Posts Tagged ‘Gregory Mankiw’

sanders

For the Wall Street Journal (and Harvard’s Gregory Mankiw), presidential candidate Bernie Sanders is proposing to spend a really big amount of money! $18 trillion! “The largest peacetime expansion of government in modern American history”!

However, as James Kwak explains, that spending figure is meaningless on its own.

Most of that money—$15 trillion—is the expansion of Medicare to cover all Americans. Yes, that’s a lot of money. But we are already spending a ton of money on  health care—with embarrassingly poor results. In 2013, total premiums for private health insurance cost Americans $962 billion, individuals and families paid $339 billion out of their own pockets and “other private revenues” accounted for another $121 billion of health care (data here). That’s $1.4 trillion of health care spending, paid for by families and businesses, most of which would be replaced by Sanders’s plan. Project that out for ten years, add health care inflation, and you’re talking about a lot more than $15 trillion.

At the end of the day, what matters isn’t the amount of money that the federal government spends for health care. What matters is the amount of money that the American people spend for health care. The government is just a device that we use to provide certain services that are better handled collectively than individually. If the government can provide equivalent service at lower prices, then the gross dollar amount involved doesn’t matter.

And, as the folks at the Center for Economy Policy Research add,

This still leaves $3 trillion for us to get frightened over, and this still looks like a really big number. As a point of reference, GDP over the next decade is projected at roughly $240 trillion. This makes the cost of the rest of Sanders’ plans equal to less than 1.3 percent of GDP.

Should we worry about that? The increase in annual military spending from 2000 to the peaks of Iraq/Afghanistan wars was roughly 1.8 percent of GDP. This was also the size of military buildup that took place under President Reagan. Jeb Bush is proposing to cut taxes by roughly this amount if he gets elected.

In short, the additional spending that Senator Sanders has proposed is not trivial, but we have seen comparable increases in the past for other purposes. We can clearly afford the tab, the question is whether free college, rebuilding the infrastructure, early childhood education and the other items on the list are worth the price.

Let’s see, then: $18 trillion over ten years to get decent, affordable healthcare for all, plus fully funded Social Security, improved infrastructure, more affordable college education, paid family and medical leave, strengthening workers’ pensions, jobs for unemployed young people, and better child care.

Sounds like a pretty good deal to me.

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A reader [ht: ra] reminded me that the recent column celebrating the Trans-Pacific Partnership and free international trade by Harvard’s Gregory Mankiw has generated a great deal of controversy on the New York Times web site.

Here’s one example (by Pete C. from New York):

The consensus Ricardian view is that free trade is good for nations so long as the “winners” from trade compensate the “losers.”

In this case, it means if the 1% compensate everyone else for the lost jobs, wages, environmental protections, and all the damage “free trade” does to our nation and our communities.

What Ricardo didn’t account for was that the increased wealth and political power granted to the “winners” makes redistribution less likely, and this will probably lead to further rent-extraction and oligarchy by those who benefit from cheap labor and poor working conditions.

Economists are hired by the rich to shill for the views that will benefit the rich, not the nation as a whole. Their confidence is not misguided stupidity, it is a trick.

They are deliberately selective in their accounting of costs and benefits to support their wealthy masters.

The TPP is also supported unanimously by the same Republican party that is trying to enact a 270 billion dollars wealth transfer to the wealthiest 0.1% of the people by repealing the estate tax.

These are not people who are looking out for the economic wellbeing of the nation as a whole.

So when economists like Greg Mankiw say to support this “free trade” deal, run as fast as you possibly can in the other direction.

Much (but certainly not all) of the rest of the commentary follows similar lines, many of them quite sophisticated rebuttals of Mankiw’s free-trade dogma. Basically, the gains from free international trade might look like good in the fantasy world of neoclassical economics (and in the original theory of relative or comparative advantage developed by David Ricardo) but they mostly don’t exist in practice, in the way international trade and free-trade agreements are practiced in the real world.

Here’s one of my favorites (by John M. from Brooklyn):

So the American people are basically racist, lazy socialists and that’s why they oppose TPP, and the answer is to outsource to cheap labor markets i.e. “reduce labor inputs” and then the market will replace high paying manufacturing jobs with minimum wage jobs at McDonalds.

Sure, let the 1% hoard even more money by undercutting wages here at home and all will be well. Yeah, we’ve seen how that works.

And, of course, this one (by Siobhan from New York):

Ah, yes. Those “long run” benefits. Destroy good-paying manufacturing in the US, and increase the number of poor paying “service jobs.”

But also lower the cost of things like clothing with cheap imports. So presumably, people making poverty wages can still afford clothing, right? Never mind the Walmart employees taking up collections if [sic] canned goods for co-workers at Thanksgiving.

And how about Nafta? According to economists, that was a clear winner. According to the majority of the US, living with the results, it was a disaster.

And once again, “who are you going to believe, me or your own lying eyes?”

I’ve taught the theory Mankiw relies on scores of times over the years (although, in contrast to Mankiw, I actually explain the underlying assumptions). Students seem to be genuinely convinced by the elegance of the model (or, perhaps, by the silly examples used in the textbooks, where Jack and Jill can be seen to benefit because they specialize according to their relative advantages and then trade). They rarely pose questions or raise objections at the time. But then they get into the real world and find or develop other economic stories, other economic representations, according to which there are winners and losers and the losers never get compensated for their losses.

That’s not to say all the everyday representations of the economy run counter to the mainstream tales taught in introductory economics courses across the country and around the world. But, at least in a few cases, such as free trade and minimum wages, they’re likely to take Pete C.’s advice and “run as fast as you possibly can in the other direction.”