Paul Krugman

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101 or Not 101- Uber Knows?

Paul Krugman has this in his blog today:

The name is a takeoff on Noah Smith’s clever writing about “101ism”, in which economics writers present Econ 101 stuff about supply, demand, and how great markets are as gospel, ignoring the many ways in which economists have learned to qualify those conclusions in the face of market imperfections. His point is that while Econ 101 can be a very useful guide, it is sometimes (often) misleading when applied to the real world.

My point is somewhat different: even when Econ 101 is right, that doesn’t always mean that it’s important – certainly not that it’s the most important thing about a situation. In particular, economists may delight in talking about issues where 101 refutes naïve intuition, but that doesn’t at all mean that these are the crucial policy issues we face.

So why is 101 what it is?

A significant number of students are exposed to economics only through Econ 101. They never intend to become economists, they simply want to learn something about the economy. Yet, as Krugman admits, 101 is full of hypothetical purity about markets. It isn’t a representation of actual economies. It is a distorted and ideologically driven account of what markets might be under conditions so remote from reality that we can dismiss the whole thing as absurd. No one can learn about the actual economy from sitting through Econ 101.

Why do economists insist on creating this stalking horse called a ‘perfect market’ only to bash it as ridiculous later on? Why not begin with something more attached to the real markets students are likely to encounter? And why do they bash it in classes that only future economists attend? Is this some secret plot to ensure intellectual superiority over the naive souls who fell for the misleading nonsense in 101?

Even when 101 is right – according to Krugman – it needs to be set aside as often irrelevant.

His own area of trade is a good example. The notion competitive advantage gets lot of air time. Economists love talking about it because it is not self-evident and thus it makes them look smart for having it in their arsenal, but it only makes sense in the context of a few other ideas. Like the one where displaced workers will find new jobs instantly and so the benefits of trade are unhampered by the cost of lost jobs. Sure. Tell me another one. One simple model can look very clever, but those darned interconnections make things murky very quickly. Which is why most economics ought to be taught in the context of reality.

Which, more often than not, Econ 101 is not. How could it be? It’s mostly a plan attempt to indoctrinate students into believing a particular perspective: that governments are bad and that markets must be ‘free’.

I read that the CEO of Uber repeats a favorite line when asked how his business model is so financial successful: “It’s just Econ 101” he keeps saying. Which is tantamount to saying it’s a fairy tale. Investors beware! Especially when, as someone has now pointed out, that if Uber drivers are all independent contractors, and not employees, ought they not then compete on price and not collude by using Uber’s pricing platform? Uber, it turns out, is one of those exceptions to Econ 101 that one learns about later on after the indoctrination. Uber is actually a massive price-rigging scheme by a whole bunch of independent drivers, and the Uber CEO is acting to encourage the collusion.

Such are the lessons of Econ 101?

 

 

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Krugman versus Sanders

Paul Krugman seems to be spending an awful lot of his time nowadays trying to  discredit Bernie Sanders. The last two of his blog entries at the New York Times are devoted to explaining why Sander’s extravagant claims are wrong and potentially damaging to the Democratic cause.

I can understand why Krugman is so vexed. What I don’t understand is why he seems so unable to understand why so many people are embracing Sander’s message.

To me it is obvious: the so-called “wonkery” that Krugman loves both to indulge in and to explain to us lesser souls is precisely what has created the world in which we live. So if we are dissatisfied with that world we, to put it mildly, are being consistent if we want to toss overboard that jargon laden, leaden souled, wonkish stuff.

Now, I am equally sure that Krugman will retort that his version of the wonkery is not the cause of our woes. He would, I am sure, point to the right wing economics of that part of the mainstream currently exerting influence, and explain that it’s all the fault of those who advocate the mysticism of markets to be found in that part of the mainstream.

Except, of course, that Krugman is hardly an outsider. He has taken great pains to explain to us all in the past few years that what he calls “textbook” economics is perfectly capable of both diagnosing and curing what ails the economy. It’s just that, according to him, right wing politicians apparently haven’t read the textbook. Krugman is thus more an apologist for a tweaked version of the mainstream than he is an advocate of a more radical revision of it.

In this regard he is hardly alone. Last week’s revelation that four recent so-called left of center economists, all of whom have lead the Council of Economic Advisors to the President [CEA], wrote an open letter to the Sanders campaign decrying the heresy of Sanders with respect to conventional economic thought added fuel to Krugman’s fire. See, he told us, it isn’t just me, these other people are serious economists and they agree with me.

Serious economists.

Krugman is someone who has made quite a reputation debunking the wisdom of what he calls “serious people” who are those advocating policies he disagrees with, but who are seen as expert by the Washington establishment and its media critics. All through the Obama era Krugman has lambasted such serious people – think, for example, of Simpson and Bowles – for proffering advice based upon their accumulated wisdom, but which Krugman disagrees with. And, more often or not, Krugman has opposed that advice based upon what he calls “macro 101” or the “textbook”.

In other words, throughout the recent intellectual and political conflicts over economic policy, Krugman has steadfastly defended what he sees as textbook economics. Which in his case is a much watered down version of Keynes via John Hicks.

Somehow, though, Bernie Sanders has hit upon something. A controversial something. He has energized a whole slew of Democrats with a much more radical version of the Democratic vision, one that harkens back to a pre-Reagan New Deal era.

Let me quote Obama on Reagan:

“I think Ronald Reagan changed the trajectory of America in a way that … Richard Nixon did not and in a way that Bill Clinton did not.”

Obama said this back in 2008 in an interview in Nevada.

It is an indisputable truth. Reagan did change America. Radically. Profoundly. And he eviscerated the Democrats by so doing. His legacy is as much the loss of the New Deal basis for the left in America as it is the modern Republican party. More to the point for us: Reagan’s rise coincided with the dramatic loss of direction in economics. It was the moment that the ascendancy of market magic and all the mysticism associated with it seduced a generation of economists and sent the bulk of the profession off into irrelevancy. Lost in that tide were a few, like Krugman, who clung to a slightly more useful version of economics. And it was these few who then emerged as the core advisory group to the newly neutered and reoriented Democratic party. Hence the letter I mentioned above.

Now the befuddlement of Krugman-like analysts comes into focus: they, like Hillary Clinton, have dedicated their lives to tinkering with the Reagan era and in modest disagreement with its right wing economist enablers. So overwhelmed were they by the radical success of Reaganism and that of its right wing economics, and so difficult has it been for them to mount even a modest counter-attack on them, that they have become unable to conceive of a more radical line of attack. They have become so bogged down in eking out tiny nudges here and there, in endless battles over minor fine details, and in the expenditure of enormous amounts of energy to take back a single yard of lost ground, that they can no longer think in grand terms.

Indeed the very thought of a radical move to the left is anathema to them. They see everything through the lens of their initial epic defeat. They have been absorbed by the very thing they espouse opposition to, and now justify their ineffective opposition by retreating into ultra-pragmatism.

Their attacks on Sanders are not based on ideological difference so much as on practicality. Bernie Sanders, we are told, cannot execute on his proposals because they will stir up such a reaction on the right that we will lurch along in ever greater gridlock and no progress will be made at all. It is thus better, so they tell us, to nudge around a little more and be content with a few scraps of progress. ‘A half loaf is better than no loaf’ has become their favorite phrase.

Except it isn’t a half loaf. It is more like a single percent of a loaf. It is hopelessly inadequate.

To the shock of the Clinton/Krugman wing of the Democratic party a very large number of people, and especially young people, are saying that the appeasement of the Reaganites and their right wing economist advisors is no longer sufficient. There has to be a more radical way to achieve progress. After all progressives are supposed to, well, progress.

As I see it the Clinton/Krugman generation has spent its energy buried in policy formation and in policy tweaking. It hasn’t spent its energy articulating politics. By which I mean that since the 1980’s the entire left-of-center establishment has devoted itself to making accommodations to Reaganism and not in developing an alternative. The American political economy has been dominated by right wing thinking for over three decades. The results of that domination are clear and are expressed in the form of the economy around us. All the nudging and tweaking have had no noticeable effect. Other, perhaps, than to soften temporarily the steady descent in living standards experienced by an ever increasing percentage of the population.

But we have now reached a moment when enough people have noticed  and and are rejecting that descent. They want a break with the past, not a continuation of it. Such a break cannot be provided by pragmatism. Before the pragmatists get busy installing the new order and making it work in a practical way, someone has to imagine it. Someone has to articulate it.

And that is what Sanders is doing. And that, apparently, is what confuses Krugman.

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Post-Iowa

So where are we?

Nowhere further forward. Except, perhaps, that we now know about half of the Democrats in Iowa think Clinton is an extension rather than a repudiation of the past.

And I think that matters.

The time has come for us all to assess just where we are. There is way too much confusion and anger in the air for this bizarre election simply to be an oddity. I think it has meaning. Deep meaning that we need to understand if we are to venture into the future with anything other than bemused silence.

I really think this matters.

Let me venture to say that Clinton’s lost gloss – a truly accepted ‘presumptive’ nominee would not have lapsed into a tied race in Iowa – is cause for reflection amongst all those who profess to be well versed in American politics and government. She simply cannot resonate with a message for the future. She has no message of the future. In one of her last rallies before last night’s caucus she waxed lyrical about pressing on with the current agenda. Yet, surely, the electorate is no mood for continuation. The post recession muddle and thirty years of neoliberal economics have eroded voter’s confidence in our economic institutions, in our leadership, and even in our capability to get anything done. The electorate is losing both its nerve and its patience. Bad things happen when that occurs. Bad things like Donald Trump.

The problem with Clinton is that she cannot project an upbeat image. She cannot tell a grand story or sell a vision people can be excited about. Her idea of a great speech is an endless monotonous recitation of technocratic graft and detail the end result of which is a series of supposed minor steps forward. There is no leap. No great imagination. No hoopla. There’s just stolid in the weeds committee meeting boredom wrapped as policy. And all such policy is tentative.

Paul Krugman attacks – yet again – Bernie Sanders for selling an illusion. The illusion, apparently, is that in these dark days of gridlock no one is supposed to imagine a better way. Imagination is not the ally of action, it is the precursor to action. Clinton’s problem is that all her imagination has been blunted by forty years of grind and infighting. She no longer believes in transformation. She believes in nudging. And the people need more than nudging.

Nudging will not undo the decline in our middle class. Nudging will not re-invent a future of prosperity. Nudging will not combat climate change. And nudging will not inspire our younger people to aspire or explore or achieve beyond what now seems like ever hardening limitations.

Nudging is inadequate.

Which means that Clinton is inadequate. No matter how ‘realistic’ she appears to the likes of Paul Krugman.

And that we confirmed last night.

Let’s see how she reacts. Because a tie with Sanders was as good as a defeat.

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An Actual Election?

Well kind of. If you count a caucus as an election. So here we go, the 2016 presidential election gets under way with something more than hyperbolic news reporting. Sometime in the next twenty-four hours we will have hyperbolic reporting tinged with actual voter information.

All the preamble, which feels as if it began in 2008, is now over. People, rather than telling pollsters who they like or dislike, are having to pin their colors to the proverbial mast.

Which is what is known as a ‘good thing’.

One reason, the reason for chatting about it today rather than tomorrow, is that I am tired of the so-called experts telling me who is and who is not electable. I think that’s for us to decide.

Electability is always tossed into election races when someone with some momentum behind them is seen as threat to the establishment. This year that means people like Trump or Cruz on the right and Sanders on the left. Such people are branded as extremists or populists – I cannot quite tell which it is worse to be – and are then lampooned as being incapable of implementing their oft derided extreme or popular agendas.

In Sanders case this ‘electability’ issue blurs into a ‘implementability’ issue. We need to unpack this problem:

First, the notion that Sanders would have a problem implementing his programs is a great compliment. It implies that the serious analyst making the charge is, at least, capable of contemplating that Sanders could win. After all no one can have an ‘implementability’ problem if they aren’t in the position to try. So score one for Sanders’ momentum. He apparently has the establishment worried. And no one is more establishment than Clinton. She actually sings the praises of current policy. She affirms we are on the right course. She says we just need a steady hand. Her hand of course.

Second, let’s digest this implementability thing a bit. Surely one of the reasons this election is packed with so-called extremists and populists is that voters have a hard time perceiving that anything has been implemented in recent years. Or at least, anything that matters to them. The establishment needs to take a good hard look at its own record: what has the combined might of the serious people who think they know everything managed to achieve since 2008?

Not much.

Gridlock.

Non-Implementation on a grand scale. Obamacare being a major exception. An exception that managed to be implemented because it was a total fudge. So the critics of someone like Sanders hardly have a triumphant record as a basis for their criticism of him. Far from it.

It gets worse.

Third, and related to the last point, is the idea that extremists and populists are articulating programs that are impractical on their face. In Sanders case this is the charge leveled at his health care and Wall Street reform programs. To make matters worse those leading that critical charge are amongst the leaders – or used to be – of the liberal intelligentsia. Astonishingly, such folk as Paul Krugman have morphed from lambasting the attitudes and platitudes of ‘establishment’ people to being advocates of caution and incrementalism. Whereas once Krugman could scarcely contain himself with respect to the insider so-called serious crowd, he has now jumped onboard and embraced their position openly.

Why?

After all it’s not as if the serious insider crowd have delivered a sparkling economy, rising prosperity, social harmony or any such thing. And, to put it bluntly, the very grist of Krugman’s own intellectual milieu – equilibrium based economics – is hardly a realistic fact based rock solid planets earth type of thing.

No. I think it’s more that the establishment Democrats fear that Sanders might stir up emotions and ideas that the neoliberal consensus finds alien. So the establishment closes ranks, and deploys the ‘implementability’ word.

The way I look at things implementability is derived from two sources: willpower and cooperation, with so-called political realities heavily influenced by the former. And willpower can be sourced from the voters. This is a democracy isn’t it?

Which is the central issue in this election.

For a few decades now we have drifted steadily away from democracy towards a plutocracy managed by technocrats. The will of the people, indeed the wellbeing of the people, has been largely secondary throughout this long era in which an ever smaller cadre of businesses and wealthy people co-opted government for themselves.

The extremism and populism so disliked by the media is exactly a rejection, by the voters, of the results of this long era. The desire for change is in the air. Which the serious insider folk are trying to forestall. Why wouldn’t they? It’s been their era.

The next might not be. Hence the fear.

In any case, the first votes will be cast tonight, and we can then start to see whether the momentum for change has enough power to break the self-satisfied and self-congratulatory grip of the establishment. An establishment that has failed and is in sore need of being tossed aside.

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Lamppost Economics?

Paul Krugman came remarkably close to giving economics a big negative review in his New York Times blog last week. To sum up his argument: economics is very good at talking about, although not resolving, issues that are tractable to formal modeling — anything else not so much. You see there’s this gigantic blind spot in modern economics. If a topic cannot be modeled then it doesn’t attract too much attention. At least in the bright lights of the mainstream version of the subject. Which, of course, begs the question: what is economics missing?

Krugman’ attention was brought to this blight by an article by Justin Fox who bemoans the early lack of interest in inequality displayed by a profession whose core focus seems to encompass such a vital topic.

Here’s what Krugman said:

“I’m a few days late on this characteristically lucid Justin Fox column on why it took so long for economists to focus on income inequality. But as one of the economists who did write about inequality — especially the rise of the one percent — pretty early, I think Fox has missed one important aspect: it’s a hard issue to model.”

Well, that’s pretty straightforward.

I may be misreading this, but what I think Krugman is telling us that only subjects that can be scrunched into models are suitable material for economic. Subjects that are unsuitable are game for analysis by lesser sorts or are just not ‘economic’.

Now I am lot more sympathetic towards Krugman than many of you are, I have a soft spot for his thinking because he is willing to lead the liberal charge, but this annoys me.

What has become of economics that it cannot deal with palpably economic topics unless they can be modeled? Why can’t we analyze them using other methods? Or are those other methods inadequate, inappropriate, of otherwise beneath us?

Has economics become so myopic and small that, like the proverbial drunk looking for his car keys, it only searches under the lamppost?

Apparently, though, times are changing. The thrust of Fox’s article is that this year’s American Economics Association meeting is inundated with papers on inequality. There are seventy of them. Feast or famine in economics, and none too soon.

Economists are unwilling to make statements about issues that they don’t have scads of data about that they can them smash through their formal method. If the data is sparse, anecdotal, or tainted by some similar insufficiency then they remain mute. Even if they all acknowledge privately that the issue might be intriguing.

Then again, many more of them are mute because they can’t see the issue to begin with. Their myopia is set in concrete by the self-referential loop of economic method being part of the section criteria by which a topic becomes ‘economic’.

I give Krugman credit for being one of the mainstream economists who did mention inequality before it became fashionable. I criticize him for being so lame about this ‘it can’t be modeled’ excuse. It undermines the discipline’s credibility when what appears to be a big and highly relevant topic can so easily be sidelined because it didn’t fit the analytical pigeonhole. Isn’t this about-face? Can’t we develop tools to take a look at topics that are untidy or messy?

Which leads me to be sympathetic to Fox’s concluding paragraph:

“Still, as I wander from presentation to presentation at this week’s economics meetings in San Francisco, I can’t help but wonder what important knowledge the economists are inadvertently suppressing today.”

Yes, indeed: just what is economics suppressing today? Worse: is that suppression ‘inadvertent’ or deliberate?

 

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