Grasping Reality on TypePad, by Brad DeLong

Paul Romer (1989): Endogenous Technological Change: "Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good...

William D. Nordhaus (1996): Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not: "During periods of major technological change, the construction of accurate price indexes that capture the impact of new technologies on living standards is beyond the practical capability of official statistical agencies. The essential difficulty arises for the obvious but usually overlooked reason that most of the goods we consume today were not produced a century ago...

One thing making me hopeful for our future is that as our technological powers and capabilities grow, our ideas of what people need to be fully included members of society grow as well to keep pace. Just think of how high-speed computer access is becoming something that it is obvious that all Americans—and especially all American children—very much need to have. The fact that we—or some of us, at least—think that the failure of us to make sure this is provided is a "gap" is something I at least, in historical perspective, find very heartening Delaney Crampton: Why Accessibility To High-Quality Broadband Matters To U.S. Schoolchildren: "Nearly 5 million households with school-aged children in the United States lack high-quality broadband access at home... 31.4 percent of households earning an annual income lower than $50,000 with school-aged children... 40 percent of those with annual incomes lower than $25,000...

1. Economists' Models: Analysis Pumps or Filing Systems? And Do Countries with Reserve Currencies Need to Fear Solvency Crises?

2. Note to Self: Why isn't the first rule of Federal Reserve policy "thou shalt not come even close to inverting the yield curve!"?

3. Weekend Reading: The Riot Act of 1714

4. Weekend Reading: John Maynard Keynes on the Baneful Consequences of Ricardo's Rhetorical Victory Over Malthus

5. Hoisted from the Archives: Robert Skidelsky vs. Niall Ferguson: John Maynard Keynes Is Not Kesha (Also, the U.S. Is Not Greece, and 2013 Is Not 1923)

6. Hoisted from the Archives: Niall Ferguson Is Wrong to Say That He Is Doubly Stupid: Why Did Keynes Write "In the Long Run We Are All Dead"? Weblogging

7. "In the Long Run We Are All Dead" in Context...

8. Note to Self: I had thought that the question of where the sun will be in the sky so you know where to erect the sunshades was a solved problem—a problem solved in 3000 BC by the Babylonians. Apparently not...

9. Hoisted From the Archives: The Grand Strategy of the United States of America: From 2003

1. What is the counterfactual here? The demand factors they are talking about here are all microeconomic and not macroeconomic factors. Thus it seems to me that—unless they are assuming that the Federal Reserve is a potted plants—they affect the distribution of employment but not its overall magnitude. Remember! The economy is a general equilibrium system!: Katharine G. Abraham and Melissa Kearney: The Secular Decline in Us Employment over the Past Two Decades: "This column reviews the evidence on the main causes of the secular decline in employment since the turn of the century. Labour demand factors–notably import competition from China and the rise of industrial robots–emerge as the key drivers. Some labour supply and institutional factors also have contributed to the decline, but to a lesser extent... #labormarket

2. Friedrich Engels (1843): Outlines of a Critique of Political Economy: "According to the economists, the production costs of a commodity consist of... rent... capital with its profit, and the wages for the labour.... A third factor which the economist does not think about–I mean the mental element of invention, of thought...

3. Nick Rowe: Bicycle Disequilibrium Theory: "Suppose you need a bicycle to get to work. Suppose bicycles are a common property resource, because bike locks don't work. Every night the workers deposit their bicycles in the bike bank, and in the morning it's first come first served. And suppose that sometimes there aren't enough bicycles to go around. So sometimes the level of employment is determined by the number of bicycles, and not by all the usual stuff. Any individual can always get a bicycle in the morning, simply by getting up early enough. But in aggregate they can't. Fallacy of composition. A theory of when workers wake up might be interesting, and useful for microeconomists wanting to understand the distribution of employment, but it won't help us understand what determines the aggregate level of employment... #monetaryeconomics

4. Joseph Schumpeter on the Ricardian and Keynesian vices. The echo of bdsm practices—le vice anglais—that you hear is intentional on Schumpeter's part, as is his feminization of Keynesians, and the misogyny. Schumpeter was a very smart but very interesting man: Joseph Schumpeter (1953): History of Economic Analysis https://books.google.com/books?isbn=1134838700: "Ricardo’s… interest was in the clear-cut result of direct, practical significance. In order to get this he... piled one simplifying assumption upon another until... the desire results emerged almost as tautologies... It is an excellent theory that can never be refuted and lacks nothing save sense. The habit of applying results of this character to the solution of practical problems we shall call the Ricardian Vice... #books #schumpeter #keynes #economicsgoneright #economicsgonewrong #historyofeconomicthought

5. The New York Times is a sad, sad thing: Kevin Drum: Hey David: It Wasn’t “We” Who Screwed the Working Class: "I get so tired sometimes. Here is David Brooks today...

6. Ian Buruma (2001): Class Acts: "According to Cannadine, race was not everything in the British Raj. It was not even the main point. Class was the main point. Class, status, and rank were more important than skin color, the shape of one's eyes, or the dimensions of one's skull. A Sultan, a Nizam, or a Pasha was equal to British royalty...

7. Shane White (2015): The Story of Wall Street's First Black Millionaire: "Jeremiah Hamilton made white clients do his bidding. He bought insurance policies on ships he purposely destroyed. And in 1875, he died the richest black American...

8. Joseph Schumpeter (1953): History of Economic Analysis https://books.google.com/books?isbn=1134838700

9. Angus Deaton: The U.S. Can No Longer Hide From Its Deep Poverty Problem: "According to the World Bank, 769 million people lived on less than $1.90 a day in 2013; they are the world’s very poorest. Of these, 3.2 million live in the United States, and 3.3 million in other high-income countries (most in Italy, Japan and Spain)... #poverty #equitablegrowth

10. Back at the end of the nineteenth century the quest for better economic statistics was a bipartisan, bi-ideology, bi-analytic approach effort. Liberals and conservatives, reactionaries and social democrats, socialists and centrists in America all thought that good statistics would reveal that America matched their images of it and would show that their policies were good ones. We need to recover that: Austin Clemens: In an age of inequality, aggregate and mean economic statistics don't tell us enough: "I have argued that we should disaggregate the reporting of GDP growth so we can understand who prospers when the economy grows. But we don’t need to stop there. As income inequality increases and we increasingly see two Americas—one for rich and one for everyone else—it is more important than ever to see more granular breakdowns...

11. Anybody looking back at economic history cannot help but note that female physical autonomy and its absence has played an absolutely huge role. Kate Bahn and company are pulling together the evidence that this is not just history—that it still matters a lot in America today: Kate Bahn: Understanding the link between bodily autonomy and economic opportunity across the United States: "All of these connective threads are examined in a forthcoming paper of mine... #gender

12.Marshall Berman: All That's Solid Melts into Air http://delong.typepad.com/files/berman_marshall_all_that_is_solid_melts_into_air_the_experience_of_modernity.pdf

1. Simon Jäger, Benjamin Schoefer, Samuel G. Young, Josef Zweimüller: Wages and the Value of Nonemployment: "Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages... #labormarket

What is the counterfactual here? The demand factors they are talking about here are all microeconomic and not macroeconomic factors. Thus it seems to me that—unless they are assuming that the Federal Reserve is a potted plants—they affect the distribution of employment but not its overall magnitude. Remember! The economy is a general equilibrium system!: Katharine G. Abraham and Melissa Kearney: The Secular Decline in Us Employment over the Past Two Decades: "This column reviews the evidence on the main causes of the secular decline in employment since the turn of the century. Labour demand factors–notably import competition from China and the rise of industrial robots–emerge as the key drivers. Some labour supply and institutional factors also have contributed to the decline, but to a lesser extent...

Friedrich Engels (1843): Outlines of a Critique of Political Economy: "According to the economists, the production costs of a commodity consist of... rent... capital with its profit, and the wages for the labour.... A third factor which the economist does not think about–I mean the mental element of invention, of thought...

Note to Self Why isn't the first rule of Federal Reserve policy "thou shalt not come even close to inverting the yield curve!"?

#notetoself #monetarypolicy #finance

I believe that there are four issues in this Summers-Krugman-Rogoff-Blanchard et al.-DeLong internet discussion of three years ago:

1. As far as we economists are concerned, are our models analysis pumps, or are they merely filing systems to remind us of experiential wisdom? In other words: Are our models to be taken seriously when they lead us to a conclusion that the great and good believe is unserious?

2. Do economies with exorbitant privilege in which the key leveraged financial institutions have little foreign-currency debt need to fear banking and government solvency crises?

3. Can economies with exorbitant privilege in which the key leveraged financial institutions have little foreign-currency debt rely on their abilty to print their way to liquidity in an emergency and on market participants' recognition of that ability?

4. Can economists build models and conduct analyses assuming that business expectations are reasonable things, and will not push the economy to a position that is not close to a self-consistent near rational expectations equilibrium?

As near as I can see:

1. Larry Summers says: filing systems, yes, no, no.
2. Paul Krugman says: analysis pumps, no, yes, yes.
3. I say" both, no, yes, no.

I think I should, sometime over the past three years, have written a really good piece about these questions based on the ten items below. But I regret that I have not:

Wikipedia: Riot Act:

If any persons to the number of 12 or more unlawfully, riotously, and tumultuously assemble together to the disturbance of the public peace, and being required by any justice by proclamation in the King's name in the exact form of the Riot Act, I George I, Sess. 2 c. 5 s. 2, to disperse themselves and peacefully depart, shall to the number of 12 or more unlawfully, riotously, and tumultuously remain or continue together for an hour after such proclamation, shall be guilty of a felony.

**The Form of Proclamation is as follows:—

Our Sovereign Lord the King chargeth and commandeth all persons, being assembled, immediately to disperse themselves, and peaceably to depart to their habitations, or to their lawful business, upon the pains contained in the Act made in the first year of King George the First for preventing tumults and riotous assemblies.

GOD SAVE THE KING.

#shouldread

Nick Rowe: Bicycle Disequilibrium Theory: "Suppose you need a bicycle to get to work. Suppose bicycles are a common property resource, because bike locks don't work. Every night the workers deposit their bicycles in the bike bank, and in the morning it's first come first served. And suppose that sometimes there aren't enough bicycles to go around. So sometimes the level of employment is determined by the number of bicycles, and not by all the usual stuff. Any individual can always get a bicycle in the morning, simply by getting up early enough. But in aggregate they can't. Fallacy of composition. A theory of when workers wake up might be interesting, and useful for microeconomists wanting to understand the distribution of employment, but it won't help us understand what determines the aggregate level of employment...

John Maynard Keynes: The General Theory of Employment, Interest, and Money: Chapter 3: "The idea that we can safely neglect the aggregate demand function is fundamental to the Ricardian economics, which underlie what we have been taught for more than a century. Malthus, indeed, had vehemently opposed Ricardo’s doctrine that it was impossible for effective demand to be deficient; but vainly. For, since Malthus was unable to explain clearly (apart from an appeal to the facts of common observation) how and why effective demand could be deficient or excessive, he failed to furnish an alternative construction; and Ricardo conquered England as completely as the Holy Inquisition conquered Spain...

The New York Times is a sad, sad thing: Kevin Drum: Hey David: It Wasn’t “We” Who Screwed the Working Class: "I get so tired sometimes. Here is David Brooks today...

Ian Buruma (2001): Class Acts: "According to Cannadine, race was not everything in the British Raj. It was not even the main point. Class was the main point. Class, status, and rank were more important than skin color, the shape of one's eyes, or the dimensions of one's skull. A Sultan, a Nizam, or a Pasha was equal to British royalty...

Thinking how to talk about Schumpeter's "Ricardian Vice" and the extremely peculiar boosting by economists formerly of note and reputation of the Trump corporate tax cut, and so revisiting this https://www.bradford-delong.com/2013/05/robert-skidelsky-vs-niall-ferguson-john-maynard-keynes-is-not-keha-also-the-us-is-not-greece-and-2013-is-not-1923.html

Hoisted from the Archives: Robert Skidelsky vs. Niall Ferguson: John Maynard Keynes Is Not Ke$ha (Also, the U.S. Is Not Greece, and 2013 Is Not 1923)

And Robert Skidelsky explains what John Maynard "We'll Keep Dancing 'Till We Die" Keynes really meant by "In the long run we are all dead":

Thinking how to talk about Schumpeter's "Ricardian Vice" and the extremely peculiar boosting by economists formerly of note and reputation of the Trump corporate tax cut, and so revisiting this https://www.bradford-delong.com/2013/05/niall-ferguson-is-wrong-to-say-that-he-is-doubly-stupid-why-did-keynes-write-in-the-long-run-we-are-all-dead-weblogging.html:

Niall Ferguson:

An Open Letter to the Harvard Community: Last week I said something stupid about John Maynard Keynes.  Asked to comment on Keynes’ famous observation “In the long run we are all dead,” I suggested that Keynes was perhaps indifferent to the long run because he had no children, and that he had no children because he was gay. This was doubly stupid. First, it is obvious that people who do not have children also care about future generations. Second, I had forgotten that Keynes’ wife Lydia miscarried.

Niall is wrong. His suggestion was not doubly stupid. There is more.

Niall speaks of Keynes's "In the long run we are all dead" as if it is a carpe diem argument--a "seize the day" argument, analogous to Marvell's "To His Coy Mistress" or Herrick's "To the Virgins"--and Ferguson sees his task as that of explaining why Keynes adopted this be-a-grasshopper-not-an-ant "party like we're gonna die young!" form of economics, or perhaps form of morality.

But that is not it at all.

Apropos of the very strange Gertrude Himmelfarb, cf. the attitudes of Edward VII Saxe-Coburg-Gotha "Bertie": Lucy Moore : : "From 1875, when the Prince had been allowed to make a state visit to India, he had begun to grow into his role as King-in-Waiting.... The two main elements... were the magnificent ceremonial... and big game hunting.... Bertie also took his first halting steps in statecraft. He had learned how far his genial charm would carry him; he saw how popular his approachable, easy style could be, and he was thrilled with the response....

John Maynard Keynes (1923): A Tract on Monetary Reform", pp. 80-82: "[T]he [Quantity] Theory [of Money] has often been expounded on the further assumption that a mere change in the quantity of the currency cannot affect k, r, and k',—that is to say, in mathematical parlance, that n is an independent variable in relation to these quantities. It would follow from this that an arbitrary doubling of n, since this in itself is assumed not to affect k, r, and k', must have the effect of raising p to double what it would have been otherwise. The Quantity Theory is often stated in this, or a similar, form...

Note to Self: I had thought that the question of where the sun will be in the sky so you know where to erect the sunshades was a solved problem—a problem solved in 3000 BC by the Babylonians. Apparently not:

The purpose of this weblog is to be the best possible portal into what I am thinking, what I am reading, what I think about what I am reading, and what other smart people think about what I am reading...

"Bring expertise, bring a willingness to learn, bring good humor, bring a desire to improve the world—and also bring a low tolerance for lies and bullshit..." — Brad DeLong

"I have never subscribed to the notion that someone can unilaterally impose an obligation of confidentiality onto me simply by sending me an unsolicited letter—or an email..." — Patrick Nielsen Hayden

"I can safely say that I have learned more than I ever would have imagined doing this.... I also have a much better sense of how the public views what we do. Every economist should have to sell ideas to the public once in awhile and listen to what they say. There's a lot to learn..." — Mark Thoma

"Tone, engagement, cooperation, taking an interest in what others are saying, how the other commenters are reacting, the overall health of the conversation, and whether you're being a bore..." — Teresa Nielsen Hayden

"With the arrival of Web logging... my invisible college is paradise squared, for an academic at least. Plus, web logging is an excellent procrastination tool.... Plus, every legitimate economist who has worked in government has left swearing to do everything possible to raise the level of debate and to communicate with a mass audience.... Web logging is a promising way to do that..." — Brad DeLong

"Blogs are an outlet for unexpurgated, unreviewed, and occasionally unprofessional musings.... At Chicago, I found that some of my colleagues overestimated the time and effort I put into my blog—which led them to overestimate lost opportunities for scholarship. Other colleagues maintained that they never read blogs—and yet, without fail, they come into my office once every two weeks to talk about a post of mine..." — Daniel Drezner

Angus Deaton: The U.S. Can No Longer Hide From Its Deep Poverty Problem: "According to the World Bank, 769 million people lived on less than $1.90 a day in 2013; they are the world’s very poorest. Of these, 3.2 million live in the United States, and 3.3 million in other high-income countries (most in Italy, Japan and Spain)...

Back at the end of the nineteenth century the quest for better economic statistics was a bipartisan, bi-ideology, bi-analytic approach effort. Liberals and conservatives, reactionaries and social democrats, socialists and centrists in America all thought that good statistics would reveal that America matched their images of it and would show that their policies were good ones. We need to recover that: Austin Clemens: In an age of inequality, aggregate and mean economic statistics don't tell us enough: "I have argued that we should disaggregate the reporting of GDP growth so we can understand who prospers when the economy grows. But we don’t need to stop there. As income inequality increases and we increasingly see two Americas—one for rich and one for everyone else—it is more important than ever to see more granular breakdowns...

Anybody looking back at economic history cannot help but note that female physical autonomy and its absence has played an absolutely huge role. Kate Bahn and company are pulling together the evidence that this is not just history—that it still matters a lot in America today: Kate Bahn: Understanding the link between bodily autonomy and economic opportunity across the United States: "All of these connective threads are examined in a forthcoming paper of mine...

Hoisted From the Archives from 2003: The Grand Strategy of the United States of America: Archive Entry From Brad DeLong's Webjournal: "The economic policy of the Bush administration has been frightening: The deliberate unbalancing of the long-term finances of the U.S. government in the hope of sharpening the funding crisis of the social-insurance state—with the effect of slowing capital formation and economic growth, and increasing the interest of economic crisis. The backing-away from the Republican Party's historic commitment to free trade. The reversal of Newt Gingrich's proudest achievement: the partial reform of the farm subsidy program.

The security policy of the Bush administration has been more than frightening; it has been terrifying...

... At the moment administration insiders are trying to convince elite reporters that the Bush administration did not deceive outsiders about Saddam Hussein's nuclear weapons program as much as deceive itself—that the highest levels of the Bush administration proved grossly incompetent at the basics. They did not know how to assess intelligence. Nobody had heard of Machiavelli's 500-year-old warning not to trust exiles: "Such is their extreme desire to return to their homes that they naturally believe many things that are not true, and add many others on purpose; so that, with what they really believe and what they say they believe they fill you with hopes..." Note that this declaration of incompetence is the Bush administration's spin on what happened.

But the most awful and dreadfully terrifying aspect of all has been whenever Bush administration intellectual allies talk about what they see as the motivating theory of the world underlying Bush administration security policy. They call the Clinton Administration naive for believing that international relations is a positive-sum game in which all sides can win. They speak of explicit concern on the part of the United States not just for its absolute but its relative economic power. As the University of Chicago's Dan Drezner puts it, the logic of Bush's National Security Strategy is to "prevent other great powers from rising, in order to ensure the long-term growth of freedom, democracy and prosperity."

But what does "prevent other great powers from rising" mean? What could it possibly mean other than "try to keep China and India desperately poor for as long as possible"—for when China and India close even half the gap in prosperity separating them from the industrial core, their populations alone guarantee that they will be very great powers indeed.

It is certainly not in the interest of world prosperity, or in the interest of China or India, to try to keep them poor. It is not in the national interest of the United States either. The history of the late nineteenth and twentieth centuries teaches us that there may well be something uniquely dangerous to world peace and political sanity during the two generations in which a culture is passing from a poor rural agricultural to a rich urban industrial (or post-industrial) economy. Whether the aggressive foreign policy pursued by Wilhelmine Germany, the Leninist and Stalinist agony of Russia, the terrors of Mao, the dictatorships of Mussolini and Franco, or the most monstrous Nazi regime—the twentieth-century transition to industrial society appears to be a very dangerous time both for the citizens of the country in transition and for neighbors and passers-by.

Is it really in the interest of the United States to try to "prevent other great powers from rising" at the cost of lengthening the period of time during which other societies are vulnerable to the devils that afflicted most notably Germany in the twentieth century? Wouldn't the rest of us rather minimize than maximize the time we might be faced with the problem of containing a National Hinduist India, a Wilhelmine China, or a Weimar Russia?

And do the rest of us want the children of China and India to be taught in fifty years that the rich countries at the turn of the twentieth century did all they could to accelerate the growth and increase the prosperity of China and India, or that the rich countries strove to "prevent other great powers from rising"?

It is long past time for a complete change of personnel at all levels of the Bush administration. The world cannot afford to have neoconservatives at high levels of the U.S. government who do not work for global prosperity and peace, but instead for maximum U.S. relative power. Now we do know that there are grownups in the Republican Party—statesmen who work for more rapid economic development, for multilateral cooperation, and for a world in which the United States leads because of its fortunate position rather than dominates because of its military power. They staffed the first Bush administration. Where are they?

#shouldread #security #hoistedfromthearchives

Simon Jäger, Benjamin Schoefer, Samuel G. Young, Josef Zweimüller: Wages and the Value of Nonemployment: "Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages...

1. I Want a FiveThirtyEight Post-Mortem! #politics

2. The first news: FiveThirtyEight's forecast goes from H+36 S-1 to H+42 S+0...

3. Was the Great Recession More Damaging Than the Great Depression?: Over at the Milken Review

4. Note to Self: Yes the American right wing is strongly anti-semitic. Any questions?

5. Weekend Reading: Keynes Quoting Malthus

6. Weekend Reading: Jan Christian Smuts to M.C. Gillett: The Griqua prayer...

1. Jiahua Che and Yingyi Qian: Insecure Property Rights and Government Ownership of Firms>: "The ownership of firms in an environment without secure property rights against state encroachment. 'Private ownership' leads to excessive revenue hiding, and 'state ownership' (i.e., national government ownership) fails to provide incentives for managers and local governments in a credible way.... 'Local government ownership'... may better serve the interests of the national government...

2. Neel Kashkari: Pause Interest-Rate Hikes to Help the Labor Force Grow: "The Fed has raised the federal-funds rate eight times in the past three years, and inflation now stands right at the 2% goal. A hard inflation ceiling would justify pre-emptive rate increases to ensure inflation doesn’t climb any higher. But the symmetric objective gives the Federal Open Market Committee the flexibility to see how the economy evolves before determining if further rate increases are necessary. The FOMC should seize this opportunity for a pause...

3. Ricardo Hausmann: The Venality of Evil: "Paul Samuelson once commended macroeconomics for having transformed 'the pre-war dinosaur into a post-war lizard'. The discovery of the mechanisms by which large economic fluctuations occur had led to an understanding of how to use fiscal and monetary policies, to tame, if not to prevent, crises such as the Great Depression...

4. Seth Godin: Writing for People Who Don’t Read: "Right there, there’s your problem. I know you’d like to reach more people, and most people don’t read. But if you’re going to write, the only choice you have is to reach people who will choose to engage with you. Do it properly, and there’s a chance that those voluntarily literate people will tell their friends and colleagues...

5. If you believe in the "plucking model", by which the economy when "plucked" into a state below normal employment by a negative shock then returns to normal, there is not strong reason to begin a recession watch until normal employment has resumed or has almost resumed. It has. So it is time to start a "what will cause the next recession?" watch. Tim Duy says: it will not be weakness in housing. I concur: the current weakness in housing is what the Federal Reserve wants to see, and is the intended effect of its raising interest rates—a little less employment in housing construction producing a little more room for higher employment in other sectors: Tim Duy: Decision Time: "Remember the recession calls in 2016 when manufacturing rolled over? The thinking was that every time industrial production falls by 2%, a recession followed, and this time would be no different. But it was different. Those calls did not play out because the shock was largely contained to that sector; recessions stems from shocks that hit the entire economy. And even if a recession could be boiled down to a single indicator, I would pick the yield curve over housing...

6. I have never believed the critics of Whorfianism—those who claim that the language you speak does not shape what you see and how you think. Non-native speakers have a very hard time even hearing the native phonemes of a language, so how can their thoughts be unaffected? Linguistic sources of gender essentialism: Pamela Jakiela and Owen Ozier: Gendered Language: "At the cross-country level, this paper documents a robust negative relationship between the prevalence of gender languages and women’s labor force participation...

7. James Cloyne: Taxes and Growth: New Narrative Evidence from Interwar Britain: James Cloyne, Nicholas Dimsdale, and Natacha Postel-Vinay: Taxes and Growth: New Narrative Evidence from Interwar Britain: "The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918-1939, has remained a particularly contentious case, not least because of its high debt environment and turbulent business cycle...

8. James Davis Nicoll: Sorry to Crush Your Dreams, But We’re Not Colonizing Space Anytime Soon: "Of course, the initial success of the Darien Scheme proves that you can attract investors by targeting rich idiots. Such schemes are most successful when they are intended to attract cash rather than deliver a shiny space colony. Just make sure to buy your ticket for a nation without extradition well in advance. And you may want hire bodyguards. Loyal bodyguards...

9. Nathaniel Rakich: How To Watch The Midterms: An Hour-By-Hour Guide: "6 p.m.: Polls close in: most of Indiana, eastern Kentucky. As the first polls close, we’ll start to see results in two districts that could hold clues for how the rest of the night will unfold: the Kentucky 6th and Indiana 9th. The Kentucky 6th is rated1 as Toss-Up in the Classic version of our model. If Democratic challenger Amy McGrath is able to oust GOP Rep. Andy Barr, it will be an early sign of a Democratic wave, as the Kentucky 6th is about 10.5 points more Republican-leaning than the nation as a whole, according to FiveThirtyEight’s partisan lean metric. On the other hand, our model rates the Indiana 9th as Likely Republican, so if Democrat Liz Watson somehow pulls off an upset against Republican Rep. Trey Hollingsworth, it may point to a very long night for Republicans. The 6 p.m. poll-closing hour will also yield early returns in the Indiana U.S. Senate race, a seat that Democrats must hold in order to have any hope of capturing the Senate. Democratic Sen. Joe Donnelly currently has a 7 in 10 chance there... #politics

10. Lyndon Johnson: "I can think of nothing more dangerous, more divisive, or more self-destructive than the effort to prey on what is called 'white backlash.' I thought it was a mistake to pump this issue up in the 1964 campaign, and I do not think it served the purpose of those who did. I think it is dangerous because it threatens to vest power in the hands of second-rate men whose only qualification is their ability to pander to other men's fears. I think it divides this nation at a very critical time—and therefore it weakens us as a united country... #politics #orangehairedbaboons #history

11. And, of course, in 2016 three million more voters cast their votes for Democratic than for Republican Senate candidates. And the 2018 House vote went Democratic by 9.2 percentage point:: FiveThirtyEight: Significant Digits For Wednesday, November 7, 2018l: "Voters cast 44.7 million votes for Democratic Senate candidates and 32.9 million votes for Republican Senate candidates... 57 percent of Senate votes went for Democrats...

12. Wikipedia: Beto O'Rourke

13. Matthew Yglesias: Austin Can't Stay Weird: "One could go on and on about this stuff—bus lanes, a modest Inclusionary Zoning requirement, etc.—but the details aren’t especially different from what I’d say about anything else. The key point is that the mentality would have to be, 'Hey, Austin is really great, and so a lot of people want to live here or locate businesses here. We should build lots of houses and office buildings and transportation infrastructure and schools to accommodate them...' #nimbyism

 #shouldread #weblogging

Jiahua Che and Yingyi Qian: Insecure Property Rights and Government Ownership of Firms>: "The ownership of firms in an environment without secure property rights against state encroachment. 'Private ownership' leads to excessive revenue hiding, and 'state ownership' (i.e., national government ownership) fails to provide incentives for managers and local governments in a credible way.... 'Local government ownership'... may better serve the interests of the national government...

Matthew Yglesias: Austin Can't Stay Weird: "One could go on and on about this stuff—bus lanes, a modest Inclusionary Zoning requirement, etc.—but the details aren’t especially different from what I’d say about anything else. The key point is that the mentality would have to be, 'Hey, Austin is really great, and so a lot of people want to live here or locate businesses here. We should build lots of houses and office buildings and transportation infrastructure and schools to accommodate them...'

Email [email protected] for an appointment outside of office hours...

View at: https://www.icloud.com/numbers/0fSxKotxqSU27JCPbCUVOXLdg

Across the Wide Missouri: I would like Nate Silver and company to give an explanation for this:

I suspect that three things went on:

1. Around 8 PM EST the model took the behavior of white southerners as indicative of the behavior of whites elsewhere in the country—and that was a mistake, for white southerners really are a different ethnicity.

2. It really was a knife-edge situation: if the Democrats had only won the popular vote by 7 percentage points instead of 9, they would not now control the House.

3. The left-hand graph is miscalibrated: an 85% probability should not swing up to a 95% and then down to 40% before settling at 60% and then converging to 100% with the actual Democraic seat gain being equal to the original expected value...

#acrossthewidemissouri #politics #statistics

And, of course, in 2016 three million more voters cast their votes for Democratic than for Republican Senate candidates. And the 2018 House vote went Democratic by 9.2 percentage point:: FiveThirtyEight: Significant Digits For Wednesday, November 7, 2018l: "Voters cast 44.7 million votes for Democratic Senate candidates and 32.9 million votes for Republican Senate candidates... 57 percent of Senate votes went for Democrats...

The first news: FiveThirtyEight's forecast goes from H+36 S-1 to H+42 S+0: FiveThirtyEight: 2018 Election: Live Coverage And Results:

Lyndon Johnson: "I can think of nothing more dangerous, more divisive, or more self-destructive than the effort to prey on what is called 'white backlash.' I thought it was a mistake to pump this issue up in the 1964 campaign, and I do not think it served the purpose of those who did. I think it is dangerous because it threatens to vest power in the hands of second-rate men whose only qualification is their ability to pander to other men's fears. I think it divides this nation at a very critical time—and therefore it weakens us as a united country...

Nathaniel Rakich: How To Watch The Midterms: An Hour-By-Hour Guide: "6 p.m.: Polls close in: most of Indiana, eastern Kentucky. As the first polls close, we’ll start to see results in two districts that could hold clues for how the rest of the night will unfold: the Kentucky 6th and Indiana 9th. The Kentucky 6th is rated1 as Toss-Up in the Classic version of our model. If Democratic challenger Amy McGrath is able to oust GOP Rep. Andy Barr, it will be an early sign of a Democratic wave, as the Kentucky 6th is about 10.5 points more Republican-leaning than the nation as a whole, according to FiveThirtyEight’s partisan lean metric. On the other hand, our model rates the Indiana 9th as Likely Republican, so if Democrat Liz Watson somehow pulls off an upset against Republican Rep. Trey Hollingsworth, it may point to a very long night for Republicans. The 6 p.m. poll-closing hour will also yield early returns in the Indiana U.S. Senate race, a seat that Democrats must hold in order to have any hope of capturing the Senate. Democratic Sen. Joe Donnelly currently has a 7 in 10 chance there...

Seminar: James Cloyne: Taxes and Growth: New Narrative Evidence from Interwar Britain: James Cloyne, Nicholas Dimsdale, and Natacha Postel-Vinay: Taxes and Growth: New Narrative Evidence from Interwar Britain: "The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918-1939, has remained a particularly contentious case, not least because of its high debt environment and turbulent business cycle...

John Maynard Keynes: The General Theory of Employment, Interest and Money: "The doctrine did not reappear in respectable circles for another century, until in the later phase of Malthus the notion of the insufficiency of effective demand takes a definite place as a scientific explanation of unemployment. Since I have already dealt with this somewhat fully in my essay on Malthus, it will be sufficient if I repeat here one or two characteristic passages...

Jan Christian Smuts: To M. C. Gillett, Paris, 7 May 1919...

...No, I cannot come over this week-end as I must stop here at this juncture for a few days longer on the off-chance of being useful. I go today in a frock-coat and top hat to join in handing the Germans our so-called Peace Terms. And my mind will go back to another May day in 1902 when Peace Terms were handed to the Boers. And in less than five years those terms had been blown to smithereens by fate and only the semblance of the British flag remained as a reminder of the victors' terms.

And so it may be again. Let us not lose faith in God, the Disposer of things, and in simple human nature which is so much wiser and braver than what one would infer from the activities of the statesmen and the leaders. I often nowadays have the feeling as if some great Spirit is back of things and quietly moving the pieces of history behind the camouflage of our petty stage. So let us have faith and await the greater issue, which, however, may not be in our day.

I have never believed the critics of Whorfianism—those who claim that the language you speak does not shape what you see and how you think. Non-native speakers have a very hard time even hearing the native phonemes of a language, so how can their thoughts be unaffected? Linguistic sources of gender essentialism: Pamela Jakiela and Owen Ozier: Gendered Language: "At the cross-country level, this paper documents a robust negative relationship between the prevalence of gender languages and women’s labor force participation...

Was the Great Recession More Damaging Than the Great Depression?: ...Your parents’—more likely your grandparents’—Great Depression opened with the then-biggest-ever stock market crash, continued with the largest-ever sustained decline in GDP, and ended with a near-decade of subnormal production and employment. Yet 11 years after the 1929 crash, national income per worker was 10 percent above its 1929 level. The next year, 12 years after, it was 28 percent above its 1929 level. The economy had fully recovered. And then came the boom of World War II, followed by the “thirty glorious years” of post-World War II prosperity. The Great Depression was a nightmare. But the economy then woke up—and it was not haunted thereafter.

Our “Great Recession” opened in 2007 with what appeared to be a containable financial crisis. The economy subsequently danced on a knife-edge of instability for a year. Then came the crash — in stock market values, employment and GDP. The experience of the Great Depression, however, gave policymakers the knowledge and running room to keep our depression-in-the-making an order of magnitude less severe than the Great Depression. That’s all true. But it’s not the whole story. The Great Recession has cast a very large shadow on America’s future prosperity. We are still haunted by it... Read MOAR at Project Syndicate

If you believe in the "plucking model", by which the economy when "plucked" into a state below normal employment by a negative shock then returns to normal, there is not strong reason to begin a recession watch until normal employment has resumed or has almost resumed. It has. So it is time to start a "what will cause the next recession?" watch. Tim Duy says: it will not be weakness in housing. I concur: the current weakness in housing is what the Federal Reserve wants to see, and is the intended effect of its raising interest rates—a little less employment in housing construction producing a little more room for higher employment in other sectors: Tim Duy: Decision Time: "Remember the recession calls in 2016 when manufacturing rolled over? The thinking was that every time industrial production falls by 2%, a recession followed, and this time would be no different. But it was different. Those calls did not play out because the shock was largely contained to that sector; recessions stems from shocks that hit the entire economy. And even if a recession could be boiled down to a single indicator, I would pick the yield curve over housing...

Seth Godin: Writing for People Who Don’t Read: "Right there, there’s your problem. I know you’d like to reach more people, and most people don’t read. But if you’re going to write, the only choice you have is to reach people who will choose to engage with you. Do it properly, and there’s a chance that those voluntarily literate people will tell their friends and colleagues...

Ricardo Hausmann: The Venality of Evil: "Paul Samuelson once commended macroeconomics for having transformed 'the pre-war dinosaur into a post-war lizard'. The discovery of the mechanisms by which large economic fluctuations occur had led to an understanding of how to use fiscal and monetary policies, to tame, if not to prevent, crises such as the Great Depression...

Note to Self: yes the American right wing is strongly anti-semitic. Any questions? The NRA on the phone: "...We must fight them with the iron fist of truth!.. Now, who is the greatest threat to gun rights in America: George Soros, Charles Schumer, or Michael Bloomberg?"

1. Blame the Economists?: Fresh at Project Syndicate: Ever since the 2008 financial crash and subsequent recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure...

2. Weekend Reading: Robert Solow: A Theory Is a Sometime Thing: "Milton Friedman... aims to undermine the eclectic American Keynesianism of the 1950s and 1960s... goes after two... lines of thought. His first claim is that the central bank, the Fed, cannot ‘peg’ the real interest rate... to undermine the standard LM curve.... The Fed can peg the nominal federal funds rate, but not the real rate.... My mind kept returning to a famous line of dramatic verse: was this the face that launched a thousand ships?.... A few major failures like those I have registered in this note may not be enough for a considered rejection of Friedman's doctrine and its various successors. But they are certainly enough to justify intense skepticism, especially among economists, for whom skepticism should be the default mental setting anyway. So why did those thousand ships sail for so long, why did those ideas float for so long, without much resistance? I don't have a settled answer...

3. Building Blocks of "Flexprice" Business-Cycle Macroeconomics: Checkpoint of Chapter 6 of Next Edition of Marty Olney's and My Macro Textbook

4. Solving the Flexprice Model: Checkpoint of Chapter 7 of Next Edition of Marty Olney's and My Macro Textbook

5. Introducing the Sticky-Price Model: Checkpoint of Chapter 9 of Next Edition of Marty Olney's and My Macro Textbook

1. Ricardo J. Caballero: Risk-Centric Macroeconomics and Safe Asset Shortages in the Global Economy: An Illustration of Mechanisms and Policies: "In these notes I summarize my research on the topic of risk-centric global macroeconomics. Collectively, this research makes the case that a risk-markets dislocations perspective of macroeconomics provides a unified framework to think about the mechanisms behind several of the main economic imbalances, crises, and structural fragilities observed in recent decades in the global economy. This perspective sheds light on the kind of policies, especially unconventional ones, that are likely to help the world economy navigate this tumultuous environment... #monetarypolicy #monetaryeconomics #finance

2. Up until 2000, it looks like we have an unemployment-rate (or vacancy-rate) adaptive-expectations price Phillips curve. Since the mid-1990s, we have a non-employment-rate static-expectations wage Phillips curve. How long before another structural shift we do not know. But right now Team Slack has the empirical evidence. And Team Slack says: the economy still has plenty of room to grow: Jay C. Shambaugh: Score One for Team Slack: "As @ModeledBehavior notes, it is not clear how long this relationship will hold, but it looks really good in 2018 (even better than in 2017). Almost impossible to argue slack is not part of wage growth story even if you don't think it is whole story... #labormarket #monetarypolicy #phillipscurve

3. Cosma Shalizi (1998): Deborah Mayo, Error and the Growth of Experimental Knowledge: "Mayo's key notion is that of a severe test... the severity of a passing result is the probability that, if the hypothesis is false, our test would have given results which match the hypothesis less well than the ones we actually got do.... If a severe test does not turn up the error it looks for, it's good grounds for thinking that the error is absent... #books #cognition

4. Rodney Brooks: The Seven Deadly Sins of AI Predictions: "Imagine we had a time machine and we could transport Isaac Newton from the late 17th century to today, setting him down in a place that would be familiar to him: Trinity College Chapel at the University of Cambridge. Now show Newton an Apple. Pull out an iPhone from your pocket, and turn it on so that the screen is glowing and full of icons, and hand it to him... #riseoftherobots

5. Michael Strain: Protect the Gains Made by Low-Skilled Workers: "Inflation-fighting is important. But so is the progress made by the most vulnerable U.S. workers...

6. Michael Kremer (1993) The O-Ring Theory of Economic Development http://www.jstor.org/stable/2118400: "People in business talk about quality all the time.... This paper makes a stab at modeling quality... proposes an O-ring production function in which quantity cannot be substituted for quality.... Under this production function, small differences in worker skill lead to large differences in wages and output... #economicgrowth

7. Neel Kashkari: Pause Interest-Rate Hikes to Help the Labor Force Grow: "The Fed has raised the federal-funds rate eight times in the past three years, and inflation now stands right at the 2% goal. A hard inflation ceiling would justify pre-emptive rate increases to ensure inflation doesn’t climb any higher. But the symmetric objective gives the Federal Open Market Committee the flexibility to see how the economy evolves before determining if further rate increases are necessary. The FOMC should seize this opportunity for a pause... #monetarypolicy

8. Abhay Aneja: The Effect of Political Power on Labor Market Inequality: Evidence from the 1965 Voting Rights Act #rqce

9. James Heckman and Sidharth Moktan: The Tyranny of the Top Five: "The appropriate solution requires a significant shift from the current publications-based system of deciding tenure to a system that emphasises departmental peer review of a candidate's work. Such a system would give serious consideration to unpublished working papers and to the quality and integrity of a scholar's work... #berkeley #economicsgonewrong

10. Adam Ozimek: The Main Story: We Aren't at Full-Employment Now: "The main story here is we aren't at full-employment now. And we sure as hell weren't at full employment in 2015, 2016, 2017 when so many leading economists said we were... #monetarypolicy #labormarket

11. Halloween Whiteboard: The Undead Generals: ROB FARLEY, SENIOR LECTURER, UNIVERSITY OF KENTUCKY: BILLY MITCHELL (COURTESY NAGASAKI PILOT CHARLES SWEENEY)... #halloween #security

12. Michael Kremer (1993) The O-Ring Theory of Economic Development http://www.jstor.org/stable/2118400: "People in business talk about quality all the time.... This paper makes a stab at modeling quality... proposes an O-ring production function in which quantity cannot be substituted for quality.... Under this production function, small differences in worker skill lead to large differences in wages and output... #economicgrowth

13. Scam o Rama: Quit While You're Ahead: "Another missive from Thomas Mallory, last heard from in The Flying Savimbi Brothers. Note: Just so you know: Mr. Mallory's attorney, Melanie Rourke, is possibly meaner than Lonslo Tossov. We actually edited some of her dialogue. We just felt the need. Mr. Mallory was very nice about it. Call us politically correct if you like. Just don't call us late for dinner...

14. Richard Woodward (2003): Too Much of a Good Thing - The Atlantic: ".The theoretical physicist who ignited the biggest firestorm in the history of the American photography market was simply trying to figure out if his vintage photos were genuine. By the time he learned the answer, two of the country's best-known photography scholars had come under a cloud of suspicion...

15. Five-Thirty-Eight: Geoffrey Skelley: House Update: Keeping An Eye On Democratic ‘Reach’ Districts: "the battleground for the House is quite large: In the Classic version of our House forecast, there are 111 districts where both parties have at least a 5 percent chance of winning, as of 8 p.m. Eastern on Nov. 3. But Republicans are defending most of these districts — 102 of them, in fact. So one possibility on Election Day is that Democrats end up winning a few “reach” districts (in which their odds of winning are greater than 5 percent but less than 35 percent). Under those conditions, Democrats are underdogs in 63 of the 102 districts Republicans are defending... #politics #statistics #acrossthewidemissouri

16. Barry Ritholtz: Trump the Revealer: "President Trump... has revealed (or reminded) many great truths to us.... We can learn a great deal about many things simply from watching his effects on the world. There is no guile, just a super-natural tendency to appeal to people’s basest instincts–supporters, opponents, media, everyone.... Racism is not even well-hidden or contained.... my naïveté assumed it was only insane people shooting up black churches in the deep south.... We learned thanks to Trump–that White Supremicists/Nationalism is a real thing across America, and full equality is still years or decades away for people of color. #orangehairedbaboon #politics

17. Steve M.: Democrats Would Really Be In Trouble If Trump Were A Totally Different Person!: "Douthat's argument seems to be: 'Imagine if we Republicans had all of our current advantages, none of our current disadvantages, and quite a few advantages we don't have now. Then the Democrats would be in trouble! And that just shows how weak the Democrats really are!' Yeah, I guess...

18. Atrios: Hard to Beat a Foe That Doesn't Give a ----: "Chinese politics.... They can probably figure out how to get soy from elsewhere. Any one good might not matter that much for our economy overall, but it's pretty easy to inflict pain on certain geographic populations/areas.... 'American soybean sales to China have declined by 94 percent from last year’s harvest.'... President Deals isn't going to 'win' any trade wars...

Fresh at Project Syndicate: Blame the Economists?: Ever since the 2008 financial crash and subsequent Great Recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure: BERKELEY—Now that we are witnessing what looks like the historic decline of the West, it is worth asking what role economists might have played in the disasters of the past decade. From the end of World War II until 2007, Western political leaders at least acted as if they were interested in achieving full employment, price stability, an acceptably fair distribution of income and wealth, and an open international order in which all countries would benefit from trade and finance. True, these goals were always in tension, such that we sometimes put growth incentives before income equality, and openness before the interests of specific workers or industries. Nevertheless, the general thrust of policymaking was toward all four objectives. Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar... Read MOAR at Project Syndicate

#projectsyndicate #economicsgonewrong #economicsgoneright #monetarypolicy #finance #politicaleconomy

Barry Ritholtz: Trump the Revealer: "President Trump... has revealed (or reminded) many great truths to us.... We can learn a great deal about many things simply from watching his effects on the world. There is no guile, just a super-natural tendency to appeal to people’s basest instincts–supporters, opponents, media, everyone.... Racism is not even well-hidden or contained.... my naïveté assumed it was only insane people shooting up black churches in the deep south.... We learned thanks to Trump–that White Supremicists/Nationalism is a real thing across America, and full equality is still years or decades away for people of color...

...Deficit (Chicken) Hawk... care about only one thing: using debt as a cudgel to hurt their political opponents and help themselves. The US could have used a giant stimulus in 2009, but that might have helped their political opponent.... If you think “Party First, Nation Second” sounds like misplaced priorities, well you are right. Its border-line treason. Trump revealed the deficit hawks as full of chickenshit, but only to those who missed the George W. Bush administration’s unfunded tax cuts and war time spending. And that Paul Ryan does not give a rat’s ass about the federal deficit....

America is Anti-Semitic: As a Jew, I should have known this. But I hardly experience antisemitism personally in and around NYC or when I travel within the US or to Europe.[iii]...

#shouldread #orangehairedbaboon #politics

Five-Thirty-Eight: Geoffrey Skelley: House Update: Keeping An Eye On Democratic ‘Reach’ Districts: "the battleground for the House is quite large: In the Classic version of our House forecast, there are 111 districts where both parties have at least a 5 percent chance of winning, as of 8 p.m. Eastern on Nov. 3. But Republicans are defending most of these districts — 102 of them, in fact. So one possibility on Election Day is that Democrats end up winning a few “reach” districts (in which their odds of winning are greater than 5 percent but less than 35 percent). Under those conditions, Democrats are underdogs in 63 of the 102 districts Republicans are defending...

Scam o Rama: Quit While You're Ahead: "Another missive from Thomas Mallory, last heard from in The Flying Savimbi Brothers. Note: Just so you know: Mr. Mallory's attorney, Melanie Rourke, is possibly meaner than Lonslo Tossov. We actually edited some of her dialogue. We just felt the need. Mr. Mallory was very nice about it. Call us politically correct if you like. Just don't call us late for dinner...

Robert Solow: A theory Is a Sometime Thing: "Milton Friedman... aims to undermine the eclectic American Keynesianism of the 1950s and 1960s... goes after two... lines of thought. His first claim is that the central bank, the Fed, cannot ‘peg’ the real interest rate... to undermine the standard LM curve.... The Fed can peg the nominal federal funds rate, but not the real rate...

..."These… effects will reverse the initial downward pressure on interest rates fairly promptly, say, in something less than a year. Together they will tend, after a somewhat longer interval, say, a year or two, to return interest rates to the level they would otherwise have had" (Friedman 1968, p. 6). Now we know what ‘peg’ means.... The goal, remember, is to contradict the eclectic American Keynesian... which did not, after all, require the Fed to control real interest rates forever. If the Fed can have meaningful influence only for less than a year or two, then it is surely playing a losing game, especially in view of those ‘long and variable lags.’ Is that really so?...

nbviewer: http://nbviewer.jupyter.org/github/braddelong/LSF18E101B/blob/master/Introducing_the_Sticky-Price_Model.ipynb
keynote: https://www.icloud.com/keynote/0qRLX6e9_4BiKw0vSfHxb9B7w

#MRE #Macro #flexprice 

nbviewer: http://nbviewer.jupyter.org/github/braddelong/LSF18E101B/blob/master/Equilibrium_in_the_Flexprice_Model.ipynb
keynote: https://www.icloud.com/keynote/0eT-yTiDbnFJG75PcmVtFrsRg
keynote: https://www.icloud.com/keynote/0qCkpCxn5-A4wblAeoqJj7-GQ

#MRE #Macro #flexprice