Month: April 2014

John Aziz: The World’s Dumbest Idea: Taxing Solar Energy: “In a setback for the renewable energy movement…

…the state House in Oklahoma this week passed a bill that would levy a new fee on those who generate their own energy through solar equipment or wind turbines on their property. The measure, which sailed to passage on a near unanimous vote after no debate, is likely to be signed into law by Republican Gov. Mary Fallin…. Now utility firms in Oklahoma say they just want to be compensated for use of their infrastructure. But renewable energy fed back into the grid is ultimately doing utility companies a service. Solar generates in the daytime, when demand for electricity is highest, thereby alleviating pressure during peak demand. Oklahoma is not alone. Last year, Arizona enacted a similar law. Legislators in Spain tried to do the same thing. The pushback against renewable energy, it seems, is already here…

Dean Baker: Will the Wall Street Journal Give Ed Lazear Space to Correct His Piece About Falling Work Hours?: “Last month the WSJ ran a column by Ed Lazear…

…a Stanford economics professor and former chief economist to President Bush, which noted the decline in the length of the average workweek between the fall and the most recent data from February. The piece noted that if labor demand was measured in hours, we had lost the equivalent of 100,000 jobs over the prior six months. He discussed possible causes for this decline and highlighted the incentives created by the Affordable Care Act.

While some of us at the time questioned the plausibility of this story and noted the likely effect of the weather on reducing workweeks in January and February, we got the question resolved when the March data was released this month. The entire decline in average hours was reversed. The question is whether the WSJ will allow Mr. Lazear a follow-up piece to point out that his earlier concerns about the Affordable Care Act leading to a reduction in the length of the average workweek had apparently been wrong.

The Graduate Center, CUNY: “The French economist Thomas Piketty (Paris School of Economics)…

…will present a lecture on his new book, [Capital in the Twenty-First Century]. In this landmark work, Piketty argues that the main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—threatens to generate extreme inequalities that stir discontent and undermine democratic values. He calls for political action and policy intervention. Joseph Stiglitz (Columbia University), Paul Krugman (Princeton University and joining the LIS Center, July 2014), and Steven Durlauf (University of Wisconsin–Madison) will comment. The event will be introduced and moderated by Janet Gornick and Branko Milanovic (The Graduate Center, Luxembourg Income Study Center).

Must-Reads:

1. Ben Casselman: Losing Benefits Isn’t Prodding Unemployed Back to Work: “More than a million Americans saw their unemployment benefits expire at the start of the year, after Congress failed to renew the Emergency Unemployment Compensation program…. Some economists had argued that the program was doing more harm than good by discouraging recipients from looking for work or taking jobs. They said that because the job market was improving, the time had come to cut off benefits. That would prod the unemployed to get back to work, perhaps leading them to accept offers that seem less than ideal. So far, however, the evidence doesn’t seem to support that theory. Rather than finding jobs, the long-term unemployed continue to be out of luck. We now have three months’ worth of job market data since the benefits program expired…”

2. Thomas Piketty: Capital in the Twenty-First Century: “What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, economist Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality…”

3. Jared Bernstein: Summers on Infrastructure Needs: “If there’s something awry in the logic of Larry Summers’ argument here for more infrastructure investment, I certainly can’t see it. Based on low real interest rates, still high unemployment particularly among blue-collar production and construction workers, and most of all, the need for productivity-enhancing investments in our aging public goods, Larry is very much correct to ask ‘if not now, when?’…. We are, at some point, going to wise up and start engaging in the needed maintenance of our depreciating stock of public goods…. So given the confluence of factors Larry identifies, shouldn’t we start now? There are many ‘two-fers’ in this space…. Larry doesn’t get much into the politics, but they’re of course central.  One could historically count on bipartisan support for this type of investment.  I mean, business interests might oppose the minimum wage and unions, but of course they want and need adequate ports, roads, airports, and so on, not to mention a skilled work force.  No firm can supply these public goods. But in a sign of how different these times are, not only is bipartisan support for infrastructure investment far from forthcoming, Rep. Paul Ryan’s new budget significantly cuts transportation funding…”

4. Martin Wolf: Review of ‘Capital in the Twenty-First Century’, by Thomas Piketty: “Yet the book also has clear weaknesses. Much the most important is that it does not deal with why soaring inequality… matters. Piketty essentially simply assumes that it does. One argument for inequality is that it is a spur to (or product of) innovation. The contrary evidence is clear: contemporary inequality and, above all, inherited wealth are unnecessary for this purpose. Yet another argument is that the product of just processes must be just. Yet even if the processes driving inequality were themselves just (which is highly doubtful), this is not the only principle of distributive justice. Another–to me more plausible–argument against Piketty’s is that inequality is less important in an economy now 20 times as productive as those of two centuries ago…. To me the most convincing argument against the ongoing rise in economic inequality is that it is incompatible with true equality as citizens. If, as the ancient Athenians believed, participation in public life is a fundamental aspect of human self-realisation, huge inequalities cannot but destroy it. In a society dominated by wealth, money will buy power. Inequality cannot be eliminated. It is inevitable and to a degree even desirable. But, as the Greeks argued, there needs to be moderation in all things. We are not seeing moderate rises in inequality. We should take notice.”

5. Tyler Cowen (2008): Keynes’s General Theory, chapter four, The Choice of Units: “This chapter may seem cryptic but the key is the tiny footnote to Hayek; this chapter is Keynes obsessing over capital theory and the Austrians. Hayek argued that an economic downturn should be understood as a discombobulation of the capital structure and here is Keynes arguing against that approach.  When you cut through the terminology, Keynes says that capital heterogeneity isn’t needed to generate aggregate demand analysis and that his core mechanisms will operate in any case. Keynes admits that with economic development labor gets very specialized, or very closely connected to particular capital goods, so yes there are capital complementarities of the Austrian kind.  But Keynes thinks such fragilities will only help his argument, while rendering the analytics too messy.  He declares his intention to proceed with homogeneous magnitudes of capital and labor. This chapter often fails to receive its proper due; it is very important for understanding the location of Keynes in the history of economic thought. With this one chapter, Austrian capital theory falls off the map…”

Continue reading “Things to Read on the Afternoon of April 16, 2014” →

Tyler Cowen (2008): Keynes’s General Theory, chapter four, The Choice of Units: “This chapter may seem cryptic but…

…the key is the tiny footnote to Hayek; this chapter is Keynes obsessing over capital theory and the Austrians. Hayek argued that an economic downturn should be understood as a discombobulation of the capital structure and here is Keynes arguing against that approach.  When you cut through the terminology, Keynes says that capital heterogeneity isn’t needed to generate aggregate demand analysis and that his core mechanisms will operate in any case. Keynes admits that with economic development labor gets very specialized, or very closely connected to particular capital goods, so yes there are capital complementarities of the Austrian kind.  But Keynes thinks such fragilities will only help his argument, while rendering the analytics too messy.  He declares his intention to proceed with homogeneous magnitudes of capital and labor.

This chapter often fails to receive its proper due; it is very important for understanding the location of Keynes in the history of economic thought. 

With this one chapter, Austrian capital theory falls off the map….

The slides from the talks I was giving as 2008 turned into 2009. The huge hole in them is the lack on my part of any consideration of the possibility that we might not do what was necessary–that we might fail to use fiscal and banking policy on a large-enough scale to rebalance aggregate demand at full employment in a short-run of two to three years…

Sigh…

I simply assumed that the political and economic logic would work together: the political logic was that all incumbents of whatever party were at grave risk in the next election if unemployment was still high in 2010 and even more so in 2012, and that the economic logic behind using expansionary fiscal policy to get spending up to potential output was crystal-clear. I thought it obvious:

1. that inflation was not a threat unless and until unemployment reproached its natural rate,
2. that all economists recognized that even in a near-Ricardian world the multiplier on government purchases was near one in the absence of monetary-policy offset,
3. that there would be no monetary-policy offset for a few years,
4. that even deficit hawks would recognize that as long as long-term real interest rates stayed low the market was telling us that worrying about the projected future debt-to-GDP ratio was not appropriate.

These all seemed to me to be barely worth noting, or not even worth noting.

Silly me…

20140416 20090104 Singapore Current Economic Situation Talk.pdf | 20140416 20090104 Singapore Current Economic Situation Talk.ppt | 20140416 20090104 Singapore Current Economic Situation Talk.key

Continue reading “What Was I Thinking as 2008 Turned into 2009?: Wednesday Focus: April 16, 2014” →

Martin Wolf: Review of ‘Capital in the Twenty-First Century’, by Thomas Piketty: “Yet the book also has clear weaknesses.

Much the most important is that it does not deal with why soaring inequality… matters. Piketty essentially simply assumes that it does. One argument for inequality is that it is a spur to (or product of) innovation. The contrary evidence is clear: contemporary inequality and, above all, inherited wealth are unnecessary for this purpose. Yet another argument is that the product of just processes must be just. Yet even if the processes driving inequality were themselves just (which is highly doubtful), this is not the only principle of distributive justice. Another–to me more plausible–argument against Piketty’s is that inequality is less important in an economy now 20 times as productive as those of two centuries ago….

To me the most convincing argument against the ongoing rise in economic inequality is that it is incompatible with true equality as citizens. If, as the ancient Athenians believed, participation in public life is a fundamental aspect of human self-realisation, huge inequalities cannot but destroy it. In a society dominated by wealth, money will buy power. Inequality cannot be eliminated. It is inevitable and to a degree even desirable. But, as the Greeks argued, there needs to be moderation in all things. We are not seeing moderate rises in inequality. We should take notice.”

Bloomberg Surveillance: Wednesday 4:15 AM PDT: LIVE on TV with Tom Keene and Bill Janeway:

1. What does the 2008 global financial crisis tell us about innovation and digital tech in financial sector? What lessons have you gleaned? That our private sector financial institutions really lousy job at risk management. And this is horrible because if there is one factor of production in desperately short supply right now, it is risk-bearing capacity. The potential risk-bearing capacity of our economy is enormous, but private financial markets managed to mobilize very little of that.

2. How should we be calculating GDP, employment and productivity? Differently than we do now! We really are moving away from the rival-and-excludible-commodity paradigm. Yet we have a measure of economic welfare–GDP–that relies extremely heavily upon that paradigm

3. How should DC communicate with Wall Street & Silicon Valley? I do not think that DC needs to communicate or be thinking about communicating with Wall Street and Silicon Valley. I think Main Street, Silicon Valley, and Wall Street need to effectively communicate their displeasure to DC instead.

   The fact the Bush administration took the deficit reduction work of the Clinton administration and gleefully smashed it on the floor should have provoked enormous displeasure with DC from all three. But what we have here is a failure to communicate. Consider that Barack Obama has put forward George H.W. Bush’s tax policy, second-term Ronald Reagan’s foreign policy, Mitt Romney’s health-care policy, John McCain’s climate-change policy, and Bill Clinton spending-growth policy, and yet is still denounced by Republicans everyday as the radical left-wing Kenyan Muslim Socialist. Enormous displeasure at this should be expressed everyday by Main Street, Wall Street, and Silicon Valley. Yet it is not.

   Plus the Republican establishment in Red States really need to be expressing their enormous displeasure with their statehouses. Their statehouse politicians decided that even though Obamacare implementation–Medicaid expansion, Marketplace competition, the subsidy pool for the working poor to purchase insurance–is working between excellent and so-so in Blue States, they from their Red-State statehouses are going to try to break its implementation in their states. Why? in the hope of gaining some electoral advantage. At what price? At the price of doing a remarkable job to impoverish their constituents. “Political malpractice” and “awesome in its evilness” was how Jon Gruber was characterizing this last week…

4. Thoughts on the digitization of global economy. That we economists haven’t thought through the issues around radical relative price changes/real income/relative income/relative wealth…

5. Are bubbles necessary? No. They may be inescapable, but they are not necessary. But we can hope for systems of surveillance good enough so that central bankers and finance ministers can determine where the punchbowl is, and then brave enough to take it away. And some bubbles may be useful. Cf. Stiglitz on dot-coms…

6. What matters most to you right now? Trying to be one of Larry Summers’s wingmen as he continues what is now the fifth year of his crusade for expansionary fiscal policy via an infrastructure bank. He’s right. Yet his arguments are getting much too little traction everywhere…

Ben Casselman: Losing Benefits Isn’t Prodding Unemployed Back to Work: “More than a million Americans saw their unemployment benefits expire at the start of the year, after Congress failed to renew the Emergency Unemployment Compensation program….

Some economists had argued that the program was doing more harm than good by discouraging recipients from looking for work or taking jobs. They said that because the job market was improving, the time had come to cut off benefits. That would prod the unemployed to get back to work, perhaps leading them to accept offers that seem less than ideal. So far, however, the evidence doesn’t seem to support that theory. Rather than finding jobs, the long-term unemployed continue to be out of luck. We now have three months’ worth of job market data since the benefits program expired…”