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October 18, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Rogoff: King Ludd is Still Dead

Posted: 02 Oct 2012 01:00 AM PDT

Kenneth Rogoff:

King Ludd is Still Dead, by Kenneth Rogoff, Commentary, Project Syndicate: Since the dawn of the industrial age, a recurrent fear has been that technological change will spawn mass unemployment. Neoclassical economists predicted that this would not happen, because people would find other jobs, albeit possibly after a long period of painful adjustment. By and large, that prediction has proven to be correct.
Two hundred years of breathtaking innovation since the dawn of the industrial age have produced rising living standards for ordinary people in much of the world, with no sharply rising trend for unemployment. Yes, there have been many problems, notably bouts of staggering inequality and increasingly horrific wars. On balance, however, throughout much of the world, people live longer, work much fewer hours, and lead generally healthier lives.
But there is no denying that technological change nowadays has accelerated, potentially leading to deeper and more profound dislocations. In a much-cited 1983 article, the great economist Wassily Leontief worried that the pace of modern technological change is so rapid that many workers, unable to adjust, will simply become obsolete, like horses after the rise of the automobile. Are millions of workers headed for the glue factory? ...

The Impossible Math behind the Romney-Ryan Tax Plan

Posted: 02 Oct 2012 01:00 AM PDT

Nice to see this report from Catherine Rampell:

The Math on the Romney-Ryan Tax Plan, NY Times: On Fox News Sunday, Paul Ryan said that he didn't have time to explain the math behind his tax proposal. Fortunately I have a few minutes to spare, so I thought I'd pitch in. ...
There's a reason why it would take too long -- infinitely long, you could say -- to go through the math that holds this policy proposal together: because math will never hold this particular policy proposal together.
You cannot lower tax rates as much as Mr. Romney and Mr. Ryan propose to do and keep all the existing tax expenditures for middle class Americans and still end up with the same total amount of tax revenue. ... The taxes for this group, ... "middle income," would have to go up. ...

'We Need ... More Sensible Republican Voices'

Posted: 02 Oct 2012 12:24 AM PDT

A few thoughts:

I started this blog a few months after George Bush was reelected (March 6, 2005). There was more than one motivation behind the choice to start a blog, but a key factor was the way in which liberal/progressive ideas were presented in the media prior to the election, particularly on television. The presentation of economic issues was abysmal, and the people the news shows chose to invite onto their programs were far to the left of what I thought of as the typical Democrat. More importantly, the people representing Democrats on news and talk shows were unable to articulate the economic reasoning behind many of the Democrat's proposals and ideas. When Social Security was targeted as a socialist redistribution scheme, for example, and George Bush pushed privatization, the people speaking for Democrats were unable to explain Social Security's role as social insurance rather than a purely redistributive scheme, and they were unable to articulate the market failures that underlie the need for the government to take an active role in these markets.

For one, as an economist, I wanted people to know that Democrats are not opposed to markets. The vast majority of us are not a bunch of socialists waiting for our chance to overthrow the system. In fact, at least from my perspective, we wanted to fix the market failures so that markets actually work in the best interests of society as a whole, not just the privileged few. We were trying to make the system work better through institutional and regulatory reform that improves markets, to come as close as we can to the ideal markets in our textbooks, not overthrow the capitalist system.

But that, and other messages such as the economic underpinnings of social insurance never got through. The people chosen by the networks to be the spokespeople for the Democratic Party were, I thought, generally far to the left -- extremists if you will -- who didn't represent what I believed at all. I can remember watching CNN one day before the election and thinking that if I was an independent voter presented with this description of what the Democratic Party stands for, I'd be wary about signing on. It was really frustrating irritating to see this happening, and I can also remember writing Brad DeLong and Paul Krugman and telling him how jealous I was that they had a way to make their voices heard.

My response – my attempt to add my voice however small it might be – was to write several letter to the editor to the local paper. When that wasn't enough I wrote three op-eds, then one day I started a blog. Somebody had to take the initiative, I thought, and if everyone free rides waiting for others to do it, it won't happen. (To give you an idea of the scale of my expectations for this blog, I initially hosted all the external content – graphs, etc. – on my desktop internet server which maxed out at 10 simultaneous connections. The first time someone linked to me, it overwhelmed my PC and I had to scramble to move the content to a real server. I never expected that anyone would pay much attention to the blog, though I suppose I had hopes.)

My views have evolved since then. I'm not as much of a Clinton type deficit hawk as I was then, for example, I am somewhat more receptive to redistributive policies that go beyond correcting for the effects of market failures and unequal opportunity, and I have a lot more sympathy for the views of what I used to call extremists, especially with regard to the distorting influence of political power. When I started doing this, I was pretty naïve in many, many ways (and still am).

I suspect there are Republican economists who are having much the same reaction I had eight years ago. How, they must be wondering, did the Tea Party come to represent the Republican Party? Why do news organizations choose to only interview the extremists and ignore the more moderate, reasonable voices that actually represent our views? I thought the news media was biased in its choices back then and I can understand how Republicans must think that today. Those damn producers are choosing the loudest, most entertaining of the lot I'd tell myself, and those choices are distorting the Democratic Party's views! (This was in addition to other biases I could see, e.g. reporting about Bush.) The only solution, as far as I could tell anyway, was for people with different views to do everything in their power to be heard.

I hope there are Republican economists (and others within the Republican Party) having the same reaction I had. The push to extremism is even more pronounced in the Republican Party, and it's far more mainstream relative to what I (at least thought) I faced. I wish these voices on the right had spoken up already, but it will probably take a loss to bring them to action. I know I couldn't understand how anyone could lose to Bush, to Bush!!!!???, and it took a loss to get me to become more active. So I can't blame the moderate voices on the right too much for not doing more to blunt the extreme voices that now dominate the Republican Party (though, again, the Republican extremism has been more extreme). For me, the loss was the motivation I needed. With the economy in the shape it's in, Republicans must be (and are) saying the same thing about Obama. How can anyone lose to him under these circumstances? If they lose – it's not assured yet by any means that they will – some of the more reasonable voices may blame the influence of the Tea Party and be motivated to try to change how the world sees a typical member of the Republican Party.

I hope they do, and that they are successful. We have a mixed economy and that is not going to change. Some parts are left to the private sector, at least for the most part, and in other areas there is a strong government presence. We need a healthy, robust debate about where the lines ought to be drawn between the public and private sectors, and how best to regulate the economy when the government does intervene. We also need debates on how to conduct countercyclical fiscal policy, something Republicans have always supported in the past in one form or another, more sensible Republican voices when it comes to monetary policy, and a discussion of social insurance that doesn't have one-side calling for its annihilation. There are all sorts of questions that call for a debate at the margins rather than posturing at polar extremes, and I would welcome a healthier discussion of these issues.

Links for 10-02-2012

Posted: 02 Oct 2012 12:06 AM PDT

'This is Not Structural, This is Cyclical'

Posted: 01 Oct 2012 01:11 PM PDT

Dear Stephen Roach (and Jeff Sachs, who has been similar things). Please listen to Antonio Fatás:

Cyclical Zombies: Stephen Roach argues in this article that the "current medicine being applied to America's economy" is wrong. The real disease is a "protracted balance-sheet recession that has turned a generation of America's consumers into zombies – the economic walking dead. Think Japan, and its corporate zombies of the 1990's. Just as they wrote the script for the first of Japan's lost decades, their counterparts are now doing the same for the US economy".

This is an argument that has been used before during the current crisis: we are trying to fix a structural problem with medicine that can only deal with cyclical misalignments. Using Roach's words: "Steeped in denial, the Federal Reserve is treating the disease as a cyclical problem – deploying the full force of monetary accommodation to compensate for what it believes to be a temporary shortfall in aggregate demand."

There is no doubt that asset bubbles and excessive optimism during the pre-crisis years are now reflected in weak balance sheets that will take time to fix and will represent a drag on growth. And this clearly is not a mere cyclical issue. But there is something else that is going on: advanced economies have gone through a deep recession and are still producing below potential. This is not structural, this is cyclical. And finding a solution to the structural problem in the middle of a recession is not easy. While households have to reduce spending to repair their balance sheets, doing so at the same time that income is below potential just becomes more painful. Monetary and fiscal policy cannot eliminate the effort that is associated with deleveraging but they need to ensure that this happens in the least painful way. And this requires producing a path for output and income in the short run that is as close as possible to the level of potential output. We can debate about what this level should be but it is hard to argue that given current economic conditions and high levels of unemployment we are close to potential.

'Corporate Welfare Queens'

Posted: 01 Oct 2012 11:48 AM PDT

This article is being retweeted quite a bit, so -- although it's in today's links -- it seems I probably should have done more to highlight it:

Corporate Welfare Queens, by James Surowiecki: Mitt Romney ... assails people on Medicaid and Social Security, and those who receive the earned-income tax credit, for being "dependent upon government"... Romney has had strikingly little to say about another prominent group that's "dependent upon government": the many American companies whose profits rely, in one form or another, on government assistance. ...
Corporate welfare isn't necessarily a bad thing. Some of these giveaways arguably do a lot of good. But companies that benefit from these policies are just as dependent on the government as the guy who gets the earned-income tax credit. And, when Romney concentrates his fire on the latter rather than on the former, it makes you wonder if his problem isn't with government assistance per se, but only with government assistance to poor and working people. Romney may say that he wants small government, but what he's pushing for is a government that's small when it comes to helping people and big when it comes to helping business. 
Republicans portray their objections to spending on social insurance as part of a more general objection to government involvement in the private sector. They're supposedly the anti-government party despite their willingness to use the heavy hand of government when it suits their purposes (e.g on social issues). But it seems to me their objection is really about who they see as the deserving and the undeserving. They beleive that corporations deserve the help they get, for the most part, while the members of 47%, for the most part, do not. To me, that's backwards.

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