Friday, November 21, 2014

The "Trickle-Down" Zombie

The New York Times's Paul Krugman routinely decries what he calls “zombie ideas”—those that survive despite overwhelming contrary evidence. Senator Elizabeth Warren (D – Ma.) should take note. Her recent attack on conservative tax policy is one that has long lost its battle against facts.

On Wednesday, the senator averred:
The Republicans have a pretty simple philosophy: they say if those at the top have more — more power for Wall Street players to do whatever they want and more money for tax cuts than somehow they can be counted on to build the economy for everyone else. Well, we tried it for 30 years and it didn’t work. In fact the consequences were nearly catastrophic.

Sunday, November 2, 2014

GUEST POST: Legal Strategies for Challenging Voter ID Laws

The following piece was contributed by Seattle attorney Jonathan Collins.

For (mostly) Republican-controlled State legislatures, the flavor of the last decade has been voter ID laws; 22 states have implemented strict identification requirements since 2003.  So, are these laws constitutional?  Like most legal questions, the answer is: “maybe.” Let’s take a look at three viable legal theories for challenging these laws.

Thursday, August 21, 2014

A Government is Not a Household

In 1996, economist Paul Krugman wrote an article titled “A Country is Not a Company.”  The article argued that many people don’t seem to understand that the macroeconomic issues facing a nation are often distinct from the issues facing companies—so different, Krugman contended, that “business leaders who have been promoted to economic advisers are no more likely to be great economists than military experts.” 

By the same token, many people don’t seem to understand that a government is not a household, and it’s common for politicians to take advantage of this fact: “Government needs to tighten its belt,” we’re told, “just like families sitting around the kitchen table have to do to put food on the table.”  But does the U.S. government, operationally speaking, really have to either tax or borrow before it can spend, just like any household has to have enough income or borrow money before it can purchase goods and services?  The answer, perhaps surprisingly, is no, because the government is the monopoly issuer of the currency.

What do I mean by that?

Wednesday, August 13, 2014

The Equality Illusion

In The Quest for Cosmic Justice, Thomas Sowell raises questions concerning “equality” scarcely considered in our time: How is “equality” defined, and what are the costs of pursuing it?

“Equality” may be easy to define for concepts like numbers, as they have “only one dimension, magnitude (2 + 3 = 5),” Sowell notes. The same is not true for people. A confluence of various and often unquantifiable factors—intelligence, ability, beauty, geographic location, economic status, luck, among many others—forms multidimensional human beings.  Striving to level one human dimension—say, the economic—invariably results in the inequality of another dimension—the political—by transferring political power into the hands of those anointed to pursue economic equalizing. Determining how much economic inequality to trade for political inequality is arbitrary. “Equality,” it turns out, is an illusion.

Monday, July 28, 2014

The closing of the left-wing mind

“…Letters that have an untrue basis (for example, ones that say there's no sign humans have caused climate change) do not get printed,” The Los Angeles Times proudly announced last year. The newspaper was not alone in expressing such sentiments. Other influential news outlets, such as BBC, have asserted the same. But what explains this close-mindedness?

In The Closing of the American Mind, Professor Allan Bloom describes how the idea of “openness”—relativism and subjectivism—renders the existence of, and hence the search for, moral and philosophical truths a fiction.

Tuesday, June 10, 2014

Who is racist? A look at the "Southern Strategy"

I recently refuted one part of the popular civil rights myth that, following the 1960s, racist “conservative” Democrats realigned with the Republican Party. Another point perpetrating the myth is the so-called Republican “Southern Strategy.”

To be sure, there was indeed a Southern Strategy, but it differs from the popular myth. As is natural in the course of politics, Republicans desired a political strategy to capture Southern votes from Democrats. The popular myth, however, says that Republicans, beginning with Richard Nixon, abandoned their support for civil rights and deliberately appealed to Southern racists as a means to winning the South. This is proved, the argument goes, by observing both racial “code words” employed by Republicans and the fact that the GOP won the core of the South. But neither point is persuasive.

Who is racist? More myths and facts about the ‘party of white supremacy’

My last post demonstrated that, contrary to popular belief, Democrats, not Republicans, opposed virtually every civil rights advancement since the Civil War era. A related historical myth nearly as seldom examined is that, around the 1960s, liberal Democrats pushed racist “conservative” Democrats out of their party and over to the GOP, where racism has since taken its natural refuge.

Thursday, May 29, 2014

Who is racist? The answer implicit in this timeline might surprise you

Little is less examined in our time than the assumption that, historically — and especially during the civil rights era — racism is a Republican affliction, while equality is a Democrat virtue. In fact, history demonstrates the reverse.

Here are some facts.

Sunday, March 16, 2014

A Challenge to Minimum Wage Advocates

The only positive thing about minimum wage logic is that it is easily defeated. Common sense economics rejects it, but non-economic arguments cause it problems, too.

Here is a non-economic challenge to minimum wage proponents I have yet to hear convincingly answered (perhaps a commenter or my counterpart Tim can provide an explanation): If someone—say, John—wants to work for six dollars an hour at Company X, and Company X wants to hire John for that wage, why should that be illegal?

Thursday, March 13, 2014

Don't Cry for Me, Argentina

In an op-ed column titled “Cry for Me, Argentina” New York Times columnist Roger Cohen argues that “Argentina is the child among nations that never grew up. Responsibility was not its thing. Why should it be? There was so much to be plundered, such riches in grain and livestock, that solid institutions and the rule of law seemed a waste of time.”

This is about par for the course for the news media over the last decade or so—long diatribes about how Argentina must be doing horribly because their leaders say populist things, have nationalized a number of industries, and about a decade ago defaulted on its debt. You see, these are all things that only irresponsible countries do. Things must be awful in Argentina. 

So how’s it going south of the equator?

Wednesday, March 5, 2014

For the Last Time: Why David is Wrong About Fiscal Stimulus (Dense)

I’ve written twice now on David’s misguided attempts to explain away fiscal stimulus. But David’s latest post just repeats the same fallacy over and over again as if it were some fundamental truth in economics: “all money in an economy is applied toward economic activity.”

To be fair, there is indeed an economic identity that says that all income is applied toward economic activity—that is, all income is spent. The problem is, there is no economic identity that says that all money is applied toward economic activity because banks convert savings into economic investment by making loans. So here's a somewhat denser version of why David is wrong.

Monday, March 3, 2014

Why the Stimulus Failed, Part Two

I recently explained why government stimulus spending must fail. Tim contested my argument, but I will show why it stands.

The basic flaw with stimulus spending is that, in order to spend a dollar into the economy, government must remove a dollar from the economy, which renders spending a zero-sum transfer of resources.

Tim challenged these basics by asserting that not all money is contributing to economic activity, so utilizing “idle” dollars for government expenditure would avoid the zero-sum critique and raise national income. There are three reasons this is wrong.

Sunday, March 2, 2014

Striking Out on Stimulus

Yesterday, David wrote a post attempting to explain why the government’s $800 billion stimulus “failed.” The point of David’s piece was to prove that not only was stimulus an empirical failure, but also a theoretical one. Reasonable people can disagree on whether the stimulus was an empirical success. But what should be clear is that economic theory does, in fact, suggest that it can work.

Yet David argues that “The only way government can spend a dollar into the economy is by removing a dollar from the economy, meaning spending is a zero-sum transfer of resources.”

I pre-empted this argument, and many of David’s other points, already in the blog post “Why Government Spending Stimulates.” That piece showed how David was incorrectly equating the concepts of money and income by assuming that because there is a zero-sum transfer of money when the government deficit spends, there must also be a zero-sum transfer of economic resources. But David remains unconvinced, so let me try this again.

Saturday, March 1, 2014

Why the Stimulus Failed

The five year anniversary of the so-called “stimulus” marks an opportune time to reconsider why it failed to grow the economy.

Let us recall that in 2009 government spent monumental quantities—some $800 billion—in an effort to rejuvenate economic growth. Obama administration economists Jared Bernstein and Christina Romer reported that, with the stimulus spending, unemployment would not rise above 8 percent. Absent the spending, however, they alleged unemployment would reach upwards of 9 percent.

Despite these assurances, the herculean spending effort left the economy unmoved. Unemployment peaked well above 10 percent, and growth has remained vanishingly weak, particularly compared to historical post-recession standards. Yet the lack of real world success was as predictable as the theory is wanting.

Tuesday, February 25, 2014

Leave Social Security Alone

The big discussion in the blogosphere last week was about President Obama’s latest budget proposal, which won’t be asking to cut Social Security benefits by switching to the use of the chained Consumer Price Index (CPI). This is a bold move on the President’s part, who only offered up chained CPI to Republicans last year as part of a “Grand Bargain” on the budget. But the chance to consider that offer is long gone, and the President has now officially removed it from the table.

Conservatives, predictably, cried hot tears of anger. But this is very good news. Why?

I’ll get to that in a minute, but first, what is the CPI anyway?

Friday, February 21, 2014

Fighting Recessions: Monetary Policy and the Babysitting Co-op Crisis

During the Great Depression of the 1930s, the average income of an American family dropped by 40 percent from 1929 to 1932.  According to the Bureau of Labor Statistics, in our most recent recession, the number of job openings decreased by 44 percent and the resulting employment decline was greater than that of any recession in recent decades.  But what usually causes a recession, and how do we get out of it?

I’ll get to that in a minute.  But first, some background.

In 1977, Joan and Richard James Sweeney published an article in The Journal of Money, Credit and Banking titled “Monetary Theory and the Great Capitol Hill Baby Sitting Co-op Crisis.”  The point of the article was to explain how economies can find themselves in a recession by drawing an analogy to—you guessed it—a babysitting co-op.  This allegory, popularized in “Peddling Prosperity” by Princeton Economist and New York Times columnist Paul Krugman, is admittedly simpler than the complex economy we actually experience.  But sometimes understanding more sophisticated concepts means first building an intuitive framework—the same way architects use models to communicate design ideas to clients.

Tuesday, February 18, 2014

Who Cares if People Work Less?

In a post Tim wrote partly as a reply to my piece on the Congressional Budget Office’s (CBO) recent revelation that Obamacare will drive Americans to work less, he asks why we should care.

While acknowledging that Obamacare will cause workers to “withdraw their labor,” Tim maintains that these workers “will also take home a proportionally smaller share of the economic pie because they will be earning less. So the question is, why do you care how much other people work?”


If people were freely making choices, conservatives would not object. After all, Milton Friedman taught that free people make the best choices for themselves given the incentives they face in the private marketplace.

Monday, February 17, 2014

CBOghazi

Republicans recently applauded a report from the Congressional Budget Office (CBO) purportedly showing that the Affordable Care Act (aka Obamacare) will cause the loss of over two million jobs.  Here’s House Majority Leader Eric Cantor (R-VA): “Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced.”

Understandably, the liberal blogosphere erupted.  What the report really showed was that Obamacare will reduce the number of hours worked in the economy by between 1.5 and 2 percent, amounting to the equivalent of about 2 million jobs.  Why? In large part, it’s because Obamacare reduces the number of Americans stuck in “job lock”—the feeling of being trapped in your current job because you aren’t sure you can get health insurance coverage elsewhere if you leave.  Now that Americans can get subsidized health insurance on the individual market, many no longer feel compelled to work a full-time job, so can now retire, spend more time with their families, etc.  That’s very different from suggesting people will lose their jobs.

Sunday, February 16, 2014

Minimum Wage: Minimum Idea

Tim recently argued that raising the minimum wage is sound economics. However, doing so would hurt many poor people.

The crux of his argument is that low-wage workers are not paid their proper value for their contribution—in economic jargon, their “marginal product”—and that therefore an increase in the minimum wage would render little, if any, job loss. He further bolsters his case by stating that studies since 2000 demonstrate “little to no employment response to modest increases in the minimum wage.” In fact, he reasons, “a higher minimum wage may even save some employers money in the long term because it reduces costs associated with higher turnover and vacancies by making minimum wage jobs more desirable.”

These points do not support the case for raising the minimum wage.

Friday, February 14, 2014

Why Government Spending Stimulates

Four years ago, the conservative-leaning Heritage Foundation published a report asserting that fiscal stimulus—increasing government expenditures to fight a recession—could never work because government cannot increase output or employment.  While this argument has been refuted time and time again, it remains something that everyone on the right, including my colleague David Weinberger, just “knows” to be true.  But this argument is wrong, and it’s important to understand why.

The argument in favor of fiscal stimulus goes something like this.  In a depressed economy, there are “idle resources”—unemployed labor, factories and machines that aren’t being used, etc.  If the private sector is unwilling to utilize those resources, then government should do so by investing in things like roads and bridges, even if that means borrowing money to finance those investments.  As a result, total employment and income will rise, alleviating the effects of the economic downturn.

Who is Ignorant?

A couple years ago, Nicholas Kristoff, a liberal writer for The New York Times, observed that conservatives know the left better than liberals know the right:
One academic study asked 2,000 Americans to fill out questionnaires about moral questions. In some cases, they were asked to fill them out as they thought a “typical liberal” or a “typical conservative” would respond. 
Moderates and conservatives were adept at guessing how liberals would answer questions. Liberals, especially those who described themselves as “very liberal,” were least able to put themselves in the minds of their adversaries and guess how conservatives would answer.
He then candidly confessed that he needed the help of a book to “demystify the right.” So why is it that conservatives understand liberals better than the reverse?

Tuesday, February 11, 2014

When Unemployment is Celebrated

In light of recent news that Obamacare discourages employment, the left has applauded the notion that working less is a good thing. But why should we celebrate forced unemployment?

Work disincentives have, until now, been universally recognized as negative for both individuals and society. Liberals, for instance, have agreed that unemployment benefits and food stamps may discourage work to some degree, but have maintained that, on the whole, the benefits simply outweigh the costs. 

Farm Bill Illustrates Venality of House GOP

On Friday, President Obama signed the farm bill into law, ending a four-year long Congressional fight that dragged on longer than anyone in Washington expected.  But contrary to what defenders of the bill claim, this was not a hard-won triumph for bipartisanship. At best, the bill is a mixed blessing; at worst, it’s a giant giveaway to the farm lobby.

Historically, the farm bill combines agricultural subsidies with nutritional aid to low-income Americans in the form of food stamps (commonly known as the Supplemental Nutrition Assistance Program, or SNAP).  Long ago, these programs received bipartisan support on the grounds that they assisted poor farmers and helped low-income Americans purchase food.  But while SNAP remains vital to the social safety net, agricultural subsidies have become a bloated entitlement that mainly benefits corporations and wealthy individuals

Friday, February 7, 2014

The Minimum Wage: It's Time For a Raise

President Obama laid out several policy proposals in the State of the Union last week—something that can’t be said for the Republican response delivered by Representative Cathy McMorris Rodgers (R-WA).  While it’s no secret that Republicans oppose the President’s agenda in general, one particular proposal threw the usual suspects on the right into a tizzy: raising the minimum wage.

The President announced he would be increasing the minimum wage for federal contractors by executive order, and asked Congress to raise the federal minimum for everyone else to $10.10 per hour.  Predictably, Republican leaders are opposed.  What’s less known is that so are a majority of economists.