Links and Thoughts for March 15, 2017

Do you guys know The Death Ship? B. Traven’s first novel, the only one not set in Mexico? It begins with an American sailor who goes ashore in the Netherlands, gets distracted as you do, his ship leaves. The Dutch don’t want him, they send him across the border to Germany. The Germans don’t want him, send him to Belgium, the Belgians send him to France. The French send him back to the Netherlands, where he ends up on the eponymous ship. It’s a good book. I was just thinking of it the other day, for some reason.


Against the sonderweg. Here is a fascinating article on the pre-history of Swedish social democracy. Contrary to claims of Swedish “sonderweg”, or special path, toward egalitarianism, Erik Bengtsson convincingly shows that until the 1930s, Sweden was not especially egalitarian relative to other West European countries or the US. Both economically and politically, it was at the unequal end of the European continuum, and considerably less equal than the US. “In 1900, it was one of the countries in Western Europe with the most restricted suffrage, and wealth was more unequally distributed than in the United States. …The more likely explanation of Swedish twentieth-century equality, rather than any deep roots, is the extraordinary degree of popular organization in the labour movement and other popular movements” in the 210th century. Income and wealth distribution were similar to France or Britain, while the franchise was more restricted than in any other major West European country. Up through World War One, Swedish politic was dominated by the same kind of “iron and rye” alliance of feudal landowners with big industrialists as Bismarkian Germany. “The exceptional equality of Swedish economy and society c. 1920-1990 did not arrive as the logical conclusion of a long historical continuity”; rather, it was the result of an exceptionally effective mass mobilization against what was previously an unusually inegalitarian state.

More speculatively, Bengtsson suggests that it was precisely the exceptionally strong and persistent domination by a small elite that created the conditions for Swedish social democracy: “the late democratization of Sweden” may have “fostered a liberal-socialist democratizing alliance … [between] petit bourgeois liberals and working-class socialists … unlike Germany, where the greater inclusion of lower-middle class men meant that middle class liberals and haute bourgeois market liberals could unite around a program of economic liberalism.”  It’s a neat inversion of Werner Sombart’s famous argument that “the free gift of the ballot” prior to the appearance of an organized working class was the reason no powerful socialist party ever developed in the United States. Bengttson’s convincing claim that Swedish egalitarianism was not the result of a deep-rooted history but of a deliberate political project to transform a previously inegalitarian society, has obvious relevance for today.


High productivity in France. While we are debunking myths about social democracy, here is Thomas Piketty on French productivity. “If we calculate the average labour productivity by dividing the GDP … by the total number of hours worked … we then find that France is at practically the same level as the United States and Germany, … more than 25% higher than the United Kingdom or Italy.” And here’s a 2014 post from Merijn Knibbe making the same point.


Against Hamilton. In The Baffler, Matt Stoller argues that Hamilton is overrated. Richard Kreitner makes a similar case in The Nation, with an interestingly off-center focus on Paterson, New Jersey. Christian Parenti (my soon-to-be colleague at John Jay College) made the case for Hamilton not long ago in the Jacobin; he’s writing an introduction to a new edition of Hamilton’s Report on Manufactures. This is not a new debate. Twenty years ago, as the books editor of In These Times, I published a piece by Dan Lazare making a similar pro-Hamilton case; it was one of the things that Jimmy Weinstein fired me for.

My sense of these arguments is that one side says that Hamilton was a predecessor of today’s Koch brothers-neocon right, an anti-democratic militarist who believed the country should be governed by and for the top 1 percent; his opponent Jefferson must therefore have been a democrat and anti-imperialist. The other side says that Jefferson was a predecessor of today’s Tea Party right, an all-in racist and defender of slavery who opposed cities, industry and progress; his opponent Hamilton must therefore have been an abolitionist, an open-minded cosmopolitan and a liberal. I am far from an expert on early American politics. But in both cases, I think, the first half of the argument is right, but the second half is much more doubtful. There are political heroes in circa-1800 America, but to find them we are going to have look beyond the universe of people represented on dollar bills.


Against malinvestment. Brad Delong has, I think, the decisive criticism of malinvestment theories of the Great Recession and subsequent slow recovery. In terms of the volume of investment based on what turned out to be false expectations, and the subsequent loss of asset value, the dot-com bubble of the late 1990s was much bigger than the housing bubble. So why were the macroeconomic consequences so much milder?


Selective memory in Germany. Another valuable piece of political pre-history, this one of German anti-Keynesianism by Jörg Bibow. Among a number of valuable points, he describes how German economic debate has been shaped by a strangely selective history of the 20th century, from which depression and mass unemployment – the actual context for the rise of Nazism — have been erased. Failures of economic policy can only be imagined as runaway inflation.


The once and future bull market in bonds. Here is an interesting conversation between Srinivas Thiruvadanthai of the Levy Center and Tracy Alloway and Joe Weisenthal of Bloomberg, on the future of the bond market. Thiruvadanthai’s forecast: interest rates can fall quite a bit more in the coming decades. He makes several interesting and, to me, convincing points. First, that in an environment of large balance sheets, we can’t analyze the effects of things like interest rate changes just in terms of the real sector. The main effect of higher rates today wouldn’t be to discourage borrowing, but to raise the burden of existing debt. He also makes the converse argument, which I’m less sure about — that after another round or two of fiscal expansion and unconventional monetary policy, public sector debt could make up a large share of private balance sheets, with proportionately less private debt. Under those conditions, an increase in interest rates would be much less contractionary, or even expansionary, creating the possibility for much larger rate hikes if central banks continue to use conventional policy to stabilize demand.

More generally, he points out that, historically, the peacetime inflation of the 1970s is a unique event over the hundreds of years in which bond markets have existed, so it’s a little problematic to build a whole body of macroeconomic theory around that one episode, as we’ve done. And, he says, capitalism doesn’t normally face binding supply constraints — the vast majority of firms, the vast majority of the time, would be happy to sell more at their current prices. And he expresses some — much-needed, IMO — skepticism about whether central banks can in general hit an inflation target, reliably or at all.


Positive money? Here is a vigorous critique of 100 percent reserve backed, or positive, money. (An idea which is a staple of monetary reformers going back at least to David Hume, and perhaps most famous as the Chicago Plan.)  I don’t have a settled view on this idea. I do think it’s interesting that the reforms the positive money people are calling for, are intended to produce essentially the tight link between public liabilities and private assets which MMT people claim already exists. And which Thiruvadanthai thinks we might inadvertently move toward in the future.


Captial flows: still unstable. Here’s a useful piece in VoxEU on the volatility of capital flows. Barry Eichengrreen and his coauthors confirm the conventional wisdom among heterodox critics of the Washington Consensus: free movement of finance is the enemy of macroeconomic stability. FDI flows — which are linked to the coordination of real productive activity across borders — are reasonably stable; but portfolio flows remain as prone to sudden stops and reversals as they’ve always been.


Killing conscience. Over at Evonomics, Lynn Stout makes the important point that any kind of productive activity depends on trust, norms, and the disinterested desire to do one’s job well – what Michelet called “the professional conscience.” These are undermined by the creation of formal incentives, especially monetary incentives. Incentives obstruct, discourage, even punish, the spontaneous “prosocial” behavior that actually makes organizations work, while encouraging the incentivized people to game the system in perverse ways. under socialism, to speak of someone’s interests will be considered an insult; to give someone incentives will be considered an act of violence.

It’s a good piece; the one thing I would add is that one reason incentives are used so widely despite their drawbacks is that they are are about control, as well as (or rather than) efficiency. Workers’ consciences are very powerful tools at eliciting effort; but the boss who depends on them is implicitly acknowledging a moral claim by those workers, and faces the prospect that conscience may at some point require something other than following orders.


The deficit is not the problem. Jared Bernstein makes the same argument about trade that I made in my Roosevelt Institute piece a few months ago. The macroeconomic-policy question posed by US trade deficits should not be, how do we move our trade towards balance? It should be: how do we ensure that the financial inflows that are the counterpart of the deficit, are invested productively?


We simply do not know. Nick Rowe has always been one of my favorite economics bloggers – a model for making rigorous arguments in a clear, accessible way. I don’t read him as consistently as I used to, or comment there any more — vita breve and all that — but he still is writing good stuff. Here he makes the common-sensical point  that someone considering investment in long-lived capital goods does not face symmetric risks. “A recession means that capital services are wasted at the margin, because the extra output cannot be sold. But booms are not good, because a bigger queue of customers does nothing for profitability if you cannot produce more to meet the extra demand.” So uncertainty about future economic outcomes — or, what is not quite the same thing, greater expected variance — will depress the level of desired investment. I don’t know if Nick was thinking of Keynes — consciously or unconsciously when he wrote the post, but it’s very much in a Keynesian spirit. I’m thinking especially of the 1937 article “The General Theory of Employment,” where Keynes observes that to carry out investment according to the normal dictates of economic rationality, we must “assume that the present is a much more serviceable guide to the future than a candid examination of past experience would show it to have been hitherto.”


The health policy tightrope. The Republican plan health care plan, the CBO says, would increase the number of uninsured Americans by 24 million. I don’t know any reason to question this number. By some estimates, this will result in 40,000 additional deaths a year. By the same estimate, the Democratic status quo leaves 28 million people uninsured, implying a similar body count. Paul Ryan’s idea that health care should be a commodity to be bought in the market is cruel and absurd but the Democrats’ idea that heath insurance should be a commodity bought in the market is not obviously less so. Personally, I’m struggling to find the right balance between these two sets of facts. I suppose the first should get more weight right now, but I can’t let go of the second. Adam Gaffney does an admirable job managing this tightrope act in his assessment of the Obama health care legacy  in Jacobin. (But I think he’s absolutely right, strategically, to focus on the Republicans for the Guardian’s different readership .)


On other blogs, other wonders.

I’m looking forward to reading Ann Pettifor’s new book on money. In the meantime, here’s an interview with her in Vogue.

Towards the Garfield left.

The end of austerity is perfectly feasible in Spain.

“Underfunded” doesn’t mean what it sounds like. Based on the excellent Sgouros piece I linked to earlier.

Uber is doomed.

The decline of blue-collar jobs. I admit I was surprised to see what a large share of employment manufacturing accounted for a generation ago.

Perry Anderson: Why the system will win. Very worth reading, like everything Anderson writes. But  too sympathetic to anti-immigrant politics.

The ECB should give money directly to European citizens.

Manchester by the Sea is a good movie. But Margaret is a great movie.

9 thoughts on “Links and Thoughts for March 15, 2017”

  1. That Bengtsson paper looks great. I just read Mark Blyth’s “Great Transformations” (another terrific book I heard about from you) and his chapters about Sweden were really interesting.

    1. Yes, it’s very good. Glad to hear you found the Blyth book valuable – sharing stuff like this is one of the main reasons I still keep up the blog.

  2. Very interesting, thought-provoking links as always.

    A brief note on where I’m coming from: I am inclined towards the left-wing radical tradition with Marx and Keynes, and even though I’m an amateur it seems to me that the left neglects monetary policy and macro policy in general. I’m not an MMTer but find some of their ideas interesting.

    I think if a popular, democratic movement got its hands on the levers of monetary and fiscal policy, things could be pretty good again, like the post-war “golden years.” The unforced errors of the center-left and rightwing are pretty apparent to me and just a misguided effort (on the part of Democrats) to appear “business-friendly. ”

    In this spirit, two of your links seem to contradict each other regarding macro/monetary policy. DeLong seems to say much better macro/monetary policy (say with mortgage cramdowns etc) could have made the recovery much, much better. The ridiculously bad recovery (which everyone absolves Obama and the Fed for by grading on a curve) could have been much better had policy been better.

    This seems to contradict the idea of Thiruvadanthai and that his skepticism is warranted “about whether central banks can in general hit an inflation target, reliably or at all.”

    Seems to me that the Fed hit their target for the recovery, above deflation and below two percent.

    This is not to say the fiscal policies or other policies wouldn’t work much better, but monetary policy is effective as DeLong discusses by quoting to Keynes. If you want more inflation just ease credit.

    1. two of your links seem to contradict each other regarding macro/monetary policy. DeLong seems to say much better macro/monetary policy (say with mortgage cramdowns etc) could have made the recovery much, much better. The ridiculously bad recovery (which everyone absolves Obama and the Fed for by grading on a curve) could have been much better had policy been better.

      This seems to contradict the idea of Thiruvadanthai and that his skepticism is warranted “about whether central banks can in general hit an inflation target, reliably or at all.”

      Good questions! I think there are several distinct issues here. One is whether inflation (or similar macro outcomes) can be reliably controlled by a single policy instrument (the federal funds rte or equivalent) set according to a fixed rule. The second issue is whether it can be reliably controlled by central banks using the full range of instruments available to them. The third is whether it can be reliably controlled by macroeconomic policy, using whatever range of instruments are currently considered to fall under that.

      Textbooks give a strong affirmative response to the first question: The central bank sets “the” interest rate, output responds to the interest rate through an IS curve, and inflation responds to output (perhaps via unemployment) through Phillips curve. These relationships are stable and linear except when they are shifted y discrete, identifiable (and implicitly rare) “shocks”.

      I think it’s this textbook story that Thiruvadanthai is rejecting. First, credit conditions may not reliably shift in response to changes in the policy rate. And second, inflation and output may not be tightly linked. The latter possibility, which seems to be getting more attention right now than the former one, means that there may not be a well-defined target level of output for policy. But you can accept both these criticisms of the textbook story and still think that policy could have delivered much better outcomes.

      Seems to me that the Fed hit their target for the recovery, above deflation and below two percent. This is not to say the fiscal policies or other policies wouldn’t work much better, but monetary policy is effective as DeLong discusses by quoting to Keynes. If you want more inflation just ease credit.

      Well, I don’t know. It is true there wasn’t deflation, it is true that unemployment gradually fell back to “full employment” levels, and it is true that this recovery happened without what the Fed would regard as excessive inflation. But the fact that the outcomes the Fed wanted did (eventually) happen, doesn’t tell us how much they were responsible. I definitely don’t think central banks are powerless — they do almost always have the capability to choke off credit enough to produce a deep fall in real activity, if that’s what they want. But it’s not clear to me how different the course of the recover would have been under counterfactual scenarios where, say, the policy rate fell to -4 percent, on the one hand, or where there was no QE, on the other.

  3. Your Jefferson vs Hamilton assessment is spot on. In historical retrospect, I still think Washington stands up pretty well (notably for freeing his slaves, if only in his will) and, also on the slavery issue, so does JQ Adams. But that’s about it among the officially famous until you get to Lincoln.
    My thoughts on the Great Triumvirate, which now seem to have gone mainstream in the case of Calhoun at least

  4. Related to your post on Krugman and crowding out. We had a recent back and forth on DeLong where I might have been unfair to DeLong and you shared the interesting link from 2008 about the Republic of Central Banker.

    While looking for something else, I found the blog post by DeLong from Dec. 2012 where he defends Clinton’s pivot to deficit reduction and bending the knee to the Greenspan.

    Second, there had been an attack–or, rather, not an attack but rather bond-market vigilantes visible on the horizon and gunshots in the air–earlier.

    Throughout 1992 there was a 4%-point gap between the 3-Month Treasury rate and the 10-Year Treasury rate. Those of us in the Clinton-administration-to-be read this as market expectations that the uncontrolled federal budget deficit would lead people to expect higher inflation and the Federal Reserve would then feel itself forced to raise short-term interest rates far and fast in order to hit the economy on the head with a brick and keep those expectations of higher inflation from coming true. The result would be a low-investment and perhaps a jobless recovery. [The Fed would be wrong as Matt says?] The right policy, we thought–and I think the evidence is pretty clear that we were 100% right–was to aggressively move to reduce the budget deficit in 1993 even thought the recovery was weak in order to eliminate any market expectations that high deficits would lead to higher inflation, and–more importantly–to eliminate any belief on the part of the Federal Reserve that it need to raise rates rapidly and far to create a low-investment jobless recovery in order to guard against any possibility of a renewed inflationary spiral.

    That was not an attack but a horizon-sighting of bond-market vigilantes–or perhaps only the market thinking the Federal Reserve thought it was about to get a horizon-sighting of bond market vigilantes.

    I think we were right then to fear and take steps to ward off the bond-market vigilantes–or perhaps only right to fear and take steps to ward off any Federal Reserve decision that it needed to fear and take steps to deal with bond-market vigilantes. In any event, our policies were right.

    1. I’d suggest better policies would have warded off or mitigated the bubble and the deindustralization caused by corporate globalization.

      More government spending, a lower trade deficit, and higher interest rates. Higher taxation and regulation of the finance sector.

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