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Reflections on my Latest RT Appearance, by David Henderson

Sat, 03 Dec 2016 21:01:59 -0500

As I noted in yesterday's post, there's always an issue of the bias of the news network on which one appears, and one is right to be skeptical. The fact that RT is funded by the Russian government ought to make one, all else equal, even more skeptical.

But at least two things happened in that interview that moderated my skepticism. I lay them out below.

I don't go into such interviews planning to test whether the network is biased. I go in, rather, with the main points I want to make and always with the goal of communicating truthful and important things clearly.

So I didn't purposely plan two things that I want to highlight here that I said about Cuba and the Castros. They told me in advance that they wanted to talk about that, but the main thing I prepared for, given what I had written that they seemed to have read, was about the U.S. embargo on Cuba.

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1. "My big hope, frankly, is that he'll [Raul Castro will] die and that he'll die soon." (15:40 point)
Although I didn't go on the show planning to say this, it came to me. Obviously RT kept it. Why do I find this interesting? Because for decades the Castro regime was an ally of the Soviets. So for RT to keep this line in which I call for the death of a Soviet ally is a good sign. Granted that the Soviet Union no longer exists. But Russia does. And Vladimir Putin runs the executive branch of the Russian government. Recall that Putin said that "the collapse of the Soviet Union was a major geopolitical disaster of the century." So it's encouraging that the RT producer thought she could keep this pretty negative comment on a previous Soviet ally.

2. "The one chance they [the sanctions] had was in the early nineties when Cuba started losing those major subsidies from Russia, from the Soviet Union." (16:40)
Notice how my eyes bug out when I say "Russia." It's because I had a good thought, started to say it, and then realized that OMG, I'm implicitly saying something negative about Russia. But they kept it. Not only did they keep it, but also Ameera David, the host, didn't challenge me or contradict me. She let it go. Had I been on Sean Hannity's show on Fox News Channel and said something negative about someone Sean liked, there's no way he wouldn't have challenged me. So RT looks good by contrast. Either they liked what I said, or they didn't like what I said but felt compelled to keep it, or they had no opinion but thought that they should be faithful to their guest. Whichever of those it was, it's a good sign.

Also, notice that Ameera David asked me about chances for freer markets in Cuba, as if the implicit premise is that free markets and economic freedom are good.


The Italian referendum, by Alberto Mingardi

Sat, 03 Dec 2016 06:30:39 -0500

Tomorrow, Italians will go to the ballot, for a referendum on a constitutional reform promoted by the government led by Mr Renzi. The referendum is widely supposed to be likely--were the anti-Renzi side to win--to trigger financial turbulence. A "no" vote is read by many as an event comparable to the British people going for Brexit. This is a bit curious: what is considered potentially devastating, this time, is a vote that would in fact secure the status quo. To be fair, fear-mongers do have a point. Italy is widely (and rightly) perceived as a country that needs extensive reforms. If Italians vote for the status quo, the impression that the country is indeed irreformable--that is, that in Italy there is such an intricate nexus of corporate interests that it is impossible to disentangle it--may consolidate, ultimately driving investments away. In actual fact, the constitutional reform we're going to vote on implies by no means a drastic change in our political governance. It changes the role and the composition of the Italian Senate, without sweeping it away; it re-centralizes powers from regional governments; it fine tunes the legislative process to fit the new context. It doesn't increase the powers of the prime minister, or give him the power to dissolve parliament. Mr Renzi claims the new reform will allow for faster and thus more productive law making, but it's hard to argue that Italy has a shortage of laws.  The astonishing fact is that for reforms of the kind that only law scholars could feel passion about, one way or the other, Italians have engaged in basically five months of hectic electoral campaigning.  This is because the referendum has by now little to do with the essence of the constitutional modifications approved by Parliament and now put to the voters: Italians will be voting for or against the Renzi government. Mr Renzi became prime minister in 2014, after winning the leadership of his own party in an in-party contest open to all voters. Although he did not win an election running for head of government, after his appointment, his party scored an impressive 40% in the European election of May 2014, which gave him legitimacy. But the very fact that Mr Renzi wasn't anointed by a popular election may explain his eagerness to personalise the referendum vote, making it a "take-it-or-leave-it" vote on his government. This strategy also made sense in view of the nature of a constitutional reform: a foggy and obscure matter that voters find of little interest, whereas a referendum on Mr Renzi himself offers a much more exciting electoral battle. Pools predict a victory for the "no" side, but you never know these days. What I personally find more problematic is the sort of political equilibrium that would emerge after the referendum's result. Mr Renzi has approved, during his tenure, a new electoral law with a majority bonus system. However, this electoral law applies only to the House of Deputies, on the assumption that the Senate was changed by the constitutional reform into an indirectly elected organ, representing local governments. If the "no" side wins the referendum, then Italy will have two very different electoral laws, an old one for the Senate and a new one for the House. Both the chambers are supposed to give the government a confidence vote. This is why, if the no wins, there would be no immediate elections before a new electoral law, applicable to both the chambers, is enacted. If the no side wins, moreover, this will be widely considered a triumph of the populist Five Stars Movement, a heterogeneous political force that brings together an emphasis on transparency and the fight against corruption with a strong anti-business and anti-capitalism attitude. Even Renzi's enemies will freak out at the perspective of the Five Stars Movement winning the next election. This is why it is very likely that the new electoral law that "establishment" parties are more likely to agree on is a pure proportional representation system.  Is that a brilliant idea? A[...]

Friday Night Video: Cuba, Sanctions, Biting Cats, and Trump, by David Henderson

Fri, 02 Dec 2016 17:04:20 -0500

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I was on RT, the Russian-government-funded news network, earlier this week, talking about various issues. My segment begins around the 15:00 point and goes to about 22:30.

Some friends have questioned the wisdom of going on a network funded by the Russian government. I understand their concerns. Here's what I can say: In all the times I've been on, they've never edited the interviews to distort. Indeed, on average, they are better, at least to me, than other media, government-funded and otherwise, in the United States. One of the worst experiences I ever had with media distortion was with the Los Angeles Times, which isn't government funded. Another of the worst was with Warren Olney, on a radio station that might get some government funds.


What kind of inflation hurts the public?, by Scott Sumner

Fri, 02 Dec 2016 09:25:28 -0500

I recently participated on a panel in London, discussing options for monetary and fiscal policy. At one point I mentioned that if the Japanese didn't want such a large central bank balance sheet, then they ought to set a higher inflation target. (Of course I'd prefer an NGDP target, but it was easier to explain my point using their currently preferred target variable.)

Someone in the audience objected that higher inflation would hurt elderly Japanese on fixed income, and this might reduce aggregate demand. In contrast, I think it would boost consumer spending in Japan. Furthermore, I believe the audience member was reasoning from a price change, whereas I was not. Why?

The audience member made the mistake of thinking about the impact of inflation, without thinking about the cause. If the cause had been disruption to Japanese production from the 2011 tsunami, then his reasoning process would have been correct. (Although in that case the impact would have been too trivial to mention. Even the most massive natural disasters have only a tiny impact on macro variables in large diversified economies.) However, in my hypothetical the inflation was caused by monetary stimulus, not an adverse supply shock.

An increase in inflation caused by an expansionary monetary policy will first shift the AD curve to the right. In the short run output may increase, due to sticky nominal wages. Even if output does not rise, it will certainly not decline as a result of higher AD. It is inflation from adverse supply shocks that causes people to buy less stuff.

Japanese unemployment has recently fallen to 3%, so I would certainly not recommend monetary stimulus in Japan for the purpose of boosting employment. But I might recommend it for three other reasons:

1. Ease the burden of the national debt
2. Reduce the zero bound problem for monetary policy
3. Reduce the role of the BOJ in the Japanese economy.

In normal circumstances, it is not wise to inflate away the debt. It is unfair to lenders, and reduces policy credibility. In the case of Japan, however, previous deflation unfairly favored borrowers, and steeply increased the ratio of public debt to GDP. A modest amount of inflation is justified in that case---but nothing more than 3% in my view. In addition, when the interest rate is zero, the equilibrium rate is often below zero, which means that lenders to the Japanese government are earning an above equilibrium rate of return. A bit more inflation can prevent that.

2. If the Japanese shifted to NGDPLT and/or abandoned the short-term interest rate as a monetary instrument, then the zero bound problem would not be an issue. But as long as they use interest rates to target inflation, monetary policy becomes less effective at very low inflation rates. Thus if they refuse to adopt a sensible monetary policy, then a slightly higher inflation target might make sense as a way of keeping the policy rate above zero, a sort of "second best" policy.

3. The size of the BOJ balance sheet is inversely related to the trend NGDP growth rate. In recent years the balance sheet has become huge, with the BOJ even buying equities. I prefer less government involvement in the economy, and hence a smaller balance sheet. That means a slightly higher inflation target.

As I keep emphasizing to conservatives, it's socialism or inflation.


Borjas, Ideology, and #ForeignLivesMatter, by Bryan Caplan

Thu, 01 Dec 2016 14:01:33 -0500

Shikha Dalmia and George Borjas' immigration debate in Reason manages to be intriguing and aggravating at the same time.  For me, the highlights are when Borjas leaves technical economics and lays his ideological cards on the table.  Borjas is in blockquotes, I'm not.

My research was never motivated or influenced by what I thought about individual liberty or the rights of people to live anywhere they want. My personal experience with Communist indoctrination when I was 10 and 11 years old left me very wary of thinking about anything in ideological terms.

Most victims of Communism, in my experience, take away lessons like, "Human rights matters," "Government should respect individual liberty," "The fact that government does something doesn't make it right," "Forbidding emigration is monstrous," or just "Socialism is evil."  Borjas, in contrast, takes away the lesson that "Ideology is bad."  Which is simply bizarre.  Castro ruined Borjas' native Cuba because his ideology was totalitarian.  If Castro's ideology had been pro-market and pro-freedom, Cuba would be a great place today - and Borjas might be at the University of Havana writing books to keep immigrants out of Cuba instead.

In any case, you can't not have an ideology.  Borjas finally reveals his in his closing sentence:
When push comes to shove, I will side with policies that improve the well-being of the American worker.
This is no less "ideological" than siding with policies with improve the well-being of whites, women, Germans, or the international proletariat.  And like all of these ideologies, Borjas' is subject to devastating counter-examples.  Like: Suppose enslaving the whole population of Cuba would improve the well-being of the American worker.  When "push comes to shove," would you favor that?

I'm confident that Borjas, a self-styled pragmatist, would reply, "Of course not.  Yes, #ForeignLivesMatter somewhat."  But this concession/hashtag has a life of its own.  Borjas has long claimed that existing immigration greatly helps foreigners with roughly zero net effect on Americans.  So if he grants that #ForeignLivesMatter, he should enthusiastically bless the immigration that's already occurred.  And while his pragmatism would restrain him from endorsing anything like open borders, Borjas has every reason to advocate gradual deregulation of migration until American workers seriously start hurting.


Good News on Repealing Obamacare: The Woodwork Effect, by David Henderson

Thu, 01 Dec 2016 13:02:08 -0500

Many people worry that if Obamacare were replaced in one fell swoop, almost all the people who enrolled in Medicaid due to the law would lose their health insurance. This worry is understandable. Nevertheless, it turns out to be unjustified. Many of the people who were enrolled in Medicaid as a result of Obamacare would lose their insurance. But even a greater number would not. And the evidence for this comes from MIT economist Jonathan Gruber, one of the architects of Obamacare.

In an April 2016 NBER study that Gruber co-authored with Harvard's Molly Frean and Benjamin D. Sommers, "Premium Subsidies, the Mandate, and Medicaid Expansion," NBER Working Paper No. 22213," the authors show that 60 percent of the increase in coverage due to Obamacare was in Medicaid. That's a fact that's now well known and is behind many people's worry about the effects of repealing Obamacare. But, the authors show, 2/3 of that 60 percent were people who were already eligible for Medicaid before Obamacare began.

That's good news for those of us who want to repeal Obamacare because it means that this 2/3 would not lose their coverage even if Obamacare were repealed lock, stock, and barrel.

But why is this number of people who were previously eligible so high? Why weren't they already receiving Medicaid? We don't know, and the authors don't claim to know. But there are two possible explanations.

Probably the more-important one is the "woodwork effect." The idea is that the publicity around Obamacare and the Medicaid expansion brought people out of the woodwork who didn't know they were eligible or knew but hadn't got around to it.

The other explanation is the "mandate effect." It's possible that some people who were eligible for Medicaid knew they were eligible but didn't want to enroll. Why? It's still true that there are people in this country who regard Medicaid as welfare and don't want to go on welfare.

A personal story about my experience with Medicare in Canada: Medicare is the name for the federally mandated socialized health insurance program that is run by the provincial governments. In the 1970-71 academic year, while I was living in Manitoba and teaching myself economics by reading economics journals, I refused to sign up for Medicare. I was against the program on principle and didn't want to be part of it. But one day I got a phone call from a Manitoba government official who threatened me. He told me that if I persisted in not signing up for Medicare, the government would forcibly put me on welfare. Yuck! I don't know how they would have done that, but this 20-year-old believed them. So I signed up.

Similarly, some of the people who were, as noted above, previously eligible for Medicaid and signed up might have done so because they were forced to do so. So, for them, getting rid of Obamacare would be a blessing.

So we have 3 sets of people who were newly on Medicaid due to Obamacare:
1. The one third who were newly eligible. Most of them would be worse off with repeal. I say most, not all, because it's conceivable that some of them did not want Medicaid but signed up because of the government's threat of force for those who didn't.
2. The fraction of the two thirds--and we don't know what that fraction is, but it is likely to be over half of the two thirds--who were previously eligible for Medicaid but didn't get it, and want it. This is the woodwork effect. They would not be hurt by repeal because they could stay on Medicaid.
3. The fraction of the two thirds--and it's likely to be under half of the two thirds--who were previously eligible for Medicaid, didn't want it, and were forced to get it. Repeal of Obamacare would make them better off.


Ten Points on the Wrong Side of History, by Bryan Caplan

Wed, 30 Nov 2016 14:15:07 -0500

In the last few weeks, several critics have told me things like: "History will not be kind," "History will judge you," and "You are on the wrong side of history."  My initial reaction is sheer puzzlement.  If my critics can't persuade me with the evidence they currently possess, do they really think they can persuade me with evidence they claim they're going to acquire in the future?  One carefully-tailored bet would be worth a thousand of their Cassandra cries.

My considered reaction, though, is more elaborate.

1. "History," an abstract object, never thinks or says anything.  So if these claims are meaningful, they're about historians.

2. The underlying assumption of these warnings is: What historians think in a century is a very strong predictor of what's actually true.

3. This is a reasonable claim for narrow factual matters.  The passage of time doesn't just give historians more opportunities to collect evidence.  It also cools their emotions.  This is why I'd far rather read history than news.

4. For the Big Picture, however, historians' consensus is questionable at best.  Most obviously, their liberal bias is overwhelming, with over 30 Democrats for every Republican at top U.S. history departments.  And while you could argue reverse causation, you can't argue it with a straight face.  The vast majority of historians were very liberal years before they began seriously studying history.

5. When I actually look at historians' Big Pictures, they're even worse than their liberal bias suggests.  Economic illiteracy is rampant.  Social Desirability Bias rules the day.  And moral relativism reigns supreme.

6. Historians take little notice of me today, and I expect future historians will do the same.

7. If current or future historians did notice me, they would probably assess me negatively, because my Big Picture starkly diverges from their Big Picture.

8. But since I disrespect historians' judgments on such matters, why would I care?

9. If my critics really wanted to get my attention, they would predict that I myself will eventually revise my views.

10. I'm happy to bet against such claims, though admittedly my critics have to trust my honesty for such bets to work.


Primitive cultures need a dose of utilitarianism, by Scott Sumner

Wed, 30 Nov 2016 10:56:09 -0500

In this post I will discuss two primitive cultures, the Sudanese and the Americans. I will argue that both need to adopt a utilitarian ethical framework. Let's start with the Sudan.

In the Sudan, female genital mutilation is a common practice. A western visitor to the Sudan might make the following argument:

"Yes, your culture views this practice as very important, related to deeply held beliefs about purity and the female body. But from a practical point of view it is harmful. It can result in pain, as well as severe medical problems and even loss of life. You should abandon this practice."

Now consider this recent passage from the New York Review of Books:

Calabresi's most plausible example of a merit good involves bodily organs. The law forbids people to buy and sell kidneys, and one reason does involve inequality: it's gruesome to think of poor people walking around with fewer organs because rich people have made them an offer they can't refuse.
The rich/poor distinction is a red herring. Under the current system, the rich are far more likely to receive kidney transplants than the poor. If a market were created, virtually all Americans who needed kidneys would get them, both rich and poor, because it's much cheaper for medical providers/insurers/Medicaid to pay for a transplant, than to take care of someone who needs a transplant.

The real concern is that selling an organ is morally repugnant. The human body is sacred, not a commodity to be bought and sold. So how might a visitor from Iran react to America's cultural views on the body? (In Iran, kidneys can be sold, and there is no shortage. In America, many thousands die each year because of our kidney market prohibition). Perhaps an Iranian would respond as follows:

"Yes, your culture views the human body as scared, and organ sales violate your deeply held beliefs about purity. But from a practical point of view this prohibition is harmful. It can result in pain, as well as severe medical problems and even loss of life. You should abandon this prohibition."

I believe that these two primitive cultures, the Sudanese and the Americans, could learn a lot from reading Jeremy Bentham, and also from studying Iranian cultural practices.


Did John Allison just endorse NGDP targeting?, by Scott Sumner

Tue, 29 Nov 2016 17:05:29 -0500

Lars Christensen has a new post pointing to a recent interview of John Allison, who is being considered for the post of Treasury Secretary. Here is what Allison said:

We need discipline, we need some kind of rule, I like the Taylor rule, I like some kind of GDP indexing rule...

Here are a few observations:

1. In context, he clearly meant NGDP rule, not RGDP rule.

2. The Taylor rule is an instrument rule, that is, a technique for achieving a 2% inflation targeting rule. NGDP targeting rules are policy goals, analogous to 2% inflation targets. I think the most sensible way to read his comment is that he's open to NGDP targeting, but would like it to be implemented in a rules-based fashion; something analogous to a Taylor Rule, but not necessarily identical.

3. My guess is that George Selgin may have influenced Allison's thinking on this issue. George has long advocated NGDP targeting, or at least something closely related. In addition, Allison mentioned a long term goal of having the sort of free banking regime that once existed in Scotland and Canada. George Selgin (and Larry White) are experts on the history of free banking. And finally, George directs a monetary program at the Cato Institute, and Allison recently headed the Cato Institute.

4. In most countries, the Treasury Secretary is more powerful than in the US. For instance, in the UK the Chancellor of the Exchequer is the one who gives the central bank its mandate. In the US, Congress provides the mandate, although conceivably the Treasury Secretary could have at least some influence on the formation of legislation in Congress. After all, it has to be signed by the President.

5. I'm not a fan of the President and/or Congress giving the Fed a specific NGDP target. However, I do favor a policy change that would call on the Fed to devise a more specific and transparent policy rule, and a metric for evaluating whether past policy was too expansionary or too contractionary. Because inflation is impacted by supply shocks, I believe this mandate would push (nudge?) the Fed toward NGDP targeting, as it would provide a clearer measure of AD growth over time, and hence a clearer measure of whether policy was too easy or too tight (especially compared to inflation.)

HT. George Selgin, TravisV


In Praise of Ineffective Politicians, by David Henderson

Tue, 29 Nov 2016 16:33:03 -0500

Twitter today is all heated up with justifiable upset about Donald Trump's latest anti-liberty proposal: a prison sentence and possibly loss of citizenship for someone who burns a flag. Other tweeters have pointed out that the prison sentence part of what he proposes is similar to the legal sanctions in a bill on flag burning that Senator Hillary Clinton co-sponsored: the Flag Protection Act of 2005.

Aside: One of the biggest benefits of the web is that it's much harder now to stuff things down the memory hole, and this latest revelation about Senator Clinton is one such instance.

I mention Clinton, not to join the chorus of people attacking her, fun as that might be, but to make a different point: her bill didn't go anywhere. Indeed, she was fairly ineffective as a U.S. Senator. Many people, including Donald Trump, have criticized her for that. But I come to praise her. I would love to have politicians who are effective at protecting and increasing our freedom. But sometimes the best we can do is get politicians who are ineffective at reducing our freedom.

A 19th century politician named Gideon J. Tucker wrote, "No man's life, liberty or property are safe while the Legislature is in session." He could have added that they're not safe even when the legislature is out of session. But the point remains: If they're in session, they're often (usually?) trying to reduce our freedom and so it's great when they're ineffective at doing so.