Pass And Sign The Senate Health Care Bill As Is

I have to say it because the Senate health care bill is terribly flawed and very far from what so many of us were hoping for. However, we must face the hard reality in light of the election results in Massachusetts. There is simply no way anybody is going to get the Senate to pass any variation on it once Scott Brown is seated, unless they can actually change the rules to do reconciliation with 50 votes without mucking about at it for too long. The only possible bill likely to be actually signed into law at this point is the one passed with such enormous effort by the Senate in December. If the House refuses we will not see another serious effort for many years. The bill does little, but it is better than nothing, increasing coverage to two thirds of the uninsured and forbidding insurance companies from refusing people over preexisting conditions or arbitrarily dumping them.

Basically there are six systems of health care out there: 1) more or less pure laissez faire, formerly seen in the US but now no high income countries, although some very poor countries; 2) the US system of mixed public private with for-profit health insurance companies and no universal coverage; 3) universal coverage through private but non-profit insurance companies, seen in Switzerland and the Netherlands; 4) mixed private public system with universal coverage, non-profit private insurance companies, and a public option, see Germany and top-rated on health-care-by-the-WHO France; 5) a single payer system by government with universal coverage, with health care workers still privately (mostly self) employed, with Canada the leading example, and 6) full socialized medicine with health care workers employees of the state, see the UK and the former Soviet Union. There has been talk in the US of single payer, and many in Congress wanted a public option (although nobody was willing to push to change our badly behaved for-profit health insurers to non-profit), but in the end the Senate bill does not move us off System 2, merely extends and improves it some. Still, it is better than nothing, and killing it with no alternative will not help Dems politically this fall in the elections.

Obama And The Generals On Iraq

The inimitable Juan Cole (http://www.juancole.com) is at it again, this time documenting a very poorly reported on showdown last year between the newly installed President Obama and the top generals dealing with Iraq, Petraeus and Odierno, along with SecDef Gates. They wanted him to alter the Status of Forces Agreement that Bush had made with the Iraqi government to withdraw US troops in 16 months, with independent patrols to cease last June. The generals wanted to the patrols to continue beyond June by relabeling them, something that Cole reports would have infuriated the Iraqi government. As it was, Obama stood firm with his campaign promise to stick with the 16 month timetable, and active troop patrols ceased last June as scheduled, despite the pressure from Gates and the generals. Apparently the last combat US Marines will hand over control of long-violent al-Anbar Province this coming Saturday and depart completely from Iraq shortly thereafter, and there were no combat US deaths in December. Of course Iraq continues to have many problems, but Obama has succeeded in effectively ending an active US war role there, although few realize what was involved or are noticing it now.

The currency quarrel with China is a dangerous distraction

In an article in the Washington Post last November entitled ‘The currency quarrel’ [1] there were a number of assertions made about the economic relationship between the US and China that are questionable, to say the least.

The opening sentence begins by pointing out that “it is a cliche that the United States has no more important bilateral relationship than that with China.” Is that true? Steve Dunaway, adjunct senior fellow for international economics at the Council for Foreign Relations says:

“Only roughly 15 percent of U.S. imports come from China. Moreover, all of the basic types of manufactured consumer goods that China exports to the United States (clothing, textiles, footwear, toys, small appliances, etc.) can be imported from other countries or could be produced domestically. The prices for goods that could substitute for products from China would be higher, but the difference in costs would be relatively small.” [2]

It's Canada – NOT China - that is the U.S.'s largest trading partner. It has been for some considerable time. [3]

The Washington Post article goes on:

“The United States, in fact, consumed more than it produced, but China enabled this by accumulating $2.3 trillion in reserves and plowing much of it back into U.S. government bonds.”

In actual fact, it is clear that the US Government created the conditions under which America consumes more than it produces at home. Successive American Governments have deliberately pursued a policy entailing the embedding of its domestic corporations or their subsidiaries in foreign nations. “Investment abroad is investment in America” has been the slogan of American corporations at least since the late 1960s.

Nowadays the world economy is quite literally dominated by giant transnational global corporations, most of which are owned and controlled by American citizens. In 2002 it was written:

“9 of the top ten companies in the world, 72% of the top 25 global corporations, 70% of the top 50 global corporations. 5 of the top global banks, six of the top 10 pharmaceutical/biotech companies, 4 of the top ten telecommunications, 7 of the top IT corporations, 4 of the top gas and oil corps, 9 of the top ten software companies, 4 of the top ten insurance companies, 9 of the top ten general retail companies.” All call the USA their home. [4]

and these firms tended to enjoy extraordinary levels of dominance in world markets:

“By the early 1990s, five firms controlled more than 50 percent of global market share in consumer durables, steel, aerospace, electronic components, airline, and auto industries. In oil, personal computers, and media, five firms controlled more than 40 percent of the market. In American markets ranging from commercial airlines and aerospace to computer hardware and software to household appliances, three or four firms control up to 90 percent of the market, and market share concentration continues to increase through mergers and targeted growth strategies.” [5]

China’s domestic firms, on the other hand, simply can’t compete with these global giants.

“At the start of the 21st century, not one of China’s leading enterprises had become a globally competitive giant corporation, with a global market, global brand, and a global procurement system…The brutal reality is that after two decade of reform, China’s large firms mostly are still far from being able to compete with the global giants. ” [6]

It seems odd under these conditions that the Washington Post article complains about China’s attempts to protect its export industries by linking its currency to the plunging US dollar. Why is the dollar plunging in value in the first instance?

The American government has pursued economic and military policies whose net effect tended to consistently devalue its domestic currency. Actions such as engaging in decades of avoidable military aggression against a long list of nations, refusing to enforce viable fuel standards for vehicles, failing to use the decades of opportunity since the ‘70s oil crisis to foster and protect an sustainable alternative energy industry, deregulation of financial and commodity markets that have consequently bred inflationary speculative activities on a disastrous scale. And so forth. The list of US government failure is a long one.“U.S. exports are not growing as much as they would otherwise, and neither are those of other countries in Asia.” Says the Washington Post.

Well, the United states is still, by every measure, the world’s largest economy but even the citizens of this wealthy nation are struggling to find the financial resources to sustain the huge markets that the global TNCs would like to see continued indefinitely. Neoliberalism has bred massive inequality:

“Between the mid-1970s and 2006 the Gross Domestic Product of the United States trebled; the level of labour productivity almost doubled; the Dow Jones Index rose from 1000 to 13,000. Yet astonishingly enough, during that entire period, according to several studies, the income of the average American worker and family essentially remained stagnant [whilst] …. from 1980 to 2006, … the wealthiest 10 per cent of Americans increased their share of national income from 35 per cent to 49 per cent.” “By 2006 the wealthiest 1 per cent earned 20 per cent of national income.” [7]

The rich have gained access to virtually unlimited funds in the context of the world economy being on a precipice. People all over the planet have been struggling to pay their bills. When China opened itself up to capitalism the global labour force increased immensely. Consequently, wages could be kept low almost everywhere. Consumption predictably declined and at a time when inflation was being experienced with the rising costs of business inputs. This has occurred in a general situation of global oversupply.

“Corporations had little motivation to increase investment and employment, so no interest in borrowing no matter how low the Fed made the cost of credit. On the contrary, they had every incentive to slow down capital accumulation and reduce costs by way of cutbacks on jobs and plant and machinery, while availing themselves of falling interest rates to pay down their debt. And that is what they did.” [8]

The Washington Post will probably continue to blame China for US’ woes. The US and other nations, however, cannot grow their way out of this slowdown. Governments around the world may try to continue pump-priming aggregate demand but if they do ecological catastrophe and other severe problems will continue to play out. They must stop blocking the urgently needed consolidation and restructuring of our economies.

There is now a dire shortage of energy and minerals and this problem will not be able to be addressed for years to come. The bailing out of big financial institutions is also causing the entrenchment of inflationary expectations.

We need a public media that ceases to point the finger at economic rivals and, instead, looks for real solutions to the whole range of pressing problems we all now face. Or we’ll be inundated by much bigger problems very, very soon. Avoidance is not a strategy.

[1] The currency quarrel
China won't change on command. America must retake control of its own financial destiny.
Tuesday, November 24, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/23/AR2009112303039.html

[2] The U.S.-China Economic Relationship: Separating Facts from Myths
Author: Steven Dunaway, Adjunct Senior Fellow for International Economics
November 16, 2009
http://www.cfr.org/publication/20757/uschina_economic_relationship.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cfr_main+%28CFR.org+-+Main+Site+Feed%29

[3] Canada, Not China, Is U.S.'s Largest Trade Partner
Sunday, January 03, 2010
http://mjperry.blogspot.com/2010/01/canada-not-china-is-uss-largest-trade.html

[4] Facts on the US Economic Empire
by etra Jaimers. Eat the State. Volume 7, #3 October 9, 2002
http://eatthestate.org/07-03/FactsonEconomic.htm

[5] 'Corporation Nation' by Charles Derber. 1998. ISBN 0-312-19288-6. Pages 59- 62 Chapter three:'The Mouse, Mickey Mouse, and Baby Bells'

[6] (Nolan, P. 12) as quoted in:
The China Factor:Mystery, Myth or Magic?
CTMA Roundtable. Kim Korth and John Cleveland. February 26, 2004
IRN, Inc. 550 Three Mile Rd. Grand Rapids, MI 49544
www.irn-auto.com
http://www.ctma.com/news/documents/CTMAChinaPresentationbyIRN-Feb2604.pdf

[7] The Great Recession and neo-liberalism
Extract from Robert Manne's 2009 QE Lecture in Quarterly Essay 36, http://www.quarterlyessay.com
19.01.10 12:24 am
http://tasmaniantimes.com/index.php?/weblog/article/the-great-recession-and-neo-liberalism/

[8] Brenner, Robert. (2009). What is Good for Goldman Sachs is Good for America The Origins of
the Present Crisis. UC Los Angeles: Center for Social Theory and Comparative History. Retrieved
from: http://escholarship.org/uc/item/0sg0782h

Off the Table or Under the Table: Economics vs. Health Care

Apparently, the Obama folks are following the Bush precedent, paying Johathan Gruber, a health care economist, under the table -- at least he seems to have done nothing to let it be known -- to influence the health care debate

http://emptywheel.firedoglake.com/2010/01/08/gruber-did-not-disclose-conflict-to-the-wapo/

I posted two brief mentions about Jonathan Gruber and health care, without realizing that he had a $392,600 contract with Health and Human Services that had not yet been made public.

First, last November, I posted the following comment in response to a New York Times article about Health Care, alluding to single payer being "off the table.":

Jonathan Gruber is a health economist from MIT -- an expert, no doubt. David Leonhardt quotes his favorable comment on the Senate health care bill: “I can’t think of a thing to try that they didn’t try.”

Leonhardt, apparently, never bothered to ask him about single payer, which was off the table.



A year before, prior to the contract, I posted:

I’m just looking over the August NBER digest. It covers five NBER articles, of which three may be mildly interesting. The first has the scary title, Public Insurance Expansions Crowd Out Private Health Insurance by Jonathan Gruber and Kosali Simon. We learn that: For every 100 children who are enrolled in public insurance, 60 children lose private insurance.” Thank God that George Bush had the courage to stand up to the radicals and threatened to veto an expansion of child health coverage. Otherwise, they might lose their private insurance.

http://www.nber.org/digest/aug07/w12858.html

Jane Hamsher has a piece showing how effectively the White House and the Democrats use Gruber's expertise to support their own mangling of health care reform.

http://www.huffingtonpost.com/jane-hamsher/how-the-white-house-used_b_421549.html

Glenn Greenwald has a piece, the second part of which compares this arrangement to what Bush did with Armstrong Williams and Maggie Gallagher and the CNN generals.

http://www.salon.com/news/opinion/glenn_greenwald/2010/01/15/sunstein/index.html

What Ails Us

I began reading Chris Hayes’ latest rumi-Nation like a fan, cheering him on. Talking about the last national election, Hayes wrote:

If the working hypothesis that bound this unwieldy coalition together--independents, most liberals and the Washington establishment--was that the nation's troubles were chiefly caused by the occupants of the White House, then this past year has served as a kind of natural experiment. We changed the independent variable (the party and people in power) and can observe the results. It is hard, I think, to come to any conclusion but that the former hypothesis was insufficient.

Yes, I thought. He is hot on the trail.

But then he seemed to get distracted. I agree with his diagnosis, that America suffers from a gross imbalance of power, but between whom? He would put “the people” on one side, I suppose, but this vague label always conceals as much as it explains—which people? On the other side we have total darkness: he doesn’t say who the other side is, other than it’s the force that makes us bargain over crumbs in policy arenas like health care.

Power is indeed a big part of the story. I would emphasize two specifics: (1) America has virtually lost the voice of organized labor. Show me any industrialized country that gives progressive politics even a remote shot and doesn’t have substantial union representation of the workforce. (2) We face the political consequence of almost two generations of exploding income inequality. The ones who have prospered in this ruthless world are relatively numerous (perhaps 20% of the population, even more of the electorate), conscious of their class interest, and willing and able to pony up for the cause. Yes, I know the lion’s share of growth has gone to the sliver at the very top, but the broad upper-middle is more interested in protecting what it’s got than pining after the super-rich.

But there are other elements that belong in the picture.

A big one is the devolution of the Republic Party. It is difficult to find words to express this. I have never, not even when I was a young kid, had any affection for this outfit, but in retrospect I have to admit that, once upon a time, they were conscientious in support of the values of their constituency. In office, they would hire experts (more conservative ones, but not always) to provide reasonably informative reports and forecasts. They often found themselves on the yea-side of important, progressive legislation, such as the wave of environmental and consumer initiatives of the late 1960s and early ‘70s. They were worth arguing with.

I can’t remember how many years it’s been since I paid any attention to the intellectual content (if that’s the right term) of Republican discourse. At least since Gingrich, it's been fools-or-knaves all the way. But our political system is set up to lock in place a two-party governance structure, and if one party goes bonkers, the machinery simply breaks down.

An overarching problem has been the rise of the finance view of the world as the ruling perspective in the US and those regions under its influence. This is partly about the power of individual people and institutions, essentially the massive private funds that dominate the resources of government in speculative markets—at least during profitable times. In that sense, it helps nail down the specific identity of “them” in Hayes’ us-against-them power imbalance story.

More broadly, however, there are ideological and social dimensions to financialism that have to be taken into account. In the realm of ideas, this perspective sees the financial “moment”, the decision to invest or trade, as the crucial link in the chain of wealth creation, denigrating such mundane activities as doing physical work or managing the day-to-day complexity of production systems. It justifies a system of corporate governance and personal rewards that would otherwise be indefensible. The ideology has a mass base because (and here we see again the consequences of inflated inequality) that same 20% or so has acquired a consequential financial stake and has come to see itself in those terms. That’s what the ticker at the bottom of your TV or computer screen is telling you when you tune into the news.

As I’ve written elsewhere, this elevation of financial interests—the claim that all of us are best off if investors are able to reap the highest return possible—is the deep force behind both global imbalances and the financial crisis. That must be worth something.

And then there is simply the never-ending sequence of historical moments, the context that makes our situation unique and not just a deduction from some generic model. Throw in the fallout from the debt crisis of 1982, the collapse of Communism in 1989, the continuing standoff between Israelis and Palestinians and its impact on the Islamic world, the about-face in Chinese (and to a lesser extent Indian) economic policy, the information and communications revolution, and we can begin to fill in the details.

If this list is even remotely correct, the vague, we-are-the-world democratic euphoria provoked by the Obama campaign and recalled, nostalgically by Hayes, was impotent from the outset. (The ideology of bipartisanship also missed the point.)

But Hayes is right in the end: Bush, for all his horrors, was not the root problem, and the election of Obama is hardly the solution. If we want to try to turn this thing around by design and not just depend on dumb luck, we need to identify the deeper issues and focus our energies on them.

2009 In Dot Point

** The US ..needs to create 250,000 jobs a month to just absorb people coming into the workforce and they're not doing that.[1]

** The US economy is 70% consumption.[2]

** Only roughly 15 percent of U.S. imports come from China. [3]

** The broad U6 category of unemployment rose to 17.3pc in the US [4]

** 10% of households in the US are behind on their mortgages. 30%+ of homes are in negative equity. Roughly one in seven houses is in serious problems.[5]

** Right now [Dec 09] housing prices, adjusted for inflation, are roughly back to where they were at the beginning of the decade.[6]

** One million American families lost their homes in the fourth quarter of 2009. Another 2.4 million homes are expected to go in 2010. [7]

** It was a decade of zero gains for stocks, even without taking inflation into account. The Dow first topped 10,000 in 1999. "Last week [week to 27th December 2009] the market closed at 10,520."[8]

** The headline employment number for December 2009 [was expected to be] "slightly higher than that for December 1999, but only slightly."[9]

** Private-sector employment has actually declined [in the US]— the first decade on record in which that happened.[10]

** "if it isn't government, it isn't getting done" Very high levels of government debt are being financed by (i) investors concerned about the safety of other assets (ii) central banks buying bonds issued by the Treasury….like an internal transfer of printing money game that’s going on. [11]

** There is $4.2 trillion of corporate debt which has to be refinanced over the next five years. This poses a refinancing risk. [12]

** The risk of a 50-year old woman acquiring breast cancer rose to 12% in 2009 compared to 1% in 1975.[13]

REFERENCES

[1] Das is not good: post-crash stagnation. 9th December 2009
http://www.abc.net.au/pm/content/2009/s2766725.htm 09/DEC/2009

[2] Das is not good: post-crash stagnation. 9th December 2009
http://www.abc.net.au/pm/content/2009/s2766725.htm 09/DEC/2009

[3] The U.S.-China Economic Relationship: Separating Facts from Myths
Author: Steven Dunaway, Adjunct Senior Fellow for International Economics
November 16, 2009
http://www.cfr.org/publication/20757/uschina_economic_relationship.html

[4] America slides deeper into depression as Wall Street revels
December was the worst month for US unemployment since the Great Recession began.
By Ambrose Evans-Pritchard
Published: 6:35PM GMT 10 Jan 2010
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6962632/America-slides-deeper-into-depression-as-Wall-Street-revels.html

[5] Das is not good: post-crash stagnation. 9th December 2009
http://www.abc.net.au/pm/content/2009/s2766725.htm 09/DEC/2009

[6] The Big Zero
By PAUL KRUGMAN
Published: December 27, 2009
http://www.nytimes.com/2009/12/28/opinion/28krugman.html?_r=1&ref=opinion

[7] America slides deeper into depression as Wall Street revels
December was the worst month for US unemployment since the Great Recession began.
By Ambrose Evans-Pritchard
Published: 6:35PM GMT 10 Jan 2010
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6962632/America-slides-deeper-into-depression-as-Wall-Street-revels.html

[8] The Big Zero
By PAUL KRUGMAN
Published: December 27, 2009
http://www.nytimes.com/2009/12/28/opinion/28krugman.html?_r=1&ref=opinion

[9] The Big Zero
By PAUL KRUGMAN
Published: December 27, 2009
http://www.nytimes.com/2009/12/28/opinion/28krugman.html?_r=1&ref=opinion

[10] The Big Zero
By PAUL KRUGMAN
Published: December 27, 2009
http://www.nytimes.com/2009/12/28/opinion/28krugman.html?_r=1&ref=opinion

[11] Das is not good: post-crash stagnation. 9th December 2009
http://www.abc.net.au/pm/content/2009/s2766725.htm 09/DEC/2009

[12] Das is not good: post-crash stagnation. 9th December 2009
http://www.abc.net.au/pm/content/2009/s2766725.htm 09/DEC/2009

[13] Cancer From the Kitchen?
By NICHOLAS D. KRISTOF Op-Ed Columnist
Published: December 5, 2009
http://www.nytimes.com/2009/12/06/opinion/06kristof.html?_r=4

A Footnote to the Gruber Affair

Jonathan Gruber, a health economist at MIT and the main “independent” analyst the Obama administration has relied on to put numbers on its health reform proposals, was paid almost $400,000 last year by the government to do this—but the payments were kept hidden until Marcy Wheeler of Firedoglake broke the story. A small firestorm has raged over this episode: see this and this and this.

Aside from what it says about the commitment of team Obama to open, honest government, it also casts a light on a lesser-known fact about the economics profession: economists never have to disclose their funding sources to the public. They don’t have to say who’s paying them when they publish a journal article. They don’t have to say who’s paying when they write op-eds or make presentations at academic gatherings. Unlike medical researchers, who have gone through a process of soul-searching over their financial relationship to pharmaceutical companies and other interested parties, economists never discuss, and apparently never think about, the potential for money to corrupt.

Obviously, incentives are important for everyone but them.

Real Confusion

AP is reporting that real wages declined during 2009 but their lead sentence is quite confusing.

American families were squeezed last year as their inflation-adjusted weekly wages fell 1.6 percent — the sharpest drop since 1990 — well below the 2.7 percent consumer inflation rate.

Real wages decline if inflation exceeds the increase in nominal wages, which is what I think AP meant to say. This sentence, however, almost appears to compare some alleged increase in real wages to the increase in consumer prices.

BLS reports that average weekly earnings of production and nonsupervisory workers on private nonfarm payrolls in current dollars rose by 1.87% from December 2008 ($612.72) to December 2009 ($624.16) but when adjusted for inflation, their constant (1982) dollar weekly earnings fell from $288.12 to $283.58 or the reported decline in inflation-adjusted weekly wages. My math says this means the deflator had to rise by 3.5% over the same period not the reported 2.7%.

Rowley Versus DeLong On The State Of Macro

This is one of those naughty little contretemps I just cannot resist reporting on. So, Charles Rowley of George Mason has been posting "on the State of Macroeconomics" in the past few days. One post was not too unreasonable, slamming the longstanding assumption in favor of rational expectations, http://charlesrowley.wordpress.com/2010/01/10/how-macroeconomics-lost-its-way-1-theory-ignores evidence. The third of these, which can be linked through http://www.coordinationproblem.org/2010/01/charles-rowley-on-the-state-of-macroeconomics, (new name for The Austrian Economists) is a much less admirable and defensible affair, although he made a better case for himself in some of his comments. It is basically a weak anti-Keynesian screed that includes the following quotation: "The Keynesian model never worked; and never will work. It has been resuscitated by opportunistic economists, not because they believe in its merits as an agent of macroeconomic rehabilitation, but because they recognize its political value as a weapon for moving economics from laissez-faire capitalism, or (hopefull) beyond to fully-fledged socialism."

Now there is much to criticize in those remarks alone, along with the rest of the post. However, Brad DeLong proceeded to make a complete fool of himself by jumping in on this with the following comment: "Why do you lie about what I think?" Rowley then very reasonably pointed out that he named no names in his mostly egregious post, but this triggered DeLong to call him a "coward." When Peter Boettke reposted and linked this on Coordination Problem, Brad jumped in there also to accuse Boettke of lying. This is a pathetic decline for Brad, who has long had a record of excessively deleting comments (and I think most of what he posts is very intelligent). Really too bad.

Rowley's further explanation, which made some sense, although it was not in his original post, was that he was annoyed with economists who had been labeling themselves "New Keynesians," which models do generally assume some ratex, but who were now advocating old-fashioned "hydraulic Keynesianism" in the current situation. He said that there were many such who had this inconsistency problem, not just Brad, although he said he had no problem with genuine "old Keynesians" who had never lost their faith, mentioning Robert Solow in particular by name. Whoosh!

Hansen Tries to Explain Why He Appeared to Be Confused, But Just Adds to it

When Jim Hansen, a genuine hero in the world of climate science, published an op-ed in the New York Times last December, he was excoriated by many writers, including yours truly. The piece was deeply confused, almost incoherent, in its attack on carbon caps and defense of carbon taxes.

Now Hansen has published a new account of “what I really meant”. It is just as muddled as the original. Hansen tells us, for instance, that he knew all along that caps and taxes are reflections of one another:

I do not dispute the economic theory that a cap and a fee are, in principle, equivalent. But cap and trade's complexity allows special interests to take over, killing its effectiveness.

(Actually, caps and taxes are not equivalent in a world of uncertainty, but we will let that pass.) So now the claim is that taxes are simple and pure, while caps are murky and lead only to corruption. This is no doubt true if you compare a perfect, hypothetical tax to an actual, highly compromised cap. If Hansen thinks that a tax system passed by Congress will be the pristine, comprehensive, loophole-free policy of his dreams, he hasn’t had much contact with the IRS recently.

What he can’t seem to get clear on is that he has two entirely legitimate complaints, but they have nothing to do with caps vs taxes. Hansen is against giving away carbon permits and against offsets. I (and many others) agree with him completely. This should be a reason to weigh into the public debate against giveaways and offsets. But no, he says the solution is to switch to a tax—as if there can’t be giveaways (rebates) and offsets (credits) in a system of carbon taxes.

Finally, he dumps on the Cantwell Bill, which proposes a carbon cap without giveaways and offsets—a bill that is as short, sweet and uncomplicated as anything you could hope for. Why? Well, it’s a cap, and, you know, complicated and sure to be stuffed with giveaways and offsets and....

Cochrane Too

Cassidy has him saying:

What efficient markets says is that prices today contain the available information about the future. Why? Because there’s competition. If you think it’s going to go up tomorrow, you can put your money where your mouth is, and your doing it sends (the price) up today. Efficient markets are not clairvoyant markets. People say, “nobody foresaw saw the market crash.” Well, that’s exactly what an efficient market is—it’s one in which nobody can tell you where it’s going to go. Efficient markets doesn’t say markets will never crash. It certainly doesn’t say markets are clairvoyant. It just says that, at that moment, there are just as many people saying its undervalued as overvalued.

To be filed under “not understanding the difference between necessary and sufficient conditions”.

Fama’s Fallacy

Listen to this excerpt from his interview with John Cassidy:

Back to the efficient markets hypothesis. You said earlier that it comes out of this episode pretty well. Others say the market may be good at pricing in a relative sense—one stock versus another—but it is very bad at setting absolute prices, the level of the market as a whole. What do you say to that?

People say that. I don’t know what the basis of it is. If they know, they should be rich men. What better way to make money than to know exactly about the absolute level of prices.

He makes this point several other times within a few minutes: we know markets are efficient because they are unpredictable.

But those famous monkeys, who sat at their keyboards for centuries hoping to randomly tap out Hamlet, could just as well be inputting unpredictable asset prices.

How can someone be a world famous financial economist and not know the difference between necessary and sufficient conditions?

A Hatchet Job on the Landesbanken

Today’s New York Times putdown of public banking in Germany was probably not intended to be ideological, but, with the luck of the Rolodex, that’s how it turned out. It is certainly true that several Landesbanken have engaged in stupid and even corrupt practices and have needed to be bailed out. What’s missing, however, is the context.

Contrary to the claim by the EU official quoted in the article, Brussels has been on the warpath against the Landesbanken for years. They have been under intense pressure to demonstrate market rates of return, to show that they are not subsidizing domestic credit in Germany. But they have no competence in speculative finance; their stock in trade is financing the extraordinarily productive Mittelstand—the small, family-owned enterprises that outperform any other SME sector in the world and provide the basis for the country’s export machine. Forced to show instant hyper-profits, these naive public bankers went out and loaded up on mortgage-backed securities, Icelandic delicacies, and other such fare. In other words, they tried to turn themselves overnight into poster children for EU financial neoliberalism and got seriously burned.

No doubt Brussels will use this disaster as an excuse to put still more pressure on Germany to move to a private, profit-driven financial system. The consensus in Germany, however, is to find a way to restore the Landesbanken and return them to their core task of maximizing the profits and productivity of their borrowers. American readers would be better informed by an article that described the EU’s campaign for financial liberalization and the role it played in making Europe even more susceptible to a financial implosion whose epicenter was the US.

Class Coalitions and Keynesian Fiscal Policy

I’ve been rethinking some of my earlier writings (this is almost always true), and have changed my views on the political economy of Keynesian fiscal policy.

Old view: Keynes offered the twentieth century’s most influential example of an economic policy that depended on, and also galvanized, a coalition between workers and employers. By recognizing that workers are also consumers and that profits depend on consumption, expansionary fiscal policy à la Keynes identified a common interest in high levels of employment, and therefore wages. While it would not be in the individual interest of any employer to raise the wages of his or her own workers alone, it is at least potentially in the collective interest of the class of employers to enlist worker-voters to support an economy-wide program to bolster worker incomes. This coalition has atrophied for a number of reasons during the past generation or so, and seriously expansionary policy is invoked only in times of economic distress.

New view: Keynesian fiscal policy was central to class coalitions in the liberal, English-speaking world, as above. In the main non-liberal capitalisms coalitions formed over policies to achieve high employment through high levels of investment. This was pursued through public ownership, public-private partnerships, worker and public stakeholder influence in corporate investment policy, and other “microeconomic” mechanisms. As long as these policies worked, additional stimulus via fiscal deficits, at least during non-recessionary times, could legitimately be criticized as inflationary. This helps explain why fiscal expansion has a bad reputation in Germany and Scandivia and a dubious reputation in France. These investment-centered coalitions have proved more durable than consumption-centered ones, although the current crisis, which may yet result in a prolonged period of dampened investment, could put them to the test.

How does Japan fit into this story?

Massively Misrepresenting the Econoblogosphere: "Blogometrics"

The lead article for 2010 in the Eastern Economic Journal (vol. 36, no. 1, pp. 1-10) is "Blogometrics" Franklin G. Mixon, Jr. and Kamal P. Upadhaya. It claims to rank economics bloggers, blogs, and universities, by the scholarly impact of the bloggers in question. This may be a worthy effort, but there is a complete mystery as to the set of blogs that they use in this study, with it apparently being tilted heavily towards Austrian or libertarian blogs, with none "further left" than either Brad DeLong's blog (a former official in the center-left Clinton presidency) and Mark Thoma's Economists View. While highly read Mankiw, Marginal Revolution, and Freakonomics are included, Krugman's blog is not, with him probably being more "progressive" than any of the 83 bloggers listed, of whom it is probably a race between DeLong, Thoma, and the late Paul Samuelson as to who is the "lefiest." As it is, of the 40 blogs considered, at least 5 are Austrian and at least another 5 are overwhelmingly libertarian. In terms of university rankings, while Harvard does come in at #1, George Mason is #16, while Princeton is not even on the list of 44 universities ranked. In the body of the paper it is stated once that they are studying the "main contributors to some of the most well-known blogs," although no method of selecting those is provided. On one table they give average page views per day from the EconDirectory of Gongol for 16 of their 40 blogs. Only three of these blogs are in the top ten of Gongol, with only only 7 of them coming in above the 426 for Econospeak (rank for Dec. 09, 59th), with one of them, macroblog, coming in at zero, and another that was listed as 963, at zero for the latest listing. I list below their list and top 40 from Gongol's most current posting, with commas separating the names of the blogs from the respective lists. I also note that they overstate the dominance of Americans in the econoblogosphere.

Mixon-Upadhaya Gongol
(rank by scholarly impact of
"main contributors) (rank by AVPD)

Becker-Posner, Calculated Risk
Greg Mankiw's blog, Michael Shedlock
RGE Monitor, Big Picture
Inside the Economist's Mind, Marginal Revolution
Neuroeconomics, Naked Capitalism
Organizaion & Markets, Gregory Mankiw
Freakonomics, Baseline Scenario
Game Theorist, Economist's View
Vox Baby, Tax Prof
John Lott's Blog, Credit Writedowns
Grasping Reality with Both Hands, VoxEU
Daniel W. Drezner, Coyote Blog
Marginal Revolution, European Tribune
Economist.Mom.com, Gongol
macroblog, Financial Armageddon
Core Economics, Carpe Diem
Environmental Economics, Overcoming Bias
EconLog, Half Sigma
Cafe Hayek, Angry Economist
Division of Labour, Carl Futia
The Sports Economists, Angry Bear
The Austrian Economists, Triple Pundit
Hypothetical Bias, Economic Edge
Dynamist.com, QandQ
Economics Roundtable, Mess that Greenspan Made
Economist's View, Trader Mike
Mises Economics Blog, EconBrowser
Adam Smith's Lost Legacy, Tim Worstall
timharford.com, Economic Populist
Economic Principals, Wages of Wins
the Attention Economy, John Lott
Reasonable Bystanders, Fistful of Euros
Newmark's Door, Ekonomi Turk
Market Power, Willisms
ElectEcon, Visualizing Economics
Equinometrics, Random Roger's Big Picture
Knowledge Problem, Art Diamond
The Perfect Substitute, Environmental Economics
The Blog of Diminishing Returns, Bonddad Blog
The Capital Spectator, Roth and Co.