Archive | July, 2011

Ronald Reagan: Magic Man

19 Jul

Ronald Reagan“You know, there really is something magic about the marketplace when it’s free to operate. As the song says, ‘This could be the start of something big.'” (Radio Address, April 24, 1982)

Or, as the other song says:

Cold late night so long ago
When I was not so strong you know
A pretty man came to me
Never seen eyes so blue…

Doug Henwood: His Taste in Music is a Little Doctrinaire, but His Economics is Outta Sight

16 Jul

Doug HenwoodThose of you following this discussion between me, Matt Yglesias, and Mike Konczal, need to check out this post from Doug Henwood. It not only cuts through a lot of the fat, but it also takes us in a completely different, unexpected, and difficult direction, raising fascinating questions about the petit bourgeois origins and dimensions of the politics of inflation.  Doug is my rabbi in all things economic (though, sadly, we part ways on matters musical).  Check it out, comment there, here, everywhere.

To my astonishment, this debate, or a spin-off of this debate, seems to have been kicked upstairs.  Way upstairs.  As in Paul Krugman and Brad DeLong upstairs.

Update (July 18, 12:30 pm)

And now the boys—and, seriously, there are an awful lot of boys in this debate; never realized just how male-dominated these types of discussion are—over at Crooked Timber are getting in on this.  Fascinating discussion over there; check it out.

Update (3:30 pm)

And more debate over here at Lawyers, Guns, and Money.

Update (4:15 pm)

And here from Will Wilkinson, who seems to think he’s schooling us all with his considered notion that nothing lasts forever and things change, and here from Kevin Drum.  And Yglesias has yet another post.

The Way We Weren’t: My Response to Yglesias’ Response to My Response to His Response to My Response

16 Jul

Misty Water Colored Memories of New Deal Social Solidarity and Public InvestmentPrompted by this post from Mike Konczal, Matt Yglesias has weighed in again on our debate about what the government should do to create jobs. But it turns out that’s not what we’re debating.  What we’re really debating, says Yglesias, is monetary policy: specifically, whether the left should care about it.

Yglesias thinks we should, and I gather I’m supposed to think we shouldn’t. Instead of confronting the real impact monetary policy has on jobs, inequality, and so on, I, like my brothers and sisters on the left, have allowed my “romance with the idea of the Works Progress Administration,” the misty water-colored memory of New Deal “social solidarity” and “public investment,” to blur my thinking about what would actually improve the material prospects of middle- and working-class people. That’s a shame, says Yglesias (and Konczal says the same thing), because historically monetary policy was the subject of heated debate, a debate the left has now ceded to the right because of its romance with the way we were.

To be fair: Yglesias isn’t explicitly talking about me here, at least I don’t think he is, but he’s talking about people I gather he thinks are like me—and perhaps a sensibility he detects in my posts.

I have some thoughts about these larger ideological questions.  But before I share them, it’s important to remember how we got here. This exchange was prompted by a debate about what government should do to create jobs, specifically, Yglesias’ response to the question “What is the single best thing Washington can do to jumpstart job creation?”

Yglesias proposed that the Fed increase its inflation targets. I offered several concrete, practical reasons why I didn’t think that was the single best thing government could do, and proposed instead that the government should just create jobs. Given the obvious benefits of a jobs program, and the fact that Yglesias’ proposal seemed to have so little to recommend it as a jobs program (it might have other benefits, as Yglesias and Konczal have argued, but I still don’t see the jobs), I was moved to speculate on the ideological dimensions—”the Reaganite temper”—of Yglesias’ thinking on these matters.

This back story is important for two reasons. First, in his three responses to my original post, Yglesias hasn’t addressed the concrete objections I’ve raised to his proposal. The closest he has come (and Konczal makes a similar argument) is to say that any jobs programs could be easily counteracted by tight-fisted policies of the Fed. That’s true and would be worrisome if it occurred (though Bernanke seems to want some kind of stimulus from the government, so I’m not sure it would actually happen in this case). But it doesn’t really support the claim that increasing inflation now is the best—or even a—thing government could do to create jobs. Nor does it counter the objections I raised to that proposal.

Second, Yglesias seems to believe my objections to his proposal are primarily ideological. As he puts it:

I’d been asked to write something for The Atlantic, so I wrote something couched in technocratic language, and Robin was really objecting to me on thematic/ideological grounds.

But as I said, I was more struck by the disparity between the concrete flaws in his proposal and the obvious benefits of a jobs program—benefits, I should add, neither Yglesias nor Konczal have disputed; in fact, they both support jobs programs—and that’s what led me to raise the larger ideological/thematic questions about his proposal. My objections, in other words, were not primarily ideological or thematic, though they did lead me to raise ideological/thematic questions.

In a different situation, I could see the benefits of increasing inflation targets. Based on my discussions with Doug Henwood, who’s really done the heavy lifting here and should be brought more forcefully into this discussion, we don’t seem to be in that situation. Yglesias’ insistence on approaching the problem of jobs through the Fed’s inflation’s targets seems more of a symptom of his ideology, whatever it is, than my focus on a jobs program is of mine.

But since the question of ideology has been raised, let’s go there.  I really appreciate what Konczal and Yglesias have to say about monetary policy and why the the left should care about it. And I can see why my initial characterization of Yglesias’ position as Reaganite may have been too hasty.

For Yglesias and even more so for Konczal, monetary policy—and raising inflation targets—can be a form of dispossession, a way of countering the power of wealth and restoring power to the debtor, the single mom maxed out on her credit card, the mortgage-strapped homeowner; a way of forcing the rich to do something productive (like hire people) with their wealth; and a way of supporting strong fiscal policies that put people to work.

Some of that is fine, as far as it goes—Doug has some genuine concerns about this reliance on inflation as a mode of equalizing our fates and fortunes that seem quite real to me—and I don’t really know of anyone on the left (I’ve been asking around over the last few days) who would disagree that good monetary policy can be a critical supplement to good fiscal policy.  Nor do I know of anyone on the left who thinks that monetary policy is “technical,” to respond to Yglesias’ charge, which I found a little bizarre; I mean, say what you will about the left, it’s not exactly known for thinking anything in the economy is merely technical or apolitical.

But here’s where we do have an ideological disagreement. The reason why leftists like myself emphasize fiscal policy over monetary policy is that we ultimately approach the problem of inequality as not merely a question of money (who has it and who doesn’t) but as a problem of power, of relationships between individuals and classes.

We’d like to see people who work for other people make more money on the job, have more options for employment (including government work), more unions and collective bargaining, and more taxation and regulation of the wealthy — not just so that the poor or the working and middle classes can enjoy the good things in life (though that’s critical) but also so that they can have more power on the job, against the men and women who have the greatest day-to-day say in their lives.

I totally see what Konczal is saying about enhancing the power of debtors, and that’s critical for individual and family finances, but here’s what a credit card company or a bank holding your mortgage can’t do to you: it can’t tell you to be at work at 8 am; it can’t tell you have to stay after work when you have to get home to your kids; it can’t tell you when to pee in a cup (for a drug test) or when you can’t pee (because there’s no bathroom break allowed); it can’t tell you can’t sport a political bumper sticker on your car; it can’t tell you to stand up or sit down, to speak out or shut up; it can’t run your day-to-day, minute-to-minute life the way an employer can.

I realize this may seem far afield from the concerns of Yglesias, though I suspect much less so to Konczal.  But if you want a single reason why leftists prefer to enhance the material prospects of the vast majority through fiscal as opposed to monetary policy it is that we see money as a form—and subset—of power: not just the power to actualize your dreams or to achieve some kind of abstract parity with some faraway class of wealthy people, but the power to oppose and resist and challenge those who have the greatest power over your day-to-day lives.

So, here’s what a government jobs program would mean to us: less unemployment, absolutely; greater stimulus and multiplier effects, absolutely; but, beyond those specific economic indices, it would also mean greater chances of unionization; better options (often) for pay and benefits; greater options for exit from bad private-sector work and thus, in the long run, better options for voice and power at that work.

Government jobs are obviously not a panacea, especially not on their own, but when they’re part of a larger package of increased labor rights, tighter regulation, higher minimum wage, greater taxation, more generous unemployment and social welfare policies, they add up to a vision in which the masters of the universe have to contend with more—and different—men and women than they heretofore have had to contend with.

You can certainly disagree with or dislike that vision, but that is the vision.  Not a romantic dream of public investment or a false memory of social solidarity, but a hard-headed, gritty—dare I say realistic?—understanding of how power works on and off the job, and a desire, which may or may not be realistic, to change that.

When Yglesias says that the left lacks a political analysis of money and the money supply, he’s thinking of an analysis that would distinguish Republican from Democrat.  At the dawn of the republic, he points out, Hamiltonians and Jefersonians divided over monetary policy, and so on down to Populists and FDR.  Today, he says, it is only the Republicans who have a distinctively political analysis of money, i.e., an analysis of money that marks them as Republican or conservative.

Yglesias might be right about the Republicans, but I would urge him to develop a genuinely political analysis of money: not one that marks him as a Democrat or liberal or whatever he wants to call himself, but one that addresses politics in the deepest sense of power as it lived and experienced in the day to day lives of men and women.

Mike Konczal Responds to Me and Yglesias (and Yglesias responds yet again)

15 Jul

Mike Konczal, whose blog Rortybomb is must reading on the economic and financial questions we’ve been talking about here, has a thoughtful post on my exchange with Matt Yglesias.  Konczal argues that the left needs to think hard about monetary policy and not assume fiscal policy will take care of all of our concerns.  I’ll be responding, but very curious to hear your thoughts.

Update (11:10 pm)

Prompted by Konzal’s post, Matt Yglesias has yet another response to our exchange. Again, I’ll be writing something about this in the next few days, so all thoughts are welcome.

Matt Yglesias Responds to My Post

14 Jul

Matt Yglesias sent me two emails last night in response to my critique of his proposal that the government should decrease unemployment by increasing inflation targets.

In the first email, he writes:

You’re attributing views to me I don’t hold. I was asked by the Atlantic for one idea, and I didn’t want an idea that would need to go through congress. So I said the Fed should set a higher inflation target (as FDR did: which I think it should. But this is hardly the only thing we can or should be doing. The government should be borrowing money and spending it on public works ( and the federal government should be giving fiscal support to state and local governments so they can avoid destructive layoffs (

I’m writing like a dozen posts a day, so it’s rare that any of them give a full view of the whole range of things that I think are worth doing. You just picked out a couple that I wrote on a specific idea and then assume that’s all I’d be willing to consider.

In his second email, he writes:

If you like a last thought: I do think it’s difficult to think of any single fiscal measure that would have as large an impact. It’s a large and diverse country with a modern economy, we can’t just employ millions of people on chain gangs or what have you. There are a bunch of different medium-sized fiscal measures that would help, but I don’t see any single shot great idea on that front.

Fair enough: it’s true that Yglesias has advocated these other policies.

But the post I was responding to begins with the following sentence: “The best step to create jobs and boost the economy would be for the Federal Reserve’s Open Market Committee to announce a plan to target inflation at 3 or 4 percent.”  I took “the best step” to mean that Yglesias thought increasing inflation targets was not just a step but, well, the best step.

In his second post on the jobs question, Yglesias began thus:

I’m participating in a “Great Jobs Debate” at the Atlantic sponsored by McKinsey. The exercise is supposed to be to answer the question, “What is the single best thing Washington can do to jumpstart job creation?” I perhaps took the question a little too literally and offered the actual single best thing Washington can do to jumpstart job creation, namely adopt a higher inflation target.

Again, I took Yglesias’ words to mean what they say: in this instance, that adopting a higher inflation target was not just something Washington could do but the actual single best thing Washington could do.

Perhaps it was I who took Yglesias too literally.

I’m happy to now concede that increasing inflation targets is just one of many policies Yglesias thinks the government should adopt.  But that still doesn’t answer the concerns I raised yesterday about whether it’s a policy that should be adopted.

The Roosevelt precedent cited by Yglesias in his email is a little misleading: in that situation, the country was experiencing severe deflation, so an uptick in inflation did give the economy a jolt.  That’s not the situation we’re in today.

And, as I said yesterday, two of the reasons Yglesias offers in defense of his proposal—it enables the Fed to circumvent the problem of zero nominal interest rates; it will push capital to start investing, hiring, and procuring—seem to assume that the problem is a lack of cash in the system or in the hands of employers, when the real problem is a lack of cash in the hands of consumers.

Given all that, it struck me as strange that Yglesias would offer this proposal, especially in the context of something billed as the “Great Jobs Debate.”  It was very decent and generous of him to respond to me—the guy does write, with great intelligence, an extraordinary amount of well-informed and well-argued posts, on a dizzying array of topics, prompting an even greater amount of much less well-informed responses from people like me—but I have to say, having re-read his original posts and his responses to me, it still strikes me as strange.

Other People’s Money

13 Jul

Matt YglesiasIn response to the question “What is the single best thing Washington can do to jumpstart job creation?” Matt Yglesias writes, “The best step to create jobs and boost the economy would be for the Federal Reserve’s Open Market Committee to announce a plan to target inflation at 3 or 4 percent.” In a follow-up post, he’s even more emphatic: “The actual single best thing Washington can do to jumpstart job creation” is “adopt a higher inflation target.”

I’m no economist—the worst grade I got in college was in Econ 101; the professor was a newly hired economist by the name of Ben Bernanke—but I would have thought the single best thing the government could do to create jobs (and boost the economy) is, well, create jobs.  You know, hire people, pay them, that sort of thing.

As my friend Doug Henwood, the economics whiz kid journalist of the left, pointed out to me in a Facebook exchange (reproduced here and here), the multiplier effects of a jobs program are far higher than, say, tax cuts (not something, it should be said, that Yglesias advocates):  1.60 to 1.70 in GDP growth for every dollar spent on a jobs program versus under .40 in GDP growth for every dollar lost in extending the Bush tax cuts. That’s because poor and middle-income people spend the money they have (not a lot of room for savings when your wages are so low to begin with), as opposed to the corporations and wealthy who’ve been squirreling it away of late.

And as my friend Gordon Lafer, one of the leading experts on labor politics in the country, pointed out to me in that same exchange, the House Labor Committee estimated it would cost the government less than $150 billion to create 1 million jobs for 2 years. “By comparison,” he adds, “last December’s extension of the Bush tax cuts just for those making over $250,000 is projected to cost $700 billion over 10 years.”

The government hiring people, in other words, is a lot cheaper—and more economically beneficial—than tax cuts or employer tax credits or the stimulus bill.

But if the idea of the government creating jobs seems too retro or radical, how about if the government just stopped firing people? Based on his work with the Labor Committee, Gordon estimates that the government—federal, state, and local—has shed anywhere from 1.5 million to 2 million employees in the last five years (that includes government-funded non-profits doing vital service-sector work like drug rehabilitation, soup kitchens, and so on).  And as the recent jobs report demonstrates, letting government workers go is a major reason for the latest jump in unemployment, a point Yglesias himself has made here and here.

Instead of the government creating or not cutting jobs, Yglesias proposes it increase inflation.  He offers three reasons for his position:

Higher inflation expectations would have a number of benefits. For starters, they would reduce real interest rates, mitigating the problem of the zero lower bound on nominal rates. They would also increase the cost of hoarding cash. This would encourage wealthy individuals and cash-rich firms to purchase real goods and services, or else invest in productive assets. Last, since mortgage debt is denominated in nominal terms, a faster rate of inflation would speed the deleveraging process and let households repair their balance sheet.

The first reason seems to assume the problem is that there is insufficient money out there for employers to hire people or purchase goods and services. Make it cheaper to borrow money, and employers will do so. But isn’t that what the Fed has been doing for a while now? The result, as Doug points out, is corporations (and financial markets) awash in cash, without much movement on employment.

Also, the fact that Yglesias (like so many others) is trying to figure out how to overcome a nominal interest rate that is nearing zero should tell us something about the utility of lowering interest rates in today’s economy.  Seems like a classic, almost literal, case of “keep digging” when you’re in a hole.

As for the second reason, as I asked Doug and he confirmed, if hoarding cash becomes too expensive because of inflation, capital has plenty of other options, including taking its toys elsewhere, to keep its money safe.

What both of these reasons have in common is that instead of putting money into the hands of people who not only need it but would spend it, thereby stimulating demand and more jobs, they keep (or put more) money into the hands of people who already have it and don’t need to spend it in economically beneficial ways. Presumably because they are, in Yglesias’ eyes, the real movers and shakers of the economy, as opposed to the vast majority of middle- and working-class people or the government that represents them.

In a follow-up post, Yglesias says, “America would produce more real goods and services if people were spending more money, and people would spend more money if there was more money around to spend.” To my mind, that sounds like government should hire workers, wages should be increased, etc.  But as Yglesias proceeds to gloss his own comment, it becomes clear that the money being spread around is not going to go into the hands of working people (at least not directly).  Instead, channeling Ryan Avent, Yglesias suggests that the Fed should buy more Treasury bonds—something, Doug points out, the Fed has done twice since in recent years (since 2007, money in circulation has gone up by $1,350 billion), without much effect—and lower interest rates on the cash reserves of banks, thereby prodding them to lend more money.  Share and spread the wealth, in other words, among the wealthy.

If you wanted a purer distillation of the Reaganite temper of our times, you’d be hard pressed to find it in any other notion than this: get more money into the hands of people with money, for they are the truly productive agents in our society, rather than into the hands of the people who might actually spend more money if they had more money to spend.

Again, I’m no economist, so I don’t want to claim a knowledge or expertise I don’t have. I come to this discussion as a political theorist and historian of political ideas.  And what strikes me, in that capacity, is less the wrongness of these arguments than the historically bounded assumptions they reveal.

Yglesias might think, shrewd and sharp man of policy that he is (and, believe me, he’s sharp; one thing Matt Yglesias does not lack is intelligence), that he’s just following the facts.  But the overwhelming fact I see in his  argument is a refusal to consider or inability to imagine any policy lying beyond the perimeters of contemporary opinion.

It’s not our wages that are sticky; it’s our ideas.

A Fistful of Crazy, Starring Jonathan Rauch, in Which Our Hero Argues that Primo Levi was an American Enemy

13 Jul

A Fistful of DollarsThis post from Jonathan Rauch—no, not the one where he complains about the blogosphere spirit of “Roman gladiatorial entertainment”—is just a fistful of crazy. According to Rauch:

If you wanted a simple criterion to demarcate America’s enemies, you could do worse than ask a single question: Is this country, movement, or ideology antisemitic? Since at least the 1930s, the Axis of Evil and the Axis of Antisemitimism [sic] have been basically congruent (imperial Japan and Asian Communism being the major exceptions).

“Simple” is the operative word here.

Let’s start with those exceptions.  Imperial Japan occupied a not insignificant portion of America’s attention during World War II.  “Asian Communism” produced the only wars America fought, officially and semi-officially, between 1945 and 1991.

Moving beyond the exceptions, Italian fascism, the second prong of that original Axis, was not an anti-Semitic movement (Primo Levi, let’s not forget, was initially a Fascist, like many Italian Jews.Primo Levi: America's Enemy?Throughout the Cold War, but particularly after Vietnam, the United States engaged in proxy wars with all manner of non-Asian Communisms and socialisms, especially in Africa and Latin America. None of these were anti-Semitic movements. And of course the United States opposed Bolshevism from the very start, even though in the early years the Reds were far friendlier to Jews than were the Whites, and Eastern European Communism had a much more complicated relationship with anti-Semitism than Rauch seems to realize.

So, on the one side, you have Nazi Germany, some fitful decades in East European history, Iraq (twice), and radical Islamist terrorism (setting aside the question of the relationship between anti-Semitism and anti-Zionism).  On the other side, you have Italy, Japan, Korea, Vietnam, El Salvador, Nicaragua, Guatemala, Chile, Cuba, Argentina, Angola, Namibia, Laos, and more.  And, remember, in some of these cases the US was supporting regimes that were extraordinarily anti-Semitic.  (“Argentina has three main enemies,” declared a spokesperson for the junta.  “Karl Marx, because he tried to destroy the Christian concept of society; Sigmund Freud, because he tried to destroy the Christian concept of the family; and Albert Einstein, because he tried to destroy the Christian concept of time and space.”)

If this post is an example of what Rauch calls his “mild, moderate, think-it-through-and-get-it-right style,” I’ll take the wild, extreme, knee-jerk-and-get-it-wrong style of the blogosphere anyday.

Update (2:45 pm)

On a second read through Rauch’s post, I see it’s even crazier than I initially thought. Rauch argues that that if there is any academic pursuit that has justification for being more (or less) than scholarly—i.e., work that does not meet “the highest standards of academic scholarship” or “exemplify academic rigor,” work that “venture[s] beyond pure scholarship”—it is the study of anti-Semitism. One reason he offers is the claim I discuss above, which is just nonsense. The second reason is even kookier: anti-Semitism is the locus classicus of anti-liberalism. Now, Rauch isn’t wrong that anti-Semitism is anti-liberal (though calling any pre-modern form of anti-Semitism anti-liberal is a bit anachronistic; it’s like complaining that Plato didn’t care about global warming).  But racism and sexism and homophobia are also anti-liberal, and, in the case of racism, of far greater geographic (and thus historical) significance than anti-Semitism. Should students of these social ills—the very disciplines Rauch mocks at the beginning of his post for being intellectually sub-par—be encouraged to dispense with high standards, academic rigor, pure scholarship, and so on? Also, as Yale political scientist Andrew March pointed out to me in a Facebook exchange, Rauch’s notion that anti-Semitism is “the prototype of the intellectual virus, the bad idea that crops up again and again in one ideological context after another, detached from any reality or philosophy” would seem to argue for more rigorous academic study, not less.


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