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September 13, 2012

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A Poor Argument for Poverty

Posted: 09 Sep 2012 12:24 AM PDT

Jared Bernstein:

International Poverty Comparisons: What Do They Tell Us about Causes?, by Jared Bernstein: I'm thinking about the causes of poverty for an upcoming debate and in that context I often reflect on this chart.

Poverty
Source: OECD, *Poverty thresholds: 50% of median income.

The American debate on the causes of poverty places significant weight on the behavior of the poor, behavior that's juiced up—in a bad way—by safety net programs. For example, the argument goes, anti-poverty programs that provide cash or nutritional (near-cash) benefits to poor peeps leads them to work less and thus leads to higher poverty rates than would otherwise prevail.
I deal with the work disincentive claim in great detail here—not much to it (as usual, pure supply-side explanations don't explain much). Relatedly, there's the set of cultural critiques associated with Charles Murray, e.g., the poor aren't industrious enough, they lack the middle-class aspirations, and so on.
I think the international evidence is instructive in this regard.
The figure shows pre-transfer and post-transfer poverty rates among OECD countries (mostly the advanced economies). The former (pre-transfer) are the market-driven poverty rates, before the tax and transfer systems kick in.
Though there is variation across countries on the pre-transfer, or market poverty rates, they're fairly close, and their average, excluding the US, happens to be the same as ours. After the tax and transfer system kicks in, however, the US has the highest poverty rate of all the countries in the sample. Our post-transfer poverty rate is 1.7 times that of the non-US average (17.1%/9.8%).
Now, there are ... many different models for dealing with poverty... But they all generate roughly similar shares of [pre-transfer] market poverty. That suggests that what determines poverty differences across countries may not have much to do with the poor themselves or the disincentive effects of the safety net. And what determines the post-tax and transfer rates are of course, the taxes and transfers.
Obviously, poverty is a complex and multifaceted phenomenon. And no question, people engage in behaviors that contribute to their poverty. But simplistic explanations that largely implicate the poor themselves are woefully incomplete. ...

Manufacturers' New Orders for Nondefense Capital Goods Excluding Aircraft

Posted: 09 Sep 2012 12:18 AM PDT

Cap-goods

Links for 09-09-2012

Posted: 09 Sep 2012 12:06 AM PDT

Romer: We Need 'Compassionate Deficit Reduction'

Posted: 08 Sep 2012 12:47 PM PDT

Christina Romer:

Cutting the Deficit, With Compassion, by Christina Romer, Commentary, NY Times: Aside from the empty chair that Clint Eastwood debated, the main prop at the Republican convention was a debt clock, highlighting the federal deficit and the growing national debt. The importance of dealing with the deficit will clearly be a major Republican theme this fall. So far, Democrats have mostly been playing defense on this issue by criticizing the Romney-Ryan approach. It's time for them to go on offense by putting their own plan front and center.
Thanks to former President George W. Bush — remember the compassionate conservative? — I have a good name for the fundamental principle that should guide the Democratic alternative: compassionate deficit reduction. The essence is to cut the deficit in a way that does as little harm as possible to people, jobs and economic opportunity. ...
Why is this the compassionate approach? Because immediate, extreme austerity would plunge us back into recession. ... [gives details of "compassionate" plan] ...
Honest talk about the deficit is risky. Voters are more enthusiastic about the abstract notion of deficit reduction than about the painful details of accomplishing it. But deficit reduction is coming, and this election will most likely determine how it's done. Democrats owe it to the American people to detail their more compassionate approach so that voters can make an informed choice.

Nothing More Than Feelings...

Posted: 08 Sep 2012 12:09 PM PDT

From a review of Bob Woodward's new book at the Washington Post:  

...The mystery of who blew the grand bargain — Obama says Boehner did it, by caving in to his caucus; Boehner blames Obama, for insisting on more tax revenue — matters less than what the whole abasing episode tells us about the state of self-government in the United States. To the extent that Woodward broaches this, he does it through the prism of personality. In the book's final few pages, he places a pox on both houses, Obama's and Boehner's, for failing to "transcend their fixed partisan convictions and dogmas." He chides Boehner for failing to win the loyalty or respect of House Republicans or even just to rein in his first lieutenant. "He could have called Eric Cantor in and had the conversation of a lifetime," pressing the majority leader to fall in line, Woodward suggests.
But Woodward reserves his most damning indictment for Obama, whom he sees as well meaning but often stumbling, and cocky and remote — a cold fish with a high hand who needlessly alienates potential "friends." Woodward recounts that in early 2009, after every last House Republican voted against the administration's stimulus package, Cantor told Emanuel that "you really could have gotten some of our support"— if it weren't for the president's "arrogance."Woodward seems to take this claim at face value, along with similarly self-serving statements by Rep. Paul Ryan and others. They inform Woodward's final, blistering judgment. Yes, he acknowledges, Obama inherited a "faltering economy and faced a recalcitrant Republican opposition. But presidents," he says, "work their will — or should work their will — on the important matters of national business." Ronald Reagan and Bill Clinton largely did, he concludes. "Obama has not."
It is hard to argue with this, but it is important to understand why. Obama, to be sure, has made missteps and misjudgments. He has placed too much trust in the power of reason and too little value on the power of personal relationships. He has often succeeded despite all that. But his failure to consistently work his will on Congress surely has less to do with his individual failings, as Woodward suggests, than with larger forces, chief among them the radicalization of the GOP — a party that actually seems to believe its depiction of a moderate, pragmatic president as some kind of wild-eyed collectivist, a party whose members, in their loathing for government, were willing to risk, in some cases to welcome, the economic armageddon of a debt default as an opportunity, a catharsis, a shock to the body politic. In Woodward's book, "the caucus" and the tea party are little more than bit players, but for Obama — and no less for Boehner — their rigidity is the central, unalterable fact of political life. The manufactured crisis over the debt ceiling was their proud creation, and their zealotry has extended it right to the edge of the cliff. Congress is one thing — how does a man work his will on a crusade?

It's important to view Woodward's statements through a "Very Serious" lens that assumes a particular kind of grand bargain -- one that is tough on social programs for one thing -- is highly desirable. His idea of good and bad outcomes - e.g. whether standing up for certain principles in a negotiation is honorable or obstructionist - must be seen in this light.

As for Republicans blaming the troubles on Obama's "arrogance," that's just silly. I know Republicans like Boehner and Cantor are perfect in every way, no reason for Obama to have any problems with them (despite the fact that, according to Woodward they were very childish during the negotiations, "throughout the talks, Boehner and Cantor undercut each other, their animosity so obvious that a White House staffer 'felt awkward being in the same room with the two of them,'" and despite other behavior such as "Boehner screens Obama's calls and shuns his requests to come back to the White House for yet another meeting. Obama is left to complain — publicly — that 'I've been left at the altar.'"). Sounds to me like there's an argument for personality issues on the Republican side -- some of it within the Party -- that's at least as strong as the silliness about "arrogance."

But really, what is it with Republicans and their hurt feelings? They tell us that the CEOs of major corporations stopped investing, stopped maximizing profit for their investors because the president hasn't honored them enough. They'll show him! -- all the while losing money for their investors? Republicans complain endlessly about the debt, it was a theme of their convention, but given a chance to do something about it they walk away because the president didn't treat them exactly as they expected and demanded? Apparently, their feelings got in the way. They show no respect to the president whatsoever -- quite the opposite -- and then break off negotiations they believe are crucial to the future of the country because he didn't show them the respect they think they deserve? Cry me a river (well, everyone but Boehner).

A 'Complete Straw Man Mischaracterization of Keynesian Views'

Posted: 08 Sep 2012 08:56 AM PDT

I'm getting tired of Jeff Sachs acting like he is the only one telling the truth about the economy, the problems are all structural we are told despite considerable evidence to the contrary, and -- surprise!!! -- his "truthtelling" somehow leads him to advocate the same pet projects he's been pushing for years.

Krugman covered this in July:

Brad DeLong is baffled by Jeff Sachs, and so am I. Sachs is opposed to fiscal stimulus; I get that. But his argument is a series of non sequiturs. Unfortunately, those same non sequiturs play a fairly significant role in policy debate.
Leave aside the complete straw man mischaracterization of Keynesian views. As far as I can tell, the Sachs-and-others argument comes down to the claim that we must not seek to remedy a shortfall in demand because the economy has long-term structural problems. What sense can this possibly make?
Consider the extended version of the "magneto trouble" metaphor I use in my recent book. Keynes argued that the Great Depression could be thought of as a failure in the car's electrical system; so let's think of it as a situation where your car won't run because it has a dead battery — that is, you could get it running again with a fairly trivial and easy intervention: just buy a new battery, which costs only a tiny fraction of the expense of a new car.
In saying this I am not denying that there may be other problems with the car, perhaps even big ones. Maybe it needs new brakes, or a new transmission, and these had better be dealt with soon.
Still, what sense can it possibly make to say that therefore you shouldn't start by replacing that dead battery?
I really don't get it.

I think "getting it" starts with Sachs adopting a view of the world that supports the types of projects and initiatives he's been pushing for years, and the fact that standard Keynesian policy and the deficit spending that comes with it makes it much harder for those projects to be realized. [Never waste a crisis, etc.] I'll also note he is, in essence, calling for infrastructure projects which is precisely what many of us in the Keynesian camp have been calling for as well. So unless it's becasue we haven't spefically named the projects he supports, it's not even clear there's a big disagreement here.

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