Tuesday, February 21, 2017

Links for 02-21-17

    Posted by on Tuesday, February 21, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (52) 


    Monday, February 20, 2017

    Let's Think Harder About the Role of Globalization in Wage Stagnation

    Brad DeLong:

    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...

      Posted by on Monday, February 20, 2017 at 11:32 AM in Economics, Income Distribution | Permalink  Comments (124) 


      Paul Krugman: On Economic Arrogance

      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.

        Posted by on Monday, February 20, 2017 at 10:05 AM in Economics | Permalink  Comments (87) 


        Links for 02-20-17

          Posted by on Monday, February 20, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (189) 


          Saturday, February 18, 2017

          Links for 02-18-17

            Posted by on Saturday, February 18, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (353) 


            Friday, February 17, 2017

            Report: Trump Transition Ordered Government Economists to Cook Up Rosy Growth Forecasts

            Mathew Yglesias:

            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.” ...

              Posted by on Friday, February 17, 2017 at 01:25 PM in Economics, Politics | Permalink  Comments (64) 


              NAIRU Bashing

              Simon Wren-Lewis:

              NAIRU bashing: The NAIRU is the level of unemployment at which inflation is stable. Ever since economists invented the concept people have poked fun at how difficult to measure and elusive the NAIRU appears to be, and these articles often end with the proclamation that it is time we ditched the concept. Even good journalists can do it. But few of these attempts to trash the NAIRU answer a very simple and obvious question - how else do we link the real economy to inflation? ...
              The NAIRU is one of those economic concepts which is essential to understand the economy but is extremely difficult to measure. ...
              While we should not be obsessed by the 1970s, we should not wipe it from our minds either. Then policy makers did in effect ditch the NAIRU, and we got uncomfortably high inflation. In 1980 in the US and UK policy changed and increased unemployment, and inflation fell. There is a relationship between inflation and unemployment, but it is just very difficult to pin down. For most macroeconomists, the concept of the NAIRU really just stands for that basic macroeconomic truth. ...

                Posted by on Friday, February 17, 2017 at 11:41 AM in Economics, Macroeconomics, Methodology | Permalink  Comments (86) 


                Paul Krugman: The Silence of the Hacks

                The truth is out there:

                The Silence of the Hacks, by Paul Krugman, NY Times: The story so far: A foreign dictator intervened on behalf of a U.S. presidential candidate — and that candidate won. Close associates of the new president were in contact with the dictator’s espionage officials during the campaign, and his national security adviser was forced out over improper calls to that country’s ambassador...
                Meanwhile, the president seems oddly solicitous of the dictator’s interests, and rumors swirl about his personal financial connections to the country in question. ...
                Maybe ... it’s all perfectly innocent. But if it’s not innocent, it’s very bad indeed. So what do Republicans in Congress, who have the power to investigate the situation, believe should be done?
                Nothing.
                Paul Ryan ... says that Michael Flynn’s conversations with the Russian ambassador were “entirely appropriate.”
                Devin Nunes, the chairman of the House Intelligence Committee, angrily dismissed calls for a select committee to investigate contacts during the campaign: “There is absolutely not going to be one.”
                Jason Chaffetz, the chairman of the House oversight committee — who hounded Hillary Clinton endlessly over Benghazi — declared that the “situation has taken care of itself.”
                Just the other day Republicans were hot in pursuit of potential scandal, and posed as ultrapatriots. Now they’re indifferent to actual subversion and the real possibility that we are being governed by people who take their cues from Moscow. ...
                The point is that you can’t understand the mess we’re in without appreciating not just the potential corruption of the president, but the unmistakable corruption of his party — a party so intent on cutting taxes for the wealthy, deregulating banks and polluters and dismantling social programs that accepting foreign subversion is, apparently, a small price to pay. ...
                So how does this crisis end? It’s not a constitutional crisis — yet. But Donald Trump is facing a clear crisis of legitimacy. ... And nothing he has done since the inauguration allays fears that he is in effect a Putin puppet.
                How can a leader under such a cloud send American soldiers to die? How can he be granted the right to shape the Supreme Court for a generation? ...
                The thing is, this nightmare could be ended by a handful of Republican legislators willing to make common cause with Democrats to demand the truth. And maybe there are enough people of conscience left in the G.O.P.
                But there probably aren’t. And that’s a problem that’s even scarier than the Trump-Putin axis.

                  Posted by on Friday, February 17, 2017 at 01:23 AM in Economics, Politics | Permalink  Comments (194) 


                  Links for 02-17-17

                    Posted by on Friday, February 17, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (166) 


                    Thursday, February 16, 2017

                    Low Real Interest Rates: Depression Economics, Not Secular Trends

                    Gene Kindberg-Hanlon at Bank Underground:

                    Low real interest rates: depression economics, not secular trends: Real interest rates have fallen by around 5 percentage points since the 1980s. Many economists attribute this to “secular” trends such as a structural slowdown in global growth, changing demographics and a fall in the relative price of capital goods which will hold equilibrium rates low for a decade or more (Eggertsson et al., Summers, Rachel and Smith, and IMF). In this blog post, I argue this explanation is wrong because it’s at odds with pre-1980s experience. The 1980s were the anomaly (chart A). The decline in real rates over the 1990s and early 2000s simply reflected a return to historical norms from an unusually high starting point. Further falls since 2008 are far more plausibly related to the financial crisis than secular trends.
                    Chart A: US 1 year real interest rates since 1900
                    Charta
                    Source: Robert Shiller and author’s calculations
                    Note: Simple estimate of real rates using 1-year US treasury bill converted to a real yield using the year-ahead CPI outturn. Model-based estimates of short and long-term real interest rates show similar trends to the above chart (for example, see IMF).

                    Do secular trends affecting real interest rates fit the data before the 1980s?

                    Studies proposing a secular fall in real interest rates have generally taken the 1980s as their starting point. However, the 1980s appear to be an anomaly, as real interest rates were well above rates observed earlier in the 20th century. The secular trends proposed to be causing declining real rates since the 1980s do not fit the data beforehand. ...

                    ... It would not be the first time that economists had fallen into the trap of assuming growth and interest rates would remain permanently lower for longer as a result of secular trends following a large financial crisis. In the late 1930s, Alvin Hansen developed the term “secular stagnation” to describe his concerns that structural factors such as stagnant technological development and weaker population growth prospects would weigh on growth permanently. We know now that these concerns over secular trends proved misplaced, and played little role in weaker growth. But there is large uncertainty over the length and depth of the slowdown in growth following a broad-based financial crisis of the severity seen in 2008. The Great Depression was only ended by rearmament and war, but other financial crises have seen recoveries at or before the 10-year mark. Are we now at a point in which the effects of the 2008 crisis on interest rates may begin to wear off?

                      Posted by on Thursday, February 16, 2017 at 10:07 AM in Economics | Permalink  Comments (80) 


                      Links for 02-16-17

                        Posted by on Thursday, February 16, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (234) 


                        Wednesday, February 15, 2017

                        Jeb Hensarling's Alternative Facts

                        Adam Levitin:

                        Jeb Hensarling's Alternative Facts: House Financial Services Committee Chairman Jeb Hensarling (R-Texas 5th) has an alternative fact problem. In a Wall Street Journal op-ed Hensarling alleged that "Since the CFPB’s advent, the number of banks offering free checking has drastically declined, while many bank fees have increased. Mortgage originations and auto loans have become more expensive for many Americans.”
                        The problem with these claims?  They are verifiably false.  Free checking has become more common, bank fees have plateaued after decades of steep increases, and both mortgage rates and auto loan rates have fallen. One can question how much any of these things are causally related to the CFPB, but using Hensarling's logic, the CFPB should be commended for expanding free checking and bringing down mortgage and auto loan rates. Hmmm.  
                        Below the break I go through each of Chairman Hensarling's claims and demonstrate that each one is not only unsupported, but in fact outright contradicted by the best evidence available, general FDIC and Federal Reserve Board data. ...
                        ...Bottom line:  Jeb Hensarling's claims about the CFPB are based on a set of utterly concocted alternative facts. This is not the way we should be making policy.

                          Posted by on Wednesday, February 15, 2017 at 11:20 AM in Economics, Financial System, Regulation | Permalink  Comments (31) 


                          The Problem with Puzder as Labor Secretary

                          My latest at MoneyWatch:

                          The problem with Puzder as Labor Secretary: Donald Trump’s pick for secretary of labor, Andrew Puzder, is scheduled to undergo confirmation hearings Thursday before the Senate Health, Education, Labor and Pensions Committee. Prior to his nomination, Puzder was the CEO of CKE Restaurants, the parent company of fast-food chains Hardee’s and Carl’s Jr.
                          Democrats and other critics of Puzder’s nomination have raised concerns about Puzder’s employment of an undocumented housekeeper (a transgression that has disqualified nominees of previous administrations). But for me, the biggest issue is the extent to which he can fulfill the Labor Department’s own stated mission, to be an advocate for labor...

                          It ends with:

                          ...that’s a portrait of a “Secretary of Business Owners” rather than a “Secretary of Labor.” In this time of rising inequality, stagnant wages and increasing economic insecurity due to globalization and technological change, workers need someone to protect their interests, someone willing to work endlessly to improve all aspects of their working lives.
                          President Trump promised workers that he would stand up for them and bring decent jobs to regions of the country that have struggled in recent years. In my eyes, the nomination of Puzder for labor secretary betrays that promise, and to me, that’s reason enough that he should not be confirmed.

                            Posted by on Wednesday, February 15, 2017 at 11:06 AM in Economics, Politics, Unemployment | Permalink  Comments (28) 


                            Links for 02-15-17

                              Posted by on Wednesday, February 15, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (284) 


                              Tuesday, February 14, 2017

                              What Type of Tax Changes Boost Economic Growth?

                              Me, at MoneyWatch:

                              Not just any kind of tax cut can boost economic growth: President Donald Trump promised last week he would unveil a “phenomenal” tax reform package in the next few weeks. Although no details were offered, Mr. Trump’s past statements suggest that his proposal will adhere to fairly standard supply-side principles.
                              The idea behind supply-side policy is to encourage more investment, more labor effort and technological innovation through changes in the tax code and regulatory structure.
                              Have these policies been successful in the past? Are some types of policies better than others at spurring economic growth? To answer those questions, it’s useful to put supply-side policies into broad categories...

                                Posted by on Tuesday, February 14, 2017 at 10:45 AM in Economics, MoneyWatch, Taxes | Permalink  Comments (118) 


                                On inequality in China

                                Thomas Piketty:

                                On inequality in China: With Trump and Brexit, the Western-type democratic model is under fire. The Chinese media are having a field day. In column after column, the Global Times (official daily newspaper) condemns the explosive cocktail of nationalism, xenophobia, separatism, TV-reality, vulgarity and ‘money reigns supreme’, the outcome of the so-called free elections and the wonderful political institutions which the West would like to impose on the world. No more lessons!
                                Recently the Chinese authorities organised an international colloquium on ‘The Role of Political Parties in Global Economic Governance’. The message sent to the colloquium by the Chinese Communist Party (CCP) was perfectly clear. Reliance on solid intermediary institutions such as the CCP (which includes 90 million members, or roughly 10% of the adult population, almost as many as the number of voters in the American or French primaries) enables the organisation of discussions and decision-making and the design of a model for stable, harmonious and duly considered development in which identity conflicts can be overcome.
                                By so doing, the Chinese regime may well be over-confident. The limits of the model are well known, beginning with the total lack of transparency and the ferocious repression suffered by all those who condemn the opacity of the regime. ...

                                  Posted by on Tuesday, February 14, 2017 at 12:24 AM in China, Economics, Income Distribution | Permalink  Comments (89) 


                                  Links for 02-14-17

                                    Posted by on Tuesday, February 14, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (189) 


                                    Monday, February 13, 2017

                                    Fed Watch: Takeaways From Fischer Speech

                                    Tim Duy:

                                    Takeaways From Fischer Speech, by Tim Duy: Federal Reserve Governor Stanley Fischer gave a very nice speech this weekend that shed light on the current monetary policymaking process. I found three points particularly notable. First:
                                    One important but underappreciated aspect of the SEP is that its projections are based on each individual's assessment of appropriate monetary policy. Each FOMC participant writes down what he or she regards as the appropriate path for policy. They do not write down what they expect the Committee to do. Yet the public often misinterprets the interest rate paths we write down as a projection of the Committee's policy path or a commitment to a particular path.
                                    The interest rate projections in the SEP do not represent the Committee’s forecast because there is no such forecast. And they certainly do not represent a policy commitment. It is often easy, however, to use the shorthand of referring to the median of the SEP projections as the Fed’s forecast, which is why we fall in the habit of doing so. It is important to realize, however, that this is not an official forecast, and even if it were, it can change over the year so it is not a promise.
                                    My preference is to view the median SEP projection as a baseline to assess policy shifts throughout the year. For instance, I do not believe that incoming data suggests that the Fed will raise its projection relative to the baseline at the upcoming March FOMC meeting. In other words, the median projection is not likely to shift from three to four hikes. This further suggests that given the Fed’s predilection to delay rate hikes in favor of further labor market gains, there is no pressing reason for the Fed to hike in March. They still have plenty of time to raise rates three times this year if necessary and the data do not suggest they need to move early to act on the possibility of needing four rate hikes this year. So no rate hike is likely in March.
                                    A second point from Fischer:
                                    Figure 2 reproduces panels from the April 2011 Tealbook that show the staff's baseline forecast--the solid black line--as well as prescriptions from three simple policy rules that were generated using the FRB/US model. The panel on the left shows the paths for the federal funds rate, while the panels on the right show the implications of those policy prescriptions for the unemployment rate and core PCE (personal consumption expenditures) price inflation, respectively…
                                    … How does the FOMC choose its interest rate decision? Fundamentally, it uses charts like those shown in figure 2 as an important input into the discussion. And in their discussion, members of the FOMC explain their policy choices, and try to persuade other members of the FOMC of their viewpoints.
                                    The chart:

                                    Fischer

                                    An important takeaway here is that the Fed makes monetary policy decisions on the basis of a medium term forecast. In other words, they tailor policy to meet their objectives over the medium term. This stands in contrast with criticism that the Fed either only sees the short-term outcomes of their actions or that they base policy only on the last piece of data. In reality, they are incorporating that most recent data into the medium term forecast and adjusting policy appropriately.
                                    This process, however, is challenging for the public to understand. Moreover, I do not think the Fed has spent sufficient time explaining their actions in terms of the forecast. I suspect that the Fed may not be doing itself any favors with the opening paragraph of the FOMC statement, which is backwards-looking in nature and portrays the impression that the most recent data is the basis of policymaking. I thus appreciate that Fischer is using charts like these to explain policy choices and hope to see more of it in the future.
                                    A final point from Fischer:
                                    As the August 2011 meeting illustrates, the eureka moment I thought I had 50-plus years ago was a chimera. Why is that? First, the economy is very complex, and models that attempt to approximate that complexity can sometimes let us down. A particular difficulty is that expectations of the future play a critical role in determining how the economy reacts to a policy change. Moreover, the economy changes over time--this means that policymakers need to be able to adapt their models promptly and accurately in real time. And, finally, no one model or policy rule can capture the varied experiences and views brought to policymaking by a committee. All of these factors and more recommend against accepting the prescriptions of any one model or policy rule at face value.
                                    The Fed relies on models, but not only models. Moreover, those models, or the underlying components of those models, such as the natural rate of interest, change over time. This is not a weakness of policymaking, it is a strength. The Fed responds to a ;changing economy. It is not possible to place the Fed in the straightjacket of a simplistic Taylor Rule and expect good outcomes for the economy. Clearly this is intended to push back at ongoing efforts to limit the Fed’s independence.
                                    Bottom Line: Read Fischer’s speech for a greater understanding of the interplay between models, forecasts, data and judgment that governs the Fed’s policy choices.

                                      Posted by on Monday, February 13, 2017 at 03:05 PM in Economics, Fed Watch, Monetary Policy | Permalink  Comments (16) 


                                      Will Trump Bankrupt the Fed as an Institution?

                                      I have a new column:

                                      If Trump Stacks Its Board, He Politicizes the Fed and Demeans Its Independence: Daniel Tarullo announced on Friday that he is resigning from the Federal Reserve Board of Governors in early April, nearly five years before his term expires on January 31, 2022. Governor Tarullo, who was appointed by President Obama in 2009, led the effort to plug the holes in financial regulation that allowed the housing bubble and financial panic to occur. So his resignation comes at an inopportune time for those of us worried about Trump’s plans for wholesale deregulation of the financial sector and the vulnerability to another financial crisis that comes with it. 
                                      Trump could also have a large impact on how the Fed conducts monetary policy..., the Fed could be permanently damaged...

                                        Posted by on Monday, February 13, 2017 at 02:34 AM in Economics, Monetary Policy, Politics | Permalink  Comments (104) 


                                        Paul Krugman: Ignorance Is Strength

                                        There's a reason Republicans don't like experts:

                                        Ignorance Is Strength. by Paul Krugman, NY Times: When I travel to Asia, I’m fairly often met at the airport by someone holding a sign reading “Mr. Paul.” Why? In much of Asia, names are given family first, personal second — at home, the prime minister of Japan is referred to as Abe Shinzo. And the mistake is completely forgivable when it’s made by a taxi driver picking up a professor.
                                        It’s not so forgivable, however, if the president ... makes the same mistake when welcoming the leader of one of our most important economic and security partners. But there it was: Donald Trump referring to Mr. Abe as, yes, Prime Minister Shinzo.
                                        Mr. Abe did not, as far as we know, respond by calling his host President Donald.
                                        Trivial? Well, it would be if it were an isolated instance. But it isn’t. What we’ve seen instead over the past three weeks is an awesome display of raw ignorance on every front. Worse, there’s no hint that either the White House or its allies in Congress see this as a problem. They appear to believe that expertise, or even basic familiarity with a subject, is for wimps; ignorance is strength. ...
                                        And that is, of course, the point. Competent lawyers might tell you that your Muslim ban is unconstitutional; competent scientists that climate change is real; competent economists that tax cuts don’t pay for themselves; competent voting experts that there weren’t millions of illegal ballots; competent diplomats that the Iran deal makes sense, and Putin is not your friend. So competence must be excluded.
                                        At this point, someone is bound to say, “If they’re so dumb, how come they won?” Part of the answer is that disdain for experts — sorry, “so-called” experts — resonates with an important part of the electorate. Bigotry wasn’t the only dark force at work in the election; so was anti-intellectualism, hostility toward “elites” who claim that opinions should be based on careful study and thought. ...
                                        In some ways this cluelessness may be a good thing: malevolence may ... be tempered by incompetence. It’s not just the court defeat over immigration; Republican ignorance has turned what was supposed to be a blitzkrieg against Obamacare into a quagmire, to the great benefit of millions. And Mr. Trump’s imploding job approval might help slow the march to autocracy.
                                        But meanwhile, who’s in charge? Crises happen, and we have an intellectual vacuum at the top. Be afraid, be very afraid.

                                          Posted by on Monday, February 13, 2017 at 12:33 AM Permalink  Comments (229) 


                                          A Credible and Bold Basic Income

                                          Thomas Piketty:

                                          Is our basic income really universal?: After our call « For a credible and bold basic income » launched by a group of ten researchers  (Antoine Bozio, Thomas Breda, Julia Cagé, Lucas Chancel, Elise Huillery, Camille Landais, Dominique Méda, Emmanuel Saez, Tancrède Voituriez), we received considerable support and also, of course, questions and requests for clarification. The first question was: Given that the system of a basic income which we propose does not defend the idea of an identical monthly allowance paid to each individual, is it really universal? The question is legitimate and I would like to reply here as clearly as possible. ...

                                          Background (from the link in the excerpt):

                                          ...The goals of the candidates standing in the presidential primary elections launched by the left must be judged on the relevance of their proposals, their impact on the recovery of economic activity and employment in France, and their effect on social cohesion in the country.
                                          The economic and fiscal policy adopted during François Hollande’s five-year term of office has prevented France from engaging in the dynamics of strong and sustainable economic recovery. The choice made in 2012 to forcibly impose an increase in taxes and reduce deficits in a period of recession killed any hope of growth. The numerous warnings launched in this respect remained unanswered. Those who bear the responsibility for this disastrous policy and who claim to have had no part in it must be held to account today.
                                          In the ongoing debates in the primaries, discussions are crystallizing around a new issue: a basic income (in French sometime referred to as a « revenu universel » or « revenu de base »). Benoît Hamon is faced with the accusation that he is incompetent to govern because he introduced this proposal. According to his critics, the introduction of a basic income would mean bankruptcy for France. The accusation is easily made but over-hasty. Economically and socially, a basic income can be both relevant and innovative. It could be quite the reverse of the fiscal and budgetary choices made in 2012 and in particular the incredibly complex and inefficient tax credit for competitivity and employment, not to mention the exoneration of overtime which even the right wing has abandoned and Manuel Valls would like to bring back today. Properly designed and defined, the basic income can be a structuring element in a new foundation for our social model. ...

                                            Posted by on Monday, February 13, 2017 at 12:24 AM in Economics, Social Insurance | Permalink  Comments (22) 


                                            Links for 02-13-17

                                              Posted by on Monday, February 13, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (70) 


                                              Saturday, February 11, 2017

                                              Links for 02-11-17

                                                Posted by on Saturday, February 11, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (285) 


                                                Friday, February 10, 2017

                                                Fed's Bullard Knows His Treasury Yield Curve

                                                Tim Duy:

                                                Fed's Bullard Knows His Treasury Yield Curve: Having tipped their toes in the water with two interest-rate hikes -- and more expected to come -- the Federal Reserve officials have begun the discussion about reducing the size of the central bank’s $4.45 trillion balance sheet. To date, they have tended to look at interest rate-policy as separate from balance-sheet policy. Once the former is heading toward normalization, then they can begin the latter... Continued at Bloomberg Prophets ...

                                                  Posted by on Friday, February 10, 2017 at 10:46 AM in Economics, Monetary Policy | Permalink  Comments (18) 


                                                  Paul Krugman: When the Fire Comes

                                                  Who will stop him?:

                                                  When the Fire Comes, by Paul Krugman, NY Times: ...there’s a pretty good chance that sometime over the next few years something nasty will happen — a terrorist attack on a public place, an exchange of fire in the South China Sea, something. Then what?
                                                  After 9/11, the overwhelming public response was to rally around the commander in chief. Doubts about the legitimacy of a president who lost the popular vote and was installed by a bare majority on the Supreme Court were swept aside. Unquestioning support for the man in the White House was, many Americans believed, what patriotism demanded. ...
                                                  Unfortunately, the suspension of critical thinking ended ... badly. The Bush administration exploited the post-9/11 rush of patriotism to take America into an unrelated war, then used the initial illusion of success in that war to ram through huge tax cuts for the wealthy.
                                                  Bad as that was, however, the consequences if Donald Trump finds himself similarly empowered will be incomparably worse. ...
                                                  Mr. Trump’s attack on Judge James Robart, who put a stay on his immigration ban, was ... unprecedented. ... The really striking thing about Mr. Trump’s Twitter tirade, however, was his palpable eagerness to see an attack on America, which would show everyone the folly of constraining his power... What we see here is the most powerful man in the world blatantly telegraphing his intention to use national misfortune to grab even more power. And the question becomes, who will stop him?
                                                  Don’t talk about institutions, and the checks and balances they create. Institutions are only as good as the people who serve them. Authoritarianism, American-style, can be averted only if people have the courage to stand against it. So who are these people?
                                                  It certainly won’t be Mr. Trump’s inner circle. It won’t be Jeff Sessions, his new attorney general... It might be the courts — but Mr. Trump is doing all he can to delegitimize judicial oversight in advance.
                                                  What about Congress? Well..., maybe, just maybe, there are enough Republican senators who really do care about America’s fundamental values to cross party lines in their defense. But given what we’ve seen so far, that’s just hopeful speculation.
                                                  In the end, I fear, it’s going to rest on the people — on whether enough Americans are willing to take a public stand. We can’t handle another post-9/11-style suspension of doubt about the man in charge; if that happens, America as we know it will soon be gone.

                                                    Posted by on Friday, February 10, 2017 at 02:07 AM in Politics | Permalink  Comments (187) 


                                                    Links for 02-10-17

                                                      Posted by on Friday, February 10, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (124) 


                                                      Thursday, February 09, 2017

                                                      Three Reasons We’re Not Yet at Full Employment

                                                      Jared Bernstein:

                                                      Three reasons we’re not yet at full employment: It is often asserted that the U.S. labor market, where unemployment has been at or below 5 percent since late 2015, has reached full employment. But I’ve got three reasons we’re not yet quite there yet:
                                                      — the underemployment employment rate is still too high;
                                                      — employment rates are still too low;
                                                      — wage pressures are still too mild.
                                                      I’ll explain each in turn...

                                                        Posted by on Thursday, February 9, 2017 at 10:31 AM in Economics, Unemployment | Permalink  Comments (69) 


                                                        Housing Crisis Boxed in Some Job Seekers

                                                        Jay Fitzgerald at the NBER Digest:

                                                        Housing Crisis Boxed in Some Job Seekers: The housing crash of 2007-08 devastated many homeowners who suddenly found themselves facing an array of woes, from owning homes no longer worth the purchase prices to keeping up with mortgage payments amidst one of the worst recessions in generations. In Locked in by Leverage: Job Search During the Housing Crisis (NBER Working Paper No. 22929), Jennifer Brown and David A. Matsa find that being underwater on a mortgage in a distressed housing market impeded the job searches of these homeowners by reducing their mobility. By constraining job search, this reduced mobility likely damaged their long-term compensation and career prospects.
                                                        Housing-market downturns can devastate homeowners' overall wealth, and lower housing values can actually "lock in" owners who can't sell their homes with negative equity, forcing them to remain in their homes and limiting their mobility to buy homes and find work elsewhere. But little is known about how a housing bust specifically affects labor supply, largely because it's difficult to separate effects on labor supply and on labor demand.

                                                        These researchers studied the crash's effect on job searches. With data from a large online job search platform, they analyzed more than four million applications to 60,000 online job postings in the financial services sector between May 2008 and December 2009. The data encompassed a rich array of jobs, including posts for bank tellers, administrative assistants, software engineers, account executives, and financial advisers. The postings were spread across all 50 states, 12,157 ZIP codes and more than 700 commuting zones.

                                                        The researchers matched information from the job search platform to housing market data. Monthly estimates of home values and borrowing were drawn from Zillow and CoreLogic's Loan-Level Market Analytics, while labor market data came from the U.S. Bureau of Labor Statistics and the Bureau of the Census.
                                                        Home value declines and the presence of negative equity led job seekers in depressed housing markets to apply for fewer jobs that required relocation; a 30 percent decline in home values led to a 15 percent decline in applications for jobs outside of the job seeker's commuting zone.

                                                        Housing

                                                        When job searchers were constrained geographically due to the "lock in" effect of lower home values, they were more likely to apply for lower-level and lower-paying positions within their commuting zone.
                                                        This constrained search pattern was particularly pronounced in distressed housing markets with recourse mortgages, which allow lenders to go after a defaulting homeowner's other assets. The researchers found clear job-search differences in border areas in which one state allowed recourse mortgages and the other did not.
                                                        From the standpoint of firms, the constrained search of some prospective workers had two effects. Firms had reduced access to a national labor market if millions of Americans couldn't or wouldn't relocate due to housing value concerns. At the same time, firms within distressed housing markets faced less competition for labor and benefited by being able to hire well qualified workers at lower salaries than they might otherwise have had to offer.
                                                        The researchers conclude that the housing market has important effects on the labor market, as "workers who accept positions below their skill or experience levels forego opportunities to build their human capital." They note that those forced to seek lower-level jobs than they would typically consider could also crowd out other workers, who in turn suffer, creating a far-reaching labor market ripple effect "even if housing market constraints are short-lived."

                                                          Posted by on Thursday, February 9, 2017 at 10:27 AM in Economics, Housing, Unemployment | Permalink  Comments (12) 


                                                          Links for 02-09-17

                                                            Posted by on Thursday, February 9, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (138) 


                                                            Wednesday, February 08, 2017

                                                            Competition from China Reduced Domestic Innovation

                                                            Steve Maas at the NBER Digest:

                                                            Competition from China Reduced Domestic Innovation: While much attention has been paid to the impact of Chinese imports on U.S. factory employment, relatively little has been focused on other affected areas, such as innovation by American manufacturers.
                                                            In Foreign Competition and Domestic Innovation: Evidence from U.S. Patents (NBER Working Paper No. 22879), David Autor, David Dorn, Gordon H. Hanson, Gary Pisano, and Pian Shu compare firm-level data on patents obtained in the period 1975 to 1991—before the surge in Chinese imports—with data for the period 1991 to 2007. They find that while patent output and exposure to trade were not significantly correlated in the earlier period, they were in the latter.
                                                            China's exports made up nearly 19 percent of the world's total in 2013, up from just 2.3 percent in 1991. The study finds that corporations in U.S. industries where the Chinese made their greatest inroads experienced the most pronounced decline in innovation.

                                                            Innovation

                                                            The researchers use patents as their main proxy for innovation, but the study's conclusions are corroborated by corresponding trends in research and development spending. Corporations tightened their belts across the board as imports eroded revenues. There was no association between rising imports and patents generated among entities relatively immune to international market forces, such as universities, hospitals, and nonprofit research institutions.
                                                            In conducting their study, the researchers controlled for other factors that could influence the rate of patent generation, such as the post-2001 dot-com bust, a trend toward greater scrutiny of patent applications, and pre-existing trends in the rate of patenting in key industries.
                                                            The study's long-term perspective, using data from 1975 to 2007, reveals a growth trend in patenting in the computer and electronics industries and a trend of stagnation of patenting in chemicals and pharmaceuticals, which are two of the most important sectors for innovation. Both of these trends predate the surge in Chinese import competition of the 1990s and 2000s, which was much stronger in the computer and electronics industries than in industries that create new chemical patents.
                                                            Given the countervailing trends in these two large, patent-intensive sectors, simple correlations would suggest — misleadingly, it turns out—that industries with larger increases in trade exposure during the sample period of 1991 to 2007 did not exhibit significant falls in patenting. Once the researchers account for preexisting trends in just these two sectors—computers and chemicals—the adverse impact of trade exposure on industry patenting becomes strongly apparent and can be precisely estimated.
                                                            While manufacturing employs less than a tenth of U.S. private nonfarm workers, it accounts for two-thirds of the country's research and development spending and corporate patents. "The relationship between competition in the global marketplace and the creation of new products and production processes is thus one of immense importance for the U.S. economy," they write.
                                                            The researchers ask why corporations do not spend more on innovation in the face of mounting Chinese imports. One possibility is that firms assume increased competition will lead to a permanent decline in the profitability of their market sectors, giving them little incentive to invest. Another is that American consumers, accustomed to low-cost Chinese goods, have become less inclined to pay more for innovative alternatives. A third possibility is that as American companies shifted their factories to lower-cost countries while keeping R&D at home, the geographic separation impeded the coordination that helps fertilize innovation.
                                                            "Each explanation has important implications for both policy and our understanding of the impact of trade on economic performance," the researchers conclude.

                                                              Posted by on Wednesday, February 8, 2017 at 01:59 PM in China, Economics, Productivity, Technology | Permalink  Comments (56) 


                                                              The U.S. Tax Code Actually Doesn’t 'Soak the Rich'

                                                              Nick Buffie at the CEPR:

                                                              The U.S. Tax Code Actually Doesn’t “Soak the Rich” : In 2012, Republican presidential candidate Mitt Romney famously commented that 47 percent of Americans were “dependent on government” because they didn’t pay any federal income taxes. He went on to explain that his job was “not to worry about those people.”
                                                              Journalists and other public figures often claim that only the rich pay taxes, supporting this with the argument that the rich pay the vast majority of federal income taxes. However, federal income taxes are just one part of the broader tax code. When we consider other types of federal taxes as well as state and local taxes, it becomes clear that the overall tax code isn’t extremely progressive – in other words, it doesn’t “soak the rich,” and it certainly doesn’t let the poor off the hook. ...

                                                                Posted by on Wednesday, February 8, 2017 at 12:49 PM in Economics, Taxes | Permalink  Comments (19) 


                                                                A Conservative Case for Climate Action

                                                                Feldstein, Halstead, and Mankiw :

                                                                A Conservative Case for Climate Action: Crazy as it may sound, this is the perfect time to enact a sensible policy to address the dangerous threat of climate change. Before you call us nuts, hear us out.
                                                                During his eight years in office, President Obama regularly warned of the very real dangers of global warming, but he did not sign any meaningful domestic legislation to address the problem, largely because he and Congress did not see eye to eye. Instead, Mr. Obama left us with a grab bag of regulations aimed at reducing carbon emissions, often established by executive order. ... As Democrats are learning the hard way, it is all too easy for a new administration to reverse the executive orders of its predecessors.
                                                                On-again-off-again regulation is a poor way to protect the environment. ...
                                                                Our own analysis finds that a carbon dividends program starting at $40 per ton would achieve nearly twice the emissions reductions of all Obama-era climate regulations combined. ...
                                                                The idea of using taxes to correct a problem like pollution is an old one with wide support among economists. ...
                                                                Republicans are in charge of both Congress and the White House. If they do nothing other than reverse regulations from the Obama administration, they will squander the opportunity to show the full power of the conservative canon, and its core principles of free markets, limited government and stewardship. ...

                                                                One suggested edit to the last paragraph: If the Republicans do more than reverse regulations from the Obama administration and impose a carbon tax, they will squander the opportunity to show the full power of the conservative canon, and its core principle of rewarding wealthy supporters in the business community.

                                                                  Posted by on Wednesday, February 8, 2017 at 10:34 AM in Economics, Environment, Politics, Regulation, Taxes | Permalink  Comments (79) 


                                                                  Links for 02-08-17

                                                                    Posted by on Wednesday, February 8, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (241) 


                                                                    Tuesday, February 07, 2017

                                                                    Do Consumers Respond in the Same Way to Good and Bad Income Surprises?

                                                                    Philip Bunn, Jeanne Le Roux, Kate Reinold and Paolo Surico at Bank Underground:

                                                                    Do consumers respond in the same way to good and bad income surprises?: If you unexpectedly received £1000 of extra income this year, how much of it would you spend? All? Half? None? Now, by how much would you cut your spending if it had been an unexpected fall in income? Standard economic theory (for example the ‘permanent income hypothesis’) suggests that your answers should be symmetric. But there are good reasons to think that they might not be, for example in the face of limits on borrowing or uncertainty about future income. That is backed up by new survey evidence, which finds that an unanticipated fall in income leads to consumption changes which are significantly larger than the consumption changes associated with an income rise of the same size ...
                                                                    The asymmetry that we document could have important implications for the way that households respond to changes in their income that are brought about by monetary and fiscal policies. For example, changes in monetary policy redistribute income between borrowers and savers (Cloyne, Ferreira & Surico (2016)). Borrowers reported higher MPCs than savers out of both positive and negative income shocks, as is typically assumed, but the asymmetry in MPCs was clearly present for both groups. Such an asymmetry in MPCs implies that, at least in the short term, a given interest rate rise would have a larger contractionary effect on spending than the expansionary effect from an equivalent fall in rates, although households may respond differently to small changes in rates than they do to large changes in income.

                                                                      Posted by on Tuesday, February 7, 2017 at 12:49 PM in Economics, Fiscal Policy, Monetary Policy | Permalink  Comments (53) 


                                                                      The Great Recession: A Macroeconomic Earthquake

                                                                      Larry Christiano on why the Great Recession happened, why it lasted so long, why it wasn't foreseen, and how it’s changing macroeconomic theory (the excerpt below is about the last of these, how it's changing theory):

                                                                      The Great Recession: A Macroeconomic Earthquake, Federal Reserve Bank of Minneapolis: ...Impact on macroeconomics The Great Recession is having an enormous impact on macroeconomics as a discipline, in two ways. First, it is leading economists to reconsider two theories that had largely been discredited or neglected. Second, it has led the profession to find ways to incorporate the financial sector into macroeconomic theory.

                                                                      Neglected paradigms
                                                                      At its heart, the narrative described above characterizes the Great Recession as the response of the economy to a negative shock to the demand for goods all across the board. This is very much in the spirit of the traditional macroeconomic paradigm captured by the famous IS-LM (or Hicks-Hansen) model,9 which places demand shocks like this at the heart of its theory of business cycle fluctuations. Similarly, the paradox-of-thrift argument10 is also expressed naturally in the IS-LM model.

                                                                       The IS-LM paradigm, together with the paradox of thrift and the notion that a decision by a group of people11 could give rise to a welfare-reducing drop in output, had been largely discredited among professional macroeconomists since the 1980s. But the Great Recession seems impossible to understand without invoking paradox-of-thrift logic and appealing to shocks in aggregate demand. As a consequence, the modern equivalent of the IS-LM model— the New Keynesian model—has returned to center stage.12 (To be fair, the return of the IS-LM model began in the late 1990s, but the Great Recession dramatically accelerated the process.)

                                                                      The return of the dynamic version of the IS-LM model is revolutionary because that model is closely allied with the view that the economic system can sometimes become dysfunctional, necessitating some form of government intervention. This is a big shift from the dominant view in the macroeconomics profession in the wake of the costly high inflation of the 1970s. Because that inflation was viewed as a failure of policy, many economists in the 1980s were comfortable with models that imply markets work well by themselves and government intervention is typically unproductive.

                                                                      Accounting for the financial sector
                                                                      The Great Recession has had a second important effect on the practice of macroeconomics. Before the Great Recession, there was a consensus among professional macroeconomists that dysfunction in the financial sector could safely be ignored by macroeconomic theory. The idea was that what happens on Wall Street stays on Wall Street—that is, it has as little impact on the economy as what happens in Las Vegas casinos. This idea received support from the U.S. experiences in 1987 and the early 2000s, when the economy seemed unfazed by substantial stock market volatility. But the idea that financial markets could be ignored in macroeconomics died with the Great Recession.

                                                                      Now macroeconomists are actively thinking about the financial system, how it interacts with the broader economy and how it should be regulated. This has necessitated the construction of new models that incorporate finance, and the models that are empirically successful have generally integrated financial factors into a version of the New Keynesian model, for the reasons discussed above. (See, for example, Christiano, Motto and Rostagno 2014.)

                                                                      Economists have made much progress in this direction, too much to summarize in this brief essay. One particularly notable set of advances is seen in recent research by Mark Gertler, Nobuhiro Kiyotaki and Andrea Prestipino. (See Gertler and Kiyotaki 2015 and Gertler, Kiyotaki and Prestipino 2016.) In their models, banks finance long-term assets with short- term liabilities. This liquidity mismatch between assets and liabilities captures the essential reason that real world financial institutions are vulnerable to runs. As such, the model enables economists to think precisely about the narrative described above (and advocated by Bernanke 2010 and others) about what launched the Great Recession in 2007. Refining models of this kind is essential for understanding the root causes of severe economic downturns and for designing regulatory and other policies that can prevent a recurrence of disasters like the Great Recession.

                                                                        Posted by on Tuesday, February 7, 2017 at 10:57 AM in Economics, Macroeconomics, Methodology | Permalink  Comments (54) 


                                                                        Links for 02-07-17

                                                                          Posted by on Tuesday, February 7, 2017 at 12:06 AM in Economics, Links | Permalink  Comments (117)