Economics for Inclusive Prosperity
February 22, 2019 6:25 AM   Subscribe

Economics After Neoliberalism - "Contemporary economics is finally breaking free from its market fetishism, offering plenty of tools we can use to make society more inclusive."
Sandra Black and Jesse Rothstein use the best modern economics to provide a contemporary restatement of an old idea: government should provide public goods and social insurance. Social insurance mitigates the widespread and well-known failures in insurance markets, in the form of unemployment insurance, social security, and health insurance. And education requires government provision because children are generally in school before the peak income of their parents and because parents cannot borrow against the earnings of their children. The benefits of education are also in the far future and are associated with externalities in crime, citizenship, and innovation. All this militates in favor of government provision of education and social insurance.
-Economists for Inclusive Prosperity
-We hope to make Economics more relevant
-10 policy briefs, on finance, labor, social policy, trade, technology, and politics (pdf)

also btw...
  • How the US actually financed the second world war - "When Americans really want something, they find a way to pay for it."
  • On Paying for a Progressive Agenda - "We could use a rough typology of spending proposals, classified by how they might be paid for. Specifically, let me suggest that there are three broad categories of progressive expenditure: investment, benefits enhancement, and major system overhaul."
  • MMT done right - "Focuses attention on the inflation constraint rather than the financiers-are-scared-the-debt-is-too-high constraint."
  • How I came to MMT and what I include in MMT - "Finance should be 'functional' (to achieve the public purpose), not 'sound' (to achieve some arbitrary 'balance' between spending and revenues).
  • but why can't we have nice things? "@adam_tooze argues that perhaps the site for contestation of the de facto world disorder is the rarified world of the 'macroprudential', the high level bankers and regulators who, out of sight and often ad hoc, shape the norms and flows of global finance."
  • and, (possibly? ;) worth noting, even libertarians and conservatives aren't happy: "our policies are broken, and our politics are broken, and we have ideas about how to fix both."
  • Liberty versus Monopoly - "Over the last half-century, business interests and philosophical libertarians have formed a powerful alliance."
  • A Healthy Discussion about Wealth (and Billionaires) - "It is an important question to ask what money should be able to buy. In particular, how much political power it should translate into is a crucial question if we want to live in a well functioning democracy."
  • The Global Con Hidden in Trump's Tax Reform Law, Revealed - "Why would any multinational corporation pay the new 21 percent rate when it could use the new 'global minimum' loophole to pay half of that?"
  • How Can We Tax Footloose Multinationals? - "Apple, Google, Starbucks, and companies like them all claim to be socially responsible, but the first element of social responsibility should be paying your fair share of tax. Instead, globalization has enabled multinationals to encourage a race to the bottom, threatening the revenues that governments need to function properly."
  • Tax Avoidance at the Top - "Raising taxes on pass-through business income isn't as sexy as raising top income tax rates, but it's probably a lot more important in terms of actually taxing the rich."
  • How High-Tax Countries Tax - "They don't tax wealth much, their income taxes are high but not very progressive, and they rely a lot on consumption taxes."
  • The Bitter Origins of the Fight Over Big Government - "What the battle between Herbert Hoover and FDR can teach us."
posted by kliuless (37 comments total) 36 users marked this as a favorite
I appreciate what they are trying to do but isn't economics as a discipline tarnished beyond redemption now?
Decades of the most prominent economists being essentially a "cargo cult math used to support whatever policy you desire" on demand service has made the whole field look like the kind of medieval theology that let the pope do whatever he wanted.
If they weren't so useful to the rich they would have been shut down ages ago.
posted by thatwhichfalls at 6:59 AM on February 22 [9 favorites]

I appreciate what they are trying to do but isn't economics as a discipline tarnished beyond redemption now?


Decades of the most prominent economists being essentially a "cargo cult math used to support whatever policy you desire" on demand service has made the whole field look like the kind of medieval theology that let the pope do whatever he wanted.

You mean Stiglitz and Krugman?

If they weren't so useful to the rich they would have been shut down ages ago.

I'm not sure what you mean--do you mean that individual economists would be fired if they weren't useful to the rich? that departments would be shut down? I don't think anyone's going to shut down the Econ department at Harvard (where Rodrik works) or the SIPA at Columbia (where Suresh works) because their ideas do favor the rich.
posted by MisantropicPainforest at 7:06 AM on February 22 [7 favorites]

If they weren't so useful to the rich they would have been shut down ages ago.
One data point: among academic economists at leading U.S. schools, there are 4.5 registered Democrats for each registered Republican.
posted by Mr.Know-it-some at 7:11 AM on February 22 [2 favorites]

> Decades of the most prominent economists being essentially a "cargo cult math used to support whatever policy you desire" on demand service has made the whole field look like the kind of medieval theology that let the pope do whatever he wanted.

Most of academia gets used like this to some degree. Most of the interesting parts of economics research and discussion don't make it into public discourse, which is by far the greater failing of the discipline than any tendency to provide fodder for pundits.

> If they weren't so useful to the rich they would have been shut down ages ago.

Most of the economists I know are pretty firmly on the side of the interests of regular people, and got into economics specifically because they care about inequality.
posted by cirgue at 7:12 AM on February 22 [6 favorites]

Academic Economics in the 19th century was pretty much what you describe as ‚beyond redemption‘, thatwhichfalls - exculpatory rationalizations. What Marx did in Capital was to criticize and try to write better economics.

Think of Marx what you will but I would argue his tactic was more influential than if he’d just given up on the discipline.
posted by The Toad at 7:15 AM on February 22 [8 favorites]

Once the economists were invited into the places where decisions are made, they seemed to hit on an experimental method that consisted of setting social structures on fire and analysing their working by breathing in the smoke. I mean the big name economists of course. I'm sure the rest of them were doing the good work. Sadly they never get to put their theories into action.
From the outside, all we see is sinister men who want to make the real economy into the spherical one of their models by removing the bits that don't fit.
posted by thatwhichfalls at 7:19 AM on February 22 [2 favorites]

"If they weren't so useful to the rich they would have been shut down ages ago."
One data point: among academic economists at leading U.S. schools, there are 4.5 registered Democrats for each registered Republican

I mean I hate that heterodox economists and their work are constantly erased and ignored, but I also don't know that this data point alone is necessarily relevant.
posted by AnhydrousLove at 7:19 AM on February 22 [7 favorites]

The media often gives a very distorted view about what academic scholarship is actually like. Take climate science, for instance. Every single "climate skeptic" with a PhD gets a soapbox, regardless of whether their degree is all that relevant or whether they spend more time posting political cartoons than on actual scholarship.

It is good to remember that, unless you are deeply involved in a field, your view of a given field is going to be filtered by what people with money and power choose to promote. Not surprisingly in economics, it's those with viewpoints useful to the rich.
posted by Zalzidrax at 7:28 AM on February 22 [10 favorites]

LOL at the idea that US Democrats aren't favorable to the rich
posted by demonic winged headgear at 8:01 AM on February 22 [21 favorites]

Economists are the "scientists" (if you could call them that) of money. They genuinely want to understand and explain it; their models can be used to build or destroy as much as scientific models can be used for war or for peace.

The problem largely comes in that government officials are free to pick and choose what they like. The Federal Reserve Chairman is no more an economist than the head of the EPA is a scientist.

A lot of the ire folks have for economists really should be reserved for the politicians who take sensible policies and then strip them bare. An economist says "X will grow the economy, as long as you add regulations A, B, C, and D." Then the news reports "economist says we should do X," and the politician thinks X sounds great, and next thing you know you have tax cuts for businesses without counterbalancing regulations to make them reinvest that savings in their communities or workers.
posted by explosion at 9:28 AM on February 22 [1 favorite]

Economists are the "scientists" (if you could call them that) of money. They genuinely want to understand and explain it;

Wrong. So many things that economists study aren't directly related to money.
posted by MisantropicPainforest at 9:44 AM on February 22 [2 favorites]

One problem is economists haven’t been allowed to be scientists for a long time since the people who found economic degrees and pick positions and pay for forums and the like have a vested interest in making sure “economics science” supports them doing whatever they want whenever they want.

It’s like Wolfe said, modern economics is basically a hired cheerleader for a current system and bends over backwards to make sure the same policies are always supported regardless if they “work”. If they’re scientists then they’re the kind the tobacco industry bought to say Actually Second Hand Smoke Is Good For Plants.
posted by The Whelk at 9:46 AM on February 22 [3 favorites]

The headline talks about economics trying to move away from "market fetishism" while TFA itself says only ignoramuses (my word) think economics is about market fetishism. Of course discussion here is based on the headline not TFA. I didn't love the article but links to briefs on unionization, wage boards and political economy seem intriguing.

My impression is that the mainstream economist is between center right and center left, go figure. As in other spheres though, the center right types seem willing to go all in on the partisan initiative du jour, while those on the left are most comfortable criticizing and pointing out caveats.

Probably a bit dated by now but Zombie Economics by John Quiggin is a late '00s book on discredited ideas that still float around the public sphere. Based on comments I think many would be surprised by things like 'privatization' that have negligible serious academic support from actual economists. If the typical NPR anchor accepted mainstream economics as their "Overton window" they'd shift to the left.

If they’re scientists then they’re the kind the tobacco industry bought to say Actually Second Hand Smoke Is Good For Plants.

Who is "they" in this sentence? Do you seriously think this applies to Amartya Sen? Stiglitz? And these are Nobel Prize winners, not weird outliers. You might want to consider the possibility that rich interests are actually free to ignore mainstream research when it comes from economists, same as they do when it comes from climate scientists.
posted by mark k at 10:17 AM on February 22 [8 favorites]

Economists are the "scientists" (if you could call them that) of money.

I had a psych prof when I was in grad school whose brother was an economist. One day he whispered "Economists are just applied political scientists but they don't want to admit it".

He also said "It was easier back in the day. All I had to do to get a job was not fall over drunk during the interview". He paused and then he added "I could show up drunk though. I just couldn't fall over."
posted by srboisvert at 10:23 AM on February 22 [1 favorite]

Man, this thread is weird. I mean there are bad economists who allow fit their work to their socio-political beliefs and some who are just incompetent and with subject like economics there are necessarily assumptions that inform the results of ones studies in ways physical science doesn't quite have for economics arising from human choice and behavior. But, still, to act like economists are uniformly quacks or otherwise unhelpful or worse is really wacky. I mean where is this opposing model of knowledge coming from that knows economists are wrong if not the same area of study and information? That there is debate about economics doesn't invalidate economists as a group, though it may certainly lead to some suspicion about individuals at times.
posted by gusottertrout at 11:10 AM on February 22 [10 favorites]

One problem is economists haven’t been allowed to be scientists for a long time since the people who found economic degrees and pick positions and pay for forums and the like have a vested interest in making sure “economics science” supports them doing whatever they want whenever they want.

This is just so bizarrely wrong. Maybe it’s so off it’s not even wrong. But as someone who has worked with economists and regularly read and cite and use their work, it’s completely unfamiliar and alien to me.
posted by MisantropicPainforest at 11:58 AM on February 22 [7 favorites]

This thread is missing a examples of what working economists actually do. Here's a list:

- Melissa Dell has a project studying the effect that cluster bombing had on "hearts and minds" during the Vietnam war. Using a nice natural experiment she's able to quantify the effect that bombing had on future insurgency. In other work, she shows the persistent effect of extractive colonial institutions on long-run economic development

- Stefanie Stancheva works on optimal tax theory, studying how we can design tax systems that maximize revenue while minimally dis-incentivizing innovation. This class of models tends to come up with optimal marginal tax rates on the rich that are far far higher than the current rates. She was a student of Thomas Piketty, and worked with Emmanuel Saez, who has done a lot of work to establish the recent increase in top inequality (incidentally, he's also advising AOC on her tax plan)

- Raj Chetty has approximately a million projects which use US Census data to precisely measure the decline in inter-generational mobility over time, and figure out which policy interventions may work or not work to counteract it

- Sendhil Mullanaithan is currently working on ways to prevent machine learning algorithms from simply encoding pre-existing racial / gender biases. Previously he did some of the seminal work on "audit studies" which use randomly-varied resumes to show that having a "black" name decreases your chance of getting a callback. He's also worked on showing the precise ways in which poverty can impact thought processes and prevent individuals from making "rational" financial decisions

- Marianne Bertrand has also done a lot of work at the intersection of behavioral economics and applied micro: what are the specific ways in which quirks of human behavior can lead to inefficient / unfair outcomes, and how can we remedy them?

- Amir Sufi studies the mechanisms by which credit supply lead to housing speculation lead to a house price boom/bust lead to the Great Recession, with an eye towards identifying mechanisms / policies that might prevent it from happening again

- Parag Pathak works on market design, with applications to school choice in large urban areas. In a city such as Boston, with a large number of specialized / magnet schools, how do you balance student desire to specialize without overly advantaging the children of informed / strategic parents? Market design helps us find out. Market design principles have also been famously applied to kidney matching: there are people who were able to find kidneys that would've otherwise been unavailable because of market design (Al Roth pioneered a lot of this work, and Tayfun Sonmez continues to develop it)

- Amy Finkelstein was one of the architects of the Affordable Care Act, and has done a lot of work to measure the social benefits that ensue from expanding access to health insurance. She's also worked on isolating some of the perverse incentives that can arise when healthcare providers are profit-motivated

- Michael Greenstone has built his career studying the impact of climate change on economic / social outcomes, and studying ways to optimally regulate pollution emissions

These are all tenured professors at top universities---this is not a heterodox fringe, it's what modern economics really is.
posted by rishabguha at 12:56 PM on February 22 [29 favorites]

If you can't name at least 5 living economists off the top of your head, you should consider that your opinion on economics and those who study it is uninformed if not wildly ignorant, and probably doesn't add anything to the discussion. Maybe consider educating yourself by engaging with the links, for a start.
posted by smoke at 4:56 PM on February 22 [4 favorites]

rishabguha, thanks for the list. Comments like yours are the reason Metafilter is an amazing corner of the internet.
posted by cirgue at 7:55 PM on February 22 [1 favorite]

One thing that I'm still getting my head around with this post, do people not make a clear distinction between economics and political economics elsewhere?

The line seems fairly clear here, when I meet an economics student they're probably cooked or at best useless, whereas several of my comrades are political economists. They're different faculties.
posted by AnhydrousLove at 9:31 PM on February 22 [1 favorite]

In this US we don’t make a distinction between political economy and economics.
posted by MisantropicPainforest at 10:39 PM on February 22 [1 favorite]

Well in going to put it out there then, maybe that's part of the reason there's such a huge branding problem.
posted by AnhydrousLove at 12:58 AM on February 23

In this US we don’t make a distinction between political economy and economics.

While obvs the Australian usage of the terms might differ, it would be more accurate to say that in the US political economy is a subfield that's mostly shared between economics and political science with a smaller share from policy schools.

maybe that's part of the reason there's such a huge branding problem

The number of people who are aware of these as different things is surely too tiny for that to be true.
posted by GCU Sweet and Full of Grace at 3:13 AM on February 23

Can we clarify the field of political economics here? I suspect there's something else being referred to.

I took a (US based) class in political economy but it seems from context that may be something different. Definitely all sorts of market criticisms (information asymmetry, externalities, etc.) happen outside that subfield.
posted by mark k at 8:30 AM on February 23

I am now feeling a little silly and insular, because I'm no longer sure it's even an Australian thing, it might just be my university, I'm getting way too much distortion in my googling attempts to be sure.

Here are some of the arguments as to why there was something of a split.

Thus the conventional paradigm serves to support the status quo of the contemporary politico-economic structure, yet it does so not by defending it explicitly but by obfuscation. The defence of the status quo involves an incoherent mixture of a reification of the ideal market economy with a pragmatic acknowledgement of certain contemporary institutional realities, overlaid with an unarticulated class prejudice.

The only records of the separation I'm finding are in Frank Stillwell's wiki. I learned about it from an oral tradition of discussing past struggles.

Basically my understanding is economics = capitalism good, market best, humans selfish and rational, political economy = hmm, might be a little more going on, a few extra factors eh, let's take a closer look with fewer spherical cows, less ceteris paribus.

I think econometrics is more aligned with Econ, but Ecop students have to take it too.
posted by AnhydrousLove at 9:02 AM on February 23

The difference you're thinking of seems local to me. Not-PE economics mostly means we don't need to worry about law or policy because we've assumed them away, political economy (mostly) looks at grand-scale interactions between government and the economy.

I would point at the thing you're calling political economy and call it behavioral economics, though that doesn't look to me like what Sydney political economy is doing, at least in the courses they offer.

Sydney's Dept of Political Economy would not exist very many places in the US as a coherent unit. At a generic Big State U, there would be people in polisci, sociology, gender/sexual/racial studies, and policy schools/depts doing that stuff, and probably one or two people in econ (except mostly using standard econ methods).
posted by GCU Sweet and Full of Grace at 9:49 AM on February 23 [1 favorite]

where is politics in the money view: "financial governance post-crisis has thus come to rely on an unmediated relationship between national central banks, global regulators and an oligopolistic cluster of giant transnational banks"

There is no such thing as 'fiat money' - "Limiting money to a finite stock is the most arbitrary form of central planning, deciding in advance and for all time the liquidity needs of a complex, evolving economy."

Why Are MMT Critiques Generally Terrible? - "So arguing that 'implementing MMT' will lead to inflation (or hyperinflation!) is ridiculous: the whole premise of MMT is that 'too much' spending leads to 'too much' inflation, and that is to be avoided. The only real debate is how much spending is 'too much.' "

a tao of (de)centralization: "Virtuous social systems marble together centralized and decentralized elements, paradoxically charging centralized components with the task and responsibility of sustaining the decentralization that otherwise would decay. 'Decentralization' is not an answer, not a solution to any problem in itself, but a challenging question of 'how?' "
posted by kliuless at 10:21 PM on February 23

Matt Bruenig: What’s the Point of Modern Monetary Theory?
In the six years after my 2013 post, it has become clear to me that the bulk of MMT discourse is not really about what the best policy instruments are for maintaining price stability and debt stability, but rather about using word games to make people believe that the US can have Northern European levels of government spending without Northern European levels of taxation. [...]

If the point of MMT is really about how it would be better to have the fiscal authority manage the price level and the monetary authority manage the debt level — as I thought it might be in 2013 and as Jayadev and Mason argue it is — then you would expect to see a lot more discussion about the competencies and flexibilities of each authority at those tasks. But there is surprisingly little written about such things in these circles.

The real point of MMT seems to be to deploy misleading rhetoric with the goal of deceiving people about the necessity of taxes in a social democratic system. If successful, these word games might loosen up fiscal and monetary policy a bit in the short term. But insofar as getting government spending permanently up to 50 percent of GDP really will require substantially more taxes in the medium and long term, I have to agree with Sawicky and Henwood in saying that MMT seems like a political dead end.
Josh Marshall: Thinking about the Magical Elixir of MMT
One of the seductive things about this popularization of MMT is that it piggybacks on something most Democrats rightly and strongly believe: that deficit hawkery is a greatly overstated concern that is supposedly the biggest deal in the world when Democrats are trying to increase spending and becomes magically irrelevant when Republicans want to cut taxes. Remember that we spent the first four years of Obama’s presidency being told by Republicans that Obama’s fairly moderate post-crisis spending had us months away from an apocalyptic debt crisis.

Debt markets give us pretty accurate reads of impending debt crises and lenders spent years essentially paying the US to borrow their money. That was stupid and mendacious, scare-mongering in favor of austerity. The biggest problem the global economy faces at the moment and in some ways has for a couple decades isn’t inflation but lack of aggregate demand. But with MMT “deficits don’t matter” as perhaps a shorthand for ‘the danger of deficits is greatly overstated’ has become literally deficits don’t matter or more broadly that deficits don’t even exist.

I have no doubt that there are MMT advocates reading this now saying, no, you’re not getting what MMT says or you’re caricaturing it. Maybe. But what I’m able to speak to is how it is playing out in a political context. As Bruenig explains, if you want Northern European-style social democracy you’re going to need to have significantly or dramatically higher rates of taxation. And not only much higher rates on the uber wealthy but generally higher rates on a much broader range of the population. Whatever the theoretical merits of MMT, its political role is simply to say that core fiscal policy realities simply don’t exist. Or to put it more concretely, because taxing and spending and debt and money supply are all part of one equation, well, let’s not worry about it! How do you fund it? Well, MMT!
posted by tonycpsu at 8:55 AM on February 25

If we're switching to MMT, the Ezra Klein Show just had an hourlong discussion between Stephanie Kelton (pro-MMT) and Jason Furman (traditional economist). It was a reasonable and non-shouty dive into the topic.

My take away was pretty similar to what it was before, which is pretty similar to the Josh Marshall point above. MMT isn't a free lunch and the theoretical tussling was interesting. But the biggest practical difference was on funding something like Medicare for all, where Kelton doubted you'd need offsets (ie, taxes) for 100% of the cost and Furman thought planning taxes to cover the whole thing was probably a good starting estimate. But either way taxes are going up.

Anyone who suggests that MMT means you don't need to worry about revenue is in practice endorsing a position that *will* lead to hyperinflation eventually.
posted by mark k at 6:18 PM on February 25

Thanks so much for this post, kliuless. Like so many of your excellent posts, I regret that I probably will never manage to read all the great linked pieces.

It does seem likely that we'll have to raise taxes on the middle class if we want better social services, but I'd personally sure like to see what happens if we start with much higher taxes on the wealthiest, and on corporations, and on commercial real estate. If we start there and heavily publicize the additional societal programs we get in return, it might make some increases on individual income more popular. We've had a pretty heavy narrative that increased taxes just go straight to government waste. If, instead, we had 3-5 years of "new after school care program at your local school, paid for by the recent corporate tax increase enforcement" and "new free days at your national parks, paid for by the recent excess profits tax", that could help shift the narrative.

Also, thanks to rishabguha for the list of modern economists. If I may add a few Macarthur Foundation winners (there are more, these were just the first few that came up in my search):

Heidi Williams, MIT: Heidi Williams is an economist unraveling the causes and consequences of innovation in health care markets.

Raj Chetty, Harvard: work ranges from tax policy (including how "the way in which a tax is perceived can have as much or more impact on consumer decision making as the tax itself") to early childhood education.

Roland Fryer, Harvard: work includes studying racial discrimination, labor market inequalities, and educational underachievement and illuminating the causes and consequences of economic disparity in American society.

Kevin Murphy, University of Chicago: work includes studying wage inequality, unemployment, addiction, medical research, and economic growth.

Colin Camerer, California Institute of Technology: his seminal studies provide strong evidence of the inconsistencies between classical economic principles of rationality and observed choices and behavior of real people, leading to new theories; his work is "fostering an even more nuanced analysis of individual behavior and the practical policy implications of neuroscientific insights about human decision making."

Emmanuel Saez, UC Berkeley: "Through his empirical and theoretical investigations, Saez is establishing a strong foundation for developing tax policies and practices that augment both equity and economic efficiency."

Esther Duflo, MIT: a development economist exploring the social and economic forces perpetuating the cycle of poverty for the poorest peoples in South Asia and Africa.

(Sendhil Mullainathan and Amy Finkelstein were already on your list.)
posted by kristi at 11:50 AM on February 26 [1 favorite]

The race for shareholder profits has left workers in the dust, according to new research - "A relentless focus on maximizing shareholder value has contributed to stagnant middle-class wages in the United States and fueled the rise of a society increasingly divided between haves and have-nots, according to a new working paper published by the Roosevelt Institute, a progressive economic think tank."

The Identity Crisis Facing Both Republicans and Democrats - "Both Republicans and Democrats are in the midst of—and in fact, may be near the end of—significant realignments that are altering who they are and what they stand for."

David Walsh went to the Niskanen Center conference. He got hives - "I think it is fair to say that the already-broken American political public sphere has become significantly more broken since November 8, 2018."
On the center and to the left, those like me in what used to proudly call itself the Rubin Wing of the Democratic Party—so-called after former Treasury Secretary Bob Rubin, and consisting of those of us hoping to use market means to social democratic ends in bipartisan coalition with Republicans seeking technocratic win-wins—have passed the baton to our left. Over the past 25 years, we failed to attract Republican coalition partners, we failed to energize our own base, and we failed to produce enough large-scale obvious policy wins to cement the center into a durable governing coalition. We blame cynical Republican politicians. We blame corrupt and craven media bosses and princelings. We are right to blame them, but shared responsibility is not diminished responsibility. And so the baton rightly passes to our colleagues on our left. We are still here, but it is not our time to lead.

On the right, however, things are much worse. Looking to the right of the Rubin Wing of the Democratic Party, we see rubble. Then we see more rubble. And more rubble. Beyond that, rubble. And then, at the far end of the political spectrum, what former Secretary of State Madeleine Albright can only call [the American version of a twenty-first century neo-fascism](, devoted to entrenching plutocracy and stoking ethnic and religious hatreds, with which a great many people who ought to know better are making accommodation.
To Save Capitalism, Save Communities - "As the powers of the state and the market have expanded, we've neglected the damage being done to the third pillar of society."

A History of the American Public Library - "A visual exploration of how a critical piece of social infrastructure came to be."
posted by kliuless at 6:41 AM on February 27

The power of doing economics properly - "Leading scholars try to enlist the profession in the cause of progressive policy."
Naidu, Rodrik and Zucman write that “the competitive model is rarely the right benchmark for understanding the problems and suggesting solutions”. This is a statement that may seem trivially true yet is deeply consequential. For the competitive model — the stylisation of the economy in which it balances itself to some sort of efficient equilibrium without intervention — hogs an excessive part of the limelight when economic arguments feature on the political stage. What James Kwak has called “economism” — a oversimplified version of introductory economic analysis unleashed on complex policy questions — is not just ignorant but dangerous because it can sound plausible even when it gets things badly wrong (Kwak’s own example is the minimum wage, and the struggle to get acceptance for the possibility that raising it may not hurt employment). Improving the application of economics to policy can only do both fields good.

And not just good. Poor applied economics leads to lost prosperity. The authors continue: “Throughout the proposals is the sense that economies are operating well inside the justice-efficiency frontier, and that there are numerous policy ‘free-lunches’ that could push us towards an economy that is morally better without sacrificing (and indeed possibly enhancing) prosperity.” This is a pivotal conceptual move, which can liberate the policy debate from the rhetorical shackles of difficult trade-offs when such trade-offs don’t in fact have to be made. The supposed dilemma between growth and inequality — rather disproved by the Nordic experience — is a case in point.

And if economic outcomes are not fully determined by the iron law of supply and demand in perfectly competitive conditions, it is important to ask what else shapes them. The founders of the new initiative “share the theme of how power asymmetries shape our contemporary economy. Many economists dismiss the role of power because they think it cannot be studied rigorously or belongs outside economics.”

I want to draw out one implication that I don’t see the authors themselves have done. The fact that economics can be used more sensibly, and that the failure to do so leaves “free lunches” on the table, means, almost by definition, that policymakers have not tried all they can do to address, counteract or remedy the harms that have been brought by the past four decades of economic change. That, as I have argued with Rodrik in the past, undermines the notion that globalisation has rendered national governments powerless to govern economies in their citizens’ best interests. Even if this were true, we could hardly know until governments had tried all the means available to them. As the Economists for Inclusive Prosperity’s own efforts show, the policy tools are far from exhausted.
posted by kliuless at 6:22 AM on February 28 [1 favorite]

Paraphrasing of my deleted post on MMT from the politics megathread:
Monetary policy, and even discussion of monetary policy, is warped by the perception that government spending is like business or family spending, but it is not. There isn't one government expenditure analogous to a family buying a TV, and the government can't make a profit like a business. Every government "expenditure" is, or should be, an investment with a return to the country as a whole, if not to its tax coffers directly. If a family buying a house were to pay-go it, they would wait a long time for their dream, meanwhile throwing money down the rent rat-hole unnecessarily. Likewise, not paying for healthcare, roads and bridges, occupational safety, food assistance, electric grid improvements, schools, environmental protection, and even the military not only delays the return of the investment to the community, but also invites greater present-day costs in various forms: lost productivity, social costs, uncertainty, and even asset forfeiture in the extreme case of foreign seizures of US property. Inspired by Art Rolnick's evaluation of spending on early childhood education, I've encouraged people to talk about government outlays as investments, not spending. It changes your attitude about taxes and outlays to think this way, and highlights the need to understand the risks, as in any investment. It also blunts the use of how a household manages its own finances as a metaphor for government revenue.
I think MMT is a stab at this perspective, but I don't think the framing is completely friendly to hoi polloi intuiting its implications for us all. Starting with the concept of government outlays as investments that have a positive return, in dollars and well being, for the country, the conversation about taxes and "spending" could be shifted radically from "OMG deficits" and "NO NU TACKSES" to "What is the return on this investment and what priority should it have?".
posted by Mental Wimp at 12:22 PM on February 28

There isn't one government expenditure analogous to a family buying a TV, and the government can't make a profit like a business. Every government "expenditure" is, or should be, an investment with a return to the country as a whole, if not to its tax coffers directly.

Yes there are plenty of government expenditures that are the equivalent of a family buying a tv, like for instance the national endowment of the arts. Or more directly the government occasionally buys TVs for people to watch tv, not just as like queue monitoring screens.

Also 'expenditure' and 'investment' are opposites, so unless you are talking in some non-economic sense, plenty of government expenditures have no return, they are only costs. That's ok - we don't need our government to return a profit like you said - we need it to take care of our citizens.
posted by The_Vegetables at 1:06 PM on February 28

I also don't think envisioning every expenditure as some kind of 'investment return' is a good idea -I mean look at what that idea has done to college educations. If you are talking 'investments', you should actually mean reasonably estimable financial returns, not vague social returns. Because it's really easy to decide, when then finances get rough, to severely discount those social returns and it's really easy to rank projects on their real returns on investment.
posted by The_Vegetables at 1:14 PM on February 28 [3 favorites]

MMT for Dummies :P
in terms of what's happening with the excess reserves that quantitative easing produced right now, Scott Fullwiler has a very important paper on this. It shows the strength of MMT economists on central bank operational issues.

In that same vein of excellence on central banks' operational issues, the MMT folks have been very good in predicting that supply-demand issues have almost no bearing on interest rates. For me, this is the most market-relevant part of the school of thought. They say that in a fiat currency world where the currency floats freely, so-called bond vigilantes have very limited power. Domestically, state money is the safe asset because there's no default risk. And so yields there are always the lowest for any fixed income asset. And bond vigilantes have basically been powerless to bid those prices down too far, because the prices and yields reflect consensus estimates of what the central bank will do with base rates. Going back to Japan, if bond investors understand that there is no inflation that would the central bank to lift rates for ten years, then 10-year rates will be near zero. And in Japan, they are. Investors that don't like that can simply get out of Japan and sell yen and the currency adjusts accordingly. That's how it will work in the US too.

Finally, many of the constraints that MMTers get called out on are legal and institutional in nature. If you change the law, you change what constraints government is under. Ostensibly, those legal and institutional constraints exist for a reason, like fear of inflation or currency depreciation. In the end, I think it's better to look at the real constraints - inflation and currency depreciation - rather than fight over artificial operational constraints.
also btw, speaking of (lifting!) operational constraints (making MMT true in practice ;)
-Leaving (Modern) Money (Theory) On The Table
-The End of Banking: Money, Credit, and the Digital Revolution

with the MMT discussion taking a rather internecine turn of late, maybe it's worth remembering: "Once upon a time, very mainstream Keynesians had much more flexible ideas about how to manage economic policy than they do today. Alvin Hansen would today be considered a wild-eyed radical, or perhaps worse, an MMT adherent. He was an adviser to the Fed."
posted by kliuless at 10:01 PM on March 3

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