Basic Economics Has a Liberal Bias
People to the left of econ 101 will typically invoke the phrase “political economy” to explain why, for example, econ 101 underrates labor unions. Conversely those to the right of econ 101 will instead invoke the phrase “public choice” to explain why, for example, econ 101 overrates utility regulation. But in both cases the critics are saying the same thing, namely that the moderately liberal policies advocated by introduction to economics textbooks are ignoring certain realities of institutional design, practical politics, power dynamics, etc.
That is 100% spot on. I just do not see how it fits in with his title. Maybe I am missing something but it reads like Yglesias is making the mistake of confusing economics with a morality play.
Janet Yellen on macroprudential regulation
Yglesias does a good job summarizing a kind of dry speech. I don’t think anyone should be worried about her being unqualified.
Keith Hennessy on Bush and the financial crisis.
One of my students asked “How involved was President Bush with what was going on?” I smiled and responded, “What you really mean is, ‘Was President Bush smart enough to understand what was going on,’ right?”
The class went dead silent. Everyone knew that this was the true meaning of the question.
I used to joke about someone explaining the collapse of Lehman to Bush and him asking how big a tax cut do we need to save Lehman?
Cop in every school: How much would Wayne LaPierre’s proposal cost.
How will they suggest it be paid for? Taxes on bullets and guns or cutting school budgets? I’m guessing its the latter.
“The people who are the engine of the economy.”
I’m not much of a car guy, but the way I understand this metaphor to work is that if you want to give rich people credit for being “the engine of the economy” then if the economy is performing subpar it follows that something’s wrong with your engine. And yet I suspect Zambrelli wouldn’t take kindly to that diagnosis.
If something good happens, praise me. If something bad happens, blame yourself. And if you disagree you’re a Marxist from Kenya.
Devaluation Is Austerity Done Right
Currency devaluation is best understood not as an alternative to austerity, but as the correct way for a debt-burdened society to implement austerity.
Why did Iceland recover and Ireland get worse? Iceland had a currency to debase. And they debased their currency enough to reset the economy and grow again. Three cheers for currency debasement. Ireland on the other hand, couldn’t debase the Euro. Like a nation on a gold standard, they had no way to make monetary policy changes to get the economy moving.
So if austerity works, shouldn’t it be the other way around? A stagnant Iceland and a booming Ireland?
Taxi Medallions: How New York’s terrible taxi system makes fares higher and drivers poorer
When New York’s Taxi and Limousine Commission held a public hearing last week to consider whether to raise taxi fares by 20 percent, cabdrivers pled poverty and passengers argued that fares are too high. Paradoxically, both groups were right.
This lose-lose scenario is only possible under the taxi medallion system, a regulatory scheme in which the right to operate a taxi is thoroughly divorced from the actual work of driving one. It’s a classic example of the perils of financialization, the process through which economic potential is turned into a liquid and leveraged asset. By converting a portion of cabbies’ future revenue into a freely tradable asset, New York, Chicago, San Francisco, and a host of other cities have created a powerful investor class, medallion owners and financiers, whose interests routinely compete with those of drivers and passengers.
Financialization also makes what should be a trivial deregulation nearly impossible as it would make the Medallion owners very upset. They would be willing to spend big bucks to prevent any attempt at deregulation.
Economic Theory Doesn’t Say That Small Business Owners Maximize Profits
to the best of my knowledge there is no economic theory that says small business owners maximize profits. Think about it from a workers’ perspective. People who work on commercial fishing operations earn a lot more money than most people with comparable levels of education. But nobody thinks it defies economic theory that America’s retail clerks don’t quit their jobs en masse to go fishing. Commercial fishing is dangerous and you have to live on a boat. All else being equal, people prefer to earn more money but they also prefer to do safe work and have the opportunity to socialize. What economic theory says is that workers maximize utility and therefore employers who want to get workers to do something that’s unusually dangerous or unusually unpleasant will have to pay a premium. A small business operator is in the same situation. She’s balancing income against other lifestyle factors, including the hours put in on the job, the pleasantness of the work, the sense of self-esteem that comes from having something to do, possibly a sentimental attachment to a particular location or certain employees. What economic theory says is that a profit maximizing small business person has to be someone with a very unusual utility function.
This can not be repeated enough. Small businesses rarely behave the way politicians describe.
The Real Source of Corruption in Congress: Members’ Good-Faith Efforts To Help People
But why does Rogers care so much about Phoenix Products that he wants to send all this business his way?
What Phoenix Products has is something unique. It’s based in Kentucky, just like Harold Rogers. Its employees live in Harold Rogers’ district, they shop in stores that are in Harold Rogers’ district, their spouses and siblings live in Harold Rogers’ district, their incomes bolster the tax base for municipalities in Harold Rogers’ district. So if Harold Rogers wants to do the right thing for Harold Rogers’ constituents, he needs to do the right thing for Phoenix Products.
Hayek differentiated between an welfare state of Law versus one of administration. The former would function based on a set of rules in openness and transparency. The latter would be run by bureaucrats who distributed favors for their own political gain. The former would be compatible with a free democratic society, the later would subvert it.
I think we need to start looking at the defense industry as favor distributing patronage system that no longer serves its defined public purpose.