In Praise of the Wonk: Dissecting the CEA Letter and Sanders’s Other Proposals

There are three points to keep in mind about policy debates: Policy specifics are only one of many considerations voters have when evaluating a candidate, and they’re unlikely to mobilize the base in a polarized age; ideological constraints often determine policy positions; and wonk policy “discussions” can easily become a barrier to exclude people and ideas from the conversation. This has become relevant in the Clinton versus Sanders race, which, as Matt Yglesias notes, is an ideological battle like “Ronald Reagan’s battle with Gerald Ford,” one in which wonks have less of a role to play.

That said, I will defend the wonk. I think the wonk analysis is an essential part of the ideological work currently being done and is capable of advancing the progressive project in crucial ways. Working the numbers and the specifics creates clarity, and it forces people to put their cards on the table.

In this specific moment, the work of the wonk forces one to justify constraints, lets you know if you are looking in the correct places, gives you a sense of whether the scope and scale of your changes is sufficient, and lets you know the obstacles and enemies you’ll face. And it can be fun! Or fun enough.

Let’s go through each of these points with specific examples. We’ll begin with the letter from former CEA chairs attacking economist Gerald Friedman’s estimates of the impact of Sanders’s plan, and then look at some cases where wonk analysis would help the Sanders campaign.

Read more »

The Nation: Sanders Should Adopt, Go Further, Than Clinton’s Wall Street Plan

TheScore-Feb15-Graphic

 

I have a new Score column at The Nation: Bernie Sanders should just adopt Hillary Clinton’s plan, and go further than it. Making these priorities doesn’t distract from his core message on focusing on the largest players. If anything, it completes the left agenda on finance, as any such agenda needs to look at the activities of finance itself, as opposed to just the institutions, as well as the effects of finance on who the corporation works for. Record stockholder payouts while investment funding starves are just as much of the problem of finance as Too Big To Fail. Clinton makes a good first step; Sanders could take the important second and third steps if he wanted.

Intro: “In advance of the Iowa primary, Hillary Clinton and Bernie Sanders have duked it out over who would tackle Wall Street best. Clinton’s reform package aims wide, extending scrutiny from the banks to smaller players who played an outsized role in the financial crisis. Sanders—who, unlike Clinton, has rejected Wall Street money—actually takes a narrower approach that favors a popular but insufficient strategy to “break up the banks.” If Sanders wants to challenge modern finance, he should incorporate and surpass Clinton’s plan.”

Hope you check it out!

Read more »

Is Ted Cruz Right About the Federal Reserve and the Great Recession?

Is Ted Cruz right about the Great Recession and the Federal Reserve? From a November debate, Cruz argued that “in the third quarter of 2008, the Fed tightened the money and crashed those asset prices, which caused a cascading collapse.”

Fleshing that argument out in the New York Times is David Beckworth and Ramesh Ponnuru, backing and expanding Cruz’s theory that “the Federal Reserve caused the crisis by tightening monetary policy in 2008.”

But wait, didn’t the Federal Reserve lower rates during that time? Their argument is that the Federal Reserve didn’t lower them fast enough. “Through acts and omissions, the Fed kept interest rates and expected interest rates higher than appropriate, depressing the economy.” This is passive tightening, where the Federal Reserve didn’t act throughout the summer of 2008 to the gathering storm. Without it, “[w]e could have had a decline in housing without a Great Recession.”

Beckworth has discussed this at length in his blog. If it becomes more central to the economic debate in 2016, there’s four things to keep in mind.

Read more »

Why I (Still) Think Shadow Banking is Key to Financial Reform

Minions_image

Checking the Internet, I’m learning from David Dayen at The Fiscal Times that I’m part of “Clinton and her minions,” “trying on contradictory criticisms to make a political point” to deliver “a mortal wound to the cause of [Senator Elizabeth] Warren’s life.” [1] Zach Carter, Jason Linkins, Shahien Nasiripour at The Huffington Post notes that I’m part of a crew “peddling a myth about how the financial crisis happened” and it’s a “sad new world when respected liberals start echoing the arguments” of financial lobbyists.

Two weeks before a contested primary is probably not the time for subtlety and details, but I want to contest the arguments in these pieces. Though Dayen tries to catch me in a contradiction, I’ve long thought that the project of combating shadow banking was to extend banking regulations to financial activities rather than silo them. So there’s no inconsistency there. Though I’m supportive, I also think that “breaking up the banks” is being overplayed as a financial crisis issue, doing more work as a problem and a solution than its proponents say it does. It’s also a useful check how my mind has and hasn’t changed since 2010.

Read more »

Human Capital Contracts Would Discriminate on Gender, Race and Class

Human capital contracts continue to be all the rage in higher education funding. Beth Akers of Brookings writes that they can tackle “the growing risk associated with investing in higher education.” They are also playing a role in the presidential debate over higher education. Greg Mankiw, discussing higher education costs, is excited that Marco Rubio “wants to establish a legal framework in which private investors help pay for a student’s education in exchange for a share of the student’s earnings after college. In essence, the student would finance college less with debt and more with equity.”

One thing never mentioned in these discussions is the way these kinds of financial instruments would exacerbate inequality. As we’ll see, even a preliminary financial model of these instruments shows that, when it comes to the percentage of income, women would pay 8–22 percent more relative to men, and a poor woman of color would easily pay 40 percent more relative to a rich white male, in order to attend college..

As normal, it’s tough to model an imaginary market that won’t exist at scale without extensive government intervention because of profound adverse selection problems. But let’s give it our financial engineering best. I’m following the format of “income-share agreements” (ISA) funded by private, profit-seeking markets, where tuition is paid upfront in exchange for a percentage of future earnings.

One of the most important parts of private ISAs to their advocates is that the percentage of future earnings you have to pay isn’t fixed, but instead is set depending on your school and predicted earnings. Many proponents say that this will drive people to better schools with higher graduation rates as well as in-demand majors. Why? Because, since students will end up making more money this way, the private ISA lender can charge them a lower rate.

It’s not clear if the consequences would be what proponents expect. A quick model I ran shows that there’s no reason to believe it would lead students to schools with higher graduation rates, because at reasonably high discount rates this instrument would prefer the smaller payments upfront that one would get from a dropout. More generally, it’s tough to model small changes in future payments from things you could discern at the age of 18. But there are three things you know at 18 that are correlated with future income: gender, race, and parental income.

Read more »