Trade Imbalances are Key

Michael Pettis logically explains the need for Germany and China to reverse their trade surpluses. Despite the seemingly obvious consequences of not pursuing this path, Pettis notes that the historic precedent is for countries not to undertake the tough road (short-term pain for long-term gain) but rather fight to maintain their trade surpluses. This discussion is one of the best I’ve seen yet about the difficulties facing the EU. It is largely based on the historical precedents mentioned that my expectations for any resolution to the European crisis maintaining the union are diminished. Pettis also mentions the possibility of China devaluing their currency, exactly the opposite of what most politicians are calling for. If this occurs, I fear the US might impose heightened tariffs on trade that sparks a bout of global protectionism.

Read it at CreditWritedowns.com
If no trade reversal now, then when?
By Michael Pettis

Regressive Tendencies

“The tax code, government’s favorite instrument for distributing wealth to favored factions, has been tweaked about 4,500 times in 10 years. Generally, the beneficiaries of these changes are interests sufficiently strong and sophisticated to practice rent-seeking.”

Read it at WashingtonPost.com
Government: The redistributionist behemoth
by George Will

Quote of the Week

The first installment of the Quote of the Week comes from Time on the cross: can fiscal policy save Japan?, by Paul Krugman (9/21/99):

“What continues to amaze me is this: Japan's current strategy of massive, unsustainable deficit spending in the hopes that this will somehow generate a self-sustained recovery is currently regarded as the orthodox, sensible thing to do - even though it can be justified only by exotic stories about multiple equilibria, the sort of thing you would imagine only a professor could believe. Meanwhile further steps on monetary policy - the sort of thing you would advocate if you believed in a more conventional, boring model, one in which the problem is simply a question of the savings-investment balance - are rejected as dangerously radical and unbecoming of a dignified economy.”

For the past few years Krugman has been vigorously promoting the Japanese strategy he had previously ridiculed. To be clear, I do not disparage Krugman for simply changing his mind on this issue. What I do question is whether or not his view of other economic models has changed.

Heterodox economics has been gaining recognition over the past couple years, including this recent piece in The Economist (Marginal revolutionaries). One of the noted economists in the article, Scott Sumner, drew my attention to this quote during a recent podcast with Russ Roberts (Sumner on Money and the Fed; listen to the whole thing for a better understanding of market monetarism and NGDP targeting). Sumner is a primary proponent of greater monetary stimulus, who is perplexed that the above quote is now playing out in the US. Meanwhile other branches of economics, namely post-Keynesianism, are working to encourage acceptance of models with multiple equilibrium (which had reasonable success in forecasting the previous crisis).  

During the next few weeks I will outline the strengths and weaknesses of several branches of heterodox economics. Hopefully by acknowledging different models, the benefits of each can be combined to better shape policy responses.

Points of Public Interest

1. What’s MMT About Anyway and is the Job Guarantee Crucial to the Project? - Pavlina Tcherneva discusses the subjective policy recommendations that necessarily give Modern Monetary Theory value and offers her view on the recent debate among MMTers about the importance of a Job Guarantee.
2. How Egalitarianism Increases Inequality - Bryan Caplan makes an argument for praising the 1%.
3. The Right Kind of Hope - John Hussman highlights the poor prospects for long-run returns across asset classes and provides an update on the continually worsening European crisis.
4. Does the free market corrode moral character? - Michael Walzer compares the effects of competition on moral character within politics and markets.
5. Bastiat's Insight on Government Inaction - David Henderson explains why disapproving of government subsidies for an action is not the same as disapproving of the action itself.
6. A Challenge for Libertarians Against Federal Recognition of Same-Sex Marriage - Steve Horwitz offers his view on why supporting same-sex marriage “is fundamental to classic liberalism.”

Update (1): Responses to Two Objections to My Challenge - Steve Horwitz responds to a couple comments on the above post.

Update (2): The Job Guarantee, Kleptocracy and Blogging - Edward Harrison posts a follow-up to Pavlina Tcherneva’s comments on the Job Guarantee.

A Fresh Start to 2012

Towards the end of 2011, the number of posts on this blog trailed off as my schedule became busy. Apart from finishing the second to last semester of my Masters in Public Administration program, I was working on applications for PhD programs (which I hope to begin next fall). During this time a couple major events in my life occurred as well. On a positive note, I got engaged to an amazing woman and enjoyed a wonderful vacation with much of her family. On a sadder note, my family lost an incredible woman with the passing of my grandmother.

The start of a new year presents an opportunity for a fresh start to blogging and a chance to add some new features to the blog. Beginning this weekend you will see the first installments of my quote of the week and a weekly post highlighting my top reading recommendations. As the year progresses I also intend to post some book reviews. Hopefully this year will provide greater freedom time-wise to increase the frequency of posts detailing my own thoughts and observations. As always, I encourage readers to either post comments or e-mail me directly with questions, comments or suggestions.

As I look to improve my own blog, the beginning of 2012 marks the return to blogging of Dr. Francis Fukuyama at The American Interest. Fukuyama has spent time at several “institutions dedicated to public policy: the State Department, the Rand Corporation and the Rand Graduate School, George Mason’s School of Public Policy, Johns Hopkins SAIS, and now Stanford’s Center on Democracy, Development, and the Rule of Law.” He has taken the past two years off from blogging, in part, to write the first volume of his book, The Origins of Political Order: From Prehuman Times to the French Revolution. Although getting through this monstrous book may appear a daunting task, the effort is very rewarding for anyone sharing an interest in the history of political economy.

While I encourage following Fukuyama’s blog, I want to specifically draw attention to his first post of the year titled “Why Public Administration Gets No Respect But Should.” Much of the information I read on blogs or in the media, and even comment on here, is more directly related to public policy. Discussions tend to revolve around which policy is best and, as Fukuyama points out, ignore how easily or effectively a given policy can be implemented. Sheer impracticality of implementation renders many of the most well thought out policies ineffective.

As I approach the completion of my Master’s in Public Administration and head towards a PhD, the importance of public administration is certainly a belief I share. Regardless of one’s political affiliation, I think most Americans (probably most people) will agree that government (on any level) could be more effective and efficient. Improving education in public administration and incorporating these topics into policy conversations will go a long way towards improving governance. I fully intend to be part of this effort in the years ahead.

Happy New Year!