Friday, February 14, 2014

Faking It

Three somehow related stories of the day:
1. Brent Bozell’s Media Research Center is an important part of the machinery that has, for the most part, successfully intimidated the news media into adopting a right-wing slant. (I’ve faced mass mailings, concerted attacks on my university email, and so on.) But Jim Romenesko finds something interesting: Bozell doesn’t write his own columns or books, forcing a staffer to do it.
2. The Koch brothers have been running ads in Louisiana with distressed citizens facing ruination from Obamacare. But the people in the ads are all paid actors.
3. Best of all is the news from The Can Kicks Back, which is a Bowles-Simpson-run outfit that was supposed to be the youth arm of Fix the Debt. It has always been an astroturf operation, and aclumsy one at that, doing things like hiring dancers to stage fake flash mobs and placing identical ghostwritten articles in college newspapers. Now, The Can Kicks Back’s campaign against debt is running into trouble, because it’s, um, running out of money.
What these stories have in common is that they show how much of what passes for genuine expression of public concern is really just a bought and paid-for (or, in the case of The Can, not sufficiently paid-for) front for plutocratic priorities.

Stupidity in Economic Discourse

Jonathan Gruber is mad as hell, and he’s not going to take it anymore. The eminent health care economist and health reform architect is annoyed at Casey Mulligan’s latest, which misrepresents Gruber’s views; mine too.
Gruber is right to be mad: that was a disgraceful, deceptive column. But I think you also want to put it into a larger picture: the enduring myth of the stupid progressive economist.
So about Mulligan: As Gruber documents, he pulls multiple fast ones, asserting things that he says are conclusions of the CBO report when they aren’t — they’re his own views, pulled out of, um, thin air, or maybe someplace else, which he is projecting onto the budget office to make them seem authoritative.
Beyond that, Mulligan tells his readers that both Gruber and I are too dumb or craven to admit that the disincentives to work created by some aspects of the Affordable Care Act impose economic costs. One suspects that Mulligan didn’t actually read either of the pieces he links to. If he had, he would have found this from Gruber:
But the likelihood of voluntary reductions in work is not the only issue. The CBO also projects work reduction by individuals who cut back on hours or avoid moving up the job ladder because they don’t want to lose Medicaid eligibility, or because they don’t want to make so much in wages that they would lose tax credits to help pay insurance premiums. Unlike voluntary job leaving, this second kind of work reduction would entail real economic distortions and be a cost, not a benefit.
And this from me:
Just to be clear, the predicted long-run fall in working hours isn’t entirely a good thing. Workers who choose to spend more time with their families will gain, but they’ll also impose some burden on the rest of society, for example, by paying less in payroll and income taxes. So there is some cost to Obamacare over and above the insurance subsidies. Any attempt to do the math, however, suggests that we’re talking about fairly minor costs, not the “devastating effects” Mr. Cantor asserted in his next post on Twitter.
So both of us acknowledge that there are incentive effects and that they have a cost; but both of us argue on quantitative grounds that the cost isn’t large. Hardly the doctrinaire liberalism Mulligan thinks he sees.
Oh, and bonus misrepresentation: Mulligan:
Paul Krugman goes even further and calls it “misrepresentations” to interpret the marginal tax rate provisions of the Affordable Care Act as destructive.
No, I didn’t — I called talk about “2 million jobs destroyed” a misrepresentation, because it is. Who says so? The CBO itself.
On to the broader point. What one sees in this particular Mulligan piece is something I encounter all the time, in many contexts: the myth of the stupid progressive economist.
It works like this: Conservatives in general, and conservative economists in particular, often have a very narrow vision of what economics is all about — namely supply, demand, and incentives. Anything that interferes with the sacred functioning of markets or reduces the incentive to produce must be a bad thing; any time a progressive economist supports policies that don’t fit neatly into this orthodoxy, it must be because he doesn’t understand Econ 101. And conservative economists are so sure of this that they can’t be bothered to actually read what the progressives write — at the first hint of deviation from laissez-faire, they stop paying attention and begin debating with the stupid progressive in their mind, not the real economist out there.
As a result, many conservatives seem utterly unable to take on board the notion that people like Jon Gruber or yours truly might understand Econ 101, but also believe with good reason that you need to go beyond that point.
On the health care issue: yes, there are incentive effects — as there are with all insurance, by the way. But there’s also good reason to believe that there’s a major market imperfection in the form of job lock, and that even aside from this, there are important benefits to expanding health insurance that must be weighed against any costs. All of that is, in brief, in both of the pieces Mulligan denounces, and there at much greater length in our other writings; but as so often happens, conservatives develop problems of reading comprehension whenever such issues come up.
I’ve encountered similar responses on many other issues. You say that deficit spending is helpful in a depressed economy? You must be saying that deficits and bigger government are always good, which is stupid hahaha. You say that increasing unemployment benefits in a demand-constrained economy can create jobs? But you also said once upon a time that unemployment insurance can raise the natural rate of unemployment, so you’re stupid hahaha.
Well, somebody’s being stupid, anyway.
I can’t resist going back to the 2009 debate over stimulus, when one after another, prominent conservative economists dismissed calls for a temporary increase in spending as being clearly stupid and/or corrupt, because accounting identities, or maybe the effect of expected future taxes, clearly showed that stimulus made no sense. Along the way these notables reinvented classic conceptual errors from 80 years ago and added a few new howlers too; yet their faith in the proposition that progressive economists must be idiots never wavered.
But then John Stuart Mill knew all about this.

A World-Changing Discussions

No, there’s nothing wrong with my headline. I’ve been walking around NYC today, and there are ads for the Wall Street Journal telling you that $1 can buy you either a 4-minute phone call or “a world-changing discussions”.
The first item for discussion, one suspects, is the difference between singular and plural — or maybe the trouble with gratuitous articles. Or maybe, now that I think about it, why you shouldn’t let your cat write your ad copy.

Friday Night Music: Suzanne Vega

Update: And that was excellent: Sarah Neufeld of Arcade Fire with Colin Stetson of Bon Iver ,performing Neufeld’s compositions. Virtuosic violin aside, who knew that Neufeld had such a lovely voice? And in the last piece, Stetson gave a spectacular demonstration of circular breathing.
I’m off to dinner soon, then a concert, so I need to post this early. I was reading the glowing review of Suzanne Vega’s Barbican concert in the FT, wondered whether there were any recent videos, and sure enough, this wonderful Tiny Desk Concert was there to greet me.
There was a time in the late 80s/early 90s when Vega’s songs were the soundtrack to my life. Nobody writes more powerful and poetic lyrics. And she has lost none of her performing skills:

Top 20 US Metro Economies

1New York-Northern New Jersey-Long Island, NY-NJ-PA$1,335.1Spain$1,322.1
2Los Angeles-Long Beach-Santa Ana, CA$765.7Netherlands$770.1
3Chicago-Joliet-Naperville, IL-IN-WI$571.0Iran$551.5
4Washington-Arlington-Alexandria, DC-VA-MD-WV$449.7Belgium$483.4
5Houston-Sugar Land-Baytown, TX$446.9Argentina$477.0
6Dallas-Fort Worth-Arlington, TX$418.6Austria$394.4
7Philadelphia-Camden-Wilmington, PA-NJ-DE-MD$364.0Venezuela$382.4
8San Francisco-Oakland-Fremont, CA$360.4Colombia$369.8
9Boston-Cambridge-Quincy, MA-NH$336.2Denmark$314.9
10Atlanta-Sandy Springs-Marietta, GA$294.0Singapore$276.5
11Miami-Fort Lauderdale-Pompano Beach, FL$274.1Chile$268.3
12Seattle-Tacoma-Bellevue, WA$258.8Egpyt$254.6
13Minneapolis-St. Paul-Bloomington, MN-WI$218.5Pakistan$215.1
14Detroit-Warren-Livonia, MI$208.4Ireland$210.6
15Phoenix-Mesa-Glendale, AZ$201.7Kazakhstan$202.6
16San Diego-Carlsbad-San Marcos, CA$177.4Ukraine$176.3
17San Jose-Sunnyvale-Santa Clara, CA$173.9New Zealand$171.2
18Denver-Aurora-Broomfield, CO$167.9Romania$169.4
19Baltimore-Towson, MD$157.3Vietnam$155.8
20Portland-Vancouver-Hillsboro, OR-WA$147.0Iraq$149.3

(Via Mark Perry)

Richard Branson Understands Airlines...Economics? Not So Much.

Richard Branson, the billionaire that we all know has a strong fascist streak, also has an issue with thenon-problem known as "hoarding":

With all his billions, you'd think Branson could pick up a copy of Rothbard's "What Has Government Done To Our Money?". He could even get a digital copy for FREE if the $5 is just too much.

There's no reason for me to re-invent the wheel, so I'll let Rothbard take it from here:
The image is conjured up of the selfish old miser who, perhaps irrationally, perhaps from evil motives, hoards up gold unused in his cellar or treasure trove--thereby stopping the flow of circulation and trade, causing depressions and other problems. Is hoarding really a menace?
I love that Murray used gold as the monetary unit. What a beautiful touch!
In the first place, what has simply happened is an increased demand for money on the part of the miser. As a result, prices of goods fall, and the purchasing power of the gold-ounce rises. There has been no loss to society, which simply carries on with a lower active supply of more "powerful" gold ounces.
Even in the worst possible view of the matter, then, nothing has gone wrong, and monetary freedom creates no difficulties. But there is more to the problem than that. For it is by no means irrational for people to desire more or less money in their cash balances.
Continue here to see how Murray put this non-problem to rest.

The bottom line in Branson's case? You can have billions of paper dollars (or electronic digits) and still not understand the economics of money.

Tom Perkins: The Very Shaky Defender of the 1%

Tom Perkins, co-founder of the Silicon Valley venture capital firm, Kleiner Perkins, has been in the news of late because of his recent statement that the attack on the one percenters is similar to the early attacks experienced by Jews during the Nazis era. Since, them MSM  has acted as though he is the spokesman for the 1%.

Last night, San Francisco's The Commonwealth Club held an interview event, where Perkins was interviewed by Fortune magazine's Adam Lashinsky. I attended the event.

The questioning by Lashinsky was quite hostile and, from a free market perspective, Perkins' performance was very shaky. The biggest problem with Lashinsky's questioning was that throughout the event he framed his questions in the context of "the problem of income inequality," as though it is a given that incomes should for some reason be more equal. Not once did Perkins object to this shaded questioning and he didn't even come close to articulating the analysis of the income inequality debate in the manner that Joseph Salerno recently did. (See: Joseph Salerno On Income Inequality)

Salerno correctly pointed out that there are two streams which result in high incomes. There are private sector high incomes, which are the result of individuals providing goods and services that consumers desire, and high incomes that are the result of  government employees and agents, who provide no products desired by consumers and have high incomes as a result of their parasitic takings from the productive private sector.

There was nothing about this from Perkins.

That said, Perkins was very solid on pointing out the destruction, especially to black families, that has resulted from LBJ's Great Society programs.

He also made these important points:

When you take into consideration estate taxes on top of income taxes, the rich end up paying 75% of lifetime wealth accumulation to government. He said this is persecution.

He also stated that the current low interest policy by the Fed was a terrible policy.

He said, the old first line job of being a paperboy has been destroyed by child labor laws and the minimum wage.

He said that Silicon Valley is a meritocracy and not about race. He did note though that when he spoke to a group that was set up by black business professionals to teach young blackstudents about entrepreneurship, the business professionals/mentors showed up for his talk, but no students did, which he said was a terrible sign.

On the other hand, Perkins made these horrifying comments:

Perkins said there is not much you can do about the high rents in San Francisco---which means Perkins' appears to have no idea how rent controls and building restrictions distort the price structure of rents.

He said he was for very strong military funding and also in favor of expanded government funding of scientific research.

He also said a solution for the very high poverty levels in the US, though caused by the LBJ-type policies, would take a very long time to fix---which suggests he has no idea how quickly an economy fixes itself after regulations and distortions are eliminated.

He called smaller government and deregulation a trap.

He said medicare is great, it is just underfunded.

He voted for Jerry Brown in the last California governor's race.

He is in favor of higher taxes on the middle class and called for a VAT.

He said he would like to see a system in the US where only those who pay taxes get to vote, and that the weighting of a person's vote should be based on how much taxes that person pays.

He also made these interesting neutral comments:

He said as a result of Fed monetary policy, $100 billion has flowed into Silicon Valley start-ups.

He said that his firm has created between 20 and 30 billionaires.

If he were in his 20s (he is 78), he said he would move to Australia which he says has a "can do" environment similar to what he first experienced when he moved to California in the late 1950s.

More Evidence That Washington D.C. is Filled with Sociopaths

A major reason I like the Netflix series, The House of Cards, is that it depicts politicians and other government officials as they really are, as a lying, manipulative, immoral group.

If I were in government, I would be horrified by this portrayal. Yet, Washington DC types seem to also be big fans of the show.

NyPo reports:
President Obama’s latest playful executive order is a tweeted effort to limit “House of Cards” plot spoilers.
The second season of the political thriller about a power-hungry Washington couple premiered in its entirety Friday on Netflix. Obama’s official Twitter account notes the occasion along with the request: “No spoilers, please.”

Cast members reveled in the real-life president’s support at a premiere event Thursday night. Robin Wright plays Claire Underwood, wife of Kevin Spacey’s vice president-to-be Frank Underwood. She says Obama “knows good stuff.”
This is proof to me that Obama and the rest of them are indeed a bunch of  a lying, manipulative, immoral sociopaths. How else could they be fans of the series, which, correctly, shows no redeeming values in politicians?

Run Murray, Run!

I note some comments to my earlier post, It's Official: Murray Sabrin to Seek the Republican Nomination for the US Senate,that

A. Murray will lose


B. There is no value in running for office.

First. yes it is true that Murray is unlikely to win. However, I believe there is value in running if you run, not to get elected, but to spread the libertarian message. I made this point in a 2012 post, How to Run for Office Like Ron Paul.

I would imagine that somewhere near 30%, maybe more, of those who now call themselves libertarians do so because they first heard about libertarianism because of Ron Paul. Dr. Paul had an incredible impact in expanding the libertarian movement, but that was because he stuck to principles and wasn't seeking power.

The problem now is that most politicians running from office who call themselves libertarians dilute their libertarian positions because they first and foremost want to get elected and are only then interested in spreading what becomes a diluted libertarian message. Extremely rare are the Ron Paul-type office seekers, who run and run on principle.

Murray Sabrin strikes me as being from the same cloth as Dr. Paul, he is not going to shed principle to get elected. He will get the libertarian message out in debates and other events he holds.

So I welcome the Murray Sabrin candidacy. It will bring attention to principled libertarianism in New Jersey.

Jobs and Growth in Europe

The IMF’s Christine Lagarde is in Brussels on January 28 to talk about jobs and growth in Europe.
The good news is growth is finally picking up in the euro area as it is slowly emerging from the deep recession.  But nearly 20 million people are unemployed.
The most effective way of boosting jobs is to get growth going again.
The IMF has a new book that analyzes today’s challenges head-on and proposes a roadmap for the continent’s recovery.
Christine Lagarde will discuss the book along with Wolfgang Schäuble, Finance Minister of Germany, and Luis de Guindos, Minister of Economy and Competitiveness of Spain. The event will be chaired by Fabian Zuleeg, Chief Executive of the European Policy Centre.
Watch the live webstream on this page from 8.00-9.30 a.m. (Central European Time).

Jobs and Growth: Supporting the European Recovery

(Version in Français and Español)
As we begin the new year, Europe confronts both good and bad news. First the good news. Growth is finally picking up in the euro area as it is slowly emerging from the deep recession.  The bad news? Still nearly 20 million people are unemployed. Until the effects on employment have been reversed, we cannot say that the crisis is over.
Two trends are particularly troubling, now and for the future. First, the high level of long-term unemployment gives me great cause for concern: almost half of those without a job have been unemployed for more than a year. Second, I still worry about the large number of young people without jobs: nearly one quarter of Europeans under the age of 25 who are looking for a job cannot find one. In Italy and Portugal, more than one third of under-25s are unemployed, and in Spain and Greece more than one half are.
Jobs and growth—a two way street
2014.01.28_EPC Breakfast Policy Briefing (22)
IMF Managing Director Christine Lagarde discussing the new book at an event at the European Policy Centre.
new book called “Jobs and Growth: Supporting the European Recovery,” authored by IMF staff, analyzes today’s challenges head-on and proposes a roadmap for the continent’s recovery.The book and its roadmap should contribute to the ongoing debate around these pressing issues.
The book’s analysis is informed by the relationship between jobs and growth, which is the proverbial two-way street. When unemployment is high, growth is slow because people consume less, and firms invest and hire less. This means that the most effective way of boosting jobs is to get growth going again. By some estimates, an additional percentage point of growth in the world’s advanced economies would lower unemployment there by about half of a percentage point, pulling over 4 million people back into jobs. So, in order to create jobs, we must lift economic growth.
How can this be done? In the near term, there is no doubt that it will take smart monetary and fiscal policy to protect the recovery.
Roadmap for recovery—three priorities
But what next? The new book’s roadmap for recovery highlights three medium- and long-term priorities. 
For the euro area, I believe that enhancing the institutional framework of the monetary union is urgent. Putting in place all of the elements of a banking union would be an excellent place to start. This would ensure the continued stability of the financial sector and address spillover effects from potential instability. The capacity to undertake a timely, effective, and least cost resolution of ailing banks with a common backstop will help break the adverse link between banks and sovereigns, where government support for a weak banking sector calls into question the sustainability of public debt, which feeds back into concerns about the strength of the banking sector, which typically has large holdings of government debt. It will also go a long way toward reducing the uncertainty of investors.
As a second priority, households, corporates, and ultimately also the public sector need to reduce high debt levels. A lasting pick-up in growth will remain out of reach until the balance sheet legacies of the crisis are addressed. Given the slow pace of global demand growth, there is—unfortunately—little hope that these sectors will simply grow out of their debt problems. This means they face increased pressure to deleverage, to actively reduce their debt through higher savings, which threatens the recovery.
IMF analysis indicates that high levels of private sector debt may be particularly problematic and should therefore be addressed first. Private sector deleveraging today can support self-sustained growth later on. Depending on country circumstances, policymakers might be able to do this by putting in place or reinforcing appropriate microstructures, such as effective insolvency frameworks—featuring, for example, fast and flexible personal and corporate bankruptcy proceedings—to help avoid lengthy periods of deleveraging and to protect growth.
Government debt also has to come down. In a lower-growth environment, the trick is to move gradually as long as markets allow, with policies anchored by a durable commitment to sustain fiscal consolidation at a steady but reasonable pace over the medium-term. In addition, consolidation should be seen as an opportunity to make budgets more growth friendly, for example, by shifting from direct to indirect taxation.
Turning to the third priority, product and labor market reforms can make a significant contribution to realizing a country’s full growth potential. Being nimble and competitive opens up new opportunities in a world where production processes increasingly span more than one country. The Czech Republic and the Republic of Slovakia—which established themselves as important intermediate producers for the German automobile industry—are good examples of how integrating into a supply chain can, over time, enhance domestic value added and growth. Importantly, structural reforms tend to have the greatest impact when they are undertaken in a way that is comprehensive instead of piecemeal. I am well aware, of course, that reform priorities and design will vary widely across countries. For example, reducing structural rigidities in the German services sector—including via a review and harmonization of entry requirements in professional services—can help boost productivity there and spur domestic demand. Meanwhile, in Spain, recent labor market reforms show signs of success.
The road ahead is certainly challenging, and different views exist on what policymakers should do—kick-starting and sustaining growth is a complex challenge that requires action on many fronts. It is a debate that engages us all because it affects us all—every citizen, in Europe and beyond.

The Outlook for Latin America and the Caribbean in 2014

(Version in EspañolPortuguês)
Looking to the year ahead, how do we see the global economic landscape, and what will this mean for our region? This question is especially on people’s minds today, given the risks of deflation in advanced economies and of sustained turbulence in emerging markets.
Despite these risks, we expect that the region will grow a little faster than last year—increasing from 2.6 percent in 2013 to 3 percent in 2014. Stronger global demand is one part of the story, but not the whole story; volatility is likely to be a significant feature of the landscape ahead. And regional growth rates will still be in low gear compared to historical trends, and downside risks to growth remain. So, let’s start with the global scene.
As we described in our recent World Economic Outlook Update, we expect global economic growth to rise from 3 percent in 2013 to 3¾ percent this year, led by the advanced economies. U.S. growth would rise to 2.8 percent in 2014, as headwinds from overly tight fiscal policy and damaged household balance sheets fade, with a continued push from still-loose monetary policy and cyclical forces. Meanwhile, we see the euro area shifting from recession to recovery—following last year’s contraction, activity would expand by 1 percent. That said, the euro area recovery will be uneven, with economies under stress from high debt likely to see only a modest pickup.
We see emerging markets and developing countries as a group a bit stronger, with overall growth around 5 percent this year. China’s outlook is particularly key for Latin America’s commodity exporters. We see it growing at about the same as last year, 7.5 percent, as policies to slow credit growth and raise the cost of capital take the steam out of surging investment.
Meanwhile, commodity prices are expected to drop somewhat, especially for nonfuel items, where we see prices declining by about 6 percent over the year. Conditions in global financial markets will stay tighter than they were before the U.S. central bank’s “taper talk” in the first half of 2013, translating into higher international borrowing costs, particularly with the recent volatility in emerging markets.
Uneven recovery
Werner Look Ahead English chartSo, what does this revised forecast imply for our region? The picture varies across subregions, depending on the ways each is linked to the global economy and financial markets.
For example, thanks to the U.S. recovery, Mexico’s growth rate would rise to 3 percent in 2014. Mexico will experience both a bounce in manufacturing exports and the ongoing recovery in domestic demand, as the temporary factors that depressed demand last year continue to wane.
In Central America, stronger global demand will boost tourism and exports, and U.S. construction activity will give a lift to remittances (already growing 6.5 percent year-on-year in the third quarter of 2013). For Central America as a whole, we see growth rising from 2.9 percent to 3.2 percent this year. That said, high public debt and budget deficits are a constraint and risk to the outlook for some Central American countries.
In the Caribbean, we expect the tourism-dependent countries to recover on the back of rising U.S. activity; U.S. tourist traffic to the Caribbean was up some 7 percent year-on-year in November. That said, growth would remain low in 2014—just 1½ percent. Caribbean commodity exporters would enjoy stronger growth at 3.7 percent. But for some Caribbean countries, as in Central America, elevated public debt poses risks.
In South America, the picture is more mixed. For the large, financially-open commodity exporters (Brazil, Chile, Colombia, Peru, and Uruguay), average growth would remain just under 4 percent, remaining in low gear by historical standards. The uplift from global demand will be counterbalanced by weaker commodity prices and somewhat tighter financial conditions. Among these countries, domestic conditions will matter a lot for the outlook. For example, Brazil is running up against supply bottlenecks that are constraining output and pushing up inflation, so we see its growth no higher than last year, 2.3 percent.
For other commodity exporters in the region, the picture is less favorable. In Argentina and Venezuela, pressures on inflation, the balance of payments, and foreign exchange markets developed in 2013. These pressures are weighing on confidence and aggregate supply.
New (and old) risks
And for all the countries in our region, the global economy still holds risks. Very low inflation in advanced economies could cause inflation expectations to drift downward, generating rising real interest rates (with short term rates near zero) or deflation in those economies. In addition, weaker emerging markets growth could hit commodity markets. Financial stability risks include rising corporate leverage, as well as pressure on asset valuations if interest rates rise more than expected. Also, sustained turbulence in emerging markets could tighten global financial conditions further.
Indeed, and a little paradoxically, we have fairly high confidence that the outlook features a lot of uncertainty. We see several major shifts going on in the global economy, such as the growth handoff from emerging markets to advanced countries, the unwinding of stimulus in advanced countries (and the Fed’s move towards the “exit” from extraordinarily accommodative monetary policy), and the rebalancing in China. Each of these shifts could present speed-bumps that could trigger volatility. So policymakers will need frameworks that are flexible, nimble, and resilient to ride out any shocks that might emerge.
In sum, while growth is picking up, we should expect more turbulence for our region. Hence, policymakers in Latin America and the Caribbean should not rest easy just yet. Rebuilding fiscal buffers, and using monetary policy and flexible exchange rates to absorb shocks where possible, remains the order of the day. Steps to strengthen medium-term economic policy frameworks would be helpful in some countries as well. Keeping a close eye on financial systems for signs of strain will be essential too. And finally, structural reforms to education, infrastructure, labor, and product markets will need to be pursued—throughout the region, including in the United States—to move growth to a higher and more sustainable pace over time.