Grasping Reality on TypePad, by Brad DeLong

Should-Read: Tim Duy: Fed Changing Its Tun: "Julia Coronado of Macropolicy Perspectives catches the topic of Federal Reserve Governor Lael Brainard’s speech next week...

Books to Reread: John Maynard Keynes (1931): Essays in Persuasion: "Here are collected the croakings of twelve years—the croakings of a Cassandra who could never influence the course of events in time...

Should-Read: China has now created a very powerful long-run "bad emperor" problem for itself Martin Wolf: Xi’s power grab means China is vulnerable to the whims of one man: "It had long been evident that... Xi Jinping... could not step down... too many enemies, particularly through his anti-corruption campaign...

Wednesday Economic History: It is traditional to talk about Thomas Alva Edison. The most famous inventor in the world, "the wizard of Menlo Park", New Jersey, registered more than 1000 patents and founded 15 companies—including what is now called General Electric. But that story is too well-known. Let’s talk about Nicola Tesla instead.

Live from the Gilded Age: Andrew Carnegie (1889): Wealth: "The problem of our age is the proper administration of wealth...

Should-Read: If British politics were even a quarter rational, Brexit would now be quietly forgotten by everyone. But British politics—like U.S. politics—is less than a quarter rational. Brexit in name only—which means that Britain is to some degree ruled from but has no influence on Brussels—seems to be where both the Tories and current Labour are going: Simon Wren-Lewis: Labour's embrace of a customs union could end the Brexit fantasy: "The UK was always going to stay in a customs union with the EU the moment that the EU put the Irish border as one of the three items to be settled at the first stage...

Live from "Call the Midwife!": Of the 45 queens of England from the Norman Conquest through Victoria, seven died in childbed: 15.5%, more than one in seven, among the most cosseted and best nourished women in England.

Being female in the Agrarian Age was not for sissies...

Where did Trump's 6% growth number from last fall come from? I really think we can blame the once-smart and now amazingly witless John Cochrane for this one: it's the only place I can find that somebody talking to Trump might have read that claims 6%/year growth:

John Cochrane (2016): The Grumpy Economist: WSJ growth oped—full version: "Following the fitted line in the chart, Frontier generates $163,000 of income per capita, 209% better than the U.S., or 6% additional annual growth for 20 years..."

Robert Schroeder (2017): Trump tells lawmakers tax plan could lead to 6% growth: "President Donald Trump... told a group of lawmakers that the tax framework he’s unveiling Wednesday could lead the U.S. economy to grow more than 6% a year.... That’s more than double what even Trump’s advisers had hoped for..."

Should-Read: Nick Bunker: Weekend reading: “diminishing demand” edition: "The Family and Medical Leave Act... notes former U.S. Treasury Secretary Robert E. Rubin...

Should-Read: Jonah Golberg: American Nationalists & Russia: Where Is Their Outrage?: "For others, nationalism is basically code for white-identity politics...

Rereading: Philip Hoffman: Why Did Europe Conquer the World? http://amzn.to/2FCPUQh

From the best review of the book:

Dietz Vollrath (2015) Dumb Luck in Historical Development:

Philip Hoffman’s Why Did Europe Conquer the World? [is]... on its face, is another entry in a long line of... Western European... dominance... due to a rather specific characteristic: disease tolerance, or cows, or a knobbly coastline.... But Hoffman’s work is different... a model of learning-by-doing in gunpowder technology... only... if you actually fight.... Europe['s]... lead was not due to some unique European characteristic, but rather was luck of the draw.... Hoffman... saw a correlation between European states and higher firepower, but... was willing to accept that this correlation--while meaningful in giving Europe an advantage--did not necessarily imply some kind of deep structural advantage for Europe...

Live from American History: Abigail Adams (31 March - 5 April 1776): Letter to John Adams, : "Braintree March 31, 1776...

Should-Read: But where in the Republican coalition is there a faction that wants to learn from history? If they learned from monetary history, they would presumably have to learn from other kinds of history as well. And would that not require that they learn inconvenient things?: Ramesh Ponnuru and David Beckworth: Federal Reserve's Monetary Policy & Economic Reaction: "In practice, the Fed’s current inflation target is asymmetric: The Fed is less concerned about undershooting it than overshooting it...

Should-Read: I could not enthusiastically support—I could barely support—the old TPP: it charged poor countries too much through the nose to use U.S.-located intellectual property, for little if not negative benefit to the median U.S. citizen and for substantial harm to world economic growth. This new CPTPP is significantly better, and I can enthusiastically endorse the U.S.'s joining it on its present terms: Zachary Torrey: TPP 2.0: The Deal Without the US: "What’s new about the CPTPP and what do the changes mean?...

Should-Read: I had thought that the Chinese bureaucracy understood in its bones the Five Good Emperors problem—that after Nerva, Trajan, Hadrian, Antoninus Pius, and Marcus Aurelius there came Commodus—as sufficient reason never to allow the restoration of lifetime tenures or single-dominant-politican practices. It looks like I was wrong: Willy Lam: China Paves Way For Xi Jinping To Extend Rule Beyond 2 Terms: "'Xi Jinping has finally achieved his ultimate goal when he first embarked on Chinese politics...

Live from the State with the Extremely Strong Democratic Bench: Alexei Koseff: Feinstein denied Democratic endorsement in CA Senate race: "Delegates at the California Democratic Party convention... the veteran lawmaker... received only 37 percent...

Should-Read: Steven K. Vogel: Marketcraft: How Governments Make Markets Work (019069985X): "Modern-day markets do not arise spontaneously or evolve naturally...

Should-Read: Once again: I believe this fundamentally misconceives the origins and the utility of New Keynesian models. There are things that they are good for. But there are things that they are not good for. Getting a sensitivity of aggregate demand to the real interest rate via an Euler equation is not a good thing. Calvo pricing is not a good thing. Technology shocks as putting the residual from a production function on the right hand side and claiming it as a primitive shock is not a good thing. And what else is there in a New Keynesian model? A money demand function (or an interest rate rule). That is not very much that is useful. The things that make New Keynesian models different from VARs are, pretty much, things that make them less accurate and valuable. Do a VAR. And then argue about what the underlying shocks behind the VAR shocks really are, and how the VAR impulse response coefficients constrain the underlying structural shock ones: David Vines and Samuel Wills: rebuilding macroeconomic theory project: an analytical assessment: "We asked a number of leading macroeconomists to describe how the benchmark New Keynesian model might be rebuilt...

Something that has puzzled me for quite a while: Keynes's General Theory contains remarkably few references to fiscal policy in any form:

• "Government spending": no matches...

• "Government purchases": no matches...

The highly estimable Tim Taylor wrote:

Tim Taylor: Some Thoughts About Economic Exposition in Math and Words: "[Paul Romer's] notion that math is 'both more precise and more opaque' than words is an insight worth keeping..."

And he recommends Alfred Marshall's workflow checklist:

1. Use mathematics as a shorthand language; rather than as an engine of inquiry.
2. Keep to them till you have done.
3. Translate into English.
4. Then illustrate by examples that are important in real life.
5. Burn the mathematics.
6. If you can't succeed in 4, burn 3.

This is sage advice.

And to underscore the importance of this advice, I think it is time to hoist the best example I have seen in a while of people with no knowledge of the economics and no control over their models using—simple—math to be idiots: Per Krusell and Tony Smith trying and failing to criticize Thomas Piketty:

Books That It Is Time to Reread: Richard H. Thaler (2015): Misbehaving: The Making of Behavioral Economics: (0393080943): A Rationalist writes: "'The foundation of political economy and, in general of every social science, is evidently psychology...

Should-Read: Very smart pickup about teaching—and doing—economics from Paul Romer and Alfred Marshall by the highly estimable Tim Taylor: Tim Taylor: Some Thoughts About Economic Exposition in Math and Words: "[Paul Romer's] notion that math is 'both more precise and more opaque' than words is an insight worth keeping...

Should-Read: Saying that gender inequality in Denmark is one third wage and salary rates, one third hours conditional on participation in the paid labor force, and one third labor force participation simply does not do it for me. Informed people make choices in environments. Discrimination and unfreedom is found not in outcome measures but in choice sets—plus the knotty question of how and what people are taught they should prefer, and how such preferences are then enforced: Hate the game, not the players. And does the departure of children from the household then close the gap? The authors take a stab at this with their analyses of the intergenerational transmission of lowered female earnings upon child arrival through the female line. But I want MOAR!: Henrik Kleven, Camille Landais, and Jakob Egholt Søgaard: CHILDREN AND GENDER INEQUALITY: EVIDENCE FROM DENMARK: "Despite considerable gender convergence over time, substantial gender inequality persists in all countries...

Everybody interested in macroeconomics or macroeconomic policy should know this topic backwards and forwards by heart. My problem is that I do not see how I can add value to it. The only thing I can think of to do is to propose two rules:

1. Paul Krugman is right.
2. If you think Paul Krugman is wrong, refer to rule #1.

I do wish that those who were not bad actors who made mistakes would 'fess up to them. Those who don't will get moved to the "bad actor" category: and, yes, I am looking at you, Marvin Goodfriend.

The only remaining question, I think, is whether these should all be read in chronological or reverse chronological order. I find myself torn, with arguments on both sides having force:

• Paul Krugman (2018): It’s Baaack, Twenty Years Later https://www.gc.cuny.edu/CUNY_GC/media/LISCenter/pkrugman/Its-baaack.pdf

• Olivier Blanchard and Daniel Leigh (2013): Growth Forecast Errors and Fiscal Multipliers http://delong.typepad.com/wp1301.pdf

• Paul Krugman (2011): Ricardian Confusions() https://krugman.blogs.nytimes.com/2011/03/10/ricardian-confusions-wonkish/

• Paul Krugman (2009b): One more time https://krugman.blogs.nytimes.com/2009/04/06/one-more-time/

• Paul Krugman (2009a): A Dark Age of macroeconomics https://krugman.blogs.nytimes.com/2009/01/27/a-dark-age-of-macroeconomics-wonkish/

Ben Bernanke (1999): Japanese Monetary Policy: A Case of Self-Induced Paralysis? https://www.princeton.edu/~pkrugman/bernanke_paralysis.pdf

• Paul Krugman (1998): It's Baaack: Japan's Slump and the Return of the Liquidity Trap http://delong.typepad.com/krugman_its_back.pdf

Must-Read: Very few people have properly read Paul Krugman's "It's Back". As I understand the paper, one of its key messages is this: When the economy is in a liquidity trap—at the zero lower bound—it wants inflation. Inflation is the way a flex-price economy would keep the zero lower bound from causing a deep, persistent depression. A competent central bank that wants to mimic a flex-price economy as closely as possible in a sticky-price world—a competent central bank that wants to make Say's Law true in practice even though it is not true in theory—will therefore strain every nerve to generate that inflation. Its leader will not say, as Fed Chair Ben Bernanke said repeatedly, that he does not want higher inflation. He will say that he does. But Bernanke never understood that. And few of those advising him understood that. They had not, I believe, understood Krugman: Paul Krugman: It’s Baaack, Twenty Years Later: "In early 1998 I set out to reassure myself... to show that if Japan was having troubles, it was simply because the Bank of Japan wasn’t trying hard enough...

Live from the Orange-Haired Baboon Cage: So former Minnesota Congressman and Gingrich henchman Vin Weber was one of Putin's stooges in his attempt to keep Ukraine undemocratic and far from western Europe. This is somewhat of a surprise. But not too much of one. The rule of thumb is becoming: don't be surprised by anything somebody still a member of the Republican Party today will do or has done: Allegra Kirkland: Who Was In The Fateful Meeting That Rick Gates Lied To Mueller About?: "Just this month, Gates lied to Special Counsel Robert Mueller’s team and to the FBI about what transpired during a spring 2013 meeting...

Should-Read: BBC: Amazon buys rights to Iain Banks' Consider Phlebas: "With the help of Brad Pitt's Plan B production company... the first of Banks' novels to feature the Culture, an interstellar utopian society...

Hoisted from the Archives: Economics as a Professional Vocation: The very sharp Binyamin Applebaum had an interesting rant....

Binyamin Applebaum: @BCAPPELBAUM ON TWITTER: "I am not sure there is a defensible case for the discipline of macroeconomics if they can’t at least agree on the ground rules for evaluating tax policy. What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement? How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? How are ordinary people, let alone members of Congress, supposed to figure out which tenured professors are the serious economists?...

I would say, first, that journalists (and others) are supposed to use their eyes and their brains. They can take a look at the Nine Unprofessional Republican Economists who placed their letter in the Wall Street Journal... [on a] Saturday containing:

Donald Trump Is Playing to Lose: Donald Trump is certainly a very different kind of president from what we have been used to—not just in temperament; in (lack of) knowledge about America, its government, and the world; and in public presentation-of-self. He is very different from what we have been used to in his orientation toward policy as well.

Should-Read: A very interesting exploration of how inequality that is or is perceived as risk by the relatively young potentially destroys entrepreneurship and growth. I am going to have to think about this some more. But it is very plain to me that rising inequality is not best thought of as "rising dispersion in individual fixed effects", but rather as individuals—in their teens, in their twenties, in their thirties—finding themselves in the right (or the wrong) place at the right (or the wrong) time: Adrien Auclert and Matthew Rognlie: Inequality and aggregate demand: "We explore the transmission mechanism of income inequality to output...

Should-Read: The very sharp John Lukacs on what I call "fascism"—proletarian ethnoi that need to fight enemies foreign and domestic with economic cleavages within the ethnoi papered over, rather than proletarian classes that need the economic system unrigged. For some reason he calls it "nationalism", which I think is properly something different: there may well be elective affinity between belief in the nation-state as a political and sociological community and fascism, but it is certainly not an identity: John Lukacs: The Duel: The Eighty Day Struggle Between Churchill and Hitler: "The principal force of the twentieth century is nationalism...

Weekend Reading: Elizabeth Warrn: Address to NCAI: "I want to start by thanking Chairwoman Andrews-Maltais for that introduction...

Should-Read: Colonial régimes were unwilling to make the "normal" investments in education and infrastructure that even a subnormal autonomous régime would have made. And without those investments colonies could not take full advantage of comparative advantage opportunities opened up by globalization. Full Stop. Thus colonization meant social dislocation and the enrichment of a "comprador" stratum little tied to the broader underlying economy. Is this the story that economic history is telling us these days about the British, French, Portuguese, Italian empires?: Bishnupriya Gupta: Falling Behind and Catching up: India’s Transition from a Colonial Economy: "India fell behind during colonial rule...

Should-Read: Johannes A. Schwarzer: Cost-Push and Demand-Pull Inflation: Milton Friedman and the "Cruel Dilemma": "In the 1950s and 1960s... many economists... emphasized the issue of a seemingly unavoidable inflationary pressure at or even below full employment...

Should-Read: Brad Setser: Mapping Capital Flows Into the U.S. Over the Last Thirty Yearss: "There were a couple of years when the net outflow from Asia associated with Asia’s current account surplus was really private...

Should-Read: This seems to me like fuzzy thinking from the sharp Dani Rodrik. It is, I believe, the result of a failure to call things by their right names. There is "populism": rallying broad political majorities behind their economic interest in a less unequal distribution of income and wealth in pursuit of a policy agenda—mixed wise and unwise—that boosts rewards at the bottom and the middle and increases opportunity. There is "fascism": rallying ethno-cultural groups against cultural and ethnic enemies foreign and domestic, with economic cleavages within the ethnos elided and covered over as unimportant: proletarian peoples oppressed by others, not proletarian classes oppressed by the rich and by an unfair system. That it is considered impolite to use the F-word does not mean that one should confuse oneself by calling "populist" movements that are not so. And why the claim that it is "globalization" that is driving the extraordinary American income and wealth polarization? Yes, there are fewer manufacturing workers because of the trade deficit. But the trade deficit is largely a home-brewed consequence of government budget deficits and finance-friendly political economy, not of increasing volumes of global trade. And the overwhelming bulk of the manufacturing employment decline has nothing to do with the trade deficit. And the bulk of income stagnation below the top has little to do with the manufacturing employment decline. And a lack of national policy autonomy is not the problem with America—or the problem with the European Union as a whole. Both of those entities have all the national policy autonomy they could possibly wish for, and more: Dani Rodrik: What Does a True Populism Look Like? It Looks Like the New Deal: "When populism succeeds, it does so not by cosmetic gimmicks but by going after the roots of economic injustice directly...

Should-Read: Our social insurance state still (largely) presumes the stable two-parent family. In lots of ways it does not fit today's American society, in which men in divorce threaten to seek custody on the basis of their higher incomes and so get women to accept impoverishing negotiated settlements: Susan Pedersen: Reviews ‘Bread for All’: "The welfare state emerges in this account as the culmination of a series of individual, sometimes problematic and sometimes heroic, engagements and commitments...

Should-Read: Kieran Healy: On Twitter: "This seems like a plausible two-dimensional space.… ": "This seems like a plausible two-dimensional space...

Should-Read: Claudia Goldin: Harvard economist Claudia Goldin studies why women earn less than men: "If there’s one thing men can do to improve women’s life at work, it would be…

Should-Read: Nick Bunker: Weekend reading: “A jolt in the markets” edition: "This week marks the 25th anniversary of President Bill Clinton’s signing the Family and Medical Leave Act into law...

Should-Read: Helge Berger, Giovanni Dell’Ariccia, and Maurice Obstfeld: The Euro Area Needs a Fiscal Union: "Without more tangible elements of a fiscal union, the euro area will remain fundamentally vulnerable to shocks...

Should-Read: Center for American Progress: Medicare Extra for All: "'Medicare Extra for All'...

Should-Read: The fear that decreasing competition is hobbling American economic growth is a growing concern. And back when I learned antitrust economics and law, the idea that raising rivals' costs could be thought of as pro-competition and pro-consumer would have struck my teachers dumb with amazement. Yet here we are: Michael Kades: Credit card competition case before U.S. Supreme Court leaves consumers and competition in the balance: "The Supreme Court next week will hear oral arguments in an antitrust case about competition and credit card merchants’ fees...

Should-Read: Where is the advantage—if any—of Medicare Advantage as opposed to Traditional Medicare coming from? Could it be that some aspects of the promise of HMOs are finally being realized—that there is somebody monitoring and tracking and thus disposed to deal with the health problems of beneficiaries, as evidence by their having HCC codes?: Joseph P. Newhouse, Mary Beth Landrum, Mary Price, J. Michael McWilliams, John Hsu, and Thomas McGuire: The Comparative Advantage of Medicare Advantage: "We find differences in the distribution of beneficiaries across H[ierarchal ]C[ondition ]C[ategories]’s between TM and MA, principally in the smaller share of MA enrollees with no coded HCC, consistent with greater coding intensity in MA...

Does this belong in the next edition of Martha Olney's and my Macroeconomics textbook?

Box 4.4.6: Estimating the Effects of Policy Changes: An Example

In late 2017 and early 2018 the Trump administration and the Republican congressional caucuses pushed through a combined tax cut and a relaxation of spending caps to the tune of increasing the federal government budget deficit by about 1.4% of GDP. These policy changes were intended to be permanent.

Not the consensus but the center-of-gravity analysis by informed opinion in the economics profession of the effects on long-run growth of such a permanent change in fiscal policy would have made the following points:

Should-Read: The curious thing is that an anti-immigrant America is in the long run a very weak America. The United States was the leading partner in the 1917-? alliance between the United States and Great Britain overwhelmingly because the U.S. had welcomed immigration since 1776. Had it not, Britain and its dominions dominate in population and industrial power—and would have had the far greater voice. An anti-immigrant America would surprisingly soon become not #1 but #4: Will Wilkinson: Anti-Democratic Populism Caused the Dreamer Impasse: "The liberal position is simply the mundane small “d” democratic position...

Should-Read: A good paper. But I am inclined to say "not yet" rather than "no". The type of productivity growth we saw in the past was not closely linked to rising inequality. To the extent that rising inequality was driven by the technology-education nexus, the overwhelming bulk of the action was in reduced (relative to trend) educational effort. But the past may well not be a good guide to the present and the future here: Anna Stansbury and Lawrence Summers: On the link between US pay and productivity: "More rapid technological progress should cause faster productivity growth...

Must-Read: It has been a while since I noted how superb Mark Thoma's Economist's View has been and continues to be as the indispensable link clearinghouse on useful and interesting things in economics. It is still true: Mark Thoma: Economist's View: Links for 02-19-18

Should-Read: Dumb from Professional Republican John Cochrane. He missed the deficit pivot moment. The Republican Party line was: "The tax cut's and the spending deal's deficit effects are no big deal". It turned into "We must slash social security and Medicare now". Cochrane was still spouting the first line a week late—but he then made up for lost time: ProGrowth Liberal: Fiscal Stability or Dire Straits: John Cochrane’s Latest Rant: "John Cochrane babbles on incoherently on what should be a straightforward issue...