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October 31, 2011

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Paul Krugman: Bombs, Bridges and Jobs

Posted: 31 Oct 2011 12:24 AM PDT

Apparently, Keynesian economics works for policies that Republicans favor:

Bombs, Bridges and Jobs, by Paul Krugman, Commentary, NY Times: A few years back Representative Barney Frank coined an apt phrase for many of his colleagues: weaponized Keynesians, defined as those who believe "that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation."
Right now the weaponized Keynesians are out in full force... What's bringing out the military big spenders is the approaching deadline for the so-called supercommittee to agree on a plan for deficit reduction. If no agreement is reached, this failure is supposed to trigger cuts in the defense budget.
Faced with this prospect, Republicans — who normally insist that the government can't create jobs, and who have argued that lower, not higher, federal spending is the key to recovery — have rushed to oppose any cuts in military spending. Why? Because, they say, such cuts would destroy jobs. ...
First things first: Military spending does create jobs when the economy is depressed. ... Some liberals dislike this conclusion, but economics isn't a morality play... But why would anyone prefer spending on destruction to spending on construction, prefer building weapons to building bridges? ...
But there are also darker motives behind weaponized Keynesianism.
For one thing, to admit that public spending on useful projects can create jobs is to admit that ... sometimes government is the solution, not the problem. ...
Beyond that, there's a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.
Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street's whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it's being used to defend lucrative contracts.
So I welcome the sudden upsurge in weaponized Keynesianism... At a fundamental level, the opponents of any serious job-creation program know perfectly well that such a program would probably work... But they don't want voters to know what they know, because that would hurt their larger agenda — keeping regulation and taxes on the wealthy at bay.

links for 2011-10-31

Posted: 31 Oct 2011 12:06 AM PDT

Stavins: The Promise and Problems of Pricing Carbon

Posted: 30 Oct 2011 02:07 PM PDT

Robert Stavins:

The Promise and Problems of Pricing Carbon, by Robert Stavins: Friday, October 21st was a significant day for climate change policy worldwide and for the use of market-based approaches to environmental protection, but it went largely unnoticed across the country and around the world, outside, that is, of the State of California.  On that day, the California Air Resources Board voted unanimously to adopt formally the nation's most comprehensive cap-and-trade system, intended to provide financial incentives to firms to reduce the state's greenhouse gas (GHG) emissions, notably carbon dioxide (CO2) emissions, to their 1990 level by the year 2020...  Compliance will begin in 2013, eventually covering 85% of the state's emissions.
This policy for the world's eighth-largest economy is more ambitious than the much heralded (and much derided) Federal policy proposal – H.R. 2454, the Waxman-Markey bill – that was passed by the U.S. House of Representatives in June of 2009, and then died in the U.S. Senate the following year.  With a likely multi-year hiatus on significant climate policy action in Washington now in place, California's system – which will probably link with similar cap-and-trade systems being developed in Ontario, Quebec, and possibly British Columbia – will itself become the focal point of what may evolve to be the "North American Climate Initiative." ...
What Lies in the Future?
...Because a truly meaningful climate policy – whether market-based or conventional in design – will have significant impacts on economic activity in a wide variety of sectors and in every region of a country, proposals for these policies inevitably bring forth significant opposition, particularly during difficult economic times.
In the United States, political polarization – which began some four decades ago, and accelerated during the economic downturn – has decimated what had long been the key political constituency in the Congress for environmental action, namely, the middle, including both moderate Republicans and moderate Democrats.  Whereas Congressional debates about environmental and energy policy had long featured regional politics, they are now fully and simply partisan.  In this political maelstrom, the failure of cap-and-trade climate policy in the U.S. Senate in 2010 was essentially collateral damage in a much larger political war.
It is possible that better economic times will reduce the pace – if not the direction – of political polarization.  It is also possible that the ongoing challenge of large budgetary deficits in many countries will increase the political feasibility of new sources of revenue.  When and if this happens, consumption taxes (as opposed to traditional taxes on income and investment) could receive heightened attention, and primary among these might be energy taxes, which can be significant climate policy instruments, depending upon their design.
That said, it is probably too soon to predict what the future will hold for the use of market-based policy instruments for climate change.  Perhaps the two decades we have experienced of relatively high receptivity in the United States, Europe, and other parts of the world to cap-and-trade and offset mechanisms will turn out to be no more than a relatively brief departure from a long-term trend of reliance on conventional means of regulation.  It is also possible, however, that the recent tarnishing of cap-and-trade in U.S. political dialogue will itself turn out to be a temporary departure from a long-term trend of increasing reliance on market-based environmental policy instruments.  It is much too soon to say.

[There's much more on this in the original post.]

"It Doesn’t Get Any More Immoral Than This"

Posted: 30 Oct 2011 09:36 AM PDT

Yesterday, Ross Douthat argued that "higher taxes on America's richest 1 percent" won't solve the problems with government. Thomas Friedman explains why that's wrong, and why a more equitable distribution of income is essential to stripping the ability of those at the top to control government:

Did You Hear the One About the Bankers?, by Thomas Friedman, Commentary, NY Times: Citigroup is lucky that Muammar el-Qaddafi was killed when he was. The Libyan leader's death diverted attention from a lethal article involving Citigroup... The news was that Citigroup had to pay a $285 million fine to settle a case in which, with one hand, Citibank sold a package of toxic mortgage-backed securities to unsuspecting customers — securities that it knew were likely to go bust — and, with the other hand, shorted the same securities — that is, bet millions of dollars that they would go bust.
It doesn't get any more immoral than this. ...
This gets to the core of why all the anti-Wall Street groups around the globe are resonating. I was in Tahrir Square in Cairo for the fall of Hosni Mubarak... When I talked to Egyptians, it was clear that what animated their protest, first and foremost, was ... a quest for "justice." Many Egyptians were convinced that they lived in a deeply unjust society where the game had been rigged by the Mubarak family and its crony capitalists. Egypt shows what happens when a country adopts free-market capitalism without developing real rule of law and institutions.
But, then, what happened to us? Our financial industry has grown so large and rich it has corrupted our real institutions through political donations. As Senator Richard Durbin, an Illinois Democrat, bluntly said in a 2009 radio interview, despite having caused this crisis, these same financial firms "are still the most powerful lobby on Capitol Hill. And they, frankly, own the place."
Our Congress today is a forum for legalized bribery. One consumer group using information from Opensecrets.org calculates that the financial services industry, including real estate, spent $2.3 billion on federal campaign contributions from 1990 to 2010, which was more than the health care, energy, defense, agriculture and transportation industries combined. Why are there 61 members on the House Committee on Financial Services? So many congressmen want to be in a position to sell votes to Wall Street. ...
U.S. congressmen should have to dress like Nascar drivers and wear the logos of all the banks, investment banks, insurance companies and real estate firms that they're taking money from. The public needs to know.
Capitalism and free markets are the best engines for generating growth and relieving poverty — provided they are balanced with meaningful transparency, regulation and oversight. We lost that balance in the last decade. If we don't get it back..., the cry for justice could turn ugly. ...

To what extent is fear of inflation, fear of deficits, and other fears holding up more government help for struggling, unemployed households the result of the powerful interests who control Congress standing in the way? My answer, as ought to be clear from recent columns (here, here, and here), is that the imbalance in political power that comes with such a large degree of inequality is a large factor in the government's tepid response to the unemployment crisis.

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