I am going to comment on two smart guys who believe that they disagree about the optimal political strategy for Democrats.
Brian Beutler wrote an interesting essay criticizing what he calls “issue polling essentialism”. It includes the text
The topic occurred to me after I recorded last week’s Rubicon with my friend Matt Yglesias, where we took different sides on the question of how determinative issue polling should be in setting progressive priorities. We are no longer friends. (Just kidding. Unless…? Better listen to the episode!)
I trust they are still friends, but Yglesias is a bit peeved. He wrote this Thread beginning “I think this piece does not describe the position it is critiquing accurately.”
In fact, after mentioning Yglesias, Beutler goes on to critique a poll obsessed straw man. I trust they are still friends, but that was sloppy.
I have comments on both.
I agree with Yglesias’s non obvious tweet “2) Issue activists associated with the Democratic Party (and more to the point, those who fund their activities) should care more about raising the salience of topics that are likely to help Democrats win, and less about raising the salience of the specific issue they work on.”
The implicit claim is that, whatever they care most about, they won’t get if Republicans are elected, so issue activists should help Democratic party candidates by sticking to the party line *then* press them on the specific issue they work on (with implicit threat to make trouble ?). I agree. This is psychologically difficult — people talk about things they care most about and it involves other than complete frankness and being a hack. There is a conflict of material interests as advocacy groups which echo the party line don’t get attention and donations. That’s why the appeal is directed at “those who fund them”. The tweet is cynical (Yglesias introduced the phrase “the hack gap”). Also, I find it very convincing.
We used documents submitted to the Food and Drug Administration2 to derive the vaccine efficacy beginning from 2 weeks after the first dose to before the second dose (Table 1). Even before the second dose, BNT162b2 was highly efficacious, with a vaccine efficacy of 92.6%, a finding similar to the first-dose efficacy of 92.1% reported for the mRNA-1273 vaccine (Moderna).3
With such a highly protective first dose, the benefits derived from a scarce supply of vaccine could be maximized by deferring second doses until all priority group members are offered at least one dose.
As is very rare, I find myself disagreeing with Josh Marshall who asked “What Were the Democratic Senators Thinking?” when they agreed to accept Representative Jaime Herrera-Beutler’s assertions (that Trump sided with the insurgents over minority leader McCarthy’s) in writing when Trump’s lawyers stipulated that they could be assumed to be accurate.
First, I will play amateur lawyer (and link to an actual lawyer who contested Marshall and was posted by Marshall) — the managers said they asked to call witnesses specifically to present that (hearsay) testimony. After listening to their closing arguments it is clear that they were being frank — the testimony was critical to their case against Trump. Assuming it is accurate (as agreed), it proves that Trump was not horrified to find his supporters were smashing the windows of McCarthy’s office, that even if their actual fighting when he called on them to “fight like hell” was due to a misunderstanding (as absurdly argued by his lawyers) he chose not to explain to them that their violent actions were unacceptable (even though he later falsely asserted that the violence hadn’t occurred). As explained by the managers, his reaction is proof of his support for violence and that his (already obvious) incitement to violence was incitement.
As an added bonus, Trump’s lawyer committed gross misconduct when he said that, even though they stipulated that the claims are accurate, the claims weren’t accurate. I’m not a lawyer, but I am sure that to “stipulate” is to commit to making no such claim — that stipulating then breaking the promise by contesting is misconduct at least approach contempt of, in this case, the Senate. The utter humiliation of Republican Senators who are lawyers (who will ignore the evidence and the constitution) is heightened by forcing them to pretend that it is OK to stipulate then unstipulate.
Marshall (and manymany others) describes the events as Democrats backing down. Notably they got exactly everything they said they wanted (and also clearly what they needed to make their closing arguments). The discussion focuses on TV scheduling (and yes TV is powerful) and on doing whatever (45) Republicans don’t want to show who’s boss. This is all important (most Americans are, like me, not lawyers and care about show and not rules of evidence). I think Marshall is right when he wrote “This decision signaled a failure to grasp the damage sustained by deeply demoralizing your supporters. It opens those who defend them to ridicule and contempt.” It is possible to argue that the Democrats got everything they wanted (for one thing it just requires assuming they meant what they said and noting what new evidence they wanted in the record and that they got it and a promise that it not be contested). But it was bad politics as theater and, with the outcome not in doubt, the whole trial is theater.
Here I think it is possible and useful to argue that the Democrats won by getting exactly what they wanted (exactly what they said in advance that they wanted). I think that is the proper response to ridicule. Or to put it another way, if the problem is that it looks like a defeat and surrender (even though it isn’t) maybe Democrats not in the Senate should try to explain that the Democrats won the confrontation (as they did) rather than lament the fact that it appears that they caved (which they didn’t).
Marshall is also right that the trial can’t be allowed to delay confronting problems which can be solved (unlike Republican’s shameless hypocrisy). Testimony would not have been collected quickly (especially because Republicans are eager to obstruct everything). The trial would have to wait for depositions and resume when the Senate should be fighting Covid. Actually addressing people’s problems is the way to (maybe possibly) survive mid term elections. Also it actually addresses people’s problems which is the point of politics.
I think part of why I praise what Democrats did today in the Senate is that I have heard the summary arguments. I know why it was necessary to get Herrera-Beutler’s assertion in the record, and I know how devastatingly convincing the summary arguments are. Also
Don’t blame me for the fact that the ARRA was too small. Here I think it doesn’t really matter, and that he is mostly right. Certainly he argued frequently for higher deficits.
Fearing Secular stagnation does not imply that one prefers $1.9 Trillion in stimulus to $ 1 Trillion. Indeed, the debate over the right number is almost completely qualitative.
The Fed has trouble fighting inflation without causing recessions. ” Every past significant inflation acceleration has been quickly followed by recession. Tamping down inflation will require allowing unemployment to rise, and engineering a soft landing is difficult:Unemployment has never risen by half a percentage point without then rising by almost two points, or more.”
This argument seems to me to beg the question. Summers assumes that the Fed can’t prevent an increase in inflation or moderate an increase in unemployment. If the Fed has prevented an accelaration of inflation, the success would not show up in Summers’ survey of what happens after inflation accelerates. If the Fed keeps unemployment at the NAIRU then unemployment does not have to increase to fight inflation. I think his point is that, when the Fed loses control and misses its target, then the Fed loses control and misses its target. There is no argument that fiscal stimulus (of any amount ever) makes it more difficult for the Fed to avoid both accelerating inflation and recession. The only clearly demonstrated limit on the Fed’s ability to thread the needle is the zero lower bound. That problem can be avoided with fiscal stimulus.
Also I note that qualifiers “significant” and “quickly” are doing a whole lot of work. The steady increase in inflation from 1964 through 1970 was followed by a recession in 1970 — the longest post world war II expansion which occurred before Summers began working for the Federal Government was mostly a period of accelerating inflation. Also the period of increasing inflation which began in 1976 was followed by a recession in 1980. Here I think the point is that inflation drops during recessions, so one sees peaks when recessions start. That just means that there is a Phillips curve. Mostly, the argument is that the Fed used to mess up more than 40 years ago, so the past 40 years of preventing acceleration of inflation are irrelevant.
The fact that many economists argued that the economy was overheating in the late 90s and just before Covid hit and that inflation would accelerate and then it didn’t seems relevant. Finally, I have never understood why inflation is considered such a horrible thing — I didn’t understand all the fuss in the 1970s and I still don’t. I do know that people hate inflation *and* assume it means increased prices for given wages. Economists note that wages and prices both increase, but also accept the conclusion that inflation is horrible.
But mostly, there is no argument for why the Covid relief bill will make the Fed’s task more difficult.
Summers 4th argument comes in two steps. He responds to the argument that the bill provides “relied to those who need help”.
Much of his argument is based on the assumption that things were fine in 2019 consumer spending by low-income consumers is up“, “cash balances have risen“, “see their incomes rise“. But Summers does not believe that things were fine in 2019 — he believes that income inequality was a huge problem in 2019.
His concluding sentence specifically criticizes the $1400. This, I think, is his arguably valid point. He can think of better uses of the money. However, policy depends on politics, and that exceedingly popular provision will be part of any bill. I guess he contributes to the debate over the income level at which the benefit is to be phased out, but this becomes an argument about a moderate change to about one fourth of total spending mere tens of billions not real money.
I’m going to try to focus. First, Summers really criticizes giving an additional $1400 to most US citizens. He discussed the bill in general, but his concerns are about the wisdom of that (huge) provision and not the money for supplementary unemployment insurance, unemployment insurance for people not eligible for regular unemployment insurance, money for vaccine distribution, money for schools or general aid to state and local governments (indeed he could have been clearer in his op-ed).
On this he has two concerns
The huge deficits might overstimulate the economy
There are other better uses of the money so the bill is a waste of economic and political resources.
This time, I am going to address them in reverse order. Concern 2 really regards the $1400 checks only. On economic resources, I question the absolutely standard argument that one must decide if some spending is the best use of limited available funds. The key issue (as in the debt and taxes series) is that the US Federal Government can borrow at extremely low interest rates — the 30 year real interest rate is currently negative . Since it will change, I am going to screen cap.
Investors are glad to pay the Treasury to keep their wealth safe. Now consider the US Federal Government intertemporal budget constraint — the present value of spending must be less than or equal to the present value of revenue. What is the present value of revenue ? It is calculated by discounting revenues which grow approximately proportional to GDP by the inflation rate which hmm carry the one, round off a bit works out to roughly INFINITY.
If the Treasury can borrow at an interest rate lower than the trend rate of GDP growth (r<n), then the US Federal Government does not have a binding intertemporal budget constraint. This is the point of debt and taxes I, which turns out to be highly relevant to the Washington Post opinion page printed the day before yesterday. A totally standard calculation implies that there is not now a limit to “economic space” now. This is the normal pattern post WWII except for the period 1980-2000 — indeed the US managed the huge WWII debt with no noticeable trouble. Another way of putting this is that, if r<n then debt never has to be repaid. It can be rolled over forever and will shrink as a fraction of GDP until it is negligible. This is not a heterodox position — the link is to an AEA Presidential Address which is the epitome of orthodoxy.
Summers is also concerned about political limits to other spending. That is the real issue. It is outside of my field of expertise (it is also outside of his officially credentialed field of expertise, but he is clearly generally expert). Many people (too many to link so I will stick to Waldman) have argued that the political limit is public approval of Democrats and is relaxed by giving people what they want. I think it is clear that Democrats suffered in 2009 and 2010 from reckless caution — the backlash was related to doing too little and caring too much about keeping the public debt low. Notably Summers argued this repeatedly from 2010 through 2020 (I just googled [Summers fiscal).
OK now the hard part: what about overstimulating ? The first point is that we will not have to accept inflation higher than we desire. The Federal Reserve Open Market Committee (FOMC) can cool down an overheated economy by raising the target Federal funds rate. It is clear from bond prices that investors don’t expect this — bond prices would fall if they did and they have increased even as Democrats won control of the Senate and turned out to be very determined to add to the deficit. Low nominal yields imply that investors don’t expect interest rates to go up. The lack of much change in the difference between nominal ant TIPS yields implies they don’t expect inflation to increase and their expectations about inflation have changed little. Before going on, I note that the high interest rates used to cool down an overheated economy have some but very little relevance for the infinite present value of future revenues calculation — a few months of high interest have a finite effect on the calculation which, again, yields the answer infinity. Just to repeat what is often noted by Summers and others (especially Krugman) the risk of stimulating the wrong amount is extremely asymmetric — the FOMC can raise interest rates and prevent overheating. it can’t lower interest rates much, because the current safe short term interest rate is 0.08%. It is, as Summers notes in his op-ed, much better to err on the side of excessive stimulus.
The real issues are that loose fiscal and tight monetary policy will crowd out private investment and drive up the value of the dollar. In my debt and taxes series, I considered a closed economy, so I will just note that the FOMC absolutely can keep the value of the US dollar down. The Fed just has to sell it’s dollar denominated assets and buy foreign currency denominated assets. A monetary authority which is trying to prevent depreciation of the national currency can run out of foreign exchange reserves — a monetary authority which is trying to prevent appreciation can’t run out of domestic reserves — it can create unlimited amounts at will.
So should we worry about crowding out private investment ? The first point is that the investment which will be crowded out is investment in structures (not equipment and software). High interest rates reduce the value of long lived assets which, in the real world, means buildings — mostly houses. The investment relevant to macroeconomists and IS curves and such is mostly to almost entirely residential investment which is left out of almost all macroeconomic models (all models I know of the weasel word “almost” was added from an abundance of caution). Even huger houses are not the way the US will deal with slow productivity growth or stagnant real wages.
But also, the fact that the *safe* interest rate is below the trend rate of GDP growth implies that higher welfare can be obtained with lower private investment. The fact that the expected return on the private investments is greater than the trend growth rate does not rule this out. This is the point of debt and taxes II
Importantly. In that model, it is simply assumed that the economy is always at full employment. There is no possible role for stimulus, in fact no way to drive up output in the short run. It is simply assumed that public debt crowds out private investment one for one. Furthermore it is assumed that all private investment causes higher wages, because all private investment is in plant and equipment used by workers. In spite of all those crazy assumptions (which hurt the case for more public debt) it is shown how to make everyone (in the simple model) better off with a policy which starts with the government just borrowing and giving the money equally to everyone.
The model exactly addresses the question of whether it is good policy to send everyone a check even if there is no need to stimulate, no GDP effect of stimulation, and a fiscal multiplier of zero. The answer is that yes it is good policy so long as the government pays an interest rate lower than the trend rate of growth of GDP, and so long as the distributional effects are handled by increasing taxation of capital income and reducing taxation of labor income (a policy for which there is an abundance of political space and also one which Republicans will resist even at the cost of electability which uh is a cost I am eager to let them bear).
After the jump, I will go on and on about the model
Early this morning the Senate passed a budget resolution telling committees to spend an additional $ 1.9 T on Covid relief. Yesterday, Larry Summers wrote an op-ed expressing concerns about the imminent resolution. Like manymanymany people, I disagree in part. Oddly, I think I disagree less strongly with Summers than most US adults do.
Summers makes two arguments. The first is that the stimulus is too large
The proposed stimulus will total in the neighborhood of $150 billion a month, even before consideration of any follow-on measures. That is at least three times the size of the output shortfall.
Which implies a risk of overheating and undesirably high inflation
there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. This will be manageable if monetary and fiscal policy can be rapidly adjusted to address the problem. But given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply.
The second is that he argues that increased public spending is needed and the stimulus package will make it impossible
Second, long before covid-19, the U.S. economy faced fundamental problems of economic injustice, slow growth and inadequate public investment in everything from infrastructure to preschool education to renewable energy. These are at the heart of Biden’s emphasis on building back better.
If the stimulus proposal is enacted, Congress will have committed 15 percent of GDP with essentially no increase in public investment to address these challenges. After resolving the coronavirus crisis, how will political and economic space be found for the public investments that should be the nation’s highest priority?
I will discuss these in order, but first, I want to note that Summers does not make the common deficit hawk argument that the increased debt will be a burden on future generations. He doesn’t argue against this concern, he just ignores it. I agree that he is right to ignore the argument and not even mention it.
On the first concern (overheating) I note the main counterargument — the Fed can raise interest rates if the economy overheats. In contrast, it can’t cut short term safe interest rates which are at the zero lower bound. Summers mentions “commitments the Fed has made”. I am not sure what he has in mind, but I am sure that the Fed will not respect any such commitments if inflation rises well above the 2% target. The rest of the quoted passage rests on the assumption that monetary policy alone can’t bring output down to the non accelerating inflation level — hence the “and fiscal policy” after “monetary”. There is no reason to believe this — it is hard for those of us old enough to remember 1981-2 to even imagine someone believing this. I am sure Summers has another concern (remembering the 1980s) that loose fiscal and tight monetary policy will crowd out private investment (in practice mostly private investment in large new houses). I think this is the old capital formation obsessed Summers taking over from the new secular stagnation fearing Summers. But in any case, the argument makes no sense. It is known how to manage an risk of overhearting. There is a reason it hasn’t been a problem in the past 40 years.
The asymmetry in the effect of monetary policy due to the zero lower bound implies that fiscal policy should err on the side of stimulus. The fact that Krugman has written this again and again and again in the past 12 years doesn’t prevent it from being true.
Before going on, I have one of my usual pet peeves. When he discusses practical issues, like almost all macroeconomists, Summers assesses fiscal stimulus using the full employment deficit. This is based on the assumption that temporary tax cuts and cash transfers have the same effect on aggregate demand as government consumption plus investment. At the same time, macroeconomists who have some interest in DSGE models all of which have Ricardian equivalence (a set which includes neither Summers nor me) assume that temporary tax cuts and cash transfers have no effect on aggregate demand. This is impressive cognitive dissonance.
There are two arguments against the additional $1400 checks. One (Summers’s) is that there will be too much demand stimulus. The other is that the cash will just be saved, so it is inefficient demand stimulus. The arguments cancel. One does not have to believe that one off cash transfers will have no effect on demand to guess that the effect will be much smaller than, say, infrastructure spending. I find it odd that there is no standard guess based back of the envelope calculation somewhere in between assuming zero effect (as is very common) and assuming that cash transfers have the same effect as public spending.
I will discuss Summers’ second concern after the jump
I didn’t expect this to be a series of posts, but there is news since I wrote post number III.
There is a partial change of subject, because the news concerns the Oxford/AstraZeneca adenovirus based vaccine and not the mRNA based vaccines which I discussed before.
In the UK they decided to delay the second dose for 3 months in order to get a first dose in as many people as possible as quickly as possible. This is roughly what I proposed in post I. Since then, Israeli HMOs have noted a significant rate of infection (detected by PCR screening) two to three weeks after the first dose the Pfizer/BioNTech vaccine (link to same post number III and post number II). After 3 weeks, they injected the second dose, so they can’t follow further.
Now the UK has new data. As in Israel, these are comparisons of vaccinated people to the general population not a randomized trial with a control group. The evidence strongly supports the UK approach of delaying the second dose.
First the estimated effectiveness of one dose is 75%, which actually slightly above the estimate of effectiveness of two doses in the phase III trial (62%). Second, the estimated effectiveness of two doses 3 months apart is even higher (82.4%). This suggests that the delay increases the effectiveness of the booster shot (the three week delay is due to the fact that, for other viruses, it has long been known that booster shots before 3 weeks have passed are not effective — 3 weeks was the shortest reasonable interval).
I think the similarity of 75% and 82.4% provides relatively solid evidence that it is not important to give the second shot quickly. There are many possible biases in a study of case vs general population, but it is much harder to see how they bias the estimate of the relative magnitude of the effects of first and second doses. Clearly the estimated benefit per dose is vastly greater for the first dose, so it is hard to argue against delaying the second.
Importantly, there was no clear evidence that protection from one dose waned during the 3 months.
Finally, in addition to the headline data on symptomatic cases, there are estimates of the probability of conversion to a positive result by PCR (this is not the primary outcome measure for any phase III trial but is the outcome measured in Israel which helps explain the difference from phase III trials). In the UK AstraZeneca case, the probability of PCR detected virus decline 67%. This is close to the decline in symptomatic disease. This is reassuring as it would be very bad for herd immunity to give people a vaccine which made them become asymptomatic carriers.
Obviously UK authorities are claiming that the new data prove they made the right choice (authorities always claim that). But this time, they might have a point.
First, I want to discuss the evidence on effectiveness of the first dose of the BioNTech Pfizer Covid 19 vaccine. The data from few person – weeks of the phase III trial suggested that one dose was highly effective after 10 days. This is based on 4 of roughly 40 cases in vaccinated participants.
Much larger samples from the not randomized controlled just by the general population experience in Israel suggest lower effectiveness. I think the most interesting data are from the Israeli HMO Maccabi who followed a cohort of 50,777 vaccinated Maccabi members. The plot shows 7 day moving averages of diagnosis by PCR. They are very close for vaccinated and not vaccinated Maccabi members for about 14 days. This suggests that all of the many biases from the non randomized trial roughly cancel out. Then after 14 days they diverge ending up with a rate of infection among the vaccinated about 35% that of the unvaccinated.
Then they gave the second dose. Ten days later, the rate of infection among the twice vaccinated was very low
The Democratic-controlled House passed legislation in December to expand stimulus payments to $2,000. This was marketed as aid to the poor and middle class, but the bill would have given some money to 94 percent of households — including those making over $300,000. President Biden, who supports more direct payments, said this week that he is open to negotiating eligibility details to ensure the funds are targeted to the needy.
I actually agree that it would be a good idea to target the additional 1400 more. I think it very likely that this will be the condition imposed by political Manchinations. Rampell considers some arguments for extremely broad stimulus and refutes them effectively. I think it is best to just click the link – the op-ed is too good for me to summarize.
However, she also makes some arguments about the US Federal Government intertemporal budget constraint which do not convince me.
If you believe that government fiscal capacity is infinite and deficits never matter, perhaps it’s easy to dismiss concerns about wasting money on the rich so long as money also happens to reach those who are suffering. But at some point, there will be choices to make, and tradeoffs. Either Republicans will enforce a ceiling on the size of the next relief bill, or the reconciliation process will.
And then every dollar spent on those who don’t need it will be a dollar not spent on those who do.
What are we going to do about Mitch McConnell and his enabler Jim Manchin ? McConnell is blocking the establishment of committees for the 117th Senate. This means that the committees with Republican Chairs and Republican majorities will exist and operate in the Senate with a Democratic majority. He demands that Democrats promise not to eliminate the filibuster before he ends the filibuster of the resolution setting up the 117th Senate.
One simple solution is to introduce bills on the floor. This is what McConnell did with his bill to repeal and replace the ACA. McConnell objecting to contempt for regular order is, quite possibly, absurd enough to be mocked even by very serious centrists. The point is that McConnell can block the establishment of committees, but he can only make committees important if the Democrats allow him to.
So far, this might work for a while (motions to confirm straight to the floor as many have proposed for example). But the Democratic caucus will not allow Schumer to replace committees with himself (the Republican caucus didn’t let McConnell get away with it either). The problem is that Senators want the power that comes from serving on committees. Especially those who will be chairpersons if McConnell is convinced or nuked will not accept bills being written in Schumer’s office. What do do about the caucus ?
The Democratic caucus can do what it pleases with or without McConnell. It can establish committees of the caucus. t can have Senators chair those committees. Those committees can (Constitutionally) do most things which senate committees do, except there won’t be any Republicans on those committees. Schumer can bring to the floor bills drafted by committees of the Democratic caucus. If the Republicans refuse to play ball with the Democrats, the Democrats can leave them alone.
It remains true that Republicans can filibuster the bills when they get to the floor, but committees only matter if Schumer allows them to matter and he only has to delegate power to other Democrats.
McConnell will (correctly) note that this is an outrageous break from the traditions of the Senate. The Democrats can reply (in chorus) that they are eager to go to committee meetings as soon as McConnell ceases to filibuster the resolution setting up committees.
I don’t see a problem with this proposal. It won’t happen, but I don’t know why it won’t happen.
update: Now I’m really mad at McConnell. Minutes after I posted this plan to defeat his obstruction of the Senate rules resolution, he caved. Making me look like a fool *again* isn’t so bad compared to sabotaging constitutional democracy, but I don’t like it.
Also I am angry with Mike deBonis who wrote “the filibuster, the Senate rule that acts as a 60-vote supermajority requirement for most legislation.” The filibuster didn’t act as a 60-vote supermajority requirement for most legislation until 2009. The norm and tradition was that it was used rarely. The Senate ceased to function in 2009 because McConnell chose to ignore the norm and end the tradition that had enabled it to function (more or less) for centuries. This fact should not be elided.
Pointlessly long introduction which I wrote on an on and on before getting to my proposal after the jump