Midwest Progress

Hiatus

Wed, 12 Oct 2011 10:26:00 -0400

Hi guys, this are going well on my end. Hopefully you’ve been reading my pieces in the Monkeycage, if not you should (here’s my latest)!

As of now, I have am starting a new (hopefully semi permanent) gig that doesn’t allow their employees to blog their views. His means that, for now, Midwest Progress has to come to a halt. Not sure when it will be back, but thank you for reading thus far. If anything changes, you’ll be the first to know.

I should still be doing the whole non partisan political science-y thing over at the Monkeycage, but we’ll have to see what my (hopefully) new employer has to say in this regard.

Thanks for reading,

Jonathan R.

Milton Friedman: Increase the Money Supply

Sun, 25 Sep 2011 20:32:59 -0400

Direct quote, from a 1997 Wall Street Journal piece archived at Hoover. I couldn’t make this up.

Reviving Japan
by Milton Friedman

Nobel laureate and Hoover fellow Milton Friedman gives the Bank of Japan step-by-step instructions for resuscitating the Japanese economy. A monetary kiss of life.

A decade of inept monetary policy by the Bank of Japan deserves much of the blame for the current parlous state of the Japanese economy. That decade followed a period of excellent monetary policy. In 1973, the Bank of Japan reacted to an accelerating rise in inflation by bringing monetary growth down to nearly 10 percent a year from over 25 percent in the course of less than two years. It also announced an explicit policy of controlling monetary growth.

As the chart shows, after a lag of a year, nominal income decelerated sharply and then, after another year, so did inflation, from more than 20 percent to single digits. Monetary growth continued to decline unevenly for nearly another decade and then stabilized. Inflation followed suit, falling to less than 3 percent annually for years on end. After a brief recession in 1974, real growth resumed at a respectable and fairly steady rate, averaging nearly 4 percent a year from 1977 to 1987. Those were the golden years.

The Bubble Economy

Then, at the Louvre conference in February 1987, the assembled leaders agreed to stabilize the foreign exchange value of the dollar. Japan, as its part of the deal, bought dollars, in the process creating yen. The resulting acceleration in monetary growth led to higher inflation and, initially, to higher real growth. The most notable result was the “bubble economy,” an explosion in the prices of land, stocks, and other assets; the Nikkei stock index more than doubled in three years.

The Bank of Japan reacted belatedly in 1990, reducing monetary growth from 13 percent to less than 3 percent in the first year of the new policy and to negative rates in the second—too much of a good thing. Tight money was spectacularly effective; the stock market, and also nominal income growth, plunged. Low inflation turned into actual deflation by 1994. Monetary growth has recovered since but remains at the lowest level of the postwar period.

The table compares the past five years with a five-year period a decade earlier, during Japan’s golden years. Seemingly small numerical differences are enough to convert a healthy economy into a sick one.

Increase the Money Supply

The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money, to a rate of monetary growth closer to that which prevailed in the golden 1980s but without again overdoing it. That would make much-needed financial and economic reforms far easier to achieve.
…FOR BETTER OR WORSE
Annual change:
Golden
Period
2Q1982-
2Q1987 Troubled
Times
2Q1982-
2Q1987

Money ^a 8.2% 2.1%
Income ^b 5.0% 1.3%
Prices ^c 1.7% 0.2%
Output ^d 3.3% 1.0%

^a M2+CD’s for year earlier than indicated period.
^b GDP in current prices.
^c Implicit GDP deflator.
^d GDP in constant prices
Source: Hoover Analytics
Defenders of the Bank of Japan will say, “How? The bank has already cut its discount rate to 0.5 percent. What more can it do to increase the quantity of money?”

The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.

There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately. A return to the conditions of the late 1980s would rejuvenate Japan and help shore up the rest of Asia.

The Interest Rate Fallacy

Initially, higher monetary growth would reduce short-term interest rates even further. As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates. Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.

Japan’s recent experience of three years of near zero economic growth is an eerie, if less dramatic, replay of the great contraction in the United States. The Fed permitted the quantity of money to decline by one-third from 1929 to 1933, just as the Bank of Japan permitted monetary growth to be low or negative in recent years. The monetary collapse was far greater in the United States than in Japan, which is why the economic collapse was far more severe. The United States revived when monetary growth resumed, as Japan will.

The Fed pointed to low interest rates as evidence that it was following an easy money policy and never mentioned the quantity of money. The governor of the Bank of Japan, in a speech on June 27, 1997, referred to the “drastic monetary measures” that the bank took in 1995 as evidence of “the easy stance of monetary policy.” He too did not mention the quantity of money. Judged by the discount rate, which was reduced from 1.75 percent to 0.5 percent, the measures were drastic. Judged by monetary growth, they were too little too late, raising monetary growth from 1.5 percent a year in the prior three and a half years to only 3.25 percent in the next two and a half.

After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.

Milton Friedman, recipient of the 1976 Nobel Memorial Prize for economic science, was a senior research fellow at the Hoover Institution from 1977 to 2006. He passed away on Nov. 16, 2006. He was also the Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago, where he taught from 1946 to 1976, and a member of the research staff of the National Bureau of Economic Research from 1937 to 1981.

Reprinted from the Wall Street Journal, December 17, 1997, from an article entitled “Rx for Japan: Back to the Future.” Used with permission. © Dow Jones & Company, Inc. All rights reserved.

Other Blogging Activities

Sun, 11 Sep 2011 22:50:38 -0400

Hi readers! As you all may know a month or two ago I announced that I would be writing a couple of columns a month for a website called The Politicizer. This has been an awesome opportunity and a few other columns are in the work (around my already busy school and research schedule). I have stumbled upon another blogging related opportunity that was too good to pass up.

John Sides over at The Monkey Cage, my favorite political blog on the planet, offered me a gig as an editorial assistant, writing up a couple of posts and managing some of the social media infrastructure of the blog. The Monkey Cage is a blog about politics maintained by a group of political scientists, focusing on spreading the wealth of knowledge that political science research has to offer on the latest news and happenings on the blogosphere and politics. I’m writing two features, one on visual representations of data, and a weekly roundup of political science research related to current events. And to boot, the blog was named the Best Blog of 2010 by The Week Magazine, and is read by lots of important people (ie not me!). I couldn’t be more excited.

To be clear, I’ll still be posting here occasionally, as always, and will continue to plug along over at The Politicizer. This is just another endeavor!

Debunking the Uncertainty Myth

Sat, 03 Sep 2011 14:49:44 -0400

From Gary Burtless of Brookings (via Mark Thoma)

If managers thought taxes or regulatory costs might go up in the future, wouldn’t it make sense to take advantage of today’s low taxes and lower burdens to invest and hire today? According to the “uncertainty” argument, businesses are fearful they might face high taxes and extra health costs in 2016 or 2018. Shouldn’t they expand hiring right now and scale back employment when they actually face higher costs (if they ever do)?
The “tax uncertainty” and “regulatory uncertainty” arguments would make more sense if, say, taxes were already high and might be going higher or regulatory burdens were heavy and might be getting heavier. But when taxes are at a 60-year low and the regulations are pretty much the same as they were in the 1990s boom, the argument makes no sense at all. As we used to say down on the farm, you should “make hay while the sun shines.” In other words, if you think it’s going to rain later in the week, it strengthens the case for cutting and baling right now.

The odd thing is, when businesses are asked why they’re not expanding, “high taxes” and “heavy regulatory burdens” and “tax uncertainty” don’t feature as prominent answers. They mostly say they don’t see good prospects for extra sales. But right-wing economists have their talking points, even if they make little sense, and they’re sticking with ‘em. Another of their favorites is “… executives tell me they can’t find good candidates for the job openings they have.” Don’t get me started on that one.

What Conservative Academic Economists Really Think About the Minimum Wage

Tue, 30 Aug 2011 17:02:00 -0400

Conservatives tout studies by two academic labor economists William Wascher of the Federal Reserve Board and David Neumark of the University of California-Irvine to counter liberal claims by liberal activists and left leaning academic economists that the minimum wage does not cause diemployment effects (as neoclassical economic theory would suggest it does).

That is exactly what happened in the National Review Online’s blog: The Corner today in the wake of the announcement that the President will be nominating Alan Krueger to be the new chair of the CEA. The NRO is apparently still bitter about Krueger’s work with David Card in the early nineties that showed a slight increase in employment in New Jersey after a minimum wage was implemented in New Jersey but not in Pennsylvania. The blog carries out the tired battle that was resolved a couple decades if not a decade ago in several journal articles and books (though Neumark and Wascher do have a new book out on the minimum wage) that Dean Baker successfully rebuffs, here.

However, rarely are Neumark and Wascher ever asked by journalists and bloggers what the actual conclusions of their study are. Good thing the ol’ UCI Youtube account did! What Neumark said was:

Even if there are disemployment effects, it is not the central policy question. One could imagine a situation where a minimum wage increase cost some workers some jobs somewhere but delivered a lot of benefits…if 10 workers lost their jobs but 1000 families were lifted out of poverty we’d probably say that’s a pretty good trade off. Every government regulation probably cost someone somewhere a job, it doesn’t mean we should do it, it just means we should be thinking about the tradeoffs.

Hardly sounds like an equivocal anti-minimum wage stance now does it?

Obama Makes My Case for Alan Krueger!

Mon, 29 Aug 2011 08:08:15 -0400

Today, the Wall Street Journal is reporting that President Obama is going to nominate Alan Krueger, former Assistant Secretary for Economic Policy at the Treasury Department and famed labor economist (in the Department at Princeton) to chair the Council of Economic Advisors.

Some diligent readers may remember that back in October I wrote a post entitled: The Case for Alan Krueger. Though I was recommending Krueger take the vacated NEC position Larry Summer left, this is just as good with Austan Goolsbee having left already. The great thing I mentioned before: Krueger has already been confirmed in the past, hopefully he gets a smooth confirmation now.

For posterity:

Sadly, I received news today (a little late I may add, due to college mid-term examinations), that Alan Krueger is stepping down as Assistant Secretary of the Treasury for economic policy.

I have been working on a couple of posts (this being the first one) of people who I believe that the Obama administration should consider bringing onto replace high level departures in key advisory roles. The most important position being left vacant right now is the chairman of the NEC, being vacated by Larry Summers in the next coming months.

You see I had a perfect plan laid out. Krueger has already been confirmed by the Senate in his current role in Treasury, he is from within the system, and though the NEC is not a senate confirmable position, it would be comfortable to see some continuity within the administration. Alas, the news that Krueger will be stepping down is unfortunate. Krueger would not only be a good choice because of his existence within the policy structure in the Obama administration, he is extremely smart and astute.

I can think of many economists who would have been better to choose as head of the NEC from the outset of the Obama administration (Joseph Stiglitz would have been my choice), but Krueger would have been a very good post midterms chair of the NEC. He is an expert on social insurance, education, and most importantly income inequality. There has been considerable concern that income inequality not only causes financial crises, but was behind the latest recession in very prominent ways.

Krueger’s expertise in social insurance, programs like the minimum wage, food stamps, as well as other important parts of the social safety net is exactly the person who needs to have the President’s ear. Krueger’s close relationship with Geitner is a plus, which could go along way towards a more congenial and productive debate on economic policy than the Summers/Geithner relationship that has been the talk of the town amongst economic policy wonks.

Alan Krueger is a smart economist, well versed and respected for his pioneering work in labor economics, not a firebrand liberal, and not a politician like Summers, who is willing to lowball stimulus estimates. He is a smooth talker with clear ideas, and Princeton should be glad to have him back. America, should be sad to see him go.

Who's the Gentrifier?

Thu, 25 Aug 2011 22:29:00 -0400

Some people might argue that’s because Wells is a gentrifier, tapping reservoirs of wealth to magically alleviate previously intractable problems. But that’s not the case. She’s actually lived in the District since 1983, and had been on the Hill for 20 years before taking on the Cluster School. She may share a skin color with a lot of D.C.’s gentrifiers, but her federal-government CV wouldn’t necessarily look so out of place in some of the tree-lined African American neighborhoods in Wards 5, Ward 7, and even Ward 8. Nor would her politics: She’s an avowed admirer of Diane Ravitch, perhaps the highest-profile critic of Rhee.

This comes from an article in the Washington City Paper, about the increasing involvement of family and parent advocates in DC Public Schools, specifically in the Capitol Hill area. The author of the piece, Jonetta Rose Barras, attempts to make the case in a very opinion filled article that what is happening in the Capitol Hill area is not gentrification, but wholesale school improvement from concerned parents.

What Barras is completely wrong about is that she makes the illogical argument that because the pedigree of the organizer of the parents, EPA scientist and parent advocate Suzanne Wells, is similar to black residents of DC and has lived in the area for quite some time that what she is doing is not gentrifying. Ms. Barras should have read a semi-recent City Paper piece about the black gentrification of Anacostia. Though Wells is a long time resident, what she is doing is gentrification plain and simple. Gentrification is self interest in its purest form. No one should fault Wells for wanting the best for her children and the neighborhoods children, but no one should make claims that what she is doing isn’t gentrification. What is a major concern that Ms. Barras should have brought up is about resource allocation. One of the many problems of gentrification is that the market allocates resources inefficiently. In simpler terms, philanthropists and others may have helped schools in need of more assistance, instead they are giving to the Capitol Hill cluster. Again, its up to interpretation as to whether this is a bad thing or not, but let’s not beat around the bush, gentrification is gentrification whether you’re black or white, a new resident or an old one, young or old.

The Fed is weakening the dollar? No.

Tue, 16 Aug 2011 23:18:24 -0400

The Fed is weakening the dollar? No.

The Sad Truth

Thu, 11 Aug 2011 23:56:49 -0400

Mike Konczal: Preach, preach!

I imagine that every day Kocherlakota interviews people – from banking, from the top 1%, from the corporate offices of our largest firms – who will kindly explain to him that the problem in the economy is that they just don’t get their demands answered quickly enough. If only they paid even less in taxes, if only regulations were weakened further, if only every pet demand they ever wanted was granted, then they would allow the economy to take off.

How often does he hear the opposite? How often do the unemployed disrupt his speeches, chanting about how they aren’t on a magical vacation but instead desperate to find a job? How often do students show up in huge numbers in his office explaining they they are terrified of entering this terrible job market, a job market likely to scar their careers for decades, instead of apathetic losers who’d rather just play on facebook all day enjoying their “z”? Maybe it is time that changed.

Politicizer Column #2: How the Democrats Should Frame Their Tax-Increase Argument

Wed, 10 Aug 2011 21:30:00 -0400

Linked to here:

ROBINSON: How the Democrats Should Frame Their Tax-Increase Argument

Posted on August 10, 2011 at 8:33 pm
Filed under Articles by Writer, Economy, Issues, Jonathan Robinson no comments
Jonathan Robinson, Columnist

The debt deal that was forged between in Washington last week included the creation of a super committee meant to make the harsh decisions of austerity in the name of deficit reduction. The Democrats were asked to make tough choices, the Republicans…not so much. If the super committee (the Joint Select Committee on Deficit Reduction) fails to cut $1.5 trillion more from the budget, a doomsday trigger goes into effect enacting automatic budget cuts across the board. For the Democrats, harsh budgetary cuts would go immediately into effect, including funds to effectively neuter President Obama’s health care reform law by cutting many of the funds earmarked for its implementation (the very same health care law, mind you, that some commentators would say lost the Democrats their close to super-majority in the Senate and a moderate majority in the House). Republicans, on the other hand, would only lose $600 billion, not in new revenues from tax increases or reforms, but in cuts to the defense budget. The Democrats get the raw deal if the commission fails. Failure to reach a compromise that can then pass an up or down vote in both chambers means that the Republicans get to gut the President’s signature piece of legislation, while the Democrats only get to trim the Pentagon budget a smidgen more.

The inherent lopsidedness of it all is a strange. Why did the Democrats settle for this? First of all, the Republicans definitely will push for more cuts than the ones in the trigger. Perhaps the Democrats believe that the Republicans will want to compromise on a bigger number and that a trigger and $600 billion in defense cuts are enough to deter them from missing the December 23rd deadline and gutting the health care reform law.

Tax Increases on the Rich Are the Only Way to Economic Solvency

Democrats would prefer not to cut as much as the Republicans are proposing and would generally want tax revenues to coexist with the budget cuts. Many top Republican leaders, however, are publicly making statements that revenue will not be on the table (that is all contingent of course, on who eventually sits on the committee). If the trigger had included higher revenues, it might have balanced out the losses if indeed the two sides would fail to agree. Why didn’t the Democrats get revenues on the table? Well on the Republican side the effective leadership of Eric Cantor (specifically) as well as the strong cohesion of the Tea Party seemed to have all but pushed that off the agenda. However, there are two sides to every conflict, especially in Washington.

When putting forth measures to increase revenues through tax hikes on the wealthy, the Democrats appealed to an emotional argument about fairness. The problem with the structure of that argument is that despite attempts by people like Drew Westen to say otherwise, emotional appeals don’t really affect politicians. The frame with which the Democrats approached higher revenues was that it was a choice between doing what was right and what was wrong. Senators, like Bernie Sanders, made the explicit point that taxing those who make more, instead of taking away government services from the middle class and poor, was the right, moral thing to do. What the Democrats should have said was the cold hard fact: that as income inequality has so drastically placed the wealth of our nation in the highest earning percentiles, the only feasible way to fund a government is to rely on those whose incomes have ballooned, also known as the super-rich.

An argument about the fairness of a policy is an argument that doesn’t sway politicians, especially when time sensitive negotiations are going on. Though the prospect that increased revenues will end up in the final product is quite low at this moment, here are three reasons why it should be.

Exhibit A: Stagnating Wages and Benefits

Exhibit A: Wages and Compensation Stagnating [Courtesy of http://www.stateofworkingamerica.org

The average American household has seen very little real increase in wages over the past 70 years. While economic growth in the 90′s did increase wages slightly and wages increased in the 2000′s after that decade’s early recession, wages have largely stagnated for the middle class. We can’t finance our government without the contribution of others who have more money and resources with which to provide the government. In the past, when the middle class held more of the national wealth, our current mode of taxation was quite effective at funding the government. But, with the stagnation of middle class income and the rise of the super-rich, we need new revenue streams.

Exhibit B: No Pay Increases for Being More Productive

Exhibit B: No Pay Increases for More Productivity [Courtesy of http://www.stateofworkingamerica.org

Most of the productivity gains that workers did produce in the past 30 years did not go to them in the form of higher wages. The average American worker was not properly rewarded by the gains that technological innovation rewarded the economy since the 1980s. This is not a punishment for the rich. Rather, higher taxation is just an attempt to keep in line with our government’s current obligations and ability to respond to economic crisis. The very nature of the income distribution in the United States means that that the rich must give more in the form of increased taxes in order to keep government functioning. The Democrats have to frame this as an issue of economic feasibility, not one about how unfair it is that the rich don’t pay enough taxes. This is necessary to fund out government.

Exhibit C: The Rich See Wage Increases, the Poor Not So Much

Exhibit C: The Rich See Wage Increases, the Poor Not So Much [Courtesy of http://www.stateofworkingamerica.org

Finally, if you decompose changes in hourly wages by income bracket, it becomes apparent that the average and poor workers have seen their wages fall, while the compensation for the rich has skyrocketed. If this recession is about the need for shared sacrifices, then the rich need to pay their share to bring the economy into recovery, because the lion-share of the spoils of economic growth hasn’t really gone to anyone else. These obligations would only need to be temporary, but it is the only feasible way to fund the current obligations of the government. The economic complexity of the US taxation system isn’t and shouldn’t be an argument about fairness, especially when trying to be persuasive! When that becomes the focus of the argument, then more arguing ensues. Instead of focusing on important policy debates and the economic necessity for higher taxes on the rich, it becomes an endless, less substantive argument as parties devolve into strategic messaging wars, hurling platitudes and canned speeches on the floors of the House and Senate and into press releases. What cannot be ignored is that in order to fund the government’s economic recovery efforts, the only way it can feasibly be done is by increasing taxes on the rich. As economist John Quiggin pointed out recently:

In both policy and political terms, nothing can be achieved under these circumstances, except at the expense of the top 1 per cent. This is a contingent, but inescapable fact about massively unequal, and economically stagnant, societies like the US in 2010.

Voters may well respond more to emotional than matter of fact pleas. But in order for our economy to get back on track politicians, not voters, need to be swayed. If the Democrats make this debate more about facts than morals, they may well get some of what they want in the end, because so far they are losing the fight on the morality of economic policy. A re-framing of the issue and a change of course can lead to new solutions and a healthier economy.

Who Will Sit on the Joint Deficit Super Committee?

Wed, 03 Aug 2011 10:27:30 -0400

Alot of people in Washington are planning to put a lot of power and decision making authority into the Joint Super Committee to make cuts that will receive a up or down vote in Congress. Suzy Khimm over at Ezra Klein’s blog, asks the logical question (after the all too excellent and obligatory, will this commission work post by Sarah Binder over at the Monkeycage): who will be on this committee:

Given the stakes, both parties will want to appoint members who have close ties to the leadership and are willing to carry out their directives. “Budgeting is the most political of all procedures on the Hill,” says Stan Collender, a former congressional budget analyst. And the stakes this time around are even higher. Committee chairs and ranking members who work closely with taxes, health care and entitlements will all be strong contenders. But congressional leaders will also probably steer clear of members up for a tough reelection battle in 2012, such as Sen. Orrin Hatch, ranking member of the Senate Finance Committee.

The whole piece is worth reading, especially as Khimm goes down the list of who will or will not be on the committee. Just a quick thought as I dive back into my research paper I’ve neglected for a week after hanging out on vacation in Wisconsin and Pennsylvania. What worries me is how different will this committee be from the general ideology of the chamber. The only major difference in my eye between this committee and the chamber is that the procedural obstacles are not really there. However though the committee does reflect the balance of both of the houses of government (6 from the House 6 from the Senate), it doesn’t really accurately reflect how votes came down in the House:

If you can see, Nancy Pelosi was able to marshal her caucus quite easily, allowing for a 95-95 split of her Democratic colleagues in the House. However, I doubt there will be any Democrats from the House on the committee (only time will tell), which ignores the politicking in the House, and guarantees that Boehner may be able to get even more austerity in this package than he would have otherwise. The real question that remains to be answered is, how this deal will be any different from the one of this past weekend? With the Paul Ryans, John Boehners, and Jon Kyl’s, and Mitch McConnell’s of the world debating the Harry Reids, Barney Franks, etc…of the world will this agreement be more powerful, or will the commission fail, leading to the wicked deficit trigger? Time will tell.

My First Politicizer Column: The Battle Over Rules and Discretion

Tue, 02 Aug 2011 22:40:30 -0400

I have started a new gig posting a column 2-3 times a month at The Politicizer, an online opinion website for the “Millennial Generation”, whatever that is. The url is: http://www.thepoliticizer.com.

Here it is, my first column:

ROBINSON: The Battle Over Rules and Discretion Posted on August 2, 2011 at 3:56 pm

Filed under Economy, Government, Jonathan Robinson no comments
Jonathan Robinson, Columnist

By moving from politics based on discretion to rules based politics, the Republican Party leadership is signaling that more painful budget cuts are on the way, and that’s not a good sign for the economic recovery. Rules based politics constrict activist government and prevent progressive policy change by cocooning politicians from blame for unpopular political consequences when it is most convenient for the minority party.

Many times in politics, even the most complex economic and political issues that come up for debate can be distilled into essential dichotomies as can be seen with the debt ceiling and balanced budget amendment fights in Washington. Policymaking is a balancing act between playing by the rules at hand and negotiating a law with which both sides are satisfied. Over the past half-century economists have engaged in heated debates over the merit of rules versus discretion based policy making in the economic policy making arena.

The basic debate goes something like this: One side argues that rules are to be preferred, while the other prefers discretionary action on important pressing issues. Those who favor rules argue that they not only constrain politicians from abusing discretion but introduce an element of certainty into policy making that keeps markets happy and eases voters’ fears about manipulative politicians. Conservative economist Milton Friedman is famous for advocating a ‘rule’ for monetary policy conducted by the Federal Reserve. Under Friedman’s vision there would be no need for a Federal Reserve Board to choose monetary policy, just a bureaucracy to execute policies in response to changing economic conditions without the discretionary freedom to react to unique economic circumstances.

Although a few believe in this extreme form of governance, most seem to be in favor of some sort of discretionary governance in some shape or form on certain issues (still, partisanship plays a big factor). Take, for instance, the role of government in response to the financial crisis:

Those who favor discretion note its importance during crisis, where an activist government can respond skillfully and effectively to aid citizens and solve complex problems, even though it involves a bigger economic role for government. Critics of the rules based approach see rules as one way for Congress to avoid blame for unpopular actions by steering clear of tough issues. Some policymakers believe that government can be just as effective, if not more so, than rules based policies, and that discretion can tweak policy without negative side effects. Federal Reserve Chairman Ben Bernanke, speaking at an event honoring Friedman, jabbed:

On the issue of inflation control, Friedman may be judged to have been a bit too pessimistic; his concerns that central banks would have neither the technical ability nor the correct incentives to control inflation led him to recommend his money-growth rule, for which a central bank could certainly be held accountable. Evidently, however, determined central banks can stabilize inflation directly, at least they have been able to do so thus far.

As of late, the debate over the debt ceiling and the discussion of inserting a balanced budget amendment into the constitution (something that has been proposed by conservative Republicans many times, as far back as 1994) have seeped into the latest discourse about solving the crushing debt that the US has incurred to the tune of about 14 trillion dollars and counting.

The debt ceiling is an important rule, created by Congress to constrain the size of government spending. However, historically the debt limit has been raised at the behest of the Treasury Department many times so that the government could incur greater spending. Congress, in the past, has even enacted rules so they could avoid having to deal with the debt ceiling—also another rule! Known as the Gephardt Rule (which, the House waived this year when they got their chance to rewrite the House rules at the beginning of the 112^th Congress, providing more evidence that the Republican leadership wanted conflict about the ceiling), it is the perfect example of using rules to avoid making policy choices.

But voters should always be suspicious of rules that politicians create to constrain themselves. Politicians like to claim credit for popular programs and any rule that allows politicians to avoid blame for unpopular decisions should be a clear sign of rough waters ahead. According to the Christian Science Monitor:

In 1995, then-majority House Republicans waived the Gephardt rule. They refused to raise the debt limit in a bid to force President Clinton to accept spending cuts – prompting two government shutdowns.

While I understand the importance of rules, I smell something sinister about the choices that the Republican leadership is making. On the one hand they waived the Gephardt rule, allowing them the discretion to play chicken on the debt ceiling with the Democratic leadership, and to create uncertainty that a deal will be reached before the August 2^nd deadline. But what one hand giveth, the other hand taketh away. By putting forth a balanced budget amendment to the Constitution that would force Congress to make cuts to offset any proposed budgetary spending it would send to the President, it would force Congress to make unpopular decisions and constrain its choices in times of crisis. By picking and choosing between which rules they like and which rules they don’t, the American public should be aware that by going down these procedural paths and forcing decisions to be made (whether you want to call them tough or unpopular) the Republicans plan to insulate themselves from possible backlash.

If the current budget debate is to be framed as a choice between rules and discretion, the public has to be aware that creating rules that force our nation down a certain path is a sly tactic, which can only mean that even more austerity is on the way. By inserting rules that command specific actions, as a Balanced Budget amendment would, Republicans can implement cuts to government spending, even in popular programs, while claiming to have only done so because it was a rule. As someone who believes that, now more than ever, we need more government intervention to pick up the slack in the economy, the current procedural maneuverings and offerings that the Republican debt ceiling negotiators are proposing can only mean one thing: more austerity is on the way and they want to minimize the damage.

With the oncoming passage of a debt ceiling increase in the next couple of days, it seems that a balanced Budget Amendment is still being discussed amongst the Republican caucus (though if Boehner wants moderate members of the House Democratic caucus to vote for this he may have to give it up), which is a definite form of worrisome discretion. The small bit of scary rule writing comes in the form of a trigger that I have talked about here that, according to Ezra Klein of the Washington Post, will automatically lead to spending cuts, not tax increases. However, there is a grey area on the largest bit of rules politicking in this bill. In short, a “Super Committee” will be created (12 people, 6 from each party including 3 from each House for each party) to make recommendations on deficit reduction. However, these committees have a history of not working too well, essentially failing where the discretion of policymakers tends to fail; with an inability to reach an agreement. If the committee fails to reach an agreement, a whole other set of actions take place, which may end up being more favorable to Republicans. All in all, the murky, more esoteric rules that are written into this agreement may end up mattering more than most think. Stay tuned, only time will tell whether rules trump discretion, or if the politicians can negotiate their way out of these new constraints.

The Economist is Wrong on Food Deserts

Tue, 19 Jul 2011 23:44:46 -0400

One of great parts of the journalism today is how easy it is contact and publicly fact check the claims made in articles and reports appearing in the news media. There is one publication that refuses to publish the authors of specific pieces written in their magazine and that is The Economist. If you don’t like a piece, the best you can do is hold the publication, rather than the writer accountable for their poor writing, logic, and arguments. In searching for a reason why this would be the case, I found Economist writer and author Andreas Kluth had already written a blog post on the topic, quoting his editor, John Micklethwait:

“We haven’t done anything. We’ve kept the same, and everyone else has changed.” In other words, The Economist is 160+ years old, and back then anonymity was the norm. Then the industry went on a slightly disturbing path toward writer celebrity, and we simply chose not to participate.

When asked about why they still persist today, other than tradition, Micklethwait answered:

“Why do we keep it? Firstly, because it’s, I suppose, a brand. But it’s more than a marketing gimmick.” It also, he says, fits our method of collaborative writing.

The reason I wish that the Economist had more openness and transparency by giving up the people who write their columns, etc…is to respond to stories like the one that is in the latest issue of the magazine (and can be found here). The story, published on the heels of the launch, by the USDA, of a new mapping application to measure, graphically by census tract, where Food Deserts are located in the United States. The claims made in the article, namely questioning the fact that food deserts even exist (I will define what a food desert is soon enough), that food deserts do not lead to worse health outcomes like obesity and chronic health problems, and that government policy, specifically the current government program known as the Healthy Food Financing Initiative, is ineffective in solving the problem, if it exists at all.

The reason that this column bugged me so much is that I have done considerable research on the topic, culminating in my first publication entitled Access and Inequality: The Cleveland Food Desert Case, in the 10 Ideas for Economic Development published by the Manhattan based think tank the Roosevelt Institute:

The small abstract, I paste here:

By strategically expanding public transportation routes, municipal authorities can improve the health and economy of Cleveland, Ohio, one of the United States’ most depressed urban areas.

So obviously I was taken aback at the Economist’s piece, and wanted to email the author my critique. However, this piece was an anonymous one, so here I am, left to rant on this blog on the internet. I want to rebuke some of the points that (for all we know Mr. Kluth wrote) appeared in the Economist on food deserts.

The logic of the article in my mind makes very little sense. So food deserts don’t exist, but they also don’t cause poor health outcomes. Well if they don’t exist then, then how is there a problem? The author can’t seem to get his/her head around the issue to develop a consistent opinion. That isn’t to say that what the author has to say is all complete rubish. This piece is right:

Official figures for the number of people living in food deserts already show a decline, from 23.5m in 2009 to 13.5m at the launch of the website in May. Although this might on the face of it suggest that the initiative is off to a superb start, sadly it does not in fact represent a single additional banana bought or soda shunned.This is because in America, the definition of a food desert is any census area where at least 20% of inhabitants are below the poverty line and 33% live more than a mile from a supermarket. By simply extending the cut-off in rural areas to ten miles, the USDA managed to rescue 10m people from desert life.

I don’t necessarily agree with what the author is insinuating, no government official or agency is claiming credit for the downsizing of food deserts in the US. In fact, it’d be pretty impressive if all the Healthy Food Financing Initiative’s seed money had been swallowed up that quickly, especially in a recessionary downturn when people in poorer communities have less money and economic security than in recent memory.

That’s about as factual as the piece gets. What follows is a mangling of an academic study and a spattering of flimsy anecdotal evidence. The author brings forth this tidbit:

Research by the Centre for Public Health Nutrition at the University of Washington found that only 15% of people shopped for food within their own census area. Critics also note that focusing on supermarkets means that the USDA ignores tens of thousands of larger and smaller retailers, farmers’ markets and roadside greengrocers, many of which are excellent sources of fresh food. Together, they account for more than half of the country’s trillion-dollar retail food market.

With regards to the first statistic, the author does not further substantiate the claim that perhaps the census tract measure is imperfect because census tracts are so damn large! It is quite possible that since tracts are so big that they understate the power of concentrated poverty and variations in the socioeconomic status of those within tracts. The problem of using census tract as a unit of analysis is its size, its not optimal for the study of food deserts, but who else has the resources than the USDA (utilizing the Census to survey Americans)?
Small markets are not a solution and never have been. They don’t have the economies of scale to make a great deal of competition in comparisons to less healthy food and only have a limited ability to supply big areas (especially in what the author refers to as places experiencing urban decay). Local gardens and small markets are not a panacea in the least and their ability to be a long term viable solution for poor urban communities is close to nil.
The anecdotal evidence comes in the form of the author explaining how in his or her experience in an area outside of Seattle, WA in a food desert that he/she deemed to not be on. First of all, it is quite possible that the food desert is due to the fact that there is a poor population in the area that does not have the proper transportation to reach the superstore (only really savvy consumers with money shop at health food stores, food stands vary depending on whether produce is organic). Simply, the author is taking food desert as a measure but not decomposing the numbers to see what they mean.

At the end of the piece, the author draws attention to the fact that neither the USDA nor the Institutes of Medicine have been able to link food deserts to poor health outcomes. Firstly, a longitudinal study is necessary to do this and to my knowledge none is available as the study of food deserts is a relatively recent phenomenon to be studied in public health and sociology. However, the Institutes of Medicine did put out a report on the issue, emphasizing that:

Mapping shows that these are also frequently areas with high rates of obesity and chronic, diet-related diseases. However, presenters emphasized that food retail is only one component of the total food environment that affects how people eat and, more fundamentally, their health. Another caveat is that the supply of healthy food will not suddenly induce people to buy and eat such food over less-healthy options, especially when relative prices of the healthier foods are high.

I’d guess that food deserts explain a good third of obesity, as the availability of healthy food at all is a major factor in whether a person even has the opportunity to lead a healthy lifestyle. Janet Currie, in a NBER working paper, (that was later published in the AER) stated in work related to the placement of fast food restaurants on obesity rates that:

We find that among 9th grade children, a fast food restaurant within a tenth of a mile of a school is associated with at least a 5.2 percent increase in obesity rates. There is no discernable effect at .25 miles and at .5 miles. Among pregnant women, models with mother fixed effects indicate that a fast food restaurant within a half mile of her residence results in a 1.6 percent increase in the probability of gaining over 20 kilos, with a larger effect at .1 miles. The effect is significantly larger for African-American and less educated women.

However, as affordability is a huge issue, this is where I focused my research on. From the policy brief:

By introducing a “food bus line” to link stores and consumers, the City of Cleveland would allow supermarkets to directly compete for customers. While the HFFI brings supermarkets to under served areas, the bus line’s goal would be to bring grocery dollars back to under served communities. Increased competition from the bus line would incentivize supermarkets to provide consumers with information on prices and make healthy food more accessible.

The final problem that the author of the Economist notes is the cynicism he/she displays:

Open a full-service supermarket in a food desert and shoppers tend to buy the same artery-clogging junk food as before—they just pay less for it. The unpalatable truth seems to be that some Americans simply do not care to eat a balanced diet, while others, increasingly, cannot afford to.

This is a matter of taste. The inability of public policy to provide for a nutritious lifestyle and a safe place for businesses to take root in the poor sections of urban areas means that over time tastes changed to what was provided and prices responded downwards. This can be changed, tastes aren’t immovable, and it is the job of public policy to try and reverse this trend.

Minimum Wage Research Post #3: Creating Metrics

Wed, 13 Jul 2011 23:59:14 -0400

One of the cool things that I get to do as a researcher is read, and read, and read some more. Part of the job of a researcher’s job (at least in my eyes) is to ask interesting questions that haven’t been answered or were insufficiently answered before. When you read other people’s work, you not only get the gist on what the consensus is on your topic and what current part of your topic researchers are studying, but you don’t want to ask a question that has already been answered satisfactorily. This isn’t a bad thing, it’s happened to me many times after having a eureka moment. One of the great things about coming at a research topic from a fresh perspective is an ability to look past ways in which path dependence shapes academic research communities.

As demonstrated in Kuhn’s famous The Structure of Scientific Revolutions, there tend to be paradigm shifts in the way problems in research are addressed, not gradual shifts in analytical frameworks. This is not to say that the work I am doing at the moment is anything close to a paradigm shift, but I am quite proud of a clever measure that I created for my current project. Though my creation is much more a creature of a theoretical proposition than that of statistical or mathematical rigor (ie, it’s no Policy Mood or DWNominate score) I think it intuitively represents what I hoped it would when it was first conceived.

The measure we came up with is called (for now) the Wack rate. Here is a graph of the wack rate, then let me explain.

The basic story we wanted the wack rate to tell is how far policy drifts on the minimum wage, or how much the real value of the minimum wage loses its power over time:

The wack rate measures the real minimum wage in reference to the previous real maximum value of the minimum wage. So for example the maximum value the real minimum wage (2010$) attained was $9.526147. Today’s minimum wage is 7.25. Therefore the wackrate is 7.25-9.526147 or -2.276147.

I can only hope that the wack rate permeates something more than just the current project, because I think it provides a useful way to distinctively measure policy drift, if only because the minimum wage is such an empirically simple statistic.

Also wouldn’t it be cool to be the second person from GWU to get a statistic named after them regarding the minimum wage? The first would be Hyman Benjamin Kaitz of the famous Kaitz Index, which provides a more useful way to compare the minimum wage over time by taking the minimum wage, dividing it by the average hourly earnings of workers in manufacturing and then multiplying by the percentage of workers who are covered by minimum wage laws (according to the Gelman library his Master’s Thesis: On the Income Distribution, was directed by Everett Herschel Johnson in May of 1951, I am proud to say that 60 years later it seemed that old Kaitz did end up being important!). Maybe the wack rate will become the Robinson Rate in the future? Doubtful, but still a cool exercise in making your own metrics for data analysis.

Minimum Wage Research Post #2

Mon, 20 Jun 2011 22:29:00 -0400

Making a Mountain Out of a Molehill on Tax Spat

Wed, 15 Jun 2011 23:52:44 -0400

The latest stir up in the Senate these days revolves around taxes. For the uninitiated, anti tax advocate Grover Norquist has circulated what has been called on both sides as an ‘anti tax pledge’ (it’s actually called the Taxpayer Protection Pledge, but I will refer to it as the Norquist pledge) that he has asked Republicans to sign. The reason I say Republicans is because as of today, all the signers of the Norquist pledge have been Republican senators and members of Congress, no Democrats or Independents caucusing with the Democratic party have signed the pledge, which reads:

Taxpayer Protection Pledge
I, _____, pledge to the taxpayers of the (____
district of the) state of ______ and to the American
people that I will: ONE, oppose any and all efforts
to increase the marginal income tax rate for
individuals and business; and TWO, oppose any
net reduction or elimination of deductions and
credits, unless matched dollar for dollar by further
reducing tax rates.

Why all this about the pledge? Well, despite its simplicity, it does help to illustrate how either (1) tremendously ideologically homogenous the Republican party is or (2) how cohesive the Republican caucuses in both the Senate and the House are. In fact, Norquist has leveraged the pledge into not just a litmus test for legislators but as a signalling mechanism for presidential candidate hopefuls. However, what has caused such a fuss this past week is over Tom Coburn’s supposed breaking of his anti-tax pledge by supporting an elimination for a tax break for ethanol. As can be clearly seen, this violates point TWO, but puts Coburn in a strange place, where he is not only enacting a relatively economically sound policy (not the subject of this post), but one that actually does lower the medium term deficit. The only problem is that according to Norquist’s TWO, getting rid of tax expenditures, where tax revenue is foregone on a certain good, service, or income, is a non-starter.

So here we are today. Surely this is an interesting event,but is it the biggest thing happening in Washington, are the Republicans in the Senate unshackling themselves from the economic orthodoxy and black and white statements of Norquist’s Americans for Tax Reform?

Jon Chait Tom Coburn Traps Grover Norquist:

Norquist and Coburn have been circling each other for months, trading barbs in the media. Now Coburn is using a test case to expose Norquist’s Pledge. That test case is the ethanol subsidy, which is pork that survives due to the strength of the agriculture lobby, but which the conservative movement at least putatively opposes. The ethanol subsidy, like many subsidies, comes in the form of a tax break. Eliminating it is, therefore, a tax increase. Therefore, eliminating the ethanol subsidy, without using the revenue for a tax cut, would violate the Pledge.

In other words, Coburn has set a trap for Norquist. He has proposed eliminating the ethanol subsidy. If Norquist supports it, he has to alter his pledge to allow for closing loopholes that raise revenue. If he opposes it, he has to admit that he opposes closing loopholes that even Norquist admits are unsupportable.

Ezra Klein from today’s Wonkbook newsletter:

Norquist might have to take a hard line and pretend he’s appalled to see it crossed, but in focusing everyone on that line, he’s effectively distracting them from how far the goalposts have been moved. Instead of revenues being an assumed part of a deficit deal, with the only question being how much of the deal they make up, the question has become whether Republicans will accept any revenues at all in the deficit deal. Including any new revenues at all has been framed as a major concession for the Republicans, which means it’s easier for Republicans to include far less revenue in total. And no matter how you look at it, that’s a win for Grover Norquist.

And finally, Ezra again on the question of whether the media gives Grover Norquist too much credit:

So perhaps Norquist is mostly a mixture of effective self-promotion and a useful way for journalists to humanize the GOP’s anti-tax stance. But the point from this morning’s Wonkbook remains: The fact that Republicans, after blowing a hole in the deficit with the Bush tax cuts, have managed to define any revenues at all as some sort of massive concession is an astounding political victory, and it means that the ultimate mix of the deficit deal will probably tilt very heavily towards spending cuts.

If you want to see how heavily, notice that President Obama’s deficit-reduction proposal extends more than $3 trillion of Bush’s tax cuts and then raises taxes by less than $1 trillion. And that’s the Democratic opening bid. The Republicans, presumably, will counter with an offer to extend all $4+ trillion of the Bush tax cuts but close down some tax subsidies for green energy. And then the two parties will meet somewhere in the middle.

Ezra may be right, but what I would argue is that the media is giving too much credence to this story. Sure it is an interesting story, especially the fact that Coburn is so strong in his opposition to Norquist, someone who is arguably on his side. However, this seems to me like a non story. Legislators tend to not like to be publically constrained be interest groups, especially ‘non important’ ones like American’s for Tax Reform.

On a political sciencey note, I think Jonathan Chait gets this wrong:

Virtually all the media coverage has gotten this vote wrong. Tom Coburn was not going about this in order to eliminate the ethanol subsidy. He made no attempt to work with the House, line up a majority, woo Senate Democrats, arrange for a vote on favorable terms, or do any of the things that Senators do when they’re trying to pass a law. His goal was to do one thing: set a trap for Grover Norquist.

What Chait is saying is that Coburn wasn’t necessarily voting with his sincere preferences on policy. That kind of voting is called sincere voting, where a legislator or voter chooses a policy closest to his/her preferred option. What Chait is claiming is that Coburn was undertaking sophisticated voting, where he didn’t care about the policy, just stabbing Norquist. Despite the fact that all this seems rather petty and far-fetched, a paper by Tim Groseclose of UCLA and Jeffrey Mylo of University of Missouri states (ungated!):

However, when scholars search systematically over a large set of roll-calls, they typically conclude that sophisticated voting is rare. We are aware of only three such systematic studies—those by Ladha (1994), Poole and Rosenthal (1997), and Wilkerson (1999). All conclude similar to Poole and Rosenthal: ‘‘our search of the literature on strategic [i.e. sophisticated] voting found very vew bothersome needles in our haystack of the 37,000 roll calls in the first 100 congresses’’ (1997, 147).

So, sophisticated voting is rare, why should we expect it to occur here? Isn’t this in fact an extreme case of a lack of party discipline? My answer to this question is really that I don’t know, but I can guess. The fact that 34 Republican Senators defected is rare, but not a truly strategic action in and of itself. It seems to me that being anti government subsidies is pretty consistent with the ideological bend of Republicans in Congress today, and moving in such big groups to strategically bait Norquist might go well with the strength of party cohesion in the Republican caucus, but wouldn’t it be easier to do than organize 33 of your colleagues? Just my cents on this.

My gut says that we really shouldn’t be giving too much credence to this spat. In gridlock whenever there is an irregular vote or a step out of the orthodoxy the media should be wringing its hands to try and figure out what was going on and what the portents are for the future. To me gridlock seems imminent on the horizon and continuing party cohesion and obstruction the norm. Journalists would be far more suited in my eyes with getting the story of the evolution of the tax pledge, instead of trying to needlessly pick apart at its demise.

The Ideology of Health Care Professionals

Thu, 09 Jun 2011 00:13:23 -0400

This graph from Adam Bonica’s blog is just one of many that aims to show the ideological tendencies of the medical profession. This is important, because as Jacob Hacker has shown in his great book The Divided Welfare State on the history of health care reform (and pension reform) in the US, stresses the importance of the support of the medical industry and the lobbying and professional organizations that represent them (remember how important it was when the AMA ‘endorsed’ the House bill in March 2010?).

The opposition of doctors, “plus the fears which this opposition aroused in Congress, doomed all hopes for early enactment of health insurance legislation.” (207)

So, it seems that for a great deal of time (since the days of Teddy Roosevelt), the opinion of the medical profession in the US has mattered a great deal. Hacker continues:

In no country has the medical profession wholeheartedly embraced national health insurance. Yet the depth of professional opposition and the alternatives that physicians have supported have varied significantly both over time and across nations. Moreover, these differences appear to reflect not only strategic political considerations but also real variance in doctors’ preferences rooted in contrasting market structures. In explaining why physicians attitudes differ across time and space, two factors seem to be crucial in all cases: the profession’s assessment of its prospects in the political arena and the availability of acceptable private alternatives to government insurance.” (188)

Before I continue, just to give a quick primer on the graph posted above. The y-axis shows the ideal point estimation of ideology on a left to right scale, with -1 being very liberal and 1 being very conservative. This is a sort of novel new methodology that is best explained by someone with a strong background in math:

Ideal point models attempt to estimate the position of each legislator on the left-right or other dimensions using the votes that they cast on legislation. Basically, the models assume that a legislator will vote in favor of a motion if it moves policy outcomes closer to their most preferred policy. The resulting estimates from these models provide a descriptive summary of the distribution of preferences within a legislature. They are also important parameters in many formal models of legislative behavior.

Though much of Bonica’s work is really cool empirics I was disappointed to not see him discuss one of the most interesting (in my opinion) contributions of the last decade to our understanding of political institutions in America: how they shape the behavior and actions of participants. Joe Soss of the University of Minnesota has one of my favorite papers on the topic where he examines the attitudes of participants in SSDI, TANF, and Head Start. What he found was striking, these participants interactions with powerful government entities in their lives shaped the way they saw and understood politics. Reacting to the autonomy of many caseload managers in TANF offices, many participants adopted an attitude that participation in government was futile, they would always be under the thumb of the caseload manager. This seems to me to be a useful way to explain the divergence in ideal points of health care professionals.

First off, it would have been nice to have a rough breakdown of how big each sector Bonica divides each group into (its at the BLS somewhere). I’d assume that nurses are the largest group, followed by physicians, then surgeons, and psychiatrists (just a quibble). However, I think the way health care professionals interact with government health care institutions say a great deal about their political views, especially if we assume that health care is a major issue for these professionals. Psychiatrists have been squeezed and squeeze by health insurance companies not covering their services, and would benefit most from a change in the way insurance is run in the US. In many cases, physicians run into trouble with their patients ability to afford basic care, whereas the practice of psychiatry in the US has been irrevocably altered around what insurers cover (the shift from psychotherapy to drug therapy).

Nurses I have a hard time understanding. Seeing as they are one of the fastest growing parts of the medical profession and span many different fields (from working in hospitals with surgeons to manning primary care practices) it is hard to generalize. Perhaps this is why we see nurses situated more towards the middle along with physicians, since the sample size is so large, perhaps the data regresses to some sort of mean? Surgeons it seems. are taking the status quo conservative position. This makes sense to me as well. Their experience with the government is possibly with Medicare, in dealing with surgeries for the elderly that are well reimbursed. They like the status quo, where the payday is good, something that is threatened by possible changes to the insurance market with government entry.

Something along these lines would make the blog post (and presumably other article that is on the way by Bonica), alot more interesting.

How I Spend My Days

Mon, 06 Jun 2011 16:31:27 -0400

I wish!

Minimum Wage Post #1: Public Opinion

Sat, 28 May 2011 23:08:00 -0400

This summer I am lucky enough to be able to stay in DC and work on some of my research, one of three “conference paper” worthy papers I plan to write by the end of the year. I even created a “semi-professional” Google-site that will serve as my academic research hub (see research agenda here). My project this summer is a sort of political economy of minimum wage legislation. What my adviser and I hope to find is what best predicts changes in the minimum wage,and not just changes, but how powerful and strong they are. There has been some work on this already, and I’m not expecting to find anything ground breaking, though most studies on this topic stopped after the late 80’s,and the stagnating minimum wage (as show in the above graph) as well as the fall of organized labor should prove interesting to analyze.

However, the first point I want to touch upon in my first post on the minimum wage and my research is public opinion on the minimum wage. What we should expect from our politicians is that they are responsive to public opinion. How else are they going to be re-elected. Politicians must appease their constituents and not tread to far from their views, or they run the risk of losing their office and their ability to effect policy (if we assume politicians are a self interested bunch, which isn’t too hard to get many of us to believe). So, in response to this question posed by the Pew Center on Economic Mobility, respondents said:

(Now I am going to read you some steps the government could take to make sure people don’t fall behind economically. For each one I read, please tell me if you believe this would be one of the most effective steps the government could take, very effective, somewhat effective, not very effective or not effective at all.)…Raise the minimum wage

Pew Economic Mobility and the American Dream Survey, Mar, 2011

This poll is generally indicative of how people think on the minimum wage. Here’s another example to prove my point.

I’m going to read you several actions the next Congress could take. For each one, please tell me whether you would strongly support this action, mildly support it, feel neutral about it, mildly oppose it, or strongly oppose this action….Raising the minimum wage

NBC News/Wall Street Journal Poll, Dec, 2006

Next, let’s break it down by category/demographics:

As you can see from these results, this study (and the breakdown included) show pretty high levels of support for the minimum wage, though you’re more likely to support the minimum wage if you’re a young, liberal, black, and poor (this matches up with evidence of who is most likely to receive the minimum wage). This strong support for the minimum wage doesn’t match up so nicely with elite public opinion on the minimum wage. In part, minimum wage isn’t all that salient. When people are primed about issues like the minimum wage, they support it, but rationally they have no incentive to advocate for a program that most Americans make little use of. I measure media salience by looking for how often the phrase “minimum wage” was used in the Roper Online Polling Database (provided by the University of Connecticut):

While the minimum wage was a more salient issue in the 80s-00’s, the 150 question (roughly) maximum number of questions asked is rather low in comparison to hot button issues like marriage, taxes, health care, etc. The major puzzle with the minimum wage is that even though there is broad support for it, across a wide array of demographic groups, those who are affected by the wage are not politically active enough to make the issue salient. That at least, at this moment is my feeling on the issue. This finding makes me question the claims made by Larry Bartels in his book Unequal Democracy, where he argues that the voices of the poor go unrepresented in Senate roll call votes. It seems to me, that on the minimum wage, the poor are so disengaged from politics,that it never even becomes a salient issue to be ignored.

Will The Deficit Trigger Work?

Tue, 10 May 2011 13:50:22 -0400

One of the major parts of President Obama’s deficit reduction plan is an “automatic trigger”, that provides for action when discretion falls short. Stated simply, if the Obama plan doesn’t cut deficits, then automatic cuts in spending will occur to supplant the failure to reach the target set up by the plan. It’s a bold move, ultimately inserted into the legislation as a fail safe, because it acknowledges that if the deficit reduction act doesn’t work, something, swiftly and quickly, must be done to ensure effective action takes place and to be sure: Congress isn’t the place for that. Commentators have praised this part of Obama’s deficit reduction pledge, the humility of possibly not getting to the goal, as the most noble and notable part of his plan. Ezra Klein noted:

And, curiously for a conservative who distrusts both government and congress, it (Ryan’s Plan) has no answer to the question of “what if this fails?”

The policy that clarifies this difference is the “trigger.” Obama’s budget, aware that it might not pass and, if it does pass, it might not work, proposes to make automatic cuts to discretionary spending and tax expenditures if the promised savings don’t materialize. If Ryan’s budget falls shorts, there’s no comparable failsafe. That is to say, Obama’s budget has two plausible ways to get to its number, while Ryan’s budget has none. You don’t need a PhD in philosophy to understand why that’s a problem.

Others including Alan Krueger, someone whom I revere for his economic expertise, praised the trigger for being a rule that is unable to be deviated from that signals that a policy is serious and commits to the policy no matter what. Politicians love making promises but largely tend to avoid blame (gated) in tough scenarios (budgetary crises, deficit reduction, etc…). Krueger opined in the NYT that:

In essence, Mr. Obama proposed a rule that will enable us to get ahead of the long-run budget problem, and provide predictability and certainty to the federal budget.

Economists prefer rules over discretion when parties can choose to reverse themselves as tough decisions arise. Think of an overweight person intending to lose weight. He could use his judgment every time he is confronted with dessert. But that one extra slice of cake would not really matter much, so there is a tendency to indulge today and push restraint off until later. If, however, he buys all his meals in advance and commits to eat only those meals, he builds restraint into his diet. Rules can commit individuals or groups to a predetermined path.

Krueger then goes on to praise the PayGo rules (some call the Obama trigger: SaveGo) for its rules based approach to propose how a deficit trigger would work in practice:

The so-called pay-go rule in the Budget Enforcement Act of 1990 — which required increases in spending or decreases in revenue to be offset by other spending cuts or revenue increases — helped lead to the surpluses that arose in the late 1990s. We’ve also run the experiment in reverse: After the pay-go rules expired in 2002, increased spending on programs like Medicare prescription drugs and two rounds of tax cuts caused the deficit to soar.

While pay-go rules are helpful in the current environment, they are not sufficient given the burden the approaching retirement of the baby boom generation and rising health care costs will place on the debt. We need a supercharged pay-go rule, and that is what the president proposed. Because politicians prefer discretion, it took courage to propose an automatic trigger.

Krueger is right, we should try to prefer rules to discretion as much as possible. Though discretion can lead to great outcomes, rules are sometimes too constraining and don’t allow for dynamic policy response to new challenges, domestic and foreign.

On the other side of the coin, Howard Gleckman of the Tax Policy Center thinks these rules are not worth too much, and I agree with him:

Caps–and the triggers needed to enforce them– are supposed to be a last resort for legislators. Yet, they perversely encourage stalemate by providing an easy fallback in the face of gridlock. By mindlessly but automatically slashing spending or raising taxes across-the-board, they permit Congress to avoid setting national priorities though, last I looked, this is why lawmakers are here.

Mostly though, caps only work during those rare moments when Congress wants to be fiscally responsible. When Congress prefers profligacy—which is most of the time—they become little more than an inconvenience. And it is never good for democracy when lawmakers routinely ignore the law.

Supporters argue that these process reforms at least slow Congress’ mania to spend too much and tax too little. Maybe. But it won’t take long before the next set of caps-and-triggers joins paygo and Gramm Rudman Hollings on the ash heap of failed schemes aimed at saving Congress from itself.

Here’s why I think Gleckman is right. Triggers are only as good as the politicians who make them. There are incentives to create economic policy triggers. One is that it takes the decision out of the hands of political actors and moves it towards something that academics (studying other forms of rules based governance) have called “Automatic Government”. Automatic government takes hard decisions out of the hands of lawmakers and places them in another authority that perhaps can’t receive harsh electoral backlash. An example of this deference of authority is in deciding whether to go to war. According to the Constitution, only Congress can declare war and raise an army. However, since it is hard to discern the benefits and/or costs of war at its onset, legislators tend to cede power on this issue to the executive. Similarly, this has taken place before with regards to automatic government issues and deficit reduction.

The Gramm-Rudman-Hollings Balanced Budget Acts of 1985 and 1987 are perfect examples of why trigger, unless they are well designed and a powerful commitment mechanism exists, tend to not work. First of all, the Gramm-Rudman act had key parts of it struck down by special 3-panel federal court, something that the Obama administration is probably highly aware of, because, you know they’re competent. Anyways, part of the problem with Gramm-Rudman is that there was a sunlight provision to it. While the Obama administration’s trigger would have a timeline before the trigger would go into effect, it is not a fool-proof plan. The problem with rule setting is that rules can always be tinkered with. One of my favorite quotations about Congress is from the sage John Dingell:

If you let me write the procedure and I let you write the substance, I’ll [beat] you every time.

What happened with Gramm-Rudman was that the Congress and President Reagan passed the trigger, but then tinkered with it only 3 years later in the COBRA of 1990! Mind you, it wasn’t the same Presidency, but it was presided over by the same political party. Jonathan Rauch (he had to make a good point every once in a while!) points out (in a 2005 hate-fest on Gramm-Rudman-esque policies proposed by Bush administration):

Mechanically, the measure, which came to be known by the shorthand “Gramm-Rudman,” failed. Congress generally managed to evade or raise its limits. But it was not without effect. First, “Gramm-Rudman made it easier to go after defense [spending] as well as other elements,” says William Niskanen, a former Reagan administration economic adviser who now is the chairman of Cato. Second, says Timothy Penny, a Democratic member of Congress during that period (now a senior fellow at the University of Minnesota’s Hubert H. Humphrey Institute of Public Affairs), “it kept us focused on spending and the size of the deficit. The virtue of Gramm-Rudman was not that it worked as designed, but that it elevated attention to the deficit.”

Eventually, this meant that the focus was moved to a spending cap, not a trigger to hold deficit reduction. Sound familiar? It is what is being proposed right now in the Senate and the House, most prominently by Senator Bob Corker of Tennessee. And that, as many have said, is a recipe for disaster and stunted government response, the very essence of a bad rule! So Gramm-Rudman didn’t work because it provided bad incentives and created institutional norms that didn’t help anything at all. The only question is whether or not they have the guts to do what they claim. With regards to that only time can tell.