When I first saw the headline of Ezra Klein’s interview with Lawrence Summers, “Larry Summers on why the economy is broken — and how to fix it”, I was prepared to disagree with whatever he had to say pretty vehemently. Somewhat to my surprise most of my disagreements were quibbles and I found myself in broad agreement with what he had to say if not in detail.

The remark of Dr. Summers with which I was in greatest agreement was this:

Imagine the economy between 2003 and 2007 without the consequences of housing bubbles and overly easy credit. Housing investment would have been two to three percent of GDP lower, and consumption expenditure would have been considerably lower, as well, resulting in very inadequate performance.

Said another way, our economic problems predate 2007 considerably. He puts them in the mid 1990s to early Aughts. I don’t think he quite has the courage to point out that our actual problems go back to the early 1990s and while not due to globalization per se are largely due to the form that globalization took, with large trading partners maintaining more or less permanent trade surpluses with us. That had the effect of working much as a syphon does and degrading the U. S.’s productive base.

I also agree with this:

But if you believe that demand is constrained by the lower bound on interest rates, there is, as a matter of logic, three ways of proceeding. One is to do nothing and wait for supply to fall back to demand through hysteresis effects. We have tragically done this in the United States.

The general policy position of the United States has been a rather desperate attempt at restoring the status quo ante. We have attempted to prop up industries that have made catastrophically bad decisions and thereby incentivized their continuing to make bad decisions. There were alternatives. We could have let them fail and devoted the energies used in propping them up to helping those injured by their failure. We could have seen to it that they collapsed in a controlled manner, figuratively along the lines of building implosion. The strategy that was chosen exacerbates income inequality, seen by some as an unfortunate and unintended side effect, by some as the object of the game.

And I wish the Obama Administration would heed this advice:

There are ample opportunities, particularly in the energy sector, to improve the efficiency of regulation in ways that would stimulate demand. Allowing the export of fossil fuels is one example. And a concerted effort to promote net exports would also raise demand in the United States without the need to reduce interest rates.

But this is just foolishness:

Finally, if we fix Kennedy airport today, we don’t need to fix it tomorrow.

illustrating neatly why economists shouldn’t give construction advice. Fixing a pothole today does not mean you won’t have to fix it tomorrow. Sadly, a very high proportion of the infrastructure spending that was part of the ARRA was just such minor maintenance which merely moved money from one pocket (the federal government’s) to another (those of “approved vendors”) rather than from those of state government to the same approved vendors. Much too little was accomplished and the investment value of such minor maintenance was practically nil.

We are a developed country. The opportunities for genuine investment via infrastructure spending are very few and the existence of approved vendors who’ve already invested in all of the equipment they need and already employ all of the people they’ll require greatly limits infrastructure spending as a means of producing demand.

That’s further aggravated by modern developments in retailing and our importing so much in the way of consumer goods. Unlike the 1930s, boosting consumer demand today has a very low multiplier.

There are ways and means of boosting demand. Sadly, we’re not seizing on them because they fly in the face of other policy goals. That’s why policy makers have latched onto hoping for the best (“do nothing and wait for supply to fall back to demand through hysteresis effects”) as their primary policy response.

From time to time I’ve mentioned that, despite the requirements of the law, paying H-1B visa holders less than the prevailing wage was a commonplace and some of the most vocal demanders that many more such visas be issued were among the primary offenders. Here’s a bit of supporting evidence:

January 13, 2014, 12:27 PM — A former Oracle sales manager is suing the vendor, alleging he was fired shortly after complaining of discriminatory actions by his superior and other company officials.

Ian Spandow was a high-performing sales manager at Oracle in Europe and later California, according to his lawsuit filed last week in U.S. District Court for the Northern District of California. After coming aboard in 2005, he trained more than 1,000 new hires and gave skills coaching to hundreds of others, the suit states.

Spandow was subsequently promoted in January 2008 to the position of coaching manager, and after continued success was promoted to work as a sales manager at Oracle’s U.S. headquarters in Redwood Shores, according to the suit.

Despite performing well in his new role, Spandow, who is Irish, “experienced discriminatory and retaliatory conduct based on his national origin and after his complaint of various improper practices, including the company’s discriminatory pay practices of employees based on their national origin,” the suit states.

Here’s the really egregious part:

In September 2012, Spandow asked for permission to transfer an Oracle employee working in India to California. Spandow wanted to give the employee, who had a good track record, “a compensation level that was equivalent to Caucasian employees hired by Oracle for the same position.” But Spandow’s manager denied the request and told Spandow to offer the worker a “substantially lower” amount of money, according to the suit.

“I can’t in good conscience, even mention $50K/$50 to him,” Spandow said of the employee in an email to his supervisor, Ryan Bambling, that was cited in the lawsuit. “It would be nothing short of discriminating against him based on his ethnicity/country of origin. How or what do I have to do/write to get a reasonable (60+) offer to him?’

This prompted a “stern response” and warning to Spandow, the suit claims.

Spandow subsequently raised his concerns with his sales director, Keith Trudeau, who said the lower salary offer would be “good money for an Indian,” according to the suit.

Now, presumably, we’re talking about an L1 visa in this particular case but the principle is pretty much the same.

I am very skeptical that there’s actually a shortage of qualified science, technology, engineering, and mathematics workers here in the U. S. What I think we actually have is an overabundance of companies that want to pay lower wages and seize on importing workers as a strategy for doing that.

That you don’t hear about it more frequently is not evidence that it’s rare but an indicator of how few of the imported workers complain.

One of the great shortcomings of the triumph of physics in the 19th and 20th centuries is that it has conveyed the belief that the ability to construct models and assign numbers to phenomena conveys greater understanding rather than the other way around. I would suggest that this effect has stunted the development of the social sciences. Another way I’ve heard this characterized is that people with orderly minds tend to be drawn to studies that have greater obvious order, like physics, and they impose their own internalized sense of order on their field of study. All this by way of saying that I’m deeply distrustful of the Heritage Foundation/WSJ Index of Economic Freedom.

I have little doubt that there’s more economic freedom in Hong Kong (the top country on the list) than in North Korea (the country on the bottom). And it’s at least interesting that Mauritius is #8 but nearby Madagascar is #79 while Macau, #1 Hong Kong’s twin, is #29.

The U. S. is not in the top ten. It is #11.

One problem I have is with Mr. Miller’s conclusion:

The record of increasing economic freedom elsewhere makes it inexcusable that a country like the U.S. continues to pursue policies antithetical to its own growth, while wielding its influence to encourage other countries to chart the same disastrous course. The 2014 Index of Economic Freedom documents a world-wide race to enhance economic opportunity through greater freedom—and this year’s index demonstrates that the U.S. needs a drastic change in direction.

It’s not that I think that the U. S. must always be #1 at everything. I certainly don’t think that. It’s that I’m not convinced that there’s a real, measurable, objective difference between, say, the 80th country on the list (Dominican Republic) and the 81st (Azerbaijan). Or between the 10th and the 11th. I question whether the list actually measures anything other than its compilers’ prejudices and whether the findings are robust.

I would think that you should be able to come up with some quantifiable and measurable factor, say opportunity cost of lack of freedom, that would distinguish among the various countries. Try as I might I can’t think of any such factor.

It is interesting to note that the U. S. is the highest-ranked country with a population of greater than 35 million. What the Index of Economic Freedom may be measuring is the degree to which “economic freedom”, as determined by the Heritage Foundation/WSJ, can be exploited by small countries to gain a competitive edge over neighbors with more population, resources, etc. That’s not necessarily an option that’s available to us.

Laurence Kotlikoff makes the case that tax reform should consist of abolishing the corporate income tax and replacing the personal income tax with a consumption tax. He characterizes the reasons for resistance against both of these ideas in Washington as a language barrier. I think it’s more than that.

There’s currently a bipartisan consensus in support of our present highly regressive system for three reasons. First, Americans spend hundreds of billions of dollars annually on tax preparation. No one knows exactly how much but it’s clearly in the hundreds of billions. Since one man’s expense is another man’s income, there’s an army of lawyers, accountants, and tax preparation software companies for whom preservation of the current system is quite literally a matter of life and death.

Second, taxing income and the complexity of the present system expands Congressional power. To you and me they’re loopholes. To the Tax Policy Center they’re “tax expenditures”. But to Congress they are the means by which they reward friends, punish enemies, and extract campaign contributions, their political lifeblood. Neither party will forego that power willingly.

Finally, abolishing the most regressive of federal taxes, FICA (the “payroll tax”), is political poison. Whichever party proposes it will be attacked hammer and tongs by the other.

On average we do a major reform of the tax system roughly every twenty years, just about once a generation. The last such major reform was in 1986. We are clearly long overdue but the forces marshalled against reform are very, very strong.

And a wealth tax? Don’t make me laugh. Who do you think the Congress represents and what do you think their Prime Directive is? I think it’s “Thou shalt not tax wealth.”

Froma Harrop outlines how states may implement their own systems of single-payer healthcare insurance:

The prospects for single-payer health care — adored by many liberals, despised by private health insurers and looking better all the time to others — did not die in the Affordable Care Act. It was thrown a lifeline through a little-known provision tucked in the famously long legislation. Single-payer groups in several states are now lining up to make use of Section 1332.

Vermont is way ahead of the pack, but Hawaii, Oregon, New York, Washington, California, Colorado and Maryland have strong single-payer movements.

First, some definitions. Single-payer is a system where the government pays all medical bills. Canada has a single-payer system. By the way, Canada’s system is not socialized medicine but socialized insurance (like Medicare). In Canada, the doctors work for themselves.

Under Section 1332, states may apply for “innovation waivers” starting in 2017. They would let states try paths to health care reform different from those mapped out by the Affordable Care Act — as long as they meet certain of its goals. States must cover as many people and offer coverage as comprehensive and affordable. And they can’t increase the federal deficit. Qualifying states would receive the same federal funding that would have been available under Obamacare.

Vermont has already gotten out in front of this issue by enacting its own system of statewide single-payer insurance into law. I have little doubt that other states will be looking closely at Vermont’s experience in putting that law into practice.

A few observations. First, whatever the Administration’s intentions I think that the Obama Administration has closed the door on a national single-payer system for the foreseeable future. For one thing I believe that national single-payer is politically unthinkable until the dust has settled from the PPACA and, as a consequence of the law’s design, that won’t be until 2020 at the earliest.

Additionally, a national single-payer system would be politically quite difficult. Today’s Republican Party wouldn’t champion such a system and Democrats would need to begin their advocacy of such a plan under the burden of the Obama Administration’s incompetent handling of the PPACA to date, contending that the Administration was incompetent but it was uniquely incompetent and that future Democratic administrations would do better. Since I don’t see most Congresional Democrats making that argument for the foreseeable future, that leaves single-payer without support at the federal level.

Vermont’s success or failure in implementing its own system of socialized healthcare insurance will depend on the state’s willingness to control costs and Vermonters’ acceptance of the measures put into place. They may well succeed. I strongly suspect that the future of a single-payer system in the United States will largely depend on the success of state programs, much as was the case in Canada before it.

As to my own views, let me put it to you this way. Would you really want the state of Illinois administering your healthcare insurance? And this despite my support for single-payer for, quite literally, decades.

You know, I might’ve thought that the story I mentioned in the previous post was the weirdest news story of the day but this story about vandals using a Christmas tree to set fire to a Porta-Potty is a pretty close second.

I’ve just published a couple of foreign policy-related posts at Outside the Beltway:

Good News: India Is Polio-Free

India is well on its way to being declared officially free of polio this year.

It’s the “Tall Whites”!

The Iranian national news service is reporting that U. S. foreign policy is dominated by aliens. Fill in your own wisecrack here.

There’s an interesting map that accompanies this article in the WSJ’s Real Time Economics blog. When you examine the economic recovery on a county-by-county basis, about half of the counties in the U. S. haven’t recovered from the recession yet:

About half of the nation’s 3,069 county economies are still short of their prerecession economic output, reflecting the uneven economic recovery, according to a new report from the National Association of Counties.

The overall U.S. economy had reached its prerecession level of gross domestic product three years ago, Commerce Department figures show.

National statistics “mask the reality on the ground,” where some county economies were in recession long before December 2007 and others never experienced one at all, said Emilia Istrate, the association’s director of research and one of the authors of the report. “That’s where Americans feel the economy. They feel it locally.”

In the Chicagoland area Cook County and McHenry County have not recovered while Lake, Kane, and Will Counties have. In Northern California Marin and Contra Costa Counties have not recovered while Alameda, San Mateo, and Santa Clara Counties have. In Florida Glades County, Hardee County, and Union County were never in recession. Osceola County, Sumter County, St. Johns County, Suwannee County, and Monroe County have recovered. Most of the rest of the state is still in recession.

Sam Berns has died:

Sam Berns, a spunky teenager who was proud to call himself a “band geek” and was at the heart of a 2013 documentary about a genetic condition that accelerates aging, has died. He was 17.

Berns, a Massachusetts high school junior who was bald, bespectacled, and weighed only 50 pounds, died Friday from complications of progeria, the Progeria Research Foundation announced.

An avid fan of Boston sports teams, Berns was also passionate about playing the snare drum and marching in full uniform with Foxborough High School’s marching band.

“The music we make together is true, it’s genuine, and it supercedes progeria,” he told an audience at a TED Talk about his condition last October. “I don’t have to worry about that when I’m feeling so good about making music.”

A remarkable individual. And a reminder that the attitude with which you confront life can be more important than its length.