James Kwak — Ideas, Interests, and the Challenge for Progressives

This is a follow-up on a debate begun by Mike Konczal and joined by Dani Rodrik.

It's an important debate to be having about political economy but I don't think it can be resolved as a political matter in the way it is framed without bringing in Post Keynesian economics, MMT, and Institutionalism, from the side of economics, and sociology and political science as well. Moreover, it is basically a philosophical debate that hangs on differences in world views and ideologies. 

The fundamental question is what living a good life in a good society entails, individually and socially, as well as in terms of social, political and economic liberalism.

The Right has Friedrich Hayek's The Road to Serfdom and Milton Friedman's Capitalism and Freedom. The Left has John Kenneth Galbraith's The Good Society and Economics and the Public Purpose. All are dated and need to be revised for current conditions.

The coalition on right that was dominated by the GOP establishment has collapsed with the party breading between populist and establishment wings, and faces an uncertain future after this election. The dominance of the New Democrat establishment was seriously challenged by the Sanders "insurgency" and the dynamics of US demographics suggest that to Democrats that unless they change they face the same establishment- populist schism in which the Republicans are now enmeshed.

James Kwak certainly has it right that the challenge is to come up with a long term approach rather than a short term fix to regain the white working class that began to abandon the Democratic Party. Nixon's Southern Strategy broke the lock on the solid South that the Democrats had had after Reconstruction and flipped it to the GOP, while civil rights sealed the deal. Working class Democrats then defected wholesale to the GOP as "Reagan Democrats." Now the male white working class seems to be owned by right-wing populism.

Going forward, it appears that the US is divided between white males on the right and white females and non-whites on the left. This divide has economic roots but it is not fundamentally economic. Therefore, an economic approach can only be a part of the overall approach that progressives take politically.

The Baseline Scenario

Ideas, Interests, and the Challenge for Progressives

James Kwak

ht Mark Thoma at Economist's View

Dani Rodrik — It’s a war of ideas, not of interests

Note that what is required here is not one more well-designed program. It is a narrative, a marketing device – a bumper sticker.

Must-read. Short.

Dani Rodrik is correct but changing minds, let alone a cultural mindset, is easier said than done. But without doing it, progressivism is wandering in a swamp of identity issues.

It's about building a vision and articulating it persuasively through a narrative that Joe and Jane Sixpack can relate to and identify themselves and their cohort with.

Here again I come back to the enduring question, "What does it mean to live a good life as an individual in a good society."

Dani Rodrik's weblog

It’s a war of ideas, not of interests
Dani Rodrik

David Glasner — How not to Win Friends and Influence People

Some history, some economics, some politics and some ideology. Covers a lot of ground.

Uneasy Money
How not to Win Friends and Influence People
David Glasner | Economist at the Federal Trade Commission

Steven Pressman — Live-Blogging Piketty: Review of Reviews, Pt. 3

My last post summarized the positive reviews of Piketty and focused on some of the best of these. This post looks at the negative reviews. The silly ones tend to come from the far right and were discussed in my first review of reviews of Capital in the Twenty-First Century. The more serious critiques come from the left of Piketty and make three points. First, following Solow (see my previous post), a number of reviewers take Piketty to task for expecting that the rate of return to capital will always exceed the economic growth rate based on the fact that it has done so in the past. Second, many reviewers criticize the policy proposals put forth at the end of the book. They claim either that the main proposal– a universal wealth tax– is politically unrealistic and that there are other policies, ignored by Piketty, that can help reduce inequality. Finally, several critics on the left express unhappiness with the fact that Piketty relies on a neoclassical economic model when doing his analysis and drawing out his policy conclusions. This is problematic both because of the so-called Cambridge Controversy (more on this below) and because the neoclassical model (which favors the free market) was at least partially responsible for the Great Recession.

One of the best critical reviews of Capital comes from Tom Palley. As far as I know it has not been published in print; however, this does not matter, since it appears on his blog. Some of Palley’s points seem to me on the mark and some seem off the mark. But it is a thoughtful and scholarly reflection on Piketty, and the issues raised are worth thinking about seriously.

Dollars & Sense
Live-Blogging Piketty: Review of Reviews, Pt. 3
Steven Pressman | Professor of Economics and Finance at Monmouth University in West Long Branch, NJ

Bill Mitchell — The intergenerational consequences if austerity will be massive

Conclusion

What the hysteresis literature – both theoretical and applied – teaches us is that governments should do everything within their capacity to avoid recessions.

Not only does a strategy of early policy intervention avoid massive short-run income losses and the sharp rise in unemployment that accompany recession, but the longer term damage to the supply capacity of the economy and the deterioration in the quality of the labour force can also be avoided.

A national, currency-issuing government can always provide sufficient aggregate spending in a relatively short period of time to offset a collapse in non-government spending, which, if otherwise ignored, would lead to these damaging short-run and long-run consequences.

The “waiting for the market to work” approach is vastly inferior and not only ruins the lives of individuals who are forced to disproportionately endure the costs of the economic downturn, but, also undermines future prosperity for their children and later generations.

Bill Mitchell – billy blog
The intergenerational consequences if austerity will be massive
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Frances Coppola — Reframing Reinhart & Rogoff

I don't propose to comment on the details of the case. Suffice it to say that Reinhart & Rogoff were wounded by a paper that showed that their data was flawed. Theydefended themselves, and were also defended by numerous economists around the world who argued that although the data might be flawed, the economic analysis justified their conclusions. But the next day, the Rortybomb blog delivered the killer punch. Econometric analysis by Arindrajit Dube demonstrated that even with good data, the economic analysis was flawed and the conclusions unjustifiable. High public debt cannot reliably be shown to cause low growth. But low growth can reasonably reliably be shown to cause high public debt. 

This is a no-brainer, actually. There are two reasons for this....

However, I did say that I was reframing this debate. And that is what I shall now do. You see, Reinhart & Rogoff completely missed the point. Even if their analysis was right, even if the data were reliable, it would still be unhelpful. They are looking at the wrong metrics. 

Coppola Comment
Reframing Reinhart & Rogoff
Frances Coppola

Konczal — Administration switching positions toward balance sheet recession?

The White House also looks to be on team balance sheet....

When Noam Scheiber wrote about how the administration viewed the economy in late 2010, he explicitly contrasted its wonks’ opinions with that of the balance sheet recession theorist Richard Koo. So is this a revolution within the administration? Is this why it is now pushing for writedowns and refinancing, after having left housing on the side for the past three years? Let’s hope so, since I consider being three years late to the party better than never showing up.

Read it at Rortybomb
Is the Administration Joining Team Balance-Sheet Recession?

by Mike Konczal

Still no sectoral balances mentioned. I guess they haven't discovered MMT yet, or Wynne Godley, either.

Konczal — How Privatizing Government Shovels Cash to Parasitic Corporations and Undermines Democracy

From schools to prisons, outsourcing government's works typically ends with cronyism, waste and unaccountability

Read it at Alternet
How Privatizing Government Shovels Cash to Parasitic Corporations and Undermines Democracy
by Mike Konczal

Steve Waldman tweets "The most dangerous kind of subversion is demonstration of a successful alternative."

Read it at RortyBomb
Mental Note: Link Black Panther Free Lunch Program, OWS Infrastructure
by Mike Konczal

...why did [J. Edgar] Hoover find the breakfasts so worrisome?  Is it because, as the ethnographic literature tells us, participation often proceeds beliefs – and participating in this unconditional welfare state creates the belief that it is a deserved human right?  And did Occupy’s unconditional care infrastructure propose a similar type of challenge?  Mental note: need to think more about this.  Your thoughts?

Mike Konczal on actual unemeployment

Mike Konczal ask about the actual reate of unemployment in light of the rather unusual conditions surrounding this recession — persistent high unemployment and underemployment, with a bulging drop in participation rate.

RortyBomb
What is the Real Unemployment Rate, and How Could We Tell?

by Mike Konczal

This is doubly a disaster in that it is not only actual, in spite of widespread lack of recognition in the media, but it is also completely unnecessary, as MMT shows. The sectoral balance approach predicts unemployment when the combined saving desire of the domestic private sector and the external sector is not sufficiently offset by a deficit ("dissaving") of the government sector. This is explained by the identity stating that the balances of the government, domestic private, and external sectors sum to zero. Thus, if demand leakage to saving by non-government is not offset by government, then the figures will adjust accordingly, reflecting an output gap as business contracts.

The the sectoral balance approach is a macro approach and does not reveal how this will manifest in the economy wrt those affected. This is not only an economic phenomenon, but also a sociological and demographic one.

As Konczal observes, the present course of events is generational. This has generational implications broader than employment, as we see from restive youth not only in the US but also in various places around the globe. Spain, with youth unemployment above 20%, is a case in point.

The US has the financial capacity to counter its high unemployment by increasing its fiscal deficit in order to achieve a sectoral balance at optimal performance, which implies full employment. The US can do so because it is sovereign in its currency, so that the only contraint is availability of real resources. Availability of real resources is not an issue here, owing to the output gap and high unemployment. Under such conditions, injecting net financial assets into non-government by increasing the government's fiscal deficit in order to increase effective demand, which would spur investment, need not be inflationary.

On the other hand, Spain and the other countries of the EZ, have given up currency sovereignty in adopting the euro. As a result, they are no longer currency issuers but currency users and must obtain funding through revenue or financing.

The US, UK, and EZ are all experiencing generational unrest and restive youth. As currency sovereigns that issue their own currencies, the US and the UK have the means to deal with this issue directly by offsetting demand leakage to saving by increasing their deficits to make up for the leakage by increasing effective demand.

Presently, the EZ has not come up with a strategy for getting around its self-imposed limitations. Meanwhile, its policy of "expansionary fiscal austerity" (an oxymoron) is failing the people of many countries. This does not seem to be sustainable politically, even as TPTB kick the can down the road with temporary monetary fixes but continue to insist on a policy of austerity. Unless they change policy and strategy, their ad hoc tactics will fall short in dealing with the rising political problem. Time is running out for putting together a real fix before there are political explosions in Europe.

The same explosions will also occur in the US and UK unless the governments realize their ability to counter the situation and take steps to implement it. Time is not on the side of the status quo here.

Then there is the question of reform. If reforms are not instituted, another more serious financial crisis awaits. This is the elephant in the room that is being ignored. Another leg down from an already historically low level would be catastrophic economically, politically and socially.

Ignoring the sociological and demographic implications of the present situation is just marching toward the cliff.

Mike Konczal parses the employment numbers

Terrible, Horrible, No Good, Very Bad Jobs Numbers

Ouch. It's much worse than the raw number looks.

Mike Konczal on July Jobs

Mike Konczal dissects the jobs umbers and concludes:

There’s no silver lining in today’s job numbers. The discussion needs to shift away immediately from deficit reduction to jobs growth in terms of public works, tax breaks for workers and getting to the bottom of the foreclosure crisis and shadow housing inventory.

Here are the gory details: The July Jobs Numbers: There is No Silver Lining

The MMT prescription is a Job Guarantee aka employer of last resort or employment assurance program, a suspension of the payroll tax, and block grants for the states to prevent more layoffs, as well as financial reform and enforcement, and we need it now.

Mr. President, why are you wasting time on the debt and deficit pseudo-problem when the actual problem is idle real resources due to deficient demand? Failure to deal with the actual problem will just feed the pseudo-problem.

Marshall Auerback jumps in: Time to Panic (II)

Today’s unemployment data suggests that we are experiencing something far worse than a mere “bump in the road”, as our President described it last month. In fact, if last month was the time to panic, as Stephanie Kelton argued here, then today’s data should create real palpitations in the White House. This isn’t just a “bump,” but a fully-fledged New York City style pot hole.

Warren Mosler: "The problem remains a massive lack of aggregate demand." Valance Weekly Economic Reports