Busy day yesterday, with 5 posts. The first was “An Orthodoxy of One:”
The sad part is seeing Holtz-Eakin come to this. He did a fine job running the Congressional Budget Office, shielding it from partisan influence and producing reports that were useful to all sides. Now, however, he’s parroting the party line, and he doesn’t even seem to be making much of an effort. I mean, still peddling expansionary austerity at this point?
The funny part is his description of the anti-austerity position as the “pundit orthodoxy”. Wow. Just the other day the various Joes – Joe Scarborough, Joe Kernen, etc. – were saying that I’m all alone, a “unicorn”, one of maybe 3 or 4 people in the whole world who don’t think that the deficit is the biggest problem we face. (I see from TPM that JoScar now says that I’m the Wayne LaPierre of debt.) Now I’m part of an orthodoxy?
Well, maybe. Look at all the pundits on major op-ed pages or TV shows calling for an end to austerity and more stimulus. There’s me, and there’s … well, maybe Martin Wolf.
But I guess I’m such a big guy that I’m an orthodoxy all by myself.
The next post up was “Disco-Era Macroeconomics:”
There was another sad thing in that Holtz-Eakin piece calling me an orthodoxy all by myself; it was really disappointing to see DHE pulling the old “Keynesian policies caused stagflation” line.
Needless to say, I get this all the time. But it usually comes from people who have some excuse for not knowing either what Keynesianism means or what actually happened in the 70s.
So, what people like me have been calling for is a temporarily relaxed attitude toward deficits as long as the economy remains depressed and monetary policy is up against the zero lower bound. What does that have to do with the 70s?
Well, here’s the ratio of debt to GDP:
So, as you can see, during the 70s we had deficit spending that ran up the national debt, until Ronald Reagan was elected in 1980 and restored fiscal soundness. Oh, wait; it’s actually the opposite.
The truth is that whatever you might say about economic policy in the 1970s, it had nothing to do with Keynesian fiscal policy — and did not involve increasing debt. People on the right tend to use “Keynesian” to mean “liberal stuff I don’t like”, but aside from that definition, the 70s tell us nothing about the issues we’re discussing right now. You can argue that monetary policy was too loose, that the Fed was too expansionary in 1972 (when Arthur Burns was trying to reelect Richard Nixon) and that it failed to tighten in the face of oil-shock-driven inflation. But again, the idea that this experience has any relevance to expansionary fiscal policy in the face of a liquidity trap is totally bogus.
But I guess I should have expected this; after all, it’s also standard to argue that the troubles of the 70s somehow proved that the welfare state is the root of all economic evil, which makes equally little sense.
The 70s were important for economics. They did kill the notion of a stable Phillips curve that doesn’t depend on expected inflation, and convinced Keynesian as well as non-Keynesian economists that there is a minimum level of unemployment that can’t be reduced with demand-side policies (although we learned that lesson too well; recent experience shows that there is a lot of nominal stickiness at low inflation rates).
But the 70s as a cautionary tale showing that liberals are always wrong is just dumb and/or dishonest.
The third post of the day was “Currency War Confusions:”
OK, people have been asking me where I stand on the “currency war” issue. My answer is that it’s all a misconception, and it would be a very bad thing if policy makers take it seriously.
First of all, what people think they know about past currency wars isn’t actually true. Everyone uses some combination phrase like “protectionism and competitive devaluation” to describe the supposed vicious circle of the 1930s, but as Barry Eichengreen has pointed out many times, these really don’t go together. If country A and country B engage in a tit-for-tat of tariffs, the end result is restricted trade; if they each try to push their currency down, the end result is at worst to leave everyone back where they started.
And in reality the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy. In the 1930s this was because countries threw off their golden fetters — they left the gold standard and this freed them to pursue expansionary monetary policies. Today that’s not the issue; but what Japan, the US, and the UK are doing is in fact trying to pursue expansionary monetary policy, with currency depreciation as a byproduct. Expansionary policy is what the world needs, so why is this a bad thing?
True, Europe may feel that it’s suffering a loss of competitiveness. But there’s an answer for that: emulate the other advanced countries, and have the ECB join in the expansion. Indeed, if fear of an overvalued euro finally undermines the ECB’s monetary hawks, that’s good for everyone.
When it comes to currency depreciation, right now the only thing we have to fear is fear itself.
His penultimate post was “Two Observations on the Politics of the Minimum Wage:”
It looks as if President Obama has successfully set a political trap over the minimum wage. Raising the minimum is very popular — even a narrow majority of Republicans (pdf) are for it. But Republican leaders are opposed. And they’d like people to believe that their opposition is driven by sincere concern for workers who might lose their jobs.
Well, this isn’t likely to work; the public won’t believe in their sincerity, and for good reason. Here are two examples of why it won’t wash:
1. The truth is that top Republicans have so little regard for ordinary workers that they can’t even manage to pretend otherwise. Case in point: on the last Labor Day, Eric Cantor declared,
Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success.
Yep: even on Labor Day, Cantor had nothing positive to say about workers, just praise for their bosses.
2. Consider a working couple with two children, earning the current minimum wage. How much federal income tax do they pay? If I’m doing the math right, the answer is, none — they get a refund. (They pay plenty of payroll taxes, sales taxes, etc., but that isn’t supposed to count). In the minds of Republicans, this makes them lucky duckies, members of the 47 percent, part of what’s wrong with America. The GOP just can’t credibly claim to suddenly be deeply concerned about their job prospects.
Maybe once upon a time, when Republicans were less intellectually inbred, they could have pulled off the stunt of seeming to care about the people supposedly hurt by a higher minimum wage. But I really don’t think they’re up to it at this point.
He ended the day with “Friday Night Music: Take the F Train:”
The Lone Bellow calls what they do “Brooklyn country music”; here they let their bridge-and-tunnel flag fly: