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

Risk = Freedom?

Peter Dorman at Econospeak speaks to the current selling of big idea models of the world (re-posted with permission from the author):

There’s a review on the Dissent website by Steve Randy Waldman of Freaks of Fortune: The Emerging World of Capitalism and Risk in America by Jonathan Levy. The book sounds interesting, but it is apparently based on a commonplace but false understanding of the relationship between freedom and risk-taking.

At the individual level it is absolutely true that we face a tradeoff between risk and freedom. You can opt for a secure life, but only at the expense of creativity, individualism, moral courage and all the other Emersonian goodies. Each one of us, every day, faces this choice. Mostly it is just a matter of a tiny bit of risk-taking, but these moments add up, and from time to time there is a fundamental fork in the road. We make our own freedom.

But the social level is another story. Individuals take the array of risks as given; society can choose how much risk its members will face and what their risk-freedom tradeoffs will be, at least up to a point. If the objective is to minimize all risk of any sort, especially all risks to health and income, the result will be stultifying. But that’s not where we are on the Great Risk Curve.

 Rather, the debates we have are about whether to cut back or extend social insurance programs like Social Security and Medicare, social protections like TANF and Medicaid, and more or less regulation of finance, pollution and such. It seems clear to me that more security of this sort, which limits the downside risk individuals face in their personal lives, reduces the cost of living freely.

Examples are everywhere. Ample unemployment insurance makes it easier to work for a startup or switch jobs in general rather than being held down by too strong a need for job security. A stronger public pension system encourages entrepreneurship: people can hazard their savings by starting a business rather than hoarding everything for old age. Social guarantees for basic needs make it possible for artists to risk making art their day job. Professors with tenure (big time risk reduction) can take more controversial positions on public issues. (I don’t say they always do this, but they do it more than they would if all professors were temps.) In each case there is a real tradeoff between freedom and security at the individual level, but society can create programs that relax it, so it takes less courage to live freely.

That’s what I don’t like about the nanny state rhetoric. Yes, of course the state can go too far and overprotect us from risks we would do better to face ourselves. But the state we actually live in goes too far in the other direction. With a stronger safety net we could have less risk and more freedom.

GDP Gap Stuck at 6%

Pro Growth Liberal points us to this interpretation of new economic data:

GDP Gap Stuck at 6%

Dean Baker gets it right with respect to the latest news on GDP:

A sharp drop in government spending, heavily concentrated in defense, coupled with a decline in inventories caused GDP to shrink at a 0.1 percent rate in the 4th quarter. Government spending fell at a 6.6 percent annual rate, driven by a 22.2 percent decline in defense spending, subtracting 1.33 percentage points from the growth rate in the quarter. A 40.3 drop in the rate of inventory accumulation reduced growth by another 1.27 percentage points. Without these factors, GDP would have grown at a 2.5 percent annual rate in the quarter. Pulling out these extraordinary factors, the GDP data were largely in line with prior quarters.

Joe Scarborough on the Deficit

Pro Growth Liberal at Econospeak also takes Joe Scarborough to task on Krugman and Keynes:

Joe Scarborough on the Deficit

After his interview with Paul Krugman this morning Joe Scarborough wrote:

Mr. Krugman’s view is that Americans would be better off if its government ran deeper deficits and ignored its longterm debt.
To suggest that Keynesians like Paul Krugman ignore the long-term government budget constraint is either dishonest or shows that Mr. Scarborough does not understand what we are saying. Which is why Mr. Scarborough should check out this list of commentary on the current economics and fiscal situation compiled by Joe Weisenthal.

The Moral Imperative of a Debt Ceiling

Peter Dorman at Econospeak writes a letter to Bank of America:

The Moral Imperative of a Debt Ceiling

From this morning’s New York Times:

Representative Jerrold Nadler, Democrat of New York, signed on to the trillion-dollar [platinum] coin plan, telling Capital New York: “It sounds silly but it’s absolutely legal. And it would normally not be proper to consider such a thing, except when you’re faced with blackmail to destroy the country’s economy, you have to consider things.”

But he might find resistance from Representative Greg Walden, Republican of Oregon, who said he would introduce legislation to close the loophole and end the debate once and for all.

“My wife and I have owned and operated a small business since 1986. When it came time to pay the bills, we couldn’t just mint a coin to create more money out of thin air,” Mr. Walden said.

Dear Bank of America:
As a lender to my small business, you should be the first to know of a decision I’ve decided to take.  It wasn’t easy, and I’ve given it a lot of thought, but now I’m convinced it’s the right course of action.  I won’t be making my next monthly payment.

It is true that I have already ordered shipments of equipment and materials using the funds I’ve borrowed from you.  It is also true that I have adopted a pricing policy that’s designed to increase market share at the expense of current cash flow.  The result of these choices is that my financial obligations will exceed my revenues for an extended period of time.
I have a line of credit that can cover this shortfall; we discussed it at length in our meeting last month.  I appreciate your willingness to finance it at a negative real interest rate.  But I now believe that it is immoral for me to increase my debt, which could be a burden on my children and grandchildren.  As a result, I have imposed a debt limit on myself—a limit which I refuse to raise.
I’m sure you can understand the sound principles on which this choice is based: taking on more debt is evil.  That’s why I have chosen instead to default on your loan, as well as withhold wages I’ve promised to pay to my workers.  Please support me in this virtuous undertaking.
Sincerely yours…..

Norquist and LaPierre: Emperors Losing Their Clothes?

Barkley Rosser at Econospeak offers his take on the current political situation and two players.
(re-posted with permission from author)

Norquist and LaPierre: Emperors Losing Their Clothes?

Two figures have held near-dictatorial sway over a majority of members of Congress for several decades: Grover Norquist and Wayne LaPierre.  However, both may be losing their grip to some extent at this time, although it is too soon to count them out yet.  Both may yet get their ways to some extent despite appearances to the contrary.

Norquist’s schtick has been the pledge he has foisted on largely Republican members of Congress never to raise taxes in any way, shape, or form.  This effort dates to the Reagan presidency and has only gradually gained the nearly universal submission that it currently has among Republican politicians at both the state and national levels.  In the face of the current huge deficit and the oncoming “fiscal cliff” (curb, slope, whatever), some are now making noises about abandoning ship on this.  Indeed, this past Thursday saw House Speaker John Boehner proposing to raise income taxes on those earning more than $1 million per year.  While this was a cutoff higher than the $400,000 President Obama was demanding (which is in turn higher than the $250,000 he successfully campaigned on this year), it was a significant break for Speaker Boehner.  However, in the end he was unable to convince his caucus to support him.  The rank and file of Republicans in the House are simply not yet willing to go against their pledges to the will of Norquist.  Boehner’s clothing may be getting pulled at and a bit messy, but he continues to seem pretty fully dressed.

Wayne LaPierre has not made Congressional members sign a specific pledge, but he has demanded that those the NRA supports do exactly as it requests on pain of facing primary or other opposition backed by strong funding and advertising.  Whereas Norquist’s group largely focuses just on Republicans, LaPierre has worked his ways on polticians of both parties, although increasingly his focus has been on Republicans as Democrats have begun to thumb their noses at him.  This movement has accelerated since the massacre at Sandy Hook Elementary School in Newtown, CT just over a week ago, and the reaction to LaPierre’s speech a week after it calling for armed guards at schools has been ridiculed widely.  Nevertheless, despite a lot of discomfiture, at least Republicans continue to appear to be completely obedient with not a single GOP member of Congress expressing support for any movement to control guns in any way.  One can expect my own representative, Bob Goodlatte, to prove to be the ultimate blocker of any efforts to change gun laws in his new position as House Judiciary Committee Chairman, as he has strongly stated opposition to any changes in gun laws.  So, LaPierre also  appears to be keeping most of his clothing on as well for the near term.

A curious details is that this authoritarian pair has a curious mutual connection.  Norquist is on the board of the NRA, and both are closely connected to John R. Lott, Jr.  Lott has most recently coauthored a book with Norquist, and he has long been the most prominent pro-gun rights advocate in the nation, much relied on and praised by LaPierre.  His book, _More Guns, Less Crime_ has been cited repeatedly by those pushing to loosen gun laws in many states and also at the national level, such as when the NRA succeeded in blocking a renewal of the assault weapons ban in 2004.  Curiously, Lott’s effort to step forward to defend gun rights at this time has brought much focus on his long record of data manipulation and outright fraud, most notoriously in his creating a sock puppet named “Mary Rosh” to praise himself on the internet over a decade ago.  His studies have come under strong criticism on multiple grounds by many, such as Mark Duggan in his “More Guns, More Crime,” Journal of Political Economy, 2001.  His recent claims that mass murders happen only in gun free zones, except for the Gabby Giffords tragedy last year, appear to be false, with at least three this year happening in non-gun free zones: the Clackamas OR shopping mall attack, the Sikh Temple attack in Oak Creek WI, and the Accent Signage attack in Minneapoli, MNs.  For more detailed discussions of the various fraudulent activities Lott has engaged in see  and

Ironically, while Norquist and LaPierre may just barely be able to keep their clothes on, it looks like it may end up being Lott, who may finally lose his.

"The young will pay more and get less." More Nonsense from Robert Samuelson

by Barkley Rosser  from Econospeak

“The young will pay more and get less.” More Nonsense from Robert Samuelson

Our old friend, Dean Baker at Beat the Press, does a good job of taking apart yet another screed by the execrable Robert J. Samuelson, faux economist for WaPo, whining about why nobody is jumping on board with cuts to “entitlements,” and particularly his old bugaboo, Social Security.  Google “Dean Baker Robert Samuelson is upset” and the first hit gives you the link (Sorry, the link title is too long for me to read it and my trying to put what I saw in just sent one to the general CEPR site, bah! (Anybody out there able to tell me how to overcome this bit when urls are too damned long too read, please?).  However, I want to pound the nails in a bit more.

So, RJS provides this line that if there is not an adjustment to SS (and Medicare), then “The young will pay more and get less.”  Dean quotes this, but does not go far enough in showing how totally ridiculous this is, even though he has pointed out recently that one reason there should be no adjustments for SS now is that the young are massively misinformed about what the not so bad fiscal situation of SS is.  Large proportions of them are fully convinced that they will receive no Social Security when they retire because it will be “bankrupt,” when in fact that condition will amount to them only getting something like 120% of current retirees’ benefits in real terms rather than more like 170% (a bit lower, actually).  They are totally out of it, and the main threat to them losing their future benefits is if they support the sort of dreck that RJS is pushing, to cut their future benefits now because otherwise they might have their future benefits cut in the future (eeeeek!).

Let me be more pointed.  RJS’s statement is simply a lie.  The proposals to cut Social Security have generally taken two forms recently: imposing a chain price index and adding another round of retirement age increases in the future beyond those that were imposed by the Greenspan Commission nearly 30 years ago and which are still coming in.  The former is estimated to reduce cost of living increases by about 0.3% per year, and this would over the next few years indeed gradually reduce what elders receive in benefits, although it is not at all clear that this will lead to any reduction in what the young will be paying, unless this is accompanied by another round of fica tax cutting, or fica is restructured to have the same revenues come in but have it paid over all income levels, thereby reducing the burden for anybody under the upper cutoff for paying it.  However, the effects of this change in the CPI used means that the cuts will get bigger and bigger as time passes, meaning that those who will be most negatively impacted will not the evil baby boomers, but the current young when they finally retire, although since they think they will get nothing, presumably they will be grateful to get even a crust of dry bread.

More egregious for RJS’s arguments, and where he really is just outright lying rather than merely stretching the truth is this matter of increasing the retirement age.  Nobody is talking about any further rounds of that happening anytime soon.  RJS poses as this defender of youth against his awful generation (he trumpets his baby boomerdom to supposedly give credibility to his regularly repeated nonsense), but in fact the baby boomers, or certainly at least the front end ones like me and him, will not be affected at all by these future increases in eligibility ages.  It will be the Gen Xers and the Millennials.  RJS is just lying through his teeth.  We old farts will not pay at all as a result of this change, but today’s youth will.

reposted from Econospeak

Tax Policy: You Can’t Handle the Truth

ProGrowthLiberal at Econospeak reminds us of a central tenet myth of this electoral campaign, and an example of political pressure on information sources:

Tax Policy: You Can’t Handle the Truth

Sahil Kapur reports on something that does not surprise me on two levels:

The author of a Congressional Research Service study, who found no evidence that tax cuts for high income earners lead to economic growth, is standing by his work, after the legislative branch’s nonpartisan research arm withdrew the report under pressure from Republican leaders. And Democratic principals are demanding to know why CRS caved to GOP pressure. CRS quietly and quickly pulled the six-week old report, despite the wishes of the research arm’s economic team, the New York Times reported Thursday … The study, which TPM and others reported on at the time, delved into the last 65 years of U.S. tax policy — specifically how marginal rates on high incomes and capital gains taxes impact decision-making. It concluded that reducing effective taxes on the rich does not generate economic growth, but that it does correlate with rising income inequality in the short term. The report’s conclusions aren’t terribly controversial in mainstream economics.

What Thomas Hungerford wrote has indeed been the consensus view among economists who are not prostituting themselves for Mitt Romney… (More at Econospeak)

What is remembrance for?

I am just catching up with some of the news this week. Barkley Rosser at Econospeak had a timely post on 9/11 ceremonies and reminds us about what we accept as special or inevitably normal:

Things More Worthy Of Remembrance Than 9/11

Yes, what happened 11 years ago today was awful and tragic, and there is much that can be said about and it is worthy of remembrance.  However, it seems to me that it is being way overdone.  Osama bin Laden is dead, but we are allowing both political parties to continue to use this event to justfiy an everincreasing national security and surveillance state that is taking away our liberties. 

Numerous other nations have had more die than we did from terrorism on 9/11, but managed to keep some perspective and treat the matter as one of policing rather than national hysteria, which was already manipulated once to get us into the utterly stupid war in Iraq.  Even though the Bush admin officially admitted that Saddam had nothing to do with 9/11, Cheney kept on claiming that he did, and 64% of those voting for Bush 8 years ago believed that he did.

Here are some things more worthy of remembrance than 9/11, but which will not get even remotely as much attention:

1)  Monday, Sept. 17 will be the 225th anniversary of the adoption of the US constitution.
2) That same day will also be the 150th anniversary of the Battle of Antietam, the bloodiest day in US history, with over 23,000 dead on its battlefield, which inspired President Lincoln to issue the Emancipation Proclamation, which freed (most of) US slaves.  Needless to say, that is a lot more dead than on 9/11 and with a much more worthy and important outcome.
Then in terms of sheer numbers of pointless dead, with us arguably being possibly able to do something about them, if not all that likely:
3) Between 2000 and 2009, 298,000 Americans died of gunshot wounds.  Many of those were suicides, others were homicides, others were family accidents.  We have half the world’s guns and are far ahead of any other country on this matter (with some competition from a few with war happening on their soil).
4)  During the same period, 417,000 Americans died in automobile accidents.

So, let us remember 9/11, but let us keep it in perspective compared to more important things, and let us not allow it to be used for evil purposes.

(re-posted with permission from the author)

The Matrix: The Intersection of War, Economic Theory, and the Economy

Passing along a note from Michael Perelman at Econospeak:

The Matrix: The Intersection of War, Economic Theory, and the Economy

Vincent Portillo and I are working on a new book, The Matrix: The Intersection of War, Economic Theory, and the Economy. So far it is still remains an exploration rather than a finished research project. We intend to post our progress from time to time, hoping to initiate some comments and conversation.

Thank you in advance.

Here is the link.
Posted by michael perelman at 10:19 AM

PGL on The Romney Economic Boom

PGL at Econospeak begins an analysis of the economists and economics of election promises of Romney’s economic ‘plan?’:

Jon Ward reports that Glenn Hubbard, Greg Mankiw, and John Taylor joined with Kevin (DOW 36000) Hassett to produce white paper that should be fun reading for us of all:

Mitt Romney’s campaign released a paper by four of its top economic advisers on Thursday to back up its assertion that Romney’s tax reform and fiscal plan would create “millions of jobs,” as an adviser earlier in the day had stated … “The Romney economic program will change the direction of policy to focus on economic growth,” the advisers wrote. “Its pro-growth effects will work in two basic ways: It will speed up the recovery in the short run, and it will create stronger sustainable growth in the long run.” The paper was less actuarial work with raw data and specific numbers, however, and more of an economic philosophy argument based largely on the premise that simply by undoing much of what President Obama has done since taking office, the economy would recover at a faster pace than it has been from the recession that began in late 2008. “By changing course away from the policies of the current administration and ending economic uncertainty, as proposed by the Romney plan, we expect that the current recovery will align with the average gains of similar past recoveries,” the advisers stated. “History shows that a recovery rooted in policies contained in the Romney plan will create about 12 million jobs in the first term of a Romney presidency.”

Past recoveries have relied on monetary expansion. I guess these four have not figured out we currently are in a liquidity trap. The bit about policies that are both good for the short-run and the long-run have been standard talking points from Team Romney for quite a while. To be honest – I still need to read this paper but before I do, let me tick off four such possibilities.

The first two are proposals from the Obama Administration which have been stonewalled by Congressional Republicans: (1) accelerating public investment in infrastructure; and (2) using Federal revenue sharing to insure that state & local governments don’t cut public education. The other two rely on encouraging private investment, which is admittedly still low. We could ask the Federal Reserve to lower interest rates – oh wait, that liquidity trap thing again. Finally, Team Romney is doing its best imitation of Art Laffer saying that tax cuts for high income individuals will somehow encourage investment even as negative real interest rates have not fully succeeded. Isn’t this what the Reagan Administration argued some 30 years ago – which prompted the critique from one of the authors of this white paper that the claim was from “cranks and charlatans”. But let’s also take a read of this white paper and see if there is anything new worth considering.