J. Bradford DeLong's Blog, page 2117
January 20, 2011
Ezra Klein Examines the Wonk Gap
Mark Thoma sends us to Ezra Klein, who writes:
Ezra Klein - Greg Mankiw's thinking cap: There's an interesting mixture of callousness and accidental truth lurking within Greg Mankiw's satirical proposal to reduce the budget deficit:
The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases.... [G]iving me that $1 billion will reduce the budget deficit by $2 billion. Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.
Like health-care reform, Greg Mankiw's plan really would reduce the budget deficit. That's been contested, so I'm glad to see Mankiw admit it. But Mankiw's broader point is that... he is analogizing giving Greg Mankiw a billion-dollar check to giving health-care insurance to 32 million people who, in the vast majority of cases, can't get it themselves.
That's easy for him to say, I think, given that Harvard University offers insurance to its employees. They do that because their employees... don't think of insurance as an absurd extravagance or a billion-dollar check from the sky. They think of it as something much more like a necessity, something that their workers wouldn't be willing to go without.... [T]here's a real callousness to this post.
Now for the accidental truth: Mankiw's analytical claim is that it's somehow peculiar to believe a bill reduces the deficit because it raises more money than it spends. After all, the spending doesn't reduce the deficit. His apparent belief that the "revenues and spending cuts" side of legislation has nothing to do with the "new spending or tax cuts" side helps explain why he joined the Bush administration's Council of Economic Advisers in May 2003, the same month that the Bush administration's second set of unpaid-for tax cuts was passing through Congress, and a few months before the Bush administration's completely unpaid-for Medicare Prescription Drug Benefit was signed into law.
That record -- and Mankiw's apparent belief that the subsidizing insurance is akin to an extravagant giveaway to the rich -- offers a telling contrast to the policy thinking Mankiw is criticizing here, which as he admits, actually reduces the deficit, and though he doesn't mention this, does so while mostly ending the days when Americans would find themselves involuntarily uninsured. It's another example of the tendency that the Affordable Care Act's critics have to omit the uninsured from the discussion and develop a new and inconsistent definition of fiscal responsibility when doing so would aid an attack on the bill.
Paul Krugman: The Road to Economic Crisis Is Paved With Euros
PK:
The Road to Economic Crisis Is Paved With Euros: the classic argument for flexible exchange rates was made by none other than Milton Friedman.... [T]here are obviously benefits from a currency union. It’s just that there’s a downside, too: by giving up its own currency, a country also gives up economic flexibility. Imagine that you’re a country that... recently saw wages and prices driven up by a housing boom, which then went bust. Now you need to get those costs back down. But getting wages and prices to fall is tough: nobody wants to be the first to take a pay cut.... If you still have your own currency, however, you wouldn’t have to go through the protracted pain of cutting wages: you could just devalue your currency — reduce its value in terms of other currencies — and you would effect a de facto wage cut.
Won’t workers reject de facto wage cuts via devaluation just as much as explicit cuts in their paychecks? Historical experience says no....
Why the difference? Back in 1953, Milton Friedman offered an analogy: daylight saving time. It makes a lot of sense for businesses to open later during the winter months, yet it’s hard for any individual business to change its hours: if you operate from 10 to 6 when everyone else is operating 9 to 5, you’ll be out of sync. By requiring that everyone shift clocks back in the fall and forward in the spring, daylight saving time obviates this coordination problem. Similarly, Friedman argued, adjusting your currency’s value solves the coordination problem when wages and prices are out of line, sidestepping the unwillingness of workers to be the first to take pay cuts.
So while there are benefits of a common currency, there are also important potential advantages to keeping your own currency. And the terms of this trade-off depend on underlying conditions....
Climate, scenery and history aside, the nation of Ireland and the state of Nevada have much in common. Both are small economies of a few million people highly dependent on selling goods and services to their neighbors. (Nevada’s neighbors are other U.S. states, Ireland’s other European nations, but the economic implications are much the same.) Both were boom economies for most of the past decade. Both had huge housing bubbles, which burst painfully. Both are now suffering roughly 14 percent unemployment. And both are members of larger currency unions: Ireland is part of the euro zone, Nevada part of the dollar zone, otherwise known as the United States of America.
But Nevada’s situation is much less desperate than Ireland’s.
First of all, the fiscal side of the crisis is less serious in Nevada... much of the spending Nevada residents depend on comes from federal, not state, programs.... Nevada, unlike Ireland, doesn’t have to worry about the cost of bank bailouts, not because the state has avoided large loan losses but because those losses, for the most part, aren’t Nevada’s problem. Thus Nevada accounts for a disproportionate share of the losses incurred by Fannie Mae and Freddie Mac, the government-sponsored mortgage companies — losses that, like Social Security and Medicare payments, will be covered by Washington, not Carson City. And there’s one more advantage to being a U.S. state: it’s likely that Nevada’s unemployment problem will be greatly alleviated over the next few years by out-migration.... Over all, then, even as both Ireland and Nevada have been especially hard-luck cases within their respective currency zones, Nevada’s medium-term prospects look much better.
What does this have to do with the case for or against the euro? Well, when the single European currency was first proposed, an obvious question was whether it would work as well as the dollar does here in America. And the answer, clearly, was no.... U.S.-based economists had long emphasized the importance of certain preconditions for currency union.... Robert Mundell of Columbia stressed the importance of labor mobility, while Peter Kenen, my colleague at Princeton, emphasized the importance of fiscal integration....
These observations aren’t new: everything I’ve just said was well known by 1992, when the Maastricht Treaty set the euro project in motion. So why did the project proceed? Because the idea of the euro had gripped the imagination of European elites. Except in Britain, where Gordon Brown persuaded Tony Blair not to join, political leaders throughout Europe were caught up in the romance of the project, to such an extent that anyone who expressed skepticism was considered outside the mainstream.
DeLong Smackdown Watch: Things I Used to Believe Edition
Duncan Black:
Eschaton: I certainly didn't believe in #s 1 [that the highly leveraged banks had control over their risks], 3 [that fiscal policy no longer had a legitimate countercyclical role to play], or 5 [that economists had an effective consensus on macroeconomic policy: the government should] intervene strategically in asset markets to stabilize the growth path of nominal GDP], though I probably thought them to be more true than I do now. I didn't believe 2 [that the Federal Reserve had the power and the will to stabilize the growth path of nominal GDP] completely, but close enough. I did believe in 4 [that no advanced country government with as frayed a safety net as America would tolerate 10% unemployment]. Oh well.
Wonkette: WaPo Newsroom Upset Because Black Lady With B---s Hosts WaPo Webcast
Ken Layne:
WaPo Newsroom Upset Because Black Lady With B---s Hosts WaPo Webcast: America’s strangest joke of a newspaper is the Washington Post, an Onion-style bland suburban daily that seems to shrink deeper into itself each morning. With a news section full of utterly random paragraph-sized chunks from yesterday’s washingtonpost.com and a bizarre op-ed section featuring press releases submitted by the offices of politicians and the confused yammerings of senile embarrassments like Richard Cohen, the paper appears to be nothing less than an elaborate satire of Washington’s dull insularity and tunnel vision. But, according to accountants, it’s actually a very real cash drain on the Kaplan for-profit education scam company that owns the WaPo....
[T]he entire white male staff of the Washington Post cares, a lot, because having this lady with her b---s doing a webcast is somehow going to erode the WaPo brand more than, oh, three decades of boot-licking journalistic mediocrity.... Anyway, people in the WaPo newsroom are so upset about this black lady having b---s and doing a webcast! Please, let’s bring dignity (and shriveled white weiners) back to the WaPo video offerings! Let’s bring back... Mouthpiece Theater.
If You Want to Boost Employment, Push for Policies That Boost Employment!
A correspondent emails me a link to Ezra Klein and asks:
Doesn't Barack Obama know that if his economic advisors had exciting, effective, and politically viable policies to substantially reduce unemployment that did not require getting congress to spend more money, they would have proposed and implemented such policies in January 2009?
Apparently not.
Ezra Klein:
If Obama wants to be bold, he should be bold: [T]he individual who comes off worst in the article is not Larry Summers or Christina Romer or Peter Orszag or Rahm Emanuel. It's President Obama. Baker opens with an anecdote from just before Christmas. Obama... wanted a bold idea to bring down unemployment. But he didn't like anything his advisers were offering up. “You know, guys,” he said, according to someone in the room, “I’ve told you before, I want you to come to me with ideas that excite me.”
But it's not until a few paragraph later that we learn what Obama actually meant: He wanted "ways to juice the economy that are exciting, effective and politically viable." According to one adviser in the meetings, “The president wanted to lower unemployment but didn’t see a way to get more money out of Congress. He grew frustrated because the economic team didn’t have that magic combination.” Another said that Obama “was really frustrated that there weren’t solutions on the cheap.”...
If the president wants to go bold on job creation, he needs to go bold on job creation. The votes may not be there now, but perhaps it's worth mounting a very public effort to get them there. At the State of the Union, say. And if Republicans block the proposals, well, sometimes the best way to show the public where you stand on something is to go down fighting for it. Losing the House doesn't release the Obama administration from the responsibility to get things done, of course. And the White House is acutely aware that when they throw their weight behind a policy, the GOP often turns against that policy. One of the reasons the payroll-tax holiday wasn't part of the administration's pre-election jobs push was so that it would remain acceptable to Republicans when the two sides came together to cut some post-election deals.
But that strategy only applies to policies Republicans are willing to pass. There's plenty of good -- even exciting and effective -- legislation that the GOP won't move unless the public forces them to move it. For those ideas that are outside the current congressional consensus, the right question for it isn't "are there the votes" so much as "is this a good idea?" and "can we convince the people?" One of those questions is for Obama's economic team. But the other is for Obama himself....
[T]he question is whether the legislative pragmatism that defined Obama's administration so far was a smart strategy based on the math of a Democratic majority or the administration's only strategy based on the temperament of Barack Obama. You can have bold and exciting or you can have politically viable. You can't always have both.
There were, indeed, four ways to boost employment, all of which had drawbacks:
Expansionary fiscal policy: convince congress to appropriate more money and borrow-and-spend.
Expansionary monetary policy: staff up the Federal Reserve with governors who believed that large-scale quantitative easing and inflation, price level, and nominal GDP targeting were worth attempting.
Use the TARP and the Treasury's powers to offer bank guarantees to engage in large-scale quantitative easing by the executive branch.
Focus on putting into place long-run policies to balance the federal budget, and hope that their passage induces the confidence fairy to show up.
I think that the Obama administration should have gone all-in on all four of these policy dimensions.
January 19, 2011
FDR Liveblogs World War II: January 20, 1941
FDR's Third Inaugural Address:
Third Inaugural Address of Franklin D. Roosevelt: On each national day of inauguration since 1789, the people have renewed their sense of dedication to the United States.
In Washington's day the task of the people was to create and weld together a nation.
In Lincoln's day the task of the people was to preserve that Nation from disruption from within.
In this day the task of the people is to save that Nation and its institutions from disruption from without.
To us there has come a time, in the midst of swift happenings, to pause for a moment and take stock--to recall what our place in history has been, and to rediscover what we are and what we may be. If we do not, we risk the real peril of inaction.
Lives of nations are determined not by the count of years, but by the lifetime of the human spirit. The life of a man is three-score years and ten: a little more, a little less. The life of a nation is the fullness of the measure of its will to live.
There are men who doubt this. There are men who believe that democracy, as a form of Government and a frame of life, is limited or measured by a kind of mystical and artificial fate that, for some unexplained reason, tyranny and slavery have become the surging wave of the future--and that freedom is an ebbing tide.
But we Americans know that this is not true.
Eight years ago, when the life of this Republic seemed frozen by a fatalistic terror, we proved that this is not true. We were in the midst of shock--but we acted. We acted quickly, boldly, decisively.
These later years have been living years--fruitful years for the people of this democracy. For they have brought to us greater security and, I hope, a better understanding that life's ideals are to be measured in other than material things.
Most vital to our present and our future is this experience of a democracy which successfully survived crisis at home; put away many evil things; built new structures on enduring lines; and, through it all, maintained the fact of its democracy.
For action has been taken within the three-way framework of the Constitution of the United States. The coordinate branches of the Government continue freely to function. The Bill of Rights remains inviolate. The freedom of elections is wholly maintained. Prophets of the downfall of American democracy have seen their dire predictions come to naught.
Democracy is not dying.
We know it because we have seen it revive--and grow.
We know it cannot die--because it is built on the unhampered initiative of individual men and women joined together in a common enterprise--an enterprise undertaken and carried through by the free expression of a free majority.
We know it because democracy alone, of all forms of government, enlists the full force of men's enlightened will.
We know it because democracy alone has constructed an unlimited civilization capable of infinite progress in the improvement of human life.
We know it because, if we look below the surface, we sense it still spreading on every continent--for it is the most humane, the most advanced, and in the end the most unconquerable of all forms of human society.
A nation, like a person, has a body--a body that must be fed and clothed and housed, invigorated and rested, in a manner that measures up to the objectives of our time.
A nation, like a person, has a mind--a mind that must be kept informed and alert, that must know itself, that understands the hopes and the needs of its neighbors--all the other nations that live within the narrowing circle of the world.
And a nation, like a person, has something deeper, something more permanent, something larger than the sum of all its parts. It is that something which matters most to its future--which calls forth the most sacred guarding of its present.
It is a thing for which we find it difficult--even impossible--to hit upon a single, simple word.
And yet we all understand what it is--the spirit--the faith of America. It is the product of centuries. It was born in the multitudes of those who came from many lands--some of high degree, but mostly plain people, who sought here, early and late, to find freedom more freely.
The democratic aspiration is no mere recent phase in human history. It is human history. It permeated the ancient life of early peoples. It blazed anew in the middle ages. It was written in Magna Charta.
In the Americas its impact has been irresistible. America has been the New World in all tongues, to all peoples, not because this continent was a new-found land, but because all those who came here believed they could create upon this continent a new life--a life that should be new in freedom.
Its vitality was written into our own Mayflower Compact, into the Declaration of Independence, into the Constitution of the United States, into the Gettysburg Address.
Those who first came here to carry out the longings of their spirit, and the millions who followed, and the stock that sprang from them--all have moved forward constantly and consistently toward an ideal which in itself has gained stature and clarity with each generation.
The hopes of the Republic cannot forever tolerate either undeserved poverty or self-serving wealth.
We know that we still have far to go; that we must more greatly build the security and the opportunity and the knowledge of every citizen, in the measure justified by the resources and the capacity of the land.
But it is not enough to achieve these purposes alone. It is not enough to clothe and feed the body of this Nation, and instruct and inform its mind. For there is also the spirit. And of the three, the greatest is the spirit.
Without the body and the mind, as all men know, the Nation could not live.
But if the spirit of America were killed, even though the Nation's body and mind, constricted in an alien world, lived on, the America we know would have perished.
That spirit--that faith--speaks to us in our daily lives in ways often unnoticed, because they seem so obvious. It speaks to us here in the Capital of the Nation. It speaks to us through the processes of governing in the sovereignties of 48 States. It speaks to us in our counties, in our cities, in our towns, and in our villages. It speaks to us from the other nations of the hemisphere, and from those across the seas--the enslaved, as well as the free. Sometimes we fail to hear or heed these voices of freedom because to us the privilege of our freedom is such an old, old story.
The destiny of America was proclaimed in words of prophecy spoken by our first President in his first inaugural in 1789--words almost directed, it would seem, to this year of 1941: "The preservation of the sacred fire of liberty and the destiny of the republican model of government are justly considered ... deeply, ... finally, staked on the experiment intrusted to the hands of the American people."
If we lose that sacred fire--if we let it be smothered with doubt and fear--then we shall reject the destiny which Washington strove so valiantly and so triumphantly to establish. The preservation of the spirit and faith of the Nation does, and will, furnish the highest justification for every sacrifice that we may make in the cause of national defense.
In the face of great perils never before encountered, our strong purpose is to protect and to perpetuate the integrity of democracy.
For this we muster the spirit of America, and the faith of America.
We do not retreat. We are not content to stand still. As Americans, we go forward, in the service of our country, by the will of God.
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