J. Bradford DeLong's Blog, page 2106

January 31, 2011

Attempted DeLong Smackdown Watch: dsquared Edition

dsquared writes:







Alex Tabarrok Asks a Question...: Brad, not being funny here, but have you read Marx? Alex Tabarrok has an excuse for not knowing the first thing about him, but you teach History of Political Economy!





Marx would not have been hypocritical to have bought vegetables in a market and surplus-value has nothing to do with it. Marx's view of commodity markets did not differ materially from Adam Smith. Marx might have been considered hypocritical if he had employed large amounts of labour ... but ...





Engels actually did! It is not exactly an obscure point about Engels that he was a factory owner. Marx and Engels wrote voluminously about the specific point at issue, and they specifically and repeatedly said that they thought the rules were suboptimal (to say the least), but that at the point in history where they found themselves, there was no point in trying other than to act within them, and to work to create another possible society. Historical materialism is also not an obscure point about Marxism!





Furthermore, the conflict between and need to reconcile and synthesis differing and contradictory principles, under the name of "dialectic" is also not exactly an obscure part of Marx's philosophy.







I am unconvinced. The problem is that Marx is trying to have his surplus-value cake and eat it too. He wants, on the one hand, to claim to simply be a positive social scientist projecting out the laws of historical development in a value-neutral manner--describing, not condemning. He wants, on the other hand, for his descriptions to carry labels like "exploitation." I don't think it works. But Marx needs both elements. If, after all, the current system is not unjust, why work so hard to change it? Why not let peaceful historical evolution take its course?





Barmen & Engels is a whole additional can of worms all on its own...





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Published on January 31, 2011 19:27

Alex Tabarrok Asks a Question...

AT:







Libertarians of Weak Principles: Regarding Rand, so it was hypocritical for Karl Marx to buy vegetables at the market?







Yes, it was. On Marx's principles, he had a moral duty to find those whose surplus value was extracted and who were thus underpaid for their labor on the commodities he consumed, and compensate them.





You can sleep easy if you play by the rules even if you think the rules are non-optimal, as long as you point that out. That's Milton Friedman.





You cannot sleep easy if you play by the rules if you think the rules give you a license to steal. That's Robert Nozick, Robert Bork, and Ayn Rand.





That's the difference between utilitarian and deontological theories. Deontology is a bitch.





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Published on January 31, 2011 17:51

Montagu King, or Mervyn Norman?

It will be interesting to see if expansionary monetary policy a l'outrance can keep Britain afloat, or if it is simply pushing on a string. The export channel should help. But I certainly would not do this were I in Mervyn King's shoes.



Chris Giles and George Parker:




King defends UK economic policy: The Bank of England has robustly defended the UK government’s economic strategy, urging it to stick to tough public spending cuts in spite of shock figures showing the inflation-prone economy shrunk at the end of last year. Mervyn King, the bank governor, said the economy’s 0.5 per cent contraction in the fourth quarter proved the recovery would be “choppy”. But he used the economic weakness to defend the central bank’s ultra-loose monetary policy in the face of high inflation....



George Osborne, the chancellor, and the governor are united in their belief that Britain’s structural deficit should be eliminated within four years, but they now face a tough adversary in the abrasive Ed Balls, the new shadow chancellor, who argues that the priority should be growth. The economic debate at Westminster has been transformed in a matter of days....



“My advice to George Osborne is don’t blame the weather: change your mind, get a Plan B, get a policy for jobs and growth and do it quickly,” Mr Balls said, claiming that the economy was too fragile to withstand cuts.



But the chancellor insisted he would not be “blown off course”, pointing out that the Office for National Statistics had said that December snow had lopped 0.5 per cent off growth in its preliminary figures, which would otherwise have been flat...






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Published on January 31, 2011 11:56

Martin Wolf Exhorts China to Stop Loving the Dollar So Much

MWQ:




Why China hates loving the dollar: In criticising US fiscal and monetary policies and, in particular, the Federal Reserve’s policy of “quantitative easing”, Mr Hu was following a well-trodden path. In the 1960s, Valéry Giscard d’Estaing, then French finance minister, complained about the dollar’s “exorbitant privilege”. John Connally, US Treasury secretary under Richard Nixon, answered when he described the dollar as “our currency, but your problem”. The French and now the Chinese desire exchange rate stability but detest the inevitable result: an open-ended commitment to buying as many dollars as the US creates. Both want to discipline US policies. Both have failed. Are things likely to be different this time? No.



The Chinese and other heavy interveners have a peculiar way of showing their distrust of the dollar. Between January 1999, just after the Asian financial crisis, and October 2010, the global stock of foreign currency reserves increased by the staggering total of $7,450bn. China alone added $2,616bn. During the recent financial crisis, global reserves did provide a cushion to holders, falling by just $473bn from July 2008 to February 2009 (6 per cent of the initial stock). But then purchases restarted: between February 2009 and October 2010, reserves rose by another $2,004bn....



Why have relatively poor countries made these huge investments in the low-yielding liabilities of the world’s richest countries and, above all, of the US? Why has China, in particular, purchased vast quantities of debt from a country whose policies it distrusts – more than $2,000 for every Chinese and some 50 per cent of gross domestic product? The answer is that this is the by-product of efforts to keep the currency down and exports competitive....



Is there a plausible reform of the international monetary system that would solve the Chinese dilemma?... What about turning the renminbi itself into a global reserve currency? In the very long run, this must happen. But any swift move in that direction would raise two difficulties for China. First, it would only make sense if the currency were to be unpegged from the dollar, in which case the mercantilist strategy would collapse. Second, for a currency to become global it must be freely convertible and traded in deep and liquid financial markets. China would have to abandon exchange controls and liberalise its financial system. It would become impossible to force Chinese people to hold vast quantities of low-yielding bank deposits. Above all, the authorities would lose their most important source of economic control: the banking system. This is surely close to inconceivable in the near term....



China cannot pursue its mercantilist strategy and also avoid accumulating dollar liabilities of doubtful long-term value. This is the “Triffin dilemma”.... The solution for China is to... allow the renminbi to rise faster. That would surely create adjustment problems. But those adjustments are in China’s own interests.... [E]vidence suggests that China is still willing to move only very slowly. That is a mistake. My advice to Mr Hu is simple: if China wants to escape from the tyranny of that dreadful dollar, stop buying. Please.






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Published on January 31, 2011 11:54

The Germans Keep Hitting Themselves on the Head with the Austerity Hammer

John Quiggin:




One size fits nobody?: Much recent discussion of the future of the euro... has started from the idea that Europe is not an optimal currency area, and that a ‘one-size fits all’ monetary policy is therefore bound to lead to the kinds of problems we are now observing.... I want to argue that this is not an accurate description of the current state of the eurozone. It’s true that Germany is doing a lot better than the eurozone as a whole, and the peripheral countries a lot worse. So, the optimal policy for Germany alone would be tighter than for the rest of the eurozone.... But when you look at the actual policies of the ECB, including Trichet’s recent threat to raise interest rates, it’s hard to see that this policy is optimal for any EU country, even Germany.... Germany’s recovery has not been that strong, and an expansion based on exports could easily be derailed by the kind of currency appreciation that would follow an interest rate rise, or even a really credible commitment to hold inflation down. And given the difficulties of handing out explicit haircuts, a modest amount of inflation seems likely to be a low-risk way of easing debt burdens without endangering the (largely German and French, and also UK) banks that hold a lot of the debt.



As has been pointed out here on previous occasions, to say that the problem is the ECB rather than the euro is, for some purposes, a distinction without a difference. But in other respects it is critical. If the optimal currency area analysis is correct then a breakup of the euro is probably inevitable and the big question is how to manage it. On the other hand, on the analysis offered here, the ECB must, in the end, be bluffing. Faced with the end of the currency it has been set up to manage, the ECB must eventually back down on everything else, including its inflation targets. The problem on this analysis is how to broker the politics of pushing the ECB towards large-scale quantitative easing and a higher inflation target...






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Published on January 31, 2011 11:36

Dennis Kucinich Appears to Have Lost His Mind

Jack Stuef writes:




Dennis Kucinich Suing House Cafeteria Over ‘Dangerous’ Sandwich: Congressman Dennis Kucinich is suing three companies that operate the Longworth House Office Building cafeteria because it served him a sandwich that “contained dangerous substances, namely an olive pit” three years ago...




I don't care that he did break a tooth. Occasional olive pits are a background hazard. They do not, in a good world, give you a cause of action against the cafeteria--no matter how botched up the subsequent dentistry becomes.





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Published on January 31, 2011 11:33

Libertarians of Weak Principles

In general there are two types of critics of the social insurance state. One type--Milton Friedman, say--claims that the social insurance state is bad policy because its benefits misalign incentives and the reduction in the size of the pie outweighs whatever distributional benefits are attained. A second type--the Robert Nozicks, the Ayn Rands, the Robert Borks--say that the social insurance state is immoral because its benefits are theft by parasites and loafers.



That is why it is noteworthy when Robert Bork files a tort lawsuit of a type he has denounced against the Yale Club of New York, why it is noteworthy when Robert Nozick uses the Cambridge Rent Control Board to extort money from Eric Segal, and when Ayn Rand accepts Medicare because otherwise her lung cancer surgeries would bankrupt her.



Joshua Holland




Ayn Rand Railed Against Government Benefits, But Grabbed Social Security and Medicare When She Needed Them: Ayn Rand was not only a schlock novelist, she was also the progenitor of a sweeping “moral philosophy” that justifies the privilege of the wealthy and demonizes not only the slothful, undeserving poor but the lackluster middle-classes as well. Her books provided wide-ranging parables of "parasites," "looters" and "moochers" using the levers of government to steal the fruits of her heroes' labor. In the real world, however, Rand herself received Social Security payments and Medicare benefits under the name of Ann O'Connor (her husband was Frank O'Connor).... Her ideas about government intervention in some idealized pristine marketplace serve as the basis for so much of the conservative rhetoric we see today. “The reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand,” said Paul Ryan, the GOP's young budget star at a D.C. event honoring the author. On another occasion, he proclaimed, “Rand makes the best case for the morality of democratic capitalism.” “Morally and economically,” wrote Rand in a 1972 newsletter, “the welfare state creates an ever accelerating downward pull.”...



Rand... believed that the scientific consensus on the dangers of tobacco was a hoax. By 1974, the two-pack-a-day smoker, then 69, required surgery for lung cancer. And it was at that moment of vulnerability that she succumbed to the lure of collectivism. Evva Joan Pryor... interviewed in 1998 by Scott McConnell, who was then the director of communications for the Ayn Rand Institute.... “She was coming to a point in her life where she was going to receive the very thing she didn’t like, which was Medicare and Social Security,” Pryor told McConnell. “I remember telling her that this was going to be difficult. For me to do my job she had to recognize that there were exceptions to her theory. So that started our political discussions. From there on – with gusto – we argued all the time. The initial argument was on greed,” Pryor continued. “She had to see that there was such a thing as greed in this world. Doctors could cost an awful lot more money than books earn, and she could be totally wiped out by medical bills if she didn’t watch it. Since she had worked her entire life, and had paid into Social Security, she had a right to it. She didn’t feel that an individual should take help.”...



[A]t least she put up a fight before succumbing to the imperatives of the real world – one in which people get sick, and old, and many who are perfectly decent and hardworking don't end up being independently wealthy....



A central rule of the U.S. political economy is that people are attracted to the idea of “limited government” in the abstract—and certainly don’t want the government intruding in their homes—but they really, really like living in a society with adequately funded public services.



That's just as true for an icon of modern conservatism as it is for a poor mother getting public health care for her kids.






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Published on January 31, 2011 11:31

The Output-Employment Gap

Menzie Chinn:







Econbrowser: Three Years after the Great Recession's Start: GDP seem to continue growing, although at a slower rate than one might expect from such a deep recession (but probably in line with a recession coincident with a financial crisis). Of course, it would have been much worse without the stimulus package passed in February 2009.... One mystery, alluded to in Leonhardt's recent NYT article, is why GDP has grown at a pace so much faster than employment. Those who cite this as a puzzle of the recent recovery are somewhat off the mark. A substantial divergence between employment and output growth has been the hallmark of the last three recovery (1990's, 2000's, and the current episode).... The fact that this pattern shows up in previous US recoveries suggests that the phenomenon is not specific to policies adopted by the Obama Administration. The fact that the GDP-employment growth is not as pronounced in other countries with, arguably, greater unionization or labor power, further suggests that the ability of labor to wrest high wages is not the source of the divergence. So the puzzle remains...







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Published on January 31, 2011 11:31

John Maynard Keynes on the Ricardian Vice

Paul Krugman writes:




The Demand-Side Temptation: Nick Rowe makes a good point: most of the time, in market economies, sellers feel constrained while buyers don’t... because perfect competition is actually rare.... [T]hat... is how most New Keynesian models set things up: the classic NK model is one in which a number of little monopolists sell differentiated products, at prices they set and revise only occasionally.... [I]n these models more demand actually is good for everyone: if you could keep the economy running a bit hot all the time, that would be a positive thing. The problem is that you can’t: a monetary policy that tries to keep unemployment below the “natural” rate may initially be welfare-enhancing, but only at the cost of ever-accelerating inflation.



Rowe goes on to suggest that demand-side logic is dangerous, because it appeals to our sense that more demand is always better, and could lead to irresponsible policies. Well, there have been times and place where that was true: Latin America used to have outbreaks of macroeconomic populism, Britain had its “go for growth” debacle in the early 70s, and so on. But what I think Nick misses is the power of the contrary narrative, of the notion of the government as being like a family that must tighten its belt when the rest of us do, of the evils of printing money (hey, I can’t do that, why can Bernanke?).



As so often, Keynes was there first:




The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.




Add to this the Kalecki notion that captains of industry want governments to believe that it’s all about being nice to business, which makes them hostile to any active policy, and I think you have a rough explanation of the fact that right now hostility to demand-side policies, rather than demands for more, rule our discourse.






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Published on January 31, 2011 11:30

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