Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. An earlier version appeared in Project Syndicate.
Democrats are gearing up for the November mid-term elections, in which they hope to take back the US House of Representatives. Candidates are finding that the voters are not necessarily paying close attention to foreign affairs or even Trump scandals, and are more concerned about “pocketbook issues.” The conventional wisdom still stands: underlying the shock election of Mr Trump was a perception by the median household that it has been left behind by globalization and technological change and that the gains have been going to the rich instead.
The Democrats are said to be in need of an economic platform to address these median-worker concerns. From an economist’s viewpoint, it isn’t hard to think of proposals in eight policy areas that would simultaneously continue to expand the national pie while sharing the slices more equally. It is even possible to think of a package that is revenue-neutral, quite unlike the Republican tax cut passed in December, which is blowing the budget deficit wide open at precisely the wrong time. But the list of policy proposals shouldn’t be primarily redistributional – in part because many median voters say they disapprove of income redistribution, even if they benefit personally.
- First, increase spending on infrastructure investment. It is needed for economic growth in the long run and creates blue-collar jobs in the short run. Pay for roads and bridges with an updated higher gasoline tax.
- Second, expand, don’t reduce, the health-insured population. Start by repairing the damage that the Republicans have done to the Affordable Care Act (Obamacare).
- Third, expand and improve education. In particular, pursue high-quality universal pre-school education, so that children can enter kindergarten on a more equal footing. Expand higher education too (especially community college). But don’t do it via government loans that go into the pockets of those for-profit universities where a majority of students leave with nothing to show for their experience but high debt. Only schools with adequate graduation rates and job placement records should be eligible.
- That leads to the fourth issue area, financial regulation. The Republicans are busy trying to weaken it at precisely the wrong time, at the peak of the financial and business cycles. Keep the Dodd-Frank financial reforms. To minimize the risk of another financial crisis, keep the supplementary leverage ratio placed on the largest banks, which newly appointed regulators are working to relax. Bank capital standards should, if anything, be further tightened.
Resume the good work that the Consumer Financial Protection Bureau has done until now, protecting households who take out high-interest pay-day loans, student loans, and car loans. And of course housing finance, where the 2007-08 crisis originated. Mortgage-originators, for example, should be required to “keep skin in the game” by risk-retention rules.
Reinstate Obama’s fiduciary rule, which would have required professional financial advisers, in return for their fees, to put their clients’ interests first when advising them on assets invested through retirement plans.
- Fifth, reform the personal income tax to “make work pay” by reducing marginal tax rates on low-income workers, not high income workers. For example, expand the Earned Income Tax Credit. Abolish the carried interest deduction (which benefits wealthy managers of private equity and hedge funds), as candidate Trump (and Clinton) promised to do in the 2016 presidential campaign.
Don’t eliminate the estate tax as the Republicans want to do. To the contrary, when a couple leaves more than $10 or $20 million to their heirs, some fraction of the excess should go to the Treasury.
- Sixth, cancel the Trump tariffs on steel and other imports. Tariffs are taxes too, with especially high impairment of consumer welfare, distortion of efficiency, and complexity of enforcement. Sure, trade creates losers along with the winners. But so do steel tariffs — except that they create more losers than winners. The losers include the auto industry and others who use steel, all of us consumers who have to pay more for the finished products, and the farmers and others who lose exports as a repercussion.
- Seventh, compensate the losers, not just those who lose their jobs due to trade, as under Trade Adjustment Assistance, but the more numerous workers who are adversely hit by technological changes and other forces. One way to do this would be “wage insurance” [which supports those who lose their jobs, but without the negative effects on their incentive to take a new job).
- Any increased spending or transfers (like that wage insurance proposal) should be paid for. One way to raise revenue would be a carbon tax. Another step that would go a long way would be to “repeal and replace” the $1.5
billiontrillion 10-year tax cuts passed in December, which go overwhelmingly to the rich. To lower the corporate tax rate, the reform should have offset the revenue loss by limiting interest deduction and other loopholes. Other deductions to curtail include the special treatment of option-based executive compensation. A third possibility that has not received enough attention would be to cancel plans – projected to cost at least $1.25 trillion over 30 years — to modernize the land-based component of the US nuclear missile force triad. It accomplishes little other than extending terrifying pressures on future Presidents to launch a nuclear war in “use them or lose them” response to possibly mistaken warning of incoming attack.
The items on this list may not be especially sexy or new. They have been heard before, usually proposed by Democrats and opposed by Republicans. But they would help bring about widely shared growth. There is no reason why voters shouldn’t respond to a good pitch for them.
This post written by Jeffrey Frankel.
An impressive list especially the detailed discussion with respect to financial institutions including “To minimize the risk of another financial crisis, keep the supplementary leverage ratio placed on the largest banks, which newly appointed regulators are working to relax. Bank capital standards should, if anything, be further tightened.”
Even Team Republican economists should endorse this.
These are pretty much no brainers and it would be good to see Democrats campaigning on them rather than trying just to bash Trump which is counterproductive. We are in Spain on holiday and is always interesting when we tell people we live in the Washington DC area. They look at us with pity in their eyes.
Pardon Jefffey, I generally just read you as a very good guest but here you have stepped into politics, and since at times we all step in it, we must suffer the consequences
!) Absolutely vital political promise, one that will be shouted until election by both sides and then ignored. Please though trumpet a gas tax raise, besides being quite unpopular, this type of flat regressive tax gives lie to the dem ideal of progressive taxation.
2) Certainly Obama Care should come up for another vote of the people. The last time it was an overwhelming vote against it.
3) Education. Absolutely the dems can not forget their largest and most important special interest. Promise everything,
4) Probably this is as good politics as it is bad policy. Make sure the issue is presented as scary as possible, never ever let the people know they can make decisions and protect themselves better than the government can do at them.
5) Marginal rates are already zero or very low. What you are talking about is refundable tax credits are not general in nature but targeted. Not good tax policy but does work politically at times.
6) Trade tariffs will not be used by the dems accept in very safe districts.
7) So you just wrote that tariffs are complicated and then present a program which complexity is so great that the program will drown in bureaucracy. I dare you to put an up front cost to such a program, but I forget, this is politics, not economics.
8) Finally a real political issue. The dems are on the losing side of the latest tax reform, but actually believe it was bad. I respect a political process that puts even losing issues to the front. I believe you explained a solid dem approach. I will leave with one prediction about this proposal. The dems will abandon this line as the election approaches and be as quiet about the issue as possible. Politics will out, and a major losing issue will be attempted to be silenced.
Ed seems to think economists are not supposed to talk about anything that touches on politics which is absurd as politicians think they have a clue about economic policy.
On Ed’s (2), a majority vote would not go the Republican of Repeal and Replace with nothing. No – we would end up with Universal Coverage ala Single Payer with cost controls on the providers.
On Ed’s (3) – since when is educating the kids a special interest? OK back to reading Ed’s nonsense!
“4) Probably this is as good politics as it is bad policy. Make sure the issue is presented as scary as possible, never ever let the people know they can make decisions and protect themselves better than the government can do at them.”
Ed is referring to Frankel’s excellent suggestions for financial regulations. That Ed thinks this is bad policy only shows Ed never took a basic money and banking course.
On (8) Ed seems to have bought into Art Laffer’s free lunch nonsense where we can have infrastructure investment and higher defense spending with tax cuts for the rich because money just grows on trees.
1. Trump also proposed this. And yes, it is a “regressive” flat tax. Here in Michigan, we have found an alternative approach to infrastructure improvements that complete the work better, faster, and less expensively. http://www.theoaklandpress.com/general-news/20170918/i-75-modernization-project-may-finish-10-years-ahead-of-schedule It did require the government bureaucracy to relinquished it micromanagement of the projects, however.
2. Part of the Obamacare problems stemmed from loss of alternative approaches (catastrophic only) which allowed young, healthy people to avoid the costly monthly bills, but protect themselves against bankruptcy. Catastrophic plans aren’t major medical insurance and don’t count as minimum essential coverage. Given this, under ObamaCare, unless you are under 30 or obtain an exemption from the fee, obtaining and maintaining catastrophic coverage won’t help you avoid the fee. However, if you obtain an exemption that allows you to purchase catastrophic coverage, you can still get catastrophic coverage AND avoid the fee. For example, if you live in a state the didn’t expand Medicaid, and you make between 100%-138 of the poverty level and so would qualify for Medicaid in a state other than yours (but don’t in your state and thus are set to owe the fee), you can get both the exemption from the fee and catastrophic coverage. . Many young people just chose to ignore insurance rather than jump through the bureaucratic hoops.
3. Frankel is correct that many for-profit schools are scams and graduation rates are lower than public universities (which are lower than private universities). The real issue is that 2/3 or more of bachelor degrees are in low-paying fields such as arts and humanities. They are less demanding than STEM degrees, but leave students with a lot of debt and less resources to repay the debt. Meanwhile, trade schools are not providing enough well-qualified plumbers, electricians, builders, etc. who have opportunities to make much more than, say, teachers or musicians. Perhaps the problem is that employers seek a person with a college degree when such a degree is not really necessary or much value added to the job.
4. Financial regulation is needed, but not the way it was prior to the “great recession” where banks were forced to approve loans to very high risk customers in order to avoid charges of “discriminatory lending” which led to all manner of fiscal irresponsibility.
5. Several sources cite a number of 45% of Americans who pay no federal taxes. I’m not sure how many more Americans Dr. Frankel would like to add to that group.
6. Tariffs are generally a bad idea; protecting against IP theft, patent infringements, and predatory pricing are reasonable. The latter is not too prevalent.
7. “Wage insurance” seems to be another twist on unemployment insurance https://en.wikipedia.org/wiki/Unemployment_benefits. The difference may be that taxpayers fund the “wage insurance” whereas employers are required to fund unemployment insurance.
8. Tax laws are always open for review and modification. Raising taxes is more difficult than lowering them… politically. You have to have a bogeyman… “big business”. People forget that employment tends to come from business. If one believes that corporate money is finite, then it is reasonable to believe that money taken from corporations can lead to few people being hired. If one believes that corporations simply pass on the cost of higher taxes to consumers who are unaffected by higher prices, then there should be no impact on employment. I suspect there is some elasticity… perhaps a spring is a better analogy. Initially, pulling on the spring may yield little resistance, but there comes a point when, if you pull too much (taxes too high), you meet with greatly increased resistance.
On #5 – both you and Ed need to bone up on the EITC issue. Start here:
On #8 – the TCJA was horrible policy. I hope the next Congress gets rid of it and go for real tax reform.
I didn’t say how they didn’t pay federal taxes; I said they didn’t. The point was that Dr. Frankel was proposing to increase that percentage. https://www.marketwatch.com/story/45-of-americans-pay-no-federal-income-tax-2016-02-24
But! But!! But!!!! THAT’S COMMUNISM!!!!!!!!
It was progressive and very detailed and laid out. Had Bernie Sanders had hire Frankel as an economic adviser – his 2016 campaign would have been more impressive. Who did he hire as economic advisers? A couple of light weights who told the Senator what the Senator wanted to here.
I don’t think Stephanie Kelton is a “lightweight”. And it seems humorous (and yet fitting if we think of “the assist” white female voters gave Hillary in 2016) that a commenter here on Econbrowser who I highly suspect is female from her style of communication would disrespect a woman who has pretty much earned her military stripes in the profession.
This is what you find about so many females, they b*tch and moan that women of low accomplishment weren’t chosen for “post such-and-such”, then a woman who actually knows her head from her ass gets the job, and they all run to the office lady’s room mirror to b*tch to each other how horrendous the girl who got the job is.
Thanks for that. Yep – she is MMT to the core. Look I think we are a bit below full employment as well but man did she hedge on how large the output gap is. I wonder what she thought of that Gerald Friedman “analysis”. He is the light weight I was referring to.
BTW she and Frankel disagree on tax cuts. He wants to pay for the infrastructure investment with tax increases. Hopefully progressive tax increases.
I was being more than a little unfair to you there, as I didn’t know exactly who you were referring to among Bernie’s advisers, so I should have asked. Some people “look down” on MMT and they have that right. But MMT folks have some foundation to stand on. Is that foundation as strong as the original Keynes?? No, but they have some solid arguments.
I think most MMT folks are progressive, maybe more progressive or to the left than Keynesians. So I assume Kelton and other MMT would make tax cuts along those philosophical lines, As far as Friedman’s “rosy scenarios”. I mean yeah, maybe they got a little into used car salesman territory there, but Germany offers free education to many (including many foreign students), and it appears to be working well for them.
To me, all of Friedman, Kelton, and Frankel care about “the little guy” and are genuine about helping them, so when a Democrat such as myself gets into criticizing them, you really are getting into the fine-tuned, detailed, “take a scalpel to it” part of the operation. i.e. If the day ever comes any of these people are making policy decisions instead of writing papers about policy, I am probably not going to be that particular.
While we are on this topic I don’t remember Menzie ever saying how he felt about MMT, and it’s one of the bigger questions about Menzie I have yet to have answered.
1. Infrastructure: Principal issues are NIMBY-ism, union-related costs, lack of commitment by local politicians. We don’t need the Connecticut Twp (I-95) repaved, we needed its capacity doubled. But aren’t Democrats then going to complain that, “If you add capacity, more people will use it,” and “more roads will just like to more CO2.”
2. Healthcare. Medicare expansion cost $100 bn, produced $5 bn in benefits. We don’t need to spend more. We need to spend less, but a lot smarter. If we have a national balance sheet, you could see just how much damage healthcare spending is doing to GDP growth.
3. Are we getting good ROI for all our education spending? If so, we are so many people asking for loan forgiveness from $700 bn in educational loans extended during the Obama administration?
4. Financial regs. Maybe someone can do this well. I doubt it.
5. Income taxes. Already very low in low income brackets, per Ed.
6. Tariffs: The Trump administration lacks the skill to use these constructively. Tariffs should go.
7. Compensate losers. Only an economist would say this. There is no practical way to accomplish this goal. It would boil down to pure rent-seeking.
8. “Any increased spending or transfers (like that wage insurance proposal) should be paid for.” Let’s just modify that to “Any spending or transfers (like that wage insurance proposal) should be paid for.” Strike “increased”. Then let’s see where the rubber meets the road.
The reason infrastructure investment is not getting done in NYC has nothing to do with your list. It has everything to do with everyone being too damn cheap to pony up the needed funds.
On #7 I disagree. We used to have an effective TAA and it was not plagued by pure rent seeking.
Costs in NY / NJ are outrageous. It’s very hard to get the economics to work.
“The estimated cost of the Long Island Rail Road project, known as “East Side Access,” has ballooned to $12 billion, or nearly $3.5 billion for each new mile of track — seven times the average elsewhere in the world.”
The Gateway Project, for example, a pair of 1 mile rail tunnels under the Hudson to NYC is slated to cost $20 bn — and that’s before cost overruns. Do the math, and that comes out to a tax of $150 / household / year for the next 25 years in NJ.
Give me a break. The cost of not doing this are even higher. Ever been to Wall Street? The people crossing the Hudson to get to work make enormous salaries. They bitch rightfully about lost time but then they whine if they have to pay taxes to fix this mess.
I commuted to NY from Princeton for five years. My office was on Wall St.
“Do the math, and that comes out to a tax of $150 / household / year for the next 25 years in NJ.”
So spending two hours extra per day getting to and from work makes more sense? Not when these people can likely make $1000 per hour. I would tell you to do the math but that might require that you take you shoes off to count past ten.
I am speaking of a tax on all NJ households of $150 / year.
If you were to add it to the monthly pass of commuters, you’re probably closing on a monthly pass costing $1,000 for Princeton to NY Penn.
“Income taxes. Already very low in low income brackets, per Ed.”
I guess you and Ed do not realize that low income people pay payroll taxes, sales taxes, etc. You two get the Greg Mankiw award for right wing spinning!
Pgl, AGAIN in his zeal to contradict a non-believer, someone outside his own liberal tribe, misses the basics, Income taxes. the subject of the non-believers comments versus his pay payroll taxes, sales taxes, etc.. They are not the same point. If you are contradict use the same subject matter.
Another meaningless pgl comment.
I see. Sales taxes do not matter but income taxes do? Excuse me for interrupting your shopping spree at Rodeo Drive!
Pgl, why such a nasty troll? Calling everyone else a troll when your own actions are worse is trolling.
For clarification: “The Urban Dictionary has a bunch of definitions under the term “trolling,” but the first one that pops up seems to define it as simply as possible. So, according to the Urban Dictionary’s top rated definition for “trolling,” it can be defined as:
“Being a prick on the internet because you can. Typically unleashing one or more cynical or sarcastic remarks on an innocent by-stander, because it’s the internet and, hey, you can.”
Wikipedia defines it as:
“Someone who posts inflammatory, extraneous, or off-topic messages in an online community, such as a forum, chat room, or blog, with the primary intent of provoking readers into an emotional response or of otherwise disrupting normal on-topic discussion.””
Yup! That’s you, and zealously so
A must-read article on fentanyl
“Federal prosecutors in Mississippi charged Yan, 41, in September with leading an empire built on the manufacture and sale of drugs related to fentanyl, one of the world’s deadliest and most profitable narcotics. So strong that it’s been studied as a chemical weapon, the drug has saturated American streets with breathtaking speed: It kills more people than any other opioid, including prescription pills and heroin, because it’s so easy to overdose. ”
This is how Prince died. But all opioids should be avoided at all costs.
In general I would agree with these proposals, but I have mixed thoughts about this proposal:
A third possibility that has not received enough attention would be to cancel plans – projected to cost at least $1.25 trillion over 30 years — to modernize the land-based component of the US nuclear missile force triad. It accomplishes little other than extending terrifying pressures on future Presidents to launch a nuclear war in “use them or lose them” response to possibly mistaken warning of incoming attack.
The land-based component of the strategic triad (as opposed to the tactical or theater triad) serves two purposes. The first purpose is to present a credible first strike threat. As a practical matter this refers to the ability to shatter Russian ICBM silos before the Russians can launch a strike. The effectiveness of a first strike capability depends on accuracy and warhead yield, but accuracy is much more important. Reducing circular error probability by a factor of 2 allows the yield of the warhead to be reduced by a factor of 8. The land-based modernization program is all about increasing accuracy, which allows for lower yield warheads. There are pro’s and con’s about this and I’ll admit to being undecided. Anyway, a good unclassified primer on the wargaming math used by DoD analysts is here:
The second purpose for a land-based component is to provide the Russians with a target. In other words, Russian strategic forces are primarily land-based, which means that a Russian first-strike launch against US forces must be against either land-based ICBMs or strategic aircraft; but the key is that they cannot strike both without giving the other triad component an opportunity to launch a second strike. Put another way, one reason we have a land-based component is to absorb a first strike while retaining the other two components of the triad. This is why deterrence works. If you’ve ever done any wargaming math you’ll understand why a strategic triad makes a Russian first strike capability virtually impossible. Good luck finding a red-on-blue solution set that works! So you can make a pretty good case that modernizing the land-based component enhances deterrence, especially if that includes increasing the reliability of a successful missile launch, which decreases the likelihood of missile fratricide.
One thing that would reduce the likelihood of an accidental launch would be giving the Russians the satellite technology we use to detect a Russian first strike. Currently the existing Russian satellites are nearly useless, which increases the chances of the Russians finding themselves in a use-it-or-lose-it situation. It would be in our interests to just give them the technology, very much as it was in our interests to give the Soviets the classified technical documentation for the missile launch controls way back in the Nixon years. That’s probably a lot cheaper than having to spend money on modernizing the land-based component. The political problem is that strategic and deterrence theory are not things that today’s politicians (especially GOP politicians) are likely to understand. The last time politicians got involved with strategic doctrine we ended up with the disastrous “Peacekeeper” MX missile. Eventually we had to abandon it after wasting billions and billions. I don’t expect President “My Button Is Bigger Than Your Button” Trump to appreciate the subtleties of deterrence theory.
I got out of the “Business” in 1971. Heard some “hall talk” that if we knew the location the the Russian silo we could put a warhead right down it. The Russians might be able to do the same with our MM. My group worked on MM dynamic analysis. We did studies on how to build a nose cone that could withstand launch through the debris field of a near ground burst. Learned that the MM silos could survive the ground burst but would have the silo lid covered with debris. Worked on ideas of how to clear the debris and launch. I did a dynamic analysis of a Peacekeeper transporter/erector responding to a mega ton ground burst. Wow talk about extreme ground motions. Interesting times. Glad I got out.
I think the MM system should be shut down. I can’t think of a worse job in the AF than to sit in a silo with nothing to do.
There is a pig in the budget room the democrats should put on a diet. War spending is a tapeworm on the US economy. I took the imagery from an article at EV concerning health and medicine spending at 18% GDP.
Triad nuclear war theory is many things to many people. I had a little time in the SAC bomber mission, a lot more in technical side of strategic defenses. Living with the kids within a short distance of the alert facility is calming when you consider the plight of the survivors.
What would future cave dwellers think if the reason for their situation was: “no one should survive if the “shining city on the hill loses a ‘redline'”? And not “no one wanted to curb soccer Moms’ SUV trips”?
All those “surface bursts” to take out hardened positions would devastate the environment (nuclear winter). The Submarines are a doomsday machine unless they are neutralized.
The foundation of US nuclear war/weapon spending is immorality and shoddy thinking (nothing logical about Thomas Schelling’s misused theses). Spending north of a trillion is good business plan for the pentagon trough.
Half of US discretionary spending is for the pentagon trough, “national security” as practiced since 2001 is PNAC drivel sold on the emotions of upper class Americans dying in the WTC towers. And high drama about Russia getting rambunctious spending 1/7 what the US spends and China spending a constant part of GDP on preparing to confront colonialism is Asia.
The comments by Ed Hanson and Bruce Hall illustrate messaging problem of trying to communicate economic ideas to a public that is largely untrained in economics. Just to cite a few of their misconceptions:
(1) Bruce Hall asserts that “employers are required to fund unemployment insurance.” This is wrong on two counts. First, employers pay the impact of unemployment insurance, but the incidence of the tax falls on workers. Understanding the difference between the impact and the incidence of a tax is something that pretty much requires at least some formal training in economics. That lack of formal training leads to all kinds of errors. The second problem is that there are actually two kinds of unemployment insurance. The kind that Bruce Hall has in mind applies to workers who lose their job for other than macroeconomic reasons. What Prof. Frankel was talking about is more akin to extended unemployment payments that Congress funds to combat cyclical unemployment. More specifically, Prof. Frankel has in mind taxing some of the welfare gains of those who gain from free trade and redistributing it to those who lose from free trade. If you don’t do this, then support for free trade will erode. This is pretty standard stuff in econ land. This same inability to understand the difference between a tax impact and a tax incidence is responsible for the mistaken belief that poor people don’t pay taxes. You need at least some formal training to understand that what’s really important are the relative elasticities between labor demand and labor supply, not the impact of the tax.
(2) The belief that the Great Recession was caused by federal regulations that required banks to make unwise loans is a common myth. It’s wrong for a number of reasons, but the most obvious is that the risk associated with a particular loan is irrelevant as long as the risk and correlation of the risk are properly priced. Banks do not make money by only lending to ultra-safe borrowers with zero risk. But the man-on-the-street’s intuition argues against this, so we end up with people who don’t understand lending. The man-on-the-street understands the trope of the deadbeat brother-in-law, but doesn’t have a clue about portfolio theory, so naturally the man-on-the-street interprets the financial collapse in terms of deadbeat borrowers.
(3) The comments about Obamacare demonstrate the inability to think in terms of temporal consistency, which is another hallmark of the untrained mind. It may well be the case that young single, fatherless males don’t need much healthcare beyond catastrophic. But they won’t be young or single or fatherless forever. There’s no free lunch. You can pay a lot less when you’re young, but that simply means you’re going to pay a lot more when you’re old. And if you don’t like the idea of the young subsidizing the old, then why should the old subsidize maternity bills? A rational economic actor will want to smooth health insurance costs over their lifetime. That means paying more than you need when you’re young and paying less than you need when you’re old. But people who aren’t formally trained in economics tend to be myopic.
(4) Bruce Hall and Ed Hanson have presented the layman’s view of education. They tend to see it as an economic return that goes to educated elites. Now, to some extent that’s true. But education is also an input to the national production function. It shows up as multi-factor productivity, and that’s the ultimate way to increase per capita economic growth rates. And multi-factor productivity has been falling over the last 15 years. What’s needed is more education (to include a significant increase in community college funding) if we’re to have any hope of increasing growth rates; but we also need a tax structure that doesn’t allow educated elites to capture rents that come about because of the way educated elites game the system.
The real task for economists like Prof. Frankel isn’t to catalog policy goals; it’s to explain those goals to an audience that is not formally trained in economics.
2Slug, let’s get behind what you claim:
What Prof. Frankel was talking about is more akin to extended unemployment payments that Congress funds to combat cyclical unemployment. More specifically, Prof. Frankel has in mind taxing some of the welfare gains of those who gain from free trade and redistributing it to those who lose from free trade. If you don’t do this, then support for free trade will erode. . So, is it “cyclical” or is it “trade”… and regardless, why should Congress fund yet another redistribution scheme? https://www.doleta.gov/programs/factsht/nafta.cfm . It’s part of all employment that there is the risk of unemployment. It’s part of trade that there are local winners and losers. So why penalize the winners (your categorization of “welfare gains” ignores the reality that the gains are not “given”, but earned).
The belief that the Great Recession was caused by federal regulations that required banks to make unwise loans is a common myth. It’s wrong for a number of reasons, but the most obvious is that the risk associated with a particular loan is irrelevant as long as the risk and correlation of the risk are properly priced. Banks do not make money by only lending to ultra-safe borrowers with zero risk. Never said that banks would lend only to risk-free clients, but they would tend to strictly avoid the types of loans they were forced to make which were later bundled and marketed:https://www.investopedia.com/financial-edge/0210/did-derivatives-cause-the-recession.aspx . Perhaps your economics training did not include finance.
It may well be the case that young single, fatherless males don’t need much healthcare beyond catastrophic. But they won’t be young or single or fatherless forever. There’s no by e lunch. And, yet, the whole push of Obamacare was to provide the “free lunch” to those deemed worthy by the government on the backs of those who would not have participated… hence, the “mandate”.
As to your last point on education, that’s gratuitous nonsense. I’ve pointed out that much of the university “education” is low or no value added for many seeking employment in those fields or earning an income that covers the loans for that education (my third point). If you are arguing “education for the sake of education”, that’s fine… just don’t presume there is an economic payback worthy of every education investment, for example: https://www.salary.com/articles/8-college-degrees-with-the-worst-return-on-investment/. There are plenty of education opportunities that have been ignored… they simply don’t involve careers being “tenured”.
Bruce Hall The banks were not “forced” to make unwise loans, but more to the point, you misunderstood what I said. So let me repeat it:
the risk associated with a particular loan is irrelevant as long as the risk and correlation of the risk are properly priced.
Got that? The problem was not the riskiness of the loans; it was the opaqueness of the risk. That wasn’t the fault of the borrower; it was the fault of the white collar criminals who faked and hid the underlying riskiness.
So why penalize the winners (your categorization of “welfare gains” ignores the reality that the gains are not “given”, but earned).
Couple of problems with your response. First, a lot of the gains are not earned; they are properly seen as economic rents, which are (by definition) unearned. But the reason we should redistribute some of the gains from the winners to the losers is that if we don’t free trade will lose political support, which will make everyone worse off. If we don’t redistribute some of the gains from free trade and globalization, then downscale workers start talking about “fair trade”, which is a euphemism for tariffs. And that makes everyone worse off.
much of the university “education” is low or no value added for many seeking employment in those fields
That doesn’t mean they must restrict their job searches to fields in their major. For example, DoD’s top guru in financial management was an English major in college. He was also one of the all time grand champions on “Jeopardy” back when he was in college. One of the top logisticians at the Army’s Forces Command studied music in graduate school. The guy in charge of NATO logistics in The Netherlands did his graduate work in 19th century history. The value of a liberal arts college education is that it signals competence in a lot of areas. And then there’s the monopsony problem, which distorts the labor market wage in a lot of the fields cited in your link. For example, the low salaries of teachers actually signals that there aren’t enough teachers. This is counter-intuitive to the man-on-the-street that never studied microeconomics. But if you’ve had a good, well rounded liberal arts education, then you’d know that the man-on-the-street’s intuition is wrong (as usual when it comes to economics). And of course, I never said that education only meant a four year degree. I thought I was pretty clear that education included community colleges.
I also think you’re making the mistake of believing certain majors (e.g., STEM fields) are inherently more valuable than others. That probably comes from the conservative mindset of looking for permanence and always trying to freeze the world “as is”. That’s a mistake. For example, today engineers are in big demand; but when I got out of high school there was a glut of unemployed engineers. Five years ago lawyers coming out of elite law schools were in big demand. Today, not so much. In fact, elite law schools can’t even fill all of their open positions. Computer programming is another area that’s boom or bust. And computer programmers tend to have short “sell by dates”. A few years ago biology majors were in demand. Today they’re not. Even physicists and mathematicians couldn’t find jobs not all that many years ago.
I agree with Einstein: “the value of education is what you have when you forget” the rote memorization. He also said imagination takes you farther than math……..
The most important skill in any high position is to think….. which reveals the trouble with democrats.
2slug, you insist on focusing on the individual transaction of high-risk (sub-prime) loans rather than the cumulative effect (which was discussed in the link I provided). Who said I was blaming the borrower? I put the blame squarely where it belonged: the government (https://en.wikipedia.org/wiki/Government_policies_and_the_subprime_mortgage_crisis). Yes, I reference Wiki which has plenty of supporting references.
I also didn’t say that some individuals with liberal arts backgrounds could not be economically successful; I simply provided statistics that show, in general, that such degrees were worth far less than STEM degrees and, in general, were a greater economic burden to those who borrowed money to obtain such degrees. My point was that the myopic viewpoint of education… a college degree is necessary for success… was inherently short-sighted. I understand your opinion, but economics is more about the general rule rather than the outliers.
In this case, you seem to focus on the exception rather than the rule.
Oh, and in case you need further data as opposed to anecdotal accounts: https://www.census.gov/prod/2012pubs/acsbr11-04.pdf
Bruce Hall Your first link was about the role of derivatives in the financial collapse and how those derivatives masked underlying risk. I’m pretty sure that’s what I was saying as well. As to putting the blame on the government, you might want to reread your link. It doesn’t say what you seem to think it says. If there was any blame, it was a failure of omission rather than a failure of commission. Too little regulation rather than too much.
in general, were a greater economic burden to those who borrowed money to obtain such degrees.
Again, you didn’t understand what I was saying. Recall that my criticism was that you viewed the value of education in terms of the individual return (i.e., the layman’s perspective) rather than as an input to the national production function. Take a moment and think about the difference.
But I’m glad you brought up the differences in the “return on investment” across various majors. One reason that the STEM majors have a high ROI is because those majors tend to be heavily subsidized by non-STEM majors. For example, if you’re a classics major the real economic cost (in terms of economic inputs) is about the same today as it was 100 years ago. You need a teacher, a classroom and a 2,000 year old copy of Caesar’s commentaries on the Gauls. But if you’re majoring in physics or computer science or medical engineering, the economic inputs cost a lot more. You need expensive labs, computers, very expensive equipment and specialized buildings. But most colleges and universities will charge the same tuition regardless of the major. Yes, some schools have started to charge lab fees, but those don’t come close to covering the actual costs. We see the same kind of subsidies between undergraduate and professional/graduate programs. Undergraduate tuitions heavily subsidize graduate and professional schools. Would STEM majors and graduate/professional schools have the same personal ROI if they weren’t heavily subsidized by non-STEM and undergraduate programs? I seriously doubt it. And that’s why some schools have started experimenting with variable course pricing rather than across-the-board semester hour pricing.
1. There wouldn’t have been derivatives of bad loans if the government hadn’t pressured banks into making the bad (subprime) loans in the first place.
2. Perhaps the reason universities have “subsidized” STEM is that the universities themselves make a lot of money through the research in those areas… mostly funding from government, but sometimes through alliances with businesses: https://urcmich.org/
The federal government gave out more than $40 billion for research and development (R&D) to universities across the country in fiscal 2011. Universities depend heavily on federal funding, with many of the top programs relying on the government for more than 60% of their R&D budgets. As a result, many research program directors fear that the federal cuts promoted by the sequester will hurt future funding.
Not so much researching Roman history. Your argument that non-STEM students subsidize STEM student disregards the ROI to the university for STEM research and the reason there are so many STEM related facilities… and where the funding actually originates.
Bruce and Steven,
thank-you for your very good comment
1) This road issue comes through loud and strong every election here in Colorado, and by the number of comments, I assume in every state. My previous comment was not on either the need nor the means. Only the hypocrasy. In Colorado, the dems have had quite successful elections for many years. And every election had loud infrastructure trumpeting, but when the legislation comes up, other dem priorities always come first. This last legislative session is a prime example. Understand this first, Colorado is doing quite well economically, and money is pouring into the states coffers. But the dems who have control of our house and the governor, as well as severally squishy repubs in the Senate, still could not get a bill done. Best they could come up with of a tax increase bill, which will not fly.
And by the way, I am not necessarily opposed to gas tax increases for roads (not trolley cars, not bike paths) when necessary. But I was pointing out how the dems want tax increases more than they want progressive taxes.
2) It was a pleasure to read your thoughts on healthcare.
3) Educational spending is a fiasco. Bruce, beware and always remain beware of government programs that pick winners and losers. Steven, while the education lobby continues to own the dems, nothing will be done to fix the system.
4) After decades of more and more regulation, when will it become obvious that the fix is not in or with government.
5) Bruce, the answer is anyone who will vote dem or socialist. See Venezuela.
6) The tariff proposals are achieving their goal, lower barriers to US trade. We will have to see how well that continues.
7) Jeffrey and the dems idea on this are completely stupid, but be warned, they do believe in such drivel.
8) The tax reform and reduction is a winner for the repubs this election. The dems, in general, will go quiet. Voters understand the increase in economic activity (GDP, Job access, moderating prices) are the result, in great part, of the tax change.
You call #7 stupid and drivel but you never articulate what was wrong with the Trade Adjustment Assistance act. Please mansplain this to us with your usual stupid drivel.
Infrastructure is more than just roads and bridges. It also includes lock & dam systems, sewer and water, airports, rail, the electrical grid, flood protection and a hundred other things. Look around. The US is near the back of the pack among OECD countries in those areas. We’re living off endowments from past generations and doing nothing for future generations. That’s the GOP way! I sometimes wonder if the great cathedrals would have been built if people like Ed Hanson and Bruce Hall had been running things back in the high middle ages.
But Ed Hanson might be right about the electorate being fooled into thinking the Trump tax cuts for the rich are a good thing. Voters aren’t too bright and they’re hopelessly myopic. And Trump has been upfront about that. Remember his comment about how his supporters would vote for him even if he shot someone in the middle of 5th Avenue? On this point I think Trump is probably right. Trump’s true talent is in his ability to always find a sucker. The Trump tax bill will make most of his supporters worse off, but they won’t notice it until after the election. Snookered again. On to the next shiny object!
2slug, you’re really reaching now: I sometimes wonder if the great cathedrals would have been built if people like Ed Hanson and Bruce Hall had been running things back in the high middle ages. . If you want to presume that the tithing requirement of the Catholic church was a progressive tax for the public good, then I’d have to say we will never find a common ground. Now, I’ll grant you that the Soviets used the concept of building grandiose buildings and monuments as a display of their (nonexistent) wealth and superiority on the backs of the suffering masses. Perhaps they saw how well it solidified the community for the bishops who were building those Catholic cathedrals and thought it could do the same for the Communist Party. The problem was the Soviets couldn’t promise heaven for those who obeyed.
https://www.durhamworldheritagesite.com/architecture/cathedral/construction . History was not part of your education either, eh?
Bruce Hall I think you missed my point, which was that today’s conservatives have an especially high discount rate.
You mean like these conservatives? http://www.latimes.com/opinion/la-ol-enter-the-fray-voters-like-high-speed-rail-if-they-1527610764-htmlstory.html
But in the ensuing decade, the cost of the route has doubled to an estimated $77 billion, with state taxpayers on the hook for a considerably larger share. So the pollsters went on to ask a second question: Should the state stop working on the project, in light of the mushrooming cost? Almost half of the respondents said yes, stop the work, while only 31% said keep moving forward.
So, in a state with 30% Republicans, why do those liberals have an especially high discount rate?