from David Ruccio
President-elect Donald Trump’s decision to bribe Carrier into keeping 800 manufacturing jobs in Indiana, instead of moving them to one of its Mexican plants, has met with opposition from mainstream economists, both liberal and conservative.
Clearly, it’s not about the size of the deal (although $7 million in incentives to keep less than one thousand jobs is a big deal). Carrier corporate parent United Technologies is still planning to outsource production that will eliminate 1300 jobs in Indiana. And 900 jobs make up a minuscule portion (0.17 percent, to be exact) of the total number of manufacturing jobs in that Midwestern state.*
No, mainstream economists’ opposition rests on other grounds. Justin Wolfers, for example, uses the silly analogy of a parking garage to defend the process of “creative destruction” and the idea that a “fluid labor market. . .is the secret of American dynamism.” Read more…
One of the most idiosyncratic developments of the last decades is the rise of mortality of white middle aged USA citizens (graph). According to Anna Case and Angus Deaton this was closely related to abuse of alcohol and opioids. (see graph). The 2015 data are just in: this trend continued (and black men joined it). People were somehow aware of this: the larger the deterioration in health, the larger the swing towards Trump during the recent USA elections (the best postdictor of the county level results of the USA presidential election to date). Can the deterioration of white health in the USA be compared to the historic increase of mortality in the Soviet Union after 1989, which was even more idiosyncratic? In Russia, there was a relation with drug abuse, too. According to David Zaritze e.a.: Read more…
“the surge in inequality and the stagnation of wages”
from Peter Radford
I listened last night to Matt Dickinson from Middlebury college give a talk about the recent election. This is my synopsis:
- The election did not represent much of a change in voter patterns. Trump’s victory was based more on a tweak rather than a reconstruction of the voting patterns of the 2012 election. So this was not a revolutionary moment, marking, instead, a logical further step in a longer term trend. That trend was the steady shift of lesser educated white voters in old industrial areas towards the Republican party. Looking at the 2016 result we see this trend manifested in the very small margins of victory for Trump in states such as Michigan, Pennsylvania, Wisconsin, and Ohio. The entire election outcome hinged on about two hundred thousand votes in those states. The immense dissatisfaction with the economy within those few states was sufficient to put Trump into the White House.
- Conversely, the Democrats failed to stitch together a repeat of Obama’s winning formula. This is particularly true of the combination of the black and Hispanic vote. Prior to election day there had been heady talk of a surge in Hispanic voters whose activity was thought to be a counter-punch to Trump’s repeated criticism of illegal immigration, his advocacy of mass deportation, and the construction of a wall to keep illegal immigrants out. This surge turns out not to have been a factor. Instead a sizable portion of the Hispanic vote — which did rise slightly over 2012 — went to Trump, partially, as it turns out, because many legalized Hispanic voters resented their illegal brethren as much, if not more, than their white compatriots. As for the black vote: it remains a Democratic monolith, but was not as enthused, naturally, over Clinton as it was for Obama. The diminution in the black vote alone can account for Clinton’s loss in a couple of the rust belt states.
- Incredibly the Clinton campaign completely misread the national mood: it utterly failed to pick up on the devastation that neoliberal economics has produced in the ranks of ordinary families. Indeed, in stark contrast to Trump’s relentless economic populism, Clinton scarcely mentioned the economy at all. She mentioned the economy or jobs less frequently than any other post-war candidate. Instead she focused on whet she presumed to be Trump’s disqualifying personality traits. Unfortunately for her voters were prepared to accept Trump’s boorishness in exchange for his advocacy of economic change. In particular his attacks on free trade, which translate into economic fairness in the minds of displaced workers, were enough to motivate many more of them to vote than had before.
- The thought that the polls “missed” the result is wrong at the national level, where the outcome is almost exactly what most polls predicted, but is correct at the local level where there were too few polls to pick up the trends, especially in the rust belt.
- The non-poll based predictions of political science, based as they were on macro trends such as GDP and income changes, were startlingly accurate. This was a predictable result if we had simply focused on the economy and the resentment against the incumbency.
- The Democrats have declined sharply as a national force in the past decade. The loss of power is very sharp at all levels of government. They are now clearly in need of renewal. Yet their leadership remains eerily familiar.
- Lastly, with respect to the Democrats and renewal: if they focus on the loss to Trump as one of a consequence of bigotry, misogyny, or other rejections of progressive thinking they are doomed to miss the point. This was a result that hinged on economic misery and the perception of lost opportunity. This latter issue being paramount: voters did not simply vent about their own condition, which in many cases has begun to recover, what they resented the most is the thought that the constancy of improvement is gone and that further generations will live diminished lives compared with their own.
from Asad Zaman
Prior to the Global Financial Crisis (GFC 2007), many senior economists and policy makers expressed confidence that they had finally solved the problem of business cycles, booms and busts, that plagues capitalism. Because of this over-confidence, early warnings of a looming crisis by Nouriel Roubini, Ann Pettifor, Peter Schiff, Steven Keen, Dean Baker, and Raghuram Rajan, were ridiculed and dismissed. Even after the crisis, many economists thought this was a minor glitch, which would soon be remedied. Now however, while conventional economists continue to search for reasons for the mysterious stagnation besetting capitalistic economies, the weak and jobless recovery from the GFC has been labeled as an illusion and a false dawn by Schiff. Like him, deeper analysts are converging on the idea that the problems run deep, and that radical changes in the global financial architecture are required to solve current problems and prevent future crises.
For instance, consider Lord Mervyn King, the Governor of the Bank of England from 2003 to 2013. His experience at the heart of the global financial system led him to the conclusion that “Of all the many ways of organising banking, the worst is the one we have today. … (can we) think our way through to a better outcome before the next generation is damaged by a future and bigger crisis?” Similarly, Minneapolis Federal Reserve President, Narayana Kocherlakota , after viewing the stark conflicts between the empirical evidence and the macroeconomic theories over the past ten years, writes the economists use “Toy Models” which do not work in face of the complexities of real life
There are two central elements which lie at the core of the fragility of the financial system. read more
from David Ruccio
President-elect Donald Trump has inherited an economy that is as divided as the electorate. The question is, what will that economy look like if and when Trump’s right-wing national-populist promises and post-election proposals are enacted?
As I have shown in the three installments of the first part of this series, “Class Before Trumponomics” (here, here, and here), over the course of recent decades and continuing through the crash and recovery, the class nature of the U.S. economy was transformed in dramatic fashion. Capital was able to pump more surplus out of U.S. workers and, through the combined processes of financialization, globalization, and concentration, to capture more of the surplus from workers both at home and around the world. Labor, too, was radically transformed—and weakened by many forces, including automation, declining unionization, ethnic and racial disparities, immigration, and a low minimum wage. Overall, underlying the grotesque levels of inequality that characterize the United States have been the opposing forces of an increasing capital share and a declining labor share.
That’s what the U.S. economy looks like as Trump celebrates his victory and, along with his Cabinet, economic team, and a new Republican Congress, develops a set of economic plans to “make America great again.”
What will things look like moving forward? There is, of course, a high degree of uncertainty concerning the changes we can expect from the Trump administration’s proposals. For a variety of reasons, we don’t know what those proposals will be—not only because Trump put forward different versions of his “promises” (and, in some cases, like saving the Carrier plant jobs, he didn’t even remember he’d made such a promise on the campaign trail), but also because his Cabinet members and the Republican Congress have their own ideas of what they’d like to do. Plus, unexpected developments in the United States and around the world will surely require changes to whatever proposals are formulated or implemented. Read more…
from Dean Baker
During the campaign Donald Trump boasted that he could kill someone on Fifth Avenue and it wouldn’t affect his standing among his supporters. Whether or not this is true, this appears to be the approach that Trump and his fellow Republicans are taking to their role in governing. The basic story is that they can rip off the public as much as they want, because ain’t no one going to stop them. They could be right.
The most immediate issue is Trump’s refusal to sell his assets and place the proceeds in a blind trust. This was a practice followed by every president in the last half century. The idea is that the president should be making decisions based on what they think is good for the country, not based on what they think will fatten their pocketbooks.
Trump’s proposal in this area is essentially a joke. The idea is he turns over the operation of his empire to his kids. It’s not clear how this helps at all. His kids will never discuss any business issues with him and also have no opportunity to discuss policy with their father or father-in-law?
Perhaps more importantly, he knows what properties are in his empire. This means that if he decides to make an issue of the crackdown on opposition by Turkey’s president, Recep Erdoğan, it is likely that Erdoğan will retaliate against the Trump resorts in Turkey. The same applies to his dealings with many other countries.
We shouldn’t have to rely on a “trust me” pledge from the president that the financial interests of his family will not be a consideration in his foreign policy. That is exactly why prior presidents put their assets into a blind trust. And, there is little reason to believe that Trump is more honest than our past presidents. Read more…
from C. P. Chandrasekhar
In today’s troubled times, mega-mergers are the norm. Announcements of marriages like that between AB Inbev and SABMiller in the beer industry or Bayer and Monsanto in the agribusiness sector attract attention that soon fades, even as the difficult task of getting clearances from the regulators continues. But the just announced agreement to merge by AT&T and Time Warner, in a $85 billion deal, is likely to remain in public discussion for some time. If it does not, it should.
This is a mega merger not just in any industry like the production of cigarettes or beer, but in the media business. There, it brings together a dominant content producer, Time Warner, with interests stretching from news to the movies, and a communications major, AT&T, which has the ability to deliver, through fixed line and wireless services, this content to subscribers in offices, homes and on the move. In normal circumstances such power is viewed with suspicion because it inevitably leads to profiteering at the expense of the customer. The Financial Times (October 29, 2016) refers to a study by the European equities team at BNP Paribas Investment Partners, whose findings suggest that even today, as in the late 19th century, across industries, concentration “allows scope for a cabal of powerful oligopolists to gouge prices and bank excess profit.” That should get those implementing anti-trust legislation worried. But in the AT&T-TW case, the power that the proposed merger delivers would be more closely scrutinised because the media business is one that can shape public opinion and popular culture, with far-reaching political and social implications. Giving excessive power in that area to one or a few players is an altogether different ball game. Read more…
from David Ruccio
from Asad Zaman
Chapter 1 of General Theory is just one paragraph, displayed in full HERE
The discussion below borrows extensively, without explicit point-by-point acknowledgement, from Brian S. Ferguson, “Lectures on John Maynard Keynes’ General Theory of Employment, Interest and Money (1): Chapter One, Background and Historical Setting” University of Guelph Department of Economics and Finance Discussion Paper No. 2013-06:
1. RHETORIC: Keynes wishes to persuade fellow economists. Instead of saying that they are all wrong, blinkered idiots, he says that they are studying a special case, which he wishes to generalize. He also acknowledges that he was misled by the same errors, and creates common ground to enable dialog. He is also making a subliminal appeal to the hugely influential General Theory of Relativity published earlier by Einstein.
2. INVENTION OF MACRO: The revolutionary contribution of Keynes is to study aggregates, instead of micro-level behavior. He is correctly labelled the inventor of macro-economics; prior to him, economists thought that the aggregate behavior would be obtained simply as a sum of the individual behaviors; there is no need to study macroeconomics separately. Parenthetically, it is this same position to which macro-economists retreated in the 70’s and 80’s with the development of DSGE model. Ferguson writes that: read more
from Dean Baker
Harvard professor, textbook author, and occasionally New York Times columnist Greg Mankiw told readers today that Donald Trump’s economic team is wrong to worry about the trade deficit.
“The most important lesson about trade deficits is that they have a flip side. When the United States buys goods and services from other nations, the money Americans send abroad generally comes back in one way or another. One possibility is that foreigners use it to buy things we produce, and we have balanced trade. The other possibility, which is relevant when we have trade deficits, is that foreigners spend on capital assets in the United States, such as stocks, bonds and direct investments in plants, equipment and real estate.” …..
“in reality, trade deficits are not a threat to robust growth and full employment. The United States had a large trade deficit in 2009, when the unemployment rate reached 10 percent, but it had an even larger trade deficit in 2006, when the unemployment rate fell to 4.4 percent.
“Rather than reflecting the failure of American economic policy, the trade deficit may be better viewed as a sign of success. The relative vibrancy and safety of the American economy is why so many investors around the world want to move their assets here.”
There are three points worth making here. Read more…
from Lars Syll
In practice Prof. Tinbergen seems to be entirely indifferent whether or not his basic factors are independent of one another … But my mind goes back to the days when Mr. Yule sprang a mine under the contraptions of optimistic statisticians by his discovery of spurious correlation. In plain terms, it is evident that if what is really the same factor is appearing in several places under various disguises, a free choice of regression coefficients can lead to strange results. It becomes like those puzzles for children where you write down your age, multiply, add this and that, subtract something else, and eventually end up with the number of the Beast in Revelation.
Prof. Tinbergen explains that, generally speaking, he assumes that the correlations under investigation are linear … I have not discovered any example of curvilinear correlation in this book, and he does not tell us what kind of evidence would lead him to introduce it. If, as he suggests above, he were in such cases to use the method of changing his linear coefficients from time to time, it would certainly seem that quite easy manipulation on these lines would make it possible to fit any explanation to any facts. Am I right in thinking that the uniqueness of his results depends on his knowing beforehand that the correlation curve must be a particular kind of function, whether linear or some other kind ?
Apart from this, one would have liked to be told emphatically what is involved in the assumption of linearity. It means that the quantitative effect of any causal factor on the phenomenon under investigation is directly proportional to the factor’s own magnitude … But it is a very drastic and usually improbable postulate to suppose that all economic forces are of this character, producing independent changes in the phenomenon under investigation which are directly proportional to the changes in themselves ; indeed, it is ridiculous. Yet this is what Prof. Tinbergen is throughout assuming …
Keynes’ comprehensive critique of econometrics and the assumptions it is built around — completeness, measurability, indepencence, homogeneity, and linearity — are still valid today. Read more…
Brexit, TrumpKKK, the EU – broadly defined labour markets are key. About this:
A. Noah Smith is changing his opinion
- A job is more than a paycheck. It is a social institution, too
- Debunking labour economics 101 (very clever but also logical and empirical)
B. Frances Coppola is not changing her opinion: ‘Reinventing work for the future'(about basic income)
C. The Daily Mail wants to change your opinion, about this (graph) Source: ONS. The non-far right should not leave it to the Daily Mail to write about such events and has to ask the question: is the UK mopping up the fall out of austerity in the EU, which leads to people (men…) who become angry about/afraid of losing the dignity and status their jobs once provided. See the first Noah Smith link. And his second. And the Coppola link.
from David Ruccio
In the second installment of this series on “class before Trumponomics,” I argued that, in recent decades, while American workers have created enormous wealth, most of the increase in that wealth has been captured by their employers and a tiny group at the top—as workers have been forced to compete with one another for new kinds of jobs, with fewer protections, at lower wages, and with less security than they once expected. And the period of recovery from the Second Great Depression has done nothing to change that fundamental dynamic.
In this post, I want to focus on a more detailed analysis of the other side of the class relationship—capital.
It should come as no surprise that one of the major changes in U.S. capital over the past few decades is the growing importance of financial activities. Since 1980, FIRE (finance, insurance, and real estate) has almost doubled, expanding from roughly 12 percent of the gross output of private industries to over 20 percent. Read more…
from The Guardian “the world’s leaders need to acknowledge that they have failed and are failing the many”
. . . the recent apparent rejection of the elites in both America and Britain is surely aimed at me, as much as anyone. Whatever we might think about the decision by the British electorate to reject membership of the European Union and by the American public to embrace Donald Trump as their next president, there is no doubt in the minds of commentators that this was a cry of anger by people who felt they had been abandoned by their leaders. . . .
. . . The concerns underlying these votes about the economic consequences of globalisation and accelerating technological change are absolutely understandable. The automation of factories has already decimated jobs in traditional manufacturing, and the rise of artificial intelligence is likely to extend this job destruction deep into the middle classes, with only the most caring, creative or supervisory roles remaining.
This in turn will accelerate the already widening economic inequality around the world. The internet and the platforms that it makes possible allow very small groups of individuals to make enormous profits while employing very few people. This is inevitable, it is progress, but it is also socially destructive.
We need to put this alongside the financial crash, which brought home to people that a very few individuals working in the financial sector can accrue huge rewards and that the rest of us underwrite that success and pick up the bill when their greed leads us astray. So taken together we are living in a world of widening, not diminishing, financial inequality, in which many people can see not just their standard of living, but their ability to earn a living at all, disappearing. It is no wonder then that they are searching for a new deal, which Trump and Brexit might have appeared to represent.
It is also the case that another unintended consequence of the global spread of the internet and social media is that the stark nature of these inequalities is far more apparent than it has been in the past.
from Lars Syll
Reading an applied econometrics paper could leave you with the impression that the economist (or any social science researcher) first formulated a theory, then built an empirical test based on the theory, then tested the theory. But in my experience what generally happens is more like the opposite: with some loose ideas in mind, the econometrician runs a lot of different regressions until they get something that looks plausible, then tries to fit it into a theory (existing or new) … Statistical theory itself tells us that if you do this for long enough, you will eventually find something plausible by pure chance!
This is bad news because as tempting as that final, pristine looking causal effect is, readers have no way of knowing how it was arrived at. There are several ways I’ve seen to guard against this:
(1) Use a multitude of empirical specifications to test the robustness of the causal links, and pick the one with the best predictive power …
(2) Have researchers submit their paper for peer review before they carry out the empirical work, detailing the theory they want to test, why it matters and how they’re going to do it. Reasons for inevitable deviations from the research plan should be explained clearly in an appendix by the authors and (re-)approved by referees.
(3) Insist that the paper be replicated. Firstly, by having the authors submit their data and code and seeing if referees can replicate it (think this is a low bar? Mostempirical research in ‘top’ economics journals can’t even manage it). Secondly — in the truer sense of replication — wait until someone else, with another dataset or method, gets the same findings in at least a qualitative sense. The latter might be too much to ask of researchers for each paper, but it is a good thing to have in mind as a reader before you are convinced by a finding.
All three of these should, in my opinion, be a prerequisite for research that uses econometrics …
Naturally, this would result in a lot more null findings and probably a lot less research. Perhaps it would also result in fewer attempts at papers which attempt to tell the entire story: that is, which go all the way from building a new model to finding (surprise!) that even the most rigorous empirical methods support it.
Good suggestions, but unfortunately there are many more deep problems with econometrics that have to be ‘solved.’ Read more…
from Dean Baker
In spite of the hopes of many elite types for a last-minute resurrection, it appears that the Trans-Pacific Partnership (TPP) is finally dead. This is good news, but it took a long time to kill the deal, and the country is likely to pay a huge price for the execution.
The basic point that everyone should know by now is that the TPP had little to do with trade. The United States already had trade deals with six of the 11 other countries in the pact. The trade barriers with the other five countries were already very low in most cases, so there was little room left for further trade liberalization in the TPP.
Instead, the main purpose of the TPP was to lock in place a business-friendly structure of regulation. The deal was negotiated by a series of working groups that were dominated by representatives of major corporations. The regulatory structure was to be enforced by investor-state dispute settlement tribunals. This is an extrajudicial system that would be able to override US laws with secret rulings that were not bound by precedent or subject to appeal.
In addition, the TPP would strengthen and lengthen patent and copyrights and related protections. This is protectionism: It is 180 degrees at odds with free trade. These protections can raise the price of protected items, like prescription drugs, by a factor of 10 or even 100. This is equivalent to tariffs of several thousand percent, with the same waste and incentives for corruption. Free-traders oppose such protections, if they are honest. Read more…
from David Ruccio
Back in 2010, Charles Ferguson, the director of Inside Job, exposed the failure of prominent mainstream economists who wrote about and spoke on matters of economic policy to disclose their conflicts of interest in the lead-up to the crash of 2007-08. Reuters followed up by publishing a special report on the lack of a clear standard of disclosure for economists and other academics who testified before the Senate Banking Committee and the House Financial Services Committee between late 2008 and early 2010, as lawmakers debated the biggest overhaul of financial regulation since the 1930s.
Well, economists are still at it, leveraging their academic prestige with secret reports justifying corporate concentration.
from Lars Syll
When a hot new tool arrives on the scene, it should extend the frontiers of economics and pull previously unanswerable questions within reach. What might seem faddish could in fact be economists piling in to help shed light on the discipline’s darkest corners. Some economists, however, argue that new methods also bring new dangers; rather than pushing economics forward, crazes can lead it astray, especially in their infancy …
A paper by Angus Deaton, a Nobel laureate and expert data digger, and Nancy Cartwright, an economist (sic!) at Durham University, argues that randomised control trials, a current darling of the discipline, enjoy misplaced enthusiasm. RCTs involve randomly assigning a policy to some people and not to others, so that researchers can be sure that differences are caused by the policy. Analysis is a simple comparison of averages between the two. Mr Deaton and Ms Cartwright have a statistical gripe; they complain that researchers are not careful enough when calculating whether two results are significantly different from one another. As a consequence, they suspect that a sizeable portion of published results in development and health economics using RCTs are “unreliable”.
With time, economists should learn when to use their shiny new tools. But there is a deeper concern: that fashions and fads are distorting economics, by nudging the profession towards asking particular questions, and hiding bigger ones from view. Mr Deaton’s and Ms Cartwright’s fear is that RCTs yield results while appearing to sidestep theory, and that “without knowing why things happen and why people do things, we run the risk of worthless causal (‘fairy story’) theorising, and we have given up on one of the central tasks of economics.” Another fundamental worry is that by offering alluringly simple ways of evaluating certain policies, economists lose sight of policy questions that are not easily testable using RCTs, such as the effects of institutions, monetary policy or social norms.
From George Monbiot in The Guardian:
Yes, Donald Trump’s politics are incoherent. But those who surround him know just what they want, and his lack of clarity enhances their power. To understand what is coming, we need to understand who they are. I know all too well, because I have spent the past 15 years fighting them.
Over this time, I have watched as tobacco, coal, oil, chemicals and biotech companies have poured billions of dollars into an international misinformation machine composed of thinktanks, bloggers and fake citizens’ groups. Read more…