Economist's View

Don't Believe Trump’s Tax and Spending Plans

At MoneyWatch, why I think Social Security and Medicare will be in danger of large cuts if Trump is elected:

Don't believe Trump’s tax and spending plans: Donald Trump’s new tax plan will increase the national debt between $4.4 trillion and $5.9 trillion over a decade, and that’s according to estimates from the conservative Tax Foundation. That range of $1.5 trillion is due to uncertainty about how Trump would levy some types of business taxes and how his tax cuts would be paid for.

First, the Republican candidate says, higher economic growth from lower taxes and deregulation will pay for most of the increase in the debt. According to Trump, his plan will boost output substantially, and the higher tax revenue that comes with it will offset most of the lost revenue. 

Second, his “penny plan” would make up the rest of the revenue lost to his tax cuts. This plan would cut spending on nondefense programs funded by annual appropriations by 1 percent each year. 

Since the cuts would affect only a part of the budget (defense and entitlement programs such as Medicare and Social Security are excluded), the plan would reduce spending on programs such as“veterans’ medical care…, scientific and medical research, border enforcement, education, child care, national parks, air traffic control, housing assistance for low-income families, and maintenance of harbors, dams, and waterways,” according to the Center on Budget and Policy Priorities. The total spending reduction would be approximately 25 percent over 10 years.

You should be skeptical of both claims. ...

A Lie Too Far?

Paul Krugman:

A Lie Too Far?: I suspect Donald Trump is feeling a bit sandbagged right now, or will be when he wakes up. All along he has treated the news media with contempt, and been rewarded with obsequious deference — his lies sugar-coated, described as “disputed” or “stretching the truth,” while every aspect of his opponent’s life is described as “raising questions” and “casting shadows”, despite lack of evidence that she did anything wrong.

If Greg Sargent and Norm Ornstein are to be believed (and they are!), the cable networks at least initially followed the same pattern in their response to DJT’s latest...

But the print media appear to have finally found their voice (which may shape cable coverage over time). The Times and the AP, in particular, have put out hard-hitting stories that present the essence in the lede, not in paragraph 25.

What’s so good about these stories? The fact that they are simple straightforward reporting.

First, confronted with obvious lies, they don’t pretend that the candidate said something less blatant, or do views differ on shape of planet — they simply say that what Trump said is untrue, and that his repetition of these falsehoods makes it clear that he was deliberately lying.

Second, the stories for today’s paper are notable for the absence of what I call second-order political reporting: they’re about what Trump said and did, not speculations about how it will play with voters.

Doing these things doesn’t sound very hard — but we’ve seen very little of this kind of thing until now. Why the change? ...

One answer might be the storm of criticism over election coverage... And tightening polls probably matter too, not because journalists are being partisan, but because they are now faced with the enormity of what their fact-free jeering of HRC and fawning over DJT might produce.

There are now two questions: will this last, and if it does, has the turn come soon enough? In both cases, nobody knows. But just imagine how different this election would look if we’d had this kind of simple, factual, truly balanced (as opposed to both-sides-do-it) reporting all along.

The other possibility is that it was retaliation for trying to "play" the media with a promised news conference on his birtherism that turned into an advertisement for his hotel:

I think there’s a ... way to explain why the media’s behavior this election is so troubling to liberal intellectuals, and it has less to do with partisan liberal biases or the media’s powers of judgment than with basic anthropological facts about the press itself.

The press is not a pro-democracy trade, it is a pro-media trade. By and large, it doesn’t act as a guardian of civic norms and liberal institutions—except when press freedoms and access itself are at stake. Much like an advocacy group or lobbying firm will reserve value judgments for issues that directly touch upon the things they’re invested in, reporters and media organizations are far more concerned with things like transparency, the treatment of reporters, and first-in-line access to information of public interest, than they are with other forms of democratic accountability. ...

The result is the evident skewing of editorial judgment we see in favor of stories where media interests are most at stake: where Clinton gets ceaseless scrutiny for conducting public business on a private email server; Trump gets sustained negative coverage for several weeks when his campaign manager allegedly batters a reporter; where Clinton appears to faint, but the story becomes about when it was appropriate for her to disclose her pneumonia diagnosis...—but where bombshell stories about the ways Trump used other people’s charity dollars for personal enrichment have a hard time breaking through.

News outlets are less alarmed by the idea that Trump might run the government to boost his company’s bottom line, or that he might shred other constitutional rights, because those concerns don’t place press freedoms squarely in crosshairs. ...

Paul Krugman: Obama’s Trickle-Up Economics

Helping working families and the unemployed doesn't hurt the economy:

Obama’s Trickle-Up Economics, by Paul Krugman, NY Times: Only serious nerds like me eagerly await the annual Census Bureau reports on income, poverty and health insurance. But the just-released reports on 2015 justified the anticipation. ...

The reports showed strong progress on three fronts: rapid growth in the incomes of ordinary families — median income rose a remarkable 5.2 percent; a substantial decline in the poverty rate; and a significant further rise in health insurance coverage after 2014’s gains. ...

It’s true that the surge in median income comes after years of disappointment, and even now the typical family’s income, adjusted for inflation, is slightly lower than it was before the financial crisis. But the ... overall performance of the Obama economy has given the lie to much of the criticism leveled at President Obama’s policies. ...

Conservatives predicted disaster from these initiatives. Tax hikes on the rich, they insisted, would stall the economy. Obamacare’s combination of regulation and subsidies, they declared, would kill millions of jobs without increasing the number of Americans with insurance.

What happened instead after Mr. Obama was re-elected was the best job growth since the 1990s. But family incomes ... continued to lag. So there was still some statistical basis for the right’s Obama-bashing. Now that statistical basis is gone. ... And it should (but won’t) finally break the grip of trickle-down ideology on much of our political class.

You know how the argument goes: Any attempt to help working families directly, we’re told, will backfire by hurting the economy as a whole. So we must cut taxes on those “job creators” instead, counting on a rising tide to raise all boats.

It would be an exaggeration to say that the Obama administration has done the reverse, but there definitely was an element of trickle-up economics in its response to the Great Recession: Much of the stimulus involved expanding the social safety net, not just to protect the vulnerable, but to increase purchasing power and sustain demand. And in general Obama-era policies have tried to help families directly, rather than by showering benefits on the rich and hoping that the benefits trickle down.

Now the results of this policy experiment are in, and they’re not bad. They could have been better: The stimulus should have been bigger and more sustained, and Republican opposition hamstrung the administration’s economic policy after the first two years. Still, progressive policies have worked, and the critics of those policies have been proved wrong.

Trump Campaign’s “Dynamic Scoring” of Revised Tax Plan Should Be Taken With More Than a Grain of Salt

The Trump campaign endorses a standard Republican tax con. This is from Chad Stone and Chye-Ching Huang at the CBPP:

Trump Campaign’s “Dynamic Scoring” of Revised Tax Plan Should Be Taken With More Than a Grain of Salt: The revised tax plan that Republican presidential nominee Donald Trump will release today was reportedly designed at least in part to reduce the cost of his earlier plan,^[1] which would have generated very large revenue losses.^[2] The revised plan now looks similar to the tax plan that House Republican leaders introduced in June, which cost less than Trump’s original plan. Moreover, like the House plan, the Trump plan takes advantage of an aggressive approach to “dynamic scoring” that the Tax Foundation uses to estimate how tax cuts affect the economy and the budget, which sharply lowers the estimated revenue loss from certain tax-cut provisions.^[3] We should, however, view such large dynamic effects derived from Tax Foundation estimates with considerable skepticism. That’s because the Tax Foundation, with its unusually large dynamic estimates, is considerably outside the analytic mainstream.

In particular, the Tax Foundation assumes that certain tax cuts produce far larger increases in business investment than researchers typically find. Consequently, the Tax Foundation estimates that certain tax changes will produce far greater economic activity and a far smaller revenue loss than do Congress’s highly respected official estimating bodies — the Joint Committee on Taxation (JCT) and the Congressional Budget Office (CBO). ...

Analysts continue to debate whether and how to implement dynamic scoring.^[7] It’s new and controversial: the best way to model dynamic effects remains unsettled; and the estimates produced can vary depending on the assumptions used. Mainstream analysts typically find that any additional economic activity generated by tax cuts can offset, at most, a modest portion of their cost. With that in mind, the Tax Foundation’s dynamic scoring estimates — including those that the Trump campaign is relying on for its estimates of its revised tax plan — should be viewed with particular skepticism.

For instance, in 2015, the Tax Foundation estimated that making permanent the bonus-depreciation tax break (which allows businesses to deduct a larger share of the cost of their equipment in the year they purchase it) would generate enough new revenue to pay for more than 75 percent of its costs, while JCT pegged the figure at less than 5 percent. ...

The Tax Foundation produces its dynamic scoring estimates very quickly, while JCT and CBO take much more time to develop theirs. And JCT and CBO don’t analyze tax plans from candidates, so no official analysis of the Trump plan will be available. The nonpartisan Urban Institute-Brookings Institution Tax Policy Center (TPC) provides estimates of candidates’ tax plans but usually takes some time to provide them. Thus, after Mr. Trump unveils his revised plan today, the estimate based on the Tax Foundation’s model will likely be the most widely cited one for a while.

Consequently, one should approach any forthcoming estimate based on the Tax Foundation model with considerable caution. ...

After an extensive analysis and explanation, they conclude:

The initial Trump tax plan was widely estimated to lose large amounts of revenue and substantially enlarge future deficits and debt. The Trump team says that the revised plan costs substantially less. In addition to including some policy changes that lower the standard cost estimate, the Trump team will cite the estimates they have derived from Tax Foundation work to claim that the plan will produce large “dynamic” effects on economic growth and revenues.

As this analysis documents, the Tax Foundation model generates far larger economic and budgetary effects than the models of the Congressional Budget Office and Congress’s Joint Committee on Taxation, and relies on assumptions that are inconsistent with the economic evidence or well outside mainstream economic thinking. All dynamic budget estimates should be approached with caution. That admonition applies with particular force to the highly questionable dynamic estimates that the Tax Foundation model produces.

Paul Krugman: Thugs and Kisses

Why are so many Republicans members of "the Putin cult"?:

Thugs and Kisses, by Paul Krugman, NY Times: ...Donald Trump’s effusive praise for Vladimir Putin — which actually reflects a fairly common sentiment on the right — seems to have confused some people..., today’s Russia isn’t Communist, or even leftist; it’s just an authoritarian state, with a cult of personality around its strongman, that showers benefits on an immensely wealthy oligarchy while brutally suppressing opposition and criticism.

And that, of course, is what many on the right admire.

Am I being unfair? Could praise for Russia’s de facto dictator reflect appreciation of his substantive achievements? Well, let’s talk about what the Putin regime has, in fact, accomplished...

Mr. Putin came to power at the end of 1999... Fuels account for more than two-thirds of its exports, manufactures barely a fifth. And oil prices more than tripled between early 1999 and 2000; a few years later they more than tripled again. Then they plunged, and so did the Russian economy, which has done very badly in the past few years.

Mr. Putin would actually have something to boast about if he had managed to diversify Russia’s exports. And this should have been possible: ... But Russia wasn’t going to realize its technology potential under a regime where business success depends mainly on political connections.

So Mr. Putin’s economic management is nothing to write home about. ...

Which brings us back to the significance of the Putin cult, and the way this cult has been eagerly joined by the Republican nominee for president.

There are good reasons to worry about Mr. Trump’s personal connections to the Putin regime (or to oligarchs close to that regime, which is effectively the same thing.) How crucial has Russian money been in sustaining Mr. Trump’s ramshackle business empire? There are hints that it may have been very important indeed, but given Mr. Trump’s secretiveness and his refusal to release his taxes, nobody really knows.

Beyond that, however, admiring Mr. Putin means admiring someone who has contempt for democracy and civil liberties. Or more accurately, it means admiring someone precisely because of that contempt.

When Mr. Trump and others praise Mr. Putin as a “strong leader,” they don’t mean that he has made Russia great again, because he hasn’t. He has accomplished little on the economic front, and his conquests, such as they are, are fairly pitiful. What he has done, however, is crush his domestic rivals: Oppose the Putin regime, and you’re likely to end up imprisoned or dead. Strong!

Trump’s Taco Truck Fear Campaign Diverts Attention From the Real Issues

I have a new column:

Trump’s Taco Truck Fear Campaign Diverts Attention From the Real Issues: Donald Trump would like you to believe that immigration is largely responsible for the difficult economic conditions the working class has experienced in recent decades. But immigration is not the problem. The real culprits are globalization, technological change, and labor’s dwindling bargaining power in wage negotiations.

Let’s start with immigration. ...

Paul Krugman: Donald Trump’s ‘Big Liar’ Technique

"Why is it apparently so hard to hold Mr. Trump accountable for blatant, in-your-face lies?":

Donald Trump’s ‘Big Liar’ Technique, by Paul Krugman, NY Times: ...Donald Trump has come up with something new, which we can call the “big liar” technique. Taken one at a time, his lies are medium-size — not trivial, but mostly not rising to the level of blood libel. But the lies are constant, coming in a steady torrent, and are never acknowledged, simply repeated. He evidently believes that this strategy will keep the news media flummoxed, unable to believe, or at least say openly, that the candidate of a major party lies that much.

Mr. Trump ... is in a class of his own. He lies about statistics like the unemployment rate and the crime rate. He lies about foreign policy: President Obama is “the founder of ISIS.” But most of all, he lies about himself — and when the lies are exposed, he just keeps repeating them. ...

Why is it apparently so hard to hold Mr. Trump accountable for blatant, in-your-face lies? Part of the answer may be that journalists are overwhelmed by the sheer volume of outrageous material. After all, which Trump line should be the headliner for a news analysis of Wednesday’s event? His Iraq lie? His praise for Vladimir Putin, who “has an 82 percent approval rating”? His denigration of the American military, whose commanders, he says, have been “reduced to rubble”?

There’s also a deep diffidence about pointing out uncomfortable truths. Back in 2000, when I was first writing this column, I was discouraged from using the word “lie” about George W. Bush’s dishonest policy claims. As I recall, I was told that it was inappropriate to be that blunt about the candidate of one of our two major political parties. And something similar may be going on even now, with few people in the media willing to accept the reality that the G.O.P. has nominated someone whose lies are so blatant and frequent that they amount to sociopathy.

Even that observation, however, doesn’t explain the asymmetry, because some of the same media organizations that apparently find it impossible to point out Mr. Trump’s raw, consequential lies have no problem harassing Mrs. Clinton endlessly over minor misstatements and exaggerations, or sometimes over actions that were perfectly innocent. Is it sexism? I really don’t know, but it’s shocking to watch.

And meanwhile, if the question is whether Mr. Trump can really get away with his big liar routine, the evidence from Wednesday night suggests a disheartening answer: Unless something changes, yes he can.

Paul Krugman: Hillary Clinton Gets Gored

 Pres coverage of the campaigns has been "bizarre":

Hillary Clinton Gets Gored, by Paul Krugman, NY Times: ...George W. Bush, was dishonest in a way that was unprecedented in U.S. politics. ... Yet throughout the campaign most media coverage gave the impression that Mr. Bush was a bluff, straightforward guy, while portraying Al Gore — whose policy proposals added up, and whose critiques of the Bush plan were completely accurate — as slippery and dishonest. Mr. Gore’s mendacity was supposedly demonstrated by trivial anecdotes, none significant, some of them simply false. No, he never claimed to have invented the internet. But the image stuck.

And right now I and many others have the sick, sinking feeling that it’s happening again.

True, there aren’t many efforts to pretend that Donald Trump is a paragon of honesty. But it’s hard to escape the impression that he’s being graded on a curve. If he manages to read from a TelePrompter without going off script, he’s being presidential. If he seems to suggest that he wouldn’t round up all 11 million undocumented immigrants right away, he’s moving into the mainstream. And many of his multiple scandals, like what appear to be clear payoffs to state attorneys general to back off investigating Trump University, get remarkably little attention.

Meanwhile, we have the presumption that anything Hillary Clinton does must be corrupt, most spectacularly illustrated by the increasingly bizarre coverage of the Clinton Foundation. ...

So I would urge journalists to ask whether they are reporting facts or simply engaging in innuendo, and urge the public to read with a critical eye. If reports about a candidate talk about how something “raises questions,” creates “shadows,” or anything similar, be aware that these are all too often weasel words used to create the impression of wrongdoing out of thin air.

And here’s a pro tip: the best ways to judge a candidate’s character are to look at what he or she has actually done, and what policies he or she is proposing. Mr. Trump’s record of bilking students, stiffing contractors and more is a good indicator of how he’d act as president; Mrs. Clinton’s speaking style and body language aren’t. George W. Bush’s policy lies gave me a much better handle on who he was than all the up-close-and-personal reporting of 2000, and the contrast between Mr. Trump’s policy incoherence and Mrs. Clinton’s carefulness speaks volumes today.

In other words, focus on the facts. America and the world can’t afford another election tipped by innuendo.

Paul Krugman: Black Lead Matters

"Poisoning kids is a partisan issue":

Black Lead Matters, by Paul Krugman, NY Times: Donald Trump is still claiming that “inner-city crime is reaching record levels,” promising to save African-Americans from the “slaughter.” In fact, this urban apocalypse is a figment of his imagination; urban crime is actually at historically low levels. But he’s not the kind of guy to care about another “Pants on Fire” verdict from PolitiFact.

Yet some things are, of course, far from fine in our cities, and there is a lot we should be doing to help black communities. We could, for example, stop pumping lead into their children’s blood. ... Like it or not, poisoning kids is a partisan issue. ...

I’ve just been reading a new study ... confirming the growing consensus that even low levels of lead in children’s bloodstreams have significant adverse effects on cognitive performance. And lead exposure is still strongly correlated with growing up in a disadvantaged household. ...

What with everything else filling the airwaves, it may be hard to focus on lead poisoning, or environmental issues in general. But there’s a huge difference between the candidates, and the parties, on such issues. And it’s a difference that will matter whatever happens to Congress: A lot of environmental policy consists in deciding how to apply existing laws, so that if Hillary Clinton becomes president, she can have substantial influence even if she faces obstruction from a Republican Congress.

And the partisan divide is exactly what you would expect.

Mrs. Clinton has pledged to “remove lead from everywhere” within five years. She probably wouldn’t be able to get Congress to pay for that ambitious an agenda, but everything in her history, especially her decades-long focus on family policy, suggests that she would make a serious effort.

On the other side, Mr. Trump — oh, never mind. He rants against government regulations of all kinds, and you can imagine what his real estate friends would think about being forced to get the remaining lead out of their buildings. Now, maybe he could be persuaded by scientific evidence to do the right thing. Also, maybe he could be convinced to become a Buddhist monk, which seems about equally likely.

The point is that the divide over lead should be seen not just as important in itself but as an indicator of the broader stakes. If you believe that science should inform policy and that children should be protected from poison, well, that’s a partisan position.

How Much Impact Can a President Have on the Economy?

At MoneyWatch:

How much impact can a president have on the economy?, by Mark Thoma: ... How much influence does the president actually have over the economy? 

The stock answer is that presidents get too much credit when the economy does well and too much blame when it slumps. The boom-and-bust cycles that are inherent in capitalist economies depend on forces that are independent of any president’s actions. It’s mostly luck that determines how the economy is doing when it’s time to elect a president.

However, it’s not right to conclude presidents don’t matter for the economy.  ...

Paul Krugman: States of Cruelty

Why are some states unwilling to help the poor?:

States of Cruelty, by Paul Krugman, NY Times: ...While many people are focused on national politics, with reason — one sociopath in the White House can ruin your whole day — many crucial decisions are taken at the state and local levels. If the people we elect to these offices are irresponsible, cruel, or both, they can do a lot of damage.

This is especially true when it comes to health care. Even before the Affordable Care Act went into effect, there was wide variation in state policies, especially toward the poor and near-poor. Medicaid has always been a joint federal-state program... States with consistently conservative governments generally offered benefits to as few people as the law allowed, sometimes only to adults with children in truly dire poverty. States with more liberal governments extended benefits much more widely. These policy differences were one main reason for a huge divergence in the percentage of the population without insurance, with Texas consistently coming in first in that dismal ranking.

And the gaps have only grown wider since Obamacare went into effect... This should be a no-brainer: If Washington is willing to provide health insurance to many of your state’s residents — and in so doing pump dollars into your state’s economy — why wouldn’t you say yes? But 19 states, Texas among them, are still refusing free money, denying health care to millions. ...

But why are states like Texas so dead-set against helping the unfortunate, even if the feds are willing to pick up the tab? ...

A large part of the answer, surely, is the usual one: It’s about race. Medicaid expansion disproportionately benefits nonwhite Americans; so does spending on public health more generally. And opposition to these programs is concentrated in states where voters in local elections don’t like the idea of helping neighbors who don’t look like them.

In the specific case of Planned Parenthood, this usual answer is overlaid with other, equally nasty issues, including — or so I’d say — a substantial infusion of misogyny.

But it doesn’t have to be this way. Most Americans are, I believe, far more generous than the politicians leading many of our states. The problem is that too many of us don’t vote in state and local elections, or realize how much cruelty is being carried out in our name. The point is that America would become a better place if more of us started paying attention to politics beyond the presidential race.

Brexit: This Backlash Has Been a Long Time Coming

Kevin O’Rourke at VoxEU:

Brexit: This backlash has been a long time coming: Editors' note: This column first appeared as a chapter in the VoxEU ebook, Brexit Beckons: Thinking ahead by leading economists, available to download free of charge here.

It has recently become commonplace to argue that globalisation can leave people behind, and that this can have severe political consequences. Since 23 June, this has even become conventional wisdom. While I welcome this belated acceptance of the blindingly obvious, I can't but help feeling a little frustrated, since this has been self-evident for many years now. What we are seeing, in part, is what happens to conventional wisdom when, all of a sudden, it finds that it can no longer dismiss as irrelevant something that had been staring it in the face for a long time.

The main point of my 1999 book with Jeff Williamson was that globalisation produces both winners and losers, and that this can lead to an anti-globalisation backlash (O'Rourke and Williamson 1999). We argued this based on late-19th century evidence. Then, the main losers from trade were European landowners, who found themselves competing with an elastic supply of cheap New World land. The result was that in Germany and France, Italy and Sweden, the move towards ever-freer trade that had been ongoing for several years was halted, and replaced by a shift towards protection that benefited not only agricultural interests, but industrial ones as well. Meanwhile, across the Atlantic, immigration restrictions were gradually tightened, as workers found themselves competing with European migrants coming from ever-poorer source countries. 

While Jeff and I were firmly focused on economic history, we were writing with half an eye on the ‘trade and wages’ debate that was raging during the 1990s. There was an obvious potential parallel between 19th-century European landowners, newly exposed to competition with elastic supplies of New World land, and late 20th-century OECD unskilled workers, newly exposed to competition with elastic supplies of Asian, and especially Chinese, labour. In our concluding chapter, we wrote that:

"A focus of this book has been the political implications of globalization, and the lessons are sobering. Politicians, journalists, and market analysts have a tendency to extrapolate the immediate past into the indefinite future, and such thinking suggests that the world is irreversibly headed toward ever greater levels of economic integration. The historical record suggests the contrary… unless politicians worry about who gains and who loses, they may be forced by the electorate to stop efforts to strengthen global economy links, and perhaps even to dismantle them…The globalization experience of the Atlantic economy prior to the Great War speaks directly and eloquently to globalization debates today. Economists who base their views of globalization, convergence, inequality, and policy solely on the years since 1970 are making a great mistake. We hope that this book will help them to avoid that mistake— or remedy it."

This time it is not different

You may argue that the economic history of a century ago is irrelevant – after all, this time is different. But ever since the beginning of the present century, at the very latest, it has been obvious that the politics of globalisation today bears a family resemblance to that of 100 years ago. 

• It was as long ago as 2001 that Kenneth Scheve and Matthew Slaughter published an article finding that Heckscher-Ohlin logic did a pretty good job of explaining American attitudes towards trade – lower-skilled workers were more protectionist (Scheve and Slaughter 2001: 267). 

Later work extended this finding to the rest of the world. 

• If the high skilled were more favourably inclined towards free trade in all countries, this would not be consistent with Heckscher-Ohlin theory, but that is not what the opinion survey evidence suggested – the Scheve-Slaughter finding held in rich countries, but not in poor ones (O'Rourke and Sinnott 2001: 157, Mayda and Rodrik 2005: 1393).

You may further argue that such political science evidence is irrelevant, or at least that conventional wisdom could be forgiven for ignoring it. But by the first decade of the 21st century, again at the very latest, it was clear that these forces could have tangible political effects. 

• In 2005, a French referendum rejected the so-called 'Constitutional Treaty' by a convincing margin. 

While the treaty itself was a technical document largely having to do with decision-making procedures inside the EU, the referendum campaign ended up becoming, to a very large extent, a debate about globalisation in its local, European manifestation. 

Opponents of the treaty pointed to the outsourcing of jobs to cheap labour competitors in Eastern Europe, and to the famous Polish plumber. Predictably enough, professionals voted overwhelmingly in favour of the treaty, while blue-collar workers, clerical workers and farmers rejected it. The net result was a clear rejection of the treaty.

Lessons not learned

Shamefully, the response was to repackage the treaty, give it a new name, and push it through regardless – a shabby manoeuver that has done much to fuel Euroscepticism in France. There was of course no referendum on the Lisbon Treaty in that country, but there was in Ireland in 2008. Once again, a clear class divide opened up, with rich areas overwhelmingly supporting Lisbon, and poor areas overwhelmingly rejecting it. Survey evidence commissioned afterwards by the Irish government suggested that what canvassers on the doorsteps had found was indeed the case – hostility towards immigration in the poorer parts of Dublin was an important factor explaining the "No" vote there (O'Rourke 2008, Sinnott et al. 2010).

For a long time, conventional wisdom ignored these rather large straws in the wind – after all, the Irish could always be asked to vote again, while the French could always be told that they couldn't vote again. And so the show could go on. But now Brexit is happening, and the obvious cannot be ignored any longer. 

Recent work suggests that exposure to Chinese import competition was a common factor in many British regions that voted to leave the EU (Colantone and Stanig 2016). If this finding survives the scholarly scrutiny that it deserves, it will hardly come as a surprise. But it is nevertheless crucial, since these are precisely the kinds of regions that are voting for the National Front in France. And unlike Britain, France is absolutely central to the European project.

What can be done? Great openness requires greater governments

This is where Dani Rodrik's finding that more open states had bigger governments in the late 20th century comes in (Rodrik 1998). Dani – who was long ago asking whether globalisation had gone too far (Rodrik 1997) – argues that markets expose workers to risk, and that government expenditure of various sorts can help protect them from those risks. 

In a series of articles (e.g. Huberman and Meissner 2009) and a book (Huberman 2012), Michael Huberman showed that this correlation between states and markets was present before 1914 as well. Countries with more liberal trade policies tended to have more advanced social protections of various sorts, and this helped maintain political support for openness.

Anti-immigration sentiment was clearly crucial in delivering an anti-EU vote in England. And if you talk to ordinary people, it seems clear that competition for scarce public housing and other public services was one important factor behind this. But if the problem was a lack of services per capita, then there were two possible solutions: 

• Reduce the number of 'capitas' by restricting immigration; or 
• Increase the supply of services. 

It is astonishing in retrospect how few people argued strongly for more services rather than fewer people.

Concluding remarks and possible solutions

If the Tories had really wanted to maintain support for the EU, investment in public services and public housing would have been the way to do it. If these had been elastically supplied, that would have muted the impression that there was a zero-sum competition between natives and immigrants. It wouldnít have satisfied the xenophobes, but not all anti-immigrant voters are xenophobes. But of course the Tories were never going to do that, at least not with George Osborne at the helm.

If the English want continued Single Market access, they will have to swallow continued labour mobility. There are complementary domestic policies that could help in making that politically feasible. We will have to wait and see what the English decide. But there are also lessons for the 27 remaining EU states (28 if, as I hope, Scotland remains a member). Too much market and too little state invites a backlash. Take the politics into account, and it becomes clear (as Dani Rodrik has often argued) that markets and states are complements, not substitutes.

References

Colantone, I. and P. Stanig (2016), "Brexit: Data Shows that Globalization Malaise, and not Immigration, Determined the Vote", Bocconi Knowledge, 12 July. 

Huberman, M. (2012), Odd Couple: International Trade and Labor Standards in History, New Haven, CT: Yale University Press.

Huberman, M. and C. M. Meissner (2009), "New evidence on the rise of trade and social protection", VoxEU.org, 23 October. 

Mayda, A. M. and D. Rodrik (2005), "Why are some people (and countries) more protectionist than others?", European Economic Review 49(6).

Rodrik, D. (1997), Has Globalization Gone Too Far?, Washington, DC: Peterson Institute for International Economics. 

Rodrik, D. (1998), "Why do More Open Economies Have Bigger Governments?" Journal of Political Economy 106(5): 997-1032

O'Rourke, K. (2008), "The Irish "no" and the rich-poor/urban-rural divide", VoxEU.org, 14 June. 

O'Rourke, K. and R. Sinnott (2001), "The Determinants of Individual Trade Policy Preferences: International Survey Evidence", Brookings Trade Forum. 

O'Rourke, K. and J. Williamson (1999), Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy, Cambridge, MA: MIT Press.

F. Scheve, K. F. and M. J. Slaughter (2001), "What determines individual trade-policy preferences?", Journal of International Economics 54(2).

Sinnott, R., J. A. Elkink, K. H. O'Rourke and J. McBride (2010), "Attitudes and Behaviour in the Referendum on the Treary of Lisbon", report prepared for the Department of Foreign Affairs.

Paul Krugman: No, Donald Trump, America Isn’t a Hellhole

What is Trump's pivot to crime all about?:

No, Donald Trump, America Isn’t a Hellhole, by Paul Krugman, NY Times: ...When the Trump campaign started, it was, at least nominally, about economics. Foreigners are stealing your jobs, the candidate declared, both through unfair trade and by coming here as immigrants. And he would make America great again with punitive tariffs and mass deportations.

But the story changed at the Republican convention. There was remarkably little economic discussion on display... Instead, the focus was all on law and order, on saving the nation from what the candidate described as a terrifying crime wave.

That theme has continued in recent weeks, with Mr. Trump’s “outreach” to minority voters. His notion of a pitch to these voters is to tell them how horrible their lives are, that they are facing “crime at levels that nobody has seen.” Even “war zones,” he says, are “safer than living in some of our inner cities.”

All of this is really strange — because nothing like this is actually happening. ...

Let’s talk specifically about violent crime. Consider, in particular, the murder rate... Homicides did shoot up between the early 1960s and the 1980s... Conservative writers assured us that soaring crime was the inevitable result of a collapse in traditional values...

But then a funny thing happened: The murder rate began falling, and falling, and falling. By 2014 it was ... back down to where it was half a century earlier. There was some rise in 2015, but so far ... it’s barely a blip in the long-run picture.

Basically, American cities are as safe as they’ve ever been...

So what is all of this about? The same thing everything in the Trump campaign is about: race.

I used scare quotes when talking about Mr. Trump’s racial “outreach” because it’s clear that the real purpose ... is to reassure squeamish whites that he isn’t as racist as he seems. But..: Even when he is trying to sound racially inclusive, his imagery is permeated by an “alt-right” sensibility that fundamentally sees nonwhites as subhuman. ... In the mental world he and those he listens to inhabit, blacks and other nonwhites are by definition shiftless burdens on society.

Which brings us back to the notion of America as a nightmarish dystopia. Taken literally, that’s nonsense. But today’s increasingly multiracial, multicultural society is a nightmare for people who want a white, Christian nation in which lesser breeds know their place. And those are the people Mr. Trump has brought out into the open.

Why Do We Talk About ''Helicopter Money''?

Brad DeLong:

Why Do We Talk About “Helicopter Money”?: Why do we talk about “helicopter money”? We talk about helicopter money because we seek a tool for managing aggregate demand–for nudging the level of spending in an economy up to but not above the economy’s current sustainable productive potential–that is all of:

1. Effective and successful–even in the very low interest rate world we appear to be in.
2. Does not excite fears of an outsized central bank balance sheet–with its vague but truly-feared risks.
3. Does not excite fears of an outsized government interest-bearing debt–with its very real and costly amortization burdens should interest rates rise.
4. Keeps what ought to be a technocratic problem of public administration out of the mishegas that is modern partisan politics.

Right now the modal projection by participants in the Federal Reserve’s Open Market Committee meetings is that the U.S. Treasury Bill rate will top out at 3% this business cycle. It would be a brave meeting participant who would be confident that we would get there–if we would get there–with high probability before 2020. That does not provide enough room for the Federal Reserve to loosen policy by even the average amount of loosening seen in post-World War II recessions. Odds are standard open market operation-based interest rate tools will not be able to do the macroeconomic policy stabilization job when the next adverse shock hits the economy.

The last decade has taught us that quantitative easing on a scale large enough to rapidly return economies to full employment is one bridge if not more too far for central banks as they are currently constituted–if, that is, it is possible at all. The last decade has taught us that bond-funded expansionary fiscal policy on a scale large enough to rapidly return economies to full employment is at least several bridges too far for our political systems, at least as they are currently constituted.

If we do not now start planning for how to implement helicopter money when the next adverse shock comes, what will our plan be? As a candidate for a tool capable of doing all four of these things, helicopter money–giving the central bank the additional policy tool of printing up extra money and either mailing it out to households as checks or getting it into the hands of the public by buying extra useful stuff–is our last hope, and, if it is not our best hope, then I do not know what our best hope might be. ...

[The post also includes a list of links to other discussion of this topic.]

Economists Who’ve Advised Presidents Are No Fans of Donald Trump

From Real Time Economics at the WSJ:

Economists Who’ve Advised Presidents Are No Fans of Donald Trump: Republican presidential nominee Donald Trump, who has broken with many of the GOP’s traditional positions on economic policy, garners no support from any of the White House economists who have advised U.S. presidents for the past half-century.

The Wall Street Journal this month reached out to all 45 surviving former members of the White House Council of Economic Advisers under the past eight presidents, going back to Richard Nixon, to get their views on this year’s presidential election.

Among 17 Republican appointees who responded to Journal inquiries, none said they supported Mr. Trump. ...

Why We Need a Fiscal Policy Commission

I have a new column:

Why We Need a Fiscal Policy Commission: During the Great Recession, monetary policymakers were aggressive and creative in their attempts to revive the economy. I wish they had been even more aggressive, and at times they were a bit slow to react due to excessive fear of inflation and the tendency to see recovery just around the corner, but their overall response to the crisis was commendable. Unfortunately, monetary policy alone was far from enough to give the economy the help it needed. Fiscal policy was needed too. 

But fiscal policymakers let us down. ...

Paul Krugman: The Water Next Time

"This election is likely to be decisive for the climate":

The Water Next Time, by Paul Krugman, NY Times: ...The governor of flood-ravaged Louisiana asked President Obama to postpone a personal visit while relief efforts were still underway. ... He made the same request to Donald Trump, declaring, reasonably, that while aid would be welcome, a visit for the sake of a photo op would not.

Sure enough, the G.O.P. candidate flew in, shook some hands, signed some autographs, and was filmed taking boxes of Play-Doh out of a truck. If he wrote a check, neither his campaign nor anyone else has mentioned it. Heckuva job, Donnie! ...

Let’s back up for a minute and talk about the real meaning of the Louisiana floods. In case you haven’t been keeping track, lately we’ve been setting global temperature records every month. ...

And one consequence of a warmer planet is more evaporation, more moisture in the air, and hence more disastrous floods. ... So a proliferation of disasters like the one in Louisiana is exactly what climate scientists have been warning us about.

What can be done? The bad news is that drastic action to reduce emissions of greenhouse gases is long overdue. The good news is that the technological and economic basis for such action has never looked better. In particular, renewable energy — wind and solar — has become much cheaper in recent years, and progress in energy storage looks increasingly likely to resolve the problem of intermittency (The sun doesn’t always shine, the wind doesn’t always blow.) ...

It probably won’t surprise you to hear that..., as with so many issues, Mr. Trump has gone deep down the rabbit hole, asserting not just that global warming is a hoax, but that it’s a hoax concocted by the Chinese to make America less competitive.

The thing is, he’s not alone in going down that rabbit hole..., Mr. Trump is squarely in the Republican mainstream. ...

In any case, this election is likely to be decisive for the climate, one way or another. President Obama has made some serious moves to address global warming, and there’s every reason to believe that Hillary Clinton would continue this push — using executive action if she faced a hostile Congress. Given the technological breakthroughs of the last few years, this push might just be enough to avert disaster. Donald Trump, on the other hand, would do everything in his power to trash the planet, with the enthusiastic support of his party. So which will it be? Stay tuned.

Paul Krugman: Obamacare Hits a Bump

The problems with Obamacare would be easy to fix, the real problem is Congress:

Obamacare Hits a Bump, by Paul Krugman, NY Times: More than two and half years have gone by since the Affordable Care Act, a.k.a. Obamacare, went fully into effect. Most of the news about health reform since then has been good, defying the dire predictions of right-wing doomsayers. But this week has brought some genuine bad news: The giant insurer Aetna announced that it would be pulling out of many of the “exchanges,” the special insurance markets the law established. ...

So what’s the problem?

Well, Obamacare is a system that relies on private insurance companies to provide much of its expanded coverage... And many of these private insurers are now finding themselves losing money, because previously uninsured Americans ... turn out to have been sicker and more in need of costly care than we realized. ...

The bad news mainly hits states that have small populations and/or have governments hostile to reform, where the exit of insurers may leave markets without adequate competition. That’s not the whole country, but it would be a significant setback.

But it would be quite easy to fix the system. It seems clear that subsidies for purchasing insurance, and in some cases for insurers themselves, should be somewhat bigger — an affordable proposition given that the program so far has come in under budget... There should also be a reinforced effort to ensure that healthy Americans buy insurance, as the law requires, rather than them waiting until they get sick. Such measures would go a long way toward getting things back on track.

Beyond all that, what about the public option?

The idea of allowing the government to offer a health plan directly to families was blocked in 2010 because private insurers didn’t want to face the competition. But if those insurers aren’t actually interested in providing insurance, why not let the government step in (as Hillary Clinton is in fact proposing)?

The trouble, of course, is Congress...

That said, there may still be room for action at the executive level. And I’m hearing suggestions that states may be able to offer their own public options; if these proved successful, they might gradually become the norm.

However this plays out, it’s important to realize that as far as anyone can tell, there’s nothing wrong with Obamacare that couldn’t be fairly easily fixed with a bit of bipartisan cooperation. The only thing that makes this hard is the blocking power of politicians who want reform to fail.

Liberalism and Hate-Based Extremism

[I am traveling, so apologies for the lack of posts lately. Hopefully this will give you something to talk about.]

Daniel Little:

Liberalism and hate-based extremism, Understanding Society: How should a democratic society handle the increasingly virulent challenges presented by hate groups, anti-government extremists, and organizations that encourage violence and discrimination against others in society? Should extremist groups have unlimited rights to advocate for their ideologies of hatred and antagonism against other groups within a democracy?

Erik Bleich has written extensively on the subject of racist speech and the law. Recent books include The Freedom to Be Racist?: How the United States and Europe Struggle to Preserve Freedom and Combat Racism and Race Politics in Britain and France: Ideas and Policymaking since the 1960s. Bleich correctly notes that these issues are broader than the freedom-of-speech framework in which they are often placed; so he examines law and policy in multiple countries on freedom of speech, freedom of association, and freedom of opinion-as-motive. In each of these areas he finds important differences across European countries and the United States with respect to legislation concerning racist expressions. In particular, liberal democracies like Great Britain, France, and Germany have created legislation to prohibit various kinds of hate-based speech and action. Here is his summary of the status of European legislation:

European restrictions on racist expression have proceeded gradually but consistently since World War II. A few provisions were established in the immediate postwar era, but most countries’ key laws were enacted in the 1960s and 1970s. The statutes have been tinkered with, updated, and expanded in the ensuing decades to the point where virtually all European liberal democracies now have robust hate speech laws on their books. These laws are highly symbolic of a commitment to curb racism. But they are also more than just symbols. As measured by prosecutions and convictions, levels of enforcement vary significantly across Europe, but most countries have deployed their laws against a variety of racist speech and have recently enforced stiffer penalties for repeat offenders. (kl 960) 

In the United States it is unconstitutional under the First Amendment of the Constitution to prohibit "hate speech" or to ban hate-based organizations. So racist and homophobic organizations are accorded all but unlimited rights of association and expression, no matter how odious and harmful the content and effects of their views. As Bleich points out, other liberal democracies have a very different legal framework for regulating hate-based extremism by individuals and organizations (France, Germany, Sweden, Canada).

Here is the First Amendment of the US Constitution:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

This is pure liberalism, according to which the state needs to remain entirely neutral about disagreements over values, and the only justification for legal prohibition of an activity is the harm the activity creates. There is a strong philosophical rationale for this position. John Stuart Mill maintains an ultra-strong and exceptionless view of freedom of expression in On Liberty.  He argues that all ideas have an equal right to free expression, and that this position is most advantageous to society as a whole. Vigorous debate leads to the best possible set of beliefs. Here are a few passages from On Liberty:

The object of this Essay is to assert one very simple principle, as entitled to govern absolutely the dealings of society with the individual in the way of compulsion and control, whether the means used be physical force in the form of legal penalties, or the moral coercion of public opinion. That principle is, that the sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection. (13)

But the peculiar evil of silencing the expression of an opinion is, that it is robbing the human race; posterity as well as the existing generation; those who dissent from the opinion, still more than those who hold it. If the opinion is right, they are deprived of the opportunity of exchanging error for truth: if wrong, they lose, what is almost as great a benefit, the clearer perception and livelier impression of truth, produced by its collision with error. (19)

This line of reasoning leads to legal toleration in the United States of groups like the White Citizens Councils, Neo-Nazi parties, and the Westboro Baptist Church to conduct their associations, propaganda, and demonstrations to further their hateful objectives. And they and their activists sometimes go further and commit actress of terrible violence (Timothy McVeigh, the murder of Matthew Shepherd in Wyoming, and the murders of civil rights workers in Mississippi).

But as Mill acknowledges, a democratic society has a right and an obligation to protect its citizens from violence. This is the thrust of the "harm" principle in Mill's philosophy of political authority. Is right-wing extremism (RWE) really just another political platform, equally legitimate within the public sphere of debate in a democratic society? Or do these organizations represent a credible threat to personal safety and civil peace?

Certainly most of the disagreements between liberals and conservatives fall in Millian category -- how much a society should spend on social welfare programs, what its immigration policies ought to be, the legal status of single-sex marriage. The disagreements among the parties are intense, but the debates and positions on both sides are legitimate. Mill is right about this range of policy disagreements. The political process and the sphere of public debate should resolve these disagreements.

But RWE goes beyond this level of disagreement about policy and legislation. RWE represents a set of values and calls to action that are inconsistent with the fundamentals of a democratic society. And they are strongly and essentially related to violence. RWE activists call for violence against hated groups, they call for armed resistance to the state (e.g. the Bundy's), and they actively work to inculcate hatred against specific groups (Muslims, Jews, African Americans, gays and lesbians, ...). These groups are anti-constitutional and contemptuous of the common core of civility upon which a democratic society depends.

There are two fundamental arguments against hate-based speech and associations that seem to justify exceptions to the general liberal principle of toleration of offensive speech. One is an argument linking hate to violence. There is ample historical evidence that hateful organizations do in fact stimulate violence by their followers (Birmingham bombing, lynchings and killings of civil rights workers, the assassination of Yitzak Rabin). So our collective interest in protecting all citizens against violence provides a moral basis for limiting incendiary hate speech and organization.

The second kind of argument concerns hate itself, and the insidious effects that hateful ideologies have on individuals, groups, and the polity. EU reports make an effort to capture the essential nature and harms of hate (link). Hate incites mistrust, disrespect, discrimination, and violence against members of other groups. The social effects of hate are toxic and serious. Do these effects suffice to justify limiting hate speech?

This is a difficult argument to make within the context of US jurisprudence. The realm of law involves coercion, and it is agreed that the threshold for interfering with liberty is a high one. It is also agreed that legal justifications and definitions need to be clear and specific. How do we define hate? Is it explained in terms of well-known existing hatreds -- racism, anti-semitism, islamophobia, homophobia, ...? Or should it be defined in terms of its effects -- inculcating disrespect and hostility towards members of another group? Can there be new hatreds in a society -- antagonisms against groups that were previously accepted without issue? Are there legitimate "hatreds" that do not lead to violence and exclusion? Or is there an inherent connection between hatred and overt antagonism? And what about expressions like those of Charlie Hebdo -- satire, humor, caricature? Is there a zone of artistic expression that should be exempt from anti-hate laws?

Here is Bleich's considered view on the balance between liberty and racism. Like Mill, he focuses on the balance between the value of liberty and the harm created by racist speech and action.

To telegraph the argument here, my perspective focuses on the level of harm inflicted on individuals, victim groups, and societies. For individuals and victim groups, the harm has to be measurable, specific, and intense. For societies, racism that fosters violence or that drives wedges between groups justifies limiting freedom of expression, association, and opinion-as-motive. (kl 247)

Further:

Racist expressions, associations, or actions that drive a wedge between segments of society or that provoke an extremely hostile response have little redeeming social value. Their harm to other core liberal democratic values such as social cohesion and public order simply outweighs any potential benefits to be gained by protecting them. At the same time, if the statements or organizations are designed to contribute to public debate about state policies, they have to be rigorously protected, even if they may have potentially damaging side effects. (kl 3403)

And here are the closing words of advice offered in the book:

How much freedom should we grant to racists? The ultimate answer is this: look at history, pay attention to context and effects, work out your principles, convince your friends, lobby your representatives, and walk away with a balance of values that you can live with. (kl 3551)

The issue to this point has been whether the state can legitimately prohibit hate speech and organization. But other avenues for fighting hateful ideas fall within the realm of civil society itself. We can do exactly as Mill recommended: offer our own critiques and alternatives to hatred and racism, and strive to win the battle of public opinion. Empirically considered, this is not an entirely encouraging avenue, because a century of experience demonstrates that hate-based propaganda almost always finds a small but virulent audience. So it is not entirely clear that this remedy is sufficient to solve the problem.

These are all difficult questions. But the rise and virulence of hate-based groups across the world makes it urgent for democracies to confront the problem in a just way, respecting equality and liberty of citizens while stamping out hate. And there are pressing practical questions we have to try to answer: do the non-coercive strategies available to the associations of civil society have the capacity to securely contain the harmful spread of hate-based organizations and ideologies? And, on the other hand, do the more restrictive legal codes against racism and hate-based organizations actually work in France or Germany? Or does the continuing advance of extremist groups there suggest that legal prohibition had little effect on RWE as a political movement? And if both questions turn out unfavorably, does liberalism face the possibility of defeat by the organizations of hatred and racism?

Paul Krugman: Pieces of Silver

How can Republicans support Trump?:

Pieces of Silver, by Paul Krugman, NY Times: By now, it’s obvious ... that Donald Trump is an ignorant, wildly dishonest, erratic, immature, bullying egomaniac. On the other hand, he’s a terrible person. But despite some high-profile defections, most senior figures in the Republican Party ... are still supporting him, threats of violence and all. Why?

One answer is that these were never men and women of principle. ...

Another answer is that ... the greatest risk facing many Republican politicians isn’t that of losing in the general election, it’s that of losing to an extremist primary challenger. This makes them afraid to cross Mr. Trump, whose ugliness channels the true feelings of the party’s base.

But there’s a third answer, which can be summarized in one number: 34..., the average federal tax rate for the top 1 percent in 2013.... And it’s up from just 28.2 in 2008, because President Obama allowed the high-end Bush tax cuts to expire and imposed new taxes to pay for a dramatic expansion of health coverage... Taxes on the really, really rich have gone up even more.

If Hillary Clinton wins, taxes on the elite will at minimum stay at this level, and may even go up significantly if Democrats do well enough ... to enable her to pass new legislation. ...

But if “populist” Donald Trump wins, taxes on the wealthy will go way down...

So if you’re wealthy, or you’re someone who has built a career by reliably serving the interests of the wealthy, the choice is clear — as long as you don’t care too much about stuff like shunning racism, preserving democracy and freedom of religion, or for that matter avoiding nuclear war, Mr. Trump is your guy..., it’s just an extension of the devil’s bargain the economic right has been making for decades, going all the way back to Nixon’s “Southern strategy.” ...

If this election goes the way it probably will, a few months from now those leading Republicans will be trying to pretend that they never really supported their party’s nominee, that in their hearts they always knew he was the wrong man.

But whatever doubts they may be feeling don’t excuse their actions, and in fact make them even less forgivable. For the fact is that right now, when it matters, they have decided that lower tax rates on the rich are sufficient payment for betraying American ideals and putting the republic as we know it in danger.

The Failure of the Market for Presidential Candidates

New column:

The Failure of the Market for Presidential Candidates: Almost all economists believe in markets, and the tools economists use to analyze markets can be applied to a surprisingly large number of social interactions. Our attempts to use economics to examine questions that are traditionally the purview of sociology, psychology, and political science have not always been welcomed by those in other fields, and there’s no doubt that our methods are often applied naively without a full understanding of what researchers in other disciplines have learned. Nevertheless, I can’t help speculating on why the “market” for political candidates failed so spectacularly this year. ...

Paul Krugman: No Right Turn

There's no reason for Democrats to change their agenda to attract Republicans fleeing from Trump:

No Right Turn, by Paul Krugman, NY Times: ...we’re finally seeing some prominent Republicans not just refusing to endorse Mr. Trump, but actually declaring their support for Mrs. Clinton. So how should she respond?

The obvious answer, you might think, is that she should keep doing what she is doing... But at least some commentators are calling on her to do something very different — to make a right turn, moving the Democratic agenda toward the preferences of those fleeing the sinking Republican ship. ...

I don’t think there’s much prospect that Mrs. Clinton will actually do that. But if by any chance she and those around her are tempted to take this recommendation seriously: Don’t.

First of all, let’s be clear about what she’s running on. It’s an unabashedly progressive program, but hardly extreme. ... And no, the program doesn’t need to be more “pro-growth.”

There’s absolutely no evidence that tax cuts for the rich and radical deregulation, which is what right-wingers mean when they talk about pro-growth policies, actually work, or that strengthening the social safety net does any harm. ...

It’s true that there are things we could do to boost the U.S. economy. The most important ... would be to ... expand public investment — which is something progressives support but conservatives oppose. So enough already with the notion that being on the center-left somehow means being anti-growth.

Now let’s talk about the politics.

The Trumpification of the G.O.P. didn’t come out of nowhere. On the contrary, it was the natural outcome of a cynical strategy: long ago, conservatives decided to harness racial resentment to sell right-wing economic policies to working-class whites, especially in the South. ...

So now the strategy that rightists had used to sell policies that were neither popular nor successful has blown up in their faces. And the Democratic response should be to adopt some of those policies? Say what? ...

Trumpism is basically a creation of the modern conservative movement, which used coded appeals to prejudice to make political gains, then found itself unable to rein in a candidate who skipped the coding.

If some conservatives find this too much and bolt the party, good for them, and they should be welcomed into the coalition of the sane. But they can’t expect policy concessions in return. When Dr. Frankenstein finally realizes that he has created a monster, he doesn’t get a reward. Mrs. Clinton and her party should stay the course.

Paul Krugman: Who Loves America?

Republicans and the patriot act:

Who Loves America?, by Paul Krugman, NY Times: ...too many influential figures on the right are tribalists, not patriots.

We got a graphic demonstration of that reality after Michelle Obama’s speech, when she spoke of the wonder of watching her daughters play on the lawn of “a house that was built by slaves.” It was an uplifting and, yes, patriotic image, a celebration of a nation that is always seeking to become better, to transcend its flaws.

But many people on the right ... heard was a knock on white people. “They can’t stop talking about slavery,” complained Rush Limbaugh. The slaves had it good, insisted Bill O’Reilly: “They were well fed and had decent lodgings.” Both men were, in effect, saying that whites are their tribe and must never be criticized.

This same tribal urge surely underlies a lot of the right’s rhetoric about national security. Why are Republicans so fixated on the notion that the president must use the phrase “Islamic terrorism,” when actual experts on terrorism agree that this would actually hurt national security, by helping to alienate peaceful Muslims?

The answer, I’d argue, is that ... it’s all about drawing a line between us (white Christians) and them (everyone else), and national security has nothing to do with it.

Which brings us back to the Vlad-Donald bromance. Mr. Trump’s willingness to cast aside our nation’s hard-earned reputation as a reliable ally is remarkable. So is ... his support for Mr. Putin’s priorities... And he has offered only evasive non-answers to questions about his business ties to Putin-linked oligarchs.

But what strikes me most is the silence of so many leading Republicans in the face of behavior they would have denounced as treason coming from a Democrat...

What this tells you, I think, is that all the flag-waving and hawkish posturing had nothing to do with patriotism. It was, instead, about using alleged Democratic weakness on national security as a club with which to beat down domestic opponents, and serve the interests of the tribe.

Now comes Mr. Trump, doing the bidding of a foreign power and inviting it to intervene in our politics — and that’s O.K., because it also serves the tribe.

So if it seems strange to you that these days Democrats are sounding patriotic while Republicans aren’t, you just weren’t paying attention. The people who now seem to love America always did; the people who suddenly no longer sound like patriots never were.

Trump Jr.’s Pants-on-Fire Allegation of Manipulated Jobs Numbers

Jeff Frankel at Econbrowser:

Trump Jr.’s Pants-on-Fire Allegation of Manipulated Jobs Numbers: When interviewed about the unemployment numbers, which have fallen steadily since 2010, Donald Trump Jr., replied “These are artificial numbers. These are numbers that are massaged to make the existing economy look good, to make this administration look good when, in fact, it’s a total disaster.” PolitiFact asked a variety of experts about the quote. Their bottom line: the quote from the younger Trump was a “Pants on Fire” lie. The truth is that presidents don’t and can’t manipulate the jobs numbers. No White House has even tried — at least not since Richard Nixon made a heavy-handed attempt in 1971 to interfere with BLS staffing. After that, extra firewalls were put in place.

Here is my own full response to PolitiFact’s question regarding the Trump claim...

Pax Trumpiana

Paul Krugman:

Pax Trumpiana: With everything else going on, it may be hard to stay with the evolving Trump/Putin story. But it’s really crucial. I don’t think Trump is literally an agent of the Kremlin; instead, he’s someone Putin is aiding because he knows Trump is close to, probably financially entangled with friendly oligarchs. And equally important, Putin knows that Trump’s combination of ignorance and greed would quickly undermine the Western alliance: already we have, incredibly, a presidential candidate essentially proposing that we turn NATO into a protection racket, in which countries get defended only if they pay up.

All of this is, as it turns out, dovetailing with my bedtime reading.

I’m a huge fan of Adrian Goldsworthy’s histories, and I have a galley of his new opus, Pax Romana. Great fun as usual, plus lots of detail. ...

America is, one hopes, not ancient Rome; we aspired to universal values from the beginning, and the Pax Americana, while far from being perfect or even free from some evil, has surely been the most benign great-power domination in history. Still, there is some parallel between how we’ve run much of the world and what the Romans learned to do.

But Trump doesn’t care about any of that — he basically wants America to behave like Rome at its worst, to become the predatory power of Lucullus and Sulla.

And all those ultra-patriotic Republicans are cheering him on.

Economists, Blogs, and Donald Trump

I have a new column:

Economists, Blogs, and Donald Trump: The reason I have this column can be credited to, or blamed on, George Bush.

During the presidential campaigns before the 2004 election, I was very unhappy with the coverage of Bush’s economic proposals in the press. The reporting on the claim that tax cuts would cause so much growth they would pay for themselves, and the discussion of Social Security privatization were particularly irksome, but there was a more general sense that people writing about economic issues were too easily lulled into “bothsideism” and swayed by political spin. Readers were not being informed about what economic theory and evidence says about the policies the candidates were proposing. 

In an attempt to do whatever I could to change that, I started writing letters to the local paper followed by three op-eds. Then, one day in March of 2005 I started ablog. That eventually led to this column. 

I wasn’t the only one who began using blogs to try and improve communication about economics. The number of economists with blogs has grown substantially, and it has made a difference. The press coverage of economic issues is much better than it was during the campaigns for president in 2004. It’s not perfect, there are still occasions when I want to tear my hair out in frustration, but it’s far better than it was. ...

So it’s been frustrating to see how little difference it has made in the current presidential campaign. ...

Paul Krugman: Delusions of Chaos

The phrase "trumped up" comes to mind:

Delusions of Chaos, by Paul Krugman, NY Times: Last year there were 352 murders in New York City. This was a bit higher than the number in 2014, but far below the 2245 murders ... in 1990, the city’s worst year. In fact..., New York is now basically as safe as it has ever been, going all the way back to the 19th century.

National crime statistics, and numbers for all violent crimes, paint an only slightly less cheerful picture. And it’s not just a matter of numbers; our big cities look and feel far safer than they did a generation ago...

How, then, was it even possible for Donald Trump to give a speech accepting the Republican nomination whose central premise was that crime is running rampant, and that “I alone” can bring the chaos under control? ...

Yet there’s no question that many voters — including, almost surely, a majority of white men — will indeed buy into that vision. Why? ...

Well, I do have a hypothesis..., Trump supporters really do feel, with some reason, that the social order they knew is coming apart. It’s not just race, where the country has become both more diverse and less racist (even if it still has a long way to go). It’s also about gender roles — when Mr. Trump talks about making America great again, you can be sure that many of his supporters are imagining a return to the (partly imagined) days of male breadwinners and stay-at-home wives. ...

But what are the consequences of these changes in the social order? Back when crime was rising, conservatives insistently drew a connection to social change — that was what the whole early ’90s fuss over “family values” was about. ...

Then a funny thing happened: Crime plunged instead of continuing to rise. Other indicators also improved dramatically — for example, the teen birthrate has fallen 60 percent since 1991. Instead of societal collapse, we’ve seen what amounts to a mass outbreak of societal health. The truth is that we don’t know exactly why. ...

The point, however, is that in the minds of those disturbed by social change, chaos in the streets was supposed to follow, and they are all too willing to believe that it did, in the teeth of the evidence.

The question now is how many such people, people determined to live in a nightmare of their own imagining, there really are. I guess we’ll find out in November.

Dani Rodrik and Mr. Trump

David Warsh:

Dani Rodrik and Mr. Trump: David Brooks, of The New York Times, wrote the single best piece I read last week on the Republican convention: “Death of the Party.” Like him, I was riveted by Donald Trump’s acceptance speech. The scene seemed straight out of one of those dystopian Batman movies of the 1980s, ’90s, and ’00s, an outlandish character, sailing under false colors, bullying and threatening, preying on fears, selling Gotham a bill of goods, preparing chaos.

By the time the nominee bellowed, “I am your voice” to the hall of delegates, he seemed simply the latest in a long line of improbable adversaries: the Joker, the Penguin, the Riddler, Mr. Freeze, Poison Ivy, Ra’s al Ghul, the Scarecrow, Bane, Mr. Trump.

But then Batman movies depend on the Caped Crusader, the Dark Knight, to answer the Bat signal, expose the fraud, counter the villains’ plans, and save the city.

Batman in this case is Dani Rodrik, 58, of Harvard University’s Kennedy School of Government. He is likely to be the next economist to enter the pantheon of those who went to school in the ’70s whom much of the public knows today” Jeffrey Sachs, Paul Krugman, Larry Summers, Ben Bernanke. ...

Rodrik isn’t exactly fighting with Trump, the way Batman fights with those villains.  He is, by his own account, recasting the globalization narrative, replacing the familiar triumphalist version with a more nuanced account, including the ill-effects of integration that gave rise to the Trump and Bernie Sanders campaigns, and those of H. Ross Perot and Pat Buchanan before them.  (Meanwhile, Rodrik is interpreting events in Turkey as well.)

The Trump campaign supports no intellectual edifice whatsoever. For all its flaws, it is up to the Clinton campaign to begin translating into political terms the deeper understanding globalization – its costs as well as its benefits – that Rodrik, Unger, and many others have been working out.

Holy Hoodwink, Batman!  Let’s get to work!

Paul Krugman: Donald Trump, the Siberian Candidate

Is it more than ignorance?:

Donald Trump, the Siberian Candidate, by Paul Krugman, NY Times: If elected, would Donald Trump be Vladimir Putin’s man in the White House? This should be a ludicrous, outrageous question. After all, he must be a patriot — he even wears hats promising to make America great again. ...

I’m not talking about merely admiring Mr. Putin’s performance — being impressed by the de facto dictator’s “strength,” and wanting to emulate his actions. I am, instead, talking about indications that Mr. Trump would ... actually follow a pro-Putin foreign policy, at the expense of America’s allies and her own self-interest.

That’s not to deny that Mr. Trump does, indeed, admire Mr. Putin. ... But admiration for Putinism isn’t unusual in Mr. Trump’s party. ...

All of this is, or should be, deeply disturbing..., what we’re now seeing ... goes beyond emulation, and is starting to look like subservience.

First, there was the Ukraine issue — one on which Republican leaders have consistently ... criticized Mr. Obama for insufficient action... And the G.O.P. platform was going to include a statement reaffirming this line, but it was watered down to blandness on the insistence of Trump representatives.

Then came Mr. Trump’s interview with The New York Times, in which ... he declared that even if Russia attacked members of NATO he would come to their aid only if those allies — which we are bound by treaty to defend — have “fulfilled their obligations to us.”

Now, some of this is Mr. Trump’s deep ignorance of policy... But is there more to the story? Is there some specific channel of influence?

We do know that Paul Manafort, Mr. Trump’s campaign manager, has worked as a consultant for various dictators, and was for years on the payroll of Viktor Yanukovych, the former Ukrainian president and a Putin ally.

And there are reasons to wonder about Mr. Trump’s own financial interests. Remember, we know nothing about the true state of his business empire, and he has refused to release his taxes... We do know that he has substantial if murky involvement with wealthy Russians and Russian businesses. ...

At some level, Mr. Trump’s motives shouldn’t matter. We should be horrified at the spectacle of a major-party candidate casually suggesting that he might abandon American allies — just as we should be horrified when that same candidate suggests that he might welsh on American financial obligations. But there’s something very strange and disturbing going on here, and it should not be ignored.

European Red Tape Is a Bogus Justification for Brexit

Simeon Djankov at PIIE:

European Red Tape Is a Bogus Justification for Brexit: Did the European Union’s ship of state run aground on misleading anecdotes? It would appear so. Red tape is frequently mentioned as one of the main reasons for Brexit. ...

But however much Brussels is reviled for burdensome regulations, especially in the conservative British press, it is primarily up to the national governments to regulate business and ensure that their regulation is competitive. In recent years, individual European countries have actually improved the environment for doing business. Half of the 25 countries in the world where it is easiest to do business are EU members, according to the 2016 World Bank’s Doing Business survey. These are Denmark (3), United Kingdom (6), Sweden (8), Finland (10), Germany (15), Estonia (16), Ireland (17), Lithuania (20), Austria (21), Latvia (22), Portugal (23), and Poland (25). Malta is the lowest-ranked EU country, at 80 (of 189 economies). ...

An examination of the EU’s record on regulations shows that in practice the EU governs few areas of business activity and that it has a lighter regulatory touch than many other parts of the world, including the United States. Yet the perception of bureaucratic Europe persists. ...

Paul Krugman: Both Sides Now?

Balancing the unbalanced:

Both Sides Now?, by Paul Krugman, NY Times: When Donald Trump began his run for the White House, many people treated it as a joke. Nothing he has done or said since makes him look better. On the contrary, his policy ignorance has become even more striking, his positions more extreme, the flaws in his character more obvious, and he has repeatedly demonstrated a level of contempt for the truth that is unprecedented in American politics.

Yet while most polls suggest that he’s running behind in the general election..., there’s still a real chance that he might win. How is that possible? Part of the answer, I’d argue, is that voters don’t fully appreciate his awfulness. And the reason is that too much of the news media still can’t break with bothsidesism — the almost pathological determination to portray politicians and their programs as being equally good or equally bad, no matter how ludicrous that pretense becomes. ...

You might think that Donald Trump, who lies so much that fact-checkers have a hard time keeping up, who keeps repeating falsehoods even after they’ve been proved wrong, and who combines all of this with a general level of thuggishness aimed in part at the press, would be too much even for the balance cultists to excuse.

But you would be wrong. ...

And in the last few days we’ve seen a spectacular demonstration of bothsidesism...: an op-ed article from the incoming and outgoing heads of the White House Correspondents’ Association, with the headline “Trump, Clinton both threaten free press.” How so? Well, Mr. Trump has selectively banned news organizations he considers hostile; he has also, although the op-ed didn’t mention it, attacked both those organizations and individual reporters, and refused to condemn supporters who, for example, have harassed reporters with anti-Semitic insults.

Meanwhile, while Mrs. Clinton hasn’t done any of these things, and has a staff that readily responds to fact-checking questions, she doesn’t like to hold press conferences. Equivalence!

Stung by criticism, the authors ... issued a statement denying that they had engaged in “false equivalency” — I guess saying that the candidates are acting “similarly” doesn’t mean saying that they are acting similarly. And they once again refused to indicate which candidate was behaving worse.

As I said, bothsidesism isn’t new, and it has always been an evasion of responsibility. But taking the position that “both sides do it” now, in the face of this campaign and this candidate, is an act of mind-boggling irresponsibility.

Cameron's Failure: Austerity

Chris Dillow:

Cameron's failure: austerity: David Cameron’s premiership must be considered a failure. He wanted to keep the UK in the EU, but failed; he wanted to preserve the Union but Scotland might well leave as a result of Brexit; and he wanted to heal a “broken Britain” but leaves the country divided and with hate crime rising.

A big reason for these failures lies in economic policy. Unnecessary austerity contributed to Brexit in four ways:

 - In contributing to stagnant incomes for many, it increased hostility to immigrants, which some Brexiteers exploited. When combined with high inequality – which Cameron did little to combat – it also contributed to increasing distrust of “elites”. ...

 - In worsening public services, Cameron and Osborne allowed the false impression to grow that immigrants were responsible for pressure on the NHS. ...

 - Austerity policies ran contrary to the established wisdom of most economic experts. Having shut out experts in one area, Cameron and Osborne were then less able to appeal to them on the merits of staying in the EU. They created a precedent for a rejection of mainstream economics. 

 - Supporting austerity at home meant that the Tories could not argue for expansionary policies in the euro zone – policies which would have both helped to reduce migration to the UK and which would have diminished the image of the EU as a failing institution. ...

In this sense, the costs of austerity have been far higher than estimated by conventional macroeconomic thinking. This perhaps reinforces an old piece of political wisdom – that if a government doesn’t get economic policy right, it’ll not get much else right either.

Paul Krugman: All the Nominee’s Enablers

The reason "Trumpism could triumph":

All the Nominee’s Enablers, by Paul Krugman, NY Times: A couple of weeks ago Paul Ryan ... sort of laid out both a health care plan and a tax plan. ...Mr. Ryan’s latest proposals had the same general shape as every other proposal he’s released: huge tax cuts for the wealthy combined with savage but smaller cuts in aid to the poor, and the claim that all of this would somehow reduce the budget deficit thanks to unspecified additional measures. ...

Fix the Debt, a nonpartisan deficit-scold group ... issued a statement — but not, as you might have expected, condemning Mr. Ryan for proposing to make the deficit bigger. No, the statement praised him. “We are concerned that the policies in the plan may not add up,” the organization admitted, but it went on to declare that “we welcome this blueprint.”

And there, in miniature, is the story of how America ended up with someone like Donald Trump... It’s all about the enablers, and the enablers of the enablers.

At one level, all Mr. Trump has done is to channel the racism that has always been a part of our political life... But there’s a reason these tendencies are sufficiently concentrated in the G.O.P. that Trumpism could triumph...

To put it bluntly, the modern Republican Party is in essence a machine designed to deliver high after-tax incomes to the 1 percent. ... But not many voters are interested in that goal. So the party has prospered politically by harnessing its fortunes to racial hostility, which it has not-so-discreetly encouraged for decades. ...

I’m not saying that all leading Republicans are racists... It is that in pursuit of their economic — actually, class-interest — goals they were willing to act as enablers, to make their party a safe space for prejudice. And the result is a party base that is strikingly racist...

But there’s one more crucial element here: We wouldn’t have gotten to this point if so many people outside the G.O.P. — in particular, journalists and self-proclaimed centrists — hadn’t refused to acknowledge what was happening. ... Instead, the respectable, “balanced” thing was to pretend that the parties were symmetric, to turn a blind eye to the cynicism of the modern Republican project. ...

The point is that this kind of false balance does real harm. The Republican establishment directly enabled the forces that led to Trump; but many influential people outside the G.O.P. in effect enabled the enablers. And so here we are.

Republicans Talk a Better Game on the Economy Than Democrats

Kevin Drum:

Republicans Talk a Better Game on the Economy Than Democrats: Over the weekend Brad DeLong wrote a post about Kansas Gov. Sam Brownback and how his disastrous tax cuts have decimated the state's economy. It prompted several of the usual comments, and DeLong highlights this one in particular:

The process Brownback has put the state on isn't something he regrets. And obviously over the next several years, Kansas will recover in that it won't get worse and will have growth that more or less tracks national growth. And at that point the state will declare Brownback's policies to be a "success."

This reminds me of something I've meant to point out for a while: economies always recover eventually.¹ Conservatives take advantage of this fact by loudly and clearly insisting that their proposed tax cuts will supercharge economic growth. They know that eventually there will be growth, and when it happens they can then loudly and clearly insist that their tax cuts were responsible. Since they've been loudly and clearly saying this all along, ordinary citizens conclude that they're right.

Democrats don't really do this. When Barack Obama put together his various economic initiatives in 2009, for example, he was pretty circumspect about what they'd accomplish. Ditto for Bill Clinton in 1993. ...

Why is this? ...

...Republicans ... [ha]ve been focused like a laser beam on tax cuts as economic miracle workers for more than 30 years now. The fact that virtually no evidence supports this claim doesn't matter. Democrats, conversely, can't quite bring themselves to make the same unequivocal claim. Are they too embarrassed to just flatly lie about it? Too disorganized to agree on any one thing? Too muddled to make their points loudly and clearly? It is a mystery. ...

U.S. Democracy Stuck in an ''Inequality Trap''

Kavya Vaghul at Equitable Growth:

U.S. democracy stuck in an “inequality trap”: Economic inequality in the United States appears to be trapped in a vicious cycle, as shown by several new working papers published today by the Washington Center for Equitable Growth alongside other recent research. Non-white, lower-income Americans are far less likely to vote than wealthier white citizens, and much of this participation gap is due to discriminatory practices at the ballot box. As a result, the political interests of lower-income minorities are not well-represented, and these interests are vastly different than those of their voting counterparts. This in turn means that policy decisions are made that exacerbate economic inequality and the inequalities that limit citizens’ voices in the first place.

To figure out how to break this cycle, social scientists need to understand what is happening at various points along the political continuum. So, let’s first examine new and existing research on the vote. ...

Paul Krugman: Trump, Trade and Workers

Don't "mistake tough talk on trade for a pro-worker agenda":

Trump, Trade and Workers, by Paul Krugman, NY Times: Donald Trump gave a speech on economic policy last week. Just about every factual assertion he made was wrong, but I’m not going to do a line-by-line critique. What I want to do, instead, is talk about ... the candidate’s claim to be on the side of American workers. ...

About globalization: There’s no question that rising imports, especially from China, have reduced the number of manufacturing jobs..., completely eliminating the U.S. trade deficit in manufactured goods would add about two million manufacturing jobs.

But ... total employment exceeds 140 million. Shifting two million workers back into manufacturing would raise ... employment back from around 10 percent to around 11.5 percent. To get some perspective: in ... the 1960s it was more than 25 percent. ... Trumponomics wouldn’t come close to bringing the old days back.

In any case, falling manufacturing employment is only one factor in the decline of the middle class...

Mr. Trump..., even as he tried to pose as a populist ... repeated the same falsehoods usually used to justify anti-worker policies. We are, he declared, “one of the highest taxed nations in the world.” Actually, among 34 advanced countries, we’re No. 31. And, regulations are “an even greater impediment” to our competitiveness than taxes: Actually, we’re far less regulated than, say, Germany, which runs a gigantic trade surplus. ...

What’s important is that voters not mistake tough talk on trade for a pro-worker agenda.

No matter what we do on trade..., we need policies that give ... workers the essentials of a middle-class life. This means guaranteed health insurance — Obamacare brought insurance to 20 million Americans, but Republicans want to repeal it and also take Medicare away from millions. It means the right of workers to organize and bargain for better wages — which all Republicans oppose. It means adequate support in retirement from Social Security — which Democrats want to expand, but Republicans want to cut and privatize.

Is Mr. Trump for any of these things? Not as far as anyone can tell. And it should go without saying that a populist agenda won’t be possible if we’re also pushing through a Trump-style tax plan, which would offer the top 1 percent huge tax cuts and add trillions to the national debt.

Sorry, but adding a bit of China-bashing to a fundamentally anti-labor agenda does no more to make you a friend of workers than eating a taco bowl does to make you a friend of Latinos.

How Do People Really Feel about the Economy?

Ben Bernanke at Brookings:

How do people really feel about the economy?: Political outsiders have had quite a good year in the United States (and elsewhere), and many pundits have attributed their success to voters’ profound dissatisfaction with the economy. Certainly there is plenty to be dissatisfied about, including growing inequality of income and wealth and stagnation in real wages. But there are positives as well, including an improving labor market, low inflation, and low gasoline prices. How do people really feel about the U.S. economy?

This post will not tackle the substance of Americans’ worries about the economy but instead highlights a puzzle... I’ll show that, when Americans are asked specifically about the economy, in an apolitical context, they are for the most part not nearly as pessimistic as the conventional wisdom would have it. ... But, at the same time, when asked more generally about the way things are going in the United States, or about whether the country is going in the right direction, a strong majority gives downbeat answers... I end the post with a few thoughts on possible reasons. ...

There are of course multiple possibilities, not mutually exclusive. For example, traumatic national events, including the 9/11 attacks and the 2007-2009 financial crisis, may have had lasting effects on public confidence that are not captured in their near-term assessments of economic performance. (Satisfaction with the way things are going did begin a sustained decline around 2001, at about the time of 9/11, the end of the tech bubble, and the 2001 recession.) It may also be that, in responding to broad questions about the direction of the country, people are taking into account non-economic concerns, such as social problems and cultural fears. Such factors must certainly be part of the story, but it should be noted that many social indicators (such as teenage births and crime rates) have been moving in generally favorable directions.

I suspect that greater social and political polarization itself has a role to play in explaining reported levels of dissatisfaction. To an increasing extent, Americans are self-selecting into non-overlapping communities (real and virtual) of differing demographics and ideologies, served by a fragmented and partisan media. ...

In a highly polarized environment, with echo-chamber media, political debates often become shrill, and commentators and advocates have strong incentives to argue that the country’s future is bleak unless their party gains control. In this environment, it seems plausible that people will respond more intensely and negatively to open-ended questions about the general state of the country, while questions in a survey focused narrowly on economic conditions elicit more moderate responses. Without doubt, the economic problems facing the country are real, and require serious and sustained responses. But while perceptions of economic stress are certainly roiling our national politics, it may also be that our roiled politics are worsening how we collectively perceive the economy.

The Institutional Design of the Eurozone

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

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

Eleven observations:

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

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

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

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

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

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

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

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

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

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

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

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

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

Making the Eurozone more resilient: What is needed now and what can wait?, VoxEU: The UK’s choice to leave the EU was, we believe, a historic mistake. But the choice was made; we must now turn to damage control – especially when it comes to the euro.

The Eurozone is growing, albeit slowly. If all goes as forecast, economic health will eventually be restored, unemployment will decrease, and the periphery countries will regain competitiveness.

But things rarely go as forecast – as we were so forcefully reminded last week. Brexit was the latest – but certainly not the last – shock that will challenge the monetary union.

The question is: Is the Eurozone resilient enough to withstand the bad shocks that it is likely to face in the months and years to come?

For many observers, the answer is “no”. To survive the next bad shock, they argue, Europe’s monetary union needs major reform and deeper political integration. As such deeper integration is extremely difficult in today’s political climate, pessimism is the order of the day.

We do not share this pessimism. The Eurozone’s construction has surely followed a convoluted process, but the fundamental architecture is now in place. Yes, some measures are needed to strengthen this architecture. And yes, more ambitious steps would improve resilience further, but these will have to wait for a political breakthrough.

The purpose of this essay is to identify what needs to be done soon, and what would be good to do but can probably wait. To avoid the mind-numbing details that often cloud discussions of Eurozone reform, we paint our arguments with a broad brush. (We will follow up with further documents with much greater detail on specific reform proposals.)

On banks and the financial system

Think of a good financial architecture for the Eurozone as achieving two main objectives in coping with another bad shock: 1) reducing the risk of bank defaults; and 2) containing the broader economic effects when defaults do occur.

This architecture is largely built. Both supervision and regulation are now largely centralised. Supervision is improving and stress tests are becoming more credible with each iteration. The Single Resolution Mechanism is in place and private-sector bail-in rules have been defined. The Single Resolution Fund can provide some recapitalisation funds if and when needed. If they turn out not to be enough, the European Stability Mechanism (ESM) can, within the context of a macroeconomic adjustment programme, add more. In the longer term, a euro-wide deposit insurance scheme could improve resiliency, but this will take time.

So what more needs to be done soon? Mostly to make sure that the rules in place can be enforced. Italy provides two cases in point. First, non-performing loans have steadily increased and are carried on the books at prices substantially above market prices. Second, the Italian government has proven very reluctant to apply the bail-in rules. The credibility of the rules is at stake. Either they have to be applied, or credibly modified.

What are the measures that would be good to take, but can probably wait?

Diversifying the portfolios of banks so that there are more resilient to domestic shocks would clearly be desirable. The focus has been on decreasing the proportion of domestic sovereign bonds in banks’ portfolios. This would be good, but domestic sovereign bonds represent a relatively small proportion of banks’ portfolios. Decreasing banks’ overexposure to domestic loans would also be an important step towards boosting resiliency. A different approach would be to transfer the responsibility for banks’ rescue from national governments to the ESM. But this is the kind of political step that seems unlikely to be feasible in the near term.

On public finances

Public debt is high, even if, for the time being, low interest rates imply a manageable debt service. Just as for the financial system, a resilient public finance architecture needs to:  1) reduce the risk of default; and 2) contain the adverse effects of default, if it were to occur nevertheless.

On both counts, much remains to be done.

Reducing the risk of default is best achieved through a combination of good rules and market discipline. Neither is really in place. The accumulation of rules has made them unwieldy, unenforceable, and open to too many exceptions. They can and should be simplified. In most countries, the level of expenditure – rather than the deficit – is the main problem. High expenditure makes it difficult to raise taxes and balance the budget, leading to dangerous debt dynamics. Thus, a focus on expenditure rules, linking expenditure reduction to debt levels, appears to be one of the most promising routes. Market discipline, on the other hand, will not work if the holders of the debt do not know what will happen if and when default takes place. This takes us to the second objective.

The Eurozone has put in place the right institution to deal with default, namely the ESM. Like the IMF, the ESM can, under a programme, help a country adjust. In its current form however, the ESM falls short of what is needed. First, the ESM’s ‘firepower’ is too small compared to the sort of shock-absorbing operations it may be called on to undertake in the case of a large Eurozone nation getting into debt trouble. Second, given its current decision-making procedures, markets cannot be sure that action will be taken promptly. Higher funding or higher leverage, and changes in governance such as replacing the requirement of unanimity by a more flexible one, are needed to make the ESM able to respond quickly and fully to a country in trouble. Third, the current structure is silent on who should negotiate a public debt restructuring in the extreme case where one was needed. Putting an explicit process in place should be a priority; the ESM is the natural place for it.

What other measures which would be good to have, but can probably wait? 

Initiatives to address the legacy of high public debt would bolster Eurozone resiliency and thus would be very useful. However, as low interest rates are likely for some time to come, debt service is manageable, and debt forecasts show that debt-to-GDP ratios will slowly decline (absent a bad shock). Since proposals for dealing with legacy national debts would require the sort of political willpower that seems in short supply for now, such plans cannot be realistically put on the ‘do now’ menu, even if they are may be necessary in the future.

Another set of measures would implement stronger risk sharing, and transfer schemes to further reduce the impact of domestic shocks on their own economy. Proposals run from euro bonds to fiscal transfer schemes for countries subject to bad shocks. These measures would make the Eurozone more resilient and thus may be desirable. But, equally clearly, they would require more fiscal and political integration than is realistic to assume at this point. We believe that the Eurozone can probably function without tighter fiscal integration at least for some time.

We end with two sets of remarks.

Solvency and liquidity

Whether it is with respect to banks or states, the two issues facing policymakers are how to deal with solvency and liquidity problems. We have argued that, when solvency is an issue, the ESM is the right structure to address it (assuming a public debt restructuring procedure is in place). With respect to liquidity, we believe that, in addition to the liquidity facilities of the ECB, which can address sudden stops on banks, the Outright Monetary Transactions (OMT) is the right structure to address sudden stops facing states. One step that could be taken soon is a clearer articulation of how to combine the two. This would clarify the role of the ECB, and eliminate a source of criticism about the allocation of roles between the ECB and other Eurozone structures such as the ESM. The resulting clarity would make it easier for markets and investors to be assured that Europe’s monetary union could deal effectively with any future shocks.

Structural reforms

In any country, at any point, some pro-growth structural and institutional reforms are desirable. Is there a particularly strong argument for them in the case of the Eurozone? To some extent, yes. The institutional problems of the euro are made worse by low growth, and demographic change. If the structural and institutional reforms delivered higher growth, this would be good by itself – ignoring distribution effects – and it would allow for faster improvement in bank and state balance sheets.

Those specific structural reforms which allow for faster adjustment of competitiveness, be it through faster cost adjustment or faster reallocation, would also improve the functioning of the monetary union. Implementing such reform is a slow and difficult process, but necessary nonetheless. The Eurozone will never be a well-functioning monetary union until it is much more of an economic union as well.

We have stressed that actions need to be taken soon, while others are more long term, but the long-term questions do need to be discussed without delay.

Do you support this view?

Starting next week, we will open this column to endorsement by economists. Details to be posted on Monday.

Paul Krugman: Brexit: The Morning After

"Worry about Britain":

Brexit: The Morning After, by Paul Krugman, NYTimes: Well, that was pretty awesome – and I mean that in the worst way. ...

That said, I’m finding myself less horrified by Brexit than one might have expected – in fact, less than I myself expected. The economic consequences will be bad, but not, I’d argue, as bad as many are claiming. The political consequences might be much more dire; but many of the bad things I fear would probably have happened even if Remain had won.

Start with the economics. Yes, Brexit will make Britain poorer. It’s hard to put a number on the trade effects..., but it will be substantial. ...

But right now all the talk is about financial repercussions – plunging markets, recession in Britain and maybe around the world, and so on. I still don’t see it. ...

A bigger issue might be fears of very bad political consequences, both in Europe and within the UK. Which brings me to the politics.

It seems clear that the European project – the whole effort to promote peace and growing political union through economic integration – is in deep, deep trouble. Brexit is probably just the beginning, as populist/separatist/xenophobic movements gain influence across the continent. Add to this the underlying weakness of the European economy,... a prime candidate for “secular stagnation”... Lots of people are now very pessimistic about Europe’s future, and I share their worries.

But those worries wouldn’t have gone away even if Remain had won. The big mistakes were the adoption of the euro without careful thought about how a single currency would work without a unified government; the disastrous framing of the euro crisis as a morality play brought on by irresponsible southerners; the establishment of free labor mobility among culturally diverse countries with very different income levels... Brexit is mainly a symptom of those problems, and the loss of official credibility that came with them. ...

Where I think there has been real additional damage done, damage that wouldn’t have happened but for Cameron’s policy malfeasance, is within the UK itself..., it looks all too likely that the vote will both empower the worst elements in British political life and lead to the breakup of the UK itself. Prime Minister Boris looks a lot more likely than President Donald; but he may find himself Prime Minister of England – full stop.

So calm down about the short-run macroeconomics; grieve for Europe, but you should have been doing that already; worry about Britain.

A Shameless Deception in Paul Ryan’s Obamacare Replacement Plan

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

A shameless deception in Paul Ryan’s Obamacare replacement plan, by By Stephen Stromberg: ... Paul Ryan (R-Wis.) released an Obamacare replacement plan on Wednesday that, among other things, complains that the ACA leaves people out. ... Then it blames the gap on “Obamacare’s poor design and incentives.”

This is an outrageous distortion. The coverage gap ... is the direct result of anti-Obamacare hysteria in Ryan’s party.

After the ACA passed, the Supreme Court ruled that the Medicaid expansion must be optional for states. The terms were so good for state leaders — the federal government promised to pay nearly the whole cost to cover lots of vulnerable people — it seemed inconceivable that any of them would refuse to expand Medicaid... But this thinking did not account for the anti-Obamacare tantrum... Nineteen states have refused to expand Medicaid in rote Republican opposition to the ACA. ...

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

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

Paul Krugman: A Tale of Two Parties

 The Republican house of ideological cards:

A Tale of Two Parties, by Paul Krugman, NY Times: Do you remember what happened when the Berlin Wall fell? Until that moment, nobody realized just how decadent Communism had become. It had tanks, guns, and nukes, but nobody really believed in its ideology anymore; its officials and enforcers were mere careerists, who folded at the first shock.

It seems to me that you need to think about what happened to the G.O.P. this election cycle the same way.

The Republican establishment was easily overthrown because it was already hollow at the core. ... All it took was the huffing and puffing of a loud-mouthed showman...

But as Mr. Trump is finding out, the Democratic establishment is different.

...America’s two major parties are not at all symmetric. The G.O.P. is, or was until Mr. Trump arrived, a top-down hierarchical structure enforcing a strict, ideologically pure party line. The Democrats, by contrast, are a “coalition of social groups,” from teachers’ unions to Planned Parenthood, seeking specific benefits from government action. ...

Mr. Trump is flailing. He’s tried all the tactics that worked for him in the Republican contest — insults, derisive nicknames, boasts — but none of it is sticking. Conventional wisdom said that he would be helped by a terrorist attack, but the atrocity in Orlando seems to have hurt him instead: Mrs. Clinton’s response looked presidential, his didn’t.

Worse yet from his point of view, there’s a concerted effort by Democrats — Mrs. Clinton herself, Elizabeth Warren, President Obama, and more — to make the great ridiculer look ridiculous (which he is). And it seems to be working.

Why is Mrs. Clinton holding up so well against Mr. Trump, when establishment Republicans were so hapless? Partly it’s because America as a whole, unlike the Republican base, isn’t dominated by angry white men; partly it’s because, as anyone watching the Benghazi hearing realized, Mrs. Clinton herself is a lot tougher than anyone on the other side.

But a big factor, I’d argue, is that the Democratic establishment in general is fairly robust..., the various groups making up the party’s coalition really care about and believe in their positions — they’re not just saying what the Koch brothers pay them to say.

So pay no attention to anyone claiming that Trumpism reflects either the magical powers of the candidate or some broad, bipartisan upsurge of rage against the establishment. What worked in the primary won’t work in the general election, because only one party’s establishment was already dead inside.

Paul Krugman: A Party Agrift

The grift that keeps on grifting:

A Party Agrift, by Paul Krugman, NY Times: This is not a column about Donald Trump.

It’s not about the fraudulent scheme that was Trump University. It’s not about his history of failing to pay contractors, leading to hundreds of legal actions. It’s not about how he personally profited while running his casinos into the ground. It’s not even concerned with persistent questions about whether he is nearly as rich as he claims to be, and whether he’s ever done more than live off capital gains on his inheritance.

No, my question, as Democrats gleefully tear into the Trump business record, is why rival Republicans never did the same. ... Were they just incompetent, or is there something structural about the modern Republican Party that makes it unable to confront grifters?

The answer, I’d argue, is the latter. ...

Sometimes the political link is direct: dire warnings about the coming depression/hyperinflation, from which you can only protect yourself by buying Ron Paul’s DVDs (the “Ron Paul curriculum”) or gold shares hawked by Glenn Beck. ...

There’s also a notable pattern of conservative political stars engaging in what is supposed to be activism, but looks a lot like personal enrichment. For example, Sarah Palin’s SarahPAC gives only a few percent of what it raises to candidates, while spending heavily on consultants and Mrs. Palin’s travels.

Then there’s the issue of ideology. If your fundamental premise is that the profit motive is always good and government is the root of all evil, if you treat any suggestion that, say, some bankers misbehaved in the run-up to the financial crisis as proof that the speaker is anti-business if not a full-blown socialist, how can you condemn anyone’s business practices? ...

Even as the newspapers are filled with stories of defrauded students and stiffed contractors, Republicans .. are going all-out in efforts to repeal the so-called “fiduciary rule”... Paul Ryan ... has even made repealing that rule part of his “anti-poverty plan.” So the GOP is in effect defending the right of the financial industry to mislead its customers, which makes it hard to attack the likes of Donald Trump. ...

In the months ahead Republicans will claim that there are equivalent scandals on the Democratic side, but nothing ... rises remotely to the level of even one of the many Trump scams... They’ll also claim that Mr. Trump doesn’t reflect their party’s values. But the truth is that in a very deep sense he does. And that’s why they couldn’t stop him.

Paul Krugman: Hillary and the Horizontals

 "Group identity is an unavoidable part of politics":

Hillary and the Horizontals, by Paul Krugman, NY Times: I spent much of this politically momentous week at a workshop on inequality... As so often happens at conferences..., what really got me thinking was a question during coffee break: “Why don’t you talk more about horizontal inequality?”

What? Horizontal inequality is the term of art for inequality measured, not between individuals, but between racially or culturally defined groups. ... And like it or not, horizontal inequality, racial inequality above all, will define the general election. ...

Defining oneself at least in part by membership in a group is part of human nature. Even if you try to step away from such definitions, other people won’t..., a truth reconfirmed by the upsurge in vocal anti-Semitism unleashed by the Trump phenomenon.

So group identity is an unavoidable part of politics... Racial and ethnic minorities know that very well, which is one reason they overwhelmingly supported Hillary Clinton, who gets it, over Mr. Sanders, with his exclusive focus on individual inequality. And politicians know it too.

Indeed, the road to Trumpism began with ideological conservatives cynically exploiting America’s racial divisions. The modern Republican Party’s central policy agenda of cutting taxes on the rich while slashing benefits has never been very popular, even among its own voters. It won elections nonetheless by getting working-class whites to think of themselves as a group under siege, and to see government programs as giveaways to Those People. ...

And race-based political mobilization cuts both ways. Black and Hispanic support for Democrats makes obvious sense, given the fact that these are relatively low-income groups that benefit disproportionately from progressive policies. ... But the overwhelming nature of that support reflects group identity.

Furthermore, some groups with relatively high income, like Jews and, increasingly, Asian-Americans, also vote strongly Democratic. Why? The answer in both cases, surely, is the suspicion that the same racial animus that drives many people to vote Republican could, all too easily, turn against other groups with a long history of persecution. ...

The Republican nominee represents little more than the rage of white men over a changing nation. And he’ll be facing a woman — yes, gender is another important dimension in this story — who owes her nomination to the very groups his base hates and fears.

The odds are that Mrs. Clinton will prevail, because the country has already moved a long way in her direction. But one thing is for sure: It’s going to be ugly.

Bad Business

Simon Wren-Lewis:

Bad business: This post mainly uses examples from the UK, but I suspect much the same story could be told in many countries. The reaction to Obama's criticism of Wall Street was extraordinary, until perhaps you realize that in the US political support is sometimes a commodity that corporations and the wealthy can buy. I return to the US at the end of this post.

I am sure the employment regime that existed at 'Sports Direct' would horrify anyone. A system of discipline that penalized taking time off sick such that ambulances responding to emergency calls were regular visitors to the factory. Many of the staff were not paid the minimum wage. This is what can happen when the majority of workers are not represented by a union, and local jobs are scarce, or other employers are not much better. We know about it because of the work of investigative journalists, but there are few of them left so how many other cases do we not know about?

A long time ago the Conservative party represented business, and the Labor party represented employees through their links to trade unions. In the 1980s the power of the trade unions was significantly reduced, and Labor leaders even thought they could gain votes by attacking some union actions. Since then, Labor have avoided ever siding with workers in industrial disputes. This continues under the current leadership... As a result, we can ask who represents employees against exploitation by employers within the workplace, and who represents society against rent seeking by employers at the national level?

The Conservative party was and still is the party of business. ... In the last election business leaders did all they could to support the Conservatives, both financially and with explicit support. When this tight link between a political party and business is combined with an ideological belief among many in the party that regulations such as those that support employees are 'red tape' that needs to be cast aside, we get a mix which is potentially dangerous for employees and society. ...

An interesting question is why this should be seen as a problem for Labor. The answer has to be that approval by business is seen by many voters as a mark of economic competence. Of course economists know that running a business is very different from running the economy. ... But the media environment encourages a rather different view. ...

The result of all this may be that Labor wants to avoid appearing anti-business. ...Conservatives will throw the anti-business charge the moment Labor adopts any measures that restrict business freedom or threatens the incomes of business executives, and business leaders – for reasons already explained – will back them up. If this leads to a significant number of voters concluding that Labor are not competent to run the economy, we are in danger of hard wiring bad business. As Luigi Zingales observes in this perceptive article, although there is a deep distrust of crony capitalism among many Republican supporters, they still elected a crony capitalist.

A Pause That Distresses

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

A Pause That Distresses, by Paul Krugman, NY Times: Friday’s employment report was a major disappointment: only 38,000 jobs added, a big step down from the more than 200,000 a month average since January 2013. Special factors, notably the Verizon strike, explain part of the bad news, and in any case job growth is a noisy series... Still, all the evidence points to slowing growth. It’s not a recession, at least not yet, but it is definitely a pause in the economy’s progress. ...

So what is causing the economy to slow? My guess is that the biggest factor is the recent sharp rise in the dollar, which has made U.S. goods less competitive on world markets. The dollar’s rise, in turn, largely reflected misguided talk by the Federal Reserve about the need to raise interest rates. ...

Whatever the cause of a downturn, the economy can recover quickly if policy makers can and do take useful action. ...

But that won’t — in fact, can’t — happen this time. Short-term interest rates, which the Fed more or less controls, are still very low... We now know that it’s possible for rates to go slightly below zero, but there still isn’t much room for a rate cut.

That said, there are other policies that could easily reverse an economic downturn. ... For the simplest, most effective answer to a downturn would be fiscal stimulus...

But unless the coming election delivers Democratic control of the House, which is unlikely, Republicans would almost surely block anything along those lines. Partly, this would reflect ideology... It would also reflect an unwillingness to do anything that might help a Democrat in the White House. ...

If not fiscal stimulus, then what? For much of the past six years the Fed, unable to cut interest rates further, has tried to boost the economy through large-scale purchases of things like long-term government debt and mortgage-backed securities. But it’s unclear how much difference that made — and meanwhile, this policy faced constant attacks and vilification from the right, with claims that it was debasing the dollar and/or illegitimately bailing out a fiscally irresponsible president. We can guess that the Fed will be very reluctant to resume the program...

So the evidence of a U.S. slowdown should worry you. I don’t see anything like the 2008 crisis on the horizon (he says with fingers crossed behind his back), but even a smaller negative shock could turn into very bad news, given our political gridlock.

The Economic Consequences of a Donald Trump Win Would be Severe

Larry Summers (Update: Washing Post link)

... What I find surprising is that US and global markets and financial policymakers seem much less sensitive to “Trump risk” than they are to “Brexit risk”. Options markets suggest only modestly elevated volatility in the period leading up to the presidential election. ...

Yet, as great as the risks of Brexit are to the British economy, I believe the risks to the US and global economies of Mr Trump’s election as president are far greater. If he is elected, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States. ...

Paul Krugman: The Id That Ate the Planet

Donald Trump is "mind-bogglingly petty":

The Id That Ate the Planet, by Paul Krugman, NY Times: ...Donald Trump’s personality endangers the whole planet. ...

The outlook for climate change if current policies continue has never looked worse, but the prospects for turning away from the path of destruction have never looked better. Everything depends on who ends up sitting in the White House for the next few years. ...

But what happens if the next president is a man who doesn’t believe in climate science, or indeed in inconvenient facts of any kind?

Republican hostility to climate science and climate action is usually attributed to ideology and the power of special interests, and both of these surely play important roles. ... Meanwhile, buying politicians is a pretty good business investment for fossil-fuel magnates like the Koch brothers.

But I’ve always had the sense that there was a third factor, which is basically psychological. There are some men — it’s almost always men — who become enraged at any suggestion that they must give up something they want for the common good..., for example, prominent conservatives suggesting violence against government officials because they don’t like the performance of phosphate-free detergent. But polluter’s rage isn’t about rational thought.

Which brings us to the presumptive Republican presidential nominee ...

No doubt Donald Trump hates environmental protection in part for the usual reasons. But there’s an extra layer of venom to his pro-pollution stances that is both personal and mind-bogglingly petty.

For example, he has repeatedly denounced restrictions intended to protect the ozone layer — one of the great success stories of global environmental policy — because, he claims, they’re the reason his hair spray doesn’t work as well as it used to. I am not making this up.

He’s also a bitter foe of wind power..., his real motivation seems to be ire over unsuccessful attempts to block an offshore wind farm near one of his British golf courses.

And if evidence gets in the way of his self-centeredness, never mind. Recently he assured audiences that there isn’t a drought in California, that officials have just refused to turn on the water.

I know how ridiculous it sounds. Can the planet really be in danger because a rich guy worries about his hairdo? But Republicans are rallying around this guy just as if he were a normal candidate. And if Democrats don’t rally the same way, he just might make it to the White House.

The Conservative Bias in Economics

I have a new column:

Yes, Nick Kristof, There Is a Conservative Bias in Economics: Nicholas Kristof recent reignited the debate over liberal bias in academia with his claim that “universities risk becoming liberal echo chambers and hostile environments for conservatives.” He does single out my profession, economics, as being better than most social science departments in representing conservative viewpoints: 

“Economists remain influential. I wonder if that isn’t partly because there is a critical mass of Republican economists who battle the Democratic economists and thus tether the discipline to the American mainstream.” 

But the extent to which conservative ideology is represented within the profession is much larger than a simple tally of the number of conservatives versus liberals indicates. ...

It was too long, so I cut this part:

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

Paul Krugman: Feel the Math

The current state of the race:

Feel the Math, by Paul Krugman, NY Times: ...So far, election commentary has been even worse than I imagined it would be..., bang-your-head-on-the-desk awful... I know this isn’t scientific, but based on conversations I’ve had recently, many people ... have been given a fundamentally wrong impression of the current state of play..., people aren’t being properly informed about the basic arithmetic of the situation.

Now, I’m not a political scientist or polling expert... But I am fairly numerate, and I assiduously follow real experts... And they’ve taught me some basic rules that I keep seeing violated.

First, at a certain point you have to stop reporting about the race for a party’s nomination as if it’s mainly about narrative and “momentum.” ... Eventually ... it all becomes a simple, concrete matter of delegate counts.

That’s why Hillary Clinton will be the Democratic nominee; she locked it up over a month ago with her big Mid-Atlantic wins...

And no, saying that the race is effectively over isn’t somehow aiding a nefarious plot to shut it down by prematurely declaring victory. ... You may think those people chose the wrong candidate, but choose her they did.

Second, polls can be really helpful at assessing the state of a race, but only if you fight the temptation to cherry-pick... What the polling experts keep telling us to do is rely on averages of polls rather than highlighting any one poll in particular. ...

Which brings us to the general election. Here’s what you should know, but may not be hearing clearly in the political reporting: Mrs. Clinton is clearly ahead, both in general election polls and in Electoral College projections based on state polls. ... So unless Bernie Sanders refuses to concede and insinuates that the nomination was somehow stolen by the candidate who won more votes, Mrs. Clinton is a clear favorite to win the White House.

Now, obviously things can and will change over the course of the general election campaign. Every one of the presidential elections I’ve covered at The Times felt at some point like a nail-biter. But the current state of the race should not be a source of dispute or confusion. Barring the equivalent of a meteor strike, Hillary Clinton will be the Democratic nominee; despite the reluctance of Sanders supporters to concede that reality, she’s currently ahead of Donald Trump. That’s what the math says, and anyone who says it doesn’t is misleading you.