Archive for November, 2010

You Fix the Budget

The New York Times has an interactive federal budget that puts you in charge of the nation’s finances [ht:cr],

Today, you’re in charge of the nation’s finances. Some of your options have more short-term savings and some have more long-term savings. When you have closed the budget gaps for both 2015 and 2030, you are done. Make your own plan, then share it online.

Easier said than done!

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Austerity and Higher Ed

David Ruccio has been posting a lot about the de-funding of public higher education. This is clearly a major issue. I think Mike Konczal gets the pithy award in his post titled, “The 21st-century retreat from public higher education.” In his conclusion, he writes:

That right now is the moment our country is turning toward the idea of massive indebtedness as a prerequisite toward participating in the 21st-century economy is incredibly cynical, given how much worthless debt is hanging like an albatross around the neck of this fragile recovery.

Of course, he could have gotten wordplay bonus points by pointing out how cyclical it is, as in pro-cyclical. Counter-cyclical policies, which have been all but abandoned in the developed world, would drastically increase subsidization of what is obviously a public good.

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Yesterday, World Bank president Robert Zoellick had an article in the Financial Times that called for a debate regarding a return to the gold standard to guide currency stability. The problem is that today, most economists don’t bother to study economic history or the history of economic ideas. I’m afraid Zoellick may have an idealized vision of the past here… my immediate concerns are:

(1) Why would we want to limit the global money supply to the amount of gold available? Global trade will almost certainly outpace the supply of gold, which is left to the chance of finding more in the ground.

(2) Each tool can only have one target. Using the tool of money supply to control global imbalances means countries must surrender it as a tool to be used for domestic targets. This is a major part of the reason that Brettons Woods feel apart by 1971, and we need to be sure it will not happen again.

Regardless of one’s position on the gold standard, however, what is clear is that we need to learn economic history to make this a worthwhile debate. That is why projects such as the Institute for New Economic Thinking’s $1.25 million grant to UC Berkeley to develop a Berkeley Economic History Laboratory is so important [ht:sf].

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Inside Job

I’m going to try to see this film this weekend. Review coming soon… but it looks excellent! Currently opening at select theaters.

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Inequality Chartified

David Ruccio posted an excellent series of charts on inequality (pdf, ppt, and mov links at the top). For example,

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Check out Round Two of the viral Keynes vs Hayek  rap, “Fear the Boom and Bust,” followed by a panel discussion with the creators of the video [ht:ok]. I must say, I do appreciate this non-traditional method of encouraging pluralistic economic discourse!

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Yves Smith has a thoughtful post about voting as a right vs. voting as a duty. The campaign season leading up to last night’s midterms reinforced what has long been known: the United States needs to reform its electoral system. A more engaged and thoughtful public would not tolerate the circus that is the current public debate. Yves provides some good suggestions from experience in Australia, such as fining people who do not vote and allotting a fix amount of ad airtime instead of letting money buy it.

Secondly, I am still trying to figure out an answer to the question: What has Obama done so far? [ht:cr] It is hard to understand how so many people who voted for him seem to have forgotten where Republican policies had gotten us.

Lastly, I saw senator-elect Rand Paul’s victory address, and was struck by some of his comments:

When I arrive in Washington, I will ask them respectfully to deliberate upon this: We are in the midst of a debt crisis, and the American people want to know why we have to balance our budget and they don’t.

I will ask them respectfully to deliberate upon this: Government does not create jobs; individual entrepreneurs, business men and women create jobs, but not the government.

I will ask the Senate respectfully to deliberate upon this: Do we wish to live free, or be enslaved by debt? Do we believe in the individual, or do we believe in the state?

I believe that money matters to the real economy. Not all economists do – some take a serious general equilibrium approach, in which case money does not matter. But the economy doesn’t work like that. If there is debt, debt-deflation can change economic prospects: if you owe a fixed nominal rate of money, and prices decrease, in real terms you will owe more money, leading to a wealth effect that changes your willingness to spend money. Here is a case where money matters for the real economy.

But Mr. Paul just goes around saying that government debt matters, and that the federal government needs to balance the budget. But WHY? What does it matter for the real economy? Until these connections are carefully made, between finance and the real economy, the Tea Party has no coherent message. It would not be bad to balance the budget someday. But right now, in the midst of the greatest recession since 1929, these ideas are ludicrous.

Lastly, GOP leaders are looking to repeal the recently passed healthcare law. I just hope we can first end all the misinformation:

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