Wednesday, January 16, 2019

Getting Ever More Surreal

I am referring to a comment Sean Hannity made on his show earlier this evening in his monologue. The reports tht  President Trump was under  invesdtigation by FBI Counterintelligence as being a possible "Russian asset" supposedly taking orders from Vladimir Putin has pusheed uber Trump defender Hannity to ever more surreal forms of defense, in this case one especially bizarre given the cloase association in Trump's early career between him and Roy Cohn, the lead attorney for the late anti-communist scourging Senator Joseph McCarthy of Wisconsin.

This new more surreal position has Hannity after declaring that "the walls are closing in" on former FBI Director James Comey over his supposed role in this investigation, although apparently it was the ircumstances around Trump's firing of Comey that initially triggered this reported conterintelligence investigation, Hannity then compared Comey to the late anti-communist scourge, J. Edgar Hoover, FBI director for 48 years.  In particular he pinpointed Hoover's investigation of the late Henry Wallace in 1948 for his reputed ties to the Soviet Union, highlighting that Wallace had served as vice  president during FDR's third term (and was pushed out of that position to be be replace by Harry Truman in FDR's fourth term by conservative Democrats worried about his perceived to be friendly attitude to the Soviet Union).  In 1948, when Hoover was making his investigation and allegations, the Cold War was starting, and Wallace was the candidate for president of the Progressive Party, running heavily on a platform of opposing the Cold War (and certainly the anti-communist positions of McCarthy).  The sight of Hannity of all people praising and defending Wallace against the supposedly evil Hoover was quite a spectacle.

As it  is, I am sympathetic to the view that Wallace was unfairly treated and smeared.  Also, the Progressive Party and Wallace supported many, well, progressive policies that were and remain reasonable, such as national health insurance.  All of that adds to the irony of Hannity now defending him as he has no use for such policies.  The exact nature of Wallace's relartions with Soviet leaders and of the connection between the Progressive Party and CPUSA remain controversial to this day, but but ceetainly Wallace opposed the incipient Cold War and publicly supported Soviet positions in 1948.  I do not know if it was possible to avoid the Cold War or not, and it is impossible to know what would have happened if Wallace had won, especially given that he came nowhere near dong so.  As it was, Hoover was correct that Wallace was very friendly with various Soviet leaders and agreed with their views, for better or worse.

So, here we now have this surreal spectacle of Sean Hannity defending Henry Wallace for being accused by Hoover of being too friendly with Stalin's Soviet Union after WW II.  It would seem that this is tied not just to the accusations that Trump is a "Russian asset," but the report today that he has been actively talking about pulling out of NATO.  There is no doubt that would please Putin, and, perhaps, it might even please the ghost of Henry Wallace as well.  Getting more surreal all the time.

Barkley Rosser

Sunday, January 13, 2019

Value of the Chrysler Building and California Property Taxes

The big news in New York City is that the Chrysler Building is for sale:
New York City's iconic Chrysler Building has appeared in dozens of movies and remained an Art Deco jewel of the Manhattan skyline for decades. Now, the 89-year-old skyscraper can be yours. Located on 42nd Street just east of Grand Central Terminal, sale price estimates for the famed Chrysler Building vary, but its majority owners, the Abu Dhabi Investment Council, hope to recoup the $800 million it paid for their stake of the building back in 2008.
They hope but some think the building might go for as little as $650 million and that does not cover the value of the land:
the land beneath the building is owned by New York's Cooper Union School and the lease last year came to $32.5 million.
If we assume a 5% discount rate, the present value of annual lease payments like these might be another $650 million if one wants to know the value of the land and the building. But is it reasonable to assume a 5% discount rate? Let’s return to this after noting some grumpiness from John Cochrane towards something Paul Krugman wrote:
I try very hard not to get in to the business of rebutting Paul Krugman's various outrages. The article "The Economics of Soaking the Rich" merits an exception. I will ignore the snark, the... distoritions, the ... untruths, the attack by inventing evil motive, the demonization of anything starting with the letter R, and focus on the central economic points … Diamond and Saez made a big splash precisely because their estimates were so novel and so much higher than the prevailing consensus. For example, Greg Mankiw, also a previous CEA chair, and not a fraud, writing the excellent "Optimal Taxation in Theory and Practice" in the Journal of Economic Perspectives … Krugman and company are proposing a 70% top federal rate on top of all the others, which is ... a bit deceptive relative to the 70% total marginal tax rate even in his cherry-picked sources.
OK – I cherry picked much of this rant so read the entire long winded thing for yourself. Optimal taxation is indeed a controversial topic and I applaud the notion that we should go beyond Federal taxation. Can someone tell Mankiw that before his next oped on how progressive the Federal tax system is? Cochrane followed this by some claim that we should include property taxes in the calculus of calculating the marginal tax on income:
How much is the property tax? In Calfornia, we pay 1% per year. That doesn't seem bad, except that property values are very high. You can't get a tear-down in Palo Alto for under $2 million. If you buy a house that costs 5 times your income -- say someone earning $200,000 per year buying a $1 million house -- then that is equivalent to 5 percentage points additional income tax. On top of 42% federal, 13.2% state, 9% sales, and other taxes, it's part of my view that we're past 70% top marginal rate now.
Maybe it is because so many of us in New York City choose to pay rents but adding the tax on property to the tax on income strikes me as odd. I’ll leave to others to weigh on this debate but I would be amiss if I did not note Peter Dorman’s latest post:
In the world of urban politics, there is probably no more potent populist rallying cry than the demand to halt gentrification. Activists have fought it on multiple fronts: zoning, development subsidies, permitting, rent control—every lever housing policies afford. But what if they’re mistaking cause for effect, hacking away at the visible manifestations of the problem while leaving the problem itself intact? Pivot to an important article in today’s New York Times, reporting on recent research David Autor of MIT presented at the economics meetings in Atlanta earlier this month.
Cochrane had an odd calculation of the present value of property taxes:
A 1% property tax at a 1% interest rate is equivalent to a 100% tax on houses. That $1,000,000 house is really going to cost you $2,000,000!
Wait, wait – I’m assuming a 5% discount rate and he assumes a 1% discount rate? OK, he continues:
What is the right rate? We can have a lot of fun with that one. The current 30 year TIPS (inflation indexed) rate is 1.19%. The 30 year nominal Treasury rate is 2.97%. In California, under Proposition 13, you pay 1% of the actual purchase price per year, but that quantity never increases. (This fact results in the paradox of extremely high property taxes on new purchasers, older people staying in huge old houses, and low property tax revenues.) So you might say that the nominal rate applies.
You might say? If the nominal cash flow is not indexed, then you should use the nominal risk-free rate as your starting point. So I started with a 3% rate and then added 2% more. Why the extra 2% you ask? Well I have read the seminal paper on leasing by Merton Miller and Charles Upton that note we should add a premium for bearing the risk of obsolescence. A lot of research would put that premium at 2% but I guess Cochrane wants to pretend owners of property should discount cash flows at the risk-free rate, which reminds me of that book by James Glassman and Kevin Hassett entitled DOW 36000. Never mind having fun with the appropriate discount rate – who did Cochrane rely on when teaching his students finance – Glassman & Hassett or Merton Miller?

Saturday, January 12, 2019

The Key to Gentrification

In the world of urban politics, there is probably no more potent populist rallying cry than the demand to halt gentrification.  Activists have fought it on multiple fronts: zoning, development subsidies, permitting, rent control—every lever housing policies afford.  But what if they’re mistaking cause for effect, hacking away at the visible manifestations of the problem while leaving the problem itself intact?

Pivot to an important article in today’s New York Times, reporting on recent research David Autor  of MIT presented at the economics meetings in Atlanta earlier this month.  It’s all summed up in this set of charts:


As you can see from the tiny print at the top, the data are being read horizontally within each chart, from less dense regions (rural areas) on the left to high density cities on the right.  The question being asked in the article is, if you live in a rural area or a small town, how much benefit can you get from moving to a big city?  In the early post-WWII period, the answer was “a lot” for both the majority holding only a high school diploma and the few with a college BA.  By 2015 the situation had changed: it was still a good move for college grads but there was little to be gained by those with only a high school education—and probably even less when you factor in the increased cost of living.  That’s an interesting story.

But there’s another way to read these charts, vertically, comparing wage gaps at any particular time and place between these two education-defined groups.  In 1950 the gap was relatively small; in the densest cities the college crowd made about 30% more per hour than the high schoolers.  By 2015 they made almost twice as much.  And don’t forget that the rise of inequality is virtually fractal: similar gaps have opened up within the top 20%, and within the top 5%, 1% and .01%.  The whole rightward tail of the distribution has elongated, pulling ever further from the median.

The distribution of income is reflected back to us in the distribution of housing.  High income households want big, fancy digs—not only in the suburbs as in the halcyon Ozzie and Harriet days, but also the urban core as touted by the “new urbanism”.  They will bid up the prices of existing dwellings, retrofitting them to meet their lifestyle demands.  Developers will be eager to build new units for them, creaming off their share of these high incomes.  To do this they will buy up working class housing for the purpose of tearing it down and building the expensive stuff.  Of course, upper income people want amenities suited to their means, so hardware stores and shoe repair shops give way to high-priced cafes, galleries, and boutiques for displaying elegant leather, wool, and felted clothing items.

Gentrification is simply the visible urban face of rampant income inequality.  As Autor’s data show, it’s especially intense in high density regions.  The use of housing development and rental regulation can slow it somewhat and change the form it takes, but wealthy people will always find a way to spend their money on expensive accommodations and amenities; that’s why they went through the effort to get wealthy (or why their parents and grandparents did).  A democratic city, with diverse neighborhoods and a high quality of life for all, can’t rest on a plutocratic distribution of income.  To put it differently, once we bring about much more even economic rewards in our society we’ll be able to look forward to new urban development with hope and anticipation rather than dread.

Slavery in the US

An issue so far not openly addressed in this "Partial Shutdown" situation is that those who have been deemed to be "essential," are now working without pay, even though we all believe that they will eventually receive their overdue backpay.  I really do not know the  law that says that thesee people must work without being paid within a reasnable time period of their work, but  my basic view of  this is that people being forced to woork without being paid in a clearly established time period are slaves.  And this is the status of those US federal workers now being  forced to work without pay.  They are slaves.

A ludicrous effort by Trump to minimize the damge of his idiootic partial shutdown has been his sporadic effoorts to deal with consequences of his worthless shutdown.  So we have rich cronies of his who have found themselves incnvenienced for hunting in US natural preserves.  Trump has ordered that the fedreal employees who oversee this particular matter must show up for work to make sure that this handful of wealthy  Trump cronies can hunt in US natural preserves, without pay.  These federal employees must be slaves to these spoiled brat pals of Trump.

We must recognize what is going on here, although nobody prior  to me now has called it for what it is, this is slavery.  Trump has been ordering all sorts  of fed employees to show  up and perform thier duties without pay as an accumulating pile of interests get to him complaining about not getting their government services.

Of course slavery leads to shirking, unless Massa wields a whip, which I think is not seriously there, so we have already seen lines at LaGuardia airport as TAS employees call in "sick."  Everyday this condition of slavery persists, the calling in sick of the slaves will increase.

We adopteed an amendment 154 years ago that aboilished alavery in the United States of America.  It is about time this amendment was enforced.

Barkley Rosser    

Thursday, January 10, 2019

The Manic Style in Political/Economic/Climate Discourse

As an example of "The Paranoid Style in American Politics," Richard Hofstadter cited the 1964 Senate testimony of a witness who had driven all the way from Bagdad, Arizona to denounce the regulation of interstate shipment of firearms as "a further attempt by a subversive power to make us part of one world socialistic government." According to the witness, Dr. William Gorder, the proposed Dodd bill would "create chaos which can only aid our enemies." Dr. Gorder further expounded on the theme of a sacred bond between gun ownership and freedom:
Article II of the Constitution was based on the unalienable or natural right of man to life, liberty, and the pursuit of happiness. Without the means of defending his property a citizen's life and liberty will be gone. No man can take this right of the citizen away because it is his duty to defend himself and has been so since time immemorial.
Two other witnesses from Bagdad made similar claims about the imminent threat of a Communist takeover and the connection between gun ownership and freedom. Thurman Gibson explained that "the gun is the standard of freedom in the United States of America." Burr D. Marley -- a maintenance superintendent at the Bagdad Copper Corporation -- was more explicit about what "freedom" and "liberty" meant to him:
I think most Americans today feel they were born into this Nation, into this world, in this United States, free, and we feel that the world owes us nothing as an individual. 
What we get out of this life is what we are able to get for ourselves, through our individual initiative, our hard work, and this is the way we get to the top. And this represents freedom.  
Now, to me, freedom does not come without some effort. It is a price I must pay. Now, I think in all of the gun legislation discussion this morning, we realize that there is a problem when we own guns. Somebody is going to get shot. 
Well, this is part of the price of freedom that we are going to have to pay in order to have freedom. And I, as an individual, am willing to take this chance along with some other things.
Burr Marley's credo of independence, initiative, hard work, sacrifice and success may seem trite and innocuous alongside his "paranoia" about a Communist takeover but actually it provides the key to deciphering the enigma of the resilience and persistence of such "paranoid" politics, which were once regarded as fringe.

"What is so seductive about conspiracy thinking?"

Wednesday, January 9, 2019

How Shocking Was Shock Therapy?

In 2007 Naomi Klein got quite a bit of attention and mostly favorable comment for her  book, Shock Doctrine.  It promulgated that global elites used periods of crisis around the world to force damaging neoliberal policies derived from the Chicago School and Washington Consensus upon unhappy populations that suffered greatly as a result.  This was "shock therapy" that was more like destructive electroshock than any sort of therapy.  There is a lot of truth to this argument, and it highlighted underlying ideological arguments and outcomes.

The argument largely seems to hold for the original poster boy example in Chile with the Pinochet coup against the socialist Allende regime.  A military coup replaced a democratically government.  Whiole Chlle was experiencing a serious inflation, it was  not in a full-blown economic collapse.  The coup was supported by US leaders Nixon and Kissinger, who saw themselves preventing the emergence of pro-Soviet regime resembling Castro's Cuba.  Thousands were killed, and a sweeping set of laisssez faire policies were imposed with the active participation of "Chicago Boys" associated with Milton Friedman.  In fact, aside from bringing down inflation these rreforms did not initially improve economic performance, even as foreign capital flowed in, especially into the copper industry, although the core of that industry remained nationalized.  After several years the Chicago Boys were sent away and more moderate policies, including a reimposition of controls on foreign capital flows, the economy did grow quite rapidly.  But this left a deeply unequal income distribution in place, which would largely remain the case even after Pinochet was removed from power and parliamentary democracy returned.

This scenario was argued to happen in many other narions, especially those in the former Sovit bloc as the soviet Union disintegrated and its successor states and the former members of the Soviet bloc in the CMEA and Warsaw Pact also moved to some sort of market capitalism imposed from outside with policies funded by the IMF and following the Washington Consensus.  Although he has since  expressed regret for this role in this, a key player linking what was done in several Latin American nations and what went down after 1989 in Eastern and Central Europe was Jeffrey Sachs.  Klein's discussion especially of what went down in Russia also looks pretty sound by and large, wtthout dragging through the details, although in these cases the political shift was from dictatorships run by Communist parties dominated out of Moscow to at least somewhat more democratic governments, although not in all of the former Soviet republics such as in Central Asia and with many of these later backsliding towards more authoritarian governments later.  In Russia and in many oothers large numbers of people were thrown into poverty from which they have not recovered.  Klein has also extended this argument to other nations, including South Africa after the end of apartheid.

Having said all that it must also be recognized that in some parts of the book Klein overstated her argument even to the point of including outright false informaation.  The casse that really sticks out in thie regard is Poland, arguably especially important as it was the place where the term "shock therapy" was first used.  As it turns out, many observers have an inaccurate perception of what happened there, with Klein's account not helping.  It is understandable that many might be misled given that it was the Polish finance minister during the worst of the crisis and shock in 1990-91 when economic output fell sharply and unemployment rose, Leszek Balcerowciz, who coiined the term and said that it was being applied in Poland.  But this turns out to be an exaggeration, with much of what he wanted with the support of Jeffrey Sachs and the IMF at the time not happening due to an election in 1993 that threw out the shockers and mitigated the policies substantially.  The upshot ultimately was that Poland ended up performing better than any other of the former socialist transition economies of the former Soviet bloc, becoming in fact one of the best economic performers in the entire continent of Europe, the only nation there not to go into recession in 2009 and now further ahead than any of the others economically.  While inequality and unemployment are somewhat higher than in 1989, they are not dramatically so while many other economic variables are strongly better.   The unemployment rate in August 2018 was 3.4%, higher than the less than 1% of 1989 but lower than in the US or most other European nations.  The Gini coefficient is now somewhere in the .32 to .34 range, higher than ..25-.28 of 1989, higher than in Sweden or the Czech Republic but about the same as in Germany and much lower than in Russia, the US, or China.

The vast majority of the population is unequivocally better off economically now than in 1989.  Comparing 2013 to 1989 as a ratio, real per capita GDP in Poland was 2.98, higher than any Soviet bloc transistion econoomy aside from Turkmenistan (whose data is unreliable), wih Russia at 1.44, the Czech Republic at 1.68, Hungary at 2.17, and Moldova at 0.82, now Europe's poorest economy falling below Albania at 2.55.  Poland suffered an inflation rate of 6905 in 1989 but this is was brought down fairly rapidly and is now barely above zero.  It had the least level of graft of any of these economises as of 2013, There has been major environmental cleanup, especially in its southwestern corner, formerly part of the "dirty triangle," one of the most polluted locations ever on this planet.  The rato of measured happiness between 2013 and 1989 is 1.44, higher than in any of the other transition nations.

A particularly controvrsial issue is that of the poverty rate in Poland, for which there are competing meassures.  Depending on the measure, the poverty rate in the 1980s was probably in the 5-10% range.  In 2012, 6.7% of the population was below a living wage level, while alternative measuures had it at around 11% or even as high as 16%.  The poverty rate certainly rose sharply as did income inequality in the crisis years of 1990-91, but then fell and rose again before falling aftrwards.  A low point after the transition was 2003, the year before Poland entered the EU and began receiving substantial agricultural subsidies that helped the poor largely rural southeastern region long marked by small unproductive farms (Poand had mostly private fram ownership throughout the communist period), with by one measure thr poverty rate possibly getting as high as 24%..  This is a point where Naomi Klein's analysis basically went completely off the rails.  Her story on Poland basically stops with 2003, which can be understood given her book came out in 2007.  But she claims a poverty rate in 2003 of 59% (pp. 241-242), and declares strongly that the economic quality of life in Poland had completely collapsed.  This is simply false, a wild exaggeraton,

So, how did Poland end up doing so well, actually one of the best performing economies in Europe over the last quarter century?  Crucial is that in fact it did not follow through on important parts of its supposed shock therapy, although most people (including Naomi Klein) do not seem to know this.  Very important was that it did not undo its generous social safety net, especially its generous pension system.  This was a central issue in the 1993 election, with both Blacerowicz and Sachs unhappy about this outcome.  I remember well the 1994 ASSA convention at which Sachs gave a major speech in which he basically whined about this election outcome and essentially accused the Polish people of being a bunch of spoiled brats for wanting to hang onto their suppposedly overly generous pension system.  I note that he has since changed his tune and now recognizes the stabiliing and humane nature of maintaining a decent social safety net in these economies. 

The other area where Poland did not follow through on its shock policies involved privatization, which was supposed to be rapid and complete.  It was not and has never been completed.  Indeed, today Poland has the highest rate of state owneed production in its economy at around 30% of GDP of any OECD economy, another little known fact.  Privatization was resited, especially because of fear of German companies taking over Polish firms, and what privarization that happened tended to be gradual, with a laege part of the private sector consisting of brand new firms owned by Poles, arguably the most dynamic part of the economy.In this areas, Poland actually resembles China substantially, a comparison made by a number of careful observers.  The current populist government of the Law and Justice Party has if anything tighteened restrictions on foreign ownership of banks and land, if not having engaged in any outright renationalizations as we have seen in Russia and Hungary.

Given that much of the shock therapy program did not happen or did not do so shockingly, where was there shock therapy.  This did indeed happen with respect to macro policy, driven by the problem of getting the incipient hyperinflation that had developed by 1989 in largely market socialist Poland under control.  This did involve sharp pain with falling output and rising unemployment and poverty in 1990-91, but Poland was the first of the Soviet bloc tranition economies to turn arond, with most still having declining output in 1994 and quite a few until well after that.  The pain in Poland was sharp, but it was short, and the onger run state has outperformed the others and put Poland far above where it was in 1989.

The politics of all this has been quite complicated and involved some important and curious twists and turns.  From 1989 on there has been a broad "left-right" split with probably the most important constant in this being attitudes towards the Roman Catholic Church in famously devout Poland, with being pro-Church being on the right, with people coming out of the old Commuinst Party veing on the left.  But the positions on economic policy regssrding these groups have changed over time.  in the 1989-93 period, the supporters of the shock therapy were on the right, although including the workers of the Solidarity movement.  However, by now the rightist  Law and Justice Party that is in power and attacks its rivals for being leftover communists and also strongly opposed Russia (in contrad to the populist rightist regime of Orban in Hungary who is friends with Putin), has in it populism become more the defender of both the social safety net and and supporting the state-owned enterprises compared to the supposedly crypto-communist left, now out of power.

Needless to say, there is much discussion about how it is that Poland has been by so many measures so economically successful, yet since 2015 has cmoe to be ruled by a reactionary populist party that has beeen restricting media and judicial independence, although it may be that it is going to hold back on some of this compared to Russia, Hungary, and Turkey.  I think two things are important.  One is that although Poland avoided going into recession in 2009 (largely due to staying out of the euro and also being strongly linked into the supply chains of neighboring Germany), its growth rate has slowed in more recent years while remaining positive, something happening throughout all of Eastern Europe, which has stopped catching up to Western Europe. And the second is that the frame of reference has changed.  Whereas Poland has done well compared to its formerly socialist neighbors, the population now ccompares rhemselves to those in Western Europe, especially nighboring Germany, whom they are clearly well behind.  Maany young Poles have left for the West, with a cliche in the Brexit debates in UK being about the supposed problem of "the Polish plumber" coming in to take away British jobs.  The Poles may be much happier than they were 30 years ago, but the bloom is off the rose as the transition has been long over.  Where they will end up is uncleat.

A final irony is that for all his advocacy in 1989-93 (and later as Director of the Polish central bank) for the hardline version of shock therapy that many think happened in Poland, Balcerowicz himself at one point advocated something pretty much like what came to pass, a gradual privatization and maintaining most of the sociaal safety net while advocating shock monetary policies to bring inflation under control.  This was before the transition started and Communist Party was still in control. Indeed, I met him in this period and heard him advocate pretty mch this approach, which he also advocated in print.  It was 1988 and I was teaching summer school at the University of Wsconsin-Madison when he  showed up in town as part of a general wandering around the US tlaking to people and giving talks.  We had some beers on the famous Union Terrace there by beautiful Lake Mendota.  I confess thinking him a naive dreamer with all his plans for Poland that at the time seemed so unlikely and utopian.  But that was one of those lessons for me: one should never discount a wandering prophet wihout position.  He can end up running the show and making at least some of his dreams become reality.

Barkley Rosser




.


Monday, January 7, 2019

Teddy Bears' Picnic

Donald Winnicott develops the concept of transitional objects in a fairly short, remarkably lucid, engaging and, in my view, extremely important paper titled "Transitional Objects and Transitional Phenomena." There is no reason not to read it and thus there is no reason for me to go into a pedantic rehash of Winnicott's argument.

In a nutshell, Winnicott is dealing specifically with the objects -- such as a soft toy or a piece of blanket -- that infants adopt as a substitute for the illusion that the maternal care they receive is something they have created themselves. Although, in health, the original object will be abandoned as the child matures, the potential space occupied by the transitional object is perpetually refilled in the manipulation of toys in imaginative play and eventually in the cultural creativity of adults. A little reflection will reveal that we live surrounded by our transitional objects -- things that we have significant relationships with.

Illusion -- and disillusionment -- plays a central role in Winnicott's analysis. For Winnicott, illusion isn't mere error but is the cornerstone of creative engagement with the external world. The dark side of illusion, though, is that illusions can also serve as defense mechanisms to repress anxieties rather than face the threats that generate those anxieties. Illusions are thus both paradoxical and ambiguous.

"The Growth Illusion: How Economic Growth Enriched the Few, Impoverished the Many and Endangered the Planet" is the title of a 1992  book by Richard Douthwaite. The "illusion" in the title doesn't allude to Winnicott's analysis of the transitional object but maybe it should.

One of the distinguishing features of economic growth is that it never means what critics think it means. Critics of growth invariably misunderstand growth. This is inevitable because economic growth always means something other than what it has been defined to mean. Critics of economic growth "mistake an output variable for an instrument," they don't realize that "economic measurements incorporate quality... and not just quantity" etc., etc.

Actually the misconception of economic growth by its critics is more fundamental than that. Critics do not understand that economic growth always means something else. It always refers to something that is undefined and ultimately undefinable. Economic growth is an illusion in the Winnicottian sense. More concretely, it is an illusion that substitutes for an illusion that substitutes for an illusion (and so on ad infinitum). It's teddy bears all the way down!

Admittedly this game can be played both ways. "Degrowth doesn't mean what you think it means," said every advocate of degrowth ever. But who is listening? The "growth cult" -- hat tip to Maurice Stans, Director of the Bureau of the Budget, 1959 -- has the upper hand.

In a fascinating article, Manuel Rivera investigated the extent to which critiques of, and alternatives to growth fail to translate from academic and popular topicality to parliamentary political discourse.
Our first finding is as trivial as it is striking. While the committee of enquiry [on ‘Growth, Well-being, and Quality of Life’], despite its enormous tensions and ultimate inability to produce substantial consensus, had agreed on economic growth never being an end itself, but only a means toward other political ends, the analyzed documents state the opposite: Out of 1095 phrases that establish a growth related purpose or hierarchical purpose-agency ratio, 92% do so by evoking growth as an end in itself.
In other words, pay no attention what we say 92% of the time, "it's only a means to an end and not an end in itself." The historical perspective that Rivera brings to the analysis, especially from Matthias Schmelzer's historical analysis of the growth paradigm, suggests an unspoken and unmentionable 'political unconscious' to that dogma of growth as an end in itself. At the historical moment when the growth paradigm became hegemonic, economic growth was promoted particularly as a bulwark against political pressure for income redistribution:
What was banished was of course not redistribution per se (which continued to operate) but the unresisted debate about redistribution, which would lead to social unrest. The formula was (and is): The more economic growth is possible, the less redistribution is needed.
It is tempting to conclude, as Rivera does, that a way to re-activate a democratic discourse about growth, its discontents and its alternatives, would be to focus on redistribution. I'm not sure it is that simple. The debate about redistribution was displaced half a century ago by the "transitional object" of growth. The world we inhabit now is quite different politically, socially and environmentally. I would nominate reparation, rather than redistribution, as what the world needs now.

No, I don't know exactly what "reparation" means in the context of global climate change. But at least I know what it doesn't mean, which is more than conventional economists can say about their desiccated concept of economic growth.

Sunday, January 6, 2019

Can We Minimize Econogenic Outcomes?

I am back from the annual ASSA/AEA meetings in Atlanta.  I learned a new term that on checking I find has been around for about five years. It is "econogenic," coined by George DeMartino, who spoke on this in a session on "Ethics and Economics" held by the Association for Social Economics. It means "harm done by economists," and it is inspired by "iatrogenic," referring to harm done by physicians.  His talk focused on this and claims that the medical profession  is 50 years ahead of the economics profession on dealing with harm they do.  For physicians he praised the patients' rights movement that took off in the 1960s and has gained substantial legal support, with patients now having say on how they are treated by physicians rather than living in a world where the physician was always right.

DeMartino noted policies supported by many economists that can be defended on the grounds that they supposedly lead to gains that outweigh losses with Hicks compensation potentially able to make things right and pay off those who might be hurt.  Lots of economists have supported such policy changes when convinced that such calculations are correct.  The problem is that most of the time, indeed, the vast majority of the time, those compensating payments are not made.  And to make things worse, while those gains may exceed those losses, they often are widely spread across many people, while the costs are intensely concentrated very painfully on a smaller group of people.

His main example is increasing free trade.  Most estimates show gains outweighing losses, but those gains are widely and thinly distributed as lower prices while costs are heavilly borne by much smaller groups of people who end up losing their jobs.  While there have been some half-baked efforts in the US to provide some adjustment assistance, it has always amounted to little.  Other nations have done this far more vigorously, with those Nordics Sweden and Denmark outstanding examples.  Of course it is easier for them as much smaller and more homogeneous economies than that of the US, where growing export industries are often located far away from areas losing jobs due to imports.  These issues are not easily dealt with, but there have been amazingly few efforts to do so in the US.

Another example is "shock therapy" policies in transition and other economies.  Again, after a painful period of adjustment, most of those transition economies have ended up having higher real incomes with more democratic regimes than they had previously.  But despite these improvements in most of these nations there have remained groups of people, usually rural, older, and less well educated, who have remained worse off than they were before, although by how much has varied greatly across these nations.

Anyway, I urge more use of this term and more importantly more efforts by economists to make much more serious efforts to urge that when major policy changes happen that seriously damage identifiable groups of people that genuine efforts be made to make those compensations that can be covered by the gains from the new policies.

Barkley Rosser