Justin Fox
Also:
Corporate governance and banks: what have we learned from the financial crisis?
30 May 2013
29 May 2013
28 May 2013
23 May 2013
22 May 2013
21 May 2013
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.
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.
18 May 2013
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."
link
Noah Smith has more.
"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."
link
Noah Smith has more.
16 May 2013
14 May 2013
13 May 2013
Moby Ben, or, The Washington Super-Whale: Hedge Fundies, The Federal Reserve, and Bernanke-Hatred
Followups and related:
Paul Krugman: Harpooning Ben Bernanke
Matthew O'Brien: If Hedge Funders Are So Smart, Why Are They So Relentlessly Wrong?
Joe Weisenthal : BREAKING: Old Hedge Fund Manager Hates Bernanke
Noah Smith: Of course "hedge funds" lose money
10 May 2013
09 May 2013
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?
06 May 2013
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 …
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
December 15, 2009
There have been hedgehogs; there have been foxes; and then there was Paul Samuelson.
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?
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