Matt Yglesias

Endgame

Taking off the gloves:

— I think DC neighborhoods are too small and this support “MidCity” as a concept.

— The dynamic properties of New Keynesian models with learning.

— Illegal immigration is plummeting mostly thanks to a crappy economy.

— To answer Justin Logan’s question I think US military personnel will be gone from Iraq by 2012 as Ben Rhodes says.

— Actual hotels for zombies would be more interesting than these Irish “zombie hotels”.

— The absurd self-pity of the Kochs.

— The 113th anniversary of America’s first subway.

I really like both Metric and TV shows about animals. The “Stadium Love” video combines both.

Gray & Fenty on Parking

Vince Gray and Adrian Fenty did a DC mayoral debate today of which, unfortunately, there seems to be no transcript. There is, however, a Dave Alpert has spent so much time trying to reassure urbanists about Gray. Here’s Austermuhle’s writeup of their back-and-forth on the crucial issue of parking

12:33 p.m.: Audience question on … parking. Really? Ugh. Fenty says you need to find balance between cars and other means of transit, cites Gabe Klein’s work at DDOT. This is actually a winning point for the mayor, at least from the urbanist perspective. Gray calls parking rates “outrageous,” firmly appealing to the car lobby. Boo! Does express concern over loss of business due to expensive parking, but also supports looking at alternative modes of transit.

I wish I had a proper transcript of what was said here since Austermuhle is tragically dismissive of the whole topic. But it seems clear enough that Fenty stood by Klein’s efforts to make the city less car-dependent, whereas Gray wanted to offer rhetorical support for that goal while simultaneously endorsing a policy concept—increased subsidization of parking—that’s diametrically opposed to that goal. I hope this is just Gray being opportunistic on the campaign trail, but I think the basic assumption has to be that Gray’s plan is to undo the controversial Fenty-era education and transportation reforms.

As a sidenote, when you look at the class divide between Fenty and Gray supporters it’s a reminder of how frustratingly upside-down the politics of these transportation issues often gets. Transportation reform plays as a kind of yuppie concern in practical politics, but the biggest losers from parking subsidies aren’t people like me—I could go out and buy a car tomorrow if I wanted to—but poor people for whom owning and maintaining automobiles is genuine financial hardship.

Impediments to Rapid Recovery From Financial Crisis Are More Political Than Economic

I wrote yesterday that I think the Reinhardt & Reinhardt finding that economies in the wake of a financial crisis typically experience years of slow growth is evidence that such crises are normally met with an inadequate policy response. The other read, the one that both Reinhardt’s and Carmen Reinhardt’s co-author Ken Rogoff seem to prefer, is that years of suffering are just quasi-inevitable. But it’s a little bit hard for me to understand why they take this line. In his latest piece, for example, Rogoff is full of gloom and doom but actually sees plenty of policy steps that could improve things.

In terms of fiscal policy, he agrees that stimulus could be helpful but thinks it might also be counterproductive unless we simultaneously tackle the long-term deficit situation. And he also thinks monetary expansion could help.

So despite the rhetoric of despair and how “It took more than a decade to dig today’s hole, and climbing out of it will take a while, too,” Rogoff doesn’t really seem to believe that. What climbing out of it will take, according to Rogoff, is decisive congressional action to pair short-term deficit expansion with long-term deficit reduction, combined with decisive Federal Reserve Open Market Committee action to raise the price level. If it takes a long time to climb out, that’s because his judgment is that those things are unlikely to happen. And I agree, they are unlikely to happen. But people shouldn’t confuse a political analysis of despair with an economic analysis.

This all reminded me of the last graf of John Cassidy’s profile of Tim Geithner from several months back:

“Why do policymakers screw up financial crises?” [Treasury Secretary Geithner] said before I left his office. “They screw up financial crises because the politics are horrible, and that deters action. They are slow and late and tentative and weak because they are scared to death of the politics. But sometimes a policymaker has to say, I’ll take pain now against pain later.”

That’s exactly right. It was right then and it’s right today.

Open-Ended Wars

Victor Davis Hanson reacts to Obama’s speech:

Obama warns against “open-ended wars,” as if they are almost animate things. But wars end, not when they reach a rational, previously agreed-upon expiration date, but usually when tough, specific wartime choices are made that lead to victory or end in defeat. One party must decide – for good or bad reasons – that it doesn’t want to fight to win, or simply doesn’t believe it has the resources for victory. To say that “open-ended wars” are undesirable is a banality that offers no guidance for these real-life choices. A better truism is that America should not fight wars it does not intend to win.

This seems to me like an exercise in pretending to not understand what the President was talking about. The essence of the situation in Iraq from 2004-2010 was that our policy was stuck in a recursive loop. We couldn’t leave Iraq because we hadn’t won the war. Winning the war would entail defeating our enemies. Our enemies were the people driving us out of the country. Therefore we could leave Iraq when and only when we succeeded in killing the people who wanted us to leave. It was nuts. It was a recipe for open-ended warfare. It’s coming to an end. That’s a good thing.

Germany’s Recovery

This isn’t even really what his column is about, but this chart from Martin Wolf is worth looking at with regard to recent coverage of Germany’s rapid growth:

Several points about this. I don’t think we should be giving any country credit for impressive recovery until they at least re-obtain pre-crisis GDP levels. The more ambitious goal of pre-crisis GDP per capita might be even better. What’s more, German economic performance across the duration of the crisis has not, in fact, been any more impressive than America’s. What does look better is the German unemployment situation, which sadly isn’t depicted in this graph.

If you look at the contrasting trajectories between unemployment and productivity in the US and Germany I think we’re getting to the real moral of the story here. The Obama administration’s fiscal policies were deliberately designed to maximize GDP rather than employment, on the theory that the specific allocation of labor market resources is best left to the market. German policies like kurzarbeit did the reverse. And thus far both countries have gotten what they asked for—America has a higher GDP and better productivity growth than Germany, but Germany spent less money and has less unemployment. The question is what will look better in the long-run which has now entered “only time will tell” territory. But it’s a strange coincidence of fate and partisanship that in the US we mostly have right-of-center people praising Merkel’s approach and left-of-center defending Obama’s when German-style direct labor market interventions would normally be considered too left-wing for the Democratic Party in this country.

In Defense of Non-Specificity

James Joyner is disappointed with the GOP leadership and thinks “the party must run on specific proposals in order to garner the leverage necessary to roll back the last few years of Democratic excesses.”

Unfortunately, despite a series of “Establishment” Republicans being sent packing by the base, all the signs so far indicate that McConnell and Co. just want to get their power back, not to actually do anything with it. Boehner’s been better, but the resistance to campaigning on a theme of, say, Paul Ryan’s Roadmap is unmistakable. The party need not endorse the specifics of Ryan’s plan in every particular to set forth a plan of action along those lines.

Kevin Drum agrees but sees cowardice: “if they did that, they’d lose. The public doesn’t want to hear about spending cuts except in the most general, stemwinding terms, and a concrete plan of action ‘along those lines’ would be massively unpopular with the electorate.”

I don’t really agree with Joyner’s line of reasoning. One of my takeaways from the 2007-2009 experience is that the idea of trying to get politicians to run on specific commitments is vastly overrated. There are just way too many steps between legislative inputs and outputs for these kind of things to have any real meaning. Whether or not Boehner wants to endorse the Ryan Roadmap it’s obvious enough that Barack Obama is not going to sign a Medicare privatization bill into law. What I’d be more interested in seeing the answers to some more thematic questions. For example, in addition to the endless nutty investigations, the 1995-2000 years saw a lot of legislating on fairly important topics. There was the welfare reform bill, the Telecommunications Act of 1996, the Financial Services Modernization Act of 1999, the creation of SCHIP, etc. What does Boehner think of those years? Did congressional Republicans give away the store in a way he’s determined to avoid? Or did they squander the opportunity to do even more bipartisan legislating with run-amok investigations?

Great Depression Counterfactuals

Jon Chait delves into an interesting hypothetical:

I think that’s correct. It’s also a useful lesson for liberal who compare President Obama with President Roosevelt. The latter’s political success owed an enormous debt to the fact that he took power after the economy had hit bottom and begun to rebound. Indeed, Obama’s situation is more like an election that took place in 1929, leaving him to take the oath of office in early 1930, just as the bottom was falling out.

I think that at the same time pundits are embracing the worthy goal of political fatalism, they’re also getting dangerously close to embracing a kind of economic fatalism as well. Governments don’t control the economy, and Presidents don’t fully control the government, but the Great Depression wasn’t just about a “bottoming-up” followed by a “rebound” policy choices mattered. In particular, soon after taking office FDR took the United States off the gold standard thus initiating a round of expansionary monetary policy. Then in 1937, he initiated fiscal retrenchment and the Fed initiated monetary contraction—the economy fell back into recession. Then in 1939-41 monetary conditions reversed again and the US began a fiscal ramp-up to prepare for war and the economy grew again.

The link between abandoning the gold standard and exiting the Depression is not a coincidence:

I think it’s at least plausible to argue that had Herbert Hoover followed Japan’s lead and swiftly abandoned the golden fetters of monetary orthodoxy, that the economy would have been growing again by 1932 and there’d have been no FDR and no New Deal. I don’t think Obama had a comparable option to dropping the gold standard available to him, and House losses in 2008 were likely unavoidable under any plausible economic scenario, but there are a variety of things he could have done that would have made a difference economically and politically.

Housing Wealth and College Attendance

Via Annie Lowrey an amazing result from Cornell economist Michael Lovenheim (PDF) on housing equity and college attainment:

Consistent with the prediction that liquid housing wealth should most influence college enrollment, the estimates show housing equity changes had no effect on enrollment in the 1980s and little effect in the 1990s, but between 2000 and 2005, I find a $10,000 increase in housing equity in the 4-year period prior to a household’s child becoming of college-age increases the probability of college enrollment by 0.4 percentage points. This marginal effect translates into a 0.8 percent increase in college enrollment for each $10,000 increase in housing wealth. Since real average home equity rose by $57,965 between 2001 and 2005, my estimates imply a 4.6 percent increase in college attendance due to increased home equity over this time period. These estimates point to the importance of housing wealth in driving college enrollment post-2000.

Rationally speaking, getting a college education is a very smart investment even though college is expensive. Thus in principle you could imagine a world in which college tuition was financed exclusively through loans, which would then be repaid thanks to the college wage premium. But there’s all kinds of evidence that this is not how the world works and then 17-18 year-olds and their families—particular if we’re talking about family members who themselves haven’t gone to college—are very impacted by other kinds of short-term financial considerations. Moving to a system where we had higher taxes on the top 10-20 percent of the income spectrum (who, Bill Gates, LeBron James, and my dad aside are almost all college graduates) to finance freeish college education would probably produce a better outcome by simply clarifying to people that if they can do college-level work then it makes financial sense to go to college.

The Impact of Managers

Scott Lemieux and David Brockington debate the question of whether managers “matter” in baseball. I don’t know much about baseball, but Brockington’s contention is very illogical:

These are superficial, anecdotal pieces of evidence; the sabermetric literature (that I am familiar with, I am now a couple years behind I’m afraid, although there is some interesting stuff here) has had a difficult time establishing that the field manager of a ball club has much measurable effect at all, and is negligible at best.

The link is to a research that indicates managers don’t have an impact on player performance. But insofar as some players perform better than others, and insofar as managers decide who plays and how much, I don’t see how sabermetrics could possible show that the field manager of a team has no impact on how many games the team wins. Say your team’s 8th-best offensive player is a slightly below-average defensive shortstop whereas your 12th-best offensive player is an above-average defensive shortstop. Who do you play? In what situation? Answering these kind of questions correctly seems incredibly important, and the importance of these issues is precisely why sabermetric research has been of so much interest. Or am I missing something?

Yes, We Need Public Investment in Education

(cc photo by kevin dooley)

Lest the world think I’ve gone too “liberaltarian” let me note that this sentiment from Cato education guy Neal McCluskey is totally insane: “So even when it comes to education — shrill objections about ‘de-skilling’ and being ‘anti-education’ notwithstanding – the best thing to do for the economy is to let money stay with taxpayers and allow them to consume education as they would anything else: according to their individual priorities and abilities, which they know better than anyone else.”

I’m not actually sure I can come up with words shrill enough to describe how objectionable I think this line of argument is. But just keep in mind that the leading proponents of vouchers and education tax credits see such measures as a first step toward completely eliminating public investment in education. The current state of schooling in America is already bad enough in terms of ill-serving poor people, but the complete privatization of school finance would doom children who had the misfortune of choosing to be born to poor parents.

What’s more, the sentiment that America currently over-invests on education as a whole is just wrong. There’s considerable evidence of a growing college wage premium that began to emerge at just the same time that college graduation rates in this country stopped rising. There’s a race between education and technology and historically broad-based prosperity has been grounded in broad improvements in educational attainment. It’s quite true that we can’t achieve those improvements simply by spending more money, but it’s also true that effective education is very much worth investing in.

To simply say that we’re going to treat the long-term future of small children the same way we would treat a simple consumption good like an MP3 player is nuts. Incidentally, this kind of thing is an important difference between classical liberals like Adam Smith who recognized the obvious point that you need some collective support for the education of the non-rich, and the extremist libertarian point of view of today.

Vision in Unexpected Places

I think Barack Obama’s Iraq policy was perfectly clear as of last week—war kinda sorta ending on August 31, 2010 and more honest-to-god ending in December 2011—so I wasn’t exactly glued to the set to watch his speech last night. But reading it this morning it was interesting to see some of the kind of thematic big picture stuff that I’ve gotten used to not hearing from the President since his first few months in office:

Our nation’s strength and influence abroad must be firmly anchored in our prosperity at home. And the bedrock of that prosperity must be a growing middle class.

Unfortunately, over the last decade, we have not done what is necessary to shore up the foundation of our own prosperity. We have spent over a trillion dollars at war, often financed by borrowing from overseas. This, in turn, has short-changed investments in our own people, and contributed to record deficits. For too long, we have put off tough decisions on everything from our manufacturing base to our energy policy to education reform. As a result, too many middle class families find themselves working harder for less, while our nation’s long-term competitiveness is put at risk.

And so at this moment, as we wind down the war in Iraq, we must tackle those challenges at home with as much energy, and grit, and sense of common purpose as our men and women in uniform who have served abroad.

Obviously, that’s not an actual policy agenda. And equally obviously, it’s not literally the case that we should approach K-12 education with the precisely mentality of an armed soldier going to war. But the point is correct and welcome. Winning the second world war entailed building a lot of tanks and ships and warplanes and nuclear bombs. But the reason we won the war is that in the 150 years before the war, we’d gone about building the most prosperous society in human history. Similarly, during the Cold War it was absolutely necessary to maintain a defensive deterrent against the Soviet Union, but ultimately the superiority of liberal democracy and the mixed economy was proven through the prosperity of liberal democracies with mixed economies, not through force of arms. We do best for ourselves and for the world by focusing on commerce, education, science, and the other drivers of prosperity and ultimately America’s interactions with the world beyond our borders should be defined by culture, trade, tourism, and migration rather than invasion and occupation.

Manhattan and Bedrock

In Manhattan, going “downtown” means going toward the southern tip of the island, traveling in the direction where street numbers are lower. In most other cities, going “downtown” means going to the central business district—basically located in midtown. Except in addition to the midtown downtown, there’s the other downtown actually located all the way downtown by the Mosque Exclusion Zone. I’d always heard that the reason for these two separate clusters of skyscrapers is that the skyscraper-free neighborhoods in between—where I grew up—are located on top of a portion of the island where the bedrock isn’t suitable for skyscraper construction.

According to Jason Barr and Troy Tasier’s paper (PDF) “Bedrock Depth and the Formation of the Manhattan
Skyline, 1890-1915″ this is basically an old wives tale:

Skyscrapers in Manhattan need to be anchored to bedrock to prevent (possibly uneven) settling. This can potentially increase construction costs if the bedrock lies deep below the surface. The conventional wisdom holds that Manhattan developed two business centers—downtown and midtown—because the depth to the bedrock is close to the surface in these locations, with a bedrock “valley” in between. We measure the effects of building costs associated with bedrock depths, relative to other important economic variables in the location of early Manhattan skyscrapers (1890-1915). We find that bedrock depths had very little influence on the skyline; rather its polycentric development was due to residential and manufacturing patterns, and public transportation hubs.

The Trouble With Pitches

I tweeted yesterday that I liked Reihan Salam’s take on Glenn Beck. That led to some vigorous pushback on Twitter from TKOed and also from Lady Z who spells her thoughts out in a good blog post.

What struck me as interesting about the controversy is the extent to which it focused on an issue that I thought was totally irrelevant to why Salam’s piece is excellent, namely the fact that Salam conceit that “Glenn Beck is the White Malcolm X” doesn’t stand up to scrutiny and that he makes a number of errors of fact regarding the life and world of Malcolm X. In my reading, this is an article about Glenn Beck and white identity politics, not an article about Malcolm X. The Malcolm X stuff is a pitch you make to an editor. It’s a hook you use to draw readers in. It’s a stick in the hornets nest to drive controversy and thus attention. If you titled the piece “Glenn Beck’s Rising Popularity Reflects Underlying Shifts in American Demographics” you’d have a big problem on your hands.

This is something I’ve always found problematic about traditional journalism business models. You often find solid information or analysis buried or twisted by the search for neat framing or catchy conceits. So for the record, here’s what I consider to be the analytic core of Salam’s piece, something that has nothing to do with Malcolm X:

This year, in contrast, will likely be the first in which non-Hispanic whites will be a minority among newborns. In part, this reflects an average birthrate of 1.87 for non-Hispanic white women as opposed to 2.99 for Hispanic women, with African American and Asian American birthrates falling in between. Without foreign-born mothers, the U.S. would have below-replacement fertility, like much of Western Europe. This would mean less demographic vitality, but it would also mean that the pace of cultural change would slow markedly. With each passing year, the cultural mix of the United States is growing more Latin and Asian and black. Non-Hispanic whites are just 56 percent of the under-18 population, a reality reflected in an increasingly pan-ethnic youth culture that seems baffling to older white Americans. Imagine how elderly viewers of Glenn Beck must feel when they accidentally catch themselves watching an episode of Jersey Shore.

This generational culture clash is already driving our politics. The battle over health reform pitted elderly citizens who feared Medicare cuts against less affluent younger voters clamoring for stronger social protections. A similar dynamic has defined bitter fights over school funding across the Southwest.

Beck is a greedy fraud who’s good at getting people to pay attention to him as a means of becoming famous and making money. He’s no Malcolm X. But he’s good at what he does, and it’s worth trying to understand what the waves of audience sentiment are that he’s riding. And these demographic shifts, paired with a bad economy, are driving a surge of white old person conservative nostalgia politics.

Urban Information Gaps

Tyler Cowen did a post a few weeks ago wondering why there are so few cheap restaurants east of the Anacostia River. The ensuing discussion mostly ended up focused on the fact that he referred to that entire area as “Anacostia” whereas DC residents are in the habit of defining neighborhoods as incredibly small areas so “Anacostia” only properly refers to one small section of the area he was talking about.

That said, the actual question was interesting and I think the answer is mostly “it’ll just take a bit of time.” There was massive disinvestment in the whole city of Washington DC in the 60s, 70s, and 80s for a whole variety of reasons and as people started reinvesting the process generally began in the most prosperous areas and then the areas that were adjacent to them. But Cowen was down there because a new location of Ray’s The Steaks opened in the area. Today the first organic supermarket east of the river is opening. Big Chair Coffee and Grill opened earlier this year.

Watching these kinds of processes play out is, I think, mostly a reminder that the real economic world isn’t the kind of frictionless, perfect information utopia that leads to markets always clearing. One upside to the genericness of a lot of suburban development is precisely that this allows it to more closely approximate such a utopia. Somewhat distressed urban areas tend to be unfamiliar to the business community, and the people familiar with the area don’t necessarily have the capital or know-how to get businesses off the ground. Consequently, the pace of development can get a bit frustratingly slow. In cities like DC that are on a generally upward trajectory, the experience of a few successful projects should build information and momentum and a generally increasing pace of progress. But for cities that didn’t manage to get on the upswing in the 1991-2007 period, I think these kind of considerations give us reason for pessimism.

Sabotage

Stan Collender muses on the possibility that congressional Republicans will attempt to pressure the Fed to deliberately tank the economy: “With Republican policymakers seeing economic hardship as the path to election glory this November, there is every reason to expect that the GOP will be equally as opposed to any actions taken by the Federal Reserve that would make the economy better, and that Republicans will openly and virulently criticize the Fed for even thinking about it. The criticism is likely to come both before any action is taken to try to stop it from happening and afterwards to make the Fed think twice about doing more.”

I think this is pretty unfair in ascribing motives to the GOP. The goldbug outburst I noted this morning at the Heritage Foundation strikes me as stemming from a perfectly genuine strain of right-wing thinking that likes deflationary monetary measures.

But it is interesting to note that Collender has accurately identified the objective incentive structure here. Something those of us taken with the political scientists’ view of how electoral outcomes are determined are often frustrated by is how few political professionals in Washington DC seem to share this view. But while it’s always nice when people start agreeing with you, there would actually be something potentially quite scary about a scenario in which the party that doesn’t control the White House started consciously acting to sabotage the economy at every turn. Under the circumstances, it may be a great blessing to the world that inaccurate views are widespread.

Capital Gains and Inflation

Here’s an interesting point from Josh Barro about an underrated source of political resistance to expansionary monetary policy:

But one likely barrier to a higher inflation target is a quirk of tax policy: non-indexation of capital taxation means that higher inflation causes a stealth rise in the real tax rate on capital gains and interest income. Naturally, this makes investors more keen on rock-bottom inflation than they otherwise would be — and the Federal Reserve Board is institutionally likely to focus on the interests of the investor class.

Barro deploys this to try to get people like me to back CPI-indexation of capital gains taxes. Another point to make would simply be that the domination of policymaking by the interests and predilections of rich people is dangerous. At the end of the day, though, if you’re a rich person worried about the capital gains tax implications of the Yglesias Inflation Agenda, consider this: Every time central banks announce big expansionary moves, markets soar. The real gains entailed by more robust growth should easily outweigh tax considerations. That’s not to deny that there’s a case for wide-ranging reform of the US tax code, merely to say that appropriate monetary policy shouldn’t have to wait for it to happen.

Small Businesses and Job Creation

As you’ve probably heard politicians of both parties emphasize, ninety million percent of job creation comes from small businesses—who, with the exception of family farms, are by far the most precious of the Lord’s creations. These factoids have always struck me as a bit oddly phrased, since presumably the really big job growth comes not from small businesses but from firms that are rapidly enlarging from a small base.

Allison Schrager brings the relevant data:

A new paper from economists John Haltiwanger, Ron Jarmin, and Javier Miranda looks at which firms typically create new jobs. Earlier work found that small firms are the ones who tend to create more jobs. This new paper finds that when you control for firm age the small firm effect weakens. Newer firms are the ones who create jobs and because most companies start small, small firms are more likely to create jobs.

That’s not to say that factoids you’ve heard about small businesses are wrong, per se, just that the rhetoric is a little misleading. People enjoy sentimentalizing small-scale mom and pop operations and it’s true that in the aggregate a lot of people work for such firms. But economic growth isn’t driven by those kind of companies, instead it’s driven by small firms that find a way to scale-up. People associate “start-ups” with the high tech sector, but these things can happen in many fields of enterprise. Barnes & Noble used to a neighborhood bookstore, my favorite place to grab lunch near the office is a small chain that started in San Francisco and just now expanded to LA and DC, etc.

I think, however, that it’s a bit of a mistake to draw too sharp a line between “demand shortfalls” and the kind of organizational and technical innovations that drive firm growth. Entrepreneurs are much more likely to drive themselves to think of ways to expand their operations if they believe overall demand for goods and services is going to be growing.

In Defense of (Some) Regulatory Discretion Some of the Time

This from Ezra Klein touched off a conversation on Twitter that wound up focusing on the general issue of regulatory discretion in the financial regulation bill. One standard criticism of the bill, which I do agree has some force, was that it entailed too much regulatory discretion. Regulators, however, are prone to “capture” or just being appointed by crappy presidents. Better to have hard and fast rules. And, indeed, sometimes it is.

But it’s worth saying that there’s no hard and fast rule in favor of hard and fast rules. After all, the only thing people like less than undue regulatory discretion is too many stifling bureaucratic rules. Specifically, one problem with doing away with regulatory discretion is that regulated firms have a large interest in coming up with ways to comply with the letter of the law while gutting its spirit. Properly motivated regulators faced with firms exploiting loopholes or engaged in regulatory arbitrage can formulate new rules to enforce the principles that congress charged them with upholding. If, that is, congress left them plenty of discretion.

Alternatively, you might just be faced with new problems or new information. Almost every liberal I know who thinks it’s bad that the FinReg bill contains so much discretion is also very happy that the Environmental Protection Agency is going to be regulating greenhouse gas emissions. If the Clean Air Act had been drafted so as to deny EPA bureaucrats discretion and had instead proscribed specific regulations on specific substances, it would’ve have mandated regulation of greenhouse gases. But since Congress wrote a principles-oriented law, a regulatory finding that sources of CO2 emissions generate air pollution that endangers public health or welfare is sufficient to generate action. And it will be much harder for the fossil fuel industry to get the Clean Air Act partially repealed than it’s been for them to block new climate legislation.

All of which is to say that if there’s a flaw in the Obama administration’s approach to this it’s that I’m not certain they’ve paid enough attention to building high-quality regulatory institutions. The basic idea of writing a law that depends on the creation of such institutions is correct, but it’s hard to pull off in practice. That’s one reason I’m more regulation-skeptical than most progressives. But there are key areas where robust regulation is indispensable and in those areas there’s no good alternative to the hard work of institution-building.

Monetary Policy for the Long Haul

Tim Fernholz brought to my attention Robert Reich’s argument that more aggressive monetary expansion won’t boost employment. I have a variety of objections to the details of what he says, which I think misdescribe the mechanisms, but the most important issue is that I think what he has in mind when he describes “easy money” and what proponents of monetary stimulus want to see are actually quite different.

Consider Paul Krugman’s 1998 paper on “Japan’s Trap” in which he constructs a rigorous model of a situation in which “the economy finds itself in a slump against which short-run monetary expansion, no matter how large, is ineffective.” Reich sees the United States as being in such a situation, and views proposals for monetary stimulus in terms of this kind of short-run expansion. But in the same paper, Krugman argued that there was a monetary solution to the problem:

If this stylized analysis bears any resemblance to the real problem facing Japan, the policy implications are radical. Structural reforms that raise the long-run growth rate (or relax non-price credit constraints) might alleviate the problem; so might deficit-financed government spending. But the simplest way out of the slump is to give the economy the inflationary expectations it needs. This means that the central bank must make a credible commitment to engage in what would in other contexts be regarded as irresponsible monetary policy – that is, convince the private sector that it will not reverse its current monetary expansion when prices begin to rise!

To try to rephrase this in a less-provocative (but hopefully more appealing to opinion leaders) way, here’s what needs to happen. Instead of saying “inflation is below two percent, so we need some expansion to bump it back up” we need the FOMC to say “inflation’s been running below two percent for a while now, so we’re going to try to bump it back up to four percent or so until we make up for all that lost ground.” That’s not the same as a one-shot injection of some cheap loans into the economy, it’s an effort to shift expectations about the trajectory of demand and therefore change present-day economic behavior.

DC 311 Response Times

It often seems to me to be the case that public services are worse-provided in the poorest neighborhoods where needs are highest. But my impression is not the same as a systematic study. Lindsay Pettingill, a Georgetown graduate student, has undertaken such a study to look at one aspect of this—response times to calls to DC’s 311 hotline by neighborhood. Daniel Hopkins has the chart:

The city started out with large gaps, though no clear discriminatory pattern. The worst-served neighborhoods where the fancy west of Rock Creek ones and then the rest was all pretty similar. During Anthony Williams’ administration there were large improvements in response time and a narrowing of the gap, and under Adrian Fenty both of those trends have continued at a more modest pace.

More Immigrants Would Bolster the Housing Market

I’m a firm believer in the link between higher levels of immigration and higher average living standards for native-born people. But I recognize that this remains controversial. Something that certainly shouldn’t be controversial is the fairly obvious point that if we allowed more immigrants to come to the United States this would bolster home price values in a clearer and more sustainable way than any kind of crazy patchwork of tax breaks. Right now we have more houses than households, if we had more immigrants we’d have more households. We’d work off the excess inventory more quickly, and be closer to the day when home construction returns as a viable economic sector.

Adam Ozimek offers up some quantitative research on the scale of the effect citing research from Albert Saiz (PDF) indicating that “[i]mmigration inflows equal to 1% of a city’s population were associated with increases in average or median housing rents and prices of about 1%.”

One way to especially take advantage of this effect and politically frame it as housing stabilization policy would be to create a special new class of visa specifically for people who purchase homes in the United States.

Rewarding Zenaida Tan

The idea has gotten out there that proponents of measuring and rewarding high-quality teaching are somehow engaged in “teacher-bashing.” I think that’s one part bad faith on the part of our antagonists, one part misunderstanding on the part of people who don’t follow the issue closely, and at least one part our own fault for focusing too much on the negative. So I think it’s great that as part of its big data dump on teacher quality in the LA Unified School District, the LA Times took the time to write a profile of one of the city’s most effective teachers, third grade English teacher Zenaida Tan. Her students show much bigger gains in both reading and math competency over the course of the year than do the average teacher’s students.

The LAT notes that the current system doesn’t allow Tan to be recognized as the brilliant teacher she is:

By the LAUSD’s measure, Tam simply “meets standard performance,” as virtually all district teachers do — evaluators’ only other option is “below standard performance.” On a recent evaluation, her principal, Oliver Ramirez, checked off all the appropriate boxes, Tan said — then noted that she had been late to pick up her students from recess three times.

“I threw it away because I got upset,” Tan said. “Why don’t you focus on my teaching?! Why don’t you focus on where my students are?”

As Kevin Carey says if you care about recognizing the contributions teachers make to society, you should be supporting the development and deployment of measures of quality. Excellent teachers deserve to be paid enough money to keep them teaching, and they deserve acknowledgment for the crucial role they play in shaping the nation’s future for the better. But it’s impossible for them to get the acknowledgment they deserve if we assess them only on crude measures like “does she have a master’s degree?” and “did she show up on time for recess?” The main point of school is to teach kids stuff, so we need to measure what kids are learning.

Computing Power

Apparently researchers have cleared the path to even further miniaturization of electronics components that should alleviated a feared “slowdown in the pace of miniaturization that would act like a brake on the ability to pack ever more power into ever smaller devices like laptops, smartphones and digital cameras.” And of course we’re talking here about a slowdown from an incredibly rapid rate:

Just to review the arithmetic: since ten squared two to the tenth is 1024, the cost of computation has, since 1948, been falling by a thousandfold every 15 years. As long as that rate of change continues, we can be certain that the future, in economic terms, will not resemble the past. Forgetting that is dangerous.

Something interesting to consider is the kind of changes we could expect to continue seeing even if the cost of computational power did stop falling. After all, the pace of these technical advances has been so jaw-dropping that it’s almost certainly been impossible for the rest of society to fully work-out what the best way to deploy the information technology we have. In other words, though business practices have certainly changed a lot since 1995 in response to a thousandfold drop in the price of computing power, they almost certainly haven’t fully adjusted to the full implications of that change. And as Peter Orszag observed in a CAP speech earlier this year, the federal government has done even less to fully seize the available opportunities.

Goldbugs at the Heritage Foundation

I’m consistently surprised by the continued hold of superstitious belief in the merits of a gold standard and the evils of “fiat money” on the part of rightwingers. Here, for example, a Heritage Foundation report on the fundamental economic principles of America explains:

Due in large part to these difficulties and the subsequent economic turmoil caused by manipulation of money by both state and national governments during the 1780s, there was a strong demand for an end to government-issued paper money. The remedy was to be a return to the gold and silver standard. The U.S. Constitution therefore specifies that the states may not “coin money; emit bills of credit; [or] make any thing but gold and silver coin a tender in payment of debts.”[50] Emitting bills of credit was not on the list of powers given to Congress. “Fiat” paper money (bills of credit), issued by the U.S. government (and every other government in the world) since the 1930s, was precisely what the Framers of the Constitution were trying to prevent.

As a descriptive claim this may or may not be accurate, but the fact of the matter is that late-18th century notions about monetary policy were simply wrong and the gold standard is a terrible idea. Paul Krugman’s “The Gold Bug Variations” is the best explanation of the problems with the system. But part of what’s curious is that I don’t even understand what’s supposed to make this a “free market” view. Don’t ask me, ask Milton Friedman:

I do believe that every individual should be free to own, buy, and sell gold. If under those circumstances a private gold standard emerged, fine—although I make a scientific prediction that it’s very unlikely. But I think those people who say they believe in a gold standard are fundamentally being very anti-libertarian because what they mean by a gold standard is a governmentally fixed price for gold.

Ironically, as Friedman also lays out here by clinging to gold standard orthodoxy during the 1930s, rightwingers managers to largely discredit their entire ideological project since (just as Barack Obama is learning today) when you preside over poor economic conditions, people tend to turn against your ideas willy-nilly. At any rate, to make a long story short if the problem with “fiat money” is that political authorities may mismanage the money supply, nothing about shifting to gold solves this problem. Banking and monetary conditions were demonstrably less stable in the pre-1932 era than they’ve been in the past 75 years. Many people appear to have a deep-rooted desire to posit the existence of some lost golden age of liberty and nostalgia for gold convertability has gotten mixed up in this.

How Immigration Boosts Living Standards

Right before I left for break one of my most esteemed readers said I should try harder to explain why it is that immigration of low-skilled people boosts living standards for native born Americans. Well, via Kevin Drum and Felix Salmon you can see some hot hot statistical research that helps explain some of the microdynamics but I think the basic point can be pretty easily illustrated through a thought experiment.

Think of some classic “bad” jobs that we find a lot of immigrants doing—basically the tidying-up industries. Now imagine that tomorrow 75% of the maids, the janitors, the dishwashers, the gardeners, the people who make the beds at hotels, etc. are all teleported to Mexico. This is a class of low-income people that’s vanished, so it’s possible that their teleportation will make certain statistical sets look better. But what’s going to be the impact on the living standards of those of us Left Behind in the United States of America?

Well there are really only two things that can happen here. One is that to an extent things can just be allowed to be dirtier and the other is that to an extent people can spend less time doing things that aren’t cleaning and more time cleaning. Down the first pathway, overall living standards decline because of the increase in the overall level of filth. Down the second pathway, overall living standards decline because of the decrease in the production of other goods and services. It’s true that amidst this overall decline in living standards some specific individuals would probably benefit (the remaining 25% of cleaners, for example) which is why there’s room for empirical research like the SF Fed paper linked above, but it’s easy to see that on the whole immigration boosts living standards even before you consider the positive impact on the immigrants.

At issue is the fact that here in the developed world we’re not peasant farmers fighting to support ourselves on a fixed quantity of viable agricultural land. When new workers come onto the scene and do jobs, they create more surplus. To get the kind of zero-sum effect that people think occurs when you get rid of immigrants, what you would actually need to do is send retirees to the Death Panels and turn them into Soylent Green. But of course even there we note that the interests of elderly people matter, morally speaking, and it would be grossly wrong to simply write them off in the interests of efficiency.