Tuesday, January 29, 2019

Robert H. Nelson Dies: Religion And Economics

Robert H. Nelson of the University of Maryland Public Policy Department died at age 74 on Dec. 15 while attending a conference in Helsinki, Finland.  He was the leading economist writing about the relationship between religion and economics, notably in three books: Reaching for Heaven on Earth: The Theological Meaning of Economics (1991), Economics as Religion: From Samuelson to Chicago and Beyond (2001), and The New Holy Wars: Economic Religion vs. Enviornmental Religion  (2010).  I spent several days with him some years ago at a conference on forestry issues where he was presenting his views on environmentalism as religion.  In any case, his death has me thinking about the broader issues he wrote about.  I shall note the arguments in these books along with some further observations.

His first book was essentially a history of economic thought that put a certain theological perspectve on thnkers mostly from the fairly distant past. A basic theme in all of his books is that economics is a form of secular religion that posits a material salvation in some distant future as a result of economic  growth and redistribution, a material heaven on earth.  In that book he posed two competing theological strands in the history of economic thought: a Roman (Catholic) "rationalism" and a Protestant "revelationism."  The former started with Aristotle and included such figures as Aquinas, Adam Smith, Saint-Simon, and Keynes.  The latter started with Plato and Augustine, Calvin, Darwin, Spencer, and Marx.  A number of observers criticized this pair of categories, noting particularly that virtually the only economist in the second list is Marx (although Spencer did write on economics somewhat).  I happen to share the criticisms that it is not clear how useful or meaningful this pair of lists is, although the tradition of lining up historiccal intellectual figures as being Aristotelian or Platonic has a long history in philosophy.

But this does make me think about the especially strong theological/religious element in Marxism, with people "believing" in the philosophy and even specific Marxist economics doctrines such as the labor theory of value.  There has been a long history of people "converting" to Marxism and then sometimes "converting" away from it, sometimes becoming religiously anti-Marxists in their disillusionment to a fanatical degree.  As an old recognition of this I note a comparison made by Bertrand Russell, someone who considered himself to be a reasonable Aristotelian against troublesome Platonic idealists (recognizing that Marx claimed to be a materialist, not an idealist).

Yahweh (God) = Dialectical Materialism
Messiah = Karl Marx
The Second Coming = The Revolution
The Saved = The Proletariat
The Church = The Communist Party
Damnation to Hell = Expropriation of the Capitalists
The Millennium = The Socialist Commonwealth

The second book got more attention than the first and in some sense made a more obvious point: that current schools of thought can be viewed as sects whose differences ultimately boil down to matters of belief.  The subtitle of "From Samuelson to Chicago and Beyond" indicates the sorts of schools of thought Nelson was thinking of.  My sense is that the Old Keynesian versus Classical Monetarist split was probably less theological/religious than some other splits among economic schools of thought, such as indeeed Marxists and their polar opposites the Austrians.  Nevertheless, many people arguing over the Keynesian versus Old (and newer) Monetarists sometimes seem to fall into the terminology of "belief," often buried in the matter of assuming axioms that cannot be questioned.  So, looking at the New Classical school one finds Sargent at one point declaring rational expectations to be an axiom that cannot be questioned and must be used in any serious economic analysis.  One must "believe in rational expectations," even if one knows that it is factually inaccurate (and Sargent would later grant indeed that ratex is indeed false).  Of course with Samuelson it is not just his Keynesian macro but also his defense of standard neoclassical microeconomics, with this having also a theological/religious aspect to it.

I would add a sociological element to this general Nelson argument that many economics debates between schools of thought often seem to take on a theological or religious aspect, even if most participants usually at least put on a show of respecting facts and logical rigor and so on.  It is an old observation made esepcially by some observers of British economics that especially in the late nineteenth and early twentieth centuries there was a tendency for people who became professional economists to come from families that included actual ministers of the Anglican Church (or other denominations), with this coinciding with a decline of that church and its influence.  To some extent this is conisstent with the origin of economics in Britain in moral philosophy, which is what Adam Smith was a professor of, and with the very first Professor of Political Economy in Britain being Thomas Robert Malthus, who was in fact actually also an ordained Anglican priest.  More generally many economists, although certainly not all, seem to be at least partly driven by motives "to do good," a sentiment easily coming from people who may be secular on the surface but come from family bsckgrounds of religious practitioners (I confess this might apply to me, with both my quite religious mother's grandfathers having been Proetestant ministers).

The third of these books may deal with a more serious and controversial issue, the matter of "economic religion" (more or less as described above) against an erstwhile "environmental religion," with many anti-environmentalist Christian ministers denouncing environmentalism for being a competing anti-Christian religion drawing on paganism and other alternative religious impulses.  For Nelson, both of these are "secular religions," but he recognizes that the environmentalist movement (in contrast to some extent to environmental scientists) has a spiritual side that can be quite fervent and draws on various religious traditions, although it must be noted that increasingly current Christians of at least some denominations are emphasizing environmental themes.  But some opposed to these recent views emphasie how the monotheist Judeo-Christin-Muslim tradition has emphasized humanity dominating nature with a "be fruitful and multiply" view.  Such a view then merges with the materialist economic "Heaven on Earth" to be delivered by economic growth.  In the non-Christian environmentalist "religion" one finds both the Earth Mother worship of neo-paganism but also the Buddhist Economics strand one finds in Schumacher's Small is Beautiful book that de-emphazies economic growth and sees nirvana as being in a low consumption economy that is associated with a condition of envitonmental harmony that is nirvana on earth.

Barkley Rosser

The Two Percent Solution: Warren and the Stochastic Jubilee

Wait long enough, and great ideas come back around, although not necessarily wearing the same garb.  Elizabeth Warren has just come out for a 2% wealth tax (above $50 million).*  But this is simply an annualized version of my lump sum stochastic jubilee.  What’s the advantage of redistributing the whole thing every 50 years (on average) vs a steady trickle?  A periodic reset would interrupt long run processes of wealth inequality more fully than a tax, so long as the rate of return on financial assets is high enough to compensate for the extra annual pinch, which it most likely would be, since wealth holders would demand a higher rate of return.  It would also be a lot more fun.  On the other hand, it would be more complicated to administer and might be resisted by force.

On balance, I’d go for the jubilee, but I’ll take Warren’s version as a close second.

*There’s also an extra 1% on wealth in excess of $1 billion, but this is largely symbolic.

Saturday, January 26, 2019

The Testament Of Omar Bin Said

In Washington Post, 1/25/19 metro section there is a story recounting that the Library of Congress of the US has acquired the only diary of an American slave written in Arabic by Omar bin Said  in 1831, originally from Senagal.  The completion of this world historical accesson will now be able to proceed now that the ridiculous US federal governmint shhutdown so stupidly ordered by Preisident Trump has come to an end for now

Omar bin Said was a deeply serious Islamic scholar up until his capture at age 37 in 1807, to be sent across the "Big Sea" into slavery in Charleston, SC, USA. He escaped from his initial captor only later to end up as the slave of the politically powerful Owen family of North Carolina, whom he remained owned by until his death at age 94 in 1864 in the midst of the US Civil War, just before the  freeing of all American slaves.

Omar's manuscript in Arabic opens with Surah 67 from the Qur'an, which affrims that the ultimate ruler and owner of all things in the universe is Allah. Michael A. Ruaae of WaPo reports that he said regarding his arrival in the USA, "And in a Christian language, they sold me. A weak small, evil man called Johnson, an infidel who did not fear Allah at all. bought  me."

Omar's later owners, who lived as he did fot thst later  portion of his life on the Cape Fear River in North Carolina, treated him well, and he was in fact treated with great respect, with most people there realizing that he was a deeply wise and scholarly man, with his later owners granting him many privileges and much respect. with him likewise praising them for their kind conduct towards him.  But he died their slave.

Barkley Rosser

Friday, January 25, 2019

BREAKING: Jimmy 'The Brute' DiNatale's daughter "used to put clothes on layaway"

The story starts in early 1985 when one Arthur Hall, a special agent of the F.B.I., was arrested following a four-month joint investigation by the New Jersey State Police and the F.B.I. into Hall's suspected involvement in an extensive motor-vehicle theft operation in the Atlantic City area. At that time Siligato was asserted to be a confidential informer of both the F.B.I. and the State Police. 
According to Sheeran's affidavit in support of the warrant, Hall, while being interrogated after his arrest by State Police Detective Sergeant Grusemeyer, told Grusemeyer that Siligato had been involved with him, Hall, in the criminal activities under investigation and that Siligato had "once told him (Hall) that he (Siligato) had beaten up a Puerto Rican individual who later died from the said beating and that Jimmy DiNatale, Sr. helped him (Siligato) get away with the crime." Although Hall told Grusemeyer that the murder had taken place in Atlantic County, he, Hall, "was not sure about the time period of the offense." The affidavit goes on to recite that thereafter Lieutenant Kaufman of the State Police interrogated Hall further on that subject. Hall told Kaufman that Siligato operated two businesses on two separate properties in Hammonton, the Silly Gator Bar and the Elm Deli. Hall also recalled that his conversation with Siligato respecting the murder took place in the summer or fall of 1982 and that Siligato had then told him that the victim had owed him money. Hall further told Kaufman that Siligato had a quick and violent temper and that he, Hall, had helped Siligato construct forms for pouring concrete for steps and front and rear pads at the Elm Deli "two or three years ago." Hall was not, however, present when the concrete was poured. Sheeran's affidavit further explained that the Jimmy DiNatale referred to by Hall, who had died in 1983, was "a significant criminal associate of the Bruno Crime Family."
"I was raised by a single mom who used to put clothes on layaway. I wasn't raised in privilege." -- Kellyanne Conway

From Philly Voice News:
DiNatale bought cigarettes for his vending company, Logan, from Bruno, and later from Raymond "Long John" Martorano, who worked under Bruno in the mob. 
After Bruno was killed in March 1980, Martorano came to directly sell smokes to DiNatale and then Siligato. 
Siligato eventually bought the Logan vending company from DiNatale, he said. 
There were always closer cigarette distributors, but they “liked doing business” with Bruno because it gave them “advantages.” 
“People do business with you because they know who he (Bruno) was and what he did,” Siligato said. 
Providing vending machines – smokes, jukes, pinball and later video games – to bars was “a way to maneuver into the bar business.”  
DiNatale would loan money to a bar owner, explained Siligato. In return he would place his vending machines in a bar. Then he would visit the bars “to make collections.”

Wednesday, January 23, 2019

The Nobel Economists Petitiion on Carbon Tax And Dividend Plan

As many now know, a large group of prominent economists, led by a large group of Nobel Prize winners, has published a petition in the Wall Street Journal.  This petition declares the idea of putting a tax on carbon and then returning the receipts from it to the population on an even per capita basis to be the best and most efficient plan for dealing with global warming.  This group continues to encourage more professional economists to sign this petition.  I had previously received an invitation from Janet Yellen to do so, and today one came from Larry Summers.  I kind of doubt that either specifically directed that I receive the invitation or, less likely, actually sent the message, although I could be wrong as I do know both of them.  This petition shows how powerful this revenue neutral carbon tax fad has become.

As it is, I have not signed it, and my use of the word "fad" indicates my attitude.  I really do not get why so many proiment and clearly highly intelligent economists have signed onto this proposal as being the one and only way to deal with this problem.  Why are these people not mentioning cap and trade as an alternative (formerly known as "tradeable emissions permits").  There are multiple reasons to believe that cap and trade is at least as good if not better than this tax dividend proposal, both in terms of effectiveness and also in terms of the politics of getting something done.

The most famous cap and trade plan was that enacted in the US in 1990 for SO2 emissions.  This plan eventually got superceded, but until that point it was universally viewed as a successful program, substantially reducing such emissions in a manner that did not trigger noticeable economic pain.  There are now a substnatial number of carbon cap and trade systems in place, with the first one out the door being that of the EU, put in place to obey the Kyoto Protocol, which actually favored such systems.  That system has faced criticism and had a major decline in its price in 2006, but has since stabilized, a fact not widely reported. Very recently the system has been put in place by the world's largest emitter, China.  Other nations or major sub-national units adopting cap and trade for carbon include South Korea, California, and Ontario,  The closest we came ot having a national program to deal wiith carbone emissions in the US was early in Obama's first term when he  got a cap and trade plan passed by the House of Representatives, only to have it blocked by Republicans in the Senate.

I note that that the Paris Climate Accords do not favor ither taxes or cap and trade.  Nations are free to use whatever policy they want to meet targets, either one of those or just plain old commands or anything else.  The adoption of those Accords led some advocate of taxes to get all bent out of shape that they did not insist on only taxes as the proper policy, with perhaps the most ridiculous complaint coming from climatologist James Hansen, who denounced cap and trad as being a "capitalist" system, even though taxes also use markets to achieve their results.

In any case, theory says that there is no obvious reason to favor one over the other.  In princople the efficient solution is to set equal marginal social costs and marginal social benefits of pollution removal.  One does this by approaching this from the price side and the other side from the quantity side.  An old paper by Martin Weitzman says one should use one or the other based on whether there is more uncertainty about costs or quantities.  As it is, I would say that the uncertainties are greater on the quantiy than the cost side, which argues for a preference for a quantity approach.  That would be cap and trsde.  Another approach is to use both in what have been called "Lerner markets," following on the Greenwald-Stigliz thorem.  Curiously Stiglitz is one of those Nobelists who has so far not signed this petition, although in the past he has supported using taxes.

Certainly taxes can achieve favorable results in pollutions policy, although the most dramatic cases known have involved somewhat smaller problems.  META in Eruope lists the following as the most successful taxation approaches to environmental problems: a 2002 plastic bag tax in Ireland, a 1994 Finland tax on beverage bottles, a 1996 UK landfill tax, a 2007 fishing licesnse in Iceland, and a 1992 NOx tax in Sweden.  The latter has led to a reduction of 30-40% of such pollution in Sweden, which iis certainly successful, alrhough a bit less than the SO2 reductions in the US from the cap and trade program.

Nations adopting carbon taxes, most of these so recently we have not yet seen results, include Chile, Portugal, UK, Ireland, Australia, Sweden, Finland, New Zealand, and France.  As it is, the latter has brought out the potential political problems with this approach, the outbreak of jilets jaunes ("yellow vests") protests against the tax in France, although those protests, still ongoing, have morphed into something much broader against President Macron.

So this uprising in France should have given some pause to all these eminent petition signers, but especially given how many of them are Americans it is more surprising that they do not seem to have taken into account this politicsal reality: raising taxes is especially hard to do in the US, especially given the overwheming opposition of thr Republican Party to raising taxes, and especially for something that they do not approve of.  Now in France it is true that there was not dividend or other payyout to citizens from the tax.  But even in Wasington State, dominated by Democrats and posted on here previously by Peter Dorman, referenda on a carbon tax with payout have failed, with part of the problem arising from disagreements over the form of the payout.

I really do not get it.  Do not alll these eminent economists, especiaally the American ones, not realize this hard reality, that it is essentially barking up a hopeless tree to call for a carbon tax in the US, even one with some system of returning the receipts to the population in some form or other.  Why are they simply ignoring cap and trade, despite its clear successes including here inthe US?  Is it beause of the defeat in Congress of Obama's plan?  Heck, it got pretty far along, a lot farther along than any tax proposal is likely to get.  Really, these people should have supported cap and trade as an alternative, although perhaps they think that would be distracting.  Maybe, but their position has them simply making nonsense statements, namely that this tax and dividend plan is clearly the best way to go.  That is very far from being the truth, especially given the old and well-known arguments of Weitzman from his famous "Prices and Quantities" paper.

(I must note that I may be biaed in favor of cap and trade as I was partly involved in setting up the very first cap and trade program by a government anywhere in the world, an effort led by prominent environmental economist, Tom Tietenberg, this being by the Wisconins Department of Natural Resources for BOD emissions into the Fox River in the mid-1970s, a program still in place and viewed as a success.)

Barkley Rosser

Tuesday, January 22, 2019

Fighting Outrage with Outrage

Having watched ALL the videos, my humble opinion is "a plague on all your houses." Not so much the hapless participants at the Lincoln Memorial as the viral legions of "outraged" spectators who turned a circus of misperception into a carnival of righteousness and condemnation.


Trust me when I say that OUTRAGE has a right-wing bias. There are several reasons for this. One is that the right is fueled by outrage. A second reason is that the Mostly Seagulls Media is easily manipulated by the right-wing outrage Wurlitzer, which is heavily subsidized. The third is that you can't beat something with nothing. Liberals seem to think that outrage is some kind of spontaneous expression of disapproval. WRONG! (see points one and two) It's one thing when a mob of MAGA-hatted brats are disrespectful to a Native American elder beating a drum. But it is something else entirely different when a restaurant owner politely refuses service to a lying press secretary. One is just kids-will-be-kids, the other is incivility.

Having heard that a public relations firm associated with Mitch McConnell wrote the exculpatory explanation for the poster-boy Covington kid, I begin to wonder if maybe that firm staged the whole incident as sort of a rhinestone Reichstag Fire. Because, you know, everything the right doesn't want you to pay attention to is a false-flag carried out by crisis actors.

Maybe if people were busy building the General Strike, they wouldn't have so much time for pointless spectacles of outrage.

Monday, January 21, 2019

Weirdly Non-Monotonic Yield Curves

This is a situation that may be on the verge of disappearing and more or less normalizing, but over the last couple of months US bond markets have exhibited a weird phenomenon of non-monotonicity.  It has been even weirder than what we saw during the period of negative nomial interest rates, when what we saw was interest rates on US treasury securities fell from the shortest time horizon to a low usually around the two-year  time horizon, with the pattern then revetting to its usal upward slope.  What has been going on recently has been a pattern of rates initially rising with the time horizon in the normal pattern, then turning aound and declining, then turning around yet again and rising again.  I do not know what to make of any of this.  I exhibit it in a table below for the three days, January 2, January 10, and January 18 of this year.

                    3 mo.     1 yr.     2 yr.     3 yr.     5 yr.    10 yr.     30 yr.

1/2/19         2.42       2.60     2.50      2.47    2.49      2.66       2.97
1/10/19       2.43        2.59     2.56      2.54    2.56      2.74       3.06

1/18/19        2.41       2.60     2.62      2.60    2.62      2.79       3.09

So at the beginning of the year the rates rose from 3 months to 1 year, with rates declining to 3 years, and then rising after that.  The same pattern was still holding on January 10.  On January 18 things were somewhat more normalized with the ind-range decline being a decline from the 2 year to 3 year range, but then reversing to rise in the normal way after that.

I note that we still have not yet seen an explanation of the pattern we saw (and still see in some nations) during periods of negative nominal rates of them declining to around the two year time horizon and then reversing.  One possible explanation may be that central banks have tended to keep the very shortest term rates ither non-negative or not as negative as market forces were pushing them so those rates declined as one moved out of the zone of more immediate central bank control, then to turn around and rise.

In this case it is curious that the rates have been rising to about that two year zone (or just shy of it) and then declinig, and then rising.  If my explanation of what went on in the negative rates perios is correct, well, I do not see any equivalent for this situation to explain it.  We are seeing more changes in directon of the rates, although these variations have not been great  The one thing I can see is that December is when this weird pattern appeared, and on January 3 Jay Powell spoke at the ASSA/AEA meetings shifting the Fed to a more dovish stance.  Has this change been partly in response to this weird yield curve shape and that now we are indeed seeing some normalization as the new policy gradually sinks in?  I do not know, and I doubt anybody else does either.

Barkley Rosser

Saturday, January 19, 2019

Not Accurate

BuzzFeed’s description of specific statements to the special counsel’s office, and characterization of documents and testimony obtained by this office, regarding Michael Cohen’s congressional testimony are not accurate. -- Office of the Special Counsel.
If this is the first story the special counsel has felt compelled to dispute, does that mean he had no objection to all the others that have come out before now? -- Peter Baker, New York Times.
These things cannot both be true:

  • The Mueller investigation is a witch hunt fomented by a Mueller-Comey-Strzok cabal of Trump haters.
  • The statement from the Office of the Special Counsel calling BuzzFeed's "description of specific statements to the special counsel's office" "not accurate" definitively refutes the two-year long fake news crusade against Trump by the media.
Parsing the special counsel's statement, it seems to refer to the "description of specific statements to the special counsel's office, and characterization of documents and testimony obtained by this office." Period. Note the repetition of the word "office." The evidence may or may not exist. The office of the special counsel may or may not be in possession of it. They do not confirm or deny that they are not confirming or denying. 

But "BuzzFeed's description" is "not accurate." Where does the crucial word "office" appear in the BuzzFeed description?
The special counsel’s office learned about Trump’s directive for Cohen to lie to Congress through interviews with multiple witnesses from the Trump Organization and internal company emails, text messages, and a cache of other documents.
"The special counsel's office learned..." It is not accurate to say that the office learned (through interviews, etc.). This "inaccuracy" could mean simply that the office of the special counsel has not yet determined that Trump directed Cohen to lie.  

Whatever Happened To Iran?

Who? What? Where?

Long a headliner in the news, Iran has disappeared from the headlnes, and even the inside pages.  It has largely disappeared from the news, after being the big headline for a long time.  This is probably good for Iran, despite its many problems.

I have made a big effort to find out its current economic status. The little data out there seems to suggest that not much is happening. GDP had been falling in the aftermath of the US withdrawal from the JCPOA nuclear  agreement, which Iran had and continues to adhere to, with the official support of the official signatories, even as private companies in many of them against their governments, have pulled back from dealing with Iran under US pressure.  But that is old news.

The US withdrawal from the JCPOA was provocative, and pushed many companies such as France's Total to withdraw from dealing with Iran, along with many others. This satisfied a campaign promise of Trump's, even as he has been lying on a 15 per day rate recently according to recent reports.

About the time of the US's withdrawal over a half year ago, there were many reports of having a collapsing economy.There were many reports of demonstrstions against the government in hardline Islamist regions over the troubled economy. Somehow these reports seem to have stopped, although I would not rule out that some may still be happening.  But the world is not hearing of them, and I do not think this is due to some increased level of Iranian suppression.

No, I think Iran has halted its economic decline, not that things are great. This post is partly triggered by talking to a good friend recently returned from Iran who reports that while things are expensive, most goods are available and the economy seems to be more or less stable.

Despite ths supposed intense push by the US to harm the Iranian economy, parts  of thst certaainly in place, without publicity US policy has recently gone the other way, not so vigorously harming the Iranian economy.  For starters we have that the US gave "temporary" exemptions from the renewed US  sanctions agaainst nations importing Iranian oil for 8 major such importers.  The upshot  is not all that much of a reduction of such exports from Iran, an obviously crucial factor.

Then we have more recent subtle pro-Iranian decisons, most importantly Trump's annoucement of US removing troops  from Syria. This helps Iran, even if the removal is slowed down as seems likely.  We also have  SecState Pompeo pressuring the Saudis to end their  boycott against  Qatar, which has retained both political and economic relations with Iran, not to mention having just whupped Saudi Arabia in soccer 2-0.

So, we, or at least I, do not know what precisely is going on inside Iran, long a highly repressive regime, despite its facade ofs pseudo-democracy. They have been continuing to adhere to the JCPOA nuclear deal, even as recent reports have them possibly setting up increased uranium enrchment facilities and activities. While there have been many demos against the government over the troubled economy, it seems that these have slowed down, or at least reporting of them has.

The US does not  determine all that happens in Iran, but it seems that currently the US has an inconsiistent verging on incoherent policy regarding Iran.  But for Iran, this  turn from full hostility, combined with a possible upturn in world oil prices, may explain an unreported stablization in Iran.

Barkley Rosser

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