from Dean Baker
With the Trans-Pacific Partnership now definitely dead and Donald Trump pushing for a renegotiation of NAFTA, many progressives are looking for a fundamental re-examination of trade deals. As supporters of international cooperation rather than narrow nationalists, progressives have often felt uncomfortable opposing trade deals.
While there is no reason to be defensive about opposing trade deals that favored business interests at the expense of workers, consumers, and the environment in all the countries participating, it is worth asking how trade deals can be crafted to promote a progressive agenda. There really is no shortage of ideas in this area.
To start, from a U.S. perspective, the items opened up for trade has to be broadened. High-end professional services, such as physicians’ and dentists’ services should be front and center in any future trade deals. The U.S. has highly protectionist rules in this area. In the case of physicians, foreign doctors are prohibited from practicing in the United States unless they complete a U.S. residency program. Foreign dentists must graduate from a U.S. dental school, although in recent years graduates of Canadian schools have been allowed also.
As a result of this protectionism, doctors in the United States earn on average more than $250,000 a year, twice as much as their counterparts in other wealthy countries. The potential gain to the United States from standardizing licensing requirements in professional services is at least $100 billion a year and quite likely close to $200 billion (0.5-1.0 percent of GDP). The goal need not be that all countries have the same standard, but rather that licensing rules are transparent and based on legitimate public interest, not protecting the incomes of professionals. Read more…
from Peter Radford
Well, the wait is over. We now know what the Republican health care plan looks like. It’s early days and the inevitable compromises will have to be made, but the Republican seven year crusade is reaching its climax.
The problem is this: as we have discussed many times, any credible health care plan needs a number of key features. Three stand out:
- You need to ensure the biggest insurance pool you can. In an ideal world this pool would be the entire population of the country. In the US it will be smaller because local ideologies militate against “social” solutions and thus we are prevented from seeking maximum efficiency. Obamacare sought to do this through the so-called “mandate” which penalized people who failed to get insurance coverage.
- You need to regulate the private insurers to prevent them from discriminating against high risk customers. Obamacare did this by forcing insurance companies to cover people with “pre-existing” conditions, and by limiting the premiums charged to such people.
- Then you need some form of subsidy so that low wage people can afford to buy insurance. Obamacare did this by providing subsidies and by imposing taxes to cover the cost. The subsidies were linked to income and to the cost of insurance to make them strongly effective.
The success of Obamacare was that it achieved its biggest goal: it vastly expanded coverage, with around 20 million people newly insured at a rough cost of 0.6% of GDP. That cost, in the context of the goal, is low.
So now we have RyanCare.
How does it differ? Read more…
from David Ruccio
According to recent news reports, Kevin Hassett, the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (no, I didn’t make that up), will soon be named the head of Donald Trump’s Council of Economic Advisers.
Yes, that Kevin Hassett, the one who in 1999 predicted the Down Jones Industrial Average would rise to 36,000 within a few years.
from Lars Syll
In his book Why Minsky Matters L. Randall Wray tries to explain in what way Hyman Minsky’s thoughts offer a radical challenge to mainstream economic theory.
Although there were a handful of economists who had warned as early as 2000 about the possibility of a crisis, Minsky’s warnings actually began a half century earlier—with publications in 1957 that set out his vision of financial instability. Over the next forty years, he refined and continually updated the theory. It is not simply that he was more prescient than others. His analysis digs much deeper. For that reason, his work can continue to guide us not only through the next crisis, but even those that will follow.
Minsky’s view can be captured in his memorable phrase: “Stability is destabilizing.” What appears initially to be contradictory or perhaps ironic is actually tremendously insightful: to the degree that the economy achieves what looks to be robust and stable growth, this is setting up the conditions in which a crash becomes ever more likely. It is the stability that Changes behaviors, policy making, and business opportunities so that the instability results.
As a young research stipendiate in the U.S. yours truly had the great pleasure and privelege of having Hyman Minsky as teacher.
He was a great inspiration at the time.
He still is. Read more…
from Norbert Häring
To “prepare the next generation of world leaders”, the Massachusetts Institute of Technology (MIT) will hold its 2017 MIT India Conference, this time on “Digital India”. Members of the Indian government and CEOs are travelling to Cambridge to report on the “success” of the US inspired crackdown on the use of cash. As usual, the plight of the cash-using poor and the data-security and privacy nightmare resulting from mandatory biometric identification are unlikely to be discussed.
Developing counties run by authoritarian governments under weak legal restraints are great places to try out disruptive technological plans for changing the social landscape. As Bill Gates said in 2015 at the “Financial Inclusion Forum” in Washington, countries like India can transit to full digitalization of the economy faster than the USA, inter alia, because there are much less restrictions from legal mandates to protect people’s privacy and data.
“Notebandi”, the sudden banning of banknotes representing over 80 percent of Indian cash in circulation, which happened in November 2016, was such a disruption on the way to full digitalization, which could not possibly have taken place in the US, but in India it could. Read more…
from David Ruccio
It comes as no surprise, at least to most of us, that corporations are getting larger and increasing their share in many different industries. We see it everyday—when we buy plane tickets or try to take out a loan or just make a purchase at a retail store. Read more…
Below, three sets of graphs from three ‘structural’ seconomic tudies which show that the celebrated concept of NAIRU, as defined in these general equilibrium models is little more than a complicated running average of the level of estimated unemployment (though, quite unscientific, economics does not even seem to have an agreed upon algorithm to calculate this average). This a consequence of the assumption of these models that unemployment is a voluntary state of existence.
Yesterday, Lars Syll had an interesting post about the nonsense of NAIRU, the Non Accelerating Inflation Rate of Unemployment, as defined in ‘structural macro economic models’. I totally agree but have a little to add. The discussion about NAIRU is not about the interesting relation between unemployment and wages (or even inflation), as proponents state. It is about the relation between unemployment and potential output: when does a government has to stop stimulating demand to prevent runaway inflation? Does this has to happen when unemployment is 3%? Or when unemployment is 4%? Or as the European commission wanted to have it when unemployment is, ahem, 26,6%? The answer is clear: NAIRU won’t give us the answer. Or, as Gechert, Rietzler and Tobler recently stated it (emphasis added): Read more…
from Lars Syll
Again and again, Oxford professor Simon Wren-Lewis rides out to defend orthodox macroeconomic theory against attacks from ‘heterodox’ critics like yours truly.
A couple of years ago, it was the rational expectations hypothesis (REH) he wanted to save:
It is not a debate about rational expectations in the abstract, but about a choice between different ways of modelling expectations, none of which will be ideal. This choice has to involve feasible alternatives, by which I mean theories of expectations that can be practically implemented in usable macroeconomic models …
However for the foreseeable future, rational expectations will remain the starting point for macro analysis, because it is better than the only practical alternative.
from David Ruccio
There doesn’t seem to be anything remarkable about mainstream economists’ rejection of the new populism.
Lest we forget, mainstream economists in the United States and Europe (and, of course, around the world) mostly celebrated current economic arrangements. As far as they were concerned, everyone benefits from contemporary globalization (the more trade the better) and from the distribution of income created by market forces (since everyone gets what they deserve).
To be sure, those who identify with different wings of mainstream economics debate the extent to which there are market imperfections and therefore how much interference there should be in markets. Conservative mainstream economists tend to argue in favor of less regulation, their liberal counterparts for more government intervention. But they share the same general economic vision—that capitalism is characterized by “just deserts,” stable growth, and rising standards of living.
Except of course in recent decades it hasn’t. Not by a long shot.
Inequality has skyrocketed to obscene levels (and continues to rise), leaving many people behind. The crash of 2007-08 shattered the illusion of stability—and now there’s a deepening worry of “secular stagnation” moving forward. And, while the conspicuous consumption of the tiny group at the top continues unabated, only rising debt keeps everyone else from falling down the ladder.
No wonder, then, that economic populists, especially those on the Right, are rejecting the status quo—and winning campaigns and elections (often in the form of protest votes).
For the most part, to judge by Brigitte Granville’s survey of a variety of Project Syndicate commentators’ responses to populism, mainstream economists remain blind as to “why so many voters have embraced facile policies and populist politics.” Read more…
from Lars Syll
In an interview a couple of years ago, Robert Lucas said he now believes that “the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.”
So, according to Lucas, changes in tastes and technologies should be able to explain, e.g., the main fluctuations in unemployment that we have seen during the last seven decades.
Let’s look at the facts and see if there is any strong evidence for this allegation. Just to take an example, let’s look at the unemployment rate in a couple of European countries:
What shocks to tastes and technologies drove the unemployment rate up and down like this in these countries? I guess most would recognise a ‘structural brake’ around 2008–2009 and start to think about financial crises and subprime loans … It’s simply not possible to come up with a warranted and justified explanation solely based on changes in tastes and technologies. Lucas is just making himself ridiculous. Read more…
from David Ruccio
Donald Trump promised to bring back “good” manufacturing jobs to American workers. So did Hillary Clinton.
from Peter Radford
Nothing could possibly give us more insight into the ineptitude and unpreparedness of Trump for high office than his comment yesterday:
“It’s an unbelievably complex subject. Nobody knew health care could be so complicated.”
Everyone knew. Everyone.
Except for Trump who has blithely been assuming that his bully-boy attitude could translate easily from his real estate business into the White House. He, like a lot of others in recent years, reacted to the gridlock in Washington by arguing we needed a bold business like period of “action” to solve our national issues. We did not need anymore “talk”. All talk and no action is a criticism Trump levels glibly at anyone who appears to want to reflect before doing or saying anything.
So it is with health care.
During the presidential campaign Trump promised the earth. According to his many statements on the topic no one was going to lose coverage, prices would fall, people could keep their own doctors, and all this would delivered by a private rather than public mechanism. He said he was going to eliminate the dreaded mandate aspect of the Affordable Care Act [aka Obamacare]. This was the crucial part of the three legged stool approach in the ACA that lowered average insurance premium costs. Unfortunately it raised them for healthy people and lowered them for the sick, and it was the subsequent uprising amongst the healthy that so motivated the Republicans. This was, of course, over and above their ideological objection to anything smacking of governmental intrusion into the purity of the free market. Read more…
from David Ruccio
Noah Smith is right about one thing: mainstream economists tend to use the word “capital” pretty loosely.
It just means “anything you can spend resources to build, which lasts a long time, and which also can be used to produce value.” That’s really broad. For example, it could include society itself. It also typically includes “human capital,” which refers to people’s skills, talents, and knowledge.
But then Smith proceeds, like the neoclassical equivalent of Humpty Dumpty, to make his definition of human capital the master—because, in his view, “it helps to convey some important truths about the world.”
Human capital, as I’ve explained in some detail before, is a profoundly misleading concept.
I don’t want to repeat those arguments here. But I do want to make two additional points.
First, if Smith wants to invoke human capital to say “education and skills are a form of wealth,” then why not include other ways people are able to earn more or less than their counterparts? Why not, for example, go beyond his reference to credentials (he has a Stanford degree) and intellectual abilities (apparently, he can do math well and write well) and refer to some of the other important ways people are sorted out within existing economic relations. I’m thinking of such things as gender, race and ethnicity, immigration status, and so on. They’re all ways workers are able to receive more or less income that have nothing to do with the effort they put into their jobs. Does Smith want to argue that masculinity, whiteness, and native birth are forms of human capital? Read more…
from Lars Syll
From a more theoretical perspective, Simpson’s paradox importantly shows that causality can never be reduced to a question of statistics or probabilities, unless you are — miraculously — able to keep constant all other factors that influence the probability of the outcome studied.
To understand causality we always have to relate it to a specific causal structure. Statistical correlations are never enough. No structure, no causality. Read more…
from Dean Baker
Last week Bill Gates called for taxing robots. He argued that we should impose a tax on companies replacing workers with robots and that the money should be used to retrain the displaced workers. As much as I appreciate the world’s richest person proposing a measure that would redistribute money from people like him to the rest of us, this idea doesn’t make any sense.
Let’s skip over the fact of who would define what a robot is and how, and think about the logic of what Gates is proposing. In effect, Gates wants to put a tax on productivity growth. This is what robots are all about. They allow us to produce more goods and services with the same amount of human labor. Gates is worried that productivity growth is moving along too rapidly and that it will lead to large scale unemployment.
There are two problems with this story. First productivity growth has actually been very slow in recent years. The second problem is that if it were faster, there is no reason it should lead to mass unemployment. Rather, it should lead to rapid growth and increases in living standards.
Starting with the recent history, productivity growth has averaged less than 0.6 percent annually over the last six years. This compares to a rate of 3.0 percent from 1995 to 2005 and also in the quarter century from 1947 to 1973. Gates’ tax would slow productivity growth even further. Read more…
from Norbert Häring
With big fanfare, Deutsche Bundesbank announced on February 9 that ahead of plan they had repatriated 300 tons of gold from New York. This put a positive spin on a rather disturbing fact –1236 tons of gold that is supposed to be part of Germany’s currency reserve will continue to be kept outside of German control in New York – indefinitely.
The German gold in question is being kept in storage at the New York Fed, an institution that is owned and controlled by Wall-Street-banks, in a country, whose current president considers it an imposition that the law and so-called judges tell him what he is allowed to do and not allowed to do.
I am not criticizing the Bundesbank for storing 37 percent of Germany’s official gold in in a place there it has no control over it. It seems clear that they negotiated hard with the US and acted rather shrewdly. Their negotiation position was much enhanced in 2012 by the leakage of a report of the German Court of Auditors, which was very critical of the conditions under which German gold was being held in New York. This created public and political pressure on the Bundesbank to renegotiate and to get that gold out of New York. At the same time, the US-side could hardly afford to snub this demand, because there was lots of speculation, even in the US, that something was amiss with the gold reserves of the US and the rest of the world that were stored in the country. The way in which the official gold of the US, and the gold held in custody for other countries, is guarded against public scrutiny and shielded from its owners, gives fodder to any number of conspiracy theories. Had the New York Fed refused to let a foreign central bank, which was under such obvious pressure, retrieve some of their gold, these conspiracy theories around official gold might very well have become intense enough to damage trust in the dollar.
from Lars Syll
Vielleicht ist diese Grundperspektive der radikalen Trennung von Form und Gehalt hilfreich, einige zunächst überaus paradoxe Äußerungen von Lucas etwas zu erhellen. Erinnert man sich der Forderungen von Lucas, die Makroökonomik zwingend auf Basis der klassischen Postulate, die Lucas und Sargent (1978) als (a) „Markträumung“ und (b) „Eigennutz“ umrissen hatten, zu errichten, so erstaunt man doch angesichts Passagen wie der folgenden:
“In recent years, the meaning of the term “equilibrium” has undergone such dramatic development that a theorist of the 1930s would not rec ognize it. It is now routine to describe an economy following a multi variate stochastic process as being “in equilibrium,” by which is meant nothing more than that at each point in time, postulates (a) and (b) above are satisfied. This development, which stemmed mainly from work by K. J. Arrow […] and G. Debreu […], implies that simply to look at any economic time series and conclude that it is a “disequilibrium phenomenon” is a meaningless observation. Indeed, a more likely conjecture […] is that the general hypothesis that a collection of time series describes an economy in competitive equilibrium is without con tent.” (Lucas und Sargent 1978: 58-9)”
from David Ruccio
In his Prison Notebooks, Antonio Gramsci wrote: “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum morbid phenomena of the most varied kind come to pass.”*
The world is once again living an interregnum. It is poised between the failed economic model of recovery from the crash of 2007-08 and the birth of a new model, one that would actually work for the majority of Americans.**
Morbid symptoms abound, including slow economic growth, persistent poverty, and obscene levels of inequality. Perhaps even more significant, especially at this point in the so-called recovery, when according to mainstream economists and policymakers full employment has been achieved, workers’ wages are actually declining. Read more…
from Dean Baker
The concept of “free trade” has acquired near religious status among policy types. All serious people are supposed to swear their allegiance to it and deride anyone who questions its universal benefits.
Unfortunately, almost none of the people who pronounce themselves devotees of free trade actually do consistently advocate free trade policies. Rather they push selective protectionist policies, that have the effect of redistributing income to people like them, and call them “free trade.”
The NYT gave us yet one more example of a selective protectionist masquerading as a free trader in a column this morning by Jochen Bittner, a political editor for Die Zeit. Bittner contrasts the free trading open immigration types, who calls Lennonists (in the spirit of John Lennon’s song, Imagine) and the Bannonists who are nationalists followers of Steve Bannon or his foreign equivalents.
The problem with this easy division is that the “free traders” wholeheartedly support very costly protectionist measures in the form of ever stronger and longer patent and copyright protections. These protections redistribute several hundred billions dollars annually (at least 3 percent of GDP in the United States) from the bulk of the population to the small group of people who are in a position to benefit from these government granted monopolies. Read more…
Hi from Marxloh! I’m finding myself with junior in Marloh (to watch Schalke ’04)and it happens to be the most steampunk city I’ve ever been. It is part of Duisberg, a city inside the ‘Ruhrgebiet’, the German equivalent of the USA rust belt except that it’s not rusty but Europe’s largest steelhub (according to a sign along the road). Marxloh, which became a suburb for labourers can nowadays really be called Little Turkey (with capitals. It’s population increased from 352 in 1895 to 35.872 only twenty years later, in 1925. Nowadays, 18.000 people are living here, more than half of them ‘foreigners’ (mainly Turks and on the main street Turkish is omnipresent). But the number of inhabitants is fortunately increasing again. The main street (Wellenstrasse) is great. When there is one bridal shop in town it is probably thriving. When there are two in town, both of them will be struggling. But when you have 20 – people will come flocking to your bridal hub, which seems to have happened to the Wellenstrasse. The bridal shops are Turkish but the style is very much the typically western romantic white gown style (and an occasional suit for the groom, too). Also lots of extreme bling shops (and small supermarkets with a larger array of vegetables than large supermarkets in the Netherlands). The bling contributes with the steel industry to the steampunk feeling.