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. ...