Archive for the ‘Krugman’s Blog’ Category

Krugman’s blog, 4/14/17

April 17, 2017

There was one post on Friday, “In Praise Of Nursing:”

For some reason I’m suddenly getting a lot of mail about a sloppy and insensitive thing I did in passing in a blog post a while back. I was writing about what kind of work would survive digital technology, and described nursing among other things as “menial” work. What’s odd is that I have never imagined that; I don’t remember what I was thinking, but I may even have meant to say “manual” (which is also not right, however, since there’s a lot more than manual skill involved).

Anyway, apologies to nurses: If I insulted them, even inadvertently, that was badly done. I’m well aware how much training goes into their profession, and also just how hard it is — I would be terrified to deal, even once, with what they deal with every day. I won’t make that mistake again.

Krugman’s blog, 4/12/17

April 13, 2017

There was one post yesterday, “The French, Ourselves:”

Still thinking about the upcoming French election. Will Le Pen be the next Trump? I have no idea. But I’ve been interested to note how little resemblance there is between the underlying economics in France and here, which in turn raises further doubts about how far “economic anxiety” goes toward explaining the faux-populist surge.

One thing you have to bear in mind is that the French economy gets terrible press — some combination of conservative bias (with such a generous welfare state they *should* be a disaster, dammit) and cultural envy/annoyance. A few years back Roger Cohen quoted himself about how there is a

pervasive sense that not only jobs — but also power, wealth, ideas and national identity itself — are migrating, permanently and at disarming speed, to leave a vapid grandeur on the banks of the Seine

then noted wryly that he wrote that in 1997; and somehow France is still there.

In fact, the 1990s were something of a low point; in a number of key ways France has done better since then, especially compared with the United States. Official unemployment is high, but that’s somewhat misleading. If you look at adults in their prime working years, they’re actually more likely to be employed in France than they are here:


OECD and BLS

French productivity has gone from slightly above to slightly below the US level, perhaps because more people are employed; but anyway, given the wiggle room in such numbers, we’re basically looking at a country that is at the technological frontier:


OECD

And France has, so far at least, been spared the Case-Deaton epidemic of “deaths of despair”:

If very low inflation is any indicator, the French economy does appear to be operating somewhat below potential. But it’s not in macroeconomic crisis.

And as I wrote yesterday, France is not Greece: the euro was a bad idea, but France is not a nation currently suffering severely from lack of an independent currency, so there is no urgency about exit — and hence no obvious reason to incur the huge costs euro exit would impose.

So what’s it all about? Presumably it’s about identity politics, French style. But my point is that the economic anxiety trope works even worse for France than it does here.

Oh, and let me repeat: Le Pen does not offer any answer to the problems of the EU.

Krugman’s blog, 4/11/17

April 12, 2017

There was one post yesterday, “Europe Has Problems, But Le Pen Is Not The Answer:”

France will have its presidential election in a few weeks, and there are understandable concerns that it may be another Trump shock. In particular, the travails of the euro have tarnished the reputation of the European project – the long march toward peace and prosperity through economic integration – and played into the hands of anti-Europe politicians. And French contacts tell me that the Le Pen campaign is trying to portray critiques of European policies from prominent economists as implicit endorsements of the FN platform.

They aren’t.

I’ve been a harsh critic both of the euro and of the austerity policies followed in the euro area since 2010. France could and should be doing much better than it is. But the kinds of policies the FN is talking about – unilateral exit from not just the euro but the EU – would hurt, not help, the French economy.

Start with the euro. The single currency was and is a flawed project, and countries that never joined – Sweden, the UK, Iceland – have benefited from the flexibility that comes from independent currencies. There is, however, a huge difference between choosing not to join in the first place and leaving once in. The transition costs of euro exit and restoration of a national currency would be huge: massive capital flight would cause a banking crisis, capital controls and bank holidays would have to be imposed, problems of how to value contracts would create a legal morass, business would be disrupted during a long interim period of confusion and uncertainty.

These costs might nonetheless be worth bearing under extreme circumstances, such as those facing Greece: a severely depressed economy that needs a radical reduction in costs relative to its trading partners might find even a costly euro exit followed by devaluation preferable to years of grinding deflation.

France, however, does not fit that description. French employment performance should be better, but it’s not terrible – prime-age adults are more likely to be employed than they are in the United States. And since the creation of the euro, French labor costs have roughly tracked the average for the euro area as a whole, so there’s little reason to believe that a restored franc would or should experience a large devaluation:


OECD

In short, for France exiting the euro would bring all the costs that Greece would have faced, without any of the benefits.

What about the EU in general? There is every reason to believe that membership in the EU, making France part of a far larger market than it could provide on its own, makes French industry more productive and offers French citizens a wider range of cheaper products than they would otherwise be able to buy. Sorry, but France just isn’t big enough to prosper with inward-looking, nationalist economic policies. And given the benefits of being part of a larger economic entity, being part of Schengen – which reduces the frictions and makes integration work better – should be seen as a privilege, not a burden.

I’m not by any means saying that the EU is fine, or that French policy is great. The European consensus in favor of austerity was immensely wrong-headed and destructive – and France has been far too willing to impose unnecessary austerity on itself. I sometimes say that the most serious economic ailment France suffers from is hypochondria, a willingness to believe propaganda that has portrayed it as the sick man of Europe for more than three decades, even as it continues to exhibit high productivity and decent employment performance.

The point, however, is that nothing the FN has to offer would move France in the right direction. Just because Le Pen and economists like me are both critical of European policy doesn’t mean we have anything in common.

Krugman’s blog, 4/6/17

April 7, 2017

There was one post yesterday, “Iceland 1991:”

A historical curiosity: the other day Gauti Eggertsson asked if I had a copy of the report I wrote on Icelandic currency policy back in 1991, since there doesn’t seem to be one online anywhere. Sure enough, I had a copy of the draft — a physical copy — on file. So here’s an upload of the scan.

The report itself is basically optimum currency area theory, with fish. I made what I think is an interesting comparison between Iceland and Canada’s Maritime Provinces, but missed the fiscal integration angle. Still, this doesn’t read too badly a quarter-century and a financial crisis later.

Krugman’s blog, 3/31/17

April 1, 2017

There was one post yesterday, “Of Tweets And Trade:”

Is anything ever going to happen on trade, Trump’s signature issue other than immigration? As Matt Yglesias notes, so far almost nothing has. Bloomberg tells us that companies are back to the usual business of moving jobs to Mexico, after a brief hiatus — unclear whether there was any real pause, or just a pause in announcements, but in any case CEOs seem to have decided that NAFTA isn’t under much threat.

True, Trump is tweeting threats about the China trade, and maybe something big will happen after Mar-a-Lago. But that gets us to the question, is Trump actually in a position to pursue the trade issue in any serious way?

My answer is probably not — except as a move taken out of political desperation.

The starting point for any such discussion has to be the observation that during the campaign, when Trump talked trade, he had no idea what he was talking about — no more than he did on health care, or taxes, or coal, or …. Specifically, Trump seemed to have two false ideas in mind:

1. Existing trade agreements are obviously and bigly unfair to the United States, putting us at a disadvantage.

2. Restricting trade would be good for America and bad for foreigners, so the threat of protectionism gives us lots of leverage.

Now, reality: if you look for the obvious giveaways in NAFTA, which the US can demand be redressed, you won’t find them. NAFTA brought down most trade barriers between us and Mexico; there wasn’t any marked asymmetry. In fact, since Mexican tariffs were higher to start with, in effect Mexico made more concessions than we did (although we were giving access to a bigger market.) China is a bit more complicated — arguably the Chinese effectively evade some WTO rules. But even there it’s not obvious what you would demand from a new agreement.

Oh, and China currency manipulation was an issue 5 years ago — but isn’t now.

What about the effects of protectionism? Leave aside Econ 101 gains from trade, and let’s just talk about business interests. The fact is that modern international trade creates interdependence in a way that old-fashioned trade didn’t; stuff you export is often produced with a lot of imported components, stuff you import often indirectly includes a lot of your own exports. Here’s the domestic share of value added in transport equipment:

When we buy autos from Mexico, only about half the value added is Mexican, with most of the rest coming from the US — so if you restrict those imports, a lot of U.S. production workers will be hurt. If we restrict imports of components from Mexico, we’re going to raise the costs of U.S. producers who export to other markets; again, a lot of U.S. jobs will be hit. So even if you completely ignore the effects on consumers, protectionist policies would produce many losers in the U.S. industrial sector.

And Trump can’t ignore consumer interests, either; if nothing else, Walmart employs 1.5 million people in America, i.e., 30 times the total number of US coal miners.

So any attempt on Trump’s part to get real about trade will run into fierce opposition, not from the kind of people his supporters love to hate, but from major business interests. Is he really ready for that?

So far, at least, the Trump trade agenda, such as it is, has involved tweeting at companies, telling them to keep jobs here, then claiming credit for any seemingly job-creating actions they take. And that got him a couple of favorable news cycles. In practice, however, it means little or nothing. And even tweet-and-photo-op policy seems to be fading out: companies that might have wanted to help Trump puff himself up a couple of months ago are likely to be a lot less accommodating to Mr. Can’t-Pass-A-Health-Billl, with his 36 percent approval rating.

All of this suggests that on trade, as on everything else substantive, Trumpism is going to be all huffing and puffing with very little to show for it. But there is one observation that gives me pause — namely, Trump’s growing need to find some way to change the subject away from his administration’s death spiral. Domestic policy is stalled; the Russia story is getting closer by the day; even Republicans are starting to lose their fear of standing up to the man they not-so-secretly despise. What’s he going to do?

Well, the classic answer of collapsing juntas is the Malvinas solution: rally the nation by creating a foreign confrontation of some kind. Usually this involves a shooting war; but maybe a trade war would serve the same purpose.

In other words, never mind economic nationalism and all that. If Trump does do something drastic on trade, it won’t be driven by his economic theories, it will be driven by his plunging approval rating.

Krugman’s blog, 3/20/17

March 22, 2017

There was one post on Monday:  “Robot Geometry (Very Wonkish):”

And now for something completely different. Ryan Avent has a nice summary of the argument in his recent book, trying to explain how dramatic technological change can go along with stagnant real wages and slowish productivity growth. As I understand it, he’s arguing that the big tech changes are happening in a limited sector of the economy, and are driving workers into lower-wage and lower-productivity occupations.

But I have to admit that I was having a bit of a hard time wrapping my mind around exactly what he’s saying, or how to picture this in terms of standard economic frameworks. So I found myself wanting to see how much of his story could be captured in a small general equilibrium model — basically the kind of model I learned many years ago when studying the old trade theory.

Actually, my sense is that this kind of analysis is a bit of a lost art. There was a time when most of trade theory revolved around diagrams illustrating two-country, two-good, two-factor models; these days, not so much. And it’s true that little models can be misleading, and geometric reasoning can suck you in way too much. It’s also true, however, that this style of modeling can help a lot in thinking through how the pieces of an economy fit together, in ways that algebra or verbal storytelling can’t.

So, an exercise in either clarification or nostalgia — not sure which — using a framework that is basically the Lerner diagram, adapted to a different issue.

Imagine an economy that produces only one good, but can do so using two techniques, A and B, one capital-intensive, one labor-intensive. I represent these techniques in Figure 1 by showing their unit input coefficients:

Here AB is the economy’s unit isoquant, the various combinations of K and L it can use to produce one unit of output. E is the economy’s factor endowment; as long as the aggregate ratio of K to L is between the factor intensities of the two techniques, both will be used. In that case, the wage-rental ratio will be the slope of the line AB.

Wait, there’s more. Since any point on the line passing through A and B has the same value, the place where it hits the horizontal axis is the amount of labor it takes to buy one unit of output, the inverse of the real wage rate. And total output is the ratio of the distance along the ray to E divided by the distance to AB, so that distance is 1/GDP.

You can also derive the allocation of resources between A and B; not to clutter up the diagram even further, I show this in Figure 2, which uses the K/L ratios of the two techniques and the overall endowment E:

Now, Avent’s story. I think it can be represented as technical progress in A, perhaps also making A even more capital-intensive. So this would amount to a movement southwest to a point like A’ in Figure 3:

We can see right away that this will lead to a fall in the real wage, because 1/w must rise. GDP and hence productivity does rise, but maybe not by much if the economy was mostly using the labor-intensive technique.

And what about allocation of labor between sectors? We can see this in Figure 4, where capital-using technical progress in A actually leads to a higher share of the work force being employed in labor-intensive B:

So yes, it is possible for a simple general equilibrium analysis to capture a lot of what Avent is saying. That does not, of course, mean that he’s empirically right. And there are other things in his argument, such as hypothesized effects on the direction of innovation, that aren’t in here.

But I, at least, find this way of looking at it somewhat clarifying — which, to be honest, may say more about my weirdness and intellectual age than it does about the subject.

Krugman’s blog, 3/14/17

March 17, 2017

There was one post on Tuesday, “Populism and the Politics of Health:”

What’s next on health care? Truly, I have no idea. The AHCA is a real stinker, and now everyone knows it; ordinarily, that should doom the legislation. But everyone also knows that starting off the Trump legislative era with the crashing and burning of Obamacare repeal would deeply damage Trump; nobody believes what he says, but if he can’t even ram bills through, people will stop being afraid. So they will pull out all the stops.

But why are Republicans having so much trouble? Health reform is hard; but why were the Dems able to pass the ACA in the first place? I’m seeing a lot of talk about Paul Ryan’s inadequacy and Republican lack of preparation as compared with Pelosi and the Dems in 2009, all of which is true. But there’s a more fundamental issue: who is being served?

Obamacare helped a large number of people at the expense of a small, affluent minority: basically, taxes on 2% of the population to cover a lot of people and assure coverage to many more. Trumpcare would reverse that, hurting a lot of people (many of whom voted Trump) so as to cut taxes for a handful of wealthy people. That’s a difference that goes beyond political strategy.

But one way to say this is that Obamacare was and is a truly populist law, while Trumpcare is anti-populist. That’s reflected in the legislative struggles.

And yet, and yet: Trump did in fact win over white working-class voters, who thought they were voting for a populist; Democrats, who did a lot for those voters, got no credit — rural whites, in particular, who were huge beneficiaries of the ACA, overwhelmingly supported the man who may destroy their healthcare.

This ties in with an important recent piece by Zack Beauchamp on the striking degree to which left-wing economics fails, in practice, to counter right-wing populism; basically, Sandersism has failed everywhere it has been tried. Why?

The answer, presumably, is that what we call populism is really in large degree white identity politics, which can’t be addressed by promising universal benefits. Among other things, these “populist” voters now live in a media bubble, getting their news from sources that play to their identity-politics desires, which means that even if you offer them a better deal, they won’t hear about it or believe it if told. For sure many if not most of those who gained health coverage thanks to Obamacare have no idea that’s what happened.

That said, taking the benefits away would probably get their attention, and maybe even open their eyes to the extent to which they are suffering to provide tax cuts to the rich.

In Europe, right-wing parties probably don’t face the same dilemma; they’re preaching herrenvolk social democracy, a welfare state but only for people who look like you. In America, however, Trumpism is faux populism that appeals to white identity but actually serves plutocrats. That fundamental contradiction is now out in the open.

Krugman’s blog, 3/10/17

March 11, 2017

There was one post yesterday, “Smart Republicans?”:

I claim no special expertise in the legislative process. But reading a couple of pieces about what looks like a health care debacle from the good folks at Vox, I have some thoughts about what’s going on — namely, don’t presume that Ryan and company have any idea what they’re doing.

Start with Ezra Klein, who speculates that Ryan has advanced this ludicrous plan in the hope and expectation that it won’t pass. His reasoning is that Ryan is too skilled an operator to get caught off-guard as he seems to have:

Paul Ryan isn’t an amateur. He is, arguably, the most skilled policy entrepreneur of his generation. He is known for winning support from political actors and policy validators who normally reject his brand of conservatism. The backing he’s built for past proposals comes from painstaking work talking to allies, working on plans with them, preparing them for what he’ll release, hearing out their concerns, constructing processes where they feel heard, and so on. He’s good at this kind of thing. But he didn’t put in the work here. And there are consequences to that.

But has Ryan ever put together major legislation with any real chance of passage? Yes, he made a name for himself with big budget proposals that received adoring press coverage. But these were never remotely operational — they were filled not just with magic asterisks — tax loophole closing to be determined later, cost savings to be achieved via means to be determined later — but with elements, like converting Medicare into a voucher system, that would have drawn immense flack if they got anywhere close to actually happening.

In other words, he has never offered real plans for overhauling social insurance, just things that sound like plans but are basically just advertisements for some imaginary plan that might eventually be produced. Actually pulling together a coalition to get stuff done? Has he ever managed that?

What I’d say is that Ryan is not, in fact, a policy entrepreneur. He’s just a self-promoter, someone who has successfully sold a credulous media on a character he plays: Paul Ryan, Serious, Honest Conservative Policy Wonk. This is really his first test at real policymaking, which is a very different process. There’s nothing strange about his inability to pull off the real thing, as opposed to the act.

Meanwhile, Sarah Kliff, in the new VoxCare newsletter, is puzzled by the apparent disagreement among Republicans about what CBO is likely to say:

The only people who have advance access to the CBO numbers are the Republican legislators who actually worked on the bill. They’ve been working with the budget agency for months now to create a score.

But have they really been working with CBO for months? They may have been talking, but was it about anything resembling Obamacare 0.5? Everything else about the AHCA looks slapdash, like something thrown together in a few days by people who hadn’t thought at all about what a flat tax credit and a widened age band would mean for, say, people in Alaska with its expensive insurance, or low-middle-income Trump voters in their 60s. I have no inside information, but this sure looks as if they were still dithering about the whole principle of their Obamacare replacement until at most a few weeks ago, and didn’t work with CBO because they had nothing to work with.

In other words, maybe this looks like amateur hour because it is. Ryan isn’t a skilled politician inexplicably losing his touch, he’s a con artist who started to believe his own con; Republicans didn’t hammer out a workable plan because there is no such plan, and anyway they have no idea what that would involve.

Or to put it another way, this could just be more malevolence tempered by incompetence.

Krugman’s blog, 3/7/17

March 8, 2017

There was one post yesterday, “A Plan Set Up To Fail:”

So now we know what Republicans have to offer as an Obamacare replacement. Let me try to avoid value judgments for a few minutes, and describe what seems to have happened here.

The structure of the Affordable Care Act comes out of a straightforward analysis of the logic of coverage. If you want to make health insurance available and affordable for almost everyone, regardless of income or health status, and you want to do this through private insurers rather than simply have single-payer, you have to do three things.

1.Regulate insurers so they can’t refuse or charge high premiums to people with preexisting conditions
2.Impose some penalty on people who don’t buy insurance, to induce healthy people to sign up and provide a workable risk pool
3.Subsidize premiums so that lower-income households can afford insurance

So that’s Obamacare (and Romneycare before that): regulation, mandates, and subsidies. And the result has been a sharp decline in the number of uninsured, with costs coming in well below expectations. Roughly speaking, 20 million Americans gained coverage at a cost of around 0.6 percent of GDP.

Republicans have nonetheless denounced the law as a monstrosity, and promised to replace it with something totally different and far better. Which makes what they’ve actually come up … interesting.

For the GOP proposal basically accepts the logic of Obamacare. It retains insurer regulation to prevent exclusion of people with preexisting conditions. It imposes a penalty on those who don’t buy insurance while healthy. And it offers tax credits to help people buy insurance. Conservatives calling the plan Obamacare 2.0 definitely have a point.

But a better designation would be Obamacare 0.5, because it’s really about replacing relatively solid pillars with half-measures, severely and probably fatally weakening the whole structure.

First, the individual mandate – already too weak, so that too many healthy people opt out – is replaced by a penalty imposed if and only if the uninsured decide to enter the market later. This wouldn’t do much.

Second, the ACA subsidies, which are linked both to income and to the cost of insurance, are replaced by flat tax credits which would be worth much less to lower-income Americans, the very people most likely to need help buying insurance.

Taken together, these moves would almost surely lead to a death spiral. Healthy individuals, especially low-income households no longer receiving adequate aid, would opt out, worsening the risk pool. Premiums would soar – without the cushion created by the current, price-linked subsidy formula — leading more healthy people to exit. In much of the country, the individual markets would probably collapse.

The House leadership seems to realize all of this; that’s why it reportedly plans to rush the bill through committee before CBO even gets a chance to score it.

It’s an amazing spectacle. Obviously, Republicans backed themselves into a corner: after all those years denouncing Obamacare, they felt they had to do something, but in fact had no good ideas about what to offer as a replacement. So they went with really bad ideas instead.

Krugman’s blog, 2/24/17

February 27, 2017

There was one post on Friday, “Maid In America:”

Update: Searle, not Seattle. Damn spellcheck (or maybe the AI was making a Microsoft joke?)

Izabella Kaminska has a thought-provoking piece on the real effects of technology on wages, in which she argues that much recent innovation, instead of displacing manual workers, has displaced high-paying skilled jobs. As it happens, I sort of predicted this 20 years ago, in a piece written for the Times magazine’s 100th anniversary (authors were asked to write as if it was 2096, and they were looking back.)

I argued then that menial work dealing with the physical world – gardeners, maids, nurses – would survive even as quite a few jobs that used to require college disappeared. As it turns out, big data has led to more progress in something that looks like artificial intelligence than I expected — self-driving cars are much closer to reality than I would have thought, and maybe gardening robots and post-Roomba robot cleaners will follow. Still, the point about the relative displacement of cognitive versus manual jobs seems to stand.

An aside: given the way Google Translate and such work, Seattle’s Searle’s Chinese Room Argument doesn’t look as foolish as I used to think it was.

Anyway, Kaminska’s point about the disruptiveness of such technological change is something we should take seriously. After all, it has happened before. The initial effect of the Industrial Revolution was a substantial de-skilling of goods production. The Luddites were, for the most part, not proletarians but skilled craftsmen, weavers who constituted s sort of labor aristocracy but found their skills devalued by the power loom. In the long run industrialization did lead to higher wages for everyone, but the long run took several generations to happen — in that long run we really were all dead.

So interesting stuff. I’d note, however, that it remains peculiar how we’re simultaneously worrying that robots will take all our jobs and bemoaning the stalling out of productivity growth. What is the story, really?