Friday, December 13, 2019
Thursday, November 28, 2019
Having trouble keeping up. More thread for comments...
Wednesday, November 06, 2019
- How and why economics forgot Keynes’ warnings on panics - FT Alphaville
In a new paper (hat-tip to the University of Washington’s Fabio Ghironi for drawing our attention to it), Nobel Prize winning economist George Akerlof does a brilliant job of explaining how and why, in the decades before the financial crash, macroeconomists failed to include any meaningful role of the financial system in their economic models.
- The End of Neoliberalism and the Rebirth of History - Joseph E. Stiglitz
For 40 years, elites in rich and poor countries alike promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. Now that the evidence is in, is it any wonder that trust in elites and confidence in democracy have plummeted?
- Attack of the Wall Street Snowflakes - Paul Krugmn
Why can’t financial tycoons handle criticism?
- Is Rising Concentration Hampering Productivity Growth? - FRBSF
U.S. productivity is growing slower than in the past. Meanwhile, sales have become increasingly concentrated in the largest businesses. Analysis suggests that IT innovation may have facilitated the rise in concentration by reducing the cost for large firms to enter new markets. This contributed to booming productivity growth from 1995 to 2005. Though large firms are more profitable, their expansion may have increased competition and reduced profit margins within markets. Lower profit margins in a given market could have deterred innovation, eventually lowering growth.
- Automation and its enemies - VoxEU
Mechanisation during the Industrial Revolution accelerated economic growth and prosperity in the long term, but it was fiercely opposed by workers who did not share in its short-term gains. This column argues that similar forces are at play today. A new revolution in automation is eliciting resistance since it threatens to render jobs redundant. The column proposes policy interventions to raise productivity and prosperity in the short term, to reap the benefits of the new technologies in the long term.
- Economy Creates 128,000 Jobs in October; Unemployment Edges Up to 3.6 Percent - Dean Baker
Employment rates for prime-age workers (ages 25 to 54) hit a new high for the recovery.
- Did Warren Pass the Medicare Test? I Think So - Paul Krugman
Last week I worried that Elizabeth Warren had painted herself into a corner by endorsing the Sanders Medicare-for-all plan. It was becoming obvious that she couldn’t stay vague about the details, especially how to pay for it; and some studies, even by center-left think tanks, suggested that any plan along these lines would require large tax hikes on the middle class. So what would she come up with? Well, the Warren plan is now out. And I’d say that she passed the test.
- The United States, Japan, and the Global Economy - Richard Clarida
I appreciate this opportunity to speak today at the Japan Society, a respected institution dedicated to studying, advocating, and expanding interactions between the United States and Japan.1 While the society's remit is broad and includes arts, culture, and education, I will, perhaps not surprisingly, focus my remarks on our two economies. Japan is an important economic partner of the United States, and our economies are linked through trade in goods and services as well as capital flows that affect interest rates and other aspects of financial markets. Through these channels, developments in Japan can affect economic conditions in the United States, and vice versa. More broadly, beyond bilateral linkages, economic conditions in United States and Japan are tightly linked to global economic developments, and today I will discuss several of the global factors that are relevant to the outlook for both economies. First, I will review the current U.S. outlook and some key global risks to that outlook that we are monitoring at the Federal Reserve. I will next elaborate on the channels through which global factors affect domestic economic conditions in the United States and, in some cases, also Japan. I will conclude with some remarks about the monetary policy decision we announced on Wednesday.
Thursday, October 31, 2019
- 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.
Tuesday, October 29, 2019
- 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.
Monday, October 28, 2019
- 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
Wednesday, September 25, 2019
- The Cost of America’s Oligopoly Problem - ProMarket An innovative new study finds substantial, increasing deadweight losses resulting from oligopolistic behavior and points to the important role that startup acquisitions—particularly by large tech firms—played in driving this trend.
- Helicopter money as a policy option - VoxEU With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.
- Once Upon a Time in the Banking Sector: Historical Insights into Banking Competition - Liberty Street Economics How does competition among banks affect credit growth and real economic growth? In addition, how does it affect financial stability? In this blog post, we derive insights into this important set of questions from novel data on the U.S. banking system during the nineteenth century.
- Inequality, Populism, and Redistribution - IGM Forum Question A: Rising inequality is straining the health of liberal democracy.
- Jerome Powell’s Dilemma - Carmen M. Reinhart & Vincent Reinhart There is a reason that the US Federal Reserve chair often has a haunted look. Probably to his deep and never-to-be-expressed frustration, the Fed is setting monetary policy in a way that increases the likelihood that President Donald Trump will be reelected next year.
- Why Global Trade Imbalances Could Get Worse Before They Get Better… - Brad Setser Transatlantic imbalances reflect Europe's demand deficit, which should be easy to solve (but isn't). Transpacific imbalances haven't disappeared. And are likely harder to solve, as they stem from an underlying savings surplus.
- Paying for Data – Digitopoly In the New York Times, there is a video opinion piece from Jaron Lanier which makes the case for finding a way for consumers to be paid for their data. I really enjoyed the accessibility of this piece as I think it helped make a clearer case. But I found myself with some big questions and so wanted to put those out there.
- Zero Lower Bound Risk according to Option Prices - FRBSF Interest rate derivatives—financial investments whose value depends on interest rates—provide useful information about the risk of short-term rates falling again to the zero lower bound. According to new market-based estimates, the probability of a return to the lower bound by the end of 2021 is about 24%. This is roughly in line with other survey-based and model-based estimates of zero lower bound risk. In recent months, the market-based measure of lower bound risk has increased markedly.
- Liberalism, Neutrality and the Gendered Division of Labor - Crooked Timber Women and men do unequal amounts of domestic and caring labor, and this inequality contributes to unequal outcomes between men and women in their careers. This is the ‘gendered division of labor’. But are the inequalities, or the processes generating them, unjust? And, if so, should the government act to change anything?
- The Costs of Inefficient Regulation: The Volcker Rule - Money, Banking and Financial Markets By creating a new regime to limit threats to the U.S. financial system—including heightened scrutiny for systemic intermediaries and a new resolution framework—the Dodd-Frank Act (DFA, passed in July 2010) has made the U.S. financial system notably safer. However, DFA also included burdensome regulations that, in our view, reduce efficiency while doing little to improve resilience. The leading example of such a provision is DFA section 619, known as the Volcker Rule. As Duffie noted well before regulators began to implement the Rule (see the citation above), it is not “cost effective.”
- Interview with Robert Litterman - Federal Reserve Bank of Minneapolis “We don’t have 10 years to spare. We don’t have three years. This should have been done long ago. Carbon pricing is the only brake we have, and we’ve got to slam on it immediately.”
- Investments to address climate change are good for business - EurekAlert An internationally respected group of scientists, including Professor Francois Engelbrecht from the University of the Witwatersrand, Johannesburg, have urgently called on world leaders to accelerate efforts to tackle climate change. Almost every aspect of the planet's environment and ecology is undergoing changes in response to climate change, some of which will be profound, if not catastrophic, in the future.
- The Uniform Validity of Impulse Response Inference in Autoregressions - Dallasfed.org Abstract: Existing proofs of the asymptotic validity of conventional methods of impulse response inference based on higher-order autoregressions are pointwise only. In this paper, we establish the uniform asymptotic validity of conventional asymptotic and bootstrap inference about individual impulse responses and vectors of impulse responses when the horizon is fixed with respect to the sample size. For inference about vectors of impulse responses based on Wald test statistics to be uniformly valid, lag-augmented autoregressions are required, whereas inference about individual impulse responses is uniformly valid under weak conditions even without lag augmentation. We introduce a new rank condition that ensures the uniform validity of inference on impulse responses and show that this condition holds under weak conditions. Simulations show that the highest finite-sample accuracy is achieved when bootstrapping the lag-augmented autoregression using the bias adjustments of Kilian (1999). The conventional bootstrap percentile interval for impulse responses based on this approach remains accurate even at long horizons. We provide a formal asymptotic justification for this result.
- 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.
- A Nobel Economist Cites Growth as Innovation - Scientific American Paul Romer, an expert in what’s known as endogenous growth theory and winner of the 2018 Nobel prize in economics, speaks to Scientific American about seeing economic growth as increased value, akin to when ingredients in a recipe are used to create a dish worth more than the original raw materials. His research concludes that investment in people, knowledge and innovation are primary growth factors.
- The trouble with capitalism - Stumbling and Mumbling Are the faults of capitalism curable, or are they instead symptoms of a chronic disease? This is the question posed by Martin Wolf:
- Is Mathematics, like Science, Pluralistic? - Scientific American mathematicians are sometimes unwilling to admit that mathematics is not as perfectly objective, certain, and uncontroversial as they would like to believe. On the other hand, I do believe that any claim along the lines of "proof is dead" is over-sensationalized and misleading.
- Some Observations on Determining Business Cycle Chronologies - Econbrowser Two consecutive quarters of negative GDP growth is a commonplace rule of thumb for defining recessions, but the original conception of recessions is not captured by this simple definition. As some people have disagreed with my description (see ), it might be useful to review how recessions are defined in the US (with associated drawbacks), and in other economies.
- Prospects for economic democracy - Lane KenworthyThe most prominent forms of employee voice are worker participation, labor unions, works councils, board-level employee representation, and worker control. What do we know about them? My take is here. One bit:
Friday, September 13, 2019
- 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?
Thursday, September 05, 2019
- 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. ...
Friday, August 23, 2019
I have been traveling and got a bit distracted by shiny objects. Here are a few links (in no particular order):
- Whither Central Banking? - Lawrence H. Summers & Anna Stansbury
In an environment of secular stagnation in the developed economies, central bankers’ ingenuity in loosening monetary policy is exactly what is not needed. What is needed are admissions of impotence, in order to spur efforts by governments to promote demand through fiscal policies and other means.
- From Voodoo Economics to Evil-Eye Economics - Paul Krugman
Almost four decades ago then-candidate George H.W. Bush used the phrase “voodoo economic policy” to describe Ronald Reagan’s claim that cutting taxes for the rich would pay for itself. He was more prescient than he could have imagined.
- Useful Idiots and Trumpist Billionaires - Paul Krugman
Whoever came up with the phrase “useful idiots” — it’s often credited to Lenin, but there’s no evidence he ever said it — was on to something. There are times when dangerous political movements derive important support from people who will, if these movements achieve and hold power, be among their biggest victims. Certainly I found myself thinking of the phrase when I read about the Trump fund-raiser held at the Hamptons home of Stephen Ross, chairman of a company that holds controlling stakes in Equinox and SoulCycle.
- Trump’s Cross of Gold - Barry Eichengreen
US President Donald Trump wants to compress the United States trade deficit and enhance the competitiveness of domestic manufacturers by using tariffs to raise the price of imported goods. And the fixed exchange rates he needs to achieve that goal are the real reason behind his nomination of Judy Shelton to the Federal Reserve Board.
- America’s Superpower Panic - J. Bradford DeLong
History suggests that a global superpower in relative decline should aim for a soft landing, so that it still has a comfortable place in the world once its dominance fades. By contrast, US President Donald Trump's incoherent, confrontational approach toward China could seriously damage America’s long-term interests.
- The World Has a Germany Problem - Paul Krugman
The problem, instead, is that the Europeans, and the Germans in particular, treat themselves badly, with a ruinous obsession over public debt. And the costs of that obsession are spilling over to the world as a whole.
- How should academic economics cope with ideological bias - mainly macro
This question was prompted by this study by Mohsen Javdani and Ha-Joon Chang, which tries to show two things: mainstream economists are biased against heterodox economists, and also tend to favour statements by those close to their own political viewpoint, particularly on the right. I don’t want to talk here about the first bias, or about the merits or otherwise of this particular study. Instead I will take it as given that ideological bias exists within mainstream academic economists (and hereafter when I just say ‘academic economics’ I’m only talking about the mainstream), as it does with many social sciences. I take this as given simply because of my own experience as an economist.
- Providing low-cost labor market information to assist jobseekers - Microeconomic Insights
People who are receiving unemployment benefits and looking for a job are typically required to consider occupations beyond their preferred line of work, at least after an initial period of joblessness. But how should jobseekers decide which occupations to consider, and how should employment agencies advise them?
- From Trump Boom to Trump Gloom - Paul Krugman
Last year, after an earlier stock market swoon brought on by headlines about the U.S.-China trade conflict, I laid out three rules for thinking about such events. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy. But maybe I should add a fourth rule: The bond market sorta kinda is the economy.
- What killed real wage growth? - Stephen Gordon
What killed the growth in real wages in the early 1970s? I've been trying to come up with an answer to this question, and I think I have one. I'm not entirely sure that it's the correct answer, but I think it's a plausible conjecture.
- Alfred Marshall in 1885: "The Present Position of Economics" - Tim Taylor
In the last few years, I have evolved a habit for that time in August when I head off for vacation and other end-of-summer plans. I leave behind a series of scheduled daily posts about topics in economics, academia, and writing or editing that are usually based on historical essays and writings which caught my eye at some point. This year, I'll start with some thoughts about the 1885 address given by Alfred Marshall, " The present position of economics. An inaugural lecture given in the Senate House at Cambridge, 24 February, 1885."
- Online Estimation of DSGE Models - Liberty Street Economics
The estimation of dynamic stochastic general equilibrium (DSGE) models is a computationally demanding task. As these models change to address new challenges (such as household and firm heterogeneity, the lower bound on nominal interest rates, and occasionally binding financial constraints), they become even more complex and difficult to estimate—so much so that current estimation procedures are no longer up to the task. This post discusses a new technique for estimating these models which belongs to the class of sequential Monte Carlo (SMC) algorithms, an approach we employ to estimate the New York Fed DSGE model. To learn more, check out this paper of ours.
- When it Comes to Exporting (Manufactures), Europe is now the one from Mars - Brad Setser
Manufacturing exports are about three times more important to the euro area than to the U.S. economy. That's largely because the U.S. now exports very few manuactures. And China's imports of manufactures, once you net out imports for re-export (processing) really are quite small.
- On Designating China as a Currency Manipulator… - Brad Setser
China really did manipulate its currency before the global crisis. It really doesn't do so now. But how China's manages its currency still matters for the global economy.
- Economic Complexity... after Thirty-Five Years - Economic Principals
Two of the most successful expositors of economic complexity were research partners, as least for a time: Ricardo Hausmann, of Harvard University’s Kennedy School of Government, and physicist César Hidalgo, of MIT’s Media Lab. They, too, worked with a gifted mathematician, Albert-László Barabási, of Northeastern University, to produce a highly technical paper; then, with colleagues, assembled an Atlas of Complexity: Mapping Paths to Prosperity (MIT, 2011), a data-visualization tool that continues to function online. Meanwhile, Hidalgo’s Why Information Grows: The Evolution of Order, from Atoms to Economies (Basic, 2015) remains an especially lucid account of humankind’s escape (so far) from the Second Law of Thermodynamics, but there is precious little economics in it. For the economics of international trade, see Gene Grossman and Elhanan Helpman.
- Yield-Curve Inversion and the Agony of Central Banking - Uneasy Money
Suddenly, we have been beset with a minor panic attack about our increasingly inverted yield curve. Since fear of yield-curve inversion became a thing a little over a year ago, a lot of people have taken notice of the fact that yield-curve inversion has often presaged recessions. In June 2018, when the yield curve was on the verge of flatlining, I tried to explain the phenomenon, and I think that I provided a pretty good — though perhaps a tad verbose — explanation, providing the basic theory behind the typical upward slope of the yield curve as well as explaining what seems the most likely, though not the only, reason for inversion, one that explains why inversion so often is a harbinger of recession.
- Unemployment: Lower for Longer? - FRBSF
Unemployment is running near its 50-year low, but inflation has not picked up as expected. This suggests that the unemployment rate consistent with stable inflation has fallen. Combining a conventional Phillips curve tradeoff between unemployment and inflation with a noninflationary unemployment rate that can change over time shows that estimates of this unemployment threshold have declined toward 4% in recent years. One possible reason for this decline is improvements in how job matches are made, reflected in unusually favorable job-finding rates for disadvantaged groups.
- Trump’s Cross of Gold - Barry Eichengreen
US President Donald Trump wants to compress the United States trade deficit and enhance the competitiveness of domestic manufacturers by using tariffs to raise the price of imported goods. And the fixed exchange rates he needs to achieve that goal are the real reason behind his nomination of Judy Shelton to the Federal Reserve Board.
- America’s Superpower Panic - J. Bradford DeLong
History suggests that a global superpower in relative decline should aim for a soft landing, so that it still has a comfortable place in the world once its dominance fades. By contrast, US President Donald Trump's incoherent, confrontational approach toward China could seriously damage America’s long-term interests.
- Offshoring and the decline in US manufacturing employment - VoxEU
What has caused the rapid decline in US manufacturing employment in recent decades? This column uses novel data to investigate the role of US multinationals and finds that they were a key driver behind the job losses. Insights from a theoretical framework imply that a reduction in the costs of foreign sourcing led firms to increase offshoring, and to shed labour.
- We Don't Need a Broad Consensus - Tim Duy
I am on vacation, but apparently can’t stop myself; more of a thought piece here on why we think broad consensus is important.
- Too much inequality impedes support for public goods - Eurekalert
They discovered that in a very unequal society, those people with higher incomes were less inclined to contribute their proportional share towards public goods and services. This, in turn, also led people on the lowest incomes to contribute less. The breakdown of cooperation under high inequality has implications for funding of essential services for society.
- The trade deal fetish - Stumbling and Mumbling
John Bolton says the UK can strike a quick trade deal with the US. This reminds me of an under-appreciated fact – that it is not trade rules that are significantly holding back UK exports.
- Hegel on labor and freedom - Understanding Society
Hegel provided a powerful conception of human beings in the world and a rich conception of freedom. Key to that conception is the idea of self-creation through labor. Hegel had an "aesthetic" conception of labor: human beings confront the raw given of nature and transform it through intelligent effort into things they imagine that will satisfy their needs and desires.
- The (Desperate) Need for Economists to Consider “Intersectionality” and Our “Multiple Identities” in Our Work – EconomistMom.com
Apparently being aware of one’s multiple identities (as opposed to where you might peg into a mono-dimensional category) makes a person more flexible and creative in one’s thinking. As Sarah explains, it also reminds a person—even a child—that there a “more social categories in their world beyond just race and gender” and encourages the person “to move beyond their default thinking of either/or categories.” This got me to thinking about one of my complaints about the economics discipline
- In Uncertain Times, Fed Sometimes Turns to ‘Insurance’ - Dallasfed.org
In June 2019, a concept appeared in the Federal Open Market Committee (FOMC) minutes that had not shown up in FOMC minutes for 11 years—the idea of monetary policy “insurance.” The context was St. Louis Fed President James Bullard’s dissent. He argued that a federal funds rate cut could “provide some insurance against unexpected developments that could slow U.S. economic growth.”
- Uwe Reinhardt on High US Health Care Costs - Tim Taylor
Uwe Reinhardt had the remarkable skill that even when he was discussing a subject where you felt that you already knew a lot, he offered the kinds of live-wire facts and metaphors, insights and opinions, which informed and challenged--and often entertained as well. Reinhardt died in died in November 2017. His final book has just been published: Priced Out: The Economic and Ethical Costs of American Health Care. For a flavor of the book and Reinhardt's style, the Milken Institute Review has published an excerpt from the book in the its Third Quarter 2019 issue.
- The dissonance of the short and long term - VoxEU
The type of risk we most care about is long-term, what happens over years or decades, but we tend to manage that risk over short periods. This column argues that the dissonance of risk is that we measure and manage what we don't care about and ignore what we do.
- How Sweden became more entrepreneurial than the US - VoxEU
Recent studies document a 30-year decline in various measures of dynamism in the US, manifested in a decline in the share of young firms as well as their share of job creation. This column shows that this has not been the case in Sweden. Young firms have been more prominent in the Swedish business sector than in the US in recent decades, and policies to encourage entrepreneurship are key to this.
- The Practice Turn - Economic Principals
It being August, and, unable to contribute anything worth saying about trade wars and currency politics; inspired instead by reading Joel Mokyr’s account of how a distinctive passion for useful knowledge emerged and flourished in Europe before spreading around the world, I lit out for the library to have a look at Mokyr’s preferred sources on the evidence of choice-based cultural change. The economic historian has underscored why evolving preferences, social learning, and its diffusion, are among the most interesting topics in all of social science.
- The median male earner--the top line overstates progress - Richard Green
Has the median man made progress economically since 1980? Not really. While male median income rose (in 2017 $) from $35,589 to $40,396, or 13.5 percent, this modest increase masks the fact that the share of men in their peak earnings years has increased, and that earnings at the median within peak earnings years categories have decreased.
- China Tries to Teach Trump Economics - Paul Krugman
If you want to understand the developing trade war with China, the first thing you need to realize is that nothing Donald Trump is doing makes sense. His views on trade are incoherent. His demands are incomprehensible. And he vastly overrates his ability to inflict damage on China while underrating the damage China can do in return.
- Yes, There Is a Trade-Off Between Inflation and Unemployment - Greg Mankiw
The economist George Akerlof, a Nobel laureate and the husband of the former Federal Reserve chair Janet Yellen, once called the Phillips curve “probably the single most important macroeconomic relationship.” So it is worth recalling what the Phillips curve is, why it plays a central role in mainstream economics and why it has so many critics.
- Trump’s Deficit Economy - Joseph E. Stiglitz
Economists have repeatedly tried to explain to Donald Trump that trade agreements may affect which countries the US buys from and sells to, but not the magnitude of the overall deficit. But, as usual, Trump believes what he wants to believe, leaving those who can least afford it to pay the price.
Thursday, August 08, 2019
- Irving Fisher Demolishes the Loanable-Funds Theory of Interest - Uneasy Money
In some recent posts (here, here and here) I have discussed the inappropriate application of partial-equilibrium analysis (aka supply-demand analysis) when the conditions under which the ceteris paribus assumption underlying partial-equilibrium analysis are not satisfied. The two examples of inappropriate application of partial equilibrium analysis I have mentioned were: 1) drawing a supply curve of labor and demand curve for labor to explain aggregate unemployment in the economy, and 2) drawing a supply curve of loanable funds and a demand curve for loanable funds to explain the rate of interest. In neither case can one assume that a change in the wage of labor or in the rate of interest can occur without at the same time causing the demand curve and the supply curve to shift from their original position to a new one. Because of the feedback effects from a change in the wage or a change in the rate of interest inevitably cause the demand and supply curves to shift, the standard supply-and-demand analysis breaks down in the face of such feedback effects.
- Innovation Policy: Federal Support for R&D Falls as its Importance Rises - Tim Taylor
One of those things that "everyone knows" is that continued technological progress is vital to the continued success of the US economy, not just in terms of GDP growth (although that matters) but also for major social issues like providing quality health care and education in a cost-effective manner, addressing environmental dangers including climate change, and in other ways. Another thing that "everyone knows" is that research and development spending is an important part of generating new technology. But total US spending on R&D as a share of GDP has been nearly flat for decades, and government spending on R&D as a share of GDP has declined over time.
- Trump’s China Shock - Paul Krugman
it does look as if I should try to explain (a) what I think is happening (b) why the markets are going so nuts. By the way, given Mnuchin’s declaration just a few minutes ago that China is a currency manipulator, tomorrow’s market action should be … interesting.
- Progress on a persistent puzzle - Federal Reserve Bank of Minneapolis
Why do exchange rates fluctuate as they do? Basic commodity prices may hold part of the answer to a long-standing mystery
- Big Tech’s Harvest of Sorrow? - Daron Acemoglu
At the same time that science and technology have vastly improved human lives, they have also given certain visionaries the means to transform entire societies from above. Ominously, what was true of Soviet central planners is true of Big Tech today: namely, the assumption that society can be improved through pure "rationality."
- Tariff Tantrums and Recession Risks - Paul Krugman
If the bond market is any indication, Donald Trump’s escalating belligerence on trade is creating seriously increased risks of recession. But I haven’t seen many clear explanations of why that might be so. The problem isn’t just, or even mainly, that he really does seem to be a Tariff Man. What’s more important is that he’s a capricious, unpredictable Tariff Man. And that capriciousness is really bad for business investment.
- Is there really a global decline in the (non-housing) labour share? – Bank Underground
Much has been written on the global decline of the corporate labour share (defined as the share of corporate value added going to wages, salaries and benefits). The IMF and OECD worry about this trend, linking it to decreasing wages and rising inequality. And economists are hard at work looking for an explanation: prominent hypotheses range from automation and ‘superstar’ firms to offshoring. But is there really a global decline in the non-housing/business labour share?
- Including More History in Your Econometrics Teaching - Dave Giles
If you follow this blog (or if you look at the "History of Econometrics" label in the word cloud in the right side-bar), you'll know that I have more than a passing interest in the history of our discipline. There's so much to be learned from this history. Among other things, we can gain insights into why certain methods became popular, and we can reduce the risk of repeating earlier mistakes!
- Reflections 11 Years After the Crash - Brad DeLong
1) If there hadn't been any of the kind of panic we got post-Lehman, how severe you think the U.S. recession would have been? Would it have been like a slightly worse S&L crisis, or is that underselling it?
- Global Declining Competition - ProMarket
Studies of the evolution of market power since 2000 have focused mostly on publicly traded US firms. This column introduces a new global study that incorporates private firms and decomposes the aggregate effect into intensive and extensive margins. It shows the increase in markup is broad-based across countries and sectors but is driven by a small number of firms.
- Trump, Tax Cuts and Terrorism - Paul Krugman
Why has the Republican Party become a systematic enabler of terrorism?
- America Needs an Independent Fed - Volcker, Greenspan, Bernanke, Yellen
As former chairs of the board of governors of the Federal Reserve System, we are united in the conviction that the Fed and its chair must be permitted to act independently and in the best interests of the economy, free of short-term political pressures and, in particular, without the threat of removal or demotion of Fed leaders for political reasons.
- Is the Fed Doing Anything Right? - Stephen Williamson
I'm not sure the Fed has many friends these days. Donald Trump is unhappy with it, and the financial media seems puzzled by what the Fed is doing. Can we make sense of the Fed's behavior, particularly its change in policy last week, or is the Fed simply incoherent?
- Women Work A Lot of Jobs (Not Even Counting At Home) – EconomistMom.com
I often wonder how economists can assume that the patterns the U.S. macroeconomy has followed in the past are well-informing our assessments of where we are headed. How can we predict or even recognize what we haven’t really seen before–something that might be called a “new normal” (clearly, an oxymoron).
- What the Wage Growth of Hourly Workers Is Telling Us - macroblog
The Atlanta Fed's Wage Growth Tracker has shown an uptick during the past several months. The 12-month average reached 3.7 percent in June, up from 3.2 percent last year. But in 2016, it depicted acceleration that eventually reversed course. So is this recent increase real or illusory?
- Just say no to exchange rate intervention - Cecchetti & Schoenholtz
Whenever possible, policymakers should explore a broad set of options before responding to challenges they face. However, when the President and his advisers recently discussed foreign currency intervention, we hope everyone quickly concluded that it would be a profoundly bad idea.
- Trade Wars Escalate - Tim Duy
The big news everyone will wake up to is the latest escalation in the trade wars between the U.S. and China. The situation is obviously a clear net negative for the economy that will keep the Fed biased toward easing again in September. The Fed will remain under pressure to help President Trump fight his trade wars with lower interest rates in the months ahead.
- Trump’s Trade Quagmire (Wonkish) - Paul Krugman
Trump’s trade war is looking more and more like a classic policy quagmire. It’s not working — that is, it isn’t at all delivering the results Trump wants. But he’s even less willing than the average politician to admit to a mistake, so he keeps doing even more of what’s not working. And if you extrapolate based on that insight, the implications for the U.S. and world economies are starting to get pretty scary.
- Summer 2019 Journal of Economic Perspectives Available Online - Tim Taylor
I was hired back in 1986 to be the Managing Editor for a new academic economics journal, at the time unnamed, but which soon launched as the Journal of Economic Perspectives. The JEP is published by the American Economic Association, which back in 2011 decided--to my delight--that it would be freely available on-line, from the current issue back to the first issue. You can download it various e-reader formats, too. Here, I'll start with the Table of Contents for the just-released Summer 2019 issue, which in the Taylor household is known as issue #129. Below that are abstracts and direct links for all of the papers. I may blog more specifically about some of the papers in the next week or two, as well.
- The Fed Can't Give Markets the Certainty They Desire - Tim Duy
Federal Reserve Chairman Jerome Powell tried to thread the needle between dovish and hawkish at his Wednesday press conference, but realistically had no hope of pleasing market participants who thought a series of interest-rate cuts were already in the bag. The Fed just isn’t there yet. This reduction in rates was the insurance against bad outcomes. Going forward, conditions will need to worsen – and soon – to justify a further easing of monetary policy.
- Global declining competition - VoxEU
Studies of the evolution of market power since 2000 have focused mostly on publicly traded US firms. This column introduces a new global study that incorporates private firms, and decomposes the aggregate effect into intensive and extensive margins. It shows the increase in markup is broad-based across countries and sectors, but is driven by a small number of firms. The markup increase is mainly explained by increases in the average markup of incumbents, and reallocation effects towards new firms that gain market share from incumbents.
- Why Was Trumponomics a Flop? - Paul Krugman
why has Trumponomics failed to deliver much besides trillion-dollar budget deficits? The answer is that both the tax cuts and the trade war were based on false views about how the world works.
- My “Somewhat Irreverent View” on Economics and Economists – EconomistMom.com
The alternative title on the Behavioral Economics course I teach at both George Washington University and Georgetown University has always been “Economics in Theory and Practice: A Somewhat Irreverent View.” I then spend the whole course going through the behavioral insights that in my mind expose key weaknesses in and limitations of traditional Economics—not just in the “purist” economic theories (which seem like “straw men” to me (wink)), but also in the way economists tend to “test” their theories and measure the size, features, and movements in the economy.
Monday, July 22, 2019
- Why Critics of a More Relaxed Attitude on Public Debt Are Wrong - Blanchard and Ubide
Both of us have recently developed arguments for a more relaxed attitude toward public debt and deficits (for example, this address by Blanchard at the European Central Bank Policy Forum, this joint discussion at PIIE, and this essay by Ubide on Vox). Not surprisingly, several counterarguments have arisen, some of which we accept, some of which we don’t. This blog addresses two arguments that we reject.
- Acknowledging and pricing macroeconomic uncertainties - Hansen and Sargent
False pretences of knowledge about complicated economic situations have become all too common in public policy debates. This column argues that policymakers should take into account what they don’t know in their decision making. It describes a tractable approach for acknowledging, characterising, and responding to different forms of uncertainty, by using theories and statistical methods available at any particular moment.
- Costs of recession - Stumbling and Mumbling
The Resolution Foundation’s James Smith has written a nice paper on the likelihood of recession and the fact that, with monetary less able to support the economy, we need to think about alternative ways of tackling recessions. I just want to amplify what he says in two ways.
- State and Local Taxes Are Worsening Inequality - The New York Times
Most states lean heavily on lower-income families. An Illinois referendum is a step toward correcting the problem.
- The Great Crypto Heist - Nouriel Roubini
Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.
- Trade wars may ‘bloc up’ world trade - VoxEU
Against the backdrop of new tariffs imposed by the Trump administration and retaliation from targeted countries, notably China, the trade wars of the 1930s have received renewed attention. This column argues that they mainly served to intensify a pre-existing trend towards the formation of trade blocs. The trade wars of the present day may therefore serve a similar purpose as those in the 1930s, that is, the intensification of China- and US-centric trade blocs.
- Paid family leave and breastfeeding - VoxEU
Mothers in the US breastfeed their infants at higher rates today than at any point in documented history, but low-income mothers have become less likely to do so. A leading reason for mothers to stop breastfeeding is the need to return to work. This column uses data on over 270,000 mother-child pairs in California, which implemented paid family leave in 2004, to examine the relationship between paid family leave and breastfeeding. It finds that paid family leave significantly increases overall breastfeeding duration, suggesting that paid family leave may lead to longer-term health improvements for children and mothers, particularly among disadvantaged families.
- Modern money theory and its challenges - VoxEU
Modern monetary theory (MMT) has recently gained prominence in light of doubts about the effectiveness of monetary policy in addressing economic shortfalls. This column assesses the implications of implementing the theory’s policy prescriptions, and the challenges it presents in the case of Japan – an economy that some have argued has already been subject to such policy. Japan’s labour shortages and low inflation mean modern monetary theory’s fiscal stimulus suggestions may be harder to implement than they initially seem.
- Win or lose: Rigged card game sheds light on inequality, fairness - EurekAlert
After noticing that card game winners attributed the game's outcome to skill and losers blamed their defeat on the rules, doctoral students Mario Molina and Mauricio Bucca decided to conduct an experiment. Working with Michael Macy, the Goldwin Smith Professor of Arts and Sciences and director of the Social Dynamics Laboratory, they adapted their idea into the Swap Game, a simple card game they rigged to favor either winners or losers, in a study designed to measure perceptions of inequality. They found that winners were far more likely to believe the game's outcome was fair, even when it was heavily tilted in their favor
- Understanding the Average Impact of Microcredit - Microeconomic Insights
The global microloan portfolio is now worth over 102 billion dollars and is growing yearly. This research estimates the impact of the policy and the extent to which this impact is different across different contexts. It finds that overall, the best existing evidence suggests that the average impact of these loans is small and that in the future, it may be beneficial to seek alternative approaches to improve the lives of poor households in the developing world.
- Interview: Enrico Moretti - Federal Reserve Bank of Richmond
Moretti's interest in American geographical sorting began during his days as a Ph.D. student at Berkeley, where he arrived after his undergraduate education in his native Milan. At first, he just wanted to fill in some blanks in his knowledge of America. "I started looking at data from the U.S. census," he says. "Just out of curiosity, wanting to know more about this country, I started looking at the different city averages of whatever the census could measure — earnings, level of education of the workforce, the type of industry. I suspected there were big differences, but I didn't know how large the differences were." He went on to write his Ph.D. dissertation on the benefits in terms of higher earnings that less-educated workers obtain from being in a city with a large share of workers with college degrees.
- Global Perspective on Markets for Sand - Tim Taylor
Trivia question: If measuring by volume, what mined product is the largest? The answer is "sand and gravel," sometimes known in the geology business as "aggregates." In particular, aggregates are used for concrete and asphalt, and demand for these products from China and other emerging markets has skyrocketed. Sand is also used as part of hydraulic fracturing, so in the United States demand from that source has surged as well. And sand and gravel are also widely used for purposes ranging from land reclamation and water treatment to industrial production of electronics, cosmetics and glass.
Monday, July 15, 2019
- Why Is Inflation Low Globally? - FRBSF A hot economy eventually boosts inflation. Such is the simple wisdom of the Phillips curve. Yet inflation across developed countries has been remarkably weak since the 2008 global financial crisis, even though unemployment rates are near historical lows. What is behind this recent disconnect between inflation and unemployment? Contrasting the experiences of developed and developing economies before and after the financial crisis shows that broader factors than monetary policy are at play. Inflation has declined globally, and this trend preceded the financial crisis.
- Libra's dramatic call to regulatory action - Cecchetti & Schoenholtz The stated objectives of creating Libra are to improve the efficiency of payments, reducing costs and speeding transfers; and to improve financial access. While these are laudable goals, it is essential that we achieve them without facilitating criminal exploitation of the payments system or reducing the ability of authorities to monitor and mitigate systemic risk. In addition, any broad-based financial innovation should facilitate the stabilization of consumption. On all of these criteria, we see Libra as doing more harm than good.
- Taking Malthus seriously - VoxEU The econometric evidence for the Malthusian trap in pre-industrial Europe has been weak. The column presents a new Malthusian model that, combined with new historical data for 17 countries, provides evidence of a much stronger Malthusian trap than the one found by previous research. This helps to explain the economic stagnation from the dark ages to the industrial revolution.
- Goldbugs for Trump - Paul Krugman It’s not surprising, then, that Trump is also trying to stuff the Federal Reserve Board with political allies. What may seem surprising is that many of his would-be appointees, like Stephen Moore and now Judy Shelton, have long records of supporting the gold standard or something like it. This should put them at odds with his efforts to politicize the Fed. After all, one of the supposed points of a gold standard is to remove any hint of politics from monetary policy. And with gold prices rising lately, gold standard advocates should be calling for the Fed to raise rates, not lower them. But of course both Moore and Shelton have endorsed Trump’s demand for rate cuts. This creates a dual puzzle: Why does Trump want these people, and why are they so willing to cater to his wishes?
- The Flattening of the Phillips Curve: Policy Implications Depend on the Cause - FRB Cleveland According to the historical relationship known as the Phillips curve, strengthening of the economy is commonly associated with increasing inflation. With inflation having only modestly picked up in the past few years as the economy has become more robust, many believe the Phillips curve relationship has weakened, with the curve becoming flatter. I show that the flattening can be due to very different types of structural changes and that knowing the type of change that has occurred is crucial for choosing the appropriate monetary policy.
- Dr. Shelton Remains Outspoken: She Should Have Known Better - Uneasy Money I started blogging in July 2011, and in one of my first blogposts I discussed an article in the now defunct Weekly Standard by Dr. Judy Shelton entitled “Gold Standard or Bust.” I wrote then:
- Is Plutocracy Really the Problem? - J. Bradford DeLong After the 2008 financial crisis, economic policymakers in the United States did enough to avert another Great Depression, but fell far short of what was needed to ensure a strong recovery. Attributing that failure to the malign influence of the plutocracy is tempting, but it misses the root of the problem.
- What’s Driving Populism? - Dani Rodrik If authoritarian populism is rooted in economics, then the appropriate remedy is a populism of another kind – targeting economic injustice and inclusion, but pluralist in its politics and not necessarily damaging to democracy. If it is rooted in culture and values, however, there are fewer options.
- Is AI Just Recycled Intelligence, Which Needs Economics to Help It Along? - Tim Taylor The Harvard Data Science Review has just published its first issue. Many of us in economics are cousins of burgeoning data science field, and will find it of interest. As one example, Harvard provost (and economist) Alan Garber offers a broad-based essay on "Data Science: What the Educated Citizen Needs to Know." Others may be more intrigued by the efforts of Mark Glickman, Jason Brown, and Ryan Song to use a machine learning approach to figure out whether Lennon or McCartney is more likely to have authored certain songs by the Beatles that are officially attributed to both, in "(A) Data in the Life: Authorship Attribution in Lennon-McCartney Songs." But my attention was especially caught by an essay by Michael I. Jordan called "Artificial Intelligence—The Revolution Hasn’t Happened Yet,"
- The New Fama Puzzle Persists - Econbrowser In previous posts  , I described how in data up to the beginning of 2016, the Fama puzzle was overturned for major currencies. One question was whether the change would persist post-crisis and post-Zero Lower Bound (ZLB) exit. The short answer is, so far, yes.
- ABM fundamentalism - Understanding Society One element of our conversation was especially enlightening to me. I have written a number of times in Understanding Society and elsewhere about the utility of ABM models, and one line of thought I have developed is a critique of what I have labeled "ABM fundamentalism" -- the view that ABM models are the best possible technique for constructing social explanations for every possible subject in the social sciences (link). This view is expressed in Joshua Epstein's slogan, "If you didn't grow it, you didn't explain it." I maintain that ABM is a useful technique, but only one of many methods appropriate to the problem of constructing explanations of interesting sociological outcomes (link). So I advocate for theoretical and methodological pluralism when it comes to the ABM program. I asked Gianluca whether he would agree that ABM fundamentalism is incorrect, and was surprised to find that he defends the universal applicability of ABM as a tool to implement any sociological theory.
- Trump and the Merchants of Detention - Paul Krugman Is it cruelty, or is it corruption? That’s a question that comes up whenever we learn about some new, extraordinary abuse by the Trump administration — something that seems to happen just about every week. And the answer, usually, is “both.”
- From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market - Liberty Street Economics How do changes in the rate that the Federal Reserve pays on reserves held by depository institutions affect rates in money markets in which the Fed does not participate? Through which channels do changes in the so-called administered rates reach rates in onshore and offshore U.S. dollar money markets? In this post, we answer these questions with the help of an interactive map that guides us through the web of interconnected relationships between the Fed, key market players, and the various instruments in the U.S. dollar funding market, highlighting the linkages across the short-term financial products that form this market.
- Protecting the Federal Reserve - Cecchetti & Schoenholtz Last week, President Trump tweeted his intention to nominate Dr. Judy Shelton to the Board of Governors of the Federal Reserve System. In our view, Dr. Shelton fails to meet the criteria that we previously articulated for membership on the Board. We hope that the Senate will block her nomination.
- Interregional mobility and monetary policy – Bank Underground According to conventional wisdom, a currency area benefits from internal labour mobility. If independent stabilisation policies are unavailable, the argument goes, factor mobility helps regions respond to shocks. Reasonable as it sounds, few attempts have been made to test this intuition in state-of-the-art macroeconomic models. In a recent Staff Working Paper (also available here), we build a DSGE model of a currency area with internal migration to go through the maths. So does the old intuition hold up? The short answer, we think, is yes. Internal labour mobility eases the burden on monetary policy by reducing regional labour markets imbalances. But policymakers can improve welfare by putting greater weight on unemployment.
- Global Dimensions of U.S. Monetary Policy - NBER This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that U.S. monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest, r*) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the U.S. economy from the disproportionate impact of U.S. monetary policy on the outside world. In themselves, global factors need not undermine a central bank's ability to control the price level over the long term -- after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.
Monday, July 08, 2019
- Thumbs Down to Facebook’s Cryptocurrency - Joseph E. Stiglitz
Only a fool would trust Facebook with his or her financial wellbeing. But maybe that’s the point: with so much personal data on some 2.4 billion monthly active users, who knows better than Facebook just how many suckers are born every minute?
- Trump Is Losing His Trade Wars - Paul Krugman
Donald Trump’s declaration that “trade wars are good, and easy to win” will surely go down in the history books as a classic utterance — but not in a good way. Instead it will go alongside Dick Cheney’s prediction, on the eve of the Iraq war, that “we will, in fact, be welcomed as liberators.” That is, it will be used to illustrate the arrogance and ignorance that so often drives crucial policy decisions. For the reality is that Trump isn’t winning his trade wars.
- Mysteries of Monetary Policy - Robert J. Barro
Since the federal funds rate peaked at 22% in the early 1980s, inflation in the United States has remained low and stable, leading many to believe that the mere threat of renewed interest-rate hikes has kept it in check. But no one really knows why inflation has been subdued for so long.
- The gender promotion gap: Evidence from the ECB - VoxEU
The underrepresentation of women in economics is perhaps nowhere as visible as in central banks. This column uses anonymised personnel data to analyse the career progression of men and women at the ECB. A wage gap in favour of men emerges within a few years of hiring, with one important driver being the presence of children. Women were also less likely to be promoted to a higher salary band up until 2010, when the ECB issued a statement supporting diversity and took measures to support gender balance. Following this change, the promotion gap disappears.
- Age of the expert as policymaker is coming to an end - Financial Times
One of the phenomena of the latter period of western capitalism has been the expert as policymaker: the academic economist as a central bank governor or the scientist as a minister. It did not use to be this way. Now that period is ending, with some profound consequences. ...
- Economic policies can reduce deaths of despair - VoxEU
Policymakers and researchers have sought to understand the causes of and effective policy responses to recent increases in mortality due to alcohol, drugs, and suicide in the US. This column examines the role of the minimum wage and the earned income tax credit – the two most important policy levers for raising incomes for low-wage workers – as tools to combat these trends. It finds that both policies significantly reduce non-drug suicides among adults without a college degree, and that the effect is stronger among women. The findings point to the role of economic policies as important determinants of health.
- Intergenerational mobility in Africa - VoxEU
Over the last few decades, education in Africa has been rising and living standards have been improving. Yet certain countries and regions face rampant conflict and persistent poverty. This column we uses individual-level data covering more than 20 million people spanning 26 African countries since the late 1960s to study intergenerational mobility in education across the continent. It uncovers large variation in upward and downward mobility both across and within countries.
- Redefining money in a digital age ~ Antonio Fatas
Economic textbooks use a definition of money as an asset that can be used as a means of payment, that constitutes a unit of account and serves as a store of value. This definition is being used often in debates about new forms of digital money and payments (including cryptocurrencies). I would like to argue that this characterization of money is a) not a definition b) not a very useful one to compare alternative forms of payment c) fails to understand how digital payments and new technologies have changed the nature of money Let's deconstruct the "definition" to see what is wrong with it. ...
- US Multinationals Expand their Foreign-based Research and Development - Tim Taylor
"For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries (such as Germany, Japan, and Canada) to many parts of the developing world ..."
- The long-run effects of uncertainty shocks – Bank Underground
Is uncertainty a significant drag for investment and consumption? Since the global financial crisis heightened uncertainty has been considered to be one of the main factors behind the depth of the great recession and the subdued recovery. Understanding the channels through which uncertainty affects economic activity is therefore of primary interest for policymakers in order to design appropriate policy responses. In our recent working paper, we show that shocks increasing macroeconomic uncertainty can lead to very persistent negative effects on economic activity that last well beyond the business cycle frequency. In a theoretical framework, we argue that the presence of long-term risks about the economic outlook can exacerbate the households’ precautionary savings motive and the overall effects of uncertainty shock.
- The decline of US business dynamism - VoxEU
The US economy has witnessed a number of striking trends that indicate rising market concentration and a slowdown in business dynamism in recent decades. This column uses a micro-founded model of endogenous firm dynamics to show that a decline in the intensity of knowledge diffusion from frontier firms to laggard ones plays a key role in the observed shifts. It presents new evidence on higher concentration of patenting in the hands of firms with the largest stock that corroborates declining knowledge diffusion in the economy.
- The Trump Tax Reform, As Seen in the U.S. Balance of Payments Data - Brad Setser
The international side of the Tax Cuts and Jobs Act was a real reform, not just a straight-forward cut in the rate. It ended deferral, and shifted to a (mostly) territorial tax system. Yet, judging from the balance of payments data, it didn't get rid of the incentive for firms to offshore profits to low-tax jurisdictions. The global minimum is too low—and there are too many incentives to shift tangible assets abroad.
- Digital currency areas - VoxEU
Thanks to digitalisation, we now can hold money on our mobile phones and transfer wealth in real time to almost every corner of the world. Currencies can be swapped within milliseconds on smart phones and people can hold many currencies simultaneously in digital wallets. This column considers how digitalisation will affect the international monetary system, arguing that a new kind of currency area will emerge, held together by digital interconnectedness. These digital currency areas will cut across borders, increase currency competition and, in the process, may redefine the international monetary system.
- Lots of folks over 65 are spending a lot on housing - Richard Green
The Census has a nice tool that allows one to map American Community Survey data by counties (at least counties with sufficient population to develop estimates based on samples). I drew two today. This first one is the share of those renters over the age of 65 who pay more than 30 percent of their income on rent.
- Can 'Forward Guidance' Work for Fiscal Policy? - NBER Digest
Announcing sales tax increases before they take effect substantially spurs auto purchases in the month before the tax increase kicks in.
- Why Some Regions Rebounded Faster after the Great Recession - NBER Digest
Frictions in financial intermediation in some regions may have slowed recovery by limiting consumer access to lower interest rates and refinancing opportunities.
- Analyzing Efforts to Rein in Misinformation on Social Media - NBER Digest
Interactions with fake news sites by users of both Facebook and Twitter rose steadily in 2015 and 2016, but have fallen more than 60% since then on Facebook.
- Why Does the Debt-to-GDP Ratio Constrain Crisis Response? - NBER Digest
When a financial crisis hits, countries with a high debt-to-GDP ratio are less likely to pursue expansionary policy. Debt-related limits on market access are only part of the story.
- Labour market shocks and demand for trade protection - VoxEU
Economists have traditionally emphasised the benefits of openness to trade, but populists resist it. How generalised is the demand for trade protection? And how does it compare with other disruptions in the labour market? This column suggests that people often react by demanding trade protection when faced with shocks that generate unemployment, with the largest effects observed when it is caused by imports arriving from a poor country.
- Police-monitored cameras and crime - VoxEU
An increasing number of cities worldwide use surveillance cameras to prevent crime, but little is known about whether these cameras reduce crime or simply move it to other locations. This column studies the impact of a large-scale introduction of police-monitored cameras in Montevideo, Uruguay. The findings indicate a 20% reduction in crime in areas of the city where the cameras are located, with no evidence of a displacement effect. The programme also appears to offer value for money compared with other security and crime prevention measures.
- The Moochers of Middle America - Paul Krugman
... The point is that while you can criticize particular Democratic proposals, you can only portray progressives as radical or irresponsible, especially as compared with the modern G.O.P., by ignoring or suppressing a lot of facts. I guess facts really do have a liberal bias.
- Robots and firms - VoxEU
The rise of robots has sparked an intense debate about the labour market effects of their adoption. This column explores differences in robot adoption across firms and analyses the labour market effects of robot adoption at the firm level. It reveals a productivity-enhancing reallocation of labour and market shares across firms, with robot-adopting firms creating new job opportunities and expanding their scale of operations, while non-adopters experience negative output and employment effects in the face of tougher competition.
- Seasonal Unit Roots - Background Information - Dave Giles
A recent email query about the language that we use in the context of non-stationary seasonal data, and how we should respond to the presence of "seasonal nit roots", suggested to me that a short background post about some of this might be in order.
- Alexander Hamilton: the Books - Economic Principals
President Trump has appointed four of the five serving governors to the seven-member Board of the Federal Reserve System. Last week he bruited his plans to make another attempt to nominate two more, Judy Shelton and Christopher Waller. (Four previous proposals have gone nowhere this year:: Herman Cain and Steven Moore, and, before that, Marvin Goodfriend and Nellie Liang. So I spent the better part of the Fourth of July perusing the stack of books on the history of the Fed that have appeared since the financial crisis.
Saturday, June 29, 2019
- 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.” 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. ...
Sunday, June 23, 2019
- 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.
Monday, June 17, 2019
- 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. ...
Friday, June 14, 2019
- 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. ...
Monday, June 10, 2019
- 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.
Wednesday, June 05, 2019
- 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.
Friday, May 31, 2019
- After Neoliberalism - Joseph E. Stiglitz For the past 40 years, the United States and other advanced economies have been pursuing a free-market agenda of low taxes, deregulation, and cuts to social programs. There can no longer be any doubt that this approach has failed spectacularly; the only question is what will – and should – come next.
- China-US Trade War - IGM Forum Question A: The incidence of the latest round of US import tariffs is likely to fall primarily on American households.
Question B: The impact of the tariffs – and any Chinese countermeasures – on US prices and employment is likely to be felt most heavily by lower income groups and regions.
- Does Trade Reform Promote Economic Growth? A Review of Recent Evidence - Douglas Irwin Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
- Does That Word Mean What You Think It Means? - Tim Duy Prologue In an earlier piece I documented the Federal Reserve’s failure to consistently hit their 2 percent inflation target and suggest a corrective policy change. Here I explore some of the confusion around the current framework and consider how the Fed can be pursuing a symmetric inflation target yet not see symmetric policy outcomes. Click here for newsletter version! Introduction The Federal Reserve’s much anticipated conference on strategy, tools, and communication will soon be upon us. Will the conference yield any groundbreaking changes in the Fed’s policy approach? Probably not. Federal Reserve Chair Jerome Powell set a low barfor the outcomes of this year’s strategy review, stressing the likely results would be “evolution not revolution.” ...
- How Central-Bank Independence Dies - Kenneth Rogoff Since the world’s major central banks came to the global economy’s rescue in 2008, they have had more and more tasks foisted upon them, even as some politicians question their expanded role and others seek to undermine their policymaking autonomy. To escape this dilemma, monetary authorities must get back to doing what they do best.
- Why There Has Been a Surge in Single Mothers Who Work - The New York Times ...they seem to be responding to a patchwork of policies, both carrots and sticks. At the federal level, the safety net has become less reliable, so working for pay is increasingly their only option. But at the local one, new policies like paid leave and minimum wage increases have made it more feasible for single mothers to work. Together, these appear to have primed them to take advantage of the biggest driver of all: a highly competitive labor market. ...
- How Economic Statistics Are Being Transformed - Tim Taylor Economic statistics are invisible infrastructure, supporting better decisions by government, business, and individuals. But the fundamentals survey-based methods of US government statistics have substantially eroded, because people and firms have become less willing to fill out surveys in a timely and accurate way. There are active discussions underway about how to replace or supplement existing statistics with either administrative data from government programs or private-sector data. But these approaches have problems of their own. ...
- The Research-Policy Nexus: ZLB, JMCB and FOMC - John Williams John Maynard Keynes quipped, “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” I wonder whether Keynes would see this as a feature rather than a bug in light of his enduring influence on the profession more than 70 years after his death. The theme of my talk today is that during my quarter century as a researcher and policymaker at the Fed, we have not been overly beholden to defunct economists. Quite the contrary. A quick scan of FOMC memos, briefings, and meeting minutes provides ample evidence that a wide range of economic research—new and old, conventional and outside the box—regularly enters into our debates and influences our decisions. This represents a rich two-way dialogue between researchers and policymakers, with both sides probing for new answers to old questions. ...
- A new one for price discrimination: taxing the late – Digitopoly
- ... I found out yesterday that, if you book, the lowest, Basic fare and you check in on the web, you are not given a mobile boarding pass or one you can print out. Instead, you *have* to queue up and get the pass from a gate agent. (And no they don’t have any electronic check-in terminals at the airport). In other words, it is inconvenient and, critically, creates a ton of risk in terms of leaving to go to the airport later as you might find the queue lengthy and long with people who need to change a flight or check bags or something. This is what economists have termed, a damaged good. It is where a firm actually incurs more costs to supply a lower quality product. It doesn’t occur often but, as Preston McAfee showed years ago, it is theoretically profitable because it allows for third-degree price discrimination or versioning. That makes it also fun for teaching as it seems so outrageous. ...
- Trade Wars Heats Up With New Assault on Mexico - Tim Duy One way or another, President Trump is going to drag the Fed into his trade wars. Tonight Trump announced via Twitter that imports from Mexico would face a 5% beginning June 10. The tariff could rise as high as 25% unless Mexico acts to stem the flow of refugees from Central America. It’s not clear that the legal authority exists to take such action, but, you know, details, details. And the White House is trying to argue that these tariff threats are separate from the USMCA trade deal that is currently a legislative priority. I guess this is like telling your wife that your mistress doesn’t have anything to do with your marriage. You really can’t make this stuff up anymore. A couple of points jump to mind here. ...
- Protecting the Independence and Integrity of Research - ProMarket Inappropriate financial donor influence at institutions of higher education appears to be on the rise and risks eroding public trust in academic research. In order to defend academic freedom and institutional independence, we have decided to create a new database to document clear violations of well-accepted norms involving financial donations.
- Sustaining Maximum Employment and Price Stability - Richard Clarida In July, the current U.S. economic expansion will become the longest on record—or at least the record since the 1850s, which is as far back as the National Bureau of Economic Research tracks U.S. business cycles.2 In anticipation of that milestone, I would like to take stock of where the U.S. economy is today, to assess its future trajectory, to review some important structural changes in the economy that have occurred over the past decade, and to explore what all of this might mean for U.S. monetary policy. ---
- Monetary Policy and Financial Stability - Randal Quarles I would like to use my time here to talk about a topic of interest to many central bankers and macroeconomists: the interaction of monetary policy and financial stability. As you well know, monetary policy has powerful effects on financial markets, the financial system, and the broader economy. Conversely, financial instability, by impairing the provision of credit and other financial services, can depress economic growth, cause job losses, and push inflation too low. Accordingly, financial stability, through its effects on the Federal Reserve's dual-mandate goals of maximum employment and stable prices, must be a consideration in the setting of monetary policy. ...
- What is “average inflation targeting”? - Brookings The Federal Reserve is charged by Congress with maintaining price stability and maximum sustainable employment. The Fed defines “price stability” as inflation at 2 percent. In its last annual statement on its goals and monetary policy strategy, the Federal Open Market Committee—the Fed’s policy-making body—said: “Inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. The Committee would be concerned if inflation were running persistently above or below this objective.” ...
- Why Call it "Socialism"? - Tim Taylor I've been coming around to the belief that most modern arguments over "socialism" are a waste of time, because the content of the term has become so nebulous. When you drill down a bit, a lot of "socialists" are really just saying that they would like to have government play a more active role in providing various benefits to workers and the poor, along with additional environmental protection. ...
- The costs and benefits of performance fees in mutual funds - VoxEU Performance fee-based contracts, which aim to align the interests of the fund manager with that of the investor, have been controversial in mutual funds markets, and are once again under review in Europe. This column presents empirical evidence showing that performance fee contracts do not improve fund performance, particularly in instances where contracts fail to specify a benchmark for results.
Tuesday, May 28, 2019
- Trump Tantrums the Dems Out of a Trap - Paul Krugman I gotta say, it was very clever of Nancy Pelosi to steal Donald Trump’s strawberries, pushing him over the edge into self-evident lunacy. As everyone knows, Trump stormed out of a meeting on infrastructure, apparently out of uncontrollable rage over Pelosi’s remarks pointing out that the administration’s stonewalling on all fronts, including raw defiance of the law requiring that it provide the president’s tax returns, obviously amount to a coverup of something (and maybe multiple things.) And Democrats should be grateful. ...
- Advertising as a major source of human dissatisfaction - VoxEU Although the negative impact of conspicuous consumption has been discussed for more than a century, the link between advertising and individual is not well understood. This column uses longitudinal data for 27 countries in Europe linking change in life satisfaction to variation in advertising spend. The results show a large negative correlation that cannot be attributed to the business cycle or individual characteristics.
- Vietnam Looks To Be Winning Trump's Trade War - Brad Setser Vietnam's exports to the U.S. are growing fast. It also runs an overall current account surplus. If it has resumed purchasing dollars in the foreign exchange market to keep its currency from appreciating, it may soon be a test case for Trump's policy toward countries that intervene to maintain an undervalued currency.
- Robert Heilbroner (1996): The Embarrassment of Economics - Brad DeLong I am approaching an age that can be called venerable, a process over which I have no control but which allows me certain privileges, among them saying outrageous things. This, I must warn you, is an outrageous speech, all the more so because it is delivered in dead earnest, despite a certain flippancy that may intrude from time to time. The subject is the degeneration—I am tempted to say "degeneracy"—of economics, a social discipline I hold, or rather wish I could hold, in the highest regard. Let me describe my own introduction to economics.
- Which Core to Believe? Trimmed Mean Versus Ex-Food-and-Energy Inflation - Dallasfed.org Twice since 2014, core personal consumption expenditures (PCE) inflation—inflation excluding food and energy—decelerated sharply, only to ultimately reverse course. The Dallas Fed’s Trimmed Mean PCE inflation rate correctly identified the downward moves as transitory, and looked through them (Chart 1). Chart 1: Sperate Measures Depict Two Very Different Pictures of Inflation Downloadable chart | Chart data Giving more weight to one or the other of these inflation measures would have led to rather different assessments of appropriate policy. Recent data suggest that another divergence is emerging, and the conflicting signals have brought renewed attention to the trimmed mean. We argue here that the trimmed mean, which excludes the most extreme price changes in consumer goods and services each month, provides better real-time signals of the trend in all-items (headline) inflation than does the usual ex-food-and-energy measure. Along the way, we discuss the “why” and “how” of the trimmed mean’s construction. In a follow-up piece drawing on some of our recent research, we’ll explore another trimmed mean advantage over ex-food-and-energy inflation: its stronger, more stable response to cyclical conditions. ...
- Is the U.S. budget deficit sustainable? - MacroMania The U.S. federal budget deficit for 2018 came in just shy of $800 billion, or about 4% of the gross domestic product (the primary deficit, which excludes the interest expense of the debt, was about 3% of GDP). As the figure above shows, the present level of deficit spending (as a ratio of GDP) is not too far off from where it was in the late 1970s and early 1980s. It's also not too far off from where it was in the early 2000s. Of course, the question people are asking is whether deficits of this magnitude can be sustained into the foreseeable future without economic consequences (like higher inflation). In this post, I suggest that the answer to this question is yes, but just barely. ...
- An old result on automation and wages – Digitopoly The first issue of AER Insights is out and the very first article is one by Francesco Caselli and Alan Manning on “Robot Arithmetic: New Technologies and Wages.” Here is the abstract: Existing economic models show how new technology can cause large changes in relative wages and inequality. But there are also claims, based largely on verbal expositions, that new technology can harm workers on average or even all workers. This paper shows—under plausible assumptions—that new technology is unlikely to cause wages for all workers to fall and will cause average wages to rise if the prices of investment goods fall relative to consumer goods (a condition supported by the data). We outline how results may change with different assumptions. The key result is that new technology will not cause wages for all workers to fall and, indeed, should increase average wages if the price of capital falls relative to consumer goods. This is a good, clean theoretical result that is far from appreciated by people who discuss things like automation in the popular press and even by those who study the impact of automation on labour markets. ...
- Why Did the US Labor Share of Income Fall So Quickly? - Tim Taylor The share of US national income going to labor was sagging through the second half of the century, but then plunged starting around 2000. The McKinsey Global Institute takes "A new look at the declining labor share of income in the United States" in a report by James Manyika, Jan Mischke, Jacques Bughin, Jonathan Woetzel, Mekala Krishnan, and Samuel Cudre (May 2019). Here's a figure showing basic background. From 1947-2000, the labor share of income fell from 65.4% to 62.3%. There already seemed to be a pattern of decline in the 1980s and 1990s in particular, which was then reversed for a short time at the tail end of the dot-com boom. But since 2000, the labor share has sunk to 56.7% in 2016. Why did this happen?
- Beyond Unemployment - Michael Spence In modern economies, people may have jobs, but they still harbor major concerns in a wide range of areas, including security, health and work-life balance, income and distribution, training, mobility, and opportunity. By focusing solely on the unemployment rate, policymakers are ignoring the many dimensions of employment that affect welfare.
- Fed Sticking With "Patient" Policy Stance - Tim Duy Bottom Line: Market expectations of a rate cut are well founded. Despite the Fed’s resistance, I still think the odds favor a rate cut over a hike. I think the situation is less equally weighted than the Fed believes. This is a fairly challenging time in the cycle. The yield curve suggests that the path of activity will require a rate cut sooner than later, but the yield curve is a long leading indicator. It’s typically well ahead of the data. At the current time, the data itself has yet to give the Fed much room to shift to a more dovish stance. For now, the Fed requires greater evidence of slowing activity, particularly in the employment data, to cut rates. Remember, the Fed’s typical pattern ahead of a rate cut is to resist, resist, resist, and then move quickly. And note that we don’t need to see a recession in the data to justify a rate cut; given the lack of inflation, the Fed only needs to see a substantial risk that growth will fall below estimate of the longer-run sustainable rate.
- Measuring the welfare effects of AI and automation - VoxEU AI promises economic growth as well as creating fear for those whose jobs it may replace. This column takes a wider approach to examining how AI and other technologies will affect citizens’ welfare beyond just their income. It argues that the new technologies are intrinsically neither good or bad, it is how they are deployed and how the transition is crafted that conditions the welfare dynamics of societies.
- On the use, or not, of expertise by government - mainly macro In a recent post I ask why we were governed by incompetents, and I related that to ideology, which in recent times means neoliberalism. But I think it is a little more than working in a neoliberal context, because I say that the Labour government often did try and do evidence based policy. Not always. I mentioned Iraq but there are other examples, but in comparison to Conservative governments they did evidence based policy a lot. The difference is while the Conservatives had neoliberal zeal, Labour were prepared to intervene in the market, particularly to help the poor. A good example was the minimum wage, which was set by a specific body who aimed to keep it at a level that did not cause significant employment loss. ...
- The macroeconomic consequences of impaired money markets - VoxEU Money markets are an important source of short-term funding for banks, which rely heavily on them to cover their liquidity needs. But as this column shows, when money markets do not function smoothly, banks may have to deleverage or increase their holdings of liquid assets, leading to a decline in lending and output. This decline can be mitigated by central banks if they increase the size of their balance sheets.
- Lessons from the Age of Mass Migration - VoxEU Recent waves of immigration in the US and Europe have triggered debate around the economic and political impact. This column uses evidence from migration of Europeans to the US in the first half of the 20th century to show that large cultural differences can incite anti-immigrant sentiment despite their positive economic impact. Therefore, policymakers should give due attention to cultural assimilation and cohesion policies.
Friday, May 24, 2019
- Raj Chetty’s plan to change how Harvard teaches economics - Vox
Raj Chetty, a prominent faculty member whom Harvard recently poached back from Stanford, this spring unveiled “Economics 1152: Using Big Data to Solve Economic and Social Problems.” Taught with the help of lecturer Greg Bruich, the class garnered 375 students, including 363 undergrads, in its first term. That’s still behind the 461 in Ec 10 — but not by much.
- Fiscal Policy Options for Japan - Blanchard and Tashiro
For many years, the Japanese government has promised an eventual return to primary budget surpluses, but it has not delivered on these promises. Its latest goal is to return to primary balance by 2025. Blanchard and Tashiro, however, argue that, in the current economic environment in Japan, primary deficits may be needed for a long time, because they may be the best tool to sustain demand and output, alleviate the burden on monetary policy, and increase future output. What primary deficits are used for, however, is equally important, and the Japanese government should put them to better use. The authors recommend that, given Japan’s aging population, the government should spend on measures aimed at increasing fertility—and by implication population and output growth—which are likely to more than pay for themselves. ...
- The Wealth Detective Who Finds the Hidden Money of the Super Rich - Bloomberg
... Zucman, 32, is an assistant professor at the University of California at Berkeley and the world’s foremost expert on where the wealthy hide their money. His doctoral thesis, advised by Piketty, exposed trillions of dollars’ worth of tax evasion by the global rich. For his most influential work, he teamed up with his Berkeley colleague Emmanuel Saez, a fellow Frenchman and Piketty collaborator. Their 2016 paper, “Wealth Inequality in the United States Since 1913,” distilled a century of data to answer one of modern capitalism’s murkiest mysteries: How rich are the rich in the world’s wealthiest nation? The answer—far richer than previously imagined—thrust the pair deep into the American debate over inequality. ...
- Who's paying for the US-China trade war? - FT Alphaville
President Trump has long said it is China, not the US, who will pay for the ongoing trade war. But as tensions flare-up, it has become increasingly clear that much of the burden is falling on consumers stateside. ... Of the $200bn worth of Chinese imports now subject to 25 per cent tariffs as of May 10, roughly 40 per cent of those products are consumer goods like furniture, electrical equipment and apparel, according to the USTR. Chinese officials have threatened another round of their own
- New China Tariffs Increase Costs to U.S. Households - Liberty Street Economics
Tariffs on $200 billion of U.S. imports from China subject to earlier 10 percent levies increased to 25 percent beginning May 10, 2019, after a breakdown in trade negotiations. In this post, we consider the cost of these higher tariffs to the typical U.S. household. One way to estimate the effect of these higher tariffs is to draw on the recent experience of the 2018 U.S. tariffs. Our recent study found that the 2018 tariffs imposed an annual cost of $419 for the typical household. This cost comprises two components: the first, an added tax burden faced by consumers, and the second, a deadweight or efficiency loss. The magnitude of these costs depends on how a tariff affects the prices charged by foreign exporters and the U.S. demand for imported goods. Studies, including our own, have found that the tariffs that the United States imposed in 2018 have had complete passthrough into domestic prices of imports, which means that Chinese exporters did not reduce their prices. Hence, U.S. domestic prices at the border have risen one‑for-one with the tariffs levied in that year. Our study also found that a 10 percent tariff reduced import demand by 43 percent.
- The Real Cost of Trump’s Tariffs - Jeffrey Frankel
Whereas winners tend to outnumber losers when trade is liberalized, raising tariffs normally has the opposite result. US President Donald Trump appears to have engineered a spectacular example of this: his trade war with China has hurt almost every segment of the US economy, and created very few winners.
- Trade slowdown is more dangerous than in the past - Financial Times
...the OECD reports that the economic growth rate across the block doubled in the first quarter from the previous one. But a quick growth spurt does not undermine the reasons for the OECD to sound the alarm. Angel Gurría, its secretary-general, is correct when he says: “The world economy is in a dangerous place.” And the main danger is the threat to international trade, which has slowed abruptly, as the chart below shows. Its rate of increase has fallen from 5.5 per cent in 2017 to what the OECD thinks will be 2.1 per cent and 3.1 per cent this year and next respectively. That is lower than projected economic growth, meaning trade is shrinking as a share of global economic activity. ...
- Federal Reserve Board issues Report on the Economic Well-Being of U.S. Households - FRB
The Federal Reserve Board's latest Report on the Economic Well-Being of U.S. Households found that most measures of economic well-being and financial resilience in 2018 were similar to, or slightly better than, those in 2017. Overall, the financial experiences reported by the 11,000 adults surveyed in 2018 were largely positive, and many families have experienced substantial gains since the survey began in 2013, in line with the nation's ongoing economic expansion. When asked about their overall economic well-being, 75 percent of U.S. adults said they were "doing okay" or "living comfortably"—up 12 percentage points from 2013. The survey also asked how they would pay for a hypothetical unexpected expense of $400. Sixty-one percent said they would pay the expense with cash, savings, or a credit card paid off at the next statement; 27 percent would borrow or sell something; and 12 percent would not be able to cover it. In 2013, only half of adults said they would pay with cash or its equivalent. Despite the improved finances of many adults, the survey continued to detect areas of financial distress as well as persistent differences by race, education level, and, in some cases, geography...
- Opening the machine learning black box – Bank Underground
Machine learning models are at the forefront of current advances in artificial intelligence (AI) and automation. However, they are routinely, and rightly, criticised for being black boxes. In this post, I present a novel approach to evaluate machine learning models similar to a linear regression – one of the most transparent and widely used modelling techniques. The framework rests on an analogy between game theory and statistical models. A machine learning model is rewritten as a regression model using its Shapley values, a payoff concept for cooperative games. The model output can then be conveniently communicated, eg using a standard regression table. This strengthens the case for the use of machine learning to inform decisions where accuracy and transparency are crucial.
- Leisure-enhancing technological change - VoxEU
How we spend our time is changing rapidly. This column argues that an important driver is leisure-enhancing innovation, aimed at capturing our time, attention, and data. Leisure-enhancing technologies can help account for both the rise in leisure hours and the decline in productivity observed across the industrialised world. Their nature carries important implications for the long-run viability of the platforms’ business models, for measurement of economic activity, and for welfare.
- Is Cryptocurrency What Makes Ransomware Possible? - Credit Slips
The story about Baltimore's entire municipal IT system being held hostage by ransomware has two angles that might be of interest...
The dozen things experimental economists should do (more of) - VoxEU
Experimental economists must tackle the generalisability and applicability of the evidence they produce. This column discusses principles to enhance these when designing and conducting experiments or reporting findings. Good practice is especially important when policy recommendations are made based on experimental results.
Wednesday, May 22, 2019
- Robo-Apocalypse? Not in Your Lifetime - J. Bradford DeLong Not a week goes by without some new report, book, or commentary sounding the alarm about technological unemployment and the "future of work." Yet in considering the threat posed by automation at most levels of the value chain, we should remember that robots cannot do what humans cannot tell them to do.
- The Economy Is Strong. So Why Do So Many Americans Still Feel at Risk? - Jacob Hacker President Trump is running for re-election on the strength of the economy, and why not? The unemployment rate is lower than it’s been in five decades. The stock market is booming. Overall economic growth has been steady. There’s just one problem: Voters are not particularly enthused about it. Recent polls suggest a substantial majority of Americans feel the economy is working only for “those in power.” A big reason for this disconnect is that many Americans feel insecure.
- Origins of "Microeconomics" and "Macroeconomics" - Timothy Taylor Economists have written about topics that we would now classify under the headings of "microeocnomics" or "macroeconomics" for centuries. But the terms themselves are much more recent, emerging only in the early 1940s. For background, I turn to the entry on "Microeconomics" by Hal R. Varian published in The New Palgrave: A Dictionary of Economics, dating back to the first edition in 1987.
- Yet More Scary Graphs of Manufacturing: Midwest Edition - Econbrowser In every single state in the Great Lakes region, save Michigan, manufacturing employment has either peaked or (charitably) gone on a growth hiatus.
- The rise of corporate market power - Brookings The rise of corporate market power is receiving increasing attention in research and public discourse—including the current U.S. presidential election debate—with good reason. The IMF’s April 2019 World Economic Outlook (WEO) has a chapter on the topic, which I had the opportunity to discuss at a recent conference. Author Zia Qureshi Visiting Fellow - Global Economy and Development Increased interest in market power is motivated by some mega trends or puzzles. The “productivity puzzle”: Productivity growth has slowed even as new technologies, led by the digital revolution, have boomed. The “investment puzzle”: Investment has slowed even as the cost of borrowing has been low and corporate profits high. Sluggish productivity and investment have contributed to slower economic growth. Income and wealth inequalities have risen, sharply in some countries, such as the U.S. Income has shifted from labor to capital, and the distribution of both labor and capital income has become more unequal. Wealth has soared, even though investment in productive capital has slowed. These trends have stoked social discontent and political tumult. What explains these puzzles and trends?
- Strengthening Automatic Stabilizers - Timothy Taylor For economists, "automatic stabilizers" refers to how tax and spending policies adjust without any additional legislative policy or change during economic upturns and downturns--and do so in a way that tends to stabilize the economy. For example, in an economic downturn, a standard macroeconomic prescription is to stimulate the economy with lower taxes and higher spending. But in an economic downturn, taxes fall to some extent automatically, as a result of lower incomes. Government spending rises to some extent automatically, as a result of more people becoming eligible for unemployment insurance, Medicaid, food stamps, and so on. Thus, even before the government undertakes additional discretionary stimulus legislation, the automatic stabilizers are kicking in. Might it be possible to redesign the automatic stabilizers of tax and spending policy in advance so that they would offer a quicker and stronger counterbalance when (not if) the next recession comes?
- Trump Team Vets Fed Critic for Board Seat - The New York Times The Trump administration is vetting Judy Shelton, a conservative economist and former Trump campaign adviser, for a seat on the Federal Reserve Board, according to people familiar with the matter, putting the longtime Fed critic one step closer to a leadership role at an institution she would like to drastically change.
- Audits of Highest-Income Taxpayers Fall Again - Center on Budget and Policy Priorities The IRS reported yesterday that it audited fewer millionaires and large corporations in fiscal year 2018 than the previous year, continuing a multi-year decline. Since 2010, the President and Congress have cut IRS funding substantially, causing workforce reductions and shortages of top auditors who have the expertise to review millionaires’ and corporations’ complex returns. These budget cuts pose a risk to a basic government function — i.e., collecting the revenue needed to fund public services — because the federal government relies largely on voluntary compliance with the tax code and, for such compliance to continue, taxpayers must trust that the IRS is enforcing the law fairly and people are paying the taxes they owe. As a result, policymakers must reverse their deep IRS funding cuts of recent years and commit to a multi-year effort to rebuild the agency.
- The Economy Is Strong and Inflation Is Low. That’s What Worries the Fed. - The New York Times America’s job market is booming and the economy is strong, but that combination is not raising prices the way it used to.
- Unconventional monetary policy: A tale of heterogeneity - VoxEU The ECB's unconventional monetary policy package implemented in February 2012 changed collateral requirements. This column examines the effects in the French credit market, using data on corporate loans. Credit indeed increased after the liquidity injection, exclusively driven by supply. There was also strategic risk-taking by a group of banks, an unintentional implication of the policy.
Monday, May 20, 2019
- Don’t Give Trump Too Much Credit for the Soaring Economy - Alan Blinder In recent weeks, any number of commentators have taken note of what might be called the “paradox of polling” under President Donald Trump. Specifically, the president gets high marks from the public for his handling of the economy but low approval ratings overall. That disjunction is unusual. Presidents normally get high approval ratings when the economy does well (think Bill Clinton’s second term) and low approval ratings when it does poorly (think George W. Bush’s second term). Yet in this, as in seemingly everything else, Mr. Trump is abnormal. The reasons are manifold and simple: He lies about almost everything, defies the law, violates the Constitution, disparages our foreign allies, stokes fear of immigrants, disses every American who is not in his base, carries on embarrassing bromances with murderous dictators like Vladimir Putin and Kim Jong Un, and places an incredible array of crooks and grifters in high positions. I could go on. One of the few things Mr. Trump doesn’t lie about, however, is the economy. It really is in great shape. Does he deserve credit?
- Is the Hot Economy Pulling New Workers into the Labor Force? - FRBSF Labor force participation among prime-age workers has climbed over the past few years, reversing from the substantial drop during and after the last recession. These gains might suggest that the strength of the job market is pulling people from the sidelines into the labor force. However, analysis that accounts for underlying flows between labor force states shows that, rather than drawing new people in, the hot labor market has instead reduced the number of individuals who are dropping out.
- Dr. Popper: Or How I Learned to Stop Worrying and Love Metaphysics - Uneasy Money Introduction to Falsificationism Although his reputation among philosophers was never quite as exalted as it was among non-philosophers, Karl Popper was a pre-eminent figure in 20th century philosophy. As a non-philosopher, I won’t attempt to adjudicate which take on Popper is the more astute, but I think I can at least sympathize, if not fully agree, with philosophers who believe that Popper is overrated by non-philosophers. In an excellent blog post, Phillipe Lemoine gives a good explanation of why philosophers look askance at falsificationism, Popper’s most important contribution to philosophy.
- Climate Change Heterogeneity - No Hesitations One can only go so far in climate econometrics studying time series like the proverbial "global average temperature", just as one can only go so far in macroeconomics with the proverbial "representative agent". Disaggregation will be key to additional progress, as different people in different places experience different climate "treatments" and different economic outcomes. The impressive new paper below begins to confront the massive tasks of data collection, manipulation, analysis, and visualization, in the context of a disaggregated analysis of the effects of temperature change on aggregate output. "Climatic Constraints on Aggregate Economic Output", by Marshall Burke and Vincent Tanutama, NBER Working Paper No. 25779, 2019. Abstract: Efficient responses to climate change require accurate estimates of both aggregate damages and where and to whom they occur. While specific case studies and simulations have suggested that climate change disproportionately affects the poor, large-scale direct evidence of the magnitude and origins of this disparity is lacking. Similarly, evidence on aggregate damages, which is a central input into the evaluation of mitigation policy, often relies on country-level data whose accuracy has been questioned. Here we assemble longitudinal data on economic output from over 11,000 districts across 37 countries, including previously nondigitized sources in multiple languages, to assess both the aggregate and distributional impacts of warming temperatures. We find that local-level growth in aggregate output responds non-linearly to temperature across all regions, with output peaking at cooler temperatures (<10°C) than estimated in earlier country analyses and declining steeply thereafter. Long difference estimates of the impact of longer-term (decadal) trends in temperature on income are larger than estimates from an annual panel model, providing additional evidence for growth effects. Impacts of a given temperature exposure do not vary meaningfully between rich and poor regions, but exposure to damaging temperatures is much more common in poor regions. These results indicate that additional warming will exacerbate inequality, particularly across countries, and that economic development alone will be unlikely to reduce damages, as commonly hypothesized. We estimate that since 2000, warming has already cost both the US and the EU at least $4 trillion in lost output, and tropical countries are >5% poorer than they would have been without this warming.
- The Phillips curve is alive and well - Greg Mankiw Click on graphic to enlarge.
- International evidence for Keynesian economics without the Phillips curve - VoxEU The economies of many countries are operating close to full capacity, but unemployment and inflation are both low. Using data from the US, UK and Canada, this column compares diﬀerences in the macroeconomic behaviour of real GDP, the inﬂation rate and the yields on three-month Treasury securities in the three countries. It shows that the Farmer monetary model, closed with a belief function, outperforms the New Keynesian model, closed with the New Keynesian Phillips curve. The data fit the multiple equilibria emphasised in the Farmer model well, rather than the mean-reverting processes assumed by the New Keynesian model.
- How inequality makes us poorer - Stumbling and Mumbling I welcome the Deaton report into inequality. I especially like its emphasis (pdf) upon the causes of inequality: To understand whether inequality is a problem, we need to understand the sources of inequality, views of what is fair and the implications of inequality as well as the levels of inequality. Are present levels of inequalities due to well-deserved rewards or to unfair bargaining power, regulatory failure or political capture? I fear, however, that there might be something missing here – the impact that inequality has upon economic performance.
- Those revenue-raising early central banks - Notes On Liberty In a piece on a rather different topic, George Selgin, director for the Center for Monetary and Financial Alternatives and editor-in-chief of the monetary blog Alt-M, gave a somewhat offhand comment about the origins of central banks: For revenue-hungry governments to get central banks to fund their debts is itself nothing new, of course. The first central banks were set up with little else in mind. (emphasis added) Writing about little else than (central) banks in history, you can imagine my surprise: Reasoned response: Selgin ought to know better than buying into this simplified argument. Less reasoned response, paraphrasing one of recent year’s most epic tweets: you come into MY house?! Alright, let’s make a quick run-through, then. Clearly, some simplification and lack of attention to nuances is permissible under the punchy poetic licenses of the economic blogosphere – especially so when the core of an argument lies elsewhere. But the conviction that early central banks (a) were created as revenue-raising devices for their governments, or (b) all central banks provided their governments with direct fiscal benefits, is a gross simplification of a much broader and much more diverse history of early public banks.
- How to write - The Enlightened Economist I’ve been on my travels so have a stack of things to post about, but it will have to wait until I’ve waded through the backlog of emails. Meanwhile, though, I polished off Deirdre McCloskey’s Economical Writing: Thirty-five rules for clear and persuasive prose. You don’t have to be an economist to benefit from the book, but it will certainly help many economists – we are not famed for clarity and elegance of expression. I’m a big fan of McCloskey’s writing, although she is something of an acquired taste. But, importantly, she is always a model of clarity.
- Update on the "Series of Unsurprising Results in Economics" - Dave Giles In June of last year I had a post about a new journal, Series of Unsurprising Results in Economics (SURE). If you didn't get to read that post, I urge you to do so. More importantly, you should definitely take a look at this piece by Kelsey Piper, from a couple of days ago, and titled, "This economics journal only publishes results that are no big deal - Here’s how that might save science". Kelsey really understands the rationale for SURE, and the important role that it can play in terms of reducing publication bias, and assisting with replicating results. You can get a feel for what SURE has to offer by checking out this paper by Nick Huntington-Klein and Andrew Gill that they are publishing. We'll all be looking forward to more excellent papers like this!
- The new globalisation and income inequality - VoxEU Trade in intermediates (or ‘unbundling of production') and trade in capital have become increasingly important in last 25 years. This column shows that trade in intermediates generates a reallocation of capital across countries that exacerbates world inequality in both income and welfare. Unbundling of production hurts middle-income countries but helps those with high productivity. Trade in intermediates also increases within-country inequality, and this increase is U-shaped in the aggregate productivity level of the country.
- Long-term and intergenerational effects of education - VoxEU Does investment in schools promote higher educational attainment—and do the effects improve students’ later lives and those of the next generation? This column examines the impact of over 61,000 primary schools built by the Indonesian government between 1973 and 1979, almost doubling the number in the country. The evidence shows that the men and women who accessed education provided by the construction programme benefited from significant improvements in their educational and later life outcomes. So too did their children.
- Time for a Return of Large Corporation Research Labs? - Timothy Taylor It often takes a number of intermediate steps to move from a scientific discovery to a consumer product. A few decades ago, many larger and even mid-sized corporations spent a lot of money on research and development laboratories, which focused on all of these steps. Some of these corporate laboratories like those at AT&T, Du Pont, IBM, and Xerox were nationally and globally famous. But the R&D ecosystem has shifted, and firms are now much more likely to rely on outside research done by universities or small start-up firms. These issues are discussed in "The changing structure of American innovation: Cautionary remarks for economic growth," by Ashish Arora, Sharon Belenzon, Andrea Patacconi, and Jungkyu Suh, presented at conference on "Innovation Policy and the Economy 2019," held on on on April 16, 2019, hosted by the National Bureau of Economic Research, and sponsored by the Ewing Marion Kauffman Foundation.
- Antitrust Alone Is Not Enough to Combat the Problems Associated With Digital Platforms - When it comes to digital platforms, antitrust enforcement is rife with difficulties. Digital platform market structures tend to be concentrated due to network effects and very strong economies of scale and scope, made even stronger than in the past by the role of data. This challenge to enforcement—a challenge that requires all the resources and commitment of both agencies and courts—arises after 40 years of the United States effectively walking backwards on antitrust enforcement. The share of GDP spent on enforcement has been declining steadily; agency activity has been falling; the ideology that less enforcement is better has been marketed to the judiciary as good; measured markups charged by companies have been rising; the share of profits in GDP has been rising, while the labor share has been falling. So even before the rise of digital platforms, we already had a competition problem in ordinary industries where enforcement tools are well developed. Now, in order to catch up with our own economy, we need to develop tools and standards for a new area while we are on the back foot. The white paper by the market structure subcommittee of the Stigler Center’s Digital Platforms Project contains specific changes to both antitrust tools and standards that would help with effective enforcement.
Thursday, May 16, 2019
- There’s a revealing puzzle in the China tariffs - Larry Summers On Monday, China announced new tariffs on $60 billion of U.S. exports, and the United States threatened new tariffs on up to $300 billion of Chinese goods. These actions were cited as the principle reason for a decline of more than 600 points in the Dow Jones industrial average, or about 2.4 percent in broader measures of the stock market. With the total value of U.S. stocks around $30 trillion, this decline represents more than $700 billion in lost wealth. This was not an isolated event. Again and again in the past year, markets have gyrated in response to the state of trade negotiations between the United States and China. The market sensitivity to threats and counter-threats in the trade war is quite remarkable. Monday’s announcement by the Chinese, for example, would be expected to raise China’s tariffs by about $10 billion. Much of this will show up as higher prices for Chinese importers, and some of it will be avoided by diverting exports of goods such as liquid natural gas to other markets, so the impact on U.S. corporate profits will be far less than $10 billion. Meanwhile, U.S. tariffs are likely to raise corporate profits as higher import costs push some business to domestic producers. There is the further consideration that reasonable market participants should not have entirely discounted the possibility of tariff increases Monday and that there surely remains some chance a trade deal will be reached. So, in fact, the market should not even have moved in full proportion to the change in corporate profitability associated with new tariffs. There is a revealing puzzle here.
- Europe and the class cleavage - Thomas Piketty Three years after the referendum on Brexit and on the eve of the new European elections, the scepticism about Europe is still as strong, particularly amongst the most disadvantaged sections of society. The problem is deep and long-standing. In all the referendums for the last 25 years the working classes have systematically expressed their disagreement with the Europe presented to them, whereas the richest and the most privileged classes supported it. During the French referendum on the Treaty of Maastricht in 1992, we observed that 60% of the voters with the lowest incomes, personal wealth or qualifications voted against, whereas the 40% of the electorate with higher incomes voted in favour; the gap was big enough for the yes vote to win with a small majority (51%). The same thing happened with the Constitutional Treaty in 2005, except that this time only the top 20% were in favour of the yes vote, whereas the lower 80% preferred to vote no, whence a clear victory for the latter (55%). Likewise for the referendum on Brexit in the UK in 2016: this time it was the top 30% who voted enthusiastically to remain in the EU. But, as the bottom 70% preferred to leave, the leave vote won with 52% of the votes. What is the explanation?
- The Increasing Benefits and Diminished Costs of Running a High-Pressure Labor Market - Bernstein and Bentele Since at least the days of Arthur Okun’s work on the “upgrading of workers into more productive jobs in a higher-pressure economy,” economists have recognized the benefits of tight labor markets, both to the macroeconomy and to disadvantaged groups. Much literature, briefly reviewed below, shows persistent, low unemployment associated with nominal and real wage gains, most notably to lower- and middle-wage workers. Other work shows that groups with higher than average jobless rates, such as African Americans, benefit disproportionately from lower overall unemployment, and evidence presented in this paper shows these gains to be economically significant when looking at the impact of high-pressure labor markets not just on real earnings, but on labor supply as well. From the perspective of the Federal Reserve, however, these outsized gains can come at the cost of inflationary pressures. In theory, such risks are heightened when the Fed allows the jobless rate to remain below estimates of the natural rate. But what if, as much analysis has shown, the correlation between inflation and labor market slack is diminished? Should the combination of the flatter Phillips Curve (PC) and the benefits of high-pressure labor markets — benefits that are particularly important in periods of high inequality and weak worker bargaining power — change the Fed’s weighting of the two sides of the tradeoff? Our case thus begins by highlighting the structural decline in the slope of the Phillips Price Curve (PC) and the persistence of well-anchored inflationary expectations. This flattening introduces an asymmetry into the classic tradeoff: the inflationary costs of running a high-pressure labor market have come down relative to the labor market benefits. This asymmetry is partly a function of the weaker correlation between economic conditions and changes in inflation. But it is also a function of the equalizing nature of the benefits of maintaining full employment. At the core of our argument is the idea that changing inflation dynamics, in tandem with higher wage, income, and wealth inequality, should create an asymmetry in the Fed’s reaction function ...
- The Risk of Returning to the Zero Lower Bound - FRBSF Following the global financial crisis, U.S. monetary policy was constrained by the zero lower bound for short-term interest rates for many years. It has since lifted off and rates have gradually climbed. However, in light of the continuing economic expansion, it is relevant to ask how likely it is for the lower bound on interest rates to again become a constraint on monetary policy. Analysis using several different approaches suggests that there currently appears to be a low risk of the economy returning to the zero lower bound for at least the next several years.
- Does the Federal Reserve Talk Too Much? - Tim Taylor For a long time, the Federal Reserve (and other central banks) carried out monetary policy with little or no explanation. The idea was that the market would figure it out. But in the last few decades, there has been an explosions of communication and transparency from the Fed (and other central banks), consisting both of official statements and an array of public speeches and articles by central bank officials. On one side, a greater awareness has grown up that economic activity isn't just influenced by what the central bank did in the past, but on what it is expected to do in the future. But does the this "open mouth" approach clarify and strengthening monetary policy, or just muddle it?
- The Disconnect between Inflation and Employment in the New Normal - Lael Brainard It is a pleasure to be here at the National Tax Association Annual Spring Symposium. Just as it may take the tax experts and practitioners here today some time to disentangle the longer-term implications of recent major changes to tax policy, so, too, we are in the process of analyzing the lessons for monetary policy of apparent post-crisis changes in the relationships among employment, inflation, and interest rates.1 The Congress has assigned the Federal Reserve the job of using monetary policy to achieve maximum employment and price stability. Price stability means moderate and stable inflation, which the Federal Reserve has defined to be 2 percent inflation. Maximum employment is understood as the highest level of employment consistent with price stability. In the aftermath of the Great Recession, which had deep and persistent effects, it is important to understand whether there have been long-lasting changes in the relationships among employment, inflation, and interest rates in order to ensure our policy framework remains effective.
- Nature versus nurture in economic outcomes and behaviours - VoxEU The wealth of parents and that of their children is highly correlated, but little is known about the different roles genetic and environmental factors play in this. This column compares outcomes for adopted children in Sweden and those of their adoptive and biological parents and finds there is a substantial role for environment in the transmission of wealth and a much smaller role for pre-birth factors. And while human capital linkages between parents and children appear to have stronger biological than environmental roots, earnings and income are, if anything, more environmental.
- Did Changes in Economic Expectations Foreshadow Swings in the 2018 Elections? - Liberty Street Economics In the months leading up to the 2018 midterm elections, were economic expectations in congressional districts about to elect a Republican similar to those in districts about to elect a Democrat? How did economic expectations evolve in districts where the party holding the House seat would switch? After examining the persistence of polarization in expectations using voting patterns from the presidential election in our previous post, we explore here how divergence in expectations may have foreshadowed the results of the midterm elections. Using the Survey of Consumer Expectations, we show that economic expectations deteriorated between 2016 and 2018 in districts that switched from Republican to Democratic control compared to districts that remained Republican.
- America’s Illusions of Growth - Jeffrey D. Sachs Many commentators have interpreted buoyant GDP and unemployment data in the United States as vindicating President Donald Trump’s economic policies, and some suggest that his re-election chances have improved as a result. But these indicators fail to measure what really counts for the public.
- Why We Need New Measures of Potential Output—and What They Tell Us - Institute for New Economic Thinking Potential output, generally understood as the highest level of output that may be attained without putting inflationary pressures upon the economy, is a crucial notion in the current design and management of macroeconomic policies. Empirical measures of this notion and of the distance between it and actual output—the so-called output gap—play a fundamental role in determining the expansionary or contractionary stance of both monetary and fiscal policy, and the margins for their use. Mainstream economic theory sees potential output as determined exclusively by supply forces (essentially, resources and productivity), leaving to aggregate demand only the role of causing temporary deviations from it—precisely, the output gaps. When the economy is believed to be already operating at potential or slightly above, any increase in demand is regarded as dangerous for its dreaded inflationary consequences, and restrictive measures—such as the central bank raising interest rates—are taken.
- When American Capitalism Meant Equality - ProMarket Americans used to have a relatively egalitarian view of markets. How did they come to accept extreme inequality as an innate part of their economic system? At the heart of this change is a radical shift in the meaning of American capitalism itself.
- Fed Appointments - IGM Forum Selecting candidates for membership of the Federal Open Market Committee (FOMC) based primarily on their political views would lead to worse monetary policy outcomes than has been the case over the last 15 years. Agree or disagree?
Monday, May 13, 2019
- Evolution or revolution: An afterword - Blanchard and Summers The changes in macroeconomic thinking prompted by the Great Depression and the Great Inflation of the 1970s were much more dramatic than have yet occurred in response to the events of the last decade. This column argues that this gap is likely to close in the next few years as a combination of low neutral rates, the re-emergence of fiscal policy as a primary stabilisation tool, difficulties in hitting inflation targets, and the financial ramifications of a low-rate environment lead to important changes in our understanding of the macroeconomy and in policy judgements about how to achieve the best performance.
- Killing the Pax Americana - Paul Krugman O.K., they weren’t supposed to start the trade war until I got back from vacation. And I really have too many kilometers to cover and hills to climb to weigh in on a regular basis or at great length. But since I’m currently sitting in an outdoor café with my coffee and croissant, I thought I might take a few minutes to address two misconceptions that, I believe, are coloring discussion of the trade conflict. By the way, I don’t mean Trump’s misconceptions. As far as I can tell, he isn’t getting a single thing about trade policy right. He doesn’t know how tariffs work, or who pays them. He doesn’t understand what bilateral trade imbalances mean, or what causes them. He has a zero-sum view of trade that flies in the face of everything we’ve learned over the past two centuries. And to the (small) extent that he is making any coherent demands on China, they’re demands China can’t/won’t meet. But Trump’s critics, while vastly more accurate than he is, also, I think, get a few things wrong, or at least overstate some risks while understating others.
- The Fault in R-Star- Federal Reserve Bank of Richmond In a 2018 speech at the annual Economic Policy Symposium in Jackson Hole, Wyo., Fed Chairman Jerome Powell compared monetary policymakers to sailors. Like sailors before the advent of radio and satellite navigation, Powell said, policymakers should navigate by the stars when plotting a course for the economy. Powell wasn't referring to stars in the sky, however. He was talking about economic concepts such as the natural rate of unemployment and the natural real interest rate. In economic models, these variables are often denoted by an asterisk, or star. The natural rate of interest in particular sounds like the perfect star to guide monetary policy. The real, adjusted-for-inflation interest rate is typically represented in economic models by a lowercase "r." The natural rate of interest, or the real interest rate that would prevail when the economy is operating at its potential and is in some form of an equilibrium, is known as r* (pronounced "r-star"). It is the rate consistent with the absence of any inflationary or deflationary pressures when the Fed is achieving its policy goals of maximum employment and stable prices. Since the financial crisis of 2007-2008, Fed officials have often invoked r-star to help describe the stance of monetary policy. But lately, r-star seems to have lost some of its luster. "Navigating by the stars can sound straightforward," Powell said in his Jackson Hole address. "Guiding policy by the stars in practice, however, has been quite challenging of late because our best assessments of the location of the stars have been changing significantly." Even New York Fed President John Williams, who helped pioneer estimating r-star, recently bemoaned the challenges of using the natural rate as a guide for policy. "As we have gotten closer to the range of estimates of neutral, what appeared to be a bright point of light is really a fuzzy blur," he said in September 2018. Why did r-star become so prominent in monetary policy discussions following the Great Recession, and why have its fortunes seem to have waned?
- Is There a Connection Between Undocumented Immigrants and Crime? - The New York Times A lot of research has shown that there’s no causal connection between immigration and crime in the United States. But after one such study was reported on jointly by The Marshall Project and The Upshot last year, readers had one major complaint: Many argued it was unauthorized immigrants who increase crime, not immigrants over all. An analysis derived from new data is now able to help address this question, suggesting that growth in illegal immigration does not lead to higher local crime rates.
- The Return of Fiscal Policy - Barry Eichengreen Public debt is not a free lunch in an economy close to full employment. But when investment demand tends to fall short of saving, as it does when monetary policymakers are unable to push inflation higher to reduce real interest rates, there is a risk of chronic underemployment – and a stronger argument for deficit spending.
- The Federal Reserve’s Review of Its Monetary Policy Strategy, Tools, and Communication Practices - Richard Clarida I am pleased to attend this Fed Listens event providing a New England perspective for the Federal Reserve's review of our monetary policy strategy, tools, and communication practices.1 We are bringing open minds to our review and are seeking a broad range of perspectives. To us, it simply seems like good institutional practice to engage with a wide range of interested individuals and groups as part of a comprehensive approach to enhanced transparency and accountability.2 Motivation for the Review The Congress charged the Federal Reserve with achieving a dual mandate—maximum employment and price stability—and this review will take this mandate as given. We will also take as given that a 2 percent rate of inflation in the price index for personal consumption expenditures is the operational goal most consistent with our price-stability mandate. While we believe that our existing strategy, tools, and communications practices have generally served the public well, we are eager to evaluate ways they might be improved. That said, based on the experience of other central banks that have undertaken similar reviews, our review is more likely to produce evolution, not a revolution, in the way we conduct monetary policy.
- Joseph Schumpeter (1927): The Explanation of the Business Cycle - Brad DeLong The childhood of every science is characterised by the prevalence of "schools," of bodies of men, that is, who swear by bodies of doctrine, which differ toto caelo from each other as to philosophic background and fundamentals of methods, and aim at preaching different "systems" and, if possible, different results in every particular—each claiming to be in exclusive possession of Truth and to fight for absolute light against absolute darkness. But when a science has "gained man's estate," these things, whilst never ceasing to exist, tend to lose importance: the common ground expands, merits and ranges of "standpoints" and "methods " become matter of communis opinio doctorum, fundamental differences shade off into each other; and what differences remain are confined within clear-cut questions of fact and of analytic machinery, and capable of being settled by exact proof...
- Understanding the Bad News for IV Estimation - No Hesitations In an earlier post I discussed Alwyn Young's bad news for IV estimation, obtained by Monte Carlo. Immediately thereafter, Narayana Kocherlakota sent his new paper, "A Near-Exact Finite Sample Theory for an Instrumental Variable Estimator", which provides complementary analytic insights. Really nice stuff.
- On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint - NBER The zero lower bound (ZLB) irrelevance hypothesis implies that the economy's performance is not affected by a binding ZLB constraint. We evaluate that hypothesis for the recent ZLB episode experienced by the U.S. economy (2009Q1-2015Q4). We focus on two dimensions of performance that were likely to have experienced the impact of a binding ZLB: (i) the volatility of macro variables and (ii) the economy's response to shocks. Using a variety of empirical methods, we find little evidence against the irrelevance hypothesis, with our estimates suggesting that the responses of output, inflation and the long-term interest rate were hardly affected by the binding ZLB constraint, possibly as a result of the adoption and fine-tuning of unconventional monetary policies. We can reconcile our empirical findings with the predictions of a simple New Keynesian model under the assumption of a shadow interest rate rule.
- How to design a stimulus package - VoxEU Academics and policymakers alike have debated how to structure an optimal stimulus package since the Great Recession. This column revisits the arguments related to the size of the multiplier and the usefulness of public spending, and offers a blueprint for future stimulus packages. It finds that the relationship between the multiplier and stimulus spending is hump-shaped, and that a well-designed stimulus package should depend on the usefulness of public expenditure. The output multiplier is not a robust statistic to use, and instead the ‘unemployment multiplier’ should be used.
Friday, May 10, 2019
- Trump Is Terrible for Rural America - Paul Krugman Economists, reports Politico, are fleeing the Agriculture Department’s Economic Research Service. Six of them resigned on a single day last month. The reason? They are feeling persecuted for publishing reports that shed an unflattering light on Trump policies. But these reports are just reflecting reality (which has a well-known anti-Trump bias). Rural America is a key part of Donald Trump’s base. In fact, rural areas are the only parts of the country in which Trump has a net positive approval rating. But they’re also the biggest losers under his policies. What, after all, is Trumpism? ...
- No Moore golden era for US monetary policy - VoxEU Stephen Moore, President Trump’s pick for the Federal Reserve Board, has been pro-cyclical in his recommendations for monetary policy, opposing stimulus when the economy needed it and favouring stimulus when the economy did not. This column argues that Moore’s switch to urging monetary stimulus when Trump took officefits into a wider pattern among of pro-cyclicalpositions among leading Republicans, not just in monetary policy, but alsofiscaland regulatory policy.
- Unemployment Isn’t What It Used to Be - WSJ The U.S. economy, fresh off another strong report, has created an average of 205,000 new jobs a month in 2019, far more than the roughly 100,000 needed to keep up with population growth. The official unemployment rate has fallen to 3.6%, the lowest in 50 years. Historically, such low unemployment has signaled that the economy is at full capacity, which causes wages and inflation to accelerate as employers compete for scare workers. Yet wage growth has increased modestly, to about 3% a year, and inflation is still running at 1.5%, below the Fed’s 2% target. What’s going on? Maybe we’re looking at the wrong indicators. ...
- Journal Reporting Times, EJMR vs. Self-Reported Stats from Journals - Douglas L. Campbell Methodology: I took the self-reported data I collected here (which come from from ejmr here), and compared to the official journal stats collected by Juan Carlos Suárez here. Overall, the data line up fairly well. ... Here is the correlation in journal first-response times, conditional on being sent out for review.
- How the Failure of “Prestige Markets” Fuels Populism - Ricardo Hausmann Given the requirements of today’s technology, dismissing expertise as privilege is dangerous. That's why a well-functioning prestige market is essential to reconciling technological progress and the maintenance of a healthy polity.
- Tools of monetary policy - Econbrowser 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 better tools with which to achieve its strategic objective of influencing inflation and output.
- Cleaning Up After Burns’s Mess - Uneasy Money In my two recent posts (here and here) about Arthur Burns’s lamentable tenure as Chairman of the Federal Reserve System from 1970 to 1978, my main criticism of Burns has been that, apart from his willingness to subordinate monetary policy to the political interests of he who appointed him, Burns failed to understand that an incomes policy to restrain wages, thereby minimizing the tendency of disinflation to reduce employment, could not, in principle, reduce inflation if monetary restraint did not correspondingly reduce the growth of total spending and income. Inflationary (or employment-reducing) wage increases can’t be prevented by an incomes policy if the rate of increase in total spending, and hence total income, isn’t controlled. King Canute couldn’t prevent the tide from coming in, and neither Arthur Burns nor the Wage and Price Council could slow the increase in wages when total spending was increasing at rate faster than was consistent with the 3% inflation rate that Burns was aiming for. ...
- How our low inflation world was made - Financial Times If we are to make sense of where the world economy is today and might be tomorrow, we need a story about how we got here. By “here”, I mean today’s world of ultra-low real and nominal interest rates, populist politics and hostility to the global market economy. The best story is one about the interaction between real demand and the ups and then downs of global credit. Crucially, this story is not over. ...
Wednesday, May 08, 2019
- An Industrial Policy for Good Jobs - Dani Rodrik & Charles Sabel So-called productive dualism is driving many contemporary ills in developed and developing countries alike: rising inequality and exclusion, loss of trust in governing elites, and growing electoral support for authoritarian populists. But much of the policy discussion today focuses on solutions that miss the true source of the problem.
- Competitive Edge: Principles and presumptions for U.S. vertical merger enforcement policy - Equitable Growth Antitrust and competition issues are receiving renewed interest, and for good reason. So far, the discussion has occurred at a high level of generality. To address important specific antitrust enforcement and competition issues, the Washington Center for Equitable Growth has launched this blog, which we call “Competitive Edge.” This series features leading experts in antitrust enforcement on a broad range of topics: potential areas for antitrust enforcement, concerns about existing doctrine, practical realities enforcers face, proposals for reform, and broader policies to promote competition. Jonathan B. Baker, Nancy L. Rose, Steven C. Salop, and Fiona Scott Morton have authored this month’s contribution.
- Alberto Giovannini 1955-2019 - VoxEU Alberto Giovannini was an influential macroeconomist and financial economist who thought about financial markets with a unique combination of sound theory and deep practical experience. He was also an early CEPR Research Fellow appointment and had great enthusiasm for the mission of CEPR. This column pays tribute to a much-loved man who combined intellectual gravity with great energy and a positive outlook that he communicated to all.
- Lifetime Medical Spending of Retirees - Federal Reserve Bank of Richmond Retirees face considerable medical expenses during their remaining lives. Model simulations suggest that although a large amount of that spending can be predicted — based on attributes such as income, health, and marital status — there remains significant dispersion. Households with heads who turned seventy in 1992 will incur $122,000 in medical spending on average, including out-of-pocket expenditures and Medicaid payments. But the top 5 percent of households will incur more than $300,000 in such spending. The level and dispersion of this spending diminish only slowly with age.
- Snapshots of US Income Taxation Over Time - Tim Taylor As Americans recover from our annual April 15 deadline for filing income taxes, here are a series of figures about longer-term patterns of taxes in the US economy. They are drawn from a series of blog posts by the Tax Foundation over the last few months. The Tax Foundation is a nonpartisan group whose analysis typically leans toward side that taxes on those with high incomes are already high enough. However, the figures that follow are compiled from fairly standard data sources: IRS data, the Congressional Budget Office, and the like.
- Ten Years Later—Did QE Work? - Liberty Street Economics By November 2008, the Global Financial Crisis, which originated in the residential housing market and the shadow banking system, had begun to turn into a major recession, spurring the Federal Open Market Committee (FOMC) to initiate what we now refer to as quantitative easing (QE). In this blog post, we draw upon the empirical findings of post-crisis academic research–including our own work–to shed light on the question: Did QE work?
- Two Financial Instruments that made the Modern World - Notes On Liberty Following my Mr. Darcy piece that outlined the use and convenience of British government debt instruments in the eighteenth (and predominantly the nineteenth) century, I thought to extend the discussion to two particular financial instruments. In addition to the Consols (homogenous, tradeable perpetual government debt) that formed the center of public finance – and whose active secondary market that made them so popular as savings devices – the Bill of Exchange was the prime instrument used by merchants for financing trade and settling debts.
- A tax on targeted ads? – Digitopoly When Paul Romer expresses an opinion, it is always worthwhile to listen because it is always well-considered. In an opinion piece in the New York Times, he puts forward a proposal to restore what he terms is the “public commons” of the provision of information in support of democracy. He actually puts forward two linked proposals: one for a target on targeted ads by digital platform companies and a proposal that the tax is progressive (which may be a check on dominance). The latter is interesting but I will just focus on the former here. Romer opines that it is the ad-based business model that is at the heart of problems of misinformation on Google and Facebook and that we would be better off with a subscription-based model. By taxing ads (or ad revenue), you would cause these platforms to shift towards subscriptions. There are lots of issues here so let me try to disentangle them.
- Explaining Inflation Inertia - Carmen M. Reinhart Despite central bankers' concerted efforts, credible price-stability targets have proved elusive in countries like Argentina, where inflation is soaring, and Japan, which can't shake the specter of deflation. What can governments do to influence inflation expectations when central banks’ policies prove insufficient to the task?
Monday, May 06, 2019
- The economics of mobile money - VoxEU Mobile money has transformed the landscape of financial inclusion in developing and emerging market countries, leapfrogging the provision of formal banking services. This column explains how mobile money potentially helps ameliorate several areas of market failure in developing economies, including saving, insurance, and the empowerment of women. It illustrates these effects using examples from aburgeoning empirical literature and concludes that the system-wide effects of mobile money may be even greater than current studies suggest.
- A Tax That Could Fix Big Tech - Paul Romer It is the job of government to prevent a tragedy of the commons. That includes the commons of shared values and norms on which democracy depends. The dominant digital platform companies, including Facebook and Google, make their profits using business models that erode this commons. They have created a haven for dangerous misinformation and hate speech that has undermined trust in democratic institutions. And it is troubling when so much information is controlled by so few companies. What is the best way to protect and restore this public commons? Most of the proposals to change platform companies rely on either antitrust law or regulatory action. I propose a different solution. Instead of banning the current business model — in which platform companies harvest user information to sell targeted digital ads — new legislation could establish a tax that would encourage platform companies to shift toward a healthier, more traditional model. ...
- The Economics of Donald J. Keynes - Paul Krugman I made a bad economic call on election night 2016, predicting a Trump recession. But I quickly realized that political dismay had clouded my judgment, and retracted the call three days later. “It’s at least possible,” I wrote on Nov. 11, 2016, “that bigger budget deficits will, if anything, strengthen the economy briefly.” What I didn’t realize at the time was just how much bigger the deficits would get. Since 2016, the Trump administration has, in practice, implemented the kind of huge fiscal stimulus followers of John Maynard Keynes pleaded for when unemployment was high — but Republicans blocked. Contrary to what Donald Trump and his supporters claim, we are not seeing an unprecedented boom. ...
- Improving the Phillips Curve with an Interaction Variable - FRBSF A key challenge for monetary policymakers is to predict where inflation is headed. One promising approach involves modifying a typical Phillips curve predictive regression to include an interaction variable, defined as the multiplicative combination of lagged inflation and the lagged output gap. This variable appears better able to capture the true underlying inflationary pressure associated with the output gap itself. Including the interaction variable helps improve the accuracy of Phillips curve inflation forecasts over various sample periods.
- Improving Labor Force Participation - macroblog Without question, the U.S. labor market has tightened a lot over the last few years. But a shifting trend in labor force participation—and especially a rise in the propensity to seek employment by those in their prime working years—seems to be relieving some labor market pressure. From the first quarter of 2015 to the first quarter of 2019, the labor force participation (LFP) rate among prime-age workers (those between 25 and 54 years old) increased by about 1.5 percentage points (see the chart below), adding about 2 million workers more than if the participation rate had not increased. ...
- Two Measures of Core Inflation: A Comparison - Dallasfed.org Abstract: Trimmed-mean Personal Consumption Expenditure (PCE) inflation does not clearly dominate ex-food-and-energy PCE inflation in real-time forecasting of headline PCE inflation. However, trimmed-mean inflation is the superior communications and policy tool because it is a less-biased real-time estimator of headline inflation and because it more successfully filters out headline inflation’s transitory variation, leaving only cyclical and trend components.
- Smith, MMT, and science in economics - John Cochrane Many blog readers have asked for my opinions of "Modern Monetary Theory." I haven't written yet, because I try to read about things in some detail, ideally from original sources, before reviewing them, which I have not done. Life is short. From the summaries I have read, some of the central propositions of MMT draw a false conclusion from two sensible premises. 1) Countries that print their own currencies do not have to default on excessive debts. They can always print money to pay off debts. True. 2) Inflation in the end can and must be controlled by raising taxes or cutting spending, sufficiently to soak up such printed (non-interest-bearing) money. True. The latter proposition is the heart of the fiscal theory of the price level, so I would have an especially tough time objecting. It does not follow that the US need not worry about deficits, and may happily borrow tens of trillions to finance all sorts of spending. ...
- Housing market and bank lending effects on young firms and local economies - VoxEU Young firms live a financially precarious life, often dependent on self-funding tied to the value of the business owners’ homes. This column uses data from the US to show that housing market fluctuations play a major role in driving medium-term changes in young firm employment shares. As young firms hire a disproportionate number of younger and less-educated workers, these groups are disproportionately affected by house price fluctuations.
- The economy isn't getting better for most Americans. But there is a fix - Heather Boushey The economy is getting bigger, but not better. Not for most Americans, anyway. In the United States, additional income from productivity and growth has been going mostly to those at the top of the income and wealth ladder. Between 1979 and 2016, the US national income grew by nearly 60%, but after accounting for taxes and transfers, the bottom half of the income distribution experienced incomes rising by 22%, while those in the top 10% had income gains that were almost five times as much – 100%. As income inequality widens, it’s calcified into some at the top accumulating larger and larger stocks of assets – money, but also property, stocks, bonds and other kinds of capital. In the United States, the distribution of wealth is even more severely unequal than income. Since 1979, wealth gains at the top have grown even faster than income; those in the top 1% now control about 40% of all wealth in the US economy, and the top 0.1% control more than 20% – three times as much as the late 1970s. ...
- The Great Depression: An Intake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century 1870-2016" - Brad DeLong This is the current draft of chapter 10 of Slouching Towards Utopia?. I am, again, of several minds with respect to it. I think it says what really needs to be said. I am not sure it says it in the right length. And I am not sure that I have successfully assembled the puzzle pieces in the right way... So tell me what you think of it:
- The Sabotage Years - Paul Krugman Do you remember the great inflation scare of 2010-2011? The U.S. economy remained deeply depressed from the aftereffects of the burst housing bubble and the 2008 financial crisis. Unemployment was still above 9 percent; wage growth had slowed to a crawl, and measures of underlying inflation were well below the Federal Reserve’s targets. So the Fed was doing what it could to boost the economy — keeping short-term interest rates as low as possible, and buying long-term bonds in the hope of getting some extra traction. But Republicans were up in arms, warning that the Fed’s policies would lead to runaway inflation. ...
Friday, May 03, 2019
- Spring 2019 Journal of Economic Perspectives Available Online - Tim Taylor
- The Economy We Need - Joseph E. Stiglitz
- Leave the Renminbi Out of US-China Trade Talks - Kenneth Rogoff
- The Zombie Style in American Politics - Paul Krugman
- U.S. Consumers Have Borne the Brunt of the Current Trade War - NBER Digest
- How climate change affects economies around the world - University of Chicago News
- The Price of Everything, the Value of the Economy: A Clark Medal for Emi Nakamura! - A Fine Theorem
- The effects of trade policy might be more diverse than most economists think - VoxEU
- Rising income inequality exacerbates downward economic mobility - Equitable Growth
- Can the Fed Control Overnight Rates? - Stephen Williamson
- Fiat Bling - Nick Rowe
- Theorizing about organizations - Understanding Society
- Buses are about redistribution, productivity and a greener future - mainly macro
- Evidence that tight labor markets really will increase labor’s share of income - EPI
- Recursions for the Moments of Some Continuous Distributions - Dave Giles
- Are Financial Crises Demand or Supply Shocks? Evidence from International Trade - NBER
- Can Economic Policies Reduce Deaths of Despair? - NBER
- Did Disability Insurance Just Fix Itself? - Tim Taylor
- Wealth inequality in America: A Race between the Stock and the Housing Market - ProMarket
- House Prices at Risk - Cecchetti & Schoenholtz
- Increasing minimum wage, tax credits could stop over 1,200 suicides a year - Berkeley News
- Geography, competition, and optimal multilateral trade policy - VoxEU
Saturday, April 27, 2019
- Progressive Capitalism Is Not an Oxymoron - Joseph Stiglitz
- The Great Republican Abdication - Paul Krugman
- Where Do Good Jobs Come From? - Daron Acemoglu
- Further Thinking on the Costs and Benefits of Deficits - Furman and Summers
- When Did the Blacksmiths Disappear? - Tim Taylor
- Views on the minimum wage show economics to be an inexact science - mainly macro
- Has the U.S. economy stagnated because its work force aged? - FRB Minneapolis
- Restoring Antimonopoly Through Bright-Line Rules - ProMarket
- Survival of the Wrongest - Paul Krugman
- Is the Fed's Floor System Beginning to Fold? - Macro Musings
- Least Squares Is But One Approach to Linear Regression - Marc F. Bellemare
- Recursions for the Moments of Some Discrete Distributions - Dave Giles
- Armpits, White Ghettos and Contempt - Paul Krugman
- Communicating Monetary Policy Uncertainty - Cecchetti & Schoenholtz
- Economic geography bites back - Brookings
- What explains occupational licensing? - Brookings
- Shadows and lights of globalization - Branko Milanovic
- Are broken promises an antitrust violation? – Digitopoly
- Searching for Stimulus - Capital Ebbs and Flows
Thursday, April 18, 2019
- The Captain Swing Riots; Workers and Threshing Machines in the 1830s - Tim Taylor
- Shocks and labour cost adjustment – Bank Underground
- US Firms Are Less Dynamic Than They Used To Be - PIIE
- FedViews - FRBSF
- Is Low Inflation Really a Mystery? - Macro Musings
- Modern monetary theory: the dose makes the poison - Social Europe
- U.S. Economy: Fed Needs to Start Fighting the Next Recession Now - Bloomberg
- Changing policy rule parameters - FRB Cleveland
- The Evolution of the FOMC’s Explicit Inflation Target - FRBSF
- Shocking economics - EurekAlert
- When US Market Access is No Longer a Trump Card - Tim Taylor
- US achievement gaps hold steady in the face of substantial policy initiatives - VoxEU
- Qualifying for the Fed - Cecchetti & Schoenholtz
- Central Bank Independence Faces Another Test - Economic Principals
- The Portfolio Theory of Inflation (and policy effectiveness) - Biagio Bossone
- Broad-spectrum policies - Stumbling and Mumbling
- Replacing the Phillips Curve: I showed you my macro model. Now show me your macro model - Roger E. A. Farmer
Friday, April 12, 2019
- Purity vs. Pragmatism, Environment vs. Health - Paul Krugman
- Bad News for IV Estimation - No Hesitations
- Keep the Federal Reserve I Love Alive - Greg Mankiw
- Peaceful Coexistence 2.0 - Dani Rodrik
- The great disinflation in emerging and developing economies - VoxEU
- Changes Are Coming to the Fed's Monetary Policy Strategy - PIIE
- Residual Seasonality in GDP Growth Remains after Latest BEA Improvements - FRB Cleveland
- U.S. Economic Outlook and Monetary Policy - Richard H. Clarida
- Minutes of the Federal Open Market Committee, March 19-20, 2019 - Federal Reserve Board
- What’s Wrong With Modern Money Theory (MMT): A Critical Primer - Thomas Palley
Tuesday, April 09, 2019
- Why Does Trump Want to Debase the Fed? - Paul Krugman
- Trump’s Most Worrisome Legacy - Joseph E. Stiglitz
- Interview of R. Preston McAfee - Federal Reserve Bank of Richmond
- Have the Indentification Police Become Overly Intrusive? - Tim Taylor
- Rethinking the Phillips Curve: Inflation May Rise Modestly Next Year - PIIE
- Does the Fed Know More about the Economy? - FRBSF
- A Permutation Test Regression Example - Dave Giles
- Identification via the ZLB and More - No Hesitations
- Austerity caused Brexit - VoxEU
Friday, April 05, 2019
- Donald Trump Is Trying to Kill You - Paul Krugman
- “Economics Now Points Away From the Laissez-Faire Approach” - ProMarket
- Ten Years Later: Reflections on the 2008–09 Financial Crisis - Larry Summers
- Examining an MMT model in detail - Noahpinion
- Why rent matters - Stumbling and Mumbling
- Moving Macroeconomic Analysis beyond Business Cycles - FRB Richmond
- Local fiscal multipliers and spillovers in the US - VoxEU
- Inequality of opportunity, income inequality, and economic growth - VoxEU
- Opinion | Republican Health Care Lying Syndrome - Paul Krugman
- Greenspan and Wooldridge Argue the Embrace of Capitalism Is the Key... - Brad DeLong
- How do American families spend food benefits? - Microeconomic Insights
- Fair, comprehensive tax reform is the right path forward - Larry Summers
- A broader tax base that would raise more money - Larry Summers
- Elizabeth Warren’s Big Ideas on Big Tech - Kenneth Rogoff
- Mathematician, heal thyself - Magic, maths and money
- The Keynesian Growth Approach to Macroeconomic Policy and Productivity - Liberty Street
- Dot-ology: What can we learn from the dot plot? - Cecchetti & Schoenholtz
- When In Doubt, Standardize - Marc F. Bellemare
- Public debt through the ages - VoxEU
- Interest Rates and Money Growth; Two Types of Central Bank - Nick Rowe
Saturday, March 30, 2019
- The Incredible Shrinking Trump Boom - Paul Krugman
- Worst-case deadweight loss: Theory and implications - VoxEU
- The Revolution Need Not Be Automated - Acemoglu & Restrepo
- Some US Social Indicators Since 1960 - Tim Taylor
- RCTs in the long run - VoxEU
- Was the Stock-Market Boom Predictable? - Robert J. Shiller
- Modern Monetary Theory Makes Sense, Up to a Point - Robert Shiller
- G.O.P. Cruelty Is a Pre-existing Condition - Paul Krugman
- Republicans Really Hate Healthcare - Paul Krugman
- The income gap, growing - EurekAlert
- Global Shocks and the U.S. Economy - Richard Clarida
- Automation perpetuates the red-blue divide - Brookings
- Arthur Burns and How Things Fell Apart in the 1970s - Uneasy Money
- Francis Fukuyama against mainstream economics - Branko Milanovic
- Can Undergraduates Be Taught to Think Like Economists? - Tim Taylor
- Immigration, inequality and intergenerational mobility in the US - VoxEU
- Is the ZLB an economic or legal constraint? - MacroMania
- Monetary policy and the labour share - VoxEU
- When Tax Drives the Trade Data - Brad Setser
- Which exchange rate regime? - EconoMonitor
Monday, March 25, 2019
- Don’t Make Health Care a Purity Test - Paul Krugman
- The Fed Board Unmoored - J. Bradford DeLong
- Memo to Senate: Just Say No (to Moore) - Greg Mankiw
- Climate Change and the Federal Reserve - FRBSF
- What Did Gutenberg's Printing Press Actually Change? - Tim Taylor
- Fed Needs to Get With The Program - Tim Duy
- A Hero of the Revolution - Economic Principals
- China's Incomplete Macroeconomic Adjustment - Brad Setser
- Big Data in Dynamic Predictive Modeling - No Hesitations
- James Buchanan Calling the Kettle Black - Uneasy Money
- Women’s liberation as a financial innovation - VoxEU
- Optimal Monetary Policy for the Masses - Fed in Print
- Capital Flows in a World of Low Interest Rates - Capital Ebbs and Flows
- In Honor of Alan Krueger - Supply-Side Liberal
- The current economy and the outlook - FRBSF
Thursday, March 21, 2019
- Calling time on 'statistical significance' in science research - EurekAlert
- Work of the past, work of the future - VoxEU
- Holy Voodoo, Batman! - Paul Krugman
- Raising the Curtain: Trade and Empire - Brad DeLong
- Six Migrants and Their Descendants Who Made History - Brad DeLong
- The Disjunction Between Production and Distribution - Brad DeLong
- Monetary policy in times of uncertainty - VoxEU
- When the dismal science is getting you down - Women in Economics at Berkeley
- The Fall in China's Current Account Surplus Was Not Replicated Across Asia - Brad Setser
- Alan Krueger helped make life better for millions who will never know his name - Larry Summers
- Responding to some of the critiques of our paper on secular stagnation and fiscal policy - Larry Summers
- The Remarkable Renaissance is US Fossil Fuel Production - Tim Taylor
- A Theory of Housing Demand Shocks - Fed in Print
- Reentry from Out of the Labor Market - Tim Taylor
- Mourning the Loss of Alan Krueger - Paul Krugman
Monday, March 18, 2019
- Women in Economics Report Rampant Sexual Assault and Bias - The New York Times
- Alan B. Krueger, Economic Aide to Clinton and Obama, Dies at 58 - The New York Times
- The loss of a great economist and a great man - Jared Bernstein
- Capitalism Needs Elizabeth Warren - The New York Times
- How Monetary Policy Shaped the Housing Boom - NBER
- The deep roots of development - Growth Economics
- Austerity is Defunct - Economic Principals
- Introductory Econ Textbooks: A Different Take on the Issues - EconoSpeak
- Central bank digital currencies and private banks - VoxEU
- Neyman-Pearson Classification - No Hesitations
Friday, March 15, 2019
- Don’t Blame Robots for Low Wages - Paul Krugman
- The Fed Should Buy Recession Insurance - J. Bradford DeLong
- You Never Know When a Recession Will Sneak Up on You - Austan Goolsbee
- Some Peculiarities of Labor Markets: Is Antitrust an Answer? - Tim Taylor
- China’s Still-Too-High Savings Makes China 2025 a Bigger Global Risk - Brad Setser
- The Dangerous Absurdity of America’s Trade Wars - Jeffrey D. Sachs
- The incentives of centralized school admissions systems - Microeconomic Insights
- The Chicago Booth Survey on MMT - MacroMania
- Forecasting After an Inverse Hyperbolic Sine Transformation - Dave Giles
- What’s Wrong with Contemporary Capitalism? - Angus Deaton
- Modern Monetary Theory - IGM Forum
Tuesday, March 12, 2019
- The Case for a Bold Economics - Dani Rodrik
- The 2020 (US) Recession ~ Antonio Fatas
- To love Europe is to change it - Thomas Piketty
- Our Misplaced Fear of Job-Stealing Robots - Stanford
- Market Concentration Is Threatening the US Economy - Joseph E. Stiglitz
- Minorities bear disproportionate burden from air pollution - EurekAlert
- Household credit cycles and financial crises - VoxEU
- The cash-flow effect of monetary policy – Bank Underground
- Reducing poverty is a matter of political will - Montreal Gazette
- Bank networks and systemic risk in the Great Depression - VoxEU
- A Recipe Book for Creating Structural Change - Economic Principals
- Monetary Policy: Normalization and the Road Ahead - Jerome Powell
- Firm financing after the Global Crisis - VoxEU
- Sustainable deficits - MacroMania
Friday, March 08, 2019
- Tariff Man Has Become Deficit Man - Paul Krugman
- Lying Liar Kevin Hassett Lies Again... - Brad DeLong
- Why diversity in economics? - Women in Economics at Berkeley
- Is the German Debt Brake the worst fiscal rule ever? - mainly macro
- Why Economics Must Get Broader Before It Gets Better - Mohamed A. El-Erian
- The left’s embrace of modern monetary theory is a recipe for disaster - Larry Summers
- On "On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagnation - Brad DeLong
- What Would a Deal that Tries to Close the Bilateral Deficit Need to Look Like? - Brad Setser
- What Is Behind the Persistence of the Racial Wealth Gap? - FRB Cleveland
- America the Cowardly Bully - Paul Krugman
- Tax evasion and inequality - Microeconomic Insights
- The Persistence of Financial Distress - Federal Reserve Bank of Richmond
- Forecasting From a Regression with a Square Root Dependent Variable - Dave Giles
- Regulators Move to Ease Post-Crisis Oversight of Wall Street - The New York Times
- Is increasing workers' bargaining power a way of raising real wages? - mainly macro
- The Economic Outlook: The ‘New Normal’ Is Now - John Williams
- Significance Testing as a Noise Amplifier - No Hesitations
- The Morandi Bridge collapse and regulatory capture - Understanding Society
- X Factor: Hispanic Women Drive the Labor-Force Comeback - macroblog
- When breaking up makes no sense – Digitopoly
- Location and competition - EurekAlert
- The Neutral Rate of Interest - Dallasfed.org
- The impact of population ageing on monetary policy - VoxEU
- Firm's expectations of inflation matter: New evidence - VoxEU
- The noise in stock prices matters for the real economy - VoxEU
Monday, March 04, 2019
- The “Biggest Puzzle in Economics”: Why the “Superstar Economy” Lacks Any Actual Superstars - ProMarket
- Trade war results in substantial losses for US and other countries - EurekAlert
- Trump, Trade and the Advantage of Autocrats - Paul Krugman
- How Goes the Trade War? - Paul Krugman
- Coping with volatile labor markets - FRB Minneapolis
- Modeling Financial Crises - FRBSF
- The long expansion continues - Econbrowser
- Modern Monetary Nonsense - Kenneth Rogoff
- MMT streetfighting - interfluidity
- Three levels of controversy over MMT - interfluidity
- Running on MMT (Wonkish) - Paul Krugman
- When the Interests of Monopolists and Authoritarians Coalesce - ProMarket
- There are many unemployment rates for any r* - Roger E. A. Farmer
- The 1% vs the 0.1% - Stumbling and Mumbling
- Socialism and the Self-Made Woman - Paul Krugman
- We need stronger trade unions and corporate accountability. - Alice Evans
- Empiricism Alone Won't Save Us - Marshall Steinbaum
- U.S. Economic Outlook and Monetary Policy - Richard Clarida
- Global Trends in Interest Rates - Liberty Street Economics
- Stark black-white divide in wages is widening further - Economic Policy Institute
- Slow recoveries through fiscal austerity - VoxEU
- The Sensitivity of Long-Term Interest Rates: A Tale of Two Frequencies - Liberty Street Economics
Monday, February 25, 2019
- Is Economics for Me? Increasing the Participation of Black Women in Economics - Lael Brainard
- New Evidence that Unions Raise Wages for Less-Skilled Workers - NBER Digest
- When does one of the central ideas in economics work? - EurekAlert
- The Anticompetitive Effects of Low Interest Rates - ProMarket
- Democrats for Family Values - Paul Krugman
- Evaluating lower-for-longer policies: Temporary price-level targeting - Ben Bernanke
- The Road to Digital Serfdom? The Visible Hand of Surveillance Capitalism - ProMarket
- Models Only Get You So Far - Simon Potter
- Big Data for 21st Century Economic Statistics - No Hesitations
- Monetary policy communications and household inflation expectations - VoxEU
- Inflation risks and inflation expectations - Cecchetti & Schoenholtz
- How Imperfect Knowledge Shapes Financial Markets - INET
- The economic effects of density: A synthesis - VoxEU
- Central bank tone moves asset prices - VoxEU
- Balance Sheet News - Stephen Williamson
- China's High Savings Rate - Tim Taylor
- Marx's ideas about government - Understanding Society
- The public and private marginal product of capital - VoxEU
Tuesday, February 19, 2019
- Is Neo-Fisherism Nuts? - MacroMania
- Why Can’t Trump Build Anything? - Paul Krugman
- Is the Xerox Corporation supervenient? - Understanding Society
- On Paying for a Progressive Agenda - Paul Krugman
- Measuring Connectedness between the Largest Banks - FRBSF
- The Birthplace of America’s New Progressive Era - Tyson & Mendonca
- How to pay for the Green New Deal - mainly macro
- "Unconventional" Fiscal Policies - EconoMonitor
- Making Music Together. - Economic Principals
- Whence the Business Cycle? - Econbrowser
Friday, February 15, 2019
- Inflation: Stress-Testing the Phillips Curve - FRBSF
- Donald and the Deflationists - Paul Krugman
- The friendly extortioner takes it all - EurekAlert
- Economics After Neoliberalism - Naidu, Rodrik, Zucman
- Economics for Inclusive Prosperity (EfIP) - Dani Rodrik
- Democrats, Debt and Double Standards - Paul Krugman
- How Can We Tax Footloose Multinationals? - Joseph E. Stiglitz
- Fiscal and Welfare Costs in a Time of Low Interest Rates - Olivier Blanchard
- How Much Does Heterodoxy Help Progressives? (Wonkish) - Paul Krugman
- What’s Wrong With Functional Finance? (Wonkish) - Paul Krugman
- Trends in Hispanic Labor Force Participation - Federal Reserve Bank of Atlanta
- How do firms grow as they age? – Bank Underground
- What is a ‘policy hack’? - The Mandarin
- Economics of Medieval Guilds - Tim Taylor
- On the built-in instability of cryptocurrencies - VoxEU
- Do tax increases always contract economies? - Brookings
- Why Regulators Are Unprepared for the Next Financial Crisis - Tim Taylor
Monday, February 11, 2019
- The Empty Quarters of U.S. Politics - Paul Krugman
- A Rant on Trump, Trade, and China... - Brad DeLong
- Olivier Blanchard on the Benefits and Costs of Public Debt - PIIE
- No trade deal can dictate our relationship with China - Larry Summers
- The Good Jobs Challenge - Dani Rodrik
- Debt Derangement Syndrome - J. Bradford DeLong
- The costs of public sector patronage - Microeconomic Insights
- The U.S. Dollar’s Global Roles: Where Do Things Stand? - Liberty Street
- Common Ownership: Back to Basics - Cecchetti & Schoenholtz
- An Interview with Deidre McCloskey – The Politic
- The Nationalist Revival: Identify and Reclaim - Economic Principals
- Reining in shadow banking - VoxEU
- Causes of stagnation - Stumbling and Mumbling
- Large Excess Reserves and the Relationship between Money and Prices - FRB Richmond
- Some Puzzles About Asset Returns in the Long Run - Tim Taylor
- Where Are Manufacturing Jobs Coming Back? - Liberty Street Economics
- The role of trade in adaptation to climate change - VoxEU
- The deep roots of development - Growth Economics
- There Are Better Ways To Tax The Rich Than A Wealth Tax Or A 70 Percent Top Rate - Tax Policy Center
- Misinterpreting Tests, P-Values, Confidence Intervals & Power - Dave Giles
- Why Did Simon Kuznets Want to Leave Military Spending out of GDP? - Tim Taylor
- There They Go Again (And Now They’re Back!) - Uneasy Money
- Obstacles to full employment - Stumbling and Mumbling
- Cashing In: How to Make Negative Interest Rates Work – IMF Blog
- China's Slowdown and the World Economy - Brad Setser
Wednesday, February 06, 2019
- There They Go Again (And Now They’re Back!) - Uneasy Money
- No trade deal can dictate our relationship with China - Larry Summers
- The Empty Quarters of U.S. Politics - Paul Krugman
- The deep roots of development - Growth Economics
- Large Excess Reserves and the Relationship between Money and Prices - FRB Richmond
- Some Puzzles About Asset Returns in the Long Run - Tim Taylor
- Where Are Manufacturing Jobs Coming Back? - Liberty Street Economics
- The role of trade in adaptation to climate change - VoxEU
- There Are Better Ways To Tax The Rich Than A Wealth Tax Or A 70 Percent Top Rate - Tax Policy Center
- Misinterpreting Tests, P-Values, Confidence Intervals & Power - Dave Giles
- Why Did Simon Kuznets Want to Leave Military Spending out of GDP? - Tim Taylor
- Obstacles to full employment - Stumbling and Mumbling
- Cashing In: How to Make Negative Interest Rates Work – IMF Blog
- China's Slowdown and the World Economy - Brad Setser
Monday, February 04, 2019
- How Much Could Negative Rates Have Helped the Recovery? - FRBSF
- How Market Power Worsens Income Inequality - ProMarket
- Attack of the Fanatical Centrists - Paul Krugman
- The (Modest) Rebound in Manufacturing Jobs - Liberty Street Economics
- The Nonpuzzling Behavior of Median Inflation - NBER
- Is Inflation Just Around the Corner? The Phillips Curve and Global Inflationary Pressures - NBER
- FOMC Communication: What a Long, Strange Trip It's Been - Cecchetti & Schoenholtz
- Unemployment Fluctuations and Nominal GDP Targeting - Roberto M. Billi
- Artificial intelligence, algorithmic pricing, and collusion - VoxEU
- 58 Episodes of Hyperinflation (Venezuela is #23) - Tim Taylor
- The Interest Rate Lower Bound Trap and the ideas that keep us there - mainly macro
- Economic change and the social safety net: Are rural Americans still behind? - Equitable Growth
- The Puzzle of the US Productivity Slowdown - Tim Taylor
- Winter 2019 Journal of Economic Perspectives Available Online - Tim Taylor
- Liquidity and Exchange Rates: An Empirical Investigation - Econbrowser
- The ideas of Harold Demsetz, 1930-2019 - VoxEU
- Metrics Monday: Recoding Dummy Variables - Marc F. Bellemare
- The interaction of household finances and unconventional fiscal policy - VoxEU