Category: Equitablog

Should-Read: This is not even sausage-making: this is taking an intestinal casing, putting nothing in it, and saying that you are going to add the meat by-products later:

Leigh Ann Caldwell and Vaughn Hillard: Senate Considers ‘Skinny’ Repeal of Obamacare in Tuesday’s Voting: “The plan… is for senators to… a ‘skinny’ repeal… eliminat[ing] Obamacare’s individual mandate penalty, the employer mandate penalty, and the tax on medical devices…. The Senate would then go to conference…. Conferees would work out a final bill. Both chambers would then have to vote…” http://www.nbcnews.com/politics/congress/senate-sets-sights-skinny-repeal-obamacare-tuesday-s-voting-n786296

Must-Read: The quick and careful Justin Fox is unhappy with—and makes me aware of—this.

All I can say is: unprofessional

I would not have thought that it was an argument that could be maintained by any economist of reputation—even though, as John Stuart Mill once said, “what was affirmed by Cicero… [of] philosophy…may be asserted without scruple of the subject of political economy—that there is no opinion so absurd as not to have been maintained by some person of reputation”. I don’t think that this is an opinion. And the cost to your reputation—I’m looking at you, John Taylor, and you, Glenn Hubbard, and you Kevin Warsh—may well exceed whatever your current positive balance is plus your available credit limit:

John F. Cogan, Glenn Hubbard, John B. Taylor, and Kevin Warsh: On the Prospects for Higher Economic Growth: “Productivity growth declined in the 1970s, rose markedly through the 1980s and 1990s, and fell again sharply in recent years. The data are not supportive of the popular contention that the United States is in the midst of a long-term decline in productivity growth…” http://www.hoover.org/sites/default/files/research/docs/on_the_prospects_for_higher_economic_growth_0.pdf

Here is the post-WWII quarterly productivity growth rate scatter:

Here is the nonparametric smoothed lowess trend:

Let’s take a closer look at that:

Yes, the U.S. experience since World War II is best characterized as one of a long-term decline in productivity growth, with a recovery triggered by the Information Age that turned out to be (a) temporary and (b) minor. Even if you (for some reason) do not think this, you do not say that you do not think this, lest other people (rightly) conclude that you are a loon.

And if you don’t like the nonparametrics? The linear trend says the same thing:

And, of course, Justin has his own fish to fry.

I, however, want to draw a simple line: economists who grossly misrepresent what the basic data say are not economists of reputation.

How do Cogan, Hubbard, Taylor, and Warsh make their case? They don’t do any form of estimation: they simply draw arrows—arrows that do not match any trends that could be estimated—to make you think the data trends are other than they are:

iPython Notebook File: http://delong.typepad.com/2017-07-23-u.s.-labor-productivity.ipynb

Should-Read: Medicaid expansion vs. non-expansion and household financial adversity:

Kenneth P. Brevoort, Daniel Grodzicki, and Martin Hackmann: Medicaid and Financial Health https://www.fdic.gov/news/conferences/consumersymposium/2016/documents/brevoort_presentation.pdf:

Plus state government nullification or non-nullification and insurer competition:

Hannah Recht: Health Insurance Marketplaces: Looking Forward to 2018: “Most of the 12 million people who got health insurance through Obamacare’s individual marketplaces will have the same number of companies to choose among next year as they did in 2017…” https://www.bloomberg.com/graphics/health-insurance-marketplaces-for-2018/:

Where state governments want to diminish the threat of medical bankruptcy, medical bankruptcy is diminished. Where state governments want individuals to see competition for their business from health insurers, individuals see competition for their business from health insurers.

Should-Read: Jonathan Baker: Market power in the U.S. economy today: “The U.S. economy has a ‘market power’ problem, notwithstanding our strong and extensive antitrust institutions… https://equitablegrowth.org/research-analysis/market-power-in-the-u-s-economy-today/

…The surprising conjunction of the exercise of market power with well-established antitrust norms, precedents, and enforcement institutions is the central paradox of U.S. competition policy today…. The harms from the exercise of firms’ market power may extend beyond individual markets affected to include slower overall economic growth and increased economic inequality. The implications for future economic productivity and welfare are troubling, but before detailing these consequences, it is necessary to understand why market power is a major issue despite well-established antitrust enforcement institutions and legal precedents…

Should-Read: Doug Elmendorf et al.: Letter from Former CBO Directors on the Importance of CBO’s Role in the Legislative Process: “The undersigned represent every former Director of the Congressional Budget Office (CBO)… https://medium.com/@douglas.elmendorf/letter-from-former-cbo-directors-on-the-importance-of-cbos-role-in-the-legislative-process-278863b7e1c6

…We write to express our strong objection to recent attacks on the integrity and professionalism of the agency and on the agency’s role in the legislative process…. Over the past 42 years CBO has been firmly committed to providing nonpartisan and high-quality analysis—and that commitment remains as strong and effective today as it has been in the past. Because CBO works for the Congress, and only the Congress, the agency’s analysis addresses the unique needs of legislators. To meet the standard of nonpartisan objectivity, CBO makes no recommendations about policy, regularly consults with researchers and practitioners with a wide range of views (as can be seen in the agency’s panels of advisers and reviewers for major studies), and enhances its transparency by releasing extensive descriptions of its analytic techniques and forecast record. To produce estimates of high quality, CBO uses its detailed understanding of federal programs and economic conditions, ongoing interactions with government officials and private-sector experts, the best academic research, and the latest available data consistent with the timing of the Congressional budget process…

Must-Read: Ryan Avent: Making Monetary Policy Great Again: “Obama’s response to the economic crisis… the timidity of his stimulus plan… his failure to provide broad support to struggling homeowners… his premature pivot to deficit cutting… http://democracyjournal.org/magazine/45/making-monetary-policy-great-again/

…While Roosevelt’s New Deal programs left an indelible mark on the American economy and society, it was his decisive monetary action that saved America from continuing depression. On just his third day… Roosevelt declared a bank holiday… suspended… the… gold standard… a policy of reflation. The economic response was immediate…. Obama would not pursue any comparably radical policy…. His Administration left the hard work of rehabilitating the economy to the Federal Reserve, while the federal government turned to deficit reduction….

The decades prior to the crisis taught political leaders that economic management was the Fed’s job, one it could handle ably. Experience since the financial crisis strongly suggests that assumption was mistaken. It should not have taken six years to return the unemployment rate to the pre-crisis level, nor should so much of the reduction in unemployment have come in the form of frustrated workers leaving the labor force. American incomes should not have been allowed to fall below the pre-crisis trend, and at least some of that shortfall ought to have been made up. Most critically, now, nearly ten years after the start of the Great Recession, the economy should be far better prepared to deal with the next crisis, not trapped with interest rates stuck near zero and the labor market still signaling that more people could be put to work for longer hours at higher rates of pay.

As the Great Recession recedes into the past, the sense that urgent change in the making of economic policy is needed also fades…

Should-Read: Pedro Nicolaci da Costa: Ex-Bank of England official says Fed has wrong idea on jobs, inflation: “The Fed’s misleading view of the job market reflects ‘a huge intellectual failure’… http://www.businessinsider.com/ex-bank-of-england-official-says-fed-has-wrong-idea-on-jobs-inflation-2017-7

…That’s the view of David Blanchflower…. “Prior to 2008, the unemployment rate was a sufficient statistic to tell you about the labor market,” Blanchflower said. “The employment rate was mirror image.” Today, however, “a cyclical decline in demand means the unemployment rate has fallen but the employment rate has not recovered to precrisis levels,” he said. In other words, the economy is still too weak to sustain full employment, and policymakers are not doing enough about it. Explaining the gap are high levels of long-term unemployment and severe underemployment, in addition to persistent racial disparities in job availability and incomes….

“This is a huge intellectual failure,” said Blanchflower…. The same inflation hawks within and outside the central bank have been warning about imminent inflation for years, Blanchflower said, only to be proved wrong time and again: “It’s really here, it’s really coming, it’s really coming, inflation is right around the corner.” Indeed, it never has. US inflation continues to undershoot the Fed’s 2% target, and it is in fact moving further below it, despite a low headline jobless rate. This suggests there’s much room for improvement yet, something most jobseekers would attest to.

Must-Read: Anatole Kaletsky: A “Macroneconomic” Revolution?: “Given the abundance of useful ideas, why have so few of the policies that might have ameliorated economic conditions and alleviated public resentment been implemented since the crisis?… https://www.project-syndicate.org/commentary/replacement-market-fundamentalism-by-anatole-kaletsky-2017-07

…The first obstacle has been the ideology of market fundamentalism. Since the early 1980s, politics has been dominated by the dogma that markets are always right and government economic intervention is almost always wrong…. Market fundamentalism also inspired dangerous intellectual fallacies: that financial markets are always rational and efficient; that central banks must simply target inflation and not concern themselves with financial stability and unemployment; that the only legitimate role of fiscal policy is to balance budgets, not stabilize economic growth. Even as these fallacies blew up market-fundamentalist economics after 2007, market-fundamentalist politics survived, preventing an adequate policy response to the crisis.

That should not be surprising. Market fundamentalism was not just an intellectual fashion. Powerful political interests motivated the revolution in economic thinking of the 1970s. The supposedly scientific evidence that government economic intervention is almost always counter-productive legitimized an enormous shift in the distribution of wealth, from industrial workers to the owners and managers of financial capital, and of power, from organized labor to business interests. The Polish economist Michal Kalecki, a co-inventor of Keynesian economics (and a distant relative of mine), predicted this politically motivated ideological reversal with uncanny accuracy back in 1943:

The assumption that a government will maintain full employment in a capitalist economy if it knows how to do it is fallacious. Under a regime of permanent full employment, ‘the sack’ would cease to play its role as a disciplinary measure, leading to government-induced pre-election booms. The workers would get out of hand and the captains of industry would be anxious ‘to teach them a lesson.’ A powerful bloc is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound…

The economist who declared that government policies to maintain full employment were “manifestly unsound” was Milton Friedman. And the market-fundamentalist revolution… lasted for 30 years… succumbed to its own internal contradictions in the deflationary crisis of 2007…. If market fundamentalism blocks expansionary macroeconomic policies and prevents redistributive taxation or public spending, populist resistance to trade, labor-market deregulation, and pension reform is bound to intensify. Conversely, if populist opposition makes structural reforms impossible, this encourages conservative resistance to expansionary macroeconomics.

Suppose, on the other hand, that the “progressive” economics of full employment and redistribution could be combined with the “conservative” economics of free trade and labor-market liberalization…. If “Macroneconomics”–the attempt to combine conservative structural policies with progressive macroeconomics–succeeds in replacing the market fundamentalism that failed in 2007, the lost decade of economic stagnation could soon be over–at least for Europe…