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Sovereign Debt


Williams College economist, Kenneth Kuttner, has co-authored a timely article at Econofact. It decimates the proponents of Modern Monetary Theory (MMT) including Representative Alexandria Ocasio Cortez (D-NY) and Senator Bernie Sanders (I-VT).

MMT is popular among socialists because it asserts that a country cannot default on its debts as long as it is controlling its own currency and limits its borrowing to its own currency. It implies we can safely reduce unemployment by printing more money. This approach is obviously appealing to socialists because it means they can ignore other tools for reducing unemployment like cutting the size of the government, reducing regulations, reducing the minimum wage or implementing tariffs which benefit U.S. workers. Kuttner and his co-author, Michael Klein, summarize their findings:

However, contrary to MMT doctrine, there are very real constraints on the government’s use of deficit spending. First, using sustained monetization (“printing money”) to finance deficits, a core principle of MMT, invariably creates inflation. Second, the reliance on tax hikes or spending cuts to quell inflation is highly unrealistic, given politicians’ extreme aversion to fiscal austerity, not to mention the lags inherent in the budgeting process. And third, MMT ignores the fact, that above a certain level, deficit spending will contribute to an ever-rising ratio of debt to GDP, whose costs will eventually be borne by future generations.

In the scatterplot above, they demonstrate the positive relationship between the inflation rate and the difference between the growth rate of the monetary base and the rate of growth of GDP for the U.S.

Kenneth Kuttner is a Professor of Economics at Williams College. His areas of expertise include macroeconomics, monetary policy, macroprudential policy, and the Japanese economy. Michael Klein is as Professor of International Economic Affairs at Tufts University. His research interests include world capital markets, exchange rate management, and foreign direct investment.


Texas governor launches drive for “$10,000 bachelor’s degree”

Rick Perry, the governor of Texas, is pushing for lower-cost higher education in the Lone Star State:

Perry was inspired by comments that Bill Gates, co-founder of Microsoft Corp. and co-chairman of the Bill & Melinda Gates Foundation, made at a conference in California, said Catherine Frazier , a spokeswoman. A video posted on YouTube captured some of Gates’ remarks.

“College, except for the parties, needs to be less place-based,” he said. Web-based instruction and other technology could drive the price down to $2,000 a year, he said.

Perry wrote to university regents last week , urging them to develop $10,000 degree programs and to scale up those programs so at least 10 percent of the sheepskins awarded by their schools are based on this approach. He said programs could include online classes, classes at no-frills campuses, credit for prior learning, credit for Advanced Placement classes in high school and other elements.

“I don’t know whether the $10,000 figure is practical reality or not,” said Raymund Paredes, the state’s higher education commissioner. “I interpret the governor’s remarks as a call to be creative and find solutions to the spiraling costs of higher education.”

Three community colleges — Midland College, Brazosport College in Lake Jackson and South Texas College in McAllen — offer a bachelor’s in applied technology and come closest to Perry’s goal, with tuition and fees for four years ranging from $9,168 to $10,440 and books adding anywhere from $3,000 to $5,000, school officials say.

Is $10,000 a realistic price for a bachelor’s degree? Getting there would surely require substituting technology for human and physical capital, perhaps to a degree far beyond what we’d be willing to recognize as “higher education.” On the other hand, with the diminishing capabilities of high school graduates and lowered standards in college programs, perhaps we already have a portion of higher-ed that’s not recognizable as such.

But I think the $10,000 number is not so much a fixed target as a symbol of a growing interest in disruptive change, rather than incremental reform, in publicly-supported higher education. Alongside the existing state and federal budget crises, that’s likely to bring extraordinary cost-containment pressures to many campuses. I hope dcat isn’t counting on a raise! (And he’s not the only one — there are literally dozens of Ephs on the faculty of the various Texas public universities).

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Eph Art Mafia: Glenn Lowry ’76 on What to See in 2011 and more

In conjunction with its annual publication of a yearbook-mag, The Economist sponsored a series of speakers and panels  two weeks ago in New York as part of its “World in 2011 Festival.” MoMA Director Glenn Lowry ’76 (who was taken down three notches in this year’s Art Review Power 100, Art Review Power 100 , dropping to #5) spoke about “Painting the Picture for Next Year” and identified his top four biennials for 2011:

First, in March, is the tenth edition of the Sharjah Biennial, in the UAE ( The region will orchestrate a crescendo of culture in the coming years, as ambitious new museums open in Abu Dhabi.

The Venice Biennale ( runs between June and November. This is the grandest and most global of the bunch. This year, for the first time in since its beginning in 1895, it will be curated by a woman, Bice Curiger.

The 12th Istanbul Biennial  ( kicks off in September. With Turkey placed strategically between east and west, and on the front line between Islamic and Western cultures, this may well be the most politically edgy of the four. According to Mr Lowry, the country’s cultural scene is fizzing.

Lastly, also in September-November, there’s the 8th Mercosul Biennial (, in Porto Alegre, Brazil. Its speciality is a focus on Latin America.

In another panel sponsored by the Economist, Alex Pollock ’65 of the American Enterprise Institute weighed in on “Finance in 2011,” suggesting that you might want to save your money rather than rush to all four of those events by emphasizing that he remains bearish on the world economy:

Pollock believes there will still be struggle with debt overhang and the recession is playing out with political reaction, it is a “bull market of democracy.”  Pollock predicts there will be a triple bubble in the United States and a quadruple bubble internationally, the bubbles being that of 1-housing, 2-commercial real estate, 3-EU sovereign debt and 4-confidence in central banks.

But back to Lowry, who also gave a lengthy interview in conjunction with his appearance to Harvard’s Rahim Kanani. It’s a good recap of much of the discussion this year about MoMA, especially the topics of performance and interactivity that were highlighted in this year’s exhibition by Marina Abramovic. Lowry also shared these thoughts on his education:

Rahim Kanani: Having focused your graduate studies on Islamic art many years ago at Harvard, how has that study inspired your work at MoMa and how does it feed into the experience of the museum itself?

Glenn Lowry: One of the great things about being trained as an art historian is that you learn to process knowledge and information and how to ask questions and think through possible answers.  And if you are lucky enough to study a field outside your own culture it inevitably makes you very sensitive to the complexity and diversity of artistic practices around the world.  And I hope that has made me especially open to, and interested in, the range of what’s happening now, in terms of contemporary art from Cairo, Damascus, Istanbul, and Paris to Berlin, London, New York, Los Angeles, and Sal Paulo and well beyond that to Australia and Africa and China. Every culture has something to offer if you are willing to look closely and with fresh eyes. This doesn’t mean that everything is of the same importance, but it makes you think hard about how you engage those many voices in a larger conversation about what is happening in modern and contemporary art.

That’s a good summary of how multiculturalism should work: “Every culture has something to offer,” but not “everything is of the same importance.”


The Economic Crisis

US Progressivism And The Obama Presidency

One project of contemporary historians serves our understanding of both past and present rather well—an examination of the content and uses of memory in modern societies. Were a distinguished scholar like Pierre Nora to attempt an American version of his very substantial work on France, Les Lieux de Memoire, he would have to deal with several major difficulties. As time moves on, historical memories in the United States are increasingly fragmented. They are strongest where local, or the property of specific groups seeking to legitimize claims to attention, reparation, reward.  They are weakest, or in any event most contested, when they portray our common past. One of the more disconcerting experiences  of many university teachers in the social sciences  is to learn that large numbers of students do not have very clear notions of what grand-parents or great-grandparents or antecedent generations experienced.. Their ignorance or lack of clarity is especially pronounced when they are beneficiaries of upward mobility over several generations—as if their families’ struggles against deprivation, poverty or limited income and wealth were embarrasments  or encumbrances, to be kept at a distance..

Moreover, some segments of the secondary school sector excepted, there is a considerable discrepancy between what our academic historians publish and what finds its way into school texts. To some degree, this is the result of ideological policing by vigilantes. One major consequence of this entire complex of causes is acute discontinuity in political memory.. In particular, the groups once bearers of an inter-generational progressive consciousness float, increasingly, in historical space: they lack the intellectual means to locate themselves in American society as it has changed over recent generations. They are prey, therefore, to the serial deformations and untruths propagated systematically by the antagonists of the progressive tradition—and lack the inner  resources to draw upon the alternative world views which are still available in our nation, but which often are stored or confined in places difficult of access.     .

I designate as progressivism the US equivalent of European social democracy. I do so for historical reasons. The term emerged at the beginning of the last century to express the self identification of leaders, movements, thinkers who sought to substitute for the brutality of American industrial capitalism a considerable amount of regulation, and the provision of public goods. Progressivism drew upon Social Catholicism and Social Protestantism, upon large borrowings from European socialist ideas, brought to the US by immigrants, upon American traditions of social reform going back to the Abolitionist movement, upon even older residues of American politics having to do with local self-governance and extreme distrust of economic and political elites. The term progressive reminds us of the self-identification of the United States as a vanguard nation, engaged in the unfinished task of enlarging the autonomy of its citizens. Progressivism joined in a coalition, not without its internal contradictions, Christians and secularists, farmers and workers, older Americans and newer immigrants, often led by what the historian Richard Hofstadter termed “men of the Word,” the educated, distrustful of the culture and power of money.

The political history of the twentieth century, and indeed of the first decade of the present one, is the story of the life, and at times near death, of these ideas and their transformation under Presidents Theodore Roosevelt, Woodrow Wilson, Franklin Roosevelt, Harry Truman, John Kennedy and Lyndon Johnson. Projects as diverse as the first Roosevelt’s  New Nationalism, Wilson’s New Freedom, the second Roosevelt’s New Deal, Truman’s Fair Deal, Kennedy’s New Frontier, and Johnson’s  Great Society drew upon progressivism for moral continuity. Carter’s and Clinton’s Democratic Presidencies are understandable as  compromises with the considerable resistance the tradition of progressive reform engendered—especially when its beneficiaries had acquired, thanks to the reforms, the sense of having become shareholders in the established order. Read more


Episodes of alumni concern

From a note originally sent by Prof. Birnbaum to DK, republished here with permission – Ronit

Dear David,

Re the matter of Mr. Moore, I note that the discussion has ebbed somewhat—although of course it is entirely understandable that alumni and parents and friends would be distressed by the news. In my own contacts with persons from higher education, no one has mentioned it—perhaps because everyone is too concerned with difficulties at their home institutions. I ran into the Georgetown Law Dean of Admissions the other day, but he did not inform me that he was subjecting Williams applications to special scrutiny.

In brief, the world goes on……

Of course, there are any number of memories evoked by alumni interest. I recollect a period at a sister institution, when alumni and trustees were convinced that faculty were taking liberties with academic freedom. Amherst’s President at the time, a former faculty member and fine Americanist, Bill Ward, invited some faculty and some alumni and trustees to dinner. The discussion proceeded on familiar lines, until a Trustee said that he thought that the President “ought to run a tight ship.” A faculty member thereupon identified himself as a navy reserve officer, declared that a liberal arts college had to be distinguished from an aircraft carrier, and noted that in any event under the theory and practise of combat command in effect in the Navy, a good deal of decentralization and independent initiative by officers, petty officers and ratings was called for. Bill held no more such dinners that year…..

As for Williams itself, historians could produce any number of episodes of alumni concern. Sometime in early modern history, before internet, a somewhat overwrought young lady attending Williams wrote an article for the monthly Commentary. She objected to unisex dorms, and to feminist ideas in the classroom, since (she explained) she was from an Orthodox Jewish family and offended by these things. No doubt, but she did know about these aspects of Williams life before coming and could have enjoyed the relative tranquillity of the women’s college of Yeshiva (academically excellent, too.) The article attracted the attention of a Washington journalist named John Leo and he wrote a column on ideological oppression at the liberal arts colleges, with Williams in the dock. The fact that Leo did not trouble to visit the campus, or to make any other effort to inform himself of the situation, seemed not to bother any number of alumni who promptly wrote to the Alumni Review—their worst fears having found confirmation…..

In my own time, I was once shown (1946, I think) a letter from an eminent alumnus to President James Phinney Baxter of revered memory. He said that he and others were profoundly worried. Younger graduates were coming to their investment firms apparently convinced that Sir John Maynard Keynes was right about the economic cycle. The US was then about to enter, despite all fears of post-war depression, one of the most sustained and broadest periods of economic growth in our history—not least due to the Keynesianism of the economists advising the government. Given present arguments, one can only say, plus ça change……

Very best regards and thanks for posting my efforts,
and thanks as well to those who took the trouble to comment,


RIP, Lobster Dinner

Banned from WilliamsOne of the most anticipated days of the year at Williams is the annual harvest dinner, where they served, among other things, lobster. This seems to have come to an end. A comment left by an ’09 on Speak Up led me to WSO:

Show Me The Lobster

…tomorrow night, harvest dinner.

Whatever happened to tradition? To honor?! To liberty?!?!?!

A look at the Dining Services website confirms it. Lobster is off the menu:

Locally produced cheddar cheese and crackers
Green River fresh apple cider
Pickled vegetables from Peace Valley Farm
Peace Valley greens with balsamic vinegar
New Englad clam chowder
Peace Valley green bean salad
Mystic haddock fresh baked with lemon garnishing
Hudson Valley chicken
Sea Vegetable Stew made from Peace Valley and local farm crops
Fresh and locally grown corn on the cob
Peace Valley harvested fingerling potatoes
Williams College freshly baked rolls
Williams Bake Shop fresh apple crisp made with Apple Barn apples
Williams College homemade vanilla Gelato

Now, I have never really cared for lobster, considering it an icky bottom dwelling sea bug. But non-lobster eaters such as myself always had the option of a strip steak instead, which left more lobster for our lobster eating brethren. However, the steak has also disappeared from the menu. The only proteins on there seem to be chicken and baked haddock. Baked haddock?! You might as well cancel Harvest Dinner altogether at this point.

This is the most serious casualty of the cost-cutting, by far.

UPDATE: Hey Dining Services – lobster’s a bargain right now. Prices are down by almost 50% from two years ago.

(thanks to hwc for the image. Original here.)


Crisis at Reed

Thanks to JeffZ and Parent ’12 for pointing out this article in the NYT:

The admissions team at Reed College, known for its free-spirited students, learned in March that the prospective freshman class it had so carefully composed after weeks of reviewing essays, scores and recommendations was unworkable.

Money was the problem. Too many of the students needed financial aid, and the college did not have enough. So the director of financial aid gave the team another task: drop more than 100 needy students before sending out acceptances, and substitute those who could pay full freight.

The whole idea of excluding a student simply because of money clashed with the college’s ideals, Leslie Limper, the aid director, acknowledged. “None of us are very happy,” she said, adding that Reed did not strike anyone from its list last year and that never before had it needed to weed out so many worthy students. “Sometimes I wonder why I’m still doing this.”

This sparked some discussion on the Speak Up! page, which has been moved to the comments below – hwc and Larry George both wonder whether families are considerng the financial health of colleges before making a decision about enrolling.

Personally, I believe that Reed due to its extremely high academic reputation is going to come out of this in much better shape than some lower-tier colleges, which will be forced to shut their doors permanently.


Obama “can’t be Erin Burnett.”

Seeing the quote in the title was just so funny that I had to share it with our dedicated Erin Burnett ’98 fans as well as the rest of the EphBlog community that isn’t David.  This article asked a bunch of talking heads/pundits/people who like to talk/commentators about the President’s communication of economic woes and plans and what’s going on with the current crisis.  What should he say himself?  Who should the surrogates be?  There are some notably bad surrogates (the markets didn’t like Geithner for awhile, Summers is like watching really boring paint dry).  But at least now we know what Mark Shields thinks:

“The president has a lot bigger agenda than responding to why industrials were down or tech stocks were up,” syndicated columnist and PBS NewsHour commentator Mark Shields recently told The Observer.  “He can’t be Erin Burnett, explaining every twist and turn in the markets. But given the gravity of the situation and the lack of alternatives, in too many instances, that has become what the [P]resident has had to do.”

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Applications Drop 20% at Williams

From Bloomberg:

March 9 (Bloomberg) — Applications dropped at seven of the top eight liberal-arts colleges in the U.S., led by a 20 percent plunge at Williams College in Massachusetts.


Swarthmore College in Pennsylvania, ranked third-best among liberal-arts institutions by U.S. News and World Report, drew 10 percent fewer applicants than last year, and there was a 12 percent drop at fifth-ranked Middlebury College in Vermont. Amherst College in Massachusetts said applications fell 1 percent for the next school year. Amherst and Williams are tied for first in the ratings.

Applications also fell at Carleton College in Minnesota, Bowdoin College in Maine, and Pomona College in California. Only Wellesley College in Massachusetts reported an increase among the top eight liberal arts schools ranked by U.S. News. Wellesley said applications rose 2 percent, to about 4,200.

Applications at all eight Ivy League universities in the Northeast U.S. increased. Harvard College received about 29,000, a 5.6 percent gain from a year earlier, while Yale University in New Haven, Connecticut, got 26,000, 14 percent more. The increase at the University of Pennsylvania in Philadelphia was just four applicants.

The Massachusetts Institute of Technology in Cambridge, Stanford University in California and Duke University in Durham, North Carolina, also attracted more applicants.


Feeling Squeezed

Families that once could afford private college are feeling squeezed during the economic meltdown, as many don’t qualify for financial-aid packages. While Yale provides aid for families earning as much as $200,000 a year, more than three times the median income in the U.S., the limit for aid eligibility is often lower at other schools.

The small liberal-arts colleges, like the larger Ivy League institutions, have enhanced financial aid in recent years. Williams eliminated loans in November 2007, instead giving students more grants.

Williams received 6,024 applications. Last year, applications at the school increased 17 percent to a record 7,552.

“Certainly the economy has to have an effect,” said Richard Nesbitt, director of admissions at Williams. “Some of these kids might have applied to 14 schools last year. Instead of 14, they’re applying to 10 now and maybe the last four are lower- cost public institutions.”

‘Extraordinary’ Applicants

Perhaps the “bigger-name research universities are being kept on the list” and smaller liberal-arts colleges are being dropped, Nesbitt said. Williams continues to attract “extraordinary” applicants, he said.

“We still have the third-highest number we’ve had in the history of the college,” Nesbitt said. “It’s not like were suffering for lack of quality.”

Perhaps now we can finally recognize that demand for a $180,000 college education is not immune to economic reality. The reality of falling demand should be kept in mind when discussing ways for Williams to address its own fiscal crisis (hint: raising effective prices / cutting discounts in this environment is a terrible idea).

We, of course, predicted this, more or less, in December.


How to stimulate the economy on $8 a week

The WSJ recently asked a bunch of economists, including Kenneth Kuttner of Williams College, how they would go about spending their new stimulative tax cut in order to have the greatest multiplier effect on the economy. A few of the better responses are below:

Tyler Cowen, George Mason University: In my view, fixing the banking sector is more important than getting the stimulus right. So if you can afford to lose the money, go to a large bank (more likely to be insolvent), find their most overpriced service, and buy as much of it as you can. That way you are doing your part to recapitalize our banking system.

If you’re stuck for ideas, just keep on using ATM machines, owned by other banks, so you can pay large fees to take out small sums of money from your checking account. When you need to, take all of your withdrawals and deposit them back in the account once again and start all over with the process.

Justin Wolfers, The Wharton School: Find a cash-strapped soup kitchen. If they are looking at having to make cutbacks, then your $8 donation really will yield $8 worth of extra soup purchases. A good Keynesian will point out that this $8 in extra spending will enter the circular flow, creating the much-needed economic stimulus. (By contrast, university giving may simply prop up a sagging endowment.) But more importantly, the $8 you spend helping the hungry really can have a big bang-for-the-buck at a time when food spending is plummeting and unemployment rising.

Doug Cliggott, Dover Investment Management: You should invest it, not consume with it. Preferably a venture capital investment that will have a significant multiplier effect. This is why tax cuts are the worst type of stimulus. They are usually consumed or invested in a secondary market with little or no multiplier.

Greg Mankiw, Harvard: How about buying a good economics textbook?

Ken Kuttner, Williams College: $416 [a year’s-worth of $8 paycheck boosts] might be just enough to replace a leaky skylight window in our house. That would be a pretty good choice for stimulating the economy: it’s a non-tradable durable good produced in an industry which, I would guess, is flat on its back at this point. Not that there’s anything wrong with tradable goods, mind you…

Robert Shiller, Yale University: I suggest using it to give an extra-generous tip to taxi drivers. They talk to lots of people, especially active business-oriented people, and they will be feeling more upbeat, sensing that some people are feeling flush, and they will communicate this feeling to numerous people, thereby helping restore confidence. If you don’t take taxis, give it to your barber or hairdresser. They talk to a lot of people too. This will also help people feel that Americans care about each other, not just about rich people.

Personally, I like the way Robert Shiller is thinking – along those lines, I would suggest spending all of it in the informal sector of the economy – using cash rather than plastic, to pay people like taxi drivers, waiters, and street food vendors. Since cash payments are far less likely to be taxed or saved, I would suspect that $8 in paper currency spent is a good deal more stimulative than an equivalent debit card transaction.

Share your suggestions in the comments.


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