Economics as a Professional Vocation

Real GDP Growth Rate

Should-Read: The very sharp Binyamin Applebaum had an interesting rant yesterday: Binyamin Applebaum: @BCAppelbaum on Twitter: “I am not sure there is a defensible case for the discipline of macroeconomics if they can’t at least agree on the ground rules for evaluating tax policy…

…What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement? How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? How are ordinary people, let alone members of Congress, supposed to figure out which tenured professors are the serious economists?…

I would say, first, that journalists (and others) are supposed to use their eyes and their brains. They can take a look at the Nine Unprofessional Republican Economists who placed their letter in the Wall Street Journal last Saturday containing:

A conventional approach to economic modeling suggests that such an increase in the capital stock would raise the level of GDP in the long run by just over 4%. If achieved over a decade, the associated increase in the annual rate of GDP growth would be about 0.4% per year…

And note that by Wednesday they were saying:

Our letter addresses the impact of corporate tax reform on GDP; we did not offer claims about the speed of adjustment to a long-run result…

That degree of—four days later—”who are you going to believe: us or your lying eyes?” is a definite tell.

Similarly, they can take a look at the Hundred Unprofessional Republican Economists who placed their letter in Business Insider containing:

The enactment of a comprehensive overhaul—complete with a lower corporate tax rate—will ignite our economy with levels of growth not seen in generations… produce a GDP boost ‘by between 3 and 5 percent’…. Sophisticated economic models show the macroeconomic feedback generated by the TCJA will… [be] more than enough to compensate for the static revenue loss…

They should then ask: would a boost to GDP of 3% over 10 years—0.3% per year—generate growth “not seen in generations”? No, it would not. That claim is simply false, as a glance at the GDP growth graph immediately reveals.

They should then ask: what are the “sophisticated economic models [that] show the macroeconomic feedback generated by the TCJA will… [be] more than enough to compensate for the static revenue loss…” And, when the response is “[crickets]”, understand that there are no such models.

These tells of unprofessional behavior will inform them who to trust.

And they should go to organizations that at least have a track record of surveying a consistent group of well-regarded economists, like the IGM Panel. When only one economist on the panel—Stanford’s Darrell Duffie—says that they agree with the statement that the tax bill will make “US GDP… substantially higher a decade from now than under the status quo…” you can conclude that economists claiming it letters that it will are far outside the professional consensus.

Now there is the question of where this unprofessional behavior by economists comes from, and what should be done about it.

Professional economists simply should not say on Saturday that the long run of their forecasts could come in as short a time as a decade (“if achieved over a decade, the associated increase in the annual rate of GDP growth would be about 0.4% per year…) and then the following Wednesday deny what they had said (“we did not offer claims about the speed of adjustment to a long-run result”). They should have not made the might-be-ten-years claim in the first place. Having made it, they should have withdrawn it—hell, they should still withdraw it: they could use the <strike>…</strike> html tag. Having made it, they should not deny that they made it.

Professional economists should not say that an 0.3%-point increase in economic growth would carry us to “levels of growth not seen in generations”. Professional economists should not say that “sophisticated economic models show the macroeconomic feedback generated by the TCJA will… [be] more than enough to compensate for the static revenue loss…” for their are no such models. They are, as one Twitter wit said and as I endorse, the equivalent of the girlfriend-who-lives-in-Canada.

In universities—and thinktanks—concern for one’s academic reputation and the good opinion of colleagues in the context of a community that places the highest value on truth-seeking, truth-telling, and high-quality debate is supposed to keep such unprofessional behavior to a minimum.

Just before he was canned from Berkeley during the Red Scare, medieval history professor Ernst Kantorowicz argued that the academic robe worn by scholars on formal occasions was a sign of this dedication to truth-seeking, truth-telling, and high-quality debate: academics had placed themselves under a geas to think hard and say what they believed to be true, and that in carrying out this geas they were responsible to “their conscience and their God”.

But what if we find that there are large numbers of university professors and thinktank fellows who fear neither God nor their consciences—and who value the support of donors and the approval of partisans more than their internal academic reputations? The process of socialization and acculturation was supposed to keep such people out of universities and thinktanks, and in law and lobbying firms where it was understood that people were simply offering arguments rather than claiming to be setting forth truths, and from which their arguments could be assessed with boatloads of salt. What if this process fails?

It is a serious problem.

I do not have an answer.

Calling out people who I judge behave unprofessionally and cross the line, so that I can no longer credit that they are trying as hard as they can to think and to tell the truth—that is one small thing I can do.

You Just Cannot Be an Honest Neoclassical Economist and Make the Trumpublican Tax “Reform” a Winner for U.S. National Income Growth…

…or, especially, after-tax real median growth. Or even 2%-ile income growth. Let alone well-being after cuts in public services.

You just can’t.

It doesn’t add up at any level. As a matter of arithmetic…

Just too much of existing capital income flows to foreigners. Too much of extra production generated by a capital inflow would be credited to foreigners. And domestic savings supply is relatively inelastic. Even if you put both hands on the scale and lean hard, it just doesn’t work, even without noting how much of payments to capital are monopoly rents and payments to other forms of capital that are not interest sensitive…

And Paul Krugman has been on fire this fall:

Figure 2 Accurate Diagram

(Plus the salmon (on my machine) rectangle, minus the… what color is that? (on my machine) brownish-gold rectangle—that’s the long-run change in U.S. national income from a budget neutral tax “reform” like that Trumpublicans are proposing. The effects of a deficit-increasing one are… less favorable.)

Krugman this fall:

  • (2017-10-05) Paul Krugman: The Transfer Problem and Tax Incidence: “Assuming I’ve done the algebra right, I get a rate of convergence of .059–that is, about 6 percent of the deviation from the long run eliminated each year. That’s pretty slow: it will take a dozen years to achieve even half the adjustment to the long run. What this says to me is that openness to world capital markets makes a lot less difference to tax incidence than people seem to think in the short run, and even in the medium run…”

  • (2017-10-21) Paul Krugman: Some Misleading Geometry on Corporate Taxes: “What’s wrong with this picture?… Four reasons I can think of…. A lot of what we tax with the corporate profits tax is… monopoly profits and other kinds of rents…. Capital mobility is far from perfect…. The US isn’t a small open economy…. Finally… capital inflows… have to be created by a temporarily overvalued real exchange rate… meaning very big trade deficits, meaning a strongly overvalued dollar…”

  • (2017-10-24) Paul Krugman: The Simple and Misleading Analytics of a Corporate Tax Cut: “The claim here is that the wage gains from a corporate tax cut exceed the revenue loss by a ratio that depends only on the initial tax rate, not at all on the degree to which capital can be substituted for labor, which in turn should (in this model) determine how much additional capital is drawn in by the tax cut. This feels wrong–and it is…”

  • (2017-10-25) Paul Krugan: Trump’s $700 Billion Foreign Aid Program: “A simple point, but one everyone—myself included—somehow missed: the Trump tax plan is a huge giveaway to foreigners. Among other things, this means that the tax plan almost certainly reduces U.S. welfare even if you ignore distributional issues…”

  • (2017-10-29) Pul Krugman: Tax Cut Fraudulence: The Usual Suspects: “A revival of some more traditional, Bush-era fraudulence…. In particular: First, the claim that the rich pay practically all the taxes, so that of course they have to get the bulk of the tax cut. Second, claims of vast growth, because Reagan…”

  • (2017-11-01) Paul Krugman: The Gravelle Geardown: “Why does Gravelle-type analysis ‘gear down’ the wage effects of lower corporate taxes so much?…. Four reasons, three of which are conceptually easy…. First, a lot of the profits we tax are rents…. Second, corporate capital is only part of the U.S. capital stock; half of fixed assets are residential, and a lot of the rest isn’t corporate…. Third, America isn’t small…. Finally, and this is the one that I find takes some work, we’re very far from having perfectly integrated markets for goods and services…. So how great an idea is cutting corporate taxes? About as great as Dow 36,000…”

  • (2017-11-08) Paul Krugman: Leprechaun Economics and Neo-Lafferism: “Not incidentally, Kevin Hassett appears to be confused about the economics here, imagining that a paper reduction in the US trade deficit due to changes in transfer pricing would bring in real jobs. It wouldn’t. There are really two bottom lines…. The true growth impacts of Cut Cut Cut would be even more pathetic than the numbers you’ve been hearing. The other is that if you’re going to make international capital flows central to your arguments, you really need to think about the implications for future investment income…”

  • (2017-11-09) Paul Krugman: Leprechaun Economics, With Numbers: “The TF model… I don’t believe for a minute…. Tax Foundation asserts that capital inflows will be enough to raise GDP more than 3%, which is wildly implausible. But let’s go with it…. The true gain to the US is 1.05%, not 3.45%. That’s a big difference, and not in a good way…. Even if you believe the whole ‘we’re a small open economy so capital will come flooding in’ argument, it buys you a lot less economic optimism than its proponents imagine…”

  • (2017-11-11) Paul Krugman: The Tax Foundation Has Some Explaining To Do: “I’m hearing from various sources that the Tax Foundation’s assessment of the Senate plan… is actually having an impact on debate in Washington. So we need to talk about TF’s model…. During… large-scale capital inflow, you must have correspondingly large trade deficits…. Second… foreigners aren’t investing in America for their health…. Most of any gain in GDP accrues to foreigners, not U.S. national income. So how does the TF model deal with these issues? They have never provided full documentation (which is in itself a bad sign), but the answer appears to be—it doesn’t…”

  • (2017-11-14) Paul Krugman: Tax Cuts And The Trade Deficit: “If you believe the TF analysis, you also have to believe that the Senate bill would lead to enormous trade deficits—and massive loss of manufacturing jobs. What would adding $600 billion per year to the trade deficit do?… The U.S. manufacturing sector would be around 20% smaller than it would have been otherwise. How would this happen? Huge capital inflows would drive up the dollar, making U.S. manufacturing much less competitive…”

Republican Politicians, Non-Technocrats, and Technocrats on Tax “Reform” Edition…

How did we get here?

The Republicans Are Huge Liars

First, where are we?

Matthew Yglesias: If the GOP tax plan is so good, why do they lie so much about it?: “Democratic programs may or may not be… good idea[s], [but] the bills they write that they say will expand the provision of social services in the United States really do expand the provision of social services…

…Not so… with the Republican plan…. Trump ran on promising a middle-class tax cut…. At the beginning of the month, Trump was on the same page, saying…. Treasury Secretary Steve Mnuchin made an unambiguous promise that there would be “no absolute tax cut for the upper class”…. Trump went so far as to phone up a group of Senate Democrats to tell them, “My accountant called me and said, ‘You’re going to get killed in this bill.’” This is all a bunch of lies…. Rather than own up to the reversal and defend it on the merits, Trump’s team is now engaging in bizarre deflections….

A telling thing about the cavalcade of lies Republicans are telling about taxes is the party can’t quite get its story straight as to what the policy agenda even is here. They are telling deficit hawks that the bill is fiscally responsible… revenue-neutral in the long term. They’re telling others that… PAYGO… will be suspended, and the bill won’t really lead to the automatic cuts in Medicare and other programs that, by law, will result from its passage. They’re telling some people the middle-class tax hikes written into the Senate bill will never be enacted… the opposite of what they’re telling deficit hawks. So then some Republicans are telling some deficit hawks that the follow-up to the tax bill will be a return to entitlement reform….

The good news—if you’re inclined to see it as good news—is that Trump is a huge liar, so you can always hope it’s someone other than you who’s going to get betrayed…

I guess we are allowed to use the “lie” word now, are we not?

As to how we got here, let me turn the microphone over to Fritz Hollings:

Senator Howard Baker, the majority leader, sat right down there at that first desk and he shrugged his shoulders and said: “This is a riverboat gamble…”

The thing about a “riverboat gamble”, is that if it goes wrong, you tell your counterparty that you need to get the money from your room, and then you jump overboard in the dark and swim to shore.

The time was 1981. Howard Baker was then characterizing the 1981 Reagan tax cut that he was shepherding through the Senate.

It worked—in a “riverboat gamble” sense. As a policy, it was a disaster: no acceleration of economic growth, a significant increase in wealth inequality and degradation of opportunity, and the first of the dollar cycles that devastated America’s manufacturing market share. But the Republican Party was able to swim to shore, collect campaign donations and win seats, and leave the Democrats to pilot the riverboat through the snags.

Ever since, that has been the strategy of the Republican Party: make riverboat gambles. Tell bigger and bigger whoppers about them until they get called to account by the media and by the electorate—and then, with the post-2010 gerrymander and rise of Fox News, by that not general election but primary electorate.

If America is going to remain great, they will have to be called to account. And the only bright future for America is one in which the Republican Party is now on the same slow-motion track to long-term electoral defeat that then-governor Pete Wilson set the California state Republican Party on back two decades ago.

But, in the meantime, here we are, in the cycle of bigger and bigger whoppers. This serves as a good example:

Scott Lemieux: “I Am Sick And Tired Of People Saying That Utah Does Not Share A Border With Belgium”: “At the Senate Finance Committee…

…Sherrod Brown said some indisputably true things about the Republican plan to increase taxes on many non-affluent people to massively cut taxes for the extremely affluent:

I think it would be nice just tonight to just acknowledge that this tax cut is really not for the middle class; it’s for the rich. And that whole thing about higher wages, well, it’s a good selling point, but we know companies don’t just give higher wages—they don’t just give away higher wages just because they have more money. Corporations are sitting on a lot of money. They are sitting on a lot of profits now—I don’t see wages going up…

In response, Orrin Hatch said something indisputably irrelevant:

I come from the poor people, and I have been here working my whole stinking career for people who don’t have a chance, and I really resent anybody who says I’m just doing this for the rich—give me a break. Listen I have honored you by allowing you to spout off here, and what you’ve said is not right…. I come from the lower middle class originally. We didn’t have anything, so don’t spew that stuff on me. I get a little tired of crap…

It’s worth watching the video at the link; the pitch of furious indignation Hatch works himself into because someone pointed out that a tax cut for the rich is a tax cut for the rich is striking. And note that he does not say anything substantive about the bill, because he can’t—he talks about his background. I believe this is what we call a tell. No matter how much spittle Hatch emits, it doesn’t change the fact that he’s trying to ram a massive tax cut for the rich paid for on the backs of the poor through Congress…

Are there any economists out there saying that this is, policywise, a good idea? If there are economists of note and reputation who are taking the plunge, the natural place to find them is among the former Republican CEA chairs. So let’s take a look:

  • On the side of reality, we have Alan Greenspan and Greg Mankiw:
    • Alan Greenspan: “Economically, it’s a mistake to deal with sharp reductions in taxes now. We are premature on fiscal expansion, whether it’s tax cuts or expenditure increases. We’ve got to get the debt stabilized before we can even think in those terms…” (Nov 10)

    • Greg Mankiw: “The business tax plan being promoted by President Trump, and its close cousin released by House leadership this week, start with a good idea but then descend into an unworkable mess. Fortunately, the flaws can be fixed, if policymakers are willing to be bold…. O.K., O.K., I know that I have now come a long way from the Trump plan. And I know that, given the dysfunction in Washington, what I am proposing is a political nonstarter right now…” (Nov 3)

  • On the side of silence, we have Ben Bernanke, Harvey Rosen, and Michael Boskin…

  • On Team Riverboat Gambler, we have Eddie Lazear, Glenn Hubbard, and Martin Feldstein:

    • Eddie Lazear: “Will it boost the economy enough to cover most of the revenue cost? And will it help the middle class? The answer to both questions is yes, although some key changes can make achieving these goals likelier…” (Oct 16)

    • Glenn Hubbard: “Economists’ technical fouls of each other on the tax basketball court make good copy. But a hole-in-one of the wage increase the CEA report describes is what should grab the attention of congressional tax writers…” (Nov 6)

    • Martin Feldstein: “I have long been a deficit hawk…. An extra 1.5 trillion dollars of debt…. But I believe the advantages of corporate tax reform outweigh the adverse effects of the relatively small debt increase… raise the capital stock by 5 trillion dollars within a decade, causing annual national income to rise by 500 billion dollars…” (Nov 5)

There are, I believe, three important errors in Feldstein.

First, he says “causing annual national income to rise…” But that is wrong. The right phrase, in his analytical framework, is “causing annual domestic product to rise…” The difference is that a lot of the increase in domestic product he counts on from increased investment is not an increase in the income of Americans, is not an increase in national income. My first reaction was that half of it is an increase in the incomes of foreigners. Paul Krugman’s second reaction was that two thirds of it is an increase in the incomes of foreigners. Long experience has taught me that, whenever I disagree with Paul, he is probably right.

If Paul is wrong, the effect of this first error is to lower the assessment of the boost to Americans’ annual incomes from 500 billion to 170 billion dollars.

The second error is that Feldstein assumes that the tax cut on already built and installed capital is 100% a cut that flows out of the Treasury and into Americans’ pockets. It doesn’t. Steve Rosenthal estimates that 70 billion dollars of it flows into foreigners’ pockets each year. The effect of this second error is to further lower the assessment of the boost from 170 down to 100 billion dollars a year.

The third error is that Feldstein’s calculation assumes that the bill is deficit neutral, and thus that the 200 billion dollars a year in extra corporate retained earnings it produces is free to be devoted to increased corporate investment without countervailing factors. But, later on, he notes that the proposal involves “an extra 1.5 trillion dollars of debt” over the next decade. That is a subtraction from the funds available for investment. Remove that 10% return on the investment displaced from national income, and so we are down not to 170 billion dollars but to -50 billion dollars as the annual change in national income.

And, of course, not all of extra retained earnings will go to boosting investment. If we trust the CEO Council event that led to White House advisor Gary Cohn “ask[ing] sheepishly, ‘Why aren’t the other hands up?’”, A bunch will go to stock buybacks. A bunch will go to cash hoards and acquisitions. Some will not flow into retained earnings at all but go to dividends. Those wealth flows will boost elite consumption, rather than investment.

We are definitely in minus territory for economic growth here. And we are definitely in minus territory even without noting that Feldstein’s framework is already pretty far on the optimistic side as far as the economic benefits of low capital taxation are concerned. As Matthew Yglesias noted, you might get such a boost from:

a tax plan that was specifically designed to reduce taxation of new investments…. But most corporate profits are… the result of activities undertaken in the past…. A broad cut… is a windfall for what in tax policy jargon is called “old capital,” as well as for monopoly and quasi-monopoly rents and various other things that have nothing to do with incentivizing new investment…

And if we do note that a corporate tax cut is badly targeted—and a passive passthrough even worse targeted—as an investment incentive, we are in very negative territory as far as likely effects on economic growth are concerned.

And Feldstein’s arguments are the only game in town for supporters of the Trumpublican plans. Lazear, Hubbard, the Tax Foundation where Greg Leiserson has been correcting their modeling are all basically Feldstein with or without various bells and whistles.

Two of eight calling it a “mistake” and an “unworkable mess” is great. Three being quiet is OK—but, Harvey and Mike, ex-CEA chairs do not have the privilege of being silent on important policy questions and, Ben, although perhaps it would be better if ex-Fed chairs were to restrict their comments to monetary and financial policy, there is no such rule in operation.

But three offering support, even qualified support, is disappointing. I realize it is asking a lot to ask people who have spent their lives playing for Team Republican to cross the aisle—especially since they (rightly) believe that their principal societal value as is moderating technocratic voices within the Republican Party’s internal discussions, and they fear (rightly) that they put that at risk by failing to support the Republican Party’s legislative priorities. Marty gets a pass for having been very brave in stressing the dangers of the riverboat gambles in the early 1980s.

But may I please ask Glenn and Eddie to come over to the side of technocracy here?

Six Faces of Right-Wing Chain-Forging Economist James Buchanan…

Steven Teles inquired why I liked Will Wilkinson’s essay How Libertarian Democracy Skepticism Infected the American Right much more than I liked Henry Farrell and Steven Teles’s essays When Politics Drives Scholarship and Even the intellectual left is drawn to conspiracy theories about the right. Resist them as takes on Nancy McLean’s Democracy in Chains

I must confess that I was struck by the contrast between the, on the one hand, enormously generous hermeneutic through which [Steve Teles and Henry Farrell] read James Buchanan and the, on the other hand, ungenerous hermeneutic through which [they] read Nancy McLean….

I see at least six James Buchanans:

  1. The brilliant academic thinker behind the genius insights of Calculus of Consent It is worth noting that the framework underlying CoC with its emphasis on unanimity at the constitutional stage for any regime that can be just or justified, has a profoundly egalitarian and even Rawlsian bent—a bent that becomes stronger the thinner you make the veil of ignorance and the more averse to risk you make the people behind it. Thus the fact that Buchanan deduces a profoundly anti-egalitarian politics and built from it an intellectual movement that, as Mancur Olson used to say, “has a very strong right but a very weak left wing, and will never be healthy until both are equally strong” from it, is deserving of much careful and thoughtful inquiry.
  2. The academic operator seeking to get money from ex-Governor and U.Va. President Darden for the great public choice research project by overpromising how useful his Thomas Jefferson Center for Political Economy would be in providing intellectual weapons to strengthen the political causes of Darden and his friends.
  3. The academic operator going beyond what I, at least, regard as the permissible academic pale by imposing a political-ideological litmus test on who he invited into the public choice circle—i.e., not Mancur Olson, or any Olson students or potential Olson students (like me, in my younger days). That only “‘Manchester’ liberals who emphasize individual freedom as the central feature of the good society” and “Western conservatives who
    emphasize the importance of Western traditions in preserving the good social order” are invited in is, IMHO at least, in shocking contrast to say, Marty Feldstein’s NBER, where the bet is that an honest intellectual process will show that I am right—and if it shows otherwise, I badly need to know that.
  4. The grandson of Kentucky Governor John Buchanan, offended that Yankees would dare tell southern gentlemen how to deal with their “peculiar institutions”. (And just what are these “Western traditions”? And how near to the core of these “Western traditions” is white supremacy anyway? That the language here is Aesopian is not to Buchanan’s credit.)
  5. The friend of plutocrats or would-be plutocrats buying into the Hayekian idea that political democracy was, fundamentally, a mistake because the plebes would vote themselves bread-and-circuses and so ultimately destroy civilization.
  6. The right-wing activist seeking, in a von Misian or Rothbardian way, to harness and in fact mobilize racial evil to the service of what he regarded as the good of stomping the New Deal and Keynesian economics into oblivion.

I tend to see Buchanan(1) as at least half the picture. (I was, after all, one of the two people at the fall 1986 MIT Economics Department Wednesday faculty lunch after the Nobel Prize announcement willing to say that awarding the prize to James Buchanan was not an obvious and stupid mistake—the other one, IIRC, being Jim Poterba). Our elders had very strong opinions..

Nancy sees Buchanan(6) as 1/3 of the picture, Buchanan(5) as 1/3 of the picture, Buchanan(4) as 1/6 of the picture, Buchanan(3) as 1/6 of the picture, and does not see Buchanan(2) or Buchanan(1) at all.

But, of course, they cannot be separated. They are all in there together.

And I think Will Wilkinson: How Libertarian Democracy Skepticism Infected the American Right overwhelmingly gets closest to the proper balance of anything I have read so far…

Cf., also:

Keeping US Policymaking Honest

Project Syndicate: Keeping US Policymaking Honest: This week here at Berkeley I heard great optimism from the illustrious Alice Rivlin. What “technocracy” in the good sense the United States has–what respect is paid to sound analysis and empirical evidence in the making of policy–is due more to Alice Rivlin than to any other living human…. Her founding of the Congressional Budget Office is only one, albeit the most important one, of the times that Alice Rivlin has indeed eaten from and forced the rest of us to eat from the tree of knowledge. And we are all massively better for it… Read more at Project Syndicate

“Stockmanism” or “Magic Asteriskism” Is Bad Economics. Period

I find myself extremely annoyed this morning with the good-hearted and usually reliable Jim Pethokoukis on Twitter:

@jimpethokoukis: Reminder: Consensus economics view is that lowering corporate income taxes would increase the wages of workers. That isn’t Laffer-ism.

@de1ong: Lowering corporate income taxes and replacing the lost revenue with lump-sum taxes would raise average wages. not what you said…

If you require that the government’s budget constraint be met in your model, consensus economics says “it depends”. Given that raising worker standards of living is not a terribly high priority goal in the Repub House caucus, the way to bet is that when you add in whatever policies they would enact to meet the government budget constraint, the Republican House bill, if enacted, would not raise wages at all.

Saying that replacing a distortionary with a distortionary-free revenue source will (probably) raise some category of income is not “Lafferism”. But it is something not good. What name would you suggest for an analysis that is badly flawed by its inclusion of magic asterisks and its neglect of the government budget constraint?

I would suggest “Stockmanism”, after Reagan’s budget director, known most famously for saying “none of us understand what is going on with these numbers”.

When Globalization is Public Enemy Number One: At the Milken Review

At the Milken Review: When Globalization is Public Enemy Number One: The first 30 years after World War II saw the recovery and reintegration of the world economy (the “Thirty Glorious Years,” in the words of French economist Jean Fourastié). Yet after a troubled decade — one in which oil shocks, inflation, near-depression and asset bubbles temporarily left us demoralized — the subsequent 33 years (1984-2007) of perky growth and stable prices were even more impressive… Read MOAR at Milken Review

Brink Lindsey and the Road to Utopia

Let me put a spotlight on the very sharp Brink Lindsey here…

Brink Lindsey believes utopia is in our grasp. Our problems today are, he thinks, at their root problems about the creation of truly human identities that people can embrace.

This is a remarkable shift.

Previous human societies have had very different problems:

  • how to keep famine and plague from the door;
  • how to maintain the peace;
  • how to somehow scrape up the resources to make the investments to raise average productivity to a level that would support even a half-human standard of living; and
  • how to avoid gross maldistribution.

Keeping the peace remains a problem.

Avoiding gross maldistribution remains a problem—but the consequences of maldistribution in creating dire and life-threatening poverty are now much much less.

But famine, plague, and low productivity are now very far from our doors. And while productivity could be higher (and it would be nice if it were higher), an absence or an insufficiency of calories or of simply stuff is no longer a huge problem.

Instead, the problem seems, at least in Brink Lindsey’s conceptualization, to be “the progressive unraveling of the human connections that give life structure and meaning…”

That is a statement I find needs unpacking. But how to unpack this? Let’s let him try to unpack it. I don’t think he gets all the way there, but he makes a lot of progress:

Brink Lindsey: The End of the Working Class: “Outside a well-educated and comfortable elite comprising 20-25 percent of Americans, we see unmistakable signs of social collapse…

…the progressive unraveling of the human connections that give life structure and meaning: declining attachment to work; declining participation in community life; declining rates of marriage and two-parent childrearing…. Its roots are spiritual, not material, deprivation…. Anne Case and Angus Deaton have alerted us to a shocking rise in mortality among middle-aged whites, fueled by suicide, substance abuse—opioids make headlines these days but they hardly exhaust the list—and other “deaths of despair.” And this past November, whites in Rust Belt states made the difference in putting the incompetent demagogue Donald Trump into the White House. What we are witnessing is the human wreckage of a great historical turning point, a profound change in the social requirements of economic life. We have come to the end of the working class….

The working class was a distinctive historical phenomenon with real internal coherence. Its members shared a whole set of binding institutions (most prominently, labor unions), an ethos of solidarity and resistance to corporate exploitation, and a genuine pride about their place and role in society. Their successors, by contrast, are just an aggregation of loose, unconnected individuals… [who] failed to… enter the meritocracy…. That failure puts them on the outside looking in, with no place of their own to give them a sense of belonging, status, and, above all, dignity. Here then is the social reality that the narrowly economic perspective cannot apprehend….

From the first stirrings of the Industrial Revolution in the 18th century until relatively recently, the miraculous technological progress and wealth creation of modern economic growth depended on large inputs of unskilled, physically demanding labor…. In the skill-neutral transition from an agrarian to an industrial economy… workers displaced from farm jobs by mechanization could find factory work without first having to acquire any new specialized expertise. By contrast, former steel and autoworkers in the Rust Belt did not have the skills needed to take advantage of the new job opportunities created by the information technology revolution….

The best part of working-class life, solidarity, was… inextricably tied up with all the worst parts. As work softened, moving out of hot, clanging factories and into air-conditioned offices, the fellow-feeling born of shared pain and struggle inevitably dissipated…. The postwar ascendancy of the working class was… due… not just [to] favorable labor laws, not just inspired collective action, but the combination of the two in conjunction with the heavy dependence on manual labor by technologically progressive industries of critical importance…. The truly essential element was the dependence of industry on manual labor. For it was that dependence, and the conflicts between companies and workers that it produced, which led to the labor movement that was responsible both for passage of the Wagner Act and the solidarity that translated law into mass unionization….

We must remember that, even in the halcyon postwar decades, blue-collar existence was a kind of bondage…. The creation of the working class was capitalism’s original sin. The economic revolution that would ultimately liberate humanity from mass poverty was made possible by a new and brutal form of domination. Yes, employment relations were voluntary: a worker was always free to quit his job and seek a better position elsewhere. And yes, over time the institution of wage labor became the primary mechanism for translating capitalism’s miraculous productivity into higher living standards for ordinary people…. Meager pay and appalling working conditions during the earlier stages of industrialization reflected not capitalist perfidy but objective reality. The abysmal poverty of the agrarian societies out of which industrialization emerged meant that nothing much better was affordable, or on offer to the great majority of families. But that is not the end of the inquiry…. Workers routinely rebelled against the factory system…. The recurrent want and physical hardships of rural life had existed since time immemorial, and thus seemed part of the natural order…. By contrast, the new energy-intensive, mechanized methods of production were jarringly novel and profoundly unnatural. And the new hierarchy of bourgeois master and proletarian servant had been erected intentionally by capitalists for their own private gain….

At the heart of the matter, though, was the nature of the work…. Humans are most productive in filling in the gaps of mechanization when they perform likewise. The problem, of course, is that people are not machines, and they don’t like being treated as such…. The nightmare of the industrial age was that the dependence of technological civilization on brute labor was never-ending….

Those old nightmares are gone—and for that we owe a prayer of thanks. Never has there been a source of human conflict more incendiary than the reliance of mass progress on mass misery…. But the old nightmare, alas, has been replaced…. Before, the problem was the immense usefulness of dehumanizing work; now, it is feelings of uselessness that threaten to leach away people’s humanity. Anchored in their unquestioned usefulness, industrial workers could struggle personally to endure their lot for the sake of their families, and they could struggle collectively to better their lot. The working class’s struggle was the source of working-class identity and pride. For today’s post-working-class “precariat,” though, the anchor is gone, and people drift aimlessly from one dead-end job to the next. Being ill-used gave industrial workers the opportunity to find dignity in fighting back. But how does one fight back against being discarded and ignored? Where is the dignity in obsolescence?…

There is at least one reason for hope. We can hope for something better because, for the first time in history, we are free to choose something better. The low productivity of traditional agriculture meant that mass oppression was unavoidable…. Once the possibilities of a productivity revolution through energy-intensive mass production were glimpsed, the creation of urban proletariats in one country after another was likewise driven by historical necessity…. The political incentives were truly decisive. When military might hinged on industrial success, geopolitical competition ensured that mass mobilizations of working classes would ensue. No equivalent dynamics operate today. There is no iron law of history impelling us to treat the majority of our fellow citizens as superfluous afterthoughts…. There is a land of milk and honey beyond this wilderness, if we have the vision and resolve to reach it.

“Any Community… Flourishes only When Our Members Feel Welcome and Safe…”

Somehow I do think the New York Times could have put more thought into their questions for the community of the University of California at Berkeley

I think that they could have written better questions if only they had read the “Terms of Service” they require those of us answering their questions to agree to.

From the “Terms of Service”:

You shall not… [write]… any libelous, defamatory, obscene, pornographic, abusive, or otherwise illegal material.

Be courteous. You agree that you will not threaten or verbally abuse other Members, use defamatory language, or deliberately disrupt discussions with repetitive messages, meaningless messages or “spam.”

Use respectful language. Like any community, the online conversation flourishes only when our Members feel welcome and safe. You agree not to use language that abuses or discriminates on the basis of race, religion, nationality, gender, sexual preference, age, region, disability, etc. Hate speech of any kind is grounds for immediate and permanent suspension of access to all or part of the Services.

Debate, but don’t attack. In a community full of opinions and preferences, people always disagree. NYT encourages active discussions and welcomes heated debate on the Services, but personal attacks are a direct violation of these Terms of Service and are grounds for immediate and permanent suspension of access to all or part of the Service….

The NYT… is not responsible for the content of [yours it publishes, but] NYT reserves the right to delete, move, or edit Submissions that it, in its sole discretion, deems abusive, defamatory, obscene, in violation of copyright or trademark laws, or otherwise unacceptable…

Their questions and my answers:

Is there any type of speech you think should not be allowed on campus?

A university has three goals:

  1. A university is a safe space where ideas can be set forth and developed.
  2. A university is a safe space where ideas can be evaluated and assessed.
  3. A university is a safe space where young scholars can develop, and gain intelligence and confidence.

Speech whose primary goal is to undermine and defeat one or more of those three goals does not belong on a university campus.

If you come to Berkeley, and if your speech is primarily intended to—or even, through your failure to think through what you are doing, has the primary effect of (1) keeping us from developing ideas that may be great ones, (2) keeping us from properly evaluating and assessing ideas, or (3) driving members of the university away, your speech does not belong here.


Did U.C. Berkeley’s history as a beacon of free speech influence your decision to attend?

Of course.


Has the issue of free speech come up in any of your classes? If so, how was it raised and what was the context?

I raised it last spring in one of my lectures, at the start, when we could hear the helicopters and the sirens.


Are you concerned about campus safety during Free Speech Week?

Of course. There are lots of people who want to take advantage of free speech week to neither:

  1. develop ideas that may be great ones,
  2. thoughtfully and rationally evaluate and assess ideas, nor
  3. make the university a welcoming place for young scholars.

Some will want blood in the streets. Some will hope to take advantage of blood in the streets. Somebody may wind up dead, or maimed, as part of a game of political-cultural dingbat kabuki largely orthogonal to the three proper missions of the university.

It is a serious concern.

Time for Me to Take Another Look at Nancy MacLean’s “Democracy in Chains”!



Should-Read: Nancy MacLean: DEMOCRACY IN CHAINS: THE DEEP HISTORY OF THE RADICAL RIGHT’S STEALTH PLAN FOR AMERICA “As 1956 drew to a close, Colgate Whitehead Darden Jr., the president of the University of Virginia, feared…

…second Brown v. Board of Education ruling, calling for the dismantling of segregation in public schools with “all deliberate speed.” In Virginia, outraged state officials responded with legislation to force the closure of any school that planned to comply…. Darden… could barely stand to contemplate the damage…. Even the name of this plan, “massive resistance,” made his gentlemanly Virginia sound like Mississippi. On his desk was a proposal, written by the… chair of the economics department… James McGill Buchanan [who] liked to call himself a Tennessee country boy. But Darden knew better….

Without mentioning the crisis at hand, Buchanan’s proposal put in writing what Darden was thinking: Virginia needed to find a better way to deal with the incursion on states’ rights represented by Brown. To most Americans living in the North, Brown was a ruling to end segregated schools—nothing more, nothing less. And Virginia’s response was about race. But to men like Darden and Buchanan, two well-educated sons of the South who were deeply committed to its model of political economy, Brown boded a sea change on much more…. Federal courts could no longer be counted on to defer reflexively to states’ rights…. The high court would be more willing to intervene when presented with compelling evidence that a state action was in violation of the Fourteenth Amendment’s guarantee of “equal protection”…. States’ rights… were yielding in preeminence to individual rights. It was not difficult for either Darden or Buchanan to imagine how [the Warren] court might now rule if presented with evidence of the state of Virginia’s archaic labor relations, its measures to suppress voting, or its efforts to buttress the power of reactionary rural whites by underrepresenting the moderate voters of the cities and suburbs of Northern Virginia. Federal meddling could rise to levels once unimaginable.

James McGill Buchanan was not a member of the Virginia elite. Nor is there any explicit evidence to suggest that for a white southerner of his day, he was uniquely racist or insensitive to the concept of equal treatment. And yet, somehow, all he saw in the Brown decision was coercion. And not just in the abstract. What the court ruling represented to him was personal. Northern liberals… who looked down upon southern whites like him,… were now going to tell his people how to run their society. And… he and people like him with property were no doubt going to be taxed more…. What about his rights? Where did the federal government get the authority to engineer society to its liking and then send him and those like him the bill? Who represented their interests in all of this?

I can fight this, he concluded. I want to fight this. Find the resources, he proposed to Darden, for me to create a new center on the campus of the University of Virginia, and I will use this center to create a new school of political economy and social philosophy… an academic center… with a… political agenda: to defeat the “perverted form” of liberalism that sought to destroy their way of life, “a social order,” as he described it, “built on individual liberty,” a term with its own coded meaning but one that Darden surely understood. The center, Buchanan promised, would train “a line of new thinkers” in how to argue against those seeking to impose an “increasing role of government in economic and social life.” He could win this war, and he would do it with ideas.

While it is hard for most of us today to imagine how Buchanan or Darden or any other reasonable, rational human being saw the racially segregated Virginia of the 1950s as a society built on “the rights of the individual,” no matter how that term was defined, it is not hard to see why the Brown decision created a sense of grave risk among those who did. Buchanan fully understood the scale of the challenge he was undertaking and promised no immediate results. But he made clear that he would devote himself passionately to this cause.

Some may argue that while Darden fulfilled his part—he found the money to establish this center—he never got much in return. Buchanan’s team had no discernible success in decreasing the federal government’s pressure on the South all the way through the 1960s and ’70s. But take a longer view… a different picture… a testament to Buchanan’s intellectual powers and… the ideological origins of the single most powerful and least understood threat to democracy today: the attempt by the billionaire-backed radical right to undo democratic governance…. A quest that began as a quiet attempt to prevent the state of Virginia from having to meet national democratic standards of fair treatment and equal protection… would, some sixty years later, become… a stealth bid to reverse-engineer all of America, at both the state and the national levels, back to the political economy and oligarchic governance of midcentury Virginia, minus the segregation…

Must-Read That’s it. I’m calling this one for Nancy MacLean in Nancy MacLean versus the critics of her book Democracy in Chains on the rise of right-wing Public Choice.

I think she gets a number of things wrong, but she gets the big thing about it right:

Steve Horwitz: MACLEAN ON NUTTER AND BUCHANAN ON UNIVERSAL EDUCATION: “Finding examples of misleading, incorrect, and outright butchered quotes and citations in Nancy MacLean’s new book…

…has become the academic version of Pokemon Go this week. I now offer one small contribution of my own…. Hardly enemies of democracy in the paper, Nutter and Buchanan see their task (as Buchanan did for his whole career) as offering analyses that could inform the deliberations of the democratic process…. MacLean sees this paper as an attempt by the two scholars to undermine public education in Virginia in order to keep the effects of pre-Brown segregation while still complying with the law….

They also never mention race in the paper, as she acknowledges, but their use of the technical language of economics and their race-neutrality is seen by her as evidence of their attempt to generate racist outcomes by stealth…. One might also note that supporting Brown also means that one is thwarting the desires of democratic majorities…. It’s fascinating that she sees the foundation of the arguments of democracy’s supposed opponents as a rejection of a Supreme Court decision that told local and state majorities that they couldn’t have the segregated schools they wanted…

Yep. That’s an extraordinary own goal by Horwitz: The true democracy is the Herrenvolk democracy…

Must-Read A propos of Nancy MacLean’s Democracy in Chains My view is that Brown v. Board of Education was not the major cause of James Buchanan’s decision to try to build and U VA President Colgate Darden’s decision to fund the “Virginia School of Political Economy”—Public Choice as a discipline that had only one wing, a right one, and that would, as the late Mancur Olson liked to say, “never be healthy until [or because?] its left wing was as strong as its right, and it was no longer an ideological movement masquerading as an academic sub discipline”.

But BvBoA was certainly a trigger, and support was always very welcome from those whose concerns about appropriate governmental decentralization, limited powers, and checks and balances started and ended with preserving white supremacy.

Noah Smith was on the case back in 2011:

Noah Smith (2011): NOAHPINION: THE LIBERTY OF LOCAL BULLIES: “I have not been surprised by any of the quotes that have recently come to light from Ron Paul’s racist newsletters. I grew up in Texas, remember…