You know, that's happened in the last three posts I've posted! Although I caught it the second time. What on earth.
Ok, fixed.
But Nick S even put the html link code in his email to me! I did not tamper.
He did spend much of the interview suggesting various forms of tax breaks for employers and capital, but yeah, surprisingly sane and grappling with actual economic problems.
[A]fter being head of the RNC, and it was like [Michael Steele] gained 50 IQ points. All of a sudden he was capable of following a series of logical statements and making a thoughtful response.
I like this description.
Is he serious, or is he just trying to promote something which probably won't happen as a way to criticize the existing stimulus?
Yes, and yes. Maybe cut out the "bad parts" in committee when it reaches Congress.
Rule No 1: They are way way smarter than you. They want to create institutions that are irrevocable.
Rule No 2: They are irredeemably evil, and the enemy.
Rule No 3: Those, like Klein, who give them a public forum, or treat them as acceptable interlocutors, are the problem
FWIW, I just read a long statistical comparative study of class and mobility in US, Japan, and Germany. Germany is doing it different. They are not doing it good. I guess I could come back with numbers or a summary, but it isn't going to make a difference.
After ten years, y'all still like Klein and his minions.
He claims that "giving someone a job by building a bridge is a pretty indirect way to create jobs" (what the fuck is indirect about that?), and thinks a better way is to give huge subsidies to corporations to hire people they wouldn't otherwise hire? To do what? If you hire a bunch of people to build a bridge you have (a) a bridge and (b) a bunch of people with money to spend. With this guy's ideas maybe you still get (b), but instead of the bridge you get a huge corporate windfall and downward pressure on wages. I'd go with "cynical".
I think every time Kevin Hassett raises his head in public, there needs to be a note to the effect of "Kevin Hassett is the co-author of Dow 36,000", just so everyone can fairly judge Hassett's record of attachment to reality.
Peter Frase at Jacobin uses Dylan Matthews as an example in discussing the "Perils of Wonkery"
And so it is with the wonk -- he needs to appear to be deeply knowledgeable about a wide range of obscure and technical subjects. But this entails concealing both one's ideological biases and one's substantive lack of knowledge, and relying on the borrowed prestige of academics and experts. In doing so, the wonk becomes the conduit for the experts, or more exactly a crucial means by which their authority is reproduced. The wonk takes the expert's pronouncements at face value because they are serious, mainstream figures, and the fact that journalists do this reinforces their seriousness and mainstream-ness. One could hardly devise a better way of policing ideological boundaries and maintaining the illusion that the ruling ideology is merely bipartisan common sense.
I ain't got smarts, I ain't nice or pretty, but I do have rage. Rage is what you need, and all it takes.
Yeah, on second thought I was insufficiently cynical. He mentions direct employment only as a criticism of the inefficiency of the stimulus, and then pivots to his positive program of enterprise zones and the like, which seem to me to be attempts to replicate the state-level race to the bottom with taxes on a federal level.
8: The Class of 2046 has never known a time when their Google Glass didn't annotate public figures.
(I wouldn't actually bet that a Pop Up Video-style app would be consistently and usefully insubordinate, but I can dream, right?)
. . . and then pivots to his positive program of enterprise zones and the like
I think that's being too cynical. I don't love what he's offering, but I don't think he's just using unemployment as an excuse to push his pet programs:
That's where I'm pushing now, whenever I have a chance to talk to elected officials. Get smart people on both sides, lock them in a room, design 15 long-term unemployment pilot programs, and structure them like they did with the negative income tax experiments, as legitimate experiments we can use to evaluate what works.
Richard Seymour ...interviewed at Zagreb June 10. Twenty minute video.
Somebody I admire, though he scares me a little. UK, Greece, Obama & America, the new organization he is starting after leaving the SWP
This guy is smart, and erudite, and good. If you think you are smart enough to understand the secret agenda of enterprise zones, then you are smart enough to read Seymour, or the people he mentions: Therborn, Poulantzas, Silvia Federici.
12: Maybe, and I did like the experiment idea, but in practice I think it would be easy to set up conditions to lead to a preferred conclusion. It wouldn't surprise me if a local enterprise zone attracts business and investment, but it's an unscaleable, negative sum game.
giving someone a job by building a bridge is a pretty indirect way to create jobs" (what the fuck is indirect about that?)
What he says is if the government directly hires unemployed people to do a job, then the people already doing that job in the private sector will become unemployed. Assumes zero sum of jobs.
The bigger issue to me is that we as a society or group of societies have yet to come to grips with the huge changes the electronic revolution is having in the labor market. Increased productivity means more work is being done by fewer people, and many of the jobs eliminated were pretty shitty to begin with. The intertubes gives anyone global reach, and that in turn can give rise to more and more niche marketing. A nation of freelancers means that there is no big paternal company to smooth out the rough spots. Maybe a little too Darwinian, but navigating this brave new world will be difficult at best.
15.1: so he's worried about crowding out all the private-sector bridge-building going on?
What he says is if the government directly hires unemployed people to do a job, then the people already doing that job in the private sector will become unemployed. Assumes zero sum of jobs.
I read him as saying the opposite -- if the government announces that it will spend a bunch of money on bridges then most of that money is going to flow through a bunch of big engineering firms, and those firms can try to figure out how to capture as much of that as profit as they can -- it isn't a very efficient way to produce jobs*.
He doesn't give a good description of what you should hire people to do -- and I don't think that's an easy question. But if I'm reading him right he's saying, "the important thing is jobs. It's tempting to think that we can have programs that allow the government to buy things it wants which will also create jobs but, if those two goals conflict, it's more important to figure out jobs than to worry about buying things."
* Incidentally this is the same argument that people on the left make about how spending on Military technology is lousy economic stimulus.
17: but spending on military technology gets you a bunch of stuff most of us would rather not have in the first place, and would certainly rather not put to use. Spending on bridges gets you bridges, which are (generally) good to have. And I fail to see how the engineering firms are going to capture more of the bridge spending than corporations will capture of corporate subsidies.
I mean, the part you quote (or is it a paraphrase?) is just fine but this guy is clearly shilling for corporate subsidies, not for job creation.
I was paraphrasing. Here's what he says about bridges:
But the point was giving someone a job by building a bridge is a pretty indirect way to create jobs. I've had this argument with [Council of Economic Advisors chair] Jason Furman and other Obama supporters, but you know, when the government is buying stuff, that the people who can produce it are unemployed!
An egregious example of that, which the stimulus proposed, was to spend money expanding and improving information technology in government, which is probably a worthy idea, but how many software designers are unemployed? To the extent that we have this big effort to improve the software of government agencies, we're bidding up the wages of these guys.
I'm not quite sure what the last sentence of the first paragraph there is supposed to mean -- I suspect he misphrased it slightly.
Kevin Hassett. Dow 36k guy. Ha ha ha your fat.
really, is there a case for more thought than that? It's Hassett. 36k guy.
No, that paragraph about bridges is simply nonsensical. There's no way of knowing what he means.
19: It'd make more sense if he said "aren't" unemployed. That is, when the government buys something, it's buying it from businesses that already have employees.
This seems obviously wrong (in support of the point he's making) to me, but not incoherent.
19: I think there's a "not" missing.
It sounds like he's arguing that the labor market is segmented and people in different segments are poor substitutes for each other, such that hiring someone in a low-unemployment category is a very indirect way of lowering unemployment in higher-unemployment categories.
So for example, if you only had two types of workers, butchers and bakers, and 100% of bakers but only 85% of butchers were employed, then hiring a baker wouldn't create a job for a butcher, nor would a butcher have the skills to fill the extra baker job freed up. Instead you would just bid up the wages of bakers. There might be some indirect stimulus effect if you've raised aggregate demand, but not as much as doing something directly to help butchers.
It sounds like he's arguing that the labor market is segmented and people in different segments are poor substitutes for each other, such that hiring someone in a low-unemployment category is a very indirect way of lowering unemployment in higher-unemployment categories.
That is my reading as well (though you've stated the argument more clearly than I did in 17), particularly based on his example of software developers.
23: Unfortunately for his argument, the first thing that came to his mind was bridge building, the single best example of something that ONLY THE PUBLIC SECTOR DOES FOR FUCK'S SAKE.
Basically, even in the contest of empathizing with the victims of massive unemployment, this fellow is still using the typical free-market worldview in which all the assumptions only make sense in a world of full employment.
I think there is some empirical evidence for a segmented labor market, especially different immigrant groups, who are not only poor substitutes for native labor, but also poor substitutes for members of other immigrant groups.
Explicitly in terms of bridge building, aren't construction workers generally hired by the job, rather than being employees of a firm? So on construction projects, he'd be straightforwardly wrong.
But generally, he's assuming that an increased demand for labor isn't going to result in any additional hiring, the people who already have jobs are just going to work harder and get paid more. And that seems to rest on a presumption that everyone who's currently unemployed is unemployable.
But generally, he's assuming that an increased demand for labor isn't going to result in any additional hiring, the people who already have jobs are just going to work harder and get paid more. And that seems to rest on a presumption that everyone who's currently unemployed is unemployable.
Amazing that we have so many more unemployable people now than we used to have. Maybe some sort of airborne toxin destroyed their brains.
"Military Keynesianism" is the national or global equivalent of Keynes guys digging and filling holes. The waste is the point.
The crises of capitalism are not based in underconsumption but overproduction. Too much Capital, too efficient, too much productivity, recessions and depressions kill zombie capital if done right.
Increasing wage-share (including social-wage) is inflationary. Increasing capital-share is deflationary.
Burning surplus so wage-share stays low is what late-capitalism is all about.
Minsky was all about this. Paul Mattick was also good.
Amazing that we have so many more unemployable people now than we used to have. Maybe some sort of airborne toxin destroyed their brains.
If you believe that 6+ months of unemployment makes it much more (even irrationally) difficult for somebody to find work then an extended recession would function, from a labor market perspective, as if a bunch of people had their brains destroyed by an airborne toxin.
That's too simple an answer, obviously, but I do think that the first question and answer give a reason why he thinks a standard, cyclical, rebound to employment isn't sufficient to address the situation.
Dylan Matthews: In your testimony, you identify "scarring" rather than a skills mismatch as a major reason why the long-term unemployed aren't getting hired. In other words, the fact that they're unemployed for so long is itself making them less employable. Can we identify what exactly is causing that?
Kevin Hassett: I think that it's not identifiable. It's hard to think of the experiment that would allow us, fully, to identify that. I know that some folks have tried. But we know that the employers don't want to interview these folks, and that some subset of them would be great employees, and some subset wouldn't, and people are making the choice that the costs of screening are so high that they just shouldn't be talking to the people in that pool.
If you think of it that way, it makes the answer to your question irrelevant. For example, let's say if people are purple, they may not be a good worker. If you're interviewing workers, you screen out certain workers. So for efficiency, you screen out purple people. For race, it'd be illegal, but long-term unemployment is serving a screening purpose like that. It may be because they're more likely to have health problems, and mental problems because of the stresses of unemployment, and so employers wouldn't want to face an issue like that.
Amazing that we have so many more unemployable people now than we used to have
But that is exactly the point. There is nothing wrong with most long term unemployed people, except that they don't have a job. And I don't think that retraining them all to be home health care workers (fill in understaffed profession of your choice) is really the answer if it could even be accomplished.
25: Are bridge builders a distinct category from other construction workers? Were a lot of them unemployed prior to the stimulus?
23: Unfortunately for his argument, the first thing that came to his mind was bridge building, the single best example of something that ONLY THE PUBLIC SECTOR DOES FOR FUCK'S SAKE.
Also, construction was probably the single sector with the highest cyclical unemployment pre-stimulus, so building bridges would be among the most likely to increase employment rather than driving up wages among the already employed. .
Explicitly in terms of bridge building, aren't construction workers generally hired by the job, rather than being employees of a firm? So on construction projects, he'd be straightforwardly wrong.
He's an idiot, and like Alex pointed out, being hugely and profoundly wrong is kind of his thing.
Are bridge builders a distinct category from other construction workers?
Short answer is yes. Big difference in firms that can bid government work and your local homebuilder.
He's an idiot, and like Alex pointed out, being hugely and profoundly wrong is kind of his thing.
That's why I was surprised by the interview. I don't think Enterprise Zones are the right solution, but I think focusing on long-term unemployment as a major national problem and arguing that government intervention is needed is very much not, "profoundly wrong."
38: OTOH, wouldn't you think that when a firm that can bid government work needs labor, they start skimming the top end of the workers that are normally doing residential construction? Causing hiring demand in residential construction because they've lost people?
38: If the workers are different too, then picking up the rate of bridgebuilding, if even possible, would do little directly to remedy non-government construction unemployment.
Causing hiring demand in residential construction because they've lost people
Only if there is demand for housing at the same time the bridge is being built. Workers are workers, but a lot of the skill sets don't overlap. Plus you have the whole union thing form government jobs, prevailing wage blah blah.
From what I know of construction on the skilled labor end (shiv), a firm that was bidding to build a bridge would be a different firm than a firm that was bidding to build a bunch of houses, but the guys that wind up working on the sites are often suited for both kinds of work.
40 seems plausible, but how long it takes to train new workers matters too. I suppose by now, though, it's clear that avoiding slow-acting solutions has not been a helpful strategy.
Also, I would imagine that building bridges is relatively capital intensive and that a lot of the money isn't going to workers but things like paying for giant cranes or trucks.
That said, obviously, I support paying for bridges.
42: Sure, if demand for housing drops exactly in sync with the bridge being built, you don't create any jobs, you just keep additional people from being unemployed. The effect is still that more people are working than if the bridge wasn't being built.
43: Right, this. There are probably guys who could get a job on a residential home building site who wouldn't be qualified on a bigger project, but there's going to be significant overlap.
but there's going to be significant overlap.
And there's a lot more overlap in things like all the overdue new buildings and renovations needed on places like college campuses. There's something like a billion dollars worth of those projects already identified in our state university system's buildings and we're not that big.
The answer to the problem of the long-term unemployed is simply a public commitment to full employment. The commitment means a Job Guarantee at competitive wages. We can pay professionals to figure what they can do, but I recommend mural painting and oral history.
Worrying about skills is actively harmful. Worrying about how to make humans more useful to capital is unproductive.
Promise, promise: get unemployment below the natural rate, like 3-4% and the private fuckers will hire, train, and well pay the "unemployable."
The only question for anyone who claims to be on the "Left" is:"Does this reduce the private sector and increase the public sector?"
We can worry about going too far after we have gone too far. But increasing the private economy relative to the common will hurt people and crash.
More to the point, unless the job is painting the Golden Gate Bridge most construction jobs are relatively short term, a couple of years, max. Don't get me wrong, those two years would benefit both those workers and society as a whole, but when it is done it's done.
Oh, hey, this is now on-topic: when walking around DC during the meetup, I found this part of the FDR Memorial quite moving.
Bob, you watch a lot of videos. Try this one.
I suspect a little of its rhetorical punch is lost by not being able to picture exactly how overwhelmingly white and conservative his audience is, but you can still get the idea.
(It's PA State Senator Vincent Hughes on statewide educational funding crisis and the consequences of failing to expand Medicaid.)
50: Most pro-stimulus thinking seems to be based on the assumption that we have a cyclical downturn, and the job of fiscal and monetary policy is to smooth that out. Several years on, it's not obviously recovering so they start relying on various hysteresis theories (scarring, shifts in risk preference, ...). Left unthought by people like DeLong is that this is a result of long term trends in inequality and reliance on consumer debt.
Objective journalism watch:
Until now, the French left has never reformed pensions; instead, François Mitterrand lowered the retirement age from 65 to 60 when he took office in 1981.
From Even the liberal Guardian
Plus the statement is bullshit. Jospin passed a law in the late nineties raising the pension age from 40 to 42 years of work from the age of 18 over a period of twenty years. (When you read that the French have a retirement age of 60, that's what they're actually talking about. You can count up to two years of a combination of sick leave, unemployment, or maternity leave towards that total.)
If you want a transcript for the video in 52, there isn't a complete one, but here's a partial (in several parts):
We have a solution in front of us that would help about a half a million people in Pennsylvania.
People who are working every day. Many of them working two, three, and sometimes four jobs on a daily basis. They're trying to make ends meet.
They're not making a lot of money. They have drive, they have perseverance, they have faith -- they have to have faith, because if they didn't have faith, my best guess is they would not be able to make it through. They really wouldn't.
They work every day. They're cleaning bodies -- of the infirm, the elderly, those who are sick, those who are disabled. They're helping folks get to their job.
They're providing security for us. Which is even more important on a daily basis as the level of violence seems to rise....
They work in our neighborhoods, they work in our communities. They do the work that just about all of us would not know how to do if we were asked to do it ourselves.
But all of us depend on these individuals. They work in this building. They service this building. They work every day. They're real people with real lives.
Part 2:
The thing that they're missing -- because they've got everything else, they've got the drive, they've got the determination, they show up early. Very early.
They work the late shift, the overnight shift. They work the early shift. They take the early bus. Some of you may understand what that means. They put it in.
The thing that they're missing, the thing that's absent in their lives...is health insurance. The ability to go to a doctor and to get a problem taken care of.
Healthcare! We all know about it. Every one of us in this building -- or at least those of us who sit in these grand chairs in this chamber, the 49, the 50 senators, the 203 House members, the folks in this administration, we. all. have. health insurance. We understand the value of that!
There are folks who I know who have a problem -- but they've got insurance. That's the first question. They're taken care of.
But these individuals -- there's over a million of them in the Commonwealth of Pennsylvania. They don't have health insurance. But they work every day. They have a window of opportunity of a solution to their problem.
It's right in front of us. It's been provided to us. Plus the money to pay for it!
Four billion dollars a year, coming to Pennsylvania to provide health insurance to provide health insurance for about five hundred thousand working people in Pennsylvania.
And by the way, most of these working individuals are women. They're heading families. They're working every day. And they just need a little bit of help.
And the program is right there. It's right within our grasp to take. It's right there!
Part 4:
Three independent studies have said, "It is OK to do, Pennsylvania." Over half the states in the nation have said, We're going to take this program, we're going to put it in place in our state, we're going to make it work for our citizens.
And quite frankly it doesn't just help those who don't have insurance, it helps everyone, including those of us who have insurance, because it has the opportunity to lower our own personal rates, because everyone else is covered.
Right there in front of us. It's like this glass of water. You're thirsty -- it's right there in front of us.
It's paid for. The water's in the glass. The glass is sitting right there. It's right there in front of us, but someone is pulling it away from us, not allowing us to have it.
The health insurance is there. The coverage is in place. Help is available for those who need the insurance.
But we keep getting stall tactics, day in and day out, from the front office, about why this cannot be done.
We got some smart people in Pennsylvania. Smart enough to know that if 25 other states could do it, surely we could do the same thing.
52 and following: I hadn't quite realized that PA was toying with not expanding Medicaid, though I did recently hear that your governor is perhaps the most deeply unpopular of them all.
this is a result of long term trends in inequality and reliance on consumer debt.
While this certainly may be true I say again that the bigger problem is the fundamental shift in the way things get done now vs even 10 years ago. With more change on the way. It is not cyclical anymore.
61: Agreed that it's not cyclical any more. (a) The shift to defined contribution rather than defined benefit retirement funding. (b) The shift away from employer-provided health insurance coverage. (c) The shift away from full-time salaried employment at all.
What's funny is that many in the upper middle class bracket (many of those here) don't notice this change, because in that world, sure, you still work for a major employer.
If by the way things are done you mean offshoring and, increasingly, automation then I agree. I was just mentioning the proximate cause of the demand drop.
If it's right that rising inequality has caused consumer demand to drop then it should be possible to enact sustainable stimulus by taxing the wealthy savers and giving it to the poor spenders.
The video in 59 is indeed worth watching. It's a good corrective to wonkish abstraction. His unhappiness about the layoffs of school teachers is palpable.
49.1 seems right, although I disagree with 49.2. Jobs which are very useful to others is a nice-to-have, but it is an emergency that folks who would like a job to live on can't find one, and every day we don't fix that is a day their souls are damaged, perhaps permanently.
Bob is making more sense in this thread than Hassett in his entire career.
Most pro-stimulus thinking seems to be based on the assumption that we have a cyclical downturn, and the job of fiscal and monetary policy is to smooth that out. Several years on, it's not obviously recovering so they start relying on various hysteresis theories (scarring, shifts in risk preference, ...)
Aaargh. And they also point out that the reason it isn't recovering is that THE STIMULUS WASN'T BIG ENOUGH, AS THEY POINTED OUT AT THE TIME, AND WHAT STIMULUS THERE WAS WAS CANCELLED OUT BY MANDATED CUTS IN STATE SPENDING AS THE RESULT OF INSANE BALANCED BUDGET RULES.
That's true, but it doesn't address the cyclical argument, right? Shouldn't the economy have recovered by now regardless of the size of the stimulus?
Unless, say, actively anti-stimulative measures were taken...
I don't get why ajay's point in 68 is so hard for people to grasp. When the Fed cut interest rates as much as it could and Obama was proposing the stimulus, orthodox economists, using actual Econ 101, said the stimulus was insufficient for a real recovery, but could nonetheless mitigate a lot of damage. They explained why this was so. They explained what would happen next. They were right. This ain't brain surgery.
69: I'm not clear on what you mean by "the cyclical argument," but it sounds like a dumb argument.
If you're talking about some variation on "The Great Moderation," well, 2008 kind of blew that out of the water, even if Japan hadn't done so a few decades earlier. Krugman wrote all about this back in 2000.
I don't get why ajay's point in 68 is so hard for people to grasp.
Kenyan Islamofascist socialism.
Mostly on topic, here's the latest example of Yggls getting it exactly wrong:
When state governments cut back social services in the face of falling tax revenue and rising employee health care and pension costs, that is a kind of austerity. But the available alternative of raising taxes is also a form of austerity. By the same token, Obama raising taxes on the rich in early 2013 is a form of austerity.
No. Just no.
Raising taxes is austerity. That's the kind they did in the UK, higher taxes combined with throwing people out of work, taking away people's benefits etc. We just did the second part.
72, 73: I think what's puzzling people is that depressions/recessions/whatever this is when the economy isn't actually shrinking but things still suck are supposed to come to an end of their own accord eventually even with no stimulus, and it seems as if that should have happened already.
I, personally, have no idea if there's a timeframe within which 'eventually' is supposed to happen, or if we're past that already.
The excerpt in 75 is particularly maddening because of its false framing. THE available alternative! There isn't any other, duh.
Sometimes I want to pick pundits up by the scruff of the neck and march them around the real world.
That's true, but it doesn't address the cyclical argument, right? Shouldn't the economy have recovered by now regardless of the size of the stimulus?
The cyclical argument is largely wishful thinking on the part of liberal (Am. = conservative) economists. Why on earth should the economy have recovered by now? Who's invested in it?
I, personally, have no idea if there's a timeframe within which 'eventually' is supposed to happen, or if we're past that already.
According to Brad Delong.
...And there is the major fear that a substantial chunk of those who lost their jobs and dropped out of the labor force over the past five years are not going to be coming back, with its implications for potential output and for the ability of governments to amortize their growing debts.
This last I find very disturbing. I did not think this kind of thing happened. I used to teach my students that the US economy had a very flexible labor market: the way to bet was that 40% of excess unemployed will get jobs in a year. Thus three years after a recession trough your employment gap will be down to 20% of its peak value, and after four years it will be down to 12%. But we are coming up on four years, and we haven't closed 88% of the employment gap. We've closed zero. And we've closed zero, in spite of policies that look extraordinarily simulative among a number of dimensions.
That's not something that I thought would happen.
The video in 59 is indeed worth watching. It's a good corrective to wonkish abstraction. His unhappiness about the layoffs of school teachers is palpable.
I only watched the first third, but I agree with this completely.
75 76: Agree with MAE and disagree with CN
But this does put me at odds with mainstream economists
The contractionary multiplier of tax increases is lower than the expansionary multiplier of say infrastructure spending or common expanding and so any tax increases, if spent immediately and wisely, are net expansionary.
And more expansionary than transfers. Part of this is because of an increase in consumer confidence and security, once they can expect gov't to be stimulative and expansionary for an extended period.
Of course, because of the difference in marginal propensity to consume, the positive effect increases the more progressive the tax.
The worst thing about the quoted bit in 75 is that it comes in the middle of a post whose main thrust is chiding liberals for overusing the "austerity" label to criticize policies they don't like.
Mmmm, that's some tasty irony.
77: That's Great Moderation thinking - the idea that we've basically beaten back the business cycle, and we'll have brief downturns followed by a reasonably prompt recovery. Krugman has been arguing that this actually hasn't been true for awhile. Here he is in 2008 telling us how he thinks it's going to play out.
Krugman was all over this stuff in real time. A quick Google isn't getting me anything better than the prior link and this from 2009, but I think they make the key points about how this recession is different from others that we're used to. In the latter link, he invokes the prospect of a "Lost Decade."
Nick Rowe demands we stop using that mean word "austerity"
Cancelling or postponing a government investment project might be a wise decision. Or it might be a foolish decision. But it is not "austerity".
So cutting food stamps to increase agribusiness subsidies? Nets out, not austerity.
More on 83. I am not well-informed on the current British economy.
But the Romer's famous paper on tax policy, IIRC, says that the purpose of a tax change determines its macroeconomic effect, and again IIRC, a tax increase to pay back bonds and lower the deficit is expansionary*. Goes to explain how I feel about the New Keynesians.
If Cameron and his fascist thugs are using the tax increases to pay down debt, lower the deficit, keep taxes low for the upper classes, keep interest rates low, strengthen the pound etc etc, things other than improving infrastructure and enlarging the common, then it may indeed be contractionary.
84: What is Krugman's explanation for the difference, and what role does he see the stimulus playing?
And by what role, I mean palliative or curative. I think I've been reading too much DeLong lately and not enough Krugman. I hadn't quite put together his prediction of a lost decade and his support for stimulus, and am curious how he expects them to react. It's my impression that Japan has massively invested in infrastructure over their lost decade with continued stagnation to show for it.
86: The link to the 2009 piece provides explanations.
This, from that link, is interesting, though:
So what will get us out of a protracted recession? Eventually, even with inadequate policy measures, there will likely be a spontaneous recovery. Goods "wear out, rust away," and people will someday want to buy new technologies that will be clearly superior to what they have now. "Look at auto sales," Krugman said. "At current buying rates it would take 23.9 years to replace the current stock." Obviously it's not going to take that long, he added. Buying rates will eventually pick up.
Sounds a bit like DeLong quoted above ('there will be cyclical, spontaneous recovery!), and I was surprised to read it. I don't doubt that eventually the nation will recover, yes, but a lot of people are thrown under the bus in what I can only think of as a great readjustment. The nation is downsizing by impoverishing or imprisoning or killing off a number of its citizens.
N.B. That linked piece was Krugman speaking 4 years ago.
I think I've been reading too much DeLong lately and not enough Krugman.
Probably true for me as well.
Relevant to this conversation, I know that Krugman has been toying with the idea that automation is causing a major shift in the job market (see also plus Drum). But I don't read him regularly enough to know if he's continued to follow up on that idea.
87: I recommend looking at various NYRB Krugman pieces for longer-form exposure to his current thinking.
The topmost search result there is a good piece. As I recall, "What Krugman & Stiglitz Can Tell Us" is also good.
Sounds a bit like DeLong quoted above ('there will be cyclical, spontaneous recovery!), ...
DeLong has been pretty consistent about a couple of positions -- first that more stimulus was needed and should be pursued (for example) and that Krugman has been consistently correct about that fact. Secondly that he finds the response to this crisis by the political and economic communities to be deeply disturbing and, finally, that the crisis itself poses challenges for his own understanding of economics (the piece I linked above).
I think all of those speak well of him (though I don't expect that to be enough to convince Bob or John Emerson that he's moved far enough from his neo-liberal positions).
... I don't doubt that eventually the nation will recover, yes, but a lot of people are thrown under the bus in what I can only think of as a great readjustment.
Part of what frustrates me, incidentally, about the response to the link in the OP of, "Kevin Hasset is an idiot, why should we care what he says>" Is that, even if he is an idiot, I still think it's worth noting that what he presents as his baseline message -- "It's still an emergency, and it's a really important one." Seems like an important and correct thing to be saying, and worth highlighting.
88: Oops, missed the second link in pf's comment. I take it the pump priming metaphor refers to the government stepping in to borrow money and increase demand to make up for consumers needing to lower their debt. Some of the increased economic activity presumably flows through the population of indebted workers allowing them to pay their debt off quicker, allowing them to resume consuming, and bringing the depression to an end quicker. Is this correct?
What gets me about DeLong is that he seems to be in a state of continual befuddlement and shock that the moderately-right-wing economists who taught him economics in the 1980s weren't well-meaning Solons who knew everything that economics isn't just a nice pleasant technocratic debate between well-meaning people. I mean get over the shock, dude. OK, your profession is a failure and an ideology-driven joke, Republicans suck and are horrible people who are trying to ruin everything. We get it. Most rational people have known these things for a long time.
It's my impression that Japan has massively invested in infrastructure over their lost decade with continued stagnation to show for it.
Well, pork.
And I really dislike Scott Sumner, but he is correct to say that a central bank can always counteract the effect of fiscal stimulus.
So Abenomics has three legs:expansionary monetary policy, fiscal stimulus, and reform.
Noah Smith, who I am not crazy about, is somebody who is watching the Japanese economy. Y'all if you have time, should read much more than DeLong and/or Krugman. At least Naked Capitalism.
Once a week go over to Thoma's blogroll and pick somebody new.
And I really dislike Scott Sumner, but he is correct to say that a central bank can always counteract the effect of fiscal stimulus.
The Japanese interest rates have been about zero since the mid 90s. That's not what I understand a contractionary monetary policy to be.
95: One that prevents inflation. Abe has demanded that Kuroda bring inflation up to 2%. Many people think it should be 4%
DeLong and Krugman have both at times made the same complaint about the Fed, and economists are currently complaining that US inflation is too low, almost 1%, and trending down. Google Tim Duy, or search at Mark Thoma's.
Bored now. I would really much rather read. Believe what you like, we do not make policy anyway.
I'm not sure I've seen Krugman speak of systemic problems or failures -- specifically about income inequality or globalization resulting in fundamental change. I may just not be remembering, and will have to look.
Part of what frustrates me, incidentally, about the response to the link in the OP of, "Kevin Hasset is an idiot, why should we care what he says>"
I think you're taking the wrong message. Kevin Hasset is a smart guy and a big success. How many people have written books as popular and influential as Dow 36,000?
The problem with Hassett is not that he's dumb, or even that he's made a practice of being spectacularly wrong. The problem with Hassett is that he's a fraud. He's a con man. He's not trying to get the right answer.
If he acknowledges that up is up, you have to ask why, and when you do, you can be assured that the answer is NOT: "Because up is up."
If he acknowledges that up is up, you have to ask why, and when you do, you can be assured that the answer is NOT: "Because up is up."
And that is, of course, a perfectly good answer to the question posed in the post title.
97: So if you have too much consumer debt and a depression of large and uncertain length, why not argue for paying for the stimulus with massively progressive taxes on income and wealth? It's obviously politically impossible, but so is anything worth having.
85:
But the Romer's famous paper on tax policy, IIRC, says that the purpose of a tax change determines its macroeconomic effect, and again IIRC, a tax increase to pay back bonds and lower the deficit is expansionary*. Goes to explain how I feel about the New Keynesians.
I think that result was only for cases where the economy was already at capacity, so that "crowding out" was a real problem. Which is not the case right now.
77, 84: One thing that become clear that we do not in fact have a central bank committed to economic stability and full employment, just one committed to low inflation. What we needed (and a lot of people thought we had) was bizarro-Volker, committed to pumping as much money out into the economy as it took to get unemployment back down to 6% within a year, short term inflation be damned.
I don't know if Bernanke actually wanted the timid policy we've got, or if he's been pushing hard for a pro-growth consensus on a recalcitrant Fed board, but the actual policy has been disappointing until quite recently.
I work with a bunch of economists, and in late 2008 we all thought that the smart financial bet was to hedge against the massive inflation that the Fed would need to avoid a protracted depression. Instead we got the protracted depression.
On the plus side, we still have jobs, which is also something we did not expect would happen.
*One thing that has become clear is that
One thing that become clear that we do not in fact have a central bank committed to economic stability and full employment, just one committed to low inflation.
How would they behave differently if we did? What tools would they use?
How would they behave differently if we did? What tools would they use?
Free money for everyone!
105: More QE, earlier, and a public commitment to tolerate materially above-normal (e.g. over 4%) inflation during catchup growth.
101: So if you have too much consumer debt and a depression of large and uncertain length, why not argue for paying for the stimulus with massively progressive taxes on income and wealth?
I don't quite understand: is that a question aimed at Krugman?
I would argue for that myself, and I think the Obama administration did argue for increased taxes on top earners, but I'm not sure why "paying for the stimulus" is part of the question.
101: In the short term, borrowing-financed stimulus is even better, because while the rich may not spend a lot of their wealth, they do spend some, and the rest of it, invested, lowers interest rates.
I work with a bunch of economists, and in late 2008 we all thought that the smart financial bet was to hedge against the massive inflation that the Fed would need to avoid a protracted depression. Instead we got the protracted depression.
The Fed's done everything that could reasonably be expected of them. (It's possible there's more they could do that might have good outcomes, but it would be unorthodox. They're already pushing the limits.) The problem is that we have had severely retractionary fiscal policies. (After an initial fiscal stimulus that was far too mild.) If we had even neutral fiscal policies, we'd likely be in much better shape. (As the Fed has pointed out in congressional testimony, on numerous occasions.)
And we don't have protracted depression. We have stagnation.
107 and previous: Am I understanding that you feel that we need inflation? (There was a Wonkblog post about this recently, and I'm afraid I'll have to turn there to understand.)
84: What is Krugman's explanation for the difference, and what role does he see the stimulus playing?
Not sure if this has been answered to your satisfaction, but I'll add that I think you need to adopt a more nuanced view of the concepts of stimulus and success.
A stimulus needs to be judged against the problem that it's addressing. I can go buy a sandwich at the corner shop, thus stimulating the economy, but nobody is going to think that will end a recession. The U.S. had a very, very big problem - but one that could be measured. Krugman calculated (and I can't stress this enough - he did this in real time) that Obama's stimulus was something less than half of what was called for. Economic data was later revised to make the output gap larger than folks had known, so Krugman himself undershot by a bit.
But was the stimulus a failure? Did it fail in Japan? I don't think anyone has suggested a plausible scenario in which the U.S. or Japan would have been better off without it.
(After an initial fiscal stimulus that was far too mild.)
Pardon me, I meant an initial federal stimulus that was too mild. Combined with state fiscal policies that were contractionary from day 1, which basically offset the federal stimulus entirely.
Since that initial response, it's been contractionary fiscal policies all the way down.
110: If the Fed board had published an unanimous statement in late 2008 or early 2009 that they would engage in massive quantitative easing until unemployment got back down to 6%, and were willing to tolerate inflation of up to 6% during this period, it would have done a lot to improve expectations.
As it is everyone (probably rightly) expects the Fed to yank away the football as soon as inflation gets to 4%.
111: We need economic expansion. The cost for this, especially if done purely with monetary policy, is probably some nominal inflation for a little while, during a period of catch-up growth. Fiscal stimulus would probably be a more efficient way to do it, but Congress isn't controlled by a clique of technocrat-kings the way the Fed is.
And state-level stimulus (especially in the hardest-hit states) would have been especially helpful too.
107: QE hasn't budged inflation so I don't see why starting it earlier would've changed anything. They could certainly try to influence expectations with more concrete pronouncments, but is there any evidence that this is effective? The last time they did something along these lines, I remember Yglesias and DeLong excitedly posting some carefully selected indicator of inflation expectations that turned out to be pure noise.
109: But we don't have a short term problem. We've had large government deficits and extremely low interest rates for the last dozen years.
101: I think the general sense of the folks in this thread is that this is correct. The Yggls mockery occasioned by 75 is consistent with this view, I think.
Also, state-level spending on some freaking copy machines that actually work would be very much appreciated by your friendly neighborhood public servants. I just nearly defaulted (and may have -- the papers aren't in court yet) because literally all the copiers in our printshop were being serviced at the same time.
It'd be stimulative to the economy and would stop me from swearing at people quite so much.
If the Fed board had published an unanimous statement in late 2008 or early 2009 that they would engage in massive quantitative easing until unemployment got back down to 6%, and were willing to tolerate inflation of up to 6% during this period, it would have done a lot to improve expectations.
Probably...? Or, maybe instead we might have ended up with 6% inflation and basically the same growth pattern we've had. I'm not saying it wouldn't have been worth a try, but macroeconomic theory is a bit less well-developed than you're letting on. I think the Fed (rightly) doesn't view it as their role to run speculative macroeconomic experiments with the national economy. (Again, they're already doing a lot that pushes the limits on this.) Especially when other branches of government are basically actively working against them.
118: The state should have gotten rid of all the copiers and hired scriveners.
TRUST ME, IT'S NOT WORTH THE GRIEF.
but one that could be measured. Krugman calculated (and I can't stress this enough - he did this in real time)
Not just Krugman -- my impression is that Christine Romer was coming up with approximately the same numbers. Which just strengthens your point that it didn't require a crystal ball.
The Fed's done everything that could reasonably be expected of them.
Alan Blinder made that argument in After The Music Stopped and I found it convincing. The Fed may not have done everything possible, in theory, but it was doing an awful lot, and already pushing the boundaries of its authority.
116: Large deficits and low interest rates are mainly helpful when the economy is below capacity - which it probably wasn't in 2004-2007, though a lot of capital was misallocated into building houses where no one wants to live, and machines for killing foreigners.
The cure isn't helpful until you have the disease that it's a cure for. Late 2008 was exactly the right time to avert an extended period of economic stagnation.
119: It's not like there is such thing as a null policy. We've had more expansionary policy before, and it turned out fine (except for all the people who died in the world wars we were running). We've had higher inflation before and it turned out fine. We know how to bring inflation back down if it starts to get out of hand, and we borrow in our own currency so there's no risk of sudden collapse.
Mildly elevated inflation is a tool that has been used in plenty of countries before to deal with a decline in expected real income, there's no good reason we can't use it here too.
Just look at the bottom line, and see if it looks like a calculated outcome. A collapse in asset prices and business profits was intolerable to the governing class, so they fixed it. A lot of people complaining because they're out of work is merely annoying and doesn't affect many people they know, so they haven't bothered to fix that.
119:
Probably...? Or, maybe instead we might have ended up with 6% inflation and basically the same growth pattern we've had.
Which would have amounted to substantial deleveraging in real terms over the next few years, especially with suppressed interest rates for borrowers. Fewer people would be underwater on their homes. Nominal incomes would be bigger relative to outstanding debt payments.
People like me who are net asset owners and kept their good jobs have basically suffered not at all during the recession and stagnation, which suggests that we're not doing enough to share the loss between the debtors and the creditors.
118 -- an outrage, especially since (as I understand it) your job is ultimately to save the State money and getting defaulted because the copiers don't work isn't a great way to do that.
I hate how short-term cuts to government budgets end up being expensive. For example, California in the boom got about 60% of the way to an e-filing system for documents, which would ultimately have been a big money saver (not to mention a huge convenience and money saver for litigants). But it had to be stopped and eventually scrapped after 2009.
Also today is the first day in which there are no state provided court reporters in non-criminal cases in LA county. You want a transcript, you pay for the reporter.
your job is ultimately to save the State money
Sometimes, but that's sort of an extra. Mostly, my job is to defend the state's regulatory actions.
123.1: If we were at full capacity shouldn't those policies have resulted in inflation? Instead, the Fed was delighted to discover they could push borrowing costs down to practically zero without immediate ill effects.
severely retractionary fiscal policies
This is what you get when reactionaries enact contractionary policies.
I wish I were a reactionary
I wish my policies were contractionary
I wish more liberals would get direct actionary
130: I wish the threads would all become united
That would make me quite excited.
131 cont. - Even bob mcamanus would be delighted.
I think the Fed (rightly) doesn't view it as their role to run speculative macroeconomic experiments with the national economy.
Do you have any idea what FDR did in 1933 with monetary policy? And that, in slightly different ways, Bernanke, Christy Romer, and Friedman all say that FDR didn't go far enough? That Bernanke's policy, in the light of his academic work, is "very confusing" to Brad DeLong?
This paper argues that the U.S. economy's recovery from the Great Depression was driven by a shift in expectations brought about by the policy actions of President Franklin Delano Roosevelt. On the monetary policy side, Roosevelt abolished the gold standard and--even more important--announced the policy objective of inflating the price level to pre-depression levels.
Yoy, 1932-1933 a domestic change of +12%
Check out 1940-43, 1946-48
Historical Inflation Calculator ...sorry
128: Borrowing costs have since declined, so they weren't at effectively zero then. (We have had some monetary stimulus, just not enough.) Remember when 5% was an unusually low mortgage rate? Remember when treasury was borrowing at positive real yields?
Moderately expansionary policy was probably propping up growth during that period, but now we need a lot more, and we aren't getting it.
Apropos to the OP, if public precommitment to tolerate inflation isn't enough, the Fed should set a target of Dow 36,000 next year. Then we'd darn well see some inflation!
Bah, and it should have been 1932-34, and more like a 16% change.
A CB with a sovereign currency can always "print money til they make us stop" Since the other currencies have been flowing to the safe haven or risk-free treasuries, it might have taken a whole lot of printing, but it would have done wonders for the world economy.
But 124 has it right. It was a plan. Bernanke knew what he wanted to do. "A crisis is a period when assets return to their rightful owners." Andrew Mellon
He also lies.
Krugman really is indispensable. Everybody should read him every day. The discussion we're having about monetary vs. fiscal stimulus is one that he's rehearsed many times, including today.
The nation is downsizing by impoverishing or imprisoning or killing off a number of its citizens.
And immiserating. Don't forget immiserating.
It's really hard to see the parade of smart, mid-career adults and bright young grads cycle through my office. They're good, decent people and they deserve to find work, and the job market for them is a huge game of musical chairs in which the person:chair ration is 4.5:1.
The old joke around here: how many Missoulians does it take to screw in a lightbulb?
Only one, but there are 400 applicants for the position.
One to screw in the bulb
Three to over-represent Montana in Congress
And .5 to make it a joke.
(But I guess that isn't specific to Missoulians.)
136: Fair enough, the inflation and interest rates weren't as historically low as I'd thought. Going back to the pump priming process, my point was that before the crash there wasn't enough money flowing through the majority of the population to create sufficient demand without a massive, unsustainable consumer credit expansion. Stimulus won't change that.
82: I don't think the idea that taxing the rich and spending it on infrastructure being net expansionary would be that controversial among economists who believe in multipliers.
119: I'm sure the US Army didn't want to run a speculative experiment on invading France by sea, but when you're in a position of leadership in the middle of a crisis, trying to solve the problem is your job.
139: And immiserating. Don't forget immiserating.
I was surprised to see this comment - thanks, I'm glad to see someone's on the same page. I always feel as though I'm being over the top for this space when I remark as I did.
This article does a better job of what I was trying to say