Travel day. Not sure when I can post.
Wednesday, August 24, 2016
- The Fed and Lehman Brothers - Laurence Ball
- The Impact of Inequality on Social Capital - The Unassuming Economist
- The dirty little secret of central banking - The Washington Post
- Trump’s Fiscal Brainstorm: Cut Taxes for the Rich - Econbrowser
- Combatting External and Internal Regulatory Capture - ProMarket
- How domestic trade frictions shape welfare gains - VoxEU
- The Folly of Prudence, IMF Edition - Paul Krugman
- Recession Probabilities - FRB Cleveland
- The Illusion of Lagging Productivity - Bloomberg View
- Human footprint outpaced by population and economic growth - EurekAlert
- Precision versus bias in multiple choice exams - VoxEU
- Bonuses: here to stay - Stumbling and Mumbling
- On Blanchard - Robert Waldmann
- Minority rule: Migration, Brexit and Mandates - mainly macro
- Don't Lowball the Upside of Fixing Roads and Bridges - Bloomberg View
- Global and Local Housing Markets - The Unassuming Economist
Tuesday, August 23, 2016
David Halpern at Bank Underground:
It’s time to bring more realistic models of human behaviour into economic policy and regulation: The Centre for Central Banking Studies recently hosted their annual Chief Economists Workshop, whose theme was “What can policymakers learn from other disciplines”. In this guest post, one of the keynote speakers at the event, David Halpern, CEO of the Behavioural Insights Team, argues that insights from behavior science can improve the design and effectiveness of economic policy interventions.
Behavior science has had major impacts on policy in recent years. Introducing a more realistic model of human behavior – to replace the ‘rational’ utility-maximizer – has enabled policymakers to boost savings; increase tax payments; encourage healthier choices; reduce energy consumption; boost educational attendance; reduce crime; and increase charitable giving. But there remain important areas where its potential has yet to be realized, including macroeconomic policy and large areas of regulatory practice. Businesses, consumers, and even regulators are subject to similar systematic biases to other humans. These include overconfidence; being overly influenced by what others are doing; and being influenced by irrelevant information. The good news is that behavioral science offers the prospect of helping regulators address some of their most pressing issues. This includes: anticipating and addressing ‘animal spirits’ that drive bubbles or sentiment-driven slowdowns; reducing corrupt market practices; and encouraging financial products that are comprehensible to humans. ...[continue]...
IMF Cannot Quit Fiscal Consolidation (in Asian Surplus Countries): In theory, the IMF now wants current account surplus countries to rely more heavily on fiscal stimulus and less on monetary stimulus.
This shift makes sense in a world marked by low interest rates, the risk that surplus countries will export liquidity traps to deficit economies, and concerns about contagious secular stagnation. Fiscal expansion tends to lower the surplus of surplus countries and regions, while monetary expansion tends to increase surpluses.
And large external surpluses should be a concern in a world where imbalances in goods trade are once again quite large—though the goods surpluses now being chalked up in many Asian countries are partially offset by hard-to-track deficits in “intangibles” (to use an old term), notably China’s ongoing deficit in investment income and its ever-rising and ever-harder-to-track deficit in tourism.
In practice, though, the Fund seems to be having trouble actually advocating fiscal expansion in any major economy with a current account surplus.
Best I can tell, the Fund is encouraging fiscal consolidation in China, Japan, and the eurozone. These economies have a combined GDP of close to $30 trillion. The Fund, by contrast, is, perhaps, willing to encourage a tiny bit of fiscal expansion in Sweden (though that isn’t obvious from the 2015 staff report) and in Korea—countries with a combined GDP of $2 trillion.*
I previously have noted that the Fund is advocating a 2017 fiscal consolidation for the eurozone, as the consolidation the Fund advocates in France, Italy, and Spain would overwhelm the modest fiscal expansion the Fund proposed in the Netherlands (Germany would remain on the fiscal sidelines per the IMF’s recommendation).
The same seems to be true in East Asia’s main surplus economies. ...
Bottom line: if the Fund wants fiscal expansion in surplus countries to drive external rebalancing and reduce current account surpluses, it actually has to be willing to encourage major countries with large external surpluses to do fiscal expansion. Finding limited fiscal space in Sweden and perhaps Korea won’t do the trick. 20 or 30 basis points of fiscal expansion in small economies won’t move the global needle. Not if China, Japan, and the eurozone all lack fiscal space and all need to consolidate over time.
I have a new column:
Why We Need a Fiscal Policy Commission: During the Great Recession, monetary policymakers were aggressive and creative in their attempts to revive the economy. I wish they had been even more aggressive, and at times they were a bit slow to react due to excessive fear of inflation and the tendency to see recovery just around the corner, but their overall response to the crisis was commendable. Unfortunately, monetary policy alone was far from enough to give the economy the help it needed. Fiscal policy was needed too.
But fiscal policymakers let us down. ...
- What Do The Simple Folk Do? - Paul Krugman
- Lessons on inequality, labour markets, and conflict from the Gilded Age - VoxEU
- Negative Nominal Interest Rates (again) - Cecchetti & Schoenholtz
- Automation and Job Loss: Leontief in 1982 - Tim Taylor
- $3.2 Trillion (A Bit More) Isn’t Enough for China’s Reserves? - Brad Setser
- The Washington Post Wants To Cut Social Security Benefits (Again) - EconoSpeak
- The 5, 3, 2 problem at the Federal Reserve - The Washington Post
- Capitalism, neoliberalism & excellence - Chris Dillow
- Macro Musings Podcast: Doug Irwin - David Beckworth
- Danger!! Crazy Neo-Fisherians on the Loose!! - Stephen Williamson
- New Labour and neoliberalism - mainly macro
- Regulators as Validators - ProMarket
- How Do People Revise Their Inflation Expectations? - Liberty Street Economics
- It is not unfair to think of (nearly all) Brexiteers as racists - Crooked Timber
- Ramen noodles supplanting cigarettes as currency among prisoners - EurekAlert
Monday, August 22, 2016
"This election is likely to be decisive for the climate":
The Water Next Time, by Paul Krugman, NY Times: ...The governor of flood-ravaged Louisiana asked President Obama to postpone a personal visit while relief efforts were still underway. ... He made the same request to Donald Trump, declaring, reasonably, that while aid would be welcome, a visit for the sake of a photo op would not.
Sure enough, the G.O.P. candidate flew in, shook some hands, signed some autographs, and was filmed taking boxes of Play-Doh out of a truck. If he wrote a check, neither his campaign nor anyone else has mentioned it. Heckuva job, Donnie! ...
Let’s back up for a minute and talk about the real meaning of the Louisiana floods. In case you haven’t been keeping track, lately we’ve been setting global temperature records every month. ...
And one consequence of a warmer planet is more evaporation, more moisture in the air, and hence more disastrous floods. ... So a proliferation of disasters like the one in Louisiana is exactly what climate scientists have been warning us about.
What can be done? The bad news is that drastic action to reduce emissions of greenhouse gases is long overdue. The good news is that the technological and economic basis for such action has never looked better. In particular, renewable energy — wind and solar — has become much cheaper in recent years, and progress in energy storage looks increasingly likely to resolve the problem of intermittency (The sun doesn’t always shine, the wind doesn’t always blow.) ...
It probably won’t surprise you to hear that..., as with so many issues, Mr. Trump has gone deep down the rabbit hole, asserting not just that global warming is a hoax, but that it’s a hoax concocted by the Chinese to make America less competitive.
The thing is, he’s not alone in going down that rabbit hole..., Mr. Trump is squarely in the Republican mainstream. ...
In any case, this election is likely to be decisive for the climate, one way or another. President Obama has made some serious moves to address global warming, and there’s every reason to believe that Hillary Clinton would continue this push — using executive action if she faced a hostile Congress. Given the technological breakthroughs of the last few years, this push might just be enough to avert disaster. Donald Trump, on the other hand, would do everything in his power to trash the planet, with the enthusiastic support of his party. So which will it be? Stay tuned.
- Helicopter Money: missing the point - mainly macro
- The Gridlock Economy - Paul Krugman
- Remarks on the U.S. Economy - Stanley Fischer
- Human development, inequality and long working hours - VoxEU
- Ramen noodles supplanting cigarettes as currency for prisoners - EurekAlert
- Top Down, Bottom Up - Economic Principals
- Too systemic to fail - Econbrowser
- Equity is cheap for large financial institutions - VoxEU
- Brexit, economists and journalists - mainly macro
Saturday, August 20, 2016
- Slow Learners - Paul Krugman
- Eurozone stability still under threat of a ‘bad shock’ - VoxEU
- The Difficult Math of American Health Care - James Kwak
- Where Median Incomes Have Fallen the Most - Justin Fox
- Convert Carbon Dioxide from the Air to Methanol? - Tim Taylor
- Changes in Meat Consumption - Jayson Lusk
- The Political Economy of Trade - PIIE
- On arms races - Stumbling and Mumbling
- Managers are miscalibrated - VoxEU
- Nash equilibrium - The Economist
Friday, August 19, 2016
Hard truths for the IMF: It is to the IMF’s credit that they have an Independent Evaluation Office, and their recent report on the Eurozone crisis is highly critical of the IMF’s actions. The IMF’s own staff told them in 2010 that Greek debt could well not be sustainable, but the IMF gave in to European pressure not to restructure Greek debt. Instead the Troika went down the disastrous route of excessive austerity, and the IMF underestimated (unwittingly or because they had to) the impact that austerity would have. In the last few years we keep hearing about an ultimatum the IMF has given European leaders to agree to restructure this debt, and on each occasion the IMF appears to fold under pressure.
These repeated errors suggest a structural problem. Back in 2015, Poul Thomsen, who runs the IMF’s European department, said “we need to ensure that we treat our member states equally, that we apply our rules uniformly.” But that is exactly what the IMF has failed to do with the Eurozone and Greece.
As Barry Eichengreen writes..., it is not as if the IMF have had problems demanding commitments from regional bodies such as African or Caribbean monetary unions and central banks in the past. The problem is much more straightforward. He notes that European governments are large shareholders in the Fund, and that “the IMF is a predominantly European institution, with a European managing director, a heavily European staff, and a European culture.”
In other words we have something akin to regulatory capture. The IMF’s job is to be an impartial arbitrator between creditor and debtor, ensuring that the creditor takes appropriate losses for imprudent lending but also that the debtor adjusts its policies so they become sustainable. In the case of the Eurozone it has in effect sided with the creditors, and ruinous austerity has been the result of that.
The Fed’s Effect on Black Americans: The U.S. Federal Reserve appears to be paying more attention to how its policies affect black Americans. This is a wise move...
Imagine we’re in the midst of a severe recession. In deciding how aggressively to respond by lowering interest rates or buying assets, Fed officials must weigh the risk of unduly high inflation against the benefit of reducing unemployment. That benefit will be much greater for blacks..., any policy that reduces the overall unemployment rate by one percentage point ... reduces their unemployment rate by nearly two percentage points.
The differential impact also matters now, as the Fed contemplates removing stimulus. ...
The Fed rightly aims to pursue policies that are best for the economy as a whole. But I don’t believe that it will be seen as truly representative of all Americans unless it understands the differential impact of its policy choices on key demographic subgroups. It’s good to see from the minutes that the central bank is engaged in doing so.
The problems with Obamacare would be easy to fix, the real problem is Congress:
Obamacare Hits a Bump, by Paul Krugman, NY Times: More than two and half years have gone by since the Affordable Care Act, a.k.a. Obamacare, went fully into effect. Most of the news about health reform since then has been good, defying the dire predictions of right-wing doomsayers. But this week has brought some genuine bad news: The giant insurer Aetna announced that it would be pulling out of many of the “exchanges,” the special insurance markets the law established. ...
So what’s the problem?
Well, Obamacare is a system that relies on private insurance companies to provide much of its expanded coverage... And many of these private insurers are now finding themselves losing money, because previously uninsured Americans ... turn out to have been sicker and more in need of costly care than we realized. ...
The bad news mainly hits states that have small populations and/or have governments hostile to reform, where the exit of insurers may leave markets without adequate competition. That’s not the whole country, but it would be a significant setback.
But it would be quite easy to fix the system. It seems clear that subsidies for purchasing insurance, and in some cases for insurers themselves, should be somewhat bigger — an affordable proposition given that the program so far has come in under budget... There should also be a reinforced effort to ensure that healthy Americans buy insurance, as the law requires, rather than them waiting until they get sick. Such measures would go a long way toward getting things back on track.
Beyond all that, what about the public option?
The idea of allowing the government to offer a health plan directly to families was blocked in 2010 because private insurers didn’t want to face the competition. But if those insurers aren’t actually interested in providing insurance, why not let the government step in (as Hillary Clinton is in fact proposing)?
The trouble, of course, is Congress...
That said, there may still be room for action at the executive level. And I’m hearing suggestions that states may be able to offer their own public options; if these proved successful, they might gradually become the norm.
However this plays out, it’s important to realize that as far as anyone can tell, there’s nothing wrong with Obamacare that couldn’t be fairly easily fixed with a bit of bipartisan cooperation. The only thing that makes this hard is the blocking power of politicians who want reform to fail.
- A primer on helicopter money - VoxEU
- More Support for a Higher Inflation Target - Carola Binder
- A Thought Provoking Essay from Fed President Williams - Larry Summers
- Why slightly higher inflation might benefit the U.S. economy - Equitable Growth
- The Staying Power of Staggered Wage & Price Setting in Macro - John Taylor
- Growing importance of financial spillovers from emerging markets - VoxEU
- Preventing the next financial blowout - The Washington Post
- Why Critics Of Free Trade Are Talking China, Not NAFTA - FiveThirtyEight
- Divorce and children’s long-term outcomes - VoxEU
- Gender segregation at work - Equitable Growth
- What Would Clintonomics Bring? - WSJ
- The Political Economy of Trade - PIIE
- On job polarization - Stumbling and Mumbling
- Being an Ideologue Means Never Having to Say You're Wrong - Bloomberg View
- The U.S. Recovery Is Not What It Seems - Bloomberg View
- Competition implications of capital surcharges - Bank Underground
- Notables – Gender Matters
- The two insurgencies - globalinequality
Thursday, August 18, 2016
There was a problem with comments -- they haven't been posting for a day or so.
Hopefully it has been resolved.
I will try to dig them out of the spam filter, but may not get to them all until much later today (will be traveling without internet access).
- The Unwinding of QE Has Begun - David Beckworth
- Recession Watch, August 2016 Updated - Econbrowser
- The Riddle of the Wall Street Brain Drain - Bloomberg View
- Brexit – Britain is paying the price for a badly designed choice - Richard Thaler
- China’s July Reserve Sales: Bigger, But Still Not That Big - Brad Setser
- Credible research designs for minimum wage studies - Equitable Growth
- On the Evils of Hodrick-Prescott Detrending - No Hesitations
- Why We're Still Arguing Whether QE Worked - Bloomberg View
- Uber vs coops - Stumbling and Mumbling
- Why are groceries more expensive in the bulk food section? - Frances Woolley
- A Closer Look at the Fed's Securities Lending Program - Liberty Street
- How America Grew -- and Grew Unequal - Eric Rauchway
- Financial Incentives and Disability Rates - Microeconomic Insights
- Dumping on (anti-)Dumping - Kids Prefer Cheese
- Racism + Sexism Explains 2/3 of Support for Trump - Economists for Hillary
- Brexit and Trump supporters - mainly macro
- Helicopter Money and the Reflux Problem - Uneasy Money
Wednesday, August 17, 2016
[I am traveling, so apologies for the lack of posts lately. Hopefully this will give you something to talk about.]
Liberalism and hate-based extremism, Understanding Society: How should a democratic society handle the increasingly virulent challenges presented by hate groups, anti-government extremists, and organizations that encourage violence and discrimination against others in society? Should extremist groups have unlimited rights to advocate for their ideologies of hatred and antagonism against other groups within a democracy?
Erik Bleich has written extensively on the subject of racist speech and the law. Recent books include The Freedom to Be Racist?: How the United States and Europe Struggle to Preserve Freedom and Combat Racism and Race Politics in Britain and France: Ideas and Policymaking since the 1960s. Bleich correctly notes that these issues are broader than the freedom-of-speech framework in which they are often placed; so he examines law and policy in multiple countries on freedom of speech, freedom of association, and freedom of opinion-as-motive. In each of these areas he finds important differences across European countries and the United States with respect to legislation concerning racist expressions. In particular, liberal democracies like Great Britain, France, and Germany have created legislation to prohibit various kinds of hate-based speech and action. Here is his summary of the status of European legislation:European restrictions on racist expression have proceeded gradually but consistently since World War II. A few provisions were established in the immediate postwar era, but most countries’ key laws were enacted in the 1960s and 1970s. The statutes have been tinkered with, updated, and expanded in the ensuing decades to the point where virtually all European liberal democracies now have robust hate speech laws on their books. These laws are highly symbolic of a commitment to curb racism. But they are also more than just symbols. As measured by prosecutions and convictions, levels of enforcement vary significantly across Europe, but most countries have deployed their laws against a variety of racist speech and have recently enforced stiffer penalties for repeat offenders. (kl 960)
In the United States it is unconstitutional under the First Amendment of the Constitution to prohibit "hate speech" or to ban hate-based organizations. So racist and homophobic organizations are accorded all but unlimited rights of association and expression, no matter how odious and harmful the content and effects of their views. As Bleich points out, other liberal democracies have a very different legal framework for regulating hate-based extremism by individuals and organizations (France, Germany, Sweden, Canada).
Here is the First Amendment of the US Constitution:Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
This is pure liberalism, according to which the state needs to remain entirely neutral about disagreements over values, and the only justification for legal prohibition of an activity is the harm the activity creates. There is a strong philosophical rationale for this position. John Stuart Mill maintains an ultra-strong and exceptionless view of freedom of expression in On Liberty. He argues that all ideas have an equal right to free expression, and that this position is most advantageous to society as a whole. Vigorous debate leads to the best possible set of beliefs. Here are a few passages from On Liberty:The object of this Essay is to assert one very simple principle, as entitled to govern absolutely the dealings of society with the individual in the way of compulsion and control, whether the means used be physical force in the form of legal penalties, or the moral coercion of public opinion. That principle is, that the sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection. (13)But the peculiar evil of silencing the expression of an opinion is, that it is robbing the human race; posterity as well as the existing generation; those who dissent from the opinion, still more than those who hold it. If the opinion is right, they are deprived of the opportunity of exchanging error for truth: if wrong, they lose, what is almost as great a benefit, the clearer perception and livelier impression of truth, produced by its collision with error. (19)
This line of reasoning leads to legal toleration in the United States of groups like the White Citizens Councils, Neo-Nazi parties, and the Westboro Baptist Church to conduct their associations, propaganda, and demonstrations to further their hateful objectives. And they and their activists sometimes go further and commit actress of terrible violence (Timothy McVeigh, the murder of Matthew Shepherd in Wyoming, and the murders of civil rights workers in Mississippi).
But as Mill acknowledges, a democratic society has a right and an obligation to protect its citizens from violence. This is the thrust of the "harm" principle in Mill's philosophy of political authority. Is right-wing extremism (RWE) really just another political platform, equally legitimate within the public sphere of debate in a democratic society? Or do these organizations represent a credible threat to personal safety and civil peace?
Certainly most of the disagreements between liberals and conservatives fall in Millian category -- how much a society should spend on social welfare programs, what its immigration policies ought to be, the legal status of single-sex marriage. The disagreements among the parties are intense, but the debates and positions on both sides are legitimate. Mill is right about this range of policy disagreements. The political process and the sphere of public debate should resolve these disagreements.
But RWE goes beyond this level of disagreement about policy and legislation. RWE represents a set of values and calls to action that are inconsistent with the fundamentals of a democratic society. And they are strongly and essentially related to violence. RWE activists call for violence against hated groups, they call for armed resistance to the state (e.g. the Bundy's), and they actively work to inculcate hatred against specific groups (Muslims, Jews, African Americans, gays and lesbians, ...). These groups are anti-constitutional and contemptuous of the common core of civility upon which a democratic society depends.
There are two fundamental arguments against hate-based speech and associations that seem to justify exceptions to the general liberal principle of toleration of offensive speech. One is an argument linking hate to violence. There is ample historical evidence that hateful organizations do in fact stimulate violence by their followers (Birmingham bombing, lynchings and killings of civil rights workers, the assassination of Yitzak Rabin). So our collective interest in protecting all citizens against violence provides a moral basis for limiting incendiary hate speech and organization.
The second kind of argument concerns hate itself, and the insidious effects that hateful ideologies have on individuals, groups, and the polity. EU reports make an effort to capture the essential nature and harms of hate (link). Hate incites mistrust, disrespect, discrimination, and violence against members of other groups. The social effects of hate are toxic and serious. Do these effects suffice to justify limiting hate speech?
This is a difficult argument to make within the context of US jurisprudence. The realm of law involves coercion, and it is agreed that the threshold for interfering with liberty is a high one. It is also agreed that legal justifications and definitions need to be clear and specific. How do we define hate? Is it explained in terms of well-known existing hatreds -- racism, anti-semitism, islamophobia, homophobia, ...? Or should it be defined in terms of its effects -- inculcating disrespect and hostility towards members of another group? Can there be new hatreds in a society -- antagonisms against groups that were previously accepted without issue? Are there legitimate "hatreds" that do not lead to violence and exclusion? Or is there an inherent connection between hatred and overt antagonism? And what about expressions like those of Charlie Hebdo -- satire, humor, caricature? Is there a zone of artistic expression that should be exempt from anti-hate laws?
Here is Bleich's considered view on the balance between liberty and racism. Like Mill, he focuses on the balance between the value of liberty and the harm created by racist speech and action.To telegraph the argument here, my perspective focuses on the level of harm inflicted on individuals, victim groups, and societies. For individuals and victim groups, the harm has to be measurable, specific, and intense. For societies, racism that fosters violence or that drives wedges between groups justifies limiting freedom of expression, association, and opinion-as-motive. (kl 247)
Further:Racist expressions, associations, or actions that drive a wedge between segments of society or that provoke an extremely hostile response have little redeeming social value. Their harm to other core liberal democratic values such as social cohesion and public order simply outweighs any potential benefits to be gained by protecting them. At the same time, if the statements or organizations are designed to contribute to public debate about state policies, they have to be rigorously protected, even if they may have potentially damaging side effects. (kl 3403)
And here are the closing words of advice offered in the book:How much freedom should we grant to racists? The ultimate answer is this: look at history, pay attention to context and effects, work out your principles, convince your friends, lobby your representatives, and walk away with a balance of values that you can live with. (kl 3551)
The issue to this point has been whether the state can legitimately prohibit hate speech and organization. But other avenues for fighting hateful ideas fall within the realm of civil society itself. We can do exactly as Mill recommended: offer our own critiques and alternatives to hatred and racism, and strive to win the battle of public opinion. Empirically considered, this is not an entirely encouraging avenue, because a century of experience demonstrates that hate-based propaganda almost always finds a small but virulent audience. So it is not entirely clear that this remedy is sufficient to solve the problem.
These are all difficult questions. But the rise and virulence of hate-based groups across the world makes it urgent for democracies to confront the problem in a just way, respecting equality and liberty of citizens while stamping out hate. And there are pressing practical questions we have to try to answer: do the non-coercive strategies available to the associations of civil society have the capacity to securely contain the harmful spread of hate-based organizations and ideologies? And, on the other hand, do the more restrictive legal codes against racism and hate-based organizations actually work in France or Germany? Or does the continuing advance of extremist groups there suggest that legal prohibition had little effect on RWE as a political movement? And if both questions turn out unfavorably, does liberalism face the possibility of defeat by the organizations of hatred and racism?
- A split euro is the solution for the single currency - Joseph Stiglitz
- Still Struggling to Make Sense of the 2016 U.S. Trade Data - Follow the Money
- “Massive New Study” Says Nothing About Economic Anxiety - Baseline Scenario
- Schools that obsess about standardized tests ruin them as measures - Vox
- An ancient Mayan Copernicus - EurekAlert
- Industrial policy need not be a dirty word - FT.com
- Oil's two-pronged price revolution changes everything - VoxEU
- “Balance Sheet Effects on Monetary and Financial Spillovers - Econbrowser
- What are Motivated Beliefs? - Tim Taylor
- A welfare state: good for savers - Stumbling and Mumbling
- Always Something Happening in August - PIIE
- Nominal Demand Ain't What It Used to Be - David Beckworth
- Fixing America's Roads Is a Great Opportunity - Noah Smith
- Forming strong bonds: dynamics in corporate bond markets - Bank Underground
- People’s Archive of Rural India (PARI) - Gender Matters
- Obama, Schelling, And No First Use Of Nuclear Weapons - EconoSpeak
Tuesday, August 16, 2016
A relatively long article by Raphaële Chappe at INET:
General Equilibrium Theory: Sound and Fury, Signifying Nothing?: Does general equilibrium theory sufficiently enhance our understanding of the economic process to make the entire exercise worthwhile, if we consider that other forms of thinking may have been ‘crowded out’ as a result of its being the ‘dominant discourse’? What, in the end, have we really learned from it? ...
Obama rescued the economy. Could he have done more?: ...Barack Obama took office Jan. 20, 2009, during the worst financial and economic crisis since World War II. By then, the Federal Reserve System had already acted to prevent the collapse of the banking system, and so the new president moved forward promptly to spur the depressed economy. The fiscal package he signed Feb. 17, 2009, allocated $787 billion — more than 5 percent of a year’s total U.S. income — ...aimed at stimulating economic activity. The money could have been better directed, so as to achieve greater impact, and in retrospect the amount was too small. But in the face of opposition from Republicans in Congress, Obama’s fiscal stimulus was about as much as any president could have done.
After pushing through the stimulus, however, the Obama administration entered a period of quietude on the economic front. Despite large Democratic majorities in both houses of Congress, there was no other significant economic legislation during the new president’s first 100 days. Nor in the 100 days following that, nor in the 100 days after that. ...
Instead, once the economic stimulus became law, the Obama domestic agenda shifted to health care. ... Raising the insured total to more than 90 percent of all Americans will likely stand as a historic achievement, but the cost was a diversion of the administration’s energy and attention from other economic problems badly in need of remedy.
The most pressing among them was, and remains, financial reform. Rather than advance its own set of proposals ... when the Democrats held a filibuster-proof supermajority in the Senate ... the administration largely left the matter to Congress. ...
Overall, if Dodd-Frank were merely one in a series of financial reform packages..., it would have been a laudable first step. But as the nation’s principal response to the worst financial crisis in two generations, it paled. Further, the specifics of many of the intended reforms were left to agency-level rulemaking exercises ... that, predictably, enabled industry lobbyists to blunt their force, if not thwart them altogether. ...
There's quite a bit more in the article.
- More on Measured Productivity and the Labor Share - Dietrich Vollrath
- Abenomics and the Single Arrow - Paul Krugman
- Firms and inequality - macromom
- Lies, Lying Liars, and Donald Trump - Paul Krugman
- Signs of pure altruism converge in the brain and increase with age - EurekAlert
- Skills gap for US manufacturing workers mostly a myth - Eurekalert
- The Elusive Costs of Inflation: Price Dispersion during the Great Inflation - NBER
- Free Lunch: Getting real about competitiveness - FT.com
- The Risks of Unfettered Capitalism - The New York Times
- Could you pass O-level economics in Pakistan? - Frances Woolley
- Alfred Marshall and the Origin of Ceteris Paribus - Tim Taylor
- Can today’s EVs make a dent in climate change? - MIT News
- What Role for Antitrust in the Era of Rising Inequality? - ProMarket
- More on Nonlinear Forecasting Over the Cycle - No Hesitations
- Did It Matter What Types of Assets the Fed Purchased? - On the Economy
- What Drives Forecaster Disagreement about Monetary Policy? - Liberty Street
- There's No Such Thing as an Economic Miracle - Tyler Cowen
- Payroll Employment Growth: Strong Enough? - macroblog
- All of a Sudden, Economists Are Getting Real Jobs - Bloomberg View
- The FOMC's Prudent Caution - Cecchetti & Schoenholtz
- Macro Musings Podcasts: Nick Rowe - David Beckworth
- The BBC and Statistics - mainly macro
- The State of Higher Ed Funding - CBPP
- Spotlight: Julie Mortimer - Gender Matters
Monday, August 15, 2016
Here is what I like and have found most useful about Dynamic Stochastic General Equilibrium (DSGE) models, also known as New Keynesian (NK), models. The original NK models were low dimensional – the simplest version reduces to a 3-equation model, while DSGE models are now typically much more elaborate. What I find attractive about these models can be stated in terms of the basic NK/DSGE model.
First, because it is a carefully developed, micro- founded model incorporating price frictions, the NK model makes it possible to incorporate in a disciplined way the various additional sectors, distortions, adjustment costs, and parametric detail found in many NK/DSGE models. Theoretically this is much more attractive than starting with a reduced form IS-LM model and adding features in an ad hoc way. (At the same time I still find ad hoc models useful, especially for teaching and informal policy analysis, and the IS-LM model is part of the macroeconomics cannon).
Second, and this is particularly important for my own research, the NK model makes explicit and gives a central role to expectations about future economic variables. The standard linearized three-equation NK model in output, inflation and interest rates has current output and inflation depending in a specified way on expected future output and inflation. The dependence of output on expected future output and future inflation comes through the household dynamic optimization condition, and the dependence of inflation on expected future inflation arises from the firm’s optimal pricing equation. The NK model thus places expectations of future economic variables front and center, and does so in a disciplined way.
Third, while the NK model is typically solved under rational expectations (RE), it can also be viewed as providing the temporary equilibrium framework for studying the system under relaxations of the RE hypothesis. I particularly favor replacing RE with boundedly rational adaptive learning and decision-making (AL). Incorporating AL is especially fruitful in cases where there are multiple RE solutions, and AL brings out many Keynesian features of the NK model that extend IS-LM. In general I have found micro-founded macro models of all types to be ideal for incorporating bounded rationality, which is most naturally formulated at the agent level.
Fourth, while the profession as a whole seemed to many of us slow to appreciate the implications of the NK model for policy during and following the financial crisis, this was not because the NK model was intrinsically defective (the neglect of financial frictions by most, though not all DSGE modelers, was also a deficiency in most textbook IS-LM models). This was really, I think, because many macro economists using NK models in 2007-8 did not fully appreciate the Keynesian mechanisms present in the model.
However, many of us were alert to the NK model fiscal policy implications during the crisis. For example, in Evans, Guse and Honkapohja (“Liquidity traps, learning and stagnation,” 2008, European Economic Review), using an NK model with multiple RE solutions because of the liquidity trap, we showed, using the AL approach to expectations, that when there is a very large negative expectations shock, fiscal as well as monetary stimulus may be needed, and indeed a temporary fiscal stimulus that is large enough and early enough may be critical for avoiding a severe recession or depression. Of course such an argument could have been made using extensions of the ad hoc IS-LM model, but my point is that this policy implication was ready to be found in the NK model, and the key results center on the primacy of expectations.
Finally, it should go without saying that NK/DSGE modeling should not be the one and only style. Most graduate-level core macro courses teach a wide range of macro models, and I see a diversity of innovations at the research frontier that will continue to keep macroeconomics vibrant and relevant.
"What do we actually know how to do when it comes to economic policy?":
Wisdom, Courage and the Economy, by Paul Krugman, NY Times: It’s fantasy football time in political punditry, as commentators try to dismiss Hillary Clinton’s dominance in the polls — yes, Clinton Derangement Syndrome is alive and well — by insisting that she would be losing badly if only the G.O.P. had nominated someone else. We will, of course, never know. But one thing we do know is that none of Donald Trump’s actual rivals for the nomination bore any resemblance to their imaginary candidate, a sensible, moderate conservative with good ideas.
Let’s not forget, for example, what Marco Rubio was doing in the memorized sentence he famously couldn’t stop repeating: namely, insinuating that President Obama is deliberately undermining America. It wasn’t all that different from Donald Trump’s claim that Mr. Obama founded ISIS. And let’s also not forget that Jeb Bush ... began his campaign with the ludicrous assertion that his policies would double the American economy’s growth rate.
Which brings me to my main subject: Mrs. Clinton’s economic vision... It’s very much a center-left vision: incremental but fairly large increases in high-income tax rates, further tightening of financial regulation, further strengthening of the social safety net.
It’s also a vision notable for its lack of outlandish assumptions. Unlike just about everyone on the Republican side, she isn’t justifying her proposals with claims that they would cause a radical quickening of the U.S. economy. ...
So here’s my question: Is the modesty of the Clinton economic agenda too much of a good thing? Should accelerating U.S. economic growth be a bigger priority? ...
After all, what do we actually know how to do when it comes to economic policy? ...
According to the budget office, potential growth was pretty stable from 1970 to 2000, with nothing either Ronald Reagan or Bill Clinton did making much obvious difference. The subsequent slide began under George W. Bush and continued under Mr. Obama. This history suggests no easy way to change the trend. ...
Now, I’m not saying that we shouldn’t try. ...
But ... I don’t think enough people appreciate the courage involved in focusing on things we actually know how to do, as opposed to happy talk about wondrous growth. ...
So it’s actually quite brave to say: “Here are the things I want to do, and here is how I’ll pay for them. Sorry, some of you will have to pay higher taxes.” Wouldn’t it be great if that kind of policy honesty became the norm?
- Why you should never use the Hodrick-Prescott filter - James Hamilton
- Do (local) housing demand curves slope up? - Nick Rowe
- The Generations of Economic Journalism - Economic Principals
- Has Labor Productivity Growth Fallen Permanently? - Roger Farmer
- What caused the Fed’s dovish turn? - Gavyn Davies
- Commodification - globalinequality
- John Kay on helicopter money - longandvariable
Saturday, August 13, 2016
- The State of Macro Is Sad (Wonkish) - Paul Krugman
- Blanchard on DSGE - mainly macro
- Hurdle Rates for Public Infrastructure and Private Investment - Brad DeLong
- Trump’s Misguided Embrace of Tax Cuts - NYTimes
- Cheap Talk And Nuclear War - EconoSpeak
- On randomization - Stumbling and Mumbling
- Everybody wants progress; nobody wants change - Paul Romer
- Why American Schools Are Even More Unequal Than We Thought - NYTimes
- Foot-Dragging on Volcker Rule Gives Banks’ Critics Ammunition - NYTimes
- Changes in the Treasury Repo Market after the Financial Crisis - Treasury
- Productivity and Models - Narayana Kocherlakota
- Of Psychopaths and Presidential Candidates - Scientific American
- The economics of SSHRC research grants IV - Stephen Gordon
- Ireland and Brexit - VoxEU
- Airing the IMF’s Dirty Laundry - Barry Eichengreen
- The Housing Bottom and Comparing Recoveries - Calculated Risk
- High-Tech Manufacturing Isn't Worth Much - Justin Fox
- The (Impossible) Repo Trinity - INET
Friday, August 12, 2016
How can Republicans support Trump?:
Pieces of Silver, by Paul Krugman, NY Times: By now, it’s obvious ... that Donald Trump is an ignorant, wildly dishonest, erratic, immature, bullying egomaniac. On the other hand, he’s a terrible person. But despite some high-profile defections, most senior figures in the Republican Party ... are still supporting him, threats of violence and all. Why?
One answer is that these were never men and women of principle. ...
Another answer is that ... the greatest risk facing many Republican politicians isn’t that of losing in the general election, it’s that of losing to an extremist primary challenger. This makes them afraid to cross Mr. Trump, whose ugliness channels the true feelings of the party’s base.
But there’s a third answer, which can be summarized in one number: 34..., the average federal tax rate for the top 1 percent in 2013.... And it’s up from just 28.2 in 2008, because President Obama allowed the high-end Bush tax cuts to expire and imposed new taxes to pay for a dramatic expansion of health coverage... Taxes on the really, really rich have gone up even more.
If Hillary Clinton wins, taxes on the elite will at minimum stay at this level, and may even go up significantly if Democrats do well enough ... to enable her to pass new legislation. ...
But if “populist” Donald Trump wins, taxes on the wealthy will go way down...
So if you’re wealthy, or you’re someone who has built a career by reliably serving the interests of the wealthy, the choice is clear — as long as you don’t care too much about stuff like shunning racism, preserving democracy and freedom of religion, or for that matter avoiding nuclear war, Mr. Trump is your guy..., it’s just an extension of the devil’s bargain the economic right has been making for decades, going all the way back to Nixon’s “Southern strategy.” ...
If this election goes the way it probably will, a few months from now those leading Republicans will be trying to pretend that they never really supported their party’s nominee, that in their hearts they always knew he was the wrong man.
But whatever doubts they may be feeling don’t excuse their actions, and in fact make them even less forgivable. For the fact is that right now, when it matters, they have decided that lower tax rates on the rich are sufficient payment for betraying American ideals and putting the republic as we know it in danger.
- There Isn’t Really a ‘Mainstream’ at All - INET
- Let's Be Optimistic About Productivity - Narayana Kocherlakota
- The False Economic Promise of Global Governance - Dani Rodrik
- Should the true costs of insuring deposits be made clearer? - Bank Underground
- Austerity linked to rise of the 'spornosexual' - EurekAlert
- CFM Survey July 2016: Brexit and the economics profession - VoxEU
- Comparative Advantage - Jodi Beggs
- Does Wage Growth Even Matter? - Dismal
- The Great Productivity Puzzle - The New Yorker
- Capital and New Construction - Richard Green
- US Motor Vehicle Deaths - Tim Taylor
- Brexit harm denial and the exchange rate - mainly macro
- Forecasting Loan Losses for Stress Tests - macroblog
- The Dirty Little Secret of Finance: Asymmetric Information - Noah Smith
Thursday, August 11, 2016
- Hair Meets Heirs - Paul Krugman
- Female Prisoners in the United States - Gender Matters
- Immigration – the way forward - VoxEU
- My socialism - Stumbling and Mumbling
- Does Fiscal Stimulus Work? - FRB Cleveland
- The Great Productivity Puzzle - The New Yorker
- Demystifying Monetary Finance - Adair Turner
- What's Really Wrong With the Unemployment Rate - Justin Fox
- Reducing Economic Inequality through Democratic Worker-Ownership - TCF
- The Seattle minimum-wage is doing what it’s supposed to do - Jared Bernstein
- The Man Who Saved The World From Nuclear Holocaust - EconoSpeak
- Donald Trump: My Whole Life I've Been Greedy... - Eric Schoenberg
- The economics of SSHRC research grants - Stephen Gordon
- Is Support for Democracy Eroding? - Tim Taylor
- The Performance of Community Banks over Time - WhiteHouse.gov
Wednesday, August 10, 2016
Do DSGE Models Have a Future?: DSGE models have come to play a dominant role in macroeconomic research. Some see them as the sign that macroeconomics has become a mature science, organized around a microfounded common core. Others see them as a dangerous dead end.
I believe the first claim is exaggerated and the second is wrong. I see the current DSGE models as seriously flawed, but they are eminently improvable and central to the future of macroeconomics. To improve, however, they have to become less insular, by drawing on a much broader body of economic research. They also have to become less imperialistic and accept to share the scene with other approaches to modelization.
For those who are not macroeconomists, or for those macroeconomists who lived on a desert island for the last 20 years, here is a brief refresher. DSGE stands for “dynamic stochastic general equilibrium.” The models are indeed dynamic, stochastic, and characterize the general equilibrium of the economy. They make three strategic modeling choices: First, the behavior of consumers, firms, and financial intermediaries, when present, is formally derived from microfoundations. Second, the underlying economic environment is that of a competitive economy, but with a number of essential distortions added, from nominal rigidities to monopoly power to information problems. Third, the model is estimated as a system, rather than equation by equation in the previous generations of macroeconomic models. The earliest DSGE model, representing an economy without distortions, was the Real Business Cycle model developed by Edward C. Prescott and focused on the effects of productivity shocks. In later incarnations, a wider set of distortions, and a wider set of shocks, has come to play a larger role, and current DSGE models are best seen as large- scale versions of the New Keynesian model, which empha- sizes nominal rigidities and a role for aggregate demand.
There are many reasons to dislike current DSGE models. ...