Posts in Three Lines

I haven’t been blogging much lately. I’ve been doing real work, some of which will be appearing soon. But if I were blogging, here are some of the posts I might write.

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Lessons from the 1990s. I have a new paper coming out from the Roosevelt Institute, arguing that we’re not as close to potential as people at the Fed and elsewhere seem to believe, and as I’ve been talking with people about it, it’s become clear that your priors depend a lot on how you think of the rapid growth of the 1990s. If you think it was a technological one-off, with no value as precedent — a kind of macroeconomic Bush v. Gore — then you’re likely to see today’s low unemployment as reflecting an economy working at full capacity, despite the low employment-population ratio and very weak productivity growth. But if you think the mid-90s is a possible analogue to the situation facing policymakers today, then it seems relevant that the last sustained episode of 4 percent unemployment led not to inflation but to employers actively recruiting new entrants to the laborforce among students, poor people, even prisoners.

Inflation nutters. The Fed, of course, doesn’t agree: Undeterred by the complete disappearance of the statistical relationship between unemployment and inflation, they continue to see low unemployment as a threatening sign of incipient inflation (or something) that must be nipped in the bud. Whatever other effects rate increases may have, the historical evidence suggests that one definite consequence will be rising private and public debt ratios. Economists focus disproportionately on the behavioral effects of interest rate changes and ignore their effects on the existing debt stock because “thinking like an economist” means, among other things, thinking in terms of a world in which decisions are made once and for all, in response to “fundamentals” rather than to conditions inherited from the past.

An army with only a signal corps. What are those other effects, though? Arguments for doubting central bankers’ control over macroeconomic outcomes have only gotten stronger than they were in the 2000s, when they were already strong; at the same time, when the ECB says, “let the government of Spain borrow at 2 percent,” it carries only a little less force than the God of genesis. I think we exaggerate power of central banks over real economy, but underestimate their power over financial markets (with the corollary that economists — heterodox as much as mainstream — see finance and real activity as much more tightly linked than they are).

It’s easy to be happy if you’re heterodox. This spring I was at a conference up at the University of Massachusetts, the headwaters of American heterodox economics, where I did my Phd. Seeing all my old friends reminded me what good prospects we in the heterodox world have – literally everyone I know from grad school has a good job. If you are wondering whether your prospects would be better at a nowhere-ranked heterodox economics program like UMass or a top-ranked program in some other social science, let me assure you, it’s the former by a mile — and you’ll probably have better drinking buddies as well.

The euro is not the gold standard. One of the topics I was talking about at the UMass conference was the euro which, I’ve argued, was intended to create something like a new gold standard, a hard financial constraint on governments. But that that was the intention doesn’t mean its the reality — in practice the TARGET2 system means that national central banks don’t face any binding constraint , unlike under the gold standard the central bank is “outside” the national monetary membrane. In this sense the euro is structurally more like Keynes’ proposals at Bretton Woods, it’s just not Keynes running it.

Can jobs be guaranteed? In principle I’m very sympathetic to the widespread (at least among my friends on social media) calls for a job guarantee. It makes sense as a direction of travel, implying a commitment to a much lower unemployment rate, expanded public employment, organizing work to fit people’s capabilities rather than vice versa, and increasing the power of workers vis-a-vis employers. But I have a nagging doubt: A job is contingent by its nature – without the threat of unemployment, can there even be employment as we know it?

The wit and wisdom of Haavelmo. I was talking a while back about Merijn Knibbe’s articles on the disconnect between economic theory and the national accounts with my friend Enno, and he mentioned Trygve Haavelmo’s 1944 article on The Probability Approach in Econometrics, which I’ve finally gotten around to reading. One of the big points of this brilliant article is that economic variables, and the models they enter into, are meaningful only via the concrete practices through which the variables are measured. A bigger point is that we study economics in order to “become master of the happenings of real life”: You can contribute to economics in the course of advancing a political project, or making money in financial markets, or administering a government agency (Keynes did all three), but you will not contribute if you pursue economics as an end in itself.

Coney Island. Laura and I took the boy down to Coney Island a couple days ago, a lovely day, his first roller coaster ride, rambling on the beach, a Cyclones game. One of the wonderful things about Coney Island is how little it’s changed from a century ago — I was rereading Delmore Schwartz’s In Dreams Begin Responsibilities the other day, and the title story’s description of a young immigrant couple walking the boardwalk in 1909 could easily be set today — so it’s disconcerting to think that the boy will never take his grandchildren there. It will all be under water.

21 thoughts on “Posts in Three Lines”

  1. I am happy you did another post- it has been a while. I have no basis to complain but I do anyway.
    Couple of things on your various topics. As far as a jobs guarantee- you ask can there be employment as we know it if we decided to do one. I would say of course there would be employment. Just like now, some people would decide they didn’t prefer to be in the labor market. Everyone else who wanted to work would have that opportunity. There would still be some unemployment as people who figured they could get higher paying jobs would attempt to do so rather than spending their time and effort in a guarantee job paying a minimum standard of living. Actually, I don’t even understand what you are questioning here. Could you explain more in a new post sometime in the next month?

    As far as your musings about the Euro- I agree it was intended to act like a gold standard, but just like any other gold standard throughout history, the costs of maintaining it became more prohibitive than the costs of adjusting it. And therefore it was eventually realized that it had to be adjusted through things like Target 2 and all the other things the ECB has eventually sort of done ( in an untimely manner ) that were outside the bounds it was supposed to act within. Unfortunately they have not yet realized that the Euro should be scrapped altogether if they don’t want a real fiscal union. This could be another great post by you especially if you disagree. Or agree.

    I am sorry about bothering you for new postings. I am in the midst of a study that attempts to determine if demand creates supply in the absence of payment. It has not been going well and I think it will have to be adjusted to reflect effective demand or something. That might be a good post topic for you too. Come to think of it, sometimes a post about idiotic commenters can be useful also…

    1. Thanks for the comment. Re the job guarantee, my point is that if you cannot be fired, that’s not a job as we know it — the boss has no authority. But if you can lose your job, then it’s not guaranteed.

      1. Well what if we compared a Job Guarantee to public education through grade 12. Everyone is guaranteed an education of sorts, does that mean no one is a student? No. Does it mean the teacher or the principal has no authority? No. Does it mean no one can be expelled from a school if they screw up enough? No.

        I just don’t understand what point you are trying to make.

        1. It seems to me that the content of a right to a public education is actually rather no-obvious and intensely contested. Here in New York, the Campaign for Fiscal Equity case over what this right implies for school funding has been going back and forth in the courts for more than 20 years now.

          1. Your reply, which I appreciate (thank you), diverts from the point that in the US there is some minimum standard of education that must be provided to all children. New York, being the great state that I was born in, no doubt has better standards. Standards that New Yorkers like to argue about just like everything else.
            So what? Does the minimum required by the Feds change the answers to my questions above? Is my analogy between public education and a potential job guarantee reasonable?

          2. I took classes with Michael Rebell, who founded CFE, and other educational equity lawyers at both CLS and TC. It’s god’s work, but it’s pretty bread-and-butter lawyering – you see the same ‘content of rights’ debates play out across most areas of law.

            Of course the substance of right are contested – so are the boundaries of employment law (when someone can be fired for cause, when an employer has an obligation to find alternative work for an injured/disabled worker, when workplace harassment becomes grounds for compensated leave, etc). The boundaries of legal categories are always grey and contestable.

            But we don’t use that as a justification for giving up on the idea of public schooling or rendering meaningless the difference between being a student/not a student, or between having workplace autonomy/being a wage-slave.

            If we didn’t have universal k-12 education now, and someone proposed it out of thin air, you would be able to come up with a million logistical and administrative objections similar to the ones against the job guarantee – “who will define what counts as useful learning?”, “how will we deal with regional variances in quality and equitable resources?”, “how will we strike the balance between student freedom and teacher/school/government authority over the learning space?”. Yet most people, including on the left, I believe, wouldn’t say the fact those questions are tricky and require a common law-like inductive approach to finding appropriate lines (which will always be subject to ongoing political contestation) means we shouldn’t try.

            Or to put it another way, do you think the fact that the Campaign for Fiscal Equity exists is proof that it wasn’t a good idea to enshrine a right to public education and commit to making it a reality?

          3. I think you are eliding some useful distinctions here. Compare “All jobs shall pay at least $15/hour” with “All jobs shall involve meaningful work”. I’m for both but there is a big difference in how much of their content is there in the statement versus how much depends on the concrete implementation. Compared with a minimum wage (or UBI), JG is closer to the second pole. That’s not a dispositive argument against it — the same goes to the right to education, that was my point — but it’s silly to deny that it’s the case and suggest that all rights depend to an equal degree on the concrete details of how they are implemented.

          4. I think you’re confusing a particular law/policy with the underlying substantive legal principle from which it gets derived, which is the level of this discussion.

            The legal substance of a minimum wage or indeed a UBI is not “$15/hr”, that’s the *conclusion* of the application of the principle to a particular context. The principle is “a living wage/a living income”, which is just as abstract and subject to ongoing political contestation and inductive, common-law based definition as the idea of a “free appropriate public education” in special education law, or “appropriately tailored” work in the context of worker’s compensation, or, indeed, “meaningful and dignified” in the context of a job guarantee.

            The $15/hr campaign would be meaningless in an environment where inflation goes into double or triple digits tomorrow. So implicit in that campaign is a bunch of contextually dependent contingencies about cost of living, rate of expected inflation, etc.

            Which is why I find it muddy at best, and disingenuous at worst, to claim that the Job Guarantee uniquely suffers from vagueness problems, either conceptually or at the implementation stage, especially relative to a UBI. There is clearly a conceptual distinction between being employed and not being employed under a JG, even as that line will and can only be hammered out practically over time. And there is clearly a conceptual distinction between meaningful, dignified work/working conditions and make-work/wage slavery, even as that line as well will be hammered out over time. To suggest there isn’t is to exceptionalize this policy vis-a-vis every other substantive legal right and policy framework, which seems very unfair.

          5. Are you seriously denying that there are more moving parts in guaranteeing everyone a job, than in paying everyone who has a job $15/hour, or in sending everyone a check for $15,000 a year?

            I am not exceptionalizing the JG. I am saying that it occupies one point on a continuum, in that it is more complex to implement relative to some other polices. What are you saying — that this distinction is meaningless, everything is as complicated as everything else? Or that there is no reason to think that finding work suitable for a person’s particular life situation and capacities is more complex than just writing a check?

          6. No, I didn’t say anything of the sort. First, I said that you’re comparing two different levels of policy – a commitment to “guarantee everyone a job” should be compared with a commitment to “guarantee everyone a basic living wage/income”, not with a commitment to paying a minwage of $15/hr or a minincome of $15k/yr. For the latter(s) to actually *constitute* a basic living wage/income requires ensuring a lot more moving parts, albeit implicitly, than merely the numerical value of the check. As Nathan Tankus has noted before, guaranteeing real living standards requires abridging private property rights of capitalists, with all of the concomitant messiness that entails, and that’s before you get into questions of industrial structure to ensure the necessary goods and services are produced sufficiently such that a $15/hr job or $15k/yr income actually meets the standard of a basic minimum wage.

            My point about exceptionalizing the JG is that you’re demanding it answer nuanced, nitty questions about implementation ex ante, but not holding the same to be true for a UBI. Whether or not one is likely to be more complex than the other is a matter of speculation, although I will note that we have, in fact, had direct job creation policies in the past, but have never had a society that guaranteed everyone a minimum real living standard without any obligation of anyone to work. So in that respect, the latter is far more utopian – as Nathan has noted, you’re probably on more concrete footing talking about single payer in food, housing, etc, than claiming a $15k check will, on its own, satisfy all basic material needs just “b/c capitalism and the market.”

            In other words, it’s disingenuous to claim a UBI is “just writing people a check.” It’s much more than that. As I’ve noted before, the impossible trilemma of the UBI is that it promises a) universal liberation from coerced work, b) satisfaction of basic material needs for all, and c) the achievement of b) via a fixed nominal check. Those are, as I see it, the core components of a UBI, as conceived by those who developed the idea. Simply handing people a check and then peacing out doesn’t get you anywhere close to a plan to meet those conditions, anymore than saying “you’re hired!” to everyone who walks in the door constitutes a plan to meet the conditions of the JG.

          7. I still don’t know your answer to my question. Do you believe that (1) distinctions of more and less complex policies are meaningless, all policies are equally complex, have an equal number of moving parts; or (2) the distinction is real, but the UBI is at least as complex in its implementation as the job guarantee; or (3) the job guarantee is more complex than the UBI?

            I think that the job guarantee is more complex than many other policies that would similarly raise the bottom end of the income distribution and reduce dependence on private employers. This additional complexity is not dispositive, but it is a concern that has to be weighed against the policy’s (considerable) merits.

            My point about exceptionalizing the JG is that you’re demanding it answer nuanced, nitty questions about implementation ex ante, but not holding the same to be true for a UBI.

            I think there are a lot more such questions in the one case than in the other. I guess you’re denying this, but frankly I find that hard to take seriously. UBI really is just mailing people checks. Now the question of whether this would achieve the broader goals that people have for it — whatever they may be — may be equally difficult in the two cases, but that shouldn’t be mixed up with the concrete administration of the program.

            in that respect, the latter is far more utopian – as Nathan has noted, you’re probably on more concrete footing talking about single payer in food, housing, etc, than claiming a $15k check will, on its own, satisfy all basic material needs just “b/c capitalism and the market.”

            Lucky for me I never made any such claim, then. All I said — which you are not addressing — is that the UBI is administratively simpler than the JG.

            My impression of job guarantee advocates, which I am afraid you are not doing much to dispel, is that they are not willing to admit that their preferred approach ahas any drawbacks, or that any alternatives have any merits.

          8. I should add, in a spirit of comity, that I see all these policies as steps toward a more fundamental transformation of society, with the ultimate horizon involving the disappearance of money, commodities, wage labor and the state. Not in our lifetimes obviously, but that’s the bearing I want to be on. So the fact that policy X won’t fully achieve its objectives isn’t really an argument to me, all of these things are provisional measures that at best create the conditions for something bigger while making things a little less hellish in the meantime. And this goes double for advocacy — most likely all our best arguments for policy X or Y will at best contribute to the success of Z, to which they bear some broad family resemblance.

  2. Quick comment on central banks and financial markets.

    Obviously, the central banks have a big influence on government bond yields. But when we turn to risk assets, regimes shift. Equity investors were mocking the Fed’s ability to control the tech bubble in the late 1990s.

    The belief in central bank power is now exaggerated by perma-bears screaming about their belief that the Fed is jawboning equities higher, and the Fed balance sheet/equity price correlation chart that everyone has seen a bazillion times. It is also helped by the fact that we still have people who believe in the Quantity Theory of Money in financial markets.

    Since most of that analysis is questionable, it is probably not going to be sustained indefinitely.

    1. What I was trying to suggest is that the power of central banks is both exaggerated and understated – the latter by people who worry about bond vigilantes or think there is a “fundamental” or ‘real” interest rate to which policy must conform. But on the exaggeration side, you’re right that the ability to fix the price of a particular asset doesn’t necessarily spill over in a predictable way to other assets, even apparently very similar ones. E.g. here’s an interesting IMF study from a couple years ago showing that IMF interventions in Greek sovereign debt markets had powerful effects but only on the specific maturities actually bought.

  3. On “potential”: learned recently that “capacity” measures are just industrial capacity, don’t consider services (70% of today’s economy). Very 19th century. Is this also true of “potential GDP” (quasi-)official measures? Haven’t researched this. Very curious.

  4. In my understanding, “job guarantee” means that the government will just be the employer of last resort for everyone at a specified wage.
    Such wage will then probably become the “effective minimum wage”, and perhaps these jobs would replace other unemployment benefits; Mr. government could well “discipline” the employees through fines on said wage.

    The problem of this policy is that it depends very much on the level of the wage the government is willing to guarantee: if it’s very low, it’s simply creating a class of dissatisfied working poors, but the higher it is, the more it competes with private sector jobs, which is a good thing in my view but would probably be disliked by private employers and/or lead to inflation. Furtermore, the plan is not to “nationalize the economy” soviet style, so there is an implicit limit on the quantity and quality of jobs the government is willing to create (e.g. I don’t expect the USA government to actually compete against General Motors in car building).

    “The euro is not the gold standard”: In my opinion, even the gold standard wasn’t the gold standard.
    The point is that, according to some economic theories, financial crises are caused by overborrowing and thus the fact that the government can “print” money is a problem because it induces governments to borrow more, but if you scare the governments with the gold standard they will not borrow (the same goes for banks). This is basically Hayek’s theory of financial crises but it is stupid: bubbles happen because for certain periods it is actually a very good idea to leverage and buy assets whose price is growing faster than the economy, and in fact if you exit the market just before the crisis you make a lot of money.
    For this reason even during the gold standard there were tons of bubbles and crises, and in fact the gold standard was abandoned because it made the fallback of the crises worse but didn’t limit them.

    Or to put it in a diffent way truly “hard” currencies never existed, the problem is just debt, bubbles and the way we deal with the aftermath of the popping bubbles (printing and inflation or bankruptcy and deflation or “squeezing the debtor” indefinitely).

  5. You are overstating the constraints in the gold standard, it was basically like any other fixed exchange rate system, the main real constraint was a balance of payments crisis. And a balance of payments crisis can be solved if other banks are willing to extend credit which is basically the same as target 2 imbalances.

    We saw in Greece that the ECB has the power to shut off credit extension and thus force a BOP crisis if necessary.

    The main difference is that Euro has centralralized political control, while gold standard was a kind if emergent system.

    An interesting question is if Target2:euro zone :: fed dollar swap lines:global dollar system?

    1. a balance of payments crisis can be solved if other banks are willing to extend credit which is basically the same as target 2 imbalances.

      To me, there’s a big difference between discretionary action by foreign central banks vs automatic overdrafts through the Target2 system. In the absence of deliberate action by the ECB and national central banks to destabilize national banking systems, the situation of a peripheral country in Europe is much more favorable than that of e.g. Argentina under the gold standard. You don’t agree?

      We saw in Greece that the ECB has the power to shut off credit extension and thus force a BOP crisis if necessary.

      Right. But I think it’s critical to focus attention on the fact that this was a deliberate political choice, and in no way the natural or automatic result of the logic of the system.

      An interesting question is if Target2:euro zone :: fed dollar swap lines:global dollar system?

      That is a very interesting question!

    2. Also I don’t think that the gold standard was just like any other fixed exchange rate system. Free movement of “capital” (or more precisely gold) was just as fundamental to it as fixed exchange rates, as was the *domestic* convertibility of other forms of money to gold and, arguably, existence of a tight link between gold reserves and the volume of money and credit (the last of these admittedly honored less).

  6. Guaranteed jobs are a bad idea–a formula for make-work that’s inefficient and morally demeaning. A universal basic income is better.

    For example, my subway station is on a big hill, so there are four elevators to carry people down to the platform and back up to the street. One of the elevators is staffed by an elevator operator (probably per a union rule) whose job is to sit in the elevator all day and push the button to send it up and down. The other three elevators have no operator, so one of the passengers pushes the button (a system that works perfectly, as it does for all elevators).

    So the elevator operator has a completely useless job. The sum of human utility would be measurably increased if they just paid him to do whatever he liked all day, even watch TV.

    That’s the sort of labor pantomime that will proliferate under a job guarantee, which has the tacit premise that a lot of people just can’t do jobs that someone else is willing to pay adequately to have done. Indeed, a useless stultifying job is the best-case scenario; as the OP hints, guaranteed jobs are likely to be very bad jobs under the usual bossism that people only take because there is no other welfare provision. Guaranteed jobs will be latter-day work-houses.

    Economic security is better provided by the social contract than the employment contract. With a UBI safety-net people can strike compromises with the labor market that are both efficient and humane, or opt out and do volunteer or hobby labor that they find intrinsically fulfilling. Or just watch TV.

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