Wednesday, September 25, 2013

David Ruccio — Political economy of happiness

My colleague Benjamin Radcliff, author of the Political Economy of Human Happiness, argues happier people live in countries with strong social safety nets and labor unions.
The relationship could not be stronger or clearer: However much it may pain conservatives to hear it, the “nanny state,” as they disparagingly call it, works. Across the Western world, the quality of human life increases as the size of the state increases. It turns out that having a “nanny” makes life better for people. This is borne out by the U.N. 2013 “World Happiness Report,” which found Denmark, Norway, Switzerland, the Netherlands and Sweden the top five happiest nations.
Conservatives may be equally troubled to learn that labor unions have a similar effect. Not only are workers who belong to unions happier, but the overall rate of happiness for everyone — members and nonmembers — increases dramatically as the percentage of workers who belong to unions grows, reflecting the louder political voice that organization gives to ordinary citizens. 
Take it a step further and we can conclude that people will be able to have richer and more rewarding lives when the social surplus is used to support the welfare of the majority of the population and when workers have a democratic say in how that surplus is produced.
David Ruccio | Professor of Economics, University of Notre Dame


y said...

Interesting post here by Paul Krugman. Mentions he has been talking with Adair Turner (who spoke the other day at the modern money network seminar), and alludes to MMT without mentioning it by name.

Tom Hickey said...

Krugman is still stuck in monetarism, although it is encouraging that he sees a way to justify fiscal policy through it. But still wrong headed.

Jose Guilherme said...

Actually, Krugman is careful to distinguish fiscal policy from monetarism, calling debt-financed fiscal stimulus "another (possible, long term) answer to the crisis". And he insists, correctly, this this need not mean an explosion of the debt-to-GDP ratio.

Tom Hickey said...

Yes, but because of the real rate that he projects, so no problem maintaining r < g

Jose Guilherme said...

Also, "the higher the level of (initial) debt, the higher the allowable deficit" (Krugman).

This is an important, yet widely misunderstood point. It's great that Krugman has mentioned it.

In real life, highly indebted countries, such as Japan, have (though at first sight this may seem paradoxical, it's true algebraically) more leeway to support a higher annual primary budget deficit without risking a long term "explosion" of the debt to GDP ratio.

In other words, one could try to provide a sort of advice to overcome the present crisis through a strategy of long term deficit spending:

"Just be merry, go for deficit spending, keep your nominal interest rate below nominal GDP growth - and fully enjoy the high amounts of public debts that you wisely contracted in the past".

Tom Hickey said...

Now if he would just lead with the Krugman cross instead of IS-LM.

Krugman’s New Cross Confirms It: Job Guarantee Policies Are Needed as Macroeconomic Stabilizers by Daniel Negreiros Conceição

Jose Guilherme said...

As he said in his original post with the Krugman cross: "Deficits saved the world".

Unplanned and unintended deficits, that is, due to automatic stabilizers and the presence of large public sectors in every developed economy.

The exception has been Greece (and to a lesser degree, Spain, Portugal, Ireland and Italy - see Martin Wolf's piece on yesterday's FT) where austerity cuts were so deep that they undercut the effect of automatic stabilizers.

In fact, Greece has witnessed a drop in GDP of close to 25% when compared to pre-crisis levels (and its depression is still deepening because the EU refuses to relent in its imposition of austerity on the country); this is significantly worse than what happened in 1930s Germany, where the fall in aggregate income was in the order of 18% in the worst phase of the cycle.

Quite simply, eurozone policies prevented deficits from saving Greece. A miracle of the devil, indeed.

Tom Hickey said...

Quite simply, eurozone policies prevented deficits from saving Greece. A miracle of the devil, indeed.

And according to the right, this is a feature, not a bug, since it forces "restructuring" in the neoliberal model. The objective is to induce deflation and drop the real wage to make the country more competitive, which is the only way to address the issue in their view when devaluation of the currency is not an option. They see rescue by increasing the deficit as fueling the structural problems.

Jose Guilherme said...

And of course, internal devaluation depresses internal demand, whereas currency devaluation doesn't.

Apparently, the EC, ECB and IMF forgot to include this "minor" detail in their models. And as was to be expected, model predictions turned out to be totally off the mark.

At least the technical teams of the IMF have been forced by reality to recognize the failure. The EU part of the Troikas have not even reached that stage yet.

It now seems clear that the peripheral countries have two options left to try a way out of their predicament. Either find a way to "print money" within the framework of the EMU (e.g., QE on their debts by the ECB, primary government bond sales to local banks, whatever) or abandon the euro altogether.

If they persist in applying internal devaluation they'll be stuck in recession and mass unemployment for years on end.

Tom Hickey said...

And as Michael Pettis points out, even if the periphery turns around, the north will no longer be able to run surpluses by exporting to the south based on debt-financed demand.

So the only course for the EZ will be to find its surplus elsewhere, which is in deficit countries outside the EZ, mainly the US.

China and Japan are already depending on the US for surpluses, so something gonna have to give.

The US cannot absorb that much demand with private debt and it's unlikely that the US government will continuously do so either.