Relevant and even prescient commentary on news, politics and the economy.

Some economic ideas thrive only in the darkness

Peter Dorman writes at Econospeak about economics insulated from the harsh light of day and evaluation of usefulness:

The Embarrassment Known as the Value of a Statistical Life

Some economic ideas thrive only in the darkness: they are simply too weird and half-baked to withstand public scrutiny. Perhaps no concept better exemplifies this than the value of a statistical life, the sum of money that supposedly measures the value of a life saved or sacrificed by a government program…

More over at Econospeak.

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GOP deficit-reduction hype used in ideological "values" war?

by Linda Beale

GOP deficit-reduction hype used in ideological “values” war?
crossposted with Ataxingmatter

There is concerted effort to portray Social Security as ruining the country by being a significant cause of the current deficit , and this is not accidental.  Social Security has been funded by payroll taxes that are supposed to be dedicated to the payouts.  But the GOP since Reagan has worked to cut income taxes and increase military funding (especially with the Bush “pre-emptive” wars of choice that Stiglitz now says will cost us a minimum of FIVE TRILLION), and has borrowed from those Social Security pension funds to pay for those tax cuts and military excesses. It’s the tax cuts and runaway military spending that are choking this country’s economy, not Social Security.  That fact gets lost unless Social Security’s income and outflows are portrayed fully.  It’s a fact that the GOP wants to be lost, I think, along with the overall amount of military and related spending in our budget.

The cost of treating Social Security as part of the deficit is that workers who have been locked out of sharing in productivity gains will pay, while the benefits have gone especially to the upper class that owns most of the financial assets and most of the military-industrial complex.

The deficit hype appears to be a concerted effort, in other words, to destroy the programs that were created in reaction to the colossal inequities that were contributory causes of the Great Depression and were intended to safeguard the broad-based society where growth is shared and everyone has opportunities that is essential to democracy.  I just found that Robert Reich has similar thoughts, noting that this is a divide-and-conquer strategy built on three kingpins:  the battle over the budget, the assault on public employees, and the distortion of the Constitution. See The Real Republican Strategy, Salon.   What the GOP aims to do, I suppose, is to weaken the 90% who aren’t in the race to be the richest plutocrats of the country., and make sure that they secure the spoils for those at the top.

It would seem that the GOP is using this moment to

  • Get rid of programs that have advanced gender equality.
    • See Rebecca Traister, This is what pro-life means?, Salon.com, Feb. 18, 2011, noting that “Morality is on the side of women, on the side of children, on the side of a society that offers aid to its impoverished and to its young and does not discriminate against half its population. In Moore’s words, ‘Planned Parenthood is healthy for women, it’s healthy for children, and it’s healthy for our society.’ ”  The post includes a video of Rep. Jackie Speier’s impassioned response to the lack of understanding about abortions. 
    • See, e.g., Top 10 Shocking Attacks from the GOP’s War on Women,  MoveOn’s political action group (noting the attempt by various state and federal Republican groups to reduce access to abortions and r;define victims of rape  (but not of other crimes like burglary) as mere “accusers”; expand legitimate “defense” to permit killing abortionists; cut funding for food and other assistance to low-income pregnant women and families; allow hospitals to refuse abortions necessary to save a woman’s life;    eliminate preschool programs for poor kids at state levels and Head Start at the federal level; cut funding for services for the elderly poor (most of whom are women); cut all funding for Planned Parenthood; cut all funding for family planning.
  • Get rid of public employee unions (and reneg on pension promises made years ago at the same time). The mainstream media has lapped this up like the lapdogs they are.  See, e.g., Wall Street Journal, New York Times stories.  
    • Gov. Walker in Wisconsin–the state where there is a pitched rhetorical battle to get rid of public employee unions and defund public pensions–die not inherit a budget shortfall.  Like at the national level, GOP policies are driving the attack on public employee more than the actual deficits involved–especially since those shortfalls at states are related to the toll of the Great Recession and to states’ long-term habits of borrowing from Peter (their own employees’ pension funds) to pay Paul (e.g., their other creditors or even their wealthiest taxpayers who were spared taxes by the borrowing).  See, for example, Mark Thoma at Economist’s View on the spreading use of recession-induced budget gaps to target unions. Gov. Walker has pushed the “tax cuts create jobs” idea, signing various business tax cuts into law. See Walker Gins Up Crisis to Reward Cronies, The Cap Times, Feb. 16, 2011;  Wisconsin Legislative Fiscal Bureau, annual review of the State’s Fiscal Status (Jan 2010) ( even with the recession and various changes that caused the state to have less revenues, projecting a surplus of more than $55 million at the end of the 2009-2011 biennium which, though below the statutory surplus of $65 million required, means that the state was still doing well); Walker Signs 2 More Business Incentive Bills, Journal Sentinel, Jan. 31, 2011.  Exacerbating the shortfall created by the tax cuts, the state has about $260 million of unfunded obligations– from taking $200 million out of a dedicated fund for general fund purposes and from an unpaid obligation to Minnesota under a tax reciprocity agreement (an obligation that is earning interest at more than $4000 a day).  So the public employees aren’t the cause of the state’s problems. 
    • This is particularly worrisome for higher education.  See Inside Higher Education story on impact on Wisconsin academics.  These attempts to hit public employees generally start with some of the studies that suggest that public employees have better benefits than private employees.  As noted in earlier posts, that is debatable.  Commensurability is a problem, since many state and federal government jobs require higher education and experience levels.  Wages are negotiated  in exchange for better long-term benefits, which the states are now talking about reneging on.  It’s as though the private industry owners wrote the following script based on this “time to get even” rationale.

for years, we have underpaid our workers while keeping all the productivity gains for ourselves and paying ourselves knock-out pension and health benefits.

We’ve made sure that workers couldn’t unionize, by spending lobbying dollars to fight fair systems (like carch-check) and using all the powers of the employer to intimidate workers (see, e.g., Wal-Mart’s long history of unfair labor practices).  

Now it is clear that unions do benefit workers–just look at the fact that public employees have decent wages and benefits because they are able to bargain collectively with a decent employer that doesn’t use these methods to squelch workers.

We’ve got to stop that–let’s paint a picture of underpaid private workers who have very little in benefits, in order to incite jealousy of public workers.

Then we can use the deficit that we created by evading taxes, lobbying for tax cuts, and charging ridiciulous amounts for contracts through the military-industrial-banking complex to justify taking away both the benefits that public employees long ago gave up wages to receive and the collective bargaining rights that allowed them to get decent wages and benefits.

After all, the alternative would be for workers in our industries to realize that they’ve been cheated by not sharing in productivity and not being permitted to unionize.

We can’t have that–they might get some share of the wealth that has been increasingly accruing to us.

And we deserve all that wealth, because we’ve run our companies so well by making sure that they can’t unionize and that workers understand that they, not us, are expendable.

    

  • Hamstring or get rid of the EPA –The script here sounds very familiar.  We can’t have the EPA regulating carbon dioxide.  That would cut back on our profits.  So what if we are contributing the the rapidly accelerating global warming debacle.  We just can’t have environmental safeguards preventing us from making a killing (in more than one way) with oil and ore.  If we want to use highly toxic chemicals in fracturing rock to extract gas, we should be able to do it.  That’s the free market we believe in.  Free for us, risky for those who have to clean up after us (remember the Great Recession and TARP–same thing).
  • Get rid of public broadcasting.  Public Broadcasting has provided a voice for diverse perspectives in local communities that otherwise are completely left out of commercial media for lack of the funding to buy a way in.  But that voice is not necessarily monotonal–it often has religious or conservative perspectives, but it also permits liberal or atheistic perspectives.  So call up the script again, which in this case might go something like this–hey, we’ve allowed media companies to consolidate so that most are owned by a very few media conglomerates (Rupert Murdoch, SONY, Sinclair, etc.).  That’s great for us, because it permits us to control the way things are cast.  Look at how Murdoch has made even the conservative Wall Street Journal a right-wing rag on our side–not just the op-ed pages anymore, but the way the stories are chosen and cast.  PBS, on the other hand, stillmanages to show some leftie stuff–even with the fear we’ve put into them with Ken Tomlinson and the Corporation for Public Broadcasting’s requirement of balance.  (We know that there isn’t always a right-wing side that’s worth covering, but no matter–they MUST adopt the Fox News view of “fair and balanced” or funding will cease.  Better still, let’s just cease the funding anyway.  Bill Moyers and his ilk is a threat to every multinational corporation that is attempting to protect its hordes of cash from the US treasury by offshoring jobs and offshoring all intangible rights.

Gail Collins notes the same mentality when she discusses the way Congress “saved” the Defense Department’s budget to sponsor Nascar racers.  Sacred Cows, Angry Birds, New York Times, Feb 19, 2011.  Yes, that’s right–Defense wanted to torpedo the funding, but Congress found it was too important to woo Nascar fans to the military-industrial complex way of thinking.  They refused to cutit.

The newly ascendant Republicans have been howling that the deficit is so big, so threatening, that no traget for cutting is sacred.  “Everything is on the table.  We’re broke,” said Boehner.

But the table is mainly crowed with stuff the Republicans didn’t like to begin with.  Family-planning money and environmental protection, but not oil tax breaks or Nascar sponsorships.  “Sesame Street” is fair game, ut the Dayton 500 is untouchable.

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A Critique of Tyler Cowen’s The Great Stagnation, by way of Alex Tabarrok’s Criticism of Keynesian Politics

by Mike Kimel

A Critique of Tyler Cowen’s The Great Stagnation, by way of Alex Tabarrok’s Criticism of Keynesian Politics

Cross posted at the Presimetrics blog

Alex Tabarrok and Tyler Cowen are libertarian professors from George Mason University who post at the very popular Marginal Revolution blog. I often don’t agree with what they write, but its usually well reasoned and grounded in reality.  (Unlike, say, what comes up in a number of other libertarian blogs.)

Cowen recently wrote an e-book called The Great Stagnation&lt I haven’t read it – I’m swamped these days.  However, there have been many reviews (and comments by Cowen himself, so I think I can provide a brief summary.  Essentially, Cowen notes that in the last few decades (since about the early ’70s), real economic growth in the US has slowed.  (That won’t be a surprise if you read Presimetrics.)  His thesis is that this has to do with technological development – we’ve eaten the low hanging fruit, and further technological progress (and hence real economic growth) will be slow until we get off the plateau we’re on. 

It might seem unrelated, at first, but Cowen’s partner at Marginal Revolution, Alex Tabarrok, recently had written a post that received some comment. Tabarrok argues that whether Keynesian economics can work or not (he does not believe it can – presumably he wouldn’t be a libertarian if he did), Keynesian politics has failed, in that it simply hasn’t been tried in this country, not during the two big economic disasters of the last 100 or so years:  the Great Depression and the Great Recession. 

Tabarrok is wrong – wrong that Keynesian economics hasn’t been tried, and wrong that it hasn’t worked.  And Cowen, it turns out, is wrong about exactly the same thing in his book.

The basic Keynesian idea is this:  economic downturns (and meltdowns) can occur and/or be prolonged and worsened when the private sector becomes worried and cuts back.  In those circumstances, the government should step in and buy things, lots and lots of things, replacing the shrunken private sector demand.  Once the economy picks up again, the government should cut back on its spending and start saving up money, first to pay for its recent spending bout and second to have cash in hand to cover its next necessary spending bout.

Put another way – a government thinking along Keynesian lines will tend to run a deficit when real private sector spending falls below some prior highwater mark.  It will run a surplus in years real spending exceeds prior real private sector spending.  There may, of course, be exceptions in any given year, but a Keynesian government will generally follow that sort of behavior.  A government that runs a deficit when real private sector spending is rising, or runs a surplus when real private sector spending is falling, and behaves this way in general is most definitely not operating under Keynesian principles. 

Which brings us to data.  Surplus and deficit information was computed using current federal gov’t receipts and expenditures from the BEA’s NIPA Table 3.2 Real private sector spending is made up of real “personal consumption expenditures” and real “gross private domestic investment” from BEA’s NIPA Table 1.1.5 Data goes back to 1929, the first year for which the BEA computed data.

The following graph may look a bit odd, since it has no curve on it.  But it shows something cool.  If I did this correctly, the gray bars show periods when:

1.  real private sector spending hit a new high and the government ran a surplus

2.  real private sector spending fell below a previous high and the government ran a deficit

Keynesian governments will generally behave in that way.  The turquoise bars show non-Keynesian behavior:

1.  real private sector spending hit a new high and the government ran a deficit

2.  real private sector spending fell below a previous high and the government ran a surplus

Here’s what it looks like:

Figure 1

Here’s what I get from this graph… from until some time around the late 60s or early 70s, US governments generally stuck to Keynesian policies and not incidentally, generally produced relatively rapid growth.  After that, the US government generally abandoned Keynesian policies and produced Tyler Cowen’s Great Stagnation.   I am not prepared on to comment on whether there has been technological stagnation though.

Perhaps the graph can be improved. Its important not to consider individual years Keynesian or not, but rather overall behavior over a number of years. For instance, the fact that the government ran a deficit during the recession in 1990 – 1991 doesn’t make it Keynesian behavior (though it does appear to have a gray graph) since it had been running a deficit already, even when times were good. Running a deficit when times are bad is only Keynesian if you’re paying down debt (i.e., running a surplus) when times are good. The fact that the government has been running a deficit more or less continuously since the late 1960s (except for a brief period in the 90s) indicates that it definitely wasn’t following Keynesian economic theory – else it would be running surpluses when real private spending was up.

Well, gotta run.  As always, if you want my spreadsheet, drop me a line.  I’m at my first name (mike) period my last name (one m only in my last name!!!) at gmail period com.  And don’t forget which post your writing about.  Toodle-oo, folks. 

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Letter to commission on defense spending

This letter via Counterpunch to the Deficit Commission makes a clear statement on broad issues of accountability for the DoD, our contracting system, and the huge drain on our resources. Reading the whole letter points to examples of problems, and how the current system has reached and will reach unsustainable levels of spending.

We are writing to you and other members of the President’s National Commission on Fiscal Responsibility and Reform as individuals who have worked in national security affairs for decades for the Department of Defense, in the Armed Forces and for Democrats and Republicans in Congress. Our concern is the defense budget.

Similar to what your “Co-Chairs’ Proposal” said last week regarding Social Security and other issues, we do not believe that defense spending should be reduced to a bargaining chip in budget negotiations at the Deficit Commission. On the other hand, we do believe that the defense budget is dangerously bloated, giving rise to serious decay in our armed forces.


Despite Secretary of Defense Robert Gates’ efforts to cancel or redo several weapon programs that were over cost and under-performing, the number of major defense acquisition programs has changed from 91 programs costing $1.6 trillion to 87 programs costing $1.6 trillion. As you know, Secretary Gates has also imposed a plan on the DOD bureaucracy to transfer internally $102 billion dollars over 5 years, but there is no net savings to help the deficit.

Instead, Secretary Gates wants the DOD budget to grow one percent per year plus inflation for the next 10 years. That would increase the base DOD budget from $554 in 2010 to $735 billion in 2020 – a 33 percent increase, not including any spending for the wars against terrorism. While the Co-Chairs’ Proposal seeks a number of terminations, reductions, and efficiencies beyond the Gates’ plan (many of them welcome and overdue, but some that we believe require major modification), both the Co-Chairs Proposal and the Gates’ plan project into the future a defense program that is essentially the same as that we have today, simply at different spending levels. Under either plan, the size and modernity of our forces will continue to shrink and age, even if all remaining programs are implemented without any cost increases or schedule delays.

Without a jolt, without radically altered incentives, the bureaucratic system that thrives on corrupted, unaudited accounts cannot and will not change. A colleague of yours on the Deficit Commission, Senator Tom Coburn, R-OK, has written to you recommending the urgently required accounting changes, together with a new and strong incentive: the DOD budget should be frozen at current (2010) spending levels until it can pass comprehensive audits of all of its programs, agencies, and contractors.

All this is inextricably interwoven with our present wars. If – after our withdrawal from Iraq, Afghanistan and similar adventures, an increasingly inevitable consequence of impending bankruptcy – we simply default to the Pentagon’s military and civilian bureaucracies, allowing them to continue business as usual by just shrinking presently planned forces, it would be an enormous tragedy for the American people and for all those in uniform. Your support of constructive, thoughtful use of reduced budget levels and audited spending figures can make possible truly fundamental reform, reform that reorients our national military strategy to more prudently balance national ends against national means.

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The Budget Deficit Debate: Avoiding the Real Problem

Re-posted with the permission of the author Mark Thoma at Maximum Utility.

The Budget Deficit Debate: Avoiding the Real Problem

I’ve been asked several times how I feel about the president’s proposed budget, and I find it hard to answer. For me, it all comes down to the following diagram:

Ss784
[Source: CBO]

The main problem, as this graph from the CBO clearly shows, is rising health care costs. However, few politicians are talking about the real problem, let alone trying to find ways to solve it. So all of the budget debate we are seeing is really just tinkering around the edges of the long-run debt problem. For example, as the graph shows Social Security has little to do with our long-run budget problem, and the imbalance in this program can be fixed relatively easily. So whatever we do here it will still leave the big problem — rising health care costs — unaddressed.

Until politicians start leveling with the public about the source of the budget imbalance instead of fooling them into thinking the measures they are talking about for Social Security and other programs will help to solve our long-run debt problem, we won’t make much progress. And the costs of this political strategy could be large. We could lose valuable programs — programs we can easily afford once the health care cost problem is resolved –as politicians attempt to make the public think they are making inroads on the long-run budget problem when in fact they are avoiding the real issue (and it doesn’t help at all that any attempts to control health care costs are derided as “death panels”).

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Wisconsin, fiscal responsibility, and power

From the Capitol Times op-ed (hat tip juan):

In fact, like just about every other state in the country, Wisconsin is managing in a weak economy. The difference is that Wisconsin is managing better — or at least it had been managing better until Walker took over. Despite shortfalls in revenue following the economic downturn that hit its peak with the Bush-era stock market collapse, the state has balanced budgets, maintained basic services and high-quality schools, and kept employment and business development steadier than the rest of the country. It has managed so well, in fact, that the nonpartisan Legislative Fiscal Bureau recently released a memo detailing how the state will end the 2009-2011 budget biennium with a budget surplus.

In its Jan. 31 memo to legislators on the condition of the state’s budget, the Fiscal Bureau determined that the state will end the year with a balance of $121.4 million.

To the extent that there is an imbalance — Walker claims there is a $137 million deficit — it is not because of a drop in revenues or increases in the cost of state employee contracts, benefits or pensions. It is because Walker and his allies pushed through $140 million in new spending for special-interest groups in January. If the Legislature were simply to rescind Walker’s new spending schemes — or delay their implementation until they are offset by fresh revenues — the “crisis” would not exist.

The Fiscal Bureau memo — which readers can access at http://legis.wisconsin.gov/lfb/Misc/2011_01_31Vos&Darling.pdf — makes it clear that Walker did not inherit a budget that required a repair bill.

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A Tense Problem

Mark Thoma begins with a hilarious typo, but eventually gets to the Quote of the Decade (if not century) from Alan Blinder:

If we economists stubbornly insist on chanting ‘free trade is good for you’ to people who know that it is not, we will quickly become irrelevant to the public debate.

As Rusty can (and will, at length) tell you, the thing that is wrong with that sentence is the tense. We have had free trade agreements for decades, China has had MFN status since the 1990s, and permanently since 2000. The pieces of the former Soviet Union, including the current oligarchy that is called Russia, have had that status since 1992. NAFTA, including its abhorrent Chapter 11, has been in force since 1994.

There has been a generation that has lived under “free trade.” While an economist might successfully argue that the overall social benefit has been great—millions of Chinese parents become estranged from their children to make a better life, as it were—the retraining, redevelopment and all of the other assumptions economists make about ameliorating the transition to a new economy have been eschewed.

The example of Boeing (h/t Felix) bodes large: the valuable work was outsourced, the menial work was kept (or spun off into bankruptcy), and the new “higher-value” jobs and opportunities that were expected by idiots economists never materialized, replaced instead by growing income inequality and the retraining money lined the pockets of the CEOs who produced (to borrow a phrase used by the brilliant McGarrysGhost on Twitter) “failure masquerading as vision.”

And any microeconomist worth his paycheck can tell you that increasing inequality leads to suboptimal production.

Blinder is wrong in only one thing: the tense he uses indicates that the results are still, somehow, in doubt. The ability of Chinese peasants to eat a bit more is nice, but the externalities—poisoned toothpaste, dog food,* defective tires—make it rather impossible to claim that the “advantages of free trade” have trickled down in any way except as a ureotelic (mp3 link).**

The first thing we were told by our veterinarian about the new puppy is that we need to make certain that any food she eats was made in either Canada or the United States. Fortunately, pet food—unlike its human equivalent—is required to be labeled with origin information.

**You better believe I’m doing The Snoopy Dance on having discovered this site, which saves me from trying to find a way to transfer my old cassette to a usable format. But that’s fodder for Skippy, not here.

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It used to be "slightly left of center". The budget, taxes, economy from that other side.

By: Daniel Becker
HT: Digby

More people need to hear this perspective regarding the economy and the budget debate if only to remind them that there is another perspective…if only to hear what it sounds like when a congress person is actually fighting and working for you. You, the one without enough money to influence congress.
JUDY WOODRUFF: Well, the president has talked about corporate — corporate tax reform. And he said, in two years, in — for 2012, he’s going to propose letting all those tax cuts expire that were allowed to continue in December.
You spent, what, eight-and-a-half-hours on the floor of the Senate in December in a — in a protest against that. Are you confident the president is going to let the tax cuts expire?
SEN. BERNIE SANDERS: No, of course I’m not. I mean, that’s what the president said when he ran for president. And yet, when the Republicans stood up to him and said, we want to give more tax breaks, extend the Bush tax breaks, essentially, the president gave in.
When the Republicans said that, we want to lower the estate tax, Judy, which appeals — which only applies to the top three-tenths of 1 percent — these are not rich folks — these the very richest people in America — the president gave into that.
So, the president may tell us that he has this in mind, but I think the record is that he has not fought for those principles. The American people want him to fight for those principles.
And I think what this whole budget debate is about is do we stand up and say, no, we’re not going to cut programs for those who need it?
The other issue that I think we have to talk about is, in the president’s budget, he talks about Social Security. And he makes me a little bit nervous, because I think, as many of our listeners know, the Social Security trust fund today has a $2.6 trillion surplus.
Social Security can pay out every benefit owed to every eligible American for the next 27 years. Social Security, because it is funded by the payroll tax, hasn’t contributed one nickel to the deficit.
See, there is another voice, and some are finally experiencing the results of ignoring it. Remember this! Remember what a congress person sounds like when they are for real about working and fight for you. No more excuses you did not know. This is what you will sound like once you decide to influence congress.

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