July 2020

I received an email earlier today announcing a new book series, focussing on Politics, Philosophy and Economics (PPE). There has been a notable rise in the success of PPE – as can be seen from the multiplying numbers of PPE undergraduate and graduate programs and PPE scholarly activities in recent years. This series is a logical next step in the development of the multidisciplinary and interdisciplinary study of topics that are relevant to economics, politics and philosophy.

The new series, which will be published by Oxford University Press, has a website, five editors (Ryan Muldoon, Carmen Pavel, Geoff Sayre-McCord, Eric Schliesser and Itai Sher), and a long list of editorial advisors (and I’m honoured to be included there).

I’m not sure how long it will take them to publish the first book – given how slow academic publishing is, it might take a while – but in the meantime the editors welcome book proposals by scholars working in this area.

Although my book-in-progress is called The Economic Consequences of the Pandemic, a lot of it will deal with changes that were already underway, and have only been accelerated by the pandemic. This was also true of Keynes’ Economic Consequences of the Peace. The economic order destroyed by the Great War was already breaking down, as was discussed for example, in Dangerfield’s Strange Death of Liberal England.

Amid all the strange, alarming and exciting things that have happened lately, the fact that real long-term (30-year) interest rates have fallen below zero has been largely overlooked. Yet this is the end of capitalism, at least as it has traditionally been understood. Interest is the pure form of return to capital, excluding any return to monopoly power, corporate control, managerial skills or compensation for risk.

If there is no real return to capital, then then there is no capitalism. In case it isn’t obvious, I’ll make the point in subsequent posts that there is no reason to expect the system that replaces capitalism (I’ll call it plutocracy for the moment) to be an improvement.

But first let’s look at the real 30-year bond rate. The US Treasury is currently offering an inflation-protected 30 year bond at a rate of -0.3 per cent. That is, if you buy the bond at say, age 35, you can get your money back, less a 10 per cent reduction in real value, when you are 65. This rate has fallen from 2 per cent, when the bond was introduced in 2010, and started declining sharply in late 2018, before the pandemic, and while the Federal funds rate was rising.

In thinking about the future of the economic system, interest rates on 30-year bonds are much more significant than the ‘cash’ rates set by central banks, such as the Federal Funds rate, which have been at or near zero ever since the GFC, or the short-term market rates they influence. These rates aren’t critical in evaluating long-term investments.

The central idea of capitalism is, as the name implies, that of capital. Capital is accumulated through saving, then invested in machines, buildings and other capital assets to be used by workers in producing goods and services. Part of the value of those goods and services is paid out as wages, and the rest is returned to capital, as interest on loans and bonds or as profits for shareholders. Some of the return to capital is saved and reinvested, allowing growth to continue indefinitely. Workers, on this account, can become capitalists too, by saving and investing some of their wages. At a minimum, they should be able to save enough, while working, to finance a decent standard of living in retirement.

But what happens if there is no return to capital? The collapse of interest rates on government means that’s already true for anyone who wants a secure investment. And the situation isn’t any different for the two remaining AAA-rated corporate borrowers, Microsoft and Johnson and Johnson. Microsoft is currently offering a rate of 2.5 per cent on 30-year bonds, and has exchanged lots of outstanding debt for new bonds at that rate (paying a 40 per cent premium for higher-interest bonds). That’s a real return of 0.5 per cent if you assume that the Fed sticks to its current 2 per cent target and hits it on average. (There’s a lot more room for inflation to surprise on the upside, in my view). If you allow a 15 per cent risk that Microsoft will go bankrupt some time before 2050, the expected real return falls to zero.

To complete the picture of returns to capital, we need to look at stock markets and corporate profits. That’ll be the subject of another post.

Andrew Gelman has a post on the benefits of negative criticism, where he talks about the careful methodological demolitions he has done of others’ research that he has found to be slipshod.

if you want to go against the grain you have to work harder to convince people. My point is that this is the exact opposite of Cowen’s claim that following his advice “Avoid criticizing other public intellectuals. In fact, avoid the negative as much as possible” will force you to keep on thinking harder.

I’m in favor of a strong culture of criticism, but for a quite different reason: because serious criticism is probably the most valuable contribution we can make to the cognitive division of labour. There’s a possibly mistaken understanding of a truly excellent social science book behind this argument. [click to continue…]

This Paul Krugman column helped crystallize the weirdness of the ongoing economists versus epidemiologists spat, perhaps more accurately described as the ‘some economists, especially those with libertarian politics, versus epidemiologists spat.’ Different theories, in turn below the fold.
[click to continue…]

I’ve been reading the latest (excellent as usual) book from Jacob Hacker and Paul Pierson, Let Them Eat Tweets: How the Right Rules in an Age of Extreme Inequality . The opening paras read

This is not a book about Donald Trump. Instead it is about an immense shift that preceded Trump’s rise, has profoundly shaped his political party and its priorities, and poses a threat to our democracy that is certain to outlast his presidency. That shift is the rise of plutocracy – government of, by, and for the rich

This passage reflects the conflict between two propositions that I (and lots of others, I think) have been grappling with
(1) The rise of Donald Trump represents a radical transformation of the Republican party and American conservatism
(2) Everything Trump has done is a continuation of long-established Republican policy and practices.

Here at CT, Corey has argued for a long time that (2) is correct, and that conservatives or, more properly, reactionaries have always been about preserving hierarchy and power. I find Corey’s argument convincing, but not enough to persuade me that (1) is wrong. Hacker and Pierson also broadly endorse (2). But much of their book is a comparison of the trajectory of the Republican Party with that of the German nationalists in the dying days of the Weimar Republic. The fact that such a comparison, until recently regarded as an automatic disqualification from serious argument (Godwin’s law) now seems entirely plausible, suggests that something really has changed.

In trying to find a way to understand this, I was struck by the idea that the concept of a phase transition (such as from liquid to gas, or dissolved solid to crystal) in physics and chemistry might be a useful metaphor. I didn’t get past high-school in science, so I may well use the metaphor inaccurately – I’m sure commenters will feel free to set me straight.

To develop the metaphor, think of the Eisenhower-era Republican party as a complicated mixture of many dissolved ingredients, in which the dominant element was the business establishment, and the Trump era party, as described by Hacker and Pierson as a crystallised mass of plutocratic economics, racism and all-round craziness. The development over the 60 years between the two has consisted of keeping the mixture simmering, while adding more and more appeals to racial animus and magical thinking (supply-side economics, climate denial, the Iraq war and so on). In this process various elements of the original mix have boiled off or precipitated out and discarded as dregs. Stretching the metaphor a bit, I’m thinking of boiling off as the process by which various groups (Blacks and Northeastern liberal Republicans in C20, liberaltarians more recently) have left the Republican coalition in response to its racism and know-nothingism. The dregs that have precipitated out are ideas that were supposed to be important to Republicans (free trade, scientific truth, classical liberalism, moral character and so on) that turned out not to matter at all.

Trump’s arrival is the catalyst seed crystal that produces the phase change. The final product of the reaction emerges in its crystallised form, and the remaining elements of the mixture are discarded.

As I’ve probably made clear, I have no knowledge of or interest in any other sport than cricket (well… there’s also softball, obviously). Professional cricket has now restarted in both the UK and in South Africa. In South Africa, yesterday, the first match opened to scenes of the entire playing and management personnel taking a knee in support of the Black Lives Matter movement. Here are some pictures:

[click to continue…]

As with most really neat sayings, the original (with billions, instead of trillions) is misattributed, in this case to the late Senator Everett Dirksen, a conservative Republican who nonetheless helped to write the 1964 Civil Rights Act. The saying can be traced back to an unsigned New York Times article in 1938, which said ““Well, now, about this new budget. It’s a billion here and a billion there, and by and by it begins to mount up into money”. This in turn improved on earlier versions going back at least to 1917
US GDP today (Over $20 trillion) is around 250 times as high, in dollar terms, as it was in 1938, so replacing billions with trillions isn’t much of a stretch.

With that in mind, what should we think about the $2.4 trillion pandemic relief package, and the likelihood of huge demands for public expenditure stretching well into the future? And how much of this analysis is applicable to the world as a whole, where large scale government responses have been the norm rather than the exception.
[click to continue…]

The first is thought is just this: Gina’s post about parents and teachers prompted me to notice that I never posted about the white paper that Jake Fay, Meira Levinson, Tatiana Geron, Allison Stevens and I wrote for the Safra Center for Ethics series on the pandemic. Here’s the abstract:

Along with the economy and health care system, schools are an essential third pillar in promoting community resilience and rebuilding communities’ physical, economic, emotional, social, and cultural health in the wake of the global COVID-19 pandemic. Schools serve as sites and sources of community resilience in five distinct ways: they distribute social welfare services, promote human development, care for children, provide stable employment, and strengthen democratic solidarity. Yet long-term physical school closures—along with impending budget cuts driven by cratering state and local economies and tax revenues—make it extremely difficult for schools to perform any of these roles. We recommend three steps for restoring schools’ capacities to support community resilience. First, state and district leaders should set metrics for achieving access and equity in each of the five roles that schools play, not just in academic achievement. Second, to establish these metrics, policymakers should develop or strengthen mechanisms to engage diverse community voices, as local community members often best understand the specific ways in which their own schools support or impede community resilience. Finally, Congress should allocate significant increases in federal funding to support public schools and districts for at least the next two years; these allocations should include strong supports for high-needs districts in particular.

The second thing is less a thought than a request for the economists.

[click to continue…]

In a string of days spent doing great harm to nobody’s benefit but his own, Trump got busy Wednesday rustling up a fight between teachers and parents: Parents want schools to reopen, he says, and so they must reopen, CDC recommendations be damned. And districts that don’t fully reopen will be cut off from federal funding. (A spokesperson for Betsy DeVos confirms that the administration intends to make good on this threat, though it’s unclear whether the president has the power to withhold the ten percent of school funding that currently comes from the federal government.)

These are hard times, and there’s lots of desperation in the camps the president is trying to set at odds. So we may have to concentrate more than usual to see that their fight isn’t really with each other.

[click to continue…]

The title of my book-in-progress, The Economic Consequences of the Pandemic is obviously meant as an allusion to Keynes’ The Economic Consequences of the Peace, and one of the central messages will be the need to resist austerity policies of the kind Keynes criticised in his major work, The General Theory of Employment Interest and Money. That title, in turn was an allusion to Einstein*, and the Special and General theories of Relativity.
[click to continue…]

Just finished Johny Pitts’s Afropean: Notes from a Black Europe (Penguin). It is a remarkable and highly readable book which I strongly recommend. Pitts, a journalist and photographer from Sheffield in England, embarks on a journey across Europe to discover the continent’s African communities, from Sheffield itself, through Paris, the Netherlands, Berlin, Sweden, Russia, Rome, Marseille and Lisbon. Pitts, the son of an African-American soul singer and a working-class Englishwoman, is a curious insider-outsider narrator of the book which ambles from meditations on black history and (often American) literary forbears to chance encounters with black and brown Europeans in hostels, trains, stations, cafés and universities.

Is there a unity in all this? Hard to say, since as Pitts observes, these different populations, linked by an experience of marginalisation, come to be where they are via very diverse personal and collective histories. Some have come in their best clothes from former colonies to nations they were taught about as the motherland, only to find they had to make their lives in a place that was disappointing or hostile and where the white population — British, French, or Dutch — remain ill-disposed to see their new compatriots as being part of themselves. Others have fled war, persecution and trauma in Sudan or South Africa, only to find themselves exiled on the periphery of Scandiavian social democracy. And then there are the residual African students in a Russia transformed in thirty years from somewhere professing — occastionally sincerely — the unity and equality of all humankind, into a place where it is dangerous for black people to venture out at night for fear of violent attack or worse.

[click to continue…]

This character was very relaxed

That’s the title of a book I’ve agreed to write for Yale University Press (their editorial director) Seth Ditchik commissioned my previous two books, Zombie Economics and Economics in Two Lessons when he was at Princeton UP.

When we first discussed the book, I took the view that most of the writing would have to be done after November, since the outcome of the US presidential election would be crucial to developments in the US and globally. I’m now working on the assumptions that
(a) Biden will be the next president
(b) he will have a workable majority in Congress.
(c) mainstream Democrats recognise the need for radical change, and Biden will align with the mainstream position as he always has done

The first of these assumptions was problematic until recently, but seems safe enough to work on now. The third, I’ll leave for comments.
That leaves the question of a workable majority. Roughly speaking, I mean that the Dems have enough votes in the Senate to abolish or restrict the filibuster and pass the kind of program I’ll be advocating (allowing for a couple of defections, that would be 52 or more). Winning that many seats is still a stretch on current polling, but not out of reach.

The immediate question is that of how to get rid of the filibuster. Doing so pre-emptively would be problematic in all sorts of ways. Biden needs to start with the 2008 Obama playbook of reaching out across the aisle in the spirit of bipartisanship. But unlike in Obama’s case, once the proffered hand (or perhaps elbow bump) of friendship is slapped down, as it surely will be, Biden needs to point to his electoral mandate and whip up the necessary votes. Obama realised this, to some extent, in his second term, but by then he had a hostile Congress.

[click to continue…]