Sunday, March 23, 2014

A "Polish fate" for Ukraine?

(Update, 3/24: Britské listy has corrected itself on the post below that was the prompt for this post of mine. Zhirinovsky has not been the vice-chair of the Duma since 2011, and he wrote in the capacity of a regular member of the Duma, not in any way on behalf of the body as a whole, as was implied in the original Britské listy and in the Polish TV report from which Britské listy took its cue. The full correction is below.)

The website Britské listy has an arresting piece, The Russian State Duma plans a Polish fate for Ukraine.

They cite this report from Polish TV (which also produced the map below, titled “Map showing Zhirinovsky’s proposal,” Zhirinovsky being the vice-chair a member [see update above] of the Russian Duma (the legislature)).
Russia would get all of southeast Ukraine, including the entire Black Sea coast.

Sunday, March 9, 2014

You've got to believe!

In the context of the unfolding nightmare in Ukraine, a British commentator laid the mess at the feet of … NATO’s withdrawal from Afghanistan. The piece is a model of the diplomatic doctrine of “credibility,” the idea that there are certain things you need to do in order for other actors on the world stage to understand that there are certain things you will do.
Each Russian soldier in Crimea is lessening the chance of a united Ukraine emerging unscathed and without a civil war. They are 'proving’ to our Eastern allies that Nato is a paper tiger and to our Western friends that this is a pointless struggle. That is President Putin’s real goal.
He has tried it in the past, first with the cyber attack on Estonia in 2007 that closed down the government. At that moment, though, Nato was clearly credible – after all, it was fighting in Afghanistan and off the Horn of Africa.
Tugendhat doesn’t claim there’s some desirable goal that could actually be achieved by staying in Afghanistan. Rather, he seems to think that we need to fight in one place so that Putin will believe we’ll fight somewhere else, which in turn would mean that Putin would think twice before invading Crimea.

But what exactly would non-withdrawal from Afghanistan be expected to prove? Does he really think that NATO would or should have sent troops into the country of Georgia in 2008? Or that that would have been a good idea? Does he think we should be sending troops to Ukraine today?

The obvious alternative explanation for NATO’s withdrawal is that we’re leaving because we realized there was no objective we could accomplish without permanent occupation, and permanent occupation was an insanely high price to pay for those objectives, so it was time to go. In this case, staying in Afghanistan wouldn’t prove we were tough; it would prove we were too stupid to know when we were engaged in a futile exertion of force.

One of the beautiful things about love is that it grows with the practice of it: when you act lovingly, you experience love in return, and become more capable of loving. Tugendhat thinks that military force works the same way: When you act militarily, you experience submission in return, making you even more capable of militariness.

It’s true, there are too many naïve people who think that when you act militarily, you don’t just inspire fear and sullen obedience, but resistance as well—covert at first but growing bolder over time. And you set people on a search for means of effective response.

Naïve people also think that military action is constrained by physical factors, and by finance, and by the realities of domestic politics, so that when you act militarily you don’t multiply your power but instead tie down some of your forces in one place, making them unavailable for military action somewhere else.

And naïve people may think that if you can see the pointlessness of continuing a particular war, then people in other countries can see the pointlessness as well. And that if they see you continuing a pointless war, they’ll see that you’re weakening yourself militarily, and they’ll understand that you’re too stupid to make good policy decisions to keep your country safe, and so they’ll be emboldened to act against your interests.

Tom Tugendhat knows better. According to the article linked above, he runs a strategy consultancy, so he must be right that when you persist in a futile war, you display your awesome credibility, and then everyone backs down in front of you because you’re so awesomely credible, and they let you run the world just the way you want.

Credibility theory: the misplaced conviction that everyone else is as stupid as you are.

Monday, February 24, 2014

The man who met Papa Masaryk

In some recent tidying up, I came across a piece of paper scribbled with some notes. It was the quick recollections of a chance conversation in Stromovka, the large park near our apartment in Prague. The notes were on the back side of a printout of items that were checked out to me from the Prague City Library on my card. As best I remember, that’s the paper I used because it’s what I could find to get down some of the details of the conversation before I forgot them.

The date on the printout was June 6, 2011, and we left Prague on July 1, so that puts a reasonably tight window on when the conversation happened.

I’m writing them down here in case they might be of interest to someone, and so I can throw out the piece of paper.
We’d gone down to Stromovka to play on the zip line and stroll around, and I don’t remember how, but I got into a conversation with an elderly gentleman who was there.

He said his grandfather had been a park warden in Stromovka.

Sunday, February 23, 2014

The wrong symmetry

Morning Edition had an interview on Friday with Marcia McNutt, described as "one of the country's most influential scientists. A former opponent of the Keystone XL pipeline, she's now come around to support it. Her arguments were interesting and had a certain amount of sense in them, but she wrapped up with a couple of statements that strained reason, and one of them would get an "F" on a logic exam.

The argument against the pipeline is that it's being built to bring the Athabascan tar sands to market, and that we need those tar sands to stay in the ground if we're going to have any chance at all of preventing run-away climate change. McNutt observed that the tar sands are moving to market anyway, just by truck and by rail, and those means of transportation use a lot more energy than would a pipeline.

People have also raised concerns about the safety of the pipeline, and several recent spills and/or explosions have increased those fears. But truck and rail transport are also prone to accidents, as has also been recently demonstrated. McNutt argued that environmentalists would do better to cooperate, relinquishing opposition to the pipeline in return for (among other things) advanced safety features to make the pipeline really safe.

Those seem to me like serious arguments that are worth weighing in a discussion of Keystone, but other parts of her argument undercut her credibility. She observed that transport by pipeline is much cheaper than alternatives, and suggested that in this "austere" time there might be a way to use those savings as a source of funding for alternative energy sources.

Well, sure, in principle. From an aggregate perspective if the economy is saving money through cheaper transport of gas, it should have more means available for other things, like investments in green energy. But the oil companies were planning to pocket those savings, or maybe split them with consumers, so—again from an aggregate perspective—redirecting some of those savings toward green energy would be tantamount to a tax on tar sands extraction.

Look at the political situation today.

Saturday, January 25, 2014

The beer game

In my intro class this week I had the students play the beer game.

The good news is, we got fun results.

The sad news for them is that it involved no consumption of beer. After all, the class is from 9:30 to noon.

It is true that when I lived in Plzeň in 1991-92, the workers on the early shift at the Škoda factory would have a beer on their break at 10am, but the canteen only served the reduced-alcohol variety of Plzeňský prazdroj (aka Pilsner Urquell), and the workers were only making electric locomotives and nuclear reactors, so it wasn't that important to have a clear head. Drinking while learning macroeconomics would be far more dangerous.

You have four links in a supply chain:
  1. A brewery
  2. A distributor
  3. A wholesaler
  4. A bar
Everyone starts with some inventory. They have to order new product from the company above them in the supply chain. They try to satisfy orders from below them in the chain.

There's a series of delays built into the system:

Gimme an "L"!

The December jobs report came out, and while the unemployment rate is down significantly ("Yay!"), the portion of the population with jobs didn't budge from November (in other words, the number of jobs grew just about as fast as the population).

That means that the reason for the improving unemployment rate isn't that lots more people are finding jobs. It's that more people are giving up, or finding their way to early retirement, or making it onto disability, or perhaps slipping away into the informal sector, where they have an income but don't show up in the employment statistics (though this paper disputes the importance of that last factor).

It's been this way for four-and-a-half years. From December, 2007 to June, 2009, jobs fell away like limbs getting lopped off the Black Knight in Monty Python's Holy Grail. Since then, we've basically moved sideways. The unemployment rate has come down from 10% to 6.7%, while the portion of the population with jobs has stayed at the low level it reached in 2009.
Civilian employment-population ratio --
the percentage of the civilian adult population that is employed
(from Bureau of Labor Statistics)

We've managed to keep more limbs from falling off, but we're making basically no progress on growing new ones.

How long is this going to go on?

My colleague Jason Antrosio sent me to a post by Kaushik Basu about the possibility of an L-shaped recovery.

In the good old days (the first several recessions after World War II), recessions were V-shaped: the economy contracted quickly, a lot of jobs were lost in a short time, but then it rebounded quickly. Many of the job losses were layoffs rather than firings: "We don't have enough work for you for at least the next three months; we'll call you back when we need you." And after several months, people would be called back, and the economy would go along it's merry way as if nothing had happened.

In 1980-1982 we had a W-shaped recession, with a relatively small dip at the end of Carter's presidency, a brief recovery, then a deep second dip early in the Reagan years.

Our next two recessions were shallow U-shaped affairs: the total job losses weren't that high, but it took a long time to get down to the bottom of the job market, then a long time to get back.

Now the concern is that this will be an L-shaped recession: the economy falls, and it doesn't get back up for ... a long time.

I can see a case for an L, but I probably build my case on different foundations than most people who worry about L's.

There's a menu of common reasons that economists point to in looking for an explanation:
  • The article talks about the incorporation of huge labor forces from developed countries into the global economy and how that's a drag on rich-country economies.
  • There's also a passing reference to the need for "structural reforms" in Japan.
  • Some people talk about demographic shifts, with rich countries having older populations and a smaller share of people in their prime working years.
  • There's the inequality thread: wages have stagnated for most people while productivity has risen strongly, and that's keeping demand low. (This Jared Bernstein paper actually ranges much wider than that, but it includes that argument. There's also a literature that cites lower levels of initial inequality as a factor allowing some poor countries to grow out of poverty faster than others.)
  • The inequality is feeding disproportionate political power, which in turn locks us into policies that benefit a few but damage growth.
  • Fast-advancing technology replacing more and more labor, faster than the economy can come up with new things for the displaced labor to do (and get paid for).
I'd say all of those have some merit (though the "structural reforms" thing seems to me more of a symptom—if growth were good, the fiscal drag of current policies would largely go away; the other problems on the list aren't magically solved by growth itself).

But there's a big factor omitted from all mainstream discussion, which is that resource constraints are making it harder for economies to grow. Putting it in rather simple terms, cheap energy can support widespread high-paying jobs, while expensive energy can only support a small number of high-paying jobs; if there are going to be lots of jobs, they can only be low-paying. So even though the working-class is generally stagnating in the rich countries, their wages are still too high for the energy regime we've been in for about 10 years now; and since laws and expectations and fairness all make it hard to reduce wages in rich countries, we're stuck with slow growth. In poor countries, wages are higher than they were, but still a lot lower than here, and thus low enough for employment to expand even when energy is expensive.

(And look at one of the counterarguments to the concern about robots: Sure, machines will reduce labor's share of income, but once we remove the expense of labor for producing things, we'll be living in a world of abundance, so the median person will nonetheless have more access to stuff than today. Without the merest consideration of the idea that providing medical care, driving people around, growing their food is still going to take energy and other resources, and there are tougher limits on replacing that than on replacing human labor.)

So, yeah—maybe an L-shaped non-recovery.

But even that is implicitly asking the wrong question, by assuming that recovery means return to GDP growth rates that were normal in the post-WWII era. If you take resource constraints seriously (not just "Are there limits on how much we can get our hands on?", but, "Are there limits on how much we can burn without ending up really, really sorry?"), then you're led pretty quickly to a very different question. Not, "How do we get the economy growing again?", but, "How do we arrange a decent standard of living for as many people as possible in a system that feels basically fair to most people, while limiting our ecological impact?"

That may sound like a sustainability question or an environmental question, because of the last clause. But it's also a deeply economic question. We have the technological ability to do less in total and still have enough for a decent material standard of living for all. But markets aren't good at answering the question of how to do that, and reliance on the state has its pitfalls, too.

So I don't have an easy answer, but I think it would help if more economists were asking the right question.

Monday, January 20, 2014

IV.2: The circular-flow model

This turns into something pretty much like the standard circular-flow model that's in any mainstream macroeconomics textbook, but it starts from the view developed earlier in the book of payments for value added being grounded in physical processes. And at the end, it draws on the mechanics of banking from Part I to explain how the circular-flow model can account for variations in aggregate demand, and even generate them itself.

Video here.