Must-read: Simon Wren-Lewis: “The Financial Crisis, Austerity and the Shift from the Centre”

Must-Read: Simon Wren-Lewis: The Financial Crisis, Austerity and the Shift from the Centre: “Think of two separate one dimensional continuums…

…one economic, with neoliberal at one end and statist at the other, and the other something like identity. Identity can take many forms. It can be national identity (nationalism at one end and internationalism at the other), or race, or religion, or culture, or class. Identity politics is stronger on the right…. For the political right identity in terms of class can work happily with neoliberalism, but identity in terms of the nation state, culture and perhaps race less so…. When neoliberalism is discredited, this potential contradiction on the right becomes more evident… [as] politicians on the right use identity politics to deflect attention from the consequences of neoliberalism…. Identity has always been strong on the right, so it is a little misleading to see it as only something that the right uses in an instrumental way….

None of this detracts from the basic point that Quiggin makes: the apparent drift from the political centre ground is a consequence, for both left and right, of the financial crisis…. One interesting question for me is how much the current situation has been magnified by austerity. If a larger fiscal stimulus had been put in place in 2009, and we had not shifted to austerity in 2010, would the political fragmentation we are now seeing have still occurred? If the answer is no, to what extent was austerity an inevitable political consequence of the financial crisis, or did it owe much more to opportunism by neoliberals on the right, using popular concern about the deficit as a means by which to achieve a smaller state? Why did we have austerity in this recession and not in earlier recessions? I think these are questions a lot more people on the right as well as the left should be asking.

Must-read: The Economist: “Chairman of Everything”

Must-Read: I do not understand China. But it now looks more likely than not to me that Xi Jinping’s rule will lose China a decade, if not half a century…

The Economist: Chairman of Everything: “Two curious articles appeared in government-linked news media…

…The first [was] written in an allegorical style traditionally used in China to criticise those in power, in this case in the form of an essay praising the seventh-century emperor, Taizong, for heeding a plain-talking courtier… [and] called for more debate and freer speech at a time when China’s president, Xi Jinping, has been restricting both. ‘The ability to air opinions freely often determined the rise and fall of dynasties,’ it said. ‘We should not be afraid of people saying the wrong things; we should be afraid of people not speaking at all.’ The second article, in the form of an open letter, ran—fleetingly—on a state-run website. ‘Hello, Comrade Xi Jinping. We are loyal Communist Party members,’ the letter began. It called on Mr Xi to step down and eviscerated his record in office. The president, it said, had abandoned the party’s system of ‘collective’ leadership; arrogated too much power to himself; sidelined the prime minister, Li Keqiang; caused instability in equity and property markets; distorted the role of the media; and condoned a personality cult….

The historical essay was reposted on the disciplinary commission’s website (where it remains); it was clearly more than the work of a single disgruntled editor. The letter may have been planted by a lone dissident who managed to hack into an official portal, but it raised many eyebrows in China. The police have reportedly detained around 20 people…. When he became the party’s leader in 2012, more was known about Mr Xi’s family and personal qualities than about his politics. He was a princeling…. Mr Xi had spent almost 20 years in Fujian, a southern province far from political nerve-centres. More is now clear. As Geremie Barmé, an Australian academic, puts it, Mr Xi is China’s ‘COE’, or chairman of everything….

Mr Hu was a wooden leader whose rule was overshadowed by the retired Mr Jiang; Mr Jiang, while in power, had to bow to his retired predecessor, Deng Xiaoping; even Deng trod carefully for fear of upsetting fellow party elders. Mr Xi, like Mao, appears unfettered by such concerns. He wants the country to know it, too…. Mr Xi is no Mao, a man whose whims caused the deaths of tens of millions and who revelled in the hysteria of his cult. But he rules in a way unlike any leader since the Great Helmsman. After Mao’s death, Deng tried to create a leadership of equals in order to push China away from Maoist caprices. Mr Xi is turning from that system back towards a more personal one. Indeed, he is more of a micromanager than Mao ever was….

The anti-corruption campaign has involved a radical change in the unwritten rules that have held the party together since the near civil war that Mao inflicted on it…. The anti-graft campaign is popular with the public, which suffers hugely from officials’ corruption, negligence and incompetence (a scandal that came to light in March involved rampant corruption in the state’s oversight of the sale and use of vaccines). But it has dismayed officials, many of whom have responded with passive resistance and fear-driven inertia…. Mr Xi has also sown alarm throughout the 2.3m-member People’s Liberation Army (PLA), the collective name for the armed forces. He has arrested generals for graft who were once considered untouchable, announced a trimming of the ranks by 300,000, shaken up the outdated command structure and slimmed down the top-heavy high command. Any one of these moves would have been impressive…. Mr Xi’s willingness to take on these tasks simultaneously suggests remarkable confidence….

Both in his reforms of the PLA and in his fight against corruption, Mr Xi’s actions aim first and foremost at tightening control: both the party’s over the army and his own over the party. It is similar in other areas of politics…. Mr Xi is determined to reimpose discipline on a querulous society that in recent years, thanks to the rapid spread of social media, has become much better equipped to organise itself independently of the party and to evade official controls. In the war against dissent, however, Mr Xi is facing visible resistance. Ren Zhiqiang, a property mogul turned commentator, said the media should serve readers and viewers, not the party….

Mr Xi has been even more hesitant in his handling of the economy. Months after taking power, he proclaimed that under his leadership markets would play a ‘decisive’ role. Since last year he has begun to talk of a need for ‘supply-side’ reforms, implying that inefficient, debt-laden and overstaffed state-owned enterprises (SOEs)—ie, most of them—need shaking up. But his approach has been marked by uncertainty, U-turns and, occasionally, incompetence…. Mr Xi’s lack of clear focus on the economy, and his unwillingness to let people more expert in such matters (namely, the prime minister, Mr Li) handle it, have caused a series of errors…. Markets are unpredictable and no Chinese leader (including Mr Xi) has any experience of the way they work in Western economies. But it is also likely that Mr Xi’s desire to hog power is partly to blame…. Mr Xi understands power, is not afraid to use it and is willing to take risks. He understands less about the new complexities of a changing society and worries about social unrest, so plays safe. He does not understand the economy well, is not sure what to do and does not trust others to act for him.

The way Mr Xi rules has three broad implications. The first is that problems common to all dictatorships will grow…. Another implication is that it is no longer reasonable to argue that China is a model of an authoritarian country opening up economically without doing so politically…. The third is that Deng’s policy of putting ‘economic construction at the centre’ is no longer the country’s most hallowed guiding principle. For Mr Xi, politics comes first every time…. The success of Mr Xi’s rule will rest not just on whether he wins the battles he has chosen to fight, but on whether he has picked the right ones. Seen from the point of view of China as a whole, it does not look as if he has. Mr Xi seems bent on strengthening his party and keeping himself in power, not on making China the wealthier and more open society that its people crave.

Must-Read: Matthew Yglesias: “Brian D. McKenzie’s ‘Political Perceptions in the Obama Era

Must-Read: Racial animosity, myths of betrayal, and fear of poverty and economic insecurity all combined together in a cocktail–but at least it’s an ethos!

Matthew Yglesias: “Brian D. McKenzie’s ‘Political Perceptions in the Obama Era: Diverse Opinions of the Great Recession and its Aftermath among Whites, Latinos and Blacks’…

…The Kaiser Family Foundation and the Washington Post working with some scholars from Harvard to look at race and the recession… included one question asking whether Obama has done ‘too much’ in terms of ‘ looking out for the economic interests of African Americans’ and another one asking which racial groups had been hardest hit by the recession. The results….

Numerous whites overlook the economic evidence that blacks were substantially harmed on multiple fronts during the recession and instead believe this group was unfairly aided by a sitting black president. These perceptual biases shape whites’ political opinions and are associated with feelings of financial frustration and higher levels of blame toward the government…. Interestingly, while many whites believe that African Americans are the beneficiaries of favorable economic policies from the Obama administration, blacks themselves do not feel they have been uniquely assisted financially (Harris 2012; Harris and Lieberman 2013).

This ties together white nationalist themes, economic anxiety themes, and populist anti-establishment themes nicely–a large bloc of white voters believes they are suffering economically because their elected representatives in Washington betrayed their interests in order to help nonwhites….

Following Mitt Romney’s defeat in 2012, the leadership of the Republican Party decided that they wanted to go in the exact opposite direction… the GOP would present itself as a modern, cosmopolitan, forward-thinking vehicle for right-of-center economic policy. Conservatism would be an ideology for everyone, not just for white people terrified that all their money was going to be spent on Obamaphones and hip-hop barbecues…. This sent… the wrong message to an important element of the GOP base… that their own party’s leaders were planning to betray them….

Resentful white people perceive themselves to be in a zero-sum clash for resources and opportunities with African Americans and Latinos, and want candidates who will champion their interests rather than throw them overboard in pursuit of a broader electoral coalition.

Must-read: Wolfgang Munchau: “The Errors Behind Europe’s Many Crises”

Must-Read: Wolfgang Munchau: The Errors Behind Europe’s Many Crises: “The EU was wrong to construct a single currency without a proper banking union…

…wrong to create a passport-free travel zone without a common border police force and immigration policy. [And] I would add EU enlargement… the haste with which it was pursued. The cardinal mistake of our time was the decision to muddle through the eurozone crisis. Europe’s political leadership failed to generate the public support for what was needed: creating a political and economic union. Instead, the European Council did the minimum necessary…. There are four channels through which that policy contributed to the broader instability….

First… the EU has the capacity only to deal with one big crisis at a time…. Second… the conflation, real or imaginary, of two more crises. The Greek economy continues to contract… refugees have been trapped in Greece… since Macedonia closed the border…. There are the fake connections. Poland has used last week’s Brussels bombings as a pretext for questioning a commitment to accept 7,000 refugees… an interaction between the terrorist attacks and the prospect of British exit…. Third… the output of several eurozone countries has yet to return to pre-crisis levels. Security… was among the areas most affected by austerity…. The widening income gap between rich and poor — and north and south….

Fourth… a generalised loss of trust and political capital…. Populist parties on the left and the right are exploiting the union’s failures…. The combination of these four channels frustrates perfectly good ideas for further projects aimed at European integration–those that would benefit everybody, such as central agencies to co-ordinate the fight against terrorism and to deal with the influx of refugees. If the EU had not messed up the previous crises, people would look at a European immigration policy or an antiterrorism task force with a more open mind. But would you trust with your own security somebody who cannot even contain a medium-sized financial crisis?…

Economic history has shown… that efforts to muddle through financial crises never work…. For the EU it was a catastrophic policy error… an economic depression… destroyed public confidence in the EU and in the very idea of European integration.

Must-read: John Maynard Keynes: “The General Theory of Employment, Interest and Money”

Must-Read: John Maynard Keynes (1936): The General Theory of Employment, Interest and Money: “Is the fulfilment of these ideas a visionary hope?…

…Have they insufficient roots in the motives which govern the evolution of political society? Are the interests which they will thwart stronger and more obvious than those which they will serve?

I do not attempt an answer in this place…. But if the ideas are correct… it would be a mistake, I predict, to dispute their potency over a period of time…. The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas….

There are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

Must-read: Martin Wolf: “China’s Struggle for a New Normal”

Must-Read: Martin Wolf: China’s Struggle for a New Normal: “Beijing must be decisive and yet responsive to the needs of the people…

…At present, it seems strangely indecisive on the economy and yet increasingly authoritarian on the politics. Only a fool would consider political instability anything but a disaster for China and the world. Equally, the desire of President Xi Jinping to attack corruption and so strengthen the legitimacy of the Communist party is understandable…. [But] its political institutions must surely move beyond the ‘democratic centralism’ invented by Vladimir Lenin a century ago. The challenges are daunting. It is only the successes of the recent past that provide confidence in those of the future.

Must-read: Bernard Weisberger and Marshall Steinbaum: “Economists of the World, Unite!”

Must-Read: Bernard Weisberger and Marshall Steinbaum: Economists of the World, Unite!: “The original draft of that [American Economic Association] founding document…

…stated the group’s objectives as the encouragement of economic research and of ‘perfect freedom in all economic discussion.’ Then it went on:

We regard the state as an educational and ethical agency whose positive aid is an indispensable condition of human progress. While we recognize the necessity of individual initiative in industrial life, we hold that the doctrine of laissez-faire is unsafe in politics and unsound in morals; and that it suggests an inadequate explanation of the relations between the state and the citizens. We do not accept the final statements which characterized the political economy of a past generation…. We hold that the conflict of labor and capital has brought to the front a vast number of social problems whose solution is impossible without the united efforts of Church, state, and science.

This undisguised manifesto of rebellion against the economic orthodoxy of the Gilded Age raised eyebrows among the established preachers of ‘political economy.’ The state as an ‘ethical agency’ whose aid was ‘indispensable’? The ‘conflict of labor and capital’? Even after the denunciation of laissez-faire as ‘unsafe in politics and unsound in morals’ was removed from the final document, lest it appear that the new association had any motives beyond scientific advancement, the AEA was still understood as a challenge to the status quo. Indeed, the AEA was founded both to conduct scientific research and to agitate for reform, both inside academia and in the public sphere. At its start, the two missions were inextricably linked…

Must-Read: Matthew Yglesias: Conservatives Turn on the White Working Class

Must-Read: Matthew Yglesias: Conservatives Turn on the White Working Class: “One of the great conceits of conservative punditry over the past 15 years…

…has been the notion that American politics is dominated by affluent liberal snobs who disdain white working-class America and its communities…. Charles Murray… Clive Crook… merely assert its existence via broad generalities. But now… some conservative pundits are unleashing sentiments about white working-class communities that are a good deal more vicious than snobbish disdain.

National Review’s Kevin Williamson…

the truth about these dysfunctional downscale communities is that they deserve to die: Economically, they are negative assets. Morally, they are indefensible. Forget all your cheap theatrical Bruce Springsteen crap….The white American underclass is in thrall to a vicious, selfish culture whose main products are misery and used heroin needles…. They need real change, which means that they need U-Haul.

David French… backs up Williamson using less colorful language… makes an even more explosive charge–that conservatives should regard economically struggling white people in rural communities in the same way they regard… [the] inner-cit[ies]….

It was consistently astounding how little effort most parents and their teen children made to improve their lives…. Always–always–there was a sense of entitlement. And that’s where disability or other government programs kicked in….

These are essays making the case that suffering white working-class communities don’t deserve help of any kind. That’s a correct application of the strict principles of free market ideology, but it’s also a signpost of how American political discourse has changed since the end of the Cold War. If you said in 1966, or even 1986…. It was taken for granted that the governing class had an obligation–a practical one, if not a moral one–to actually make the system work for average people. Over the past 20 years, that idea has been increasingly abandoned on the American right…

Must-read: Jonathan Portes and Simon Wren-Lewis: “Issues in the Design of Fiscal Policy Rules”

Must-Read: Jonathan Portes and Simon Wren-Lewis: Issues in the Design of Fiscal Policy Rules: “The potential conflict in designing rules between the need to mimic optimal policy…

…where debt is a shock absorber and is adjusted only very slowly, and the need to prevent deficit bias…. It may therefore make sense to make different recommendations depending on… the nature of governments…. [In] governments… not… subject to deficit bias… simple debt feedback rules come close to reproducing the optimal fiscal policy… [if] the exchange rate is floating and there is little risk of hitting the ZLB…. [G]overnment[s] behav[ing] in a non-benevolent manner… need… operational targets… fixed for the end of the natural term of the government… [to] provide strong incentives… for cyclically adjusted primary deficits…. These targets should be set in cooperation with a fiscal council, which would monitor progress… [and,] in exigent circumstances… suggest that the target be revised….

These rules should not apply if interest rates have hit the ZLB. In that case, fiscal policy should focus on demand stabilization… the suspension of the rule while the ZLB constraint applies, and not its modification. This ‘knockout’ should be an explicit part of the rule…

Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3

I guess that is it: Concrete Economics @ SXSW!: Speaking 12:30 PM Meeting 10AB Level 3 :: Signing 1:00 PM Bookstore Level 3:

Stephen S. Cohen, J. Bradford DeLong: Concrete Economics: The Hamilton Approach to Economic Growth and Policy] (Allston, MA: Harvard Business Review Press:1422189813) http://amzn.to/22ds5TK