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September 2016

Must-Read: The problem is that ultra-easy money that creates financial imbalances is supposed to create real-side imbalances as well. That is, in fact, how you know that there are financial imbalances: financial assets are supposedly "backed" by real-side assets that simply aren't there. The financial imbalance of too much CDS in 2005 was matched by real houses that had been built that were occupied by "owners" who had no chance of paying their mortgages, and could only come out whole if the cycle continued another round at yet a higher level of prices. The financial imbalance of too much dollar-denominated Latin American debt in 1982 was matched by a real export sector in Latin American that simply could not export to earn enough hard currency to make up the debt amortization. In both cases, lenders made soporific by easy money did not do their due diligence as to what their debtors were doing (or, rather, not doing) to build (or, rather, not build) real assets of the value to back their financial debts.

And the result of ultra-easy money is inflation, in assets or in real currently-produced commodities, as financial and spending values outrun real production values, and accelerating inflation until the crash comes.

But where is the inflation? It's not in any currently-produced goods and services. It's not in any risky financial assets where buyers are ignoring disaster scenarios. Rather, the assets that are high priced are the Treasuries, which are valuable precisely because investors are conspicuously not underpricing risk and not ignoring disaster scenarios:

Bill White: Ultra-Easy Money: Digging the Hole Deeper?:

Ultra Easy Monetary Policy: Why it Hasn’t Worked as Intended

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Live from Capitol Hill: Martin doesn't sharpen this enough. Mitch McConnell and John Boehner and Ted Cruz--and JEB! Bush, John Kasich, Marco Rubio, Paul Ryan, and company too--made a decision to treat Barack Obama not like a President who had adopted John McCain's global warming plan and Mitt Romney's health care reform plan, but as an alien enemy of America who had captured Washington. And they were all too stupid to recognize that the longer time went on with them saying this and Obama still sitting in the White House, the more they became, in the eyes of their own base, the Washington they were whipping up sentiment against:

Martin Longman: You Break It, You Own It:

You might want to take out the tiniest violin in the world to play for the sad, sad Trump-supporting Washington staffers and consultants who are getting shunned by their peers....

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Must-Read: Simon Wren-Lewis recounts his career history and how it has shaped his thought. I have enormous respect for him. But I still do not understand why it would be a good thing to require that models have all of:

  • a representative agent
  • an Euler equation governing consumption
  • Calvo pricing and the associated forward-looking Phillips Curve
  • TFP residuals as an explanatory variable

All of these are either rejected by the data--strongly--or cheat by taking one of your model's fit errors and claiming that it is a well-understood driving factor:

Simon Wren-Lewis: Economics, DSGE and Reality:

Just before 1990... with colleagues I showed that entering the ERM at an overvalued exchange rate would lead to a UK recession...

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Must-Read: It's time to work toward a better definition of "equitable growth" than the vague and implicit one that we have been working with so far. Elements needed are that prosperity should be (a) broad-based, (b) fair, and also (c) substantial. That means substantial economic growth, but it also means conforming to people's reasonable expectations of how economic growth was going to be divided and a relatively low level of inequality:

Laura Tyson and Anu Madgavkar: The Great Income Stagnation:

MGI surveys in France, the United Kingdom, and the US have found...

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Procrastinating on September 19, 2016


Over at Equitable Growth: Must-Reads:

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Links for the Week of September 18, 2016

Most-Recent Must-Reads:

Most-Recent Links:

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Lievblogging the Cold War: September 19, 1946: Harry S. Truman

Stalin reviewing parade in red square Google Search

Harry S. Truman: Typed Note: September 19, 1946:

Sept. 19, '46

Mr. Wallace spent 2 1/2 hours talking to me yesterday. I'm not so sure he's as fundamentally sound intellectually as I had thought. He advised me that I should be far to the "left" when Congress was not in session and that I should move right when Congress is on hand and in session. He said F.D.R. did that and F.D. never let his "right" hand know what his "left" hand did!

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Liveblogging the American Revolution: September 18, 1778: TD

To Benjamin Franklin from T[homas] D[igges], 18 September 1778:

Bir[mingha]m Sepr. 18./78Sir

My having an oppertunity to forward this under cover to my freind Mr. I[zar]d, induces me to obtrude a few lines on You. Mr. Alex[ande]r Dick and some companions of his was lately with me, and their situation and circumstances demanded of me every alleviation of their wants that I had in my power to afford them; in the doing of which I was obligd to take Mr. Dicks bill on You dated Bristol Sepr. 8, ten days sight, for twenty six pounds Sterling, which bill I shall keep until a favourable oppertunity offers of remitting it to some freind in France.

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Monday Smackdown: Why Don't the Editors of the New York Times Make David Brooks at Least Phone It in?

Preview of Test

Yastreblyansky: David Brooks on Civic Religion: The Radio Yerevan Joke:

Question to Radio Yerevan: Is it correct that Dr. King sang the national anthem before his "I Have a Dream" speech and then quoted the Declaration of Independence within it?

Answer: In principle, yes. But:

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Live from Trumpland: Veiled calls for the assassination of the opposing party's candidate are not, typically, part of American politics. As Benjamin Franklin reportedly said: we have "a republic, if you can keep it". Those working to elect Trump right now either out of anger, cynical calculation, or fear are not helping us keep it:

Trump urges secret service to stop protecting Clinton FT com

Demetri Sevastopulo

The New York mogul's suggestion about the Secret Service, which provides hundreds of agents to protect both candidates, came at the end of a day when he duped the media with a bizarre press event during which he tried to paper over his involvement in propelling a conspiracy about President Barack Obama....

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Monday Smackdown: Yet Another Washington Post Edition--This Time It's Katie Zezima

Preview of Test

Live from the Journamalists' Self-Made Gehenna: Yet another reason friends don't let friends waste time--or pay for--the Washington Post: Katie Zezima of the Washington Post: We see what you did there!

Jacob Bacharach: WaPo-Style Data Journalism:

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Must-Read: There is a debate that may be semantic and may be substantive with respect to whether a higher inflation target is in some sense a "policy" or a "tool" or not. I find myself of more than two minds about this. But by not including it on his list of things he prefers to negative interest rates alongside QE, Joe Gagnon implicitly reaches the conclusion that monetary régime change is not on the menu:

Joe Gagnon: Negative Interest Rates: A Useful But Limited Tool:

The disadvantages of paper currency are not so large as to allow for unlimited negative interest rates....

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Must-Read: Thinking of monetary policy as matching the market rate of interest controlled by the Federal Reserve to some underlying Wicksellian "neutral" rate that produces full-employment stable-price equilibrium was introduced, or reintroduced, into the American macroeconomic policy discussion by Alan Greenspan in the early 1990s. But, as Mauro Boianovsky points out here, that way of framing the issue is Wicksellian--but it was not quite Knut Wicksell's way:

Mauro Boianovsky: Knut Wicksell, Secular Stagnation, and the Negative Natural Rate of Interest:

The notion of secular stagnation is consistent with... [Knut Wicksell's] hypotheses of diminishing returns to technical progress and to capital accumulation alike....

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Must-Read: I think that the subtle Roger Farmer is mostly right here, but gets one key crucial detail wrong. He states that there are "permanent long-run shifts in the equilibrium unemployment rate caused by changes in the animal spirits of participants in the asset markets". I am not sure that that is correct. What I do think is correct is this: there are permanent long-run shifts in the employment-to-population ratio caused by changes in the animal spirits of participants in the asset markets. (There are also permanent long-run shifts in the employment-to-population ratio caused by demographic, sociological, and cultural factors.) By focusing on the unemployment rate--now back to 4.9%--Roger, I think, unnecessarily weakens his case:

Roger Farmer (2014): Real Business Cycle Theory and the High School Olympics:

[Prescott's] argument was that business cycles... are caused by the substitution of labor effort of households between times of plenty and times of famine...

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Must-Read: Project Syndicate is introducing a new fortnightly feature: trying to themselves aggregate the best explicit and implicit dialogues about the most important aspects of the world situation that are currently taking place in its pages. We wish them all the best of luck:

Project Syndicate: Untruth and Consequences:

In every corner of the world, governments are failing...

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Weekend Reading: Ada Palmer (2012): Machiavelli I


Ada Palmer (2012): Machiavelli I:

My year in Florence has flown by, leaving me to face up to a life without battlements and medieval towers, without Botticelli and Verrocchio, without church bells to inform me when it’s noon, or 7 am, or 6 am, or 6:12 am (why?), without squash blossoms as a pizza topping, without good gelato within easy reach, and without looking out my window and realizing that the humungous dome of the cathedral is still shockingly humungous whenever I see it, and the facade so beautiful that it hasn’t started to feel real, not even after so long.

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Liveblogging World War I: September 16, 1916: Hindenburg Line Hindenburg gives order to strengthen German defenses:

On September 16, 1916, one month after succeeding Erich von Falkenhayn as chief of the German army’s general staff during World War I, General Paul von Hindenburg orders the construction of a heavily fortified zone running several miles behind the active front between the north coast of France and Verdun, near the border between France and Belgium.

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Liveblogging Postwar: September 15, 1946: Letter from Harry S. Truman to Bess W. Truman

Letter from Harry S. Truman to Bess W. Truman_:

[The White House] September 15, 1946

Dear Bess:

Well it is a beautiful Sunday morning and I slept until six-thirty after going to bed at two. I was intending to go up to the mountain Friday but it turned so cold I was sure it would be uncomfortable.

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Liveblogging the Cold War: September 14, 1946: Franco-Vietnam Modus Vivendi

Franco-Vietnam Modus Vivendi of September 14th, 1946:

Viet-Nam nationals in France, French nationals in Viet-Nam will enjoy the same freedom of “establishment” as nationals, as well as freedom of opinion, of teaching, of commerce, of circulation, and more generally all democratic liberties.

French property and enterprises in Viet-Nam may not be submitted to a stricter regime than that accorded property and enterprises of Viet-Nam nationals, particularly with regard to taxes and labor legislation. This legal equality will be accorded on a reciprocal basis to the property and enterprises of Viet-Nam nationals in the territories of the French Union.

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Musings on "Just Deserts" and the Opening of Plato's Republic

Bradford delong com Grasping Reality with the Invisible Hand

Musings on "Just Deserts" and the Opening of Plato's Republic:

Greg Mankiw Defending the 1% proposes what he calls the "just deserts" theory of social justice:

What you have gained and hold by playing by the economic rules is yours: social justice consists in not cheating or injuring people, and not being cheated or injured in turn.

This is an old theory: we see it first in the western intellectual tradition nearly 2400 years ago, in the opening of the dialogue that is Plato's Republic. It is advanced by Kephalos...

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Weekend Reading: Ta-Nehisi Coates: Why the Media Didn't Bother to Verify if Hillary Clinton's Remark About Half of Donald Trump's Supporters Being 'Deplorable' Was True

Ta-Nehisi Coates: [Why the Media Didn't Bother to Verify if Hillary Clinton's Remark About Half of Donald Trump's Supporters Being 'Deplorable' Was True][]:

How Breitbart Conquered the Media Political reporters were taken aback by Hillary Clinton’s charge that half of Trump’s supporters are prejudiced. Few bothered to investigate the claim itself...

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Procrastinating on September 16, 2016


Over at Equitable Growth: Must-Reads:

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Comment of the Day: LosGatosCA: bin Laden:

"I don't know whether George W. Bush genuinely did not understand that Osama bin Laden could do this and survive was genuinely offensive, and worth spending a lot of resources to prevent, or whether he did understand it but just thought the Washington press corps he faced was really stupid." First, he didn't care about bin laden...

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Files Related to the Hutchins-Brookings Productivity Festival

UPDATE: Relatively happy now: Brookings Productivity Festival: DeLong Edited Transcript (September 9, 2016)

I am not happy with any of the presentations/notes I prepared for this conference. But, for what it's worth, here is the organizers' precis, and my three attempts at being informative and coherent:

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Brookings Productivity Festival: DeLong Edited Transcript (September 9, 2016)

The Productivity Puzzle: How Can We Speed Up the Growth of the Economy?

First, I need to stop flashing to the dystopian future which Bronwyn here has made me imagine. It is one in which drones overfly my house with chemical sensors constantly sniffing to see if I am cooking Kung Pao Pastrami--without having bought the required intellectual property license from Mission Chinese...

Deep breath...

Three big things have been going on with respect to productivity growth here in the United States over the past half century:

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Talking Points for Fox News Business This Afternoon (September 15, 2016: 2 PM)...

(1) How well does HRC do her job, really?

  • Consensus judgment well-expressed by Donald Trump:
    • “she really works hard, and I think she does a good job...”
    • “I know Hillary and I think she’d make a great president...”
    • “smart, tough and a very nice person...”
    • "I like her… just really terrific people...”
    • "a terrific woman..."
  • Last big mistake in 1993-1994: The HillaryCare campaign:
    • What was that big mistake?
    • Fresh from Arkansas, she was snowed by Acela Corridor consultants...
    • Who had no plan for how to actually pass the health care bill...
    • She learned...

(2) How should we evaluate candidates economic plans and promises?

  • Two questions seem most important:
    • Do they tend to overpromise or underpromise?
    • Do they have the organization you need to plan to actually make calculations and plans?
  • Trump overpromises, and doesn't have the organization...

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Very Brief Musings on Democracy

Parthenon Google Search

Cf.: Christopher H. Achen and Larry M. Bartels: Democracy for Realists: Why Elections Do Not Produce Responsive Government


Cf: Martin Wolf: Capitalism and Democracy: The Strain Is Showing:

Confidence in an enduring marriage between liberal democracy and global capitalism seems unwarranted....

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"Mr. Lucky": From the Fifth Millennium BCE: Hoisted from Others' Archives from Eight Years Ago

Stallion Google Search

Buce: The Luckiest Horse in the Fifth Millennium BCE:

The subject for the day is the domestication of the horse--where and when and how and why, as recounted by David W. Anthony in his fascinating and absorbing new book, The Horse, the Wheel, and Language (2008)--and also a salute to the luckiest horse in the Fifth Millennium BCE. Per Anthony, the date is about 4800 BCE; the place is in what he chooses to call ‘the Pontic-Caspian steppes,’ just above the Caspian Sea. The ‘why’ is interesting: apparently not for riding, but for food—horses were big and meaty and could live over the winter in cold climates (riding came later).

As to ‘how,’ the flip answer is ‘it wasn’t easy,’ which is not surprising when you stop to think of it: horses—or, more precisely, stallions—are a notoriously tricky lot and they wouldn’t take kindly to being stabled or hobbled or slapped into harness. But as to precisely how, the DNA evidence provides a remarkable clue. Per Anthony:

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