Choosing Austerity

Menzie Chinn says the austerity being imposed on Greece, Spain etc is self-defeating, while in the US the states are voluntarily choosing austerity, to their own GDP detriment, in order to reduce the state for political reasons.  More:

...the approach of muddling through, dealing on an ad hoc basis with each crisis with aid conditioned on fiscal consolidation, is not working. It's not working partly because in the demand determined models we teach in intermediate macro work cutting government spending and raising taxes tends to depress output, as highlighted in this post. But when the countries affected are closely linked by trade, then the total effect of the contractionary policies conducted in individual countries results in even greater contraction.

Had these economies been on floating exchange rates, the contractionary effects might have been mitigated by depreciated currencies. But membership in the eurozone meant that shock absorber was gone. That is why the prospect of an expansionary fiscal contraction was never very plausible in the case of the GIIPS. But as long as the rest of the eurozone countries were unwilling to provide substantially more financing or transfers to the GIIPS, these governments had little alternative to fiscal consolidation. That is the fate of many, many countries that have faced IMF stabilization packages in earlier decades.

In contrast, the U.S. has currency flexibility so it can save itself, but the states chose austerity, and Chinn shows this has led to lower GDP growth.  Chinn says:

In contrast to Europe, the choice to slash spending and taxes was unforced. In the absence of tax cuts, spending could have been maintained at higher levels. Furthermore, the Federal government had the resources to further support the state and local governments. 

...Truly, much of the distress at the state and local level is essentially a self-inflicted wound, that allows a push for smaller government to proceed under the guise of austerity. 

Charts and more analysis at the link.

On Expertise and Influence: Interview with Ann Pettifor

What constitutes expertise as a social, political and cultural matter?  It involves charts, data, lines on a CV, connections, financial support, and a means of repeatedly broadcasting the same message.  In 2003, Ann Pettifor predicted the global debt meltdown but no one was listening; in this interview with the Renegade Economist [posted at NC], she discusses the crowding out of ideas that is perpetuated because of the structure of interest group-funded economics research.  This sounds so much like the Vijay Prashad interview in regards to the silencing of alternative views from UNCTAD which, like Pettifor, is credited with accurate predictions about the economic crisis.  A similar tale can be told about tax treaty policy making and the turf struggle between the OECD and the UN.  In international tax in general we see the cult of expertise in the claiming of "internationally agreed standards" on tax policy, with I think similar effects--the alternative view is too often silenced, sometimes intentionally but often just by lacking the necessary backing and platforms.

Starting at around the 7 minute mark, Pettifor has a lot to say about institutional expertise and about why we will continue to get more of the same policy prescriptions from influential economists: they are mostly "hired guns" who don't have tenure, while those with tenure, who can "afford to say that which is not mainstream," are few and far between.  She says most economists therefore "are employed in think tanks and research departments that are underwritten by the finance sector.  RE agrees: "if you watch Charles Ferguson's film Inside Job and you see the cowardice of the neoclassical economists at the end who jut blankly refuse to answer the questions and then when they do are full of spite, you get a kind of insight into the murky world you're dealing in."  

Pettifor then talks about conferences where neoclassical and heterodox economists are engaging in dialogue, and she says this is unusual because the neoclassicals "aren't used to dialogue with anyone who doesn't share their world view, and that is so damaging."

Jumping to 10:20, she lays out the intellectual/institutional conflict:

"I am right now reading a speech by a man called Ben Broadbent, who is on the board of the bank of England and who was at Goldman Sachs and who's written a paper saying that the cause of the crisis had absolutely nothing to do with easy money, i.e., unregulated money; it had everything to do with the fact that interest rates were incredibly low.   

Now when I read that paper, it is so deceptive really, and yet it's packed with charts and data, and some sources, even, of information, he does neglect to give us the source of some of his data, that paper, I am convinced, has been written in Goldman Sachs's research department and he's delivered the speech on behalf of Goldman Sachs and he's on the bank of the Board of England.   

Now, that's not a conspiracy.  It's huge political and economic power.  And those of us who have an alternative view don't have that sort of backing, and don't have those sorts of platforms, and that's very damaging for public discourse."

Much more on the substantive economic issues and debate as the interview continues.

Two Tax Conferences of Note

My good friend John Prebble alerts me to two upcoming conferences of interest, one in the States and the other in Australia.  First, he recently issued a call for papers for the Victoria-Cornell Colloquium on Jurisprudential Perspectives of Taxation Law, which will be held at Cornell on Sept. 24-25 (You might like to work this in if you already planning on going to IFA Boston, to be held Sept. 30-Oct 4).   Prof. Prebble and Brad Wendel are co-convening the colloquium, and they are particularly keen to hear from authors interested in applying either or both coherence theory (such as the writing of Ken Kress) and the work of Ludwig Wittgenstein to the analysis of judicial reasoning in leading tax cases.   Heady stuff!  The conference abstract looks fascinating:

"The colloquium will focus on analytical and normative legal philosophy as applied to income tax law, examining judicial reasoning in income tax cases. Seminars will examine such questions as: do legal philosophers’ expositions of the nature of law adequately explain the nature of income tax law? What light do theories of jurisprudence that have not traditionally examined income tax law shed on this question? What is the relationship between law and morality in the context of income tax? Contributions are welcome on all topics of taxation law. (Discussion will generally not be concerned with broad topics of fiscal policy, or, for instance, on whether governments should use taxes to redistribute wealth.)"

That's an unusual set of questions and I look forward to seeing the papers.  The other conference is to be held in Melbourne on Thursday and Friday July 19-20, 2012, and is entitled Defining, Taxing and Regulating Not-for-Profits in the 21st Century.  This is a very timely topic in the U.S. and, it seems, in a lot of other places too.  Here is the conference abstract:

The aim of the conference is to enable academics and other experts to reflect, from theoretical and comparative perspectives, on the theme of defining, taxing and regulating the not-for-profit sector. The conference coincides with a very active period of not-for-profit law reform in Australia, with the establishment of a new national regulator, the statutory definition of charity and other changes to the taxation and regulation of charities and other not-for-profit entities.

The conference features an international cast of characters and should provide a very welcome addition to the comparative tax literature.  Thank John P for bringing these to my attention!

The Right to Justification

Larry Solum recommends Rainer Forst, The Right to Justification: Elements of a Constructivist Theory of Justice (New Directions in Critical Theory):

Contemporary philosophical pluralism recognizes the inevitability and legitimacy of multiple ethical perspectives and values, making it difficult to isolate the higher-order principles on which to base a theory of justice. Rising up to meet this challenge, Rainer Forst, a leading member of the Frankfurt School's newest generation of philosophers, conceives of an "autonomous" construction of justice founded on what he calls the basic moral right to justification.

Forst begins by identifying this right from the perspective of moral philosophy. Then, through an innovative, detailed critical analysis, he ties together the central components of social and political justice—freedom, democracy, equality, and toleration—and joins them to the right to justification. The resulting theory treats "justificatory power" as the central question of justice, and by adopting this approach, Forst argues, we can discursively work out, or "construct," principles of justice, especially with respect to transnational justice and human rights issues.

As he builds his theory, Forst engages with the work of Anglo-American philosophers such as John Rawls, Ronald Dworkin, and Amartya Sen, and critical theorists such as Jürgen Habermas, Nancy Fraser, and Axel Honneth. Straddling multiple subjects, from politics and law to social protest and philosophical conceptions of practical reason, Forst brilliantly gathers contesting claims around a single, elastic theory of justice.

... Forst's master idea is that people have a right and duty of reciprocal justification in the domain of shared institutions and that testing for the justice of such arrangements means testing for how far they are indeed justifiable. 

This is useful in thinking about the rise of global tax activism, where it is not necessarily clear that what people seek is rule or regime change, but rather an accounting of what the rules and regimes have wrought, and a justification for the status quo and its systemic continuation through the construction of international institutions and epistemic communities.

On the to-read list

2 books to read:

Lea Ypi, Global Justice and Avant-Garde Political Agency:.

Why should states matter and how do relations between fellow-citizens affect what is owed to distant strangers? How, if at all, can demanding egalitarian principles inform political action in the real world? This book proposes a novel solution through the concept of avant-garde political agency. Ypi grounds egalitarian principles on claims arising from conflicts over the distribution of global positional goods, and illustrates the role of avant-garde agents in shaping these conflicts and promoting democratic political transformations in response to them. Against statists, she defends the global scope of equality, and derives remedial cosmopolitan principles from global responsibilities to relieve absolute deprivation. Against cosmopolitans, she shows that associative political relations play an essential role and that blanket condemnation of the state is unnecessary and ill-directed. Advocating an approach to global justice whereby domestic avant-garde agents intervene politically so as to constrain and motivate fellow-citizens to support cosmopolitan transformations, this book offers a fresh and nuanced example of political theory in an activist mode. Setting the contemporary debate on global justice in the context of recent methodological disputes on the relationship between ideal and nonideal theorizing, Ypi's dialectical account illustrates how principles and agency can genuinely interact.

and

Johnathan Schlefer, The Assumptions Economists Make:

Economists make confident assertions in op-ed columns and on cable news—so why are their explanations often at odds with equally confident assertions from other economists? And why are all economic predictions so rarely borne out? Harnessing his frustration with these contradictions, Jonathan Schlefer set out to investigate how economists arrive at their opinions. 

While economists cloak their views in the aura of science, what they actually do is make assumptions about the world, use those assumptions to build imaginary economies (known as models), and from those models generate conclusions. Their models can be useful or dangerous, and it is surprisingly difficult to tell which is which. Schlefer arms us with an understanding of rival assumptions and models reaching back to Adam Smith and forward to cutting-edge theorists today. Although abstract, mathematical thinking characterizes economists’ work, Schlefer reminds us that economists are unavoidably human. They fall prey to fads and enthusiasms and subscribe to ideologies that shape their assumptions, sometimes in problematic ways. 

Schlefer takes up current controversies such as income inequality and the financial crisis, for which he holds economists in large part accountable. Although theorists won international acclaim for creating models that demonstrated the inherent instability of markets, ostensibly practical economists ignored those accepted theories and instead relied on their blind faith in the invisible hand of unregulated enterprise. Schlefer explains how the politics of economics allowed them to do so. The Assumptions Economists Make renders the behavior of economists much more comprehensible, if not less irrational.