Economics/Finance

<a href=”http://colorlines.com/archives/2011/12/in-home_care_workers_finally_get_federal_minimum_wage_and_overtime_protections.html”>This is huge</a>: medical homecare workers will start to be treated as actual workers, with overtime and minimum wage requirements, rather than volunteers. At some point perhaps other groups of workers excluded from that kind of basic protection–waiters, other domestic workers, farm laborers–will also overcome the racist legacy of not counting Certain Classes of People as “real” workers.

In the meantime, for god’s sake tip well and if you’re not paying the person who cleans your house or mows your lawn or delivers your newspaper or nannies your kids two weeks bonus wages at some point during the year (it doesn’t have to be during the Big Spending Season, but everyone is entitled to a vacation, and don’t give me this crap about how they’re “self-employed” and it’s “their responsibility” to budget for their own vacation), you suck.*

*Possibly not if you live in a country in which people who do this kind of work actually get the same benefits and protections as so-called “professionals.”

David Cameron’s use of the veto in the recent EU summit opens an era of deep uncertainty (and possible catastrophe) for British and European politics. Two things seem to be true: Cameron is an incompetent opportunist in thrall to his backbenchers and the proposed treaty is a disaster for the Eurozone countries themselves. The fact that it is a disaster (a fact recognized by Francois Hollande’s declared intention to renegotiate) might seem to give some support to Cameron. But of course it doesn’t, since the remaining 26 countries will just go ahead without the UK. All Cameron has done is isolate and exclude himself. As one MEP is reported as saying today, “If you’re not at the table, you’re on the menu.”

Cameron vetoed the proposed EU treaty on the basis, or pretext, that other countries wouldn’t agree to “safeguards” for the City of London. The reason he was asking for these was essentially just because his backbenchers had demanded he show the “bulldog spirit” and, since EU treaties need unanimity, he thought he could extract some symbolic gain to satisfy them. He didn’t clear this with Merkel or Sarkozy in advance and would have been inhibited in doing so because the British Tories withdrew from the mainstream Euro conservative grouping in order to hob-nob with a bunch of extreme nutters and anti-semites. Sarkozy, who wanted a more integrated core Europe without Britain in any case, took the opportunity to call Cameron’s bluff. All very good for Sarko in the run-up the the Presidential elections. Exit Cameron stage right, claiming to have stood up to the EU – and getting praised by the UK’s tabloid press and an opinion-poll boost – but actually exposing the City to further regulation under qualified majority voting. He’s also chucked away decades of British policy which favoured EU expansion with the new accession countries serving as a counterweight to the Franco-German axis. Where are the other countries now? Lined up with the French and Germans.

The Euro treaty itself, assuming it goes ahead as planned and is enforced, mandates balanced budgets and empowers the Eurocrats to vet national budgets and punish offenders. Social democracy is thereby effectively rendered illegal in the Eurozone in both its “social” and “democracy” aspects. Daniel put it “thus”:https://crookedtimber.org/2011/12/09/euro-kremlinology/comment-page-2/#comment-391547 :

bq. a takeover of Europe by the neoliberal “permanent government” who failed to get their way by democratic means. All of the nationalism and anti-German sentiment is a distraction from the real scandal here. The ‘technocrats’ (which is apparently what they want to be called, although frankly I am seeing a lot of ideology and not much technical ability) want to reorganise the whole of Europe on neoliberal lines (ironically, to basically replicate the Irish economic transformation

One might think, then, that the left should be happy to be well away from it and that Cameron has inadvertently done us a favour. However, the short-term consequences in British politics could well be awful. My worst-case fantasy scenario has Cameron calling a snap General Election on nationalist themes, getting a majority dominated by swivel-eyed propertarian xenophobes and dismantling the welfare state, the Health Service, the BBC etc. Riots and civil disorder would be met with force, and those driven to resistance or crime would be incarcerated in giant new prisons. The Scots would then, understandably, opt for independence, and England and Wales would be left at the mercy of the crazies for several decades. Texas-on-Thames, in short.

And Nick Clegg? Well I wonder if even Daragh McDowell will make a case for him now.

Helen Ladd and Ted Fiske have an excellent piece in today’s Times explaining the relationship between educational inequality and income inequality, drawing on Sean Reardon’s contribution to Whither Opportunity?: Rising Inequality, Schools, and Children’s Life Chances. An excerpt:

The Occupy movement has catalyzed rising anxiety over income inequality; we desperately need a similar reminder of the relationship between economic advantage and student performance.

The correlation has been abundantly documented, notably by the famous Coleman Report in 1966. New research by Sean F. Reardon of Stanford University traces the achievement gap between children from high- and low-income families over the last 50 years and finds that it now far exceeds the gap between white and black students.

Data from the National Assessment of Educational Progress show that more than 40 percent of the variation in average reading scores and 46 percent of the variation in average math scores across states is associated with variation in child poverty rates.

International research tells the same story. Results of the 2009 reading tests conducted by the Program for International Student Assessment show that, among 15-year-olds in the United States and the 13 countries whose students outperformed ours, students with lower economic and social status had far lower test scores than their more advantaged counterparts within every country. Can anyone credibly believe that the mediocre overall performance of American students on international tests is unrelated to the fact that one-fifth of American children live in poverty?

The most striking graph in Reardon’s chapter shows the change in achievement gaps between black and white students (which declines from Brown on) against the change in gaps between children from the highest and lowest income deciles (which starts to rise as income inequality starts to rise, perhaps unsurprisingly):

More on Whither Opportunity? another time, but for now read the whole thing.

Understanding developments in the European crisis has become rather like Kremlinology, trying to figure out the meaning of subtle changes in wording, and rearrangements of the Politburo on the podium for May Day parades. In particular, Mario Draghi of the ECB goes back and forth, sometimes suggesting that the ECB will do what nearly everyone else can see is minimally necessary to the survival of the euro (namely, print lots of them, and use some to buy EU government debt, as was done by the Fed and the Bank of England). At other times, though, it’s as if Jean-Claude Trichet is doing a ventriloquist act.

In one respect, todays EU agreement was anything but subtle. The fact that the Eurozone countries and those aspiring to join them were prepared to go ahead without the UK (and a few others) suggests that they have something serious in mind. But what – the announcement is pretty much a restatement of the Growth and Stability pact, and under present circumstances, the deficit targets can only be seen as aspirational.

Applying one of the approaches that used to be standard in Kremlinology (not necessarily a reliable one, then or now) I’m going to assume that the EU leaders are acting with some sort of coherent goal in mind and work from there. In particular, I’m going to assume that everyone who matters now recognizes the need for a big monetary expansion and the use of newly created money to resolve, or at least stabilize, the debt crisis. [click to continue…]

Via DeLong and Econospeak, I found my way to Gregory Mankiw’s self-exculpation in the New York Times. Mankiw quotes Keynes drawing a contrast between method and empirical conclusions:

bq. The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions.

Hard not to be struck by a parallel with Lukacs’s opening passage from History and Class Consciousness:

bq. Let us assume for the sake of argument that recent research had disproved once and for all every one of Marx’s individual theses. Even if this were to be proved, every serious ‘orthodox’ Marxist would still be able to accept all such modern findings without reservation and hence dismiss all of Marx’s theses in toto – without having to renounce his orthodoxy for a single moment. Orthodox Marxism, therefore, does not imply the uncritical acceptance of the results of Marx’s investigations. It is not the ‘belief’ in this or that thesis, nor the exegesis of a ‘sacred’ book. On the contrary, orthodoxy refers exclusively to method. It is the scientific conviction that dialectical materialism is the road to truth and that its methods can be developed, expanded and deepened only along the lines laid down by its founders. It is the conviction, moreover, that all attempts to surpass or ‘improve’ it have led and must lead to over-simplification, triviality and eclecticism.

I’ve never had sympathy for what Lukacs says here, and don’t know the context for the Keynes quote. But I’m struck by the way that both Mankiw and Lukacs implicitly endorse the idea that they can just keep on keeping on, whatever happens in the actual world.

bq. And so, in yet another triumph, the market mechanism has allocated a scarce resource, viz., the turkey, to its most efficient use, viz., being turned into artificial shit. What makes this the most efficient use of the scarce resource? Why, simply that it goes to the user who will pay the highest price for it.

“More here from Cosma”:http://cscs.umich.edu/~crshalizi/weblog/841.html.

Update Nov 20 I’ve revised this as a result of thinking about the comments, though I haven’t yet had time to take all the comments on board. The main change has been to focus specifically on the idea of “expansionary austerity”. As Keynes said in 1937, public sector austerity is desirable if the economy as a whole is booming. And, later in the chapter, I’ll talk about whether austerity is sometimes the least bad response to problems of foreign debt. The claim that is implicit in the current policies of the ECB, the UK Tories and the US Republicans is not merely that austerity is necessary as a response to debt but that it makes sense as a response to a deep recession. This idea is commonly described as “expansionary austerity” End Update note

* A few days ago, Australia’s Parliament passed legislation implementing a carbon tax (strictly speaking, a fixed price for carbon emissions permits, intended to convert to an emissions trading scheme in a few years). Here’s a piece I wrote for the Australian Financial Review on what this will mean for the doomsayers (that is, those who falsely predict economic doom as a result of this measure).

* Another opinion piece, in the New York Times, on Trichet, Draghi and the ECB

* Social scientists have known for a couple of decades that, contrary to its national myths, the US is a country with low intergenerational economic mobility, by international standards. Back in 2001, when I reviewed The Real Worlds of Welfare Capitalism by Bob Goodin and others, I mentioned that this was already well known. More recent evidence has shown that social mobility is not only low but declining. Yet until recently, popular discussion in the US seemed impervious to this evidence. Now suddenly, the issue is everywhere. Time Magazine had a front page story, there’s another in Salon and even the National Review is talking about it. Surely Occupy Wall Street has played a role here, but the lead time for a piece like that in Time would presumably predate #OWS. The experience of the Great Recession seems finally to be breaking down the power of zombie ideas.

A week or so ago I did an interview by Skype videolink with Taryn Hart of Occupied Media, talking about the issues raised by Occupy Wall Street. It’s now available online. I never watch myself on video, but I did listen to the whole thing and, allowing for a fair number of ums, ahs, and circumlocutions, I think the questions gave me the chance to state my ideas, and in some cases to work out on the spot what I thought about various issues.

I’ve just read ‘Tales of Fiscal Adjustment’ by Alesina and Ardagna, which appears to be the founding text for the idea of expansionary austerity. The level of scholarship, at least as it applies to Australia (which is their first illustration) is exceptionally poor, to the extent that it requires a rescuscitation of the ancient Internet tradition of Fisking. I’m going to quote excerpts from their text (about 50 per cent of the total), and intersperse them with my comments.

[click to continue…]

Inspired by Michelle Bachmann, I’ve been thinking about what a 6-6-6 response to Herman Cain might look like. Being multiply disqualified from seeking election to the US Presidency, I decided to put in as much work as Cain and his team appear to have done, but no more. Hopefully, the magic of crowdsourcing will turn this into a comprehensive blueprint. So, here are the basic goals, and over the page, some of those devilish details.

The aim of the plan would be
(a) Reverse pro-rich and anti-worker policy changes of the past three decades to reduce, by 6 percentage points, the share of market income going to the top 1 per cent.
(b) Increase, by 6 percentage points of national income, the personal income tax revenue raised from the top 20 per cent of the income distribution
(c) Reallocate, or use more efficiently, current public expenditure equal to 6 per cent of national income

The aim would be to raise post-tax incomes for those in the bottom 80 per cent of the income distribution by around 20 per cent, while making around 10 per cent of national income available for new or better public expenditure.

For reference, US national income is currently around $13 trillion, so 1 per cent is $130 billion.

[click to continue…]

This comment by Yglesias is on target: “the TNR staff editorial on the subject [of OWS] feels distinctly like an op-ed penned eleven years ago about anti-globalization protestors, put on ice, and then re-animated with a hasty rewrite that fails to consider the actual political and economic circumstances.”

The staff editorial itself is not so important. What’s important is that, once upon a time, there were debates about trade ‘liberalization’ – globalization – that used to divide neoliberals and liberals and progressives. Basically, the neoliberals were gung-ho for trade on the grounds that the alternative was protectionism that amounted to shooting your own foot, and didn’t do any good for the poor in the Third World. And the progressives saw jobs being outsourced, labor unions weakening. Liberals were those caught in the squishy middle, per usual. We’ve had some debates on Crooked Timber of late about what ‘neoliberalism’ means. I’ve not participated because, honestly, term’s more trouble than it’s worth, worrying what it means. (I have other terms that are more trouble than they’re worth to worry about that I worry about. As a philosopher, I need to limit the number of such that infest my mental life.) The thing is: in the current situation, there is not – and should not be – anything analogous to the neoliberal side of the trade debate. No one sane thinks that this whole 99/1 business might be like NAFTA, i.e. something we have to go for, in an end-justifies-the-means spirit. [click to continue…]

Nate Silver had “a tweet”:http://twitter.com/#!/fivethirtyeight/status/127352379866742784 this morning that’s relevant to a debate that went on here a month or so ago.

bq. The median American’s non-household wealth declined by 14% between 2001 and 2007. So when household wealth evaporated, guess what happened?

I’m not sure of the source of this, so take some of this with a grain of salt. But if it’s true, it is relevant to something Daniel Davies “claimed”:https://crookedtimber.org/2011/09/22/but-whos-the-real-criminal-its-me-isnt-it/ and Brad DeLong “rejected”:http://delong.typepad.com/sdj/2011/09/over-at-crooked-timber-daniel-davies-turns-into-an-internet-troll.html, namely (to quote Daniel) “we are in a recession basically because of the disppearance of a huge amount of household sector wealth”.

I basically think Daniel is right on this, and Brad wrong, for reasons I’ll go into below the fold. And I take it Nate is endorsing Daniel’s line, namely that the recession was brought about by a huge collapse in household wealth.

[click to continue…]

Watching footage of the Occupy protests suddenly reminded me of Pete Seeger’s marvellous song (played at Jerry Cohen’s funeral btw). I thought it would be a nice thing to share.