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July 2014

Is Choosing to Believe in Economic Models a Rational Expected-Utility Decision Theory Thing?: Friday Focus for July 19, 2014

Graph S P Case Shiller 20 City Home Price Index© FRED St Louis FedOver at Equitable Growth: I have always understood expected-utility decision theory to be normative, not positive: it is how people ought to behave if they want to achieve their goals in risky environments, not how people do behave. One of the chief purposes of teaching expected-utility decision theory is in fact to make people aware that they really should be risk neutral over small gambles where they do know the probabilities--that they will be happier and achieve more of their goals in the long run if they in fact do so. READ MOAR

Continue reading "Is Choosing to Believe in Economic Models a Rational Expected-Utility Decision Theory Thing?: Friday Focus for July 19, 2014" »


Afternoon Must-Read: John Maynard Keynes (1926): The End of Laissez-Faire

John Maynard Keynes (1926): The End of Laissez-Faire: "The disposition towards public affairs...

which we conveniently sum up as individualism and laissez-faire, drew its sustenance from many different rivulets of thought and springs of feeling.... Locke and Hume... founded Individualism.... The purpose of promoting the individual was to depose the monarch and the church; the effect--through the new ethical significance attributed to contract--was to buttress property and prescriptions.... Suppose... individuals pursuing their own interests with enlightenment in condition of freedom always tend to promote the general interest at the same time! Our philosophical difficulties are resolved.... To the philosophical doctrine that the government has no right to interfere, and the divine that it has no need to interfere, there is added a scientific proof that its interference is inexpedient....

Yet some other ingredients were needed to complete the pudding. First the corruption and incompetence of eighteenth-century government.... Material progress between 1750 and 1850... owed almost nothing to the directive influence of organised society.../ The Darwinians could go one better than that--free competition had built man.... Socialist interferences became, in the light of this grander synthesis, not merely inexpedient, but impious, as calculated to retard the onward movement of the mighty process by which we ourselves had risen like Aphrodite out of the primeval slime....

These reasons and this atmosphere are the explanations, we know it or not--and most of us in these degenerate days are largely ignorant in the matter--why we feel such a strong bias in favour of laissez-faire, and why state action to regulate the value of money, or the course of investment, or the population, provokes such passionate suspicions in many upright breasts. We have not read these authors; we should consider their arguments preposterous if they were to fall into our hands. Nevertheless we should not, I fancy, think as we do, if Hobbes, Locke, Hume, Rousseau, Paley, Adam Smith, Bentham, and Miss Martineau had not thought and written as they did. A study of the history of opinion is a necessary preliminary to the emancipation of the mind. I do not know which makes a man more conservative--to know nothing but the present, or nothing but the past.


Michael Walzer Does Not Dare Say That the Current Israeli Bombing of Gaza Is a Proportionate Response to the Crimes of Hamas, But...: Live from La Farine CCXXI: July 18, 2014

NewImageSo what does he talk about? This:

Michael Walzer: On Proportionality: "'Disproportionate' is the favorite critical term...

...in current discussions of the morality of war. But most of the people who use it don’t know what it means in international law or in just war theory....

Proportionality doesn’t mean “tit for tat,” as in the family feud. The Hatfields kill three McCoys, so the McCoys must kill three Hatfields.... Proportionality implies a measure, and the measure here is the value of the end-in-view.... Because proportionality arguments are forward-looking... speculative... we need to be very cautious.... The commentators and critics using it today, however, are not being cautious at all.... “Disproportionate” violence for them is simply violence they don’t like, or it is violence committed by people they don’t like.

Continue reading "Michael Walzer Does Not Dare Say That the Current Israeli Bombing of Gaza Is a Proportionate Response to the Crimes of Hamas, But...: Live from La Farine CCXXI: July 18, 2014" »


Noted for Your Morning Procrastination for July 18, 2014

Over at Equitable Growth--The Equitablog

Plus:

And:

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Liveblogging World War I: July 18, 1914: The British Foreign Service Is Anxious

NewImageSir G. Buchanan to Sir Edward Grey:

St. Petersburg, July 18, 1914
D. 8:50 P.M.
R. 10:39 P.M.
Tel. (No.161)

In the course of conversation to-day Minister for Foreign Affairs expressed the great uneasiness which Austria's attitude towards Servia was causing him. He had received disquieting telegrams from the Russian Ambassadors at London, Berlin, and Rome, and proposed to ask the French Government to give a word of warning at Vienna. He had just seen the German Ambassador and had impressed on him that Russia's sole desire was to be left in peace. She cherished no aggressive designs against anyone, and wished to devote all her efforts to the development of her internal resources, and to the construction of the railways of which she stood in such need. The period of expansion through which she had passed was now over. The increase in her armaments was not directed against any other Power, but was necessary for the peaceful development of her vast Empire. Germany was, relatively speaking, in a far stronger position than Russia, as she had not the same length of frontiers to defend or such an extent of territory.

The Pan-Serb agitation in Austria was an internal growth, and blame could not be thrown on Servia any more than Germany could be held responsible for the Pan-German or Italy for the Italian propaganda that was carried on within the Austrian Empire. In reply to a question of mine, his Excellency said that anything in the shape of an Austrian ultimatum at Belgrade could not leave Russia indifferent, and she might be forced to take some precautionary military measures.


Over at the Equitablog: I Draw a Different Message from John Fernald's Calculations than He Does...: Thursday Focus for July 17, 2014

Over at the Equitablog: John Fernald: Productivity and Potential Output Before, During, and After the Great Recession: "U.S. labor and total-factor productivity growth...

...slowed prior to the Great Recession. The timing rules out explanations that focus on disruptions during or since the recession, and industry and state data rule out “bubble economy” stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about 3⁄4 of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential.

But when I look at this graph:

Continue reading "Over at the Equitablog: I Draw a Different Message from John Fernald's Calculations than He Does...: Thursday Focus for July 17, 2014" »


Thursday History: Intellectual Origins of Reagan-Thatchernomics

The policies that enabled the creation of our Second Gilded Age were born at the end of the 1970s out of a particular reading of the political economy of that moment.

Were the ideologues and the intellectuals of the right correct back when they claimed in the late 1970s that the economic problems of the 1970s were the result of "too much government" or of "an excess of democracy"? I think not. But in order to evaluate the argument we need to remember what it was.

Continue reading "Thursday History: Intellectual Origins of Reagan-Thatchernomics" »


Liveblogging World War II: July 17, 1944: The Strafing of Rommel

NewImageRichard Atkinson: The Guns at Last Light:

For a field marshal who often drove two hundred miles or more each day to visit his battle commanders, simply venturing beyond La Roche–Guyon had become perilous. All German road convoys and most single vehicles now moved only during the brief midsummer nights; from Normandy to Holland, roadsides were excavated with “funk holes,” slit trenches every sixty yards into which drivers and their passengers could dive....

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Thursday Hoisted: From Comments: Someone Who Remembers 1997-98 on Chris House on Traditional Macroeconomic Models and the Great Recession

Over at Department of "WTF?!" Chris House on Traditional Macroeconomic Models and the Great Recession,: Someone Who Remembers 1997-8 writes in comments:

I was more struck by this:

Chris House: Traditional Macroeconomic Models and the Great Recession:

Macroeconomists were caught completely off-guard by the financial crisis. None of the models we were accustomed to use provided insights or policy recommendations.... Neither the New Keynesian model nor its paleo-Keynesian antecedent feature a meaningful role for financial market failures. As a result, the policy response to the crisis was largely improvised. This is not to say that the improvised policy actions were bad. Improvisation guided by Ben Bernanke was about as good as we could hope for. Nevertheless, for the most part, the models we were accustomed to use to deal with business cycle fluctuations were simply incapable of making sense of what was going on.... While I typically do not grant much credence to heterodox economists, in this instance Professor Wray’s diagnosis is completely correct...

Has Chris House:

  • never heard of Walter Bagehot, Hyman Minsky, or Charlie Kindleberger?

  • not think that they were macroeconomists?

  • unaware of the debates and discussions and modeling exercises carried out around the 1997-98 East Asian financial crisis and the 1994-5 Mexican crisis?

  • unaware of all the credit-channel work on the Great Depression?

It is a great mystery...


Mitch McConnell Changes Medicare Position in Race vs. Alison Grimes: Live from the Roasterie CCXX: July 17, 2014

Brian Beutler: Mitch McConnell Changes Medicare Position in Race vs. Alison Grimes: "At some point in just about any campaign...

...a candidate will spin or shade his record or platform. No politician's history and agenda is entirely good and popular but they put all of it in a good light no matter what questions come their way. It's unusual, however, for a politician to disclaim all of his (and his party's) objectives rather than simply frame them in positive terms (liberty restoring, job creating, etc.). But that's exactly what Senate Minority Leader Mitch McConnell is doing in Kentucky, where he's running an unexpectedly tough re-election campaign against Democrat Alison Lundergan Grimes.... 

Continue reading "Mitch McConnell Changes Medicare Position in Race vs. Alison Grimes: Live from the Roasterie CCXX: July 17, 2014" »


Nighttime Must-Read: Paul Krugman: Debt Shall Have No Dominion

Paul Krugman: Debt Shall Have No Dominion: "Nick Bunker notes an important point...

about the CBO.... The budget office has marked down its estimate of long-term interest rates, reflecting the growing evidence for a secular downshift in the 'natural' rate... [and] declared an end to the debt spiral.... Change in debt/GDP = (debt/GDP)*(interest rate – nominal growth rate of GDP) – primary surplus/GDP.... We turn to Table A-1 on page 104 of the CBO report, and we learn that for the next 25 years CBO projects an average interest rate on federal debt of 4.1 percent and an average growth rate of nominal GDP of 4.3 percent. And this means no debt spiral at all.... I don’t want to say that debt doesn’t matter at all. But it clearly matters a lot less than the fearmongers tried to tell us...


Over at Equitable Growth: The Post-1979 Shortfall in American Economic Growth: A Rough Survey: Focus for July 16, 2014

Over at Equitable Growth: Most of American discussion about equitable growth these days revolves around rapidly growing inequality: that the rising tide has been lifting the big boats much more than the others, that trickle-down economics has not been trickling down, that enormous plutocratic wealth explosions at the top have been accompanied by stagnant wages in the middle and the bottom. But that is not the entire story. Equally important--at least I think it is equally important--is that the American economy has underperformed in real GDP growth since the end of the Social Democratic Era back in 1979.

If you go to Sam Williamson and company's Measuring Worth website--http://measuringworth.com--and look at the numbers he has scrubbed and put together, you can learn an enormous amount--or at least learn an enormous amount about what our current guesses as to the long-run shape of economic growth are... READ MOAR

Continue reading "Over at Equitable Growth: The Post-1979 Shortfall in American Economic Growth: A Rough Survey: Focus for July 16, 2014" »


Lunchtime Must-Read: Tahmi Luhby: America's Middle Class: Poorer than You Think

Middle class Americans Not so wealthy by global standards Jun 11 2014Tahmi Lubby: America's Middle Class: Poorer than You Think: "Americans' average wealth tops $301,000 per adult...

...enough to rank us fourth on the latest Credit Suisse Global Wealth report. But... Americans' median wealth is a mere $44,900 per adult... only good enough for 19th place, below Japan, Canada, Australia and much of Western Europe. 'Americans tend to think of their middle class as being the richest in the world, but it turns out, in terms of wealth, they rank fairly low among major industrialized countries," said Edward Wolff.... Super-rich Americans skew average wealth upwards. The U.S. has... 49% of those with more than $50 million in assets.... This schism secures us the top rank in one net worth measure--wealth inequality.... Americans... are having trouble building wealth because wages have stagnated for more than a decade. Median household income was $51,017 in 2012, compared to $56,080 in 1999.... There are many reasons why middle class incomes are suffering, including the decline of unions' power, the shift of jobs overseas and the increasing use of technology in the workplace, said Kenneth Thomas, professor of political science at University of Missouri, St. Louis. Also, Americans have to pay more out of pocket for basics...

Citing: Giles Keating et al. (2013): Credit Suisse Global Wealth Report 2013


Noted for Your Morning Procrastination for July 16, 2014

Over at Equitable Growth--The Equitablog

Plus:

And:

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Wednesday Book Reviews: Over at Equitable Growth: Chris Blattman Links to Reviews of James Scott's "Seeing Like a State"

Over at Equitable Growth: Chris Blattman: Links to Reviews of James Scott's "Seeing Like a State": "Daron Acemoglu and James Robinson...

...discuss the work of Jim Scott in a (so far) three-part series: here, here and here.... Brad Delong on Seeing Like a State. Also, Paul Seabright’s review in the LRB.


The Need for Medicaid Expansion in Missouri: Live from the Roasterie CCXIX: July 16, 2014

Content oa mo gov sites default files 2014 20Medicaid 20Handout pdfHEALTH CARE FOR WORKING FAMILIES REFORMING MEDICAID THE MISSOURI WAY:

“It is up to us to make the right choice - the human choice - and live in a place where working Missourians get a fair shake. A place where someone who works two jobs can afford to see a doctor when they are sick. A place where everyone lives longer, healthier, fuller lives...” – Governor Jay Nixon

What is Medicaid?

Medicaid provides health care services to low-income Missourians, their children and people with disabilities. About 829,000 Missourians receive Medicaid services, including 503,000 children; 158,000 people with disabilities; 75,000 seniors; 72,000 low income adults; and 21,000 pregnant women. Currently, Medicaid is funded through a combination of 63% federal funds and 37% state funds.

Continue reading "The Need for Medicaid Expansion in Missouri: Live from the Roasterie CCXIX: July 16, 2014" »


Liveblogging World War I: July 16, 1914: The Schlieffen Plan

NewImageGerhard Ritter: The Schlieffen Plan: Critique of a Myth:

Discussion of the Schlieffen Plan up to date has... always tried to discover a formula for success in the one-sided massing of attacking forces on the right wing—-a rather primitive formula in view of the restricted deployment area on the upper Meuse, the destruction of the Belgian railway network and the consequent enormous marches needed to outflank the enemy front line! The great Schlieffen Plan was... an over-daring gamble whose success depended on many lucky accidents. A formula for victory needs a surplus of reasonable chances of success if it is to inspire confidence—-a surplus which tends quickly to be used up by "frictions" in the day-to-day conduct of war. The Schlieffen Plan showed an obvious deficit in these chances: it was, in Schlieffen's own words, "an enterprise for which we are too weak." True, he wanted to cure this weakness by improvising at least eight Ersatz corps. But he could neither say how such improvised corps were to be made militarily efficient and provided with equipment, nor show how they were to be brought to the decisive point of the front in time.... Thus the Reichsarchiv (I, 55) referred to the Schlieffen Plan as "at the same time a programme for the further enlargement of the army and for its mobilisation."

Continue reading "Liveblogging World War I: July 16, 1914: The Schlieffen Plan" »


Lunchtime Must-Read: Mark Blyth: Europe’s Goldilocks Dilemma

Mark Blyth: Europe’s Goldilocks Dilemma: "The policy of austerity has twin goals...

...reducing growth in public debt and boosting investor confidence. On both counts, the eurozone's attempts have been an unmitigated failure.... The confidence-inspiring powers of what was curiously called 'expansionary fiscal contraction', the idea that budget cuts today make people spend more since they will have lower taxes in the future, haven't been any better. European consumer confidence dropped precipitously during the crisis and has yet to return to positive territory. Investment expectations, as measured by business confidence surveys, similarly fell as austerity took its toll and are now barely positive. Growth rates track these declines but with a North-South twist: Germany is pulling ahead, France is flat-lining, Italy is stagnating, and the periphery remains in negative territory. Unemployment rates (outside the export-driven North) are stuck at levels last seen on the eve of World War II. Given all this, you would think a halt to such self-defeating policies would be a good idea. And indeed, it is. But that doesn't mean that Brussels and Berlin can actually stop austerity...


Lunchtime Must-Read: Chang-Tai Hsieh and Enrico Moretti: Growth in Cities and Countries

Chang-Tai Hsieh and Enrico Moretti: Growth in Cities and Countries: "We use a Rosen-Roback model of urban growth...

...to show that a summary statistic for the aggregate effect of local growth (decline) is whether it shows up as an increase (decrease) in local employment or as an increase (decrease) in the nominal wage relative to other cities. Differences in the nominal wage across cities reflect differences in the marginal product of labor across cities which, ceteris paribus, lower aggregate output. We show that the dispersion of the average nominal wage across US cities increased from 1964 to 2009 and may be responsible for a 13% decline in aggregate output. Changes in amenities appear to account for only a small fraction of this output loss, with most of the loss likely caused by increased constraints to housing supply in highly productive cities. We conclude that welfare gains from spatial reallocation of the US labor force are likely to be substantial...


Noted for Your Morning Procrastination for July 15, 2014

Over at Equitable Growth--The Equitablog

Plus:

And:

Continue reading "Noted for Your Morning Procrastination for July 15, 2014" »


Tuesday Reading: Late Summer 2014 World War I Reading List

NewImageWorld War I Reading List: Late Summer 2014:



Liveblogging World War II: July 15, 1944: Attrition, Rommel, Kluge

NewImageRichard Atkinson: The Guns at Last Light:

On any given day now, Army Group B might suffer as many losses as Rommel’s Afrika Korps had in the entire summer of 1942. Only 10,000 replacements had arrived to compensate for 100,000 German casualties in Normandy over the past six weeks. A British cannonade of 80,000 artillery rounds at Caen on July 10 had been answered with 4,500 German shells, all that were available. Rommel had seen a battalion commander riding horseback for want of a car or of fuel. “The divisions are bleeding white,” his war diary recorded. Berlin anticipated 1.6 million German casualties on all fronts from June through October, far more than the Fatherland could sustain.

Continue reading "Liveblogging World War II: July 15, 1944: Attrition, Rommel, Kluge" »


Over at Equitable Growth: How to Understand the BIS View as an Analytical Position Rather than a Rhetorical Attitude?

Over at Equitable Growth: Paul Krugman admonishes me for thinking I should try to work out what model underlies the Bank for International Settlements' 84th Annual Report. It is, he says, not so much a macroeconomic model or an analytical framework. Rather, he says, it is a mood: the rhetorical stance of austerity a outrance:

Paul Krugman: Liquidationism in the 21st Century: "The BIS position... [is] that of 1930s liquidationists like Schumpeter...

...who warned against any 'artificial stimulus' that might leave the 'work of depressions undone'. And in 2010-2011 it had an intellectually coherent--actually wrong, but coherent--story... that mass unemployment was the result of structural mismatch... [and] easy money would lead to a rapid rise in inflation.... it didn’t happen. So... it... look[ed] for new justifications for the same [policy] prescriptions... playing up the supposed damage low rates do to financial stability.... That over-indebtedness on the part of part of the private sector is exerting a persistent drag on the economy... is a reasonable story.... But the BIS... doesn’t understand that model... as if they were equivalent to... real structural problems... [which] makes a compelling case for... fiscal deficits to support demand while the private sector gets its balance sheets in order, for monetary policy to support the fiscal policy, for a rise in inflation targets both to encourage whoever isn’t debt-constrained to spend more and to erode the real value of the debt. The BIS, however, wants governments as well as households to retrench... and--in a clear sign that it isn’t being coherent--it includes a box declaring that deflation isn’t so bad, after all. Irving Fisher wept....

Are the BIS’s methods unsound? I don’t see any method at all. Instead, I see an attitude, looking for justification... READ MOAR

Continue reading "Over at Equitable Growth: How to Understand the BIS View as an Analytical Position Rather than a Rhetorical Attitude?" »


Morning Must-Read: Simon Wren-Lewis: Macroeconomists, Not Bankers, Should Set Interest Rates

Simon Wren-Lewis: Why macroeconomists, not bankers, should set interest rates: "[The] interest... which closes the output gap...

[maintains] the level of output and unemployment that will keep underlying inflation constant... [is] the Wicksellian natural rate.... But, respond[s]... the BIS... monetary policy cannot afford to ignore the financial sector, and the risk of excessive lending and bubbles.... The implication is that a financial crisis only happens because interest rates are set at the wrong level.... The... deregulation of the financial sector in the decades before?--not an issue. The widespread misselling of subprime mortgages?--these things happen. All the other examples of misselling and fraud?--boys will be boys. An industry that profits from a massive implicit public subsidy?--we see no subsidy. Classifying subprime products as AAA? Massive increases in bank leverage in the 00s?--all the result of keeping interest rates too low. When those putting the BIS case tell you that macroprudential controls (a.k.a. financial regulations) are ‘untested’ and ‘uncertain in their impact’, what they are really saying is that the financial system cannot be regulated to make it safe when interest rates are low....

I like to praise the current UK government when I can. In setting up a Financial Policy Committee that is separate from the Monetary Policy Committee they did exactly the right thing. This formalises an assignment: macro prudential policy to control financial sector excess, and interest rates to control demand and inflation. Most macroeconomists know this makes sense. But the financial sector has a pecuniary interest in pretending otherwise. Those that get too close to that sector should be kept well away from setting interest rates.


Morning Must-Read: Noah Smith: Should the Fed Crash Now to Prevent a Crash Later?

Noah Smith: Should the Fed crash the economy now to prevent a crash later?: "To many, the implication is clear...

...The Fed needs to raise interest rates in order to prevent a destabilizing market crash. That isn't a good idea.... Higher asset prices due to lower safe interest rates aren't some kind of nefarious plot--this is just Finance 101.... That’s rational price appreciation, not a bubble.... When practically everyone is convinced that asset prices are relatively high, like now, it’s pretty obvious that there aren’t many greater fools out there. If you look at past bubbles, such as the late-'90s tech bubble or the mid-2000s housing bubble, you see that there was always a large contingent of society that thought it wasn’t a bubble at all.... Who nowadays thinks that there’s some special Big New Thing that’s going to push stocks and bonds and commodities all to stratospheric heights forever?.... I say we hold off on our calls for anti-bubble rate hikes.


Down the Mississippi: Cochrane vs. McDaniel: Live from the Roasterie CCXVII: July 14, 2014

NewImageThad Cochrane: Update 3: 61 of 82 Counties: "The review of 61 of the 82 counties is now complete...

...and the results continue to show extremely low numbers of questionable votes. As we noted in earlier updates, these are simply votes, including absentee and affidavit ballots, that are questioned, it does not mean they are definitively improperly cast votes. Because of secret ballot, of course, there is no way to determine for which candidate these votes were cast.

Continue reading "Down the Mississippi: Cochrane vs. McDaniel: Live from the Roasterie CCXVII: July 14, 2014" »


Liveblogging World War II: July 14, 2014

NewImageRichard J. Evans: What the War Was Really About:

This leads on to a wider question about the role of leadership during the war. [Paul] Kennedy recognizes, of course, that “the men at the top made a difference.” Hitler’s claim to be the “Greatest Field Commander of All Time” (Grösster Feldherr aller Zeiten, abbreviated ironically by some of his subordinates as Gröfaz) was accepted by many after his initial triumph over conventional military strategy in the defeat of France in 1940, but it was a claim increasingly questioned by his generals as time went on. Hitler, for example, divided the German forces on the Eastern Front in the late autumn of 1941, taking troops away from the assault on Moscow and diverting the impetus of the invasion to the Caucasus. But this was not, as Kennedy implies, an act of folly: Hitler considered it a priority to occupy the grain-growing regions of the Ukraine and take over the Crimea to stop the Soviets from using it as a base for air raids on the Romanian oilfields, on which Germany depended heavily. There was something to be said for this view.

Continue reading "Liveblogging World War II: July 14, 2014" »


Liveblogging World War I: July 13, 1914: Austrian Investigation Concludes

NewImageAustrian investigation into archduke's assassination concludes — History.com This Day in History — 7/13/1914:

On July 13, 1914, Friedrich von Wiesner, an official of the Austro-Hungarian Foreign Office, reports back to Foreign Minister Leopold von Berchtold the findings of an investigation into the assassination of Archduke Franz Ferdinand, heir to the Austrian throne, and his wife Sophie the previous June 28, in Sarajevo, Bosnia.

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Monday Smackdown: Chapter 11 of David Graeber's "Debt" Is Definitely in Chapter 11! Part IV

As an emergency measure, given the continued shortage of high-quality DeLong smackdowns on the internet, on to the next Kindle screen of chapter 11 of David Graeber's Debt: The First 5000 Years:

James s Kindle for Mac 3 Debt The First 5 000 Years

This, too, is double-plus unhood, as Winston Smith might say...

Continue reading "Monday Smackdown: Chapter 11 of David Graeber's "Debt" Is Definitely in Chapter 11! Part IV" »


Weekend Reading: Claudio Borio (2012): The Financial Cycle and Macroeconomics: What Have We Learnt?

Claudio Borio (2012): The Financial Cycle and Macroeconomics: What Have We Learnt? "[']The financial cycle[']... denote[s] self-reinforcing interactions between perceptions of value and risk...

...attitudes towards risk and financing constraints, which translate into booms followed by busts... [that] amplify economic fluctuations and possibly lead to serious financial distress and economic dislocations.... Equity prices can be a distraction.... Interest rates, volatilities, risk premia, default rates, non-performing loans, and so on.... Combining credit and property prices appears to be the most parsimonious way to capture the core features....

Continue reading "Weekend Reading: Claudio Borio (2012): The Financial Cycle and Macroeconomics: What Have We Learnt?" »


Evening Must-Read: Nick Rowe: Siimple Arithmetic for John Taylor's Mistaken Legislated Rule

Nick Rowe: Some simple arithmetic for mistakes with Taylor Rules: "If you see your neighbour thinking of doing something daft...

...apparently unaware of one of the problems, you ought to speak up. Especially if it will affect you too, because you do a lot of trade with your neighbour. A fixed Taylor Rule... makes the danger of hitting the ZLB bigger than you think it is. And Taylor Rules don't work at the ZLB.... What happens if you are wrong about the natural rate of interest, or wrong about potential output?... If actual potential output is one percentage higher than you think it is, that makes you set the nominal rate 0.5 percentage points too high, and so inflation would need to be 0.33 percentage points too low on average to have a big enough offsetting effect to cancel out your mistake.... For a normal central bank, that is a problem, but it is not a big problem.... They fix mistakes in their Taylor Rule as they go along.... That's probably the main reason why we always observe a lagged interest rate in the equation when we estimate a central bank's reaction function.... But if the parameter values of the Taylor Rule are fixed by law, central banks are not allowed to learn from their mistakes.... If you really really want to legislate a Taylor Rule, OK. But there's a price you must pay, if you want to maintain the same margin of safety against hitting the ZLB. That price is a higher average rate of inflation built right into that legislated Taylor Rule. Your choice: legislated Taylor Rules; hitting the ZLB more frequently; a higher rate of inflation. Pick any two..."


Noted for Your Evening Procrastination for July 13, 2014

Over at Equitable Growth--The Equitablog

Plus:

And:

Continue reading "Noted for Your Evening Procrastination for July 13, 2014" »


Evening Must-Read: Marco Del Negro et al.: Inflation in the Great Recession and New Keynesian Models

Marco Del Negro et al.: Inflation in the Great Recession and New Keynesian Models: "It has been argued that existing DSGE models...

...cannot properly account for the evolution of key macroeconomic variables during and following the recent great recession. We challenge this argument by showing that a standard DSGE model with financial frictions available prior to the recent crisis successfully predicts a sharp contraction in economic activity along with a modest and protracted decline in inflation following the rise in financial stress in the fourth quarter of 2008. The model does so even though inflation remains very dependent on the evolution of economic activity and of monetary policy.


Department of "WTF?!" Chris House on Traditional Macroeconomic Models and the Great Recession

Graph Consumer Price Index for All Urban Consumers All Items Less Food Energy FRED St Louis FedOver at Equitable Growth: Can anyone put forward a credible explanation for this?

Chris House (July 13, 2014): Traditional Macroeconomic Models and the Great Recession: "Commentators like Paul Krugman...

...should also own up to the mounting evidence that the older models (even the paleo-Keynesian models that some prefer) clearly failed.... They made clear predictions about inflation that were supposedly at the center of the New Keynesian mechanism--predictions that never materialized.

Paul Krugman (April 13, 2013): The Missing Deflation: "Keynesians.... One area where things haven’t worked out as [we] expected...

...however, is on the deflation front. Inflation has stayed very subdued; but coming in to the crisis I certainly thought that actual Japanese-style deflation was a real possibility. That hasn’t materialized (and for that matter, even Japan never had more than very gradual deflation). Why? READ MOAR

Continue reading "Department of "WTF?!" Chris House on Traditional Macroeconomic Models and the Great Recession" »


Evening Must-Read: Paul Krugman: Liquidationism in the 21st Century

Paul Krugman: Liquidationism in the 21st Century: "The BIS position has basically been the same...

...as that of 1930s liquidationists like Schumpeter, who warned against any 'artificial stimulus' that might leave the 'work of depressions undone'. And in 2010-2011 it had an intellectually coherent--actually wrong, but coherent--story underlying that position... that mass unemployment was the result of structural mismatch.... It therefore claimed that easy money would lead to a rapid rise in inflation, despite the high level of unemployment. But it didn’t happen. So... it... look[ed] for new justifications for the same [policy] prescriptions... playing up the supposed damage low rates do to financial stability....

That over-indebtedness on the part of part of the private sector is exerting a persistent drag on the economy... is a reasonable story.... But the BIS either doesn’t understand that model’... as if they were equivalent to... real structural problems... a good reason to accept a protracted period of high unemployment as somehow natural, and to reject artificial stimulus.... That, however--as Irving Fisher could have told them!--is not at all the correct implication to draw from a balance-sheet view.... The balance-sheet view... makes a compelling case for... fiscal deficits to support demand while the private sector gets its balance sheets in order, for monetary policy to support the fiscal policy, for a rise in inflation targets both to encourage whoever isn’t debt-constrained to spend more and to erode the real value of the debt.

The BIS, however, wants governments as well as households to retrench... and--in a clear sign that it isn’t being coherent--it includes a box declaring that deflation isn’t so bad, after all. Irving Fisher wept.... Are the BIS’s methods unsound? I don’t see any method at all. Instead, I see an attitude, looking for justification...


Evening Must-Read: Steve Randy Waldmann: Depression Is a Choice

Steve Randy Waldmann: : Depression is a choice: "I enjoyed Matt Yglesias’ suggestion...

...that depressions are merely a technical problem that will go away once the obsolescence of cash eliminates the zero lower bound on interest rates, and Ryan Avent’s rejoinder.... Avent has the better of the argument when he characterizes our current policy impotence as reflecting behavioral rather than technical constraints. We don’t lack for technical means to counter people’s self-defeating impulse to hoard cash and safe financial assets. On the contrary, we have a whole cornucopia of options!... Squabbling... between market monetarists and post-Keynesians and mainstream saltwater economists is an argument over which of many... options would most perfectly address address this not-really-challenging problem.... We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives.... The preferences of developed, aging polities... are obvious.... Their overwhelming priority is to protect the purchasing power of incumbent creditors. That’s it. That’s everything. All other considerations are secondary.... I am often told that this is absurd because, after all, wouldn’t creditors be better off in a booming economy than in a depressed one?... The revealed preference of the polity is to resist losses for incumbent creditors much more than it is to seek gains.... The policies that might engender a boom are not guaranteed to succeed.... The polity prefers inaction to bearing this risk...


Oversharing About Money: An International Financial Wire Transfer from Lafayette, California, USA to Ahero, Nyando District, Nyanza Province, Kenya: The Honest Broker for the Week of July 12, 2014

Writers with Drinks: An Evening of Oversharing About Money: 7:30 p.m. July 12 :: Make-Out Room :: 3225 22nd St. San Francisco, CA :: Price: $5-$20 http://writerswithdrinks.com: "If time is money, then consider this evening with Charlie Jane Anders, J. Bradford DeLong, Frances Lefkowitz, Farhad Manjoo, and Carol Queen to be a good investment..."


Oversharing About Money: An International Financial Wire Transfer from Lafayette, California, USA to Ahero, Nyando District, Nyanza Province, Kenya

J. Bradford DeLong

A few short years ago we lived, for the school district, in Lafayette. Lafayette is close to here in space and time, but distant in attitude. Lafayette is a place an unkind observer based in and comfortable in San Francisco might describe as an unholy mix of the worst parts of northern and southern California. There we had a neighbor, Bie Bostrom. She had been the oldest Peace Corps volunteer in East Africa. She kept in touch with what had been her town: Ahero, population 10K, in Nyando District, Nyanza Province, Kenya. And there she funds and runs a one-elderly-woman one-town NGO with zero administrative overhead: Grandmothers Raising Grandchildren. That's http://grgahero.org: godzilla-rath of Khan (with an r)-godzilla-alien-hitchhiker-empire strikes back-rath of Khan-omen-dot-omen-rath of Khan-godzilla. No, I'm not going to hit you up--you've been hit up already coming here, at the door.

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Noted for Your Morning Procrastination for July 12, 2014

Over at Equitable Growth--The Equitablog

Plus:

And:

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Liveblogging the American Revolution: July 12, 1776: Articles of Confederation and Perpetual Union

NewImageJournals of the Continental Congress - Articles of Confederation and Perpetual Union; July 12, 1776:

Articles of confederation and perpetual union, between the colonies of New Hampshire; The counties of New Castle, Kent, and Sussex on Delaware; Massachusetts Bay; Rhode Island and Providence Plantations; Maryland; Connecticut; Virginia; New York; North Carolina; New Jersey; South Carolina; Pennsylvania; and Georgia.

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Weekend Reading: Jonathan Chait vs. The Hax of Sol III

Jonathan Chait vs. Peter Suderman on ObamaCare:

Jonathan Chait: Libertarian Accidentally Shows Obamacare Success: "The Commonwealth Fund has a new survey...

...showing that the proportion of adults lacking health insurance has fallen by a quarter, from 20 percent of the population to 15 percent. (Most respondents, including 74 percent of newly insured Republicans, report liking their plan.) Also, this week, the Congressional Budget Office again revised down its cost estimates for Medicare, which now spends $50 billion a year less than it was projected to before Obamacare passed. Also, the New England Journal of Medicine recently estimated that 20 million Americans gained insurance under the new law.

The latter study comes in for criticism by Peter Suderman, Reason’s indefatigable health-care analyst.

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Trying and Failing to Understand the 84th BIS Annual Report: Monetarist, Deleveraging, Fiscalist, and ??? Understandings of Our Current Dilemmas: The Honest Broker for the Week of July 5, 2014

NewImageOver at Equitable Growth: I confess that I do not understand the recent BIS Annual Report. I have tried--I have tried very hard--to wrap my mind around just what the BIS position is. But I have failed.

So let me try to lay out how I see it--where I think we are, and what I think the three live macroeconomic-policy positions are:

First, where we are:

We had in the late-1990s a high-pressure full-employment low-inflation tight-fiscal equilibrium. It was, however, unsustainable: based on exaggerated beliefs not about the utility but the profitability of companies based on the high-tech computer and communications technologies of the 1990s. When expectations adjusted to the reality of profitability, the high investment part of the 1990s boom went away, and the economy fell into the minor recession of the early 2000s. READ MOAR:

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Afternoon Must-Read: Ezra Klein: Why Boehner Is Suing Obama

Ezra Klein: Boehner is suing Obama so he doesn’t have to impeach him: "If Speaker John Boehner wins his lawsuit against President Barack Obama...

...Obama [will then] implement the Affordable Care Act's employer mandate without further delay. Which... might mean the court will order Obama to do something he has already done. What's even odder about the suit is that Boehner hates Obamacare's employer mandate. And the business groups that back Boehner hate Obamacare's employer mandate. So Boehner is lifting heaven and earth to get the court to demand Obama more rapidly enforce a policy Boehner hates, that Boehner's allies hate, and that Obama says he's going to start enforcing in a few months anyway.... Boehner's argument is that this isn't about the mandate at all. It's about the Constitution... Boehner... was House Majority Leader in May 2006, when President George W. Bush chose to waive Medicare Part D's penalties for low-income and disabled seniors who signed up late.... There is little evident difference between Obama's unilateral delay of the employer mandate in Obamacare and Bush's unilateral delay of the late-enrollment penalties in Medicare Part D. But Boehner sees one as a threat to the republic while the other passed like a breeze in the night....

There's another possible reading of Boehner's lawsuit. Under this theory, Boehner's lawsuit isn't so much about reversing what Obama has done as it's about stopping what Republicans might do.... Calls for impeachment are mounting.... Boehner... has watched ideas like this move from ridiculous to inevitable in an instant (see Government Shutdown, 2013). He also watched what happened the last time Republicans tried to impeach a president who was more popular than they were: they lost the midterm election and Newt Gingrich had to resign as Speaker of the House.... Boehner can argue that attempting impeachment before the case finishes would be counterproductive: if Republicans raise impeachment as a remedy there's no way the courts will get involved. They'll just let Congress work it out. Boehner is letting Republicans throw as many parties as they want in the House so he can make sure they don't drink and drive home....

Boehner's particular legislative genius is his ability to keep House conservatives from detonating the Republican Party while maintaining just enough conservative credibility to retain his speakership. This might be his masterstroke.


Afternoon Must-Read: Katharine Bradbury: Availability of Unemployment Insurance

Katharine Bradbury: Availability of Unemployment Insurance: "Economists often expect unemployment insurance (UI) benefits...

...to elevate unemployment rates because recipients may choose to remain unemployed in order to continue receiving benefits, instead of accepting a job or dropping out of the labor force. This paper uses individual data from the Current Population Survey for the period between 2005 and 2013—a period during which the federal government extended and then reduced the length of benefit availability to varying degrees in different states—to investigate the influence of program parameters in the UI system on monthly transition rates of unemployed individuals. The main finding is that unemployed job losers tend to remain unemployed until they exhaust UI benefits, at which point they become more likely to drop out of the labor force; transitions to a job appear to be unaffected by UI benefit extensions. These findings imply that the longer periods of benefit eligibility under the federal programs EUC08 and EB—up to 99 weeks in many states in 2011 and 2012—contributed to the elevated jobless rates observed during that period, but not via lower employment. By the same token, the sharp contraction of benefit weeks that occurred in 2012 and continued more gradually in 2013 likely contributed to declines in unemployment and participation rates beyond what one would expect based on the improving economy alone. Similarly, the December 28, 2013 sudden cutoff of federal UI payments to an estimated 1.3 million jobless Americans who had been looking for work for more than six months is adding to the pace of transitions from unemployment to dropping out of the labor force, thus reducing the unemployment rate and the labor force participation rate further in the first half of 2014, although very modestly."