05 December 2013

Why I Haven't Changed My Mind About Bitcoin

Matthew Yglesias

"Black-market transactions are a thing, though. And Bitcoins are more portable than either suitcases full of $100 bills or diamonds. So there's some use there. And even though I think inflation paranoia is dumb, it's certainly a real phenomenon. And anything gold can do Bitcoin can do better. In essence you've combined the smuggling utility of pieces of paper with pictures of Ben Franklin on them with the inflation hedging properties of gold. That's a decent achievement. But it's not going to set the world on fire."

The Minimum Wage and the Laws of Economics

Jared Bernstein

25 November 2013

Structural Problems With Economese

Paul Krugman

When Someone Claims the War on Drugs Is a War on Minorities…

via Mike the Mad Biologist

John Ehrlichman:
The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar Left, and black people. You understand what I’m saying? We knew we couldn’t make it illegal to be either against the war or black. But by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.

The central banker who changed his mind

John Aziz

Columnist Hasn’t Seen ’12 Years A Slave,’ But He’s Sure It’s Too Hard On Slavery

Alyssa Rosenberg

(It's John Derbyshire, of course)

20 November 2013

Given the Myth of Ownership, is the Idea of Redistribution Coherent?

Mike Konczal

Brad Plumer’s Redistribution Blindspot

Matt Bruenig

There is no such thing as redistribution

Matt Bruenig

"The word 'redistribution' implies that there is a distribution that is default, and that we redistribute when we modify the distribution away from it. This, of course, is wrong. There is no default distribution. All distributions are the consequence of any number of institutional design choices, none of which are commanded by the fabric of the universe. In the United States, we have constructed and enforce institutions of private property ownership and contract enforcement. Those institutions generate very different end distributions than we would see if they did not exist. But they do not have to exist by logical necessity, nor do they constitute the default form of economic institutions."

12 November 2013

Mankiw: "Is community rating fair?"

Is community rating fair? 
A large part of the motivation of the Affordable Care Act is to provide insurance to those with pre-existing conditions. Under the law, insurance is offered to everyone at a price based on overall community risk, not the risk estimated by the insurance company based on a person's particular characteristics. That has been deemed "fair" by advocates of the law. 
I wonder whether advocates of this view are concerned with other insurance markets.  Teenage drivers pay a lot more for auto insurance. The old pay a lot more for life insurance.  Life insurance companies require health screening before granting a policy. Is this a problem, or the natural and desirable functioning of markets? 
In the law, having children has been deemed a pre-existing condition, although it is not quite described as such. Everyone is now expected to buy insurance to pay for pregnancy and maternity care, even those who never intend to have children. The goal is to spread the risk of childbirth among the larger community. 
But having children is more a choice than a random act of nature. People who drive a new Porsche pay more for car insurance than those who drive an old Chevy. We consider that fair because which car you drive is a choice.  Why isn't having children viewed in the same way? 
I don't know the answer to these questions. But it does seem that fairness in health insurance pricing is being viewed very differently than fairness in pricing other types of insurance.  I wonder why.

Jonas Feit:
Greg Mankiw asks "Is Community rating fair?" His contention seems to be that the market has deemed that people with different health risks should pay more for health insurance, much in the way that the market has deemed that people who are statistically more likely to be involved in auto accidents should pay pay more for car insurance and that people who are statistically more likely to die sooner should pay more for life insurance. By way of example, he cites teen drivers (higher car insurance premiums) and old people (higher life insurance premiums, if they can get a policy at all). 
Mankiw's complaint is specifically that pregnancy is, for the purposes of the ACA, a "pre-existing condition," the cost of which should not be spread among all of the insured, because pregnancy is a choice. Leaving aside the fact that the degree to which pregnancy is a choice is correlated with, and proportional to, socioeconomic status, Mankiw takes a logical leap that goes something like this:
1. Pregnancy is a choice.
2. Pregnancy is a pre-existing condition.
3. Community rating spreads costs for pre-existing conditions across all insured.
4. Community rating is unfair!!
It should be noted that community rating is primarily meant to remove the penalty of a lifetime of burdensome costs for those of us unlucky enough to be born with genetic conditions, to contract less-than-curable lifetime ailments like Lyme disease, and other catastrophic health scenarios that currently send people down a road toward something that most closely resembles serfdom. It should also be noted that community rating is very similar to the way in which employer-based health insurance plans spread risk, and have done so for decades. It's not like we're landing on Neptune here. Perhaps pregnancy is different in some fundamental way from the sorts of conditions I describe. Then again, maybe it's not. This is a relatively simple technocratic question, not the grand philosophical debate over which Mankiw wastes so much hand-wringing. Perhaps, in a sane political environment, we'd be able to discuss this question and others like it calmly and reach a practical solution. 
So, Professor Mankiw, since you asked, yes, fairness is being treated differently here. And further, since you also asked, it's because This Thing isn't like Those Things. And we can't have a rational conversation about this stuff at the legislative level because your political masters can't talk about this stuff without bringing up death panels and the Fugitive Slave Act.

Nobel Calling

Tom Whipple

Before the panic

Ryan Avent

04 November 2013

Adjusting the Taylor Rule for the Unemployment Rate Bias

Jared Bernstein

The tea party’s assault on workers

"Crucially, as Lafer emphasizes, this isn’t about what we colloquially refer to as 'conservative values.' Rather than rolling back the state, tea party Republicans are calling for extensive observation and disciplining of unemployed people. 
"Tennessee conservatives and business interests, for instance, are pushing 'the Unemployment Insurance Accountability Act of 2012 [which] would add scenarios that disqualify a worker from receiving unemployment in the first place [and] call for audits of 1,000 claimants weekly.' So much for smaller government and more privacy. 
"And for all the conservative talk about making programs as local as possible, what is often referred to as 'subsidiarity' or 'devolution,' that principle is ignored when it comes to repealing labor protections. Many conservative states have pushed laws designed to override localities that seek to create or increase their minimum wages, prevailing wages, living wages or mandatory sick days. Given that many states have big cities where more extensive labor protections exist, this matters for many people."

What frequent flyer miles teach about central banking

Neil Irwin

03 October 2013

CEOs All At Sea

Paul Krugman

"Finally, they’re still trying to position themselves as the middle ground between extremists on both sides, when the reality is that we have a basically moderate Democratic party confronting a radical Republican party that doesn’t play by any of the normal rules. If you insist on thinking of Ted Cruz and Elizabeth Warren as somehow symmetrical figures, you’re already so out of touch with political reality that there’s no way you’re going to have useful influence."

World War II in Europe: Every Day

Modeling Policy When Policy Is Inside the Model

Peter Dorman

Australia had a government shutdown once. In the end, the queen fired everyone in Parliament.

Max Fisher

This CNBC clip shows everything wrong with how Wall Street thinks about banking

Neil Irwin

13 June 2013

How Schlubs Get Taken By Wall Street Pros

Karl Smith

Previously: Paul Krugman

Unproductive Finance

Paul Krugman

I think that the problem here would be lesser if entities were allowed to bid openly on this early information. In other words, that this is news is indicative of the problem.

UPDATE: Karl Smith weighs in, inimitably.

20 May 2013

The Mythical 70s

Paul Krugman:

Matt O’Brien is probably right to suggest that Michael Kinsley’s problems — and those of quite a few other people, some of whom have real influence on policy — is that they’re still living in the 1970s. I do, however, resent that thing about 60-year-old men …

But it’s actually even worse than Matt says. For the 1970s such people remember as a cautionary tale bears little resemblance to the 1970s that actually happened.

In elite mythology, the origins of the crisis of the 70s, like the supposed origins of our current crisis, lay in excess: too much debt, too much coddling of those slovenly proles via a strong welfare state. The suffering of 1979-82 was necessary payback.

None of that is remotely true.

There was no deficit problem: government debt was low and stable or falling as a share of GDP during the 70s. Rising welfare rolls may have been a big political problem, but a runaway welfare state more broadly just wasn’t an issue — hey, these days right-wingers complaining about a nation of takers tend to use the low-dependency 70s as a baseline.

What we did have was a wage-price spiral: workers demanding large wage increases (those were the days when workers actually could make demands) because they expected lots of inflation, firms raising prices because of rising costs, all exacerbated by big oil shocks. It was mainly a case of self-fulfilling expectations, and the problem was to break the cycle.

So why did we need a terrible recession? Not to pay for our past sins, but simply as a way to cool the action. Someone — I’m pretty sure it was Martin Baily — described the inflation problem as being like what happens when everyone at a football game stands up to see the action better, and the result is that everyone is uncomfortable but nobody actually gets a better view. And the recession was, in effect, stopping the game until everyone was seated again.

The difference, of course, was that this timeout destroyed millions of jobs and wasted trillions of dollars.

Was there a better way? Ideally, we should have been able to get all the relevant parties in a room and say, look, this inflation has to stop; you workers, reduce your wage demands, you businesses, cancel your price increases, and for our part, we agree to stop printing money so the whole thing is over. That way, you’d get price stability without the recession. And in some small, cohesive countries that is more or less what happened. (Check out the Israeli stabilization of 1985).

But America wasn’t like that, and the decision was made to do it the hard, brutal way. This was not a policy triumph! It was, in a way, a confession of despair.

It worked on the inflation front, although some of the other myths about all that are just as false as the myths about the 1970s. No, America didn’t return to vigorous productivity growth — that didn’t happen until the mid-1990s. 60-year-old men should remember that a decade after the Volcker disinflation we were still very much in a national funk; remember the old joke that the Cold War was over, and Japan won?

So it would be bad enough if we were basing policy today on lessons from the 70s. It’s even worse that we’re basing policy today on a mythical 70s that never was.

17 May 2013

Mark Thoma on the Motivations of Austerians

Mark Thoma:

"It's a good scam if your goal is to reduce the size and influence of government: implement spending cuts that slow the economy, never mind the unemployed, then call loudly for tax cuts and deregulation to spur economic growth. Repeat as needed."


Noah Smith has more.

08 May 2013

The Preferences of the Wealthy and Their Role in Our Politics

more from Larry Bartels: 
Democracy and the Policy Preferences of Wealthy Americans (2013) 
Economics Still Matters to Poorer Voters (2008) 
Economic Inequality and Political Representation (2005)

UPDATE: Tyler Cowen points to a study that concludes that the poor are no worse represented than the rich. (Of course he does.)

Brunner, et al simply find that the votes of the wealthy and the poor are not dissimilar. Could this be because the rich and the poor both enjoy the same narrow band of policy choices?

Down the Up Staircase

Jared Bernstein

03 May 2013

Samuelson Memorial

April 20, 2010

Paul Krugman:

A bit late, my remarks for the service held the weekend before last.

To be honest, it has been a long time since I made a close personal study of Paul Samuelson. Actually, the one and only time that happened was when I had to play him in the grad student skit party. You see, he had this slightly high-stepping way of walking …

The incomparable economist

I’m referring, of course, to Isaiah Berlin’s famous distinction among thinkers – foxes who know many things, and hedgehogs who know one big thing. What distinguished Paul Samuelson as an economic thinker, making him like nobody else, past or present, was the fact that he knew – and taught us – many big things. No economist has ever had so many seminal ideas.

Hedging America

This is ostensibly a review of How Markets Fail: The Logic of Economic Calamities, by John Cassidy. It's really more of a conceptual essay on the differences between macro and micro, the implications of ideological free-marketeerism, the role of assumptions is modeling, and the purpose of high finance in the 21st century. It is essential reading for anyone who cares about these things. -ed.

One tried-and-true way to start off a course in elementary economics is to call the students’ attention to a common object, such as the spiral notebooks in which they are presumably busy taking notes. Somewhere paper is manufactured with the appropriate strength and slickness, somewhere else it is cut into blocks of the right size, the corners rounded, printed with lines about the right distance apart, provided with cardboard covers in the college colors, punched with the right number of holes, bound with those wire spirals that have been manufactured in yet another place, and delivered in reasonable numbers to the college bookstore at the beginning of each term. And all this happens smoothly, without any centralized direction, through the normal operation of a market economy. How does it really work? And how can it go wrong?

30 April 2013

Banks Have Become “Too Big To Fail” Again. Uh-Oh.

Simon Johnson

Lee Atwater’s Infamous 1981 Interview on the Southern Strategy

It has become, for liberals and leftists enraged by the way Republicans never suffer the consequences for turning electoral politics into a cesspool, a kind of smoking gun. The late, legendarily brutal campaign consultant Lee Atwater explains how Republicans can win the vote of racists without sounding racist themselves:

You start out in 1954 by saying, “Nigger, nigger, nigger.” By 1968 you can’t say “nigger”—that hurts you, backfires. So you say stuff like, uh, forced busing, states’ rights, and all that stuff, and you’re getting so abstract. Now, you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a byproduct of them is, blacks get hurt worse than whites.… “We want to cut this,” is much more abstract than even the busing thing, uh, and a hell of a lot more abstract than “Nigger, nigger.”

Now, the same indefatigable researcher who brought us Mitt Romney’s “47 percent” remarks, James Carter IV, has dug up the entire forty-two-minute interview from which that quote derives. Here, The Nation publishes it in its entirety for the very first time.

The back-story goes like this. In 1981, Atwater, after a decade as South Carolina's most effective Republican operative, was working in Ronald Reagan's White House when he was interviewed by Alexander Lamis, a political scientist at Case Western Reserve University. Lamis published the interview without using Atwater's name in his 1984 book The Two-Party South. Fifteen years later—and eight years after Atwater passed away from cancer—Lamis republished the interview in another book using Atwater’s name. For seven years no one paid much attention. Then the New York Times' Bob Herbert, a bit of an Atwater obsessive, quoted it in an October 6, 2005 column—then five more times over the next four years.

Those words soon became legend—quoted in both screeds (The GOP-Haters Handbook, 2007) and scholarship (Corey Robin's 2011 classic work of political theory, The Reactionary Mind). Google Books records its use in ten books published so far this year alone. Curious about the remarks' context, Carter, who learned Lamis had died in 2012, asked his widow if she would consider releasing the audio of the interview, especially in light of the use of race-baiting dog-whistles (lies about Obama ending work requirements for welfare; "jokes" about his supposed Kenyan provenance) in the Romney presidential campaign. Renée Lamis, an Obama donor, agreed that very same night. For one thing she was “upset,” Carter told me, that “for some time, conservatives believed [her] husband made up the Atwater interview.” For another, she was eager to illustrate that her husband's use of the Atwater quote was scholarly, not political.

So what does the new contextual wrapping teach us? It vindicates Lamis, who indeed comes off as careful and scholarly. And no surprise, it shows Atwater acting yet again in bad faith.

In the lead-up to the infamous remarks, it is fascinating to witness the confidence with which Atwater believes himself to be establishing the racial innocence of latter-day Republican campaigning: “My generation,” he insists, “will be the first generation of Southerners that won’t be prejudiced.” He proceeds to develop the argument that by dropping talk about civil rights gains like the Voting Rights Act and sticking to the now-mainstream tropes of fiscal conservatism and national defense, consultants like him were proving “people in the South are just like any people in the history of the world.”

It is only upon Professor Lamis’s gently Socratic follow-ups, and those of a co-interviewer named “Saul” (Carter hasn't been able to confirm his identity, but suspects it was the late White House correspondent Saul Friedman), that Atwater begins to loosen up—prefacing his reflections, with a plainly guilty conscience, “Now, y’all aren't quoting me on this?” (Apparently , this is the reason why Atwater’s name wasn’t published in 1984 but was in 1999, after his death).

He then utters his infamous words. The interlocutors go on to kibitz about Huey Long and barbecue. Then Atwater, apparently satisfied that he'd absolved the Southern Republican Party of racism once and for all, follows up with a prediction based on a study he claims demonstrates that Strom Thurmond won 38 percent of South Carolina’s middle-class black vote in his 1978 Senate campaign (run by Atwater).

“That voter, in my judgment,” he claims, “will be more likely to vote his economic interests than he will anything else. And that is the voter that I think through a fairly slow but very steady process, will go Republican.” Because race no longer matters: “In my judgment Karl Marx [is right]... the real issues ultimately will be the economic issues.” He continues, in words that uncannily echo the “47 percent tape” (nothing new under the wingnut sun), that “statistically, as the number of non-producers in the system moves toward fifty percent,” the conservative coalition cannot but expand. Voila: a new Republican majority. Racism won't have anything to do with it.

Not bloody likely. In 2005, the political scientists Nicholas Valentino and David Sears demonstrated that a Southern man holding conservative positions on issues other than race is no more likely than a conservative Northerner to vote for a Democrat. But when the relevant identifier is anti-black answers to survey questions—like whether one agrees “If blacks would only try harder they could be just as well off as whites”—white Southerners were twice as likely than white Northerners to refuse to vote Democratic. As another political scientist, Thomas Schaller, wrote in his 2006 book Whistling Past Dixie (which naturally quotes the infamous Atwater lines), “Despite the best efforts of Republican spinmeisters...the partisan impact of racial attitudes in the South is stronger today than in the past.”

Which one particular Republican spinmeister, when he wasn't preening before political scientists, knew fully well—which was why, seven years after that interview, in his stated goal to “rip the bark off the little bastard [Michael Dukakis]” on behalf of his candidate George H.W. Bush, Atwater ran the infamous ad blaming Dukakis for an escaped Massachusetts convict, Willie Horton, “repeatedly raping” an apparently white girl. Indeed, Atwater pledged to make "Willie Horton his running mate." The commercial was sponsored by a dummy outfit called theNational Security Political Action Committee—which it is true, was a whole lot more abstract than saying "nigger, nigger, nigger."

For more on the GOP's effort to roll back enfranchisment, read Ari Berman's Why We Still Need Section 5 of the Voting Rights Act.

Rick Perlstein

November 13, 2012


17 April 2013

12 Rules of Goldbuggery

Barry Ritholtz

What are some of the most ridiculous startup ideas that eventually became successful?

Michael Wolfe


Empirical Methods and Progress in Macroeconomics

Mark Thoma

‘If you are losing faith in human nature, go out and watch a marathon’

Ezra Klein

The Limits of Good Faith

UPDATE: This comment seemed particularly on point. -ed.
"You've described the very core of Teabonics. To demolish a fallacious, dishonest public statement is to attack the speaker's First Amendment rights. How dare you? 
My favorite example of this is the claim that attempts to prevent from American Christianists from enforcing their holy book via legislating interferes with their freedom of worship. This was inevitable in a nation that teaches children that the Pilgrims came to America seeking religious freedom, when in fact what they wanted was the freedom to persecute anyone who did not believe as they did. The more things change…"

Why doing your taxes is much harder than it ought to be

Neil Irwin

02 April 2013

Jack-booted Insurance-bringing Thugs

Paul Krugman:


Jonathan Chait and Aaron Carroll both have fun with Elizabeth Cheney‘s bonkers op-ed about how Obamacare will destroy our freedom.

As both note, the stirring quote from Ronald Reagan the younger Vader uses comes from the recording he made for Operation Coffee Cup, a 1961 project organized by the AMA to mobilize doctors’ wives and their friends against the looming horror of Medicare, which would clearly turn American into a totalitarian state.

However, neither Chair nor Carroll mention what seems to me to be an obvious parallel, which is with the whole Hayekian notion that the welfare state sets us on the slippery slope to Stalinism. Yes, I’m aware that defenders of Hayek claim that this wasn’t what he said — but as far as I can tell their argument is very weak, and anyway more or less irrelevant to the role Hayek plays in American political discourse. Even if that isn’t what Hayek meant to say (in which case, what exactly was his point?), it’s the message American conservatives chose to take from his work.

And with Hayek, as with Reagan, the truly amazing thing is that we have people citing as a source of wisdom someone who has been as thoroughly refuted by history as anyone can be. Three generations into the modern welfare state, and western democracies look less Stalinist than ever.

Of course, you can still say that social insurance destroys freedom if you define freedom as the absence of social insurance — which isn’t quite what these guys are doing, but may capture the spirit of the thing.

The Price Is Wrong

Paul Krugman:

But which price — that is the question.

It’s a slow morning on the economic news front, as we wait for various euro shoes to drop, so I thought I’d share a meditation I’ve been having on the diagnosis and misdiagnosis of the Lesser Depression. It’s not really different from what I’ve been saying all along, but maybe coming at it from a different angle is somewhat enlightening.

So, start with our big problem, which is mass unemployment. Basic supply and demand analysis says that things like that aren’t supposed to happen: prices are supposed to rise or fall to clear markets. So what’s with this apparent massive and persistent excess supply of labor?

In general, market disequilibrium is a sign of prices out of whack; and most people commenting on our mess accept the notion that one or more prices are for some reason not adjusting. The big divide comes over the question of which price is wrong.

As I see it, the whole structural/classical/Austrian/supply-side/whatever side of this debate basically believes that the problem lies in the labor market. (I know, the Austrians will deny it — but it doesn’t matter what you say about their position, any comprehensible statement leads to angry claims that you don’t understand their depths). For some reason, they would argue, wages are too high given the demand for labor. Some of them accept the notion that it’s because of downward nominal wage rigidity; more, I think, believe that workers are being encouraged to hold out for unsustainable wages by moocher-friendly programs like food stamps, unemployment benefits, disability insurance, and whatever.

As regular readers know, I find this prima facie absurd — it’s essentially the claim that soup kitchens caused the Great Depression. But let’s stick with the economic logic for now.

So what’s the alternative view? It’s basically the notion that the interest rate is wrong — that given the overhang of debt and other factors depressing private demand, real interest rates would have to be deeply negative to match desired saving with desired investment at full employment. And real rates can’t go that negative because expected inflation is low and nominal rates can’t go below zero: we’re in a liquidity trap.

There are strong policy implications of these two views. If you think the problem is that wages are too high, your solution is that we need to meaner to workers — cut off their unemployment insurance, make them hungry by cutting off food stamps, so they have no alternative to do whatever it takes to get jobs, and wages fall. If you think the problem is the zero lower bound on interest rates, you think that this kind of solution wouldn’t just be cruel, it would make the economy worse, both because cutting workers’ incomes would reduce demand and because deflation would increase the burden of debt.

What my side of the debate would call for, instead, is a reduction in the real interest rate, if possible, by raising expected inflation; and failing that, more government spending to increase demand and put idle resources to work.

So how can you tell which side is right? Well, these differing views make differing predictions. If you believe that the problem is excessive wages, you believe that the economy is fundamentally suffering from a supply-side constraint. In that case government borrowing is competing with the private sector for a limited quantity of resources, so big budget deficits should lead to soaring interest rates; meanwhile, because the supply of goods is limited, large increases in the money supply should lead to soaring inflation. Oh, and cuts in government spending should, if anything, be expansionary, because they both release resources to the private sector and make life tougher for workers who try to live on public benefits.

If, on the other hand, you believe that the problem lies in a shortfall of demand due to the zero lower bound, you believe that government borrowing needn’t drive up rates, because it puts unemployed resources to work; that monetary expansion won’t be inflationary, because the money will just sit there; and that fiscal austerity will be strongly contractionary.

I leave the adjudication of these competing claims as an exercise for readers.

Oh, and one more thing: no, you can’t say “Well, there may be truth to both views”. Either the economy is supply-constrained or it’s demand-constrained. Of course even the most ardent demand-siders will admit that there are supply constraints in there somewhere, that if we had an economic boom we would, after some period of time, enter a regime where printing money is inflationary and government borrowing drive up interest rates. But not here, not now.

So yes, the price is wrong — but it’s a terrible, disastrous mistake to focus on the wrong wrong price.

And more from Mark Thoma:

Why should workers bear the burden of a recession they had nothing to do with causing? We should do our best to protect vulnerable workers and their families, and if it comes at the expense of those who were responsible for the boom and bust, I can live with that (and no, the cause wasn't poor people trying to buy houses -- people on the right who are afraid they will be asked to pay for their poor choices, or who want to pursue an anti-government, do not help the unfortunate with my hard-earned investment income agenda have tried to make this claim, and they are still at it, but it is "prima facie absurd").

The Rewards of Being Very Serious

Paul Krugman:

A while back, before moving to Slate, Matthew Yglesias had what I considered a brilliant insight into the incentives facing small-country political leaders:
Normally you would think that a national prime minister’s best option is to try to do the stuff that’s likely to get him re-elected. No matter how bleak the outlook, this is your dominant strategy. But in the era of globalization and EU-ification, I think the leaders of small countries are actually in a somewhat different situation. If you leave office held in high esteem by the Davos set, there are any number of European Commission or IMF or whatnot gigs that you might be eligible for even if you’re absolutely despised by your fellow countrymen. Indeed, in some ways being absolutely despised would be a plus. The ultimate demonstration of solidarity to the “international community” would be to do what the international community wants even in the face of massive resistance from your domestic political constituency.
How small does the country in question have to be? Maybe not very: Nicolas Sarkozy’s road from the Elysée to private equity. As it turns out, Sarkozy’s money-making plans may be on hold due to a strange combination of legal troubles and the possibility of a political comeback thanks to Hollande’s timidity. But it remains true that Keynes’s dictum — “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally” – is probably even more true for politicians than it is for bankers. And this probably helps explain the persistence of the austerity cult despite years of failure.

Commenter Peter:

Austerity has not been a failure for rich people. It lets them keep their current wealth, increases their wealth relative to the proles, and greatly increases their chances of future high wealth.

Creating opportunity for the masses can only reduce the relative power of being rich. Why would they want to pay for that? Or even enact costless policies for that?

26 March 2013

The Unnatural Rate Hypothesis

Paul Krugman:

When I read opinion pieces by insiders, I often find the ostensible argument less interesting than what is taken for granted. It’s the throwaway lines, the statements that obviously are meant to refer to what “everyone knows”, that can be truly revealing about the state of conventional wisdom.

25 March 2013

Three Cheers for the Nanny State

Sarah Conly:

WHY has there been so much fuss about New York City’s attempt to impose a soda ban, or more precisely, a ban on large-size “sugary drinks”? After all, people can still get as much soda as they want. This isn’t Prohibition. It’s just that getting it would take slightly more effort. So, why is this such a big deal?

Obviously, it’s not about soda. It’s because such a ban suggests that sometimes we need to be stopped from doing foolish stuff, and this has become, in contemporary American politics, highly controversial, no matter how trivial the particular issue. (Large cups of soda as symbols of human dignity? Really?)

Markets in almost nothing

23 March 2013

Attacking Success

Paul Krugman:

OK, this is rich. Or actually, it’s anti-rich. Or anti-rich liberal. Or something.

Anyway, Jonathan Chait informs us that the right-wing blogosphere is all-aTwitter over the fact that Matthew Yglesias just bought a nice condo. Apparently this is hypocritical because you can’t be a liberal and own private property, or something. Chait has a lot of fun with the whole thing, and its notion that a liberal supporter of mild redistribution is the same thing as a Communist; check out his picture caption.

But I think there are two more things to be said here.

First, you should bracket this with the Rob Portman/gay marriage story as an example of the perversion of the ideas of civic virtue and sincerity. On today’s right, not only is civic virtue, nay patriotism, associated with narrow defense of your own self-interest, any deviation from that standard — like being an affluent person who nonetheless supports aid to the poor paid for by progressive taxation — is considered prima facie hypocritical. Somehow, though, this never gets to the obvious conclusion: that defending your nation is obviously hypocritical unless a member of your own family has been killed by terrorists …

But second, notice how quickly a staple of right-wing outrage goes out the window if there’s possible political gains to be made by violating a supposed principle. All through the 2012 campaign we were lectured about the evils of “attacking success“, which was defined as any criticism of how a wealthy individual got that way. But as soon as they think they spot an opening, right-wingers go ahead and … attack success. And unlike Romney, who was criticized for his business practices rather than his wealth per se, Yglesias is under attack simply for doing well.

But this is nothing new. Remember the pure envy-based attacks on John Kerry in 2004?

The lesson here is never to take right-wing huffiness about the process of politics and political debate seriously. These guys don’t actually believe in any rules at all; whatever rule they may lay down in one case, they’ll break in an instant if they think they see an advantage.

The Economics of Evil Google

Google’s decision to shut down Google Reader has upset a number of people I know, and provoked a lot of discussion about the future of web-based services. The most interesting discussion, I think, comes from Ryan Avent, who argues that Google has been providing crucial public infrastructure — but doesn’t seem to have an interest in maintaining that infrastructure.

I’ve been trying to think this through in terms of more or less standard microeconomics, and here’s what I’ve come up with:

First, it’s a well-understood though not often mentioned point that even in a plain-vanilla market, a monopolist with high fixed costs and limited ability to price-discriminate may not be able to make a profit supplying a good even when the potential consumer gains from that good exceed the costs of production. Basically, if the monopolist tries to charge a price corresponding to the value intense users place on the good, it won’t attract enough low-intensity users to cover its fixed costs; if it charges a low price to bring in the low-intensity user, it fails to capture enough of the surplus of high-intensity users, and again can’t cover its fixed costs.

What Avent adds is network externalities, in which the value of the good to each individual user depends on how many others are using it. To some extent the monopolist can capture these externalities, since they add to the price people are willing to pay, so I’m not sure they change the logic of provision or non-provision. But they mean that if the monopolist still doesn’t find it worthwhile to provide the good, the consumer losses are substantially larger than in a conventional monopoly-pricing analysis.

So what’s the answer? As Avent says, historical examples with these characteristics — like urban transport networks — have been resolved through public provision. It seems hard at this point to envision search and related functions as public utilities, but that’s arguably where the logic will eventually lead us.

Update: Illustrating my point: here’s a hypothetical case in which the demand comes both from high-intensity users who are willing to pay a lot for a service, and low-intensity users who aren’t willing to pay that much. Because of fixed costs, the average cost per user declines with the number of users. You can see from the way that this is drawn is that there is no price at which a monopolist can cover its costs here; yet the losses from providing the service at a price that draws in the low-intensity users would be much less than the gains to high-intensity users from having the service available.

21 March 2013

"If it were any less diverse it would look like the Senate."

"There is one Latino represented in the collection today. There are six American Indians, one Hawaiian, and zero African Americans. (Parks and Martin Luther King Jr. are both featured as part of a separate collection.) If it were any less diverse it would look like the Senate."


20 March 2013

What Ben Bernanke would say...


Is capitalism moral?

By Steven Pearlstein, Published: March 15

Steven Pearlstein is a Washington Post business and economics columnist and a professor of public and international affairs at George Mason University.

Careening from debt-ceiling crisis to sequestration to a looming government shutdown, the nation is caught up in a historic debate over the proper size and role of government.

That’s certainly one way to think about it. Another is that we are caught up in a historic debate over free-market capitalism. After all, if markets were making most of us better off, regulating their own excesses, guaranteeing equal opportunity and fairly dividing the economic pie, then we wouldn’t need government to take on all the things it does.

11 March 2013

Don't Believe Restauranteurs Who Say They're Going to "Pass On" the Cost of Obamacare

Matt Yglesias:

Another day, another restaurant owner whining about Obamacare:
" 'Any added costs are going to have to be passed on,' said Mike Ruffer, a Five Guys franchise holder with eight of the popular restaurants in the Raleigh-Durham, N.C. area. He will need all the profits from at least one of his eight outlets just to cover his estimated added $60,000-a year in new Obamacare costs."
This is self-refuting nonsense. The only situation in which it would make sense for Ruffer to raise prices is if price increases will on net lead to higher revenue. And if price increases will lead to higher revenue (which they might) then it makes sense for Ruffer to raise prices no matter what happens with Obamacare. In fact, Ruffer himself articulates the truth later which is that Obamacare is going to reduce his profits by about one-eighth and he (and any investors in his business) will eat the loss. With corporate profits as a share of the economy at an all-time high, nobody's going to cry for him either.

UPDATE: More from Karl Smith

06 March 2013

World’s Wrongest Man Ventures Latest Prediction

Best line: "If you chained a thousand Boskins to a thousand keyboards for a thousand years, eventually one of them would make a correct prediction."


04 March 2013

SimCity, Now With Microfoundations

Homepage - Slate Magazine
SimCity has been lying to you. For decades, the legendary city-simulation game has given players the sense that they possessed real power over virtual people. When you played SimCity—whether you got hooked by the original game, created by Will Wright and released in 1989, or its many wonderful sequels—you imagined yourself as a city-planning savant who had the power to make life awesome or awful for thousands of hapless simulated citizens.

One study explains why it’s tough to pass liberal laws

 via Wonkblog by Dylan Matthews on 3/4/13

Last year, a group of political scientists took a random sample of state legislators and asked them a slew of questions, most of which boiled down to: "What do your constituents think about policy?" Do they support gay marriage? Do they support Obamacare? Do they support action to combat global warming?
Friend-of-the-blog David Broockman and Christopher Skovron, graduate students at Berkeley and Michigan, respectively, have released a working paper based on that research and the findings are rather astonishing.
Broockman and Skovron find that all legislators consistently believe their constituents are more conservative than they actually are. This includes Republicans and Democrats, liberals and conservatives. But conservative legislators generally overestimate the conservatism of their constituents by 20 points. "This difference is so large that nearly half of conservative politicians appear to believe that they represent a district that is more conservative on these issues than is the most conservative district in the entire country," Broockman and Skovron write. This finding held up across a range of issues. Here, for example, are their findings for health care and same-sex marriage:

03 March 2013

Today in Well, Duh

Paul Krugman

Ezra Klein mans up and admits he was wrong. He had written a piece suggesting that if only Republicans knew how much Obama has been willing to offer, they might be willing to make a deal. Jonathan Chait set him straight, informing him that no matter what Obama put on the table, Republicans would find a way to say that it’s not enough. And sure enough, a Twitter exchange lets Klein watch that process in real time, as a top Republican consultant, confronted with evidence that Obama has already conceded what he said was all that was needed, keeps adding more demands.

So Klein admits that Republicans just don’t want to make a deal. Their objections to the deals on the table aren’t sincere; if convinced that Obama has met their demands, they just make more demands.

I think it’s important here to understand the broader implications.

The whole push for a Grand Bargain has been based on the notion that we can reach a fiscal deal that takes the whole fight over the budget off the table. What Klein has belatedly learned is how unlikely such a Bargain really is; but the same logic tells us that any Grand Bargain that might somehow be struck, via Obama’s mystical ability to mind-meld Star Trek and Star Wars or something, wouldn’t last. In a year — or more likely in a minute or two — Republicans would be back, demanding more tax cuts and more cuts in social programs. They just won’t take yes for an answer.

Meanwhile, it’s not just Republicans who refuse to accept it when Obama gives them what they want; the same applies, with even less justification, to centrist pundits. As people like Greg Sargent point out time and again, the centrist ideal — deficit reduction via a mix of revenue increases and benefits cuts — is what Obama is already offering; in fact, his proposals have been to the right of Bowles-Simpson. Yet the centrist pundits keep demanding that Obama offer what he has already offered, and condemn both sides equally (or even place most of the blame on Obama) for the failure to reach a deal. Again, informing them of their error wouldn’t help; their whole shtick is about blaming both sides, and they will always invent some reason why Obama just isn’t doing it right.

Anyway, props to Ezra — and is the use of Twitter exchanges to document political hypocrisy a new frontier in reporting?

02 March 2013

The Philosopher Politicians Reappear at the New York Times

by Dean Baker

Saturday, 02 March 2013 06:27

It seems pretty obvious to most of us that politicians get elected by appealing to powerful interest groups. They spend enormous amounts of time calling up rich people to ask for campaign donations and speaking to individuals who can help to deliver large numbers of votes. This is hardly a secret.

Yet, the New York Times again tries to tell us that these people are really philosophers, telling readers in a headline:

"Deep philosophical divide underlies the impasse"

in reference to the budget sequester.

01 March 2013

Conservative Radio Host Warns Listeners of Impending Doom if Their Kids Learn Economics


Mark Thoma:

Obama Will Abolish the Suburbs?

Homepage - Slate Magazine
Pssst! Have you heard about Agenda 21? The secret plot to collectivize private property—hatched by United Nations internationalists and midwifed by operatives ensconced within our own government—all in the name of "ending sprawl" and "encouraging sustainability"? The seizure of suburban homes by jackbooted, gun-toting U.N. thugs? The involuntary relocation of displaced suburbanites to cramped dwellings in densely packed cities?

27 February 2013

American Conservatism’s Crisis of Ideas: Project Syndicate Monarchy, Patriarchy, Orthodoxy Weblogging

Brad DeLong
Screenshot 2 27 13 8 57 AM
Let me note three things:
  1. Most of what I have to say is highly, highly derivative from Mike Konczal and Mark Schmitt (and others);
  2. The problem is not just that today's crop of AEI-conservative ideas is not politically sustainable, but that it is simply wrong--Cahn and Carbone's Red Families, Blue Families has convinced me that contra Murray America's (Blue) families are actually in pretty good shape (Red families that try to keep their daughters ignorant about family planning not so much), my take on Eberstadt is coming out in Democracy Journal later this month; and
  3. Arthur Brooks seems to me at bottom simply lamenting that Democratic policies work and make people's lives better--that Republicans are losing their campaign to try to make America a worse-off place does not strike me as a minus.
And we are live at Project Syndicate:
American Conservatism's Crisis of Ideas: BERKELEY – On the back left corner of my desk right now are three recent books: Arthur Brooks' The Battle, Charles Murray's Coming Apart, and Nicholas Eberstadt's A Nation of Takers. Together, they constitute an important intellectual movement, which also happens to be a large part of the reason that American conservatism today has little that is constructive to say about managing the economy – and little purchase on the center of the American electorate.
But let's back up historically, to the founding of what we might call modern conservatism in early nineteenth-century Britain and France. There were some – Frédéric Bastiat and Jean-Baptiste Say come to mind – who believed that government should put the unemployed to work building infrastructure when markets or production were temporarily disrupted. But they were balanced by those like Nassau Senior, who spoke out against even famine relief: Although a million people would die in the Irish Potato Famine, "that would scarcely be enough."
The main thrust of early conservatism was root-and-branch opposition to every form of social insurance: make the poor richer, and they would become more fertile. As a result, farm sizes would drop (as land was divided among ever more children), labor productivity would fall, and the poor would become even poorer. Social insurance was not just pointless; it was counterproductive.
The proper policy was to teach people to venerate the royal throne (so that they would respect property), the paternal hearth (so that they would not marry imprudently young), and the religious altar (so that they would fear pre-marital sex). Then, perhaps, with women chaste for half or more of their childbearing years, the surplus population would diminish and conditions for the poor would be as good as they could be.
Fast-forward 150 years to post-World War II America, and to the original Chicago School critique of the New Deal version of social insurance – that it created "notches" that perverted economic incentives. The government, Milton Friedman and others argued, told the poor: make more money and we will take away your free housing, food stamps, and income support. People are rational, Friedman said, so they will not work for long if they get nothing or next to nothing for it.
The big difference between the Malthusian conservative critics of social insurance in the early nineteenth century and the Chicago critics of the 1970's is that the Chicago critics had a point: Providing public support to the "worthy" poor, and then removing it when they began to stand on their own feet, poisoned incentives and was unlikely to lead to good outcomes.
And so, from 1970 to 2000, a broad coalition of conservatives (who wanted to see the government stop encouraging immorality), centrists (who wanted government money spent effectively), and leftists (who wanted poverty alleviated) removed the "notches" from the social-insurance system. Presidents Jimmy Carter, Ronald Reagan, George H. W. Bush, Bill Clinton, and even George W. Bush and their supporters created the current system, in which tax rates and eligibility thresholds are not punitive disincentives to enterprise.
So what is the problem that America's new generation of conservative critics of social insurance sees? It is not that raising poor people's standard of living above bare subsistence produces Malthusian catastrophe, or that taxes and withdrawal of welfare benefits make people work, at the margin, for nothing and so provide massive incentives to slack off.
For Eberstadt, the problem is that dependence on government is emasculating, and that too many people are dependent on government. For Brooks, it is that knowing that public programs make one's life easier causes one to vote for non-Republican candidates. For Murray, it is that social insurance means that behaving badly does not lead to catastrophe – and we need bad behavior to lead to catastrophe in order to keep people from behaving badly.
The crucial point is that America's conservative elites today believe Brooks, Eberstadt, and Murray. To this day, Mitt Romney is convinced that he lost the presidency in 2012 because Barack Obama unfairly gave Latino-Americans subsidized health insurance; gave women free reproductive health coverage (excluding abortion); and gave other groups similar "gifts." He could "never convince them that they should take personal responsibility and care for their lives."
In fact, it would be a tough sell for any candidate to convince Americans who receive government benefits that they are dependent rather than empowered; that it is bad for people to vote for politicians who make their lives better; and that good public policy seeks to create human catastrophe rather than to avert it. The problem for American conservatives is not their choice of candidates or the tone of their rhetoric. It is that their ideas are not politically sustainable.
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