There were four posts on Saturday and two yesterday. The first Saturday post was “Mild Winters and Crank Economics:”
Neil Irwin writes about migration patterns within the United States, and points out that they overwhelmingly reflect just two factors. Most important, people are moving to places with mild winters:
On top of this, they’re moving to places with cheap housing, although you need to allow for the fact that some places are cheap precisely because people are leaving.
As I pointed out the other day, this long-term movement toward the sun, in turn, probably has a lot to do with the gradual adjustment to air conditioning.
And as I also pointed out, the search for mild winters can lead to a lot of spurious correlations. With the exception of California — which has mild winters but also, now, has very high housing prices — America’s warm states are very conservative. And that’s not an accident: warm states were also slave states and members of the Confederacy, and a glance at any election map will tell you that in US politics the Civil War is far from over.
The point, then, is that these hot red states also tend to be low-minimum-wage, low-taxes-on-the-wealthy jurisdictions. And that opens the door to sloppy and/or mendacious claims that low wages and taxes are driving their growth.
This really shouldn’t even be controversial — I think it’s kind of obvious.
The second post on Saturday was “Unreal Keynesians:”
One way to answer this is to point out that Keynes said a lot of things, not all consistent with each other. (The same is true for all of us.) Right at the beginning of the General Theory, Keynes explains the “principle of effective demand” with a little model of temporary equilibrium that takes expectations as given. If that kind of modeling is anti-Keynesian, the man himself must be excommunicated.
But surely we don’t want to do economics via textual analysis of the masters. The questions one should ask about any economic approach are whether it helps us understand what’s going on, and whether it provides useful guidance for decisions.
So I don’t care whether Hicksian IS-LM is Keynesian in the sense that Keynes himself would have approved of it, and neither should you. What you should ask is whether that approach has proved useful — and whether the critics have something better to offer.
And as I have often argued, these past 6 or 7 years have in fact been a triumph for IS-LM. Those of us using IS-LM made predictions about the quiescence of interest rates and inflation that were ridiculed by many on the right, but have been completely borne out in practice. We also predicted much bigger adverse effects from austerity than usual because of the zero lower bound, and that has also come true.
Now, what have those who declare themselves the true Keynesians had to offer? Has insisting that expectations are volatile and unpredictable been helpful in this context? Actually, if anything it lends support to believers in the confidence fairy. After all, if it’s all animal spirits, who are we to say they’re wrong?
Has declaring uncertainty to be unquantifiable, and mathematical modeling in any form foolish, been productive? Remember, that’s what the Austrians say too.
If you can show me any useful advice given by those sniping at me and other for our failure to be proper Keynesians, I’ll be happy to take it under consideration. If you can’t, then we’re just doing literary criticism here, and I’m not interested.
The third post on Saturday was “Privatization Memories:”
Dave Weigel has one of the more interesting Harry Reid retrospectives, focusing on his role in fighting back Bush’s attempt to privatize Social Security — and in particular on the way he forged an alliance with liberal bloggers.
I remember that episode very well, for several reasons. One was that I, too, was writing a lot, debunking one bad argument for privatization after another. It wasn’t the first time I had done that kind of thing, but this was different in two ways: it was really intense, and for once my side of the argument won the political fight.
It was also a formative period for my perceptions of how policy arguments actually play out in modern America. There are always three sides here: the right, which isn’t interested in facts or logic; the left (which isn’t very leftist in this country — they’re really center-left by anyone else’s standards); and self-proclaimed centrists, who have very little in the way of a constituency in the country at large but have a lot of influence inside the Beltway.
And what you learned early on in the Social Security debate was that centrists desperately want to believe that there is symmetry between the left and the right, that Democrats and Republicans are equally extreme in their own way. And this means that they are always looking for ways to say nice things about Republicans and their policy proposals, no matter how bad those proposals are. That’s how Paul Ryan ended up getting an award for fiscal responsibility.
So back in 2005, Bush was making a dubious claim coupled with a complete non sequitur. First, the claim that Social Security was in crisis; second, that privatization was the answer, even though it would do nothing at all to help the system’s finances. How could centrists say nice things about such a crude bait-and-switch?
Well, here’s Joe Klein in 2005:
I agree with Paul [Krugman] in that private accounts have nothing to do with solvency and solvency is the issue. I disagree with Paul because I think private accounts [are] a terrific policy and that in the information age, you’re going to need different kinds of structures in the entitlement area than you had in the industrial age. But it is very hard to do that kind of change under these political circumstances where you have the parties at such loggerheads.
The Democrats have for the last 10 or 15 years blatantly, shamelessly demagogued this issue. They’ve offered nothing positive on Social Security or on Medicare or on Medicaid, and it’s time for them to compromise here.
Say what? To his credit, Klein later admitted that he was all wrong here. But the point is that what we saw here was the instinct to come up with something, anything, that would let centrists pretend symmetry between the parties.
Incidentally, about Democrats doing nothing about Medicare and Medicaid: it’s interesting to look at budget projections made around the time of the Social Security debate. Back then CBO projected that by fiscal 2014 Medicare spending would rise to $708 billion and Medicaid spending to $361 billion. The actual numbers for 2014 were 600 and 301, respectively, despite the Medicaid expansion under Obamacare. At least some of this unexpectedly low cost can be attributed to measures included in the Affordable Care Act. And strange to say, this was achieved without destroying or privatizing the programs.
But back to 2005: what Harry Reid realized was that it was time to stop courting the Very Serious People and instead make an alliance with the DFHs — which isn’t quite shorthand for Dirty Foolish Hippies — who, unlike the VSPs, were actually making sense on both the policy and the politics. It was an important turning point.
Saturday’s last post was “Air Conditioning and the Rise of the South:”
Just a short further note on this subject. (If you’re wondering why I’m doing posting so much on a Saturday, I’m housebound with a cold, so why not?)
First, there’s a real demographic turning point for the South circa 1960, as a steadily falling share of the total US population shifts to a sustained rise:
Second, this turning point coincides with the coming of widespread home air conditioning:
So when you ask why Sunbelt states have in general grown faster than those in the Northeasy, don’t credit Art Laffer; credit Willis Carrier.
Yesterday’s first post was “Talking Econoheads:”
A couple of events I was involved in are now online:
Piketty/Stiglitz/me talking inequality at the 92nd Street Y
Lots of people talking about economics for the New York Review of Books at Scandinavia House.
The last post yesterday was “Austerity, Big and Small:”
At this point it’s fairly common to look at the effects of austerity via cross-country scatterplots: one axis shows some measure of fiscal consolidation, while the other shows the change in GDP. Who started this practice? I think I did, here, although I’m happy to cede credit to someone else if I missed it.
There are problems with this approach: causation could run the other way, although given the extent to which austerity, in the eurozone at any rate, was driven by debt panic, those problems shouldn’t be too severe. Another issue, however, is concern that such cross-sectional pictures could be dominated by small outliers. Are we basing too much on Greece?
Well, I’ve been doing some class prep and decided to play around with bubble charts — scatterplots in which the size of the markers varies, in this case with PPP GDP. Here’s what the eurozone scatter looks like, using the IMF’s estimate of the change in the structural balance as a share of potential GDP:
There seem to be three insights from this picture. First, the case that austerity really does hurt a lot does not depend on Greece. If anything, Greek economic contraction seems to have been somewhat less than you might have expected given the extreme austerity.
Second, and relatedly, the apparent multiplier looks larger if you focus only on the bigger economies; a weighted regression has a coefficient of -1.6, versus -1.3 for the unweighted version.
Finally, all the attention given to Latvia looks a bit … odd.