My comrade the Sandwichman traces the sad devolution of thinking about public investment in the U.S. Check out the signatories to the letter at the top: Henry Wallace, Frances Perkins, Harry Hopkins, Harold Ickes, Wesley Mitchell. Giants! How did we get stuck with Gene Sperling and Rahm Emanuel? Jack Lew?? Oh please.
One thing that got lost was the idea of taking advantage of economic downturns to launch new public works projects. I think this is still a good idea, and I’m not the only one.
Contrary to one argument in the post, however, I would not include the stimulus resulting from a project in a benefit-cost calculation. The reason is that it is useful to know benefits and costs abstracting from where we are in the business cycle. That should be the principal criterion, in principle. The stimulus piece is worth knowing as an inducement to accelerating investment during downturns, like the one we are still in, so it should figure in the decision, but it’s a categorically different number.
Alas, it is hard to know benefits and costs. There is a sophisticated, finely-wrought methodology for conducting such analyses. Typically the data required is not available. Moreover, the analysis is flawed by virtue of the fact that it is performed by humans who always operate in a political setting. The customer for a study may have a benign view of a project, or a jaundiced one. He will get what he wants, either way. In a political environment that is adverse to new initiatives — projects, regulations — benefit-cost analysis is routinely deployed as a bludgeon to kill innovation. Nobody did a cost-benefit analysis of welfare reform in 1996, nor have they since. The politicians wanted it and they got it. What they don’t want, they first say should be the subject of cost-benefit analysis. I would not say the practice evolved to preclude new investment; rather, the politics evolved to create a professional environment adverse to progress. I think the Sandwichman is saying that too.
Big projects are risky, but there is a remedy: do lots of big projects. Some will work out well, others will be white elephants, and on average we will be all right. The wisest principle can be found in Tom Cruise’s big debut film, Risky Business.
I was talking about this with the avowed libertarian economist Bill Niskanen before he passed away, and he actually agreed with me. Suppose it was 1870. Should we build a bridge connecting Brooklyn to Manhattan? Would it have been possible to compute a favorable benefit/cost ratio for this project? Quite possibly not. How about the Panama Canal? People died building both of these things. Very great costs.
It’s not so far-fetched in the current context. We think we have a better methodology, but do we have the data and foresight to gauge benefits and costs of new, innovative projects? What’s the benefit of a modern electric grid? I doubt anybody knows, but I still think it’s worth building.
Perhaps the greatest weakness of the methodology lies in the task of measuring costs and benefits occurring over some extended period of time. To this end future flows are discounted by some rate that purports to equate values in different time periods. If the interest rate is ten percent, $1.10 a year from now is worth a dollar today. Put aside that we’re prognosticating future events like crazy people. There is a more interesting thing going on.
Climate change is going to seriously fuck with the human race. You know that, right? So imagine a blow to those living 200 years from now in the amount of $100 trillion. (Assume no inflation.) A discount rate of 3% is pretty modest, as these things go. How much is that $100T worth to us in present value? The answer is less than $271 billion. The implication is that we should be willing to pay no more to eliminate that risk, today, than $271 billion, even though the hit to those living in 2214 would be more than 369 times higher. We are applying a far lesser weight to their well-being than to our own. They might not forgive us, but we’ll be long dead, so what the fuck.
You might be willing to put a price on carbon calculated to bend the curve on emissions, but I hope you won’t be deluded enough to think you can, or should, calculate a price based on the present value of future harm to humanity. The vanity of economists today knows few bounds. But in 1928 one of the greatest economists, by the name of Frank Ramsey, referred to the conduct of such an exercise as “ethically indefensible and arises merely from the weakness of the imagination.”
The better operating principle is to reverse the current and long-standing emphasis in U.S. public policy characterized by the late John Kenneth Galbraith as favoring “private affluence and public squalor.”
If I need a new career I think I could take up political punditry. Little in the way of knowledge or skills is required. For evidence we could look at the assorted explanations for yesterday’s vote. They include:
Turnout. Democratic voters didn’t come out to vote. Sometimes this is boiled down to younger voters, single women voters, or minorities. In other words, people who might vote for Democrats didn’t come out and vote for Democrats.
The Map. Then we hear about ‘the map.’ It refers to the predominance of so-called ‘red states’ whose senators and governors were up for reelection. Red states are dominated by people who don’t vote for Democrats.
In other words, Democrats lost because people didn’t come out to vote for them, or the people who did vote didn’t vote for them. See? You too could be a political expert.
I’m also dubious about the race argument. People supposedly vote Republican because they don’t like black people. But in two cases, black candidates on the Republican side won. Senator Tim Scott of South Freakin Carolina won in a walk, and Mia Love of Utah got a decent margin of victory to became a new member of the House of Representatives. True, there are only two of them, but they won in two of the most conservative states in the U.S. Why? Whatever bothers white folks about Obama doesn’t bother them about Tim Scott and Mia Love. Or Herman Cain, for that matter. Of course, the GOP doesn’t lack for successful women candidates either. I’m not suggesting the Republicans are a fount of enlightenment on race and gender policies, and underneath their animus in that context is some primordial prejudice, but it’s not as simple as a knee-jerk rejection of non-white/non-male faces.
Ask yourself: If he were more liberal, he would have done what? What more could I have possibly done? You’re gonna use the tax code just to take money from the rich and give it to the poor? That’s not liberalism. That’s confiscation! Liberalism was ‘Lift up the poor.’
This gentleman could eventually make the Clintons look like Fabian socialists.
Jacobin magazine’s Seth Ackerman picks up his favorite chew toy, Matthew Yglesias of Vox, doing the economics of the minimum wage. To be clear at the outset, I think it’s perfectly fine for Yggy to take on diverse topics in which he is non-expert. He’s smart, prolific, writes well, and provokes worthwhile discussion. His economic commentary is usually worth reading, though susceptible to the ‘never in doubt’ syndrome.
The basic target of the Vox piece is whether the U.S. minimum wage could go up to $20 an hour without causing mass job losses. Yglesias is reacting to a New York Times story about the blissful status of minimum wage workers in Denmark, another Nordic social-democracy where everything is better except maybe the food and music.
I think Brother Ackerman overthinks and overworks this question, as far as criticism of Vox goes. Yglesias’ basic argument is an exceedingly brief blog post; it’s not a monograph. Said argument, really not more than an assertion, is that Denmark manages to keep employment high not because of a high minimum wage but thanks to their system of “education, training, active labor market policy, and regulation.” The finger-wagging implication is that the high Danish minimum wage depresses their fast-food employment and could do so much more in the U.S., given our medieval social welfare system.
The Times article notes a number of differences between the U.S. and Denmark that purportedly cloud any comparison of minimum wage effects, but on closer reading, all of them are true differences but at best irrelevant to any such comparison. For instance, it is noted that the fast food industry is more profitable in the U.S., so that means we can’t manage a higher minimum wage? In fact it strengthens the argument for a higher U.S. wage.
The only relevant factoid in the Vox article, via the Times story, is that there are more McDonalds establishments in the U.S. than in Denmark. This means nothing. A minimally relevant comparison would be to the fast food industry as a whole in Denmark, or better, the low-wage sector as a whole. And who says we need a bigger low-wage sector, anyway? The proof in the Danish pudding is their good overall labor market conditions.
So Ackerman is using a sledgehammer to liquidate a flea. He shows there is no correlation between the number of McD franchises and the McWage, which proves more than is necessary.
How high should our minimum wage be? Without doubt it could be higher than the $10.10/hr level proposed by our socialist-Islamist president. I’d assign the wage-setting authority to a triumvirate consisting of John Schmitt, Dean Baker, and Larry Mishel. A special pen surrounded by barbed-wire fencing would be available to dissenting economists who wanted to lodge a protest, in keeping with the current state of civil liberties in the U.S.
The torch has been passed from Zell Miller and Joe Lieberman. New York Governor Andrew Cuomo is now officially the worst Democrat in the Universe.
I had high hopes for his father, Mario. Pére Cuomo was poised to contest Bill Clinton for the Democratic nomination for president in 1992, but he lost his nerve at the eleventh hour. The son has the virtue of never having raised anyone’s hopes.
In the endless arguments between Democratic moderates and those to their left, the constant exhortation from the center is to confine dissent to primaries, then pull together in the general to beat this year’s satanic Republican. Those who have the effrontery to go third party are cast as history’s greatest monsters.
So what is the lesson learned from the leadership of Mr. Cuomo? In New York State and a few other places, there is the noble, labor-liberal organization known as the Working Families Party. (When I hear the expression ‘working families,’ I get visions of toddlers swinging hoes, toiling in the potato fields, but I digress.) Their strategy is to support Democrats in general elections on their own separate ballot line. The hope is that the promise of their support will encourage the mainline candidates to respect and even take up some of their political causes.
It should go without saying that no Democratic candidate in New York or most other places has a prayer of winning a general election without liberal support. One might think that this would lend the WFP some serious leverage, but one would be wrong. The leverage of the WFP depends on their ability to threaten to withhold support in a general election, but that is not how they roll. They are congenitally predisposed to pull behind the Democrat who wins the nomination.
Enter Zephyr Teachout, brilliant lady law professor with spotless liberal credentials (but not too liberal!) and the cool name, blessed with awesome campaign trail kung-fu. Zephyr had the bright idea to contest for the gubernatorial nomination as the champion of the WFP. The WFP held a nominating convention and said, we don’t need no champion, we’d rather remain the crazy aunt in the fifth-floor walk-up. The WFP, not without the strong urging of erstwhile anti-inequality champion Bill DeBlasio, nominated Cuomo at their convention. To garner the endorsement, the governor made a number of commitments pertaining to WFP issues. Unfortunately, nobody thought they needed to make the governor promise not to try to destroy the WFP.
Zephyr decided to run in the primary anyway and did well, thank you very much. She got over 30 percent of the vote. So fine, now it’s time for everybody to pull together, right? The WFP behaved themselves. They put Cuomo on their ballot line. How does the governor repay them?
The governor fabricates an utterly fake political party called the “Women’s Equality Party” with its own ballot line to leech off WFP votes. (WEP, not WFP — get it?) The WFP will need a certain minimum number of votes to retain its ballot status. So in return for their support, Mr. Cuomo has connived to drive them off future ballots.
Cuomo staged a rally for the mythical WEP featuring an appearance by Hillary Clinton. The WEP public relations effort includes rich female celebrities (Anna Wintour, Christie Brinkley, Lena Dunham, etc.) and an array of Democratic liberals who have forfeited any claims to progressive politics. Note, they could easily support Cuomo by supporting a vote for the WFP, who is included on their ballot line. Support for Cuomo’s ersatz party is really a decision to block any leftward evolution of politics in New York.
Cuomo, Clinton, and the other ex-liberal WEP endorsers thereby surrender the usual argument they trot out in response to liberal criticism — “We agree with your goals, we disagree on tactics argle bargle . . . ” They do not agree with liberal goals, even modest ones. If they did, they would not support Cuomo’s straight-out effort to sabotage the WFP. If they were good Democrats, they would criticize Cuomo for deliberately endorsing enough Republicans to tilt the State Senate to Republican control, thereby blocking Democratic pressure from the entire state legislature for more progressive policies. The grip of the 1% on the New York State Democratic Party goes deep.
The choices at this stage are not easy. New York liberals could suck it up and vote WFP in defense of their ballot line. Or they could bail on the Democrats and vote for Howie Hawkins of the New York Green Party. It’s hard to pass up a chance to vote for a guy named ‘Howie.’ Hawkins cannot win the election, but he could put a dent in Cuomo’s victory. He could also put a dent in the WFP vote and help them lose their ballot line. The latter would not upset the Democratic establishment, since that’s exactly what they’re up to themselves.
The difficulty is that a Hawkins protest vote weakens the WFP. Is this a problem? It isn’t if you think the WFP isn’t worth strengthening, because the Democratic Party is not worth supporting. A commitment to the WFP is a commitment to stay in the Democratic Party and fight for its leadership. But the Democratic Party leadership, liberal as all get-out by some measures, is not willing to tolerate well-behaved dissent. So why stay with it?
The obvious answer is, don’t give New York away to the G.O.P. This is some reason to discount the dangers of this. We’re not talking United States Supreme Court/invading the Middle East here. New York has survived Republicans before. The state survived Pataki, the city survived the loathsome Giuliani and the moderate Bloomberg.
The simple solution is, don’t try to be tricky and outsmart yourself. Vote for what you’re really for. If you’re for the Green Party platform, vote for it. Don’t be a potted plant. As the old saying goes, if you vote for what you don’t want, you’re sure to get it. The WFP might survive a good third party showing. It might even benefit from it. If it can’t, maybe it’s not the best vehicle to move New York politics to the left. The other reason to vote Green is to punish Cuomo. He deserves it. It could put some sand in the gears of any presidential campaign he might contemplate. That would be Good For America too.
There’s some funny stuff in The Nation to the effect that voting for Cuomo will “pressure Cuomo.” That’s a little too zen for me. Kudos to the magazine for allowing Executive Editor Richard Kim to dissent with a case for Hawkins.
Here’s hoping somebody changes his name to Andy Como and runs for governor. If he (or she) does, I can promise the support of the Afro-Jewish Peoples Party.
Just to prove I don’t plan to dog Hillary at every turn, I’ll stick up for her remark on the un-centrality of business firms in creating jobs. Republicans would like to turn it into another “you didn’t build that” moment, which worked so well for President Mitt Romney. With no customers — consumption spending by individuals or governments — business firms would have no . . . business. With nothing to buy, of course, we would all be hunters and gatherers, like in The Walking Dead. So this is unavoidably a two-sided proposition. Remember supply and demand?
The ulterior motive of the GOP’s exhortations is to reduce taxes on capital and the rich, ostensibly to increase employment. Ergo “supply-side economics.” What is nearly beyond dispute is that presently the volume of customers continues to be held back in the wake of the Great Recession and in the midst of the Sucktastic Recovery. The most relevant remedy is more Federal, state, and local government spending, financed by more Federal debt. Unfortunately this is politically out of bounds, but not just because of Republicans.
When Democrats crow about reduced deficits under Obama, they are really endorsing a policy of job-killing fiscal restraint. Talking about the need for more jobs and a cupful of public investment is not adequate inoculation against generalized deficit delirium (GDD). If you propitiate GDD you foreclose future fiscal activism, in the event that it ever becomes politically possible.
The Republicans have a sneakier, more politically effective approach. They oppose deficits in principle but enable them in practice, since tax cuts and defense spending don’t count as factors that increase deficits. The opposition garners approval from idiotic, uncritical journalists, and the enabling wins them the affection of their constituents.
Under this political dynamic, fiscal activism becomes available to the Republicans, but off-limits to Democrats. Democrats surrender the liberal economic agenda, and poor white folks get herded into the GOP. Ain’t life grand?
For the long version of this sermon, see Dean Baker and Jared Bernstein.