Monday, April 26, 2021

Robert Mundell And Supply Side Economics

 The death of Nobel Prize winner Robert A. Mundell at age 88 has brought forth much discussion about his work and legacy.  Most of this discussion, such as several columns by Paul Krugman, have commented favorably on the work for which he was officially given the prize, several papers he wrote in the late 1950s and early 1960s while he was at the IMF.  These papers, drawing on the experience of his native Canada at the time as a nation with a floating exchange rate and open to capital flows with the neighboring and domineering US at a time when most major economies had fixed exchange rates, laid the foundation for the now textbook Mundell-Fleming model of international open macroeconomics, A crucial insight now universally accepted was of the "impossible trinity" that a nation cannot simultaneously have a fixed exchange rate, and independent monetary policy, and open capital flows. This certainly drew on Canada's experience and explained why it went against the rest of the world to have floating exchange rates.

He also wrote presciently on optimal currency areas, also thinking about the curious dispersion of Canada'a population across contrasting geographical zones while mostly being very close to the US border. He emphsized the importance of free factor flows within an optimal currency area. His writings on this led him to be called "the father of the euro" and curiously he advocated a global currency based on a combination of the US dollar, euro, and Japanese yen.  He also called for the Chinese yuan/rmb to be included in the IMF SDR, which came to pass.  Various people have noted that he may have been overoptimistic about the euro simply based on his own analysis of what is involved in such areas.

However, the item in his history that most have said not much about, although he was reportedly proud of it up to the end, is his role as "guru" of supply side economics. This is a doctrine that is not viewed nearly as favorably by most economists as these other ideas, especially the Mundell-Fleming model.  Indeed, parts of it are viewed as ridiculous by most, notably the repeated forecasts by Arthur Laffer and some others every time we have seen a GOP president or governor cut taxes that this would lead to an increase in revenues so that "the tax cut will pay for itself." From the 1981 tax cut of Ronald Reagan through the 2017 Trump tax cut, none of these delivered this outcome, with several states such as Kansas and Oklahoma suffering severe crises given their balanced budget rules requiring them to cut spending in the face of declining revenues after tax cuts. And Laffer has long claimed that Mundell was his inspiration.

Now as near as I can tell Mundell never participated in any of these specific forecasts that did not pan out.  What he seems to have done is lay out the "possibility" that if tax rates are high enough cutting them will raise revenues.  And it seems that he was the one who first posed this idea to Laffer when they were together at the University of Chicago in the early 1970s.  This would make him the father of the Laffer Curve, and indeed when the curve first made a public appearance in a Spring 1975 The Public Interest by Jude Wanniski labeled the argument the "Mundell-Laffer hypothesis."

Former adviser of Jack Kemp and Ronald Reagan, now a non-Republican, Bruce Bartlett, has posted an account of Mundell's ideas on this and how they developed since Mundell died, . 

Bartlett, who recognizes that some of Mundell's optimism and enthusiasm about the ability of tax cuts to stimulate expansion of aggregate supply has not been supported by more recent events, does think that his arguments held for the initial 1981 Reaganomics, which Bartlett was part of supporting and implementing after working for Rep. Jack Kemp, who was also a fan of supply side economics, which had been heavily publicized by Jude Wanniski in columns in the Wall Street Journal after meeting Mundell at an anti-inflation conference in Washington in May, 1974 that had been organized by Laffer and former Milton Friedman acolyte, David Meiselman.  Mundell's main recommendation was to combine tight monetary policy to combat inflation with tax cuts to offset the contractionary effects of that by stimulating aggregate supply, apparently ignoring the demand-side effects of such tax cuts.  This would be what Reagan would do early in his term, although on the monetary policy side he was inheriting the tight monetary policy started under Carter by Paul Volcker.  But Bartlett praises all that and is proud of his involvement with it and credits Mundell as the man ultimately behind it.  Apparently Mundell first proposed this policy combination in "The Dollar and the Policy Mix: 1971" Princeton University International Finance Discussion Paper #85, May 1971, which never appeared in a journal.

Which brings us to the matter of Mundell and the Laffer Curve. Apparently he got the idea from reading a paper that he got published in the Journal of Political Economcy in 1971 just before he stopped editing that journal, "Ibn Khaldun: A Fourteenth Century Economist," Jean David C. Boulakia, JPE, 1971, 79, 1105-1118. Ibn Khaldun was a historian, geographer, and economist in whose main work, al Muqaddimah, appeared the following line that appeared in this English translation from the Arabic in the JPE paper:

"It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty taxation yields a small revenue from large assessments."

According to Bartlett Mundell made Laffer aware of this argument and then also Wanniski.  Supposedly Reagan read an article in the WSJ in 1978 that Wanniski had put in that quoted this item from Ibn Khaldun, and again according to Bartlett Reagan would quote Ibn Khaldun 10 times during his presidency.  Again, while Laffer went out on a limb, and had done so repeatedly since despite repeated failures of them to come to pass, to forecast that tax cut after tax cut would increase revenues, I am unaware of Mundell having made the mistake to do so as well.

I would note that we have seen some limited examples of tax cuts leading to revenue increases.  Most discussion of the Laffer Curve has implicitly involved average tax rates, and recent studies have suggested that among the major high income nations the average tax rate that would maximize tax revenues might be around 70 percent, we have seen marginal tax rates higher than that.  There has been evidence that revenues raised from top income individuals may have risen when those rates were lowered.

I also note the peculiar case of Russia in the 1990s and the beginning of of the 2000s.  The standard Laffer Curve argument has been that one gets zero revenues at 0 percent and 100 percent.  But in certain locations in Russia in the 90s there were effective marginal tax rates when one added local to higher level taxes exceeding 100 percent. But in fact there were positive revenues collected.  In the real world things are more complicated, and people end up paying bribes not to pay their full taxes, not to mention some people actually paying 100 percent or more on certain parts of their income while making that up in other ways.  As it was this was a period when much of the Russian economy went into a barter mode, especially after the 1997 financial crisis.  It was a supply side success, and one of the few wise things that Vladimir Putin has done, that not long after he came to power in 2000 he simplified the tax code and imposed a flat rate of 20 percent.  Indeed this led to an increase in tax revenues. 

Barkley Rosser

Wednesday, April 21, 2021

Bellwether Bullard versus Sirenic Summers

 So this is about the now getting to be passe topic of what will happen to inflation this year, with Larry Summers having gone out of his way to make a lot of noise in criticizing the expansionary fiscal policy partly passed but partly still under consideration in Congress as threatening a possible outbreak of 60s-70s style inflation at an entrenched much higher rate than we are seeing now.  He has put the probability of that at about a third, but considers this to be high enough to call for the Biden fiscal policy to be cut back in order to avoid that one third chance of a serious increase in the rate of entrenched inflation.

This forecast has not been accepted by the leading economic policymakers, notably Treasury Secretary Janet Yellen and Fed Chair Jerome Powell, as well as the various lesser lights at the CEA and elsewhere in the Biden administration.  Their official line is that it looks like we shall see an increase in the rate of inflation, and the latest monthly report does have it over 2 percent now, but with this likely to come back down later in the year or by early next year. This is seen to be due to much of the uptick aggravated by supply issues related to pandemic, especially in global shipping, although also with some specific sectors hitting bottlenecks, with all this crashing against rising demand with GDP growth projected at over 6 percent for the year.  But they see the supply issues becoming resolved with the fading of the pandemic and there not being mechanisms in place to entrench the higher rate of inflation, with those at the Fed even hoping that inflation expectations might end up "centered around the 2 percent target rate," which the Fed has not been able to get to on a sustained basis.

The originator of this argument is James (Jim) B. Bullard, President of the St. Louis Fed since 2008.  While he is not well known by the public, he has been since roughly 2011 viewed by people at Bloomberg and elsewhere as being "the bellwether" of views and policy at the Fed.  He was the first in late 2009 to call for using quantitative easing to maintain a solid expansionary course to avoid the US falling into deflation.  In 2016 he became the first major figure at the Fed to argue that they should think in terms of multiple equilibria possible paths, an idea coming out of nonlinear dynamical growth theory.  In February of last year he became the first at the Fed to call for aggressively expansionary monetary policy to deal with the upcoming economic collapse due to the pandemic. That had not happened yet, indeed the pandemic was just getting going, but in fact the Fed followed his advice and in retrospect it is clear he really called it at the crucial moment.  A slower or smaller reaction by the Fed could have led to a much deeper and longer economic downturn than we saw in the US.  So his forecast on this year's inflation path is taken very seriously, and I take it serously.  He has more credibility than does Summers with his siren call for cutting back fiscal expansion, with Bullard for staying the monetary policy course with an expansionary fiscal policy.

It was not at all obvious that he would be the person making some of these forecasts and arguments.  He arrived at the Research Division of the St. Louis Fed in 1990 after getting an econ PhD at Indiana University. At the time the St. Louis Fed had a well-deserved reputation as the hardest line classically monetarist of all the regional Fed banks. This was the stronghold of the most faithful of Milton Friedman acolytes in the entire Fed system, and initially Jim went along with it mostly.  Even now it remains a bastion of the most immediate successor of that view in the "new monetarist" school of thought led by people like David Andolfatto who is there. Jim worked his way up to become the Director of the Research Division and the VP in terms of policy prior to becoming president in 2008.

I confess that I have known him for over 20 years, first meeting him at a conference on nonlinear dynamics back in the late 90s.  He was publishing papers on chaotic dynamics in macroeconomies in the Journal of Economic Theory at the time, among other things, not the usual St. Louis Fed stuff.  I found him most interesting and open minded. He was still a rising grunt in the research shop then. He would become a coeditor of the Journal of Economic Dynamics and Control, where he is still on the board, a journal where models of multiple equilibria growth paths would get published regularly, so that when he pulled this stuff out in 2016 for serious policy consideration he was applying serious research onto policy. 

That is sort of funny because about ten years ago I heard him give a plenary talk at a computational economics conference in which he spent a lot of time talking about the conflict between the "front room" (policymakers) and the "back room" (researchers) at Fed and other central banks. Obviously as someone who had moved from one to the other (and several other regional Fed bank presidents have followed this path) he was certainly well positioned to observe this. I note this was not long after the financial crashes and the Great Recession and also when he first argued for using quantitative easing. He made some quite disparaging remarks about the unreality of some of the models being taken seriously in the back rooms, even as he clearly supported vigorous back room research.  

But in the end he seems to have been able to figure out what may be useful from those back room research activities as well as showing an ability to move on from old ideas no longer so useful such as the classical monetarism that dominated the place he now runs when he first got there. 

Barkley Rosser

Tuesday, April 20, 2021

Where's The Beef?

 Well, as we increasingly understand how environmentally damaging producing beef is, quite aside from lots of other issues, the proper issue should probably be, "nowhere."  But back in the early 1980s a fast food outlet, Wendy's (I originally said Arby's) ran an ad with this line that indicated that the beef was at their outlet while their competitors just did not have the real beef, what all potential customers really wanted.  Wendy's has never been all super successful although somewhat so, but many considered this to be an effective ad that appealed to lots of people.

So during the campaign for the Democratic nomination for president in 1984 when "New Democrat" Gary Hart took the lead in polls with his appeal to high tech and a certain sleek cool, his chief rival Walter Mondale threw this ad line at him regarding what he considered to be the superficial nature of Hart's positions and appeal, "Where's the beef?"  It was viewed as an appeal to working class Dems and labor unions not likely to gain from the high tech oriented policies pushed by Hart. His remark made a splash and seems to have slowed Hart's momentum and helped Mondale's campaign, who would eventually get the nomination, although what finally did Hart in for sure was a sex scandal that erupted around him.  In any case, while I have seen some sneer now upon his death at Mondale's use of this ad line, it may well have symbolized that Mondale did have a depth Hart did not.  Of course, many dismiss Mondale because he went down to massive defeat in the election against Reagan, taking only DC and his home stare of Minnesota.  But in that year following the highest rate of GDP growth we have seen since in the US no Dem was going to defeat Reagan's "Morning in America" campaign.  Mondale ran a noble but hopeless campaign.

Anyway, this honorable progressive politician has now died at age 93.  We have not heard all that much out of him since his 1984 loss, but he had an admirable record.  Minnesota produced several highly progressive politicians, including Hubert Humphrey and Paul Wellstone.  But Walter Mondale was part of that tradition.  Humphrey was the one who talked the Democratic Party in 1948 to adopt its first pro-civil rights plank at its convention, a plank that led Strom Thurmond, who would later become a Republican, to walk out of the convention and run as an independent "Dixiecrat."  It is not widely known or remembered that Mondale, who also served as US senator, was the main author of the Fair Housing Act, an appropriate successor to Humphrey's efforts.

Another important thing he did that we now take for granted, although it was ultimately the doing of Jimmy Carter, but Walter Mondale was apparently the first US vice president to be actively and regularly involved in the day to day governing of the United States, which indeed was due to Carter inviting him to do that and supporting him in doing so.  Now we have since seen a case where a VP got out of control, namely Dick Cheney on foreign and intel policy under George W. Bush.  But I must say that in general I think this is better if just for making any VP more prepared to be president if the president dies in office. Prior to Mondale all vice presidents had been pushed aside to attend funerals and inaugurate ships, if even that much.  FDR's first VP, John Nance Garner, famously remarked that the vice presidency was "not worth a bucket of warm spit," although it is alleged that last word was one not quite as polite.  And that was how it had always been.  The now late Walter Mondale changed that.

Barkley Rosser

Sunday, April 18, 2021

The Eternal Sunshine of Spotless Politics

 Protesters trashed windows at the Oregon State Historical Society and left this graffiti: 

Credit: Willamette Weekly

Thursday, April 15, 2021

Keeping Fingers Crossed As US Commits To Removing Military From Afghanistan

 Yes, President Biden has bitten the bullet to remove US troops from Afghanistan by the 20th anniversary of the 9/11 attack that triggered our initial entry into that nation for our longest war.  Of course, we shall not quite be fully out as not only will there still be some Marines guarding the embassy in Kabul, but probably covert CIA forces will continue to operate and drone bombing will probably continue and possibly even continue the expansion that has been going on for some time, with over 7000 bombs dropped on the nation by the US in 2019 according to Juan Cole.  But, hey, still looking good.

Needless to say many are upset and whining and worrying.  David Ignatius in WaPo worries that the Taliban will take Kabul after a bloody war and allow al Qaeda or ISIS to establish themselves there, saying that the worst thing would be for the US to have to go back in again after having left the way we went back into Iraq after ISIS grabbed lots of territory after we left there.  But Biden has been through these discussions and decisions and was long reported to want out from Afghanistan way back when Obama was increasing troop levels up to about 100,000, with them now down to just a few thousand.  Most of the withdrawing has already happened, and with Trump having promised a May 1 withdrawal an effort to go back on that with lots of conditions would probably trigger an upsurge of Taliban attacks on US troops, making a mess of things.

Of course it is quite possible, maybe even likely, that this will lead to a full Taliban victory down the road, which will be awful for the women of Afghanistan at a minimum.  But Juan Cole argues that maybe the danger of all sorts of terror groups setting up shop there in that case may be overblown.  Apparently the Taliban did not approve of bin Laden's original 9/11 operation and have been not at all friendly to ISIS.  They might well keep those groups under more control than when they ran the country before. And Cole also notes that al Qaeda has substantial presence in places like Yemen and Syria without this leading to them organizing 9/11 style attacks on the US.  Even if they get a base in Afghanistan, such would likely be smaller and weaker than these, and in Syria the US has effectively allied itself with al Qaeda allies.

Another point Cole makes is that the chances for this to lead to a stable and peaceful outcome in which the economy and people of Afghanistan can get into better shape would be helped if immediate neighbors would imitate Britain and Russia in the late 19th century and early 20th when they put a stop to their Great Game and effectively declared Afghanistan to be a neutral zone.  Now the nations that should do it are India and Pakistan, with each backing different groups in Afghanistan. Cole suggests that maybe China can play a role in encouraging them, at least Pakistan to make such a move, with the presence of Uighurs in some of the Afghan groups possibly providing an incentive for them to do so, and with major Belt and Road Initiative money in Pakistan, China might even have the clout.  I suspect Cole is reaching for windmills on this matter, but it certainly would be a good thing if this US withdrawal were to be followed by such an agreement by outsiders to leave Afghanistan alone. Maybe peace might really come to this much troubled and fought-over land.

Barkley Rosser

Sunday, April 11, 2021

Congress Steadily Degenerating

 I doubt this will surprise anybody, aside from those who might have hoped that Dems retaking formal control of both houses of Congress, if by narrow margins (with that margin shrinking in the House due to the 2020 election).  But I have a more direct source for this conclusion.

I received a visit today from niece and her family at our house about two hours southwest of Washington.  She is Erica Werner, a longtime reporter for the Washington Post who has covered economics issues that Congress deals with.  She has been high enough up at WaPo that when some of the major budget issues were being debated and passed, she was the lead author of the top front page story for several days in a row there.  She also covered the passage of the ACE at Congress back when that happened.  Anyway, she has been reporting on Congress for quite a few years and knows the people there inside out and really up close.

So she was visiting us because she is moving from Washington this coming Thursday, April 15, and was basically saying good-bye as well as having her young daughters see some family stuff we have.  She is moving to Pasadena where now widowed dad lives and where she lived when young. Will report for WaPo on various west coast things.  A major reason for the move involves family health issues I shall not get into here, but a loudly and publicly stated reason for the move is that she has declared she is "sick of Washington."

So during this visit I questioned her more closely on this.  One thing that really upset her was the attack on the Capitol on Jan. 6. She was fortunately not there when it happened, but apparently several of her colleagues who were there were severely traumatized, something that has not been reported on publicly, although we have heard about some members of Congress and especially their staffs that were.

But she admitted one more factor that has been building up. She has become disgusted with Congress itself, that it is getting worse and worse, just steadily degenerating.  Her bottom line: every time a member leaves they are replaced by somebody worse, and these new ones have been getting really bad.

So there it is, from somebody who really knows Congress up close.  It is degenerating to the point she wants nothing to do with it anymore and is leaving town.

Barkley Rosser

Saturday, April 10, 2021

Of Battenbergs, Brexit, and Brogues

 So, Philip Mountbatten, born Philip Schleswig-Holstein-Sonderbutg-Glucksburg, Duke of Edinburgh, Prince Consort of the United Kingdom, and many other titles, died peacefully at age 99 on April 9 about 2 months shy of making it to 100.  I am not going to either praise him or poke at him, with his long history that contains many things on both sides of that open to judgment.  Certainly he was part of a colonialist monarchy, but them most of its empire broke up and went away during the period he was in his position in the British monarchy.  I am more interested in some related items, noting initially that all sorts of people will be making lots of silly tings out of this ,starting with Brian Kilmeade of Fox News who somehow has decided that it is all the fault of Harry and Meghan having their interview with Oprah Winfrey. Not.

I do not think it triggered his death, which seems to have been coming for some time and almost happened during his recent long stay in the hospital.  But I am noting the odd coincidence that the day before he died saw the worst outbreak of violence in Northern Ireland in decades, possible since the famous Easter Peace agreement came about, which led to a long largely peaceful period between the two sharply split communities in Northern Ireland.  What is sad to me is that I especially saw this coming as an outcome of Brexit since visiting Belfast four years ago, taking a train from Dublin to there and back, no notice of crossing the border at all either way.  We took a tour around the formerly "troubled" neighborhoods, now troubled again.  One does not hear much about them, especially given how quiet they have been for so long. But there are still high walls in places with unpleasant graffiti on them and numerous signs that the people on each side of those walls really do not like each other much and have sharply conflicting memories about what happened back then, even as all then were saying they supported the peace agreement.

An important part of that peace was that UK was in the European Union, which made it easy to have the essentially open border with the Republic of Ireland to the south while remaining part of the United Kingdom, the essential compromise underlying the peace, even as some on each side would prefer different outcomes or situations. It was clear as the negotiations with EU on Brexit proceeded that the Irish question was one of the hardest issues to deal with, and the compromise made has now led to unhappiness and renewed conflict between the communities, with teenagers on both sides engaging in conflict, although it seems to have started with Protestant Unionist ones unhappy with the creeping economic border between Northern Ireland and the rest of UK on the island of Britain in place to keep the border with Ireland open as it has been.  They see this as creeping towards unification with the Republic of Ireland, which has become more likely as the population balance has become more even in Ulster where in the past the Protestant Unionists easily outnumbered the Irish republicans.  It looks like the fears I and others had that Brexit could lead to the end of the peace agreement were unfortunately very well founded.

As for the Battenberg link, well that was what the Mountbattens were called in England prior to World War I, when their blatantly German name came to be an embarrassment, so given that "berg" in Germans means "mountain," changing the name to Mountbatten, with this accruing to Phillip's influential uncle, lord "Dickie" Mountbatten, of whom Prince Charles was reportedly very close to.  Lord Mountbatten was a high commander in the UK navy in WW II and helped arrange the marriage of his nephew to then Princess Elizabeth, who reportedly fell hard for him when they met in 1939. He took the name of his uncle when he became a British citizen on marrying her in 1947.

Anyway, Lord Mountbatten has an estate on the coast of Ireland.  He would be killed along with several other people in 1979 when he was on a yacht off his estate with them in a bomb attack by the IRA, probably their most famous and notorious such bomb attack.  The peace agreement had put all that sort of thing in the past.  But now we may be heading back to such things.  It is indeed ironic that this reappearance of the violence that killed his uncle reappeared on the day before Prince Philip died.

Barkley Rosser 

"...other enjoyments, of a purer, more lasting, and more exquisite nature."

A defense of Weber's Protestant Ethic thesis from the 1940s by Ephraim Fischoff makes the plausible argument that critics -- and many supporters -- of Weber's essay attached unwarranted causality to it, as if "Calvinism caused capitalism." Instead, Fischoff explained:

Weber's thesis must be construed not according to the usual interpretation, as an effort to trace the causative influence of the Protestant ethic upon the emergence of capitalism, but as an exposition of the rich congruency of such diverse aspects of a culture as religion and economics.

Fair enough. Then along comes Colin Campbell 43 some odd years later talking about the Other Protestant Ethic. It was Campbell's intention in The Romantic Ethic and the Spirit of Consumerism to update Weber and to fill in what he saw as a significant gap in Weber's thesis -- his failure to account for new consumer attitudes, which Campbell traced back to Sentimentalism and Romanticism, both adaptations of Protestantism. 

If my brief summary doesn't do justice to Campbell's analysis, it is only because his evocative chapter title, "The Other Protestant Ethic" at once evokes and forecloses the possibility of two, three, many Protestant Ethics. Campbell is conspicuously silent on the labour movement, whose conservative motto, "a fair day's wage for a fair day's work," expressed both a work ethic and a consumer ethic. Nor does Campbell mention the radical, socialist and anarchist cults, sects and movements who proudly wore their Protestantism on their sleeves.

Those two omissions are all the more glaring in that the Romanticism Campbell does feature was deeply implicated in both of them. Campbell spends several pages in an analysis of William Wordsworth's preface to the 1802 second edition of his Lyrical Ballads, in which Wordsworth inserted an "Easter egg" of biblical proportions that serves as the title of this post. Wordsworth's "enjoyments... of a more exquisite nature" is almost certainly an appropriation of or allusion to William Godwin's argument about commodities, labour, and leisure from his essay, "Of Avarice and Profusion" in The Enquirer:

The commodities that substantially contribute to the subsistence of the human species form a very short catalogue: they demand from us but a slender portion of industry. If these only were produced, and sufficiently produced, the species of man would be continued. If the labour necessarily required to produce them were equitably divided among the poor, and, still more, if it were equitably divided among all, each man's share of labour would be light, and his portion of leisure would be ample. There was a time when this leisure would have been of small comparative value: it is to be hoped that the time will come, when it will be applied to the most important purposes. Those hours which are not required for the production of the necessaries of life, may be devoted to the cultivation of the understanding, the enlarging our stock of knowledge, the refining our taste, and thus opening to us new and more exquisite sources of enjoyment. It is not necessary that all our hours of leisure should be dedicated to intellectual pursuits; it is probable that the well-being of man would be best promoted by the production of some superfluities and luxuries, though certainly not of such as an ill-imagined and exclusive vanity now teaches to admire; but there is no reason in the system of the universe or the nature of man, why any individual should be deprived of the means of intellectual cultivation.

Incidentally, Godwin's daughter, Mary Shelley, quoted the first five sentences of that passage in her notes to Percy Shelley's poem, Queen Mab. The passage is consistent with Godwin's argument in his Enquiry Concerning Political Justice, in which, as William Stafford mentioned, "[t]he Calvinist doctrine of the calling can be discerned just below the surface..." But it wasn't Calvin's doctrine, it was Godwin's updating and reformulation of the doctrine. In Godwin's version, work and leisure were to have equal status, a point Godwin made explicit in his Thoughts on Man

The river of human life is divided into two streams; occupation and leisure—or, to express the thing more accurately, that occupation, which is prescribed, and may be called the business of life, and that occupation, which arises contingently, and not so much of absolute and set purpose, not being prescribed: such being the more exact description of these two divisions of human life, inasmuch as the latter is often not less earnest and intent in its pursuits than the former.

If Godwin's post-Calvinist ethic is implicated in Romanticism -- which it obviously is, Wordsworth, Shelley, Keats, to name a few -- it is even more so in the emerging labour movement of the 19th century and, most strikingly, in Marx's analysis of surplus value and disposable time through the intermediary of Charles Wentworth Dilke's The Source and Remedy of the National Difficulties

The passage from Marx's Grundrisse that cited Dilke's pamphlet explained how capital both potentially enables but actually impedes the creation of socially available free time for "the cultivation of the understanding, the enlarging our stock of knowledge, the refining our taste, and thus opening to us new and more exquisite sources of enjoyment":

Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth. Hence it diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition – question of life or death – for the necessary. On the one side, then, it calls to life all the powers of science and of nature, as of social combination and of social intercourse, in order to make the creation of wealth independent (relatively) of the labour time employed on it. On the other side, it wants to use labour time as the measuring rod for the giant social forces thereby created, and to confine them within the limits required to maintain the already created value as value. Forces of production and social relations – two different sides of the development of the social individual – appear to capital as mere means, and are merely means for it to produce on its limited foundation. In fact, however, they are the material conditions to blow this foundation sky-high. ‘Truly wealthy a nation, when the working day is 6 rather than 12 hours. Wealth is not command over surplus labour time’ (real wealth), ‘but rather, disposable time outside that needed in direct production, for every individual and the whole society.’ (The Source and Remedy etc. 1821, p. 6.)

Fischoff's defense of Weber's The Protestant Ethic and the Spirit of Capitalism that I mentioned earlier characterized Weber's essay as a "conscious reaction to the Marxian hypothesis" and thus considered it understandable that Weber would "overstress the consistency and efficacy of ideal factors." What Weber could not have have known, though, was how precisely those "ideal factors" were every bit as much involved in the "Marxian hypothesis" as they were in the capitalist spirit -- if not more so.

In the conclusion of The Romantic Ethic and the Spirit of Consumerism, Colin Campbell highlighted a phenomenon he referred to as "the irony of social action." "Neither the first Romantics, nor their successors in subsequent decades, ever intended to grant legitimacy to modern consumerism or to that spirit of self-interested hedonism upon which it is based." When I hear the word "irony," I reach for my invisible hand (with my other invisible hand). Irony is a trope, a form of expression, not something that "nature" or "the gods" do to humiliate people for their pretensions. 

When actions have unintended consequences, it is not because of some celestial law of irony. It is because human motives and actions are intrinsically ambivalent. The ambivalence of social action is a proper subject for analysis. The irony of social action is a smug, reactionary sneer masquerading as wisdom of the ages.

The proverbial "work ethic" of the late 1960s and early 1970s (which is still with us) can best be understood as an ambivalent response by both hippies and hippie-punchers to the simultaneous eclipse of post-war full employment and the "Borrow. Spend. Buy. Waste. Want." consumer society Affluenza. The confusion between irony and ambivalence is almost certainly because satire and irony are the literary forms used to call attention to ambivalence, especially in its more unsavory manifestation as hypocrisy.

Wednesday, April 7, 2021

How To Estimate "Rational" Market Expectations Of Future Inflation

 I am not a fan of rational expectations, hence the quotation marks around "rational" in the subject head here.  Nevertheless I have become aware thanks to some posts at Econbrowser by the intrepid Menzie Chinn that the usual way this has been measured and reported by most people needs to be modified, with the understanding of this only developing quite recently.  This came from a paper in 2018 by some Fed Board of Governors economists: S. D'Amico, D.H. Kim, and M. Wei, (although Menzie refers to it as the "DKKW model"), "Tips from TIPS: The Informational Content of Treasury Inflation-Protected Inflation Securities," Journal of Financial and Quantitative Analysis, 2018, 53(1), 395-436. 

For a given time-horizon, it has been conventional for those estimating such a "rational" market forecast of expected inflation to take the appropriate Treasury security nominal yield of that time horizon (say 5 years) and simply subtract from it the yield on the same time horizon TIPS, which covers security holders for inflation.  So it has long looked like this difference is a pretty good estimate of this market expectation of inflation, given that TIPS covers for it while the same time horizon Treasury security does not.

Well, it turns out that there are some other things involved here that need to be taken account, one for each of these securities.  On the Treasury side, it turns out that the proper measure of the expected real yield must take into account the expected time path of shorter term yields up to that time horizon.  This time path has associated with it a risk regarding the path of interest rates throughout the time period.  This is called the Treasury risk premium, or trp.  It can be either positive or negative, with it apparently having been quite high during the inflationary 1979s.

The element that needs to be taken into account with respect to the TIPS is that these securities are apparently not as liquid in general as regular Treasury securities, and the measure of this gap is the Liquidity premium, or lp.  This was apparently quite high when these were first issues and also saw a surge during the 2008-09 financial crisis.  In principle this can also be of either sign, although has apparently been positive.

Anyway, the difference between the nominal T security yield and the appropriate TIPS yield is called the "inflation breakeven," the number that used to be focused on as the measure of market inflation expectations.  But the new view is that this must be adjusted by adding (tpr - lp).

In a post just put up on Econbrowser by Menzie the current inflation breakeven for five years out is 2.52%. But according to Menzie the current (tpr - lp) adjustment factor is -0.64%.  So adding these two together gives as the market expected inflation rate five years from now of 1.88%, although Menzie rounded it out to 1.9%.

If indeed this is what we should be looking at it says the market is not expecting all that much of an increase in the rate of inflation from its current 1.7% five years from now. The Fed and others are looking at a short term spike in prices this year, but the market seems to agree with their apparent nonchalance (shared by Janet Yellen) that this will wain later on, with that expected 5 year rate of inflation still below the Fed's target of 2%.

Certainly this contrasts with the scary talk coming from Larry Summers and Olivier Blanchard, not to mention most GOP commentators, regarding what the impact of current fiscal policies passed and proposed by Biden will do to the future rate of inflation.  Not a whole lot, although, of course, rational expectations is not something that always forecasts all that well, so the pessimists might still prove to be right.

Barkley Rosser

The Hippie Dog Whistle Work Ethic Silent-Majority Counter-Offensive

Following up on my last post, I was searching for coverage of Ronald Reagan's infamous "strapping young buck" comment from 1976 and found this wonderful commentary by Ian Haney López on Bill Moyers's show.

In his book, Dog Whistle Politics, López mentions the "work ethic" angle several times.

The narratives promoted alike by the ethnic turn and racial-demagogues—a lack of work ethic, a preference for welfare, a propensity toward crime, or their opposites— reinvigorated racial stereotypes, giving them renewed life in explaining why minorities lagged behind whites.... they became the staples of political discourse, repeated ad nauseam by politicians, think tanks, and media.


In accord with the stories spun by dog whistle politicians, many whites have come to believe that they prosper because they possess the values, orientations, and work ethic needed by the self-making individual in a capitalist society. In contrast, they have come to suppose that nonwhites, lacking these attributes, slip to the bottom, handicapped by their inferior cultures and pushed down by the market’s invisible hand, where they remain, beyond the responsibility, or even ability, of government to help. 


Many older whites nostalgically pine for the days when a solid work ethic meant a good job, a decent home, a new car every few years, an affordable college education for the kids, and a nice vacation by the lake or seashore every August.

Dog whistle politics (as opposed to overt racist rhetoric) got its start with George Wallace's 1968 presidential campaign. Wallace addressed his speeches to the proverbial hard-working, tax-paying, church-going, law-abiding, gun-toting patriotic citizen:

You people work hard, you save your money, you teach your children to respect the law. Then when someone goes out and burns down half a city and murders someone, pseudo-intellectuals explain it away by saying the killer didn’t get any watermelon to eat when he was ten years old.

As far as I can determine, though, the phrase "work ethic" never crossed George Wallace's lips during his 1968 campaign. If it happened, it wasn't reported. If it was reported, it wasn't archived anywhere I could find it. It would be surprising if Wallace did use the phrase in 1968. It wasn't a huge vernacular term.

Understandably, perhaps, some readers are ignoring the specificity of my argument. It is not about Weber's theory or Luther's or Calvin's doctrine of calling or predestination. It is about the usage, particularly the vernacular usage of the term, "work ethic" as a synonym and/or substitute for Weber's "Protestant ethic." Unless preceded by the modifier "Protestant" or "Puritan," the work ethic is explicitly not Weber's theory. Weber was seeking specifically to differentiate between the beliefs and behaviors of Protestants and Catholics. 

In his 1971 appeal to the presumably traditional American work ethic, Nixon was seeking to appeal especially to Italian, Polish, Irish, etc. "ethnics" who were exactly the opposite of the people Weber was talking about. As Nixon said, "Keep religion out of it." Well, if you "keep religion out" of the Protestant ethic, it no longer has anything to do with Weber's theory. The Protestant ethic and the work ethic are not synonyms.

Nixon was not the first to put the words "work" and "ethic" together in a single phrase without the religious modifier. But before Labor Day, 1971 the usage was sparse. Usage was sparse enough to permit examination of each time the phrase was used in a journal or newspaper. 

There is one instance that stands out. In a Nation article published in April, 1968, Roszak took "good liberal" Hans Tuch to task for invoking "the Protestant work ethic to give the hippies a fatherly tongue-lashing..." Note the residual Protestant modifier. Tuch, in turn, had cited (disparagingly) a Time magazine essay from July 30, 1967 in which the author had mused:

What offends, perplexes and yet also beguiles the straight sector is hippie-dom’s total disregard for approbation or disapproval. “Do your own thing,” they say, and never mind what anyone else may think or do. Yet this and many hippie attitudes represent only a slight and rather engaging distortion of the Protestant Ethic that they purport to reject.

In a March 11, 1969 memorandum to President Nixon, Daniel Moynihan lamented the "emotional strain for people who may still share a Southern Protestant outlook about the work ethic." The context for this remark was survey research showing a very high concurrence among welfare recipients toward the work ethic. Note that three words intervene between Protestant and work ethic. "Keep religion out of it."

Notice that there are two distinct threads that are being woven into a narrative. One is the disdain for, critique of, or "slight and rather engaging distortion" of the Protestant (work) Ethic. The other is a large number of destitute people who depend on welfare but who subscribe to the (Protestant) work ethic. 

Nixon: "We see some members of disadvantaged groups being told to take the welfare road rather than the road of hard work, self-reliance, and self-respect."

Hard work, work hard. hard-working... What's ethic got to do with it? Ethics have to do with morality. Ethical people are good, unethical people are bad. For Weber, Protestants worked hard because of their ethics. For the audiences conjured by Wallace and Nixon, was it that people were good because they worked hard? No. The point was that people they felt hostile toward (hippies, Blacks, protesters, intellectuals) deserved to be punished because they were bad people attacking morality. 

Nixon: "Recently we have seen that work ethic come under attack."

Good Signs On Renewing US-Iran JCPOA Nuclear Deal

 One should probably not get too optimistic yet, although I have been getting quite worried about it, but a report in today;s New York Times seems to indicate that via the rather indirect negotiations going on in Vienna the US and Iran may have worked out a mutually acceptable path of actions that will lead to both nations getting back into compliance with the JCPOA, which the US pulled out of for no good reason in 2018 due to former President Trump.  President Biden has said he intended to get back into the deal, and after a bunch of delays, it looks like it might actually be happening before the forthcoming Iranian presidentrial election in June, thought likely to lead to the replacement of current Iran President Rouhani, who negotiated the original deal in 2015, with somebody likely to take a harder line. So, about time.

Barkley Rosser

Saturday, April 3, 2021

The "Work Ethic" Hoax

The story has been told that Martin Luther invented the doctrine of the "calling" and that John Calvin ("my friends call me Jean") intensified it with his doctrine of predestination. Subsequent pastoral literature softened the predestination blow with the Protestant ethic that working hard and succeeding would show that you were one of the elect. Max Weber told that story. 

It was, of course, a fable. But that is beside the point. Max Weber's fable wallowed in relative academic obscurity and sports clichés until... [wait for it]... 1971 when Dick Nixon dusted it off as a cudgel to bludgeon those folks driving around in their Welfare Cadillacs -- we all know who they are -- and the nattering nabobs of negativism enabling them. Pure backlash dog whistle. 

“Keep religion out of it,” Nixon told a speechwriter who labeled it “the Protestant ethic” for a Labor Day address in 1971, “Let's just call it the work ethic.”

I would like you to join me in exploring one of the basic elements that gives character to a people and which will make it possible for the American people to earn a generation of prosperity in peace.

Central to that character is the competitive spirit. That is the inner drive that for two centuries has made the American workingman unique in the world, that has enabled him to make this land the citadel of individual freedom and of opportunity.

The competitive spirit goes by many names. Most simply and directly, it is called the work ethic.

As the name implies, the work ethic holds that labor is good in itself; that a man or woman at work not only makes a contribution to his fellow man but becomes a better person by virtue of the act of working.

That work ethic is ingrained in the American character. That is why most of us consider it immoral to be lazy or slothful-even if a person is well off enough not to have to work or deliberately avoids work by going on welfare.

That work ethic is why Americans are considered an industrious, purposeful people, and why a poor nation of 3 million people, over a course of two centuries, lifted itself into the position of the most powerful and respected leader of the free world today.

Recently we have seen that work ethic come under attack. We hear voices saying that it is immoral or materialistic to strive for an ever-higher standard of living. We are told that the desire to get ahead must be curbed because it will leave others behind. We are told that it doesn't matter whether America continues to be number one in the world economically and that we should resign ourselves to being number two or number three or even number four. We see some members of disadvantaged groups being told to take the welfare road rather than the road of hard work, self-reliance, and self-respect.

The New York Times was on to the hustle:

But the chattering classes couldn't resist the work ethic mantra -- pro or con.

The Death Of Yeshua Bin Yusuf

Or if you prefer, "bin Miriam," although no way he would have ever been called that in his life, but near as I know "Yeshua bin Yusuf" ("Jesus son of Joseph") was probably how he was most frequently identified in real life in the Aramaic language he mostly operated in, his mother tongue. It has been reported that he knew Hebrew, then strictly a liturgical language, given the reports of him at age 12 discoursing seriously with priests at the temple in Jerusalem. Greek was the lingua franca for business and ultimately the language the New Testament was written in where he was labeled "Iesos Christos," translated into English as "Jesus Christ."

When he was crucified, almost certainly the only clearly documented event of his life beyond the Bible, thanks to Josephus, all of the four Gospels have it in super capitalized letters what they put over his head approved of by the local Roman governor, Pontius Pilate, was "KING OF THE JEWS" (all four gospels in the King James version have this in full capital letters as I have written, with variations across them in specifics, but all including this). We do not know which language was put on the sign he carried to Golgotha, but the Gospel of John, who was supposedly an eyewitness, says that this declaration was made in Hebrew, Greek, and Latin, curiously none of these the language he or most of the local population actually spoke in their homes.

Here is the hard core line from me: this guy really lived and most of what he said is for real. The one thing we know for almost sure is that he was crucified in Jerusalem, as reported by Josephus.  This was a major public event.  I happen to think that once people are dead that is it, so, I do not get excited about the supposed "resurrection." If that is the bottom line on being a "Christian," I am not one.

But I have now been twice to what is almost certainly the site of his crucifixion in Jerusalem in the very weird Church of the Holy Sepulchre. It really happened and probably there. What happened after that looks to be up for grabs.

So, whatever one thinks about his death or later events, he presented a serious moral vison, which included multiple appeals for charity for the poor, along with his disruption of the money changers in the temple in Jerusalem, which may have fed in to the local interests supporting shutting him down.

Things Yeshua bin Yusuf never said a word about:


sexual identity or preference


As it is scholars note that the Qur'an has far more references to charity for the poor than does either book of the King James version of the Bible. This is true.

Bottom line is that I take seriously that this clearly world-historical individual died a horrific death on a cross, a form of execution I am glad we have moved beyond. Given the many wise and moral things he is reported to have said, I regret that he had to die in such an awful way.

So, getting to current commentary on this long ago event, I note Michael Gerson's column in yesterday's WaPo (the appropriate date). He focused on the positive remarks of Yeshua on his death, which appear in Luke, a gospel written by a Greek follower of  Paul long after the actual events. This included two items long and widely repeated, although probably not actually said by Yeshua.

I nw provide the last words Yeshua said on the cross according to the four Gospel versions in the seriously flawed but magnificent King James version:

Gospel of Matthew: "Eli, Eli, lama sabachtani."

Gospel of Mark: "Eloi, Eloi, lama sabacthani."

Gospel of Luke: "Father, into thy hands I commend my spirit."

Gospel of John: "It is finished."

I note that of these accounts, while John was supposedly an eyewitness, his gospel is viewed as the latest written, and the one more widely disagreeing with various consensuses of the former. Mark is supposed the oldest of them while Matthew was written to please Jewish readers. 

A bottom line is that "lama sabachthani" is Aramaic, one of the very few places in any gospel that the language in the New Testament. All translations of that passage are minor variations on the KJV "My God, why hast thou forsaken me."

Michael Gerson, in WaPo, is just out of it in pushing the almost-certainly inaccurate Luke versions of this, even as he admits the existence of the grimmer laba sabachtani version. Gerson understands that this harder line version of what Yeshua said at the end is a serious competitor to his less creditable and more nicey-nice version of the whole thing.

Whatever the reality of the above, I respect the hard death we know for near certain happened this person who probably mostly went by the name, "Yeshua bin Jusuf" (Jesus son of Joeph, not "the son of God," who, after all, let Yeshua down in the end. 

Happy Easter, you all who celebrate it.

Barkley Rosser

Barkley Rosser