PK: Elizabeth Warren and Her Party of Ideas [feedly]

Krugman on Warren

Elizabeth Warren and Her Party of Ideas
https://www.nytimes.com/2019/01/07/opinion/elizabeth-warren-policy.html

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Bernstein: A very good economic idea may be about to replace a very bad one [feedly]

Moderator: it actually does matter what the public debt is spent on....

A very good economic idea may be about to replace a very bad one
https://www.washingtonpost.com/outlook/2019/01/10/very-good-economic-idea-may-be-about-replace-very-bad-one/

Trust me, I wouldn't waste your time with just any new economics paper. But economist Olivier Blanchard just released an analysis that is so germane to issues of great importance to economies across the globe that attention must be paid. Besides being one of the world's top macroeconomists, I've long admired Blanchard's work for its relevance to current policy and for his careful effort to keep his political thumbs off the scale, a critical asset in these partisan times.

His paper, "Public Debt and Low Interest Rates" (hey, I said he was smart, not catchy), injects some extremely important facts into discussions about fiscal policy that have long been characterized by assertions, biases and fearmongering. If we learn and apply the lessons I take from this paper, we can stop making mistakes that have been terribly costly to the well-being of millions of people.

In my own interpretation — as noted, Blanchard's careful not to push too hard on how his work should plug in to current fiscal debates — his paper argues that we've been focusing on the wrong thing. Given the actual and expected levels of the key economic variables he scrutinizes — interest rates and growth rates — we should not be overly worried about deficits and debt. We should certainly not reduce them when they are necessary to support weak economies, as "austerians" have done, especially in Europe but also here, in the expansion's early years.

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However, deficits still matter, they still invoke risks, and it matters a great deal what the public sector spends its borrowed money on. Offsetting recessions, investing in public goods (human and physical capital), job opportunities for those left behind, providing retirement and health security for those who lack it, sure. But significantly raising the debt by providing tax cuts to those who don't need them unnecessarily invokes risks, even if their probability is lower than we thought.

How does his work suggest these conclusions? The key points are disarmingly simple, and they're ones I have written about before in this column. Part one is this: When a country's growth rate is higher than the interest rate on its debt, the fiscal costs of sustaining its debt levels are somewhere between zero and low. The reason is that even if the government does not raise taxes to offset its higher debt, the ratio of debt to gross domestic product will decrease rather than explode over time. Part two: For most of the period covered by Blanchard's research (1950-now in the United States), g>r, i.e., the GDP growth rate has exceeded the interest rate (same with the U.K., the euro area and Japan).

For example, after making some key adjustments to the relevant interest rate on public debt, Blanchard writes: "Over the period [since 1950], the average adjusted rate has been substantially lower than the average nominal growth rate, 3.8 percent versus 6.3 percent." I should note that pathbreaking work by my colleagues Richard Kogan et al found a similar relationship in U.S. fiscal data back to 1792.

There's one weedy detail, however, that Blanchard brings to the table that tilts slightly in the other direction. One reason the extent of public debt matters is because it tends to lead to less private capital — machines, structures — than would otherwise accumulate. Whether that's a problem has to do with a slightly different comparison: that between the return on capital — what it provides for us to consume and invest — and the growth rate. In some of Blanchard's analysis, that comparison shows the return rate to be a bit higher than the growth rate. This implies that, even if debt has little or no fiscal cost, it may impose a cost on society in the form of lower output and consumption.

Here again, however, the correct interpretation (mine, not his), is that because, under certain conditions (e.g., a period with high returns on private capital investments), debt incurs a cost to our future welfare, we need to be mindful of what we're spending it on.

To better understand that key point, I need to underscore something Blanchard leaves out of his analysis (not a critique — this is outside the goal of his paper, which was to nail down the points above). In this analysis, all public debt is created equal. At first blush, anyway, the research doesn't distinguish between what I'm going to call GD and BD, or good debt and bad debt (to the extent the impacts of GD and BD flow through differently to growth and interest rates, they do show up in the paper).

The distinction between those two poles is hugely important. No matter how low interest rates are, it will always make more sense to borrow for GD than BD. The challenge, of course, is that we need a definition of GD that works for most of us. Mine is simple: GD invests in people and places that need the help; BD does not.

Thus, a countercyclical Keynesian stimulus, meaning deficit spending in a recession to offset a demand contraction leading to higher unemployment, is GD, because under those conditions, a lot of people need help. However, what I call "upside-down Keynesianism" — stimulating an economy that's already closing in on full employment with tax cuts to the wealthy and corporations … well, that's some seriously BD. Instead, had the $2 trillion in deficit-financed tax cuts instead gone to poverty reduction, jobs for those left behind, housing for those lacking shelter, affordable health and child care, productive infrastructure investments the private sector won't make … well, now we're talking about GD.

Finally, one of my greatest hopes for this paper is that Blanchard's straightforward analysis, in tandem with his stature, puts a knife through the heart of austerity economics, the heedless, reckless, premature removal of fiscal support from weak economies for no good reason.

If that occurs, we will be witnessing something all too rare in economics: a bit of sensible analysis that led to a change in policy that prevents a lot of people from being made worse off. Sounds simple, but replacing bad, ill-founded ideas with good, analytically sounds ones is way harder than it should be, and it's not getting any easier.

Here's to hoping this paper helps change that.

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Daniel Kahneman: "People Don't Want to be Happy" [feedly]

Daniel Kahneman: "People Don't Want to be Happy"
http://conversableeconomist.blogspot.com/2019/01/daniel-kahneman-people-dont-want-to-be.html

Daniel Kahneman: "People Don't Want to be Happy"

The great utilitarian philosopher Jeremy Bentham famously argued that "it is the greatest happiness of the greatest number that is the measure of right and wrong." This principle was revolutionary in its own way. It treated people as equal. It did not emphasize the happiness of one gender over another, or one race or religion over another, or the happiness of nobles over commoners. It gave consideration to the happiness of the poor, prisoners and slaves. But it also opened up a number of deeper questions, like what actually makes people happy.

Daniel Kahneman (Nobel '02) is one of the progenitors of behavioral economics, which seeks to integrate economic analysis with insights from psychology. In several recent discussions and interviews, he has argued that "people don't want to be happy." For examples, see his 2010 TED talk, which has been viewed almost 5 million times. Or more recently, you can listen to his December 19, 2018, podcast with Tyler Cowen at "Conversations with Tyler." For some popular discussions of these arguments, Ephrat Livni writes in Quartz on "A Nobel Prize-winning psychologist says most people don't really want to be happy" (December 21, 2018), Cassie Mogilner Holmes discusses in the Harvard Business Review "What Kind of Happiness Do People Value Most?"(November 19, 2018), and Amir Mandel writes in Haaretz "Why Nobel Prize Winner Daniel Kahneman Gave Up on Happiness" (October 7, 2018).

These articles and others describe a range of well-known paradoxes that arise when you ask people about their level of happiness. For example, people who experience a good thing (winning the lottery) or a bad thing (a disabling injury) often have a short-term movement in happiness, but then tend to rebound back to the level of happiness before the event. Our level of happiness with regard to a certain event can be quite different if we are anticipating a certain event, experiencing the event or looking back on the event. Our happiness is affected by what context or standard of comparison is being suggested to us at a certain time. As Kahneman says in his TED talk: "The word happiness is just not a useful word anymore because we apply it to too many different things."

In the HBR article mentioned above, Holmes writes:

Nobel Prize winner Daniel Kahneman described this distinction as "being happy in your life" versus "being happy about your life." Take a moment to ask yourself, which happiness are you seeking?

This might seem like a needless delineation; after all, a time experienced as happy is often also remembered as happy. An evening spent with good friends over good food and wine will be experienced and remembered happily. Similarly, an interesting project staffed with one's favorite colleagues will be fun to work on and look back on.

But the two don't always go hand in hand. A weekend spent relaxing in front of the TV will be experienced as happy in the moment, but that time won't be memorable and may even usher feelings of guilt in hindsight. A day at the zoo with one's young children may involve many frustrating moments, but a singular moment of delight will make that day a happy memory. A week of late nights stuck at the office, while not fun exactly, will make one feel satisfied in hindsight, if it results in a major achievement.

In the interview with Cowen, Kahneman argues that people often don't make it a top priority to make time for doing the things that they say make them "happy," like spending time with family and friend. Instead, Kahneman argues, "They actually want to maximize their satisfaction with themselves and with their lives. And that leads in completely different directions than the maximization of happiness." 

Livni writes in the Quartz article mentioned above: 

"The key here is memory. Satisfaction is retrospective. Happiness occurs in real time. In Kahneman's work, he found that people tell themselves a story about their lives, which may or may not add up to a pleasing tale. Yet, our day-to-day experiences yield positive feelings that may not advance that longer story, necessarily. Memory is enduring. Feelings pass. ... Still, it's worth asking if we want to be happy, to experience positive feelings, or simply wish to construct narratives that seems worth telling ourselves and others, but doesn't necessarily yield pleasure."

Or as Mandel taking with Kahneman in Haaretz:

"I gradually became convinced that people don't want to be happy," he [Kahneman] explained. "They want to be satisfied with their life." A bit stunned, I asked him to repeat that statement. "People don't want to be happy the way I've defined the term – what I experience here and now. In my view, it's much more important for them to be satisfied, to experience life satisfaction, from the perspective of 'What I remember,' of the story they tell about their lives." 

This distinction captures many of my own feelings about  how I spend time and conduct my life. Many of the things I do are not necessarily "happy" in the moment, like dragging my butt out of bed to cook hot breakfast for the family each morning, but it gives me satisfaction and fits with a narrative I like to tell myself about my life. Actually writing the entries for this blog isn't necessarily "happy," but it gives me satisfaction to do so. 

Conversely, my sense is that a lot of the "unhappiness" in the modern world is often about a disruption of narrative. Most people don't mind working hard, and they are OK with the reality that they won't ever be rich or famous. They don't expect every day to be full of grins and giggles, either; they know there will be times of hardship, sadness, and loneliness.  Nonetheless, people want to know that they there is a pathway to life satisfaction, or at least to be within shouting distance of such a pathway.  If people don't see how their life and work and experiences fit into a broader and satisfying life narrative, they suffer grievously. 

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Bernstein on lowering health costs: Links referenced in a recent talk [feedly]

Links referenced in a recent talk
http://jaredbernsteinblog.com/links-referenced-in-a-recent-talk/

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CBPP: Seniors, Families, and Others Risk Losing Housing as Shutdown Continues [feedly]

Seniors, Families, and Others Risk Losing Housing as Shutdown Continues
https://www.cbpp.org/blog/seniors-families-and-others-risk-losing-housing-as-shutdown-continues

January 9, 2019: We have corrected the post to reflect that the 1,150 unrenewed rental assistance contracts discussed in the post include both contracts that expired in December and contracts that will expire in January.

Hundreds of thousands, if not millions, of low-income seniors, people with disabilities, and families with children that receive federal rental assistance face severe hardship if the government shutdown extends into February and March.

Here's why:

The Department of Housing and Urban Development (HUD) says it can't renew up to 1,150 rental assistance contracts with private landlords that expired in December or will expire in January due to a funding shortfall from the government shutdown. Those landlords receive federal subsidies so they can provide apartments at affordable rents to roughly 70,000 low-income households. While a delay of several weeks in renewing the contracts (and restarting the subsidies) likely won't prompt building owners to evict vulnerable residents, the risks for residents — and for the affected programs' long-term future — will grow if the shutdown extends into February and March, dramatically boosting the number of residents who could experience severe hardship.

The largest of the currently affected programs is Section 8 Project-Based Rental Assistance, although a few smaller programs, such as Section 202 Supportive Housing for the Elderly, may also be affected. In these programs, HUD contracts with private landlords to provide affordable housing to roughly 1.4 million low-income households. HUD's monthly payments fill the gap between the tenants' rent payments (typically 30 percent of household income) and the contract rent.

More than two-thirds of households in these programs are seniors or people with disabilities; most of the rest are families with children. On average, these households have incomes under $13,000, well below the federal poverty line. Housing aid significantly reduces poverty, food insecurity, homelessness, and other hardships, studies show.

When rental assistance contracts expire and aren't renewed, owners suffer a large, immediate drop in their rental revenue, which they use to pay their mortgages, insurance, and property taxes; repair and otherwise maintain their buildings in good condition; and pay staff. Most owners have sufficient reserves to cover such large losses for several months, but some don't — and few if any owners can absorb such losses for an extended period without risking default and loss of the property.

The shutdown's consequences will rapidly worsen if it extends into February and March. If it extends into February, some of the owners of the 1,150 properties whose contracts lapsed in December and January won't receive subsidy payments for a second (and, in some cases, possibly third) straight month, greatly increasing their financial squeeze. The number of households affected will also grow sharply. Another 550 HUD rental assistance contracts will expire in February, affecting an estimated 30,000 more households. HUD says it won't be able to renew those contracts as long as the shutdown continues.

If the shutdown lasts into March, all subsidy payments for the largest federal rental assistance program — Housing Choice Vouchers — will end, putting at risk an additional 2.2 million low-income households that use vouchers to rent modest housing in the private market. The loss of voucher subsidies could lead some landlords to double or triple households' rent payments and even to try to evict vulnerable families, seniors, and others.

Moreover, most HUD rental assistance programs are partnerships between the federal government and private landlords. We can't reasonably expect landlords to participate if the federal government isn't a reliable partner and exposes them to large financial risks, as it's doing now. Perhaps the shutdown's greatest long-term cost will be discouraging owners from participating in the future, to the detriment of low-income families and communities more broadly.

Policymakers can't allow that to happen. They should end the shutdown immediately.

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Progress Radio:Progress Radio -- Tonight -- 6:30 PM -- LIVE FROM THE FEDERAL WORKERS RALLY

John Case has sent you a link to a blog:



Blog: Progress Radio
Post: Progress Radio -- Tonight -- 6:30 PM -- LIVE FROM THE FEDERAL WORKERS RALLY
Link: http://progress.enlightenradio.org/2019/01/progress-radio-tonight-630-pm-live-from.html

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Stiglitz; From Yellow Vests to the Green New Deal [feedly]

From Yellow Vests to the Green New Deal
https://www.project-syndicate.org/commentary/yellow-vests-green-new-deal-by-joseph-e-stiglitz-2019-01


From Yellow Vests to the Green New Deal

Jan 7, 2019 JOSEPH E. STIGLITZ

The grassroots movement behind the Green New Deal offers a ray of hope to the badly battered establishment: they should embrace it, flesh it out, and make it part of the progressive agenda. We need something positive to save us from the ugly wave of populism, nativism, and proto-fascism that is sweeping the world.

NEW YORK – It's old news that large segments of society have become deeply unhappy with what they see as "the establishment," especially the political class. The "Yellow Vest" protests in France, triggered by President Emmanuel Macron's move to hike fuel taxes in the name of combating climate change, are but the latest example of the scale of this alienation.

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There are good reasons for today's disgruntlement: four decades of promises by political leaders of both the center left and center right, espousing the neoliberal faith that globalization, financialization, deregulation, privatization, and a host of related reforms would bring unprecedented prosperity, have gone unfulfilled. While a tiny elite seems to have done very well, large swaths of the population have fallen out of the middle class and plunged into a new world of vulnerability and insecurity. Even leaders in countries with low but increasing inequality have felt their public's wrath.1

By the numbers, France looks better than most, but it is perceptions, not numbers, that matter; even in France, which avoided some of the extremism of the Reagan-Thatcher era, things are not going well for many. When taxes on the very wealthy are lowered, but raised for ordinary citizens to meet budgetary demands (whether from far-off Brussels or from well-off financiers), it should come as no surprise that some are angry. The Yellow Vests' refrain speaks to their concerns: "The government talks about the end of the world. We are worried about the end of the month."

There is, in short, a gross mistrust in governments and politicians, which means that asking for sacrifices today in exchange for the promise of a better life tomorrow won't pass muster. And this is especially true of "trickle down" policies: tax cuts for the rich that eventually are supposed to benefit everyone else.

When I was at the World Bank, the first lesson in policy reform was that sequencing and pacing matter. The promise of the Green New Deal that is now being championed by progressives in the United States gets both of these elements right.

The Green New Deal is premised on three observations: First, there are unutilized and underutilized resources – especially human talent – that can be used effectively. Second, if there were more demand for those with low and medium skills, their wages and standards of living would rise. Third, a good environment is an essential part of human wellbeing, today and in the future.

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If the challenges of climate change are not met today, huge burdens will be imposed on the next generation. It is just wrong for this generation to pass these costs on to the next. It is better to leave a legacy of financial debts, which our children can somehow manage, than to hand down a possibly unmanageable environmental disaster.

Almost 90 years ago, US President Franklin D. Roosevelt responded to the Great Depression with his New Deal, a bold package of reforms that touched almost every aspect of the American economy. But it is more than the symbolism of the New Deal that is being invoked now. It is its animating purpose: putting people back to work, in the way that FDR did for the US, with its crushing unemployment of the time. Back then, that meant investments in rural electrification, roads, and dams.

Economists have debated how effective the New Deal was – its spending was probably too low and not sustained enough to generate the kind of recovery the economy needed. Nonetheless, it left a lasting legacy by transforming the country at a crucial time.

So, too, for a Green New Deal: It can provide public transportation, linking people with jobs, and retrofit the economy to meet the challenge of climate change. At the same time, these investments themselves will create jobs.

It has long been recognized that decarbonization, if done correctly, would be a great job creator, as the economy prepares itself for a world with renewable energy. Of course, some jobs– for example, those of the 53,000 coal miners in the US – will be lost, and programs are needed to retrain such workers for other jobs. But to return to the refrain: sequencing and pacing matter. It would have made more sense to begin with creating new jobs before the old jobs were destroyed, to ensure that the profits of the oil and coal companies were taxed, and the hidden subsidies they receive eliminated, before asking those who are barely getting by to pony up more.

The Green New Deal sends a positive message of what government can do, for this generation of citizens and the next. It can deliver today what those who are suffering today need most – good jobs. And it can deliver the protections from climate change that are needed for the future.

The Green New Deal will have to be broadened, and this is especially true in countries like the US, where many ordinary citizens lack access to good education, adequate health care, or decent housing.

The grassroots movement behind the Green New Deal offers a ray of hope to the badly battered establishment: they should embrace it, flesh it out, and make it part of the progressive agenda. We need something positive to save us from the ugly wave of populism, nativism, and proto-fascism that is sweeping the world.


Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. His most recent book is Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump.
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