Category: Equitablog

Justin Fox: We Can’t Afford to Leave Inequality to the Economists:

That’s the thing about this rise in ‘extreme upper tail inequality/…. It is one of the most dramatic economic developments of the past quarter century. And it seems like it might be bad thing. But conclusive economic evidence for its badness is hard to find. Yes, there are theories: All that wealth sloshing around in the top 1% leads to more bubbles and crashes. Extreme wealth corrupts the political process.  Income inequality may be slowing overall economic growth. And… ‘given the diminishing marginal utility of income, it’s hugely wasteful for the super rich to have so much income.’… There’s some truth to all four of those. But there are also lots of counterarguments and some counterevidence…. Which leads me to another theory: I think we’re eventually going to have to figure out what if anything to do about exploding high-end incomes without clear guidance from the economists. This is a discussion where political and moral considerations may end up predominating.

Since 1950 and before 2007, the way to bet was that, whatever the current gap between U.S. real GDP and potential output was, the U.S. economy would close 2/5 of that gap over the course of the next year with roughly neutral policy. Unusually stimulative policies given the state of the economy would push it up; unusually contractionary policies given the state of the economy would push it down; but the way to bet was that the output gap in a year would be only 60% of its current value, in two years 35%, in three years 20%.

Then came 2008.

Real GDP fell 7.5% below potential output. But–in spite of policies that would have been classified as very stimulative indeed back in 2007–the economy did not then bounce back, closing 2/5 of the gap vis-a-vis potential in each year. Instead, over the past four years the gap has been closed at a pace of only 1/12 per year–and that gap-closing has been accomplished not by real GDP growing faster than the pre-2007 trend but rather by potential output growing more slowly post- than pre-2007.

And toward the end of 2012 two shifts took place in macroeconomic policy:

Continue reading “The Relative Efficacy of Fiscal and Monetary Policy at the Zero Lower Bound: Where Are the Goalposts, Anyway?: The Honest Broker for the Week of February 1, 2014” →

Must-Reads:

1. Mark Thoma sends us to: Dean Baker: When Someone Says Paul Krugman Called for Greenspan to Create a Housing Bubble Back in 2002, They are Trying to Say That They are Either a Fool or a Liar: “Paul Krugman is a very smart person who does a fine job of defending himself. But he has enough detractors who repeat the same nonsense enough times that some reasonable people may actually be deceived. For this reason, I will briefly intervene to point out that the people claiming Krugman called on Greenspan to create a housing bubble in 2002, like Bret Stephens in the Wall Street Journal today, are just making stuff up…”

2. Bill C.: Twenty-Cent Paradigms: Rodrik on Our Science-ish-ness: “Dani Rodrik offers offers a number of characteristically interesting thoughts on the topic, including…. ‘Economics is really a toolkit with multiple models–each a different, stylized representation of some aspect of reality. The contextual nature of its reasoning means that there are as many conclusions as potential real-world circumstances. All economic propositions are “if-then” statements. One’s skill as an economic analyst depends on the ability to pick and choose the right model for the situation… a craft rather than a science’…. As Keynes said: ‘Economics is the science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world’.”

3. Review of The Second Machine Age: Technology and work: Learn ‘n’ go: “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. By Erik Brynjolfsson and Andrew McAfee. W.W. Norton; 320 pages; $26.95. IN 2012 Erik Brynjolfsson and Andrew McAfee took a ride in one of Google’s driverless cars…. Only a few years earlier, ‘We were sure that computers would not be able to drive cars’…. Machines have mastered driving. And not just driving. In ways that are only now becoming apparent, the authors argue, machines can forecast home prices, design beer bottles, teach at universities, grade exams and do countless other things better and more cheaply than humans…. Information technology… is… exponential… explosive… recombinant…. This will have one principal good consequence, and one bad. The good is bounty. Households will spend less on groceries, utilities and clothing; the deaf will be able to hear, the blind to see. The bad is spread. The gap is growing between the lucky few whose abilities and skills are enhanced by technology, and the far more numerous middle-skilled people competing for the remaining jobs that machines cannot do, such as folding towels and waiting at tables.”

Continue reading “Things to Read on the Evening of January 25, 2014” →

Review of The Second Machine Age: Technology and work: Learn ‘n’ go:

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. By Erik Brynjolfsson and Andrew McAfee. W.W. Norton; 320 pages; $26.95. IN 2012 Erik Brynjolfsson and Andrew McAfee took a ride in one of Google’s driverless cars…. Only a few years earlier, ‘We were sure that computers would not be able to drive cars’…. Machines have mastered driving. And not just driving. In ways that are only now becoming apparent, the authors argue, machines can forecast home prices, design beer bottles, teach at universities, grade exams and do countless other things better and more cheaply than humans…. Information technology… is… exponential… explosive… recombinant…. This will have one principal good consequence, and one bad. The good is bounty. Households will spend less on groceries, utilities and clothing; the deaf will be able to hear, the blind to see. The bad is spread. The gap is growing between the lucky few whose abilities and skills are enhanced by technology, and the far more numerous middle-skilled people competing for the remaining jobs that machines cannot do, such as folding towels and waiting at tables.

Mark Thoma sends us to: Dean Baker: When Someone Says Paul Krugman Called for Greenspan to Create a Housing Bubble Back in 2002, They are Trying to Say That They are Either a Fool or a Liar: “Paul Krugman is a very smart person who does a fine job of defending himself. But he has enough detractors who repeat the same nonsense enough times that some reasonable people may actually be deceived.

For this reason, I will briefly intervene to point out that the people claiming Krugman called on Greenspan to create a housing bubble in 2002, like Bret Stephens in the Wall Street Journal today, are just making stuff up.

Continue reading “Lunchtime Must-Read: When Someone Says Paul Krugman Called for Greenspan to Create a Housing Bubble Back in 2002, They are Trying to Say That They are Either a Fool or a Liar” →

Must-Reads:

1. Barbara Ehrenreich: “The Great Recession should have put the victim-blaming theory of poverty to rest. In the space of only a few months, millions of people entered the ranks of the officially poor—not only laid-off blue-collar workers, but also downsized tech workers, managers, lawyers, and other once-comfortable professionals. No one could accuse these “nouveau poor” Americans of having made bad choices or bad lifestyle decisions. They were educated, hardworking, and ambitious, and now they were also poor—applying for food stamps, showing up in shelters, lining up for entry-level jobs in retail. This would have been the moment for the pundits to finally admit the truth: Poverty is not a character failing or a lack of motivation. Poverty is a shortage of money.”

2. Dylan Scott: 60% Of KY GOPers Buck McConnell, Support Medicaid Expansion: “The Foundation for a Healthy Kentucky… found that 60 percent of self-identified Republicans said they support expansion. In total, 79 percent of Kentuckians agree…. McConnell spokesman Robert Steurer dismissed the findings. ‘Most new Obamacare enrollees are not on private plans, but are added to the state’s struggling Medicaid program’, he said, ‘where one hundred percent of these costs will be picked up by taxpayers and where there is already a shortage of physicians accepting Medicaid patients’. More than 120,000 Kentuckians have enrolled in Medicaid through the state’s Obamacare website since it launched in October…”

3. Larry Elliott: Davos 2014: Larry Summers attacks George Osborne’s austerity programme: “Summers… said the chancellor was wrong to blame the eurozone crisis for the weakness of business investment and governments should be spending more on infrastructure…. ‘I see less need to impose cuts on people who are vulnerable in the US context than the chancellor sees in the European context’, Summers said…. ‘It’s several years since the US exceeded its peak GDP before the crisis – that still hasn’t happened in the UK.’… The chancellor responded to Summers’s charge that Britain, unlike the US, had failed to raise national output above its pre-recession levels by saying that the UK had suffered a deeper slump and was more dependent on the financial sector….”

4. Tax Policy Center: 50 Years in LBJ’s War on Poverty: “Introduction by Sarah Rosen Wartell… The Tax Code as a Safety Net… Reducing Poverty through Work Incentives and Community Development… Lunch”

Continue reading “Things to Read on the Morning of January 25, 2014” →

Dylan Scott: 60% Of KY GOPers Buck McConnell, Support Medicaid Expansion:

The Foundation for a Healthy Kentucky… found that 60 percent of self-identified Republicans said they support expansion. In total, 79 percent of Kentuckians agree…. McConnell spokesman Robert Steurer dismissed the findings. ‘Most new Obamacare enrollees are not on private plans, but are added to the state’s struggling Medicaid program’, he said, ‘where one hundred percent of these costs will be picked up by taxpayers and where there is already a shortage of physicians accepting Medicaid patients’. More than 120,000 Kentuckians have enrolled in Medicaid through the state’s Obamacare website since it launched in October…

Dean Baker reads Sylvester Schieber and Andrew Biggs:

Dean Baker: The WSJ Says the Elderly Are Rich But We Didn’t Know It: “Sylvester Scheiber and Andrew Biggs have good news for us in a Wall Street Journal column….

Scheiber… and Biggs… tell readers that the standard numbers on income for the elderly are way off…. The Census Bureau’s Current Population Survey CPS)… misses a large portion of the income of retirees….

For 2008, the CPS reported $5.6 billion in individual IRA income. Retirees themselves reported $111 billion in IRA income to the Internal Revenue Service. The CPS… 2008 households receiving Social Security benefits collected $222 billion in pensions or annuit[ies]…. Federal tax filings… show… $457 billion…. The Current Population Survey… ignores at least 60% of the income being delivered to retirees….

Continue reading “What Is Going on with the Income of the Elderly?: Friday Focus (January 24, 2014)” →

Larry Elliott: Davos 2014: Larry Summers attacks George Osborne’s austerity programme: “Summers… said the chancellor was wrong to blame the eurozone crisis for the weakness of business investment and governments should be spending more on infrastructure….

“I see less need to impose cuts on people who are vulnerable in the US context than the chancellor sees in the European context,” Summers said…. “It’s several years since the US exceeded its peak GDP before the crisis – that still hasn’t happened in the UK.”… The chancellor responded to Summers’s charge that Britain, unlike the US, had failed to raise national output above its pre-recession levels by saying that the UK had suffered a deeper slump and was more dependent on the financial sector….

Continue reading “Morning Must-Read: How to Assess the Policies of Britain’s Conservative-Social Democratic Coalition: Larry Summers vs. George Osborne in Davos” →

Tax Policy Center: 50 Years in LBJ’s War on Poverty:

8:30 AM – Breakfast

9:00 AM – Introduction by Sarah Rosen Wartell, President, Urban Institute

9:10 AM -10:40 AM – The Tax Code as a Safety Net

• Rebecca Blank, Chancellor of the University of Wisconsin and former Acting Secretary of Commerce
• Douglas Holtz-Eakin, President of the American Action Forum and former director of the Congressional Budget Office
• Chris Howard, Pamela C. Harriman Professor of Government and Public Policy, College of William & Mary
• Elaine Maag, Senior Research Associate, Tax Policy Center, Urban Institute
• David Wessel, Director of the Hutchins Center on Fiscal and Monetary Policy, Brookings Institution (moderator)

10:45 AM – 12:00 PM – Reducing Poverty through Work Incentives and Community Development

• Ingrid Gould Ellen, Paulette Goddard Professor of Urban Planning and Public Policy, NYU ; Co-Director of the Furman Center for Real Estate and Urban Policy
• Michael Rich, Associate Professor, Department of Politics, Emory University
• Brett Theodos, Senior Research Associate, Metropolitan Housing and Communities Policy Center, Urban Institute
• Nancy Pindus, Senior Fellow, Metropolitan Housing and Communities Policy Center, Urban Institute
• Howard Gleckman, Resident Fellow and TaxVox editor, Tax Policy Center, Urban Institute (moderator)

12:00-1:30 PM – Lunch Speaker – Jason Furman, Chairman of the President’s Council of Economic Advisers

Presentations: Rebecca Blank, Ingrid Gould Ellen, Michael Rich, Brett Theodos