Economist's View

Links (6/29/19)

• Opportunity cost, MMT and public spending - Crooked Timber
  ... In the “chartalist” reasoning underlyng MMT, the fact that governments can issue their own sovereign currency means that there is no need to “finance” public spending by taxation; rather taxation is a tool used to manage aggregate demand so as to keep the economy fully employed but not at a point where excess demand creates inflation. That (essentially correct) position can easily slide into the (only subtly different, but radically mistaken) view that governments can spend money on anything they like with no need for any increases in taxes or cuts in other spending. As I will argue over the fold, a correct version of MMT makes no such claim. Unfortunately, while avoiding the error themselves, a lot of MMT theorists have not shown much willingness to set their more naive followers straight. ...
• It is aggregate demand—recession, weak recovery, catastrophe, and then superweak recovery... - Brad DeLong
  I confess I do not get this from Paul Krugman. Yes, the trade deficit crowds-out traditionally-male blue-collar import-substituting manufacturing jobs, but imports crowd-in traditionally-male blue-collar wholesale trade jobs, and finance traditionally-male blue-collar construction (and capital-goods manufacturing) jobs. If you look at all traditionally-male blue-collar—wholesale, construction, manufacturing, and mining)–what you get is not a story of the trade deficit, but rather a story of (a) macro shocks to aggregate demand, and (b) the long-run technology-and-preferences trend—some of which is automation. NAFTA is nowhere.
• The S Word, the F Word and the Election - Paul Krugman
  What did you think of the bunch of socialists you just saw debating on stage? Wait, you may protest, you didn’t see any socialists up there. And you’d be right. The Democratic Party has clearly moved left in recent years, but none of the presidential candidates are anything close to being actual socialists — no, not even Bernie Sanders, whose embrace of the label is really more about branding (“I’m anti-establishment!”) than substance. ...
• America’s Economic Blockades and International Law - Jeffrey D. Sachs
  Trump is often called an isolationist, but he is as interventionist as his predecessors. His strategy is simply to rely more heavily on US economic power than military might to coerce adversaries, which creates its own kind of cruelty and destabilization – and embodies its own brand of illegality.
• 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? There’s a case to be made either way. ...
• Managing Alligators and Kangaroos with Market Incentives - Tim Taylor
  "About half a century ago, the American alligator became one of the original endangered species. Today, there are approximately 1.3 million in Florida alone, and residents routinely call nuisance trappers ... to remove gators from swimming pools, neighborhood lagoons, and pretty much any other body of water they find their way into. For the nuisance trappers across the state, markets and commercialization are part of the foundation that helps manage this now-abundant species." Tate Watkins describes the situation in "The Gator Traders: Markets help manage alligators in Florida. What can they teach us about managing other abundant species?" published in PERC Reports, Summer 2019, pp. 32-29). ...
• Trump Is the Worst Kind of Socialist - Bernie Sanders
  ... That declaration was an effort to frighten Americans and undermine growing support for expanding Medicare and Social Security—two popular programs that have long been derided as “socialist.” Mr. Trump’s declaration hypocritically ignores that he and his Republican colleagues are the nation’s leading purveyors of an insidious form of corporate socialism, which uses government power and taxpayer resources to enrich Mr. Trump and his billionaire friends. ...
• Self-Inflicted Medical Misery - Paul Krugman
  Over the weekend The Washington Post published a heart-rending description of a pop-up medical clinic in Cleveland, Tenn. — a temporary installation providing free care for two days on a first-come-first-served basis. Hundreds of people showed up many hours before the clinic opened, because rural America is suffering from a severe crisis of health care availability, with hospitals closing and doctors leaving. Since the focus of the report was on personal experience, not policy, it’s understandable that the article mentioned only in passing the fact that Tennessee is one of the 14 states that still refuse to expand Medicaid under the Affordable Care Act. So I’m not sure how many readers grasped the reality that America’s rural health care crisis is largely — not entirely, but largely — a direct result of political decisions.
• Today’s Inequalities Are Signs That Democratic Capitalism Is Under Threat - ProMarket
  At the launch of the IFS Deaton Review, a 5-year review of rising inequalities in the UK, Sir Angus Deaton decried extreme inequality and the system that allows it. “As it is, capitalism is not delivering to large fractions of the population.”
• Trade and Exchange Rates - IGM Forum
  Question A: Mexico's persistent bilateral trade surplus with the United States implies that Mexico is following policies that keep the peso artificially weak against the US dollar. ...
• Black workers are being left behind by full employment - Brookings
  The unemployment rate is 15.8% in Newark, N.J. It’s an alarming 17.4% in Detroit. And in Flint, Mich. more than a quarter of the population is unemployed. If these numbers referred to the white unemployment rate, our leaders would be doing everything possible to improve it. But these rates represent black unemployment, and no one is sounding the alarm.
• How to put the long-term unemployed back to work - The Washington Post
  The current U.S. job market is, by most measures, in great shape. Unemployment, at 3.6 percent, stands at a 50-year low. Underemployment, which includes 4.4 million (about 3 percent of the employed) part-timers who want full-time jobs, is 7.1 percent, its lowest since late 2000. Any way you cut it, that’s a tight national labor market. Yet, amid all those strong numbers, more than 1 million people, about a fifth of the unemployed, were long-term unemployed last month, meaning they had been looking for work for more than half a year. Millions more remain out of the labor force...
• How Large Are Default Spillovers in the U.S. Financial System? - Liberty Street Economics
  When a financial firm suffers sufficiently high losses, it might default on its counterparties, who may in turn become unable to pay their own creditors, and so on. This “domino” or “cascade” effect can quickly propagate through the financial system, creating undesirable spillovers and unnecessary defaults. In this post, we use the framework that we discussed in “Assessing Contagion Risk in a Financial Network,” the first part of this two-part series, to answer the question: How vulnerable is the U.S. financial system to default spillovers? ...
• Notes on Excessive Wealth Disorder - Brad DeLong.
  I am hearing from a number of people that columns like this one and its ilk by Paul Krugman and our other compadres are bloodless, and ineffective. They do not convey any sense of what is happening. So let me make it more concrete...
• Consumers’ and Economists’ Differing Inflation Views Can Complicate Policymaking - Dallasfed.org
  Economists and consumers likely think of different concepts when they consider inflation. Economists typically focus on the underlying trend that monetary policy can steer. U.S. consumers appear to think instead about unpredictable changes in prices most relevant to their regular decision-making. ...
• Professors need to be entertaining to prevent students from watching YouTube in class - EurekAlert
  Students think it is instructors' responsibility to ensure they don't surf the web in class, according to a new study. ...
• Is Slow Still the New Normal for GDP Growth? - FRBSF
  Estimates suggest the new normal pace for U.S. GDP growth remains between 1½% and 1¾%, noticeably slower than the typical pace since World War II. The slowdown stems mainly from demographic trends that have slowed labor force growth, about which there is relatively little uncertainty. A larger challenge is productivity. Achieving GDP growth consistently above 1¾% will require much faster productivity growth than the United States has typically experienced since the 1970s.
• On the socially optimal labour share of income - VoxEU
  The worldwide decline of the labour share is worrying, because the labour share is thought to be too low. This column attempts to derive an estimate of the socially optimal labour share. The calibration implies that the socially optimal share is 17% higher than the historical average.
• Distance learning in higher education - VoxEU
  Distance learning technologies are attracting attention as demand for higher education grows around the world, but credible evidence on their effects on students’ outcomes is scarce. This column studies the impact of online live streaming of lectures on student achievement and attendance in a experiment with first-year undergraduate students at the University of Geneva. It finds that students use the live streaming technology only when events make attending class too costly, and that attending lectures via live streaming lowers achievement for low-ability students but increases it for high-ability ones.
• Price and wage setting when accurate decisions are costly - VoxEU
  Recent low inflation is motivating new research to better characterise how individual firms and workers set prices and wages. This column describes a new approach which emphasises that the costs of decision making may limit the precision of price and wage changes. As well as making better sense of price and wage changes in microeconomic data, this new approach also strikes a middle ground between two leading models of monetary policy transmission, improving our quantitative understanding of the short-run effects of monetary policy on output and the short-run trade-off between inflation and unemployment.
• Inflation and exchange rate targeting challenges under fiscal dominance - VoxEU
  Countries have significantly increased their public-sector borrowing since the Global Crisis. This column documents several potential fiscal dominance effects during 2000-17 under inflation targeting and non-inflation-targeting regimes. A higher ratio of public debt to GDP is associated with lower policy interest rates in advanced economies. In emerging economies under non-inflation-targeting regimes, composed mostly of exchange-rate targeters, the interest rate effect of higher public debt is non-linear and depends both on the ratio of foreign currency to local currency debt, and on the ratio of hard currency debt to GDP.
• The Case for Strengthening Automatic Fiscal Stabilizers - Cecchetti & Schoenholtz
  For decades, monetary economists viewed central banks as the “last movers.” They were relatively quick and nimble in their ability to adjust policy to stabilize the economy as signs of a slowdown arose. In contrast, discretionary fiscal policy is difficult to implement quickly, so any stimulus typically comes too late. In addition, allowing for the possibility of a constantly changing fiscal stance adds to uncertainty and raises the risk that short-run politics, rather than effective use of public resources, will drive policy. So, the ideal fiscal approach was to set policy to support long-run priorities, minimizing short-run discretionary changes that can reduce economic efficiency. The depth of the Great Recession of 2007-09 and the weakness of the recovery has shifted perceptions. ...
• Economic Conditions and the Stance of Monetary Policy - Dallasfed.org
  At the recent June meeting, the Federal Open Market Committee (FOMC) left the federal funds rate unchanged in a range of 2.25 to 2.5 percent. In our statement, the FOMC indicated that uncertainties about the outlook have increased and stated that “in light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”[1] The purpose of this essay is to describe my assessment of economic conditions in the U.S. and global economies. In addition, I will discuss business activity in the Eleventh Federal Reserve District and describe how the implications of climate change are impacting Dallas Fed economic analysis of the district and the nation. Lastly, I will discuss my views regarding the appropriate stance of U.S. monetary policy. ...
• Libra: economics of Facebook’s cryptocurrency - Jim Hamilton
  Facebook last week announced plans for Libra, a new global cryptocurrency. The name seems to be a marriage of the words “livre”, the French currency throughout the Middle Ages based on a pound of silver, and “liber,” which is Latin for “free.” Facebook claims that Libra will give the freedom to easily transmit funds across borders to the 1.7 billion adults in the world without access to traditional banks. Money is defined by three attributes. ...

Links (6/23/19)

• Notes on Excessive Wealth Disorder - Paul Krugman
In a couple of days I’m going to be participating in an Economic Policy Institute conference on “excessive wealth disorder” — the problems and dangers created by extreme concentration of income and wealth at the top. I’ve been asked to give a short talk at the beginning of the conference, focusing on the political and policy distortions high inequality creates, and I’ve been trying to put my thoughts in order. So I thought I might as well write up those thoughts for broader dissemination.
• The recrudescence of zero-sum thinking - Stumbling and Mumbling
President Trump believes we live in a zero-sum world in which one country’s gain is another’s loss. This is evident in his reaction to Mario Draghi’s comment this week that additional monetary stimulus will be needed if euro zone inflation doesn’t rise. Trump tweeted:
• Three observations about current monetary policy (the last one is the most important) - Jared Bernstein I
f you follow such things, you know that earlier this week, the U.S. central bank shifted its bias from patient waiting to a bias toward rate cuts. Here are three observations about this moment in monetary policy. ...
• Trade wars in the global value chain era - Emily Blanchard
The nature of global commerce has changed dramatically over the past 40 years, with the meteoric rise of global value chain trade. This column, taken from a recent Vox eBook, builds on insights from recent research to identify three critical dimensions of global value chain trade that promise to make today’s trade wars more economically costly and more politically complex than previous trade wars.
• For those that think homeless people migrate to warmer climates.... - Richard Green
....here is a scatterplot of the Census 2017 homeless count per capita against mean January temperature by state:
• The Trumpification of the Federal Reserve - Paul Krugman
In late 2015 then-candidate Donald Trump accused Janet Yellen, chair of the Federal Reserve, of being part of a political conspiracy. Yellen, he insisted, was keeping interest rates unjustifiably low in an attempt to help Hillary Clinton win the presidency. As it happens, there were very good reasons for the Fed to keep rates low at the time. Some measures of the job market, notably prime-age employment, were still well below precrisis levels, and business investment was going through a significant slump — a sort of mini-recession. Fast forward to the present. The employment picture is much stronger now than it was then. There are hints of an economic slowdown, partly because of the uncertainty created by Trump’s trade war, but they’re considerably fainter than those of 2015-16. And Trump himself keeps boasting about the economy’s strength. Yet he is openly pressuring the Fed to cut rates, and is reportedly looking for ways to demote Jay Powell, the man he himself chose to replace Yellen — declining to reappoint Yellen, according to some reports, because he didn’t think she was tall enough.
• Will Libra Destroy Cryptocurrenciees Or Vice Versa? - EconoSpeak
Yesterday Facebook released a While Paper (https://libra.org.en-US/wp-content/uploads/sites/23/2019/06/LibraWhitePaper_en_US.pdf ) on their planned supposed cryptocurrency, Libra, which has apparently long been under development. This triggered two stories in the New York Times, as well as lots of commentary by lots of people, including several posts by Tyler Cowen at Marginal Revolution, who is moderately favorable to the proposal. This is supposed to become an international currency backed by a reserve account provided initially by 27 major corporations such as Uber and VISA, which will be tied in value to a basket of currencies. While tied to Facebook, it is supposed to have a firewall separating FB's data on individuals from data arising from anybody's activities in connection with Libra. It is to be overseen by an association based in Geneva and run by the 27 companies, each of which will have control over a node in the supposed blockchain of the currency. It is to use a new program, "Move," and will have potential features that resemble Etherium, such as an ability to set up contracts.
• Herbert Simon's theories of organizations - Understanding Society
Herbert Simon made paradigm-changing contributions to the theory of rational behavior, including particularly his treatment of "satisficing" as an alternative to "maximizing" economic rationality (link). It is therefore worthwhile examining his views of organizations and organizational decision-making and action -- especially given how relevant those theories are to my current research interest in organizational dysfunction. His highly successful book Administrative Behavior went through four editions between 1947 and 1997 -- more than fifty years of thinking about organizations and organizational behavior. The more recent editions consist of the original text and "commentary" chapters that Simon wrote to incorporate more recent thinking about the content of each of the chapters. Here I will pull out some of the highlights of Simon's approach to organizations.
• Libra: not a currency board and (maybe) not a stable currency ~ Antonio Fatas
Libra, the cryptocurrency backed by Facebook (and the other members of the Libra association) was announced yesterday. The web site and the white paper refer to the new currency as a stable currency: ... "Libra is designed to be a currency where any user will know that the value of a Libra today will be close to its value tomorrow and in the future." The stability is guaranteed by the intrinsic value of the coin, a result of the assets that back the value of the currency. These assets are called the "Library Reserve". The white paper refers to the similarities of this mechanism and the currency board that some currencies with fixed exchange rates use: "...the mechanics of interfacing with our reserve make our approach very similar to the way in which currency boards (e.g., of Hong Kong) have operated. Whereas central banks can print money at their own discretion, currency boards typically only print local currency when there are sufficient foreign exchange assets to fully back a new minting of notes and coins." This reference to currency boards is confusing and misleading. In fact, it is surprising that given the vast knowledge we have about how fixed exchange rates work, the white paper does not present a more precise description of how the value of Libra will be managed. It also confuses the fact that there are assets backing the currency with the notion of fixed exchange rates and currency boards. And it does so by playing to the myth that traditional fiat currencies are not backed by any assets. Let me clarify each of these issues.
• The Economic Value of Household Production: 1965-2017 - Tim Taylor
Gross domestic product is not the total amount of output produced; instead, it is a a measure of what is bought and sold in markets. Pretty much every intro class in economics will point out to students that when I clean my own house, cook my own meals, look after my children, or or mow my lawn, that "household production" doesn't show up in GDP. But if I hire someone to do household production tasks, then that output gets counted as part of GDP. For a number of situations where the limitations of GDP are obvious, the US Bureau of Economic Analysis publishes "satellite" accounts, where it calculates what a different and broader measure of economic output would look like. ...
• Market power and the Laffer curve - Microeconomic Insights
... The study finds that an increase in the tax rate on these products depresses quantity demanded, leading firms with market power to reduce their prices in order to protect their profits. On net, this strategic response lowers and shifts the Laffer curve, reflecting not only less incremental tax revenue collected but also a higher optimal tax rate. A tax agency that fails to anticipate this pricing response will find that tax receipts under its chosen policy fall well short of its revenue objective. ...
• Twenty Years of the ECB’s monetary policy - Mario Draghi
Central banks were often established in the past with the aim of bringing stability in the aftermath of historic episodes. The Bank of England was established during the sovereign debt crisis of 1690, when the government was unable to obtain funding in the market. The Federal Reserve was created after a series of panics that had rocked the US banking system in the late 19th and early 20th century. The euro was introduced 20 years ago in response to repeated episodes of exchange-rate instability and the need to secure the Single Market against competitive devaluations. The ECB was established as the keystone of the new Economic and Monetary Union (EMU). The first decade of the Monetary Union was characterised by calm macroeconomic conditions, with limited volatility and steady economic growth. The second decade, however, has seen profound shifts in the prevailing environment – including both financial and sovereign debt crises – and our monetary policy strategy has had to adapt with it. I would like to discuss this morning why this evolution came about and how it was achieved – and what the past twenty years can tell us about the ECB’s monetary policy in the future.

Links (6/17/19)

• The Decline of American Journalism Is an Antitrust Problem - ProMarket Weak antitrust enforcement set the stage for Facebook and Google to extract the fruits of publishers’ labor. We won’t be able to save journalism and solve our disinformation problem unless we weaken monopolies’ power.
• Three Recommended Changes to U.S. Currency Policy - Brad Setser I have a new Policy Innovation Memo that recommends three changes to U.S. currency policy, and specifically, three changes to the U.S. Treasury’s Foreign Exchange report: ...
• Stage Set For a Dovish Shift - Tim Duy Expect a more dovish Fed this week, but no rate cut. Data Incoming inflation data raises questions about the persistence of the supposedly transitory weakness inflation.The April PCE report gave support to the Fed’s hypothesis, but the May CPI report took away some support. See my note on the May CPI numbers here. Perhaps most worrisome for the Fed were declining survey-based and market-based measures of inflation expectations. The University of Michigan measure of long-run inflation expectations fell to a record low in June while the 5-year, 5-year forward expected rate of inflation remains mired below 2%. ...
• The Future of Macroeconomics - Roger E. A. Farmer In May of 2018, I was privileged to be invited to participate in an ECB colloquium on the Future of Central Banking and Macroeconomics in honour of Vítor Constâncio. Here is a video of my ten minute discussion of a paper by John Muellbauer. ... This discussion reflects my thinking on many topics including hysteresis, multiple equilibria and the need for a fundamental shift in direction for the future of macroeconomics and macroeconomic policy. I have also included a link to the full conference progamme, with videos, here.
• Interview with Rachel Glennerster: Development and Aid - Tim Taylor Rachel Glennester has her finger on the pulse of both development economicsresearch and real-world development policy. She was the long-time Executive Director of the Abdul Latif Jameel Poverty Action Lab based at MIT, and now has taken a position as Chief Economist of the primary UK agency for developiment aid, the Department for International Development. She was interviewed by Robert Wiblin and Nathan Labenz at the 80,000 Hours website. You can listen to the 90-minute podcast or read a transcript at "A year’s worth of education for under a dollar and other‘ best buys’ in development, from the UK aid agency’s Chief Economist," by Robert Wiblin and Keiran Harris (December 20, 2018). ...
• The Brave New World of Monetary Policy Operations - Cecchetti & Schoenholtz ...since 2008, small open-market operations of a few billion dollars no longer alter the federal funds rate. Instead, the Fed introduced administered rates to change its policy stance. The most important of these—the interest rate that the Fed now pays on excess reserves (IOER)—sets a floor below which banks will not lend to other counterparties (since an overnight loan to the Fed is the safest rate available). ...
• Addressing Climate Change through Price and Non-Price Interventions - Joe Stiglitz Recognizing the importance of the second-best nature of economies, the Stern-Stiglitz report on carbon pricing departed from the recommendation of a single carbon price for all uses at all places and times. This paper provides some of the analytics behind these recommendations. First, I analyze the circumstances in which distributional concerns make desirable a tax or regulation inducing significant reductions in carbon usage in a carbon-intensive sector for which consumers are disproportionately rich. Such policies allow lower carbon prices elsewhere without exceeding carbon emission targets. The cost of the resulting production inefficiency may, under the identified circumstances, be less than the distributional benefits. The paper considers the circumstances in which such differential policies may be best implemented through regulation vs. differential pricing, as well as differential effects on political economy and norm setting. Second, I consider the effect of carbon price trajectories on induced innovation, providing general conditions under which the optimal carbon path should, at least eventually, be falling over time. Finally, I revisit the price-versus-quantity debate and highlight important aspects of the dynamic nature of the problem.
• Misapplied metaphors in AI policy – Digitopoly Many querulous conversations fan the flames in policy debates about artificial intelligence. Everyone agrees we are transitioning to something, but not on what that will be. Anyone want to venture a guess? It is safe to bet on widespread use of neural networks and deep learning. Anything else? Some futurists also forecast a confrontation between the US and China. The Chinese government has played no small role in that forecast by broadcasting its aspirations for Chinese firms to take a leading position in AI. That has set off a predictable debate in Washington about whether the US government should do something similar. That policy question creates jumping off point for today’s column. This column attempts to correct a few of the misapplied metaphors. ...
• Principles of industrial policy - VoxEU The 'Asian miracles' and their industrial policies are often considered as statistical accidents that cannot be replicated. The column argues that we can learn more about sustained growth from these miracles than from the large pool of failures, and that industrial policy is instrumental in achieving sustained growth. Successful policy uses state intervention for early entry into sophisticated sectors, strong export orientation, and fierce competition with strict accountability.
• Learning The Origin Of "Duality" - EconoSpeak Yesterday I learned that the person who first used the term "duality" in connection with linear programming, indeed with anything in economics, was John von Neumann in a private conversation with George Dantzig in 1947, the "father of linear programming." That was the year Dantzig published his paper showing the simplex method for solving linear programming problems, bot their primals and their duals. Von Neumann wrote a paper on it the same year but did not publish it, with it only appearing in his Collected Papers in 1963, 6 years after he died. ...
• Mortality Rate of Children Over the Last Two Millennia - Tim Taylor The global mortality rate of infants and youth up to the age of 15, based on an average of many studies, was almost one-half (46.2%) for the two millennia up to about 1900. By 1950, it was 27%. By 2017, it had fallen to 4.6%,. The global infant mortality rate for children under the age of 1, again based on the average of many studies, was more than one-quarter (26.9%) for the two millennia up to about 1900. By 1950, it was 16%. By 2017, it had fallen to 2.9% Here's a figure showing the patterns from Max Roser at the "Our World in Data" website (June 11, 2019). ...
• The "Right" and "Wrong" Kind of Artificial Intelligence for Labor Markets - Tim Taylor Sometimes technology replaces existing jobs. Sometimes it create new jobs. Sometimes it does both at the same time. This raises an intriguing question: Do we need to view the effects of technology on jobs as a sort of tornado blowing through the labor market? Or could we come to understand why some technologies have bigger effects on creating jobs, or supplementing existing jobs, than on replacing job--and maybe even give greater encouragement to those kinds of technologies? ...
• We don’t usually put ‘moral’ and ‘economics’ in the same sentence. It’s time we started. - The Washington Post Do you build the economy from the top down or the bottom up? And is the main purpose of the economy the production of things or the enhancement of life?
• A Radical Plan to Fix the Dollar - The New York Times The novel idea that the United States could achieve greater domestic prosperity by revaluing the dollar sounds obscure and a little risky. Who would want to tinker with our currency? ... The reality is that China and about 20 other nations are already doing so. ...

Links (6/14/19)

• Is Labour’s fiscal policy rule neoliberal? - mainly macro That is the charge some on the left, particularly followers a movement called MMT, have laid against Labour's Fiscal Credibility Rule (FCR). MMT stands for nothing very informative, but it is a non-mainstream left-wing macroeconomic school of thought. Bill Mitchell, one of the leading lights of MMT, has run a relentless campaign against the FCR through his blog. As my own work with Jonathan Portes helped provide the intellectual foundation for the FCR, I will try and explain why I find the neoliberal charge nonsensical. ...
• Bill Mitchell's fantasy about Labour's fiscal rule - mainly macro My last post about outlandish attacks from some MMTers on Labour’s Fiscal Credibility Rule (FCR) was designed to be read by non-economists, and I didn’t want to bore them or waste space with all the fantasies Bill Mitchell has spread about the rule. But as I’ve had one of those fantasies tweeted back to me many times in response, I want to lay it to rest here. ...
• The Economist Who Helped Me Find My Calling - Larry Summers Martin S. Feldstein was a great economist who changed the world through research, teaching, public service, hundreds of op-eds in these pages over 40 years, and leadership of the National Bureau of Economic Research. ...
• Paying for the Welfare State Without Raising Taxes - Roger E.A. Farmer Despite the old economic adage that there’s no such thing as a free lunch, there is a way for governments to finance social-welfare programs without imposing a higher burden on taxpayers. National treasuries should establish Social Care Funds that borrow money at low interest rates and invest the proceeds in the stock market.
• Still Less Transitory Than Persistent - Tim Duy The soft CPI numbers for April throw some cold water on the Fed’s expectation that recent weak inflation data will prove to be transitory.
• What Automation Means for the Gender Gap - Laura Tyson & Mekala Krishnan Within the next decade, rapid advances in artificial intelligence and automation will radically upend the labor market, replacing millions of jobs with new occupations that will require new technical skills. For women, the challenge is especially acute, because they will still face all the usual obstacles to gender parity at work. 
• Teaching Introductory Economics - IGM Forum Question A: The first required class for undergraduate economics majors at my university accurately reflects the way that economists think about a range of economics problems. Question B: The first required class for undergraduate economics majors at my university addresses the most pressing economic issues in the US.
• More Tributes to Clive Granger - Dave Giles As a follow-up to my recent post, "Clive Granger Special Issue", I received an email from Eyüp Çetin (Editor of the European Journal of Pure and Applied Mathematics). ...
• Summer Reading!  - Economic Principals Economic Principals is not exactly a model of modern online journalism. It is instead a simulacrum of what went on at the old Boston Globe (for a real-time jolt, see It must have been moonglow, by Mark Feeney, the newspaper’s chief arts critic.) As an early immigrant from print to bits and pixels, EP was too well habituated to writing newspaper columns during the week and books on the weekends to want to do anything else. As the world changed around it, the way EP allocates its time has gradually reversed, but little else is different. ...

Links (6/10/19)

• This time might not be different ~ Antonio Fatas Estimating the probability of a recession over a short horizon has so far proven to be a challenging task for economists. Each cycle looks slightly different from the previous one and trying to come up with precise indicators of crises leads to either overpredicting them or missing their timing as some risks are underestimated. As the US enters its longest expansion ever, we are back to a discussion on whether there are any reliable indicators that can help us forecast the next turning point. Without providing an exhaustive list of all candidates, let me highlight the interaction between three statistical patterns and how they inform us (or not) about the risks ahead: ...
• Mar-a-Lago Comes for British Health - Paul Krugman ...last year he tweeted that Britons were marching in the streets to protest a health system that was “going broke and not working.” Actually, the demonstrations were in favor of the N.H.S., calling for more government funding. But never mind what was going on in Trump’s mind. Let’s focus instead on the fact that no American politician, Trump least of all, has any business giving other countries advice on health care. For we have the worst-performing health care system in the advanced world — and Trump is doing all he can to degrade it further. ...
• Are Markets Becoming Less Competitive? - FRB Richmond National markets in many U.S. industries seem to be increasingly dominated by large companies. Some policymakers have argued that this growing market concentration is a sign of weakening competition, but concentration by itself does not necessarily translate into market power. It may be too soon to reach a decisive conclusion about whether market power, not simply market concentration, is on the rise.
• Yes, Taxing the Rich Is Possible - The New York Times ... The long history of American policymaking actually shows that raising taxes on the wealthiest taxpayers is entirely possible. Nonetheless, I expect you’ll hear the cynical “taxing the rich is impossible” case a lot in coming years, especially if a future president does try to enact a major tax increase on the wealthy. Lobbyists who represent the wealthy like the argument because it lets them claim that there’s no point in trying. And journalists find the argument alluring because it has a ring of tough skepticism, and we journalists love to present ourselves as tough skeptics. In this case, though, it’s important to be skeptical about the skepticism. ...
• The Persistent Ghost of Ayn Rand, the Forebear of Zombie Neoliberalism - The New Yorker In a dark corner of my house, where a built-in bookshelf curves out of sight and out of reach, near the ceiling, I keep a couple dozen books that I haven’t brought myself to get rid of but don’t want anyone to see. It’s a connoisseur’s collection of the writing of Ayn Rand and her disciples, assembled by teen-age me a long, long time ago. My first girlfriend, an older woman in her early twenties, introduced me to Rand. I had recently immigrated to the United States from Russia, come out, and dropped out of high school, and somehow Rand’s writing spoke to me, made the world appear simple and conquerable. My Rand phase was relatively brief, but, before it ended, I bluffed my way into my first job in publishing by talking Rand with my future boss, a trailblazing gay publisher who was similarly obsessed with her. ...
• Europe Must Fix Its Fiscal Rules - Olivier Blanchard In an environment of persistently low interest rates and below-potential output, economic policymakers must rethink the prevailing approach to public debt. For the eurozone, this means creating a common budget, or at least overhauling the fiscal rules that have tied member-state governments' hands for no good reason.
• Unconventional Thinking about Unconventional Monetary Policies - Barry Eichengreen Defenders of central-bank independence argue that quantitative easing should have been avoided last time and is best avoided in the future, because it opens the door to political interference with the conduct of monetary policy. But political interference is even likelier if central banks shun QE in the next recession.
• Job and Wage Growth Slow Sharply in May - Dean Baker The Bureau of Labor Statistics (BLS) reported that the economy added just 75,000 jobs in May. In addition, the prior two months growth numbers were revised down by 75,000, leaving the three month average at 151,000. The unemployment rate was unchanged at 3.6 percent, and the employment-to-population rate (EPOP) was also unchanged at 60.6 percent. The EPOP for prime age workers (ages 25 to 54) was also unchanged at 79.7 percent. While the slower job growth reported for May is discouraging, probably the most disconcerting aspect of the report is the evidence that wage growth is actually slowing in spite of the 3.6 percent unemployment rate. ...
• If We Fail to Prepare, We Prepare to Fail - John Williams ... The good news is that, for the most part, monetary policy did its job. Advanced economies have seen steady growth and significant declines in unemployment. But the recovery has been slow. And despite low unemployment, inflation rates have been running persistently below central banks’ goals. The Federal Reserve, like many central banks, has a goal of keeping inflation at 2 percent. In the pre-2008 era, inflation was a major concern for the public and central banks alike. And, while I will always be vigilant about inflation that’s too high, inflation that’s too low is now a more pressing problem. The experience of a slow recovery and persistently low inflation is a symptom of deeper problems afflicting advanced economies. ...
• Clive Granger Special Issue - Dave Giles The recently published Volume 10, No. 1 issue of the European Journal of Pure and Applied Mathematics takes the form of a memorial issue for Clive Granger. You can find the Table of Contents here, and all of the articles can be downloaded freely. This memorial issue is co-edited by Jennifer Castle and David Hendry. The contributed papers include ones that deal with Forecasting, Cointegration, Nonlinear Time Series, and Model Selection. This is a fantastic collection of important survey-type papers that simply must read!
• The Effects of Concentration in the Asset Management Industry on Stock Prices - ProMarket The asset management industry has become increasingly concentrated in recent decades. Regulators are concerned about the systemic risks this may pose. Using data from the US, this column suggests that the increased concentration has led to more volatile prices of stocks held by large institutional investors. This poses challenges for regulators trying to weigh price efficiency and economies of scale.
• Say’s (and Walras’s) Law Revisited - Uneasy Money ... My thinking about Say’s Law goes back to my first paper on classical monetary theory, and I have previously written blog-posts about Say’s Law (here and here). And more recently I realized that in a temporary-equilibrium framework, both Say’s Law and Walras’s Law, however understood, may be violated. ...
• The Federal Reserve's Review of Its Monetary Policy Strategy, Tools, and Communication Practices - Richard Clarida ... Yesterday Professors Eberly, Stock, and Wright provided us with a thorough and thoughtful evaluation of the Federal Reserve's monetary policy strategy, tools, and communications since 2009. They conclude that the policy tools that the Federal Open Market Committee (FOMC) relied on—"level policy" and "slope policy," to use their terminology—helped restore the U.S. economy to health and bring it close to the statutory goals of maximum employment and price stability assigned to us by the Congress. As was noted several times yesterday, in recent years forecasters and policymakers have been surprised by the decline in the unemployment rate and the size of the sustained ongoing gains in payroll employment. ...
• Has U.S. Monetary Policy Gone Off Track? - Dallasfed.org No, monetary policy hasn’t gone off track. The same simple rule that describes U.S. monetary policy from 1987 to 2008 also nicely describes policy from 2014 to the present. Over both periods, the actions of the Federal Open Market Committee (FOMC) can be explained by the committee’s pursuit of full employment and price stability.
• Fed Prepared to Adjust Policy As Needed - Tim Duy ... The missing piece in the rate cut story is seemingly the most important – a consistent pattern of data soft enough to make the Fed fear there is a threat to the employment and inflation outlooks. I anticipate the data will soften enough in the next few months to prompt the Fed to act in September. How much softer? Given the rising risks to the outlook, the Fed seems to have set a fairly low bar for a rate cut. That means the data flow doesn’t have to be too much softer.

Links (6/5/19)

• What to Do About China? - J. Bradford DeLong By attempting to "get tough" with China, US President Donald Trump's administration is highlighting the extent to which America's star has fallen this century. If the US ever wants to reclaim the standing it once had in the world, it must become the country it would have been if Al Gore had won the 2000 presidential election.
• Trump Makes America Irresponsible Again - Paul Krugman ... Trump says that “TARIFF is a beautiful word indeed,” but the actual history of U.S. tariffs isn’t pretty — and not just because tariffs, whatever the tweeter in chief says, are in practice taxes on Americans, not foreigners. In fact, it’s now a good bet that Trump’s tariffs will more than wipe out whatever breaks middle-class Americans got from the 2017 tax cut. ...
• The Economics of Rihanna’s Superstardom - Alan Krueger The hit song “The Winner Takes It All” was released by the Swedish pop group Abba in 1980. That year also happened to be a turning point for economic inequality. Since 1980, more than 100 percent of the total growth in income in the United States has gone to the top 10 percent of families. A whopping two-thirds of all income gains have gone to the top 1 percent. The bottom 90 percent saw their combined income actually shrink. Why has the economy become more of a winner-take-all affair? ...
• Why the U.S. economy is worse than it seems - Bernstein, Parrott, Zandi Much has been made lately of the hot economy, a narrative driven largely by a long run of strong jobs numbers. But this enthusiastic story line is ignoring a few disturbing structural problems that suggest that the economy is not as strong as these numbers suggest. Underneath the hood, problems persist, including earnings below what families need to get by, stark inequalities in wealth and income, an increasingly jittery stock market, an affordable housing shortage, damaged fiscal accounts, and slower growth on the horizon. ...
• Powell Tells Us What We Should Already Know - Tim Duy Federal Reserve Chair Jerome Powell delivered opening remarks for the Fed’s “Conference on Monetary Policy Strategy, Tools, and Communications Practices.” Market participants buzzed over the inclusion of this paragraph: I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective. My comments today, like this conference, will focus on longer-run issues that will remain even as the issues of the moment evolve. The inclusion of this paragraph is notable. It looks like a last minute addition. It was clearly intended to send a signal. But what sort of signal? ...
• Old economists can teach us new tricks - Financial Times Economists’ reputations, like skirt lengths, go in and out of fashion. In the past 10 years, John Maynard Keynes has received fresh appreciation, and Hyman Minsky has been having a moment. I think it’s time for John Kenneth Galbraith to have his. The late liberal economist’s “concept of countervailing power”, put forth in his 1952 book American Capitalism, is a critique of the “market knows best” view that has dominated the US political economy since the era of Ronald Reagan. There could not be a better time to re-read it. ...
• It’s tempting for the Fed to move slowly on interest rates. That would be a grave error. - Larry Summers The Federal Reserve will over the next several months make monetary policy decisions that are as consequential as any it has made since the financial crisis and Great Recession of 2007-2008. The temptation in a highly uncertain and politicized environment will be to move cautiously. Yet this would be a grave error in the current context, where a recession could be catastrophic and the odds of one beginning in the next year, while still less than 50-50, now appear significant and increasing.
• The climate crisis is our third world war. It needs a bold response - Joseph Stiglitz Advocates of the Green New Deal say there is great urgency in dealing with the climate crisis and highlight the scale and scope of what is required to combat it. They are right. They use the term “New Deal” to evoke the massive response by Franklin Delano Roosevelt and the United States government to the Great Depression. An even better analogy would be the country’s mobilization to fight World War II. Critics ask, “Can we afford it?” and complain that Green New Deal proponents confound the fight to preserve the planet, to which all right-minded individuals should agree, with a more controversial agenda for societal transformation. On both accounts the critics are wrong.
• Korea, the “Germany” of Northeast Asia… - Brad Setser Korea, like Germany, is an export driven economy that has been hit hard by the recent slowdown in global trade. Output fell in the first quarter. Like Germany, Korea specializes in manufacturing. It has been slowed by the broader global slowdown in auto demand—and Hyundai isn’t doing quite as well in North America as it once did. Korea has also seen its terms of trade deteriorate thanks to the recent fall in the price of many semiconductors. And Korea, like Germany, has been reluctant to use its obvious fiscal space even with a slowing economy. ...
• All bark but no bite? What does the yield curve tell us about growth? – Bank Underground ...in this post we analyse how the yield curve has performed as a predictor of GDP growth over time in the US and the UK, focussing on the performance of the different components of the yield curve: expected short interest rates and term premia. ...
• Curbing Ticket Bots - Regulatory Review Cardi B and Offset may have stolen the stage at the Rolling Loud Festival in December, but the issues in the entertainment industry extend far beyond artists’ relationship problems. For consumers, problems arise from ticket bots. ...
• Improving U.S. Monetary Policy Communications - Cecchetti & Schoenholtz “When I was at the Federal Reserve, I occasionally observed that monetary policy is 98 percent talk and only 2 percent action.” Ben S. Bernanke, Inaugurating a New Blog, March 30, 2015. “I do not like them, Sam-I-am. I do not like green eggs and ham.” Dr. Seuss, Green Eggs and Ham, 1965. Tomorrow, June 4, we will present our paper, Improving U.S. Monetary Policy Communications, as part of the Federal Reserve’s review of its monetary policy strategy, tools, and communications practices. This post summarizes our methodology, analysis and recommendations. ...
• Some Snapshots of the Economic Well-Being of U.S. Households - Tim Taylor For the last six years, the Federal Reserve has been doing an annual Survey of Household Economics and Decisionmaking, which is designed to be nationally representative of the 18-and-older US population. The most recent survey was carried out in October and November 2018, and the Federal Reserve published the result in "Report on the Economic Well-Being of U.S. Households in 2018" in May 2019. Here, I'll offer a few tables from the report that especially caught my eye. What was interesting to me is how the survey answers conveyed both a sense that the US economy is going pretty well, but also that many people felt dissatisfied. ...
• Trump Is Slowing US Economic Growth - Robert J. Barro The current state of US macroeconomic policymaking across four key areas does not bode well. Although the 2017 tax legislation has done its job in promoting faster growth, rising trade tensions, persistent regulatory burdens, and a lack of investment in infrastructure all threaten to limit the US economy's potential.
• Interview with William A Darity Jr - FRB Minneapolis Reparations for African Americans are in the news these days as presidential candidates consider whether and how to support such initiatives. Pundits weigh in. Writers opine. Politicians test waters. The debate is far from new, obviously. Union General William Sherman promised 40 acres (and later, the mule) to former slaves in January 1865, a debt never paid. No economist has addressed the issue with the persistence and power that Duke University’s William Darity Jr. has. For nearly three decades, “Sandy” Darity has written papers and given presentations discussing the rationale and design of reparations policy.
• Why Is the Fed’s Balance Sheet Still So Big? - FRBSF The Federal Reserve’s balance sheet is significantly larger today than it was before the financial crisis of 2008–2009. Rising demand for currency due to greater economic activity is partly responsible for this increase. The balance sheet will also need to remain large because the Federal Reserve now implements monetary policy in a regime of ample reserves, using a different set of tools than in the past to achieve its interest rate target.
• Lagged Variables as Instruments - Marc F. Bellemare A few years ago, Taka Masaki, Tom Pepinsky, and I published an article in the Journal of Politics titled “Lagged Explanatory Variables and the Estimation of Causal Effects,” where we looked at the phenomenon (then relatively widespread in political science, less so in economics) of lagging an explanatory variable in an effort to exogenize it...
• Perspectives on U.S. Monetary Policy Tools and Instruments - Jim Hamilton The Federal Reserve characterizes its current policy decisions in terms of targets for the fed funds rate and the size of its balance sheet. The fed funds rate today is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. The size of the Fed’s balance sheet is at best a very blunt instrument for influencing interest rates. In this paper I compare the current operating system with the historical U.S. system and the procedures of other central banks. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve more accurate tools with which to achieve its strategic objective of influencing inflation and output.
• The intergenerational effects of a large wealth shock - VoxEU One striking feature of many underdeveloped societies is that economic power is concentrated in the hands of very small powerful elites. This column explores why some elites how remarkable persistence, even after major economic disruptions, using the American Civil War’s effect on the Southern states. Using census data, it shows that when the abolition of slavery threatened their economic status, Southern elites invested in their social networks which helped them to recoup their losses fairly quickly.