Category: Equitablog

Paul Krugman: Crisis of the Eurocrats: “The bitter irony here is that Europe’s elite…

…isn’t actually technocratic. The creation of the euro was about politics and ideology, not a response to careful economic analysis…. The same can be said of the turn to austerity: All the economic research supposedly justifying that turn has been discredited, but the policies haven’t changed…. And the European elite’s habit of disguising ideology as expertise, of pretending that what it wants to do is what must be done, has created a deficit of legitimacy. The elite’s influence rests on the presumption of superior expertise; when those claims of expertise are proved hollow, it has nothing to fall back on…. There are some very scary people waiting in the wings. If we’re lucky–and if officials at the European Central Bank, who are closer to being genuine technocrats than the rest of the elite, act boldly enough against the growing threat of deflation–we may see some real economic recovery over the next few years. This could, in turn, offer a breathing space…. But economic recovery by itself won’t be enough; Europe’s elite needs to recall what the project is really about. It’s terrifying to see so many Europeans rejecting democratic values, but at least part of the blame rests with officials who seem more interested in price stability and fiscal probity than in democracy. Modern Europe is built on a noble idea, but that idea needs more defenders.

Brainwrap: ACA Signups: Presenting the Great Conservative Kynect Challenge!: “I present you with the following (thanks to Jed Lewison for the tip):

MCCONNELL: KY. EXCHANGE UNCONNECTED TO HEALTH LAW
LOUISVILLE, Ky. (AP) — Kentucky Sen. Mitch McConnell says he would try to repeal the Affordable Care Act…. But the veteran senator won’t say what would happen to the 413,000 Kentuckians who have health insurance through the state’s health care exchange. McConnell told reporters Friday that the fate of the state exchange is unconnected to the federal health care law. Yet the exchange would not exist, if not for the law that created it….

Now, supporters of the law in Kentucky… want people to have access to healthcare coverage even if the recipient is too intellectually lazy (or, gasp, racist?) to perform the most rudimentary research on the subject…. That brings us to the Mitch McConnell story above. Senator Turtle just flat-out lied about the fact that Kynect is Obamacare. He didn’t exaggerate or tell a half-truth; he told a bald-faced lie about it. So, here’s my challenge to you, Conservative Pundits: Will you tell your readers at Forbes, HotAir, the Daily Caller, NewsMax and (dare I say it) FOX News the truth? Will you state point-blank with no equivocation that Kynect, Obamacare and the Affordable Care Act are all the same Goddamned law?…. I’ll make it easy for you; here’s a simple graphic for you to share:

The physiocrats of eighteenth-century France saw the country as having four kinds of jobs:

1. Farmers
2. Skilled artisans
3. Flunkies
4. Landowning aristocrats

Farmers, they thought, produced the net value in the economy–the net product. Their labor combined with water, soil, and sun grew the food they and others ate. Artisans, the physiocrats thought, were best seen not as creators but as transformers of wealth–transformers of wealth in the form of food into wealth in the form of manufactures. Aristocrats collected this net product–agricultural production in excess of farmers’ subsistence needs–and spent it buying manufactured goods and, when they got sated with manufactured goods, employing flunkies.

Set the wage needed to attract people into the artisan professions as numeraire: set it equal to 1. Then in this framework, the key economic variables are:

• the fraction of the population who are farmers: f.
• the net product per farmer: n.
• the fraction of the population who can be set to work making manufactured goods that aristocrats can consume before becoming sated: m.

The key equilibrium quantity in this system is:

(nf-m)/(1-f-m) = w

This gives the standard of living of the typical flunky–say, a runner for His Grace the Cardinal. The numerator is the amount of resources on which flunkies can subsist: the net product received by landlords minus the amount of the net product spent employing artisans. The denominator is the flunky share of the population. The quotient of the two is the flunky wage: w.

If this flunky wage w is low, the country is poor. Flunkies are then ill-paid. Begging and thievery are then rampant. Moreover, the reserve army of underemployed and potentially-unemployed flunkies puts downward pressure on artisan and farmer living standards as well.

If this quantity w is high, the country is prosperous.

The physiocrats saw a France undergoing a secular decline in the farmer share f. They worried. A fall in f produced a sharper decline in w. Thus they called for:

• Scientific farming to boost n, and so boost the net product nf.
• A reallocation of the tax burden to make it less onerous to be a farmer–and so boost the farmer share f and thus the net product nf.

With the unquestioned assumption that there were limits on how high the net product per farmer n could be pushed, the physiocrats would have forecast that France of today, with only 5% of the population farmers, would be a hellhole: enormous inequality and absolute poverty, with huge numbers of ill-paid flunkies sucking up to the aristocratic landlords.

Well, the physiocrats were wrong about the decline of the agricultural share of the labor force…

And let us hope that the techno-pessimists are similarly wrong about the rise of the robots…

Should-Reads:

1. Ta-Nehisi Coates: The Case for Reparations: “Reparations could not make up for the murder perpetrated by the Nazis. But they did launch Germany’s reckoning with itself, and perhaps provided a road map for how a great civilization might make itself worthy…. Ben-Gurion said: ‘For the first time… a great State, as a result of moral pressure alone, takes it upon itself to pay compensation to the victims of the government that preceded it. For… a people that has been persecuted, oppressed, plundered and despoiled… a persecutor and despoiler has been obliged to return part of his spoils and has even undertaken to make collective reparation as partial compensation for material losses.’ Something more than moral pressure calls America to reparations. We cannot escape our history. All of our solutions to the great problems of health care, education, housing, and economic inequality are troubled by what must go unspoken…. In the early 2000s, Charles Ogletree went to Tulsa, Oklahoma, to meet with the survivors of the 1921 race riot that had devastated ‘Black Wall Street’…. A commission authorized by the Oklahoma legislature produced a report affirming that the riot, the knowledge of which had been suppressed for years, had happened. But the lawsuit ultimately failed, in 2004…. The crime with which reparations activists charge the country implicates more than just a few towns or corporations. The crime indicts the American people themselves, at every level, and in nearly every configuration. A crime that implicates the entire American people deserves its hearing in the legislative body that represents them…”

2. Douglas Holt-Eakin: “Many… [Republicans] are convinced [immigration reform is] bad [political] news [for them].: Right, and the sun revolves around the earth…. Conservative voters support the need for reform… the policies for reform… would not vote against someone with whom they disagreed on… reform…. [Republicans’] electoral future will benefit from passing an immigration reform. If the Hispanic vote migrates away from Republicans in states like Texas and Florida… these states will turn blue…. Mitt Romney won only 27 percent of the Hispanic vote in 2012) House Republicans may not be narrowly endangered, especially in 2014, but the larger political threat is real…. They do not have the luxury of waiting…. If they do not pass reform bills, the president will simply announce an executive order stopping or reducing deportations in August. Many Republicans will reflexively lash out at the administrative overreach, which the Democrats will quickly distort and paint Republicans as simply anti-immigrant. Voting on legislation of their choosing… is way better politics than doing nothing and playing on the president’s terms.  Good immigration reform will benefit the nation. It can also be better politics [for Republicans] in 2014…”

3. Jonathan Chait: What’s My Problem With Conservative Reformers?: “However loopy, bigoted, incompetent, or detached from the realities of economic life the Republican Party may be, it is always just one recession away from regaining political power. It is therefore of the highest importance that sane, non-sociopathic people regain some influence within the party for when that day arrives…. The deeper tension in the project lies between the political demands of the reform project and the demands of intellectual honesty. That’s the main tension I tried to highlight in a profile I wrote last year of Josh Barro, who simply grew tired of the contortions necessary for the far right. The contrasting point of view to Barro was supplied by Reihan Salam, who told me, ‘The truly public-spirited person is part of a team, and makes their team smarter and better to the extent they can’. Being part of a team means that, in the service of a noble and public-spirited political goal, you are engaged in some form of spin. Dionne’s essay describes how Republican reformers demonstrate their partisan bona fides by engaging in elaborately overstated denunciations of President Obama while refusing either to grapple with the party’s reflexive opposition or acknowledge the ways that some of Obama’s proposals were, are, or could be the basis for compromise…”

4. Greg Sargent: Obama slams ‘both sides to blame’ media: “At a fundraiser last night, President Obama unleashed a surprisingly spirited and comprehensive attack on ‘both sides to blame’ media coverage. While he has taken issue with Beltway coverage before, what was particularly noteworthy this time is that he made the case that ‘false equivalence’ coverage is fundamentally misleading in the sense that it obscures the basic imbalance that currently exists between the two parties…. I’m not sure Obama has ever gone so directly at the idea that today’s GOP has become what some of us have been calling ‘post-policy’; that the basic imbalance resulting from that is the primary cause of reigning Washington dysfunction; and that on a fundamental level, press coverage is failing to reckon with these realities. This will prompt the Green Lanternite pundits, who continue to trace the problem to Obama’s failure to move Congress, to argue that he is merely making excuses for failure. I would note, though, that in his remarks, he also said the only remedy for the problem is for Democrats to vote out Republicans, which is to say, it’s on Democrats to fix by winning elections…”

Should Be Aware of:

• Katie Lobosco: Army of robots to invade Amazon warehouses
• Ken French: Why you shouldn’t pay an active investment manager
• Barry Ritholtz: Geithner’s Stress Test Failure
• Mike Konczal: How Timothy Geithner failed his stress test
• Scott Andes and Mark Muro: China: A Manufactured Chimera?
• Paul Krugman (2010): Crises

And:

Continue reading “Things to Read on the Morning of May 24, 2014” →

Matt Yglesias: (mattyglesias) on Twitter: “Maybe it’s just me, but this doesn’t look like a huge disagreement: http://pic.twitter.com/FO7V93tuXG“

Chris Giles: Piketty findings undercut by errors

I am with Matt on this one…

David Dayen: Congress Is Blowing a Huge Opportunity to Rebuild America: “The days of cheap borrowing have returned…

…Yields on the 10-year Treasury bond, a good benchmark for determining government borrowing costs, have fallen to the lowest level since last year’s government shutdown…. The economy remains sluggish enough to keep a lid on interest rates. Demand remains well below trend, the housing market has grown weaker, and inflation has not approached the Federal Reserve’s 2 percent target…. This confluence of factors has led to the re-emergence of the biggest bargain in America, an opportunity we have squandered amid years of low interest rates. Once again, we have a chance–perhaps the last chance–to use cheap borrowing to invest in priorities that will never be this affordable again…. Taking advantage of low rates and enacting a large infrastructure program would actually save money in the long-term, while strongly supporting economic recovery right now…

Mark Thoma sends us to Larry Summers at Michael Tomasky’s Democracy Journal:

Lawrence H. Summers: The Inequality Puzzle: “I have serious reservations about Piketty’s theorizing as a guide…

…to understanding the evolution of American inequality…. Piketty[‘s]… rather fatalistic and certainly dismal view… presumes, first, that the return to capital diminishes slowly, if at all, as wealth is accumulated and, second, that the returns to wealth are [nearly] all reinvested…. Neither of these premises is likely correct as a guide to thinking about the American economy today….

Most economists would attribute both it and rising inequality to the working out of various forces associated with globalization and technological change…. Piketty… recognizes that at this point the gains in income of the top 1 percent substantially represent labor rather than capital income… a separate issue from processes of wealth accumulation…. So why has the labor income of the top 1 percent risen so sharply relative to the income of everyone else? No one really knows. Certainly there have been changes in prevailing mores regarding executive compensation… plenty to criticize in existing corporate-governance arrangements…. I think… those like Piketty who dismiss the idea that productivity has anything to do with compensation should be given a little pause…. The executives who make the most money are not for most part the ones running public companies who can pack their boards with friends. Rather, they are the executives chosen by private equity firms…. This is not in any way to ethically justify inordinate compensation-—only to raise a question about the economic forces that generate it…. And there is the basic truth that technology and globalization give greater scope to those with extraordinary entrepreneurial ability, luck, or managerial skill. Think about the contrast between George Eastman, who pioneered fundamental innovations in photography, and Steve Jobs…. Eastman Kodak Co. provided a foundation for a prosperous middle class in Rochester for generations, no comparable impact has been created by Jobs’s innovations…

Continue reading “Reviewing Lawrence H. Summers’s Review of Piketty II: The Post-1980 Rise of Extreme Inequality in America: Friday Focus: March 23, 2014” →

Antonio Fatas: The US labor market is not working: “The US has gone through a major crisis after 2008 with devastating effects…

…on the labor market but so have other countries. In fact, most European countries have done much worse than the US in terms of GDP growth during the last 6 years. In fact, with the exception of Portugal, Greece and Ireland, the US is the country with the worst labor market record for this age group if we compare the 2012 to the 2000 figures…

Ambrose Evans-Pritchard: Europe’s centre crumbles as Socialists immolate themselves on altar of EMU: “By a horrible twist of fate…

…Europe’s political Left has become the enforcer of reactionary economic policies. The great socialist parties of the post-war era have been trapped by the corrosive dynamics of monetary union, apologists for mass unemployment and a 1930s deflationary regime that subtly favour the interests of elites. One by one, they are paying the price…. Contractionary policies are poisonous for countries leveraged to the hilt…. One can understand why the Left in small countries may feel too weak to buck the EMU system. The mystery is why a French Socialist president with a parliamentary majority should so passively submit to policies that are sapping the lifeblood of the French economy and destroying his presidency. Francois Hollande won the presidency two years ago on a growth ticket, vowing to lead an EMU-wide reflation drive that would lift Europe out of slump. He promised to veto the EU Fiscal Compact. He asked to be judged on his record in ‘bending the curve of unemployment’, and to his chagrin the people are holding him to his word…

Should-Reads:

1. Ben Casselman: Cutting Off Emergency Unemployment Benefits Hasn’t Pushed People Back to Work: “In 2013, people who likely qualified for emergency benefits had a monthly job-finding rate of 12 percent. In the four months since the program ended, the job-finding rate for likely cutoff victims… was slightly higher, at 14 percent. But the difference isn’t statistically significant. Even if it holds up as more data comes in, it could be the result of the improving economy rather than the direct impact of the end of the emergency program. The end of the program might have had another effect, however: It may have made people less likely to keep trying to find jobs. Unemployment programs usually require recipients to show that they’re actively applying for jobs…. About 19 percent of cutoff victims have dropped out of the labor force each month this year, meaning they stopped actively looking for work. That’s a bit higher than the 16 percent who dropped out each month last year; that difference, too, is at most marginally statistically significant. We don’t yet have enough evidence to draw a firm conclusion about what impact the end of emergency benefits has or hasn’t had…. This much is clear, however: There has been no sudden surge of former benefits recipients into jobs. Nor have they abandoned the labor force in droves. Most have done what Laurusevage has done: continued looking for work, but without the lifeline that benefits provided…”

2. Sarah Kliff: America is fat because we exercise a little more and eat a lot more: “Southern states, for example, tend to have higher obesity rates than those in the Northeast… lower-incomes than high earners… also higher in minority populations. But… Roland Sturm argues… across different geographies, ethnic groups and income-levels, obesity rates are growing just as quickly…. Sturm argues there are important policy implications from seeing the obesity crisis as something that’s happening all over the country…. It’s not… food deserts that are driving the obesity epidemic, if rates are going up just as quickly in places where there are ample food options…. Americans pretty much everywhere consume more calories than they did a few decades ago…. Exercise doesn’t actually appear to be the problem: Americans are exercising slightly more than they did in late 1990s…”

Should Be Aware of:

• Hans-Joachim Voth: Nazi pork and popularity: How Hitler’s roads won German hearts and minds
• Narayana Kocherlakota: Monetary Policy Report to the Economic Club of Minnesota
• Mike Konczal: How Timothy Geithner failed his stress test
• Bryce Covert: No, Taking Away Unemployment Benefits Doesn’t Make People Get Jobs
• Ta-Nehisi Coates: The Case for Reparations
• Nicholas Bagley: The Legality of Delaying Key Elements of the ACA
• Jeffrey Burgan: Behind the scenes with Google Fiber: Working with content providers to minimize buffering

And:

Continue reading “Things to Read on the Evening of May 22, 2014” →