Archive for the Category Neoliberalism


A sad day for India

Although I don’t agree with Mr Modi’s political views, I had hoped that he might reform India’s economy.  Unfortunately, right wing nationalists almost never opt for neoliberal policy reforms, it’s just not in their nature.

Today, the print addition of The Economist came out with an editorial asking the Modi government to reappoint Raghuram Rajan as head of the RBI.  Unfortunately, the government decided to go in a different direction, despite Rajan recently being named central banker of the year.  He brought Indian inflation down to more modest levels, without damaging India’s growth (which was 7.9% in the most recent quarter).  Rajan was also a powerful voice for economic reform, which may have been the problem.  The Economist editorial hinted at the opposition he faced:

Various Rajan devoted pages on Facebook have a combined fandom of over 250,000 people. Janet Yellen and Mario Draghi, his all-powerful counterparts in America and Europe respectively, cannot muster 10,000 thumbs-up between them.

Such adulation makes many suspicious. Mr Rajan has come under sometimes ugly attack from within Mr Modi’s BJP party. One member of parliament has described him as “mentally not fully Indian” on account of his international career.

I guess someone who is not satisfied with the Indian subcontinent being mired in poverty is not truly “Indian”.

An article in Quartz by Harish Menon listed some tweets lamenting the government’s decision:

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Lesson for right wingers—don’t make a pact with the devil.  If a politician is bigoted against unpopular groups like Muslims, don’t believe his promises to make the country great.  The same (non-utilitarian) mentality that leads to bigotry, also leads to the path of crony capitalism, not utilitarian neoliberalism.

A sad day for India.

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The American Dream lives (in Texas)

Back when I was young, America was an optimistic country that grew rapidly. Before NIMBYism got out of control, builders could build vast new housing developments, and the government would supply brand new expressways. Housing was cheap, and the workforce grew fairly briskly.

That America is mostly gone, except in Texas.  Many liberals thought Texas would have a recession when oil prices collapsed last year.  After all, back around 1986 Texas had a fairly steep recession, after a similar collapse in oil prices.  But not this time; indeed unemployment just fell to 4.4% in February, which is only slightly above the all time low of 4.0%, which occurred during the boom year of 2000.  Nor can this be attributed to people leaving the state; Texas continues to lead the US in population growth (total), and indeed growth actually picked up in the most recent 12 month period.

Of course Texas economic growth has slowed sharply due to the dramatic downturn in the fracking industry, but just look at how different the unemployment picture is compared to 1986:

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I’d love to hear some thoughts as to why.  I can think of three possible reasons:

1.  In 1986 Texas was also suffering from the hangover effects of the S&L fiasco, but this time its banking system is in better shape.

2.  Oil is now a smaller share of the Texas economy (but that can’t explain the entire difference).

3.  The explanation I like most is that in 1986 the rest of the country was still doing sort of OK, so the the attraction of moving to Texas was less obvious than today.  Now the rest of the US is stuck in The Great Stagnation, which makes Texas look good by comparison:

Liberal Governors, tired of looking bad next to Texas, may have hoped to catch a break as the full impact of cheap oil hit the Lone Star State in 2015. And Texas is creating jobs more slowly this year””1.1% growth through May versus 3.6% in the same period last year. Lower-paying positions in hospitality have substituted for higher-paying energy jobs.

But the overall economic resilience is a far cry from the Texas recessions that followed previous oil busts. Unemployment in the state, 4.3% in May [2015], was still well below the national average of 5.5% that month.

Some credit goes to the foresight of energy companies that made themselves less vulnerable with better balance sheets. In a report specifically focused on the energy capital of Houston, the Dallas Fed notes recent improvement in job growth and says that “refining, petrochemicals and service industries are managing to offset oil-producer woes.” Statewide, education and health services employment has also been strong.

Meanwhile in Austin, which has little exposure to the energy industry, business other than government is booming. May job growth surged at an annual rate of 6.6%, including “a significant increase in high-paying scientific and technical services jobs.” Texas is now America’s top technology exporter, surpassing long-time leader California.

Notice that the boom in Austin is helping to offset a slowdown in places like Houston, so that overall job growth continues to be positive.  Back in 1986, Austin was not yet an important tech center.

Here, as in so many other recent cases, the pragmatic progressivism of Matt Yglesias (a Texas bull) and proved far more accurate that the ideological progressivism of Paul Krugman (a Texas bear).  Progressives might not like the small government model of Texas, but wishful thinking won’t make the Texas miracle go away.

There’s nothing wrong with neoliberalism (a rant)

I am seeing more and more articles, even at respectable outlets such as the Economist and the Financial Times, suggesting that the rise of right-wing and left-wing populism shows that something is wrong with the neoliberal model. Nothing could be further from the truth. The past two decades have been by far the best two decades in human history, and that’s what really matters.

Naysayers will sometimes acknowledge that hundreds of millions of people have recently risen out of poverty, but then claim that living standards have stagnated in America. That’s also nonsense, as I explained in this post. The next fallback position is that while real incomes in America have risen, the gains of gone to corporations, not workers. That’s also nonsense, as I explained in this post. The share of national income going to workers today is the same as it was 50 years ago, the supposed heyday of the working class.

The next fallback position is that while wages have done fine, even in real terms, wage income is becoming less equal. Bingo! Finally we get to an accurate statement. Fifty years ago, blue-collar workers at General Motors often made more than college professors. People with short attention spans sometimes act like this period was “normal”, ignoring 10,000 years of human history. They seem to suggest that our most pressing problem is that young men who don’t study in school and just shoot rubber bands across classroom should be able to earn an income that (in relative terms) was never possible in any period of world history before the 1950s and has never been possible in any period of world history after the 1970s. It reminds me of when farmers used to set the “parity” of farm prices with other goods prices based on the relatively high levels of 1909-14, treating that ratio as normal for purposes of farm subsidies.

Don’t get me wrong;  I have nothing against blue-collar workers. I’m relatively intellectual, and even I found the public schools to be mind-numbingly boring. I could hardly stay awake. I can’t even imagine how students less interested in ideas than I am could’ve gotten through the day. Nor am I one of those conservatives that will trash low-income whites for their lifestyle choices. As far as blue-collar workers are concerned, I wish them well. But I wish everyone well (except Trump), and the unfortunate truth is that the set of economic policies that is best for the world right now is probably not optimal for a subset of American blue-collar workers.

When I point out that the most important factor in trade policy is the impact on the poor in developing countries, some of my commenters tell me that the US shouldn’t have to import from China or India, they have lots of other countries to sell to. As Marie Antoinette might’ve said “let them sell to Canada.” That’s right, progressives ease their conscience by claiming that other developed countries won’t follow the same evil trade policies that progressives like Sanders want the US to follow, so things won’t actually be that bad for poor people in Bangladesh.  More often, they entirely ignore the issue.

I know that progressives like to think of themselves as the good guys, but the honest truth is that on trade they are increasingly becoming the evil ones, right along with Trump.

And here’s what else people don’t get. Not all the problems in the world are caused by neoliberal economic theories, for the simple reason that not all economic policies reflect neoliberal economic theories. Even if everything people say about inequality quality is true, there’s nothing wrong with the neoliberal model, which allows for the EITC, progressive consumption taxes, and sensible reforms of intellectual property rights, occupational licensing, and zoning laws.

I can’t help it if Democratic politicians oppose reforms of intellectual property rights. I can’t help it if progressives that once favored progressive consumption taxes now oppose progressive consumption taxes. I can’t help it if Democrats voted to repeal the luxury tax on yachts soon after having enacted a luxury tax on yachts. I can’t help it if progressives suddenly feel that a $15 an hour minimum wage is not a loony idea.

The simple truth is that neoliberal economic policies work, as we’ve seen in Denmark and Switzerland and Singapore, and socialism doesn’t work, as we’ve seen in Venezuela. So I’m asking all those wavering neoliberals in the respectable press (Thatcher called them “wets“) to stop your handwringing and get out there and boldly defend the neoliberal model. It’s not just the best model; in the long run it’s the only model that really works.

PS.  And don’t anyone insult my intelligence by telling me that Sanders favors the Danish model.

PPS.  And don’t tell me the GOP is just as bad—I know that.  But right now they aren’t the biggest critics of neoliberalism (except for Trump, obviously).

PPPS.  The Huffington Post thinks Kasich will be the nominee.  In other words, they think the GOP is a non-insane political party.  Meanwhile the betting markets currently assign a 5.3% probability to the GOP being a non-insane political party.  (BTW, I don’t like Kasich; I want Ryan.)

Meanwhile, Drudge has linked to a copy of next year’s Boston Globe:

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Countries of the past, and future

Remember the Sports Illustrated jinx?  Athletes that appeared on the cover of Sports Illustrated often saw their performance drop off sharply.  I wonder if the same applies to Paul Krugman?  Here’s a Krugman post from 2013, trashing the Irish economic model:

The one sense in which Ireland has made some progress is that it has somewhat reassured bond investors that its population will continue to sullenly acquiesce in austerity; as a result, Irish 10-year rates, while still at a large premium, are now 60-80 basis points below those of Italy and Spain.

But the repeated invocation of Ireland as a role model has gotten to be a sick joke.

I’m not sure the Irish feel “sullen” about the 9.2% RGDP growth announced last week:

Screen Shot 2016-03-10 at 9.09.48 AMNotice that Ireland’s dramatic turnaround began almost immediately after Krugman’s August 2013 post.  The post was entitled:

Ireland Is The Success Story Of The Future, And Always Will Be

So what type of economic model does Krugman like?

Just to be clear, I think Brazil is going pretty well, and has had good leadership. But why exactly is Brazil an impressive “BRIC” while Argentina is always disparaged? Actually, we know why — but it doesn’t speak well for the state of economics reporting.

I first wrote this post on the day when Lula was indicted for corruption, and his successor is now threatened with impeachment for the same.  In fairness, I would not expect Krugman to be aware of the political intricacies of Brazil.  I’m more interested in his views of economic policy.  So how has Brazil’s economy done since the May 2012 post, under that “good leadership”?

Screen Shot 2016-03-10 at 9.09.00 AMYikes, that’s almost the mirror image of Ireland.  While Ireland is already richer than Germany (In GDP/person, perhaps not GNP), and growing at a much faster rate, Brazil is now poorer than China, and declining as fast as China is growing.

Argentina also slowed sharply after Krugman’s post, indeed the slowdown was already underway in 2013, but he relied on the 2012 data, when growth was still strong.  Fortunately they have a new government, which is beginning to institute some reforms.

PS.  Another irony; didn’t the “country of the future” joke that Krugman applied to Ireland, originally apply to Brazil?

Bernie’s Nordic fantasy

Progressives like to point out (correctly) that the GOP tax plans are sheer fantasy. But as I often point out, talking politics immediately lowers your IQ by 25 points. And I’m afraid that when progressives start talking about Bernie Sanders they completely lose touch with reality.  They say, “He’s not really a socialist, he just favors the Scandinavian economic model.”  But they don’t seem to know any thing about that model.

Let’s look at taxes, for instance.  Here are the top rates on income (plus payroll) taxes:

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And then here’s an indicator of progressivity:

Screen Shot 2015-10-31 at 4.46.01 PMIn Denmark the top rate kicks in at 1.2 times average income.  In the US that would be around $60,000.

And then there are the VATs:

Denmark collects about 9.6 percent of GDP through the VAT, Norway collects about 7.8 percent, and Sweden collections about 9 percent of GDP. All three countries have VAT rates of 25 percent. The United States does not have a national sales tax or VAT. Instead, states levy sales taxes. The average rate across the country is about 7 percent. The much lower rate only collects about 2 percent of U.S. GDP in revenue.

Bernie Sanders says he doesn’t want to raise taxes on the middle class, rather he wants the rich to pay more.  Later he grudgingly concedes the middle class would pay a higher payroll tax for the nationalized heath care, but still doesn’t mention the 25% VAT.  Nor does Bernie mention that the Scandinavian countries have far lower corporate tax rates than America:
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Finally, it is worth noting that the only Scandinavian country with an estate or inheritance tax is Denmark.

So the only way to finance a Nordic economic model is with massive (and regressive) taxes on the middle class, because that’s where the money is.

What about those 90% tax rates from the Eisenhower era, that you often read about? There’s a reason the Nordics don’t use that policy, they collected very little revenue.

And I haven’t even mentioned that the Nordic countries are really big on privatization and deregulation.  How often do you hear progressives calling for those things?  When was the last time you heard a progressive advocating Sweden’s 100% nationawide school voucher program?

And it’s even worse.  Sanders doesn’t tell us whether he likes the Swedish model of 1990, or the Swedish model of today?  I’m pretty sure that back in 1990 he was telling people that he loved the Swedish model.  But that model failed, leading Sweden into economic crisis.  It responded by dramatically downsizing its government relative to 1990 (admittedly it’s still very big in absolute terms.)  But I never hear the Sanders supporters telling us whether they like the 1990 socialist Sweden, or the 2015 neoliberal version?  Ditto for Denmark.

And they never tell us how this European social welfare state is supposed to work in a big diverse continent like the US, when it doesn’t even work in a big diverse continent like Europe (especially not in Eastern and Southern Europe.)  Matt Yglesias says that places like Sicily are poor and dysfunctional because they have a bad culture.  I don’t know if that’s right, but let’s say the progressives are right to “blame the victims” of poverty in Europe.  Can we really be confident that our many diverse cultures are so superior to Sicily and Greece and Naples and Bulgaria and Romania?  Can we be sure that the poor Hispanics of East LA, the poor Native Americans of western South Dakota, the poor African Americans of Detroit and the poor whites of West Virginia have Nordic-style cultures, and not southern and/or Eastern European-type cultures. Seriously? The Latin American country that tried the high tax model is Brazil.  Does the US ethnic makeup remind you more of Brazil or Denmark?

Sorry, but I can’t take seriously anything progressives write about Sanders.  Those on the left are correct in ridiculing the tax ideas of Trump, and even the tax plans of the more “serious” GOP candidates do not raise enough revenue.  I get that.  But when evaluating their own side of the spectrum they lose all touch with reality. Here’s Paul Krugman:

So now we have candidates proposing “wildly unaffordable” tax cuts. Can we start by noting that this isn’t a bipartisan phenomenon, that it’s not true that everyone does it? Hillary Clinton isn’t proposing wildly unaffordable stuff; Bernie Sanders hasn’t offered details about how he’d pay for single-payer, but you can be sure that he would propose something.

Seriously?  Sanders says he wants a Scandinavian style welfare state, without raising taxes on the middle class?  And we are supposed to treat that seriously? Then the left wonders why working class blacks and Hispanics are not flocking to Sanders.  Maybe those minorities are smarter than then these puzzled pundits assume.  Maybe a Hispanic family with two people each making $30,000 to $35,000 doesn’t want to face a 60% income tax, plus a 25% VAT.  Maybe they moved from some place like Brazil, and know what happens to all that money once a non-Nordic government gets their hands on it.  Maybe they’d rather spend their own money.  Someone should go into working class black and Hispanic neighborhoods, with all the data on income and sales tax rates in Denmark, and ask people if they also want to pay those rates.  You might be surprised by what you find.