Friday, September 20, 2013

Free Trade And Inequality

Matt Yglesias has a great piece up about emerging trends that show that free trade might not be a universal good. The standard theory among most economists is that while free trade between nations might cause concentrated job losses and economic trouble for a few (like auto workers lay off is Detroit because of imported cars) there will be broadly diffused gains from more commerce, economies of scale, opening foreign markets etc. But what the new research is showing is that more than just causing job losses in certain industries, free trade has caused a shift in the balance of power between labor and capital in capital’s favor. As Matt Puts it, “the labor share of national income has fallen because many more industries are exposed to foreign competition in a way that's systematically advantaged the owners of capital.”

Obviously we need to wait for more data before this can be confirmed but it does seem to vindicate the political rhetoric of people like Ross Perot and Dick Gephardt. Free trade does in fact “ship jobs oversees” and even worse it makes it harder for people whose jobs stay in the US to bargain for more wages and benefits.

More broadly this seems to be evidence that when we talk about “inequality” we are talking about more than the fact that Steve Jobs has more money than God or we’ve seen stagnant wage growth for the middle class over the last few decades. We are talking about a shift in the political economy of American society that puts more and more power in the hands of owners of capital and less and less in the hands of the vast majority of American workers. So any policy designed to deal with inequality can’t just be about the old liberal tried and true method of raising taxes on the wealthy to pay for more public services or transfer payments to the poor (although doing that is still very important). We have to look for policies that will transfer bargaining power from owners of capital back to labor.

I imagine a million labor activists and occupy people are now saying “see, I told you so” to neoliberal sell outs like me. And in some ways they have a point. But I would also stress that we should be looking for new policies to deal with this new situation. So taxing the rich to pay for early childhood education Bill de Blasio style is a great idea, and by all means let’s find ways to make it easier to join a union, but we can’t stop there as those policies have, at best, only slowed this trend over the last few decades. So we should be looking at ways to make our monetary policy honesty strive for full employment because jobs are great but also because tight labor markets give power to labor in bargaining over wages by definition. We should try and reform banks and Wall Street but also acknowledge that a social policy that rewards going massively into debt to buy a big house, i.e. American housing policy since World War 2, is going to structurally empower capital by putting most people massively in debt to banks.

Basically our regular liberal policies of tax and spend and more regulations is probably not enough to change growing inequality and we need to be looking for new and novel ways to tackle this problem.

Tuesday, September 17, 2013

The Problem With Economic Debates And St. Elsewhere

I really liked Jonathan Chait's look back at the "resolution" of all those debates economists were having over the last few years.  As he sees it, and I'd have to agree, a whole slew of conservative ideas about economics were proven completely false by events over the past few years, with the biggest one probably being the claim that government austerity will lead to growth. But this hasn't resulted in conservatives and their intellectual leaders changing their theories about how the economy works or embracing new policies in practice. Instead they simply don't bother to defend their ideas anymore. Meanwhile the demands for more austerity have, if anything, gotten louder:
Meanwhile, however Republicans resolve their long-term vision debate, they have coalesced around a short-term vision. It is to repeal Obamacare without a replacement, maintain short-term austerity, weaken labor laws, loosen financial regulation, and defend every tax deduction enjoyed by the affluent. I don’t see how this policy mix could be remotely defended in light of actual circumstances. Almost nobody on the right seems to want to defend it. But nobody seems interested in placing even the slightest pressure on the Congressional party to alter its stance, either.
I think that sums it up almost perfectly.

I guess one of the core problem here is that the discipline of economics is still gripped by the ideal that it should aspire to be a value neutral technical science, like chemistry or something, while the bigger political and moral questions about what we want an economy to do are ignored. But of course those questions don't go away just because you choose not to answer them. So instead of creating a value neutral scientific system of economics we've created a system where actors with political goals, like weak labor markets or less state involvement in market outcomes, can pretend to be value neutral "experts" using whatever argument they can find to advocate for a conservative policy agenda that transfers wealth from the poor to the rich and power from labor to capital. It's a huge problem for economics, I don't see many people addressing it.


Over at The Good Men Project I wrote about why Obama should take his case about strikes in Syria to Congress, dismissed the silly idea that recent events vindicated Mitt Romney somehow, talked about how incredibly shallow much of the media coverage over the crisis in Syria has been, and looked at the future of gun control in the wake of two recall elections in Colorado.

Monday, September 9, 2013

Jannet Yellen And The Soft Bigotry Of Low Monetary Policy Expectations

I've found the debate over who Obama should appoint to be chair of the Federal Reserve to be quite fascinating. The contest has basically boiled down to being between Janet, Yellen the current Fed vice chair, and Larry Summers formerly of the White House economic team and Harvard University.  Unfortunately for us, the discussion itself has been notably free of content in the liberal blogosphere. Basically everyone except Brad Delong thinks Summers is history's greatest monster either because he once said something that made the faculty at Harvard mad and/or he once worked with with Robert Rubin. We are then told that Yellen would be much better because she's "more qualified" (whatever that means) and also because nominating her will fix some messy issues around identity politics for the Obama Administration. Meanwhile very little at all is said about her views or record on monetary policy itself, the most important part of being chair of the Fed.   

What strikes me about this whole argument is that we liberals have concocted a terrible way to debate who should become one of the most powerful people in the world.

Some smart progressives have been pointing out for a while that we basically ignore the Federal Reserve system even though it holds enormous clout when it comes to controlling the American economy and thus a variety of policy outcomes that we liberals care about (including who wins elections). It largely does this by controlling monetary policy (a phrase that only appears in Amanda Marcotte's anti-Summers article once, in a quote where we learn that "[Yellen is] very knowledgeable about monetary policy.") In short the chair exercises enormous influence on the Fed's board o' governors that sets the interest rate in the American economy through a variety of policy tools. By lowering interest rates the Fed can general encourage the economy to grow, and in certain times of high growth that can encourage inflation. The Fed can conversely raise interest rates which in turn can cut back on inflation, but this also have a tendency to slow and economy or start a recession by making it harder for business and consumers to get credit. In theory the Fed has a "duel mandate" to reduce unemployment and keep inflation low, but in recent years they don't really act like that at all.

While the Fed (and a lot of people in the press) likes to portray itself as a "neutral" entity with all our best interests at heart that does things to manage the economy like a "maestro", the reality is quite different.

In fact in Anderson's Concise History of the Federal Reserve Since Greenspan we can read the story of two Fed chairs not acting like highly qualified geniuses controlling the economy, but rather political actors working in a political system. As Anderson explains, we recently have had two pretty bad Fed Chairs who are terrible in altogether different ways. Noted Ayn Rand follower Alan Greenspan decided in the late 90's to "cool the economy" i.e. cause a recession to make sure the Democrats lost the White House pop a dangerous bubble because of "irrational exuberance." Then the Maestro did an about face in the early aughts and kept rates at record lows to make sure Bush got re-elected fight the terrorists. While this succeed in wining the election not having the American economy go off a cliff after 9/11, it unfortunately laid the ground work for the creation of the American housing bubble, one of the biggest speculatory bubbles in world history. After Greenspan left Ben Bernanke failed to deal with the bubble until it popped and nearly destroyed the world economy. Fortunately Uncle Ben was able to keep the great white ship, the SS Wall Street Banks, off the rocks during the grim days of late 2008 and early 2009. Unfortunately for the rest of the American people his response to deal with unemployment and a shrinking economy since then has been woefully inadequate. This resulted in the American people suffering years of high employment, slow growth, pain and misery. Oh and since 2010 he's been assisted in crafting his timid and far to weak response to this "Lesser Depression" but his able deputy, one Janet Yellen. And all this happened despite the fact that Bernanke was considered "the most qualified" person for the job.  Which is a round about way of saying that the Fed's monetary policy is very important and the "how" and "why" of the manner in which one creates the Fed's policy can be more important than the "qualifications" on one's "resume".

Which brings me to the problems of liberal commentary on Summers and Yellen. While tens of thousands of words have been written on the subject, the question of how each would employ monetary policy (to what ends? for whose benefit?) has largely been ignored by liberals. A typical New York Times anti-Summer editorial uses the phrase monetary policy only once, in a paragraph not about monetary policy at all:
Mr. Summers’s reputation is replete with evidence of a temperament unsuited to lead the Fed. He is known for cooperation when he works with those he perceives as having more power than he does, and for dismissiveness toward those he perceives as less powerful. Those traits would be especially destructive at the Fed, where board members and regional bank presidents all bring their own considerable political power and intellectual heft to the Fed’s decision-making on monetary policy and financial regulation. Putting Mr. Summers in charge would risk institutional discord or worse, dysfunction. 
So basically Summer's shouldn't get the job because he might say something that hurts the feelings of the hard money people on the Fed's board of governors who have been arguing for higher interest rates and tighter money (and thus less growth and higher unemployment) to stop non-existent inflation. This sort of discussion is like trying to pick a presidential nominee based on musical tastes, not only is it irrelevant, but it distracts from the important questions about the position that should be being asked.

As I see it, there wouldn't be much policy difference between these two. Both are brilliant center-left economists with longstanding ties to the Democratic Party. Both would focus on lowering unemployment as their main goal over stopping non-existent inflation. And while their styles and personalities may differ, it's hard to know whether these differences would be better or worse for the American public. Summer's rougher style might alienate allies and make his job harder, but then again a swift kick in the pants might get the Fed to start actually addressing unemployment in a meaningful way. Meanwhile Yellen might change the direction of the Fed, or she she might turn out to be full of the same weakness and moral cowardice that have been driving Bernanke's "two steps forward, one step back" policy for years now. There's no way to tell, we'll have to wait and see.

But when it comes to the liberal project in general it really is frustrating to see so many smart people ignoring monetary policy and what the Fed actually does for the same warmed over meal of accusations of sexism and hatred of Robert Rubin. Full employment really could transform American society in more ways than one, but too many liberals seem to not understand this, or just not care. This makes me sad.

Saturday, September 7, 2013

AIPAC And St. Elsewhere

A big question to think about when it comes to the political reality of potential strikes in Syria is the solidity of public opinion opposing them. As far as I can tell there are no major organized interests backing the opposition even if it is the majority of public opinion. But there are influential groups supporting intervention, for example AIPAC is planing a full court press supporting intervention starting Monday. It will be interesting to see what happens considering there is normally so little daylight between AIPAC and most Republicans, and Democrats for that matter. Historically organized groups beat big trends in public opinion when it comes to squeezing Congress, so it will be interesting to see if that holds true. At the very least, Obama will be in for a tough sell when it comes to convincing Congress, which strikes me as being a good thing.


Over at the Good Men Project I talked about Maine's kooky Republican governor, why Chris Christie can't afford to skip Iowa and how terrible the GOP still is at reach out to minority voters. You should read those pieces and like them on the facebooks and such.

Wednesday, September 4, 2013

The Doom Of Republican Economic Policy

The New York Times had some really great reporting today about the reality and politics of the federal government's SNAP (formally food stamps) program. It's a great portrait of people struggling at the fringes of American life in rural Tennessee including a 20 year old mechanic unable to find steady work to support himself, wife and one year old son, a woman who left her job in slaughterhouse after she got cancer (she get's the most at a whopping $352 a month to support a family of four) and a 62 year old former welder who can't work anymore because of lupus, this lucky ducky get's a $125 per month.

Juxtaposed to this is the new and improved Republican Party which is now making gutting SNAP, and other benefits like it, a high priority. As one Heritage Foundation scholar quoted in the article puts it, “I think food stamps have in the Republican mind become the symbol of an out-of-control, means-tested welfare state.” A standard bearer in this new struggle just happens to be the member of Congress that represents these folks:
Surrounded by corn and soybean farms — including one owned by the local Republican congressman, Representative Stephen Fincher — Dyersburg, about 75 miles north of Memphis, provides an eye-opening view into Washington’s food stamp debate. Mr. Fincher, who was elected in 2010 on a Tea Party wave and collected nearly $3.5 million in farm subsidies from the government from 1999 to 2012, recently voted for a farm bill that omitted food stamps. 

“The role of citizens, of Christianity, of humanity, is to take care of each other, not for Washington to steal from those in the country and give to others in the country,” Mr. Fincher, whose office did not respond to interview requests, said after his vote in May. In response to a Democrat who invoked the Bible during the food stamp debate in Congress, Mr. Fincher cited his own biblical phrase. “The one who is unwilling to work shall not eat,” he said. 
When someone get's $125 to buy food it's a national tragedy. We someone get's $3.5 million in farm subsidies, it's a statistic. 

This article got me think about an old Matt Yglesias article about a similar problem facing the GOP when it comes to raising the minimum wage. Basically the argument goes like this, the Republican Party knows it continual embrace of unpopular economic policies is costing it at the ballot box and making it harder to win elections. But the hardline nature of modern conservatives and conservative organizations makes it impossible to embrace any practical solutions to things like poverty, food scarcity or rising inequality. To paraphrase Yglesias this is not because there are no conservative thinkers with policies about how to tackle these problems, but because none of those policies is going to be embraced in practice by Republican politicians. For one because if they are, those politicians would get RINOed. And second because as Ayn Rand taught us long ago, taking from the rich to give to the poor isn't just bad policy, it fundamentally morally evil and thus can never be accepted.

Now Republicans could of course respond to this by promoting their own ideas about how to help struggling families. They could embrace Milton Friedman's idea of a negative income tax, or a higher earned income tax credit, or a bigger tax deduction for dependents, or any other policy you'd like to suggest. But of course they won't, for the reasons outlined above. Meanwhile some politicians will keep trying to throw up smoke screens about how they are "concerned about these issues" and that's probably the best the GOP can hope for. Meanwhile we'll be stuck with the same you-didn't-build-that/47%/Lucky-Duckies GOP we've had for a quite a while.