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Posts Tagged ‘Ezra Klein’

GTSCW: Budget Edition

July 7, 2011 5 comments
Ezra Klein asked the Center on Budget and Policy Priorities to help him with the numbers for this graph. As you can see, Obama is engaged in obvious class warfare… the President should be more like Reagan.

Tricky Math

June 17, 2011 5 comments

A little over a week ago everyone from economists, bloggers, and politicians lambasted Tim Pawlenty for making his ridiculous claim that if he was president he’d achieve 5% economic growth for a decade. It’s nuts for a variety of reasons and Klein passed on a zinger from Alan Blinder:

Trend growth is three percent or so,” he wrote in an e-mail. “Five percent growth would be two percentage points higher, which should cut the unemployment rate by about one percentage point per year. So after 10 years, it will have fallen from nine percent to minus-one percent. Nice trick!

At the time, I thought the criticism was probably hyperbole designed to highlight the absurdity of Pawlenty’s idea – I wasn’t sure though. Now today Klein repeats Blinder’s remark and, at risk of looking foolish, I’m curious if it’s meant to be serious (even if “cheeky”). As Klein shares, the “speed limit” on the economic growth rate is basically the growth in productivity plus the growth in the labor force. Now, I realize that achieving that level of growth is completely unrealistic (and crazy to think a president can do anything that would directly cause it), but it doesn’t seem like it is impossible as Klein implies in multiple blog posts.

Sure, the labor force isn’t going to grow large enough without improbable immigration, but if the right mix of policy reforms coincided with a revolutionary invention that drove a sky-high productivity increase, couldn’t we  achieve 5% growth for a decade without having negative unemployment?

Are Klein and Blinder just joking or is it actually impossible? If it is impossible, what am I missing?

3 Cheers!

May 23, 2011 1 comment

Over the weekend Ezra Klein asked, “What three cocktails should everyone — or at least everyone over 21 who likes to make cocktails — know how to make?” Well, since I bartend on the weekends I figured I’d offer my perspective:

Utility

The Sidecar Cocktail

The sidecar is a classic cocktail that provides a great example of how to make lots of other cocktails. It teaches us about balance. During the renaissance many architects utilized the golden ratio which was functional and aesthetically pleasing. Mixologists can approach building drinks in a similar way.

Generally speaking many well-balanced drinks will be around 4 parts spirit, 2 parts sweet ingredient, 1 part sour ingredient. Margaritas work well with the true golden ratio of 3-2-1; but as a tequila lover I think 4 parts work great for that too. A lot of restaurants use 2-1-1, which works but I prefer to taste a little more of the spirit and the balance of sweet to sour of 4-2-1. So go ahead and start creating new drinks following that basic formula and you’re bound to have more successes than failures.

My preference:

  • 4 parts cognac
  • 2 parts Cointreau
  • 1 part lemon juice

Shake.

Garnish with lemon peel.

Tradition & Style

The Old Fashioned Cocktail

America’s first cocktail! The name actually refers to the way a drink was made, but now it’s a specific drink. Easily one of the most mangled cocktails – I understand why few people think they like them. But a good Old Fashioned can showcase what is enjoyable about cocktails.  This is also a really fun cocktail to make because of the differing philosophies for Old Fashioneds.

Some bartenders use a traditional sugar cube while some prefer the more easily dissolvable simple syrup. Some muddle fruit, some don’t. You could garnish with the classic lemon or the more popular orange and cherry. All should use bitters, but the amount and type vary and make a big difference. Techniques to build the drink vary  - experiment.

My preference:

  • 2 oz bourbon
  • 1/2 oz Simple Syrup
  • 2 dashes Angostura Bitters
  • 2 dashes Orange Bitters

Build.

Garnish with (flamed!) orange peel, no cherry.

Popularity

The Martini Cocktail

Everyone needs to know this essential cocktail. I’m not going to give you a long lecture about martinis – so overplayed. Yes, the classic is made with gin not vodka, but whatever you like just order (if you’re expecting vodka make sure you tell your bartender that). James Bond was wrong to order it shaken… blah blah. Everyone likes to pontificate about the effects of stirring versus shaking. Here’s the truth – it’s just about presentation. If you don’t want a cloudy drink you should stir it. It takes a little longer (barely) but you get a beautiful crystal clear cocktail. General rule of thumb: stir clear ingredients, shake cloudy ones. Whichever method do it enough to dilute the ice and properly chill the drink.

Ratio and style of martinis vary a lot and many are good in their own ways. Some classicists loath dirty martinis. Don’t get them started on a dirty vodka martini. I like them; that’s their problem. Also, no one (sadly) orders sweet martinis (using sweet vermouth) anymore so no need to ask for it dry.  My one pet peeve: always use some vermouth and then use more than that. A glass of gin or vodka is not a martini. It’s a glass of gin or vodka.

I have many different preferences on this one – for forgotten classic:

  • 3 parts Gin
  • 1 part Dry Vermouth
  • dash orange bitters

Stir.

Garnish with lemon twist.

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When Unbearable Debt Meets Unsustainable Political Support

April 13, 2011 Leave a comment

Many idealists think we can just inform the public enough to understand the best policies to govern ourselves. Unfortunately tilting at windmills seems more productive. Policies gain and maintain support not by voter knowledge but by voter experience. I don’t care how many TV specials or column inches get devoted to explaining that congestion pricing is better for drivers – it will only reach a critical mass of support when drivers experience the benefits outweighing its costs.

As a pure political argument, do you think hugely slashing defense spending is a winner? Maybe right now. What about the months after 9/11? Voters have no idea what the practical differences are of a few hundred billion more or a few hundred billion less in spending on the military. If the country feels safe they’ll support a low level of defense spending (assuming that the level is compatible with actual and perceived safety). Are high tax rates politically sustainable? If there is strong economic growth, yes. Of course if they’re too high and they weaken growth they’re not sustainable. Bill Clinton easily won reelection and somehow maintained higher tax rates that many currently think would be politically reckless to advocate. Those tax rates even gave us a surplus and would do a lot to balance our budget. What’s the difference? Clinton didn’t explain it better – he presided over a growing economy. Clinton even won large percentages of wealthy voters (not majorities though). Today, growth is anemic.

What does this tell us about any debt reduction plan? Since future congresses will have to keep any policies in place that balance the budget, the policies can’t be incompatible with voters’ improving experiences. Paul Ryan’s medicare “fix” isn’t bad because it is unfair or ideologically conservative – even if you forced everyone to read and love Atlas Shrugged it wouldn’t fix the deficit. When the elderly start getting vouchers that decrease in value (they grow at the rate of inflation but healthcare grows faster) they’ll see their situation as steadily deteriorate and vote to change the policy.  That doesn’t mean that benefits need exponential growth to maintain support, but shifting the cost to consumers also doesn’t work. Public debt means higher taxes and less ability to spend elsewhere while private debt directly consumes personal wealth that reduces demand and economic growth. That’s why costs need to be contained not payments. Ezra points out that smaller versions of Ryan’s plan failed:

Various states have gotten waivers to radically remake their Medicaid program, and the consumer-driven model that Ryan is proposing for Medicare has been attempted in the Federal Employee Health Benefits Program and Medicare Advantage. None of these programs have worked, which is why we’re in our current predicament.

Voters need to feel that their overall well-being is improving which means holding down costs in a way that doesn’t prevent economic growth. A growing economy makes every policy sustainable; the trick is to pick solutions that don’t kill economic growth. Paul Ryan correctly realizes that medicare can’t be an open-ended commitment because doing so would eventually harm the economy. His numbers don’t add up, the distribution is unjust, and its prospects are inconceivable but we can debate the merits of it as policy. He should be commended for offering something tangible even as we reveal its flaws. Are there other solutions?

The Kaiser Family Foundation compares some proposals. Many Democrats think strengthening the Independent Payment Advisory Board holds promise. Introducing a dedicated VAT to government healthcare spending always made sense to me – that way it explicitly ties what we’re willing to spend to what is politically sustainable.

Politicians should remember that the single best thing they could do to reduce the deficit is choose policies that maximize economic growth (even if that means taking advantage of cheap borrowing now). Yet, our debt is so large more must be done. Since the major problem is too many retirees relative to able workers, we could change one policy that no one seems to notice would dramatically help. Increase the number of young workers… otherwise known as immigrants. Obviously immigrants age too so it’s not a magic bullet, but anything that keeps the dependency ratio at a reasonable level would be enormously helpful.

Another aspect of immigration policy that needs consideration (since we can’t feasibly let in enough migrants completely solve everything) are temporary workers. Temporary workers are great because they come at almost no cost to the taxpayer. We don’t have to educate them and we don’t have to pay for their retirement, but they grow the economy and pay taxes. As Matthew McConaughey might observe, high school girls and temporary immigrants have a lot in common: they “stay the same age.”

Much more needs to be done, but anything that passes must maintain support.

Real America: Home of the… Cry Babies?

March 10, 2011 Leave a comment

Everyone should check out this interview Ezra Klein had with Secretary of Agriculture Tom Vilsack after Klein praised cities. If you want the short version, rural people get generous yet economically inefficient subsidies and constant praise from politicians, but are sad because not enough journalists speak up for them. So now we know where this “Real America vs Coastal elites” complex comes from. You’d think they’d be happy with billions of dollars in subsidies and overrepresentation in Congress, but I guess we have to thank them for that too.

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Reforming the Filibuster

December 23, 2010 2 comments

All of the Senate Democrats have signed onto a letter expressing their support for reforming the filibuster. This is great news. The filibuster isn’t a noble refuge for a principled Senator as glamorized in Mr. Smith goes to Washington; it is a devise of minority obstruction that prevents the legislature from legislating and undermines the system the Founding Fathers actually set up. Right now the electorate can’t actually judge the majority party on the policies they favor. Ezra Klein’s March Newweek piece remains one of the better recent cases against the filibuster.

[R]ecall that the filibuster is an accident, and there is nothing radical or strange about majority voting: we use it for elections (Scott Brown won with 51 percent of the vote, not 60 percent), Supreme Court decisions, and the House of Representatives. As for a majority using its power unwisely, elections can remedy that. And voters can better judge Washington based on what it has done than on what it has been obstructed from doing.

Say you’re a conservative and you want to repeal healthcare reform, privatize social security, simplify the tax code, or pass whatever else your heart desires, now imagine that in 2012 you keep control of the House, take over the Senate and end up with 59 Senators, win the presidency, and all those policy wishes are polling extremely favorably with the American public, which just completely repudiated the Democrats. Guess what? You can’t do any of it if the Democrats commit to a filibuster. And if the filibuster trend continues this seems like it will become a routine scenario.

Gumming Up the Works.jpg

In interest of fairness and bipartisanship here is the absolute best case against reforming the Senate rules that Matthew Yglesias wrote sometime early last April.

The story, as told by Randolph and recounted by Moncure Daniel Conway is that “Jefferson called Washington to account at the breakfast table for having agreed to a second chamber. ‘Why,’ asked Washington, ‘did you pour that coffee into your saucer?’ ‘To cool it,’ quoth Jefferson. ‘Even so,’ said Washington, ‘we pour legislation into the senatorial saucer to cool it.’”

Obviously, even to this day nobody would think of drinking coffee without first deploying their cooling saucer. That’s why every office in America has, in its kitchen, not only a coffee machine but also an accompanying cooling saucer. Visit your local Starbucks and ask about their cooling saucer. Now try to imagine the nightmare of coffee poured directly from the machine into the cup—that’d be your Senate-less America, a grim and scalding place.

The Most Important Lesson For Elected Officials

October 27, 2010 Leave a comment

In Ezra Klein’s recent post juxtaposing David Brooks from 2005 with David Brooks now is worth a read, but Klein writes 2 sentences that every politician should have tattooed to the inside of their eye lids (one on each?).

You don’t win elections in order to win more elections. You win elections in order to solve problems and make the country better.

Most people probably think that is self-evident, but it seems most politicians easily lose sight of that. Here’s Mitch McConnell forgetting,

The single most important thing we want to achieve is for President Obama to be a one-term president.

Don’t think Democrats don’t forget as well. Yglesias reminds Democrats that if they focused on governing better they wouldn’t be losing elections. Even if you’re self-interested enough and want your main goal to be reelection that shouldn’t prevent you from governing better – you just can’t be so myopic.

Speaking to The New York Times‘ Peter Baker for a profile published last week, Obama said his administration “probably spent much more time trying to get the policy right than trying to get the politics right” and drew the lesson that “you can’t be neglectful of marketing and P.R. and public opinion.”

Marketing and public relations are nice, but opinion is fundamentally driven by results. And on this, Obama has it backward.

[...]

The issue is not so much that the administration needed to be more or less moderate, rather that it needed to be more effective in boosting the economy and more mindful of the central role it plays in politics. This matters because, to point out the obvious, the economic outlook is still bleak. Enhanced post-election focus on marketing and PR won’t turn that around. In other words, all the marketing and PR in the world won’t succeed in moving public opinion, meaning Democrats could easily have another round of election losses to look forward to.

Martin Wolf feels similarly,

The president’s willingness to ask for too little was, it turns out, a huge strategic error. It allows his opponents to argue that the Democrats had what they wanted, which then failed. If the president had failed to get what he demanded, he could argue that the outcome was not his fault. With a political stalemate expected, further action will now be blocked. A lost decade seems quite likely. That would be a calamity for the US – and the world.

Every time an elected official compromises what he thinks will be best for the economy for political purposes he’s sowing the seeds of his own defeat. Certainly certain compromises might be necessary to pass a particular bill, but as Wolf points out, when you make it seem like you got what you wanted you’ve trapped yourself. Not only that, but Democrats willingness to give up the rhetorical fight for stronger stimulus (or for any stimulus) weakens them for the future. If they aren’t willing to defend the idea of stimulus (assuming they still actually think it can be productive) how do they think they can gain support for using fiscal policy in the future?

I really don’t understand the long-term strategy of not making the case for the policies you want. Obviously if you want them you think they are the best policies; by undercutting the case for those things you’re just making it harder to get what you want. President Obama continues to make policy compromises that weaken policy only to get no Republican votes, no acknowledgment of compromise, no positive electoral gains, and…. compromised and weakened policy. Here’s my advice.

Stop looking at the next election, close your eyes and recognize why you’re in office.

Where’s the Rise of Big Government We’ve Been Hearing About? ctd

October 15, 2010 2 comments

Again, where and when did the switch to socialism happen? I can’t seem to find it in the data… Hmmm…. Also, where was the massive increase in spending for stimulus?

Total Government Spending (all levels of government):

DESCRIPTION

The only way you see a massive increase in government is if you only look at short term federal government spending AND ignore the fact that GDP collapsed because of the recession. Yes, taxes coming in are much less because of cuts and because of the recession – that’s what’s really causing the short term deficit.

We’re not going bankrupt because we’re spending too much on infrastructure or any such nonsense. It appears we’re still short about $2 Trillion for infrastructure (well, according to some reports anyway).  Entitlements need to be reformed, the tax base increased, and we need to find a way to increase economic growth. Maybe the Fed actually intends to try something new now.

(graph via Krugman)

Understanding Healthcare Reform

September 23, 2010 3 comments


(h/t The Daily Dish)



Here’s Ezra Klein on some of the cost savings measures contained in the bill.

Behind the acronym [IPAB] will be 15 presidential appointees, each confirmed by the Senate. They’ll be drawn from the health-care industry, academia, think tanks and consumer groups. Their reform proposals will have to pass through Congress, but they will have some advantages: If Congress doesn’t act, their recommendations go into effect. If Congress says no but the president vetoes Congress and the veto isn’t overturned, their recommendations go into effect. If Congress wants to change their recommendations in a way that’ll save less money, it will need a three-fifths majority. Oh, and no filibusters allowed.

The hope is that this will free Congress to permit cuts by making it easier for them to dodge the blame. “Putting the knife in someone else’s hand will be a relief,” says Robert Reischauer, director of the Urban Institute and a former director of the Congressional Budget Office. “It will allow Congress to rant against the cuts without actually stopping them.”

The Great Revision

September 8, 2010 Leave a comment
Every time I argued with Keynes, I felt that I took my life in my hands and I seldom emerged without feeling something of a fool. - Bertrand Russell 



In the past few days I’ve come across some common misunderstandings of what actually happened during the The Great Depression and what lessons it should provide us for monetary and fiscal policy today. One came from my uncle’s coworker and another from a fellow blogger. So readers here get a better sense of my thoughts on both with a risk of being slightly unfocused, I’ll just include some parts from my private email correspondences in with my response to “Rick.” 



Oh Rick, I’m almost sorry to have to chip away at the icon you’ve placed a top the pedestal. Maybe your love of one-dimensional Randian characters explains it, but Amity Schlaes and The Forgotten Man are hard for most of us to sympathize with. You ask your readers to “compare the two statements against easy to find historic facts and decide for yourself whose opinion is the most accurate.” Well, I did. I can understand the appeal of a novel like Atlas Shrugged, but I can’t get behind any of Schlaes’ fiction. 

First and most glaring is her pathological undercounting of jobs during the New Deal. She doesn’t count “work relief jobs” even though these jobs actually help living people and help generate more spending; the only reason I can see not counting them is because they make her argument even worse. Her whole thesis is basically torpedoed with one glance at a graph of the economic performance under the New Deal. 

So there’s your “easy to find historic facts.” No matter how many anecdotes she can cram into her revisionist history, they won’t blind us to the data. When Roosevelt came into office unemployment was over 20% and he cut it by more than half. Not really a glaring indictment. 

I’m also not sure she actually understands that critiquing the New Deal or FDR isn’t the same thing critiquing Keynesian economics or even Keynes himself. Knowledgable Keynesians don’t even make the argument that FDR ended the Great Depression, he helped in some ways and hurt the cause in others. The spending from the WWII and getting off the gold standard, which broke loose the contracting money supply, were far more instrumental. Drop Amity Schlaes and pick up some Milton Friedman at least

Here’s Bruce Bartlett, policy advisor to Ronald Reagan’s and a former treasury department economist.

I am not dogmatic on this issue. I am willing to look at evidence or analysis that recovery from the Great Depression would have been faster if spending had been cut to the level of revenues or even lower or whatever, but I have been unable to get any conservative critic of the New Deal to say that this is what they believe. They always change the subject to various other things Roosevelt did, much of which I agree was mistaken. I just want a simple answer from Amity Shlaes, Jim Powell, and Burt Folsom, all of whom have recent books critical of Roosevelt, to this question: Would recovery have been faster if spending had been cut and deficits had been smaller during the 1930s? If the answer is yes, please provide some logical and empirical evidence supporting this view. (my emphasis)

It also becomes clear trying to read her buckshot critique of Krugman that she doesn’t understand the dynamics of labor price. First of all, rampant deflation is the major cause of real wage rises and real interest rates. So monetary policy, not fiscal or labor policy is the culprit here. Also, when a depression is happening and interest rates are at the lower bound, lowering wages for all workers would be coupled with a lower real price level so demand for labor wouldn’t necessarily change that much.

Suppose that wages across the US economy had been, say, 20 percent lower than they actually were. You might be tempted to say that this would make hiring workers more attractive. But to a first approximation, prices would also have been 20 percent lower — so the real wage would not have been reduced. So how would lower wages lead to higher demand for labor?

What Keynes realized by applying the concept of “sticky prices/wages” (which Shlaes largely ignores) is that the government needs to intervene and push aggregate demand rightward while expanding the real money supply.


Don’t forget too that Keynes wasn’t a marxist, he wanted to save capitalism. Here he is on Hayek’s Road to Serfdom

I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodied some permanent truths of great significance, which we are liable today to overlook because we associate them with other doctrines which we cannot now accept without much qualification. There are in these matters deep undercurrents at work, natural forces, one can call them, or even the invisible hand, which are operating toward equilibrium. If it were not, we could not have got on even so well as we have for many decades past. 

The point here is that these extreme government interventions are only necessary during specific recessionary conditions. The government isn’t taking private capital out of the economy when it is jump starting idle factories and workers. The whole point is that the resources aren’t being used at all. If we don’t use them we’d get what happened in Japan, a lost decade. 
Let’s see why “simply printing” money can lead to prosperity during these types of economic conditions. When the government prints money it causes inflation, but since we’re well below inflation targets (we actually have a bigger potential problem with deflation right now) more inflation is a good thing. What more money in the economy will do right now is combine “together unemployed workers and idle factories. Remember a recession is a time when we have increasing unemployment and declining capacity utilization. We have factories without workers and workers without factories. Those are resources that could be used to produce things but are not being used.” 

The problem is that since there isn’t enough money in the economy right now consumers can’t spend enough of what’s available to push businesses into hiring more workers. Fortunately, the government can print more money and spend it directly to put those idle resources to use. Interest rates also happen to be at historically low levels so it won’t even cost us that much in future (less valuable) dollars to do so. 

Here’s another helpful way to look at it: “Long-term economic prosperity is determined by how much value a country is capable of creating. […] But in the short-term, gaps can arise between what could be produced and what’s actually being produced. If that gap is small or nonexistent, efforts to “stimulate” production will lead to inflation or mere shifting of resources around. But if the gap is large, then policy needs to induce people who are currently not doing anything to start producing goods and services again.” Stop caring about dollars and start caring about wealth. 


Another common criticism that keeps turning up is the “uncertainty” critique. It argues that businesses are uncertain what certain legislation and other government policies will result in so they won’t hire new workers, but will sit on their profits until they have a better idea of what is going to happen. Aside from not having much evidence (herehere) to support this claim, I’m also baffled that people somehow think the free market is more certain. The free-market does a lot of good things, but certainty isn’t really what defines it. Also, will sweeping reform that pulls the government out of huge portions of the economy really make things more certain? If you think it’d be better, than make that argument – just don’t tell me it’d make things less uncertain. 


Don’t trust Amity Schlaes and others that don’t seem to even understand the arguments for stimulus. Seek out actual economists on the left and the right for more useful arguments for and against stimulus; after reading “historian” Schlaes, it seems we should trust them more on history as well. 


Krugman’s column.
Schlaes’ response.
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