Krugman’s blog, 7/31, 8/1 and 8/2/15

August 3, 2015

There were two posts on 7/31.  The first was “Wall Street Now Hates Democrats:”

Contributions by financial industry
Contributions by Financial Industry (Opensecrets.org)

Over at Vox, Jonathan Allen notes that Hillary Clinton, sometimes derided on the left as doing Wall Street’s bidding, is actually getting a lot less Wall Street money than people think. Allen notes that during her husband’s administration Clinton was known for her relative antipathy toward financial types, which may be part of the story. But you should also put this in the context of finance’s hard turn against Democrats in general. In 2004, facing an election whose outcome was uncertain, finance and insurance split its donations almost equally between the parties; in 2012 it gave well over twice as much to Republicans as to Democrats.

The reason is, of course, financial reform. Anyone who tells you that reform was meaningless and that there’s no difference between the parties should follow the money, which thinks that there is a big difference indeed.

The second post on 7/31/15 was “Industrial Cities of Yore:”

Nicholas Crafts and Alex Klein have a nice piece that tries to measure gains from geographic specialization in the late 19th and early 20th centuries. Indeed, it was a great age of industrial localization, so much so that the Twelfth Census (1900) included amonograph on the subject that is still a great source for students of economic history. Not only did it identify and quantify the degree of localization in many industries, but it offered quick origin stories for the main clusters. Thus, here’s what it had to say about detached collars and cuffs, almost totally centered in Troy, New York:

It’s hard to find clear-cut industrial clusters like this in modern America, and it’s interesting to ask why. But they are very much a feature of modern China with its button cities and toothbrush towns.

Crafts and Klein argue that this sort of specialization was a major factor in US economic growth. I’ll reserve judgment until I’ve had more time to read and think, but I definitely do love this stuff.

There was one post on 8/1/15, “Inflation Paranoia as a Tribal Marker:”

Derp — views that just keep being repeated in the face of overwhelming contrary evidence — has always been with us, but the derp quotient has really soared since the crisis of 2008, which made nonsense of doctrines too dearly held to be reconsidered. This is especially true of inflation derp: has any prominent figure who warned of runaway inflation from the Fed’s efforts admitted having learned anything from being wrong year after year?

It seems increasingly clear to me that what we’re looking at here has nothing to do with intellectual discourse as we normally understand it. It is, instead, about tribal identities: there’s a certain kind of person who rails against policies that debase the dollar, and that kind of person admires others who do the same no matter how wrong their predictions and disastrous their financial advice. As I said in a brief note on Ron Paul, it’s a form of Madoff-style affinity fraud, even if the perpetrator of the scam believes his own derp.

As you might guess, I’ve received some mail from Ron Paul admirers deeply angered by the suggestion that they are not engaged in deep intellectual argument. By and large the mail reads like this:

Dear shmak, Paul Krugman!
Stop insulting Ron Paul!
You are low level Socialist/Liberal who should be jailed for Life
your insulting writing style.
Ron Paul is Real Man with Capital M
and you are nobody!

But the thing is, it’s not just the libertarians who do this sort of thing. Awesomely, Richard Fisher, now retiring as president of the Dallas Fed, is apparently regarded as an intellectual giant — he “rose to the status of being a deity in Texas” — despite a track record of being wrong again and again.

A brief aside: the WSJ engages in a fairly common practice when describing inflationistas, namely that of whitewashing what they have actually spent year after year warning against. No, Fisher didn’t warn against “frothy financial markets”. He warned against inflation — inflation that kept not happening.

Why all the respect for what would ordinarily be considered a record of repeated bad judgment coupled with a lamentable unwillingness to learn from experience? The answer, surely, is that within the conservative tribe issuing dire warnings against inflation is considered virtuous whether or not they are right; it’s a way of showing that you’re their kind of guy, that you belong to the tribe.

Of course, saying things like that means that I should be jailed for life.

There were two posts on 8/2/15, the first of which was “Freshwater’s Wrong Turn (Wonkish):”

Paul Romer has been writing a series of posts on the problem he calls “mathiness”, in which economists write down fairly hard-to-understand mathematical models accompanied by verbal claims that don’t actually match what’s going on in the math. Most recently, he has been recounting the pushback he’s getting fromfreshwater macro types, who seem him as allying himself with evil people like me — whereas he sees them as having turned away from science toward a legalistic, adversarial form of pleading.

You can guess where I stand on this. But in his latest, he notes some of the freshwater types appealing to their glorious past, claiming that Robert Lucas in particular has a record of intellectual transparency that should insulate him from criticism now. PR replies that Lucas once was like that, but no longer, and asks what happened.

Well, I’m pretty sure I know the answer.

First of all, it’s true about the initial transparency. In the beginning, Lucas and disciples had a very clear statement of both the problem and their solution. They took it as an observed fact that fluctuations in nominal demand were associated with fluctuations in real output, as opposed to merely affecting the price level, which shouldn’t happen if prices were flexible. But they insisted that it was illegitimate to assume sticky prices and wages, that any story you tell must be grounded in microfoundations — and not just that, in maximizing behavior.

So Lucas came up with a story: it was all about imperfect information. Faced with a shock to nominal demand, producers couldn’t tell how much was just a money fluctuation and how much a real change in demand for their particular product, to which they should respond by changing output. So they would engage in signal extraction, making the best possible estimate; this would lead in aggregate to an upward-sloping aggregate supply curve, but only because of rational confusion. And this in turn had strong policy implications: you might see a relationship between money and output, but it would disappear if you tried to use it.

It was a lovely, intellectually interesting and exciting approach. It was also quite wrong.

The wrongness took a few years to become irrefutable. By the early 1980s, however, it was overwhelmingly clear that rational confusion couldn’t explain business cycles, either empirically or theoretically — business cycles last too long, rational agents should be able to tell real from nominal shocks using information like asset prices, and more. And so you had a substantial chunk of the profession going back to sticky-price models, arguing that under imperfect competition things like menu costs or slight deviations from perfect rationality were enough to make money very non-neutral in the short run.

But Lucas and his school couldn’t do that, because they had burned their bridges. They had seized the moment when people took their models seriously to loudly and aggressively declare that Keynesianism of any form was total nonsense, that everything macroeconomists had done in the previous four decades was worthless. it would have taken a lot of intellectual integrity to admit that they might have been premature, that their models weren’t working and that maybe there was something in that Keynesian stuff after all. And that kind of integrity did not manifest itself.

Instead they went even further down the equilibrium rabbit hole, notably with real business cycle theory. And here is where the kind of willful obscurantism Romer is after became the norm. I wrote last year about the remarkable failure of RBC theorists ever to offer an intuitive explanation of how their models work, which I at least hinted was willful:

But the RBC theorists never seem to go there; it’s right into calibration and statistical moments, with never a break for intuition. And because they never do the simple version, they don’t realize (or at any rate don’t admit to themselves) how fundamentally silly the whole thing sounds, how much it’s at odds with lived experience.

What Romer is telling us, based on his discussion of growth models, is that this kind of thing is pervasive in that school. And no, everyone doesn’t do it. Read Mike Woodford or Gauti Eggertsson or Ken Rogoff when he’s doing theory: they all take pains to provide an intuition behind their models, and they don’t engage in false advertising.

So what happened to freshwater, I’d argue, is that a movement that started by doing interesting work was corrupted by its early hubris; the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems, and sent them off on the path Paul now finds so troubling.

The second post on 8/2/15 was “Piketty’s “New” Book:”

Harvard University Press has released what looks like a new book by Thomas Piketty, but isn’t. My unhappy review.

Krugman, solo

August 3, 2015

In “America’s Un-Greek Tragedies in Puerto Rico and Appalachia” Prof. Krugman says the  differences between the European catastrophes and economic crises in the United States are a matter of a stronger union.  Here he is:

On Friday the government of Puerto Rico announced that it was about to miss a bond payment. It claimed that for technical legal reasons this wouldn’t be a default, but that’s a distinction without a difference.

So is Puerto Rico America’s Greece? No, it isn’t, and it’s important to understand why.

Puerto Rico’s fiscal crisis is basically the byproduct of a severe economic downturn. The commonwealth’s government was slow to adjust to the worsening fundamentals, papering over the problem with borrowing. And now it has hit the wall.

What went wrong? There was a time when the island did quite well as a manufacturing center, boosted in part by a special federal tax break. But that tax break expired in 2006, and in any case changes in the world economy have worked against Puerto Rico.

These days manufacturing favors either very-low-wage nations, or locations close to markets that can take advantage of short logistic chains to respond quickly to changing conditions. But Puerto Rico’s wages aren’t low by global standards. And its island location puts it at a disadvantage compared not just with the U.S. mainland but with places like the north of Mexico, from which goods can be quickly shipped by truck.

The situation is, unfortunately, exacerbated by the Jones Act, which requires that goods traveling between Puerto Rico and the mainland use U.S. ships, raising transportation costs even further.

Puerto Rico, then, is in the wrong place at the wrong time. But here’s the thing: while the island’s economy has declined sharply, its population, while hurting, hasn’t suffered anything like the catastrophes we see in Europe. Look, for example, at consumption per capita, which has fallen 30 percent in Greece but has actually continued to rise in Puerto Rico. Why have the human consequences of economic troubles been muted?

The main answer is that Puerto Rico is part of the U.S. fiscal union. When its economy faltered, its payments to Washington fell, but its receipts from Washington — Social Security, Medicare, Medicaid, and more — actually rose. So Puerto Rico automatically received aid on a scale beyond anything conceivable in Europe.

Is Puerto Rico’s status as part of the U.S. all good? A recent reportcommissioned by the commonwealth’s government argues that its economy is hurt by sharing the U.S. minimum wage, which raises costs, and also by federal benefits that encourage adults to drop out of the work force. In principle these complaints could be right. In particular, even economists who support a higher U.S. minimum wage, myself included, generally agree that it could be a problem if set too high relative to productivity — and Puerto Rican productivity is far below mainland levels.

But the evidence that minimum wages or social benefits are really a problem is, as one careful if older study put it, “surprisingly fragile.” Notably, Puerto Rico’s low rate of labor force participation probably has more to do with outmigration than with welfare: when job opportunities dry up, young, able-bodied workers move elsewhere, while the least employable stay in place. You see the same phenomenon in Appalachia, where the disappearance of coal-mining jobs has induced many workers to leave, while the remaining population makes heavy use of the social safety net.

And how terrible is that, really? The safety net is there to protect people, not places. If a regional economy is left stranded by the shifting tides of globalization, well, that’s going to happen now and then. What’s important is that workers be able to find opportunities somewhere, and that those unable for whatever reason to take advantage of these opportunities be protected from extreme hardship.

There is, of course, the problem of maintaining public services for those who remain. Compared with Europe, America benefits hugely from having an integrated national budget – but it’s not integrated enough to deal with really big regional shocks. And Puerto Rico faces some risk of a death spiral in which the emigration of working-age residents undermines the tax base for those who are left, and deteriorating public services then lead to even more emigration.

What this tells us, in turn, is that even for a part of the United States, too much austerity can be self-defeating. It would, in particular, be a terrible idea to give the hedge funds that have scooped up much of Puerto Rico’s debt what they want — basically to destroy the island’s education system in the name of fiscal responsibility.

Overall, however, the Puerto Rican story is one of bad times that fall well short of utter disaster. And the saving grace in this situation is big government — a federal system that provides a crucial safety net for American citizens in times of need, wherever they happen to live.

As a personal aside, if anyone is here from a certain late and lamented blog greetings, and please feel free to comment, but I only check the comments once a day.  (And you’d be AMAZED at the amount of spam this wee bloggy thing attracts…)

Krugman’s blog, 7/30/15

July 31, 2015

There was one post yesterday, “Dentists and Skin in the Game:”

Wonkblog has a post inspired by the dentist who paid a lot of money to shoot Cecil the lion, asking why he — and dentists in general — make so much money. Interesting stuff; I’ve never really thought about the economics of dental care.

But once you do focus on that issue, it turns out to have an important implication — namely, that the ruling theory behind conservative notions of health reform is completely wrong.

For many years conservatives have insisted that the problem with health costs is that we don’t treat health care like an ordinary consumer good; people have insurance, which means that they don’t have “skin in the game” that gives them an incentive to watch costs. So what we need is “consumer-driven” health care, in which insurers no longer pay for routine expenses like visits to the doctor’s office, and in which everyone shops around for the best deals.

The usual response has been that this involves going where the money isn’t — that because health costs are dominated by big expenses that must be paid by insurers, there just isn’t much potential savings from increased deductibles, co-pays, etc..

But what if even the underlying premise, that individual choice will hold down costs, is all wrong?

As it turns out, many fewer people have dental insurance than have general medical insurance; even where there is insurance, it typically leaves a lot of skin in the game. But dental costs have risen just as fast as overall health spending, and it may be that the reduced role of insurers actually raises those costs. According to the post,

In the rest of medicine, insurers have an important function in limiting costs and promoting quality. The market power of Medicare and major national insurance companies allows them to insist on better rates for their customers when they negotiate with doctors and hospitals.

“There’s been less presence from all kinds of insurance payers in the dental sector,” explained Andy Snyder, who is in charge of oral health at the nonpartisan National Academy for State Health Policy. “Medicare does not cover routine dental services, and private dental coverage is far less common than private medical coverage. So, the dental industry has faced less of the cost containment and quality improvement pressures that the rest of the health care sector’s experienced over the last couple of decades.”

So more skin in the game is not just useless but actually counterproductive.

Brooks, Blow and Krugman

July 31, 2015

In “Two Cheers for Capitalism” Bobo says a big coming debate will be over how much say government should have over business and income equality.  In the comments “David Henry” from Walden Pond says he’s given us “The same old GOP whine in a new bottle. No, Mr. Brooks. Without government “proposals” we would still have child labor, abuse of employees, and no benefits.”  In “The DuBose Family: Grieving But Determined” Mr. Blow says the siblings and mother of Samuel DuBose are struggling to deal with his killing by a university police officer.  Prof. Krugman, in “China’s Naked Emperors,” says the politicians in Beijing who have ruled during economic booms, not unlike many of their American counterparts, have no idea what they’re doing.  Here’s Bobo:

We are clearly heading toward another great debate about the nature of capitalism. Contemporary capitalism’s critics are becoming both bolder and more intellectually rigorous. Protests and discussions are sprouting up all over the place.

For example, this week I was attending the Aspen Action Forum, a gathering of young business and NGO leaders selected because of their work for social change. My friend and Times colleague Anand Giridharadas delivered a courageous and provocative keynote address that ruffled some feathers, earned a standing ovation and has had people talking ever since.

Anand argued that a rough etiquette has developed among those who work in and raise money for nonprofits. The rich are to be praised for the good they do with their philanthropy, but they are never to be challenged for the harm they do in their businesses. “Capitalism’s rough edges must be sanded and its surplus fruit shared, but the underlying system must NEVER be questioned,” he said.

Anand suggested that in these days of growing income inequality, this approach is no longer good enough. “Sometimes I wonder,” he said, “whether these various forms of giving back have become to our era what the papal indulgence was to the Middle Ages: a relatively inexpensive way of getting oneself seemingly on the right side of justice, without having to alter the fundamentals of one’s life.”

The winners of our age, he continued, may be helping society with their foundations, but in their business enterprises, the main occupation of their life, they are doing serious harm. First they are using political and financial muscle to enact policies that help them “stack up, protect and bequeath the money.”

Second, they offload risks and volatility onto workers. Uber’s owners have a lot of security but they deny any responsibility for their workers’ “lives, health, desire for career growth.”

Third, the owners of capital are increasingly remote from their communities. “In the old days, if a company C.E.O. suddenly dumped the defined-benefits pension, you knew who to go see to complain. Today it may be an unseen private equity fund that lobbies for the change.” The virtualization of ownership insulates the privileged from the “devastating consequences” of their decisions.

Anand’s speech struck me as deeply patriotic in its passion and concern. He didn’t offer a policy agenda to address these deep structural problems, but his description of them implied that government would have to get much more heavily involved in corporate governance and private-sector investment decisions than ever before.

Indeed, progressive economists are already walking down this path. Hillary Clinton’s new tax plan is based on the assumption that government officials are smart enough to tell investors how they should time their investments. Her corporate governance proposals are based on the idea that federal officials know better than executives how they should run their own companies. There will be much more of this in years to come.

This strikes me as a departure from recent progressivism. In the recent past progressives have argued for a little redistribution to fund human capital development: early childhood education, child and family leave, better community colleges.

But the next wave of thinking implies that it is not enough to simply give people access to capitalism and provide them with a safety net. The underlying system has to be reconfigured.

This is a bigger debate.

People like me will argue that it’s a wrong turn. First, government planners are not smart enough to plan complex systems in this way. The beauty of capitalism is that it takes a dim view of human reason. No group of experts is smart enough to allocate the resources of society well. Capitalism sets up a system of discovery as different people compete and adapt in accordance with market signals. If you try to get technocratic planners organizing investment markets or internal business governance, you will wind up with perversities and rigidities that will make everything worse.

Second, the attempt to tame the market will end up stultifying it. Everybody knows that capitalism’s creative destruction can be rough. But over the last few decades, a ragged version of global capitalism in places ranging from China to Nigeria has brought about the greatest reduction in poverty in human history. America’s fluid style of capitalism attracts driven and talented immigrants and creates vast waves of technological innovation. This dynamism is always in danger of being stultified by planners who think they can tame it and by governing elites who want to rig it. We should not take it for granted.

The coming debate about capitalism will be between those who want to restructure the underlying system and those who want to help people take advantage of its rough intensity. It will be between people who think you need strong government to defeat oligarchy and those who think you need open competition.

This will be fun.

Fun?  FUN?  Eff off, Bobo.  Go sit in your “vast spaces for entertaining” and STFU.  Here’s Mr. Blow:

Terina DuBose Allen had just gotten out of the shower when she answered the phone. It was her brother Aubrey DuBose.

Aubrey warned Terina, “You need to sit down.”

“I’m not sitting down,” Terina responded, sensing something wrong, and worrying maybe something had happened to their mother.

Aubrey said, “Sam is dead.”

Terina recalled to me over lunch Thursday in downtown Cincinnati, “I just screamed,” and she said she dropped to the floor. “Everything in my body went numb.” She continued, “I couldn’t get off the floor for three hours.”

Samuel DuBose was her brother, the second of five siblings. Terina is the oldest. Sam — no one called him Samuel, Terina explained — was a 43-year-old, unarmed Cincinnati man shot in the head and killed on July 19 by a University of Cincinnati police officer, Ray Tensing.

Terina struggled to explain the enormity of her and her family’s loss and her reaction to it: “I broke down because we had just lost a really good person, a person in the universe who always had your back.”

I spent much of the day Thursday with the DuBose family, “embedded,” as their lawyers called it. I went with them as they made the media rounds; I sat with them in the courtroom during the arraignment as they saw the man who killed Sam in the flesh for the first time; I ate with them; I was there when they laughed and when they cried uncontrollably in a hotel hallway. Grief comes in waves that keep crashing to shore.

I have had the honor and the solemn duty to be around many families with similar losses in the last couple of years, and there is something of an unsettling sameness: The feeling of being thrust into a harsh spotlight when you’d rather quietly grieve; being motivated by a sense of mission to fight for the person who is lost, all the while emotionally and physically running on empty; resisting the pull of a world trying desperately to reduce the man or woman you loved into a martyr it can champion or, conversely, a menace it can despise.

Tensing’s lawyer, Stew Mathews, said of Tensing: “He’s devastated by this, as is his family, and he is currently lodged in the Hamilton County Justice Center.”

Actually, if you want to see devastation, look no further than the DuBose family. As Terina said at the courthouse, “I wish my brother was in jail and not dead.”

But in addition to the staggering sense of loss is also a steel-spined determination, and no one in that family typifies that more than Terina. She has emerged as something of a spokeswoman and a warrior.

As she spoke to one of the lawyers on the sidewalk, I heard a man say over my shoulder, “She’s strong as hell,” to which a woman responded, “She’s my new idol.”

For instance, she has become a strong advocate for body cameras, although they are not perfect solutions. As she put it, in her brother’s case, they didn’t prevent the crime, but they prevented the cover-up.

Terina’s sister, Cleshawn DuBose, said of her: “We call her ‘Get-Right-Terina.’”

I got the sense of that statement immediately: If you were in the wrong, Terina would get you right.

Terina, who said she holds a graduate degree in strategic leadership and owns her own corporate consulting company, wanted to correct some of the “lies” about her brother.

According to both sisters, Sam wasn’t violent, and he wasn’t a heavy drinker. But, Terina said, “he wasn’t a monk” either.

As Terina said, “I’m trying to give you the real.” Cleshawn chimed in, “We don’t want Sam to be misrepresented.” Terina added, “for the better or the worse.”

Terina summed it up: Sam had been arrested dozens of times on traffic violations. Also, he smoked marijuana, and had years ago served time for selling it.

But as Terina put it, “That was the worst of it.”

Not only are none of those reasons to kill a man, or to say that he “deserved it,” none of those reasons have anything whatsoever to do with the incident that led to Sam’s death.

Sam was a human being — a man, a son, a brother and a father. “Sam was loved and Sam loved, hard,” Terina said.

Midway through the day, Sam’s mother, Audrey DuBose, joined the rest of the family on their rounds.

She was visibly drained, but still spiritually moored. She insisted that Terina and Cleshawn pray with her during one of our car rides: “We need to pray; we need the strength.”

I noticed the way she drew long breaths, the way the water in the bottle she was holding vibrated because her hand was trembling, the way she closed her eyes for long stretches, even when talking. It was the familiar fatigue that hangs on the mothers of killed children.

She confessed to me in a quiet moment: “All I want to do is just shut my door and cover up and never open it again.”

That is what devastation feels like.

And now here’s Prof. Krugman:

Politicians who preside over economic booms often develop delusions of competence. You can see this domestically: Jeb Bush imagines that he knows the secrets of economic growth because he happened to be governor when Florida was experiencing a giant housing bubble, and he had the good luck to leave office just before it burst. We’ve seen it in many countries: I still remember the omniscience and omnipotence ascribed to Japanese bureaucrats in the 1980s, before the long stagnation set in.

This is the context in which you need to understand the strange goings-on in China’s stock market. In and of itself, the price of Chinese equities shouldn’t matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market — and are in the process of demonstrating that, China’s remarkable success over the past 25 years notwithstanding, the nation’s rulers have no idea what they’re doing.

Start with the fundamentals. China is at the end of an era — the era of superfast growth, made possible in large part by a vast migration of underemployed peasants from the countryside to coastal cities. This reserve of surplus labor is now dwindling, which means that growth must slow.

But China’s economic structure is built around the presumption of very rapid growth. Enterprises, many of them state-owned, hoard their earningsrather than return them to the public, which has stunted family incomes; at the same time, individual savings are high, in part because the social safety net is weak, so families accumulate cash just in case. As a result, Chinese spending is lopsided, with very high rates of investment but a very lowshare of consumer demand in gross domestic product.

This structure was workable as long as torrid economic growth offered sufficient investment opportunities. But now investment is running into rapidly decreasing returns. The result is a nasty transition problem: What happens if investment drops off but consumption doesn’t rise fast enough to fill the gap?

What China needs are reforms that spread the purchasing power — and it has, to be fair, been making efforts in that direction. But by all accounts these efforts have fallen short. For example, it has introduced what is supposed to be a national health care system, but in practice many workers fall through the cracks.

Meanwhile, China’s leaders appear to be terrified — probably for political reasons — by the prospect of even a brief recession. So they’ve been pumping up demand by, in effect, force-feeding the system with credit, including fostering a stock market boom. Such measures can work for a while, and all might have been well if the big reforms were moving fast enough. But they aren’t, and the result is a bubble that wants to burst.

China’s response has been an all-out effort to prop up stock prices. Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading. These are things you might do for a couple of days to contain an obviously unjustified panic, but they’re being applied on a sustained basis to a market that is still far above its level not long ago.

What do Chinese authorities think they’re doing?

In part, they may be worried about financial fallout. It seems that a number of players in China borrowed large sums with stocks as security, so that the market’s plunge could lead to defaults. This is especially troubling because China has a huge “shadow banking” sector that is essentially unregulated and could easily experience a wave of bank runs.

But it also looks as if the Chinese government, having encouraged citizens to buy stocks, now feels that it must defend stock prices to preserve its reputation. And what it’s ending up doing, of course, is shredding that reputation at record speed.

Indeed, every time you think the authorities have done everything possible to destroy their credibility, they top themselves. Lately state-run media have been assigning blame for the stock plunge to, you guessed it, a foreign conspiracy against China, which is even less plausible than you may think: China has long maintained controls that effectively shut foreigners out of its stock market, and it’s hard to sell off assets you were never allowed to own in the first place.

So what have we just learned? China’s incredible growth wasn’t a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we’ve known that for a while. The big news here isn’t about the Chinese economy; it’s about China’s leaders. Forget everything you’ve heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they’re doing.

Krugman’s blog, 7/29/15

July 30, 2015

There was one post yesterday, “State Growth Versus National Growth:”


Bureau of Economic Analysis

It still seems kind of incredible that Jeb Bush is running in large part on claims that Florida’s growth during his governorship shows that he knows how to bring prosperity. In effect, he’s saying “Trust me — I presided over a giant bubble!” I’ve been pointing this out for a while; Jim Tankersley at the WaPo chimes in with pretty much the same point.

But it occurs to me that people may not be taking on board a broader point: even when they aren’t driven by bubbles, state growth rates tell us very little about what kinds of policies might work at a national level. This should be obvious, but it may not be to many people.

Why do I say this? Within the United States, we have extremely high mobility of labor and population in general. A state that becomes an attractive destination, either because it offers job opportunities or for other reasons (like cheap housing, a big factor in Texas) can experience rapid population and labor force growth, and hence a high growth rate even if productivity growth is nothing special. At a national level, however, immigration is fairly minor and not that responsive to economic developments — in part because of restrictions — so that any major acceleration in growth would have to come via higher productivity growth and faster growth in GDP per capita.

The chart shows what I think might be a useful comparison of overall US performance and the performance of the four largest states; I show growth in real GDP and real GDP per capita over the period 1997-2014, which is the longest period the BEA data let me do an instant comparison for this morning. What you see is the familiar proposition that Texas grew a lot faster than the rest of the country — but most of that extra growth was in the form of population growth, with real GDP per capita growing only slightly faster than the nation as a whole. California and New York grew more slowly overall, but per capita growth almost exactly matched growth in Texas — that is, the two big blue states were precisely as successful as the big red state in achieving the kind of growth we need for the nation as a whole.

What about Florida? Over the long haul, it turns out to have grown basically at the same rate as the nation; there was a bubble, it burst, and in the end it was a wash. Per capita GDP has grown very slowly, but don’t make too much of that: we’re looking at a state with a growing percentage of retirees and a falling percentage of working-age adults, so something like that is to be expected.

So Jeb really has nothing to boast about, but even genuinely fast-growing states tell us very little about national policy.

Cohen and Kristof

July 30, 2015

In “One Congressman’s Iran” Mr. Cohen says a Jewish representative digs deep into the Iran deal and rightly concludes that it should be supported.  Mr. Kristof, in “Why the Naysayers Are Wrong About the Iran Deal,” says sure, the agreement is flawed, but it would make us safer.  First up we have Mr. Cohen:

Representative Sander M. Levin, Democrat of Michigan and the longest-serving Jewish member of Congress, said something important this week: “In my view, the only anchors in public life are to dig deeply into the facts and consult broadly and then to say what you believe.”

His words were important for two reasons. First, they defied a prevalent political culture of ignoring inconvenient facts, consulting narrowly if at all, and never saying what you believe when it’s not what your constituency wants to hear. Second, his statement concerned Iran, an issue where fact-based reasoning on Capitol Hill and beyond tends to take second place to preposterous posturing — as per Republican presidential candidate Mike Huckabee’s statement that the nuclear deal with Tehran would march Israelis “to the door of the oven.”

Levin’s reflection led him to the sober, accurate conclusion that the agreement is “the best way to achieve” the goal of preventing Iran from advancing toward a nuclear weapon, an outcome that will make Israel, the Middle East and the world “far more secure.” Not the ideal way, the perfect way, or a foolproof way, but, in the real world of ineradicable Iranian nuclear know-how, the best way attainable. That is also the view of other parties to the deal — the not insignificant or unserious powers of Russia, China, Britain, France and Germany.

Why? Levin, a longtime friend of Israel, was thorough. Because the accord, if fully implemented, slashes Iran’s stockpile of enriched uranium by 97 percent, prevents enrichment above 3.67 percent (a long way from bomb grade) for 15 years, intensifies international inspections exponentially, holds Iran at least a year from having enough material to produce a weapon (as opposed to the current two months), cuts off a plutonium route to a bomb, preserves all American options in combating Iranian support for Hezbollah, and is far better than an alternative scenario where international sanctions would fray and “support from even our best allies if we move to the military option would be less likely.”

Congress was given 60 days to review the deal. Sentiment is generally shoot-from-the-hip hostile. A resolution of disapproval that would be vetoed by President Obama is likely; the president probably has enough support to resist an override of his veto. But before following such an unsatisfactory path to assumption of a historic accord, members of Congress, including Senator Chuck Schumer, the normally outspoken New York Democrat who has discovered his inner reserve on this matter, should do their own version of Levin’s deep-dig questioning. They should also peruse a letter from five former U.S. ambassadors to Israel — including Thomas Pickering — and from former senior officials — including Undersecretary of State for Political Affairs Nicholas Burns — that urges both chambers not to reject a deal without which “the risks will be much higher for the United States and Israel.”

Yes, the risks will be far greater. There is huge, if uncertain, upside potential to the establishment of an American relationship with Iran through this agreement. The downside potential in its absence is as great — and includes war.

It is intriguing that, along with Israel and Republican members of Congress, the most vociferous criticism of the deal has come from Saudi Arabia. The Saudis have had it with what they see as American fecklessness. They have been convinced since the Iraq invasion that the United States is pro-Shia (read pro-Iran). They are so persuaded of Iran’s anti-Sunni imperial designs that they have embarked on an indiscriminate bombing campaign in Yemen with the purported aim of stopping the Houthis, seen as Iranian proxies.

Now the Saudis are American allies. Iran is, and will for the foreseeable future remain, a hostile power. But what have our “allies” done for the United States of late? Promoted, through madrasas and other means, the conservative Wahhabi Islam whose fierce anti-Western teachings provided the context for the emergence of Al Qaeda, the Taliban and, most recently, Islamic State. Manipulated oil prices, most recently down, in order to undermine America’s liberating energy revolution through an attempt to make shale oil uncompetitive. Shunned Obama’s attempts to reassure Sunni monarchies that the Iran deal will not mean diminished support — and all this, of course, from the country that furnished the manpower for 9/11.

The Saudis are in lockstep with Israel on hostility to the Iran deal but are no friends of Israel. Their goal, despite America’s dwindling dependence on the kingdom for oil, is to preserve a Middle Eastern status quo that limits American strategic options — including the possibility that Iran and the United States might find common cause in combating Islamic State or, years from now, re-establish diplomatic relations.

Any deep dig into the facts, of Levin’s courageous kind, cannot escape the question of whether a deal with an enemy, Iran, so fiercely opposed by this particular ally, Saudi Arabia, might not, over time, change the Middle Eastern equation in ways favorable to the American national interest.

And now here’s Mr. Kristof:

Mike Huckabee says President Obama is using his nuclear deal to “take the Israelis and march them to the door of the oven.” Mitt Romney describes it as a “generational calamity.” And while polls diverge, one recently taken by CNN suggests the public wants Congress to reject the agreement by a 52 percent to 44 percent majority.

This is one of the pivotal foreign policy decisions of the decade, so let’s examine the arguments:

Obama didn’t deliver what he promised. For example, we wanted “anywhere, anytime” inspections, but we caved and got a complex system that allows Iran to delay inspections. And in the later years of the agreement, Iran won a significant easing of controls. As Jeb Bush put it: “These negotiations began, by President Obama’s own admission, as an effort to deny Iran nuclear capabilities, but instead will only legitimize those activities.”

The U.S. didn’t get all it wanted (and neither did Iran) in an imperfect compromise. True, we didn’t achieve anywhere, anytime inspections, yet the required inspections program is still among the most intrusive ever. Remember too that this deal isn’t just about centrifuges but also about the possibility that Iran will come out of the cold and emerge from its failed 36-year experiment with extremism. That’s why Iran’s hard-liners are so opposed to the deal; they have been sustained by the narrative of the Great Satan as the endless enemy, and conciliation endangers them.

You doves think that a nuclear deal will empower reformers in Iran and turn it once more into the pro-American and pro-Israeli power it was under the shah. But sanctions relief may just give this regime a new lease on life.

Iran’s people are perhaps the most pro-American and secular of those of any country I’ve been to in the Middle East. (On my last trip to Iran, I took two of my kids along, and Iranians bought them meals and ice cream, and served them illegal mojitos.) The public weariness with the regime’s corruption, oppression and economic failings is manifest. I would guess that after the supreme leader dies, Iran will begin a process of change like that in China after Mao died.

That’s speculative. The real impact of the deal is that it will unlock tens of billions of dollars in frozen assets and new oil revenues, giving Iranian hard-liners more resources to invest in nuclear skulduggery and in extremist groups.

True, but that will happen anyway. Remember that this agreement includes Europe, Russia and China as parties. Even if Congress rejects the agreement, sanctions will erode and Iran will get an infusion of cash.

This agreement is a betrayal of Israel. Once Iran gets its hands on W.M.D.s, it will commit genocide.

Iran is widely believed to have developed biological and chemical weaponsback in the 1980s, and it hasn’t used those weapons of mass destruction against Israel. And what American officials find awkward to point out is that Israel is already a significant nuclear power with a huge military edge, which is why it has deterred Iran so far. If I lived in Tel Aviv, would I be nervous? Sure. But I’d be even more nervous without this deal, which reduces the chance that Iran will acquire a nuclear weapon in the next decade. That’s why five former U.S. ambassadors to Israel endorsed the accord. (It’s also notable that American Jews are more in favor of the agreement than the American public as a whole.)

Obama pretends that the alternative to this deal is war. No, the alternative is increased economic pressure until Iran yelps for surrender.As Marco Rubio puts it, “Give Iran a very clear choice: You can have an economy or you can have a weapons program.”

So we apply the same economic pressure that caused the collapse of the Castro regime in Cuba in 1964? The same isolation that overthrew the North Korean regime in 1993? The same sanctions that led Saddam Hussein to give up power peacefully in Iraq in 2000? Oh, wait.…

Look, even you admit that this is a flawed deal. So why risk it? As Rick Perry says, “No deal is better and safer than a bad deal.”

If the U.S. rejects this landmark deal, then we get the worst of both worlds: an erosion of sanctions and also an immediate revival of the Iran nuclear program.

We have a glimpse of what might happen. In 2003, Iran seemingly offered a comprehensive “grand bargain” to resolve relations with the United States, but George W. Bush’s administration dismissed it. Since then, Iran has gone from a tiny number of centrifuges to 19,000, getting within two months of “breakout” to a nuclear weapon. The point: Fulmination is not a substitute for policy, and a multilateral international agreement achieves far more protection than finger-wagging.

Diplomacy is rarely about optimal outcomes; it is about muddling along in the dark, dodging bullets, struggling to defer war and catastrophe for the time being, nurturing opportunities for a better tomorrow. By that standard, the Iran deal succeeds. Sure, it is flawed, and yes, it makes us safer.

Krugman’s blog, 7/27 and 7/28/15

July 29, 2015

There were two posts on Monday and two yesterday.  Monday’s first post was “The Donald and the Delusional:”

Nate Cohn cautions us not to make too much of the polls supposedly showing the Trump surge continuing, as many — but not all – were taken before the McCain affair. Fair point. But there’s enough genuine post-McCain polling to show that Trump hasn’t imploded, the way virtually every pundit predicted he would.

I’m actually mad at myself here: I had meant to put up a post questioning that conventional wisdom, but never got around to it, and now you only have my word that what I’m about to say isn’t just hindsight, but a prediction. Oh well. Anyway, on to the point.

What I would argue is key to this situation — and, in particular, key to understanding how the conventional wisdom on Trump/McCain went so wrong — is the reality that a lot of people are, in effect, members of a delusional cult that is impervious to logic and evidence, and has lost touch with reality.

I am, of course, talking about pundits who prize themselves for their centrism.

Pundit centrism in modern America is a strange thing. It’s not about policy, as you can see from the many occasions when members of the cult have demanded that Barack Obama change his ways and advocate things that … he was already advocating. What defines the cult is, instead, the insistence that the parties are symmetric, that they are equally extreme, and that the responsible, virtuous position is always somewhere in between.

The trouble is that this isn’t remotely true. Democrats constitute a normal political party, with some spread between its left and right wings, but in general espousing moderate positions. The GOP, on the other hand, is a deeply radical faction; even its supposed moderates are moderate only in tone, not in policy positions, and its base is motivated by anger against Others.

What this means, in turn, is that to sustain their self-image centrists must misrepresent reality.

On one side, they can’t admit the moderation of the Democrats, which is why you had the spectacle of demands that Obama change course and support his own policies.

On the other side, they have had to invent an imaginary GOP that bears little resemblance to the real thing. This means being continually surprised by the radicalism of the base. It also means a determination to see various Republicans as Serious, Honest Conservatives — SHCs? — whom the centrists know, just know, have to exist.

We saw this a lot in the cult of Paul Ryan, who was and is very obviously a con man, whose numbers have never added up, but who was nonetheless treated with vast respect — and still sometimes is.

But the ur-SHC is John McCain, the Straight-Talking Maverick. Never mind that he is clearly eager to wage as many wars as possible, that he has long since abandoned his once-realistic positions on climate change and immigration, that he tried to put Sarah Palin a heartbeat from the presidency. McCain the myth is who they see, and keep putting on TV. And they imagined that everyone else must see him the same way, that Trump’s sneering at his war record would cause everyone to turn away in disgust.

But the Republican base isn’t eager to hear from SHCs; it has never put McCain on a pedestal; and people who like Donald Trump are not exactly likely to be scared off by his lack of decorum.

For what it’s worth, I still don’t expect The Donald to win the nomination; the big money will presumably coalesce around someone — though given Jeb’s foot-in-mouth performance it’s hard to see who — and will probably squeeze him out in the end. But the story so far has been a remarkable illustration of how little many professional political pundits seem to understand.

Monday’s second post was “Contingency Plans:”

People are apparently shocked, shocked to learn that Greece did indeed have plans to introduce a parallel currency if necessary. I mean, really: it would have been shocking if there weren’t contingency plans. Preparing for something you know might happen doesn’t show that you want it to happen.

Someday, maybe, we’ll know what kind of contingency plans the United States has had over the years. Plans to invade Canada? Probably. Plans to declare martial law in the event of a white supremacist uprising? Maybe.

The issue now becomes whether Tsipras was right to decide not to invoke this plan in the face of what amounted to extortion from the creditors. I think he called it wrong, but God knows it was an awesome responsibility — and we may never know who was right.

The first post yesterday was “Trumped Again:”

In my inbox:

NEW HAMPSHIRE: TRUMP LEADS, BUSH SECOND
Christie, Walker, Cruz may be most hurt by Trump

West Long Branch, NJ – Donald Trump holds a sizable edge in the Monmouth University Poll of likely New Hampshire Republican presidential primary voters, with a 2-to-1 edge over his nearest rival Jeb Bush. When second choices are taken into account, Trump takes votes from nearly all of his opponents, but appears to hurt Chris Christie, Scott Walker, and Ted Cruz the most.
One-quarter of likely GOP primary voters in New Hampshire currently support Donald Trump (24%), with Jeb Bush placing second at 12%. Rounding out the top ten are newly announced candidate John Kasich (7%), Scott Walker (7%), Marco Rubio (6%), Ben Carson (5%), Rand Paul (5%), Chris Christie (4%), Carly Fiorina (3%) and Ted Cruz (3%). Mike Huckabee, Bobby Jindal, and George Pataki each get 2%, while Rick Perry, Rick Santorum, Lindsey Graham, and Jim Gilmore earn 1% or less.. Another 14% of likely primary voters are undecided.
“The controversy over comments about John McCain’s war service do not appear to have slowed the Trump steamroller,” said Patrick Murray, director of the independent Monmouth University Polling Institute in West Long Branch, NJ. The Monmouth poll is the first to be conducted in New Hampshire entirely after Trump’s July 18 comments.

What I’m wondering: How, exactly, does the Trump implosion everyone is predicting happen at this point? The punditocracy wrote him off over the McCain comments, and was totally wrong. If base voters haven’t decided that he’s a buffoon yet, what new information will convince them?

Also note that mainstream Republican candidates are responding to the Trump surge by amping up their own inflammatory rhetoric, which makes their difference from The Donald ever less apparent.

I don’t know about other people, but I am starting to hedge my bets a bit. Maybe he really can get the nomination.

Yesterday’s second post was “Second-Best Macroeconomics:”

There’s a paradox about economic policy since the Great Recession, one that is often acknowledged implicitly but rarely stated directly. On one side, the economic problems facing both the United States and Europe have been quite straightforward and comprehensible. On the other side, the debate over actual policy has been tortured and confused, with a general sense even among aficionados that the tools being deployed are inadequate and come with troubling side effects.

Specifically, the whole western world has spent years suffering from a severe shortfall of aggregate demand; in Europe a severe misalignment of national costs and prices has been overlaid on this aggregate problem. These aren’t hard problems to diagnose, and simple macroeconomic models — which have worked very well, although nobody believes it — tell us how to solve them. Conventional monetary policy is unavailable thanks to the zero lower bound, but fiscal policy is still on tap, as is the possibility of raising the inflation target. As for misaligned costs, that’s where exchange rate adjustments come in. So no worries: just hit the big macroeconomic That Was Easy button, and soon the troubles will be over.

Except that all the natural answers to our problems have been ruled out politically. Austerians not only block the use of fiscal policy, they drive it in the wrong direction; a rise in the inflation target is impossible given both central-banker prejudices and the power of the goldbug right. Exchange rate adjustment is blocked by the disappearance of European national currencies, plus extreme fear over technical difficulties in reintroducing them.

As a result, we’re stuck with highly problematic second-best policies like quantitative easing and internal devaluation.

In case you don’t know, “second best” is an economic term of art. It comes from a classic 1956 paper by Lipsey and Lancaster, which showed that policies which might seem to distort markets may nonetheless help the economy if markets are already distorted by other factors. For example, suppose that a developing country’s poorly functioning capital markets are failing to channel savings into manufacturing, even though it’s a highly profitable sector. Then tariffs that protect manufacturing from foreign competition, raise profits, and therefore make more investment possible can improve economic welfare.

The problems with second best as a policy rationale are familiar. For one thing, it’s always better to address existing distortions directly, if you can — second best policies generally have undesirable side effects (e.g., protecting manufacturing from foreign competition discourages consumption of industrial goods, may reduce effective domestic competition, and so on). There’s also a political economy concern, which is that in a complicated world you can come up with a second best rationale for practically anything. Somewhere the Chicago economist Harry Johnson wrote (this is from memory) that in practice “second best policies are always devised by third-best economists working for fourth-best politicians” — harsh, but you can see his point.

But here we are, with anything resembling first-best macroeconomic policy ruled out by political prejudice, and the distortions we’re trying to correct are huge — one global depression can ruin your whole day. So we have quantitative easing, which is of uncertain effectiveness, probably distorts financial markets at least a bit, and gets trashed all the time by people stressing its real or presumed faults; someone like me is then put in the position of having to defend a policy I would never have chosen if there seemed to be a viable alternative.

In a deep sense, I think the same thing is involved in trying to come up with less terrible policies in the euro area. The deal that Greece and its creditors should have reached — large-scale debt relief, primary surpluses kept small and not ramped up over time — is a far cry from what Greece should and probably would have done if it still had the drachma: big devaluation now. The only way to defend the kind of thing that was actually on the table was as the least-worst option given that the right response was ruled out.

Which makes me ask myself the question: Do people like me spend too much time being limited by what is presumed to be politically practical? Should we devote more time to trying to widen the range of options, to pointing out that we really would be much better off if we threw off the fetters of conventional deficit fears, the 2 percent inflation target, and the extremely ill-advised euro project?

Friedman and Bruni

July 29, 2015

I’m sorry about yesterday, but the computer was in the DOSpital with a bad case of gremlins.  Today TMOW says “For the Mideast It’s Still 1979″ and that events 36 years ago still shape the region, but that could change.  And pigs could fly…  Mr. Bruni, in “Today’s Exhausted Superkids,” says overpacked days lead to restless nights, and more experts are rightly questioning the sense — and safety — of that.  Here’s TMOW:

I started my career as a foreign correspondent in Beirut in 1979. I didn’t know it at the time, but 1979 turned out to be one of the great vintage years for foreign news — particularly from the Middle East. It set in motion the most important dynamics still shaping that region today. In fact, it’s been 1979 for 36 years. And the big question about the Iran nuclear deal reached this month is, Will it ultimately be a break on the history set in motion in 1979, and put the region on a new path, or will it turbocharge 1979 in ways that could shake the whole world?

What happened in 1979? For starters, there was the takeover of the Grand Mosque in Mecca by Islamist extremists who challenged the religious credentials of the Saudi ruling family, accusing them of impiety. The al-Sauds responded by forging a new bargain with their religious conservatives: Let us stay in power and we’ll give you a freer hand in setting social norms, relations between the sexes and religious education inside Saudi Arabia — and vast resources to spread the puritanical, anti-women, anti-Shiite, anti-pluralistic Sunni Wahhabi fundamentalism to mosques and schools around the world.

This Saudi lurch backward coincided with Iran’s Islamic Revolution in 1979, which brought Ayatollah Ruhollah Khomeini to power. That revolution set up a global competition between Shiite Iran and Sunni Saudi Arabia for leadership of the Muslim world, and it also led to a big surge in oil prices that gave both regimes more money than ever to export Shiite and Sunni fundamentalism. That is why the Egyptian scholar Mamoun Fandy liked to say, “Islam lost its brakes in 1979.”

That competition was further fueled by the Soviet invasion of Afghanistan in 1979 — which spawned the Sunni jihadist movement and eventually Al Qaeda — and by the Three Mile Island nuclear accident, also in 1979, which basically ended all new building of nuclear power plants in America, making us more dependent on fossil fuels. Of course, the Islamic Revolution in Iran also led to a break in relations with the U.S. — and shifted Iran from a tacit ally of Israel’s to a country wishing “death to Israel.”

So the U.S.-Iran nuclear deal marks a big change — but because it will lead to an end to economic sanctions on Iran, it could turbocharge 1979 as easily as end it. That depends on a lot of factors: Will the nuclear deal empower the more moderate/pragmatic majority inside Iran rather than the hard-line Revolutionary Guards Corps? The reason to be worried is that the moderates don’t control Iran’s nuclear program or its military/intelligence complex; the hard-line minority does. The reason to be hopeful is the majority’s aspiration to reintegrate with the world forced the hard-liners to grudgingly accept this deal.

A lot will depend also on Saudi Arabia moderating the anti-modernist trend it imposed on Sunni Islam. On Tuesday the Middle East Media Research Institute released a translation of a TV interview by the Saudi author Turki al-Hamad about the extremist discourse prevalent in Saudi Arabia. “Who serves as fuel for ISIS?” he asked. “Our own youth. What drives our youth to join ISIS? The prevailing culture, the culture that is planted in people’s minds. It is our youth who carry out bombings. … You can see (in ISIS videos) the volunteers in Syria ripping up their Saudi passports.”

That’s why another factor determining if 2015 is a break with 1979 or a multiplier of it will be the energy revolution in America — efficiency, renewables and fracking — and whether it keeps putting downward pressure on oil prices. Give me five years of $25-a-barrel oil and you’ll see reformers strengthened in Iran and Saudi Arabia; they’ll both have to tap their people instead of oil.

But while that oil price decline is necessary, it is not sufficient. Both regimes also have to stop looking for dignity and legitimacy in combating the other — and Israel — and find it, instead, in elevating their own people. Saudi Arabia’s attempt to bomb Iranian influence out of Yemen is sheer madness; the Saudis are bombing rubble into rubble. Will Iran spend its windfall from this nuclear deal trying to dominate the Arab world? Maybe. But Iraq, Syria, Libya and Yemen today are like a giant Superfund toxic cleanup site. Iran wants to own that? It will sap more of its strength than strengthen it. We know.

On July 9, Agence France-Presse reported that the International Monetary Fund estimated Saudi Arabia, whose population tripled since 1975, would run a budget deficit this year exceeding “$130 billion, the largest in the kingdom’s history,” and “to finance spending Riyadh has already withdrawn $52.3 billion from its fiscal reserves in the first five months of the year.” Iran’s population has doubled since 1979, and 60 percent of its residents are under 30 and it has 20 percent unemployment. Last April, Issa Kalantari, a former Iranian agriculture minister, warned that because of dwindling water resources, and over-exploitation, if Iran doesn’t radically change its water usage “50 million people — 70 percent of Iranians — will have no choice but to leave the country,” Al-Monitor reported.

Nukes are hardly the only threats for this region. Both Iran and Saudi Arabia desperately need to make 2015 the end of the 1979 era. It would be fanciful to predict that they will — and utterly realistic to predict the destruction that will visit both if they don’t.

Now here’s Mr. Bruni:

There are several passages in the new book “Overloaded and Underprepared” that fill me with sadness for American high school students, the most driven of whom are forever in search of a competitive edge. Some use stimulants like Adderall. Some cheat.

But the part of the book that somehow got to me most was about sleep.

It’s a prerequisite for healthy growth. It’s a linchpin of sanity. Before adulthood, a baseline amount is fundamental and nonnegotiable, or should be.

But many teenagers today are so hyped up and stressed out that they’re getting only a fraction of the rest they need. The book mentions a high school in Silicon Valley that brought in outside sleep experts, created a kind of sleep curriculum and trained students as “sleep ambassadors,” all to promote shut-eye.

The school even held a contest that asked students for sleep slogans. The winner: “Life is lousy when you’re drowsy.”

Sleep ambassadors? Sleep rhymes? Back when I was in high school in the 1980s, in a setting considered intense in its day, the most common sleep problem among my peers was getting too much of it and not waking up in time for class.

Now the concern isn’t how to rouse teens but how to lull them. And that says everything about the way childhood has been transformed — at least among an ambitious, privileged subset of Americans — into an insanely programmed, status-obsessed and sometimes spirit-sapping race.

Take one more Advanced Placement class. Add another extracurricular. Apply to all eight Ivies.

Lose a few winks but never a few steps.

“Overloaded and Underprepared,” published on Tuesday, was written by Denise Pope, Maureen Brown and Sarah Miles, all affiliated with a Stanford University-based group called Challenge Success, which urges more balanced learning environments. The book looks at homework loads, school-day structures and much more.

And it joins an urgently needed body of literature that pushes back athelicopter parenting, exorbitant private tutoring, exhaustive preparation for standardized tests and the rest of it. This genre goes back at least a decade and includes, notably, Madeline Levine’s “The Price of Privilege” and Paul Tough’s “How Children Succeed.”

But it has expanded with particular velocity of late. “How to Raise an Adult,” by Julie Lythcott-Haims, came out last month. “The Gift of Failure,” by Jessica Lahey, will be released in two weeks.

There’s a unifying theme: Enough is enough.

“At some point, you have to say, ‘Whoa! This is too crazy,’ ” Pope, a senior lecturer at Stanford, told me.

Sleep deprivation is just a part of the craziness, but it’s a perfect shorthand for childhoods bereft of spontaneity, stripped of real play and haunted by the “pressure of perfection,” to quote the headline on a story by Julie Scelfoin The Times this week.

Scelfo wrote about six suicides in a 13-month period at the University of Pennsylvania; about the prevalence of anxiety and depression on college campuses; about many star students’ inability to cope with even minor setbacks, which are foreign and impermissible.

Those students almost certainly need more sleep. In a study in the medical journal Pediatrics this year, about 55 percent of American teenagers from the ages of 14 to 17 reported that they were getting less than seven hours a night, though the National Sleep Foundation counsels 8 to 10.

“I’ve got kids on a regular basis telling me that they’re getting five hours,” Pope said. That endangers their mental and physical health.

Smartphones and tablets aggravate the problem, keeping kids connected and distracted long after lights out. But in communities where academic expectations run highest, the real culprit is panic: about acing the exam, burnishing the transcript, keeping up with high-achieving peers.

I’ve talked with many parents in these places. They say that they’d love to pull their children off such a fast track, but won’t the other children wind up ahead?

They might — if “ahead” is measured only by a spot in U-Penn’s freshman class and if securing that is all that matters.

But what about giving a kid the wiggle room to find genuine passions, the freedom to discover true independence, the space to screw up and bounce back? Shouldn’t that matter as much?

“No one is arguing for a generation of mediocre or underachieving kids — but plenty of people have begun arguing for a redefinition of what it means to achieve at all,” wrote Jeffrey Kluger in Time magazine last week. He noted, rightly, that “somewhere between the self-esteem building of going for the gold and the self-esteem crushing of the Ivy-or-die ethos, there has to be a place where kids can breathe.”

And where they can tumble gently into sleep, which is a gateway, not an impediment, to dreams.

Krugman’s blog, 7/26/15

July 27, 2015

There were four posts yesterday.  The first was “A Note on Medicare Costs:”

Medicare is about to turn 50, and while it has brought immense benefits, it has also cost a lot of money. Why? Is it the general rise in health care spending, or some specific government-related inability to limit outlays?

Well, there’s a simple answer from the Centers for Medicare and Medicaid historical expenditure data, which among other things offers a comparison between Medicare spending per beneficiary and premiums on private health insurance. Medicare has expanded the range of things it covers, so what you want is the “common benefits” comparison that adjusts for this. And what it shows is that except during a brief period in the 1990s, as HMOs spread, cost growth has consistently been slower in Medicare than in the private sector.


Centers for Medicare and Medicaid Services

Yesterday’s second post was “Thorstein Veblen in Brooklyn (Trivial):”

I went to another Celebrate Brooklyn concert in Prospect Park last night, and had a very good time — although the usual close-up seating where you can really see the performers was given over to a throng of standing dancers, and while I may be a wannabe hipster I’m not going that far. But anyway, music aside, one thing I enjoy about these events is crowd-watching, which varies a lot by performer. Lucius was a real all-ages, all-subcultures crowd, ranging from enthusiastic teenagers to fairly sedate but equally enthusiastic senior citizens. Sylvan Esso was very hipster — which is fine; de gustibus non whatever.

I did, however, find myself wondering a bit about the economics. I’m perfectly OK with topknots and tattoos, but obviously a lot of employers won’t be. So where do all these people work? They can’t all be baristas …

But that, surely, is part of the point. Probably not an original observation, but surely one main goal of personal styling is to make it clear that the person so styled is not, in fact, part of the workaday bourgeois world, that he or she doesn’t work at a 9-5 office job during the week and put on trendy attire for the weekend. It has to be a cultural version of Veblen’s conspicuous consumption, where the point is not to display your wealth but instead to display your indie cred.

Again, I’m fine with it — and the scene is producing a lot of music I really like, so it’s all good. But sometimes I just can’t turn off my inner econonerd.

The third post yesterday was “The Disappearing Entitlements Crisis:”

A few years back elite policy discourse in the United States was totally dominated by the supposed entitlements crisis. Serious people all assured each other that history’s greatest menace was the threat posed by the unstoppable growth of Medicaremedicaidandsocialsecurity, which could only be tamed by dismantling the legacy of the New Deal and the Great Society, while of course cutting top marginal tax rates.

A few of us argued, however, not just that it was foolish to worry about long-run budget issues in a time of depression and zero interest rates, but that the long run fiscal problems weren’t really that intractable. I used to say that all we needed were death panels and sales taxes — that if we got serious about cost control on health care, the rise in entitlement spending due to an aging population would shrink to a level that could be covered by moderate increases in revenue, meaning that no fundamental dismantling of the welfare state was necessary.

Sure enough, health spending began moderating after the passage of the ACA — and as Bruce Webb points out, if you believe the reports of the Social Security and Medicare trustees, we’re basically already there.

In 2009 the Trustees projected a gigantic rise in Medicare spending, which was obviously unsupportable (although Social Security never looked like a big problem).

The view from 2009
The view from 2009

But in the most recent report most of that projected rise has gone away.

The view from 2015
The view from 2015

Bear in mind that the current US budget deficit is below the level at which the debt/GDP ratio can be stabilized, in other words poses no problem. Looking forward, population aging will expand that deficit by a few percent of GDP, but that’s well within the range that could be closed with moderate tax hikes, cuts in pointless military spending, etc.. Nor is there a big rush: nothing terrible will happen if we don’t immediately decide how we’ll pay for projected benefits in the year 2050.

The truth is that there never was an entitlements crisis. But now there isn’t even an excuse for pretending that such a crisis exists. I know that a large part of the commentariat is professionally and personally invested in fiscal crisis rhetoric — admitting that it’s no longer relevant would suggest that they have, all along, been silly rather than Serious. But next time you see someone solemnly intoning that we must destroy Medicare to save it, remember that there is no there there.

Yesterday’s last post was “Tattoos, Incompetence, and the Heritage Foundation:”

Henry Farrell — who recently said some very interesting things about Very Serious People — writes me about my musings on hipster style, and refers me to a review of a book on codes of the underworld. The book notes that tattoos and such play a role as signals of criminal identity, which work precisely because they make it hard to participate in non-criminal society.

But there’s more: criminals actively cultivate a reputation for incompetence at non-criminal business, designed to reassure both their colleagues and the victims of their extortion that they won’t break their implicit contracts by going legit. And the author, Diego Gambetta, adds a wonderful parallel: according to his account, Italian academics, who do a lot of horse-trading in appointments etc., cultivate a reputation for incompetence at actual research, again designed to reassure those with whom one deals:

“Being incompetent and displaying it,” he writes, “conveys the message I will not run away, for I have no strong legs to run anywhere else. In a corrupt academic market, being good at and interested in one’s own research, by contrast, signal a potential for a career independent of corrupt reciprocity…. In the Italian academic world, the kakistrocrats are those who best assure others by displaying, through lack of competence and lack of interest in research, that they will comply with the pacts.”

And this immediately makes me think of one of the mysteries of economic “debate” in America, namely the preference of the right not just for hacks but for incompetent hacks. Here’s what I wrote:

I suspect that the incompetence is actually desirable at some level — a smart hack might turn honest, or something,

But let me hasten to add that I am not intending to engage in slander here. I would never, never suggest that Brooklyn hipsters are anything like Heritage Foundation economists.

Blow and Krugman

July 27, 2015

In “At Sarah Bland’s Funeral, Celebration and Defiance” Mr. Blow says mourners praised the life of the young woman, whose death leaves unanswered questions.  In “Zombies Against Medicare” Prof. Krugman says arguments that have already been shown to be false are still used by conservatives to attack a program that has done rather well.  Here’s Mr. Blow:

Funerals are often predictably somber — a cloistering and culminating of grief and pain. Not Sandra Bland’s funeral. (Everyone called her Sandy, by the way.) Sandy’s was simultaneously celebratory and defiant.

Bland was the 28-year-old Illinois woman arrested after a traffic stop in Texas who died in a county jail. Her funeral was held Saturday at DuPage African Methodist Episcopal Church in Lisle, Ill., just outside Chicago.

Bland’s casket was white. Many in the family wore white. The pastor wore a white ministerial robe. This was not to be a dark day. The joyous music of the choir seemed to vibrate everything in the building. Bland’s mother, Geneva Reed-Veal, danced every time the choir sang. One of Bland’s cousins performed a praise dance, a choreographed dance set to religious music.

There were whimpers and tears, to be sure, but there was also laughter and praise. As the church’s pastor, James F. Miller, put it: “This is not a moment of defeat; this is a moment of victory.” He continued: “We’re not funeralizing a martyr or a victim; we’re celebrating a hero!” The crowd erupted.

Over a few days leading up to the funeral I interviewed a few of Bland’s fellow church members and friends. They described a complex person — in other words, a person — who had recently come into her own, realizing her life’s purpose (social justice), a person who to them appeared determined, settled and happy. None of them believe she committed suicide, or that it was even possible.

What I did hear during those interviews and during the funeral itself were words and phrases like these used to describe Bland: “Fearless.” “Activist.” “Life of the party, in a good way.” “Vibrant and full of life.” “Passionate.” “A strong woman; a strong black woman.”

It was abundantly clear to me that the people who knew and loved her loved her fierce-ly and loved her fierce-ness.

That was not to say that Bland didn’t have her ups and downs the way many young people do. But rather, she wasn’t afraid to admit it and wanted to use her testimony to help others. I spoke to a woman with whom Bland was working to start a women’s empowerment forum online, who said that Bland told her that she wanted to share her travails because “it takes a lot of will and resilience when you’re going downhill to stop yourself.”

The Rev. Theresa Dear, who spoke to me on the family’s behalf, said that sure, Sandy was a “mouthy person” and that she could imagine her “raising you know what” in her Texas jail cell.

But, like Bland’s other friends, Dear described this in ways that seemed less acerbic than courageous, less Sister Souljah than Sojourner Truth.

As Dear put it: “Everybody in their lives needs a Sandy Bland posture, a Sandy Bland voice.”

Bland didn’t demur and knuckle under. Some have criticized her for her stance during the traffic stop, suggesting that if she had behaved differently, with more respect for the officer, she might have avoided arrest.

Maybe. But, it must always be remembered that the parameters of “respectable behavior” are both raced and gendered. The needle moves to differing positions for different people. That is, I believe, one of the reasons that this minor traffic stop so quickly escalated.

How dare a woman not present as a damsel? How dare a black person not bow in obsequiousness?

The officer’s irritation seemed to build in direct response to Bland’s unwavering defiance. She refused to break, crumble and cry. She refused to express fear. She challenged his authority, his character and his expression of masculinity.

Now, it is clear to me that Bland’s allies are girding themselves to fight for her life and her legacy. As her mother said in a fiery speech during the funeral: “I’m going to take today and relax. I’m going to take tomorrow and relax. But Monday, it’s on!”

There are so many unanswered questions in this case and so many things that don’t, on their face, make sense. The public wants answers, but more importantly, the family needs answers. As her mother said, “I’m the mama, and I still don’t know what happened to my baby!”

The pastor extolled those gathered to “go online and shut down the Justice Department’s website, asking for a federal investigation.” Indeed, Senator Dick Durbin and Representative Bill Foster both said at the funeral that they’d each sent letters to Attorney General Loretta Lynch requesting such an investigation.

And both Bland’s mother and Pastor Miller took swipes at the media’s portrayal of Sandy.

Miller demanded that responsible media stop showing images of Bland’s scarred body, “lining your pockets with the blood of our child!” As Miller said, “You have stepped on the cat’s tail.”

Then he seemed to, for comedic and theatrical purposes, catch himself, musing out loud, “They want me to sit down because I’m going to get us in trouble.”

But he quickly followed: “I was born black in America; I was born in trouble.” The mourners signaled their agreement.

Now here’s Prof. Krugman:

Medicare turns 50 this week, and it has been a very good half-century. Before the program went into effect, Ronald Reagan warned that it would destroy American freedom; it didn’t, as far as anyone can tell. What it did do was provide a huge improvement in financial security for seniors and their families, and in many cases it has literally been a lifesaver as well.

But the right has never abandoned its dream of killing the program. So it’s really no surprise that Jeb Bush recently declared that while he wants to let those already on Medicare keep their benefits, “We need to figure out a way to phase out this program for others.”

What is somewhat surprising, however, is the argument he chose to use, which might have sounded plausible five years ago, but now looks completely out of touch. In this, as in other spheres, Mr. Bush often seems like a Rip Van Winkle who slept through everything that has happened since he left the governor’s office — after all, he’s still boasting about Florida’s housing-bubble boom.

Actually, before I get to Mr. Bush’s argument, I guess I need to acknowledge that a Bush spokesman claims that the candidate wasn’t actually calling for an end to Medicare, he was just talking about things like raising the age of eligibility. There are two things to say about this claim. First, it’s clearly false: in context, Mr. Bush was obviously talking about converting Medicare into a voucher system, along the lines proposed by Paul Ryan.

And second, while raising the Medicare age has long been a favorite idea of Washington’s Very Serious People, a couple of years ago the Congressional Budget Office did a careful study and discovered that it would hardly save any money. That is, at this point raising the Medicare age is a zombie idea, which should have been killed by analysis and evidence, but is still out there eating some people’s brains.

But then, Mr. Bush’s real argument, as opposed to his campaign’s lame attempt at a rewrite, is just a bigger zombie.

The real reason conservatives want to do away with Medicare has always been political: It’s the very idea of the government providing a universal safety net that they hate, and they hate it even more when such programs are successful. But when they make their case to the public they usually shy away from making their real case, and have even, incredibly, sometimes posed as the program’s defenders against liberals and their death panels.

What Medicare’s would-be killers usually argue, instead, is that the program as we know it is unaffordable — that we must destroy the system in order to save it, that, as Mr. Bush put it, we must “move to a new system that allows [seniors] to have something — because they’re not going to have anything.” And the new system they usually advocate is, as I said, vouchers that can be applied to the purchase of private insurance.

The underlying premise here is that Medicare as we know it is incapable of controlling costs, that only the only way to keep health care affordable going forward is to rely on the magic of privatization.

Now, this was always a dubious claim. It’s true that for most of Medicare’s history its spending has grown faster than the economy as a whole — but this is true of health spending in general. In fact, Medicare costs per beneficiary have consistently grown more slowly than private insurance premiums, suggesting that Medicare is, if anything, better than private insurers at cost control. Furthermore, other wealthy countries with government-provided health insurance spend much less than we do, again suggesting that Medicare-type programs can indeed control costs.

Still, conservatives scoffed at the cost-control measures included in the Affordable Care Act, insisting that nothing short of privatization would work.

And then a funny thing happened: the act’s passage was immediately followed by an unprecedented pause in Medicare cost growth. Indeed, Medicare spending keeps coming in ever further below expectations, to an extent that has revolutionized our views about the sustainability of the program and of government spending as a whole.

Right now is, in other words, a very odd time to be going on about the impossibility of preserving Medicare, a program whose finances will be strained by an aging population but no longer look disastrous. One can only guess that Mr. Bush is unaware of all this, that he’s living inside the conservative information bubble, whose impervious shield blocks all positive news about health reform.

Meanwhile, what the rest of us need to know is that Medicare at 50 still looks very good. It needs to keep working on costs, it will need some additional resources, but it looks eminently sustainable. The only real threat it faces is that of attack by right-wing zombies.

Remove the earnings cap.


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