Links for April 12

Maybe I should aspire to do a links post like this once a week. Today is Tuesday; is Tuesday a good day? Or would it be better to break a post like this into half a dozen short ones, and put them up one at a time?

Anyway, some links and thoughts:


Public debt in the 21st century. Here is a very nice piece by DeLong, arguing that over the next 50 years, rich countries should see a higher level of public expenditure, and a higher level of public debt, and that even much higher debt ratios don’t have any important economic costs. There’s no shortage of people making this general case, but this is one of the better versions I’ve seen.

The point that the “sustainability” of a given deficit depends on the relation between interest rates and growth rates has of course been made plenty of times, by people like Jamie Galbraith and Scott Fullwiler. But there’s another important point in the DeLong piece, which is that technological developments — the prevalence of increasing returns, the importance of information and other non-rival goods, and in general the development of what Marx called the “cooperative form of the labour process” — makes the commodity form  less and less suitable for organizing productive activity. DeLong sees this as an argument for a secular shift toward government as opposed to markets as our central “societal coordinating mechanism” (and he says “Smithian market” rather than commodity form). But fundamentally this is the same argument that Marx makes for the ultimate supercession of capitalism in the penultimate chapter of Capital.


Short-termism at the BIS. Via Enno Schroeder, here’s a speech by Hyun Song Shin of the BIS, on the importance of bank capital. The most interesting thing for my purposes is how he describes the short-termism problem for banks:

Let me now come back to the question as to why banks have been so reluctant to plough back their profits into their own funds. … we may ask whether there are possible tensions between the private interests of some bank stakeholders versus the wider public interest of maintaining a soundly functioning banking system… shareholders may feel they can unlock some value from their shareholding by paying themselves a cash dividend, even at the expense of eroding the bank’s lending base.

As many of the shareholders are asset managers who place great weight on short-term relative performance in competition against their peers, the temptation to raid the bank’s seed corn may become too strong to resist. … These private motives are reasonable and readily understandable, but if the outcome is to erode capital that serves as the bank’s foundation for lending for the real economy, then a gap may open up between the private interests of some bank stakeholders and the broader public interest.

Obviously, this is very similar to the argument I’ve been making for the corporate sector in general. I especially like the focus on asset managers — this is an aspect of the short-termism story that hasn’t gotten enough attention so far. People talk about principal-agent problems here in terms of management as agents and shareholders as principals; but only a trivial fraction of shares are directly controlled by the ultimate owners, so there are plenty of principal-agent problems in the financial sector itself. When asset managers’ performance is evaluated every year or two — not to mention the performance of the individual employees — the effective investment horizon is going to be short, and the discount rate correspondingly high, regardless of the preferences of the ultimate owners.

I also like his diplomatic rejection of a loanable-funds framework as a useful way of thinking about bank lending, and his suggestion that the monetary-policy and supervisory functions of a central bank are not really distinct in practice. (I touched on this idea here.) The obligatory editorializing against negative rates not so much, but I guess it comes with the territory.


Market failure and government failure in the euro crisis. This piece by Peter Bofinger gets at some of the contradictions in mainstream debates around the euro crisis, and in particular in the idea that financial markets can or should “discipline” national governments. My favorite bit is this quote from the German Council of Economic Experts:

Since flows of capital as well as goods and services are market outcomes, we would not implicate the ‘intra-Eurozone capital flows that emerged in the decade before the crisis’ as the ‘real culprits’ …Hence, it is the government failures and the failures in regulation … that should take centre-stage in the Crisis narrative.

Well ok then!


Visualizing the yield curve. This is a very nice visualization of the yield curve for Treasury bonds since 1999. Two key Keynesian points come through clearly: First, that the short-term rate set by policy has quite limited purchase on the longer term market rates. This is especially striking in the 2000s as the 20- and 30-year rates barely budget from 5% even as the short end swings wildly. But second, that if policy rates are held low enough long enough, they can eventually pull down market rates. The key Keynes texts are here and here; I have some thoughts here, developed further here.


Trade myths. Jim Tankersley has a useful rundown in the Washington Post on myths about trade and tariffs. I’m basically on board with it: You don’t have to buy into the idolatry of “free trade” to think that the economic benefits of tariffs for the US today would be minimal, especially compared with the costs they would impose elsewhere. But I wish he had not bought into another myth, that China is “manipulating” its exchange rate. Pegged exchange rates are in general accepted by orthodoxy; for much of modern history they were the norm. And even where exchange rates are not officially pegged or targeted, they are still influenced by all kinds of macroeconomic policy choices. It’s not controversial, for instance, to say that low interest rates in the US tend to reduce the value of the dollar, and thereby boost US net exports. Why isn’t that a form of currency manipulation? (To be fair, people occasionally suggest that it is.) I heard Joe Stiglitz put it well, at an event a year or two ago: There is no such thing as a free-market exchange rate, it’s just a question of whether our central bank sets it, or theirs does. And in any case, the Bank of China’s purchase of dollars has to be considered alongside China’s capital controls, which — given the demand of wealthy Chinese for dollar assets — tend to raise the value of the renminbi. On net, the effect of Chinese government interventions has probably been to keep the renminbi “artificially” high, not low. (As I’ve been saying for years.)


The politics of the minimum wage. Here is a nice piece by Stephanie Luce on the significance of New York’s decision to raise the minimum wage to $15. Also in Jacobin, here’s Ted Fertik on why our horrible governor signed onto this and the arguably even more radical paid family leave bill.

It would be a great project for some journalist — I don’t think it’s been done — to explore how, concretely, this was won — the way the target was decided, what the strategy was, who was mobilized, and how. In mainstream press accounts these kinds of reforms seem to spring fully formed from the desks of executives and legislators, midwifed by some suitably credentialed experts. But when you dig beneath the surface there’s almost always been years of grassroots organizing before something like this bears fruit. The groups that do that work tend to avoid the press, I think for good reasons; but at some point it’s important to share with a wider public how the sausage got made. My impression in this case is that the key organizing work was done by Make the Road, but I’d love to see the story told properly. I haven’t yet read my friend Mark Engler’s new book, This Is an Uprising, but I think it has some good analysis of other similar campaigns.

14 thoughts on “Links for April 12”

  1. This post over at LGM points to a Boston Globe piece crediting the SIEU for doing a lot of the ground work for the Fight for $15 movement.

  2. My Eurospeak is a little rusty, so I’m not sure I’m understanding this right. Are the German Council of Economic Experts in fact arguing like this?
    1. Capital flows are market outcomes
    2. Therefore they are not the real culprit for the crisis
    3. Therefore it was the government’s fault

    1. Yes, that seems to be it. Now, there’s a defensible version of this, which is that markets are ultimately shaped by the regulatory framework, so if you don’t like market outcomes you should be asking what regulations need to be changed. The problem with that, as Bofinger points out, is that the same people also insist on the importance of governments being “disciplined” by markets.

  3. Are people forgetting that we’re members of WTO and ‘in negotiations’ for two trade deals- one of course is the long existing 1995 GATS which although signed 20 years ago could be said to still be in the negotiation stage, with big parts of it (those involving the trading of jobs for trade concessions- i.e. “Mode Four”)

    Please note this is just speculation and a sort of worst case scenario- here is the problem- privately, its my understanding that US officials want skilled wages here to fall, not rise. Also, we’ve now spent something like 25 years more or less on a huge global framework to “liberalise” services, and not used half of it practically at all. Something seems wrong there. Countries dont devote that much energy to things they never intend to use. plus the lure of highly skilled workers for a quarter of what American workers are paid is high-

    Recently the WTO received a complaint by India about the use of quotas and visa fees to limit the flow of indian workers under GATS Mode Four. its my understanding that the indian firs say they can live with the fees and tyhe real target is the quotas. its being framed as a retaliation against the US for the solar panel case and decision from a month ago. (see )

    Something does not add up.

    The other pending trade deal involving services is of course, TiSA, the talks for which are proceeding in Geneva. Also, TTIP may contain an opening up of (some, all?) US government procurement to bidding by EU countries. lowest qualified bidder gets it. Things like visas would have to be made available- All of the ideology of trade deals and all the text I have read makes me suspect very strongly that these quotas are not part of the picture and perhaps a smokescreen. We could be moving in the exact opposite direction than we think we are, I think the evidence is stronger for that theory.

    Both GATS, and TiSA are and have been supposed to radically “liberalise” services trade and procurement. Allowing companies to get work on the basis of their objective and verifyable criteria and not based on what country they are in. What I am saying is that this bigger picture needs to be understood by economists- who currently appear to be completely unaware of these huge things- huge world changing things- going on right outside the US.

    The potentially earthshaking and complex unintended ramifications of these incredibly far reaching and amoral documents for working people everywhere needs to be recognized, and made part of the somewhat insular and uninformed national “discussion” or else we could literally be walking into a trap NOW – because IF minimum wage is applicable to guest workers (skilled workers, allegedly, and many likely are, still the main draw is low wages see ) its conceivable that some trade body may see that increase as a deliberately erected trade barrier (its a reasonable assumption given that the government very much would want to keep the knowledge away from US workers and firms that they had set up this system to undermine them in order that lower bidding international contractors could be given what amounts to a carrot – a payment for participating in a horribe scheme which os called “progressive liberalisation”- basically a sort of El Dorado like situation, to allow a continued looting of extractives in the developing world- promising them jobs which if they do materialize will devastate developed country skilled workers-

    The use and application of minimum wages – to guest workers – which has alays been controversial- they often dont want them- seeing them as a barrier that keeps them and their main competitive advantage, low wages relative to skill, out-

    So application of minimum wages, especially recently risen minimum wages to foreign workers wages is seen as a trade barrier- an attempt to deny winning low bidding foreign firms of the benefits of the TiSA (or GATS) agreements- minimum wages in the US, and perhaps in all developed country WTO members- who are presumed to have evolved beyond the point where we need ‘discriminatory’ provisions such as subsidies of any kind- wage laws may be seen as a subsidy and deprecated) if so- I am just speculating and “in way over my head” here but I am just trying to point out that that may be like waving a flag in front of a bull. lets not forget how organizations like the WTO treat poor nations. Wouldnt it be seen as poetic justice by many if the WTO like it has- perhaps with US urging, told poor nations in the past, to not raise wages-

    under these conditions, could they tell us to do things? yes, we could be subject to WTO “disciplines on domestic regulation” and wages or any US law seen as a trade barrier – intentional or not, could perhaps be arbitrarily changed once services become globally traded (and they already officially are) US minimum wages under a certain set of conditions which it seems may be occurring, could perhaps be changed in a negative way – by the WTO.

    This is just one of at least a half dozen major red flags I see as a consequence of the US news media blockade on important trade related news involving the US. We need to be discussing these things more or its going to lead to disasters. Especially these issues need to be discussed now. Its not enough for the Sanders campaign to pretend that the WTO and the events of the last 20 years had never happened, (and by extension his campaign is in part a referendum on them) he needs to come out and tell the country that his opponents husband signed a bill which by and large tried to make future new Deal progras impossible, systematically. And privatize and then globalize health care and education (because thats what WTO GATS tries to do)

    Then we need to be honest about where its going- the huge gulf that will be revealed between private US trade ideology and Americans’ values. The danger of ignoring this cannot be overstated.

    We all would be well advised to ignore the news being framed in the media and look elsewhere (And there is precious little honest European, Asian news about this area either) for what is important to know.

    1. DeLong is different things on different days. But, right, I certainly wouldn’t call this piece neoliberal.

      1. But fundamentally this is the same argument that Marx makes for the ultimate supercession of capitalism in the penultimate chapter of Capital.

        Different things on different days is a good way of putting it. A frenetic intelligence, I would say, but worth reading precisely because of the multitudes he contains. Still, the quoted sentence is bound to exacerbate his well-known anti-left allergies.

      2. The frustrating thing with deLong is that he understands many different critiques of neo-liberalism and pays homage to them often, but when it comes time to back a policy or candidate, he always seems to side with the “responsible”, “balanced” Rubin position. He is the intellectual equivalent of “I feel your pain” Clinton or the beautiful speeches of Obama. The only union action that he backs is of the historical kind, and he is far more vicious to those on his left than on his right.

  4. your interpretation of the yield curve (“hold short rate low…..will pull down long” seems evidence for neo-Fisher hypothesis

  5. Not trying to be pedantic here, but 30 years weren’t sold from early 2002 to early 2006, which is why that point appears stuck in the animation and then drops to the (then) current value.

  6. Just came across this post, after taking a long break from blogs.

    I find the BIS stuff to be among the very best stuff around from the IFOs. Borio and Shin are smart, prolific, and they understand the difference between saving and financing.

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