Archive for the ‘Krugman’ Category

Krugman, solo

April 21, 2014

In “Sweden Turns Japanese” Prof. Krugman says the sadomonetarists, with their gut dislike of low interest rates, have claimed another victim.  Here he is:

Three years ago Sweden was widely regarded as a role model in how to deal with a global crisis. The nation’s exports were hit hard by slumping world trade but snapped back; its well-regulated banks rode out the financial storm; its strong social insurance programs supported consumer demand; and unlike much of Europe, it still had its own currency, giving it much-needed flexibility. By mid-2010 output was surging, and unemployment was falling fast. Sweden, declared The Washington Post, was “the rock star of the recovery.”

Then the sadomonetarists moved in.

The story so far: In 2010 Sweden’s economy was doing much better than those of most other advanced countries. But unemployment was still high, and inflation was low. Nonetheless, the Riksbank — Sweden’s equivalent of the Federal Reserve — decided to start raising interest rates.

There was some dissent within the Riksbank over this decision. Lars Svensson, a deputy governor at the time — and a former Princeton colleague of mine — vociferously opposed the rate hikes. Mr. Svensson, one of the world’s leading experts on Japanese-style deflationary traps, warned that raising interest rates in a still-depressed economy put Sweden at risk of a similar outcome. But he found himself isolated, and left the Riksbank in 2013.

Sure enough, Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan.

So why did the Riksbank make such a terrible mistake? That’s a hard question to answer, because officials changed their story over time. At first the bank’s governor declared that it was all about heading off inflation: “If the interest rate isn’t raised now, we’ll run the risk of too much inflation further ahead … Our most important task is to ensure that we meet our inflation target of 2 percent.” But as inflation slid toward zero, falling ever further below that supposedly crucial target, the Riksbank offered a new rationale: tight money was about curbing a housing bubble, to avert financial instability. That is, as the situation changed, officials invented new rationales for an unchanging policy.

In short, this was a classic case of sadomonetarism in action.

I’m using that term (coined by William Keegan of The Observer) advisedly, not just to be colorful. At least as I define it, sadomonetarism is an attitude, common among monetary officials and commentators, that involves a visceral dislike for low interest rates and easy money, even when unemployment is high and inflation is low. You find many sadomonetarists at international organizations; in the United States they tend to dwell on Wall Street or in right-leaning economics departments. They don’t, I’m happy to say, exert much influence at the Federal Reserve — but they do constantly harass the Fed, demanding that it stop its efforts to boost employment.

And when I say that the dislike for low rates is visceral, I mean just that. While sadomonetarists may offer what sound like coherent analytical rationales for their policy views, they don’t change their policy views in response to changing conditions — they just invent new rationales. This strongly suggests that what we’re looking at here is a gut feeling rather than a thought-out position.

Indeed, the Riksbank’s evolving justifications for rate hikes were mirrored at international organizations like the Switzerland-based Bank for International Settlements, an influential bankers’ bank that is a sadomonetarist stronghold. Just like the Riksbank, the bank changed its rationale for rate hikes — It’s about inflation! It’s about financial stability! — but never its policy demands.

Where does this gut dislike for low rates come from? At some level it has to reflect an instinctive identification with the interests of wealthy creditors as opposed to usually poorer debtors. But it’s also driven, I believe, by the desire of many monetary officials to pose as serious, tough-minded people — and to demonstrate how tough they are by inflicting pain.

Whatever their motives, sadomonetarists have already done a lot of damage. In Sweden they have extracted defeat from the jaws of victory, turning an economic success story into a tale of stagnation and deflation as far as the eye can see.

And they could do much more damage in the future. Financial markets have been fairly calm lately — no big banking crises, no imminent threats of euro breakup. But it would be wrong and dangerous to assume that recovery is assured: bad policies could all too easily undermine our still-sluggish economic progress. So when serious-sounding men in dark suits tell you that it’s time to stop all this easy money and raise rates, beware: Look at what such people have done to Sweden.

Brooks and Krugman

April 18, 2014

Oh, gawd…  Bobo’s heard about Common Core.  In “When the Circus Descends” he gurgles that right-wing talk radio hosts and left-wing interest groups are teaming up to defeat the most sensible school reform movement in a decade.  “Gemli” from Boston has this to say in his comment:  “Brooks has learned a thing or two about using the false equivalence to manipulate the discourse. He says that conservatives don’t like the Common Core and liberals don’t like it either. These two opposing sides represent the universe of views on the subject, but they cancel each other out, leaving his opinion shining like a cow pie in the moonlight.”  Love that image…  In “Salvation Gets Cheap” Prof. Krugman says the incredible recent decline in the cost of renewable energy, solar power in particular, have improved the economics of climate change.  Here’s Bobo:

We are pretty familiar with this story: A perfectly sensible if slightly boring idea is walking down the street. Suddenly, the ideological circus descends, burying the sensible idea in hysterical claims and fevered accusations. The idea’s political backers beat a craven retreat. The idea dies.

This is what seems to be happening to the Common Core education standards, which are being attacked on the right because they are common and on the left because they are core.

About seven years ago, it was widely acknowledged that state education standards were a complete mess. Huge numbers of students were graduating from high school unprepared either for college work or modern employment. A student who was rated “proficient” in one state would be rated “below basic” in another. About 14 states had pretty good standards, according to studies at the time, but the rest had standards that were verbose, lax or wildly confusing.

The National Governors Association and the Council of Chief State School Officers set out to draft clearer, consistent and more rigorous standards. Remember, school standards are not curricula. They do not determine what students read or how teachers should teach. They are the goals for what students should know at the end of each grade.

This was a state-led effort, supported by employers and financed by private foundations. This was not a federal effort, though the Obama administration did encourage states to embrace the new standards.

These Common Core standards are at least partially in place in 45 states. As is usual, the initial implementation has been a bit bumpy. It’s going to take a few years before there are textbooks and tests that are truly aligned with the new standards.

But the new initiative is clearly superior to the old mess. The math standards are more in line with the standards found in the top performing math nations. The English standards encourage reading comprehension. Whereas the old standards frequently encouraged students to read a book and then go off and write a response to it, the new standards encourage them to go back to the text and pick out specific passages for study and as evidence.

The Thomas B. Fordham Institute, which has been evaluating state standards for more than 15 years, concluded that the Common Core standards are “clearly superior” to the old standards in 37 states and are “too close to call” in 11 more.

But this makes no difference when the circus comes to town.

On the right, the market-share-obsessed talk-radio crowd claims that the Common Core standards represent a federal takeover of the schools. This is clearly false. This was a state-led effort, and localities preserve their control over what exactly is taught and how it is taught. Glenn Beck claims that Common Core represents “leftist indoctrination” of the young. On Fox, Elisabeth Hasselbeck cited a curriculum item that supposedly taught students that Abraham Lincoln’s religion was “liberal.” But, as the education analyst Michael J. Petrilli quickly demonstrated, this was some locally generated curriculum that was one of hundreds on a lesson-sharing website and it was promulgated a year before the Common Core standards even existed.

As it’s being attacked by the talk-radio right, the Common Core is being attacked by the interest group left. The general critique from progressives, and increasingly from teachers’ unions, is that the standards are too difficult, that implementation is shambolic and teachers are being forced into some top-down straitjacket that they detest.

It is true that the new standards are more rigorous than the old, and that in some cases students have to perform certain math skills a year earlier than they formerly had to learn them. But that is a feature, not a bug. The point is to get students competitive with their international peers.

The idea that the Common Core is unpopular is also false. Teachers and local authorities still have control of what they teach and how they teach it. A large survey in Kentucky revealed that 77 percent of teachers are enthusiastic about the challenge of implementing the standards in their classrooms. In another survey, a majority of teachers in Tennessee believe that implementation of the standards has begun positively. Al Baker of The Times interviewed a range of teachers in New York and reported, “most said their students were doing higher-quality work than they had ever seen, and were talking aloud more often.”

The new standards won’t revolutionize education. It’s not enough to set goals; you have to figure out how to meet them. But they are a step forward. Yet now states from New York to Oklahoma are thinking of rolling them back. This has less to do with substance and more to do with talk-radio bombast and interest group resistance to change.

The circus has come to town.

Now here’s Prof. Krugman:

The Intergovernmental Panel on Climate Change, which pools the efforts of scientists around the globe, has begun releasing draft chapters from its latest assessment, and, for the most part, the reading is as grim as you might expect. We are still on the road to catastrophe without major policy changes.

But there is one piece of the assessment that is surprisingly, if conditionally, upbeat: Its take on the economics of mitigation. Even as the report calls for drastic action to limit emissions of greenhouse gases, it asserts that the economic impact of such drastic action would be surprisingly small. In fact, even under the most ambitious goals the assessment considers, the estimated reduction in economic growth would basically amount to a rounding error, around 0.06 percent per year.

What’s behind this economic optimism? To a large extent, it reflects a technological revolution many people don’t know about, the incredible recent decline in the cost of renewable energy, solar power in particular.

Before I get to that revolution, however, let’s talk for a minute about the overall relationship between economic growth and the environment.

Other things equal, more G.D.P. tends to mean more pollution. What transformed China into the world’s largest emitter of greenhouse gases? Explosive economic growth. But other things don’t have to be equal. There’s no necessary one-to-one relationship between growth and pollution.

People on both the left and the right often fail to understand this point. (I hate it when pundits try to make every issue into a case of “both sides are wrong,” but, in this case, it happens to be true.) On the left, you sometimes find environmentalists asserting that to save the planet we must give up on the idea of an ever-growing economy; on the right, you often find assertions that any attempt to limit pollution will have devastating impacts on growth. But there’s no reason we can’t become richer while reducing our impact on the environment.

Let me add that free-market advocates seem to experience a peculiar loss of faith whenever the subject of the environment comes up. They normally trumpet their belief that the magic of the market can surmount all obstacles — that the private sector’s flexibility and talent for innovation can easily cope with limiting factors like scarcity of land or minerals. But suggest the possibility of market-friendly environmental measures, like a carbon tax or a cap-and-trade system for carbon emissions, and they suddenly assert that the private sector would be unable to cope, that the costs would be immense. Funny how that works.

The sensible position on the economics of climate change has always been that it’s like the economics of everything else — that if we give corporations and individuals an incentive to reduce greenhouse gas emissions, they will respond. What form would that response take? Until a few years ago, the best guess was that it would proceed on many fronts, involving everything from better insulation and more fuel-efficient cars to increased use of nuclear power.

One front many people didn’t take too seriously, however, was renewable energy. Sure, cap-and-trade might make more room for wind and the sun, but how important could such sources really end up being? And I have to admit that I shared that skepticism. If truth be told, I thought of the idea that wind and sun could be major players as hippie-dippy wishful thinking.

But I was wrong.

The climate change panel, in its usual deadpan prose, notes that “many RE [renewable energy] technologies have demonstrated substantial performance improvements and cost reductions” since it released its last assessment, back in 2007. The Department of Energy is willing to display a bit more open enthusiasm; it titled a report on clean energy released last year “Revolution Now.” That sounds like hyperbole, but you realize that it isn’t when you learn that the price of solar panels has fallen more than 75 percent just since 2008.

Thanks to this technological leap forward, the climate panel can talk about “decarbonizing” electricity generation as a realistic goal — and since coal-fired power plants are a very large part of the climate problem, that’s a big part of the solution right there.

It’s even possible that decarbonizing will take place without special encouragement, but we can’t and shouldn’t count on that. The point, instead, is that drastic cuts in greenhouse gas emissions are now within fairly easy reach.

So is the climate threat solved? Well, it should be. The science is solid; the technology is there; the economics look far more favorable than anyone expected. All that stands in the way of saving the planet is a combination of ignorance, prejudice and vested interests. What could go wrong? Oh, wait.

Krugman, solo

April 14, 2014

In “Three Expensive Milliseconds” Prof. Krugman says we’re giving huge sums to the financial industry while receiving little or nothing in return.  Here he is:

Four years ago Chris Christie, the governor of New Jersey, abruptly canceled America’s biggest and arguably most important infrastructure project, a desperately needed new rail tunnel under the Hudson River. Count me among those who blame his presidential ambitions, and believe that he was trying to curry favor with the government- and public-transit-hating Republican base.

Even as one tunnel was being canceled, however, another was nearing completion, as Spread Networks finished boring its way through the Allegheny Mountains of Pennsylvania. Spread’s tunnel was not, however, intended to carry passengers, or even freight; it was for a fiber-optic cable that would shave three milliseconds — three-thousandths of a second — off communication time between the futures markets of Chicago and the stock markets of New York. And the fact that this tunnel was built while the rail tunnel wasn’t tells you a lot about what’s wrong with America today.

Who cares about three milliseconds? The answer is, high-frequency traders, who make money by buying or selling stock a tiny fraction of a second faster than other players. Not surprisingly, Michael Lewis starts his best-selling new book “Flash Boys,” a polemic against high-frequency trading, with the story of the Spread Networks tunnel. But the real moral of the tunnel tale is independent of Mr. Lewis’s polemic.

Think about it. You may or may not buy Mr. Lewis’s depiction of the high-frequency types as villains and those trying to thwart them as heroes. (If you ask me, there are no good guys in this story.) But either way, spending hundreds of millions of dollars to save three milliseconds looks like a huge waste. And that’s part of a much broader picture, in which society is devoting an ever-growing share of its resources to financial wheeling and dealing, while getting little or nothing in return.

How much waste are we talking about? A paper by Thomas Philippon of New York University puts it at several hundred billion dollars a year.

Mr. Philippon starts with the familiar observation that finance has grown much faster than the economy as a whole. Specifically, the share of G.D.P. accruing to bankers, traders, and so on has nearly doubled since 1980, when we started dismantling the system of financial regulation created as a response to the Great Depression.

What are we getting in return for all that money? Not much, as far as anyone can tell. Mr. Philippon shows that the financial industry has grown much faster than either the flow of savings it channels or the assets it manages. Defenders of modern finance like to argue that it does the economy a great service by allocating capital to its most productive uses — but that’s a hard argument to sustain after a decade in which Wall Street’s crowning achievement involved directing hundreds of billions of dollars into subprime mortgages.

Wall Street’s friends also used to claim that the proliferation of complex financial instruments was reducing risk and increasing the system’s stability, so that financial crises were a thing of the past. No, really.

But if our supersized financial sector isn’t making us either safer or more productive, what is it doing? One answer is that it’s playing small investors for suckers, causing them to waste huge sums in a vain effort to beat the market. Don’t take my word for it — that’s what the president of the American Finance Association declared in 2008. Another answer is that a lot of money is going to speculative activities that are privately profitable but socially unproductive.

You may object that this can’t be right, that the invisible hand of the market ensures that private returns and social returns coincide. Economists have, however, known for a long time that when it comes to speculation, that proposition just isn’t true. Back in 1815 Baron Rothschild made a killing because he knew the outcome of the Battle of Waterloo a few hours before everyone else; it’s hard to see how that knowledge made Britain as a whole richer. It’s even harder to see how the three-millisecond advantage conveyed by the Spread Networks tunnel makes modern America richer; yet that advantage was clearly worth it to the speculators.

In short, we’re giving huge sums to the financial industry while receiving little or nothing — maybe less than nothing — in return. Mr. Philippon puts the waste at 2 percent of G.D.P. Yet even that figure, I’d argue, understates the true cost of our bloated financial industry. For there is a clear correlation between the rise of modern finance and America’s return to Gilded Age levels of inequality.

So never mind the debate about exactly how much damage high-frequency trading does. It’s the whole financial industry, not just that piece, that’s undermining our economy and our society.

Brooks and Krugman

April 11, 2014

In “The Moral Power of Curiosity” Bobo gurgles that “Flash Boys” by Michael Lewis is mostly a book about finance and high-frequency traders. But it’s also a morality tale.  In “Health Care Nightmares” Prof. Krugman says Obamacare is doing just fine, but America is not, thanks to the ugliness brought out into the open by the debate on health reform.  Here’s Bobo:

Most of us have at one time or another felt ourselves in the grip of the explanatory drive. You’re confronted by some puzzle, confusion or mystery. Your inability to come up with an answer gnaws at you. You’re up at night, turning the problem over in your mind. Then, suddenly: clarity. The pieces click into place. There’s a jolt of pure satisfaction.

We’re all familiar with this drive, but I wasn’t really conscious of the moral force of this longing until I read Michael Lewis’s book, “Flash Boys.”

As you’re probably aware, this book is about how a small number of Wall Street-types figured out that the stock markets were rigged by high-frequency traders who used complex technologies to give themselves a head start on everybody else. It’s nominally a book about finance, but it’s really a morality tale. The core question Lewis forces us to ask is: Why did some people do the right thing while most of their peers did not?

The answer, I think, is that most people on Wall Street are primarily motivated to make money, but a few people are primarily motivated by an intense desire to figure stuff out.

If you are primarily motivated to make money, you just need to get as much information as you need to do your job. You don’t have time for deep dives into abstract matters. You certainly don’t want to let people know how confused you are by something, or how shallow your knowledge is in certain areas. You want to project an image of mastery and omniscience.

On Wall Street, as in some other areas of the modern economy that I could mention, this attitude leads to a culture of knowingness. People learn to bluff their way through, day to day. Executives don’t really understand the complex things going on in their own companies. Traders don’t understand how their technological tools really work. Programmers may know their little piece of code, but they don’t have a broader knowledge of what their work is being used for.

These people are content to possess information, but they don’t seek knowledge. Information is what you need to make money short term. Knowledge is the deeper understanding of how things work. It’s obtained only by long and inefficient study. It’s gained by those who set aside the profit motive and instead possess an intrinsic desire just to know.

The heroes of Lewis’s book have this intrinsic desire. The central figure, Brad Katsuyama, observes that the markets are not working the way they are supposed to. Like thousands of others, he observes that funny things are happening on his screen when he places a trading order. But, unlike those others, this puzzling discrepancy between how things are and how things are supposed to be gnaws at him. He just has to understand what’s going on.

He conducts a long, arduous research project to go beneath the technology and figure things out. At one point he and his superiors at the Royal Bank of Canada conduct a series of trades not to make money but just to test theories.

Another character, Ronan Ryan, taught himself how electronic signals move through the telecommunications system. A third, John Schwall, is an obsessive who buried himself in the library so he could understand the history of a particular form of stock-rigging called front-running.

These people eventually figure out what was happening in the market. They acquire knowledge both of how the markets are actually working and of how they are supposed to work. They become indignant about the discrepancy.

They could have used their knowledge to participate in the very market-rigging they were observing. But remember, the pleasure they derived from satisfying their curiosity surpassed the pleasure they derived from making money. So some of them ended up creating a separate stock exchange that could not be rigged in this way.

One lesson of this tale is that capitalism doesn’t really work when it relies on the profit motive alone. If everybody is just chasing material self-interest, the invisible hand won’t lead to well-functioning markets. It will just lead to arrangements in which market insiders take advantage of everybody else. Capitalism requires the full range of motivation, including the intrinsic drive for knowledge and fairness.

Second, you can’t tame the desire for money with sermons. You can only counteract greed with some superior love, like the love of knowledge.

Third, if market-rigging is defeated, it won’t be by government regulators. It will be through a market innovation in which a good exchange replaces bad exchanges, designed by those who fundamentally understood the old system.

And here’s a phenomenon often true in innovation stories: The people who go to work pursuing knowledge, or because they intrinsically love writing code, sometimes end up making more money than the people who go to work pursuing money as their main purpose.

And now here’s Prof. Krugman:

When it comes to health reform, Republicans suffer from delusions of disaster. They know, just know, that the Affordable Care Act is doomed to utter failure, so failure is what they see, never mind the facts on the ground.

Thus, on Tuesday, Mitch McConnell, the Senate minority leader, dismissed the push for pay equity as an attempt to “change the subject from the nightmare of Obamacare”; on the same day, the nonpartisan RAND Corporation released a study estimating “a net gain of 9.3 million in the number of American adults with health insurance coverage from September 2013 to mid-March 2014.” Some nightmare. And the overall gain, including children and those who signed up during the late-March enrollment surge, must be considerably larger.

But while Obamacare is looking like anything but a nightmare, there are indeed some nightmarish things happening on the health care front. For it turns out that there’s a startling ugliness of spirit abroad in modern America — and health reform has brought that ugliness out into the open.

Let’s start with the good news about reform, which keeps coming in. First, there was the amazing come-from-behind surge in enrollments. Then there were a series of surveys — from Gallup, the Urban Institute, and RAND — all suggesting large gains in coverage. Taken individually, any one of these indicators might be dismissed as an outlier, but taken together they paint an unmistakable picture of major progress.

But wait: What about all the people who lost their policies thanks to Obamacare? The answer is that this looks more than ever like a relatively small issue hyped by right-wing propaganda. RAND finds that fewer than a million people who previously had individual insurance became uninsured — and many of those transitions, one guesses, had nothing to do with Obamacare. It’s worth noting that, so far, not one of the supposed horror stories touted in Koch-backed anti-reform advertisements has stood up to scrutiny, suggesting that real horror stories are rare.

It will be months before we have a full picture, but it’s clear that the number of uninsured Americans has already dropped significantly — not least in Mr. McConnell’s home state. It appears that around 40 percent of Kentucky’s uninsured population has already gained coverage, and we can expect a lot more people to sign up next year.

Republicans clearly have no idea how to respond to these developments. They can’t offer any real alternative to Obamacare, because you can’t achieve the good stuff in the Affordable Care Act, like coverage for people with pre-existing medical conditions, without also including the stuff they hate, the requirement that everyone buy insurance and the subsidies that make that requirement possible. Their political strategy has been to talk vaguely about replacing reform while waiting for its inevitable collapse. And what if reform doesn’t collapse? They have no idea what to do.

At the state level, however, Republican governors and legislators are still in a position to block the act’s expansion of Medicaid, denying health care to millions of vulnerable Americans. And they have seized that opportunity with gusto: Most Republican-controlled states, totaling half the nation, have rejected Medicaid expansion. And it shows. The number of uninsured Americans is dropping much faster in states accepting Medicaid expansion than in states rejecting it.

What’s amazing about this wave of rejection is that it appears to be motivated by pure spite. The federal government is prepared to pay for Medicaid expansion, so it would cost the states nothing, and would, in fact, provide an inflow of dollars. The health economist Jonathan Gruber, one of the principal architects of health reform — and normally a very mild-mannered guy — recently summed it up: The Medicaid-rejection states “are willing to sacrifice billions of dollars of injections into their economy in order to punish poor people. It really is just almost awesome in its evilness.” Indeed.

And while supposed Obamacare horror stories keep on turning out to be false, it’s already quite easy to find examples of people who died because their states refused to expand Medicaid. According to one recent study, the death toll from Medicaid rejection is likely to run between 7,000 and 17,000 Americans each year.

But nobody expects to see a lot of prominent Republicans declaring that rejecting Medicaid expansion is wrong, that caring for Americans in need is more important than scoring political points against the Obama administration. As I said, there’s an extraordinary ugliness of spirit abroad in today’s America, which health reform has brought out into the open.

And that revelation, not reform itself — which is going pretty well — is the real Obamacare nightmare.

Krugman, solo

April 7, 2014

Prof. Krugman has a question in “Oligarchs and Money:”  Are class interests perpetuating high unemployment?  Here he is:

Econonerds eagerly await each new edition of the International Monetary Fund’s World Economic Outlook. Never mind the forecasts, what we’re waiting for are the analytical chapters, which are always interesting and even provocative. This latest report is no exception. In particular, Chapter 3 — although billed as an analysis of trends in real (inflation-adjusted) interest rates — in effect makes a compelling case for raising inflation targets above 2 percent, the current norm in advanced countries.

This conclusion fits in with other I.M.F. research. Last month the fund’s blog — yes, it has one — discussed the problems created by “lowflation,” which is nearly as destructive as outright deflation. An earlier edition of the World Economic Outlook analyzed historical experience with high debt, and found that countries that were willing to let inflation erode their debt — including the United States — fared much better than those, like Britain after World War I, that clung to monetary and fiscal orthodoxy.

But the I.M.F. evidently doesn’t feel able to say outright what its analysis clearly implies. Instead, the report resorts to euphemisms that preserve deniability: the analysis “could have implications for the appropriate monetary policy framework.”

So what makes the obvious unsayable? In a direct sense, what we’re seeing is the power of conventional wisdom. But conventional wisdom doesn’t come from nowhere, and I’m increasingly convinced that our failure to deal with high unemployment has a lot to do with class interests.

First, let’s talk about the case for higher inflation.

Many people understand that a falling price level is a bad thing; nobody wants to turn into Japan, which has struggled with deflation since the 1990s. What’s less understood is that there isn’t a red line at zero: an economy with 0.5 percent inflation is going to have many of the same problems as an economy with 0.5 percent deflation. That’s why the I.M.F. warned that “lowflation” is putting Europe at risk of Japanese-style stagnation, even though literal deflation hasn’t happened (yet).

Moderate inflation turns out to serve several useful purposes. It’s good for debtors — and therefore good for the economy as a whole when an overhang of debt is holding back growth and job creation. It encourages people to spend rather than sit on cash — again, a good thing in a depressed economy. And it can serve as a kind of economic lubricant, making it easier to adjust wages and prices in the face of shifting demand.

But how much inflation is appropriate? European inflation is below 1 percent, which is clearly too low, and U.S. inflation isn’t that much higher. But would it be enough to get back to 2 percent, the official inflation target in both Europe and the United States? Almost certainly not.

You see, monetary experts have long known about the case for moderate inflation, but back in the 1990s, when the 2 percent target was hardening into policy orthodoxy, they thought that 2 percent was high enough to do the job. In particular, they thought it was enough to make liquidity traps — periods when even an interest rate of zero isn’t low enough to restore full employment — very rare. But America has now been in a liquidity trap for more than five years. Clearly, the experts were wrong.

Furthermore, as the latest I.M.F. report shows, there’s strong evidence that changes in the global economy are increasing the tendency of investors to hoard cash rather than put funds to work, thereby increasing the risk of liquidity traps unless the inflation target is raised. But the report never dares to say this outright.

So why is the obvious unsayable? One answer is that serious people like to prove their seriousness by calling for tough choices and sacrifice (by other people, of course). They hate being told about answers that don’t involve more suffering.

And behind this attitude, one suspects, lies class bias. Doing what America did after World War II — using low interest rates and inflation to erode the debt burden — is often referred to as “financial repression,” which sounds bad. But who wouldn’t prefer modest inflation and a bit of asset erosion to mass unemployment? Well, you know who: the 0.1 percent, who receive “only” 4 percent of wages but account for more than 20 percent of total wealth. Modestly higher inflation, say 4 percent, would be good for the vast majority of people, but it would be bad for the superelite. And guess who gets to define conventional wisdom.

Now, I don’t think that class interest is all-powerful. Good arguments and good policies sometimes prevail even if they hurt the 0.1 percent — otherwise we would never have gotten health reform. But we do need to make clear what’s going on, and realize that in monetary policy as in so much else, what’s good for oligarchs isn’t good for America.

Brooks, Cohen and Krugman

April 4, 2014

Bobo seems to have lost what passed for his mind.  In “Party All the Time” he actually tells us that the Supreme Court’s McCutcheon decision strengthens democracy by enabling the parties to take back power from major donors.  “Eric Flatpick” of Ohio sums the thing up succinctly:  “What pigheaded sophistry.”  Mr. Flatpick had more to say about it, but the summation says it all.  Mr. Cohen has a question in “In Search of Home:”  If you had a few weeks to live, where would you go?  In “Rube Goldberg Survives” Prof. Krugman tells us why those seven million enrollments in Obamacare matter.  Here’s Bobo’s delayed April Fools Day POS:

Over the last several decades, the United States has adopted a series of campaign finance reform laws. If these laws were designed to reduce the power of money in politics, they have failed. Spending on political campaigns has exploded. Washington booms with masses of lobbyists and consultants.

But campaign finance laws weren’t merely designed to take money out of politics; they were designed to protect incumbents from political defeat. In this regard, the laws have been fantastically successful.

The laws rigged the system to make it harder for challengers to raise money. In 1972, at about the time the Federal Election Campaign Act was first passed, incumbents had a campaign spending advantage over challengers of about 3 to 2. These days, incumbents have a spending advantage of at least 4 to 1. In some election years, 98 percent of the incumbents are swept back into office.

One of the ways incumbents secured this advantage is by weakening the power of the parties. They imposed caps on how much donors can give to parties and how much parties can give directly to candidates. By 2008, direct party contributions to Senate candidates accounted for only 0.18 percent of total spending.

The members of Congress did this because an unregulated party can direct large amounts of money to knock off an incumbent of the opposing party. By restricting parties, incumbents defanged a potent foe.

These laws pushed us from a party-centric campaign system to a candidate-centric system. This change has made life less pleasant for lawmakers but it has made their jobs more secure, and they have been willing to accept this trade-off.

Life is less pleasant because with the parties weakened, lawmakers have to do many campaign tasks on their own. They have to do their own fund-raising and their own kissing up to special interests. They have to hire consultants to do the messaging tasks that parties used to do.

But incumbents accept this because the candidate-centric system makes life miserable for challengers. With direct contributions severely limited and parties defanged, challengers find it hard to quickly build the vast network of donors they need to raise serious cash. High-quality challengers choose not to run because they don’t want to spend their lives begging for dough.

The shift to a candidate-centric system was horrifically antidemocratic. It pushed money from transparent, tightly regulated parties to the shadowy world of PACs and 527s. It weakened party leaders, who have to think about building broad national coalitions, and gave power to special interests.

Then came the Supreme Court’s Citizens United decision, which managed to make everything even worse. It moved us from a candidate-centric system to a donor-centric system. Donors were unleashed to create their own opaque yet torrential money flows outside both parties and candidates. This created an explosion in the number of groups with veto power over legislation and reform. It polarized politics further because donors tend to be more extreme than politicians or voters. The candidate-centric system empowered special interests; the donor-centric system makes them practically invincible.

Then along came the Supreme Court’s McCutcheon decision this week. It has been greeted with cries of horror because it may increase the amount of money in politics. But this is the wrong metric. There will always be money in politics; it’s a pipe dream to think otherwise. The crucial question is where is the money flowing.

The McCutcheon decision is a rare win for the parties. It enables party establishments to claw back some of the power that has flowed to donors and “super PACs.” It effectively raises the limits on what party establishments can solicit. It gives party leaders the chance to form joint fund-raising committees they can use to marshal large pools of cash and influence. McCutcheon is a small step back toward a party-centric system.

In their book “Better Parties, Better Government,” Peter J. Wallison and Joel M. Gora propose the best way to reform campaign finance: eliminate the restrictions on political parties to finance the campaigns of their candidates; loosen the limitations on giving to parties; keep the limits on giving to PACs.

Parties are not perfect, Lord knows. But they have broad national outlooks. They foster coalition thinking. They are relatively transparent. They are accountable to voters. They ally with special interests, but they transcend the influence of any one. Strengthened parties will make races more competitive and democracy more legitimate. Strong parties mobilize volunteers and activists and broaden political participation. Unlike super PACs, parties welcome large numbers of people into the political process.

Since the progressive era, campaign reformers have intuitively distrusted parties. These reformers seem driven by a naïve hope that they can avoid any visible concentration of power. But their approach to reform has manifestly failed. By restricting parties, they just concentrated power in ways that are much worse.

Sweet baby Jesus on a tricycle…  I guess Bobo missed the spectacle of pretty much all the Republican “front runners” prostrating themselves before the loathsome Sheldon Adelson.  Here’s Mr. Cohen:

In a fascinating recent essay in The London Review of Books, called “On Not Going Home,” James Wood relates how he “asked Christopher Hitchens, long before he was terminally ill, where he would go if he had only a few weeks to live. Would he stay in America? ‘No, I’d go to Dartmoor, without a doubt,’ he told me. It was the landscape of his childhood.”

It was the landscape, in other words, of unfiltered experience, of things felt rather than thought through, of the world in its beauty absorbed before it is understood, of patterns and sounds that lodge themselves in some indelible place in the psyche and call out across the years.

That question is worth repeating: If I had only a few weeks to live, where would I go? It is a good way of getting rid of the clutter that distracts or blinds. I will get to that in a moment.

In the essay, Wood, who grew up in England but has lived in the United States for 18 years, explores a certain form of contemporary homelessness — lives lived without the finality of exile, but also without the familiarity of home.

He speaks of existences “marked by a certain provisionality, a structure of departure and return that may not end.”

This is a widespread modern condition; perhaps it is the modern condition. Out of it, often, comes anxiety. Wood does not focus on the psychological effects of what he calls “a certain outsider-dom,” but if you dig into people who are depressed you often find that their distress at some level is linked to a sense of not fitting in, an anxiety about belonging: displacement anguish.

Wood describes looking at the familiar life of his Boston street, “the heavy maple trees, the unkempt willow down at the end, an old white Cadillac with the bumper sticker ‘Ted Kennedy has killed more people than my gun,’ and I feel … nothing: some recognition, but no comprehension, no real connection, no past, despite all the years I have lived there — just a tugging distance from it all. A panic suddenly overtakes me, and I wonder: How did I get here?”

Having spent my infancy in South Africa, grown up and been educated in England, and then, after a peripatetic life as a foreign correspondent, found my home in New York, I understand that how-did-I-get-here panic. But Wood and I differ. He has no desire to become an American citizen.

He quotes an immigration officer telling him, “‘A Green Card is usually considered a path to citizenship,’ and continues: “He was generously saying, ‘Would you like to be an American citizen?’ along with the less generous: ‘Why don’t you want to be an American citizen?’ Can we imagine either sentiment being expressed at Heathrow airport?”

No, we can’t. And it’s that essential openness of America, as well as the (linked) greater ease of living as a Jew in the United States compared with life in the land of Lewis Namier’s “trembling Israelites,” that made me become an American citizen and elect New York as my home. It’s the place that takes me in.

But it is not the place of my deepest connections. So, what if I had a few weeks to live? I would go to Cape Town, to my grandfather’s house, Duxbury, looking out over the railway line near Kalk Bay station to the ocean and the Cape of Good Hope. During my childhood, there was the scent of salt and pine and, in certain winds, a pungent waft from the fish processing plant in Fish Hoek. I would dangle a little net in rock pools and find myself hypnotized by the silky water and quivering life in it. The heat, not the dry high-veld heat of Johannesburg but something denser, pounded by the time we came back from the beach at lunchtime. It reverberated off the stone, angled into every recess. The lunch table was set and soon enough fried fish, usually firm-fleshed kingklip, would be served, so fresh it seemed to burst from its batter. At night the lights of Simon’s Town glittered, a lovely necklace strung along a promontory.

This was a happiness whose other name was home.

Wood writes: “Freud has a wonderful word, ‘afterwardness,’ which I need to borrow, even at the cost of kidnapping it from its very different context. To think about home and the departure from home, about not going home and no longer feeling able to go home, is to be filled with a remarkable sense of ‘afterwardness’: It is too late to do anything about it now, and too late to know what should have been done. And that may be all right.”

Yes, being not quite home, acceptance, which may be bountiful, is what is left to us.

And now we get to Prof. Krugman:

Holy seven million, Batman! The Affordable Care Act, a k a Obamacare, has made a stunning comeback from its shambolic start. As the March 31 deadline for 2014 coverage approached, there was a surge in applications at the “exchanges” — the special insurance marketplaces the law set up. And the original target of seven million signups, widely dismissed as unattainable, has been surpassed.

But what does it mean? That depends on whether you ask the law’s opponents or its supporters. You see, the opponents think that it means a lot, while the law’s supporters are being very cautious. And, in this one case, the enemies of health reform are right. This is a very big deal indeed.

Of course, you don’t find many Obamacare opponents admitting outright that 7.1 million and counting signups is a huge victory for reform. But their reaction to the results — It’s a fraud! They’re cooking the books! — tells the tale. Conservative thinking and Republican political strategy were based entirely on the assumption that it would always be October, that Obamacare’s rollout would be an unremitting tale of disaster. They have no idea what to do now that it’s turning into a success story.

So why are many reform supporters being diffident, telling us not to read too much into the figures? Well, at a technical level they’re right: The precise number of signups doesn’t matter much for the functioning of the law, and there may still be many problems despite the March surge. But I’d argue that they’re missing the forest for the trees.

The crucial thing to understand about the Affordable Care Act is that it’s a Rube Goldberg device, a complicated way to do something inherently simple. The biggest risk to reform has always been that the scheme would founder on its complexity. And now we know that this won’t happen.

Remember, giving everyone health insurance doesn’t have to be hard; you can just do it with a government-run program. Not only do many other advanced countries have “single-payer,” government-provided health insurance, but we ourselves have such a program — Medicare — for older Americans. If it had been politically possible, extending Medicare to everyone would have been technically easy.

But it wasn’t politically possible, for a couple of reasons. One was the power of the insurance industry, which couldn’t be cut out of the loop if you wanted health reform this decade. Another was the fact that the 170 million Americans receiving health insurance through employers are generally satisfied with their coverage, and any plan replacing that coverage with something new and unknown was a nonstarter.

So health reform had to be run largely through private insurers, and be an add-on to the existing system rather than a complete replacement. And, as a result, it had to be somewhat complex.

Now, the complexity shouldn’t be exaggerated: The basics of reform only take a few minutes to explain. And it has to be as complicated as it is. There’s a reason Republicans keep defaulting on their promise to propose an alternative to the Affordable Care Act: All the main elements of Obamacare, including the subsidies and the much-attacked individual mandate, are essential if you want to cover the uninsured.

Nonetheless, the Obama administration created a system in which people don’t simply receive a letter from the federal government saying “Congratulations, you are now covered.” Instead, people must go online or make a phone call and choose from a number of options, in which the cost of insurance depends on a calculation that includes varying subsidies, and so on. It’s a system in which many things can go wrong; the nightmare scenario has always been that conservatives would seize on technical problems to discredit health reform as a whole. And last fall that nightmare seemed to be coming true.

But the nightmare is over. It has long been clear, to anyone willing to study the issue, that the overall structure of Obamacare made sense given the political constraints. Now we know that the technical details can be managed, too. This thing is going to work.

And, yes, it’s also a big political victory for Democrats. They can point to a system that is already providing vital aid to millions of Americans, and Republicans — who were planning to run against a debacle — have nothing to offer in response. And I mean nothing. So far, not one of the supposed Obamacare horror stories featured in attack ads has stood up to scrutiny.

So my advice to reform supporters is, go ahead and celebrate. Oh, and feel free to ridicule right-wingers who confidently predicted doom.

Clearly, there’s a lot of work ahead, and we can count on the news media to play up every hitch and glitch as if it were an existential disaster. But Rube Goldberg has survived; health reform has won.

Krugman, solo

March 31, 2014

Prof. Krugman has a question in “Jobs and Skills and Zombies:”  Why does the myth of a “skills gap” persist and continue to do harm?  Here he is:

A few months ago, Jamie Dimon, the chief executive of JPMorgan Chase, and Marlene Seltzer, the chief executive of Jobs for the Future, published an article in Politico titled “Closing the Skills Gap.” They began portentously: “Today, nearly 11 million Americans are unemployed. Yet, at the same time, 4 million jobs sit unfilled” — supposedly demonstrating “the gulf between the skills job seekers currently have and the skills employers need.”

Actually, in an ever-changing economy there are always some positions unfilled even while some workers are unemployed, and the current ratio of vacancies to unemployed workers is far below normal. Meanwhile, multiple careful studies have found no support for claims that inadequate worker skills explain high unemployment.

But the belief that America suffers from a severe “skills gap” is one of those things that everyone important knows must be true, because everyone they know says it’s true. It’s a prime example of a zombie idea — an idea that should have been killed by evidence, but refuses to die.

And it does a lot of harm. Before we get there, however, what do we actually know about skills and jobs?

Think about what we would expect to find if there really were a skills shortage. Above all, we should see workers with the right skills doing well, while only those without those skills are doing badly. We don’t.

Yes, workers with a lot of formal education have lower unemployment than those with less, but that’s always true, in good times and bad. The crucial point is that unemployment remains much higher among workers at all education levels than it was before the financial crisis. The same is true across occupations: workers in every major category are doing worse than they were in 2007.

Some employers do complain that they’re finding it hard to find workers with the skills they need. But show us the money: If employers are really crying out for certain skills, they should be willing to offer higher wages to attract workers with those skills. In reality, however, it’s very hard to find groups of workers getting big wage increases, and the cases you can find don’t fit the conventional wisdom at all. It’s good, for example, that workers who know how to operate a sewing machine are seeing significant raises in wages, but I very much doubt that these are the skills people who make a lot of noise about the alleged gap have in mind.

And it’s not just the evidence on unemployment and wages that refutes the skills-gap story. Careful surveys of employers — like those recently conducted by researchers at both M.I.T. and the Boston Consulting Group — similarly find, as the consulting group declared, that “worries of a skills gap crisis are overblown.”

The one piece of evidence you might cite in favor of the skills-gap story is the sharp rise in long-term unemployment, which could be evidence that many workers don’t have what employers want. But it isn’t. At this point, we know a lot about the long-term unemployed, and they’re pretty much indistinguishable in skills from laid-off workers who quickly find new jobs. So what’s their problem? It’s the very fact of being out of work, which makes employers unwilling even to look at their qualifications.

So how does the myth of a skills shortage not only persist, but remain part of what “everyone knows”? Well, there was a nice illustration of the process last fall, when some news media reported that 92 percent of top executives said that there was, indeed, a skills gap. The basis for this claim? A telephone survey in which executives were asked, “Which of the following do you feel best describes the ‘gap’ in the U.S. workforce skills gap?” followed by a list of alternatives. Given the loaded question, it’s actually amazing that 8 percent of the respondents were willing to declare that there was no gap.

The point is that influential people move in circles in which repeating the skills-gap story — or, better yet, writing about skill gaps in media outlets like Politico — is a badge of seriousness, an assertion of tribal identity. And the zombie shambles on.

Unfortunately, the skills myth — like the myth of a looming debt crisis — is having dire effects on real-world policy. Instead of focusing on the way disastrously wrongheaded fiscal policy and inadequate action by the Federal Reserve have crippled the economy and demanding action, important people piously wring their hands about the failings of American workers.

Moreover, by blaming workers for their own plight, the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate. Of course, that may be another reason corporate executives like the myth so much.

So we need to kill this zombie, if we can, and stop making excuses for an economy that punishes workers.

As far as I’m concerned anything that comes out of Jamie Dimon’s mouth is a bald-faced lie at this point.

Cohen and Krugman

March 28, 2014

Mr. Cohen considers “Obama’s Anemic Speech in Europe” and says Western democracies cannot resonate when they fail their own citizens.  Prof. Krugman, in “America’s Taxation Tradition,” addresses how we got from Teddy Roosevelt to Mitt Romney and our attitudes on wealth and inequality.  Here’s Mr. Cohen:

Having pivoted to Asia and done the de rigueur minimum over several years to keep the trans-Atlantic alliance off life-support, Barack Obama awakened with a jolt to Europe this week and, on his first visit to Brussels as president, spoke of “inseparable allies” with a shared mission to demonstrate that Russia cannot “run roughshod over its neighbors.”

Shaken from a view of Europe as a kind of 20th-century yawn, Obama spoke of freedom and the ideas that bind the United States and Europe still in an ongoing “contest of ideas” against autocracy and “brute force.” He rightly rejected the notion that this is “another Cold War that we’re entering into,” noting that President Vladimir Putin of Russia represents “no global ideology.”

He spoke in timely fashion of “our Article 5 duty” under the North Atlantic Treaty to respond with force to any attack on a NATO country, important reassurance to the Baltic states, among others. This military commitment was backed by reference to the need for “very real contingency plans” to protect NATO nations in Central and Eastern Europe. Those plans, to date, have been inadequate. Overall, the combination of sanctions against Russia, economic support for Ukraine, and the dispatch of additional military forces eastward sent a clear message to Putin — one that will not reverse Russia’s Crimea annexation but may stop him going any further.

Better late than never: The Russian president has benefited from the perception of a United States in full-tilt, war-weary retrenchment; of American red lines turning amber and then green; of a divided European Union; and a hollow NATO living more on the past than any vision of a 21st-century future. Obama has been making up for lost ground.

Still, his Brussels speech, presented as a capstone of his visit and one of those Obama specials designed to offset with eloquence a deficit of deeds, was a poor performance overall, a jejune collection of nostrums about binding values of free-market Western societies and their appeal to the hearts (and pocketbooks) of people throughout the world, not least Ukrainians.

The problem is not that these propositions are untrue. The United States and the European Union are still magnets to the poor and disenfranchised of the earth. The problem is not even that an argument that the Iraq war (with its myriad dead) is somehow more defensible than Crimea is impossible to win. The problem is Obama needed to be more honest.

The fact is the Western democracies he was exalting have been failing to deliver, and autocrats of the world, bare-chested Putin included, benefit indirectly from the resulting disenchantment.

It is not just the soaring unemployment in Europe (likely to prompt a surge by rightist anti-immigrant parties in European Parliament elections this year). It is not just the crisis (contained for now) of the euro and the unresolved issue of how the European integration needed to back the currency is to be achieved. It is not just the widespread disillusionment with a navel-gazing European Union seen as over-bureaucratic and under-democratic. It is not just the growing income disparities in both Europe and the United States, and the spreading middle-class dystopia, and the sense in democracies on both sides of the Atlantic that money has skewed fairness and electoral processes themselves. It is not just the sense that something has gone seriously wrong with a polarized American democracy where scorched-earth Republicans devote their politics to obstruction, and the government can grind to a halt as it did last year, and a C.E.O. can earn $80 million for a few weeks of work while incomes for most Americans are stagnant. It is not just the National Security Agency eavesdropping and data-vacuuming revelations. It’s not just the loss of a sense of possibility for many young people.

It is all of this. Unless Western societies find a way to shake their moroseness, level the playing field and rediscover, as Obama put it, the “simple truth that all men, and women, are created equal,” they are going to have a very hard time winning “the contest of ideas.”

Instead of a speech of weary worthiness, Obama should have addressed how an alliance neglected through much of his presidency can be revived; and how American and European democracies, for all their failings, can right themselves because that is the great distinguishing feature of open societies — their capacity for renewal.

“Now is not the time for bluster,” Obama intoned. “The situation in Ukraine, like crises in many parts of the world, does not have easy answers nor a military solution.”

This is true. But nor is it a time for clichés about the wonders of democracy, freedom, open-market economies, the rule of law and other underpinnings of the West. Not when democracy seems blocked, freedom sometimes selective, open markets cruel and the law harshest on those who have least.

Now here’s Prof. Krugman:

As inequality has become an increasingly prominent issue in American discourse, there has been furious pushback from the right. Some conservatives argue that focusing on inequality is unwise, that taxing high incomes will cripple economic growth. Some argue that it’s unfair, that people should be allowed to keep what they earn. And some argue that it’s un-American — that we’ve always celebrated those who achieve wealth, and that it violates our national tradition to suggest that some people control too large a share of the wealth.

And they’re right. No true American would say this: “The absence of effective State, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” and follow that statement with a call for “a graduated inheritance tax on big fortunes … increasing rapidly in amount with the size of the estate.”

Who was this left-winger? Theodore Roosevelt, in his famous 1910 New Nationalism speech.

The truth is that, in the early 20th century, many leading Americans warned about the dangers of extreme wealth concentration, and urged that tax policy be used to limit the growth of great fortunes. Here’s another example: In 1919, the great economist Irving Fisher — whose theory of “debt deflation,” by the way, is essential in understanding our current economic troubles — devoted his presidential address to the American Economic Association largely to warning against the effects of “an undemocratic distribution of wealth.” And he spoke favorably of proposals to limit inherited wealth through heavy taxation of estates.

Nor was the notion of limiting the concentration of wealth, especially inherited wealth, just talk. In his landmark book, “Capital in the Twenty-First Century,” the economist Thomas Piketty points out that America, which introduced an income tax in 1913 and an inheritance tax in 1916, led the way in the rise of progressive taxation, that it was “far out in front” of Europe. Mr. Piketty goes so far as to say that “confiscatory taxation of excessive incomes” — that is, taxation whose goal was to reduce income and wealth disparities, rather than to raise money — was an “American invention.”

And this invention had deep historical roots in the Jeffersonian vision of an egalitarian society of small farmers. Back when Teddy Roosevelt gave his speech, many thoughtful Americans realized not just that extreme inequality was making nonsense of that vision, but that America was in danger of turning into a society dominated by hereditary wealth — that the New World was at risk of turning into Old Europe. And they were forthright in arguing that public policy should seek to limit inequality for political as well as economic reasons, that great wealth posed a danger to democracy.

So how did such views not only get pushed out of the mainstream, but come to be considered illegitimate?

Consider how inequality and taxes on top incomes were treated in the 2012 election. Republicans pushed the line that President Obama was hostile to the rich. “If one’s priority is to punish highly successful people, then vote for the Democrats,” said Mitt Romney. Democrats vehemently (and truthfully) denied the charge. Yet Mr. Romney was in effect accusing Mr. Obama of thinking like Teddy Roosevelt. How did that become an unforgivable political sin?

You sometimes hear the argument that concentrated wealth is no longer an important issue, because the big winners in today’s economy are self-made men who owe their position at the top of the ladder to earned income, not inheritance. But that view is a generation out of date. New work by the economists Emmanuel Saez and Gabriel Zucman finds that the share of wealth held at the very top — the richest 0.1 percent of the population — has doubled since the 1980s, and is now as high as it was when Teddy Roosevelt and Irving Fisher issued their warnings.

We don’t know how much of that wealth is inherited. But it’s interesting to look at the Forbes list of the wealthiest Americans. By my rough count, about a third of the top 50 inherited large fortunes. Another third are 65 or older, so they will probably be leaving large fortunes to their heirs. We aren’t yet a society with a hereditary aristocracy of wealth, but, if nothing changes, we’ll become that kind of society over the next couple of decades.

In short, the demonization of anyone who talks about the dangers of concentrated wealth is based on a misreading of both the past and the present. Such talk isn’t un-American; it’s very much in the American tradition. And it’s not at all irrelevant to the modern world. So who will be this generation’s Teddy Roosevelt?

Brooks, Cohen and Krugman

March 21, 2014

Bobo is in Vancouver, BC at the TED conference.  In “Going Home Again” he says that Sting reminds us all that sometimes you have to gaze back into the past in order to move forward.  “Mark Thomason” of Clawson, MI had this to say in the comments:  “Republicans circling back to get inspiration from the past consistently see a past that never existed except in their own present imagination.  They then use that inspiration to hurt those who live here in the present, like Ryan and his memories of school lunches.”  In “Cold Man in the Kremlin” Mr. Cohen says Putin knows what he wants. The West does not. That’s why he’s winning.  Prof. Krugman looks at “The Timidity Trap” and says policy makers have good ideas in principle for tackling terrible economic conditions, yet they consistently go for half-measures in practice and kill all hope.  Here’s Bobo:

The TED conference is dedicated to innovation. Most of the people who give TED talks are working on some creative project: to invent new bionic limbs for amputees, new telescopes, new fusion reactors or new protest movements to reduce the power of money in politics.

The speakers generally live in hope and have the audacity of the technologist. Naturally enough, they believe fervently in their projects. “This will change everything!” they tell the crowds.

And there’s a certain suspension of disbelief as audiences get swept up in the fervor and feel themselves delightedly on the cutting edge. The future will be insanely great. Everything will change at the speed of Moore’s Law.

But at this year’s TED conference, which was held here in Vancouver, British Columbia, the rock star Sting got onstage and gave a presentation that had a different feel. He talked about his rise to stardom and then about a period in middle age when he was unable to write any new songs. The muse abandoned him, he said — for days, then weeks, then months, then years.

But then he went back and started thinking about his childhood in the north of England. He’d lived on a street that led down to a shipyard where some of the world’s largest ocean-going vessels were built.

Most of us have an urge, maybe more as we age, to circle back to the past and touch the places and things of childhood. When Sting did this, his creativity was reborn. Songs exploded from his head.

At TED, he sang some of those songs about that shipyard. He sang about the characters he remembers and his desire to get away from a life in that yard. These were songs from his musical “The Last Ship,” which he’s performed at The Public Theater and which is expected to arrive on Broadway in the fall.

Most TED talks are about the future, but Sting’s was about going into the past. The difference between the two modes of thinking stood in stark contrast. In the first place, it was clear how much richer historical consciousness is than future vision. When we think about the future, we don’t think about the texture and the tensions, the particular smells, shapes, conflicts — the dents in the floorboards. But Sting’s songs were about unique and unlikely individuals and life as it really is, as a constant process of bending hard iron.

Historical consciousness has a fullness of paradox that future imagination cannot match. When we think of the past, we think about the things that seemed bad at the time but turned out to be good in the long run. We think about the little things that seemed inconsequential in the moment but made all the difference.

Then it was obvious how regenerating going home again can be. Sting, like most people who do this, wasn’t going back to live in the past; he was circling back and coming forward.

Going back is a creative process. The events of childhood are like the Hebrew alphabet; the vowels are missing, and the older self has to make sense of them. Robert Frost’s famous poem about the two paths diverging in the woods isn’t only about the two paths. It also describes how older people go back in memory and impose narrative order on choices that didn’t seem so clear at the time.

The person going back home has to invent a coherent tradition out of discrete moments and tease out future implications. He has to see the world with two sets of eyes: the eyes of his own childhood self and the eyes of his current adult self. He has to circle back deeper inside and see parts of himself that were more exposed then than now. No wonder the process of going home again can be so catalyzing.

The process of going home is also reorienting. Life has a way of blowing you off course. People have a way of forgetting what they originally set out to do. Going back means recapturing the original aspirations. That’s one reason Jews go back to Exodus every year. It’s why Augustine went back during a moment of spiritual crisis and wrote a book about his original conversion. Heck, it’s why Miranda Lambert performs “The House That Built Me” — to remind herself of the love of music that preceded the trappings of stardom.

Sting’s appearance at TED was a nice reminder of how important it is to ground future vision in historical consciousness. Some of the TED speakers seemed hopeful and creative, but painfully and maybe necessarily naïve.

Sting’s talk was a reminder to go forward with a backward glance, to go one layer down into self and then after self-confrontation, to leap forward out of self. History is filled with revivals, led by people who were reinvigorated for the future by a reckoning with the past.

Next up we have Mr. Cohen:

Stephen Hanson, the vice provost for international affairs at the College of William and Mary, summed up what life has been like these past decades for people in his line of work. “I’m a Russia specialist,” he said. “Nobody has been interested in me for 20 years.”

Sure, relations with Moscow could be prickly, and there was that bloody little invasion of Georgia in 2008 that led to Russia recognizing Abkhazia and South Ossetia (close to 20 percent of Georgia’s territory) as independent states, but the consensus was that the Cold War struggle with Moscow was over, replaced by a “reset” relationship that hovered somewhere between cooperation and rivalry but would not lapse again into the outright confrontation of two ideologies.

In this scenario, experts like Hanson were not in heavy demand. Their field had become secondary. Russia was 20th-century news. New members of NATO like Poland or Estonia squawked from time to time about the enduring threat from Vladimir Putin’s Russia, but their anxieties were dismissed as the hangover of decades within the mind-twisting Soviet empire.

Nothing was so certain to put audiences to sleep as talk of “trans-Atlanticism” or the need for increasing European military budgets. As the trauma of 9/11 faded and America’s wars wound down, “pivot to Asia” became the modish geopolitical phrase in Washington. Pivot to Europe was a laughable idea.

None of this was lost on Putin, who actually meant it when he described the breakup of the Soviet Union as the “greatest geopolitical catastrophe” of the 20th century, and for a decade and a half now has been intent on righting Russia’s perceived post-Cold-War humiliation in order to recreate, if not quite the Cold War, then a bipolar system in which Washington and Moscow offer opposing world views. Hanson says Putin “never embraced the borders of the Russian federation” and was always convinced “the West only likes leaders in Moscow, such as Gorbachev and Yeltsin, who weaken Russia.”

Putin’s push for a revived Soviet-like space reached its apotheosis (after the trial run in Georgia) with the annexation of Crimea (the German word for annexation is “Anschluss”), a watershed moment for Europe, where such an event had not happened since World War II. The Continent is once again combustible. The United States faces a foe in Moscow who laces his comments about America with contempt. This does not mean the Continent is about to lapse into war. It does mean trans-Atlantic unity is once again critical; imposing sanctions on a few second-level Putin lieutenants will not cut it as a Western response.

The language Putin understands is force and power. His meandering annexation speech made clear that he regards eastern Ukraine as wrongly usurped from Russia. If further Russian designs on Ukraine are to be stopped, President Obama has to respond to the Russian president in the idiom he understands. Providing U.S. Army rations as military support to Kiev amounts to history repeated as farce.

Ukraine, my colleague Michael Gordon reports, is seeking communications gear, mine-clearing equipment, vehicles, ammunition, fuel and medical gear, and the sharing of intelligence. Provide it. Hurt the oligarchs with their London mansions and untold billions parked in Western banks. Crimea may not be recoverable but the West must make clear it will not accept a Russian veto on E.U. and NATO expansion. But, some say, a firm response will end Russian cooperation on vital issues like Iran. Not so: Russia has its own interest in stopping nuclear proliferation, and even the Cold War did not preclude cooperation in some areas.

For Putin, “Nationalists, neo-Nazis, Russophobes and anti-Semites” have seized power in Kiev. For Putin, “After the dissolution of bipolarity on the planet, we no longer have stability.” (Never mind that hundreds of millions of people gained their freedom.) The United States, the Russian president suggests, knows only “the rule of the gun.”

As during the Cold War, he will find his sympathizers and fellow travelers in the West with such paranoid gambits. Still, his words have to be taken seriously. They are those of a man trained in a totalitarian system and now proposing an alternative civilization of brutality, force, imperial expansion, systemic corruption, a cowed press, conspiracy theories and homophobia.

Tinatin Khidasheli, a member of the Georgian Parliament, told me: “After Georgia in 2008 I was asked what’s next and I said Ukraine and everyone laughed. But Putin was testing the West with us and saw he could proceed. People in Georgia are now very scared, and they are most scared of the inability of the West to give an adequate response. The only political consensus we have is that we want to join the E.U. and NATO, but in Brussels they don’t even want to call us a European state.”

Putin knows what he wants. A supine and disunited West does not. That’s why he’s winning — or has already won.

Last but not least we have Prof. Krugman:

There don’t seem to be any major economic crises underway right this moment, and policy makers in many places are patting themselves on the back. In Europe, for example, they’re crowing about Spain’s recovery: the country seems set to grow at least twice as fast this year as previously forecast.

Unfortunately, that means growth of 1 percent, versus 0.5 percent, in a deeply depressed economy with 55 percent youth unemployment. The fact that this can be considered good news just goes to show how accustomed we’ve grown to terrible economic conditions. We’re doing worse than anyone could have imagined a few years ago, yet people seem increasingly to be accepting this miserable situation as the new normal.

How did this happen? There were multiple reasons, of course. But I’ve been thinking about this question a lot lately, in part because I’ve been asked to discuss a new assessment of Japan’s efforts to break out of its deflation trap. And I’d argue that an important source of failure was what I’ve taken to calling the timidity trap — the consistent tendency of policy makers who have the right ideas in principle to go for half-measures in practice, and the way this timidity ends up backfiring, politically and even economically.

In other words, Yeats had it right: the best lack all conviction, while the worst are full of passionate intensity.

About the worst: If you’ve been following economic debates these past few years, you know that both America and Europe have powerful pain caucuses — influential groups fiercely opposed to any policy that might put the unemployed back to work. There are some important differences between the U.S. and European pain caucuses, but both now have truly impressive track records of being always wrong, never in doubt.

Thus, in America, we have a faction both on Wall Street and in Congress that has spent five years and more issuing lurid warnings about runaway inflation and soaring interest rates. You might think that the failure of any of these dire predictions to come true would inspire some second thoughts, but, after all these years, the same people are still being invited to testify, and are still saying the same things.

Meanwhile, in Europe, four years have passed since the Continent turned to harsh austerity programs. The architects of these programs told us not to worry about adverse impacts on jobs and growth — the economic effects would be positive, because austerity would inspire confidence. Needless to say, the confidence fairy never appeared, and the economic and social price has been immense. But no matter: all the serious people say that the beatings must continue until morale improves.

So what has been the response of the good guys?

For there are good guys out there, people who haven’t bought into the notion that nothing can or should be done about mass unemployment. The Obama administration’s heart — or, at any rate, its economic model — is in the right place. The Federal Reserve has pushed back against the springtime-for-Weimar, inflation-is-coming crowd. The International Monetary Fund has put out research debunking claims that austerity is painless. But these good guys never seem willing to go all-in on their beliefs.

The classic example is the Obama stimulus, which was obviously underpowered given the economy’s dire straits. That’s not 20/20 hindsight. Some of us warned right from the beginning that the plan would be inadequate — and that because it was being oversold, the persistence of high unemployment would end up discrediting the whole idea of stimulus in the public mind. And so it proved.

What’s not as well known is that the Fed has, in its own way, done the same thing. From the start, monetary officials ruled out the kinds of monetary policies most likely to work — in particular, anything that might signal a willingness to tolerate somewhat higher inflation, at least temporarily. As a result, the policies they have followed have fallen short of hopes, and ended up leaving the impression that nothing much can be done.

And the same may be true even in Japan — the case that motivated this article. Japan has made a radical break with past policies, finally adopting the kind of aggressive monetary stimulus Western economists have been urging for 15 years and more. Yet there’s still a diffidence about the whole business, a tendency to set things like inflation targets lower than the situation really demands. And this increases the risk that Japan will fail to achieve “liftoff” — that the boost it gets from the new policies won’t be enough to really break free from deflation.

You might ask why the good guys have been so timid, the bad guys so self-confident. I suspect that the answer has a lot to do with class interests. But that will have to be a subject for another column.

Krugman, solo

March 17, 2014

In “That Old-Time Whistle” Prof. Krugman points out that American conservatism is still, after all these years, largely driven by claims that liberals are giving money away to “those people.”  Here he is:

There are many negative things you can say about Paul Ryan, chairman of the House Budget Committee and the G.O.P.’s de facto intellectual leader. But you have to admit that he’s a very articulate guy, an expert at sounding as if he knows what he’s talking about.

So it’s comical, in a way, to see Mr. Ryan trying to explain away some recent remarks in which he attributed persistent poverty to a “culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working.” He was, he says, simply being “inarticulate.” How could anyone suggest that it was a racial dog-whistle? Why, he even cited the work of serious scholars — people like Charles Murray, most famous for arguing that blacks are genetically inferior to whites. Oh, wait.

Just to be clear, there’s no evidence that Mr. Ryan is personally a racist, and his dog-whistle may not even have been deliberate. But it doesn’t matter. He said what he said because that’s the kind of thing conservatives say to each other all the time. And why do they say such things? Because American conservatism is still, after all these years, largely driven by claims that liberals are taking away your hard-earned money and giving it to Those People.

Indeed, race is the Rosetta Stone that makes sense of many otherwise incomprehensible aspects of U.S. politics.

We are told, for example, that conservatives are against big government and high spending. Yet even as Republican governors and state legislatures block the expansion of Medicaid, the G.O.P. angrily denounces modest cost-saving measures for Medicare. How can this contradiction be explained? Well, what do many Medicaid recipients look like — and I’m talking about the color of their skin, not the content of their character — and how does that compare with the typical Medicare beneficiary? Mystery solved.

Or we’re told that conservatives, the Tea Party in particular, oppose handouts because they believe in personal responsibility, in a society in which people must bear the consequences of their actions. Yet it’s hard to find angry Tea Party denunciations of huge Wall Street bailouts, of huge bonuses paid to executives who were saved from disaster by government backing and guarantees. Instead, all the movement’s passion, starting with Rick Santelli’s famous rant on CNBC, has been directed against any hint of financial relief for low-income borrowers. And what is it about these borrowers that makes them such targets of ire? You know the answer.

One odd consequence of our still-racialized politics is that conservatives are still, in effect, mobilizing against the bums on welfare even though both the bums and the welfare are long gone or never existed. Mr. Santelli’s fury was directed against mortgage relief that never actually happened. Right-wingers rage against tales of food stamp abuse that almost always turn out to be false or at least greatly exaggerated. And Mr. Ryan’s black-men-don’t-want-to-work theory of poverty is decades out of date.

In the 1970s it was still possible to claim in good faith that there was plenty of opportunity in America, and that poverty persisted only because of cultural breakdown among African-Americans. Back then, after all, blue-collar jobs still paid well, and unemployment was low. The reality was that opportunity was much more limited than affluent Americans imagined; as the sociologist William Julius Wilson has documented, the flight of industry from urban centers meant that minority workers literally couldn’t get to those good jobs, and the supposed cultural causes of poverty were actually effects of that lack of opportunity. Still, you could understand why many observers failed to see this.

But over the past 40 years good jobs for ordinary workers have disappeared, not just from inner cities but everywhere: adjusted for inflation, wages have fallen for 60 percent of working American men. And as economic opportunity has shriveled for half the population, many behaviors that used to be held up as demonstrations of black cultural breakdown — the breakdown of marriage, drug abuse, and so on — have spread among working-class whites too.

These awkward facts have not, however, penetrated the world of conservative ideology. Earlier this month the House Budget Committee, under Mr. Ryan’s direction, released a 205-page report on the alleged failure of the War on Poverty. What does the report have to say about the impact of falling real wages? It never mentions the subject at all.

And since conservatives can’t bring themselves to acknowledge the reality of what’s happening to opportunity in America, they’re left with nothing but that old-time dog whistle. Mr. Ryan wasn’t being inarticulate — he said what he said because it’s all that he’s got.


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