Economist's View - 5 new articles
"What If the Candidates Pandered to Economists?"
Greg Mankiw:
What if the Candidates Pandered to Economists?, by N. Gregory Mankiw, Economic View, NY Times: In the months to come, John McCain and Barack Obama will be vying for the support of various voting blocs. It is safe to say, however, that one group won't get much attention: economists.
The American Economic Association represents only a small fraction of 1 percent of the electorate. In every election season, we economists expect to be largely ignored, and, unlike many of our other forecasts, that one often turns out to be right.
But suppose it were otherwise. ... What would it take to put the nation's economists solidly behind a candidate?
On many issues, from universal health insurance to increased taxes on the rich, economists do not speak with a single voice. But on some issues we do. Here is an eight-plank platform designed to attract a majority of economists. It is based on discussions I have had with my colleagues — call them focus groups, if you'd like — and polls of my profession:
SUPPORT FREE TRADE...
OPPOSE FARM SUBSIDIES...
LEAVE OIL COMPANIES AND SPECULATORS ALONE...
TAX THE USE OF ENERGY...
RAISE THE RETIREMENT AGE...
INVITE MORE SKILLED IMMIGRANTS...
LIBERALIZE DRUG POLICY...
RAISE FUNDS FOR ECONOMIC RESEARCH...
You might view this policy as nothing more than a way to buy a few votes. Perhaps you view economists as mere mortals, as tempted as anyone else by special interests. Maybe you would regard more funding for economic research as not very different from the billions thrown every year at farmers.
If you are that cynical, I won't try to dissuade you.
Ignoring the details that follow each proposal, there's one I'm not sure about, so seven out of eight for me (see here).
Habit Formation
What do you think about using these techniques? I find myself wary generally, but unable to argue against using them in a case like this where the benefits are so clear:
Warning: Habits May Be Good for You, by Charles Duhigg, NY Times: A few years ago, a self-described "militant liberal" named Val Curtis decided that it was time to save millions of children from death and disease. So Dr. Curtis, an anthropologist then living in the African nation of Burkina Faso, contacted some of the largest multinational corporations and asked them, in effect, to teach her how to manipulate consumer habits...
Dr. Curtis ... had spent years trying to persuade people in the developing world to wash their hands habitually with soap. Diseases and disorders caused by dirty hands — like diarrhea — kill a child somewhere in the world about every 15 seconds, and about half those deaths could be prevented with the regular use of soap, studies indicate.
But getting people into a soap habit, it turns out, is surprisingly hard. To overcome this hurdle, Dr. Curtis called on three top consumer goods companies to find out how to sell hand-washing the same way they sell Speed Stick deodorant and Pringles potato chips.
She knew that over the past decade, many companies had perfected the art of creating automatic behaviors — habits — among consumers. These habits have helped companies earn billions of dollars when customers eat snacks, apply lotions and wipe counters almost without thinking, often in response to a carefully designed set of daily cues. ...
If you look hard enough, you'll find that many of the products we use every day ... are results of manufactured habits. ... Through experiments and observation, social scientists ... have learned that there is power in tying certain behaviors to habitual cues through relentless advertising.
As this new science of habit has emerged, controversies have erupted when the tactics have been used to sell questionable beauty creams or unhealthy foods. But for activists like Dr. Curtis, this emerging research offers a type of salvation.
For years, many public health campaigns that aimed at changing habits have been failures. ...
To teach hand washing, about seven years ago Dr. Curtis persuaded Procter & Gamble, Colgate-Palmolive and Unilever to join an initiative called the Global Public-Private Partnership for Handwashing With Soap. ...
Over the last several years, such partnerships between corporations and those trying to save the world have become commonplace. Companies like Microsoft, Pfizer and General Electric have worked with nonprofit groups on health, technology and energy programs.
Not everyone is comfortable with the arrangements. Some critics complain that public health professionals are becoming too cozy with companies ultimately focused on their bottom lines. Others worry that these advertising techniques may be manipulative.
But what Dr. Curtis learned in Ghana suggests that saving the world may be as easy as hawking chewing gum...
"We could talk about germs until we were blue in the face, and it didn't change behaviors," Dr. Curtis said. ...
[S]tudies ... revealed ... hand-washing ... was prompted by feelings of disgust. And surveys also showed that parents felt deep concerns about exposing their children to anything disgusting.
So the trick, Dr. Curtis and her colleagues realized, was to create a habit wherein people felt a sense of disgust that was cued by the toilet. That queasiness, in turn, could become a cue for soap. ...
Their solution was ads showing mothers and children walking out of bathrooms with a glowing purple pigment on their hands that contaminated everything they touched.
The commercials, which began running in 2003, didn't really sell soap use. Rather, they sold disgust. Soap was almost an afterthought...
"This was radically different from most public health campaigns," said Beth Scott, an infectious-disease specialist who worked with Dr. Curtis...
The ads had their intended effect. By last year, Ghanaians surveyed by members of Dr. Curtis's team reported a 13 percent increase in the use of soap after the toilet. Another measure showed even greater impact: reported soap use before eating went up 41 percent.
And while those statistics haven't silenced critics who say habit-forming advertisements are worrisome, they have convinced people who run other public health initiatives that the Ghana experiment is on the right track. ...
"For a long time, the public health community was distrustful of industry, because many felt these companies were trying to sell products that made people's lives less healthy, by encouraging them to smoke, or to eat unhealthy foods, or by selling expensive products people didn't really need," Dr. Curtis said. "But those tactics also allow us to save lives. If we want to really help the world, we need every tool we can get." [...read the entire, much longer, article...]
A Bunch of Whiners?
Amity Shlaes says Phil Gramm is right, people really are whiners. This annoys me. Comments below:
Phil Gramm Is Right, by Amity Shlaes, Commentary, Washington Post: ..Phil Gramm ... is McCain's most senior economic adviser.. Now, however, Gramm faces political exile because he made the mistake of telling the truth.
What prompted the abrupt demotion? The short answer is what might be called Campaign Econ. Campaign Econ says the American economy is a certain way because Americans think it is. Campaign Econ competes with real economics and often wins -- with damage that extends way beyond, say, the political career of either Phil Gramm or John McCain.
So people are irrational in their beliefs? Must be how we got Bush as president. Anyway:
Consider what happened this week. While speaking with the Washington Times, Gramm said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining..."
Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ. ad_icon
She doesn't know what she is talking about, or she is being intentionally misleading. That's not how a recession is defined. But you don't have to believe me, here's the NBER - the people who formally date recessions:
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?
A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. ... Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.
Q: Could you give an example illustrating this point?
A: On July 31, 2002, the Bureau of Economic Analysis released revised figures for gross domestic product that showed three quarters of negative growth in 2001-quarters 1, 2 and 3-where previously the data had shown only quarter 3 as negative. This revision shows why the committee does not rely on a simple rule of thumb such as two consecutive quarters of negative growth, nor relies on GDP data alone, in making its determinations, but rather looks at a broader array of statistics. In November 2001, the ... two-quarter-decline rule of thumb would not have allowed the declaration of the recession... It was not until eight months later that revisions in the GDP data showed declining real GDP for the first, second, and third quarters of 2001.
Back to the article which, I hope you can see, is based upon a false premise due to her apparent lack of understanding of how recessions are dated. (I would have thought she'd know this claim isn't right, it's been written about so much most people who write about these issues know the NBER procedure by now, so there's a chance this is an intentional deception. If it's not intentional, if she doesn't know how recessions are dated, then she has no business writing about it.) Her claim is that because there hasn't been two consecutive declines in GNP, the economy can't be having problems. Therefore, people are nothing but whiners.
She says you can't tell people the truth, that they really are nothing but whiners, because it hurts their feelings:
Gramm's second sin was political. Calling voters whiners is to shame them. ... Campaign Econ is unabashedly populist, and to seek to elicit shame is regarded as unpardonably elitist. ...
Calling someone who has just been laid off a whiner doesn't shame them, it makes them mad. And it should.
Now she's going to tell us about the problems that don't exist:
Campaign Econ is certainly understandable. Gas prices are ruining vacation plans and killing businesses. Many Americans have lost or are about to lose their homes... inflation plagues the country. The weak dollar is altering our everyday calculations. For many, this is not a happy summer.
But don't talk about that unhappiness - you'll be called a whiner!:
Still, to liken the current moment to the Great Depression, or even the early 1980s, as Campaign Economists have, is to whine, just as Gramm said. ... The country approached double-digit unemployment in the early 1980s. This week, even as McCain was trying to talk his campaign past Gramm's comments, joblessness stood at a historically modest 5.5 percent.
If you look at the NBER definition, you will see that they look at employment and personal income as part of the dating procedure. How have those been doing? How's the employment to population ratio looking these days? Cherry picking a single statistic - unemployment - to make a case is unconvincing, especially when other labor market indicators tell a very different story.
Next, the standard blame the government for any problems that might occur. The press and politicians convince people of problems that aren't really there (they just decide one day, out of the blue, to start saying the economy is in trouble), then the evil government responds:
And Campaign Econ has costs. The first is that talk of a downturn -- or "mental recession," as Gramm put -- can itself generate a downturn. Keynesian economists say this is so because consumer spending slows when people are afraid. But there's also a non-Keynesian dynamic. Grumbling leads to costly government rescues that scare markets and slow growth.
Yes, it's wrong for government to step in and try to help all the whiners that lose their jobs in a downturn. They and their families should suffer through whatever problems they might encounter since conservatives think that helping them might slow economic growth (even though there's no evidence that slower economic grwoth is a problem we should worry about).
Oh, I forgot, there is no downturn, only the possibility of one due to evil government's support of Fannie and Freddie:
[A]s evidenced by the plummeting prices of Fannie Mae and Freddie Mac shares, serious trouble may be closer than we think. The plunging stock of the government-sponsored mortgage companies reminds us that those entities urgently require restructuring. Wall Street figures and the Senate Finance Committee ... are already talking about how to structure a bailout. But this task is about stopping recession, not luxuriating in it.
I guess it's okay to whine about the possibility of a recession if you can somehow cast it as a problem with government.
The next part is no surprise. She can't write a column without taking a swipe at Social Security and Medicare.
Social Security and Medicare also need rewriting -- and Gramm put forth one of the better proposals on Social Security in the 1990s.
How does Gramm's proposal in the 1990s relate to people whining about the non-existent problems she just identified?
So here's here solution:
In short, to fix it all, we need a frank conversation about the economy. McCain, in fact, inaugurated one back in 2006 when he gave a speech that was downright Gramm-like at the Economic Club of New York.
To "fix it all"? But I thought people were whining about nothing? Oh, I see, to fix it all we need to fix entitlements:
In that speech, McCain said that on entitlements, hard choices were necessary. He concluded: "Any politician who tells you otherwise, Democrat or Republican, is lying."
This was McCain at his best. Many voters knew it, too.
Yeah, the voters knew that was McCain at his best - and they realized if that was his best there wasn't much substance there - and they either moved on to support other candidates, or held their nose and supported McCain (some even write columns).
More on the solution:
The way to strengthen the economy right now is to elect leaders who dare to talk about problems in precise and even technical terms -- and then act on them. McCain has that capacity, but only if he can transcend Campaign Econ.
Precise, technical terms like knowing the definition of a recession? First-rate analysis of the economics of a gas tax holiday? Honest presentations about deficit reduction plans? Things like that would be nice, but as we saw from the whiner comment - a very technical and precise term - I'm afraid we won't get that from McCain's team.
You see, it's okay to whine about Social Security based upon deceptive presentations of its financial state or to whine about social programs generally, it's okay to whine about anything the government does to try to help people having troubles due to the state of the economy, it's also okay to whine about the liberal press misleading people, and it's okay to whine incessantly if anyone so much as thinks about making taxes more progressive.
But if you have lost your health insurance, had your wages stagnate, your retirement program at work eliminated or scaled back, if you are worried about job security or have been forced to look for a new job as the economy retools for the global age, if you are worried about how gas prices, food costs, and other price increases might impact your budget and have seen the value of your house plunge as those around you get into trouble, if you so much as dare to speak up about any of these or other problems, then you are nothing but a whiner.
Buck up, common folks, the rich people in the Republican party are doing just fine, thank you very much, and they really don't want to hear whining from the masses.
Update: Via Brad DeLong:
McCain Throws Phil Gramm Off the Train/Under the Bus/Over the Side:
Think Progress: Holtz-Eakin: Phil Gramm Is No Longer 'Giving Advice To Senator McCain'» Since Thursday, Sen. John McCain's (R-AZ) presidential campaign has been in damage control mode, attempting to distance itself from top economic adviser Phil Gramm's belief that America is "a nation of whiners" that is only going through a "mental recession." "Sen. Graham and I, as I said, we have a total disagreement on whether Americans are whiners or not," McCain told reporters yesterday.
Appearing on PBS's Nightly Business Report last night, McCain's senior policy adviser, Douglas Holtz-Eakin, claimed that because of the comments, Gramm would no longer be giving McCain advice:
GERSH: Is Senator Gramm still giving advice to Senator McCain?
HOLTZ-EAKIN: No.
GERSH: No.
HOLTZ-EAKIN: At — I haven't spoken to Senator Gramm since the comments took place, and I'm not expecting to...
links for 2008-07-12
Gradual Decline before the Crash?
Barkley Rosser says the period after the peak of a speculative bubble can often be broken into two periods, the first characterized by a gradual decline, i.e. a period of "financial distress," and a second where there is a massive panic and crash. He also says he has a model that can explain how this happens, though I trust he will understand if I hope that the second stage prediction of the model does not come true for the present financial crisis, or that a key condition necessary for the second stage to occur fails to be realized (I'm hoping Barkley will have the time to give the intuition behind the transition between stages, and how certain he is that the critical linkages are in place):
Falling from the Period of Financial Distress into the Panic and Crash, by Barkley Rosser: In 1972, Hyman Minsky described the "period of financial distress," in a paper in a journal that no longer exists..., "Financial Instability: The Economics of Disaster." Charles P. Kindleberger picked up on this and followed Minsky's analysis in his famous book, Manias, Panics, and Crashes: A History of Financial Crises, the 4th edn of which appeared in 2000... The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revivial, but finally giving up in the final collapse. According to Appendix B of Kindleberger's 2000 edition, 37 of the 47 great historical speculative bubbles exhibited such a period before the final crash, even though all the theoretical models predict a crash immediately following the peak with no such period. In 1991 I published the first mathematical model of such a phenomenon in my book From Catastrophe to Chaos: A General Theory of Economic Discontinuities_(Kluwer, Chap. 5)..., although nobody seems to have noticed... In 1997, I published a paper describing this model (and related matters)... This paper has never been cited. More recently I have coauthored a paper that ...[is] now under a long revise and resubmit, still waiting for an answer ... with Mauro Gallegati and Antonio Palestrini, "The Period of Financial Distress in Speculative Markets: Interacting Heterogeneous Agents and Financial Constraints" (available at my website), that lays all this out in much more up-to-date mathematical modeling. So, why am I boring all of you with this self-citation? Well, Dean Baker is constantly claiming credit for his forecasts of doom and gloom. It looks like we might be finally reaching the big crash in the US mortgage market after a period of distress that started last August (if not earlier). I and my coauthors are the only people to have provided actually formal models of this phenomenon, beyond the verbal and historical discussions provided by the brilliant Minsky and Kindleberger (both of whom I knew...). I have been forecasting this in unpublished lectures all over the globe for years, but never have put it up into the blogosphere. So, I am claiming credit, to the extent it is due, although the basic ideas were clearly laid out earlier by Minsky and Kindleberger. I will add one more story. Three years ago I presented an earlier version of the still-unpublished paper with Gallegati and Palestrini in Tokyo at Chuo University. In the middle of the presentation the biggest earthquake in 13 years hit Tokyo, in fact right at the moment I said the word, "crash." Some of the Japanese in the audience blamed me, not entirely humorously, for having caused it.