Category: Uncategorized

Stepping back from the details of the debt limit deal just reached, I think this was a productive summer in Washington.  In July in most years, nothing gets done in Washington.  This July, there was some progress made to restrain the growth of the federal debt.  Normally, as a nation, we are preoccupied with something utterly inconsequential during the summer.  At least over the last month, our elected representatives were finding ways to negotiate with each other and reach an agreement on something of consequence. 

Did we do ourselves proud with this extended soap opera?  No, the need to use the debt ceiling as the forcing event and the juvenile way that the negotiations sometimes played out certainly didn't elevate our standing in the world.  But I'd rather have the deal than the standing at this point.  And there really was little concern that the federal government would default on its explicit debt.

Is this a great deal on the budget?  No.  It is worse than several of the intermediate proposals offered during the negotiations.  (I would have taken this offer and run with it.)  It is worse than the Simpson-Bowles recommendations.  But it is something, and it may even be a start.  When the Congress returns from its summer recess, we will still have a long-term budget problem, and the Congress will still be responsible for solving it.

Readers of the blog know that I tend to advocate for choice-based alternatives to our current system of public education in which local monopolies are granted to individual schools.  I think there is simply too much value to choice and competition in any endeavor to limit it to the two forms it can now take in primary and secondary education: move to a different public school district or pay out-of-pocket for private school (foregoing the amount that the school district would have otherwise had to spend to educate the child). 

Charter schools have been one way of striking a balance in some areas, opening up choice within a public school district.  They have made their first inroads in urban areas, where the evidence of poor outcomes for low-income populations under local monopolies has been most apparent and where the large district population makes choice for a subset of that population relatively easy to accommodate.  So it is with great interest that I read this article in today's New York Times about initiatives to launch charter schools in higher-income suburbs.  You can weigh the arguments for yourself, but I did want to quote one of the opponents of the charter schools as a means of showing the ideological divide:

“Public education is basically a social contract — we all pool our money, so I don’t think I should be able to custom-design it to my needs,” he said, noting that he pays $15,000 a year in property taxes. “With these charter schools, people are trying to say, ‘I want a custom-tailored education for my children, and I want you, as my neighbor, to pay for it.’ ”

Well, "you, as my neighbor," are paying for the education anyway.  And I presume that "you, as my neighbor," don't want to waste your money.  In which case, I should further conclude that "you, as my neighbor" would support the custom-tailoring if it generates an outcome that is no worse at a cost that is no greater than leaving the money and the child in the traditional public school.  That should be the objective when communities consider breaking their local education monopolies.

Michael Likovsky makes the case for an infrastructure bank in this New York Times op-ed earlier this week.  Readers of the blog know I've been on something of a crusade for 3.5 years about this, so it's worth taking a look at the proposal.  Here's the key excerpt:

A bipartisan bill introduced by senators including John Kerry, Democrat of Massachusetts, and Kay Bailey Hutchison, Republican of Texas, seeks a similar but modernized solution: it would create an American Infrastructure Financing Authority to move private capital, now sitting on the sidelines in pension, private equity, sovereign and other funds, into much-needed projects.

Rather than sell debt to investors and then allocate funds through grants, formulas and earmarks, the authority would get a one-time infusion of federal money ($10 billion in the Senate bill) and then extend targeted loans and limited loan guarantees to projects that need a push to get going but can pay for themselves over time — like a road that collects tolls, an energy plant that collects user fees, or a port that imposes fees on goods entering or leaving the country.

Does America need an infrastructure bank?  Need, not necessarily.  But America does need enormous investments in infrastructure, so if such a bank is a means to that end, then I am happy to recommend it.  But look at the piddling amount of money in the proposal -- $10 billion when our total needs exceed $2000 billion and our unfunded needs exceed $1000 billion.  Even at the higher amounts that President Obama has floated in the past ($30 - $50 billion), we would have to achieve incredible leverage on the government's funds to attract enough private funds to make a dent in our total needs.

 

Should the government budget the way families do?  Here's an excerpt from Paul Krugman's latest column:

One striking example of this rightward shift came in last weekend’s presidential address, in which Mr. Obama had this to say about the economics of the budget: “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”

That’s three of the right’s favorite economic fallacies in just two sentences. No, the government shouldn’t budget the way families do; on the contrary, trying to balance the budget in times of economic distress is a recipe for deepening the slump. Spending cuts right now wouldn’t “put the economy on sounder footing.” They would reduce growth and raise unemployment. And last but not least, businesses aren’t holding back because they lack confidence in government policies; they’re holding back because they don’t have enough customers — a problem that would be made worse, not better, by short-term spending cuts.

Actually, the government should budget the way families should.  It's just not clear that families actually do what they should.  Both families and the government should budget countercyclically -- their savings rates should be higher during periods of growth than during periods of economic decline, so that their consumption can remain steady across booms and busts.  The problem that both the government and families are having today is that neither one saved enough during the most recent boom, and so both are having to cut back more than would be ideal during this protracted downturn.

Given what the families (and the private sector more broadly) are doing, I agree with most of what Brad DeLong has now deemed the "Hippie Caucus" suggests the government should do -- continued government spending while labor and capital are underemployed and underutilized.  (In fairness, I was a charter member of this caucus.)  My only break with the caucus is that I believe that all of the active countercyclical stimulus should come in the form of public investment to close the $1 trillion gap in our infrastructure needs (a total need of $2.2 trillion, only about half of which is likely to be appropriated over five years).  No tax giveaways.  No grants to states who budgeted particularly badly (loans would be okay).  Just build what we need.

In fairness to the Obama Administration, it inherited a recession, which has been followed, predictably, by a jobless recovery.  We have not gotten to see the Obama Administration during a boom to see whether it would budget during an upturn the way both families and the government should.

When Treasury Secretary Geithner spoke to a local audience last month, he assured us that the ensuing weeks would be filled with dramatic political theater.  When the news broke last evening that President Obama was going to enter today's round of debt negotiations by "offering Social Security cuts," I thought immediately of the movie theater, and in particular the scene in Bull Durham in which Crash tells Nuke to throw the next pitch at the mascot.  It could be that the right narrative to explain this development in the debt negotiations is as The Washington Post reports:

At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation's budget problems and that policymakers should seize the moment to take dramatic action.

As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal. The move marks a major shift for the White House and could present a direct challenge to Democratic lawmakers who have vowed to protect health and retirement benefits from the assault on government spending.

Or it could be that Obama sees how fired up the Republicans' conservative base is about holding these negotiations to spending cuts rather than tax increases and is wondering how to get some of that support on his side.  Offering up cuts in Social Security could be a strategy to achieve the same outcomes as throwing at the bull.  After Nuke throws his wild pitch, Crash tells the opposing team's batter not to dig in, because he doesn't know where the next one is going.  What I am looking for in response to Obama's offer is not whether the Republicans accept it but how vehemently and dramatically the Democrats reject it.

UPDATE: AARP weighs in with Exhibit A.  A left-of-center recap is Exhibit B.  And this report in The Hill is Exhibit C.  And based on this report, I rest my case.

Dartmouth is sponsoring a lecture series this summer on "Leading Voices in Politics and Policy," which is integrated with one of our courses in public policy.  (Most students who are rising juniors are on campus for their "sophomore summer.")  I will be on stage with Secretary Geithner to moderate a Question and Answer session focusing on fiscal policy.  This couldn't be more timely.  If you are in town, come by Spaulding Auditorium at 4:00 p.m.  For the rest, you can link to the livecast of the event and learn more about the series here. 

And here's the video:

A Bloomberg poll, discussed in this news article, indicates that 55% of respondents believe that "cuts in government spending and taxes would be more effective at creating jobs than maintaining or increasing government spending." I am quoted in the article as follows:

The question is confusingly formulated, because economists usually think of tax cuts and spending increases as part of the same stimulus-based approach, not as opposing approaches. But at root, the results appear to indicate that most Americans think cutting spending, not increasing it, is more likely to create jobs.

But that's almost the opposite of what most experts--on both sides of the political divide--believe. "That wouldn't square with the way we normally think about economic activity in a depressed economy," Andrew Samwick, a former chief economist on President Bush's Council of Economic Advisers, told The Lookout. When the economy suffers from a lack of demand, as it does now, Samwick explained, most economists think increasing spending is the more effective way to generate that demand and get things moving again.

<!--break-->

Why has the opposite view begun to take hold? In part, Samwick argued, it's thanks to the efforts of congressional Republicans, who want budget cuts and lately have hammered home the view that government spending has stymied growth. "You have the Speaker of the House talking about job-killing government spending," said Samwick, now a professor of economics at Dartmouth College. "But they have not been tasked with making clear exactly how the government is killing jobs."

If the conjecture means that employment goes up when government spending goes down, you would have to persuade me that a person is more likely to be employed if the government stops spending money to purchase things that he would make if employed.  That makes no sense. 

If the conjecture means that employment goes up when there is a revenue-neutral reduction in government spending, then that could be true, depending on whether the government spending or the private spending that might occur with a lower tax burden is more labor-intensive.  But that hardly seems like the context for the question.  Alan Blinder provides a more articulate response to the conjecture in yesterday's Wall Street Journal.

I am not saying that any government spending is justified merely for the sake of employing labor and capital.  It is justified if it serves a need that society has and that the government is typically responsible for meeting.  In that case, the current economic environment is one in which the need could be met on the cheap, precisely because the costs of employing labor and capital are lower than they are likely to be in the future.  This is nothing new -- it is what I have been saying for nearly 3.5 years.

 

Yesterday, I had what has become par for the course on USAir -- a 3-hour flight delay for idiotic reasons on the outbound flight and more delays on the return flight.  I am out $200 for the accommodations I had to make to overcome the delay (a ticket on Southwest) and I was late to my meeting.  I understand that USAir's formal liability is limited to the amount I paid them for the first leg of the ticket, but I am going to "punish" USAir by taking my next flight this summer on Southwest and "retaliate" against USAir by looking to do as much traveling as I can on other airlines in the future.  My desire to punish and retaliate might cost me some extra money, but it's my money to spend.  A law that required me to fly USAir rather than Southwest despite the lousy service would be laughable.

I think that's how most people understand rules of the game in our society, and that's why I think the National Labor Relations Board's case against Boeing is going to be a political loser for the Democrats for as long as it is in the news.  If you haven't been following this issue, you can get a quick overview here (or in the video posted below).  The key paragraphs are:

Mr. Solomon said that he understood that the complaint had made local workers "feel vulnerable and anxious," but that it had been brought because of concerns that Boeing had been motivated by retaliation against workers exercising their right to strike. "These are difficult economic times, and I truly regret the anxiety this case has caused them and their families," he said during his testimony. "The issuance of the complaint was not intended to harm the workers of South Carolina, but rather, to protect the rights of workers, regardless of where they are employed, to engage in activities protected by the National Labor Relations Act, without fearing discrimination."

Mr. Solomon filed a complaint in April alleging that Boeing decided to locate a new assembly line to build 787 Dreamliner jets in South Carolina because it was trying to punish union workers in Washington state for their past strikes. Boeing says the charge is groundless and has said it will fight the case to the Supreme Court.

I think the claim that failing to expand in a given area because it is cheaper to expand in another area is a violation of any law that is worth being upheld is going to be a tough one to make.  It is further complicated, in this particular case, by the fact that there is no evidence that any specific workers have lost jobs in Washington, Boeing's home and the location of the existing assembly lines for the 787.

It has been all Commencement, all the time, at Dartmouth for the past week.  I thought he was an unusual choice, but Conan O'Brien delivered as the keynote speaker.  Here's the part of his speech where he pivoted from comedy to something more:

Eleven years ago I gave an address to a graduating class at Harvard. I have not spoken at a graduation since because I thought I had nothing left to say. But then 2010 came. And now I'm here, three thousand miles from my home, because I learned a hard but profound lesson last year and I'd like to share it with you. In 2000, I told graduates "Don't be afraid to fail." Well now I'm here to tell you that, though you should not fear failure, you should do your very best to avoid it. Nietzsche famously said "Whatever doesn't kill you makes you stronger." But what he failed to stress is that it almost kills you. Disappointment stings and, for driven, successful people like yourselves it is disorienting. What Nietzsche should have said is "Whatever doesn't kill you, makes you watch a lot of Cartoon Network and drink mid-price Chardonnay at 11 in the morning."

<!--break-->

Now, by definition, Commencement speakers at an Ivy League college are considered successful. But a little over a year ago, I experienced a profound and very public disappointment. I did not get what I wanted, and I left a system that had nurtured and helped define me for the better part of 17 years. I went from being in the center of the grid to not only off the grid, but underneath the coffee table that the grid sits on, lost in the shag carpeting that is underneath the coffee table supporting the grid. It was the making of a career disaster, and a terrible analogy.

But then something spectacular happened. Fogbound, with no compass, and adrift, I started trying things. I grew a strange, cinnamon beard. I dove into the world of social media. I started tweeting my comedy. I threw together a national tour. I played the guitar. I did stand-up, wore a skin-tight blue leather suit, recorded an album, made a documentary, and frightened my friends and family. Ultimately, I abandoned all preconceived perceptions of my career path and stature and took a job on basic cable with a network most famous for showing reruns, along with sitcoms created by a tall, black man who dresses like an old, black woman. I did a lot of silly, unconventional, spontaneous and seemingly irrational things and guess what: with the exception of the blue leather suit, it was the most satisfying and fascinating year of my professional life. To this day I still don't understand exactly what happened, but I have never had more fun, been more challenged—and this is important—had more conviction about what I was doing.

How could this be true? Well, it's simple: There are few things more liberating in this life than having your worst fear realized. I went to college with many people who prided themselves on knowing exactly who they were and exactly where they were going. At Harvard, five different guys in my class told me that they would one day be President of the United States. Four of them were later killed in motel shoot-outs. The other one briefly hosted Blues Clues, before dying senselessly in yet another motel shoot-out. Your path at 22 will not necessarily be your path at 32 or 42. One's dream is constantly evolving, rising and falling, changing course. This happens in every job, but because I have worked in comedy for twenty-five years, I can probably speak best about my own profession.

Read the whole thing.

When historians look back at our era and write about how a nation so blessed was able to squander those blessings so dramatically, they won't have to look much further than the U.S. Senate.  Words, polite ones anyway, cannot really express how how absurd it is that the nomination of Peter Diamond for the Board of Governors of the Federal Reserve System has come down to this.  Even without the Nobel Prize, his qualifications for the position were beyond question -- at least by anyone who could be persuaded by the answers.  I continue to wonder whether our society is resilient enough to withstand many more years of this institutionalized immaturity on important policy matters. 

With Austan Goolsbee's resignation as CEA Chairman, most speculation will turn to his successor and this summer's Senate confirmation process.  And, no, I don't think President Obama will nominate Peter Diamond to be the CEA Chairman, though he is, once again, more than qualified for the position.  The next CEA Chairman will have to be someone not currently associated with the Obama Administration, so that the confirmation hearings can be less of a retrospective on Obama's policies to date and more of a forward-looking discussion of what could and should be done.  And I don't envy Goolsbee's successor, for two reasons.  First, outsiders have a terrible time trying to be heard by those who have been around since the campaign and have developed trust and established ways of working together.  Second, by the time this person takes office, the entire economic agenda will be driven by the 2012 election campaign and not the more thoughtful possibilities for crafting policy.