Grasping Reality on TypePad, by Brad DeLong

He got a larger percent of the popular vote than Donald Trump did...

Nelson D. Schwartz: Trump to Announce Carrier Plant Will Keep Jobs in U.S.:

Should-Read: Simon Wren Lewis: Whatever Happened to the Government Debt Doom Spiral?: "A number of people... are puzzled about why government debt at 90% of GDP seemed to cause our new Chancellor and the markets so little concern when his predecessor saw it as a portent of impending doom...

Live from London: Yes, Britain's governance looks to be worse than America's over the next four years. Why do you ask?

Duncan Black: Good Luck With That: "The weird belief that there could be no negative consequences of Brexit while still actually undertaking Brexit is cute...

Live from Havana: Larry Summers: Castro Is Dead: "History will judge the US embargo policy a total failure...

A Hypothesis: Some (many?) Federal Reserve policymakers seem to believe that if there is a recession, they lose.

The Kelly Risk Criterion: The intelligent and thoughtful Felix Salmon makes a subtle and interesting error--an error that I would make on at least a monthly basis, had Robert Waldmann not patiently explained all this to me in the winter of 1986.

He discusses Kelly risk analysis. Pushing leverage beyond the Kelly point does not decrease expected return. Rather, it decreases the likelihood of organizational survival, and the chance that you will be wealthy.

If you are acting as one of many agents for a well-diversified principal, you will in general want to ignore the Kelly point and leverage yourself up to the gills.

If your objective is, instead, to maximize your own chances of remaining in the game with boasting rights, you will position yourself at the Kelly point.

Must-Read: Nathan Lane: Manufacturing Revolutions: Industrial Policy and Networks in South Korea: "This paper uses a historic big push intervention and newly digitized data from South Korea to study the effects of industrial policy on (short- and long-run) industrial development...

Should-Read: Simon Wren-Lewis: Public Investment and Fiscal Rules: "When I started writing this paper with Jonathan Portes...

Should-Read: Simon Johnson: The Politics of Job Polarization: "Highly educated people at the top of the income distribution are doing better than ever...

Project Syndicate: Missing the Economic Big Picture: BERKELEY – I recently heard former World Trade Organization Director-General Pascal Lamy paraphrasing a classic Buddhist proverb, wherein China’s Sixth Buddhist Patriarch Huineng tells the nun Wu Jincang: “When the philosopher points at the moon, the fool looks at the finger.” Lamy added that, “Market capitalism is the moon. Globalization is the finger.” With anti-globalization sentiment now on the rise throughout the West, this has been quite a year for finger-watching... Read MOAR at Project Syndicate

Understanding Trump: Even the Good Scenario Is Bad: Q: Are we in Europe misunderstanding Trump?

A: The non-legislative powers of the president are extremely large. Thus the risks of disaster-from-incompetence are quite high--even leaving to one side the chance of a Berlusconi bunga-bunga governance kleptocratic orgy...

Some people do have a more positive view of Reagan than I do. But when I look at Reagan I see:

Should-Read: Abhijit Bannerjee: E-governance, Accountability, and Leakage in Public Programs: Experimental Evidence from a Financial Management Reform in India: "Sometimes you hear people say 'RCTs are so small: how can you generalize?' There are so many people in this RCT that we could populate two small European countries with them."

Must-Read: Cosma Shalizi: Ernest Gellner, 1925-1995: "Most of these themes themselves revolve around the 'great hump' or 'great ditch', which divides the modern world from pre-modern civilizations...

Comment of the Day: J.E. D'Ulisse: Weekend Reading: Thoukydides: The Mytilenean Debate (427 B.C.): "Back in 2005, I remember sitting in bars in Rome with my Italian friends and discussing what was going on in the USA...

Should-Read: Brad Setser: China’s Dual Equilibria: "Not just multiple possible exchange rate equilibria... at least two different possible macroeconomic equilibria...

Across the Wide Missouri: But we have been here before--albeit to a lesser extent. The huge gap between the Reagan and the George W. Bush that people encountered in the White House and elsewhere every single day and the Reagan and George W. Bush portrayed by the media was quite substantial. By contrast, with Obama, Clinton, George H.W. Bush, and Carter, what you saw was what was reported:

James Fallows: A Reflexive Liar in Command: Guidelines for the Media: "Most people would hesitate before telling easily disprovable lies like these...

Over at Equitable Growth: Must- and Should-Reads:

• Nancy Folbre: Does the One Percent Deserve What It Gets?: "Years of schooling in neoclassical economic theories predispose [economists] to the view that perfectly competitive markets yield equitable as well as efficient outcomes...
• Ian Dunt: Brexit: What the Hell Happens Now?: Everything You Need to Know about Britain's Divorce from Europe: "Britain's departure from the European Union is filled with propaganda, myth, and half- truth--but the risks are very real...

I'm confused because it does not seem to me that there is a single Ms. Market out there...

Should-Read: Ian Dunt: Brexit: What the Hell Happens Now?: Everything You Need to Know about Britain's Divorce from Europe: "Britain's departure from the European Union is filled with propaganda, myth, and half- truth--but the risks are very real...

Must-Read: If people's utility is proportional to the log of their lifetime incomes, then a perfectly competitive market without increasing returns, non-rival or non-excludible goods, or externalities "solves" the social welfare problem of maximizing a weighted sum of individual utility levels in which each individual's utility is weighted by the value of his or her comprehensive lifetime endowment. What determines your lifetime endowment? The environment in which you are raised and your genetic inheritance that determines your skills, the property you inherit, luck; plus whether your particular environment-genetic-property-luck combination is scarce by nature, the luck of the draw, or by rent-seeking policy; and whether rich people have a strong jones for the things that your comprehensive lifetime endowment gives you a comparative advantage in making.

And if people are more risk averse than log utility--and it really looks like they are--the social welfare problem the market "solves" weights the ex post rich even more highly.

And we haven't even gotten to the point that virtually nobody well-off is paid their marginal product--subtract them from society and let the market reach a new equilibrium, and in all but the most exceptional cases the drop in output would be only a small fraction of their "compensation". (The poor, by contrast, are paid their marginal product--or less.)

The answer to the question, "is it sensible for society to maximize a social welfare function in which everybody's utility is weighted by the ex post value of their comprehensive lifetime endowment?" is "no".

Where does the idea that it is sensible come from. I think it comes from the opposite of rational thought. It is, psychologically, very important for human happiness for people to convince themselves that they "deserve" what they get--people are very unhappy if they think that they are among the moochers, and very very unhappy if they think that they are among the moochers. Finding a way to believe that this is true--that what is is one's just karma--is important to many people. Thus it is a form of theology, not social science...

Nancy Folbre: Does the One Percent Deserve What It Gets?: "Years of schooling in neoclassical economic theories predispose [economists] to the view that perfectly competitive markets yield equitable as well as efficient outcomes...

Comment of the Day: John Hulls: When Is Responsible Democratic Governance Possible? The Classical View: Never: "I think that Aristophanes is far more relevant with his 'Acharnians'...

Over at Equitable Growth: Must- and Should-Reads:

• James J. Feigenbaum and Christopher Muller: Lead exposure and violent crime in the early twentieth century: "In the second half of the nineteenth century, many American cities built water systems using lead or iron service pipes... (M)
• Dina D. Pomeranz: @dinapomeranz: "Income share of top 1% grew back to where it was 100 years ago in US, UK, CA, IR, AUS, not in DE, JP, FR, SE, DK, NL https://t.co/5MtmkHFMwC (M)
• Must-Read: Noah Smith (2013): "Just Desserts": "'I get what you get in ten years, in two days.'--Chris Brown... (M)
• Mike Konczal (2010): Biggest Surprise of Last Two Years: Bad at Losing: "I expected Obama to be... better at losing... (Tu)
• Pseudoerasmus: To Explain Myself on Twitter: My View of Chile: "Chile before Allende had already been a middle-income country... since the 19th century... (Tu)

Most-Recent Must-Reads:

• Ben Bernanke: Sebastian Mallaby’s Biography of Alan Greenspan: "Mallaby’s argument that Greenspan should have known that a tighter monetary policy was appropriate in 2004-2005 (if that was in fact the case!) strains credulity... (W)
• Daniel Nexon: Scott Eric Kaufman: "People are sharing this compendium of posts by the late Scott Eric Kaufman... (F)
• Mark Thoma: New Economic Thinking Is Needed to Stop Party Crashers Like Trump: "We must take steps such as support of unionization that equalize bargaining power in wage negotiations... (F)
• Noah Smith (2013): "Just Desserts": "'I get what you get in ten years, in two days.'--Chris Brown... (M)
• Pseudoerasmus: To Explain Myself on Twitter: My View of Chile: "Chile before Allende had already been a middle-income country... since the 19th century... (Tu)

Most-Recent Should-Reads:

• Mike Konczal (2010): Biggest Surprise of Last Two Years: Bad at Losing: "I expected Obama to be... better at losing... (Tu)

Most-Recent Links:

• Isaac Asimov: Second Foundation: "Bail Channis: 'Not all the force of the Second Foundation, could not have harmed you, surrounded as your were by your men, your machines, and your mental power.' The Mule: 'My mental power is yet with me, squirmer. And my men and machines are not far off'..." http://amzn.to/2gtwH9d

Should-Read: Mike Konczal (2010): Biggest Surprise of Last Two Years: Bad at Losing: "I expected Obama to be... better at losing...

Must-Read: Pseudoerasmus: To Explain Myself on Twitter: My View of Chile: "Chile before Allende had already been a middle-income country... since the 19th century....

Democracy Must Be Irresponsible: So Responsible Governance Must Be Undemocratic

When is responsible democratic governance possible? Our classical predecessors would have given a simple answer: never.

Thoukydides: The Mytilene Debate (427 B.C.): "The Athenians... in the fury of the moment determined to put to death not only the [Mytilenean] prisoners at Athens, but the whole adult male population of Mitylene, and to make slaves of the women and children...

Copacabana (1947):

Live from Havana: Eddy Elfenbein: @EddyElfenbein: "Look, I'm not wild about how the Alderaan thing was handled but the Empire made great strides in literacy and public health..."

Must-Read: Noah Smith (2013): "Just Desserts": "'I get what you get in ten years, in two days.'--Chris Brown...

Should-Read: Dina D. Pomeranz: @dinapomeranz: "Income share of top 1% grew back to where it was 100 years ago in US, UK, CA, IR, AUS, not in DE, JP, FR, SE, DK, NL https://t.co/5MtmkHFMwC

Must-Read: James J. Feigenbaum and Christopher Muller: Lead exposure and violent crime in the early twentieth century: "In the second half of the nineteenth century, many American cities built water systems using lead or iron service pipes...

Good Riddance to Fidel Castro!: Fidel Castro has retired. Good riddance!!

That the Lenin-Trotsky-Stalin Authoritarian Project of which Fidel Castro was the next-to-last exemplar was not an advance toward but a retreat from a better world was obvious long, long ago. Quite early--Kronstadt?--it was clear to all save the dead-enders that the project was a mistake.

As Rosa Luxemburg wrote in "The Russian Revolution":

Ana Navarro: @ananavarro: "Why Miami celebrating? Ppl like my friend, Claudia Puig. Her dad killed by a Castro firing squad. Her uncle was a political prisoner 25 yrs."

Sean Carroll: @seanmcarroll: “'Universal health care' and 'other countries were worse' don’t make Castro worth celebrating. Repressive dictatorships are bad."

manu saadia: @trekonomics: "Today's @lemondefr is on point:" https://t.co/eXkNcfTD75

Adrian Monck: @amonck: "Channelling Public Enemy on Elvis:"

Stefan Leifert: @StefanLeifert: "Jean-Claude Juncker: 'With the death of Fidel Castro, the world has lost a man who was a hero for many'."

For all of our stooges searching for a Stalin, half-wits hailing a Hitler, morons marching for a Mussolini, and clowns craving a Castro this morning. A suitable epitaph for Fidel Castro, from Gabriel Garcia Marquez:

A vast bureaucratic incompetence affecting almost every realm of daily life, especially domestic happiness... has forced Fidel Castro himself, almost thirty years after victory, to involve himself personally in such extraordinary matters as how bread is made and the distribution of beer...

Jacobo Timmerman (1990): A Summer in the Revolution: 1987: "When I read one of Gabriel Carcia Marquez's essays on the Commandante [Fidel Castro], I was remind of paeans to Stalin...

For all of our stooges searching for a Stalin, half-wits hailing a Hitler, morons marching for a Mussolini, and clowns craving a Castro this morning:

Jaybird: Vladimir, Joseph, and Zedong:

Has anybody here seen my old friend Vladimir?
Can you tell me where he’s gone?
He freed a lot of people,
But it seems the good they die young.
You know, I just looked around and he’s gone.

AP: Fidel Castro Dead at 90: "HAVANA (AP) — Cuban President Raul Castro has announced the death of his brother Fidel Castro on Cuban state media. Fidel Castro was 90 years old..."

Some teabaggers like Augusto Pinochet. Some herbal teabagger liked Fidel Castro. Peas in a pod:

Alexander Hamilton: The Federalist Papers: No. 9: "To the People of the State of New York:

A FIRM Union will be of the utmost moment to the peace and liberty of the States, as a barrier against domestic faction and insurrection. It is impossible to read the history of the petty republics of Greece and Italy without feeling sensations of horror and disgust at the distractions with which they were continually agitated, and at the rapid succession of revolutions by which they were kept in a state of perpetual vibration between the extremes of tyranny and anarchy.

Over at Equitable Growth: Must- and Should-Reads:

• Central Banks, Neutral Policy, and Economic Structure - Equitable Growth
• What Will Trump's Trade Policy Be? - Equitable Growth
• Trumpism on Trade as a Wild Goose Chase - Equitable Growth
• Daniel Nexon: Scott Eric Kaufman: "People are sharing this compendium of posts by the late Scott Eric Kaufman...
• David Weil and Heidi Sherholz: CBO Report Confirms What We Already Knew: "The Congressional Budget Office released a study of the economic impact of reversing these updates to the overtime regulations...
• Mark Thoma: New Economic Thinking Is Needed to Stop Party Crashers Like Trump: "We must take steps such as support of unionization that equalize bargaining power in wage negotiations...
• David Jacks et al.: Infant Mortality and the Repeal of Federal Prohibition: "Exploiting county-level variation in prohibition status...

Should-Read: David Jacks et al.: Infant Mortality and the Repeal of Federal Prohibition: "Exploiting county-level variation in prohibition status...

Must-Read: Mark Thoma: New Economic Thinking Is Needed to Stop Party Crashers Like Trump: "We must take steps such as support of unionization that equalize bargaining power in wage negotiations...

Should-Read: David Weil and Heidi Sherholz: CBO Report Confirms What We Already Knew: "The Congressional Budget Office released a study of the economic impact of reversing these updates to the overtime regulations...

Must-Read: Dan Nexon's strictures on how American universities' hiring systems are broken are very important:

Daniel Nexon: Scott Eric Kaufman: "People are sharing this compendium of posts by the late Scott Eric Kaufman...

I see that the Financial Times has given Blackstone CEO Tony James a column to say: "To revive America's economy, raise interest rates".

Let us suppose that we had been transported to some other branch of the multiverse, along which the Federal Reserve had not held interest rates at zero but had steadily and gradually raised them for the past six years them so that the Federal Funds rate now stood at 400 basis points. What does the economy look like along our branch and along that branch?

Via Josh Marshall: On James Comey: "I'm sure you're getting a million takes on the Comey/email situation from former AUSAs...

Note to Self: Was it Mary Beard who said that, much as she loved to read Tacitus and Suetonius, it was implausible that all the good emperors were those who died in their beds and were followed by their chosen successors no matter how many senators they had killed or poets they had exiled, while all the bad emperors were those who had been assassinated? Were no good emperors ever assassinated? Did no bad emperors ever die in their beds? Thus she tends toward structural rather than accident- or personality-based history...

Q: How hard will it be for Trump to produce jobs for the people he promised he would?

A: Fiscal expansion might rescue Trump by creating a high-pressure economy, if we are still far from full employment. Otherwise...

Bad trade deals are not the reason for the decline in American manufacturing employment and the stagnation of earnings outside the 10%.

• Filling: 2 cups pumpkin, 1 cup sugar, 2 cups heavy cream, 4 large eggs (2 oz. each: 1 cup total), 2 teaspoons cinnamon, 1 teaspoon ginger, 1/2 teaspoon nutmeg, 1 pinch clove...

• Crust: 1 3/4 cups flour, 5 oz. butter, 2 oz. shortening, 1 egg yolk, 3 tablespoons sugar, 2 teaspoons orange zest, 2 teaspoons lemon zest...

• Whipped Cream: to taste...

Hoisted from the Archives: 470 years ago, in 1543, King Henry VIII Tudor of England married his sixth and last wife, Katherine Parr. He also:

• allied with the Holy Roman Emperor Charles V Habsburg "of Ghent";
• declared war on France;
• imposed the English administrative grid of counties, shires, boroughs, and House of Commons representatives on Wales;
• made yet another short-lived treaty with Scotland;
• burned the three Protestant Windsor Martyrs; and
• named the composer Thomas Tallis a Gentleman of the Chapel Royal.

A busy king, for one so sick and mad.