Wednesday, July 25, 2012

In Defense of The Dark Knight Rises

Does the left have to ruin everything? 

Predictably enough, everyone on the left seems to hate The Dark Knight Rises. Never mind the fact that the film was written before OWS emerged: everyone has decided that it is totally about what a bunch of dumb thugs they are. And of course, it's not enough for the film to be an apology for income equality and capitalism: it has to be an apology for fascism and aristocracy! Add smart, strikingly-filmed blockbusters to the list of fun things that we aren't allowed. And people wonder why the left has been on the decline for decades. 

The problem with these reviews is not just that they are evidence of what a bunch of recalcitrant kill-joys the few remaining leftists are. It's that they demonstrate that being recalcitrant kill-joys is such an overriding imperative that they will overlook the basic facts of the series to achieve this end. The notion that the figures of the wealthy philanthropist and the superhero savior are held up as simple and uncomplicated models, deserving of our prostrate devotion, is silly. Bruce Wayne's parents literally die for their naive limousine liberalism, and the earlier films explicitly suggest the possibility that their position was ultimately a form of cowardice. The figure of Batman himself is also quite problematic throughout the series. He's continually confronted with the uncomfortable similarity between himself and the villains he fights. As the series progresses, it becomes less clear that he's pursuing justice rather than revenge or self-aggrandizement. And of course, the trilogy ends with Bruce Wayne recognizing the inherent deadlock of both his father's limousine liberalism and his own vigilantism, their fundamental inability to address the underlying class tensions that power the series.

It is certainly not impossible to conduct a reading that acknowledges these complexities. But the left seems to derive a perverse pleasure from ruining as many cool things as possible. Maybe they aren't wrong to see something of themselves, then, in Bane's reactionary thugs (who, by the way, are not really staging a revolution, but rather exploiting the pretext of revolutionary class strugge for their own fascistic purposes--exterminating the vermin, eliminating the decadent rot of urban decay, etc.)

Can't we be leftists without being insufferable naysayers? Although that increasingly seems to be a distinction without a difference, there are indeed other ways of proceeding. Consider this alternative reading, which also takes into account the original depression-WWII origins of the story arc, which the entire trilogy explicitly harkens back to: the elder Wayne is the sort of FDR-like figure, seeking to put a bandaid on capitalism to address its inner contradictions, and succeeding somewhat. But his very liberalism is what makes him ultimately unable to destroy the far greater cancerous mutation of capitalism that is fascism (League of Shadows, who explicitly seek to use capitalism as the means to achieve their destruction in the first film). By contrast, it is the illiberal ways of the son (a sort of cult of personality-Stalinist figure), who because he was allied with the enemy (Wayne's initial alliance with LOS--by extension the Nazis, the Ribbentrop pact, etc.) knows how to use the very brutal tactics against them that they will deploy ("any means necessary," as Liam Neeson's character puts it in Batman Begins). 

Like the Soviet Union, Wayne is not of course interested in profits. However--and this is one of the most crucial facts in giving the lie to the reading of Batman as the aloof aristocrat--he is interested in production, transforming Wayne Enterprises into a sort of command economy designed to build the arsenal necessary to defeat the fascistic enemy. This is the reason why Batman/The Soviet Union are both properly tragic figures: it's because they were so perfectly positioned to do the dirty work of defeating fascism, thus saving capitalism from itself, that the Soviet economy would also end up structured in the very way that ultimately destroyed it. For all their power and might, it was something as simple as Wayne's inability to lead a normal life, and the Soviet economy's inability to produce basic consumer goods, that made them unstable figures that had to come to an end. And in a sense then, Batman/The Soviet Union also ironically becomes the ultimate bandaid: by doing Gotham's/democratic capitalism's dirty work, they prevented the very revolutionary upheaval that would have been necessary to truly confront the fascist threat. The collapse of these figures, then, isn't the end of the struggle. It's an acknowledgment that it's back in our hands, that some superhero figure won't be doing the hard work of class struggle for us anymore. 

Wednesday, July 18, 2012

David Koch donates hundreds of millions to hospitals, public television, and universities: what a selfish prick!

Libertarian blogger Matt Zwolinski queries on Facebook: "watching "The Illusion of Time" on Nova, and see that David Koch is a sponsor. Quick, NY Times - what's his self-interested angle here? Does he want to go back in time so he can exploit the environment even more thoroughly?"

It's important to remember one thing when confronted with large charitable donations by the ultra-wealthy. The rich are different from you and me--money is worth far, far less to them.

Koch is worth $25 billion dollars. 100 million dollars is approximately .4% of his wealth. The average American's net worth is about 37 k.  .4% of that amount is $148. And even still, the latter figure still greatly exagerates how much 100 million dollars is worth to David Koch. Because of the declining marginal utility of money, 100 mil. is actually worth far, far less to Koch than $148 is to the average person. Indeed, donating even billions of dollars would diminish Koch's consumption by approximately zero dollars, and hence hurts him very, very little. An equivalent sum for the average individual is quite literally pocket change.

This indicates that Koch's motives for donating to prominent organizations are also far less generous than they appear to be. Or at the very least, they are no more generous than when the average person offers change to a hobo. Many of the objects of the Koch's largess are already wealthy icons of NY high society, and many other donations are related to research into cancer, which David Koch suffered from while many of those same donations were made. Would you spend a few bucks in order to have a huge gala dinner thrown in your honor, while earning the accolades of your fellow New Yorkers and gaining you a great deal of social capital and perhaps saving your own life? Of course you would!

Many of the institutions the Kochs give to are already quite wealthy and do not particularly need the massive donations that they offer them. If the Kochs really wanted to make a huge difference, and to do so anonymously, they could just send out checks randomly to people in poor areas of the world. Of course, such anonymous giving would not earn them the type of praise and access to high society that gifts to already wealthy organizations on the East Coast do, so it's no surprise that they don't engage in it and that they make sure that there are plenty of witnesses when they do so. The Kochs like to claim that we can dismantle the welfare state thanks to kind hearted mega billionaries like themselves. If the purpose of the welfare state were to allow rich guys to easily gain cheap accolades and to engage in narcissitic self-promotion, this would certainly be true.

Karl Marx, neoliberal hacker

There are, I would argue, two core insights to Marxism: one, a specialized and narrow insight now of primarily historical purview and importance; another, a generalized principle extrapolated from this original context.

The first is that Marx not only is the original and perhaps best representative of what might be termed, in the strictest sense, neoliberalism--meaning simply a new follower of classical liberalism--but that he first demonstrated its subversive core. Marx's distrust of capital stems directly from Smith himself. Smith argued that while the political interests of the laboring and landowning classes were consistent with the wider interests of society--the landowners want to see social and economic progress to increase the value of their land, whereas the workers want to see the same to increase the value of their labor--the interests of capital is not consistent with the general interests of society. As he puts it, the political demands of capital "comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it." While Smith believed that both the laboring and landed interests are equally a universal class, who bring about the general interest in pursuing their own interests, it is only the landed class that is politically capable of effecting policies that lead to these outcomes. But what happens when, in the middle nineteenth-century, it's quite obvious that the landed interest is fastly losing its political clout?

At this point, the truly "neoliberal" conclusion was that the only hope for the broader liberation and prosperity of society was working class consciousness--the elevation of the working class into a politically active agent capable of bringing about the political interventions required for promoting its interests and therefore the general interests. Notice that there is very little in this conclusion that is out of step with Smith--Marx's insight is new in the sense that it is adapted to a situation in which the landed interest has lost its political clout, but it is also classically liberal in the sense that it adopts Smith's basic idea that labor, not capital, constitutes the only remaining universal class in such a situation. The policies that have become entrenched parts of the social contract between labor and capital as a result--child labor laws, the minimum wage, progressive taxation, etc.--are so crucial to our current understanding of the status quo that they don't even register as Marxist. These are important primarily for historical reasons, for understanding the radical origins of things that now seem almost mundane.

The other important insight is that the basic problem that the laboring class solves is generalizable as one of private appropriation--it may take a variety of different forms, but there are always going to be classes whose personal interests are inconsistent with the broader freedom, prosperity, and welfare. The solution to this problem, however, isn't some abstraction. It doesn't necessarily require some elaborate academic plan to counteract--the mere actions, supported by the class consciousness of, a countervailing class whose interests do coincide with the broader prosperity is enough to change the balance of power. Any change that promotes these interest, even if it may seem insignificant, can have a larger effect than it may initially seem. Indeed, regardless of whether the action is big and politically noticeable, or very subtle, a barely perceptible hacking of the market's standard functioning that will bring about a much bigger effect, doesn't matter--both will achieve exactly the same thing. If anything, the radicalism of neoliberalism is an offshoot of this basic Marxist idea of a revolutionary form of class interest, except in reverse--what we call "neoliberalism" simply works on behalf of narrow interests like traditional capital whose interests are harmful to the broader social good.

The particular classes that occupy these spots may change, but the general dynamic is ongoing--in the current moment, nominal aspects of the working class--management--occupy a status that often places it in a position enabling private appropriation at a level far beyond what capital broadly construed is capable of anymore. It's even conceivable that elements of capital in a limited sense--that aspect that belongs to the workers in the form of pension funds, the Social Security Trust Fund, etc.--could occupy a radical position over and against elements of nominal labor (i.e. management). The operative concept behind Marxism is private appropriation, not so much labor v. capital in the strictest and most traditional sense.

What this all indicates is that a lot of the knee-jerk Marxist responses that have long been conditioned may no longer be helpful for advancing the continuing cause of Marxism. Labor, of course, is still the universal class over and against capital, but the very notion of labor now has taken on significant aspects of capital--simply being born in the right place now constitutes a significant hidden capital source, to the point that many immigrants will pay thousands of dollars to obtain illegal entry into the US, and the notion of selling visas is gaining significant "neoliberal" (in the current sense) interest. The whole knee-jerk opposition to offshoring is, to a significant extent, about maintaining the value of this hidden capital.

It's also worth noting what Marxism is not about--it does not need to be a total explanation for all the ills of economic life. Perhaps the overwhelming interest for Marxists at the current moment should be in restoring full employment, raising wages for workers, and restoring education and health care as universal rights. But even if there is broad based support for heavy taxation to fund these things, there's always the question of how to implement such a tax. There's always a day after, and such questions will be its focus.

The medium is the message: reverse engineering the health care marketplace

Economists have long accepted that the market for medical care behaves nothing like most other markets. Dixit Kenneth Arrow, Nobel laureate economist.

Even without reading Arrow's seminal paper, however, it is easy to use common sense to arrive at a somewhat similar conclusion. Just consider the incentives for the average doctor. One way to approach a private practice would be to demand payment up front. But this may alienate customers. If instead I see everyone, and bill a rather large sum after the fact, I could end up with much more money--many people will pay the full amount, some will pay a bit less, and those who cannot pay at all will generally not return. In this fashion I can more effectively screen out the deadbeats without alienating my full-pay clients. I can be a successful provider while also being an ethical practitioner.

While this system may make sense in terms of provider self-interest and the expectations of customers, it hides prices, encouraging overuse and removing competition that lower prices. Some people may blame insurance for this, but even in areas like dental care, where insurance is a much smaller factor, the same sort of price opacity reigns. There are a few health care providers like chiropractors who may occasionally advertise prices, but this price competition is still the exception rather than the rule. I use a chiropractor chain who advertises prices, and although I am generally happy with their services, it feels a lot less like a professional service and much more like I'm receiving a widget. All of which is to say that, to a certain extent, the medium is the message: the way in which we perceive costs or fail to perceive costs is an integral part of the qualitative experience of the service. Hidden prices with retroactive discriminatory pricing produces a much different type of care than up front payment with price transparency.

Both models will always exist to some extent or another. The job of the state, I think, is to more clearly demarcate the boundary between widget and non-widget like services and to increase transparency in those areas where up front cost communication is impractical. Price transparency is only really possible in a situation in which there is some level of standardization in some form or another. This is easy to achieve with widget-like services, but not impossible in other areas either. It is and has always been the job of the state, through either direct control as in cases like roads and the post office, or by regulating prices as in the case of public utilities or the airline industry of yore, or by setting up a medium of exchange that allows for standardized prices, to make such standardization possible.

Some combination of all three techniques is likely necessary in health care. Legislation encouraging price transparency, setting prices in areas where it is impractical for this to occur (or perhaps setting a price chart and then allowing for providers to set a multiplier factor for some level of price competition), and directly running aspects like health insurance to bring about standardization, will all help to transform a system that is currently quite free--providers can set whatever prices they want and negotiate freely with insurance and patients--into one that is only marginally less free but far more efficient. Health care is a good example of how a free market system may not always produce a well-functioning or efficient market. But there are many ways to define freedom, and it would not be hard to invent a new understanding of the term that would still allow for a good deal of individual agency while producing a much more effective outcome.

Thursday, July 12, 2012

Depressions as ... well, depression.

Calling periods of falling or stagnant economic output "depressions" is, of course, a metaphor. But there's also something pretty apt about it. Depressed people often find themselves stuck in vicious cycles of destructive behaviors, continuing to engage in actions they know to be harmful and to exacerbate their condition while refusing to take simple steps that may yield improvements. So it is with economic depressions. The mechanism behind them is simple. Smith, Marx, and many before them already understood the simple idea that these are periods in which there is a buyers market, not for one specific good, but for all goods. People hoard money, and the scarcity of buyers depresses activity. It's simple and straightforward.

Perhaps the persistence of these periods is some sign of a failure to understand this mechanism. But it seems to me that this tends to underestimate the attraction of this vicious cycle. As with anyone who has ever eaten another cupcake when you knew you were already disgustingly full, or who has taken another drink when you were already quite drunk and facing a nasty hangover, there's a certain perverse delight in continuing these periods, especially if they portend symbolic suffering rather than some immediate and serious harm. For someone already feeling down, a nasty hangover is just what is necessary to allow them to wallow in pity and lament all of the other problems that they cannot change. In similar fashion, periods of depression allow those who are not seriously harmed by unemployment to feel a certain generalized discontent, and to thus feel all the more intensely negative about other things.

If you are already in a mood to feel bad--if you are of the mindset that wants to harp on all the minute things that seem wrong in your life, or if you are a malcontent pundit who wants to gain more attention for his or her particular hobbyhorse issue--then depressions are actually quite attractive. So it is with individual depression if you are a pharmaceutical company, or mass depressions if you are an employer of low wage labor. It would be downright surprising if such actors avoided acting in their self-interest and prolonging such periods. With corporate profits at an all time high, there's simply little real motivation for the business community to get excited about an end to mass unemployment. For everyone else, well, there's always a certain perverse delight in wallowing in one's own misery .

Tuesday, July 10, 2012

Libertarianism: a cry for hindrance

Like Chris Rock, I find people who brag about doing things that most people already do irritating. So it is with libertarians and their continual droning about how much they love freedom. Whether it's addressing each other with turgid phrases like "fan of liberty" or presumptuously titling their websites using eye-rollingly obnoxious names like "Online Library of Liberty," libertarians never tire of announcing their discovery that freedom is, indeed, good as if it were revealed wisdom.

Now, if you're like me, you tend to assume that, until you hear otherwise, most people you meet like freedom--and probably ice cream and cute kitties as well no doubt. When people tell you that they like this stuff, they are not really relaying any useful information for the most part--indeed, it would only be noteworthy if someone told you they did not like this stuff. So why do this? What's the ulterior motive? In the case of some high profile libertarians like the notorious Koch brothers, the motivation is obviously cynical and unprincipled--they own a large oil company and, of course, find pollution legislation to infringe on their oil companies' freedom to pollute. 

Of course, not all libertarians have such shamelessly crass reasons for clinging to this philosophy. And there are a wide variety of version of libertarianism, from the libertarian socialism of Noam Chomsky, to the property-centric vision of thinkers like Robert Nozick. What all of these strands of libertarianism share is a near fetishistic focus on the state--or analogously abstract and distant organizations like large private corporations--as the ultimate root of all limitations on freedom. 

The state is, among other things, an attractive foil to those who have a very abstract, diffuse, and ultimately symbolic view of oppression. It is not a coincidence that libertarianism tends to skew young, white, male, and rich--precisely the individuals least likely to experience any concrete limitations on their freedom and for whom freedom is thus most likely to be an abstract, academic concept. The state has many of the same features as the problems of the awkward teenage boy--both are vague, diffused, and nebulous notions whose representatives are numerous to the point of omnipresence. Freedom, then, is a good name for a solution to a problem that does not exist, the state a good name for the cause of a problem that has no cause. As with the lamentions of actual adolescents about their various imagined hindrances, the protestations of the eternally adolescent may not so much represent a genuine cry for freedom, but a cry for that which the adolescent truly needs: adult supervision. 

Sunday, July 8, 2012

BHL v. BRG: Value, vision, and the curious case of the missing asshole tax.

It's strange that the BHL crowd didn't revert to form and suggest a gentler, more hands-off taxation alternative in the debate with BRG. Instead of outright regulation, why not impose a small surtax on companies that use drug testing, search worker's lockers or computers, or impose other restrictions on workplace freedom? When Bloomberg proposed banning sodas, many BHL/liberaltarian/neoliberal types made a counteroffer of a soda tax--where's the asshole tax?

The obvious answer is that BHL doesn't seem very interested in finding an efficient way to tax/regulate jerk bosses, even though they claim some interest in advancing worker interests generally. Indeed, they see what BRG considers to be jerk-store worthy behavior as ultimately socially beneficial profit-seeking. The rationale isn't normal libertarian coldness, they claim, but rather a legitimate doubt whether this enterprise has much value for workers. They question whether workplace restriction constitutes coercion, seeing it instead as a function of the desire to decrease costs and run profitable businesses.

Part of the disagreement is that both sides seem to imagine that workers have a similar hierarchy of values to the ones they have adopted--that workers would, for example, much rather have workplace freedom, even if it comes at the cost of a dollar or two an hour, or that they would much rather maximize utility in such a way that abstract values like workplace freedom play a relatively small part in how workers value their time, and as such are already reflected in market prices for labor. Of course, on one level it is simply an empirical question as to how workers value certain impositions on their freedom in the workplace. But such value does not exist in a vacuum--it is a product of particular systems constituted by a variety of different social, legal, and cultural norms. In some countries, there's not much advantage to living in the city and working for wages compared with being a yeoman farmer in the country, whereas in others there is an enormous difference. Regulations on the urban workplace may keep a society stuck in an agricultural mode by encouraging the latter relative to the former. Or it may bring about changes that, by raising the status of such employment, encourages a new business model, one more conducive to urban development. Such things vary, and a great deal depends on creating smart regulation.

For this reason, the notion that restrictions on bathroom breaks, searches, etc. will reduce workers wages to a significant degree is almost certainly overblown. It may have some temporary distorting effects, but it will also have an effect on culture, law, and social norms in such a way to bring about changes in how people assign value to these indignities. Even if it doesn't, there's certainly more ways to ensure that workers don't steal, abuse bathroom breaks, or come to work under the influence of any drugs that may harm their performance than curtailing workplace freedom. We could look at the problem from the point of view of "why prohibit employees from taking higher paying jobs working for shitty companies who impose crappy rules?" The other way to look at it is why allow a business model in which nice employers have to compete with jerk employers on a level playing field. In the short term, regulation or taxation restricting/disincentivizing the high-wage, high-jerkiness model may lower worker pay, but it will also encourage other solutions to the problems that jerkiness supposedly combats. Neither BRG nor BHL are talking about making workplace theft legal, so it is highly likely that employers, knowing that other employers cannot use the jerk business model anymore, will still seek to prevent worker thefts, on the job intoxication, etc., and pass on some of these gains to their workers. Since they could still arguably do this through carrots rather than sticks--simply being nice and placing trust in workers might be enough, really--there's no reason to think that they wouldn't at least try. As Hobbes noted, all market systems are a product of not simply the scarcity of goods, but also of socio-legal restraints. One easy way to address scarcity is to kill other people and take their stuff. There's no reason for the strong to favor non-killing methods of addressing scarcity until we restrict their economic model and discourage it in favor of a mutually beneficial counterpart. Similarly, there's no reason for inherently jerky bosses to choose the nice guy path until we impose restraints that bias markets in favor of the desired outcome.

What this indicates is that it is probably just best to first focus on what kind of a society with what values we want to have and then worry secondarily about how to make it possible. In some cases, using taxes rather than outright prohibitions might make sense. In others, regulation is preferable to taxes--an a-hole tax may be a case in which regulation is simpler and gentler than taxation, but it certainly wouldn't be that much more difficult.  The Soviet Union decided that it wanted to be a statist, industrialized, command economy, and then it found ways to make this possible. Many of them were highly illiberal and repressive, but illiberal and repressive techniques were also very much in line with the vision they had in mind. Certainly a much more flexible economy like that of the US could implement much more moderate impositions on the power of employers with little effect on efficiency. And certainly BHL types could come up with a way to implement it through a tax. If indeed this isn't even a problem, no one would pay the tax. That they are opposing the idea itself largely on efficiency grounds, rather than finding efficient ways to implement the principles, is telling.

Wednesday, April 4, 2012

Some readings about the Olympics

For a general primer on the funding of the Olympics, see here. For a look at one financial legacy of a past Olympics, see here. Finally, check out some of the articles here for different perspectives on the costs and benefits of hosting the Olympics (if you get stuck behind the pay wall, just do a Google search using the article's name and access the article from the search results--that usually gets around it.)

Monday, April 2, 2012

Sunday, April 1, 2012

Final paper

For the final paper, you will produce a policy primer, policy analysis, or position paper that, first of all, argues for a particular policy or for a way of understanding policy. Feel free to adopt a broad understanding of what constitutes public policy. You don't necessarily need to write about economics in the narrowest sense. You could investigate some of the moral or political issues involved in a topic, you could analyze or investigate a case study (a famous musician, company, person, film, etc. etc.) of interest to you, or you could explore the history of a particular concept, notion, cultural trend, etc., that is part of our everyday life. In other words, don't feel overly limited. All that I ask is that you explore your topic in detail, do meticulous research, and examine the significance of the issue you are considering. In short, explore some of the drier, more seemingly abstruse aspects of something that we experience in our day to day lives--the more seemingly boring, reasoned side of life can be interesting in and of itself if we can relate it to things that matter for our daily concerns. Your key task as a policy writer is to be able to translate from the boring to the interesting and back, showing how these two perspectives, which may seem unrelated, ultimately are intimately linked to one another. Any piece that does this is in a broad sense a policy analysis, and these are the important skills that you should take from this course and apply to your future writing. 

Make sure that you are pursuing a topic of interest to you, something that allows you to produce an informative, interesting, and analytically incisive essay: in a relatively short space, it should clarify the most important aspects of an issue, compare some of the different ideas/perspectives on the topic, reveal the merits and demerits of those policies (or the perspectives you are considering on your topic), and most importantly, convincingly establish why we should lean toward a specific policy (or if the paper is less about advocating and more about analyzing, why we should lean toward a specific way of understanding a policy or topic.)

The paper is due Thursday, April 26th, by 5pm. It should be 7-10 pages long, double spaced, in 12 point, Times New Roman font, with 1 inch margins, and it should contain 7+ sources.

Friday, March 23, 2012

Friday, March 16, 2012

TBA Readings for 3.21: Worker Productivity and Occupy March Madness

For more on March Madness from a slightly different perspective, check out the articles here and here. Think about the following question: what set of policy choices make this time of year possible? What combination of private institutional choices, laws, regulations, subsidies, and tax incentives create the madness?

Update: some optional readings and more about our discussion last Wednesday.

I see that there's some interest in inflation, so I thought I'd post a few additional links for those who want to read up on the subject of monetary policy. First, a clarification: we do not necessarily want inflation, but inflation will probably occur as the level of spending in the economy increases (this is what the SRAS curve indicates). Spending is the fuel for a modern monetary economy like our own in the same way that food is fuel for people. If we feed a starving person, they may gain a little bit of fat, but they will mostly gain muscle. If we stimulate a depressed economy, a little bit of inflation might occur, but mostly this will produce real economic growth. Right now many people are saying that we need to keep spending low despite the depressed economy because of the risk of inflation. This is a bit like saying we should not feed a starving patient because it is always and everywhere bad to gain fat.

The infuriating irony is that the Fed helped to create a lot of the hysteria over inflation by mismanaging policy. They decided the problem was lack of liquidity in the financial markets, not a weak overall economy, and they then injected so much liquidity that it risked hyperinflation to let it circulate as money. Arguably, this tightened money for the economy as a whole as a result. This article from back during the heights of the crisis shows how the Fed had to sacrifice stimulating the economy and thus allowing a bit of inflation in order to pursue its policy of assisting financial markets (or "bank bailouts" if you will). This article shows that even a bit earlier people already realized that there were problems with the chosen policy. This article explains the progress of the various asset purchasing programs that came to be known as Quantitative Easing, round 1 (QE1), and it shows how once the Fed realized it needed to do more, it basically kept going with the same formula: inject huge sums of liquidity that won't actually circulate as money. Finally, for an article sympathetic to Bernanke, check out this piece.

Update update: This link provides a cool interactive graph that lets you see how the Fed's balance sheet (basically, a list of the assets it buys with the liquidity it creates) has evolved over time. It "pays" for these by issuing liabilities. Usually these liabilities consist of Federal Reserve Notes--hard currency--or reserves that can be easily converted into currency. This stimulates the economy when it is depressed by having more money circulate. However, they created so much liquidity that they couldn't "afford" to allow that money to stimulate the economy, so they had the Treasury borrow it back and also paid banks to keep much of the money on deposit at the Fed. The obvious question: why not just create less liquidity and pay for it by stimulating the economy, rather than creating a laughable amount of liquidity and paying for it by borrowing money?

Monday, March 12, 2012

Clarifying current policy failure

Check out this blog post if you are interested in how the Fed can "print money" like crazy (actually, most of the electronically-created money is never turned into printed hard currency) while inflation stays low and the economy depressed.

One more thing to remember as we prepare for Wednesday: the ultimate goal of our policy studies is to help learn the skill of constructing arguments. Public policy is of course a worthwhile study in itself, but it is also an immensely effective context--and the Freshman Seminar is supposed to provide an introduction to argumentation in "a content-rich environment"--for advancing this end, as it forces us to translate complicated ideas, ideas that we may not even have the capacity to fully grasp on a purely technical level, into coherent and clear sets of arguments that emphasize why these technical details matter for the bigger picture. That is, public policy by its very nature forces us to state what matters about complex issues, which is precisely what a good argument does. So don't get bogged down in details--stay focused on the big picture. If you can do this with a complicated post like the above, you can do it with anything.

Update: I see no one has yet posted questions/links--no doubt this is because you are thinking so deeply about questions that you haven't had the time :)

Anyway, just to make it a bit easier and perhaps more fun, I just wanted to suggest some other ways to approach the assignment. I asked folks to post a question and, if they had one, a link that helped them answer that question. But it may be better if folks posted a question and then a link that helped them understand a different topic--after all, presumably that link has already answered the initial question. That way, we can get a sense of what is still murky and then have some resources available that might have helped folks answer some other questions. No doubt it will turn out that some of you end up answering the questions of others. And if you only have a question or a good link but can't think of both, that's fine as well.

Wednesday, February 29, 2012

The "Oil Theory" of the recession we discussed the other day, as distorted by the GOP primary

Here's a bit more to keep you busy on Friday. Check out this article, which explains how there is a type of truth in what Rick Santorum said about the recession recently, namely that rising gas prices contributed to it. Now, Santorum was arguing that Obama magically caused high gas prices even though he wasn't President yet, and that this caused people to default on their mortgages. The first part is absurd, and the timing does not support the second part, as much of the decline in housing already had happened before mid-2008 when gas prices spiked. But Santorum may accidentally have hit on a truth, in that high gas prices could have caused monetary policy to respond less aggressively than needed, thus helping to fuel the vicious cycle that turned an ordinary recession into The Great Recession.

Essay 3 - and the Greed Study

The goal of Essay #3 is to take us one step closer to producing our final term paper by going a little bit deeper into an issue of interest to you. In the last essay, we produced an informative argument that attempted to clarify misconceptions and highlight the most important aspects of an issue. Basically, you created a framework to help an intelligent layperson approach an issue in a general way. In this essay, we will focus less on explaining the broad outlines of a topic and instead provide an account of different positions on an issue and how those differences come about. In this assignment, you will provide a framework to help an intelligent layperson understand how different assumptions about what facts are most important, what values are most pressing, and what outcomes are most desirable lead to different proposals regarding one and the same issue. Your opening paragraph should clearly define the issue you are discussing and the various positions you will compare; your thesis should provide a precise account of how those positions differ and what accounts for those differences.

For example: if we were comparing/contrasting proposals to reform Social Security by instituting personal accounts, on the one hand, and by eliminating the payroll tax and replacing it with a more progressive tax, on the other, we might argue the following: "This dispute arises from a different understanding of what Social Security is and should be: whereas proponents of private accounts see Social Security as akin to an investment in a private retirement account, and thus have no problem with the system leading to radically different payouts to beneficiaries depending on the performance of those accounts, proponents of changing merely the financing of Social Security see the program as part of the safety net designed to provide a minimum standard of retirement income regardless of how much an individual may have paid into the system before retirement." As you can see, once again it is best to focus on 2-3 proposals that are as specific as possible, which will make it easier to clearly define the reasons for those differences. The proposals need not be from radically different ideological camps as in the above example; instead, it would be perfectly acceptable to demonstrate how the same ideology can also lead to different policy prescriptions as a result of subtler differences.

Bring a rough draft of the paper to class on Friday, March 16 and Friday, March 23. The final paper will be due Tuesday, March 27 by 5pm. The final draft should be 4-6 pages in 12 point Times New Roman Font with 1 inch margins. Use MLA to cite your sources (you'll probably need at least 3-5 sources to really start to get a handle on your topic). 

For those interested in the topic of greed, you might check out this study, which produced an experiment similar to the ones described by Niko. 

Friday, February 17, 2012

TBA discussion for 2.22 -- Keynes, Brazil, and American Exceptionalism

Oops, I forgot to have us vote on a specific topic today. But I realized that this may present us with an opportunity to practice a useful research skill: mastering a lot of material in a short time. In college, you will no doubt eventually encounter a period in which you simply have more reading than you can possibly do. In such moments, you need to deploy strategic reading, in which you try to create a conceptual map of the arguments and ideas that are at stake without painstakingly reading every word. This is also an important research skill, as it will enable you to quickly locate your place regarding topics that have a lot of information available.

When confronted with a great deal of information on a given topic that would otherwise be unmanageable, read primarily to get the overall argument while paying less attention to details. So for this task, I'm going to have you try to get a sense of the broader issues at stake without spending too much time on it: aim to spend less than one hour on all of the following links:

John blogged about Keynes, and I thought we might talk a bit about his ideas. Check out articles here and here.

Shelby linked to two articles on poverty programs. Check them out here.

(This may seem like a lot, but it is really just about 5-6 pages of reading--you probably will actually have time to read all completely, but in any case it is a good example of how an amount of reading that in other contexts would seem manageable can suddenly seem overwhelming. You only can be overwhelmed if you let yourself be!)

Last but not least, Rachel brought us some more videos, including a Stossel. These are a bit longer, but you can probably get the gist in a few minutes.

Again, this may seem a lot, but you can easily pull it all off in less than an hour if you use your time efficiently.

Wednesday, February 15, 2012

For Friday, 2.17 (and my own weekly post)

We'll be meeting again in room 041 to start research on our papers. Don't worry about bringing a rough draft for this week. We'll do peer editing next week after people have had some more time to conduct some research.

Thanks for the fun discussion today. After thinking about the two topics in tandem, it occurred to me that monetary policy--see here for more information on what Japan did today--is also a good example of framing bias in action: using phrases like "printing money" or "inflating the money supply" sends people from all over the political spectrum into a tizzy. Marxists see an attempt by the central bank to pump money into the hands of rich people without creating any jobs (see here and here); a certain strain of libertarian sees the government trying to steal the hard earned dollars of savers (see here and here).

However, in other contexts, the very same Marxists, as well as a different stripe of libertarian, are perfectly willing to see increasing aggregate demand as the solution to recessions caused by declines in spending. So while these individuals may be all against "printing money" and will decry the tyranny of the Federal Reserve--either for stealing wealth or for concentrating it in the hands of the rich--they are all for increasing aggregate demand. (By the way, the Fed does not actually print money, but rather uses open market operations to increase the money supply by purchasing government bonds, which are credited instantly and electronically to the bank account of the seller--doing it this way ensures the Fed is not just creating money recklessly as they now have an asset, and they can sell those same bonds in the future and withdraw the same money from circulation when the time comes).

The problem is that in a monetary economy--that is, in all modern advanced economies--these are one and the same thing. Increasing the money supply is how the level of aggregate demand adjusts.

Indeed, the very scary prospect of "printing money" is at the same time the rather dry and straightforward concept of controlling demand to produce full employment. This is symbolized by Y* in the graph below, the point after which more demand produces higher prices rather than more output because the economy simply can't produce more goods--thus additional demand just bids up the price of the current supply. (Think of it this way: Let's say there's a town where everyone is working half as hard as they woud like to be working. Businesses are only doing half the business they could be doing. Factories are only producing half the products they could be making. One day, a bunch of rich people from out of town moves in and starts buying more things. Suddenly everyone is working as much as they can. Factories are producing as much as they can. Restaurants are filled at all hours of the day. But then suddenly more rich people move in and start spending money. Until new factories and new businesses open up (which does not happen overnight), all that extra spending will do is drive up the prices of current output as more rich people compete for the same number of things--tables at restaurants, goods produced by factories, labor for their homes, etc.)

Right now almost everyone is for more aggregate demand (although they may disagree over why there is a shortfall); and yet many people who consider themselves mainstream and possessed of sensible and temperate views on economics are publicly falling into dyspeptic rages denouncing the madmen at the Fed. 

As one economist has pointed out, something about money just drives people batty. Ultimately, perhaps it is Marx who best explains why this is: even when it is in the form of gold, money somehow symbolizes the great trust that we have to put in our fellow humans in a complex modern society with an intricate economic system. This makes radical individualist types nervous. On the other hand, just as for some it symbolizes the inherently social nature of value--Robinson Crusoe found that money was useless on his island--it also symbolizes the seemingly unfortunate need to alienate and reify this underlying social cooperation in the form of a financial instrument--something that makes radical communitarian types nervous. 

But money is necessary because some general store of value is necessary for the economy--otherwise, we fall back into the inefficiencies of a barter economy. Indeed, Barter is so inefficient that some have even challenged the notion that there was a stage of human development before money, claiming instead that bartering never existed on a mass scale--people may fall into barter during certain times of economic necessity like hyperinflation or in places like prison, but it's never been widespread according to this view (and indeed, even in such circumstances a money-like object will often come into existence--think of the role of cigarettes in films about prison). 

As for the evolution of the monetary system itself, both Marxist and libertarians are often convinced that the Federal Reserve is some evil plot on the part of a shadowy, plutocratic elite. However, it turns out that there are good reasons why we first developed gold as the primary form of money and then moved on past it, and they are anything but conspiratorial. Rather, it is chemistry and basic macroeconomics that explains this evolution. Money has to be stable, compact and solid, and rare in order to serve its social function as a store of value, a medium of exchange, and a unit of account--if it quickly degenerated, was too bulky or heavy, or was extremely common, it would be difficult to carry about or to control the supply and thus fix its value. Most elements are either unstable, bulky, or hard to handle (in some cases because they are gases), even some modern precious metals like platinum have such high melting points that they are difficult to refine. So gold became money (for more on this, check out this podcast). This was a fine arrangement as long as the gold supply was expanding at a quick enough rate to support economic development. Once that stopped being the case, gold was no longer convenient. For an economy in which output was expanding at a faster rate than gold to remain on the gold standard, the price of everything at once would have to fall. The problem is that this is difficult for an economy. So instead of this happening, some prices fall, while there is just less demand for other things, leading to reduced output and unemployment. 

To counteract this problem, we just invented our own synthetic money--people were used to the government issuing certificates for gold, so why not just have them issue certificates that were very elaborate and hard to copy. These certificates met the same requirements as gold itself. They were stable and compact, but most importantly, the exact scarcity of these things could be controlled so that prices for stuff keep rising at a minimal but steady rate. This avoids periods of deflation and the recessions related thereto. Of course, then we have to trust the government not to make too much of the stuff. But even under the gold standard, we had to trust the government when it said that it had gold in its vaults. We have to trust the government to keep the price of gold stable. Indeed, in a manner of speaking we might think of this as a form of government intervention into the market--the ideal price system lets the cost of everything fluctuate rather than fixing the cost of some items. Again, this is framing bias in action: most libertarians would vociferously denounce a government plan to set the price of milk, and yet some trust the government to set the price of gold! 

So if we are going to have to trust the government no matter what currency system we adopt, shouldn't we at least pick the system that allows markets to operate freely and efficiently while avoiding periodic severe depressions? Under a gold standard--or a milk standard, or a gasoline standard, or a platinum standard, or a college tuition standard, or a yoga lessons standard, or any standard in which the government guarantees the value of money in terms of one particular good or service--we not only have to trust the government to keep enough gold around, but we still have to trust them not to print too much money relative to the amount of gold they are holding. Is having to trust the government to do two things instead of just one really worth a less efficient price system and the threat of depressions? Once again it's the problem of framing bias: everyone wants full employment and everyone wants stable prices. And while a gold standard sounds like the best way to do this, and while inflation targeting sounds like a terrible way to do this, it is really only with the advent of the latter system that we have been able to maintain stable prices and full employment for any significant period of time

Friday, February 10, 2012

Reading/viewing for 2.15

Hi Folks,

Here is another Stossel (Update: link fixed) for this week from Coleman on the subject of education reform.

Also check out this article, which apparently comes from a very different perspective. Despite the apparently radically different values and views of each side, can you spot the many ways in which the basic idea is similar? How does framing bias distort the apparent differences while minimizing the many similarities?

Wednesday, February 8, 2012

Tax policy, greed, self-interest

Just to even the score a bit, I thought I'd start posting weekly reactions to our reading/viewing materials as well, to give you a sense of different ways you can approach your blogging. 

After class today I had a few more thoughts about some of the precise difficulties in pinning down this notion of greed. 

It may be a bit odd to describe someone as "greedy for knowledge" (we usually speak of a "hunger" or "thirst" for knowledge) but it certainly sounds less strange to talk of someone being greedy for money. In the video for today, Bill Gates and Warren Buffet were offered as examples of people who created things of use and value out of selfish greed. However, over time both have given more money to charity. So if they were motivated all along by a desire to give away money to charity eventually, were their actions still then instances of greed? Furthermore, charity itself is now more like business. The Gates foundation has been remarkable for applying a sort of cold, calculating logic to charity, which in turn has made it all the more effective in helping people. The line between business and charity has begun to blur; it may one day disappear, which would possibly be a good thing. Some have even spoken of charity as a type of venture capital. (Maybe the Gates Foundation could invest in helping out the workers in their supposedly cooler, nicer rival's factories). Does applying ideas that Stossel associates with greed--efficiency, maximizing returns, etc.--to charity make it greedy too? 

My main reservation about describing all economic self-interest as "greedy" is that this opens the door to bad policy. It is no doubt good for the economy to have businesses seeking to maximize their profits. As long as they are operating within the bounds of legal and ethical strictures, such activity will help to make for a more efficient and prosperous country as they seek to find ways to cut costs while making better products. However, it seems to me that part of the goal behind extolling "greed" rather than self-interest is to lump together helpful practices with potentially harmful practices. Perhaps greed motivates some business people to pursue profits. But if we then conclude from this that greed is good, what is wrong with lobbying the government to pass regulations that favor one business over its competitor? Stossel may argue that this is a use of the government to increase wealth. OK, that's fair enough, but let's consider a similar example that works through the opposite mechanism. If a company lobbies the government to relax regulations that prevent them from dumping harmful waste or polluting the environment while simultaneously limiting the ability of those harmed by the pollution to sue for damages, then the company is eliminating government control. It can then reduce its environmental compliance costs without breaking any laws. Why does this violate Stossel's claim that any greed that does not employ the power of the state is somehow good? The response would probably be that it seeks to make money by causing harm to others. But then we are reduced to taking things on a case by case basis. Why not just reserve the word "greed" for such instances of harmful selfishness rather than trying to distinguish a good greed from a bad greed?

On some level I think that the purpose of Stossel's argument is precisely to make it impossible to come to any reasonable standard of what constitutes economic fair play. That way it becomes possible to argue that the particular type of greed under consideration is good when it benefits you but to argue that it is bad when it does not benefit you. As an example: aarguably Stossel was harassing that wrestler and impugning the reputation of his employer, so it was with a type of good greed that he reacted when hit him--violence was necessary to disprove the point that Stossel was making, and thus was not intended to hurt him, just to look out for his interests. Why do I get the feeling that Stossel would not agree with this (he sued the WWF; they settled out of court for a six figure sum)? If there is no reasonable standard for separating greed from enlightened self-interest, then people start to develop a negative opinion of markets and will be more skeptical of any policy that engages them, even if they seek to generate outcomes that benefit society as a whole. Right now the distrust of markets is leading people to advocate soak-the-rich taxation policy because people see such wealth as having stemmed from greed. The problem with this is that some policies that might actually allow rich people to lower their tax burden by investing or donating to charity would discourage them from spending their wealth on luxury items for personal consumption. Lowering taxes on the wealthy might actually encourage more charity and more investment. If all economic activity is just greed, then no one will consider such policies because they won't expect the rich to serve any useful function in the first place.  

Essay #2

We'll be meeting in the library this Friday in room 041, to prepare for the next essay, which will be due Monday, February 27th (bring rough draft on Friday the 17th and Friday the 24th).

Our eventual goal in the class is to produce a term paper that offers a detailed policy analysis of a particular topic of interest to you and which is informed by the classical economists we have read.

In preparation for this, our next paper will aim at producing an analytical summary of a particular policy issue. For this assignment, I want you to design an argumentative paper that explains and informs a general reader about your particular policy. Do not list disjointed pieces of information about the subject, but rather make an informative argument about what people often misunderstand about your issue, how it is possible to clear up those misperceptions, and what is most important to know about your issue in order to understand it most accurately. In other words, you want to explore the argumentative potential of informational modes of discourse, rather than just list facts. 

Do not feel that you are stuck with whatever topic you choose. In fact, I want us to use this assignment as an opportunity for teaching each other about various different policies. After we turn in this paper, I want us to briefly share our findings with the class through short, informal, 5-10 minute presentations. Just prepare a small handout that distills your findings and then present it to the class. Hopefully, this will serve as a kind of "topics fair" that allows the class to explore a wide variety of different subjects that might be of interest to them.

For this paper, I'll ask that you include at least one academic source (books, journal articles) and two other sources (can be academic or from substantive newspapers or periodicals). You can of course use the blogs we have been reading or other similar websites, but avoid using online encyclopedias or informational websites (, for example) as a source. You can read these for background information, but don't cite them as sources. The paper should be in the neighborhood of 4-5 pages double spaced, in 12 point Times New Roman Font, with one inch margins all around. 

Finally, remember that the more specific you can be, the better. Medicare is a better topic than health insurance in general; the Medicare Independent Payment Advisory Board (IPAB) is a better topic than Medicare in general; and comparisons of two specific cost-reduction schemes associated with IPAB is a better topic than IPAB in general.

Friday, February 3, 2012

TBA clip/reading for 2.8

Hey folks,

For Wednesday check out this link to a John Stossel video. It's a good example of a modern Mandevillean perspective (how exactly would this differ from a modern Smithian perspective?)

If you have time, also check out the runner up topic for this week, the article on monetary policy regimes. It's short and will probably be of interest for many, and it will also help understand some of what we have talked about and will talk about.

One last thing: this coming Friday we'll be meeting with Libby in the library for some instruction related to the next assignment and to the library more generally.

Monday, January 30, 2012

TBA reading 2.1

Here's the link to the reading for Wednesday.

Update: For those of you interested in the Gold Standard and the operation of the Federal Reserve, you might check out the podcasts available here and here. The show is called "Breakdown" and basically explains issues in contemporary policy. It's no longer producing more episodes, but the host, Chris Hayes, has a cable show now on MSNBC. The podcast comes from _The Nation_ so it's definitely left leaning, but he is very fair and quite friendly with conservative policy wonks like Reihan Salam, Kevin Williamson, and Tim Carney, frequently inviting them on his new TV program.

Wednesday, January 25, 2012

Is the Venus Project just a name for "the direction the economy is already heading"?

Right after class I found this article from one of the more interesting bloggers out there. He's a libertarian who wants to reform our monetary system (the dollar would be backed by futures contracts rather than gold) but who also favors heavy redistribution ("on utilitarian grounds" as he puts it, meaning money is more useful to the poor than to the rich)  and thinks the Scandinavian countries are among the most free-market around.

The fascinating thing about this is that he basically is saying a version of the same thing as the Venus Project, but just recasting it in purely descriptive language: basically, the economy is headed almost by necessity toward something that looks like the Venus project. It is the inevitable outcome of capitalist prosperity.

Marx, of course, also said that capitalism would inevitably lead to communism--he just was more focused on the negative aspects, namely, that people would rise up against a system in which such a tiny minority owned the majority of wealth. As automation proceeds, the owners of capital thereby own an increasing share of the wealth even as aggregate wealth is increasing, which would necessitate redistribution. Of course, this is what this blogger is saying too--he's just casting redistribution as something done voluntarily (which I suppose does not exclude the Marxist claim at all that the capitalist is just doing this out of a fear that if he does not people will just take it from him anyway).

So three apparently radically different philosophies--Marxism, a version of libertarianism, and whatever the Venus project is--are all basically saying the same thing. The way questions are framed can make an enormous difference.

Saturday, January 21, 2012

TBA reading 1.25

Here's a link to the Venus Project's "Aims and Proposals" section. Check out the website more generally and we can talk a bit about what they seem to be advocating.

Also check out the following podcast. It's nice and short and pretty interesting, and it describes another example of an idealistic-utopian proposal for economic reform: "participatory economics."

Wednesday, January 18, 2012

Essay 1 and MLA

A critique of Baker's argument from a libertarian perspective

Here's an optional follow-up to the Baker reading. It's a response from a libertarian blogger who also writes for Econlog, the website where Arnold Kling's posts appear (see the link in the previous post).

Some blogs to follow

Some blogs to start reading

Sunday, January 8, 2012

Course schedule with links

This is our official, dynamic course schedule. Check back frequently for updates. 

Week 1: Intro – What is “The Market” anyway?
M Jan 9: Introduction

W 11:  Liberalism, in the classical sense. Dean Baker, Taking Economics Seriously. Listen to This American Life podcast if time permits. It will help you understand some of Baker’s ideas.

F 13:  Provocations and precursors. Read Hobbes (chapter XIII – skim other chapters if you have time) and Mandeville (for some interesting background, read this, and check out the larger site more generally for good explanations of some of the concepts we cover).

Week 2 – Direct influences on Smith
M 16: MLK day. No class.

W 18: Read Hutcheson and Swift.

F 20: First writing day. Read Nancy Sommers. Make sure you are following class blog.

Week 3 – Smith, and our first current event reading
M 23:  Read Smith.  

W 25: Reading TBA. Post response to weekly current events reading by Wednesday’s class and leave two comments on another student’s blog by Friday’s class.

F 27: Bring in rough draft.

Week 4 – Recessions
M 30: Read Krugman.

W February 1: Reading TBA.

F 3:  Bring in rough draft.  

Week 5 – Division of labor and recessions
M 6: Read Smith. First paper due by 5pm.

W 8: Reading TBA.

F 10:  Possible library day or writing workshop.

Week 6 – The political economy of recessions
M 13: Read Marx (especially section 2), Beggs, and Krugman.

W 15: Reading TBA.

F 17:  Bring rough draft for peer editing. 

Week 7 – Money, then and now
M 20: Read Smith.

W 22: Reading TBA.  

F 24: Bring rough draft for peer editing.

Week 8: Topics fair
M 27: Paper 2 due by 5pm. Short presentations.

W 29: Short presentations.

March 2: Short presentations.

Week 9 – Spring break
M 5: No class. Spring break. 

W 7: No class.

F 9: No class. 

Week 10 – Crisis theory, recessions, and the origins of macroeconomics
M 12: Read Mills (via Delong) and Marx (especially section 3).

W 14: Reading TBA.

F 16: Writing workshop or possible library day.  

Week 11 – Recessions – a political or an economic problem?
M 19:  Read Marx, Delong, and Delong (which explains the issue in a slightly different way).

W 21: Reading TBA.

F 23: Bring in rough draft for peer editing.  

Week 12 – The moderns read the classics
M 26: Read Keynes (primarily section VI).

W 28:  Reading TBA

F 30: Bring in rough draft.

Week 13 – Becoming classical again?
M April 2: Read Sumner. Paper 3 due by 5pm.

W 4: Reading TBA

F 6: Easter break. No class. 

Week 14 – Finishing touches
M 9: Easter break. No class. 

W 11: Reading TBA.  

F 13: Writing workshop.  

Week 15 – Almost there
M 16: Bring in rough draft.  

W 18: Peer editing/workshopping.

F 20: Peer editing/workshopping.

Week 16
M 23: Last day of class. No final exam.

W 25: Study day. Final paper due by April 26th at 5pm.

F 27: Exams.