Grasping Reality on TypePad, by Brad DeLong

Must-Read: Invest like mad in your technology drivers--even if it looks as if they are not the most profitable. But, conversely, don't keep pouring money into things that used to be technology drivers but are no longer. And keep your mind open and place many bets as to what your future true technology drivers will be:

Ben Thompson: Andy Grove and the iPhone SE: "While [Gordon] Moore is immortalized for having created ‘Moore’s Law’...

Live from La PanotiQ: Buying madeleines: "Longtemps, je me suis couché de bonne heure..."

Matthew Yglesias: Niall Ferguson Debates Himself: "I’ve been known to remark on the conservative movement’s strong adherence to Keynesian arguments...

...as a justification for tax cuts in the wake of the mild 2001 recession, adherence that seems puzzling in light of their contrary rhetoric in the wake of the cataclysmic 2008-2009 downturn. Brad DeLong observes that one particularly hilarious example of this is historian-turned-pundit Niall Ferguson who wrote a December 12, 2003 article on the Bush administration that’s in considerable conflict with his contemporary take on things. DeLong requests a Ferguson v Ferguson debate, and with assistance from Ryan McNeely I’m prepared to unveil one.

Live from La Farine: Jack Kemp: "Broaden the [electoral] base...":

If you are going to broaden the base of the Republican Party, you’ve got to realize that millions of Americans look to government as a lifeline.

I have never felt personally that the idea of beating up on government was good politics. It’s true that that government is best which governs least. But it’s equally true that government is best which does the most for people and you need a balance between what government does for people and what people should be able to do for themselves.

Source: Robert Shogan, “GOP Seeks to Consolidate Gains, Build Party Loyalty,” Los Angeles Times (June 2, 1985): p. 12 (attached).

Must-Read: Whenever I look at a graph like this, I think: "Doesn't this graph tell me that the last two years were the wrong time to give up sniffing glue the zero interest-rate policy"? Anyone? Anyone? Bueller?

And Narayana Kocherlakota agrees, and makes the case:

Narayana Kocherlakota: Information in Inflation Breakevens about Fed Credibility: "The Federal Open Market Committee has been gradually tightening monetary policy since mid-2013...

...Concurrent with the Fed’s actions, five year-five year forward  inflation breakevens have declined by almost a full percentage point since mid-2014.  I’ve been concerned about this decline for some time (as an FOMC member, I dissented from Committee actions in October and December 2014 exactly because of this concern).  In this post, I explain why I see a decline in inflation breakevens as being a very worrisome signal about the FOMC’s credibility (which I define to be investor/public confidence in the Fed’s ability and/or willingness to achieve its mandated objectives over an extended period of time).

Live from La Farine: Eric Rauchway: @KevinMKruse:

@KevinMKruse Oh good, were in for another eight years of 'ignorant or evil' again

— Eric Rauchway (@rauchway) March 30, 2016

Must-Read: Bill Black: Announcing the Bank Whistleblowers United Initial Initiatives: "I am writing to announce the formation of a new pro bono group and a policy initiative that we hope many of our readers will support and help publicize...

Must-Read: Authors seeking both eyeballs to sell to advertisers and a committed, engaged audience with which they can conduct a conversation are now trying to ride two horses--a clickbait audience served by self-contained pieces, and a newsletter audience with which they can interact and converse. I don't think it is working very well. And it is annoying the extremely-sharp Justin Wolfers:

Justin Wolfers: On Twitter:

The email newsletter craze is nuts. Stay the heck out of my inbox, and put it on the web, so anyone can find it. Tweet reminders if you must

— Justin Wolfers (@JustinWolfers) March 31, 2016

Live from La Farine: The Economist: Birth Control and Obamacare: A Pious Hijacking at the Supreme Court: "When... dozens of Christian charities and schools say that filling out a form designed to protect them actually constitutes a mortal threat to their beliefs...

...a skilled lawyer is wise to supply the berobed ones with a conceptual crutch.... Paul Clement... twisted reality rather impressively when he said that the government’s aim was to ‘hijack’ the health plans of religious organisations in order to provide their female employees with contraceptives. But two conservative members of the court who, some thought, might join the four liberal justices in ruling against the groups, seemed rather taken with the idea.

J. Bradford DeLong: Pragmatism or Perdition: BERKELEY – Almost every single observer who looks of the progress of the US economy over the past 40 years comes away severely disappointed.

The US today spends roughly 4% of GDP more on health sector administration and 2% more on overtreatment than it used to. The U.S. gets nothing of real value for these immense expenditures. Other North Atlantic economies do fine–do substantially better, in fact–in providing health to their citizens without these overhangs.

Over at Equitable Growth--The Equitablog:

• Jamison Foser: On Kasich's Promise to Join the Democrats
• Paul Krugman: The Pathos of Republican Reformers
• Daniel P. Gross: The Ties that Bind: Railroad Gauge Standards and Internal Trade in the 19th Century U.S.
• Tim Duy: Yellen

Live from La Farine: with both Cruz and Trump, the dog-whistle dance of the Republicans has broken down. Cruz won't whisper to the Washington Post and New York Times editorial boards that his statements out on the campaign trail are just boob bait for the bubbas. And so the Republican establishment, for whom Barack Obama is not a radical left-wing Communist Kenyan Muslim, are as scared of them as they are of the unpredictable and fascist Trump:

Jonathan Chait: Donald Trump Versus the Republican Brain: "Trump may be more effective than other Republicans at harnessing... xenophobia [and] nationalism...

Must-Read: Jamison Foser: On Kasich's Promise to Join the Democrats:

Since Kasich is talking about 1993/4 I’ll remind you he said Clinton budget would kill economy & he’d switch parties if it didn’t. It didn’t

— Jamison Foser (@jamisonfoser) March 30, 2016

Must-Read: Paul, there is an alternate world out there in which the Democratic Party was taken over by people whose views of good economic policy are as... unrealistic... as those of the WSJ Editorial Page. Remember Ira Magaziner? Be more gentle on Ross Douthat, for there but for the grace of The One Who Is go we. So be a little gentler on Ross and company...

But, meanwhile, this is not just popcorn! This is moose munch!

Paul Krugman: The Pathos of Republican Reformers: "Ross Douthat has a wonderfully written, heartfelt takedown of the WSJ editorial page...

Edward Augustus Freeman: The History of the Norman Conquest of England: Its Causes and Its Results: Eustace and Kent:

Edward Augustus Freeman: The History of the Norman Conquest of England: Its Causes and Its Results: Hertfordshire:

Edward Augustus Freeman: The History of the Norman Conquest of England: Its Causes and Its Results: Coxo and Northumbria:

Edward Augustus Freeman: The History of the Norman Conquest of England: Its Causes and Its Results: Odo of Bayeux Bishop and William Fitz-Osbern Earl:

Federal Reserve Districts Map:

Must-Read: Tim Duy: Yellen T:

Yellen today: https://t.co/Y11CHp4sso
has come a long way since last September:https://t.co/sMHD4okJqd

— Tim Duy (@TimDuy) March 29, 2016

Must-Read: Really neat piece on technology standards and antitrust: On June 1, 1886, U.S. railroads converted the U.S. South to the national gauge... and increased their own profits enormously, but because they effectively colluded on freight rates there were no increases in railroad-sector consumer surplus generated by this advance in efficiency in the short run. The takeaways: standards matter a lot, and for the health of the overall market and for equitable growth market competition and antitrust policy matter even more:

Daniel P. Gross: The Ties that Bind: Railroad Gauge Standards and Internal Trade in the 19th Century U.S.: "Technology standards are pervasive in the modern economy...

Debunking America’s Populist Narrative: BERKELEY – One does not need to be particularly good at hearing to decipher the dog whistles being used during this year’s election campaign in the United States. Listen even briefly, and you will understand that Mexicans and Chinese are working with Wall Street to forge lousy trade deals that rob American workers of their rightful jobs, and that Muslims want to blow everyone up.

All of this fear mongering is scarier than the usual election-year fare. It is frightening to people in foreign countries, who can conclude only that voters in the world’s only superpower have become dangerously unbalanced. And it is frightening to Americans, who until recently believed – or perhaps hoped – that they were living in a republic based on the traditions established by George Washington, Abraham Lincoln, and Teddy and Franklin Roosevelt. READ MOAR

Over at Equitable Growth--The Equitablog:

• Watching as the Federal Reserve juggles priceless eggs in variable gravity... - Equitable Growth
• Nick Bunker: The gig economy? Or the fissured workplace? - Equitable Growth
• Nick Bunker: Medicaid, job lock, and moving up the job ladder - Equitable Growth
• Nick Bunker: The labor share, the ongoing recovery, and structural forces - Equitable Growth* Jonathan Chait: Oh, Good, It's 2016 and We’re Arguing Whether Marxism Works
• Janet Yellen: The Outlook, Uncertainty, and Monetary Policy
• Branko Milanovic and Suresh Naidu: Branko Milanovic's New Approach to Global Inequality
• Matthew Yglesias: "The political movement behind Trump
• Menzie Chinn: Estimates of the Elasticity of Employment with Respect to the Minimum Wage
• Paul Krugman: Trade Deficits: These Times are Different
• Macro Advisers: Now-Cast

Must-Read: Jonathan Chait: Oh, Good, It's 2016 and We’re Arguing Whether Marxism Works: "[Tyler] Zimmer is articulating the standard left-wing critique of political liberalism...

Who Will Watch How the Watchmaker Works?: Alex Tabarrok writes that it would be irrational for the Prophet Isaiah to believe in evolution. For Isaiah writes:

In the year that king Uzziah died, I saw also the LORD sitting upon a throne, high and lifted up, and his train filled the temple. Above it stood the Burning Ones: each one had six wings; with two each covered his face, and with two each covered his feet, and with two each did fly. And one cried unto another, and said, 'Holy, holy, holy, is the LORD of hosts: the whole earth is full of his glory.' And the posts of the door moved at the voice of him that cried, and the house was filled with smoke.

Then said I, 'Woe is me! for I am undone; because I am a man of unclean lips, and I dwell in the midst of a people of unclean lips: for mine eyes have seen the King, the LORD of hosts.'

"Therefore shall ye lay up these my words in your heart and in your soul, and bind them for a sign upon your hand, that they may be as frontlets between your eyes. And ye shall teach them your children, speaking of them when thou sittest in thine house, and when thou walkest by the way, when thou liest down, and when thou risest up. And thou shalt write them upon the door posts of thine house, and upon thy gates..."

“The Market” as an Institution:

• We start from what look like to us deep truths of human psychology
  • People are acquisitive
  • People engage in reciprocity—i.e., want to enter into reciprocal gift-exchange relationships
    • In which they are neither cheaters nor saps
    • With those they trust…
• We devised property as a way of constructing expectations of trust…
• We devised money as a substitute for trust…
• And so, on the back of these human propensities for acquisition and for trusted gift-exchange, we have constructed a largely-peaceful global 7.4B-strong highly-productive societal division of la* bor:
  • Built on assigning things to owners—who thus have both the responsibility for stewardship and the incentive to be good stewards…
  • And on very large-scale webs of win-win exchange…
  • Mediated and regulated by market prices...
• This is a very valuable and important societal institution…
• Economics is the study of how it—what we usually call “the market”—works…
• In analyzing the market as an institution, we need to cover:
  • The success of the market
  • The failures of the market
  • The political-economic-sociological-historical context of the market
  • The impact of a market economy on the other institutions and practices of society
  • Plus there is the peculiar domain of “macroeconomics”

"Therefore shall ye lay up these my words in your heart and in your soul, and bind them for a sign upon your hand, that they may be as frontlets between your eyes. And ye shall teach them your children, speaking of them when thou sittest in thine house, and when thou walkest by the way, when thou liest down, and when thou risest up. And thou shalt write them upon the door posts of thine house, and upon thy gates..."

The market failure-free competitive market in equilibrium, from the perspective of a utilitarian seeking to achieve the greatest-good-of-the-greatest-number, accomplishes these goals:

1. It produces at a scale that exhausts all possible win-win exchanges—and is “efficient” in that sense.
2. It allocates the roles of producers and sellers to those who can make and sell them in a way least costly to society’s overall resources—to those with the lowest opportunity cost.
3. It rations the commodities produced to those with the greatest willingness-to-pay—to those who, by the money standard, "need" and want them "the most".

"Therefore shall ye lay up these my words in your heart and in your soul, and bind them for a sign upon your hand, that they may be as frontlets between your eyes. And ye shall teach them your children, speaking of them when thou sittest in thine house, and when thou walkest by the way, when thou liest down, and when thou risest up. And thou shalt write them upon the door posts of thine house, and upon thy gates..."

Ten modes of "market failure":

Markets can go wrong--badly wrong. They can:

1. not fail but be failed by governments that fail to properly structure and support them—or that break them via quotas, price floors/ceilings, etc.
2. be out-of-equilibrium
3. see actors have market power
4. be afflicted—if that is the word—by non-rivalry (increasing returns to scale; natural monopolies)
5. suffer externalities (in production and in consumption, positive and negative; closely related to non-excludibility)
6. suffer from information lack or asymmetry
7. suffer from maldistributions—for the market will only see you if you have a willingness to pay, which is predicated on an ability to pay…
8. suffer from non-excludability (public goods, etc.)
9. suffer from miscalculations and behavioral biases
10. suffer from failures of aggregate demand

• Lecture: Income Distribution and Labor Markets Webcast (2016-03-14 Mo)
  • Read: FBAH ch. 12
  • Section Exercise 14/15
• Lecture: Public Goods and Political Economy Webcast (2016-03-16 We)
  • Read: FBAH ch. 14
  • Section Exercise 16/17
• Over Spring Vacation: (2016-03-17 Th/-27 Su)
  • Read Tom Slee, Nobody Makes You Shop at Wal-Mart
  • Read: Milton Friedman and Rose Director Friedman, Free to Choose
  • Assignment: Short Paper due (2016-03-28 Mo/-29 Tu)

• Course Syllabus Master Page: http://www.bradford-delong.com/course-syllabus-econ-1-spring-2016-uc-berkeley.html
• This Page: http://www.bradford-delong.com/2016/03/econ-1-spring-2016-uc-berkeley-microeconomics-broader-issues.html
• Edit: http://www.typepad.com/site/blogs/6a00e551f08003883400e551f080068834/post/6a00e551f08003883401b7c82bfba0970b/edit?saved_added=n

Moving this too off of the main course syllabus page, which is getting too crufty...

Resources:

• Office Hours: J. Bradford DeLong's: Usually Tu 9-11 in Evans Hall 691 in Cesar Chavez, but also by appointment, and with extra office hours arranged week-by-week. Please email [email protected] to reserve yourself a slot
• More office hours and learning opportunities
• Learning Tools: discussions at Piazza; announcements; webcast captures

Moving this off of the main syllabus page, which is getting too crufty...

J. Bradford DeLong's office hours: please email [email protected] to reserve yourself a slot; usually Tu 9-11 in Evans Hall 691 at Cesar Chavez, but also by appointment, and with extra hours arranged week-by-week.

GSI Office Hours:

• Ranchithaa Anatory: W 9-11 in 211 Wellman.
• Elsa Augustine: M 1-3 in Evans 640.
• Waheed Baksh: MW 11-12pm in 211 Wellman.
• Claire Boone: M 9-10, Th 9-10 in Golden Bear Cafe Evans 640.
• Tiffany Chang: W 1-3 at Havilland Commons FSM Cafe.
• T. Woody Kongsamut: M 2-4 in Evans 542.
• Christian Lambert: Tu 1-3 in Evans 542.
• Nikhil Rao: M 9-10, 12-1 PM in 211 Wellman.
• Chimi Dolkar Sherpa: W 9-11 in 211 Wellman.
• Andrew Spreen: M 4-5 Th 1-2 in 211 Wellman.

Also: Cal Econ Tutors | @CalEconTutoring | Student Learning Center:

• Denny Lai (SLC) [email protected]:
• Khuyen V. Nguyen (SLC) [email protected]:
• Max Mueller (Econ) [email protected]: Tu 8-9:30, We 12-1, Th 8-9:30 and 11-12, F 8-10
• Peter McCrory (Econ) [email protected]: M 12-1:30, Tu 11-12, W 3-4:30, Th 11-12 and 2-4.

Is it necessary to say that we hold Ben Bernanke, Mervyn King, Mark Carney, Janet Yellen, Stan Fischer, Lael Brainard, and company to the highest of high standards--demand from them constant triple aerial somersaults on the trapeze--because we have the greatest respect for and confidence in them? It probably is...

Back in 1992 Larry Summers and I wrote that pushing the target inflation rate from 5% down to 2% was a very dubious and hazardous enterprise because the zero-lower bound was potentially a big deal: "The relaxation of monetary policy seen over the past three years in the United States would have been arithmetically impossible had inflation and nominal interest rates both been three percentage points lower in 1989. Thus a more vigorous policy of reducing inflation to zero in the mid-1980s might have led to a recent recession much more severe than we have in fact seen..."

This does seem, in retrospect, to have been quite possibly the smartest and most foresightful thing I have ever written.

Must-Read: Back in 1992 Larry Summers and I wrote that pushing the target inflation rate from 5% down to 2% was a very dubious and hazardous enterprise because the zero-lower bound was potentially a big deal: "The relaxation of monetary policy seen over the past three years in the United States would have been arithmetically impossible had inflation and nominal interest rates both been three percentage points lower in 1989. Thus a more vigorous policy of reducing inflation to zero in the mid-1980s might have led to a recent recession much more severe than we have in fact seen..."

Now we have an answer from Janet Yellen: that the zero lower bound is not, in fact, such a big deal:

Janet Yellen: The Outlook, Uncertainty, and Monetary Policy: "One must be careful, however, not to overstate the asymmetries affecting monetary policy at the moment...

Must-Read: Branko Milanovic and Suresh Naidu: Branko Milanovic's New Approach to Global Inequality: "Convergence and Divergence Across Nations Reinforced or Damped by Kuznets Waves within Nations...

Must-Read: Racial animosity, myths of betrayal, and fear of poverty and economic insecurity all combined together in a cocktail--but at least it's an ethos!

Matthew Yglesias: "The political movement behind Trump clearly mixes elements of economic distress...

Live from La Farine: I confess that I will never understand how David Brooks can be "so repulsed" by Donald Trump and Ted Cruz but have always found the likes of Newt Gingrich to be just dandy:

David Brooks: "I have spent the last week so repulsed by Donald Trump, I had forgotten how ugly Ted Cruz could be...

Must-Read: Menzie Chinn: Estimates of the Elasticity of Employment with Respect to the Minimum Wage: "Some people would have you believe the impact of a minimum wage hike...

Must-Read: There are big reasons to be for "mercantilist" policies:

1. In a world in which a country suffers from a shortage of risk-bearing capacity or a savings glut, exports are a very valuable source of aggregate demand.
2. In a world in which there are substantial spillovers from the creation and maintenance of communities of engineering practice, exports in associated industries are a powerful nurturant and imports a powerful retardant of such communities.
3. To the claim that subsidies to such communities are better, the proper rebuttal is "subsidies to whom?" Export champions reveal themselves to be competent productive organizations, and policies that encourage competent productive organizations are likely to do more to nurture communities of engineering practice than policies that encourage competent lobbying organizations.

The arguments against "mercantilist" policies are two:

1. The little one: such policies are inefficient, in that the losers lose more than the winners win.
2. The big one: such policies are not win-win, and economic policy energy is best devoted to things that are win-win--at least in the behind-the-veil-of-ignorance sense of win-win.

Paul Krugman: Trade Deficits: These Times are Different: "In normal times, the counterpart of a trade deficit is capital inflows...

Live from the Rumpublicans' and the Trumpublicans' Self-Made Gehenna:

Live from La Strada: Dan Drezner: "I saw the best minds of my generation destroyed by trying to devise an original take on @realDonaldTrump..."

Live from La Strada: Michael O'Hare: Why Is It So Hard to Increase Learning?: "The single most important obstacle to improving student learning in college...

...is our terrier-like obsession with assessment and our faith in punishment and reward as the only motivators of any use. It’s all summative evaluation, that does nothing for performance because it’s delivered too late and in an affectively toxic context.... What improves quality is (1) formative, and evaluation is the least of it, and (2) collaborative. These are bromides of industrial quality assurance, but in higher ed, for teaching, we are still in the dark ages of the 1970s when GM thought it could make quality cars by doubling inspections and having a larger reject lot at the end of the assembly line where defective cars could be triaged into ‘scrap, rework, or ship’....

Must-Read: Macro Advisers: Now-Cast: First-quarter real GDP growth at 1.0%/year:

They will probably be angry at me for posting this, but it is genuine news: personal income and outlays way undershot expectations, and so they have marked down their estimate for first-quarter 2016 real GDP growth from the 1.9%/year it was five days ago to 1.0%/year now.

Certainly makes last December look like a bad time to stop sniffing glue the zero-interest-rate policy, doesn't it?

Bill Black: Chinese Communists and Wacko U.S. Right Want to Save us from Effete Males: "The New York Times has produced a wonderful, unintended, juxtaposition in their pages on February 6, 2016...

Over at Equitable Growth--The Equitablog:

• Memo to self: My essential charts for understanding what used to be called the "Great Recession" - Equitable Growth
• Narayana Kocherlakota: The Fed's Credibility Dilemma
• Wolgang Munchau: The Errors Behind Europe’s Many Crises
• Bruce Bartlett: Republican Presidents Always Disappoint
• Martin Wolf: Helicopter drops might not be far away

Must-Read: Narayana Kocherlakota: The Fed's Credibility Dilemma: "What will happen if inflationary pressures prove stronger than expected...

Most-Recent Must-Reads:

• Wolgang Munchau: The Errors Behind Europe’s Many Crises
• Bruce Bartlett: Republican Presidents Always Disappoint
• Martin Wolf: Helicopter drops might not be far away
• Pam Samuelson, Holly van Howling, Tom Leonard, and Carla Hesse: About Us | Authors Alliance

Most-Recent Links:

• Vicky Fouka
• Mark Kleiman: Trade, Trump, and Downward Class Warfare
• Las Vegas Valley
• Rosy Cima: How a fluke video game called the Eternal War became a cultural phenomenon—and changed its creator
• Steve M.: Dear David Brooks: The 'Post-Trump' GOP Will Be Exactly Like The Pre-Trump GOP, Only Trumpier
• Jamie Oliver: Perfect Hollandaise Sauce

...what we should now be calling "The Lesser Depression", and what we are likely to someday call "The Longer Depression":

Must-Read: On John Kasich's evolution from Young Turk to Old Turkey.

Thomas Kaplan et al.: Soft and Cuddly? John Kasich’s Old Colleagues Don’t Recognize Him: "Mr. Kasich... [says] he has indeed changed...

Must-Read: Wolgang Munchau: The Errors Behind Europe’s Many Crises: "The EU was wrong to construct a single currency without a proper banking union...

George Marshall: Marshall China Mission Files, Lot 54–D270: "

Document Prepared by General Marshall[1]: Basis for Entry of Field Teams Into Manchuria: