Tag: Mark Thoma

Must-Read: John Whitehead: The Conservative Bias in Economics?

Posted on by Brad DeLong

Must-Read: I think the rather sharp John Whitehead gets this critique of Mark Thoma wrong. Rather than being “ultra conservative”, Milton Friedman is rather a squish. The Stigler-Coase position is:

  1. If the government does not prevent it via misregulation, the private sector will contract to internalize all externalities, and
  2. Even if the private sector does not, government failure is still much worse than market failure.

Those two arguments were necessary to move away from the Henry Simons position that the government must and shall enforce competition–that the FTC should be the largest and most aggressive arm of government. If Chicago wanted to influence in the business-governed councils of the Republican Party and to please donors to the university, it needed to find a way to wriggle out of that first-generation Chicago-school economics midwestern-populist commitment. And it did.

Friedman, by contrast, was more of a wet. He wanted to make the market work, and he wanted in the here-and-now to make the market work better. That meant: a k%/year monetary growth rule. That meant: Pigovian taxes to substitute for incredibly inefficient command-and-control regulation. Via clever rhetoric Friedman could minimize his philosophical differences with the von Miseses and company. And the question of what to do after the Revolution… that would never arise…

John Whitehead: The Conservative Bias in Economics?: “Is [Thoma’s] argument liberal or conservative? I’d say neither…

…I’m tempted to add [ultra] or something like that to conservative in this excerpt because the argument is straight from the conservative economist Milton Friedman…. I pulled my copy of Free to Choose off the shelf and read the section on the environment…. Rather than a description of Coasian free-market environmentalism, it is a description of mainstream Pigouvian environmental economics. For example, on page 207:

Most economists agree that a far better way to control pollution than the present method of specific regulation and supervision is to introduce market discipline by imposing effluent charges.

Mainstream economists tend to be in favor of imposing market discipline with pollution taxes or permit markets relative to the ‘idea that markets work best when they are left alone.’

Must-read: Mark Thoma: “The State of American Politics”

Posted on by Brad DeLong

Must-Read: Mark Thoma: The State of American Politics: “Paul Ryan, in a speech…

…on the state of American politics, says:

We don’t lock ourselves in an echo chamber, where we take comfort in the dogmas and opinions we already hold.

Followed by:

… in 1981 the Kemp-Roth bill was signed into law, lowering tax rates, spurring growth, and putting millions of Americans back to work.

Bruce Bartlett:

… I was the staff economist for Rep. Jack Kemp (R-N.Y.) in 1977, and it was my job to draft what came to be the Kemp-Roth tax bill, which Reagan endorsed in 1980 and enacted the following year…. Republicans like to say that massive growth followed the Reagan tax cut. But average real GDP growth during Reagan’s eight years in the White House was only slightly above the rate of the previous eight years: 3.4 percent per year vs. 2.9 percent. The average unemployment rate was actually higher under Reagan than it was during the previous eight years: 7.5 percent vs. 6.6 percent…

Must-read: Mark Thoma: “Why the Working Class Is Choosing Trump and Sanders”

Posted on by Brad DeLong

Must-Read: Mark Thoma: Why the Working Class Is Choosing Trump and Sanders: “the Center for Budget and Policy Priorities…

…in response to Mitt Romney’s claim during his presidential campaign that many recipients of government help are undeserving found that 91 cents of every dollar spent on entitlement programs goes to ‘the elderly (people 65 and over), the seriously disabled, and members of working households… and [7 of the remaining 9 to] medical care, unemployment insurance benefits (which individuals must have a significant work history to receive), Social Security survivor benefits for the children and spouses of deceased workers, and Social Security benefits for retirees between ages 62 and 64.’… Middle-class households are 60 percent of the US population…. Redistribution… is from the top 20 percent of households to the bottom 20 percent. Too many people have been misled into believing that their problems are the result of a non-existent ‘moocher class.’ Those at the top, those who have benefitted the most from our economic system, have pushed this myth in a successful attempt to reduce their tax burden….

The working class is not asking for income to trickle down to them, and they have been misled about the amount that trickles away from them. All they want is a fair share of what they’ve earned and the opportunity to improve their lives if they work hard and play by the rules. They want the security of knowing they aren’t a pink slip away from living on the streets, that they can find another job easily if they are laid off and, if not, help will be there for them. Working class households want to know that their kids can go to a decent college without being saddled with burdensome debt and that quality=affordable health care is available if they need it. They want to look forward to a better economic future instead of the same struggles they’ve had for years and years, and they want to have confidence that their children will do better than they did. They don’t feel like they are getting any of this…. The two sets of voters–those for Sanders and those for Trump–see different causes and different solutions to the struggles they face, but the goal in both cases is the same… an economy that works for them and a political system that responds to their needs…

Must-read: Mark Thoma: “Why GDP Fails as a Measure of Well-Being”

Posted on by Brad DeLong

Must-Read: Mark Thoma: Why GDP Fails as a Measure of Well-Being: “Catherine Rampell provides a nice summary of the alternative measures that have been proposed…

…However, none of these alternatives deal with the main problem… how to measure the full impact of technology on our lives…. GDP assigns a zero value to goods with a zero price, but those goods aren’t valued at zero and as they become more prominent, we’ll need to find a way of including the benefits they provide in our measures of the standard of living…. When you hear that your standard of living has gone up, ask yourself what has happened to leisure time?… How much of technology’s benefits might have been missed–how often do you use Wikipedia? And how was the additional GDP distributed across the population–did it mostly go to the 1 percent?…

Must-read: Mark Thoma: “On Summers: My Views and the Fed’s Views on Secular Stagnation”

Posted on by Brad DeLong

Must-Read: I would say that if monetary policy makers wish to place limits on what can be expected from monetary policy, they need to also be making loud and constructive arguments about what will do the stabilization policy job if monetary policy is not going to push the envelope. I don’t think Plosser ever made loud and constructive arguments directing other policy makers to do a constructive job…

Mark Thoma: On Summers: My Views and the Fed’s Views on Secular Stagnation: “The Fed’s job would have been, and will be a lot easier if fiscal policy makers would help…

…I disagree with Charles Plosser’s view on monetary policy, but I have some sympathy for the view that many people have come to expect too much from monetary policy:

On the monetary policy side central banks have clearly pushed the envelope in an effort to stabilize and then promote real economic growth. The pressure to do so has come from inside and outside the central banks… raised expectations of what the central bank can do…. It is not clear that this is wise or prudent.  Many have come to fear that without substantial support from monetary policy our economies will slump into stagnation. This would seem to fly in the face of nearly two centuries of economic thinking…

If secular stagnation is real, the Fed cannot overcome it by itself. Fiscal policy will have to be part of the solution…. Monetary policy — and fiscal policy too — can have a permanent impact on the natural rate of output by helping the economy to recover faster. The faster the recovery, the less the natural rate is lowered. So I agree with Summers that monetary policy needs to take the possibility of secular stagnation into account, I just wish he’d put more emphasis on the essential role of fiscal policy — something he has certainly done in the past, e.g.:

I believe that it is appropriate that we go back to an earlier tradition that has largely passed out of macroeconomics of thinking about fiscal policy as having a major role in economic stabilization…

Must-Read: Mark Thoma: Why It’s Tricky for Fed Officials to Talk Politically

Posted on by Brad DeLong

Must-Read: I would beg the highly-esteemed Mark Thoma to draw a distinction here between “inappropriate” and unwise. In my view, it is not at all inappropriate for Fed Chair Janet Yellen to express her concern about excessive inequality. Previous Fed Chairs, after all, have expressed their liking for inequality as an essential engine of economic growth over and over again over the past half century–with exactly zero critical snarking from the American Enterprise Institute for trespassing beyond the boundaries of their role.

But that it is not inappropriate for Janet Yellen to do so does not mean that it is wise. Mark’s argument is, I think, that given the current political situation it is unwise for Janet to further incite the ire of the nutboys in the way that even the mildest expression of concern about rising inequality will do.

That may or may not be true. I think it is not.

But I do not think that bears on my point that Michael R. Strain’s arguments that Janet Yellen’s speech on inequality was inappropriate are void, wrong, erroneous, inattentive to precedent, shoddy, expired, expired, gone to meet their maker, bereft of life, resting in peace, pushing up the daisies, kicked the bucket, shuffled off their mortal coil, run down the curtain, and joined the bleeding choir invisible:

Mark Thoma: Why It’s Tricky for Fed Officials to Talk Politically: “I think I disagree with Brad DeLong…

…Should speeches by Federal Reserve officials be limited to topics concerning monetary policy and financial stability, or should they be free to speak on any topic, no matter how politically charged it might be? It’s an important question as the Fed prepares to announce next week what’s looking like a significant change in its eight-year policy of zero-perecent interest rates.
Fed Chair Janet Yellen, for example, was sharply criticized for a speech last year highlighting what economists know about rising inequality and what might be done to overcome it.
This speech, which Yellen gave in October 2014, is still creating controversy. This week, it erupted again when UC Berkeley economist Brad DeLong defended Yellen against the charge that she’s a ‘partisan hack,’ a description in the headline of a Washington Post story by Michael Strain after Yellen’s speech…

Must-Read: Mark Thoma Sends Us to Simon Wren-Lewis: Economists and the Eurozone: Wake Up Calls and Political Capture

Posted on by Brad DeLong

Must-Read: Mark Thoma sends us to Simon Wren-Lewis: Economists and the Eurozone: Wake Up Calls and Political Capture: “I have often tried… to ask whether Germany’s strange stance on these macro issues…

…simply reflects this different conjunctural position. I think the answer is no…. Germany’s stance reflects similar political economy pressures as you will find in other OECD economies: there is no German exceptionalism, but rather that the forces that everywhere are pushing austerity and tighter monetary policy happen for various reasons to be stronger in Germany. From this perspective, this post from Frances Coppola is particularly interesting. Perhaps the problem at the heart of the Eurozone is that economic policy advice in Germany has been effectively captured by employers’ interests, and perhaps the interests of banks in particular…

And Mark comments:

Economic policy effectively captured by business and financial interests? That could never happen here…

Must-Read: Mark Thoma: Clinton on Glass-Steagall: Right or Wrong?

Posted on by Brad DeLong

Must-Read: Mark Thoma: Clinton on Glass-Steagall: Right or Wrong?: “Hillary Clinton said she opposed reimplementing the Glass-Steagall Act…

…which had been repealed in 1999. When the financial crisis struck in 2008, many people blamed the disaster on the removal of the restrictions Glass-Steagall had imposed on banks. However, the evidence doesn’t support this claim, which makes Clinton correct. But that doesn’t mean ending Glass-Steagall was a good idea or that repeal could never cause the kinds of problems that lead to a financial crisis, which makes her wrong…. Even though the repeal of Glass-Steagall didn’t cause the most recent financial crisis, why leave the risk in place?

Those opposed to reimplementing the Glass-Steagall sort of restrictions argue it would hamper bank activities and leave them at a disadvantage. But that’s largely because the banks aren’t the ones who will pay the bill if they’re wrong. In fact, they would likely get bailed out…. The costs associated with Glass-Steagall restrictions on bank activities are small relative to the benefits of avoiding another financial crisis, and the objections of the financial industry shouldn’t stand in the way of a more stable financial system.

Must-Read: Mark Thoma: An Essential Part of Job Creation Policy Is Missing

Posted on by Brad DeLong

Must-Read: Mark Thoma: An Essential Part of Job Creation Policy Is Missing: “Candidates have focused on how to create jobs that pay a decent wage…

…But there is an important facet of job creation that is being left out… the opportunity for advancement. People are taught that if they play by the rules, do well in school, go to college, find a job, and then show up every day and work hard, they will be rewarded. Over time they will move up the job ladder, their income will rise, and a time will come when life won’t be such a struggle. That won’t happen to everyone, of course, but workers need to be able to see a path to a better life. But the dream has faded….

As the opportunities to move up the job and income ladder have diminished over time, workers become discouraged, disenfranchised, and look for someone to blame. It’s immigrants, unfair opportunities granted to others through affirmative action, globalization that allows labor to be exploited in other countries at a cost to U.S. jobs – the list goes on and on. In many, if not most cases, the blame is misplaced, but the underlying anger with a system that broke its promise about “playing by the rules” is more than understandable. My goal is not to suggest some magical solution that will fix this problem quickly. It’s a difficult problem that will take time and concerted effort on a variety of fronts…M

Must-Read: Mark Thoma: Where Fed’s Critics Got It Wrong in GOP Debate

Posted on by Brad DeLong

Must-Read: After being wrong for eight straight years, critics of expansionary macro policies in a high-slack low-inflation economy–those who say that fiscal stimulus is sugar, and monetary expansion is opium–have not only not rethought their positions, but have taken over economic policy, in rhetoric at least, everywhere in the Republican Party. Can somebody please tell me what is going on?

Mark Thoma: Where Fed’s Critics Got It Wrong in GOP Debate: “The Federal Reserve was instrumental in easing the impact of the Great Recession…

…So it has been disappointing to hear Republican presidential candidates bash the Fed in their debates and on the campaign trail… blamed… income inequality…. [But] ould inequality be lower, on average, if the unemployment rate were 8 percent instead of 5 percent and if millions more were unemployed?… The Fed is also accused of playing politics by keeping interest rates low…. Republicans criticize the Fed because its low interest rate policy supposedly hurts the economy, yet somehow the central bank is keeping interest rates [artificially] low to help the economy [and thus the Democrats in office]? I am not impressed…. The Fed is keeping interest rates low because that’s what economic conditions demand…. And don’t get me started on the proposals to return to a gold standard….

It’s a bit irksome to hear Republicans, many of whom are in Congress, spouting on about the Fed’s poor policy when they are the ones who endorsed a policy mistake in pursuit of political and ideological objectives. The Fed did what it needed to do. Republican lawmakers didn’t…. The next time you hear Republicans call for more control and oversight of the Fed by Congress, think about how poorly Congress did with fiscal policy, and how creative and aggressive the Fed became in trying to compensate for that failure. Then ask yourself whether that is a good idea.