Category: Equitablog

Jo Walton: The Just City

Must- and Shall-Reads:

• Jared Bernstein:
  So why aren’t wages responding to the tightening job market?
• Richard Kahlenberg:
  The Genius of Obama’s Two-Year College Proposal
• Jim Tankersley:
  Why America’s middle class is lost
• John Makin:
  Fed too complacent on US deflation damage
• Peter Orszag:
  What Brill’s ‘Bitter Pill’ Gets Wrong on Obamacare

1. Réka Juhász:
   Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade:
   “I find that, in the short-run, regions in the French Empire which became better-protected from trade with the British for exogenous reasons during the Napoleonic Wars… increased capacity in… mechanised cotton spinning to a larger extent than regions which remained more exposed to trade. Temporary protection had long term effects…. Firms located in regions with higher post-war spinning capacity were more productive 30 years later…. After… peace, exports of cotton goods from France increased substantially, consistent with evolving comparative advantage in cottons…. As late as 1850, France and Belgium… had larger cotton spinning industries than other Continental European countries… not protected from British trade during the wars…”
   

2. Aaron Carroll:
   Philip Klein’s Overcoming Obamacare:
   “Philip Klein wanted to write a book that sums up competing schools of thought from conservatives as to what to do about Obamacare, and he succeeds. I can recommend it without reservation. But in doing so, I think he shows the relative seriousness of those schools of thought. In the Reform School, we see incredibly detailed plans (like those of Roy) where numbers have been run and tradeoffs calculated. There are things that conservatives want, and things they’re willing to concede. The Replace School is better considered than I had previously thought, but a little less detailed (and, perhaps, a little less realistic). The Repeal School, however, left me feeling like it was just a political ploy, with hand-waving to old studies (which barely applied) and old ideas like ‘HSAs can fix everything’. I’m curious to see if others agree. Bottom line, Klein is a talented journalist and writer who gave me some insights into what conservatives are thinking. Well worth my time. Likely worth your time, too.”
   

3. Wolfgang Münchau:
   Eurozone Must Act Before Deflation Grips:
   “Deflation in the eurozone has nothing to do with the price of oil. Its cause is a series of policy errors over several years–the interest rate increase in 2011, the failure to act when inflation rates dropped off a cliff in 2013 and the pursuit of austerity in a recession. If the European Central Bank had met its inflation target of ‘close to but below 2 per cent’, the oil price collapse would have been harmless…. A year ago it was said that the eurozone was only one shock away from deflation. Since then, we have had two: Russia’s aggression against Ukraine and the fall in the oil price. Shocks happen…. But beware the second-round effects, those that come with a delay. There are already signs that German pay negotiators are dropping the ECB’s 2 per cent inflation target in their wage formulas…. My expectation is that QE will fall short for a number of reasons. The size of the purchases may not be large enough… may simply not work as well in an economy with a smaller capital market and a different system of housing finance…. A helicopter drop would work but sadly, I fear, it would be too unconventional for the continental European mind. A slightly more realistic possibility would be a combination of QE, an external stimulus from oil and a fiscal boost…”
   

4. Paul Krugman:
   On Econoheroes http://krugman.blogs.nytimes.com/2015/01/12/on-econoheroes:
   “Joe [Stiglitz] and I do tend to get quoted, invoked, etc. on a frequent basis in liberal media and by liberals in general, usually with (excessive) approbation…. [The] people playing a comparable role in right-wing discussion… tend not to be highly cited or even competent economists. So don’t tell me that Greg Mankiw or Robert Barro are famous economists and also conservative. Indeed they are. But are they omnipresent on the conservative scene?… ‘mankiw economy’… get[s]… 5200 hits… ‘stephen moore economy’… get[s] 65,700… ‘stiglitz economy’… get[s] 43,800…. This [is] a real asymmetry…. The right does not turn to these eminent conservative economists for guidance and support; it prefers the hacks.”
   

5. 
   Paul Krugman:
   History and Policy Failure:
   “I’ve been having a hard time reading Barry Eichengreen’s Hall of Mirrors… It seems to be a very good book…. But the recent history is painful…. You often hear assertions to the effect that in early 2009… we didn’t know how deep and prolonged the slump would be… how much damage would be done by the pivot to deficit reduction. So it must be said: What do you mean ‘we’, white man?…. Up through 2011 the CBO… was… more pessimistic than what actually happened…. Thereafter CBO predicted a faster recovery… but even so CBO didn’t expect the output gap to go away until around now…. Conventional est… [gave] ample… [warning] that the proposed stimulus was inadequate and that 2010 would be way too soon to pivot to deficits…. It’s true that for years elite discourse was dominated by the worry that we were doing too much, that deficits and easy money were dangerous, that we were risking debt crisis and inflation. Now, seemingly suddenly, the Very Serious People have realized that in reality we did too little, that deflation and stagnation are looming as the great dangers, and there are cries of ‘Who could have known?’ Well, everyone could and should have known. I certainly did.”
   

Should Be Aware of:

• Eileen Shim:
  Psychologists Have Uncovered a Troubling Feature of People Who Seem Nice All the Time – Mic
• J.F.:
  America’s prison population: Who, what, where and why
• Meagan Hatcher-Mays:
  WSJ Just Realized The Anti-ACA Lawsuit It’s Pushing Could Be Ruinous For Americans–Including Republican Voters
• Noah Smith:
  Ross Douthat ponders the Liberal Marriage Hypothesis

1. Eric Eisenberg:
   Un-Awesome: Golden Globes Stupidly Pass Over The LEGO Movie:
   “Calling the Golden Globes’ choice incorrect shouldn’t be translated as an insult to Dean DeBlois’ How To Train Your Dragon 2, as I actually enjoyed that film immensely when I saw it this past summer, but The LEGO Movie’s positive aspects really outweigh it all around. I will give the DreamWorks feature plenty of credit for being an adventures piece of storytelling and stunning to look at, but the immense creativity and originality of Warner Bros.’ film leaves really no comparison, and it’s a shame that it wasn’t rewarded for it. Interestingly, it’s the ‘F’ in HFPA that may very well have prevented The LEGO Movie from taking home this award – which it very rightly deserved. While Phil Lord and Chris Miller’s animated feature was a huge hit here in the United States – ranking as the fourth biggest domestic hit of the year with an impressive $257 million pull – the film didn’t really translate abroad…. It’s very possible that this sway was reflected in the voting for the Golden Globes…”
   

2. Daniel Davies and Tess Reed:
   Sweaty January and how gyms make money:
   “Having seen the books of a gym chain or two, we can tell you that the ‘Sweaty January’ phenomenon is not an urban myth or a joke — it’s absolutely fundamental to the economics of the industry and it’s basically impossible to run an economically viable gym without taking it into account. Usually about 75 per cent of all gym memberships are taken out in the month of January. Not only this, but the economics of the industry absolutely depend on the fact that a very great proportion of January joiners will not visit more than three or four times in total before their membership comes to a floundering flop of weight not lost at the end of the year…”
   

…that sums up competing schools of thought from conservatives as to what to do about Obamacare, and he succeeds. I can recommend it without reservation. But in doing so, I think he shows the relative seriousness of those schools of thought. In the Reform School, we see incredibly detailed plans (like those of Roy) where numbers have been run and tradeoffs calculated. There are things that conservatives want, and things they’re willing to concede. The Replace School is better considered than I had previously thought, but a little less detailed (and, perhaps, a little less realistic). The Repeal School, however, left me feeling like it was just a political ploy, with hand-waving to old studies (which barely applied) and old ideas like ‘HSAs can fix everything’. I’m curious to see if others agree. Bottom line, Klein is a talented journalist and writer who gave me some insights into what conservatives are thinking. Well worth my time. Likely worth your time, too.

I must say, I am surprised to see Robert Samuelson claiming that the Federal Reserve and the Reagan administration were in accord in 1982…

Let’s roll the videotape:

I went to the New York Times archives and searched for mentions of Reagan and Volcker in the same article in 1982. The first four results that came up were:

1. Howell Raines: G.O.P. Chiefs Warn Reagan on Budget–See Possible Shift:
   “Paul A. Volcker, chairman of the Federal Reserve Board, told the Senate Banking Committee today that the prospect of the big deficits for the next several years posed a threat to the financial markets. He suggested a combination of new taxes and spending cuts to achieve a $20 billion decrease in the 1984 deficit…”

2. Jonathan Fuerbringer:
   Reagan and Volcker in Talks: “President Reagan and the chairman of the Federal Reserve Board, Paul A. Volcker, met Monday…. The meeting comes after recent tension between the Fed and the Administration, highlighted by the Administration’s contention that the Fed’s erratic management of the money supply was pushing up interest rates and Mr. Volcker’s response that it is the threat of large budget deficits that is affecting interest rates…. Senator Howard H. Baker Jr., the Senate majority leader, recently called for a meeting between Mr. Reagan and Mr. Volcker to coordinate economic policy…. Many economists outside the Government say that the Fed and the Administration are on a collision course on economic policy because the tight monetary policy promised by the Fed will not allow for the relatively strong economic growth the President has forecast…. Mr. Volcker in an interview Sunday said that he did not think the economy would come ‘roaring’ back, as Treasury Secretary Donald T. Regan predicted…. David R. Gergen, director of communications, even refused to confirm whether the meeting had taken place…”

3. Jonathan Fuerbringer:
   Aides Minimize Reagan’s Remark: “The Reagan Administration and the Federal Reserve today sought to play down the President’s apparent breach of confidence Tuesday when he said that Paul A. Volcker, chairman of the Federal Reserve Board, had told him that interest rates would drop by three to four percentage points by summer…. Reagan said the Fed chairman had made the prediction during a private talk between the two. Senators at Tuesday’s meeting repeated the forecast afterward…. One Administration official said the President wanted to make clear that he had not intended to violate the confidence of a private meeting…. The White House apparently was also concerned because the President may not have quoted Mr. Volcker accurately or fully…”

4. Steven Weisman: Reaganomics and the Presidents’ Men:
   “As the economy went into its nose dive Secretary of the Treasury Donald T. Regan publicly questioned the wisdom of the Federal Reserve Board’s tight-money actions; perhaps Chairman Volcker had overdone things, he said. Yet it was an awkward position to take. From the start, Mr. Volcker had the President’s blessing for his tight-money policy, and the Fed chairman had frequently made clear his conviction that the Administration should do its part in combatting inflation by curbing the deficit. This the President had failed to do. Mr. Volcker told an associate that he found Secretary Regan’s criticism ‘astounding’…”

This is much more consistent with Paul Krugman’s story than with Robert Samuelson’s. In these stories, Paul Volcker is openly and publicly opposed to Ronald Reagan’s supply-side fiscal policies as creating a risk of forcing him to either abandon his fight against inflation or accept a permanent low-investment economy with slow growth. The Reagan administration as a whole is quietly and sotto voce via leaks blaming high interest rates and consequent high unemployment on “erratic management of the money supply” by Paul Volcker. The Reagan Treasury Department under its head Don Regan and the Republican Senate majority under its head Howard Baker are openly and publicly opposed to Paul Volcker’s tight-money fight-inflation-first policy. Ronald Reagan in his private meetings with Paul Volcker appears to be pressing him to promise that interest rates will come down–and come down soon.

As I understood it then and understand it now, five things were happening:

1. Paul Volcker was trying back in 1982 to do what Alan Greenspan did in 1993–to condition a lower interest-rate policy on the administration’s taking the first step and committing to long-term deficit reduction, and the Reagan administration was stonewalling.
2. Ronald Reagan’s Treasury Department was engaged in a quiet and seeking a public administration-wide Reagan-led campaign to convince the Federal Reserve to lower interest rates.
3. Ronald Reagan’s communications staff was engaged in a quiet campaign to convince the Federal Reserve to lower interest rates, but was opposed to any public Reagan-led pressure as bad for Reagan’s image as a man in control of the government.
4. Reagan’s Council of Economic Advisors was on Paul Volcker’s side.
5. Reagan’s own personal papers are singularly unilluminating as to what he thought and was trying to do.

Does this seem to you like a situation fairly and accurately portrayed by Robert Samuelson’s:

[Reagan supported the Fed…. ‘I have confidence in the announced policies of the Federal Reserve.’ This patience enabled Volcker to succeed…. It’s doubtful that any other plausible presidential candidate, Republican or Democrat, would have been so forbearing…. There were many congressional proposals… to curb the Fed’s power, lower interest rates or fire Volcker. If Reagan had endorsed any of them, the Fed would have had to retreat…. Volcker and Reagan accomplished… an economic and political triumph… showed that leaders can take actions that, though initially painful and unpopular, served the country’s long-term interests.

?

No. It doesn’t seem that way to me either.

1440 words

Paul Krugman has been on a serious roll this weekend. All worth reading and pondering:

• On Econoheroes http://krugman.blogs.nytimes.com/2015/01/12/on-econoheroes: “Joe [Stiglitz] and I do tend to get quoted, invoked, etc. on a frequent basis in liberal media and by liberals in general, usually with (excessive) approbation…. [The] people playing a comparable role in right-wing discussion… tend not to be highly cited or even competent economists. So don’t tell me that Greg Mankiw or Robert Barro are famous economists and also conservative. Indeed they are. But are they omnipresent on the conservative scene?… ‘mankiw economy’… get[s]… 5200 hits… ‘stephen moore economy’… get[s] 65,700… ‘stiglitz economy’… get[s] 43,800…. This [is] a real asymmetry…. The right does not turn to these eminent conservative economists for guidance and support; it prefers the hacks.”
• History and Policy Failure http://krugman.blogs.nytimes.com/2015/01/12/history-and-policy-failur: “I’ve been having a hard time reading Barry Eichengreen’s Hall of Mirrors… a very good book…. But the recent history is painful, because I was watching in real time, warning desperately that what did happen, would happen…”
• Deflation As Betrayal http://krugman.blogs.nytimes.com/2015/01/10/deflation-as-betrayal: “southern Europe played by the rules [of the Euro], but in its time of need the rules [of the Euro] were changed, hugely to its disadvantage…”
• Orthodoxy, Heterodoxy, and Ideology http://krugman.blogs.nytimes.com/2015/01/10/orthodoxy-heterodoxy-and-ideology: “Not that there’s anything wrong with being heterodox… but a lot of what we’ve been seeing misidentifies the problem… gives aid and comfort to the wrong people…. Standard macroeconomics does NOT justify the attacks on fiscal stimulus and the embrace of austerity…austerians had to throw out the models and abandon statistical principles to justify their claims…”
• Where Are The Friedmans Of Yesteryear? http://krugman.blogs.nytimes.com/2015/01/10/where-are-the-friedmans-of-yesteryear: “Modern conservatism doesn’t have Friedman-like figures…. Who would be the conservative counterparts [to Stiglitz and me]? Who gets cited by, say, Republican governors seeking authority for their tax cuts, or published on a regular basis on conservative opinion pages? I’d say Stephen Moore and Arthur Laffer…. And it’s not as if Moore and Laffer are guys who may lack academic cred but have proved themselves as working analysts…”
• Reaganomics Undefended http://krugman.blogs.nytimes.com/2015/01/12/reaganomics-undefended: “this piece by Robert Samuelson, attacking me over my debunking of the Reagan legend, is really strange… Samuelson declares me ‘totally wrong,’ then seems to agree with me about the economics…”
• Emerging Markets After The [Taper] Tantrum :
  “The [taper] tantrum has subsided, and US interest rates have retraced much of their rise. But EM currencies haven’t rebounded… One guess is that we’re seeing retroactive evidence that the EM thing was a bubble…”
• [For the Love of Carbon http://www.nytimes.com/2015/01/12/opinion/paul-krugman-for-the-love-of-carbon.html: “Why is this environmentally troubling project an urgent priority in a time of plunging world oil prices? Well, the party line, from people like Mitch McConnell, the new Senate majority leader, is that it’s all about jobs…. [But] you can’t consistently claim that pipeline spending creates jobs while government spending doesn’t…. If Mr. McConnell and company really believe that we need more spending to create jobs, why not support a push to upgrade America’s crumbling infrastructure? So what should be done about Keystone XL? If you believe that it would be environmentally damaging… you should be against it, and you should ignore the claims about job creation. The numbers being thrown around are tiny…. The jobs argument for the pipeline is basically a sick joke coming from people who have done all they can to destroy American jobs…”
  

Must- and Shall-Reads:

• Neil Irwin:
  The Depression’s Unheeded Lessons: A Review of Barry Eichengreen’s Hall of Mirrors
• Max Roser:
  World Income Distribution: 1820, 1970, 2000

1. Simon Wren-Lewis:
   On the Monetary Offset Argument):
   “A number of us are highly critical of moving to austerity so early in the recovery from the Great Recession. Market Monetarists… argue… the ZLB is not a problem…. I want to make a couple of observations. First, MM often [wrongly] imagine that they invented this offset argument…. Second, if you… want to take the MM argument seriously, you have to believe that monetary policy is [as] capable of offsetting the impact of austerity as much now as later… [and] that this is actually what monetary policy makers will do. If you believe the first, but are not sure about the second, then fiscal consolidation now is a mistake…. [This] exposes how weak the MM argument is at the ZLB…. Central banks at the moment are inflation targeting, and are likely to continue to do so, so enacting fiscal contraction in the hope that they might change is highly irresponsible. So the MM argument that the ZLB does not matter has to rely on Quantitative Easing (QE). But here there is a basic problem that MM has never to my knowledge answered. Just how much QE do you do to offset any fiscal contraction? We have no real idea, because we have so little experience…”
   

2. James Pethokoukis:
   Should Republicans Ignore Income Inequality? | National Review Online:
   “Inequality has increased across advanced economies. Macro factors such as globalization and technology deserve most — but maybe not all — of the ‘blame.’ Big Government loves to pick winners and losers in the private sector. Some lucky ducks owe their place in the 1 percent or 0.1 percent or 0.01 percent to federal favoritism. Conservatives shouldn’t mind at all when value-creating innovators and entrepreneurs strike it rich while crony capitalists do not. The precious tax breaks and subsidies that go to rent seekers, such as those in the agriculture and alternative-energy sectors, should get the ax. Sorry, Big Sugar and Big Solar…”
   

3. Kevin Drum:
   Non-Chart of the Day: Where’s the Austerity? | Mother Jones:
   “Tyler Cowen… [and] Angus…. ‘Either austerity means nominal cuts and we never had any of it, or austerity means cuts relative to trend and we are still savagely in its grasp.’ Oh come on…. Let’s take a look at this chart done right… real per capita government expenditures…. This is what austerity looks like: a drop in government expenditures. For a little while, in 2009 and 2010, stimulus spending partially offset… but by the third quarter of 2010 the stimulus had run its course…. If you run this chart back for 50 years you’ll never see anything like it…. Finally, in 2014, the spending decline stops. Austerity is over, and we even start to see a small uptick. At the same time, the economy starts to pick up. This is not bulletproof evidence that austerity is bad for the economy, or that government spending helps it. But it’s certainly consistent with the hypothesis, and it’s really not hard to see.”
   

Should Be Aware of:

• John Mondragon:
  Household credit and employment in the Great Recession
• Chirag Mehta:
  Tip of My Tongue

1. Matthew Yglesias:
   I read the French far-right party’s platform, and it gets one big thing absolutely right:
   “At some point, European leaders have to face up to the fact that it’s not all nuttiness and racism. Voters are turning to extreme parties because the mainstream parties have blundered into a years-long economic fiasco and they have no plan to end it…. The party’s founder — Marine Le Pen’s still-living father — was a fascist street-brawler as a youth, managed Jean-Louis Tixier-Vignancour’s Vichyite presidential campaign in 1965, and traffics in not-at-all-disguised racism. In its current incarnation, the Front advances a genuinely extreme view on immigration (a 95 percent reduction in legal immigration levels), promotes anti-Muslim politics under the guise of secularism, and clearly practices dog whistle politics intended to appeal to a racist constituency (hardly a unique tactic)…. In other respects, though, the party is not so extreme… hike military spending… build more prisons, discourage abortion, ban same-sex marriages, and ban affirmative action — fairly standard conservative ideas in the US. On finance, Le Pen sounds like Elizabeth Warren, calling for a separation of investment and commercial banking (Glass-Steagall rules, in US terms) and a financial transactions tax. They bemoan the privatization of public services. On the welfare state, they chart a third way. The (dubious) central premise seems to be that once you massively curtail legal and illegal immigration alike, affordability questions go out the window. Mothers of three or more children will secure earlier access to full social security benefits, family allowances will be raised, and more preschool funding provided. They claim (again, dubiously) that protectionist tariff policy will promote the re-industrialization of France…. But beyond this ideological grab-bag is a thoroughgoing and persuasive critique of European monetary arrangements… cite Milton Friedman as an authority on the idea that the Eurozone is not an optimal currency area… rightly say that the inability of Eurozone member states to conduct independent monetary policy ‘condemns the people to austerity plans that do nothing but exacerbate the crisis’… call for the Bank of France to print money to cover French budget deficits. That’s a step that could be dangerous in many scenarios, but given that France is currently experience negative inflation it seems well worth trying. There’s much to dislike in the National Front’s policy gestalt…. But the Europe stuff deserves an answer…. The Eurozone is fundamentally a political project rather than an economic one, but to succeed politically it needs to work economically. Right now it isn’t, and Le Pen’s brand of populist nationalism is a logical alternative…”
   

Simon Wren-Lewis explains better than I ever have why the Market Monetarist and other arguments that fiscal policy at the ZLB is unnecessary partake 100% of the how-many-angels-are-dancing-on-the-head-of-this-pin nature…

Simon Wren-Lewis:
On the Monetary Offset Argument):
“A number of us are highly critical…

…of moving to austerity so early in the recovery from the Great Recession. Market Monetarists… argue… the ZLB is not a problem…. I want to make a couple of observations. First, MM often [wrongly] imagine that they invented this offset argument…. Second, if you… want to take the MM argument seriously, you have to believe that monetary policy is [as] capable of offsetting the impact of austerity as much now as later… [and] that this is actually what monetary policy makers will do. If you believe the first, but are not sure about the second, then fiscal consolidation now is a mistake…. [This] exposes how weak the MM argument is at the ZLB…. Central banks at the moment are inflation targeting, and are likely to continue to do so, so enacting fiscal contraction in the hope that they might change is highly irresponsible. So the MM argument that the ZLB does not matter has to rely on Quantitative Easing (QE). But here there is a basic problem that MM has never to my knowledge answered. Just how much QE do you do to offset any fiscal contraction? We have no real idea, because we have so little experience…