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Brad de Long
reviews Confidence Men;
Since the spring of 2009 I have became more and more alarmed by the
economic policy choices made by the Obama administration. A new
administration needs to (1) forecast what is most likely to happen, and
(2) design and implement policies that will deal with what is likely to
happen, The Obama administration did that. I think that some of its
initial policies were wrong, but given the press of events I would give
the administration moderately high marks for the policies it designed
and implemented up through, say, April 2009.
Thereafter, however, things to me seemed to gradually fall apart. An
administration has a third task it needs to carry out: (3) think hard
about the risks--what if the administration has misjudged the situation?
what if more things go wrong?--figure out what it needs to do to buy
insurance against those risks, and do those things as well.
It needs to ask itself:
- What if we are wrong in our estimation of the situation--what might the world then look like three years from now?
- What if more things go wrong in the next year or two--what might the world then look like three years from now?
- In those possible scenarios, what will we wish then that we had done today to prepare the way for dealing with the situation?
....
Why Obama chose the policies he did, why Geithner and Orszag and
company were so optimistic in 2009, why the Reconciliation process was
not teed up for emergency expansionary fiscal policy action if it turned
out to be necessary, why Fannie and Freddie were not teed up for
emergency mortgage action if it turned out to be necessary, why the
administration turned so decisively away from unemployment and toward
long-term deficit reduction in early 2010, why Summers and Romer did not
wipe the floor with Geithner and Orszag in the long twilight
bureaucratic struggle when NEC collegiality broke down, and why Bernanke
forgot about the employment and output part of the Federal Reserve's
dual mandate - these are all questions that I would dearly love to know
the answers to.
Two and a half years ago I would have given long odds that Ron
Suskind's book would provide me with a lot of the answers to these
questions.
It does not.
Mr. Krueger has been on Princeton's faculty since 1987, the year he earned his Ph.D. in economics from Harvard University. He did a stint as chief economist at the Labor Department during the Clinton administration.
The work he has done in academia ranges from attempts to explain why job growth wasn't stronger during the 2000s, to findings that increases in the minimum wage don't depress employment, to a work showing that terrorists often come from middle-class—and often college-educated—backgrounds.
While at Treasury, Mr. Krueger worked on analyses of a variety of programs, including tax incentives to encourage employers to hire the employed, the "cash for clunkers" initiative to jump-start auto purchases and Build America taxable municipal bonds.
Treasury Secretary Timothy Geithner, through a spokeswoman, said that "given his expertise in labor economics, he is precisely the right choice to lead the CEA at this moment in history."
Martin Feldstein, who was CEA chairman in the Reagan White House, praised the choice. "His experience at the Treasury will give him a running start in his new job," he said. "Alan is an expert in labor-market problems, taxation and the economics of terrorism. I hope the president listens to him."
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Labor Economist to Fill Key Post ;
The minimum wage: Krueger might be most famous for the paper he did with David Card back in 1992 showing that an increase in the minimum wage doesn’t always increase unemployment, as most economists had long believed. Krueger and Card compared fast-food restaurants in New Jersey and western Pennsylvania and found that New Jersey, which had hiked its minimum wage from $4.25 to $5.05, didn’t lose jobs as expected. In fact, in some conditions, an increase in the minimum wage can actually boost employment. As Robert Waldmann explains, “Their logic is basically that firms can choose to pay a low wage and have a high quit rate and take a long time to fill vacancies or pay a high wage and have fewer quits and fill vacancies more quickly.” That said, Waldmann adds, this research doesn’t appear to be relevant to current labor-market conditions.
Unemployment: In 2011, Krueger and Andreas Muller conducted a survey of 6,025 unemployed workers and found a couple of interesting things. One, “the amount of time devoted to job search declines sharply over the spell of unemployment.” Second, out-of-work job-seekers tend to be picky: The minimum wage a worker will accept tends to be pretty close to the wage of his previous job, and it doesn’t drop very much over time, even if he stays unemployed.
Krue
ger to CEA
Vijay Kelkar's is a fascinating story in Indian public policy. He started out as an economics Ph.D. and turned himself into a consummate policymaker. While he did many interesting things in the field of oil and gas, and as executive director of the IMF, I worked with him in his fiscal phase...
...I used to get astonished at the way Kelkar, who is 20 years older than me, consistently found the energy and morale to go back into the fray again and again, chipping away at solving long-standing problems. This also taught me that while weary cynicism is a more fashionable pose, progress is only achieved through the dint of boundless optimism.
Practical people are often dismissive of the world of ideas, but that is not the Kelkar that I have known. For one thing, he made a point of reading the current global research in economics on an astonishing scale. I have been frequently humbled in finding that his knowledge of the current literature was better than mine. I suspect his years at the IMF were very useful in tooling him up in modern open economy macroeconomics, which is often a gap in the knowledge of those who experienced a closed India in their formative years. Kelkar has always encouraged me, saying that in an open society, ideas matter, so it was important to build good ideas, and to push important messages out in the public domain, even when this makes many people uncomfortable.
via
Ajay Shah
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