Month: March 2013

Let’s take two cases, namely higher infrastructure spending for the United States today and looser monetary policy for the eurozone.  I favor both, but often I am left discomforted by the endorsements I see, in part because I wish to see those issues framed differently.

On infrastructure spending, I prefer to start with a frustration with current and recent infrastructure spending.  It doesn’t seem very well allocated.  It takes too long.  We just spent a huge chunk through ARRA and couldn’t even clear up the backlogs at LaGuardia and Kennedy airports, the major gateways to America’s #1 city.  We don’t seem able to build up nuclear power as significant protection against climate change.  High-speed rail doesn’t seem like a good investment in the places where it is going through.

One can favor more infrastructure without thinking that “the point” is simply to demand and then get more spending.  “The point,” in my view, is to improve the quality of our decision-making and our processes of implementation.  If it were one or the other, I would rather improve the long-run quality than get the extra $$ today.  So that is the issue people should talk and write about more often, and it seems odd to me to bring up the current $$ issue without insisting on the broader and more important point about massive institutional failure.  It’s almost as if the writers don’t want to weaken their case for the extra $$ to be spent.

Alternatively, I would put it this way: I would like to be able to favor more infrastructure spending than I do (which is still to favor an upgrade).

(I also get nervous when I read 2013 claims that infrastructure spending will significantly boost employment.  I doubt if it will make any more than a very small difference in long-term unemployment, the core of our remaining employment problem.)

Ultimately, I think that these differences in framing are more important than any agreement over the conclusion, although of course both should be reported.

On eurozone monetary policy, I prefer to start by understanding the roots of poor ECB policy.  I don’t ascribe it to bad macroeconomic theory, for the most part, although it is never hard to find examples of bad macroeconomic theorizing, including in the policy community and in speeches.

I ascribe it to the desires of European voters, most of all in the wealthier northern countries.  Very often they have protected professional and service sector jobs and a privileged insider status, for both private sector and public sector reasons.  Four to six percent inflation, to them, means something close to a four to six percent real wage cut.  They won’t be able to renegotiate their way back to the previous real wage because deep down they sense — correctly — that today we live in a different world.   So they hate inflation and prefer to hold on to their insider rents.

So much of eurozone economic policy, and indeed the entire underlying structure of EU interest groups, is based on the desire to protect inside workers from possible real wage cuts.  It therefore should come as no surprise that those same forces have such a stranglehold over monetary policy.  A lot of creditor financial institutions don’t like inflation either.  Nor do old people like inflation, in part because not all of them understand indexing and in part because indexing may be imperfect for the portfolio decisions of the elderly.  The elderly are a major swing voting bloc in many countries.  In the past I have referred to “gerontocratic deflation.”

Now I don’t mind people fulminating against bad (read: tight) eurozone monetary policy per se.  But in my view it misses or at least buries the lede.  The real story here is that a “dysfunctional to begin with” set of EU interest groups have now, due to changing circumstances, become much more dysfunctional.  The core lesson here, in my view, is that governments devoted so obsessively to rent protection won’t be able to make a lot of required tough decisions.  And yes, I become frustrated when I see the whole mess somehow blamed on Austrian economics, the Austerians, or related ideas.  At best that is superficial and at worst misleading or downright false.  It’s mostly a way to score debating points, at the expense of a fuller picture of what is going on.

I don’t like the meme “it’s the xxxx, dummy,” but I’ll try it in modified form: “it’s the interest groups, mein Freund.”

So there we have a story: “entrenched EU interest groups — including labor and the elderly — hinder easy money.”  Much of the left doesn’t like to stress the former factor and much of the right doesn’t like to stress or even admit the relevance of easier money, and so you have an under-reported story.

The bottom line is this: I am happy to read that there is a “sensible middle” position on both infrastructure and monetary policy.  I am happy to hold some version of that position.  But I am unhappy when that broom is used to sweep some very important underlying issues under the carpet.  The insistence on a sensible middle position, while true, is very often a cloak for partisan reframing of the issue itself and a somewhat Orwellian forgetting of what is really going on.  If we could get the underlying issues right, better policy would have a greater chance of coming to pass.  And we would understand the world better.  It also would be harder to score points in written or televised debate.