Assorted links

by on October 9, 2011 at 6:01 pm in Uncategorized | Permalink

1. David Leonhardt on why the current downturn is so bad, right on the mark in my view.

2. “Could this time have been different?”

3. Will it work to recapitalize European banks?

4. Did Amanda Knox “look guilty”?

gwern October 9, 2011 at 6:35 pm

> 4. New essay on why Sweden is successful, free pdf.

Perhaps I am missing something, but where is that PDF? I didn’t see any PDF links even looking in the HTML source for the page, and the one obvious link is the ‘order now’ link which wants 9 euros from me.

Tyler Cowen October 9, 2011 at 7:13 pm

My bad, removed…

Pub Editor October 10, 2011 at 10:24 am

When I followed the link, looking for the free pdf, I had the same trouble as gwern; then I noticed that the report is dated Oct. 11, 1011. There was a link available for pre-ordering the report in dead tree form (I think), but the free pdf link was not active yet.

I suspect that, if we return to that site in a day or so, the free pdf download will be available.

Rich Berger October 9, 2011 at 6:52 pm

My prediction: once you get Obama’s boot off the neck of the economy,things will get better. We have been through this before, wiith Carter. Reagan was the antidote.

Kevin October 10, 2011 at 2:30 am

Yes, because the economy was in such fantastic shape until the day Obama came into office.

Andrew' October 10, 2011 at 8:45 am

But he did do Obamacare. I’m not just making that up. He certainly didn’t focus on stabilizing the patient before performing elective plastic surgery. “Don’t let a crisis go to waste” and all that. I didn’t make that up either.

And with the other option being McCain, I can’t rule out rational expectations.

And with comments like this:

The most politically appealing plans are the ones that force the banks to eat the debt, or at least appear to do so. “Cramdown,” in which judges simply reduce the principal owed by underwater homeowners, works this way. But any plan that leads to massive debt forgiveness would blow a massive hole in the banks. The worry would move from “What do we do about all this housing debt?” to “What do we do about all these failing banks?”

Can you rule out rational expectations? Destroying the banks to save them because that is the most “politically appealing” sure sounds risky to me.

Cliff October 10, 2011 at 10:25 am

FYI cramdown is (would be) part of bankruptcy proceedings, not just something done arbitrarily.

Newman October 9, 2011 at 7:04 pm

1– It seems to me all of the government and Fed policy efforts are based this being a cyclical downturn instead of secular one. Taking on all of this debt in the hopes of growing our way of the great recession will have been a terrible bet if 10 years from now we’re still at 9% unemployment but in a much deeper financial hole. I don’t see any short term solutions to our problems. We desperately need tax and entitlement reform to restore our competitiveness and we should be focusing on grooming a workforce of engineers, scientists and whatever else is needed by identifying promising students and recruiting them with the same inducements, energy and fervor currently reserved for student athletes.

Michael G Heller October 9, 2011 at 7:05 pm

Good links, thanks. Even just that abstract on Sweden is believable. And Münchau’s on good form.

Scoop October 9, 2011 at 7:42 pm

Leonhardt: “Perhaps the most important reason, beyond the financial crisis, is the overall skill level of the work force. The United States is the only rich country in the world that has not substantially increased the share of young adults with the equivalent of a bachelor’s degree over the past three decades.”

We’re also the only country that, in the past three decades, has admitted 25 million unskilled (and often illiterate) immigrants who have had about as many children in the same period. How can we possibly expect to add 50 million people with low genetic and cultural capital AND increase the share of young adults with bachelors degrees (unless you just want to make such degrees worthlessly easy)? How can people like Tyler and David, who argue the importance of human capital and the growing problem of zero marginal product workers, possibly support such immigration?

Claudia Sahm October 9, 2011 at 11:03 pm

Immigrants have been and are likely to be a big plus for the U.S. This is one thing that sets us apart from Europe and should Instill optimism about the future. But I agree we should work harder to educate the newest immigrants…and all other Americans.

Ron Strong October 9, 2011 at 11:35 pm

SKILLED immigrants have been a big plus for the US. But the mix has turned decidedly in favor of the unskilled, the illegal, and the uneducable.

All education is, ultimately, self education. If we let in large numbers of immigrants from cultures that do not focus obsessively on educating their children, those children will grow up to be no better fits than their parents.

We do a fantastic job of educating certain people – Asians and Jews have no trouble getting an education whatever the quality of their primary and secondary schools. We do a reasonable job of educating some others – whites perform reasonably well in school.

On the other hand, hispanics lag behind and blacks lag far behind the level needed to support a modern economy.

We’ve been struggling to end the disparity for at least half a century with essentially nothing to show for it. Our “successes” have had more to do with holding back the best than they have to do with improving the worst. Until we have clearly figured out how to turn loser minorities into productive citizens our immigration policies should be tailored to avoid them and welcome those more likely to adapt to a modern culture.

Claudia Sahm October 10, 2011 at 3:18 am

Ron, pretty sure some of my great, great great grandparents counted as “unskilled” who came to the US from overseas even by the standards of the time. Hard workers built this country and continue to build this country regardless of their origin of birth and the diploma in their book shelf. It is a special kind of person who risks it all to emigrate. I understand that a large influx of immigrants can stretch the social fabric of a community, but with the right mindset and supportive policies those immigrants can make a community stronger. On education, we must find ways to educate students who are not served by today’s system.

Steven Kopits October 10, 2011 at 7:53 am

No, Claudia. We need to motivate politicians to find ways to educate students who are not served by today’s system. Immigrants is easy: pay to play. Want to work as a migrant laborer in the US? Pay $3,000 per year, half as a fee, half as basic health insurance. One time vetting ($500), pick up visa at local shopping mall in Mexico. No US social benefits (albeit, education is one to consider). If you’re arrested you lose your permit. Make it simple and affordable, make it easy to be legal, and all will be well. The Princeton community (where I live) is literally under-pinned by Hispanic labor, much of which I take to be illegal. But they work hard and stay out of trouble. They may not be legal, but they are most certainly not criminals, and we depend on them. They deserve better than they have now.

prior_approval October 10, 2011 at 11:26 am

‘Want to work as a migrant laborer in the US? Pay $3,000 per year, half as a fee, half as basic health insurance.’

Really? Because you know who will be really paying that fee, don’t you? You will, assuming you ever eat at a salad bar, or buy strawberries our of season, for example. There is a reason why illegal workers (they are rarely immigrants) are an integral part of the American agricultural system, and it boils down to the fact that people don’t like to pay more for their produce. Adding a fee to ensure compliance with immigration laws simply means higher produce prices.

This isn’t even theoretical – there is already the H-2A program to provide agricultural labor that isn’t exploited at below minimum wages, but such labor has been successfully ignored in favor of employing illegal workers. And as Georgia (and now Alabama) proved, the willingness for American farmers to actually comply with the conditions of even a program like H-2A is simply unrealistic – as rotting crops in Georgia demonstrated.

Scoop October 10, 2011 at 1:59 pm

While 19th Century history does demonstrate that mass unskilled immigration needn’t always do great harm to a nation, it certainly doesn’t demonstrate that such immigration never will do harm or even that such immigration won’t usually do harm. History, in other words, is of very little value in setting today’s immigration policy.

Why might today be different? Millions of reasons but two stand well above the others.

1. The overwhelming majority of all American jobs in the 19th Century were unskilled and there was nearly unlimited demand for such labor at wages that supported good (for the time) living standards. Today, the unemployment rate for unskilled workers is running around 25 percent, and the next 20 years will see automation eliminate the two jobs that employ nearly half of those unskilled workers who currently have jobs: driver and cashier.

2. The immigrants that we got toward the end of the 19th century brought roughly similar genetic capital to those who came before the Revolution. Mean IQs across Europe vary only by about 5 points and the risks and difficulties associated with immigration insured that we got slightly above-average Europeans. Excluding folks who come in on H1-B visas, the genetic capital of today’s immigrants sharply lower by every measurement than averages for European Americans. It is the ugliest fact of modern life, the one that any sensible person would wish away before any other injustice. But it is a fact, and it cannot be wished away or educated away. (We can educate far better, but improvement will lift all boats without making The Gap go away.)

Peter Schaeffer October 10, 2011 at 3:16 am

@CS,

America has been importing multigenerational academic underachievement on a massive scale for decades. At this point, everyone who is halfway honest (left and right) admits it. Of course, some people still have a preference for “what they would like to be true” versus “what is true”.

If anyone doubts that immigration is undermining American education, see below.

1. John Judis “End State Is California finished?” (http://bit.ly/2x2P6P)

“At the gathering, held in a plush conference room, one of the experts projected tables and graphs comparing various states. It was there that I had my own “AHA!” moment. The states with thriving educational systems were generally northern, predominately white, and with relatively few immigrants: the New England states, North Dakota, and Minnesota. That bore out the late Senator Patrick Moynihan’s quip that the strongest factor in predicting SAT scores was proximity to the Canadian border. The states grouped with California on the lower end of the bar graph were Deep South states like Mississippi and Alabama with a legacy of racism and with a relative absence of new-economy jobs; states like West Virginia that have relatively few jobs for college grads; and states like Nevada, New Mexico, and Hawaii that have huge numbers of non-English-speaking, downscale immigrants whose children are entering the schools. California clearly falls into the last group, suggesting that California’s poor performance since the 1960s may not have been due to an influx of bad teachers, or the rise of teachers’ unions, but to the growth of the state’s immigrant population after the 1965 federal legislation on immigration opened the gates.”

2. Michael Lind “Innovation and education won’t save our economy” (http://bit.ly/gtmx2r)

“The overall PISA scores of American students are lowered by the poor results for blacks and Latinos, who make up 35 percent of America’s K-12 student population. Asian-American students have an average score of 541, similar to those of Shanghai, Hong Kong, Japan and South Korea. The non-Hispanic white American student average of 525 is comparable to the averages of Canada (524), New Zealand (521), and Australia (515). In contrast, the average PISA readings score of Latino students is 446 and black students is 441.”

3. “In the Golden state, leaden school scores” (http://bit.ly/nxFMXw). Useful quote

“”If you ask why California schools have gone from the nation’s best to among its worst, I would say the influx of non-English speaking immigrants tops the list of reasons,” says Ms. Augustine, a 30-year teaching veteran.”

4. “US Educational Achievement on International Assessments: The Role of Race and Ethnicity” (http://bit.ly/pnRSd4)

“The debate about the performance of US students on international assessments of educational achievement routinely fails to account for one consistently stark result: US achievement is bifurcated between a group of high-performing Asian and white students and an exceptionally low-performing group of black and Hispanic students. By summarizing results across 20 major international tests conducted since 1995, this research paper shows that when US racial and ethnic groups are separately compared with other countries, Asian and white students regularly perform at or near the top of international rankings, while black and Hispanic students typically rank at or near the bottom. Furthermore, the United States has a substantially larger minority population than all other developed countries, and minority status is not synonymous with internationally comparable factors such as socioeconomic level or immigrant status.”

5. “The amazing truth about PISA scores: USA beats Western Europe, ties with Asia” (http://bit.ly/e1BN6o)

“What I have learned recently and want to share with you is that once we correct (even crudely) for demography in the 2009 PISA scores, American students outperform Western Europe by significant margins and tie with Asian students. Jump to the graphs if you don’t want to read my boring set-up and methodology.”

6. “The Hispanic Challenge” by Samuel Huntington (http://bit.ly/5ETHzJ)

The author shows little improvement in education attainment across generations of Mexican immigrants.

“The education of people of Mexican origin in the United States lags well behind the U.S. norm. In 2000, 86.6 percent of native-born Americans had graduated from high school. The rates for the foreign-born population in the United States varied from 94.9 percent for Africans, 83.8 percent for Asians, 49.6 percent for Latin Americans overall, and down to 33.8 percent for Mexicans, who ranked lowest.”

7. “Honesty from the Left on Hispanic Immigration A provocative new book doesn’t flinch from delivering the bad news” (http://bit.ly/4CBWWT)

“Hispanics are underachieving academically at an alarming rate, the authors report. Though second- and third-generation Hispanics make some progress over their first-generation parents, that progress starts from an extremely low base and stalls out at high school completion. High school drop-out rates—around 50 percent—remain steady across generations. Latinos’ grades and test scores are at the bottom of the bell curve. The very low share of college degrees earned by Latinos has not changed for more than two decades. Currently only one in ten Latinos has a college degree.”

Claudia Sahm October 10, 2011 at 3:28 am

Peter, too bad there are not working papers on the web from the 1890s…I doubt everyone was enthusiastic about the educational background of that wave of immigrants. I firmly believe that formal education is a key to life long learning, a stable career, and integration in the community. And I agree that the current education system is currently not meeting the needs of all its students. I think we disagree on the solution. I would fix the education system and make lawful immigration easier across a range of skill levels.

Peter Schaeffer October 10, 2011 at 4:10 am

@CS,

By the early part of the 20th Century there was already a substantial literature showing that some immigrants (notably Jews and Asians) were doing quite well in American schools. By the 1920s, Ivory League schools had quotas limiting the number Jews admitted. 7% of Harvard’s class was Jewish in 1900, 21% in 1922.

Of course, other groups were less successful and research later in the 20th century showed that several generations were needed for some 1900 era immigrant groups to fully assimilate.

However, that’s exactly the point. We have a wealth of multigenerational data for unskilled Hispanic immigrants and the results are dismal. Beyond that, the U.S. is a vastly less friendly place for unskilled immigrants than it was 100 years ago.

Back then, America has functional schools, tight law enforcement, vast assimilationist pressure, overt disdain for “diversity”, booming labor markets, near zero welfare, intact families, a common language, etc. None of that is true now.

America could afford unskilled immigrants back then. Now they are a luxury that is beyond our means.

JWatts October 10, 2011 at 1:17 pm

And America of circa 1900 had a plethora of low skilled job positions. Most jobs didn’t require any kind of education. Times have changed. Trying to integrate a large amount of illiterate workers into the 2010 economy is just going to be an exercise in futility.

Jim October 9, 2011 at 7:58 pm

4: I was thinking about bashing Italy for convicting Amanda Knox based on the way she looked. But then I remembered we pick our Presidents based on the way they look.

FYI October 9, 2011 at 9:17 pm

I believe the french would say “touché”

Veridical Driver October 9, 2011 at 11:41 pm

George W. Bush would tell you that the French don’t have a word in their language for touché”.

JWatts October 10, 2011 at 1:19 pm

And Obama would tell you that it’s a common word, used frequently in all 57 states. ;)

tomrus October 9, 2011 at 8:05 pm

How can anyone take Leonhardt seriously?
His headline, “The Depression: If Only Things Were That Good” says it all.
If only we had a decade like the one when television was invented (oh rats! electronic television was first successfully demonstrated in San Francisco on Sept. 7, 1927), then the unemployment problem would be cured. But wait, whats this you say? The unemployment rate, responding to the wonders of the (minuscule) number of sets sold, not to mention the nylon stockings et al, was still 17.3% in 1939. So is it even remotely possible that unemployment in the 1930s, just as now, was due to lack of demand and that, thanks to the failure of macroeconomic policies, also as now, things in the Great Depression were, in fact, not all that good at all?

Virgule October 9, 2011 at 8:12 pm

Writers generally don’t write their own headlines so it’s rarely a good idea to judge an article by the quality of its headline

Jim October 9, 2011 at 8:58 pm

Munchau (3) implies making the EU a fiscal union is a clear path out of the crisis and Klein (2) presumably agrees, saying, “Just look to Europe, where the path to ending the debt crisis and saving the euro zone — the group of nations that use the currency — is clear to most economists but impossible for any European politician.”

Is it really clear to “most economists” that creating a fiscal union is a clear path to ending the debt crisis and saving the euro zone?

Peter Schaeffer October 10, 2011 at 3:19 am

@Jim,

“Is it really clear to “most economists” that creating a fiscal union is a clear path to ending the debt crisis and saving the euro zone?”

From I read in the European press, the answer is no. Plenty of economists favor letting some of the PIIGS restructure their debts and shrinking the Eurozone down at a smaller group of compatible countries.

JWatts October 10, 2011 at 1:21 pm

Is there any such plan that can realistically shrink the EU, that won’t end in it unravelling completely or becoming so small as to be irrelevant? A core EU is not going to have nearly the political clout as the current EU.

thehova October 9, 2011 at 9:10 pm

Yep, we can’t inflate our way out of this mess.

As someone who often called Thomas Friedman a hack, I’ve got to admit he might have had a point. Research and innovation are important. We need some technological breakthroughs.

NAME REDACTED October 9, 2011 at 9:23 pm

We have. 3d printing is going to change everything. Tyler is merely unaware of the changes that are happening.

Andrew' October 10, 2011 at 9:33 am

3d printing is the solution of the future, and always will be.

JWatts October 10, 2011 at 1:22 pm

It’s not as far out as fusion or the flying car. Whether it’s ever capable of making a significant, durable, cheap product is questionable.

albatross October 11, 2011 at 2:31 pm

So what we really have to wait for is our 3D-printed fusion powered flying car.

FYI October 9, 2011 at 9:23 pm

I am not trying to be stoic here but… has any economist looked into the possibility that we simply have to ‘unwind’ our debt the hard way here and simply wait until it gets done? I know politicians (and economists for that matter) get paid to solve ‘tough issues’ but what if the solution for this is simply that we have to wait until all the excess leverage gets out of the system?

is that even considered an option? If not, why? Are we saying that this process would take too long? Or are we saying that it would be too hard even if for not such a long time?

I keep hearing these crazy arguments about trying to borrow our way out of a leverage crisis and to my non-economist mind it sounds like wishful thinking. If our only answers to this crisis is to trick people into borrowing more and more maybe the real problem is our way to look at the crisis in the first place?

Andrew' October 10, 2011 at 9:36 am

I also look back a little. The debts were incurred based on a prediction of the future. That prediction turned out to be wrong. Fixing the debt mathematically, even if we could figure out how to do it without screwing some people, would not make the prediction correct. Thus, it will be hard to re-leverage based on the assumption that this time our rosy predictions are accurate.

NAME REDACTED October 9, 2011 at 9:26 pm

“I am not trying to be stoic here but… has any economist looked into the possibility that we simply have to ‘unwind’ our debt the hard way here and simply wait until it gets done?”

Yes, this is what the Austrians are saying. They are also saying that it won’t end until we either default or soft default (massive inflation) or really de-leverage.

JWatts October 10, 2011 at 1:24 pm

Who are the ‘They’ in that comment?

Test October 9, 2011 at 9:52 pm

Things suck as freedom has waned as technocrats like Tyler whine and make problems we do jot have.

And finance takes a giant chunk thru arbitrage? That is just ignorant.

RM October 9, 2011 at 10:47 pm

I think Mr. Leonhardt is waxing a bit nostalgic. How many of the things from the 1930s really increased productivity? Television and nylon stockings? No. Refrigerators and washing machines? Only for housewives whose production was not counted in output anyway. (And they did not leave the home to join the workforce because the clothes were easier to wash.) Improvements in railroads? Maybe.

If we build all the things listed above in the US, we would surely bring down the employment rate. It is not innovation per se; it is where the innovative products were built, no?

DK October 10, 2011 at 2:41 am

How many of the things from the 1930s really increased productivity?

Every other one? Too many to count? It actually is harder to come up with innovations that did not. Ever heard the word “mechanization”?

Peter Schaeffer October 10, 2011 at 4:00 am

RM,

The 1930s were heavy on innovations that raised industrial productivity. There were substantial advances in oil, coal, electric power, communications, etc.

Luzius Meisser October 10, 2011 at 2:16 am

About [1]: It’s funny how Leonhard sees the “well-established rule of law” as an advantage of America. From the outside, the US legal system looks horribly complicated, inefficient and generally broken. In a recent economist, US legal costs have been estimated at 1.8% of GDP, three times more than 20 years ago. The legal sector is another example of a parasitic zero-sum industry that adds no real value to the economy.

Peter Schaeffer October 10, 2011 at 4:24 am

@LM,

Fascinating. Any links? Papers? America’s deeply dysfunctional legal system is a sacred cow for the liberal / left… Unless justice is actually needed. Then it’s Seal Team 6 and the AGM-114.

Cliff October 10, 2011 at 10:34 am

Some parts of the legal industry (litigation) are zero-sum. Others are positive sum, like most transactional work, business formation, things like that. The lawyers are just putting in place the desired legal framework so that, for example, if s hits the fan, things go the way the principals intended, which is quite valuable.

Finch October 10, 2011 at 10:58 am

> Some parts of the legal industry (litigation) are zero-sum.

Not that I’m pro-litigation, but exactly what is the appropriate amount to spend on dispute resolution between large firms? Bear in mind that most large-scale inter-corporate litigations are essentially voluntary and that the parties involved drop out of the legal system into settlement talks, arbitration, or mediation when that suits them, so it’s not like they’re always stuck in the system. Firms use the legal system for discovery (viewed broadly) and then drop out for the decision making process because the discovery process works pretty well but most people want professionals, not judges and juries, making the actual decisions.

So my guess is that the economically optimal amount to spend on “litigation” isn’t zero. It’s probably not what we spend today, but it’s not zero either.

Tom Grey October 10, 2011 at 4:32 am

The legal sector has hugely added to health costs, #1 mentions health care insurance.
But where is the excess regulation? Most new jobs created in the 40s, 50s, and 60s, could not be legally created today, without additional and usually costly legal, environmental, and financial regulatory compliance.

On “rule of law” — what about GM bankruptcy and the order of payoffs for an insolvency? What about AIG going bankrupt, and NOT paying off Goldman Sachs? Instead we get new law and tax-payer funded loans to “save” the financial system — which, itself, is still hugely bloated with excess employment, for the number of loans it is giving.

Capitalist civilization is based on peaceful, honest agreements between free individuals, including sanctions on those who fail to fulfill their obligations. The entitlement of the rich to avoid paying their obligations is terrible; letting the poor avoid obligations is just very sad (and continuing poverty enabling).

The crisis is based on excess gov’t promises which are unsustainable. Greece, Spain, Italy, Portugal; and Ireland (maybe not?) elected politicians who promise to give benefits paid for by others — but higher taxes on the hard working to reward the less successful is a guaranteed way to reduce growth.

Tom Grey October 10, 2011 at 5:08 am

#2 “Could this time be different” — disappointing. No mention of a “Regulation freeze/ holiday” — so all new companies can start working without regard to (most? all?) onerous regulations (less than 20? 30? years old).

Regulations are helping to kill job growth; my strong belief, don’t have links to evidence.

“Tax Loans” to replace bank debt with lower interest priced gov’t debt, for individuals, is just one of many possible out of the box ideas. Let individuals borrow, from the IRS, all the money they’ve paid in for the last 5 years so as to reduce their mortgages, with interest at the current Fed rate, changing with the Fed.

There was good talk about debt, but no talk about the wealth effect. $8 tril of “housing wealth” has disappeared — it was the bubble that can’t come back.
Reducing consumer debt, like with a $10 000 helo drop of cash to every taxpayer would have been better than saving the banks, who are alive but with toxic assets, rather than most big ones gone. It should be obvious that the “recovery” hasn’t needed bank expertise for loaning to expanding industries; why did they need to be kept alive by taxpayers? Plus, had the employees of the big banks been released by dead banks, there would be a lot more hungry, finance savy potential entrepreneurs looking for ways to make a buck in a new environment, and more willing to try different things.

The economy needs more different approaches to be tried, including tax loans.

Fixing the housing policy mess should include replacing the interest deduction with a more fair 30% house payment tax credit, up to a lifetime maximum (of 10 times the median taxpayer declared income; slowly rising).

joshua October 10, 2011 at 6:06 am

1. I’m biased to blame the lack of hiring on increased regulation, licensing, etc, and it does not do much to convince me otherwise when the NYT completely ignores that argument in an article about a lack of hiring as opposed to addressing the argument and rebutting it.

Steven Kopits October 10, 2011 at 7:57 am

1. “It’s an oil shock, stupid.”

Depressions appear to be correlated to major shifts in society and technology. That shift today is China. But remember, China should provide unprecedented opportunities for the US economy. The issue is the fact that we’re constrained on transportation fuel. So let’s go get some. They don’t know what to do with the propane in the Marcellus. The shale oils are doing well. Let’s continue the Gulf re-start; fast track Alaska to first oil for Shell in 2016 (up from 2020); build Keystone XL.

And get the budget in order. The Irish are begining to show the way.

Let’s stop complaining and get it done.

Steven Kopits October 10, 2011 at 8:32 am

2. “It’s an oil shock, stupid.”

Unemployment worse than expected? Not if you’re running an oil model, it isn’t. See my piece from Foreign Policy, Jan. 2010: http://www.foreignpolicy.com/articles/2010/01/04/a_double_dip

For well over a year, in the range of my public presentations (and I present publicly about once a month), I have argued that oil prices over, say, $85 would inhibit uptake of the unemployed.

Here’s the text of a slide to Republican Senate staffers, July 1st of this year (the stock market cratered a month later):

- CBO economic projections are likely to be substantially too optimistic
- Historically, oil shocks
— Increase unemployment by 4%
— Increase federal budget deficit by 2% of GDP (small n)
- In any coming recession, will the US be compelled to cut spending and increase taxes at the weakest part of the cycle?
- US government policy analysts should be asked to provide scenario analysis

Economists are everywhere trying to find explanations other than the really obvious one: oil prices.

Andrew' October 10, 2011 at 8:53 am

Why do they jump directly to debt forgiveness as if it’s a free lunch? We’ve seen the reports that say that strategic default is about both cash flow and solvency. If the house is both underwater AND there is a loss of a job the homeowner tends to default. This is possibly a feature of keeping up burdensome payments on a financial loss of the home value. You can look at property appreciation rights to work on the principle value, and I keep floating 50 year mortgages to reduce the cash flow burden. Neither of these require a debt forgiveness freebie and the attendant zero-sum politics.

Andrew' October 10, 2011 at 8:56 am

To expound:

“If we had thought harder about Rogoff and Reinhart, we might have made some different trade-offs regarding debt reduction,” Bernstein says. “Moral hazard is a big problem when you’re making policy regarding write-offs and principal cramdowns. It was always in the room when you were trying to help one underwater homeowner write off some debt while the person next door was playing by the rules and paying their mortgage every month. But with hindsight, I might have argued more rigorously against the risk of it.”

Here, Bernstein talks as if the politics and moral hazard is the only risk. Please don’t forget, such action is actually screwing a victim. So, it is less victimless than perhaps most of the laws we have on the books that put people in jail.

y81 October 10, 2011 at 1:38 pm

I’m always glad to hear what noted monetary economist Ezra Klein (a guy with a B.A. in poli sci from UCLA) thinks, but not when he goes on at quite that length. Really, we can’t put that class of undereducated journalistic pontificators out of business fast enough.

JWatts October 10, 2011 at 2:13 pm

Now, don’t be in such a hurry. He’s engaged to Annie Lowrey, an economics reporter at Slate. ;)

Newman October 10, 2011 at 7:42 pm

Yes, and according to her Wikipedia page her economics credentials are beyond refute:

“She studied English and American literature at Harvard University[6] and wrote for the Harvard Crimson.[7] She lived in Quincy House while at Harvard.[8]“

Doug Guillory October 11, 2011 at 11:02 am

I believe that the education argument is a red herring, an excuse for failed policies and outsourcing. I was an engineer in HPs laserjet group for twenty years. During that time outsourcing increased greatly. The Indian and Chinese workers were not superior and in fact had to be baby sat as they came up the learning curve. Their education was definitely not superior, but their wages were much less. CEOs want coolees with Masters degrees.

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