Archive for the ‘Economics’ Tag

The Primacy of Politics in Budget Policy

Regarding Evan Bayh’s Budget Commission I wanted to comment on the aristocratic and undemocratic nature of any such proposal.

Issue area commissions being undemocratic is not so noteworthy; they are created because the traditional democratic process has failed. There’s a strong case that the 9-11 and BRAC commissions made valuable conclusions and recommendations that politicians could just never make. But in the case of the budget you’re talking about outsourcing society’s decisions on a much wider basis.

And who gets to make the recommendations? You could expect former politicians and appointees of the Democratic and Republican parties, either evenly or almost evenly divided. So decisions about the future would be made by politicians of the past. You would make no effort to reflect the outcomes of recent elections and implicitly ignore the possibility anyone other then Republicans and Democrats would ever win elections in the future.

Because the process is undemocratic all the legitimacy of a Budget Commission would come from 1) The superiority of their recommendations and 2) It’s success in getting policy results. The second category would clearly be the most problematic, why exactly is Congress going to listen to this Commission and why should we waste our energy and focus if they won’t?

I think Evan Bayh focusing on this issue is admirable but, like so many proposals, the surrounding actions of the people making the proposals is more important then what they’re actually proposing. In terms of efficacy of the a Budget Commission it’s at least as important who supports it, then the details of it’s stated mission. A broad coalition of legislators and maybe the recommendations matter, a narrow group of legislators and it’s in a useless exercise. You can’t write politics out of policy making, but you can get buy in from politicians for a solution.

-Chris

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Create Jobs, Jobs, Jobs

Great article from Alec MacGillis in the Washington Post’s Outlook Section.

Yet the national unemployment rate has now hit 10.2 percent, helping explain why Republicans won the governors’ races in Virginia and New Jersey last week, just a year after the party’s 2008 drubbing. And Obama declared Friday that more action is needed.

“History tells us that job growth always lags behind economic growth, which is why we have to continue to pursue measures that will create new jobs,” he said. “And I can promise you that I won’t let up until the Americans who want to find work can find work.”

It was a strong vow, but it raises a question: Why has a White House that talks so much about boosting employment steered clear of the most direct strategy that could keep Americans on the job?

Direct hiring is only one part of a larger issue of pursuing a full employment goal. As the Obama Administration Economic team tells everybody within ear shoot every five minutes, they inherited a really bad situation and they designed a policy which mitigated the damage. Obama’s economic team is right that they inherited a bad a situation, but nobody cares and they’ll need to do better then this explanation of their policy by Larry Summers:

“I think we got the Recovery Act right,” Larry Summers, the president’s chief economic adviser, said in an interview. “The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”

Larry Summers really, really needs to think about that particular line. Since when was creating jobs a secondary goal and since when did the President’s economic advisers actually proceed to admit that job creation wasn’t a primary goal?

It’s likely a post hoc rationalization of the outcome of their stimulus policy, which to date has created great gains in productivity, but basically no positive job creation. We need a self consciously full employment policy and the stimulus bill wasn’t that policy. Pursuing a full employment policy is the ethical, economically and politically right thing to do.

-Chris

Sunday Reading on Biophysical Economics

Interesting article in the New York Times a few days ago on advocates of factoring energy more rationally into economics.

A small but growing group of academics believe the latter is true, and they are out to prove it. These thinkers say that the neoclassical mantra of constant economic growth is ignoring the world’s diminishing supply of energy at humanity’s peril, failing to take account of the principle of net energy return on investment. They hope that a set of theories they call “biophysical economics” will improve upon neoclassical theory, or even replace it altogether.

It’ll be interesting to see what new(ish) ideas move to the forefront as people look for new paradigms to deal with 21st century problems.