Let’s begin with one of these greedy workers. Or maybe he was one of the people who fret about the workers’ pensions?
Maremont, Mark. 2013. “For McKesson’s CEO, A Pension of $159 Million.” Wall Street Journal (25 June): p. B 1.
http://online.wsj.com/article/SB10001424127887323998604578565491579124154.html
“Executive pension plans sometimes grow to a hefty size, amounting to
tens of millions of dollars, as extra retirement cushions for
long-serving CEOs.”
“Then there’s the record $159 million pension benefit of John
Hammergren, the current chairman and CEO of drug distributor McKesson
Corp. MCK –0.93% That’s how much he would have received in a lump-sum
payment had he voluntarily departed on March 31, McKesson disclosed in
its annual proxy filing on Friday.”
“Compensation consultants say it’s by far the largest pension on file
for a current executive of a public company, and almost certainly the
largest ever in corporate America. It’s also more than double the value
of the 54-year-old Mr. Hammergren’s pension six years ago.
“Mr. Hammergren has been at McKesson for 17 years, 12 of them as sole
CEO, so he is significantly younger and has a shorter tenure than most
other executives who have accumulated large pensions.”
“A giant pension plan was at the heart of a controversy a decade ago
over the pay package of Richard Grasso, former chairman of the New York
Stock Exchange. An outside investigation found that Mr. Grasso had
amassed pension benefits with a lump-sum value of $126 million.”
My mistake. He was probably one of those who groused about workers’ pensions
Or How About the Big Money People who Handle their Pensions?
Braun, Martin Z. and Chris Christoff. 2013. “Detroit’s Pension Funds
Dogged by Bad Deals.” Bloomberg Businessweek (28 July): pp. 42-44.
http://www.businessweek.com/articles/2013-07-25/detroits-pension-funds-dogged-by-bad-deals
They detail how the Detroit pension plans have lost more than $10 million on each of several deals with shady characters.
California also got snookered by similar crooks.
Saturday, August 10, 2013
Cold War NSA Redux: The Obama, Putin, Snowden Shuffle
So, President Obama has made some vague promises to review current policies about NSA surveillance and possible limits on it, appointing some committee to make recommendations, although the FISA court was already supposed to be those experts keeping a leash no NSA from just watching and listening to everybody and everything. This looks not only like too little too late, but that his heart is really not into it. He has by far the worst record of any US president of any for prosecuting leakers, and making the US look like the old USSR in doing so with such stuff as actual torture of Bradley Manning, etc. see Juan Cole on how bad all this is see http://www.juancole.com/2013/08/reassurances-surveillance-reassuring.html . That Edward Snowden has ended up defecting to Russia may be surreal, but it may also be appropriate.
Which brings me to Cold War redux. OK, so Putin has been very badly behaved over a long period of time on many issues and has even engaged in clearly personal insults of Obama, including his own pulling out of a one-on-one summit last year at Camp David. His latest walking against the spreading global movement for LGBT rights sticks out like a sore thumb, and Obama mentioned it. But it is all too clear that Obama's recent pullout from a one-on-one with Putin was triggered by Putin finally granting Snowden protection. Heck, while all sorts of opinionmakers and policy wonks think Obama is right to do this, it is opposed by 56% of the US population, and libertarians as well as many others have no sympathy with Obama on his defense of massive bugging.
I am not sure why Obama is so obsessed with all this secrecy and NSA megadata gathering. Juan Cole speculates that it is a combination of fear of a Cheney mole in the intel estabishment or just fear of being dinged by Republicans in Congress if there is a terror attack on US soil that he could have stopped with this all-out bugging and mass surveillance. I do not know, and of course, there may really be some Awful Truth he knows, but Cannot Tell US, although I doubt it seriously.
While I think all this should be cut back drastically, including the 16 (at least) intel agency establishment, it is also the case that this stuff has basically been going on for much longer than most realize, even though it was drastically expanded with the Patriot Act and its exanded interpretations, and that there was some cutback for awhile after the 1975 Church Committee. Nevertheless, anybody who read the 1983 The Puzzle Palace by James Bamford should have known that NSA was even back then essentially gathering at least all international phone calls into and out of the US, generally scanning them for key words, reportedly. An old paranoid like me (who had a father with the same last name who was so high in NSA he appeared in The Puzzle Palace) has ever since assumed that anything I say or write or post or whatever pretty much anywhere will be picked up and observed and stored, although little of it would be worth the time for anybody to actually read or listen to (and it is one thing to have your phone calls or emails picked up and stored and another for them to be actually listened to or read by a human being, even if NSA HQ at Fort Meade is now larger than the Pentagon, and NSA has thousands of employees).
Let me make a final point on how ridiculous so much of this is, particularly all this over-emphasis to the point of torturing people on secrecy about this stuff. OK, so maybe we don't want to let terrorists know just how we are listening to them, although any of them who do not know are probably stupid. But the hard fact is that most of our real or presumed enemies know way more than does the US public about all this, including almost certainly the Chinese and the Russians. Let me illustrate this with a bit of my own personal ancient history.
So, even more secret than the NSA is the National Reconnaissance Office (NRO), whose budget is reputedly on the same scale as NSA's, several times that of CIA's, although with many fewer employees (those spy satellites cost a lot of money). Anyway, I first visited the then USSR in March, 1984, when I would meet my later wife for the first time. On arriving at the National Hotel in Moscow, a tsarist era gush not too far from Red Square, there was a copy of the English language Moscow News on a table in the reception area. At this time the existence of the NRO was classified and far less known than the NSA's. Nevertheless, the top headline on the front page was a story about something the NRO was doing; I do not even remember what it was, although I think it had to do with naval activities. In any case, I suspect that there is not much on those four laptops Snowden was reportedly carrying that is not already known by the relevant Russian organs.
Which brings me to Cold War redux. OK, so Putin has been very badly behaved over a long period of time on many issues and has even engaged in clearly personal insults of Obama, including his own pulling out of a one-on-one summit last year at Camp David. His latest walking against the spreading global movement for LGBT rights sticks out like a sore thumb, and Obama mentioned it. But it is all too clear that Obama's recent pullout from a one-on-one with Putin was triggered by Putin finally granting Snowden protection. Heck, while all sorts of opinionmakers and policy wonks think Obama is right to do this, it is opposed by 56% of the US population, and libertarians as well as many others have no sympathy with Obama on his defense of massive bugging.
I am not sure why Obama is so obsessed with all this secrecy and NSA megadata gathering. Juan Cole speculates that it is a combination of fear of a Cheney mole in the intel estabishment or just fear of being dinged by Republicans in Congress if there is a terror attack on US soil that he could have stopped with this all-out bugging and mass surveillance. I do not know, and of course, there may really be some Awful Truth he knows, but Cannot Tell US, although I doubt it seriously.
While I think all this should be cut back drastically, including the 16 (at least) intel agency establishment, it is also the case that this stuff has basically been going on for much longer than most realize, even though it was drastically expanded with the Patriot Act and its exanded interpretations, and that there was some cutback for awhile after the 1975 Church Committee. Nevertheless, anybody who read the 1983 The Puzzle Palace by James Bamford should have known that NSA was even back then essentially gathering at least all international phone calls into and out of the US, generally scanning them for key words, reportedly. An old paranoid like me (who had a father with the same last name who was so high in NSA he appeared in The Puzzle Palace) has ever since assumed that anything I say or write or post or whatever pretty much anywhere will be picked up and observed and stored, although little of it would be worth the time for anybody to actually read or listen to (and it is one thing to have your phone calls or emails picked up and stored and another for them to be actually listened to or read by a human being, even if NSA HQ at Fort Meade is now larger than the Pentagon, and NSA has thousands of employees).
Let me make a final point on how ridiculous so much of this is, particularly all this over-emphasis to the point of torturing people on secrecy about this stuff. OK, so maybe we don't want to let terrorists know just how we are listening to them, although any of them who do not know are probably stupid. But the hard fact is that most of our real or presumed enemies know way more than does the US public about all this, including almost certainly the Chinese and the Russians. Let me illustrate this with a bit of my own personal ancient history.
So, even more secret than the NSA is the National Reconnaissance Office (NRO), whose budget is reputedly on the same scale as NSA's, several times that of CIA's, although with many fewer employees (those spy satellites cost a lot of money). Anyway, I first visited the then USSR in March, 1984, when I would meet my later wife for the first time. On arriving at the National Hotel in Moscow, a tsarist era gush not too far from Red Square, there was a copy of the English language Moscow News on a table in the reception area. At this time the existence of the NRO was classified and far less known than the NSA's. Nevertheless, the top headline on the front page was a story about something the NRO was doing; I do not even remember what it was, although I think it had to do with naval activities. In any case, I suspect that there is not much on those four laptops Snowden was reportedly carrying that is not already known by the relevant Russian organs.
Sunday, August 4, 2013
Muscular Christianity, Eugenics, War, Football, and Imperialism
This is an extract from a book that Vincent Portillo and I
are writing, The Matrix: An Exploration of the Interactions between the Economy,
War, and Economic Theory.
Here is how
it starts:
In the late nineteenth century, a fear about
the softness of American society raised doubts about the capacity of the United
States to carry out its imperial destiny.
This problem was associated with the final settlement of the
frontier. As important as the
development of open space was to the expansion of the territory of the United
States, the completion of the continental expansion brought an attendant fear
that traditional masculinity was on the wane and would bring about a withering
of the individual and the national body.
This fear spread to the church as well, where the result was thought to
be a moral softening (Miller 2011, p. 38).
To make matters worse, waves of immigrants from Southern and Eastern
Europe were flooding American cities with foreign cultures. This concern became so pressing that talk of
"race suicide" became common.
Here is the
url:
http://michaelperelman.files.wordpress.com/2013/08/foot.pdf
Any comments
or criticism would be welcome.
Saturday, August 3, 2013
The Don Kohn Shuffle
Obama has thrown the Fed Chair race into a tizzy with his posing former Vice Chair, Donald Kohn, as the third person under consideration to succeed Chairman Ben at the Fed, along with Janet Yellen and Lawrence Summers. Pretty clearly he likes and wants Summers and is ticked that the trial balloon for Summers resulted in a massive and widespread denunciation of him and fervent defense of Janet Yellen and her candidacy. He and his Summers-Rubin-cronies advisers have had to beat a strategic retreat, noting no decision until fall.
As it is, I think that the Kohn balloon is not for real. This is a scam to advance the candidacy of Summers over Yellen. Well, maybe not a total scam. Clearly Kohn's vast experience at the Fed makes him a serious candidate. But he has advantages that Yellen has, that vast experience at the Fed especially, an issue that has been used against Summers. So, bringing him in presumably undercuts Yellen by drawing off support from the hardcore Fed crowd. Furthermore, he has a reputation for being more conservative than Summers, if that descriptor even means anything anymore in connection with the Fed. Given that Yellen is being labeled as a liberal dove who is backed by the liberal wing of Dem senators (with the WSJ whining about the danger of a "female-backed currency," eeeek!), this makes Summers the centrist, supposedly making him acceptable to liberals if Kohn appears to be the real alternative to Yellen.
So, there it is. I think that Gene Sperling has convinced Obama that bringing in Kohn will help the candidacy of Summer, and I think they may be right. The game is getting dirtier by the minute.
Barkley Rosser
As it is, I think that the Kohn balloon is not for real. This is a scam to advance the candidacy of Summers over Yellen. Well, maybe not a total scam. Clearly Kohn's vast experience at the Fed makes him a serious candidate. But he has advantages that Yellen has, that vast experience at the Fed especially, an issue that has been used against Summers. So, bringing him in presumably undercuts Yellen by drawing off support from the hardcore Fed crowd. Furthermore, he has a reputation for being more conservative than Summers, if that descriptor even means anything anymore in connection with the Fed. Given that Yellen is being labeled as a liberal dove who is backed by the liberal wing of Dem senators (with the WSJ whining about the danger of a "female-backed currency," eeeek!), this makes Summers the centrist, supposedly making him acceptable to liberals if Kohn appears to be the real alternative to Yellen.
So, there it is. I think that Gene Sperling has convinced Obama that bringing in Kohn will help the candidacy of Summer, and I think they may be right. The game is getting dirtier by the minute.
Barkley Rosser
Friday, August 2, 2013
Lowest Unemployment Rate Since Obama Took Office and Brad DeLong is Not Happy
The Employment Report noted that the unemployment rate fell last month to 7.4% and here is Brad’s reaction:
An Unemployment Rate Edging Down Because Participation Fell Is Not Good News ... Employment-to-population ratio unchanged is a labor market treading water. 162K payroll jobs is not an establishment employment gain that makes me think it is time to "taper".Although he is right the usually excellent kharris left this comment:
The civilian labor force fell 37k, but household employment - HOUSEHOLD EMPLOYMENT - rose 227k. So the unemployment rate decline was overwhelmingly the result of rising employment, not falling participation.I guess we should note that population tends to rise over time. But here’s the funny thing – while the June to July change is as Brad notes, the May to July change shows that the net change in the labor force participation rate (LFP) was zero while the employment to population ratio (EP) edged up. Rather than focus on the month to month noise, take a look at our chart over period since 2006, which both the period when unemployment skyrocketed and this recent decline. Most of the decline in the unemployment rate was from a falling participation rate with the employment to population ratio up from 58.2% at its lowest to the current 58.7%. So I score this one with Brad.
Wednesday, July 31, 2013
Are those NSA contract spooks REALLY still using bulky CRT monitors?
In January 2003, Gene Healy of the Cato Institute wrote:
John Poindexter, head of the Pentagon’s Office of Information Awareness, is developing a vast surveillance database to track terror suspects. The Total Information Awareness (TIA) system will, according to Poindexter, “break down the stovepipes” that separate commercial and government databases, allowing OIA access to citizens’ credit card purchases, travel itineraries, telephone calling records, email, medical histories and financial information. It would give government the power to generate a comprehensive data profile on any U.S. citizen.TIA was subsequently supposedly "defunded" by Congress while funding for its programs was continued under different names. See The Total Information Awareness Project Lives On, MIT Technology Review, April 26, 2006:
Washington’s lawmakers ostensibly killed the TIA project in Section 8131 of the Department of Defense Appropriations Act for fiscal 2004. But legislators wrote a classified annex to that document which preserved funding for TIA’s component technologies, if they were transferred to other government agencies, say sources who have seen the document, according to reports first published in The National Journal. Congress did stipulate that those technologies should only be used for military or foreign intelligence purposes against non-U.S. citizens. Still, while those component projects’ names were changed, their funding remained intact, sometimes under the same contracts.
Does the name "John Poindexter" ring a bell? Iran-Contra? Lying to Congress? See below (see also "Robert Gates" under non-prosecutions, the CIA):
Summary of Prosecutions (from "Understanding the Iran-Contra Affairs")
The National Security Staff
Name
|
Charges
|
Outcomes
|
Sentencing
|
| Robert McFarlane (national security adviser) | Charged with 4 misdemeanor counts of withholding information from Congress. | Pleaded guilty to all 4 counts. Then cooperated with the investigation. | 2 years’ probation, $20,000 in fines and 200 hours community service. Pardoned. |
| Oliver North (NSC staff) | Indicted on 12 counts, including conspiracy and making false statements. | Convicted of 3 charges: accepting a gratuity, aiding in the obstruction of Congress, and destroying documents. Given a suspended 3-year prison term, 2 years’ probation, $150,000 in fines, and 1,200 hours of community service. | A court of appeals vacated his conviction for further proceedings to determine whether his immunized testimony influenced witnesses. The judge dismissed the case based on evidence that it had. |
| John Poindexter (national security adviser) | Indicted on 7 felony charges; stood trial on 5 of them. | Found guilty of 2 counts of false statements, 2 of obstructing Congress, and conspiracy. Given 6 months in prison for each count, to be served concurrently. | A court of appeals vacated his conviction since his immunized testimony may have influenced witnesses. The case was dismissed. |
The Private Operatives
Name
|
Charges
|
Outcomes
|
Sentencing
|
| Richard Secord (Head of the Enterprise) | Indicted on 9 counts relating to his gifts to an official, secret foreign accounts, and obstruction of investigations. | He pleaded guilty to 1 felony count of false statements to Congress. | 2 years’ probation. |
| Albert Hakim (Head of the Enterprise) | Charged with supplementing an official’s salary. | Pleaded guilty to giving money to North. | 2 years’ probation and a $5,000 fine. |
| Thomas Clines (Businessman in the Enterprise) | Indicted on 4 felony counts of falsely reporting his earnings to the IRS in 1985 and 1986. | Found guilty for both underreporting earnings and for stating on tax returns that he had no foreign accounts. | 16 months in prison and $40,000 in fines. He was ordered to pay the cost of the prosecution. |
| Carl Channell (fundraiser) | Charged with conspiracy to defraud the U.S. | Pleaded guilty. | 2 years’ probation. |
| Richard Miller (fundraiser) | Charged with conspiracy to defraud the U.S. | Pleaded guilty. | 2 years’ probation and 120 hours of community service. |
The Central Intelligence Agency
Name
|
Charges
|
Outcomes
|
Sentencing
|
| Clair George (deputy director for operations) | In his first trial, which ended in a mistrial, he was indicted on 10 counts of perjury, false statements, and obstruction. | In a second trial, he was found guilty of 2 out of 7 counts: making false statements and perjury before Congress. | Pardoned before sentencing. |
| Duane Clarridge (European Division, chief) | Indicted on 7 counts of perjury and false statements about a shipment of U.S. missiles to Iran. | No trial took place. | Preemptively pardoned. |
| Alan Fiers, Jr. (Central American Task Force, chief) | Indicted on 2 counts of withholding information from Congress about aid to the Contras. | Pleaded guilty. | 1 year of probation and 100 hours of community service. Pardoned. |
| Joseph Fernandez (CIA station chief in San Jose, Costa Rica) | Indicted on 5 counts of conspiracy to defraud the U.S., obstruction of the Tower Commission, and making false statements. | The case was dismissed in D.C. As a result, a 4-count indictment was issued in Virginia (the conspiracy change was dropped.) | The case was dismissed after the attorney general refused to mandate the disclosure of information relevant to the defense. |
The Department of State
Name
|
Charges
|
Outcomes
|
Sentencing
|
| Elliott Abrams (assistant secretary for inter-American affairs) | Indicted on 2 counts of withholding information from Congress about secret efforts to support the Contras. | Pleaded guilty. | Sentenced to 2 years’ probation and 100 hours of community service. Pardoned. |
The Department of Defense
Name
|
Charges
|
Outcomes
|
Sentencing
|
| Caspar Weinberger (secretary of defense) | Indicted on 5 counts of perjury, making false statements, and obstruction. | No trial took place. | Preemptively pardoned. |
Summary of Non-Prosecutions
The Independent Counsel investigated a number of government officials that he decided not to prosecute for a variety of reasons. Here you can find information about those investigations and the reasons that Walsh chose not to bring charges.
The National Security Council Staff
Name
|
Reasons for Investigating
|
Reasons for Not Prosecuting
|
| Paul Thompson (NSC general counsel) | His false assertions that he did not know of a certain presidential Finding or about the destruction of documents seriously obstructed the investigation. | The passage of time since the events, Thompson's peripheral role overall, and the development of strong cases against more central government officials. |
| Fawn Hall (Oliver North's secretary) | Knew about North’s activities, but not the details. Helped him shred and alter documents that showed he had violated the Boland Amendments. | Hall was given immunity in exchange for testimony about North’s activities. |
| Robert Earl (Subordinate to North) | Helped North calculate the marked-up prices of the arms sold to Iran, knowing that the profits would go to the Contras. | Earl was given immunity in exchange for testimony about North’s activities. |
The Central Intelligence Agency
Name
|
Reasons for Investigating
|
Reasons for Not Prosecuting
|
| William Casey (CIA director) | Allegations of wrongdoing made about him by others, most prominently North. | Hospitalized before IC was appointed. Died in 1987. |
| Robert Gates (acting director of central intelligence) | Testified falsely about when he first learned about the Diversion (received a report on it during the summer of 1986 from CIA official Richard Kerr). Also helped prepare Casey’s false testimony. | Gates claimed that he did not recall the meeting. IC was not confident in Kerr's testimony. Also, Gates may not have known Casey’s speech was false. |
The Department of State
Name
|
Reasons for Investigating
|
Reasons for Not Prosecuting
|
| George Shultz (secretary of state) | Shultz had known significantly more about arms shipments to Iran than his testimony reflected. | IC could not prove that his testimony was deliberately false when given. |
| M. Charles Hill (Shultz’s executive assistant) | Hill withheld notes and helped prepare inaccurate testimony regarding Shultz's knowledge of arms transfers to Iran. | IC believed it would not be appropriate to prosecute Hill, since Shultz was not the subject of prosecution. |
| Nicholas Platt (State executive secretary) | Like Hill, Platt failed to produce a large quantity of relevant handwritten notes to Iran-Contra investigators. | Platt's notes were far more fragmentary in general. He also prepared no testimony. |
| Edwin Corr (ambassador to El Salvador) | Gave false testimony and also withheld documents. Under a grant of immunity he provided hundreds of documents, but continued to give false testimony about meeting with Secord and North. | The witnesses against him recanted their testimony. IC believed that investigating Caspar Weinberger and other State officials was more worthwhile. |
The Department of Defense
Name
|
Reasons for Investigating
|
Reasons for Not Prosecuting
|
| Richard Armitage(assistant secretary of defense for international security affairs) | Falsely testified that he did not learn of a number of missile shipments to Iran until CIA Director William Casey’s testimony in 1986. | The evidence against Armitage was substantial, but not enough to prove beyond a reasonable doubt. |
The White House
Name
|
Reasons for Investigating
|
Reasons for Not Prosecuting
|
| Ronald Reagan(president) | Set the stage for the illegal activities of others by encouraging support for the Contras during the October 1984 to October 1986 period when the Boland Amendments banned such aid. | There was no proof Reagan authorized or was aware of the Diversion or that he had knowledge of the extent of North's control over the Contra-resupply network. |
| George Bush (vice president) | Contrary to his public pronouncements, he was aware of the arms sales to Iran. | No evidence proved that he violated laws or that he was aware of the Diversion. |
| Edwin Meese III(attorney general) | His “inquiry” was a damage-control exercise, not an effort to find the facts. Even after learning of the Diversion, Meese failed to secure records in NSC staff offices or protect evidence. In reporting to Reagan and his senior advisers, Meese lied about what he had been told by stating that Reagan did not know about the 1985 shipments, which Meese said might have been illegal. | Statute of limitations had run out on his 1986 activities. In 1992, Meese denied recollection of the statements attributed to him by both Weinberger’s and Regan’s notes. Enough time has passed to raise doubt about the deliberate falsity of his denials. |
| Donald Gregg(National security adviser to George Bush) | Investigated for possible false testimony regarding his knowledge of Felix Rodriguez's involvement in North's Contra operation. | Despite conflicts between documentary evidence and witness testimony, IC could not prove a criminal case against Gregg beyond a reasonable doubt. |
| Donald Regan (White House chief of staff) | Attended Reagan’s national security briefings each morning and was present during the most significant meetings among Iran-Contra principals. May have participated in the November 1986 cover-up of Reagan’s knowledge and approval of the November 1985 HAWK missile shipment | Evidence of the apparent cover-up was only found in 1992. When asked about these events, he was honest and helpful. When his notes were subpoenaed in late 1991, he cooperated then as well. |
Monday, July 29, 2013
Does FEMA Threaten National Security?
Those of us who think President Eisenhower was right about warning about the “military industrial complex” and who still care about personal liberty have at least a little admiration for Ron Paul and his son Rand. And trust me – I’m no fan of Peter King and Chris Christie. Which is why I’m saddened by this story:
“They’re precisely the same people who are unwilling to cut the spending, and their ‘Gimme, gimme, gimme — give me all my Sandy money now.’” Paul said, referring to federal funding after the hurricane last year. “Those are the people who are bankrupting the government and not letting enough money be left over for national defense.”I get Senator Paul’s desire for a smaller government but how much we spend on FEMA is peanuts compared to the amount of pure pork in the defense budget. And alas, this silly statement gives the high ground to hacks like Peter King:
King in a phone interview late Sunday called Paul’s criticism of Sandy aid “indefensible.”“This was absolutely life or death money that was essential to New York and New Jersey,” King said.Meanwhile Governor Christie is getting a lot of taxpayer funded political ads with that “Stronger Than the Storm” commercials. It is odd that the same President who appointed “heck of a job Brownie” to head FEMA also give Christie his first patronage break given how the New Jersey Governor is bragging he somehow got President Obama to make FEMA do what it is supposed to do.. And yet Senator Paul criticizes FEMA’s efforts after Sandy? Does he really believe the response to Katrina was more appropriate?
Saturday, July 27, 2013
Obstfeld on Fiscal Space
Today’s beach reading has been Maurice Obstfeld’s keynote talk to a Bank of Japan conference last month. Here’s the precis in his own words:
In other words, in order to enjoy the magical economic gains made possible by financial hypertrophy, we need to forego some of the fiscal flexibility we enjoyed in the past. Less investment in education and infrastructure, I guess, to be ready to bail out finance when it chokes again. It’s a bizarre form of hostage syndrome.
The road not taken in 2008 was not backstopping the financial system, but replacing it with a smaller, publicly managed substitute. That road is still there, although it is now overgrown with weeds and harder to get at. We should remind ourselves of this from time to time, when demands are made on other aspects of economic policy—countercyclical policy, labor markets, social insurance—to accommodate the needs of finance in its current form.
My main point today will be that a precautionary approach to fiscal policy, leading to moderate levels of public debt in relation to GDP, is essential for the credibility of government promises to support the financial system, as well as the broader economy. Clearly defined rules that limit fiscal exposure must also inform the endgame of winding down insolvent financial institutions.The slightly longer version of his argument runs like this: finance has become ever bigger in relation to the size of national economies, and more concentrated too. Regulation can’t keep up with innovation, and future crises are predictable. Central banks can do only so much before they run the risk of igniting inflation, so it falls on treasuries to provide the ultimate backstop. But full-bore treasury support can push up against the limits of fiscal space. Knowing all this in advance, governments are advised to run smaller fiscal deficits than they would otherwise in order to maintain an extra fiscal space buffer.
In other words, in order to enjoy the magical economic gains made possible by financial hypertrophy, we need to forego some of the fiscal flexibility we enjoyed in the past. Less investment in education and infrastructure, I guess, to be ready to bail out finance when it chokes again. It’s a bizarre form of hostage syndrome.
The road not taken in 2008 was not backstopping the financial system, but replacing it with a smaller, publicly managed substitute. That road is still there, although it is now overgrown with weeds and harder to get at. We should remind ourselves of this from time to time, when demands are made on other aspects of economic policy—countercyclical policy, labor markets, social insurance—to accommodate the needs of finance in its current form.
Friday, July 26, 2013
The Fed Is Not Like The Treasury Or The White House
Ezra Klein reiterates that while most of the econoblogosphere favors Janet Yellen over Larry Summers for Fed Chair, the in-crowd around Obama in his bubble is all for Summers, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/25/larry-summers-isnt-popular-in-the-blogosphere-but-hes-got-friends-in-high-places/?wprss=rss_ezra-klein . Much of the argument boils down to that while he has this bad image from messing up publicly in various place such as Harvard and the World Bank, those who worked with him at the Treasury and the White House, particularly his in-crowd of Rubin-related Goldman Sachs-related folks who are very much in the Obama administration liked working with him, and that most important of all, Obama liked working with him and remains close to him.
One item in Ezra's piece that sticks out is that a particularly important player may be Gene Sperling, part of the old Rubin-Summers mafia, who is currently filling the same role as NEC Chair that he did in the last years of the Clinton administration. At that time, Janet Yellen was CEA Chair, and apparently they had turf struggles, which Sperling tended to get the upper hand in. It is California Girls (Tyson, Romer, Yellen) against the Rubin Boys. So, it would appear that perhaps Sperling has a special grudge against Yellen and is poisoning the well for her by bad mouthing her and upping Summers to Obama.
In any case, all this talk about how great Summers was at Treasury and the WH, which may be true, does not prove he would be great at the Fed. Some in the WH are mumbling that the Fed might need a strong hand, but that is not how that place works. The Treasury and WH are very hierarchical places with just a few people at the top. But the Fed has a much larger decisionmaking body, the FOMC plus the regional Fed prezzes who attend the meetings and provide input. Many of these people are very smart and academically high-powered with large egos, such as Plosser and Bullard and Kotcherlakota, just to name three. Summers will not be able to push these people around, and coming on like an egomaniac who lies to smart people like he did as president of Harvard with the faculty there will not cut it. One needs to be more collegial, and this is a quality Yellen has in spades.
Barkley Rosser
One item in Ezra's piece that sticks out is that a particularly important player may be Gene Sperling, part of the old Rubin-Summers mafia, who is currently filling the same role as NEC Chair that he did in the last years of the Clinton administration. At that time, Janet Yellen was CEA Chair, and apparently they had turf struggles, which Sperling tended to get the upper hand in. It is California Girls (Tyson, Romer, Yellen) against the Rubin Boys. So, it would appear that perhaps Sperling has a special grudge against Yellen and is poisoning the well for her by bad mouthing her and upping Summers to Obama.
In any case, all this talk about how great Summers was at Treasury and the WH, which may be true, does not prove he would be great at the Fed. Some in the WH are mumbling that the Fed might need a strong hand, but that is not how that place works. The Treasury and WH are very hierarchical places with just a few people at the top. But the Fed has a much larger decisionmaking body, the FOMC plus the regional Fed prezzes who attend the meetings and provide input. Many of these people are very smart and academically high-powered with large egos, such as Plosser and Bullard and Kotcherlakota, just to name three. Summers will not be able to push these people around, and coming on like an egomaniac who lies to smart people like he did as president of Harvard with the faculty there will not cut it. One needs to be more collegial, and this is a quality Yellen has in spades.
Barkley Rosser
Race and Upward Mobility: The Return of Marx?
I have to admit I never took much of shine to the orthodox Marxian theory of racism, that it was promoted by the capitalist elites to drive a wedge between white and black workers. It’s reasonable to suppose, however, that racism, by undermining collective action across white and black workers, can reduce the economic possibilities available to both groups. Does anyone out there remember Racial Inequality: A Political-Economic Analysis by Michael Reich?
And now here we have it, evidence for the collective action hypothesis from the new Chetty-Hendrin-Kline-Saez study of intergenerational mobility, as parsed by the New York Times’ David Leonhardt. Geographic areas with the worst mobility, for both low income whites and blacks, have the highest proportions of black residents. In these places racial politics dominate other concerns, and funding for transportation and other infrastructure (schools?) lag. Is it the same old, same old?
And now here we have it, evidence for the collective action hypothesis from the new Chetty-Hendrin-Kline-Saez study of intergenerational mobility, as parsed by the New York Times’ David Leonhardt. Geographic areas with the worst mobility, for both low income whites and blacks, have the highest proportions of black residents. In these places racial politics dominate other concerns, and funding for transportation and other infrastructure (schools?) lag. Is it the same old, same old?
Obama’s Higher Ed Shakeup
Brad DeLong cites Jonathan Chait citing Jonathan Rees on Obama’s promise to shake up higher education. Rees doesn’t like MOOCs. Chait thinks they can play a role and that education policy should be for students, not faculty. DeLong thinks that lots of professors are student-oriented and will side with Chait. I think the whole MOOC thing is a distraction.
Yes, MOOCs loom large on the horizon. If they can be made to work they will play a significant role in the higher ed ecosystem of the future. But what we see today are crude prototypes, and they are far from delivering the goods. It’s a dirty secret of online education technologies as they currently exist that they are as costly as the old-fashioned face-to-face methods, if not more so. MOOCs are a glorious future and they will remain that way for years to come.
If you want to know what Obama has up his sleeve, take a look at this recent piece in the Chronicle of Higher Education about the agenda of the Gates/Lumina/Kresge foundations. It’s about tying financial support for colleges and universities to completion data and pushing “competency-based” criteria to replace credit hours. Both of these, I can assure you, will piss off lots of professors because, in the end, they remove control over curriculum from faculty and install a lower common denominator for standards in the name of access and efficiency. I won’t get into a longer discussion of them here, but at least we should be clear about what’s on the table.
As for the rising cost of tuition, two points. First, the biggest single driver by far for public institutions is the decline in public funding. This is only partly a result of the fiscal squeeze on the states; it is also what the policy gurus are calling for. In their view education is primarily a private good, as reflected in wage differentials between grads and non-grads. Fairness and economic efficiency, they argue, both require that this good be priced according to its return. In their world the only acceptable basis for reducing tuition is cost-cutting in degree production, not cost-shifting back to the public sector.
Second, you should look at tuition in an international context—after all, the technologies and salary structures in higher ed are not that different across the developed countries. I’m writing this from Germany, where the trend is to eliminate the very small tuition charges introduced in the past decade, a victory for the principle that education at all levels should be free. Incidentally, German universities also pay for the cost of textbooks, and for the same reason. Germany, of course, is currently doing pretty well economically, but its GDP per capita remains below that of the US: it’s not that they can afford to subsidize higher ed while the US can’t. The difference is one of principle and, to a considerable extent, economic strategy. Germany intends to remain a surplus country on the basis of a well-educated workforce and tight integration between research and production. Correspondingly, the US intends to remain a deficit country on the basis of debt-financed consumption, including consumption of education. Let’s see how well that’s going to work.
Yes, MOOCs loom large on the horizon. If they can be made to work they will play a significant role in the higher ed ecosystem of the future. But what we see today are crude prototypes, and they are far from delivering the goods. It’s a dirty secret of online education technologies as they currently exist that they are as costly as the old-fashioned face-to-face methods, if not more so. MOOCs are a glorious future and they will remain that way for years to come.
If you want to know what Obama has up his sleeve, take a look at this recent piece in the Chronicle of Higher Education about the agenda of the Gates/Lumina/Kresge foundations. It’s about tying financial support for colleges and universities to completion data and pushing “competency-based” criteria to replace credit hours. Both of these, I can assure you, will piss off lots of professors because, in the end, they remove control over curriculum from faculty and install a lower common denominator for standards in the name of access and efficiency. I won’t get into a longer discussion of them here, but at least we should be clear about what’s on the table.
As for the rising cost of tuition, two points. First, the biggest single driver by far for public institutions is the decline in public funding. This is only partly a result of the fiscal squeeze on the states; it is also what the policy gurus are calling for. In their view education is primarily a private good, as reflected in wage differentials between grads and non-grads. Fairness and economic efficiency, they argue, both require that this good be priced according to its return. In their world the only acceptable basis for reducing tuition is cost-cutting in degree production, not cost-shifting back to the public sector.
Second, you should look at tuition in an international context—after all, the technologies and salary structures in higher ed are not that different across the developed countries. I’m writing this from Germany, where the trend is to eliminate the very small tuition charges introduced in the past decade, a victory for the principle that education at all levels should be free. Incidentally, German universities also pay for the cost of textbooks, and for the same reason. Germany, of course, is currently doing pretty well economically, but its GDP per capita remains below that of the US: it’s not that they can afford to subsidize higher ed while the US can’t. The difference is one of principle and, to a considerable extent, economic strategy. Germany intends to remain a surplus country on the basis of a well-educated workforce and tight integration between research and production. Correspondingly, the US intends to remain a deficit country on the basis of debt-financed consumption, including consumption of education. Let’s see how well that’s going to work.
Stiglitz and Minsky: No Need to Choose
Paul Krugman makes the distinction between two explanations for the debt buildup that preceded the 2008 financial crisis. One gets the Stiglitz label: rising inequality induced households whose incomes were stagnating to take on more debt than they should have. The other gets Minsky’s: financial institutions became less cautious and government regulation waned. He distances himself from Obama, who signed onto the inequality story.
But surely it’s not either/or, and this is not a matter of slicing the (debt) pie either. These stories are about two different sectors of the economy. Household debt certainly accumulated unsustainably during the 1990s and 2000s. The current desire on the part of households to deleverage or refrain from the borrowing habits of earlier times has played an important role in the stubbornness of slow growth and high unemployment. But the financial panic itself was a recoil from a stupendous excess of leverage in the financial sector. Deregulation itself was leveraged via clever engineering and finely-tuned incentive structures to propagate enormous systemic risk in order to secure a maximum of private yield. And the explosion of top incomes in finance played a big role in the rise of inequality among the 1%.
Of course, the two sectors were not ensconced in isolated universes, uncontaminated by one another. The mortgage frenzy was made possible by the musical chairs game being played by finance, where risk was always being offloaded to someone else. (That “always” is impossible, of course.) Conversely, household debt was raw material for the production of opaque financial instruments, which could be priced to yield bonuses for their creators.
And finally there’s the structural dimension. This is always difficult for economists to cope with since, along the structure-agency continuum, economics is nearly all agency. But still: all major deficit countries experienced a massive debt buildup, while surplus countries did not. Causation is messy, to say the least. Certainly a big chunk of it goes from private behavior to public outcomes; without all that household borrowing the huge current account deficit of the US, and the smaller deficits of the European peripherals, could not have materialized. But causation also goes the other way. Trade deficits mean lost jobs. Consumption never falls pari passu with income. Meanwhile, the political economy of deficit countries pushes government to tolerate more debt, either the private sector’s or its own, to avoid contraction. As far as the US was concerned, the economic pain of trade deficits was not distributed evenly; it was concentrated in particular industries, regions and occupations, which contributed to the Stiglitz—inequality—factor.
If I were Obama’s speechwriter, I would say something like this: America’s economic pre-eminence and its key currency status has enabled it to become an unsustainable deficit country. This has fed the inequality that has made our society so much coarser and unjust. And this inequality, the ability of an economic elite to prosper while the rest of us languish, has undermined the political will to make the changes that need to be made if America is to prosper again.
And if I wrote that, I wouldn’t be Obama’s speechwriter much longer.
But surely it’s not either/or, and this is not a matter of slicing the (debt) pie either. These stories are about two different sectors of the economy. Household debt certainly accumulated unsustainably during the 1990s and 2000s. The current desire on the part of households to deleverage or refrain from the borrowing habits of earlier times has played an important role in the stubbornness of slow growth and high unemployment. But the financial panic itself was a recoil from a stupendous excess of leverage in the financial sector. Deregulation itself was leveraged via clever engineering and finely-tuned incentive structures to propagate enormous systemic risk in order to secure a maximum of private yield. And the explosion of top incomes in finance played a big role in the rise of inequality among the 1%.
Of course, the two sectors were not ensconced in isolated universes, uncontaminated by one another. The mortgage frenzy was made possible by the musical chairs game being played by finance, where risk was always being offloaded to someone else. (That “always” is impossible, of course.) Conversely, household debt was raw material for the production of opaque financial instruments, which could be priced to yield bonuses for their creators.
And finally there’s the structural dimension. This is always difficult for economists to cope with since, along the structure-agency continuum, economics is nearly all agency. But still: all major deficit countries experienced a massive debt buildup, while surplus countries did not. Causation is messy, to say the least. Certainly a big chunk of it goes from private behavior to public outcomes; without all that household borrowing the huge current account deficit of the US, and the smaller deficits of the European peripherals, could not have materialized. But causation also goes the other way. Trade deficits mean lost jobs. Consumption never falls pari passu with income. Meanwhile, the political economy of deficit countries pushes government to tolerate more debt, either the private sector’s or its own, to avoid contraction. As far as the US was concerned, the economic pain of trade deficits was not distributed evenly; it was concentrated in particular industries, regions and occupations, which contributed to the Stiglitz—inequality—factor.
If I were Obama’s speechwriter, I would say something like this: America’s economic pre-eminence and its key currency status has enabled it to become an unsustainable deficit country. This has fed the inequality that has made our society so much coarser and unjust. And this inequality, the ability of an economic elite to prosper while the rest of us languish, has undermined the political will to make the changes that need to be made if America is to prosper again.
And if I wrote that, I wouldn’t be Obama’s speechwriter much longer.
Wednesday, July 24, 2013
Obama And Harvard Games: Summers Vs Yellen
Let me begin by noting that I was among the first to call for Janet Yellen to be appointed Chair of the Fed nearly four years ago, http://econospeak.blogspot.com/2009/07/janet-yellen-for-fed-chair.html , a post that was sharply criticized in its 30 comments on many grounds then, although, ironically, the leading candidates were Bernanke, who of course got it, and, ahem, Larry Summers, whom I dissed sharply.along with Yellen as a dark horse third place candidate, also supported by Bill McBride then at Calculated Risk, who has reiterated his support recently, http://www.calculatedriskblog.com/2013/07/janet-yellen-for-fed-chair.html . The arguments I made then about her competence and Summers's lack thereof regarding the Fed are even more true today than they were then, and I stand fully by them.
But, of course, with Bernanke apparently preparing to step aside, whether willingly or not, the battle is on full between Summers and Yellen, with the disturbing news arriving from Ezra Klein that in the last few days, Summers has gained a strong lead in the White House for the nod (link is to Mark Thoma's "WTF?" with link to Klein's post): http://economistsview.typepad.com/economistsview/2013/07/larry-summers-is-the-front-runner-wtf.html . Klein lists three main arguments why supposedly Summers has the edge:
1) Obama likes Summers, having worked with him closely, and does not know Yellen. Summers has visited the White House 14 times in the past year, and she has visited once, and never worked with or for Obama, although he did appoint her Vice Chair.
2) Somehow, Obama thinks that Summers is more able to handle a crisis than Yellen, an argument I shall consider in more detail further below, although will note here now may also be linked to another Ezra Klein post, linkable through his latest post, about the sexist whispering campaign against Yellen along the lines that she "lacks gravitas" and such stuff. I shall not further address that nonsense.
3) Obama thinks the markets will trust Summers more than Yellen, atlhough I suspect that a) this is not true, and b) the only evidence for this is probably the whisperings of the Goldman Sachs gang in Obama's ears, with Treasury Secretary Jack Lew probablhy the most important such voice, channeling Rubin, Geithner, and others.
Let me first deal with this matter of how supposedly Summers would handle a crisis better. Presumably this comes from Obama's experience with him at the WH, particularly in regards to the fiscal stimulus. However, there are many who argue that Summers mishandled that badly, and that he was wrong to dismiss the arguments of Christina Romer to push for a larger stimulus. It may well be that in the end, what was proposed was the maximum that could be passed, but it is far from clear that pushing for a larger one would have somehow ended up with a smaller one or none at all.
What is more serious is that there is lots of evidence that in fact Janet Yellen has been far more prescient than Summers in terms of recognizing and identifying real threats to the economy. McBride in the post linked to above lays this out in terms of statements made by Janet Yellen in 2005 and 2006 warning of the dangers of the housing bubble and in late 2007, when virtually all other top Fed people thought things were hunky-dory, where she worried about the fragility of the financial markets. She was completely correct and farsighted, arguably more than Bernanke or anybody else in the Fed. And certainly more than Summers, who said nothing or nothing intelligent about any of this at the appropriate time. Indeed, in 2005 he dismissed and ridiculed a paper by Raghuran Rajan that raised questions about financial stability of the system. The hard fact is that Janet Yellen is simply head and shoulders the superior in terms of diagnosing the state of the economy than is Summers. Argument #2 is just garbage, quite aside from the fact that the documented lack of collegiality of Summrs and his lack of knowledge of the Fed compared to Yellen does not bode at all well for him managing the Fed in a time of crisis, particularly one he would fail to foresse.
I think there is another game going on here that has not been spoken of, let us call it the Harvard Game, although I think it is also linked to the sexism whispering campaign stuff. It is that Obama is a Harvard Man, so he takes the place seriously. While Summers was one of the youngest (if not the actual youngest) person ever to be named a full professor at Harvard, and also served as President of that institution, even if he was thrown out on his ear after he lied to the faculty about his covering up for and helping out Andrei Shleifer, Yellen was turned down for tenure there in the mid-1970s, her first job after she earned her PhD from Yale.
So, it must be admitted that she was a bit of a slow starter out of the gate, and I think also did not have much help. She published a number of respectable papers on budget deficits and labor economics in some top journals, most single authored, but not quite enough to get tenure at Harvard, while Summers published a string of attention-getting (and good) papers with a large number of well-known coauthors early in his career that put him ahead of the game. However, over time the quality of his academic output has declined, with no really important paper published since the early 1990s, whereas especially after Yellen married eventual Nobelist George Akerlof, the quality of her papers rose over a long period of time, including those not coauthored with Akerlof, with many of those very important and even influential on Fed policy, with particularly her papers with Akerlof laying out the fundamentals of the behavioral economics approach to macroeconomics, which arguably strongly influences Fed policy.
This brings up an issue that nobody has mentioned, and some might think should not be mentioned, but which I am going to mention here and now. Just as when Bill Clinton was elected president, we got Hillary as an advising First Lady (and some others who arguably helped their husbands perform better), getting Janet Yellen as Fed Chair, whom I think is superior even without this on grounds of knowledge, personality, and experience to Summers, we would get George Akerlof as "Fed First Gentleman." It is certainly true that Summers did better at Harvard than Yellen as an Assistant Professor, and he might have a higher IQ than she does, but Akerlof is smarter than Summers. He has a Nobel, and a really solid one unlike quite a few other recipients I could name, while Summer does not and never will. While we are not supposed to talk about it, Yellen will be able to closely access the brilliance of her husband George Akerlof.
Let me close this with an example of when this might already have happened, although it remains not well known and was barely noticed at the time, and even now few note the link with the work of Akerlof. This is the fact that Janet Yellen was responsible for the fact that now almost all central banks that target inflation target a 2% inflation rate. McBride in the link above notes that it was Yellen who convinced Greenspan in 1996 that a 2% target was superior to a 0% target. The Fed meeting minutes where the crucial exchange happened can be found at http://www.federalreserve.gov/monetarypolicy/files/FOMC20050630meeting.pdf . She cited work of Perry (recorded as "Parry" in the minutes) to support the argument, but it in fact drew on work by her and Akerlof, with the crucial Brookings paper being by Akerlof, Dickens, and Perry. The behavioral econ foundation was the downward stickiness of nominal wages about which she and George had written extensively. In the face of this stylized real fact, to have micro labor market efficiency with changes in real relative wages, one must have some positive inflation to allow for some nominal wages to rise faster than others. This was and remains the argument, and once she convinced Greenspan, this argument spread across the world of central banking.
As it is, this will be one of the most important decisions Obama will make. If he chooses Summers, it will be a very serious mistake, one of the worst decisions of his presidency. I hope that the econoblogosphere can break through his bubble to convince him to appoint Janet Yellen instead.
Barkley Rosser
[Later Addition: While the last two links work fine, the first two do not. I am mystified regarding this as these are indeed accurate urls. If you write out these urls specifically you will reach the posts as advertised. Why linking them from my post they do not go there, I have no explanation. I apologize for this.]
But, of course, with Bernanke apparently preparing to step aside, whether willingly or not, the battle is on full between Summers and Yellen, with the disturbing news arriving from Ezra Klein that in the last few days, Summers has gained a strong lead in the White House for the nod (link is to Mark Thoma's "WTF?" with link to Klein's post): http://economistsview.typepad.com/economistsview/2013/07/larry-summers-is-the-front-runner-wtf.html . Klein lists three main arguments why supposedly Summers has the edge:
1) Obama likes Summers, having worked with him closely, and does not know Yellen. Summers has visited the White House 14 times in the past year, and she has visited once, and never worked with or for Obama, although he did appoint her Vice Chair.
2) Somehow, Obama thinks that Summers is more able to handle a crisis than Yellen, an argument I shall consider in more detail further below, although will note here now may also be linked to another Ezra Klein post, linkable through his latest post, about the sexist whispering campaign against Yellen along the lines that she "lacks gravitas" and such stuff. I shall not further address that nonsense.
3) Obama thinks the markets will trust Summers more than Yellen, atlhough I suspect that a) this is not true, and b) the only evidence for this is probably the whisperings of the Goldman Sachs gang in Obama's ears, with Treasury Secretary Jack Lew probablhy the most important such voice, channeling Rubin, Geithner, and others.
Let me first deal with this matter of how supposedly Summers would handle a crisis better. Presumably this comes from Obama's experience with him at the WH, particularly in regards to the fiscal stimulus. However, there are many who argue that Summers mishandled that badly, and that he was wrong to dismiss the arguments of Christina Romer to push for a larger stimulus. It may well be that in the end, what was proposed was the maximum that could be passed, but it is far from clear that pushing for a larger one would have somehow ended up with a smaller one or none at all.
What is more serious is that there is lots of evidence that in fact Janet Yellen has been far more prescient than Summers in terms of recognizing and identifying real threats to the economy. McBride in the post linked to above lays this out in terms of statements made by Janet Yellen in 2005 and 2006 warning of the dangers of the housing bubble and in late 2007, when virtually all other top Fed people thought things were hunky-dory, where she worried about the fragility of the financial markets. She was completely correct and farsighted, arguably more than Bernanke or anybody else in the Fed. And certainly more than Summers, who said nothing or nothing intelligent about any of this at the appropriate time. Indeed, in 2005 he dismissed and ridiculed a paper by Raghuran Rajan that raised questions about financial stability of the system. The hard fact is that Janet Yellen is simply head and shoulders the superior in terms of diagnosing the state of the economy than is Summers. Argument #2 is just garbage, quite aside from the fact that the documented lack of collegiality of Summrs and his lack of knowledge of the Fed compared to Yellen does not bode at all well for him managing the Fed in a time of crisis, particularly one he would fail to foresse.
I think there is another game going on here that has not been spoken of, let us call it the Harvard Game, although I think it is also linked to the sexism whispering campaign stuff. It is that Obama is a Harvard Man, so he takes the place seriously. While Summers was one of the youngest (if not the actual youngest) person ever to be named a full professor at Harvard, and also served as President of that institution, even if he was thrown out on his ear after he lied to the faculty about his covering up for and helping out Andrei Shleifer, Yellen was turned down for tenure there in the mid-1970s, her first job after she earned her PhD from Yale.
So, it must be admitted that she was a bit of a slow starter out of the gate, and I think also did not have much help. She published a number of respectable papers on budget deficits and labor economics in some top journals, most single authored, but not quite enough to get tenure at Harvard, while Summers published a string of attention-getting (and good) papers with a large number of well-known coauthors early in his career that put him ahead of the game. However, over time the quality of his academic output has declined, with no really important paper published since the early 1990s, whereas especially after Yellen married eventual Nobelist George Akerlof, the quality of her papers rose over a long period of time, including those not coauthored with Akerlof, with many of those very important and even influential on Fed policy, with particularly her papers with Akerlof laying out the fundamentals of the behavioral economics approach to macroeconomics, which arguably strongly influences Fed policy.
This brings up an issue that nobody has mentioned, and some might think should not be mentioned, but which I am going to mention here and now. Just as when Bill Clinton was elected president, we got Hillary as an advising First Lady (and some others who arguably helped their husbands perform better), getting Janet Yellen as Fed Chair, whom I think is superior even without this on grounds of knowledge, personality, and experience to Summers, we would get George Akerlof as "Fed First Gentleman." It is certainly true that Summers did better at Harvard than Yellen as an Assistant Professor, and he might have a higher IQ than she does, but Akerlof is smarter than Summers. He has a Nobel, and a really solid one unlike quite a few other recipients I could name, while Summer does not and never will. While we are not supposed to talk about it, Yellen will be able to closely access the brilliance of her husband George Akerlof.
Let me close this with an example of when this might already have happened, although it remains not well known and was barely noticed at the time, and even now few note the link with the work of Akerlof. This is the fact that Janet Yellen was responsible for the fact that now almost all central banks that target inflation target a 2% inflation rate. McBride in the link above notes that it was Yellen who convinced Greenspan in 1996 that a 2% target was superior to a 0% target. The Fed meeting minutes where the crucial exchange happened can be found at http://www.federalreserve.gov/monetarypolicy/files/FOMC20050630meeting.pdf . She cited work of Perry (recorded as "Parry" in the minutes) to support the argument, but it in fact drew on work by her and Akerlof, with the crucial Brookings paper being by Akerlof, Dickens, and Perry. The behavioral econ foundation was the downward stickiness of nominal wages about which she and George had written extensively. In the face of this stylized real fact, to have micro labor market efficiency with changes in real relative wages, one must have some positive inflation to allow for some nominal wages to rise faster than others. This was and remains the argument, and once she convinced Greenspan, this argument spread across the world of central banking.
As it is, this will be one of the most important decisions Obama will make. If he chooses Summers, it will be a very serious mistake, one of the worst decisions of his presidency. I hope that the econoblogosphere can break through his bubble to convince him to appoint Janet Yellen instead.
Barkley Rosser
[Later Addition: While the last two links work fine, the first two do not. I am mystified regarding this as these are indeed accurate urls. If you write out these urls specifically you will reach the posts as advertised. Why linking them from my post they do not go there, I have no explanation. I apologize for this.]
Friday, July 19, 2013
Laffer Wants to Raise At Least One Tax
Art Laffer along with Donna Arduin released some fantasy called Pro-Growth Tax Reform and E-Fairness that claims that if we would tax Internet sales then we could have a huge increase in output and employment by 2022 if we used the extra sales taxes to reduce income taxes:
Gross domestic product would grow by more than $563 billion, creating 1.5 million jobs nationwide.I just read what Laffer and Donna Arduin wrote and there really isn’t much there to support this conclusion. They note that after 1999, real GDP growth fell far short of the 3.5% per annum growth rates we enjoyed for much of the latter half of the 20th century. Then again – didn’t we try lower tax rates starting in 2001? How did that work out? A lot of conservatives seem to love this idea and why not. Sales taxes tend to be regressive while income taxes tend to be progressive. A switch from income taxation to sales taxation fits the bill if one wants a more regressive tax system. But to claim that this would lead to some magical surge in economic growth rates is a real Laugher.
Wednesday, July 17, 2013
Will Economics Be Revolutionized By Being Evolutionized?
Mark Thoma at economists view http://economistsview.typepad.com/economistsview/2013/07/revolutionizing-economics-by-evolutionizing-it.html , has linked to a post by Jag Bhalla at Scientific American, who in turn links to the Evolution Institute, http://evolution-institute.org/node/144 , where one finds a link to a special issue of the Journal of Economic Behavior and Organization (JEBO) that I have coedited with David Sloan Wilson and John M. Gowdy. The special issue makes a play for increasing the use of evolutionary theory in economics. Bhalla argues that this involves arguing that economics should not necessarily involve assuming people rationally maximize utility or that equilibrium analysis should be the focus of analysis. Mark is unhappy about this characterization and disses the argument pretty hard. Of course, he is welcome to his view.
Furthermore, he invokes Paul Krugman, quoting in full a speech that PK gave in 1996 to the European Society for Evolutionary Political Economy (while I am into such things, I know nothing of this group). One can directly access PK's speech at http://www.pkarchive.org/evolute.html , if one does not want to go through Mark's link. It may well be that Krugman would now disavow parts of this speech, or at least pull his punches a bit, but it is a place where he puts on his neoclassical hat full force and defends orthodox economics full bore. This may well not be inconsistent with his current stance as the critic of new neoclassical synthesis views, given that one can view him to some degree as an advocate of the old MIT-Samuelson "neoclassical synthesis" that adopted a neo-Keynesian ISLM approach to macro while essentially maintaining a position of full orthodoxy in microeconomics. Let us grant that this orthodoxy includes emphasizing agents who are fully rational and maximize their well-defined utility that interacts with other economic agents to lead reasonably quickly to equilibrium, with this being the appropriate focus of analysis.
In any case, I think that PK's presentation of both evolutionary economics and evolutionary theory are seriously narrow and misleading. He essentially argues that evolutionary theory is all about maximization and equilibrium and that those who focus on other approaches, including Stephen Jay Gould and Stuart Kauffman, are just peripheral losers within established evolutionary theory, which is represented by the work of Richard Dawkins. He emphasizes the importance of evolutionary game theory developed by Maynard-Smith and then introduced into economics, where it is now more or less a part of standard economics. He even notes that Hamilton and others allow for rewards for cooperation. This is all true, and can even be viewed ironically as a form of microfoundations of macroevolution within evolutionary theory, although it is not the whole story.
One important point is that there are and have been many different branches of evolutionary economics. Of course, economics influenced evolutionary theory from the beginning, notably through the influence of Malthus on Darwin and Wallace. Some forms of evolutionary economics have always been completely consistent with fully orthodox neoclassical economics, most notably the arguments regarding firm survival and the pressure to maximize profits due to natural selection pressures within competition, as emphasized in the famous 1950 paper by Armen Alchian, followed up by Milton Friedman in his Essay on Positive Economics.
Of course, Krugman and probably Thoma probably dismiss the oldest evolutionary school, the old institutionalists, who founded the AEA and once ran it, only to be overcome and replaced by the MIT neoclassical synthesis of Samuelson. It is easy to dismiss them, but they have made many insights and continue to offer more, most notably through the Journal of Economic Issues. An irony is that the person who coined the term "neoclassical economics" was none other than Thorstein Veblen, founder of the institutionalist evolutionary school. I suspect that Krugman and Thoma probably consider many of his ideas to be quite relevant to our current situation.
Another evolutionary economics school, vaguely referred to by Krugman, is the neo-Schumpeterian school whose main leaders have been Nelson and Winter and their followers. This school continues with many followers and journals such as Journal of Evolutionary Economics and Industrial and Corporate Change. I do not see anybody seriously questioning that they have had much to offer regarding the study of technological change.
Krugman dismisses Stephen Jay Gould and his punctuated equilibrium view as some sort of evolutionary equivalent of John Kenneth Galbraith, an idea popular among the public, but dismissed within evolutionary theory itself. I think that Krugman is seriously off on this characterization, and the idea of multiple equilibria and dynamic discontinuities is one that is certainly of great relevance in economics. Just what is going on when we see major financial crashes?
Finally, there is the new complexity evolutionary theory, which is associated with Kauffman of the Santa Fe Institute, whom Krugman also dismisses. This approach is deeply linked with what is probably the most serious competitor to the DSGE model in macro analysis, namely agent-based modeling. Many of those models use genetic algorithms, and evolutionary ideas such as emergence are taken very seriously in this approach. Indeed, this is an alternative way of doing micro foundations of macro, an issue that Krugman simply does not address at all, which does not necessarily depend on the old orthodoxy of rational agent utility maximization or convergence on equilibria within dynamic evolutionary processes.
Barkley Rosser
Furthermore, he invokes Paul Krugman, quoting in full a speech that PK gave in 1996 to the European Society for Evolutionary Political Economy (while I am into such things, I know nothing of this group). One can directly access PK's speech at http://www.pkarchive.org/evolute.html , if one does not want to go through Mark's link. It may well be that Krugman would now disavow parts of this speech, or at least pull his punches a bit, but it is a place where he puts on his neoclassical hat full force and defends orthodox economics full bore. This may well not be inconsistent with his current stance as the critic of new neoclassical synthesis views, given that one can view him to some degree as an advocate of the old MIT-Samuelson "neoclassical synthesis" that adopted a neo-Keynesian ISLM approach to macro while essentially maintaining a position of full orthodoxy in microeconomics. Let us grant that this orthodoxy includes emphasizing agents who are fully rational and maximize their well-defined utility that interacts with other economic agents to lead reasonably quickly to equilibrium, with this being the appropriate focus of analysis.
In any case, I think that PK's presentation of both evolutionary economics and evolutionary theory are seriously narrow and misleading. He essentially argues that evolutionary theory is all about maximization and equilibrium and that those who focus on other approaches, including Stephen Jay Gould and Stuart Kauffman, are just peripheral losers within established evolutionary theory, which is represented by the work of Richard Dawkins. He emphasizes the importance of evolutionary game theory developed by Maynard-Smith and then introduced into economics, where it is now more or less a part of standard economics. He even notes that Hamilton and others allow for rewards for cooperation. This is all true, and can even be viewed ironically as a form of microfoundations of macroevolution within evolutionary theory, although it is not the whole story.
One important point is that there are and have been many different branches of evolutionary economics. Of course, economics influenced evolutionary theory from the beginning, notably through the influence of Malthus on Darwin and Wallace. Some forms of evolutionary economics have always been completely consistent with fully orthodox neoclassical economics, most notably the arguments regarding firm survival and the pressure to maximize profits due to natural selection pressures within competition, as emphasized in the famous 1950 paper by Armen Alchian, followed up by Milton Friedman in his Essay on Positive Economics.
Of course, Krugman and probably Thoma probably dismiss the oldest evolutionary school, the old institutionalists, who founded the AEA and once ran it, only to be overcome and replaced by the MIT neoclassical synthesis of Samuelson. It is easy to dismiss them, but they have made many insights and continue to offer more, most notably through the Journal of Economic Issues. An irony is that the person who coined the term "neoclassical economics" was none other than Thorstein Veblen, founder of the institutionalist evolutionary school. I suspect that Krugman and Thoma probably consider many of his ideas to be quite relevant to our current situation.
Another evolutionary economics school, vaguely referred to by Krugman, is the neo-Schumpeterian school whose main leaders have been Nelson and Winter and their followers. This school continues with many followers and journals such as Journal of Evolutionary Economics and Industrial and Corporate Change. I do not see anybody seriously questioning that they have had much to offer regarding the study of technological change.
Krugman dismisses Stephen Jay Gould and his punctuated equilibrium view as some sort of evolutionary equivalent of John Kenneth Galbraith, an idea popular among the public, but dismissed within evolutionary theory itself. I think that Krugman is seriously off on this characterization, and the idea of multiple equilibria and dynamic discontinuities is one that is certainly of great relevance in economics. Just what is going on when we see major financial crashes?
Finally, there is the new complexity evolutionary theory, which is associated with Kauffman of the Santa Fe Institute, whom Krugman also dismisses. This approach is deeply linked with what is probably the most serious competitor to the DSGE model in macro analysis, namely agent-based modeling. Many of those models use genetic algorithms, and evolutionary ideas such as emergence are taken very seriously in this approach. Indeed, this is an alternative way of doing micro foundations of macro, an issue that Krugman simply does not address at all, which does not necessarily depend on the old orthodoxy of rational agent utility maximization or convergence on equilibria within dynamic evolutionary processes.
Barkley Rosser
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