Must-Read: Steve M.: I Know This Sounds Wacky, but I Think Trump and Bannon Are Actually Conservatives

Posted on by Brad DeLong

Must-Read: It has long been clear to me that the last thing Fred Hiatt and his crew at the Washington Post are interested in is being trustworthy information intermediaries—that what they write is of interest, as Izzy Stone used to say, not for what it tells us about the world but for what it tells us about the cons they are attempting to run.

The latest version is Fred Hiatt’s claim that he was one of the marks last fall–that he trusted Trump, and Trump conned him:

Steve M.: I Know This Sounds Wacky, but I Think Trump and Bannon Are Actually Conservatives: “The Donald Trump administration didn’t come into office holding out an olive branch to Chuck Schumer… and The Washington Post’s Fred Hiatt finds that baffling…

For weeks there has been [an] obvious question for Stephen K. Bannon and President Trump: Why are they driving Senate Minority Leader Charles E. Schumer into the arms of the implacable opposition?… Trump’s behavior from Inauguration Day on left Schumer no choice…. [But this] isn’t… optimal for Trump… if his and Bannon’s goal was to blow up both parties and forge a new working-class, nationalist majority…. [Had] Trump had begun his administration by seeking a bipartisan infrastructure bill, Schumer would have had no choice but to cooperate, and might well have welcomed the chance…

Hiatt just can’t figure it out…. [But] the notion that Trump and Bannon ever really wanted to “blow up both parties and forge a new working-class, nationalist majority” is completely specious…. Consider this Politburo story about tensions between the Trump Treasury Department and the Bannon wing in the White House:

Conservatives inside and outside Treasury say the new secretary, former Goldman Sachs banker, movie producer and Democratic donor Steven Mnuchin, is assembling a team that is too liberal and too detached from the core of Trump’s “Make America Great Again” platform of ripping up trade deals, gutting the Dodd-Frank banking rules and generally rejecting “globalism” in all its forms…. Mnuchin has selected another Democratic donor, Craig Phillips, for a top position… told senators… he supports parts of the… Volcker Rule….

Did you follow that?… On changing the tax code, eliminating the Volcker Rule, overturning Dodd-Frank, and generally “revamping” (i.e., gutting) financial regulations, the supposedly “populist” Bannon is to the right of Trump’s Goldman Sachs contingent…. Maybe Bannon doesn’t really give a crap about infrastructure, especially infrastructure paid for in a way Chuck Schumer might endorse…. “Champion of the working stiff” is a good market niche for [Bannon] (and for Trump). But all of Trump’s top advisers are ultimately Republicans. Unless they believed they could negotiate the terms of a Democratic surrender, they were never going to do inter-party outreach.

Another take on declining productivity growth in high-income countries

Posted on by Emilie Openchowski
A woman works with fabric at 99Degrees Custom in Lawrence, Massachusetts.

By now, the slowdown in productivity growth in the United States and other high-income countries is a well-known and much lamented trend. A slightly less appreciated aspect of productivity growth is that the slowdown has been accompanied by an increase in dispersion, or inequality, of labor productivity across firms. This trend is not restricted to the U.S. economy. The Organisation for Economic Cooperation and Development has identified it as a problem for most high-income economies. This productivity dispersion—in combination with declining growth rates—points toward explanations of the slowdown that involve a breakdown in the diffusion of productivity among firms.

In a new paper for a National Bureau of Economic Research conference, four economists—Lucia Foster and Cheryl Grim of the U.S. Census Bureau and John Haltiwanger and Zoltan Wolf of the University of Maryland—look at what happens to productivity after new firms enter a market due to a new innovation. The authors look at data on productivity that covers the entire U.S. economy, not just the manufacturing sector, which many studies of productivity focus on.

In trying to understand the relationship between innovation and productivity, the authors use a model that examines when an innovation occurs that in turn causes a person (or persons) to start a new business. The new company enters an industry, and the innovation gets spread around. Other new firms enter, and older firms try to adapt their business in light of the new innovation. The result is a rise in the dispersion of productivity across the industry. But then, resources start flowing toward the most productive firms, which increases productivity growth.

The analysis in the paper finds that this description of productivity growth holds up when examining the data from the productivity increases of the late 1990s. The entry of new firms with new innovations increased, resulting in increased productivity dispersion in the short term, followed by higher productivity growth three to four years after the increased entry. But the description seems to break down during the productivity slowdown of the 2000s. The entry of new firms into the economy declined, yet productivity inequality increased while growth slowed. The end result today is that high-productivity firms exist next to low-productivity firms. We might expect that the new innovation would spread throughout the economy, but something has stopped that transmission from happening.

The authors note this combination of trends points toward frictions in the economy—in the form of barriers to entry or a lack of responsiveness to productivity shocks—due to resources not necessarily flowing to the more productive firms. These frictions, especially when it comes to employment, may sound similar to readers of studies about rising inequality between firms. As James Pethokoukis at the American Enterprise Institute points out, the increased sorting of firms into high-productivity and low-productivity groups is also about income inequality. Economic analysis that seeks to explain both why productivity isn’t diffusing and why interfirm income inequality—higher wages and high productivity growth among some firms and low-wage growth amid low productivity growth among others—is rising are ones that policymakers should pay more attention to.

Should-Read: Jeffrey Toobin: Behind Neil Gorsuch’s Non-Answers

Posted on by Brad DeLong

Should-Read: Jeffrey Toobin: Behind Neil Gorsuch’s Non-Answers: “The hard cases are the ones that matter…

…it’s reasonable to project how Gorsuch would vote in them. He would oppose abortion rights. (Trump promised to appoint a “pro-life” Justice.) His predilection for employers over employees is such that it yielded a circuit-court opinion of almost Gothic cruelty. When subzero temperatures caused a truck driver’s trailer brakes to freeze, he pulled over to the side of the road. After waiting three hours for help to arrive, he began to lose feeling in his extremities, so he unhitched the cab from the trailer and drove to safety. His employer fired him for abandoning company property. The majority in the case called the dismissal unjustified, but Gorsuch said that the driver was in the wrong…

Must- and Should-Reads: March 27, 2017

Posted on by Brad DeLong

Interesting Reads:

Should-Read: Pseudoerasmus: Economic Growth in Ancient Greece

Posted on by Brad DeLong

Should-Read: Pseudoerasmus: Economic Growth in Ancient Greece: “The causes of [Ancient] Greek economic growth may have been ‘ordinary’…

…but certainly their effects somehow were not. Ober is quite right that the peculiarly egalitarian institutions of the ancient Greeks cry out for an explanation. Here’s a possible scenario. The collapse of Mycenaean civilisation in the 12th century BCE allowed a “reset” on Greek political evolution, a kind of institutional creative destruction. In the absence of the Late Bronze Age collapse, some Peloponnesian city-state like Mykenae itself or a mainland state like Thebes might have consolidated a circum-Aegean state 800-900 years earlier than Athens would attempt or Makedon would ultimately accomplish. This “reset” prevented the creation of a centralised state in the Aegean for almost a millennium.

The population recovery from the Dark Ages was accompanied by land tenure based on small holdings, as we would normally expect in the course of proto-political development with village cultures. This led to the relatively egalitarian city-states of citizen-farmers when Greek poleis started emerging from obscurity again in the 9th century. Hence, Ober’s “rule egalitarnianism”. An effect, not a cause, of economic growth.

Should-Read: The Roanoke Times: Editorial: Trump Breaks a Promise to Coal Country

Posted on by Brad DeLong

Should-Read: Grifters gotta grift…

I apologize to the Roanoke Times: I was wrong: I got my SW VA newspapers confused…

The Roanoke Times cannot say “we told you so” because they were enthusiastic Trump supporters. And, for some reason, The Roanoke Times does not yet dare tell its readers: we—and you—got grifted; we are sorry; we and you need to apologize to the rest of the country; we need to apologize to you, our readers, because if we had done our job you would have known that Trump was a grifter when you went into the voting booth:

The Roanoke Times: Editorial: Trump Breaks a Promise to Coal Country: “Donald Trump… invariably talked up his support for coal… investing in the “clean coal” technology…

…We’re going to bring the coal industry back 100 percent. If I win, we’re going to go clean coal, and that technology is working. I hear it works….

If Barack Obama–famous for waging a “war on coal”–could see fit to include more than $3 billion for clean coal research in his stimulus package, surely Trump would do even better, right?Wrong…. Trump’s proposed budget cuts funding for energy research by almost 18 percent—$2 billion… with few details attached, [so] it’s unclear just how much, if any, money would remain for the Office of Fossil Energy to spend on clean coal…. [The] Heritage Foundation, whose ideas formed the basis for Trump’s budget… proposed eliminating the office entirely. The CEOs of the nation’s three largest coal companies were so alarmed that they recently joined with the United Mine Workers to send a letter to Trump, pleading with him to preserve funding for clean coal research, something they never had to worry about under Obama.

Something is not right with this picture: Obama did more for clean coal research than Trump is, yet it was Trump who ran on a platform of “we’re going to go clean coal.” The question has to be asked: Did coal voters get conned? Let’s step back a bit further: Appalachia was more enthusiastic for Trump than almost any other part of the country. In many counties, Trump ran stronger than any Republican presidential candidate ever. Yet the budget that Trump has proposed undercuts the region’s ability to develop a new economy at almost every turn:

  • Trump wants to eliminate the Appalachian Regional Commission….

  • Trump wants to eliminate the Economic Development Administration…. Want to know something else curious? Obama directed the EDA to pay special attention to coal communities; now Trump wants to get rid of the program entirely.

  • Trump wants to eliminate the Abandoned Mine Land program….

Appalachia gave Trump its love–and its votes. In return, Trump backhands some of his strongest supporters. Under Trump’s proposed budget, the coalfields would not get federal help to turn old mines into economic development sites… or lay in infrastructure to make them marketable… or retrain workers for new jobs in growing technology-related fields… or do any significant research that might save coal…. Is that really what people in the coalfields voted for?

Must-Read: Ann Marie Marciarille: The Medicaid Gamble

Posted on by Brad DeLong

Must-Read: Ann Marie Marciarille (2014): The Medicaid Gamble: “The Patient Protection and Affordable Care Act (ACA)1 was an unprecedented gamble…

…transform[ing] Medicaid from an unevenly and underfunded program for the poor and disabled to a program to offer those priced out of commercial insurance markets government-funded health insurance similar to Medicare…. The ACA gambled that Medicaid could be more like Medicare…. [This,] the first Medicaid gamble was the one the legislative majorities that passed the ACA intended to make…. That gamble is going forward in the early-adopter states….

Overlaid… is a second Medicaid gamble… states like California… Medicaid can be turned into something like Medicare without raising provider reimbursement rates to something like Medicare levels…. A third Medicaid gamble… that previous Supreme Court worries about federal coercion of states did not raise the possibility that the Court might disallow nationwide Medicaid expansion….

The fourth Medicaid gamble was that of United States Supreme Court Chief Justice John Roberts: that bending the arc of history away from long-run government expansion is best accomplished not by risking the Supreme Court’s moral authority via a declaration that the ACA’s individual mandate was unconstitutional, but rather by putting the Court’s thumb on the scales so that states could bargain with the federal government about how, and when, and if, the ACA were to be implemented…. The fifth Medicaid gamble was… the apparent gamble of Justices Kagan and Breyer that a functional judicial rewriting-on-the-fly of the ACA statute would not break the mechanism….

And then there are the various state level Medicaid gambles: Arkansas’s and others’… that the federal government will hold states harmless if they pursue high-cost Medicaid expansion paths; other states gamble that their hospitals, doctors, and citizens can flourish without Medicaid expansion; and still other states gamble that by delaying Medicaid expansion they can negotiate better terms for themselves…

Should-Read: Mike Konczal: Four Lessons from the Health Care Repeal Collapse

Posted on by Brad DeLong

Should-Read: Mike Konczal: Four Lessons from the Health Care Repeal Collapse: “I [had] thought President Trump would sign a reconciliation bill gutting the Affordable Care Act (ACA) by the time Congress took their February recess…

…They didn’t…. The failure of their plan was so ultimate and total it still surprises me….. Here’s how I’m updating my thoughts so far…. (1) This is not President Trump’s fault: A President Rubio or President Jeb! would have had the same exact problems with the same exact outcome. This was driven by Congress, and it derives from the initial strategy of “repeal and delay” collapsing immediately and the backup plan not being tested…. I didn’t expect the eventual bill to be a mess that appeased no one because I assumed there was a concrete bill…. There was no plan, and the attempt to force one was dangerous and reckless.

(2) Activism Works:…. Hard ideological movement to the right and a massive funding network post-Citizens United had me worried that the Right would happily march off an electoral cliff to take away health care from millions of people…. The moderates chose not to support the bill, [so] the GOP was forced to rely more on the hard-liners, who didn’t show up. Activists got to those moderates… by forcing them to accept continuity with the ACA, to acknowledge the coverage numbers mattered, and by getting them to defend Medicaid. They did that by demonstrating how these programs benefited them….

(3) Universalism Works: Hell yeah it does. I already thought this but it is humbling to see the concept reveal its awesome power. I assumed… Medicaid was going to get trashed…. When I learned how Medicaid cuts would be turned into a first round of high-end tax cuts, ones that would prime the pump for permanent high-end tax cuts later, I thought it was in even more trouble…. I was wrong, and the expansion of the program to people above poverty saved it….

(4) Wonks Get Lost in Their Echo Chambers:…. It’s crazy to come into an argument that’s already going, and seeing conservatives who were supposed to be the intellectuals convince themselves of the most absurd statements. Take this, from AEI’s “Improving Health and Health Care: An Agenda for Reform,” a defining statement by 10 policy writers:

The central focus of the ACA and, in fact, the central focus of many health care reform efforts has been to decrease the number of Americans without health insurance protection. […] But this near-exclusive focus on health insurance is also ironic because, in truth, consumers generally are not all that interested in health insurance. What they care about is better health and access to care. […] that means promotion of more direct and more flexible methods for purchasing services [like health savings accounts].

What has happened where you have “in truth, consumers generally are not all that interested in health insurance” as a defining health care statement that you use to guide the entire Republican establishment?… Was this meant to tell the GOP that they can ignore a bad CBO analysis? I can tell you that out in the real world people are very sensitive to whether they have insurance…. How did Republicans end up in this position where ideas that should function as a railing and guide end up speaking to nobody? McKay Coppins wrote that recent changes have led to “a caucus full of conservatives with excellent ratings from the Heritage Foundation, and no idea how to whip a vote” in Congress. The DC conservative policy apparatus has followed a similar path. It have also become accountable only to itself, ideological donors, polarizing media, and a race against their own extreme instincts. It’s the dynamic David Frum diagnosed in his classic Waterloo essay, but among the intellectual class as well…

Look to the 49th state for basic-income guidance

Posted on by Emilie Openchowski
An auto dealership in Anchorage, Alaska, advertises PFD, or Permanent Fund Dividend, sales.

What do Finland, the province of Ontario, the Italian city of Livorno, the African nations of Kenya, Namibia, and Uganda, the Indian state of Madhya Pradesh, and the 49th state of the Union—Alaska—have in common? They all have in place or are about to introduce some form of guaranteed basic income for some or all of their citizens.

Earlier this month, Ontario announced the findings of 14 public consultations on how the Canadian province should develop a program to provide a basic income to every citizen. Finland in January announced a pilot to give 2,000 unemployed people about $581 per month, and the Mediterranean port city of Livorno has a program in place too. But it’s not only rich countries that are testing and evaluating basic-income programs. So, too, are Kenya, Namibia, Uganda, and the state of Madhya Pradesh in India. The United States also boasts some experience with basic-income type programs, so the concept shouldn’t be treated as all that foreign.

The idea is simple: Governments provide people with money so they have a basic income. The places that have put programs in place are doing so to address poverty. In Ontario, the goal is to “help people meet their basic needs while supporting long-term social and economic prosperity and security for everyone.” In Finland, the program supplants other social benefits, streamlining the way people are able to access public assistance.

In the United States, the policy idea of a basic income dates back to the late 1960s, when President Richard Nixon proposed the Family Assistance Plan, which would have guaranteed a family of four $1,600 per year (about $13,168 today). The plan passed the House of Representatives but ended up failing in the Senate. Since then, the idea of providing a universal basic income has popped up in both liberal and conservative economic circles.

There are new reasons today to consider a basic income. Many economists, other social scientists, and business leaders alike believe that in the not-too-distant future, robots will perform the work of perhaps half of today’s workers. This will—and indeed already is—creating economic and social problems. The evidence is that labor market dislocations may not be confined to jobs at the very bottom of the income spectrum. Even jobs such as radiologists and other technicians are being replaced by technology.

Importantly, the advances now being experienced in robotics and other technologies are not merely the genius of the individuals who get credit for the innovations. These advances are possible because of the innovations and progress of all who’ve come before them. It is humanity’s inheritance. The ones who today are reaping all the rewards are standing on the shoulders of giants. A basic-income dividend would be a way to ensure the gains from collective knowledge are shared equitably.

There also is practical experience with providing such a dividend in the United States. Just look to Alaska. After oil reserves were discovered in 1968 in Prudhoe Bay and just before the first barrel of crude passed through the Trans-Alaska Pipeline in 1977, citizens of that state decided that these reserves belonged to everyone in the state. So, in 1976 they changed their constitution to create the Alaska Permanent Fund. Each year, the fund collects 25 percent of all oil and mineral royalties earned in the state, invests in a broad range of assets—including domestic and international equities, bonds, and real estate—and every Alaskan resident living in the state receives an annual dividend from the earnings each year. It’s their collective inheritance.

U.S. policymakers could follow Alaska’s example. They could tax the wealth generated by new technology, and give a dividend to everyone in America, creating a National Technology Revolution Fund. What would be the economic effects of such a policy? Economists and policymakers do not know a lot about how Alaska’s program affects the local economy, but one study done in 1984 (after the first distribution) found that about one-third of dividend income went to savings and debt reduction. Another study, in 1989, found that most of the dividends eventually found their way into Alaska’s economy. That study estimated that the total (direct and indirect) macroeconomic effects included an additional 10,000 jobs and $1.5 billion in personal income cumulatively, between 1982 and 1988.

Learning more about the Alaska Fund’s broader economic outcomes could give U.S. policymakers real insights into whether and how providing a basic income could be a solution to an increasingly jobless future.