posts in three lines

Posts in Three Lines, Coronavirus Edition

I haven’t been able to write as much about the current situation as I would like to.

Personally, I am doing fine. My wife and I are lucky to have some of the most secure jobs in the country – we are both public university professors — and we’re all healthy and as comfortable as can be expected under the circumstances, and we have access to outdoor space. But we also have two children who are now home all day, both of them young enough to need more or less constant attention. And I’m teaching three classes this semester, and the transition to teaching online, which I’ve never before done, has been challenging. And of course there is work already in the pipeline that has to be completed, like my project with Andrew Bossie on the economic mobilization of World War as a model for today. (The first part is here and the second should be out soon.)

I don’t mean to complain. Again, my personal situation under the lockdown is fine. But I do feel bad about not being more present in the important moment for economic debate since 2008-2009, if not longer. There’s an endless number of urgent, challenging, and profound economic questions to be wrestled with. I’m a bit jealous of people like my associates Nathan Tankus and Jacob Robbins, who are in a position to give the economic situation the attention it deserves and putting out a steady stream of excellent posts on their respective blogs.

And to be fair, it’s not just a matter of time. Like, I suppose, most people, I don’t feel any confidence about how this situation will develop, or what the right framework is to think about it through. I feel I’ve spent many years developing a set of economic ideas and arguemnts with, and within, certain positions, that may not be relevant here. I find it hard to gather enough thoughts together to be worth writing down.

If I did feel able to blog regularly about the economics of the coronavirus, here are some of the posts I might write. I don’t claim these are the most important topics, just ones that I would like to blog about.

Taking the money view. Our economy consists of a network of money payments and commitments, many of them corresponding to some concrete activity. What’s unique about this crisis is that the initial interruption is to the concrete activities rather than the money payments. This complicates the policy response: It’s not enough to inject more spending in the economy somewhere, on the assumption that it will diffuse through the normal circuits of income and expenditure, we have to think about maintaining the payments, and social relations, associated with various specific activities while the activities themselves can’t take place.

Paging Henry George. While much of the concrete activity we think of as “consumption” is on hold, much of consumption spending is various forms of social overhead that has to happen regardless; housing is far the most important category here, with a large fraction of mortgage and especially rent payments already not being made. We urgently need to replace these payments with public money, or else suspend (not just defer) them in a controlled way; the flipside of this is that here as elsewhere, where private payments are replaced with public ones, there’s an opportunity to transform the social relations structured by those payments. In this case, that could mean not just replacing rent payments but buying out properties, so as to replace private ownership of rental housing with public or resident ownership.

Crying “fire, fire” in Noah’s flood. Despite the uniqueness of the current crisis, I still think one important dimension is a shortfall of demand. While many businesses have been directly shut down by coronavirus restrictions, it’s clear that many others are limited by a lack of customers – airlines traffic are down by 95% not because airlines can’t find people to staff the planes, but because no one is buying tickets. (The planes that do fly are empty, not full.) As incomes continue to fall from unemployment — and only a fraction are replaced by UI and other forms of public assistance — the demand shortfall is only going to get deeper, so I’m a bit puzzled when people like Dean Baker say that the problem in the coming year might be too much spending rather than too little.

The skeleton of the state. One reason I’m confident that the economy is going to need more demand, is that recessions always involve a downward spiral between income and expenditure; once economic units have run through their reserves of liquidity, and/or start changing their beliefs about future income, the fall in spending will continue under its own power, regardless of what started it. One important area where this process is already underway is state and local governments; thanks to a combination of institutional constraints political culture, spending here is even more closely linked to current income than it is for households and businesses. In the last recession state and local spending continued to fall for a full five years after the official recovery.

Credit contraction? Adam Tooze, in the LRB, describes the economic crisis as “a shockwave of credit contraction,” which sounds to me like an uncritical updating of the 2008-2009 script for 2020. Is there any evidence that limits on borrowing are currently playing an independent role in reducing activity, or are likely to in the future? The problem seems obviously to be a collapse in current income, not a sudden unwillingness of banks to lend.

Send in the Fed. Even if a credit contraction is not a factor in the crisis, it doesn’t follow that efforts to boost the supply the of credit are irrelevant. Easing credit conditions can help offset declining demand from other sources — that’s monetary policy 101, and especially true in the current crisis, where so many incomes need to be temporarily replaced. It’s very important, for example, that the Fed support borrowing by state and local governments, partly because they may be finding it harder to borrow, but mainly because they should be borrowing much more.

Pay as you go vs prefunding. As everyone knows, state and local governments face many constraints on their ability to borrow, which the Fed can relieve only some of. But another important margin for state and local government is on the asset side; it’s not widely recognized, but in the US, subnational governments are substantial net creditors, which in principle allows them to fund current spending by reducing net asset acquisition. One important way that they can do this is by suspending pension fund contributions — this may sound crazy, but what’s really crazy is that they prefund pension expenditure in the first place.

Can we blame the shareholders? A number of us have observed over the past decade have observed that the marginal use of both corporate profits and borrowing now is payouts to shareholders; this, along with the activities of private equity, have left a number of corporations with high debt and weak balance sheets even after years of high profits. There’s an argument that this has left them more vulnerable to the crisis than they needed to be. I’m not entirely convinced on this, especially given that the relevant counterfactual seems to be higher real investment and/or higher wages rather than simply accumulating liquid assets, but it’s a question very much worth exploring.

Seasonal disorder. One technical but, I think, important point about all kinds of economic data right now is that we should not be using seasonally adjusted numbers. Seasonal adjustment for unemployment claims, and for many other economic variables, is based on the percentage change from the previous month, which produces totally spurious results in the face of the kinds of moves we are seeing. For example, new unemployment claims rose by 3 percent, from 6 million to 6.2 million, from the week ending April 7 to the week ending April 14; but since claims normally increase by 7 percent between the first and second week of April, this was misleadingly reported as a decrease of 4 percent.

The opportunity to be lazy. This fascinating review of a book on the plague in 17th century Florence quotes a wealthy Florentine who opposed the city’s policy of delivering food to those under quarantine, because it “would give [the poor] the opportunity to be lazy and lose the desire to work, having for forty days been provided abundantly for all their needs”. It’s striking how widespread similar worries are today among our own elite. It seems like one of the deepest lessons of the crisis is that a system organized around the threat of withholding people’s subsistence will deeply resist measures to guarantee it, even when particular circumstances make that necessary for the survival of the system itself.

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.

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.

Posts in Three Lines

There is no long run. This short note from the Fed suggests that the failure of output to return to its earlier trend following the Great Recession is not an anomaly; historically, recessions normally involve permanent output losses. This working paper by Lawrence Summers and Lant Pritchett argues that it is very hard to find persistent growth differences between countries. From opposite directions, these results suggest that there is no reason to think that supposedly “slow” variables are more stable than “fast” ones; in other words, there is no economically meaningful long run.

Krugman on the archaeology of “price stability.” Here is Paul Krugman’s talk from the same Roosevelt Institute/AFR/EPI even I spoke at last month. The whole thing is quite good but the most interesting part to me was on the (quite recent) origins of the idea that price stability means 2 percent inflation. From Adam Smith until the 1990s, price stability meant just that, zero inflation; but in the postwar decades it was more or less accepted that that was one objective to trade off against others, rather than the sine qua non of policy success.

Capital is back — or is it? Here’s an interesting figure from Piketty and Zucman’s 2013 paper, showing the long-term evolution of capital and labor shares in the UK and France:

What we see is not a stable or rising capital share, but rather a secular shift in favor of labor income, presumably reflecting the long term growth of political power of working people from the early 19th century, when unions were illegal, labor legislation was unknown and only property owners could vote. What’s funny is that this long-term decline in the power of capital is so clearly visible in Piketty’s data, but so invisible in the discussion of his book.

Orange is the big lie. Like lots of people, I watched the Netflix show Orange Is the New Black and initially enjoyed it, enough to read the memoir on which it’s based. It’s not often you see ideology operation so visibly: The show systematically omits the book’s depictions of abuse and racism among the guards and solidarity among the prisoners, and introduces violence from the prisoners and compassion from the authorities that is not present in the book. For example, both book and show feature an affair between a female prisoner and a male guard, but in the show nothing happens to the prisoner while the guard is fired and prosecuted, while in reality the prisoner was thrown into solitary confinement and there were no consequences for the guard.

Posts in Three Lines

More virtual posts. Last batch, I ended up writing one (so far). Better this time? Maybe; anyway micro-posts are also things.

Hippie macroeconomics. Paul Krugman and Bill Mitchell both object to this Robert Samuelson column in the Washington Post, about how the real problem in economic policy is the if-it-feels-good-do-it macroeconomics of the 1960s. And indeed, it is objectionable. But remember, Christina Romer thinks the exact same thing.

Dedication. My friend Ben Balthaser recently published a book of poems, Dedication, based on recollections of various American Communists from the 1940s and 50s, which I’d highly recommend even if I didn’t know him. It’s great poetry, but it’s also oral history, a bit like Vivian Gornick’s classic book on the inner life of American Communism. It really captures the spiritual appeal of Communism in the first half of the century and the moral heroism of so many people who heard that appeal, and also the almost mythic quality that world takes on in retrospect.

The debt-cycle cycle. Steve Keen’s work on the role of debt in boosting and then constraining aggregate demand is worth some careful attention. I wish, though, that there were more acknowledgement that this is not a new idea, but an old idea coming back into fashion. Very similar debt cycles have been described by Benjamin Friedman (1984 and 1986), Caskey and Fazzari (1991), Alfred Eichner (1991) and Tom Palley (1994 and 1997), to pick just some examples; Eichner, for instance, uses the equation E = F + delta-D – DS (aggregate expenditure equals cashflow plus debt growth minus debt service payments), which seems to me to state the key point of Keen’s “Walras-Schumpeter-Minsky’s Law” in a clearer and more straightforward way.

Free streets! The attempt to put a price on driving into Manhattan a few years ago failed, basically because Bloomberg tried to just cut a deal with the “three men in a room” and didn’t realize he needed to actually build support. But it didn’t help that the way it was pitched, drivers saw it as a punitive restriction on their freedom, when really — as anyone who finds themselves driving in Manhattan should be easily convinced — by far the biggest winners from fewer cars on the road are drivers themselves. I’d go all in on that point, and change the name from “congestion pricing” to “free streets.”

Crotty on owners and managers. In my “disgorge the cash” posts, I’ve usually pointed to chapter 6 of Wall Street as the best statement of the idea that financialization is fundamentally a political project by asset owners to claim a greater share of the surplus from nonfinancial firms. Another good (and more theoretical) discussion of the same idea is Jim Crotty’s article, “Owner-Manager Conflict and Financial Theories of Investment Instability.” Maybe I’ll type my notes on it here.

Okun’s Law. The less than proportionate response of employment to short-run changes in GDP is one of the few concrete empirical laws in macroecononomics. This is usually interpreted as the result of “labor hoarding” and the costs of hiring and firing workers. But it could also be explained by shifts of workers into higher-productivity sectors when demand is high, and into lower-productivity sectors when demand is low — Joan Robinson’s famous example is the person who loses a factory job and ends up selling pencils on the street.

Higgs: meh. I haven’t taken a physics class since my first year of college, but I’m enough of a science fan to share Stephen Wolfram’s disappointment that last week’s Higgs discovery just confirmed the 40-year old Standard Model, without pointing the way toward anything new. Also, just to be clear: It is not true that the Higgs field is responsible for mass in general, only for the rest mass of fundamental particles, like quarks and electrons. Neutrons and protons, the massive particles that make up normal matter, get only a tiny fraction of their mass from the rest mass of their constituent quarks; almost all of it comes from the binding energy of the strong force between them, which the Higgs has nothing to do with.

Posts in Three Lines

I don’t know what other peoples’ experience is, blogging, but me, I find myself thinking about far more posts than I ever manage to put on electronic paper. Seems like if one can’t write them, at least one should write down the idea of them. So here is some of what I wish I’d wrote.

The paranoid hypothesis on European austerity. Maybe the ruling class in Europe isn’t so confused, maybe the crisis, like the Euro project in general, is an effort to do an end run around European national-democratic institutions, where social democracy is still stubbornly implanted. This is the thesis, mostly implicit, of Perry Anderson’s The New Old World, and more explicitly of the NLR discussion of the same. Jerry Epstein offers some supporting evidence at Triple Crisis.

What’s So Effective About Effective Demand? There’s a conventional understanding that “effective demand” means demand backed by money; no, that’s just demand. Keynes introduced the term specifically to call attention to the way actual expenditure depends on expected income, and the possibility of multiple self-consistent expectation equilibria. Think effect as in “in effect,” not “having effect.”

Margaret. It’s a good movie, you should see it. It’s dialectical. Best thing I’ve been to in a while.

Honest Signals: Thoughts Around Mary Gaitskill. Her stories are the best fiction I’ve read in the past couple years; she’s attuned, like almost no one else, to the way we are both free reasoning selves and embodied social animals. Her collection Don’t Cry is particularly attuned to the “honest signals” we use to communicate unconsciously, a kind of natural telepathy, and ways in which our moral and physical selves don’t quite coincide. I’ve been writing this post in my head for the past year and change.

Larry Summers and the Anti-QE. He wants the government to take advantage of transitory low rates to adopt a more favorable financing position. Fine, except this is precisely the opposite of what quantitative easing is supposed to be doing. In general, sound finance for government is the opposite of Keynesianism; the Keynesian view is that government financing decisions should be taken with an eye to their effect on private, not public, balance sheets.

The Future Is Stasis. Everyone knows the Fermi paradox, almost everyone knows its updated version as the Great Filter. My opinion, this is almost certain proof that the future is socialism, or rather socialism or extinction. Humans will never live anywhere but Earth.

Low interest rates, really? My next project with Arjun Jayadev is a short paper arguing that, contrary to conventional wisdom, interest rates in the past decade were not historically low. The central bank does not set “the” interest rate. For business borrowers, in particular, changes in the Fed Funds rate have very little effect on credit conditions.

The logic of business cycles. I’m still struggling with the monetarist/New Keynesian thesis that a less than full employment state of aggregate demand is just equivalent to an excess demand for money, or for some set of financial assets. Leijonhufvud argues that this is the case in the downturn, but that there is then an unemployment quasi-equilibrium in which all markets clear except for a notional excess supply of labor. Seems right.

Tobin’s article, “Commercial Banks as Creators of Money.” 1963. An old one, but a bad one. Sometimes it’s worth reviving old arguments.

Crotty on Keynes on politics. One of the best things about studying economics at the University of Massachusetts was learning Keynes from Jim Crotty. What’s tragic is that his book on Keynes’ political vision has never been published, so no one who hasn’t sat in his classroom knows Crotty’s Keynes. I should disseminate some of it here.

Relitigating the ACA. Well, we are. Which means we need to revisit the individual mandate, a right-wing approach to health care that inexplicably migrated almost overnight to the liberal side. The economic arguments for it, IMO, remain bullshit; the ethical and political arguments are worse.

Adventures in Central Bank Independence. It’s increasingly at least somewhat recognized that Bernanke’s policies as a central banker in the face of an incipient depression fall more than a bit short of what he advocated as an academic. Best piece on this evolution I’ve seen is by Laurence Ball. Krugman’s cited it, but he left out some sordid details.

Graeber’s Debt. Don’t care what anyone says, it’s the best book I read last year. The final section — on the last half century — is weaker than the rest of it, but it’s still got a higher rate of brilliancies per page than any other piece of social science I’ve read since I don’t know when. Plus, the dude practically started OWS.

“Mortal Beings Cannot Hold Land to Maturity.” The special place of very long-lived assets in our economy doesn’t get the attention it deserves. (Hello Henry George!) It’s arguable that most investment is technologically longer-lived than it optimally should be, and the rents from the “excess” assets (and of course land) constitute some of the most politically important classes under modern capitalism.

Classics: A Pattern Language. I’d like to write a bunch of posts on books you ought to read. This would be the first one. Utopian architecture theory from the 1970s: how the world should be, from the scale of cities down to the chairs in your kitchen.

One could write lots more hypothetical posts, I certainly won’t write all of them. Maybe, with some luck, two or three. So I admit this exercise is a little pointless: Map is not territory. But if you’re short on territory, it can be fun to draw maps.

UPDATE: It looks like this is now a thing.