Tag Archives: recession

Are Conservative Economists Too Influential? Nah. It’s Worse Than That. But Also Better.

by Fbvisitsmy Posted on April 1, 2017

Mother Jones

Brad DeLong is unhappy that his faction of economists had so little influence on public policy during the Great Recession. But I think he makes a fundamental error:

Alesina and Ardagna and Reinhart and Rogoff each had more influence on what policymakers and journalists thought about the effects of fiscal policy than did Paul Krugman and company, (including me). While the Federal Reserve went full-tilt into quantitative easing (but not stamped money or helicopter money), it did so in the face of considerable know-nothing opposition. And the ECB lagged far behind in terms of even understanding its mission. Why? Because economists Taylor, Boskin, Calomiris, Lucas, Fama, and company had almost as much or even more impact as did Paul Krugman and company.

….The most salient relatively-recent example was provided by Carmen Reinhart and Kenneth Rogoff who argued that it was risky for a country to have a debt-to-GDP ratio greater than 90 percent….I think we have by far the better of the argument. There is no tipping point. Indeed, there is barely a correlation, and it is very hard to argue that that correlation reflects causation from high initial debt to slower subsequent growth.

Yet it is very clear that even today Reinhart and Rogoff—and allied points by economists like Alberto Alesina, Francesco Giavazzi, et al., where I also think we have the better of the argument by far—have had a much greater impact on the public debate than my side has.

Brad’s error is in thinking that any of these economists influenced public policy. They didn’t. Politicians and central bankers wanted to do certain things, so they highlighted research from economists who happened to agree with them. Roughly speaking, when Congress wanted to spend more money, it asked for testimony from the Brad DeLongs of the world. When it wanted to cut spending, it asked for testimony from the Reinharts and Rogoffs. Likewise, central banks have their own models and their own political pressures, and they responded to them. They didn’t really care what any academic economists happened to say about it.

This may sound depressing if you’re an economist. Who wants to be nothing more than a handy mouthpiece for whichever politician happens to like the policy implications of your particular beliefs? But in fact, the news isn’t so bad after all.

Brad’s post is titled, “Why Were Economists as a Group as Useless Over 2010-2014 as Over 1929-1935?” But they weren’t. If we had responded to the 2007-08 financial crisis the same way we did to the 1929-32 financial crisis, we’d still be waiting for a rerun of World War II to pull us back to normal. The reality was far less grim. We might not have responded ideally, but we responded a helluva lot better than we did in 1931. That’s why it was a Great Recession, not a Great Depression.

And the reason for that is economists. Over the past 70 years they’ve had a tremendous impact on public policy. Compared to 1931, even the austerians are basically ultra-liberals who are just a few degrees less ultra-liberal than DeLong and Krugman. For better or worse, economists have enormous influence, but it’s influence exercised over the course of decades. On that score, the Keynesians are overwhelming winners who have moved the center of gravity of the profession far to the left. It’s only within the current center of gravity that conservatives seemed influential on public policy in 2009-10. But that’s almost always the case. Wherever the Overton Window happens to be, the conservative end is usually ascendant. What really matters, though, is where the window is.

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Are Conservative Economists Too Influential? Nah. It’s Worse Than That. But Also Better.

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Fox News Screws Up Its Latest Lie

by CarmaDickson Posted on December 28, 2016

Mother Jones

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This post starts out in an all-too-familiar way: with a Fox News headline. Here it is:

Food Stamp Fraud at All-Time High: Is It Time to End the Program?

Now, the obvious response to this is twofold. First, they’re just lying, aren’t they? And second, this is like a headline that says, “Traffic Deaths at All-Time High: Should We Ban Cars?”

But at this point the story takes a strange turn. First, I have no idea where Fox’s $70 million figure comes from—and I looked pretty hard for it. The Fox graphic attributes it to “2016 USDA,” but as near as I can tell the USDA has no numbers for SNAP fraud more recent than 2011.1

But that’s not all: $70 million is a startlingly low figure. In the most recent fiscal year, SNAP cost $71 billion, which means that fraud accounted for a minuscule 0.098 percent of the program budget. Even if this is an all-time high, the Fox high command can’t believe this is anything but a spectacular bureaucratic success.

And it would be, if it were true. But it’s not. If you look at inaccurate SNAP payments to states, the error rate since 2005 has decreased from 6 percent of the budget to less than 4 percent. However, this isn’t fraud anyway: It’s just an error rate, and most of the errors are eventually corrected. SNAP “trafficking”—exchanging SNAP benefits for cash—is fraud, but it’s been declining steadily too, from 3.8 percent in 1993 to 1.3 percent in 2011 (the most recent year for which we have records):

So in any normal sense, the Fox story was a lie. SNAP fraud isn’t at an all-time high. It’s been declining for years. But here’s the thing: The fraud rate in 2011 may have been low, but this was in the aftermath of the Great Recession, when total SNAP payments were very high. So although the percentage is low, the dollar value of fraud clocked in at $988 million. Fox could have used this far higher number, which is, in fact, an all-time high. It’s only an all-time high because SNAP was helping far more people, but still. In the Fox newsroom, that would hardly matter.

Bottom line: Yes, Fox is lying in any ordinary sense of the word. But they’re also vastly understating the amount of SNAP fraud. Even when they’re trying to deceive their audience, it turns out, they’re also incompetent.

1SNAP = Supplemental Nutrition Assistance Program = food stamps.

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Fox News Screws Up Its Latest Lie

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Am I Still Bitter Over Republican Perfidy in 2009? Oh Yes.

by Autumn04Gmhnkp Posted on December 16, 2016

Mother Jones

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The Economic Report of the President is out, and we should probably take a look at it, if only for old time’s sake. The rumor mill says that the next chairman of the CEA will be supply-side TV blatherer Larry Kudlow, and God knows what we can expect from him. Probably a ten-minute YouTube video. Or maybe a tweetstorm. Who knows?

Anyway, this year’s report is stocked full of the usual number of interesting charts, but I’m going to highlight their version of my favorite chart. This one shows state and local spending following the Great Recession:

Normally, spending increases after a recession, and this is one of the things that powers the recovery. This time that didn’t happen. Thankfully, we at least had a bit of help at the federal level:

Needless to say, Republicans feverishly opposed all attempts at economic stimulus because they didn’t want the economy to get too much better. That might have helped Obama’s reelection chances, you see.

Oh well. Bygones. I’m sure Trump will fix everything.

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Am I Still Bitter Over Republican Perfidy in 2009? Oh Yes.

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Women Can Boost Their Testosterone Just by Acting Like a Boss

by LurleneHollins Posted on October 26, 2015

Mother Jones

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We often point to testosterone to explain the traits that make men “manly”: competitiveness, horniness, impulsiveness. People have even blamed the testosterone levels of the architects of the Great Recession for the devastatingly awful decisions that led to the financial crash.

But new research shows that the reason men have more testosterone than women may have as much to do with gender socialization as inherent biology. Scientists from the University of Michigan published a study today that found that the act of wielding power increases testosterone levels regardless of gender. The study’s authors went on to hypothesize that the reason women generally have less of the hormone than men may be, at least in part, because of gender norms that prevent women from accessing positions of power and discourage them from being competitive.

To come to this conclusion, researchers hired more than 100 actors to perform an activity during which they held power over someone else: firing a subordinate employee. The actors performed the firing both acting with stereotypically “masculine” traits (using dominant poses, taking up space, not smiling), and with stereotypically “feminine” traits (lifting their voice at the end of sentences, being hesitant, not making eye contact). Researchers also measured the levels of a control group watching a travel documentary.

What they found was fascinating.

Not only did the female subjects acting in a stereotypically masculine way see an increase in testosterone (compared with the control), but those performing in a “feminine” way saw a significant boost, as well. In other words, just the act of wielding power, regardless of whether the wielder is performing maleness, increases testosterone levels. The study found that men did not have much of a testosterone boost during the activity, which, the study’s authors guessed, could be because men’s more frequent engagement in competitions and power-wielding activities “might paradoxically lead to dampened testosterone responses.”

“Our results would support a pathway from gender to testosterone that is mediated by men engaging more frequently than women in behaviors such as wielding power that increase testosterone,” the study says.

What’s that in layman’s terms? Gender inequality, at least in part, may be part of what’s making men manly.

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Women Can Boost Their Testosterone Just by Acting Like a Boss

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These Schools Saddling Students With Tons of Debt Aren’t the Ones You Expected

by ChristiXYQ Posted on September 14, 2015

Mother Jones

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The student loan crisis may bring to mind 22-year-old graduates from four-year colleges trying to figure out how to pay off hundreds of thousands of dollars in debt. And while this image may have been accurate before the recession, today’s reality is more complicated: According to a recent report released by the Brookings Institution, the rise in federal borrowing and loan defaults is being fueled by smaller loans to “non-traditional borrowers,” or students attending for-profit universities and, to a lesser extent, community colleges.

As Mother Jones has reported in the past, compared with four-year college graduates, nontraditional borrowers are poorer, older, likely to drop out, and, if they do graduate, unlikely to face bright career prospects. The median for-profit university grad owes about $10,000 in federal loans but makes only about $21,000 per year.

The report, based on newly released federal data on student borrowing and earnings records, shows just how much the economics of higher education have transformed since the recession. In 2000, the 25 colleges whose students owed the most federal debt were primarily public or nonprofit, with New York University taking the lead. By 2014, 13 of the top 25 were for-profit universities. In the same period, the amount of student debt nearly quadrupled to surpass $1.1 trillion, and the rate of borrowers who defaulted on loans doubled.

So what happened? During the recession, students poured into colleges to make themselves more marketable in a crummy economy. Community colleges, depleted from plunging state tax revenues, couldn’t expand to account for this exodus from the job market, so many students—and their loans—ended up at the quickly expanding for-profit universities, which promise short courses in tangible skills.

But students graduating from these colleges have notoriously dim job opportunities—some of the colleges have shut down in recent years after Department of Education probes found them to target low-income students and misrepresent the likelihood of finding a job post-graduation. So with the subsequent influx of students back into the job market—and, for many of them, into low-wage work or unemployment—thousands are stuck with debt.

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These Schools Saddling Students With Tons of Debt Aren’t the Ones You Expected

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Growing Income Inequality Was What Made the Great Recession so Great

by DorotheFolk Posted on February 10, 2015

Mother Jones

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A couple of years ago a new narrative emerged about the role that income inequality may have played in the boom/bust cycle that ended in the Great Recession. In a nutshell, it goes like this:

Middle class incomes stagnated during the aughts.
Income gains went mostly to the rich, who got ever richer.
To sustain its accustomed lifestyle, the middle class began borrowing more. The rich eagerly provided them with loans, since there were limited opportunities to invest the huge pool of money flowing their way.
This worked fine, until it didn’t. Eventually the middle class couldn’t borrow any more, and the music stopped. The result was an epic crash driven by high household debt levels.

This view is strongly associated with Raghuram Rajan (in his book Fault Lines) and others. But a few days ago Bas Bakker and Joshua Felman wrote a piece suggesting that there’s more to the story. The rich, they say, did more than just provide money that fueled a middle-class consumption boom and bust. The rich participated actively themselves. That is, the rise and fall of the consumption of the rich had as big an effect as that of the middle class—maybe even bigger.

The chart on the right shows the authors’ estimate of consumption patterns by income class. As you can see, from around 2003 to the present, it was fairly flat for the bottom 90 percent. But for the well off, consumption rose substantially from 2003-06, dropped conspicuously between 2006-09 and then began increasing again at a quick pace:

The model suggests something truly striking. The top decile explains the bulk of overall consumption growth. Between 2003 and 2013, about 71% of the increase in consumption came from the rich. Much of the slowdown in consumption between 2006 and 2009 was the result of a drop in consumption of the rich. The rich also played a key role in the subsequent recovery.

Their conclusion:

Our results suggest that the standard narrative of the Great Recession may need to be adjusted. Housing played a role, but so did financial assets, which actually accounted for the bulk of the loss in wealth. The middle class played a role, but so did the rich. In fact, the rich now account for such a large share of the economy, and their wealth has become so large and volatile, that wealth effects on their consumption have started to have a significant impact on the macroeconomy. Indeed, the rich may have accounted for the bulk of the swings in aggregate consumption during the boom-bust.

In some ways, this shouldn’t come as a surprise. If the bulk of income gains are going to the rich, it stands to reason that their consumption will vary substantially as those incomes go up and down. Middle-class consumption still plays a big role here, and the loss of housing wealth after 2006 still explains a great deal of why the Great Recession was so deep and so long.

But if Bakker and Felman are right, it’s far from the whole story. Consumption patterns of the rich are even more volatile than those of the middle class, and when they’re getting most of the income gains, then overall consumption patterns become more volatile too. If more income had been flowing to the middle class during the aughts, there would have been less borrowing and a more even pattern of consumption. The boom would have been more moderate and the bust would have been less catastrophic. Growing income inequality made the economy ever more fragile and ever more unstable, and we all suffered as a result.

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Growing Income Inequality Was What Made the Great Recession so Great

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Spending During a Recession Is an Even Better Idea Than We Thought

by CyrilRuddell Posted on October 7, 2014

Mother Jones

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Matt O’Brien points today to a new paper that tries to estimate the value of the fiscal multiplier during recessions. The multiplier is a number that tells us how effective government spending is. For example, if the government spends a dollar on donuts, and then the baker uses part of that dollar to buy sugar, and then the sugar distributor uses part of that to pay her truckers, then the original dollar of government spending might spur total spending of more than a dollar.

On the other hand, if government spending simply takes a dollar out of the pockets of taxpayers, the net effect might be zero. Total spending might not change at all.

The value of the multiplier during the Great Recession has been a subject of considerable dispute over the past few years, but a new trio of researchers has produced an estimate higher than most previous ones:

Riera-Crichton, Vegh, and Vuletin took this analysis a step further. They focused squarely on countries that, between 1986 and 2008, had both been in a recession and increased spending. This last point is critical. Stimulus, remember, is supposed to be countercyclical: the government spends more when the economy shrinks. But historically-speaking, countries have actually cut spending about half the time that they’ve been in a slump. So counting all that austerity as “stimulus,” as most do, gives us a misleadingly low estimate of the multiplier, something like 1.3. But it turns out, based on this new better sample, that the multiplier is really around 2.3 during a garden-variety recession, and 3.1 during a severe one.

Hmmm. I can’t say that I understand this. Every estimate of the fiscal multiplier I’ve seen acknowledges that it’s different during recessions. And why would previous research have included countries that cut spending during a recession? This is a bit of a mystery. Nonetheless, if this new paper really does do a better job of estimating the multiplier, then it makes a very strong case that stimulus spending during a recession—especially a severe one—is critical to recovery. America’s obsession with austerity starting in 2011 is probably a big reason our recovery was so weak, and cutting spending now, as the eurozone is doing even as its economy decays yet again, is the worst thing they could do.

More infrastructure spending, please. After all, why not do it now when it’s practically a free lunch?

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Spending During a Recession Is an Even Better Idea Than We Thought

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Chart of the Day: Welfare Reform and the Great Recession

by VioletteXBQA Posted on August 22, 2014

Mother Jones

CBPP has posted a series of charts showing the effects of welfare reform on the poor over the past couple of decades. In its first few years it seemed like a great success: welfare rolls went down substantially in the late 90s while the number of poor people with jobs went up. But the late 90s were a boom time, and this probably would have happened anyway. Welfare reform may have provided an extra push, but it was a bubbly economy that made the biggest difference.

So how would welfare reform fare when it got hit with a real test? Answer: not so well. In late 2007 the Great Recession started, creating an extra 1.5 million families with children in poverty. TANF, however, barely responded at all. There was no room in strapped state budgets for more TANF funds:

The TANF block grant fundamentally altered both the structure and the allowable uses of federal and state dollars previously spent on AFDC and related programs. Under TANF, the federal government gives states a fixed block grant totaling $16.5 billion each year….Because the block grant has never been increased or adjusted for inflation, states received 32 percent less in real (inflation-adjusted) dollars in 2014 than they did in 1997. State minimum-required contributions to TANF have declined even more. To receive their full TANF block grant, states only have to spend on TANF purposes 80 percent of the amount they spent on AFDC and related programs in 1995. That “maintenance of effort” requirement isn’t adjusted for inflation, either.

Welfare reform isn’t a subject I know a lot about. I didn’t follow it during the 90s, and I haven’t seriously studied it since then. With that caveat understood, I’d say that some of the changes it made strike me as reasonable. However, its single biggest change was to transform welfare from an entitlement to a block grant. What happened next was entirely predictable: the size of the block grant was never changed, which means we basically allowed inflation to erode it over time. It also made it impossible for TANF to respond to cyclical economic booms and busts.

Make no mistake: this is why conservatives are so enamored of block grants. It’s not because they truly believe that states are better able to manage programs for the poor than the federal government. That’s frankly laughable. The reason they like block grants is because they know perfectly well that they’ll erode over time. That’s how you eventually drown the federal government in a bathtub.

If Paul Ryan ever seriously proposes—and wins Republican support for—a welfare reform plan that includes block grants which (a) grow with inflation and (b) adjust automatically when recessions hit, I’ll pay attention. Until then, they’re just a Trojan Horse for slowly but steadily eliminating federal programs that help the poor. After all, those tax cuts for the rich won’t fund themselves, will they?

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Chart of the Day: Welfare Reform and the Great Recession

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