I just got around to reading an important paper, “Current Account Patterns and National Real Estate Markets” by Joshua Aizenman and Yothin Jinjarak. Looking at a sample of developing and developed countries over the period 1990-2005, they find the current account deficits are the main explanatory factor for real estate appreciation. (It would be clumsier but more accurate to say real real estate appreciation, since prices are deflated by the GDP deflator.) Their work is careful, and their empirical model accounts for 70% of the variation they study. Running a current account deficit results in higher real estate values, especially in countries with more developed credit markets, but this effect is somewhat reduced where there is less country risk. The authors control for the appropriate confounders, such as interest rates. In fact, external balances play a bigger role than interest rates in real estate markets, a surprising result.
This is consistent with the position that I’ve taken on this blog, that the inflow of funds to finance our current account deficit renders the US susceptible to asset price bubbles, and that the runup in housing values was just one (but a very big) manifestation of this. If I’m right, and if the housing channel is being shut down, some other bubble is indicated.
Sunday, June 8, 2008
A Proposal for Obama
Problem: McCain will define himself as tough and resolute in foreign policy, committed to defending us vulnerable Americans from the wolves near and far. Implicitly, and perhaps explicitly, this will paint Obama as weak, confused and incapable of assuring our safety. This is a matter of images, not reality, of course, but that’s how elections work.
Analysis: Obama’s counter-image is that he will restore America to respect around the world, rebuilding alliances and replacing bellicosity with diplomacy. Against this backdrop, McCain’s foreign policy would take on the hue of Bush, continued. One challenge Obama faces is how to convey this impression visually and viscerally. Fear and retaliation are easier to package than cooperation.
Solution: Obama should undertake a foreign campaign trip this summer, publicly appealing to American voters overseas, including both civilians and military expats. He could explain that America is itself now globalized, with its citizens scattered across the continents. His trip could then be portrayed as a campaign swing like any other. But holding enthusiastic mass rallies across Europe and Asia especially, Obama could deliver exactly the we-are-the-world images that would give emotional resonance to his political stance. Honestly, I don’t see what McCain could do to diminish the power of this strategy.
Analysis: Obama’s counter-image is that he will restore America to respect around the world, rebuilding alliances and replacing bellicosity with diplomacy. Against this backdrop, McCain’s foreign policy would take on the hue of Bush, continued. One challenge Obama faces is how to convey this impression visually and viscerally. Fear and retaliation are easier to package than cooperation.
Solution: Obama should undertake a foreign campaign trip this summer, publicly appealing to American voters overseas, including both civilians and military expats. He could explain that America is itself now globalized, with its citizens scattered across the continents. His trip could then be portrayed as a campaign swing like any other. But holding enthusiastic mass rallies across Europe and Asia especially, Obama could deliver exactly the we-are-the-world images that would give emotional resonance to his political stance. Honestly, I don’t see what McCain could do to diminish the power of this strategy.
Saturday, June 7, 2008
Supply-Side Econ rides again!
after knocking McCain's gas-tax holiday proposal, hot-shot economist and former Mitt Romney guru, Greg Mankiw wrote:
... Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards.
Cutting corporate taxes is not the kind of idea that normally pops up in presidential campaigns. After all, voters aren't corporations. Why promise goodies for those who can't put you in office?
In fact, a corporate rate cut would help a lot of voters, though they might not know it. The most basic lesson about corporate taxes is this: A corporation is not really a taxpayer at all. It is more like a tax collector.
The ultimate payers of the corporate tax are those individuals who have some stake in the company on which the tax is levied. If you own corporate equities, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax. The corporate tax leads to lower returns on capital, lower wages or higher prices — and, most likely, a combination of all three.
my comments in boldface, while his original column is light-weight:
I don't believe that the corporate tax really affects the return on corporate equities, except in very special situations and in the short run. The fact is that those who buy US corporate equities can always buy them in places where corporate income is not taxed -- or can buy the stocks of US companies that don't pay any corporate taxes at all. That bids up the return on the taxed assets, so that after-tax rates of return are equalized.
The main case where I can see the corporate tax actually lowering returns on equity would be that where the companies reap large raw-material scarcity rents. But those companies often (usually) get "depletion allowances" and the like, more than compensating them for their loss. As discussed below, I do think the corporate tax affects returns on stock prices in the short run.
In other words, in the long haul (about a year or so) I see the corporate income tax as mostly being reflected in higher consumer prices and/or lower wages. Since that tax isn't very large these days, I don't see this as being very important.
A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices,
Initially stock prices would rise, but the arbitrage I describe in my first paragraph above would cause this to end in the long haul (even a period as short as a week). Then the corporations and the stockholders would hunger for a new tax cut to get another transitory boost in returns. This seeking of a short-term fix is an important reason why the corporate tax keeps on being lowered (even though in the longer haul, the owners don't really pay the tax). It's a bit like a drug addiction: the stockholders want transitory pleasure. Because it doesn't last, they want it again & again.
but the results would not end there. A stronger stock market would lead to more capital investment.
This connection between stock prices and corporate investment is very weak and likely non-existent, as Doug Henwood and others have pointed out. It's amazing that Mankiw so blithely assumes that this connection is automatic. It is especially weak given the way in which the SM fluctuates so wildly and the way in which arbitrage would get rid of the extra return pretty quickly.
More investment would lead to greater productivity.
This assumes that the investment is real, rather than purely financial, like buying up other companies. It assumes that it's in actually producing some commodity rather than in marketing and the like. It assumes that the investment is done inside the US.
Greater productivity would lead to higher wages for workers and lower prices for customers.
Greater productivity leads to higher wages? since when? it hasn't worked that way for about 30 years. Real wages of nonsupervisory employees have generally stagnated since the early 1980s, even though labor productivity has soared (though not as much as it soared in earlier decades). Most of the productivity gains have gone to stock-owners and CEOs. For Mankiw's story to work, the one-sided class war would have to end. He isn't calling for an end of the war. Instead, he has instead tried to provide ideological ammunition to the other side.
Consumer prices might fall (assuming US productivity rises) but only relative to existing inflation. And given all of the weak links in the chain above, that wouldn't be a big thing.
Populist critics [who shall be slammed but unnamed, of course] deride this train of logic as "trickle-down economics." But it is more accurate to call it textbook economics. Students in introductory economics courses learn that the burden of a tax does not necessarily stay where the Congress chooses to put it. That lesson is especially relevant when thinking about the corporate tax.
has Mankiw ever contemplated why "trickle down" has such a bad rep? maybe because it hasn't worked within recent memory?? (Maybe it worked during the 1960s, but the US political economy was completely different from nowadays.) I'll ignore the cheap rhetoric of the rest of this paragraph.
In a 2006 study, the economist William C. Randolph of the Congressional Budget Office estimated who wins and who loses from this tax. He concluded that "domestic labor bears slightly more than 70 percent of the burden."
Mr. Randolph's analysis stresses the role of international capital mobility. With savings sloshing around the world in search of the highest returns, he says, "the domestic owners of capital can escape most of the corporate income tax burden when capital is reallocated abroad in response to the tax." When capital leaves a country, the workers left behind suffer. (According to Mr. Randolph, however, some workers do benefit from the American corporate tax: those abroad who earn higher wages from the inflow of capital.)
A similar result was found in a recent Oxford University study by Wiji Arulampalam, Michael P. Devereux and Giorgia Maffini. After examining data on more than 50,000 companies in nine European countries, they concluded that "a substantial part of the corporation income tax is passed on to the labor force in the form of lower wages," adding that "in the long-run a $1 increase in the tax bill tends to reduce real wages at the median by 92 cents."
It's quite possible, if not likely, that all else equal US corporate taxes make corporate fixed investment in the US more expensive, so that it goes elsewhere. Thus, all else equal, wages have to be depressed to compensate companies doing fixed investment in the US. Or environmental laws have to be weakened to provide this sop. Taxes, wages, environmental laws (along with labor productivity, the availability of infrastructure, access to markets, etc.) are important parts of the corporate decision about investment location. That's a key reason why we see international competition among governments to attract corporate investment. (It's worse among states of the US union.) That's a key reason why we see the international creep to the bottom, the downward harmonization of labor and environmental standards. (This "creep" is a major reason why the current political economy is so different from that of the 1960s.)
Mankiw ignores this context in order to propose a corporate tax be cut to draw investment in from other countries. But that simply encourages the creep toward the bottom, along with lowering wages and paring government regulations.
Despite these findings, a corporate tax cut as a way to help workers may strike some people as needlessly indirect. Why not just pass an income tax cut aimed squarely at working families, as Senator Barack Obama proposes?
The answer is that while most taxes distort incentives and shrink the economic pie, they do not do so equally. Compared with other ways of funding the government, the corporate tax is particularly hard on economic growth. A C.B.O. report in 2005 concluded that the "distortions that the corporate income tax induces are large compared with the revenues that the tax generates." Reducing these distortions would lead to better-paying jobs.
I'd like to see the assumptions behind that report. Mankiw also seems to be saying that Obama's proposal would "distort incentives and shrink the economic pie." How would that happen, Greg? It would promote aggregate demand (all else constant) which would raise the size of the economic pie that's realized as actual sales, something that seems needed in the midst of a recession. I don't know the details of Obama's plan, but I'd like to hear more about how it would undermine workers' incentive to work. In hard times, facing bills rising relative to income, most people want to work as much as possible, trying to moonlight with two or even three jobs if they can. The problem is not the incentive to work but the availability of jobs.
Of course, a corporate tax cut would affect the federal budget. And any change in tax policy has to be made against a background of a looming fiscal crisis, which threatens to unfold as baby boomers retire and start collecting Social Security and Medicare.
There must be a typo here: Mankiw must be smart enough to know that there is no "looming fiscal crisis" associated with Social Security, so it's wrong to unite it with Medicare in a single package.
In 2007, corporate taxes brought in $370 billion, representing 14 percent of federal revenue. Cutting the rate to 25 percent would seem to cost the Treasury about $100 billion a year.
Part of that revenue loss, however, would be recouped through other taxes. To the extent that shareholders would benefit, they would pay higher taxes on dividends, capital gains and withdrawals from their retirement accounts.
this won't happen if taxes are cut again on dividends, capital gains, and IRA withdrawals, as Mankiw would likely advocate.
To the extent that workers would benefit, they would pay higher payroll and income taxes. Increased economic growth would tend to raise tax revenue from all sources.
this assumes that Mankiw's cock-and-bull story about the wonderful effect of cutting corporate taxes actually works. Calling Dr. Laffer...
SOME economists think that these effects are strong enough to make a corporate rate cut self-financing. A recent study by Alex Brill and Kevin A. Hassett of the American Enterprise Institute [a very objective source, natch], looking at countries in the Organization for Economic Cooperation and Development, supports exactly that conclusion. But even if that turns out to be too optimistic, both theory and evidence make it reasonable to expect a significant discount from the sticker price. In the end, the net budgetary cost of the tax cut might be, say, $50 billion a year.
Great, a totally worthless guesstimate!
Senator McCain wants to fill that hole in the budget by restraining spending. If he can stop bloated legislation like the recent $300 billion farm bill from becoming law, more power to him.
How about ending the $3 Trillion war before it gets even more expensive? how about avoiding the renewal of the Bush tax cut for his rich friends? even better, how about a Bill Clinton-type tax hike for them? These guys haven't been running the economy very well of late. Why reward them for poor behavior?
But in case that quest proves quixotic, I have a back-up plan for him: increase the gasoline tax. With Americans consuming about 140 billion gallons of gasoline a year, a gas-tax increase of about 40 cents a gallon could fund a corporate rate cut, fostering economic growth and reducing a variety of driving-related problems.
Indeed, if we increased the tax on gasoline to the level that many experts consider optimal, we could raise enough revenue to eliminate the corporate income tax. And the price at the pump would still be far lower in the United States than in much of Europe.
I'm all in favor of raising the gas-tax. I notice, however, that Mankiw elided the usual addition to gas-tax hikes, i.e., a tax cut or credit for those at the bottom of the income distribution. That would hurt his ability to earn thousands of dollars doing public speaking for business groups, of course.
Don't laugh. I'm serious.
I can't laugh. He's too stupid.
Jim Devine
... Lost in this hubbub, however, is a bigger idea that Mr. McCain and his economic team have put forward: a cut in the corporate tax rate, to 25 percent from 35 percent. It is perhaps the best simple recipe for promoting long-run growth in American living standards.
Cutting corporate taxes is not the kind of idea that normally pops up in presidential campaigns. After all, voters aren't corporations. Why promise goodies for those who can't put you in office?
In fact, a corporate rate cut would help a lot of voters, though they might not know it. The most basic lesson about corporate taxes is this: A corporation is not really a taxpayer at all. It is more like a tax collector.
The ultimate payers of the corporate tax are those individuals who have some stake in the company on which the tax is levied. If you own corporate equities, if you work for a corporation or if you buy goods and services from a corporation, you pay part of the corporate income tax. The corporate tax leads to lower returns on capital, lower wages or higher prices — and, most likely, a combination of all three.
my comments in boldface, while his original column is light-weight:
I don't believe that the corporate tax really affects the return on corporate equities, except in very special situations and in the short run. The fact is that those who buy US corporate equities can always buy them in places where corporate income is not taxed -- or can buy the stocks of US companies that don't pay any corporate taxes at all. That bids up the return on the taxed assets, so that after-tax rates of return are equalized.
The main case where I can see the corporate tax actually lowering returns on equity would be that where the companies reap large raw-material scarcity rents. But those companies often (usually) get "depletion allowances" and the like, more than compensating them for their loss. As discussed below, I do think the corporate tax affects returns on stock prices in the short run.
In other words, in the long haul (about a year or so) I see the corporate income tax as mostly being reflected in higher consumer prices and/or lower wages. Since that tax isn't very large these days, I don't see this as being very important.
A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices,
Initially stock prices would rise, but the arbitrage I describe in my first paragraph above would cause this to end in the long haul (even a period as short as a week). Then the corporations and the stockholders would hunger for a new tax cut to get another transitory boost in returns. This seeking of a short-term fix is an important reason why the corporate tax keeps on being lowered (even though in the longer haul, the owners don't really pay the tax). It's a bit like a drug addiction: the stockholders want transitory pleasure. Because it doesn't last, they want it again & again.
but the results would not end there. A stronger stock market would lead to more capital investment.
This connection between stock prices and corporate investment is very weak and likely non-existent, as Doug Henwood and others have pointed out. It's amazing that Mankiw so blithely assumes that this connection is automatic. It is especially weak given the way in which the SM fluctuates so wildly and the way in which arbitrage would get rid of the extra return pretty quickly.
More investment would lead to greater productivity.
This assumes that the investment is real, rather than purely financial, like buying up other companies. It assumes that it's in actually producing some commodity rather than in marketing and the like. It assumes that the investment is done inside the US.
Greater productivity would lead to higher wages for workers and lower prices for customers.
Greater productivity leads to higher wages? since when? it hasn't worked that way for about 30 years. Real wages of nonsupervisory employees have generally stagnated since the early 1980s, even though labor productivity has soared (though not as much as it soared in earlier decades). Most of the productivity gains have gone to stock-owners and CEOs. For Mankiw's story to work, the one-sided class war would have to end. He isn't calling for an end of the war. Instead, he has instead tried to provide ideological ammunition to the other side.
Consumer prices might fall (assuming US productivity rises) but only relative to existing inflation. And given all of the weak links in the chain above, that wouldn't be a big thing.
Populist critics [who shall be slammed but unnamed, of course] deride this train of logic as "trickle-down economics." But it is more accurate to call it textbook economics. Students in introductory economics courses learn that the burden of a tax does not necessarily stay where the Congress chooses to put it. That lesson is especially relevant when thinking about the corporate tax.
has Mankiw ever contemplated why "trickle down" has such a bad rep? maybe because it hasn't worked within recent memory?? (Maybe it worked during the 1960s, but the US political economy was completely different from nowadays.) I'll ignore the cheap rhetoric of the rest of this paragraph.
In a 2006 study, the economist William C. Randolph of the Congressional Budget Office estimated who wins and who loses from this tax. He concluded that "domestic labor bears slightly more than 70 percent of the burden."
Mr. Randolph's analysis stresses the role of international capital mobility. With savings sloshing around the world in search of the highest returns, he says, "the domestic owners of capital can escape most of the corporate income tax burden when capital is reallocated abroad in response to the tax." When capital leaves a country, the workers left behind suffer. (According to Mr. Randolph, however, some workers do benefit from the American corporate tax: those abroad who earn higher wages from the inflow of capital.)
A similar result was found in a recent Oxford University study by Wiji Arulampalam, Michael P. Devereux and Giorgia Maffini. After examining data on more than 50,000 companies in nine European countries, they concluded that "a substantial part of the corporation income tax is passed on to the labor force in the form of lower wages," adding that "in the long-run a $1 increase in the tax bill tends to reduce real wages at the median by 92 cents."
It's quite possible, if not likely, that all else equal US corporate taxes make corporate fixed investment in the US more expensive, so that it goes elsewhere. Thus, all else equal, wages have to be depressed to compensate companies doing fixed investment in the US. Or environmental laws have to be weakened to provide this sop. Taxes, wages, environmental laws (along with labor productivity, the availability of infrastructure, access to markets, etc.) are important parts of the corporate decision about investment location. That's a key reason why we see international competition among governments to attract corporate investment. (It's worse among states of the US union.) That's a key reason why we see the international creep to the bottom, the downward harmonization of labor and environmental standards. (This "creep" is a major reason why the current political economy is so different from that of the 1960s.)
Mankiw ignores this context in order to propose a corporate tax be cut to draw investment in from other countries. But that simply encourages the creep toward the bottom, along with lowering wages and paring government regulations.
Despite these findings, a corporate tax cut as a way to help workers may strike some people as needlessly indirect. Why not just pass an income tax cut aimed squarely at working families, as Senator Barack Obama proposes?
The answer is that while most taxes distort incentives and shrink the economic pie, they do not do so equally. Compared with other ways of funding the government, the corporate tax is particularly hard on economic growth. A C.B.O. report in 2005 concluded that the "distortions that the corporate income tax induces are large compared with the revenues that the tax generates." Reducing these distortions would lead to better-paying jobs.
I'd like to see the assumptions behind that report. Mankiw also seems to be saying that Obama's proposal would "distort incentives and shrink the economic pie." How would that happen, Greg? It would promote aggregate demand (all else constant) which would raise the size of the economic pie that's realized as actual sales, something that seems needed in the midst of a recession. I don't know the details of Obama's plan, but I'd like to hear more about how it would undermine workers' incentive to work. In hard times, facing bills rising relative to income, most people want to work as much as possible, trying to moonlight with two or even three jobs if they can. The problem is not the incentive to work but the availability of jobs.
Of course, a corporate tax cut would affect the federal budget. And any change in tax policy has to be made against a background of a looming fiscal crisis, which threatens to unfold as baby boomers retire and start collecting Social Security and Medicare.
There must be a typo here: Mankiw must be smart enough to know that there is no "looming fiscal crisis" associated with Social Security, so it's wrong to unite it with Medicare in a single package.
In 2007, corporate taxes brought in $370 billion, representing 14 percent of federal revenue. Cutting the rate to 25 percent would seem to cost the Treasury about $100 billion a year.
Part of that revenue loss, however, would be recouped through other taxes. To the extent that shareholders would benefit, they would pay higher taxes on dividends, capital gains and withdrawals from their retirement accounts.
this won't happen if taxes are cut again on dividends, capital gains, and IRA withdrawals, as Mankiw would likely advocate.
To the extent that workers would benefit, they would pay higher payroll and income taxes. Increased economic growth would tend to raise tax revenue from all sources.
this assumes that Mankiw's cock-and-bull story about the wonderful effect of cutting corporate taxes actually works. Calling Dr. Laffer...
SOME economists think that these effects are strong enough to make a corporate rate cut self-financing. A recent study by Alex Brill and Kevin A. Hassett of the American Enterprise Institute [a very objective source, natch], looking at countries in the Organization for Economic Cooperation and Development, supports exactly that conclusion. But even if that turns out to be too optimistic, both theory and evidence make it reasonable to expect a significant discount from the sticker price. In the end, the net budgetary cost of the tax cut might be, say, $50 billion a year.
Great, a totally worthless guesstimate!
Senator McCain wants to fill that hole in the budget by restraining spending. If he can stop bloated legislation like the recent $300 billion farm bill from becoming law, more power to him.
How about ending the $3 Trillion war before it gets even more expensive? how about avoiding the renewal of the Bush tax cut for his rich friends? even better, how about a Bill Clinton-type tax hike for them? These guys haven't been running the economy very well of late. Why reward them for poor behavior?
But in case that quest proves quixotic, I have a back-up plan for him: increase the gasoline tax. With Americans consuming about 140 billion gallons of gasoline a year, a gas-tax increase of about 40 cents a gallon could fund a corporate rate cut, fostering economic growth and reducing a variety of driving-related problems.
Indeed, if we increased the tax on gasoline to the level that many experts consider optimal, we could raise enough revenue to eliminate the corporate income tax. And the price at the pump would still be far lower in the United States than in much of Europe.
I'm all in favor of raising the gas-tax. I notice, however, that Mankiw elided the usual addition to gas-tax hikes, i.e., a tax cut or credit for those at the bottom of the income distribution. That would hurt his ability to earn thousands of dollars doing public speaking for business groups, of course.
Don't laugh. I'm serious.
I can't laugh. He's too stupid.
Jim Devine
New radio interview regarding The Confiscation of American Prosperity
Yesterday, I had a very nice radio interview with Alan Ruff on WORT, a community radio station in Madison, Wisconsin.
http://www.archive.org/details/Interview-WORT-8June2008
http://www.archive.org/details/Interview-WORT-8June2008
Sex and Race in American Politics: Post Mortem on Hillary vs Obama
I should probably let sleeping dogs lie on the day Hillary is (finally) graciously conceding and supporting Obama for president. However, I am bothered by the ongoing whining by embittered Hillary supporters who declare that they are "not willing to shake hands" and claim that Hillary lost due to sexism in the media and the public at large, as well as some blog commentaries. I do think Hillary faced sexism and much of the liberal media supported Obama over her, with Matthews and Shuster on MSNBC making unacceptable remarks. It is also true that sexist remarks have been made in the blogosphere about Hillary. However, I think that Obama beat her because of people being for him, with those against her more due to her link with Bill Clinton and the scandals of his administration than her gender. Some may say blaming her for her husband's problems is sexist, but I do not buy that as he would certainly have been around big time if she had become president, and she began with high negatives (over 40%) widely reported to be due mostly to that connection. I happen to know a couple of politically independent (white) women here in Harrisonburg who supported nobody, but were very anti-Hillary on those grounds.
More fundamentally, those making this sexism argument somehow do not notice that Obama faced a racism hurdle. It looks to me that the racism against Obama was a much more serious electoral hurdle than the sexism against Hillary. For one thing, there are more women than men, and a lot more white women than African-Americans, and we know that Hillary got lots of votes from women supporting her, even if there were some men voting against her on sexist grounds. I see several things here that show it. One is the behavior of the candidates themselves. The only thing I am aware of that Obama was accused of being sexist for doing was holding a chair for Hillary during a debate. She, however, bragged late in the campaign of her appeal to "white voters." Obama supporters in Pennsylvania were beaten up by people calling them "N..... lovers," I am unaware of anything comparable happening to Hillary supporters.
Finally, there is a bottom line, the voting behavior of two groups, especially in the later stages of the campaign: white men and African-American women. White men increasingly supported Hillary over Obama; African American women increasingly went the other way. That last one is the real key, as they are the group that experiences both sexism and racism. Their support for Obama pretty much says which has been more salient in US politics recently, a country that fought its bloodiest war over the slavery of African-descended people.
More fundamentally, those making this sexism argument somehow do not notice that Obama faced a racism hurdle. It looks to me that the racism against Obama was a much more serious electoral hurdle than the sexism against Hillary. For one thing, there are more women than men, and a lot more white women than African-Americans, and we know that Hillary got lots of votes from women supporting her, even if there were some men voting against her on sexist grounds. I see several things here that show it. One is the behavior of the candidates themselves. The only thing I am aware of that Obama was accused of being sexist for doing was holding a chair for Hillary during a debate. She, however, bragged late in the campaign of her appeal to "white voters." Obama supporters in Pennsylvania were beaten up by people calling them "N..... lovers," I am unaware of anything comparable happening to Hillary supporters.
Finally, there is a bottom line, the voting behavior of two groups, especially in the later stages of the campaign: white men and African-American women. White men increasingly supported Hillary over Obama; African American women increasingly went the other way. That last one is the real key, as they are the group that experiences both sexism and racism. Their support for Obama pretty much says which has been more salient in US politics recently, a country that fought its bloodiest war over the slavery of African-descended people.
US Blackmails Iraq on Security Agreement
Patrick Coburn of the Independent has reported that the US is threatening to seize $20 billion of Iraq reserves held at the New York Fed if the Iraqi government does not agree to a security agreement granting the US 50 military bases and freedom of action for the US military and legal immunity for both the US military and private US contracters in Iraq. US Ambassador Ryan Crocker has said the US is not demanding permanent bases, but has not denied the other parts and admits that a tough negotiation is going on.
Indeed, it appears that pretty much every political leader in Iraq opposes it, including Abdel-aziz al Hakim, leader of the largest party (SIIC) and part of the government, along with the most influential cleric, Grand Ayatollah Ali Sistani, and even Premier al Maliki's party, al-Da'wa, has split over it according to Juan Cole today. For Coburn's story see "US issues threat to Iraq's $50bn foreign reserves in military deal".
Indeed, it appears that pretty much every political leader in Iraq opposes it, including Abdel-aziz al Hakim, leader of the largest party (SIIC) and part of the government, along with the most influential cleric, Grand Ayatollah Ali Sistani, and even Premier al Maliki's party, al-Da'wa, has split over it according to Juan Cole today. For Coburn's story see "US issues threat to Iraq's $50bn foreign reserves in military deal".
Friday, June 6, 2008
Prediction Markets: October Surprise
I remember how John Poindexter wanted to use prediction markets to learn about terrorism. Maybe he was on to something. Some of the run-up in oil prices seems to relate to the dangers of a conflict in Iraq. Would believers in rational expectation accept that Bush may be readying an October Surprise?
Teaching the Professors
by the Sandwichman
"Mr. Sargent has been getting out letters, collecting data, making addresses, and holding debates with eminent representatives of the other side of the question, making addresses in our colleges and universities, and he has attracted a great deal of favorable attention from our seats of learning in this country. He is teaching the teachers. He is teaching the professors and college presidents."
That is how National Association of Manufacturers President John Edgerton introduced Noel Sargent, manager of the Open Shop Publicity Bureau (subsequently renamed the Industrial Relations Department) at the NAM's 1923 convention. Prior to working for the Association, Sargent was a professor of economics at the University of Minnesota.
How accurate was Edgerton's boast, "he is teaching the professors and college presidents," and what conceivable relevance could it have for economics in the 21st century?
Among the contributors to NAM "educational literature" were Harvard University President Charles W. Eliot and University of Chicago economics professor, founder of the Journal of Political Economy, J. Laurence Laughlin. Other conspicuous advocates of the NAM open shop policy included Chancellor James Roscoe Day of Syracuse University, President George B. Cutten of Colgate University and Dean Robertson of New York University. In 1922, the Open Shop Publicity Bureau "supplied 1,500 colleges and university teachers of economics and sociology with material.... Practically all of the college and university teachers of sociology, government, and economics receive our publications."
Sending materials to university professors provides no guarantee they will read them or pass on the message to their students. The substantial quantity of non-NAM publication by economists echoing the NAM talking points (in defiance of conclusive evidence contradicting NAM assertions) is strong circumstantial evidence that economics professors did read and adopt the NAM party line. Also, the well-documented pressure tactics of the Association in its dealings with the press and Congress offer a clue to how the Open Shop Publicity Bureau probably would have added "legs" (and a strong arm) to its message.
In its relations with the press, the Association sent out materials to newspapers, monitored the take-up of these stories by the papers, rewarded (with advertising revenue) those newspapers who towed the line and punished those who didn't through blacklists and boycotts. It made no secret of those activities; rather it extolled them as the organization's sacred and patriotic duty to uphold the US Constitution and the Ten Commandments of the Old Testament. The hyperbole is not Sandwichman's but President Edgerton's in a 1920 address to the Tennessee Manufacturers Association. "When the people of this enlightened country surrender to the absurdity of the argument for the so-called closed shop and accept it as an established institution, they will owe it to the devil to repudiate the Decalogue and repeal the Constitution of the United States."
On the other hand, its dealings with Congress were handled somewhat more discreetly. It took a Congressional investigation in 1913 to expose the machinations of the "invisible government" that the NAM orchestrated.
The case for the NAM's virtual authorship of economic textbook dogma on shorter hours relies on the following assumptions:
1. That the NAM actually carried out the intentions with respect to college teaching of economics that it publically proclaimed. "We must point out to the people that all this legislation that is going on affects them; shorter hours increases the cost of living, raises taxes, creates a condition for them that is really worse than it is for the manufacturers. We owe it to them. We must do it. That is the important thing for this organization to do."
2. That the NAM used strategies toward that end consistent with the strategies it employed in its other endeavors.
3. That in practice, the NAM strategies would have been virtually identical to those documented by FCC investigation in the case of the Missouri and Illinois committees on Public Utilities Education.
4. That the publication of hundreds of economics textbooks and other publications echoing the NAM claims would be more difficult to explain in the absence of a NAM campaign of carrots and sticks.
"Mr. Sargent has been getting out letters, collecting data, making addresses, and holding debates with eminent representatives of the other side of the question, making addresses in our colleges and universities, and he has attracted a great deal of favorable attention from our seats of learning in this country. He is teaching the teachers. He is teaching the professors and college presidents."
That is how National Association of Manufacturers President John Edgerton introduced Noel Sargent, manager of the Open Shop Publicity Bureau (subsequently renamed the Industrial Relations Department) at the NAM's 1923 convention. Prior to working for the Association, Sargent was a professor of economics at the University of Minnesota.
How accurate was Edgerton's boast, "he is teaching the professors and college presidents," and what conceivable relevance could it have for economics in the 21st century?
Among the contributors to NAM "educational literature" were Harvard University President Charles W. Eliot and University of Chicago economics professor, founder of the Journal of Political Economy, J. Laurence Laughlin. Other conspicuous advocates of the NAM open shop policy included Chancellor James Roscoe Day of Syracuse University, President George B. Cutten of Colgate University and Dean Robertson of New York University. In 1922, the Open Shop Publicity Bureau "supplied 1,500 colleges and university teachers of economics and sociology with material.... Practically all of the college and university teachers of sociology, government, and economics receive our publications."
Sending materials to university professors provides no guarantee they will read them or pass on the message to their students. The substantial quantity of non-NAM publication by economists echoing the NAM talking points (in defiance of conclusive evidence contradicting NAM assertions) is strong circumstantial evidence that economics professors did read and adopt the NAM party line. Also, the well-documented pressure tactics of the Association in its dealings with the press and Congress offer a clue to how the Open Shop Publicity Bureau probably would have added "legs" (and a strong arm) to its message.
In its relations with the press, the Association sent out materials to newspapers, monitored the take-up of these stories by the papers, rewarded (with advertising revenue) those newspapers who towed the line and punished those who didn't through blacklists and boycotts. It made no secret of those activities; rather it extolled them as the organization's sacred and patriotic duty to uphold the US Constitution and the Ten Commandments of the Old Testament. The hyperbole is not Sandwichman's but President Edgerton's in a 1920 address to the Tennessee Manufacturers Association. "When the people of this enlightened country surrender to the absurdity of the argument for the so-called closed shop and accept it as an established institution, they will owe it to the devil to repudiate the Decalogue and repeal the Constitution of the United States."
On the other hand, its dealings with Congress were handled somewhat more discreetly. It took a Congressional investigation in 1913 to expose the machinations of the "invisible government" that the NAM orchestrated.
The case for the NAM's virtual authorship of economic textbook dogma on shorter hours relies on the following assumptions:
1. That the NAM actually carried out the intentions with respect to college teaching of economics that it publically proclaimed. "We must point out to the people that all this legislation that is going on affects them; shorter hours increases the cost of living, raises taxes, creates a condition for them that is really worse than it is for the manufacturers. We owe it to them. We must do it. That is the important thing for this organization to do."
2. That the NAM used strategies toward that end consistent with the strategies it employed in its other endeavors.
3. That in practice, the NAM strategies would have been virtually identical to those documented by FCC investigation in the case of the Missouri and Illinois committees on Public Utilities Education.
4. That the publication of hundreds of economics textbooks and other publications echoing the NAM claims would be more difficult to explain in the absence of a NAM campaign of carrots and sticks.
Globalization, Imperialism, and Power
I was just invited to deliver a paper in Mexico in a few days. I have to send it off even earlier, but what I have is a very rushed effort, thrown together in two mornings. Any quick pointers would be appreciated. Thanks in advance.
http://michaelperelman.wordpress.com/files/2008/06/global.doc
http://michaelperelman.wordpress.com/files/2008/06/global.doc
Wednesday, June 4, 2008
Market Lunacy
Property rights attract private capital and, with government space programs stagnating, a lunar land rush may be just what we need to get things going again. I'll take a nice parcel near one of the lunar poles, please, with a peak high enough to get year-round sunlight and some crater bottoms deep enough to hold ice.
Reynolds, Glenn Harlan. 2008. "Who Owns the Moon? The Case for Lunar Property Rights." Popular Mechanics (June).
Obama and Shorter Working Time
by the Sandwichman
My premise is that the US Presidency is 90% symbolism and 10% muddle. As far as I know, Barack Obama has taken no major policy positions addressing the hours of work. But in the realm of symbolism, Obama's nomination throws open a door that has been tightly shut for 150 years: American exceptionalism.
One persuasive answer to the old question of why no formidable socialist or labor political party ever emerged in the United States has to do with the legacy of slavery and the faux "work ethic" ideology of white working men. Historically, rather than viewing themselves as antagonistic to the robber barons and captains of industry, a large portion of white working class men have derived their identities from being "not slaves". "I work hard because I believe in hard work. It is my choice to work hard, that is how I know I'm not a slave. What is hard work? Working hard!" The white work ethic hints at the same confused and ashamed closet that homophobia dwells in (this is not to indict the work ethic per se, but an exclusivist version of it peculiar to white males).
Whiteness, itself, is simply a negative residual of being not black. There is no such thing as white culture. There's Italian cooking, English theatre, Irish pub music and Dutch painting but no white culture. Coincidentally, there's no such thing as black culture, either. There is, however, a parody and representation of plantation entertainment that generated the stereotype of black culture -- the black-face minstrel show of the 19th century. The really odd thing about the minstrel show is that the slave entertainments the minstrel shows parodied often themselves already performed parodies of the plantation masters' peculiar folk ways. So the Northern white man's fantastic image of Southern black slave culture was itself already a parody of a parody.
Hegel once said something about great events and persons in history happening, as it were, twice. Marx added that the duplication appeared the first time as tragedy, the second as farce. The great tragedy of American exceptionalism is that it has been farce all the way down. It should go without saying that slave labor was a form of labor. Moreover, American slavery was a variety of capitalism. The New York merchant bank of Brown Bros. & Co. -- subsequently Brown Bros. Harriman, employer of Bush Grampa Prescott -- owed its fortune to financing Southern plantations in their purchase of slaves and trade in cotton.
One of the delicious ironies of the work-ethic ideology is that it ascribes financial success to individual effort and poverty to sloth. Thus, it was presumably George and John Brown who planted and picked all that cotton while their slaves were too busy shuckin', jivin' and eatin' watermelon to do a lick of work. And yes, I know that Barack Obama is not descended from slaves but false stereotypes don't bother with such distinctions.
The miracle of the African-American experience under slavery is that people retained their humanity -- even their sense of humor -- through harsh, inhuman, conditions. I wonder if perhaps the initial impulse of the black-face minstrel show wasn't more a celebration of this triumph than a disparagement. Somewhere along the line, though, audiences forgot they were watching burlesque and starting mistaking it for documentary. It is inevitable in the coming election season that a lot of creepy-crawlies are going to come out from under their rocks. On the one hand, that is deplorable. On the other hand, though, airing the potency and taken-for-grantedness of the tradition of American racism may provide just the innoculation needed to move on to other questions that have been perpetually sidelined by the racist agenda.
So what does that have to do with shorter working time? It's a complicated argument but the starting point is in the anti-slavery origins of Ira Steward and the eight-hour movement in the 19th century. Steward's arguments for the eight-hour day derived initially from his analysis of slavery. More recently, David Roediger has written histories both of the movement for shorter working time, Our Own Time as well as of the role of racism in American exceptionalism, The Wages of Whiteness. Rather than recapitulate Roediger's analysis or Steward's, I will simply end this note with the hope that the symbolism of an Obama presidency -- even its mere possibility -- will proclaim America's emancipation from the ideological and political chains of racism.
My premise is that the US Presidency is 90% symbolism and 10% muddle. As far as I know, Barack Obama has taken no major policy positions addressing the hours of work. But in the realm of symbolism, Obama's nomination throws open a door that has been tightly shut for 150 years: American exceptionalism.
One persuasive answer to the old question of why no formidable socialist or labor political party ever emerged in the United States has to do with the legacy of slavery and the faux "work ethic" ideology of white working men. Historically, rather than viewing themselves as antagonistic to the robber barons and captains of industry, a large portion of white working class men have derived their identities from being "not slaves". "I work hard because I believe in hard work. It is my choice to work hard, that is how I know I'm not a slave. What is hard work? Working hard!" The white work ethic hints at the same confused and ashamed closet that homophobia dwells in (this is not to indict the work ethic per se, but an exclusivist version of it peculiar to white males).
Whiteness, itself, is simply a negative residual of being not black. There is no such thing as white culture. There's Italian cooking, English theatre, Irish pub music and Dutch painting but no white culture. Coincidentally, there's no such thing as black culture, either. There is, however, a parody and representation of plantation entertainment that generated the stereotype of black culture -- the black-face minstrel show of the 19th century. The really odd thing about the minstrel show is that the slave entertainments the minstrel shows parodied often themselves already performed parodies of the plantation masters' peculiar folk ways. So the Northern white man's fantastic image of Southern black slave culture was itself already a parody of a parody.
Hegel once said something about great events and persons in history happening, as it were, twice. Marx added that the duplication appeared the first time as tragedy, the second as farce. The great tragedy of American exceptionalism is that it has been farce all the way down. It should go without saying that slave labor was a form of labor. Moreover, American slavery was a variety of capitalism. The New York merchant bank of Brown Bros. & Co. -- subsequently Brown Bros. Harriman, employer of Bush Grampa Prescott -- owed its fortune to financing Southern plantations in their purchase of slaves and trade in cotton.
One of the delicious ironies of the work-ethic ideology is that it ascribes financial success to individual effort and poverty to sloth. Thus, it was presumably George and John Brown who planted and picked all that cotton while their slaves were too busy shuckin', jivin' and eatin' watermelon to do a lick of work. And yes, I know that Barack Obama is not descended from slaves but false stereotypes don't bother with such distinctions.
The miracle of the African-American experience under slavery is that people retained their humanity -- even their sense of humor -- through harsh, inhuman, conditions. I wonder if perhaps the initial impulse of the black-face minstrel show wasn't more a celebration of this triumph than a disparagement. Somewhere along the line, though, audiences forgot they were watching burlesque and starting mistaking it for documentary. It is inevitable in the coming election season that a lot of creepy-crawlies are going to come out from under their rocks. On the one hand, that is deplorable. On the other hand, though, airing the potency and taken-for-grantedness of the tradition of American racism may provide just the innoculation needed to move on to other questions that have been perpetually sidelined by the racist agenda.
So what does that have to do with shorter working time? It's a complicated argument but the starting point is in the anti-slavery origins of Ira Steward and the eight-hour movement in the 19th century. Steward's arguments for the eight-hour day derived initially from his analysis of slavery. More recently, David Roediger has written histories both of the movement for shorter working time, Our Own Time as well as of the role of racism in American exceptionalism, The Wages of Whiteness. Rather than recapitulate Roediger's analysis or Steward's, I will simply end this note with the hope that the symbolism of an Obama presidency -- even its mere possibility -- will proclaim America's emancipation from the ideological and political chains of racism.
Free At Last
I am happy to announce that my new local assemblyman -- the winner of the Republican primary is certain to win in November -- made as his overriding issue the importance of protecting our borders. I assume that he will be overseeing the erection of a major wall surrounding his district, which encompasses parts of several counties. At last I am free from the threat of an invasion by a fleet of taco trucks.
One Party’s Poison
Do you want an honest picture of the political challenge we face in getting sensible policy on climate change? Towards the end of a report on the start of Senate deliberation on Boxer-Warner-Lieberman, we read this about Bob Corker, Republican from Tennessee:
Poison? These are exactly what we need. Rather than sensing the opportunity to build a coalition with conservatives like Corker who rightly understand that we need a strong cap with minimal government meddling, Democrats can think only of showering business with giveaways. Of course, to have exemptions, offsets, freebie allocations and other goodies to pass out, the politicians have to push a plan riddled with loopholes.
The Democratic Party, as it now functions, is too wedded to narrow business interests, a proclivity it fine-tuned during the Clinton years, to grapple with a genuine public imperative like preserving a liveable planet. That’s what I would call an inconvenient truth.
Mr. Corker is proposing a string of amendments that Democrats characterize as “poison pills” that would undermine the purpose of the legislation. His amendments would return more of the receipts from the carbon permits directly to taxpayers, eliminate the issuance of free permits and do away with the ability of American companies to meet their emissions targets by buying offsets overseas.
Poison? These are exactly what we need. Rather than sensing the opportunity to build a coalition with conservatives like Corker who rightly understand that we need a strong cap with minimal government meddling, Democrats can think only of showering business with giveaways. Of course, to have exemptions, offsets, freebie allocations and other goodies to pass out, the politicians have to push a plan riddled with loopholes.
The Democratic Party, as it now functions, is too wedded to narrow business interests, a proclivity it fine-tuned during the Clinton years, to grapple with a genuine public imperative like preserving a liveable planet. That’s what I would call an inconvenient truth.
Tuesday, June 3, 2008
Is Supporting Preserving Social Security As Is While Advocating Combatting Global Warming Hypocritical Confusion?
This is the charge made by Arnold Kling at econlog and in more detail by Andrew Biggs. Biggs is former Bush hit man on social security, and he and Kling both see those who doubt that social security is "in crisis" and those who doubt that global warming "is a problem" as being somehow similar, namely confused, and if one is supporting one and not the other, not just confused, then (implicitly, although neither used this word) hypocritical.
I have commented on Biggs's blog that I think it is not unreasonable to support social security as is while supporting doing something about global warming. He claims that changes to social security are "permanent" (as are changes to global climate), and of course supports the usual pessimistic forecasts. I argue that on social security that a) the pessimistic forecasts have not done too well so far, and b) social security can be changed at any time if indeed things go bad. However, with global warming, the downside is much worse and the lead times are much longer. Also, they do not have the same probability distributions, with social security essentially more of a normal distribution, but with global warming, as Martin Weitzman has pointed out (and similar to financial market returns), there are these non-normal "fat tails," too high a chance of extreme events due to nonlinearities and positive feedbacks in the system, with the geological record supporting the idea that very rapid temperature change has happened in the past. So, we must worry about those non-trivial catastrophic outcome possibilities, much more serious than possible underfunding of the US social security system.
I have commented on Biggs's blog that I think it is not unreasonable to support social security as is while supporting doing something about global warming. He claims that changes to social security are "permanent" (as are changes to global climate), and of course supports the usual pessimistic forecasts. I argue that on social security that a) the pessimistic forecasts have not done too well so far, and b) social security can be changed at any time if indeed things go bad. However, with global warming, the downside is much worse and the lead times are much longer. Also, they do not have the same probability distributions, with social security essentially more of a normal distribution, but with global warming, as Martin Weitzman has pointed out (and similar to financial market returns), there are these non-normal "fat tails," too high a chance of extreme events due to nonlinearities and positive feedbacks in the system, with the geological record supporting the idea that very rapid temperature change has happened in the past. So, we must worry about those non-trivial catastrophic outcome possibilities, much more serious than possible underfunding of the US social security system.
The Climate Action Partnership: A Negative Heuristic
This report from the front shows how important it is to get the basics right in climate change policy. The more discretion the federal government has in how many permits to allocate to which industry, and how many should be given away and to whom, the more the whole program will be swallowed up in political gridlock and rent-seeking. There are five big principles to follow if we want to avoid this nightmare scenario:
1. Cap carbon as upstream as possible, at its source rather than its use. Any entity bringing coal into the economy, by mining or importing it, should have to have a permit. Don’t put the government into the position of deciding who should be given a special dispensation to burn it.
2. Auction all the permits. As soon as you accept the idea that some of them should be given away, you have to pick the lucky recipients. These permits will be worth real money, and so will political influence. (Corollary: recycle the revenue, so households are protected from price increases, and to lock in political support for serious emission limits.)
3. Don’t allow offsets. Measurement of how much carbon the offsets really offset will always be fuzzy, and wriggle room will be sold to the highest bidder.
4. Tax imports that aren’t produced under a carbon cap. If other countries delay in setting up their own policies, adopt a transparent tariff schedule based on embodied carbon content, ideally under the auspices of an international, disinterested body. This will address much of the competitiveness fear, while producers gear up for long-term advantage based on innovative responses to emissions caps that will eventually be adopted worldwide.
5. Adopt sector-specific technology subsidies and mandates. Don’t fall into the either/or trap: carbon capping provides the architecture, but there is still a need for policies that mobilize a coordinated response in dimensions like research, infrastructure and breaking down the institutional barriers to innovation. Fuel and appliance efficiency standards, large-scale public investments in new technology, installing a higher-tech electrical grid, mass transit—these are the kinds of measures that will make it possible for us to make a reasonable life for ourselves under an ever tightening carbon cap.
1. Cap carbon as upstream as possible, at its source rather than its use. Any entity bringing coal into the economy, by mining or importing it, should have to have a permit. Don’t put the government into the position of deciding who should be given a special dispensation to burn it.
2. Auction all the permits. As soon as you accept the idea that some of them should be given away, you have to pick the lucky recipients. These permits will be worth real money, and so will political influence. (Corollary: recycle the revenue, so households are protected from price increases, and to lock in political support for serious emission limits.)
3. Don’t allow offsets. Measurement of how much carbon the offsets really offset will always be fuzzy, and wriggle room will be sold to the highest bidder.
4. Tax imports that aren’t produced under a carbon cap. If other countries delay in setting up their own policies, adopt a transparent tariff schedule based on embodied carbon content, ideally under the auspices of an international, disinterested body. This will address much of the competitiveness fear, while producers gear up for long-term advantage based on innovative responses to emissions caps that will eventually be adopted worldwide.
5. Adopt sector-specific technology subsidies and mandates. Don’t fall into the either/or trap: carbon capping provides the architecture, but there is still a need for policies that mobilize a coordinated response in dimensions like research, infrastructure and breaking down the institutional barriers to innovation. Fuel and appliance efficiency standards, large-scale public investments in new technology, installing a higher-tech electrical grid, mass transit—these are the kinds of measures that will make it possible for us to make a reasonable life for ourselves under an ever tightening carbon cap.
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