Category: Equitablog

Should-Read: The centrist neoliberal project–use market means to achieve both social democratic ends and the rapid expansion of wealth–has crashed and burned. Now comes Ruy Texeira to lead the left that was kept off the plane and the center that has survived out of the mountains to a practical utopia…

Ruy Texeira tells leftists and centrists, cosmopolitans and communitarians, organizers and activists which is the way to a pragmatic utopianism based on the energy and accomplishments of humanity…

Ruy Teixeira: The Optimistic Leftist: “A new utopian vision for the left’s emerging coalition will… include…

…First… a commitment to abundance…. Material abundance is a very good thing…. It is only those that already have it that are inclined to downplay its importance…. Closely linked to this aspect of the left’s utopian vision will be a re-embrace of technology…. Technological progress will also have a central role in another aspect of the left’s vision—a green world where the environment is safeguarded and global warming is held in check…. A better world is also a global, interconnected world…. This means explicitly rejecting the idea that there is an intrinsically disadvantageous tradeoff between the welfare of the West and the welfare of the rest of the world….

The left will aim for a world where racial and gender equality are worldwide realities, where sexual orientation is a non-prejudicial, individual a air and where tolerance of others from different cultural, religious or national backgrounds is the rule…. Universal and deepened democracy…. Universal suffrage, with freedoms of the press, association, speech, etc., should be and can be the core governmental form in every country. In addition, the advance of information technology should be leveraged to provide citizens with far greater access to the workings of government and ease the costs of political participation across the world… an educated world… not just universal literacy but universal tertiary (college) education….

This vision does not include an embrace of “socialism”—much less a planned economy—and implicitly assumes that capitalism will continue in some form with a large role for the market. The key question is not “whether capitalism?” but rather “what form?”… Such a society will not be perfect. But perfection is not the point. The goal is to make society as close as it reasonably can be to the left’s new utopian vision, while making no heroic assumptions… pragmatic utopianism… a continuous process, a never-ending quest to improve society…. It is the signature of the optimistic leftist and of a twenty-first century that will be far, far better than you think. We live in extraordinary times; the left can and will make them extraordinarily good for humanity.

Should-Read: Kevin Drum: Charts of the Day: If Only Every State Could Be As “Out of Control” As California: “I feel like someone ought to defend the honor of California against our president, so why not me? Here you go…

Since the state GDP series started in 1997, California GDP has grown 12 percent more than the country as a whole. The number of workers has grown 7 percent more. If only every state could be as out of control as California.

UPDATE: I’ve gotten a bit of grief from folks suggesting that this difference is just because California’s population has grown faster than the rest of the US. Not so: between 1997 and 2015, California’s population increased about 20 percent while total US population increased about 18 percent. If the difference were bigger I would have gone to the trouble of calculating GDP and employment per capita, but there wasn’t much point.

Should-Read: James Kwak: Health Care and John D. Rockefeller’s Dog: “Few people actually want to live in a world where health care is distributed by a free market…

…Textbook markets allocate goods and services to the people who are willing to pay the most for them—on the assumption that this maximizes social welfare. As Paul Samuelson wrote in his seminal 1948 textbook, “John D. Rockefeller’s dog may receive the milk that a poor child needs to avoid rickets Why?… Because [supply and demand] are doing what they are designed to do.” If you have a chronic illness that is likely to require $30,000 in treatment, the correct market price for your health plan is more than $30,000. That’s not a market failure; that’s the price at which a profit-seeking company should sell you a policy. But as Jacob Hacker wrote in The Great Risk Shift, “Most of us think it’s fine that some people can’t buy fancy clothing or fast cars. But most of us draw the line at basic health care”…

Should-Read: Robert Waldmann: Buchanan, Smith, and Krugman: “There is no reason why macroeconomists can’t work on empirical microeconomics while also using old Keynesian models for forecasting and policy advice…

…Now one might argue that it would be better not to give advice until we have decent models based on empirical microeconomics. This would be true if macroeconomists’ forecasts were reliably worse than those of non-economists. (Indeed, I am glad that Prescott, who said that the then current problems were no big deal in early 2009, and Lucas, who claimed to know that public investment couldn’t cause increased nominal aggregate demand, are not actively contributing to the policy debate). [But that] is not a sensible criticism of Krugman. I think it is clear that old Keynesian models are useful, because they give better forecasts and conditional forecasts than the judgment of non economists.

I have nothing against empirical micro research. Trying to understand price setting, hiring, firing and saving decisions is worthwhile as pure social science in any case. But the idea that macroeconomists should be microeconomists for a while (how many decades?) ignores that fact that policy makers are making horrible mistakes, and that (some) macroeconomists have reliably warned in advance that they are mistakes.

Should-Read: For a long time, there have been Texas journalists claiming that former Texas Governor and Trump’s choice for Secretary of Energy Rick Perry is a competent, industrious, and good-intentioned man. Why, I have no idea:

Caitlin Macneal: Perry Didn’t Fully Understand Role Of Energy Secretary At First: “Former Texas Gov. Rick Perry did not realize exactly what the position of energy secretary entails…

…when he accepted Donald Trump’s offer to lead the department…. Perry was prepared to represent the American energy sector abroad and did not understand that he would be charged with overseeing the United States’ nuclear arsenal….

If you asked him on that first day he said yes, he would have said, ‘I want to be an advocate for energy,’” Michael McKenna, a Republican lobbyist who has advised Perry’s campaign and Trump’s transition team, told the New York Times. “If you asked him now, he’d say, ‘I’m serious about the challenges facing the nuclear complex.’ It’s been a learning curve…

During his 2012 presidential run, Perry called for the elimination of the Energy Department. The former Texas governor, if confirmed, will be charged with managing the agency’s $30 billion, two thirds of which is devoted to maintaining nuclear weapons and avoiding nuclear proliferation…

Must-Read: Note that in its rosy scenario Trump is not exceptional–for a Republican. Similar claims were made by Hassett, Hubbard, Mankiw, and Taylor on behalf of Mitt Romney back in 2012. Rosy scenario, and subsequently having to explain–in 1988, in 1992, in 2008, and 2020–why their projections back during the campaign and in the transition were such b.s.

And, yes, Hassett, Hubbard, Mankiw, and Taylor would have been making excuses last year had Romney won in 2012:

Nick Timiraos: Trump Team’s Growth Forecasts Far Rosier Than Those of CBO, Private Economists: “While there are often disparities between the White House and independent agencies on growth projections, they are rarely this large…

…The Trump administration has drafted preliminary economic growth forecasts in its federal budget planning that rely on assumptions that are far rosier than projections made by independent agencies and most private forecasters…. The forecasts, which were initiated before President Donald Trump took office, project gross domestic product—a broad measure of national output of goods and services—growing between 3% and 3.5% a year over the coming decade…. The economy has grown around 2% on average over the past decade…. The internal Trump projections are at odds with other assessments of the economy’s long-run growth prospects. The Congressional Budget Office… estimates… 1.9% annually between 2021 and 2027. The Federal Reserve forecasts growth of 1.8%….

“The president ran a campaign on proposals that would be incredibly pro-growth,” said Lindsay Walters, a White House spokeswoman. “There is a process in place where the administration develops an economic forecast based on its policies that are included in the president’s budget. That budget is still being finalized.”… The forecasts were prepared by Trump transition officials who met with officials at the Treasury Department and the CEA after the election, according to five people familiar with those discussions…

Compare:

R. Glenn Hubbard (Columbia University), N. Gregory Mankiw (Harvard University), John B. Taylor (Stanford University), and Kevin A. Hassett (AEI) (2012): The Romney Program for Economic Recovery, Growth, and Jobs “The Romney tax reform plan will increase GDP growth by between 0.5 percent and 1 percent per year over the next decade…

…We view these estimates as conservative as they fail to capture important, but hard-to-model, output gains from improved regulation, more certainty about the path of policy, and the aggressive agenda that Governor Romney has put forward with respect to energy, trade, education, human capital, and labor policy. Combined, and bolstered by sound monetary policy, we estimate that the Romney economic program will enable the private sector to create an additional 7 million net new jobs over the next decade beyond the improvement in employment from a more robust cyclical recovery in the short-term as a consequence of the Romney economic program….

From 2013 to 2022, under CBO’s current projection, potential GDP will grow about 2.5 percent per year on average…. Measuring from the first quarter of 2013 through the fourth quarter of 2022, the [Romney] average growth rate is expected to be approximately 4 percent per year with the upper long-term growth range, and about 3.5 percent with the lower long-term growth range…

Hassett, Hubbard, Mankiw, and Taylor were claiming 3.75%/year for Romney in 2012. At least the nameless transition forecasters are only claiming 3.25%/year for Trump today.

It’s what they do.

Must-Read: Colin Camerer: On “Rational Expectations” and John Muth: “Rational expectations pioneer John Muth in 1984…

…”really incredible” so little attention paid to cognitive limits #behavioraleconomics <https://t.co/xiy2iu069K>:

He had got hold of the data from five business firms, including expectations data, analyzed it, and found that the rational expectations model did not pass the empirical test. He went on to say:

It is a little surprising that serious alternatives to rational expectations have never been proposed. My original paper was largely a reaction against very naive expectations hypotheses juxtaposed with highly rational decision-making behavior and seems to have been rather widely misinterpreted.

Two directions seem to be worth exploring:

1. Explaining why smoothing rules work, and their limitations, and

2. Incorporation well-known cognitive biases into expectations theory (Kahneman and Tversky). It was really incredible that so little has been done along these lines. <http://public.econ.duke.edu/~kdh%Source%20Materials/Research/Rational%20Expectations%20Panel.pdf>

Should-Read: Wing Thye Woo: China’s Growth Odyssey: “Former World Bank Chief Economist Justin Yifu Lin is sanguine…

…Lin is confident that policies to boost domestic demand – including “improvements in infrastructure, urbanization efforts, environmental management, and high-tech industries” – will prove sufficient to meet the government’s official growth targets…. When Japan’s per capita income was that far behind the US, in 1951, it then “grew at an average annual rate of 9.2% for the next 20 years.” Lin attributes this growth to developing countries’ “latecomer advantage”…. Nobel laureate economist Michael Spence and Fred Hu of Primavera Capital Group seem to agree. While they acknowledge that “the Chinese trade engine has lost much of its steam,” they attribute this to “weak foreign demand,” and conclude that “China’s transition to a more innovative, consumer-driven economy is well underway.” In Spence and Hu’s view, China’s economy “is experiencing a bumpy deceleration, not a meltdown”….

[But] Cornell University’s Kaushik Basu… predicts that “Trump is about to make a policy mistake.” His “neo-protectionist” brand of tariffs, combined with financial deregulation, will not hurt only the US, Basu argues, but also any country that runs “large trade surpluses vis-à-vis the United States” – namely, China….

China must confront serious domestic challenges as well…. “China’s problem is not that it is ‘in transition,’” Jin says. “It is that the state sector is choking the private sector.”… Zhang Jun… also believes that the state sector poses a major threat to China’s economy, and calls for “a far-reaching restructuring of large SOEs.” He outlines the positive knock-on effects of shutting down state-backed “zombie” firms and limiting SOEs’ role to just a few relevant economic sectors – a process former Premier Zhu Rongji started but did not finish two decades ago….

Any discussion of China’s economy must address the political choices it faces. For the New School’s Nina Khrushcheva, Chinese President Xi Jinping has initiated an era in which “collective leadership has given way to one-man rule, and the unwritten rules of behavior have been junked.” Taken together, Xi’s re-centralization of power, prosecution of potential rivals, crackdown on the domestic media, and efforts to reinforce the “Great Firewall” to block foreign websites amount to a major setback for China’s sociopolitical progress – and possibly for its economic progress, too….

Taken together, the five largest Latin American economies’ per capita GDP, adjusted for purchasing power parity, was around 30% of the US level in 1955, and that ratio remains the same today. While these countries’ absolute standard of living has improved, the size of their development gap vis-à-vis the US has not changed in more than 60 years. This failure to catch up is generally known as the “middle-income trap.” And, as Ernesto Talvi of the Brookings Institution points out, it is no coincidence that the past 40 years of Latin American history has been marked by cycles of political disruption. Similarly, growth slowdowns in Malaysia and Thailand over the past two decades have led to large-scale protests and episodes of political violence.
Moreover, the middle-income trap is the norm. The only large Asian economies that have managed to narrow their development gaps relative to the US are Japan, Taiwan, and South Korea, and China’s problems are too large and complex simply to assume that it shares its neighbors’ economic exceptionalism….

Taming China’s SOEs is necessary for restoring strong growth, as Project Syndicate commentators agree. This does not reflect a shared ideological bias, but rather the reality that SOEs constitute a growing burden on the economy. The largest SOEs should not necessarily be privatized, but private firms must be allowed to compete freely with them (with exceptions for certain sectors such as armaments), and hard-budget constraints and open trade must be maintained. China should also explore policies to expand domestic innovation…. China can still achieve sociopolitical harmony and position itself to become a developed, high-income country. In an age of mounting global uncertainty, owing in no small part to the US, China stands to benefit enormously – particularly in geopolitical terms – if it can emerge as a source of sustained economic dynamism.