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November 28, 2012

Latest Posts from Economist's View


Latest Posts from Economist's View


How will the Election Change the Fed?

Posted: 02 Nov 2012 03:48 AM PDT

I have some comments on how the election might change the leadership at the Federal Reserve and the impact it might have on monetary policy:

How will the election change the Fed?

Perhaps not as much as people think even if Romney is elected, but who leads the Fed -- which depends upon who wins the election -- still matters quite a bit.

Paul Krugman: The Blackmail Caucus

Posted: 02 Nov 2012 12:33 AM PDT

Don't give in to "protection-racket politics":

The Blackmail Caucus, by Paul Krugman, Commentary, NY Times: If President Obama is re-elected, health care coverage will expand dramatically, taxes on the wealthy will go up and Wall Street will face tougher regulation. If Mitt Romney wins instead, health coverage will shrink substantially, taxes on the wealthy will fall to levels not seen in 80 years and financial regulation will be rolled back.
Given the starkness of this difference, you might have expected to see people from both sides of the political divide urging voters to cast their ballots based on the issues. Lately, however, I've seen a growing number of Romney supporters making a quite different argument. Vote for Mr. Romney, they say, because if he loses, Republicans will destroy the economy.
O.K., they don't quite put it that way. The argument is phrased in terms of "partisan gridlock," as if both parties were equally extreme. But they aren't. This is, in reality, all about appeasing the hard men of the Republican Party. ...
The starting point for many "vote for Romney or else" statements is the notion that a re-elected President Obama wouldn't be able to accomplish anything in his second term. What this misses is the fact that he has already accomplished a great deal, in the form of health reform and financial reform — reforms that will go into effect if, and only if, he is re-elected. ...
So we shouldn't worry about the ability of a re-elected Obama to get things done. On the other hand, it's reasonable to worry that Republicans will do their best to make America ungovernable during a second Obama term. After all, they have been doing that ever since Mr. Obama took office. ...
Would a Democratic Senate offer equally extreme opposition to a President Romney? No, it wouldn't. So, yes, there is a case that "partisan gridlock" would be less damaging if Mr. Romney won.
But are we ready to become a country in which "Nice country you got here. Shame if something were to happen to it" becomes a winning political argument? I hope not. By all means, vote for Mr. Romney if you think he offers the better policies. But arguing for Mr. Romney on the grounds that he could get things done veers dangerously close to accepting protection-racket politics, which have no place in American life.

'America’s Opportunity Gap'

Posted: 02 Nov 2012 12:24 AM PDT

A few passages from an article by Lane Kenworthy on the inequality of opportunity, and what we might do about it:

America's opportunity gap, by Lane Kenworthy: ... For all the differences between Democrats and Republicans that were laid bare during the 2012 U.S. presidential campaign, the parties' standard-bearers, Barack Obama and Mitt Romney, do seem to have agreed on one thing: the importance of equal opportunity. ... It is no accident that both campaigns chose to emphasize equality of opportunity. It has long been at the center of the American ethos. ...
...there is general consensus among social scientists on a few basic points. First, an American born into a family in the bottom fifth of incomes between the mid-1960s and the mid-1980s has roughly a 30 percent chance of reaching the middle fifth or higher in adulthood, whereas an American born into the top fifth has an 80 percent chance of ending up in the middle fifth or higher. (In a society with perfectly equal opportunity, every person would have the same chance...) This discrepancy means that there is considerable inequality of opportunity among Americans from different family backgrounds.
Second, inequality of opportunity has increased in recent decades. ... Third, in a sharp reversal of historical trends, there is now less equality of opportunity in the United States than in most other wealthy democratic nations. ...
So how did the United States get here? Why did it falter where other nations have not? And how can it fix the problem? On the right, a standard proposal is to strengthen families. On the left, a recent favorite is to reduce income inequality. And everyone supports improving education. To know which proposals would work best, it helps to understand the roots of the new opportunity gap. ...

Links for 11-02-2012

Posted: 02 Nov 2012 12:06 AM PDT

'A Better Poll Question: Who Do You Think Will Win?'

Posted: 01 Nov 2012 01:21 PM PDT

A quick one --mostly just a link and the intro -- before rushing off to teach first year Ph.D. core macro (today's technical skill: signal extraction combined with expectational difference equations illustrated with a stylized version of the Lucas Island Model). This is about new research by Justin Wolfers and David Rothschild on predicting election outcomes:

A Better Poll Question: Who Do You Think Will Win?, by David Leonhardt, NY Times: In the tight 2004 campaign, the polls that asked Americans which candidate they supported — all the way up to the exit polls — told a confusing story about whether President George W. Bush or Senator John Kerry would win.
But another kind of polling question, which received far less attention, produced a clearer result: Regardless of whom they supported, which candidate did people expect to win? Americans consistently, and correctly, said that they thought Mr. Bush would.
A version of that question has produced similarly telling results throughout much of modern polling history, according to a new academic study. Over the last 60 years, poll questions that asked people which candidate they expected to win have been a better guide to the outcome of the presidential race than questions asking people whom they planned to vote for...
Asking about expectations, said Justin Wolfers, one of the study's authors, "is fundamentally about treating poll respondents with respect." ...

'Why Should Government Respond Differently to Natural vs. Economic Disasters?'

Posted: 01 Nov 2012 10:27 AM PDT

Speaking of (the lack of) fiscal policy to address problems like long-term unemployment:

Why Should Government Respond Differently to Natural vs. Economic Disasters?, by David Callahan, American Prospect: ...Natural disasters are often highpoint moments for the public sector, reminding us of the power of common institutions that allow citizens to help each other in times of need. The residents, say, of sunny Los Angeles needn't do anything special at this moment, because they have already been doing something—helping fund FEMA with their tax dollars so that it has the capacity to respond...
But here's a question: If most of us take for granted that we should be there for our fellow citizens during natural disasters, using the tool of government, why is it so controversial that we should also lend a helping hand during man-made economic disasters? Why are unemployment benefits under attack in numerous states, even as millions remain jobless through no fault of their own? Why is an idea as obvious as a direct government jobs program off the table in Washington?
The answer is no great mystery: Critics of a government safety net tend to think that individuals will solve their own economic problems...
Even if you believe that individual willpower matters a lot, as I do, it's naive to imagine that individuals can do much in the face of large-scale economic downturns driven by structural factors that are national  and even global in scope. ... Meanwhile, charity will simply never have enough resources to provide a decent safety net...
In the wake of Hurricane Sandy, you won't hear public officials ... saying that devastated towns should pull themselves up by their bootstraps. No one thinks that government should walk away with the recovery job only half done.
Likewise, we should never walk away from the victims of man-made economic disasters when they are still suffering acutely. Yet that is what existing public policy is doing right now. ...

'Little Federal Help for the Long-Term Unemployed'

Posted: 01 Nov 2012 09:44 AM PDT

Fiscal policymakers have dropped the ball on job creation, and it could turn out to be a costly error:

Little Federal Help for the Long-Term Unemployed, by Annie Lowrey and Catherine Rampell, NY Times: In the economy-focused presidential campaign, the two candidates and their teams have scarcely mentioned what economists describe as not just one of the labor market's most pressing problems, but the entire country's: long-term unemployment.
Nearly five million Americans out of work for more than six months are left to wonder what kind of help might be coming, as the Federal Reserve, the International Monetary Fund and a bipartisan swath of policy experts implore Washington to act — both to alleviate human misery and to ensure the strength of the economy. ...
On the agenda for the next Congress and the next president is ensuring that the unusually long spells of unemployment now afflicting jobless workers remain a temporary setback of the recession.
Economists warned that long-term unemployment could be transformed in the next few years into structural unemployment, meaning that the problem is not just too few jobs and too many job seekers, but a large group of workers who no longer match employers' needs or are no longer considered employable. ...
In Washington, many politicians support measures for the long-term unemployed; few demand them...

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