William D. Nordhaus, one of the leading economists in studying the effects of global warming, is a first-rate economist. Indeed, he was co-winner of the 2018 Nobel Prize in economics for his work on global warming. Unfortunately, he sometimes abandons economics and even basic reasoning to make his case that global warming is likely to do great harm and that the only solution is a global tax on carbon. I noticed this tendency in his 2012 article in the New York Review of Books. In it, he challenged a Wall Street Journal article by sixteen scientists who were/are global warming skeptics. There’s nothing wrong with challenging them, but Nordhaus did so, in part, by responding to claims they hadn’t made. Earlier this year, Nordhaus published The Spirit of Green: The Economics of Collisions and Contagions in a Crowded World. In it, he advocates a global tax on carbon, but his style of arguing has, if anything, gotten worse. At various points, he makes his case well, arguing that carbon usage creates a negative externality: a cost imposed on others that users of carbon don’t take account of in their decisions. He distinguishes his own thinking from that of advocates of the Green New Deal, pointing out that the GND is not primarily about environmental policies but about taking income from some and giving it to others. Nordhaus calls this redistribution “fairness,” but at least he doesn’t claim that it’s about the environment or global warming. Unfortunately, Nordhaus doesn’t seriously consider the arguments of global warming skeptics and instead calls them “deniers.” He also gives short shrift even to his own Dynamic Integrated Climate-Economy (DICE) model, a model whose bottom line is that too high a carbon tax can be more destructive than a zero carbon tax. He also, disappointingly, makes the obligatory attack on the Koch brothers, something I had not seen him do in his previous work. Moreover, Nordhaus claims, incorrectly, that the only way to have an effective policy of global warming is to raise the price of carbon. These are the opening 3 paragraphs of David R. Henderson, “The Problem with Nordhaus,” Defining Ideas, August 27, 2021. Another excerpt: While Nordhaus has never been particularly fair in his treatment of those he disagrees with, he has become even less fair. In a chapter titled “Green Corporations and Social Responsibility,” one of the corporations that he consigns to Dante’s “ninth circle of hell” is ExxonMobil. Why? He claims that the company suppressed the science of climate change and funded “climate deniers.” Nordhaus never tells the reader exactly what a “denier” is, but in context it seems to include those who doubt that global warming is occurring, those who doubt that it will be very harmful, and those who are skeptical about government solutions. In one passage, Nordhaus writes, “I have studied climate science for decades and find it solid and convincing. But there are skeptics.” He seems to be saying that because he, William Nordhaus, finds climate science persuasive and convincing, that should be enough to persuade us. Yet in a 355-page book, Nordhaus hardly discusses the science at all, apparently expecting that an argument from authority is sufficient. And he makes the case against skeptics not by quoting the large number of climate scientists who are skeptics but, rather, by quoting only one scientist and mentioning Donald Trump, US Senator James Inhofe, and an adviser to Vladimir Putin. Read the whole thing. Here’s his bio at David R. Henderson, ed. The Concise Encyclopedia of Economics. (0 COMMENTS)

How many times have I stood watching the toads mating, or a pair of hares having a boxing match in the young corn, and thought of all the important persons who would stop me enjoying this if they could … The atom bombs are piling up in the factories, the police are prowling through the cities, the lies are streaming from the loudspeakers, but the earth is still going round the sun, and neither the dictators nor the bureaucrats, deeply as they disapprove of the process, are able to prevent it. This is a quote from George Orwell, Some Thoughts on the Common Toad. It’s referenced in Herman Goodden, “There’s (a Lot) More to George Orwell than Nineteen Eighty-Four,” Quillette.com, August 27, 2021. The whole article is worth reading. The quote reminded me of this quote from Ilya Ehrenburg, whom I remember William F. Buckley, Jr. referring to as that “great Stalinist hack.” If I recall correctly, WFB was saying that even Ehrenburg went beyond his hackdom to say that there was hope for totalitarianism not to cover the world. Here’s the quote: You could cover the whole earth with asphalt, but sooner or later green grass would break through. I used to have that quote up on my wall when I was in my late teens and early 20s. It gave me inspiration. I actually liked my version better: If the whole world were covered with concrete, one day a crack would appear in that concrete and in that crack, grass would grow.   (0 COMMENTS)

Economics Nobel Prize winner Paul Krugman compares Economics Nobel Prize winner Milton Friedman with Economics Nobel Prize winner Paul Samuelson on just how free the free market can be. There is more wrong in Krugman’s analysis than you can shake a stick at. Let me list at least some of the errors. (There are too many to be explored in this op ed; wait until my book on this comes out for the full story!). Yes, Milton Friedman did indeed want to divert the U.S. economy in the direction of more economic freedom. However, he was no radical libertarian- certainly not to the degree to which Krugman gives him credit. Friedman wanted to retain the Fed (albeit constrained to his 3% rule), keep antitrust legislation (but curtail it somewhat), and uphold the welfare system (his negative income tax proposal). He bitterly rejected the gold standard; he had a television series entitled “Free to Choose.” Yet, whenever people were “free to choose,” they chose gold (and sometimes silver). He espoused the “market failure” doctrine which included externalities and public goods (his neighborhood effects). On the other hand, he was an avid supporter of laissez faire capitalism, bless him, when it came to minimum wages, unions, rent control, occupational licensure, free trade and much, much more. Samuelson, Krugman to the contrary notwithstanding, did not support the free market at all. Rather, he favored the economic system of the then USSR. In his textbook, he infamously claimed that the economic system of that country was so superior to ours that it would eventually overtake the United States. That’s how free the free market can be? Well, maybe it is, Krugman style. According to the latter: “Certainly nobody told Paul Samuelson that he was engaged in a fight for capitalism’s soul.” It is good that no one did, because he was engaged in no such fight. Instead, the fight he was engaged in was on the very opposite side; promoting communism. Sayeth Krugman: “Friedman, on the other hand, was very much a political animal; pretty much everything he did was aimed at restoring Gilded Age-style unrestrained capitalism.” What about his work on the consumption function, the permanent income hypothesis, the role of profits in the free society, his monumental work on banking? Indeed, he pretty much founded an entire school of thought, “monetarism” all on his lonesome, with numerous articles in the top research journals. “Unrestrained capitalism” and Milton Friedman? One can hardly help laughing. Here is another gem: “… it’s hard to avoid the sense that Friedman viewed his professional research, excellent though some of it was, as a sort of loss leader for his political advocacy — a way to establish his academic bona fides and hence add credibility to his free-market crusade.” It’s hard? Try harder. This is the sort of motive-mongering that Friedman opposed all throughout his career. Krugman offers not a shred of evidence in support of this wild-eyed contention. Just because Friedman’s (and Anna Schwartz’s) A Monetary History of the United States, 1867-1960 concluded that the Great Depression was caused by Fed mismanagement by no means serves as evidence that “it was also clearly intended to strike a blow against activist government.” Rather, these authors just let the chips fall where they may; they allowed the evidence to pretty much speak for itself. If economic research demonstrates that minimum wages increase unemployment for the unskilled, is the scholarship underlying it to be called into question because it has political implications? That would appear to be Krugman’s fallacious conclusion. In the view of Krugman: “… a number of economists had looked closely at Friedman’s arguments about the Great Depression, and found them wanting.” This is mere name calling. Krugman is a serious man. He is an economist. He won a Nobel prize in this discipline. He is a columnist for the prestigious New York Times. And we have just fallen down the rabbit hole. We live in a psychedelic universe, where two plus two no longer equals four.       Samuelson, Paul A., Economics, New York: McGraw Hill, 8th ed., 1970, p. 193 Samuelson Paul. 1961. Fifth ed. Economics. New York: McGraw Hill, p. 830 Samuelson Paul. 1985. Twelfth ed.  Economics. New York: McGraw Hill, p. 837 Skousen, Mark. 1997. “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives 11:2, Spring, 137-152. “The fifth edition of Samuelson’s Economics (1961), page 830 shows a graph indicating that the gap between the U. S. and the USSR was narrowing and possibly even disappearing at some point in the future.  You would have to look at the graph to see when he predicted it might cross over and surpass the U. S.  In the 12th edition (1985), p. 837, Samuelson showed a table declaring that, between 1928 and 1983, the Soviet Union had grown at a remarkable 4.9% annual growth rate, higher than that of the US, UK, Germany and Japan!  I cite this information in my book, “The Making of Modern Economics” (M. E. Sharpe, 2001), p. 416.  Also, I cite this information in my article, “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives 11:2 (spring), 137-52.  Samuelson (1961, 830) depicts a convergence between the economies of the U.S. and the U.S.S.R. He claims (1985, 837) that between 1928 and 1983, the growth rate for the Soviet Union was a remarkable 4.9% per year, higher than that for the U.S.   Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans (0 COMMENTS)

The Hell You Say, Harry. The FPA [Former Presidents Act] came into being because former president Harry Truman made a series of representations to both Congress and the public regarding the supposedly problematic financial situation he faced, during the five and half years that passed between the end of his presidency and the statute’s enactment. These representations provided the purported factual basis for enacting the statute in the first place; furthermore, these financial difficulties continue to be cited whenever the fact that taxpayers provide millions of dollars per year to ex-presidents becomes a matter of public attention and comment. Indeed, more than 60 years after the FPA’s enactment, Truman’s financial struggles remain essentially the only justification that is ever put forward, in either the academic or popular literature, for the existence of the extremely generous benefits package all former presidents continue to enjoy. As we shall see, the supposedly difficult post-presidential economic situation faced by Harry Truman was a complete fabrication, created by Truman himself via what can only be characterized as a series of shockingly dishonest and radically misleading statements to Congress and the public. Drawing on recently released documents from Bess Truman’s personal files, this Article demonstrates that, contrary to the claims of all his major biographers11 – who seem to have relied exclusively on Truman’s own representations regarding his financial situation when evaluating it — Harry Truman was in fact a very wealthy man on the day he left the White House. Part of the reason he was so wealthy is that, during his elected term, he misappropriated essentially all of a government expense account worth $2.2 million in 2021 dollars. He then became much wealthier shortly afterwards, by cannily exploiting his status as a former president to greatly increase his already great wealth. This is from Paul Campos, “The Truman Show: The Fraudulent Origins of the Former Presidents Act.” It was published on July 28 and revised today. Campos is a law professor who understands the importance of adjusting for inflation. He lays out how Truman biographer David McCullough and many others were bamboozled by Truman’s sob story. Read the whole thing. I’ve always thought the the huge payments to past presidents were and are obscene. The one justification always given, as Campos notes above, was the “Truman was poor” justification. Not even close. Even before the 1958 law, he was a multimillionaire in today’s dollars. (0 COMMENTS)

Terence Kealey uses the infant-industry argument to defend protectionism.  Here’s what Mises has to say about the same argument: Take, for instance, the infant industries argument advanced in favor of protection. Its supporters assert that temporary protection is needed in order to develop processing industries in places in which natural conditions for their operation are more favorable or, at least, no less favorable than in the areas in which the already established competitors are located. These older industries have acquired an advantage by their early start. They are now fostered by a merely historical, accidental, and manifestly “irrational” factor. This advantage prevents the establishment of competing plants in areas the conditions of which give promise of becoming able to produce more cheaply than, or at least as cheaply as, the old ones. It may be admitted that protection for infant industries is temporarily expensive. But the sacrifices made will be more than repaid by the gains to be reaped later. The truth is that the establishment of an infant industry is advantageous from the economic point of view only if the superiority of the new location is so momentous that it outweighs the disadvantages resulting from the abandonment of nonconvertible and nontransferable capital goods invested in the already established plants. If this is the case, the new plants will be able to compete successfully with the old ones without any aid given by the government. If it is not the case, the protection granted to them is wasteful, even if it is only temporary and enables the new industry to hold its own at a later period. The tariff amounts virtually to a subsidy which the consumers are forced to pay as a compensation for the employment of scarce factors of production for the replacement of still utilizable capital goods to be scrapped and the withholding of these scarce factors from other employments in which they could render services valued higher by the consumers. The consumers are deprived of the opportunity to satisfy certain wants because the capital goods required are directed toward the production of goods which were already available to them in the absence of tariffs. There prevails a universal tendency for all industries to move to those locations in which the potentialities for production are most propitious. In the unhampered market economy this tendency is slowed down as much as due consideration to the inconvertibility of scarce capital goods requires. This historical element does not give a permanent superiority to the old industries. It only prevents [p. 510] the waste originating from investments which bring about unused capacity of still utilizable production facilities on the one hand and a restriction of capital goods available for the satisfaction of unsatisfied wants on the other hand. In the absence of tariffs the migration of industries is postponed until the capital goods invested in the old plants are worn out or become obsolete by technological improvements which are so momentous as to necessitate their replacement by new equipment. The industrial history of the United States provides numerous examples of the shifting, within the boundaries of the country, of centers of industrial production which was not fostered by any protective measures on the part of the authorities. The infant industries argument is no less spurious than all the other arguments advanced in favor of protection. At first glance, you could accuse Mises of being non-responsive to Kealey-type arguments.  But on closer consideration, Mises’ answer is on point.  It amounts to this: “So costs are high now, but will eventually be low thanks to learning by doing?  Great!  If you really believe that, I suggest that you start your business, then run it at a loss until the learning curve saves you.  If the financials are really so clear-cut, investors will happily give you all the money you need during the start-up period, knowing they’ll be fully repaid once you know what you’re doing.” While this may seem fanciful, this is standard practice in startups: You willingly lose money for a while – often years – until you hit stride. The obvious objection is naturally: But investors rarely want to invest in projects like this.  Indeed, most would-be investors will hastily shoo you out the door. Why won’t they listen?  Because in the real world, most business ideas that lose money for the first couple of years are going to lose money forever.  Learning by doing will not save them.  “Lose money, then make it all back and more” is the exception; “Lose money, then lose even more” is the rule.  In the absence of strong, specific evidence, you should assume the worst.  Kealey’s case amounts to urging Third World governments to take the empty promises of their native businesspeople as Gospel. And one really shouldn’t do that.   (0 COMMENTS)

I’ve been limping badly now for over a month. I’ve started physical therapy, which, along with the daily exercises my therapist has given me, has helped somewhat. But I would like to know more about what’s going on with my left leg. So I met with my doctor earlier this week to see if he could order an MRI. His nurse called me the next day to say that my insurer had said yes but wanted me to use a local provider that is, presumably, in my insurer’s network. The alternative was the provider that my doctor usually refers people to. So I called my insurer and found out that when I use an in-network provider, the insurer will pay 90% of the approved part of the charge, whereas if I use an out-of-network provider, the insurer will pay only 75% of the approved part of the charge. Start with the assumption that the in-network provider’s charge is the same as the out-of-network provider’s charge. (I know that assumption is almost certain to be wrong; I’ll relax it later in this post.) Also assume that the insurer approves the same part of the charge, whether or not the provider is in-network or out-of-network.(Again, I bet this assumption is wrong.) Let’s say the charge is about $1,400 and that the approved part is $1,400. Then I would pay $350 out of network or $140 in network. So I would save $210 by going in network. Now relax the assumption. Say the insurer approves $1,000 for out-of-network and the same $1,000 for in-network, but has negotiated an in-network price with the provider of $1,000, whereas the out-of-network charges $1,400. Then I would pay $350 + $400 = $750 for out of network, but only $100 for in-network. This might be rational pricing. The insurer has found a provider that is more efficient and willing to share some of the efficiency gains with the insurer. So it tilts me in that direction. It’s also possible that I’ll get in to get the MRI later if I use the in-network rather than the out-of-network. Which means that I’m paying more for the convenience of quicker out-of-network service. Also rational pricing. Stay tuned. Postscript: I told my doctor about the North Dakota MRI provider that charges between $400 and $690 for an MRI and targets Canadians who would be paying out of pocket and don’t want to wait in Canada’s queues. He suggested that the prices are so low because they aren’t out to maximize profits. I responded that I thought the reason is that they are trying to maximize profits, but have to compete for customers who are paying out of their own pockets, unsubsidized by insurance.   (0 COMMENTS)

The claim in this title is one of the most well established claims in all of economics. If you are one of those “believe the science” people, then you should believe it to be true.  It is based on the following pieces of evidence: 1. Many good empirical studies that show that UI reduces employment. 2. Basic economic theory predicts that unemployment insurance reduces unemployment. 3. Casual empiricism: Anyone who travels around the country frequently meets people who say, “I know this guy who refuses to go back to work because he can make more on unemployment. 4. Introspection: If I had a crappy job and someone offered to pay me more to sit at home, would I take the offer? Of course—who wouldn’t? This claim is often treated as a “conservative” opinion, but distinguished left-of-center economists like Brad DeLong and Larry Summers also believe it to be true. (It’s also in Paul Krugman’s textbook.)  The difference is that progressives are more likely to favor UI because they believe the benefits outweigh the costs. And yet, the media doesn’t like unpalatable truths, and thus is reluctant to acknowledge this fact. Here’s a recent headline: Ending unemployment benefits had little impact on jobs and fueled $2 billion spending cut, study finds I guess this is supposed to be read as evidence that the consensus view in the economics profession is wrong.  How should we react to this news? Suppose there had been 100 previous studies of UI, and also assume (hypothetically) that 90 found a negative effect on employment and 10 did not.  Then this study might change the ratio to 90 and 11.  In other words, a good Bayesian would not meaningfully revise their view of the effect of UI on employment on the basis of this one study, unless the study employed econometric techniques that were much more powerful than previous studies. In fact, however, the study did not find no effect; it found that UI reduced employment, in which case it would be 91 to 10 in favor of the standard view.  This is from the paper cited by the article: With those caveats and if the only impact of the policy change were through the labor supply of the previously unemployed, extrapolating from our job finding estimates (along with the 2.9 million individuals receiving UI in end of April) suggests an additional 35 thousand additional jobs were created in June and 135 thousand in July, but 25 thousand fewer (so far) in August. This implies that the unemployment rate in Withdrawal states would have been 4.8 percent in the absence of the change, as opposed to 4.5 percent in reality. Note, however, that since the federal pandemic unemployment insurance programs are slated to expire on September 6, 2021, these approximately 145 thousand additional jobs (adding June, July and August together) would have likely been created a few months later without the early withdrawal. Because of the “caveats” mentioned in the quote, the authors believe the actual effect was even smaller.  Those caveats involved things like the impact on aggregate demand and the crowding out of other job seekers such as teenagers (who don’t typical get UI).  I tend to discount these caveats, as AD is certainly not holding back employment right now and teens have no trouble finding jobs in a country were low skilled employers are desperately short of workers. It is true that the study found a smaller effect than some might have anticipated, but keep in mind that this policy change did not eliminate UI, it merely eliminated the $300/month bonus.  And it only applied to some states.  And it’s only been a short period of time.  And lots of other things are going on that might have effected the results.  As just one example, the study occurred during the recent Covid delta variant surge that disproportionately hit the “red states”.  And which are the states that eliminated the $300 bonus?  Mostly red states.  These states also had a significantly lower unemployment rate than average (the national rate is 5.4%), making job growth more difficult.  It also occurred at a time when many people are flush with cash due to the recent stimulus payments.  In other words, it’s just one study, to be added to all the previous studies. The recent decline in the supply of workers is probably due to a number of factors: 1. Covid scaring off workers. 2. School closures keeping parents at home. 3.  Less immigration. 4.  Stock gains and Covid causing increased retirement. 5.  Stimulus money having an “income effect”. 6.  Enhanced UI benefits. Many countries have labor shortages right now, so that suggests that Covid is directly or indirectly a factor.  (By “indirectly” I mean leading to changes in government policy as a result of the Covid recession.) This is from the news article cited above: States that ended federal benefits early saw larger job gains among the unemployed: Their employment jumped 4.4 percentage points relative to jobless individuals in states that kept benefits flowing, according to the paper, which analyzes data through the first week of August. However, that translates to just 1 in 8 unemployed individuals in the “cutoff states” who found a job in that time period. The majority, 7 out of 8, didn’t find a new job. “Yes, there was an uptick [in employment],” University of Massachusetts Amherst economics professor Arindrajit Dube said. “Most people lost benefits and weren’t able to find jobs.” I hate to pick on Dube, both because he’s a brilliant economist and because I know what it’s like to talk to reporters, but I can’t help saying that I hate the “weren’t able to find jobs” framing.  Given that so many employers of low-skilled workers are short of staff, I highly doubt that 7 out of 8 unemployed workers were not “able” to find jobs.  Rather, I’d guess that many remained out of work for other reasons. PS.  You can argue that employers should pay more, but that opinion has no bearing on anything in this post.  Also note that this post does not discuss whether UI is a good idea, an entirely different question. (0 COMMENTS)

While I was teaching at the John Locke Institute, our Summer School sponsored a debate on free trade between Daniel Hannon and Terence Kealey.  Kealey rested his case for protectionism squarely on the classic infant-industry argument.  Kealey’s version: While free trade does indeed improve efficiency at the moment, the long-run effect is to suppress economic growth in poorer countries.  Why?  Because you don’t improve at doing things that you don’t do. Suppose a rich country can produce cell phones for $200 each, while a poor country can only do the same for $1000 each.  Under free trade, Kealey’s argument goes, the poor country will produce zero phones – and its cost of production will forever remain $1000 a pop.  If 400% tariffs raise the price of foreign phones to $1000, however, domestic phone production will launch.  And once it does, domestic phone factories’ costs will start to fall. If you replicate this policy across a vast range of industries, the low-productivity – hence poor – country transforms into a high-productivity – hence rich – country.  Yes, tariffs temporarily made the poor country even poorer.  In the long-run, however, the tariffs had the opposite effect. Kealey also combined this argument with vague claims that every rich country got rich via protectionism, but the theoretical argument was clearly the heart of his argument.  After all, it wasn’t like he had a big multiple regression showing that all else equal, protectionism works wonders.  Instead, he looked at history, saw tariffs, and attributed nations’ success to these tariffs.  Why did he credit tariffs, instead of the thousand other factors at play in economic development in the past quarter millennium?  Because the theory made so much sense to him. But does Kealey’s theory really make sense?  Not really.  Yes, high-cost businesses could respond to tariffs by improving their efficiency.  But they could just as easily respond in the opposite way. Why?  Ponder this analogy.  You ban all players over 7 feet tall from the NBA.  How will the remaining players react? The optimistic scenario is that previously demoralized shorter players suddenly see a fantastic opportunity for stardom.  They start practicing like crazy – and improvement naturally follows. The pessimistic scenario, however, is that shorter players realize that they no longer need to practice like crazy to stay in the NBA.  So instead of redoubling their efforts, they slack off.  Their skills stagnate – or even get worse. Notice: Even in the optimistic scenario, it is wishful thinking to assume that the shorter players will eventually improve so much that they actually become better players than the 7-foot-plus players who were summarily banned from the sport.   If you’re lucky, the shorter players will improve for a while, then hit a plateau well below the standards of the players they replaced.  If you’re unlucky, they’ll see the weak competition, breathe a sigh of relief, and relax. The same goes for protectionism.  If you’re lucky, protected industries will start improving, then hit a subpar plateau.  And if you’re unlucky, protected industries will rest on their laurels, secure in the knowledge that domestic consumers have no choice but to “buy local.” In wonkish terms, innovation is subject to both the substitution and income effects.  Giving firms a protected market raises the incentive to improve (the substitution effect), but also gives firms the breathing room they need to take it easy (the income effect).  Contra Kealey, the theoretical effect of protectionism on innovation is quite unclear. Is there any way to gain greater clarity?  You could try running bona fide experiments, but that’s ultra-unlikely to happen.  In the world of trade policy, “experimentation” is an fig leaf for more protectionism, not a sincere attempt to figure out if protectionism works. The alternate path to clarity, however, is to remember that the large majority of trade is domestic, anyway.  Why?  Because of (a) physical transportation costs, and (b) poorly-connected social networks.  The upshot is that every country has powerful natural trade barriers.  If Kealey is right, these natural trade barriers should have exactly the same effects as man-made trade barriers.  Yet so far, these natural trade barriers have plainly failed to make the vast majority of poor countries rich.  Indeed, a standard result in development economics is that being landlocked is very bad for growth. I wouldn’t be shocked if a carefully-crafted experiment showed that under special circumstances, Kealey isn’t entirely wrong.  Once in a while, the substitution effect for innovation might overpower the income effect.  But once you acknowledge the ubiquity of natural trade barriers, it’s hard to believe that Kealey is right often enough to matter.  And that’s ignoring another substitution effect so prevalent in actually-existing protectionism: When your firm’s fate rests on government favoritism, you have a strong incentive to focus on pleasing the government rather than your customers. And yes, learning by doing works here, too.  If the main thing you do is lobby the government, expect to become a master lobbyist. (1 COMMENTS)

Maggie Macintosh reports on education for the Winnipeg Free Press. Funding for the Free Press education reporter comes from the Government of Canada through the Local Journalism Initiative. These two sentences were at the end of an August 19 news report on, among other things, a controversial education bill in Manitoba. I had heard that the federal government in Canada was subsidizing newspapers, but somehow had forgotten. This is a very bad sign for press freedom. Government can’t subsidize newspapers without putting its thumb on the scale. Here’s more on the subsidy program. (0 COMMENTS)

It’s good to see that others are beginning to notice a problem with Modern Monetary Theory: Over the past 30 years, Japan has had by far the slowest growth in aggregate demand for any major developed economy over a similar period.  Some might argue that Japan has not done all that poorly, with its relatively low rate of unemployment.  But that’s even worse for MMT, which is a model that views aggregate demand as all-important and is almost completely dismissive of supply-side economics. Even worse, the one brief bright spot in the picture occurred after Abe took office in 2013 and did exactly the opposite of what MMTers advocate, tightening fiscal policy, reducing the budget deficit, and relying on monetary stimulus.  For a few years, aggregate demand actually grew at a decent pace.  Paul Krugman explains why in this paper. The Japanese case is also a problem for old-style, unreconstructed Keynesians, who believe that fiscal policy is the answer when interest rates hit zero.  Japan ran some of the largest deficits in human history, and got basically zero growth in aggregate demand as a result. I fear that people will misread this post, and tell me why the Japanese case does not apply.  That’s not the point.  I’m not the one touting the Japanese case in support for MMT; it’s the MMTers themselves.  It makes me wonder if they understand their own model.   (0 COMMENTS)