Back in my teaching days I would use the seriously wrong answers on student exams as valuable information telling me what concepts I need to explain better. Charles Lane's Washington Post column on a universal basic income can be used the same way. Lane clearly does not like the idea of a universal basic income (UBI), but his confused rationale ties together many common misunderstandings.

First, the whole idea of job-killing robots is more than a bit bizarre for a couple of reasons. Robots kills jobs in the same way that technology has always killed jobs. They displace human labor. We used to need far more workers to make a car than we do today, or a ton of steel, or to harvest a ton of wheat. In all of these cases we were able to use technology to accomplish more work with fewer people.

Robots are part of the same story. What possible difference can it make if a job is displaced by a robot or a more efficient assembly line? We have seen whole industries, like photographic film, wiped out by digital technology. Would the former workers at Kodak somehow be worse off if they had lost their jobs to robots than to digital cameras?

The point is that robots are productivity growth. Say that a few thousands times until it sinks in. The impact of robots on the economy is nothing more or less than any other innovation that produces the same amount of productivity growth.

And on this account the story is not terribly impressive. Lane cites an analysis by Carl Frey and Michael Osborne that claims that 47 percent of U.S. jobs are at risk due to technology over the next two decades. Now they just said these jobs were at risk, but lets assume we lose them all. That would translate into 3.1 percent annual productivity growth. That is roughly the same rate as we saw in the 1947-1973 golden age, a period of rapid wage growth and low unemployment. Are you scared yet?

This is the sixth in a series of profiles of the members of the Federal Reserve Board’s Open Market Committee [FOMC]. The profiles will focus on their writings, public statements, and voting records as members of the FOMC.

Unlike Esther George, Loretta Mester, Eric Rosengren, James Bullard, and William Dudley — first five members of the FOMC to be profiled by CEPR — Patrick Harker does not have an extensive background at the Federal Reserve. Having been officially appointed to head the Philadelphia Federal Reserve on July 1, 2015, Harker has been in office less than a year.^[1] Moreover, as the President of the Philadelphia Fed, Harker will not serve as a voting member of the FOMC for the first time until 2017.^[2] (The head of the Philadelphia Fed is given a vote once every three years.^[2]) This means that Harker has no voting record and has only a short history of public statements on monetary policy.

Dean Baker
Truthout, June 20, 2016

Last month the International U.S. Trade Commission (ITC) came out with its assessment of the Trans-Pacific Partnership (TPP). It projected that in 2032, when the economy will have experienced most of the effects of the deal, income will be 0.23 percent higher than in a baseline without the TPP. This translates to an increase in the annual growth rate of 0.014 percentage point.

That is not the sort of thing that would likely get most people too excited. It means that with the TPP in place we will basically be as rich on January 1, 2032 as we would be in the middle of February of 2032 without the TPP. Still this is better than nothing, so why not take the gains the ITC is projecting?

The answer to that question is that the ITC projections are hardly a sure deal. Its past track record, like that of most modelers of trade agreements, has been pretty dismal. The actual patterns in trade have born essentially no relationship to the projected patterns.

This may be due to the possibility that the impact of factors not included in the models swamped the projected impact of the changes being modeled. That’s an argument that can save the validity of the models used by the ITC and other economists, but doesn’t change the fact that these models have not been useful guides to the future course of trade and economic growth.

Bryce Covert had a column in the NYT this morning arguing that the performance of the economy in a president's term is largely out of their control. There is considerable truth to this. Business cycles have a dynamic that is largely outside of the president's control. President Reagan was fortunate in having a severe recession in the first year of his administration. Memories being what they are, voters blamed the recession on Reagan's predecessor, while giving Reagan credit for the robust recovery which was largely inevitable.

Similarly, world events can have enormous impact in ways that are largely outside of the president's control. Jimmy Carter had the bad fortune to be sitting in the White House when the Iranian revolution took 6 million barrels a day of oil production off world markets, more than quadrupling oil prices.

But it is possible to take the powerless president story too far. First, as the piece notes, the president appoints members of the Federal Reserve Board. The next president will come into office with two vacancies on the seven person Board of Governors. In addition, the will have the opportunity to pick a new Fed chair (or reappoint Janet Yellen) in their first year in office. The Fed can have an enormous near-term influence on the economy. At the moment, if it were to raise rates, as many policy types advocate (including some at the Fed), it would slow growth and reduce job creation.

The second point is that both President Clinton and Bush II sat on expanding asset bubbles, stock in the case of Clinton and housing in the case of Bush II. While these bubbles grew, they had a positive impact on the economy raising incomes and boosting growth. However the collapse of the bubbles was inevitable and devastating in both cases. Clinton had the good fortune to leave office before the impact of the collapse on the economy was fully realized. Bush II was less lucky.

Paul Krugman devoted his column on Friday to a mild critique of the drive to take the United Kingdom out of the European Union. The reason the column was somewhat moderate in its criticisms of the desire to leave EU is that Krugman sympathizes with the complaints of many in the UK and elsewhere about the bureaucrats in Brussels being unaccountable to the public. This is of course right, but it is worth taking the issue here a step further.

If we expect to hold people accountable then they have to face consequences for doing their job badly. In particular, if they mess up really badly then they should be fired. There is a whole economics literature on the importance of being able to fire workers as a way of ensuring work discipline. Unfortunately this never seems to apply to the people at the top. And this is seen most clearly in the cases of those responsible for economic policy in the European Union.

The European Central Bank (ECB) was amazingly negligent in its failure to recognize the dangers of the housing bubbles in Spain, Ireland, and elsewhere. Its response to the downturn was also incredibly inept, needlessly pushing many countries to the brink of default, thereby inflating interest rates to stratospheric levels. Nonetheless, when Jean-Claude Trichet retired as head of the bank in 2011, he was applauded for his years of service and patted himself on the back for keeping inflation under the bank's 2.0 percent. (For those arguing that this was the bank's exclusive mandate, it is worth noting that Mario Draghi, his successor, is operating under the same mandate. He nonetheless sees it as the bank's job to maintain financial stability and promote growth.) 

Greg Mankiw used his NYT column to discuss the weak growth the U.S. economy has experienced over the last decade and goes through five explanations. To my view there's not much complicated about the story. We lost a huge amount of demand when the housing bubble collapsed and there is nothing to replace it. That is essentially #4, presented as secular stagnation by Larry Summers. Regular BTP readers know the story well, so let me briefly comment on the other four.

The first one, that the economy actually is growing rapidly but we are missing it because the gains are not picked up in our measurements, really flunks the laugh test. The items identified are things like getting music and information free on the web or being able to use our smart phones as cameras. These are great things, but if you try to put a price tag on them (in the old days most people would buy a cheap camera every ten years or so), they are pretty small.

Furthermore, there were always benefits from new products that weren't being picked up (also costs — try getting by without a cell phone — the need for a cell phone and the monthly service is not included as a negative in the data), what these folks have to show is that the annual size of these benefits has increased. If you want to be generous, give them a 0.1 percentage point of GDP and tell them to shut up.

The crisis hangover story is also widely told. Firms are scared to invest, banks are scared to lend. This one also seems to defy the data. First, until the recent downturn in investment following the collapse of oil prices and the rise in the trade deficit following the run-up in the dollar, investment was pretty much back to its pre-recession share of GDP. Banks are also lending at their pre-recession rate. So it's a nice story to humor reporters, but there is nothing in the world to support it.

Jake Johnston
Le Nouvelliste, 13 juin, 2016

That's right, he's upset that the Federal Reserve Board didn't raise interest rates this week. He tells readers:

"Until a year or two ago, there was good reason for the Fed to continue with its extraordinary monetary policy. But with the U.S. economy nearly back to full employment, and incomes rising, and core inflation running close to 2 percent, it’s well past the time to start easing back on the stimulus by raising rates."

The idea here is that we need to start raising rates or the labor market will get so tight that we will have problems with rising inflation. Or so it seems. But then we get:

"This isn’t about preventing future inflation — right now, all the signals are that that risk is pretty low. But it is about weaning the U.S. and global economy off an addiction to zero interest rates that have badly distorted the price of financial assets relative to the price of everything else."

Okay, so we don't actually have a problem with inflation, we have a problem with the price of financial assets being distorted. Pearlstein never quite fills in the details, but implicitly he is saying that we have problems with asset bubbles.

It undoubtedly was very disappointing for Robert Samuelson, the Washington Post, and the rest of the Very Serious People (VSP) to see President Obama's call for increasing Social Security. For the time being, their plans to attack Social Security and Medicare seem completely dead in the water. After all, President Obama had earlier been a grand bargainer, willing to put both Social Security and Medicare on the table, now he actually wants to increase benefits. And even Donald Trump, the presumptive Republican presidential nominee, says he is opposed to cuts, at least for the moment.

But it is important to remember that in our nation’s capital, no bad idea stays dead for long. For that reason, no one should view Robert Samuelson’s latest column as an admission of defeat. It is a call for resurrection. So let’s get out that stake and see if we can nail this vampire once and for all.

The basic theme is the standard one: it is an effort to divert class warfare into generational warfare. Over the last four decades we have seen the greatest upward redistribution of income in the history of the world. Rather than have the losers blame the gainers, Robert Samuelson wants them to be angry at their parents.

Samuelson’s basic story is that the elderly are actually doing quite well; therefore, we should be looking to take money away from them rather than give them more. His main piece of evidence is a subjective question on well-being which shows the over age 65 age group consistently answers that they are most satisfied with their financial situation.

There are many points that can be made about this sort of subjective assessment. The most obvious is that the sense of satisfaction depends on expectations. People who are in retirement or the last years of their working career have little hope of substantial improvements in their living standard, so it may not be surprising that most would answer they are satisfied with what they have. Younger people can of course hope for, and in fact expect, better times ahead as they advance in their career.

In fact, there is useful information in this survey and it goes in the opposite direction of Samuelson’s complaints. If we look at recent and near retirees, the group between the ages of 50 to 64, we see a sharp decline in their sense of satisfaction over the period since the survey began in 1972. In 2014, the most recent year in the survey, just 25.2 percent of those in this age group expressed satisfaction with their financial situation. This is down from 38.4 percent in 1972 and a peak of 41.4 percent in 1978.