Category: Equitablog

Should-Read: Rui Pedro Esteves and Coşkun Tunçer: Eurobonds Past and Present: “Debt mutualization in Europe… pre-1914 guaranteed bonds and current Eurobonds…

…Debt mutualization solutions similar to Eurobonds were tried before, and the closest historical examples to the present debate are the pre-1914 guaranteed bonds. We highlight three key characteristics of debt mutualization, which are apparent both in the current debate and in history: moral hazard, debt dilution and conditionality. We show that the fears about short-run dilution and moral hazard were not unknown to pre-1914 market participants. These problems were partly addressed by mechanisms of conditionality such as international financial control. The historical evidence suggests that the dilution of outstanding obligations may be overplayed in the current debate. On the contrary, creditors’ moral hazard (ignored in current debt mutualization proposals) was as problematic as the usual debtor’s moral hazard –especially when the groups of countries guaranteeing the bonds and the creditor nations did not overlap entirely.

Should-Read: that the Speaker of the House thinks that there is something wrong with insurance as a concept is very distressing on many levels:

Via David Mack: Paul Ryan: Repealing ObamaCare: “The whole idea of Obamacare is…

the people who are healthy pay for the… sick. It’s not working, & that’s why it’s in a death spiral… https://t.co/ztTXrn7bpH

Should-Read: Noah Smith: Trump’s Industrial Rebirth Is a Dead End: “President Donald Trump’s economic adviser, Peter Navarro, has vowed to restore U.S. manufacturing supremacy…

…But there’s no going back…. Everyone should read “The New Geography of Jobs,” by University of California-Berkeley economist Enrico Moretti. It’s probably the most important popular economics book of the decade…. Two Americas — one… healthy, rich and growing, and a second… left behind… divided… by the kinds of industries they support. Those cities and towns that are home to… information technology, pharmaceuticals, advanced manufacturing… are wealthier, healthier and safer, while the places without these industries are steadily declining. “The New Geography of Jobs” catalogs these changes relentlessly…. Local multipliers are the key to providing Americans with good jobs…. The kind of industries the U.S. used to specialize in–textiles, steel and cars–provide much smaller multipliers than the innovative industries that the country has now shifted into. The U.S. didn’t lose out to China — it simply shifted into more productive industries. If the country were to return to the kind of low-multiplier manufacturing that it left behind in the 1980s, it would be a lot poorer as a result….

Writing angry tweets at companies that open factories in Mexico won’t create good jobs for American workers. But expanding universities and allowing greater urban density just might do the trick. If Trump and his people can’t do this, the Democrats should make it a pillar of their own economic strategy. There is no way back for the U.S. economy–only forward, further into the innovation age.

Should-Read: Dan Drezner: The politics of discomfort in the Age of Trump: “It was on the plane… that I remembered… I had forgotten to upload my lecture notes for the next day…

…I couldn’t really afford to give up my computer. Which meant, if push came to shove at the CPB desk, I would need to grant access to my electronics so as to ensure I had a lecture to give the next day. That realization led to some sadness that I was so disorganized as to be unable to take a principled stand, but — and here’s the embarrassing part — I also felt some small measure of relief. I wouldn’t have to be inconvenienced. Even if actions are being taken that tarnish American exceptionalism, I wouldn’t have to resist that day. And that felt comforting….

I could manage to get through the Trump era without any personal fear of the coercive apparatus of the state intruding on my affairs — even if CPB or DHS chooses to crack down on less privileged groups. What scares me the most about the Trump administration isn’t what the federal government will do to me. What scares me is my own ability to look away if the federal government does things to more marginalized segments of the population.

Should-Read: Bill Emmott: Populism Versus Prosperity: “The Wake Up 2050 Index ranks the 35 mainly advanced-country members of the OECD according to their preparedness in five areas…

…demography, the knowledge society, technological innovation, globalization, and resilience…. Switzerland tops the index…. The country’s populists are a single-issue brigade–with that issue being immigration–and have far too little support to enter government…. Given Switzerland’s reputation for being wealthy, well educated, innovative, and resilient, its success in the index may not seem surprising. But with wage levels among the world’s highest and 19% of its GDP coming from manufacturing (compared with 12% in the US and 10% in the UK), it should, in theory, be highly vulnerable to Chinese competition and job-destroying automation. Yet it has largely shrugged off these challenges…. The value of long-term planning is perhaps most apparent in Japan. Despite being the advanced economy experiencing the fastest population aging, Japan scores rather well on demography…. Anticipating the demographic shift it would undergo, the country has kept more than 20% of over-65s in the workforce, compared to just 2.9% in France. The US scores worse than expected on both innovation and knowledge. Poor performance among secondary schools and a low overall labor-force participation rate…

Must-Read: Ezra Klein gets it right about the Republican Party and health care reform. Let us dispel with the illusion that these people have any intention of trying to keep America great, or make America greater:

Ezra Klein: The GOP Health Bill Doesn’t Know What Problem It’s Trying to Solve: After seven years of drafting a replacement plan, we get… this?…

…Have you read Sarah Kliff’s thorough look at the GOP Obamacare replacement? You have? Good. Some thoughts.

1. Little in politics shocks me. The process House Republicans want to use for their health care bill does…. Committee votes… two days after releasing it, and without a Congressional Budget Office report estimating either coverage or fiscal effects….
2. If Republicans believed the American people—or even their own legislators—would like the results of a thorough estimate of their proposal’s effects, they would have waited for one…. The GOP plan will lead to… 15 to 20 million people… los[ing] insurance…. After years of Republicans complaining that co-pays and deductibles were too high in Obamacare, co-pays and deductibles will be significantly higher…. The plan will significantly reduce taxes on the rich….
3. The deficit—it’s hard to see any short-term reduction, and if there’s a long-term reduction, it will only be due to deep, deep Medicaid cuts…. The GOP’s main idea for reducing health care costs—ending or capping the tax break for employer-provided insurance—has been left out of this legislation. There is simply no theory of cost control in this bill at all.
4. Adverse selection seems like a huge problem….
5. The plan is strikingly regressive….
6. Hypocrisy is a minor sin in politics, but still, it is remarkable how much of it there is to be found in this legislation….
7. It is difficult to say what question, or set of questions, would lead to this bill as an answer. Were voters clamoring for a bill that cut taxes on the rich, raised premiums on the old, and cut subsidies for the poor? Will Americans be happy when 15 million people lose their health insurance and many of those remaining face higher deductibles?
8. Nor are movement conservatives pleased….
9. This is much more Obamacare 2.0 than I expected….
10. All this speaks to the Republican Party’s fundamental difficulty on health care…. Suderman…. “hey don’t agree on, or in some cases even have, basic goals when it comes to health policy.”
11. Because Republicans aren’t even trying to win Democratic votes, they’re stuck designing a bill that can wiggle through the budget reconciliation process….
12. This bill has a lot of problems… more will come clear…. But the biggest problem this bill has is that it’s not clear why it exists. What does it make better? What is it even trying to achieve? Democrats wanted to cover more people and reduce long-term costs, and they had an argument for how their bill did both…. Republicans have neither. At best, you can say this bill makes every obvious health care metric a bit worse, but at least it cuts taxes on rich people? Is that really a winning argument in American politics?…
13. We’re seeing… Republicans trying desperately to come up with something that would allow them to repeal and replace Obamacare… a compromise of a compromise aimed at fulfilling that promise. But “repeal and replace” is a political slogan, not a policy goal. This is a lot of political pain to endure for a bill that won’t improve many peoples’ lives, but will badly hurt millions.

Should-Read: Martin Sandbu: Globalisation Will Survive: “The emerging world has both a deep interest in keeping globalisation going and greater power to defend it than ever before…

…Erecting trade barriers between the US and Mexico is like building a wall in the middle of a factory floor. it would not make domestic industry more competitive. The same goes for the UK leaving the single market…. Anti-globalism cannot deliver: globalisation bears little of the blame for the west’s economic problems…. Just as agriculture feeds entire populations while employing only a tiny fraction of its workers, so manufacturing work will keep shrinking. The remaining jobs will be high-skilled, managing advanced machinery…. Blue-collar jobs… are not coming back…

On Globalization and Trade

Emerging Markets Want Globalization:

• Globalisation has boosted emerging economies.
  • Trade helped lift more than 1bn people out of extreme poverty.
• The emerging world has:
  • a deep interest in keeping globalisation going
  • greater power to defend it
  • will fiercely contest a return to protectionism.

International Trade Today:

• Driven by knowledge flows.
• Consists of cross-border supply chains.
• Richard Baldwin: “erecting trade barriers between the US and Mexico is like building a wall in the middle of a factory floor”.
  • It would not make domestic industry more competitive.

Anti-Globalism:

• Cannot deliver
• The shrivelling need for manufacturing workers is the price of success at boosting manufacturing productivity.
• Anti-globalists who promise to bring back factories are selling snake oil