Category: Equitablog

Must- and Shall-Reads:

• Raghu Rajan: “People want to live in a safe prosperous country where they enjoy freedom of thought and action, and where they can… choose their government. But how do countries ensure political freedom and economic prosperity? Why do the two seem to go together?… These are enormously important questions…”
• Menzie Chinn: “Paul Krugman notes Governor Walker’s advisers on economics at a recent meeting are Larry Kudlow, Stephen Moore and Arthur Laffer. These folks make appearances in the Econbrowser archives…”
• Barry Eichengreen*: Cambridge Society for Economic Pluralism: February 23rd, 5.30PM: Rethinking Central Banking

1. Jared Bernstein: A Few Quick Fed Points: “1) The sharply stronger dollar… pushes against Fed tightening…. 2) In their just released minutes, the Fed board clearly identified with the asymmetric risk…. 3) Some recent reports suggest a tension among FOMC members as to whether they should be data driven or just basically assume that inflationary pressures lurk around the next corner…. 4) Remember, nobody knows what the “natural rate of unemployment” is…. There you have four factors pointing towards holding rates steady at zero for the near term. Which factors point the other way? There’s the tightening job market, for sure, but see #4…”

2. Yanis Varoufakis: Confessions of an Erratic Marxist in the Midst of a Repugnant European Crisis: “Europe is experiencing a slump that differs substantially from a ‘normal’ capitalist recession, of the type that is overcome through a wage squeeze which helps restore profitability. This secular, long-term slide toward asymmetrical depression and monetary disintegration puts radicals in a terrible dilemma: Should we use this once-in-a-century capitalist crisis as an opportunity to campaign for the dismantling of the European Union, given the latter’s enthusiastic acquiescence to the neoliberal policies and creed? Or should we accept that the Left is not ready for radical change and campaign instead for stabilising European capitalism? This paper argues that, however unappetising the latter proposition may sound in the ears of the radical thinker, it is the Left’s historical duty, at this particular juncture, to stabilise capitalism; to save European capitalism from itself and from the inane handlers of the Eurozone’s inevitable crisis. Drawing on personal experiences and his own intellectual journey, the author explains why Marx must remain central to our analysis of capitalism but also why we should remain ‘erratic’ in our Marxism. Furthermore, the paper explains why a Marxist analysis of both European capitalism and of the Left’s current condition compels us to work towards a broad coalition, even with right-wingers, the purpose of which ought to be the resolution of the Eurozone crisis and the stabilisation of the European Union. In short, the paper suggests that radicals should, in the context of Europe’s unfolding calamity, work toward minimising the human toil, reinforcing Europe’s public institutions and, therefore, buying time and space in which to develop a genuinely humanist alternative.”

3. Simon Wren-Lewis: Greece: A Simple Macroeconomic gGuide: “In 2010 periphery Eurozone countries… [had] government deficits [that] were too high, and… economies [that] had become uncompetitive…. The deficits needed to be reduced. Under flexible exchange rates this could have been done with relatively little cost…. In a monetary union, this cannot happen, so a period of unemployment is inevitable to restore competitiveness. The key macroeconomic question is how quick adjustment should be…. Slow is much more efficient. So it makes sense for some institution like the IMF to provide loans to the government to allow it to eliminate deficits gradually…. When it came to Greece, the Eurozone made three key mistakes. 1) Too much austerity too quickly, violating the logic…. 2) There was only partial (and delayed) default on Greek government debt…. 3) Adjustment… required in an environment of Eurozone recession and deflation, caused by needless fiscal austerity in the non-periphery countries…. This Vox piece [by Lars P Feld, Christoph M Schmidt, Isabel Schnabel, Benjamin Weigert, Volker Wieland]… displays so much that is wrong with macro arguments coming out of the Eurozone at the moment… ignores the basic macro… denial of the importance of wage and price rigidities… the speed of adjustment matters, and… the article makes no attempt to address this central issue… a complete collapse in GDP, where over half of young people are unemployed… [was not] just par for the course, [but] rather than a function of the amount of austerity imposed… lenders are demanding Greece run significant primary surpluses now, and they need not make this demand. I could go on and on…”

Should Be Aware of:

• Jeet Heer: “When I was growing up, almost all gatherings of my extended clan would include buckets and buckets of Kentucky Fried Chicken…. Two focal points of embarrassment merged when I was 19 and went on a KFC run with a cousin I will call Amandeep. As our car glided into the parking lot, we saw a black family exiting the fast food joint. ‘Boy, black people sure love fried chicken,’ Amandeep muttered…. He clearly couldn’t see the irony of stereotyping black culture while heading for one of our regular KFC pick-ups…. I wish Amandeep’s racial theories were an anomaly, but… if blacks are near the bottom of the perceived racial hierarchy across North America, some enterprising immigrants find it useful to step on blacks as a way of climbing higher…. At the heart of this sort of immigrant racism is the desire to differentiate oneself from the group one could easily be identified with…. Dinesh D’Souza, the right-wing provocateur whose history of incendiary racial comments stretches to his undergraduate days in the early 1980s, provides an interesting case study for the intersection of immigrant upward mobility and racism…”
• Jeffrey Zeldman: Designing with Web Standards

What is one supposed to do when confronted by arguments that seem to me–and to everybody else who has been right about the evolution of the North Atlantic economy since 2008–so unprofessional as this piece in Vox? Simon Wren-Lewis begins the needed labor of Hercules here:

• Right now, the financial markets are telling us that for the next 20 years at least they expect not a surplus but rather a shortage of federal debt.

• The interest rates at which investors are willing to hold federal debt now and expect to hold federal debt in the future tell us that it is an extraordinary valuable asset

• Those interest rates tell us that investors at least think the world economy would be better off with more federal debt than with less.

• The arguments against having a larger federal debt now are essentially four: that it would be unfair to future generations, that is a source of uncertainty that drags on the economy, that it is a point of vulnerability, and that we cannot trust future congresses to do the right thing to finance it should circumstances change.

  • A larger debt right now would enrich the present at the expense of the future, but (unless there is some global warming catastrophe coming) the future will be richer than the present, so this is not a big worry.

  • When debt is a source of uncertainty and a drag on the economy, its value is low in the interest rates people required to hold it is high. Professional economists look at both quantities and prices. Those who claim that a high debt is a source of uncertainty and drag do not distinguish between a high debt that comes with high interest rates, which is such a source of uncertainty and drag, and a high debt that comes with low interest rates, which is not.

  • The future is unpredictable, and interest rates could spike, and the burden of amortizing the government debt could rise substantially from its current near-zero level. But of all the points of vulnerability and all the drags on the economy this is a very minor one. If it were a major one, people would be demanding much higher interest rates in order to hold our long-term 30 year bonds than they are.

  • The past hundred years have demonstrated that the United States government is very good at paying down the debt as a share of annual GDP whenever you can argue that it makes economic sense to do so.

    • We see this from Democratic and Republican-led governments alike in the 1920s, the 1940s, the 1950s, the 1960s, and the 1970s. * We see this from the Democratic-led Clinton administration and its 1993 Reconciliation bill.
    • We see this in the very sharp reduction in the deficit and the stabilization of the debt-to-annual GDP ratio under Obama.
    • Only twice in the last 100 years have U.S. governments destabilized the debt when deficit spending was economically inappropriate: under Ronald Reagan and under George W. Bush—politicians who would say, in Dick Cheney’s words, that “deficits simply don’t matter”.
    • Making sure that people like Dick Cheney don’t have influence within the Republican Party would be a good plan to guard against bad government in the future.
    • It would be a much better plan than doing things that make no technocratic economic sense now.

• Any government that was run like a business and that could borrow at the terms the U.S. government can borrow now would, right now, be running up its debt and putting the money it borrowed to work, productively.

• The big question right now is not “should we fear a debt crisis?” but “how can we use the borrowing capacity of the U.S. government and the extraordinary terms on which investors are willing to lend money to the U.S. to benefit America?”

Must- and Shall-Reads:

• Ambrose Evans-Pritchard: “Greece defiant as Germany tears up last-ditch EMU compromise on austerity. ‘There is no macro-economic argument for further fiscal tightening. The only reason for doing so is on punitive grounds,’ says Greece’s Yanis Varoufakis. Failure to agree a deal could set off a chain-reaction in Greece as capital flight accelerates, leading ineluctably to a sovereign default and ejection from the euro…”
• John Gruber: “Apple Watch Edition is a luxury wrist watch. Apple’s… not entering the market against Rolex, Omega, and the rest… with disruptive prices… [but] head-to-head on pricing, with disruptive (they think) features…. Will it work? Will people actually buy these? I have no idea. But I think Apple thinks it’s going to work.”
• The 2015 Economic Report of the President

1. Paul Krugman: Chastened Exceptionalism: “Jamelle Bouie has a very good article responding to Rudy Giulani’s attack on Obama’s patriotism…. There are many Americans who love their country in pretty much the way the president does… special, often an enormous force for good in the world, but also fallible…. You don’t have to be black to see things that way…. There’s the guy who described one of our foreign wars as ‘the most unjust ever waged by a stronger against a weaker nation’… Ulysses S. Grant… [on] the Mexican-American War…. We are becoming… more sophisticated… people do understand that… [those] shouting ‘USA! USA!’… are often less patriotic than the people they’re trying to shout down…. We really are an exceptional country… that has played a special role… [and] always stood for some of humanity’s highest ideals. We are not… about tribalism–which is what makes all the shouting about American exceptionalism so ironic, because it is… an attempt to tribalize…”

2. Mike Konczal: Everyone Should Take It Easy on the Robot Stuff for a While There’s been a small, but influential hysteria surrounding the idea is that a huge wave of automation, technology and skills have lead to a huge structural change in the economy since 2010. The implicit argument here is that robots and machines have both made traditional demand-side policies irrelevant or naïve, and been a major driver of wage stagnation and inequality. Though not the most pernicious story that gained prominence as the recovery remained sluggish in 2010 to 2011, it gained important foothold among elite discussion…

3. Larry Summers and Friends: The Future of Work: “http://www.c-span.org/video/?324436-1/discussion-future-work On the diagnosis, I want to make a confession of ignorance, make an observation, and express a worry…”

4. Adam Posen: US Companies Pay Well and Do Better: “Walmart was the latest major American employer to voluntarily announce a raise for all of its lowest-paid employees…. Aetna raised all of its employees’ wages to at least $16 an hour…. It is possible to profit from paying your employees well…. For decades, labour economists have gathered evidence on… [how] higher wages can motivate employees to work harder, to treat customers better, make them more reluctant to leave their jobs and help them to bring fewer worries and distractions to work. That can increase productivity and reduce an employer’s costs…. All jobs can be done better or worse, and that lower-paid workers respond to incentives other than just fear of losing their job. This is not just a relative wage story…. This is also not just a minimum wage story…. Efficiency wage increases will not solve all current economic problems. Fordist fantasies that paying a higher wage would meaningfully stimulate increased purchases, for example, have to be left aside…. Nor will such initiatives take the place of needed training to make sure workers have the proficiencies…. The shortfall of long-term investment in the US, public and private, cannot be made up for with low-skilled labour…”

Should Be Aware of:

• Château Ducru-Beaucaillou
• Jason Louv: John Dee Was the 16th Century’s Real-Life Gandalf
• Joshua M. Brown: Why Active Management Fell Off a Cliff–Perhaps Permanently

I see that the femina spectabilis Diane Lim is a very unhappy camper: