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July 5, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

Paul Krugman: Punishing the Jobless

Posted: 05 Jul 2010 12:33 AM PDT

Is there any hope that unemployment benefits will be extended when the Senate returns from its holiday weekend?:

Punishing the Jobless, by Paul Krugman, Commentary, NY Times: There was a time when everyone took it for granted that unemployment insurance, which normally terminates after 26 weeks, would be extended in times of persistent joblessness. It was, most people agreed, the decent thing to do. ... Yet the Senate went home for the holiday weekend without extending benefits. How was that possible?
The answer is that we're facing a coalition of the heartless, the clueless and the confused. ...
By the heartless, I mean Republicans who have made the cynical calculation that blocking anything President Obama tries to do — including, or perhaps especially, anything that might alleviate the nation's economic pain — improves their chances in the midterm elections. Don't pretend to be shocked: you know they're out there, and make up a large share of the G.O.P. caucus.
By the clueless I mean people like Sharron Angle, the Republican candidate for senator from Nevada, who has repeatedly insisted that the unemployed are deliberately choosing to stay jobless, so that they can keep collecting benefits. A sample remark: "You can make more money on unemployment than you can ... getting ... an honest job... We've put in so much entitlement into our government that we really have spoiled our citizenry."
Now, I don't have the impression that unemployed Americans are spoiled; desperate seems more like it. One doubts, however, that any amount of evidence could change Ms. Angle's view of the world — and there are, unfortunately, a lot of people in our political class just like her.
But there are also, one hopes, at least a few political players who are honestly misinformed... — who believe, for example, that ... extending benefits would make unemployment worse... So let's talk about why that belief is dead wrong.
Do unemployment benefits reduce the incentive to seek work? Yes: workers receiving unemployment benefits ... are likely to be slightly more choosy about accepting new jobs. The operative word here is "slightly"...
But it's an effect that is completely irrelevant to our current situation. When the economy is booming,... generous unemployment benefits may keep employment lower than it would have been otherwise. But ... right now the economy isn't booming..., there are five unemployed workers for every job opening. Cutting off benefits to the unemployed will make them even more desperate for work — but they can't take jobs that aren't there.
Wait: there's more. One main reason there aren't enough jobs right now is weak consumer demand. Helping the unemployed,... people who badly need it, helps support consumer spending. That's why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly — while allowing that aid to lapse ... is a recipe for even weaker job growth ... over the next few months.
But won't extending unemployment benefits worsen the budget deficit? Yes, slightly — but ... penny-pinching in the midst of a severely depressed economy is no way to deal with our long-run budget problems. And penny-pinching at the expense of the unemployed is cruel as well as misguided.
So, is there any chance that these arguments will get through? Not, I fear, to Republicans: "It is difficult to get a man to understand something," said Upton Sinclair, "when his salary" — or, in this case, his hope of retaking Congress — "depends upon his not understanding it." But there are also centrist Democrats who have bought into the arguments against helping the unemployed. It's up to them to step back, realize that they have been misled — and do the right thing by passing extended benefits.

links for 2010-07-04

Posted: 04 Jul 2010 11:03 PM PDT

Patriotism, Nationalism, and Economic Policy

Posted: 04 Jul 2010 11:34 AM PDT

How patriotic should economic policies be? (dual posted):

Patriotism, Wikipedia: Patriotism is love and devotion to one's country. The word comes from the Greek patris, meaning fatherland. Patriotism, however, has had different meanings over time, and its meaning is highly dependent upon context, geography, and philosophy. Although patriotism is used in certain vernaculars as a synonym for nationalism, nationalism is not necessarily considered an inherent part of patriotism. Among the ancient Greeks, patriotism consisted of notions concerning language, religious traditions, ethics, law, and devotion to the common good, rather than pure identification with a nation-state. Scholar J. Peter Euben writes that for the Greek philosopher Socrates, "patriotism does not require one to agree with everything that his country does and would actually promote analytical questioning in a quest to make the country the best it possibly can be." ...
During the 18th century Age of Enlightenment, the notion of patriotism continued to be separate from the notion of nationalism. Instead, patriotism was defined as devotion to humanity and beneficence. For example, providing charity, criticizing slavery, and denouncing excessive penal laws were all considered patriotic. In both ancient and modern visions of patriotism, individual responsibility to fellow citizens is an inherent component of patriotism.
Many contemporary notions of patriotism are influenced by 19th century ideas about nationalism. During the 19th century, "being patriotic" became increasingly conflated with nationalism and even jingoism. However, some notions of contemporary patriotism reject nationalism in favor of a more classic version of the idea of patriotism which includes social responsibility.
Contemporary scholar of ethics, Paul Gomberg,... argues that the primary implication of patriotism in ethical theory is that a person has more moral duties to fellow members of the national community, than to non-members. Patriotism is therefore selective in its altruism. Gomberg notes the view (in ethics) that moral duties apply equally to all humans, which is known as cosmopolitanism. ...

When we think about issues such as immigration and international trade, how important should "cosmopolitan" influences be? Should we ever place, say, the elimination of poverty in underdeveloped countries above our own interests, or is our duty always first and foremost to ourselves? There is a theory that says pursuing our own interests indirectly maximizes the interests of everyone -- the metaphor of an invisible hand is used to illustrate this -- but the conditions for this result to hold aren't always present.

I recently said:

while I think the US should consider the welfare of other countries when implementing policy..., the Fed has made it clear that's not how it operates.

So I think that, when formulating economic policy, our concerns ought to extend beyond our borders. That's not to say that the interests ought to be weighted equally, so I'm not "cosmopolitan" in that sense, but I don't think the weight on external concerns ought to be zero either. I would give it meaningful weight. But not everyone agrees. For example, As Alan Krueger says with respect to immigration policy

There are no simple answers on immigration policy because different people can legitimately assign different weights to the welfare of new immigrants, recent immigrants, and various groups of natives.

This is not a new debate. It is expressed here in terms of immigration, but it is easy to generalize the arguments to economic policy more generally:

Greg Mankiw and Brad DeLong talk about libertarian, egalitarian, and cosmopolitan explanations for why economists do or do not support immigration. Here's Brad's post:

Greg Mankiw Explains Why Economists Favor Immigration: He does it very very well:

Greg Mankiw's Blog: Why Economists Like Immigration: With members of the House and Senate sparring over immigration reform, it is worth summarizing why most economists are sympathetic with the more welcoming approach of the Senate bill.

The study of economics leaves a person with two strong impulses:

The Libertarian Impulse: Mutually advantageous acts between consenting adults should, absent externalities, be permitted. The ability to engage in such trades is how people in free-market economies achieve prosperity. When the government impedes voluntary exchange, it prevents the invisible hand of the market from working its magic.

The Egalitarian Impulse: The market economy rewards people according to supply and demand, not inherent worth. Markets often fail to provide people the ability to adequately insure themselves against the vicissitudes of life and accidents of birth. We should, therefore, look for ways to help those who end up at the bottom of the economic ladder.

Most economists feel these two impulses to some degree. The difference between right-leaning and left-leaning economists is how strongly they feel each of them. Right-leaning economists have a stronger libertarian impulse, whereas left-leaning economists have a stronger egalitarian impulse.

Although some debates in economics come down to which impulse a person feels more strongly, on immigration the two impulses are reinforcing. The libertarian impulse says, let the American employer hire the Mexican worker, for it is voluntary exchange. The egalitarian impulse takes note that the Mexican immigrant is the poorest person involved in the situation, and he benefits from more relaxed immigration restrictions.

Here is a conjecture: Whenever a policy appeals to both the libertarian impulse and the egalitarian impulse, economists will offer a relatively united view, as they do on the topic of immigration.

I would add a third impulse: the cosmopolitan impulse. Economists tend to think that foreigners are people, and thus that their well-being counts. From the economist's point of view, increasing immigration is a hell of a powerful global economic development policy. The most you can say for restricting immigration is that it is an extremely costly and relatively ineffective domestic anti-poverty policy.

Greg says the libertarian and egalitarian impulses, "are reinforcing" and that is why "economists ... offer a relatively united view ... on immigration."... I would qualify this discussion slightly along Brad's lines. It depends upon your utility function, and that is another way to frame the impulse to support, or not to support, immigration. If you are a person, economist even, who cares deeply about the poor anywhere in the world irrespective of borders, the benefits of low-skill immigration will look quite different than they will to someone who believes our allegiance is to our own poor and our own citizens first and foremost. From a policymaker's perspective, what should U.S. policy address, the welfare of poor anywhere in the world which may represent the preferences of constituents, or should U.S. economic policy attempt only to maximize the welfare of U.S. citizens?

What do you think? What does "patriotism" require? I like the older definition of patriotism better than the one that equates it with nationalism ("devotion to the common good, rather than pure identification with a nation-state"), but how it's defined is part of the issue.

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