Short-Termism, Secular Stagnation and Political Decay
April 23, 2015 2:34 PM   Subscribe

Foundation: Public Goods and Options for the Bottom Billions - "Human beings just don't handle the very long run well" and that's where government increasingly comes in... (via)
So, how big should the government be? The answer, broadly speaking, is surely that government should do those things it does better than the private sector. But what are these things?

The standard, textbook answer is that we should look at public goods — goods that are non rival and non excludable, so that the private sector won't provide them. National defense, weather satellites, disease control, etc. And in the 19th century that was arguably what governments mainly did.

Nowadays, however, governments are involved in a lot more — education, retirement, health care. You can make the case that there are some aspects of education that are a public good, but that's not really why we rely on the government to provide most education, and not at all why the government is so involved in retirement and health. Instead, experience shows that these are all areas where the government does a (much) better job than the private sector. And Brad argues that the changing structure of the economy will mean that we want more of these goods, hence bigger government.[1,2,3]
Free Lunch: Should the government be bigger? "Perhaps... we haven't invested too much overall but too much in the wrong things."

Making Do with More - "Ensuring that the workers of today and tomorrow can capture the benefits of the information age will require us to redesign our economic system. Only by finding ways to put true value on the goods we produce can we sustain a middle-class society, rather than one of techno-plutocrats and their service-sector serfs."
As Larry Summers said... at the Brookings Institution's Hamilton Project: "[if] technology [is] having huge and pervasive effects... you would expect it to be producing a renaissance of higher productivity [growth]..." that we simply do not see.

My preferred reconciliation is to note that the value provided by information-age commodities is very hard to track. Rival and excludable commodities lend themselves to a private property-based market economy. That they are excludable -- that their "owners" can easily keep others from making use of them should they choose -- gives an enormous amount of bargaining power to those who control the production-distribution-coordination nexus. That they are "rival" -- that two people cannot use the same one at the same time -- creates a demand to produce at enormous scale which gives an enormous amount of bargaining power to others in the production process who own factors that if not scarce now soon will be given the requirements of mass production.

As a result, money flows appear wherever utility and value are provided -- and those money flows are easy to track in national accounts. But non-rival, non-excludable information-age commodities are a very different beast: difficult to properly incentivize their creation, difficult to monetize their distribution, and difficult to track in national accounts. Thus a larger and larger wedge emerges between growth in utility as measured by true willingness-to-pay and growth in real measured national product.

But redesigning our economic system to properly incentivize and redesigning our national accounts to properly measure the completion of the ongoing information-age occupational revolution are only two of our four problems. In addition: Distribution must match effective demand to total income earned. And distribution must create a middle-class society rather than one of techno-plutocrats and their service-sector serfs.

The craving for immediate gratification has spread well beyond Wall Street - "There's a host of reasons short-termism has taken hold in our culture, both in the United States and more broadly. Greed and the media's reliance on daily bombardments of bad news certainly play a part, but more important, we've lost sight of our actual goals. It's in everyone's interest to provide opportunities for education, a reasonable level of healthcare, and a secure retirement for the most people possible, just as we should all be working to conserve our natural resources to assure that clean air, clean water, and renewable fuel sources are available to our children."

Interview with Dani Rodrik - "The way we actually increase our understanding of the world is by expanding our collection of models. We don't throw out models, we add to them; the library of models expands. Social reality is very different from natural reality in that it is not fixed; it varies across time and place... Certainly, there are things in economics that can be said to be fairly universal; many of those are actually quite innocuous, such as the assertion that 'incentives matter'. I think we can often also agree after the fact:"
I think what happened in the long period of expansion of the postwar global economy is that most advanced countries experienced relatively rapid growth, relative equity, and relative stability. And we forgot that, in fact, all of those were facilitated by institutions that were largely products of the nation-state. Institutions of macroeconomic stabilization, such as monetary and fiscal policy; institutions of social insurance such as transfers and safety nets; and various regulatory institutions in product, labor, and financial markets.

It's only when something goes wrong that we realize how important those things are. In a national crisis, you realize how important a central bank is that's going to pump liquidity into the system, or the fiscal system that provides your unemployment checks and stimulus or bails out companies whose failures would otherwise come at huge social costs. We forgot that good economic performance was underpinned by the institutions that markets require, which have been provided traditionally by the nation-state.
Economic history is dead; long live economic history? "Economic history may well be dead as a subject studied in independent academic departments, as it was at universities in the 1970s. But as a subject that is needed as part of the study of economics and the making of public policy, economic history is—and should be—very much alive."

Secular Stagnation

While there's a lot that's been said (and still to say...) What it basically boils down to is that: "Ben Bernanke, the former central banker, sees monetary policy and structural reforms as the way forward. Larry Summers, the former Treasury Secretary, sees fiscal policy as the way forward."

Or as Carola Binder writes in Politicians or Technocrats: Who Splits the Cake? "Monetary policymakers can no longer ignore the distributional effects of monetary policy -- and neither can voters and politicians."

In any event taking The Long View: "Range of adaptation refers to how comprehensively economic activity must be reorganized before positive impacts on output and productivity occur. Eichengreen reasons that the greater the required range of adaptation, the higher the likelihood that growth may slow in the short run, as costly investments in adaptation must be made and existing technology must be disrupted."

Political Decay

Democracy in Crisis - "Democratic systems of government are supposed to reflect the interests of ordinary citizens, and not some shadowy political elite. But more and more, we see the influence of big money and special interest groups in so-called democratic politics, while income inequality and voter suppression grow. With millions convinced that politicians don't speak for them, is there a 'crisis of representation' in the US? Are these problems a result of political decay in our institutions, or is democracy in trouble everywhere? How can we achieve an efficient and prosperous democracy in which the average citizen is truly represented? Should we consider a radically different system of government?"

America's lobbying addiction - "As a result of all this lobbying, the system becomes more byzantine, making it harder for anyone to navigate without more lobbyists. The lobbyists—probably contrary to the interests of business as a whole—are the patrons of kludgeocracy, which is the environment in which they thrive. According to his interviews, this isn’t just an emergent property of the system, but something that lobbyists are canny enough to consciously promote as they play a long game. As the policy environment gets more nooks and crannies—often put there by lobbyists able to stick them into giant bills that overload mere mortal lawmakers with more information than they can process—the need for native Washington knowledge increases. It becomes a full time job, or many full time jobs, just to keep track of all the noteworthy developments in many different forums."

Are we kidding ourselves on competition? "In a world where shareholders can get what they want, we won’t have competition in this outcome but, more likely, a collusive outcome. What is more, the firms won’t have to go to all the difficulty of violating antitrust laws to obtain this outcome, they will do it unilaterally. There are no laws against that."

Our Bigotry Imposes A High Cost On The US Economy - "If racial and gender discrimination were purely matters of fairness, ending them would still be a worthy cause. But there is another reason to combat discrimination -- it boosts the economy."

Fair Wages: A History of Getting Paid - "With legislation on the table in Congress and increases being debated in many states, this episode looks to the origins of the minimum wage, and explores how we've thought about fair pay over time."

James Madison on American Exceptionalism - "It has been frequently remarked that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for their political constitutions on accident and force."
posted by kliuless (6 comments total) 32 users marked this as a favorite
Great collection of links! Thanks.
posted by ropeladder at 7:45 PM on April 23, 2015

It's in everyone's interest to provide opportunities for education, a reasonable level of healthcare, and a secure retirement for the most people possible, just as we should all be working to conserve our natural resources to assure that clean air, clean water, and renewable fuel sources are available to our children.

I would personally agree with this but I think you'd get strong opposition these days. Current conservative thinking seems to generally be of the opinion that government should do very, very little. As in, even if government can do something better and cheaper than industry, in a way that benefits us all, they still shouldn't do it. Government doing anything, apparently, is "socialism."
posted by LastOfHisKind at 8:09 PM on April 23, 2015 [1 favorite]

Americans won't believe in government again until they destroy it and miss it. What a shame they're taking the rest of the world down with them...
posted by lupus_yonderboy at 10:25 PM on April 23, 2015 [1 favorite]

Good post
posted by Another Fine Product From The Nonsense Factory at 5:19 AM on April 24, 2015

Current conservative thinking seems to generally be of the opinion that government should do very, very little. As in, even if government can do something better and cheaper than industry, in a way that benefits us all, they still shouldn't do it. Government doing anything, apparently, is "socialism."

Democrats’ conundrum: Voters often don’t trust government to fix inequality

but that's kind of what's neat about the delong/summers proposal (second FPP link) to expand gov't investment in services -- public goods and options -- through borrowing or money printing because it's fundamentally a market-based argument with inflation and yields so low. so to the extent that conservatives are swayed by what the market is telling them, then conservatives could be convinced of a larger role for gov't -- like they already do for the military* -- in the twenty-first century.

the key i think is the subtext lying in the summers/bernanke debate on the interpretation of what the market is saying. in a nutshell -- keeping the maintenance of political legitimacy in mind -- central banks have been experimenting wildly, scrambling to put it mildly, on trying to boost 'velocity' (monetary transactions from which nominal GDP is calculated) in the economy. so far this has only really succeeded in raising financial and corporate profits and their associated asset values for wealthy capitalists, while throwing a bone helping to maintain a baseline rate of hiring to prevent more unemployed from occupying wall street. if i'm reading bernanke correctly this counts as 'success'.

summers otoh -- speaking of de shaw -- seems like he's saying that's short-sighted and not good enough (to maintain political legitimacy). delong is taking it further to the degree that he may have to hand in his neoliberal card.

so going back to conservative thinking and market arguments, radical approaches -- in defense of freedom, the pursuit of justice and the face of tyranny -- may be called for if secular stagnation obtains and monetary tools (+'structural reform') are inadequate to pull away from the zero lower bound. as the FT says:
When such mighty brains as Professors Bernanke and Summers cannot agree, a pragmatic response is called for. It may be impossible to determine when, how or even whether secular stagnation will end, but this is no reason to ignore it. Taking the UK as an example, bond yields have fallen by half since 2010 despite a sharp rise in debt. Investment and productivity have meanwhile disappointed. These factors strengthen the case for the government borrowing to invest. The purpose would be to raise the sustainable growth rate. Once, the risk of this pushing up interest rates would have been a regrettable side-effect weighing against such an aim. In current conditions, it is more of a bonus.
also recall that shinzo abe -- japan's conservative arch-nationalist (and US ally) -- is leading the way in this regard and, from a geopolitical context, china is showing no qualms about fusing monetary, fiscal and foreign policy in pursuit of its long-term strategic interests; if it even appears to work (see below) i'd guess the US won't be far behind in pursuing its frenemy into the wild...

*re: 'socialism', except when it's security theater;[*] i'm intrigued by the performative and ritualized aspects of 'signaling' one's identity and group membership -- loyalty (who/what one 'worships' in the DFW sense) -- within some power structure or social hierarchy and then of course the reward/punishment incentive schemes (say of capital owners vs. wage earners for our purposes) that 'reify' those hivemind agglomerations into particular groupings. i guess my naive sociobiological take is the 'team' that wins -- if it can even be considered a competition (to the extent that humanity as a whole can't 'get along' and cooperate together?) -- will have a greater claim on being/defining a 'reality-based community' that is a better understanding of how the world works, including how the 'other side' thinks and how to exploit convince them otherwise :P
posted by kliuless at 11:49 AM on April 24, 2015 [1 favorite]

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