Latest links on Friedman/Sanders, etc.

More posts related to the kerfuffle over our columnist Gerald Friedman’s report WHAT WOULD SANDERS DO? ESTIMATING THE ECONOMIC IMPACT OF SANDERS PROGRAMS:

Alan Harvey, IDEAeconomics, Standard Fare or Fantasy Economics? An excellent and vigorous defense of the plausibility of Friedman’s growth projections and a useful summary of the debate, including Christina and David Romer’s intervention into it. Among the telling points he makes in support of the plausibility 5+% growth rates with the kinds of big, big programs Sanders is suggesting: the fact that “the average growth rate under Democratic presidents prior to Barack Obama was 4.2 percent.” Gee, Friedman estimates a few years of growth 1.1 percentage points higher than the average growth rate under pre-Great Recession Democratic presidents, and suddenly puppies are flying?

Here are some of Harvey’s useful points about the Romers’ critique:

“Romer criticized Friedman for confusing stocks and flows, suggesting – as I understand it – that the Friedman analysis projected multipliers too far into the future. The multiplier is the increment of new activity produced by an investment or government spending program. The stimulus money spent is income to workers and businesses, who each save some, but spend most,
which becomes income to other workers and businesses and results in further spending. …”

“Christina Romer is uniquely qualified to discuss overreach in projections, since she was chair of the CEA during the Obama stimulus period and famously forecast an immediate reduction in unemployment that did not materialize. [Ouch!] This failure was seized upon by Republicans to discredit government stimulus entirely. We can, of course, look back and see the economic effects, which were substantial. But because they did not match the projection, the theory of the projectors suffered. …”

“Romer appears to suggest in the Wolfers piece that multipliers act only during the period of stimulus spending, and she faults Friedman for misunderstanding stocks and flows. It should be obvious, however, that a measure which provokes additional private investment can claim credit for economic activity induced by that additional investment. If Ms. Romer is suggesting otherwise, she is wrong.”

In a nice turn of phrase, Harvey suggests that, contra Larry Summers’ mantra, in the midst of the debates about the appropriate level of stimulus, that stimulus should be “timely, targeted and temporary,” Sanders’ proposed stimulus is (as it should be) “substantial, strategic and sustained.”

James K. Galbraith, Boston Globe, The kerfuffle over Sanders’ economic planA summary similar to his other pieces, but in a forum that will have reached a much broader audience.

James K. Galbraith, interviewed on the Real News Network, Attacks on Sanders Economic Plan By Former CEA Chairs Are Irresponsible.  Some nice detail in this interview, conducted by TRNN’s Sharmini Peries, that hasn’t appeared in his earlier written statements. The summary: “So what we had here was a, what was essentially an academic exercise that produced a result that was highly favorable to the Sanders position, and showed that if you did an ambitious program you would get a strong growth response. It’s reasonable, certainly, for the first three or four years that that would transpire in practice. And what happened was that people who didn’t like that result politically jumped on it in a way which was, frankly speaking, professionally irresponsible, in my view. It was designed to convey the impression, which it succeeded in doing for a brief while through the broad media, that this was not a reputable exercise, and that there were responsible people on one side of the debate, and irresponsible people on the other.And that was, again, something that–an impression that could be conveyed through the mass media, but would not withstand scrutiny, and didn’t withstand scrutiny, once a few of us stood up and started saying, okay, where’s your evidence, on what are you basing this argument? And revealed the point, which the Romers implicitly conceded, and I give them credit for that, that in order to criticize a fellow economist you need to do some work.”

Michael S. Gordon, Boston Globe, Socialists, look to economists at UMass Amherst for support.  In light of the huge uptick in the number of people in the U.S. who call themselves “socialists” (see below), this headline isn’t as snide or marginalizing as it might have seemed a couple of years ago. Look for an uptick in applications to the UMass-Amherst econ department from all those millennial Berniegals and -bros.

Annie Lowrey, New York magazine, Who’s Winning the Great Bernie Magic-Math Battle?  Follow up to an earlier piece (something of a hit piece) by Lowrey, Bernie Sanders Has Started Thinking Like a Republican  (where Bernie is “thinking like a Republican” because “He has no interest in garnering respectability and credibility among Establishment Democrats,” with the suggestion that he is willing to make unrealistic promises). Despite her continued use of the derogatory and tendentious term “magic math,” the more recent piece is more favorable to Friedman:

“The truth is that it seems impossible for Sanders’s economic plans to do what Friedman thinks they would. But the whole debate has underscored that our current growth rates are as much a function of policy as they are of anything else, and that we need not resign ourselves to growing at 2 percent a year, year after year. Maybe the technocrat wonks are right. But maybe Hillary Clinton should be promising to try for 5 percent growth herself. Smarter policies —infrastructure investment, early childhood education, making work pay, rebuilding the safety net, declining to raise interest rates and choke off a recovery — would all help bolster the economy. Five percent growth over a decade might be fantastical, but 5 percent in a few years might not be.”

Two pieces I had missed on the keruffle:

Mark Thoma, The Fiscal Times (Feb. 23), Here’s Why Bernie Sanders’ 5% Growth Plan Isn’t Crazy After All. Another prominent left-leaning economist weighing in on Friedman’s side. Thoma quotes former Minneapolis Fed chair (whose blog posts I linked to in my last post):

“Narayana Kocherlakota argues ‘that there are good reasons to believe that, with appropriate stimulus, it would be possible to achieve growth outcomes of around 5-6 percent per year for the next four years.’ But we won’t know unless we try. The inflation risk is minimal, and we owe the households who have struggled so much during the recession and the long, drawn out recovery the best possible chance we can give them of finding a decent job.”

Greg Ip, Wall Street Journal (Feb. 19), To Match Lofty Growth Goals, Presidential Candidates Need Better Plans.  Discussion of what Ip views as overly optimistic growth promises from both Sanders and Republicans; an early criticism of Friedman’s report, but he appears to have actually read it: “Mr. Friedman claims a big deficit-financed stimulus, increased entitlements and redistribution would achieve this. That seems implausible; Barack Obama, after all, did all three (though by less than Mr. Sanders would), and labor-force participation and productivity growth have trended down. Indeed, in theory, increased social transfers and marginal tax rates tend to reduce labor-force participation, and increased regulation hurts productivity growth.” He concludes: “There’s nothing wrong with outside-the-box thinking. That’s what got the U.S. out of the Great Depression. But so far, what the candidates have offered doesn’t measure up. Either more realistic goals or far more unorthodox thinking is in order.” Sounds good–let’s go for much bigger stimulus and government intervention than Sanders is calling for!

Related Items on Candidates’ Health Care Proposals (or Lack Thereof):

Beverly Mann, Angry Bear, Clinton Announces When She Will Disclose Her Healthcare Insurance Improvement Plan: She’ll announce it just as soon as the Republican presidential candidates tell us theirs.  (Via Naked Capitalism.) See also Ben Mathis-Lilley, Slate, Hillary Clinton Doesn’t Have a Practical Plan, or Any Plan, for Universal Health Care Coverage.  So much for “pragmatism.” As David Sirota pointed out on Twitter, in its efforts to hitch Clinton to Obama’s parade, the Clinton campaign sometimes overstates Obama’s achievements, including on health care: “See this quote from Clinton campaign, then note that 30+ million don’t have health insurance:”


Find this statement on Hillary Clinton’s campaign site, here.  So maybe the reason Clinton doesn’t seem to have a plan to make health care universal is that she believes her own false claim that it is already universal (and affordable–which Obamacare isn’t either).

Is Clinton much better than Trump on this score? See Roy Poses, Health Care Renewal blog, It Has Come to This? – Donald Trump’s “Truly Absurd,” “Word Salad,” “Gibberish” Health Care Policy. (This also via Naked Capitalism.) This piece makes fun of the “word salad” and “gibberish” in Trumps debate answers about health care, mostly endless repeating that he will “get rid of the lines between states.” More recently, though, Trump has gone beyond revisionist cartography by posting more details about his health care reform ideas on his website. Besides repeal of Obamacare and “[m]odify[ing] existing law that inhibits the sale of health insurance across state lines,” the reform plans include allowing taxpayers to deduct premium payments, plus health savings account. Standard “free-market” fare, but trust him, “It’s gonna be great.”

Meanwhile, Sanders’ plan has gotten more scrutiny than Clinton’s and Trump’s non-plans. In an earlier post I mentioned the piece from WashPo Wonkblog,  Study: Bernie Sanders’s health plan is actually kind of a train wreck for the poor. This is the one that only cited Kenneth Thorpe’s study, and not the critiques of it by Friedman and by Woolhandler/Himmelstein. Where’s the scrutiny for Clinton’s failure to explain how she’s going make Obamacare truly universal?

Our current issue, which just went out to e-subscribers and is being mailed soon to print subscribers, includes a column by Gerald Friedman on Sanders’ health care proposals. I’ll post that to the website soon–probably next week.

Several pieces about the leftward shift in U.S. politics (without a corresponding leftward shift among establishment elites):

Gertrude Schaffner Goldberg and Sheila D. Collins, HuffPo, Diminishing Expectations: For Whom?  Great piece by two friends of D&S (see Trudy Goldberg’s Jan/Feb 2015 cover story, Where Are Today’s Left Movements?: What we can learn from the millions who demonstrated for jobs, government relief, and collective bargaining rights in the 1930s). The first paragraph gives the lie to Clinton’s claim to be the best candidate for people of color: “In a debate with former Secretary of State Hillary Clinton Senator Sanders referred to the achievements of the Nordic countries in providing such things as universal health care and free higher education as models for the United States. Secretary Clinton responded by saying, ‘I love Denmark, but the United States is not Denmark.’ What does that mean? The allusion is not to insufficient economic resources but to unrealistic political expectations. Sometimes the excuse or barrier is our ‘diversity.’ In the final analysis, one might infer from that explanation that we would extend these benefits if it didn’t mean that they would be provided to persons of color, immigrants or other groups somehow regarded as alien and undeserving.” (Clinton’s remark about Denmark is another example of how easily she picks up right-wing talking points against social-democratic goals; this is on par with her criticisms of Sanders for promising “free stuff” and her promise not to raise taxes on the middle class (which would make it hard to replace premium-supported Obamacare with a tax-funded single-payer system).)
This piece reads well alongside Doug Henwood’s Post-Hope Democrats, which I linked to in an earlier post.

Harold Myerson, The Guardian, Why are there suddenly millions of socialists in America?  “It used to be a dirty word. Bernie Sanders helped remove the stigma – but it’s the spectacular failure of capitalism that has really changed people’s minds.” An excerpt:

“Bernie Sanders’s presidential campaign has made clear that many Democrats are inclined to vote for a candidate who proclaims himself a democratic socialist, but even more dramatic and consequential are the many Democrats who say they’re socialists themselves. In a poll on the eve of the Iowa caucuses, more than 40% of likely Democratic caucus attendees said they were socialists. In a Boston Globe poll on the eve of the New Hampshire primary, 31% of New Hampshire Democratic voters called themselves socialists; among voters under 35, just over half did. And in late February, a Bloomberg poll of likely voters in the Democratic primary in South Carolina – South Carolina! – showed that 39% described themselves as socialists.

“Favorable views of socialism aren’t limited to Sanders supporters. The 39% of South Carolina Democrats who call themselves socialists exceeded by 13 percentage points the number who actually voted for Sanders. In a New York Times poll last November 56% of Democrats – including 52% of Hillary Clinton supporters – said they held a favorable view of socialism. Nor was this sway toward socialism triggered by Sanders’s candidacy: as far back as 2011, a Pew poll revealed, fully 49% of Americans (not just Democrats) under 30 had a positive view of socialism, while just 47% had a favorable opinion of capitalism.”

See also: Peter Beinart, The Atlantic, Why America Is Moving Left. An interesting piece, but hard to follow because of the author’s use of the term “liberalism” to mean “left,” and the author’s suggestion that Obama is liberal/left, as in this thesis statement: “There is a backlash against the liberalism of the Obama era. But it is louder than it is strong. Instead of turning right, the country as a whole is still moving to the left.” Shouldn’t he instead say that there is simultaneously a left-wing backlash against neoliberal Obama, and a right-wing reaction against that backlash (and against whatever socially liberal elements or imagined “left” or “socialist” elements there are in the Obama administration)?

Ethan Young, Rosa Luxemburg Stiftung, A Political Revolution for the U.S. Left. Much better piece. “The U.S. Left is in the process of emerging from decades of decline. It entered the Obama years in terrible shape: politically incoherent, cut off from its historical continuity, and organizationally and socially fragmented. Yet in the last years there have been signs of awakening, and in the past few months a new progressive insurgency has appeared, piercing public consciousness in a way not seen in generations.

“The most distinctive form this insurgency takes is the Bernie Sanders campaign for the Democratic Party nomination for president in 2016. Sanders is the first self-proclaimed socialist to win a national audience since Eugene V. Debs ran as the Socialist Party’s presidential candidate in the early 20th century, and the size of his base is arguably greater than that of any socialist leader in U.S. history.”

Two pieces on the Democratic primaries:

Jim Naureckas, FAIR/Extra! blog, NYT Works Hard to Present Primary Race as More Boring Than It Is.  This is a searing critique of the NYT’s post-Super Tuesday piece that originally bore the headline “Wins for Sanders in Liberal Strongholds,” but eventually read Minority Voters Push Hillary Clinton to Victories. As Naureckas rightly points out, it’s ridiculous to call Oklahoma and Colorado “liberal strongholds.”

Corey Robin, from his blog, Super Tuesday: March Theses. Republished at the Jacobin website as The Primary Isn’t Over  (whose title I would have edited to “The Primaries Are Not Over”). Excellent points about how the Super Tuesday results are not as good for Clinton as many have suggested. After Super Tuesday, Clinton has ten states and Sanders has five, but: “[t]he elections in Nevada, Iowa, and Massachusetts were either close or extraordinarily close. A little bit more time here, a little bit more organizing there, and they could easily have tipped his way. In other words, Sanders could very easily have seven states now to Clinton’s eight. He doesn’t, and coulda shoulda woulda is just that. But what this does mean, going forward, is that we have the opportunity to turn potential into actual. We’ve got time, we’ve got organizing, we’ve got money: let’s make use of it all.” Others have pointed out that Clinton’s wins on Tuesday were in the south, states which (with the exception of Virginia) neither Democrat would be likely to win in the general election. So Sanders’ wins in Oklahoma and Colorado may be more significant. What’s more, in the 2008 Democratic primaries, Clinton won CA, NY, NJ, MA, FL, CA, PA, TX, and a bunch of smaller states, and still lost to Obama, as this map shows:


(*Remember that the delegates assigned from the MI and FL primaries were disqualified, because those states held their primaries earlier than the DNC allowed. Still, the rest of the states I listed are big states.) This surely had to do partly with the (small) margins by which she won those big states and the (large) margins by which she lost the less populous states that Obama won. But all this is to say that it is far from clear that Clinton will inevitably win the primaries. As Robin says, “Clinton’s strongest weapon is the aura of inevitability that she and her supporters and the media have concocted around her.” I would add that one of her weaknesses may be a sense of complacency among her supporters about the upcoming primaries; Sanders supporters can take advantage of that by heeding Robin’s advice to make use of the time, money, and organizing that we have on our side. (I myself canvassed in NH and MA and will make phone calls to likely Democratic voters in upcoming primary states. Maybe you should too.)

Live-Blogging Piketty: Reading the Book (Pt. 1)

More at The Real News


Above is a half-hour-long video from The Real News Network of an interview our friend and TRNN producer Lynn Fries conducted with Thomas Piketty in Paris recently.  Below is our book reviewer Steven Pressman’s fourth post on Piketty, and part one of his “live-blogging” while actually reading the book (also in Paris–oh la la!).  Find Steve’s earlier posts on Piketty (the first three are reviews of the reviews) here, here, and here. –Chris Sturr

Capital in the Twenty-First Century: Part One


That one word best sums up my impression of this book so far. Piketty is absolutely charming and, whether or not you agree with everything he has to say, you cannot deny that he has something to say and that this message is important. But, of course, I am slightly biased since the book is about a topic that I have spent a good deal of my professional career studying— the inequality of income and wealth.

I made it through the Introduction and Part One (100 pages of around 600 pages of text, excluding notes and references) on my trip to Paris from New Jersey and I am very impressed. The book is beautifully written (as many reviewers have noted) and Piketty is very clever. He has a unique story to tell about the historical evolution of capitalism and he is aware that most economists as well as the majority of the general public are not going to like the story and are going to be resistant to hearing it. The writing style helps put readers at ease in the hope that they will get the main message.

Here are a few of my favorite lines from early in the book, just to provide an example what readers can expect to encounter.

Writing about arguments among economists concerning inequality (p. 3), Piketty notes that this is a “dialog of the deaf, in which each camp justifies its own intellectual laziness by pointing to the laziness of the other”. John Kenneth Galbraith couldn’t have said it any better!

One more really good line, poking fun at economists and again very Galbrathian (p. 32): “the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences”.

Besides the wonderful writing style, which feels as though Piketty is having a conversation with you, there is the great breadth of his knowledge. Many reviewers have remarked on the literary references to Balzac and Austin; but this actually understates things. There are many more literary references in the book; Austin and Balzac, however, seem to be Piketty’s favorites. Furthermore, unlike most economists, Piketty has read and understands the history of his discipline. He knows, makes reference to, and is clearly responding to the giants who came before him– David Ricardo, Thomas Malthus, Karl Marx and, perhaps most important of all, Simon Kuznets. Piketty also knows his history, making frequent references to important historical events. I was impressed with his references to the South African government intervening in the Marikana platinum mine labor dispute in August 2012, to the Haymarket Square tragedy of May 1886, and with his attempts to relate these events.

Piketty starts by providing a short history of national income accounting and connecting his work to the pioneering work by Simon Kuznets. This is not the sort of thing that usually makes for fun reading. Usually it is regarded as a good cure for insomnia; but this historical background is absolutely necessary. Piketty does it well and makes it clear why national income accounting is so important. Overall, he takes great care in explaining the numbers that he will be talking about—where they come from, their limitations as well as what they tell us about the economic world. And he uses literature (here is where Austin and Balzac come in) as well as history to reinforce the story told by the numbers. In the long history of economics, William Petty, Simon Kuznets and Wasilly Leontief are the only other major figures I can think of who were as sensitive to data and empirics. Piketty needs to be thought of in this tradition. But none of these other major figures in economics reinforced their numbers with literature or with history. Without doubt, there needs to be much more of this in the economics profession.

Part I essentially lays out the key numbers and the key argument of the book. These have been summarized well in the vast majority of reviews of Capital. The important historical fact is that throughout most of modern history economic growth has lagged behind the rate of return on capital (or, in fancy mathematical terminology, g<r).

Piketty then explains the key implication of this—inequality will increase over time because the ownership of capital is not evenly distributed. Those who own more capital (here Piketty means forms of wealth that generate income, and so includes the ownership of land, government bonds, stocks, etc.) will see their incomes grow by more than those who live mainly or primarily on their labor income. Income inequality and wealthy inequality will therefore rise. And it will continue to rise unless or until something is done to bring it under control. These forces could be wars (which destroy wealth), government policy (which taxes capital) or social upheaval.

This is one place that Piketty does not drive home his point home quite as well or as clearly I wish he had, so I am going to take a stab at this here.

At many points in the book, Piketty relates economic ideas to a single individual—making his points more concrete as well as more personal. When it comes to g<r, however, he succumbs to the standard practice among the econ of just resorting to numbers and to averages. But this point can be made simply in individual terms.

Think about yourself. You have been left an inheritance (capital) of $100,000 by your parents and you make $100,000 a year. Potentially, you can consume both your current income and from the returns to your wealth. To keep things simple, suppose both numbers grow at the same rate— say 1% each year. Essentially, economic growth of 1% gives you more labor income each year and capital income also grows at 1% annually. If you just spend your current labor income, then both your capital and your labor income will grow in tandem over time.

But now imagine what happens if your capital income grows at a faster rate—say 5% per year. Then the story becomes very different. After 35 years, a typical working life, my labor income (or wages) would grow to around $140,000 but my capital would grow to well over half a million dollars. At a 5% rate of return on this money, I can consume these returns ($25,000) in addition to my income. This raises my standard of living nearly 20% and still leaves my wealth intact. Or, I can consumer only 4% and let my wealth grow at the same 1% rate that my income grows.

After several generations, or around 100 years, the divergence between my income and wealth is even greater. My great grandchild (assuming their labor income grows 1%) would be making $268,000 but have $12.5 million in capital assets. At a 5% rate of return, their $600,000+ capital income would dwarf their labor income. My grandchild probably wouldn’t need to work. Certainly, he or she would care a whole lot less about their labor income than I care about mine. After all, I need to try to survive on my labor income and preserve my capital. My grandchild has few such worries.

Piketty’s story is that what happens above for one person or one family is what happens to developed capitalist economies over time– barring a few exceptions (like wartime, which destroys the value of capital). Over time, wealth or capital income (Piketty uses these terms interchangeably and I will also) has become a larger share of national income, and it will become more and more important in the future because of the fact that returns to capital exceed economic growth. One person does not have wealth income and labor income that are relatively equal. Rather, some very rich people have lots of wealth and their income is likely to grow at a faster rate than the rest of the population whose income from labor grows more slowly.

Another key point, and another key way that the aggregate story differs from the individual story, is that over time capital income grows for some people but not for others– since the distribution of capital income is much more skewed than the distribution of labor or wage income. In the US, the bottom half of the wealth distribution effectively have no wealth. The little bit that they do have is sitting in checking and saving accounts for emergency purposes, and earns very little or nothing. The next 40% in the wealth distribution have small amounts of capital, and most of that capital consists of home ownership. The richest 10% have 80% of national wealth. Even in the top 10%, most wealth sits with the top 1% or really the top .1% or top .2%. There are very few haves and very many have-nots when it comes to wealth.

And this, Piketty thinks, is a matter of concern for many reasons. It hurts economic growth; it counters our notions of fairness; and it he worries about the political influence of those people with so much money. Is democracy at stake? Can capitalism and democracy survive together? These are surely big questions.

–Steven Pressman