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.

Liza Featherstone on Focus Groups

Yesterday, we at the John Jay Economics Department hosted my friend Liza Featherstone, author of Students Against Sweatshops and Selling Women Short: The Landmark Battle for Workers Rights at Wal Mart, for a talk about her new book, on the history and politics of focus groups. (That’s me introducing her.)

The whole thing is worth watching. As with so many institutions, the history of the focus group has interesting twists and turns that you wouldn’t guess just from its current state. I hadn’t realized, for example, that the focus group originated — like so many technologies — in the US war effort of the 1940s. The first focus groups, apparently, were convened to improve the quality of radio propaganda. Only later was the technique adopted by commercial advertising, before migrating into the electoral arena in the 1980s and 1990s.

The most interesting part, though — for met at least — is the end, where Liza talks about the funny parallels between focus groups and the kind of consensus decision making practiced by mass movements like Occupy. (And by popular movements at least back to the 18th century, for that matter.) In contrast to surveys, polls and elections, focus groups and assemblies do not assume that people enter the process with well-formed views that just have to be registered and tallied. Instead, they assume that people’s true views only emerge in a process of active exchange with others.

The classic example in the marketing context is New Coke. In blind tests, clear majorities preferred the new flavor, but in a setting where the two cokes were discussed, people were somehow convinced that they preferred the old flavor after all. Apparently focus groups sponsors often complain in cases like this that one strong personality bullies everyone else. But isn’t that how people’s choices get shaped in the rest of life too?

Is it better to keep our private views intact? There’s a view that instability in asset markets arises precisely because people allow their views to be shaped by interaction with others — herd behavior, the madness of crowds. To have efficient asset markets, it’s important that people trade on their private information. We use secret ballots in elections and some people even consider it rude to ask who you are voting for. Too much discussion corrupts the process of aggregating up private beliefs. More generally, there’s a sense that the way our ideas change in contact with others can be a problem, and that we may need to protect our authentic selves from social pressures.

To love you must have someone else,
Giving requires a legatee,
Good neighbours need whole parishfuls
Of folk to do it on — in short,
Our virtues are all social; if,
Deprived of solitude, you chafe,
It’s clear you’re not the virtuous sort. 

Viciously, then, I lock my door.
The gas-fire breathes. The wind outside
Ushers in evening rain. Once more
Uncontradicting solitude
Supports me on its giant palm;
And like a sea-anemone
Or simple snail, there cautiously
Unfolds, emerges, what I am.

That’s Larkin, who would not have had much time for either focus groups or general assemblies.

Meanwhile, on the other side, along with the focus groups we have 12-step groups, psychoanalysis, the self-criticism practiced in some revolutionary groups. All of these elevate the process of communication itself as the source of beliefs and desires, as opposed to the liberal idea that we first come into possession of these individually and then act on them or communicate them.

What do we make of this similarity? The negative answer is that focus-group politics have displaced more effective forms of political organization on the left as well as in the mainstream. People have come to feel that communication is an end in itself — that the important thing is to have your voice heard, and only incidentally to exercise power. (Liza shared a rather depressing anecdote after the talk, about a union staffer who said that it was impossible to get members to come to meetings by saying there would be an important vote, but they would come if you told them they’d be taking part in a focus group.) Of course even this way of looking at things isn’t entirely negative — people do need to get their voices heard, especially people without the privileges that make it easy to be listened to.

But there’s another way to look at these parallels. Maybe the marketers, in their desperation to “catapult the propaganda” (in the words of one of our most focus-grouped, and focus group-deriding, politicians) have stumbled on a truth about human nature that the left has always known. We are not monads, with a fixed set of preferences. As Liza says in the talk, human beings are profoundly social creatures — our selves don’t exist in isolation from others. (This is why solitary confinement is a form of torture.) Capitalism is intolerable but it has, historically, produced genuine progress in science and technology, and there’s a sense in which focus groups could be an example. It’s grotesque that this insight — that people’s beliefs and desires only emerge in exchange with others — has been mainly used to sell soft drinks and candidates. But it’s a real insight nonetheless.

Bring Back Butlerism

From Eric Foner’s A Short History of Reconstruction:

Even more outrageous than Tweed … was Massachusetts Congressman Benjamin F. Butler, who flamboyantly supported causes that appalled reformers such as the eight-hour day, inflation, and payment of the national debt in greenbacks. He further horrified respectable opinion by embracing women’s suffrage, Irish nationalism, and the Paris Commune.

Or, as a horrified Nation put it, Butlerism was

the embodiment in political organization of a desire for the transfer of power to the ignorant and poor, and the use of government to carry out the poor and ignorant man’s view of the nature of society.

Labor law, inflation, women’s rights, anti-imperialism, and small-c communism, not to mention government by the poor? We could use a little more of that 1870s spirit today. People on the left who want to central banks to do more, in particular, could talk more about loose money’s radical pedigree.

So who was this guy? The internet is mainly interested in his Civil War career. Made a general on the basis of his pro-union, anti-slavery politics, he was, not surprisingly, pretty crap at it; but it does appear that he was the first Union officer to refuse to return fugitive slaves to their masters, and the first to successfully enlist black troops in the South. That was enough for Jefferson Davis to order that if he were captured, he should be executed on the spot. So he didn’t know how to lead a cavalry charge; sounds like a war hero to me.

In the current Jacobin (which everyone should be reading), Seth Ackerman offers emancipation and Reconstruction as a usable past for the Occupy left, unfavorably contrasting “the heavily prefigurative and antipolitical style of activism practiced by William Lloyd Garrison” with the pragmatic abolitionists who

saw that a strategic approach to abolition was required, one in which the “cause of the slave” would be harnessed to a wider set of appeals. At each stage of their project, from the Liberty Party to the Free Soil Party and finally the Republican Party, progressively broader coalitions were formed around an emerging ideology of free labor that merged antislavery principles with the economic interests of ordinary northern whites.

Today’s left, he suggests, could learn from this marriage of radical commitments and practical politics. Absolutely right.

There is, though, a problem: Reconstruction wasn’t just defeated in the South, it was abandoned by the North, largely by these same practical politicians, whose liberalism was transposed in just a few years from the key of anti-slavery to the key of “free trade, the law of supply and demand, the gold standard and limited government” (that’s Foner again), and who turned out to be less frightened by the restoration of white supremacy in the South than by “schemes for interference with property.”

If we must, as we must, “conjure up the spirits of the past …, borrowing from them names, battle slogans, and costumes in order to present this new scene in world history in time-honored disguise and borrowed language,” then certainly, we could do worse than the Civil-War era Republicans who successfully yoked liberalism to the cause of emancipation (though I’m not sure why Seth name-checks Salmon P. Chase, an early opponent of Reconstruction). But personally, I’d prefer to dress up as a populist who continued to support the rights of working people even after liberalism had decisively gone its own way, and who ended up representing “all that the liberals considered unwholesome in American politics.” Anybody for a revival of Butlerism?

Those Who Forget History, Are Probably Historians

There are hardly any economists or economic historians who have contributed more to our understanding of the role of international finance in the Great Depression than Barry Eichengreen and Peter Temin. [1] So it’s disappointing to see them so strenuously refusing to learn from that history.

They start by correctly observing that the fatal flaw of the gold standard was the “asymmetry between countries with balance-of-payments deficits and surpluses. There was a penalty for running out of reserves .. but no penalty for accumulating gold.” Thus the structural tendency toward deflation in the gold standard era, and the instability of the system once workers recognized that lower wages for “sound money” wasn’t such a great deal. If Temin and Eichengreen want to draw a parallel with the Euro system today, well, I’m not sure I agree, but it’s an avenue worth pursuing. But as they want to apply it, to the US and China, it’s unambiguously wrong, as economics and as history.

“The point,” say Temin and Eichengreen, “is not to let deficit countries off the hook.” Barry, Peter — read your books! Letting the deficit countries off the hook is exactly the point. If there’s one lesson in Lessons from the Great Depression, it’s that no practical response to the crisis was possible until the idea that a trade deficit represented a kind of moral failing was abandoned. The whole point, first, of leaving the gold standard, and later, of the Bretton Woods institutions, was to free deficit countries from the obligation to “live within their means” by curtailing domestic investment and consumption.

Keynes couldn’t have been clearer on this. The goal of postwar monetary reform, he wrote, was “A system which would maintain balance of payments equilibrium without trade discrimination but also without forcing unemployment .. on deficit countries,” [2] in other words, a system in which governments’ efforts to pursue full employment was not constrained by the balance of payments. We needn’t take Keynes as holy writ, but if we’re going to analyze current arrangements in light of his writings in the 1940s, as Temin and Eichengreen claim to, we have to be clear about what he was aiming for.

One would expect, then, that they would go on to show how “global imbalances” are constraining national efforts to pursue full employment. But they don’t even try. Instead, they offer ambiguous phrases whose vagueness is a sign, perhaps, of a bad conscience: Keynes “wanted measures to deal with chronic surplus countries.” What kind of surpluses, exactly? and deal with how?

The beginning of wisdom here is the to recognize the distinction between the balance of payments and the current account. Keynes was concerned with the former, not the latter. Keynes didn’t care if some countries ran trade surpluses or deficits, temporarily or persistently; what he cared about was that these imbalances did not interfere with other countries’ freedom “to pursue full employment and progressive social policies.” In other words, current account imbalances were not a problem as long as the financial flows to finance them were guaranteed.

“Creditor adjustment” is rightly stressed by Eichengreen and Temin as a central feature of Keynes’ vision of postwar monetary arrangements, but they seem to have forgotten what it meant. It didn’t mean no one could run a trade surplus, it just meant that the surplus countries would be obliged to lend to the deficit ones as much as it took to finance the trade imbalances. As Keynes’ follower Roy Harrod put it,”The most important requirement [is] to get the United States committed to creditor adjustment. …. Creditor adjustment could be secured most simply by an agreement that the creditor would always accept cheques from the deficit countries in full discharge of their debts. … So long as their credit position cannot cause pressure elsewhere, there is no harm in allowing a further accumulation.” All of Keynes’ proposals at Bretton Woods were oriented toward committing the countries with surpluses to lend, at concessionary rates if necessary, to the deficit ones.

China today accepts American checks in full discharge of our debts; they don’t demand payment in gold. The Chinese surplus isn’t putting upward pressure on US interest rates, or constraining public spending. All Keynes ever wanted was for all surplus countries to be like China.

“Sixty-plus years later, we seem to have forgotten Keynes’ point,” Eichengreen and Temin conclude. True that.

[1] The strangely forgotten Robert Triffin is one.

[2] The historical material in this post post, including all quotes, is drawn from chapters 6 and 9 of the third volume of Robert Skidelsky’s biography of Keynes.