Atlas Shrugged: The Mocking

Wednesday, July 20, 2011

Big Thinkers Solve Nation's Problems!


Big Thinker Kitty puts on her thinking cap.


Megan McArdle once again gets all Big Thinkerish, this time attacking the vexing problem of massive unemployment. After much cogitation, some rumination and a little logicalization, she determines that the best way to tackle long-term unemployment is to give businesses tax credits for hiring long-term unemployed. She does not address the obvious issue of lack of demand but what do you want, America? It was hard enough for her to pretend that she cares about anyone but bankers, do you expect her to look for flaws in the arguments she is forced to dredge up as well?

But McArdle gets her revenge on the commenter who does point out that hiring depends on demand and also pointed out that Hoover wasn't a big spender. On the Rupert Murdoch post, she and the commenter have another exchange.


David Blum 4 hours ago

I have to post another thing that counters the nonsense this writer posted about Hoover.

Don't reply conservatives, I'm not interested in lies.

http://delong.typepad.com/sdj/2011/07/fiscal-policy-during-the-great-depression.html
Btw, look at the chart, when did government spending go off the chart? 1941? Ah world war 2. Interesting. The same time we started spending tons of money the economy improved.

How would one explain that, outside of Keynes?.




McArdle's reply:


McMegan 50 minutes ago in reply to David Blum

Tee-hee! I am only interested in the truth, so don't bother telling me why I'm wrong!



Her shocking-but amusing--lack of maturity shines though all her work, as does her dishonesty. We will return to the Murdoch post later, but let's look at one tiny bit before we move on:

tstev
"It emerged last night that Neil Wallis, the former News of the World deputy editor who was arrested last week, worked for the Conservative Party before last year's election. He gave "informal" advice to Andy Coulson, his former boss at the NOTW, who resigned from the paper over the hacking affair but was later appointed Mr Cameron's director of communications." http://www.independent.co.uk/n...

Similar pattern as Roger Ailes but even worse.


McMegan
Actually, if you knew anything about British politics, you'd know that Murdoch's ties were, if anything, closer to Blair/Brown than to Cameron.


I do not think I have ever seen a writer who revels so very much in the idea that she knows something you do not. Asymmetrical Information indeed.

McArdle is not the only Big Thinker at the Atlantic. Ross DeVol (of the Milkin Institute) thinks cutting corporate taxes will help unemployment. Again, the commenters (those not paid to say otherwise, that is) mention the lack of demand.

Peter Wallison (AEI) thinks that we could solve our economic problems by getting rid of Democratic programs, which are depressing good, job-creating Republicans and dragging us all down.


As we know, corporations are now sitting on enormous piles of cash but are unwilling to deploy these resources, and the small businesses that are profitable are refusing to expand. The conventional interpretation for this is that there is little demand because of unemployment and a weak housing market. However, in our current straits I believe cause and effect run the other way. Successful businesses are always ready to expand and gain market share. That is a manifestation of the "animal spirits" that Keynes observed in a growing economy. There is a reason why those spirits are now dormant.

...

Accordingly, the single most important step that the United States can take to restore job growth would be to repeal both the health care act and the Dodd-Frank act.


It's genius!

Mike Haynie (professor at Syracuse University) tells us that if it were easier and cheaper for banks to make small loans, more small business would prosper. He does not tell us where they will get their customers.

Bill Clinton tells us to paint our roofs white. We would have to hire people to paint them; problem solved. Thanks, Bill! Our nation is saved!

Clive Crook says we should provide more unemployment benefits. This solution would actually address demand in the short term, which means he win the Golden Cup For Big Thinking by virtue of addressing the obvious.

Julian Castro (mayor of San Antonio) says we should educate our youth for this high-tech world. He does not explain how expanding the labor pool will provide jobs.

Michelle Ree (" Founder and CEO of StudentsFirst and former Chancellor of D.C. Public Schools") thinks our problems will be solved if we are able to fire teachers. Ree runs a non-profit dedicated to eliminating tenure and imposing teach-to-the-test standards. Teachers are currently being fired by the hundreds, by the way.

Paul Kedrosky and Karl Schramm (both of the Kauffman Foundation) tells us to make it easier for entrepreneurs to start businesses, and that one way would be to give out more green cards.

Ryan Avent (The Economist) wants us to print more money.

Bruce Katz and James S. Rubin (Brookings Institute) says globalization of small businesses will do the trick. Evidently they have given up on increasing demand here and hope that we will be able to become China's China.

Fredrich Hess (also AEI) doesn't have any Big Ideas but says that getting rid of regulation on community and for-profit colleges will help hiring.

Eric Speigel (CEO of Siemens, a Research and Development firm) thinks we need tax credits for R&D.

And, finally, very special snowflake Matthew Yglesias, whose entire career is based on having graduated from Harvard, which convinced the right people that he actually understands what he is talking about, says that if we only had higher inflation, surely the unemployment crises would cease.

Higher inflation expectations would have a number of benefits. For starters, they would reduce real interest rates, mitigating the problem of the zero lower bound on nominal rates. They would also increase the cost of hoarding cash. This would encourage wealthy individuals and cash-rich firms to purchase real goods and services, or else invest in productive assets. Last, since mortgage debt is denominated in nominal terms, a faster rate of inflation would speed the deleveraging process and let households repair their balance sheet. When he proposed the idea over a decade ago, Bernanke castigated Japanese authorities for falling into self-induced paralysis. It's tragic that he's fallen into the same trap. The best way to get things moving again is to halt the paralysis.


Sadly, the unemployed would see the cost of living rise and those on fixed incomes would become poorer, but as we all now know, thanks to The Atlantic's Big Thinkers, the best way to help the poor is to help the rich.

47 comments:

ifthethunderdontgetya™³²®© said...

give businesses tax credits for hiring long-term unemployed.

Speaking of demand, demand for business tax credits would be significantly improved if businesses were required to pay significant taxes.

Everybody wins! So we won't do it.
~

fish said...

To be fair to Billy (and that is tough for me) he is echoing the recommendations of Steven Chu, and it is actually a pretty straight forward and good idea with many benefits to environment and economy, even if it isn't a cure-all for our troubles.

Ken Houghton said...

What fish Said. Also,

"very special snowflake Matthew Yglesias, whose entire career is based on having graduated from Harvard"

That's not true. Part of his career is based on having graduated from Dalton so that he was fast-tracked into Harvard.

Credit where due, please.

Anonymous said...

Wow, that's a lot of manure to go through. Thanks for doing it so we don't have to.

benjamin said...

Megan's defense of Murdoch obviously came as no surprise--is there anyone more sympathetic than a transnational media oligarch?---however I admit to being somewhat struck by the Redstate-esque quality of it, i.e. this controversy exists solely b/c Fox News hating liberals want to "get" Rupert M. Her commenters dutifully pick up the ball and run with it

Susan of Texas said...

I agree about painting roofs (and Yglesias, heh), I'm just amazed at the difference between the Atlantic's image of itself and the reality. Bradley is building up a big reputation as the go-to place for ideas, has the special Ideas issue and the lavish Aspen Ideas Festival, yet the most neglected part of the Ideas extravaganza is the actual ideas.

McArdle's output would be at home at a far-right rag; no doubt she considers them a back-up plan, which would explain why a "journalist" thinks she'll never have to move from DC.

atat said...

Her Murdoch post is just brimming with dishonesty.

And her commenters seem particularly insane.

Lurking Canadian said...

Yglesias appears to agree with Krugman, so I am not willing to dismiss it out of hand. The core idea (reduce the value of a dollar by X% and you magically reduce everybody's debt burden by an equivalent amount) isn't a bad thing, and in fact would help borrowers (most of us) and hurt savers (the people who have all the money). In fact, your real hard-core libertarian types consider inflation to be a "stealth tax" because it robs their hard-earned money of its value.

However, when inflation works, it works because peoples' wages go up to compensate for it. That part, in this era of outsourcing, downsizing and clawbacks, appears to be left as an exercise for the reader.

Susan of Texas said...

That was my problem with it--how does it help the unemployed poor, the ostensible target of the action?

fish said...

has the special Ideas issue and the lavish Aspen Ideas Festival, yet the most neglected part of the Ideas extravaganza is the actual ideas.

Yeah that is definitely true. When the best idea is a rehash of something put forward two years ago by someone else, well, not what I'd call a game-changer.

Myles said...

"However, when inflation works, it works because peoples' wages go up to compensate for it. That part, in this era of outsourcing, downsizing and clawbacks, appears to be left as an exercise for the reader."

Higher inflation => higher consumption => higher demand => higher real GDP => higher employment => higher wages (after a lag).

See also: Phillips curve. As wages growth in the short run is a function of unemployment IIRC, a movement along the Phillips curve increases wages.

You can either prime consumption and thus wages by fiscal or monetary means, but monetary is cheaper and safer. Inflation also benefits debtors at the expense of creditors, i.e. poor at the expense of the rich.

Downpuppy said...

Sorry Myles, but assuming a => doesn't actually create an effect.

Or did you not realize that the economist & the can opener was a joke?

Fer chrissake, we've had employment tax credits for 40 years. They're very limited in usefullness compared to say, rehiring some of the 600,000 state & local workers laid off in the last year.

I suppose they got Michelle Rhee because Bernie Madoff turned them down - http://www.dailyhowler.com/search.html

Downpuppy said...

On Rhee, aside from the utter bull she's always peddled about her miraculous teaching career, she was canned in DC after it started to come out that they were massively into test cheating. The DoE is now investigating -http://www.washingtonpost.com/politics/dc-officials-welcome-probe-by-us-education-department-into-possible-cheating-on-tests/2011/07/08/gIQAk9853H_story.html
but it hasn't hurt her huckster career at all.

Susan of Texas said...

Poor people can't get loans. What am I missing here?

If wages are a function of unemployment, why have wages stagnated? It does no good to quote a theory when reality contradicts your theory.

Anonymous said...

This is all cute, but can we have some actual, serious demands of our own? How about assets in excess of $300k be seized for redistribution and that debt carried by individuals possessing under $50k of assets be cancelled. That would make my day.

Susan of Texas said...

Downpuppy--what you said.

I remember Ree refused to reveal who was paying for her efforts to gut schools when she was chancellor.

Susan of Texas said...

How about assets in excess of $300k be seized for redistribution and that debt carried by individuals possessing under $50k of assets be cancelled. That would make my day.

Socialist pinko.

Lurking Canadian said...

Parts of it make sense. The central idea in Keynes is that unemployment is caused by a failure of demand. One reason (and right now the most likely reason) people aren't spending money is that even people who have jobs are underwater on their mortgage or buried under credit card debt, so they feel poor. This is called the "wealth effect".

(The inverse of this is why the housing bubble worked. People felt "rich" because their houses were going up in value, so felt free to consume like drunken sailors. Now they feel poor, so the sailors are hungover.)

So, how to get people spending again? The best way is to hire them directly, which is good because it also allows you to do something useful (build a hospital, build a bridge, etc.) That won't fly because the Republicans think the Baby Jesus cries every time President Obama spends a dollar.

Inflation is the next best way, and works by two mechanisms. First, when people realize their money is going to be worth less next month than it is now, they figure they might as well spend it now. Second, by eroding the value of their debts, relative to everything else it creates a sort of wealth effect.

Of course the second piece doesn't work until wages go up. During the inflation era, that happened automatically because a lot of union contracts had COLA built-in. Today, people don't have that, so you're stuck with only the "worthless money burning holes in my pocket" effect. Myles thinks that's enough to create demand. I am not convinced.

But no matter what, you're right, it is an indirect effect that tries to address unemployment by fixing the economy as a whole, not by employing the unemployed people. For Krugman, it's a last resort, because monetary policy is all that can be done in this time of gridlock. For Yglesias, it might be because he favours "market-based" solutions to prevent Baby Jesus from crying. I don't know.

Susan of Texas said...

Thanks, Lurking Canadian.

Myles said...

I remember Ree refused to reveal who was paying for her efforts to gut schools when she was chancellor.

Given that it's been spelled the same way (Ree) twice, I think we should point out that it's actually spelled Rhee, not Ree.

Susan of Texas said...

Thank you, Myles.

Myles said...

If wages are a function of unemployment, why have wages stagnated?

Depends on whether you are talking about the short or long term.

Today, people don't have that, so you're stuck with only the "worthless money burning holes in my pocket" effect. Myles thinks that's enough to create demand. I am not convinced.

Left often unsaid is the fact that seriously aggressive monetary policy can in fact be effective even below the lower zero bound, i.e. in the realm of negative interest rates.

I prefer monetary policy because it creates less distortions and has less long-term harm for the economy than deficit-financed fiscal policy, which has a whole bunch of pernicious side-effects that are not easily rid of. Fiscal policy is the kind of medicine you take where it will poison you, but will nonetheless harm you less than what's ailing you right now. With monetary policy, the "poison" is much less serious and exists mostly in trace form.

Also, monetary policy would work much, much better than the American economy than in the Japanese one, for structural reasons.

I am with Matt on this one.

Myles said...

(By the way, to give a sense of how screwed up the monetary policy is, the theoretical interest rate right now (well, from a while ago) should be negative seven (7) per cent.

Brian said...

Ryan Avent is half-right. Getting more money to consumers is the key, not QE, which affects the price of money. I support direct Federal spending on meaningful projects, such as R&D (alternative energy anyone?), infrastructure repair (I believe I read the American Society of Civil Engineers gives our infrastructure a C-), and other such measures to put money in the hands of those who spend it, because, as noted, we have a demand, not supply, problem. Avent is right about inflation, too.

Downpuppy said...

As far as employment tax credits -

Government retraining programs have a dismal record. So do tax credits for hiring workers, which are notoriously easy to game

http://www.theatlantic.com/business/archive/2010/03/what-to-do-about-long-term-unemployment/36845/

Mr. Wonderful said...

Why would cutting corporate taxes encourage employment, when companies are already "sitting on enormous piles of cash"?

How do "conservatives" (scare quotes, because they're fake conservatives, and are scary) imagine that anything that benefits corporations, is going to lead to sales? Especially in a consumer-driven economy (where labor is increasingly offshored and outsourced)?

I understand how Republican elites truly couldn't care less if the middle and lower classes' standards of living devolved into squalor-plus-cable tv (talk about "China's China"), but do they really think their constituents will think that that's just fine, as long as someone somewhere is condemning gays? Do they really think they'll be able to keep a lid on the resentment of the next decade's teenagers?

We know they're proudly, professedly greedy. But are they really that self-destructively, blindly greedy?

ifthethunderdontgetya™³²®© said...

Lurking Canadian, there is also the effect of high unemployment on people who still have jobs: careful, because you could be next.

Myles, we've had 30 years of Chicago School monetarism. It's worked well...for the select few.
~

KWillow said...

Our leading politicians (the ones who aren't crazy idiots) and MOTUs know exactly how to fix the economy, but they don't want to. They created the current situation and are working diligently to make it even worse for 99.9% of Humanity. They're worse than any Super-Villan who ever wanted to Rule The World, because they are willing, even eager, to destroy the Planet and the Future of Humanity just so They can Rule.

Investment in our infrastructure, in Green Tech., in a quality Education for everyone, in NASA and other country's exploring (and mining) the Solar System and learning to live successful in extremely hostile environments: they know very well that these efforts -even the unsuccessful ones- would all contribute to the General Good of all Human Beings and all Life on Earth.

They don't want that. They prefer most human beings and other life forms live in a basic subsistence existence while They, "The Few" live like Gods.

Myles said...

Why would cutting corporate taxes encourage employment, when companies are already "sitting on enormous piles of cash"?

That's actually quite an important point. Individuals might not react rationally to higher inflation, but you can bet that firms will. Start lighting a fire under all the cash that they are sitting on right now by engaging in aggressive monetary policy, and they'll spend it before the day's out.

They don't want that. They prefer most human beings and other life forms live in a basic subsistence existence while They, "The Few" live like Gods.

That seems to attribute way too much agency to actions that I consider to have been largely made without conscious recognition of their effects.

Myles, we've had 30 years of Chicago School monetarism. It's worked well...for the select few.

IIRC Paul Volcker was, and is, a Democrat. Look: at the end of the day, you can't fix the economy without aggressive movements in monetary policy. One of the Roosevelt's first acts as president is to pull the U.S. off the gold standard, which is about the most aggressive kind of monetary policy imaginable. All that stuff about wise investments is just pure gravy, because they are actually much less effective in terms of plugging the short-term output gap in the economy.

Many on the left are as uncomfortable with this as those on the right, but ultimately money is just a number that represents a claim on future good and services. Rejigging this seems like magic, and is in fact is in a sense magic, but it's pretty good magic. Which is why we generally try to keep politics and monetary policy separate, because politics + magic is not a good combination.

Anonymous said...

"because politics + magic is not a good combination."

laugher curve?

Myles said...

laugher curve?

That too.

Mandos said...

"magic"

Wait a minute. *scratches forehead* Weren't you just telling us that economics is scientifically or at least conceptually very well-grounded? Now you're saying that it's faith-based?

Myles said...

Weren't you just telling us that economics is scientifically or at least conceptually very well-grounded? Now you're saying that it's faith-based?

It's conceptually well-grounded, but while a lot of it is quite intuitive, a small part of it (such as monetary policy) is intuitive only to to people who study economics.. Most people don't study economics. To most people, the concept of quantitive easing may as well be magic, in the same way that quarks and charms and whatever might as well be magic to them.

Politicians, by and large, don't do economics. Thus they are wont to functionally regard unintuitive parts like monetary policy as magic. The concept that money isn't real, that money is actually only a claim on real things and that the claim can be adjusted monetarily, is not a concept that is amenable to most politicians. The ones do get it are, unfortunately, wont to see it in an instrumentalist manner: you know, how to goose the economy monetarily to produce better short-term numbers so the voters are happier at election time. Nixon/Burns are of course the classic example of this, as well as Carter/Miller. And while Burns is the classic case of political influence gone wrong, Miller is the classic case of why businessmen should not be allowed to meddle with monetary policy. (He was a corporate executive.)

Mandos said...

But your claim contains its own critique (and the one raised by Henry on CT). Even if it were Special Knowledge---which again, I categorically deny as the weakness in the predictive power of mainstream neoliberal economics where it counts suggests deep conceptual flaws---its very status as Special Knowledge denies it what it needs most. And what it needs most, even if we take it as well-intentioned on its face (I do not), is a theory of how to achieve political power...

Myles said...

And what it needs most, even if we take it as well-intentioned on its face (I do not), is a theory of how to achieve political power...

That's bizarre. Ben Bernanke is one of the most powerful people in the world. Greg Mankiw has more authority than all but the most eminent political scientists. Larry Summers had legendarily outsized influence in the Obama administration. Mainstream, sensible economics has political power.

The basic problem is that economics has developed enormously in the postwar era and is now very complex. But unlike a lot of other complex sciences, economics has very direct application to policy. Yet politicians and businessmen, the sort of people who traditionally ran society, don't generally understand economics that well. The solution isn't some farfetched theory of politics, but a better awareness on the part of politicians and businessmen of their relative shortcomings and lack of knowledge when it comes to economics.

(This is another way of saying that Andy Grove, former CEO of Intel, should shut the fuck up.)

Mandos said...

That's bizarre. Ben Bernanke is one of the most powerful people in the world. Greg Mankiw has more authority than all but the most eminent political scientists. Larry Summers had legendarily outsized influence in the Obama administration. Mainstream, sensible economics has political power.

But then...it's so far doing a terrible job of delivering on its claims, at least in terms of the well being of US citizens (if not others). So on the one hand, you're telling politicians to stay out of economics because they'll botch it up, but then when the economists botch it up...?

If economic technocrats had such power, why is there a debt ceiling debate, even?

Either Ben Bernanke has the power to make policy, or he does not.

In reality he probably does---its just that his agenda is not the same as his purported agenda.

Myles said...

But then...it's so far doing a terrible job of delivering on its claims, at least in terms of the well being of US citizens (if not others).

As I have argued before, the U.S. has serious politically structural problems, relating a lot to federalism, that have nothing to do with economics, and in reality can't be solved with economics.

Economic technocracy has worked absolutely brilliantly for Sweden, Australia, Canada, and a whole host of other liberal democracies. As I don't believe in the whole American exceptionalism nonsense, I am not going to treat the lack of success in the American context as some sort of separate category rather than possibly the exception that proves the rule.

I personally think the Farrell-Yglesias debate is just really weird. OK, so you don't like neoliberalism and the way neoliberals do politics. Great. What are you going to do about it? Half the commenters start by saying that the U.S. should rescue manufacturing unions by putting up enormous tariff walls. (Yeah, like Smoot-Hawley worked great the first time, rather than massively worsening the world economy: history fail.)

If this is the left-wing alternative to neoliberalism, it's pretty damn unimpressive. It's all right to argue whether there should be more tariffs or less, but people who think that trade restrictions would automagically cause their TV's and cellphones and household goods to be made in America again need to get out more. You start wondering whether anti-neoliberals have any awareness of how the economy actually works.

(And let's dispense with the Midwestern manufacturing talking point once and for all: objective economic conditions for manufacturing in the U.S. were never any unfavourable than they are in Germany. Cost of credit was low, access to capital relatively easy and straightforward, costs in the context of an advance country low, and protectionist measures in fact more vigorous. That Midwestern manufacturing isn't doing well isn't the fault of the political economy, but of the manufacturers and the industrial executives who lead them. Perhaps if they didn't hire so many idiots into the executive ranks, they won't have the problems they do.)

Downpuppy said...

US manufacturing is very competitive on direct costs but suffers vs Europe & Japan due to overhead.

Overhead being health care costs, executive compensation, and the cost of overgrown military/security/prison state. All of the overhead is due to interest group politics - the classes on the receiving end of the payments control the country.

Nothing to do with Federalism - it's pure class politics.

Myles said...

Overhead being health care costs, executive compensation, and the cost of overgrown military/security/prison state.

That's complete nonsense. Health care costs are high, I'll grant you that. But executive compensation, no matter how high, is a drop in the bucket. It doesn't matter in terms of corporate financial performance. Lament high CEO compensation as much as you want, but it doesn't affect the bottom line at all. The military-security state is financed through taxes and borrowing. The former is lower in the States than in Germany, the latter would only be a problem for private business if there is crowding out causing higher interest rates, and interest rates have generally been lower in the US than in Germany, so there is no disadvantage there either.

The reason you are looking for is "incompetence". US industrial managers are incompetent. Rick Wagoner is a blithering idiot.

Myles said...

(And once you balance out the high healthcare costs with the lower taxes and regulatory compliance costs and so on, American business still comes out ahead.

There are plenty of successfull American businesses. It's only that the unsuccessful ones are often run by incompetents, like the kind of imbeciles who ran the Detroit automakers into the ground. Nepotism was a factor, of course, but so was groupthink, aggressive ignorance, and narrow-mindedness.)

Downpuppy said...

I said executive pay, not CEO pay. I've spent a lot of time over the years digging through annual reports. US corporations are run for the benefit of management, and any nickel that leaks out to shareholders is a mistake. Manufacturers, other than high tech, aren't quite as bad as banks, but they're still ridiculous. FAS 123 slowed it down slightly, but just looking at the US income distribution should be enough to show any sane person where the money goes.


it's not exactly a new issue. GE surrendered 30 years ago:

http://www.sjsu.edu/faculty/watkins/koreaind.htm

Anonymous said...

you know what is pretty damn unimpressive? myles' choooots-pah.

Myles said...

it's not exactly a new issue. GE surrendered 30 years ago:

Microwave ovens, being commodity items, are not profitable to produce. It's a very intelligent thing for GE to have given up producing this unprofitable item and given it to the Koreans. (And profit genuinely does matter here: HTC is about to get nuked by Apple because Apple has more cash and profits to do the nuking with, and has bought up the world supply of a key component of smartphones to fuck with them.)

(And hey, let's not kid ourselves here: the 10x of American-educated engineers working for Samsung aren't making shit.)

Also, US management just doesn't make all that much. Except at the very highest levels, German management makes more. And don't even get me started on the piece-of-shit expense accounts that American companies now have, even for management.

Mandos said...

Economic technocracy is well on its way to erosion in Canada (see StatsCan), and it sows the seeds of its own demise. That is the point. Neoliberalism orthodoxy pays no attention to the larger effects of income distribution. It is through maldistributed incomes that the CEO class you rail against becomes too powerful and gains too large an influence over policy.

*That* is the connection between economics and politics. Even if we take the ideas of neoliberal thinking to be generally correct and generally well-intention, they are self-limiting. Eventually the uncompensated losers become so weak, they lose the ability to keep the winners honest.

That is what has happened in various ways throughout the developed world. The Grand Bargain of free trade was that the losers would be compensated post hoc for the movement of their lifelong jobs to cheaper jurisdictions. But from the point of view of the people actually running the show, that practically defeats the purpose FROM THEIR POINT OF VIEW of free trade (maldistributing income), so of course it never happened.

In Canada, this has meant an inexorable shift to petro-sheikhdom. In the USA, this has meant the destruction of the working class.

Myles said...

In Canada, this has meant an inexorable shift to petro-sheikhdom.

Really, you should actually visit Canada in recent times for once before moaning. Canada is doing fine, petro-sheikhdom or no. It's a great place to live, everyone's incomes are going up; frankly if this is what a petro-sheikhdom looks like, I'll have more of it, please.

You know economics well enough to know the (in a wealthy, developed, advanced economy) self-regenerative effects of positive external shocks to Y (real income) in a small, open economy. Basically, money begets money, whatever the original source of money, as long as it is widely spread out throughout the economy, which it to some extent is in Canada. Which is another way of saying that the oil money of today is the sophisticated-services money and biotech and innovative-economy money of tomorrow. Just to take the simplest example, expansion in money available for research hopitals and institutes and so on means that Canada gets to come out ahead in terms of medical and biotechnological research, which translates into increases in future Y.

In the USA, this has meant the destruction of the working class.

As I am not really American, this is strictly speaking outside of my purview.

Myles said...

For example, while Saudi Arabia doesn't really benefit from the regenerative effects of positive oil income shocks to the economy, North Sea oil had a much proportionately greater positive effect on future Y through the knock-on effects, because the institutions and infrastructure was present to allow for long-term capital expansion.

In the Canadian case, Tim Hortons' expansion into the U.S. is actually related to the petro-shift, because with the higher Canadian dollar and more readily accessible credit it was much easier for a leading Canadian company to expand into, and start to dominate, the American market. Which is why complaints about the high loonie is generally bullshit, because the only thing it shows is that your business has no potential or competitiveness for investment-financed expansion.

fish said...

But unlike a lot of other complex sciences

Economics is in no way, science.