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

Whither Social Capital?

Whither Social Capital?

This past Friday there was yet another retirement conference, this time honoring “Mr. Social Capital,” Robert S. Putnam, who is retiring from Harvard’s Kennedy School at age 77.  I was not invited, but I know some people who attended, including my sister and brother-in-law, the latter speaking at the dinner as family, the brother of  Bob’s wife, Rosemary.  As it is, I have known Bob Putnam since before he became Robert S. “Mr. Social Capital” Putnam.  That came especially with the publication in the 1990s of his massive hit book, Bowling Alone, in which he presented massive amounts of  data and arguments about the idea of social capital.  This helped trigger an outright fad among academics and policymakers, including at the World Bank, about the importance of increasing social capital in many nations so as to supposedly improve their economic and social situations.  It also led Putnam to become one of the most frequently cited living social scientists (176,000 plus times and counting, according to Google Scholar).

According to him the idea has been floating around in and out of public discourse since it first appeared in a report on education in West Virginia a good century ago.  However, it began to pick up serious academic steam starting in the late 1980s when sociologist James Coleman began studying it and writing about it.  Putnam’s own background was mostly as an expert on Italian politics, but he picked up on the idea from Coleman in the early 1990s in a famous book he wrote on Italian democracy. For him it became a crucial factor in explaining the much  better economic and social (and political) performance of northern Italy compared to southern Italy, albeit with a deep historical background.  Whereas substantial portions of northern Italy had been independent city states with long histories of civic engagement in local ruling groups, most of southern Italy spent several centuries ruled by outside and autocratic Spain, which laid the foundation for the rise of the mafia as a countervailing power, which would come to dominate the society of the Mezzogiorno with its secrecy and lying and corruption.  For Putnam one finds lots of people engaged in civic group activities in  the North, but not in the South, and I even heard him once give a talk in which he claimed that one could explain 90% of the difference in economic growth rates among Italian regions by just looking at the percentage of their populations that belonged to civic choral groups in the 1870s.  That correlation is probably correct, even if it has almost nothing to do with causation.

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Can Nudging Become A New Road To Serfdom?

Can Nudging Become A New Road To Serfdom?

Last weekend I attended a conference at NYU Law School on “Behavioral Economics and the New Paternalism, organized by Austrian economist Mario Rizzo and classical liberal law professor Richard Epstein. It included economists, lawyers, philosophers, and a couple of psychologists.  While there was a range of views present a theme for many and especially of the organizers was bashing the ideas about “libertarian paternalist” nudging advocated by Richard Thaler, winner of the most recent economics Nobel Prize, and Cass Sunstein.  In particular, Rizzo and participant Glen Whitman have written a book charging the nudgers with advocating a creeping totalitarianism with their advocacy of governments nudging people to do what governments think is best for them.  While there were no full-blown Thaler defenders at the conference, the more philosophically oriented attendees rose to the bait and argued against the anti-nudgers, with an especial sharp debate happening between Epstein and Robert Sugden a philosophical economist from East Anglia in England.

Pethaps the most substantial anti-nudge and also critical of behavioral economics paper came from George Mason law professor, Todd Zywicki.  While he overdid it a bit he argued with some good reason  that most legal decisions in the US relying on claimed behavioral economics foundations, especially on matters involving credit and consumer finance issues, have been seriously flawed.  They have either relied on misinterpretations or else mere assertions that have not been empirically demonstrated.  He raised a point of more general interest in charging that there has been a problem of “citation cascades,” where a string of decisions have been based on people citing people citing other people in a cascade that eventually boils down to an initial claim that has no clear basis.  He noted several of these where the original argument was mere speculation in a paper by Thaler for which no empirical support was provided, but then people quoted his opinion as proof and then quoted each other quoting him, and so on.

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Unresolved Issues In Happiness Economics From The Conference Honoring The Retirement Of The Field’s Founder

Unresolved Issues In Happiness Economics From The Conference Honoring The Retirement Of The Field’s Founder

That would be Richard A. Easterlin, age 92, retiring this spring from the U. of Southern California after being there since 1981, following an earlier stint at U. of Penn, where he got his PhD under Simon Kuznets.  Kuznets in turn got his from Wesley Clair Mitchell, who was in turn the student of Thorstein Veblen, and it was mentioned (by me actually) at this conference that happened over this past weekend at USC that Easterlin’s work has emphasized the issue of social comparisons that was strongly developed by Veblen in his 1899 Theory of the Leisure Class.  This applies not only to his famous Easterlin Paradox, the starting shot shown in his long ignored 1974 book chapter that started happiness economics, but also in his earlier Easterlin Hypothesis on demography in economic history.  As it was, this conference focused on happiness economics, with several leading figures in the field present.  I shall note some matters that were disputed at the conference and remain open.

Probably the most hotly disputed is the matter of the relationship between age and happiness (more frequently labeled “social well being” or “life satisfaction”).  The current more or less conventional  view is that this is on average a U-shaped relation, at least in the US, with people happy at 20 but with this declining to about 45 or so, and then rising after that.  There are serious problems with measuring this, especially the fact that we do not have full panel data following individuals throughout their lives so as to avoid the bias induced by the fact that happier people tend to live longer than unhappy ones, which skews results at the upper age end for simple cross-section studies.  A more recent finding from European nations suggests this may be more of an M-shape, with happiness actually rising a bit from 20 into the late 20s or so, declining to about 45, rising to about 70, but then either plateauing or even declining slightly after that.

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A Half Century Ago Today

A Half Century Ago Today

 A half century ago today Martin Luther King, Jr. was shot dead in Memphis, Tennessee.  This remains one of the saddest events in our history.  This will not be a long post other than remembering this event that ended the life of this great man.  I have only two observations.

One is that in yesterday’s Washington Post there was a long article about how King’s family believe he was not shot by James Earl Ray and that it was ultimately a plot by J. Edgar Hoover that did him in.  I had long dismissed these arguments, but the article contained a lot of information about the many loose ends and problems with the assassination.  Whereas I have gone from believing some of the conspiracy theories about the JFK assassination to accepting that it was almost certainly done by Lee Harvey Oswald alone, this article has sown serious doubts in my mind about the MLK assassination.  They are doubts as there is no clear resolution of this, and I fear we shall not be able to determine the truth of this with so many principals in the matter no longer among the living.

The other is to remember that King was concerned with issues of economic justice as well as of racial justice and a peaceful foreign policy.  He was supporting a strike by workers in Memphis when he was assassinated.  So this anniversary is a matter of more concern for this blog than the assassinations of some other famous people of the past. Let us remember this and honor his struggles in all their aspects on this sad anniversary.

Barkley Rosser

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This Is Tax Simplification?

This Is Tax Simplification?

I happen to support tax simplification that does not increase regressivity of the tax system, and I recognize that there are a few parts of the Trump tax change that do that.  But mostly it massively increases regressivity, along with massively increasing the budget deficit at a time when we are not too far from full employment.  As it is, however, the new tax law turns out to be riddled with all kinds of ridiculous unintended consequences that complicate the tax code absurdly and that in some cases were not meant to be put in and are creating major problems for  certain groups of people.  One that is reportedly hurting especially are farmers, and GOPs in Congress now want to fix some of these blunders.  Of course much of this is due to their super hurry to get the bill passed without proper hearings and vetting that obviously were called for in the case of such a massive change in our tax laws.  We are going to be discovering these gliltches for some time to come.

There was an article in yesterday’ Washington Post (“Tax ‘planning frenzy’: The hunt for loopholes,” by Jeff Stein) noting some of the nonsense that is going on, especially regarding professionals.  Stein  says that “doctors are going berserk” and they are the ones especially caught up in the “tax planning frenzy.”  To give some idea of what is going on I shall simply quote the opening paragraph of the article, which provides further details.

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The Final End Of The As-Is/Red Line Agreement

The Final End Of The As-Is/Red Line Agreement

In London yesterday visiting Saudi Crown Prince, Mohammed bin Salman (MbS) allowed the signing of a set of trade memoranda with various British companies, including buying Typhoon aircraft, and many other things, 18 such deals, although some sources say only 14, total value maybe about $90 billion, although much of that already in the works and in the end may amount to what the $110 billion plus deals he agreed to with Trump, not much at all.  One large item not in the deal, a promise to let London handle the upcoming massive IPO for 5% of ARAMCO, with both New York and Riyadh itself still in contention for that one, the main claim to “privatization of the Saudi economy” that its PR machine has been relentlessly spinning about loudly for some time now.  I continue to forecast that wherever it is done, it will end up being a Saudi insiders deal to get some shares of ARAMCO into MbS approved private princely hands.

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Basil Moore dies

Basil Moore dies

I have just learned that prominent Post Keynesian economist, Basil Moore, died yesterday.  I do not know of what or how old he was, although he retired over a decade ago.  He is best known as the author of Horizontalists and Vericalists, in which he strongly argued for the endogeneity of money. In more recent years he had become interested in dynamic complexity economics.

He long taught at Wesleyan in Connecticut.  In the final years of his career he taught at Stellenbosch University in South Africa, his wife, Sibs, being from there, and they continued to live there after he retired.  He will be missed by many, including me.

Barkley Rosser

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Eastern Economic Association Conference

Eastern Economic Association Conference

So, I returned late last night from Boston where I presented three papers at the 44th Eastern Economic Association conference.  Only about 70% of those preregistered made it due to weather, with airport and train station both closed on Friday, first full day of conference.

One of those who did not make it was James Galbraith, scheduled to give the first Godley-Tobin plenary lecture, sponsored by the Review of Keynesian Economics (ROKE).  However, he managed to do it from a Dallas hotel room, with a full room audience. He spoke on “Global macroeconomics – yes, macroeconomics, dammit – income inequality and distribution.”  A good opening for the series.  ROKE editor Tom Palley among those not making it, and the word is out that the last of the founding editors, Louis-Philippe Rochon, is stepping down.

I have accepted an invitation to be one of three editors-in-chief of the fourth edition of the New Palgrave Dictionary in Economics.  I met for the first time with the other two: Matias Vernengo and Esteban Perez Castelnedy, along with publisher, Mike Hermann, from Palgrave.  This will be a large and long project, but at least we know where we are going at this front end for now.

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Saudi Crown Prince Tortures Fellow Princes

Saudi Crown Prince Tortures Fellow Princes

A new report by Hugh Miles at Middle East Monitor, Is the “Saudi Elite Cannibalizing Itself?” by Juan Cole, reports the recent purge of supposedly corrupt princes and high officials was (and continues to be) much more horrendous than previously reported, which I fear does not surprise me.

Apparently Crown Prince Mohammed bin Salman (MbS), whom I have previously posted about here, hired mercenaries to interrogate those arrested and kept at the Ritz Carlton, which turns out to have not been a luxurious hangout.  Money, signed confessions, and promieses of loyalty were demanded, with most let out wearing electronic tags and not allowed to leave the country.  Many were physically beaten, hung upside down, and tortured in vsrious ways.  One of them, the privste secretary of a former governor of Riyadh.  Some have not caved yet and remain imprisoned, although this remnant has been moved out of the Ritz elsewhere a of Feb. 11 when the Ritz reopened for business.

Probably the best known of these has been Walid bin Talal, a multi-billionaire heavily involved in many businesses around the world, including in the US.  Reportedly his torture led to three episodes of emergency medical care being involved. His family was brought to KSA and pictures of his young daughter in handcuffs were shown to him.  A televised interview with him prior to his release had him denying he was tortured, but also had him guzzling Pepsi and comping down condiments that it is known he would never normally eat, being a health fanatic and vegetarian.  It is being touted that this was a sign of him signaling that this interview was under duress.

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The WaPo Gang Going After The Usual Suspects On the Budget Falls On Its Face Factually

The WaPo Gang Going After The Usual Suspects On the Budget Falls On Its Face Factually

All right, all right, that is not completely fair.  Yes, they dump all over Trump and the GOP-run Congress for their massive tax cut directed at the rich, as well as the hypocrisy of the Republicans in so smoothly switching from denouncing budget deficits during the Obama era to a “what? me worry?” attitude now with deficits set to soar in a period of near full employment.  But, of course, the Monday gang at the Washington Post simply cannot avoid making a big deal about somehow “entitlements” are not being cut, although all kinds of other areas are going up, especially defense.  But they just cannot get off this schtick.

I note that Dean Baker has just posted a whole bunch of comments on the newly proposed budget, as well as the recent tax cut, including one focusing on the WaPo gang and their annoying commentaries.  However, I hope to add here some points he does not make.  I am largely in agreement with his posts, with only minor disagreements not worth bothering with here.

Curiously, the usually more annoying WaPo editorial page editor, Fred Hiatt, was less annoying than the usual WaPo Monday economics commentator, Robert J. Samuelson.  Of course, Hiatt mourned that in 2012 and 2013 Obama and Boehner could not agree on “tax hikes and entitlement cuts.”  Quite aside from this annoying terminology of “entitlements,” there simply was never any good reason for cutting Social Security, Medicare, or Medicaid, at least not directly.  As has been pointed out by many of us from well before then and up to the current time, especially Dean Baker, cuts could have been made, but the way to  do it was to get the wildly high US medical care costs under control in general, which would show up in reductions of Medicare and Medicaid spending, without any loss in quality in care, assuming things were to be managed reasonably.  But Hiatt and crew simply never recognize that. It is just how irresponsible all these politicians are or not just cut cut cutting those darned entitlements, although preferably in conjunction with that very unlikely to happen tax increase.  As noted already, while Hiatt nods at dumping on Dems for supporting some spending increases (not noting that some of them such as disaster relief are really needed), he spends most of his fire dumping on Trump and the GOPsters for their deficit hypocrisy.

However, Samuelson puts on one of his classic performances, indeed worse than usual.  Yes, he does plenty of bashing on the GOP tax cut, but he seems to justify the GOP-pushed increase in military spending (plus $80 billion, the largest increase of any item).  According to RJS, “On defense, President Obama’s budgets reduced readiness, left the services too small and made it harder to counter new technological threats, notably cyberwarfare.” Really?  The US has bases in 70 nations and special forces in at least 122.  Do we need all that, not to mention that our military spending exceeds the sum of all that going on in the next five or so nations’ spending?  I almost do not even know what more to say about this item.

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