- Paul Krugman: Presidents and the Economy
- Links for 01-05-15
- 'Let This be the Year When We Put a Proper Price on Carbon'
- 'Who Bears Risk?'
Posted: 05 Jan 2015 12:24 AM PST
Can President Obama take credit for the improving economy?:
Presidents and the Economy, by Paul Krugman, Commentary, NY Times: Suddenly, or so it seems, the U.S. economy is looking better. ...
The improving economy is surely one factor in President Obama's rising approval rating. ... How much influence does ... the White House have on the economy,,,? The standard answer among economists ... is: not much. But is this time different?
To understand why economists usually downplay the economic role of presidents,... normally the Fed, not the White House, rules the economy. Should we apply the same rule to the Obama years?
For one thing, the Fed has had a hard time gaining traction ... because the aftermath of a huge housing and mortgage bubble has left private spending relatively unresponsive to interest rates. This time around, monetary policy really needed help from a temporary increase in government spending, which meant that the president could have made a big difference. And he did, for a while; politically, the Obama stimulus may have been a failure, but an overwhelming majority of economists believe that it helped mitigate the slump.
Since then, however, scorched-earth Republican opposition has more than reversed that initial effort. In fact, federal spending adjusted for inflation and population growth is lower now than it was when Mr. Obama took office...
There is, however, another sense in which Mr. Obama has arguably made a big difference. The Fed has had a hard time getting traction, but it has at least made an effort to boost the economy — and it has done so despite ferocious attacks from conservatives... Without Mr. Obama to shield its independence, the Fed might well have been bullied into raising interest rates, which would have been disastrous. So the president has indirectly aided the economy by helping to fend off the hard-money mob.
Last but not least,... the fact is his opponents have spent years claiming that his bad attitude — he has been known to suggest ... that some bankers have behaved badly — is somehow responsible for the economy's weakness. Now that he's presiding over unexpected economic strength, they can't just turn around and assert his irrelevance.
So is the president responsible for the accelerating recovery? No. Can we nonetheless say that we're doing better than we would be if the other party held the White House? Yes. Do those who were blaming Mr. Obama for all our economic ills now look like knaves and fools? Yes, they do. And that's because they are.
Posted: 05 Jan 2015 12:06 AM PST
Posted: 04 Jan 2015 09:42 AM PST
Let this be the year when we put a proper price on carbon: The case for carbon taxes has long been compelling. With the recent steep fall in oil prices and associated declines in other energy prices it is overwhelming. There is room for debate about the size of the tax and about how the proceeds should be deployed. But there should be no doubt that starting from the current zero tax rate on carbon, increased taxation would be desirable.
The core of the case for taxation is the recognition that those who use carbon-based fuels or products do not bear all the costs of their actions. ...
Progressives who are concerned about climate change should rally to a carbon tax as the most important step for mobilising against it. Conservatives who believe in the power of markets should favour carbon taxes on market principles. .... Now is the time.
Posted: 04 Jan 2015 09:42 AM PST
Who bears risk?: There's one aspect of the collapse of City Link that deserves more attention than it gets - that it undermines the conventional idea that firms' owners are risk-takers.
Better Capital's stake in the firm took the firm of a secured loan, which means they'll get first dibs on its residual value. Thanks to this, Jon Moulton, Better Capital's manager claims to stand to lose only £2m - which is a tiny fraction of his £170m wealth.
By contrast, many of City Link's drivers had to supply capital to the firm in the form of paying for uniforms and van livery, and are unsecured creditors who might not get back what they are owed. Many thus face a bigger loss as a share of their wealth than Mr Moulton. In this sense, it is workers rather than capitalists who are risk-takers. This point is not, of course, specific to City Link. ...
There are two implications of all this. First, it means that the idea that capitalists are brave entrepreneurs who deserve big rewards for taking risk is just rubbish. ... Secondly, it suggests that ownership might in some cases lie in the wrong hands. ... This is yet another case for worker ownership.
This in turn reminds us of a cost of inequality; sometimes, ownership is in the wrong hands simply because the most efficient owners can't afford to buy the firm.
All this poses the question: are there policy measures, other than worker ownership, which could ensure a more equitable bearing of risk? One answer would be policies to achieve serious full employment. Full employment would allow workers to reject job offers which expose them to excessive risk....
Secondly, we need a more redistributive welfare state. The welfare state is not a scheme whereby "we" pay for "scroungers". It is instead an insurance mechanism. It is a means of pooling human capital risk... The fact that many workers suffer a massive drop in income when they lose their jobs suggests the welfare state isn't providing enough insurance.
Of course, all these ways of improving risk-bearing fall outside the Overton window.
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