Archive for November, 2010

Krugman: “The Instability of Moderation”

I know this blog has been really heavy on the economics posting lately. But if there’s one thing worth reading this weekend, it’s Paul Krugman’s diagnosis of how the schism in the economics profession led to policymakers failing to implement the lessons learned from the 1930s. Really excellent stuff.

The only thing I would add is that it’s hard for me to escape a reductive conclusion from Krugman’s points: it’s seems unlikely that the “Samuelsonian synthesis” of moderate economic policy was uniquely unstable. Rather, any policy that diverged from a conservative-leaning economic orthodoxy would also face most of the same pressures. A more statist policy would almost certainly have been met with howls from many academic, think-tank, and political quarters. How would this have been any more stable? The root problem is that the economics profession became wrongly doctrinaire after WWII and the policymaking world, especially after the battering the economy took in the 1970s, was all too ready to lap up most of the wrong doctrine.


Cramdown, inflation, and fairness

Reading this bit from Kevin Drum got me to thinking:

But there’s one exception [to interest rates that are sensitive to inflation expectations]: fixed-rate loans. In particular, fixed-rate home mortgage loans, of which there are still quite a few. So for existing homeowners with traditional 30-year fixed-rate mortgages, higher inflation would be great. And for the bankers and investors who hold those loans, it would suck. Inflation may not erode savings, but it does erode the value of a fixed-rate mortgage…

Lately there’s been a lot of talk how cramdown/principal modification legislation would be great for the economy, but politically is a third rail. People would be furious that their neighbors were “rewarded” with a cheaper mortgage for their irresponsible behavior of taking out a mortgage they probably couldn’t afford. So…when the government steps in to lower the value of some mortgages for the benefit of some homeowners (and to the chagrin of banks), that’s perceived as unfair. But when inflation adjusts the value of  all (fixed-rate) mortgages, helping all (fixed-rate) homeowners and royally screwing over banks, that’s just luck! And thanks to the wonder of modern central banking, inflation is largely controlled by…the government!

Right now, I don’t have anything meaningful to say about this. But it does give some interesting insight into how “commonsense,” intuitive, morally oriented thinking a) really can’t get its arms around issues that affect the economy as a whole and b) hasn’t changed much in the last 20 million years or so.

In a much-noted laboratory experiment several years ago, described in the report “Monkeys Reject Unequal Pay,” the primatologists Sarah F. Brosnan and Frans B.M. de Waal trained capuchin monkeys to perform a certain task for which they received cucumber slices. The monkeys performed just fine, until they were permitted to see others being rewarded with grapes, a higher-value payment. Previously acquiescent, many of the cucumber-receivers promptly stopped participating, sometimes even throwing those measly, unfair cucumber payments out of their cage. Aversion of that sort is well established among Homo sapiens as well—even though, at first blush, it appears irrational and, thus, paradigm-busting for economists trained in the Homo economicus model whereby people are considered to be “rational and utility-maximizing” creatures. Behavioral economists call it “inequity aversion”—the tendency to turn down a perfectly good offer if others are getting a better deal.

Doubting David

I think Paul Krugman gets the point, but misses the purpose, of this David Brooks passage:

The economic approach embraced by the most prominent liberals over the past few years is mostly mechanical. The economy is treated like a big machine; the people in it like rational, utility maximizing cogs. The performance of the economic machine can be predicted with quantitative macroeconomic models.

These three sentences are almost a perfect distillation of the current conservative economic talking points. And I want to emphasize that they’re talking points – they’re designed not as a serious intellectual argument but rather as a marketing ploy to appeal to the rubes.

The models offered up by Krugman and other saltwater economists have one major weakness: they don’t jibe with “common sense” thinking, which equates the government’s finances to that of a big household and is thus inherently suspicious of public debt and the idea that you can and should spend your way out of bad times. The current conservative public opinion strategy is to take that widely held but mistaken suspicion, and say things that amplify it as much as possible. Just sow doubt everywhere you can. Rather than try and attack the models on their technical merits, something most pundits simply aren’t qualified to do (and would be counterproductive anyway since it would be over your target audience’s head), you can just attack the modelers as hubristic for even trying to get their arms around something as complex and mysterious as the economy. And in doing so you make it very easy for the average person to get comfortable with thinking that they know just as much about the economy as those pointy-headed economists, so to hell with their expertise, let’s do the commonsense thing and cut spending during a recession.

UPDATE: Of course, Dean Baker is way more cogent than I could ever be. “David Brooks: Math is Hard, Just Give Money to Rich People.”

How structurally sound is the real economy?

Reading this Yglesias post about civilian-to-military brain drain reminded me of a question that’s been nagging me for a while: once we fix all these dumb inefficiencies like government overinvestment in defense, will there be productive work out there to replace the jobs lost? Obviously the US economy has a lot of cyclical unemployment right now, but hopefully someday relatively soon things will be better on that front. But it of course won’t be good either if we make the existing economy more efficient without firms stepping in and actually growing it, creating new value. And with real wages trending flat at best, it’s hard for me to see that growth happening.

A similar case is that of the incarcerated population – in a sense, America takes a large number of people (mostly men) who would most likely be otherwise unemployed and sends them to prison instead of giving them proper social services and job training.  (And from what I recall they don’t show up in unemployment figures either.) We should have more enlightened policies on minor crimes, but then what? Will there be jobs for these people to pull them out of the hole they’re in?

Crouch, Kristol, and Trolling

Interesting to see Ta-Nehisi Coates wade into the Crouch/Mtume debate on Miles Davis’s electric period. It’s very difficult for me to comment on what I think of Stanley Crouch’s perspective without straying into ad hominems against Crouch himself. And the reason for that is there’s a point that I always come back to and struggle with: how did Crouch turn toward musical conservatism in the early 1980s? Remember, Crouch was a drummer in the NYC loft scene of the late 1970s, playing avant-garde music. By most accounts he wasn’t particularly talented, and so dropped out to focus on writing. So how does someone go from a mediocre practicioner of forward-thinking music to the staunchest critical opponent of the very same style? There are almost no parallel conversions in other fields that I can think of.  And so the explanations I always come back to are the corrupting influences of fame and money. Stanley Crouch saw a niche to be filled as an angrier, more extreme disciple of Albert Murray, and a handy rising star to hitch his wagon to in the person of Wynton Marsalis.  And he ran with it and it’s worked out very well for him. The rarefied circles of the New Yorker and others take him seriously and treat him as an expert on something they mostly don’t understand very well themselves.

And so it’s hard for me to see Stanley Crouch as anything but intellectually dishonest. A useful comparison is to Bill Kristol. The last 10 years have shown that Kristol is not playing the same game as other commentators. For most, commentary is an end in itself, an attempt to get at larger truths because the pursuit of them has policymaking value, whereas for Kristol it’s merely an instrument to always be used for maximizing his own power. And so this power-above-everything ethos frequently leads Bill Kristol to say all kinds of  crap that’s so obviously false that it’s impossible to believe that he really believes it. So I don’t think engagement is usually a productive way of handling this kind of figure. They don’t have the basic respect for their audience and subject matter to treat what they do as participating in an honest debate. Those who recommend that Crouch have the humility to say “it’s just not for me” are missing the point.

Stanley Crouch isn’t really a critic. Rather, it’s more useful to think of his writing and speaking as just the repeated playing of a game, a game called Figure Out How to Make Wynton Marsalis Always Right. It’s the real-life equivalent of trolling. Why are we still feeding him?

Mmmm, pandering

A couple of loosely related thoughts about my previous couple of posts on Nancy Pelosi’s white people problem:

First, I think that Democratic Party elders don’t seem to appreciate that the leadership’s popularity likely has real effects on party discipline. A world in which Jason Altmire runs ads trumpeting his votes against Pelosi isn’t just bad because it makes Pelosi look impotent and makes the party look like a bunch of disorganized clowns. Rather, the main thing that’s bad is that Jason Altmire frequently votes against Nancy Pelosi and he sees doing so as not just good policy, but good politics. Presumably, a nationally popular leadership would cut some of the incentives for Blue Dogs to make these bad votes.

Second, where is the marketing effort to make inroads into the white Republican base? The GOP is investing tons of resources into outreach among Hispanics. It’s cynical pandering, of course, but things can’t get much worse for them among minority constituencies so it’s hard to see even cynical pandering as strategically bad. Just as the GOP isn’t going to do immigration reform or anything else policy-wise that Hispanics want, I’m absolutely not suggesting that Democrats pursue policies that fit the preferences of moderate-to-conservative whites. But it seems a rather more thorough strategy should be tried to woo them than the current short-term plan of “just wait for the GOP to tank the economy” and the current long-term plan of “just wait for changing American demographics to make them irrelevant.”

Pelosi hatred, continued

A quick addendum to my previous post, spurred by reading this post from Monica Potts. If I’m reading her correctly, Potts surmises that Pelosi hatred among wingnuts is mostly about policy. Pelosi didn’t communicate well with Tea Partiers and pursued policies they didn’t like, therefore they hated her. I think this line of reasoning is probably off the mark; I remember hearing lots of frothing Pelosi-hatred well before the 111th Congress, so merely saying it’s all about health care reform or other Obama-era policies can’t be right.

To be sure, enacting policies people are already opposed to isn’t going to make them happy. But the groundwork for Tea Partiers hating Nancy Pelosi had been laid well before she said or did much in the public eye. Conservative strategists realized that Pelosi made for a convenient symbol for practicing dog-whistle politics, and the carnival barkers of talk radio and Fox News did the rest. These narratives (like that of Pelosi the arrogant, ditzy, matriarch from San Francisco who loves the gays and consequently hates your way of life) are created earlier than Monica realizes, and we ignore them at our own peril.