Tuesday, February 24, 2009

why I'm not an unqualified libertarian, part II

David Brooks' latest NYT column would be mandatory background reading should I have another post on this subject, and am linking to it now for ready reference.

Saturday, February 21, 2009

the sorry state of Alberta's sovereign fund

The Globe and Mail has a story on THE story that needs to be told in Alberta. The raiding of the Heritage Fund is the #1 reason I ran against the P"C" party as a Wildrose Alliance candidate a year ago. Finance Minister Evans says the government is going to spend its way into oblivion, anything that stops that slide must be "not at the expense of public services." Of course, ANY saving measure (or tax cut) is going to be at the expense of an increase in public services... in the short term.

See this Calgary Herald piece (or this one by some Fraser Institute economists) reviewing how Alberta arrived at its present state. "Shameful," concludes the Herald.

Sunday, February 8, 2009

"Wildrose won the political war"

For a political party that was supposedly not just soundly defeated in last year's provincial election but downright annihilated, it's somewhat surprising to see a media pundit opine that the Wildrose Alliance won a political war with the Tory behemoth (over the royalties framework).

Paul Krugman increasingly shrill

Krugman is now lamenting that there are "wingnuts everywhere". Apparently what these wingnuts have in common is a skepticism of Keynesianism. Yet from a purely sociological perspective, if deviants are "everywhere", isn't deviation the new norm?
Last summer, Krugman labelled "Republicans ... the party of stupid". But if that's true, how is it that Krugman's professional colleague, Harvard prof Greg Mankiw, should be sending "kudos" to a lengthly list of politicians, every last one of whom has an "R" behind his or her name?
Methinks the Nobel laureate writing for the NYT should dial it down a notch. Not because he doesn't have a valid point about influential elements of the 21st century GOP being overly hostile to the intelligentsia, but because his charges of widespread wingnuttery suggest as fact something that simply isn't, namely, that those who disagree with him subscribe to fringe theories not to be taken seriously by educated people.
Acccording to David Brooks,
About a third of economists that I was talking to really hate this bill. They think it will cause inflation, really screw up our long-term fiscal situation. Republicans are arguing out of principle, I think.

Part of the problem here with finding a consensus is that there isn't a textbook economic answer like there is to questions like rent control or free trade. It is generally agreed that the long term objective must be to move out the long run aggregate supply curve. But that doesn't say anything about what to do about the short run aggregate demand curve. Most of the serious stimulus skepticism is not directed at Keynesianism as a theoretical model so much as at the efficacy of any particular government effort to manage demand and the political difficulties of reversing in the future deficit spending that is supposed to be reversed.
The Economist's Feb 7 edition notes that a "main conflict lies between the need to spend quickly and the desire to spend well." My own view, and I suspect that of most of my fellow stimulus skeptics, is that in the presence of uncertainty, one should err in favour of spending well. Having said that, there's no denying that whatever the merits of Schumpeter's "creative destruction", the Great Depression wasn't worth it. There does come a point where the risk of a devasting collapse in demand is so great that massive spending is called for. Whether we have reached that point, or could even ever reach that point when monetary (as opposed to fiscal) policy is running flat out expansionary (something that was not the case in the 30s), is another question.

You knew conservatism and fiscal prudence had gone the way of the Edsel when the promoters of Montreal's Just for Laughs festival praised the Flaherty budget for lavishing money on festivals. Comedians no longer exist just to give us the giggles: now they're economic stimulus.
- Derek DeCloet, G&M ROB, Feb 7

Thursday, February 5, 2009

Economist's endorsement of Obama: second thoughts?

When one reads the Economist's latest leader, and considers the fact that John McCain led an effort in the Senate this week to do exactly what the Economist is calling for (killing "Buy American" provisions), one can only wonder if this august publication isn't having second thoughts about its endorsement of Obama over McCain.

The most important consideration for me is not whether a politician is left or right, brilliant or ignorant, but his or her inclination to resist populism. This is not a long held opinion of mine but something that I've arrived at with relatively experience in both a policy shop and the political process. Newfoundland's Danny Williams and Alberta's Ed Stelmach are members of "Conservative" parties, with most seriously competitive parties to their "left". Yet both are thorough-going populists. If you don't think Stephan Dion's "Green Shift" was, details aside, intelligent policy (never mind the poitics), why does Greg Mankiw (and a legion of other economists) argue for something similar?

Barack Obama is more intelligent than John McCain. But the policies of President Obama (which is what was actually being voted for) may well prove to be far more unintelligent than the policies of a President McCain would have been. This is simply because Obama might never stand up against unintelligent policy when it is politically disadvantagous to do. Obama is too smart to quickly make himself unpopular. McCain, on the other hand, might well be dumb enough, or, more charitably, pig-headed enough, to insist on doing the right thing regardless of the political consequences.

President Obama and his economic advisors should state -- no, scream -- that America is unambiguously committed to free trade.
- Jeffrey Miron, senior lecturer in economics, Harvard University

Wednesday, February 4, 2009

more on the origins of the financial crisis

Tony Frost, an International Business prof at Ivey (Western's B-school), writes one of the best summaries I've seen on this topic. I note that it echoes some of the themes I touched on back in November. Part of the reason I believe Frost has a better grasp of the factors than many experts is because he's coming from a biz school environment instead of an economics department. It's still academia, but it's a step closer to industry than economics departments.

That doesn't mean that I think Frost's account is complete. A complete account would expand on the relevance of the abstract concepts I raised last year like information asymmetry, moral hazard, and adverse selection.

Tuesday, February 3, 2009

Krugman's broken windows

In his Feb 1 post re the "Buy American" provisions in the US stimulus bill, Paul Krugman argues that not only is fiscal demand management good policy, it is good even when it is admitted that the spending is inefficient.

Krugman makes a large concession when he grants the validity of the comparative advantage argument that's at the root of the economic consensus supporting free trade. It follows that he would have to concede that national stimulus packages which stimulate production of goods in which those nations have comparative disadvantages (i.e. have buy domestic provisions) would also be inefficient. Krugman essentially concedes that even if Doug Irwin's examples of inefficiency obtained, in other words, the need for spending now is so great it is necessary even if the same spending some time later (when domestic suppliers to government did not have a monopoly) would buy more. The need for more global stimulus is so great that apparently it would make "the world as a whole better off" even if Canada's government was using taxpayer money to develop a domestic banana industry while Singapore subsidized domestic softwood logging! Special times call for special measures... even broken windows!

For an economist, an appeal to efficiency is the trump. Yet Krugman seems to believe that trump can be trumped by an appeal to Keynesianism.

As for the empirical (evidence based, as opposed to theory/logic based) argument, perhaps Krugman will comment on the findings of the centrist Peterson Institute that "Buy American" would likely cost more jobs than it creates.