Posts Tagged ‘Matthew Yglesias’

Cloud Connection

December 20, 2011 1 comment

There’s an upcoming service on KLM Royal Dutch Airlines that sounds “horrible” to Matthew Yglesias:

[Passengers] will soon be able to use their Facebook and LinkedIn profiles to find passengers with similar interests—as long as there’s mutual consent in viewing personal information.” – Rachel Klein in Fodors.

He asks, “Why would anyone ever want to do this?”

Umm… Mile-High Club?

(Bruce Dale, National Geographic)

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The Failure of Localism

October 23, 2011 Leave a comment

In Mitch McConnell’s CNN interview with Candy Crowley, the Senate Minority Leader argued that the federal government shouldn’t send relief to states to prevent layoffs of policemen, firefighters, and teachers.

I certainly do approve of firefighters and police. The question is whether the federal government ought to be raising taxes on 300,000 small businesses in order to send money down to bail out states for whom firefighters and police work. They’re local and state employees. […] The question is whether the federal government can afford to be bailing out states. I think the answer is no.

Matthew Yglesias explains why the federal government can afford to help local and state employees keep their jobs.

At the moment for localities to raise funds to pay teachers and firemen is quite costly. Households and small firms are in a fragile state, and taxing then at higher rates to support public service could be very damaging. The federal government, by contrast, can currently borrow money at negative seven-year real rates.

Aside from McConnell being wrong about what the federal government can afford, the Kentucky Republican demonstrates a bias that’s worth challenging further. Local control of government has advantages, but as with other American dogmas, its enthusiasts overlook the downsides. When public services are locally funded, those services can only be as good as what the locality can afford. And since poor people both need more services and have less revenue for taxes, the services don’t match the needs of America’s most impoverished citizens – the system itself clarifies why we need the term “disadvantaged.”

In Edward Glaeser’s book, Triumph of the City, he points out the injustice of this system for cities.

Rich enclaves have often formed right outside of urban political boundaries, where the prosperous can be close to the city without having to pay its taxes or attend its schools. A level playing field means that people should be choosing where to live based on their desires for neighborhood or opportunity not based on where they can avoid paying for the poor. 

A nation’s poor are every citizen’s responsibility, not just the people who happen to live in the same political jurisdiction. It is fairer, both to the poor and to cities, if social services are funded at the national rather than the local level.

Maybe the firefighters, police, and teachers losing their jobs aren’t directly protecting McConnell or teaching his children, but the families affected by his preference for local spending will still suffer.

Ride of the Volckery

September 20, 2011 7 comments

I’ve returned from my hike across the beautiful Crawford Path. Sunday night, slightly sore and groggy, I read Paul Volcker’s warning in the New York Times to not pursue an inflationary monetary policy to solve our employment crisis.

My point is not that we are on the edge today of serious inflation, which is unlikely if the Fed remains vigilant. Rather, the danger is that if, in desperation, we turn to deliberately seeking inflation to solve real problems — our economic imbalances, sluggish productivity, and excessive leverage — we would soon find that a little inflation doesn’t work. Then the instinct will be to do a little more — a seemingly temporary and “reasonable” 4 percent becomes 5, and then 6 and so on.

What we know, or should know, from the past is that once inflation becomes anticipated and ingrained — as it eventually would — then the stimulating effects are lost.

Reading his op-ed left me slightly more sore and groggy. It is important to notice that Volcker implies that inflation would be stimulating in the short-run. I can’t for the life of me understand why he doesn’t consider 9% unemployment a “real problem,” but let’s move on. Volcker never explains why keeping inflation at 1 or 2 percent is optimal policy – he only worries that 3 or 4 percent will lead policymakers to try higher and higher rates. I guess once the Fed gets a little hit of that inflation soon they’ll be desperate for more only to keep up with those expectations. It’s only a matter of time, I suppose, that the abuser will be stagflating on the treasury room floor.

But is this gateway drug theory of inflation accurate?

I can’t be the only one that notices that inflation goes up and down. Every time we hit 3% inflation, we didn’t get hooked and ruin our longterm economy, right? Every person that takes a painkiller doesn’t become an oxycontin addict. Even though Volcker knows some junkie from the ’70s we shouldn’t conclude that sick people shouldn’t take medicine.

Here’s some other commentary on Volcker’s column:

Read more…

Street Vendor Cartels and their Illegal Product

March 30, 2011 Leave a comment

Matthew Yglesias explains why in India chauffeurs and street food are so cheap, which helps account for the popularity of fast food restaurants over street vendors in the US:

Average productivity in the US is much higher than average productivity in India, so wages are much higher in the US. But American drivers are no more productive than Indian ones, so chauffeurs are unaffordable here and affordable prepared food needs to economize on labor with fast food techniques.

But as someone who rightly calls attention to the way dentists and barbers create cartels and restrict entry into the market drives up prices I’m surprised he failed to mention all the laws restricting licenses for street vendors.

Scott Sumner Vs. The World of Progressives

March 30, 2011 2 comments

In a recent post Scott Sumner challenges a number of progressive assumptions and calls them out for the “”faith-based” reasoning that they tend to deride in conservatives.” Sumner is a monetary economist that progressives should be required to read to see that rational critiques actually exist of their fiscal policies. Sadly, the mainstream conservative movement gave up on dispassionate evaluation of public policy.

Sumner’s “progressive wishful thinking” criticism defends Greg Mankiw’s posts that upset the standard liberal story on the progressiveness of the US tax regime and on fiscal stimulus. The defense credibly knocks down some of the more fragile volleys from the Left flank.

Lindert showed that Europeans were able to raise more tax revenue only by having more regressive tax systems than the US, i.e. tax systems that relied more heavily on consumption taxes. This is now pretty much common knowledge in the public finance area.

That is an important point to disrupt some common progressive assumptions, but I don’t think it directly counters Ygelsias’s and others’ point that the wealthiest “pay a huge share of the total taxes in the United States because they have a huge share of the money.” But it seems to me that Sumner is largely right that the US tax code has a progressive rate structure even compared to Europeans.

Sumner also weighs in on where the US sits on the Laffer curve:

I’d argue that this data is strongly supportive of the view that both the US and Europe are near to tops of the Laffer Curve for total taxation.  I did not say then, nor do I claim now, that we are precisely at the top.  But I also don’t see any reason to believe that if we raised taxes from 28% to 40% of GDP, that revenue would rise anywhere near proportionately, with no change in GDP per capita.

I do think the Laffer curve is “far-fetched” but I don’t deny that revenues always rise “proportionately, with no change in GDP per capita.” It is illustrative that Sumner doesn’t quote anyone making that claim he’s rebutting. Most popular proponents of the Laffer curve like to claim that tax cuts actually raise revenue not just that tax increases dampen receipts a bit. But the Left should think harder about challenging their assumptions with reference to European models if they’re going to argue for a much more progressive tax code. I’m with him on a progressive consumption tax.

Most interesting, and surprising, to me was Sumner’s claim that “for decades our best macroeconomists have been saying that that fiscal stimulus is a bad idea.” I really wish he cited something here because if true I’m embarrassed that I wasn’t aware of this. I always assumed economists like Christina Romer were true authorities on this, but I willing to confront a counter consensus of experts if it exists. Not that a consensus of experts is always correct but we should be giving more deference to it, as Bertrand Russell makes clear in Let People Think:

(1) that when the experts are agreed, the opposite opinion cannot be held to be certain; (2) thet when they are not agreed, no opinion can be regarded as certain by a non-expert; and (3) that when they all hold that no sufficient grounds for a positive opinion exist, the ordinary man would do well to suspend his judgment.

Sumner correctly emphasizes the need for more monetary action, which could be even more important than fiscal stimulus to help our economy. I haven’t neglected monetary policy but have focused mainly on the fiscal side because (1) it’s easier to convey (2) it’s more direct (3) it’s something that politicians (and, therefore, the public) have more influence over. Matt Yglesias is certainly right that progressives need to grapple more with Fed policy (must read) and that Obama’s biggest mistake might be his lack of focus staffing the Fed.

I’m extremely disappointed Sumner is taking a break from blogging. I hope he returns soon and continues to offer insightful and challenging commentary. I’ll be sure to rummage through his archives – others should too.

Graphs that Subvert Conventional Wisdom

February 4, 2011 Leave a comment

Feelings vs Expectations

January 24, 2011 2 comments

I’ve spent a good amount of time distinguishing between different types of uncertainty and how they affect or don’t affect our economy. (e.g. here, here, and here) On a simlar topic Matthew Yglesias gives us the quote of the day discussing businessmen’s feelings versus rational expectations for business:

The notion that economic growth depends crucially on the subjective feelings of the business executive class is one of the most pernicious ideas to take hold over the past 12 months. One should distinguish this hypothesis from the accurate point that rational expectations matter in the economy. Expectations do matter. But this is often confused with the idea that if the waiters at Davos are rude this year the economy will go into a recession, but if Obama gives a CEO a really sensual back rub growth will return.

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