Links, 3/16/12

– I have a post up at Dissent, Three Crises in Higher Ed Affordability.  It’s helpful for me to divide out the current crisis into three different crises, each with different battlefields, strategies, ideas and solutions – and I’ll probably continue to build it out this way.

– In Keynes’ the end of laissez-faire, Keynes attacks the state socialists for being “little better than a dusty survival of a plan to meet the problems of fifty years ago, based on a misunderstanding of what someone said a hundred years ago.”  Matthew O’Brien has a great post that ends up arguing conservatives attacking the Federal Reserve now are trying to meet the problems of 30 years ago (stagflation) based on a misunderstanding of what someone said 50 years ago (Milton Friedman).  Glad to see O’Brien at The Atlantic Business page – great hire.

– Mac McClelland goes undercover at an online shipping warehouse.  Horrifying look into the actual physical infrastructure that makes all this online activity run.

–  Noah Millman on Smith’s Why I’m Leaving Goldman Sachs New York Times op-ed.

–  Jason Stahl on historicizing conservative think tanks.  Crucial to understand in light of the Koch/Cato fight: “In the sixties and seventies conservatives in places like AEI, the Heritage Foundation, and the Cato Institute did more than anyone else to discredit the idea of policy making as a social-scientific endeavor.”

– From end of February: Jonathan Chait brings the 2012 or Never for the GOP arguments, updating and placing the Emerging Democratic Majority arguments into the 2012 area.

– Rick Perlstein discusses why conservatives are crazy after all these years, demolishes Mark Lilla in the process.

– The Not-So-Simple Arithmetic of Fiscal Policy in a Depressed Economy.  How to get people to understand this?

– Daniel Rodgers’ “Age of Fracture,” which I really enjoyed, just won a Bancroft Prize.  Here he is discussing the Tea Party in Democracy Journal.  Love this: “But if progressives cannot find a language of more concrete and encompassing interdependence than this, if they cannot explain more articulately and persuasively how our economic lives are entangled, from the poorest and most marginalized to the very top of society, they will exhaust the moral and intellectual capital that early twentieth-century Progressives bequeathed to them without replenishing it.”

– This weekend at Left Forum in New York City the Dissent and Jacobin people are putting on a panel on student debt.  Corey Robin, Alex Gourevitch and Doug Henwood are on a panel discussing freedom and the left, which will likely involve Corey’s excellent essay on the topic. Another panel is about Meritocracy and the Left, featuring Aziz Rana and Alex Gourevitch, which will likely involve their excellent essay on meritocracy they did for Roosevelt’s 99% Plan.

– I like my neighborhood, I like my gun.  Several people I was talking with last night didn’t believe that Xiu Xiu once covered Tracy Chapman’s “Fast Car” on an album.  Here it is.  Also, here’s their Sad Pony Guerilla Girl live:

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A She-covery In Sight?

Roosevelt Institute’s New Deal 2.0 editor Bryce Covert had an excellent summary of gender and the recovery over at the Nation: One Mancession Later, Are Women Really Victors in the New Economy?  Trying to figure out why women’s job growth have been lagging in 2010-2011 has been a bit of a industry in the econoblogosphere, and Covert brings together the debate.

But is this changing?  David Leonhardt has a post up at Economix, Has the He-covery Become a She-covery?, which features the following argument and graph:

For nearly all of 2010 and 2011, job growth was stronger for men than for women, causing Catherine Rampell and others to refer to the recovery as a “he-covery.” But in the last few months, the trend has turned around: since December, job growth has been significantly stronger for women than men…

A slight problem with how that data is shown in the graph above.  That graph is from the household survey.  In the December jobs numbers there was a big change in the employment numbers as a result of the annual benchmarking process and the updating of seasonal adjustment factors:

Effective with data for January 2012, updated population estimates which reflect the results of Census 2010 have been used in the household survey. Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population during the decade….In accordance with usual practice, BLS will not revise the official household survey estimates for December 2011 and earlier months…The adjustment increased the estimated size of the civilian noninstitutional population in December by 1,510,000, the civilian labor force by 258,000, employment by 216,000, unemployment by 42,000, and persons not in the labor force by 1,252,000….

Data users are cautioned that these annual population adjustments affect the comparability of household data series over time.

Employment went up 216,000 as a result of these changes, and they were all put in that month instead of smoothed across the year (“in accordance with usual practices” above). Now what it doesn’t say is that while employment was adjusted up 216,000, men were adjusted down 368,000 jobs while women were adjusted up 584,000 jobs. So December had women gaining 584,000 jobs as a result of statistical population adjustments that, in reality, should have been smooth across a longer time frame.

I was happy to see this, as I had spent some time last fall trying to figure out why the household numbers were so different from the business survey when divided out by gender – this helped bring them back in sync.  But this is what is pushing up the six-month average in the graph above starting in January 2012 – not a sudden rush of actual job growth by women.

Instead of the household survey if you look at the business survey, you see that men are always gaining more jobs across all time since the recovery took off:

There’s still an open question about how to understand this.

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Efficient Frontier Tradeoffs and Plea Bargaining

Michelle Alexander, author of The New Jim Crow, has an editorial explaining how to crash the criminal justice system:

AFTER years as a civil rights lawyer, I rarely find myself speechless. But some questions a woman I know posed during a phone conversation one recent evening gave me pause: “What would happen if we organized thousands, even hundreds of thousands, of people charged with crimes to refuse to play the game, to refuse to plea out? What if they all insisted on their Sixth Amendment right to trial? Couldn’t we bring the whole system to a halt just like that?”…

But in this era of mass incarceration — when our nation’s prison population has quintupled in a few decades partly as a result of the war on drugs and the “get tough” movement — these rights are, for the overwhelming majority of people hauled into courtrooms across America, theoretical. More than 90 percent of criminal cases are never tried before a jury. Most people charged with crimes forfeit their constitutional rights and plead guilty.

This is a finance blog, so we can bring in the concept of the efficient frontier and tradeoffs.

A lot of decisions are viewed in terms of tradeoffs.  Can your financial portfolio get a higher return without taking on more risk?  In the modern portfolio theory there’s a point where you can’t – any higher return will require a tradeoff in more risk.

Tradeoffs are everyone in economics.  For instance, government policy is often viewed as a tradeoff between equity and efficiency.  Now this only makes sense if you are at the frontier of policy and have exhausted all the potential opportunities to increase both.  Only then are tradeoffs strictly necessary.

Now when it comes to criminal sentencing and plea bargaining, the government hasn’t found that it is required to face tradeoffs.  My favorite fact about plea bargaining, from William Stuntz’s Collapse of the Criminal Justice system (italics in original):

The Court’s decision allowed the government to do two things that, in combination, were hard to pull off: raise the guilty plea rate and raise the average sentences, at the same time. Plea bargains involve compromise-the defendant agrees not to take his case to trial; the prosecution agrees to less severe punishment than the law might allow.  More guilty pleas means more such compromises, which in turn should mean lower average sentences.  But if the law allows for punishment more severe than even prosecutors wish-as it did in Bordenkircher, and as it did increasingly often in the twentieth century’s last years-these “compromises” are easy ones for prosecutors to make.

An increase in plea bargains should require an almost mechanical tradeoff in a decrease in average sentence length.  If you are taking a plea bargain you should get a shorter sentence than if you had gone to trial and lost, therefore more guilty plea bargains should increase the proportion of shorter sentences, lowering that number.

Yet during this time period you had both go up.  No tradeoff!  Which you can do if you pass harsh mandatory minimum sentencing, remove discretion from judges and legally threaten people with harsher sentences for exercising their constitutional rights.

Stuntz also argues that arrests went up almost sevenfold with only a 60 percent increase in prosecutors – which gives you a sense of how efficiently this machine runs now.

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Bloggingheads with Peter Frase

The site Bloggingheads is changing its lineup so that there are weekly shows each hosted by a different person. One of the shows is now “Fireside Chats”, which will be curated by the Roosevelt Institute fellows.  Mark Schmitt did the first one last week, and now this week is my first at-bat with Jacobin magazine’s Peter Frase.  Check it out at Bloggingheads here.  Peter makes the case for left-right convergence on a guaranteed income here.  I hope you check it out.

I’ll probably be doing one a month.  Anyone in particular, to my left or right, you’d like to see me talk/debate in future episodes?

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Some Critical Thoughts On The Rent Is Too Damn High

I just finished reading Matt Yglesias’ new e-book about the negative consequences of restrictive housing regulations, The Rent is Too Damn High (which I’ll refer to as RTDH in this post). I like the idea of the shorter e-book rather than the full book-length argument on a topic, though I think this was a bit too short.  Compared to most books that are the expansion of an article, this is about half the length.  But instead of cutting the number of chapters in half and keeping their depth, it keeps roughly the same number of chapters but at half length.  The result is that the material goes by quickly, though it is still a worthwhile read.

It’s meant for a general audience, one who hasn’t been at the deep-end of the issues before, so some topics go by quick and some are treated at a very high level.  I used to read and think about these issues more than I do now, so it was fun to get engaged in them once again.  I think there’s huge consequences for these issues, and I like how Yglesias made them general issues for everyone anywhere in the United States as it is related to health, opportunity, diversity, the environment, etc.  As Yglesias notes, I also think there’s room for political overlap on these housing regulation issues, so its good to see movement on this.

Rather than try to write a formal review, I’m just going to expand my notes I took as I read it.

(Special thanks to Josh Mason for bouncing around some ideas about the meta-topic.)

1. The book opens with the issue of rent control, treating the issue as one of price ceilings rather than the actual goals that rent control tries to achieve – neighborhood stabilization and preventing excessive turnover.  Mason had a great post on this that I won’t try to reproduce.  RTDH is implicitly for more renting and less homeownership – yet this kind of stabilization and hedging is much of what people find attractive about ownership.

2. RTDH, when talking about housing, doesn’t end up with a strong presentation that much of our civic and governmental infrastructure is distributed through housing and location.  It talks about it at points, but I think that discussions going beyond just the land, shelter and investment potential of housing to how and where location places us in civil governance is important.

This helps explain why a lot of the housing market is screwy.  Elizabeth Warren has argued this is a reason housing became problematic for middle-class households (“Schools that scored just five percent higher than other local schools on fourth-grade math and reading tests added a premium of nearly $4,000 to nearby home”).  The quality of your schools, the relationship you have with the police, your ability to move freely and transport yourself, how you’ll be represented democratically, the primary means through which you’ll transfer wealth across generations (if you are a homeowner) and more are all in play even before you get to the economic efficiency, public sphere and social/health arguments about what housing brings.  Perhaps we can reform housing regulations without having to reexamine these issues, but it will be difficult.

3. Yglesias alludes to sprawl as a reaction to high city costs (and later crime waves of the post 1960s), but as Thomas Sugrue has documented, suburbanization, urban crises and racial anxieties go back to at least the 1940s.  Detroit’s suburbs managed to grow 2% in the last decade, even though the city lost 25% of its population.

There’s a good Foreign Affairs review of Glaeser’s Triumph of the City, which points out the trouble the economics-driven, supply-side housing costs arguments have with dealing with the suburbs.  As someone who read Suburban Nation early when he began to think critically about these issues, I find that a lot of these arguments just focus on city regulations while ignoring the whole existence of suburbs.  Foreign Affairs review:

Glaeser overlooks one of the central issues confronting cities for most of the last century: their competition with suburbs. Glaeser sees the competition as primarily between cities that restrict growth and those that accommodate it…

The weakness of the claim that regulation impedes population growth can also be seen in Glaeser’s comparison of Chicago and Boston. Glaeser commends Chicago for issuing 68,000 building permits between 2002 and 2008 and chides Boston for issuing only 8,500 — about half Chicago’s rate considering their relative sizes. But Chicago’s liberal issuance of building permits did not stop the city from losing more than 200,000 people between 2000 and 2010, even as its suburbs continued to grow. Over the same period, the smaller and purportedly more restrictive Boston grew by more than 28,000 people, or nearly five percent, and its housing supply grew by more than eight percent.

Yglesias does a good job tackling the way that everything from parking restrictions to zoning requirements impact the suburbs just as much as cities, especially when it comes to health, the uncompensated work time of commuting, the environment, etc.  To its credit, RTDM doesn’t feel like a skirmish against historic districts while forgetting the vast number of people who live in the suburbs.

4. Yglesias develops a theory of how high rents should be thought of as a new era of rentier income.  There’s a history lesson about sharecropping and debt peonage systems over the course of the United States, and a discussion of how in an expanding service economy (with expanding inequality too), location and density will be crucial.

I’m curious how well we can generalize the new rentier economy arguments.  We’ve talked about this before, using Michael Hardt’s The Common in Communism as a guide.  Are we moving to an age of a new rentier economy where immobility rent income has been replaced with rent income from “scarcity and reproducibility”?  How will housing regulations impact this?  Hardt (my bold):

Whereas in Marx’s time the struggle was between immobile property (such as land) and moveable property (such as material commodities), today the struggle is between material property and immaterial property – or, to put it another way, whereas Marx focused on the mobility of property today at issue is centrally scarcity and reproducibility, such that the struggle can be posed as being between exclusive versus shared property. The contemporary focus on immaterial and reproducible property in the capitalist economy can be recognized easily from even a cursory glance at the field of property law. patents, copyrights, indigenous knowledges, genetic codes, the information in the germplasm of seeds, and similar issues are the most actively topics debated in the field.

5. There’s a lot of well-deserved celebration of density, particularly in the expansive diversity of opportunities it brings as well as access to better work.  It’s not essential to RTDH, but I’m curious how much the changing character, especially the privatization, of public spaces impacts this.  Reading City of Quartz was influential for me, and there’s a lot about how public spaces in LA are redeveloped towards private ends and for people with money.  The recent fasciation with the landscape of walls and the policing of borders around communities in an era of globalization is part of this.

Or to put it a different way, the normative, democratic implications of a public sphere and common space should reinforce the good things Yglesias likes about density, but it doesn’t have to, and cities are evolving in ways that don’t necessarily create this.

6.  Yglesias argues against those on the left who are reflexively against gentrification.  I think that’s fair.  But it does miss what those on the left will oppose about government policy in this space: the practices and politics of “urban renewal.”  The issues of eminent domain, investment and tax bonuses for private agents, aggressive policing and selective government services, etc. designed to bring in certain groups and exclude others.  Sometimes this is all about managing bodies and spaces – much of the public housing of the mid-century period was all about demolishing previously existing slums to put the land to better use.

(Is it telling that RTDH doesn’t even mention public housing?  Is that something to revisit post-ownership society, with scarce land, inequality, etc.?)

Sometimes it is all about building highways through cities.  Other times, it is about reconfiguring what cities do entirely. (I’m moving The Assassination of New York to the front of my reading queue as a result of this.)

The gentrification in Yglesias’ account seems bloodless because it works through supply, demand and the resulting price mechanism, and has a decentralized, invisible quality to it.  But in practice the government is a very active agent in these processes.  This is actually where the fruits of a left/libertarian alliance is most likely to start (think anti-Kelo), one that could end up tackling something like “free” parking.

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VSP Historical Trip; also Keynes: “Look after the unemployment, and the Budget will look after itself.”

Let’s take a historical trip to see Very Serious People of the early 1930s explain the need to abandon expansionary plans and pivot to deficit reduction.  Here’s a fun one.  First there’s a 1932 letter published to the Times of London by MacGregor, Pigou, Keynes, Layton, Salter and Stamp (power team!) calling for expansionary fiscal stimulus:

…in present conditions, private economy does not transfer from consumption to investment part of an unchanged national real income. On the contrary, it cuts down the national income by nearly as much as it cuts down consumption. Instead of enabling labour-power, machine-power, and shipping-power to be turned to a different and more important use, it throws them into idleness.

Yup.  Here’s the response, two days later (my bold):

The Times of London, Wednesday, October 19, 1932


[…]But it is perhaps on the third question—the question whether this is an appropriate time for State and municipal authorities to extend their expenditure—that our differences with the signatories of the letter is most acute. On this point we find ourselves in agreement with your leading article on Monday. We are of the opinion that many of the troubles of the world at the present time are due to imprudent borrowing and spending on the part of the public authorities. We do not desire to see a renewal of such practices. At best they mortgage the Budgets of the future, and they tend to drive up the rate of interest—a process which is surely particularly undesirable at this juncture when the revival of the supply of capital to private industry is an admittedly urgent necessity. The depression has abundantly shown that the existence of public debt on a large scale imposes frictions and obstacles to readjustment very much greater than the frictions and obstacles imposed by the existence of private debt. Hence we cannot agree with the signatories of the letter that this is a time for new municipal swimming baths, &c., merely because people “feel they want” such amenities.

If the Government wish to help revival, the right way for them to proceed is, not expenditure, but to abolish those restrictions on trade and the free movement of capital (including restrictions on new issues) which are at present impeding even the beginning of recovery.

We are, Sir, your obedient servants,

T.E. GREGORY, Cassel Professor of Economics,
F. A. VON HAYEK, Tooke Professor of Economic Science and Statistics,
ARNOLD PLANT, Cassel Professor of Commerce,
LIONEL ROBBINS, Professor of Economics

It’s 1932 and Hayek thinks government deficits are causing the Great Depression.  As this webpage that has these two letters and two contemporary letters notes, these battles have not evolved much in the past 80 years – even though the second view has been routed in Economics 101 classes.

Two bonus:  First, that webpage has a British austerity VSP letter (“However, in order to be credible, the government’s goal should be to eliminate the structural current budget deficit over the course of a parliament, and there is a compelling case, all else being equal, for the first measures beginning to take effect in the 2010-11 fiscal year”) from The Sunday Times in February 2010.  It is signed by, among others, Ken Rogoff.  Has Rogoff changed his mind on British austerity, or been asked about it by reporters?  Perhaps that is more fuel for Joe Weisenthal’s argument that Rogoff is the most dangerous economist in the world.

Second, the following, from Keynes, is fantastic.  From a 1933 radio debate Keynes did with Stamp (my bold, though I should bold all of it):

You will never balance the Budget through measures which reduce the national income.  The Chancellor would simply be chasing his own tail – or cloven hoof!  The only chance of balancing the Budget in the long run is to bring things back to normal, and so avoid the enormous Budget charges arising out of unemployment…Even if you take the Budget as your test, the criterion of whether the economy would be useful or not is the state of employment…I do not believe that measures which truly enrich the country will injure the public credit…It is the burden of unemployment and the decline in the national income which are upsetting the Budget. Look after the unemployment, and the Budget will look after itself.

Add health-care costs to that last line and it’s perfect.

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Is the Economy Really Taking Off Enough to Pivot to Deficit Reduction?

Steven Pearlstein is concerned there’s too much emphasis on getting unemployment down and not enough on pivoting to deficit reduction in the states. Krugman has a good response; I want to focus on two specific parts of Pearlstein’s post.  The first:

There are some on the left who also cling to the view that the economy is stuck in a depression — lest it undermine their critique about the woeful inadequacy of fiscal stimulus and the desperate need for more.

Let’s start with some basic facts:  Monthly job growth was over 250,000 jobs created in just over half, 51%, of the months during Bill Clinton’s presidency.  In the other half, the slow months, the average job growth was around 154,000 per month.

Knowing that is what healthy job growth looks like, the meek jobs numbers we are seeing – last month’s was 243,000, and 250,000-300,000 at the high-end of this month – looks like it may be approaching a period of solid growth.  But with so much potential downside (Iran, Europe, etc.), why would we want to stop expansionary monetary and fiscal stimulus?

Steven Pearlstein notes, “The data points for this optimism are to be found in recent reports on private payrolls (averaging just under 200,000 jobs per month for the past year).”

Notice the “private” payrolls – total job growth is actually 160,000 averaged when you take into account the shedding of government jobs through 2011.  Which is to say our economy at its strongest looks close to the Clinton economy at its weakest.

Using this handy Atlanta Fed Jobs and Unemployment Calculator, at 160,000 average jobs per month it’ll take till 2017 to get to 5% unemployment.  At 300,000 average jobs per month it’ll take two more years.

The second:

There is no denying that an official unemployment rate of 8.3 percent is too high and understates the weakness in the job market. But too much of their gloomy analysis is based on a misguided assumption that it’s possible to put the nation on a sustainable growth path without making the painful but necessary structural adjustments required to an economy left badly out of balance by the Bubble Economy…

…It is the restructuring and right-sizing of the public sector that, as a practical political matter, only happens when the fiscal pressure is on. It can easily be phased in without throwing the economy into recession.

This “structural adjustments” part is frustrating because it isn’t clear what he is talking about (until you get to the second paragraph).  Is the issue the idea that the capital markets think the debt is out of control?  Workers can’t be retrained?  Hysteresis?  There are ways of quantifying each of these arguments and they have their strengths and weaknesses.  An incredibly generous argument about structural unemployment would say that we might hit problems closer to 6% than 4%, and even then we are still far away.

The second paragraph is similar to Richard Fischer’s argument against QE (and Naomi Klein’s Shock Doctrine too) – if growth takes off, we can’t make the hard decisions necessary for the economy.  At 6% unemployment state budgets won’t be any easier – better to do whatever is necessary now, while in a crisis.

I don’t agree with this in theory (state budgets will be significantly easier to deal with at full employment), but I also don’t see this working in practice.  Is there any evidence that state governors who attack workers to fix the budgets aren’t turning around and cutting corporate taxes by a larger amount over the long run?  That’s what is happening is Wisconsin.  Shock times aren’t about responsibility – they are about power shifts.

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