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Article Artículo

Robert Samuelson and the Second Great Depression Crap

Hey folks, I saved you all from a Martian invasion, you really should be thankful. And Robert Samuelson says we were saved from a second Great Depression by the actions of the Federal Reserve Board. Yes, both claims are lies, but Samuelson's lie is more transparent than my lie.

The point here is a simple one, we know how to get out a depression. It's called "spending money." We got out of the last Great Depression by spending lots of money on fighting World War II. But guess what, the economy doesn't care what we spend money on, it responds in the same way. So if we instead had spent 20 percent of GDP on building highways, housing, hospitals, and providing education and child care it also would have led to double-digit economic growth and below 3.0 percent unemployment.

So anyone who claims that we risked a second Great Depression if the Fed and the Treasury Department had not saved the Wall Street banks is saying that the politicians in Washington are too brain dead to figure out how to spend money even when the alternative is double-digit unemployment. Note that tax cuts count in this story too. So the second Great Depression argument is that the Democrats and Republicans could not possibly figure out a mix of tax cuts and spending that would provide a large boost of demand to the economy.

I will confess to not having a great deal of respect for most politicians, but I have seen many of them tie their shoes. I find it more than a bit far-fetched to claim that they would not ever (a second Great Depression implies years of double-digit unemployment, not just a short downturn) figure out that they need to agree to a package of tax cuts and spending to boost the economy.

Anyhow, this proposition is at the core of the second Great Depression claim, so if you don't think that the members of Congress are complete morons, then you can't believe the second Great Depression story. The point is important because in the fall of 2008 we had the option to clean out the Wall Street cesspool in one fell swoop by allowing the market to work its magic. Most, if not all, of the major Wall Street banks would be out of business.

CEPR / August 01, 2016

Article Artículo

Greg Mankiw Argues that Protectionism Is Likely to Become Increasingly Dominant As More People Take His Economics Classes

The elite types have noticed that the masses are not happy about the economic agenda that they have crafted. Since the elites can’t imagine that the problem has anything to with the fact that their agenda is designed to redistribute income from the masses to the elites, they turn to psychological explanations.

In this vein, Greg Mankiw, a Harvard professor and former chief economist to George W. Bush, used his NYT column to discuss voters’ attitudes toward trade agreements like NAFTA and the Trans-Pacific Partnership (TPP). The research he highlights finds that attitudes towards trade don’t seem to depend on a person’s direct economic stake in trade but rather their perception of how trade affects the economy.

It turns out that the latter is highly correlated with education. Those with college degrees generally believe that trade agreements have been good for the economy and support them, while those with less than college degrees generally believe trade has been harmful and therefore oppose them. Mankiw sees this as good news for the long-term, since as more people graduate college a higher percentage will support trade deals.

Remarkably, the analysis Mankiw relies upon never asked about the location of the respondents, or at least this is not reported. That might have mattered, since a factory worker in an area that has lost a large number of jobs to imports, like Pennsylvania, may be expected to have a more negative attitude toward trade than a factory worker in an area where the economy is relatively healthy, like California. This is likely to be the case even if we controlled for more narrow industries.

CEPR / July 30, 2016

Article Artículo

Thomas Friedman Says the People He Disagrees With Are Like Donald Trump

Thomas Friedman moves beyond his Flat World to divide the world into "Web People," who he likes, and "Wall People" who he holds in contempt. Donald Trump is naturally the lodestar of the Wall People, but the category goes well beyond the people who want to put up a huge wall on the border with Mexico.

Someone with nothing to do with their lives could perhaps try to find some coherence in Friedman's definitions, but the most obvious definition of Wall People is people who don't share his vision of the world, which he attributes to web people.

"In particular, Web People understand that in times of rapid change, open systems are always more flexible, resilient and propulsive; they offer the chance to feel and respond first to change. So Web People favor more trade expansion, along the lines of the Trans-Pacific Partnership, and more managed immigration that attracts the most energetic and smartest minds, and more vehicles for lifelong learning.

"Web People also understand that while we want to prevent another bout of recklessness on Wall Street, we don’t want to choke off risk-taking, which is the engine of growth and entrepreneurship."

Okay, so let's work through some logic here. If you want to see a freer flow of ideas and technology, by replacing patent and copyright monopolies with more modern ways of promoting innovation and creative work, then you are a Wall Person. After all, Friedman's Web People wouldn't know how to get by in the world without these relics from the feudal guild system.

If this means that life-saving drugs, which would be cheap in a free market, are priced beyond the reach of the people who need them, well get used to Thomas Friedman's world. If it means that we have to turn the whole world into copyright cops to ensure that Disney can collect its royalties on Mickey Mouse, that's a small price to pay to keep the Web People wealthy.

CEPR / July 28, 2016