Benjamin Studebaker

Yet Another Attempt to Make the World a Better Place by Writing Things

Tag: John Maynard Keynes

A Serious Policy Analysis of House of Cards’ “America Works” Program

I am a huge fan of Netflix’s House of Cards, which stars Kevin Spacey as Frank Underwood, a ruthless political anti-hero. Here’s the trailer, if you haven’t seen it. It’s really good:

I launched into the 3rd season yesterday and was fascinated by Underwood’s “America Works” proposal. Very minor spoilers here–Underwood plans to eliminate or restructure America’s entitlement programs, using the money saved to create 10 million jobs, which will apparently cost $500 billion. Now, this is a television show. There are no CBO reports to look at, no detailed policy analyses or public policy research, but I want to dig into this and take the opportunity to explore some of the issues with entitlement programs.

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Reshoring: China vs. The Robots

There’s a bit of a disconnect between international relations theory people and economic theory people. It is rare that a single person finds himself facile with both disciplines and this tends to introduce blind spots in thinking. One of the biggest blind spots concerns the future role of manufacturing in geopolitics. Many people believe that cheap wages in places like China will ensure a strong US-China trading relationship and reduce the chance of future security competition. They think China will rise peacefully. These people are missing an important economic trend–the decreasing relevancy of the US-China wage gap and the inevitability of “reshoring”, the relocation of manufacturing back into the rich countries from whence it came.

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Keynesian Utilitarianism

In A Theory of Justice, John Rawls draws a hard distinction between his prioritarian conception of justice and the utilitarian one. We have mentioned prioritarianism in the past, and indeed, this post is a bit of a synthesis of that post with this other one. Prioritarianism is the notion that a just society always tries to improve the welfare of the worst off before anyone else. In other words, the welfare of the poorest is prioritised. In contrast, utilitarianism is about maximising total welfare, regardless of the distribution. These theories seem at odds (indeed, Rawls wrote about utilitarianism as though he were very much at odds with it). Yet, if we adopt a few Keynesian economic principles, I believe the gap can be closed and the two theories shown to lead to more or less synonymous societies, or at least significantly more similar societies than is presently thought.

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If You Believe in the Fiscal Cliff…

Lest we forget, the fiscal cliff is still coming–the dismal set of negative economic consequences that come from cutting government spending and raising taxes too fast in the face of a weak economic recovery. While 87% of the general public do not realise that the fiscal cliff is about preventing spending cuts rather than making them, regular readers (and those of you who read the linked pieces) know better. That’s all ground we have covered. However, that there is a particularly interesting implication of belief in the danger of the fiscal cliff that I have yet to discuss, and this I seek to remedy.

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The Mother of All Output Gaps

There’s an interesting assumption going on behind the estimation of the output gaps (the difference between the economy’s current output and the economy’s estimated maximum potential output)–that not only did the economy decline during the recent crisis, but that the economy’s potential declined as well. This assumption leads to governments believing that their economies are less capable than perhaps they are, that the output gaps are not especially large, and that there is little revenue to be raised to offset stimulus spending, but what if it is not true? The idea comes from Capital Economics, a macroeconomics research company, has received attention from the Financial Times and Paul Krugman, and now it will receive attention from me as today’s topic.

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