Economist's View

Links (10/31/19)

• Manufacturing Ain’t Great Again. Why? - Paul Krugman 
  When Donald Trump promised to Make America Great Again, his slogan meant different things to different people. For many supporters it meant restoring the political and social dominance of white people, white men in particular. For others, however, it meant restoring the kind of economy we had a generation or two ago, which offered lots of manly jobs for manly men: farmers, coal miners, manufacturing workers. So it may matter a lot, politically, that Trump has utterly failed to deliver on that front — and that workers are noticing. Now, many of Trump’s economic promises were obvious nonsense. The hollowing out of coal country reflected new technologies, like mountaintop removal, which require few workers, plus competition from other energy sources, especially natural gas but increasingly wind and solar power. Coal jobs aren’t coming back, no matter how dirty Trump lets the air get.
• Stop Inflating the Inflation Threat - J. Bradford DeLong
  Given the scale and severity of inflation in America in the 1970s, it is understandable that US monetary policymakers developed a deep-seated fear of it. But, nearly a half-century later, the conditions that justified such worries no longer apply, and it is past time that we stopped denying what the data are telling us.
• How to Tax Our Way Back to Justice - Saez and Zucman
  It is absurd that the working class is now paying higher tax rates than the richest people in America.
• It's Time to Go - Dave Giles
  When I released my first post on the blog on 20th. Febuary 2011 I really wasn't sure what to expect! After all, I was aiming to reach a somewhat niche audience. Well, 949 posts and 7.4 million page-hits later, this blog has greatly exceeded my wildest expectations. However, I'm now retired and I turned 70 three months ago. I've decided to call it quits, and this is my final post. I'd rather make a definite decision about this than have the blog just fizzle into nothingness. For now, the Econometrics Beat blog will remain visible, but it will be closed for further comments and questions.
• Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or Is It Just Hibernating? - Brad DeLong 
  I have some disagreements with this by the smart Sufi, Mishkin, and Hooper: the evidence for "significant nonlinearity" in the Phillips Curve is that the curve flattens when inflation is low, not that it steepens when labor slack is low. There is simply no "strong evidence" of significant steepening with low labor slack. Yes, you can find specifications with a t-statistic of 2 in which this is the case, but you have to work hard to find such specifications, and your results are fragile. The fact is that in the United States between 1957 and 1988—the first half of the last 60 years—the slope of the simplest-possible adaptive-expectations Phillips Curve was -0.54: each one-percentage point fall in unemployment below the estimated natural rate boosted inflation in the subsequent year by 0.54%-points above its contemporary value. Since 1988—in the second half of the past 60 years—the slope of this simplest-possible Phillips curve has been effectively zero: the estimated regression coefficient has been not -0.54 but only -0.03. The most important observations driving the estimated negative slope of the Phillips Curve in the first half of the past sixty years were 1966, 1973, and 1974—inflation jumping up in times of relatively-low unemployment—and 1975, 1981, and 1982—inflation falling in times of relatively-high unemployment. The most important observations driving the estimated zero slope of the Phillips Curve in the second half of the past sixty years have been 2009-2014: the failure of inflation to fall as the economy took its Great-Recession excursion to a high-unemployment labor market with enormous slack. Yes, if we had analogues of (a) two presidents, Johnson and Nixon, desperate for a persistent high-pressure economy; (b) a Federal Reserve chair like Arthur Burns eager to accommodate presidential demands; (c) the rise of a global monopoly in the economy's key input able to deliver mammoth supply shocks; and (d) a decade of bad luck; then we might see a return to inflation as it was in the (pre-Iran crisis) early and mid-1970s. But is that really the tail risk we should be focused monomaniacally on? And how is it, exactly, that "the difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s"? Neither of those two should affect the estimated coefficient. Much more likely is simply that—at the national level and at the city/state level—the Phillips Curve becomes flat when inflation becomes low:
• Debt, Doomsayers and Double Standards - Paul Krugman
  Selective deficit hysteria has done immense damage.
• Fed Attempts To Conclude Their Mid-Cycle Adjustment - Tim Duy
  After spending much of the year battling the forces of uncertainty weighing on the economy, the Fed declared victory today. Absent a fresh deterioration in the economic outlook, Fed Chair Jerome Powell and his colleagues believe they are done cutting rates with this month’s policy move. Expect an extended policy pause; the Fed is neither interested in easing policy further given their outlook nor in soon raising rates back up given continued below-target inflation.
• Fall 2019 Journal of Economic Perspectives Available Online - Tim Taylor
  I'll start with the Table of Contents for the just-released Fall 2019 issue, which in the Taylor household is known as issue #130. Below that are abstracts and direct links for all of the papers. I will probably blog more specifically about some of the papers in the next week or two, as well.
• Does a wealth tax discourage risky investments? – Digitopoly
  The other day I wrote about the potential impact of a wealth tax. In so doing, I wrote: “we can all agree that the wealth tax likely deters risk-free saving.” This was a paraphrase of a claim made by Larry Summers who then went on to say that it was unknown whether a wealth tax would encourage or discourage risky investment. But I did wonder what the impact of a wealth tax would be on various types of investments and in examining this I realized that the claim was incorrect. In fact, a wealth tax is unlikely to have any change on the risk profile of investments in contrast to an income (or even consumption tax) that will. I discovered later that this was a known result being contained in a paper from Joe Stiglitz (QJE, 1969).
• Will Libra Be Stillborn? - Barry Eichengreen
  Where the problem for economies and financial services is lack of competition, residents of developing countries need to look to their own regulators and politicians. The remedy for their woes is not going to come from Mark Zuckerberg.
• Children of Poor Immigrants Rise, Regardless of Where They Come From - The New York Times 
  A pattern that has persisted for a century: They tend to outperform children of similarly poor native-born Americans.
• The tempos of capitalism - Understanding Society
  I've been interested in the economic history of capitalism since the 1970s, and there are a few titles that stand out in my memory. There were the Marxist and neo-Marxist economic historians (Marx's Capital, E.P. Thompson, Eric Hobsbawm, Rodney Hilton, Robert Brenner, Charles Sabel); the debate over the nature of the industrial revolution (Deane and Cole, NFR Crafts, RM Hartwell, EL Jones); and volumes of the Cambridge Economic History of Europe. The history of British capitalism poses important questions for social theory: is there such a thing as "capitalism", or are there many capitalisms? What are the features of the capitalist social order that are most fundamental to its functioning and dynamics of development? Is Marx's intellectual construction of the "capitalist mode of production" a useful one? And does capitalism have a logic or tendency of development, as Marx believed, or is its history fundamentally contingent and path-dependent? Putting the point in concrete terms, was there a probable path of development from the "so-called primitive accumulation" to the establishment of factory production and urbanization to the extension of capitalist property relations throughout much of the world?
• The Way We Measure the Economy Obscures What Is Really Going On - Heather Boushey
  By looking mainly at the big picture, we are missing the reality of inequality — and a chance to level the playing field.
• Audits as Evidence: Experiments, Ensembles, and Enforcement - Brad DeLong
  This is absolutely brilliant, and quite surprising to me. I had imagined that most of discrimination in the aggregate was the result of a thumb placed lightly on the scale over and over and over again. Here Pat and Chris present evidence that, at least in employment, it is very different: that a relatively small proportion of employers really really discriminate massively, and that most follow race-neutral procedures and strategies:
• Study analyzed tax treaties to assess effect of offshoring on domestic employment - EurekAlert
  The practice of offshoring--moving some of a company's manufacturing or services overseas to take advantage of lower costs--is on the rise and is a source of ongoing debate. A new study identified a way to determine how U.S. multinational firms' decisions about offshoring affect domestic employment. The study found that, on average, when U.S. multinationals increase employment in their foreign affiliates, they also modestly increase employment in the United States--albeit with substantial dislocation and reallocation of workers. The study was conducted by researchers at Carnegie Mellon University, Georgetown University, and the Federal Reserve Bank of Kansas City. It is published in The Review of Economics and Statistics.

Links - Catching Up (Part 2)

• Democracy on a Knife-Edge - Dani Rodrik 
  The failure to protect minority rights is a readily understood consequence of the political logic behind the emergence of democracy. What requires explanation is not the relative rarity of liberal democracy, but its existence.
• Economic Incentives Don’t Always Do What We Want Them To - Duflo and Banerjee 
  On their own, markets can’t deliver outcomes that are just, acceptable — or even efficient.
• The Phillips curve: Dead or alive - VoxEU 
  The apparent flattening of the Phillips curve has led some to claim that it is dead. The column uses data from US states and metropolitan areas to suggest a steeper slope, with non-linearities in tight labour markets. We have been here before – in the 1960s, similar low and stable inflation expectations led to the great inflation of the 1970s.
• Towards a circular economy – Thomas Piketty 
  The idea of the circular economy frequently brings to mind issues of recycling waste and materials and making moderate use of natural resources. But if a new system is to emerge which is sustainable and equitable the whole economic model will have to be re-thought. With the differences in wealth which exist at the moment, no ecological ambition is possible. Energy saving can only come from economic and social restraint and not from excessive fortunes and life-styles. We will have to construct new norms of social, educational, fiscal and climate justice through democratic discussion. These norms will have to say no to the present hyper concentration of economic power. On the contrary, the economy of the 21st century must be based on the permanent circulation of power, wealth and knowledge.
• Inequality, Populism, and Redistribution - IGM Forum
  Question A: Rising inequality is straining the health of liberal democracy.
• Monetary Policy Operations Redux - Money, Banking and Financial Markets 
  What led to this sudden disruption in short-term funding markets that had been relatively calm in recent years? Had the Fed lost control? The financial press was full of speculation. Many people noted upcoming large quarterly corporate tax payments as a source of heightened demand for funds. Others suggested that liquidity regulations were making banks’ demand for reserves overly rigid, so that they would be unwilling to lend in the repo market, even when it appeared profitable.
• Yield Curve Responses to Introducing Negative Policy Rates - FRBSF 
  Given the low level of interest rates in many developed economies, negative interest rates could become an important policy tool for fighting future economic downturns. Because of this, it’s important to carefully examine evidence from economies whose central banks have already deployed such policies. Analyzing financial market reactions to the introduction of negative interest rates shows that the entire yield curve for government bonds in those economies tends to shift lower. This suggests that negative rates may be an effective monetary policy tool to help ease financial conditions.
• On Drawing the Wrong Lessons from Theory: The Natural Rate of Unemployment - The Everyday Economist 
  Economic theory is important. Theory provides discipline. Economists write down a set of assumptions and follow those assumptions to their logical conclusions. The validity of a particular theory is then tested against observed data. Modern economic theory is often mathematical, but theory comes in a variety of forms. Sometimes theory is used to develop and test specific empirical predictions. Other times, economic theory acts as a type of sophisticated thought experiment. These thought experiments generate broader empirical predictions. In fact, some of these sophisticated thought experiments contain important lessons for monetary policy.
• How different technologies affect different workers- VoxEU
  Since the early 1980s, technology has reduced the demand for low and medium-skill workers, the young, and women, especially in manufacturing industries. The column investigates which technologies have had the largest effect, and on which types of worker. It finds that robots and software raised the demand for high-skill workers, older workers, and men, especially in service industries.

Links - Catching Up (Part 1)

• No, We Don’t “Need” a Recession - J. Bradford DeLong I recently received an email from my friend Mark Thoma of the University of Oregon, asking if I had noticed an increase in commentaries suggesting that a recession would be a good and healthy purge for the economy (or something along those lines). In fact, I, too, have noticed more commentators expressing the view that “recessions, painful as they are, are a necessary growth input.” I am rather surprised by it. ...
• Economics’ Lack of Interest in Gender Proves: the “Dismal Science” Really Is Dismal
 - ProMarket Economists are still in the dark about the role of gender. For economics to be credible, we have to recognize that our knowledge is incomplete and learn from the diversity of humanity and experiences in our own profession.
• ‘It Was a Mistake for Me to Choose This Field’ - The New York Times Economics is neither a welcoming nor a supportive profession for women. In 2017, Alice H. Wu, now a doctoral student in economics at Harvard, published an eye-opening study of online conversations among economists that provided convincing evidence that overt sexism was a serious problem in the field. Last year the economist Roland G. Fryer Jr., a star of the Harvard department, faced sexual misconduct allegations, prompting calls to condemn the widespread sexual harassment and discrimination in the profession. (In July, Harvard suspended Professor Fryer for two years.) But if economics is hostile to women, it is especially antagonistic to black women.
• The optimal inflation target in the face of a lower r-star - VoxEU How to adjust to structurally lower real natural rates of interest is a challenging but inescapable issue for central bankers. Using simulation and US data, this column studies how changes in the steady-state natural interest rate affect the optimal inflation target. It finds that starting from pre-crisis values, a 1 percentage point decline in the natural rate should be accommodated by an increase in the optimal inflation target of about 0.9 to 1 percentage point. It also discusses alternatives to adjusting the target, such as non-conventional monetary policies.
• Herd behaviour in asset markets: The role of monetary policy - VoxEU One important conclusion of Robert Shiller’s influential 2015 book, Irrational Exuberance, is that bubbles are random exogenous phenomena that cannot be foreseen and do not depend on macroeconomic policies. This column introduces a new CEPR Policy Insight which throws light on the root causes of speculative fevers in asset markets and related financial booms and busts. It shows empirical evidence indicating that Shiller may have overlooked the role that lax monetary policy played in triggering financial bubbles in the 2000s by offering investors a perverse promise of ever-increasing asset prices.
• Introduction to Heterogeneity Series: Understanding Causes and Implications of Various Inequalities - Liberty Street Economics Economic analysis is often geared toward understanding the average effects of a given policy or program. Likewise, economic policies frequently target the average person or firm. While averages are undoubtedly useful reference points for researchers and policymakers, they don’t tell the whole story: it is vital to understand how the effects of economic trends and government policies vary across geographic, demographic, and socioeconomic boundaries. It is also important to assess the underlying causes of the various inequalities we observe around us, whether they are related to income, health, or any other set of indicators. Starting today, we are running a series of six blog posts (apart from this introductory post), each of which focuses on an interesting case of heterogeneity in the United States.
• Jack Schwartz on the Weaknesses of the Mathematical Mind - Uneasy Money I was recently rereading an essay by Karl Popper, “A Realistic View of Logic, Physics, and History” published in his collection of essays, Objective Knowledge: An Evolutionary Approach, because it discusses the role of reductivism in science and philosophy, a topic about which I’ve written a number of previous posts discussing the microfoundations of macroeconomics.
• The Crisis of Central-Bank Governance - Lucrezia Reichlin The European Central Bank may enjoy stronger protection against political pressure than other central banks do, but it also faces unique constraints. The more the ECB is forced to expand its policy remit to meet new economic challenges, the more likely it is to trigger destabilizing political conflicts within the eurozone.
• No More Half-Measures on Corporate Taxes - Joseph E. Stiglitz In the face of climate change, rising inequality, and other global crises, governments are losing out on hundreds of billions of dollars in tax revenue as a result of corporate tax arbitrage. Yet despite the obvious deficiencies of the global tax regime, policymakers continue to propose only piecemeal fixes.
• Why We Need More Economists - Roger E.A. Farmer The economics profession should not be so defensive toward critics who blame it for rising inequality. Insights from the dismal science – and in particular economists' advocacy of market-based policies to boost prosperity – have proven their worth many times over.
• Wanted: A Global Green New Deal - Joseph E. Stiglitz To live within our planetary means, we will have to change many aspects of how we live – how we organize our economies, our cities, and our transportation, energy, housing, and food systems. The good news is that most of the world now recognizes this; the bad news is that its largest polluter does not.
• How to Ward Off the Next Recession - Jean Pisani-Ferry A decade after the Great Recession, Europe’s economy is still convalescing, and another period of prolonged hardship would cause serious, potentially dangerous economic and political damage. With monetary and fiscal policy unlikely to provide enough stimulus, policymakers should explore alternative options.
• How to Rethink Capitalism - Simon Johnson The 2008 financial crisis, together with failed efforts to combat climate change and sharply rising inequality, has frayed the neoliberal consensus that has prevailed in the United States and much of the West for more than two generations. Three issues must be considered in weighing what comes next.
• Are Workers Losing to Robots? - FRBSF The portion of national income that goes to workers, known as the labor share, has fallen substantially over the past 20 years. Even with strong employment growth in recent years, the labor share has remained at historically low levels. Automation has been an important driving factor. While it has increased labor productivity, the threat of automation has also weakened workers’ bargaining power in wage negotiations and led to stagnant wage growth. Analysis suggests that automation contributed substantially to the decline in the labor sha

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I hope to begin posting again soon. I needed a break.