God is in his heaven, and all is right with the world. There is nothing to torture ourselves with this morning. Both MoDo and The Moustache of Wisdom are off. Happy days are here again…
Archive for the ‘Uncategorized’ Category
There were two posts yesterday. The first was “The Loneliness of the Non-Crazy Republican:”
Hank Paulson has a very sad opinion piece about climate change in today’s Times. We must act, he declares, in the same way we acted to contain the financial crisis.
It’s a dubious analogy: the 2008 crisis was fast-moving, and people like Paulson could credibly warn that unless we acted the whole world economy would fall apart in a matter of days. Meanwhile, climate change is slow but inexorable, with enormous momentum; by the time it becomes undeniable that there’s a crisis, it will be too late to avoid catastrophe.
But that’s not the sad part about Paulson’s piece; no, what’s sad is that he imagines that anyone in the party he still claims as his own is listening. Earth to Paulson: the GOP you imagine, which respects science and is willing to consider even market-friendly government interventions like carbon taxes, no longer exists. The reins of power now rest firmly, irreversibly, in the hands of men who believe that climate change is a hoax concocted by liberal scientists to justify Big Government, who refuse to acknowledge that government intervention to correct market failures can ever be justified.
Given the state of U.S. politics today, climate action is entirely dependent on Democrats, With a Democrat in the White House, we got some movement through executive action; if Democrats eventually regain the House, there could be more. If Paulson believes that he can support Republicans while still pushing for climate action, he’s just delusional.
Yesterday’s second post was “The Damage Done:”
A note to myself, mainly. Look at the Spring 2008 World Economic Outlook of the IMF, which projected real GDP (pdf) for advanced countries, and compare it with the actual path:
That’s a huge shortfall. Yet the IMF believes that the output gap is only a couple of percentage points. If so, either there was a huge coincidence — a sudden, unanticipated drop off in potential growth that just happened to coincide with the financial crisis — or the crisis, and the poor macroeconomic management that followed, have done incredible damage.
On Tuesday there were two posts, and none yesterday. The first post on 4/22 was “Inequality 1992:”
I happened to notice Greg Mankiw citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought “Wait — didn’t we deal with that one long ago?” And that brought to mind the piece I wrote for the American Prospect 22 years ago, “The rich, the right, and the facts.” (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility.
The truth is that inequality denial is largely a crusade of cockroaches — the same bad arguments just keep coming back.
Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then.
The second post on Tuesday was “Class-Ridden America:”
Via Mark Thoma, Larry Bartels produces the ultimate anti-Santorum argument. Santorum, you may recall, declared that we have no classes in America — even the term middle class, he says, is “Marxism talk“. The usual response is to point to the data and say that objectively we are indeed a class society.
But there’s more: Bartels shows that we are also subjectively a class society: that policy views are much more differentiated by income than in other advanced countries:
Bartels offers several hypotheses about why this may be true. But the main point to understand here is that we now know what it means when people urge us to stop talking about class, or denounce class warfare: it is essentially a demand that lower-income Americans and those upper-income Americans who care about them shut up, and stop messing with the elite desire for smaller government.
It appears it all comes down to FYIGM…
In “Obamacare Bashing or Bust” Mr. Blow says regardless of whether you agree with the Democrats or Republicans on health reform, it could have profound implications on the midterm elections. Mr. Nocera takes a look at “Greed and the Wright Brothers” and says in the years that followed that famed first flight, their failure as businessmen offers lessons for today. In “And the Race Is Off” Ms. Collins says Kathleen Sebelius may be saying that she is not going to enter the Kansas race, but she is still adding to this year’s saga of women running for the U.S. Senate. Here’s Mr. Blow:
Thursday, President Obama delivered a compendium of positive news about the Affordable Care Act:
■ Eight million people have signed up for private health insurance.
■ Thirty-five percent of those signing up are under 35 years old.
■ The Congressional Budget Office now estimates that the cost of the law will be $100 billion lower than expected and will significantly shrink the deficit over the next 10 years.
“This thing is working,” the president said. But it rang more as a lamentation than a proclamation. The health care law is a staggering achievement by this president and the Democrats and is likely to be viewed by history as such, but Republican opposition to it has been so vociferous and unrelenting that the president has been hard pressed to find a message that can overcome it.
Republicans repeat the same complaints, regardless of their veracity: Obamacare is bad for the economy and bad for Americans; it’s an unwelcome expansion of government by an overreaching president; it’s failing and will never work.
As Obama said Thursday:
“I find it strange that the Republican position on this law is still stuck in the same place that it has always been. They still can’t bring themselves to admit that the Affordable Care Act is working. They said nobody would sign up; they were wrong about that. They said it would be unaffordable for the country; they were wrong about that.”
“I know every American isn’t going to agree with this law, but I think we can agree that it’s well past time to move on as a country. …”
But the president knows well that Republicans have no interest whatsoever in moving on. They’ve hitched their wagons to stop-Obama stallions and their plan is to race forward to Election Day.
The president smartly articulated the frustration that much of the opposition to the law in public opinion polls is “attached to general opinions about me or about Democrats and partisanship in the country generally.”
The president’s poll numbers took a hit during the health care rollout and have never fully recovered. The law also caused Democrats in general to lose their advantage in voters’ preference for control of Congress, according to a CNN/ORC poll conducted in December. Furthermore, most Americans disapprove of the health care law.
The Republican plan is simply to hold tight to last year’s disapproval and drag it forward to this year’s election. And that just might work. Democrats have so fumbled the selling of the health care law’s advantages, both moral and economic — faltering and stammering when they should have been steadfast and resolute — that they have acquiesced the debate to Republican opposition.
Rather than fight back with facts, too many Democratic politicians tucked their tails and ran away from the law, or, worse yet, joined the attack.
In addition to the effectiveness of Republican attacks and the anemia of Democratic support for the law, the demographics of midterm voters also bode well for Republicans.
Midterm elections generally skew older and whiter, and Republicans are counting on this skew to give them an electoral advantage. According to a Washington Post/ABC poll released at the end of last month, whites and elderly people are the least likely to support federal changes to the health care system, yet most elderly people are beneficiaries of another, quite successful government health care program: Medicare. And 77 percent of Medicare beneficiaries are white.
Even if Obamacare were not a factor, history suggests that this midterm election would still be a tough one for Democrats. As The Washington Post’s Chris Cillizza pointed out in February:
“The party of a re-elected president tends to get walloped in the following midterm election. Since 1912 (that’s when the House expanded to 435 seats), the president’s party has lost an average of 29 House seats in the following midterm election.”
The health care law is working, insuring millions of Americans at far less a cost than what was previously estimated. But this civic victory may well contribute to a political defeat in November, unless Democrats can upend historical precedent and change the profile of the people who vote in off-year elections.
Our elections have been severely altered by a corporatist Supreme Court, maleficent voter ID laws and gerrymandering run amok. In the face of it all, can Democrats gather the gumption to say, “Enough”?
Next up we have Mr. Nocera:
Lawrence Goldstone’s new book, “Birdmen,” is about the origins of the airplane, from the early experiments with gliders in the 1890s, to the famous first powered flight by the Wright brothers in December 1903, to the wild next decade — a decade of daring by the early pilots eager to show off both their airplanes and their skill. A good part of the story Goldstone tells is about the rise of airshow exhibitions that swept America — exhibitions in which flamboyant pilots performed death-defying stunts before tens of thousands of spectators. Although, as the author points out, many of those pilots did not, in the end, defy death. On the contrary, death is a constant theme of the early years of flight.
“Birdmen” has a second narrative as well. It tells the story of three entrepreneurs: Wilbur and Orville Wright, on the one hand, and Glenn Curtiss, who quickly became their fiercest business rival, on the other. The Wright brothers had every advantage. Not only were they first, but their renown allowed them to form a well-capitalized company, with a distinguished board or directors, that aimed to take full advantage of their early patents, while selling airplanes to people we would now call early adopters. Yet as an innovator — indeed, as a businessman — Curtiss ran rings around the Wrights. Well before Orville Wright exited the business in 1915 — his brother had died of typhoid fever three years earlier — Curtiss was producing clearly superior airplanes.
The Wright brothers’ critical insight was the importance of “lateral stability” — that is, wingtip-to-wingtip stability — to flight. And their great innovation was something they called “wing warping,” in which they used a series of pulleys that caused the wingtips on one side of the airplane to go up when the wingtips on the other side were pulled down. That allowed the Wrights’ airplane to make banked turns and to correct itself when it flew into a gust of wind.
But when the Wrights applied for a patent, they didn’t seek one that just covered wing warping; their patent covered any means to achieve lateral stability. There is no question what the Wrights sought: nothing less than a monopoly on the airplane business — every airplane ever manufactured, they believed, owed them a royalty. As Wilbur Wright, who was both the more domineering and the more inventive of the two brothers, put it in a letter: “It is our view that morally the world owes its almost universal system of lateral control entirely to us. It is also our opinion that legally it owes it to us.”
What was Curtiss doing in the meantime? In addition to coming up with the idea of adding wheels for easier takeoffs and landings, he invented an entirely different system for dealing with lateral stability, a system of flaps that went up and down and controlled the wings. (Airplane manufacturers today still use that basic insight.) The Wrights responded by filing a lawsuit, claiming that Curtiss was violating their patents. The litigation would consume them literally until the day Wilbur Wright died.
Indeed, so caught up in the litigation did Wilbur Wright become that he simply stopped innovating. The board of his company made it clear that it wanted him to get back to the business of making better airplanes. But he just couldn’t. Meanwhile, the Wright Company had trouble holding onto professional managers because the Wrights — Wilbur especially — treated them so poorly. They woefully underpaid the pilots who flew for them in exhibitions, hoarding most of the money for themselves. Quite simply, the Wright brothers were greedy. And it ultimately hurt both them and America’s new airplane industry.
As it turns out, the Wright brothers won their lawsuit against Curtiss. But instead of accepting that judgment, Curtiss kept innovating, forcing Orville Wright back into court to stop him. What finally ended the patent wars was World War I; the government insisted that airplane manufacturers cross-license their patents so that the industry could move forward without the impediment of litigation. Yet, Goldstone adds, “the battle between the Wrights and Curtiss had taken a toll”: no American airplane was viewed as good enough to go into combat.
“By attempting to neuter Curtiss,” Goldstone writes, “the Wrights stifled the development of American aviation.”
He adds: “That is, of course, the irony of the patent system. Without patent protection, a competitor can simply replicate an invention and undercut the inventor’s price — which necessarily includes all the time and expense of research and development — so the incentive to experiment and create is severely inhibited. But if innovators such as Glenn Curtiss cannot build on the progress of others without paying exorbitantly for the privilege, the incentive to continue to experiment and create is similarly inhibited.”
Thus, in the story of the Wright brothers and Glenn Curtiss, is a lesson for our age as well.
And last but not least we have Ms. Collins:
Maybe Kathleen Sebelius should reconsider that Senate thing.
The woman who gave us the Obamacare rollout says she is not going to go home to Kansas and take on Senator Pat Roberts. Even though Roberts is a former friend who threw her under the bus because he’s afraid of a challenge from a loopy Tea Party radiologist.
Actually, she didn’t say all that. What she said, through a spokeswoman, was: “Secretary Sebelius is continuing her important work at H.H.S. and is not considering a run for the Senate.”
Some Democrats had told The Times’s Jeremy Peters that they wanted to see her give the race a try. At first, the idea seemed a little otherworldly, what with the way the health care website opened with a crash and all.
Still, we live in an age of hope. Fox says it has a new variation on “The Bachelor” in which 12 American women believe they are competing for the hand of England’s Prince Harry. If you can swallow that, you can certainly have faith that any secretary of health and human services can grow up to be the United States senator from Kansas.
The Democrats have found it difficult to recruit a high-profile candidate to run in Kansas. The state hasn’t elected a Democratic senator since George McGill, who filled the seat after Charles Curtis resigned to become vice president under Herbert Hoover. Curtis, by the way, was the first member of Congress descended from American Indians. He led the floor fight for women’s suffrage and brought the Equal Rights Amendment up before the Senate for the first time. Also, he was a former jockey. I think I speak for us all when I say that Charles Curtis deserves more attention.
But about Kathleen Sebelius. Running a hopeless race for the Senate would be better than, say, spending the next year working on a memoir entitled “It Wasn’t Really My Fault.” And we have to keep stressing that, despite its awful start, the Affordable Care Act is working out fine. You could argue that Sebelius is a competent public servant who just ran into a really bad patch. Like Charles Curtis and the Herbert Hoover era.
Plus, she would have been an interesting addition to this year’s saga of women running for the U.S. Senate. Which is already turning into a thrill a minute. Just consider New Hampshire, where the incumbent, Jeanne Shaheen, is being challenged by Scott Brown, the former Massachusetts senator whose entire political career has involved running for the Senate against Democratic women. To qualify for this race, Brown moved into his New Hampshire vacation home. If he loses, I am thinking his next stop will be a California trailer park and Barbara Boxer.
The Kansas race wouldn’t have been in that fun-filled category. But you could understand the Democrats feeling as if there might be a little window of opportunity. The incumbent, Pat Roberts, is facing any establishment Republican’s worst nightmare: a Tea Party primary challenger, plus the lack of a home in his home state.
Earlier this year, Roberts acknowledged to The Times’s Jonathan Martin that the place in Dodge City that he claims as his voting address is actually a house on a country club golf course that belongs to two longtime supporters. “I have full access to the recliner,” he joked. The part about this that’s really troubling is that Roberts picked a pretend address at a country club. If a politician is going to make believe he lives somewhere, shouldn’t he go for a cottage in the country or a midpriced condo near the shopping center?
Roberts was also stressed by a Tea Party challenge from Milton Wolf, a radiologist who, strangely enough, is a very distant cousin of President Obama. Wolf has compared the Affordable Care Act to “Stalin’s iron-fisted gulags.” Roberts, racing to the right in terror, demanded Sebelius’s resignation for “gross incompetence.” Obamacare haranguing is certainly standard fare under these circumstances, but you can see why Sebelius took it badly. Roberts, after all, was an old family friend who had bragged about their “special relationship” after she was nominated for secretary.
And it wasn’t even necessary. A Kansas reporter discovered that Wolf had a habit of posting X-rays of his patients on his Facebook page, and making fun of their injuries. So far, the radiologist’s most compelling excuse appears to be that he was trying “to educate people about what happens.” This is the kind of threat from the right that a Republican incumbent should be able to survive without turning a sweat, let alone turning on an old pal.
“It isn’t personal,” said Roberts after he’d called for Sebelius’s resignation. Well, sort of.
So there you are. If Kathleen Sebelius had traded the cabinet for the campaign trail, she very probably would have been defeated. But it still might have been fun to spend the summer discussing that recliner at the country club.
He didn’t post to his blog yesterday, but he’s already put up a post this morning. In case you’re following his course, here you go. It’s “Eco 348, The Great Recession: Inflation or Deflation?”:
Slides here (pdf).
This controversy is one for the the textbooks, in a couple of ways. First, the complete starkness of the division, with some of us dismissing inflation worries and warning that deflation might happen, while others warned about “debasement” and runaway inflation; second, the almost complete unwillingness of one side of the debate to revise views at all despite being wrong for five years in succession.
In “Wealth Over Work” Prof. Krugman considers how we are making America safe for oligarchy. Here he is:
It seems safe to say that “Capital in the Twenty-First Century,” the magnum opus of the French economist Thomas Piketty, will be the most important economics book of the year — and maybe of the decade. Mr. Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to “patrimonial capitalism,” in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent.
To be sure, Mr. Piketty concedes that we aren’t there yet. So far, the rise of America’s 1 percent has mainly been driven by executive salaries and bonuses rather than income from investments, let alone inherited wealth. But six of the 10 wealthiest Americans are already heirs rather than self-made entrepreneurs, and the children of today’s economic elite start from a position of immense privilege. As Mr. Piketty notes, “the risk of a drift toward oligarchy is real and gives little reason for optimism.”
Indeed. And if you want to feel even less optimistic, consider what many U.S. politicians are up to. America’s nascent oligarchy may not yet be fully formed — but one of our two main political parties already seems committed to defending the oligarchy’s interests.
Despite the frantic efforts of some Republicans to pretend otherwise, most people realize that today’s G.O.P. favors the interests of the rich over those of ordinary families. I suspect, however, that fewer people realize the extent to which the party favors returns on wealth over wages and salaries. And the dominance of income from capital, which can be inherited, over wages — the dominance of wealth over work — is what patrimonial capitalism is all about.
To see what I’m talking about, start with actual policies and policy proposals. It’s generally understood that George W. Bush did all he could to cut taxes on the very affluent, that the middle-class cuts he included were essentially political loss leaders. It’s less well understood that the biggest breaks went not to people paid high salaries but to coupon-clippers and heirs to large estates. True, the top tax bracket on earned income fell from 39.6 to 35 percent. But the top rate on dividends fell from 39.6 percent (because they were taxed as ordinary income) to 15 percent — and the estate tax was completely eliminated.
Some of these cuts were reversed under President Obama, but the point is that the great tax-cut push of the Bush years was mainly about reducing taxes on unearned income. And when Republicans retook one house of Congress, they promptly came up with a plan — Representative Paul Ryan’s “road map” — calling for the elimination of taxes on interest, dividends, capital gains and estates. Under this plan, someone living solely off inherited wealth would have owed no federal taxes at all.
This tilt of policy toward the interests of wealth has been mirrored by a tilt in rhetoric; Republicans often seem so intent on exalting “job creators” that they forget to mention American workers. In 2012 Representative Eric Cantor, the House majority leader, famously commemorated Labor Day with a Twitter post honoring business owners. More recently, Mr. Cantor reportedly reminded colleagues at a G.O.P. retreat that most Americans work for other people, which is at least one reason attempts to make a big issue out of Mr. Obama’s supposed denigration of businesspeople fell flat. (Another reason was that Mr. Obama did no such thing.)
In fact, not only don’t most Americans own businesses, but business income, and income from capital in general, is increasingly concentrated in the hands of a few people. In 1979 the top 1 percent of households accounted for 17 percent of business income; by 2007 the same group was getting 43 percent of business income, and 75 percent of capital gains. Yet this small elite gets all of the G.O.P.’s love, and most of its policy attention.
Why is this happening? Well, bear in mind that both Koch brothers are numbered among the 10 wealthiest Americans, and so are four Walmart heirs. Great wealth buys great political influence — and not just through campaign contributions. Many conservatives live inside an intellectual bubble of think tanks and captive media that is ultimately financed by a handful of megadonors. Not surprisingly, those inside the bubble tend to assume, instinctively, that what is good for oligarchs is good for America.
As I’ve already suggested, the results can sometimes seem comical. The important point to remember, however, is that the people inside the bubble have a lot of power, which they wield on behalf of their patrons. And the drift toward oligarchy continues.
Nocera is on book leave, and apparently Ms. Collins will show up tomorrow. In “Paul Ryan, Culture and Poverty” Mr. Blow says whatever the congressman meant by men “in inner cities,” there is danger where cover is given for corrosive ideas. Mr. Blow, I think we all know what he meant. That wasn’t a dog whistle, it was a train whistle. And hoo boy, are TPTB in the media working to rehabilitate ZEGS… “Liam Jumper” from South Carolina had this to say in the comments: “My son’s university economics courses touched on urban and rural economics. When I told him Ryan’s remarks, his immediate response was, ‘I’ll bet he didn’t say anything about all the rural people in poverty. They’re mostly white and that would insult his Republican voters.’ ” Here’s Mr. Blow:
Paul Ryan continues to be flogged for disturbing comments he made last week about men “in our inner cities” and their “culture” of not working.
In a radio interview with Bill Bennett, Ryan said, “We have got this tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning the value and the culture of work, and so there is a real culture problem here that has to be dealt with.”
Reactions to the comment were swift and brutal.
Representative Barbara Lee, a California Democrat, said in a statement, “Let’s be clear, when Mr. Ryan says ‘inner city,’ when he says, ‘culture,’ these are simply code words for what he really means: ‘black.’ ”
Ryan has agreed to meet with the Congressional Black Caucus, of which Lee’s a member and which found his remarks “highly offensive.”
But at a town hall meeting on Wednesday, Ryan was rebuked by one of his own constituents, a black man from Mount Pleasant, Wis., named Alfonso Gardner.
Gardner told Ryan, “The bottom line is this: Your statement was not true.” He continued, “That’s a code word for ‘black.’ ”
But instead of cushioning his comments, Ryan shot back, “There was nothing whatsoever about race in my comments at all — it had nothing to do with race.”
That would have been more believable if Ryan hadn’t prefaced his original comments by citing Charles Murray, who has essentially argued that blacks are genetically inferior to whites and whom the Southern Poverty Law Center labels a “white nationalist.” (The center’s definition: “White nationalist groups espouse white supremacist or white separatist ideologies, often focusing on the alleged inferiority of nonwhites.”)
Whatever Ryan meant by men “in our inner cities” and their culture, the comment obscures the vast dimension of poverty in America and seeks an easy scapegoat for it.
According to the Institute for Research on Poverty at the University of Wisconsin-Madison (in Ryan’s home state), the gap between the poverty rate in inner cities and that in rural areas and small towns is not as great as one might suspect. The inner city poverty rate is 19.7 percent, and the poverty rate in rural areas and small towns is 16.5 percent.
Furthermore, as Mark R. Rank, a professor of social welfare at Washington University, argued several months ago in The New York Times:
“Few topics in American society have more myths and stereotypes surrounding them than poverty, misconceptions that distort both our politics and our domestic policy making. They include the notion that poverty affects a relatively small number of Americans, that the poor are impoverished for years at a time, that most of those in poverty live in inner cities, that too much welfare assistance is provided and that poverty is ultimately a result of not working hard enough. Although pervasive, each assumption is flat-out wrong.”
His research, he noted, indicates that “40 percent of Americans between the ages of 25 and 60 will experience at least one year below the official poverty line during that period” and “54 percent will spend a year in poverty or near poverty.” Rank concluded, “Put simply, poverty is a mainstream event experienced by a majority of Americans.”
By suggesting that laziness is more concentrated among the poor, inner city or not, we shift our moral obligation to deal forthrightly with poverty. When we insinuate that poverty is the outgrowth of stunted culture, that it is almost always invited and never inflicted, we avert the gaze from the structural features that help maintain and perpetuate poverty — discrimination, mass incarceration, low wages, educational inequities — while simultaneously degrading and dehumanizing those who find themselves trapped by it.
Other parts of Ryan’s original interview were on target, when he talked about the value and dignity of work and the way that work builds character. Work doesn’t always alleviate poverty, in part because some people are forced to work for less than a living wage, though work does bring dignity.
But this is in part the problem, and danger, of people like Ryan: There is an ever-swirling mix of inspiration and insult, where the borders between the factual and the fudged are intentionally blurred and cover is given for corrosive ideas.
Ryan is “one of the good guys,” a prominent Republican operative explained to me last week. Maybe so, but even good people are capable of saying and believing bad things, and what Ryan said was horrific.
There were two posts yesterday. The first was “Loaves, Fishes, Hot Dogs and Buns:”
Matthew Yglesias tries to explain why productivity growth has nothing to do with deflation using a parable of loaves and fishes. I did something kind of similar long ago, arguing against a naive view of technological unemployment in terms of hot dogs and buns.
But wait — haven’t I been talking lately about both the possibility of technological change leading to a falling labor share and secular stagnation, with persistent shortfalls in demand? Doesn’t this amount to a repudiation of that old essay?
No, it doesn’t. The labor share issue is about the bias of technology, not the rate of progress. And secular stagnation is actually more likely if technological progress is slow, so that there is less reason to add capacity.
As a practical matter, I don’t get too worked up about this kind of misunderstanding anymore; it doesn’t have political power behind it, the way right-wing fallacies do. But it needs to be knocked down gently every once in a while.
Yesterday’s second post was “Letting Lehman Fail:”
One of the really good things about teaching a new course is that the work you put into developing your lectures often leads you to stuff you didn’t know about, missed, or had forgotten. Today’s class was a sort of narrative walkthrough of the financial crisis, and in the course of preparing I found myself trying to recall who actually thought letting Lehman fail was a good idea.
The answer is, a lot of people — and there were a fair number of op-eds and editorials congratulating Hank Paulson the next day, before it had become clear that the whole financial system was freezing up. Two notable examples:
The resources of the U.S. government are vast, but not unlimited. Thus far this year, officials have put federal funds at risk to facilitate the takeover of an investment bank, Bear Stearns, and to provide unconditional support to two government-sponsored enterprises, Fannie Mae and Freddie Mac.
At some point, the government had to say enough. That point came this weekend.
Those judgments can be second-guessed. But one thing is clear: Lehman did not cast a long enough shadow over markets to warrant support. And Treasury Secretary Henry Paulson and his colleagues are to be congratulated for the courage to make that determination.
No More Creampuffs
The Government Is Willing to Let Wall Street Firms Fail. That’s Good.
This past weekend, the U.S. Treasury and the Federal Reserve finally made it abundantly clear that they won’t bail out every significant financial firm in America. Certainly this came as a rude shock to many financiers. In allowing the nation’s fourth-largest investment bank, Lehman Brothers, to file for bankruptcy, and by forcefully indicating that they are prepared to see even more bankruptcies, our financial regulators showed Wall Street that they are not such creampuffs after all.
By allowing firms that took excessive risks to fail, regulators also reduce the political pressure to overregulate the system in the aftermath of the crisis. Let’s hope they hang tough for at least a little while longer.
There were three posts yesterday. The first was “Vox Anti-Populi:”
Right now the online current-policy economics journal VoxEU — edited by my old student Richard Baldwin — has two fantastic pieces on inequality.
First up, Andrew Oswald and Nattavudh Powdthavee test the effect of wealth on political attitudes by looking at people who got richer, not through their efforts or inheritance, but by winning the lottery. Sure enough, lottery winners become more right-wing. Maybe that’s not surprising, but in case you had any doubts about whether to be a cynic, this should dispel them.
Even more interesting is the effect on political attitudes: lottery winners also became more likely to praise the current, unequal distribution of income:
(This is just the top line of the table; a number of other variables are included as controls).
Think about that for a minute. You might imagine that a self-made man, reasoning from his own experience, might come to the conclusion that people get what they deserve. But here are people who demonstrably, by design, got rich(er) through pure chance, having nothing to do with their talents or efforts. Yet their increased wealth nonetheless convinces them that society is fair. Presumably a big enough lottery win would turn them into Tom Perkins.
In the second piece, Davide Furceri and Prakash Loungani use an event-study framework — looking at what happens on average after clear changes in policy — to assess the effects of “neoliberal” policy changes (although they don’t put it that way) on inequality. Sure enough, they find that both fiscal austerity and liberalization of international capital movements are followed by noticeable rises in income inequality.
So, if you were a ranting leftist, you might say that political attitudes are shaped by class, and that ideological justifications for high inequality are just a veil for class interest. You might also say that “sound” economic policies are really just policies that redistribute income upwards. And it turns out that the econometric evidence more or less supports your rant.
Yesterday’s second post was “The 2,000 Year Apartment:”
Bloomberg reports on the soaring prices of trophy apartments in Manhattan. The biggest sale so far was former Citigroup head Sandy Weill’s apartment, which he sold for $88 milion to the daughter of a Russian oligarch. But $100 million listings are out there.
For a bit of perspective: the median full-time worker in the United States makes about $40,000 a year. So it would take the typical worker 2,000 years to earn enough to buy the Weill apartment.
Still, people like Weill are exemplars of the free market at work. They work in an industry that delivers clear value to the economy, and has never relied on government bailouts. Oh, wait.
The last post yesterday was “Faking It:”
Three somehow related stories of the day:
1. Brent Bozell’s Media Research Center is an important part of the machinery that has, for the most part, successfully intimidated the news media into adopting a right-wing slant. (I’ve faced mass mailings, concerted attacks on my university email, and so on.) But Jim Romenesko finds something interesting: Bozell doesn’t write his own columns or books, forcing a staffer to do it.
2. The Koch brothers have been running ads in Louisiana with distressed citizens facing ruination from Obamacare. But the people in the ads are all paid actors.
3. Best of all is the news from The Can Kicks Back, which is a Bowles-Simpson-run outfit that was supposed to be the youth arm of Fix the Debt. It has always been an astroturf operation, and a clumsy one at that, doing things like hiring dancers to stage fake flash mobs and placing identical ghostwritten articles in college newspapers. Now, The Can Kicks Back’s campaign against debt is running into trouble, because it’s, um, running out of money.
What these stories have in common is that they show how much of what passes for genuine expression of public concern is really just a bought and paid-for (or, in the case of The Can, not sufficiently paid-for) front for plutocratic priorities.
There were three posts yesterday. The first was “Ideological Ratings:”
So S&P has downgraded France. What does this tell us?
The answer is, not much about France. It can’t be overemphasized that the rating agencies have no, repeat no, special information about national solvency — especially for big countries like France. Does S&P have inside knowledge of the state of French finances? No. Does it have a better macroeconomic model than, say, the IMF — or for that matter just about any one of the men and women sitting in this IMF conference room with me? You have to be kidding.
So what’s this about? I think it’s useful to compare IMF projections for France with those for another country that has been getting nice words from the raters lately, the UK. The charts below are from the WEO database — real numbers through 2012, IMF projections up to 2018.
First, real GDP per capita:
So France has done better than the UK so far, and the IMF expects that advantage to persist.
Next, debt relative to GDP:
France is slightly less indebted, and the IMF expects this difference to widen a bit.
So why is France getting downgraded? Because, S&P says, it hasn’t carried out the reforms that will enhance its medium-term growth prospects. What does that mean?
OK, another dirty little secret. What do we know — really know — about which economic reforms will generate growth, and how much growth they’ll generate? The answer is, not much! People at places like the European Commission talk with great confidence about structural reform and the wonderful things it does, but there’s very little clear evidence to support that confidence. Does anyone really know that Hollande’s policies will mean growth that is x.x percent — or more likely, 0.x percent — slower than it would be if Olli Rehn were put in control? No.
So, again, where is this coming from?
I’m sorry, but I think that when S&P complains about lack of reform, it’s actually complaining that Hollande is raising, not cutting taxes on the wealthy, and in general isn’t free-market enough to satisfy the Davos set. Remember that a couple of months ago Olli Rehn dismissed France’s fiscal restraint — which has actually been exemplary — because the French, unacceptably, are raising taxes rather than slashing the safety net.
So just as the austerity drive isn’t really about fiscal responsibility, the push for “structural reform” isn’t really about growth; in both cases, it’s mainly about dismantling the welfare state.
S&P may not be participating in this game in a fully conscious way; when you move in those circles, things that in fact nobody knows become part of what everyone knows. But don’t take this downgrade as a demonstration that something is really rotten in the state of France. It’s much more about ideology than about defensible economic analysis.
Yesterday’s second post was “ECB Thinking Explained:”
A correspondent sends me this picture, snapped from the river in Frankfurt, right near the ECB’s headquarters:
Yes: it’s the Confidence Ferry!
Lord, I’d love to sit down and have a drink with Krugman. His sense of humor is a treasure. Yesterday’s last post was “Friday Night Music: San Fermin:”
Many thanks to the commenter who pointed me to this band — also featured on an NPR Tiny Desk Concert.
On the album — which is a concept piece, telling a story — the female vocalists are none other than Holly Laessig and Jess Wolfe of the terrific Lucius, whom I’ve featured several times. For the touring band, they’ve found … well, just listen, and marvel. Wow.