Although Kirchner is a blogger himself, he and his co-author could be forgiven for missing my post. But Alesina’s work is probably the most-refuted piece of economic analysis put out (though never published in a peer-reviewed journal) in recent decades. It’s been demolished not only by the usual suspects like Krugman and DeLong (and me), but by the Economist, the IMF and even by one of Alesina’s own co-authors, Roberto Perotti.

Charitably assuming that Kirchner and Carling had managed to miss just about every publication on the question of austerity in the last year, could they not have spent 30 seconds with Google before hitting “Send”? A search on Alesina+austerity reveals a torrent of criticism, none of which they mention.

It is hard to know which is worse – the possibility that Kirchner and Carling, presented by the CIS as expert economists, were ignorant of all this, or the alternative hypothesis that they knew it and decided not to mention it. Either way, it’s an appalling breach of elementary standards of research.

I’m pretty sure the facts have been brought to the attention of Kirchner and Carling. The honest thing to do would be to write to the Fin pointing out that the work on which they relied was, at best, highly controversial. If Kirchner, Carling and the CIS are unwilling to do this, we can draw the conclusion that they cannot be trusted in anything they write.

ALP polling has produced a finding that has startled those around the prime minister.

It shows that, while only 30 per cent of voters plan to vote for the Gillard Government, 38 per cent describe themselves as Labor people.

The conclusion drawn from this is that the Government has to be seen as ‘more Labor’. It has to show more concern about, and become more identified with, things that are regarded as `Labor issues

Wow, how could anyone have predicted that?

In Catallaxy terms, however, Moran seems to be the designated hitter for those occasions when I write about the US political scene. Last time out, he was criticising me for “anointing” Romney as the likely winner – he preferred to discuss the bold tax plans of Herman Cain and Rick Perry. Now, he’s upset that I’ve “anointed” Jon Huntsman as the only Republican contender who seemed likely to beat Obama, ruled out because of his heretical (that is, pro-science) views on climate change.

Anyway, the column is over the fold.

Undermined by idiocracy

The issue of climate change is unlikely to play much of a role in the US Presidential election campaign, which will begin in June with the nomination of a Republican candidate to face Barack Obama. It may however, have already decided the outcome, by ensuring that any possible Republican nominee is unelectable.

The Republican position on climate change is often described as ‘sceptical’. In fact, it is a rigid orthodoxy, from which no deviation is tolerated. According to the orthodoxy, mainstream climate science is not just completely wrong, it is a conspiracy in which money-grubbing scientists produce deliberate lies on order to promote higher taxes and, ultimately, a dictatorial world government.

The Wall Street Journal, the most authoritative source of news and opinion for US conservatives, endorses this position in its most extreme conspiracist form. It recently published a letter from 16 self-described scientists attacking climate science and accusing scientists of lying for money. The letter compared mainstream climate scientists to Trofim Lysenko, the pseudo-scientist who controlled Soviet biology under Josef Stalin. It went on to compare the alleged mistreatment of sceptics to Stalin’s use of the gulag to silence dissent.

By contrast, the Journal refused to publish a letter signed by co-signed by 255 scientists and members of the US Academy of Sciences who support mainstream science. On the WSJ view of the world, not only climate scientists but the vast majority of scientists of all kinds, including just about every major scientific organization in the world, are part of the conspiracy.

Unless it turns out that the conspiracy theory is true, this position seems likely to create problems for the WSJ in the future. More immediately, however, it has created big problems for the Republican Party.

The scientific body of evidence supporting the proposition that the global climate is warming, and that human activity is largely responsible, has been building up for several decades. During that time, most long-serving Republican politicians, notably including potential Presidential candidates have, at one time or another, endorsed the mainstream view. They now face the choice of recantation or political death.

The most prominent casualty of the demand for orthodoxy was former Utah governor Jon Huntsman. A hardline conservative on nearly all issues, Huntsman insisted on restating his acceptance of the reality of climate change. This was an insult the Republican base could not bear, compounded by his acceptance of an appointment as Ambassador to China from President Obama. Despite spending millions of his own money, Huntsman’s campaign went nowhere. After a poor third place in New Hampshire, he withdrew.

The support that Huntsman might have garnered went instead to Mitt Romney, a former moderate and supporter of science, who has shown himself willing to say whatever it takes to appease the primary voters. The last serious alternative remaining is another flip-flopper, Newt Gingrich. Although Gingrich’s ferocious style appeals to the base, he has an embarrassing history on climate change, having appeared with leading Democrat Nancy Pelosi in a joint appeal for action.

Unlike Huntsman, both Romney and Gingrich come to the campaign with large amounts of embarrassing baggage. Gingrich’s various indiscretions have been known for some time, but the campaign brought out the embarrassing fact that he worked as an advocate for the mortgage company Fannie Mae, which he and other Republicans subsequently demonized as the prime cause of the global financial crisis.

More surprising have been the revelations about Mitt Romney, whose public image was that of a successful, but dull businessman, specialising in corporate turnarounds. Over the last few weeks, that image has been replaced with one of a ruthless corporate raider and aggressive tax avoider, stashing millions in Swiss banks and the Cayman Islands. Even more startling has been a recent attack ad from the Gingrich camp, documenting Romney’s entanglement in a massive Medicare fraud undertaken by a company he took over in the 1980s.

Barring some improbable scenarios involving deadlocked conventions, or the remote prospects of Ron Paul and Rick Santorum, one or other of these deeply flawed candidates seems certain to be the Republican nominee. Given his easy win in Florida, Romney is a clear favorite, but that may change when the last Gingrich attack sinks in.

Either way, Barack Obama is now a clear favorite for re-election, although he usually loses in polls where voters are asked to choose between him a ‘generic Republican’. Voters presumably imbue this hypothetical character with attributes such as sanity and at least some minimal level of honesty. But in today’s Republican Party, such attributes mean automatic disqualificatio

fn1. Given the awfulness of Catallaxy’s comments sections, I won’t cross-link. If, like me, you’re sick of Google, DuckDuckGo is your friend.
fn2. Another prominent Australian scientist on the list is Don Aitkin, formerly VC of the University of Canberra. Some might suppose he was playing the ambiguity associated with the fact that he is a retired political “scientist”. In fact, however, in a series of emails we exchanged a few years back, he assured me that he had fully mastered climate science in his spare time.

http://clubtroppo.com.au/2012/02/02/crikey-group-subscription-2/

So, I’m going to take advantage of the marvellous institution of optional preferential voting. I’ll give the Greens my first preference, followed by any acceptable independent or minor party candidate. Labor and the LNP won’t get anything from me this time.

My critique of Tyler Cowen’s post arguing the unimportance of social mobility has started off, or maybe merged into, of those old-fashioned blog firestorms we used to have back in the day, now also reticulated through Twitter – a few links here, here and here. But rather than criticise Cowen further, I thought I would try to work through the bigger issues involved from a social democratic perspective[1].  In particular, as discussed in comments here, should social democrats favor policies to enhance social mobility, or does mobility between generations make inequality even worse, for example by justifying what appears as meritocracy?

It’s helpful to start with some facts, and the big one is that inequality of opportunity and inequality of incomes (or, more generally) outcomes are strongly positively correlated. The US and UK are notable as being highly unequal societies in both respects. More precisely, as would be expected on the basis of even momentary thinking about the ways in which parents try to help their children, highly unequal outcomes in one generation are negatively correlated with intergenerational mobility in the next. 

That brute fact kills off one of the central ideas put forward by lots of ‘Third Way’ advocates among former social democrats, namely that it’s fine to have the highly unequal outcomes produced by free-market liberalism if you can get a modest amount of extra growth in aggregate, since governments can use education and similar policies to ensure that everyone has a fair chance at the big prizes.  If a highly unequal society allows parents to give their children an unbeatable headstart, then the idea that we can offset greater inequality of outcomes by more efforts to promote equality of opportunity becomes problematic at best.

Matt Cavanagh in Against Equality of Opportunity takes the dilemma seriously and argues for the abandonment of equal opportunity on the basis that it is inconsistent with a market society.  That’s pretty much the actual position of most Third Way supporters[2] though not too many are willing to say so.

Moreover, the factual basis for the claim that free-market liberalism actually produces higher growth is weak, though the evidence isn’t as clear-cut as for the relationship between unequal outcomes and unequal opportunities.  The time-series evidence goes the other way – the strongest period of economic growth for the US and other (then) leading countries was during the post-1945 ‘Great Compression’.  The comparison is even sharper now that we’ve had a few years of highly unequal austerity.

So, the Third Way position appears unsustainable in every way. On the other hand, as long as you accept some role for markets, or even just for individual choice, different people will experience different outcomes in life. It seems obviously sensible, for example, to allow people a choice between working hard in paid employment, and buying goods and services in the market, or spending more time at home, providing directly for themselves and their families[3]. And, if people are allowed to take real risks, some will turn out relatively well and others relatively badly.

There is no reason, however, why freedom of choice, even within a generation, requires the grotesque inequalities produced by market liberalism. In fact, by punishing any choices that don’t produce a high income, market liberalism reduces the range of effective choices. Tyler Cowen makes this point, using the examples of the US and Europe, here (his point 4, though of course it’s not intended this way).

Once we have unequal outcomes in one generation, there will be a tendency to transmit them to the next. But if the distribution of income within a given generation is reasonably equal, there is lots of scope for government action to give everyone in the next generation access to the same broad set of choices and opportunities. 

The most obvious measures relate to wealth and education. Taxes on inheritance and capital gains can discourage the transfer of large accumulations of wealth from one generation to the next. As regards education, the crucial element is centralised funding, with a commitment to offset, rather than reinforce, inequalities in starting points. That is, schools in poor communities should get more resources rather than less, to offset both the poorer starting position of the students and the greater opportunities of schools in wealthy areas to secure support of various kinds for parents.

 How does this relate to concerns about meritocracy? The more that differences in outcomes reflect different choices from a given set of opportunities, rather than differential success in climbing a well-defined hierarchical ladder, the less this seems to me to be a concern. 

As always, I’m hoping for comments to point out (preferably in a non-snarky fashion) weaknesses in my argument and to help me clarify my thoughts. So, go to it.

fn1. I’m not going to attempt a definition of social democracy. But I’m thinking about a policy view that would take the best elements of the Keynesian/welfare state polities that was developed in the decades after 1945 and extend it to cover a much wider range of people and concerns than those of the developed-country male-earner households who were taken as the model participants in those polities.

fn2. The term is pretty much dead, along with the idea that the Third Way would transcend the divide between social democrats and free marketeers, rather than just split the difference as many times as the opinion polls appeared to require. But the political tendency it represents is very much alive, as shown by the general capitulation to the zombie economics of austerity.

fn3. This glosses over all sorts of problems, from involuntary unemployment to the distribution of work and consumption within households. But however these problems are resolved, the choice I’ve described will remain important.

Posted via email from John’s posterous

Ever since the first signs of the global financial crisis emerged back in 2007, the central bankers of the developed world (most importantly the US Federal Reserve, the European Central Bank and the Bank of England) having been making policy on the run, trying one expedient after another, even while insisting that nothing has really changed.

Our own Reserve Bank, buoyed by the successful management of the crisis here, is even clearer in the view that the current policy regime needs no real change. They are supported by the government, which has repeatedly rejected calls for an inquiry into the financial system, to examine whether our escape from the impact of the Global Financial Crisis was in fact the result of good management, or whether luck played an important role. Given the near-collapse of financial systems with broadly similar regulatory frameworks, such an inquiry might uncover vulnerabilities that need to be addressed before the next crisis.

The central banks of the leading developed countries failed spectacularly in the lead-up to GFC. Their failure was centred on what most central bankers still regard as the great achievement of the 1990s, the shift to a system of ‘inflation targeting’, in which the sole objective of monetary policy was to keep the rate of inflation in a target range, typically close to 2 per cent.

Inflation targeting led central bankers, most notably Alan Greenspan of the US Fed, to ignore or even applaud the unsustainable bubbles in speculative real estate that produced the crisis, and to react too slowly as the evidence emerged.

Worse still, in the post-crisis environment, achievement of inflation targets has no longer promoted stable economic growth. Rather, low  inflation has been a drag on growth. But with inflation clearly under control, central bankers like former European Central Bank President Jean-Claude Trichet have been able to describe their own performance as ‘impeccable’, even as the economies and currencies they manage appear headed for collapse.

This system is clearly unsustainable. But what is the alternative? The most popular idea begins with a change of target, from the rate of inflation, to the level of nominal GDP (the most commonly used measure of national output, valued at current prices).

The idea would be to combine a target rate of inflation (say 2-3 per cent) with an estimate of the medium-term rate of real economic growth required to maintain full employment (again 2-3 per cent is a plausible estimate). The aim would then be to keep the value of GDP, expressed in current dollars, on a growth path consistent with these targets (that is, at an average annual rate somewhere between 4 and 6 per cent).

This change would have several effects. First, it would restore the balance that used to prevail in monetary policy before the 1990s, when central banks were explicitly required to pursue full employment as well as price stability.


Second, because the target would apply to the level of nominal GDP, its adoption would require central banks to catch up the ground lost over the last few years of depressed growth and generally low inflation. That would permit a temporary increase in inflation, which is necessary if growth is to be restarted against a crushing burden of debt.

Third, the adoption of a nominal GDP target, by committing central banks to an expansionary policy would have self-fulfilling effects on expectations. By contrast, the effectiveness of past measures to expand credit has been undermined by the expectation (justified by events) that they would be wound back as soon as the immediate crisis was over.

Last but not least, a nominal GDP target would create room for fiscal policy as well as monetary policy. What is needed now is the abandonment of counterproductive austerity policies as a response to the slump in Europe and the US. Austerity should be replaced by a combination of short-term fiscal stimulus and long-run measures aimed at a sustainable budget balance. That can only be achieved if central banks co-operate with pro-growth fiscal policy, instead of seeking to counteract it in the name of inflation targets.

The abandonment of inflation targeting would, of course, be an admission of failure. But central banks have failed, disastrously, and admitting this would be the first step towards a sustainable recovery.

A system of nominal GDP targeting would maintain or enhance the transparency associated with a system based on stated targets, while restoring the balance missing from a monetary policy based solely on the goal of price stability.