Must-Read: Paul Krugman: Calling Literatures From The Vasty Deep

Must-Read: My two—three—macro papers would be: Krugman (1998) https://www.gc.cuny.edu/CUNY_GC/media/LISCenter/pkrugman/1998b_bpea_krugman_dominquez_rogoff.pdf, Blanchard-Leigh (2013) https://www.aeaweb.org/articles?id=10.1257/aer.103.3.117, and Mian-Sufi (2011) https://www.aeaweb.org/articles?id=10.1257/aer.101.5.2132

Paul Krugman: Calling Literatures From The Vasty Deep: “Noah [Smith’s]… Two Paper Rule…

…Give me two papers in this vast literature that are “exemplars and paragons” of the literature. If you can’t, the whole literature is probably a waste of time. Which… sets some of us to work trying to think of the two papers…. My examples. [While] Noah is generally very down on macroeconomics… I believe that we’ve learned a lot… since… 2008…. Fiscal policy: before the crisis there was strikingly little solid evidence… because history gave us so few natural experiments…. I’d point to Blanchard and Leigh https://www.aeaweb.org/articles?id=10.1257/aer.103.3.117, using austerity as an experiment, and Nakamura-Steinsson http://www.columbia.edu/~en2198/papers/fiscal.pdf, exploiting regional shocks from defense spending. Not saying these are the only fine papers, but they’re enough to show that there’s a real there there…. Dramatic confirmation of what some of us thought we knew about monetary policy at the zero lower bound. I can think, for example, of a 1998 paper https://www.gc.cuny.edu/CUNY_GC/media/LISCenter/pkrugman/1998b_bpea_krugman_dominquez_rogoff.pdf that has held up really well…. Trade? Autor/Dorn/Hanson https://www.aeaweb.org/articles?id=10.1257/aer.103.6.2121 on the China shock may not be the last word, but surely a revelatory approach…. Subramanian and Kessler https://piie.com/publications/wp/wp13-6.pdf… realizing that this globalization is different….

I’m pushing back against Noah’s nihilism (noahlism?) even while endorsing his method…

Should-Read: Matt O’Brien: How Japan proved printing money can be a great idea

How Japan proved printing money can be a great idea The Washington Post

Should-Read: Matt O’Brien: How Japan proved printing money can be a great idea: “Falling prices would mean falling wages, but not falling debts, so they would become harder to pay back… http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11857507

…In the best case, the economy would get stuck in a cycle of low consumer spending leading to low business investment leading to low hiring, and then even lower consumer spending. And in the worst, everyone would go bankrupt. That’s why Japan has put so much emphasis on getting its inflation rate back above zero. It wants to get into the opposite cycle of higher prices leading to higher wages leading to lower debt burdens leading to more consumer spending and then more business investment…. That has been the whole point of “Abenomics”…. Although there have been stops and starts, and debates and doubts, the reality is that it is working, emphasis on those last three letters…. The best way to tell isn’t its super-low unemployment rate, but rather its super-high employment rate… 83.5 per cent, making our own 78.3 per cent rate look downright measly in comparison…. Japan’s unemployment rate hasn’t fallen for the bad reason that people have given up looking for work, but for the good one that almost everyone who isn’t drawing a pension has found one. It’s what unfinished progress looks like…

Just how big does the Federal Reserve’s balance sheet need to be?

The Marriner S. Eccles Federal Reserve Board Building in Washington, D.C.

For the past couple of years, the big question in U.S. monetary policy has been when the Federal Reserve will raise short-term interest rates. After raising short-term rates 0.25 percentage points one time in 2015 and once again in 2016, the central bank appears ready to increase rates several times in 2017. The discussion is now turning to the Fed’s balance sheet. Central bankers appear ready to reduce the amount of assets held by the central bank as they “normalize” monetary policy. But it’s not entirely clear that a return to normalcy is the best approach.

Thanks to extraordinary monetary policy in the form of quantitative easing, the balance sheet of the Federal Reserve grew from about $900 billion in 2007 before the financial crisis to about $4.5 trillion currently. The Federal Open Markets Committee, the Fed’s policy-setting committee, has stated that its plan is to passively reduce the balance sheet by allowing the assets it holds to mature and not reinvest the funds. In other words, the Fed will collect the proceeds from government bonds and mortgage-backed securities but it won’t buy any new ones. But when will this passive disinvestment begin and how will the committee communicate the policy?

The decision about the size of the balance sheet is a choice about the future set of tools the Federal Reserve will use. Shrinking the balance sheet will, as former Federal Reserve Chair Ben Bernanke notes, return the toolbox to the pre-2008 form, where the Federal Funds Rate was controlled via the buying and selling of bonds in the open market. Keeping the balance sheet large would mean the tools currently in use—such as paying interest on excessive bank reserves and taking short-term deposits from institutional lends—would become the long-term tools.

But there are broader implications for future monetary policy. The balance sheet grew so much over the past 10 years because the Fed was purchasing massive amounts of assets to stimulate the economy and financing those purchases by increasing banks’ reserves at the Federal Reserve. Reducing the balance sheet and reducing the amount of reserves would send a signal that the increase in the amount of money in the economy—creating an expansionary monetary policy—was only temporary.

By reducing the balance sheet after the United States’ first experience with quantitative easing, it could set a precedent for the next round, signaling that future increases would also be temporary. David Beckworth of the Mercatus Center argues that a temporary increase in the monetary base is going to be far less effective than a permanent increase, using the example of the United States going off the gold standard. A temporary increase may not convince the public that the inflation and economic growth will be permanently higher and therefore may not increase aggregate demand as much. Reductions in the balance sheet today could be a signal that future asset purchases would be temporary and less effective.

Perhaps it would be harder to reduce the monetary base if an expansionist monetary policy via asset purchases were financed by an increase in currency in the form of direct cash payments to households. This argument for “helicopter drops” as possibly more convincing (noted by Beckworth) is made by Columbia University economist Michael Woodford.

It’s not clear when the Federal Reserve will start passively decreasing its balance sheet, but the answer may come as soon as the Federal Open Markets Committee’s next meeting in June. Unlikely as it seems, a reconsideration of reducing the Fed’s stock of financial assets may be in order. The impact of future asset purchases by the Fed—likely in an era of permanently lower interest rates and perhaps required to fend off the inevitable next recession—may depend upon it.

Should-Read: Branko Milanovic: Reducing inequality by deconcentrating capital

Should-Read: Branko Milanovic is what Marx used to call a petty-bourgeois socialist: tame capitalism by making sure that valuable property is widely distributed. Marx thought that this was doomed to fail under industrial capitalism, but Marx’s arguments have big holes in them. It might well work:

Branko Milanovic: Reducing inequality by deconcentrating capital: “The capital–income ratio continues to rise… http://voxeu.org/article/reducing-inequality-deconcentrating-capital

…This increases interpersonal inequality when three conditions are met (as they are in all rich economies today): the rate of return to capital outstrips that of income, income from capital is concentrated among the rich, and the income source that is less equally distributed is correlated with overall income. This column argues that the third condition is not inevitable, and that policies to share income from capital more equally would decrease overall inequality. We have tools to do this, but policymakers lack the political will…

Should-Read: David Anderson: Revisiting Cassidy-Collins

Should-Read: David Anderson: Revisiting Cassidy-Collins: “Engagement either leads to burning Senate time if there is no productive grounds for a deal… https://www.balloon-juice.com/2017/05/16/revisiting-cassidy-collins/

…which is a good in and of itself in a normal legislative environment and extremely valuable in today’s climate, or a deal that cements the federal role in healthcare where the argument is over which dial to turn and how far to turn it. That returns healthcare to normal politics and cements a massive ideological victory for liberalism bought at the cost of a tactical policy retreat and giving up the ability for Democrats to use healthcare as a board with a nail on it to beat up on Republicans in the 2018 midterms.

Cassidy-Collins is fundamentally a healthcare bill. I am still scratching my head at how to make auto-enrollment work with deductibles for a single individual under $10,000 but it is a healthcare bill. The AHCA is a tax cut bill with massive Medicaid cuts attached to it. A few cups of coffee to see if there is a plausible agreement zone by both conservative Democrats in vulnerable seats and Senators who liberals can trust as policy validators are worth drinking…

Must- and Should-Reads: May 17, 2017


Interesting Reads:

A reminder on the current size of the gig economy

A smartphone displaying the Lyft app is shown in Detroit.

In a piece for a recent issue of The New Yorker, Nathan Heller reviews the impact of the gig economy in the United States. Heller looks at how the growth of online platform companies that supply on-demand labor—such as Uber Technologies Inc., Lyft Inc., and Airbnb Inc.—as a trend that some policymakers and thinkers want to support for a variety of reasons. But the piece never really gets around to telling the reader how much of the economy is influenced by these new companies. Taking another look at the data on the size of the gig economy and other changes in the labor market might change the narrative.

In Heller’s piece, former Secretary of Labor Tom Perez mentions that he asked the U.S. Bureau of Labor Statistics to reinstate the Contingent Worker Supplement survey, which would provide data on the gig economy and other forms of alternative work arrangements. The survey was discontinued in 2005, meaning that policymakers and academics alike since then had no idea how pervasive working arrangements such as contracting or temporary workers are in the United States today.

Two economists, however, recognized the need to fill this information gap and asked the RAND Corporation to run a version of the old CWS survey to capture the current state of this part of the labor market. In a paper released last year, Lawrence Katz of Harvard University and Alan Krueger of Princeton University showed the results of that survey. From 2005 to 2015, the share of workers in alternative work arrangements rose from 10.1 percent to 15.8 percent. The highest share of workers were independent contracts (9.6 percent in 2015), but the largest increase was in “workers provided by contracted firms,” rising from 0.6 percent in 2005 to 3.3 percent in 2015.

How much of the rise in alternative work arrangements is due to online gig economy firms such as Uber or TaskRabbit? According to the data compiled by Katz and Krueger, only 0.5 percent of workers provided services through such online platforms. These less stable forms of work are on the rise, but the heralded online firms haven’t been a major contributor to this shift.

Interestingly, Heller notes that advocates of the online gig economy argue that this kind of work replaces “scrubbing bathrooms at the Hilton.” But the hotel industry has been part of the process that’s largely responsible for the rise of alternative workers by contracting out this labor. In his book The Fissured Workplace, David Weil of Boston University describes how hotels and other industries have contracted out work formerly done by core employees.

Of course, the online firms haven’t had enough time to make a significant dent in the labor market, as most of them are less than 10 years old. But the data from this survey should show these companies for what they are—a continuation of a trend that’s been happening in the offline economy for some time. Only once we put these flashy firms in the context of larger trends can policymakers figure out how to respond to these changes.

Some Notes on Eric Miller’s Review of “Public Intellectuals in the Global Arena”…

Eric Miller: The Unnamed Behemoth: Review of “Public Intellectuals in the Global Arena” http://amzn.to/2pSZyVd: “Deep learning eloquently brought to bear on the contemporary moment has, quite evidently, not been enough to shore up the aging foundations of our republic… https://www.commonwealmagazine.org/unnamed-behemoth

…And a live-from-the-West-Wing Twitter feed is not likely to advance our fortunes, either…. Is the liberal democratic tradition up to the challenge—the challenge of disciplining an economic order that exists not to prosper democracy but itself? On such crucial questions this volume sounds an uncertain note—and a rather quiet uncertain note at that…. No thoroughgoing leftists (seemingly) number among the contributors—none, that is, disposed to warn of enlarging catastrophic conflict between democracy and capital…

(1) But I thought I had done so! Was I too elliptical? “Wealth imbalances alone produce a situation in which… market systems go horribly, dreadfully, diabolically wrong. Consider the Bengal famine…. And what of the British state that ruled India, and was responsible for checking to see whether the incentives the market system was providing really were the incentives that we wanted people to responding to? Prime Minister Winston Churchill sent a telegram, asking: if it were really true that there was famine in India, why was Mohandas Gandhi still alive?…”

(2) The problem, of course, is that the old leftist shibboleth is no longer something anybody can believe in:

The proletariat will use its political supremacy to wrest… centralise all instruments of production in the hands of the State, i.e., of the proletariat organised as the ruling class; and to increase the total productive forces as rapidly as possible…. When… class distinctions have disappeared, and… production has been concentrated in the hands of a vast association of the whole nation… public power will lose its political character… [as] merely the organised power of one class for oppressing another…. In place of… society with its classes and class antagonisms, we shall have an association, in which the free development of each is the condition for the free development of all…

(3) And as Keynes wrote about Trotsky back in 1926:

Granted his assumptions, much of Trotsky’s argument is, I think, unanswerable…. But what are his assumptions?… That a plan exists… that… [that] the proletariat… are converted to the plan… the rest who for purely selfish reasons oppose it…. If we pressed him, I suppose he would mention Marx. And there we will leave him with an echo of his own words–“together with theological literature, perhaps the most useless, and in any case the most boring form of verbal creation.”

Trotsky’s book must confirm us in our conviction of the uselessness, the empty-headedness of Force at the present stage…. All the political parties alike have their origins in past ideas and not in new ideas–and none more conspicuously so than the Marxists. It is not necessary to debate the subtleties of what justifies a man in promoting his gospel by force; for no one has a gospel. The next move is with the head, and fists must wait…

(4) So what is the new gospel—or, rather, what is the public-sphere intellectual-sociological process that we ought to have to discern the new gospel? And do we have that process? And since we do not, how should we go about trying to build it? Those are, I think, the big questions that our book was trying to address, fitfully and unsatisfactorily as we did so.

Back to Eric:

Willy Lam… on… China… places his hope in… “universal norms,” “universal-style democratic institutions,” and “the values enshrined in the charters of the United Nations.”… [Michael] Zuckert too finds the “liberal-democratic tradition” to be “the indispensable ground for our common moral and political life.” But is the liberal democratic tradition up to the challenge—the challenge of disciplining an economic order that exists not to prosper democracy but itself?…

(5) The answer was supposed to be “social democracy”—or, if you preferred, “liberal democratic socialism”, although the S-ism word has, in my view, been too deeply poisoned by the really existing socialisms that existed behind the Iron Curtain for it to be of any positive discursive use. In Polanyian terms, social democracy was supposed to ensure that people had the rights they thought they deserved and expected to see instantiated even though they were not property rights properly—their rights to stable communities, anticipated income levels, and stability of life and economic organization that Polanyi argued a market society undermined by its “fictitious” transformation of land, labor, and finance into “commodities”. Yet somehow there is now not a Polanyian revolt of “society” against the market economy, but rather of some elements of “society” against social democracy—it is not the market economy, but rather social democracy that is seen as illegitimately taxing and regulating the “productive” and giving to the “unproductive”. The question of the breakdown of the social democratic order in the face of first a hard neoliberalist and now a neo-fascist challenge remains poorly understood.

Back to Eric:

Tellingly, many of the book’s authors find themselves preoccupied with structural-functionalist questions regarding the evolving place of public intellectuals… taking for granted… integrity and stability (or… the impossibility of an alternative)… [and] musings on the “role” of intellectuals in it…. Lilla… contends that “the era of liberal idealism that began in the 1980s and spread in the 1990s is over,” and that we now find ourselves illiberally bound to a global behemoth that is yet unnamed—or not named properly: “We have no idea how this system really works, or even what to call it”…

(6) I see those two currents not in opposition but as instead in mutual support: we do not understand the social and societal world in which we are embedded, and yet we must understand—and fulfill—our role in order to even have a chance of creating a society that can make its important choices. “Tradition” is not an alternative—and it never was. There never were societies based on the “traditional” in the sense that what is old is what is good, and the older the better. There were societies in which change came only slowly, so that what had worked for some people in the relatively recent past was likely to work (of only for today’s analogues of those same people) today. There were societies that turned antiquity and habit into an advantageous Burkean judo move: instead buying all new furniture, find a creative, clever, and beneficial way to utilize the furniture you have inherited, no matter how differently you are using it from what its original purchasers used it for. There were societies that pretended that what was convenient to the powerful—even if a rank innovation—was “tradition” because they could not or dared not enunciate any other reason for it.

Well, in our world change does not come slowly. In our world, the Burkean judo move move is of limited use—especially as it tends to slide into the mendacious and destructive third use of “traditional “. Thus when Eric Miller and Michael Zuckert counterpose “tradition” to “public intellectuals” as ways of collectively thinking about who we shall be, he poses a choice that must be false for us. And, to tell the truth, the choice was overwhelmingly false for all of our predecessors as well, back to the Toba volcanic supereruption and the coming of language to the East African Plains Ape. Time scales and mendacity in the context of limited access to documents and history may have masked that for long periods of time. But it was so.

It is public intellectualism or nothing.

Moreover, I think Eric misdiagnoses the current problem:

Today, thanks to the internet, we may have enlarging “public intellectual” presence, but only—and not coincidentally—in the face of an absent public, a public that, having been educated in a fragmented disciplinary and social order, has given itself over to “jobs and private affairs”: Economics 101. We citizens need a new core curriculum… the active presence of that ancient Augustinian city, portending… a civil society founded upon the bedrock of institutions that store up treasure capital cannot see. And we need teachers—intellectuals, if you will—who can help us to see and seize that treasure. Now.

(7) It is not an absent public that is the problem, but a #fakenews and a Fox News public. Most importantly right now, Mike Pence and Teresa May do not seem to have had their conversations with James and Lachlan Murdoch—and with Rupert—on the importance of preparing the way for the #Amendment25 remedies that are now necessary. I mean, making money by terrifying your elderly viewers and so keeping their eyeballs glued so you can sell them overpriced gold and weapons is all fun and games. But somebody is going to lose an eye—indeed, Mossad has in all likelihood already lost assets.

(8) Not, note well, that I understand the public sphere of the early twenty-first century, or how to improve it…


Must-Read: Eric Miller: The Unnamed Behemoth: “In his 2011 book Reading Obama, the historian James Kloppenberg called the president ‘a man of ideas’… https://www.commonwealmagazine.org/unnamed-behemoth

…an “intellectual” who had long “showed the capacity and inclination to mobilize America’s intellectual traditions to bolster democratic political action.” Indeed, in a recent New York Times interview Obama revealed that even during his years in the White House he dedicated himself to reading—in an effort, as he put it, to “slow down and get perspective,” to “get in somebody else’s shoes,” to “maintain my balance.” Unlike many high-profile politicians, he wrote many of his own speeches, trying, as he says future political leaders must, “to tell a better story about what binds us together as a people.”

If Barack Obama embodies the promise of public intellectualism, his own record also reveals its shaky prospects. Deep learning eloquently brought to bear on the contemporary moment has, quite evidently, not been enough to shore up the aging foundations of our republic—much less bind us together as a people. And a live-from-the-West-Wing Twitter feed is not likely to advance our fortunes, either. “The evolving edifice of public intellectualism,” to use the term of Public Intellectuals in the Global Arena’s editor Michael C. Desch, rests on a foundation whose cement seems to be returning to sand. We have it on good information what comes next.

“Once human societies stop being essentially grounded in tradition, something like public intellectualism becomes constitutive,” observes the political scientist Michael Zuckert in his chapter of this volume. And herein lies the challenge these authors—fifteen in all, from a range of disciplines and nationalities—glimpse and name in diverging ways. If our grounding in tradition is gone, and if the enlightened replacement yet continues its deconstructing course, what have the intellectual avatars of the contemporary order to offer?

Economics, apparently. Desch names the discipline “the preeminent home of public intellectuals” in today’s academy; Mark Lilla drily notes that “Economics 101” is now “the world’s de facto core curriculum.”

The economist J. Bradford DeLong agrees, announcing that “Economists are here to tell you what’s what and how to do it”—teachers in the authoritarian mold, it seems. He follows this pronouncement with the observation that, given the triumph of global capital and subsequent failure of any other organizing principle, mere citizens have no choice but to “listen” to economists. “But you have nearly no ability to evaluate what you hear,” he warns. “When we don’t reach a near consensus, then heaven help you.” As DeLong goes to lengths to show, the country—the world—is in the hands of a field that is nowhere close to such consensus. Such news does not reassure the democratic soul.

DeLong baldly states that “a market economy’s underlying calculus is a calculus of doing what wealth wants rather than what people need.” Several contributors are intent on finding a way to thwart that desire and explore alternatives. Willy Lam, writing on the fate of public intellectuals in China—where, he says, their “toughest challenge” is mere “survival”—places his hope in the triumph of what he calls, variously, “universal norms,” “universal-style democratic institutions,” and “the values enshrined in the charters of the United Nations.” Writing from the United States, Zuckert too finds the “liberal-democratic tradition” to be “the indispensable ground for our common moral and political life.”

But is the liberal democratic tradition up to the challenge—the challenge of disciplining an economic order that exists not to prosper democracy but itself?

On such crucial questions this volume sounds an uncertain note—and a rather quiet uncertain note at that. This may have something to do with the fact that on the whole its contributors lean right; indeed, Desch dedicates the book to Allan Bloom and Samuel Huntington. Remarkably, given their incontestably central place in the history of public intellectuals, no thoroughgoing leftists (seemingly) number among the contributors—none, that is, disposed to warn of enlarging catastrophic conflict between democracy and capital.

Tellingly, many of the book’s authors find themselves preoccupied with structural-functionalist questions regarding the evolving place of public intellectuals in contemporary society, taking for granted that society’s integrity and stability (or, just as concerning, the impossibility of an alternative to the current order). The actual “global arena” of the book’s title is often (again, tellingly) lost from view, replaced by musings on the “role” of intellectuals in it. These portions of the book read like a tired update of mid-twentieth-century sociological theory.

But at key moments urgency breaks through. Lilla in fact goes so far as to conjure the ghost of Marx. “Returning to the baroque edifice Marx’s Capital would be a step backward,” he writes. “But acquiring some of Marx’s ambition simply to describe the reality of contemporary capitalism and its political repercussions would be a genuine advance.” He contends that “the era of liberal idealism that began in the 1980s and spread in the 1990s is over,” and that we now find ourselves illiberally bound to a global behemoth that is yet unnamed—or not named properly: “We have no idea how this system really works, or even what to call it.”

Andrew Bacevich—not one to take stability of any kind for granted—writes in a similar register. In his examination of Cold War American intellectuals Bacevich discovers an earlier version of the same analytic deficit Lilla points up, warning that these influential intellectuals, when “faced with a dire threat defined in oversimplified ideological terms,” broadcast “a faux ideological response.” Their tendency to miss the actual historical circumstances for the Big Idea proved costly: they helped leverage “a state-centered militarized version of liberalism.” The result? “Gaping inequality and a culture that has made gods of choice, consumption, and an absence of self-restraint”— a “shallow and insipid definition of freedom,” he none too delicately calls it.

Definitions of freedom may be hammered out in the intellectual sphere, but they begin as social practices in the realm of civil society—that pricey terrain that Lam, for instance, has his eyes on when he thinks hopefully about the prospect of serious, independent intellectuals in China. Even the Communist Party, in its own malign way, grasps this: it has “been reviving Confucianism with gusto,” writes Lam, “so as to fill the spiritual vacuum within citizens who have lost faith in socialism.”

Ahmad S. Moussalli (from the American University of Beirut) senses the same spiritual need in the Middle East. He criticizes “Arab renaissance intellectuals” whose embrace of a liberal, secular vision choked out “an intellectual Muslim modernist and reformist trend,” paving the way for “the authoritarian nationalist state.” Moussalli understands that public order—whether in liberal or authoritarian societies—is bound up in religious vision, ideals, and practices. Political wisdom requires an embrace of this inalienable human reality, however socially complicated such an embrace may be.

But the West has tried, of course, to lead the way in the other direction, a trajectory assessed with acuity by the political theorist Patrick Deneen, who turns our attention to the secularizing currents in the history of higher education. Earlier in our past, he writes, the task of the college teacher was to achieve “the integration of various forms of knowledge,” guided by a “theory of human flourishing” that imagined education’s end to be the cultivation of the “free citizen.” “The structure of the college,” he notes, “reflected the deeper commitment to a universum.”

Today, thanks to the internet, we may have enlarging “public intellectual” presence, but only—and not coincidentally—in the face of an absent public, a public that, having been educated in a fragmented disciplinary and social order, has given itself over to “jobs and private affairs”: Economics 101.

We citizens need a new core curriculum: that much this volume makes clear (even when it’s not trying to). And we need the active presence of that ancient Augustinian city, portending a new one. We need a civil society founded upon the bedrock of institutions that store up treasure capital cannot see. And we need teachers—intellectuals, if you will—who can help us to see and seize that treasure. Now.

Must-Read: Eric Miller: The Unnamed Behemoth: Review of “Public Intellectuals in the Global Arena”

Must-Read: Eric Miller: The Unnamed Behemoth: Review of “Public Intellectuals in the Global Arena” http://amzn.to/2pSZyVd: “Deep learning eloquently brought to bear on the contemporary moment has, quite evidently, not been enough to shore up the aging foundations of our republic… https://www.commonwealmagazine.org/unnamed-behemoth

…If our grounding in tradition is gone, and if the enlightened replacement yet continues its deconstructing course, what have the intellectual avatars of the contemporary order to offer?  Economics, apparently. Desch names the discipline “the preeminent home of public intellectuals” in today’s academy; Mark Lilla drily notes that “Economics 101” is now “the world’s de facto core curriculum.” The economist J. Bradford DeLong agrees, announcing that “Economists are here to tell you what’s what and how to do it”—teachers in the authoritarian mold, it seems.

He follows this pronouncement with the observation that, given the triumph of global capital and subsequent failure of any other organizing principle, mere citizens have no choice but to “listen” to economists. “But you have nearly no ability to evaluate what you hear,” he warns. “When we don’t reach a near consensus, then heaven help you.” As DeLong goes to lengths to show, the country—the world—is in the hands of a field that is nowhere close to such consensus. Such news does not reassure the democratic soul. DeLong baldly states that “a market economy’s underlying calculus is a calculus of doing what wealth wants rather than what people need.” Several contributors are intent on finding a way to thwart that desire and explore alternatives…. is the liberal democratic tradition up to the challenge—the challenge of disciplining an economic order that exists not to prosper democracy but itself?…

Lilla in fact goes so far as to conjure the ghost of Marx…. “Acquiring some of Marx’s ambition simply to describe the reality of contemporary capitalism and its political repercussions would be a genuine advance.”… We now find ourselves illiberally bound to a global behemoth that is yet unnamed—or not named properly: “We have no idea how this system really works, or even what to call it.”… We need a civil society founded upon the bedrock of institutions that store up treasure capital cannot see. And we need teachers—intellectuals, if you will—who can help us to see and seize that treasure. Now.

Home is where the government subsidy is

A for sale sign hangs in front of a home, in Milton, Massachusetts.

In a piece in The New York Times Magazine, Harvard University sociologist Matthew Desmond outlines how U.S. government policy toward housing has become a source of inequality rather than a force against it. Desmond highlights how the mortgage interest deduction has become a major source of inequity. The benefits of the program flow disportionately to those taxpayers near the the top of the income distribution, while those lower down the income ladder—whether homeowners or renters—don’t receive as much (if any) help.

A few figures in a blog post from the Tax Policy Center point out the upside-down nature of this tax policy. A family whose earnings put it anywhere between the 90th and 95th percentile of the income distribution gets a tax benefit that’s about 1.5 percent of its after-tax income. A family between the 40th and 60th percentiles gets around 0.3 percent. The benefit from the deduction ends up being five times larger for the higher-income family.

The inequity is even more pronounced, as Desmond points out that assistance for renters—who tend to be lower in the income distribution—is minimal compared to those who own homes.

Some policymakers or outside interest groups could perhaps make a partial defense of the mortgage interest deduction if it helped promote homeownership. But that’s not true. The deduction does little on the margin to increase the likelihood that an individual or a family will buy a house. Instead, research shows that the deduction gets people to buy a larger house once they do decide to buy. To put this effect in economics jargon, “the home mortgage interest deduction incentive works on the intensive, not the extensive, margin.” The incentive, then, is for households to increase the amount of mortgage debt they take on. The more debt they use to finance a home, the more of a tax break they will get.

As Derek Thompson points out at The Atlantic, the problems with the mortgage interest deduction are mirrored by other issues with the tax code. A number of deductions, including those for saving for retirement and for college tuition, are strongly tilted toward higher income households and are far from efficient. The mortgage interest deduction is simply one of the most egregious forms of an inequitable and inefficient policy approach.