Friday, May 18, 2018

Who creates a nation's economic value?

Mariana Mazzucato has a new book coming out, The Value of Everything: Who Makes and Who Takes from the Real Economy. Who is Mariana Mazzucato? You should know her. She is one of the most interesting and creative economists writing about contemporary capitalism.
Her earlier book, The Entrepreneurial State, made quite a splash. In that book, she argued that the role of the state is not just to supply public goods the private sector ignores but needs (though this is very important) but also to be an entrepreneurial agent investing in areas that are far off the private sector’s radar screen because of extreme uncertainty in economic returns. This is particularly the case with fundamental knowledge generation and very early investments in new technological sectors. Current theories of economic growth assign such innovation a key role in economic growth and it is the “entrepreneurial state” in Mazzucato’s phrase who can afford—and is willing--to bear the inherently immeasurable risks of such innovation.
This has been the case in the United States where pretty much all research underlying the internet and modern computing was funded and initially capitalized by the US state. For example, the immensely profitable Apple corporation’s signature products, like the iphone and ipad, rest on fundamental innovations developed by government funding . This includes everything from the internet to GPS to touch screens to Siri voice recognition. In other words, no entrepreneurial state, no Apple.
More generally, a Brookings Institution study found that 18 of the 25 most important breakthroughs in computer technology in the seminal 1946-65 period were underwritten by the federal government . And it’s not just information technology where the role of the state has been critical: between 1971 and 2006, 77 out of the 88 most important innovations outside of computing/communications , as rated by R&D Magazine, were heavily dependent on government support, especially in their earliest developmental stages.
The role of the entrepreneurial state has been critical to growth in the past and there is no reason to think it will not be critical in the future. Progress in such emerging fields as biotechnology, nanotechnology and, of paramount importance, green technology will continue to depend on the entrepreneurial state being willing to provide support in areas where the private sector sees only unknowable risks. And without such progress both the quantity and quality of economic growth will fall well short of potential.
In her new book, she extends her critique of contemporary capitalism to the ways elements of the private sector extract value, rather than create it. As summarized by Martin Wolf in an excellent essay on her book in the Financial Times:
"Who creates value? Who extracts value? Who destroys value? If we mistake those who do the second or third for those who do the first, or mistake those who do the first for those who do the second or third, we will end up with impoverished and unhappy societies, in which plunderers rule.
Many advanced western countries, in particular the US and Britain, have already reached that state, according to Mariana Mazzucato. The consequences of this, including soaring inequality and declining growth are already visible, argues the author, a professor at University College London and sometime adviser to political parties and international institutions.
We need to change course, she insists, in this challenging and stimulating book. Among other things, we need to re-think the relationship between markets and governments; make a clear distinction between creators of wealth and those who merely extract it; embrace bolder collective ambitions, notably a shift to a greener economy; and spend on the future, instead of embracing a sterile and counterproductive austerity....
This book’s big point is that it is far too easy for those operating in the market economy to get rich by extracting economic value from those who add it, not by adding it themselves.
An obvious example is the way the financial sector generated a huge increase in household debt in the years leading to the financial crisis of 2007-09. This funded zero-sum competition to buy the existing housing stock at soaring prices. Its legacy included a huge crisis, a debt overhang, weak growth and political disenchantment. Yet, for those who created, manipulated and sold this debt, it was a gold mine. This represented value extraction and destruction.
Much the same picture can be seen in asset management, with its excessive trading, exorbitant fees, lack of transparency, poor stewardship and conflicts of interest. This financial sector, together with the “shareholder value maximisation” that economists have promoted, has had a malign effect on the corporate sector as a whole, argues Mazzucato, by encouraging excessive pay and also, partly to that end, manipulation of stock prices in preference to long-term investment.
That it is hard to see much wider economic benefit from the massive increase in the relative size and influence of finance over the past half century seems self-evident. Today, many western economies are, after all, burdened by high levels of private debt, high inequality and low rate of productivity growth. If this is success, what might failure look like?"
What indeed? The book looks like an essential read. I've got it on order.
A challenging analysis that forces us to reconsider how our economies work — and who it works for

What exactly do we mean by "racial resentment"?

If you read any survey-based studies of racial resentment, Trump, etc. you're bound to run into the questions below. But what are these questions really telling us? Political scientists Riley Carney and Ryan Enos put this to the test in a ground-breaking paper, excerpts and link below.
"The four-question modern racism scale consists of the following questions:
1. Over the past few years, blacks have gotten less than they deserve.
2. Irish, Italian, Jewish, and many other minorities overcame prejudice and worked their way up. Blacks should do the same without any special favors.
3. It’s really a matter of some people not trying hard enough; if blacks would only try harder they could be just as well off as whites.
4. Generations of slavery and discrimination have created conditions that make it difficult for blacks to work their way out of the lower class.
We suspect that respondents may answers these questions in a consistent manner, regardless of whether the target is Blacks or another group. If conservatives, in particular, respond consistently to these questions by endorsing conservative attitudes toward out-groups regardless of the target, this indicates that a common belief system is behind responses to these questions. For example, if white Americans will endorse the statement “It’s really a matter of some people not trying hard enough; if Niueans would only try harder they could be just as well off as whites” at the same levels they will when the statement is made about Blacks, then responses to modern racism scale are likely driven by other psychological features of political conservatives that lead them to endorse these statements across target groups, rather than specific attitudes about Blacks.
In our trials, subjects were asked two primary sets of questions. One set included questions used in the standard racial resentment scale with Blacks as the target group. The second set of questions was identical to the first, but with a non-standard target group in place of Blacks. The target group was randomly assigned from a diverse list of groups, such as “Bhutanese” or “Nepalese,” that are unlikely to be associated with stereotypes or racial animus like those expressed toward Blacks. We also included “Hispanic,” “some whites,” and “Americans” to test whether just world belief is driving responses in a way that would cause subjects to endorse statements about the importance of hard work, even if they have well-formed attitudes about the groups in question. We tested a total of seventeen nonBlack target groups, with each subject answering questions about two groups: Blacks and one non-standard target group…..
What is the difference in resentment when asked about a Black versus non-Black target group? Pooling all target groups, we see little to no difference between Black and nonBlack resentment. In Figure 1, we display average racial resentment toward different target groups, revealing a striking similarity in average racial resentment. The figure shows the distribution and median resentment for responses when the target group is Black, white, or all other groups collapsed into a single variable. The distribution of resentment toward Black and non-Black target groups is very similar, except that the spread of responses for Blacks, especially the bottom quartile, is larger than all other groups, indicating that a higher portion of respondents express low levels of resentment toward Blacks than toward other groups."
Food for thought, eh? And sorry, if you want to see the figures, you'll just have to look at the actual paper!

Is the GOP Playing Generational Poker?

Ron Brownstein thinks so. In his latest piece for the Atlantic, he notes that:
"[T]he GOP strategy for surviving the midterm elections is based on a generational wager. The Republican bet is that the party can mobilize elevated turnout among their older and blue-collar white base without provoking the young and racially diverse voters who personify the emerging next America to show up on Election Day to defend it. Few things are likely to shape November’s outcome more than whether that bet pays off."
He then goes on to discuss various warning signs that indicate that bet could, in fact, pay off. A useful read, buttressed with copious data, that helps guard against complacency.
About this article
The GOP is doubling down on its older white base—and hoping the more diverse Millennials don't show up to the polls.

Wednesday, May 16, 2018

2, 3, Many Jobs Guarantee Programs....

It seems like you can't swing a dead cat these days without hitting a new jobs guarantee program floated by progressives. And that's a good thing! It's about time that programmatic support for full employment became a standard part of the progressive repertoire.
Of course, full employment is by one means a new idea, even if programmatic support for it has hitherto been tepid. Full employment was enshrined in the US as a primary goal of the federal government in the Humphrey-Hawkins Full Employment Act of 1978 and, in a softer form (“maximum sustainable employment”) was made part of the dual mandate of the Federal Reserve (along with price stability) around the same time. Ironically, the record of sustaining full employment has been dreadful since then. In the 1949-1979 period, the US economy was at full employment 69 percent of the time; from 1979 to the present day, the economy has only been at full employment 29 percent of the time .
This is because the passage of the Humphrey-Hawkins full employment bill happened to coincide with the conservative economic counterrevolution that attached little significance to full employment as a policy goal. Instead, it was deemed far more important to keep inflation down, lower taxes, remove regulatory inefficiencies and let capitalism find its natural level. If more unemployment resulted, so be it—it would do more harm than good to interfere and risk a spike in inflation.
It is unsurprising that a period where full employment was the exception not the rule has coincided with a period of rapidly escalating inequality. The most straightforward effect of full employment is that it increases employer competition for workers, leading to rising wages, especially at the low end of the labor market. Conversely, the lack of full employment produces slack labor markets where employers call the shots and low wage workers are particularly disadvantaged. This of course increases inequality, just as we have generally seen since 1979 (with the exception of the 1995-2000 period, a period of—you guessed it—full employment).
This rising inequality in and of itself undermines growth by taking money out of the hands of those most likely to spend, not save, their income. Running the economy at full employment most of the time should partially reverse this trend and boost growth. And full employment forces employers to increase investment and deploy their (now more expensive) workers more efficiently, which should have beneficial effects on productivity and therefore also boost growth .
In short, more full employment means less inequality and more growth. So it's great that progressives are now willing to put big ideas on the table to make full employment a permanent fixture of the US economy.
Of course, how exactly to do this is tricky and Annie Lowrey of the Atlantic provides a good guide to some of the jobs guarantee programs out there, along with their strengths and potential pitfalls. The Center for American Progress (full disclosure: I work there!) also has a new one out that is well worth a careful look.
It should be stressed that the details of a jobs guarantee plan don't need to be settled right now. Let a hundred flowers bloom, a hundred schools of thought contend! This is a debate well worth having and sends good signals about what the Democratic party really stands for. And that in the end is probably just as important--perhaps more so--that getting all the policy details worked out in advance.
About this article
Progressives are lining up behind a jobs guarantee—but leaving the details for later.

John Fetterman!

I, for one, am excited by this. Should all Democratic candidates be like John Fetterman? No, but some should!
I noted with interest his support for fracking. Fine with me. Frankly, I consider the standard left opposition to fracking absurd.
I am well aware that fracking is a bete noir for many on the US left. But it should properly be viewed as progress in the current context. The most important fact to keep in mind here is that producing electricity with natural gas produces only about half the carbon dioxide emissions as using coal. Thus, since drastic price decreases for natural gas generated by the success of fracking have allowed natural gas to make considerable progress in replacing coal as an energy source, the effect on US emissions has been net positive. Indeed, US carbon dioxide emissions have actually gone down since their 2007 peak, rather than up as they were expected to do, and fracking is partly (though not solely) responsible for this.
Of course, natural gas as a fossil fuel produces far more emissions than renewables, which are essentially emissions-free. It would be nice if we could just wave a magic wand and replace all fossil fuels today, including natural gas, with clean energy sources. But we cannot do that and therefore a transition strategy is needed while fossil fuel usage is still a big part of the economy; fracking and natural gas are part of that strategy. Meanwhile, efforts to tilt the playing field toward renewables will continue and the price of clean energy will continue to drop rapidly. In the end, natural gas will go the way of other fossil fuels, but today it is playing a valuable role in accelerating the move away from coal, by far the worst polluting of these fuels.
The other main objection to fracking, besides the fact it produces a fossil fuel and is therefore bad, is that it commonly leads to negative effects on local communities like polluted drinking water and earthquakes. However, these effects are exaggerated; a 2015 EPA study found no systematic effect of fracking on local communities’ drinking water (though some incidents have occurred). Similarly, the National Academy of Sciences finds that fracking and related activities generally do not cause serious earthquake activity and the possibility of large seismic events can be avoided through appropriate precautions . This is not to say fracking entails no risks—any large-scale industrial activity involves some risks. But those posed by fracking are of the sort that are amenable to better and more uniform regulation of the industry, particularly at the federal level. Banning fracking outright, as many on the left advocate, is not justified by the level of risk and, as we have seen, is actually counter-productive from an emissions-control perspective.
The standard left stance is a classic example of letting the best be the enemy of the good. Hats off to Fetterman for standing up to this nonsense.
About this article
He’s a Bernie Sanders-endorsed steel town mayor who might be Pennsylvania’s next lieutenant governor.

Tuesday, May 15, 2018

Class Consciousness and the White Working Class

My old friend, Andrew Levison, has a new piece on The Democratic Strategist website that is very much worth reading. Levison argues that Democrats, as they endlessly debate the "Why does Trump appeal to the white working class?" question, fail to understand a key aspect of Trump's appeal--that he connects to a sort of class consciousness widespread among this group.
"[T]hree explanations for Trump’s popularity—inherent racism, anxiety and hostility to social and cultural change and anger at the failure of the established parties to deal with legitimate economic problems—have up to now dominated the discussion of Democratic political strategy. But there is another perspective that is entirely absent from the discussion. It suggests answers to the two questions above and has profoundly important implications for the formulation of a successful Democratic strategy.
It is that Trump—vile and dishonest as he may be—very successfully tapped into a deep mental and emotional perspective in white working class life—a distinct kind of modern class consciousness, class resentment and class antagonism that is completely unacknowledged in current discussions regarding how to reach these voters but plays a critical role in their political thinking....
This is a different form of class consciousness than the traditional radical conception but it meets the key characteristic of the term—a perception of society as sharply divided between ordinary people and elites and a sense of resentment those below feel at the treatment they receive from those above.
A key difference between the modern white working class conception and the traditional radical view is that white working people do not visualize a single dominant “ruling class” or “power elite” above them but rather see three different and distinct groups, none of which totally dominates society but each of which in one way or another mistreats them and holds them in contempt.
The first group is the political class and as anyone who has ever listened to focus groups or has actually spent time with white working class Americans can attest many working people do indeed see politicians as a completely distinct, utterly corrupt and entirely parasitic class that lives in complete isolation from ordinary people in a rarified environment of fancy ballrooms and expensive restaurants, big money contributions and backroom deals that invariably end up screwing ordinary Americans.
The second group is the “Wall Street” financial elite that makes decisions in faraway office towers that destroy local community jobs and mom and pop businesses. They reside in fancy gated communities filled with mega-mansions and send their children to private schools with country club entrance procedures that would never allow the children of ordinary workers admission even if those workers could afford the expensive tuition.
The final group is the “liberal” elite—the heterogeneous group of college professors and students, Hollywood actors and producers, music and fashion producers and TV, newspaper and magazine columnists and commentators. They are not seen as a financial ruling class but rather as a social group that dominates and controls the culture—what one sees on TV and in the movies, what is taught in colleges and universities, what is written in editorial page commentaries and what is produced and sold in the fashion and music industries. They are perceived as affluent urban dwellers who live in expensive, gentrified urban communities or in charming college towns. They drive “sophisticated” costly cars, drink Latte’s, casually travel to Europe on vacations and wear Patagonia vests and Birkenstock shoes to subtly announce their discernment and sophistication. They are also seen to exercise substantial political power, using the Democratic Party as their vehicle. This power to impose their “liberal” agenda is obtained through a cynical alliance with minorities who are bribed to vote for Democrats by various kinds of “handouts,” special government programs or preferential treatment.
Working people have distinct feelings about these three different groups but see the members of all three as living in worlds that are economically and sociologically high “above” them and who resemble each other in their indifference to the needs of ordinary people and their contempt for them as human beings. All three groups are emphatically perceived as “them” and not “us”."
Since Hillary Clinton was associated with all three of these detested groups, it was easy for Trump to evoke this class consciousness and turn it against her.
Levison's analysis also has important implications for future Democratic strategy. Levison notes:
"[T]raditional progressive strategy which appeals to white workers primarily (and often exclusively) by offering a long list of progressive populist programs and policies will simply not be sufficient to win back the support of those who defected to Trump. Right now the major debate among Democrats is over what the proper degree of radicalism for such programs should be. The implicit assumption is that there is some optimal set of programs and policies that will win the support of white workers.
But the reality is that neither the package of cautiously progressive economic policies that Hillary Clinton offered in 2016 nor the more ambitious set of policies that Bernie Sanders offered can by themselves convince white workers to vote Democratic in 2018. The reason is simple. There is now such a complete degree of cynicism about the political system that many if not most white workers simply do not believe that any real reforms can possibly be enacted so long as the system remains the same. As a result the abstract debate between different national health care proposals or job guarantee plans will inevitably appear to them as essentially and indeed almost entirely irrelevant.
What is required instead are Democratic candidates who can convince white working people that they are genuinely “on their side” “will fight for them” “understand their problems” and “share their values.” These are characteristics working people say they consider important again and again on opinion polls. Specific programs and proposals are necessary but play an entirely subsidiary role.
In fact, the central difficulty progressive candidates face, unless they actually come from the communities where they are running for office, is how to genuinely learn about and then show real respect for the culture and community where they are campaigning and to see the world through the eyes of the people who live there."
A tall order. But it's gotta be done.

The Disunited Democrats Myth

One of the most beloved tropes of the punditoisie is the "both sides do it!" story. Republicans are extreme. But so are the Democrats! Republicans are disunited. But so are the Democrats!
On one level, such stories are bound to contain at least a grain of truth. There are certainly some extremists in the Democratic Party and there is some disunity among Democrats. In that very weak sense, the trope is true; both sides do do it.
But the problem is that such stories are generally pitched to make both sides look kind of equal in their sins or problems. This is not right. Today's Republican Party is way, way more extreme and disunited than the Democrats. And that is what is truly interesting about today's politics, rather than the fact--guaranteed to be true at all times and places--that both parties contain some extremists and some tendencies toward disunity.
Nowhere is the silliness of the "both sides do it" trope more evident than in the spate of stories about fights between moderates and progressives, Clintonites and Sanderistas,, etc in the Democratic Party. True there are some fights but that does not make the situation within the Democratic Party remotely similar to the ongoing brawl within the Republican Party between Trump supporters, establishment Republicans, Tea Party supporters, Trump himself, the Freedom Caucus and Congressional leaders like Ryan and McConnell. This is a huge mess that tracks into every aspect of Republican politics today, and not in a good way.
One of the best takedowns of the disunited Democrats myth just got published on the Brookings website by Elaine Kamarck, Alexander Podkui and Nicholas Zeppos.
"The progressive wing of the Democratic Party, most recently associated with the presidential candidacy of Senator Bernie Sanders, is providing a boost of activism and energy to the Democrats. For instance, take a look at the following graph. In a year where we are seeing a large increase in the total number of Democratic candidates we are also seeing a very large increase in the percentage of self-identified progressive Democrats running in primaries.
Compared to 2016 and 2014, the number of progressive candidates—many of them endorsed by political action groups that have sprung up in the wake of the 2016 presidential election—has increased sharply in all of the states that have had primaries so far, with the exception of West Virginia.
Another piece of good news for Democrats is that by and large these candidates are not engaging in a civil war inside the Democratic Party. In order to take control of the House of Representatives, Democrats need a net gain of 24 seats. If the newly energized progressive candidates were challenging Democrats in safe seats, their actions would probably not lose the seat for the Democrats but they could weaken the incumbent and prompt the need to put more resources into what was a safe district. Of even more concern was that progressives would challenge Democrats in Democratic-leaning districts on the grounds that they were insufficiently liberal. This kind of challenge could cost Democrats seats in a year when they should be gaining seats.
Instead of forming a circular firing squad and endangering Democratic incumbents, thus far progressive challengers have tended to run in districts where there are Republican incumbents or open seats where Republican incumbents have retired. Only eight progressive challengers have run against a sitting Democratic incumbent, compared to over sixty who have entered a primary for the opportunity to take on a Republican representative this fall."
Got it? Yes, more progressive candidates are running. No, this is not leading to Democratic disunity. The Tea Party, this isn't.
Also see:
Sahil Kapur in Bloomberg on "The Democrats Are Moving Left Without Self-Destructing"
Emily Singer in Mic on "Democratic candidates are focused on issues such as health care, despite what pundits say"
So far, progressive candidates are choosing to run mainly against Republicans rather than Democratic incumbents.