Month: January 2015

Must- and Shall-Reads:

• Mark Thoma: Links for 01-31-15 <– Mark Thoma’s daily links are especially good today…
• Estelle Sommeiller and Mark Price: The Increasingly Unequal States of America: Income Inequality by State, 1917 to 2012
• David Cay Johnston: Economy Grows Incomes Shrink
• Chad Stone: The Unconvincing Claim That Unemployment Benefits Hurt Jobs

1. Paul Krugman: Bad Tayloring: “The world has turned out to be a much more dangerous place than [John] Taylor-rule enthusiasts imagined, so why impose a rule devised, we know now, by economists who completely misjudged the risks?… Taylor himself… claims that the whole financial crisis thing was because the Fed departed slightly from his version of the rule in the pre-crisis 2000s. But, as [Tony] Yates points out, this assigns an importance to monetary policy that is wildly at odds with the kind of modeling used to justify the rule in the first place… as Yates does not point out… the distinct whiff of someone inventing ever-more bizarre stories to avoid admitting having been wrong about something. This is not the kind of argument on which to base rules that permanently constrain policy.”

2. Paul Krugman: I See Very Serious Dead People: “[I am] annoyed… [at] the constant efforts on the part of Very Serious People to turn discussions away from monetary and fiscal policy, recessions and sluggish recoveries, to the supposedly more fundamental issues of structural reform and long-term growth. Rattner dismisses the austerity/stimulus debate as ‘simplistic’; Jeff Sachs calls Keynesian concerns ‘crude’; many… are eager to get away from all this deflation stuff and talk about how what they imagine to be, or wish were, the really important issues like Big Data and a world that’s even flatter. There were people like that during the Great Depression too…. So…. First, we’re now in year eight of a massive setback to economic growth, to living standards…. Technology hasn’t retrogressed; institutions haven’t suddenly gotten far worse. This is about the business cycle, and about business cycle policy. If you want to ignore all that… you’re exactly the kind of person Keynes was mocking…. Second… Keynesian macroeconomics… has worked very well in this long slump. While people were very seriously intoning that it was simplistic and crude to think that those little models could be of any use in a changing world yada yada, macroeconomists were making remarkable, counterintuitive predictions… that came true…. Third, what’s really striking about all the talk about… structural issues… is how fuzzy the thinking is…. The Very Serious seem remarkably casual about thinking things through. Finally, I know that people who airily dismiss the austerity debate and all that and demand that we focus on the long run think they’re taking a brave stand; but you know, they aren’t…. Face it, stimulus and austerity, QE or not, are politically charged issues where taking any kind of stand will get you attacked. And since they are also important issues, pretending that they aren’t is a form of moral cowardice.”

3. Josh Barro: Why Obama’s Proposal for 529s Had No Chance: “The first rule of modern tax policy is raise taxes only on the rich. The second rule is that your family isn’t rich, even if you make a lot of money. President Obama’s State of the Union proposal to end the tax benefits for college savings accounts ran afoul of these rules, which is why he abandoned it, under intense pressure from both political parties, within a week. Tax-free college savings accounts, like the mortgage interest deduction and the state and local tax deduction, principally benefit people who range from affluent to wealthy. In pushing its proposal, the White House pointed to Federal Reserve data showing that 70 percent of balances in the college accounts were held by families making at least $200,000 a year. In theory, tax reform is supposed to be built around cutting back preferences like these…. But in practice, politicians from both parties have made a point of holding the group you might call the ‘merely affluent’ harmless from tax increases. If you make $150,000 to $225,000, you make about two to three times the national median income for a married couple. The list of occupations that can get you into this income bracket–government official, academic, lobbyist, journalist–can sometimes make it hard for people in political circles to remember that 92 percent of American married couples make less than $200,000 a year… $200,000 is not a normal income, even in a prosperous suburban county like Westchester, N.Y., where 77 percent of married couples are somehow managing to get by on less. In Montgomery County outside Washington, the figure is 72 percent. These figures start to seem normal to politicians only because, when they’re not hanging out with ultra-wealthy donors, they tend to spend time with the sort of pretty-wealthy professionals who use 529 accounts. They also start to seem normal to reporters, perhaps because $200,000 is about what a married couple might make if both worked as correspondents for major news organizations. One reads frequently of the plight of living on $200,000 or more a year. Writing for The Fiscal Times in 2010, Karen Hube found that $250,000 ‘does not a rich family make,’ after you consider the cost of buying a home in an affluent suburb with a top school district like Bethesda, Md. (Of course, one option is to not live in Bethesda.) A Wall Street Journal article this September laid out how $400,000 isn’t a lot of money–after you spend it. Mr. Obama could still have tailored his 529 proposal… proposed to apply the same income and contribution limits that apply to Roths. That would limit the benefits to families making under $200,000 a year. Instead, perhaps because of the political firestorm, the White House dropped all plans to touch 529s…”

Should Be Aware of:

• Michael Schiavo: Jeb Bush ‘Put Me Through Hell’
• Judith Tarr: “What frustrated me when I started selling professionally was the push to always write female protag because ‘you’re a girl, you have to.’ Between that and the push to squeeze the stories into set marketing categories, I sometimes got cranky. Then I’d get subversive. That wasn’t always as successful as it might have been, and I made some pretty big mistakes. But it was an awful lot of fun. Still is…”

1. Michael Kruse: Jeb ‘Put Me Through Hell’: “In June, the medical examiner released Terri Schiavo’s autopsy which confirmed what the judges had ruled for years based on the testimony from doctors concerning her prognosis. Her limbs had atrophied, and her hands had clenched into claws, and her brain had started to disappear. It weighed barely more than a pound and a third, less than half the size it would have been under normal circumstances. ‘No remaining discernible neurons,’ the autopsy said. She couldn’t see. She couldn’t feel, not even pain. Forty-one years after her birth, 15 years after her collapse, Terri Schiavo was literally a shell of who she had been. Bush read the autopsy—then wrote a letter to the top prosecutor in Pinellas County. He raised questions about Michael Schiavo’s involvement in her collapse and about the quickness of his response calling 911. ‘I urge you,’ the governor wrote to Bernie McCabe, ‘to take a fresh look at this case without any preconceptions as to the outcome.’ McCabe, a Republican, responded less than two weeks later, saying he and his staff ‘have attempted to follow this sound advice’–without any preconceptions: ‘unlike some pundits, some “experts”, some email and Web-based correspondents, and even some institutions of government that have, in my view, reached conclusions regarding the controversy…’ McCabe’s assessment: ‘all available records’ were ‘not indicative of criminal activity…’

2. Charles Pierce: Potential Presidential Candidate Jim Webb Has A Lot To Say About The Democratic Party Appealing More To White People: “Let us stipulate for a moment that Andrew Jackson also was a slaveholder and a genocidal madman, no matter how much the buckskin-shirt crowd loved him. Let us not return to his principles, thank you. And while FDR and Truman were fine presidents, who did some of all that they could have done, they still presided over a Democratic party that was the political and constitutional bulwark of the Jim Crow South. Neither one of them could break that dark alliance until the Civil Rights Movement shook the political order to the point where Lyndon Johnson could blow up the alliance entirely. Webb can’t have this argument until he acknowledges: a) that the ‘principles of the Democratic party’ to which he appeals also had a Whites Only sign on them, b) that the commitment of the Democratic Party to equal rights was a titanic moral victory for the entire nation, and c) that a lot of the voters to whom he suggests reaching out remain sorry that the sign ever came down. In the days to which Webb has suggested returning, the Democratic party did not remotely stand for ‘everybody’ who needed it getting access to the corridors of power. The Democratic party only started standing for that at its 1948 national convention, and didn’t fully stand for it until 1965…”

3. Michael Kruse: Jeb ‘Put Me Through Hell’: “Up in Washington, Congress debated the case of Terri Schiavo, searching for possible methods of federal intervention–with Frist and Speaker of the House Dennis Hastert, both of whom now say they don’t want to talk about it, vowing to work together through the weekend of Palm Sunday if necessary. A memo that came from Martinez’s office called it ‘a great political issue’ for Republicans. Frist, a surgeon from Tennessee, said on the Senate floor that Schiavo didn’t seem to him to be in a vegetative state, based on his viewing of the Schindlers’ video snippets. Senator Rick Santorum from Pennsylvania called the removal of the feeding tube ‘a sentence that would not be placed on the worst criminal.’ Majority Leader Tom DeLay led the way in the House. Santorum and Frist did in the Senate. Few members of Congress spoke against it. South Florida Congresswoman Debbie Wasserman Schultz was one. ‘There is no room for the federal government in this most personal of private angst-ridden family members,’ she said. Republican John Warner from Virginia was the only senator to speak against it…”

4. Walter Bagehot: The English Constitution: “The present Conservative Government contains more than one member who regards his party as intellectually benighted; who either never speaks their peculiar dialect, or who speaks it condescendingly, and with an ‘aside’; who respects their accumulated prejudices as the ‘potential energies’ on which he subsists, but who despises them while he lives by them…”

5. 1. MaxSpeak: Blogs are so over: “That’s what I’m hearing, after the pending demise of Andrew Sullivan’s venture. Well f— that. F— your monetization. F— your SEO keywords. F— your snackable content. F— your clickbait. Clear your mind of trivialities and inanities. Don’t waste time arguing with idiots. Tune out the noise. Seek a higher level of consciousness. Get laid. I plan to leave my nine-to-five gig at the end of this year. And. This. Place. Will. Rock. I’m on Facebook and Twitter all the time, but I predict the endless drive to ‘monetize’ them will make them shittier and shittier. There will always be an audience for discussions deeper and more substantive than are possible on FB or Twitterville. I don’t need thousands of people to have a rewarding conversation, and I don’t need to get rich. Maintain, people. We have work to do.. About MaxSpeak: Older than dirt. Rutgers, Class of ’71. Ph.D. in economics, University of Maryland. Suburban soccer dad spouting like a rec room bolshevik.”

Paul Krugman reads Tony Yates pointing out that John Taylor is, politely, incoherent in his advocacy that his version of the Taylor Rule be legislated in stone to command the Federal Reserve. Either monetary policy is much more powerful than the arguments for Taylor’s version of his rule presumes–in which case it is a very bad idea–or the world is much more risky than the arguments for Taylor’s version of his rule presumes–in which case it is a very bad idea. There is simply no coherent way to get from the macroeconomic history of the 2000s to the conclusion that John Taylor’s version of his rule is a good idea:

Let me (surprise, surprise!) back up Paul here: There is no doubt that, technocratically, reflation is the low-hanging fruit to boosting equitable growth. Successfully returning to full employment would boost real GDP in the North Atlantic by 10% today, would boost future economic growth substantially as well, and would lift all economic classes more-or-less equally. No plausible policy shifts to produce “structural reform”–save possibly the “structural reform” of raising the price level in Germany and Holland relative to Italy and Spain by 20%–promises North Atlantic-wide benefits even a fifth as much.

But for many, once you start admitting that the Keynesian fiscal and Friedmanite monetary régime-change policies are the ones that pick the low-hanging fruit, you have put yourself in opposition to the German Ordoliberals and the British Conservatives and the American Republicans (all save James Pethokoukis, Scott Sumner, and Ramesh Ponnuru). And to say that the leftist fringe of European and British politics and the Elizabeth Warren wing of the Democratic Party in America are right and deserve support–well, that appears to disqualify you from being taken seriously as a sensible centrist, or even as a sensible moderate left-of-center establishment thinker these days. It makes you… shrill…

A couple of years ago the fact that Olivier Blanchard’s shop at the IMF and that Jan Hatzius’s shop at Goldman Sachs are willing to hoist signal flags 1 and 6 together and point out what the macroeconomic evidence and theory suggested would be good policies gave me hope then for rational policy. And right now Syriza begs for less pointless, destructive austerity, Larry Summers continues his long campaign (with some IMF help) for large-scale publicly-funded infrastructure investment, Christina Romer continues to argue for monetary régime change, and there are others–but we are many, many fewer than we should be. And for what? for Wales?…

There are two major taxes on the upper middle class in our future–the carbon tax and the tax on “Cadillac” health-care plans. But these tax are coming because they will not be levied on the upper-middle class but on entities classified as unworthy–coal and oil companies and health-insurers. They will just be passed through to the upper middle class.

So a lot rides over the next generation on the upper middle class’s remaining confused about tax incidence:

Must- and Shall-Reads:

• Robert Waldmann: Comment on “What Failed in 2008?”
• Paul Krugman: Europe’s Greek Test

1. Justin Wolfers @JustinWolfers on Twitter: What This Morning’s U.S. Wage Numbers Mean: “Employment cost index only up 0.6% in the past quarter, putting it up 2.2 percent over the year. Consistent with inflation well below 2%. If you think the US labor market is anywhere near capacity, you expect wages to be growing at 3.5-4%. They’re growing at 2.2%. There’s nothing in these wage data to give the Fed any confidence that inflation is going to drift back up towards its target anytime soon. The good news in these wage data is that this is the economy telling us that it can generate plenty more jobs without hitting bottlenecks. A thought on the Phillips Curve: Perhaps wage data are telling us that both the long-term unemployed & those out of the labor force matter.”

2. Aristotle: Slavery or Technology? From Politics: “Since then sufficient material resources are necessary for every household, the means of procuring them must certainly be part of household management, for without the material necessities it is impossible to live, let alone live well. All the arts share the property that the proper tools must be available if they are to be properly proper conducted. So is it in the art of managing a family. Now of tools, some of them are alive and others are not. With respect to the pilot of the ship, the tiller is not alive, the sailor is alive. In many arts the necessary tools include servants. Property in general is a tool for living. An estate is a collection of such tools. And a slave is a living tool. A tool that can take care of its own self is a more valuable one than any other tool. Suppose if every tool could, at command, or from discerning its owner’s desires, carry out its tasks (as the story goes of the automatons of Daedalus; or what the poet tells us of the serving-carts of Vulcan, ‘that they rolled of their own will into the gathering of the gods’), so that the shuttle would then weave and the lyre play of itself. Then the architect would not want living servants, or the owner want living slaves…”

3. Paul Krugman: Whitewashing the Crazy, Fed Edition: “How does one report on politics when a significant wing of the political spectrum is… stark raving mad?…. There’s a temptation to soft-pedal the crazy…. Matt O’Brien notes that Ted Cruz has now joined the ‘anti-Fed crazy train’…. [But] Alan Rappeport [of the New York Times who]… does… convey… how crazy Rick Perry was… uses a euphemism…. ‘Republicans have questioned the Fed’s moves to stimulate the economy since the financial crisis, arguing that the expansion of its balance sheet will create economic instability.’ Well, actually they have spent the past six years warning about ‘currency debasement and inflation‘. The chart shows how that prediction has turned out. And that in turn makes the fact that the anti-Fed ranks are swelling, not shrinking, a much more remarkable political story than the whitewashed version would indicate.”
   

4. Ricardo Hausmann: Redistribution or Inclusion?: “It is crucial to distinguish inequality in productivity among firms from unequal distribution of income within firms. The traditional battle between labor and capital has been about the latter…. But there is surprisingly deep inequality in firms’ productivity, which means that the size of the pie varies radically. This is especially true in developing countries…. These two very different sources of inequality are often conflated, which prevents clear thinking on either one…. Given productivity constraints, redistribution is only palliative, not curative. To address the problem requires investing in inclusion, endowing people with skills, and connecting them to the inputs and networks that can make them productive…”

Should Be Aware of:

• Reka Juhasz

1. Belle Waring: But Wait… There’s More!: “BIf someone would like to write an intelligent, detailed article about stifling political correctness in a specific online milieu of twitter users and feminist tumblrs, or whatever, WITH LINKS, they should do that, and then we can talk about that. But Chait didn’t write anything like that at all. There’s no reason I should extend him so much argumentative charity that I go bankrupt over here constructing his argument for him. It’s like trying to make an Eiffel Tower out of popsicle sticks in Pre-K, and my partner on the project uses each stick in turn like a nacho to eat paste off of, and then just hands them to me all slimy. I have better things to do.”

2. Saul DeGraw: Scam PACs Open Thread): “Kenneth Vogel reports on the rise of scam PACs and that they mainly exist in GOP circles. Kevin Drum wants to know why they exist more on the right-wing than the left. Any ideas?”

A generation or two ago, the push for central-bank independence was all about harnessing central banks’ credibility as inflation fighters in a context in which it was feared that elected legislators would lean overboard on the excessive spending side.

Today, Simon Wren-Lewis calls for transferring not just monetary policy but fiscal policy stabilization authority over to central banks, on the grounds that their technocratic chops are much better for fiscal policy then relying on elected legislators who are the prisoners of ordoliberal ideologies, the belief the governments like households need to balance their budgets, and of the austerity-loving 0.1%.

What could possibly go wrong?

…the year that the US, UK and Eurozone switched from fiscal stimulus to fiscal contraction… this policy switch is directly responsible for the weak recovery in all three countries/zones. A huge amount of resources have been needlessly wasted as a result, and much misery prolonged. This post is… about… taking that as given and asking what should we conclude…. To answer that question, what happened in Greece (in 2010, not two days ago) may be critical…. Let me paint a relatively optimistic picture of the recent past. Greece had to default because previous governments had been profligate and had hidden that fact from everyone…. Recessions… tend to be when things like that get exposed. If Greece had been a country with its own exchange rate, then it would have been a footnote… fiscal stimulus that had begun in all three countries/zones in 2009 would have continued (or at least not been reversed), and the recovery would have been robust. Instead Greece was part of the Eurozone…. Policy makers in other union countries prevaricated…. So the Greek crisis became a Eurozone periphery crisis…. This led to panic not just in the Eurozone but in all the advanced economies. Stimulus turned to austerity. By the time some in organisations like the IMF began to realise that this shift to austerity had been a mistake, it was too late. The recovery had been anemic.

Why is that an optimistic account? Because it is basically a story of bad luck…. Now for the pessimistic version. The political right in all three countries/zones was always set against fiscal stimulus…. Without Greece, we still would have had a Conservative led government taking power in the UK in 2010, and we still would have had Republicans blocking stimulus moves and then forcing fiscal austerity. The right’s strength in the media, together with the ‘commonsense’ idea that governments like individuals need to tighten their belts in bad times… [meant] austerity was bound to prevail…. Greece may have just voted against austerity, but there is every chance that in the UK the Conservatives will retain power this year on an austerity platform and the Republicans are just the presidency away from complete control in the US. If the pessimistic account is right, then it has important implications for macroeconomics. Although it may be true that fiscal stimulus is capable of assisting monetary policy when interest rates are at the ZLB, the political economy of the situation will mean it may well not happen….

When some economists over the last few years began to push the idea of helicopter money, I was initially rather sceptical… helicopter money when you have inflation targets is identical to tax cuts plus Quantitative Easing (QE), so why not just argue for an expansionary fiscal policy?… However, if the pessimistic account is correct, then arguing with politicians for better fiscal policy is quite likely to be a waste of time…. A more robust response is to argue for institutional changes so that politicians find it much more difficult to embark on austerity at the ZLB…. Central banks have QE, but helicopter money would be a much more effective instrument. To put it another way, central bank independence was all about taking macroeconomic stabilisation away from politicians, because politicians were not very good at it. The last five years have demonstrated how bad at it they can be…

Alan Rappaport of the New York Times here exemplifies the biggest problem with our current policy dialogue: when it is thought to be unfair to a current of thought to even report in plain language what they have been saying, we are all in big trouble: