Brad DeLong's Grasping Reality… 2015-03-22 16:47:44

Live from Downtown Portland: Starbucks is now also a wine bar, serving hipster staples like truffle mac & cheese and artichoke-goat cheese flatbread?! I must live in a cave…

It does make sense: having disrupted the coffee shop in the morning and afternoon, why not use the fixed and network assets to disrupt the evening wine bar business next?

I wonder if live music and slam poetry is next?

Brad DeLong's Grasping Reality… 2015-03-18 18:25:39

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Live from La Farine: Alissa Walker: Here Are the Water Restrictions California Should Have Passed Today: "After confronting the truth that we have only one year of water left, California passed new water restrictions today which are WIMPY AS HELL...

...Here, California, I fixed them for you.... Let's get real. Here's what California needs to do now: Kill all lawns.... That includes golf courses.... And also car washes.... Require cities to landscape with native plants.... Implement lawn 'buy back' programs.... Ban the bottling of water in the state.... Mandate enforcement of water restrictions.... Launch a #waterhog campaign.... Appoint a water czar....

Assemble a tech task force: Where is the Hyperloop for water? Why aren't there more desalination startups? Who is promoting dietary alternatives to meat and almonds and all the other resource-sucking foods which are parching the Central Valley? We have no shortage of people who are working every day to tackle stunningly brilliant solutions to the world's problems. Let's get them working on the biggest issue the state has ever confronted...

Hoisted from Others‘ Archives: James Kwak: Who’s a Freeloader?

James Kwak: Who’s a Freeloader?: "Daniel Rodgers’s review [of Williamson et l.]... is titled “‘Moocher Class’ Warfare”...

...Tea Party members like Medicare and Social Security, which they think they have earned through their work, but don’t like perceived freeloaders who live off of other peoples’ work. From the [Williamson et al.] paper (p. 33):

The distinction between “workers” and “people who don’t work” is fundamental to Tea Party ideology on the ground. First and foremost, Tea Party activists identify themselves as productive citizens... in opposition to nonworkers seen as profiting from government support for whom Tea Party adherents see themselves as footing the bill.... Tea Party anger is stoked by perceived redistributions—and the threat of future redistributions—from the deserving to the undeserving. Government programs are not intrinsically objectionable in the minds of Tea Party activists, and certainly not when they go to help them. Rather, government spending is seen as corrupted by creating benefits for people who do not contribute, who take handouts at the expense of hard-working Americans....

Leave aside the self-serving nature.... Does it even make any sense?... Alice works from twenty-five to fifty-five making $30,000 per year, more than double the minimum wage. Then she loses her job and goes on Medicaid--a classic “welfare” program.... Beatrice... works from twenty-five to sixty-five making $30,000 per year.... Then she retires and goes on Medicare.... Who’s the freeloader?

From the perspective of net benefits, they are both freeloaders.... On an annual basis, it seems like Medicare beneficiaries are freeloading even more than Medicaid beneficiaries, primarily because Medicare is more generous and because Medicare beneficiaries are older and hence consume more health care.... If you follow the money, almost everyone is a freeloader.... But from my perspective, neither Alice nor Beatrice is a freeloader. The right way to look at Social Security, Medicare, and Medicaid, in my opinion, is as insurance... against risks that may not materialize until decades in the future... death of a spouse, poor health, health care inflation, etc.... Americans like the things that government spends money on, but they claim not to like government, which leads to our current political mess...

April Fools‘ Festival: March 17, 2015

Kept Simple watches John Podhoretz star in the clown show:


What Is the Matter with Wall Street?

Il Quarto Stato

I steal my title from my esteemed ex-roommate and coauthor Robert Waldmann, who writes:

In... What's the Matter with Kansas? Thomas Frank asks why lower middle-class people in middle America vote for Republicans against their own self-interest.

I wonder why wealthy investors vote for Republicans against their self-interest.

Brad DeLong wonders why they favor tight money and austerity against their self-interest....

There are two separate issues, actually three, "fear, surprise, ruthless efficiency, and near fanatical devotion to the Pope!" No: I mean: support for hard money, austerity, and Republicans.

There is an important set of issues here. Since the founding of the Republican Party, odds are that if you look at a period at random the economy will be doing a lot better if a Democrat is president. Alan Blinder and Mark Watson say that they can find no reason for this, but I think that simple competence--not deregulating financial markets to extraordinary excess and allowing a debt-fueled overleverage bubble, not letting the deficit explode at a time when crowding-out is significant, not demanding that your close-friend-the-Federal Reserve Chair overgoose the economy, not pursuing budget balance in the middle of the Great Contraction--is likely to have a lot to do with it. And by now the 1% should have learned from history that economic policy under Democrats is likely be less incompetent than under Republicans. The demand for austerity--the United States has not had an inappropriate fiscal expansion large enough to truly serious damage to the economy since 1783, and very few Republicans were pro-fiscal austerity back during the Reagan years. And the age when the rich and the superrich benefitted materially from low inflation and deflation more than they lost from a low-pressure economy ended with World War I.

Robert sets forward three hypotheses:

  1. Support for austerity springs from a rich-person's belief that the market must reward virtue (for if it rewards vice then they would have to deal with the fact that they are vicious), and hence prosperity can only be the result of hard work. If there were a way to produce prosperity costlessly--if there were free lunches to be eaten--then vice would be rewarded. Thus the extraordinary hostility to Keynes and all the others who point out that minor technical monetary and fiscal policy adjustments can go a long way toward generating prosperity. In the words of Churchill's private secretary P.J. Griggg: "I distrust utterly those economists who have with great but deplorable ingenuity taught that it is not only possible but praiseworthy for a whole country to live beyond its mens on its wits, and who, in Mr. Shaw's description, teach that it is possible to make a community rich by calling a penny tuppence--in short who have sought to make economics a vade mecum for political spivs..."

  2. Support for hard money springs from the vanguard role played by commercial bankers in the self-organization and self-consciousness of the 1% as a Klasse für sich. It has not been the case since World War I that the 1% have had portfolios concentrated in nominal bonds and in land rented out on long-term leases on fixed nominal debts. Not since World War I have the 1% benefitted from hard money. But commercial bankers do: given their near-zero nominal cost of funds, higher nominal interest rates look to them like a very good deal (and are a very good deal in the short run). Start with their role as opinion leaders and add on their role in choosing a highly inordinate share of the directors of the regional Federal Reserve Banks, and the strength of the hard-money lobby becomes intelligible.

  3. The Republican Party under a Democratic president. When there is a Democratic president--and only when there is a Democratic president--Republicans are united in opposition to loose money and loose fiscal policies that might produce a lower unemployment rate come the next election. The Republican Party praises the rich and tries (ineptly, as Robert says) to serve their interests. As susceptible to flattery as everyone else, the rich are attracted to Republicans, and tend to repeat whatever line the Republicans are currently pushing.

All three of these seem to me to be likely to have some purchase on reality. And I would add to them: (4) Simple money illusion: People are unhappy with even moderate inflation because they (falsely) think they would have gotten their inflation-fueled nominal wage increases anyway but that the inflation-fueled price increases have made them poorer.

But I do not find even all of these four, even taken all together, to be a satisfactory and complete explanation at all. It is certainly bad news for we economists who tend to believe that people understand at heart what their own material interests are and pursue them. It is even worse for those who think that the modern state is best thought of as an executive committee for managing the common affairs of the whole bourgeoisie.

(Of course, Karl Marx and Friedrich Engels did not think so: they thought: "The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie..." The legislature of the modern state back in the early nineteenth century was presumably not The executive back then, see, was composed of ministers, largely nobles, appointed by monarchs. The legislature was elected, albeit by restricted electorates. At least at the beginning Marx and Engels were revolutionary believers in democracy. But I digress...)

And this is why I cannot help but look somewhat askance at the prospect of populist mobilization focused around issues of inequality to charge the battery to power changes in economic policy. For changes in economic policy in a much more Keynesian, Democratic direction are not just in the interest of the 99%. They are in the interest of the 1%. And of the 0.01%. There ought to be an easier way than through winning electoral majorities by parties like Syriza country by country: our plutocrats ought to simply wake up tomorrow, and say: "Gee. People like Bob Rubin and Larry Summers are right on the policy--not just what would be good for the little people, but what would be good for us! Let's all fund and vote for Hilary!"


Reference:

Robert Waldmann: What's the Matter with Wall Street?" >In... What's the Matter with Kansas? Thomas Frank asks why lower middle-class people in middle America vote for Republicans against their own self-interest...

I wonder why wealthy investors vote for Republicans against their self-interest. Brad DeLong wonders why they favor tight money and austerity against their self-interest.... There are two separate issues, actually three, "fear, surprise, ruthless efficiency, and near fanatical devotion to the Pope!"

No: I mean: support for hard money, austerity, and Republicans.

I will try to focus on hard money (but I will fail).... [The] FOMC will raise the target federal funds rate... an odd choice since inflation is below target and the dollar is rapidly appreciating. Why would the FOMC even consider doing something so odd?... Financiers, and policy makers who are in constant contact with financiers, support tight money.... [See] these excellent posts. Why?

  1. Economics as a morality play: The market is our judge and rewards virtue--no pain no gain... [a] view... most frankly expressed by Michael Kinsley... [who] provides a valuable service, because he doesn't present any argument related to the effects of policy.... It is clear why the rich are eager to assume that the market rewards virtue--they have been rewarded... and wish to believe they are virtuous.... [But] if there is an easy [and] painless way to create more aggregate wealth, then it is harder to believe that the wealthy earned their individual wealth through great effort.

  2. Sub-sub-class interest: Within the 1%, there is an organized, energetic subset who benefit from tight money... [because of the] strong nominal rigidity at zero on returns on deposits... [thus] bankers have a safe source of income roughly equal to the interest rate on T-bills.... Jeremy Stein [argues] that the FOMC must guarantee bankers safe returns high enough to cover administrative costs or else bankers will gamble.... we have a nice looking economy... it would be a shame if anything were to happen to it... guarantee them 2% safe or else it might get blown up again....
     
    This does not make tight money good for investment banks, broker dealers, hedge fund managers or, obviously, industrial firms. Yet the fairly narrow interest group of commercial bankers has a clear common interest. They also have a very explicit role in influencing Fed policy through the selection of Federal Reserve Bank presidents.

  3. Partisanship:... Wall Streets unsurprising but marked Republican slant.... Rich investors tend to favor the GOP, since Republicans are very dedicated to attempting to serve their interests (incompetently) and sincerely praise them.
     
    Republicans favor tight money and austerity if and only if the President is a Democrat.... Loose money increased the probability that Obama would be re-elected and that Clinton will be elected. Therefore, loyal Republicans must oppose it. I think it is very possible that financiers favor their flatterers over those who actually make them richer.

Links:

Richard Epstein Proves Unintelligible…

Live from Crows' Coffee: I had always thought that Richard Epstein was just pulling the traditional not-very-ethical lawyer's trick of knowingly and falsely claiming that what he hoped would be law in the future had in fact been law in the past. There is great and weighty precedent for this way of lawyering, after all. Consider Lord Chief Justice William Draper, 1st Baron Wynford (13 December 1767 – 3 March 1845:

We [would] get rid of a great deal of what is considered law in Westminster Hall, if what Lord Coke says without authority is not law...

Now comes Scott Lemieux to say that Richard Epstein has drunk his own koolaid: He really does believe that the Constitution mandated classical-liberal doctrines a century before they were thought up. He really does believe that misquotations of Jon Gruber should govern interpretations of ObamaCare. He really does believe that Chevron was wrongly decided--that the Courts should flip a coin rather than let experts who understand the issue make (and possibly change) administrative decisions:

Scott Lemieux: That Word "Intelligible," I Do Not Think...: "‘Don’t worry — if this falls through I have a compelling theory that all federal social welfare programs are unconstitutional under the emoluments clause’...

...You may remember Richard Epstein from such arguments as:

the takings clause makes the vast majority of the U.S. Code unconstitutional because as originally understood it enacted bad 20th century public choice theory.

It’s highly appropriate that he has gotten in on the ACA Troofer racket. He takes the now-dominant approach of a ‘¯_(ツ)_/¯’ midpoint between the ‘card says Moops!’ and ‘the Moops invaded Spain’ theories, with a bonus appearance from the most important figure in 21st Century American politics:

There is no similar difficulty with the ACA. The government may protest that its subsidies are only available through the state exchanges, but the result is not unintelligible. Indeed the provision makes perfectly good sense if the plan, as often stated by MIT economist Jonathan Gruber, was intended to give states a strong incentive to sign up with the program, even if only 14 states rose to take the bait.

Before we get to the larger problems with relying solely on the words of President, Speaker of the House, Senate Majority Leader, Secretary of State, Prime Minister, and new starting QB of the Philadelphia Eagles Jonathan Gruber, it seems worth noting that Gruber did not actually make the argument that Epstein attributes to him:

In the law, it says if the states don’t provide them, the federal backstop will. The federal government has been sort of slow in putting out its backstop, I think partly because they want to sort of squeeze the states to do it. I think what’s important to remember politically about this, is if you’re a state and you don’t set up an Exchange, that means your citizens don’t get their tax credits. But your citizens still pay the taxes that support this bill. So you’re essentially saying to your citizens, you’re going to pay all the taxes to help all the other states in the country. I hope that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these Exchanges, and that they’ll do it.

Gruber didn’t say that federally established exchanges didn’t provide subsidies in order to squeeze the states. He said that the federal government was delaying setting up the federal backstop in order to squeeze the states. The implication of Gruber’s argument is in fact that the federal backstop would provide the tax credits, but that states couldn’t rely on it being set up immediately. To be clear, this argument doesn’t make any sense either--another reason to ignore what Gruber, who did not vote for or draft the relevant portions of the statute, has to say about it rather than treating him as the authoritative interpreter of the law — but he does not in fact say anything about Congress not making tax credits available to coerce the states.

Which isn’t surprising, since the idea that the ACA went to the the trouble of establishing a federal backstop that would entail having no insurance to sell to no qualified customers is absurd on its face, and is also inconsistent with all of the relevant evidence about legislative history and intent.

Epstein has another strange argument in favor of willfully misconstruing the statute:

During oral argument, Chief Justice Roberts asked whether a different administration could switch interpretations on the statute to meet its own view. Solicitor General Verrilli answered, incorrectly, that such a switch is possible only if the new government could make out ‘a very strong case’ in view of the ‘disruptive consequences’ that such a shift would have. But in fact, Chevron itself involved just that kind of switch between the Carter and Reagan administrations, and no one required the substantial showing of cause that Verrilli mentioned. Unfortunately, such disruptive flip-flops are all too possible under Chevron. That is the strongest reason why the question should be treated as a question of law, which makes it impossible for one administration to reverse the decision of its predecessor.

The correct answers to the question of whether a future Republican administration could deny subsidies on the federal exchanges if the Court decides to uphold Burwell based on Chevron deference are ‘yes’ and ‘your point being?’

Changes in regulatory policy are things that happen when new administrations are elected.

I doubt that a future administration would in fact reverse this IRS regulation, but:

  1. that doesn’t mean that it’s beyond their authority, and

  2. if Republicans want to deny subsidies on the federally established exchanges, it should be done through a Republican White House rather than having the courts do their dirty work.

This isn’t to say that I wouldn’t decide this as a question of law--the Court should rule that the statute, properly construed, makes the credits available on federally established exchanges--but Chevron deference would certainly be more plausible than determining that Congress established a federal backstop it knew would serve no purpose.

And finally, the inevitable punchline:

The better choice, on balance, seems for the Court to strike down the IRS regulation and for Congress to work out some fix. That fix should not include expanding the coverage to federal exchanges, which would allow the Obama administration to work an illicit extension of the initial program. A far better suggestion is to make block grants to the states, which could fund subsidies to pick up the slack when the IRS regulation is struck down. The Republicans might well pass such legislation quickly and dare President Obama to veto it--which he might do to legitimate his own misconceived legislation.

I don’t know what’s funnier

  • the idea that there’s any chance this Republican Congress would pass a fix,

  • his preemptively blaming Obama for the chaos of the Supreme Court wrecking the exchanges, or

  • the assertion that it would be ‘illicit’ for Obama to continue to provide tax credits on federal exchanges if he was explicitly authorized by Congress to do so.

The assumption--without--argument that ‘block grants’ would be better than a uniform federal exchange even though most states have demonstrated neither the willingness or the competence to establish exchanges is also unintentionally amusing. A definitive version of ACA trooferism, in other words.

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