Monday DeLong Smackdown: Dean Baker: Question for Brad DeLong and the Debt School…:
As I have said (often), I am on Mian and Sufi’s side of this argument. But Dean Baker is not without points on his side: ‘What would our saving rate be if we didn’t have [a] debt [overhang]?’
Each time I go directly from Kansas City MO/KS to Portland OR—or from Portland OR to Kansas City KS/MO—I am struck by cognitive dissonance.
There is a very large gulf between what I see around me and what, say, the charts people put up on the screen for relative levels of real cost-of-living adjusted income in Kansas City and Portland. The numbers seem to say that the Kansas City MO/KS metropolitan area is about 10% richer than the Portland OR metropolitan area. But my eyes tell me that Portland is about 20% richer than Kansas City.
There are a number of possible resolutions:
According to long-trusted economic models, when economic inequality increases so too does government redistribution of income. As the average income in an economy pulls away from the median income, more voters will want to redistribute the uneven gains from economic growth accruing to the wealthy. Yet in the United States, redistribution towards the bottom and middle hasn’t increased even though inequality has increased quite a bit. Why have these long-trusted models failed to accurately predict reality?
There is some evidence that U.S. elected officials’ responsiveness to preferences for redistribution has declined over time. But voters’ demand for redistribution also appears not to have increased over time. A new paper presented last week as part of a recent Brookings Papers on Economic Activity event tries to understand why preferences for redistribution have changed among voters over time.
Political scientist Vivekinan Ashok of Yale University and economists Ebonya Washington of Yale and Ilyana Kuziemko of Princeton University try to understand the demand for redistribution by looking at responses to questions from the General Social Survey and American National Election Studies survey— which include questions that are related to redistribution. What they find is that while the overall trend in support of redistribution stood still, two groups that were once traditionally in favor of redistribution shifted away from it over time.
Those two groups: seniors and black Americans.
The three authors also point to some of the reasons why this may be the case with these two important voting blocs. For seniors, it all comes down to one particular form of redistribution: health care. The authors argue that calls for higher redistribution make seniors, who receive health insurance via Medicare, believe this particular form of redistribution will be curtailed. Ashok, Washington, and Kuziemko point out that support for redistribution among seniors in other advanced economies that provide universal health insurance has not declined more compared to their general population, which makes sense as they wouldn’t have to fear about cuts to healthcare in order to expand it to others. And the survey data show that attitudes among U.S. seniors toward redistribution via health insurance are strongly predictive of overall attitudes toward redistribution.
The authors are less sure of an explanation for African Americans’ declining preference for redistribution. The authors’ research shows that most of the decline among blacks is because of declining demand for race-based redistributive programs. But why that has happened even as the relative economic progress of blacks compared to whites has stalled isn’t clear.
At the Brookings event, one of the constant comments about the paper was that their findings could also be explained by the shifting generational arc. The decline in demand for redistribution among seniors could be about the passing of the Greatest Generation, who were generally in favor of redistribution, alongside the aging of the Baby Boomers, who appear to not prefer redistribution as they near or enter retirement. One participant added that some preliminary research finds that Americans believe inequality is a problem but that they think it’s the responsibility of business to reduce the gap between the rich and the poor.
Ashok, Kuziemko, and Washington are clear that their paper doesn’t provide all the answers. But in pointing out some key facts and offering some possible explanations, they provide an important jumping-off point for understanding how public opinion about redistribution have changed in an era of rising inequality.
…Louisiana Gov. Bobby Jindal and Wisconsin Gov. Scott Walker fall into the… dodgers category. The Do-Nothings are… Chris Christie of New Jersey and John Kasich of Ohio. In a sign of how far rightward Republicans have moved since 2008, these are actually the guys who are trying to position themselves as relatively moderate and pragmatic…. Sen. Marco Rubio and… Gov. Mike Huckabee… are staunch conservatives but only partial wingnuts. Back when that meant believing in climate change, they did, but they have since followed their base into fantasyland. Everyone else is an outright denier and always has been….
So here’s the problem: As more and more journalists come to the conclusion that they should no longer take seriously the arguments of ‘someone who believes the entire field of study is built on a pillar of sand,’ the Republican presidential field has more and more of these someones, and candidates who often flirt with that position. What to do?… 1. Normalize it: treat denialist claims like any other campaign position…. 2. Savvy analysis: is denialism a winning move or is it costing the candidate?… 3. Persistence: Call what it is–a rejection of the science–and keep calling it that…. 4. Confrontation: Try to raise the costs of denialism…. Actively confronting the candidate is a more aggressive way to go. Advantage: Fulfills the watchdog role of the press and says to politicians: there are limits, this is beyond the pale. Problem: Easily politicized, certain to trigger culture war attacks…. The Washington Post reviewed [Ted] Cruz’s career and positions…. Katie Zezima and Robert Costa wrote… ‘Cruz does not believe in climate change and has said that data does not support it. Cruz chairs the Senate committee that oversees NASA and has said that the agency needs to focus more on space exploration and less on Earth science.’ That’s Normalize it: treat denialist claims like any other campaign position…
: “From the Peru of Alberto Fujimori to the Hungary of Viktor Orban, illiberal regimes have managed to consolidate power without fencing off their countries or resorting to mass murder….
New forms of dictatorship based on manipulating information rather than on mass violence… can survive… in the face of moderate economic underperformance… [via] an increase in censorship and propaganda…”
I read this, and I say: Wait a minute! All the classic analyses of Naziism and Stalinism–from Franz Neumann, Behemoth, to Hannah Arendt, Origins of Totalitarianism, and Eric Fromm, Escape from Freedom–placed great stress on the fact that the totalitarian regimes were popular with the great masses of those who were not purged, in large part because of their successful and psychologically shrewd use of mass communications-driven propaganda…
…How do they know this? Because people ‘close to the market’ keep telling them so. What can I do to show that this is wrong? The most obvious point is that interest rates on UK or US government debt have been falling since 2008, but the response I sometimes get is that rates have only stayed low because of austerity policies. So how about… the UK general election of 2010…. If there was any default premium implicit in yields on UK government debt, it should have fallen between 5th May and 13th May, either because Labour were defeated, or because the LibDems capitulated on the deficit…. As you can see, rates were higher on 13th May compared to 5th May… no noticeable decline in rates because fiscal consolidation was going to be greater….
The more sophisticated defence of austerity… is that there exists a ‘tipping point’ somewhere…. As we do not know where that tipping point is, it is best to stay well away from it…. The problem with this argument is that having your own central bank makes a key difference…. Markets could… begin to suspect default even when there is absolutely no intention within government to let this happen…. But… [with] Quantitative Easing… the cost of servicing government debt does not rise, because additional money is created…. There is no vicious circle. There is plenty of time for the government to take whatever action it wishes to take to reassure the markets…. Having your own central bank… undertaking Quantitative Easing… crucially changes the dynamics… [no] vicious circle…
Must- and Should-Reads:
Might Like to Be Aware of:
1994… markets had not fully ‘priced in’ the extent to which the Fed was planning on raising rates. As the scale and pace of the tightening became apparent, bond rapidly repriced with the price falling and the yield rising. Long term interest rates rose sharply…. 1999 to 2000… ‘textbook’…. As short term rates rose, so did the 10 year yield… [which] ran slightly ahead of Fed Funds…. 2004 to 2006…. Despite the Fed raising rates from just 1.0% to 5.25%, longer term interest rates barely budged… a ‘conundrum’…. The big factor at work was foreign buying of USTs. Rising foreign demand (especially from foreign central banks that wanted to control the value of their currencies against the US dollar)…. So–what to expect in 2015 and beyond?…
Picking up on In Lieu of a Focus Post: March 2, 2015 (Brad DeLong’s Grasping Reality…): Janet Currie points out that the damage from a ruling adverse to the government in the King v. Burwell ObamaCare subsidies case is likely to carry a very heavy cost in terms of societal well-being along private health, public health, and economic growth dimensions.
Fifty years ago, Ronald Reagan argued against Medicare on the grounds that once we had Medicare we would find it financially unaffordable unless we drafted doctors into a low-wage socialist National Health Corps commanded by the Surgeon General, and that mass labor conscription could not be far behind. Ronald Reagan was, I think it is now generally agreed, overfearful and overwrought: the societal benefits to actually allowing the non-rich elderly to go to the doctor have outweighed the risks that we will start by drafting doctors, and end with Leon Trotsky’s industrial armies under the thumbs of Bolshevik bosses.
Today the rhetoric opposed to the individual mandate–excuse me, Mitt Romney’s “Republican Responsibility Principle” is much less heated: it is not that steps toward national health insurance will put us on a slippery slope to socialism, it is… what, exactly? How do you in any way enhance human freedom by causing an adverse-selection meltdown of the health-insurance markets for those who do not work for large bureaucracies? Economic freedom requires that there be a competitive marketplace and an associated prosperous division of labor for you to exercise your economic freedom in, for example…
I understand the argument that ObamaCare would be a policy disaster: it seemed wrong at the time, but I would have given a one-in-twenty chance that we would be sorry we passed ObamaCare because something would go badly wrong with the implementation and the subsequent market structure. But nobody sane makes such claims that it is a loser as a policy–that it is causing medical cost inflation or disrupting marketplaces–any more.
But what is the anti-ObamaCare argument now? Is it really just that it is in some invisible way a “job killer”, just as the Federal Reserve’s quantitative easing policies are “inflation bringers”?