How Not To Build Public Support For The Mitigation of Global Warming

Ted Nordhaus is an economist who accepts the hypothesis that human behavior is the cause of global warming.  He has his own approach to the problem, from an economic perspective and from a mitigation perspective.  In this article, he and a colleague suggest that scare tactics about global warming tend to polarize debate on the issue.  Conservatives become more skeptical about global warming when atypical weather events are used as evidence for global warming. 

The psychology of global warming denial, and our understanding of the best means of persuasion, are not well understood even by Nordhaus and his colleague.  The real message in this article is that a greater use of nuclear energy should be a part of any solution, and that conservationists who oppose increasing the use of nuclear power are making a mistake.

Are Conservatives Really Different From Liberals?

Paul Krugman acknowledges that liberals as well and conservatives have biases. Moreover, they both tend to favor information that confirms their biases.  He argues, however, that there is an important difference between liberals and conservatives.  Liberals are readier to accept disconfirming evidence, and many liberals suffer from a Hamlet complex.  They are uncomfortable holding strong positions on many of their biases.  Krugman provides several examples to support his claim that conservatives are less susceptible to disconfirming evidence and that they are more certain about their belief system than liberals.  Krugman's expertise is not cognitive psychology, but he has been trying to understand why many conservative economists continue to hold firmly to their positions on many economic issues when the predictions that they have made have been wrong.  He offers a couple of explanations,  but his conclusion that conservatives biases are more firmly held than liberal biases is probably more accurate than the explanations that he offers.

The Maldistribution Of Medicare Payments To Doctors

Medicare collects an enormous amount of data on the payments that it makes to medical doctors.  It plans to release this information to the public.  There is a link to an interactive data base that allows the public to search the data base by physician name to find the total amount of Medicare disbursements made to any physician under Medicare Part B.  One of the findings in the data is that Medicare disbursements are concentrated in a relatively small number of physicians.   One quarter of the physicians receive 76% of the disbursements, and 2% receive 23.6% of disbursements.  The data also provide information about the distribution of payments in relation to areas of medical practice.  One specialization that has received a lot of attention is ophthalmology.  More payments have gone to this specialty than any other specialty, and one physician has received $21 million in Medicare disbursements.  He has a very large practice that specializes in a treatment for a common eye problem among the elderly.  He is more of a business person than a physician and he is under investigation by the government.  He also has non-medical investments in the Dominican Republic and a close relationship with a US senator.

The New "Washington Consensus" At The IMF

The IMF has long been criticized for imposing fiscal austerity on the nations that it assists.  It now recognizes that fiscal austerity does not produce sustained economic growth.  In particular, cuts in government spending are often counter productive.  The IMF has also changed its outlook on inflation.  For example, the IMF believes that some countries would be better off with a bit more inflation.  Central banks have tended to set inflation targets at 2% even when it is counter productive.  The IMF has also recommended that some countries set capital controls in order to stabilize their economies.  Taken together, these changes suggest that the IMF no longer adheres uncritically to the neo-liberal orthodoxy that has dominated economic thinking in the IMF, and which has formed the basis for its Washington Consensus. 

The IMF has gone beyond the Washington Consensus in another matter that has been receiving a lot attention lately.  IMF researchers have found that high levels of income inequality impede sustainable economic growth.  Furthermore, it has found that income redistribution does not impede economic growth, and that it can contribute to economic growth and social stability.  This is a big jump for the IMF, and it may not go over well in many countries that are placing an emphasis on reducing budget deficits and the curtailment of spending on the social safety net.  Income inequality, and social instability that results from income inequality, have become the new enemies of sustainable economic growth.

Larry Summers Wants The IMF To Be Empowered To Fight Secular Stagnation

The IMF shares Larry Summers' concerns about the medium term prospects for economic growth.  Congress has an opportunity to empower the IMF to play a vital role in the global economy.  Summers argues that quantitative easing (QE)  has been helpful in preventing a global depression.  It has certainly increased asset values and it has rewarded financial activity, but it has encouraged spending at the expense of demand for products and non-financial services. 

Summers' provides an overview of many of the problems that he observes in the global economy and he suggests some of the things that governments and the IMF might do to deal with the problem of secular stagnation, which is a problem of insufficient demand.  He argues that taking some of his suggested steps will have a multiplied effect on demand, and he warns that a failure to do so would have a multiplied effect on secular stagnation.

Critics Are Beginning To Respond To Piketty

Brad DeLong posts two criticisms of Piketty's book.  One is a predictable criticism from the conservative National Review.  Piketty's research is about a fundamental contradiction in capitalism  His book is about the consequences of that contradiction.  That is, inequality is built into capitalism because the return on capital, which is highly concentrated, grows faster than the economy and national income.  Since Karl Marx also wrote about a fundamental contradiction in capitalism, Piketty must be a Marxist, and therefore he must be wrong about capitalism.  This cannot be a serious criticism for a couple of reasons.  In the first place, Piketty was trying to explain something very real.  That is, there is a long history of income inequality in capitalism.  His book has received a lot of attention because it contains a lot of historical data which attempts to explain an important historical relationship between the return on capital and the growth of the economy.  Piketty's solution to the problem of income inequality is to use the tax system to redistribute income.  He does not argue for overthrowing the system of private property.  Therefore, he has been criticized by Marxists for making an effort to maintain the system of private property.

The second critique of Piketty comes from an economist who shares many of the concerns that Piketty has about growing income inequality and the concentration of wealth.  In fact, he has written extensively about that problem and he has developed his own methods for measuring income inequality.  His critique is primarily about Piketty's definition of capital.  His argument is that Piketty does not distinguish between productive capital and other assets.  He thinks that the title of Piketty's book should be Wealth In The 21st Century.

The comments following DeLong's post are worth reading.  Most, if not all of the comments, are about the distinction between capital and wealth.  The first criticism was ignored but it will probably be the most frequently used tactic against Piketty's explanation of the relationship between income inequality and capitalism.  Its a lot easier to dismiss Piketty as a Marxist than it is to attack his explanation for income inequality.

Why Has The Labor Force Participation Rate Declined In The US?

Glenn Hubbard is the Dean of NYU's Business School, and he was an economic adviser to George Bush and Mitt Romney.  The Wall Street Journal provided him with a platform to explain why the labor force participation rate has declined in the US.  Hubbard begins his explanation by arguing that Obama's fiscal stimulus failed to create enough demand in the economy.  Monetary policy may have kept the recession from worsening, but it did stimulate enough demand either.  Fiscal policy and monetary policy are effective when we have cyclical unemployment but they are not effective when structural problems in the economy are responsible for unemployment and the decline in the labor force participation rate.  He then moves to his list of structural problems in the economy and he suggests some reforms that might address those problems.

The most simple explanation for the drop in labor force participation rate is that the unemployed have not been able to find jobs.  We also know that the long term unemployed are less attractive to employers.  Hubbard has a more complex explanation.  He places the blame on government policies which decrease the incentive for workers to take the jobs that are available to them. He also argues that the unemployed lack the skills that are required by employers.  His list of government policy failures is extensive.  It was a mistake to extend unemployment benefits  because they reduce the incentive to work.  Social Security disability benefits are also a problem because they discourage the disabled to work. The payroll tax also discourages elderly workers from taking the jobs that are available.  He argues that they would have a greater incentive to work if the payroll tax were eliminated because it would increase their net pay.  The earned income tax credits only apply to families so they do not encourage single worker to take the low paying jobs on offer.  Hubbard acknowledges that globalization has made low paying jobs more scarce in the US, but his solution is to provide training to low skilled workers so that they can compete for the jobs that have gone overseas. 

For some reason Hubbard also argues that the Affordable Car Act is responsible for the decline in the labor force participation rate.  He echoes a claim by many of the Republican's in Congress.  Hubbard provides a graph of the labor force participation rate which makes a strong case against his claim.  The labor force participation rate dropped steeply at the onset of the recession and it continued to fall during the slow recovery.  The Affordable Car Act, which has only recently become available, cannot be responsible for the decline in the labor force participation rate.

In summary, the lack of jobs is not responsible for the decline in the labor force participation rate according to Hubbard.  He pus the blame on government policies which discourage the incentive to work and he argues that the labor force lacks the skills demanded by employers.  Dean Baker responded to the Hubbard article and the comments that follow his post suggest that Hubbard's economics are clouded by his ideology.