Saturday, August 31, 2013

Obama's Novel Idea on the Syria Debate

     I haven't written much about this in part as I honestly don't know what the best course of action is. It seems to me that it's something of a catch 22-we're darned if we do and darned if we don't.

    I mean the U.S.-and Obama-will get killed if we don't intervene by the Right and others and the same will happen if we do intervene. I mean on the one hand what's happening to Syrian citizens during this bloody civil war is a travesty. Nevertheless is it for us to intervene unilaterally? Haven't we done too much of this already particularly in the Bush years?

    Of course, if we don't intervene many will criticize 'allowing' these atrocities to proceed-with the strong possibility that chemical weapons are being used on Syrian citizens. We've heard a lot about our credibility somehow being on the line if we don't  intervene-as Obama 'drew a line in the sand' and to not respond when this line has been crossed will embolden our enemies the world over and endanger us to further terrorist attacks.

   In addition, we get the usual politically  motivated attacks by GOPers that he has 'abdicated his responsibility' by not taking military action. International opinion too would probably criticize us whether we do or don't take action in Syria. With all this in view, the President perhaps has taken the optimum action, one that is actually rather inspired: he's done something that hasn't been done in years: called on Congress to debate this question and come to a decision.

  Ironically, even in response to Obama consulting Congress, we have a Republican like Peter King claiming Obama has abdicated his responsibility.

 During the Libyan intervention-undertaken as part of a NATO initiative, not unilaterally-many Republicans, and some on the Left, reproached Obama for not allowing Congress to debate it. Some Republicans-Rand Paul and Ted Cruz are giving Obama credit for seeking Congressional approval.

  So again, we see it's damned if he does and damned if he doesn't. With that in mind, this was perhaps the best action he could have taken-I have no doubt it was a good action and it may have been the best action. The question of whether to proceed without UN or NATO support was difficult as Russia was obstructing any hope of a collaborative effort. At least this way Congress will have its fingerprints on this as well. While the GOP and others in Congress will take potshots at Obama no matter whether we go through with this or not, they will not be able to evade their own responsibility this time whether the choice turns out to be the right one or not. This in itself makes Obama's move inspired. 

Hyperinflation: Sumner vs. Yglesias

     Sumner is again defending the QTM theory that the money supply is what controls the price level and therefore the inflation rate. 

      "Here’s Paul Krugman:

But in this more complex world, where even the definition of the money supply becomes highly dubious, why even talk about an LM curve? Well, before 2008 most macroeconomists didn’t! They talked instead about interest rate targets, Taylor rules, and all that. Mike Woodford, who is probably our leading macroeconomist’s macroeconomist, has even made one of his signature modeling tricks the building of models in which there is (almost) no outside money. Sensible macroeconomists have known for a long time that quantity-theory type models, if they were ever useful, aren’t much use in the modern economy.
In normal times central bank monetary policy is conducted in terms of, and best thought of in terms of, the target interest rate.

     "This is certainly the conventional view, but I think it’s wrong.  Let’s start with the fact that just as there are no atheists in a foxhole there are no non-monetarists during a hyperinflation.  When prices rise 8700% (almost) no one tries to explain the path of prices by referring to the path of interest rates. Even Wicksell and Keynes became quasi-monetarists during the early 1920s hyperinflations.  The reason is simple.  Interest rates tell us nothing about the level of prices and NGDP, whereas the base does.  Thus huge changes in the price level and NGDP can only be explained by looking at changes in the base."

   "[Matt Yglesias denies that money causes hyperinflation.  But all he's really saying is that the monetary deluge that causes hyperinflation has a REASON.  I.e. Latin American countries would choose to spend more than they received in taxes, and printed money to cover the deficit. "

    "Countries with identical deficits, but good access to credit markets, would not print money and would not have hyperinflation.  It's not the deficit, it's the money printing.  As an analogy, Matt's claim would be like asserting that fiscal stimulus did not boost employment in 1942, WWII did.]"

     Actually, Yglesias makes the point that Unlearning Econ made recently-hyperinflation is actually one very significant effect of political instability. He argues that there may be some truth in Friedman's claim that normal run of the mill is always a monetary phenomenon but that this is not the case of hyperinflation. This is caused by real problems-an unstable political system as we are now seeing due to Syria's civil war.

  Sumner tries to draw a distinction between a 'reason' for hyperinflation and a cause. However, the cause of hyperinflation is always the same-political instability destroys the real economy. What this is about is trying to establish QTM-by drawing the reductio absurdem argument that of course  extremely loose monetary policy causes hyperinflation and therefore surely it also drives lesser inflation. However, Yglesias argues the opposite-that it may drive lesser inflations but not hyperinflation. 

   P.S. I'll give kudos to Sumner however, for his post that served as a collage of Krugman posts he actually likes. His arguments with Krugman are at least a lot less shrill and petty than someone like Bob Murphy. Yes Scott, we have to say touche here:

     "So stop whining that I’m always picking on Krugman."

Federal Corporation Law Revisited and Henry Clayton Gives Us Great Moments in Democratic Party History

     Federal law remains the one that got away. The closet it got was the Littlefield bill of 1903 which passed unanimously in the House but died in the Senate; actually there were many attempts between 1901 and 1914 but this is where we got closet.

     In retrospect, this is may still be a disappointment as I think that we'd be much better served with one federal corporation law rather than 50 different states-it would be at least, I suspect, an improvement in terms of efficiency, for business as well, in terms of clarity, and many corporations did support federal law for just this reason. It could also do away with no small amount of rent seeking by different states trying to make their states more attractive than others for the corporations.

   The politics of federal incorporation were always complicated. You had progressives in both parties, but the GOP had by this time clearly become the part of big business. The Dems since their formation at the end of the 18th century-they remain the world's oldest party-always suffered from regional conflicts within the party. At that time you had the Southern Democrats who believed in 'states rights' along with the populist Western Democrats-a la William Jennings Bryan-and you had the Northern Democrats-who had compromised so much in the early years to the old slave holding South in exchange for party unity.

   However, the Dems supported federal incorporation in their platform. However, they had some mixed feelings about Littlefiled nonetheless as they felt the GOP was doing this mostly for politics-as the public was demanding something on 'the trusts', monopoly, and 'watered stock.'

   They were sort of loath to give Republicans political cover on something that many viewed as too weak anyway-as the Sherman Act passed during Republican Benjamin Harrison was widely seen. Henry Clayton-later he would be author of the groundbreaking Clayton Act-

   -and Congressman from Alabama, summed up well the feeling of the Democrats regarding Littlefiled:

     "Hereafter, when you discover the Darwinian theory, which is applicable in the case of mollusks and monkeys, make some application of it to the Republican party... That party has at last reached the monkey stage, where it has vertebrae and tail, and monkey-like imitates some of the good actions of the Democratic party." Mitchell, pg. 144

    You hear the phrase 'The days were men were men' and that was a time when Democrats were Democrats. Of course, they had lots of problems and weren't able to win the White House only a few times between the end of the Civil War and FDR. Still, I think Clayton's quote is a classic.

   As for federal incorporation it may well still be a great idea for the reasons discussed above-fat chance at getting anything done with this Congress

Friday, August 30, 2013

Crucified on a Cross of Gold: Sumner's Parallel Universe

     As I noted in my last post, Greg and Tom had some great discussions in the Diary of a Republican Hater comments section this week. One thing Greg mentioned was Sumner and his preference to focus on money as a MOA rather than MOE.  Greg pointed out the absurd numbers Sumner has used in past posts regarding the Quantity Theory of Money (QTM) and the price level:

     "But can you believe Sumner actually said this again?"

     "Once you pin down NGDP, then you figure out RGDP using real growth theories, and voila, you’ve got the price level. At this point you might be thinking; “you consider ’15 to 50 times the currency stock’ to be a precise scientific solution?” No, but it gets us in the ball park. It tells us why prices are not 100 times higher than they are, or 1000 times higher. BTW, prices in Japan are 100 times higher than in the US, and Korean prices are 1000 times higher. I don’t see how other theories can even get us into the right ball park."

     "Prices are a 100x higher in Japan? 1000x higher in Korea? Does he mean gas is about 300$ gallon in Japan and 3000$ a gallon in Korea? Clearly not because thats obviously false. Does he mean the cost of living is 100x more in Japan and 1000x more in Korea? I hope not cuz thats provably false too."

   "And when I pointed this out to him on one of his own posts abut a year ago, Nick Rowe chimed in and defended him!" 

   "I think this is why Scott is always saying that the most important function of money is as MOA."

    Greg then makes a very important comment:

     "If we can get some of the professional economists to hammer him on this and point out his stupidity, then we might be able to discredit monetarism as a serious school of thought once and for all. Trouble is you and I may be in the serious minority of people, everyone else may think Scott has a great point."

       This is why I think Krugman is so valuable. He has the clout in the mainstream world. Sumner and other conservatives may not like it but they can't deny his greatness. What he says carries a lot of weight. Now Krugman himself never goes all the way though he teases around the edges like his recent comment about being more skeptical of the entire Neoclassical Synthesis showing skepticism even of Samuleson and ISLM. His real value is though is he better than anyone has the analytical skills to really call people out. He usually prefers to ignore Sumner not giving him what he wants-publicity. Face it, as John Farmer clearly calculate, even getting criticized by Krugman on his column is the jackpot. 

    In a 'speak of the devil moment' Sumner has a new post about MOA vs. MOE.  You got to hand it to him- unreasonable, irrational workers are the problem:

      "I’ll start with a sticky wage model (which I prefer), but don’t worry the other examples will all be sticky prices.  We have a tropical country called “Barteria”, where the workers produce fruits and coconuts on large plantations.  They are paid in what they produce, and barter these goods for other fruits, so they can have a diverse diet.  However their wages are denominated in coconuts, and are “sticky” in coconut terms.  But they aren’t paid in coconuts!  Thus suppose they were all paid a wage equivalent to one coconut per hour, and their productivity is 1.2 fruit per hour.  To make the math easy, assume the market price of all types fruit is initially equal to one fruit per coconut.  Thus initially the equilibrium allows the owners to earn 0.2 fruit/worker/hour in profit, and everyone has a job.  Their contract specifies they be paid 8 coconuts worth of fruit per 8 hour day, which at initial prices means 8 fruit for an 8 hour day, and they trade fruit with each other in flexible price markets."

     "Then a coconut blight kills many of the coconuts, so coconut worker productivity falls in half.  The price of coconuts in terms of other fruits soars, and yet workers continue to insist on being paid (the equivalent of) one coconut per hour.  So if the price of bananas fell to 1/4 coconut, the workers would insist on being paid 4 bananas, so that they would be earning the one coconut that their contract specified.  Unemployment results, as they are just not that productive.  (Although liberals would accuse me of blaming the victim.)"

    "Think my example is far-fetched?  Think the workers would be happy getting their usual one fruit per hour?  Think again.  In 1930 the workers of the major industrial countries were paid in gold.  Not gold itself, rather their wages were denominated in terms of so much gold per hour, paid in some other medium.  Then in 1930 global gold hoarding caused the value of gold to soar.  The price of the commodities that workers buy fell in terms of gold.  You might think workers would say to their boss; “We understand that gold has become more valuable, and thus we don’t need as much to buy our usual purchases, so you can pay us an amount of MOE that buys less gold, as long as we can buy our usual goods.”  But the workers did not say that.  Why not? What’s the title of this blog? They said “We insist on being paid in gold, even though there isn’t enough gold in the world for full employment.  We don’t care that our gold wages will now buy more goods and services, we demand payment in gold.”  And keep in mind that many workers never owned a gold coin in their life.  They were poor.  Yet it remained a token with mystical powers to the workers, a sort of barbarous relic.  The workers crucified the owners on a cross of gold.  (Wow, I’m inventing some great metaphors phrases today!)"

      "BTW,  America’s labor leaders opposed FDR’s devaluation."

    He pulls out all the stops including quoting Keynes-of course in a misleading way: 'crush the barbarous relic.' Keynes actually argued that workers are not irrational in refusing to take a nominal pay cut which goes back to another part of the Neoclassical catechism: Long Run Neutrality of Money.

   Also, is it not typical that the economy in his thought experiment is a barter economy indeed, is named after bartering? This all seems to underscore what the critics of Neoclassicism say-that it's model is of a barter economy without money much less banks.


Spousal Politics, Telemarketing, and Hot Dog Eating Contests

     For once I think I know what they mean when they say Thank God it's Friday. After spending the whole week doing telemarketing in both the morning and the evening-in the morning setting up appointments for people to see a home improvement demonstration and at night to look at their credit to see if they can get refinanced this 3 day weekend is really going to be therapy.

   Trying to get people to do what you're trying to get them to do on the phone is tricky enough but what makes it even tougher is when problems with their spouse get into it. Yesterday was a case in point.

   Early in the day I had homeowner on the phone who agreed to let the company come and look at his roof-he had some issue with a fiber optic thing hanging or something-I never claimed I'm an expert on home improvement-far from it-just that I set appointments for it. One rule that this company I work at in Melville has is the 'No one legger rule.' They refuse to meet with just one spouse-both have to be there.

   So the guy quizzed me on this and I admitted I had just a vague idea what it was but that he should trust the filed guys as they're great-been doing this their whole life and know everything about fiber optic wires or whatever. I win him over and he says fine come over. However, when I get to the 'will you and your wife be there' he's like 'what do you need her there for-c'mon I'm the guy, you agree the guy makes the decisions right?

  Now, as you know your Diary of a Republican host so well, of course I'm no chauvinist. But, on the phone I'm pretty much not going to argue with anyone about anything. I mean if I guy denies the Holocaust I got nothing to say if I can get an appointment-I know but it's catch fish or starve you know?

   So I treat him with care. I'm like: 'Yeah, I understand. You're probably right-I doubt you need her there. Still, it's company policy my hands are tied. Listen, if she can just be there, she doesn't have to say anything, just be in the house.'

   Me and this guy then have a 30 minute chat about how great Elvis Presley is-he's mostly saying this and I'm agreeing-Ok, I wouldn't actually agree if he told me there was no Holocaust though I might not protest real strenuously. In any case, I like Elvis well enough though I don't agree that Bon Jovi can't hold a candle to him-for some reason the guy felt compelled to offer up BJ as the foil of the King-'see they don't make them like the King no more'-this just shows he's an older guy. I actually quite like BJ-at least Bad Medicine-but he's hardly contemporary.
  This music appreciation sessuib got started because I told the guy one of my phone riffs: I'm a struggling college students trying to pay tuition by doing this home improvement telemarketing thing. When he asked me what my major is-I always say I go to Hofstra; it 's not all lies but it's not all true either-I say what I always say-I started out as a music major but decided to transfer to economics-as though I love music it can't pay the bills. Again, you can see how I interlace truth and fiction-I haven't actually done much econ in college but I do have a major hard-on for econ-my actually degree is accounting and I am just a class or two away from a Master's in finance-though I did my graduate work online not anywhere near Hofstra; I would love to go there however as they have all these hot girls who are also real smart and all.

   He urges me not to leave music. He asks me what I play-I say piano, which is the truth. I took lessons as a kid and have been playing lately and am happy to see that I haven't forgotten but am getting better all the time. He tells me to keep playing and says he wants to hear a CD of mine sometime. We set up the appointment.

  Then comes confirmation. Now if you've done appointment setting or sales, confirmation should be short and sweet. You want to be real concise and say as little as possible. Now the manager Ray-who I have a good rapport with-usually does a good job confirming. However, on this day-Thursday August 29, he has to go to the Dr. In fact he leaves just after I finish with the guy. I tell him I got the lead. He says great but that I should hand it off to Frank. Now Frank is the oldest employee in the room-both in age and in his time with the company. He's quite a know it all. He likes t think he has special clout with the owner and actually got into it with Ray in the past because he thinks he's the boss.

  So Frank finally gets his chance to be in the chair and what does he do? He basically does his usual 20 minute Frank pitch. Then when he gets to the 'Is there a Mrs.' question, the guy starts riffing again. Now, when he says he doesn't need his wife there, Frank lectures him that it's his wife's home too-not untrue but not helpful when I'm trying to put a lead on. So he bruises the guy's ego and he hangs up. It was absurd as the guy's wife was there but he was being stubborn. By lecturing him he did exactly the wrong thing, the approach was wrong. Again, the approach should have been to agree with him, take his side but say it's just company policy and I have no control of it-which is true anyway.

  Later that night at my second job at the mortgage place in Lindenhurst. I get a guy on the phone. From what he's saying it sounds like he and his wife have been denied refinancing before. Still, I argue he might as well try with us as there's nothing to lose-if we can't help him he's no worse off yet on the other hand maybe we can in which case he'll be better off. He says ok and we start. I get everything from him-his interest rate, principle, the cost of the house, it's current value, etc.

  His income, everything. However, I save one question for the end as I've learned in two short weeks this one question is a doozy: asking for the Social Security number. A lot of people refuse to do it.  Some do give it with no problem but a lot give you trouble. When I can't budge them I offer to let them fax their credit report and just cross out the SS#-which is what we need to see if we can actually give them a good deal-and often they'll say ok. Trouble is at the end of the day promises don't get you anything. Nobody is out there hustling to send you out papers especially via fax as who has a fax machine today? Most people have to go out and make a special trip and send that fax and it's not free either. Faxing is a pain in the neck. I found it a real pain when I was on Unemployment Insurance and had to fax my pay stubs.

  So you want to get their SS then and there. Anyway this guy was cool. However, he then made a comment which I realized right away was going to be the kiss of death: his wife was in the room telling him that they needed to get more information about us first. I countered to him that we were almost finished doing this for him now and that we'd get the packet out to him real quick-within 3 days and then he'd have all our info at his finger tips. He seemed cool with this explanation and we continued. Then I asked him for his wife's birthday-again, she's in the room bitching.

   He gives it to me but I know this next jump is going to be the widow-maker-and no way is the bike I'm riding high powered enough to make the jump. I ask for the SS. I love this guy. He's like "Uh oh." That's exactly what I'm thinking. He knows his wife is going to nix this and that's what happened.  So spousal politics struck again. Still, I have gotten some loans my first two weeks and in a good sign, the owner-I hadn't even realized this guy was the owner until a couple of days ago, actually said goodbye to me as I left on Thursday night. Have a good weekend Mike. You're doing a great job. 

   I do have his email so I can email him some company info later. Maybe I can try calling him on my cell and trey to get his cell. If she had been out shopping it would be on.

   So this has been my week. Any wonder I'm actually going around agreeing with that catchphrase 'Thank God it's Friday?'

   Meanwhile, I see that Tom and Greg have been having some real good discussions with some great links to different skirmishes with Sumner, Cullen Roche, Krugman, Nick Rowe, etc. Thanks guys. This is really what I hope Diary will be in the long term. A place that will just be a great resource for people who want to learn and gain facts and knowledge.

   I got to catch up with this whole great thread this weekend. It may well lead to future posts. Of course, the great thing about comments is that it encourages other readers to try commenting sometime-in the long term I hope to be able to routinely get 20, 40, or 50 comments. I do get this amount of comments on certain highly read posts but not generally. In any case, thanks guys. Only time will tell where this ends up exactly but I do have big ambitions of Diary and they will be met one way or the other. Thanks to all who read Diary. If you read everyday and don't comment I'm grateful to you too. of course. No matter what blog or website you're talking about the majority of readers don't leave comments and they're still very important.

  Have a great Labor Day all Diary readers. I truly do love  you all. Really.

  P.S. Oh, yeah. The hot dog eating contest. I was asked to participate in one tonight. How could I say no? I kind of felt that my whole life had been working towards this moment. I didn't get first but I did get a solid second and got a trophy-and $10 dollar coupon to boot over at the Starry Night Cafe over  in Hicksville.

  Actually I might have won but I really like eating for pleasure rather than speed. Give me a contest that goes for total eaten over say 20 minutes and that I could win easily. I'm not so much a sprinter I guess. I could perhaps but don't really want to be. So we had 2 minutes to eat as many hot dogs as we could-we were given a total of 6 and we had 2 minutes.. I ate two dogs in 2 minutes. I actually thought I was winning as did the actual eventual winner. I thought I only had two dogs left, not seeing that I had another dog underneath the two at top. Next time I will have a better strategy. More water, maybe even smaller bites. The key is that when you finish one dog it's real hard to start the second if you haven't even entirely swallowed the first dog. 

Obama Administration Won't Fight Marijuana Legalization in Colorado and Washington State

     Chalk this up to another thing we wouldn't get if a Republican were in the White House.

      "The Obama administration said Thursday that it would not challenge laws legalizing marijuana in Colorado and Washington state as long as those states maintain strict rules involving the sale and distribution of the drug."

      "In a memo to U.S. attorneys in all 50 states, Deputy Attorney General James M. Cole said the Justice Department is “committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent and rational way.” He stressed that marijuana remains illegal under federal law."

     No doubt, we need the end to the wasteful, counterproductive War on Drugs. Often progress on this front has seemed very slow to nonexistent. What we now see though is some states decriminalizing or legalizing hemp and a question was how the Obama DOJ would react. We have an answer. While the White House won't consider legalization at the federal level for now, it is not going after states that make the move.

      Now in more news that shows why we're lucky Obama is President, he continues to do what he can do through executive action alone about gun control, and specifically the loophole:

      "Striving to take action where Congress would not, the Obama administration announced new steps Thursday on gun control, curbing the import of military surplus weapons and proposing to close a little-known loophole that lets felons and others circumvent background checks by registering guns to corporations."
     "Four months after a gun control drive collapsed spectacularly in the Senate, President Barack Obama added two more executive actions to a list of 23 steps the White House determined Obama could take on his own to reduce gun violence. With the political world focused on Mideast tensions and looming fiscal battles, the move signaled Obama’s intent to show he hasn’t lost sight of a cause he took up after 20 first graders and six adults were gunned down last year in an elementary school in Newtown, Conn."
     Still more such news, that is good news that wouldn't be happening if Obama weren't President: the IRS will recognize gay couples even if their state does not. 
     "The U.S. federal tax system will recognize gay couples' marriages even if they live in a state where gay marriage is not legal, the U.S. Department of the Treasury announced in a statement Thursday.
     "This ruling, which creates a uniform policy for the IRS, "assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change,” Treasury Secretary Jack Lew said in a statement.

     Sumner gives Obama credit for not giving Colorado and Washington state trouble but is complaining that gay couples now have some unfair advantage over straight couples based on the IRS' new policy. He has long complained about the so-called marriage penalty, which I think is basically overdone-in some ways the law may seem to favor single people but in other ways it favors married. Overall, the law has always at least tried to favor married people. 

    Sometimes it hasn't been successful. It blatantly favors those with children vs. those without in all kinds of ways-huge tax credits for one thing. Yglesis argues that the new policy is pretty shrewd by the Treasury as it's a de facto stimulus-though a very small one:

    "We had a shrewd move today from the Treasury Department and the Internal Revenue Service today who will be implementing federal tax recognition of same-sex couples' marriages in a way that's likely to stimulate the economy."
    "This starts with the fact that on a forward-looking basis, taxing same-sex married couples the same as opposite-sex married couples will increase tax revenue. Some couples get a marriage bonus and others get a marriage penalty, but in the aggregate the penalty impact outways the bonus impact. So more long-term revenue."
    "But here's the trick. The IRS says that it will let couples go back as far as 2010 and amend their tax filings if you were married according to state law but the IRS didn't recognize that marriage due to DOMA. The key point is that you can do this but you don't have to do it. So in practice only "marriage bonus" couples are going to refile and get refunds. Nobody's going to pay extra. So in the short-term, you'll get a one-off increase in the deficit while in the long-run you get a lower deficit due to structurally higher tax revenue. It's a textbook fiscal stimulus plan, albeit on a very small scale."
    The problem has never been Obama-though I am concerned about what I'm hearing regarding his thinking on the next Fed Chairman. In saying this I don't mean Obama has not made any mistakes or that he's been right about everything, but at least his heart is in the right place and on many issues he has been right. What we need is to send all these obstructionist GOPers home for a permanent vacation. The real problem of our time remains that though the majority of people agree with Obama and the Democrats on the issues, the agenda is thwarted in so many places. 
    This is due in large part to our system of government which gives the minority so many ways of obstructing the majority. In truth if we had a system more like either Hamilton or Madison had wanted we wouldn't be having this problem. A big part of it is the untoward power of states, including small states. If there were less state power we'd have a much less dysfunctional country.

Thursday, August 29, 2013

Can GOP Kill Immigration Reform and Survive?

      In the immediate aftermath of the election the GOP itself believed that there was no way, and while there was a lot of difference of opinion within the party establishment as to what lessons were to be drawn from 2012, the one area of agreement was that they needed immigration reform, period.

     This remains the view of much of the GOP establishment-everyone from Rove, to Rupert Murdoch and his WSJ editorial page, to, yes, even the Koch Brothers. However, lately there has built up a narrative among some conservatives that they actually will lose from reform, certainly from any path to citizenship which would only increase Democratic voters-looking to 'suck at the government teat.'

    It's not the view of most of the GOP establishment, the only major conservative think tank player to come out against it is the Heritage Foundation and it's notorious study-that claimed reform would cost Americans 5 milllion jobs. It got so embarassing for Heritage they had to take it down.

    Still among the Tea Party the view that they're better off not doing reform or stand to gain little in doing it has been boldly claimed.  My guess is that if immigration reform fails they GOP will rightly get the blame and pay a heavy price. I have no doubt over the next few years this is true. However, the executive director of America's Voice says immigration reform advocates will punish the GOP if reform fails.

    "The executive director of the pro-immigration group America's Voice vowed Thursday that ifHouse Republicans scuttle immigration reform, "we will be kicking their ass."
"House Republicans either get it done or get blamed for blocking it," Frank Sharry told reporters on a conference call with other immigration reform advocates. "Whatever the excuse, it's going to be clear -- they've either passed immigration reform or they've stopped it. All of these process excuses and procedural obstacles have been put in place to give Republicans an out. They don't have an out. They either pass it or get blamed for blocking it."

      I think Sharry is right, I could see it energizing many liberals and advocates during 2014. While normally, off-year elections have been Republican years, this might be different as failure to pass would energize many to vote even if they usually don't. This is only compounded by the SJC decision nullifying Section 5 of the VRA. 

      Add on for good measure the war ton women he GOP has only intensified since last year's election and you already see the building blocks to what could be an upset showing for the Dems in 2014. 

       The GOP may find that this will

Wednesday, August 28, 2013

Again Learning From Reading Unlearning Econ

    I always love his posts because he's a very helpful voice in these econ debates as he is trained in the mainstream Neoclassical ideas. I certainly see some value in many of the heterodox ideas out there but I do also think that there is much to be gained by reading those like UL-or for that matter Paul Krugman-who criticize the mainstream paradigm while coming for that paradigm oneself.

   Yes, Krugman remains within the paradigm-he seems to have found the outermost point you can set up shop within the paradigm where you can critiize it the most and yet still remain a member in good standing. Yet, while one may critiize him for never making the jump, there is also probably a unique kind of value in having that kind of 'critiicism form within' being such a vocal part of the debate.

   A vexing point about Neoclassicim is its resilience. In an earlier post we considered the resilience of Neoliberalism but clearly NC is in some ways the most resilient of them all. 

    As Yanis Varoufakis noted, it is strange how remarkably resilient the neoclassical framework is in the presence of many coherent alternatives and a large number of empirical/logical problems. However, I actually think this is quite normal in science – after all, it is done by humans, not robots. Hopefully things will change eventually and economics will become more comprehensive/pluralistic, as I call for in the article.
It’s good to sum up my overall position, but I think I’ll probably lean more (though not entirely) towards positive approaches from now on, some of which I mention in the article. Though I strongly disagree with Jonathan Catalan that heterodox economists are “more often wrong than right”, I agree with his sentiment that it’s probably better to “sell [one's] ideas” that to endlessly repeat oneself about methodology and so forth. So maybe expect a shift from general criticisms of economics to more positive and targeted approaches!

     See also:

     Yes, UL vows to do have more of a 'positive approach' from now on. I tend to think that both a positive and negative approach have their part to play but I do think that in trying to master as immense and difficult a subject as economics that a positive approach defintely has a place-there is a tendency among some to be so reflexively negative that it all gets a little flat-and we don't seem to be learning anything. 

    As my piece on the sragne resliience to get through the 2008 crisis unscathed showed, it's not suprising that many ideas have a lot more resileince than being able to simply overthrow them by falsifying them in one emprical example.

   If there is an irony it's that the continued strength of NC is due to something that this school with its love of rational agents would never dream of discussing-social psychology and our ability to rationazlie cognitive dissonance. It's less Rational Man than Rationalizing Man.

What Boehner's Demand for Entitlement Cuts in Exchange for doing Budget and Debt Ceiling May Mean

     Greg Sargent makes the that this may be his swan song for debt ceiling-and government shutdown-chicken. 

     "Boxed in by his caucus’ demand to defund Obamacare on one side, and a steeled White House on the other, House Speaker John Boehner seems ready to throw in the towel and enter the last phase of the Kabuki dance he’s staged for the benefit of his insolent Republican base."

     "Of course, he won’t say this, and his recent comments at a fundraiser in Idaho appear on their face to be a doubling down, but, when read correctly, they actually suggest the opposite. “I’ve made it clear that we’re not going to increase the debt limit without cuts and reforms [to mandatory entitlement spending] that are greater than the increase in the debt limit,” hesaid yesterday."
     While no doubt, the 'Republican base' as Boehner and other establishment Republicans defines it are  a big concern-what animates most GOP Congressmen today is avoiding a primary. 
     Yet, most self-identified Republicans don't want debt ceiling-or government shutdown-chicken.
      In any case, as Sargent points out, the GOP demand for entitlement cuts has always been pretty hollow.  What is interesting is that his demand has gone from demanding a defending of Obamacare to 'entitlement reform' suggesting that he's trying to save face with the base. 
    "As Josh Barro writes, insisting on entitlement cuts is often Boehner’s last move before capitulation, because he knows it’s a ransom demand that will never be paid. He did it in December, when spokesperson Michael Steel used almost the exact same words: “Any debt limit increase would require cuts and reforms of a greater amount.” (The next month, the House voted overwhelmingly to bypass the debt ceiling and got none of those cuts.) And Boehner did it 2011. That time, he won the overall battle, but he still didn’t get any entitlement cuts. 
     True, he's never taken the chance for entitlement cuts before, even when Obama offered it earlier this year. 
     "And he’s done nothing to suggest he’s serious about entitlement cuts. There was a brief, peculiar moment this spring when the White House not only was willing to talk social safety net reform, but actually put cuts to Social Security in their budget. And Democratic congressional leaders suggested they’d deliver enough votes to pass something. What did Boehner do? He rejected the proposal out of hand, sight unseen, and called it ”no way to lead and move the country forward.” (That was basically the White House’s expectation all along, they claimed when liberals threatened mutiny.)"
     That was my take on it too-that it was an offer the WH knew would be refused.  The following and how this might end has always been my take as well-that it will end-when not if-when Boehner breaks the Hastert Rule. 
     "So now, all that’s left is for Boehner to somehow bring his base along. He doesn’t necessarily need their votes, but he needs to drop the pitchforks for moment. Brian Beutler previews how it may go down:
Boehner introduces legislation that both increases (or extends) the debt limit and includes some goodies for conservatives that make the bill a non-starter with Senate Democrats and the President (maybe a year-long delay of the individual mandate — let your imaginations run wild); that bill fails on the House floor; everyone panics; faced with no better option, Boehner breaks the Hastert rule, puts a tidy, Senate-passed debt limit bill on the floor, and we all dress up as Speaker Pelosi for Halloween.
       Incidentally, I think that's how it goes with immigration reform as well-Boehner cant just do it all at once-can't seem to be caving, so he has to drag it out. In the end helll have to let the debt ceiling be raised and the government funding and will have to let immigration reform passed.  

Never Let a Serious Crisis Go to Waste: the Strange non Death of Neoliberalism

     The title is from the book of the same name by Phillip Mirowski who asks how is it that Neoliberalism still stands-he wrote this in late 2012-not only unrepentant and unbowed but better than ever.

     It's no doubt a question that many-who back in late 2008 and 2009 had assumed that NL was in big trouble now and at the least must be seriously hobbled-are now asking. To be sure, this very formulation begs any number of other questions. We can ask if NL really is better than ever. We could argue that it has been hobbled. Or better yet, we could turn the question around and ask him: just what is Neoliberalism anyway?

    It's a good question and to his credit it's something he considers in depth, indeed a big part of the book is answering the question of what exactly NL is. The last thing he wants to do is simply volley about this word as just another Left wing curse word-'facist, imperialist, Nazi, etc.' He spends a good amount of time quantifying just what NL is-and to do this starts with figuring out what it isn't either.

   What is isn't is just a term of abuse for anyone that is-or you think is-even the slightest little bit Right of Center. Indeed, it isn't one and the same with Neoclassicism-though the mistake is understandable. It is very natural and I myself initially made this mistake-I had read the title as talking about how NC had survived the crisis rather than NL.

    Mirowski makes clear that NC is one thing-much older than NL going back to 1871 with it's three Fathers, Walras, Jevons, and Menger-and NL is something distinctly different. According to his etymology the term goes back to the 1930s and was used by both Hayek and Milton Friedman early, in the senes that they asserted a lineage going back to Classical Liberalism (CL)-this claim MIrowski is very skeptical of, to put it mildly.

    He defines NL as going back to anyone in the Mt. Pelerin Society-or associated with it. Now this second aspect of asspciation might seem well to wide a net, however, he argues that the list actually proves very stable. I haven't actually seen the list yet-I'm still in the early stages of the book.

    He sees NC in many ways complicit with NL but the two are far from one in the same. One very di ly chalked up to a term of abuse and no question it is often used too ephemeral and diffuse a way for it to be very helpful. In this fascinating book, Mirowski proposes to do just that and he seems to me-though Kindle tells me I'm must 8% through it-to be well on his way to doing just that.

    The title of the book is doubly interesting as it also seems ro reference Rahm Immanuel's reported comment when the Obama Administration was putting together its fiscal stimulus.

     Again, I'm must in the early stages so I don't know if he means to reference Rahm, though it'd be quite a coincidence it he didn't. Yet his complaint is NL's success in comng out of 2008 better than ever and the Obama team there was not pusing for the NL agenda with FS-though I know many Lefties will argue that the Obama team is NL. Again, though, as noted above, this term is used too much. As I ge through it I'll have a better idea on his view of wether the Obama team qualifies.

    They may do, to be sure. Not for doing the FS but for letter buying into some level of consolidation-though at a slower pace that wouldn't completely take a meat ax to growth. Mirowski's sketch of the Neoliberals is that they are in their way much less ideological than the Neoclassicals, they do not eschew all use of big government.

    Finally, makes a great point that it sure was naive for those remaking Historical Materialists or other assortment of Marxists or anti-capitalists to imagine that the the entire edifice would come crashing down under the weight of being falsified by the financial crisis of 2008. It shows a lack of andy sense of depth for just how social psychology works.

    We are wired to resist and acclimate cognitive dissonances where we can. Indeed, this ability is in many ways necessary and salutary. A person's social ego simply can't be that fragile and survive at all. What we've learned from both individual psychology via Freud up to Lacan and Zizek and through social psychology shows quite a different picture. When we believe with all our Souls, Hearts, and Minds that a Prophecy will come to pass and it doesn't, we usually change the meaning of the Prophecy.

   In this sense, no one should have believed that beliefs in markets would simply disappear en Toto over night.


Tuesday, August 27, 2013

Is it That Delong Doesn't Consider the Supply Side or that Bob Murphy Considers it Too Much

     Murphy never gives up trying to have a gotcha moment, though so often he misfires when he tries this:
    "Brad DeLong has this habit where he makes it look as if he’s walked through several different strands of evidence, and they all come down squarely on the position he agreed with at the start of his investigation–even though some of the evidence obviously cuts the other way. It’s like we’re arguing over whether the Beatles ever released goofy songs, and he says, “I have considered John, Paul, George, and Ringo, and see no reason to support your wild accusation.”

     From the start this analogy underscores the whole problem with Murphy. The question of whether the Beatles every did any goofy songs is a matter of opinion anyway-bringing up is kind of besides the point. One problem with many of Murphy's quibbles is that they're so often of the 'C'mon, of course the Beatles released goofy songs' nature. The answer is totally subjective and the question isn't too important. 

     Asking such questions is part of Murphy's stock and trade-no quibble is too minor. Presumably Krugman and Delong can take this as a compliment-after all, if he had anything on them he'd lead with that. 

      But the most egregious claim above is that there’s nothing “in the level of investment…to suggest that the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007.”

Oh really? Here’s the official government statistics showing gross private domestic investment as a percentage of potential GDP. To keep potential GDP chugging along at its previous pace, you’d think GPDI should stay about the same percentage as it was from 2005-2007. But this is what actually happened:
     "Incidentally, I’m not purposely loading the deck against DeLong by only including private domestic investment; FRED doesn’t seem to have a single series adding government and private investment spending. But, I hardly think DeLong is able to claim that the above chart is more than offset by the huge surge in government investment spending (at federal, state, and local levels) from 2008 – present, what with the Republicans’ vicious austerity and all."
     "So not only are the Austrians (and Larry Summers in the occasional op ed) the only ones who think thecomposition of investment spending is important for sustainable growth, but apparently we’re the only ones who think going from 23% down to 15% of total potential devoted to investment, might slow down the growth of potential output."
     Ok, he's not 'purposefully stacking the deck' it's just that FRED didn't have a series that added government spending to private spending. Yet, isn't it stacking the deck a little regardless whether he or FRED chose not include the governemntdata?
     Delong fires back:
     "Does Murphy note, anywhere, that business equipment investment, which ought to fall as capital lifetimes are extended if the pace of trend economic growth markedly slows, has not?
     "Does Murphy note that the shortfall in residential construction investment has a financial explanation and is not credibly blamed on a lower future potential output growth path?"
     "Does Murphy note, anywhere, that at a 5% real rate of return on capital the reduction in potential as a result of the post-2008 investment shortfall is now (19%-14% fall in investment share) x 4 years x 5%/year return on capital = 1% reduction in potential GDP, which is why I said that the path of growth is not "materially lower" rather than not lower when you compare it to the 5.5% real aggregate demand shortfall relative to trend?
     "There is an ongoing (and interesting, and insightful) academic discussion of potential GDP and its growth going on. But does Murphy participate in it at all, or recognize its existence?"
     "Tell me how I am to interpret this other than as: "Oh. It's Murphy not doing his homework yet again"?

     Krugman gets in a good whack at Murphy too:

     "But it’s actually much worse than even Brad seems to realize. The potential output series he’s using comes from the Congressional Budget Office, whichdescribes its method (pdf):

CBO’s estimate of potential output is based on the framework of a textbook model of long-term economic growth, the Solow growth model. The model attributes the growth of real GDP to the growth of labor (hours worked), capital (an index of capital services emanating from the stock of productive assets), and technological progress (total factor productivity). CBO estimates trends —that is, removes the cyclical changes—in the labor and productivity components by using a variant of a relationship known as Okun’s law. (In principle, other “detrending” methods could be used to extract the trends in those inputs.)
       "So the CBO already takes into account the effect of a smaller capital stock on potential output. That’s part of the reason CBO’s projections of future potential have in fact been marked down since the crisis began."


     More generally, it seems to me that the argument 'the supply side did it' in explaining this long recession is another case of the futility of supply side arguments in this day and age  With how much conservative economists like Murphy and the Republican party spend worrying over the supply side which is always on the verge of contraction according to them, what isn't realized is how much ss theory is a 19th century idea of how the economy grows. 

    The idea that there is not enough physical capital is very 19th century, recalling a time when the railroads was America's main industry. In that time, the idea that we are constrained by a lack of physical capital least seemed highly plausible. By  the end of the century, there was a glut in savings which exploded in the first big U.S. corporate merger wave. 

     The rise of the modern stock market was due to the fact that there was now a lot more money than than just that needed for investment in physical capital. This was the dawn of the modern financial system and it was driven by excess savings. 

     Today, more important than physical capital for growth is technological progress which is why government investment in R&D is so important-as the market doesn't provide an adequate amount do to the freeloader problem and spillover effects.

     The trouble I always ahboe with ss arguments is that there is never any proof offered that they're in anyway the problem. When you ask SSers how come there's nor proof they say 'it's impossible to prove but it's real.'

    P.S. By the way, regarding the interesting discussion on potential growth, there is also an interesting discussion going on about whether the short run-long run distinction has any justification at least among some.

    Bill Mitchell argues it's mostly due to the false Neoclassical doctrine of long run monetary neutrality.

    P.S.S. I've been in something of a slump here at Diary-as this is the first post I've written since 8/25. For me that's something of a slump anyway. My new schedule where I work 8;30 to 1:30 in Melville-Long Island, New York-and then work in Lindenhurst doing my new job in calling people about refinancing their mortgages is kind of a lot I guess. Still, I vow to maintain my prolific posting here at Diary 'over the long run' to use an idea ta may be spurious in a way that definitely is. 

Saturday, August 24, 2013

College Performance Standards: An Idea Whose Time Had Come?

     Credit where credit is due, this is an idea suggested by the Diary of a Republican Hater reader Greg. Its something that I never thought of and have not seen anyone suggest but it's a great idea. Basically college tuition should be linked to results-the tuition they receive is commensurate with the kind of job a student gets out of college.

     "Maybe performance should be based on getting them employed in the field of study. Since corporate America is getting more and more involved with our University system there should be able to be some sort of connection. Companies tell them what they need , universities produce them. It should probably be shorter than 4 years though.

Kids who dont find jobs? 50% off? 65%?

     I personally love this idea. It may be that others have suggested this too but this is the first I've come across this-as best I can remember. Kudos to Greg. He's been a great resource lately-which is great. My hope for this blog is always that more than anything it can be a conduit for learning and adding to our knowledge. First he had what I find a very helpful distinction between monetary and fiscal policy-MP is more like bringing down the debt of Americans but FP is the only way to really increase their income-so MP is effective, at least by itself, only during milder recessions-which is what we had gotten used to in the postwar era prior to 2008.

     On the pressing problem of keeping college costs down-we need this on both that tuition and debt side-it may be that colleges will have to be held accountable in this way. Obama's proposal-where no one's student loan payments can be more than 10% of their income is kind of a backdoor way of achieving this, though as Greg points out, limiting the amount of loan repayments doesn't take away the huge government subsidy to the college industry as the schools are still guaranteed their money, but the government may later recover considerably less on the loans they pay out to the colleges.

    Greg does voice concern-as others have-that this could lead to a further corporatization of college. I think this is a concern though as I see it, simply limiting the amount a school can receive for tuition based on what the students actually end up earning doesn't necessarily mean this. I guess it might seem that this will discourage offering a well rounded liberal arts education. I'm not sure that's true, but in any case even if it were I tend to see it as a lower level concern, I admit. It's like why the Dems should do filibuster reform-while this could lead to other problems, the outcome couldn't be worse than the current status quo as this is the worst-both in terms of Congressional obstruction and to channel William Jennings Bryan, 'crucifying our young people on a cross of college loan repayments.' I mean I'd rather have a society where most people have good jobs than one where they have a well rounded liberal arts education if faced with the choice, and it's not even close.

   Essentially until about 13 years ago if you got a college education you were guaranteed a good job. As this is no longer the case tuition costs need to reflect that. Obama from everything you're hearing, may be way off base on monetary policy.

Thankfully he has always had religion on the problem of spiraling college tuition costs and crushing debt.