Looking below the surface

Mark Tansey, “The Myth of Depth” (1984)

The original title of this post was, “What do liberal economists want?”

So, what is it they want? According to their public pronouncements, not a whole helluva lot.

The liberal mainstream economists who have been attacking Bernie Sanders’s proposals and Gerald Friedman’s analysis of those proposals have acknowledged they actually support some of Sanders’s proposals.

Like what? Well, Christina D. Romer and David H. Romer (pdf) “enthusiastically support. . .greater public investment in infrastructure and education.” And Paul Krugman, for his part, makes the case for more public construction.

That’s pretty much it.

The fact is, the arrogant liberal response to Sanders and Friedman carried out in the name of “responsible arithmetic,” which has created an “illusion of consensus,” has been been both timid (in terms of actual policies) and shallow (in terms of what it focuses on).

Liberals always want more public investment in infrastructure and education, because everyone wins—and no hard choices need to be made.

At the same time, they claim they’re the only ones doing the hard, deep economic analysis. But their methods and models only serve to make invisible what is really going in the economy, just below the surface.

Take the recent kerfuffle about Friedman’s analysis (pdf). The attack by liberal mainstream economists has been all about the amount and level of economic growth—nothing at all about the kind of growth. And that, in the end, is what Sanders’s proposals and Friedman’s analysis are really focused on.

As everyone knows, the growth we’ve seen in recent decades—both before and after the Great Recession, has benefitted only a tiny group at the top. The incomes of everyone else have either stagnated or fallen further and further behind.

And what about going forward? Unless there’s a fundamental reorientation in the way the economy is organized, more growth—even with more public investment in infrastructure and education—will continue to benefit only the small group at the top of the heap.

What liberal mainstream economists don’t see—and don’t want the rest of us to wrap our heads and hearts around—is that growth, by itself, has only a small effect on incomes for poor and working Americans. It doesn’t raise wages, it doesn’t reduce poverty, and it doesn’t close the gap between productivity and wages. Not in any significant fashion. And it will probably make the distribution of income even more unequal than it is now.

That’s why increasing numbers of people have become disenchanted with the “liberal fantasy” and have begun to look elsewhere—below the surface—to ask new questions about how the economy is currently organized and how it might be reorganized to actually benefit poor and working people.

Cartoon of the day

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Cartoon of the day

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The debate continues

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A week ago, I noted the pushback against liberal mainstream economists’ attacks on Bernie Sanders’s plans and Gerald Friedman’s analysis of those plans.

The first set of attacks, as Bill Black explained, plumbed “new depths of moral obtuseness, arrogance, and intellectual dishonesty.”

More recently, Christina D. Romer and David H. Romer (pdf) have responded with a more detailed critique of Friedman’s calculations, which has led to additional gloating by Paul Krugman and more publicity to only one side of the debate in the pages of the New York Times.

But, fortunately, that didn’t end the debate.

James K. Galbraith reminded us that “all forecasting models embody theoretical views.”

All involve making assumptions about the shape of the world, and about those features, which can, and cannot, safely be neglected. This is true of the models the Romers favor, as well as of Professor Friedman’s, as it would be true of mine. So each model deserves to be scrutinized.

In the case of the models favored by the Romers, we have the experience of forecasting from the outset of the Great Financial Crisis, which was marked by a famous exercise in early 2009 known as the Romer-Bernstein forecast. According to this forecast (a) the economy would have recovered on its own, in full and with no assistance from government, by 2014, (b) the only effect of the entire stimulus package would be to accelerate the date of full recovery by about six months, and (c) by 2016, the economy would actually be performing worse than if there had been no stimulus at all, since the greater “burden” of the government debt would push up interest rates and depress business investment relative to the full employment level.

It’s fair to say that this forecast was not borne out: the economy did not fully recover even with the ARRA, and there is no sign of “crowding out,” even now. The idea that the economy is now worse off than it would have been without any Obama program is, to most people, I imagine, quite strange. These facts should prompt a careful look at the modeling strategy that the Romers espouse.

Mark Thoma, for his part, argues that, while he does not believe that “we can sustain 5% growth over the next eight years. In the short-run—over the next two to four years—the situation is different.”

I’m worried people will accept without question that the gap is small due to the pushback against Friedman’s analysis of the Sander’s plan, and that will justify policy passivity when we need just the opposite. So let’s stop arguing, put the policies we need in place, and push as hard as we can to increase employment until inflation reveals that we have, in fact, hit capacity constraints. Maybe that happens quickly, but maybe not and we owe it to those who remain unemployed, have dropped out of the labor force but would return, or took a job with lousy wages to try. People who had nothing to do with causing the recession have paid the costs for it, and if we experience a short bout of above target inflation I can live with that. We’ve been wrong about this before in the 1990s, and we may very well be wrong about this again.

Finally, there’s a much more mainstream supporter of the idea that it’s not technologically impossible to imagine “materially super-normal rates of growth in the coming four years”: former Minneapolis Federal Reserve President and University of Rochester economist Narayana Kocherlakota. His view is that “given current economic circumstances, demand-based stimulus is likely to be more effective than supply-based stimulus.”

Why? Because, as Kocherlakota explained elsewhere, labor’s share remains extremely low by historical standards. So, faster growth would serve to push the share of income going to labor back to their historical (pre-1990) ranges and thus boost economic growth above the so-called consensus among economists.

And that’s exactly the basis of Bernie Sanders’s economic plans and Friedman’s analysis : raising labor’s share via redistributive measures is a spur to faster economic growth and encouraging unemployed and underemployed workers to take decent, better-paying jobs will sustain those faster rates of economic growth.

As I’ve written before, that’s not so much a forecast of what will happen as a mirror that demonstrates how diminished are the expectations created by contemporary capitalism and the policies that continue to be put forward by liberal mainstream economists.

“It’s almost like you are looking at two different countries”

The gap between the richest and poorest American communities has widened during the current recovery.

From 2010 to 2013, for example, employment in the most prosperous neighborhoods in the United States jumped by more than a fifth, according to the group’s analysis of Census Bureau data. But in bottom-ranked neighborhoods, the number of jobs fell sharply: One in 10 businesses closed down.

“It’s almost like you are looking at two different countries,” said Steve Glickman, executive director of the Economic Innovation Group, which created a new tool called the Distressed Communities Index.

And while Chicago doesn’t figure among the ten most distressed cities, large areas of the city (colored in dark red in the map above) figure high on the economic distress index—with large percentages of adults without a high-school degree, high poverty rates, large percentages of adults not working, high housing vacancy rates, low median income compared to the state’s average, negative changes in employment, and a loss of businesses.

In other words, while some communities have indeed experience some kind of recovery, many other areas remain mired in a Second Great Depression.

 

Cartoon of the day

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Violence in Chicago

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Chicago is on track to have 700 murders in 2016. That would be the highest number of homicides in Chicago in nearly 20 years.

Homicides have already nearly doubled this year, with more than 93 murders since the start of January. There were only 52 murders in all of January and February last year.

If the city does have 700 or more homicides this year, it will be the highest number of murders since 1998, when 704 people were killed. . .

The year has already seen several high-profile murders: Two friends, 17-year-old Sakinah Reed and 16-year-old Donta Parker, were shot and killed while standing at a corner in South Shore.

On Feb. 5, 25-year-old Aaren O’Connor was apparently hit by a stray bullet while sitting in her car outside of her Pilsen apartment.

A family of six, including two young boys, was found dead in their home in early February. They had been stabbed, beaten and one of them was shot.

Just days later, activist Matthew Williams, who had called for peace in the city for months, was shot while playing videogames in a friend’s house.

Most recently, a cab driver was found dead, shot in his head, in Lincoln Square.

The vast majority of the murders (83 of 98) have been gun shootings. Most of the victims (77.6 percent) have been between the ages of 13 and 34.

Surprised?

The members of the political establishment in the United States seem surprised by the astounding success of Bernie Sanders’s campaign. Reuters even has the democratic socialist now leading by more than 6 percentage points.

As it turns out, the political establishment in the United Kingdom has had a similar problem: they don’t understand how Jeremy Corbyn has come to lead the Labor Party.

Simon Wren-Lewis argues that the Left’s success on both sides of the Atlantic really shouldn’t be a surprise. That’s because of the growing importance of the financial sector, which has fueled obscene levels of inequality and created the conditions for the Second Great Depression.

The establishment on the centre left often seems too timid or ignorant to talk about the power of the financial sector, and is therefore unwilling to challenge it. Many ordinary people who support the left in the UK and US do have some understanding of what has gone on. It should therefore not be surprising that they have moved away from established leaders towards those – like Corbyn and Sanders – who are willing to talk more openly about the power of the financial sector and inequality.

Why were politicians and the media so surprised by this success? I think it tells us how insular the Westminster and Washington bubbles really are. Political commentators talk to politicians who talk to political commentators. It tells us how embedded the influence of the City and Wall Street is. The media relies on economists from the financial sector, and so tends to see the economy from their perspective.

The blind spot is mostly to the left, because we have the Daily Mail and Fox News. As a result, it came as a complete surprise that a crisis caused by the financial sector that left that sector unscathed but instead led to a diminished role for the state, might make many people rather angry.

Surprised? Don’t be.

 

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Ghost of labor

FiveThirtyEight has picked The Revenant for three major Oscars: Best Actor, Best Picture, and Best Director.

Even so, the film remains haunted.

As everyone knows, it wasn’t an easy film to shoot, for the director or for the other people who acted in or worked on it. But director Alejandro González Iñárritu seems not to care too much about the labor involved in making the film.

Last July, the Hollywood Reporter ran a story that the shoot was a “living hell”, as one crew member put it; there were accusations of indecision, of feuding between Iñárritu and one of his producers, and of disregard for safety, including the report of one actor being repeatedly dragged naked across ice. In the same publication, Iñárritu dutifully responded to the charges, although sometimes in terms redolent of a certain maestro loftiness. “As a director,” he said, “if I identify a violin that is out of tune, I have to take that from the orchestra” – then concluded, “When you see the film, you will see the scale of it. And you will say, ‘Wow.’” Indeed, whether or not The Revenant attains the deeper existential insights that its director aspires to, it’s undeniable that, as adventure spectacle, the film is often genuinely gasp-inducing.

When I ask Iñárritu about the controversy, a palpable impatience creeps into his voice. “I have to say, there’s nothing more boring to talk about than the challenges of production. ‘Oh my God, poor guys, they suffered…’ Honestly, who cares? The only reason I answered that is because I was asked, and I said: ‘There’s nothing for me to hide here.’”

In addition, as my colleague Jon Coleman [ht: dg] points out, there’s an important issue of labor in the film itself. Both Hugh Glass (played in the film by Leonardo DiCaprio) and Daniel Potts, who never met Glass but wrote about him in a letter to a childhood friend, worked for the same employer, the Rocky Mountain Fur Company.

Both labored for a company that could not properly feed, equip, and protect them. Both suffered extreme workplace accidents. Potts actually left more material for posterity. Glass only wrote one letter that has survived, and the missive said nothing about with the bear attack. If posthumous celebrity were based on literary production, Potts deserved higher billing than Glass. Fame, however, awaited the man with the best story, and getting gnawed on by a wild animal offered a better plot point than eating frogs and baby birds. Still, despite the huge disparity in the star meters, Glass truly belonged in Potts’s class. They were workers in a profession that offered great scenery, plenty of fresh air, and incalculable dangers.

A revenant is a ghost, and Glass struck a haunting figure stumbling back from the dead to kill the men who abandoned him. Yet the true ghost in The Revenant is work. Glass did not drop into a natural or an existential wilderness when he got mauled. He was just doing his job, and his job, as Daniel Pott’s letter proves beyond a doubt, hurt. Men who harvested wild animals for a living in the nineteenth century, whether they killed beavers, deer, bison, seals, or whales, often put their bodies on the line. Violence against nature boomeranged back as violence against workers. And being tough did not protect men from damage. The only safe spots in these businesses were company boardrooms and investors’ mansions. It’s fitting that an actor who starred as a penny-stock tycoon in his last movie may finally bring home the top acting prize for his portrayal of a hunter. The two characters are not as far apart as they seem. Capitalism inspired the adventures of both Wall Street wolves and western bear men.

Labor, on and in the film, is the real ghost of The Revenant.