Economics

The Earthquake in International Alliances

Published by Anonymous (not verified) on Tue, 23/10/2018 - 11:00am in

Eric Zuesse America’s international alliances are transforming in fundamental ways. The likelihood of World War III is increasing, and has been increasing ever since 2012 when the U.S. first slapped Russia with the Magnitsky Act sanctions. In fact, one matter driving these changing alliances now toward unprecedented realignments is that some nations’ leaders want to do whatever they can to prevent WW III. On October 17th, America’s Military Times bannered “Why today’s troops fear a new war is coming soon” and reported, “About 46 percent of troops who responded to the anonymous survey of currently serving Military Times readers said they believe the U.S. will be drawn into a new war within the next year. That’s a jarring increase from only about 5 percent who said the same thing in a similar poll conducted in September 2017.” Their special fear is of war against Russia and/or China: “About 71 percent of troops said Russia was a significant threat, up 18 points from last year’s survey. And 69 percent of troops said China poses a significant …

Funding the NHS

Published by Anonymous (not verified) on Tue, 23/10/2018 - 4:04am in

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Economics, NHS

This just turned up on my Twitter timeline . It was recorded a year or more ago. But it is still totally relevant:

 

Why so-called​ deficits​ are economic necessities

Published by Anonymous (not verified) on Mon, 22/10/2018 - 6:45pm in

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Economics

We are not going to get out of the economic doldrums as long as we continue to be obsessed with the unreasoned ideological goal of reducing the so-called deficit. The “deficit” is not an economic sin but an economic necessity. […] The administration is trying to bring the Titanic into harbor with a canoe paddle, […]

Trump’s Continued Collision With the Federal Reserve

Published by Anonymous (not verified) on Mon, 22/10/2018 - 5:55pm in

Back around Trump’s election, I said that there would be a collision between him and the Federal Reserve. At the time, it was run by Yellen.

The fact is that the people who elected Trump aren’t feeling good. To make them feel good, Trump is going to have get the official unemployment rate lower than it is now, at least under four percent, and hopefully to three percent or lower and hold it there for some time, at least two or three years.

This stuff takes time to ripple through the economy, and it takes time for a tight labor market to push employers to both raise wages and to hire people who they consider marginal.

If the Federal Reserve raises rates if/when Trump’s policies (“fiscal,” in the above) start to work, they will be making sure he can’t deliver to his constituency.

This is a direct collision course.

Now let me say something simple. The Federal Reserve, for over 30 years, has deliberately crushed wages. This was policy. Policy.

So, Trump hired Powell, and Powell is doing what Yellen would have done. Trump, on October 11th, said that he wouldn’t fire Powell, but was only disappointed.

It’s unclear whether or not Trump can fire Powell, however he can fire all other members of the Federal Reserve board for non-performance of duties.  The case isn’t as clear as back in, say, 2009, but the economy still isn’t good for large parts of America, so it can certainly be made.

More to the point, Trump should.

Yes, Trump is the source of all evil and anything and everything he does should be opposed, I know, but bear with me: the Federal Reserve should not be insulated from pressure from elected officials.

I know that orthodoxy says it should, but the fact is that since 1979 the Federal Reserve has raised interest rates whenever it looked like wages were going to rise faster than inflation. The Federal Reserve, in other words, has crushed wages.

This is bad. It is at the heart of why we have the rise of the right, and so many other problems. Vast inequality, in democracies, always leads to political instability, and in democracies the purpose of the economy should be to create a good life for everyone anyway.

Trump ain’t a good guy, but wages aren’t increasing for ordinary people. That means that whatever the nominal unemployment rate is, the US isn’t actually at full employment. If it was, there would be rising wages. It is that simple. To raise interest rates before there are even significant wage increases is malpractice, even by the usual standards of monetary policy—and the usual standards are malpractice.

Just because one despises Trump, one should not allow the major part of economic management be run by people who despise ordinary people having wage increases, or, indeed, by “independent bodies.” Democracy means elected officials having control over real policy.

So I hope Trump fires a bunch of Federal reserve members, I hope it goes to the Supreme Court, and I hope that those firings are upheld.

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On Tariffs and Speaking to the Public

Published by Anonymous (not verified) on Sat, 20/10/2018 - 2:09am in

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Economics

We economists have traditionally made innumerable criticisms of the inefficiency of various policies, criticisms which have often been to their own (and my own) utter satisfaction. The meager success of these criticisms in changing these policies, I am convinced, stems from the fact that more than narrow efficiency has been involved in almost every case- that inexplicit or incomprehensible goals were served by these policies and served tolerably efficiently. Tariffs were redistributing income to groups with substantial political power, not simply expressing the deficient public understanding of the theory of comparative costs. We live in a world that is full of mistaken policies, but they are not mistaken for their supporters.--GJ Stigler (1980) Economics or Ethics, The Tanner Lectures on Human Values, p. 155.

A few months ago, an open letter (organized by the national taxpayer union) with 1100 signatures by economists and 15 Nobel laureates (maybe more now) was released. Most of the letter consists of a block quote from (yet) another letter dating from 1930,when "1,028 economists urged Congress to reject the protectionist Smoot-Hawley Tariff Act." It is a tempting occasion to start lamenting the folly of the world and the eternal return of the lack of respect for the wise and virtuous or expert opinion. The temptation is strong to lecture readers on the truism that our own times are less distinctive than we, who are living it, may well imagine. 

Even so, I won't succumb to temptation today, because I was struck by two questions: (i) why repeat a speech act that failed miserably the first time? (ii) Had economics (or the consensus within it) not advanced such that no new arguments could be articulated at all?* The central claim of the new letter is "not to repeat" the "mistake" of the past.  Below I re-print the bits copied of the 1930 letter.

The idea that economists are doomed to live in "mistake-prone world" is deeply ingrained in the DNA of the profession; it is useful to my present purposes that it was already mocked relentlessly in Stigler's (1980) Tanner lectures. (Stigler, a Nobel laureate, was one of the leading Chicago economists of the previous century.) He makes two arguments: first, the claim presupposes that the economists and the politicians (and their supporters) share the same goals/values (that is, efficient use of resources, etc.); second, that politicians (and supporters) do not grasp the consequences of their actions.  Drawin on ideas developed in public choice (and his own work on regulatory capture), Stigler makes mince meat of the second claim. It is notable that he does not pause the reader to inform them he had defended the first claim (recall that  a consensus of ends among economists and society is presupposed in economics). 

The idea that we live in a mistake-prone is relentlessly promoted by those that see President Trump as a dangerous fool (or worse). I have no doubt that he is badly informed on lots of things, but he is also a very shrewd politician. Tariffs have foreseeable income effects, and the President is making a calculated bet that these will help those he wishes to help among his well-organized supporters and friends. (The previous sentence is compatible with the further thought, which I have relentlessly emphasized (recall here and here), that he thinks of the world in zero-sum terms.) 

Unsurprisingly, the letter by this generation's economists has had little more influence than their esteemed (but Nobel-free) predecessors. What is most remarkable about both these letters is that they refuse to name the fact that there are political winners from tariffs and, more important, to name who these may be. (That's most remarkable because the economists are the experts who can tell us this!) I mention this because that's the politically salient fact that gets ignored by both letters.** 

I am not suggesting that the economists would be more effective if they told us what we needed to know to understand our own political situation better. But they can hardly be less effective than they are now.

 

We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens.

Few people could hope to gain from such a change. Construction, transportation and public utility workers, professional people and those employed in banks, hotels, newspaper offices, in the wholesale and retail trades, and scores of other occupations would clearly lose, since they produce no products which could be protected by tariff barriers.

The vast majority of farmers, also, would lose through increased duties, and in a double fashion. First, as consumers they would have to pay still higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy. Second, as producers, their ability to sell their products would be further restricted by barriers placed in the way of foreigners who wished to sell goods to us.

Our export trade, in general, would suffer. Countries cannot permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.

Finally, we would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. A tariff war does not furnish good soil for the growth of world peace.

 

 

*On the second, I have sometimes wondered if the policy relevant bit of economics has advanced much in the last half century or really all that much beyond the ancient wisdom of Mencius and Ibn Khaldun: ensure impartial justice, keep taxes low, create minimal safetynet, etc.  

**I am not sure it's true, but my impression is that both China and the EU have retaliated against industries that are concentrated in areas where Trump voters live. This may seem satisfying, but my hunch (take that for what it's worth) is that this may well entrench support for the President. 

Coalition’s hands-off housing policy points to 2019 election defeat

Published by Anonymous (not verified) on Fri, 19/10/2018 - 4:17pm in

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Economics

A combination of real wage growth, targeted land release, and reforms to negative gearing and capital gains concessions would deflate median prices.

What the Fed changes and what the Fed doesn’t

Published by Anonymous (not verified) on Fri, 19/10/2018 - 10:45am in

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Economics

■ The Fed tells us that the US growth this year will be higher at 3.1% but rates will still peak at 3.4% in 2020.

Will Hutton’s speech to Wales for Europe: three key points

Published by Anonymous (not verified) on Fri, 19/10/2018 - 7:46am in

Last night, Will Hutton gave a passionate and powerful speech to a Wales for Europe gathering in Cardiff.  The event had been scheduled to include Andrew Adonis, and was focussed around their book Saving Britain; in the event, rail chaos at Paddington meant that he was unable to attend.

IMG_2291_1

Much of the material in Hutton’s address was drawn from that book, and similar to his talk to the Cardiff Book Festival in the Summer (and which I blogged about at the time). In particular he argued passionately about how those areas that voted for Brexit were those that had been left behind by successive economic and social failures that were made, not in Brussels, but in Westminster.   However, there were three key points that bear repetition.

First, Hutton was scathing about the idea of a WTO-based Brexit (and scathing, too, about the political journalists who keep repeating this as an option).  He pointed out that in leaving the EU – and in particular the customs union and single market – we were not just jeopardising trade relations with the 27 other members of the EU, but all the states that already had trading relationships with the EU; 88 nations in total, amounting to around 50% of world GDP.  Because of this, the EU anchored the world trade system.  The WTO was ineffectual, had no enforcement powers, and was essentially a tribunal of judges with  President Donald Trump blocking the appointment of a successor; it had no real power whatsoever.  Moreover, the three biggest economies with whom the Government is looking to establish a trading relationship are China and the US – both of whom are adopting policies of extreme protectionism – and India, which was both reluctant to open up its markets in those service sectors in which the UK was strong, and would demand a degree of freedom of movement of its citizens which would be wholly incompatible with the Brexiters’ aims of controlling borders.  Moreover, because of its dominant role in the world trade system, the EU was in effect the world’s standard-setter – a fact that is not lost on some US politicians who complain that measures such as the GDPR, adopted by organisations like Microsoft and Google, were unacceptably constraining US businesses. But by leaving the EU, the UK was giving up its voice; a voice that had been heeded, with the UK view prevailing in more than 90% of negotiations about standards.

In other words, the idea that Brexit could make the UK freer, more prosperous and able to strike trade deals around the world was, to use Hutton’s word, “risible”.  But one searches in vain for any serious discussion of these points in the media.

Second – and a point that I have argued in the past, but needs to be emphasised more strongly than ever:  the fight against Brexit is a fight for liberal enlightenment values, against nativism and crypto-fascism.  It is a fight against post-truth politics of both the right and left.  For all the transactional arguments about how Brexit will make people worse off, it’s essential to realise that this is a debate about the sort of political culture in which we want to live.

Third – defeating Brexit is not enough.  The Brexit vote was the result of failures in our own domestic politics, especially austerity and inequality; those areas that have been left behind, in particular the towns and the coastal communities, were precisely those that voted for Brexit.  So it is absolutely incumbent on those of us who are opposing Brexit to understand that we need to be bold about changing our economic settlement.  Hutton argues for a purposeful, socially responsible capitalism, in which corporate governance is reformed to allow employees and communities a stake in their running and profits.  He argued that the best companies already do this; and that this is mainstream within the EU, going with the grain of EU policy (which has long upheld the rights of trade unions and of employees to have a real role in shaping the decisions of the companies that employ them).  He argued that the opposition of private and public that has dominated political debate for Britain since the days of Thatcher is futile; both have a vital role to play.  And the devolution of power is essential.

Will Hutton described Brexit as the biggest political crisis of his lifetime.  But that is not just because of the facts of Brexit; I’d argue that it is about what Brexit represents – the final, desperate fling of the Thatcherite project.  It is why anyone who calls themselves a democratic socialist should be opposing Brexit with every breath in their body; Brexit is a state of mind that is rooted in nationalism, elitism, and austerity – things that every democratic socialist should oppose.  Defeating it is essential, but it is only the starting point.

Photograph (c) Neil Schofield-Hughes

Out of steam

Published by Anonymous (not verified) on Thu, 18/10/2018 - 5:58pm in

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Economics

This is fair warning: I have run out of steam and blogging is going to have low priority over the next few days.

I have new work on the tax gap to finish in draft and then a few days off with my sons to share. If there are fewer blogs and slow moderation on those that I post, please accept my apologies in advance. Sometimes batteries need recharging. I expect to be back in full action in the middle of next week.

Ricardian vice

Published by Anonymous (not verified) on Thu, 18/10/2018 - 3:50am in

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Economics

Ricardo’s … interest was in the clear-cut result of direct, practical significance. In order to get this he cut that general system to pieces, bundled up as large parts of it as possible, and put them in cold storage — so that as many things as possible should be frozen and ‘given.’ He then piled […]

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