Economist's View

Paul Krugman: Who Ate Republicans’ Brains?

"Where did this zombie horde come from?":

Who Ate Republicans’ Brains?, by Paul Krugman, NY Times: When the tweeter-in-chief castigated Senate Republicans as “total quitters” for failing to repeal the Affordable Care Act, he couldn’t have been more wrong. In fact, they showed zombie-like relentlessness in their determination to take health care away from millions of Americans, shambling forward despite devastating analyses by the Congressional Budget Office, denunciations of their plans by every major medical group, and overwhelming public disapproval.

Put it this way: Senator Lindsey Graham was entirely correct when he described the final effort at repeal as “terrible policy and horrible politics,” a “disaster” and a “fraud.” He voted for it anyway — and so did 48 of his colleagues.

So where did this zombie horde come from? Who ate Republicans’ brains? ...

The Republican health care debacle was the culmination of a process of intellectual and moral deterioration that began four decades ago...

A key moment came in the 1970s, when Irving Kristol, the godfather of neoconservatism, embraced supply-side economics — the claim, refuted by all available evidence and experience, that tax cuts pay for themselves by boosting economic growth. Writing years later, he actually boasted about valuing political expediency over intellectual integrity: “I was not certain of its economic merits but quickly saw its political possibilities.” In another essay, he cheerfully conceded to having had a “cavalier attitude toward the budget deficit,” because it was all about creating a Republican majority — so “political effectiveness was the priority, not the accounting deficiencies of government.”

The problem is that once you accept the principle that it’s O.K. to lie if it helps you win elections, it gets ever harder to limit the extent of the lying — or even to remember what it’s like to seek the truth. ...

Given this history, the Republican health care disaster was entirely predictable. You can’t expect good or even coherent policy proposals from a party that has spent decades embracing politically useful lies and denigrating expertise. ...

Now what? Maybe, just maybe, Republicans will work with Democrats to make the health system work better — after all, polls suggest that voters will, rightly, blame them for any future problems. But it wouldn’t be easy for them to face reality even if their president wasn’t a bloviating bully.

And it’s hard to imagine anything good happening on other policy fronts, either. Republicans have spent decades losing their ability to think straight, and they’re not going to get it back anytime soon.

Monetary Policy Rules

New column:

Will Trump Try to ‘Overrule’ Monetary Policy?: How will the Federal Reserve evolve during Donald Trump’s term as president? Presently, three of the seven positions on the Federal Reserve Board are vacant. These vacancies, along with the possibility of replacing Federal Reserve Chair Janet Yellen when her term ends in early February of next year, give Trump an opportunity to change how the Fed conducts both monetary and regulatory policy. ...

Links for 07-31-17

• Heritage On Health, 1989 - Paul Krugman
• Currency Unions and Trade - Doug Campbell
• Using Ireland – Kevin O'Rourke
• Post-Keynesians and New-Keynesians - Roger E. A. Farmer
• Foxconn cashes in for $3 billion plus - analysis - Ken Thomas
• Regression Discontinuity and Event Studies in Time Series - No Hesitations
• What’s Wrong with the Price-Specie-Flow Mechanism, Part III - Uneasy Money
• Renegotiating NAFTA: The role of global supply chains - VoxEU
• Dear Homesteaders, Self-Reliance Is A Delusion - Adam Ozimek
• Dynamics of medieval cities - Understanding Society
• Excess saving and low interest rates: Theory and evidence - VoxEU
• Another Look at Residual Seasonality in GDP - Fed Notes

Links for 07-28-17

• Are some places "More Malthusian" than other? - growthecon
• The Obesity Code and Economists as General Practitioners - Carola Binder
• BEA: Real GDP increased at 2.6% Annualized Rate in Q2 - Calculated Risk
• The UK slowdown is a result of Brexit and austerity - mainly macro
• Economics With a Humanities Face - Morson and Schapiro - Project Syndicate
• Why Health Care Policy Is So Hard - Greg Mankiw
• Trump’s Growth Charade - Simon Johnson
• Price Dispersement and Bargain Hunting - Tim Taylor
• The high costs of being poor in a rich land - VoxEU
• Contingency and explanation - Understanding Society
• Where Friedman Was Wrong - ProMarket

Paul Krugman: The Sanctimony and Sin of G.O.P. ‘Moderates’

"The hypocrisy sweepstakes":

The Sanctimony and Sin of G.O.P. ‘Moderates’, by Paul Krugman, NY Times: ...When we look at the degeneration of American politics, it’s natural to blame the naked partisans — people like Mitch McConnell, with his principle-free will to power, or Ted Cruz, with his ideological rigidity. And Trump has, of course, done more to degrade his office than any previous occupant of the White House.

But none of what is happening right now would be possible without the acquiescence of politicians who pretend to be open-minded, decry partisanship, tut-tut about incivility and act as enablers for the extremists again and again.

I started with McCain because so many journalists still fall for his pose as an independent-minded maverick, ignoring the reality that he has almost always been a reliable partisan yes-man whenever it matters. ...

But he has rivals in the hypocrisy sweepstakes. Consider, for example, Senator Shelley Moore Capito of West Virginia — whose state has benefited enormously from the Affordable Care Act. “I didn’t come here to hurt people,” she declared not long ago — then voted for a bill that would quadruple the number of uninsured in West Virginia.

Or consider Rob Portman of Ohio, who cultivates an image as a moderate, praises Medicaid and talked big about the defects of Republican health plans — but also voted for that bill. Hey, in Ohio the number of uninsured would only triple. Let’s add Dean Heller of Nevada, who has lauded his state’s federally financed Medicaid expansion, but voted along with McCain to let debate proceed on an unknown bill, very much putting that expansion at risk.

Credit where credit is due: two senators, Lisa Murkowski of Alaska and Susan Collins of Maine, have stood up against the effort to betray every promise Republicans have made — and McCain did something right in the end. But every other supposed moderate in the Senate has offered a profile in cowardice.

And let’s be clear: This story didn’t start in the last few weeks, or the past few months. Republicans have been denouncing Obamacare and pledging to repeal and replace it for seven years, only to be caught flat-footed when given the chance to come up with an alternative. ...

So will the Senate pass something awful? If it does, will the House pass it, too, or try to use it as a Trojan horse for something even worse? I don’t know. But whatever happens, every Senate Republican besides Collins and Murkowski should be deeply ashamed.

Fed Watch: FOMC Snoozefest

Tim Duy:

The Federal Reserve completed its July meeting with statement that pretty much everyone anticipated in advance. Interest rates were left unchanged and the Fed opened the door to begin balance sheet reduction "relatively soon." That means September. There was no reason to believe that the Fed does not still expect a third rate hike for this year which, if it comes, will be in December. That hike is of course data dependent.

A couple of quick notes. Regarding balance sheet reduction, I think this via Bloomberg is correct:

“September is the most likely outcome” for the launch of the balance-sheet drawdown, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “But I can’t rule out the idea that they would wait until November if the debt ceiling really looks messy.”

Clearly, the Fed will stand pat if certain policymakers in Congress and the White House (you know who you are) insist on sending the US economy down the path of debt default (I can't believe I even have to consider such insanity).

On inflation, some I think interpreted this as dovish:

On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

First, this is simply a factual statement, an acknowledgement of what everyone and their brother already knows. Second, what is important is the forecast, and that remains unchanged:

Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

And third, pay attention to the "12-month" language that first appeared in the May statement. Pay close attention. They Fed is telling us to stop paying attention to all those year-over-year inflation charts we like to make. They have accepted that level effects from inflation shortfalls in the first half of this year will live in the year-over-year numbers until next year. Pay attention to the path of the month-over-month numbers (blue bars):

If those numbers climb back up toward 2 percent this year, the Fed will feel vindicated even if the year-over-year numbers remain below target. Not just vindicated, but also inclined to raise rates as expected.

Bottom Line: Fed remains on its existing policy path.

Macroeconomists Can't Keep Ignoring Race and Gender

Narayana Kocherlakota:

Macroeconomists Can't Keep Ignoring Race and Gender: The models that researchers build to understand the economy tend to be blind to race and gender, as if macroeconomic policies typically affect blacks the same as whites and women the same as men. Increasingly, that's looking like the wrong way to go about it. ...

Gender has figured in some work, but is typically ignored. To my knowledge, no work within this research program has focused explicitly on race.

Two recent papers cast significant doubt on the wisdom of assuming a raceless and genderless society...

Links for 07-27-17

• Why Tax Cuts for the Rich Solve Nothing - Joseph E. Stiglitz
• Have they really fixed financial instability? - Gavyn Davies
• In defence of regulatory complexity - Bank Underground
• Inequality and Long-term Growth - Unassuming Economist
• New road infrastructure: The effects on firms - VoxEU
• Puerto Rico’s “Voluntary” Restructuring of GDB Bonds - Brad Setser
• Why mathematics has not been effective in economics - Tim Johnson
• John Maynard Keynes and Effective Macroeconomic Policy - EconoMonitor
• Trade deal? Yawn - Stumbling and Mumbling

Links for 07-26-17

• Using money to buy time linked to increased happiness - EurekAlert
• Republican Economists Burn Yet More of Their Reputations - Brad DeLong
• Those Pointless Upper-Middle-Class Entitlements - Justin Fox
• AI leads to reward function engineering - Digitopoly
• Trilemmas and Financial Instability - Capital Ebbs and Flows
• Globalisation and political structure: Lessons for the EU - VoxEU
• Let's Set Half a Percent as the Standard for Significance - Miles Kimball
• Housing Prices: Highs and Lows - Tim Taylor
• Don't Let the Dollar Fool You, Fed - Bloomberg
• The economic causes of childlessness - VoxEU

Summer 2017 Journal of Economic Perspectives

Tim Taylor (click through for links to the papers):

Summer 2017 Journal of Economic Perspectives Available Online I was hired back in 1986 to be the Managing Editor for a new academic economics journal, at the time unnamed, but which soon was 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. Here, I'll start with Table of Contents for the just-released Summer 2017 issue, which in the Taylor household is sometimes known as issue #121. Below that are abstracts and direct links for all of the papers. I will almost certainly blog about some of the individual papers in the next week or two, as well.

Easier Financial Conditions Will Keep the Fed on Track

Tim Duy:

Easier Financial Conditions Will Keep the Fed on Track: The path laid out by the Federal Reserve at the beginning of the year for three interest-rate increases plus the start of reducing its $4.5 trillion balance sheet looks shaky due to the slowdown in inflation. There’s no question that the Fed is nervous about the persistent inflation shortfall. Chair Janet Yellen made note of the issue during her congressional testimony earlier this month. ...[Continued at Bloomberg Prophets.]...

Links for 07-24-17

• Multi-party kleptocracies rather than illiberal democracies - globalinequality
• U.S. Inflation Remains Low, and That’s a Problem - The New York Times
• Mobility Report Cards: The Role of Colleges in Intergenerational Mobility - NBER
• Achieving Statistical Significance with Covariates (Updated) - Marc Bellemare
• The Other Trilemma: Governing Global Finance - Cecchetti & Schoenholtz
• Shopping costs and one-stop shoppers intensify competition - VoxEU
• On the Origin of "Frequentist" Statistics - No Hesitations
• Agglomeration benefits versus firm selection - VoxEU
• Hayek, Deflation and Nihilism - Uneasy Money
• A Firming Recovery - Maurice Obstfeld
• The Marathon Game - Cheap Talk
• Norwegian Tax Law - EconoSpeak
• Lexit - mainly macro

Paul Krugman: Health Care Is Still in Danger

"The latest round of falsehoods about health care, combined with the defamation of the C.B.O., may be gaining some political traction":

Health Care Is Still in Danger, by Paul Krugman, NY Times: Will Senate Republicans try to destroy health care under cover of a constitutional crisis? That’s a serious question, based in part on what happened in the House...

As you may remember, back in March attempts to repeal and replace the Affordable Care Act seemed dead after the Congressional Budget Office released a devastating assessment..., the House Republican bill would lead to 23 million more uninsured Americans. Faced with intense media scrutiny and an outpouring of public opposition, House leaders pulled their bill, and the debate seemed over.

But then media attention moved on to presidential tweets and other outrages — and with the spotlight off, House leaders bullied and bribed enough holdouts to narrowly pass a bill after all.

Could something similar happen in the Senate? A few days ago the Senate’s equally awful version of repeal and replace ... seemed dead. And media attention has visibly shifted off the subject, focusing on juicier topics like the Russia-Trump story. ...

One particular concern is that the latest round of falsehoods about health care, combined with the defamation of the C.B.O., may be gaining some political traction. ... In particular, the claim is that its prediction of huge losses in coverage is outlandish, and that to the extent that fewer people would be covered, it would be due to their voluntary choices.

In reality, those C.B.O. predictions of coverage losses are totally reasonable, given the ... drastic cuts to Medicaid...

And on those claims that it’s O.K. if people drop coverage, because that would be their own choice... Current law provides enough in subsidies that an individual with an income of $26,500 can afford a plan covering 70 percent of medical expenses, which ... implies an $800 deductible. The Senate bill reduces that standard of coverage to 58 percent, which would raise the implied deductible to $13,000, making the insurance effectively useless. Would deciding not to buy that useless insurance really be a “choice”? ...

In short, the Senate bill is every bit as cruel and grotesque as its critics say. But we need to keep reminding wavering senators and their constituents of that fact, lest they be snowed by a blizzard of lies. ...

And while ordinary citizens can’t yet do much about the looming constitutional crisis, their calls, letters, and protests can still make all the difference on health care. Don’t let the bad guys in the Senate do terrible things because you weren’t paying attention!

Links for 07-22-17

• Some Pundit Meta On Our Twin Crises - Paul Krugman
• Fake News With Reporting on Disability - Dean Baker
• The ideology of "the market" - Stumbling and Mumbling
• The untapped potential of humanitarian economics - VoxEU
• Is Productivity Growth Becoming Irrelevant? - Adair Turner
• A new model of organization? - Understanding Society
• Refugees have little effect on native worker wages - VoxEU
• Markets Opened as Guild Monopolies Declined in the 16th Century - ProMarket
• Cronyism, & the demand for redistribution - Stumbling and Mumbling
• Can the Fed and ECB Work Together To Reduce Imbalances? - Brad Setser

Paul Krugman: Health Care in a Time of Sabotage

"It’s basically about spite":

Health Care in a Time of Sabotage, by Paul Krugman, NY Times: Is Trumpcare finally dead? Even now, it’s hard to be sure, especially given Republican moderates’ long track record of caving in to extremists at crucial moments. But it does look as if the frontal assault on the Affordable Care Act has failed.

And let’s be clear: The reason this assault failed wasn’t that Donald Trump did a poor selling job, or that Mitch McConnell mishandled the legislative strategy. Obamacare survived because it has worked — because it brought about a dramatic reduction in the number of Americans without health insurance, and voters ... don’t want to lose those gains.

Unfortunately, some of those gains will probably be lost all the same: The number of uninsured Americans is likely to tick up over the next few years. So it’s important to say clearly, in advance, why this is about to happen. It won’t be because the Affordable Care Act is failing..., when Trump threatens to “let Obamacare fail,” what he’s really threatening is to make it fail.

On Wednesday The Times reported on three ways the Trump administration is, in effect, sabotaging the A.C.A.... First, the administration is weakening enforcement of the requirement that healthy people buy coverage. Second, it’s letting states impose onerous rules like work requirements on people seeking Medicaid. Third, it has backed off on advertising and outreach designed to let people know about options for coverage. ...

And there may be worse to come: Insurance companies, which are required by law to limit out-of-pocket expenses of low-income customers, are already raising premiums sharply because they’re worried about a possible cutoff of the crucial federal “cost-sharing reduction” subsidies that help them meet that requirement.

The truly amazing thing about these sabotage efforts is that they don’t serve any obvious purpose. They won’t save money — in fact, cutting off those subsidies ... would probably end up costing taxpayers more money than keeping them. They’re unlikely to revive Trumpcare’s political prospects.

So this isn’t about policy, or even politics in the normal sense. It’s basically about spite: Trump and his allies may have suffered a humiliating political defeat, but at least they can make millions of other people suffer.

Can anything be done to protect Americans from this temper tantrum? In some cases, I believe, state governments can insulate their citizens from malfeasance at H.H.S. But the most important thing, surely, is to place the blame where it belongs. No, Mr. Trump, Obamacare isn’t failing; you are.

Links for 07-20-17

• Minimum Wage and Job Loss: Seattle Study Is Not the Last Word - NYTimes
• The Problem With Trump's Steel Tariffs - Annie Lowrey
• Buyer beware - American Economic Association
• In Conversation: Robert Solow - Equitable Growth
• Asymmetric policies - Stumbling and Mumbling
• Yes, Financial Crises Do Bring Hangovers - Justin Fox
• Modelling the Macroprudential Balancing Act - Bank Underground
• Capital accumulation, private property, and inequality in China - VoxEU
• The Cycles of Cities - Tim Taylor
• Redlining Never Went Away - Noah Smith
• Growth and volatility before and after the Global Crisis - VoxEU

This Ridiculous Republican Propaganda is Exactly Why We Need the CBO

Catherine Rampell:

This ridiculous Republican propaganda is exactly why we need the CBO: Tuesday I wrote about the GOP’s systematic efforts to discredit and disempower any independent voice — media, the Congressional Budget Office, the Office of Government Ethics — that tries to hold government accountable.

Today we have a great example of the ridiculous propaganda that Republicans expect the public to swallow in the absence of such independent critics and scorekeepers.

The Washington Examiner has gotten its hands on a Trump administration “analysis” (I use that word loosely) of the Consumer Freedom Amendment, a proposal from Sen. Ted Cruz (R-Tex.). ...

Talk to literally any economist, including conservative ones, and you’ll learn that this idea would lead to adverse selection, a huge spike in premiums for sick people..., a proliferation of mini-med junk plans that cover virtually nothing..., and a possible death spiral. A more detailed explanation of this phenomenon is here. ...

Contrary to the predictions of economists everywhere, the HHS propaganda document claims that the Cruz amendment would cause insurance coverage to go up and premiums to fall. Astoundingly, even premiums for people in the Obamacare-compliant plans — which, again, economic theory suggests would get stuck with only the very sickest, most expensive Americans — would allegedly decline relative to current law. ...

This is garbage, and exactly why we need nonpartisan scorekeepers like the CBO. ...

Links for 07-19-17

• The Healthcare Debacle: The Roles of Ignorance and Evil - Paul Krugman
• The economics of BBC pay - Stumbling and Mumbling
• Should Labour triangulate over Brexit? - mainly macro
• How will households react to the real income squeeze? - Bank Underground
• Japan's ‘glass ceiling’ and ‘sticky floor’ - VoxEU
• Global Value Chains and Productivity - Tim Taylor
• Facts, frictions & "mainstream" economics - Stumbling and Mumbling
• Credit misallocation during the European financial crisis - VoxEU
• The Economic Constraints on China’s Geostrategic Ambitions - Brad Setser

This Expansion Will End in a Fizzle, Not a Bang

Tim Duy:

This Expansion Will End in a Fizzle, Not a Bang: The Fed is growing increasingly concerned that this expansion will end like the last two, with a collapse in asset prices that brings down the economy. That concern will lead the central bank down the path of excessive tightening. Worse, that logic misses a key point. In both of the last two cycles, there was a sizable imbalance in the economy that extended beyond financial assets themselves. So far, the current environment lacks such an imbalance. That suggests the expansion ends with more of a fizzle than a bang. ...[Continued at Bloomberg Prophets]...

Paul Krugman: Republicans Leap Into the Awful Known

"Will this vileness prevail?":

Republicans Leap Into the Awful Known, by Paul Krugman, NY Times: Sometime in the next few days the Congressional Budget Office will release its analysis of the latest version of the Republican health care plan. Senator Mitch McConnell is doing all he can to prevent a full assessment... Nonetheless, everyone expects a grim prognosis.

As a result, White House aides are already attacking the C.B.O.’s credibility, announcing in advance that whatever it says will be “fake news.” So why should we believe the budget office, not the Trump administration? Let me count the ways.

First, this White House already has a record of constant, blatant lying about health care that is, as far as I can tell, without precedent in modern history. ... If they say something, the default assumption should be that they’re lying.

Second, the C.B.O. is hardly alone in its negative assessments of Republican health care plans. In fact, just about every group with knowledge of the issue has reached similar conclusions. ...

Third, contrary to White House disinformation, the C.B.O. actually did a pretty good job of predicting the effects of the Affordable Care Act, especially when you bear in mind that the act was a leap into the unknown: We had very little experience of how an A.C.A.-type system would work. ...

Finally — and this seems to me to be the most compelling argument of all — predicting the effects of destroying the A.C.A. is much easier than predicting the consequences when it was enacted, because what the Senate bill would do, pretty much, is return us to the bad old days. Or to put it another way, what McConnell and Senator Ted Cruz are selling is a giant leap into the known, taking us back to a system whose flaws are all too familiar from recent experience. ...

So while careful, nonpartisan modeling, the kind the C.B.O. excels in, is important, you don’t need a detailed analysis to know what American health care would look like if this bill passes. Basically, it would look like pre-A.C.A. Texas, where 26 percent of the nonelderly population was uninsured.

And lack of insurance wouldn’t be the only problem: Many people would have “junk insurance” — insurance with deductibles so large or coverage limitations so extensive as to be effectively useless when needed. ...

Will this vileness prevail? Your guess is as good as mine... But the mere possibility that this much cruelty, wrapped in this much fraudulence, might pass is a horrifying indictment of his party.

Winter is Coming

I have a new column:

Here’s Why We’re Not Prepared for the Next Recession: When will the next recession hit the economy? Nobody knows for sure, but we can be certain that sooner or later the economy will experience another downturn. When that happens, will monetary and fiscal policymakers have the ability to respond effectively?

The inevitability of another recession is evident in a graph of the unemployment rate. ...

Links for 07-17-17

• Slow productivity growth may not be the 'new normal' for the US - VoxEU
• The Pricing Answer to Traffic Congestion - Tim Taylor
• On BBC bias - Stumbling and Mumbling
• Why Do Cities Become Unaffordable? - Robert J. Shiller
• The Cyclical Sensitivity in Estimates of Potential Output - NBER
• The OBR’s risk assessment lacks context - mainly macro
• Cost of living and per capita incomes in U.S. cities - FRED Blog
• An Open Letter to the Honorable Randal K. Quarles - Cecchetti & Schoenholtz
• Can temporary affirmative action policies have lasting effects? - AEA
• Monetary Policy for a central bank with no balance sheet - Nick Rowe
• The Stock Market Is Doing About the Same as Always – Kevin Drum
• Ted Cruz’s Giant Leap Into The Known - Paul Krugman

How to Think Like an Economist (If, That Is, You Wish to...)

Brad DeLong:

How to Think Like an Economist (If, That Is, You Wish to...): I have long had a "thinking like an economist" lecture in the can. But I very rarely give it. It seems to me that it is important stuff—that people really should know it before they begin studying economics, because it would make studying economics much easier. But it also seems to me—usually—that it is pointless to give it at the start of a course to newBs: they just won't understand it. And it also seems to me—usually—that it is also pointless to give it to students at the end of their college years: they either understand it already, or it is too late.

By continuity that would seem to imply that there is an optimal point in the college curriculum to teach this stuff. But is that true?

What do you think?

+ + + +

Every new subject requires new patterns of thought; every intellectual discipline calls for new ways of thinking about the world. After all, that is what makes it a discipline: a discipline that allows people to think about a subject in some new way. Economics is no exception.

In a way, learning an intellectual discipline like economics is similar to learning a new language or being initiated into a club. Economists’ way of thinking allows us to see the economy more sharply and clearly than we could in other ways. (Of course, it can also cause us to miss certain relationships that are hard to quantify or hard to think of as purchases and sales; that is why economics is not the only social science, and we need sociologists, political scientists, historians, psychologists, and anthropologists as well.) In this chapter we will survey the intellectual landmarks of economists’ system of thought, in order to help you orient yourself in the mental landscape of economics.

Economics: What Kind of Discipline Is It? ...

Links for 07-15-17

• Kenneth Arrow Commemoration - Larry Summers
• The New Climate Of Treason - Paul Krugman
• What’s Wrong with the Price-Specie-Flow Mechanism, Part II - David Glasner
• So Many Critics of Economics Miss What It Gets Right - Noah Smith
• Incentives, effort, and performance in higher education - VoxEU
• The US Labor Market is Still Losing Ground Relative to Trend - Douglas Campbell
• Trumponomics philosophy: it doesn’t suck enough to be poor - C. Rampell
• Follow the Balance of Payments Breakevens of the Oil Exporters - Brad Setser
• On contradictory risk attitudes - Stumbling and Mumbling
• Why German wages need to rise - mainly macro
• Y2K Everyday? - Digitopoly
• FedViews - FRBSF

Paul Krugman: The Cruelty and Fraudulence of Mitch McConnell’s Health Bill

"the last act in a long con":

The Cruelty and Fraudulence of Mitch McConnell’s Health Bill, by Paul Krugman, NY Times: A few days ago the tweeter in chief demanded that Congress enact “a beautiful new HealthCare bill” before it goes into recess. But now we’ve seen Mitch McConnell’s latest version of health “reform,” and “beautiful” is hardly the word for it. In fact, it’s surpassingly ugly, intellectually and morally. Previous iterations of Trumpcare were terrible, but this one is, incredibly, even worse. ...

The most important change in the bill ... is the way it would effectively gut protection for people with pre-existing medical conditions. The Affordable Care Act put minimum standards on the kinds of policies insurers were allowed to offer; the new Senate bill gives in to demands by Ted Cruz that insurers be allowed to offer skimpy plans that cover very little, with very high deductibles that would make them useless to most people.

The effects of this change would be disastrous. Don’t take my word for it: It’s what the insurers themselves say. ...

Or to put it another way, this bill would send insurance markets into a classic death spiral. Republicans have been predicting such a spiral for years, but keep being wrong: ...Obamacare ... is stabilizing, and doing pretty well in states that support it. But this bill would effectively sabotage all that progress.

And let’s be clear: Many of the victims of this sabotage would be members of the white working class, people who voted for Donald Trump in the belief that he really meant it when he promised that there would be no cuts to Medicaid and that everyone would get better, cheaper insurance. So why ... is there even a chance that it might become law?

The main answer, I’d argue, is that ... conservative ideology always denied the proposition that people are entitled to health care; the Republican elite considered and still considers people on Medicaid, in particular, “takers” who are effectively stealing from the deserving rich.

And the conservative view has always been that Americans have health insurance that is too good, that they should pay more in deductibles and co-pays, giving them “skin in the game,” and thus an incentive to control costs.

So what we’re seeing here is supposed to be the last act in a long con, the moment when the fraudsters cash in, and their victims discover how completely they’ve been fooled. The only question is whether they’ll really get away with it. We’ll find out very soon.

Links for 07-14-17

• The US Treasury’s missed opportunity - VoxEU
• Cross-Border Spillovers of Balance Sheet Normalization - Lael Brainard
• Charter schools do more than teach to the test - Microeconomic Insights
• Does arbitrage always improve market efficiency? - Microeconomic Insights
• Children’s well-being, black student loan debt - Brookings

Links for 07-13-17

• Takers and Fakers - Paul Krugman
• Table Russia, Focus on Health Care - The New York Times
• Retracing the history of UK banking - Bank Underground
• Western Civilization and Presidential Hypocrisy - Larry Summers
• Endogenous growth and lack of recovery from the Global Crisis - VoxEU
• The measurement and understanding of economic inequality - Robert Solow
• More Evidence for the 'Self-Induced Paralysis' Thesis - Douglas L. Campbell
• Inevitability of the need for economic growth—the nth time - globalinequality
• Comparing Companies to Nations - EconoSpeak
• Chinese modernization c. 1930 - Understanding Society
• An Update on Labor Force Participation - macroblog
• We Don’t Need No Education - Paul Krugman
• The Bandwidth for the KPSS Test - Dave Giles
• Refugees in Germany - IGM Forum
• The danger of dismissing market failures - Brookings
• Rooftop Solar Is No Match for Crony Capitalism - Noah Smith
• Tally Sticks and the Fundamentals of Money - Tim Taylor

How Market Power Leads to Corporate Political Influence

 From ProMarket:

How Market Power Leads to Corporate Political Influence, by Asher Schechter: Neoclassical economic theory assumes that firms have no power to influence the rules of the game. A new paper by Luigi Zingales argues: This is true only in competitive product markets. When firms have market power, they will seek and obtain political influence and vice versa.

In 2016, the advocacy group Global Justice Now published a report showing that 69 of the world’s largest 100 economic entities are now corporations, not governments. With annual revenues of $485.9 billion, Walmart topped all but nine countries. As the world’s corporations continue to grow bigger and more profitable, so does the power and influence they wield: multinational corporations employ vast armies of lobbyists, lawyers, and PR people across borders and continents, and they have more than enough resources to capture regulators and elected representatives the world over.

Yet, the prevailing economic definition views firms as merely “a nexus of contracts” with “no power of fiat, no authority, no disciplinary action any different in the slightest degree from ordinary market contracting between two people.” How is it possible to reconcile these two views? A new paper by Luigi Zingales (Faculty Director of the Stigler Center and one of the editors of this blog) tries to bridge this gap.

The Medici vicious circle

The neoclassical model of the firm, notes Zingales, is a reasonable description of firms operating in highly competitive markets, where firms have little incentives and fewer resources to distort the rules of the game. Little incentives because in a neoclassical framework firms are relatively small, and thus the costs of these activities tend to exceed their share of the benefits. Fewer resources, because a competitive market does not provide firms with abnormal profits to spend in lobbying activities. 

The opposite is true in concentrated markets, where firms enjoy sufficiently high profits to spend in lobbying activity. Some market power is particularly important to gain political influence when cash bribes are relatively rare, writes Zingales. In such an environment, firms gain political power through promises of future benefits. Only if firms have significant market power do they have rents to allocate. At the same time, firms’ promises of future rents are credible only to the extent that firms are expected to be around in the future, a prospect greatly enhanced by the existence of some barrier to entry in the markets in which they operate. Thus, firms can gain political power only when they have significant market power. ...

Why Recessions Followed by Austerity Can Have a Persistent Impact

Simon Wren-Lewis:

Why recessions followed by austerity can have a persistent impact: Economics students are taught from an early age that in the short run aggregate demand matters, but in the long run output is determined from the supply side. A better way of putting it is that supply adjusts to demand in the short run, but demand adjusts to supply in the long run. A key part of that conceptualisation is that long run supply is independent of short run movements in demand (booms or recessions). It is a simple conceptualisation that has been extremely useful in the past. Just look at the UK data shown in this post: despite oil crises, monetarism and the ERM recessions, UK output per capita appeared to come back to an underlying 2.25% trend after WWII.

Except not any more: we are currently more than 15% below that trend and since Brexit that gap is growing larger every quarter. Across most advanced countries, it appears that the global financial crisis (GFC) has changed the trend in underlying growth. You will find plenty of stories and papers that try to explain this as a downturn in the growth of supply caused by slower technical progress that both predated the GFC and that is independent of the recession caused by it.

In a previous post I looked at recent empirical evidence that told a different story: that the recession that followed the GFC appears to be having a permanent impact on output. You can tell this story in two ways. The first is that, on this occasion for some reason, supply had adjusted to lower demand. The second is that we are still in a situation where demand is below supply. ... [explains] ...

All this shows that there is no absence of ideas about how a great recession and a slow recovery could have lasting effects. If there is a problem, it is more that the simple conceptualisation that I talked about at the beginning of this post has too great a grip on the way many people think. If any of the mechanisms I have talked about are important, then it means that the folly of austerity has had an impact that could last for at least a decade rather than just a few years.

Links for 07-12-17

• The myth of the German jobs miracle - Matthew Klein
• How do credit supply shocks affect the real economy? - Mian, Sufi, Verner
• Cross-Border Spillovers of Balance Sheet Normalization - Lael Brainard
• Does the Journal System Distort Scientific Research? - Miles Kimball
• Young Men Give Up Work for Video Games? Be Skeptical - Noah Smith
• Trump’s Security Vision Leaves Little Room for Plowshares - Eduardo Porter
• The Fed Gets Optimistic About Inflation - Narayana Kocherlakota
• The unhappiness of the US working class - Brookings
• The CICE comedy - Le blog de Thomas Piketty
• Arm's-Length International Trade - Tim Taylor
• Responding to Urban Decline - FRB Richmond
• A New Puzzle à la Fama - Econbrowser
• Inflation Target - IGM Forum

Links for 07-11-17

• Why Single-Payer Health Care Saves Money - Robert Frank
• Formerly True Theories - Paul Krugman
• Trump Nominates Randal Quarles to Oversee Wall Street Banks - NYTimes
• The secular rise in personality traits - VoxEU
• Global value chains shed new light on trade - Brookings Institution
• What’s Holding Back Business Formation? - FRBSF
• The New Abnormal in Monetary Policy - Nouriel Roubini
• Impact of Macro Surprises Changed After Zero Lower Bound - Dallasfed.org
• Dealing with Imperfect Instruments III - Marc Bellemare
• On Matthew effects - Stumbling and Mumbling
• How the Fed Changes the Size of Its Balance Sheet - Liberty Street
• Populism and the Economics of Globalization - NBER
• Measuring the impact of austerity - mainly macro
• How Healthy is the Global Financial System? - Mohamed A. El-Erian

Paul Krugman: Three Legs Good, No Legs Bad

There are three good reasons why Republicans, in their quest to fund tax cuts for the wealthy, can't find an alternative to Obamacare that avoids "a huge rise in the number of uninsured":

Three Legs Good, No Legs Bad, by Paul Krugman, NY Times: Will 50 Republican senators be willing to inflict grievous harm on their constituents in the name of party loyalty? I have no idea.

But this seems like a good moment to review why Republicans can’t come up with a non-disastrous alternative to Obamacare...

Suppose you want to make health coverage available to everyone..., the Affordable Care Act went for ... the so-called three-legged stool.

It starts by requiring that insurers offer the same plans, at the same prices, to everyone... This deals with the problem of pre-existing conditions. On its own, however, this would lead to a “death spiral”: healthy people would wait until they got sick to sign up, so those who did sign up would be relatively unhealthy, driving up premiums, which would in turn drive out more healthy people, and so on.

So insurance regulation has to be accompanied by the individual mandate, a requirement that people sign up for insurance, even if they’re currently healthy. And the insurance must meet minimum standards: Buying a cheap policy that barely covers anything is functionally the same as not buying insurance at all.

But what if people can’t afford insurance? The third leg of the stool is subsidies ... for those with lower incomes. For those with the lowest incomes, the subsidy is 100 percent, and takes the form of an expansion of Medicaid.

The key point is that all three legs of this stool are necessary...

 Republicans ... ideas involve sawing off one or more legs of that three-legged stool.

First, they’re dead set on repealing the individual mandate...

Second, they’re determined to slash subsidies — including making savage cuts to Medicaid — in order to free up money ... to cut taxes on the wealthy. The result would be a drastic rise in net premiums for most families.

Finally, we’re now hearing a lot about the Cruz amendment, which would let insurers offer bare-bones plans with minimal coverage and high deductibles. These would be useless to people with pre-existing conditions, who would find themselves segregated into a high-cost market — effectively sawing off the third leg of the stool.

So which parts of their plan would Republicans have to abandon to avoid a huge rise in the number of uninsured? The answer is, all of them.

After all these years of denouncing Obamacare, then, Republicans have no idea how to do better. Or, actually, they have no ideas at all.

Fed Watch: June Employment Report Recap

Tim Duy:

June Employment Report Recap, by Tim Duy: A generally upbeat June 2017 employment report supports the Fed's case for additional monetary tightening, most likely in the form of balance sheet action in September followed up by a 25bp rate hike in December. Moreover, the solid pace of job growth will encourage the Fed to maintain 2018 policy projections as well. Although the unemployment rate ticked up, ongoing job growth at this pace will eventually push it back down. Weak wage growth continues to restrain the Fed from accelerating the pace of easing; the tepid pace of wage gains suggests the Fed's estimates of full employment remain too high.

Nonfarm payrolls rose by 22sk in June, above expectations. Moreover, both April and May were revised higher. The three month and twelve month paces are just below 200k. Job growth continues to slow, but the rate of decline is very shallow:

Looking into the future, temporary help payrolls continues to climb after the transitory slowdown in 2015:

This typically indicates sustained broad job growth in future months. Further evidence of a solid job market is visible in the accelerating of aggregate hours worked:

Payroll growth remains above the roughly 100k the Fed believes is necessary to hold the unemployment rate constant once demographic impacts outweigh cyclical impacts on labor force growth. For June, however, the unemployment rate ticked up on the back of higher labor force participation:

Still, the Fed won't take much relief in the gain. For all intents and purposes, labor force participation has been move sideways since 2014:

The monthly variance so far has been just noise.

Despite low unemployment, wage growth remains anemic:

One would have expected a pickup in wage growth if the economy were indeed operating substantially beyond full employment. This gives the Fed something to think about in the latter half of this year - they don't want to choke out growth too quickly if the natural rate of unemployment is in fact much lower than current estimates. Still, concern that wage growth will soon spike if their estimates are correct encourage most Fed policymakers to keep their foot gently on the brake. 

Bottom Line: Even as weak wage growth couples with soft inflation to raise a bit of caution among central bankers, the overall tenor of the labor markets remains sufficient for the Fed to maintain its tightening bias. They really need softer job numbers to thrown in the towel on their expected policy path for 2017 and 2018.

Links for 07-10-17

• Trump’s behavior is the biggest threat to U.S. national security - Larry Summers
• When Was The Golden Age Of Conservative Intellectuals? - Paul Krugman
• The crisis of positive-sum capitalism - Stumbling and Mumbling
• Ben Bernanke, in Denial? "When Growth is Not Enough" - Douglas L. Campbell
• The Liberal Conscience (Bertrand Russell Edition) - Roger E. A. Farmer
• On the Identification of Network Connectedness - No Hesitations
• Collective bargaining in OECD countries - VoxEU
• Mending the Gap? - Economic Principals
• Against Charisma - mainly macro
• Wage Growth Slows Sharply - Dean Baker

What Economics Models Really Say

"Why is there such an enormous gulf between what economists know and what they say in public?":

What Economics Models Really Say A Review of Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik (Norton, 2015) Peter Turchin University of Connecticut Seshat: Global History Databank: [This work is made available under the terms of the Creative Commons Attribution 4.0 license, http://creativecommons.org/licenses/by/4.0/ ]

The blurb on the jacket of Economics Rules says, “In this sharp, masterful book, Dani Rodrik, a leading critic from within, takes a close look at economics to examine when it falls short and when it works, to give a surprisingly upbeat account of the discipline.” I heartily agree with nearly all of this, with the exception of the “upbeat” part. As I will explain toward the end of this review, my view of economics, and, especially, of the role that economists play in public policy, is much more critical.

A central theme in the book is the role of mathematical models in economics. Formal models in economics and other social sciences are often disparaged. According to the critics (who include some economists, many other social scientists, and the overwhelming majority of historians), models oversimplify complex reality, employ unrealistic assumptions, and deny “agency” to human beings.

Rodrik rejects this critique. According to him, mathematical models— “simplifications designed to show how specific mechanisms work by isolating them from other, confounding effects”—are the true strength of economics. A simplified description of reality is not a shortcoming, it’s the essence of a good model.

My own training was in mathematical biology, and as a graduate student during the 1980s I saw the tail end of the “Math Wars” in ecology. By the 1990s the war was won, and any respectable department of ecology and evolution had to have on faculty at least one modeler. Today, the great majority of ecologists agree that a science cannot become a Science until and unless it develops a well-articulated body of mathematical theory.

In the social sciences, different disciplines made this transition at different times, with economics leading the pack and laggards, like history, undergoing this transition only now (hence cliodynamics—“history as science”; it’s worth noting that most American historians consider history not as a social science, but as one of the humanities).

I was, thus, a bit bemused to read Rodrik’s defense of mathematical models (haven’t economists resolved the Math Wars already?). But it’s an excellent defense—all aspiring cliodynamicists should read Economics Rules, if only for this reason.

The list of reasons why we need mathematical models in a scientific discipline is familiar to all who have extensive experience in modeling (and for those who don’t have such experience, I suggest you read Chapters 1 and 2 of Economics Rules). Models clarify the logic of hypotheses, ensure that predictions indeed follow from the premises, open our eyes to counterintuitive possibilities, suggest how predictions could be tested, and enable accumulation of knowledge. The advantage of clarity that mathematical models offer scientists is nicely illustrated in the following quote from Economics Rules: “We still have endless debates today about what Karl Marx, John Maynard Keynes, or Joseph Schumpeter really meant. … By contrast, no ink has ever been spilled over what Paul Samuelson, Joe Stiglitz, or Ken Arrow had in mind when they developed the theories that won them their Nobel.” The difference? The first three formulated their theories largely in verbal form, while the latter three developed mathematical models.

The value of the book, however, is in more than just weighing in on the usefulness of mathematical models. As Rodrik notes early in the book, “economics is by and large the only social science that remains almost entirely impenetrable to those who have not undertaken the requisite apprenticeship in graduate school.” And economics is “impenetrable” not because of mathematical models, at least not to someone trained in mathematical natural sciences (the math is universal), but because economists have developed an entirely distinct jargon that sets them apart from other disciplines and creates artificial barriers to understanding the many truly worthwhile insights from economics models.

Because I have not “undertaken the requisite apprenticeship”, I found very useful Rodrik’s explanations of the insights generated by such classic models in economics as the First Fundamental Theorem of Welfare Economics, the Principle of Comparative Advantage, and the General Theory of Second Best. Particularly illuminating were the discussion of what happens to the fundamental result of a model when we start systematically relaxing various assumptions on which it depends. This part of the book, together with the references that Rodrik provides, could serve as a basis for an excellent mini-course on what economics theory really tells us.

And a general take-home message that emerges from this discussion is that if we want to understand Big Questions—when do markets work or fail, what makes economies grow, and what are the effects of deficit spending—there is not one fundamental model, “the Model”. Instead, we need to study an array of models, each telling a partial story.

So far so good. But Rodrik, in my opinion, goes too far in denying the value of general theory. At one point he writes, “society does not have fundamental laws— at least, not quite in the same way that nature does.” And: “the same theory of evolution applies in both Northern and Southern Hemispheres,” but “economic models are different.”

Not really. Let’s take the theory of evolution. It’s not a single model. It’s a theoretical framework that includes hundreds, perhaps thousands of special case models, each telling only a partial story. To give an example, textbooks on evolutionary theory often start with a single-locus two-allele model (which gives us the famous Hardy-Weinberg Equilibrium). But you will need different models for haploid organisms (such as bacteria, who have a single unpaired chromosome), or for organisms reproducing asexually; and yet another set of models for phenotypic selection. Despite such diversity of modeling approaches, there is a theoretical unity in evolutionary biology. In particular, the conceptual framework of evolutionary theory provides a set of guidelines for the theoreticians on which model to use in which context.

And I don’t see how the situation is different in economics (and, more generally, social sciences). Yes, there is a multiplicity of models in economics, but you can’t just select one randomly (or worse, “cherry pick” among the results to suit your ideological agenda). There are rules for choosing appropriate models, and Rodrik devotes Chapter 3 of his book to explaining general principles of model selection in economics. In other words, theoretical frameworks are not simply compendia of models, they also include model selection rules (and a few other things).

Rodrik, thus, sells short the potential for general theory in social sciences. Naturally, economics, in particular, does not have such an elaborate, well-articulated, and empirically validated theoretical framework as evolutionary biology (and evolutionary biology, in turn, lags behind many subdisciplines of physics). But who is to say that economics will not develop to the same level in the future? We’ll see if we live long enough.

Let’s now shift gears and talk about Chapter 5, “When Economists Go Wrong.” To make the following discussion concrete, I will focus on a particular theoretical result in economics, the Principle of Comparative Advantage, and what this principle implies for trade policy. In popular press, of course, comparative advantage is always used as a justification for advocating free trade. Rodrik does an admirable job explaining why, under many conditions, free trade can lead to really negative consequences for economies and populations of countries that open themselves to international competition. For example, there is strategic behavior. A country may choose to protect its domestic industry with high tariffs and subsidize its exports in order to gain market share. Perhaps its leaders don’t understand the Principle of Comparative Advantage, not having the benefit of apprenticeship in economics. Or perhaps they care more about their country's long-term survival in an anarchic international environment than about making immediate profit.

In one particularly revealing passage in the book, Rodrik writes,

consider how opening up trade—one of the key items of the Washington Consensus—was supposed to work. As barriers to imports were slashed, firms that were unable to compete internationally would shrink or close down, releasing their resources (workers, capital, managers) to be employed in other parts of the economy. More efficient, internationally competitive sectors, meanwhile, would expand, absorbing those resources and setting the stage for more rapid economic growth. In Latin American and African countries that adopted this strategy, the first part of this prediction largely materialized, but not the second. Manufacturing firms, previously protected by import barriers, took a big hit. But the expansion of new, export-oriented activities based on modern technologies lagged. Workers flooded less productive, informal service sectors such as petty trading instead. Overall productivity suffered. [italics are mine]

Washington Consensus outcomes in Latin America and Africa stand in sharp contrast with the experience of Asian countries. … Instead of liberalizing imports early on, South Korea, Taiwan, and later China all began their export push by directly subsidizing homegrown manufacturing. … All of them undertook industrial policies to nurture new manufacturing sectors and reduce their economies’ dependence on natural resources.

As Rodrik correctly stresses, these cases do not prove that standard economics is wrong. In short, “someone who advocates free trade because it will benefit everyone probably does not understand how comparative advantage really works.”

Models that were developed for “the way markets really work—or fail to work—in low-income settings with few firms, high barriers to entry, poor information, and malfunctioning institutions, these alternative models proved indispensable”—by telling us why countries that followed the Washington Consensus failed, and those who threw it to the wind succeeded.

But then how does one explain that nearly all economists—96 percent— strongly agree with the following statement: “Free trade improves the productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on unemployment” (Politicians Should Listen to Economists on Free Trade, by Bryan Riley, The Heritage Foundation, Feb.1, 2013; this was from a survey conducted by the University of Chicago’s Booth School of Business).

Rodrik argues that “the problem has to do more with the way economists present themselves in public than with the substance of the discipline.” “In public, the tendency is to close ranks and support free markets and free trade.”

But why is there such an enormous gulf between what economists know and what they say in public? One possible explanation is that policies, such as free trade, while often harming broad swaths of populations, tend to benefit narrow segments of economic elites. Perhaps the critics from the left (and a few “heterodox economists”) are right when they charge that economists speak what the powers-that-be want us to hear.

Whatever the explanation, I cannot agree that Rodrik’s book gives us “a surprisingly upbeat account of the discipline.” Economics may be a vibrant discipline, but most of the richness of its insights is hidden in academic publications behind the shield of specialist jargon, impenetrable to those who have not taken the requisite apprenticeship. And by closing ranks and unconditionally supporting free markets and free trade, economists have failed us, the general public. This is why we need more books like Economics Rules—so that we can find out what economics models really tell us.

Special Day

Walked my daughter Amy down the aisle earlier today.

Links for 07-08-17

• Can Investigative Journalism Overcome the Rational Ignorance? - ProMarket
• The difficult school-to-work transition for high-school dropouts - VoxEU
• What’s Wrong with the Price-Specie-Flow Mechanism? Part I - Uneasy Money
• Sibling spillovers - VoxEU
• A Legal Setback for the Fed - George Selgin
• The spanning hypothesis and risk premia in long-term bonds - VoxEU
• Capital inflows: The good, the bad, and the bubbly - VoxEU
• Risk, return, and skill in the portfolios of the wealthy - VoxEU
• Government Policy and Labor Productivity - Stanley Fischer

A Solid Employment Report

Calculated Risk:

A Solid Employment Report: The headline jobs number was above expectations, and there were combined upward revisions to the previous two months. And the unemployment increased slightly.  

Earlier: June Employment Report: 222,000 Jobs, 4.4% Unemployment Rate

In June, the year-over-year change was 2.24 million jobs. This is decent year-over-year job growth.

Note that June has been the strongest month for job growth over the three previous years, followed by July and November. This is the 4th consecutive solid job gain in June:  304 thousand in June 2014, 206 in June 2015, 297 thousand in June 2016, and now 222 thousand in June 2017.   ...

Paul Krugman: Attack of the Republican Decepticons

Conservatives "keep scaling new heights of dishonesty in their attempt to sell their reverse-Robin Hood agenda":

Attack of the Republican Decepticons, by Paul Krugman, NY Times: Does anyone remember the “reformicons”? A couple of years back there was much talk about a new generation of Republicans who would ... move their party off its cruel and mindless agenda of tax cuts for the rich and pain for the poor, bringing back the intellectual seriousness that supposedly used to characterize the conservative movement.

But the rise of the reformicons never happened. What we got instead was the (further) rise of the decepticons..., conservatives who keep scaling new heights of dishonesty in their attempt to sell their reverse-Robin Hood agenda.

Consider ... Republican leaders’ strategy on health care..., here are a few low points. ...

Despite encountering some significant problems, the Affordable Care Act has ... extended health insurance to millions of Americans... And these numbers translate into dramatic positive impacts on real lives. ...

How do Republicans argue against this success? You can get a good overview by looking at the Twitter feed of Tom Price,... secretary of health and human services...

First, he points to the fact that fewer people than expected have signed up on the exchanges ... and portrays this as a sign of dire failure. But a lot of this shortfall is the result of good news: Fewer employers than predicted chose to drop coverage and shift their workers onto exchange plans. ...

Second, he points to the 28 million U.S. residents who remain uninsured... But nobody expected Obamacare to cover everyone... And you have to wonder how Price can look himself in the mirror ... when his own party’s plans would vastly increase the number of uninsured.

Which brings us to Republicans’ efforts to obscure the nature of their own plans. ...

On one side, they claim that a cut is not a cut, because dollar spending on Medicaid would still rise over time. ...

On the other side ... senior Republicans ... dismiss declines in the number of people with coverage as no big deal, because they would represent voluntary choices not to buy insurance.

How is this supposed to apply to the 15 million people the C.B.O. predicts would lose Medicaid? ...

Political spin used to have its limits: Politicians who wanted to be taken seriously wouldn’t go around claiming that up is down and black is white.

Yet today’s Republicans hardly ever do anything else. It’s not just Donald Trump: The whole G.O.P. has become a post-truth party. And I see no sign that it will ever improve.

Fed Watch: Employment Report Coming Up

Tim Duy:

Employment Report Coming Up, by Tim Duy: The BLS will release the June employment report tomorrow. Wall Street is looking for an NFP gain of 170k. That sounds about right to me:

There may be an upside surprise if the May number was low due to new college graduates not yet on the payroll during the survey week. 

The Fed believes this pace of job growth would be consistent with further downward pressure on the unemployment rate, keeping them stuck between concerns they will overheat the economy by undershooting the natural rate of unemployment and that pesky low inflation number. With that in mind, Wall Street anticipates the unemployment rate holds steady at 4.3%, which would likely only provide temporary relief for the Fed. They would be more willing to slow the pace of rate hikes if the unemployment rate held steady and the pace of job growth slowed to something closer to 100k per month. If that happens by the end of the year and inflation remains tepid, I anticipate the Fed would pull back on rate hike expectations for 2018.

That said, my baseline expectation is that economic growth proves sufficient to place further downward pressure on unemployment, leaving the Fed stuck in their current conundrum. 

Last but not least, the Fed will be carefully watching measures of wage growth. Wage growth softened in recent months, suggesting that the goal of full employment remains elusive. That said, some of that weakness might be the delayed impact of flattening unemployment in 2016. Hence, the impact of lower unemployment this year on unemployment might still lie ahead. Firming to accelerating wage growth would signal to the Fed that the economy is indeed at full employment as many policymakers suspect. Such confirmation would enable them to dig in their heels on expected rate hikes.

Links for 07-06-17

• Voter Data Request Is Illegal, not Just Controversial - Regulatory Review
• Someday Congress Won't Raise the Debt Ceiling - Narayana Kocherlakota
• The Case for Housing Finance Reform - Jerome Powell
• Austerity Confusion, or why the Tories are trapped by austerity - mainly macro
• A review of labor market conditions - FRED Blog
• Who fears losing their job to AI and robots: Japanese survey data - VoxEU
• Foreign banks and the international transmission of monetary policy - VoxEU
• Never mind the flatness of the observed Phillips Curve - Nick Rowe
• A New Deal for the 21st Century - Yanis Varoufakis
• Money tree economics - Stumbling and Mumbling
• Fed Officials Are Divided Over When to Reduce Its Debt Holdings - NYTimes
• Freedom of Information Request - Jayson Lusk
• Transition to clean technology - VoxEU
• Growing, shrinking, and long-run economic performance - VoxEU

Reading List

People sometimes post their reading lists. So, well, -- hesitant -- but these are the books I read in the last year or so. My favorite was A First Course in String Theory. Ha. That one took me a few months, but it was cool to learn. Last one I read was "Salt." How did I now know how important salt was in history? One before that was Stuff and Money in the Time of the French Revolution -- didn't agree with everything, but fascinating.

• Salt: A World History
• Stuff and Money in the Time of the French Revolution
• Destiny of the Republic: A Tale of Madness, Medicine and the Murder of a President
• King Leopold's Ghost: A Story of Greed, Terror, and Heroism in Colonial Africa
• The Norman Conquest: The Battle of Hastings and the Fall of Anglo-Saxon England
• Children of Paradise: The Struggle for the Soul of Iran
• Red Plenty
• Cadillac Desert
• Spain in Our Hearts: Americans in the Spanish Civil War, 1936–1939
• Golden Hill
• Sapiens: A Brief History of Humankind
• Hittites: A Powerful Ancient Civilization
• 1493: Uncovering the New World Columbus Created
• American Heiress: The Wild Saga of the Kidnapping, Crimes and Trial of Patty Hearst
• To End All Wars: A Story of Loyalty and Rebellion, 1914-1918
• The Warmth of Other Suns: The Epic Story of America's Great Migration
• The Power and Independence of the Federal Reserve
• Too Like the Lightning: A Novel (Terra Ignota)
• Seven Surrenders: A Novel (Terra Ignota)
• The Curious Incident of the Dog in the Night-Time
• A Short History of Nearly Everything
• Deep Down Things: The Breathtaking Beauty of Particle Physics
• The Fabric of the Cosmos: Space, Time, and the Texture of Reality
• A First Course in String Theory
• From Eternity to Here: The Quest for the Ultimate Theory of Time
• The Grand Design
• The Hidden Reality: Parallel Universes and the Deep Laws of the Cosmos
• How the Hunt for the Higgs Boson Leads Us to the Edge of a New World
• The Standard Model, the Unsung Triumph of Modern Physics

Links for 07-05-17

• Public Spheres for the Trump Age - J. Bradford DeLong
• The Global Growth Slump: Causes and Consequences - FRBSF
• The IMF’s Flexible Credit Line - Capital Ebbs and Flows
• Why Not Taxation and Representation? - Tim Taylor
• Morphogenesis and social norms - Understanding Society
• On the joint evolution of institutions and culture - VoxEU

Links for 07-04-17

• Economics of the populist backlash - Dani Rodrik
• Kansas or California? - Laura Tyson and Lenny Mendonca
• Is social graph portability workable? - Digitopoly
• Regulating the Credit Rating Agencies? - Cecchetti & Schoenholtz
• New data on global earnings inequality - VoxEU
• Was Neoliberal Overreach Inevitable? - mainly macro
• Central Bank Balance Sheets: Past, Present and Future - Bank Underground
• Occupational licensing in the Japanese labour market - VoxEU
• Literature of Disillusionment - Economic Principals

Paul Krugman: Oh! What a Lovely Trade War

"If we start breaking those rules, others will too":

Oh! What a Lovely Trade War, by Paul Krugmn, NYTimes: ...Axios reports that the White House believes that Trump’s base “likes the idea” of a trade war, and “will love the fight.”

Yep, that’s a great way to make policy.

O.K., so what’s complicated about trade policy?

First, a lot of modern trade is in intermediate goods — stuff that is used to make other stuff. A tariff on steel helps steel producers, but it hurts downstream steel consumers like the auto industry. So even the direct impact of protectionism on jobs is unclear.

Then there are the indirect effects, which mean that any job gains in an industry protected by tariffs must be compared with job losses elsewhere. Normally, in fact, trade and trade policy have little if any effect on total employment. They affect what kinds of jobs we have; but the total number, not so much. ...

Then there’s the response of other countries. International trade is governed by rules — rules America helped put in place. If we start breaking those rules, others will too...

And it’s foolish to imagine that America would “win” such a war. ... Anyway, trade isn’t about winning and losing: it generally makes both sides of the deal richer, and a trade war usually hurts all the countries involved.

I’m not making a purist case for free trade here. Rapid growth in globalization has hurt some American workers, and an import surge after 2000 disrupted industries and communities. But a Trumpist trade war would only exacerbate the damage, for a couple of reasons.

One is that globalization has already happened, and U.S. industries are now embedded in a web of international transactions. So a trade war would disrupt communities the same way that rising trade did in the past. There’s an old joke about a motorist who runs over a pedestrian, then tries to fix the damage by backing up — running over the victim a second time. Trumpist trade policy would be like that.

Also, the tariffs now being proposed would boost capital-intensive industries that employ relatively few workers per dollar of sales; these tariffs would, if anything, further tilt the distribution of income against labor.

So will Trump actually go through with this? He might. ...

Trump’s promises on trade, while unorthodox, were just as fraudulent as his promises on health care. In this area, as in, well, everything, he has no idea what he’s talking about. And his ignorance-based policy won’t end well.

Have Blog, Will Travel

I am here today and tomorrow:

Applications of Behavioural Economics, and Multiple Equilibrium Models to Macroeconomic Policy
Conference 3-4 July 2017 at the Bank of England

Monday 03 July

09:00 - 09:35 Introduction and Welcome
Victoria Saporta, Executive Director, Bank of England

09:35 - 10:30: Keynote Address: Do Low Interest Rates Punish Savers’?
James Bullard, President, FRB of St. Louis

10:30 - 11:25 Endogenous Regime Shifts in a New Keynesian Model with a Time varying Natural Rate of Interest
Kevin Lansing, FRB of San Francisco
Discussant: Giovanni Ricco, University of Warwick

11:25 - 11:55 Tea Break

11:55 - 12:50 Animal spirits in a monetary model
Konstantin Platonov, University of California Los Angeles
Discussant: Stephanie Schmitt-Grohé, Columbia University

12:50 - 14:00 Lunch

14:00 - 14:55 A Behavioral New Keynesian Model
Xavier Gabaix, Harvard University
Discussant: Martin Ellison, University of Oxford

14:55 - 15:50 Informative social interactions
Hector Calvo, Pardo University of Southampton
Discussant: Nora Wegner, Bank of England

15:50 - 16:20 Tea Break

16:20 - 17:15 History Dependence in UK Housing Market
Philippe Bracke, Bank of England
Discussant: Alan Taylor, University of California

17:15 - 18:10 Macroprudential policy in an agent based model of the UK housing market
Arzu Uluc, Bank of England
Discussant: Paolo Gelain, Norges Bank

18:30 Networking Reception

19:30 Dinner (By Invitation Only)
Speaker: Andy Haldane, Chief Economist, Bank of England

Tuesday 04 July

09:30 - 10:25 U.S. Monetary Policy in the Post-war Period
Giovanni Nicoló, University of California Los Angeles
Discussant: Ana Galvao, University of Warwick

10:25 - 11:20 The Inverted Leading Indicator Property and Redistribution Effect of the Interest Rate, Patrick Pintus, University of Aix-Marseile  and Banque de France
Discussant: Kaushik Mitra, University of Birmingham

11:20 - 11:50 Tea Break

11:50 - 12:45 Systemic Bank Panics in Financial Networks
Zhen Zhou, Tsinghua University
Discussant: Sujit Kapadia, Bank of England

12:45 - 13:45 Lunch

13:45 - 14:40 Divergent Risk Attitudes and Endogenous Collateral Constraints
Ester Faia, University of Frankfurt
Discussant: Daisuke Ikeda, Bank of England

14:40 - 15:35 Expectations, Stagnation and Fiscal Policy
George Evans, University of Oregon
Discussant: Thomas Hintermaier, University of Bonn

15:35 - 16:05 Tea Break

16:05 - 17:00 Inflation targets and the zero lower bound in a behavioural macroeconomic model
Paul De Grauwe, London School of Economics
Discussant: Laura Povoledo, University of the West of England

17:00 - 17:05 Introduction
Roger Farmer, University of Warwick and Research Director: NIESR

17:05 - 18:00 Keynote Address: Forward Guidance when Planning Horizons are Finite
Michael Woodford, Columbia University

18:00 Conference Closes

Links for 07-02-17

• Trump and the Truth About Climate Change- Joseph Stiglitz
• Are we in a new inflation regime? - Econbrowser
• The simplicity of views regarding civil conflicts - Branko Milanovic
• The future of the techno-market economy - Understanding Society
• The deterrence effect of whistleblowing - VoxEU
• Automation and jobs - John Cochrane
• Monopoly/monopsony power and hungriness for sales/purchases - Nick Rowe
• A completely pointless amendment - mainly macro
• On the measuring and mis-measuring of Chinese growth - VoxEU
• The Return of Peasant Mentality? - Dietrich Vollrath
• "Information Is a Public Good" - ProMarket
• The Role of Central Bank Lending Facilities in Monetary Policy - Liberty Street