Thanks to everyone who has made useful comments on my recent posts. I need to move on to present concerns, so I’m finishing my writing on the post-War Golden Age (or whatever you would like to call this period). Here are some thoughts I still need to organize

Over the period since 1900 as a whole, there hasn’t been any clear trend in the rate of technological progress for the US. However, from 1950 to the early 1970s, the US economy was closer to the ‘frontier’ determined by technological progress and available resources before or since, and the output of the economy was shared more equally than before or since.

We can’t replicate these things exactly, but we can use a revamped version of the mid-C20 institutions as a starting point for a Green New Deal.

The breakdown of the Keynesian-social democratic moment in the late 1960s and early 1970s was largely the result of mistakes which were probably inevitable at the time, but may be avoided if we learn from them.

What went right

The strong growth in aggregate output from the late 1940s to the late 1970s primarily, though not entirely, reflected the fact that the economy moved from operating well below its technological potential to operating at or near the technological ‘frontier’.

The most important implication is that egalitarian economic policies and social institutions are conducive to good economic performance at an aggregate level. Here’s a list of some of the relevant policies (commenter TM at Crooked Timbe suggested most of these, and I’ve added some)

• Policy commitment to full employment – important for expectations
• Keynesian fiscal and monetary policy – helped in accelerating recovery from recessions
• Progressive taxation and New Deal welfare state – reduced inequality, and provided automatic stabilisation (as employment falls, tax revenue falls and spending rises)
• Strong unions (reduced inequality and constrained employer class from aggressive anti-worker policies)
• Public investment and expanded public provision of services – reduced dependence on business confidence
• Broad access to education at low cost, necessary to achieve productive potential of the economy
• Low capital mobility and financial repression – kept power of financial capital in check, avoided waste of resources in financial sector

What went wrong

The breakdown of the Golden Age can be traced to a combination of

• Hubris on the part of the technocratic policy elite, reflecting in a belief in their ability to ‘fine tune’ the economy, and to run the War on Poverty and the Vietnam War at the same time
• Mistaken belief on the left that the US and the world were approaching a revolution and that impossibilist demands (particularly, but not exclusively in relation to wages and conditions) could help to bring this about
• The rapid but unrecognised growth in the power and global mobility of financial capital arising from the end of international capital controls and domestic financial repression

Around 1970, these factors combined to produce an inflationary outburst which, in a context of capital mobility brought about the end of the Bretton Woods system of fixed exchange rates (the residual role of the gold standard played an important technical role here). This in turn produced more financial deregulation and more volatility leading to an escalating crisis.

Developments in ideas were also important. Friedman and the Chicago school had correctly predicted the inflationary consequences of policies pursued by Keynesian technocrats in the 1960s, and therefore was well positioned to replace them as guides to both macroeconomic and microeconomic policy. Even though the policies did not restore the strong and egalitarian growth of the Golden Age, they were highly beneficial to the financial sector which rapidly achieved sufficient political and economic dominance to ensure that its wishes prevailed.

What didn’t matter

The 1973 oil shock is often seen as central to this story, but it occurred well after the critical events, including the breakdown of Bretton Woods and the failure of wage-price controls. It was a late development in a general upsurge in commodity prices. More broadly, the idea that the pre-1973 period was one of cheap and abundant energy compared to subsequent decades is only true for oil, which became steadily less important in economic terms after 1973, despite being a continuing focus of geopolitics. Prices and production for coal, natural gas and electricity followed different paths.

One of the striking features of the Dr Seuss fuss is that most commentators seem to be treating this as something new. No one I’ve read in US commentary on the topic seems to be aware that “Dr Seuss, cancelled” is a shot-for-shot remake of a British drama.

It reminded me immediately of the arguments about golliwogs in Enid Blyton’s Noddy books, which started just about the time (a long, long time ago) I grew out of those books, and moved on to reading such gems as the Famous Five . After a long series of adjustments, turning golliwogs into goblins and so on, the issue was resolved by the reissue, in 2009, of a new canonical series, with no golliwogs. (There’s still controversy about golliwogs in general, but not wrt Noddy).

As is always the case, once you know what to look for, you can always find someone who’s made the same point before. In my case, very close to home. Here’s Kate Cantrell and Sharon Bickle from the University of Southern Queensland making exactly this point, with many more examples.

That’s the only lasting policy achievement of Trump’s Presidency. But for his brand of grievance politics, losing is winning.

That’s the headline for my latest piece in Inside Story, covering the Biden rescue package.

In the NY Times, Paul Krugman makes the case that too much choice (particularly about retirement investment) can be bad

Ani Guerdjikova and I demonstrate this with lots of algebra

Here’s the draft introduction for The Economic Consequences of the Pandemic. Comments, criticism and congratulations all appreciated.

My submission on the Morrison government’s misconceived energy strategy

Update: An expanded version of this post has now been published at Inside Story

By special request from regular commenter James Wimberley (and with some suggestions from him), some thoughts on the failure of the Texas electricity market to deal with unexpected cold weather.

Texas lost power when neighboring states, which also experienced the freeze did not. This is part because it has a mostly separate electricity grid. The Texas Interconnection has been kept separate from the rest of the US grid deliberately, to ensure that it remains under Texas not Federal control. That means that Texas couldn’t draw on electricity from the major power pools, notably the Southwest Power Pool.

The reason Texas was kept separate was so that it could replaced traditional integrated electricity supply with a pool market for electricity generation, combined with competitive retailing and lightly regulated transmission and distribution. This was run by ERCOT, the Electric Reliability Council of Texas (a name with plenty of irony right now), Interestingly, Australia is a mirror image. The National Electricity Market was set up on the pretext that it was necessary to manage the National Grid, which connected systems in Eastern Australia from the 1990s onwards.

The US ought to have a single national physical grid, as most of Australia does. The benefits of interconnection increase with greater need for reliability, greater total requirements for electricity (as transport is electrified) and an increased role for time-varying generation from solar and wind. The costs of interconnection have fallen with technological progress including (over long distances) the option of high-voltage direct current (HDVC) transmission.

A lot of people have suggested that the electricity market doesn’t provide incentives for reliable supply. Others (with some overlap) have commented adversely on the fact that the price of electricity rose to $9000/MWh during the freeze (average is around $30/MWh). The correct analysis is more subtle. The idea of a pure electricity market is that the prospect of getting high prices when everyone else has shut down would provide an incentive to maintain reliable supply.

Electricity only market seen as not providing adequate incentives for reliability. But ultra-high peak prices are supposed to provide those incentives. Max of $9000/MWh too low, not too high.

Switch from vertical integration to pool market good for renewables. An inherent result of markets, or just that disruption of any system favors shift to more efficient technologies?

(I’m going to edit this bit by bit, without noting updates)