Monday assorted links

by on January 5, 2015 at 11:53 am in Uncategorized | Permalink

1 Lay Ropez January 5, 2015 at 12:05 pm

6. “The money is on the bedstand.”

2 Thor January 5, 2015 at 8:15 pm

Wait, are you paying the gf or the mistress?

3 Hadur January 5, 2015 at 12:25 pm

I don’t care for the arts or for any kind of high culture, really, but #4 fits into one of my pet talking points: that “Rust Belt” cities are probably some of the most underrated vacation destinations in the United States, at least for short-term trips. I have had a number of enjoyable getaways where I spent a 3-day holiday weekend in a place like Cincinnati, Kansas City, or even Harrisburg, PA.

Part of it is my theory that any place with a major airport is going to have 2-3 days worth of stuff to do. Another part of it is the expectations game: if you have spent any time living in one of the elitist parts of the United States (say, the east coast), you probably have a conscious bias AGAINST these places: you assume they are boring, run-down, with little to do. So when you land there and find that there is in fact 2-3 days of worthwhile stuff to do, see, eat, and experience, you benefit from the larger delta between your expectations and your perception.

And, if as the article suggests, some of those attractions are also actually cheaper instead of merely having a higher perceived quality, well, that’s another argument I’m happy to use.

4 It's Over January 5, 2015 at 12:42 pm

Agree completely. Most people would consider a 3-day trip to Kansas City, Pittsburgh, Cincinnati, Memphis, etc, pointless. But all these cities have excellent local cuisine, cheap arts (KC’s Kaufmann Performing Arts Center is world class), and of course unique local sports scenes. Centrally located hotels are cheap, traffic is no problem, and you virtually never pay to park anywhere.

5 Steve Sailer January 5, 2015 at 5:07 pm

Pittsburgh has an amazing amount of high end cultural institutions built by Robber Barons in a densely packed setting that’s pretty spectacular topographically.

6 FC January 5, 2015 at 5:28 pm

John L. Sullivan: Aw, what do they know in Pittsburgh…
Hadrian: They know what they like.
John L. Sullivan: If they knew what they liked, they wouldn’t live in Pittsburgh!
– from “Sullivan’s Travels”

7 mkt January 6, 2015 at 5:17 am

Two things about Pittsburgh: if there are any steel mills still open, I didn’t see them, when I visited there for the first time about four years ago. What I did see: signs saying “UPMC” everywhere, including on the tallest skyscraper (called the “Steel Building” by locals; formerly the US Steel building but it says UPMC now).

Which pretty well summarizes how Pittsburgh has transformed itself. Instead of heavy industry, the city now emphasizes two of the major growth industries in the 21st century: medicine (UPMC, in case you haven’t figured it out yet, stands for the Univ of Pittsburgh Medical Center), and high tech (it helps to have CMU as well as Pitt in town).

Second, to echo Steve Sailer’s point, Pittsburgh also features some of the steepest and most numerous hills of any major US city. It makes driving a nightmare for outsiders, who are guaranteed to get lost because you simply can’t drive where you’re trying to go (you have to use some roundabout route), but creates a lot of interesting scenery and topography, and varied neighborhoods which often developed in relative isolation.

So with all that, and tons of history and the fortunes of Carnegies, Mellons, Heinz’s, Fricks, etc. there’s a ton to see and do in Pittsburgh.

So it’s not the Pittsburgh of Sullivan’s Travels anymore.

This is not however an endorsement of the alleged advantages of the other cities mentioned. I’ve also been to Kansas City, which was not bad but not nearly as interesting as Pittsburgh or the so-called elitist coastal cities. I’ve also been to Harrisburg. About the only positive that I would say of it is that there are interesting places that one can go to if one leaves Harrisburg (Gettysburg, Lancaster, even Sate College). Buffalo NY has Niagara Falls but not much else. Worcester MA has hills and well that’s about it. Indianapolis is a nice place to go for a convention because of its walkable downtown, but has little to attract the tourist. (Columbus IN however is great; the NYTimes even wrote an entire article about the spectacular architecture there.)

8 Steve-O January 5, 2015 at 5:11 pm

I agree too, although if the city isn’t a hub or you’re not flying from one, the cost and time to fly can be much higher. And while I get that hotels and parking (and presumably symphony tickets) are cheaper, I’m shocked at how many things they said were $15 or less. I live in a midwestern city much smaller than Baltimore, Kansas City, and Milwaukee (no major sports) and the symphony and ballet are $35-$75 and museums are up to $20 when a special exhibit is in town.

9 Ray Lopez January 5, 2015 at 12:25 pm

Truth is, the US spent more and recovered faster in prior recessions, see the below which says exactly this. And developing countries are spending more (and recovering faster) now (Id). But, as TC would say, it could be due to the less-growth potential of the US vs the developing countries. RL
//
World Economic outlook April 2013 Figure 1.1.2. Government Expenditures during Global Recessions and Recoveries (With regard to fiscal policy, the current and projected paths of government expenditures in the advanced economies are quite different than during past recoveries, when policy was decisively expansionary, with increases in real primary government expenditures. In some advanced economies, especially in the United States, the fiscal stimulus introduced at the outset of the financial crisis was far larger than during earlier recessions. However, the stimulus was unwound early in the ensuing recovery. This pattern also holds across the major advanced economies, with the euro area and the United Kingdom showing sharp departures from the typical paths of government expenditures in the past. 3 In contrast, in the emerging market economies the ongoing recovery has been accompanied by a more expansionary fiscal policy stance than during past episodes. This was possible because these economies had stronger fiscal positions this time around than in the past. )

10 Ray Lopez January 5, 2015 at 12:27 pm

@ #9 – is what my comment references.

11 JWatts January 5, 2015 at 4:16 pm

“Truth is, the US spent more and recovered faster in prior recessions,…”

Yes and this is a good point. On the other hand it doesn’t really affect Sachs point which is that Krugman can’t credibly claim that US austerity has destroyed the recovery, but simultaneously contend that “The Obama Recovery” has been a success. It takes an Orwellian thought process to consider both of those points simultaneously true.

12 John Thacker January 5, 2015 at 1:33 pm

Eh, another paper that pretends that the derivative of the deficit is what matters for fiscal policy to be considered expansionary rather than its size. I don’t believe it.

13 Ray Lopez January 5, 2015 at 11:15 pm

@John Thacker – and why not? Even animals and children subscribe to the theory of “water under the bridge” and “don’t cry over spilled milk”. Only more money matters, not that good money was already spent. As the blurb I gave shows, the US, based on historic data, cut back on “more money” earlier this time than in previous recession recoveries. That said, I don’t believe “more money” would have helped the US become as productive as it was before 1970, so essentially I agree with you. I personally believe that the Keynesian, deficit-financing first instituted by Ronald Reagan in 1980 was the ’cause’ of the 80s/90s boom, and the ballooning of the financial sector. I can’t prove that though.

14 rayward January 5, 2015 at 12:34 pm

7. The problem with Brill’s book and Gladwell’s review of it is that both are concerned with health care circa 2008, not health care circa 2015. Soon enough, high deductible health plans will be the rule, supplemental insurance to cover the deductible will be considered a necessity, and the government will consider adopting another benefit to pay for the supplemental insurance that most people cannot afford. Health care has moved on, but the country (not only but especially Obama’s critics) is stuck on Obamacare.

15 dearieme January 5, 2015 at 2:43 pm

The problem with Gladwell’s review is that it is so slow.

16 Michael January 5, 2015 at 3:47 pm

I’m pretty sure that everything you need to know about that book is highlighted in this one sentence: “The exact price Gilead chose for Sovaldi said something in and of itself about the nonexistent regulatory environment drug companies knew they faced in the United States,”

nonexistent regulatory environment, WTF?

17 JWatts January 5, 2015 at 4:18 pm

Yes, that comment is delusional.

18 A Definite Beta Guy January 5, 2015 at 4:54 pm

The comment is partially delusional. The drug market may be regualted, but the specific question revolves around drug pricing. The bigger issue, which Gladwell points out, is that Sovadi is actually an effective drug, and existing Hep-C treatments ALSO cost a lot (and generally aren’t effective!). Sovaldi is a good drug (probably). The $1,000 price may not be unreasonable, if operating from the assumption that current Hep-C treatments are reasonably-priced.

19 Al January 5, 2015 at 9:33 pm

I agree.

Sovaldi is a good example of a bad example for drug pricing problems.

Sovaldi is a literal cure for a bad disease. Sovaldi will quite possibly save insurance companies, patients and governments money in the long run. Even at the current price, it may well be a bargain. If _only_ more drugs were like Sovaldi.

20 Walter McGrain January 5, 2015 at 12:41 pm

#5. The reddit thread was as stupid as I assumed it would be. Just the expected litany of stereotypes. I was hoping for some interesting ones.

21 Urstoff January 5, 2015 at 2:38 pm

Yep, Quora is much better for this sort of thing

22 Thor January 5, 2015 at 8:17 pm

The topic of sex vs violence came up more than anything else … followed by drinking restrictions.

If that’s the worst of it, well, civilization isn’t about to end soon.

23 JC January 6, 2015 at 1:54 am

Many people in Europe believe Americans have no holidays, are workaholics, don’t drink before 21 and can’t make it unless their parents are millionaires. However, Europeans can’t explain why Hollywood and Vegas are in the US, why the music we dance is Made in America and that New York alone has more entertainment events than Germany and UK combined…

24 Widmerpool January 6, 2015 at 10:11 pm

Americans have only recently begun dancing to the electronic dance music the rest of the world has been dancing to for the last 30 years and London has twice as many live music venues as New York.
Europeans think Vegas is in America because only Americans would want to go to Vegas.

25 Brian Donohue January 5, 2015 at 12:44 pm

#4 is good.

#5 is good.

#9. Sachs puts his finger on the frustration many have with Krugman, who moves seamlessly from doom and gloom ‘austerity’ predictions in 2013 to the Obama recovery ‘victory lap’ in 2014. Yet even his opponents genuflect to his genius.

26 bjssp January 5, 2015 at 5:17 pm

Where’s the evidence of Krugman taking a victory lap?

27 Brian Donohue January 5, 2015 at 6:22 pm

This was Sachs’ term, but the title of Kruggie’s December 28 column was “The Obama Recovery”, which featured such ‘vistory lap’ observations as:

“The truth is that the private sector has done surprisingly well under Mr. Obama, adding 6.7 million jobs since he took office…”

Contrast this with Krugman’s consistent characterization of the state of the economy as depressed when it suits him. Here’s a typical passing comment from a piece written on October 2nd:

“Call it depression denial syndrome: the refusal to acknowledge that the rules are different in a persistently depressed economy.”

Kevin Drum was just called out for the same inconsistency.

28 Ed January 5, 2015 at 12:46 pm

On “low cost high culture”, I’ve lived in St. Louis and visited Milwaukee and Detroit and their art museums, and am pretty familiar with Baltimore, which I quite like but doesn’t really fit into the same category since it is on the East Coast. The article argues that because these places have same cultural infrastructure as their glorious pasts, but now have much lower populations, you can live in them or visit them and consume alot of high culture cheaply.

There are three problems with this argument. The first is though a city of this type may have a good provincial art museum and a good symphony orchestra, that is basically all you are getting. The supporting secondary and tertiary players, the small clubs, cafes, galleries, and theaters are not there or very sparse. There is not much to do between visits to the one museum -and you can see the collections of the art museums in both St. Louis and Milwaukee in an afternoon- and the orchestra, though if you are the type that likes to live in the suburbs and drive downtown twice a year for your cultural fix this is probably OK. The second problem is that these places are fairly isolated, if you get tired of where you live there is no elsewhere you can easily get to (again, Baltimore doesn’t fit in definitely on the second ground and maybe on the first, and at least Milwaukee is close to Chicago).

The third problem is that an area can maintain cultural institutions from a period where it was much wealthier and maybe more populated only for so long, and many of these institutions are in financial trouble and may not last long.

For visiting, I agree that the smaller rust belt cities are very agreeable for a 2-3 day visit, though there are lots of places that fall into that category. In terms of living there I would exercise caution.

29 Ed January 5, 2015 at 12:59 pm

I’ll add that the list of small American cities with a decent art museum and small kind of artsy neighborhood, usually associated with a higher education institution, is pretty long. There is always some local billionaire willing to fund a few cultural institutions. There is something really wrong with a city of at least 300,000 population that doesn’t have this and it would be easier to list these places.

30 TMC January 5, 2015 at 1:05 pm

<1% of a larger city's population falls into the category of those who visit museums or orchestras more than 2 times a year. It makes more sense to enjoy the benefits 365 days a year and fly into New York for a weekend to enjoy the orchestra than to do the opposite. Oh wait, NY is not in the top 10 where my Midwestern city is. BTW, I visited NYC 4 times last year for family reasons. Outside of Broadway, there is nothing a weekend can't accomodate.

31 Hadur January 5, 2015 at 1:52 pm

Again, if you’re in the 99% of people who only consume high-falutin’ culture a few times per year, the problem with these cities is not the lack of an art scene but the lack of a vibrant local economy that creates jobs. Otherwise, the significant difference in COL probably compensates you for the fact that you might need to fly to other parts of the country (or other parts of the world) to see certain stuff.

32 Slocum January 5, 2015 at 3:09 pm

The third problem is that an area can maintain cultural institutions from a period where it was much wealthier and maybe more populated only for so long, and many of these institutions are in financial trouble and may not last long.

In these cases, you have to distinguish between core city and metro area. In 60 years, the city of Detroit declined from 1.8 million to under 700 thousand, but during the same period, the metro area added another million people. The patronage for cultural institutions hasn’t come from city residents for a very long time — it comes from Grosse Pointe, Bloomfield Hills, etc. As the city of Detroit gradually became poorer, it has been forced to cede control of more and more of its institutions (The Detroit Zoo and the DIA are now run by regional organizations and supported by multi-county taxes; Belle Isle just became a state park). Whatever happens to the core city, there’s really little danger that the metro area will become too small or poor to support these institutions. Roughly the same is true of other rustbelt cities — Cleveland and St Louis, for example. Like Detroit, the core cities have shrunk by half or two thirds, but the regions have sprawled and maintained or expanded their populations.

33 The Other Jim January 5, 2015 at 12:54 pm

6 — I guess Al Gore was right. “Science” really is whatever you want it to be.

34 charlie January 5, 2015 at 1:11 pm

Thank god. A discussion of health care costs that mentions Solvadi!

35 Steve J January 5, 2015 at 2:24 pm

9. Completely ignores monetary policy. Not sure how 6 years of slow growth followed by glimmers of moderate growth makes Krugman’s predictions of slow growth wrong.

36 lib@lib.com January 5, 2015 at 2:29 pm

Fair, but what Krugman doesn’t get to do is scream growth will be slow, and than when followed by, as you say, a glimmer of moderate growth, declare that this also proves he is right. Krugman never is falsifiable.

37 mavery January 5, 2015 at 2:55 pm

Of course not. He’s a macroeconomist.

38 Paul January 5, 2015 at 3:38 pm

Actually Krugman is not and never has been a macroeconomist, though he does write about macroeconomics. And macroeconomics is indeed unfalsifiable – there is always some factor you can point to to explain why your prediction didn’t pan out.

39 Boonton January 5, 2015 at 3:53 pm

Actually a few things would have falsified Krugman:

1. Massive inflation after the Fed literally multiplied the money supply several times over.

2. Massive spikes in long term interest rates after the Fed. gov’t starting running huge deficits both as a result of the recession and as a result of the stimulus plan.

3. A dramatic reduction in interest rates after the US began ‘austerity’ by letting stimulus and tax cuts expire.

Krugman did predict that back during the stimulus debate if we did not do anything Keynesian economics did predict that depreciation would slowly increase the return on investment and the economy would eventually recover sometime in “Sarah Palin’s 2nd term”. But we did do something and the Fed added monetary stimulus to the mix and now we have low unemployment near the end of Obama’s 2nd term.

I notice those who want to celebrate the recovery of economies often deploy the unemployment rate. But the unemployment rate is reduced both by putting people back to work and also knocking people around so much that they stop looking for work entirely. But in terms of total jobs (which you can’t fudge by counting ‘discouraged workers’ as an accomplishment), shows we are just slightly above where we were in 2008 (see http://www.deptofnumbers.com/employment/us/). Average income per capita paints a similiar picture.

All this paints a picture of Krugman as mostly right rather than mostly wrong.

40 SC January 5, 2015 at 5:18 pm

That is precisely how I read Sachs. It’s like he hasn’t bothered to read anything the guy actually said. I distinctly recall Krugman saying at the outset that our options were a) massive stimulus on the order of the initial drop in GDP, or b) years of grinding slow recovery followed by eventual capital replacement after every last machine had worn out beyond repair. I find the actual outcome indistinguishable from option b. What’s a typical 2015 GDP growth projection, 2.5%? After six years of agony? This sounds like exactly the worst case that Krugman described.

41 Brian Donohue January 5, 2015 at 6:27 pm

re #2. Well maybe Kruggie learned something since 2003, cuz he fell for the same whopper at the time and learned a lesson about making too specific a prediction that he hasn’t repeated since.

http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html

42 SC January 5, 2015 at 8:03 pm

You do realize he’s been screaming “ZLB” at the top of his lungs since we hit it, right? At the time he wrote the column you link, the federal funds rate was 1.25. Not high, but not liquidity trap territory. You can argue whether you believe in liquidity traps, but it’s disingenuous to accuse him of flip-flopping when our entire macroeconomy flip-flopped, and he proposed a model on which to base predictions which was consistent with the state of the economy at that time. When you’re driving, you do make use of both the accelerator and the brake pedal at appropriate times, I assume?

43 Brian Donohue January 5, 2015 at 11:18 pm

@SC,

First, just staying within the confines of Krugman’s “I’m lockin’ up a fixed rate mortgage!” panic, in hindsight it’s just impossible to say anything other than that he got that 100% wrong, and for much the same reason all the inflationistas got it wrong more recently.

Second, recent history shows that unconventional monetary policy can be effective at the ZLB, so the whole liquidity trap voodoo might be coming to an end.

44 SC January 5, 2015 at 11:42 pm

Ok, point taken on the fixed rate mortgage.

On QE, I mean, I’m also glad that it was tried, and it’s my operating assumption that it improved the outcome, but I’d hardly call it effective in the sense of preventing a slow, grinding recovery. And it’s not just me and Krugman; recall several fed congressional testimonies in which Bernanke suggested explicitly that Congress deploy fiscal stimulus.

45 Boonton January 6, 2015 at 5:38 am

Reading vintage Krugman it is interesting to ask why the prediction didn’t pan out (rates did go up slightly, from like 5.7% to 6% but not enough to justify a panic run for fixed rate mortgages. He would have rode an adjustable rate mortgage nicely down to today. Interestingly he notes some reasons his predictions may not come to pass:

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 — make that 3, O.K., maybe 4 — percent of G.D.P.

and

Of course, Mr. Fisher isn’t allowed to draw the obvious implication: that his boss’s push for big permanent tax cuts is completely crazy.

The tax cuts were not permanent, instead they were written with a self-destruct expiration date. A split Congress and ultimate dissatisfaction with Bush meant we’d eventually see some of those tax cuts reversed.

46 Boonton January 6, 2015 at 5:56 am

Also, one issue with QE is that at some point it ceases to really be monetary policy and simply becomes fiscal policy carried out by the Federal Reserve rather than Congress and the President.

47 Brian Donohue January 6, 2015 at 10:42 am

@Boonton, maybe that’s just it. I agree with you that there is still ‘some’ slack in the economy, an AD shortfall if you will, though I think it’s a lot less than Keynesians do.

This can be addressed by monetary or fiscal policy.

1. Fiscal policy. Note that despite years of wailing about ‘austerity’, we’ve actually been running quite a loose fiscal policy right through this recovery already- the deficit is still almost $500 billion this year, and the debt is $18 trillion. Personally, I view this as a Ricardian and accordingly, I plan to bequeath to my children an amount equal to my share of the debt that I will also bequeath to them. But most people aren’t Ricardian this way and are happy just sticking it to the next generation. I find this morally problematic.

2. Monetary policy. The Fed buying Treasury bonds doesn’t bother me as a taxpayer as much as the next “shovel ready” project in terms of return on investment. The Fed will prolly turn a profit, and the injection helps AD. More importantly, though, we haven’t increased the Federal debt (in fact, if we succeed in increasing inflation, we incrementally monetize the debt. Of course, the Fed may lose a bit on the bond it bought under this scenario, but the Treasury wins more.)

What we do do is incrementally reduce the value of every dollar out there. It’s a light touch- to me, 2% inflation may be the best tax of all. Which of course is why Ray Lopez and other right-wing goldbugs go berserk over QE.

Bottom-line: the Baby Boomers need to be made to pay for their profligacy one way or the other. Fiscal accommodation doesn’t do this.

48 Boonton January 6, 2015 at 11:48 am

I think no one can say how much AD shortfall there is unless stimulus is maxed out. As I said many times before you find that point by stimulating until you start seeing symptoms that the economy’s supply is getting maxed out (rising interest rates, rising inflation, real per capita income growing etc.).

#1. Imagine instead you simply purchased 30 year bonds equal to what you think your children’s share is/will be. In 30 years when the supposed Ricardian tax increase comes, you will simply pay it by cashing in the bond if you are alive or your kids will. Problem solved. Wait, that’s already been done since by definition someone has brought those bonds someone today has given up consumption they could have enjoyed to ‘save’ for the eventual tax increases….

#1.1 As you know, though, Ricardian equilivance only holds for a constant increase in debt spending. I.e. if the gov’t increases the deficit $100 a year forever then savings goes up $100 a year forever. But a one time $100 increase would not cause a onetime $100 shift from savings to consumption. Keynesian fiscal policy still works.

#2. ROI only makes sense if there’s an I. The proble with worrying about ‘shovel ready’ projects is that there’s no real investment being made if they are tapping resources that would have otherwise been left unemployed. This goes back to asking is there evidence that AD is being maxed out and the declining interest rates and inflation continue to say no. Hence neither you nor your children have been made worse off by any stimulus done to date (BTW, you do recognize that only a portion of stimulus was ‘shovel ready projects’, most was tax cuts).

The debate between monetary stimulus and Krugman goes back to the question of whether or not liquidity traps can exist and if we are in one. A problem with QE, though, is that after a point it begins to verge on fiscal policy.

Consider the opposite, consider TARP. The Federal gov’t basically borrowed $800B and put it into the equilivant of savings accounts at banks…hoping on one hand this would make the banks more solvent and also that the banks would take the money and make more loans for spending than they otherwise would. IMO that was essentially monetary policy but instead of happening at the Central Bank it happened on the ‘fiscal side’ of the accounting ledger.

In QE the Central Bank starts buying high quality bonds, it may expand to assets like home and car loans. Do this enough and you are essentially printing money and spending it. That’s not really monetary policy but more like fiscal policy and if it appears to work does that mean you’ve disproven a liquidity trap?

49 Brian Donohue January 6, 2015 at 12:38 pm

OK, you ignore my framing, but I will do you the decency of responding to yours, paragraph by paragraph.

1. This is not some kind of ‘great unknown’. Lots of indicators (employment, median wages) tell us there is a lot less slack than a few years ago. Others (U-6, LFPR, inflation) say there’s still some. But clearly, the AD issue is a helluva lot less compelling than a few years ago.

2. I have no idea why you say ‘instead’. Clearly, the potential vehicles I could use to convey my bequest includes 30-year Treasuries. The rest of the paragraph is morally problematic jujitsu.

3. I don’t see the relevance of contemplating a permanent increase in the deficit of $100 per year (why not $100 trillion- think of the savings we could generate!), but ok. As a Ricardian, I would view this as a liability today of maybe $2,000 (depending on my discount rate). The rest of that paragraph is Keynesian claptrap.

4. Well, the ROI on buying a Treasury bond is pretty straightforward, no? As far as ROI on shovel ready projects OR tax cuts, there is an industry devoted to telling us how these things, respectively, pay for themselves (although the principals are different people in the two cases) and produce great ROI (where the I is the increase in the deficit). I’m skeptical, but prepared to entertain such stories AFTER the government restores its fiscal books (which it has to do to prepare for the incoming Baby Boomer Entitlement Tsunami.)

5. If you accept that unconventional monetary policy can be effective at the ZLB, as recent history suggests, what’s all this liquidity trap nonsense?

6. Yup. To me, it doesn’t matter so much which arm of the government is doing the buying, Treasury or the Fed. TARP was a good idea. When the whole world is screaming for credibility, and you’re the guy with credibility, offer it up.

This helps my crystallize my thinking, from a taxpayer perspective as always. In the case of TARP or QE, the government expands its balance sheet, acquiring both an asset and a liability. TARP was risky, because the environment was so uncertain, but the gubmint bought at fire sale prices and BY ITS VERY ACTIONS, increased the value of those assets, so it all came right in the end, taxpayers made a nice return and its all over now.

QE seems less risky. The Fed stands to (probably) profit or (maybe) lose on its portfolio, but even with a $3 trillion portfolio, the scope for losses is chump change in Washington budget speak (and losses only occur under high inflation ‘monetize the debt’ scenarios anyway.)

When you turn to fiscal policy (shovel ready or tax cuts), the liability (increased deficit) is easy to see, just like TARP. But the asset story is elaborate, complicated, and unclear. As a taxpayer, I’m suspicious.

We can all agree that there is a helluva lot less slack in the economy than 3 years ago. For the reasons stated above, I much prefer monetary policy as the instrument for addressing this right now.

50 Boonton January 6, 2015 at 1:41 pm

1. Ultimately slack means the economy cannot meet demand and must respond with price increases. Is there more employment than there was a few years ago? yes. Median income, that’s a good indicator but we’ve gone from about $56K per household in 2000 to $51K (see http://www.davemanuel.com/median-household-income.php).

2. Well your premise is that the gov’t is borrowing today and since you assume a tax increase in the future will have to pay off that borrowing what better way to solve the problem than by being the lender. If you are the one who buys the bond today you are literally the person who the gov’t is paying tomorrow. If everyone did this then no matter how big the debt is you can’t really make an issue of it since each dollar borrowed is offset by a dollar saved. But wait, every dollar is saved since every bond is sold in the market. Maybe your purchases aren’t exactly what your future taxes will equal but ultimately all purchases will equal redemptions in the future.

3. Ricardian equilivance ($1 of gov’t borrowing is neutralized by $1 of additional savings out of consumption or investment) only works if the increase is permanent. If the gov’t made a onetime increase of $100 today to be paid in ten years there would be no reason for you to increase your savings $100 today. Absent inflation or interest you’d increase your savings $10 per year. That’s not Keynesian claptrap, that’s how the concept worked long before Keynes had anything to say about it.

4. Again ROI doesn’t make much sense unless you can calculate the I. If the Central Bank prints $1000 and buys a bond that pays $1010 in a year, what exactly is the ROI? It isn’t $10. The Central Bank owns the right to print money. Is it the ink needed to print? The electricity bill to store the 0’s and 1’s on the computers that track the transactions?

5. Well ‘unconventional’ policy starts to look a lot like fiscal policy. When the central bank starts buying bonds backed by car or home loans, for example, at some point how is that different than the gov’t borrowing money and buying homes and cars for people? Push the QE pedal enough and you may override the liquidity trap, but at some point you’re ceasing to do monetary policy and are doing fiscal policy under a monetary flag.

This helps my crystallize my thinking, from a taxpayer perspective as always. In the case of TARP or QE, the government expands its balance sheet, acquiring both an asset and a liability. TARP was risky, because the environment was so uncertain, but the gubmint bought at fire sale prices and BY ITS VERY ACTIONS, increased the value of those assets, so it all came right in the end, taxpayers made a nice return and its all over now.

So by definition fiscal policy increases real GDP absent supply being maxed out (it really is supply that gets maxed out, not demand unless you mean people don’t want to buy anything regardless of how much cash they may have in their pockets). Debt is measured in terms of debt over income, not the absolute value of the debt. If income increases then by definition the debt burden decreases. If you decrease income in the name of controlling debt you accomplish nothing if you end up with a higher debt burden than before.

Here I think is a key difference in our views. You seem to perceive your future income (or your kids’ future income) as fixed regardless of what happens today, so any gov’t borrowing today subtracts from future income but gov’t printing money has no impact. But the future is just the sum of all the pasts and this Recession has cost us at least several trillion dollers of lost GDP. That cost dwarfs any stimulus spending and even if tomorrow we find we have returned to full employment that past lost propogates into the future.

51 Brian Donohue January 6, 2015 at 2:17 pm

@Boonton, you repeat yourself rather than engaging. Oh well.

You conclude: “Here I think is a key difference in our views. You seem to perceive your future income (or your kids’ future income) as fixed regardless of what happens today, so any gov’t borrowing today subtracts from future income but gov’t printing money has no impact.”

Incorrect. Printing money is a tax. It devalues every dollar in existence today. Ergo, right-wingers foaming at the mouth.

Every time you turn around, you bump into another free lunch.

52 Boonton January 6, 2015 at 6:19 pm

Let me try to engage then. Your reject the free lunch because free lunches shouldn’t exist. I agree because free lunches, if they existed, would be snapped up so you don’t find free lunches anymore than you find $100 bills laying on the ground.

BUT suppose you did find $100 laying on the street one day. If you didn’t pick it up you would not only have lost an opportunity today but, being that you are so mindful about your children, remiss in not achieving the best you can do today for them. After all you could just drop that $100 in a savings account for them and let it ride and they would be better for it.

If a free lunch doesn’t exist, then AD has maxed out supply and any attempt to stimulate would result in higher interest and inflation. If you aren’t getting that, then you are leaving a free lunch on the table or a $100 bill on the street or whatever analogy you like.

Incorrect. Printing money is a tax. It devalues every dollar in existence today.

Who isn’t engaging now? You are not a dollar but a person. Yes you have some dollars but you also want/need to earn dollars both now and in the future.

If you were a person who had a huge stash of currency under your bed and your life plan was to use that money today and 30 years from now and every time in between then yes your interests are in deflation and avoiding taxes and nothing else. But since income is in your interest as well as savings then lost income is no less a tax on you than inflation would be.

53 JasonL January 5, 2015 at 3:26 pm

I found ironicalness in Gladwell’s analysis of Woodward vs Lewis. Has there ever been a dude who writes as much as Gladwell from a niche perspective and tries for hundreds of pages to convince us that niche perspective is really all that matters?

54 Floccina January 5, 2015 at 3:30 pm

2. Profile of Isabel Sawhill on marriage.

I wonder if all taxes were made individual but two people per child could get a life time tax deduction/benefit increase for signing a contract to be economically responsible for the child until he is 20 years old, if that would help. Then if support is not given the Gov. knows who to go after.

55 Floccina January 5, 2015 at 3:46 pm

Of course IMHO every article on the subject should note that it is our great wealth that has allowed the high divorce rate and that a woman getting a divorce is saying it is worth loosing his income to get me out of having to share a home and life with him. Single mothers are saying I can make it with a child without a spouse.

56 Lord Action January 5, 2015 at 4:09 pm

I’ve been an advocate of changing marriage tax treatment to be more child focused for some time, as have others around here.

I don’t see the reason for subsidizing two working adults with no children because they’ve signed an easy-to-withdraw-from contract. I do see a reason for subsidizing parenting, particularly for socially desirable practices like being a higher earner, staying a two-parent household, and having a stay-at-home-parent.

If I could magically engineer culture (which I can’t and don’t want to try), I’d redefine marriage as the thing that happens when you throw away the pill, and not the thing that happens when you sign a lease together.

57 msgkings January 5, 2015 at 4:49 pm

+1

58 Cliff January 5, 2015 at 9:36 pm

Why is having a stay-at-home parent socially desirable? Because there is no evidence whatsoever that it has any beneficial effect and appears to possibly be detrimental? Because it is a recent invention of modern society?

59 Turkey Vulture January 6, 2015 at 1:19 am

Recent invention? You mean like non-farming jobs and careers generally?

60 Lord Action January 6, 2015 at 9:31 am

We’ve had this discussion before, so you know the answer: Because labor in the home is not subject to tax and regulation, so there’s massively less dead-weight loss. You aren’t paying half your income in taxes (assuming you have a working spouse so your rate is high) for the privilege or paying half of what’s left to another woman who’ll pay a significant fraction of that in taxes again. You’re taking most of the woman’s productivity and lighting it on fire. I think you have an argument with women who will earn north of $250k in the market – perhaps they are better off specializing – but at $100k it’s not even close. You yourself have often presented the idea of deduction of childcare expenses to address a small part of this problem.

And whether or not it produces “better” kids in an economic sense (my prior is that pretty much nothing beyond basic care and feeding does), it seems clear the SAHM produces happier kids and moms and dads.

61 Mark Thorson January 5, 2015 at 5:08 pm

I don’t know if drones would be as effective as traditional aircraft for finding unmaintained pools. This hit the fan around here during a recent West Nile Virus scare. There was a hot spot about a mile north of me, and on a Monday a TV station interviewed someone from county vector control at the hot spot saying there was some source of mosquitoes but they hadn’t found it yet.

On Tuesday, the TV station sent their traffic helicopter to the area to snoop around. They found a home with a large unmaintained swimming pool. They knocked on the door, and they interviewed the resident, who is the brother of the property owner that lives in China. The pool was full of algae and teeming with mosquito larvae.

On Thursday, the county vector control hired an aircraft to survey the whole county, and they found over 100 unmaintained pools. I’m not sure any drone could have done that, except perhaps some large military models. Easier to just hire an aerial photographer. Satellites might be effective too.

62 Steve Sailer January 5, 2015 at 5:12 pm

Re: Eric Posner’s plan to allow the rich to buy extra votes:

“The problem with one-person-one-vote-majority-rule is that minorities are shut out unless they can organize.”

You know, here in 2015, minorities are endlessly encouraged to organize. It’s the majority organizing that has been rendered unthinkable.

63 John January 6, 2015 at 12:37 pm

Posner also misses two critical issues that have to be considered if one wants to support the quadratic voting solition:
1) Are the minority preferences that can be implemented in our public policies legitimately preference that should be reflected in public rather than private policy? I think its fair to say that democracies, and specifically the USA one, do a poor job there even now where minoritys aleady drive the agendas and outcomes. So the QV approach from the start would seem to imply this aspect of our polity would become greater, not less and it’s not clear that the biggest issue is any tyrany of the majority — it seems more a tyranie of minorities and this is creating ever increasing divisions within the whole.
2) It introduces the problem of effective demand in a very specific way for voting. The one person on vote rule at least starts from a fairly accurate position that all people have the same effective deamnd in the “market”. Eliminating this and introducing money to produce differential advantages for some by no means directly leads to any positive improvement in the output of some social wealfare function.

As last note is that the entire body of Public Choice economics has shown that the problem of political organization is not one minorities with intensne preferences face — those are the basic requirements for successful political groups in the current political strucutre. Yet more fuel for the argument the whole thing is a solution in search of a problem that doesn’t appear to exist.

64 Zach January 5, 2015 at 6:21 pm

The Gladwell piece is better than most of Gladwell’s work, because he has a little bit of critical distance from his main source for once and goes to the trouble of finding a second authoritative source rather than simply taking dictation.

Gladwell’s blithe dismissal of the Healthcare.gov story:

Brill wants the Web-site saga to stand for something larger, but in the end what it seems to stand for is the fact that Web sites, in the beginning, sometimes crash a lot.

on the other hand, is weak even by Gladwell’s gullible standards. Healthcare.gov was one of the worst implemented programs I have ever heard of. It ended up “working” after many months delay, staggering expense, and a huge addition to the workforce. If a couple of hundred million dollars and a huge loss of reputation for the administration, followed by a big electoral setback aren’t worthy of a chapter in a book explicitly focused on the history of the Affordable Care Act, then what is?

65 bmcburney January 5, 2015 at 9:24 pm

#1

It is interesting to note that the war-time advances in statistical analysis touted in the article failed, in rather specatular fashion, to produce any meaningful improvement in economic growth in the UK during the post-war period (at least as compared to the US, West Germany or Japan). This, I believe, despite the fact that the UK explicitly adopted a central planning model of economic progress at that time while the US (and others under more direct US influence like West Germany and Japan) generally limited the use of statistical analysis to the individual corporate level. In the US, I believe, statistics did not really take hold at the governmental level until Robert McNamara and other “Wiz Kids” took over the Pentagon and bestowed the benefits of statistical analysis on the Defense Departments’ effort in Vietnam. Subsequently, of course, the benefits of McNamara’s Pentagonian sucesses were made generally available in the “War on Poverty” and similar triumphs.

66 mkt January 6, 2015 at 5:33 am

The end of WW II ushered in modern economic statistics, in the US and the rest of the western economies. Kuznets won a Nobel for his work. There’s a reason so many economic time series only go back to 1947 or so, because that’s when the statistics started getting collected. This period also saw the rise (or really continuation) of the Keynesians on the one hand and the monetarists (along with various other laissez-faire groups) on the other.

Many of the US economists involved in those debates did statistical (or in some cases purely economic) work for military or governmental offices — this was the war that saw the rise of operations research, game theory, and the like. I was hoping the article would be about their wartime work, but the article focused on British statisticians. But a similar article could’ve been written about American economists (and maybe statisticians too, but I’m less familiar with them).

67 dearieme January 6, 2015 at 9:17 am

“advances in statistical analysis … failed … to produce any meaningful improvement in economic growth”: I dare say, but who on earth, bar some deluded socialist, would expect it to?

68 The Cranky Professor January 5, 2015 at 11:19 pm

Oh, please, make them stop calling DC insider reportage “history.”
There’s a real place for Oral History, but it lies with trained oral historians, not journalists. This silly book is back-stabbing by other means.

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