Category Archives: The dismal science

The End of Loser Liberalism: An Interview with Dean Baker Part I

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Dean Baker is co-founder of the Center for Economic and Policy Research. He previously was a senior economist at the Economic Policy Institute and an assistant professor of economics at Bucknell University. He has a Ph.D. in economics from the University of Michigan. His latest book, The End of Loser Liberalism, has recently been released to download free of charge on the CEPR website.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: The overarching thesis of your book The End of Loser Liberalism is quite a provocative one. This isn’t just a book about economics as such. Instead, if I were to venture using a term that appears to be coming back in fashion, it’s a work of political economy. You write that the current political debate – wherein the left are seen as restricting and constraining the ‘free market’ while the right are seen as letting it free to work – is completely skewed. You write that liberals and progressives need to take a different line on this. Could you explain this basic premise in a little more detail, please?

Dean Baker: The conventional view is that conservatives place a huge value on market outcomes. It is common for progressives or liberals to deride them as “market fundamentalists”, as though they worship the market as an end in itself. By contrast, liberals/progressives are supposedly prepared to use the hand of government to override market outcomes in order to promote goals like poverty reduction or equality. I argue in the book that this view is completely wrong, and worse that it plays into the hands of the right.

I argue that the right has quite deliberately structured markets in a way that have the effect of redistributing income upward. The upward redistribution of the last three decades did not just happen, it was engineered.

The money scoreboard

I am going to fill in a few posts for Yves while she is away on conference. Here’s one that is a thought piece I wrote last week at Credit Writedowns. It is a mental model of the economy I am toying with based on some comments the modern monetary theory folks have made to […]

“When Offshoring Backfires”

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Readers may know that I have strong feelings about offshoring. There is plenty of evidence that the case for offshoring and outsourcing are considerably overdone. First, direct factory labor is only a small part of the total wholesale cost of manufactured goods, typically 10% to 15%. While offshoring clearly reduces those costs, there are offsets: increased managerial/coordination cost, greater transport and inventory financing costs. I’ve had some executives in different lines of business tell me their company decided to outsource/offshore despite the fact that the business case was not compelling. Second, offshoring increases risk, particularly the risk of getting stuck with inventory you can’t sell.

This VoxEU article does a nice job of looking at the tradeoffs between cost savings and customer responsiveness.

Steve Keen: Harvard Starts its Own PAECON Against Mankiw

By Steve Keen, Associate Professor of Economics & Finance at the University of Western Sydney, and author of the book Debunking Economics. Cross posted from Steve Keen’s Debtwatch.

Several correspondents have just told me that some of Greg Mankiw’s students at Harvard are staging a walkout from his first year class. They’ve written an open letter to Mankiw to explain why:

Debunking the “Paid Back the TARP” Myth: Banks Should be Paying Over $300 Billion a Year in Systemic Risk Insurance

This Institute for New Economic Thinking interview with economist Ed Kane discusses how systemic risk should be measured. Kane argues that taxpayer are essentially disadvantaged bank shareholders, getting the downside and none of the bennies, like dividends or capital gains. He argues that banks should be paying taxpayers for the privilege of having them and their counterparties rescued, and that is over $300 billion a year.’

And that isn’t the only freebie banks are getting.

European summits in ivory towers

By Paul de Grauwe, Professor of international economics, University of Leuven, member of the Group of Economic Policy Analysis, advising the EU Commission President Manuel Barroso, and former member of the Belgian parliament. Cross-posted from VoxEU.

The Eurozone crisis plays on to a familiar tune. Finance ministers meet on the weekend only for markets to dismiss their efforts the following Monday. This column argues that Europe’s leaders have lost touch, that the ECB has the firepower but is not prepared to use it, and that the outcome of all this is depressingly clear: Defeat by the financial markets.

Occupy Sydney Day 8 – Steve Keen on Economists and Debt Crises

A quick tutorial from Steve Keen at OccupySydney, via @Ian_Fraser

Philip Pilkington: My European Nightmare – An Infernal Hurricane Gathers?

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

The infernal hurricane that never rests
Hurtles the spirits onward in its rapine;
Whirling them round, and smiting, it molests them.

– Dante, The Divine Comedy

Every now and then a terrible thought enters my mind. It runs like this: what if the theatre of the Eurocrisis is really and truly a political power-game being cynically played by politicians from the core while the periphery burns?

Yes, of course, we can engage in polemic and say that such is the case. But in doing so we are trying to stoke emotion and generally allowing our rhetorical flourish to carry the argument. At least, that is what I thought. I had heard this rhetoric; I had engaged in it to some extent myself; but I had never really believed it. Only once or twice, in my nightmares, I had thought that, maybe, just maybe, it might have some truth.

And then the Financial Times published this ‘strictly confidential’ document leaked to them from within the Eurostructure. That is when my nightmare started becoming increasingly real.

Energy Efficiency Doesn’t Work

By Cameron Murray, a professional economist with a background in property development, environmental economics research and economic regulation. Cross posted from MacroBusiness

The word efficiency carries a meaning immersed in all things positive – you never hear that being more efficient could possibly be detrimental. In fact, if you can bear the evangelical fervour, you may have read about achieving ‘Factor Four’ or ‘Factor Five’ gains in energy efficiency, as part of a ‘Natural Capital’ revolution comprising a ‘decoupling’ economic growth from a growth in the consumption of exhaustible resources – also known as ‘sustainability’. You may even have heard about the equation I=PAT or I = P x A x T, where environmental impact (I) is a function of population (P), affluence (A) and technology (T), and that becoming more efficient will enable a desired level of affluence with far less environmental cost.

Historical experience shows that these claims are untrue.

Rob Parenteau: Blinded by Faith – Sinking the Eurozone

By Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute

Wolfgang Munchau has raised a very important point in his current Financial Times article, “Why Europe’s officials lose sight of the big picture.” The eurozone, Wolfgang points out, is more like a large closed economy than a collection of small open economies, and this has implications for fiscal policy outcomes, yet these implications remain largely unrecognized by policy makers within the region. Wolfgang noted:

Steve Rattner, Card Carrying Member of Top 1%, Tells Us We Should Lie Back and Enjoy Much Lower Wages Resulting From Globalization

A corollary to Upton Sinclair’s famous saying, “It is difficult to get a man to understand something if his salary depends on his not understanding it” is “People promote ideas that help them secure or preserve a privileged position on the totem pole.”

A glaring example of these observations came in an op ed in the Sunday New York Times by Steve Rattner, former Lazard mergers & acquisition partner, later head of the private equity firm, Quadrangle Partners. He is best known as the chief negotiator in the auto bailouts (and he was criticized for not involving any auto industry experts). He paid $10 million to settle a kickbacks investigation and agreed not to work for a public pension fund in any role for five years. I happened to see Rattner on a panel at a Financial Times conference earlier this week and he elaborated on some of the themes in this piece, “Let’s Admit It: Globalization Has Losers,” which reader Brett asked me to debunk line by line. I’ll spare you and focus just on the most critical and bald-facedly dishonest bits.

Will internal devaluation work?

Edward here again. I was talking to my friend Rob Parenteau about internal devaluation. He doesn’t think it will work. His argument against it is similar to the one I have been making about the origins of this crisis. Here’s what I said. I do not believe this private sector balance sheet recession can be […]