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

The People’s Verdict on Globalization

by Joseph Joyce

The People’s Verdict on Globalization

The similarities in the electoral appeals of businessman Donald Trump and Senator Bernie Sanders have been widely noted (see, for example, here, here and here). Both men attract voters who feel trapped in their economic status, unable to make progress either for themselves or their children. Moreover, both men have assigned the blame for the loss of manufacturing jobs in the U.S. on international trade agreements. Regardless of who wins the election, globalization, which was seen as a irresistible force in the 1990s after the collapse of the Soviet Union and the entry of China into the world economy, is now being reexamined and found to be detrimental in the eyes of many.

Trump and Sanders have been particularly vociferous about the North American Trade Agreement, which they hold responsible for the migration of U.S. jobs to Mexico. But those who blame the foreign sector for a loss of jobs should also finger capital flows. The investment of U.S. firms in overseas facilities that then ship their products back to the U.S. represents outward foreign direct investment (FDI), and thus in this story is also responsible for the disappearance of manufacturing jobs. Moreover, Lawrence Summers of Harvard has pointed out that firms that have the option to relocate will be less inclined to invest in new capital in their home country, which leads to lower productivity and wages for their workers.

Whether technology or trade is more responsible for the shrinkage in manufacturing jobs has been the subject of much study (see, for example, here). In the past, most studies assigned the primary role for labor force disruption to technology. David Autor of MIT, Lawrence F. Katz of Harvard and Melissa S. Kearney of the University of Maryland, for example, drew attention to technology that accomplishes routine tasks without human intervention and leads to a polarization of the labor force, as middle-skill level jobs are eliminated, leaving only low-skill and high-skill jobs. In addition, information technology that allows firms to coordinate their facilities in different countries allows more outsourcing and reallocation of plants.

Those who seek to defend global trade flows cite rises in employment due to exports and alsogains due to increases in efficiency and economics of scale that accompany specialization. In addition, lower prices due to imports raise real incomes. No one denies that increased imports can disrupt labor markets, but this has viewed as a transitional cost that could be absorbed.

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PPACA: United Health Care vs the Public Option

A story that is getting some traction, though mostly lost against the New York primary, is that for profit health insurance company United Health Care is looking to drop its Exchange Plans under PPACA. For example this from Fox: UnitedHealth pulls back on ObamaCare exchanges amid huge losses This is of course presented as some additional proof of the failure of ObamaCare. And given the current structure that has the Exchange 100% reliant on private insurance providers and so vulnerable to insurance provider drop-outs this may be. But from the perspective of supporters of the original version of PPACA, the one that came out of Senate HELP and the House Tri-Committee this was more a feature than a bug.

In 2009 it was abundantly clear that Single Payer/Medicare for All was not a viable option. It wasn’t going to happen. (Please argue the point in comments.) But there was a narrow window open for a backdoor path to Single Payer. And that was the Public Option in both its Strong and Weak forms. The idea was a properly designed Public Option would out-compete any private insurance provider on price. That is with or without some form of the mandated limits on the Medical Loss Ratios that in turn restricted Big Insurance profits, private insurers would find some markets unprofitable and so abandon them. In particular this was projected to happen in rural markets and second and third tier metro areas. Which markets would then be available for scoop up by the (so-called) non-crofts and the Public Option. My own vision was that over time a version of Single Payer would evolve from the outside in as Big Insurance retreated to serving high margin/richer urban markets.

Now of course we don’t have the Public Option. But even so I am not going to shed a tear that for profit insurers like United Health just are not having the success in extracting huge rents from PPACA. Because those rents/profits were not adding value anyway. And while there is theoretically some downside in reduced competition the structure of PPACA doesn’t really allow surviving health care insurers to extract monopoly rents. And to the extent that certain markets begin to be underserved there will be that much pressure to allow entrance to some version of the original Public Option, perhaps by leveraging the presence of existing Public Health, Veterans Administration and even Indian Health Service hospitals and clinics. And Community Health Centers. And Free Clinics. Any of which would benefit by a new pool of actual paying customers with insurance funded by Exchange subsidies.

Now clearly there are some dangers to trying to transition to Single Payer via crowding out for profit insurers. Especially since there is not an existing Public Option in the way the original plans envisioned. Still there is no reason to cry that Wall Street is not extracting what it considers to be its due pound of flesh by providing health care to rural and poor areas. United Health Care had a business plan. Its success required large rent extraction. That the PPACA as designed didn’t end up making it as easy to extract excess rents as the FirePups assumed is a good thing.

The road to Single Payer is certainly rocky. And maybe we will never get there in total. But if we do seeing the corpses of United Health Care and Aetna as squished road kill should not be triggers for pity and sorrow. Unless you are a Free Market fetishist.

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Zero-Sum Foolery 4 of 4: Wage Prisoner’s Dilemma

by Sandwichman

Zero-Sum Foolery 4 of 4: Wage Prisoner’s Dilemma

Soon after the wages-fund doctrine fell out of favor with economists, it was immediately attributed to trade unionists under the label of the “fixed work-fund fallacy” and then the “Theory of the lump of labour.” In denunciations of the lump-of-labor fallacy, it has become fashionable recently to appeal to the notion of the “zero-sum game” in addition to the customary allegation of a “fixed amount of work to be done.”

What follows is a brief sketch of the wage prisoner’s dilemma that I modified from one posted last June. The outline can be elaborated by thinking of the dilemma in terms of Garrett Hardin’s “Tragedy of the Commons” and Elinor Ostrom’s analysis of common-pool resources. I have previously presented the perspective of labor power as a common-pool resource and a full treatment of wage prisoner’s dilemma would incorporate those arguments. I’ve added a pay-off matrix at the end.

The principle of labor as private property is enshrined in the chapter, “Of Property,” in John Locke’s Second Treatise of Civil Government:
…every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his.
Except for the most part we are not talking about just “the labour of his body, and the work of his hands.” We are referring to a complex division of labor, co-operation and means of production that dwarfs the manual labor of a person. Regarding this augmented labor power as a common-pool resource recognizes the greatly-enhanced social productivity of labor. The wages system is calculated to siphon off the lion’s share of that social productivity and award it to the owners of capital.

How does that happen?

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I’ve diagnosed the problem (with Clinton’s campaign; one of the problems, anyway): She keeps coming up with vapid soundbite lines that in the context of this primary contest are ridiculous. Like “It’s easy to diagnose the problem. You’ve got to be able to solve the problem.”

I’m getting really good at recognizing instantly the latest vapid or ridiculous soundbite that Clinton has settled on and will be repeating again and again.  So I detected her latest one the moment she introduced it at last Thursday’s debate:

It’s easy to diagnose the problem. You’ve got to be able to solve the problem.

Clinton was busy with private fundraisers on Friday and Saturday, I believe, but she confirmed the accuracy of my radar when on Sunday she told a block party in Washington Heights:

It’s easy to diagnose the problem. You’ve got to be able to solve the problem.

I’m not sure what problem she’s diagnosed that she has in mind.  It’s certainly not, for example, that many millions of Americans remain without healthcare insurance and that many, many millions more live in fear of actually needing major medical care because their deductibles are so high and that huge swaths of Americans find their standard of living significantly impaired because of the high and annually-increasing insurance premiums.

Unless, of course, she means that Bernie Sanders has diagnosed the problem.  And that he is proposing a way to solve the problem.

I mean … just sayin’.

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Zero-Sum Foolery 3 of 4: Forecast Factory

by Sandwichman

Foolery 1: Games Theory Gamesmanship

Foolery 2: Doomsday Climate Machine

Zero-Sum Foolery 3 of 4:  Forecast Factory

Long before the issue of anthropogenic climate change arrived on the doomsday agenda, Lewis F. Richardson anticipated climate modeling with his failed attempt to forecast weather numerically. His calculations predicted surface pressures 150 times higher than observed:
Paradoxically, then, the most time-consuming, precisely calculated forecast in history was also among the least accurate ever prepared by any method.

Some consolation could be had, though, from Richardson’s fantasy of the “forecast factory.” In A Vast Machine: Computer Models, Climate Data, and the Politics of Global Warming, Paul Edwards praised Richardson’s metaphors of the factory for “reach[ing] to the heart of computing as a coordinated human activity that harmonizes machines, equations, people, data, and communications systems”:

At the same time, they stand in stark contrast to today’s dominant metaphors of computation, which are mostly individual: the brain, memory, neurons, intelligence. Richardson’s forecast-factory remains a better description of the practical reality of computing. The limits of computer power, even today, stem from these human and material dimensions.

Richardson had more success investigating the mathematics of arms races. The September 1957 issue of Conflict Resolution was devoted to Rapoport’s essay on Richardson’s mathematical theory of war, an essay that Schelling described as “magnificent.”

In his assessment of the failures and successes of Richardson’s theory, Rapoport stressed the investigative rather than explanatory function of mathematical models: “Contrary to a prevalent meaning of ‘model’ in many theoretical formulations, the main function of a mathematical model is not an ‘explanatory’ one.” The distinction is fundamental to Rapoport’s profound methodological objection to the pretentious “rational” pursuit of solutions to problems and answers to questions. In Strategy and Conscience, Rapoport reaffirmed that “The important end product of such [experimental] research is not an answer but a question.”

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Is the 1% Really the Problem?

by Lynn Paramour (via  Alternet)

Is the 1% Really the Problem?

“We are the 99 percent” is a great slogan, but is it distracting our attention from a sinister reality? There’s strong evidence that it’s not the 1 percent you should worry about—it’s the 0.1 percent. That decimal point makes a big difference.

The 99 percent would do well to find common ground with bulk of the 1 percent if we can, because we are going to need each other to tackle this mounting threat from above.

To make it into the 1 percent, you need to have, according to some estimates, at least about $350,000 a year in income, or around $8 million accumulated in wealth. At the lower end of the 1 percent spectrum, the “lower-uppers,” as they have been called, you’ll find people like successful doctors, accountants, engineers, lawyers, vice-presidents of companies, and well-paid media figures.

Some lower-uppers are beginning to realize that their natural allies are not those above them on the economic ladder. They are getting the sense that the 0.1 percent is its own hyper-elite club, and lower-uppers are not invited to the party.

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A bit More on Dynamic Inefficiency

I recently asked if increased government debt causes increased welfare if the growth rate of the economy is greater than the safe rate of interest, even if the growth rate is lower than the risky rate of return on capital.

With much help from a comment by Nick Rowe, I present an example in which the answer is yes.

I have added to the pdf to present the models which I was considering before reading his comment.

update: the newer extended and corrected pdf is here

The conclusions are less striking, but the other models might add something.

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Krugman The Clairvoyant

[Paul Krugman] has a negative view of Bernie Sanders “Why I Haven’t Felt the Bern “ which links to his column on insulting Dixie.

The post is brief and a bit odd — Krugman criticizes Sanders for:

“… the casual adoption, with no visible effort to check the premises, of a story line that sounds good. It’s all about the big banks; single-payer is there for the taking if only we want it; government spending will yield huge payoffs — not the more modest payoffs conventional Keynesian analysis suggests; Republican support will vanish if we take on corporate media.

“In each case the story runs into big trouble if you do a bit of homework; if not completely wrong, it needs a lot of qualification.”

Disagreeing with Paul Krugman? 1, Robert Waldmann, Angry Bear, yesterday

I posted the following in the Comments thread:

Robert, you quoted two seminal sentences from Krugman’s blog post, but you failed to quote the preceding paragraph and therefore missed Krugman’s real point: that he possesses powers of clairvoyance and knew last spring that eventually some economist not connected with Sanders’ campaign would publish erroneous findings about economic gains from the government spending on some of Sanders’ policy proposals and that a couple of top people in the campaign would announce those findings, and that Sanders would make no inroads with elderly and middle-aged African-Americans in the South and then make dumb claims that Southern primary results shouldn’t have the impact they have due to their frontload in the primary and caucuses schedule since those states are mostly very Republican ones.

That said, you did zero in on Krugman’s mystifying claims, first, that Sanders is saying that single-payer is there for the taking if only we want it—an assertion by Krugman that is both flatly false or represents a deep understanding by Krugman of Sanders’ actual statements—and, second, that it is dishonest and improper for a serious candidate for the Democratic nomination for president to propose single-payer.  Or, for that matter, to propose ANYTHING that isn’t simply a tweaking of the status quo.

And then there’s the issue of why Krugman hasn’t noticed, or pretends not to have noticed, that at the heart of Sanders’ break-up-the-big-banks argument is that those few financial institutions—including those like Goldman Sachs and Morgan-Stanley that do not accept ordinary deposits and make ordinary business and personal loans, but that do do things such as buy and sell mortgage-backed securities banks—control vast amounts of wealth and correspondingly have vast amounts of economic and political power.  And you do address that.

It really IS outright dishonest of Krugman to claim, again and again and again, that Sanders’ single concern about the size of the big banks is that they could again trigger a financial and economic meltdown unless they are bailed out by the federal government.  It is by no means the only issue that Sanders mentions with respect to those institutions.  But is an important one.   And the head of the FDIC is in agreement with that, which you would think Krugman would acknowledge when he criticizes Sanders, but doesn’t.

And I downright love your questioning of the basis for Krugman’s obsession with accusations by some Sanders supporters that Krugman, etc., are members of the establishment, personally corrupt, and such—and his odd passive phrasing of it there.

But now that he has challenged assertions that he is a member of the establishment, he might care to address the larger issue of whether he thinks Clinton is—and if he does, whether he thinks she should stop playing cutesy games about the meaning of the word and stop denying that she is indeed, rather obviously, a longtime, high-profile member of it.

Which as I mentioned in my post just below yours, she did again claim at Thursday’s debate.

Specifically, in that preceding paragraph of Krugman’s that I reference, which is the opening paragraph of his post, he writes:

Today’s column offers an opportunity to say, for the record, why I haven’t been the Bernie booster a lot of people apparently expected me to be. For the business about discounting Clinton support as coming from “conservative states” in the “Deep South” actually exemplifies the problem I saw in the Sanders campaign from the beginning, and made me distrust both the movement and the man.

So, okay, we get it.  Paul Krugman isn’t just a great economist (which he is; no sarcasm intended there).  He’s also clairvoyant, prescient, a talented tarot card reader.  He’s just not all that good, or for that matter, all that honest a political analyst. He either has no actual idea why Sanders’ campaign really matters or he pretends not to.

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Good Jobs for Non-College Grads

by Peter Dorman  (originally  from Econospeak)

Good Jobs for Non-College Grads

It’s good to see that Katherine Newman has spoken up for really investing in kids who aren’t going on to college, which will always be a substantial chunk of them, no matter what.  If there’s any sort of social contract worth defending, it has to include them.  This means high quality technical programs in high school, staffed by teachers who are well respected and remunerated.  Read her op-ed piece.

But that’s only one side of the story, the supply side.  The demand side, the willingness of firms to hire well-trained young people to good jobs with long-term career possibilities, is the other.  Newman makes a passing reference to Germany’s apprenticeship system, which has become fashionable.  But German firms find places for these apprentices, actually paying them to learn the ropes—unlike the unpaid internships that are proliferating over here.  Companies design jobs to be staffed by skilled, committed workers, so the requirement of a credential is not just a formality.

And behind it all, the reason why these commitments are still (mostly) honored, is codetermination—worker participation in management—in large firms and the central role played by public financial institutions in financing small and medium size enterprises.  The German labor movement has been saying out loud that this system is under attack, and a major reason for the decline of the SPD is the criticism that they are not standing up for workers at a critical moment.  Even so, however, the role of production workers in German firms is light years ahead of the situation in the US.

It’s necessary but not sufficient to promote widespread technical training; there have to be jobs that take advantage of skill and reward it accordingly.  That means a politics of changing who runs firms and for what purposes.

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