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?
01 May 2013
30 April 2013
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
link
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
link
29 April 2013
24 April 2013
20 April 2013
19 April 2013
17 April 2013
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…"
16 April 2013
15 April 2013
12 April 2013
11 April 2013
10 April 2013
09 April 2013
08 April 2013
03 April 2013
02 April 2013
Jack-booted Insurance-bringing Thugs
Paul Krugman:
http://krugman.blogs.nytimes.com/2013/04/02/jack-booted-insurance-bringing-thugs/
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.
http://krugman.blogs.nytimes.com/2013/04/02/jack-booted-insurance-bringing-thugs/
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").
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?
01 April 2013
29 March 2013
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.
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?)
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?)
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.
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
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.
22 March 2013
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."
http://www.motherjones.com/politics/2013/03/national-statuary-hall-white-capitol
http://www.motherjones.com/politics/2013/03/national-statuary-hall-white-capitol
20 March 2013
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.
18 March 2013
17 March 2013
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:
UPDATE: More from Karl Smith
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
10 March 2013
09 March 2013
08 March 2013
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."
http://nymag.com/daily/intelligencer/2013/03/worlds-wrongest-man-ventures-latest-prediction.html
http://nymag.com/daily/intelligencer/2013/03/worlds-wrongest-man-ventures-latest-prediction.html
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:
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?
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.
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
Audio:
https://soundcloud.com/thelarslarsonshow/economics-professor-ma2rk-thoma
Mark Thoma:
http://economistsview.typepad.com/economistsview/2013/03/economics-professor-mark-thoma-makes-me-wonder-about-the-other-nuts-that-are-teaching-our-kids-.html
https://soundcloud.com/thelarslarsonshow/economics-professor-ma2rk-thoma
Mark Thoma:
http://economistsview.typepad.com/economistsview/2013/03/economics-professor-mark-thoma-makes-me-wonder-about-the-other-nuts-that-are-teaching-our-kids-.html
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
Let me note three things:
- Most of what I have to say is highly, highly derivative from Mike Konczal and Mark Schmitt (and others);
- 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
- 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.
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.
Sent with Reeder
Economists on the Minimum Wage
IGM Forum:
Full story here.
Question A: Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.
Agree: 34%
Disagree: 32%
Question B: The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.
Agree: 42%
Disagree: 8%
Full story here.
Yes, Thoughtful Economists Think Raising the Minimum Wage Right Now Is a Goo...
via Brad DeLong by J. Bradford DeLong on 2/27/13
I would point out that the EITC and the minimum wage have different weak points--too high a minimum wage will have a substantial disemployment effect, and too high an EITC does create incentives to pad your hours. A mixed strategy helps attenuate both these flaws.
Steve Roth:
Leading Economists Vote on Raising the Minimum Wage: I'm delighted to see the U Chicago IGM Forum ask a really useful, non-softball question.Disappointing to see Caroline Hoxby believing that our unemployment right now is structural:
The panelists are evenly split on whether an increase to $9 would make it "noticeably harder for low-skilled workers to find employment."I note how many who commented bring up the EITC, suggesting that an increase in that support might be better than a minimum-wage increase. I note further that they apparently haven't read the very good reasoning and research suggesting that the two together very effectively address the problems of each. But Paul Krugman has. And his surprise helps explain why the others haven't thought about this:
A 4:1 majority thinks that weighing the costs and benefits, "this would be a desirable policy."
Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right.
Question A: Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.Richard Schmalensee puts my view concisely:
Unemployment among low-skilled workers is already high by historic standards, indicating that wages are already too high for market-clearing.
Question A: Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.As does Richard Thaler:
There would surely be some [disemployment] effect, but "noticeably" seems a reach.
Question A: Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment.Paul Krugman:
Yes, I know the Econ 101 answer but the evidence suggests the effect on employment is between small and 0.Question B: The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.
All methods of helping the poor cause distortions. This one not bad.
Minimum Wage Economics: what should you know? First, as John Schmitt (pdf) documents at length, there just isn't any evidence that raising the minimum wage near current levels would reduce employment. And this is a really solid result, because there have been a lot of studies. We can argue about exactly why the simple Econ 101 story doesn't seem to work, but it clearly doesn't — which means that the supposed cost in terms of employment from seeking to raise low-wage workers' earnings is a myth.And Mike Konczal:
Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right: given a second-best world in which you use imperfect tools to help deserving workers, two tools together can produce a better outcome than either one on its own.
So a minimum wage increase isn't some kind of counsel-of-despair way to help workers a bit in a dysfunctional political scene (although there's that too); it's actually good policy.
Interview with Dube; EITC and Minimum Wage as Complements: I still notice many people arguing that we should just raise the earned income tax credit (EITC) for the working poor rather than raising the minimum wage…. The EITC partially subsidizes employers, and as such the minimum wage is an excellent way to combat this. So it complements, rather than substitutes, for an EITC. Economists love to tell people that who pays a tax is independent of who Congress wants to pay it. The "Tax These Evil Corporations Act" might fall entirely on people buying stuff from those firms instead of their shareholders…. Jesse Rothstein did an estimate finding that for every dollar of EITC, a worker's wage only goes up 73 cents. That's a big capture by employers…. David Lee and Emmanuel Saez have a paper arguing that when this is the case (and if the EITC works primarily by bringing people into working, via an extensive margin, which it does), the minimum wage is an excellent complement to low-wage government transfers tied to work. Or as Dube says:
We have different polices designed for different distributional goals. We need to think not in terms of a single policy, but instead think in terms of what is the right portfolio of policies given the range of objectives you have.The minimum wage is an excellent tool to boost the efficacy of government transfers, and it should be raised and tied to a cost of living raise. There's no magic bullet - there's just a variety of tools that reinforce each other.
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25 February 2013
23 February 2013
The Spending Problem
Jonathan B. Wight
Some critics of government would like services and regulations to be cut to the minimum—keeping modest defense and justice, but allowing everything else to devolve to the market.
That's a wonderful utopian ideal. But we shouldn't let the best become the enemy of the good. That utopian ideal did not work in the time of Adam Smith, who favored reasonable regulations and expenditures for public goods like education. And it makes even less sense today.
Since that time, strong forces have pushed us toward more government. Here are two reasons, both relating to wealth:
Population density. The world's population has doubled, and doubled, and doubled again. That growth has now slowed, but we have far higher population density and it will continue to increase in cities. People living on top of each other produce both positive and negative externalities. Since Pigou, economists have demonstrated how government intervention can deal with negative externalities through taxes, regulations, and so on.
Ronald Coase is often credited with discovering that the market, left to its own self-interest, could solve the problem of negative externalities without government—assuming property rights and low transactions costs for defending those rights. But Coase explicitly rejected this notion, writing: "The world of zero transactions costs has often been described as a Coasean world. Nothing could be further from the truth." -- Ronald H. Coase, The Firm, the Market, and the Law (Chicago: University of Chicago Press, 1988, p. 174).
Let us imagine we could magically bestow property rights and other human rights on the citizens of Beijing, as well as an impartial judicial system. One fundamental human right is the right not to be injured by others without cause. Beijing residents currently experience terrible health injuries from car and truck pollution. Even with rights and a reliable legal system for defending them, who is the citizen of Beijing going to sue? No single car or truck is the cause of the injury, but only in combination. The transactions costs for suing all the drivers would be enormous. The market cannot solve this particular negative externality. There is a need for government regulation or taxing to discourage activities that produce negative externalities when no property rights exist (the atmosphere) or where transactions costs are high.
Enlarging moral sentiments. The rise of wealth also enhances our abilities to connect with other human beings, as shown by Benjamin Friedman's, The Moral Consequences of Economic Growth (2006). Rising wealth led to the fall of slavery, the rise of women's rights, and the invention of the safety net. The old, the sick, and the unemployed are not forgotten or shuffled aside. There are always significant moral hazards, of course, leading to the notion of "welfare queens," and the backlash against the state.
The reality, however, is that most Americans strongly favor environmental and safety nets. Rather than spending cuts, most Americans want spending increases in these areas, as shown in this recent Pew survey:
It is not a moral failing that the American people should want to clean the environment and help others. The key problem is that people want such benefits without being able to pay for them. The PEW questionnaire doesn't help. The question should be: "How much additional tax would you be willing to pay to increase X spending?"
Another key problem is that the total effects of all these incremental increases in spending or regulation are rarely considered. Like a frog in the pot of water, a little more heat doesn't matter, but the overall effect of incremental increases in heat could be destructive.
22 February 2013
Why Does the Minimum Wage Have No Discernible Effect on Employment?
Center for Economic and Policy Research:
Why Does the Minimum Wage Have No Discernible Effect on Employment?
The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage. [emphasis added]
Why Does the Minimum Wage Have No Discernible Effect on Employment?
20 February 2013
Omitted Variable Bias: Slovenly Men Edition
Free exchange
STEPHEN DUBNER publishes a reader question:I live with four guys in a house. We had no cleaning schedule until about a month ago, but the house was never cluttered, and was more than clean enough for actual women to feel comfortable visiting. Even the bathroom was clean enough for the girls to freely use it without vomiting. However since we have implemented our cleaning schedule the house has gotten into worse and worse shape. The toilet downstairs is even looking so bad I don't want to use it. What gives?Mr Dubner comments:
Okay, everybody, let's hear what you have to say about private vs. public incentives, moral hazard, and the general cleanliness of men.Incentives, right!? Beware unintended consequences! Only, I suspect omitted variable bias. If the house was previously neat and clean, why did the roommates feel the need to adopt a cleaning schedule? I suspect that an unobserved factor led the roommates to introduce a schedule and contributed to a deterioration in the neatness of the house. Perhaps one of the roommates, a neat freak, began a serious relationship and started spending lots of of time away from the house. Or perhaps he simply grew tired of doing all the cleaning and resolved to let the others do their share or live in filth. Or he sustained an injury. One must always be wary of spurious correlation!
19 February 2013
Mississippi Takes a Bold Step into the 1870s
By KEVIN ROBILLARD | 2/19/13 7:28 AM EST
A hundred and forty-eight years after it became law, and 18 years after passing it, Mississippi officially ratified the 13th Amendment banning slavery.
The cause of the delay? A clerical error, according to The Jackson Clarion-Ledger.
In 1995, Mississippi was the only state not to have passed the 13th Amendment. While it passed unanimously, the resolution was never sent to the Office of the Federal Register at the National Archives, a required step.
Two University of Mississippi employees — Ranjan Bantra, a doctor who became a U.S. citizen in 2008 and Ken Sullivan, who works for the university’s body donation program — started researching after seeing “Lincoln,” about the 16th president’s efforts to pass the amendment through Congress. Sullivan eventually contacted the Mississippi Secretary of State’s office, which was able to fix the error. On Feb. 7, the Archives wrote back that Mississippi’s ratification was official.
“Now it’s officially filed and recorded,” Sullivan told the paper over the weekend. “There’s no asterisk by Mississippi anymore.”
via
A hundred and forty-eight years after it became law, and 18 years after passing it, Mississippi officially ratified the 13th Amendment banning slavery.
The cause of the delay? A clerical error, according to The Jackson Clarion-Ledger.
In 1995, Mississippi was the only state not to have passed the 13th Amendment. While it passed unanimously, the resolution was never sent to the Office of the Federal Register at the National Archives, a required step.
Two University of Mississippi employees — Ranjan Bantra, a doctor who became a U.S. citizen in 2008 and Ken Sullivan, who works for the university’s body donation program — started researching after seeing “Lincoln,” about the 16th president’s efforts to pass the amendment through Congress. Sullivan eventually contacted the Mississippi Secretary of State’s office, which was able to fix the error. On Feb. 7, the Archives wrote back that Mississippi’s ratification was official.
“Now it’s officially filed and recorded,” Sullivan told the paper over the weekend. “There’s no asterisk by Mississippi anymore.”
via
Ron Paul's Money Illusion (Sequel)
Eighteen months after its original publication, this post is still apropos. -Ed.
Ron Paul's Money Illusion (Sequel), by David Andolfatto
As I promised to do here, I am posting a sequel to my original column: Ron Paul's Money Illusion. I want to thank everyone who took the time to comment and criticize the views expressed there because it has led to me to sharpen my thinking on the matter. I doubt that what I have to say here will sway opinion one way or the other, but I at least hope that the nature of my criticism will be more clearly understood.
18 February 2013
Peter Temin: Macroeconomics Has Lost Its Way
Via Mark Thoma:
Here are a few passages from a much longer interview of Peter Temin:
Peter Temin in Conversation with The Straddler: ...In my opinion, macroeconomics has lost its way. The kind of models that many people use—general equilibrium models—start from assumptions of ... omniscient consumers, and various like things which give rise to an efficient economy. As far as I know, there has never been an economy that actually looked like that—it's an intellectual construct. But many people claim that the outcomes of that economy are natural outcomes. When you say "natural," you already have an emotionally laden term. Deviations from the "natural"—say, like, minimum wage laws, or unions, or governments that give food stamps, or earned income tax credits—are interferences with the natural order and are therefore "unnatural." ...The general equilibirum view tends to lend support to those who want to make the economy more efficient in the sense of having fewer "distortions"—you know, all of these neutral economic words—from taxes, from labor unions, from minimum wages, and so on. Now, what has happened in the last thirty years—and this is what Hacker and Pearson note in their book [Winner-Take-All Politics]—is we have gotten ourselves into a feedback situation. As people have gotten richer, conservative people have funded organizations which generate economic research promoting their political views.I recently reviewed a book [published by the Federal Reserve Bank of Minneapolis and] edited by Timothy Kehoe and Edward Prescott—a Nobel Prize winner in Economics—which had a very distinguished group of people writing about macroeconomics and depressions using the currently fashionable general equilibrium analysis. In my review, I argued that the answers that they got were terrible, that the model—however useful it is for other things—is not useful to analyze the conditions like the conditions today. And I even suggested [here Temin read from the review]:Lurking behind these presumed inefficiencies appears to be a campaign for minimal government. Minimal government would not require many taxes as it would not have large expenditures; it would not interfere in labor markets, letting individual workers deal with large business firms as ordinary people deal with the grocery store. This is not an attractive place to live for some people, and this book appears to be supporting such an arrangement by stealth, rather than by direct argument. If this is an intended subtext, it would be appropriate for the authors and the Federal Reserve Bank of Minneapolis to bring it out into the open.[3]The authors of the book deny that that's what they were doing, but I think it is implicit that current economics has a political stance, or at least political implications.[4] But these guys working at the Minneapolis Fed can say, well, you know, we're not partial, we're neutral scientists. ...A real problem is that a lot of people don't know enough economic history. I'm an economic historian, which is a kind of endangered species. When I think about macroeconomics, I think about the Great Depression a lot because I worked on it and taught about it and so on. But, look, a lot of people in the 90s didn't have personal experience of the Depression. They didn't think it was terribly relevant. ...
To give you an idea about the state of the profession, here's a key piece of advice for getting published in top journals:
1. You always need to think carefully about the journal you submit to, and you need to research the kinds of papers that have been published there; whether the journal seems to be open to your type of work; who the editor is and what his or her orientation is; and who the associate editors are, because they are likely to be referees for your paper.
This is basically saying that if your "orientation" is different from the editors, freshwater instead of saltwater for example, you can forget about publishing in that journal. Yet we hear about open-mindedness, and that "we're not partial, we're neutral scientists."
Posted by Mark Thoma on Wednesday, May 4, 2011
15 February 2013
Demand Side Economics
via Conscience Warrior by Jonas Feit on 2/15/13
Conscience Warrior has a new reader in the person of Alan Harvey, chief cook and bottlewasher over at Demand Side Economics. He very generously mentioned us in the most recent episode of his podcast. While I don't subscribe to every last detail of his views, I think we are in broad agreement on the way in which the world works, and as to what the best solutions are to the problems we face.He published Demand Side: The Book last year, which compiles the ideas of some of the great minds of economics past and present into a sort of field guide to modern markets and the macroeconomy.
Mr Harvey also maintains the excellent forecasting site re: Macro Baseline.
13 February 2013
No, Marco Rubio, government did not cause the housing crisis
via Wonkblog by Ezra Klein on 2/13/13
In his response to the State of the Union, Sen. Marco Rubio said: "This idea – that our problems were caused by a government that was too small – it's just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies."
11 February 2013
Multiple-Peaked Papal Preferences and Arrow's Impossibility Theorem
Dylan Matthews:
NYU political scientist Joshua Tucker and PM at Duck of Minerva have compiled a good set of political science research into papal elections. It’s a sensitive subject because, as GWU professors Forrest Maltzman, Melissa Schwartzberg and the late Lee Sigelman put it in their paper on Benedict’s election, “Officially, Ratzinger’s selection was attributed to the will of God, a force not amenable to any empirical test that is in our power to conduct.”
...
...a funny thing happened in 1996. John Paul II issued Universi Dominici Gregis, a document revising the two-thirds requirement. In filibuster parlance, he went nuclear.
[emphasis added]Read the post; there's plenty more where that came from...
10 February 2013
Still Say's Law After All These Years
Economics and Politics by Paul Krugman - The Conscience of a ...
When John Maynard Keynes wrote The General Theory, three generations ago, he structured his argument as a refutation of what he called "classical economics", and in particular of Say's Law, the proposition that income must be spent and hence that there can never be an overall deficiency of demand. Ever since, historians of thought have argued about whether this was a fair characterization of what the classical economists, or at any rate his own intellectual opponents, really believed.
Not being an intellectual historian myself, I won't venture an opinion on that subject. What I will say, however, is that Say's Law (Say's false law? Say's fallacy?) is something that opponents of Keynesian economics consistently invoke to this day, falling into exactly the same fallacies Keynes identified back in 1936.
In the past I've caught Brian Riedl and John Cochrane doing it; now Peter Dorman finds Tyler Cowen in their company.
Cowen can't see why corporate hoarding is a problem. Like Riedl and Cochrane, he concedes that there might be some problem if corporations literally piled up stacks of green paper; but he argues that it's completely different if they put the money in a bank, which will lend it out, or use it to buy securities, which can be used to finance someone else's spending.
But of course there isn't any difference. If you put money in a bank, the bank might just accumulate excess reserves. If you buy securities from someone else, the seller might put the cash in his mattress, or put it in a bank that just adds it to its reserves, etc., etc.. The point is that buying goods and services is one thing, adding directly to aggregate demand; buying assets isn't at all the same thing, especially when we're at the zero lower bound.
What's depressing about all this is that Say's Law is a primitive fallacy – so primitive that Keynes has been accused of attacking a straw man. Yet this primitive fallacy, decisively refuted three quarters of a century ago, continues to play a central role in distorting economic discussion and crippling our policy response to depression.
Not being an intellectual historian myself, I won't venture an opinion on that subject. What I will say, however, is that Say's Law (Say's false law? Say's fallacy?) is something that opponents of Keynesian economics consistently invoke to this day, falling into exactly the same fallacies Keynes identified back in 1936.
In the past I've caught Brian Riedl and John Cochrane doing it; now Peter Dorman finds Tyler Cowen in their company.
Cowen can't see why corporate hoarding is a problem. Like Riedl and Cochrane, he concedes that there might be some problem if corporations literally piled up stacks of green paper; but he argues that it's completely different if they put the money in a bank, which will lend it out, or use it to buy securities, which can be used to finance someone else's spending.
But of course there isn't any difference. If you put money in a bank, the bank might just accumulate excess reserves. If you buy securities from someone else, the seller might put the cash in his mattress, or put it in a bank that just adds it to its reserves, etc., etc.. The point is that buying goods and services is one thing, adding directly to aggregate demand; buying assets isn't at all the same thing, especially when we're at the zero lower bound.
What's depressing about all this is that Say's Law is a primitive fallacy – so primitive that Keynes has been accused of attacking a straw man. Yet this primitive fallacy, decisively refuted three quarters of a century ago, continues to play a central role in distorting economic discussion and crippling our policy response to depression.
04 February 2013
Richard III, Part Deux
NYT: Bones Under Parking Lot Belonged to Richard III
Charley James, from the PK blog post:
"It just occurred to me that it must have cost a fortune to get Richard III out of the lot after all this time. At £1.60 for the first half-hour and £1.10 for each additional half hour, it was probably enough to fund national health and the BBC forever."
No One Makes You Shop at Wal-Mart
Tom Slee: No One Makes You Shop at Wal-Mart: The Surprising Deceptions of Individual Choice: Chapter 1 — A World Of Choice:
We live in a world of choice.
We make choices every day. We choose the clothes we wear, the way we travel, the movies we watch, and the places we shop. From time to time we make bigger choices as well: the neighbourhoods we live in, the jobs or universities or schools we go to, and even the cultures we identify with. These choices give us a measure of control over our lives, and it seems natural to believe that individual choice is, almost by definition, a good thing.
We live in a world of choice.
We make choices every day. We choose the clothes we wear, the way we travel, the movies we watch, and the places we shop. From time to time we make bigger choices as well: the neighbourhoods we live in, the jobs or universities or schools we go to, and even the cultures we identify with. These choices give us a measure of control over our lives, and it seems natural to believe that individual choice is, almost by definition, a good thing.
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