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    Maxine's Essays

    • 21st Century Regress
      Sometimes it seems like the world is going to hell and there's absolutely nothing a girl economist can do about it.
    • What Exactly Are We Crowding Out?
      The current economic downturn isn't a random draw of a black ball from an urn containing white balls and black balls. There's no sampling distribution. Very specific policies and actions landed us here. Now we must decide not only what policies need to be put in place to prevent it happening again, but also what policies would best drive us out of the ditch faster and sustainably.
    • I Wish It Were Only Butter
      We should be giving up some butter if we must. We should not give up education or health investment (or infrastructure or the environment (hello, BP). They may be the only legacies of any value that we pass on to our children and grandchildren.
    • Rational Health Investment?
      The obvious "market solution" is to improve the long run return on investments in health among the disadvantaged through meaningful and effective publicly funded education. The obvious short run "market solution" is to reduce the costs of investment and the shadow price of health for the disadvantaged by providing health insurance cover and reduced out-of-pocket costs.
    • The Socrates Parameter
      To the extent that our limbic systems respond to such engineering by over-riding the judgment of our frontal lobe and to the extent that our frontal lobe is deprived of the information it requires to make a rationally self-interested judgment, we are not only pigs and fools, we are slaves.
    • The Economic Rewards of Virtue
      If individual virtue tempers our "piggy" desires and conditions our choices to something that is both individually and socially better, then the economic rewards of virtue as embodied in and promoted by societal norms and institutions are far greater than we have ever suspected. As economists, we would do well to recognize this when we teach U max.
    • The Market for Morals
      Markets then are places where more is exchanged than goods and services, labor and product, credit, and interest. They are places where we also develop the personal virtues of temperance and prudence and the social virtues of benevolence and justice. When they function well, they produce trust, loyalty, and sympathy among those who trade there.
    • Post-Modern Applied Economics: It’s the Error Term, Stupid
      Maxine believes it’s time to refocus attention and discussion on the error term. It is often where much of the action is in our models. It is where unexpectedly catastrophic events dwell resulting in fat tails. It is where our animal spirits manifest and cause us to do the right thing or the wrong thing or the thing everyone else is doing rather than the self-interested, fully-informed rational thing. It is where God and miracles and chance dwell.
    • Intergenerational Win-Win: Health Insurance, Education, Environment, Infrastructure
      So when we’re talking about fiscal stimulus packages and we’re borrowing from our grandchildren to finance them, we should be thinking about how to use stimulus monies to create value for those grandchildren AND stimulate our economy.
    • Short-term Private Payoffs, Long-term Social Costs
      The real health reform discussion, the one we should be having, is “What must we do to create a health system that is both efficient and fair?” The answer will almost certainly include relegating the private sector to markets where market forces or regulation are effective at aligning short-term private incentives and goals with long-term societal interests. If such markets are scarce or non-existent in health, then the private health sector will be of limited value.
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    11/29/2010

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    Hmmm ... well, there is morality and practicality. Let's look at the latter:

    - At no time can all persons can be either savers or spenders. The situation in the US is an overhang of spenders (with personal savings an artifact of defaults). If all spend, someone elsewhere outside the US must save. China? Germany? How is this imbalance good economix?

    In deflation, spending is a slow form of suicide by means of money. Money has more value than commerce. That is what deflation is. Spending in deflation is throwing away something of value for junk, basically.

    In Depressions -- which are a form of class warfare -- spending BY LABOR is the simplest way to be destroyed by capital. The only way for persons of small means to prevail in Depressions is to hold onto their money, even if they starve to death as a consequence! Their heirs and assigns will then have the money to be withheld from capital.

    In deflations, capital perishes without flows of funds. Capital management costs are sticky, after all ...

    Since our current 'travails' are the consequence of the waste- based economy run amok, cutting spending is the inevitable consequence of resource constraints.

    Add together: overseas account imbalances, deflation, a class war that requires thrift as a strategy to survive and win, and the end of the waste- based economy.

    Thrift is in, Baby, let's dance!

    http://economic-undertow.blogspot.com/2010/11/bits-and-pieces_29.html

    I think you are overreacting a bit. True, this is a trivial cut, and we need a combination of tax increases and spending. However, I think Interfluidity got this right a while back. Like it or not, many people do suffer from resentiment when they feel that others are exempt from the travails we all suffer. This small gesture will mean much more that it is really worth. Besides, government workers really have been exempt from the decrease in pay many others have seen. FDR understood that symbolism matters.

    Steve

    Steve, a better symbolic gesture would be to allow the Bush tax cuts to expire on the richest 2% of Americans. If we're all in this together, they can take a cut, too. And it would be better economics.

    Well, yes, but one does not exclude the other. I hope he makes a strong stand on that issue. Having taken this issue up first, he now has some credibility on the debt issue and can address it from that POV.

    Steve

    i tend to agree with steve, maxine, if only becasue it was a politically smart move...you & krugman can see it as a cynical ploy, but most americans if they hear about it at all will take it at face value....with this trivial move he defuses most of the right wing big guvmint democrats ranting that has been the underpinning of the opposition over the past months...i'll bet polling numbers would show something north of 80% in favor of such a freeze on guvmint workers...

    of course, it's lousy economcs, and bad timing (he should have pulled this before the midterms), but it's likely that the rethuglican congress would have enacted something like this come january anyhow...

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