Category: Equitablog

Paul Krugman:
The Limits of Purely Monetary Policies:
“I understand where Evans-Pritchard is coming from…

…because I’ve been there…. I had my road-to-Damascus moment… in 1998…. Back in 1998 I… believed that the Bank of Japan could surely end deflation if it really tried. IS-LM said not, but I was sure that if you really worked it through carefully you could show… doubling the monetary base will always raise prices even if you’re at the zero lower bound…. (By the way, I screwed up the aside on fiscal policy. In that model, the multiplier is one.)

To my own surprise, what the model actually said was that when you’re at the zero lower bound, the size of the current money supply does not matter at all…. Doubling the current money supply and all future money supplies will double prices. If the short-term interest rate is currently zero, changing the current money supply without changing future [money] supplies… matters not at all….

As a result, monetary traction is far from obvious. Central banks can change the monetary base now, but can they commit not to undo the expansion in the future, when inflation rises? Not obviously…. But, asks Evans-Pritchard, what if the central bank simply gives households money? Well, that is, as he notes, really fiscal policy…. I’m pretty sure that neither the Fed nor the Bank of England has the legal right to just give money away as opposed to lending it out; if I’m wrong about this, put me down for $10 million, OK?…

Must- and Shall-Reads:

• Mark Thoma:
  “Fiscal policy failed…. [The] fiscal stimulus… wasn’t big enough and did not last long enough to make the kind of difference that was needed. Fear of deficits stood in the way, though all the dire predictions that were made about the debt associated with the stimulus package did not come to pass. We could have done so much more…”
• Martin Wolf: “We are bundles of emotions, not calculating machines…. ‘Behavioural economics’ alters our view of human behaviour in three ways: first, most of our thinking is not deliberative, but automatic; second, it is socially conditioned; and, third, it is shaped by inaccurate mental models…”

 

1. Gregor Aisch et al.:
   Where Men Aren’t Working:
   “There are still places in the United States where nearly all men in their prime working years have a job. In the affluent sections of Manhattan; in the energy belt that extends down from the Dakotas; in the highly educated suburbs of San Francisco, Denver, Minneapolis, Boston and elsewhere, more than 90 percent of men between the ages of 25 and 54 are working in many neighborhoods. The male employment rates in those areas resemble the nationwide male employment rates in the 1950s and 1960s…. On the whole, however, it’s vastly more common today than it was decades ago for prime-age men not to be working…”
   

2. Dirk Schoenmaker:
   Macroprudentialism:
   “As the macroprudential toolbox is slowly being filled with new instruments, central banks need to learn how to use them. This will not be easy since the exact effect depends on the specifics of a country’s financial system and there may be unintended consequences…. Macroprudential policy, just like monetary policy, is more art than science…. The high costs of financial crises suggest that it may be better to err on the side of a pro-active macroprudential policy stance…. Macroprudential policy requires complete independence from short-term political pressures to deal with the inherent conflict between the short and the long term. This is why independent agencies, such as the central bank or the financial supervisory authority, are made responsible for macroprudential policy. This requires adequate arrangements for democratic accountability, as macroprudential decisions, such as lowering the loan-to-value ratio, can have a major impact on citizens.”
   

3. Noah Smith:
   Cultural Liberalism Is About Personal Responsibility:
   “Under a social censure model, punishment is communally imposed to get people to avoid unhealthy behaviors, such as drugs and broken families. Under a personal responsibility model, people are educated about the risks and dangers, and told that it is incumbent upon them to avoid doing the bad stuff…. Of course, this is a huge generalization, but I think you see this dynamic at work in the case of marriage and the case of drugs. The ‘secret traditionalism’ of upper-class liberals is no secret. It is simply the outcome of the repeated quiet exercise of personal responsibility…. Social conservatives, in my experience, often tend to argue that the lower classes of society are not smart enough to handle personal responsibility…. I am not a big fan of that idea…. But I suspect you’ll find at least hints and threads of this idea throughout the arguments of many social conservatives. So that leaves the question: If personal responsibility works better than social censure, why?… At the aggregate level we now have a bit of circumstantial evidence favoring the liberal, health-and-responsibility-based approach over the conservative, punishment-and-censure-based approach on both marriage and drug use.”
   

4. Matt O’Brien:
   Sorry, Putin. Russia’s economy is doomedt:
   “Russia doesn’t so much have an economy as it has an oil exporting business that subsidizes everything else…. Cheaper oil means Russian companies have fewer dollars to turn into rubles…. It hasn’t helped, of course, that sanctions over Russia’s incursion into Ukraine have already left Russia short on dollars…. The Russian ruble has fallen even further than the Ukrainian hryvnia or Brent oil has this year. The only asset, and I use that word lightly, that’s done worse than the ruble’s 50 percent fall is Bitcoin, which is a fake currency that techno-utopians insist is the future we don’t know we want…. Russia, you see, is stuck…. Its economy needs lower interest rates to push up growth, but its companies need higher interest rates to push up the ruble and make all the dollars they borrowed not worth so much…. Putin could afford to invade Georgia and Ukraine when oil prices were comfortably in the triple digits, but not when they’re half that. Russia can’t afford anything then.”
   

Should Be Aware of:

• Brian Buetler: “GOP donor class flirtation with Jeb Bush is… a huge, implicit rebuke to the senators, governors and former vice presidential nominees who have been jockeying for front-runner status… a recognition… that being a conservative movement celebrity isn’t synonymous with general election viability…”
• Andrew Hawkins: “I made the conscious decision to wear the T-shirt. I felt like my heart was in the right place. I’m at peace with it and those that disagree with me, this is America…. Support the causes and the people and the injustices that you feel strongly about. Stand up for them. Speak up for them. No matter what it is because that’s what America’s about and that’s what this country was founded on”)
• Stan Collender: John Kasich Isn’t Ready For Prime Time On The Federal Budget
• Perry Anderson (1983): In the Tracks of Historical Materialism
• Ben Smith: “Jeb… is deeply committed to centrist causes–federalized education, legal status for undocumented immigrants–that alienate key Republican groups; and he’s vaguely willing to go along with vestigial conservative issues that Republicans don’t care as much about, like standing up for Wall Street… and opposing marriage equality…”
• Edmund Wilson To the Finland Station https://db.tt/ZqZJDcBd 1940-06-01

 

1. Rick Perlstein:
   The Reason for Reagan: “Understanding Ronald Reagan requires looking beyond clichés to the cultural climate of the time. A response to Jacob Weisberg…. In 1980… pollsters… asked Americans whether they thought, as Reagan did, that ‘too much’ was being spent on welfare, health, education, environmental, and urban programs. Only 21 percent did…. Historiography on the rise of conservatism and the triumph of Ronald Reagan must obviously go beyond the deadening cliché that since Ronald Reagan said government was the problem, and Americans elected Ronald Reagan twice, the electorate simply agreed with him that government was the problem. But in his recent review of my book… Jacob Weisberg just repeats that cliché–and others…. The reviewer’s inattentiveness…. He must have missed Chapter 1… Chapter 15…. Did he not notice my extensive (and laudatory) discussion of Reagan’s welfare reforms as governor in Chapter 18?… Three chapters, ranging over some 102 pages, specifically about what made Reagan tick. Perhaps Weisberg skipped those, because he writes, ‘Perlstein doesn’t wonder about what made Reagan tick.’… Weisberg thinks I ‘pathologize conservative views.’ There are many pages in my book I could cite in refutation, but for the sake of brevity I’ll single out Chapter 15…. In some places Weisberg accuses me of writing things I did not actually write…. ‘Ronald Reagan,’ Weisberg writes, ‘was refining Goldwater’s pitch, shedding the warmongering, the pessimism, and the anti-New Deal extremism.’ No. He called the New Deal ‘fascism.’ Weisberg continues: ‘Reagan’s views were not simply Goldwater’s views; they were Goldwater’s views purged of their excesses and abstraction, grounded in the country’s lived experience, and given a hopeful cast.’… There was much… mind-blowingly excessive, unrefined, and not hopeful at all: For instance, that teachers unions were following a script laid down by Hitler and the Nazi Party…”
   

2. Perry Anderson (1976): Considerations on Western Marxism: “Paul Sweezy retraced and summarized the whole history of the Marxist debates on the laws of motion of capitalism, from Tugan-Baranovsky to Grossmann, himself endorsing Bauer’s last solution of the problem of underconsumption, in a work of model clarity, The Theory of Capitalist Development…. Sweezy… implicitly renounced the assumption that crises of disproportionality or underconsumption were insur­mountable within the capitalist mode of production, and accepted the potential efficacy of Keynesian counter-cyclical interventions…. The ultimate disintegration of capitalism was for the first time entrusted to a purely external determinant–the superior economic performance of the Soviet Union and the countries which could be expected to follow its path at the end of the War, whose ‘persuasion effect’ would eventually render possible a peaceful transition to socialism in the United States itself. With this conception, The Theory of Capitalist Development marked the end of an intellectual age…”

3. Steve M.:
   Did the GOP Establishment Learn the Wrong Lessons from 2014?: “[Jeb Bush]going to run with a Mitt Romney level of financing but a Jon Huntsman approach to the issues…. He’s likely to clear the field quite a bit…. Clearing the field for an establishmentarian ultimately worked for the GOP in 2014 in Kansas, Mississippi, South Carolina, and Kentucky because those are deeply red states — once you got to the general election, the Republican candidate was pretty much a shoo-in. But this isn’t a deeply red country…”
   

4. Echidne (2006):
   The Fertility Gap:
   “According to one Arthur Brooks, we liberals are going extinct because the conservatives are outbreeding us… far lefties are more hateful than far righties… conservative young people are more compassionate than liberal young people. This is one busy professor, isn’t he?… There is no study available at all anywhere online or listed on the Professor’s homepage…. We are steered to the raw data he presumably has used. Go on, he dares us, go and make up your own studies. I’m not telling you what variables I picked and how I standardized for them. This makes discussing the fertility gap a little bit iffy, largely because I have no way of checking Professor Brooks’s arguments….”
   

Gregor Aisch et al.:
Where Men Aren’t Working:
“There are still places in the United States where nearly all men in their prime working years have a job. In the affluent sections of Manhattan; in the energy belt that extends down from the Dakotas; in the highly educated suburbs of San Francisco, Denver, Minneapolis, Boston and elsewhere, more than 90 percent of men between the ages of 25 and 54 are working in many neighborhoods. The male employment rates in those areas resemble the nationwide male employment rates in the 1950s and 1960s…. On the whole, however, it’s vastly more common today than it was decades ago for prime-age men not to be working”

Dirk Schoenmaker:
Macroprudentialism:
“As the macroprudential toolbox is slowly being filled…

…with new instruments, central banks need to learn how to use them. This will not be easy since the exact effect depends on the specifics of a country’s financial system and there may be unintended consequences…. Macroprudential policy, just like monetary policy, is more art than science…. The high costs of financial crises suggest that it may be better to err on the side of a pro-active macroprudential policy stance….

Macroprudential policy requires complete independence from short-term political pressures to deal with the inherent conflict between the short and the long term. This is why independent agencies, such as the central bank or the financial supervisory authority, are made responsible for macroprudential policy. This requires adequate arrangements for democratic accountability, as macroprudential decisions, such as lowering the loan-to-value ratio, can have a major impact on citizens.

Noah Smith:
Cultural Liberalism Is About Personal Responsibility:
“Under a social censure model…

…punishment is communally imposed to get people to avoid unhealthy behaviors, such as drugs and broken families. Under a personal responsibility model, people are educated about the risks and dangers, and told that it is incumbent upon them to avoid doing the bad stuff…. Of course, this is a huge generalization, but I think you see this dynamic at work in the case of marriage and the case of drugs. The ‘secret traditionalism’ of upper-class liberals is no secret. It is simply the outcome of the repeated quiet exercise of personal responsibility….

Social conservatives, in my experience, often tend to argue that the lower classes of society are not smart enough to handle personal responsibility…. I am not a big fan of that idea…. But I suspect you’ll find at least hints and threads of this idea throughout the arguments of many social conservatives. So that leaves the question: If personal responsibility works better than social censure, why?…

At the aggregate level we now have a bit of circumstantial evidence favoring the liberal, health-and-responsibility-based approach over the conservative, punishment-and-censure-based approach on both marriage and drug use.

Must- and Shall-Reads:

• Josh Marshall:
  “In his latest effort to plug the fiscal hole created by his mega-tax-cutting debacle Kansas Governor Sam Brownback has been reduced to drawing down Obamacare funds to balance his state’s budget…”)
• Dave Boucher:
  “[Tennessee] Gov. Bill Haslam has announced the new Insure Tennessee plan.. a Medicaid expansion plan that could gain approval from both federal officials and the Republican-dominated state legislature… a special session in January focused on the new Medicaid expansion plan…”
• Barry Eichengreen, Ricardo Hausmann, and Ugo Panizza (2007):
  “Currency mismatches (differences in the currencies in which assets and liabilities are denominated), debt intolerance (the inability of emerging markets to manage levels of debt that are man- ageable for advanced industrial countries), and original sin (the difficulty emerging markets face when attempting to borrow abroad in their own currencies)… are analytically distinct…”

 

1. Tim Duy:
   More Questions for Yellen: “1. A journalist needs to push Yellen on the secular stagnation issue…. Does she or the committee agree with Fischer?  And does she see any inconsistency with the SEP implied equilibrium Federal Funds rates and the current level of long bonds?…. 2. The 5-year, 5-year forward breakeven measure of inflation expectations. Does she see this measure as important or too noisy to be used as a policy metric?  What is her preferred metric?… 3. Considering that recent updates of your optimal control framework now suggest that the normalization process should already be underway, how useful do you believe such a framework is for the conduct of monetary policy? What specific framework are you now using to dismiss the results of your previously preferred framework?… 4. St. Louis Federal Reserve President James Bullard has defined a specific metric to assess the Fed’s current distance from its goals. What is your specific metric and by that metric how far is the Fed from it’s goals?  What does this metric tell you about the likely timing of the first rate hike of this cycle?… 5. Why is the Fed setting the stage for raising interest rates next year while inflation measures remain below target? What is the risk, exactly, of explicitly committing to a zero interest rate policy until inflation reaches at least your target?… 6. High yield debt markets are currently under pressure from the decline in oil prices. Are you confident that macroprudential tools are sufficient to contain the damage to energy-related debt? If the damage cannot be contained and contagion to other markets spreads, what does this tell you about the ability to use low interest rate policy without engendering dangerous financial instabilities?”
   

2. Severin Borenstein:
   Gas prices are going up, but it’s a small price to pay at the pump to address climate change:
   “Under California’s cap-and-trade program… wholesale gasoline distributors… will have to buy… one emissions allowance for every metric ton of greenhouse gases you emit when you burn the gasoline…. At the current price of allowances… that works out to about 10 cents per gallon of gas…. Unfortunately, as the date for expanding cap-and-trade to transportation fuels approaches, both the program’s opponents and supporters have been exaggerating how much or little impact it will have…. The oil lobby… is claiming that the change will raise gas prices 16 to 76 cents… based on two analyses that were done many years ago…. The oil industry knows what allowances actually sell for today…. But they are choosing to stick with the outdated–and scarier–estimates…. Some proponents… are saying that Big Oil is not required by law to raise its prices, so it will be its own choice if it does, not the fault of the cap-and-trade program. This is just as disingenuous…. By establishing a price for emissions, California sends a signal to the rest of the country and the world that we recognize the risk of climate change and are willing to take actions to address it…. No one thinks California’s climate change program alone will solve this global problem, but if advanced economies like ours aren’t willing to step up, there will be no solution at all.”
   

3. Tyler Cowen:
   Comparing Living Standards Over Time:
   “I say I prefer $100k[/year] today to $100k[year] in 1964, that being a nominal rather than a real comparison.  If you are not convinced, try comparing $1 million or $1 billion (nominal) today to 1964. For some income level, we have seen net deflation. But here’s the catch: would you rather have net nominal 20k[/year] today or in 1964?  I would opt for 1964, where you would be quite prosperous and could track the career of Miles Davis and hear the Horowitz comeback concert at Carnegie Hall. (To push along the scale a bit, $5 nominal in 1964 is clearly worth much more than $5 today nominal. Back then you might eat the world’s best piece of fish for that much.) So for people in the 20k a year income range, there has been net inflation. Think about it: significant net deflation for the millionaires, but significant net inflation for those earning 20k a year.  In real terms income inequality has gone up much more than most of our numbers indicate.”
   

4. Paul Krugman:
   Dodd-Frank Damaged in the Budget Bill:
   “The securities and investment industry–perhaps affected by New York’s social liberalism, perhaps recognizing the tendency of stocks to do much better when Democrats hold the White House–has historically split its support more or less equally between the two parties. But that all changed with the onset of Obama rage. Wall Street overwhelmingly backed Mitt Romney in 2012, and invested heavily in Republicans once again this year. And the first payoff to that investment has already been realized. Last week Congress… included… a rollback of one provision of the 2010 financial reform… [a] significant but not a fatal blow to reform. But it’s utterly indefensible. The incoming congressional majority has revealed its agenda–and it’s all about rewarding bad actors…. What just went down isn’t about free-market economics; it’s pure crony capitalism…. Few Democrats actually believ[e] that undoing Dodd-Frank is a good idea. Meanwhile, it’s hard to find Republicans expressing major reservations about undoing reform. You sometimes hear claims that the Tea Party is as opposed to bailing out bankers as it is to aiding the poor, but there’s no sign that this alleged hostility to Wall Street is having any influence at all on Republican priorities….”
   

5. Dani Rodrik:
   Good and Bad Inequality:
   “Latin America is the only world region where inequality has declined since the early 1990s. Improved social policies and increased investment in education… the decline in the… ‘skill premium’ has also played an important role…. If… an increase in the relative supply of skilled workers, we can be hopeful that… faster growth…. But if… decline in demand for skilled workers… industries on which future growth depends are not expanding sufficiently…. Automation and other technological changes, globalization, weaker trade unions, erosion of minimum wages, financialization, and changing norms about acceptable pay gaps within enterprises have all played a role, with different weights in the United States relative to Europe. Each… has a different effect…. Technological progress clearly fosters growth, the rise of finance since the 1990s has probably had an adverse effect…. It is good that economists no longer regard the equality-efficiency tradeoff as an iron law. We should not invert the error and conclude that greater equality and better economic performance always go together. After all, there really is only one universal truth in economics: It depends.”
   

6. Will Wilkinson:
   Blogging as Being:
   “My personal blog… goes back to November 2001, and I keep the whole thing online as a matter of principle, despite its damning evidence of a once-serious interest in Ayn Rand, because it is… a record of my intellectual and moral identity…. If I did not maintain its public existence I would begin to shade the truth about myself to myself, the better to conform to whatever idea about myself I am currently in the grip of, and would start to believe I had always been the way I’d prefer to imagine I had always been. And we don’t want that.”
   

7. 1. W.J. Astore:
      The Torture Was the Message:
      “Cheney… Rumsfeld… Rice… Wolfowitz–fancied themselves to be the new Vulcans… the Roman god of war…. They believed that Rome had prospered because of its willingness to use force with unparalleled ruthlessness…. Call it ‘shock and awe.’… In attempting to intimidate the enemies they saw everywhere, they tortured widely as well…. People like Cheney concluded the same: they had to be willing to use brutal force at whatever cost… project an image of ruthlessness, because the language of brutality was the only language ‘they,’ the enemy, could and would understand. It wasn’t necessary to sacrifice democracy to defend democracy, since to the Vulcans, America wasn’t really a democracy anyway.  No: America was the new Rome, the new global hegemon, and it had to act like it…. Torture was not an aberration. It was method.  A method of intimidation that sent a message to barbarians about America’s willingness to use whatever force was necessary to defend itself. Whether torture yielded reliable intelligence was beside the point. The torture was the message. That’s why you’ll hear no apology from Dick Cheney or the other Vulcans…”
      

Should Be Aware of:

• John Eligon:
  “As Gov. Sam Brownback of Kansas campaigned… he assured Kansans… those who predicted budgetary Armageddon were pandering and misleading…. Within days of winning re-election, the governor was confronted with a grimmer budget picture…. His plan has only stoked more unease even among Mr. Brownback’s Republican allies…”
• Justin Fox:
  “I really can’t think of any good reason why the y-axis on a bar chart shouldn’t go to zero…. This chart was obviously crafted to deceive…. The Businessweek.com chart, on the other hand, was crafted to show the data as fully as possible…”
• Messy Nessy:
  “Between the 1890s and early 1900s, thousands of illustrations like this were produced and distributed…. The message was that women’s rights were dangerous and letting women think for themselves could only end in a nightmarish society…”
• Amanda Taub:
  Rape culture isn’t a myth. It’s real, and it’s dangerous. – Vox:
  “Rape culture… sexual violence is treated as the norm and victims are blamed for their own assaults…cultural norms and institutions that protect rapists, promote impunity, shame victims, and demand that women make unreasonable sacrifices to avoid sexual assault…”
  
• Ed Kilgore:
  “We need to call B.S. on this idea of Elizabeth Warren (or any other ‘populist) becoming a pied piper to the Tea Folk…. Yes, many ‘constitutional conservatives’ oppose corporate bailouts… but [also] regulation of big banks and other corporations… the social safety net… legalized abortion and marriage equality…”
• Yuriy Gorodnichenko, Gerard Roland, and Edward W. Walker:
  “Since Russia’s annexation of Crimea, tensions… have not abated. Nonetheless, it has been striking how much support Putin still enjoys in Europe… intellectuals and politicians… the extreme left and extreme right… Viktor Orban, Marine Le Pen… Gerhard Schroeder, and from the ‘Putinversteher’ of Germany…”

 

1. Lizzie Wade:
   Wealth may have driven the rise of today’s religions:
   “Today’s most popular religions all have one thing in common: a focus on morality. But the gods didn’t always care whether you are a bad person. Researchers have long puzzled over when and why religions moved away from a singular focus on ritual…. A new study proposes that the key to the rise of so-called moralizing religions was, of all things, more wealth…. Baumard and his colleagues… [believe] that when people have fewer resources at their disposal, prioritizing rewards in the here and now is the best strategy…. But when you become more affluent, thinking about the future starts to make sense…. The values fostered by affluence, such as self-discipline and short-term sacrifice, are exactly the ones promoted by moralizing religions…. In cultures where people had access to fewer than 20,000 kilocalories a day, moralizing religions almost never emerged. But when societies crossed that 20,000 kilocalorie threshold, moralizing religions became much more likely, the team reports online today in Current Biology. ‘You need to have more in order to be able to want to have less,’ Baumard says.”
   

2. Daniel Davies:
   The most powerful financial regulators in the world — and they never asked for the job**:
   “The deep issue here is that clearing houses are the choke-points of financial trading… even more the case going forward, as regulators have insisted that more and more markets should be centrally cleared. Given this, you can see why it’s such a big priority for supervisors and market players alike that a clearing house should never be allowed to fail…. I worry, quite a lot, that people are kind of missing the point. The problem with clearing houses is really not the remote, theoretical (although admittedly horrifying) risk that one of them might suffer a counterparty default which forced it into insolvency. The problem about clearing houses is that the ways in which they protect themselves against credit risk tend to have the effect of radiating liquidity problems out into the rest of the system…”
   

3. Ian Millhiser:
   A Non-Lawyer’s Guide To The Latest Supreme Court Case Attacking Obamacare:
   “An amendment to the Affordable Care Act requires the federally-run exchanges to report various information that they would only be able to report if they were providing subsidies, such as whether taxpayers received an ‘advance payment of such credit’; information needed to determine individuals’ ‘eligibility for, and the amount of, such credit’; and ‘[i]nformation necessary to determine whether a taxpayer has received excess advance payments.’ These reporting requirements make no sense if federally-run exchanges were not intended to offer subsidies”
   

When I read this piece, it struck me that the stakes were unusually large–that what Lant Pritchett and Larry Summers were really trying to do was to reopen questions of how to think about long-run economic growth that had been largely settled back in the 1950s and 1960s, with the intellectual victory of Robert Solow and company over incremental-institutionalists like Walt Rostow…

Lant Pritchett and Lawrence Summers: Growth Slowdowns: Middle-Income Trap vs. Regression to the Mean: No question is more important for the living standards of billions of people or for the evolution of the global system than the question of how rapidly differently economies will grow over the next generation. We believe that conventional wisdom makes two important errors….

First, it succumbs to the extrapolative temptation and supposes that, absent major new developments, countries that have been growing rapidly will continue to grow rapidly, and countries that have been stagnating will continue to stagnate…. Past is much less the prologue than is commonly supposed. Second, conventional wisdom subscribes to the notion of a ‘middle-income trap’…. What is often ascribed to the middle-income trap is better thought of as growth rates reverting to their means….

First, we find it difficult to understand the meaning of the ‘middle-income trap’ when it is used to discuss countries that range from Latin American countries to Russia to China to Indonesia to India to Vietnam to Ethiopia…. Second… rapid growth [is] a much more powerful predictor of the likelihood of a deceleration than level of income…. Third… the impact of the current growth rate on the likelihood of deceleration is large, significant, and important… whereas the effect of the ‘middle-income trap’ is small….

Sustaining growth is not a ‘middle-income’ problem… [but] the fundamental challenge… at all stages…

Ever since Solow (1956) set forth his Solow growth model, the key concepts in neoclassical economic growth theory have been “convergence” and the “steady-state growth path”. The theory’s underlying ideas are four:

1. An economy’s political-economic and sociological institutions determine where, relative to the world’s best-practice most-prosperous frontier, its long-run steady-state neoclassical growth path is.

2. Habits of thrift and demography-driven population growth, rule of law and vulnerability to corruption, the technological system of invention and adaptation, and the provision of education and infrastructure are the most powerful aspects and channels of what we call political-economic and sociological institutions.

3. Substantial institutional changes can produce large shifts in the location of its long-run steady-state neoclassical growth path.

4. When a country’s economy is away from its long-run steady-state neoclassical growth path, it tends to “converge” toward that path with a 1/e time measured in decades.

This theory predicts that:

1. If a country has been growing very fast for reasons unrelated to resource booms, almost surely it is because it is converging to its LRSSNGP from below, and is almost sure to continue to grow rapidly–unless something goes badly wrong with its institutions.

2. If a country has been growing very slowly for reasons unrelated to resource booms, almost surely it is because it is converging to its LRSSNGP from above, and is almost sure to continue to grow slowly–unless something goes wonderfully right with its institutions.

3. A big institutional change is likely to be followed by a growth acceleration or deceleration, and such acceleration or deceleration is likely to persist for some time.

Lant Pritchett and Larry Summers are now trying to blow this up: to say that just as the neoclassical aggregate production function is a very bad guide to understanding the business cycle, as the generation-old failure of RBC models tells us, so the neoclassical aggregate production function and the Solow growth model built on top of it is a bad guide to issues of growth and development as well.

I am going to have to think hard to decide what I think of all this–especially as Larry was one of the people who taught me the Solow growth model in the first place…

These days, when people come to me and ask if I will run a reading course for them on Karl Marx, this is what I tend to say:

The world is divided into those who take Karl Marx’s work seriously and those who do not.

On the one hand, those who do not take Karl Marx’s lifetime work-project seriously are further divided into three groups:

1. Those who ignore Marx completely.

2. Those who use selected snippets from his work as Holy Texts, and

3. Those modern “western Marxists” who find inspiration in the works that Karl Marx wrote exclusively before he was thirty.

Of the first group there is, of course, nothing to say.

Of the second group, the late Louis Althusser can serve as our example and principal poster child. And I will leave him to Michael Berube and Bill Lazonick.

Of the third group, Chris Bertram provides as good an example as any:

Start by discussing… the Manifesto… revolutionary nature of the bourgeoisie… their transformation of technology, social relations… global economy… Marx’s belief that… the appearance of freedom and equality… [masks that] some people end up living off the toil of other people… [who] spend their whole lives working for the benefit of others, and [so are not] living truly truly human lives… Marx’s belief that a capitalist society would eventually be replaced by a classless society run by all for the benefit of all…

In short, start with the Communist Manifesto–written when Marx was 30–and then go back to the impenetrable and jargon-filled Economic and Philosophical Manuscripts, “Theses on Feuerbach”, The German Ideology, and “On the Jewish Question” written he was 25-28. Maybe read the Preface to A Contribution to the Critique of Political Economy, written when he was 30-38, maybe not. And add on two paragraphs–ripped from their context–from his written-at-57 “A Critique of the Gotha Program. *The Eighteenth Brumaire–and how its analysis of the relation between economic classes, economic interests, political fractions, and the coming of the Second Empire dictatorship in France over 1848-1852 was wrong? Nope. The Grundrisse? The rest of A Contribution to the Critique of Political Economy? Theories of Surplus Value? Capital, vols. I, II, and III? Not to be wrestled with.

It has always seemed to be that the “western Marxists” still floating around today have decided that Marx’s life and work end at 30. It seems to me that that is as damning a judgment of his lifetime project as the one made by those who ignore him completely.

Then, on the other hand, there is us.

We–people like Joan Robinson, Paul Samuelson, and me–take Karl Marx throughout his life as a mighty and mightily flawed thinker, worth grappling with and treating with respect.

My take, in brief: We need to talk about Marx the moralist-prophet, Marx the political activist, and Marx the economist. Marx did not divide himself into those three. But we find it useful to do so:

Marx the Economist:

1. Among the very first to get the industrial revolution right and understand what it meant for human possibilities and human destiny.
2. Got a lot about the economic history of the development of modern capitalism in England right–very much worth grappling with as an economic historian of 1500-1850.
3. Believed, probably wrongly, that a capitaliist market economy with wage labor is an insult to humanity, delivered low utility, and was sociologically and psychologically unsustainable.
4. Believed, certainly wrongly that a capitalist market economy with wage labor was incapable of delivering an acceptable distribution of income.
5. Among the very first to recognize that the fever-fits of financial crisis and depression that afflict modern market economies were not a passing phase but rather a deep and chronic malady of the system.

Now we modern neoliberals respond that (5) on the business cycle we have economic policy quinine to manage if not banish the disease, (4) Beveridgism or Myrdahlism–social democracy, progressive income taxes, a very large and well-established safety net, public education to a high standard, channels for upward mobility, and all the panoply of the twentieth-century social-democratic mixed-economy democratic state–can keep capitalist prosperity must be accompanied by great inequality and misery, and (3) a market economy can easily be a good thing even if a market society generally is not, and that the forecast of utopia–that we jumped-up monkeys with big brains will become perfectly happy–belongs in the Book of Daniel or of the Apocalypse, not in political economy. Whether our responses are convincing is for you to judge.

Marx the Activist:

Marx the political activist had five reasons he thought it necessary and possible to work to overthrow the capitalist market economy and socialize the means of production, believing that:

1. Technological progress and capital accumulation that raised average labor productivity also lowered the working-class wage.
2. Globalization inherently increased inequality in the world economy’s core and hence raised pressure for working-class revolution.
3. While previous systems of hierarchy and domination had hypnotize the poor into believing that the rich in some sense “deserved” their high seats, capitalism replaced masked exploitation by naked exploitation–and without ideological legitimation, unequal class society could not long survive.
4. Even though the ruling class could appease the working class by sharing the fruits of economic growth, they could not organize themselves to do so. Hence social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would be overthrown. (The Wall Street Journal editorial page works day and night 365 days a year to make this one of Marx’s predictions come true. But I think they will fail.)
5. Factory work would lead people to develop a sense of their common interest and of class solidarity, hence they would be able to organize, and revolt, and establish a free and just society in a way that they could not back in the old days, when the peasants of this village were suspicious of the peasants of the next village. Here I think Marx mistook a passing phase for an enduring trend: active working-class consciousness as a primary source of loyalty and political allegiance was never that strong; nation and ethnos seem to trump class much more often than not.

Thus I conclude that while there is a lot in Marx-the-economist worth grappling with and thinking about, there is very little in Marx the political activist that is worth paying attention to today.

Marx the Prophet:

Let’s listen to a sample:

Great Britain[‘s]… aristocracy wanted to conquer [India], the moneyocracy to plunder it, and the millocracy to undersell it…. Now the… millocracy…intend now drawing a net of railroads over India… [to] extract… the cotton and other raw materials for their manufactures…. The railway-system will therefore become, in India, truly the forerunner of modern industry…. All the English bourgeoisie may be forced to do will neither emancipate nor materially mend the social condition of the mass of the people…. But what they will not fail to do is to lay down the material premises to do so]…. Has the bourgeoisie ever done more? Has it ever effected a progress without dragging individuals and people through blood and dirt, through misery and degradation?…. When a great social revolution shall have mastered the results of the bourgeois epoch… and subjected them to the common control of the most advanced peoples, then only will human progress cease to resemble that hideous, pagan idol, who would not drink the nectar but from the skulls of the slain…

Were live in this fallen sublunary sphere. In it, the New Jerusalem does not descend from the clouds “prepared as a Bride adorned for her Husband.” In it, a Great Voice does not declare:

I shall wipe away all tears from their eyes; and there shall be no more death, neither sorrow, nor crying, neither shall there be any more pain: for the former things are passed away…

But Marx clearly thought at some level that they would.

He never got to the island of Patmos on which John the Divine lived. But there is a sense that he, too, got too much into the magic mushrooms.

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And here is more that I at least think is very much worth reading. And if you finish this and still want more, I’ll send you the course reading list:

My Stuff:

• Understanding Karl Marx
  http://delong.typepad.com/20090420_stanford-talk_karl-marx.pdf
  2009-04-20

• Relevance of Marx?
  http://delong.typepad.com/sdj/2014/03/over-at-the-new-york-times-room-for-debate-relevance-of-marx.html
  2014-01-30

• What Was Karl Marx’s Principal Contribution?
  http://delong.typepad.com/sdj/2011/04/what-was-karl-marxs-principal-contribution.html
  2011-04-03

• Marx’s Half-Baked Crisis Theory and His Theories of Surplus Value, Chapter 17
  http://delong.typepad.com/sdj/2011/05/marxs-half-baked-crisis-theory-and-his-theories-of-surplus-value-chapter-17.html
  2011-05-01

• Keynes, Marx, Trotsky, Yglesias
  http://delong.typepad.com/sdj/2007/01/keynes_marx_tro.html
  2007-01-16

• Unstructured Procrastination: Why Is Structural Marxism Desirable?
  http://delong.typepad.com/sdj/2005/08/unstructured_pr.html
  2005-08-11

• The Relevance of Marx http://delong.typepad.com/sdj/2008/03/afternoon-coffe.html) 2008-03-20

• Evaluating Karl Marx as Political Activist
  http://delong.typepad.com/sdj/2008/03/evaluating-karl.html
  2008-03-21

• Introducing Serious, Permanent Bugs into Your Wetware
  http://delong.typepad.com/sdj/2006/08/introducing_ser.html
  2006-08-26

• Why Everybody Should Be Short Louis Althusser and His Intellectual Children
  http://delong.typepad.com/sdj/2007/06/why_everybody_s.html
  2007-06-11

• Lire le Capital: Mail Call
  http://delong.typepad.com/sdj/2005/04/lire_le_capital.html
  2005-04-05

• Department of “Huh?”: In Praise of Neoclassical Economics: Exhibit 1: David Harvey
  http://delong.typepad.com/sdj/2009/02/department-of-huh-in-praise-of-neoclassical-economics-department.html
  2009-01-14 |
  Why, Thank You Mike Begg: Yes, the Argument Back in 2009 That Fiscal Expansion Would Lead to Large Rises in Interest Rates and Be Offset by Crowding Out Was Simply Wrong
  http://delong.typepad.com/sdj/2011/01/why-thank-you-mike-begg-yes-the-argument-back-in-2009-that-fiscal-expansion-would-lead-to-large-rises-in-interest-rates-an.html
  2011-01-05

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Other People’s Stuff:

• Leszek Kolakowski:
  Main Currents of Marxism: Leszek Kolakowski tells English historian E.P. Thompson what he thinks of him…
  http://delong.typepad.com/sdj/2006/09/main_currents_o.html
  1974-03-01

• Paul Samuelson:
  On Paul Samuelson on Karl Marx
  http://delong.typepad.com/sdj/2013/10/robert-paul-wolff-on-paul-samuelson-on-karl-marx-thursday-whiskey-tango-foxtrot-bang-query-bang-query-weblogging.html
  http://www.jstor.org/stable/1823476
  1962-03-01

• Joan Robinson:
  Joan Robinson: Open letter from a Keynesian to a Marxist
  http://delong.typepad.com/sdj/2013/07/joan-robinson-open-letter-from-a-keynesian-to-a-marxist-tuesday-sixty-years-ago-on-the-non-internet-weblogging.html
  1953-07-30

• Fred Halliday:
  What Was Communism?
  https://www.opendemocracy.net/article/what-was-communism
  2009-10-16

• Matthew Yglesias:
  Can Social Democracy Explain Its Own Success?
  http://crookedtimber.org/2006/10/31/can-social-democracy-explain-its-own-success/
  2006-10-31

• Karl Marx:
  On Say’s Law: Theories of Surplus-Value, Chapter 17
  http://delong.typepad.com/sdj/2010/03/karl-marx-on-says-law-theories-of-surplus-value-chapter-17.html 1863-01-01

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