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.

The New Socialism of Fools

Project Syndicate: The New Socialism of Fools by J. Bradford DeLong–bradford-delong-2017-08: BERKELEY – According to mainstream economic theory, globalization tends to “lift all boats,” and has little effect on the broad distribution of incomes. But “globalization” is not the same as the elimination of tariffs and other import barriers that confer rent-seeking advantages to politically influential domestic producers. As Harvard University economist Dani Rodrik frequently points out, economic theory predicts that removing tariffs and non-tariff barriers does produce net gains; but it also results in large redistributions, wherein eliminating smaller barriers yields larger redistributions relative to the net gains. Globalization, for our purposes, is different. It should be understood as a process in which the world becomes increasingly interconnected through technological advances that drive down transportation and communication costs…Read MOAR at Project Syndicate

No, It Is Really Not Harder to Make the Case for Free Trade These Days…

Hoisted from Ten Years Ago: Still, I think, true today. Thus I continue to hoist my neoliberal freak flag here: Is It Really Harder to Make the Case for Free Trade These Days? Paul Krugman wonders if it is harder to make the case for free trade these days. There are more losers from trade liberalization, he thinks, and it is much less clear that the losers are in some sense undeserving.

Mark Thoma writes:

Economist’s View: Krugman: Distribution and Trade Policy: Paul Krugman adds a few more thoughts via email related to the recent trade policy discussion:

Paul Krugman: Another thought or two on distribution and trade policy: The problem of losers from trade isn’t new, obviously, either as a fact or concept. But if you look at the history of trade policy – say, in Matt Destler’s book it’s hard to avoid the sense that the issue has gotten bigger and harder. His final chapters have a definite sense both of nostalgia for the good old days and foreboding.

I’d put it like this: in the old days, when GATT negotiations were mainly with other advanced countries, the groups hurt tended to be highly specific and local – the left-handed widget makers of Northern South Dakota, worried about competition from their counterparts in Upper Lower Swabia. Economists could in good conscience argue that while individual groups were hurt by trade liberalization in their specific sector, the great majority of Americans benefitted from general trade liberalization. And politicians made trade deals by packaging together the interests of exporters, to offset the parochial interests of import-competing industries

But now we’re talking about broad swaths of the population hurt by trade. It’s a good bet that almost all US workers with a high school degree or less are hurt by Chinese manufactured exports, at least slightly. You could in principle put together win-win packages – say, trade liberalization together with an increase in the EITC paid for with higher taxes on high-income Americans, who come out winners from trade. But the reality is that we don’t make those deals.

For those who like their jargon, by the way, I’m basically saying that the right model for thinking about this has gone from many-good specific factors to Heckscher-Ohlin.

I don’t have answers to this. The moral case for open markets is their importance to poor countries: America would do OK even in a highly protectionist world, but Bangladesh wouldn’t. The domestic politics of trade, however, are now very hard, and getting harder.

Well, I think I have answers:

  1. The kinds of win-win deals that Paul says we don’t make are in fact deals that Democratic presidents do make–when they aren’t blocked from making them, that is.
  2. In an American family, both potential workers have to be working in export or import-competing manufacturing for the family as a whole to be injured by imports of manufactured goods from China. Construction workers benefit from expanded trade with China both through higher relative wages and through lower relative prices. Service-sector workers benefit through lower relative prices.
  3. The losers are not undeserving of their previous relative good fortune, but the winners are not unjustly enriched either–and odds are that there are more and bigger winners.
  4. Politics is much healthier when everybody knows that trade restrictions are temporary and fragile than when people believe that trade restrictions are permanent and durable–and thus really worth lobbying for when they are to your material advantage.
  5. A richer world is a safer world for Americans: foreigners working making textiles for export to the United States are not foreigners in caves planning to attack the Great Satan. One important import that we buy through freer trade is a safer, richer, more peaceful world.

The narrow pure-economics case for freer trade is harder to make thsee days because it is less true than it was in the 1960s or the 1950s or the 1930s or the 1910s. But the broader political-economy case for freer trade is still strong and true.

Shaken and Stirred: Weekend Reading: Hoisted from 2005

Stephen Cohen and Brad DeLong (2005): Shaken and Stirred The United States is about to experience economic upheaval on a scale unseen for generations. Will social harmony be a casualty?

It has become conventional wisdom that class politics has no legs in the United States today—and for good reason. Regardless of actual circumstance, an overwhelming majority of Americans view themselves as middle-class. Very few have any bone to pick with the rich, perhaps because most believe they will become rich—or at least richer—someday. To be sure, the issues of jobs and wages inevitably make their way into our political campaigns—to a greater or lesser extent depending on where we are in the business cycle. But they seldom divide us as much as simply circle in and out of our political life. Lately anxiety about the economy has been palpable, but for the most part it has not evolved into anger or found specific scapegoats.

Economic insecurity could well divide us in the future, however.

We are on the cusp of an economic era whose challenges will be unfamiliar to most Americans of working age. It is likely to erode the psychological pillars on which class unity has rested in this country: personal economic stability for the middle class, and the promise of at least some upward mobility for most Americans. The most likely division—besides that between the truly rich and the truly poor—will be between those in the middle class who are able (through agility or luck) to manage economic risk and those who find themselves helpless before the economic pressures of a new age.

Once upon a time, or so it is said, America was a place with lots of upward but little downward mobility. In the really old, pre—Civil War days you could start out splitting rails, head west, make a success of yourself on the frontier, and perhaps even wind up as president. In the relatively recent, post—World War II expansion you could do well by landing a blue-collar job in a unionized manufacturing industry or a white-collar job at a large, stable American corporation such as IBM, AT&T, or General Electric—which offered job security, high salaries, and long, steady career ladders.

There was always as much mythology as truth to this image of America. Lighting out for the Territory was expensive. Covered wagons did not come cheap. More generally, although many terms could be used to describe economic life in the nineteenth and early twentieth centuries, “stable” and “secure” are not among them.

But there was considerable truth to the image as well, particularly after World War II.

Regardless of education level or family background, many Americans who valued stability and security really did have the chance to grasp it; jobs with “a future”—that is, with steadily rising wages and solid retirement plans—were plentiful. And even for many of those who were fired, the economic risks were fairly low: the unemployment rate for married men during the 1960s averaged 2.7 percent, and finding a new job was a relatively simple matter. During the first decades following World War II, to the astonishment of interviewing sociologists, a majority of Americans began to define themselves as middle-class.

This immediate post—World War II period stands as a reference point in our popular economic history—a gold standard for rapid growth and shared prosperity, albeit among the limited community of white males. It lingers in our national memory, and remains an important source of confidence in the unity of our culture and the awesome power of our economy. But although it engendered our current economic expectations, our sense of “the way things ought to be,” in reality the postwar era was probably an aberration, a confluence of events never before seen in our history and unlikely to be seen again.

Most obviously, it was an era defined by the isolation of America’s continental market from the devastation of World War II. In the early postwar decades foreign competition exerted virtually no pressure on our economy. (In 1965, for example, imports of automobiles and auto parts came to less than $1 billion—about a fortieth of what they are today, after adjusting for inflation.) At the same time, domestic manufacturers benefited from an enormous pent-up demand for mass-produced goods: cars, washing machines, commercial aircraft, refrigerators, lawn mowers, television sets, and so on. New highways gave rise to new suburbs, and to a resulting construction boom.

These economic conditions, along with successful federal efforts to maintain full employment through loose monetary policy, created an environment exceptionally friendly to workers. With little foreign competition on the one hand and a very tight labor market on the other, American firms were willing and able to offer workers strong incentives—such as pensions and first-rate health insurance—in order to attract and retain them. (Generous tax breaks from the federal government encouraged the roll-out of these benefits.)

Meanwhile, the Great Depression had given rise to a system of government programs and policies that came into full force and maturity only after World War II—among them Social Security, unemployment insurance, welfare, and high marginal tax rates. The rise of communism abroad could only have strengthened commitment to workers’ welfare, as a means of demonstrating that the American capitalist system offered a humane alternative.

Thus favorable macroeconomic circumstances, the absence of foreign competition, and a historically unique political dynamic all combined to allow postwar America many of the benefits of social democracy without the costs. The economy did not stagger under the weight of ample benefits and high taxes. Americans—at least white male Americans—did not have to worry about tradeoffs between security and opportunity, because the United States offered both. And it seemed that this was the natural order of things.

In addition, new technologies and consumption patterns were shifting the U.S. economy’s center of gravity from skilled, unionized, mass-production industry—which fashions products from expensive materials and capital-intensive machinery—to services and retailing, where barriers to the entry of competitors are lower, labor costs more significant, and competitive advantage more reliant on squeezing those labor costs.

The nation’s largest private-sector employer today, of course, is not General Motors or Ford but Wal-Mart. Wal-Mart is in many ways a fine company, but its strategic goals and constraints are quite different from those of the manufacturers of the 1960s. Between them the automakers and the UAW offered workers a fairly robust “social contract”: pensions, good health care, high wages, long-term job security.

Wal-Mart makes no such offer.

By the early 1990s the nature of unemployment had changed as well. As Erica Groshen and Simon Potter, of the New York Federal Reserve, point out, temporary layoffs have become less common. Instead companies under constant competitive pressure are more frequently making layoffs permanent—using advances in technology to eliminate some types of jobs altogether.

At the same time, the rising cost of health care and the falling rate of health insurance have left families much more economically vulnerable in the event of a serious accident or illness. Many Americans today are one lost job and one medical emergency away from bankruptcy.

We do not want to overstate how bad things are. Not even white males would be better off in the economy of the 1960s, when median real household incomes were only about two thirds of what they are today, and much of the medical care that we now fear we cannot afford was unavailable at any price. In a sense we’ve merely returned to a more natural economic state, in which jobs are not always secure and progress is not always assured. And we’ve done so while improving the opportunities and lifestyles available to most Americans. So far, in other words, we’ve adapted reasonably well to increased risk and reduced security. But we’re not at the end of economic history—and the history that will be made in the coming decades is likely to be substantially more turbulent than what we’ve seen in recent years.

Although the impact of globalization on American jobs has been overhyped in the past, its impact in the future will be hard to exaggerate. Last spring saw a short political boomlet of worry over the offshoring of white-collar jobs to India, China, and elsewhere. In the next few years these issues will be raised at the political level once again—and loudly.

The basic storyline is simple enough: what formerly could not be imported now can be. A compelling parallel can be drawn to the latter half of the nineteenth century, when the steel-hulled oceangoing steamship and the submarine telegraph cable revolutionized international trade. Companies could now use the telegraph to tell their agents in distant ports what goods to ship; moreover, powerful steamships made it practical to export not only precious goods (such as rare porcelains, spices, and tobacco) but also staple agricultural and manufactured products: grain, hides, meat, wool, furniture, and machines (which would eventually include motor vehicles, computers, and consumer electronics).

First in a great rush, and then at a somewhat more measured pace, industrial and agricultural workers the world over began to lose their jobs to more-efficient foreign competitors. Illinois could grow wheat more cheaply than Prussia could grow rye. Malaysia could grow rubber more cheaply than Brazil. Of course, displaced workers could generally find new jobs, sometimes better ones. And consumers benefited greatly from lower prices. But that did little to dim the spectacle of immediate dislocation. The expansion of international trade ushered in a century-long storm—though many Americans (perhaps owing to the anomalous calm following World War II) seem to remember only the recent gusts that have buffeted our heavy industries.

The transformation taking place today will have just as great an effect on the world economy. The transoceanic fiber-optic cable, the communications satellite, and the Internet are making much white-collar service work as tradable as anything else. Broadband cables and satellites can connect India or China or Bulgaria to the United States instantly, seamlessly—and almost without cost. A huge new swath of American jobs is beginning to become vulnerable to foreign competition.

When the offshoring of services truly hits (and it will stretch out over several decades), it is likely to deliver a much greater shock to the U.S. economy than the offshoring of manufacturing did. There are several reasons for this. First, in the 1970s Americans’ incomes exceeded those of the Japanese by a ratio of about two to one. The ratio of American to Indian incomes today is more than ten to one. Economists will point out that the gains from trade will thereby be that much greater for the U.S. economy as a whole—and they’ll be right. Indeed, more and greater openness will expand opportunities and raise incomes for some Americans, producing many highly visible winners. At the same time, the potential pay cuts for workers who lose out in rich countries will also be that much greater.

Second, the coming global trade in services will potentially affect a much larger proportion of the U.S. labor force. Even at its height manufacturing constituted only 28 percent of all non-farm employment, and large sectors of manufacturing (food processing, for example) are closely tied to sources of supply and thus immovable. Service jobs constitute 83 percent of non-farm employment in the U.S. economy today, and every job that is (or could be) defined largely by the use of computers and telephones will be vulnerable.

Third, the impact of foreign competition will be borne much more directly by American workers than by their employers. In the 1970s and 1980s foreign imports threatened U.S. companies and workers equally. The CEOs at GM and Ford were on the same “side” as the men and women who worked on the factory floor. The coming wave of economic dislocation will look very different: it will be something that American CEOs do to their own workers.

Not that they’ll necessarily have much choice; offshoring will in many cases be necessary if American businesses are to remain competitive. Remember H. Ross Perot’s “giant sucking sound”? In the early 1990s no one spoke out more strongly against the prospect of job loss caused by foreign competition. Yet on February 7 of last year the Times of India reported that Perot Systems was going to double its employment in Asia from 3,500 to 7,000—nearly half its total worldwide employment. If the economic logic of foreign outsourcing is so overwhelming that Ross Perot can’t resist it, what American CEO will be able to?

None of this is to say that we face a future of permanent widespread unemployment. It is a truth universally acknowledged (except in campaign seasons) that the rate of employment in the United States is set not by levels of imports and exports but, primarily, by whether the Federal Reserve’s monetary policy manages to settle aggregate demand in that sweet spot where neither unemployment nor inflation is too high.

Moreover, during the course of any single year or business cycle the effects of globalization on the U.S. labor market are small. Forrester Research has estimated that by 2018 some 3.3 million jobs in business processes are likely to go offshore. That’s a little more than 18,000 a month—not a huge number in an economy of 140 million jobs.

But—and this is a very big “but”—even though imports and offshoring do not determine the number of U.S. jobs over time, they do powerfully influence the long-run level and distribution of real wages. Eventually the offshoring of service jobs will exert a strong downward pressure on wages and benefits in jobs that stay onshore, just as the offshoring of manufacturing jobs did in the 1980s. Essentially, the pool of workers competing for many service jobs will be increased by, say, several million English-speaking college graduates in India, who will work for a tenth to a fifth of a typical American salary.

In many cases the jobs in question are held by Americans unaccustomed to layoffs or reduced incomes. Often they are high-paying white-collar jobs. The people who hold them may believe that they are on top because they deserve to be: they are smart and industrious; they worked hard in school while others screwed around; they have been diligent and successful in their careers. These people are likely to become very angry when unexpectedly threatened by substantial downward mobility.

How will the country respond when a broad new array of classes and professions are exposed to downward mobility—particularly as others benefit from new opportunities? Will existing class fissures be exacerbated? What new ones might be created?

Winners and losers are unlikely to sort cleanly. People of similar background and training may see their fortunes diverge greatly depending on subspecialty, or on the presence or absence of some idiosyncratic ability that is hard to replicate. But one can make a few predictions. First, the new environment is likely to pit those who are most flexible—most able to shift jobs or careers, most able to absorb unexpected blows, best positioned to benefit from unforeseen opportunities—against those who are less so. The contours of such a divide seem predictable: young versus old, generalist versus specialist, people with savings versus those who depend on their next paycheck.

A second (and overlapping) split might open between those who are highly educated and possess complex skills and those who are merely well educated and skilled. An MIT education may still be hard to imitate abroad. Can the same be said of a finance degree from a state college?

Third, a divide may occur between those—whatever their education or income level—who by disposition can tolerate unexpected income swings across a lifetime and those who abhor uncertainty.

The last group is probably large. The dissatisfaction resulting from falling wages is usually greater than the satisfaction resulting from rising wages. People are not wrong to be risk-averse; for middle-class Americans, just as for portfolio managers, life consists largely of trying to manage risk. This, the Yale political scientist Jacob Hacker thinks, is the source of middle-class Americans’ unease with the current state of the economy—perhaps the primordial form of a sharper discontent to come. “Voters say the economy isn’t getting better because, as far as they’re concerned, it’s not,” Hacker writes. “And perhaps the best explanation for this perception is that Americans are facing rising economic insecurity even as basic economic statistics improve.”

The median annual household income twenty years ago was about $38,000 in today’s dollars. Today it is about $43,000—13 percent higher. Yet, at least in Hacker’s analysis, Americans typically feel that increasing risk and rising inequality have hurt them at least as much as increasing income has helped. Yes, if they are middle-class, they have higher real incomes and living standards than their parents; but the incomes are known to be insecure, and the prosperity is felt to be fragile.

From one viewpoint, economic risk is the flip side of flexibility, entrepreneurship, and innovation—the very things America does best. In the 1980s, when Americans worried about whether the social organization in Japan’s export-manufacturing sector (morning calisthenics, the company song, consensus, lifetime employment, and so on) might offer a better way of doing business, The Atlantic’s national correspondent James Fallows answered with a resounding no. What Americans needed, he argued, was to become “more like us” (the title of his book on the subject), not more like them: America’s competitive advantage was rooted in disorder, constant change, flexibility, mobility, and entrepreneurial zeal.

In 1991 Robert Reich, about to become Bill Clinton’s first secretary of labor, looked at the tremendous expansion of manufacturing and other export-related employment elsewhere in the world and came to a similar conclusion. How, he wondered in his book The Work of Nations, could Americans preserve and accelerate economic growth if the market position and efficiency advantages of America’s largest firms came under threat? He, too, concluded that we needed to shift our focus away from old-style stable mass-production employment to high-knowledge, high-tech, high-entrepreneurship fields. Workers, he argued, should expect to go back to school to learn new skills for new industries.

But embracing change and uncertainty in this way does not come naturally, in the United States or anywhere else, and the pollsters and media-affairs people of the Clinton administration soon told Robert Reich to be quiet: people did not like to hear their government telling them that their jobs were going to vanish.

Economists rightly say that the rising wave of trade-driven service globalization will, like the last waves of trade-driven manufacturing globalization, benefit Americans and foreigners alike. At home more will be won than lost. Fears that expanding trade will destroy jobs and disrupt the economy also need to be counterbalanced by the knowledge that reducing trade—or even failing to expand it—would reduce national wealth potential, destroy future jobs, and ultimately disrupt the economy even more. The social problems of a stagnant economy are far greater than those of a dynamic one.

But economists too readily dismiss concerns about those who lose out, saying merely that they can be compensated. In practice they seldom are. The United States simply does not make the investments needed to turn economic change into a win-win process—investments in retraining and rebuilding that would transfer some of the gains from the winners to the losers (who’ve done nothing personally to merit their loss). In the late 1970s and the 1980s little money was spent on Flint and Detroit in particular, and Michigan in general, to cushion the economic impact as Toyotas and Hondas came to America’s shores. Producers in Japan and car buyers in Boston and San Francisco pocketed the gains, while producers in the Midwest absorbed the losses. As the Princeton economist and New York Times columnist Paul Krugman puts it, free trade is a salable policy only if accompanied by a well-built social safety net and confidence in full employment. But our safety net is full of holes.

Some companies have traditionally provided many of our social services, particularly in the form of health insurance and retirement support. Those companies will not continue to sustain that burden in the future. At the same time, our limited system of government benefits will not be adequate to the changes that we’ll face—leaving aside the possibility that it may be weakened or removed completely, as some politicians propose. That system was designed to protect the poor and the aged, and to tide the rest of us over in case of (temporary) job loss. What we need now is far more career-transition assistance for the middle class, and perhaps more government funding and (surely) portability for the benefits—notably health care—that the private sector increasingly fails to provide. America’s economy will need flexibility in order to compete, but we can provide this protection without sacrificing our flexibility.

Because we are facing an economic transformation that will hit not over the course of a few years but over the course of the next generation, we have time to do what needs to be done. We will need all this time, because the approaching economic shock will be greater in magnitude than anything in recent historical memory.


Thanks to Louis Johnston for reminding me of this this morning…

What Happened to the Trump Infrastructure Push?: Bunga-Bunga Policy, or No Policy at All

Cursor and Preview of What Happaned to Trump Infrastructure Bunga Bunga Policy or No Policy at All

There seemed, back in November, two ways the Trump infrastructure fiscal expansion could have gone.

The first was driven by the facts that Trump seemed to have ambitions that were “Pharoahnic”, and that Trump had been a real estate developer.

There were then no Trump plans for the infrastructure program. There were, however, plans to have plans. And the plans to have plans were aided by the fact that building things was what you would expect someone who had been a real estate developer to focus on. Since there were no plans, there was an opportunity to develop for Donald Trump with a real, technocratic infrastructure plan. It would have had, from Trump’s perspective, three advantages:

  • It would actually work–it would boost American economic growth, and so make people happy.

  • It would be Pharoahnic. Trump would leave his mark on America’s landscape in a visible way–something that is, for somebody who has for two decades been playing the game of celebrity, a big win.

  • It would make Trump’s presidency both be and appear to be a success, from the desired perspective of helping to make America even greater than ever.

And the idea that the economy was already at full employment, and did not need additional stimulus of any kind? That extra stimulus would be offset by the Federal Reserve, and that the overall effect on employment would be very small? That, taking into account the Federal Reserve reaction, the only major effect would be to raise interest rates? Perhaps. But that would not have been a downside. If you do seek–as we do–to normalize interest rates in the medium term, and if you want to see whether there are discouraged workers out there, moving away from monetary to fiscal as the stimulative balancing item is exactly the right thing to do. An extra $300 billion/year of bond funded infrastructure would substantially normalize interest rates.

The second was driven by the fact that there are an awful lot of small-government fanatics and some fiscal conservatives in the Trump coalition. That way would have generated a politics in which the normal fiscal infrastructure stimulus that both the situation and Trump’s background seemed to call for would not happen. It would simply not be done.

Instead, the Trump infrastructure plan would wind up building infrastructure on the government’s dime. That infrastructure which would then have been given away to friends of the administration. They would then have charged monopoly prices for access to it.

Little good as infrastructure–monopolists charging monopoly prices are rarely public benefactors on any large scale. No good of stimulus. Think of Silvio Berlusconi, but not on an Italian but on a North American scale.

Another pointless episode of bunga-bunga policy.

The U.S. would have been likely to lose, substantially, if that was what the Trump fiscal expansion had turned out to be. And then, of course, there would be the Trump tax cut: another nail in the coffin of sane and prudent fiscal policy, and another brick in the wall of the Second Gilded Age.

We may still have this bunga-bunga policy.

But with each day that passes with not even a plan to plan to have a plan, it looks more as though there is no Trump administration–just the reality TV simulacrum of one, cabinet members following their own administrative agendas, White House propaganda aides following their own propaganda agendas, and a Congress that seems to lack any sort of positive leadership. Not constructive infrastructure policy. Not bunga-bunga infrastructure policy. Simply no policy at all.

Constructive infrastructure policy now looks completely off the table.

Destructive bunga-bung infrastructure policy is still a possibility, but a low probability one.

No infrastructure policy now looks like the way to bet at even odds…

Missing the Economic Big Picture

Project Syndicate: Missing the Economic Big Picture: BERKELEY – I recently heard former World Trade Organization Director-General Pascal Lamy paraphrasing a classic Buddhist proverb, wherein China’s Sixth Buddhist Patriarch Huineng tells the nun Wu Jincang: “When the philosopher points at the moon, the fool looks at the finger.” Lamy added that, “Market capitalism is the moon. Globalization is the finger.” With anti-globalization sentiment now on the rise throughout the West, this has been quite a year for finger-watching… **Read MOAR at Project Syndicate

Inclusive Growth?: PIIE Conference


NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage

PIIE: Conference on Income Inequality and Inclusive Growth: “Keynote Speaker: Paul Krugman (Graduate Center, City University of New York)

November 17, 2016 8:30 AM to 2:00 PMADD TO

The Peterson Institute for International Economics (PIIE) and the McKinsey Global Institute (MGI) will cohost a conference on income inequality and inclusive growth on November 17, 2016. Paul Krugman, Nobel laureate and Distinguished Professor of Economics at the Graduate Center of the City University of New York, will conclude the conference with a keynote address, titled “After the Elephant Diagram,” at 12:15 pm.

The conference morning will consist of two panel discussions. The first panel (8:45–10:15 am) will focus on global inequality and begin with a presentation by MGI partner Anu Madgavkar on MGI’s new report, Poorer than their parents: A new perspective on income inequality. (link is external) Sandra Black, member of the US Council of Economic Advisers, will offer her remarks drawing on the CEA’s recent research on the topic. Paolo Mauro, assistant director of the African department at the International Monetary Fund, will share his insights from his PIIE Working Paper, The Future of Worldwide Income Distribution.

The second panel (10:30 am–12:00 pm) will focus on inclusive growth policy ideas for the next US administration. The panelists include Brad DeLong, professor of economics at the University of California, Berkeley; William Spriggs, chief economist at the AFL-CIO; Jonathan Woetzel, McKinsey & Company senior partner and MGI director; and Jeromin Zettelmeyer, senior fellow at PIIE since September and previously director-general for economic policy at the German Federal Ministry for Economic Affairs and Energy.

Best Business Books 2016: Economy

Best Business Books 2016 Economy

Over at Strategy+Business: Best Business Books 2016: Economy: The Crisis Is Over: Welcome to the New Crisis:

  • Robert J. Gordon: The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War (Princeton University Press, 2016)

  • Adair Turner: Between Debt and the Devil: Money, Credit, and Fixing Global Finance (Princeton University Press, 2015)

  • Jacob S. Hacker and Paul Pierson: American Amnesia: How the War on Government Led Us to Forget What Made America Prosper (Simon & Schuster, 2016)

It’s been quite a decade for the global economy. The popping of the American housing bubble in 2006, the subprime mortgage financial crisis and its spread to Wall Street in 2007–08, the collapse of the world economy into the first global recession in decades in 2008–09, the knock-on eurozone financial crisis that began in 2010, and a slow, often faltering recovery — it’s been a tumultuous 10 years. And the period has produced a bumper crop of excellent economics books by academics, journalists, and practitioners who have attempted to grapple with the extraordinary macroeconomic disaster. They have examined why it happened, how to fix it, what it means, and how to avoid a recurrence of anything even remotely as hellish. Read MOAR at Strategy+Business

Inequality: Brown University Janus Forum

Brown University Janus Forum Lecture: Inequality: Is America Becoming a Two-Tiered Society?

N. Gregory Mankiw and J. Bradford DeLong

Faculty Club at Brown University :: 5:30 PM – 8:00 PM :: October 17, 2016

My Presentation:

NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage NewImage

This presentation file:

Why Do We Talk About “Helicopter Money”?

Why do we talk about “helicopter money”? We talk about helicopter money because we seek a tool for managing aggregate demand–for nudging the level of spending in an economy up to but not above the economy’s current sustainable productive potential–that is all of:

  1. Effective and successful–even in the very low interest rate world we appear to be in.
  2. Does not excite fears of an outsized central bank balance sheet–with its vague but truly-feared risks.
  3. Does not excite fears of an outsized government interest-bearing debt–with its very real and costly amortization burdens should interest rates rise.
  4. Keeps what ought to be a technocratic problem of public administration out of the mishegas that is modern partisan politics.

Right now the modal projection by participants in the Federal Reserve’s Open Market Committee meetings is that the U.S. Treasury Bill rate will top out at 3% this business cycle. It would be a brave meeting participant who would be confident that we would get there–if we would get there–with high probability before 2020. That does not provide enough room for the Federal Reserve to loosen policy by even the average amount of loosening seen in post-World War II recessions. Odds are standard open market operation-based interest rate tools will not be able to do the macroeconomic policy stabilization job when the next adverse shock hits the economy.

The last decade has taught us that quantitative easing on a scale large enough to rapidly return economies to full employment is one bridge if not more too far for central banks as they are currently constituted–if, that is, it is possible at all. The last decade has taught us that bond-funded expansionary fiscal policy on a scale large enough to rapidly return economies to full employment is at least several bridges too far for our political systems, at least as they are currently constituted.

If we do not now start planning for how to implement helicopter money when the next adverse shock comes, what will our plan be? As a candidate for a tool capable of doing all four of these things, helicopter money–giving the central bank the additional policy tool of printing up extra money and either mailing it out to households as checks or getting it into the hands of the public by buying extra useful stuff–is our last hope, and, if it is not our best hope, then I do not know what our best hope might be.