- Mitch McConnell’s Middle-Class Tax Hike - David Leonhardt
- The "cackling cartoon villain" defense of DSGE - Noahpinion
- Days of Greed and Desperation - Paul Krugman
- Making Sense of Chaos with the Windy-Boat - Roger E. A. Farmer
- Gender gaps among high-skilled professionals - Microeconomic Insights
- Where Do Consumers Fit in the Fintech Stack? - Lael Brainard
- The politics of death - Stumbling and Mumbling
- The Brexit Revolution and its source of power - mainly macro
- Distributional Consequences of the Tax Cuts and Job Act - Econbrowser
- New Manufacturing Paper: Confusing Trends and Levels - Douglas Campbell
- How a New Inflation Measure Would Raise Taxes on the Middle Class - WSJ
- Does gentrification reduce crime? - VoxEU
- Rip van Winkle on Price Level vs Inflation Targets - Nick Rowe
Friday, November 17, 2017
Kurt G. Lunsford of the Federal Reserve Bank of Cleveland:
Productivity Growth and Real Interest Rates in the Long Run: Despite the unemployment rate's return to low levels, inflation-adjusted or "real" interest rates have remained negative. One popular explanation for persistently negative real interest rates is that long-run productivity growth has slowed. I study the long-run relationship between real interest rates and productivity growth from 1914 to 2016 and find a negative correlation between these two variables. Hence, low productivity growth has been historically associated with high real interest rates. Since World War II, the correlation between these variables has been near zero. This suggests that slow long-run productivity growth is not driving real interest rates to be persistently negative. ...
US Wages: The Short-Term Mystery Resolved: The Great Recession ended more than eight years ago, in June 2009. The US unemployment rate declined slowly after that, but it has now been below 5.0% every month for more than two years, since September 2015. Thus, an ongoing mystery for the US economy is: Why haven't wages started to rise more quickly as the labor market conditions improved? Jay Shambaugh, Ryan Nunn, Patrick Liu, and Greg Nantz provide some factual background to address this question in "Thirteen Facts about Wage Growth," written for the Hamilton Project at the Brookings Institution (September 2017). The second part of the report addresses the question: "How Strong Has Wage Growth Been since the Great Recession?"
For me, one surprising insight from the report is that real wage growth--that is, wage growth adjusted for inflation--has actually not been particularly slow during the most recent upswing. The upper panel of this figure shows real wage growth since the early 1980s. The horizontal lines show the growth of wages after each recession. The real wage growth in the last few years is actually higher. The bottom panel shows nominal wage growth, with inflation included. By that measure, wage growth in recent years is lower than after the last few recessions. Thus, I suspect that one reason behind the perception of slow wage growth is that many people are focused on nominal rather than on real wages.
Government statistics offer a lot of ways of measuring wage growth. The graphs above are wage growth for "real average hourly earnings for production and nonsupervisory workers," which is about 100 million of the 150 million workers.
An alternative and broader approach looks what is called the Employment Cost Index, which is based on a National Compensation Survey of employers. To adjust for inflation, I use the measure of inflation called the Personal Consumption Expenditures price index, which is the inflation just for the personal consumption part of the economy that is presumably most relevant to workers. I also use the version of this index that strips out jumps in energy and food prices. This is the measure of the inflation rate that the Federal Reserve actually focuses on.
Economists using these measures were pointing out a couple of years ago that real wages seemed to be on the rise. The blue line shows the annual change in wages and salaries for all civilian workers, using the ECI, while the redline shows the PCE measure of inflation. The gap between the two is the real gain in wages, which you can see started to emerge in 2015.
Not only has the recovery in US real wages been a bit higher than usual for the last few decades, and especially prominent in the last couple of years, but there is good reason to believe that the wage statistics since the Great Recession may be picking up a change in the composition of the workforce that tends to make wage growth look slower. Shambaugh, Nunn, Liu, and Nantz explain (citations and footnotes omitted):
"In normal times, entrants to full-time employment have lower wages than those exiting, which tends to depress measured wage growth. During the Great Recession this effect diminished substantially when an unusual number of low-wage workers exited full-time employment and few were entering. After the Great Recession ended, the recovering economy began to pull workers back into full-time employment from part-time employment ... and nonemployment, while higher-paid, older workers left the labor force. Wage growth in the middle and later parts of the recovery fell short of the growth experienced by continuously employed workers, reflecting both the retirements of relatively high-wage workers and the reentry of workers with relatively low wages. In 2017 the effect of this shifting composition of employment remains large, at more than 1.5 percentage points. If and when growth in full-time employment slows, we can expect this effect to diminish somewhat, providing a boost to measured wage growth."
The baby boomer generation is hitting retirement and leaving the labor force, as relatively highly-paid workers at the end of their careers. New workers entering the labor force, together with low-skilled workers being drawn back into the labor force, tend to have lower wages and salaries. This makes wage growth look low--but what's happening is in part a shift in types of workers.
One other fact from Shambaugh, Nunn, Liu, and Nantz is that wage growth has been strong at the bottom and the top of the wage distribution, but slower in the middle. This figure splits the wage distribution into five quintiles, and shows the wage growth for production and nonsupervisory workers in each.
Taking these factors together, the "mystery" of why wages haven't recovered more strongly since the end of the Great Recession appears to be resolved. However, a bigger mystery remains. Why have wages and salaries for production and nonsupervisory workers done so poorly not in the last few years, but over the last few decades?
There's a long list of potential reasons: slow productivity growth, rising inequality, dislocations from globalization and new technology, a slowdown in the rate of start-up firms, weakness of unions and collective bargaining, less geographic mobility by workers, and others. These factors have been discussed here before, and will be again, but not today. Shambaugh, Nunn, Liu, and Nantz provide some background figures and discussion of these longer-term factors, too.
Economics gets out more often: Using extramural citations to assess economic scholarship, by Josh Angrist, Pierre Azoulay, Glenn Ellison, Ryan Hill, and Susan Lu: The 2017 Nobel in Memorial Prize Economic Sciences, awarded to University of Chicago’s Richard Thaler, has given behavioural economics well-deserved recognition. Thaler and colleagues are fascinated by differences between economists’ benchmark model of rational decision-making and the seemingly irrational decisions that psychologists hope to explain. Behavioural economists work in the space between these two social sciences. This intersection is a recent development: as Camerer (1999) observed, “[E]conomists routinely – and proudly – use models that are grossly inconsistent with findings from psychology.”
Some hold the opinion that the distance between economics and other social sciences reflects the insularity and hubris of economists. Fourcade et al. (2015) argued that academic economics is characterised by a self-serving sense of superiority that reflects the guild-like structure of our discipline (two of the three authors are sociologists). Thaler’s prize reminds us that economics is the only social science for which there is a Nobel. Many economists claim the ear of kings and princes, and most have plenty of outside opportunities to make a buck. Following the Great Recession, this has prompted external critics of the discipline (and some from within, like Zingales 2013) to ask whether our mission of pure scholarship has been corrupted or devalued.
A lonely island?
Our recent paper looking at 'extramural citations' attempts to gauge the scientific standing of academic economics research (Angrist et al. 2017a). We find that the polemical claims that economics is an insular social science are out of date. Economics pays less attention to other social sciences than do political science and sociology – but Figure 1 shows that, since around 1990, this insularity has declined. Economists are now more likely than psychologists to cite other social science disciplines (left-hand panel).
Measured by citations to non-social-science disciplines, economics looks even less insular. ...
"The only significant winners would be those making more than $1 million a year.":
Everybody Hates the Trump Tax Plan, by Paul Krugman, NY Times: Looking at the reactions to Republican tax plans, I found myself remembering what people used to say about former Senator Phil Gramm...: “Even his friends don’t like him.”...
The general public strongly disapproves — by a 2-1 majority, according to Quinnipiac, although the majority would be even bigger if people really understood what’s going on. But surely at least C.E.O.s like the plan, right?
Actually, not so much. A few days ago Gary Cohn, Donald Trump’s chief economic adviser, met with a group of top executives. They were asked to raise their hands if lower taxes would lead them to raise capital expenditures; only a handful did. “Why aren’t the other hands up?” asked Cohn, plaintively.
The answer is that C.E.O.s ... know that tax rates aren’t that important a factor in investment decisions. ...Most serious economic analyses agree..: Corporate tax cuts wouldn’t actually do much to raise investment. They would, however, explode the budget deficit.
So in an attempt to limit that deficit blowout, Senate Republicans are proposing significant tax increases on working families..., taxes would rise on average for every group with incomes under $75,000 a year... The only significant winners would be those making more than $1 million a year. Populism!
Oh, and this doesn’t even take account of the health care sabotage... By repealing the mandate ... the plan would ... cause 13 million to lose coverage; that loss of coverage, and the associated government subsidies, is why mandate repeal saves money that can be given to corporations. But the move would also drive up premiums... So that’s an additional, hidden indirect tax on the middle class.
Nor does it take account of what would inevitably come next: tax-cut-induced deficits would, by law, trigger cuts in Medicare, and this would just be the start of a G.O.P. assault on programs like disability insurance...
All of which raises the question, why are Republicans even trying to do this? It’s bad policy and bad politics, and the politics will get worse as voters learn more about the facts. Well, last week one G.O.P. congressman, Chris Collins of New York, gave the game away: “My donors are basically saying get it done or don’t ever call me again.”
So we’re talking about government of the people, not by the people, but by wealthy donors, for wealthy donors. Everyone else hates this plan — and they should.
Wednesday, November 15, 2017
- Economics isn't a bogus science — we just don't use it correctly - LA Times
- Can a superintelligence self-regulate and not destroy us? – Digitopoly
- Researchers chart rising inequality across millennia - EurekAlert
- Rethinking Development: Larry Summers - Tim Taylor
- Common Factors, Trends, and Cycles in Large Datasets - Barigozzi and Luciani
- Labor Supply Constraints and Health Problems in Rural America - macroblog
- The Low Volatility Puzzle: Is This Time Different? - Liberty Street Economics
- Four Reasons Janet Yellen Should Stay at the Fed - Narayana Kocherlakota
- Free-Market Failure Has Been Greatly Exaggerated - Noah Smith
- Artificial intelligence and the stability of markets - VoxEU
- Considering the Cost of Lower Taxes - The New York Times
Should We Reject the Natural Rate Hypothesis?, by Olivier Blanchard, PIIE: Fifty years ago, Milton Friedman articulated the natural rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate of unemployment is independent of monetary policy. Second, there is no long-run tradeoff between the deviation of unemployment from the natural rate and inflation. Both propositions have been challenged. Blanchard reviews the arguments and the macro and micro evidence against each and concludes that, in each case, the evidence is suggestive but not conclusive. Policymakers should keep the natural rate hypothesis as their null hypothesis but keep an open mind and put some weight on the alternatives. [paper]
"This isn’t just ordinary class warfare; it’s class warfare aimed at perpetuating inequality into the next generation.":
Republican Class Warfare: The Next Generation, by Paul Krugman: The other day, Mitch McConnell, the Senate majority leader, admitted to The New York Times that he “misspoke” when he declared that his party’s tax plan wouldn’t raise taxes on any middle-class families. But he misspoke when he said “misspoke”: The proper term is “lied.” ...
We’re still waiting for detailed analysis of the Senate bill, but the House bill doesn’t just raise taxes on many middle-class families: It selectively raises taxes on families with children. In fact, half — half! — of families with children will see a tax hike once the bill is fully phased in.
Suppose that a child from a working-class family decides ... to attend college, probably taking out a loan to help pay tuition. Well, guess what: Under the House bill, that interest would no longer be deductible, substantially raising the cost of college.
What if you’re working your way through school and your employer contributes toward your education expenses? The House bill would make that contribution taxable income.
What if your parent is a university employee, and you get reduced tuition as a result? That tuition break becomes taxable income. So would tuition breaks for graduate students who work as teaching or research assistants.
So what we’re looking at here are a variety of measures that will close off opportunities for children who weren’t clever enough to choose wealthy parents.
Meanwhile, funding for the Children’s Health Insurance Program, which covers more than eight million children, expired a month and a half ago — and so far, Republicans have made no serious effort to restore it. This is surely the shape of things to come: If tax cuts pass, and the deficit explodes, the G.O.P. will suddenly decide that deficits matter again and will demand cuts in social programs, many of which benefit lower-income children.
So this isn’t just ordinary class warfare; it’s class warfare aimed at perpetuating inequality into the next generation. Taken together, the elements of both the House and the Senate bills amount to a more or less systematic attempt to lavish benefits on the children of the ultra-wealthy while making it harder for less fortunate young people to achieve upward social mobility.
Or to put it differently, the tax legislation Republicans are trying to ram through Congress with indecent haste, without hearings or time for any kind of serious study, looks an awful lot like an attempt not simply to reinforce plutocracy, but to entrench a hereditary plutocracy.
Tuesday, November 14, 2017
- How to Win the Battle of the Sexes Over Pay - Claudia Goldin
- The Tax Foundation Has Some Explaining To Do - Paul Krugman
- Tax Cuts And The Trade Deficit - Paul Krugman
- The Catalan syndrom - Thomas Piketty
- How to Combat Populist Demagogues - Dani Rodrik
- On free trade and free markets - mainly macro
- Robbing Blue States to Pay Red - Hacker and Pierson
- Abenomics and the Long Legacy of the Consumption Tax Hike - Brad Setser
- A New Study of Economics as a Science Says It's Still Dismal - Wired
- If the tax bill is so great, why does the GOP keep lying? - Washington Post
- Comparing Cost of Living Across Cities and States - Tim Taylor
- Inequality, investment & trickle down - Stumbling and Mumbling
- Auto Lending Keeps Pace as Delinquencies Mount - Liberty Street
- Friedman and How not to Think about the Gold Standard... - Uneasy Money
- Obama-Era Education Regulations Targeted for Reform - Regulatory Review
- Stock Market Valuation and the Macroeconomy - FRBSF
- Choice and Health Insurance Coverage - Tim Taylor
- ‘Metrics Monday: When (Not) to Cluster? - Marc Bellemare
- The Low Volatility Puzzle: Are Investors Complacent? - Liberty Street
- Cash is king, but $100 bills are for crooks - Cecchetti & Schoenholtz
- Assessing the incidence of value-added taxes - VoxEU
- Still Not Grasping the Nettle - Economic Principals
- Tax Reform: A Proposal for the Chancellor - Roger E. A. Farmer
- Europe after World War II - Understanding Society
- The productivity slowdown and labour’s income share - VoxEU
- Facing the Four Structural Threats to US Democracy - Tyson & Mendonca
Monday, November 13, 2017
"A major contributor to low inflation is the health-care services sector":
Despite disruptions from the recent hurricanes, real gross domestic product (GDP) has continued to grow at a moderate pace. After a strong second quarter, real GDP grew at an annual rate of 3% in the third quarter, according to the “advance” estimate by the Bureau of Economic Analysis. We forecast that GDP will grow in the fourth quarter at an annual rate of 2.6% and average 2.5% for 2017. As monetary policy continues to normalize over the next two to three years, we expect growth to gradually fall back to our long-trend growth estimate of 1.5%.
The recent fires in Northern California were the most devastating in the state’s history, causing billions of dollars in property damage, thousands of displaced residents, and tragic loss of life. While the full effect of the fires on the local economy is still being determined, the economic impact on the entire United States is likely to be modest as the affected areas are not sizable business or population centers.
The U.S. economy added 261,000 jobs in October, reflecting not only individuals returning to work who had been kept home by the hurricanes, but also the strong labor market. Job gains have averaged close to 160,000 over the past six months, well above the amount needed to absorb the flow of new workers into the labor force.
The unemployment rate stands at 4.1% as of October. We expect the unemployment rate to decline below 4.0% by the middle of 2018 as the economy continues to strengthen. Monetary policy accommodation will ease over the longer run, and we expect the unemployment rate to gradually return back to our estimate of the natural rate of 4.8%.
The yield curve continues to flatten as short-term rates rise while longer-term rates remain relatively steady. At the November meeting, the Federal Open Market Committee (FOMC) kept the target range for the federal funds rate unchanged at 1 to 1.25% and announced it is proceeding with the balance sheet normalization process initiated in October.
Inflation continues to remain below the FOMC’s target of 2%. The personal consumption expenditures (PCE) price index rose 1.6% over the past 12 months, while the core PCE index, which removes volatile food and energy prices, rose 1.3%. As the labor market continues to tighten, we expect inflation to gradually reach the FOMC’s target of 2% by 2019.
Inflation fluctuates with the overall economy but also in response to factors that are more industry specific. The degree of price sensitivity to overall economic conditions and other factors varies across sectors. Prices in some sectors, such as housing, restaurants, and recreation services and goods, are relatively more sensitive to overall economic conditions, while prices in other sectors, such as health-care, financial, and communications services, are relatively more sensitive to industry-specific factors.
The inflation rate for prices in sectors that tend to be sensitive to the overall state of the economy have moved back up to pre-recession levels, in line with the improvement in economic conditions. By contrast, the inflation rate has fallen for sectors that tend to be more sensitive to industry-specific factors and is currently holding down inflation.
A major contributor to low inflation is the health-care services sector, which currently makes up about one-fifth of core personal consumption expenditures and tends to be relatively insensitive to economy-wide conditions. Health-care services inflation has declined steadily, falling from an average above 3.0% in the mid-2000s to close to 1.0% over the past five years.
The decline in health-care services inflation is mainly attributable to ongoing mandated cuts to Medicare payment growth, which also tend to affect payments in the private health-care market. Medicare payments to hospitals, for example, have been flat for the past five years. Some of the payment growth cuts are permanent, which are likely to cause some continued drag on inflation in the future, despite a strengthening economy.
The views expressed are those of the author, with input from the forecasting staff of the Federal Reserve Bank of San Francisco. They are not intended to represent the views of others within the Bank or within the Federal Reserve System.
Did the Rise of China Help or Harm the US? Let's not forget Basic Macro: This is a question which was posed to me after I presented last week at the Federal Reserve Board in DC. Presenting there was an honor for me, and I got a lot of sharp feedback. It's also getting to the point where I need to start thinking about my upcoming AEA presentation alongside David Autor and Peter Schott, two titans in this field who both deserve a lot of credit for helping to bring careful identification to empirical international trade, and for challenging dogma. After all, before 2011, as far as I know the cause of the "Surprisingly Swift" decline in US manufacturing employment had not been written about in any academic papers. This was despite the fact that the collapse was mostly complete by 2004, and was intuitive to many since it coincided with a large structural trade deficit. (Try to explain that one with your productivity boom and slow demand growth, Robert Lawrence...)
On one hand, there is now mounting evidence that the rise of Chinese manufacturing harmed US sectors which compete with China. This probably also hurt some individual communities and people pretty badly, and might also have triggered an out-migration in those communities. On the other hand, typically the Fed offsets a shock to one set of industries with lower interest rates helping others, while consumers everywhere have benefited from cheaper Chinese goods. Which of these is larger? I can't say I'm sure, but of these shocks mentioned so far, I would probably give a slight edge to the benefit of lower prices and varieties. However, I suspect, even more importantly, Chinese firms have also been innovating, more than they would have absent trade, which means the dynamic gains in the long-run have the potential to be larger than any of these static gains/losses you might try to estimate courageously with a model.
Many (free!) trade economists use the above logic (perhaps minus the dynamic part), and conclude that no policies are needed to help US manufacturing right now. However, I think this view misses 4 other inter-related points, and in addition does not sound to me like a winning policy strategy for the Democrats in 2020. And a losing strategy here means more Trumpian protectionism.
Friday, November 10, 2017
"The end result of this tax bill would be to leave most working Americans, even those who wouldn’t face direct tax increases, worse off, all for the benefit of a tiny minority":
Trump and Ryan Versus the Little People, by Paul Krugman, NY Times: According to news reports, Donald Trump wanted the House Republican tax “reform” bill to be called the Cut Cut Cut Act. Alas, he didn’t get his wish, and it was instead given a boring name nobody can remember. But there’s still time to change it! So let me propose, as one reader suggested, that it be renamed the Leona Helmsley Act, after the New York hotelier convicted of tax evasion, who famously declared that “only the little people pay taxes.”
That, after all, is the main thrust of the bill. It hugely favors the wealthy over the middle class, which is pretty much always true of Republican proposals. But it’s not just about favoring high incomes: It also systematically favors people who live off their assets, especially inherited wealth, over the little people — that is, poor shlubs who actually have to work for a living. ...
So when Gary Cohn, Trump’s top economic adviser, says that the bill’s goal is “to deliver middle-class tax cuts to the hard-working families in this country,” he’s claiming that up is down and black is white. This bill does little or nothing for the middle class, and even among the affluent it’s biased against those who work hard in favor of the idle rich.
Also let’s not forget that tax increases on working Americans are only part of the story. This bill would also, according to the Congressional Budget Office, add $1.7 trillion to the national debt over the next decade. You know what that means: If this bill or anything like it passes, Republicans will immediately revert to their previous pretense of being deficit hawks and start demanding spending cuts.
And since federal spending is dominated by programs — Social Security, Medicare and Medicaid — that benefit the middle and working classes, the end result of this tax bill would be to leave most working Americans, even those who wouldn’t face direct tax increases, worse off, all for the benefit of a tiny minority, especially those who haven’t even worked for their wealth.
You might wonder how Republicans imagine that they can get away with this. But anyone who has paid attention to U.S. politics knows the answer. First, they will lie, unashamedly, about what their bill actually does. Second, they will try to distract working-class voters by stoking racial animosity. That didn’t work too well in Tuesday’s elections, but they’ll keep on trying.
- What really caused the financial crisis - mainly macro
- Leprechaun Economics and Neo-Lafferism - Paul Krugman
- Leprechaun Economics, With Numbers - Paul Krugman
- The Darker Side of Peer-to-Peer Lending - Tim Taylor
- Central Banks in the Dock - Barry Eichengreen
- Policy Implications of Sustained Low Productivity Growth - PIIE
- Where star scientists choose to locate - Microeconomic Insights
- Revisiting Harvard and the American Dream - Larry Summers
- Defining Crowding Out in an Open Economy - Econbrowser
- New machines for The Old Lady - Bank Underground
- A long-term investment in education - American Economic Association
- A localist approach to Chinese politics - Understanding Society
- The Macroeconomy in Ongoing Transition: Mervyn King - Tim Taylor
- How to measure the global business cycle - VoxEU
- Inequality and property in Russia, 1905-2016 - VoxEU
- Animal Sacrifice - American Economic Association
Wednesday, November 08, 2017
Trade Policy and the Macroeconomy, by Barry Eichengreen, IMF: It’s an honor and privilege to have been asked to deliver the Mundell-Fleming Lecture. It’s also a bit intimidating. I won’t read off the entire list of luminaries who have given this lecture. But they include our master of ceremonies and my Berkeley colleague Maury Obstfeld. They include Stanley Fischer, my boss when I worked at the IMF. And they include my oldest and closest childhood friend from the age of three. (If you don’t know who that is, you get to guess.)
My topic today is trade policy and the macroeconomy. I chose this as my topic for several reasons.
The first is, of course, Donald Trump. President Trump has controversially argued that tariffs are good for economic growth. This makes now an important time to reconsider the question.
A second reason is: Paul Ryan, or more precisely the idea of a border-adjustment tax...
Third, the framework most widely used to analyze these issues is, appropriately for this venue, the Mundell-Fleming model. ...
Fourth, the literature on this subject is importantly informed by research here at the IMF. ...
Fifth, these are issues on which historical evidence has been used to shed light. ...
Sixth and finally (perhaps I should say “sixth and self-indulgently”), this is where I came in. My Ph.D. dissertation was on the macroeconomic effects of trade restrictions...
My remarks are in three parts. First, I will consider the evidence on tariffs and growth from an historical vantage point. Next I will review what we know about trade policy and macroeconomic fluctuations. Although the first part is about growth and the second part is about fluctuations, similar issues arise in the two contexts. In concluding, I will then return to the current policy debate.
I will argue that both theory and empirics in this area have ambiguous implications. Even more than other areas of economics perhaps, conclusions are sensitive to assumptions. Theoretical results are fragile, and empirical findings are context specific. Given this uncertainty, I will argue that the best guideline for practitioners tempted to deploy trade policy for macroeconomic purposes remains Hippocrates’ dictum, “first, do no harm.” ...continue... [conference papers]
- Why the U.S. Needs a Federal Jobs Program, Not Payouts - Robert Rubin
- Understanding Permanent and Temporary Income Shocks - Liberty Street
- Price-level targeting as an automatic stabiliser for inflation - Nick Rowe
- Can We Tax Social Security Benefits More Efficiently? - FRB Richmond
- A Range of International Poverty Lines - Tim Taylor
That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that center-left politicians—Democrats in the United States, Socialists and Social Democrats in Europe—enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatization, financial liberalization, and individual enterprise? Much of our contemporary policy discussion remains infused with norms and principles supposedly grounded in homo economicus.But the looseness of the term neoliberalism also means that criticism of it often misses the mark. There is nothing wrong with markets, private entrepreneurship, or incentives—when deployed appropriately. Their creative use lies behind the most significant economic achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of neoliberalism’s useful ideas.The real trouble is that mainstream economics shades too easily into ideology, constraining the choices that we appear to have and providing cookie-cutter solutions. A proper understanding of the economics that lies behind neoliberalism would allow us to identify—and to reject—ideology when it masquerades as economic science. Most importantly it would help us develop the institutional imagination we badly need to redesign capitalism for the twenty-first century.
For the full piece, go here.
Tuesday, November 07, 2017
- Trade, Technology, and Job Disruption - Tim Taylor
- The Wykehamist fallacy - Stumbling and Mumbling
- The Moral Identity of Homo Economicus - Ricardo Hausmann
- The Perennial Problem of Predicting Potential - John Williams
- Brexit interest rate increases and misunderstanding inflation - mainly macro
- The Soviet economy, 1917-1991: Its life and afterlife - VoxEU
- The long-term consequences of short-term incentives - VoxEU
- Stumbling Blocks Between Tax Cuts and Economic Growth - Andrew Samwick
"And the cynic would be right":
Trump, Gillespie and the Same Old Party, by Paul Krugman, NY Times: Since last year’s presidential election a number of establishment Republicans have very publicly wrung their hands over what has happened to their party. ...
But how different is Trump, really? ...
What, after all, does the modern ... Republican Party stand for? A cynic might say that it has basically served the interests of the economic elite while winning votes from the white working class with racial dog whistles. And the cynic would be right.
And if that’s what modern Republicanism is really about, how much has changed in the era of Trump? Consider two current news stories: the House Republican tax plan and the campaign that Ed Gillespie, a consummate Republican insider, has been running for governor of Virginia.
On the tax plan...
True, the plan contains a few initial tax breaks for middle-income families, but these erode or disappear over time. According to the nonpartisan Joint Committee on Taxation, by the time the law would be fully phased in, there would be huge income gains for millionaires — even bigger if you take repeal of the estate tax into account — with minimal benefits for a great majority of the population. In fact, tens of millions of middle- and lower-income families would end up facing tax increases, which is pretty amazing for a bill that would add $1.5 trillion to the deficit. ...
In short, Trumpist tax policy is as elitist if not more elitist and anti-populist than the policies of previous Republican administrations. Same old, same old.
But what about Trump’s more or less naked white nationalism? Isn’t that a departure? Well, how different is it from Ronald Reagan’s talk about welfare queens driving Cadillacs, or the elder Bush’s Willie Horton ad? And in any case, we don’t have to argue about the past: Just look at how Ed Gillespie has campaigned in Virginia over the past few months. ... As The Washington Post put it, “His campaign’s thrust has not been just a dog whistle to the intolerant, racially resentful parts of the Republican base; it’s been a mating call.”
So has Gillespie faced strong criticism from establishment Republicans for waging such a gutter campaign? No...
Oh, and if you’re in Virginia, reading this, and haven’t yet voted, please do. This is a hugely consequential election, and it will be a shame — indeed, a tragedy — if its outcome is determined by people who couldn’t be bothered to get to the polls.
Monday, November 06, 2017
Fed Will Keep the Rate Hikes Coming, by Tim Duy: Lots of news from last week, most of which supported the Fed’s current anticipated rate path of one 25bp hike in December followed by three more in 2018. The only potential obstacle on that path is the persistent weakness of inflation. But the ongoing decline in the unemployment rate, along with the promise of further declines in the months ahead, will dominate lingering concerns at the Fed regarding the inflation numbers. ...Continued as newsletter...
- Macroeconomics: Religion or Science? - Roger Farmer
- Has Trump Captured the Fed? - Joseph E. Stiglitz
- America’s great decoupling - Lane Kenworthy
- The journalist as amateur scientist - mainly macro
- Global real interest rates since 1311 - Bank Underground
- Disagreement and monetary policy - VoxEU
- Three (almost) inexplicable parts of the Republican tax plan - Larry Summers
- Ancestry and Development: the Power Pose of Economics? - Douglas Campbell
- Why So Many People Choose the Wrong Health Plans - Richard Thaler
- The Wall Street Journal at War with Itself - Economic Principals
- Banking the Unbanked: The Indian Revolution - Cecchetti & Schoenholtz
- Does China’s new policy regime threaten the global upswing? - Gavyn Davies
- The Dark Side of Discrimination in the Economics Profession - INET
- A Note on Variance Decomposition with Local Projections - NBER
- Regression on Term Structures - No Hesitations
- Powell/Yellen - Stephen Williamson
- How to defend capitalism - Stumbling and Mumbling
- Labour coercion and outside options - VoxEU
- Capital flows vs Kapital flows - Nick Rowe
- How to Improve the Trump Tax Plan - Greg Mankiw