by John Q on August 7, 2011
S&P’s decision to downgrade US Treasury bonds from AAA to AA+ has elicited various reactions, some of which I’ll doubtless repeat here. Obviously, S&P has no particular expertise (apparently it couldn’t even get the arithmetic right) and based on its historical and continuing performance, its opinions ought to carry no particular weight with anybody (they say so themselves, when under pressure over obvious cases of misrating, asserting that they are merely offering an opinion).
On the other hand, it’s also pretty obvious (and even more so after the Repubs successful use of the debt ceiling to force Obama to abandon any call for tax increases along with the cuts they both wanted) that the US has some fairly intractable problems in dealing with its (technically quite manageable, but still substantial) public debt. Finally, as I said last time I discussed this, a decision of this kind (including a decision to maintain AAA ratings) is inherently political
There are two reasons why S&P’s choice of rating matters more than, say, my own opinions on the matter
* First, a lot of investors still pay attention to ratings agencies, for whatever reason
* Much more importantly, agency ratings are embedded in global regulations concerning prudent management of investment. If a second major agency were to join S&P in downgrading, large numbers of institutions would be debarred, under existing rules, from investing in Treasury bonds
That’s clearly unsustainable, so what will happen?
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by Chris Bertram on August 5, 2011
This is just a short post seeking, for the purposes of mutual clarification, to highlight where I think the real differences lie between someone like me and “left neoliberals” like Matt Yglesias. I think that something like Yglesias’s general stance would be justifiable if you believed in two things: (1) prioritarianism in the Parfit sense and (2) that real (that is, inflation adjusted) income levels reliably indicate real levels of well-being, at least roughly. For those who don’t know, prioritarianism is a kind of weighted consequentialism, such that an improvement in real well-being counts for more, morally speaking, if it goes to someone at a lower rather than a higher level of well-being. So prioritarism is a bit like a utilitarianism that takes a sophisticated and expansive view of utility and weights gains to the worse-off more highly. This view assigns no instrinsic importance to inequality as such. If the best way to improve the real well-being of the worst off is to incentize the talented (thereby increasining inequality) then that’s the right thing to do.
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by Chris Bertram on August 4, 2011
Last night’s BBC Newsnight in the UK featured “an item on living standards”:http://www.bbc.co.uk/iplayer/episode/b0132003/Newsnight_03_08_2011/ (at about 29′) and an interview with Doug McWillians of the “Centre for Economics and Business Research”:http://www.cebr.com/ think tank (whoever they are). McWilliams asserted that the UK faces a decline in living standards of 25 per cent over the next 20 years or so because of wage competition from overseas: “we” are going to be 25 per cent worse off. I have no idea how plausible this is.{fn1} However, if I’d been the interviewer I’d have followed up by asking McWilliams, “so, the economy is going to shrink by 25 per cent over the next few years?” Because I’m pretty sure that the economy is going to continue to grow, and that McWilliams also believes this, (eventually, and maybe sluggishly) and asking that follow-up would have forced him to make it explicit that he thinks we face a future of contraegalitarian redistribution (and, judging by some of the other elements in the item, longer hours). Unfortunately, the question never came. Until these questions get asked though, we’ll still have a political debate dominated by the assumption that growth-promoting policies will provide people with better lives, even though it seems that they won’t. (Which doesn’t, of course, establish that in the absence of such policies things wouldn’t get even worse.) To protect and improve the real living standards of ordinary people, we need to get redistribution explicitly onto the agenda and not just allow the assumption that rising tides lift (the key political assumption of “left neoliberalism” it seems to me) to stand.
1. To be fair, McWilliams says the decline isn’t predetermined, but can be avoided if “we” provide ourselves with enough in the way of high-tech skills to “command a premium”. Of course this is another feature of the “left neoliberal” toolkit, but as the experience of new Labour shows, it is one thing to sloganize (“education, education, education”) it is another to actually change things.
UPDATE: For some reason Matthew Yglesias has “linked to this post”:http://thinkprogress.org/yglesias/2011/08/04/287553/the-new-labour-record-on-income-growth/ taking it to be a data-free assertion that Blair and Brown failed on inequality (I believe that they failed, but it isn’t the subject of this post) and then waving around a Lane Kenworthy graph that he’s fond of in refutation. Two points: (1) the only point in the post that touched on the failure of New Labour was the footnote, which alludes to their record on education not inequality; (2) “Brian posted a few months ago”:https://crookedtimber.org/2010/10/01/fun-with-gini-coefficients/ in response to “the last time”:http://thinkprogress.org/yglesias/2010/09/30/198683/new-labour-and-inequality/ Matt deployed his favourite graph against “me on New Labour’s record”:https://crookedtimber.org/2010/09/30/its-about-the-distribution-stupid/ on inequality, given that, I’m surprised Matt is still waving it around.
by John Q on July 30, 2011
My last post, arguing that the share of US income going to the top 1 per cent of households is now so great that any effective policy must be financed by reducing or more effectively taxing the income of this group produced a range of interesting (and some not so interesting responses). First up, it elicited what appears to be new variants on a couple of standard rightwing talking points. More interesting to me is a response from Matt Yglesias arguing (as I read him) that, even if there is no serious prospect of reversing the shift of income to the top 1 per cent[1], there is still plenty of capacity for progressive political actions based on a broadly neoliberal (US sense) agenda.
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by Kieran Healy on July 21, 2011
by Kieran Healy on July 17, 2011
Via Chris, on Twitter (I hope I’m not preempting him here), an Open Letter from a Keynesian to a Marxist by Joan Robinson, and “Zombie Marx“, an essay by Mike Beggs. Here is Robinson, writing in 1953:
I was a student at a time when vulgar economics was in a particularly vulgar state. … There was Great Britain with never less than a million workers unemployed, and there was I with my supervisor teaching me that it is logically impossible to have unemployment because of Say’s Law. Now comes Keynes and proves that Say’s Law is nonsense (so did Marx, of course, but my supervisor never drew my attention to Marx’s views on the subject). … The thing I am going to say that will make you too numb or too hot (according to temperament) to understand the rest of my letter is this: I understand Marx far and away better than you do. (I shall give you an interesting historical explanation of why this is so in a minute, if you are not completely frozen stiff or boiling over before you get to that bit.) When I say I understand Marx better than you, I don’t mean to say that I know the text better than you do. If you start throwing quotations at me you will have me baffled in no time. In fact, I refuse to play before you begin. What I mean is that I have Marx in my bones and you have him in your mouth. … suppose we each want to recall some tricky point in Capital, for instance the schema at the end of Volume II. What do you do? You take down the volume and look it up. What do I do? I take the back of an envelope and work it out.
And here is Beggs:
There are generations of economists who would call themselves Marxists, or admit Marx as a major influence, who have … engaged with other strands of economic thought and folded them into their worldview, have worried little about dropping from their analyses those aspects of Marx’s argument they believed to be wrong or unhelpful, and have felt no need to pepper their writing with appeals to authority in the form of biblical quotations. But in each generation, there are others who have defended an “orthodox” Marxian economics as a separate and superior paradigm, which can only be contaminated by absorbing ideas from elsewhere. … If we are to engage in these ways with modern economics, what, if anything, makes our analysis distinctively Marxist? It is the two-fold project behind Capital as a critique of political economy: first to demonstrate the social preconditions that lie beneath the concepts of political economy, and especially their dependence on class relationships; and second, to demonstrate these social relations as historical, not eternal. These two strands of Marx’s thought are as valid as ever. The way to apply them today is … is to deal not only, not even mainly, with economic high theory, but also with the applied economics produced every day in the reports and statements of central banks, Treasuries, the IMF, etc., and ask, what are the implicit class relations here? Why are these the driving issues at this point in history? What are the deeper social contradictions lying behind them? The pursuit of a separate system of economics as something wholly other from mainstream economics isolates us from the political and ideological space where these things take place: better, instead, to fight from the inside, to make clear the social and political content of the categories. A side effect is that we learn to think for ourselves again about how capitalism works, to be able to answer the kinds of question DeLong raised against Harvey, no longer lost without the appropriate quotation.
by John Q on July 17, 2011
The political impregnability of Rupert Murdoch and NewsCorp has always been one of those facts about the world that seemed regrettable but eternal. By contrast, the ability of the banks to emerge from their near-destruction of the world economy richer and more politically powerful than ever before certainly took me by surprise when it happened (partly motivating my change in title from “Dead Ideas” to “Zombie Economics”). John Emerson pointed out the other day that the head of risk management at Lehman Brothers, arguably the most egregious individual failure among the thousands of examples, was just appointed to a senior position at the World Bank.
But now it seems there is just a chance that the curtain might be swept away from even these wizards. The emerging theme in commentary is the corrupt culture of impunity represented by the press hacking scandal, MP expenses and the banks (here’s Ed Miliband pulling them all together).
If Labor could tie the Conservative-Liberal austerity package to the protection of the systemically corrupt banking system, they would have the chance to put Nu Labour behind them (I noticed Blair has already credited Brown with killing the brand). Instead of putting all the burden on the public at large, they could force those who benefited from the bubble to pay for the cleanup. The two main groups are the creditors who lent irresponsibly, counting on a bailout and should now take a long-overdue haircut and high-income earners who benefited, either directly or indirectly, from the huge inflation in financial sector income.
I know it seems hopelessly naive to think the banks could ever be brought to heel. But they were, for decades after the Depression. And as impregnable as they look today, Newscorp looked just as impregnable three weeks ago, as did the CPSU and the apartheid regime in South Africa thirty years ago.
Of course this spring moment won’t last long. But perhaps there is enough momentum that it won’t be exhausted by Murdoch alone.
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by Henry Farrell on July 11, 2011
As a quick addendum to John’s post, it’s worth remembering that Alex Tabarrok got “quite upset”:http://marginalrevolution.com/marginalrevolution/2007/08/dani-rodrik-has.html a few years ago, when Dani Rodrik “suggested”:http://rodrik.typepad.com/dani_rodriks_weblog/2007/08/irreconcilable-.html that he and other libertarians were anti-government ideologues who had immunized themselves against countervailing evidence.
bq. Dani Rodrik responds here to my pointed remarks on his argument for industrial policy. Rodrik’s response, however, is along the same lines of his earlier – “I’m sophisticated, you’re simplistic” – post on why economists disagree. In this case, it’s ‘libertarians are ideologues who are immune to evidence.’ Rodrik, however, has painted himself into a corner because he cannot at the same time say that the “systematic empirical evidence” for market imperfections in education, health, social insurance and Keynesian stabilization policy is “sketchy, to say the least” (also “difficult to pin down” and ‘unsystematic’) and also claim that libertarians are ideologues who are immune to evidence. Say rather that libertarian economists are immune to sketchy, unsystematic, difficult to pin down evidence. Rodrik is thus right that he is “not as unconventional as I sometimes think I am. The real revolutionaries here are the libertarians.” The libertarian economists are revolutionaries, however, not because they are immune to evidence but because they respect evidence so much that they are unwilling to accept “conventional wisdom” simply because it is conventional.
I’m trying really, _really_ hard to reconcile the argument that Alex and his mates are not anti-government ideologues, and indeed have far greater respect for evidence than their opponents, with his more recent “claim”:http://marginalrevolution.com/marginalrevolution/2011/07/the-great-fiction.html that:
bq. As Bastiat said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” What Rampell et al. want to do is to make people believe in this great fiction.
It seems to me difficult to maintain the claim that government is necessarily a communal fraud (and that the people who you disagree with are trying to make people believe in this fraud) and at the same time argue that you and other libertarian economists are open-minded individuals happy to go wherever the evidence about politics and markets takes you. But then I’m not a “libertarian economist”:http://www.cscs.umich.edu/~crshalizi/weblog/253.html.
by John Holbo on July 11, 2011
Alex Tabbarok has written an odd post, whose reasoning, were it sound, would seem to license the following inference. Since, as Bastiat says, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else,” John Cleese’s fatal mistake in this debate is to admit the existence of Roman aqueducts. (That really puts him on an ontological slippery slope to sanitation and education and all manner of entification.)
But seriously. I guess I can see arguing that tax credits aren’t, per se, social programs – but aren’t they social engineering, hmmm yes? (Wouldn’t it follow that they couldn’t be faulted for being the latter, if they can’t be credited with being the former?) But I find it hard to see how 529 plans could, strictly speaking, fail of bare existence. (If you think otherwise, I’ve got a Pentagon you might like to levitate.) Arguing that if something didn’t exist, the private sector could take up the slack is one thing. But arguing that because you could – oh, say, hire a private protection outfit – that therefore the police actually don’t exist … ?
Finally, I have a feeling that Tabarrok would not, if caught in another mood, express a preference for a tax code pockmarked with various and sundry breaks, giveaways and loopholes over one lacking these features, commonly regarded as unlovely by economists. But since Tabarrok’s stated position is now that such things are rightly regarded as precious islands of civil freedom, in a socialist sea of serfdom … oh I give up.
by John Q on July 8, 2011
Another really bad employment report from the US Bureau of Labor Statistics. Employment has been essentially static for the last couple of months, and most of the ground gained in 2010 has been lost. Unsurprisingly, public sector job cuts are leading the way downwards, as the stimulus fades into memory and austerity proceeds at the state and local level. In this context, it’s hard to know what outcome of the current negotiations over the debt limit would be worse: unconditional surrender to Republican demands for yet more spending cuts, or a failure to pass any legislation, with consequences that remain unclear[1].It’s hard to see US unemployment falling substantially any time soon. The decline in the participation rate (it’s fallen by about 3 percentage points of the population, equal to about 5 per cent of the labor force) means that the standard measure seriously understates the severity of the problem. If employment growth were to resume, lots of people would re-enter the labor market, so that unemployment would not decline fast.
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by John Q on July 1, 2011
I’ve been writing series of posts examining the question – what is left of Marxism, as a way to understand the world, and as a way to change it, once it is accepted that capitalism is not going to be overthrown by a working class revolution. The first was about class and the second about crisis. Now for the final instalment: capital.
By the way, the first post got translated into Spanish, here. It’s one of the things that I still find stunning about the Internet that things like this can happen.
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by John Q on June 11, 2011
The once unthinkable prospect that US government debt might lose its AAA rating has suddenly become a real possibility. In fact, it now seems about as likely as not. The problem is not so much “can’t pay” but “won’t pay”. The US, like quite a few other countries, has some fairly serious fiscal imbalances, but they aren’t pressing in the short run, and there is plenty of capacity to raise additional revenue or cut spending so as to stabilise the ratio of debt to GDP at a sustainable level.
The problem is that the total value of outstanding debt keeps growing (this would happen even with a stable debt/GDP ratio) and the US Congress requires periodic votes to approve this. They are usually the occasion for some grandstanding, but this time the Republican majority of the House of Representatives is seriously threatening a refusal, unless the Democrats agree to massive (and still unspecified) spending cuts. The due date for raising the debt ceiling passed a while ago, but an actual default is being staved off by some sharp accounting tricks, which will apparently work until 2 August. The other day, to prove they are serious, the Repubs introduced a motion for an unconditional increase in the debt ceiling, with the express purpose of voting unanimously against it, which they did.
At this point, loud alarm bells have started ringing for the big ratings agencies, Standard&Poors and Moodys. They will have to decide, well before August, whether to downgrade US government debt and if so by how much.
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by Ingrid Robeyns on June 5, 2011
The American Economic Association has announced that from July 1st, “double-blind reviewing” will be dropped for the American Economic Review (being the flagship journal in the economics profession), and the 4 other journals which the AEA publishes. Here’s the full statement on their website:
Upon a joint recommendation of the editors of the American Economic Review and the four American Economic Journals, the Executive Committee has voted to drop the “double-blind” refereeing process for all journals of the American Economic Association. The change to “single-blind” refereeing will become effective on July 1, 2011. Easy access to search engines increasingly limits the effectiveness of the double-blind process in maintaining anonymity. Further, it increases the administrative cost of the journals and makes it harder for referees to identify an author’s potential conflicts of interest arising, for example, from consulting.
So, how good are these arguments?
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by John Q on May 31, 2011
Ten years or so ago, the Australian dollar was worth about 50 US cents on foreign exchange markets. I bet a small amount with a colleague that within five years, $A would have achieved parity. My reasoning was simple, elegant and wrong. By most estimates, the Purchasing Power Parity exchange rate[1] is around $A1.00 = $US0.70, so the Australian dollar was undervalued by around 40 per cent. It seemed to me that, within five years or so, the deviation should have not only been corrected but overshot in the other direction, giving a rate near parity.
I should have considered more carefully the saying, apocryphally attributed to Keynes, that the market can stay irrational longer than you can stay solvent. If deviations from PPP corrected within five years, speculators would bet on this happening, and the deviation would not be sustained at all. So, if PPP is false, it must stay false for long periods.
And that’s what’s happened. The Australian dollar has been above parity for some months now, and shows no sign of falling.
That raises some interesting questions. I’ll put up a few over the fold, and maybe update them as I go
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by Belle Waring on May 25, 2011
Kevin Drum recently posted in a sort of muddle-headed, if well meaning, way. His post is entitled, “Why Do Hotels Tolerate Sexual Predators?” His readers were there to point out that if you kicked all the rich flashers out of your hotel you’d lose a lot of money. I might additionally suggest that the victims (in these cases, the housekeepers), are mostly immigrants working in a low-status job, and their right to be free from unwanted exhibitionism looms small in the mental world of a hotel manager.
When I say the post is muddle-headed, I only mean that it is surprising that Drum is surprised. Many (most, actually) of the women I know have been flashed, usually as younger girls. It’s not as though it’s some astonishing thing that never happens; it’s just going on all the time, but not happening to Kevin Drum. But in swoops Megan McArdle and I thought, how is she going to defend rich assholes who flash hotel housekeepers? I mean, really. Especially considering that Megan grew up in New York City in the 70s and 80s, which means I am morally certain some dude has flashed her, or masturbated next to her on the subway, or done something equally unwelcome. How not? (I have experienced all these things, and more! Ask me about the time the cops told me the man hassling me was a convicted sex offender who had forcibly raped at least 6 women, and I was “an idiot” because I returned idle pleasantries, in a deflecting way, on the BART. It was apparently my duty to remain silent at all times.) But then, she doesn’t mention it, so perhaps she was weirdly lucky in this regard. Really weirdly lucky.
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