Wednesday, March 31, 2010
"High tax rates tend to depress GDP. Looking at taxes as a percentage of GDP may mislead us into thinking we can increase tax revenue more than we actually can"
A fair point. But that's when things start to get weird. He follows up with:
"For some purposes, a better statistic may be taxes per person, which we can compute using this piece of advanced mathematics: Taxes/GDP x GDP/Person = Taxes/Person"
Basically, more productive, more advanced, wealthier countries will count as having more burdensome taxes than other countries, holding all else equal. This is inherent in his metric - a logical necessity of the metric that he thinks may be "better" under some circumstances. I really hope we learn that someone hacked into Mankiw's blog and posted this before Greg noticed. This is pretty weird, and unfortunate coming from someone like him. This was first brought to my attention when I saw the inflammatory title of Matt Yglesias's post on it in my blogroll. I very often disagree with Yglesias on economics, so I thought Yglesias must have read something wrong. I often agree with Brad DeLong, so when I saw it next from him on my blogroll, I got more curious. Then I scrolled down to read the original Mankiw post, and sure enough: weird, crazy, and makes you wonder about the Harvard Economics department.
*I actually don't wonder about the Harvard Economics Department. I have a great deal of respect for Mankiw, I often agree with him, and I'm sure this was just one of those posts that slipped out before he got the chance to think about it.
One of the most important reasons why the Black/White idea has been so immutable is that it has been irrevocably tied up with so much of the rest of our identity. The American idea of liberty can never rid itself of its relationship with chattel slavery. Not only did some of the greatest proponents of human liberty actually own slaves, but these proponents made clear in no uncertain terms their failing or at least their inconsistency on the question.
The Black/White idea was driven even deeper into American identity as George Washington's worries about sectional animosities between East and West were, within a generation, replaced with far greater sectional differences between North and South. While the East-West division that flared up in armed rebellion soon after independence was purely a struggle between white Americans, the later North-South division couldn't avoid entanglement with the White/Black idea. Whatever the causes of the Civil War (and I am one that thinks it's entirely appropriate to discount the extent to which many people claim it was simply a "war over slavery"), one thing remains absolutely clear: the power, entitlement, legislative dominance, and identity of the antebellum South was crucially dependent on the enslavement of black Americans.
This struggle, and repeated episodes afterwards from Appomattox to the Civil Rights Act, began to fuse racism and the Black/White idea to the concept of "states' rights". Never mind the fact that the famous abolitionist William Lloyd Garrison was also a secessionist (albeit for the North). The Confederacy beat him to it, and since then assertive states have been associated with racism. If history had gone slightly differently and Garrison had gotten his way, assertive state governments could have been associated with abolitionism. Calls for secession of the North also appeared when Texas - a slave state - enthusiastically joined the Union in 1845.
But history casts a long shadow, particularly the history of the Black/White idea as it relates to states' rights. As a result, Arkansas has remained on the sidelines of the legal fight over the health insurance mandate that is being waged by several state attorney generals. The sordid history of states' rights is especially sensitive for Arkansas, which defied the Supreme Court's Brown v. Board of Education ruling, when Governor Faubus refused to integrate Little Rock Central High School in 1957. Faubus called up the Arkansas National Guard to prevent integration. After attempting to talk him down, President Eisenhower responded by sending the 101st Airborne into Little Rock, and federalizing the Arkansas National Guard (yes, that second one is unequivocally constitutional, Tea Partiers).
Many states have defied federal authority in the past, but Arkansas was one of the few states in recent history who has had the "burnished rows of steel" at the disposal of the federal government arrayed against their assertion of states' rights. Understandably, the state is not jumping at the chance to defy the federal government again (the fact that its current governor is a Democrat probably influences this as well, although he also cites this history).
I think all this baggage carried by "states' rights" is understandable and it should be acknowledged, but it's also very unfortunate. It hamstrings legitimate assertions of states' rights and valuable progress at the state level. The fact is, there is no inherent reason to believe that everything is best done by the federal government. The federal government doesn't make that sort of blanket claim, of course, but what is a state to do in the instances when the federal government does make that claim for itself? Often, fear or precedent ensure that the default solution is a federal solution. I think this is extremely unhealthy for our democracy. What's even more unhealthy is that the gut reaction of many people seems to be either to (1.) fully acknowledge the darker history of states' rights and insist that all modern assertions of states' rights are racist, or (2.) pretend that the darker history of states' rights doesn't even exist and assume that all assertion of state authority over federal authority is innocent, legitimate, and ideal. Neither of these positions are intelligent or helpful. Unfortunately, you usually hear one or the other.
Last year, I wrote about a specific case in Maryland, in the 1960s, where knee-jerk reactions to the idea of "states' rights" scuttled potentially valuable reform that is near and dear to my heart. You may want to take a look at that as well.
Note: Rockwell's iconic painting depicts an incident in
New Orleans, not the incident in Little Rock
Monday, March 29, 2010
Friday, March 26, 2010
1. The End of Laissez Faire, by John Maynard Keynes: I like to tell people that The End of Laissez Faire is a geneaology of Liberalism. Over the years I've been familiarized with tidbits of a lot of political philosophy, but this book pulled them all together for me and showed me the big picture: how the various strains of liberalism are connected, and how many intellectual movements in the late 19th century bastardized liberalism (primarily Marxism and laissez faire fundamentalism).
2. Micromotives and Macrobehavior, by Thomas Schelling: This showed up on a couple bloggers' lists, and I agree. I didn't really get the importance of macroeconomics before this book (which is pretty impressive, since it's not even about macroeconomics proper). Schelling opened my eyes to the pervasiveness of the "fallacy of composition"/"ecological fallacy" in economics. You simply cannot generalize from individual to group behavior.
3. Durable Inequality, by Charles Tilly: Strongly influenced the way I think about inequality and discrimination. I'm eternally grateful to Deirdre Royster (formerly of William & Mary) for introducing me to this book.
4. The Elusive Republic, by Drew McCoy: Shaped my understanding of the founding fathers. Convinced me that (1.) they viewed the world in a completely different way than we do today, (2.) they were not of one mind - there is no position of "the founders" on anything, and often individual founders changed their positions over time, and (3.) the Hamilton-Jefferson dichotomy we always think of today is caricatured almost to the point of uselessness.
5. Inventing America: Jefferson's Declaration of Independence, by Garry Wills: Shaped my understanding of Jefferson and human liberty. It goes line by line through the Declaration of Independence, and discusses the intellectual origins and background of each position taken in the document. It ends up being a history of the revolutionary period, an account of Jefferson's own thought, and an intellectual history of the Scottish Enlightenment all in one volume.
6. The General Theory of Employment, Interest, and Money, by John Maynard Keynes: Doesn't get everything right, but provides the basic framework for how I think about the economy. Keynes made many technical innovations on the classical model, but he also emphasizes the importance of caution and empiricism, as well as common sense in economic policymaking. Easily the greatest economist since Adam Smith. Possibly greater than Adam Smith (if for no other reason than Keynes innovates where Smith synthesizes... although Keynes synthesizes some too).
7. The Origins of Virtue, by Matt Ridley: I learned Dawkins through Ridley. This has powerfully shaped my understanding of evolution and the human condition, particularly as it applies to human social organization. I know evolutionary psychology isn't accepted in all quarters, and I don't take Ridley's arguments hook, line, and sinker. But I do think they are generally good arguments.
8. Marxism: For and Against, by Robert Heilbroner: A big influence on how I think about intellectual movements that I disagree with. Heilbroner demonstrates the right way to dispute a position without villifying the proponent of that position, and how to acknowledge good arguments while maintaining a more foundational disagreement. On top of all that, it simply helped me to understand Marxism better.
9. A Leap in the Dark, by John Ferling, and Washington's Secret War and The Perils of Peace, both by Thomas Fleming: These are all histories of the revolutionary period and aren't notable in and of themselves, but Ferling and Fleming both write about history in a way that has strongly influenced the way I think about history: specifically, they take seriously the fact that historical actors don't know what is going to happen in the future, and that this has an enormous impact on their decision making. It seems simple, but when it gets pointed out to you in specific instances, you realize how often we analyze things with 20/20 hindsight. More historians need to think like this. Ferling highlights this phenomenon more explicitly than Fleming (you can practically derive that thesis from his title - A Leap in the Dark).
10. Underwriting Democracy, by George Soros: Soros, for all the combustibility of his political and financial activities, taught me a lot about how humans think and how that shapes society - specifically, what he calls "reflexivity". It's not a concept original to him, but I think he explains it especially well (I believe Robert Merton has written a lot on it, and Soros specifically cites Kurt Godel and Karl Popper as his influences - he studied under Popper at the London School of Economics). The idea is essentially that markets and society in general tend towards disequilibrium and reorganization because prediction and action can lead to changes in market or social fundamentals that alter what is being predicted or acted upon. You can think of it as Heisenberg's Uncertainty Principle applied to society. Others have remarked on it, I learned it first and best from Soros. Soros himself wrote about reflexivity more exlcusively in his 1987 classic, The Alchemy of Finance, which I haven't read. But he does devote a good third of Underwriting Democracy to the theory. Much of the rest of the book is about how he's supported civil society in Eastern Europe.
Wednesday, March 24, 2010
Tuesday, March 23, 2010
There's a bit of a historical mystery that I don't have time to look into, but am curious if readers can help me with. Richmond was only designated as the capitol of Virginia in 1780. Before then, Williamsburg remained the capitol as far as I can tell. And yet in 1775, Henry delivered his address to the House of Burgesses in Richmond. Does anyone know why? Williamsburg was under no direct military occupation or threat as early as 1775 (and if they were, it's not like Richmond would be considerably safer). So why were they in Richmond? If anyone knows, please let me know in the comments - I'm curious.
Thursday, March 18, 2010
Friday, March 12, 2010
"her failure to understand that monetary stimulus was still possible at
zero rates should be an automatic dis-qualifier for the Board of Governors,
roughly equivalent to a Supreme Court nominee who opposed Brown vs. Board of
Tuesday, March 9, 2010
Did you say it made up a large share? Sure - that seems to make sense. We have a liberal in office now. Keynes is cool again (yes he is - I don't care what you say about my extracurricular interests!). We have hundreds of billions in that stimulus package and over a trillion dollars in deficits. Any growth we see is because the government is running the printing presses 24/7 and kicking the can down the road for dealing with our real problems, right?
Wrong. Government spending growth in the fourth quarter was basically zero - actually slightly negative. What's going on here? What's happened is that Americans have systematically forgotten that they live in a federal republic, where a great deal of the work of government is done at the state and local government. While the federal government has been hanging lose, state governments have been tightening up. Keynes may be popular again, but Keynesian policy is for all intents and purposes non-existent. Any attempt at Keynesian fiscal policy is being neutralized by the state governments. That doesn't mean the federal stimulus is bad. We'd be in much, much worse shape without the stimulus. But taken as a whole, the American polity isn't doing any public stimulus right now.
Does that sound weird to you? That's exactly what I'm worried about. When people start arguing over whether fiscal stimulus works or not, and about how macroeconomic policy should be done in the future they're going to point to the easiest number - the federal deficit - and declare that it is largely impotent, not even considering that the federal government is not the only game in town. And in the rare instances that state budgets are discussed, the catchy phrase "fifty Herbert Hoovers" will inevitably be brought up, and inevitably the argument will get redirected toward "well Hoover was actually a closet Keynesian - Amity Shlaes told me so", etc. etc. - and it will turn into a revisionist history debate about Hoover and not the issue at hand: namely, that there is effectively no fiscal policy going on in the United States right now.
Stephen Gordon (HT: Mark Thoma) provides this comparison of the breakdown of Canadian GDP growth and American GDP growth for the fourth quarter of 2009:
As you can see in the second blue bar from the right, most of our GDP growth in the fourth quarter came from restocking inventories. In other words, in early 2009 when businesses were scared of the future, they just sold off their inventories instead of actually producing new goods. That's why output dropped then and so many people were thrown out of work (you don't need that many employees just to sell off inventory). Pretty soon, the inventories are spend down and need to be replenished - that's what happened in the fourth quarter. This is still very good - it still puts people to work - but as Gordon notes, it's a very unbalanced way to grow. What happens in mid 2010 when the inventories are restocked but demand is still tepid? A double-dip recession, that's what. There has been a lot of talk recently about a double-dip recession and this is why (this and the fact that the fiscal stimulus that does exist is going to begin to peter out then).
A stronger stimulus could balance this growth and generate a virtuous cycle of self-sustaining growth. If we had some infrastructure or public works projects, money would go into the hands of workers (consumption) and business (investment) for actual purchases that they have preferences for and place value on. Right now that's not what we're spending on - the people doing the spending right now are store owners who are replenishing their shelves, not business making new machines or households buying new goods. Just store owners stocking empty shelves. That's fine, but nobody seems to be buying anything off those shelves, so what happens next?
At the heart of all of this is the states - specifically the states' ridiculous proclivity for balanced budgets and aversion to borrowing. This is literally a nineteenth century budgeting outlook transposed onto fifty sovereign governments that make up the early 21st century's sole superpower. It's absolutely shameful. What's even more shameful is that I think we're largely oblivious to this. We're going to be judging how macroeconomic policy fared without even giving the states a second thought, and all these budget troubles at the state level are only going to convince state governments to be more tight-fisted in the future. What they should be doing is recognizing that there is no point in having a AAA bond rating if you impose borrowing limits on yourself. The market will impose that limit on you. If the market is starting to get nervous about the soundness of your finances, your bond rating will slip, the interest you'll have to pay will increase, or both. Far from taking a responsible, market oriented approach, state governments are willfully ignoring market signals, specifically credit market signals.
This is my prediction for the near future: that we are going to be talking past each other very, very soon. Soon the inventory cycle will run its course and growth will stall again. Unemployment might even increase again, and people are going to be blaming the Obama administration for their big-spending ways. State governors are going to make stump speeches in the fall for Republican candidates declaring how they tightened their belts through all this while Washington acted irresponsibly, so the Democrats must go. They're not even going to realize that macroeconomic fiscal stimulus was virtually non-existent this year, precisely because those state governments tightened their belts. Keynesian fiscal policy will not have been proven a failure - although many people will claim that it was. Yet again, Keynesian fiscal policy will not have been proven a failure because it will never have been tried.
Sunday, March 7, 2010
Thursday, March 4, 2010
The Rev. Thomas Robert Malthus