Ethnography of the far right

http://understandingsociety.blogspot.com/2016/08/ethnography-of-far-right.html?m=1

Are wealth and power the same?

http://econospeak.blogspot.com/2016/08/wealth-and-power-does-one-necessarily.html?m=1

Roubini : Brexit hangover

https://www.project-syndicate.org/commentary/europe-brexit-hangover-by-nouriel-roubini-2016-08

The Five Worst Roberts Court Rulings [feedly]

The Five Worst Roberts Court Rulings
http://prospect.org/article/five-worst-roberts-court-rulings

Supreme Court Chief Justice John Roberts in the foreground arrives before President Barack Obama's 2016 State of the Union Address on Capitol Hill on January 12.

In a by-now familiar applause line, Bernie Sanders told Democrats gathered at the Democratic National Convention last week that the Supreme Court's 2010 Citizens United v. FEC ruling is "one of the worst Supreme Court decisions in the history of our country." And this is not an instance where Sanders conflicts with the conventional wisdom of the party establishment either. Not only Senator Elizabeth Warren but Democratic presidential nominee Hillary Clinton have consistently railed against the case as a symbol of the corporate takeover of democracy, and so have countless grassroots activists.

All this makes sense given the extent to which wealthy interests have been permitted to dominate American politics and policy. After all, big money has the potential to disrupt virtually every aspect of the progressive agenda, from environmental regulations to the minimum wage and health care. But the left's fixation on Citizens United overlooks many Roberts Court decisions that were as bad or even worse. In fact, Citizens United arguably does not rank in the top five rulings handed down during the Roberts era.

So what were the five worst Roberts Court rulings? This list relies on two criteria. First, how plausible was the legal argument? And second, how negative was the policy impact of the decision? By these measures, Citizens United doesn't quite qualify as the worst work of the Roberts Court.

Let's take the first criterion, plausibility. On this score, the First Amendment questions at the heart of campaign financing are genuinely difficult. Indeed, on the very narrow question presented by the case—whether the federal government could suppress the broadcast of an anti-Hillary Clinton movie—Citizens United was arguably correct to answer "no." What makes the decision a bad one is that the Court went far beyond what was necessary to decide that issue. Nevertheless, the constitutional arguments made by the Court had more basis in text and precedent than the Roberts Court's five absolutely worst decisions.

On the question of the ruling's impact, the actual fallout from Citizens United has probably been overrated. Politicians such as Sanders and Clinton can justifiably use that decision as a synecdoche for all of the restrictions the Court has placed on the government's ability to regulate campaign financing. But the more important campaign finance decision remainsthe 1976 case Buckley v. Valeo. There's plenty wrong with Citizens United, as I have argued.But the five absolutely worst Roberts Court decisions are these, in descending order of indefensibility:

1. Shelby County v. Holder. The Roberts Court's evisceration of the most important civil-rights legislation passed since Reconstruction was its lowest moment. The impact of the decision to reverse a key part of the Voting Rights Act is anti-democratic, allowing numerous illegal voter-suppression schemes to go into effect, and making it much more difficult to stop them. But what makes Shelby County especially egregious is its threadbare legal reasoning, which can't even be called "constitutional law." The Constitution unambiguously gives Congress the power to enforce the 15th Amendment. The "equal sovereignty of the states" doctrine that the chief justice used to trump Congress's explicit powers is a Roberts invention, and he has yet to identify any constitutional basis or Supreme Court precedent for it. Even setting aside his failure to base it on the text of the Constitution, Roberts's argument—that Congress once had the relevant power but no longer does because the statute was too effective at protecting the rights it was intended to—defies logic. As Justice Ruth Bader Ginsburg noted in a dissent that gets the better of the Roberts majority opinion on every point, this argument makes as much sense as "throwing away your umbrella in a rainstorm because you are not getting wet."

2. NFIB v. Sebelius. This case is generally seen as a liberal triumph because Chief Justice Roberts ultimately decided not to rule Barack Obama's signature domestic policy achievement unconstitutional. But its Medicaid expansion holding might actually belong at the top of list. In terms of its policy impact, it would be hard to identify a worse decision in the history of the Supreme Court. Thousands of people a year will literally die because Roberts re-wrote the Medicaid expansion of the Affordable Care Act to make it much easier for states to opt out. According to Roberts, Congress could offer money to the states and place conditions on giving the money to expand Medicaid, but it could not withdraw existing Medicaid funding if states declined it. As a legal argument, it's not quite as bad as the one in Shelby County. It's imaginable that federal spending power might stray so far afield from a law as to unconstitutionally coerce the states—though it's hard to picture any Congress passing such a law. As applied to this case, though, it's quite absurd. If Congress had simply repealed the Medicaid Act of 1965 (which had been modified and expanded many times) in 2010, that would have been plainly constitutional. If Congress had repealed Medicaid I, passed the new Medicaid expansion, and made accepting federal money contingent on accepting the ACA's conditions, this would be constitutional. So what sense does it make to say that Congress can't make all existing Medicaid subsidies contingent on accepting the new conditions? It doesn't.

Some people will object that this case shouldn't make the list because two Justices nominated by Democrats—Stephen Breyer and Elena Kagan—joined the majority on this question. But it's almost certain that these votes were strategic. It's enormously unlikely that either Kagan (who ruthlessly attacked the Medicaid expansion argument during oral arguments) or Breyer (who has arguably the broadest conception of federal power of any justice in Supreme Court history) would have provided the fifth vote for it. But even if they had … well, they would have been dead wrong.

3. Connick v. Thompson. This case involved an almost-certainly innocent man who spent 18 years in prison largely because the state illegally suppressed exculpatory evidence. According to a 5–4 decision written by Justice Clarence Thomas, however, nobody in the prosecutor's office could be held accountable for this egregious, willful rights violation.The impact of this case—making it more likely that innocent people will be railroaded into prison—is self-evidently terrible. And legally, it's worth noting that the Supreme Court was not enforcing a constitutional or statutory requirement—this extreme level of prosecutorial immunity is a judicially created standard that the Court is free to modify or abandon at any time. It certainly should have in this case.

4. AT&T Mobility v. Concepcion. In this case, the Court held (in an opinion written by the late Justice Antonin Scalia) that federal law preempted California's limits on forced-arbitration agreements. This decision makes it much harder for consumers to get effective remedies when companies rip them off. If the text of Federal Arbitration Act did, in fact, explicitly prevent California's regulations, that wouldn't be the Court's fault—but it doesn't. If you're in the mood for dark comedy, contrast Scalia reading nonexistent policy requirements into federal arbitration law here with the hyper-literal reading of the law he tried to use to strip health insurance from millions of people in King v. Burwell. For a similarly bad anti-consumer decision, see American Express v. Italian Colors.

5. Arizona Free Enterprise Club's Freedom Club PAC v. Bennett. I actually think that this, not Citizens United, is the very worst of the Roberts Court's campaign-finance decisions. The Court struck down an Arizona law that gave matching funds to candidates based on the money raised by their opponents. Citizens United at least presents a real First Amendment issue, because the government was accused of setting out to restrict speech. Arizona's public funding for candidates, conversely, did no such thing—it expanded speech rather than suppressing it. Since public financing is the most viable means legislatures have to counteract the domination of politics by the wealthy, making it more difficult for states to do so is a big deal, and the arguments that Arizona's provision of matching funds violates the First Amendment were nonsensical. As Justice Kagan observed in dissent, "Except in a world gone topsy-turvy, additional campaign speech and electoral competition is not a First Amendment injury."

A few dishonorable mentions that didn't make this list include District of Columbia v. Heller, which held that bans on the possession of handguns for self-defense violated the Second Amendment. While most liberals abhor the ruling's restrictions on the ability of the state to enact gun control measures, the Roberts Court's legal argument in Heller isn't ridiculous, and at least so far, its impact has been modest.

Other Roberts Court misfires include the decision allowing employers to refuse legally mandated contraceptive coverage to their employees in Hobby Lobby v. Burwell; a series of decisions that restricted employees' ability to bring anti-discrimination lawsuits; a ruling that upheld arbitrary strip searches of people arrested for minor, nonviolent offenses; and the Court's creation in Clapper v. Amnesty International of a First Amendment catch-22.

As Sanders observed in his DNC speech, the implications of who sits on the Supreme Court go well beyond a few high-profile issues like abortion. And with one vacant seat and several justices on the verge of leaving the Court, the Court is about to move substantially in one direction or another. If Hillary Clinton and a Democratic Senate are able to replace Scalia, the Court will swing in a more liberal direction favorable to environmental, reproductive health, criminal justice, consumer protection and other progressive priorities. If Donald Trump wins and is able to replace the Scalia seat and at least one of Breyer, Ginsburg, or Kennedy, the Court will continue down the disastrous path set by Chief Justice John Roberts. Citizens United and the Supreme Court's other campaign-finance rulings will be important parts of the constitutional agenda. But so will a long list of other very important issues.

 -- via my feedly newsfeed

A transcript of Hillary Clinton's interview with the Washington Post on economic policy [feedly]

A transcript of Hillary Clinton's interview with the Washington Post on economic policy
https://www.washingtonpost.com/news/wonk/wp/2016/07/29/a-transcript-of-hillary-clintons-interview-with-the-washington-post-on-economic-policy/

The Washington Post's Jim Tankersley interviewed Hillary Clinton, the Democratic nominee for president, for 24 minutes on the phone on June 21. This is the full transcript of their interview, which Tankersley conducted from Washington and Clinton conducted from Columbus, Ohio.

[Hillary Clinton has a very detailed plan for the economy. That may be a problem.]

Tankersley: I wanted to start with a question from the last time that we talked when you were in Ohio, in 2006, when I was a reporter for the Toledo Blade and you were doing an event for Sherrod Brown. I asked you about the economy and what we needed to do even then. And you said, "We've got to get back to Clinton economic policies" – balanced budgets; spending cuts; sensible, affordable tax policies. I wanted to start by asking, what do Clinton economic policies mean today, and how have they changed in the last 10 or so years?

Clinton: Well Jim I think the first point to make is that we've got to look at how we create more good jobs and raise incomes for the future. And there are some lessons that can be learned from prior administrations, my husband's and others, and from this administration, that would give us some guideposts about what we have to do. We may have worked our way back from the Great Recession and created 14 million new private-sector jobs – I think that's an American success story we don't talk about enough – but we still face a lot of headwinds, a lot of historic challenges and global forces that we've got to come to grips with.

We're being buffeted by powerful forces that are different from, or more intense than they were in the 90s: advances in technology, the expansion of global trade, changes in how American families look, live and work. And I think it's fair to say these trends have powered progress in many ways, but too many of the benefits have gone to those at the top – corporate executives, shareholders, literally the top 1 percent of Americans – which has driven inequality to shocking levels. And a lot of the blue-collar and mid-level jobs that used to provide solid incomes for millions of Americans have disappeared.

The service jobs that are replacing them too often don't pay enough to raise a family, and I don't think it has to be this way. We have the power and the responsibility to try to figure out how to harness these big forces to strengthen the middle class instead of hollowing it out.

But instead, I think, too many leaders in government and business have made choices that widened the gap instead of narrowed it. We skewed the tax code toward the wealthy. We continued to undermine workers' rights. We have blocked investments in our shared future. And I don't think it's just greed, as serious as that is. It seems we've lost a sense of shared responsibility and forgotten we're all in this together.

So tomorrow in North Carolina I am laying out ambitious new goals to help us build a stronger, fairer economy that works for everyone, not just those at the top. I'm going to be borrowing from a lot of different strategies at work and coming up with some new ones, so that we can have a real debate in this election about the path forward.

Tankersley: When we talk about policies of the past 15 years, are there particular policies you would point to, to say, if we had done this differently, inequality would not have widened, the middle class would not have stagnated?

Clinton: Well let's look at what we've done in the past that has worked. I believe we are woefully ignoring one of the most important priorities we have to make us more competitive, and richer, and stronger, and put people to work, and that is infrastructure. I know it's kind of a tired and constant debate but it's true. We have built our country over the last 100 years and now we are really just resting on the sacrifice and investments that prior generations have made. And it's a shame because it does undermine our competitiveness and it does bar the way for jobs that could be keeping people or putting people in the middle class. So I'm going to be proposing the biggest infrastructure investment since Dwight Eisenhower's highway program, and it will be a combination of public and incentivized private investment. So there's one area where I really think we have missed the boat.

Another is, we have failed to invest in clean new renewable energy jobs to the extent I think they are possible for us, and if you look at states that are doing a better job of that, you can see what a difference it makes economically, compared to states that are ignoring the threat of climate change – and equally importantly, the potential for new jobs from clean renewable energy.

We also are poised to be able to make smart investments in advanced manufacturing, something that a lot of people think is lost and there's no point in trying to get back. But I've actually visited businesses, apprenticeship programs, community colleges, technical schools, that are preparing people for advanced manufacturing. And there are jobs out there. We are looking at a big gap between people with the skills that would prepare them for the jobs and the jobs that go unfilled.

So I am committed to looking at what are our gaps are in how we can produce more jobs with rising incomes, and growing the economy, and obviously I want to see it fairer, and that's not a question of minimum wage, equal pay and family balance policies, but also how we are going to go after the tax code so that they wealthiest among us make their contributions to our success. I saw an article you had written comparingKansas and California, and it's a pretty stark comparison. Obviously there are big differences between the two states, but I think the principle is one that is worth exploring.

If we make investments now – and obviously, investments come from both direct public dollars and indirect inducements for private investments – I think you would see the results.

It's also important to recognize that small business has stalled. There are a lot of explanations for this. I ask people all the time. Probably the most common explanation is that we haven't yet seen a return to credit being made available for start ups, for small businesses trying to grow, and it's a real barrier to job creation, because two-thirds of new jobs are started by small business.

So I think if you just look at the economy and you take apart the drivers for growth and rising incomes, and you ask yourself where is this being done, and where isn't it? How can we do more of it? What can we do at the federal level to try to incentivize state and local governments and private businesses to act?

I'll end with this one story. I think it was Politico had a long piece about the revitalization of a particularly dangerous part of a poor neighborhood inside of Cincinnati. They tried a lot of different things, none of which were working. Finally the business community came together with the elected officials who said we need to try some different things, and one of the tools that they used back in the early aughts was something started by my husband, the New Markets Tax Credit. They used it to try to incentivize private-sector, philanthropic investment into this neighborhood.

So we have a lot of evidence about what works. We need to be willing to examine that and then try to apply different approaches to the various challenges that we face.

Tankersley: I'd love to ask you about a few of the specific policies you've just mentioned. First, to talk about the tax rates the wealthiest Americans pay. You talk a lot about them paying their 'fair share'. Do you have in your mind a number, as a percent of their income, for what a 'fair share' would be for those wealthiest Americans?

Clinton: You know, I have embraced the Buffett Rule. That would be a minimum tax of 30 percent. I have embraced a Fair Share Surcharge on incomes above $5 million. I have looked at changes that Trump is proposing that are pretty much way out there in terms of the benefits that would accrue to the wealthiest and certainly am opposed to that. So my tax plan would provide breaks to those who need it the most. I would not increase taxes on anyone earning less than $250,000 and year.

Compare that to Trump's plan which would benefit the very rich to an unprecedented degree – you would actually give millionaires and corporations tax cuts in the trillions. More than 30 percent of his proposed tax cuts on personal income would go to the top 1 percent of income earners. Not only are these policies off-base, they would undermine our economic health and, according to experts, cause an unusually lengthy recession.

So it's not only what I am proposing, but I think it's important to look at the proposals coming from the other side and what their consequences would be.

Tankersley: But if Congress adopted your plan for the Buffett Rule, and your surcharge, then do you believe, if those both were enacted, the wealthy would be paying their fair share?

Clinton: Well, we'd have to get into the details, but we'd sure be on the right path.

Because right now – and I think this is one of the reasons Trump doesn't want to release his income taxes is, at least the years we have seen, there are several years he's paid nothing in federal income tax – there are still so many loopholes, so many gimmicks, that permit wealthy people with their legions of accountants and lawyers and lobbyists, to avoid paying even nominal tax rates, anything close to what a hard-working middle-class wage-earner would pay.

So we are going to go after the wealthy, because, as Warren Buffett has said, that's where the money is.

Tankersley: You said again today that you would renegotiate trade deals that aren't working for working Americans. So I would like to know, do you believe the economy would be better off today in the United States if we had not signed NAFTA, CAFTA and permanent normal trade relations with China?

Cinton: I think that's a hard question to answer, because we only did one-half of the equation in all three of those examples.

Part of the problem is that the trade agreements themselves have not been enforced. That is why I am advocating a trade prosecutor. I have set a very high bar for trade deals. I will only sign them if they meet that high bar of raising wages and creating good-paying jobs and enhancing our national security, and I know a little bit about how to go toe to toe with foreign companies on trade enforcement.

Again, you compare where Trump is on trade and I think it's pretty obvious that he would be someone who might recklessly start trade wars. He is advocating that. And as I said in my speech today, we went down that road in the 1930s and it made the Great Depression longer and more painful.

Now, when it comes to the trade agreements that we have, I have said I would renegotiate the agreements to try to make them more enforceable, make them more likely to require that other countries truly open their markets to us. Because in fact, that has not happened to the degree that we had hoped for, and I am very concerned that we are at a point now where we can no longer absorb as much of the manipulation of trade that we have in the past.

You know, I opposed the only multilateral trade deal that came up when I was in the Senate, CAFTA, because I thought it was bad for American jobs. I fought hard for American manufacturers against China's cheating as a senator from New York. So we've got to go after the problems with our trade agreements to make them work better, not displace jobs. And our biggest trade issues are with China, who we don't have a trade deal with, but they are the biggest rule-breaker out there.

So I recognize, we have to make some change in trade agreements, but I also believe we can't shut our borders to trade. We aren't even 5 percent of the world's population so we've got to figure out how to sell to the other 95 percent, and that means we have to know how to compete and win.

That brings me to the other side of the equation, because, despite a lot of efforts in the past to truly have a safety net, to truly have a lifelong learning system, to truly support employment – especially in industries that were under pressure from global competition – we just haven't stepped up and done what we needed to do.

So I look at this from both sides. We've got to make our trade agreements more enforceable and then enforce them. We've got to renegotiate them so that we are not taking advantage of. We have to make sure they've met the bar I've set. But at the same time we have to support people who are affected, dislocated by trade. And we just don't do a very good job of that.

Tankersley: I would be remiss if I didn't ask you about the anxiety we are seeing among white working class Americans, particularly men, in this campaign cycle. Where do you think that anxiety is coming from, and how would your policies help those anxious workers?

Clinton: Jim, I think it's real, and I respect the fear, the anxiety, even the anger that a lot of people are feeling, because the advance of globalization and technology has really replaced or undermined the future for many jobs. You don't have to go just to coal country to see that. You can go to a lot of parts of America, where people had good, decent jobs that provided a good middle class life for them and their kids. That was the American Dream. That's how we used to define it.

Now, we've seen so much downward pressure on wages. We've seen the disappearance of a lot of jobs that used to be available. And so I do think globalization and technology have played a role. But I also think decisions made by business leaders and government leaders have also played a role. I just don't think we are as focused as we need to be in trying to rebuild economic opportunity in places that have been hollowed out.

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And we know some things about how to do that. We cut back on our research budget in the last several years – it was the worst time to do that, under sequestration. We could be reaping benefits from all kinds of research into jobs sectors of the future. You know, during the primary campaign my husband visitedMorehead State in Eastern Kentucky, which had a contract from I think NASA, or maybe DOD, and you had kids in this university working on miniaturizing satellites. It showed that if you have higher education linked up to job creation, we can actually not only invent things, we can maybe make the transition to manufacturing them, with the right kind of incentives.

So I really believe that it doesn't have to be this way. What people are feeling is that the economy failed them, their government failed them. They just are looking for somebody who will explain, in a way they will accept, what's happened. So Trump comes along and he blames immigrants and he blames minorities and he blames women, and people are responsive to that because these are hard times that folks are going through.

I think my economic message is resonating with people – through all our campaign we've received more votes than anyone in this primary season, including Donald Trump. And it's fair to say that my economic plans are detailed and varied because I think we are facing complex problems that require serious solutions. But they're all focused on a single, over-arching goal, and that is to create good-paying jobs with rising incomes. That is the defining economic challenge of our time.

So that's why I'm coming forth with the biggest, boldest infrastructure investment since Eisenhower. It's why I believe that we can boost productivity in the economy by better linking education and skills. Like I said, the number of people who could get jobs if they had the skills, as machinists or tool and die makers, or computer coders or whatever it may be. So I'm excited about what we can do.

I respect the legitimate concerns that so many Americans have, because of what has happened to them. But I am offering a path forward that I think can actually produce results for them.

 -- via my feedly newsfeed

The Economist: Minsky's moment

Financial stability

Minsky's moment

The second article in our series on seminal economic ideas looks at Hyman Minsky's hypothesis that booms sow the seeds of busts

FROM the start of his academic career in the 1950s until 1996, when he died, Hyman Minsky laboured in relative obscurity. His research about financial crises and their causes attracted a few devoted admirers but little mainstream attention: this newspaper cited him only once while he was alive, and it was but a brief mention. So it remained until 2007, when the subprime-mortgage crisis erupted in America. Suddenly, it seemed that everyone was turning to his writings as they tried to make sense of the mayhem. Brokers wrote notes to clients about the "Minsky moment" engulfing financial markets. Central bankers referred to his theories in their speeches. And he became a posthumous media star, with just about every major outlet giving column space and airtime to his ideas. The Economist has mentioned him in at least 30 articles since 2007.

If Minsky remained far from the limelight throughout his life, it is at least in part because his approach shunned academic conventions. He started his university education in mathematics but made little use of calculations when he shifted to economics, despite the discipline's growing emphasis on quantitative methods. Instead, he pieced his views together in his essays, lectures and books, including one about John Maynard Keynes, the economist who most influenced his thinking. He also gained hands-on experience, serving on the board of Mark Twain Bank in St Louis, Missouri, where he taught.

Related topics

• John Maynard Keynes
• Social and behavioral science
• Economics
• Science and technology
• Hyman Minsky

Having grown up during the Depression, Minsky was minded to dwell on disaster. Over the years he came back to the same fundamental problem again and again. He wanted to understand why financial crises occurred. It was an unpopular focus. The dominant belief in the latter half of the 20th century was that markets were efficient. The prospect of a full-blown calamity in developed economies sounded far-fetched. There might be the occasional stockmarket bust or currency crash, but modern economies had, it seemed, vanquished their worst demons.

Against those certitudes, Minsky, an owlish man with a shock of grey hair, developed his "financial-instability hypothesis". It is an examination of how long stretches of prosperity sow the seeds of the next crisis, an important lens for understanding the tumult of the past decade. But the history of the hypothesis itself is just as important. Its trajectory from the margins of academia to a subject of mainstream debate shows how the study of economics is adapting to a much-changed reality since the global financial crisis.

Minsky started with an explanation of investment. It is, in essence, an exchange of money today for money tomorrow. A firm pays now for the construction of a factory; profits from running the facility will, all going well, translate into money for it in coming years. Put crudely, money today can come from one of two sources: the firm's own cash or that of others (for example, if the firm borrows from a bank). The balance between the two is the key question for the financial system.

Minsky distinguished between three kinds of financing. The first, which he called "hedge financing", is the safest: firms rely on their future cashflow to repay all their borrowings. For this to work, they need to have very limited borrowings and healthy profits. The second, speculative financing, is a bit riskier: firms rely on their cashflow to repay the interest on their borrowings but must roll over their debt to repay the principal. This should be manageable as long as the economy functions smoothly, but a downturn could cause distress. The third, Ponzi financing, is the most dangerous. Cashflow covers neither principal nor interest; firms are betting only that the underlying asset will appreciate by enough to cover their liabilities. If that fails to happen, they will be left exposed.

Economies dominated by hedge financing—that is, those with strong cashflows and low debt levels—are the most stable. When speculative and, especially, Ponzi financing come to the fore, financial systems are more vulnerable. If asset values start to fall, either because of monetary tightening or some external shock, the most overstretched firms will be forced to sell their positions. This further undermines asset values, causing pain for even more firms. They could avoid this trouble by restricting themselves to hedge financing. But over time, particularly when the economy is in fine fettle, the temptation to take on debt is irresistible. When growth looks assured, why not borrow more? Banks add to the dynamic, lowering their credit standards the longer booms last. If defaults are minimal, why not lend more? Minsky's conclusion was unsettling. Economic stability breeds instability. Periods of prosperity give way to financial fragility.

With overleveraged banks and no-money-down mortgages still fresh in the mind after the global financial crisis, Minsky's insight might sound obvious. Of course, debt and finance matter. But for decades the study of economics paid little heed to the former and relegated the latter to a sub-discipline, not an essential element in broader theories. Minsky was a maverick. He challenged both the Keynesian backbone of macroeconomics and a prevailing belief in efficient markets.

It is perhaps odd to describe his ideas as a critique of Keynesian doctrine when Minsky himself idolised Keynes. But he believed that the doctrine had strayed too far from Keynes's own ideas. Economists had created models to put Keynes's words to work in explaining the economy. None is better known than the IS-LM model, largely developed by John Hicks and Alvin Hansen, which shows the relationship between investment and money. It remains a potent tool for teaching and for policy analysis. But Messrs Hicks and Hansen largely left the financial sector out of the picture, even though Keynes was keenly aware of the importance of markets. To Minsky, this was an "unfair and naive representation of Keynes's subtle and sophisticated views". Minsky's financial-instability hypothesis helped fill in the holes.

His challenge to the prophets of efficient markets was even more acute. Eugene Fama and Robert Lucas, among others, persuaded most of academia and policymaking circles that markets tended towards equilibrium as people digested all available information. The structure of the financial system was treated as almost irrelevant. In recent years, behavioural economists have attacked one plank of efficient-market theory: people, far from being rational actors who maximise their gains, are often clueless about what they want and make the wrong decisions. But years earlier Minsky had attacked another: deep-seated forces in financial systems propel them towards trouble, he argued, with stability only ever a fleeting illusion.

Outside-in

Yet as an outsider in the sometimes cloistered world of economics, Minsky's influence was, until recently, limited. Investors were faster than professors to latch onto his views. More than anyone else it was Paul McCulley of PIMCO, a fund-management group, who popularised his ideas. He coined the term "Minsky moment" to describe a situation when debt levels reach breaking-point and asset prices across the board start plunging. Mr McCulley initially used the term in explaining the Russian financial crisis of 1998. Since the global turmoil of 2008, it has become ubiquitous. For investment analysts and fund managers, a "Minsky moment" is now virtually synonymous with a financial crisis.

Minsky's writing about debt and the dangers in financial innovation had the great virtue of according with experience. But this virtue also points to what some might see as a shortcoming. In trying to paint a more nuanced picture of the economy, he relinquished some of the potency of elegant models. That was fine as far as he was concerned; he argued that generalisable theories were bunkum. He wanted to explain specific situations, not economics in general. He saw the financial-instability hypothesis as relevant to the case of advanced capitalist economies with deep, sophisticated markets. It was not meant to be relevant in all scenarios. These days, for example, it is fashionable to ask whether China is on the brink of a Minsky moment after its alarming debt growth of the past decade. Yet a country in transition from socialism to a market economy and with an immature financial system is not what Minsky had in mind.

Shunning the power of equations and models had its costs. It contributed to Minsky's isolation from mainstream theories. Economists did not entirely ignore debt, even if they studied it only sparingly. Some, such as Nobuhiro Kiyotaki and Ben Bernanke, who would later become chairman of the Federal Reserve, looked at how credit could amplify business cycles. Minsky's work might have complemented theirs, but they did not refer to it. It was as if it barely existed.

Since Minsky's death, others have started to correct the oversight, grafting his theories onto general models. The Levy Economics Institute of Bard College in New York, where he finished his career (it still holds an annual conference in his honour), has published work that incorporates his ideas in calculations. One Levy paper, published in 2000, developed a Minsky-inspired model linking investment and cashflow. A 2005 paper for the Bank for International Settlements, a forum for central banks, drew on Minsky in building a model of how people assess their assets after making losses. In 2010 Paul Krugman, a Nobel prize-winning economist who is best known these days as a New York Times columnist, co-authored a paper that included the concept of a "Minsky moment" to model the impact of deleveraging on the economy. Some researchers are also starting to test just how accurate Minsky's insights really were: a 2014 discussion paper for the Bank of Finland looked at debt-to-cashflow ratios, finding them to be a useful indicator of systemic risk.

Debtor's prism

Still, it would be a stretch to expect the financial-instability hypothesis to become a new foundation for economic theory. Minsky's legacy has more to do with focusing on the right things than correctly structuring quantifiable models. It is enough to observe that debt and financial instability, his main preoccupations, have become some of the principal topics of inquiry for economists today. A new version of the "Handbook of Macroeconomics", an influential survey that was first published in 1999, is in the works. This time, it will make linkages between finance and economic activity a major component, with at least two articles citing Minsky. As Mr Krugman has quipped: "We are all Minskyites now."

Central bankers seem to agree. In a speech in 2009, before she became head of the Federal Reserve, Janet Yellen said Minsky's work had "become required reading". In a 2013 speech, made while he was governor of the Bank of England, Mervyn King agreed with Minsky's view that stability in credit markets leads to exuberance and eventually to instability. Mark Carney, Lord King's successor, has referred to Minsky moments on at least two occasions.

Will the moment last? Minsky's own theory suggests it will eventually peter out. Economic growth is still shaky and the scars of the global financial crisis visible. In the Minskyan trajectory, this is when firms and banks are at their most cautious, wary of repeating past mistakes and determined to fortify their balance-sheets. But in time, memories of the 2008 turmoil will dim. Firms will again race to expand, banks to fund them and regulators to loosen constraints. The warnings of Minsky will fade away. The further we move on from the last crisis, the less we want to hear from those who see another one coming. 

LATER IN THIS SERIES:
• The Stolper-Samuelson theorem
• The Keynesian multiplier
• The Nash equilibrium
• The Mundell-Fleming trilemma

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

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Bernanke: How do people really feel about the economy? [feedly]

How do people really feel about the economy?

Ben Bernanke

https://www.brookings.edu/2016/06/30/how-do-people-really-feel-about-the-economy/

Political outsiders have had quite a good year in the United States (and elsewhere), and many pundits have attributed their success to voters' profound dissatisfaction with the economy. Certainly there is plenty to be dissatisfied about, including growing inequality of income and wealth and stagnation in real wages. But there are positives as well, including an improving labor market, low inflation, and low gasoline prices. How do people really feel about the U.S. economy?

This post will 
not 
tackle the substance of Americans' worries about the economy but instead highlights a puzzle arising from pollsters' efforts to quantify those worries. I'll show that, when Americans are asked specifically about the economy, in an apolitical context, they are for the most part not nearly as pessimistic as the conventional wisdom would have it. Instead, they answer more or less as they have done in the past at a similar stage of the business cycle. But, at the same time, when asked more generally about the way things are going in the United States, or about whether the country is going in the right direction, a strong majority gives downbeat answers, to an extent that is quite different from how they have responded in the past. Understanding the divergence between the replies to these two types of surveys is important, and I end the post with a few thoughts on possible reasons.

Surveys of consumer "sentiment" or "confidence," such as those that have been conducted for many years by 
the University of Michigan 
and 
the Conference Board 
, aim to measure how people feel about their own finances and the state of the economy in general, without trying to elicit households' political leanings or voting intentions. These surveys have proved useful in forecasting consumer spending and other aspects of household economic behavior, and they are accordingly closely followed by economists. Interestingly, in recent years, surveys of household sentiment have generally been more positive than one might anticipate, based on the gloomy prevailing narrative.

To illustrate, Figure 1 presents data from 1979 to the present, taken from the University of Michigan's consumer sentiment survey, on how households view their current and expected (over the next year) personal finances. Shown for comparison is the response to a more general, open-ended question (asked by 
Gallup 
) about whether people are satisfied (or not) with "the way things are going" in the United States. The three sets of responses, and all other data series mentioned in this post, are measured on comparable scales: Percent positive ("better" or "satisfied") minus percent negative ("worse" or "unsatisfied") + 100. [1] A score of 100 is thus the dividing line; values above 100 imply that a plurality (ignoring the undecided) are "satisfied" or see things as getting better.

The three series do tend to move together. Not surprisingly, for example, all decline around recessions (shown as shaded bars in the figure). However, the recent divergence between people's views of their own finances and their assessments of "the way things are going" more generally is striking. The reading on the "better off than last year" gauge plunged during the recent recession but has risen steadily and, excepting a late 1990s surge, is now as high as in any period since 1979. Respondents' expectations for changes in their personal finances vary less but are also now relatively high—close to where they were during the economic recovery of the 1980s. In contrast, people have continued to tell Gallup that they are very unsatisfied with the way things are going. That index began to fall at the beginning of the last decade and was already very low when the recent recession hit. Rather than recovering with the economy and with sentiment indexes, however, this measure of national mood has remained at historically low levels.

The recent contrast between the behaviors of consumer sentiment and broader indicators of public satisfaction is robust to alternative ways of framing the question. For example, a possible explanation of the divergence seen in Figure 1 is that people feel reasonably good about their own situations but are worried about the economy as a whole. Another possible resolution follows from the observation that Figure 1 compares actual and expected 
changes 
in personal finances with the 
level 
of satisfaction or dissatisfaction with the state of the country: It's logically possible that people simultaneously see near-term improvements while remaining pessimistic about the longer-run prospects for the economy. To try to address both possibilities, Figure 2 below compares responses about "the way things are going" with the responses to a question from the Michigan survey about expected business conditions over the next five years. [2]Responses to the latter question should elicit how people feel about the economy as a whole, as opposed to their personal situations, and a five-year window should capture more long-term views of the economy.

Figure 2 shows that consumers' expectations about business conditions over the next five years are indeed correlated with their assessments of the way things are going in the country. In particular, the decline in expected business conditions that began around 2000 might help explain the fall, beginning at about the same time, in the broader measure of satisfaction. [3] However, Figure 2 also shows the same puzzling divergence of the past few years seen in Figure 1: Expected business conditions (University of Michigan) have recovered to more or less normal levels, while satisfaction with the way things are going (Gallup) has remained historically low.

Demographic breakdowns of sentiment indicators also present puzzles for the prevailing narrative of widespread economic dissatisfaction. Figure 3 shows people's expectations of business conditions in five years (the same variable shown in Figure 2) broken down by age group. Despite the well-publicized problems of young adults (student debt, inability to escape their parents' basements, etc.), young people are the most optimistic about the longer-term condition of the economy, with net positive ratings close to all-time highs. Young people are also strongly positive, both absolutely and relative to other age groups, about their personal financial outlooks (data not shown). Figure 3 shows that older people are the most pessimistic about business conditions, but not notably more pessimistic than the average of the post-1979 sample. [4]

Increasing income inequality is often cited by political observers as a reason for economic dissatisfaction. Inequality is indeed a serious concern. A large share of the income gains from the ongoing economic recovery have accrued to the better off, which would lead us to expect those at lower incomes to be the most pessimistic. Figure 4 breaks down households' responses to the question about expected business conditions into thirds, based on reported income. Not surprisingly, those with highest incomes are most optimistic about the economy. But all three groups have become more optimistic since the recession, and the spread among the income terciles is only marginally greater than in the past. Similar patterns emerge when people at different income levels are asked about their personal financial situations (data not shown).

In summary, the University of Michigan's survey of consumer attitudes has shown a normal cyclical pattern of improvement in recent years, both in how people feel about their own economic prospects and in their expectations for the economy as a whole.  

[5] 

In contrast, measures of the national "mood," like Gallup's "way things are going" question or questions about the "direction of the country," 
show a high level of dissatisfaction 
. What accounts for the discrepancy?

There are of course multiple possibilities, not mutually exclusive. For example, traumatic national events, including the 9/11 attacks and the 2007-2009 financial crisis, may have had lasting effects on public confidence that are not captured in their near-term assessments of economic performance. (Satisfaction with the way things are going did begin a sustained decline around 2001, at about the time of 9/11, the end of the tech bubble, and the 2001 recession.) It may also be that, in responding to broad questions about the direction of the country, people are taking into account non-economic concerns, such as 
social problems and cultural fears 
. Such factors must certainly be part of the story, but it should be noted that many social indicators (such as 
teenage births 
and 
crime rates 
) have been moving in generally favorable directions.

I suspect that greater social and political polarization itself has a role to play in explaining reported levels of dissatisfaction. To an increasing extent, 
Americans are self-selecting into non-overlapping communities 
(real and virtual) of differing demographics and ideologies, served by a fragmented and partisan media. We see, for example, a sharply widening partisan gap in presidential approval ratings (Figure 5). As the figure shows, to a greater extent than in the past, people tend to have strongly positive views of a president of their own party and strongly negative views of a president of the opposite party. [6]

In a highly polarized environment, with echo-chamber media, political debates often become shrill, and commentators and advocates have strong incentives to argue that the country's future is bleak unless their party gains control. In this environment, it seems plausible that people will respond more intensely and negatively to open-ended questions about the general state of the country, while questions in a survey focused narrowly on economic conditions elicit more moderate responses. Without doubt, the economic problems facing the country are real, and require serious and sustained responses. But while perceptions of economic stress are certainly roiling our national politics, it may also be that our roiled politics are worsening how we collectively perceive the economy.

[1] The exact wording of the questions is as follows: (1) "We are interested in how people are getting along financially these days. Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?" (2) "Now looking ahead–do you think that a year from now you (and your family living there) will be better off financially, or worse off, or just about the same as now?" (3) "In general, are you satisfied or dissatisfied with the way things are going in the United States at this time?"

[2] The full question is: "Looking ahead, which would you say is more likely–that in the country as a whole we'll have continuous good times during the next 5 years or so, or that we will have periods of widespread unemployment or depression, or what?"

[3] It's interesting that expected business conditions were highly favorable during the stock market boom of the late 1990s but less so during the housing boom of the early 2000s.

[4] The responses of those 55+ have averaged 89.8 over the past 12 months (94 in May), while the average of the full sample is 90.4.

[5] Qualitatively similar findings can be seen in the Conference Board's index of consumer confidence.

[6] http://www.pewresearch.org/fact-tank/2016/01/27/the-demographic-trends-shaping-american-politics-in-2016-and-beyond/

 -- via my feedly newsfeed