Does Paul Krugman eat lunch alone?

Paul Krugman[1] (1953- ) is one of the smartest guys alive. He got a BA in Economics from Yale (1974) and a Ph.D. from M.I.T. (1977). He taught at M.I.T. from 1979 to 2000, then moved to Princeton. He has won both the American Economic Association’s John Bates Clark Medal (1991) and the Nobel Prize in Economics (2008). He is a prolific author and a columnist for the New York Times.

Krugman presents himself as a scald to “politicians and pundits who solemnly repeat the conventional wisdom that sounds tough-minded and realistic.” He argues that “some of those seemingly tough-minded positions are actually ways to dodge the truly hard issues.” He cites “Bowles-Simpsonism”[2] as an example of this problem. Elite discourse is diverted from the immediate problem of high unemployment by obsessing over how to pay for Social Security and Medicare/Medicaid in the distant future.

His latest target is efforts to “divert our national discourse about inequality into a discussion of alleged problems with education.”[3] Krugman argues that “soaring inequality isn’t about education; it’s about power.” The conventional wisdom holds that rapid technological change has divided the labor force into those who have adapted (and reaped the rewards) and those who have not (and have suffered the losses). (See: Inequality )

The evidence doesn’t support the contention that “educational failings are at the root of still-weak job creation, stagnating wages, and rising inequality.” First, there’s no sign of high demand for skilled-workers, so the “skills gap” argument doesn’t hold water. Second, the inflation-adjusted incomes of highly-educated people have stayed flat for almost twenty years, so the differentiated income argument doesn’t hold water either.

Krugman sees something different happening. Corporate profits are up without the rate of return on investment having risen. He sees this as a sign of monopoly power. Companies are just squeezing consumers, rather than letting competition drive down prices. Furthermore, incomes are rising sharply for people with “strategic positions” in corporations and Wall Street.

He recommends redistribution through higher taxes on corporations and the rich, spending on programs to help working families, raising the minimum wage, and support for organizing labor to bargain effectively with employers.

There’s a lot to like in Krugman’s arguments. His assault on the inadequate Obama stimulus bill certainly proved correct. However, for someone with such extraordinary intellectual fire-power at his disposal, it’s odd that he doesn’t have more effect. Writing for the NYT is preaching to the converted. It is, perhaps, revealing that he called the British Labour Party leader Gordon Brown “more impressive than any US politician.” Brown is a brilliant man with sadly deficient political skills. The far less capable Tony Blair maneuvered Brown into delaying his claims to the prime ministership for years; then Brown put his foot in his mouth once he had the job. Krugman has explained his own absence from government by saying that he’s “temperamentally unsuited for that kind of role. You have to be very good at people skills, biting your tongue when people say silly things.”

It’s hard to persuade people if they turn down the volume when you start to talk.

[1] Curiously, Krugman’s middle name is Robin. His first wife’s name was Robin Bergman. His second wife’s name is Robin Weiss. This starts to sound a little like Lyndon Johnson.

[2] Krugman does not exactly attack the Commission’s Report itself, so much as a movement that makes use of the report. Erskine Bowles punched back effectively in a letter to the WSJ, 11 February 2015.

[3] Paul Krugman, “Knowledge Isn’t Power,” NYT, 23 February 2015.

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The Islamic Brigades 1.

Why do young Muslim men go to fight in foreign wars? The “Afghan Arabs” were a feature of the resistance to the Soviet Union, then of Al Qaeda’s attack on the United States. Arabs went to fight in Chechnya in small numbers, and now in Syria in larger numbers.[1] What draws or drives these young people to take up arms for a non-national cause?

There is a sensitive discussion of one case in the New York Times.[2] Islam Yaken (1993- ) grew up in a middle-class family in Cairo. Conservatism and modernity co-existed in his family. His mother and sisters wear the veil, yet his parents sent him to a French-language private school, and then on to university. Like many young American men of his age, Yaken fell in love with body-building. He got “ripped” by any standard. He imagined himself as a future fitness instructor. Yet he had not abandoned religious faith.[3]

Obstacles barred his path. For one thing, the conservative cast of contemporary Islam disparages physical pleasure.[4] Both sex and body-building are physical pleasures. Yaken Islam desired women, even talking of emigrating to find a career and a “hot” girlfriend.[5] For another thing, in Egypt or America, it is hard to turn personal training into a decent livelihood. Yaken failed to break into an established gym, and had to make-do with private lessons in smaller gyms.

Leaving Egypt for greener pastures entered his mind.[6] Go where? Make a start how? The answers seemed impossible. A return to the conservative religious values in which he had been raised also entered his mind. Like the 17th Century English Protestant writer John Bunyan, he excoriated himself for “sins” that others would hardly notice. He grew a beard. Still Shaitan tormented him—in the form of girls in Levis and ballet flats.

In early 2012, when Islam Yaken was 19 years old, the Muslim Brotherhood came out in the open as a result of the fall of the Mubarak regime. After years of repression by the Sadat and Mubarrak governments, the Brotherhood had survived. Apparently, they had triumphed over their enemies. Their intransigent defense of strict conservative religious doctrines—something to believe in when secular society offered nothing to believe in—may have seemed like an explanation. They were in full throat. Sheikh Muhammad Hussein Yacoub preached before huge crowds of followers in a Cairo mosque. Yaken Islam became a follower. Religious commitment did nothing to assuage the terrors that haunted him. If anything, they worsened.

In July 2013 the Egyptian military regime re-asserted itself. A heavy hand fell on the Muslim Brotherhood. By August 2013 Yaken Islam had decided for jihad in Syria. He went to Turkey, then crossed the border to join the ISIS fighters. For a year-and-a-half he has been a soldier, physical training instructor, media personality for ISIS. He has found “a life free of [sins].., a greater cause, an Islamic state.”

He was young, foolish, sexually frustrated, living in a puritanical society with little economic growth or political freedom. All true, but not everyone seeks the easy path. There is a lot of will-power and striving in a six-pack.

[1] For example, there are at least 600 Egyptians fighting with ISIS, probably many more than that.

[2] Mona El-Naggar, “From Cairo Private School to Syria’s Killing Fields,” NYT, 19 February 2015.

[3] He used a mat in his room both for prayer and for crunches.

[4] “Suppose a young man falls in love with a girl in college. He doesn’t touch her or talk to her or send her messages. He doesn’t even look at her. That’s still fornication!”—Sheikh Muhammad Yacoub, video imam.

[5] The attitude toward women is not so different from that of many American men of his age (regardless of generation).

[6] Apparently this is common talk among young people. If it ever starts, the tide of Egyptian boat people will vastly out-number the Libyan one.

Ukraine1.

I’ve been reluctant to write about the Ukraine. I find myself totally out of step with opinion. I don’t like Vladimir Putin[1], but I think that someone should try to make a fair case for understanding his actions.[2]

For one thing, if you look at maps of Ukraine, you see that Crimea and the two eastern “oblasts” (administrative districts) of Donetsk and Luhansk are predominantly Russian-speaking: 77.0%, 74.9%, and 68.8%. In the referendum on independence from the Soviet Union the south-eastern “oblasts” all voted for independence like the rest of Ukraine, but the opposition vote was much higher than elsewhere and so was the abstention rate. In the 2006 and 2007 parliamentary elections, Viktor Yanukovich’s Russian-oriented “Party of Regions” carried a huge swath of south-eastern Ukraine. The Yulia Timoshenko bloc had carried a huge swath of western and central Ukraine. In the presidential elections of 2010, Yanukovich narrowly defeated Yulia Timoshenko by mobilizing the same pro-Russian electoral base in the south-east.

The opposition to the Yanukovich government’s decision to halt the process of integration with the European Community (EU) centered in the west and center of the country. These regions had voted for Timoshenko in the 2010. In contrast, there were few demonstrations or protests in the southeast. Only five protests were identified for the two eastern “oblasts” and Crimea combined. In contrast, there were large pro-Russian protests in the two eastern “oblasts,” Crimea, and elsewhere in the southeast. Finally, supporters of the “Euro-Maidan” protests seized control of local governments in western and central Ukraine, but never even made a stab at it in Crimea or the two eastern “oblasts.”

According to “polling data by [the German polling agency] GfK taken from 4-18 March [2014] in all regions of Ukraine (including Crimea), 48% of Ukrainians support[ed] the change in power while 34% oppose[ed]. In the Eastern and Southern regions the revolution is supported by 20% of the population, whereas 57% or more of the population in the rest of the country supports the change in government. Also, only 2% of those polled said they fully or partially trusted former president Viktor Yanukovych.”[3] So, while Yanukovich was widely unpopular, a clear majority of people in the southeast opposed the revolution in Kiev.

Crimea has been annexed to Russia; the continuing “insurgency” in eastern Ukraine is limited to the two eastern “oblasts” where real opposition to the Kiev revolution was very strong for ethno-cultural reasons.

Is it possible that Vladimir Putin is doggedly[4] pursuing very limited aims with regard to Ukraine? His aims at the moment appear to be to take control of the two eastern-most “oblasts.” Will he desire to push beyond this to open a land bridge to Crimea? Would he wish to take all of the territory that voted for pro-Russian parties? Would he settle for a Ukraine “neutralized” as was Austria[5] during the Cold War? It’s hard to know unless someone asks him.

[1] As Joseph Joffe said on NPR: “he’s a nasty son-of-a-bitch.”

[2] “I have no special regard for Satan; but I can at least claim that I have no prejudice against him. It may even be that I lean a little his way, on account of his not having a fair show. All religions issue bibles against him, and say the most injurious things about him, but we never hear his side. We have none but evidence for the prosecution and yet we have rendered the verdict. To my mind, this is irregular. It is un-English. It is un-American; it is French.”—Mark Twain, “About the Jews.”

[3] Wikipedia. Reference misplaced.

[4] Putin isn’t much inclined to turn loose of something once he has engaged with it. Russians are still fighting in Chechnya in an insurgency that has gone on in fits and starts since 1994.

[5] See: http://en.wikipedia.org/wiki/Austrian_State_Treaty

Inequality 3.

In November 2014 the voters completed their long swing from creating a Democratic majority in Congress and the White House in the 2008 elections to creating a Republican majority in Congress. President Obama has little chance of getting any legislation through Congress between now and the end of his term in 2016. Instead, in recent months the president has sought to shape the terms of debate in future elections.[1]

The latest component in this effort came out on 19 February 2015, with the release of the annual “Economic Report of the President.”[2] The document restates President Obama’s “middle-class economics” prescriptions.

The report adopts a “historical” approach.[3] The years from 1948 to 1973 were the “Age of Shared Growth.” Operating in an almost competition-free global environment and making good use of technological innovations, productivity rose sharply and inequality remained at the comparatively low levels achieved during the Depression and New Deal. Incomes doubled over the course of this quarter century. The report assigns an important role to the power of unions and to a sense of community on the part of corporate leaders. This golden age gave way to a second period, from 1973 to 1995, which the report labels the “Age of Expanded Participation.” During these years, productivity growth slowed down and a rising share of income went to those with more education. Families made up for the short-fall in their desired incomes by having both mothers and fathers work. This silver age gave way to a third period, from 1995 to the present, which the report calls the “Age of Productivity Recovery.” In this period, computer and internet technology boosted productivity out of its doldrums, but the benefits flowed to those with more education even more than before. The Great Recession came at the end of this age of lead. During the recession, women entered the labor force in smaller numbers and men just dropped out of it in larger numbers than at any time in human memory. Baby Boomers aging-out of the labor force will only compound the strains.

The President wants to take this moment to urge his “middle class economics.” In practice, this means more spending on education and on infrastructure; rapid completion of trade deals with Europe and the countries of the Pacific region; carrying out immigration reform; reforming the tax on business; and cutting taxes on “modest” incomes while raising taxes on high incomes. He thinks that these measures will increase productivity.

The president faces push-back. Democrats hate free trade because it ships low-skill/low-educations jobs overseas[4], harming the interests of the sort of people who used to make up much of the Democratic base. Republicans oppose higher taxes on high incomes because they shift money from investment toward consumption, harming the interests of the sort of people who still make up much of the Republican base.

There’s a lot to like in the report. Education and infrastructure need improvement; more trade deals are better than fewer; and immigration reform needs to go through. There’s also a lot to argue with. Tax “cuts” on low income groups just pay them to stay the same, when they need to change; higher taxes reduce investment when we need a lot.

Will Hillary Clinton feel bound by this report? Will Republicans take it seriously?

[1] One can’t help but suspect that experience has taught him that the Democratic Party in general is not deeply committed to his own vision of a just society.

[2] John Harwood, “Economic Report From Obama Focuses on Income Inequality,” NYT, 20 February 2015.

[3] There is a lot to quibble with in the report’s historical sophistication.

[4] In fact, a lot of American jobs were lost to China, rather than to NAFTA, which created American jobs.

Annals of the Great Recession V.

From the late 19th Century “Gilded Age” to the early 20th Century “New Era,” America lived with a lot of income inequality.[1] The Great Depression of the 1930s and the policies of the New Deal closed that range of incomes. This new order continued from the 1930s through the 1970s. From the 1980s to the financial crisis income inequality rose sharply once again.   The financial crisis and the subsequent Great Recession dented this inequality, but did not reverse it. Nor does it seem likely that it will be substantially reduced under foreseeable conditions.

The low and middle-income groups suffered limited losses from the recession in comparison to upper income groups. The financial crisis and subsequent recession hit upper income group harder than other groups; federal government responses helped lower income groups more than upper income groups, the wealthy still haven’t made up their losses, and inequality has decreased.

The one-percent suffered the largest fall in pre-tax income during the Great Recession. Between 2007 and 2012-2013, the income of the top one ten-thousandth of earners fell 26 percent; the income of the “one-percent” fell 21 percent; the income of the top five percent fell 15 percent; and the bottom 90 percent fell 13 percent. For most poor and middle-class groups, the average income decline was about 10 percent.

In 2007, the pre-tax income of the highest one ten-thousandth of earners peaked at $39.4 million. In 2009 it fell to $21 million. That’s a 46.6 percent drop in income. Most of these losses came on falling stock-prices, so the run-up of the stock market in recent years has done much to restore the income of this group. In 2012 and 2013, it reached $29.2 million. This group is back at about 74 percent of its pre-recession income. Overall, the income of the “one percent” is still about 20 percent below its pre-recession peak.

Long-standing federal government counter-cyclical policies—unemployment payments, food stamps—helped off-set the effects of the Great Recession for low-income groups. The stimulus bill helped as well. After-tax and after-transfer incomes for the middle quintile of income earners fell by 2 percent in comparison to pre-recession levels. After tax and after transfer incomes for the lowest quintile income group actually rose 2.6 percent.

These facts run against the common perception. “Maybe [people haven’t perceived this truth] because many liberals are tempted to believe inequality is always getting worse,…”

Leonhardt sees middle-class incomes as having been “damaged” by income inequality. This, in turn, “has caused wide-spread frustration.” The implications for American politics should be obvious.

It’s hard to sympathize with people whose incomes dropped from almost $40 million a year to barely $20 million a year. They’ll get by, somehow.

Nevertheless, there are issues that are worth some thought.

First, is inequality as such a durable political issue or would most people be satisfied if they experienced a moderate rise in income each year?

Second, why have upper-incomes grown so much since the 1980s while most incomes have stagnated? The answers here are likely to be more complex and the problems less tractable than the political ideologies of left and right would lead us to believe. Increasing inequality has coincided with globalization, two recessions, the aging of the “Baby Boom” generation, problems in adapting the American labor force, and political near-paralysis. What to do?

[1] David Leonhardt, “Since the Financial Crisis, A Little Less Inequality,” NYT, 17 February 2015.

The Special Forces Solution.

Many of the international problems confronting the United States these days seem both intractable and incomprehensible.[1] This is deeply frustrating for people living in a country with what is still the leading economy and the most powerful military—by far–in the world. There may be a sense that there is a solution at hand, if our leaders would just employ it.

You can see where this attitude comes from. In truth, the “armies” of many developing countries aren’t made up of real “soldiers.” They’re just “men with guns”[2] hired to prop up the regime in power. The collapse of large parts of the army of Iraq in Summer 2014 illustrates this point. In contrast, the Special Forces of Western nations are highly skilled and motivated. In the American popular imagination, SEALS, Rangers, and Delta Force troops are almost mythic heroes. People often are quick to point out that the Battle of Mogadishu in October 1993 left 17 Americans dead, while the Somalis suffered 1,500 to 3,000 casualties.[3] If only we could lay the weight of our real advantage (elite troops, Precision-Guided Munitions (PGMs), drones) on the primitive enemy, they would be vanquished.

Recent war movies have epitomized this belief.[4] As one of the SEALS surrounded by Taliban says, “I think we’re in for one Hell of a gunfight.” However, all of these movies both built on and diverge from earlier, more cautious movies.

The movie “Clear and Present Danger” (1994, dir. Philip Noyce) asked what if the “war on drugs” was a real war? It answers that we wouldn’t fight it with cops and lawyers bound by legal forms and trials. An angry American president orders his National Security Adviser to launch a secret and illegal war on the cocaine cartels. An elite platoon recruited from Hispanic-American soldiers is inserted into Columbia. They begin to destroy drug labs and transport aircraft. They call in an airstrike against a meeting of cartel chiefs, leaving the building in ruins. The operation is aborted when a henchman of the surviving cartel chief discovers that it is Americans who are doing the killing—without a formal declaration of war. The National Security Adviser betrays the troops to save his own skin, but the remnants are rescued by men of honor. A series of clips begin at: https://www.youtube.com/watch?v=W4xO0k9LcIU

The movie “Tears of the Sun” (2003, dir. Antoine Fuqua) asked what if we had wanted to stop the Rwanda genocide? A squad of Navy SEALS is sent into Nigeria in the midst of revolution[5] to rescue an American-by-marriage doctor working in a do-gooder camp. She refuses to leave without her ambulatory patients, so the SEAL team commander (played by Bruce Willis) is forced to take them along. They are hunted through the forests and mountains by the rebels. Along the way, the Americans change their attitudes. Willis’s character says “I broke my own rule: I’ve started to give a fuck.” One of his men says they need to fight “For all the times we stood down or stood aside.” A series of fire-fights display American prowess, but the SEALs and refugees are finally saved by a belated airstrike. https://www.youtube.com/watch?v=M_MELX1MMoI

Both movies are cautionary tales in which elite forces are never all of the answer.

[1] The same probably can be said about the domestic social and economic problems.

[2] See: “Men with Guns” (1997, dir. John Sayles).

[3] The movie about the event, “Black Hawk Down” (2001, dir. Ridley Scott), was a huge hit and remains very popular.

[4] See: “Lone Survivor” (2013, dir. Peter Berg); “American Sniper” (2014, dir. Clint Eastwood).

[5] Curiously, the trouble arises from a reheating of the quarrel with the southern Ibos, rather than the current war with northern Muslims. See: “The Dogs of War” (1980, dir. John Irvin), another example of my argument. https://www.youtube.com/watch?v=dyxBxmBjC0U

Climate of Fear XIII.

A decade ago, back when climate change began to emerge as a serious concern, scientists and environmentalists composed a menu of possible future alternatives to burning carbon. Both solar power and wind power seemed likely to be massively expensive. In contrast, biofuels—the conversion of plants into fuel—seemed like it might be a low-cost winner. Both the government of the United States and European governments have invested billions of dollars in developing biofuels. In Britain, for example, subsidies and mandates were used to stimulate a shift to burning wood pellets made from sawdust and tree waste.[1] In the United States, the government mandated and subsidized the mixing of ethanol—a biofuel made from corn—with gasoline. Anywhere from 30 to 40 percent of America’s corn crop now goes to ethanol.

In fact, costs for wind and solar power dropped sharply over the same period that biofuels were being developed. However, until we transform battery technology it will not be possible to use solar or wind power for transportation. Many people continue to count on biofuels as a substitute for carbon-burning.[2] A 2014 report from the Intergovernmental Panel on Climate Change (IPCC) urged replacing carbon with biofuels as an affordable means to hold back climate change. The International Energy Agency speculates that it may be possible to provide over a quarter of world transportation fuel needs by 2050. More immediately, the United States projects that 12 percent of its transportation fuel will come from biofuels within a decade. Similarly, the European Union projects a sharp increase in the role of biofuels to power transportation between today (2.5 percent) and 2020 (10 percent).

Now people are re-thinking this strategy.[3] For one thing, biofuel production has turned out to be massively inefficient: a huge amount of land is required to produce a meager amount of energy. (The 30-40 percent of the American corn crop devoted to ethanol reduces gas consumption by only about 6 percent.) The energy content of all current biomass (food crops, fodder for animals, lumber, biofuels) is about 220 exajoules. The IPCC estimates that the biofuels component alone will have to reach 250 to 300 exajoules by the end of the 21st Century to hold back climate change. This implies a massive expansion of biofuel acreage.

Skeptics believe it unlikely that farm productivity can actually be increased much on the ground, as opposed to on a chalk-board. The world faces an increasing demand for food as both population and incomes in developing countries rise. These will more than eat up any increase in productivity, leading to continued expansion of lands devoted to crops. The American bet on ethanol has driven up world food prices. Harvesting trees for biofuel seems like even more of a losing proposition. It reduces the amount of carbon dioxide captured by trees while increasing the amount of carbon dioxide emitted.

Clearly, there are no simple solutions to the climate problem. It is going to take time to discover the best approaches, even though we seem to be short of time. Government hasn’t entirely succeeded at picking “winners” from among contending solutions. Decisions can have unanticipated consequences that turn out to be hard to un-do. Rather like the origins of the climate problem in the first place.

[1] The chief beneficiary of this effort may have been the members of the U.S. Industrial Pellet Association, which supplies much of the European demand.

[2] Eduardo Porter, “A Biofuel Debate: Will Cutting Trees Cut Carbon,” NYT, 11 February 2015.

[3] Justin Gillis, “New Report Urges Western Governments to Reconsider Reliance on Biofuels,” NYT, 29 January 2015. The story reports on a World Resources Institute study released on Friday.