Chris Hayes blogged the emerging dissatisfaction with neo-classical economics among a minority of economists who are described as "heterodox," i.e., applying the tools of economics (as heavily influenced by the neo-classical movement) without ascribing to neo-classicalism as a faith.
This reminds me of a recent dinner party I attended where a guest tried to impress upon me the importance of markets when he exclaimed..."there is even a price for marriage."
He was, of course, technically correct, but to be more precise he should have said something along the lines of, "an economist can create a model (which may or may not empirically track reality) in which she can create a market (which may or may not exist in reality) which will yield an intersection of a supply-demand curve at an optimal point (or some other definition of price).
Wednesday, July 18, 2007
Tuesday, March 13, 2007
Cheney, Trade Sanctions, and Israel
Vice President Cheney spoke at the AIPAC conference yesterday and took it as a chance to cast Democrats who back an anti-war strategy as not supporting the troops. AIPAC used the conference, which Mr. Cheney spoke at for the second year in a row, as a show of its continued power after the trials of its former policy director and Iran expert.
Speaking of Iran...
AIPAC pushed for investment sanctions against Iran at its conference, targeting CalPERS among others. This is where Cheney comes back in.
Cheney spoke on economic sanctions in a 1998 talk at the Cato Institute, largely drawn from his Cato book, Economic Casualties: How U.S. Foreign Policy Undermines Trade, Growth, and Liberty. In that talk, he described unilateral US economic sanctions (his "favorite hobbyhorse") as "ineffective" and "motivated primarily by domestic political considerations, by a desire to respond to pressure from some group or other here at home."
He cited as examples sanctions against Turkey and Azerbaijan. The common denominator: a strong lobby opposed to the policies of those two states.
He explained the sanctions against Turkey quite succinctly; "We sanctioned Turkey because the Greek-American lobby was significantly bigger and more effective than the Turkish-American lobby here at home. That's the sum total of why we did it."
And similarly for Azerbaijan, "now there are sanctions on Azerbaijan. We're not allowed to spend any U.S. government dollars in that country. That's not a response to what we perceive to be sound foreign policy in that part of the world. It's more specifically a reflection of a desire by Congress to respond to the concerns voiced by the Armenian-American community, which is bigger than the Azerbaijani-American community. As a result we currently have a prohibition against U.S. government money being spent in Azerbaijan. "
Now which Middle Eastern country in 2007 has a large, powerful, and active lobby in the United States that is able to influence the US Congress to pass "ineffective" unilateral sanctions?
Speaking of Iran...
AIPAC pushed for investment sanctions against Iran at its conference, targeting CalPERS among others. This is where Cheney comes back in.
Cheney spoke on economic sanctions in a 1998 talk at the Cato Institute, largely drawn from his Cato book, Economic Casualties: How U.S. Foreign Policy Undermines Trade, Growth, and Liberty. In that talk, he described unilateral US economic sanctions (his "favorite hobbyhorse") as "ineffective" and "motivated primarily by domestic political considerations, by a desire to respond to pressure from some group or other here at home."
He cited as examples sanctions against Turkey and Azerbaijan. The common denominator: a strong lobby opposed to the policies of those two states.
He explained the sanctions against Turkey quite succinctly; "We sanctioned Turkey because the Greek-American lobby was significantly bigger and more effective than the Turkish-American lobby here at home. That's the sum total of why we did it."
And similarly for Azerbaijan, "now there are sanctions on Azerbaijan. We're not allowed to spend any U.S. government dollars in that country. That's not a response to what we perceive to be sound foreign policy in that part of the world. It's more specifically a reflection of a desire by Congress to respond to the concerns voiced by the Armenian-American community, which is bigger than the Azerbaijani-American community. As a result we currently have a prohibition against U.S. government money being spent in Azerbaijan. "
Now which Middle Eastern country in 2007 has a large, powerful, and active lobby in the United States that is able to influence the US Congress to pass "ineffective" unilateral sanctions?
Thursday, January 19, 2006
Unitary Executive
During the Alito confirmation hearings, a previously little known legal doctrine, the Unitary Executive, got a ton of play and attention. I will not go into the details of it, as the wiki entry I linked to covers it quite well.
The small point I want to raise is that if, under the Unitary Executive Theory, all agencies and heads thereof are directly beneath the President and answerable to him, it would follow that the President would be vicariously liable for any actions taken by the agencies. Literally, they would be "agents" to the President (the principal).
In this scenario, any action, good or bad, would be imputed to the President from any agent within the Executive Branch. For most actions, the President would enjoy immunity as the Head of State, but this would not prevent impeachment or sanction. Furthermore, as with Saddam Hussein, some actions that violate jus cogens could be prosecuted, and as with Augosto Pinochet the executive could subsequently lose immunity, although the political question doctrine could still apply.
The small point I want to raise is that if, under the Unitary Executive Theory, all agencies and heads thereof are directly beneath the President and answerable to him, it would follow that the President would be vicariously liable for any actions taken by the agencies. Literally, they would be "agents" to the President (the principal).
In this scenario, any action, good or bad, would be imputed to the President from any agent within the Executive Branch. For most actions, the President would enjoy immunity as the Head of State, but this would not prevent impeachment or sanction. Furthermore, as with Saddam Hussein, some actions that violate jus cogens could be prosecuted, and as with Augosto Pinochet the executive could subsequently lose immunity, although the political question doctrine could still apply.
Thursday, December 29, 2005
Three visions for Latin America
The collapse of the FTAA negotiations and the protests at the Summit of the Americas has opened the question of the future of Latin America. The continuing export of Bolivarianism and cheap oil from Venezuela, the election of Morales in Bolivia, the emergence of Obrador in Mexico, and the re-emergence of Ortega in Nicaragua all add to this uncertainty. Forces are pulling Latin America in different directions: "complimentarianism" (aka socialist democracy) vs. capitalism/free trade; Bolvarianism and solidarity vs. bi-lateral negotiations. In all aspects, the key is MERCOSUR.
MERCOSUR is by far the largest and dominant trade agreement in the region, and is largely designed to meet the same ends as the EEC/EU: increasing the freedom of movement of goods, people, and money. It is more like precursors to the EU as MERCOSUR does not constitute a common internal market and has nowhere near the powers of Brussels. What it does do, however, is create a forum and create greater interdependence and cooperation. More on this point later.
The aforementioned tensions can be simplified by thinking of them as Chavez vs. US. Each has a model for the future of Latin America: Chavez sees a Bolivarian Socialist Union and the US sees a continuation of its regional hegemony. Neither is the best the region can do, and that is why MERCOSUR, led by Brazil and Argentina, must present a strong third option modeled after the EU.
Chavez dreams of a socialist union of Latin American countries, with himself as a modern day Simon Bolivar freeing Latin America from the economic colonialism of the US hegemony. While Bolivar may ostensibly be the hero he follows, his program more closely resembles that of Qadaffi. Both are military men who ran coups, and both try to create solidarity among Cold War pawns who have not seen the benefits of globalization. Qadaffi first tried to create an Arab union/Islamist union and when that failed, he tried the same in Africa. None of his attempts to create a transnational political union succeeded. Read his Green Book, especially on democracy and economics, for more examples of the similarities between the two leaders and their visions.
The US sees Latin America's role as subordinate to US interests and seeks policies that will support and enable its regional hegemony. This is not a viable (economically or politically) scenario for Latin Americans and feeds the popular support for Chavez, Morales, and socialism. Chavez, for example, could create all the current policies and programs that he has without his strong anti-US rhetoric, but that rhetoric creates more support for him because the people have not seen the benefits of globalization and view the US unfavorably. Qaddafi thought that by standing up to "Western Imperialism" he would become a world leader and people would follow; that did not happen and it will not happen for Chavez either.
The third option is to emulate the EU in greater cooperation and creation of a common market and currency. Interestingly, this free market federalism is similar to what Simon Bolivar tried to establish (with himself as dictator). Just as the ECSC was the building block of the EU, MERCOSUR can be the building block of a Latin Union. The region needs enhanced cooperation and free trade, but also can benefit from the solidarity that such a union would provide towards external markets.
Now that Venezuela has joined MERCOSUR, this third option is viable. Chavez, Kirchner, and Lula have the tools to integrate and grow Latin America--now they have to move on it.
MERCOSUR is by far the largest and dominant trade agreement in the region, and is largely designed to meet the same ends as the EEC/EU: increasing the freedom of movement of goods, people, and money. It is more like precursors to the EU as MERCOSUR does not constitute a common internal market and has nowhere near the powers of Brussels. What it does do, however, is create a forum and create greater interdependence and cooperation. More on this point later.
The aforementioned tensions can be simplified by thinking of them as Chavez vs. US. Each has a model for the future of Latin America: Chavez sees a Bolivarian Socialist Union and the US sees a continuation of its regional hegemony. Neither is the best the region can do, and that is why MERCOSUR, led by Brazil and Argentina, must present a strong third option modeled after the EU.
Chavez dreams of a socialist union of Latin American countries, with himself as a modern day Simon Bolivar freeing Latin America from the economic colonialism of the US hegemony. While Bolivar may ostensibly be the hero he follows, his program more closely resembles that of Qadaffi. Both are military men who ran coups, and both try to create solidarity among Cold War pawns who have not seen the benefits of globalization. Qadaffi first tried to create an Arab union/Islamist union and when that failed, he tried the same in Africa. None of his attempts to create a transnational political union succeeded. Read his Green Book, especially on democracy and economics, for more examples of the similarities between the two leaders and their visions.
The US sees Latin America's role as subordinate to US interests and seeks policies that will support and enable its regional hegemony. This is not a viable (economically or politically) scenario for Latin Americans and feeds the popular support for Chavez, Morales, and socialism. Chavez, for example, could create all the current policies and programs that he has without his strong anti-US rhetoric, but that rhetoric creates more support for him because the people have not seen the benefits of globalization and view the US unfavorably. Qaddafi thought that by standing up to "Western Imperialism" he would become a world leader and people would follow; that did not happen and it will not happen for Chavez either.
The third option is to emulate the EU in greater cooperation and creation of a common market and currency. Interestingly, this free market federalism is similar to what Simon Bolivar tried to establish (with himself as dictator). Just as the ECSC was the building block of the EU, MERCOSUR can be the building block of a Latin Union. The region needs enhanced cooperation and free trade, but also can benefit from the solidarity that such a union would provide towards external markets.
Now that Venezuela has joined MERCOSUR, this third option is viable. Chavez, Kirchner, and Lula have the tools to integrate and grow Latin America--now they have to move on it.
Monday, December 19, 2005
"Activist" Executive?
In his speech last night, President Bush said that he was doing everything within his power to fight terrorism. I believe that he also said that the NSA taps he ordered were within his power under Art. II of the Constitution, presumably the commander in chief powers.
Two things struck me: does he have the power and is he an "activist" executive?
The first thing that jumped in my mind was a case I reviewed while studying for exams last night, Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), where it was held that the President did not have the authority to order the Sec. of Commerce to take over and operate steel mills. The majority opinion gave a comparative analysis of the competencies of the legislature and the executive and found that there was nothing inthe Constitution that gave tea President that power. Specifically, the order to take over the steel mills could not be supported by the President's role as Commander in Chief. The framework of the Constitution could not support it either because it limits limits the executive's legislative powers to recommendations and vetos. The Court reasoned that takings were legislative functions.
Justice Jackson, in concurring judgment, gave an opinion Justice Scalia could be proud of. In it, he attacks, among other things, the appeal to "inherent, "implied," "incidental," "plenary, "war," or "emergency" powers. He continued:
If Congress had passed an act granting the power to take steel mills, then it would have been within the executive purview. In the NSA wiretaps case, Pres. Bush seems to try to gain validity through the fact that he advises members of Congress of what is going on and has 45-day reviews. Unfortunately, that is not enough. The executive does not gain powers simply because the legislature has failed to act; there must be an affirmative empowerment--an act of Congress.
Pres. Bush may have recourse in his War Powers, but this relies on the US being in a constant state of "emergency" as long as there are terrorists who want to harm us. How long is that? How immediate is the threat?
The other "activist" prong that I found interesting is similar to both the majority and Justice Jackson's opinions in Youngstown Steel. First, the most common critique of the Judiciary is that it "legislates from the bench" too often, and that law-making is reserved to Congress. This same critique applies to a strong executive who may "legislate from the oval office." The Court is entrusted with protecting the Constitution and the citizens' rights under it, and a strong Court will expand its power as far as possible in that arena rather than use restraint. The executive is entrusted with the military and protecting citizens' lives. A strong executive will expand his power as far as possible in that arena rather than use restraint. Should there be a strong movement against "activist executives" in conjunction with the attacks on the judiciary?
The second way that Pres. Bush (and most executives in general) is like a so-called "activist court" is in not strictly interpreting the words of texts. The Court found a penumbra of rights implied by and necessary to the Fourteenth Amend. Similarly, Pres. Bush wants to find a penumbra of powers under the Commander in Chief or War Powers. Should he pay more attention to the four-corners of the Constitution as he wants Supreme Court Justices to?
Two things struck me: does he have the power and is he an "activist" executive?
The first thing that jumped in my mind was a case I reviewed while studying for exams last night, Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), where it was held that the President did not have the authority to order the Sec. of Commerce to take over and operate steel mills. The majority opinion gave a comparative analysis of the competencies of the legislature and the executive and found that there was nothing inthe Constitution that gave tea President that power. Specifically, the order to take over the steel mills could not be supported by the President's role as Commander in Chief. The framework of the Constitution could not support it either because it limits limits the executive's legislative powers to recommendations and vetos. The Court reasoned that takings were legislative functions.
Justice Jackson, in concurring judgment, gave an opinion Justice Scalia could be proud of. In it, he attacks, among other things, the appeal to "inherent, "implied," "incidental," "plenary, "war," or "emergency" powers. He continued:
The vagueness and generality of the clauses that set forth presidential powers
afford a plausible basis for pressures within and without an administration for
presidential action beyond that supported by those whose responsibility it is to
defend his actions in court. The claim of inherent and unrestricted presidential
powers has long been a persuasive dialectical weapon in political controversy.
While it is not surprising that counsel should grasp support from such
unadjudicated claims of power, a judge cannot accept self-serving press
statements of the attorney for one of the interested parties as authority in
answering a constitutional question, even if the advocate was himself.
If Congress had passed an act granting the power to take steel mills, then it would have been within the executive purview. In the NSA wiretaps case, Pres. Bush seems to try to gain validity through the fact that he advises members of Congress of what is going on and has 45-day reviews. Unfortunately, that is not enough. The executive does not gain powers simply because the legislature has failed to act; there must be an affirmative empowerment--an act of Congress.
Pres. Bush may have recourse in his War Powers, but this relies on the US being in a constant state of "emergency" as long as there are terrorists who want to harm us. How long is that? How immediate is the threat?
The other "activist" prong that I found interesting is similar to both the majority and Justice Jackson's opinions in Youngstown Steel. First, the most common critique of the Judiciary is that it "legislates from the bench" too often, and that law-making is reserved to Congress. This same critique applies to a strong executive who may "legislate from the oval office." The Court is entrusted with protecting the Constitution and the citizens' rights under it, and a strong Court will expand its power as far as possible in that arena rather than use restraint. The executive is entrusted with the military and protecting citizens' lives. A strong executive will expand his power as far as possible in that arena rather than use restraint. Should there be a strong movement against "activist executives" in conjunction with the attacks on the judiciary?
The second way that Pres. Bush (and most executives in general) is like a so-called "activist court" is in not strictly interpreting the words of texts. The Court found a penumbra of rights implied by and necessary to the Fourteenth Amend. Similarly, Pres. Bush wants to find a penumbra of powers under the Commander in Chief or War Powers. Should he pay more attention to the four-corners of the Constitution as he wants Supreme Court Justices to?
Sunday, December 18, 2005
Contemporary Employment and Public Health Care
An article in the Sunday NY Times magazine, New World Economy, caught my attention this morning. It contrasted GM with Walmart as kind of a barometer of the changes in employment patterns in the US. Where GM promised lifelong employment and good benefits, Walmart offers...cheap goods. In other words, there is no longer (if there ever was) sense of paternal responsibility by large businesses and employees are left responsible for themselves.
The article argued, rightly I think (see past posts), that the subsidy given to employers in the form of tax benefits related to providing health insurance for employees could be used more efficiently if it was collected as a tax and applied to a public scheme. This makes sense not only for low-wage workers but also white collar workers who change positions quite regularly. While the article talks of a "total reimagination of the basic contract between government, businesses and workers,"the benefits would not be limited to the low end of the wage scale.
Policies that transfer subsidies on healthcare into directly providing insurance policies, see my previous post, could free up benefits for an increasingly mobile professional class. More professionals either are or are treated like consultants/contractors than in the past, yet subsidies support a business model based on lifelong employment with benefits and a pension--a model that is near extinct. How many people do you know that have a pension vs. a 401(k) vs. social security reliance?
The "basic contract" between workers and employers has changed, and so should the methods we use to ensure social welfare. Streamlining the tax code by reducing overall rates, but getting rid of deductions, would result in a more efficient redistribution of wealth and a reduction in the problems associated with concentrated wealth. Similarly, these business subsidies should be cancelled and replaced with a tax that supports a broad social insurance program covering health, life, disability, and personal retirement accounts.
The article argued, rightly I think (see past posts), that the subsidy given to employers in the form of tax benefits related to providing health insurance for employees could be used more efficiently if it was collected as a tax and applied to a public scheme. This makes sense not only for low-wage workers but also white collar workers who change positions quite regularly. While the article talks of a "total reimagination of the basic contract between government, businesses and workers,"the benefits would not be limited to the low end of the wage scale.
Policies that transfer subsidies on healthcare into directly providing insurance policies, see my previous post, could free up benefits for an increasingly mobile professional class. More professionals either are or are treated like consultants/contractors than in the past, yet subsidies support a business model based on lifelong employment with benefits and a pension--a model that is near extinct. How many people do you know that have a pension vs. a 401(k) vs. social security reliance?
The "basic contract" between workers and employers has changed, and so should the methods we use to ensure social welfare. Streamlining the tax code by reducing overall rates, but getting rid of deductions, would result in a more efficient redistribution of wealth and a reduction in the problems associated with concentrated wealth. Similarly, these business subsidies should be cancelled and replaced with a tax that supports a broad social insurance program covering health, life, disability, and personal retirement accounts.
Monday, December 12, 2005
Revisiting Taxes on Real Estate
I read a story on MSN today that warned of the dangers of flipping real estate too soon. The dangers were paying more in taxes because the property could be treated as !> short term capital gains. This could mean a rate change from 15-35%--no small potatoes. But before everyone starts crying for the person trying to cash in on the real estate boom let's look at three things: their position, their complaint, and the overall effects on housing availability.
The position of the real estate investor, or even the new home owner who sees a chance to turn a profit and move on, is that of an investor. Whatever tax incentives the government gives to persons to own homes would not apply to former, and once the latter behaves as an investor (and gets the subsequent gain), they should no longer qualify for the incentives peculiar to real estate anymore than a person who invests in Microsoft stock or Commodities.
The complaint of flippers would be that they are being taxed at a higher rate. So what? Granted, 35% on short term capital gain is very high, but we have categories of short term and long term gain for reasons, and when behavior falls into one category it should be treated as such. I am not an expert on the negative effects of short term investments vis a vis long term, but I assume there are either negative externalities to short term, or positive externalities to long term investment such that the difference in incentives is justified. If the capital gain is short term, it should be treated as such.
The MSN article points out that last year nearly a quarter of all homes were bought by investors and another 13% were bought as second homes. That is 38% of all homes not being purchased as a primary residence. There is a severe problem with affordable housing and I think that this 38% is part of the problem. The solution is to remove the incentives to persons buying homes as investments, often largely for the tax incentives that real estate enjoys over other forms of investment. This includes taxing the gains at a higher rate and getting rid of mortgage interest deductions on second homes. By decreasing the incentives for this 38% of home buyers, the demand will fall. Classical thinking holds that there should be an accompanying fall in price.
This decrease in housing costs would be good right now, although decreasing tax incentives will likely not be enough in areas such as California where population pressures are sufficient to push prices up without the aid of subsidized investors. However, in other areas it may provide some relief for those looking to buy a home to live in.
The position of the real estate investor, or even the new home owner who sees a chance to turn a profit and move on, is that of an investor. Whatever tax incentives the government gives to persons to own homes would not apply to former, and once the latter behaves as an investor (and gets the subsequent gain), they should no longer qualify for the incentives peculiar to real estate anymore than a person who invests in Microsoft stock or Commodities.
The complaint of flippers would be that they are being taxed at a higher rate. So what? Granted, 35% on short term capital gain is very high, but we have categories of short term and long term gain for reasons, and when behavior falls into one category it should be treated as such. I am not an expert on the negative effects of short term investments vis a vis long term, but I assume there are either negative externalities to short term, or positive externalities to long term investment such that the difference in incentives is justified. If the capital gain is short term, it should be treated as such.
The MSN article points out that last year nearly a quarter of all homes were bought by investors and another 13% were bought as second homes. That is 38% of all homes not being purchased as a primary residence. There is a severe problem with affordable housing and I think that this 38% is part of the problem. The solution is to remove the incentives to persons buying homes as investments, often largely for the tax incentives that real estate enjoys over other forms of investment. This includes taxing the gains at a higher rate and getting rid of mortgage interest deductions on second homes. By decreasing the incentives for this 38% of home buyers, the demand will fall. Classical thinking holds that there should be an accompanying fall in price.
This decrease in housing costs would be good right now, although decreasing tax incentives will likely not be enough in areas such as California where population pressures are sufficient to push prices up without the aid of subsidized investors. However, in other areas it may provide some relief for those looking to buy a home to live in.
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