Posts Tagged ‘Paul Krugman’

repealing and replacing Obamacare

Saturday, February 25th, 2017

A draft bill to repeal and replace Obamacare has been leaked to the press. According to “The Hill”:

The bill would eliminate subsidies for people to obtain coverage, and federal funds for states to expand Medicaid would be phased out in 2020. The mandate for people to buy insurance would also be killed.

Peter Sullivan, “Leaked ObamaCare bill outlines GOP plan“, The Hill, 24 February 2017.

That’s the “repeal” part. According to “The Hill”, here is the gist of the replace part:

The plan calls for a tax credit, which would increase based on a person’s age, to help recipients afford insurance. The credit would be between $2,000 and $4,000. ….

In contrast to ObamaCare, the credits are not based on income, which Democrats argue means not enough help is given to low-income people to be able to afford coverage. Republicans say income-based credits discourage work.

The tax credits are per year, not per month, and they are flat, increasing only with age. (Note also, that tax credits are useless to the unemployed, or the very poor, who have little or no income tax to pay.) As an alternative to the individual mandate, the plan allows insurance companies to charge applicants an additional 30% on premiums if they wait until they are sick to sign up. (more…)

make America gasp again!

Sunday, December 11th, 2016

Here is the beginning of a New York Times op-ed, written tongue-in-cheek by economist Paul Krugman.

Many people voted for Donald Trump because they believed his promises that he would restore what they imagine were the good old days — the days when America had lots of traditional jobs mining coal and producing manufactured goods. They’re going to be deeply disappointed: The shift away from blue-collar work is mainly about technological change, not globalization, and no amount of tweets and tax breaks will bring those jobs back.

But in other ways Mr. Trump can indeed restore the world of the 1970s. He can, for example, bring us back to the days when, all too often, the air wasn’t safe to breathe. And he’s made a good start by selecting Scott Pruitt, a harsh foe of pollution regulation, to head the Environmental Protection Agency [EPA]. Make America gasp again!

Paul Krugman, “Trump and Pruitt Will Make America Gasp Again“, New York Times, 9 December 2016 (metered paywall).

The column is self-explanatory. I would add, though, that Mr Pruitt (born 1968) is a Republican politician, currently Attorney General of Oklahoma and wants to abolish the EPA. Should he become head of the EPA, his term in office might be very brief!

Trump’s pick for commerce secretary is a mercantilist!

Sunday, November 27th, 2016

Donald Trump is expected soon to confirm Wilbur Ross as commerce secretary. Mr Ross (born 1937) is a billionaire investor who specializes in leveraged buyouts and restructuring distressed businesses. I learned, reading this weekend’s Financial Times, that he is also a vocal proponent of mercantilism.

The starting point of any trade deal, Mr Ross told the FT this month, should be to ensure that each side share its estimates of the effects on its own industries and jobs. ….

It is time to focus on deals which make sense, he says. That does not include the North American Free Trade Agreement of 1994, for example, which appeared to flip America’s trade surplus with Mexico into a deficit. Nor the Trans-Pacific Partnership, a sweeping 12-nation accord that has yet to be ratified, but which Mr Trump has promised to scrap.

“One thing I disliked about [Hillary] Clinton is that there was only one trade deal she voted against — the Central American Free Trade Agreement. That’s crazy, since the only deal we have a trade surplus from was CAFTA!” he says. [Emphasis added.]

Ben McLannahan  and Laura Noonan, “Wilbur Ross tries to turn round US heartland“, Financial Times, 26 November 2016 (metered paywall).

Mr Ross does not use the term, but this is mercantilism, pure and simple. For those unfamiliar with the doctrine, here is a succinct definition, from Wikipedia:

Mercantilism includes a national economic policy aimed at accumulating monetary reserves through a positive balance of trade, especially of finished goods. …. High tariffs, especially on manufactured goods, are an almost universal feature of mercantilist policy.

Much of Adam Smith’s Wealth of Nations (1776) is an attack on mercantilism. Nearly all modern economists accept Smith’s dictum “Consumption is the sole end of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer”.

An important quirk of protection, an earlier FT article notes, is its adverse effect on exports (and smaller effect on imports) because of changes in the exchange rate.

Janet Yellen, the Fed chair, and the president-elect are cut from different cloths but both have expressed concern about the impact of dollar strength on US companies ….

The quandary for Mr Trump is this, said [Deutsche Bank’s Alan] Ruskin. A tilt to protectionism may help the trade balance by suppressing imports but “it would be damning” if an overly strong dollar ended up hurting exporters and boosting imports.

Roger Blitz, “Donald Trump and the dangerous allure of a strong dollar“, Financial Times, 25 November 2016 (metered paywall).

For more on the relationship between trade balances and “competitiveness”, I recommend one of Paul Krugman’s best essays, written long ago, without jargon. Spoiler alert: No relationship exists.

Most people who use the term “competitiveness” do so without a second thought. It seems obvious to them that the analogy between a country and a corporation is reasonable and that to ask whether the United States is competitive in the world market is no different in principle from asking whether General Motors is competitive in the North American minivan market.

In fact, however, trying to define the competitiveness of a nation is much more problematic than defining that of a corporation. The bottom line for a corporation is literally its bottom line: if a corporation cannot afford to pay its workers, suppliers, and bondholders, it will go out of business. So when we say that a corporation is uncompetitive, we mean that its market position is unsustainable — that unless it improves its performance, it will cease to exist. Countries, on the other hand, do not go out of business. ….

One might suppose, naively, that the bottom line of a national economy is simply its trade balance, that competitiveness can be measured by the ability of a country to sell more abroad than it buys. But in both theory and practice a trade surplus may be a sign of national weakness, a deficit a sign of strength. For example, Mexico was forced to run huge trade surpluses in the 1980s in order to pay the interest on its foreign debt since international investors refused to lend it any more money; it began to run large trade deficits after 1990 as foreign investors recovered confidence and began to pour in new funds. Would anyone want to describe Mexico as a highly competitive nation during the debt crisis era or describe what has happened since 1990 as a loss in competitiveness?

Paul Krugman, “Competitiveness: A Dangerous Obsession“, Foreign Affairs, 73:2 (March/April 1994), pp. 30-31.

Here is a link to an ungated version of the paper.

Krugman to young Americans: Your vote matters!

Tuesday, September 20th, 2016

Further to yesterday’s post, Paul Krugman pleas for young voters to vote for Hillary Clinton, rather than waste their vote on a third party candidate, as so many did 16 years ago.

Does it make sense to vote for Gary Johnson, the Libertarian candidate for president? Sure, as long as you believe two things. First, you have to believe that it makes no difference at all whether Hillary Clinton or Donald Trump moves into the White House — because one of them will. Second, you have to believe that America will be better off in the long run if we eliminate environmental regulation, abolish the income tax, do away with public schools, and dismantle Social Security and Medicare — which is what the Libertarian platform calls for.

But do 29 percent of Americans between 18 and 34 believe these things? I doubt it. Yet that, according to a recent Quinnipiac poll, is the share of millennial voters who say that they would vote for Mr. Johnson if the election took place now. …

So I’d like to make a plea to young Americans: your vote matters, so please take it seriously. ….

Remember, George W. Bush lost the popular vote in 2000, but somehow ended up in the White House anyway in part thanks to the Nader vote — and nonetheless proceeded to govern as if he had won a landslide. Can you really imagine a triumphant Mr. Trump showing restraint out of respect for all those libertarian votes?

Paul Krugman, “Vote as if It Matters“, New York Times, 19 September 2016 (metered paywall).

Thanks to Mark Thoma’s ungated extract for the pointer.

Paul Krugman on the TPP

Thursday, October 8th, 2015

Over the weekend, leaders of a dozen Pacific Rim nations reached a final agreement on new rules for trade between nations covering approximately 40% of the world’s economy. Many on the political left, including economist Paul Krugman, have opposed the project, known as the Trans-Pacific Partnership (TPP). The final draft appears to be significantly different from what was initially promised, though, so Krugman now supports it.

I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership …. But the WH [White House] is telling me that the agreement just reached is significantly different from what we were hearing before ….

What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Rs [Republicans?] in general are mad because the labor protection stuff is stronger than expected. All of these are good things from my point of view. …. The TPP looks better than it did, which infuriates much of Congress.

Paul Krugman, “TPP take Two, The Conscience of a Liberal“, New York Times blog, 6 October 2015.

The TPP is still not a done deal, since it will not go into effect until approved by legislatures of the participating countries.

David Warsh on Paul Krugman

Monday, September 14th, 2015

[Paul Krugman] joined The New York Times [in 2001] as one of its marquee op-ed columnists. ….

Krugman routinely establishes important truths – energy companies really did cheat in the California power auctions a few years ago; real business cycle theory really was a thirty year dead-end; conservative claims that that the 1977 Community Reinvestment Act led ineluctably to the crisis really are a Big Lie.  He has become as good a newspaper columnist as he was an economist – one of the best in the world. Just don’t count on him for the other side of the story.

David Warsh, “The Bubble, the Stampede, and the Aftermath“, Economic Principals, 13 September 2015.

I agree that Paul Krugman (born 1953) provides one-sided views that are routinely correct, and do not see this as a problem. Contrasting views are easy to find on the internet. Economists are frequently derided for prefacing opinions with the phrase “on one hand, and on the other hand”, so enjoy reading the books and columns of a one-handed economist

Journalist David Warsh (born 1944) specializes in economic and financial affairs. He wrote a column for The Boston Globe from 1978 until March 2002, when he moved the column from print media to his own website. He is  author of several books, including Economic Principals: Masters and Mavericks of Modern Economics (Free Press, 1993).

history’s long shadow

Tuesday, June 23rd, 2015

All my life I have believed that history affects social and economic relations in today’s societies. To me, this is self-evident, so does not require extensive research. In conversation with friends, however, I have discovered that this view is not widely shared. One long-time friend went so far as to say that the horrific events that concern me – European treatment of native Americans, enslavement of Africans, etc. – happened long ago. We should, he insists, remember the glories of European colonisation, and forget all that is shameful.

This, I insist, is impossible. The sins of the past affect all of us today. I have been unable, however, to express my views coherently and convincingly. To my delight, Paul Krugman, in a column published in yesterday’s New York Times, has done the job for me. He wrote a column that I wish that I could have authored. Actually, it is better that he authored it, for a similar essay written by me would not have attracted even a small percentage of the audience that Professor Krugman attracts. Here are excerpts from his column. I urge you to click on the link below – which is not gated – and read the full column.

America is a much less racist nation than it used to be …. The raw institutional racism that prevailed before the civil rights movement ended Jim Crow is gone, although subtler discrimination persists. ….

Yet racial hatred is still a potent force in our society, as we’ve just been reminded to our horror. And I’m sorry to say this, but the racial divide is still a defining feature of our political economy, the reason [for] America[‘s] … harsh treatment of the less fortunate and its willingness to tolerate unnecessary suffering among its citizens.

Of course, saying this brings angry denials from many conservatives, so let me try to be cool and careful here, and cite some of the overwhelming evidence for the continuing centrality of race in our national politics. ….

[Krugman summarizes evidence from two academic papers, one by political scientist Larry Bartels and a second by economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote.]

[Further evidence that things have not changed can be seen] by looking at how states are implementing — or refusing to implement — Obamacare.

For those who haven’t been following this issue, in 2012 the Supreme Court gave individual states the option, if they so chose, of blocking the Affordable Care Act’s expansion of Medicaid, a key part of the plan to provide health insurance to lower-income Americans. But why would any state choose to exercise that option? After all, states were being offered a federally-funded program that would provide major benefits to millions of their citizens, pour billions into their economies, and help support their health-care providers. Who would turn down such an offer?

The answer is, 22 states at this point, although some may eventually change their minds. And what do these states have in common? Mainly, a history of slaveholding ….

And it’s not just health reform: a history of slavery is a strong predictor of everything from gun control (or rather its absence), to low minimum wages and hostility to unions, to tax policy.

So will it always be thus? Is America doomed to live forever politically in the shadow of slavery?

I’d like to think not. For one thing, our country is growing more ethnically diverse, and the old black-white polarity is slowly becoming outdated. For another, as I said, we really have become much less racist, and in general a much more tolerant society on many fronts. Over time, we should expect to see the influence of dog-whistle politics decline.

But that hasn’t happened yet. Every once in a while you hear a chorus of voices declaring that race is no longer a problem in America. That’s wishful thinking; we are still haunted by our nation’s original sin.

Paul Krugman, “Slavery’s Long Shadow“, New York Times, 22 June 2015, p. A19.

the human capital controversy

Sunday, February 22nd, 2015

Back in the 1960s there was a famous debate between economists (led by Joan Robinson and Piero Sraffa) of the University of Cambridge in England and economists (led by Paul Samuelson and Robert Solow) of MIT in Cambridge, Massachusetts. The debate, known as “the Cambridge capital controversy“, was over measurement and aggregation of physical capital. The Cambridge (England) economists argued that aggregate physical capital could not be measured without reference to the rate of return on capital. Cambridge (Massachusetts) generally agreed that the Cambridge (England) side won, though many professors of economics continue to teach aggregate production functions and economic growth theory as though the debate never took place.

A similar debate is now taking place, over human rather than physical capital. Noah Smith (HT Mark Thoma) provides a nice overview for those are interested.

Is “human capital” really capital? This is the topic of the latest econ blog debate. Here is Branko Milanovic, who says no, it isn’t. Here is Nick Rowe, who says yes, it is. Here is Paul Krugman, who says no, it isn’t. Here is Tim Worstall, who says yes, it is. Here is Elizabeth Bruenig, who says that people who say it is are bad.

Noah Smith, “Is human capital really capital?“, Noapinion, 21 February 2015.

Noah Smith offers an alternative view: human capital requires owners to work (give up leisure time) to obtain a return from it, so the more leisure is valued relative to other things, the less valuable human capital is. This will be different for each person. In consequence, you are “entitled to your own modeling conventions and definition of terms. So whether human capital is capital is up to you.”

This is an interesting, complex debate. I am still thinking about it but, as TdJ readers might predict, I am most persuaded by the arguments of Carleton University economist Nick Rowe. Before turning to Branko Milanovic and Nick Rowe, however, I would like to emphasize two points that are not always appreciated by participants in this debate. First, financial capital is not capital in an economic sense. Nick makes this point clearly, but others confuse financial capital with physical capital. Financial capital – stocks, bonds and the like – are just pieces of paper, IOUs. They are claims of lenders, and the loans may even have been made for the purpose of consumption rather than investment.

Second, even if human capital is a useful category of income-producing assets (and I think it is), it is as difficult to measure as physical capital is. In fact, it is probably even more difficult to measure. This does not really matter though, as it is impossible to measure aggregate assets of either asset apart from (only in theory!) the present value of the future income the assets produce. The problems of measurement of human capital are  very similar to the problems of measurement of physical capital. For example, if I purchase an automobile which I use for pleasure, and also – as an Uber driver – to generate income, part of the purchase represents investment (addition to physical capital) and part is consumption. Similarly, part of the expense of schooling represents investment (for the purpose of earning more income than I would without skills) and part is consumption (the satisfaction of obtaining knowledge and the ability to better understand the world in which I live).

There is much, much more at the links above. Bloggers will no doubt continue to debate this issue for weeks and months (years?) to come. Here, to get you started, are brief quotes from Branko Milanovic (on the ”No’ side of the debate, and from Nick Rowe (on the ‘Yes’ side, the one that I support):

If “human capital” and “real” capital are the same thing, how can there be a conflict between labor and capital?  If profits and wages are the same thing, why should we fight about distribution? You have your form of capital (which just happens to look like labor), and I have mine, which just happens to look like T-bills and stocks.

Branko Milanovic, “On ‘human capital’ one more time“, Global Inequality, 19 February 2015.


What we call “labour” is as much capital as labour. The wages on “labour” are as much a return to capital as they are a return to raw labour.

Some labour needs very little investment to make it productive; other labour requires a lot. Some labour gives a high return on investment; other labour gives a low return. It’s all different.

“Human capital” is not a synonym for “labour”. It tells us something important about the investment needed to make labour productive.

Nick Rowe, “Human Capital” and “Land Capital“, Worthwhile Canadian Initiative, 14 February 2015.

Once again, I encourage you to click on the links above, to get a feel for the full debate.

international bond yields and exchange rates

Wednesday, January 7th, 2015

Princeton economist Paul Krugman recently posted an explanation of why nominal yields on US sovereign bonds exceed nominal yields on  sovereign bonds in the eurozone. Here is a brief extract:

[W]hat explains our relatively high interest rates?

Well, let’s compare [the U.S.] with Germany, also perceived as almost completely safe — but paying much lower interest. Why?

The crucial point here is that German bonds are denominated in euros, while U.S. bonds are denominated in dollars. And what that means in turn is that higher U.S. rates don’t reflect fear of default; they reflect the expectation that the dollar will fall against the euro over the decade ahead. ….

Why? The relative strength of the US economy has led to a perception that the Fed will raise rates much sooner than the ECB, which makes dollar assets attractive — and as Rudi Dornbusch explained long ago, what that does is cause your currency to rise until people expect it to fall in the future. The dollar is strong right now because the U.S. economy is doing better than the euro area, and this very strength means that investors expect the dollar to fall in the future.

Paul Krugman, “Thinking About International Bond Yields“, The Conscience of a Liberal, 5 January 2015 (metered paywall).

FT blogger Matthew Klein does not follow Professor Krugman’s logic.

If people think the dollar will depreciate against the euro in the future they should sell dollars and buy euros today, which would cause the dollar to fall against the euro. Yet the dollar has been rising as the yield gap has widened. ….

It’s possible that the confusion comes from the fact that the exchange rate quotes you will hear when you call up your friendly neighborhood currency dealer will vary depending on when you want to actually exchange dollars for euros. If you want to swap currencies today, you will get the rate that pops up in the news (about $1.19 per euro as of pixel time). If you want lock in a rate today but wait for ten years to actually hand over your dollars for euros, you will get a different rate where the euro is worth relatively more than it is now, precisely because interest rates in the US are higher than they are in most of the euro area. ….

This doesn’t mean, however, that people who trade currencies go around betting that low-yielding currencies will rise in value relative to high-yielding ones, as Krugman implies. If anything, traders tend to prefer selling low-yield currencies while buying high yield-currencies. Interest rate differentials have basically no predictive power for exchange rates. ….

Economists have long had a hard time explaining movements in currencies. …. No one seems to have a great explanation as to why.

Matthew C. Klein, “The dubious relationship between yields and exchange rates“, FT Alphaville, 6 January 2014 (unlimited access with free registration).

New York writer Matthew Klein (born 1968) has a BA in history from Yale University. Before joining the Financial Times, he wrote for Bloomberg View and The Economist magazine.

inflation and deflation

Sunday, November 16th, 2014

Since the 1007/2008 financial crisis, austerians have consistently warned that fiscal stimulus and loose monetary policy would produce severe inflation. This did not happen, so austerians have been quiet lately. One outspoken austerian (Chicago economist John Cochrane) now admits that we face a problem of deflation, not inflation. Does he admit that his forecasts were terribly wrong? No. Does he say he is sorry for encouraging policies of austerity in the Great Recession? No. He now thinks that economies are robust, that markets are self-correcting so long as governments do not interfere too much.

“The danger now is inflation,” warned University of Chicago economist and Paul Ryan dinner companion John Cochrane in 2009. He warned of this again in 2010: “A substantial inflation will follow — and likely a ‘stagflation’ not inflation associated with a boom.” And again in 2011. (“As a result of the federal government’s enormous debt and deficits, substantial inflation could break out in America in the next few years.”) And again in 2012 (“Inflation Should Be Feared”).

Inflation has stayed very low. And look, here is John Cochrane in today’s Wall Street Journal editorial page, no longer warning of inflation. Now he is arguing that deflation might be coming, but it’s not so bad:

Jonathan Chait, “Inflationista John Cochrane Wrong But Not Sorry“, New York Magazine, 14 November 2014.

Here is part of Cochrane’s WSJ op-ed:

With European inflation declining to 0.3%, and U.S. inflation slowing, a specter [of deflation] now haunts the Western world. ….
Clearly, our central banks want higher inflation, and the current slow decline was unintended. So, just as clearly, central banks have a lot less understanding of and control over inflation and deflation than most people think. ….

Maybe the economy isn’t so inherently unstable and in need of constant guidance after all. Bottom line? Relax.  

John Cochrane, “Who’s Afraid of a Little Deflation?“, Wall Street Journal, 14 November 2014.

Princeton economist Paul Krugman is in Argentina, recommending austerian policies. Really!

And if anyone starts yelling that I’m being inconsistent in saying that deficit spending and money-printing are a problem in Argentina, because those are the same policies I want in the US, the answer is, yes, they are — because the US is in a liquidity trap, suffering from persistent suffering from persistent lack of demand, while Argentina is overheated.

Paul Krugman, “Inflation Truth, Really“, The Conscience of a Liberal, New York Times blog, 14 November 2014.