Steven Johnson (2012): We’re living the dream; we just don’t realize it: “Over the past two decades…

…what have the U.S. trends been for the following important measures of social health: high school dropout rates, college enrollment, juvenile crime, drunken driving, traffic deaths, infant mortality, life expectancy, per capita gasoline consumption, workplace injuries, air pollution, divorce, male-female wage equality, charitable giving, voter turnout, per capita GDP and teen pregnancy? The answer for all of them is the same: The trend is positive…. The quality-of-life and civic health trends in the developing world are even more dramatic…. We are much more likely to hear about these negative trends than the positive ones for two primary reasons. First… the positive trends in our social health are coming from a… complex network of forces…. The public sector doesn’t have billions of dollars to spend on marketing campaigns to trumpet its successes…. We underestimate the amount of steady progress that continues around us, and we misunderstand where that progress comes from. We should celebrate these stories of progress, not so we can rest on our laurels but instead so we can inspire the next generation to build on that success.

Powerpoint on Jeff Madrick

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On Jeff Madrick’s “How Mainstream Economic Thinking Imperils America”

J. Bradford DeLong :: U.C. Berkeley :: Prepared: 2014-10-22

The Seven Bad Ideas Jeff Madrick Sees

• The “Invisible Hand”
• Say’s Law
• Friedman’s Folly: Government’s Limited * Social Role
• Low Inflation Is All That Matters
• “There Are No Bubbles”
• Globalization Is Always Good
  Economics Is a Science

In Madrick’s Introduction

• Praised in the Introduction: John Maynard Keynes, Dani Rodrik
• Criticized in the Introduction:
  • Adam Smith–no comment necessary…
  • Olivier Blanchard–the de facto leader of the Sixth International: on the left of the spectrum of policymakers…
  • Larry Summers–principal advocate of the Keynesian expansionary-fiscal solution to our troubles…
  • Milton Friedman–when he was alive, the most powerful advocate of unlimited quantitative easing…
  • Bob Rubin–on his watch big banks were bailed-in during financial crises, not bailed-out…
  • Ben Bernanke–most left-wing central banker we had (although I will concede his attachment to 2%/year inflation target, and failure to reach it, are huge minuses)…
  • Robert Lucas–underbriefed and destructive…

Reading Along…

• Madrick on Christina Romer:

  • “In a piece she wrote for The New York Times criticizing an increase in the minimum wage, Christina Romer, the former Obama adviser and considered by many to be a political liberal, implicitly made this same oversimplified assumption that workers usually get what they deserve. This is an example of Friedman’s broad influence…”

• Romer:

  • We have better policies available: expand the EITC is better targeted
    For the long-run, universal kindergarten and pre-K have more bang for the buck
    And these are expansionary fiscal policy–spending money gives a macroeconomic boost as well
    But if the choice is for a higher minimum wage or nothing, I’m for a higher minimum wage…

Food for Thought

• Of these 8 whom Madrick criticizes…
• …Somewhere between 5 and 7 are to the left of current North Atlantic policymakers
• Not excluding Obama

PFoJ vs. JPF, Perhaps?

• A little misplaced ire, I think…
• But I don’t want to go there…
• I would rather go to…

I See Four Yawning Gulfs

• Between:
  • the economic policies that those whom I regard as “serious” economists are advocating, and
  • those that are being implemented…
• Between:
  • what economics says, and
  • what right-of-center economists are telling their political masters it says…
• Between:
  • what economics says, and
  • what economics should say…
• Between:
  • my “inside” view of what I think economics says, and
  • Jeff Madrick’s “outside” view of what he thinks economics says…

As I See It

• The problem of where economics starts
• The problem of the decreasing relevance of the Smithian model
• The stringent requirements for market effectiveness

Current policy and current tasks

• Where Economics Starts
  • Economics starts from the presumption:
  • that market success is the benchmark, and
  • that market failure is anomalous
• It ought to start from the presumption:
  • that market construction is difficult
• It ought to have:
  • a grammar of other forms of organization—
  • command, bureaucracy, charity, cooperative, regulated monopoly, yardsticks, etc.—
  • and where they succeed and where they fail

Decreasing Relevance of the Smithian Model

• We have a great deal of economic life in sectors where we know the market will not work well, and
• These sectors will only grow in relative importance:
  • Pensions
  • Health-care finance
  • Education
  • Infrastructure
  • Research and development
  • Information goods more generally

The Stringent Requirements for Market Effectiveness

• Here are seven requirements:
  • Distribution of wealth corresponding to fairness and utility
  • Aggregate demand matched to potential supply
  • Competition
  • Calculation
  • Rivalry
  • Excludability
  • Information symmetries
  • And, no, a night-watchman, a court, and cutting property rights at the joints will not get us there

Current Policy and Current Tasks

• Policy is far to the right of even where the really-existing economics profession is
• At least, where the “serious” piece of it, in an intellectual sense, is
  *And it is not to the smart right either
• Why?

How to fix it?

• Books like Jeff’s, of course, but what else?
• Two tasks:
  • Move the “serious” economics profession
  • Move policymaking to the “serious” economics profession
  • Both seem of equal importance and difficulty

Lightly-edited transcript of discussion

Must- and Shall-Reads:

• Guntram B. Wolff: Europe’s Fiscal Wormhole
• Nick Szabo: Commercial security at the birth of writing, arithmetic, and religion in ancient Sumer

 

1. Neil Siegel: Halbig, King, and the Limits of Reasonable Legal Disagreement: In the debates over the constitutionality of the Affordable Care Act… I did not dismiss the arguments of those who disagreed with me. There often has been reasonable, irreconcilable disagreement over the meaning of the Constitution…. Halbig and King… are different. I can accept… that the relevant provisions of the ACA are ambiguous. What I cannot accept as reasonable or responsible… is the argument… that the ACA Congress clearly and unambiguously accomplished what no Member of Congress, no one in the Congressional Budget Office, none of the four dissenting Justices in NFIB v. Sebelius, and no state official realized that Congress had accomplished when it passed the ACA: self-destructively limit the tax subsidies that make health insurance affordable for millions of Americans to those who have the good fortune of happening to reside in states that set up their own health insurance exchanges…. Some may conclude that I am not as tolerant of reasonable legal disagreement as I think I am or used to be. Others may conclude that I care too much about the draconian financial consequences for millions of Americans and insurance companies if this litigation succeeds. I have considered these possibilities, and I have rejected them. The plaintiffs’ case is so weak and transparently political that it is dismaying to see it be taken seriously.

2. Nicholas Bagley: : The Supreme Court will hear King. That’s bad news for the ACA: “In a significant setback for the Obama administration, the Supreme Court just agreed to review King v. Burwell, the Fourth Circuit’s decision upholding an IRS rule extending tax credits to federally established exchanges…. At least four justices… voted to take the case… The justices’ votes on whether to grant the case are decent proxies for how they’ll decide the case. The justices who agree with King wouldn’t vote to grant…. The justices who disagree with King… there are at least four such justices…. That means that either Chief Justice Roberts or Justice Kennedy will again hold the key vote. None of this bodes well for the government. That’s not to say the government can’t win. It might. As I’ve said many times, the statutory arguments cut in its favor. But the Court’s decision to grant King substantially increases the odds that the government will lose this case. The states that refused to set up their own exchange need to start thinking—now—about what to do if the Court releases a decision in June 2015 withdrawing tax credits from their citizens.”

3. Ricardo Hausmann: The Economics of Inclusion: “I believe that both inequality and slow growth often result from a particular form of exclusion….Thanks to more than two centuries of sustained growth, average per capita income in the OECD countries is just under $40,000–3.3, 11.3, and 17.7 times more than in Latin America, South Asia, and Sub-Saharan Africa, respectively. Sustained growth has obviously not included the majority of humanity…. GDP per worker in… Nuevo León in Mexico is eight times that of Guerrero…. Why would capitalists extract so little value from workers if they could get so much more out of them?…To form part of the modern economy, firms and households need access to networks…. But connecting to these networks involves fixed costs….It is the fixed costs that limit the diffusion of the networks. So, a strategy for inclusive growth has to focus on ways of either lowering or paying for the fixed costs that connect people to networks. Technology can help…. But in other areas, the issue involves public policy…. A strategy for inclusive growth must empower people by including them in the networks that make them productive. Inclusiveness should not be seen as a restriction on growth to make it morally palatable. Viewed properly, inclusiveness is actually a strategy that enhances growth.

4. Ryan Avent: Forget the 1%: “It is the 0.01% who are really getting ahead in America…. Saez and… Zucman… uses a richer variety of sources…. The share of wealth held by the bottom 90% is an effective measure of ‘middle class’ wealth…. In the late 1920s the bottom 90% held just 16% of America’s wealth—-considerably less than that held by the top 0.1%, which controlled a quarter of total wealth just before the crash of 1929…. By the early 1980s the share of household wealth held by the middle class rose to 36%—roughly four times the share controlled by the top 0.1%…. From the early 1980s… these trends have reversed…. The 16,000 families making up the richest 0.01%, with an average net worth of $371m, now control 11.2% of total wealth—-back to the 1916 share, which is the highest on record…. The top 0.1%… hold 22% of America’s wealth…. The outsize fortunes of the few would not be too worrying were they largely the product of entrepreneurial activity…. The club of young rich includes not only Mark Zuckerbergs, the authors argue, but also Paris Hiltons…. The share of labour income earned by the top 0.1% appears to have peaked… held in the form of shares… levelled off… held in bonds has risen… hint[ing] that America’s biggest fortunes may be starting to have less to do with building businesses…”

5. Jessie Handbury and David E. Weinstein: Are Big Cities Expensive?: “Most of the variation in prices across cities can be attributed to flaws in the conventional indexes… compar[ing] prices of similar but not identical goods… not adjust[ing] for the availability of goods…. Big cities like New York are typically reported to have a cost of living more than double that of small cities like Des Moines, Iowa with nominal wages that are only 40% higher on average. Why then isn’t there a massive exodus from large cities into small ones? A common explanation is that larger cities offer better amenities (Glaeser and Kerr 2008)….We suggest a much simpler explanation…. We study the prices of barcoded grocery items sold across cities in the US and find that almost all of the variation in prices across cities can be attributed to flaws in the data used to make spatial price comparisons…”

6. Nick Rowe: Black holes and Neo-Fisherites are a monetary phenomenon: “Suppose… the central bank sets a nominal rate of interest…. Nominal demand for goods can spiral down to zero, if people expect it to…. Nominal demand for goods can spiral up to infinity, if people expect it to…. But what is happening to the nominal stock of base money if the economy sprials down into a black hole? And what is happening to the nominal stock of base money if the economy spirals up into a white explosion? Neo-Wicksellian models are silent…. If it lets the stock of base money spiral down to zero… then of course the economy would spiral down into a black hole. But… central banks did not in fact do this…. We need to introduce money explicitly if we want to understand what happens…. Take a related question–the Neo-Fisherite question. If the central bank permanently raises the nominal interest rate, will this result in higher or lower inflation? If you tell me what permanently raising the nominal interest rate does to the base money supply growth rate, I can answer your question…. The Neo-Wicksellian perspective… is what leads us to ask… badly-posed questions…”

Should Be Aware of:

• Frank Bruni: The Church’s Gay Obsession
• The Best Way to Type ¯_(ツ)_/¯
• The Nytpicker (August 2009): How Does Alessandra Stanley Get To Keep Her Job As TV Critic? That’s One Question Clark Hoyt Neglects To Ask.

 

1. Rich Yeselson: Six Points on the Midterm Elections: “Many voters don’t understand the structures and details of politics… don’t understand… separation of powers in an age of parliamentary[-discipline] parties…. More than 40% of them… don’t even know… which party controls… Congress…. Older people do not want some libertarian desert, and certainly do want to keep their welfare gerontocracy…. Voters were moderately liberal not only on the minimum wage, but also climate change and path to citizenship for illegal immigrants…. It’s not the 1930s anymore–white people in Kentucky, Louisiana, and Arkansas despise anything that reminds them of the national Democratic party, which they already think is socialist as it is. They don’t want it to move left, they think it’s grotesquely left enough as it is…. Government is not assumed to be the vehicle for the collective aspirations of the American people, but, rather, a highly problematic institution (which it is!)…. A centrist Democrat, Mary Burke, lost by a solid 7% to a union slayer, Scott Walker, and Walker took 34% of the union household vote…. We don’t even know what will ‘work’ in a place like Wisconsin. Good policy should be promoted, and maybe it will lead to good politics. But most of the country doesn’t want to move to the left…. Perhaps… the entire New Deal era was itself a historical anomaly, which temporarily masked the deep American divisions over race and religion, and suppressed for a time a fetish of individuation at the usual expense of social solidarity…”

Neil Siegel: Halbig, King, and the Limits of Reasonable Legal Disagreement: In the debates over the constitutionality of the Affordable Care Act…

…I did not dismiss the arguments of those who disagreed with me. There often has been reasonable, irreconcilable disagreement over the meaning of the Constitution…. Halbig and King… are different. I can accept… that the relevant provisions of the ACA are ambiguous. What I cannot accept as reasonable or responsible… is the argument… that the ACA Congress clearly and unambiguously accomplished what no Member of Congress, no one in the Congressional Budget Office, none of the four dissenting Justices in NFIB v. Sebelius, and no state official realized that Congress had accomplished when it passed the ACA: self-destructively limit the tax subsidies that make health insurance affordable for millions of Americans to those who have the good fortune of happening to reside in states that set up their own health insurance exchanges….

Some may conclude that I am not as tolerant of reasonable legal disagreement as I think I am or used to be. Others may conclude that I care too much about the draconian financial consequences for millions of Americans and insurance companies if this litigation succeeds. I have considered these possibilities, and I have rejected them. The plaintiffs’ case is so weak and transparently political that it is dismaying to see it be taken seriously.

Let me say that I disagree with the very sharp Nicholas Bagley: The decision of four Supreme Court justices to hear an appeal of King is not bad news for ObamaCare–it is bad news for Republican state-level politicians and for the people of nineteen states.

In the other 31 states, Obamacare is doing fine and is likely to keep doing fine in spite of whatever the Supreme Court rules in King. In those 31 states, they either have state exchanges that are unaffected by King or will quickly add a state wrapper to their federal exchange: no state politicians of any party are going to accept ObamaCare money to cover their Medicaid poor and deny exchange subsidies to their middle class.

But the politicians and Obamacare are now in much bigger trouble in the nineteen states with one-third of the population: Alabama, Alaska, Florida, Georgia, Kansas, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Wisconsin, Wyoming. If King brings down the hammer, will the politicians of the nineteen nullification states throw away the $40 billion in exchange subsidies to their middle-class citizens that are currently anticipated for 2016? That seems a very heavy political lift.

And I very much doubt that the King appellants will be able to round up their fifth vote: the Supreme Court would have to overrule long lines of statutory interpretation and break a great deal of administrative law in pieces to get there. They might: this is a very partisan Supreme Court that follows the election returns. But I think Roberts wishes to have a place in history different from that of MacReynolds.

Nicholas Bagley: : The Supreme Court will hear King. That’s bad news for the ACA: “In a significant setback for the Obama administration…

the Supreme Court just agreed to review King v. Burwell, the Fourth Circuit’s decision upholding an IRS rule extending tax credits to federally established exchanges…. At least four justices… voted to take the case… The justices’ votes on whether to grant the case are decent proxies for how they’ll decide the case. The justices who agree with King wouldn’t vote to grant…. The justices who disagree with King… there are at least four such justices…. That means that either Chief Justice Roberts or Justice Kennedy will again hold the key vote. None of this bodes well for the government. That’s not to say the government can’t win. It might. As I’ve said many times, the statutory arguments cut in its favor. But the Court’s decision to grant King substantially increases the odds that the government will lose this case. The states that refused to set up their own exchange need to start thinking—-now—-about what to do if the Court releases a decision in June 2015 withdrawing tax credits from their citizens.”

Ricardo Hausmann: The Economics of Inclusion: “I believe that both inequality and slow growth…

…often result from a particular form of exclusion….Thanks to more than two centuries of sustained growth, average per capita income in the OECD countries is just under $40,000–3.3, 11.3, and 17.7 times more than in Latin America, South Asia, and Sub-Saharan Africa, respectively. Sustained growth has obviously not included the majority of humanity…. GDP per worker in… Nuevo León in Mexico is eight times that of Guerrero…. Why would capitalists extract so little value from workers if they could get so much more out of them?…To form part of the modern economy, firms and households need access to networks…. But connecting to these networks involves fixed costs….It is the fixed costs that limit the diffusion of the networks. So, a strategy for inclusive growth has to focus on ways of either lowering or paying for the fixed costs that connect people to networks. Technology can help…. But in other areas, the issue involves public policy…. A strategy for inclusive growth must empower people by including them in the networks that make them productive. Inclusiveness should not be seen as a restriction on growth to make it morally palatable. Viewed properly, inclusiveness is actually a strategy that enhances growth.

**Ryan Avent**: [Forget the 1%](http://www.economist.com/news/finance-and-economics/21631129-it-001-who-are-really-getting-ahead-america-forget-1): “**It is the 0.01% who are really getting ahead in America**…

>…Saez and… Zucman… uses a richer variety of sources…. The share of wealth held by the bottom 90% is an effective measure of ‘middle class’ wealth…. In the late 1920s the bottom 90% held just 16% of America’s wealth—-considerably less than that held by the top 0.1%, which controlled a quarter of total wealth just before the crash of 1929…. By the early 1980s the share of household wealth held by the middle class rose to 36%—roughly four times the share controlled by the top 0.1%…. From the early 1980s… these trends have reversed…. The 16,000 families making up the richest 0.01%, with an average net worth of $371m, now control 11.2% of total wealth—-back to the 1916 share, which is the highest on record…. The top 0.1%… hold 22% of America’s wealth…. The outsize fortunes of the few would not be too worrying were they largely the product of entrepreneurial activity…. The club of young rich includes not only Mark Zuckerbergs… but also Paris Hiltons…. The share of labour income earned by the top 0.1% appears to have peaked… held in the form of shares… levelled off… held in bonds has risen… hint[ing] that America’s biggest fortunes may be starting to have less to do with building businesses…

The most interesting–and the most speculative–parts of Thomas Piketty’s grand argument in *Capital in the Twenty-First Century* are, I think, implicit: underlying claims that:

1. Most wealth will be deployed, at least at the relevant margin, not in productive entrepreneurial or labor-complementary activities but in at best parasitic rent-seeking activities.

2. Democratic politics will not save us–that only exceptional circumstances in the twentieth century allowed for a democratic politics of progressive social insurance to level society and so promote social welfare in the face of the Gramscian hegemony of the *bourgeoisie*.

Both of these seem to me to be quite plausible, and perhaps true. But I think Piketty would have been very well-advised to have spent a lot more time backing them up in his book than he in fact did…