Category: Equitablog
Must-read: Marshall Steinbaum: “Should the American Middle Class Fear the World’s Poor?”
Must-Read:The very sharp young whippersnapper Marshall Steinbaum:
: Should the American Middle Class Fear the World’s Poor?: “Politicians responsible to the public cannot sell the idea that the domestic middle class must suffer…
…to the benefit of foreigners. The tradeoff idea instead serves the folk mythology of an elite class of economic policy consensus–enforcers, who push policies that enrich the already wealthy. Democracy is supposed to operate as a natural check to bring the elite policy-making consensus in line with popular opinion and interest; playing the domestic middle class against a foreign one is one of many ways to keep that from happening. Asking which ought to suffer to benefit the other distracts attention from the real issue: their joint exploitation at the hands of globally mobile capital.
In my card-carrying neoliberal view, policies in the Global North to restrict trade (or restrict immigration either below or at rates not far above current ones!) would do relatively little to improve the domestic distribution of income and impose great harm on development prospects in emerging markets. The “China Shock” of the GWB administration is the only trade-related episode that is even plausibly as important as other policy moves. And it would be trivial to compensate for even its net distributional harm.
In my view, the focus of left-wing attention on trade restrictions is due not to the importance of international trade flows in altering income distribution, but rather springs from different motives: from attempts to hook up some of the energy that for two centuries now has been abundantly focused on nation and cross-connect it to class. As Ernst Gellner wrote, leftists have been faced with what they regard as a historical anomaly in the rise of nationalism, and have reacted by embracing:
The Wrong Address Theory…. Just as extreme Shi’ite Muslims hold that Archangel Gabriel made a mistake, delivering the Message to Mohamed when it was intended for Ali, so Marxists basically like to think that the spirit of history of human consciousness made terrible boob. The awakening message was intended for classes, but by some terrible postal error was delivered to nations. It is now necessary for revolutionary activists to persuade the wrongful recipient to hand over the message, and the zeal it engenders, to the rightful and intended recipient. The unwillingness of both the rightful and the usurping recipient to fall in with this requirement causes the activist great irritation…
Policies to enhance intellectual property rights and preserve rents are, of course, another kettle of fish entirely…
Must-read: John Quiggin: Predistribution and Profits
Must-Read: John Quiggin on the exorbitant privilege of the corporate form:
…to the determination of wages and working conditions. These social constructions affect ‘predistribution’, the distribution of income and wealth that arises before the effects of taxes and public expenditure are taken into account. Predistribution is equally relevant to… profit derived from private businesses and corporations…. The risks of running a business in the 18th century, and well into the 19th, were substantial and personal. There was no such thing as bankruptcy: a business failure meant debtors prison, where debtors could be held until they had worked off their debt via labor or secured outside funds to pay the balance….
[In] the middle of the 19th century… personal bankruptcy laws put an end to debtors prison, greatly reducing the risks of running a business. The creation of the limited liability company was an even more radical change. These changes faced vigorous resistance from advocates of the free market…. In Economics in One Lesson, Hazlitt doesn’t mention limited liability or personal bankruptcy and seems to assume (like most defenders of the market) that these are a natural feature of market societies. More theoretically inclined propertarians have continued to debate the legitimacy of bankruptcy and limited liability laws, without reaching a conclusion….
The distribution of income and wealth is radically changed both by the existence of these institutions and by the details of their design. In particular, the massive accumulations of personal wealth made possible by capital gains from share ownership would simply not exist. Perhaps there would be comparable accumulations of wealth derived in some other way, but the owners of that wealth would be different people. A crucial policy question, therefore, is whether current laws and policies relating to corporate bankruptcy and limited liability have promoted the growth of inequality and contributed to the weak and crisis-ridden economy….
What can be done to redress the balance that has been tipped so blatantly in favor of corporations? The obvious starting point is transparency…. More generally, though, the idea that corporations are a natural part of the economic order, with all the human rights of individuals, and none of the obligations needs to be challenged. Limited liability corporations are creations of public policy, useful to the extent that they promote the efficient use of capital but dangerous to the extent that they facilitate gross inequalities of income and opportunity.
Must-read: Eduardo Porter: “As Jobs Vanish, Forgetting What Government Is For”
Must-Read: : As Jobs Vanish, Forgetting What Government Is For: “Though the decline of well-paid working class jobs is often portrayed as the inevitable consequence of globalization and technological change…
…it is in large part the result of a failure of government…. ‘Concrete Economics’ (Harvard Business Review Press) by J. Bradford DeLong and Stephen Cohen… ‘American Amnesia’ (Simon and Schuster) by Jacob S. Hacker and Paul Pierson… point out that for all our love of rugged individualism, government played a large and underappreciated role in reshaping the American economy before — and it could do so again….
High tariffs against imports imposed from the time of Alexander Hamilton, to help foster America’s industrial development… huge grants of land to build railways… [which] vastly increased productivity in agriculture… catalog retailing to centralized meatpacking… innovations that spawned entire industries…. Bolstering workers’ human capital… the Land-Grant College Act… the G.I. Bill…. Local governments across the country poured money and resources into an impressive expansion of secondary education…. Finally, the government directly created jobs — whether in the burst of infrastructure investment in the 1930s that gave us the Hoover Dam, among other huge projects, or the tenfold increase in federal spending from 1939 to 1945 as the government built up the military-industrial complex to fight Germany and Japan.
Why American politics turned against this successful model of pragmatic policy-making remains controversial…. The good news is that the United States may have the best opportunity in decades to overcome its anti-government political biases…. So what’s holding us back? The loss of a vision, once shared across much of the ideological spectrum, of what government can accomplish, when it is allowed to do its job.
Must-reads: May 14, 2016
- : Issues with Econ 101 at Three Levels
- : Pricing Assets in an Economy with Two Types of People
- : Fed Watch: Fed Speak, Claims
- : Thesis: Economics and Econ 101ism:
Should Reads:
- : Fairness and Free Trade
- (2016): On the Uncertainty of the Bayesian Estimator
- (2009): Bayes < Darwin-Wallace
- (2010): The Bootstrap » American Scientist
- : Adam Tooze: “The Deluge”, Chapters 1 and 2
- : Adam Tooze: “The Deluge”, Chapters 3 and 4
- : Crisis Chronicles: Gold, Deflation, and the Panic of 1893
- : Wage Stagnation in Nine Charts
Must-read: Peter Dorman: “Issues with Econ 101 at Three Levels”
Must-Read: : Issues with Econ 101 at Three Levels: “The debate about what’s right/wrong with introductory economics…
…which has raged intermittently since the financial crisis, is back again…. There are three aspects to what people like or don’t like (often the latter) with Econ 101. The first is pedagogy… lectures vs workshops and projects… marching through models and exploring applications and empirical debates… behind it all, whether the main purpose is to induce students to accept particular economic doctrines or to cultivate critical thinking…. The second is the intellectual content… the gap between standard 101 content and the current trajectory of the discipline is arguably wider than it has been in generations. The third is the state of economics itself…. If Econ 101 takes a narrow, unrealistic line on utility and human decision-making, it could just mean that the limitations of that view are more obvious at that level than they are higher up…. These three dimensions overlap and influence one another…
Must-read: Roger Farmer: “Pricing Assets in an Economy with Two Types of People”
Must-Read: : Pricing Assets in an Economy with Two Types of People: “This paper constructs a general equilibrium model…
…with two types of people, where asset price fluctuations are caused by random shocks to the price level that reallocate consumption across generations…. Asset prices are volatile and price-earnings ratios are persistent, even though there is no fundamental uncertainty and financial markets are sequentially complete. I show that the model can explain a substantial risk premium while generating smooth time series for consumption and financial assets across types. In my model, asset price fluctuations are Pareto inefficient and there is a role for treasury or central bank intervention to stabilize asset prices.
Must-read: Tim Duy: Fed Watch: Fed Speak, Claims
Must-Read: I confess I could understand FOMC participants wanting to raise interest rates right now if projected growth over 2016 was 3.5% or higher. But we have a first quarter of 0.8% and a second quarter of 2.3%: we may well not even get to 2.0% this year.
I confess I understand FOMC participants worrying about “imbalances” created by extremely-low interest rates, but:
- If they are worried about extremely-low real interest rates, they need to be all-in pressuring the Congress for more expansionary fiscal policy.
-
If they are worried about extremely-low nominal interest rates, they need to be all-in pressuring their colleagues for a higher inflation target.
It’s the absence of either of those two from the Fed hawks–and the Fed moderates–that has me greatly concerned:
: Fed Watch: Fed Speak, Claims: “The Fed is not likely to raise rates in June…
…But not everyone at the Fed is on board with the plan. Serial dissenter Kansas City Federal Reserve President Esther George repeated her warnings that interest rates are too low…. Boston Federal Reserve President Eric Rosengren… reiterated his warning that financial markets just don’t get it….
I would suggest that the failure of policymakers to better manage the economy at turning points is not because it is impossible, but because they have overtightened in the latter stage of the cycle, forgetting to pay attention to the lags in policy they think are so important during the early stages of the cycle….
Bottom Line: Ultimately, I suspect the FOMC will not find sufficient reason in the data before June to convince the Fed that growth is sufficiently strong to justify a hike. Hence I anticipate that they will pass on that opportunity to raise rates. Look for an opportunity in September…. I doubt, however, that most on the Fed are pleased that market participants have already priced out a June hike on the basis of the April employment report…. They do not see the outcome as already preordained.
Must-read: Noah Smith: Thesis: Economics and Econ 101ism
Must-Read: : Thesis: Economics and Econ 101ism::
Thesis: Economics and Econ 101ism have diverged into 2 separate disciplines, one studied in academia, the other in conservative think tanks.
— Noah Smith (@Noahpinion) May 13, 2016