More than 60 leading economists... creating a dividing line within the profession on the crucial general election issue of how to tackle the UK’s huge public debt. Two letters in Friday’s Financial Times warn of the risks of damaging Britain’s fragile recovery by “reckless” early cuts. They are a riposte to the 20 economists who wrote to The Sunday Times last weekend supporting the Conservative party’s argument that fiscal tightening should start this year. The sharp differences between economists emerged as official data showed the budget deficit surged in January as income tax receipts fell by a fifth, alarming the markets and pushing up yields on government debt. The letters, while not overtly political, reject the Tories’ claim that cuts are needed now to reassure the markets and head off the risk of Britain losing its triple A credit rating.
One letter, organised by Lord Skidelsky, the cross-bench peer, asks instead how “foreign creditors will react if implementing fierce spending cuts tips the economy back into recession”. The other backs the chancellor’s “sensible” plan for tackling the deficit, warning that “with people’s livelihoods at stake, a responsible government should avoid reckless actions”. The signatories to the letters include two Nobel laureates – Joseph Stiglitz and Robert Solow – and five former members of the Bank of England’s monetary policy committee, including Sir Andrew Large and Rachel Lomax, two former deputy governors. Alan Blinder, a former vice-chairman of the Federal Reserve, is a signatory.
Their position was supported almost immediately by another Nobel laureate, Paul Krugman, who wrote on the New York Times website: “The crucial thing to understand is that fiscal contraction of an additional one or two percent of GDP in the near future has essentially no significance for the sustainability of government finances, either in Britain or here”...
Mr. Franke refers us to Karl Rove’s recent column in The Wall Street Journal.... All of [Rove's] measures would have at best a marginal influence on costs. Business alliances: The idea of allowing small businesses to band together for the purpose of health insurance is not new.... It is hard to see why anyone would seriously deem these alliances superior to the formal insurance exchanges provided in the Senate and House bills, modeled as they are after the already functioning Massachusetts “Connector” and the Federal Employee Health Benefit System through which members of Congress procure their heavily government-subsidized health insurance. Tort reform: There is a good reason to introduce tort reform.... Be that as it may, the nonpartisan Congressional Budget Office recently summarized the available research on the kind of tort reform advocated by Republicans. In a letter to Senator Orrin Hatch, a Republican from Utah, the office concluded that “if a package of proposals such as those described above was enacted, it would reduce total national health care spending by about 0.5 percent (about $11 billion in 2009).” >This does not strike me as a major source of cost control.
Buying health insurance across state lines: Health insurance may be cheaper in State A than in State B for two reasons. First, policies issued in State A may be subject to fewer state regulations. While that can lower the cost of insurance, it also deprives buyers of these complicated contingent contracts of consumer protection. It should give pause to a nation still digging out from its lack of understanding of other financial contracts — mortgages and structured securities. More importantly, however, insurance premiums vary among states because the cost of health care varies among states. An insurer located in Utah that is buying health care in Utah for someone who lives there can offer a much lower premium than the same insurer could afford to offer if forced to purchase health care from the heavily monopolized health system of Boston.... I believe it would be good to allow people to purchase health insurance across state lines, so long as insurers do not play loose with incomprehensible fine print. My conjecture is, however, that it would bring little financial relief to residents living in high-cost states.
Price transparency: Karl Rove would like to “empower patients by making health prices more transparent.” I would favor it, too, as would just about any economist. But price transparency also has long been resisted by the health insurance industry and the providers of health care, both of which view such information as proprietary. It is fair to ask, though, why Republicans did nothing to make that great idea a reality when they controlled the government from 2001 to 2006 or, for that matter, any of the great ideas listed by Mr. Rove. He then was part of the White House team.
3) Charles Francis Adams, Railroads: Their Origin and Problems (1878), pp.89-90:
[I]n 1872, a committee on railroad amalgamation was appointed. . . . [A]fter taking a vast amount of evidence, they proceeded to review the forty years of experience. . . . They showed with grim precision how, during that period, the English railroad legislation had never accomplished anything which it sought to bring about, nor prevented anything that it sought to hinder. The cost to the companies of this useless mass of enactments had been enormous, amounting to some L80,000,000; for these were 3,300 in number and filled whole volumes...
From today’s WaPo chat:
Franconia: “...having the courage to tell the hard truths and make hard decisions.” Like dumping ‘defined benefit’ pensions for ‘defined contribution’ pensions to alleviate open-ended risk. BTW, are you still a free lunch “something-for-nothing” Keynesian who loves the Fed and centralized command/control economic planning?
Steven Pearlstein: I’m not a something for nothing free lunch Keynesian—you must be thinking of Prof. Krugman…
Pearlstein goes on to slam the reader who asked the question, comparing him to Joe McCarthy, but why the strange gratuitous slam on Krugman?
There are those who doubt the new activists' sincerity, asking, in effect, "Where were you when George W. Bush was spending faster than Lyndon Johnson?" It's a fair question. The Tea Partiers insist they're nonpartisan, devoted only to staving off our looming fiscal apocalypse by any means necessary. If so, they can prove their authenticity by backing substantial cuts in entitlements and defense.... Rail against earmarks, foreign aid and "welfare queens" to your heart's content. But all that comes to a rounding error in a $3.7 trillion federal budget, over 75 percent of which consists of defense and entitlements.... Bartlett doubts many of them have the fortitude to embrace what's necessary to solve the budget crisis without raising taxes. Here's their chance to prove him wrong. The Tea Partiers — often thought to be hawks — might further demonstrate their credibility by calling for cuts in the Pentagon's $663 billion bottom line. As my colleague Ben Friedman likes to point out, we don't really have a "defense" budget: "The adjective is wrong."...
[I]t's pretty clear that the GOP isn't serious about reducing spending. House Minority Leader John Boehner, R-Ohio, distanced the party from the road map almost as soon as it was released, leaving reporters with the distinct impression that Ryan had soiled the punchbowl. In the middle of the recent fight against socialized medicine, Republicans fought hard to protect the chunk of our health care system that's already socialized. If there's money to be saved trimming waste from Medicare, "we should spend it on Grandma!" insisted Sen. Lamar Alexander, R-Tenn. GOP leader Michael Steele proposed a "contract with seniors" insulating Medicare from cuts.
But that's no surprise. Politicians live to get re-elected, and they won't change their behavior unless and until voters force them to. What this country desperately needs is a political movement that will pressure them to change their ways. The Tea Partiers could become that movement — if they're serious.
6) DELONG SMACKDOWN OF THE DAY: Maynard Handley (December 21, 2009):
Russ Roberts worth reading and listening to? You've got to be kidding me.
The guy has never in his life met an issue that isn't solved by libertarian thinking. I stopped listening to his podcast a while ago because there was literally no content to it --- every single damn episode, no matter who is being interviewed, turned into a claim that all problems are solved by self-organizationm and that people really are, when you look at things "properly", motivated only by money. It's one thing to view the world through economic lenses, as our host does. It's another to view the world through BAD economic lenses,
- to ignore all human history,
- to ignore such basic economic facts as the way the 2/3rds game plays out in real life (everyone chooses a number between 1 and 100, winner is the person whose number is closest to 2/3rds of the mean), or games with multiple equilibria,
- to ignore network effects and externalities,
etc etc etc
Russ Roberts is, bluntly, a content-free windbag, an academic George Will...
7) GRAPH OF THE DAY:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Erik Tarloff: Meg Whitman's Campaign Spots:
Meg Whitman... running for the Republican nomination for governor of California... considerable personal fortune, she shot out of the starting blocks early, inundating the airwaves... spots are entirely content-free, total pablum.... These do, however, possess one bit of fatuousness that is uniquely their own. Echoing every other outsider who has ever sought elective office, she extols her own non-political credentials, and then says, by way of explaining what evils she intends to remedy and in what way her lack of political experience is an asset rather than a liability, "The professional politicians have been fighting in Sacramento for years." What's wrong with this picture? Where do the words "cognitive dissonance" come into play? Well, the man she is hoping to replace, the current Republican governor, wasn't a professional politician either, was he? In fact, he used precisely the same pitch when he first sought the office. Far from being a pol, he was an actor and successful businessman before becoming governor. He had spent his entire adult life, he assured us, solving practical problems in a practical way, unconstrained by ideology or partisanship. He wasn't part of that venal Sacramento political culture, no sir; he was exactly what was needed to show those professional politicians a thing or two about how to do the people's business, yes sir. And his tenure is now widely derided as an abject failure. A view Meg Whitman's ad implicitly endorses. She isn't, after all, aspiring to replace Pete Wilson or Jerry Brown or Gray Davis or some other battle-scarred political veteran; if that were the case, the ad might just possess some resonance. But she's aiming to take the reins from Arnold Schwarzenegger. In effect, her ad is telling us she can remedy the mess in Sacramento because she brings to the task the purity of her inexperience. The very claim made by the man who, as the ad itself appears to concede, presided over that self-same mess. Perhaps a little re-tooling is in order.
9) STUPIDEST THING I HAVE READ TODAY: Charles Lane, observed by John Cole:
Bayh-Ford 2012? [Charles Lane:]
Quitting the Senate was a no-lose move for the presidentially ambitious Bayh, since he can now crawl away from the political wreckage for a couple of years, plausibly alleging that he tried to steer the party in a different direction—and then be perfectly positioned to mount a centrist primary challenge to Obama in 2012, depending on circumstances.
Almost like parody. If we’re lucky, Broder will start talking up a Bayh-Bloomberg Unity 12 ticket on Thursday.
10) HOISTED FROM THE ARCHIVES: DeLong (200): Wired Writes About the Crash of George Gilder:
In the 1970s George Gilder claimed that feminism was going to destroy American culture and wreak psychological havoc on American men. He was wrong. In the 1980s George Gilder claimed that the Reagan Revolution was going to ignite an extraordinary wave of economic transformation. He was wrong. At the turn of the 1990s George Gilder claimed that the information technology revolution was going to be a big deal. He was right. In the 1990s George Gilder claimed that the "telecosm" was going to be the biggest deal yet, and make all his clients extraordinarily rich. He was wrong. One for four is not a good record for a prophet. More important, perhaps, Gilder convinced people to bet real money on the "telecosm." And now they're angry and looking for a scapegoat.
Wired 10.07: The Madness of King George George Gilder listened to the technology, and became guru of the telecosm. The markets listened to his newsletter, and followed him into the Global Crossing abyss. yet he's never stopped believing. By Gary Rivlin: The lunch plates were cleared long ago, and the waitress gazes vacantly out over an otherwise empty dining room. But George Gilder, his legs propped on a nearby chair, seems rooted in place, not quite ready to leave.... "I knew that it was going to crash, I really did," Gilder says, looking out a window on to Main Street. Since 1996, he has published the Gilder Technology Report, a monthly newsletter that in its heyday was arguably the most influential tout sheet on Wall Street.... "I told people in early 2000 they should sell half their shares in these companies.... I didn't say it often. I didn't put it in a newsletter.... "If I had said, 'Hey, this is a top, you should all sell.'... "Half of my subscribers would have been eternally grateful [for a warning], but the other half -†the new ones - would've been enraged because they had just come in."...
Of course, the ironic thing is that as far as the technology is concerned, it is not clear that Gilder is wrong. But what Gilder never told the subscribers to his newsletter is that rapid technological progress does not high profits make. Rapid technological progress coupled with massive barriers to entry mean high profits. But the lesson of the late 1990s is that--unless you are Intel or Microsoft--technological innovation is more likely to increase competition in your market segment than entrench your market position. Why Gilder forgot to tell his subscribers this is unclear to me: he was writing a technology letter to educate his clients, not a stock-picking letter to part a herd of gullible subscribers from their money. Or, rather, he was writing a technology letter, until he and his partners fell into writing a stock-picking letter instead...