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August 30, 2012

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Latest Posts from Economist's View

Central Planning in the Bronze Age

Posted: 30 Aug 2012 01:11 AM PDT

To what extent did ancient economies rely upon central planning?:

Comment and Discussion on Central Planning in the Bronze Age, by Daron Acemoglu and James Robinson: In our earlier post, we suggest that the economic organization of Greek Bronze Age civilizations had many elements similar with what we today identify as central planning — centralized control of the economy for extraction and redistribution of resources.

William Parkinson and Gary Feinman from the The Field Museum in Chicago have sent this comment pointing to some recent, more nuanced interpretations. Here is their comment:

The study of ancient economies is evolving, bolstered by years of painstaking data collection by archaeologists and their collaborators. ... We agree that more-or-less centralized economic and political systems certainly existed in the past, many early states, which in the past were described as centralized, redistributive, economies, now are understood based on new empirical underpinnings to have been much more dynamic systems with characteristics of decentralized economies and even vibrant markets. ...

In the case of the Aegean Late Bronze Age, for example, Mycenaean palaces were initially characterized as ... powerful redistributive centers whose primary role was to extract labor and materials from the hinterland, and to support production and distribution of ... specialized craft products.

Over the last decade the roles and relationships of Mycenaean palaces have been redefined significantly. Rather than being portrayed as centralized rulers that controlled nearly every aspect of the political economy, the Mycenaean palatial elite now are understood to have been very savvy statesmen who managed to gain some limited political benefits by directing very specific aspects of the palatial economy. This revisionist perspective depicts Mycenaean palaces not as omnipotent, highly centralized, redistributive centers, but as cogs in more delicate, networked, sociopolitical systems that were dependent on economic activities that they could not completely control.

Models of ancient Near Eastern temple economies, which previously also were described as centralized, redistributive, centers, have undergone similar modifications. Across the ocean, later prehispanic Mesoamerican economies are now seen as having been characterized by active market systems with flexible economic valuations, and broadly accepted currencies, albeit not coinage. Earlier theoretical perspectives that reflexively applied the centralized and command economy model to this region have largely been rejected as increasing bodies of evidence have revealed that most productive activities for exchange were implemented in domestic contexts and so would have been near impossible to control centrally.

Gary Feinman and William Parkinson certainly know more about this literature than we do. ... Nevertheless, it is important to distinguish between absolute control of the governing institutions ... and central planning itself. Central planning involves the suppression of markets and price systems for the governing institutions and elites to better extract resources and politically and economically control society. The fact that the palace elites were "cogs in more delicate, networked, sociopolitical systems that were dependent on economic activities that they could not completely control" does not imply that there was no central planning. ...

So though the literature is evolving and though the control of the elite was certainly not absolute, the economic organization of Bronze Age Greek civilizations still appears to have many many parallels with central planning.

The Base of Mount Sharp

Posted: 30 Aug 2012 12:15 AM PDT

Links for 08-30-2012

Posted: 30 Aug 2012 12:06 AM PDT

'It Is Mathematically Impossible for Romney to Keep His Tax-Policy Promises'

Posted: 29 Aug 2012 03:05 PM PDT

Greg Mankiw points to Matin Feldstein: Marty runs some numbers.

Brad DeLong checks the math. Oops:

Martin Feldstein Accidently Proves Either (i) 152 > 186 or (ii) It Is Mathematically Impossible for Romney to Keep His Tax-Policy Promises: The fact that he sought to prove otherwise and wound up confirming the Tax Policy Center's conclusions purely by accident gives me additional confidence that the TPC knows what it is doing. ...

More here.

RomneyRyanomics: A Bad Deal for the Working Class:

Posted: 29 Aug 2012 10:16 AM PDT

This is a column I wrote just after Paul Ryan was chosen as Romney's running mate (see also yesterday's column: Republicans: "We Won't Build That"):

RomneyRyanomics: A Bad Deal for the Working Class: Mitt Romney's choice of Paul Ryan as his running mate makes it abundantly clear that the upcoming presidential election presents a choice between two very different views on the role of government in the economy. Republicans believe that smaller, less intrusive government and the reduced tax burden that smaller government allows, particularly for the wealthy, and are the keys to robust economic growth.

Democrats do not share the Republican vision of a smaller government, and they are particularly opposed to cuts to social insurance programs such as Medicare and Social Security that are generally at the forefront of Republican proposals to reduce the size of government. Democrats want to preserve existing social insurance programs and perhaps even expand them in this era of increasing uncertainty. They also want to make sure that everyone – including the wealthy – pays an equitable share of the taxes required to support the government programs that we provide.

The debate on this topic should be welcomed. We need to figure out how much government we desire as a nation, and how to pay for it. But the debate must be based upon facts. The discussion should not be driven by politicians hoping to satisfy ideological desires through misinformation, false promises, and misplaced blame for our economic problems. Unfortunately, that's a pretty good description of how the debate on this topic has gone so far during the presidential campaign, particularly what we've heard from Romney, Ryan, and other politicians on the political right.

In order to support their call for reduced spending on government programs and lower taxes on the wealthy, Romney and Ryan want you to believe that our budget problems were caused by out of control spending on social programs, programs favored by Obama and other Democrats. They also want you to believe that our economic problems stem largely from a government sector that is too large and too involved in private sector affairs. According to this perspective, the solution to all of our problems is to cut incentive killing taxes, particularly for the wealthy, to cut social programs that undermine the desire to work and save, and to leave as much as possible – including whatever remnants of Social Security and Medicare remain after the cuts they'd like to impose – to the private sector.

But the Romney-Ryan narrative about out of control spending, an over-zealous government, and growth inhibiting taxes isn't accurate. First, our present budget problems are primarily the result of the Bush tax cuts, the recession, and the wars in Iraq and Afghanistan. As the CBPP points out, "Without the economic downturn and the fiscal policies of the previous Administration, the budget would be roughly in balance over the next decade." It wasn't out of control spending by Democrats or the policies enacted by Obama that created our current deficit problem, it was the decision by Bush and other Republicans to cut taxes and engage in wars.

Second, the deficit was also caused by the recession, but here again blame is misplaced. The recession wasn't caused by over-zealous government policy as Republicans charge. It was an out of control private sector – the decisions of financial executives who made mountains of money as they crashed the economy – that caused our problems.  

Third, Romney, Ryan, and other Republicans also argue that a key part of the solution to our troubles is to cut taxes for the wealthy, but there's very little evidence that tax cuts for the wealthy spur economic growth. The economy's performance after the Bush tax cuts, for example, does not support this contention.

And that's not the only problem with Romney's plan. An analysis by the non-partisan Tax Policy Center shows that Romney's numbers can't work unless there are large cuts to social programs the middle class relies upon, and regressive middle class tax increases. For reasons that are easy to guess, Republicans are doing their best to hide this from voters. For example, Mitt Romney won't specify the spending cuts and middle class tax increases that will be needed in order to make his budget work. In fact, Romney insists – laughably according to every honest analyst that examines his plan – that he can balance the books by closing tax loopholes. But no matter how much Republicans try to avoid admitting it, large costs to middle class households cannot be avoided under the Romney plan.

When all of the misleading arguments are set aside, Romney's economic proposal comes down to a simple tradeoff, less social insurance and other government programs for the working class, perhaps higher taxes as well, and more tax cuts for the wealthy.  Perhaps that's a tradeoff America wants to make, perhaps not – I suspect not. But whatever the choice, people should be fully informed about the decision they are making. Unfortunately, as is all too clear from their misinformation campaign, an informed electorate is not something that Romney, Ryan, and other Republicans have an interest in promoting.

'Changing Views of Globalization’s Impact'

Posted: 29 Aug 2012 08:34 AM PDT

Edward Alden of the Council on Foreign Relations:

Changing Views of Globalization's Impact, by Edward Allen, Commentary, NY Times: ...For decades, economists resisted the conclusion that trade – for all of its many benefits — has also played a significant role in job loss and the stagnation of middle-class incomes in the United States. ...
Rather than focusing on trade, economists argued that other factors – especially "skill-biased technical change," technological innovation that puts an added premium on skilled workers – played the biggest role in holding down middle-class wages. But now economists are beginning to change their minds. Responding to The Times's recent survey about the causes of income stagnation, many top economists have cited globalization as a leading cause.
While the evidence is still not conclusive, it is pretty strong. Trade's effect on jobs and income, which was probably modest through the 1990's, now seems to be growing much larger. [list and discussion of recent studies]...
The usual rebuttal to these findings is to argue that they stem mostly from manufacturing. And manufacturing, the argument goes, is facing a long-run, secular decline in employment that is largely technology-driven, not unlike the story of agriculture in the 20th century. The job losses in manufacturing may seem as if they have been caused by trade,... but they have actually been caused by technological change.
Through the 1990s, that story was largely plausible. But over the last decade it is not. ... There is no question that over the last decade United States manufacturing has declined, taking away jobs and driving down wages for those who are still employed. Robert Atkinson and colleagues have a useful paper on this topic, showing that the loss of more than five million jobs in manufacturing in a decade was not primarily a technology and productivity story.
The real-world evidence makes it surprising that it has taken economists so long to catch on...
I've expressed pro-trade views in the past, and I still have them. But it's not enough to say, as we do, that the gains from trade are such that (under fairly general conditions) we can make everyone better off and no one worse off. If the actual result is that all the gains go to the top of the income distribution, and all the costs go to the working class -- if the distribution of the gains results in a large class of losers -- then it is much harder to defend. We must find a way to ensure that trade realizes the promise of "lifting all boats" instead of just the yachts.

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