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

Brad DeLong Sez It! Inequality Kills Growth

Okay well he doesn’t say it quite so succinctly.

Or categorically.

In fact he hedges his statement several ways from Sunday, and uses a hundred-and-twenty-three-word paragraph to do so:

The near-consensus view over here at Equitable Growth and at the Equitablog is that U.S. economic growth over the past generation has been very disappointing. Too-much of our economic growth has been wasted producing the wrong stuff and delivering it to the wrong people, and we have failed to properly and productively invest at the rate we could in people, machines and buildings, ideas and organizations, and institutions. The hunch around here is that these two are tightly coupled: that the rapid rise in inequality as a result of the derangement of incentives has both decoupled the links between higher measured real GDP and human economic welfare and material well-being, and has also slowed the growth of our potential to produce real GDP.

I know: he’s being responsible and careful not to overstate the case or torture the known evidence to date.

But still. Goddam liberals.

Happily, he then passes you on to Ashok Rao and Evan Soltas, who comprehensively eviscerate the inequality-causes-growth arguments of Scott Winship.

So at least we’ve got full-throated arguments that the arguments against the inequality-kills-growth position are hooey. We’re getting there.

Cross-posted at Asymptosis.



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‘Socialism’ is a rough proxy for interventionist government? REALLY, Thomas Edsall?

Obama argues that government action is required to redress the growing disparity between rich and poor, diminished opportunities for upward mobility and economic stagnation. Public opinion, at least according to the Stimson analysis, is moving in precisely the opposite direction. A 2011 Pew Research Center survey gives us a glimpse of some of the headwinds Obama faces. Pew found that among all voters, capitalism (a rough proxy for deregulated markets) is viewed favorably by a 50-40 margin and socialism (a rough proxy for interventionist government) negatively by 60-31.

Does Rising Inequality Make Us Hardhearted?, Thomas B. Edsall, New York Times, today

Wow, whata surprise.  By a 50-40 margin, Americans polled by the Pew Research Center in 2011 preferred capitalism to socialism.

Excuse me, but, so what?

Folks, I’m really, really liberal on economics issues, but I am not nor have I ever been a Socialist or a supporter of actual socialism.  (I swear, Sen. McCarthy!)  My best guess is that that’s also true of a majority of, say, Swedes, Canadians and Germans.  As is reflected in their government’s policies. They hold liberal views on economic and fiscal policy.  They are not socialists.

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Shiller on Fama: “maybe he has a cognitive dissonance”

Here, emphasis mine:

It must affect your thinking somehow that they really believe in markets. I think that maybe he has a cognitive dissonance. His research shows that markets are not efficient. So what do you do if you are living in the University of Chicago? It’s like being a Catholic priest and then discovering that God doesn’t exist or something, you can’t deal with that, you’ve got to somehow rationalize it.

Cross-posted at Asymptosis.

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Next Year, Will Your Employer’s Insurance Cover 62 Services and Products with No Co-Pay or Deductible? How Much Will You Save? Maggie Mahar Health Beat Blog

Under the ACA,  some 62 preventive services and products will be free (in the past much of the preventative medicine was charged to patient on a non-negotiated rate. Today, they are financed through regulations applied to the insurance industry): no copays and the deductible will not apply. The list includes vision checks for children, birth control, and more than a dozen vaccines.

This rule will hold true not just for plans sold in the exchanges, but for most employer-sponsored plans. Under Obamacare, they, too, must offer preventive care without cost-sharing – unless they are “grandfathered.” (Grandfathered plans are policies that existed before the ACA was passed in 2010, and that have not made substantial changes to benefits or cost-sharing since then.)

This year, just 36 percent of Americans who have health benefits at work are enrolled in a grandfathered plan,, down from 48 percent in 2012 and 56 percent in 2011. Each year, more plans will lose their grandfathered status.

The ACA’s list of preventive services and products covers most of the reasons that many of us visit a physician – for blood pressure checks, cholesterol checks, flu shots, mammograms, tetanus shots, Pap smears or colorectal cancer screening.

Some of us go to the doctor because we want help losing weight, or quitting smoking. Counseling and smoking cessation products – including nicotine patches – all make the list.

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Third Way walking the walk

Economic Populism Is a Dead-End for Democrats recently appeared in The Wall Street Journal, appropriately enough, and comes from Third Way.  A commenter asked why it was important to list who was on the trustee list, which included some Dems and others.  I won’t go through the laundry list on taxes, social safety net, and other issues…you will form your own opinions.  It is well financed, and hardly ‘centrist’.

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Equality and Growth Is Breaking Out All Over!

Sadly, not in the real world. But in the econoblogosphere. Much of that is arguably thanks to the newly launched Washington Center for Equitable Growth.

Traveling and family time, so I can’t do a big writeup, so just a few somewhat randomly chosen links:

Brad Plumer: Is inequality bad for economic growth?

Jared Bernstein: The Impact of Inequality on Growth

David Howell: The Great Laissez Faire Experiment

Much of what we’re hearing (even from said Center) is still of the weak-kneed or even actively dismissive variety that is the best we’ve been getting out of the liberal establishment for lo these many years. But we’re starting to hear some full-throated arguments with strong theoretical and empirical grounding.

For instance here’s a new paper from Barry Z. Cynamon of the Federal Reserve Bank of Saint Louis and Steven M. Fazzari of Washington University: Inequality, the Great Recession, and Slow Recovery. Nice summary here.

We show that the rise of inequality that began around 1980 resulted in large part from a slowdown of income growth for the bottom 95 percent of the income distribution, that is, for just about everyone.

And for those who still complain that ironclad, irrefutable evidence is lacking, here’s Steve Randy Waldman explaining why you should STFU. Here just the conclusion; read the whole thing:

You can tell me the “jury is still out” on those. But the jury is not out, it never reasonably has been out, on the reality of distribution-related MPC effects. I’ll disagree, respectfully, if you claim that for supply-side or libertarian reasons we should ignore that reality and prefer other means of supporting demand (or that we should not worry about supporting demand at all). But don’t say “it’s unclear” whether income distribution affects aggregate demand, holding other factors constant. Of course it does.

Or in my words, the arithmetic of income/wealth concentration and the MPC effect is straightforward and inexorable. (But of course that doesn’t mean it’s the only effect we need to consider.)

In passing, he also does a much better job of eviscerating Paul Krugman’s (Milton-Friedman-based) theoretical argument against what Paul calls the “underconsumption” theory than my feeble effort (though do look at the graphs in that post).

Of course, you had to be an idiot to believe that the Permanent Income Hypothesis fully accounted for MPC effects. Undoubtedly consumption smoothing explains a part of cross-sectional variation in marginal propensities to consume, but you don’t need careful empirics to prove that it can’t explain all of them. Why not? Because not consuming leaves a residue, something called savings, which becomes wealth. If across the income spectrum everyone spent and saved in equivalent proportions, we’d expect no cross-sectional variation in terminal wealth as a proportion of lifetime income. But in real life, much of the bottom of the income distribution dies with zero or negative wealth (i.e. they stiff their creditors), while those near the top of the distribution leave large bequests. An intergenerational Permanent Income Hypothesis could only explain this if poorer people expect their kids to be much wealthier then the children of moguls. Which is not so plausible.

Cross-posted at Asymptosis.

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Food Stamps Obesity and Dependency

Hilary W. Hoynes, Diane Whitmore Schanzenbach, Douglas Almond made a genuinely important contribution to the debate on the effects of social welfare programs in this NBER working paper/revised manuscript

“Long Run Impacts of Childhood Access to the Safety Net”

They took advantage of a natural experiment to estimate the long run effects of access to Food Stamps (SNAP) in utero and in early infancy. SNAP was introduced at different times in different US counties. From 1964 when counties could provide food stamps until 1973 participation increased pretty much linearly so in 1968 food stamps were provided in roughly half of US counties.

This is crazy policy, but it is also a natural experiment. By comparing the experience of people (whose parents didn’t have high school degrees) born at the same time in counties with and without food stamps, they can estimate the effect of food stamps.

Here is the abstract of the paper (my bold)

A growing economics literature establishes a causal link between in utero shocks and health and human capital in adulthood. Most studies rely on extreme negative shocks such as famine and pandemics. We are the first to examine the impact of a positive and policy-driven change in economic resources available in utero and during childhood. In particular, we focus on the introduction of a key element of the U.S. safety net, the Food Stamp Program, which was rolled out across counties in the U.S. between 1961 and 1975. We use the Panel Study of Income Dynamics to assemble unique data linking family background and county of residence in early childhood to adult health and economic outcomes. The identification comes from variation across counties and over birth cohorts in exposure to the food stamp program. Our findings indicate that the food stamp program has effects decades after initial exposure. Specifically, access to food stamps in childhood leads to a significant reduction in the incidence of “metabolic syndrome” (obesity, high blood pressure, and diabetes) and, for women, an increase in economic self-sufficiency. Overall, our results suggest substantial internal and external benefits of the safety net that have not previously been quantified.

So they have statistically significant quasi expermimental evidence that food stamps reduce dependency in the long run. This welfare program helps prevent the intergeneration transmission of poverty. Food stamps are now a demonstrably effective way to fight the culture of poverty.

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The Third Way summary

It’s critical to understand that Third Way presents itself as “centrist” and a think tank:

Third Way

Via Huffington Post Bill Black summarizes the profiles of the trustees:

Twenty of the twenty-nine trustees come from finance (counting the lawyer whose specialty is representing private equity firms). Their most common background is Mitt Romney’s — private equity — and hedge funds. The nine non-finance members include:

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Mainstream Journalism As Just Another “Ism.” (The fallacy of the belief that the modern mainstream media has actual standards)

(Reuters) – Employers tried the carrot, then a small stick. Now they are turning to bigger cudgels.

For years they encouraged workers to improve their health and productivity with free screenings, discounted gym memberships and gift cards to lose weight. More recently, a small number charged smokers slightly higher premiums to get them to quit.

Results for these plans were lackluster, and healthcare costs continued to soar. So companies are taking advantage of new rules under President Barack Obama’s healthcare overhaul in 2014 to punish smokers and overweight workers.

—  How your company is watching your waistline, Kathleen Kingsbury, Reuters, Nov. 13, 2013

May I suggest that Ms. Kingsbury’s employer, Reuters, use a cudgel to get her and her editor to actually think about whether what they offer their news-media subscribers doesn’t contradict itself within the very same piece?  (Reuters is what was known for a century or so as a newswire service and is now just known as a news service; like the AP and UPI, it was historically, and now still mainly, a news-gathering service that publishes only through major-media outlets that subscribe to its services.  Such as Yahoo News, which is where I read it three weeks ago.  Thus, the reference to “their news-media subscribers.”  Okay, okay, I’m a journalism pedant.  I even know that Reuters is pronounced Royters, not Rooters, and that unlike AP and the old UPI it is a British import.  Thanks, Dad!)

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