- Revisiting the paradox of capital - Boz, Cubeddu, Obstfeld
- Trade, Trade Deficits, Secular Stagnation... - Jared Bernstein
- ‘Superstar Firms’ May Have Shrunk Workers’ Share of Income - NYTimes
- Does Regulation Build Trust or Entrench Cliques? - ProMarket
- Those Rising German Trade Surpluses - Tim Taylor
- The January U.S. Trade Data - Brad Setser
Thursday, March 09, 2017
Wednesday, March 08, 2017
Employment Report Ahead, by Tim Duy: Arguably, the Fed took the mystery out of this next FOMC meeting by fairly clearly signaling a rate hike is coming. What could hold them back at this point? Only a complete disaster of an employment report. And today's ADP number suggests that's very, very unlikely. Indeed, if the ADP number translates into a blowout employment report, the Fed probably didn't need to signal as aggressively as they did about this next meeting. The data would have brought market expectations to the same place.
Calculated Risk provides a preview of the February employment report, concluding that he will take the "over" on the current forecast of a 195k gain in nonfarm payrolls within a range of 162k to 220k. I concur. Feeding recent data into my quick and dirty forecasting model suggests a gain of 273k for the month:
That said, I would not put too much emphasis on the point forecast itself. The change in payrolls is notoriously difficult to forecast. Almost a fool's game. That said, I do read this as a signal that there is substantial upside risk to the consensus forecast.
As important, if not more, is the unemployment rate and wage growth. A large gain in payrolls suggests a drop in the unemployment rate unless labor force responds positively. The Fed expects that as the recovery progresses, growth in the labor force will slow as demographic effects dominate cyclical effects. If this happens before job growth slows, the unemployment rate will decrease sharply and the Fed will undershoot the natural rate of unemployment. Faster wage growth would help confirm such an undershoot.
Bottom Line: A surge in hiring coupled with a decline in unemployment would be a red flag for the Fed. If that happens, expect the Fed to be more aggressive this year. It will give them more reason to front load rate hikes, and, if repeated in the next employment report, would open up the possibility of a May hike. Monetary policy is not on a preset course, and gradualism is not a promise, only an expectation.
A Foreword to Kari Polanyi Levitt: I was recently asked to write a foreword to the Mexican edition of Kari Polanyi Levitt’s From the Great Transformation to the Great Financialization. Kari is Karl Polanyi's daughter, and the essays in her book -- part memoir, part intellectual history, part analysis of the global economy -- provide a wonderful Polanyi-esque perspective on our day. I happily accepted, and my Foreword is below.
I first encountered Karl Polanyi as an undergraduate, in a course on comparative politics. “The Great Transformation” was on the course syllabus, sitting somewhat awkwardly amidst more standard political science fare. The assigned reading, on the Speenhamland system and the reform of the Poor Laws in Britain made little impression on me at first. But over the years, I found myself coming back to the central arguments of the book: the embeddedness of a market economy in a broader set of social arrangements, the rejection of an autonomous economic sphere, the folly of treating markets as self-stabilizing. ...
- Profits and Productivity - Dietrich Vollrath
- The Teaching of Economics - Rajiv Sethi
- Science Is Elitist for a Reason - Justin Fox
- When the Fed Meets, We Need to Know - Narayana Kocherlakota
- Trump Budget Reflects Working-Class Resentment of the Poor - NYTimes
- The plunge in IRS audits of the rich and large companies - Washington Post
- International Womens' Day And The Russian Revolution Centennial - EconoSpeak
- It’s time we acknowledge women’s contributions to the economy - EPI
- Trump's Industrial Rebirth Is a Dead End - Noah Smith
- On salient identities - Stumbling and Mumbling
- Tax Reform Japanese Style - EconoSpeak
- Target the spread - John Cochrane
Tuesday, March 07, 2017
1. Study reports results which reinforce the dominant, politically correct, narrative.
2. Study is widely cited in other academic work, lionized in the popular press, and used to advance real world agendas.
3. Study fails to replicate, but no one (except a few careful and independent thinkers) notices.
#1 is spot-on for economics. Woe be to she who bucks the dominant narrative. In economics, something else happens. Following the study, there are 20 piggy-back papers which test for the same results on other data. The original authors typically get to referee these papers, so if you're a young researcher looking for a publication, look no further. You've just guaranteed yourself the rarest of gifts -- a friendly referee who will likely go to bat for you. Just make sure your results are similar to theirs. If not, you might want to shelve your project, or else try 100 other specifications until you get something that "works". One trick I learned: You can bury a robustness check which overturns the main results deep in the paper, and your referee who is emotionally invested in the benchmark result for sure won't read that far. ...
Most researchers in Economics go their entire careers without criticizing anyone else in their field, except as an anonymous referee, where they tend to let out their pent-up aggression. Journals shy away from publishing comment papers, as I found out first-hand. In fact, much if not a majority of the papers published in top economics journals are probably wrong, and yet the field soldiers on like a drunken sailor. Often, many people "in the know" realize that many big papers have fatal flaws, but have every incentive not to point this out and create enemies, or to waste their time writing up something which journals don't really want to publish (the editor doesn't want to piss a colleague off either). As a result, many of these false results end up getting taught to generations of students. Indeed, I was taught a number of these flawed papers as both an undergraduate and a grad student.
What can be done? ...
A Plan Set Up To Fail: So now we know what Republicans have to offer as an Obamacare replacement. Let me try to avoid value judgments for a few minutes, and describe what seems to have happened here.
The structure of the Affordable Care Act comes out of a straightforward analysis of the logic of coverage. ...
And the result has been a sharp decline in the number of uninsured, with costs coming in well below expectations. Roughly speaking, 20 million Americans gained coverage at a cost of around 0.6 percent of GDP.
Republicans have nonetheless denounced the law as a monstrosity, and promised to replace it with something totally different and far better. Which makes what they’ve actually come up … interesting.
For the GOP proposal basically accepts the logic of Obamacare. ... Conservatives calling the plan Obamacare 2.0 definitely have a point.
But a better designation would be Obamacare 0.5, because it’s really about replacing relatively solid pillars with half-measures, severely and probably fatally weakening the whole structure.
First, the individual mandate – already too weak, so that too many healthy people opt out – is replaced by a penalty imposed if and only if the uninsured decide to enter the market later. This wouldn’t do much.
Second, the ACA subsidies, which are linked both to income and to the cost of insurance, are replaced by flat tax credits which would be worth much less to lower-income Americans, the very people most likely to need help buying insurance.
Taken together, these moves would almost surely lead to a death spiral. Healthy individuals, especially low-income households no longer receiving adequate aid, would opt out, worsening the risk pool. Premiums would soar – without the cushion created by the current, price-linked subsidy formula — leading more healthy people to exit. In much of the country, the individual markets would probably collapse.
The House leadership seems to realize all of this; that’s why it reportedly plans to rush the bill through committee before CBO even gets a chance to score it.
It’s an amazing spectacle. Obviously, Republicans backed themselves into a corner: after all those years denouncing Obamacare, they felt they had to do something, but in fact had no good ideas about what to offer as a replacement. So they went with really bad ideas instead.
Kevin Drum notes one reason why the bill is structured as it is:
The GOP Health Care Law Is Missing a Surprising Number of Tea Party Hobbyhorses: I was reading through the Republican health care bill last night, and it struck me that a lot of Republican hobbyhorses are missing. ...
I'm pretty sure the bill doesn't include any of the following:
-No tort reform. ...
-No insurance sales across state lines. ...
-No change to the essential benefits required of all health care plans. ...
-Obamacare is chockablock with regulations of all kinds, including incentives to reduce costs and rules about how doctors are paid. These appear to be intact under the Republican bill.
Why is this? If you look carefully, you'll see what these things all have in common: they don't directly affect the federal budget, which means they can't be passed via reconciliation. They have to be passed in a separate bill under regular order, which means Democrats can filibuster them. Republicans don't have 60 votes in the Senate to overcome a filibuster, so they can't do any of this stuff.
Republicans can starve the subsidies to make Obamacare virtually useless for the poor, but they can't repeal the entire law. The result of such a partial repeal is likely to be such obvious chaos that they'll be lucky to get their bill passed in the House, let alone the Senate. There are bound to be at least three senators who just aren't willing to clap loudly and pretend that everything is OK. It's very hard to see a path to passage for this bill.
- Credit rating agency reform is incomplete - Brookings Institution
- Unauthorized Immigrants Pay More in Taxes Than Top Earners - CBPP
- The Fed's Price Stability Achievement - Cecchetti & Schoenholtz
- Why are so many American men not working? - Brookings Institution
- The Case for a Border-Adjusted Tax - Auerbach and Devereux
- ML and Metrics: Differences from Time Series - No Hesitations
- Sagging Productivity in Construction - Tim Taylor
- Limits of supply-side reform - Stumbling and Mumbling
- Why it’s your bloody GDP, not ours - mainly macro
Monday, March 06, 2017
The "Trumpdoesn'tcare" health care proposal has been released (calling it "Trumpcare" implies he, and the GOP, do care -- they don't). Here's Krugman's quick take on Twitter:
Paul Krugman: Can't do full analysis until tomorrow. But GOP now basically accepts logic of ACA - just determined to offer an inferior version
Paul Krugman: Philosophical case for free markets has been abandoned (because it's so obviously wrong here) Mean spiritedness is all that's left.
Paul Krugman: It's not Obamacare 2.0. It's Obamacare 0.5 - a half-assed attempt to preserve ACA successes without spending nearly enough money
"They have no idea how to turn their slogans into actual legislation
A Party Not Ready to Govern, by Paul Krugman, NY Times: According to Politico, a Trump confidante says that the man in the Oval Office — or more often at Mar-a-Lago — is “tired of everyone thinking his presidency is screwed up.” Pro tip: The best way to combat perceptions that you’re screwing up is, you know, to stop screwing up.
But he can’t, of course. And it’s not just a personal problem.
It goes without saying that Donald Trump is the least qualified individual, temperamentally or intellectually, ever installed in the White House. ... Thanks, Comey.
But the broader Republican quagmire — the party’s failure so far to make significant progress toward any of its policy promises — isn’t just about Mr. Trump’s inadequacies. The whole party, it turns out, has been faking it for years. Its leaders’ rhetoric was empty; they have no idea how to turn their slogans into actual legislation, because they’ve never bothered to understand how anything important works.
Take the two lead items in the congressional G.O.P.’s agenda: undoing the Affordable Care Act and reforming corporate taxes. In each case Republicans seem utterly shocked to find themselves facing reality.
The story of Obamacare repeal would be funny if the health care — and, in many cases, the lives — of millions of Americans weren’t at stake. ...
Then there’s corporate tax reform — an issue where the plan being advanced by Paul Ryan ... is actually not too bad, at least in principle. ...
But Mr. Ryan has failed spectacularly to make his case either to colleagues or to powerful interest groups. Why? As best I can tell, it’s because he himself doesn’t understand the point of the reform. ...
At this point, then, major Republican initiatives are bogged down for reasons that have nothing to do with the personality flaws of the tweeter in chief, and everything to do with the broader, more fundamental fecklessness of his party.
Does this mean that nothing substantive will happen on the policy front? Not necessarily. Republicans may decide to ram through a health plan that causes mass suffering, and hope to blame it on Mr. Obama. They may give up on anything resembling a principled tax reform, and just throw a few trillion dollars at rich people instead.
But whatever the eventual outcome, what we’re witnessing is what happens when a party that gave up hard thinking in favor of empty sloganeering ends up in charge of actual policy. And it’s not a pretty sight.
Deconstructing President Trump's jobless numbers: In Donald Trump’s address to Congress last week, he discussed the economy and the policies he intends to pursue. “We must honestly acknowledge the circumstances we inherited [from the Obama administration],” he said. “Ninety-four million Americans are out of the labor force.”
Let’s honestly examine this claim and whether it accurately portrays the circumstances the president inherited. ...
- How I “met” Samuelson and Friedman - Branko Milanovic
- What's wrong with the US economy? A theory - Douglas Campbell
- When Auditors Take Investors to La La Land - ProMarket
- Yes, slavery matters - Stumbling and Mumbling
- Destination Based Cash Flow Tax and Supply-Side Silliness - EconoSpeak
- Monetary Policy Works in a Liquidity Trap, Fiscal Policy Too - Douglas Campbell
- US elections, interest rates, and Europe’s monetary sovereignty - VoxEU
- Exchange rates and utilisation of free trade agreements - VoxEU
- The atomic bomb - Understanding Society
Sunday, March 05, 2017
Robots are wealth creators and taxing them is illogical: I usually agree with Bill Gates on matters of public policy and admire his emphasis on the combined power of markets and technology. But I think he went seriously astray in a recent interview when he proposed, without apparent irony, a tax on robots to cushion worker dislocation and limit inequality. ....
Saturday, March 04, 2017
- On China Trade Shock, Economists Trade Research Barbs - WSJ
- Exchange rate forecasting with DSGE models - VoxEU
- Macro Musings Podcast: Tim Duy - David Beckworth
- Is Wall Street Responsible for Our Economic Problems? - New Yorker
- Some Economics of Parental Leave - Tim Taylor
- Comparison of Canada and the US Budgets- Livio Di Matteo
Friday, March 03, 2017
Who'll stop the rain?:
Goodbye Spin, Hello Raw Dishonesty, by Paul Krugman, Commentary, NY Times: The latest big buzz is about Jeff Sessions, the attorney general. It turns out that he lied during his confirmation hearings, denying that he had met with Russian officials during the 2016 campaign. In fact, he met twice with the Russian ambassador, who is widely reported to also be a key spymaster. ...
At this point it’s easier to list the Trump officials who haven’t been caught lying under oath than those who have. This is not an accident.
Critics ... used to complain, with justification, about politicians’ addiction to spin —...presenting their actions in a much better light than they deserved. But all indications are that the age of spin is over. It has been replaced by an era of raw, shameless dishonesty.
In part, of course, the pervasiveness of lies reflects the character of the man at the top: No president, or for that matter major U.S. political figure of any kind, has ever lied as freely and frequently as Donald Trump. ...
And the question is, who’s going to stop him?
The moral vacuity of Republicans in Congress, and the unlikelihood that they’ll act as any check on the president, becomes clearer with each passing day. Even the real possibility that we’re facing subversion by agents of a foreign power, and that top officials are part of the story, doesn’t seem to faze them as long as they can get tax cuts for the rich and benefit cuts for the poor.
Meanwhile, Republican ... voters, who are the real arbiters when polarized and/or gerrymandered districts make the general election irrelevant for many politicians, live in a Fox News bubble...
And what about the Fourth Estate? Will it let us down, too?
To be fair, the first weeks of the Trump administration have in important ways been glory days for journalism; one must honor the ... reporters who have been ferreting out the secrets this authoritarian-minded clique is so determined to keep.
But then you watch something like the way much of the news media responded to Mr. Trump’s congressional address, and you feel despair. It was a speech filled with falsehoods and vile policy proposals, but read calmly off the teleprompter — and suddenly everyone was declaring the liar in chief “presidential.”
The point is that if that’s all it takes to exonerate the most dishonest man ever to hold high office in America, we’re doomed. Let’s hope it doesn’t happen again.
- Gauging Firm Optimism in a Time of Transition - FRB Atlanta
- Are the Effects of Monetary Policy Asymmetric? - FRB Richmond
- Do Consumers Rely on Credit Cards While Unemployed? (No) - FRB Boston
- Richard Lipsey and the Phillips Curve Redux - Uneasy Money
- LR Growth and the end of The End of (Monetary Policy) History - Nick Rowe
- What Trump Gets Right on Trade - The New York Times
- The Decline in US Public Companies - Tim Taylor
- Do You Feel Lucky? - Econbrowser
Thursday, March 02, 2017
A self-fulfilling expectations led recession?: The only two lectures on Oxford’s core undergraduate macro course that I still teach, and which I have just taught, are the last two on fiscal policy. I use the privilege of the last lecture to end on a reflective note. I acknowledge that macro rightly got a lot of stick by largely ignoring the role of finance, but I also point out that the poor recovery has involved a vindication of the core macro model: austerity is a bad idea at the ZLB, QE was not inflationary and interest rates on government debt did not rise but fell.
So far so familiar. But I end by showing them my this chart.
And I say that we really have no idea why there has been no recovery from the Great Recession, so there are plenty of mysteries left in macro..., something similar has happened in most places. I think it is a suitable note of humility (and perhaps inspiration) on which to end the course.
A mechanical way to explain what has happened is to bend the trend: to suggest that technical progress has been slowing down for some time. ... I have been highly skeptical about that story...
However another explanation that I have always wondered about and which others are beginning to explore is that perhaps we remain in an extended period of demand deficiency. Keynesian theory is very suggestive that such a possibility could occur. Suppose that firms and consumers came to believe that the output gap was currently zero when it is not, and that they erroneously believed that the recession caused a step change both in potential GDP but also possibly its growth rate. Suppose also that unemployed workers priced themselves into jobs by cutting their (real) wage or disappearing by no longer looking for work. ...
In that situation, how do we know that we are suffering from demand deficiency? The traditional answer in macroeconomics is nominal deflation: falling wages and prices. But because workers have already priced themselves into jobs, nothing more will come from the wages route. So why would firms cut prices?
If the pre-crisis trend still applies, it means that there are a large number of innovations waiting to be embodied in new investment. ...
But suppose the innovations are just not profitable enough to generate an increase in profits that would justify undertaking the investment, even though borrowing costs are low. Maybe a far more dependable motivator for embodied technical progress to take place is the need to satisfy an expanding market. The firm needs to install new capacity to satisfy growing demand for its product, and then it is obvious to investment in equipment that embodies new innovations. The accelerator remains a very successful empirical model of investment. (On both points, see this discussion by Caballero.) But if beliefs are such that the market is not going to expand that much, because firms believe the economy is ‘at trend’ and trend growth has now become pretty small, then the need to invest to meet an expanding market largely goes away.
This idea goes right back to Keynes and animal spirits of course. ...
It is this possibility which is the reason that I have always argued central banks and governments should have been much more ambitious about demand stimulation after the Great Recession. As I and others have pointed out, you do not have to attach a very high probability to the scenario that demand will create supply before it justifies a policy of ‘testing the water’ by letting the economy run hot. Every time I look at the data above, I ask whether we have brought this on ourselves by a combination of destructive austerity and timidity.
Kenneth Arrow, 1921-2017: Professor Kenneth Arrow died on February 21, 2017, at the age of 95. He was widely regarded (along with Paul Samuelson and John Hicks) as one of the three greatest economists of the 20th century. He also happened to be my favorite economist of all time.
Professor Dipak Banerjee, my teacher, introduced me to Kenneth Arrow in 1974, who appeared (much in the manner of Hindu god[esses]s for whom my mother had special reverence) in the form of a small yellow paperback. I acquired Social Choice and Individual Values from Dasgupta and Co. of College Street, and still have it. I was a first year undergraduate. That little book was a repository of the most profound logical thought. I had never seen anyone distill what appeared to be an abstract question in political economy into a theoretical device that cut sharply, and cut deep.
What was the question? Briefly, it was well known from the so-called Condorcet paradox that majority voting could produce nasty cycles in choices, even when the individual preferences involved in that voting process were perfectly reasonable. That led to the question: was there any political system that could “reasonably” aggregate individual preferences? Now think about the question for a second: we know what majority voting is, but there is in principle an infinity of other systems. How could one ever formulate such a problem, let alone attempt to answer it? The very formulation — as axioms placed on an abstract mapping that connected individual preferences to their social counterpart — was sheer genius. But the apparatus was not only beautiful: it could also speak. It argued that under the minimal desiderata placed on the aggregator, there was no way of putting together individual preferences into a satisfactory social ordering; one that was cycle-free. ...
There is much, much more.
- Coal Is A State Of Mind - Paul Krugman
- Why are peer reviews private? - Digitopoly
- Apprenticeship and the rise of Europe - VoxEU
- A reply to Lawrence White - MacroMania
- How colonial railroads defined Africa’s economic geography - VoxEU
- Dismantling Public Education: Turning Ideology into Gold - INET
- Transitions in the Outlook and Monetary Policy - Lael Brainard
- Should economists be more concerned about AI? - Bank Underground
- Quo Vadis? Identity, policy and the future of the European Union - VoxEU
- Severance Pay: An Alternative to Donald Trump Carrier Shows - Dean Baker
- The contemporary shadow of the Scramble for Africa - VoxEU
- When Debts Compete, Which Wins? - Liberty Street Economics
- In Which I Am Annoyed at Being Paired with John Taylor - Brad DeLong
- Identifying State-Level Recessions - Econbrowser
- Simple Monetary Policy Rules - FRB Cleveland
Wednesday, March 01, 2017
More on Dudley, by Tim Duy: Following up on my piece this morning at Bloomberg, it is worth going into a little deeper detail on New York Federal Reserve President William Dudley’s comments. I think in this interview Dudley is doing a good job explaining policy in terms of the forecast. That is something the Fed needs to keep pushing. It doesn’t sound like the forecast or the risks have moved sufficiently to change the number of rate hikes expected this year. But he sure seems to be leaning toward pulling forward those hikes.
The CNN interview starts hawkish. What does “fairly soon” mean? According to Dudley:
President Dudley: I think it means what it says. It doesn't say it's a week, a month, a couple months. Fairly soon means in the relatively near future…
Quest: And that's obviously fairly soon, which implies sooner rather than later?
Dudley: I think that's fair.
March is sooner than June. May is sooner than June. March is sooner than May. June is sooner than December. Compared to last year, the next rate hike will certainly come sooner in the year. But given the context Dudley must be aware of how his comments would be received.
On the forecast Dudley says:
We've basically been saying that if the economy continues on the trajectory that it's on, slightly above-trend growth, gradually rising inflation, we're going to continue to remove monetary policy accommodation. So let's look at what we've actually gotten. It seems to me that most of the data we've seen over the last couple months is very much consistent with the economy continuing to grow at an above-trend pace, job gains remain pretty sturdy, inflation has actually drifted up a little bit as energy prices have increased. So we're very much on the trajectory that we said -- that we thought we'd be on and we said if we were on that trajectory we're going to gradually remove accommodation.
This is how I how been viewing the situation. The forecast seems pretty much intact, so there seems to be little reason to pull policy hikes forward. But then he adds:
What else have we seen? We've also seen things that should make us even more confident that this is going to continue in the future. After the election we've seen very large increases in household and business confidence, we've seen very buoyant financial markets -- the stock market is up, credit spreads are narrow. And we have the expectation that fiscal policy will probably move in a more stimulative direction. So, put it all together, I think the case for monetary policy tightening has become a lot more compelling.
Three issues are on the top of his mind – confidence measures, easier financial conditions, and fiscal policy. Arguable, these all distill down to expectations of stimultive fiscal policy. While none of these have yet translated into hard data, they have raised the probability of upside risk to the forecast. Indeed, he says this explicitly:
But we do know that fiscal policy is going to move in a more stimulative direction. So what that says to me is that the risks to the outlook are now starting to tilt to the upside. So while I haven't really built it into my GDP forecast, when I think about the balance of risks -- up or down in terms of economic activity -- I think the fiscal side tends to push things -- the risks to the upside.
And raising that upside risk thus makes the case for a preemptive rate hike more compelling.
All of this sounds like a strong push for March. As the interview continues on, however, he seems to walk back his own outlook:
Quest: But you can't wait for it to happen, can you? I mean the whole question of monetary lag. I know you've got to think about many of these policies not coming into force until 2018, but you have to plan now.
Dudley: Well, look, I think monetary policy is pursued on the basis on the economic outlook. Fiscal policy outlook obviously affects that -- the trajectory of GDP, unemployment and inflation. So that's a factor weighing on us but the fact that we have so little specifics yet about what's going to happen -- it's got to wind its way through Congress -- means I don't put a lot of weight on it in terms of my modal forecast. I just think it makes the risks to the outlook a little bit tilted to the upside at this point.
But Dudley said earlier that the case for policy tightening was “a lot more compelling.” So how does a “little bit tilted to the upside” translate to “a lot more compelling?”
What about financial conditions? Surely that demands an immediate response.
Quest: Into this difficult area we have the financial markets. They're on a tear. I mean today could be the 13th record high, we could be in record territory, you know the numbers better than myself. You can't wait for the fiscal plans completely until next year, but you have to take into account what's happening in the markets at the moment, don't you?
Dudley: Well, financial conditions are very important in terms of how they influence economic activity. So if the stock market is up, credit spreads are narrow, financial conditions are more buoyant, that's going to tend to make the economy stronger. The important thing for us, though, is not to overreact to every little movement in the stock market. It's got to be something that lasts for a period of time for it to actually affect household and business behavior. So if the stock market goes up, and then goes right back down, it's not going to have much consequence for the economic outlook. But if it goes up and stays up, then that's going to support, presumably, consumption through higher household wealth.
It important not to “overreact” because there is a lag between the stock market and the real economy. Stocks could head back down. Maybe the Trump rally will fade (but maybe it is less about Trump and more about cyclical improvement). In that case, it would not affect the outlook and thus shouldn’t influence the Fed’s policy decision.
But those confidence surveys, that’s the ticket, right? Well, maybe not:
Quest: What do you believe you're seeing at the moment?
Dudley: Well, there's no question that animal spirits have been unleashed a bit post the election. Stock market is up a lot. Household and business confidence have increased significantly. There's a survey of small businesses that showed a very large increase in December and sustained that increase in January. So, there's no question that sentiment has improved quite markedly post the election.
Quest: That -- animal spirits or whatever you want to call it -- that market influence. It transmits itself around to the entire economy, doesn't it?
Dudley: Well, we would expect to have some consequence for economic activity. But we'll have to see if that actually -- one if the confidence is sustained, and whether it actually materializes in terms of increases in spending. I would say so far we haven't seen much effect of the improvement in confidence actually leading into greater spending. I think the economy is still on about a 2% GDP track, which about what it's been over the last year or so.
So sentiment is a lot better, but it might not hold and even if it does it needs to be felt in the real economy to change the forecast.
Notice that in all three case he emphasizes that those factors have yet to change his forecast. And he downplays the likelihood of those points even translating into something that might change his forecast. So why then does he lead with the case for rate hikes is “a lot more compelling?” It doesn’t sound like it about the number of hikes for him, at least not yet. It is about the timing of the hikes. It seems to have less to do with the forecast itself and more to do with his desire to take preemptive action.
Bottom Line: When I read the interview, it is hard for me to see that he has a strong conviction for drawing forward the rate hike to March. It seems odd to do so if he sees no change in the forecast and downplays the impact of the upside risks. If he does want to move in March, it tells me then it has little to do with either factor and is entirely about staying ahead of the curve. It is about the need for a preemptive rate hike. If his forecast is for three hikes and he wants to hike in March, then his patience has ended and he wants those hikes frontloaded. If for FOMC participants as a whole the forecast has yet to change much, then it is possible that the even if they raise in March, the median projection of three rate hikes this year remains steady.
Reigns of Error: The death of Kenneth Arrow has led lots of people to swap stories about their interactions with him. Larry Blume has posted several of these on facebook, including the following response to my own contribution (quoted with permission):
This story is not at all surprising; Ken read everything. I think I mentioned elsewhere that my last conversation with Ken, this past June, concerned The Theory of Moral Sentiments. He and Amartya Sen were taking turns quoting from it, from memory... I could recognize the quotes, but not respond in kind. Once in a conversation about Nash equilibrium and rational expectations, Ken wondered if I had read Merton on expectations - not Robert Jr.: https://www.jstor.org/stable/4609267. He also had a good stock of Shakespeare to call on.
The link is to a 1948 paper by the great sociologist Robert K. Merton (father of the Nobel-winning economist). Reading anything at all by Merton is an excellent use of one's time, so I went through this paper. It's extraordinary. Not only does Merton provide a very clear account of equilibrium beliefs, but goes on to point out that even when these beliefs are correct in a narrow sense, they can hold in place an incorrect understanding of the social world. To translate this into the contemporary language of economics, Merton points out that the play of equilibrium strategies can go hand in hand with a deeply erroneous understanding of the game.
Merton begins with an account of a Depression-era bank run that perfectly captures the multiple equilibrium logic he has in mind:
It is the year 1932. The Last National Bank is a flourishing institution. A large part of its resources is liquid without being watered. Cartwright Millingville has ample reason to be proud of the banking institution over which he presides. Until Black Wednesday. As he enters his bank, he notices that business is unusually brisk. A little odd, that, since the men at the A.M.O.K. steel plant and the K.O.M.A. mattress factory are not usually paid until Saturday. Yet here are two dozen men, obviously from the factories, queued up in front of the tellers' cages. As he turns into his private office, the president muses rather compassionately: "Hope they haven't been laid off in midweek. They should be in the shop at this hour."
But speculations of this sort have never made for a thriving bank, and Millingville turns to the pile of documents upon his desk. His precise signature is affixed to fewer than a score of papers when he is disturbed by the absence of something familiar and the intrusion of something alien. The low discreet hum of bank business has given way to a strange and annoying stridency of many voices. A situation has been defined as real. And that is the beginning of what ends as Black Wednesday -- the last Wednesday, it might be noted, of the Last National Bank.
You can see why Arrow saw in this a precursor to the concept of Nash equilibrium, the existence of which would be established just two years later. There are also echoes here of the Diamond and Dybvig model of bank runs, in which the multiple equilibrium nature of the problem finds formal expression.
But Merton doesn't stop there, he considers how the people expressing the described behavior interpret the situation they are in. And here he observes an important disparity between the manner in which the situation is viewed by the the participants themselves, as compared with its interpretation from the analytical viewpoint of the social scientist:
The self-fulfilling prophecy is, in the beginning, a false definition of the situation evoking a new behavior which makes the originally false conception come true. The specious validity of the self-fulfilling prophecy perpetuates a reign of error. For the prophet will cite the actual course of events as proof that he was right from the very beginning. (Yet we know that Millingville's bank was solvent, that it would have survived for many years had not the misleading rumor created the very conditions of its own fulfillment.) Such are the perversities of social logic.
So beliefs are correct in one sense, but at sharp variance with reality in another. Such "reigns of error" are not something we economists pay much attention to, with one very notable exception.
In his book The Anatomy of Racial Inequality Glenn Loury discusses the manner in which negative stereotypes about a group can become self-fulfilling through the incentive effects that the stereotypes themselves create. This is the phenomenon of statistical discrimination, introduced into the economics literature by none other than Kenneth Arrow. Like Merton, however, Loury is not content to simply identify the kinds of behaviors consistent with equilibrium beliefs. He wants to know how people with these beliefs will interpret the behaviors. And here he deploys the idea of biased social cognition, which can give rise to essentialist causal misattributions..
That is, behavior arising in equilibrium through the operation of incentives can be interpreted by casual observers as being a consequence of deep differences in character. And this has enormous consequences, since biased social cognitions can "cause some situations to appear anomalous, disquieting, contrary to expectation, worthy of further investigation, inconsistent with the natural order of things---while other situations appear normal, about right, in keeping with what one might expect, consistent with the social world as we know it."
Loury has argued elsewhere that the level of mass incarceration currently prevailing in the United States could not possibly be sustained were it not for its racial character. As long as essentialist interpretations of incentive-driven actions continue to be widespread, such high levels of confinement will not be seen as anomalous or disquieting, and will not give rise to urgent calls for action.
The economic method, for all its flaws, has one very important virtue: it shines a bright light on interests and incentives, and in doing so can challenge essentialist interpretations of social reality. But if this potential is to be realized, it is important to focus not just on the characterization of equilibrium behavior, but also on the reigns of error that distort our mental models of the underlying game.
- Can't we all just get along?, Econometrics edition - Noahpinion
- Why the Trump Agenda Is Moving Slowly: Republican Wonk Gap - NYTimes
- Can Tight Labor Markets Inhibit Investment Growth? - macroblog
- GDP-linked bonds: A primer - VoxEU
- Machiavelli as an economist - globalinequality
- Does everybody prefer organic? - Jayson Lusk
- The Financial Fire Next Time - Simon Johnson
- It's Hard to Get Good Help: Danish Edition - Dean Baker
- Discovering the nucleus - Understanding Society
- The unexpected consequences of asymmetric competition - VoxEU
- Shaky Jobs, Sluggish Wages: Reasons Are at Home - The New York Times
- Uber, the Mayor’s Private Email, and Underground Lobbying - ProMarket
- Historical cycle theories are silly...or are they? - Noahpinion
- Inflation?! We ain’t got no stinkin’ inflation! - Jared Bernstein
- Vulnerable Jobs and the Desire to Migrate - Tim Taylor
- Where do experts come from? - Magic, maths and money
- The Budget and Health Care - mainly macro
Tuesday, February 28, 2017
J. Bradford DeLong:
Sluggish Future, Finance & Development, March 2017, Vol. 54, No. 1, IMF: We should adopt appropriate fiscal policies that provide for expansionary investment.
You are reading this because of the long, steady decline in nominal and real interest rates on all kinds of safe investments, such as US Treasury securities. The decline has created a world in which, as economist Alvin Hansen put it when he saw a similar situation in 1938, we see “sick recoveries… die in their infancy and depressions… feed on themselves and leave a hard and seemingly immovable core of unemployment…” In other words, a world of secular stagnation. Harvard Professor Kenneth Rogoff thinks this is a passing phase—that nobody will talk about secular stagnation in nine years. Perhaps. But the balance of probabilities is the other way. Financial markets do not expect this problem to go away for at least a generation.
Eight reinforcing factors have driven and continue to drive this long-term reduction in safe interest rates:...
The natural response to this secular stagnation is for governments to adopt much more expansionary tax and spending (fiscal) policies. When interest rates are low and expected to remain low, all kinds of government investments—from bridges to basic research—become extraordinarily attractive in benefit-cost terms, and government debt levels should rise to take advantage of low borrowing costs and provide investors the safe saving vehicles (government bonds) they value. ..
Critics of Summers’s secular stagnation thesis miss the point. Each seems to focus on one of the eight factors driving the decline in interest rates and then say that factor either will end soon or is healthy for some contrarian reason.
Since the turn of the century, the North Atlantic economies have lost a decade of what we used to think of as normal economic growth, with secular stagnation the major contributor. Only if we do something about it is it likely that in nine years we will no longer be talking about secular stagnation.
John Taylor provides a couterargument (I chose to highlight one over the other based upon my agreement with the arguments):
From Microeconomic Insights:
Studying advanced mathematics: the potential boost to women’s career prospects: The university gender gap has been reversed in many countries in recent years, with greater participation among young women than among young men. Yet women remain underrepresented in high-powered and highly paid careers as chief executives and, more generally, in finance and business, and in science, technology, engineering and mathematics (STEM) fields.
Our research assesses three potential explanations for this inequality:
- First, are the labour market rewards for advanced mathematical skills lower for women than for men?
- Second, are women less talented than men in terms of mathematical abilities?
- Third, does the way we promote and teach mathematics in schools drive away talented young women?
The answers to these questions are: no, no, and yes! In particular, we show that restrictive course bundling in high school constitutes a barrier for the mathematical talents of young women. ...
Why Dodd-Frank’s orderly liquidation authority should be preserved: The collapse of the investment bank Lehman Brothers in September 2008 was perhaps the defining event of the financial crisis. Lehman’s bankruptcy, followed by the near-collapse (save for government intervention) of the insurance company AIG, greatly intensified the fear and panic in markets, bringing the financial system and the economy to the brink of the abyss.
These events, including the government’s response, remain controversial. What should not be controversial is that ordinary bankruptcy procedures were entirely inadequate for the situation. The bankruptcy judge in the Lehman case—required, by law, to focus narrowly on adjudicating creditors’ claims against the company—had neither the tools nor the mandate to try to mitigate the effects of the failure on the financial system or the economy. The Fed, FDIC, and Treasury used the powers available to them, often in ad hoc ways, to try to preserve broader stability. But these agencies likewise lacked a framework for dealing systematically with failing financial giants.
The architects of the Dodd-Frank Act, which reformed financial regulation after the crisis, recognized that—in order to make the financial system safer and eliminate future taxpayer-funded bailouts—a better approach was needed. The first two sections, or titles, of the bill aimed to do just that. Title I extended the ordinary bankruptcy framework to better accommodate the complexities of large, interconnected financial firms. It also required large bank holding companies to submit to their regulators plans for how they could be successfully resolved in a crisis (“living wills”). ...
Jumping ahead to the conclusion:
...Conclusion Recent experience has taught us that the uncontrolled collapse of a systemically important financial firm can do enormous damage to the broader financial system and the economy. The Dodd-Frank Act modified bankruptcy law to better accommodate large, complex financial firms, but also wisely provided a backstop framework—the Orderly Liquidation Authority of Title II—that can be invoked when overall financial stability is at stake. Critically, the OLA draws on the expertise and planning of the FDIC and the Fed. The OLA is not a bailout mechanism, since all losses are borne by the private sector. The government can provide temporary liquidity under OLA (as it probably would have to do under Title I, as well), but not permanent capital. Taxpayers are fully protected.
To be sure, controversies remain over how effective in even a Title II resolution would be in the context of a significant financial crisis. Still, drawing in particular on the FDIC’s decades of experience in dealing with failing banks, a good bit of progress has been made. The tools provided by Title II are a significant advance over what was available during the recent crisis.
Have we ended bailouts? Current lawmakers can’t bind future legislators, and we can’t guarantee that a future administration and Congress, fearful of the economic consequences of a building financial crisis, won’t authorize a financial bailout. But the best way to reduce the odds of that happening is to have in place a set of procedures to deal with failing financial firms that those responsible for preserving financial stability expect to be effective. That’s what the OLA is intended to provide.
- A correction to my farewell to Kenneth Arrow - Larry Summers
- Social media, political donations and incumbency advantage in the US - VoxEU
- Kenneth Arrow Part II: The Theory of General Equilibrium - A Fine Theorem
- Global Financial Market Integration “Swoosh” and the Trilemma - Econbrowser
- Are Basel's Capital Surcharges for Systemically Important Banks Too Small? - FRB
- Aftershocks of Monetary Unification: Hysteresis with a Financial Twist - NBER
- Defining the Battlefield for a Theoretical Revolution in Economics - INET
- Understanding the long-run effects of Africa’s slave trades - VoxEU
- Marriage markets in developing countries – Gender Matters
- Time to Restart That Old Capitalism Death Watch - Justin Fox
- The Declining US Labor Share, Explicated - Tim Taylor
- Inequality and economics: Tony Atkinson’s enduring lessons - VoxEU
- U.S., European Economies and the Great Recession - FRB St. Louis
- I'm a UBI skeptic, especially for poor countries - Chris Blattman
- China’s Continuing Credit Boom - Liberty Street Economics
- Inconvenient Facts - Cecchetti & Schoenholtz
- The Enduring Mystery of Japan's Economy - Kevin Drum
- The Immigration Debate We Need - George Borjas
- Trump’s Mysterious Stock Boom - The New Yorker
Monday, February 27, 2017
George W. Bush, in an interview:
George W. Bush opens up on Trump: Early on in the exclusive sit-down, the former president expressed a clear-eyed support for the news media, saying a free press was "indispensable to democracy."
"We need an independent media to hold people like me to account," Bush told TODAY'S Matt Lauer.
"Power can be very addictive and it can be corrosive, and it’s important for the media to call to account people who abuse their power." ...
- Paul Krugman, Nobel Prize-winning economist, New York Times columnist, and distinguished professor at the Graduate Center.
- Jason Furman, senior fellow at Peterson Institute of International Economics and former chairman of President Obama’s Council of Economic Advisers.
- Dan Alpert, managing partner of Westwood Capital, fellow at the Century Foundation, and author of The Age of Oversupply.
- James Pethokoukis, CNBC contributor, columnist and blogger at the American Enterprise Institute, and former Washington columnist for Reuters.
Krugman did, as promised, wear his long tie...both of them.
"...an outraged populace can and must push back...":
The Uses of Outrage, by Paul Krugman, NY Times: ...Mr. Trump is clearly a would-be autocrat, and other Republicans are his willing enablers. Does anyone doubt it? And given this reality, it’s completely reasonable to worry that America will go the route of other nations, like Hungary, which remain democracies on paper but have become authoritarian states in practice.
How does this happen? A crucial part of the story is that the emerging autocracy uses the power of the state to intimidate and co-opt civil society — institutions outside the government proper. The media are bullied and bribed into becoming de facto propaganda organs of the ruling clique. Businesses are pressured to reward the clique’s friends and punish its enemies. Independent public figures are pushed into collaboration or silence. Sound familiar?
But an outraged populace can and must push back, using the power of disapproval to counter the influence of a corrupted government.
This means supporting news organizations that do their job and shunning those that act as agents of the regime. It means patronizing businesses that defend our values and not those willing to go along with undermining them. It means letting public figures, however nonpolitical their professions, know that people care about the stands they take, or don’t. For these are not normal times, and many things that would be acceptable in a less fraught situation aren’t O.K. now.
For example, it is not O.K. for newspapers to publish he-said-she-said pieces that paper over administration lies, let alone beat-sweetening puff pieces about Trump allies. It’s not O.K. for businesses to supply Mr. Trump with photo ops claiming undeserved credit for job creation — or for business leaders to serve on “advisory” panels that are really just another kind of photo op.
It’s not even O.K. to go golfing with the president, saying that it’s about showing respect for the office, not the man. Sorry, but when the office is held by someone trying to undermine the Constitution, doing anything that normalizes him and lends him respectability is a political act.
I’m sure many readers would rather live in a nation in which more of life could be separated from politics. So would I! But civil society is under assault from political forces, so that defending it is, necessarily, political. And justified outrage must fuel that defense. When neither the president nor his allies in Congress show any sign of respecting basic American values, an aroused public that’s willing to take names is all we have.
I have a new column:
The Real Test for the Republican Health Care Plan: The Republicans’ rallying cry on health care reform is that the marketplace – relying on the forces of supply and demand – is the best way to run our healthcare system. Government involvement in health care interferes with the magic of markets and makes us all worse off.
The problem with this argument is that markets for health insurance are subject to significant market failures. Without regulatory intervention to fix these problems the market system will not provide what the market systems promises, widely available health care at the lowest possible price. ...
Interestingly, despite their public rhetoric Republicans seem to recognize that these features will be needed in whatever health care reform package they put forward, assuming they can eventually agree on a plan. ... So far, however, although there has been evolution, the proposal is still bad news for those with low incomes and – surprise! – it is very beneficial to those with considerable means. ...
- How Imports Boost Employment - Anne Krueger
- Whatever happened to secular stagnation? - Gavyn Davies
- Neoliberalism & productivity - Stumbling and Mumbling
- Machine Learning and Econometrics V: Time Series - No Hesitations
- The Ability of Companies to Subvert Operating Rules for the Market - ProMarket
- Revoking trade deals will not help American middle classes - Larry Summers
- Understanding the global role of the US economy - VoxEU
- Internal migration flows in Canada - Stephen Gordon
- Master of the Age - Economic Principals
- Why human capital is capital - Noahpinion
- Millions could lose coverage under GOP health proposal - Vox
- Impact of natural resource windfalls on the financial sector - VoxEU
- BMW Transfer Pricing and Trump Trade Accounting - EconoSpeak
- Brexit is another Iraq - mainly macro
Sunday, February 26, 2017
Arrow, Edgeworth, and Millicent Garrett Fawcett: There's not much one can say about Kenneth Arrow that hasn't already been said, but there's one personal story that I can add to all the tributes and remembrances.
I met Arrow just once, at a Stanford conference in April 2008 that he and Matt Jackson jointly organized. While everyone else was seated around the outside of a large ring of tables, Arrow was on the inside, directly in front of the speaker. He was 86 at the time.
I was first up, presenting an early version of a paper with Sam Bowles and Glenn Loury on group inequality. Arrow interrupted me within the first couple of minutes – not aggressively at all, just seeking clarification about the information structure. Then, during a coffee break after the talk, he asked if I’d read a piece by Millicent Fawcett on gender wage inequality, published in the Economic Journal in 1892. That’s not a typo – he really meant 1892. I confessed that I hadn't.
Arrow said that Fawcett’s work was extensively discussed in a 1922 presidential address by Francis Edgeworth, but while many were familiar with the Edgeworth lecture, few had bothered to read Fawcett herself.
It’s true. Edgeworth mentioned “Mrs. Fawcett” seven times in his address, and cited three separate pieces by her. His lecture was on “Equal Pay to Men and Women for Equal Work,” and one of papers he referenced was “Equal Pay for Equal Work,” published by Fawcett in 1918. Here’s how the latter begins:
I didn’t realize it at the time, but Dame Millicent Garrett Fawcett was every bit as remarkable as Edgeworth and Arrow, and economics was the least of her accomplishments. I imagine that Arrow saw in her a kindred spirit.
Saturday, February 25, 2017
In case you couldn't get to the WSJ article by Larry Summers, written in tribute to Kenneth Arrow, here's an open link:
Farewell to Kenneth Arrow, a Gentle Genius of Economics: My mother’s brother, the Nobel economist Kenneth Arrow, died this week at the age of 95. He was a dear man and a hero to me and many others. No one else I have ever known so embodied the scholarly life well lived.
I remember like yesterday the moment when Kenneth won the Nobel Prize in 1972. Paul Samuelson—another Nobel economist and, as it happens, also my uncle—hosted a party in his honor, to which I, then a sophomore at MIT, was invited. It was a festive if slightly nerdy occasion.
As the night wore on, Paul and Kenneth were standing in a corner discussing various theorems in mathematical economics. People started leaving. Paul’s wife was looking impatient. Kenneth’s wife, my aunt Selma, put her coat on, buttoned it and started pacing at the door. Kenneth raised something known as the maximum principle and the writings of the Russian mathematician Pontryagin. Paul began a story about the great British mathematical economist and philosopher Frank Ramsey. My ride depended on this conversation ending, so I watched alertly without understanding a word.
But I did understand this: There were two people in the room who had won Nobel Prizes. They were the two people who, after everyone else was exhausted and heading home, talked on and on into the evening about the subject they loved. I learned that night about my uncles—about their passion for ideas and about the importance and excitement of what scholars do. ...
- Maid In America - Paul Krugman
- The NAIRU: a response to critics - mainly macro
- Farewell to Kenneth Arrow, a Gentle Genius of Economics - Larry Summers
- Economists Have Been Demoted in Washington. That’s a Bad Idea. - NY Times
- Manufacturing Exports—Excluding NAFTA—Are Surprisingly Small - Brad Setser
- The Future of Not Working - The New York Times
- How organizations adapt - Understanding Society
- Trumponomics and the S&P 500 - VoxEU
- Roger Farmer’s Prosperity for All - Uneasy Money
- The Economics of Kidnap Insurance - Tim Taylor
- 5 Reasons Germany Isn't Suffering in the 21st Century - Justin Fox
- The Big Question for the Economy: Is There Room to Grow? - NY Times
- Proposed Border Tax Adjustment IUnlikely to Promote Exports - Liberty Street
- Let the US Fiduciary Rule Go Ahead - Jeffrey Frankel
- The “Unsustainable” US-Mexico Trade Deficit - Econbrowser
- Digitally productive households - Enlightened Economist
Friday, February 24, 2017
"So why do Republicans hate Obamacare so much?":
Death and Tax Cuts, by Paul Krugman, NY Times: Across the country, Republicans have been facing crowds demanding to know how they will protect the 20 million Americans who gained health insurance thanks to the Affordable Care Act... And after all that inveighing against the evils of Obamacare, it turns out that they’ve got nothing. ...
After years to prepare, Mr. Ryan finally unveiled what was supposedly the outline of a health care plan. It was basically a sick joke: flat tax credits, unrelated to income, that could be applied to the purchase of insurance.
These credits would be obviously inadequate for the lower- and even middle-income families..., so it would cause a huge surge in the number of uninsured. Meanwhile, the affluent would receive a nice windfall. Funny how that seems to happen in every plan Mr. Ryan proposes.
That was last week. This week, perhaps realizing how flat his effort fell, he began tweeting about freedom, which he defined as “the ability to buy what you want to fit what you need.” Give me consumer sovereignty or give me death! And Obamacare, he declared, is bad because it deprives Americans of that freedom by doing things like establishing minimum standards for insurance policies.
I very much doubt that this is going to fly, now that ordinary Americans are starting to realize just how devastating loss of coverage would be. But for the record, let me remind everyone what we’ve been saying for years: Any plan that makes essential care available to everyone has to involve some restriction of choice. ...
So yes, Obamacare somewhat restricts choice — not because meddling bureaucrats want to run your life, but because some restrictions are necessary as part of a package that in many ways sets Americans free.
For health reform has been a hugely liberating experience for millions. ...
So why do Republicans hate Obamacare so much? It’s not because they have better ideas; as we’ve seen..., they’re coming up empty-handed on the “replace” part of “repeal and replace.” It’s not, I’m sorry to say, because they are deeply committed to Americans’ right to buy the insurance policy of their choice.
No, mainly they hate Obamacare for two reasons: It demonstrates that the government can make people’s lives better, and it’s paid for in large part with taxes on the wealthy. Their overriding goal is to make those taxes go away. And if getting those taxes cut means that quite a few people end up dying, remember: freedom!
I am here today:
NATIONAL BUREAU OF ECONOMIC RESEARCH, INC.
EF&G Research Meeting
Laura Veldkamp and Jon Steinsson, Organizers
February 24, 2017
Federal Reserve Bank of New York 33 Liberty Street New York, NY
Friday, February 24:
9:00 am Matthias Kehrig, Duke University Nicolas Vincent, HEC Montreal Do Firms Mitigate or Magnify Capital Misallocation? Evidence from Plant-Level Data Discussant: Virgiliu Midrigan, New York University and NBER
10:15 am Daniel Garcia-Macia, International Monetary Fund Chang-Tai Hsieh, University of Chicago and NBER Peter Klenow, Stanford University and NBER How Destructive is Innovation? Discussant: Andrew Atkeson, University of California at Los Angeles and NBER
11:30 am George-Marios Angeletos, Massachusetts Institute of Technology and NBER Chen Lian, Massachusetts Institute of Technology Forward Guidance without Common Knowledge Discussant: Kristoffer Nimark, Cornell University
1:30 pm Barney Hartman-Glaser, University of California at Los Angeles Hanno Lustig, Stanford University and NBER Mindy Zhang, University of Texas at Austin Capital Share Dynamics When Firms Insure Managers Discussant: Brent Neiman, University of Chicago and NBER
2:45 pm Sang Yoon Lee, University of Mannheim Yongseok Shin, Washington University in St. Louis and NBER Horizontal and Vertical Polarization: Task-Specific Technological Change in a Multi-Sector Economy Discussant: Nancy Stokey, University of Chicago and NBER
4:00 pm Michael Gelman, University of Michigan Yuriy Gorodnichenko, University of California at Berkeley and NBER Shachar Kariv, University of California at Berkeley Dmitri Koustas, University of California at Berkeley Matthew Shapiro, University of Michigan and NBER Dan Silverman, Arizona State University and NBER Steven Tadelis, University of California at Berkeley and NBER The Response of Consumer Spending to Changes in Gasoline Prices Discussant: Arlene Wong, Federal Reserve Bank of Minneapolis
5:00 pm Adjourn
- The Jobs Americans Do - The New York Times
- Three Questions on R-star - John Williams
- On the fickleness of capital flows - VoxEU
- Divided ... - Understanding Society
- Ignoring people - Stumbling and Mumbling
- Wasteful Health Care Spending - Tim Taylor
- The global dimension of banking crises - VoxEU
- Bastiat anticipates climate science denialism - Crooked Timber
- What’s the problem a U.S. corporate tax cut will solve? - Equitable Growth
- “Banks Will Have Even More Ability to Write Regulations” - ProMarket
- Nineteen Ninety-Six: The Robot/Productivity Paradox - EconoSpeak
- My New Running Shoes and the Auerbach Tax - EconoSpeak
- America Needs a New Milton Friedman - Noah Smith
- The global dimension of banking crises - Bank Underground
Thursday, February 23, 2017
Whom to Listen to in the Fed Minutes: When it comes to the meetings of the Federal Open Market Committee, not all central bank policy makers are created equally. There are “participants” -- all the policy makers in the room -- and there are “members,” those who have a vote. It is important to keep this distinction in mind when reading the minutes of the FOMC meetings -- especially because many of the more hawkish members of the Fed are participants, not members.
Jonathan Baron at RegBlog:
Justifying Health Insurance: Recent discussions about revising or replacing the Affordable Care Act (ACA) raise philosophical questions about the rationale for having a health insurance system. Among these philosophical questions are the extent to which such insurance should be compulsory, and, relatedly, the extent to which the cost of compulsory insurance should depend on risk and ability to pay. As lawmakers continue to debate the path forward for health policy, it is helpful to review the economic and moral justifications for health insurance.
From a utilitarian, or “welfare economics,” perspective, the main purpose of insurance is redistribution. Insurance redistributes money collected from a broad group to those who suffer some misfortune that can be mitigated with money, such as a treatable illness. Those who suffer such misfortunes find greater utility from the money than those who pay premiums but have no misfortune, so this redistribution increases total utility.
An increase in total utility also justifies other forms of redistribution. ...
- The Greatest Living Economist Has Passed Away - A Fine Theorem
- Major Malinvestments Do Not Have to Produce Large Depressions - Brad DeLong
- The IMF’s Work on Inequality: Bridging Research and Reality - iMFdirect
- Some Fed Members Back Quicker Move on Rates - The New York Times
- China’s Estimated Intervention in January - Brad Setser
- Agriculture in Sub-Saharan Africa - Tim Taylor
- Missing markets - Stumbling and Mumbling
- Money Shouldn't Choose the Next Fed Chair - Narayana Kocherlakota
- The academic consensus on austerity solidifies - mainly macro
- Will Trump Drastically Deregulate Environmental Protection? - RegBlog
Wednesday, February 22, 2017
Travel day today. Will post if and when I can.
How the Fed's Rate Hikes Might Play Out: The U.S. economy is poised to deliver on the Federal Reserve’s economic forecast for this year. That means a baseline outlook for three interest-rate increases remains in play -- though not the way market may be anticipating. Think of it as two rate hikes, one each in June and December, with an option for a third in September.
- Ken Arrow: The Greatest - Digitopoly
- Tim Fuerst - Stephen Williamson
- Are anti-poverty programs are missing the long arm of the law? - Chris Blattman
- Before you blame the robots, look to the policy (and the data) - Jared Bernstein
- Holmstrom: I'm Concerned About Economic Power - ProMarket
- President Trump Wants a Wall? Mexico Is It - The New York Times
- Bill Gates: the robot that takes your job should pay taxes - Quartz
- The left's Brexit dilemma - Stumbling and Mumbling
- Long Run Fed Targets - John Cochrane
- Who Gains If U.S. Universities Lose Out - Justin Fox
- I don’t understand this graph - Jared Bernstein
- Trump Trade Deficit Accounting - EconoSpeak
- The Stunning Triumph of Cost-Cost Analysis - RegBlog
Tuesday, February 21, 2017
John Robertson at the Atlanta Fed's macroblog:
Unemployment versus Underemployment: Assessing Labor Market Slack: The U-3 unemployment rate has returned to prerecession levels and is close to estimates of its longer-run sustainable level. Yet other indicators of slack, such as the U-6 statistic, which includes people working part-time but wanting to work full-time (often referred to as part-time for economic reasons, or PTER), has not declined as quickly or by as much as the U-3 unemployment rate.
If unemployment and PTER reflect the same business-cycle effects, then they should move pretty much in lockstep. But as the following chart shows, such uniformity hasn't generally been the case. In the most recent recovery, unemployment started declining in 2010, but PTER started to move substantially lower beginning only in 2013. The upshot is that for each unemployed worker, there are now many more involuntary part-time workers than in the past.
Regarding the above chart, I should note that I adjusted the pre-1994 data to be consistent with the 1994 redesign of the Current Population Survey from the U.S. Bureau of Labor Statistics (see, for example, research from Rob Valletta and Leila Bengali and Anne Polivka and Stephen Miller ). This adjustment amounts to reducing the pre-1994 number of PTER workers by about 20 percent.
The elevated level of PTER workers has been most pronounced for workers in low-skill occupations. As shown in the next chart, PTER workers in low-skill jobs now outnumber unemployed workers who left low-skill jobs. Prior to the most recent recession, low-skill unemployment was always higher than low-skill PTER.
The increase in PTER workers is also mostly in the retail trade industry, as well as the leisure and hospitality industry, where low-skill occupations are concentrated. The PTER-to-unemployment ratio for the goods-producing sector (manufacturing, construction, and mining) has remained essentially unchanged. In those industries, unemployment and PTER move together.
Some researchers, such as our colleagues at the San Francisco Fed Rob Valletta and Catherine van der List, have argued that the increase in the prevalence of involuntary part-time work relative to unemployment suggests the importance of factors other than overall demand for labor. Among these factors are shifting demographics (a greater number of older workers who are less willing to do part-time work) and industry mix (more employment in industries with higher concentrations of part-time jobs). Such factors are almost certainly playing a role.
Recent analysis by Jon Willis at the Kansas City Fed suggests that the elevated levels of PTER in low-skill occupations may reflect that during the last recession, firms reduced the hours of workers in low-skill jobs more than they cut the number of low-skill jobs. In other words, firms still had some work that needed to get done, probably with peak demand at certain times of the day, and those tasks couldn't readily be outsourced or automated.
As the following chart from Willis's research shows, between 2007 and 2010, low-skill (non-PTER) employment actually increased slightly overall, but the mix of employment shifted dramatically toward part-time.
Since the recession, the pace of (non-PTER) low-skill job creation has been modest (about 20,000 jobs per month compared with 60,000 jobs per month in the years preceding the recession). Initially, this trend helped reduce low-skill unemployment more than the incidence of PTER—one reason why the ratio of PTER to unemployment continued to increase.
But the number of PTER workers in low-skill jobs has since been declining as more people have been able to find full-time jobs. At the current pace of job creation and (net) transition rates out of PTER, Willis estimates it would take until 2020 to return to prerecession levels of low-skill PTER. That seems a reasonable guess to me.
Why All Exchange Rates Are Bad: The economics of exchange rates can be tough sledding. Every now and then, I post on the bulletin board beside my office a quotation from Kenneth Kasa back in 1995: "If you asked a random sample of economists to name the three most difficult questions confronting mankind, the answers would probably be: (1) What is the meaning of life? (2) What is the relationship between quantum mechanics and general relativity? and (3) What's going on in the foreign exchange market. (Not necessarily in that order)."
But even after duly acknowledging that exchange rates can be a tough subject, the political discussion of how exchange rates are manipulated and unfair to the US economy is a dog's breakfast of confusions about facts, institutions, and economics. For one of many possible examples, see the op-ed published in the Wall Street Journal last week by Judy Shelton, an economist identified as an adviser to the Trump transition team, titled "Currency Manipulation is a Real Problem." The obvious conclusion to draw from that essay, and from a number of other writing on manipulated exchange rates, is that all exchange rates are bad.
Sometimes other countries have policies that the value of their currency is lower relative to that of the US dollar. This is bad, because it benefits exporters from those countries and helps them to sell against US companies in world markets.
But other times, countries are manipulating the value of the exchange rate so that the value of their currency is higher relative to the US dollar, like China. This is also bad, as Shelton write in the WSJ: "Whether China is propping up exchange rates or holding them down, manipulation is manipulation and should not be overlooked. ... A country that props up the value of its currency against the dollar may have strategic goals for investing in U.S. assets."
Exchanges rates that move are bad, too. Shelton writes that "free trade should be based on stable exchange rates so that goods and capital flow in accordance with free-market principles."
But stable exchange rates are also bad. After all, China is apparently stabilizing its exchange rate at the "wrong" level, and the argument that exchange rate manipulation is a problem clearly implies that many major exchange rates around the world should be reshuffled to different levels.
The bottom line is clear as mud. Exchange rates are bad if they are higher, or lower, or moving, or stable. The goal is that exchange rates should be manipulated to arrive at some perfect level, and then should just stick at that level without any further manipulation, which would be forbidden. This perspective on exchange rates is so confused as to be incoherent. With the perils of explaining exchange rates in mind, let me lay out some alternative facts and perspectives.
Currencies are traded in international markets; indeed, about $5 trillion per day is traded on foreign exchange markets. This amount is vastly more than what is needed for international trade of goods and services (about $24 trillion per year) or for foreign direct investment (which is about $1.0-1.5 trillion per year). Thus, exchange rate markets are driven by investors trying to figure out where higher rates of return will be available in the future, while simultanously trying to reduce and diversify the risks they face if exchange rates shift in a way they didn't expect. Because of these dynamics, exchange rate markets are notoriously volatile. For example, they often react quickly and sharply when new information arises about the possibilities of changes in national-level interest rates, inflation rates, and growth rates.
In this context, deciding whether exchange rates have bubbled too high or too low is a tricky business. But William R. Cline regularly puts out a set of estimates. For example, he writes in "Estimates of Fundamental Equilibrium Exchange Rates, November 2016" (Peterson Institute for International Economics, Policy Brief 16-22):
"As of mid-November, the US dollar has become overvalued by about 11 percent. The prospect of fiscal stimulus and associated interest rate increases under the new US administration risks still further increases in the dollar. The new estimates, all based on October exchange rates, again find a modest undervaluation of the yen (by 3 percent) but no misalignment of the euro and Chinese renminbi. The Korean won is undervalued by 6 percent. Cases of significant overvaluation besides that of the United States include Argentina (by about 7 percent), Turkey (by about 9 percent), Australia (by about 6 percent), and New Zealand (by about 4 percent). A familiar list of smaller economies with significantly undervalued currencies once again shows undervaluation in Singapore and Taiwan (by 26 to 27 percent), and Sweden and Switzerland (by 5 to 7 percent)."
Several points are worth emphasizing here. The exchange rates of the euro, China's renminbi, and Japan's yen don't appear much overvalued. The US dollar does seem overvalued, but the underlying economic reasons aren't mainly about manipulation by other countries. Instead, it's because investor in the turbulent foreign exchange markets are looking ahead at promises from the Trump administration that would lead to large fiscal stimulus and predictions from the Federal Reserve of higher exchange rates, and demanding more US dollars as a result.
Countries around the world have sought different ways to grapple with risks of exchange rate fluctuations. Small- and medium-sized economies around the world are vulnerable to a nasty cycle in which they first become a popular destination for investors around the world, who hasten to buy their currency (thus driving up its value), as well as investing in their national stock and real estate markets (driving up their prices), and also lending money. But when the news shifts and some other destination becomes the flavor-of-the-month as an investment destination, then as investors sell off the currency and their investments in the country, the exchange rate, stock market, and real estate can all crash. This situation can become even worse if the country has done a lot of borrowing in US dollars, because when the exchange rate falls, it becomes impossible to repay those US-dollar loans. The combination of falling stock market and real estate prices, together with a wave of bad loans, can lead to severe distress in the country's financial sector and steep recession. For details, check with Argentina, Mexico, Thailand, Indonesia, Russia, and a number of others.
The International Monetary Fund puts out regular reports describing exchange rate arrangements, like the Annual Report on Exchange Arrangements and Exchange Restrictions 2014. That report points out that about one-third of the countries in the world have floating exchange rates--that is, rates that are mostly or entirely determined by those $5 trillion per day exchange rate markets. About one-eighth of the countries in the world have "hard peg" exchange rate, in which the country either doesn't have its own separate currency (like the countries sharing the euro) or else the countries technically have a separate currency but manage it so that the exchange rate is always identical (a "currency board" arrangement).
The rest of the economies in the world have some form of "soft peg" or "managed" exchange rate policy. These countries don't dare to leave themselves open to the full force and fluctuations of the international exchange rate markets. But on the other hand, they also don't dare lock in a stable exchange rate in a way that can't change, no matter the cross-national patterns of interest rates, inflation rates, and growth rates. Many of these countries are quite aware that the ultra-stable exchange rate known as the euro has not, to put it mildly, been an unmixed blessing for the countries of Europe.
The fundamental issue is that an exchange rate is a price, the price of one currency in terms of another currency. A weaker currency tends to favor exporters, because their production costs in the domestic currency are lower compared to the revenue they gain when selling in a foreign currency.
A stronger currency tends to favor importers, because they can afford to buy more goods in the supermarket that is the world economy.
Of course, the reality is that the US economy has all kinds of different players, some of whom would benefit from a stronger exchange rate and some of whom would benefit from a weaker exchange rate. Think about the difference between a firm that imports inputs, uses them in production, and re-exports much of the output, as opposed to a form that imports goods that are sold directly to US consumers. Think about the difference between a worker in a firm that does almost no exporting, but benefits as a consumer from stronger exchange rates, and a worker in a firm that does most of its production in the US and then exports heavily, where the employer would benefit from a weaker exchange rate. Think about a firm which has invested heavily in foreign assets: a weaker US dollar makes those foreign assets worth relatively more in US dollar terms, thus rewarding the firm for its foresight in investing abroad.
Here's one useful way to cut through the confusions about what a higher or lower exchange rate means, which is from work done by economists Gita Gopinath, Emmanuel Farhi, Oleg Itskhoki, who point out that the economic effects of changes in exchange rates are fundamentally the same as a policy that combines changes in value-added and payroll taxes. Specifically, a weaker currency has the same effect as a policy of a policy of raising value-added taxes and cutting payroll taxes by an equivalent amount. This should make some intuitive sense, because a weaker currency makes it harder for buyers (like a higher value-added tax) but reduces the relative costs of domestic production (like a lower payroll tax).
In short, every time the US exchange rate moves, for whatever reason, there will be a mixed bag of those who benefit and those who are harmed. A weaker currency is the economic equivalent of combining a higher tax that hinders consumption, like the higher value-added (or sales) tax, with an offsetting cut in a tax that lowers costs of domestic production, like the lower payroll tax. If the policy goal is to help US exporters, but not to impose costs on US importers and consumers, then seeking a lower US dollar exchange rate is the wrong policy tool. It is a mirage (and a fundamental confusion) to argue that some change in the dollar exchange rate will be all benefits and no costs for the US economy.
Just to be clear, I'm certainly not arguing that exchange rates are never "too high" or "too low"; it's clear that exchange rates are volatile and can have bubbles and valleys.
Nor am I arguing that countries never try to manipulate their exchange rates; indeed, I would argue that every country manipulates its exchange rates in one way or another. If countries allow their exchange rates to float, then when the central bank adjusts interest rates or allows a chance in inflation or stimulates an economy, the exchange rate is going to shift, which is clearly a way in which exchange rates are manipulated by policy. If countries don't let their exchange rates move, that's clearly a form of manipulation. And if countries allow their exchange rates to move, but act to limit big swings in those movements, that is also manipulation.
What I am arguing is that given even a basic notion how exchange rate markets work and the economic forces that affect exchange rates, it is opaque how "non-manipulation" would work. Are exchange rates going to be held stable across countries, even in the face of cross-national economic changes in interest rates, inflation, and growth? A wide variety of experience, including the breakdown of the Bretton Woods agreement in the early 1970s and the current problems with euro, suggest that holding exchange rates stable is impractical over time and can have some very bad consequences. But if exchange rates are going to be allowed to move, then the question arises of who decides when and how much. Most national governments, especially after having watched the euro in action, will want to keep some power over exchange rates. There are serious people who discuss what kind of international agreements and cooperation it would take to have greater exchange rate stability, but it's a hard task, and squawking about how all exchange rates are bad--stronger, weaker, moving, stable--is not a serious answer.
- How to Survive the Trump Era - Joseph E. Stiglitz
- 21s tCentury Nationalism Needs to Be Profoundly Cosmopoiltan - Brad DeLong
- On the Political Nature of Monetary Policy - Gloomy European Economist
- Combining Bits and Pieces of Likelihood to Study Behavior - Marc Bellemare
- Liquidity Transformation and Open-end Funds - Cecchetti & Schoenholtz
- Is economic uncertainty holding back growth in the euro-area? - Bank Underground
- Border Taxes and the Maquiladora Program - EconoSpeak
Monday, February 20, 2017
Let's Think Harder About the Role of Globalization in Wage Stagnation: It's disturbing. As we face the probable abrogation of NAFTA, possible trade wars with China, Germany, and others, and the total cluster** that is the Trump administration's policies (if any) toward NATO and Russia, a number of really smart and really well-intentioned people are, I think, making rhetorical--and in some cases substantive--errors that are degrading the quality of the debate and increasing the chances of bad outcomes. And they are doing it while trying to be forces for good, light, human betterment, truth, justice, and the American way...
So let me do some boundary policing here...
Let me ask people--all of whom are wiser than I am, or if not wiser smarter, or if not smarter more knowledgeable--to think about whether they really hold the positions they set forward, and think about whether they have set them forward in a way most calculated to guard against destructive misinterpretation. Today: Larry Summers...
Larry's big point here--the headline--is 100% correct: Revoking Trade Deals Will Not Help American Middle Classes. Hold tight to that.
Larry's second point is also correct: the big deal in terms of the changing shape of the American workforce--and, quite plausibly, changing life chances, the collapse of upward mobility, and wage stagnation--is technology: rampant improvement in manufacturing technology coupled with limited demand, for while nearly all of us want one few of us want too and only a minuscule proportion of us want three refrigerators. That means that if you are hoping to be relatively high up in the wage distribution by virtue of your position as a hard-to-replace cog on a manufacturing assembly line, you are increasingly out of luck. If you are hoping for high blue-collar wages to lift your own via competition, you are increasingly out of luck.
But then Larry goes, I think, rhetorically awry. His third point should be that inequality has been a political creation: those elected to power in America in the 1980s were elected on the platform that America's biggest problem was that it was, economically, too equal a society. Economic equality was strangling entrepreneurship and enterprise. And so they undertook policies to raise inequality. Those policies were successful. But we are still waiting for the flourishing of entrepreneurship and enterprise. He passes over this, not because he does not know this but because he has other fish to fry. Passing over what should have been his third point is, I think, a major rhetorical mistake: it is never good to pass up an opportunity to remind readers that the rise in inequality since 1980 has been something that those who made the Reagan Revolution hoped to accomplish and are proud of.
Bargaining power has flowed to finance and the executive suite and away from the shop- and assembly-floor. Top tax rates have come way down. It could have been otherwise--this is, primarily, a thing that has happened in English-speaking countries. It has happened much less elsewhere. It could have happened much less here.
And then, I think, Larry goes rhetorically awry again by passing over what ought to have been his fourth point. Over and above the decision to put the government's thumb on the scale assisting in the rise of inequality, wage stagnation and manufacturing decline have been driven by bad macroeconomic policies. The consequences of the Reagan deficits were to cream midwestern manufacturing and destroy worker bargaining power in export and import-competing industries. The switch from government surpluses to deficits under George W. Bush had much the same consequences. The low-pressure economies of Volcker, late Greenspan, and Bernanke wreaked immense damage. The strong-dollar policy was kept long past its proper sell-by date. A rich country like the United States ought to be a net lender to abroad, and ought to have a dollar policy that supports that net lending. Larry passes over this as well.
And so, rather than going technology--willed inequality--bad macro policies--globalization, Larry jumps from technology to globalization. Globalization thus shows up as the second most important factor affecting middle-class wages and inequality rather than the fourth.
It is at this point that I have, I think, a (rare) substantive disagreement with Larry. And I do acknowledge that when I have substantive disagreements with Larry, I am wrong at least as often as I am right.
Larry sees the coming of globalization as bringing with it a sharp reduction in the market power of American blue-collar workers in mass-production industries, and thus as exerting significant downward pressure on middle class wages and upward pressure on inequality. The live question, he thinks, is how large and significant these pressures have been.
I see it differently. Yes, technology, inequality promotion--union busting, so-called "right to work" laws, stagnant minimum wages, etc.--and lousy macro policies working through their effects on the trade sector have creamed the market bargaining power of American blue-collar workers. But globalization? Globalization's big effect has been to enable the construction of intercontinental value chains and to create a much finer global division of labor. It has greatly weakened the bargaining power of unskilled manufacturing workers here in the United States, yes. But has it done the same to semi-skilled and skilled manufacturing workers? If the United States had imposed barriers to the construction of intercontinental value chains would the semi-skilled and skilled manufacturing workers of the U.S. be better off? Or would they face stronger and more effective competition from firms headquartered in Japan and Europe that had created efficient global value chains?
Unskilled manufacturing jobs are not good jobs. Semi-skilled and skilled manufacturing jobs are. I think that odds are at least 50-50 that Larry has gotten the sign of the effects of globalization on bargaining power wrong for those manufacturing jobs that are worth keeping.
Thus I don't think that Larry should concede that "the advent of global supply chains has changed production patterns in the US" in a manner adverse to the interests of blue-collar and middle-class American workers. I think that might be true, but equally probably might be false. I think we need to think harder about this...
Why do Republicans insist, contrary to the evidence, that tax cuts and deregulation will spur economic growth:
On Economic Arrogance, by Paul Krugman, NY Times: According to press reports, the Trump administration is basing its budget projections on the assumption that the U.S. economy will grow very rapidly over the next decade — in fact, almost twice as fast as independent institutions like the Congressional Budget Office and the Federal Reserve expect. There is, as far as we can tell, no serious analysis behind this optimism; instead, the number was plugged in to make the fiscal outlook appear better.
I guess this was only to be expected from a man who keeps insisting that crime, which is actually near record lows, is at a record high, that millions of illegal ballots were responsible for his popular vote loss, and so on: In Trumpworld, numbers are what you want them to be, and anything else is fake news. ...
The only way we could have a growth miracle now would be a huge takeoff in productivity... This could, of course, happen: maybe driverless flying cars will arrive en masse. But it’s hardly something one should assume for a baseline projection.
And it’s certainly not something one should count on as a result of conservative economic policies. ...
The ... belief that tax cuts and deregulation will reliably produce awesome growth isn’t unique to the Trump-Putin administration. We heard the same thing from Jeb Bush (who?); we hear it from congressional Republicans like Paul Ryan. The question is why. After all, there is nothing — nothing at all — in the historical record to justify this arrogance. ...
The evidence ... is totally at odds with claims that tax-cutting and deregulation are economic wonder drugs. So why does a whole political party continue to insist that they are the answer to all problems?
It would be nice to pretend that we’re still having a serious, honest discussion here, but we aren’t. At this point we have to get real and talk about whose interests are being served.
Never mind whether slashing taxes on billionaires while giving scammers and polluters the freedom to scam and pollute is good for the economy as a whole; it’s clearly good for billionaires, scammers, and polluters. Campaign finance being what it is, this creates a clear incentive for politicians to keep espousing a failed doctrine, for think tanks to keep inventing new excuses for that doctrine, and more.
And on such matters Donald Trump is really no worse than the rest of his party. Unfortunately, he’s also no better.
- How will President Trump reshape the Fed? - Gavyn Davies
- Econometrics: Angrist and Pischke are at it Again - No Hesitations
- Did post-Marxist theories destroy Communist regimes? - Branko Milanovic
- Globalisation and economic nationalism - VoxEU
- Views on industrial strategy from economists - VoxEU
- Relax, Said the Night Man - Twenty-Cent Paradigms
- Let's All Be Keynesians Now - Roger Farmer
- Repealing Dodd-Frank and Basel III - Econbrowser
- Degrowth and Disinvestment: Yea or Nay? - EconoSpeak
- Designing and managing large technologies - Understanding Society
Saturday, February 18, 2017
- Report: Trump team ordered government economists to cook up forecasts - Vox
- Saint Janet Yellen: The Best Fed Chair Ever? - EconoSpeak
- Lobbyists helped bankroll Trump’s transition - Center for Public Integrity
- Why Trump’s 2-for-1 Rule on Regulations Is No Quick Fix - Robert Shiller
- Why Did China’s 2016 Current Account Surplus Fall? - Brad Setser
- A Close Look at the Decline of Homeownership - Liberty Street Economics
- International science collaboration growing at astonishing rate - EurekAlert
- Macro Musings Podcast: Sebastian Mallaby - David Beckworth
- ECB monetary policy and its positive impact on inflation - Banque de France
- Beware of Consultants Bearing Rosy News About Mergers - Noah Smith
- Declining US Investment, Gross and Net - Tim Taylor
Friday, February 17, 2017
Report: Trump transition ordered government economists to cook up rosy growth forecasts: As the White House staff tries to put together a budget for President Donald Trump, they face a fundamental problem. Trump has promised to cut taxes, increase spending on the military and infrastructure, and avoid cuts to Social Security and Medicare. The only way to do that without producing an exploding budget deficit is to assume a big increase in economic growth.
And Nick Timiraos at the Wall Street Journal reports that Trump is planning to do just that — by making things up.
Deep into his story about Trump budget hijinks, Timiraos reveals that “what’s unusual about the administration’s forecasts isn’t just their relative optimism but also the process by which they were derived.” Specifically, what’s unusual about them is that they weren’t derived by any process at all. Instead of letting economists build a forecast, Trump’s budget was put together with “transition officials telling the CEA staff the growth targets that their budget would produce and asking them to backfill other estimates off those figures.” ...