Category: Equitablog

Attention Conservation Notice: tl;dr. 9000 words trying to work my way through and in the process provide a reader’s guide to the techno-growth stagnation arguments of Robert Gordon, Tyler Cowen, and Brink Lindsey. The arguments are powerful. The authors are very serious economists. I wind up skeptical, and optimistic–partly because I am a techno-optimist by nature, partly because I am a politico-optimist and I think the literature confuses the past generation’s failures in distribution and demand-management due to political dysfunction with failures in accumulation and innovation, and partly because I have a different more micro-incremental conception of the process of economic growth than does Robert Gordon.

I. Once and Future Ages of Diminished Expectations

Back in 1990 Paul Krugman wrote a little book–a very nice little book–called The Age of Diminished Expectations. The central point was that the long era of more than a century during which Americans could expect 2%/year growth on average in their real per capita incomes and standards of living was over. This era stretched back to the immediate aftermath of the Civil War. This era saw each generation attain a level of material wealth and well-being twice that of its predecessors: 2%/year growth for 35 years is a doubling. And, Krugman wrote, the slow growth from 1973-1990–during which real GDP per worker had been a mere 1%/year–was a harbinger of a new, more pessimistic future: an age in which Americans’ formerly-great expectations of the future would have to be diminished.

Continue reading “Is Growth Getting Harder? If so, Why, and What Can We Do About It?: The Honest Broker for the Week of December 7, 2013” →

Must-Reads:

1. Guillermo Calvo et al.: Jobless Recoveries During Financial Crises: Is Inflation the Way Out?: “Three policy tools [could] mitigate jobless recoveries during financial crises: inflation, real currency depreciation, and credit-recovery policies. Using a sample of financial crises in Emerging Market economies, we document that large inflationary spikes appear to help unemployment to get back to pre-crisis levels. However, the counterpart of inflation is sizably lower real wages…. Interestingly, neither the change in the real exchange rate nor the change in output composition… displays a statistically significant relationship with inflation or jobless recovery. This suggests that currency depreciation can help reduce unemployment only insofar as it is associated with inflation, and that jobless recovery is likely due to nominal wage rigidity. The paper also shows that measures to reactivate credit flows could be beneficial to wage earners as a whole, as measured by the real wage bill.”

2. Norm Ornstein: “I’ve not seen anything like this before. It is just such an interesting phenomenon–call it anthropological or sociological or pathological. An obsessive hatred with all things Obamacare that has infected everybody on the Republican side. They can’t say anything positive about any element of a law that is based on their own fundamental ideas. It means that when anybody says something that could in any way be construed as positive regarding Obamacare it becomes fodder for attacks…. Conservatives are eating their own…”

Should-Reads:

1. Paul Krugman: Doing Macro First: “Mike Konczal… suggests that we should go back to the way Samuelson did it in 1948–macroeconomics first, then micro. This, he suggests, would give students a better perspective on reality, even though all the same material would eventually be covered. I would add that the motives behind Samuelson’s ordering apply just as well today as they did then. He was writing with the memory of the Great Depression still fresh; students wanted to know how such things could happen. Furthermore, how could you get anyone to take all that stuff about the perfection of markets seriously after what had just happened? By first teaching them that monetary and fiscal policy could be used to ensure full employment…. But there are some serious problems with Konczal’s vision–ways in which what Samuelson did in 1948 can’t be replicated now. What Samuelson brought was actually a double dose of innovation to economics–Keynesian macro plus a new orientation toward mathematical models. At the time these went hand in hand…. Also, back then Keynes was new and innovative. Today, you have generations of economists brought up in the belief that it’s wrong–they don’t know what’s in it, actually, but that’s what they were taught. Finally, if microeconomics is to be justified with the claim that government policy will ensure more or less full employment, what, exactly, in today’s world would inspire you to believe that?”

2. Harold Meyerson: The 40-Year Slump: “If Volcker’s and Carter’s attacks on unions were indirect, Reagan’s was altogether frontal. In the 1980 election, the union of air-traffic controllers was one of a handful of labor organizations that endorsed Reagan’s candidacy. Nevertheless, they could not reach an accord with the government, and when they opted to strike in violation of federal law, Reagan fired them all…”

Should Be Aware of:

1. Conor Friedersdorf: How Surveillance-State Insiders Try to Discredit NSA Critics: “Officials have actively stymied journalistic efforts to determine the whole truth. They’ve lied under oath to Congress and held back relevant information prior to important votes. They’ve long over-classified material on a wide range of subjects. And they still insist that many aspects of NSA surveillance ought to remain secret, unknown even to many members of Congress. National-security-state ‘insiders’ are entitled to the belief that classified mass-surveillance programs are legitimate and that obfuscation by officials is understandable. They are not entitled to falsely claim that journalists are not interested in gathering context, even as many labor mightily to do so and gradually make gains, to the consternation of insiders and their allies…”

2. karoli: CA Assembly GOP Puts Up Fake California Health Exchange Site: “California Republicans are desperate and shameless. In the past two weeks, GOP Assembly members have sent mailings out on what appears to be the state’s dime to their constituents about health insurance. Only, they don’t direct those people to CoveredCA.com to sign up. Instead, they send them to their own astroturf version at the URL http://CoveringHealthCareCA.com… links to negative articles and twisted messages…. If you click on the ‘Don’t have health insurance’ tab on the front page, you’re taken to a page that puts all the focus on the penalty and none on the benefits. In fact, they have a ‘penalty calculator’ on that page, rather than a premium calculator. And of course, they also manage to twist what is actually available on the exchange…. What we have here are elected officials intentionally trying to make California’s health exchange fail, and using taxpayer dollars to misinform taxpayers, using the standard fear and loathing tactics as their linchpin. While I expect nothing less from Republicans in general, it does gall me that they’re using ‘official mailings’ to misdirect constituents and Assembly resources to register and build the website. Just more proof Republicans don’t give a damn about anything but their own bad selves.”

Scott Lemieux: The Affordable Care Act v. Supreme Court, Round 2 | James Surowiecki: Is Health Care Spending Finally Falling? | Daniel Little: Making Institutions | Mark Thoma: Explainer: How does the Fed influence the economy? | Christopher Flavelle: Does Medicaid Breed Dependency? | Austin Frakt: Medicaid and access: Not what you think |

As John Podesta, the Fearless Over-Leader of the Washington Center for Equitable Growth, says: the hope is that the Center will coordinate and assemble the work to provide support for better equitable growth-advancing policies when the politics to support such policies once again becomes possible. For this to work, we need to have a dialogue–and not just a dialogue among the usual suspects who would show up at our sibling institution that is the Democratic administration either in exile or farm team that is the Center for American Progress. We need people who think differently and are willing to step up their game to be smart.

So I would like to direct your attention right now to this piece by James Pethokoukis of the American Enterprise Institute: his note on Larry Summers’s November 8 IMF speech:

Continue reading “On the Possibility and Implications of an Economy Burdened by a Long-Lasting Negative Natural Nominal Rate of Interest, and Other Topics: Tuesday Focus” →

Jonathan Chait: Today in Hackery: Douglas Holtz-Eakin’s American Action Forum Edition:

Last year the American Action Forum… decr[ied] Obamacare for discouraging high-deductible health insurance plans. High-deductible plans, wrote the AAF, are wonderful in every way. They

make a lot of sense for many health care consumers and they make a lot of sense for the healthcare system, as they encourage the use of lower cost care settings, more transparent pricing from providers, and serve as an affordable insurance product that still protects against catastrophic expenses.

Sadly, the post predicted, they would likely disappear under the boot of Obamacare, and then we will all be sorry:

It will shock no one when aggregate healthcare spending increases as a result of HDHP’s going nearly, if not entirely, extinct.

But it turns out that high-deductible insurance has not disappeared under Obamacare. The law actually gives insurers a lot of flexibility, and most of them have determined that consumers would rather have low insurance premiums and high deductibles. So the flip side of the much lower-than-expected premiums available in the Obamacare exchanges is that the plans often charge high deductibles. But since this is exactly what conservatives have always wanted, they should be happy!

Yet somehow the AAF is not cheering…. Today the American Action Forum explains that the availability of high-deductible plans under Obamacare is more evidence of how terrible the law is:

Under the ACA, however, enrollees will pay exponentially more for their coverage, only to receive plans carrying unaffordable deductibles.  Significantly increased out-of-pocket costs, combined with hospitals’ fears over uncompensated services, will force some to finance the costs of their care, a financially risky choice.

Having a reasonably coherent view of policy questions seems like an important part of the job of being a think tank.

Norm Ornstein: “I’ve not seen anything like this before.

It is just such an interesting phenomenon–call it anthropological or sociological or pathological. An obsessive hatred with all things Obamacare that has infected everybody on the Republican side. They can’t say anything positive about any element of a law that is based on their own fundamental ideas. It means that when anybody says something that could in any way be construed as positive regarding Obamacare it becomes fodder for attacks…. Conservatives are eating their own…

Guillermo Calvo et al.: Jobless Recoveries During Financial Crises: Is Inflation the Way Out?:

Three policy tools [could] mitigate jobless recoveries during financial crises: inflation, real currency depreciation, and credit-recovery policies. Using a sample of financial crises in Emerging Market economies, we document that large inflationary spikes appear to help unemployment to get back to pre-crisis levels. However, the counterpart of inflation is sizably lower real wages…. Interestingly, neither the change in the real exchange rate nor the change in output composition… displays a statistically significant relationship with inflation or jobless recovery. This suggests that currency depreciation can help reduce unemployment only insofar as it is associated with inflation, and that jobless recovery is likely due to nominal wage rigidity. The paper also shows that measures to reactivate credit flows could be beneficial to wage earners as a whole, as measured by the real wage bill.

Paul Krugman finds another example of an economist who does not seem to have thought about the disequilibrium foundations of his equilibrium economics, and writes about Immaculate Stability:

David Andolfatto [writes:]

One of the effects of QE… is to increase the real stock of currency held by the private sector, and agents require an increase in currency’s rate of return (a fall in the inflation rate) to induce them to hold more currency….

OK, so “agents require” a fall in the inflation rate to induce them to hold more currency. How does this requirement translate into an incentive for producers of goods and services–remember, we’re talking about stuff going on in the real economy–to raise prices less or cut them? Don’t retreat behind a screen of math–tell me a story. I don’t think either Andolfatto or Williamson have any such story in mind; they are, in some form, invoking the doctrine of immaculate inflation. And I don’t even think they realize that they have a problem….

Continue reading “Paul Krugman Reinforces My Belief in the Importance of Adding Disequilibrium Foundations to Economists’ Standard Training Regimen” →

Arindrajit Dube: The Minimum We Can Do:

During most of the 20th century, wages in the United States were set not just by employers but by a mix of market and institutional mechanisms. Supply and demand were important factors; collective bargaining and minimum wage laws also played a key role…. While we can set a wage floor using policy, should we? Or should we leave it to the market and deal with any adverse consequences, like poverty and inequality, using other policies, like tax credits and transfers?… The low-wage work force has become older and more educated over time…. The high-water mark for the minimum wage was 1968, when it stood at $10.60 an hour in today’s dollars, or 55 percent of the median full-time wage. In contrast, the current federal minimum wage is $7.25 an hour, constituting 37 percent of the median full-time wage….

Continue reading “Arin Dube and Others on Why We Should Raise the Minimum Wage…” →

Steve Roth: Elephant in the Room: Upward Redistribution, Concentrated Income and Wealth, and Secular Stagnation:

Dean Baker quite rightly takes Robert Samuelson to task for his op-ed on the causes of secular stagnation…. But Dean’s explanation also misses the the 800-pound gorilla…. Brad Delong, likewise, reels off four possible explanations today while ignoring what seems to me to be the most obvious one. How about a three-decade upward redistribution of income, and massive increases in wealth and income concentration? Add declining marginal propensity to spend out of wealth/income, and you get a so-called “savings glut” (aka “not spending”) and secular stagnation. The arithmetic of this is straightforward and inexorable. Extreme inequality and upward redistribution kills growth…. Theoretically and arithmetically, it’s huge. Why is it not even part of the conversation?

Well, let me say that it ought to be part of the conversation, but that the pattern of asset prices is not what I would expect to see if it were a high propensity to save on the part of the rich coupled with high inequality that were driving our current (and likely future) destructive encounter with the zero nominal lower bound on short-term safe interest rates. I would expect greater inequality coupled with a higher propensity to save on the part of the rich to drive all asset yields down. Yet what we have seen has been a steep, prolonged fall in Treasury bond yields while stock-market equity yields have plateaued at about 5%/year:

That is what makes me (tentatively) side with Ricardo Caballero, and say that the asset market derangement is better conceptualized as inadequate risk tolerance and safe asset supply, rather than either a global savings glut or a global investment shortfall…

But I would be willing to be persuaded…

Over at the New Republic, I see that the extremely thoughtful Henry Aaron and Harold Pollack are irate in their: “Single-Payer Healthcare Supporters Complain About Obamacare Problems”:

It has been a rough two months for the Affordable Care Act and its defenders…. anger over the botched rollout is understandable, but these recriminations are poorly timed—and just plain wrong…. The ACA is working reasonably well in some places–California, Connecticut, Kentucky, Washington, and the District of Columbia…. These under-reported success stories show that insurance exchanges can work, if properly administered…. The human benefits are real, from California to Breathitt County in rural Kentucky. These successes make the federal government’s dismal rollout even more embarrassing…. Given that complexity, some on the left say, life would be simpler if only Congress had been willing–which it was not–to scrap all current arrangements and replace them with a single, federally administered health insurance plan. Those on the right regard this complexity and say that life would be simpler if only Congress had been willing—which it was not—to scrap all current arrangements and replace them with income-related vouchers people could use to help pay for private insurance of their choice…. These polar-opposite camps each disdain the kludgy fixes of incremental politics. And yet, incrementalism is what most Americans want….

Continue reading “Why Did Obama Deviate from His Primary Campaign’s David Cutler Hundred-Flowers No-Mandates Health Care Reform Plan, Anyway?” →