Wednesday, 24 April 2013


Via Scott Sumner's now famous blog (The Money Illusion, permalink on the side), I read the following post by Bryan Caplan: 

And it confirmed everything I thought about free-market economists! They're cruel, evil sadists (and they smell)! Caplan describing his fellow free-marketeers:

"They cavalierly deny the reality of involuntary unemployment, and callously belittle the suffering of the unemployed".

More seriously, Caplan offers an interesting and worthwhile post on why unemployment might remain high despite the unemployed willing to work for lower pay. The problem is that I disagree with a lot of his economic reasoning but even more so with his proposed solutions to our unemployment issues.

Tuesday, 23 April 2013


Short post: In the wake of the Reinhart and Rogoff saga, the question of the causality of the relationship between growth and debt was re-open.

I've already mentioned an article by Arin Dube that seems to establish that it is low growth that lead to high debt rather than the reverse. Today, via the Next New Deal again, I've been reading another article by Deepankar Basu confirming the causality. 

In truth, I mostly lack the mathematical skills to truly evaluate his contribution.

However, I would like to say that this analysis of data backs my own understanding of how the world works... Quoting myself, from last year:

"Following the oil crisis and wage-price inflation struggle of the 70s, western Europe, like the US, proceeded to crush the income growth of its middle class.

However, as opposed the US, it maintained a highly developed social safety net. Also it used public deficits to boost aggregated demand - Again, this is different from the USA where the boost was provided by private consumers over-leveraging themselves".

To repeat, post-70s, with the collapse of middle class earning growth and the lowering of marginal tax rates, someone had to consume and someone had to finance that consumption via debt.

In Anglo-Saxon countries, like the UK or USA, it was mostly private individuals who stacked up debt. In mainland Europe and Japan, it was mostly the state.

And, whether we're talking about the US consumer or the mainland European states, the point is that these debt loads keep on getting bigger when growth is not occurring fast enough. The main advantage of states over individuals in this situation is that some of them at least can print their own money...

Friday, 19 April 2013


So I've recently caught up on some on-going discussions about unemployment and an interesting concept promoted by Tyler Cowen - The ZMP worker a.k.a Zero Marginal Product worker. 

I think this is mostly a new name for an old idea but it's interesting to see how it goes, what people say and some of the underlying assumptions.


A lot has been written - often exceedingly well - about this debacle. I would personally recommend Noah Smith who has had two strong posts on the subject but there's also Mark Thoma, Paul Krugman, Matt Yglesias and the actual debunking by Arindrajit Dube, among others.

After so many quality posts, I am not really looking to add much myself. I would rather summarise a couple of points I think are important.

1- Macro-economic data is useful but not, in and of itself, the answer. We still need... well, either a "story" or, more scientifically sounding, some "first principles"...

2- A consequence of the above is that it can be hard to distinguish "just-so" stories from actual macro-economic insights. Skepticism and humility ought to be Macro's bywords.

3- The economy may not be a morality play but it is self-deluding to believe that macro arguments are not, in our days and age, political arguments. We may eventually get to Keynes' "macro-economists as dentists" but we're not there yet. We're still the "political economy" sciences, regardless of economists' physic envy.

4- Thus, wearing our political opinions on our sleeves is not, in and of itself, bad manner when discussing macro-economy. What is bad manner is closing our minds due to those political biases.

5- When we don't have uncontroversial "first principles", it's not yet time to get bogged down into super-technical modelling questions or, at least, the fact that some people's job is to get bogged down into super-technical modelling questions should not deter the amateurs among us from trying to participate to the debate.

And, yes, this last item is definitely self-serving... :)

Tuesday, 2 April 2013


I am trying to write two eminently political blog-posts  one describing what a 'progressive' agenda might look like in the USA and the other doing the same for Europe in general and France in particular.

The general idea was to try and put all these macro ideas and theories and 'stuff' into a coherent political program. Ideally, I'd like to believe that it might even have some cross sectional appeal. As I said in my discussions with James, both right and left believe in meritocracy and in "an honest pay for an honest day".

And, as I was trying to put my thoughts into some kind of cogent argument, by some mysterious force, Kevin Drum, over at Mother Jones, published the following post (bouncing off Matt Yglesias):

"Matt's argument is a common one, and I've seen it made dozens of times in various ways. What's more, it's an argument with a lot of force. It really is true that income distribution depends on the rules of the game, and it can favor the rich or the poor depending on who sets up the rules.
Despite having seen this argument made dozens of times, and despite its obvious force, I've never really seen it made in a way that's very persuasive at a gut level. Conservatives have done a very good job of convincing the public that rules which favor the rich really are the most natural ones. Liberals, conversely, haven't done a very good job of convincing the public that a different, less business and wealth-centric set of rules, would be equally natural, and would benefit more people. Why is that?"

On Twitter, I suggested that this might have something to do with the fact that property rights come very early to most of us. We're given a toy and told "it's yours". Once that's done, no sibling is going to be able to come and take it from us easily. And, as Rousseau noted, property rights are the foundation of modern civilization.

I would like to add some other possible reasons I've thought up in the intervening two days.

First, I suspect the "Just-world hypothesis" (Just-world fallacy) has actually more explanatory power than my immediate 'we're used to private property being private' reaction. That is to say that, as people believe that "people eventually get what they deserve", they tend to believe that rich people more or less deserve their wealth and that poor people, especially in ostensibly rich countries, deserve to be poor.

I thought my conservative friend James's reaction to the "we're the 53%" tumblr was particularly revealing. Because they display (at least on tumblr) a lot of resilience and will-power, he expects 'most of them' to get through. Because I believe in statistics, I expect 'most of them' either won't or at best will muddle through, thanks to government support.

Second, I think there is an element of, well, conservatism i.e. lots of rich people tend to dress correctly, wear a tie, shower regularly and basically look like upstanding members of the community. The poor, on the other hand, especially the really poor easily stink or look disheveled and dangerous. And, even when they're not homeless, they sometimes dressed in bizarre ways, especially if they're young (ever been to a G8 protest?).

So rich = respectable looking and poor = weirdos/disgusting. Is it any surprise that most people in the middle don't feel a natural and immediate kinship with the poor?

Finally, as I mentioned in my discussion with James, I think there is a matter of proximity. Most of us know someone poor mooching off the system. Not that many of us have regular exposure to high flying corporate execs sponging off or the working of governmental subsidies and international transfer pricing. Besides, business class tickets, 5 stars hotel, all-expenses-paid conferences in exotic locations, fat bonuses and golden parachutes aren't really mooching, is it? These people work, after all. It's their fair reward. See above for 'Just-world fallacy'...

These are, I think, the main emotional quirks conservatives can use to get gut reactions from low-income people in the defense of a distribution scheme that reward the already-rich.

Could progressive find some equivalent? And if so, what could progressive use?

I won't pretend to have the definitive answer(s) but I think crafting a liberal gut reaction to wealth distribution ought to rely heavily on fairness. "An honest day's work for an honest day's pay" kinda stuff. But also on "level playing field" stuff.

For example, trying to defend a more aggressive inheritance tax scheme. "We all want our children to be well taken care of and to profit from our hard work. But how is it fair that some children start with owning half the wealth? What does that mean for your children? Why did we rebel against aristocracies and birthrights? So that our children, through their own hard work and through their own abilities, could be free to move up into the world. This can't happen if a few mega-rich monopolize all the wealth and hand it over to their children"

I wonder what conservatives would reply?