Tag: Megan McArdle

Must-read: Megan McArdle: “Listen to the Victims of the Free Market”

Posted on by Brad DeLong

Must-Read: For the most part, an excellent piece by Megan McArdle. But…

McMegan: There is a lot of good reason to think that the elasticity of labor demand at the low end is about -0.2! That higher minimum wages of the magnitude we are talking about throw not a lot but a few people out of work–that the actual low-wage household societal welfare gain is roughly 80% of the naive estimate.

And maternity leave makes even not-good jobs much better…

And the point is not to send everyone to a four-year college, but to send enough people to a four-year college to reduce the four-year college wage premium from its current 90% back to the 30% or so it was in the 1970s…

Otherwise: perfect:

Megan McArdle: Listen to the Victims of the Free Market: “The arguments for market liberalism are bound to sound a lot less convincing…

…when they invariably issue from the folks who aren’t expected to take one for the team–who are, in fact, being made better off, thanks to skills… prize… and thanks to trade, automation and immigration…. Academic economists and policy analysts are among the knowledge workers who have benefited greatly from liberalization…. Let’s look at something that elites consistently fail to talk about in any meaningful way: good jobs…. We talk around those things… about inequality… paid leave… education… ritual obeisances toward the necessity of decent work, promising that some policy laughably inadequate to the task…. But neither party has any meaningful policy to foster good work…. The closest either party comes is the $15-an-hour minimum wage, a policy with the slight drawback that it may throw a lot of people out of work….

Elites of both parties focus on the things they want for themselves. Republicans offer tax cuts and deregulation, as if everyone in America were going to become an entrepreneur. Democrats offer free college tuition and paid maternity leave, as if these things were a great benefit to people who don’t have the ability, preparation or inclination to sit through four years of college, and as a result, can’t find a decent job from which to take their leave…. The implicit assumption of elites in both parties is that the solution for the rest of the country is to become more like us, either through education or entrepreneurship. Rarely does anyone discuss how we might build an economy that works for people who aren’t like us and don’t want to turn into us….

Even if they are still consuming the same amount of stuff, even if their incomes are all right for the moment, if people feel that they cannot count on work, then they will feel helpless and frightened, and they will turn to politicians who can assuage those fears by pointing to specific enemies who can be vanquished to secure their safety. Democrats convinced that they have the answer to populism in the form of more social welfare programs are as gravely mistaken as the Republicans who focused on the same old pro-business program…. People are worried about their physical security and their ability to make a decent life for themselves. And ‘for themselves’ is the important phrase in that sentence…. There is no better example of the folly of the elites than the current fashion for a universal basic income among both liberals and libertarians…. I will give the universal basic income people this much; even if they aren’t really grappling with the need for work, at least they understand that there is a problem…. That’s more than you’d gather from the major speeches or the policy programs….

Start thinking about how to listen and talk to everyone else. Don’t answer every question about jobs with boilerplate about clean energy, or entrepreneurship, or… assum[ing] that the solution to our problems is to somehow arrange for everyone in America to get a four-year degree. Don’t assume that the rest of the country is full of Morlocks who do not need what you have for yourself: a stable job that connects you… gives you a sense of usefulness and security, and offers you some chance at an even better future…. That improved conversation is not an answer to either the political or the economic problems that Americans are facing. But at least it’s a start.

We are all Polanyiites now…

Must-Read: Megan McArdle: Why Democrats Fixate on Glass-Steagall

Posted on by Brad DeLong

Must-Read: The reason to repeal the repeal of Glass-Steagall is that (1) it has not led to increased competition and lower fees in investment banking, and (2) it creates a point of vulnerability at which financiers can make bets with the government’s money. narrow-banking advocate Milton Friedman was especially shrill on this point: that deposit insurance was necessary, but that banks with government-insured deposits should be restricted to buying Treasuries and only Treasuries:

Megan McArdle: Why Democrats Fixate on Glass-Steagall: “Team Steagles… seem[s] to have become a powerful force in the Democratic Party…

…The provisions limiting the entrance of commercial banks into investment activities (and vice versa) were gradually relaxed, and then abolished with Gramm-Leach-Bliley (the Financial Services Modernization Act of 1999). Calls to ‘bring back Glass-Steagall’ are, in fact, almost always calls to bring back this one provision…. It would be an amusing and depressing exercise to get any of these candidates in a room with some economists and ask them to explain how Glass-Steagall could have prevented the 2008 crisis. For there is a small problem with the Steagles argument: It’s very hard to think of the mechanism by which the repeal of this rule made any significant contribution to the meltdown….

This is why you don’t hear a lot of experts calling for the return of this rule. Those who do want it reinstated don’t claim that it would have prevented the financial crisis. For example, I quote Raj Date and Mike Konczal of the left-wing Roosevelt Institute, from their paper ‘Out of the Shadows: Creating a 21st Century Glass Steagall’: ‘The loosening of Glass-Steagall prohibitions did not directly lead to the financial crisis of the past few years.’ Why, then, do so many people want it back?  Fighting ‘Too Big to Fail.’… Moral hazard/protecting the taxpayer…. Exotic political economy arguments… [that] are hard to prove or disprove….

Glass-Steagall… is the perfect Washington Issue: a proposal of negligible impact but great popular charm. It is a way for politicians to sound as if they are addressing some major problem without having to go to the trouble of actually doing so. Glass-Steagall’s major appeal is not that it would work, but that it can be explained in under a minute to someone who doesn’t know anything about financial markets…

Must-Read: Paul Krugman: I do not think that word…<

Posted on by Brad DeLong

Must-Read: When did the default definition of “expansionary fiscal policy” become not (1) “the government hires people to build a bridge”, but rather (2) “the government borrows money from some people and writes checks to others, thus raising both current financial assets and expected future tax liabilities”? Or, rather, for what communities did it become (2) rather than (1), and why?

Or, perhaps, when did the deficit become the off-the-shelf measure of the fiscal-policy stance, rather than some other measure that incorporated some role for the balanced-budget multiplier?

This is something I really ought to know, but do not. It is bad that I do not know this:

Paul Krugman: I do not think that word…: “…means what Tyler Cowen and Megan McArdle think it means…

…The word in question is ‘spending.’ Tyler’s latest on temporary versus permanent government consumption clarifies… the confusion…. By ‘government spending’… I mean the government actually, you know, buying something–say, building a bridge. When Tyler says

The Keynesian boost to aggregate demand arises because people consider the resulting bonds to be ‘net wealth’ even when they are not,

the only way that makes sense is if he’s thinking of a rebate check. If the government builds a bridge, the boost to aggregate demand comes not because people are ‘tricked’ into feeling wealthier, but because the government is building a bridge. The question then is how much of that direct increase in government demand is offset by a fall in private consumption because people expect their future taxes to be higher; obviously that offset is smaller if they think the bridge is a one-time expense than if they think there will be a bridge built every year. That’s why temporary government spending has a bigger effect…. I guess there’s an alternative theory of what Tyler is talking about–maybe he doesn’t consider the wages of the bridge-builders count, that only what they do with those wages matters…

Or, rather, that all government expenditure is wasteful, and you might have well have simply handed out checks rather than forced people to engage in pointless useless make-work.