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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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    If no one in the liberal wing of the Democratic Party can find the courage to filabuster Obama's compromise in the Senate the liberal wing will deserve what it gets: to become irrelevant for the next two years as Obama triangulates

    Not a substantive comment (though I like the post a lot) - just thought you might be interested in the Red Army Chorus's version of "16 tons," which a friend of mine happened to post on face book yesterday.

    Hi Maxine,
    Yes, I’ve been watching this loss of power and subsequent debt enslavement of the working, then lower professional classes for some decades – first in the USA, then spreading to the rest of the English speaking world including Australia where I live.

    I’d pretty much predicted the results you list. Strange thing is nobody else seemed to, yet I’m certainly no Einstein.

    Even more surprising, somehow the once solid, unionised Australian workers were somehow convinced that losing bargaining and political power was good for them??? More realistically, I suspect that they were sold on the idea that abandoning those below them would somehow benefit themselves.

    The reality of course is that it only benefited the top 5% or so and the tide of disempowerment eventually reached successively higher socioeconomic groups. It’s surprising how easy it is to corrupt people and convince them to support actions that are disastrous to themselves if you just convince them that somehow they have a chance to joining the very rich.

    Stephen Heyer

    Very much appreciating your going after the roots of things, Maxine.

    Here's a kind of fascinating model from the NYTimes - to extent it's real.

    Now, with this model, notice that you can solve the deficit totally through 2015, and almost totally through 2030, simply by picking items from the most bottom rows plus medical malpractice reform.

    In other words, the problem is that the well-off are simply not paying enough taxes. Again, to extent this model is real.

    Ideologies exist because those affected feel afraid of this picture -- but rather than 'taking everything from us' as a revolution historically would do, there is little of meaning they would have to give.

    Just share fairly. Then, we don't have to talk about where their large benefit comes from.

    Meanwhile, yes, work to build all the new things needed, in terms of culture and so-related economy.

    If you have never done so, you should tour some of the old mines. Very informative, especially when all the lights go out so you can see what it would be like for a child of 8. At any rate, maybe Lord Acton deserves quoting.

    "The issue which has swept down the centuries
    and which will have to be fought sooner or later
    is the people versus the banks."


    Steven Heyer,
    in Australia I'm pretty sure that real wages have not eroded to the extent they have in US, and also effective tax rates have not been eroded to same extent. There may be something happening of the same kind as what has happened in the US, but it is nowhere near the same degree.

    It occurs to me that there is another part of this story of expanding household debt that needs more explaination. One part of the story is the Henry George story of surplus flowing into rents and land prices. I keep pushing that mainstream economists take urban land prices as a driving force in economy more seriously (and consider more carefully the implications for policy). Don't leave Georgism to the single tax fanatics - PLEASE.

    I haven't read the model presented here, but I'm wondering what their model of household consumption looks like. They still need to explain some things it seems to me. Why do households keep consuming as though their incomes are larger? Why do they choose to take on ever more debt? What has been happening to real returns on investment - what has been happening to real interest rates and why? I'm not convinced the story is fully understood yet. (Personally, I think part of the answer lies elsewhere, in how the economy has dealt with risk.)

    "surely dollars that go back to investors are then distributed as investment in new, more highly productive capital that generates new jobs"

    A lot of what passes for economic thinking takes place in just the kind of moralizing cliches, which you attempt to parody, in the quoted passage.

    When the deployment of authoritarian power has such excellent "returns" in arrangements akin to "the company store", we shouldn't be surprised to see what might be called "negative-sum" games crowd out positive-sum games in economic cooperation. Even if total output is depressed, if the gal in charge gets more and more, what the heck! Haiti is lovely in Winter, eh?

    We really should be thinking about whether low marginal tax-rates on high-incomes -- especially high-incomes derived from the exercise of executive authority -- are a good idea. Do we want a manager, whose stock-in-trade is power, to be working overtime? Taking risks with other people's jobs and other people's money?


    You might find a part of the answer in Ibn Qaldun's idea of 'asabiya' - a metric of social solidarity used by mathematical historians (cliometricians) such as Peter Turchin.

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