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August 2017

One Year and Four Days Ago at Grasping Reality: August 8, 2016

Looking back another decade: By August 8, 2007 I had an idea of what was going down:

  • The Odds of Economic Meltdown: Hoisted from the Archives from Ten Years Ago Hoisted from the Archives from Ten Years Ago: Pretty good, no?: "The past 24 years have been an amazing run as far as the business cycle is concerned. There have been only two recessions, and both of those were short and shallow. But Ben Bernanke and Co. are now at real risk of presiding over the third..."
  • Must-Read: Back before 2008, too much conventional wisdom held that the state of the business cycle did not matter much for the standard of living of those who did not own much capital. If inflation was to remain constant over time, a high-pressure economy that pushed inflation up had to be offset by an equal and opposite low-pressure economy that pushed inflation down, and so there was no permanent first-order gain for the working class from working hard to try to improve stabilization policy performance. This was, I think, always false. But now it is obviously false. It now seems very unlikely we will get any rapid growth of potential output without a high pressure economy. And, as Larry says: "Tight labour markets are the best social program": Lawrence Summers: The Progressive Case for Pro-Growth Policies
  • Must-Read: Once more: the importance of the zero lower bound in generating asymmetric risks, and the importance of asymmetric risks in generating a policy bias toward substantial easing. The reason is the same as the reason that you stand well out to sea when sailing from Point Arena to San Francisco: Paul Krugman: Prudential Macro Policy: Monetary:

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Ten Years and Eleven Days Ago at Grasping Reality: August 1, 2007

I was identifying the Fed as behind the curve:

  • John Berry on the Fed's Decisions This Week He writes, for Bloomberg: "The Federal Open Market Committee will keep its overnight lending rate target at 5.25 percent and say its 'predominant policy concern' is that inflation may not moderate...

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Weekend Reading: Jamelle Bouie: The Bubble President

Weekend Reading: Jamelle Bouie: The Bubble President: "Trump lives in a fantasy of triumph. He will never do anything to win back the voters he’s lost...

...Among the most striking aspects of Donald Trump is how, as president, he has taken the pathologies and dysfunctions of the modern Republican Party and brought them careening to their logical conclusions. The racial dog-whistling of Republican campaigns since Richard Nixon becomes outright racism in the hands of the Trump; the contempt for expertise seen from the party’s right-wing base becomes an administration staffed with amateurs and apparatchiks. And now, as the president’s approval sinks to new lows, what was once Karl Rove’s disdain for the “reality-based community” has inevitably given way to a president who chooses to disregard reality altogether, living instead in his own private Idaho where he is beloved and successful.

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Weekend Reading: Paul Romer (2016): The Trouble with Macroeconomics

Weekend Reading: Paul Romer (2016): The Trouble with Macroeconomics "Abstract: For more than three decades, macroeconomics has gone backwards. The treatment of identification now is no more credible than in the early 1970s but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as 'tight monetary policy can cause a recession'. Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by the action that any person takes. A parallel with string theory from physics hints at a general failure mode of science that is triggered when respect for highly regarded leaders evolves into a deference to authority that displaces objective fact from its position as the ultimate determinant of scientific truth.

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Should-Read: I have never found "power" to be an illuminating and useful word in economics: "threat points", "default outcomes", "bargaining strategies", etc., IMHO, are much more useful ways of thinking about issues. You get somewhere if you ask the question: Why aren't employers today finding that they must offer higher wage increases to retain and attract the workforce they need? You don't get much of anywhere if you say: Workers just don't have the power to make big wage demands.

Chris Dillow: Stumbling and Mumbling: Reinventing the wheel: "In both the UK and US, wage inflation has stayed low despite apparently low unemployment–to the puzzlement of believers in the Philips curve...

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Ten Years and Eleven Days Ago on Grasping Reality: July 31, 2007

Worth Highlighting:

  • Felix Salmon starts to see the train coming: Felix Salmon on Noise--Literally: Noise--Traders He watches Jim Cramer, and is scared: "Great Moments in Punditry: Jim Cramer on Housing: Is it worth responding to this as though it's rational? Is this what passes for informed commentary on TV these days? I can see how it gets ratings, in a train-wreck kind of way–hell, I'm blogging it. But the idea that wealthy people will stop paying their mortgages because their houses are 'fungible' (unless we get a 100bp cut in the Fed funds rate, of course)–it's like some kind of incredibly unfunny parody. Nouriel Roubini et al might be shrill, but at least there's coherent logic to their position. What scares me is that this could be a rare and genuine glimpse into how traders actually think. In which case the Great Moderation and decline in volatility of recent years is doomed to die a sudden and extremely unpleasant death..."

  • No, Fox News has always been a slough of iniquity. Why do you ask?: Why Oh Why Can't We Have a Better Press Corps? (Bill O'Reilly Edition) Atrios tells us that it is Felafel Day, and provides quotes from noted Fox News journalist Bill O'Reilly: "If any woman ever breathed a word I'll make her pay so dearly that she'll wish she'd never been born. I'll rake her through the mud, bring up things in her life and make her so miserable that she'll be destroyed. And besides, she wouldn't be able to afford the lawyers I can or endure it financially as long as I can. And nobody would believe her, it'd be her word against mine and who are they going to believe? Me or some unstable woman making outrageous accusations. They'd see her as some psycho, someone unstable. Besides, I'd never make the mistake of picking unstable crazy girls like that.... If you cross FOX NEWS CHANNEL, it's not just me, it's [FOX President] Roger Ailes who will go after you. I'm the street guy out front making loud noises about the issues, but Ailes operates behind the scenes, strategizes and makes things happen so that one day BAM! The person gets what's coming to them but never sees it coming. Look at Al Franken, one day he's going to get a knock on his door and life as he's known it will change forever. That day will happen, trust me."

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Procrastination on August 10, 2017

We re All Public Intellectuals Now The National Interest

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

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Should-Read: A well-argued smackdown from the smart Dean Baker:

Dean Baker: Opposition to Trade Deals: Brad DeLong's "Socialism of Fools" Might Look Like Common Sense to Those Outside the Fraternity: "First, Brad is well aware that the economy has operated well below full employment...

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Should-Read: IMHO, the smart PGL does good here...

And, J.W. Mason, please don't say that Coibion et al.'s state-of-the-art potential output estimate "gives a very similar estimate for the output gap as simply looking at the pre-2008 forecasts or extrapolating from the pre-2008 trend". That's not the way to gain a reputation—at least, not they way to get any reputation that you would like to have.

The Blanchard-Quah concept potential output estimates being made by Coibion, Gorodnichenko, and Ulate do not look to me "very similar estimate for the output gap as simply looking at the pre-2008 forecasts or extrapolating from the pre-2008 trend". Look at the gap between the current estimate—the purple line—and the red or dot-dash green line that are the 2007 and 2009 vintage BQ forecasts. Look at the thick blue line that is (my drawing) of the upper hull of real output in this millennium a la Menzie Chinn:

Papers nber org tmp 51391 w23580 pdf

Yes, BQ gives a large current output gap. No, BQ as applied by Coibion et al. does not give a "very similar estimate for the output gap as simply looking at the pre-2008 forecasts or extrapolating from the pre-2008 trend". You should not say it does.

PGL: The Output Gap per the Gerald Friedman Defenders: "Menzie Chinn back on February 20, 2016 had some fun with the defenders of that awful paper by Gerald Friedman...

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Must-Read: Is "Audit the Fed" like creating the CBO, or like trying to destroy the CBO? Does the Federal Reserve need more oversight from the Congress, or less?

Shades of the Mytilene and Syracuse debates: with respect to the Federal Reserve, is Congress best seen as (a) a useful oversight body, or (b) a source of chaos and policy disaster that should be kept far away from a closed guild of hermetic monetary technocrats?

The very smart Peter Conti-Brown weighs in, tentatively, in favor of (b):

Peter Conti-Brown: Health Care, the Congressional Budget Office, and “Audit the Fed”: "One of the most intriguing institutional players... was the Congressional Budget Office...

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Must-Read: It still boggles my mind that the Federal Reserve did not move ten years ago today to set up a Subprime Mortgage and Home Equity Resolution Authority. Ben Bernanke! If there were one person who ought to have understood the need to be prepared, it would have been Ben Bernanke! And yet he showed no signs of understanding what the fan of possible futures he was then facing happened to be.

And, no, it is not appropriate for a central bank to wait for the political branches to act before it undertakes its lender-of-last-resort mission...

Martin Sandbu: Ten years on: Anatomy of the global financial meltdown: "August 9 2007 was the day when BNP Paribas, the French bank, froze three investment funds...

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Should-Read: Fardels Bear: Was James Buchanan a Racist? Libertarians and Historical Research: "'Eschewing overt racial appeals, but not at all concerned with the impact of black citizens, they framed the South’s fight as resistance to federal coercion in a noble quest to preserve states’ rights and economic liberty'" (MacLean, p. 50)...

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Should-Read: This by the wise Ben Friedman seems to me to be partly wrong. It was a failure of politics, but a failure of politics enabled by what Paul Romer calls post-real-macroeconomics:

Ben Friedman: HAS ECONOMICS FAILED US?: The Search for New Assumptions: "Democracy doesn’t always deliver what the technical experts recommend...

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Procrastination on August 8, 2017

We re All Public Intellectuals Now The National Interest

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

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Ten Years and Nine Days Ago on Grasping Reality: July 30, 2007

One Year and One Day Ago on Grasping Reality: August 7, 2016

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What Do Econ 1 Students Need to Remember Most from the Course?: Hoisted from 2010

The Souk of Marrakech

Hoisted from 2010: What Do Econ 1 Students Need to Remember Most from the Course? Economics deals with those things that we want but that are "scarce".

Should-Read: Ogged: Google Anti-Diversity Memo: "I tried to read the Google anti-diversity memo, I really did. I even powered through the part where he said that deprecating products too quickly is an example of a leftist failing, but I just couldn't do it. If you'd like to discuss how you, too, couldn't make it through the whole thing, this is the thread for you..."

Must-Read: This morning it is Jonathan Portes who is unhappy with the New York Times. And I agree. But it's not just the level at which the organization is performing. It is that the organization is moving in the wrong direction. For example:

Maggie Haberman on Twitter Mooch isn t a comms professional But his messaging is smooth and and level headed

Those beats won't sweeten themselves!

I think that the New York Times has made a decision. I think that the organization has concluded that "data journalism" and "explainer journalism" were just fads—that the road to advertising sustainability consists of a combination of (a) clickbait and (b) being careful to flatter all of their inside sources equally, via opinions-of-shape-of-earth-differ journalism.

This produces stories that are not informative, abandons any hope of someday becoming a trustworthy information intermediary. And it produces stories that are not pleasing to Jonathan:

Jonathan Portes: The New York Times, Brexit, and the balance of bulls---: "Two articles published recently by the New York Times... on Brexit...

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The New Socialism of Fools: Fresh at Project Syndicate

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Project Syndicate: The New Socialism of Fools by J. Bradford DeLong BERKELEY – According to mainstream economic theory, globalization tends to “lift all boats,” and has little effect on the broad distribution of incomes. But “globalization” is not the same as the elimination of tariffs and other import barriers that confer rent-seeking advantages to politically influential domestic producers. As Harvard University economist Dani Rodrik frequently points out, economic theory predicts that removing tariffs and non-tariff barriers does produce net gains; but it also results in large redistributions, wherein eliminating smaller barriers yields larger redistributions relative to the net gains. Globalization, for our purposes, is different. It should be understood as a process in which the world becomes increasingly interconnected through technological advances that drive down transportation and communication costs...Read MOAR at Project Syndicate

Live from the Orange-Haired Baboon Cage: I'm sorry for inflicting these on you. But you really do need to get a flavor of these transcripts if you are to understand the world we now live in, and pieces like this are the quickest way to get that:

Jonathan Chait: Australia’s PM Slowly Realizes Trump Is a Complete Idiot: "Trump in his private negotiations is every bit as mentally limited as he appears to be in public...

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Live from "My Kronstadt was the Dissolution of the Constituent Assembly": WTF, Tony Barber?! The "masses" did not "seize the initiative" in 1917. The Bolshevik Faction of the RSDP did. The "masses" were, as Lenin said, vacillating, and needed to be led by the halter and driven by the knout:

Let's give the mic first to Comrade Ulyanov:

Vladimir Lenin: The Constituent Assembly Elections and the Dictatorship of the Proletariat "The Socialist-Revolutionaries and the Mensheviks formed a bloc during the whole period of the revolution from February to October 1917...

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Weekend Reading: James M. Buchanan: The "Social" Efficiency of Education

De Maistre the executioner

You have to be able to hold in your mind two things at once in order to understand economist James M. Buchanan:

  1. He was a total loon:

    • a strong believer in the de Maistrean trinity of Patriarchy, Orthodoxy, Autocracy as necessary for society—essential Noble Lies.
    • a man who in 1970 wanted to shut down America's universities as teachers of evil, and regretted the failure of nerve that made that impossible.
    • a man who saw Martin Luther King Jr. as a teacher of evil—whose response to the Civil Rights movement and its peaceful civil disobedience campaign:
      • was not Edmund Burke's "to make us love our country, our country must be lovely",
      • but rather: how dare MLK claim that an African American should be "openly encouraged to use his own conscience"—rather than shutting up and accepting his subservient Jim Crow position in society!
  2. A man who saw things that other economists did not and would not have without him: The Calculus of Consent is a great book. James Buchanan was—as, IIRC, only Jim Poterba and I were willing to say at the post-announcement MIT economics faculty lunch in 1986—a defensible choice for the Nobel Prize in economic science.

If you cannot hold both those ideas in your mind at once, you do not understand James M. Buchanan:

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Slavery and Capitalism Reading List...

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Must-Read: Bergsten and de Bolle and company try, politely, to get the attention of the Trumpers and their allies with respect to not breaking the North American economy. I don't think it's effective to be polite here:

  • Half of the Trumpers' plan for revising NAFTA is to politely beg Canada and Mexico to agree to the provision of the TPP that Trump trashed on his first day in office.

  • The other half of the Trumpers' plan for revising NAFTA is an incoherent desire to achieve month-by-month bilateral trade balance with every other country: "The United States has a trade deficit with Mexico of $60 billion. And the United States will not have those deficits anymore. We do not mind a small deficit, and we do not mind a little time to get there. But we cannot do this and we cannot sustain like this. We will not be the United States anymore. And we cannot listen to this. I was voted on the basis that we are losing so much money to Mexico in terms of jobs, factories, and plants moving to Mexico. We cannot do this anymore and I have to tell you it is not sustainable.... What I want is fair tariffs at the border, and I want to be fair because I want a great relationship with Mexico..." And that is Trump at his most well-briefed and most coherent.

  • All of the Trumpers' plan for revising NAFTA is to, somehow, declare victory—that Trump has gotten a "good deal"—no matter what actually happens

C. Fred Bergsten and Monica de Bolle, eds.: A Path Forward for NAFTA: "The North American Free Trade Agreement (NAFTA) ranks at the top of anyone’s list of the most controversial trade deals of all time...

...NAFTA reduced tariff barriers to zero for the United States, Mexico, and Canada and led to a tripling of trade among these three countries over the last 23 years (figure 1). The Peterson Institute for International Economics (PIIE) has abundantly detailed the many gains and acknowledged costs of NAFTA in numerous publications (see, e.g., Hufbauer and Schott 2005; Hufbauer, Cimino-Isaacs, and Moran 2014). Now that President Donald Trump has launched a renegotiation of NAFTA—having at least for the moment abandoned his 2016 campaign pledge to cancel the pact outright after tentatively deciding to do so on April 22—the fundamental question is: Can such a renegotiation produce a positive result?

A broad range of experts who have contributed to this PIIE Briefing say “yes.” The new negotiations can succeed only if they focus on how the agreement can be updated and upgraded, however. The overarching goal of negotiators from the three participating countries must be to boost the competitiveness of North America as a whole, liberalizing and reforming commercial relations between the three partner countries and responding to the many changes in the world economy since NAFTA went into effect in 1994. These changes include the digital transformation of commerce, which has enabled sophisticated new production methods employing elaborate supply chains, transforming North America into a trinational manufacturing and services hub. But concerns about labor, the environment, climate change and energy resources, and currency issues have become more acute than they were at the time NAFTA started. Commerce Secretary Wilbur Ross was thus correct when he said that NAFTA “didn’t really address our economy or theirs [Mexico and Canada] in the way they are today.”

Ultimately, however, NAFTA can be modernized only if President Trump’s zero-sum “America First” agenda is replaced by one that seeks to benefit all three countries and improve their competitiveness in an increasingly competitive global economy....Obsessive concern about bilateral trade balances and narrow special interests in the United States, as opposed to broader national and regional interests, would not only deadlock the negotiations but also likely lead to inferior outcomes for all three countries, or even a breakdown in the talks and... abrogation.... And walking away from NAFTA altogether would be disastrous for consum-ers, producers, and retailers in the United States...

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One Year Ago at Grasping Reality: August 6, 2016

Ten Years and Eight Days Ago at Grasping Reality: July 29, 2007

Worth Highlighting:

  • New Graduate Student Orientation: Li Hungchang and "Self-Strengthening", and Other Topics Trying to say the name of the late nineteenth-century Qing statesman "Li Hungchang." There was animated discussion as to what I was trying to say--I suppose I sounded as though I was speaking half-Cantonese, half-duck.... There is as much horror inside as outside the Brookings building that Ken Pollack is still the public face of Brookings Institution foreign policy studies...

  • Clueless Delong continues to be clueless: Still fearing a financial crisis brought on by a dollar crash rather than looking at suprime mortgages Risk and the Dollar: Brad Setser Muses

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Procrastination on August 6, 2017

We re All Public Intellectuals Now The National Interest

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

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Links, etc., for the Week of August 6, 2017


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Who Gets a Seat at the Table?: More Dred Scott v. Sanford Blogging: Hoisted from the Archives from 2007

Slaves Google Search

Hoisted from the Archives: More Dred Scott v. Sanford Blogging for 2007's Martin Luther King Jr. Holiday Weekend! Mark Graber has gotten himself to the right of John C. Calhoun. This is a position painful and ludicrous for a twenty-first-century American legal academic to assume.

It is a position so painful and ludicrous that it should induce any twenty-first-century American academic to undertake an agonizing reappraisal—particularly over Martin Luther King holiday weekend. But Mark Graber doesn't. Let's turn the mike over to him:

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