Category Archives: CONGRESS WATCH

Updates from Chicago Booth

No, America is not more divided than ever before
By Howard R. Gold – It may seem sometimes like the United States is coming apart. “While rural America watches Duck Dynasty and goes fishing and hunting, urban America watches Modern Family and does yoga in the park,” write Chicago Booth’s Marianne Bertrand and Emir Kamenica.

“The economically better-off travel the world and seek out ethnic restaurants in their neighborhoods, while the less well-off don’t own a passport and eat at McDonald’s.” Conservatives, they write, favor masculine names for boys while liberals prefer more-feminine names, and men play video games while women browse Pinterest.

These kinds of cultural splits can have economic, social, and political consequences in that they may ultimately reduce social cohesion within a country. But according to Bertrand and Kamenica, who measured cultural divisions over time, the cultural gap in the US is largely stable—not widening.

The data reveal that divisions definitely exist. Watching certain movies or television shows, reading certain magazines, or buying particular consumer products are predictable markers of traits such as how much money people make or how far they got in school. more>

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Why Society’s Biggest Freeloaders Are at the Top

By Rutger Bregman – These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it.” By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world.

Now, we may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.

So entrenched is this assumption that it’s even embedded in our language. When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.

In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. more>

The World Order Is Starting to Crack

By Stewart Patrick – When Donald Trump was first elected U.S. president, foreign observers hoped that he would moderate his more outrageous campaign positions as the practicalities of governing socialized him to adopt more conventional stances. Failing that, they hoped to contain the damage until the U.S. electorate returned to its senses. Trump’s scythe has sliced through these thin reeds.

For a onetime chaos candidate, Trump has been remarkably methodical in his efforts to destroy the liberal international order.

Stunned U.S. allies are now adapting to their new normal by taking steps previously unimaginable. They are hedging their bets in dawning recognition that the America of old may never return, regardless of who succeeds Trump. They are pursuing strategic autonomy, seeking to decouple from an unpredictable United States. And they are considering how to restore some semblance of international cooperation in a world left rudderless in the wake of the U.S. abdication of global leadership.

Collectively, Trump’s actions have sent U.S. allies reeling, shaking their long-standing faith in the West as a community of shared values, interests, and institutions. In response, they are working with China to safeguard globalization, expanding their own strategic autonomy vis-à-vis Washington, and grasping to defend what remains of the open world from the depredations of its erstwhile creator.

Trump’s trade protectionism has done the seemingly unimaginable. It has allowed mercantilist China—which flagrantly steals intellectual property, restricts foreign investment, and protects entire sectors from foreign competition—to portray itself as a bastion of multilateral trade. more>

Politics, Pessimism and Populism

By Sheri Berman – Social democracy was the most idealistic, optimistic ideology of the modern era.

In contrast to liberals who believed “rule by the masses” would lead to the end of private property, tyranny of the majority and other horrors and thus favored limiting the reach of democratic politics, and communists who argued a better world could only emerge with the destruction of capitalism and “bourgeois” democracy, social democrats insisted on democracy’s immense transformative and progressive power: it could maximize capitalism’s upsides, minimize its downsides and create more prosperous and just societies.

Such appeals emerged clearly during the inter-war years, when democracy was threatened by populism’s more dangerous predecessor—fascism.

In the United States, for example, FDR recognized that he needed to deal not merely with the concrete economic fallout of the Great Depression, but also with the fear that democracy was headed for the “dust heap of history” and fascist and communist dictatorships were the wave of the future. This required practical solutions to contemporary problems as well as an ability to convince citizens that democracy remained the best system for creating a better future. As Roosevelt proclaimed in his first inaugural address:

‘Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for…. [Our problems are not insolvable, they exist] because rulers have failed…through their own stubbornness and… incompetence….This Nation asks for action, and action now….I assume unhesitatingly the leadership of this great army of our people dedicated to a disciplined attack upon our common problems….The only thing we have to fear is fear itself’. more>

The Wounds Won’t Heal

By David French – We usually place outsized emphasis on elections that define our politics and too little emphasis on the values that define our culture.

But it was the nomination of Kavanaugh and the wrenching debate about core cultural and constitutional values that dominated American discourse these past few weeks. It’s a debate that illustrated the fundamentally different ways in which conservatives and progressives view the world, and it unlocked not just an intellectual response but an emotional response that has radicalized otherwise reasonable and temperamentally moderate individuals into believing that the other side hates even the good people in their own tribe.

And so when Ford came forward, it’s as if her allegations landed in two different countries. The good-faith residents of Redworld were skeptical and said, “Prove it.” The good-faith residents of Blueworld believed Ford and said, “Finally, she has a chance for justice.” The presumptions were diametrically opposite, and everything that followed turned on those different presumptions. more>

They Go Together: Freedom, Prosperity, and Big Government

Countries with larger government sectors tend to have more personal freedom
By Ed Dolan – The Human Freedom Index consists of two parts. One is the Economic Freedom Index (EFI) from the Fraser Institute, which includes measures of the size of government, protection of property rights, sound money, freedom of international trade, and regulation.

The other is Cato’s own Personal Freedom Index (PFI), which includes measures of rule of law, freedom of movement and assembly, personal safety and security, freedom of information, and freedom of personal relationships. The Cato and Fraser links provide detailed descriptions of the two indexes.

In order to explore the way freedom influences other aspects of human well-being, I will draw on a third data set, the Legatum Prosperity Index (LPI) from the Legatum Institute. The LPI includes data on nine “pillars” of prosperity, including the economy, business environment, governance, personal freedom, health, safety and security, education, social capital, and environmental quality.

The relationship between economic and personal freedom is partly explained by the fact that both are positively associated with income. As the next chart shows, that relationship is nonlinear for both measures of freedom. The log of real GDP per capita, expressed in U.S. dollars at purchasing power parity, provides a reasonably good fit.

There are many measures of prosperity and well-being available. I hope to be able to explore several of them and their relationships to human freedom in future posts. In this introductory treatment, however, I will limit myself to the education, health, and personal security indicators from the Legatum Prosperity Index. In what follows, I will refer to the average of these three Legatum “pillars” as the education-health-safety index, or EHS, measured on a scale of 1 to 100. more>

How The Handling Of The Financial After-Crisis Fuels Populism

By Guillaume Duval – Ten years after the collapse of Lehman Brothers people are frequently asking themselves why the crisis has done so much to strengthen populism and nationalism everywhere you go. However, economically and socially, the process that lies behind this development is, unfortunately, all too easy to describe.

During the aftermath of the 2008 crisis, central banks’ rescue of finance continued on an unprecedented scale for ten years with what is called Quantitative easing (QE). The striking effect of this was to send prices of financial assets sky-high and thereby substantially enrich the bankers, speculators and the already rich holders of these assets at levels that are much higher than before the crisis.

At the same time, ordinary people found themselves lastingly out of work on a huge scale. Governments whose own finances deteriorated steeply – not least because of their aid to the financial sector – rushed to cut back on their spending, especially on welfare. Everywhere, classic right-wing governments but also social-liberal left ones as in France adopted deflationary policies to cut the cost of labor and loosen up the labor market rules, thus making ordinary people’s working and living conditions far worse. While cutting again the taxes on the super-rich and corporate earnings to preserve the country’s “attractiveness.”

These public policies – that have put all European countries permanently on the edge of recession and deflation – are also the main reason for the pursuit of the above-mentioned monetary policy that has so significantly increased inequalities. more>

How The Republican Leadership Broke The Four Rules Of Crisis Management

By Steve Denning – In its actions over the last ten days, the Republican leadership has jeopardized its goals through its failure to respect the rules of crisis management:

  • Recognize the crisis as a crisis
  • Get out as much information as possible as soon as possible, particularly any negative information
  • Avoid saying anything that has to be withdrawn
  • Avoid doing anything that looks like a cover-up

The first failure of the Republican leadership was the failure to recognize the crisis as a crisis. The Republicans’ first instinct was to to brush aside the accusation as partisan politics and press ahead with a quick vote on Kavanaugh’s nomination. A single accusation from one woman 36 years ago was presented as “a little hiccup.” (Senator Dean Heller)

However, once the identity and professional background of the accuser became known, first to the FBI on September 13, and then to the public on September 16, it became apparent that she deserved to be heard, as Senators Flake and Collins insisted. In effect, if the Republican leadership had pressed ahead, it would have been at risk of not having enough Republican votes for success.

What the Republican leadership hadn’t initially grasped was that this was a real crisis for Kavanaugh’s nomination. It would have been one thing if the accusation was being made by a partisan politician. It was another when it was made by a well-respected professor, with no active record in partisan politics and no particular axe to grind. Coming in the midst of the #MeToo movement, the accusation was bound to be a sensation. more>

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Four Lessons (Not) Learned From The Financial Crisis

By John T. Harvey – That’s fantastic. Good work, Presidents Bush, Obama and Trump. But just because we bailed the water out of the sinking ship doesn’t mean we patched all the holes. And while the former is a necessary first step, without the latter we won’t remain upright for long.

So what didn’t we fix that could still potentially cause a catastrophic leak? Too much. Here’s a short list of what we should have learned but didn’t.

  1. If you are going to bail someone out, bail out the debtor and not the creditor
  2. Financial institutions should be very closely supervised
  3. The market is not always right
  4. Deficit spending doesn’t cause inflation or bankruptcy

Most people assume that what financial institutions do is loan out other people’s money. That is, of course, part of what they do, but what is far more significant is the fact that they create money. I don’t just mean the intro-econ, money-multiplier story where banks make loans after the Federal Reserve injects new funds. In fact, that view is so wrong that economics professors are beginning to eliminate it from their curriculum (not nearly fast enough, but it’s getting there).

Rather, the standard scenario is one in which banks increase the money supply first by making loans to customers and then the Federal Reserve steps in second to supply the necessary reserves. Financial institutions make money out of thin air, not from someone’s savings, and if that leaves the system short of reserves then the Fed buys securities from banks. They do this to prevent interest rates from rising above their targeted rate and therefore the central bank accommodates rather than dictates when it comes to the supply of money. more>

Lessons From The Greek Tragedy Unlearnt

By Simon Wren-Lewis – Private banks were happy to lend to the Greek government because they mistakenly believed their money was as safe as if they were lending to Germany.

Other governments first delayed and then limited Greek default because they were worried about the financial health of their own banks. They replaced privately held Greek debt with money the Greek government owed to other Eurozone governments.

From that point voters would always want all their money back. In an effort to achieve that the Troika demanded and largely achieved draconian austerity and a vast array of reforms.

The result was a slump which crippled the economy in a way that has few parallels in history. Most economists understand that in situations like this it is ridiculous to insist that the debtor pays all the money back. For basic Keynesian reasons this insistence just destroys the ability of the debtor to pay: it is not a zero sum game between creditor and debtor. This is why so much of German debt was written off after WWII.

By July 2015 the Greek government was able to pay for its spending with taxes, so all it needed was loans rolled over. The Troika would only do that if the Greek government started running a large surplus to start paying back the debt i.e. further austerity. more>