A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

Category: Policy

Where I Am Somewhat OK Being Called an Elitist Compared to the Alternative…

by pdxblake

“The Democratic political advisers who went from working on behalf of the president or his party to advising the San Francisco billionaire Thomas F. Steyer on his campaign against the Keystone XL pipeline provide a telling example. Twenty years ago, they might have gone to work for the Sierra Club or the Nature Conservancy or run for public office themselves. Today, they are helping to build a pop-up political movement for a plutocrat.” —Chrystia Freeland in the NY Times

I will admit that this is a bit out of my normal subject of economics that I write about, but it ties into economics because the economic situation of the country and specifically the distribution of the gains from the economy are driving the development of public policy in a very different way than they used to. As someone who often experiences the feeling of “it would be easy to fix this if people weren’t so ignorant” (which I suppose makes me a bit of an elitist), I have to admit that the technocratic type approach should get my support; but the way it is described in the quote above, it has the opposite effect.

The way it is designed now is that the ability to get the technocrats to pay attention to an idea is in direct correlation with the wealth backing the think tank employing the technocrats now and employing the policymakers when they leave government. Policy under this type of model is a struggle between billionaires to decide which of their vanity projects and visions of society is imposed on the country. Frankly, if you want to call me an elitist, I think more technocrats should be running policy and it should be removed from political processes, but I don’t want to see it turned into a billionaire’s sport, and even more than that I worry about the blowback to this type of governance.

The link I think Freeland is drawing is between the billionaire-funded technocratic people making the policies and the rise of populist movements like Occupy Wall Street and the Tea Party. The problem with each of these movements is they typically start from a disdain for the status quo (rightly or wrongly) and first want to up-end the current system.  I am quite strongly an anti-revolutionary and (except for the times when I get worked up) I greatly prefer working within the system rather than overturning it for a return to some quaint time when all banks were small and local (OWS) or when the Constitution (TM) was respected (Tea Party).  Nevermind that these things were never really true (remember Potter in It’s a Wonderful Life for the lovable local banker or, um, segregation and slavery?).

They are more expressions of populist rage against the system that seems to have gone after them and ‘put them down’. This typically leads to, speaking modestly, TERRIBLE POLICY. It usually looks for scapegoats and often is driven more by anger than by thoughful discussion.

I don’t like the status quo and I don’t like the main groups trying to dramatically change it. I don’t think there is a “middle ground” because OWS doesn’t carry much sway within the Democrats and the Tea Party has taken over the policy of the Republican Party, so it is not symmetric (both sides are not at fault). But there’s not enough within the Democratic party that is focused on the underlying economic issues of the plutocracy. There is more working on the edges.

I’m not sure what the solution is, but I worry about the end-game between the plutocrats and the populists and particularly the probability (whether in the US or abroad) the populists will get enough power to make some really ugly decisions (not just the US–remember the EDL in the UK, Marine Le Pen in France and others of similar affiliation around Europe).

UK Triple-Dip Recession (and how we didn’t let it happen here)

by pdxblake

As Evan wrote the other day (which was then repeated nearly verbatim by Paul Krugman), the most important part of Obama’s inauguration speech for the economy was how little he talked about it:

Obama’s second inaugural speech was 2,214 words long, but two very important words never got said: economy* and unemployment.  In fact, the subject of the struggling economy that dominated Obama’s first term never came up. Ask yourself: when was the last time you heard a major address that didn’t center entirely upon jobs, growth, and the woes of recession?

Let’s hope that this is a sign of the diminishing importance of the deficit hand-wringing crowd who have been consistently wrong throughout the recession.  Where this connects with Obama’s inauguration non-mention of the economy is that it demonstrates the benefit of the US being the least willing to implement unnecessary, pointlessly savage austerity.  Not that a lot of Very Serious People haven’t been advocating for it, but (and here we may want to thank the dysfunctional Congress) very little was actually implemented.

As a result, we avoided the fate worse than deficit: triple-dip recessions.  If you want to see what would have happened if we had moved down the path of harsh austerity during a slow recovery, just look at the UK:

It’s no accident this era of zero growth has coincided with an era of austerity. Despite entering office with borrowing costs at 50-year lows, the Cameron coalition decided the government deficit, and not the growth deficit, was the chief threat to future prosperity. It raised taxes and cut the growth of spending, but did so with little regard for what constituted smart cuts and what did not. As Portes points out, public net investment — things like roads and bridges and schools,  and everything else the economy needs to grow — has fallen by half the past three years, and is set to fall even further the next two. It’s the economic equivalent of shooting yourself in both feet, just in case shooting yourself in one doesn’t completely cripple you. Austerity has driven down Britain’s borrowing costs even further, but that’s been due to investors losing faith in its recovery, rather than having more faith in its public finances. Indeed, weak growth has kept deficits from coming down all that much, despite the higher taxes and slower spending. In other words, it’s economic pain for no fiscal gain.

Really, I don’t need to add much to that lesson except to quote further the reference to “Keynes’ maxim that the boom, not the slump, is the time for austerity”.  Hopefully the fading importance of the deficit chickenhawks will allow the US to fully avoid the experience of the UK.

Black swans, the debt ceiling and Obama’s refusal to #MintTheCoin (June redux)

by pdxblake

The GOP has officially caved in on the debt ceiling debate, supporting a 3-month extension that would require the senate to pass a budget.  Paul Krugman says, “Obama was right” in a blog post:

I’m happy to concede that the president and team called this one right.  And it’s a big deal. Yes, the GOP could come back on the debt ceiling, but that seems unlikely. It could try to make a big deal of the sequester, but that’s a lot more like the fiscal cliff than it is like the debt ceiling: not good, but not potentially catastrophic, and therefore poor terrain for the “we’re crazier than you are” strategy. And while Republicans could shut down the government, my guess is that Democrats would actually be gleeful at that prospect: the PR would be overwhelmingly favorable for Obama, and again, not much risk of blowing up the world.

I think he is being a bit too positive on the outcome because, yes, while the other options to create havoc by the Republicans would not be nearly as catastrophic, they are still terrible, and it doesn’t necessarily provide vindication to Obama that he was right in this case, as the economist Andy Harless notes on Twitter:

– Krugman says Obama “called it right” (i.e. GOP was bluffing on debt limit). Not sure an ex post right call constitutes responsible policy.
– If there was a 20% chance they weren’t bluffing, was it worth taking off the table all options for dealing with that 20% outcome?
– Calling the GOP’s bluff is like owning an asset with a positive median return but a long left tail. Yes, it usually pays off.

The idea he is saying about the asset example can be demonstrated by this terrible thing I just made in MS Paint.  The median return (the size of the area to the right of the black line) is positive.  However, the left tail being much longer than the the right shows that there is a possibility (even if it is small) that a really bad outcome could happen (20% of the space under the curve is to the left of the red line).  This represents the probability that the GOP was not bluffing and was prepared to force a default, which would be really bad, much worse than the median outcome is a good outcome.  Everything else (like letting the sequester kick in, but preventing default lies somewhere between the black line and the red line).

Bad stuff

The principle behind his argument is that just because the expected value of his “call their bluff”  strategy was positive, it was not a good strategy for Obama to rule out his other options (like the platinum coin, or other options).  This question is an example of the difficulty in dealing with Black Swan events (of which the financial crisis is a notable example).   Since this is a blog and not something more formal, I can cheat and cite Wikipedia’s definition of why a Black Swan event is hard to manage:

  1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology
  2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
  3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

For (1), there has not been a US government default, or historical examples of the country coming close to default for the past 150 years, except for the fight in August 2011 over the debt ceiling, which is an awfully small sample to use to develop conclusions for future policy.  As a result of (1) and the limited amount of control that John Boehner has over the extremist elements of the GOP House makes predicting probabilities that the debt ceiling would not be raised very hard.  And for (3), because the US government has never defaulted on its debts on the Federal level, and because US Treasuries are considered a ‘risk-free’ asset in all the models used for pretty much the entire world, it is impossible for anyone to understand how important the ‘risk-free’ nature of US Treasuries is to the global financial system (and thus makes a ‘mistake’ by the House GOP more likely because it creates a psychological bias that blocks the comprehension of how damaging it would be to allow the US government to default).

Why rehash the theory behind whether Obama was playing with fire with the House GOP?  Why not move beyond banging ourselves in the head with a hammer and start thinking about more positive policies that could help the economy?  Well, because it’s not necessarily over.  Business Insider quotes a GOP aide in the House with three possible outcomes during the 3-month break from the current crisis:

1. Dems decide to make their stand here and refuse to pass anything that is short term or tied to the requirement for the Senate to pass a budget.  If this happens, things get ugly fast.  You get the same war all over again and Republicans will likely feel more righteous about their resistance given the Dems unwillingness to take on what (the GOP sees as) very moderate reforms.

2.  Dems agree to pass a budget and the three month extension kick the debt ceiling to around June.  That means the hard line anti-spending guys can make their stand on both the CR in March and all the FY14 appropriations bills between now and June.  That should function as a great pressure release valve for leadership to force through what will likely be a less-than-palatable long-term debt ceiling extension.

3. We get a short term, but without the budget reform or the Senate never actually passes a budget.  CR becomes extra contentious, approps bills turn into the same type of go around as HR 1 and then the debt ceiling arrives with a unified, very angry right wing of the party. Back to  things getting ugly, only worse.

The short-term increase is contingent upon the Senate passing a budget, upon threat of having their paychecks withheld, which might be unconstitutional (according to House member Daryll Issa earlier this afternoon before his party got to him and he changed his mind).  That’s not hard, the Democrats control the Senate, you say.  But wait, the Republicans filibuster everything they don’t like and the Senate still has not yet made any changes to the filibuster.

So, for as relieved as everyone is today that the era of crisis is over, it might not be. If everything falls apart, we’re back to square one with the debt ceiling in May or June instead of February or March and, if things move along the lines of Scenario 3, Obama may be wishing he had not said he won’t #MintTheCoin or use the 14th Amendment to bypass the debt ceiling (or may try to wiggle out of his pre-commitment not to use them.  Let’s hope it doesn’t come out this way.

Norsquished

by pdxblake

So many words have been spilled on the so-called “fiscal cliff” (which is a terrible metaphor for something which only has a significant effect on the economy if it is not undone within the first few months of 2013), and Republicans are pledging to break the pledge they made to Grover Norquist to never increase government tax revenue.  For example, Lindsay Graham (of “Men Who Look Like Old Lesbians”  fame) seems to be the latest (never mind whether any deal will pass muster of Eric Cantor who seems to enjoy undermining John Boehner’s authority).

However, the change in his thinking to no longer let his votes be determined by some unelected yahoo (Norquist), Graham continues to spout nonsense and pretends that raising the highest marginal tax rates (those that apply on the income of the most wealthy above a certain level).   Quoth the Graham: “”When you’re $16 trillion in debt, the only pledge we should be making to each other is to avoid becoming Greece, and Republicans — Republicans should put revenue on the table, […]We’re this far in debt. We don’t generate enough revenue. Capping deductions will help generate revenue. Raising tax rates will hurt job creation.”

Let the nonsense continue.  First, the US is not Greece, because it has control over its own currency and is facing record low borrowing rates (being able to print the world’s reserve currency helps too).  Krugman reiterated that point on his blog today, where he compares the US and UK which both have low interest rates on their government bonds, but where the explanation given is different, in order to flatter the vanity of the Very Serious People and their insidious and awful policy of austerity amidst depression:

In the United States, we supposedly have low borrowing costs despite our budget deficit […] Meanwhile, in the UK, the official line is that the low rates are a reward for all that fiscal austerity  — and VSPs get upset and abusive if someone well-informed points out that a much better explanation is that investors expect the economy to remain weak, and hence for short-term rates to remain very low, for a long time.

And even still, capping deductions to raise revenue will just not be enough to reduce deficits in the absence of either higher tax rates on higher income people, or by extending the deduction cap well into the middle class.  But, let’s not get ahead of the real point: now is not the time to be cutting the deficit.  With unemployment still high, as a result of a shortfall in demand (in large part caused by households paying down debt, which reduces their spending which reduces the demand for products, which leads companies to sit on their cash and not expand their hiring, which leads to continued slow growth).

However, the areas of the economy which were the biggest drags on the recovery (housing and government employment and spending) are finally becoming neutral or even positive forces that add to GDP (or at minimum, have stopped subtracting).  So why then would we take a step backwards and hamper the recovery by adding a drag on the economy.  Let the economy recover and unemployment get back to 5 or 6% and see what the deficit is then, which will give an idea of what the trend growth rate is and what the deficit converges to once the automatic stabilizers (unemployment insurance, food stamps, etc) are no longer at high levels.  If we wait until then to find out how much we actually need to cut the deficit to bring its level below the trend growth (to make it sustainable), there will be fewer painful choices (and less needless pain) than if we start slashing spending now.

Rick Perry To Spend Remaining Days Drug Testing Poor People, Crying

by evanmcmurry

Rick Perry on SB 11, filed today, which would require those applying for government aid to take a drug test:

“This will help prevent tax dollars from going into the pockets of drug abusers,” Gov. Rick Perry said Tuesday at a news conference. He said that the goal of the bill is to “empower every Texan to reach their potential,” because “being on drugs makes it harder to begin the journey to independence.”

As Perry himself knows, using drugs greatly increase your chances of getting caught singing “I’ve Been Working On The Railroad” in a New Hampshire bathroom and losing a Republican primary to the weakest field in political memory.

Anyway, Rick Scott tried this, ahem, policy in Florida and found out that it not only netted few drug users but cost the state more money than it saved. But at least Scott implemented the tests in a corrupt scheme to funnel state money to his own drug testing corporation. Rick Perry appears to be doing it because he’s sad.

Bonus: “‘It is a legitimate function of government to help people that are not able to help themselves,’ added Lt. Gov. David Dewhurst,” a.k.a. the guy who got whupped by long shot Tea Party nutjob United States Senator Ted Cruz last week. Look who’s found some perspective!