Sunday, August 2, 2015

Workers Were Doing Fine Until We Took Over

The Team Republican economist response to rising inequality appears to be denial. First up was Martin Feldstein:
Any adult who was alive in the US during these three decades realizes that this number grossly understates the gains of the typical household. One indication that something is wrong with this figure is that the government also estimates that real hourly compensation of employees in the non-farm business sector rose 39% from 1985 to 2015.
Feldstein is talking about the mean whereas most of this debate is over the median but let’s read on:
With the traditional definition of money income, the CBO found that real median household income rose by just 15% from 1980 to 2010, similar to the Census Bureau’s estimate. But when they expanded the definition of income to include benefits and subtracted taxes, they found that the median household’s real income rose by 45%.
Let’s see – if we cut taxes a lot while increasing transfer payments, then we can get a boost to disposable income. So much for fiscal responsibility. But let me turn this over to Laura Tyson:
Over the last 35 years, real wages in the United States failed to keep pace with productivity gains; for the typical non-farm worker, the latter grew twice as fast as the former. Instead, an increasing share of the gains went to a tiny fraction of workers at the very top – typically high-level managers and CEOs – and to shareholders and other capital owners. In fact, while real wages fell by about 6% for the bottom 10% of the income distribution and grew by a paltry 5-6% for the median worker, they soared by more than 150% for the top 1%.
The chart provided by David Dayen bears out Dr. Tyson’s first sentence:
Perhaps for this reason, the wage/productivity chart has been under attack, with economists and pundits trying to explain away the gap as something not fundamental to our economic story. But Mishel, the originator of the chart, is pushing back, arguing that critics “are denying reality through technical arguments and sleight of hand.”... Harvard economist Robert Lawrence makes the gap disappear in several ways.
Dayen discusses each of Lawrence’s tricks here but let’s note that Greg Mankiw hearts what Lawrence even as it includes this:
when the numbers are measured more comprehensively—when wages are broadly defined as compensation to include benefits, comparable price indexes are used to calculate differences in wage and output growth in constant dollars, and the output is measured net of depreciation—the puzzle of lagging wages disappears, at least for 1970–2000. While prior to 2000 blue-collar workers fared especially poorly, constant dollar labor compensation for all workers actually kept pace with output.
2000? Jeb’s other brother became President right after that hiring Team Republican as his economic adviser. So the Team Republican reply is that we can massage the data in such a way that it appears that workers were doing fine until we took office. Oh yea – Jeb should definitely run his campaign on this message.

Feynman Has Something to Say About “Is Consistent With”

Time to go on the warpath again (see here, here and here) against the standard line in econometrics: this study “supports” my theory because the results “are consistent with” it.  Specifically, it goes like this:

1. Set up a model.
2. Derive an implication from your model.
3. Select/create a data set.
3a. Modify/transform the data set according to assumptions from your model.  (optional)
4. Apply causal inference tests.
5. If the result is consistent with the implication from Step 2, claim support for your model.
5a. If the result is not consistent, keep it secret and then go back and tweak the model or the data set.  Rinse and repeat until the result is consistent.

For the vast majority of the economics profession, this is regarded as a scientific procedure.  Richard Feynman would beg to differ.

I found this choice RF quote from Paul Romer’s post about Feynman Integrity:
It’s a kind of scientific integrity, a principle of scientific thought that corresponds to a kind of utter honesty–a kind of leaning over backwards. For example, if you’re doing an experiment, you should report everything that you think might make it invalid–not only what you think is right about it: other causes that could possibly explain your results; and things you thought of that you’ve eliminated by some other experiment, and how they worked–to make sure the other fellow can tell they have been eliminated. 
Details that could throw doubt on your interpretation must be given, if you know them. You must do the best you can–if you know anything at all wrong, or possibly wrong–to explain it. If you make a theory, for example, and advertise it, or put it out, then you must also put down all the facts that disagree with it, as well as those that agree with it. There is also a more subtle problem. When you have put a lot of ideas together to make an elaborate theory, you want to make sure, when explaining what it fits, that those things it fits are not just the things that gave you the idea for the theory; but that the finished theory makes something else come out right, in addition.
You don’t have to look hard to see that Feynman’s view of science is rather far removed from usual econometric practice.  Note in particular the obligation of the research to report “other causes that could possibly explain your results”.  If there are plausible theories other than yours that “are consistent with” those little significance asterisks you’re so proud of, you need to specify them.  The more of them there are, and the more plausible they are, the less claim your particular model has on our acceptance.  Of course, there’s also a responsibility to report all the empirical strategies you tried that didn’t give you the results you were looking for.  These are not “blind alleys”; they are possible disconfirmations, and you owe it to yourself and your readers to report them and explain why you think their negative verdicts should be set aside—if in fact they should.

Finally, Feynman’s subtle problem is familiar to anyone who reads widely in the econometric literature.  The researcher encounters a problem, creates a theory to explain the problem and then tests the theory (or tries to produce results “consistent with” it), and when it works claim a sort of victory.  But at a deep level this is a type of overfitting that impedes the ultimate purpose of scientific investigation, to develop an understanding of the world we can rely on in new situations.

Not all econometric work is guilty of the sins Feynman describes.  There’s lots of good stuff out there!  But there’s also a lot of deceptive stuff and no filter that tries to uphold scientific standards.

Wednesday, July 29, 2015

Izvestia Publishes Front Page Threat Against The Life Of Sergei Guriev

Yes, you read that right.  This has just come out.  Front page story.  Not only has his life been threatened, but the story also has threatened the lives of his wife, economist Yekaterina Zhuravskaya, and their two children.

For those who do not know who he is, Guriev was the Rector of the New  Economic School in Moscow until over a years ago when he was pressured to resign and left Moscow for Paris, where his wife and family have been.  Zhuravskaya and Guriev have  been visting at Sciences Po.

The immediate cause of this outburst was a speech Guriev gave recently in London denouncing the invasion and annexation of Crimea by Russia.  The article stated that this speech "put him and his family in danger."  Really.  This is what things have descended to.

Oh yes, the article says more.  It contains a more  general denunciation of him, claiming that his PhD was written by ghosts and that everything he did was  funded by US  agencies.  It is a full court press.

I  shall further note that I know Sergei personally, and that I published a paper by him when I was editing JEBO.  He has a long and impressive vita, and these accusations are like the worst of the old Soviet Union, completely unacceptable.

I wish him and his family all the best in this very dangerous situation.

Barkley Rosser

Sorry, Anti-Free-Choice Activists, A Fetus Is Not A "Baby"

The release and publicizing of doctored videos of Planned Parenthood people talking about selling and distributing and accesing of organs from aborted fetuses has been turned into a new rampage by the anti-free-choice crowd to both defund Planned Parenthood, which provides many clearly useful health services beyond abortion, and also to energize presidential candidates trying to hustle their way into the hearts of all those Iowa and other evangelicals, who are somehow under the delusion that the Bible calls abortion, "murder," which it most certainly does not.

What is a bit more disturbing is that the general media seems to be not only letting these candidates and politicians get away with calling aborted fetuses, "murdered babies," but that some of them are beginning to repeat this formulation as if it were simply a fact (although usually without the "murdered" in front).  Those awful people at Planned Parenthood are selling organs from aborted "babies."  This is certainly a dangerous trend and would constitute a complete redefining of words.

If the general media falls for this and gets this established, it will be like the succes story the organized right pulled when it got the media to talk about "death taxes" without any irony or explanation or modification, rather than as "estate taxes."  I mean, who can support "death taxes"?

So, let us be clear: a fetus is not a baby.  Go look in any dictionary.  A baby must be born live to become a "baby."  Prior to birth, it is a fetus after 8 weeks, it is a "fetus."  In the first 8 weeks it is an "embryo," although very early on after conception it is a "zygote," not sure what the official cutoff for that one is. But, there are plenty out there who think that aborting them is murder.

So, I am going to go into waters rarely swam in here on Econospeak, and I am not going to provide a bunch of precise quotes.  I am simply going to cite sources, giving the main arguments.  From a theological perspective, what is involved for most who argue about this is the time of "ensoulment."  (If you do not believe in souls, fine, figure out your own argument on this and why you think what you think about the broader issue, keeping in mind, is infanticide OK with you?  Personally am agnostic on all this soul stuff)

So, there is a wide range of views about this issue among both philosophers and theologians, with most starting at Aristotle, who thought it was 40 days for male embryos, and 89 days for female fetuses (sexist pig!) after conception. The range of views on this is simply enormous and wide.  Some Hindus (and some Buddhists) insist on the preexistence of the soul because of reincarnation, but wide differences and debates show up about when it enters, ranging from conception to birth and the taking of the first breath.  Some have argued that enters when the penis enters the woman's body to impregnate (really! although that one is definitely a rare view).  Many think it is at conceoption, with this the official doctrine of the Roman Catholic Church for most of its history, except during a period in the middle ages when Aristotle's view was accepted. Some say it is 40 or 80 or somewhere between 40 and 120 (a widely held view in Islam) days after conception.  One that had much sway in English common law was when "quickening" happnes, when the fetus first starts moving and can be felt (usually around 18-20 weeks in), with this showing up in Blackstone and in case law regarding when one can execute a convicted pregnant woman (yes before quickening, no afterwards).  Then there is "viability," can it survive outside the womb, with the 50% cutoff on that being more like 24 weeks into pregnancy. Then there are many (and when I believe in souls, this is what I think is most likely), at birth with the taking of the first breath, with many from many traditions taking this view.  Finally, at the furthest extreme have been some Jewish rabbis who have argued that the soul does not enter until a young child first says "amen."

Given that what people who support fully free choice regarding abortion, with the big dividing line being at birth, when a fetus becomes a baby (oh, and of course some of those ancient Greek philosophers thought that infanticide was acceptable under certain circumstances, something that I do not accept), let me make the case for that.  There are many passages in the Bible that support it, including in Genesis, Psalms, Job, and Ezekial, at a minimum.  These all involve God "breathing life" into people and thus providing them with spirit.  I note that the world "spirit" is tied to "inspire," which is also tied to breathing (and in Sansrkit, "atman," which is oversoul is linked to "atmosphere," or air).  There are numerous theologians and philosophers in various traditions who hold to some variant of this remark, and people who insist on saying that abortion before birth is "murder" are violating their religious freedom.

Finally, one further odd item, which is from Exodus, the only passage that arguably comes the closest to dealing specifically about the nature of the fetus as a being.  It discusses the punishment for a man who physically attacks a woman and causes a miscarriage, granted not the same as an intentional abortion, but in my mind at least a lot worse.  The punishment is that he is to pay a fine to the husband's family. Many Protestant fundamentalists have cooked up translationis that try to change this, but most Hebrew scholars insist that this is what it says.  This is in a part of the Bible that is very hard line about all kinds of things, with the famous passage about "an eye for an eye" very nearby this one.  Not all that far away we have people supposedly being needed to be stoned to death for not only murder, which clearly this induced miscarraige is not (thus clearly implying that the fetus is not a fully ensouled human baby), but for such ephemera as being a disobedient child, being a women getting married who is not a virgin, and being a married couple who have sex during the wife's period, not to mention homosexuality, of course.  All of those are worse than inducing a miscarriage in a pregnant woman by physically attacking her.  Really.

Additional Remarks:

For those who do not  believe in souls, or really do not know what to think, of course we can note that  indeed there is this gradual increase in development as various body parts, organs, activities within the fetus, and so forth increase as pregnancy proceeds, with public opinion, whatever is driving the various parts of it gradually shifting from a more solidly pro-free-choice position in the early stages to much less of such a position, especially one gets to the third trimester.  I certainly recognize this moral gradient that  things get more and more questionable the later one proceeds into pregnancy, and I must grant that most nations do put at least some sorts of restrictions on late term abortions, even if they do not outright outlaw them.  I do happen to support free choice in that final trimester, while recognizing that it is a hard choice.  I simply note that because it is, and would-be mothers themselves are aware of all this, that the number of late term abortions is very low, and most of them involve very unusual circumstances that should be decided upon by the pregnant woman and her doctor. So, I still support free choice, even in that morally more difficult time.

I also certainly grant that the videos look awful.  But so then do all those posters of aborted fetuses that show up on roadside posters here and there.  It is important to remember that these organs are being used for scientific research that can potentially help living people who have been actually born, and that this use of those organs has been approved by the would-have-been mothers, or so I understand anyway.  That the actual process is ugly, well, so are many other things that we live with and accept, or at least most of us, although we do not want to see them directly or even on videos..  

Barkley Rosser 

Friday, July 24, 2015

Are China's Problems Responsible For Recent Market Slides?

So, WTI oil has slid below$49 per barrel; gold has gone below $1100, although it jumped today. The US stock markets have been down in recent days for no obvious reasons, and some others are not looking so hot either.  Is there a common thread?  The big Greece crisis is over, although that could yet blow up, although I think most markets already know about that.

There have been lots of rumbling that problems in China might have something to do  with all that. There is no way to know this for sure, especially given China's long record of manipulating data.  Furthermore, serious observers are dismissing all this as a bunch of bad hype, most notably Dean Baker recently, accurately dumping on an incompetent story out of the NYTimes (who  seem to be pretending that they were secretly bought by Rupert Murdoch lately).  The Times had a story about the decline of the Chinese stock market, making a big deal about it.  Dean accurately noted that it is still above where it was in February, so the NYT looks pretty silly making such a big deal about it, especially since the Chinese stock market seems to have stabilized, as have the housing markets in Shanghai and Beijing, even if it is still falling in a lot of lower tier cities.

 I have tried to link to a report from just over a week ago by Pete Wargent, an Australian with an accounting background who reports from, but it did not work.  So, I am just going to lay out a bunch of reported data from a bunch of sources that suggests that while Dean is right about the NYTimes story, things are going on in China that are negatively affecting the world economy and are not being reflected in more aggregated statistics.  One reason I wanted to link to Wargent was not just his immediate report that capital flight from China has been steadily soaring, probably at least quadrupling from about two years ago, he linked to an older report laying out how the Chinese government messes with its GDP accounts, pointing out foreign trade data as one area where things get misreported.  He snarkily noted that China had just reported that the most recent  quarterly growth report was at 7%, just what the government had forecast, but...

So, what he noted is that while these aggregate number can say one thing, looking at more micro data can tell very different stories. Here are some numbers, each taken from a different source:

1.  In March, electrical power production (from all sources) was down 2% from a year before.
2.  In May, oil imports were down 11% from a year before.
3.  Truck sales have fallen by nearly a half between last year and now.
4. Capital flight numbers are accelerating, possibly more  dramatically than the quadrupling figure reported by Wargent.

So, maybe these are consistent with an aggregate 7% growth rate, but does not look like it.  Many outside observers are arguing that the Chinese GDP growth rate is more like 4%, with some saying that in the first quarter it hit zero or even lower, although picking up more recently.

A final point regards the stock market bubble story.  While Dean Baker sneered at the story from the NYTimes, an aspect not reported by them or him, but in Wargent reports and some other sources says that the methods used by the Chinese government in its efforts to halt the stock market slide (so far successful) were very extreme, including simply forbidding many stocks from being sold, and also forcibly confining stock dealers in rooms until they engaged in purchasing some stocks, with portions of  the market still shut down with no transactions allowed. So, the stock market is not at all really stabilized.  We are seeing the ugly side of the old Chinese system, trying to keep a lot of problems under control that they have not had to deal with.

Anyway, declines in oil purchases by them and rumors that the Chinese have guaranteed a gold price floor of $1000, well, I guess we do not know what is really going on with any of this, whether  or not declines in these and other markets are really due to a bigger slide in the Chinese economy than is being officially reported at the aggregate level, this cannot be ruled out.  But, I think there is reason to be concerned.

 Barkley Rosser

Wednesday, July 22, 2015

Sandwichman's Lump-of-Labor Odyssey

The first mention of the lump-of-labor fallacy I ever encountered was in a 1997 column by Jock Finlayson, vice president for policy and analysis of the B.C. Business Council. It was a Business in Vancouver debate with Ken Georgetti, president of the B.C. Federation of Labour, on the merits of restricting overtime to combat unemployment.

At the time, I had been active in advocacy for shorter working time for a little over two years. An abiding interest in the idea had been stoked in 1995 when I wrote a research proposal to do a narrative policy analysis of the employment prospects of work time reduction. Funding for the project never materialized in the wake of a comprehensive provincial government spending freeze announced three weeks after the proposal submission deadline. Meanwhile, however, I had established a web site, the Timework Web, to compile research and commentary on shorter working time.

A little past the midway point in his column, Finlayson wrote, "Work-sharing rests on the belief that the economy can generate only a fixed amount of work. History provides little support for this gloomy view, which economists have labelled the lump-of-labour fallacy." The passage caught my attention because of its distinctive "ungrammaticality," to use Michael Riffaterre's clumsy term.

Riffaterre used that term in a generic sense to refer to "any wording unacceptable in context" rather than exclusively to overt violations of the rules of grammar.
These clumsy wordings, in Riffaterre's analysis, point to the text's intertextuality, "The text refers not to objects outside of itself, but to an intertext. The words of the text signify not by referring to things, but by presupposing other texts."

For narrative policy analysis, such peculiarities of wording are not mistakes to be indulged but "jackpots" for decoding a text. The challenge then becomes one of retrieving the corpus of texts – the "intertext" – to which the peculiar passage refers. The archival work to do so would have been inconceivable before the Internet and wide availability of full-text searching of databases of journal articles, pamphlets  and treatises.

Finlayson probably learned about the lump-of-labour fallacy from Paul Samuelson's ubiquitous introductory economics textbook. But Samuelson didn't know when or where the fallacy claim originated, explaining that the fallacy "was widespread during the Great Depression 1929-1935 and is still encountered in today's France." (correspondence with the author).

Using JSTOR, I was eventually able to trace the "lump of labour" phrase to an 1891 article on piece work by David Frederick Schloss. By then, January 1999, I was already aware that the fallacy claim -- and rebuttals of it -- had long preceded that specific label. It took me 15 more years of occasional forays back into the archives (and keeping my eyes peeled) before I finally got to what I believe is the rock bottom of the story.

Tuesday, July 21, 2015

Sherk 'n Burke?

at the Heritage Foundation:
Automation and Technology Increase Living Standards
by James Sherk and Lindsey Burke

Many Americans blah, blah, blah... 
Lump of Labor Fallacy 
Fears of mass technological unemployment are predicated on a “lump of labor” model of the economy—the belief the economy needs a roughly fixed amount of work performed.In this economic model, machines automating work formerly done by people reduce the total amount of work remaining for humans, reducing total employment. Keynes forecast an impending crisis of unwanted leisure. He suggested future societies would establish three-hour workdays to give everyone enough work to avoid boredom.
Almost all economists reject this model today. Economists have found that an almost unlimited amount of potential work exists in the economy because people’s material desires continue to expand. Virtually all Americans today enjoy material living standards vastly better than the wealthy of 1900. Nonetheless, most Americans today would purchase additional goods and services if they received a raise or bonus.

Sandwichman's lump-of-labor odyssey

Is Jeb! Related to Angela Merkel?

Jeb! apparently thinks the U.S. needs spending cuts in order to get a balanced Federal budget, which sort of sounds like what Merkel has been insisting in terms of fiscal policy for the “Club Med” nations. I was wondering where this hate filled term came from and in my search I found this.
German media reported earlier this week that Chancellor Angela Merkel told CDU party supporters that workers in southern European countries must work more.
The Jeb! solution for those with modest incomes in the U.S. seems to be that they should work more. Of course, the Greeks and Americans do tend to work a lot when they have jobs. Of course the fiscal austerity that Merkel and Jeb! advocate makes finding a job that much harder.

Accord Didn't Open Door To Nukes

That is the heading the Washington Post put on the letter by me that appears today, July 21, 2015, on their editorial page.  What follows is the letter itself verbatim.

"The July 17 letter from Bandar bin Sultan bin Abdulaziz al Saud, "The Iran deal hurts U.S. allies," implied that it was the Clinton administration's 1994 agreement with North Korea that led to North Korea obtaining nuclear weapons.  That agreement caused it to adhere to the Nuclear Non-Proliferation Treaty, shutting down its plutonium-producing reactor and halting it nuclear weapons program.  Those actions were undone, with North Korea obtaining nuclear weapons, after March 2001, when the George W. Bush administration changed course and increased sanctions in a failed effort to bring about the end of the North Korean regime."

J. Barkley Rosser, Jr. Harrisonburg, Va.

Monday, July 20, 2015

The Euro, From Cash to Kesh

Ruling out any writeoff of Greece’s debts, Angela Merkel is quoted today as saying “A classic haircut of 30, 40 percent of debt cannot happen in a currency union....”  This echoes what Wolfgang Schäuble said last week: “....everyone knows that a debt haircut is incompatible with membership in the monetary union.”

OK, let’s take a moment with this.  The United States is a currency union: fifty states with all their urban and regional subdivisions share a common currency, the US dollar.  Are public debts of these subjurisdictions ever written down?  Regularly.  Orange County, anyone?  Detroit?  What law of nature or human affairs is supposed to make this impossible?

As a general proposition, the Merkel-Schäuble doctrine is obviously, indefensibly wrong.  You’d think someone would call them on it.

So maybe the no-haircut rule is wrong in general but does apply to the eurozone.  You could argue that writing down Greek debt reduces Germany’s assets as it decreases Greece’s liabilities and therefore constitutes the sort of transfer that the zone was carefully crafted to avoid.  The problem is that this overlooks the fact that Greek debt is already worth less because the markets have correctly divined that it cannot be fully repaid.  This is clear if you think of the mechanism by which a writedown would normally be executed: the existing stock of debt (or the portion of it drawn on a particular creditor) would be exchanged for a new bundle of instruments with lower face value but approximately the same market value.  Such a transaction acknowledges and ratifies a loss in creditor value that has already occurred.  Now, if you want to interpret the EU rules as forbidding the market to devalue the assets of creditors and the liabilities of borrowers because that constitutes a transfer—well, good luck.

So on closer analysis the German position is as absurd as it looks on the surface.  It is a weak play for intellectual legitimacy.  What it’s really about, of course, is the fact that Greek maturities are spread out over the coming decades, and that restructuring their terms will postpone the reality of default to future politicians.  A writedown is immediate and pins the loss on the folks currently in control.  And you can’t have that in a currency union, can you?

Friday, July 17, 2015

Are Workers People? (Views Differ)

"...our understanding of wage determination has been transformed by an intellectual revolution... workers are people" -- Paul Krugman
Memo to Karl Marx, suggested revision -- highlighted in yellow -- to the climax of your 1865 address to the First International (courtesy of  Paul Krugman):
"Instead of the conservative motto: 'A fair day's wage for a fair day's work!' they ought to inscribe on their banner the intellectual revolutionary watchword: 'Abolition of the wages system Workers are people!'"
Where to begin?

Even prior to Card and Krueger's pathbreaking research on the minimum wage there were widespread intimations that workers might indeed be people. Reputedly, the Fair Labor Standards Act of 1938 -- which established a federal minimum wage in the U.S. -- was enacted into law more than a half century before the intellectual revolution that transformed our understanding of wage determination. How did that happen? It's like they must have had a time machine or something.

But are workers actually people? A balanced analysis would present both sides of the question objectively.

"That's you problem right there, ma'am. Your denominator is all
wore out and that's puttin' too much strain on your numerator."

Heritage Economist on Greece and the US

Paul Krugman has some fun rightfully mocking this:
If U.S. policy makers and the public take away only one key lesson from what’s happening in Europe right now, it should be to put the budget on a path to balance during good times such as these.
Paul may a few good points but permit me to go further starting with this opening line. As Paul and others have noted, this call for fiscal austerity risks another recession which is the real lesson we should be drawing from the Greek tragedy. The toxic mix of fixed exchange rates and fiscal austerity has plunged Greece into a massive recession which is the main reason its debt/GDP ratio keeps rising. But the folks at the Heritage Foundation would not ask us to adopt some sort of gold bug philosophy – would they?
the United States also creates its own money, enabling it to devalue its currency and debt to avoid defaulting on payments for a lack of cash. This power, when abused, can lead to steep inflation setting off very bad economic consequences that can harm those relying on their savings to get by the most.
While this acknowledges the beneficial role of devaluation, it immediately goes into inflationista mode suggesting the folks at Heritage are indeed still gold bugs. But what bothers me most is this reliance on some this IMF report:
lessons from nine country case studies on how changes in fiscal policy coupled with structural economic reforms, such as labor-market liberalization, drive increases in economic growth.
Read the IMF report for yourself but I’m not convinced that this report makes a strong case for supply-side economics. Yet the folks at Heritage argue:
Growing spending on public benefits threatens to overwhelm the U.S. economy in the long term. At the federal level, Social Security, Medicare, Medicaid and other health programs consume more than half of the budget, and spending on these programs is growing steeply. After accounting for other benefits, transfer payments make up about 70 percent of all spending in the United States today. Implementing important reforms to unaffordable and outdated benefit programs has proved to be a difficult feat politically. However, waiting too long on reforms diminishes the ability to phase in major changes gradually, in a way that will protect those who rely on benefits the most and leave others time to adjust to new fiscal realities. Waiting for a major crisis to force reforms, as Greece has done, brings unnecessarily painful austerity.
Let’s be clear – reforms and austerity are two very different things. And yet the real agenda here is to reduce Federal spending on health care and Social Security, which will likely be neither reform nor austerity if these spending reductions are nothing more than means to pay for more tax cuts for the rich.

Thursday, July 16, 2015

Is Iran Really Like North Korea?

So claim the Saudis in announcing their joining Israel in opposing the new Iran nuclear deal negotiated by the P5+1 with Iran. Why do  the Saudis make such a claim?  They have argued that Clinton engaged in a soft policy that led to North Korea obtaining nuclear weapons.  This agreement with Iran is supposedly like what Clinton did in the 90s with North Korea, so accepting the deal will lead to Iran obtaining nuclear weapons also, presumably unless somebody goes and bombs, bombs, bombs Iran, as John McCain used to put it.  Is there any basis for this argument?


What led to North Korea getting nuclear weapons has rarely been discussed in the US media, and is not at all now.  I am not surprised that the Saudis are confused about this, as I suspect the vast majority of Americans have no idea with what really happened.  It has barely been reported.  As it is, this was the second worst foreign policy disaster of the George W. Bush administration, with only the invasion of Iraq.  Unsurprisingly, those pushing the invasion of Iraq (and now pushing bombing Iran) were those who were behind this Korean fiasco.

After North Korea's founder, Kim Il Sung, died in 1994, relations between the two Koreas relaxed, especially following a visit to Pyongyang by Jimmy Carter.  South Korean President Kim Dae Jung began his "Sunshine Policy," indeed supported by the Clinton administration.  One of the things to come out of this was North Korea joining the NNPT (Nuclear Non-Proliferation Treaty) and shutting down its plutonium producing facility, effectively shutting down its developing nuclear weapons program.  Kim Dae Jung would receive a Nobel Peace Prize in 2000 for his policy.  I note he was a genuine reformer who had been a dissident during the Park Chung Hee dictatorship (1960-1979) and was tortured by that regime so that he always had a major limp until his death in 2009.  He was actually saved from execution during this period by the US CIA.

When George W. Bush became US president in January, 2001, his Secretary of State, Colin Powell, thought that continuing the US policy supporting the ongoing negotiations was the proper thing to do and communicated this to President Kim.  Kim came to Washington in early March after that to meet with Bush with this expectation in his mind. But upon arriving, he learned that Cheney and Rumsfeld had gotten to Bush to undo Powell's approach.  They believed that North Korea was on the verge of collapse (they got such views from Nicholas Eberstadt, among others), so that tightening sanctions would push them over the edge and regime change would result.  Kim Dae Jung returned furious to Seoul, and US popularity in South Korea tumbled sharply.  The Sunshine Policy came to an end.

Needless to say, what followed in North Korea was not a collapse, but a withdrawal from the NNPT, a restarting of the plutonium reactor, and the production and acquisition and testing of nuclear weapons.  It was not Clinton's policy that led to this outcome, it was Bush's, following an approach that the Saudis seem to think should be applied to Iran.  Really, I do not think they know what they are advocating there, this is so incredibly stupid.  The loss of their longtime foreign minister, Saud al Faisal recently, is really showing.

Barkley Rosser

The Papandreouization Of Alexis Tsipras

I met George Papandreou a couple of times at conferences and had brief conversations with him. He always seemed like a reasonable and serious guy. This was all before he became Greece's Prime Minister in October, 2009, but after he became leader of the Greek PASOK party in 2004, the old socialist party of Greece, which his father and grandfather had led, with both of them serving as PMs also. George's father, Andreas, was an economist and was on the Berkeley faculty for some period of time and married an American woman, George's mother. George served as a minister of education and some other positions when his father was PM during the 1980s and 1990s. While PASOK is dead, and George's effort to start a new party and run in the most recent election totally failed, he continues to serve as president of the Socialist International, a position he has held since 2006.

The most dramatic thing that he did came shortly after he became PM in late 2009: he revealed that Greece had been lying about its national income accounts and particularly its budget deficits. These had been claimed by the previous administration to be around 6% of GDP, but were actually nearly 13% of GDP. George fessed up to this, which was the trigger for what would be called the "eurocrisis," and which went on for several years, basically until the ECB announced that they would "do what is necessary" to back up sovereign debt in the eurozone, bringing down interest rates in nearly all nations in the zone, although not in Greece.

 This admission and crisis led to the original bailout of the Greek financial system, with all that austerity imposed for financial support. That deal was unsustainable, and their would be a readjustment in 2012, which was also unsustainable, with all the more recent stuff arising due to that. So, socially and politically progressive Papandreou accepted imposition of an austerity program that tanked the Greek economy. His popularity steadily declined as it became clear how disastrous the agreement was, with him finally stepping down in late 2011 in favor of a unity government. As it is, while he remains highly respected abroad, and I have very high personal respect for him, his fall into unpopularity in Greece seems to have been total and probably permanent.

 So, it looks like Alexis Tsipras seems to have followed his path. After lots of rhetoric and admirable efforts to get a better deal for Greece, he has in the end totally surrendered and caved to the demands of German Finance Minister Wolfgang Schauble and his allies in such countries as Finland and Slovakia. While there are funds being provided, if anything it looks like the austerity being imposed may well be worse than what went down before. I am not going to repeat how unfair and unreasoanble all this, other than to note the IMF declaring that this agreement is also unsustainable without debt restructuring, totally rejected by Schauble and his allies. To get this awful agreement through the Greek parliament, Tsipras had to rely on his opponents, with many Syriza members not supporting it, and major demonstrations going on outside, even though apparently a majority of Greeks oppose leaving the euro. I sympathize with Tsipras's position, but, I fear, he has just become the next George Papandreou. As it is, Yanis Varoufakis resigned after the referendum passed that was supposed to get the troika to back off, but failed to do so. We shall see how long it will be before Tsipras follows Papandreou out of office.

Barkley Rosser

More or Less? Fourth Grade Arithmetic for Economists

A highly-rated comment on Barro's column at Upshot
At Upshot, Josh Barro asks "Should Americans Work More?" At Policyshop, Matt Bruenig answers Absolutely Not.

Pinch me. Are we actually having this conversation? Should morbidly obese Americans eat more doughnuts? I am fond of quoting Thomas Pynchon's epic line from Gravity's Rainbow, "If they can get you asking the wrong questions, they don't have to worry about answers."

Barro's column pursues the "balanced, objective" framing device of looking at "both sides" of a wrong question. Bruenig points out the flaw in Barro's central theme of regulatory and tax "distortions" that discourage even longer hours of work. Barro's framing ignores much greater and more fundamental distortions that impose longer hours. "If we are going to have a work debate," Bruenig concludes, "it should proceed by asking ourselves how much time we want to spend toiling our scarce lives away, not muttering incoherently about what distorts what."

Bruenig presents two charts that compare hours worked in the U.S. to other countries. The first chart plots the ratio of annual hours to labor productivity. The second chart compares each country's hours/productivity ratio to an aggregate norm. The U.S. is a long-hours outlier in both.

In plain language, what these charts reveal is the inordinate emphasis in the U.S. on GDP. In fourth-grade arithmetic terms, the index called "productivity" is a fraction. It has both a numerator and a denominator. The numerator is GDP. The denominator is hours of work. The result of this operation of division is called the quotient. Productivity is a quotient. A quotient is increased by either increasing the numerator or decreasing the denominator (or both).

There is an extensive literature on the systematic errors made by children learning rational number concepts. Those errors result from attempts to apply rules that have been previously learned about whole numbers  to new situations where those rules are not relevant. Mistaking a quotient (productivity) for a numerator (output) would be an example of this kind of systematic error. Would it be asking too much for economists to set aside their indulgence in arcane mathiness and attend instead to the pervasive ignorance of fourth-grade rational number concepts that underlies the single-minded obsession with "economic growth"?