When an economy goes into recession, an obvious response should be lower wages for workers. However, there's lots of empirical evidence that employers are reluctant to lower the wages of their workers, and it's easy to understand this on a social basis: it's bad for morale, it makes managers feel like dicks, etc. etc. Even in a very bad recession like the one we just went through, most employers weren't willing to go any further than making some modest cuts in benefits (higher copays for health insurance, lower contributions to retirement funds, and so forth). 

But what about the unemployed? Why is it that they don't eventually lower their wage expectations enough to make themselves more employable? Tyler Cowen runs through a few of the arguments on this score and finds them all unsatisfactory. He concludes that neo-Keynesian models are badly lacking:

Often when this topic comes up I feel I am playing a game of whack-a-mole. Most of all, I am struck by how little attention people pay to their own sticky nominal wage hypotheses. If that were the problem, and if unemployment were today’s biggest issue (a totally plausible claim), you might expect people to blog the microfoundations of nominal wage stickiness very, very often. You might expect ethnography. Micro-level data. Lots of juicy anecdotes and journalistic features, not just on the unemployed but on the stickiness itself. Perhaps some micro-level advice. Dozens, no hundreds of blog posts on the all-important microfoundations of the #1 social problem of our time.

But no, there’s not much of those to be seen. At some level it is understood, if only implicitly, that the sticky nominal wage theory is an embarrassment — when it comes to the unemployed across the longer run (but not the employed). It doesn’t get too close a look.

What else? Few people want to come out and utter the possibility: “They’re just too stupid and too stubborn to lower their wage demands.” Mood affiliation reigns, and the prevailing mood is to express sympathy with the unemployed. In fact that sentence is not my view, but it actually makes somewhat more sense than most of what is listed above. A lot of people don’t like hypotheses which suggest the unemployed are not victims of the system, so it doesn’t get much of a hearing.

I am not an economist (IANAE for short), and I don't understand the importantance of sticky wages to models of long-term unemployment. But I guess I'm unclear about how important this really is outside of the academic modeling universe. Tyler says he doesn't believe the folk wisdom that people are just too stubborn to lower their wage demands, and I don't either. I simply know far too many examples of people who are extremely willing to accept much lower wages than they used to make. Maybe not right away, but within a few months or a year at the outside, virtually everyone is willing to accept a pretty sizeable pay cut.

One problem with this, on a purely social (i.e., non-economic modeling) basis is that employers have always been leery of hiring people at reduced wages. They're afraid you'll be bored with a less challenging job. They're afraid you'll be unhappy over your salary and bring a bad attitude to work. They're afraid you're just taking something out of desperation and will jump ship the minute something better comes along. They're afraid that your willingness to accept less is a sign that you know you're unemployable because you're a lousy worker.

But does any of this matter? Tyler suggests a different explanation for long-term unemployment that has nothing to do with wage demands: "I think, by the way, that excess capacity theories are one of the most plausible attempts to explain continuing unemployment....The firm doesn’t want to produce any more output, so the worker’s wage demands don’t matter so much. This will have real import for the analysis of monetary and fiscal policy, so the microfoundations really matter here."

This is where I get confused. In the real world of op-eds and columns and blog posts, as opposed to academic papers stuffed with Greek letters, isn't this exactly what nearly everyone is saying? It's not that workers aren't willing to accept less, and it's not that workers have suddenly become useless in our brave new high tech society. The problem is that we've gone through a financial collapse, households are overleveraged, and this has cratered demand for goods and services. With demand low, firms have no expectation that their business is likely to expand, so they aren't hiring unemployed workers at any wage. Add to that the social issues I mentioned above, and the long-term unemployed are screwed.

Obviously I'm skipping over the deep microeconomic modeling issues here, which are legitimately important to economists, but how does that really affect real-world monetary and fiscal policy? We live in a world that's got too much debt overhang, and outside of the weirdo fringe, I've mostly heard pretty similar approaches to dealing with that from both left and right. So I guess I'm a little unclear about how and whether sticky wages really matter much.

From James Galbraith, writing about our badly misguided approach to reviving the economy:

Federal budget deficits in this situation are like IV-bags in an emergency room: they stabilize things. IV's are definitely linked to sickness, and no one would use them if they weren't necessary. But very few doctors propose to cut back on saline while the patient is still sick. Today, however, the official economists and their followers in Congress, the White House and the media are divided between those who would remove the IV's slowly, whether the patient recovers or not, and those who'd like to charge through the wards, yanking needles from arms. The debt deal enacted earlier this month put the first group in charge, but that's pretty cold comfort.

We are doomed.

On Saturday I posted my top ten list of reasons that Rick Perry probably can't win the Republican nomination and definitely won't win a general election against Barack Obama. Needless to say, I got a lot of pushback, and the bulk of it had to do with my belief that, even for Republicans, Perry is just a wee bit too crazy radical. The general view of my critics — one that's admittedly persuasive — is that it's pretty much impossible to be too crazy radical for today's Republican voters. Maybe so! And yet, I continue to contend that the rank-and-file of the party still contains a lot of non-crazy non-tea partiers who just aren't going to be willing to pull the lever for someone like Perry (or Michele Bachmann).

But just how weirdly radical is Rick Perry? I tossed off a few examples in my post, but over the weekend Matt Yglesias read Perry's 2010 magnum Opus Fed Up! and today he produces his own top ten list for us. Perry, it turns out, makes Mark Levin look like a squish. Here's a taste:

7. All Bank Regulation Is Unconstitutional: Criticizing the Security and Exchange Commission’s rulemaking process under the Dodd-Frank financial regulation bill, Perry asserts that “if the Constitution were shown the appropriate respect, Washington regulation writers wouldn’t have to worry about underrepresented views, because they wouldn’t have control over them in the first place” (page 94).

— 6. Consumer Financial Protection Is Unconstitutional: Further reiterates his view that all federal financial regulation is illegitimate, listing the SEC on page 44 as part of a “federal alphabet soup” in which “undemocratic unelected Washington bureaucrats” are “now (dubiously) empowered to dictate their own preferences to the American people.”

— 5. Almost Everything Is Unconstitutional: Regrets the existence of jurisprudence construing the Commerce Clause to permit “federal laws regulating the environment, regulating guns, protecting civil rights, establishing the massive programs and Medicare and Medicaid, creating national minimum wage laws, [and] establishing national labor laws.” Perry makes a partial exception for laws barring racial discrimination which he says fulfill “the intent behind the passage of the Reconstruction Era amendments.” (page 51)

And that's just the middle of the list. I suspect there's soon going to be an enormous bubble of pundits reading Perry's book and excerpting the juiciest parts, but this should get you started. In the end, this may or may not end up being too much for Republican voters this year, but it's sure as hell too much for a general election. Unless the economy falls completely off a cliff, or Barack Obama is caught on videotape sneaking out of the White House to engage in serial killings, I flatly don't see how a guy like Perry can win in November. Once Republicans figure this out, Mitt Romney is going to start looking a whole lot better to them.

I'm not sure what Steven Pearlstein had for breakfast this morning, but to misquote Abraham Lincoln, "Tell me what brand of cereal Pearlstein eats. I would like to send a case of it to my other columnists."

Another great week for Corporate America!

The economy is flatlining. Global financial markets are in turmoil. Your stock price is down about 15 percent in three weeks. Your customers have lost all confidence in the economy. Your employees, at least the American ones, are cynical and demoralized. Your government is paralyzed. Want to know who is to blame, Mr. Big Shot Chief Executive? Just look in the mirror because the culprit is staring you in the face.

....When it started out all you really wanted was to push back against a few meddlesome regulators or shave a point or two off your tax rate....Somewhere along the way, however, this effort took on a life of its own. What started as a reasonable attempt at political rebalancing turned into a jihad against all regulation, all taxes and all government, waged by right-wing zealots who want to privatize the public schools that educate your workers, cut back on the basic research on which your products are based, shut down the regulatory agencies that protect you from unscrupulous competitors and privatize the public infrastructure that transports your supplies and your finished goods. For them, this isn’t just a tactic to brush back government. It’s a holy war to destroy it — and one that is now out of your control.

....Please don’t tell me about your mealy-mouthed letter warning Congress not to play politics with the debt ceiling. By that point, the Frankenpols you created were not interested in your advice. The only thing that might have got their attention was a threat to cut off the flow of political money. You didn’t — and now they know they can ignore you with impunity.

The thing is, they won't really care until all this chaos affects corporate earnings. So far it hasn't, and America's CEOs — who have never suffered noticeably from a lack of self-regard — probably think that if they can guide their companies to higher profits even through the Great Recession, they must be geniuses. And why should a genius have to worry about their minions on Capitol Hill getting a little friskier than they intended?

And if it all comes crashing down? It'll be someone else's fault. Something Obama did, probably. They'll never learn.

A couple of days ago I got an offer in the mail for a Chase Sapphire card. Normally I don't even open these things, but this one came in such an opulent bit of packaging that I wanted to see what was inside. Answer: nothing much. It was just a box designed to look thick and inviting with only a few pieces of paper inside.

But having opened it, I went ahead and read the offer. Here's the deal: Chase is so anxious for me to try their card that if I sign up they'll give me 100,000 bonus points if I spend $500 in the first three months — something that's obviously not much of a problem. Once I've done that, I can cash in those points for $1,000.

In other words, Chase is basically willing to pay me $1,000 just to try their card. As near as I can tell, there are no gotchas, and a quick Google search seems to confirm this. Merely getting me to give Sapphire a try is worth a thousand bucks to them.

So what's going on here? Either (a) we're in the middle of some kind of fantastic credit card bubble and it's going to burst soon, or (b) the high-end credit card business is so insanely lucrative that paying people $1,000 just to sign up is worth it to them. I'm not sure which one I fear the most.

Shortly after his previous company declared bankruptcy in 2008, a guy named David Nance started up a new venture, Convergen LifeSciences Inc. He himself invested only $1,000 in Convergen, but was able to get the company off the ground with a $4.5 million investment from a venture capital fund.

Venture capital folks usually prefer founders to have a wee bit more skin in the game than that, but this was a very special venture fund: the Emerging Technology Fund, a $200 million fund created by Rick Perry to invest taxpayer money in Texas startup companies. And David Nance was a very special founder: he had donated more than $100,000 to Perry's campaigns over the previous decade. So even though a regional panel turned down Nance's original application, when he appealed to a statewide advisory committee his application was approved unanimously.

More details here, based on reporting from the Austin American-Statesman here. Apparently this came up as an issue in Perry's last campaign, but details were sparse at the time and the American-Statesman's reporting only surfaced a couple of months ago. As always, it's good to have friends in high places.

Via Mark Kleiman.

Neal Gabler writes today that we no longer care much about big, exciting ideas, the kind that we used to hear from Albert Einstein, Reinhold Niebuhr, Daniel Bell, Betty Friedan, Carl Sagan and Stephen Jay Gould. "We are living in an increasingly post-idea world — a world in which big, thought-provoking ideas that can’t instantly be monetized are of so little intrinsic value that fewer people are generating them and fewer outlets are disseminating them, the Internet notwithstanding. Bold ideas are almost passé."

I was almost on the verge of nodding along to this, but then Gabler unloaded his big idea: it's all the internet's fault.

In the past, we collected information not simply to know things....But if information was once grist for ideas, over the last decade it has become competition for them....The collection itself is exhausting: what each of our friends is doing at that particular moment and then the next moment and the next one; who Jennifer Aniston is dating right now; which video is going viral on YouTube this hour; what Princess Letizia or Kate Middleton is wearing that day. In effect, we are living within the nimbus of an informational Gresham’s law in which trivial information pushes out significant information, but it is also an ideational Gresham’s law in which information, trivial or not, pushes out ideas.

....It is certainly no accident that the post-idea world has sprung up alongside the social networking world. Even though there are sites and blogs dedicated to ideas, Twitter, Facebook, Myspace, Flickr, etc., the most popular sites on the Web, are basically information exchanges, designed to feed the insatiable information hunger.

....Of course, one could argue that these sites are no different than conversation was for previous generations, and that conversation seldom generated big ideas either, and one would be right. But the analogy isn’t perfect. For one thing, social networking sites are the primary form of communication among young people, and they are supplanting print, which is where ideas have typically gestated....To paraphrase the famous dictum, often attributed to Yogi Berra, that you can’t think and hit at the same time, you can’t think and tweet at the same time either, not because it is impossible to multitask but because tweeting, which is largely a burst of either brief, unsupported opinions or brief descriptions of your own prosaic activities, is a form of distraction or anti-thinking.

Well, look, maybe blogging and tweeting have degraded my ability to think so dramatically that I just can't see Gabler's point even though it's staring me in the face. But does he really think that high school sophomores use Twitter and Facebook as replacements for the deep thoughts and sophisticated conversations they used to have? That they used to sit around debating Niebuhr and Friedan but don't anymore because they're too busy with their Tumblr pages? Maybe that's how things were at Gabler's high school, but they sure weren't at mine.

Honestly, I think I liked this genre better back when people blamed TV for the decline and fall of American youth. I always thought the anti-TV crowd at least had a point: television really did crowd out things like books and magazines, which were better suited to big ideas and complex arguments than the tube. But social networking? As near as I can tell, it's mostly crowding out in-person gossip and....television. That seems like a much more benign trade.

In any case, the alleged decline of the big league public intellectual is usually dated to the 70s and 80s, a decade before Mark Zuckerberg was even born. So the rise of TV is at least plausibly a culprit, chronologically anyway, for the decline of big ideas. But Facebook? I don't see it. It's just the whipping boy of the moment, always good for a tut-tutting op-ed aimed at older readers who don't like Facebook to begin with and get a warm glow from seeing their prejudices confirmed.

For what it's worth, I do think that the rise of the media omnivore is changing the way we think, in some ways for the worse. But it's hard for any of us to really understand what's going on because we're still in the middle of a huge transition: television and the internet and social networking are supplanting older, maturer forms that we knew how to exploit thoroughly, but they haven't themselves yet matured to the point that we really know how to exploit them anywhere near as deeply. So we're naturally nervous: big ideas may or may not have been more common half a century ago than they are now, but at least back then we knew where to find them and we had a widely understood set of social conventions about how to discuss them. We haven't yet really figured that out for electronic media, and that makes the discussion of big ideas chaotic enough and inchoate enough that it can often seem as if the ideas themselves don't exist anymore. But I suspect they do. We just have to learn how to talk about them in a new language.

UPDATE: In the field of economics, anyway, Jared Bernstein thinks Gabler is right about the inability of big ideas to gain traction these days. But he implicates a different culprit:

The financial crash of the 2000s revealed a confluence of many powerful and socially disruptive forces: levels of income inequality not seen since the dawn of the Great Depression, stagnant middle-class living standards amidst strong productivity growth, solid evidence that deregulated markets were driving a damaging bubble and bust cycle, deep repudiation of supply-side economics, and most importantly, even deeper repudiation of the dominant, Greenspanian paradigm that markets will self-correct.

We may not, in my lifetime, witness another historical moment where these destructive forces are so clearly revealed. What’s more, there were economic thinkers arguing for a new paradigm....And yet, at least from where I sit today, we let the moment pass....Why did we squander the opportunity? Not because there were so much information on the web. It is, at least in part, because the concentration of wealth and power blocked the new ideas from a fair hearing.

Read the rest!

Pawlenty in Trouble!

Chris Cillizza reports that Michele Bachmann won the Ames straw poll:

Bachmann took 4,823 votes, narrowly escaping a major upset at the hands of Texas Rep. Ron Paul who won 4,671 votes. Former Minnesota governor Tim Pawlenty placed third with 2,293, a showing that is likely to raise questions about his ability to continue in the contest.

Wait a second. Everyone expected Bachmann to win, and likewise, everyone knows that Ron Paul has a demonstrated (and meaningless) ability to round up his tiny band of fanatical troops for events like this. So third place isn't too bad for Pawlenty, is it? Or was the "Pawlenty in trouble" media narrative already so set in stone that it didn't matter how well he did?

(For the record, I think Pawlenty is toast. Still, his showing in Ames wasn't too bad.)

UPDATE: My Twitter feed is full of people who think Pawlenty's showing puts him right on the edge of viability. I don't quite get this, but maybe it makes sense given how much time he put into Iowa. Still, I can't help but think that it's basically a reaction to everything else about the Pawlenty campaign, not to the straw poll itself.

UPDATE 2: Well, I guess everyone else was right. Pawlenty is out.

My skepticism about Rick Perry is below. For a very good rebuttal, see Erica Grieder here. Perry's not especially smart, she says, but he's shrewd. (I agree.) Conservative, but not the far-right zealot we think. Not a culture warrior, but a straightforward business conservative. Bottom line: "Perry is not an idiot and not an ideologue. Democrats, you misunderestimate this one at your peril." It's one of the best, most clear-eyed takes on Perry that I've seen, and it comes from someone who's followed him closely.

Texas Gov. Rick Perry

Editor's Note: On Thursday, January 19, CNN reported that Texas Gov. Rick Perry would drop out of the presidential race and endorse former Speaker of the House Newt Gingrich. Back in mid-August, at the height of the GOP's Perry-mania, Kevin Drum saw this all coming.

A few days ago I rashly said, "For the record, I don't think Rick Perry can win the Republican nomination, and I know that he can't beat Obama in a general election." Unsurprisingly, a lot of people wanted to know just what made me so sure of that. So with Perry now officially in the race, I guess it's time to explain myself.

Before I get to that, though, I have a mealymouthed caveat or three. First, if the economy is bad enough, anyone can win. And right now, the odds of the economy being bad enough are a little too close for comfort. Second, in recent years you could lose a lot of money continually underestimating the lemming-like power of the Republican Party to dive off ever-higher cliffs. Third, it's absolutely true that you can make a pretty good case that none of the current GOP candidates can possibly win the nomination. And yet, someone will.

And there's more. Perry is unquestionably a very good, very shrewd politician. He has access to lots of money. And he can deliver a pretty good speech. My beloved wife just finished listening to his announcement speech and told me, "He's my favorite Republican right now." When I grimaced, she just gave me a scary look. Scary because it's the look that means she sees something that's invisible to a committed partisan like me.

But enough of that. I've covered my ass enough. Here are the top 10 reasons why, despite all this, I think Perry is a weaker candidate than he's being made out to be:

  1. Everyone looks good before they get into the race. Remember how great Tim Pawlenty was supposed to be? But just wait a few months for Perry to get beat up by his opponents, for the oppo research to kick in, for all the big profiles to start appearing, and for a gaffe or two to get some play. He'll start to look distinctly more human then.
  2. He's too Texan. Sorry. Maybe that's fair, maybe it's not. But even in the Republican Party, not everyone is from the South and not everyone is bowled over by a Texas drawl. Perry is, by a fair amount, more Texan than George W. Bush, and an awful lot of people are still suffering from Bush fatigue.
  3. He's too mean. He'll have a hard time pretending he's any kind of compassionate conservative, and outside of Texas you still need a bit of that. Aside from being politically ruthless and famous for holding grudges, Perry's the kind of guy who almost certainly executed an innocent man, never pretended to care about it, and brazenly disbanded a commission investigating it. This famously produced the following quote in a 2010 focus group: "It takes balls to execute an innocent man." In Texas, maybe that works. In the rest of the country, not so much.
  4. He's too dumb. Go ahead, call me an elitist. I'm keenly aware that Americans don't vote for presidents based on their SAT scores, but everything I've read about Perry suggests that he's a genuinely dim kind of guy. Not just incurious or too sure about his gut feelings, like George W. Bush, but simply not bright enough to handle the demands of the Oval Office. Americans might not care if their presidents are geniuses, but there's a limit to how doltish they can be too.
  5. He's too smarmy. He might be fine one-on-one, but on a national stage Perry looks like a tent revival preacher or a used car salesman. Again: This might play okay in Texas and a few other places, but it will wear thin quickly in most of the country.
  6. He's too overtly religious. Even Bush soft pedaled his religious side for the masses during his first campaign and did most of his outreach to the evangelical community quietly. Outside the Bible Belt, Perry's fire-and-brimstone act is going to be hard to take.
  7. Policywise, he's too radical, even for Republicans. "Social Security is a Ponzi scheme" goes over well with a certain segment of the tea party, but not with most of the country. Nor does most of the country want to get rid of Medicare and turn it over to the states. Nor do they think global warming is a hoax, and they don't really think all that kindly of people who muse publicly about seceding from the union. Bush was able to soften his hard Texas edge with a genuine passion for education. I'm not sure Perry can do that.
  8. Despite conventional wisdom, about half of the GOP rank-and-file aren't tea party sympathizers (see Question 3G here). Of the half who are, Perry is going to have to compete with Michele Bachmann and possibly with Sarah Palin. Mitt Romney, on the other hand, has the noncrazy half of the party almost to himself. Huntsman isn't going to provide him with any serious competition there, and Pawlenty is rapidly becoming a non-factor too. I think this is an extremely underappreciated dynamic right now. Yes, Republican primary voters tend to be more conservative than the party as a whole, but there are still going to be a lot of non-tea-partiers who vote, and they don't have a lot of good choices other than Romney. What's more, a fair number of tea partiers like Romney too (see Question 19 here). This is a pretty good base to work from.
  9. Perry's campaign is going to be heavily based on the "Texas miracle." But this looks a lot less miraculous once you put it under a microscope—and pretty soon it won't just be churlish lefties pointing this out. You can be sure that the rest of the Republican field will be hauling out their own microscopes before long.
  10. Republicans want to beat Obama. They really, really want to beat Obama. Romney is still their best chance, and down deep I think they know it.

All that said, I might be wrong. But I'd still advise everyone to take Perry with a few more grains of salt than they have been. It's easy for us urban liberals to just cynically assume that the tea partyized GOP will nominate whoever's the dumbest, toughest, meanest, godliest sonofabitch in the field, but I'm not so sure. Perry may come out of the gate strong, but he might not wear well once the national spotlight is on him.

UPDATE: Why Rick Perry Can Win.