Wednesday, February 25, 2015

Republicans and Democrats Have Similar Social Values With One Exception

A recent poll of 50,000 Americans reveals the hold that a minority of Americans have on US politics.  White Evangelical Christians are 18% of the US population, but they comprise 36% of the Republican Party. The remaining Republicans have much more in common with Democrats than they do with Evangelical Christians.  Politics in America are heavily influenced by the role of White Evangelical Christians in the GOP.  This is particularly the case in the South where they are more heavily concentrated.  Richard Nixon's Southern Strategy has come home to roost in the GOP.  They can't win elections without the strong support of a minority group that forces them into positions that are inconsistent with the values of "Establishment Republicans", and those of the majority of Americans.  It also makes them, and the rest of America, look foolish to those who we hope to influence.  Evolutionary theory, for example, is not subject to doubt outside of the US.  No GOP candidate could win a primary election, especially in the South, and in many rural areas, if they admitted that they believed in the theory of evolution. 

Monday, February 23, 2015

Is Rising Inequality Due To The Inequality Of Knowledge?

The Hamilton Project takes the position that the pace of technological change has been more rapid than pace of advancement in education and/or entrepreneurship.  It argues that rising inequality can be addressed by increasing access to a higher quality education that provides the scientific and mathematical skills that are in demand; it would also provide the entrepreneurial skills that are required to transform new technologies into business opportunities.

Paul Krugman believes that providing more people with education is a good thing.  However, he does not accept the implication that income inequality is a function of the maldistribution of knowledge. He takes the position that it is more closely related to the distribution of power.  That is the last thing that most "serious people" want to deal with.  It is much easier to blame the education system for our problems and to divert attention from our real problems.  He joins Larry Summers in arguing that we need to focus our attention on the unequal distribution of power in our society.

Sunday, February 22, 2015

Major Climate Change Denialist Funded By Corporate Interests

The research papers, which attempt to link climate change to solar events, have been funded by corporations that use this research to raise doubts about the link between human behavior and climate change.  The scientist failed to disclose the sources of his funding as required by the academic journals.  Conservative media refer to him as a Harvard astrophysicist and his research is often cited by politicians linked the fossil fuel industry.  The scientist is not an astrophysicist, and he is not employed by Harvard.  His research, and his salary, are totally funded by corporate interests who use his research to maintain a degree of doubt within the science community about the link between human behavior and climate change.  The tobacco industry used that strategy for many years about the link between smoking and cancer. 

It should not surprise anyone that the photo of the "scientist" in this article places him at the Heritage Foundation.  Heritage is funded by some of the same corporate groups that fund the chief spokesperson for the solar activity link to climate change.  It is one of many "think tanks" which employ a variety of academics who depend upon them for employment.  The donors to these "think tanks" are able to deduct their contributions from their taxes because the IRS allows them to be identified as "educational" institutions.

Saturday, February 21, 2015

Larry Summers And David Autor Ruin The Party At The Hamilton Project

The Hamilton project made the mistake of inviting Larry Summers and David Autor to speak at an event that was staged to celebrate The New Machine Age Report which is supposed to explain our current economic problems.  The New Machine Age Report argues that structural problems in advanced economies are the cause of high unemployment.  Robots and machines are being substituted for labor; consequently we can ignore the demand side of the business cycle.  We should focus our attention on education and skill development that prepares workers for the new machine age.   Larry Summers and David Autor destroyed that argument in their presentations.  Mike Konczal summarized the demolition.

David Autor changed his mind about the job polarization hypothesis that he favored in 2010 which implied that we had a shortage of workers with the required skills:

  • We have not seen an increase in the premium paid for college graduates over the last decade.
  • Many college grads are forced to take low-skill jobs.
  • Most of the rise in unemployment has been in low education service occupations.
  • If we have provided more technology to workers they should be more productive but we have not seen a rise in labor productivity.   Larry Summers followed up on that point:
  • If there are skill shortages we should see rising wages in skilled occupations.  Wage growth has been lower than one would expect in high skill occupations
  • The core problem is not a shortage of skilled workers, it is a shortage of jobs. Educating more workers will only increase the competition for a finite number of skilled jobs and reduce wage growth even further. 
Summers concluded by focusing attention on two other points:

  • Profits have been at record levels.  That implies a high return on capital which should also increase demand for investment capital and an increase in interest rates.  However, interest rates are very low.  The high profits must contain a high rent value which suggests a need for a more progressive tax and transfer system to reduce rents.
  • If income distribution today was the same as it was in 1979, the top 1% would have $1 trillion less income and the bottom 80% would have $1 trillion more income.  That amounts to $11,000 per family.  We have a $1 trillion dollar rent problem that can't be addressed by small bore changes.  Income redistribution has been going on since 1979 but it has been going from the bottom 80% to the top 1%.  Its time to reverse that process.

Friday, February 20, 2015

How To Combat Managerial Myopia

Corporate success in the 21st century no longer depends upon investment in tangible assets that increase efficiency and price competitiveness.  Success depends more on intangible assets such as human capital and R&D capabilities which create intellectual capital.  Managerial myopia, which focuses of short term results,  has a tendency to reduce investments in intangible assets which are essential for the longer term profitability of 21st century firms.  This article, examines three factors which contribute to managerial myopia and it suggests remedies for each.

Monday, February 16, 2015

Two Graphs Which Depict The Post War America And the Post Reagan America

It is common knowledge, by now, that the post war period in America was very special.  It was a period of rapidly rising equality.  That period ended in the early 1980's and it has been followed by a period of rapidly rising inequality.  PBS provided two graphs which tell this story exceptionally well. Some argue that the post war period was an anomaly and that we have returned to a more normal economic era.  Others believe that the transition to the new normal was accelerated by changes in public policies.  In any case, after inspecting the two graphs its hard to imagine a more striking economic transition.  One wonders why it has not received the attention that it deserves from the economics profession.

How Should We Interpret The European Agreement About Ukraine?

There are many views about the recent agreement.  This article contrasts the view published by Bloomberg and a view published by The Economist.  Bloomberg hopes the agreement may provide Obama with a rationale for resisting the hawks in Washington who would like the US to provide weapons to Ukraine.  The Bloomberg view contrasted with opinions in The Washington Post and The Wall Street journal which are sympathetic with those of the hawks.  The article gives more weight to the article in The Economist because it is similar to a method of dealing with nasty states that precipitated the first world war.  Economic sanctions are the weapon of choice.

Saving "The Wisconsin Idea" Is Like Saving America From The Barbarians At The Gate

The "Wisconsin Idea" was embedded in its mission statement which declared that it was "The search for truth".  Scott Walker, the Republican Governor of Wisconsin, who owes his position to the support of the Koch brothers,  attempted to change the mission statement.  He changed it from the search for truth to "meeting the state's workforce needs".  He was forced to reverse his decision in the face of protest, but his budget proposal calls for a $300 million cut in the state's spending on higher education.  Walker, who considers himself a candidate for the GOP presidential nomination, is an enemy of the "Wisconsin Idea".  He was unable to change the mission statement, but he can refuse to pay for the pursuit of truth.  He has a lot of company in other states controlled by Republican governors.  Many are eagerly cutting their funding for higher education and forcing universities to raise tuition and fees.  This shifts the funding burden to families who have not experienced growth in their incomes.  This has led to a rapid increase in student debt and it constrains the choices that students make in the careers.  Meeting the needs of the workforce takes precedence over the "Wisconsin Idea" which is becoming an historical relic in America.

Sunday, February 15, 2015

A Cache of Paul Krugman Op-Eds

I stumbled upon this link to a series of recent Krugman posts on a variety of economic and political topics.  Some are wonkish but they are all topical.

Saturday, February 14, 2015

Why People Buy "Stupid Pills" Or Snake Oil

"So, the industry keeps growing, with 65,000 dietary supplements now on the market, consumed by nearly half of all Americans. The larger issue is mistrust of authority, a willful ignorance that knows no political side. Thus, right-wing libertarians promote a freewheeling market of quack products, while left-wing conspiracy theorists disdain modern medicine in favor of anything sold as “natural” or vaguely countercultural. These are some of the same people who will not vaccinate their children.
Everyone wants to live longer, to be happier, to have better sex. And, if you think you can do it without exercise, or eating enough vegetables, or getting regular sleep, there are a thousand pills for you, sold not far from the candy counter. It’s all based on the honor system. If you trust them, go buy some possibly Ginkgo biloba-free Ginkgo biloba, and thank Orrin Hatch for the unfettered right to be a sucker."
This quote, from another critique of the dietary supplement business,  explains why nearly half of our population consumes dietary supplements.  Its hard to imagine a more promising market.  Each of the products claims to provide a highly desirable benefit without having to make much of an effort.  Moreover, the products appeal to all political ideologies.  The state of Utah has become the capital of the dietary supplement business.  Over one third of the products originate in Utah, where the industry is protected by the senior senator from Utah whose son is a lobbyist for the industry.

I scanned some of the over 800 comments on this article.  They were very predictable.  Some were critical of the industry, but many argued that the much larger prescription medicine industry was a more harmful industry (left wing conspiracy types), and right wing libertarians argued that consumers should be left to make their own consumption choices without interference from government.  They are unbothered by the main point of the article.  That is, the products do not contain the ingredients that are put on the product labels.

Thursday, February 12, 2015

QE For The People In The EZ

Quantitative Easing by the Fed has had a positive effect on the US economy.  This article shows the channels by which QE in the US has been beneficial.  However, since the EZ is much different from the US, it will not work as well as it has in the US.  Moreover, since QE has the effect of increasing the value of assets that are held primarily by the well-off,  it would create negative political repercussions in the EZ.  There are also important differences between the ECB and the US Federal Reserve.  The ECB is legally prohibited from doing some the things that the Fed had done.  Consequently, this article makes the case for a direct distribution of money to citizens by ECB.  This would be consistent with its mandate to prevent deflation, and it would be perfectly legal.  There are, of course, many objections to such a program.  Some of those objections are considered and countered in this article.

Would Ireland Be Better Off Today Without The Real Estate Boom and Bust?

Patrick Honohan is Governor of the Central Bank of Ireland.  He asked himself a question and provided his answer in this article.  Ireland experienced a real estate boom and the economy did much better than it would have done without the boom.  Honohan looked at how the economy would have performed during the boom years without the stimulus from real estate, and how the economy would have performed after the bust if it duplicated the EZ performance after 2008.  He compared the counterfactual with the actual performance of the economy and he concluded that Ireland would be much better off today if it had avoided the real estate boom.  He argues that Ireland should take steps to prevent the risky lending that made the real estate boom and bust possible.

Sweden Central Bank Cuts Interest Rates To Avoid Deflation

Sweden has joined other central banks in the US, Denmark, UK and the EZ in the use of extraordinary monetary policies to ward off price deflation.  Banks can now borrow money from Sweden's central bank at negative interest rates.  That is, the sum that they payback to the central bank will be less than the amount that they borrowed.  Although Sweden is not part of the EZ, its economy has been damaged by the decline in economic activity in the EZ.  Like most central banks, Sweden's central bank has an inflation target of 2%.  Currently, the inflation rate is well below its target rate.  Price deflation is harmful to the economy because consumers expect prices to fall further and they delay spending.  Corporations delay investments as well; they risk losing money if prices fall below plan.  Borrowers are also harmed by deflation; they must pay down the debt with more valuable money.

Tuesday, February 10, 2015

Ukraine Is Caught Between A Rock And A Hard Place

This article provides a bleak picture of the battle between the West and Russia over Ukraine.  Most Americans do not realize that Ukraine is a very large country.  It is the home to 46 million people, and it is about the size of Spain.  The US and Russia media portray the current situation as a battle between the good guys and the bad guys.  Putin's popularity in Russia has skyrocketed because he is standing up to the bad guys in the West.  Of course, Putin and Russia are still viewed by many Americans from the lens of the cold war.  This article claims that there are no good guys in this situation. The big guys in this story are engaged a contest over an immature state with one of worst economies in Eastern Europe.  Unfortunately, for the citizens in Ukraine, neither side offers them anything worthwhile.  Ukraine will not be made a full member of the EU, and Russia is only interested in aligning itself with puppet states on its periphery.  We should all be concerned about this contest because the game of chicken is being played by states with nuclear weapons.

Monday, February 9, 2015

A Conservative Intellectual Warns The GOP Against Mentioning Inequality

Ramesh Ponnuru explains why the GOP has been using rising inequality as weapon against Obama.

Republicans are taking up inequality as an issue now for three reasons. It provides a way of attacking Mr. Obama’s economic record even as unemployment rates drop. It gives them an opportunity to deploy rhetoric usually associated with liberals against him and his party. And Republicans have grown increasingly aware, since their defeat in the 2012 election, that their party has a damaging reputation for caring only about the economic interests of the rich.
Ponnuru claims that President Obama has shifted his rhetoric away from inequality to the problem of social mobility.  He argues that the electorate cares more about improving their living standards than it does about the rich getting richer.  The GOP ought to do the same thing.  If Ponnuru had his way, politicians in both parties would never mention the problem of rising income inequality.

Saturday, February 7, 2015

The US Dollar Has Strengthened Against The World's Currencies

This article describes the strength of the dollar versus a sample of the world's currencies.  The strong dollar makes US imports from other countries cheaper and it increases the price of US exports.  The US trade deficit in December was $46 billion.  The trade deficit has been a major factor in restraining US GDP growth. The Fed is poised to increase US interest rates this summer.  That will push the value of the dollar even higher.

A Capital Flow Explanation For The Economic Woes in Eurozone

Economic growth in the EZ may pick up due to the policies of the ECB which has caused the euro to depreciate and lower the price EZ exports.  The Financial Times does not believe that the EZ can export its way out of its slump.  It argues capital flows from the North to the South created the problems in EZ and that they can't be solved without debt forgiveness.  Furthermore, many believe that irresponsible government borrowing caused the problem and that they must pay the price for their irresponsibility.  They don't believe that irresponsible lenders bear some of the responsibility for the wasteful borrowing.  That moral outlook will make it difficult to shift some of the pain away from the debtors to the lenders.

The flow of capital from Germany to Spain, for example, was not good for either nation.  Germany was able to grow by shifting its current account from a deficit in the 90's to a surplus in the 2000's.  It accomplished this by restraining wage growth.  Its savings flowed to countries like Spain; they were not invested in productivity enhancing capital. German productivity growth has been relatively low as a result, and the recipients of the capital in the South over invested in real estate and low productivity construction jobs.  There was more cheap financing available than productive investment opportunities.

Bad Economic Policies In Eurozone Stalled Recovery And Local Politics Blocks Solutions

The financial crisis in the EZ triggered a deep recession.  The austerity policies demanded by the EZ leadership were designed to reduce the debt to GDP ratios in the nations that were hit hardest by the recession.  That strategy has not worked.  Government spending has been reduced, but consumer spending and business investment, has not grown fast enough to compensate for the reduction in government spending.  Debt to GDP ratios are still high in the most distressed economies.  That has led to a political dilemma.  Left wing political movements have been spawned by the failure of the austerity measures that have been imposed by the EZ leadership. However, it would be difficult for nations like Germany and The Netherlands to alter policies that are politically popular in their own countries.  That would stimulate support for right wing parties in the North.  The ECB has been left with the task of using monetary policies to stimulate growth when interest rates in EZ are already at historically low levels.

Thursday, February 5, 2015

A Description Of Think Tank Operations In Eastern Europe

There are thousands of think tanks around the world.  CASE Poland and CASE Ukraine have an historical relationship with one of the Harvard sponsored academics who prospered from the transition of Russia from Communism to a market economy.  In any case, this article provides information about the think tanks and some of their key personnel in Eastern Europe.  Ideas are often as important as military weapons.  Think tanks operate in the background.  This article provides some visibility their operation that may be of interest to Eastern Europeans and some who are interested in their relationships with Washington and other governments in Europe.

The $6 Billion Market For Snakeoil

Hucksters used to travel from town to town selling remedies for common ailments.  Snakeoil was one of their favorite natural remedies.  Of course, snakeoil was not present in any of the products, and it would not have helped consumers if it were present.  The FDA was created to regulate the market for medicines.  Congress decided to limit the authority of the FDA to prescription medicine.  That set the stage for the $6 billion unregulated food supplement business which provides snakeoil for many common ailments.  The NY State Attorney General's office tested many of these products and found that most of them did not contain the magic natural ingredient that was promoted on the product labels.  Gullible consumers have been being bilked for $6 billion per year by an industry that sells "snakeoil" but does not put any of it their products.

Many of our "reputable" chains like Walmart, CVS, Walgreens, Target and GNC have been selling private labeled products at retail.  They are also being sold online by criminal enterprises that offer them at a reverse discount.  That is, they are sold online for a much higher price than they are sold at retail.  For example, Somnapure, (marketed by sells a supplement online that is supposed to help individuals with sleeping problems.  They sell a months supply of the supplement for $30; it can be purchased at Walmart for $11.88.  They get the higher price online by deceptive marketing.  They offer a "free sample" to hook the customer into trying the product.  The consumer uses a credit card to pay for shipping and handling.  Somnapure will bill the credit card for $30 unless the consumer calls the company to cancel a "contract" that is buried in the terms and conditions of the "free sample".  The contract enables Somnapure to charge $30 for the free sample unless the consumer calls the company to cancel the contract within a short time period.  The contract also commits the consumer to a monthly purchase of the product forever unless the consumer calls to cancel the order.  This is a perfectly acceptable transaction that is honored by Visa and Master Card if the consumer disputes the charges without canceling the "contract"within the trial period.

This $6 billion criminal industry has many supporters in Congress who consider themselves to be "libertarians".  They have resisted efforts to regulate this market and the deceptive practices that are commonly used to sell the products online.  The don't believe that government should interfere with transactions between snakeoil merchants and consumers.  They use the same argument to prevent the EPA from regulating the energy market.

Wednesday, February 4, 2015

Surviving The 21st Century

Noam Chomsky gave a speech at an English university that identified global warming, and the potential misuse of nuclear energy, as the major threats to our survival in the 21st century.  He compared this threat to the devastation to our planet from an asteroid many centuries ago.  He argues that we have become the asteroid which has the potential for species destruction in the modern era.  His speech goes well beyond the issues of global warming and nuclear energy.  He argues that we have the ability to prevent species destruction, but he raises questions about our system of governance in which the maintenance of state power takes precedence over the security of the population. Most of his speech is devoted to his analysis of the state.  He is a critic of the Communist state and the Democratic state.  He argues that both are used to maintain systems of social hierarchy which he opposes.  He has spent much of his time searching for more democratic forms of hierarchy. 

Chomsky disrupted the field of linguistics which tended to study the differences between languages.  He argued that all languages are similar in their deep structure which is determined by human genetics which enables children to acquire a language at a very early age without instruction.  He was also a critic of behaviorism and learning theory which were the dominant forces in academic psychology.  His critiques helped to shape the development of cognitive psychology which attempts to describe the "deep structure" of human psychology. Much of what he argues in this article will be disruptive to much of what many of us believe about the ways in which the world works.  He is an enemy of the plutocratic state which he regards as the enemy of the people.

The Republican Party Has A Branch In the UK

Climate change denial has been a key platform of the Republican Party in the US.  Many conservatives in the UK regard the Tea Party inspired US Republican Party as a bit mad.  However, the conservative government has proposed legislation which would enable the oil industry to extract every bit of oil that it can.  The press in the UK, which is primarily right leaning, has been very supportive.  It has provided a platform for climate change deniers.  It looks like conservatives in the UK are becoming a mirror image of the party that it regards as a bit mad.  Politics encourages strange bed fellows.

Tuesday, February 3, 2015

The President's Budget Proposal Provides Details For A More Inclusive Economy

The best way to evaluate any government is to examine its budget.  A government defines itself by tax policies which provide details about how much money it intends to raise;  where the money will come from, and where the money will be spent.  The Obama budget does exactly that.  It tax policies are more progressive and more of the spending will benefit families that have been left behind.  The budget provides the framework that focus the 2016 elections on issues that are important to middle class households.  The Republican Party will not like the Obama budget but they will be forced to come up with a better proposal for a more inclusive economy.  They will do their best to obscure the issues but the public will have an opportunity to compare its proposals with a very clear plan which provides details on how the Democratic Party plans to increase the inclusiveness of the economy.

A Balanced Diagnosis Of The US Economy

The US economy grew at 2.4% which is better than most Western economies have been growing.  Ordinarily, the economy would grow much faster coming out of a recession.  This editorial describes some of the factors that have been inhibiting growth and it proposes some changes that might return the economy to the way it had been functioning prior to the Great Recession.