Category Archive for: Politics [Return to Main]

Monday, February 02, 2015

Paul Krugman: The Long-Run Cop-Out

Focusing on the long-run and avoiding the harder, more important short-run questions is "craven and irresponsible"

The Long-Run Cop-Out, by Paul Krugman, Commentary, NY Times: On Monday, President Obama will call for a significant increase in spending, reversing the harsh cuts of the past few years. He won’t get all he’s asking for, but it’s a move in the right direction. And it also marks a welcome shift in the discourse. ... It’s often said that the problem with policy makers is that they’re too focused on the next election, that they look for short-term fixes while ignoring the long run. But the story of economic policy and discourse these past five years has been exactly the opposite.
Think about it: Faced with mass unemployment and the enormous waste it entails, for years the Beltway elite devoted almost all their energy not to promoting recovery, but to Bowles-Simpsonism — to devising “grand bargains” that would address the supposedly urgent problem of how we’ll pay for Social Security and Medicare a couple of decades from now.
And this bizarre long-termism isn’t just an American phenomenon. ...
Am I saying that the long run doesn’t matter? Of course not, although some forms of long-termism don’t make sense even on their own terms. Think about the notion that “entitlement reform” is an urgent priority..., why, exactly, is it crucial that we deal with the threat of future benefits cuts by locking in plans to cut future benefits?...
All too often, or so it seems to me, people who insist that questions of austerity and stimulus are unimportant are actually trying to avoid hard thinking about the nature of the economic disaster that has overtaken so much of the world.
And they’re also trying to avoid taking a stand that will expose them to attack. Discussions of short-run fiscal and monetary policy are politically charged. ... I understand why it’s tempting to dismiss the whole debate and declare that the really important issues involve the long run. But while people who say that kind of thing like to pose as brave and responsible, they’re actually ducking the hard stuff — which is to say, being craven and irresponsible. ...
So it’s important to understand who’s really irresponsible here. In today’s economic and political environment, long-termism is a cop-out, a dodge, a way to avoid sticking your neck out. And it’s refreshing to see signs that Mr. Obama is willing to break with the long-termers and focus on the here and now.

Saturday, January 31, 2015

'Bad Tayloring'

PK:

Bad Tayloring: Since they aren’t currently able to demand a return to the gold standard — and maybe a ban on paper money? — Republicans are pushing to mandate that the Fed follow the so-called Taylor rule, which relates short-term interest rates to unemployment (and/or the output gap) and inflation. John Taylor, not surprisingly, likes this idea. But it’s a really terrible idea, and not just for the reasons Tony Yates describes. ...
The world has turned out to be a much more dangerous place than Taylor-rule enthusiasts imagined, so why impose a rule devised, we know now, by economists who completely misjudged the risks?
Now Taylor himself has an excuse and rationale: he claims that the whole financial crisis thing was because the Fed departed slightly from his version of the rule in the pre-crisis 2000s. But as Yates points out, this assigns an importance to monetary policy that is wildly at odds with the kind of modeling used to justify the rule in the first place. It also, as Yates does not point out, has the distinct whiff of someone inventing ever-more bizarre stories to avoid admitting having been wrong about something. This is not the kind of argument on which to base rules that permanently constrain policy.

Friday, January 30, 2015

Paul Krugman: Europe’s Greek Test

Will Europe pass its latest test?:

Europe’s Greek Test, by Paul Krugman, Commentary, NY Times: ... Recent events in Greece pose a fundamental challenge for Europe: Can it get past the myths and the moralizing, and deal with reality in a way that respects the Continent’s core values? If not, the whole European project — the attempt to build peace and democracy through shared prosperity — will suffer a terrible, perhaps mortal blow. ...
...to oversimplify things a bit, you can think of European policy as involving a bailout, not of Greece, but of creditor-country banks, with the Greek government simply acting as the middleman — and with the Greek public, which has seen a catastrophic fall in living standards, required to make further sacrifices so that it, too, can contribute funds to that bailout.
One way to think about the demands of the newly elected Greek government is that it wants a reduction in the size of that contribution. ... But doesn’t Greece have an obligation to pay ... debts? That’s where the moralizing comes in.
It’s true that Greece (or more precisely the center-right government that ruled the nation from 2004-9) voluntarily borrowed vast sums. It’s also true, however, that banks in Germany and elsewhere voluntarily lent Greece all that money. We would ordinarily expect both sides of that misjudgment to pay a price. But the private lenders have been largely bailed out... Meanwhile, Greece is expected to keep on paying.
Now,... nobody believes that Greece can fully repay. So why not recognize that reality and reduce the payments to a level that doesn’t impose endless suffering? Is the goal to make Greece an example for other borrowers? If so, how is that consistent with the values of what is supposed to be an association of sovereign, democratic nations? ...
Objectively, resolving this situation shouldn’t be hard. ...Greece has actually made great progress in regaining competitiveness; wages and costs have fallen dramatically, so that, at this point, austerity is the main thing holding the economy back. So what’s needed is simple: Let Greece run smaller but still positive surpluses, which would relieve Greek suffering, and let the new government claim success, defusing the anti-democratic forces waiting in the wings. Meanwhile, the cost to creditor-nation taxpayers — who were never going to get the full value of the debt — would be minimal.
Doing the right thing would, however, require that other Europeans, Germans in particular, abandon self-serving myths and stop substituting moralizing for analysis.
Can they do it? We’ll soon see.

Tuesday, January 27, 2015

Taxing the Wealthy Won't Hurt Economic Growth

I have a new column:

Taxing the Wealthy Won't Hurt Economic Growth: I have no idea whether or not Mitt Romney will run for president, and if he does, if he will get the nomination. But many of the issues he ran on when he was a candidate in the last election are likely to reappear this time around no matter whom the candidates turn out to be.
One of the fiercely debated issues in the last presidential election was taxation of the wealthy, and Republican proposals similar to those Romney made when he ran against Obama –– lowering or eliminating the taxes on capital gains, interest, dividends, and inheritances –– will undoubtedly arise again. I expect Republicans will throw a few bones to the middle class in an attempt to get the support of this important constituency, but I also expect the thrust of the proposals to be the same old supply-side policies favoring the wealthy that we have seen in the past.
What I want to focus on, however, is the economic arguments that are made to support the ideological goal of low taxes. ...

Monday, January 26, 2015

Paul Krugman: Ending Greece’s Nightmare

"The problem with Syriza’s plans may be that they’re not radical enough":

Ending Greece’s Nightmare, by Paul Krugman, Commentary, NY Times: Alexis Tsipras, leader of the left-wing Syriza coalition, is about to become prime minister of Greece. He will be the first European leader elected on an explicit promise to challenge the austerity policies that have prevailed since 2010. And there will, of course, be many people warning him to abandon that promise, to behave “responsibly.”
So how has that responsibility thing worked out so far?
To understand the political earthquake in Greece, it helps to look at Greece’s May 2010 “standby arrangement” with the International Monetary Fund, under which the so-called troika — the I.M.F., the European Central Bank and the European Commission — extended loans to the country in return for a combination of austerity and reform. It’s a remarkable document, in the worst way. The troika, while pretending to be hardheaded and realistic, was peddling an economic fantasy. And the Greek people have been paying the price for those elite delusions.
You see, the economic projections that accompanied the standby arrangement assumed that Greece could impose harsh austerity with little effect on growth and employment. ... What actually transpired was an economic and human nightmare. Far from ending in 2011, the Greek recession gathered momentum. ...
What went wrong? I fairly often encounter assertions to the effect that Greece didn’t carry through on its promises, that it failed to deliver the promised spending cuts. Nothing could be further from the truth. In reality, Greece imposed savage cuts in public services, wages of government workers and social benefits. ...
Yet Greek debt troubles are if anything worse than before the program started. ...
So now that Mr. Tsipras has won, and won big, European officials would be well advised to skip the lectures calling on him to act responsibly...
If anything, the problem with Syriza’s plans may be that they’re not radical enough. Debt relief and an easing of austerity would reduce the economic pain, but it’s doubtful whether they are sufficient to produce a strong recovery. On the other hand, it’s not clear what more any Greek government can do unless it’s prepared to abandon the euro, and the Greek public isn’t ready for that.
Still, in calling for a major change, Mr. Tsipras is being far more realistic than officials who want the beatings to continue until morale improves. The rest of Europe should give him a chance to end his country’s nightmare.

Sunday, January 25, 2015

Who are the Radicals in Europe?

Gloomy European Economist, Francesco Saraceno:

Who are the Radicals in Europe?: As I write the Greek people are voting.  I was puzzled in the past weeks by the fear (more in the media than in markets, actually) of a “radical” left win. Puzzled, because the radical and ideological policy makers do not seem to live in Greece, today. On January 20 I wrote a piece for the Greek website Macropolis, where I claimed that we should not expect an Armageddon if Syriza wins, but rather some welcome fresh air.  I reproduce the piece here: ...

To give you the flavor of his remarks:

... On closer inspection, it seems far more radical the position of those who, despite having grossly underestimated the negative effects of austerity, ask for more of the same; of those who insist on advocating supply-side reforms to cope with a chronic lack of demand; and of those who boast having achieved a balanced budget one year ahead of forecasts, when Europe would benefit from a recovery of domestic demand in Germany.
What will happen then, if “radical” Syriza will win the election? Actually not much. ...

[In case you missed them, see also an interview with Jamie Galbraith, The Prospects and Consequences of a Possible Syriza Government and Let Us Hope for a Syriza Victory by Simon Wren-Lewis.]

Friday, January 23, 2015

'The Prospects and Consequences of a Possible Syriza Government'

Jamie Galbraith in interviewed by Roger Strassburg on the upcoming Greek election and the prospects and consequences of a possible Syriza government:

Roger Strassburg:  Can you tell us a little about what Syriza has for plans if it were to get elected, what the platform is.  You are an advisor of Tsipris currently?
James Galbraith:  I'll start out by qualifying my role.  I consider that I'm a friend of the movement for a change of government in Greece, and specifically a friend of Alexis Tsipras.  I've been a colleague for the last couple of years of Yanis Varoufakis, who is now running for parliament in Athens at the moment on the Syriza ticket.  He was preselected by Syriza for what is the largest multi-seat constituency.  The night before the vote in Parliament, where the third round of the presidential selection precipitated this election, I sent a personal note of encouragement to Alexis Tsipras, which they released to the Greek press.   So my position is known in Greece.
What is the platform of the Syriza movement?  Let me just summarize it without going into the details of the various measures that they propose to take. I think the fundamental point is that the Greek nation has been subjected to conditions for the continuing provision of financing, including the restructuring of the debt in 2012.  These were the Memorandums, which are manifestly unsuccessful as an economic recovery program.  That point is now abundantly clear to the Greek electorate, which is why the party that has rejected those conditions is in the leading position.  So the basic provision of the Syriza platform is that those conditions will no longer be agreed to as a position of the Greek government.
Roger Strassburg:  Which means?
James Galbraith:  Let me carry on for a little bit on how best to think of those provisions.
The superficial presentation one reads in the press is:  financial assistance, but in order to qualify for it you have to make certain reforms, and the point of the reforms is to put your economy back into a position of being competitive and on the path of growth.  And that's been going on for six years, and the results are what we see:  Instead of a growing economy you have an economy and a society stressed to the point of breaking, with massive unemployment and the emigration of substantial parts of the professional class especially, and the weakening of the core social institutions, education, health care, urban services and everything else to the point where they are actually a barrier to investment and economic success.  And you have the impoverishment of large sections of the population, especially the elderly population.  It's at every level a failure.  Then one has to ask, was there a bona fide program for economic recovery in the first place?  And I think it's clear that even if those who argued for this program believed it might produce recovery and growth, these objectives were very secondary or even tertiary considerations in their minds.  It is clear that the policies that were specified as a condition were at bottom not recuperative, but punitive in character.  Punitive in character against the whole Greek nation, and on an improper principle of collective responsibility for the admitted mismanagement of the affairs of the Greek state by previous governments and by the Greek political class.
Roger Strassburg:  Schäuble has said as much.
James Galbraith:  Yes.  If you read Timothy Geithner's memoir, it's clear that he was very struck by this attitude, which reflected a moralizing indifference to the future of Europe. 
Roger Strassburg:  That's the attitude of most of the German government and the press.
James Galbraith:  That fact was not concealed by them.  I'm obviously not one of most the unqualified admirers of Secretary Geithner, but on this point, clearly he had recorded an accurate perception and an admirable reaction to that way of conceiving things.
Roger Strassburg:  He was rebuffed by the Europeans.
James Galbraith:  Yes, sure he was.  So we have it on the record in an irrefutable way that it was a punitive rather than a recuperative strategy.  I don't think anybody can really argue otherwise.  A punitive strategy that was in place partly because of the interests of creditors in getting assets at fire-sale prices.  That's basically a debt collector's attitude.  And partly because of the internal politics of the German state at that time, in which a moralizing narrative was politically more useful than a more generous one would have been.
Roger Strassburg:  I don't think that's really changed.
James Galbraith:  Perhaps not, but it is one of the considerations that went into the implementation of the policy in the first place.
Roger Strassburg:  Of course now they can't change that because they've essentially given the public...
James Galbraith:  Let's get to the question of whether things can change a little bit down the road.  I think one negotiates with people you disagree with.  You don't negotiate with people you agree with.  We'll just establish this as the starting point for the conversation.  In that case, having recognized this, that we're no longer playing the games that the incumbent government at the moment has been playing, of pretending that the policies that you're signing on to are growth and recovery and reform policies when you know that they are simply the conditions for the financial policy of “extend and pretend” that has been underway for quite a long time.
That said, what is the leverage that would be applied to the Greek government if it chooses to recognize this reality and take a different path?  In fact the leverage available is not zero, but it's limited to some measures that would be fairly extreme in ordinary conditions.  On the one hand, there are certain parts of the debt that should ordinarily be rolled over.  Since the debt is now almost all – all the significant parts of it are in the hands of public authorities, the question of whether they would roll it over is a policy question for them.  In some sense they have the ability, if they were to choose, to place the Greeks in technical default, but one has to ask what happens under those circumstances, and the answer is, I would think, not very much. If I owe you a note, and my ability to pay it depends upon your willingness to roll it over, then if you, say, you don't roll it over, and I don't pay you, well, you still hold the note and it's still accruing interest and it's still an asset.  It's not an economic issue between us, except that you don't have the cash.  But the European Central Bank and other European authorities are not in need of cash.  It's not like a private debt.  So that's a bit of an artificial question.
And the other point of leverage is the Emergency Liquidity Authority, which backstops the Greek banking system.  To cut the ELA would be to pull the plug on the Greek banking system and effectively to force a crisis in the affairs of the Eurozone.  If the attitude of the creditors is “my way or the highway”, that you can have an election, but you may not change your policies, well then the burden of historical responsibility will be on them.  We shall see.  However my basic view is that Germany, having been one of the central countries at the origin of the European Union and at the origin of the Eurozone, will wisely not take the step of blowing up the European Union and the Eurozone over an argument about the conditionalities attached to past financial bargains.
Roger Strassburg:  That depends on how they estimate the risk that that will happen.  I'm not sure how they're estimating it.
James Galbraith:  That is, of course, the question, but when you go into a poker game, you don't go in showing your cards.  Obviously the German government would like the potentially incoming Greek government to fold its hand.  I think they can reasonably expect that the incoming Greek government, unlike the previous Greek governments, won't do that.  A major difference is that previous Greek governments had large internal factions fundamentally aligned with the policies of the Memorandum and the Troika.  This was certainly true of the Papandreou government.  George Papandreou was surrounded by neoliberal fellow travelers.  And that won't be true of the incoming government, assuming Syriza wins the election.  So the European partners can reasonably expect that the poker game will have to be played for a while.  We'll see if it can come to some kind of a reasonable agreement.  You have two sovereign countries with a difference of view, and one of them has a very strong case in equity for taking a different route after six years of good-faith effort to make the other route work when it was manifestly not a workable route.
Roger Strassburg:  I know Yanis Varoufakis made it very clear about that when we talked to him a little over a year ago.  He said that he would simply not pay as long as the conditions weren't right.
James Galbraith:  If you look at the Greek government debt in accrual accounting terms, if you look at it under the terms of IPSAS, the restructuring in 2012 was already very fundamental.  This is a debt which exists on very long terms at low interest rates, but the most important thing is that it's in the hands of public creditors.  The stuff that's in the hands of private creditors can be paid without difficulty, so there isn't a risk of a generalized private credit market debacle.  The stuff in public hands is an accounting matter, which has to do with the rules of the Eurozone that you can't actually write down the debt because that would make it too easy to escape from the conditionalities. 
In any event the conditionalities are going to be essentially a dead letter once the new government gets its policies in place.  Let's just take one example I'm a little familiar with.  If you go out to the Greek islands, they each have their own electric power generation station, which is in the nature of islands. They're all monopolies.  Do you allow those monopolies to be sold off to foreign investors in order to satisfy your debts, in which case you're putting the residents of each of these little islands at the mercy of a tiny little electric power monopoly?  That's from a public policy standpoint not a very good idea.  It has nothing to do with economic growth.  It has to with the capacity of what's equivalent to a local landlord to charge an unlimited amount of rent.  It's like the city of Chicago selling its parking meters to a private company.  It meant that there are no more street fairs in Chicago because you have to pay the company for its lost parking meter revenue.  That's not an economic growth strategy.
Roger Strassburg:  That's a typical arrangement, though, that's been happening in Germany, as well – Public-Private Partnerships.
James Galbraith:  Yes, but that has material consequences, which have nothing to do with economic growth, but a good deal to do with the viability of community life.
And we're talking also about questions about regulations governing the labor market.  There might be some negotiating room there.  For instance, there's a provision in Greek law, dating from the time of Andreas Papandreou, which limited the fraction of your labor force that you can lay off at any given time.  That provision is hard to maintain when a large fraction of your businesses are going bankrupt.  So there's some negotiating room about labor market rules.  As you go through these things, you say, okay, is there any merit to the substance of the provision, and if not, what's a better provision?
Parts of the Syriza program are to relieve some of the pressure on the most vulnerable parts of the Greek population, people who don't have access to electric power, people who need food in schools. In Greece today there are significant portions of the population which are in serious distress.  Dealing with that is a part of the program.  It would be nice for Greece to have some more fiscal room to implement changes, but there are significant changes even if there is no effective or very little effective new fiscal room.  Greece has already reduced its trade deficit, it's actually running a primary surplus.
Roger Strassburg:  The trade deficits have been reduced because of reduced imports, right?
James Galbraith:  Yes, it's primarily due to reduced imports, the point being that at the current level of activity, there's not an immediate need for new fiscal resources in order to just simply carry on.  And so a leverage over a change of policy in that respect is not going to be decisive.
So that's the basic scene-setting.  Then you have the question of what is it that the European Union could do if it were truly motivated by good will to help not only a partner state in particular, but perhaps more generally, to move from a policy of debt collection and punishment to a policy of stabilization and expansion.  That would also, I think, be on the agenda.
Well then we get into the terrain of the Modest Proposal.  The Modest Proposal is a proposal for the whole Eurozone, but it would certainly have some applicability to the Greek case.  The nature of the proposal has evolved a bit since publication of the last version of the Modest Proposal, thanks to Sr. Draghi and his moves toward Quantitative Easing.  A sensible way forward, in which there's been some interest in other governments of Europe, would be to launch a larger investment program through the European Investment Bank and for the ECB to guarantee the price of EIB bonds.  Taking account of the fact that the rhetoric of Europe has moved very much in favor of an investment program, and certainly at the rhetorical level Juncker's 315 billion euro program establishes that this is a legitimate need, an important need. But of course Juncker's proposal is not an effective policy.
Roger Strassburg:  Is this another matching funds problem?
James Galbraith:  It's a leverage problem.  In the case of the Juncker program there's only a small amount of public money, and the idea is that this is going to incentivize a large amount of private investment.  It's not really very plausible, but let's take the fact that he's acknowledged the need for a program and also has acknowledged at least a fraction of the scale that's actually required.  So we've put some large-looking numbers on the table. These are steps in the right direction.  Now we can haggle over what it takes to make it work.  It's a bit like George Bernard Shaw and Lady Astor.  You know that story, right?
Roger Strassburg:  No, I don't.
James Galbraith:  It's one of the old stories.  Shaw turned to Lady Astor at a dinner party and said, “Madame, would you sleep with me for a million pounds?”, and she said, “I'd consider it”.  Then he said, “How about ten pounds?”, and she said, “What do you think I am?”  Then he said, “Well we've established that, now we're just haggling over the price.”  Having established that we need the investment program, we can now talk about how to achieve it.
The other item that would be extremely useful for the European Union to act on quickly would be to get some measures for income stabilization and humanitarian assistance for vulnerable populations.
Roger Strassburg:  Transfer programs.
James Galbraith:  I wouldn't call them transfer programs.  I'd call them social insurance programs.  Transfer implies that somebody rich is paying for somebody poor.  But when you're taking a resource which is presently out of use and bringing it back into use, that's not what you're doing.  You're actually stabilizing the social and economic situation in the recipient country at no real cost to the larger European economy.
Roger Strassburg:  You're reinstating the insurance programs.
James Galbraith:  Yes, exactly.  And doing it on a sustainable basis.  Unemployment insurance has been discussed as a potential Europe-wide initiative, but you could also have nutrition assistance.  I've over the years proposed a few other things, but those two would be immediately practical, and the discussion of how to fund them is in the Modest Proposal.
So I think what one can expect, and I'm not speaking for Syriza in any sense by saying this, and I do want that to be clear, but I think one can expect a constructive negotiating position to be developed by a new Greek government.  And a constructive and reasonable one, one that is based on principles that have been applied at every level in the construction of Europe.
The European Union and German Unification were both brought into being on principles of social solidarity and common progress;  the Federal Republic in the first place, German unification and the European Union, all constructed on a language of principles of inclusion and solidarity and mutual support.
Roger Strassburg:  The Unification was all Germans.
James Galbraith:  That was all Germans, yes.  But it's okay, it's a principle that has been articulated in Germany, that is understood in the German political community, and that is, I think, the principle on which progress for Europe, or for that matter, the stability of Europe depends.
Roger Strassburg:  That would require a lot of convincing.  The Reunification was one thing...
James Galbraith:  We're not asking for a referendum, a plebiscite in the German population.  This is a question to be decided between governments.  We don't need to convince people on the principles of this, one simply needs to have an agreement about an acceptable way to proceed.
Roger Strassburg:  It's really not that simple in Germany – or anyplace else, for that matter.
James Galbraith:  Nobody claims simplicity.  Speaking now, as I have been all along, for myself here, I've always as a general rule felt that one negotiates with people you disagree with, not with people you agree with, and you negotiate in good faith.  It's an obligation on both sides that you negotiate in good faith, otherwise there's no point in having the negotiation.  And I would always choose as a negotiation partner a political authority that has real authority.  Certainly the leader of Germany is a person in that position, I would say the most successful and dominant political personality in modern Europe.  When you're negotiating, you negotiate with the top person.  That makes you more likely to have a favorable result than if you negotiate with someone who is in a very weak internal position, and not able to make changes in policy.
Roger Strassburg:  One of those things that's been kicked around for a while, is there going to be such a thing as a United States of Europe, and that's not going to happen.
James Galbraith:  It's certainly not part of the Syriza program.  The Syriza program is a pro-European program.  It is, and I think Europe and Europeans, people are committed to the European project, can consider it a great stroke of luck that there has arisen in Greece, and consequently, partly consequently and subsequently, in Spain, as well as in the present government of Italy, a pro-European set of parties, whose objective is change, constructive change, to make the European project viable.  That's in many ways the last line that will be there.  If those movements are not successful, then you have the Five Star movement in Italy, and you have, I suppose, the Golden Dawn in Greece.  So good luck to you if you go from where we are now to that.  And I'm not saying that the Five Star and the Golden Dawn are equivalent, they're not, but they're anti-European.
Roger Strassburg:  A little like AfD in Germany.
James Galbraith:  I wouldn't even say that.  I think that all three are really quite different, but you're going to move toward politics which is much nastier, much more vicious and anti-European in character rather than constructive and pro-European in character.
Roger Strassburg:  You have those trends in the UK, as well.
James Galbraith:  Of course.  So with that in mind, you have here a chance, at least in principle, to create a window of, let's say, constructive hope in the European case.
Roger Strassburg:  Do you think Syriza has a chance of winning?  I'm asking for your prophetic powers here...
James Galbraith:  It's not necessary to hope in order to persevere.  It's the motto of William of Orange, I learned some years ago from my friend Bill Black.  I maintain that, let's pursue a line as long as there is some prospect of success.
Roger Strassburg:  This is the best chance that they've had in, well, ever.
James Galbraith:  Yes.  As a small “d” democrat I find the situation in Greece quite inspiring because you have here something really very rare in any country in recent years, which is an election in which the public is making a choice that matters.  The outcome is not a question of some manipulation among existing political classes, or even the evolution of a previously existing party system, which was the case in Italy.  They have a clear-cut choice, and they're making it.  This is what democracy should be about.  Often it is some very blurry version of that at best.
Roger Strassburg:  It appears at the moment that Syriza won't be able to govern without a coalition.
James Galbraith:  Yes, I'd agree with that.  If you just look at the math of the polls, my guess is that they'd need somewhere up to twenty seats.
Roger Strassburg:  Given the bonus of fifty.
James Galbraith:  Yes.  They'd get a base of eighty, then a bonus of fifty, and then they need up to twenty more, depending on what the actual margin of victory is.  And then what actually happens depends on what happens to the representation of the smaller entities in the Greek system, given the three percent threshold to get into the parliament, so you don't know which of the various other players will be represented and at what numbers.  That's all in flux, so we'll see.
Roger Strassburg:  It remains interesting.
James Galbraith:  Oh, it will remain interesting, but you need to have, say, the acquiescence of twenty members, and if you don't get them, then there's another election.  And the typical pattern of a second election is to reaffirm the first, and the electorate can either go forward or backwards.  It's generally likely in the second case that you'd get a coalescence of people who say, enough of this nonsense, and move into the Syriza camp.
Roger Strassburg:  People will vote for the one more likely to win.
James Galbraith:  Yes, exactly.  Also, when you have an election, and you have this outcome of where the party which was just a few years ago at very low levels has moved up into the high twenties, and in terms of popular support is the largest single political entity in the country, then the perception of the party and its leader changes.  It was just a few years ago, nobody would talk to Alexis Tsipras.  He was considered kind of a dangerous figure who should be kept isolated.  Then he became the leader of the Greek official opposition, which made him at least a presence on the local scene.  And then with the European parliamentary elections he became the largest party, which created a kind of presumptive possibility that he would, that Syriza would win the election.  And then there was the question of whether there would be an election, and then it became clear that the government could not muster 180 votes to elect a presidential candidate, and there we are.  This is a cumulative, ongoing process.
Roger Strassburg:  They now appear to be viable.
James Galbraith:  They are, as a political force in Greece, viable.
Roger Strassburg:  How is the press treating him.  Are they treating him fairly?
James Galbraith:  These are tests.  I don't begrudge the forces of the status quo their stratagems.  I think that there are such things as pariahs in politics.  It's not unreasonable to draw distinctions between the mainstream and the fringe, and make it difficult to cross that barrier to become a mainstream political force. Which means, when you have a movement that achieves that, that is something to be taken seriously.  It's not a freak phenomenon, it's not something which is achieved easily.  It's a process of years.  And that's what we've observed in Greece, something which was at one point a minor player of dissidence in a country dominated by New Democracy and PASOK, two very long-established political parties with high dynastic traditions going back to the end of the civil war, and especially to the end of the junta in 1974.  And that political order has crumbled, first PASOK, and now you see the relative decline of New Democracy.  So something new has emerged.
Roger Strassburg:  Isn't PASOK now so low that they may not even make it into the parliament?
James Galbraith:  What has happened in PASOK is that George Papandreou has left to form his own formation, and we shall now see what happens there.  I'm not actually close enough to be able to judge, but it might be one or the other, Venizelos vs. Papandreou.  Or the other two possibilities are that it might be both or it might be neither.  We'll see.
Roger Strassburg:  Tsipras appears to be somewhat charismatic.
James Galbraith:  I've seen him up close on a couple of occasions at important moments where the eyes of the country were clearly on him. I've spoken to him on a number of occasions, he was in Austin at a conference a few years ago, and I have a sense of him as a thoughtful presence in private, and a rather impressive one in public.

Paul Krugman: Much Too Responsible

Europe’s self-indulgent "archons of austerity" and "doyens of deflation":

Much Too Responsible, by Paul Krugman, Commentary, NY Times: The United States and Europe have a lot in common. Both are multicultural and democratic; both are immensely wealthy; both possess currencies with global reach. Both, unfortunately, experienced giant housing and credit bubbles between 2000 and 2007, and suffered painful slumps when the bubbles burst.
Since then, however, policy on the two sides of the Atlantic has diverged. In one great economy, officials have shown a stern commitment to fiscal and monetary virtue, making strenuous efforts to balance budgets while remaining vigilant against inflation. In the other, not so much.
And the difference in attitudes is the main reason the two economies are now on such different paths. ... No, it’s not morning in America... Recovery could and should have come much faster, and family incomes remain well below their pre-crisis level. Although you’d never know it from the public discussion, there’s overwhelming agreement among economists that the Obama stimulus of 2009-10 helped limit the damage..., but it was too small and faded away far too fast. ...
Europe, on the other hand ... did almost everything wrong. On the fiscal side, Europe never did much stimulus, and quickly turned to austerity ... despite high unemployment. On the monetary side, officials fought the imaginary menace of inflation, and took years to acknowledge that the real threat is deflation. ...
Monetary policy got much better after Mario Draghi became president of the European Central Bank in late 2011. ... But it’s not at all clear that he has the tools to fight off the broader deflationary forces set in motion by years of wrongheaded policy. ...
The terrible thing is that Europe’s economy was wrecked in the name of responsibility. ... In a depressed economy..., a balanced-budget fetish and a hard-money obsession are deeply irresponsible. Not only do they hurt the economy in the short run, they can — and in Europe, have — inflict long-run harm, damaging the economy’s potential and driving it into a deflationary trap that’s very hard to escape.
Nor was this an innocent mistake. The thing that strikes me about Europe’s archons of austerity, its doyens of deflation, is their self-indulgence. They felt comfortable, emotionally and politically, demanding sacrifice (from other people) at a time when the world needed more spending. They were all too eager to ignore the evidence that they were wrong.
And Europe will be paying the price for their self-indulgence for years, perhaps decades, to come.

Tuesday, January 20, 2015

Obama and I, Me, My, You, We, Our

Mark Liberman at Language Log tries to set the record straight -- yet again:

Presidential pronouns: This time it's Ron Fournier: Ron Fournier, "Is Obama More Interested in Progress or Politics?", National Journal, 1/20/2015:

Count how many times Obama uses the words "I," "me," and "my." Compare that number to how often he says, "You," "we," "our." If the first number is greater than the second, Obama has failed.

This leads naturally to a different question: "Is Ron Fournier More Interested in Analysis or in Bullshit?"...

If Ron Fournier had spent a minute or two looking into the facts of the matter, he might have discovered... ALL presidents since WWII have used substantially more first-person-plural pronouns than first-person-singular pronouns in the SOTU messages; Adding second-person pronouns makes the disproportion even larger; Obama is pretty much in the middle of the pack on all the relevant measures. ...

Mr. Fournier is reprising a sub-theme of the Great Obama Pronoun Fantasy, variants of which seem to draw pundits like flies to rotting meat. ...

'The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy'

Mike Konczal:

The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy: President Obama is going big on capital taxation in the State of the Union tonight, including a proposal to raise dividend taxes on the rich to 28 percent. ...Bush’s radical cuts to capital taxes are part of his legacy... And it’s a part that the latest evidence tells us did a lot to help the rich without helping the overall economy at all.
In the response to Obama’s proposal, you are going to hear a lot about how lower dividend rates increase investment and help the real economy. Indeed, lowering capital tax rates has been a consistent goal of conservatives. As a result, one of the biggest capital taxation changes in history happened in 2003, when George W. Bush reduced the dividend tax rate from 38.6 percent to 15 percent... So did the tax cut make a difference?
This is where UC Berkeley economist Danny Yagan’s fantastic new paper, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut,” (pdf, slides) comes in. ...
Here’s what he finds: ... There’s no difference in either investment or adjusted net investment. There’s also no difference when it comes to employee compensation. The firms that got a massive capital tax cut did not make any different choices about things that boost the real economy. This is true across a crazy-robust number of controls, measures, and coding of outliers. ...
President Obama will likely focus his pitch for the dividend tax increase on the future, when, in his argument, globalization and technology will cause compensation to stagnate while investor payouts skyrocket and the economy becomes more focused on the top 1 percent. But it’s worth noting that while capital taxes are a solution to that problem, that the radical slashing conservatives have brought to them are also partly responsible for our current malaise.

Monday, January 19, 2015

Paul Krugman: Hating Good Government

Why do conservatives hate government?:

Hating Good Government, by Paul Krugman, Commentary, NY Times: It’s now official: 2014 was the warmest year on record. You might expect this to be a politically important milestone. ... So will the deniers now concede that climate change is real?
Of course not. Evidence doesn’t matter for the “debate” over climate policy... And this situation is by no means unique. Indeed,... it’s hard to think of a major policy dispute where facts actually do matter; it’s unshakable dogma, across the board. And the real question is why.
Before I get into that, let me remind you of some other news that won’t matter.
First, consider the Kansas experiment. Back in 2012 Sam Brownback, the state’s right-wing governor, went all in on supply-side economics: He drastically cut taxes, assuring everyone that the resulting boom would make up for the initial loss in revenues. Unfortunately..., his experiment has been a resounding failure. ... So will we see conservatives scaling back their claims about the magical efficacy of tax cuts...? Of course not. ...
Meanwhile, the news on health reform keeps ... being more favorable than even the supporters expected. ...
All this is utterly at odds with dire predictions that reform would lead to declining coverage and soaring costs. So will we see any of the people claiming that Obamacare is doomed ... revising their position? You know the answer.
And the list goes on..., a big chunk of America’s body politic holds views that are completely at odds with, and completely unmovable by, actual experience. ...
The question, as I said at the beginning, is why. Why the dogmatism? Why the rage...,why this hatred of government in the public interest? Well, the political scientist Corey Robin argues that most self-proclaimed conservatives are actually reactionaries. That is, they’re defenders of traditional hierarchy — the kind of hierarchy that is threatened by any expansion of government, even (or perhaps especially) when that expansion makes the lives of ordinary citizens better and more secure. I’m partial to that story, partly because it helps explain why climate science and health economics inspire so much rage.
Whether this is the right explanation or not, the fact is that we’re living in a political era in which facts don’t matter. This doesn’t mean that those of us who care about evidence should stop seeking it out. But we should be realistic in our expectations, and not expect even the most decisive evidence to make much difference.

Wednesday, January 14, 2015

'Republican Assault on Dodd-Frank Act Intensifies'

Is anyone surprised?:

Republican assault on Dodd-Frank act intensifies, by Barney Jopson, FT: Republicans are intensifying an assault on the Dodd-Frank financial reform act in the second week of a new Congress...
Under attack in the House on Wednesday was part of the so-called Volcker rule, a provision of the reforms that limits bank risk taking.
Lawmakers voted 271-154 to delay from 2017 to 2019 a ban on banks holding securitised debt that has been packaged into collateralised loan obligations, with 29 Democrats supporting the postponement along with Republicans. ...

Because the Masters of the Universe need years and years to adjust to this change (Dodd-Frank was passed nearly *five* years ago). Or maybe they are simply hoping to delay and delay until they can get repeal? The president has said he will veto this if it also gets through the Senate, but they will likely try to attach it to other legislation to make a veto much harder.

I don't think the repeal of Glass-Steagall caused the financial crisis. But that doesn't mean the Volcker rule has no value, only costs. Repeal of Glass-Steagall sets up a vulnerability that could cause a crisis in the future, so it's worth fixing via the Volcker rule.

'Supply-Side Enablers'

pgl:

...Norman Ture indeed was the original supply-sider who basically told Chairman Mills to ignore the CEA’s recommendations for fiscal restraint in 1966. We now know the unfortunate history of politics not heeding the advice of sensible economists. And yes – the supply-siders once again pushed for fiscal stimulus in 1981. How did that work out? I bring this up today in light of the fact that Mitt Romney is once again running for President. The last time he did so, he advocated large tax cuts without any serious consideration of how to pay for them. I’m sure Romney will have plenty of supply-side enablers once again.

Tuesday, January 13, 2015

'Selective Voodoo'

Paul Krugman:

Selective Voodoo: House Republicans have passed a measure demanding that the Congressional Budget Office use “dynamic scoring” in its revenue projections — taking into account the supposed positive growth effects of tax cuts. It remains to be seen how much damage this rule will actually cause. The reality is that there is no evidence for the large effects that are central to right-wing ideology, so the question is whether CBO will be forced to accept supply-side fantasies.
Meanwhile, one thing is fairly certain: CBO won’t be applying dynamic scoring to the positive effects of government spending, even though there’s a lot of evidence for such effects.
A good piece in yesterday’s Upshot reports on a recent study of the effects of Medicaid for children; it shows that children who received the aid were not just healthier but more productive as adults, and as a result paid more taxes. So Medicaid for kids may largely if not completely pay for itself. It’s a good guess that the Affordable Care Act, by expanding Medicaid and in general by ensuring that more families have adequate health care, will similarly generate significant extra growth and revenue in the long run. Do you think the GOP will be interested in revising down estimates of the cost of Obamacare to reflect these effects? ...

Monday, January 12, 2015

Paul Krugman: For the Love of Carbon

What's the real reason Republicans are pushing for the Keystone XL pipeline?:

For the Love of Carbon, Commentary, NY Times: It should come as no surprise that the very first move of the new Republican Senate is an attempt to push President Obama into approving the Keystone XL pipeline... After all,... the oil and gas industry — which gave 87 percent of its 2014 campaign contributions to the G.O.P. — expects to be rewarded for its support.
But why is this environmentally troubling project an urgent priority in a time of plunging world oil prices? Well, the party line, from people like Mitch McConnell, the new Senate majority leader, is that it’s all about jobs. ...
Let’s back up for a minute and discuss economic principles. For more than seven years ... the United States economy has suffered from inadequate demand. ... In such an environment, anything that increases spending creates jobs. ...
From the beginning, however, Republican leaders have held ... that we should slash public spending... And they’ve gotten their way... The evidence overwhelmingly indicates that this kind of fiscal austerity in a depressed economy is destructive...
Needless to say, the guilty parties here will never admit that they were wrong. But if you look at their behavior closely, you see clear signs that they don’t really believe in their own doctrine.
Consider, for example, the case of military spending. When it comes to possible cuts in defense contracts, politicians ... suddenly begin talking about all the jobs that will be destroyed. ... This is the phenomenon former Representative Barney Frank dubbed “weaponized Keynesianism.”
And the argument being made for Keystone XL is very similar; call it “carbonized Keynesianism.” ... But government spending on roads, bridges and schools would do the same thing. ... If Mr. McConnell and company really believe that we need more spending to create jobs, why not support a push to upgrade America’s crumbling infrastructure?
So what should be done about Keystone XL? If you believe that it would be environmentally damaging — which I do — then you should be against it, and you should ignore the claims about job creation. The numbers being thrown around are tiny compared with the country’s overall work force. And in any case, the jobs argument for the pipeline is basically a sick joke coming from people who have done all they can to destroy American jobs — and are now employing the very arguments they used to ridicule government job programs to justify a big giveaway to their friends in the fossil fuel industry.

Saturday, January 10, 2015

Policy Uncertainty

This is silly (it's from a discussion of the costs of policy uncertainty from the Becker Friedman Institute):

If the Affordable Care Act has taught us anything, it’s this: A party in power can push through a major policy initiative in the teeth of strong political opposition, but it probably shouldn’t. A better strategy is to secure some support across the political aisle, even at the cost of compromise. Persistent attacks on the Affordable Care Act continue to generate uncertainty about its political durability and raise doubts about what the healthcare delivery landscape will look like in the U.S. for many years to come.

That simply wasn't a choice. Securing support across the political aisle was not an option. No amount of compromise would have mattered. Would the millions who now have health insurance, those who now have the option to change jobs without losing insurance, people with pre-existing conditions, etc., etc. be better off if the law had not passed? Because that was the choice Democrats faced, a highly imperfect bill that would do quite a bit of good even with its imperfections, or no bill at all. Bipartisan support for policy is surely a worthy goal, and sometimes a bit of compromise can bring it about. But other times there is no choice except to ram through legislation that one side believes has the potential to do considerable good.

Interesting that the authors didn't pick tax cuts for the wealthy as their example of policy uncertainty. The future prospects for this policy were just as uncertain under Obama, the policy had a high degree of opposition from the other side of the political aisle, and the tax cuts did far less good than the ACA beyond reducing the tax payments for a group of wealthy individuals who didn't need the help. And unlike the ACA and its documented success (if you look past Fox News), the promised trickle down and economic growth miracle never materialized. If we are looking for a case where the harm from policy uncertainty exceeds the benefits of the policy, this is a much better candidate than the ACA.

I do like some of their other recommendations though, e.g. to use automatic stabilizers:

Automatic stabilizers—unemployment insurance spending that goes up when employment falls, for example—offer some advantages over discretionary measures. The fiscal equivalent of an “advance directive,” they kick-in quickly in real time as economic fundamentals change. They don’t need to wait for a legislative act. And while every distribution of federal dollars involves some political infighting, a policy response developed in advance of actual need is more likely to be evaluated primarily on its economic rather than political merits. Finally, those bearing the brunt of the shock—wage earners and  businesses—aren’t left wondering when or if some help is on the way.

And:

Take some of the politicking out of policymaking. A Congress that indiscriminately exercises its right to debate, amend, and delay can produce excessive tug-of-war policymaking that comes with the cost of heightened uncertainty. Asking Congress to skip the dickering and bind itself to a simple up or down vote, as it already does with military base closures and fast-track trade authority, could minimize the drama—and cost—of indecision.

Though taking the politicking out of policymaking is probably wishful thinking, and it's hard to imagine Republicans going along with any expansion of automatic stabilizers (their proposals are likely to run in the other direction, reducing support for programs such as food stamps).

So long as we have political parties with differing ideological views, there will always be policy uncertainty. One side will always want to undo what the other puts into place. They will rarely agree, and a call for bipartisan support before anything can be done is a call to do nothing. I don't think that's the best approach.

But so long as we are engaged in wishful thinking, let me add to the list. What I'd add is more honesty in evaluating programs after they are put into place. More attention and responsiveness to the empirical evidence. If tax cuts don't trickle down or create growth, if austerity actually makes things worse, if fiscal policy multipliers are non-zero in deep recessions when we are stuck at the zero bound, if the ACA is working to provide health services to millions of people who dearly needed such help, etc., etc., then accept the evidence and adjust policy accordingly. I suppose it's too much to expect politicians to do this, but can we at least get economists to treat these issues honestly (and maybe the media would do better as a consequence)? I'd settle for that.

Friday, January 09, 2015

Paul Krugman: Voodoo Time Machine

Ideological rigidity causes blindness to the facts:

Voodoo Time Machine, by Paul Krugman, Commentary, NY Times: Many of us in the econ biz were wondering how the new leaders of Congress would respond to the sharp increase in American economic growth that ... began last spring. After years of insisting that President Obama is responsible for a weak economy, they couldn’t say the truth — that short-run economic performance has very little to do with who holds the White House. So what would they say?
Well, I didn’t see that one coming: They’re claiming credit. Never mind the fact that all of the good data refer to a period before the midterm elections. Mitch McConnell, the new Senate majority leader, says ... that growth reflected “the expectation of a new Republican Congress.”
The response of the Democratic National Committee — “Hahahahahahaha” — seems appropriate. I mean, talk about voodoo economics: Mr. McConnell is claiming not just that he can create prosperity without, you know, actually passing any legislation, but that he can reach back in time and create prosperity before even taking power. ...Mr. McConnell’s self-aggrandizement is ... scary ... because it’s a symptom of his party’s epistemic closure. Republicans know many things that aren’t so, and no amount of contrary evidence will get them to change their minds. ... Congress is now controlled by men who never acknowledge error, let alone learn from their mistakes.
In some cases, they may not even know that they were wrong. After all, conservative news media are not exactly known for their balanced coverage; if your picture of ... health reform is ... based on Fox News, you probably have a sense that it has been a vast disaster, even though the reality is one of success...
The main point, however, is that we’re looking at a political subculture in which ideological tenets are simply not to be questioned... Supply-side economics is valid no matter what actually happens to the economy, guaranteed health insurance must be a failure even if it’s working, and anyone who points out the troubling facts is ipso facto an enemy.
And we’re not talking about marginal figures. You sometimes hear claims that the old-fashioned Republican establishment is making a comeback, that Tea Party extremists are on the run and we can get back to bipartisan cooperation. But that is a fantasy. We can’t have meaningful cooperation when we can’t agree on reality, when even establishment figures in the Republican Party essentially believe that facts have a liberal bias.

Wednesday, January 07, 2015

'Getting It Wrong on Disability Insurance'

It didn't take Republicans long to begin their assault on Social Security:

Getting It Wrong on Disability Insurance, by Kathy Ruffing, CBPP: I’ve explained that a new House rule will make it harder to reapportion payroll taxes between Social Security’s retirement and Disability Insurance (DI) trust funds to avert a one-fifth cut in benefits to severely impaired DI recipients in late 2016.  In a revealing statement, co-sponsor Representative Tom Reed (R-NY) says the change is designed to prevent Congress from “raiding Social Security to bail out a failing federal program.”  He’s doubly wrong.
First, far from “failing,” DI has grown mostly in response to well-understood demographic and program factors like the aging of the baby boom, and the program’s trustees have long anticipated the need to replenish the trust fund next year...  Second, DI isn’t distinct from Social Security; it’s an essential part of Social Security.
Social Security is much more than a retirement program.  It pays modest but guaranteed benefits when someone with a steady work history dies, retires, or becomes severely disabled. ...
Statements like Representative Reed’s implicitly attempt to pit Social Security retirement and disability beneficiaries against each other. ...

The Mythical Confidence Fairy

After harming the recovery from the Great Recession -- and making it harder for the unemployed to find jobs -- through austerity, blocking jobs bills, and standing in the way of additional stimulus measures, Republicans are trying to take credit for the recovery. They made things worse, and when they stopped doing harmful things, the economy improved and they want credit for that:

The new Senate majority leader, Mitch McConnell, suggested earlier today that the Republican Party deserves credit for recent data showing that the economic recovery has picked up speed. ... Mr. McConnell is claiming credit for a recovery based solely on the fact that Republicans have just taken control of both houses of Congress...
Here’s what Mr. McConnell said on the floor this morning:
“After so many years of sluggish growth, we’re finally starting to see some economic data that can provide a glimmer of hope. The uptick appears to coincide with the biggest political change of the Obama Administration’s long tenure in Washington: the expectation of a new Republican Congress.”

That deserves ridicule. Republicans were terribly wrong about Federal Reserve policy, just as wrong about austerity and the confidence fairy, yet here they are once again telling us that the confidence fairy rather than the end of their awful policy is responsible for the recovery.

Monday, January 05, 2015

'Do Tax Cuts Partly Pay for Themselves?'

Me, at MoneyWatch, on the Republican's effort to institute dynamic scoring:

Do tax cuts partly pay for themselves?: Now that Republicans have taken control of the House and Senate, they are pushing to change how the Congressional Budget Office (CBO) and the Joint Tax Committee (JTC) evaluate tax legislation.
The effort is being made on two fronts. The first is an attempt by many Republicans to replace the director of the CBO, Doug Elmendorf, with someone more sympathetic to a new approach to evaluating the budgetary impact of proposed legislation. The second is a push from Rep. Paul Ryan, R-Wisconsin, who will take over as chair of the to the Ways and Mean Committee in January, to implement a new rule that would require the CBO and JCT to implement the alternative approach.
At issue is what is known as "dynamic scoring." ...

[I should note that this was written before this appeared.]

Paul Krugman: Presidents and the Economy

Can President Obama take credit for the improving economy?:

Presidents and the Economy, by Paul Krugman, Commentary, NY Times: Suddenly, or so it seems, the U.S. economy is looking better. ...
The improving economy is surely one factor in President Obama’s rising approval rating. ... How much influence does ... the White House have on the economy,,,? The standard answer among economists ... is: not much. But is this time different?
To understand why economists usually downplay the economic role of presidents,... normally the Fed, not the White House, rules the economy. Should we apply the same rule to the Obama years?
Not quite.
For one thing, the Fed has had a hard time gaining traction ... because the aftermath of a huge housing and mortgage bubble has left private spending relatively unresponsive to interest rates. This time around, monetary policy really needed help from a temporary increase in government spending, which meant that the president could have made a big difference. And he did, for a while; politically, the Obama stimulus may have been a failure, but an overwhelming majority of economists believe that it helped mitigate the slump.
Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office...
There is, however, another sense in which Mr. Obama has arguably made a big difference. The Fed has had a hard time getting traction, but it has at least made an effort to boost the economy — and it has done so despite ferocious attacks from conservatives... Without Mr. Obama to shield its independence, the Fed might well have been bullied into raising interest rates, which would have been disastrous. So the president has indirectly aided the economy by helping to fend off the hard-money mob.
Last but not least,... the fact is his opponents have spent years claiming that his bad attitude — he has been known to suggest ... that some bankers have behaved badly — is somehow responsible for the economy’s weakness. Now that he’s presiding over unexpected economic strength, they can’t just turn around and assert his irrelevance.
So is the president responsible for the accelerating recovery? No. Can we nonetheless say that we’re doing better than we would be if the other party held the White House? Yes. Do those who were blaming Mr. Obama for all our economic ills now look like knaves and fools? Yes, they do. And that’s because they are.

Friday, December 26, 2014

'Underinvesting in the Public Good'

Daniel Little:

Underinvesting in the public good, Understanding Society: There are quite a few investments in social programs that would have spectacular return on investment, but that in fact remain unfunded or underfunded. I am thinking here of things like broadened preschool programs, enhanced dropout prevention programs, regional economic development efforts, and prison re-entry programs. Why are these spectacular opportunities so dramatically under-exploited in the United States and other nations?

One line of answer derives from a public choice perspective: the gains that follow from the investment represent public goods, and public goods are typically under-provided. But that doesn't really answer the question, because it is governments that are underinvesting, not uncoordinated groups of independent agents. And governments are supposed to make investments to promote the public good.

Another plausible answer is that the citizens who are primarily served by most of the examples provided above are poor and disenfranchised; so the fact that they would benefit from the program doesn’t motivate the politically powerful to adopt the policy.

There is also a powerful influence of political ideology at work here. Conservative ideas about what a good society looks like, how social change occurs, and the role of government all militate against substantial public investment in programs and activities like those mentioned above. These conservative political beliefs are undergirded by a white-hot activism against taxes that makes it all but impossible to gain support in legislative bodies for programs like these -- no matter what the return on investment is.

Failure to achieve these kinds of social gains through public investment might seem like a very basic element of injustice within our society. But it also looks like strong evidence of system failure: the political and economic system fail to bring about as much public good as is possible in the circumstances. The polity is stuck somewhere on the low shoulders of the climb towards maximum public benefit for minimum overall investment. It is analogous to the situation in private economic space where there are substantial obstacles to the flow of investment, leaving substantial possible sources of gain untapped. It is s situation of massive collective inefficiency, quite the contrary of Adam Smith's view of the happy outcomes of the hidden hand and the market mechanism.

This last point brings us back to the public goods aspect of the problem. A legislature that designs a policy or program aimed at capturing the gains mentioned here may succeed in its goal and yet find that the gains accrue to someone else -- the public at large or another political party. The gains are separated from the investment, leaving the investment entity with no rational incentive to make the investment after all.

Some policy leaders have recognized this systemic problem and have turned to an innovative possible solution, social impact bonds (link). Here is how the Center for American Progress explains this idea.

A social impact bond, or SIB, is an innovative financial tool that enables government agencies to pay for programs that deliver results. In a SIB agreement, the government sets a specific, measurable outcome that it wants achieved in a population and promises to pay an external organization—sometimes called an intermediary—if and only if the organization accomplishes the outcome. SIBs are one example of what the Obama administration calls “Pay for Success” financing. (link)

Essentially the idea is to try to find a way of privatizing the public gains in question, so that private investors have an incentive to bring them about.

This is an interesting idea, but it doesn't really solve the fundamental problem: society's inability to make rational investment in its own wellbeing. It seems more like a way of shifting risks of program success or failure from the state agency to the private entity. Here is a McKinsey discussion of the concept (link), and here is a more skeptical piece in the Economist (link).

Paul Krugman: Tidings of Comfort

Sometimes, government is the best solution to our problems:

Tidings of Comfort, by Paul Krugman, Commentary, NY Times: ... All year Americans have been bombarded with dire news reports portraying a world out of control and a clueless government with no idea what to do.
Yet if you look back at what actually happened over the past year,... a number of major government policies worked just fine — and the biggest successes involved the most derided policies. You’ll never hear this on Fox News, but 2014 was a year in which the federal government, in particular, showed that it can do some important things very well...
Start with Ebola... Judging from news media coverage..., America was on the verge of turning into a real-life version of “The Walking Dead.” And many politicians dismissed the efforts of public health officials... As it turned out, however, the Centers for Disease Control and Prevention ... knew what they were doing..., there was no outbreak here.
Consider next the state of the economy. There’s no question that recovery from the 2008 crisis has been painfully slow and should have been much faster. In particular, the economy has been held back by unprecedented cuts in public spending and employment.
But the story you hear all the time portrays economic policy as an unmitigated disaster... So it comes as something of a shock when you look at the actual record and discover that growth and job creation have been substantially faster during the Obama recovery than they were during the Bush recovery last decade (even ignoring the crisis at the end)...
What’s more, recent data suggest that the economy is gathering strength... Maybe economic management hasn’t been that bad, after all.
Finally, there’s the hidden-in-plain-sight triumph of Obamacare, which is just finishing up its first year of full implementation. ... In fact, Year 1 surpassed expectations on every front. ... And all indications suggest that year two will be marked by further success.
And there’s more. For example, at the end of 2014, the Obama administration’s foreign policy, which tries to contain threats like Vladimir Putin’s Russia or the Islamic State rather than rushing into military confrontation, is looking pretty good.
The common theme here is that, over the past year, a U.S. government subjected to constant bad-mouthing, constantly accused of being ineffectual or worse, has, in fact, managed to accomplish a lot. On multiple fronts, government wasn’t the problem; it was the solution. Nobody knows it, but 2014 was the year of “Yes, we can.”

Wednesday, December 17, 2014

'Wall Street Salivating Over Further Destruction of Financial Reform'

Surprise! Or not (more concerned with this than whether the Fed changed a few words in its Press Release following the FOMC meeting):

Wall Street Salivating Over Further Destruction of Financial Reform, by Kevin Drum: Conventional pundit wisdom suggests that Wall Street may have overreached last week. Yes, they won their battle to repeal the swaps pushout requirement in Dodd-Frank, but in so doing they unleashed Elizabeth Warren and brought far more attention to their shenanigans than they bargained for. They may have won a battle, but ... they're unlikely to keep future efforts to weaken financial reform behind the scenes, where they might have a chance to pass with nobody the wiser.

Then again, maybe not. Maybe it was all just political theater and Wall Street lobbyists know better than to take it seriously. Ed Kilgore points to this article in The Hill today:

Banks and financial institutions are planning an aggressive push to dismantle parts of the Wall Street reform law when Republicans take control of Congress in January. ...

Will Democrats in the Senate manage to stick together and filibuster these efforts to weaken Dodd-Frank? ... I'd like to think that Elizabeth Warren has made unity more likely, but then again, I have an uneasy feeling that Wall Street lobbyists might have a better read on things than she does. Dodd-Frank has already been weakened substantially in the rulemaking process, and this could easily represent a further death by a thousand cuts. ...

Tuesday, December 16, 2014

How Fiscal Policy Failed During the Great Recession

I have a new column:

How Fiscal Policy Failed During the Great Recession: Fiscal policy failed us during the Great Recession. We did get a fiscal stimulus package shortly after Obama took office, and it helped. But it wasn’t big enough and did not last long enough to make the kind of difference that was needed. Fear of deficits stood in the way, though all the dire predictions that were made about the debt associated with the stimulus package did not come to pass. We could have done so much more. ...

Monday, December 15, 2014

Paul Krugman: Wall Street’s Revenge

The battle over financial reform is far from over:

Wall Street’s Revenge, by Paul Krugman, Commentary, NY Times: On Wall Street, 2010 was the year of “Obama rage,” in which financial tycoons went ballistic over the president’s suggestion that some bankers helped cause the financial crisis. They were also, of course, angry about the Dodd-Frank financial reform, which placed some limits on their wheeling and dealing.
The Masters of the Universe, it turns out, are a bunch of whiners. But they’re whiners with war chests, and now they’ve bought themselves a Congress. ...
Wall Street overwhelmingly backed Mitt Romney in 2012, and invested heavily in Republicans once again this year. And the first payoff to that investment has already been realized. Last week Congress passed a ... rollback of one provision of the 2010 financial reform.
In itself, this rollback is significant but not a fatal blow to reform. But it’s utterly indefensible. ... One of the goals of financial reform was to stop banks from taking big risks with depositors’ money. ... If banks are free to gamble, they can play a game of heads we win, tails the taxpayers lose. ...
Dodd-Frank tried to limit this kind of moral hazard in various ways, including a rule barring insured institutions from dealing in exotic securities, the kind that played such a big role in the financial crisis. And that’s the rule that has just been rolled back. ...
What just went down isn’t about free-market economics; it’s pure crony capitalism. And sure enough, Citigroup literally wrote the deregulation language that was inserted into the funding bill.
Again, in itself last week’s action wasn’t decisive. But it was clearly the first skirmish in a war to roll back much if not all of the financial reform. And if you want to know who stands where in this coming war, follow the money: Wall Street is giving mainly to Republicans for a reason. ...
Meanwhile, it’s hard to find Republicans expressing major reservations about undoing reform. You sometimes hear claims that the Tea Party is as opposed to bailing out bankers as it is to aiding the poor, but there’s no sign that this alleged hostility to Wall Street is having any influence at all on Republican priorities.
So the people who brought the economy to its knees are seeking the chance to do it all over again. And they have powerful allies, who are doing all they can to make Wall Street’s dream come true.

Wednesday, December 10, 2014

'What is Congress Trying to Secretly Deregulate in Dodd-Frank?'

And so it begins:

What is Congress Trying to Secretly Deregulate in Dodd-Frank?, by Mike Konczal: There are concerns that the budget bill under debate in Congress will eliminate Section 716 of Dodd-Frank, using language previously drafted by Citigroup. So what is this all about?
Section 716 of Dodd-Frank says that institutions that receive federal insurance through FDIC and the Federal Reserve can’t be dealers in the specialized derivatives market. Banks must instead “push out” these dealers into separate subsidiaries that don’t benefit from the government backstop. They can still trade in many standardized derivatives and hedge their own risks, however. This was done because having banks act as swap dealers put taxpayers at risk in the event of a sudden collapse. That’s it.
Why would you want a regulation like this? The first is that it acts as a complement to the Volcker Rule. ...
A second reason is 716 will also prevent exotic derivatives from being subsidized by the government’s safety net. ...
The third reason is for the sake of financial stability. ...
Stiglitz reiterated this point today, saying “Section 716 facilitates the ability of markets to provide the kind of discipline without which a market economy cannot effectively function. I was concerned in 2010 that Congress would weaken 716, but what is proposed now is worse than anything contemplated back then.”
Now many on Wall Street would argue that this rule is unnecessary. However, their arguments are not persuasive. ...
We should be strengthening, not weakening, financial reform. And removing this piece of the law will not benefit this project.

See also Barney Frank Criticizes Planned Roll-Back of Namesake Financial Law.

Sunday, December 07, 2014

'The Imaginary World of Small State People'

Simon Wren-Lewis:

The imaginary world of small state people: ...In ... Europe ... there actually was a large constituency on the left that wanted a large state as a matter of principle. In the UK that constituency lost all its influence with Margaret Thatcher and New Labour, and it has also lost its influence in the rest of Europe. However this decline in the influence of big state people on the left was matched by a rise to power on the right of those who want a small state as a matter of principle. George Osborne’s plan for the UK over the next few years is the apotheosis of this neoliberal view.
I think I’m like the majority of people in not having any fixed ideological position about whether the state should be large or small. The state is clearly good at doing some things, and bad at doing others. In between there is a large and diverse set of activities which may or may not be better achieved through state direction or control, and they really need to be looked at item by item on their merits.
My first major problem with small state people is that they are not prepared to look at these items on their merits. Instead they have a blanket ideological distaste for all things to do with government. ... My second major difficulty with many small state people, like George Osborne, is that they are using fear of a debt crisis (a possibility which for the UK and US is non-existent) to achieve their ends. This is political deceit on a grand scale. My third major problem follows from the second: reducing government spending during a liquidity trap recession does real harm. It wastes resources on a huge scale. ...
Which brings me to a final problem I have with small state people, which is their disregard for the evidence. It is true that most people are bad at acknowledging counter evidence, but those with an ideological conviction are worse than most. ...
The ... claim that Osborne’s cuts have been such a success that they will cause a “deeper intellectual wound to the left than we currently understand” is simply delusional. These are fantasy ideas from those living in an imaginary world, while in reality the policies they support do serious harm.

Friday, December 05, 2014

Paul Krugman: Democrats Against Reform

Despite the political difficulties it has caused, Obamacare was not a mistake:

Democrats Against Reform, by Paul Krugman, Commentary, NY Times: It’s easy to understand why Republicans wish health reform had never happened.... But it’s more puzzling — and disturbing — when Democrats like Charles Schumer, senator from New York, declare that the Obama administration’s signature achievement was a mistake.
In a minute I’ll take on Mr. Schumer’s recent remarks. But first, an update on Obamacare..., which continues to rack up remarkable (and largely unreported) successes ... with more than 10 million people gaining coverage since last year. ... And ... a huge majority of the newly insured are pleased with their coverage...
What about costs? There were many predictions of soaring premiums. But... Premiums for 2014 came in well below expectations...
In short,... as a policy intended to improve American lives, it’s going really well. Yet it has not ... been a political winner for Democrats. Which brings us to Mr. Schumer.
The Schumer critique — he certainly isn’t the first to say these things... — calls health reform a mistake because it only benefits a minority of Americans, and that’s not enough to win elections. What President Obama should have done ... was focus on improving the economy as a whole.
This is deeply wrongheaded in at least three ways.
First, while it’s true that most Americans have insurance through Medicare, Medicaid, and employment-based coverage..., but what happens if you’re fired, or your employer goes bust, or it cancels its insurance program? What if you want to change jobs for whatever reason, but can’t find a new job that comes with insurance? ...
Second, whenever someone says that Mr. Obama should have focused on the economy, my question is, what do you mean by that? Should he have tried for a bigger stimulus? I’d say yes, but ... especially after 2010 scorched-earth Republican opposition killed just about every economic policy he proposed. Do you think this would have been different without health reform? Seriously? ...
Finally, we need to ask, what is the purpose of winning elections? The answer, I hope, is to do good — not simply to set yourself up to win the next election. ....
And one related observation: If more Democrats had been willing to defend the best thing they’ve done in decades, rather than run away from their own achievement and implicitly concede that the smears against health reform were right, the politics of the issue might look very different today.

Wednesday, December 03, 2014

'Return of Focus Hocus Pocus'

Paul Krugman:

Return of Focus Hocus Pocus: I’ve been getting correspondence from people saying that I need to respond to Tom Edsall channeling Chuck Schumer on how health reform was a mistake, Obama should have focused on the economy.
The thing is, I responded to this argument four years ago, and everything I said then still applies. When people say that Obama should have “focused” on the economy, what, specifically, are they saying he should have done? Enacted a bigger stimulus? Maybe he could have done that at the very beginning, but that wouldn’t have conflicted with the effort to pass health reform — and anyway, I don’t hear many of the “focus” types saying that. So what do they mean? Obama should have gone around squinting and saying “I’m focused on the economy”? What would that have done?
Look, governing is not just theater. For sure the weakness of the recovery has hurt Democrats. But “focusing”, whatever that means, wouldn’t have delivered more job growth. What should Obama have done that he actually could have done in the face of scorched-earth Republican opposition? And how, if at all, did health reform stand in the way of doing whatever it is you’re saying he should have done?
I have seen no answer to these questions.

I am going to have to disagree slightly. Politics is, in large part, about identity and I don't think Obama did nearly enough to show he identifies with the working class. Fighting for their needs publicly and loudly probably wouldn't have made any difference in terms of fiscal policy, but doing more to signal that he identifies with their struggles might have helped at the ballot box. I don't see how it could have hurt. Yes, various jobs programs were proposed along the way, and nothing came of them for the most part, but there just wasn't enough fist-pounding on this issue by the administration.

Update: See also Robert Waldmann.

Friday, November 28, 2014

Paul Krugman: Pollution and Politics

Why and when did Republicans become anti-environmentalists?:

Pollution and Politics, by Paul Krugman, Commentary, NY Times: Earlier this week, the Environmental Protection Agency announced proposed regulations to curb emissions of ozone, which causes smog, not to mention asthma, heart disease and premature death. And you know what happened: Republicans went on the attack, claiming that the new rules would impose enormous costs.
There’s no reason to take these complaints seriously... Polluters and their political friends have a track record of crying wolf. ... Again and again, the actual costs have been far lower than they predicted. In fact, almost always below the E.P.A.’s predictions.
So it’s the same old story. But why, exactly, does it always play this way? ... When and why did the Republican Party become the party of pollution?
For it wasn’t always thus. The Clean Air Act of 1970 ... was signed into law by Richard Nixon. (I’ve heard veterans of the E.P.A. describe the Nixon years as a golden age.) A major amendment of the law, which among other things made possible the cap-and-trade system that limits acid rain, was signed in 1990 by former President George H.W. Bush.
But that was then. Today’s Republican Party is putting a conspiracy theorist who views climate science as a “gigantic hoax” in charge of the Senate’s environment committee. And this isn’t an isolated case. ...
So what explains this anti-environmental shift?
You might be tempted simply to blame money in politics... But this doesn’t explain why money from the most environmentally damaging industries, which used to flow to both parties, now goes overwhelmingly in one direction. ...
One answer could be ideology... My guess, however, is that ideology is only part of the story — or, more accurately, it’s a symptom of the underlying cause...: rising inequality. ... Any policy that benefits lower- and middle-income Americans at the expense of the elite — like health reform, which guarantees insurance to all and pays for that guarantee in part with taxes on higher incomes — will face bitter Republican opposition.
And environmental protection is, in part, a class issue,... ownership of, say, stock in coal companies is concentrated in a few, wealthy hands. ...
In the case of the new ozone plan, the E.P.A.’s analysis suggests that, for the average American, the benefits would be more than twice the costs. But that doesn’t necessarily matter to the nonaverage American driving one party’s priorities. On ozone, as with almost everything these days, it’s all about inequality.

'Economists vs Politicians'

Chris Dillow:

Economists vs politicians: ... I suspect that there is a greater distance now between the political parties and economist than there has been for years. ...

You might think this isn't a wholly bad thing. Many ideas are not worth adopting ... This, however, doesn't justify politicians' lack of interest in the settled, established knowledge that economists do have.   

So, where is there such a gap between politicians and economists?

The fault might partly lie with economics. Many academics aren't as interested in closing the gap between academia and the "real world" as they should be. At least some of the discipline was discredited by the crisis, and I get the feeling that there aren't so many good new policy-relevant ideas now.

It might be that the voters are to blame. Maybe they don't want serious politicians who are interested in good ideas but rather, in our narcissistic age, they simply expect their demands to be met, however unreasonable. But is this the whole story? Janan Ganesh thinks not:

There is...an unsatisfied demand for seriousness and leadership. Most people do not vote Ukip or parse an MP’s tweet for class meaning. The flight to frivolity in public life is not the voters’ doing. Many are in fact waiting for a leader to arrest it.

This leaves a third suspect - the media. ... Political journalists have been complicit in creating a hyperreal bubble of mediamacro which perpetuates witless ideas (such as conflating the economy with the deficit) to the exclusion of such good ones as might exist.

I'm not sure, then, how exactly to apportion blame for the divorce between politicians and economists. But I do suspect that, net, it is a bad thing.  

[I left out his examples of "established knowledge that economists do have".]

Wednesday, November 26, 2014

'Keynes Is Slowly Winning'

[Travel day, so no more until later.]

Paul Krugman:

Keynes Is Slowly Winning: Back in 2010, I had a revelation about just how bad economic policy was about to get; I read the OECD Economic Outlook, which called not just for fiscal austerity but for interest rate hikes — 350 basis points on the Fed funds rate by the end of 2011! — because, well, because.
Now, the OECD is calling for fiscal and monetary stimulus in Europe. ....
It has taken a while. ... But the hawks seem in retreat at the Fed; Mario Draghi ... sounds an awful lot like Janet Yellen; the whole way we’re discussing Japan is very much on Keynesian turf. Three and a half years ago Businessweek was declaring that expansionary austerian Alberto Alesina was the new Keynes; now it tells us that Keynes is the new Keynes. And we have people like Paul Singer complaining about the “Krugmanization” of the debate.
Why does the tide finally seem to be turning? Partly, I think, it’s just a matter of time; after six years it’s becoming hard not to notice that the anti-Keynesians have been wrong about everything. Europe’s slide toward deflation makes it even harder to deny the realities of liquidity-trap economics. And the refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous.
All of this may be coming too little and too late to avoid policy disaster, especially in Europe. But it’s something to cheer, faintly.

'Understanding George Osborne' or 'Osborne's Idiotic Idea'

Simon Wren-Lewis:

Understanding George Osborne: Yesterday I spoke at the Resolution Foundation’s launch of their analysis of the UK political parties’ fiscal plans post 2015. I believe this analysis shows two things very clearly. First, there is potentially a large gap between the amount of austerity planned by the two major parties. Second, George Osborne’s plans are scarcely credible. They represent a shrinking of the UK state that is unprecedented and which in my view virtually no one wants.  
I would add one other charge - Osborne's plans are illiterate in macroeconomic terms. The UK economy desperately needs more growth. ...
In this situation a Chancellor should not plan to reduce growth further. I have yet to come across a single macroeconomist who argues that Osborne’s plans for renewed austerity will not in themselves reduce aggregate demand. So doing this when the recovery could go much further but is still fragile is just plain dumb. It is even dumber if you have done this once before, in a very similar situation, and the risks I outlined above have indeed materialised.
So why is the Chancellor proposing to make the same mistake twice? ...
I cannot think of any way to rationalise what the Chancellor is planning in macroeconomic terms. But perhaps I’m looking for something that does not exist. Perhaps he does not have a coherent economic framework. Instead he has a clear political framework, which has so far been remarkably successful. The goal is to reduce the size of the state, and because (with his encouragement) mediamacro believes reducing the deficit is the number one priority, he is using deficit reduction as a means to that end. However another priority is to get re-elected, so deficit reduction has to take place at the start of any parliament, so its impact on growth has disappeared by the time of the next election. But this explanation would imply we have a Chancellor that quite cynically puts the welfare of the majority of the UK’s citizens at major risk for ideological and political ends, and I do not think I have ever experienced a UK Chancellor (with possibly one exception) who has done that. But as Sherlock Holmes famously said ...

Chris Dillow:

Osborne's idiotic idea: The FT reports that George Osborne wants to make unicorn farming compulsory:

The new fiscal mandate is expected to enshrine in law one area of common ground between the Tories and Lib Dems: that the cyclically adjusted current deficit should be eliminated by 2017-18.

This is imbecilic. ...

Now, you might think that, in saying all this I'm merely being a Keynesian.

Wrong. In fact, I'm writing in a Hayekian spirit. Hayek famously and correctly argued that economic knowledge was inherently fragmentary and dispersed and so central agencies could not possibly know very much. I'm echoing him. I'm saying that the OBR cannot know enough about the productive potential of millions of firms to know what the output gap is. And it hasn't got enough knowledge of the future to predict recessions.

In presuming otherwise, Osborne is thus not only anti-Keynesian, but anti-Hayekian. I thus agree with Simon - that he is illiterate and plain dumb.

Tuesday, November 25, 2014

''How to Think about 'Think' Tanks''

Miles Corak:

Kady O'Malley Tweet on Think Tanks 1

How to think about “think” tanks: It is sometimes said that think tanks are good for democracy; indeed the more of them, the better. If there are more ideas in the public arena battling it out for your approval, then it’s more likely that the best idea will win, and that we will all have better public policies. But intuitively many of us have trouble believing this, have trouble knowing who is being truthful, and don’t know who to trust.
This battle of ideas, studies, and statistics has the potential to make many of us cynical about the whole process, and less trusting of all research and numbers. If a knowledgeable journalist like the Canadian Kady O’Malley expresses a certain exasperation that think-tank studies always back up “the think-tank’s existing position,” what hope is there for the rest of us? A flourishing of think tanks just let’s politicians off the hook, always allowing them to pluck an idea that suits their purposes, and making it easier to justify what they wanted to do anyways.
Maybe we shouldn’t be so surprised that think tanks produce studies confirming their (sometimes hidden) biases. After all this is something we all do. We need to arm ourselves with this self-awareness. If we do, then we can also be more aware of the things in a think tank’s make-up that can help in judging its credibility, and also how public policy discussion should be structured to help promote a sincere exchange of facts and ideas. ...

He goes on to explain in considerable detail.

Monday, November 24, 2014

Paul Krugman: Rock Bottom Economics

The era of "rock-bottom economics" is far from over:

Rock Bottom Economics, by Paul Krugman, Commentary, NY Times: Six years ago the Federal Reserve hit rock bottom. It had been cutting the federal funds rate ... more or less frantically in an unsuccessful attempt to get ahead of the recession and financial crisis. But it eventually reached the point where it could cut no more...
Everything changes when the economy is at rock bottom... But for the longest time, nobody with the power to shape policy would believe it.
What do I mean by saying that everything changes? As I wrote..., in a rock-bottom economy “the usual rules of economic policy no longer apply...” Government spending doesn’t compete with private investment — it actually promotes business spending. Central bankers, who normally cultivate an image as stern inflation-fighters, need to do the exact opposite, convincing markets ... that they will push inflation up. “Structural reform,” which usually means making it easier to cut wages, is more likely to destroy jobs than create them.
This may all sound wild and radical, but ... it’s what mainstream economic analysis says will happen once interest rates hit zero. And it’s also what history tells us. ...
But as I said, nobody would believe it. By and large, policymakers and Very Serious People ... went with gut feelings rather than careful economic analysis. ...
Thus we were told ... that budget deficits were our most pressing economic problem, that interest rates would soar ... unless we imposed harsh fiscal austerity... —... demands that we cut government spending now, now, now have cost millions of jobs and deeply damaged our infrastructure.
We were also told repeatedly that printing money ... would lead to “currency debasement and inflation.” The Fed ... stood up to this pressure, but other central banks didn’t. ...
 But... Isn’t the era of rock-bottom economics just about over? Don’t count on it..., the counterintuitive realities of economic policy at the zero lower bound are likely to remain relevant for a long time..., which makes it crucial that influential people understand those realities. Unfortunately, too many still don’t; one of the most striking aspects of economic debate in recent years has been the extent to which those whose economic doctrines have failed the reality test refuse to admit error, let alone learn from it. ...
This bodes ill for the future. What people in power don’t know, or worse what they think they know but isn’t so, can very definitely hurt us.

Friday, November 21, 2014

Paul Krugman: Suffer Little Children

It's the decent thing to do:

Suffer Little Children, by Paul Krugman, Commentary, NY Times: The Tenement Museum, on the Lower East Side, is one of my favorite places in New York City. It’s a Civil War-vintage building that housed successive waves of immigrants, and a number of apartments have been restored to look exactly as they did in various eras, from the 1860s to the 1930s... When you tour the museum, you come away with a powerful sense of immigration as a human experience, which — despite plenty of bad times,... was overwhelmingly positive.
I get especially choked up about the Baldizzi apartment from 1934. When I described its layout to my parents, both declared, “I grew up in that apartment!” And today’s immigrants are the same, in aspiration and behavior, as my grandparents were — people seeking a better life, and by and large finding it.
That’s why I enthusiastically support President Obama’s new immigration initiative. It’s a simple matter of human decency.
That’s not to say that I, or most progressives, support open borders. ...
But ... the proposition that we should offer decent treatment to children who are already here — and are already Americans in every sense..., that’s what Mr. Obama’s initiative is about.
Who are we talking about? First, there are more than a million young people ... who came — yes, illegally — as children and have lived here ever since. Second, there are large numbers of children who were born here — which makes them U.S. citizens, with all the same rights you and I have — but whose parents came illegally, and are legally subject to being deported.
What should we do about these people...? ... The truth is that sheer self-interest says that we should do the humane thing. Today’s immigrant children are tomorrow’s workers, taxpayers and neighbors. Condemning them to life in the shadows means that they will have less stable home lives than they should, be denied the opportunity to acquire skills and education, contribute less to the economy, and play a less positive role in society. Failure to act is just self-destructive.
But... What really matters ... is the humanity. My parents were able to have the lives they did because America, despite all the prejudices of the time, was willing to treat them as people. Offering the same kind of treatment to today’s immigrant children is the practical course of action, but it’s also, crucially, the right thing to do. So let’s applaud the president for doing it.

Tuesday, November 18, 2014

'The Structure of Obamacare'

Paul Krugman says pundits need to do their homework:

The Structure of Obamacare: The big revelation of this week has been how many political pundits have spent six years of the Obama administration opining furiously about the administration’s signature policy without making the slightest effort to understand how it works. They’re amazed and in denial at the suggestion that it has the same structure as Romneycare, which has been obvious and explicit all along...
So, why was Obamacare set up this way? It’s mainly about politics, but nothing that should shock you. Partly it was about getting buy-in from the insurance industry; a switch to single payer would have destroyed a powerful industry, and realistically that wasn’t going to happen. Partly it was about leaving most people unaffected: employment-based coverage, which was the great bulk of private insurance, remained pretty much as it was. ... And yes, avoiding a huge increase in on-budget spending was a consideration, but not central.
The main point was to make the plan incremental, supplementing the existing structure rather than creating massive changes. And all of this was completely upfront; I know I wrote about it many times.
Look, I understand why the hired guns of the right have to act ignorant and profess outrage. But I really am shocked at centrists who apparently thought they could opine on the politics of health reform, year after year, without taking a hour or two to learn how the darn thing was supposed to work.

It seems to me this takes some degree of willful ignorance.

'How the Great Wage Slowdown Hurts Democrats'

David Leonhardt argues "It’s the economy, stupid." Do you agree? Or is it mostly about turnout? (These may not be independent factors):

How the Great Wage Slowdown Hurts Democrats: It’s a simple rule: A weak economy makes for an unpopular president. President Obama is on course to become the fourth president of the last six to leave office with an approval rating well below 50 percent. Each of the previous three — both Bushes and Jimmy Carter — also had something else in common: Median family income fell during their presidencies.
The other two recent presidents, of course, were Bill Clinton and Ronald Reagan. Incomes rose while they were in the White House, and they left office with more Americans approving of their performance than not.
The most famous expression of this rule is still the one made famous by the 1992 Clinton campaign: It’s the economy, stupid. ...
Ezra Klein ... wrote he was skeptical that slow wage growth was “driving elections in a very clear way.” He instead suggested that structural political forces played a bigger role.
We live in a time of partisan polarization, with most voters loyal to their side. The Republicans have an advantage in midterm elections ... because their older, whiter coalition turns out... The Democrats have an edge in presidential elections ... because their coalition is larger, even if large parts of it vote only in presidential years. Mr. Klein was suggesting that these structural forces affect politics more than the state of the economy. ...

See also "Americans recognize slow economic recovery."

Thursday, November 13, 2014

'The Choice of the Century'

Do you agree with Robert Reich?:

The Choice of the Century: The President blames himself for the Democrat’s big losses Election Day. “We have not been successful in going out there and letting people know what it is that we’re trying to do and why this is the right direction,” he said Sunday.
In other words, he didn’t sufficiently tout the Administration’s accomplishments.
I respectfully disagree.
If you want a single reason for why Democrats lost big on Election Day 2014 it’s this: Median household income continues to drop. This is the first “recovery” in memory when this has happened. ...

It's hard for me to believe that people think Republican economic policies are the solution to this problem. As Paul Krugman says, "So if Republicans are gaining from public frustration here, it is ironic. After all, the GOP is systematically opposed to anything that would increase workers’ bargaining power, and bitterly opposed to any suggestion that inequality is an issue — what we need, they say, is growth, which will raise all incomes (even though it hasn’t)." I'm all for growth, but the increase in income needs to be distributed equitably, and in recent years (decades actually) it hasn't been. It's hard to see how Republican policies will change that rather than make the problem worse.

Wednesday, November 12, 2014

Why are the Conservatives so Incompetent at Running the UK Economy?

Simon Wren-Lewis:

Why are the Conservatives so incompetent at running the economy?: If that question seems odd to you, you are one of the majority in the UK who think the Conservatives are better at managing the economy than Labour. Why do people think this? My guess is that it is very simple. The financial crisis happened while Labour was in power. This led to the largest recession since the Great Depression.
But surely everyone knows that the financial crisis was a global phenomenon that started in the US? Surely everyone knows that if the Conservatives had been in power there would have been just as little financial regulation, so the impact of the crisis on UK banks would have been much the same?
The problem is that most people do not know this. What they hear is the Conservatives repeating relentlessly that it was all Labour’s fault. ... It is hardly ever challenged by reporters in the BBC or other TV media. It has become so pervasive, that even some of my non-macro colleagues repeat elements of it back to me. [1] ...
Of course there is mucha more to say about all this, but the point I want to make here is fairly simple. Once we recognise that the financial crisis was a global event, then the three remaining major departures from trend growth happened under Conservative led administrations. In all three cases they can be associated with poor policy decisions taken by those administrations: money supply targets under Thatcher, ERM entry under Major, and austerity under Osborne.
So the idea that the Conservatives are more competent at macroeconomic management is a myth, and if anything the opposite appears to be true. ...

He also notes in closing that:

... In mediamacro, the deficit is all important, but the decline in average living standards not so much. And people wonder why many potential voters are disaffected from mainstream politics.
In a recent post, the US economist Robert Reich berates the Democrats for failing to campaign on falling median wages and the growing inequality that lies behind it. The reason he gives is simple: money buys votes in the US system, which Jeffrey Sachs calls a plutocracy. In the UK Labour has tried to raise the link between inequality and falling real wages, as my example above shows, but the UK media does not appear to want that discussion to take place. I would really like someone who knows the UK media from the inside to explain why.

The Climate Breakthrough in Beijing

Jeff Sachs seems to be pleased:

The climate breakthrough in Beijing gives the world a fighting chance: Today’s US-China joint announcement on climate change and energy is the most important advance on the climate change agenda in many years. ... What they’ve said gives the world a fighting chance – and no doubt the last one – for climate safety. ...
An announcement is just an announcement, of course. .. The US and China have yet to put their cards on the table on how they intend to achieve deep decarbonization. ...
Not surprisingly, the incoming Republican Senate majority leader Mitch McConnell piped up immediately that he and his colleagues would oppose the deal. No doubt they will try. Yet my guess is that Mr McConnell and his buddies are soon going to learn a lesson in real democracy.
While the fossil fuel lobby may have helped finance the Republican victories last week, the US public cares about its own survival and the world that their children will soon inherit. ... The Koch brothers may have bought some 44,000 paid ads this fall to help put favoured coal and oil candidates over the top, but they did not buy the souls of the American people, who by a large majority will be gratified today by the announcements from Beijing. ...

I'm not so sure that Republican opposition can be overcome so easily.

Monday, November 10, 2014

Paul Krugman: Death by Typo

Do these people not understand, or care, how history will view them?

Death by Typo, by Paul Krugman, Commentary, NY Times: My parents used to own a small house with a large backyard, in which my mother cultivated a beautiful garden. At some point, however — I don’t remember why — my father looked at the official deed defining their property, and received a shock. According to the text, the Krugman lot wasn’t a rough rectangle; it was a triangle more than a hundred feet long but only around a yard wide at the base.
On examination, it was clear what had happened: Whoever wrote down the lot’s description had somehow skipped a clause. And of course the town clerk fixed the language. After all, it would have been ludicrous and cruel to take away most of my parents’ property on the basis of sloppy drafting, when the drafters’ intention was perfectly clear.
But it now appears possible that the Supreme Court may be willing to deprive millions of Americans of health care on the basis of an equally obvious typo. And if you think this possibility has anything to do with serious legal reasoning, as opposed to rabid partisanship, I have a long, skinny, unbuildable piece of land you might want to buy.
Last week the court shocked many observers by saying that it was willing to hear a case claiming that the wording of one clause in the Affordable Care Act sets drastic limits on subsidies to Americans who buy health insurance. It’s a ridiculous claim... But the fact that the suit is ridiculous is no guarantee that it won’t succeed — not in an environment in which all too many Republican judges have made it clear that partisan loyalty trumps respect for the rule of law. ...
Now, states could avoid this death spiral by establishing exchanges — which might involve nothing more than setting up links to the federal exchange. But how did we get to this point?
Once upon a time, this lawsuit would have been literally laughed out of court. Instead, however, it has actually been upheld in some lower courts, on straight party-line votes — and the willingness of the Supremes to hear it is a bad omen.
So let’s be clear about what’s happening here. Judges who support this cruel absurdity aren’t stupid; they know what they’re doing. What they are, instead, is corrupt, willing to pervert the law to serve political masters. And what we’ll find out in the months ahead is how deep the corruption goes.

Friday, November 07, 2014

Paul Krugman: Triumph of the Wrong

Why did Republicans do so well in the election?:

Triumph of the Wrong, by Paul Krugman, Commentary, NY Times: The race is not to the swift, nor the battle to the strong..., nor yet midterms to men of understanding. Or as I put it on the eve of another Republican Party sweep, politics determines who has the power, not who has the truth. Still, it’s not often that a party that is so wrong about so much does as well as Republicans...., the new rulers of Congress have been about, well, everything.
First, there’s economic policy. According to conservative dogma, which denounces any regulation of the sacred pursuit of profit, the financial crisis of 2008 ... shouldn’t have been possible. But Republicans ... invented an imaginary history in which the government was somehow responsible...
In 2009, when an ailing economy desperately needed aid, John Boehner ... declared: “It’s time for government to tighten their belts.”
So here we are, with years of experience..., and the lessons ... couldn’t be clearer. Predictions that deficit spending would lead to soaring interest rates, that easy money would lead to runaway inflation and debase the dollar, have been wrong again and again. ...
Then there’s health reform, where Republicans were very clear about what was supposed to happen: minimal enrollments, more people losing insurance than gaining it, soaring costs. Reality, so far, has begged to differ...
And we shouldn’t forget the most important wrongness of all, on climate change. ... Now these people will be in a position to block action for years to come, quite possibly pushing us past the point of no return.
 But if Republicans have been so completely wrong..., why did voters give them such a big victory?
Part of the answer is that leading Republicans managed to mask their true positions. Perhaps most notably, Senator Mitch McConnell, the incoming majority leader, managed to convey the completely false impression that Kentucky could retain its impressive gains in health coverage even if Obamacare were repealed.
But the biggest secret of the Republican triumph surely lies in the discovery that obstructionism bordering on sabotage is a winning political strategy. ...
This was ... bad for America but good for Republicans. Most voters don’t know much about policy details, nor do they understand the legislative process. So all they saw was that the man in the White House wasn’t delivering prosperity — and they punished his party.
Will things change now that the G.O.P. can’t so easily evade responsibility? I guess we’ll find out.

Thursday, November 06, 2014

'Understanding and Overcoming America's Plutocracy'

Jeff Sachs:

Understanding and Overcoming America's Plutocracy: Pity the American people for imagining that they have just elected the new Congress. In a formal way, they of course have. The public did vote. But in a substantive way, it's not true that they have chosen their government.
This was the billionaires' election, billionaires of both parties. And while the Republican and Democratic Party billionaires have some differences, what unites them is much stronger than what divides them, a few exceptions aside. Indeed, many of the richest individual and corporate donors give to both parties. The much-discussed left-right polarization is not polarization at all. The political system is actually relatively united and working very effectively for the richest of the rich. ...

Wednesday, November 05, 2014

Election Thread

If you have thoughts on the election...

Tuesday, November 04, 2014

'Why Don’t We See More Macroeconomic Populism?'

Paul Krugman has a question:

Why Don’t We See More Macroeconomic Populism?: As I’ve been noting recently, there’s a lot of opposition within Japan to the Bank of Japan’s policy of printing more money; there’s also a lot of pressure on the government to raise taxes. And that’s not really very different from what has been happening in the rest of the advanced world: central banks that have pursued quantitative easing have done so despite political pressure, not because of it, and fiscal austerity has been imposed almost everywhere.
The funny thing is that when you ask for justifications for pursuing hard money and tight budgets in a depressed, low-inflation economy, the answers you get often start from the presumption that money-printing and deficit finance are immensely tempting to politicians, so that you don’t dare let them get even a slight taste of these addictive drugs. This is often said in a tone of great wisdom, and presented as the lesson history teaches us.
Now, as Simon Wren-Lewis points out — and as I’ve pointed out in the past — history actually teaches us no such thing. ...
But ... populist politicians should love it when people tell them that printing money and running big deficits is OK — seems plausible. And things like this have happened in Latin America — indeed are happening again today in Venezuela and Argentina. So why don’t they ever happen in America, Europe, or Japan? Why, in a time of deflationary pressure, have calls for belt-tightening dominated the political scene?
I actually don’t know, although I continue to think about it. But it is a puzzle worth pondering.

Monday, October 27, 2014

Paul Krugman: Ideology and Investment

What's really behind the GOP's opposition to infrastructure investment?:

Ideology and Investment, by Paul Krugman, Commentary, NY Times: America used to be a country that built for the future. Sometimes the government built directly: Public projects, from the Erie Canal to the Interstate Highway System, provided the backbone for economic growth. Sometimes it provided incentives to the private sector, like land grants to spur railroad construction. Either way, there was broad support for spending that would make us richer.
But nowadays we simply won’t invest, even when the need is obvious and the timing couldn’t be better. And don’t tell me that the problem is “political dysfunction” or some other weasel phrase that diffuses the blame. Our inability to invest doesn’t reflect something wrong with “Washington”; it reflects the destructive ideology that has taken over the Republican Party.
Some background: More than seven years have passed since the housing bubble burst, and ever since, America has been awash in savings ... with nowhere to go. ...
There’s an obvious policy response to this situation: public investment. We have huge infrastructure needs,... and the federal government can borrow incredibly cheaply... So borrowing to build roads, repair sewers and more seems like a no-brainer. But what has actually happened is the reverse. After briefly rising after the Obama stimulus went into effect, public construction spending has plunged. ...
Yet this didn’t have to happen. ... But once the G.O.P. took control of the House, any chance of ... money for infrastructure vanished. Once in a while Republicans would talk about wanting to spend more, but they blocked every Obama administration initiative.
And it’s all about ideology, an overwhelming hostility to government spending of any kind. This hostility began as an attack on social programs, especially those that aid the poor, but over time it has broadened into opposition to any kind of spending, no matter how necessary and no matter what the state of the economy. ... Never mind the obvious point that the private sector doesn’t and won’t supply most kinds of infrastructure, from local roads to sewer systems; such distinctions have been lost amid the chants of private sector good, government bad.
And the result, as I said, is that America has turned its back on its own history. We need public investment; at a time of very low interest rates, we could easily afford it. But build we won’t.

Friday, October 24, 2014

Paul Krugman: Plutocrats Against Democracy

"What's a plutocrat to do?":

Plutocrats Against Democracy, by Paul Krugman, Commentary, NY Times: ...The ... political right has always been uncomfortable with democracy..., there is always an undercurrent of fear that the great unwashed will vote in left-wingers who will tax the rich, hand out largess to the poor, and destroy the economy. ...
This is a fantasy. ... All advanced nations have had substantial welfare states since the 1940s... But you don’t, in fact, see countries descending into tax-and-spend death spirals — and no, that’s not what ails Europe.
Still, while the “kind of politics and policies” that responds to the bottom half of the income distribution won’t destroy the economy,... the top 0.1 percent is paying quite a lot more in taxes right now than it would have if Mr. Romney had won. So what’s a plutocrat to do?
One answer is propaganda: tell voters, often and loudly, that taxing the rich and helping the poor will cause economic disaster, while cutting taxes on “job creators” will create prosperity for all. There’s a reason conservative faith in the magic of tax cuts persists no matter how many times such prophecies fail (as is happening right now in Kansas): ...
Another answer, with a long tradition in the United States, is to make the most of racial and ethnic divisions — government aid just goes to Those People, don’t you know. And besides, liberals are snooty elitists who hate America.
A third answer is to make sure government programs fail, or never come into existence, so that voters never learn that things could be different.
But these strategies for protecting plutocrats from the mob are indirect and imperfect. The obvious answer is...: Don’t let the bottom half, or maybe even the bottom 90 percent, vote.
And now you understand why there’s so much furor on the right over the alleged but actually almost nonexistent problem of voter fraud, and so much support for voter ID laws that make it hard for the poor and even the working class to cast ballots. American politicians don’t dare say outright that only the wealthy should have political rights — at least not yet. But if you follow the currents of thought now prevalent on the political right to their logical conclusion, that’s where you end up.
The truth is that a lot of what’s going on in American politics is, at root, a fight between democracy and plutocracy. And it’s by no means clear which side will win.

Sunday, October 12, 2014

'In Defense of Obama'

In case you missed this from Paul Krugman:

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