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Friday, September 13, 2019

Links (9/13/19)

  • How we make decisions depends on how uncertain we are - EurekAlert!
    A new Dartmouth study on how we use reward information for making choices shows how humans and monkeys adopt their decision-making strategies depending on the uncertainty of information present. The results of this study illustrated that for a simple gamble to obtain a reward, when the magnitude or amount of the reward is known but the probability of the reward is unknown and must be learned, both species will switch their strategy from combining reward information in a multiplicative way (in which functions of reward probability and magnitude are multiplied to obtain the so-called subjective value) to comparing the attributes in an additive way to make a decision. The findings published in Nature Human Behavior, challenge one of the most fundamental assumptions in economics, neuroeconomics and choice theory that decision-makers typically evaluate risky options in a multiplicative way when in fact this only applies in a limited case when information about both the magnitude and probability of the reward are clearly known.
  • Trump Hits the Panic Button - Paul Krugman
    Donald Trump marked the anniversary of 9/11 by repeating several lies about his own actions on that day. But that wasn’t his only concern. He also spent part of the day writing a series of tweets excoriating Federal Reserve officials as “Boneheads” and demanding that they immediately put into effect emergency measures to stimulate the economy — emergency measures that are normally only implemented in the face of a severe crisis.
  • Martin Weitzman’s contributions to environmental economics - VoxEU
    Environmental economist Martin Weitzman passed away in August. This short intellectual biography and personal remembrance, by his long-time co-host of the Harvard Seminar on Environmental Economics and Policy, outlines how his contributions have advanced the thinking of environmental economists and policymakers on many fundamental issues, including policy instrument choice, discounting, species diversity, and environmental catastrophes. Across the board, the example of his rigorous and often ingenious work set high standards for theorising in environmental economics and thereby served to elevate the entire field.
  • What happens if Trump tries to fire Fed chair Jerome Powell? - Brookings
    President Trump has made no secret of his dissatisfaction with the Federal Reserve, its chair, and the Fed’s monetary policy. This dissatisfaction raises an important question: what happens next? Here’s an introduction to the legal and practical governance of the Federal Reserve System, the Fed’s relationship to other parts of government, and why it is so hard to predict the outcome of this conflict.
  • How Democracy Dies, American-Style - Paul Krugman
    Democracies used to collapse suddenly, with tanks rolling noisily toward the presidential palace. In the 21st century, however, the process is usually subtler.
  • What is a fair pension system? – Thomas Piketty
    Even if the timing remains vague and the conditions uncertain, the government does seem to have decided to launch a vast reform of the retirement pensions system, with the key element being the unification of the rules applied at the moment in the various systems operating (civil servants, private sector employees, local authority employees, self-employed, special schemes, etc).
  • Should We Worry About Income Gaps Within or Between Countries? - Dani Rodrik
    The rise of populist nationalism throughout the West has been fueled partly by a clash between the objectives of equity in rich countries and higher living standards in poor countries. Yet advanced-economy policies that emphasize domestic equity need not be harmful to the global poor, even in international trade.
  • Did Dudley Do Right? - Barry Eichengreen
    The New York Federal Reserve's immediate past president recently caused controversy by calling on the Fed to make it “abundantly clear" that President Donald Trump will bear "the consequences" of his fiscal and trade policies. But what does "abundantly clear" entail?
  • Slowdown in household income growth continues in 2018 - Economic Policy Institute
    Today’s report from the Census Bureau shows a marked slowdown in median household income growth relative to previous years. Median household incomes rose only 0.9%, after rising 1.8% in 2017 and following impressive gains in the two years prior: a 5.1% gain in 2015 and a 3.1% gain in 2016. Median nonelderly household income saw a similar rise of 1.0% this year after gaining 2.5%, 4.6%, and 3.6% in the prior three years, respectively.
  • Great Expectations: the economic power of news about the future – Bank Underground
    Can shifts in beliefs about the future alter the macroeconomic present? This post summarizes our recent working paper where we have combined data on patent applications and survey forecasts to isolate news of potential future technological progress, and studied how macroeconomic aggregates respond to them. We have found news-induced changes in beliefs to be powerful enough to enable economic expansions even if different economic agents process these types of news in very different ways. A change in expectations about future improvements in technology can account for about 20% of the variation in current unemployment and aggregate consumption.
  • Trump Calls for Fed’s ‘Boneheads’ to Slash Interest Rates Below Zero - The New York Times
    President Trump continued to criticize his handpicked Federal Reserve chair, Jerome H. Powell, saying, “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”
  • Brain: How to optimize decision making? - EurekAlert!
    Our brains are constantly faced with different choices: Should I have a chocolate éclair or macaroon? Should I take the bus or go by car? What should I wear: a woollen sweater or one made of cashmere? When the difference in quality between two choices is great, the choice is made very quickly. But when this difference is negligible, we can get stuck for minutes at a time - or even longer - before we're capable of making a decision. Why is it so difficult to make up our mind when faced with two or more choices? Is it because our brains are not optimised for taking decisions? In an attempt to answer these questions, neuroscientists from the University of Geneva (UNIGE), Switzerland, - in partnership with Harvard Medical School - developed a mathematical model of the optimal choice strategy. They demonstrated that optimal decisions must be based not on the true value of the possible choices but on the difference in value between them. The results, which you can read all about in the journal Nature Neuroscience, show that this decision-making strategy maximises the amount of reward received.
  • Do cash transfers work - Federal Reserve Bank of Minneapolis
    Nations around the world have addressed problems of poverty—malnutrition, poor health care, inadequate education—with “conditional cash transfer” programs (CCTs). These programs provide small cash stipends to participants who engage in specified behaviors—like buying healthy foods, attending maternal health clinics, or sending children to school. They’ve been widely adopted, from Brazil to Indonesia. Even New York City has a CCT.
  • Automation and jobs: When technology boosts employment - VoxEU
    Do industries shed or create jobs when they adopt new labour-saving technologies? This column shows that manufacturing employment grew along with productivity for a century or more, and only later decreased. It argues that the changing nature of demand was behind this pattern, which led to market saturation. This implies that the main impact of automation in the near future may be a major reallocation of jobs, not necessarily massive job losses.
  • What People Say About the Economy Can Set Off a Recession - Robert Shiller
    Forecasting such a shift is extremely difficult. But if we are to have a chance at success, it is critical to insert into the discussion another factor entirely: an examination of the popular narratives that may be infecting individual economic decision-making.
  • Repeated periods of poverty accelerate the ageing process - EurekAlert!
    Genetics, lifestyle and environment are all factors that somehow influence when and how we all age. But the financial situation is also important. Now, researchers from the Center for Healthy Aging and the Department of Public Health have found that four or more years with an income below the relative poverty threshold during adult life make a significant difference as to when the body begins to show signs of ageing.
  • A Requiem for the Fiscal Theory of the Price Level - Roger E. A. Farmer
    Pawel Zabcyck and I have completed an update of our new paper on the Fiscal Theory of the Price Level. Here is the abstract of our paper.
  • Is the US Economy Having an Engels' Pause? - Tim Taylor
    Consider a time period of several decades when there is a high level of technological progress, but typical wage levels remain stagnant while profits soar, driving a sharp rise in inequality. In broad-brush terms, this description fits the US economy for the last few decades. But it also fits the economy of the United Kingdom during the first wave of the Industrial Revolution in the first half of the 19th century.
  • Weekend Reading: Charles Kindleberger: Anatomy of a Typical Financial Crisis - Brad DeLong
    From Charlie Kindleberger, A Financial History of Western Europe:
  • Trumpism Is Bad for Business - Paul Krugman
    With each passing week it becomes ever clearer that Donald Trump’s trade war, far from being “good, and easy to win,” is damaging large parts of the U.S. economy. Farmers are facing financial disaster; manufacturing, which Trump’s policies were supposed to revive, is contracting; consumer confidence is plunging, largely because the public (rightly) fears that tariffs will raise prices.
  • Inflation forecasts and the permanent-transitory confusion - VoxEU
    Individuals are never fully certain whether economic developments are persistent or temporary. This column shows that this permanent-transitory confusion has pervasive implications. It argues that the confusion injects the past into even purely forward-looking New-Keynesian frameworks, and shows empirically that inflationary forecasts indeed rely on past inflation.
  • Trump’s Mercantilist Mess - Robert J. Barro
    When US President Donald Trump boasted that trade wars are "easy to win" in March 2018, it was convenient to dismiss the remark as a rhetorical flourish. Yet it is now clear that Trump meant it, because he genuinely believes the bizarre and anachronistic macroeconomic theories underlying his approach.
  • The True Toll of the Trade War - Raghuram G. Rajan
    Behind the escalating global conflict over trade and technology is a larger breakdown of the postwar rules-based order, which was based on a belief that any country's growth benefits all. Now that China is threatening to compete directly with the United States, support for the system that made that possible has disappeared.
  • Different kinds of fiscal stimulus - mainly macro
    Newspaper day. In the Guardian I have a piece that looks at how we should regard any tax cuts that Boris Johnson may announce as part of the forthcoming election. And make no mistake tax cuts are coming (we already know they intend to cut the tax on petrol), because the spending review signalled that the governments rule will change, as Chris Giles discusses in a good article in today’s FT in which I among other economists are quoted. .
  • Combatting Global Warming and Austerity - Dean Baker
    In the United States, proposals for a Green New Deal have been getting considerable attention in recent months as activists have pressed both members of Congress and Democratic presidential candidates to support aggressive measures to combat global warming. There clearly is much more that we can and must do in the immediate future to prevent enormous damage to the planet.
  • Houses are assets not goods: taking the theory to the UK data – Bank Underground
    In yesterday’s post we argued that housing is an asset, whose value should be determined by the expected future value of rents, rather than a textbook demand and supply for physical dwellings. In this post we develop a simple asset-pricing model, and combine it with data for England and Wales. We find that the rise in real house prices since 2000 can be explained almost entirely by lower interest rates. Increasing scarcity of housing, evidenced by real rental prices and their expected growth, has played a negligible role at the national level.
  • A Nobel-Winning Economist Goes to Burning Man - The New York Times
    Amid the desert orgies, Paul Romer investigates a provocative question: Is this bacchanal a model of urban planning?

    Posted by on Friday, September 13, 2019 at 06:11 PM in Economics, Links | Permalink  Comments (514) 


    Thursday, September 05, 2019

    Links (9/05/19)

    • Do Immigrants Threaten U.S. Public Safety? - Dallasfed.org Abstract: Opponents of immigration often claim that immigrants, particularly those who are unauthorized, are more likely than U.S. natives to commit crimes and that they pose a threat to public safety. There is little evidence to support these claims. In fact, research overwhelmingly indicates that immigrants are less likely than similar U.S. natives to commit violent and property crimes, and that areas with more immigrants have similar or lower rates of violent and property crimes than areas with fewer immigrants. There are relatively few studies specifically of criminal behavior among unauthorized immigrants, but the limited research suggests that these immigrants also have a lower propensity to commit crime than their native-born peers, although possibly a higher propensity than legal immigrants. Evidence about legalization programs is consistent with these findings, indicating that a legalization program reduces crime rates. Meanwhile, increased border enforcement, which reduces unauthorized immigrant inflows, has mixed effects on crime rates. A large-scale legalization program, which is not currently under serious consideration, has more potential to improve public safety and security than several other policies that have recently been proposed or implemented.
    • How Robert Bork Fathered the New Gilded Age - ProMarket Much like the first Gilded Age, antitrust enforcers today are hitting labor, not capital. This is thanks to Robert Bork’s radical and influential reinterpretation of antitrust law. In helping successfully rewrite antitrust, Bork left a legacy of corporate supremacy and individual powerlessness.
    • Do Monetary Policy Announcements Shift Household Expectations? - Dallasfed.org Abstract: We use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. We first provide more general evidence that public confidence in the state of the economy reacts to certain types of macroeconomic news very quickly. Next, we show that surprises to the Federal Funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood. We document heterogeneity in the responsiveness of sentiment across demographics.
    • The close relationship between the natural rate of interest and optimal inflation target - Brookings Economists have recently observed a decline in the steady-state, “natural,” interest rate. A lower steady-state inflation rate increases the likelihood of hitting the zero lower bound for interest rates. An increase of this incidence would reduce the impact of monetary policy and its goals which could lead to longer recessions and lower inflation. To reduce the likelihood of hitting the zero lower bound, policymakers could attempt to target a higher inflation rate. But what is the optimal target and how much should the inflation target be increased? As higher inflation induces greater welfare costs the answer to this question is challenging. In “The optimal inflation target and the natural rate of interest,” Philippe Andrade, Jordi Galí, Hervé Le Bihan, and Julien Matheron attempt to provide an answer.
    • The Frauding of America’s Farmers - Paul Krugman farmers are hurting financially. Investors are worried about a possible recession for the economy as a whole, but the farm recession is already here, with falling incomes, rising delinquency rates and surging bankruptcies. And the farm economy’s troubles stem directly from Trump’s policies.
    • The Great Tax Break Heist - Paul Krugman A few days ago The Times reported on widespread abuse of a provision in the 2017 Trump tax cut that was supposed to help struggling urban workers. The provision created a tax break for investment in so-called “opportunity zones,” which would supposedly help create jobs in low-income areas. In reality the tax break has been used to support high-end hotels and apartment buildings, warehouses that employ hardly any people and so on. And it has made a handful of wealthy, well-connected investors — including the family of Jared Kushner, Donald Trump’s son-in-law — even wealthier.
    • The Trump Narrative and the Next Recession - Robert J. Shiller So far, with his flashy lifestyle, the US president has been a resounding inspiration to many consumers and investors. But his personal narrative is unlikely to survive an economic downturn, because people pull back during such periods and reassess their views and the stories they find believable.
    • The Benefits of a Progressive Consumption Tax - Kenneth Rogoff Many economists already favor a consumption-based tax system for raising revenue on grounds of efficiency and simplicity. In an environment where wealth inequality is rising inexorably, the case for doing so has become increasingly compelling.
    • Mankiw’s Phillips-Curve Agonistes - Uneasy Money The steady expansion of employment and reduction in unemployment since the recovery from the financial crisis of 2008 and the subsequent Little Depression, even as inflation remained almost continuously between 1.5 and 2% (with only a slight uptick to 3% in 2011), has led many observers to conclude that the negative correlation between inflation and unemployment posited by the Phillips Curve is no longer valid. So, almost a month ago, Greg Mankiw wrote New York Times Sunday Business Section defending the Phillips Curve as an analytical tool that ought to inform monetary policy-making by the Federal Reserve and other monetary authorities.
    • No Manufacturing Bounce Yet - Tim Duy The ISM report for August revealed that the manufacturing sector continues to struggle under the weight of trade wars and weak global growth. Headline and key internal numbers all slipped below 50 in September:
    • A New Balancing Act: Monetary Policy Tradeoffs in a Changing World - FRBSF A new and less familiar economic environment has emerged in the United States and other countries. Our collective futures now include slower potential growth, lower long-term interest rates, and persistently weak inflation. This new landscape demands we think differently about how to balance and achieve price stability and full employment objectives. The following is adapted from a speech by the president and CEO of the Federal Reserve Bank of San Francisco to the conference “Inflation Targeting—Prospects and Challenges” in Wellington, New Zealand, on August 29.
    • The IMF's (New) China Problem - Brad Setser If China ever followed the IMF’s fiscal advice, China would go back to running large trade surpluses – and its exchange rate would be undervalued again in the IMF's models.
    • The Fed Shouldn’t Enable Donald Trump - Bill Dudley U.S. President Donald Trump’s trade war with China keeps undermining the confidence of businesses and consumers, worsening the economic outlook. This manufactured disaster-in-the-making presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or refuse to play along?
    • Fed Could Hit Back at Trump, a Former Top Official Suggests - The New York Times A former top Federal Reserve official implied that the central bank should consider allowing President Trump’s trade war to hurt his 2020 election chances, an assertion that drew a firestorm of criticism and a rare pushback from the Fed itself.
    • Trump and the Art of the Flail - Paul Krugman The “very stable genius” in the Oval Office is, in fact, extremely unstable, in word and deed. That’s not a psychological diagnosis, although you can make that case too. It’s just a straightforward description of his behavior. And his instability is starting to have serious economic consequences.
    • Negative Interest Rates and Inflation Expectations in Japan - FRBSF After Japan introduced a negative policy interest rate in 2016, market expectations for inflation over the medium term fell immediately. This can be seen by assessing how prices for Japanese bonds with embedded deflation protection responded to the policy announcement. The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels. Japan’s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound.
    • Replacing LIBOR - Cecchetti & Schoenholtz Publication of LIBOR―the London Interbank Offered Rate―will likely cease at the end of 2021. This is the message U.K. Financial Conduct Authority (FCA) CEO Andrew Bailey sent in 2017 when he announced that, after 2021, the FCA would no longer compel reluctant banks to respond to the LIBOR survey. Given the small number of underlying LIBOR transactions, and the reputational and legal risks banks face when submitting survey responses based largely on their expert judgement, we expect that most banks will then happily retreat. In just over two years, then, the FCA could declare LIBOR rates “unrepresentative” of financial reality and it will vanish (see, for example, here).
    • American Twentieth-Century Exceptionalism - Brad DeLong In 1870 the focus of economic growth crossed the Atlantic to America, where continent-wide scale, a flood of immigration, vast resources, and an open society that made inventors and entrepreneurs culture heroes welcomed economic growth. In the United States the Belle Époque, the Gilded Age, the period of the explosion of prosperity set in motion around 1870 lasted without interruption longer than elsewhere in the world. China collapsed into revolution in 1911. Europe descended into the hell of World War I in 1914. In America the period of progress and industrial development lasted longer—perhaps from when the guns fell silent at the end of America’s Civil War at Appomattox in 1865 until the start of the Great Depression in the summer of 1929.
    • Is Stakeholder Capitalism Really Back? - Joseph E. Stiglitz We will have to wait and see whether the US Business Roundtable's recent statement renouncing corporate governance based on shareholder primacy is merely a publicity stunt. If America's most powerful CEOs really mean what they say, they will support sweeping legislative reforms.
    • Robustness in Economics and Econometrics: Interview with William "Buz" B... - Richard Green I learned more from Professor Brock than anyone else (and I think I learned only about 1/3 of what he tried to teach me).
    • Fed Will Lean On Its Primary Tool - Tim Duy Federal Reserve Chair Jerome Policy delivered his widely-anticipated speech at the Fed’s annual Jackson Hole conference and left intact expectations that the Fed would ease at the upcoming September FOMC meeting. Importantly, Powell acknowledged that the Fed was in uncharted waters here:
    • Thorstein Veblen: Economics "is a `Science' of Complaisant Interpretations, Apologies, and Projected Remedies" - Tim Taylor I always enjoy reading Thorstein Veblen, partly because his writing strays back and forth across the line between "raising questions of real interest" to "just plain old dyspeptic and cantankerous." His 1918 essay "The Higher Learning In America:A Memorandum On the Conduct of Universities By Business Men" is full of comments from both categories, often closely overlapping.
    • A New Macropolicy Assignment - mainly macro With central bankers rightly pessimistic about fighting recessions, maybe it is time to give that responsibility to politicians, while keeping central banks in charge of keeping inflation at target.
    • Migration 1870-1925 and International Economic Inequality - Brad Delong What did matter for inequality and upward mobility in the pre-World War I era was not trade but migration. The descendants of those who lived in Ireland at the start of the nineteenth century are, today, one of the richest groups in the world: less than half of the descendants of the Irish of 1800 live in Ireland today; instead, they are spread throughout America, Britain, and Australia, and they have prospered. ...

      Posted by on Thursday, September 5, 2019 at 03:03 AM in Economics | Permalink  Comments (744)