Brad - As a lay person who is interested in economics I would like to know, "Why is the cost of the fight against inflation always laid at the door of workers?" It seems that raising interest rates causing businesses to retract and lay off workers is the only tool the Fed talks about. People are not just gears in a machine and can't be moved around like inanimate objects. When a person is laid off it can be a life changing experience - one they may never recover from or recover only to be far different due to the experience of a lack of income - loss of status, loss of home, loss of self-respect, etc. Meanwhile upper management never losses a pay check, sometimes stock prices go up because businesses make more money due to paying less workers. The Fed is charged with combating inflation, but also securing full employment. It seems that the second part is second fiddle to the first.
The US does use fiscal policy too, albeit rarely distributive. Look at the fiscal responses in the UK that even a neoliberal Tory government used to try to offset that pain. But both the US and UK provided help to furloughed workers during Covid to mitigate the effect of enforced closing of non-essential businesses to reduce viral transmission. One can certainly argue that this was not sufficient, but as you are aware, the Republican Party fights tooth and nail to prevent redistribution of income and wealth, unless it is upward to the already wealthy. When Congress is effectively controlled by Republicans, and even centrist Democrats who have drunk the neoliberal Kool-Aid, fiscal policy to alleviate the pain for the workers, especially those at the bottom is well-nigh impossible. Just look at the lack of inflation-indexing of the minimum wage.
Analytically, the problem is a model in which there is only one good produced only by labor in fixed proportions. Therefore, the ratio of goods price to the wage is the only thing the Fed affect, and the model does not take account of downward stickiness of nominal wages. Therefore, as it tries to push down relative wages, it can cause the labor market not to clear and unemployment results.
If the Fed really used and multiproduct model with downward stickiness of many goods and services prices, it would not be misled to thinking that unemployment is necessary to reduce inflation. It is not clear if the Fed's own FAIT target is based on the more sophisticated modle or not.
The Fed doesn't have many tools, and can't control inflation without hurting people. The government, taken as a whole, has many more and tools. But Congress doesn't work, so the Fed is the only thing we have left. The joys of living in a kludge-ocracy!
I disagree. I think the Fed has sufficient tools to control inflation without producing recession. If it has the skill and patience to use them is still TBD.
The simplest explanation that fits the facts is that the Federal Reserve Board of Governors doesn't mind hurting people who are not of the monetary and social class of the people it interacts with most often. The regional Federal Reserve boards have a few token community members and labor leaders but the Governors and the people they listen to and socialize with are drawn exclusively from the ranks of high powered and very wealth bankers and extremely right wing academic economists who plan to be very wealthy as soon as possible.
¨If we pressed the Economist, it would probably say that the United States lacks the state capacity to carry out an effective industrial policy. ¨
Other than the military and the pharmaceutical and the medical complexes? And the software industry, and also learning-related complex and AH, ´bail out banks no strings-attached´ thing that an outfit like the economist approves of. (If all in support for the equity & investment industry isn´t an industrial policy I don´t know what is. I could point to the words of Timothy Geithner on that point.)
¨Looking back on the past half century, we have not been well-served by the shibboleth: “the market giveth, the market taketh away: blessed be the name of the market”.¨
Rich people want to believe (and be told) they are rich because God loves them and thus they are entitled to all their money and then some more, maybe even via direct subsidy by the government (which isn´t a ´doomed-to-fail´ industrial policy because REASONS.) Think of it as egomania as an economic precept.
¨In this context, “creative destruction” is a sotto voce denunciation of hopes by the Democratic Party coalition to reverse the relative decline of the American interior.¨
If you think of the anger of the rich during the 60´s (aka the ´Revolt of the Rich') as essentially a drive for status, with money as merely the means to support that status - then that resolves the mystery of the various economic choices. The results don´t matter in economic terms, because the drive is for status. The wealth itself is just a token in the game. Going after unions isn´t about economic efficiency, it´s just social warfare. Austerity isn´t about economic growth it´s about ´more for us and less for you´. It follows that purchasing economists (or actually maybe ´economists´) who will try to push a credo that is an essentially about supporting the glorification the wealthy (or just outright glorifying the wealthy) and who stick to that credo whatever the evidence says is just what you do. (Which I don´t see as functionally a different process from the one that pushed the Protestant religious denominations of the South prior to the Civil War into becoming slaver churches.)
Being four-square in support of the industrial policies of the PRC is just what you do when your ten thousand closet CEO friends see it as a way to make money (and inflict pain of inferior groups at home).
It´s the same thing now as in 2008: we had plenty of test runs of what was done in similar situations in the 1820´s, the 1870´s and the 1930´s, and what worked, but the wealthy wanted X and they got X. CEO types wanted to stick it to unions in 1970´s and forward, so we stuck it to unions, etcetera. The Cold War had been ´too expensive' so we switched to ´let´s make money off of China´ and there you go. Nothing to do with economic policy in any real sense.
At this point it´s just brazen, particularly in the UK.
I'm catching up on my reading, so this is a late comment. I'm posting in case someone might read the comments. The reason that the neoliberal ideology is hard to kill is because it's not just a story - it's a special kind of story: a myth. Myths are designed to create a little universe in which people who adhere to the myth live and interpret the things they see and hear. Facts don't break down these myths because they are interpreted differently in the mythic universe where they might fit, or are completely rejected as false when they don't fit the universe. The creators of myths understand how humans process the information they receive, and create characters and events that work within the neural networks we're born and raised with, which makes them durable. The way I'm describing it, a myth can be thought of as a model, and we all live in one. The difference between those who are open to the world and those who won't escape their myths is the degree to which their myth (model) is open to new information and to which they check their assumptions against other verified information. The only way to break down an inaccurate myth is with a better one. That's done with a narrative framed in characters and symbols of the myth that's needs to be replaced, which FDR was really good at.
I have always wondered if there is any real ideological difference between the neoliberal and the neoconservatives.
Regarding government led industrial policy, it has never been explicit, but always implied, a curiosity. But such as it is, from Alexander Hamilton’s time, the industrial policy of the US was fairly clear, though the Southern brethren never took advantage had they understood.
Today’s industrial policy is fairly clear in that so much commentary has been generated within the past year. Conflict has a way of bringing clarity to national goals. But during the 90’s and American hegemony, laws and deregulation by Washington elite would communicate what type of industrial policy?
I did not know neoconservative HAD any views on economics.
Neoliberals want to use market mechanisms like taxes and subsidies, generally instead of quantitative regulations, to achieve societal goals of higher growth and greater income equality. So your neoliberal would prefer a higher EITC to a higher minimum wage. She prefers making it easier to build new houses instead of rent control, They would tax personal income instead of business income at rates high enough to keep government deficits low and private investment high. He would tax net emissions of CO2 and methane emissions instead of subsidizing any particular zero CO2 emitting technology. Insurance companies would be regulated so that they are encouraged to use the best forward-looking climate change models to set rates for hazard insurance. Social programs like unemployment insurance, Social Security Medicare, Medicaid would be financed with a VAT instead of the tax on wages to prevent these programs from contributing to the deficit.
They only had two problems: Republicans and Progressives. :)
"Neoliberals want to use market mechanisms like taxes and subsidies, generally instead of quantitative regulations, to achieve societal goals of higher growth and greater income equality."
Need some evidence that neoliberals, now or ever, were interested in achieving greater income equality. It seemed to those of us not of that bent at the time that the neoliberals were interested in using the rhetoric of the progressive and even revolutionary movement of the 1960s/70s to put themselves into a position to earn lots of wealth, which implied supporting the wealth concentrators while triangulating away any actual progressivism in the economy or society. And it seems to this observer at least that that is what they tried for 40 years, with some success, until they ran into the four-pronged spear of the Iraq War, the Great Recession, Donald Trump, and a global pandemic.
I guess what I was thinking (as you have noted) Neolibs finding funds via taxes and regulation for the government to spend on it’s preferred projects. Neocons prefer deregulation and deficit spending and inflation (deficits don’t matter) to fund its government agenda. In either case the government sets the direction. So far what we have seen from either side? National defense generally receives bipartisan support, until we got to Trump, who tried to dismantle the American hegemony.
I find it best to read The Economist as Brits writing how they would run things if they still had an empire, and then I stop reading. Although they do have some good writers from time to time.
I find it best to read The Economist as if it was written by a very smart 22-year-old, who knows Exactly How The World Works. IOW, I stopped reading The Economist years ago.
It's seems idle to use your stock lines to criticize The Economist for its stock lines. Austrian economists - and that's whose argument is being used here - are never going to give up a "first best" (that is, efficient) solution for a second-best, no matter how grotesque the first-best stack-up of winners and losers. They just wont. Forget about it.
Austrian? My version of "Austrian" is a macroeconomics that highlights ex-post inefficient investments that occur as a result of unexpected inflation generated by monetary policy, generally with the implicit assumption that the optimal rate of inflation is zero.
I have subscribed to The Economist since 1992 (with the exception of a few years spent in war zones, when I had no way to receive it). Most weeks, I read it cover-to-cover. And by and large, their coverage has been excellent. Yet there have always been one or two areas of weakness which, interestingly, rotate as reporters and editors cycle through assignments. For example, from roughly the mid-2000s through the mid-2010s, the “United States” coverage tended to be shallow and biased. Their “Mideast and Africa” reporting has been on-and-off the entire time I’ve subscribed. And for almost 15 years the “International” section (which usually consists of one article a week) was reliably terrible. Right now, however, ALL of those sections are excellent. Yet, as if to compensate, since shortly before the pandemic their economics coverage has been abysmal. Exactly as you’ve pointed out, it’s dogmatic, doctrainaire, and damned the evidence! It’s a shame. Throughout the Great Recession, and especially in its early days, The Economist’s journalism helped me not only to understand what was occurring, but also to frame it, and to help me think about it. Now their economics coverage is just an irritant. If anything, their pronouncements almost immediately nudge me a point or two in the opposite direction.
"The negative valence attached to “subsidy race” and the positive valence attached to “open markets” in this paragraph are claims that there are no effective Pigovian adjustments of market prices to bring them into accord with societal values and to compensate for positive and negative production spillovers."
I think you are assuming a level of Strausian-ism seldom attempted and almost never attained.
Maybe a cigar is just a cigar and the Economist just means some of the incentives in the IRA do not map onto the Pigouvian taxes needed to bring market prices into line with the cost of emitting CO2 into the atmosphere.
The media is flooded with bad news on China. What I hear from Chinese friends is worse, though some may be just rumors. But widespread rumors inhibit investment and consumption too. Would be good to crowd source. Oddest is that it seems Xi is doing virtually nothing to solve economic problems. This must have widespread implications for the world. At the least, commodity prices plummet and commodity supplying nations default on their debts.
Brad - As a lay person who is interested in economics I would like to know, "Why is the cost of the fight against inflation always laid at the door of workers?" It seems that raising interest rates causing businesses to retract and lay off workers is the only tool the Fed talks about. People are not just gears in a machine and can't be moved around like inanimate objects. When a person is laid off it can be a life changing experience - one they may never recover from or recover only to be far different due to the experience of a lack of income - loss of status, loss of home, loss of self-respect, etc. Meanwhile upper management never losses a pay check, sometimes stock prices go up because businesses make more money due to paying less workers. The Fed is charged with combating inflation, but also securing full employment. It seems that the second part is second fiddle to the first.
Yes. Not just recessions to slow inflation but greedy workers blamed for wages that supposedly cause inflation.
The US does use fiscal policy too, albeit rarely distributive. Look at the fiscal responses in the UK that even a neoliberal Tory government used to try to offset that pain. But both the US and UK provided help to furloughed workers during Covid to mitigate the effect of enforced closing of non-essential businesses to reduce viral transmission. One can certainly argue that this was not sufficient, but as you are aware, the Republican Party fights tooth and nail to prevent redistribution of income and wealth, unless it is upward to the already wealthy. When Congress is effectively controlled by Republicans, and even centrist Democrats who have drunk the neoliberal Kool-Aid, fiscal policy to alleviate the pain for the workers, especially those at the bottom is well-nigh impossible. Just look at the lack of inflation-indexing of the minimum wage.
Analytically, the problem is a model in which there is only one good produced only by labor in fixed proportions. Therefore, the ratio of goods price to the wage is the only thing the Fed affect, and the model does not take account of downward stickiness of nominal wages. Therefore, as it tries to push down relative wages, it can cause the labor market not to clear and unemployment results.
If the Fed really used and multiproduct model with downward stickiness of many goods and services prices, it would not be misled to thinking that unemployment is necessary to reduce inflation. It is not clear if the Fed's own FAIT target is based on the more sophisticated modle or not.
The Fed doesn't have many tools, and can't control inflation without hurting people. The government, taken as a whole, has many more and tools. But Congress doesn't work, so the Fed is the only thing we have left. The joys of living in a kludge-ocracy!
I disagree. I think the Fed has sufficient tools to control inflation without producing recession. If it has the skill and patience to use them is still TBD.
The simplest explanation that fits the facts is that the Federal Reserve Board of Governors doesn't mind hurting people who are not of the monetary and social class of the people it interacts with most often. The regional Federal Reserve boards have a few token community members and labor leaders but the Governors and the people they listen to and socialize with are drawn exclusively from the ranks of high powered and very wealth bankers and extremely right wing academic economists who plan to be very wealthy as soon as possible.
¨If we pressed the Economist, it would probably say that the United States lacks the state capacity to carry out an effective industrial policy. ¨
Other than the military and the pharmaceutical and the medical complexes? And the software industry, and also learning-related complex and AH, ´bail out banks no strings-attached´ thing that an outfit like the economist approves of. (If all in support for the equity & investment industry isn´t an industrial policy I don´t know what is. I could point to the words of Timothy Geithner on that point.)
¨Looking back on the past half century, we have not been well-served by the shibboleth: “the market giveth, the market taketh away: blessed be the name of the market”.¨
Rich people want to believe (and be told) they are rich because God loves them and thus they are entitled to all their money and then some more, maybe even via direct subsidy by the government (which isn´t a ´doomed-to-fail´ industrial policy because REASONS.) Think of it as egomania as an economic precept.
¨In this context, “creative destruction” is a sotto voce denunciation of hopes by the Democratic Party coalition to reverse the relative decline of the American interior.¨
If you think of the anger of the rich during the 60´s (aka the ´Revolt of the Rich') as essentially a drive for status, with money as merely the means to support that status - then that resolves the mystery of the various economic choices. The results don´t matter in economic terms, because the drive is for status. The wealth itself is just a token in the game. Going after unions isn´t about economic efficiency, it´s just social warfare. Austerity isn´t about economic growth it´s about ´more for us and less for you´. It follows that purchasing economists (or actually maybe ´economists´) who will try to push a credo that is an essentially about supporting the glorification the wealthy (or just outright glorifying the wealthy) and who stick to that credo whatever the evidence says is just what you do. (Which I don´t see as functionally a different process from the one that pushed the Protestant religious denominations of the South prior to the Civil War into becoming slaver churches.)
Being four-square in support of the industrial policies of the PRC is just what you do when your ten thousand closet CEO friends see it as a way to make money (and inflict pain of inferior groups at home).
It´s the same thing now as in 2008: we had plenty of test runs of what was done in similar situations in the 1820´s, the 1870´s and the 1930´s, and what worked, but the wealthy wanted X and they got X. CEO types wanted to stick it to unions in 1970´s and forward, so we stuck it to unions, etcetera. The Cold War had been ´too expensive' so we switched to ´let´s make money off of China´ and there you go. Nothing to do with economic policy in any real sense.
At this point it´s just brazen, particularly in the UK.
elm
no kampf but kulturkampf
I'm catching up on my reading, so this is a late comment. I'm posting in case someone might read the comments. The reason that the neoliberal ideology is hard to kill is because it's not just a story - it's a special kind of story: a myth. Myths are designed to create a little universe in which people who adhere to the myth live and interpret the things they see and hear. Facts don't break down these myths because they are interpreted differently in the mythic universe where they might fit, or are completely rejected as false when they don't fit the universe. The creators of myths understand how humans process the information they receive, and create characters and events that work within the neural networks we're born and raised with, which makes them durable. The way I'm describing it, a myth can be thought of as a model, and we all live in one. The difference between those who are open to the world and those who won't escape their myths is the degree to which their myth (model) is open to new information and to which they check their assumptions against other verified information. The only way to break down an inaccurate myth is with a better one. That's done with a narrative framed in characters and symbols of the myth that's needs to be replaced, which FDR was really good at.
Nicely put...
Brad
I have always wondered if there is any real ideological difference between the neoliberal and the neoconservatives.
Regarding government led industrial policy, it has never been explicit, but always implied, a curiosity. But such as it is, from Alexander Hamilton’s time, the industrial policy of the US was fairly clear, though the Southern brethren never took advantage had they understood.
Today’s industrial policy is fairly clear in that so much commentary has been generated within the past year. Conflict has a way of bringing clarity to national goals. But during the 90’s and American hegemony, laws and deregulation by Washington elite would communicate what type of industrial policy?
I did not know neoconservative HAD any views on economics.
Neoliberals want to use market mechanisms like taxes and subsidies, generally instead of quantitative regulations, to achieve societal goals of higher growth and greater income equality. So your neoliberal would prefer a higher EITC to a higher minimum wage. She prefers making it easier to build new houses instead of rent control, They would tax personal income instead of business income at rates high enough to keep government deficits low and private investment high. He would tax net emissions of CO2 and methane emissions instead of subsidizing any particular zero CO2 emitting technology. Insurance companies would be regulated so that they are encouraged to use the best forward-looking climate change models to set rates for hazard insurance. Social programs like unemployment insurance, Social Security Medicare, Medicaid would be financed with a VAT instead of the tax on wages to prevent these programs from contributing to the deficit.
They only had two problems: Republicans and Progressives. :)
"Neoliberals want to use market mechanisms like taxes and subsidies, generally instead of quantitative regulations, to achieve societal goals of higher growth and greater income equality."
Need some evidence that neoliberals, now or ever, were interested in achieving greater income equality. It seemed to those of us not of that bent at the time that the neoliberals were interested in using the rhetoric of the progressive and even revolutionary movement of the 1960s/70s to put themselves into a position to earn lots of wealth, which implied supporting the wealth concentrators while triangulating away any actual progressivism in the economy or society. And it seems to this observer at least that that is what they tried for 40 years, with some success, until they ran into the four-pronged spear of the Iraq War, the Great Recession, Donald Trump, and a global pandemic.
I guess what I was thinking (as you have noted) Neolibs finding funds via taxes and regulation for the government to spend on it’s preferred projects. Neocons prefer deregulation and deficit spending and inflation (deficits don’t matter) to fund its government agenda. In either case the government sets the direction. So far what we have seen from either side? National defense generally receives bipartisan support, until we got to Trump, who tried to dismantle the American hegemony.
I find it best to read The Economist as Brits writing how they would run things if they still had an empire, and then I stop reading. Although they do have some good writers from time to time.
I find it best to read The Economist as if it was written by a very smart 22-year-old, who knows Exactly How The World Works. IOW, I stopped reading The Economist years ago.
It's seems idle to use your stock lines to criticize The Economist for its stock lines. Austrian economists - and that's whose argument is being used here - are never going to give up a "first best" (that is, efficient) solution for a second-best, no matter how grotesque the first-best stack-up of winners and losers. They just wont. Forget about it.
Austrian? My version of "Austrian" is a macroeconomics that highlights ex-post inefficient investments that occur as a result of unexpected inflation generated by monetary policy, generally with the implicit assumption that the optimal rate of inflation is zero.
Yes. I'm certain the economics of the future is like The Cheese Board and the Juice Bar.
If force and fraud were at play, then the neoliberal game is merely another mechanism to keep the men with spears under control.
I have subscribed to The Economist since 1992 (with the exception of a few years spent in war zones, when I had no way to receive it). Most weeks, I read it cover-to-cover. And by and large, their coverage has been excellent. Yet there have always been one or two areas of weakness which, interestingly, rotate as reporters and editors cycle through assignments. For example, from roughly the mid-2000s through the mid-2010s, the “United States” coverage tended to be shallow and biased. Their “Mideast and Africa” reporting has been on-and-off the entire time I’ve subscribed. And for almost 15 years the “International” section (which usually consists of one article a week) was reliably terrible. Right now, however, ALL of those sections are excellent. Yet, as if to compensate, since shortly before the pandemic their economics coverage has been abysmal. Exactly as you’ve pointed out, it’s dogmatic, doctrainaire, and damned the evidence! It’s a shame. Throughout the Great Recession, and especially in its early days, The Economist’s journalism helped me not only to understand what was occurring, but also to frame it, and to help me think about it. Now their economics coverage is just an irritant. If anything, their pronouncements almost immediately nudge me a point or two in the opposite direction.
"The negative valence attached to “subsidy race” and the positive valence attached to “open markets” in this paragraph are claims that there are no effective Pigovian adjustments of market prices to bring them into accord with societal values and to compensate for positive and negative production spillovers."
I think you are assuming a level of Strausian-ism seldom attempted and almost never attained.
Maybe a cigar is just a cigar and the Economist just means some of the incentives in the IRA do not map onto the Pigouvian taxes needed to bring market prices into line with the cost of emitting CO2 into the atmosphere.
MOAR ON CHINA!
The media is flooded with bad news on China. What I hear from Chinese friends is worse, though some may be just rumors. But widespread rumors inhibit investment and consumption too. Would be good to crowd source. Oddest is that it seems Xi is doing virtually nothing to solve economic problems. This must have widespread implications for the world. At the least, commodity prices plummet and commodity supplying nations default on their debts.