Reluctant Heroes Austan Goolsbee and Alan Krueger

They write,

It is fair to say that no one involved in the decision to rescue and restructure GM and Chrysler ever wanted to be in the position of bailing out failed companies or having the government own a majority stake in a major private company. We are both thrilled and relieved with the result: the automakers got back on their feet, which helped the recovery of the U.S. economy. Indeed, the auto industry’s outsized contribution to the economic recovery has been one of the unexpected consequences of the government intervention.

Pointer from Tyler Cowen.

I guess there is no such thing as the seen and the unseen. For those of you who do not know, Goolsbee and Krueger were officials in the Obama Administration as the bailout was being executed. Here, if their arms do not break from patting themselves on the back, it won’t be for lack of trying.

Timothy Taylor, I question the editorial decision to publish this piece, even if you also include an article that challenges the auto bailouts. Could you not find a neutral party to tell the pro-bailout side? If not, then what does that tell us?

New Commanding Heights Watch

From the NYT.

Ms. Waugh, like many other hard-working and often overlooked Americans, has secured a spot in a profoundly transformed middle class. While the group continues to include large numbers of people sitting at desks, far fewer middle-income workers of the 21st century are donning overalls. Instead, reflecting the biggest change in recent years, millions more are in scrubs.

Pointer from Tyler Cowen. The New Commanding Heights are health care and education. As they increase employment at the margin while manufacturing production work decreases at the margin, male participation in the labor force continues to decline. Note, however, that female labor force participation has been trending down in this century, also.

The Harm of Government Debt

Tyler Cowen writes,

I worry that the general decline of discretionary government spending may make politics less stable (but also more interesting, not necessarily in a good way). When there is plenty of spending to bicker about, politics revolves around that question, which is relatively harmless. When all the spending is tied up, we move closer to the battlefield of symbolic goods, bringing us back to “less stable and more interesting.” If that is a cause, this trend is likely to spread.

For a longer essay on the way that government borrowing creates political friction, see my essay Lenders and Spenders.

Who Do You Least Admire?

Tyler Cowen discusses the people he most admires.

the very top of my personal list would be shaped more by how much individuals had sacrificed

I think that the question of who you admire can be interpreted two ways. One way is aspirational. “I wish that I could dance like Inbar.” Another is gratitude. “I admire people who serve in our armed forces, even though I do not aspire to be like them.” I am not sure that Tyler has sufficiently articulated how he would weigh these two interpretations.

I find it easier to think about who I least admire. The answer that comes to mind is “toadies.” People who ingratiate themselves with politicians or business executives. Or academics. To me, the meetings of the American Economics Association are just mass exercises in toadyism.

Based on that, I would say that the people I admire are people who are not toadies.

A Question about Inequality Within States

Salil Mehta writes,

Let’s start by looking at this chart below. It shows the differences in state-level ratios, contrasting the typical incomes at the top 1% versus the typical incomes at the bottom 1%… the Economic Policy Institute (EPI) chart above has a clear concordance between income dispersion and the population size itself.

Pointer from Tyler Cowen.

My question is this. Suppose that we ignored the actual geography of states, and instead we produced artificial pseudo-states by taking random samples of all U.S. data. We took one sample the size of Texas, and called it pseudo-Texas. Another the size of Vermont, and called it pseudo-Vermont. etc. My guess is that the pattern of inequality across pseudo-states would look a lot like the pattern across actual states. If that is true, then there is not really much information in the pattern of inequality across states.

End of the Pax Americana?

Fonzy Shazam summarizes a talk by Tyler Cowen.

1. Globalization will decline.
2. There is a myth of the rational autocrat.
3. “Fortress (North) America” will see a continuation of the current stagnating trend.

To me, this sounds as if the underlying theme is the end of Pax Americana. Imagine a world in which irrational autocrats launch wars, and the U.S. is unable/unwilling to stop them. Global trade will decline, and the U.S. will see little economic progress, in part because our progress relies on increased globalization. I cannot tell which way the causal arrows run–from American stagnation to American weakness to an inability to contain armed conflict, or the other way around. In fact, the prospect of increased armed conflict is something that I am imputing–it may not factor into Tyler’s forecast at all.

I have been reading George Friedman’s Flashpoints. One theme that struck me was the way that Europe changed in 1914-1918 from being accustomed to civilization to being accustomed to barbarism. He argues that World War I desensitized people to barbarism, and this in turn made possible Soviet and Nazi atrocities. So far, I have only read the historical parts of the book, not any discussion of the present situation or future scenarios.

On a related note, what should we make of the fact that in response to the murder of one of its citizens, the United States is less forceful than Jordan? Your choices include:

a) Jordan currently has more forceful leadership than the U.S.
b) In fighting ISIS, the United States has a strategy that is more nuanced and will ultimately be more successful.
c) The United States is wisely playing down the significance of terrorism in order to save its resources for dealing with bigger threats.
d) The United States in fact does not have the military capability to defeat ISIS, and attempting a decisively forceful response would only expose that fact.

Health Spending: Individual vs. Aggregate

From an NYT article on Obamacare,

“I’m always curious when I read this ‘good news’ that health costs are moderating, because my health care costs go up significantly each year, and I think that’s a common experience,” said Mark Rukavina, president of Community Health Advisors in Massachusetts.

While much of the focus in the past has been on keeping premiums manageable, “premiums now tell only a part of the story,” Mr. Rukavina said, adding: “A big part of the way they’ve kept premiums down is to shift costs to patients in the form of co-pays and deductibles and other types of out-of-pocket expenses. And that can leave patients very vulnerable.”

Pointer from Tyler Cowen.

I find that the simplest way to explain health care policy is to say that as individuals what we want is unlimited access to medical services without having to pay for them. To the extent that we have our way, the overall spending on health care in the economy will be very high. To limit overall spending, either (a) we have to pay more as individuals, so that we ration ourselves, or (b) our access to services must be rationed by others (insurance companies or the government).

The article consists of people complaining about either being limited in terms of access or having to pay more out of pocket. But that is not news. Again, we know that as individuals we want unlimited access without having to pay for services. You could easily have an improvement in health care policy that is experienced negatively by individuals.

The Source of the College Earnings Premium?

Gustav Bruze writes,

A collective marriage matching model is estimated and calibrated to quantify the share of returns to schooling that is realized through marriage. The predictions of the model are matched with detailed Danish household data on the relationship between schooling and wage rates, the division of time and goods within the household, and the extent to which men and women sort positively on several traits in marriage. Counterfactual analysis conducted with the model suggests that Danish men and women are earning on the order of half of their returns to schooling through improved marital outcomes.

Pointer from Tyler Cowen. I find this more plausible than the signaling model. Assortative mating is one of the four forces I will discuss in my St. Louis talk. Fifty years ago, my guess is that the majority of men who were in the top 30 percent of the earnings distribution were married to women without a college education. Today, my guess is that only a small minority of men in the top 30 percent of the earnings distribution would be married to a woman without a college education. What the Danish study suggests is that if people married randomly with respect to education that would greatly reduce income inequality.

Yanis Varoufakis talks with Russ Roberts

He says,

You and I would not be talking about Greece today if Greece in 1999 by some miracle of politics and rationality had stayed out of the Eurozone. That is the reason why it is such a disaster; and it’s why it’s so significant in the world economy and pipsqueak Greece has been dominating for three years. The headlines of [?] which is a sign that something is definitely wrong with the international economy. And the reason for that was that Greece was in the Eurozone. The tragedy of course is once you are in, you can’t get out. You are trapped. And so on and so forth.

The podcast is a year old. It is of interest now because he is now finance minister of Greece.

What’s In Alexis Tsipras’ Wallet?

He is soon to be the Greek premier. The Independent reports,

A Syriza government would have to rely on taxes but tax revenues are down as people wait to see if taxes will be reduced by the new government. This means that Greece may only have the money – though this is disputed by Syriza leaders – until the end of February to pay state employees and pensions and service the debt.

As a far leftist, we can presume he wants to spend lots of other people’s money. Where can he get it?

1. Greek taxpayers. Greece actually was supposed to run a primary surplus this year, meaning that they would only have to borrow to pay interest on debt, not to fund ordinary spending. But apparently the Greek taxpayers do not see it that way. UPDATE: Tony Yates points out a problem even if you have a primary surplus and decide to blow off the interest on your debt. (pointer from Mark Thoma),

the Greek government does not have the funds to stand behind its own banks. They would be left insolvent by a Greek default [economically, they are already, really]. A run on Greek banks, either prompted by default or the threat of it, could not be stemmed by a credible guarantee of deposits.

2. Non-bank investors willing to invest in Greek bonds. Considering that Tsipras does not sound particularly eager to pay off such investors, they might be a bit shy.

3. Banks willing to invest in Greek bonds, since those bonds carry zero risk (according to capital regulations). Still, I can imagine that bank managers are a tad worried that the regulators who designated sovereign debt as risk-free don’t actually have any money with which to back that up.

4. The European Central Bank, which just announced a big “quantitative easing” program, so it needs stuff to buy. The question is how eager Germany and other European countries are to be Tsipras’ sugar daddies.

Pointers in (1) and (4) from Tyler Cowen. Possible outcomes, in order from highest probability to lowest:

1. Eurocrats devise a new elaborate shell game under which they funnel money from other countries to Tsipras while pretending not to do so, hoping that ordinary voters in those countries will not notice, or that even if people notice they will be powerless to do anything about it.

2. The European central bank goes ahead and buys bonds from Tsipras, because the alternative is scarier.

3. Tsipras ends up implementing austerity, because his wallet is empty.

4. Tsipras ends up printing a new Greek currency, as Greece exits the Euro.