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Of the two meanings of “Neoliberalism”

Of the two meanings of “Neoliberalism”

The use of the term “neoliberal” has recently been criticized as a meaningless epithet, a tabula rasa used to disparage anyone deemed unsatisfactorily conservative.

To the contrary, I think the term “neoliberal” is fairly precise, but much like the term “liberal” itself, it has two quite different meanings depending on whether the definition descends from its original European or American incarnation.  The first variety is very right-wing. The second is centrist.

A good description of right-wing neoliberalism can be found in this article in Al Jazeera this past weekend on a right-wing awakening in Latin America:

[N]eoliberalism is … a means to an end. The state is purposefully reduced in its scope of action to a minimum – by way of policies associated with fiscal austerity, financial deregulation, free trade and the privatisation of public assets, among others – so nothing can prevent the market and its profit-oriented agents from reaching a fair point of equilibrium between demand and supply. According to those who advocate such perspective, the state is nothing but a “necessary evil”.

Similarly, Brad DeLong has said:

[R]ight-neoliberalism is the claim that social democracy was one huge mistake–that it created a North Atlantic of takers who mooched off the makers. It holds that if we got rid of social democracy, we would have a utopia because the makers wouldn’t have to carry the takers on their backs and the takers would shape up ….

This right-wing meaning, of “neoliberalism” is a reincarnation of European-style 19th Century laissez-faire liberalism, a belief that the ideal state should operate and be limited by the rule of law, and administered by neutral officials selected on merit, with the economic markets left to themselves without interference by government. Nineteenth century liberals had no problem with, for example, government  promotion of infrastructure, including things like sanitation and education. Right-wing neoliberals, by contrast, see all government bureaucracy as inherently evil — even, as we saw in the case of Flint, Michigan, in the case of basic sanitation.

Note that right-wing neoliberalism is similar to, but not quite the same as, “libertarianism.” Libertarians believe the state also has no business in the private sphere of people’s lives. Thus it should stay out of the bedroom as well as the boardroom.  Not necessarily for right-wing neoliberalism. Right wing liberalism is agnostic as to whether foreign policy is passive or imperialistic, and whether or not government intervenes in the social sphere, so long as it stays out of the economic sphere.

The second type of “neoliberalsim,” centrist neoliberalism, originates from the US meaning of liberalism, and is once again defined pretty  well by Brad DeLong:

1. Most of the time the best way to accomplish social-democratic ends will be to get the money to the people who maximally want those ends accomplished, and then let them spend it.

2. Most of the time the best way to correctly manage the market system so that it doesn’t rain destruction upon the land is to impose the appropriate anti-destruction-raining Pigovian taxes (and subsidies).

3. Most of the time command-and-control is strictly dominated by other modes of government intervention that are less vulnerable to naked rent-seeking by the politically influential.

Elsewhere he quotes John Quiggin:

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Trump’s presidency is 1/8 done. The economy is still on Obama’s autopilot. Where’s the DOOOM?!?

Trump’s presidency is 1/8 done. The economy is still on Obama’s autopilot. Where’s the DOOOM?!?

Today marks half a year since Donald Trump took the Oath of Office as President.  I just wanted to note that, so far, absolutely nothing of significance has been enacted to affect the economy.  It’s still basically Barack Obama’s expansion.

Of note, where have all the Doomers gone?  Zero Hedge has turned into a Trump + Putin fanboi club. The left-wing purists who were sure that everything stunk and the next crash is right around the corner have moved on to other things.  The writers who had been bleating about imminent recessions – almost every year since 2009 – are now just talking about very slow GDP growth.  I’m almost tempted to become a contrarian!

Basically, everything of note is positive, although much has been or is decelerating.  Over the next 6-12 months, if Washington leaves the economy alone, I expect job growth to continue, the unemployment rate to decline a little, prime age labor force participation to increase, and nominal wage growth to remain steady if participation increases a lot, and maybe increase more if participation only increases a little, although the positivity of most of these things will probably decelerate.

One eighth of the way through Trump’s presidency, Obama’s autopilot is still engaged.

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Trump: the endgame (op-ed)

Trump: the endgame

There was some economic news last week which is important for the long term, and I’ll try to post about it later today or tomorrow, but in the meantime …
I’m as interested in the latest Trump-Russia tidbit as the next person, but really, don’t we all already know the endgame?

Remember during the campaign, no matter what devastating gaffes Trump made, he always rebounded into the low 40%’s? Well, about the same thing has been true for the last 5 months.  No matter what the news, Trump’s approval rating is 38% +/-3%:

So here, as a public service, to save you all the sturm und drang of the next 3 years, I present you in narrative form with the endgame:

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A thought for Sunday: Trump voters and the “peasant mentality”

A thought for Sunday: Trump voters and the “peasant mentality”

I am currently reading a comprehensive tome on 19th century European history, “The Pursuit of Power,” by Richard J. Evans.
One episode that made a big impression on me was the decision by Otto von Bismarck (no conservative he) upon the establishment of the German Confederation, to eschew property qualifications for the franchise for the Reichstag and embrace universal male suffrage (p. 257).  Why? In so doing, he “bypass[ed] the liberal middle classes to appeal to what he assumed were the loyal and conservative masses in the countryside.”

I was reminded of Bismarck’s shrewd insight upon reading a post by Dietrich Vollrath:  “The return of the peasant mentality.”

Discussing the outcomes of recent research, Vollrath writes:

[W[hen people move from rural to urban, or urban to rural places in these countries, do their wages change?….
The combination of facts tells you that there is selection out of rural/agricultural work and into urban/non-agricultural work for people with lots of human capital. There is not some distortion that prevents rural people from moving to higher wage positions, apparently, its just that all the really skilled or smart people move off the farm.

….

What’s really interesting is that this pattern shows up in the Raven’s Z-scores …. a crude, but effective, proxy for IQ….  So it’s not just that people who are lucky enough to get an education in an urban area stay there, and people unlucky enough to miss out on schooling in rural areas stay there. People with better measures of inherent smarts tend to end up in the city, or are in cities to begin with.

Perhaps we should take seriously the idea that peasants are really different, not just in their constraints (which the development literature …, but in their underlying preferences as well ….

One sees the pattern repeating over and over, across all sorts of societies, from the Spanish Civil War of 1937 to most of Mexican history. A decade or so I read that many of the Chinese immigrants to the U.S. in the late 20th century were Fujianese.  What distinguished the leavers from the stayers?  More than anything else, it was the propensity for risk-taking.

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June jobs report: great headline, but once again where are the wages?!?

June jobs report: great headline, but once again where are the wages?!?

HEADLINES:

  • +222,000 jobs added
  • U3 unemployment rate rose +0.1% from 4.3% to 4.4%
  • U6 underemployment rate rose +0.2% from 8.4% to 8.6%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

  • Not in Labor Force, but Want a Job Now: down -130,000 from 5.561 million to 5.431 million
  • Part time for economic reasons: up +107,000 from 5.219 million to 5.326 million
  • Employment/population ratio ages 25-54: up +0.1% from 78.4% to 78.5%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.99,  to $22.03, up +2.3% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)

Holding Trump accountable on manufacturing and mining jobs
Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?

  • Manufacturing jobs rose by +1,000 for an average of +2000 vs. the last severn years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs were unchanged for an average of +200 vs. the last severn years of Obama’s presidency in which an average of -300 jobs were lost each month

April was revised upward by +33,000. May was also revised upward by +14,000, for a net change of +47,000.

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Reality begins to sink in for GOPer economic confidence

Reality begins to sink in for GOPer economic confidence

While we are waiting for tomorrow’s employment report, here’s a little something to chew on. In the immediate aftermath of the Presidential election — as in, by the end of that week — Gallup’s measure of economic confidence soared, from its 2016 average of roughly -10 to a positive number and to nearly +10 by the end of November: In fact, while the confidence of Democrats sank, the confidence of GOPers skyrocketed even more. Since I have very little faith in the GOP agenda to deliver any uptick in growth, I have been watching and waiting for this confidence to ebb.  It did somewhat beginning in March, but never to the point of coming close to that in the final year of Obama’s term. (For the doubters, consider George W. Bush’s economic policies.  Despite being the most right-wing since the 1950s, we had the weakest post-War jobs and wage growth on record, and a weak GDP to boot. Where was the trickle-down?) Until last week.  Last week Gallup’s economic confidence index fell to -7:

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Happy 8th Independence Day, economic expansion!

Happy 8th Independence Day, economic expansion!

In lieu of a more traditional Independence Day post, in view of the fact that the economic expansion turned 8 years old this week, I thought I would take a moment to highlight how far we have come.  Because as mediocre as some things are, we have come a long, long way since the dark days of June 30, 2009.
Unemployment has fallen from a high of 10.0 to 4.2%, and underemployment has fallen from 17.1% to 8.4%:


Over 16 million jobs have been added since the bottom in February 2010:

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Five graphs for 2017: mid year update

Five graphs for 2017: mid year update

– by New Deal democrat

At the beginning of the year, I identified 5 trends that bore particular watching, primarily as potentially setting the stage for a recession next year.  Now that we are halfway through the year, let’s take another look at each of them.

#5 Gas Prices

One potential pressure point on the economy was gas prices, which appear to have made a long- bottom in January of 2016. As they began to rise, consumer inflation has increased from non-existent to almost 3%. So the issue was, will they rise even further and drive inflation even higher?
And the answer so far this yeear has been a resounding “No!”  Typically it has taken a 40% YoY increase in gas prices to shock the consumer.  Gas price increases did briefly approach that point early in the year, but since then they have retreated all the way to being negative YoY:

This has actually helped boost real wages, as we will see further below.

#4 The US$

Another potential pressure point on the economy was a big increase in the relative value of the US$, which was part of the shallow industrial recession of 2015.  The $ started to rise again after the November election.  Here too after an initial spike, the data has calmed down again:

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May industrial production: no change in trend

May industrial production: no change in trend

This was a post I meant to put up Friday, but was pre-empted by the important housing news.

May industrial production came in unchanged. But that didn’t stop Doomers, who had been silent about April’s big increase in manufacturing, from trumpeting its 0.4% decline (go ahead, just try to find their acknowledgement of April’s good number. You won’t.).

So, let’s put industrial production in perspective. First, here is the overall stat:


The uptrend since a year ago is still intact.

Next, let’s break it down by manufacturing (blue) and mining (red):

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This is a Big Deal: housing permits and starts now a long leading negative

This is a Big Deal: housing permits and starts now a long leading negative

I’ll have more to say next week, but let me just drop this right now: this morning’s housing report was a Big Deal. FRED doesn’t have the graphs yet, but here are the numbers from the Census Bureau cite.

Graph of starts and permits:


Note both have turned down significantly this year.

Table of housing starts:

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