed might not have found it necessary to do so much quantitative easing. Indeed, it is pretty crazy economics for a country trying to climb out of a deep recession to put the burden of accelerating a recovery on the monetary authorities—a job they have never been great at—in the face of sharply declining federal deficits that made the task of stimulating recovery with monetary tools a lot more challenging. But that is what we did.
I also believe that the United States has been dangerously under-investing in public infrastructure, scientific research, and the skills of our future labor force. Doing everything we can to nudge productivity growth back up again is essential to future prosperity. With the private investment awaiting more demand and confidence, the public sector should be moving strongly into the breach with well-structured investment in everything from roads to technical training to basic research. Instead, our bizarre budget process has been squeezed the very budget accounts that contain most opportunity for public investment. Discretionary spending is at record lows in relation to the size of the economy and headed lower while the highway trust fund is running dry. How crazy is that?
Making budget policy useful again will take major shifts in political thinking, and here I think economists can help if they use arguments the public and politicians can relate to. First, I would recommend not pushing the argument that unspecified government spending would add to aggregate demand and accelerate the recovery without adverse consequences to the long-run debt. Ball, Summers and DeLong may well be right that hysteresis is so serious a consequence of recession that spending now would juice recovery enough to bring down long run debt.[9] But they are never going to sell that argument. Unspecified spending and near-term debt increase are what the public and elected officials fear, and they are skeptical of fee lunches.
Instead, we have to make the case for very specific public investments that can be shown to have positive impacts on productivity growth and future prosperity. This should not be an argument for larger government, but for shifting from less to more effective government spending and from consumption-oriented spending (including spending in the tax code) to growth oriented spending over time. And, oh yes, that means making the tax code more progressive, more pro-growth, and raising additional revenue, as well as restructuring entitlement programs. There is plenty is such an agenda for both liberals and conservatives to like—if only they could be persuaded to talk about it. ...

The Government is Why the US has More Inequality than Sweden

Dylan Mathews:

The government is the only reason the US has more inequality than Sweden, by Dylan Matthews: ...the income distribution in the US still stands out as particularly uneven. ...
The US actually isn't especially unequal if you look at income before taxes or government transfers like Social Security and food stamps..., a whole number of wealthy countries — Israel, the UK, Greece, Poland, Germany, Finland, and Ireland — have more pre-tax/transfer inequality than we do... Spain, Norway, the Netherlands, and Sweden all have exactly the same level as the US does.
The entire difference comes after taxes and transfer spending. ...Germany and Ireland both have significantly more pre-tax/transfer inequality than the US, but significantly less post-tax/transfer inequality... Meanwhile, the Netherlands and Sweden, which have famously egalitarian economies with generous welfare states, have the exact same level of pre-tax/transfer inequality as the US. It's not that their societies just naturally produce more equitable distributions. Their governments simply do more redistribution. ...
Note that the pre-tax/transfer number doesn't take out the effects of government policy entirely; there's a lot the government can do to alter the pre-tax/transfer distribution, including promoting or hampering labor unions or increasing the minimum wage. A number of countries, including Japan, Korea, and Switzerland, boast significantly lower pre-tax/transfer inequality than the US. ...

'The Truth About Entitlements'

Projections of budget problems in the future are about health care costs, and there is improvement on that front:

The Truth About Entitlements, by Paul Krugman: As part of another project, I was looking at CBO historical budget data, and realized that you can summarize a lot about all those much-denounced “entitlements” with this figure:

Credit: Congressional Budget Office

Here, income security is mainly EITC, food stamps, and unemployment benefits, plus a few other means-tested aid programs. Health is all major programs — Medicare, Medicaid/CHIP, and at the very end the exchange subsidies.
What this chart tells you right away:
1. The “nation of takers” stuff is deeply misleading. Until the economic crisis, income security had no trend at all. ...
2. When people claimed that spending was exploding under Obama, the only thing actually happening was a surge in income-support programs at a time of genuine distress. People smirked knowingly and declared that everyone knew that the bump in spending would become permanent; it didn’t.
3. If there is a long-run spending problem, it’s overwhelmingly about health care. And we have lately been making remarkable progress on that front.

More on the same topic from the CBPP:

Low-Income Programs Not Driving Nation’s Long-Term Fiscal Problem, by Robert Greenstein, Isaac Shapiro, and Richard Kogan: Low-income programs are not driving the nation’s long-term fiscal problems, contrary to the impression that a narrow look at federal spending during the Great Recession and the years that immediately followed might leave. Lawmakers should bear this in mind as they consider proposals that may emerge in coming weeks for deep cuts in this part of the budget.

Figure 1

Low-income program spending grew significantly between 2007 and 2010 in response to the severe economic downturn, helping to mitigate its worst effects. Since peaking in 2010 and 2011, federal spending on low-income programs other than health care has fallen considerably and will continue to fall as a percent of gross domestic product (GDP) as the economy more fully recovers. By 2018, it will — based on Congressional Budget Office estimates — drop below its average over the past 40 years, (from 1975 to 2014) and continue declining as a share of GDP after that. [1]  (See Figure 1.)
As a result, these programs do not contribute to the nation’s long-term fiscal problems. ...

Wednesday, March 11, 2015

'TPP at the NABE'

Paul Krugman:

TPP at the NABE: I was in DC yesterday, giving a talk to the National Association of Business Economists. The subject was the Trans-Pacific Partnership; slides for my talk are here.
Not to keep you in suspense, I’m thumbs down. I don’t think the proposal is likely to be the terrible, worker-destroying pact some progressives assert, but it doesn’t look like a good thing either for the world or for the United States, and you have to wonder why the Obama administration, in particular, would consider devoting any political capital to getting this through.
Actually, I was glad to see Larry Summers weigh in on the same subject in yesterday’s FT. Reading that piece, you may wonder what just happened – did Larry come out for the deal or against it? The answer, I think (slide 1), is that he basically supported an idealized TPP that could have been, but came out against the TPP that actually seems to be on the table. And that means that he and I are in a similar place.
So, about the deal. ...

See also Brad DeLong and Tyler Cowen.

Wednesday, March 04, 2015

'Rep. Paul Ryan is Getting the Economics Wrong on Cap and Trade and a Revenue Neutral Carbon Tax'

Paul Ryan says "I do not like cap and trade because I think the costs far outweigh the benefits." John Whitehead (who provides the Ryan quotes) responds:

Rep. Paul Ryan is getting the economics wrong on cap and trade and a revenue neutral carbon tax: Way wrong...
The costs of cap and trade do not outweigh the benefits. It might be the case that the costs of a climate policy, any climate policy, outweigh the benefits. But cap and trade is a policy instrument, not something for which you conduct a benefit-cost analysis. The economics says that if the government decided to undertake climate policy, cap and trade would be one of the most cost-effective ways of doing it.

Ryan also says (when asked about a revenue-neutral carbon tax), "I don’t like that either. I think these tax-and-spend ideas are the wrong way to go. They hurt economic growth. They’re very regressive. They hurt people who rely on disposable income solely — the poor. And they make our manufacturing industry much less competitive. So why don’t we get faster economic growth, more upward mobility, help increase people’s take-home pay, and finance research to innovate ourselves to come up with better technology. This is Madison, Wisconsin. We’re good at researching stuff. So why don’t we just research."

John Whitehead once again:

And that brings us to the revenue-neutral carbon tax (another cost-effective way of undertaking climate policy). The idea behind this is to tax a bad thing (pollution, carbon) and reduce taxes on a good thing (work effort). Revenue neutral means that the additional tax revenue from the carbon tax would be completely offset by the reduction in tax revenue from lower income taxes. The income tax reduction could be designed such that any regressivity of a carbon tax could be avoided. 
Tax and spend policies are usually thought of as an increase in taxes (carbon and income) where the additional revenue is used to pay for a government policy. But, a revenue neutral carbon tax would not raise any additional revenue. I really don't see how a revenue neutral carbon tax could be classified as a tax and spend idea. ...
The only conclusion that I can reach is that Rep. Ryan doesn't understand climate economics very well.

Tuesday, March 03, 2015

'The Unfulfilled Promise of Tax Credits as Economic Policy'

Nick Bunker at the WCEG:

The unfulfilled promise of tax credits as economic policy: The relative paucity of the modern welfare state in the United States is a well-known fact among researchers. Compared to rich countries in Europe, the United States spends far less on social insurance programs and other social programs such as education. But these large disparities decrease once the private-sector side of the U.S. welfare state is included in the analysis. Yale University professor Jacob Hacker calls this the “divided welfare state,” where in many instances the U.S. tax code is now the main vehicle for social policy in retirement, college savings, and housing.
How well has this “submerged state” worked? At least in these three areas, the effectiveness of the tax code, via deductions and credits, is questionable. Consider the state of the private-sector retirement system in the United States. .... Or consider the submerged state approach to high college tuitions. ... The mortgage-interest tax deduction is another example of policy being run through the tax code. ...
To be sure, the creation of this network of tax credits and tax expenditures wasn’t without reason. Political realities necessitated the use of the tax code to achieve these ends. And these programs have done real good. But as the evidence shows, they are far from optimal.
The record of using the tax code to do tasks traditionally associated with the welfare state is clearly mixed. At best, it works like a Rube Goldberg machine that attacks a problem by hoping that a chain reaction will do the job. At worse, the machine doesn’t work for the broad majority of the population. The relevant question is now how to re-engineer it for future, more efficient use.

Saturday, February 28, 2015

'A Slippery New Rule for Gauging Fiscal Policy'

Greg Mankiw:

A Slippery New Rule for Gauging Fiscal Policy: the case for dynamic over static scoring is strong in theory. Yet three problems make the task difficult in practice.
First, any attempt to estimate the impact of a policy change on G.D.P. requires an economic model. Because reasonable people can disagree about what model, and what parameters of that model, are best, the results from dynamic scoring will always be controversial. ...
Second, accurate dynamic scoring requires more information than congressional proposals typically provide. ...
Third, dynamic scoring matters most over long time horizons. Some policy changes, such as those aimed at encouraging capital investments, take many decades to have their full impact on economic growth. Yet congressional budgeting usually looks only five or 10 years ahead. ...
So there are good reasons for the economists hired by Congress to pursue dynamic scoring. But there are also good reasons to be wary of the endeavor. ...

Another worry is the politicization of the CBO. See here and here. Also see here and here on the application of dynamic scoring to things such as Head Start and infrastructure spending.

John Whitehead comments:

Mankiw on dynamic scoring: ...Mankiw:

First, any attempt to estimate the impact of a policy change on G.D.P. requires an economic model. Because reasonable people can disagree about what model, and what parameters of that model, are best, the results from dynamic scoring will always be controversial. Just as many Republicans are skeptical about the models of climatologists when debating global warming, many Democrats are skeptical about the models of economists when debating tax policy.

My read of the article was going just fine until the climate model analogy. Two assumptions are made:

  1. All economists agree on "the models of economists" 
  2. Reasonable people can disagree about climatology models

In terms of #1, there is significant disagreement amongst economists about macroeconomic models (i.e., have you read Krugman lately?). In terms of #2, science is different than social science. Climatology involves forecasts so it is different than tests of the law of gravity, but still, ninety-x percent of climate scientists agree. That is a bit higher than the number of economists who agree on anything macro

My stance is that we should accept that the earth is likely warming and people contribute to it (even the U.S. Senate, including those Republicans that Mankiw mentions [did he miss that vote?], overwhelming thinks so). That moves us to the debate on whether we should do anything it or learn to adapt. I think that reasonable people can disagree on that second question.