Grasping Reality with Both Hands

There are, broadly speaking, three kinds of American patriotism. There is Kentucky, which is the standard ethno-linguistic nationalism of soil and blood (think: age of Andrew Jackson). There is Virginia, which is a peculiar form of libertarianism-of-adoption: "we" have come here so that nobody else can boss "us" or those we adopt to become "us" around (think: Thomas Jefferson). And there is New England, which is the utopian nationalism of election: those who elect to come here and help "us" to build utopia are "us", and are very welcome as long as they commit to building the City Upon a Hill.

To no one's surprise, I like the third kind. And here is its root, in John Winthrop's Arabella Sermon:

John Winthrop: From "A Model of Christian Charity": "We are entered into covenant with Him for this work...

I must say I would greatly appreciate one...

Tedra Osell, Scott Eric Kaufman, Brad DeLong, Ari Kelman, and Eric Rauchway: Historical Scholarship and the New Media: May 23, 2007 U.C. Davis History Department Lunch Colloquium: Courtesy of U.C. David Department of History http://history.ucdavis.edu/:

Scott McLemee: Obituary of Scott Eric Kaufman: "Scott Eric Kaufman--an American critic and journalist who developed a readership while blogging as a graduate student in English--died in Houston on Monday following multiple organ failure and acute complications... about a month short of his 40th birthday...

Since 2009 the Federal Reserve and other global north central banks have, first hesitantly and enthusiastically, been trying to sacrifice the health of the commercial banking sector in order to keep the life support machines that are keeping the rest of the economy alive going.

In the United States 24% of nonfarm workers were manufacturing workers in 1971.

It's 8.6% today.

Maybe it would be 9% if NAFTA has not been negotiated and if China had not joined the WTO, but maybe it would still be 8.6%--analysts disagree on trade expansion vs. trade diversion here.

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

• Should We Use Expansionary Fiscal Policy Now Even If the Economy Is at Full Employment? Yes! - Equitable Growth
• Note to Self: Regulatory Uncertainty and Housing Finance - Equitable Growth
• Nick Bunker: Lack of market competition, rising profits, and a new way to look at the division of income in the United States - Equitable Growth
• Eric Holthaus: "We've never seen anything like what's happening in the Arctic and Antarctic right now. This is a new era." https://t.co/PUibEUN0t8 (Tu)
• 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)
• Izabella Kaminska: Dollar Shortage Alert: "Who funds the working capital that keeps globalised trade lubricated and in flow? Answer: hard currency investors... (W)
• Izabella Kaminska: Global Trade Alert: "Hyun Song Shin’s latest thoughts on the connection between the bank/capital markets nexus, the dollar shortage problem and the break down of covered interest rate parity arbitrage deserve some careful consideration... (W)
• Chicago Booth Review: What economists think about Donald Trump’s 100-day plan (Th)

Should-Read: Chicago Booth Review: What economists think about Donald Trump’s 100-day plan:

Should-Read: And how would the adverse Hayekian business shock manifest itself if not in a sharp slowdown in the growth of trans-Pacific trade? Very interesting. But I don't now what or how to think about this yet:

Izabella Kaminska: Global Trade Alert: "Hyun Song Shin’s latest thoughts on the connection between the bank/capital markets nexus, the dollar shortage problem and the break down of covered interest rate parity arbitrage deserve some careful consideration...

Should-Read: Very smart musings from Izabella Kaminska on the potential for tail risk from an adverse Hayekian business-cycle shock when and if the global savings glut comes to an end, and the value of a lengthy and geographically distributed process of production--what we now call a "value chain"--gets repriced downward:

Izabella Kaminska: Dollar Shortage Alert: "Who funds the working capital that keeps globalised trade lubricated and in flow? Answer: hard currency investors...

Must-Read: Ben has this right of it here.

Mallaby appears to have forgotten what 2003-2005 was like, and has been cherry-picking from the record of those years:

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...

Note to Self:  WHy are we here at Berkeley not offering a big course in Wheeled next semester:

 History does not repeat itself, but it does rhyme: The last crisis of the global liberal market democratic order, 1900 to 1940

?

 I know, I know, we do not have Wheeler. But still...

Note to Self:  WHy are we here at Berkeley not offering a big course in Wheeled next semester:

 History does not repeat itself, but it does rhyme: The last crisis of the global liberal market democratic order, 1900 to 1940

?

 I know, I know, we do not have Wheeler. But still...

Should-Read: Eric Holthaus: @EricHolthaus: "We've never seen anything like what's happening in the Arctic and Antarctic right now. This is a new era." https://t.co/PUibEUN0t8

When should you use fiscal policy to expand demand even if the economy is at full employment?

First, when you can see the next recession coming: that would be a moment to try to see if you could push the next recession further off.

Second, if it would help you prepare you to better fight the next recession whenever it comes.

The second applies now whether we are near full employment or not.

The best thing I have seen on the mess that America has now gotten itself into:

Luigi Zingales: The Right Way to Resist Trump: Five years ago, I warned about the risk of a Donald J. Trump presidency. Most people laughed...

They thought it inconceivable. I was not particularly prescient; I come from Italy, and I had already seen this movie, starring Silvio Berlusconi, who led the Italian government as prime minister for a total of nine years between 1994 and 2011. I knew how it could unfold.

Note to Self: Regulatory Uncertainty and Housing Finance: The U.S. Treasury seized Fannie and Freddie in 2008, and said that housing finance would be differently organized in the future.

Most-Recent Must-Reads:

• Larry Summers: A Badly Designed US Stimulus Will Only Hurt the Working Class (M)
• Jared Bernstein and Ben Spielberg: Preparing for the Next Recession: Lessons from the American Recovery and Reinvestment Act: "Moving forward... a stronger set of automatic stabilizers would help... (W)
• Martin Wolf: Donald Trump’s False Promises: "Fiscal loosening with monetary tightening would mean a stronger dollar and a rising current account deficit... (W)
• Paul Krugman (2015): Multipliers and Reality: "An exchange between Simon Wren-Lewis and Robert Waldmann... raises some interesting issues... (Th)
• Dave Wasserman: @ReDistrict: "Republicans appear to have won 55% of House seats w/ ~49% of the vote - a continuation of last few cycles." https://t.co/TtjnXcWhcX (F)
• Andreas Fagereng et al.: Heterogeneity and Persistence in Returns to Wealth: "Twenty years of population data from Norway’s administrative tax records [show]... (M)

Most-Recent Should-Reads:

• Duncan Black: Everybody Wants You: "I do think the upper class twits that rule Britain really do believe that the continent needs them (or thinks they do, effectively the same thing). They don't... (M)
• Simon Wren-Lewis: The Folly of Triggering Article 50: "Immediately after the Brexit vote, all the analysis I saw argued that Article 50 would not be triggered for some time... (M)
• Paul Krugman: Infrastructure Build or Privatization Scam?: "Trumpists are touting the idea of a big infrastructure build.... But remember who you’re dealing with... (Tu)
• Austin Frakt: Senator Lamar Alexander and Endless Can-Kicking Repeal: Senator Lamar Alexander understand how hard crafting health policy is... (Tu)

Most-Recent Links:

• Either central banks must be given the tools to stabilize the economy, or responsibility for stabilization policy needs to be shifted back so that fiscal authorities share it--in which case fiscal authorities need to step up their technocratic game: Stefan Gerlach: Sky-High Monetary Policy
• Michael Santoli: @michaelsantoli: "Non-financial stocks are up less than 1% since election [& financials up 10.6%]. But be sure to tell us again how 'everything's changed.'" https://twitter.com/hsilverb/status/799366135439388672
• Richard Baldwin: The Great Convergence: Information Technology and the New Globalization http://amzn.to/2g4GIpQ
• Kevin Drum: [Inflationary Pressure Is Yet Again Right Around the Corner ][]: "Inflation! It's always sneaking up on us..."
• Robert M. Citino: The German Way of War: From the Thirty Years' War to the Third Reich: http://amzn.to/2fayXxm
• Neville Morley: Political Economy and Classical Antiquity
• Heidi N. Moore: @moorehn: I am coming to believe that Trump cannot read.
• Matthew Yglesias: Not every congressional Democrat shares leadership’s desire to work with Trump: Rep. Ruben Gallego says “Donald Trump is not an ordinary politician.”
• Mohamed A. El-Erian: @elerianm: ICYMI, it didn't take long for the Bank of #Japan to react to higher yields - unlimited #bonds buying at fixed rates
• Matthew Yglesias: @mattyglesias: Is he saying his real liability for defrauding people was much more than $25 million?https://t.co/9iZ1Z4pyWY
• Matthew Yglesias: Congressional Democrats have nothing to fear from standing up to Trump, in one chart: He’s the least popular president-elect on record
• Matthew Yglesias: @mattyglesias: As long as I can remember white male left-of-center intellectuals have made complaints about "identity politics" part of their identity.
• Susan Dynarski: @dynarski: Stock price of U Phoenix at 52-wk high. Investors expect profits to rise at for-profits.

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

• Duncan Black: Everybody Wants You: "I do think the upper class twits that rule Britain really do believe that the continent needs them (or thinks they do, effectively the same thing). They don't... (M)
• Dave Wasserman: @ReDistrict: "Republicans appear to have won 55% of House seats w/ ~49% of the vote - a continuation of last few cycles." https://t.co/TtjnXcWhcX (F)
• Simon Wren-Lewis: The Folly of Triggering Article 50: "Immediately after the Brexit vote, all the analysis I saw argued that Article 50 would not be triggered for some time... (M)
• Andreas Fagereng et al.: Heterogeneity and Persistence in Returns to Wealth: "Twenty years of population data from Norway’s administrative tax records [show]... (M)
• Paul Krugman: Infrastructure Build or Privatization Scam?: "Trumpists are touting the idea of a big infrastructure build.... But remember who you’re dealing with... (Tu)
• Austin Frakt: Senator Lamar Alexander and Endless Can-Kicking Repeal: Senator Lamar Alexander understand how hard crafting health policy is... (Tu)

Should-Read: There is, as of yet, no Trump fiscal policy plan. There is only a plan to have a plan to have a plan.

On the tax side, getting good policy looks hopeless: another big tax cut for the super-rich and the rich, sold to outsiders as something that will induce a tidal wave of entrepreneurial activity and sold on the inside as simply allowing you to keep your money that would otherwise flow to the losers and the cheaters and the moochers.

On the spending side... at the moment it does indeed look like money for nothing: have the government pay for projects most of which would have been built by privates anyway, and then entrench monopoly pricing of what ought to be free public-good infrastructure for a generation: a zero on the short-term Keynesian boost to employment and production, a zero on the medium-term Wicksellian rebalancing to allow the normalization of interest rates, and a zero on boosting America's long-term potential by filling some of the infrastructure gap.

As I have said, however, there is a potential key at hand here: it is not in Donald Trump's interest for his infrastructure plan to be a failure. It is in his interest for it to build many, many large things. The debate can be moved here.

Paul Krugman: Infrastructure Build or Privatization Scam?: "Trumpists are touting the idea of a big infrastructure build.... But remember who you’re dealing with...

When I was working in the Treasury in 1993-5, I was struck by how much it was the case that President Bill Clinton was still the ex-Governor of Arkansas. Thus arguments that would have been powerful and important when directed at a Governor of Arkansas still resonated in his mind. Moreover, it seemed to me that they resonated much more strongly than they perhaps should have, given that he was now not Governor of Arkansas but President of the United States, if they were evaluated purely on technocratic grounds.

Should-Read: Reading the thinking of the Republican legislative caucus is always difficult, because they:

• are terrified of getting turfed out at the next election (more terrified of the primary than the general, but still);
• are not focused on the idea that policies need to work to be politically popular in the long run;
• have a circle of advisers largely limited to those who have told them what they wanted to hear and what was politically convenient for them to hear in the past.

Thus standard technocratic reality-based habits of thought often do not apply. Here, however, Austin Frakt finds Lamar Alexander getting it.

I would add that a great many Republican governors who have the Medicaid expansion money would like to keep it, and a great many Republican governors who do not have the Medicaid expansion money would like it block-granted to them:

Austin Frakt: Senator Lamar Alexander and Endless Can-Kicking Repeal: Senator Lamar Alexander understand how hard crafting health policy is...

Must-Read: Andreas Fagereng et al.: Heterogeneity and Persistence in Returns to Wealth: "Twenty years of population data from Norway’s administrative tax records [show]...

If there was ever time for a Popular Front, it is now. So I unmuted all of the muted and unblocked some of the blocked BernieBros for an hour...

No. Just no. Guys, stop it. And go away.

A cleaned-up transcript of my part of this Bank-Fund Meeting cycle's panel on "Fiscal Policy in the New Normal":

Moderator: Vitor Gaspar. Panelists: Mitsuhiro Furusawa, Brad DeLong, Bill Morneau, Ludger Schuknecht, Arvind Subramanian

Should-Read: As I have said, democracy is not an especially good way of choosing effective technocratic leaders. And our current democracy appears to be rather worse than usual. Cf. Thoukydides, [Mytilene Debate][], [Sikilian Expedition][], Melian Dialogue:

Simon Wren-Lewis: The Folly of Triggering Article 50: "Immediately after the Brexit vote, all the analysis I saw argued that Article 50 would not be triggered for some time...

...They were thinking rationally....

Diane Coyle: The Trade-Investment-Service-Intellectual Property Nexus: "I’ve managed to resist reviewing Richard Baldwin’s new book The Great Convergence: information technology, trade and the new globalization until now...

Alexander Hamilton (1778): Federalist No 68: "Nothing was more to be desired than that every practicable obstacle should be opposed to cabal, intrigue, and corruption...

Any Hopes for Inclusive Growth in the Age of Trump?:

Technocracy, Imperial Court Politics, Federalism, and Partisan Equilibrium

J. Bradford DeLong :: U.C. Berkeley, NBER, and WCEG :: November 17, 2016 :: PIIE

http://tinyurl.com/dl20161117a

Inclusive growth?

We are highly unlikely to have any—not for the next two years, and probably not for the next four years. Thus the talk I had prepared and the powerpoint I had drawn up two weeks ago are now totally irrelevant.

**Note to Self:** For the second day in a row, Sherman Robinson says that I must read Richard Baldwin's new book immediately...

Comment of the Day: Robert Waldmann: Some Questions About Low Investment, to Some of Which I Have Half-Adequate Answers...: "Ah, yes! Basically just the very primitive accelerator without even a real interest term...

Must-Read: Dave Wasserman: @ReDistrict: "Republicans appear to have won 55% of House seats w/ ~49% of the vote - a continuation of last few cycles." https://t.co/TtjnXcWhcX

Should Read: Duncan Black: Everybody Wants You: "I do think the upper class twits that rule Britain really do believe that the continent needs them (or thinks they do, effectively the same thing). They don't...

I think the big part of the story is that the investment accelerator is a big thing, even though our models say it should not. Businesses do wait to invest until they are running flat out to invest. It's a puzzle why they do this--they ought to act like the foresighted agents in our models, shouldn't they?

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

• Brad Plumer: Donald Trump's Infrastructure Plan Wouldn't Actually Fix America's Infrastructure Problems: "Donald Trump loves the idea of infrastructure... wants to make an infrastructure bill a priority in his first 100 days... (Th)
• Ann Pettifor: @annpettifor: "Read this for an explanation of George Osborne: https://t.co/UW0Tbo4BX9 (Th)
• Paul Krugman (2015): Multipliers and Reality: "An exchange between Simon Wren-Lewis and Robert Waldmann... raises some interesting issues. (Th)
• Ben Thompson: Fake News: "Between 2001 and 2003, Judith Miller wrote a number of pieces in the New York Times asserting that Iraq had the capability and the ambition to produce weapons of mass destruction... (F)
• PIIE: Conference on Income Inequality and Inclusive Growth (F)
• Should-Read: Aaron Carroll: Will “Repeal and Delay” Be the Next “Doc Fix”?: "I’m seeing a lot of chatter on how one thing Republicans can do in January is 'Repeal and Delay'... (F)
• Duncan Weldon: Negative Yields, the Euthanasia of the Rentier, and Political Economy: "I understand the mechanics of engine that took us here but not what the driver was thinking... (M)

Should-Read: Aaron Carroll: Will “Repeal and Delay” Be the Next “Doc Fix”?: "I’m seeing a lot of chatter on how one thing Republicans can do in January is 'Repeal and Delay'...

Should-Read: I wrestle with this political economy puzzle unsuccessfully myself. I am equally flummoxed:

Duncan Weldon: Negative Yields, the Euthanasia of the Rentier, and Political Economy: "I understand the mechanics of engine that took us here but not what the driver was thinking...

Neville Morley: Vicarious Virtue: "The seminar text for my Roman History course over the last fortnight has been the opening of the third book of Varro’s Rerum Rusticarum...

Let me distinguish between:

• Supervulgar Trumpism: Donald Trump will return manufacturing employment to 24% of the nonfarm labor force.

• Vulgar Trumpism: Donald Trump will renegotiate NAFTA and China's accession to the WTO. We will not get all or even most of the manufacturing jobs back, but the industries and the communities will be healthy.

• Semi-intelligent Trumpism: The U.S. ought to be a high savings capital and manufactures exporting country, like Germany and Japan. Bad macro and trade policies--the Reagan and Bush 43 deficits, keeping the strong dollar policy long past its sell-by date, prioritizing finance over manufacturing--accelerated the decline of manufacturing employment well beyond its proper technology driven pace and eroded our valuable communities of engineering practice.

Note to Self: Why Donald Trump's attempt to make trade policy his arena for rescuing America's white want-to-be-blue-collar workers will fail:

Pascal Lamy:

Brad DeLong started by alluding to Indian philosophy. I will start with Chinese: The philosopher says: 'When the wise man points at the moon, the fool looks at the finger'. Market capitalism is the moon. Globalization is the finger...

Whether you think the problem with market capitalism is income stagnation coupled with in adequate social insurance on the one hand, or a Polanyian disruption of expected life paths and chances on the other, Pascal Lamy is right in saying that it is a problem with market capitalism, not with trade and globalization.

Should-Watch: PIIE: Conference on Income Inequality and Inclusive Growth:

Weekend Reading: The problem with this from the extremely smart and thoughtful Izabella Kaminska's argument here is that people pay for the New York Times--and they got Judy Miller, Whitewater!, and Emails!. People pay for the Washinton Post, and get Fred Hiatt--plus get told that Stanley Kaplan University is wonderful, and that Clarice Starling and Eliot Ness established the high reputation of the FBI. In pay-for journalism you may be the customer rather than the product, but that does not get you far enough:

Izabella Kaminska: Facebook and the manufacture of consent: "As to... what’s really wrong with the media, the simple adage that you get what you pay for and that if it’s free you are the product is... insightful...

...If you pay peanuts, you will get poorly balanced, poorly verified, poorly sourced and poorly scrutinised news. And if you condone the mass distribution of free news and normalise it by calling it a “business model” or an “eco-system” you will fan the propaganda war rather than abate it. Don’t make Facebook and Google filter fake news. If you value truly balanced and verified news; if you value comment which scrutinises vested interests, business models or government policy; or if you value being confronted by views which are different from your own but still well argued, pay for the news, don’t just get it from Facebook....

Should-Read: Why it's not just Facebook and Twitter that need to clean house. There are a great many organizations--the New York Times and the Washington Post and the networks high among them--that do not have "be a trustworthy information intermediary" anywhere on their mission statements:

Ben Thompson: Fake News: "Between 2001 and 2003, Judith Miller wrote a number of pieces in the New York Times asserting that Iraq had the capability and the ambition to produce weapons of mass destruction...

Benedict Anderson's (1983) Imagined Communities is a great book--but great at posing the problem of why political action and agency went to the ethno-linguistic nation and not to the class, not great at finding a solution to the problem...

**Ernest Gellner's also 1983 Nations and Nationalism is a much better place to start...

• Benedict Anderson (1983): Imagined Communities: Reflections on the Origin and Spread of Nationalism http://amzn.to/2fYVq1e
• Ernest Gellner (1983): Nations and Nationalism http://amzn.to/2fYUg62

Must-Read: On the breakdown of intertemporal Euler equation utility arbitrage in consumption spending: Paul Krugman.

More broadly: There are, supposedly, three channels through which a future full employment equilibrium in which Say's Law holds reaches back in time and shapes the equilibrium of the economy in the present:

1. In the labor market, expectations of future real demand and more importantly prices shape wage bargains today.

2. With respect to real consumption demand, the Euler equation marginal condition reaches back from the future to shape consumption spending today.

3. In asset markets, financial market arbitrage means that equilibrium asset prices in the future come close to nailing the levels of asset prices and expected asset returns today.

But are any of these operating right now? The first has not been seen in the Global North since 1984. The second was never there. And the third... where is the third? (Cf. Paul Krugman (2015): Rethinking Japan

Paul Krugman (2015): Multipliers and Reality: "An exchange between Simon Wren-Lewis and Robert Waldmann... raises some interesting issues...

http://tinyurl.com/dl20161117a

Should-Read: Britain since the crisis provides very powerful evidence that Larry Summers and I are right on the zero (or negative) debt-burden cost of fiscal expansion:

Ann Pettifor: @annpettifor: "Read this for an explanation: https://t.co/UW0Tbo4BX9 @hiltonholloway @cjsnowdon @A_Liberty_Rebel @minefornothing"

Should-Read: Donald Trump wants to build infrastructure. From his perspective--and certainly from Jared Kushner's--an infrastructure bill that actually got a lot of infrastructure built would be a major plus over an infrastructure bill that did little. Trump's current infrastructure plans appear to be (a) too small, and (b) too corrupt--giveaways rather than incentives or the commitment of public money. However, Donald Trump and fiscal expansionists do share a common goal and a common wish for good implementation:

Brad Plumer: Donald Trump's Infrastructure Plan Wouldn't Actually Fix America's Infrastructure Problems: "Donald Trump loves the idea of infrastructure... wants to make an infrastructure bill a priority in his first 100 days...

Should we expect 2017 to be different than 2016 as far as global economic growth is concerned?

As Gian-Maria Milesi-Ferreti said yesterday, it surely ought to be better because it will be unlikely to be as bad as 2016 was for Russia, Nigeria, South Africa, and Brazil. The anti-productivity shock of BREXIT will not have hit the world economy yet, and Mark Carney and company have managed to drop the pound enough that Britain looks likely to see expenditure-switching rather than expenditure-dropping as people readjust their plans as they wonder what the end of the BREXIT imbroglio will be.

John Podesta: @johnpodesta: "GOP leaders chose to ignore... the true Donald Trump. They propped him up, now they own it." (Basic Competence Is Undervalued Department)

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

• Note to Self: I Still Fail to Understand Ken Rogoff's Medium-Long Term Macroeconomic Optimism... - Equitable Growth
• Mehreen Khan: Carney: world at risk of low rate ‘trap’ for decades: "The world economy risks being stuck in a low interest rate “trap” for decades without efforts to boost growth through structural reforms... (W)
• Noah Smith: Peak Finance Looks Like It's Over: "How much of the financial industry will soon be obsolete?... (W)
• Jared Bernstein and Ben Spielberg: Preparing for the Next Recession: Lessons from the American Recovery and Reinvestment Act: "Moving forward... a stronger set of automatic stabilizers would help... (W)
• Martin Wolf: Donald Trump’s False Promises: "Fiscal loosening with monetary tightening would mean a stronger dollar and a rising current account deficit... (W)