Friday, October 9, 2015

Where Does the Minimum Wage Max Out?

Alan Krueger says we should set a nationwide wage floor no higher than $12/hr, since that’s as far as our research knowledge extends.  We know that a statutory minimum at that level will have little or no employment impact, but anything above that is beyond empirical familiarity—we just don’t know.  He is open to cities, where wages and living costs are higher, to experiment with higher wage floors, but not the Feds.

Far be it from me to dispute Krueger, who, with David Card, launched the revolution in empirical minimum wage studies a generation ago, finding in the process that he has become a poster boy for quasi-experimental methods.  Good for him!  But I don’t think his inference from the existing research is warranted, for three reasons.

1. From a policy perspective, the minimum wage could be set either too low or too high.  It would be too low if large gains in equity, poverty reduction and economic dynamism could be achieved at little cost in employment.  (Dynamism could take the form of innovation to offset higher labor costs.)  It would be too high if employment at the low end of the labor market were crippled.  What Krueger seems to be aiming at is a zero risk of overshooting the ideal minimum, as if there were no cost to undershooting it.  But surely, if we know that $12 is unlikely to bite back, then a proper balancing of risks should take us somewhere above $12.

2. A high percentage of low-wage jobs are intermittent.  People work for a while, get laid off or quit, then go back to another crapola job, and so on.  This means that a lot of the employment loss of a “too high” minimum wage simply means that workers will earn more money per hour but work fewer hours per year.  What that means for their bottom line depends on the elasticity of labor demand with respect to the wage mandate.  Even the economists on the payroll of the restaurant industry who have done battle with Card & Krueger find low elasticities, meaning that most intermittent workers would come out ahead despite longer spells of unemployment.  This doesn’t mean that we shouldn’t worry about unemployment at all, but that it isn’t quite the problem it’s made out to be.

3. Even if the minimum wage is set at a level that eats into employment, this can be offset by other policies.  Macropolicy, especially on the fiscal side, should push for lower overall unemployment rates.  We should finally begin to treat all young people, especially from low income backgrounds, as the repositories of incredible potential they are, by investing in their education, skill and practical experience—there are lots of models for this.  A ramping up of skill would, over time, lead to productivity gains that would support a higher wage structure.  The point is that the minimum wage is one piece of a much larger mosaic of economic policy, and its effects differ depending on what else is being done.

So is $15 the magic number?  I don’t know.  Like Krueger would probably say, we need more research.  But what I do know is that, if $12 is very safe, the right number is higher than that.

Wednesday, October 7, 2015

Dean Baker Sends Mixed Message On Bailing Out Banks

Unfortunately I seem to be unable to provide functionng links to Dean Baker's Beat the Press, and I am overwhelmingly most of the time on board with him as beats the press for its many  errors and sins.  However, today he seems to have gotten himself confused in a post aimed not at the press but at Ben Bernanke and statements in his memor, entitled "Of course Ben Bernanke could have saved Lehman," which very accurately argues that indeed Bernanke and the Fed could have saved Lehman in September, 2008 but did not do so.  I have not read Bernanke's memoir, but I shall take it as true that Bernanke indeed makes this false claim.  So, so far so good for our usually intrepid Dean.

But there is a problem here, which several commenters on his blog have pointed out.  For years he has beaten a drum that there should have been no bank bailouts, especially not TARP.  His favored outcome was to let whatever big banks were in deep doo doo to go down, to fail, with their depositers being paid off.  Now to pay off those depositers would have certainly made the FDIC go bankrupt, but indeed probably Congress would have come through, if perhaps with some lag, and paid off all those depositers. This would have indeed probably at a minimum led to the careless and venal managements of those big banks being removed, if not necessarily being sent to jail as both Dean and Ben Bernanke also say they wished had happened (as have many of the rest of us as well).  Dean has also regularly dismissed the concerns of Bernanke that failing to bail out the big banks would lead to any further failures of banks or other problems in the financial system that might have led to a 1931 style outcome, which Bernanke feared, an outcome that did give us Adolf Hitler and all that followed (uh oh, have I broken Godwin's Rule, or whatever that is? note official self hand slap).

Now one clear reason why it might not have been as bad as 1931 was indeed that we now have the FDIC, which was not put in place until 1935.  The wave of bank failures after Fall 1931 (and before as well) wiped out the savings of many people who were not at all insured.  Probably the scale of wipeouts would not have been nearly as bad.  OTOH, the degree of interbank connectedness now around the world is much greater and more opaque when the shadow banking system is taken into account than was the case in 1931.  That global financial collapse took many months, having started in May with the failure of the Creditanstalt in Vienna, then spreading across Germany and France over the summer to UK by end of summer and finally to the US by Septermber (and on to Japan later).  It remains not widely reported, although I think Dean knows it (in fact I think he and I have personally discussed this), that the really serious thing that was going on that September was the Fed bailing out the ECB, which was having trouble propping up top German and Franch banks that were threatening to go under due to their exploding AIG problem.  This was truly an enormous mess, and the threat to the full global financial system appears to have been extreme, with all this brought on by the fall of Lehman, which Dean now says should indeed have been propped up.  I guess maybe if it had been propped up, we would not have had to prop up the rest, but who knows?

One final trivial note.  TARP ended up making money for the US Treasury.  A massive bailout of depositers in failed banks after an FDIC bankruptcy would have certainly cost the Treasry and taxpayers money, as was the csse with the S&L bailouts of an earlier decade.  But this is trivial compared to the possible losses that might have occurred if there were no bailouts of the big banks.  In any case, I think Dean has a bit of an inconsistent story going on here, whether or not Ben Bernanke did well or ill.

Barkley Rosser

Wednesday, September 30, 2015

Huffing And Puffing Ideologically Over The Export-Import Bank

Tyler Cowen at Marginal  Revolution has sympathetically linked to an article in the latest issue of Econ Journal Watch by Veronique de Rugy, Ryan Daza, and Daniel B. Klein that argues that libertarian/conservative bloggers have been frequently and firmly critical of the supposedly awful Export-Import Bank, whose charter was renewed not too long ago, even while they admit that at least a few leftist bloggers have criticized it, most notably Dean Baker, who was all over its case today (perhaps in response to this article, although he made no mention of  it or Cowen's post).

While some commenters at MR attempt to criticize the methodology of the authors, it looks to me like they are basically correct.  Dean Baker is one of the lefty bloggers to post multiple times to criticize the Export-Import Bank as a protectionist subsidizer of big corporate interests, most notably Boeing and General  Electric.  OTOH, many righty bloggers have complained about its rechartering frequently, with Donald Boudreaux at Cafe Hayek leading the pack with 72 such posts, followed by Daniel Mitchell at International Liberty at 43. For the authors this apparently shows some kind of hypocrisy by statist protectionists on the left, even though the only blogger identified as supporting the Ex-Im Bank outright is Barry Ritholtz, a professional financial adviser whom I have not yet heard of presenting talks in URPE sessions at conferences.

For the record, I agree with Dean Baker about the Ex-Im Bank.  It does not deserve to exist, and it clearly exists solely to help out some big corporate interests, even if one wants to argue as some have that workers may be involved here as well (the heart of leftist protectionist arguments).  So, why have most lefty blogs been silent on this, and I am posting on this at least partly because this blog is listed in this article as being one that has never had a post about this issue, accurately as near as I can tell, so this is the first such post.  I cannot speak for others here, but why have I not personally so posted in the past on this wicked evil big government protectionist protector of giant corporations?

Well, I had not paid much attention to it, frankly, and the main reason is simply that I have never  thought it was much of a big deal.  I have sympathy with libertarians and conservatives when they point to  the many government programs that engage in questionable activities and that also cost taxpayers a lot of money, think agricultural price support programs (although conservative politicians from agricultural states will rush to support them, and even supposedly "clean" centrists and liberals, such as the late William Proxmire of Wisconsin who when asked why he was attacking wasteful programs but supporting dairy import quotas replied that, "After all, I am the senior senator from the state of Wisconsin").  But, not  only is Ex-Im not costing a lot of money, it is making a profit.  In this regard it looks like the much-derided TARP, which I also find myself having trouble getting too worked up about.  Maybe the financial system would have been just fine without TARP and we would not have fallen into another Great Depression, but even if it had no positive effect, at least it did not cost any money in the end.

Also, in the case of its biggest beneficiary, Boeing, we are not talking about a free market.  It is part of an effective duopoly with Airbus.  And the subsidies and support from governments that Airbus gets for trade support far exceed the penny ante amounts that having slightly lower interest rates for some of its borrowing provides for Boeing.  (General Electric arguably operates in a more competitive environment).  The amounts involved are piddling, in the millions, not billions, per year, although supposedly without Ex-Im Boeing might have lost a $1.1 billion deal with South Africa.

But there is a bigger  issue here that nobody has talked about, not the authors of the articles, and not even any of the conservative or libertarian critics of Ex-Im, and for that matter, not even Dean Baker or any of the leftier critics either.  That is that both Boeing and General Electric have received much greater subsidies that do come out of the taxpayers' pockets from another source in the US government, the DOD.  Boeing is the second largest defense contracter in the US, receiving on the order of  roughly $18 billion in contracts annually, with General Electric a good deal further behind, but also receiving several billions in contracts annually as well.  Now it may be that people ignore this because they are presumably providing services, even though we know such contracts have very nice profit margins padded into them.  Conservatives may love this, but good libertarians should be down on DOD subsidies as should good lefties like Dean Baker.  This is the real subsidy the US government gives these behemoths that helps them in trade wars, not the penny ante dribblings that they get from the money-making, if indefensible, Export-Import Bank. 

I shall take all these people getting all bent out over Ex-Im, both the bloggers and these authors, more seriously when they point out these massive subsidies from the DOD.  But, I am not going to hold my breath over this.

Barkley Rosser

Sorry, David Ignatius, We Never Had Syria to "Hand Over to Putin"

Today the usually perspicacious David Ignatius in the Washington Post declares in a column labeled "Don't hand Syria over to Putin," that"simply acceding to Moscow...would be significant mistake."  Funny thing is that he follows up this statement with the probably accurate observation that "the Russians can't defeat the Islamic State."  But, escalation by Russia to bomb in Syria (as the US has  been doing for some time) might "may fuel the Sunni insurgency even more."  Maybe, but the more serious problem here is that the US has not "had" Syria ever.

The hard fact is that Russia has "had Syria" for a long time, far more than the US ever has, basically ever since the Ba'ath Party came to power in a military coup more than half a century ago over the immediate successors of the French rule after  WW II, although, of course, prior to 1991, it was the Soviet Union that "had" Syria, not Russia.  But we know that there has been a lot of continuity in terms of global interests from the old Soviet Union to the modern Russia in many places.  The Soviets and then Russians also supported Saddam in Iraq and his branch of the Ba'ath Party, Arab nationalist socialist in its ideological orientation, even as those two branches and the Assads and Saddam became enemies of  each other.  Indeed, in Putin's speech to the UN General Assembly, he complained about the US overthrow of Saddam noting that what has followed has been chaos, along with the beginning of Daesh/ISIS/ISIL/IS, the collapse of pro-Russian Libyan regime into chaos (with the division into its historically distinct eastern and western parts as I frequently forecast here on Econospeak), and the mess in Yemen. 

So, Putin has been very traditional in his approach to many parts of  the globe.  In this regard, he has focused on military bases, especially naval ones.  One can argue that Russia as a major land power should not be so focused on its navy, but this is an old concern, dating at least to Peter the Great three centuries ago when he grabbed the land from Sweden that he build Saint Petersburg on to provide a naval "Window to the West"(with this emphasized by the fact that the radial roads of the city emanate from its Admiralty Building).  A little noted aspect of Putin's seizure of Crimea is that its naval base at Sevastopol is located there, and although generally Ukraine had been "reasonable" continuing to allow Russia to hold it and use it, Putin simply got tired of having to worry about unfriendly governments in Kyiv giving him a hard  time about it.

So, the fact that few note as they bark about this awful cave by Obama is that Russia has its only naval base in the Mediterranean Sea in Syria at Tartus, a base dating well back into the Soviet period.  The US has never had a military base in Syria and has pretty much always been opposed to the Assad regime, both the current one and that of his even nastier dad.  Putin also seems to be establishing an air base in Latakia in the heart of Assad Alawite territory in the northwest of  Syria near the Russian naval base, possibly laying the groundwork for defending its base even if Assad loses power in Damascus to whomever.

Now the big difference between the US  and Russia now is indeed over Assad, who has without question been brutal, dropping barrel bombs on civilians and previously using chemical weapons.  Of course lots of people are angry with Obama did not bomb Assad for doing the latter after he declared a "red line"on that issue.  That in fact he worked with Putin to get Assad to get rid of his chemical weapons (or at least the worst of them) is barely noticed by any of these complainers.  So, when Putin argues that Assad is all there is to stand against Daesh, Obama may be taking this seriously in private, if not in public.

So, Obama's critics, including a pack of VSPs, are full of the claim that Obama should have supported earlier and more fully a "moderate" third force.  But, he did support these people pretty substantially, and all they have done is lose every battle they have fought and have a bad record of handing over their weapons (given by the US) to either al Qaeda-related al Nusra or to Daesh itself.  But VSPs, including Hillary Clinton, say things would have been great if we had done more, but I think Obama's skepticism on this was and has been proven right.

I note one more point. Russia has a more immediate concern about Daesh than does the US.  Chechens have joined Daesh, and while I do not approve of how Putin crushed the revolt in Chechnya, it is also true that Chechen Islamists have carried out major terrorist attacks in Russia.  Russian citizens are not supporting Russian troops going to Syria, but the hard fact is that Daesh is a more serious immediate threat to Russia on its homeland than it is to the US on its homeland.  Given what has happened after the removal of Saddam and Qaddafi in their nations, one can appreciate that Putin has a strong desire to "prop up Assad," and even more given their long presence in Syria with their naval base in Tartus.  The general ignoring of this fact by such generally "realist" observers like Ignatius is somewhat disturbing (and, yes, the situation in Syria is plain awful, but anybody putting forth an easy or straightforward "solution" obviously has not figured out just how complicated and messed up the situation there is).

Barkley Rosser

Unstandard Deviations

"But the burden of whiteness is this: You can live in the world of myth and be taken seriously." Ta-Nehisi Coates 
"It was only by reading – and checking – the actual data in The Bell Curve... the undisputed data..." -- Andrew Sullivan
Ta-Nehisi Coates is a Genius!

In a discussion over at Angry Bear of Coates's recent Atlantic piece on mass incarceration, one of the commenters raised the spectre of the I.Q. gap between Whites and Blacks, which is allegedly 15 I.Q. points or roughly "one standard deviation" from the norm of the reference White population.

Where does this ubiquitous "15 I.Q points" come from? Arthur Jensen, in his 1969 Harvard Educational Review article, “How Much Can We Boost I.Q. and Scholastic Achievement?” cited a 1966 (first edition, 1958) book by Audrey Shuey, The Testing of Negro Intelligence:
Negroes test about 1 standard deviation (15 I.Q. points) below the average of the white population in I.Q. and this finding is fairly uniform across the 81 tests of intellectual ability used in the studies reviewed by Shuey.
So who, then, was "Shuey"?

Dr. Audrey M. Shuey was Chairman of the Department of Psychology in the Randolph-Macon College for Women, at Lynchburg, Virginia. Dr. Shuey's mentor at Columbia University was Henry E. Garrett, a militant segregationist and hereditarian who also contributed a foreword to her book. In his 1958 review of the first edition of The Testing of Negro Intelligence, Horace Mann Bond wrote:
Never before has the literature of psychology witnessed so determined an effort to establish, as a fact, the proposition that there are "native differences between Negroes and whites as determined by intelligence tests."
By the interesting device of discarding all "interpretations, criticisms, comments," and even conclusions in individual studies, and taking the statistical tables reporting differential scores as the only, bona-fide, "results," Dr. Shuey arrives at what she calls a "remarkable consistency in test results, whether they pertain to school or pre-school children, to high school or college students, to drafts of World War I or World War II, to the gifted or the mentally deficient, to the delinquent or criminal." This "remarkable consistency" becomes the foundation of her concluding inferences that "point, to the presence of some native differences between Negroes and whites as determined by intelligence tests."
Another reviewer, Ina C. Brown, concluded her review of the book with the observation:
The book really adds up to much ado about nothing. No informed person questions the fact that on the average Whites perform better than Negroes on the tests or that northerners perform better than southerners or urban subjects better than rural subjects. It is the why that is important and Dr. Shuey’s brushing aside the interpretations of most of the recent testers in favor of her own conclusions adds nothing to our knowledge. 
One can, however, predict wide use of the book by White Citizens’ Councils and others who are in search of material which they can interpret as “scientific” support for their point of view.
The prediction that White Citizens' Councils would widely use the book was either prescient or simply well informed. Publication of the book was funded by Wickliffe Draper's Pioneer Fund, which sponsored free distribution of the book throughout the South, assisted by the Citizens' Councils. After Shuey's death, two other Pioneer Fund grantees, R. Travis Osborne and Frank McGurk, published a follow-up volume to include data from 1966 to 1982.

Now about that "actual data" Andrew Sullivan claimed to have "checked" and found "undisputed." Bullhockey. The following chart summarizes the allegedly "undisputed" data about race and I.Q. relied upon by Murray and Herrnstein in The Bell Curve. Note the sources: Shuey, Osborne and McGurk, Jensen. Why not list the sponsors, too: Pioneer Fund... White Citizens' Council... Wickliffe Draper... Henry Garrett?

Undisputed data? Virtually every aspect of the race and I.Q. data cited by Murray and Herrnstein -- along with its hereditarian interpretation -- has been not only disputed but refuted. Voluminously.

The only aspect left "undisputed" is that there are differences in I.Q. scores. But by itself that "fact" is trivial and meaningless. It is like saying a dollar is worth 100 cents because each cent is worth one-hundredth of a dollar. The logic is circular.

How could Sullivan have "checked" the data in The Bell Curve and yet be unaware of the extensive critiques of the data by such authorities as Stephen Jay Gould, Richard Lewontin or Leon Kamin?

Undisputed data? Seriously? A better description for "the actual data in The Bell Curve" and the way in which it was presented would be fraudulent. In his 1995 review of the book, Michael Nunley called it "too smooth to be true":
Their fraud begins in their introduction with a series of astonishing assertions. They list a number of propositions they claim form the very foundation of their book, but for which they tell us they are not going to provide any evidence. These include such notions as that there is such a thing as general cognitive ability; that IQ is the most accurate measure of it; and that IQ tests are not biased against any social, economic, ethnic, or racial groups. They are excused from providing any evidence for these assertions because, as they put it, these statements are "beyond significant technical dispute." This struck me as odd because, you see, I’m an anthropologist with an interest in cross-cultural studies of cognition. And if I were trying to think of things that might be considered "beyond technical dispute" from cross-cultural studies in anthropology, they would be that human cognition is far too complex to be captured on a simple linear scale; that IQ measures only a very narrow band of all kinds of cognitive achievement; and that tests of cognitive achievement cannot avoid being culturally biased by the content, materials, and style of testing used. 
In an afterword to the 2010 edition of The Bell Curve, Charles Murray dismissed -- with a few well placed "never minds" -- criticism by Charles Lane and Leon Kamin of the book's extensive dependence on "tainted sources":
Never mind that The Bell Curve draws its evidence from more than a thousand scholars... Never mind that the relationship between the founder of the Pioneer Fund and today's Pioneer Fund is roughly analogous to that between Henry Ford and today's Ford Foundation.
It is, of course, impossible to refute a "never mind" that declines to substantiate the evidence for the claims that it sarcastically asserts will be ignored anyway.

Never mind that more than 995 of Murray's "more than a thousand scholars" are irrelevant to the five studies cited in The Bell Curve's analysis of differences between Black and White cognitive test scores, three of which come from books and articles by Pioneer Fund sponsored authors.

Never mind that Murray offered no rationale or evidence for his spurious analogy between the Ford Foundation and the Pioneer Fund.

Never mind that Murray's "refutation" of the charge that the book relied on "tainted sources" was a non sequitur and a red herring. Murray's coy "never minds" are, to use Nunley's description, "too smooth to be true":
When I first sat down to read Herrnstein and Murray’s book The Bell Curve (1994), I was predisposed to be skeptical of certain positions I’d heard it was promoting, but I was nevertheless expecting it to be an honest attempt to make a case for a wrongheaded but sincerely held scientific position.  But when I read the text of The Bell Curve, including its footnotes, which were stuck at the back of the book, forcing me to page back and then forward again every paragraph or two, with all the book’s references buried well back in the footnotes, and when I then tracked down and read some of the references to see what they actually said and what other scholars had said about them, I became convinced that The Bell Curve is something quite different from my initial expectation. I believe this book is a fraud, that its authors must have known it was a fraud when they were writing it, and that Charles Murray must still know it’s a fraud as he goes around defending it. By “fraud,” I mean a deliberate, self-conscious misrepresentation of the evidence. After careful reading, I cannot believe its authors were not acutely aware of what they were including and what they were leaving out, and of how they were distorting the material they did include. The book is, moreover, a very good fraud, a very cleverly constructed one. There aren’t enough "o"s in “smooth” to describe it.
Ta-Nehisi Coates is a Genius.

Coates's Atlantic feature story on mass incarceration commences with a discussion of Daniel Patrick Moynihan's 1965 report, "The Negro Family: The Case for National Action." Toward the end of his account of the Moynihan report, Coates mentions that "William Ryan, the psychologist who first articulated the concept of 'blaming the victim,' accused Moynihan’s report of doing just that."

Toward the end of his article, Coates returns to Moynihan and briefly alludes to his 'ominous" citation of "a 'rather pronounced revival -- in impeccably respectable circles -- of the proposition that there is a difference in genetic potential' between the two races." Moynihan noted the proposition in March 1969 report to Nixon regarding Arthur Jensen's Harvard Educational Review article.

Impeccably respectable circles.

Undisputed data.


Saturday, September 26, 2015

Cruz Wrongly Declares Death On Iran's Leader

Senator Ted Cruz has just promised that if he becomes President of the United States he will do all he can to bring about the death of the current Head of State of the Islamic Republic of Iran, its Vilayat-el-faqih, or "Supreme Jurisprudent,"  Ali Khameini. It is true that he was not popularly elected, in contrast to Iran's President, Mahmoud Rouhani, but he is indeed the Commander-in-Chief of its military, which is what is crucial for the matter of nuclear weapons policy, which, presumably, is why Cruz wants to off him.

Apparently Cruz is unaware of the fact that after Iran halted its nuclear weapons program after the US invaded Iraq over a decade ago, Khameini issued fatwas against nuclear weapons, which are still in place.  As it is, if Cruz is aware of this, he probably believes that Khameini was lying when he issued those fatwas, even though official US National Intelligence Estimates supported by all 17 publicly known US intelligence agencies have agreed that Iran has not had an active nuclear weapons program since 2003.

Frankly, at this point in time, Senator Cruz looks like a much bigger threat to world peace than does the Ayatollah Khameini.

Barkley Rosser

Thursday, September 24, 2015

Completely Non-Economics: Chowhound is Dead

It’s a shame, but it was inevitable once founder Jim Leff sold it: sooner or later it was going to be run purely for a profit, and its contribution to US food culture would come to an end.  Miraculously, this fate was evaded for several years, but now it has finally come to pass.  It’s obvious that core community people are jumping ship, and the content is drying up.

I’m a long-time contributor with an attachment to the original vision: Chowhound was not about high-end dining or showering trendy restaurants with even more attention.  No, the goal was to uncover the hidden gems of food culture, with an emphasis on small, regional, “ethnic”, and unexpected.  The drive-in with exceptional fresh-fruit milkshakes.  The ephemeral food trucks, taquerias, fish camps, and what’s-it-doing-here Laotian cafes in small midwestern towns.  Places that weren’t necessarily best of show, but demonstrated that quality doesn’t need ostentation or high prices.

The Chowhound knowledge base was always evolving because “chow-worthy” establishments would come and go, and the factors that made them special would flicker on and off.  The site’s value depended on the constant chatter of contributors who understood the aesthetic and kept their eyes and taste buds open.  Information was organized geographically, since the whole point was suitability to site and serendipity.

Well, it’s gone.  The new format is about selling eyeballs to advertisers.  It is much more difficult to wander through a locality, peering into the thread windows to see what’s on offer.  It’s a whole lot easier to see graphic-intensive advertising.  It’s obvious that traffic has fallen off a cliff, and that the core folks, who understood that Chowhound was a fundamentally different beast from Yelp and had more credibility because of it, have taken a walk.

I’ll miss it.

Monday, September 21, 2015

Big Money Wants Hard Money, Take Two

The recent discussion between Paul Krugman, Brad DeLong and Dean Baker has got me thinking again about why wealthy people and the finance sector are so adamant in favor of hard money.  The reality is not in dispute—this is really their position, in every country and all the time—only the explanation.  The problem is that the components of wealth, mainly equities and bonds, do not always move in lockstep with hard money policies.  In particular, during periods of depressed demand expansionary fiscal and accommodative monetary policy can be good for profits and therefore equity investments.  In fact, this is exactly the political basis for Keynesianism, why it can be a viable political strategy and not just a theoretical curiosum.

Except that the Keynesian class compromise is quite dead.  Big money doesn’t want to hear about any kind of stimulus; it wants hard money, period.

But why?  Brad says big money is blind.  Paul says it’s really the special interest of banks, whose spreads fall during times of low interest rates.  Dean discounts the aggregate demand-profit link and lays the blame on the effect unexpected inflation has on real interest rates.

My scoring puts Brad and Dean slightly ahead.  There is no getting around the fact that much of the argumentation coming from the hard money crowd is simply tendentious and ill-informed.  That suggests an ideological process that interferes with rational, objective thinking.  So: ideology has to be part of the story.  Also, the hard money obsession is not just coming from banks; it seems to reflect the attitude of the very rich in general.  It’s not very convincing to argue, as Krugman does, that non-bank money hardeners get that way by talking too much with bankers.  Meanwhile, however, Baker’s (correct) point about the effect of changes in real interest rates on net creditors has to be put alongside consideration of aggregate demand and profits.  It’s not simple.

I have two hypotheses.  The first is that the Keynesian link between aggregate demand and profit has been attenuated by downward flexibility of the labor share of income.  Profits are doing rather well across the advanced capitalist world despite substandard growth for this very reason.  It isn’t certain that reflation would reverse the declining labor share, but it’s at least plausible that it could.  In that case there is less material basis for a Keynesian cross-class coalition in favor of expansionary policy.

The second is that ideology really is a factor, but that we need to have a somewhat more sophisticated theory of ideology than one usually finds.  The simplest view is that material interests directly drive beliefs, so hard money dogmatism should have its roots in an actual relationship between the value of portfolios and monetary policy.  This appears to be the underlying assumption in the current debate.  A somewhat more complex version, which I support, is that material interests give rise to characteristic problems, and that intellectual frameworks useful for addressing those problems are ideologically favored.  It’s the hammer and nail thing.  In this case, maintaining the value of portfolios, especially those with a significant component of bonds and money-like instruments, in the context of inflation is challenging.  A low-inflation environment is a lot less difficult for wealthy people to cope with.  (This also applies to the risk of devaluation if they have home country bias in their holdings.)  Thus the intellectual tools that are useful in clarifying and minimizing these risks have greater salience and crowd out ways of thinking that address other kinds of problems (like economic growth and employment).  Objectively, this can result in the sort of blindness DeLong describes, but it’s not randomly distributed across the population—it’s a big money thing.  On the other hand, it doesn’t depend on demonstrating that specific soft money policies would be necessarily value-undermining for current portfolios.

These are simply hypotheses.  Political economists should be devising clever ways to empirically test the various explanation.

Economic Reform: An Imaginary Beast?

The mantra of economic reform is on the lips of every academic, consultant and political honcho these days.  Greece, of course, is supposed to understand that structural reform is the only path out of depression, but the other peripheral eurozone countries must not delay reforms either.  Further east, China and Japan have come to a point where only thoroughgoing reforms can enable them to continue to grow and develop.  Developing countries too should recognize that “institutions” ultimately determine economic performance, so their true agenda is reform.  Reform, reform, reform.

Put aside for a moment the bland, indistinct nature of this word reform, which can mean almost anything you want it to.  Suppose for the moment it actually signifies something in particular.  My question is, what country at what time has ever instituted such a reform program with measurable results?  Is there any precedent at all?  Any systematic policy-driven transformation of administrative transparency, economic incentives, organizational effectiveness?  Or is the talk of reform simply a polite way to avoid dealing with the real issues?

Friday, September 18, 2015

China And The Revenge Of The Index Number Problem

Within recent months observers around the world have been in a complete muddle over what is going on with the Chinese economy.  Official Chinese stats say that GDP is growing at a 7 percent annual rate.  Most official observers from places like the World Bank and OECD do not  differ strongly with these numbers and are forecasting a small slowdown of this to somewhere between 6 and 7 percent for 2016.  OTOH, less official sources are all over the place with forecasts and even what the current rate really is, with some even claiming that the Chinese economy is actually in recession, although this certainly seems highly unlikely, even if the 6-7 percent rate forecast is overly optimistic.

Among the reasons for all the controversy and differences in forecasts has to do with apparently wildly different growth rates in different sectors of the Chinese economy.  Now it might be that the underlying microeconomic numbers are being fudged, but whether they are or not, they are indeed wildly diverging.  So, industrial production in July was supposedly down from a year before with other series clearly related to that also  down or performing very poorly.  However, retail sales have supposedly risen over 10 percent in the past year, and various reports have services rising rapidly.  These kinds of divergences are not at all common in most economies most of the time.

Indeed, what this resembles to me is another period of time which there remains great controversy over how rapidly an aggregate economy grew.  I am thinking of the old controversy about how rapidly the Soviet economy grew during the 1930s, the period when Stalin's command plans were initially implemented, marked by a simultaneous rapid growth of industry and a decline of agriculture as it was forcibly collectivized and millions died of starvation in associated famines.  Official Soviet stats had the annual growth rate between 1928 and 1940 was 13.8 percent.  At the opposite extreme we have the estimate of V.I. Khanin that it was more like 3.2 percent, with a full range in between, including what the CIA long believed, and a long and large literature on this.  While there have long been allegations of misreported basic micro data, an often cited culprit in this dispute has been the old index number problem.

Now most economists in western market capitalist economists mostly think about this when thinking about measuring inflation.  Given that in recent years not only has inflation been low in much of the world, but there have also not been wildly different price paths across different sectors, the index number has simply fallen off the radar screens of most observers.  But now it is back with a vengeance in the case of China.  Supposedly China is a market economy of sorts, but it also remains a nominally socialist economy with substantial amounts of government intervention into those markets.  As output paths across sectors are apparently going in strongly different directions, what prices are or would be under other circumstances, we do not know,

I doubt that the underlying micro numbers we are seeing reported from China are as questionable as what was reported in the USSR in the 1930s, but the index number problems in China now with wildly different output trajectories in different sectors, what may have played a major  role in the wildly varying estimates of Soviet growth then may also be playing a factor now in the disagreements over what the current Chinese growth rates are.  If the past is any prologue, we may never have any resolution to what current Chinese GDP growth rates really are.

Barkley Rosser

Tuesday, September 15, 2015

Guess Who

"Only a handful of unreconstructed reactionaries harbor the ugly thought of breaking unions. Only a fool would try to deprive working men and working women of the right to join the union of their choice."
"An industrial society dedicated to the largest possible measure of economic freedom must keep firm faith in collective bargaining. That process is the best method we have for changing and improving labor conditions and thus helping to raise the American standard of living.  
"Healthy collective bargaining requires responsible unions and responsible employers. Irresponsible bargainers cannot get results. Weak unions cannot be responsible. That alone is sufficient reason for having strong unions."

Sunday, September 13, 2015

"Nothing like this had previously existed in the long annals of human slavery."

An illuminating passage from Orlando Patterson's Slavery and Social Death:
The U.S. South shared with other slaveholding societies the exploitation of slave women and the inclination of masters to manumit their concubines and children. The intense shame that the master class felt about this sexual relationship was absolutely unique to the South, however. The guilt, with its disastrous consequence for the freedmen, had three sources. First, there was the puritanical tradition, which condemned fornication with the threat of fire and brimstone. Second, there was a highly developed sense of racial purity frequently codified in laws against miscegenation. And third, there was a strong moral commitment to a patriarchal family life, in which the women of the master class were placed on a pedestal and became symbolic not only of all that was virtuous, but as W. J. Cash has argued, of "the very notion of the South itself." The cult of southern womanhood was of course directly derived from slavery and the sense of racial superiority. Any assault on the dignity and honor of the idolized woman was an assault on the entire system. 
But southern males were no less pleasure-loving than the men of any other slaveholding society. Their hedonism, however, conflicted with their religious values, making the southern master alive to a deep sense of sin and wickedness: "the Southerner's frolic humor, his continual violation of his strict precepts in action, might serve constantly to exacerbate the sense of sin in him, to keep his zest for absolution always at white heat, to make him humbly amenable to the public proposals of his preachers, acquiescent in their demands for the incessant extension of their rule." Equally, his hedonistic exploitation of the slave women was an assault on the integrity of the idolized women, all of whom were constantly reminding him of his wickedness when they were not displacing their bitterness in acts of cruelty toward comely female slaves. 
The result of all this was that the freed group, with its disproportionate number of mixed-blood members, was a living reproof, a caste of shame, confronting the white males with the fact that they repeatedly violated not only their puritanical precepts but the the honor of their women. It was not guilt about slavery that accounts for exceptional hostility toward freedmen, as Berlin and others claim, or any real fear of them as a political threat, but guilt about their own violation of their own social order. The "zest for absolution always at white heat" made it imperative that the freedmen be scourged from their midst—or, if not scourged, punished, victimized, and defiled like scapegoats. 
Nothing like this had previously existed in the long annals of human slavery.

Thursday, September 10, 2015

Jeb! Bush! Tax! Cut! Defense – My Candidate for its Main Lie

Greg Mankiw hearts the tax cut proposal from Jeb! No surprise there. He also links to an incredible piece of dishonesty from the Usual Suspects:
For scoring purposes, however, to be conservative, we calculate that the tax and regulatory components of the Governor’s economic plan will strengthen GDP by a total of about 8 percent over a decade, with 5 percentage points coming from the tax reform plan and 3 percentage points from regulatory reforms. On an annual basis, that equates to approximately 0.5 percentage points of higher economic growth per year directly attributable to the tax policy changes outlined in the balance of the White Paper. And an additional 0.3 percentage points of annual growth arising from the regulatory reforms, which we understand the Governor will be outlining in detail in the period ahead.
I could get snarky and note that adding this alleged 0.8% to the current 2% is not nearly 4% so one has to wonder what fuzzy math the Team Republican candidates are using. Their supply side Laffers are warmed over from 35 years ago but I’ll let others have fun mocking this intellectual garbage. Permit me to focus on the bottom of page 3 where they noted that the Administration had high hopes for their fiscal stimulus in 2009. Here in my view was their greatest lie:
output has grown at about half of consensus’ projections from June 2009 until present. The weaker than expected economic performance should cause policymakers to revisit their economic programs and policies. They have not.
It is true that the recovery has been disappointing but the reason is clear – fiscal policy did change towards stupid fiscal austerity driven largely by Republicans. This statement alone should disqualify the Team Republican economists from the policy debate. But yea – I know. Republicans lying to us has been the norm for the last 35 years.

Monday, September 7, 2015

Labor Day: "Wealth is Disposable Time… and Nothing More"

"Is there not a state of society practicable, in which leisure shall be made the inheritance of every one of its members?" -- William Godwin
Published anonymously in 1821, The Source and Remedy of the National Difficulties, deduced from principles of political economy, in a letter to Lord John Russell, was, according to Friedrich Engels, "saved from falling into oblivion," by Karl Marx. At the time of Engel's remark, however, Marx had scarcely mentioned the pamphlet in published writings other than a scant footnote in Volume I of Capital. Some rescue! Nevertheless, Engels acclaimed the pamphlet as "but the farthest outpost of an entire literature which in the twenties turned the Ricardian theory of value and surplus value against capitalist production in the interest of the proletariat."

In his unpublished notebooks, Marx did declare the pamphlet an advance beyond Adam Smith and David Ricardo in its conscious and consistent distinction between the general form of surplus value or surplus labor and its particular manifestations in the forms of land rent, interest of money or profit of enterprise. Commenting on the pamphlet, Marx returned several times to what he referred to reverently as a fine statement: "a nation is really rich if no interest is paid for the use of capital, if the working day is only 6 hours rather than 12. WEALTH IS DISPOSABLE TIME, AND NOTHING MORE." Marx noted that Ricardo had also identified disposable time as the true wealth with the difference that, for Ricardo, it was disposable time for the capitalist that constituted such wealth. Ricardo's ideal would thus be to maximize surplus value as a proportion of total output.

Marx again cited the phrase in his Grundrisse, immediately following a characteristically explosive proposition:
Forces of production and social relations – two different sides of the development of the social individual – appear to capital as mere means for it to produce on its limited foundation. In fact, however, they are the material condition to blow this foundation sky-high. 'Truly wealthy a nation, when the working day is 6 rather than 12 hours.'
Just how successful Marx was in saving the 1821 pamphlet from oblivion remains to be seen. Obviously, the pamphlet was spared from total oblivion or I wouldn't be writing about it. Aside from the few references by Marx and Engels, there have been scattered mentions of the pamphlet but no sustained analysis of it, which seems odd considering the importance that Engels – and Marx, in his manuscripts at least – assigned to it.

Perhaps one of the difficulties has been the anonymity of its authorship. That problem would appear to have been resolved by a disclosure in the biography of the 19th century editor and literary critic, Charles Wentworth Dilke. Dilke's grandson, the biography's author, reported having found an annotated copy of the pamphlet, acknowledging authorship, among his grandfather's papers. Subsequent authorities on Dilke and the literary journal he edited for several decades, The Athaeneum, appear satisfied with the plausibility of this attribution, given Dilke's writing style, his propensity for anonymous and pseudonymous publication, his political inclinations and his subsequent career. There doesn't appear to have been any concerted effort to either definitively establish or to refute Dilke's authorship. So Dilke qualifies as the leading and, so far, only candidate for authorship.

If Dilke was indeed the author, this presents two rather significant bits of context to the pamphlet. First, Dilke was an ardent disciple of William Godwin, who wrote, 'The genuine wealth of man is leisure…" The poet, John Keats, who was a close friend and next-door neighbor referred to Dilke, somewhat patronizingly, as a "Godwin perfectibility man". He was said to have retained that political inclination throughout his life. Second, in his career as editor of The Athaeneum, Dilke campaigned famously against journalistic "puffery" – the practice of publishers placing promotional material for their books in literary journals, for a fee, under the pretext that they were independent reviews. Both of these contextual items could be significant for an interpretation of The Source and Remedy precisely because the pamphlet lends itself arguably to a reading as a Godwinist tract (rather than a proto-Marxist one) but also to a reading as a polemic against yet another brand of puffery: political economy practiced by apologists for privilege and wealth. As for "turning the Ricardian theory of value against capitalist production," such an intention would hardly seem to fit an essay that on its closing page counted among the great advantages of the measures proposed therein that "their adoption would leave the country at liberty to pursue such a wise and politic system of financial legislation as would leave trade and commerce unrestricted."

The Source and Remedy of the National Difficulties had something to say rather distinct from the message Marx took away from it. In his various notes on the pamphlet, Marx paid closest attention to the first six pages of the 40-page pamphlet and glossed over the rest. In his discussion of the pamphlet in Theories of Surplus Value, for example, the reader may wonder if Marx was actually still talking about the pamphlet after a few pages or had gone off on a tangent inspired by the pamphleteer having allegedly overlooked the impact of unemployment on wages. It has to be cautioned, though, that Marx's extended comments on the pamphlet appeared in manuscript notes that were published posthumously. They were not polished, fully thought-out positions intended for publication.

Although the first six pages are indeed interesting, in the context of the pamphlet as a whole their function is to set the stage for the crucial pair of questions that appear on page seven. That is, after deducing from principles of political economy that capital, left to its natural course, would soon do away with further accumulation, the author asks why that seemingly inevitable result has never happened and how it is that with all the presumably labor-saving wonders of modern industry, workers work longer hours and more laboriously than ever before.

Dilke's answer was that government and legislation act ceaselessly to destroy the produce of labor and interfere with the natural development of capital. They do this indirectly by, on the one hand, maintaining "unproductive classes" at a constant proportion to productive laborers and on the other by enabling the immense expansion of "fictitious capital," based ultimately on protectionism and government finance. Government does these things so that it may raise an enormous level of revenues that it couldn't through direct taxation of the laboring population, because "it would have been gross, open, shameless, and consequently impossible." Instead, it makes the holders of this fictitious capital accomplices in a stratagem to exact a much-enlarged revenue. As partner in crime, the capitalist lays claim to a generous portion of the booty. Not surprisingly, war is a "powerful co-operator" in this relentless process of destroying the produce of labor while expanding the (asymmetrical) claims of fictitious capital.

As for the natural claims of surplus value exacted by the capitalist, Dilke viewed them as causing the laborer "no real grievance to complain of," a position at least apparently at odds with Marx's views of exploitation and almost certainly incompatible with Engels' assertion that the pamphlet turned Ricardian theory "against capitalist production." Not only was Dilke not opposed to capitalist production, he described it as leading to a virtually Utopian condition of freedom if only it was left to unfold according to its nature. In his note, Marx objected that the pamphleteer had overlooked two things in coming to such a sanguine conclusion about the trajectory of capitalist accumulation. One was unemployment. Marx never got around to specifying the other.

Dilke's reasoning, although thought-provoking, is far from airtight. He confessed in his closing pages that his argument "is not so consecutive, that the proofs do not follow the principles laid down so immediately as I could have wished. The reasoning is too desultory, too loose in its texture." Whether such regrets were heartfelt or simply a stylistic gesture of modesty is hard to say. The subject matter itself is elusive and no treatment of it could be entirely exempt from error. Nevertheless, the case Dilke presented was an original and compelling one that has, as far as I know, been overlooked by Marx and his intellectual heirs.

The part of the argument that Marx appropriated to his own analysis – the author's consistent reference to surplus value as the general form underlying profit, rent and interest was ultimately incidental to Dilke's main points that nature places a limit on accumulation and that the surpassing of those natural limits occurs only as a result of government intervention, which, in effect mandates the excessive exploitation of labor.

There is a problem that arises from Marx appropriation of the (for Marx) correct premise of the pamphlet without first having systematically refuted the author's own deductions from it. What if Dilke's deductions were either equally or more plausible than Marx's? Rather than being a focal point of class struggle, might not surplus value then be "no real grievance to complain of?" Rather than underpinning a contradiction fated to blow the foundation of capital sky-high, might not the tension between "things superfluous" and disposable time have the potential to be adjusted like wing flaps to help bring Capitalism in for a soft landing?

By things superfluous, I refer, first, to the unholy trinity of fictitious capital, unproductive labor and inconvertible paper money and second, to their commodified expression as luxury goods. What I am suggesting is that for Dilke it seems that the primary contradictions of capitalism (to use Marx's expression) lay not so much between capital and labor as between real and fictitious capital, productive and unproductive labor, convertible and inconvertible money, necessities and luxury goods. This internalizing of the contradictions recalls Solzhenitsyn's observation in the Gulag Archipelago that, "the line separating good and evil passes not through states, nor between classes, nor between political parties either, but right through every human heart, and through all human hearts." Might we not ask if it's not only the line between good and evil that passes through every human heart but also the line between labor and capital, proletariat and bourgeoisie? From the standpoint of the arguments presented in The Source and Remedy, a proletarian revolution would be, in effect, superfluous. The possibility of revolution would arrive more or less at the moment when such a revolution would no longer be necessary.