Thursday, August 08, 2019

Links (8/08/19)

  • Irving Fisher Demolishes the Loanable-Funds Theory of Interest - Uneasy Money
    In some recent posts (here, here and here) I have discussed the inappropriate application of partial-equilibrium analysis (aka supply-demand analysis) when the conditions under which the ceteris paribus assumption underlying partial-equilibrium analysis are not satisfied. The two examples of inappropriate application of partial equilibrium analysis I have mentioned were: 1) drawing a supply curve of labor and demand curve for labor to explain aggregate unemployment in the economy, and 2) drawing a supply curve of loanable funds and a demand curve for loanable funds to explain the rate of interest. In neither case can one assume that a change in the wage of labor or in the rate of interest can occur without at the same time causing the demand curve and the supply curve to shift from their original position to a new one. Because of the feedback effects from a change in the wage or a change in the rate of interest inevitably cause the demand and supply curves to shift, the standard supply-and-demand analysis breaks down in the face of such feedback effects.
  • Innovation Policy: Federal Support for R&D Falls as its Importance Rises - Tim Taylor
    One of those things that "everyone knows" is that continued technological progress is vital to the continued success of the US economy, not just in terms of GDP growth (although that matters) but also for major social issues like providing quality health care and education in a cost-effective manner, addressing environmental dangers including climate change, and in other ways. Another thing that "everyone knows" is that research and development spending is an important part of generating new technology. But total US spending on R&D as a share of GDP has been nearly flat for decades, and government spending on R&D as a share of GDP has declined over time.
  • Trump’s China Shock - Paul Krugman
    it does look as if I should try to explain (a) what I think is happening (b) why the markets are going so nuts. By the way, given Mnuchin’s declaration just a few minutes ago that China is a currency manipulator, tomorrow’s market action should be … interesting.
  • Progress on a persistent puzzle - Federal Reserve Bank of Minneapolis
    Why do exchange rates fluctuate as they do? Basic commodity prices may hold part of the answer to a long-standing mystery
  • Big Tech’s Harvest of Sorrow? - Daron Acemoglu
    At the same time that science and technology have vastly improved human lives, they have also given certain visionaries the means to transform entire societies from above. Ominously, what was true of Soviet central planners is true of Big Tech today: namely, the assumption that society can be improved through pure "rationality."
  • Tariff Tantrums and Recession Risks - Paul Krugman
    If the bond market is any indication, Donald Trump’s escalating belligerence on trade is creating seriously increased risks of recession. But I haven’t seen many clear explanations of why that might be so. The problem isn’t just, or even mainly, that he really does seem to be a Tariff Man. What’s more important is that he’s a capricious, unpredictable Tariff Man. And that capriciousness is really bad for business investment.
  • Is there really a global decline in the (non-housing) labour share? – Bank Underground
    Much has been written on the global decline of the corporate labour share (defined as the share of corporate value added going to wages, salaries and benefits). The IMF and OECD worry about this trend, linking it to decreasing wages and rising inequality. And economists are hard at work looking for an explanation: prominent hypotheses range from automation and ‘superstar’ firms to offshoring. But is there really a global decline in the non-housing/business labour share?
  • Including More History in Your Econometrics Teaching - Dave Giles
    If you follow this blog (or if you look at the "History of Econometrics" label in the word cloud in the right side-bar), you'll know that I have more than a passing interest in the history of our discipline. There's so much to be learned from this history. Among other things, we can gain insights into why certain methods became popular, and we can reduce the risk of repeating earlier mistakes!
  • Reflections 11 Years After the Crash - Brad DeLong
    1) If there hadn't been any of the kind of panic we got post-Lehman, how severe you think the U.S. recession would have been? Would it have been like a slightly worse S&L crisis, or is that underselling it?
  • Global Declining Competition - ProMarket
    Studies of the evolution of market power since 2000 have focused mostly on publicly traded US firms. This column introduces a new global study that incorporates private firms and decomposes the aggregate effect into intensive and extensive margins. It shows the increase in markup is broad-based across countries and sectors but is driven by a small number of firms.
  • Trump, Tax Cuts and Terrorism - Paul Krugman
    Why has the Republican Party become a systematic enabler of terrorism?
  • America Needs an Independent Fed - Volcker, Greenspan, Bernanke, Yellen
    As former chairs of the board of governors of the Federal Reserve System, we are united in the conviction that the Fed and its chair must be permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion of Fed leaders for political reasons.
  • Is the Fed Doing Anything Right? - Stephen Williamson
    I'm not sure the Fed has many friends these days. Donald Trump is unhappy with it, and the financial media seems puzzled by what the Fed is doing. Can we make sense of the Fed's behavior, particularly its change in policy last week, or is the Fed simply incoherent?
  • Women Work A Lot of Jobs (Not Even Counting At Home) – EconomistMom.com
    I often wonder how economists can assume that the patterns the U.S. macroeconomy has followed in the past are well-informing our assessments of where we are headed. How can we predict or even recognize what we haven’t really seen before–something that might be called a “new normal” (clearly, an oxymoron).
  • What the Wage Growth of Hourly Workers Is Telling Us - macroblog
    The Atlanta Fed's Wage Growth Tracker has shown an uptick during the past several months. The 12-month average reached 3.7 percent in June, up from 3.2 percent last year. But in 2016, it depicted acceleration that eventually reversed course. So is this recent increase real or illusory?
  • Just say no to exchange rate intervention - Cecchetti & Schoenholtz
    Whenever possible, policymakers should explore a broad set of options before responding to challenges they face. However, when the President and his advisers recently discussed foreign currency intervention, we hope everyone quickly concluded that it would be a profoundly bad idea.
  • Trade Wars Escalate - Tim Duy
    The big news everyone will wake up to is the latest escalation in the trade wars between the U.S. and China. The situation is obviously a clear net negative for the economy that will keep the Fed biased toward easing again in September. The Fed will remain under pressure to help President Trump fight his trade wars with lower interest rates in the months ahead.
  • Trump’s Trade Quagmire (Wonkish) - Paul Krugman
    Trump’s trade war is looking more and more like a classic policy quagmire. It’s not working — that is, it isn’t at all delivering the results Trump wants. But he’s even less willing than the average politician to admit to a mistake, so he keeps doing even more of what’s not working. And if you extrapolate based on that insight, the implications for the U.S. and world economies are starting to get pretty scary.
  • Summer 2019 Journal of Economic Perspectives Available Online - Tim Taylor
    I was hired back in 1986 to be the Managing Editor for a new academic economics journal, at the time unnamed, but which soon launched as the Journal of Economic Perspectives. The JEP is published by the American Economic Association, which back in 2011 decided--to my delight--that it would be freely available on-line, from the current issue back to the first issue. You can download it various e-reader formats, too. Here, I'll start with the Table of Contents for the just-released Summer 2019 issue, which in the Taylor household is known as issue #129. Below that are abstracts and direct links for all of the papers. I may blog more specifically about some of the papers in the next week or two, as well.
  • The Fed Can't Give Markets the Certainty They Desire - Tim Duy
    Federal Reserve Chairman Jerome Powell tried to thread the needle between dovish and hawkish at his Wednesday press conference, but realistically had no hope of pleasing market participants who thought a series of interest-rate cuts were already in the bag. The Fed just isn’t there yet. This reduction in rates was the insurance against bad outcomes. Going forward, conditions will need to worsen – and soon – to justify a further easing of monetary policy.
  • Global declining competition - VoxEU
    Studies of the evolution of market power since 2000 have focused mostly on publicly traded US firms. This column introduces a new global study that incorporates private firms, and decomposes the aggregate effect into intensive and extensive margins. It shows the increase in markup is broad-based across countries and sectors, but is driven by a small number of firms. The markup increase is mainly explained by increases in the average markup of incumbents, and reallocation effects towards new firms that gain market share from incumbents.
  • Why Was Trumponomics a Flop? - Paul Krugman
    why has Trumponomics failed to deliver much besides trillion-dollar budget deficits? The answer is that both the tax cuts and the trade war were based on false views about how the world works.
  • My “Somewhat Irreverent View” on Economics and Economists – EconomistMom.com
    The alternative title on the Behavioral Economics course I teach at both George Washington University and Georgetown University has always been “Economics in Theory and Practice: A Somewhat Irreverent View.” I then spend the whole course going through the behavioral insights that in my mind expose key weaknesses in and limitations of traditional Economics—not just in the “purist” economic theories (which seem like “straw men” to me (wink)), but also in the way economists tend to “test” their theories and measure the size, features, and movements in the economy.

    Posted by on Thursday, August 8, 2019 at 11:33 AM in Economics, Links | Permalink  Comments (965) 


    Thursday, August 01, 2019

    Links (8/01/19)

    • Why Rate Cuts Don’t Help Much Anymore - Austan Goolsbee
      Now that it has finally happened, don’t expect the Federal Reserve’s long-awaited rate cut to make all that much of a difference for the economy.
    • The Invention of Money - The New Yorker
      When the Venetian merchant Marco Polo got to China, in the latter part of the thirteenth century, he saw many wonders—gunpowder and coal and eyeglasses and porcelain. One of the things that astonished him most, however, was a new invention, implemented by Kublai Khan, a grandson of the great conqueror Genghis. It was paper money, introduced by Kublai in 1260. Polo could hardly believe his eyes when he saw what the Khan was doing:
    • Is Politics Getting to the Fed? - Robert J. Barro
      In the early 1980s, the chairman of the US Federal Reserve, Paul Volcker, was able to choke off runaway inflation because he was afforded the autonomy necessary to implement steep interest-rate hikes. Today, the Fed is clearly under unprecedented political pressure, and it is starting to show.
    • Double-counting of investment - Robert Barro
      GDP counts investment twice – when it occurs and when rental income results. This column proposes an amendment to the national accounting system that only includes investment once. This would ensure that national income accounts do not overstate the resources available for consumption. It also has major implications for the estimation of the capital share in income.
    • Economics Isn’t Dismal. It’s Useful. - Justin Wolfers
      Many economists these days view what we are teaching not so much as a specific subject matter but as a set of analytic tools that are relevant beyond the relatively standardized production and pricing decisions of the business world. This perspective has led modern economists to study families, education and health, much as they study business strategy, politics, and finance.
    • How economics can raise its game - Tim Harford
      How can economics become a more insightful discipline? Should it aim to be more like physics, with its precision and predictive power? Or should economists emulate anthropologists or historians, immersing themselves in the details of the particular and the unquantifiable?
    • How Reforming Antitrust Can Restore a Competitive Economy - ProMarket
      For decades, competition in America has been on the wane, leading to slower economic growth and a gaping chasm of inequality. Antitrust can help reverse the trend, but antitrust doctrines and enforcement actions once thought adequate are proving insufficient. Fixing the problem is urgent.
    • The politics of CEOs - VoxEU
      With power over corporate resources as well as stature and prestige in the economic system, public-company CEOs to have sizeable influence over policy and political decisions. This column examines the political donations of more than 3,800 US CEOs of S&P 1500 companies to analyse their political preferences over time, across industries and geographical regions, and by gender. It shows that US public company CEOs have a significant preference for Republicans, who may benefit from public companies’ expanded freedom to spend money on politics.
    • Voters, groups, parties, and elections - Lane Kenworthy
      In a representative democracy, a key goal is to ensure that government is “for the people” — that it does what citizens want.1 What are Americans’ policy preferences? What groups and political parties do they identify with? Who do they vote for and why?
    • Subsidizing health insurance for low-income adults: evidence from Massachusetts - Microeconomic Insights
      How much are low-income individuals willing to pay for health insurance? And what are the implications for insurance market reforms that propose to change government subsidies? Using administrative data from the pioneer subsidized insurance exchange in Massachusetts over the period 2009 to 2013, this study exploits discontinuities in the premium subsidy schedule to estimate willingness to pay and costs of insurance among low-income adults. The researchers have three main findings.
    • The international evidence on forward guidance - VoxEU
      Forward guidance – communication by a central bank about the likely future path of interest rates – usually reduces uncertainty. This column argues that how this is done in practice matters, however, because forward guidance with a short time horizon can raise uncertainty. This occurs if the forward guidance impairs the aggregation of private information in financial markets, thus making market prices less informative.
    • How Not to Think About Job Creation - Ricardo Hausmann
      Governments are right to focus on creating more good jobs, because work is the source of most people’s livelihood in every society. But in the majority of cases, the solution lies in policy areas that are not amenable to tools wielded by ministers of labor or education.
    • Central Banks Are the Fall Guys - Raghuram G. Rajan
      For decades, the freedom of monetary policymakers to make difficult decisions without having to worry about political blowback has proven indispensable to macroeconomic stability. But now, central bankers must ease monetary policies in response to populist mistakes for which they themselves will be blamed.
    • Guest Contribution: “Political Pressure on Central Banks” - Econbrowser
      In a recent paper, I use a narrative approach to study political pressure on 118 central banks around the world. I search country reports from the Economist Intelligence Unit (EIU) and Business Monitor International (BMI) for discussions of political pressure on or government interference with the central bank. The reports are designed to give equal attention to each economy and to report at consistent frequency on monetary policy-related developments, allowing for comparability across many countries and over time. For each central bank in each quarter, I code whether: there is no mention of government pressure on the bank, there is report of pressure but the central bank is resisting it, or the bank is reportedly succumbing to pressure. I also record details about the nature of the pressure (e.g. whether the pressure is to ease or to tighten policy).
    • Who are you going to believe, me or the evidence of your own eyes? - Stiglitz, Durand, and Fitoussi
      If what experts say has little or no relation to what people feel or can see all around them, it’s inevitable that they stop believing the experts and the politicians they advise, and look for answers elsewhere. This column introduces the work of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress, which argues that we need to develop datasets and tools to examine the factors that determine what matters for people and the places in which they live. Having the right set of indicators, and anchoring them in policy, will help close the gap between experts and ordinary people that are at the root of today’s political crisis.
    • Earmarked paternity leave and relative income within couples - VoxEU
      The European Parliament recently proposed a requirement that each parent have the right to two months of non-transferable or ‘earmarked’ paid leave. This column analyses the effects of earmarking parental leave for fathers on the relative income of women within couples. The findings suggest that such reforms have the potential to transform not only household norms but gender inequality more broadly.
    • The Change in the U.S. Direct Investment Position - Capital Ebbs and Flows
      The U.S. has long held an external balance sheet that is comprised of foreign equity assets, mainly in the form of direct investment (DI), and liabilities held abroad primarily in the form of debt, including U.S. Treasury securities. This composition is known “long equity, short debt.” Pierre-Olivier Gourinchas of UC-Berkeley and Hélène Rey of the London Business School claim that this allocation has allowed the U.S. to serve as the “world’s venture capitalist,” issuing short-term debt in order to invest in high-yield assets. But the U.S. direct investment position has changed from a surplus to a deficit, with uncertain consequences for the international monetary system.
    • Trump’s Secret Foreign Aid Program - Paul Krugman
      Donald Trump often complains that the media don’t give him credit for his achievements. And I can think of at least one case where that’s true. As far I can tell, almost nobody is reporting that he has presided over a huge — but hidden — increase in foreign aid, the money America gives to foreigners. In fact, the hidden Trump program, currently running at around $40 billion a year, is probably the biggest giveaway to other nations since the Marshall Plan. Unfortunately, the aid isn’t going either to poor countries or to America’s allies. Instead, it’s going to wealthy foreign investors.
    • Automation, Labor Market Disruption, and Trade Policy - PIIE
      To be clear, the evidence presented here is suggestive, not conclusive. But it underlines the notion that selling voters on the proposition that their problems are due to foreign trade competition when the root cause is technological change risks creating a frustrated electorate that might reach for even more radical measures when protectionism does not alleviate their pain.
    • Expanding America’s Expansion - Tyson & Mendonca
      Having undergone its longest expansion on record, the US economy appears to be thriving. But behind the headline numbers is a more complicated story: wages are growing, but not as fast as they should be; and inequalities based on place, race, gender, and other factors remain unacceptably high.
    • No such thing as a free lunch in the digital economy - VoxEU
      Online platforms that provide services at zero monetary cost benefit greatly from the data these transactions generate. This column proposes a new method to value these data, based on firm investments in organisational capital. The method also captures the social value of consumer data. Accurate estimates may guide investment and improve national accounts.
    • How the lessons from austerity have not been learned - mainly macro
      I don’t want to talk about the likelihood of a recession in the UK, US or Eurozone. Forecasting is a (necessary) mug’s game, where there are just too many variables to make anything like an accurate prediction. It is worth outlining the risk factors, andGrace Buckley does an excellent job here. Instead my concern is the vulnerability in both the UK and the Eurozone to the impact of a recession if it happens. This vulnerability was clearly illustrated by the mistakes made after the Global Financial Crisis, yet in many ways the lessons of that failure have not been learnt.

      Posted by on Thursday, August 1, 2019 at 06:51 PM Permalink  Comments (740)