Tuesday, October 23, 2012

The Chinese Currency Boogeyman


A quick few comments on last night's debate, mostly about Obama and Romney's mutual obsession over China's currency manipulation:

  • Tariffs are a bad way to "get tough on China." Obama and Romney have both supported this policy. The President has bragged in an ad about how he slapped a tariff on cheap Chinese tires to save American jobs. Here's the problem: that's an awfully expensive way to save a handful of American jobs. According to one study, the cost to consumers of that tariff was $1.1 billion--that is, about $900,000 per job that was saved. And Romney, instead of offering a critique of this policy based on the benefits of free trade, has attacked Obama for not making the tariffs big enough
  • This issue has largely stopped being relevant over the past several years. China's real exchange rate has risen dramatically because of domestic inflation and their trade surplus has gotten much, much smaller:

Frankly this was, if anything, an issue for 2008, not 2012.

The problem here is that neither of the candidates are offering a policy that would really help America's economy. If anything, as I pointed out above, their proposed policies would likely hurt the economy, because tariffs are effectively just a tax on our collective purchasing power. If the candidates really want to help Americans, they should probably talk a little more about their respective jobs programsOh, wait.

Sunday, October 21, 2012

Week of Weeks

Sorry to disappoint everyone, but the next week or so will feature limited, if any, posting, as I've been swept up by midterms and problem sets galore. I also won't be able to host my customary live-blog of the debate tomorrow. Posting will probably pick up again sometime after October 29th. Have a good week, everyone.


Wednesday, October 17, 2012

The MUSS Method and John Taylor


In a recent blog post, Economist John Taylor makes the comparison between our current recovery and previous U.S. recoveries. He argues that our current recovery, which he calls "unusually weak," is not, as economists like Ken Rogoff and Carmen Reinhart have argued, slow because it was caused by a financial crisis. He argues that Rinhart/Rogoff's original work is inapplicable to the U.S. because it largely covered financial crises in foreign countries. Instead, he asserts that poor policy-making is what holds our recovery back, and that an observation of previous U.S. financial crises and their recoveries proves him right.

As evidence of this, he uses research from Michael Bordo and Joe Haubrich to show that previous recoveries from American financial crises have been much, much faster. Specifically, he uses this chart:
Definitive proof, right? Here's the problem: at first glance, a number of these recessions listed weren't even caused by financial crises. For example, the 1973 recession was largely an oil-price supply shock. The 1981 recession was caused by the Fed. And those are just the ones I personally know about off the top of my head! In response to Taylor's arguments, Ken Rogoff and Carmen Reinhart released a new paper as a rebuttal, in which they compare actual financial crisis-induced recessions in the U.S. (not things like 1973 and 1981!) and their subsequent recoveries to our current recovery. This chart encompasses their findings:
At worst, the U.S. is par for the course by comparison, and at best, we did far better than relevant historical recessions and recoveries. John Taylor seems to have fallen into the same sort of trap Phil Gramm and Glenn Hubbard fell into in their June op-ed, except that this time, instead of falsely comparing one recession and recovery to another, Taylor drew false comparisons writ large. Last night, Noah Smith criticized Taylor's argument, saying that he was using the MUSS (Make Up Some...Stuff) method of economic debating. It sure looks that way, doesn't it?

Update: Paul Krugman picks up on something I should have:
"The first is that looking at the rate of recovery from the trough is a very peculiar criterion — especially when, as Taylor does, you look only at the first year (!) of recovery. By this standard, the New Deal was a tremendous success story, because growth was fast in 1933-4. Never mind the fact that pre-crisis per capita GDP wasn’t restored for more than a decade. As R-R say, surely the relevant comparison is with the pre-crisis peak, especially given the fact that post-crisis economies often suffer periods of relapse (as is happening in Europe now)."
Excellent point.
 

Tuesday, October 16, 2012

Second Presidential Debate Live-Blog!

Do I even need to describe this again? Come one, come all to the live-blogging of the second presidential debate! The last one was pretty successful, so let's see if we can't keep that going! 

Monday, October 15, 2012

"Getting Government Out of the Way"



Something I've noticed more and more among some people is the belief that "government needs to get out of the way" or that we ought to "leave it to the private sector" or to the states, regardless of what "it" actually is. This, I think, is representative of a broader intellectual flaw among Tea Party-types in the GOP, who seem to believe that anything the government does must be inefficient and bad, simply because it was done by the government. Now, don't get me wrong, there are plenty of examples of government waste and inefficiency, (farm subsidies, anyone?) but blanket statements like this don't do us much good. If I were to hazard a guess, I would say that the Tea Party wing of the GOP believes this because they also believe that government is only in the business of redistribution of income, ignoring the fact that the government provides public goods that undeniably contribute to economic efficiency.

To be sure, the government does redistribute, but you would be mistaken if you believed this was all the government did. We don't have a government simply for that reason, we have it because it can provide certain things that the private sector either will not or cannot provide at all or at optimal quantities--things like police, firefighters, research, national defense, courts, infrastructure, schools, etc. These are public goods, and when you think about it, public goods are arguably the whole reason why we have a federal government in the first place. 

As an example, imagine that a private company provided a road connecting two cities. The company's benefit from building this road is derived from whatever profit it can get through tolls and such. By contrast, the benefits to society are a good deal higher than the amount they pay for the use of the road, because the road is so instrumental to facilitating things like commerce and travel. Put simply, what this means is that because the private firm's benefits are lower than those of society, the firm won't build (provide) as much road as society would like. That's where the federal government comes in with road-building: it provides a useful, continuous network of roads and highways that spans the nation.

Yet today, we see many in the Tea Party and its associated off-shoots denigrating infrastructure spending by the federal government as wasteful. To be sure, it can be wasteful and excessive, just look at Japan! But as I've already shown, it would be wrong to assume that the private sector would provide the optimal level of infrastructure either. The only real way we're going to get the optimal level of infrastructure is if we make the government work optimally, not by retiring ourselves and our minds to the intellectual dustbin of boilerplate statements.

Friday, October 12, 2012

Romney Doesn't Have A Jobs Plan and Obama Won't Talk About His

Anyone who's been carefully following this presidential campaign has noticed that, for all the talk of job-creators, jobs-this and jobs-that, neither incumbent nor challenger has pushed an actual plan to create jobs. This may strike some of you as odd, but if you've listened to both of the debates, neither of them focused heavily on direct creation of jobs. Instead, they focused on debt, deficits, taxes, and foreign policy. Sure, they reference the unemployment crisis in the U.S. and how they'll create jobs, but these were more obligatory statements rather than specific plans to combat current joblessness. Ezra Klein noted this in a post today, and I wanted to expand on his points a bit. 

Let's take last night's debate as an example. Both candidates were asked this question by the moderator: 
"So will both of you level with the American people: Can you get unemployment to under 6 percent and how long will it take?"
Both responses were, in my view, unsatisfactory. Biden mostly described what has gone on since 2009 and then mentioned how the Bush tax cuts needed to expire for top earners but not the middle class. How that will create jobs is beyond me. Ryan, after falsely stating that unemployment was rising across the nation, offered a five-point plan for economic growth:
"It’s a five-point plan. Get America energy independent in North America by the end of the decade. Help people who are hurting get the skills they need to get the jobs they want. Get this deficit and debt under control to prevent a debt crisis. 
Make trade work for America so we can make more things in America and sell them overseas, and champion small businesses. Don’t raise taxes on small businesses because they’re our job creators."
This plan does almost nothing to address our current crisis and looks an awful lot like the same economic plans pushed by Republicans since 2004. This suggests that the Republicans lack a specific plan for combating unemployment. From looking at this plan, you would think that the Great Recession somehow flipped a switch and suddenly robbed Americans of all of their skills and made us a great deal more dependent on foreign energy. Needless to say, neither of these things are true. The bit about a debt crisis is just--as Biden would say--a bunch of malarkey. Balancing the budget during a recession doesn't create jobs, it destroys them. Just think about it: if you fire a bunch of government employees, they have less money to spend in the economy, firms have lower demand, they cut back, hire less/fire more people, and so on. That's what hurts business confidence, not our current debt levels, which is probably why so many CEOs are against going over the fiscal cliff. Making trade work for America is mostly irrelevant--what would that do to reduce household debt levels? I'm all for free trade, but arguing that it would address our current unemployment crisis is akin to a doctor prescribing a meningitis vaccine to a cancer patient--its not a bad thing in and of itself, it just won't help address the bigger issue. Finally, the last point in the plan is not raising taxes on small businesses. Again, I'm not against it, but old post of mine explains its irrelevance right now:
"First, imagine that you're a business owner. Imagine that you're employing, say, 20 people right now. You run a car wash, or something. Now imagine that, because of the economy, business is a bit slower than usual, so you only use about 60% of your workforce's capacity. Now imagine that the government comes and says, "Oh, hey, all businesses only have to pay half as much in corporate taxes this year, hope this makes you guys want to hire!" Now stop. If you're only using 60% of your workforce because of insufficient demand for your services, how would paying less in taxes make you want to hire more workers? The only way you'd hire more workers is if you were already using your workers at full capacity, which most firms are not doing right now."
So, again, even if you think all of these are laudable goals for long-term economic growth (I do!), they do almost nothing to effectively address the current unemployment crisis in anything more than a tertiary manner.

Now, on to Obama/Biden. They actually have a jobs plan, but the problem is that they haven't been pushing it at all. On the campaign trail, all they've been saying is that they'd like to hire new teachers and that taxes won't go up for most Americans. Hiring teachers is good, since so many were laid off because of state and local cutbacks, but maintaining current tax levels won't get us anything better than what we already have, which is not good enough. The sad part is that the jobs plan that Obama put out last September actually looks pretty good, since it does a lot to shore up state budgets and undo the public-sector layoffs there that have played such a big part in hobbling our recovery. In fact, state and local cutbacks have made total government investment including the $787 billion stimulus look something like this:
Government investment is way down, private/business investment is way up. You wouldn't know it, though, from the way many Republicans have painted the situation.

Anyway, it seems that, rather than focusing on actually addressing unemployment, both campaigns have instead resorted to trading barbs about their tax plans, one of which is mathematically impossible, while the other is a relatively modest change of current policy. You can be sure of one thing, though, none of it will help the jobless in America.


Wednesday, October 10, 2012

Live-Blogging the VP Debate

You know the drill, folks, at 9 PM on October 11, I'll be hosting a live-blogging of the Vice Presidential debate. For those of you who don't know the drill, what happens is that you'll join what is effectively a chat-room where you comment on the events going on during the debate. Snarky comments are a must, serious comments appreciated. All are welcome and bring your friends! Yes, that means you, conservatives. You're all welcome to join in on the fun. 


Tuesday, October 9, 2012

Sesame Street Economics


I realize that I'm a bit late to the game on this, but I wanted to weigh in on the debate. No, not what I thought of it as a whole--in short, Obama was distracted and rambling while Romney, honesty notwithstanding, forcefully pressed his points home. Rather, I wanted to talk about one particular segment of it that just rubbed me the wrong way. I'm talking about Romney's desire to cut PBS as part of his effort to balance the budget.

First of all, from a cost-benefit standpoint, public broadcasting is a pretty good investment for the money. More broadly, though, Romney's statement during the debate seemed to insinuate that PBS is the Great Evil that is driving our current and future deficits. Less-informed viewers might have fallen for that, and I think that that's what bothers me--the statement gave off the air that our budget can be balanced simply by cutting funding for things like NPR and PBS. Indeed, many people, when asked, believe that funding for PBS and NPR is far higher than it really is--a shocking 30% thinking it was above 5% of annual federal spending. These programs, in reality, comprise  about .013% of annual federal spending--about $500 million a year. Put another way, we spend more money than that in 36 hours in Afghanistan. Public broadcasting, then, is practically a rounding error in budgetary terms. Let me be clear: I'm not saying that just because a program doesn't cost much that spending money on it can't be wasteful, but there's spending and then there's spending. I don't know about you, but I'm willing to shell out $1.35 a year to do my part to help teach kids how to read and write and count.

In any case, my ultimate point is that this whole PBS funding business completely ignores what the actual sources of our high deficits are--the recession, increasing health care costs, and to a lesser degree, Social Security. Note the budget chart:



In the debate and on the campaign trail, Romney said that he wouldn't stop the unnecessary over-payment of doctors and insurance companies by Medicare, which costs us $716 billion over ten years, while yielding arguably scant benefits. He also expressed his desire to increase the defense budget by 2.1 trillion over ten years, which is well above what the Department of Defense requested. Don't forget about that $5 trillion tax cut, either.


But seriously, we can't afford Sesame Street anymore, sorry kids.

Update: I see that the Obama campaign caught on:


Tuesday, October 2, 2012

Live-Blogging the First Presidential Debate!

We'll be live-blogging the debate starting at 9 PM on Wednesday, October 3rd, so bring your friends, because it'll be a good time! Also, bring all of your sarcasm and snark to the table. Constructive commentary is optional, but appreciated.

No, Social Security Won't Stop Existing in 2033



I read an op-ed online today by Scott Paulson, a conservative commentator, in which he exalts Romney for having a plan for Social Security's future and criticizes Obama for not having one. I take issue with his op-ed on a number of levels, but primarily because Paulson, in typical political pundit fashion, blows wildly out of proportion the problems faced by Social Security. At certain points in the op-ed, Paulson, whether deliberately or through ignorance, throws out lines that are demonstrably false. Let's take a deeper look, shall we?

First, Paulsen opens with this paragraph:
"It’s encouraging to see that the presidential challenger is tremendously concerned about the Social Security issue now because the program’s demise is only 21 years away. Furthermore, each year that passes, the method of fixing the program’s financial concern – by running totally out of money – becomes increasingly more difficult to correct."
This paragraph is utterly off-base, to be honest. Paulson seems to be implying that Social Security will simply cease to exist once the trust fund's contents run out. I initially thought that I may have been reading too much into things, but then my suspicions were vindicated:
"Continuing as it is, it will definitely be a non-functional program by the year 2033 due to lack of funds."
I'm not sure which Trustee's report on Social Security Paulson read, but the real report said nothing of the sort. In 2033, when the trust fund runs out, Social Security will keep right on functioning--all that would happen is that the money paid out would have to equal the money paid in. According to the Trustee's report, Social Security would basically be able to sustainably pay beneficiaries about 75% of the promised benefits. That is, if your monthly check was supposed to be for $1,000 it would instead be for $750. Hardly non-functional, if you ask me. For you visual learners:
Now, I'm not saying this isn't a big deal or that a 25% cut in benefits wouldn't be a bad thing, but  Paulson writing that the program will become non-functional only serves to distort peoples' efforts to understand the problem. A problem, I should note, that has been wildly overblown.

While bringing Medicare costs down is a tremendously complicated affair, the problems facing Social Security are simply a matter of accounting--we have to either cut benefits or raise revenues, that's it. Many people say we should raise the retirement age, but in pointing to our rising life expectancy, they miss the fact that life expectancy for the poor--those who rely most on Social Security--has declined over the past several decades. In any case, rather than seeing the sudden end of Social Security, the worst-case scenario we face is that benefits would face a 25% reduction, and that's if we literally sit on our hands for the next two decades.