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The Market Did Not Cause Inequality, No Matter How Much the New York Times Insists

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It is a complete article of faith in intellectual circles that the market is responsible for the rise in inequality that we have seen in the United States and elsewhere over the last half-century. Intellectual types literally cannot even consider the alternative that inequality was the result of government policies, not the natural workings of the market.

The standard line is that technology and globalization were responsible for the increasing gap in income between people with college, especially advanced, degrees and non-college-educated workers. This belief that market forces drove inequality and not policy is apparently central to the identity of its beneficiaries, who determine what appears in major news outlets.

In this way, the belief in the market causes of inequality can be similar to the belief among Trumpers that the 2020 election was stolen from Trump. They simply do not even want to see the issue debated.

Spencer Bokat-Lindell: The Latest Perp

My current prompt to make my standard complaint is a column by New York Times columnist Spencer Bokat-Lindell which raises the question, “Is liberal democracy dying?” While the causes of growing inequality are not directly the piece’s topic, the issue comes up at several points.

For example, in discussing the rise of authoritarian sentiments among the masses, he tells readers:

“How does class come into the picture? Some scholars have theorized a link between democratic backsliding and the Great Recession, if not global free-market capitalism itself.”

Later the piece continues with a similar theme:

“Yet there are also those who believe technocratic fixes are unequal to the problem [of rising support for authoritarianism]. In a 2016 essay, the Indian writer Pankaj Mishra presented the declining health of democracy around the world as a crisis for the ideology of modern market-based liberalism itself: A ‘religion of technology and G.D.P. and the crude 19th-century calculus of self-interest,’ it can neither account for nor provide an answer to the anger of those who feel left behind by the disruptions and inequalities wrought by globalized capitalism.”

To be clear, I am not picking on Bokat-Lindell because he is the exception. I am picking on him because he is repeating a dogma that goes almost entirely unquestioned in major media outlets, including the New York Times.

Let’s Say Policy, not the Market, Drove Inequality

I will briefly restate my case for how policy drove inequality (this can be found in Rigged [it’s free]), but first, let’s think about the rise of right-wing populism, assuming it is true. This means that we had government policies that prevented more than half of the workforce from seeing any substantial gains from productivity growth over the last half-century. This is a period in which productivity more than doubled.

While the bottom 60 percent of the workforce saw little gains from productivity growth, the top ten percent were doing great. Those in the 90-95th percentile of the wage distribution saw gains at least in step with productivity growth. Workers in the 95th to 99th percentile had wage gains that far outstripped productivity growth, and those in the top 1 percent were getting wage gains that were close to double the rate of productivity growth.

Now, suppose that that massive upward redistribution was all by design. The government put in place policies designed to take money from the bottom 60 percent of the population and give it to those at the top.

Furthermore, suppose that the mechanisms that caused this upward redistribution were prohibited from being discussed. We instead had people like Bokat-Lindell, and thousands of others, filling news stories, columns, and other ruminations on inequality in major media outlets as simply an unfortunate outcome of natural market processes. The idea that government policies actually caused inequality would virtually never be discussed or even contemplated.

In this scenario, would it be surprising that tens of millions of people would be angry at the government for acting to make them worse off? Is it surprising that they might distrust mainstream news outlets like the New York Times or National Public Radio, which endlessly tell them they are losers, but they feel very badly about that fact?

To my mind, in this scenario, it is not the least bit surprising that tens of millions would turn to a despicable demagogue like Donald Trump, or his foreign equivalents, who tell them it is not their fault. Their explanations might be nonsensical racism and/or nationalism, but he is at least pointing his finger somewhat in the right direction. (Trump’s rich backers of course benefitted hugely from the upward redistribution of the last half century.)

The right-wing populists are blaming the people who have benefitted from upward redistribution along with the targeted minority groups. Howard Jarvis, the originator of California’s anti-tax initiative Proposition 13, laid out the case perfectly. He said that “in the battle of us against them, I’m for us.” Jarvis made it very clear, “them” in this story were welfare cheats (read minorities) and pointy-headed bureaucrats (read professionals). “Us” was good old white guys. This is the theme that Trump and other right-wing populists harp on endlessly.

Against this red meat, mainstream liberals want to have policies that modestly increase the size of the welfare state, subject of course to budget limits. And, we also have to worry about inflation. If that gets too high, well the Fed will just have to raise interest rates and throw millions of working-class people out of work and push down the pay of those able to keep their jobs.

Pretty amazing that the working class isn’t signing up to get Democrats elected, huh?

The Story on Policy and Inequality

I know I give this all the time, but for the folks who have never read my other stuff, and don’t intend to, let me give the super-brief version. Let’s start with intellectual property. This is the clearest case and probably the most important in terms of upward redistribution.

Imagine a world where there are no government-granted patent or copyright monopolies or related protections. This means that anyone who wants to can manufacture any drug they want, without getting the permission of the patent holder. (This has nothing to with safety requirements, which could be left in place.)

Everyone would be able to make copies of software they liked, and even resell them. They could make and sell copies of books, recorded music, movies, and video games and never have to worry about compensating a copyright holder.

Now, I know many people are screaming that in this world no one would ever innovate, develop new drugs, perform music, or make movies. Stop screaming for a moment and think about the issue at hand. We could have a market economy without government-granted patent and copyright monopolies.

These monopolies are government policies to promote innovation and creative work. We can and should argue about whether these government-granted monopolies are the best mechanisms for promoting innovation, but the fact that patents and copyrights are government policy, and are not inherent features of the market is not a debatable point.

This means that the extent to which people are able to benefit from these monopolies is determined by the government, not the market. Bill Gates is one of the richest people in the world because the government will arrest people who make copies of Microsoft’s software without his permission. It was not the market that made Bill Gates insanely rich, it was a government policy.

The same story applies to the idea that technology has benefitted more educated workers at the expense of those without college degrees. There would be much less money to be shared by all those software designers, computer engineers, and biotech inventors in a world without patent and copyright monopolies.

The fact that these people have done very well in the last half-century was due to the decision to not only have these government-granted monopolies, but also policy choices that made them longer and stronger. Just to take the case of prescription drugs, Congress approved the Bayh-Dole Act in 1980, which made it much easier for drug companies to get control of government-funded research.

In the last four decades, spending on prescription drugs exploded from 0.4 percent of GDP to 2.2 percent of GDP. The difference comes to $450 billion a year, more than ten times the money at stake in the Inflation Reduction Act.  

To be clear, we had other changes to policy beyond Bayh-Dole. Also, there were undoubtedly many important drugs that were incentivized by this and other policy changes that strengthened intellectual property in drugs. But, we are paying a huge amount more for drugs as a result of policy changes, not the natural workings of the market.

There is a similar story with medical equipment, computers, software, and a wide range of other items. To be clear, I don’t dispute that we should provide incentives for innovation and creative work (my preferred route with prescription drugs is more direct public funding, as we do with NIH), but the structure and size of these incentives are a matter of public policy. It is not a market outcome as the New York Times tells us.

There are other areas where policy has quite obviously shaped distribution. We could have structured globalization differently. Instead of focusing on removing barriers to trade in manufactured goods, so that our manufacturing workers had to compete with low-cost labor in the developing world, we could have focused on promoting free trade in professional services.

In this scenario, our trade teams would be working 24-7 to develop mechanisms that would allow smart ambitious kids in India, Mexico, and elsewhere to train to U.S. standards and then practice medicine in the United States, just like a native-born doctor. How much would doctors here earn, if a half million foreign-educated doctors were working here? My guess is that the sum would be substantially less than the $300,000 plus a year that the average doctor makes now. We could tell the same story for other highly-paid professionals.

The fact that globalization, as we pursued it, was designed to lower the pay of less-educated workers and not the most highly educated and highly paid, was a policy choice. It was not a natural outcome of the market.

When the Elite Lie About Taking Money from the Bottom Half, is it a Surprise the Masses are Mad?

I could go on with other economic policies that allowed for the massive upward redistribution of the last half century, those who are interested can look at Rigged, but the basic point should be clear. The upward redistribution of the last half century was the result of policies designed by the sort of people who write for and edit publications like the New York Times. They refuse to acknowledge this fact.

Let me just preempt a silly comment I have heard when raising this point. I AM ABSOLUTELY CERTAIN THAT ALMOST NO WORKING-CLASS PEOPLE VOTE BASED ON PATENT POLICY. (All caps to make it more difficult to ignore.)

The argument is that working-class voters see themselves as being screwed in the economy of the last half century and are convinced that it was something that was done to them by the elites. They are entirely right in this view, even if they (like our public intellectuals) have little understanding of the processes. And, you can’t make this claim in polite circles. And, for that reason, they are very angry.

The post The Market Did Not Cause Inequality, No Matter How Much the New York Times Insists appeared first on Center for Economic and Policy Research.

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Astronomer Hotline

Employment statistics have to correct for the fact that the Weird Bug Hotline hires on a bunch of extra temporary staff every 17 years.
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Pluralistic: 11 May 2022

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The cover of the Penguin edition of Ayn Rand's 'Atlas Shrugged.' The statue of Atlas has been removed. Lying across the full width of the cover is a golden-tinged smashed Roman statue head of an unknown king, his face half-gone and his nose missing.

The (billionaires') case against billionaires (permalink)

The downsides of a world with billionaires in it are well-rehearsed: billionaires can convert their vast wealth to power, and use that power to turn their whims and pet theories into policy failures that affect millions – or even billions – of people.

Take Bill Gates. Forget all the conspiracy theories about Gates and vaccines – it's bizarre that people bother to make up those fairy-tales when the truth is so much worse. Gates has an absolute ideological commitment to the idea that profit-based production is the most efficient way to produce and allocate goods.

It's what prompted him to declare war on free/open software, what caused his foundation to block patent waivers for AIDS drugs in sub-Saharan Africa and other poor nations, and it's what led him to strong-arm the Oxford university team to kill its plan to release its vaccine into the public domain, opting instead to license it to Astrazeneca.

Gates's foundation is the key force in fighting against covid vaccine copyright and patent waivers at the WTO, insisting that the world's poorest billions should rely on charitable donations from rich countries, waiting for vaccines until the wealthy minority are vaxed, boosted, and boosted again.

This is a catastrophic, even genocidal idea. Gates's ideology denied the world's poorest access to AIDS drugs, directly leading to a vast population of permanently immunocompromised people in the global south. These same people are especially vulnerable to covid, but again Gates's ideology denies them vaccines. Worse: immunocompromised people take longer to recover from covid, meaning they have a higher chance of incubating new strains, and when those new strains emerge, they rip through immunocompromised, unvaccinated populations.

Just in case you've encountered the racist lie that poor brown people in the global south are too primitive to make their own vaccines, waivers or no, here's a debunking of that particular pile of bigoted garbage:

Long before billionaires were threatening to kill us all by making vaccine access subservient to their ideology, they had devoted themselves to the destruction of the public education system. Dilletantes like Betsy DeVos, the Walton family, and, yes, Gates, funneled tens of millions into propaganda for the unaccountable charter school system:

Despite the fact that charters produce worse outcomes at higher prices and create and reinforce racial segregation, they serve an important role in billionaire ideology, by demonizing and neutering teachers' unions and attacking the idea of public service provision itself. Of course, it's not all ideology: charter schools make excellent money-laundries:

As I've written, it's not just that every billionaire is a policy failure: every billionaire is a factory for producing policy failures at scale:

Of course, billionaires still exist, and they have a lot of money (and hence power), which means that their lickspittles in the economics trade have dreamt up all kinds of excuses for their existence. On his blog, Charlie Stross analyzes these excuses and their counterarguments:

"Capitalist apologetics" makes an argument that billionaires provide social utility, first, by motivating others through appeals to their greed: "If you strive and strive, you might someday become a billionaire and wield power, too."

As Stross notes, even by its own lights, this is a pretty flimsy argument. Greed is a powerful motivator, but it also has diminishing returns. Billionaires are so rich that additional fortunes – even vast ones – change very little for them. Once you're a billionaire, another million (or billion) dollars confers virtually no benefit to you.

Stross cites Steve Jobs, a very powerful billionaire whose riches did not help him after he had his cancerous pancreas removed and his liver began to fail. His money let him keep a bizjet on 24/7 standby so he could be on liver-donor waiting lists in three states – the three states he could reach in time to receive a donor liver before it spoiled. If you'd given Jobs an extra billion dollars, it wouldn't have made a difference to his ability to procure a liver – the physics of civilian aviation and the frontiers of bioscience put a hard limit on his access to donor livers.

"Personal wealth," says Stross, "has an upper bound beyond which the numbers are meaningless."

But there's another argument for billionaires: they can mobilize their money to change the world (in Jobsean parlance, "make a dent in the universe"). Gates can create a foundation to eradicate child poverty, Musk can use his fortune to establish a Mars colony, etc.

But, Stross says, though billionaires are incredibly rich, they are nowhere near rich enough to do any of this stuff. The world's total income – the Gross World Product (GWP) – is $70-$100T. Add up all the world's billionaires' fortunes and you don't even get 1% of that. The wealth of a Bezos or Musk doesn't even cover the 2019 rise in GWP.

For all the lobbying, the corrupting of politicians, the big talk about going to Mars, the "midlife crisis toys like Twitter or weekend getaways on a space station," billionaires can't actually do much.

That includes billionaire autocrats like Xi and Putin, who have "nuclear weapons, armies, and populations in 8-9 digits" at their disposal. All of that still won't deliver Putin the swift victory in Ukraine he planned as a 70th birthday present to himself.

Stross hypothesizes that billionaires "probably feel about as helpless in the face of revolutions, climate change, and economic upheaval as you and I."

Billionaires may have figured out how to cheat taxes, but they can't cheat death. Stross says that this produces the cognitive dissonance at the heart of the psychopathology of billionaires: despite being able to command any luxury or necessity for sale, at any price, they can't insulate themselves from objective reality. Not with all the luxury bunkers in the entire nation of New Zealand.

So: Musk (50) will probably never go to Mars. Even if a Mars colony can be established in a mere 20 years (a fantasy), he will likely not be able to make the journey at 70.

Putin is 70. He's got thyroid cancer (and, depending on who you believe, lots of other ailments). The only Russian leader in history that lived past 80 was Gorbachev, who only served for six years and largely escaped the premature aging effects of office.

Vast wealth does create enormous power, and that creates tangible outcomes, but it's easy to get lost in the hype. Musk didn't found Tesla. SpaceX merely represents a refinement in the long history of reusable spacecraft. Starlink is a reboot of Teledesic.

The most prominent outcomes of billionaire power are all negative: the Kochs may have literally ended human civilization by funding climate denial. Billionaires are unaccountable – that's why people dream of amassing billions, after all, to escape the petty objections of others – and unaccountable power produces catastrophes.

The fantasy of billionaire wealth is that, with enough money, you can just do what you want. If what you want requires other people, you can just pay them to do their part. If other people don't want you to have what you want, you can just pay them to go away, or pay someone else to take them away. It's a toddler's fantasy of manifesting your will.

The reality is that we live in a society and other people aren't non-player characters or mere obstacles. Unchecked power can be used for destruction, but it creates very little, besides more destructive power. Left unchecked, that power will destroy the very society that protects it.

Hey look at this (permalink)

This day in history (permalink)

#20yrsago The harder you look at the DMCA, the stupider it gets

#20yrago John Gilmore gives Intel hell

#15yrsago HOWTO explain quantum theory to a dog

#10yrsago Google search ranking is editorial in nature and qualifies for First Amendment protection

#5yrsago Jeff Sessions wants to bring back long mandatory prison sentences for minor drug offenses

#5yrsago Wrapping up the Crooked Timber seminar on Walkaway: Coase’s Spectre

#5yrsago Most European millennials would join “a large-scale uprising”

#5yrsago What’s inside a phone that’s designed to fit inside your rectum?

#5yrsago Trump plans ban on laptops in the cabins of flights from Europe

#5yrago Photographs from the archives of the Stasi, East Germany’s legendary, paranoid secret police

#5yrsago The 2020 Census is headed for a “train wreck” thanks to Trump’s mismanagement

#5yrsago Apple’s control-freakery is making the Internet of Shit shittier

#5yrsag HP’s stupid audio-driver logs every keystroke you make (and it has an API!)

#5yrsago Crashed computer at Oslo pizzeria reveals covert facial recognition scheme

#1yrago Let's eat all the cicadas

#1yrago Cyclopedia Exotica: Aminder Dhaliwal's cryptid history of our one-eyed cousins

#1yrago LA traveling toward free public transit

#1yrago Biden's shift on vaccine patents is a Big Deal

Colophon (permalink)

Today's top sources:

Currently writing:

  • Some Men Rob You With a Fountain Pen, a Martin Hench noir thriller novel about the prison-tech industry: 1048 words (1048 words total)

  • Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. Yesterday's progress: 508 words (92849 words total) – ON PAUSE

  • A Little Brother short story about DIY insulin PLANNING

  • Vigilant, Little Brother short story about remote invigilation. FIRST DRAFT COMPLETE, WAITING FOR EXPERT REVIEW

  • Moral Hazard, a short story for MIT Tech Review's 12 Tomorrows. FIRST DRAFT COMPLETE, ACCEPTED FOR PUBLICATION

  • Spill, a Little Brother short story about pipeline protests. FINAL DRAFT COMPLETE

  • A post-GND utopian novel, "The Lost Cause." FINISHED

  • A cyberpunk noir thriller novel, "Red Team Blues." FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: Revenge Of The Chickenized Reverse Centaurs

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Upcoming books:

  • Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin, nonfiction/business/politics, Beacon Press, September 2022

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"When life gives you SARS, you make sarsaparilla" -Joey "Accordion Guy" DeVilla

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144 days ago
Shorter Cory Doctorow: billionaires aren't just trash, they're dangerous trash.
The Belly of the Beast


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When you get to hell, tell smallpox we say hello.
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541 days ago
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541 days ago
When you get to hell, tell smallpox we say hello.

What's So Wrong With Peace, Love, and Understanding? by tristero

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What's So Wrong With Peace, Love, and Understanding? 

by tristero
"Imagine your elementary school child coming home one night and explaining the actions that their teacher asked them to do that day—to close their eyes and obey an audio recording that tells them to clear their minds, to watch their memories and emotions float away on clouds, and to feel the love and warmth from their connection to the universe. How would you react if this same audio recording is telling your child to look inside themselves to reach inner-goodness and peace? "
Sounds pretty anodyne to me. But not to a Pat Robertson-founded radical religious front organization which sees the spread of mindfulness in schools as an insidious menace. What kind of problem? Well, according to the blogpost on the Robertson-associated site (I'm not naming or linking to them), mindfulness is Buddhism and Buddhism is a religion. And therefore (this is taken directly from their blog post):
Generally, any involvement at all by public school officials in religious activity during the school day is unconstitutional under Establishment Clause jurisprudence. School officials violate the Establishment Clause if an “objective observer” would perceive the activity or instruction as a state endorsement of religious belief. Santa Fe Indep. Sch. Dist. v. Doe, 530 U.S. 290, 308 (2000).
But elsewhere on their site, they seem to have a major problem with the Establishment Clause:
Two Christian schools were barred from praying at a high school football championship game. Now they’re banning Christian school prayer? 
The government’s state athletic association banned the prayer simply because of its Christian message. A pep talk would have been fine, but a Christian prayer – by two Christian schools – was banned. Even worse, a federal judge agreed. 
This type of blatant anti-Christian discrimination on campus is spreading like a virus.
What makes this even more amusing is that the mindfulness program, Inner Explorer, is an explicitly secular program that mentions Buddhism nowhere (as far as I can tell) on their Web site (and in fact mindfulness techniques are found both in many religious traditions and also in entirely secular programs like Inner Explorer).  So...

Robertson's group is (1) seeking to ban a non-religious program using the Establishment Clause while simultaneously (2) seeking to promote overtly religious rituals by opposing the Establishment Clause.

BTW, at the time of this writing, 51,663 outraged christianists had already signed a petition on the Robertson Web site calling for the banning of mindfulness from public schools.
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1383 days ago
I'd point out the Jesuit practice of "age quod agis" (do what you are doing), but they probably don't consider them Christians either.
The Belly of the Beast

Sunday Morning Twitter: Functional Finance/A Better World Is Possible Tweeting...

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Preview of Sunday Morning Twitter Functional Finance A Better World Is Possible Tweeting

A better world—a better twitter—is indeed possible...

Suresh Naidu: I will stake my fancy economics job on this: Nothing in @Ocasio2018's policy program is inconsistent with a 2018 understanding of economics.

Wojtek Kopczuk: I missed it before, by my favorite colleague to disagree with. Congratulations on tenure @snaidunl!

Suresh Naidu: Sigh you drew me out. Tell me which policy is infeasible and not addressing some market failure?

Wojtek Kopczuk: They are inconsistent with the government budget constraint. And her MMT support is definitely inconsistent with mainstream economics.

Suresh Naidu: MMT is totally consistent with lots of mainstream macro when the economy is demand constrained (and fiscal theory of the price level when its not). it is unfortunate its adherents dont see that. And budget constraints are endogenous.

Ivan Werning: What do you have in mind?

Suresh Naidu: Oh crap a real macroeconomist. I think stripped of mysticism, MMT is really boils down to "fiscal mutipliers greater than 1", which could be true in demand constrained economy.

Ivan Werning: Let's not call that MMT.

Arindrajit Dube: Core propositions of MMT seem hard to differentiate from old school (“paleo” Keynesianism) in most likely states is the world ... maybe a difference is whether literally any level of public debt can be sustained at a non-accelerating inflation. Paleo Keynesians may say no.

Brad DeLong: MMT is Abba Lerner's Functional Finance with bells & whistles & some confusions. Manipulate G to stabilize Y & π, manipulate M to get an i to make debt finance sustainable, and rely on π to tell you if your policies are sustainable... If π↑ need G↓

Suresh Naidu: Clearest exposition of MMT in a tweet. Fight me deficit owls!

Ivan Werning: Interesting. I thought idea was broadly to use a feedback rule and push back against fixed doctrines.

Brad DeLong: Yes, but in some ways MMT or FF is the fiscal theory of the price level: if your government debt strategy moves in a long-term unsustainable direction, the FTotPL raises prices now. Hence successful stabilization of Y & π now guarantees no LR debt sustainability problem. Relies a little too heavily on the efficient markets hypothesis in the form of the FTotPL for my taste...

Ivan Werning: Seems wishful. Basically, I can't imagine how it plays out in any of the debt crises scenarios (which is where we should test it!) I know of, but maybe that is very "local" in my thinking.

Brad DeLong: Continuous-time fiscal theory of the price level kinda the wrong model for debt crises. Lots of Gennaioli-Shleifer "Oh f---! Why was I thinking that yesterday? We need to dump our entire portfolio now" phenomena which CT RE & FTotPL do not handle well...

Ivan Werning: Is there any relatively modern rendition of these Lerner ideas you recommend? Dynamics, stable steady states, and all?

Brad DeLong Haven't seen one. In one sense, it is too easy: in the fiscal theory of the price level, every G, T, M, & thus D path that stabilizes π satisfies LR government budget constraint. Add an exp Phillips Curve & Y, u are fine too. 3 instruments, 1 target, 2 policy degrees of freedom

Ivan Werning: People who think these things, have they ever visited latin america, say?

Brad DeLong: big distinction in fiscal running room between reserve currencies with exorbitant privilege, and all others. If MMT or MMT-light applies, applies only to 1st...

Wojtek Kopczuk: The reserve currency status is not given for all eternity

Brad DeLong: touché... if we reelect Trump here, we may find we have some identifying variance on this question...

Arindrajit Dube It’s probably not accidental that US w/ reserve currency exhorbitant privilege is where MMT arose: it’s the easiest to imagine it in this setting. One has to move substantially away from current equilibrium before it seems totally absurd.

Brad DeLong: But MMT does perform the valuable function of reminding people that, for the US (and Germany, and Britain, and Japan), r_{short-safe} < g, in which case government debt as safe asset provision is not a drag on but rather a financing mechanism for substantive government programs.

Brad DeLong: Sunday morning twitter threads like this remind me that we could live in the Republic of Plato rather than the Sewer of Romulus as far as social science and public policy are concerned, and that the internet can be an intellectual force multiplier rather than a hive of scum and villainy... A better world is possible! Toilers of all lands, unite! The full product of labor to the workers by hand and brain, with appropriate deductions for the social welfare function Lagrange multiplier for the temporary scarcity of produced means of production!!

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