Grasping Reality on TypePad, by Brad DeLong

Marcy Wheeler: Lawfare's Theory of L'Affaire Russe Misses the Kompromat for the Pee Glee_: "Trump and the Russians were engaged in a call-and-response... that appears in the Papadopoulos plea and (as Lawfare notes) the GRU indictment.... At each stage... Russia got a Trump flunkie (first, Papadopoulos) or Trump himself to publicly engage in the call-and-response.... Putin obtained receipts at each stage of this romance of Trump’s willing engagement in a conspiracy with Russians for help getting elected. Putin knows what each of those receipts mean. Mueller has provided hints, most obviously in that GRU indictment, that he knows what some of them are.... Trump knows that if Mueller can present those receipts, he’s sunk, unless he so discredits the Mueller investigation before that time as to convince voters not to give Democrats a majority in Congress, and convince Congress not to oust him as the sell-out to the country those receipts show him to be. He also knows that, on the off-chance Mueller hasn’t figured this all out yet, Putin can at any time make those receipts plain.... Trump knows he’s screwed. He’s just not sure whether Putin or Mueller presents the bigger threat...

Note to Self: _A Comment on Development Engineering: With respect to "doing good versus doing well"...

From an economist's point of view, the economy is a decentralized societal calculating machine. It looks at everybody, and tries, in a utilitarian way, to increase social welfare—which it roughly defines as summing everybody's well-being, with each person's well-being weighted by their lifetime wealth. This produces a system in which incentives are, and "doing well" achieved by, increasing resources that produce things for which rich people have a serious Jones.

Serving the global poor is not going to do that. Som making a living serving the poor requires focusing on one of two things:

1. Finding an organization—a government or an NGO—that is willing to some degree to commit resources to bend this market logic of "to those who have, more shall be given"

2. Find some people who have skills and resources and industry that are somehow blocked from the sight of the world market, and figure out a narrow strategic intervention that will makes those resources visible—and hence valuable.

1. Yes, There Are Individual Economists Worth Paying Respect to. But Is Economics Worth Paying Respect to?: Blush. To be one of fifteen good economists name-checked by Larry Summers genuinely makes my day—nay, makes my week. But.... Yes, there are very many good economists worth listening to. But does economics as a whole have any claim to authority, or is it better for outsiders' first reaction to be to dismiss its claims as some combination of ideology on the one hand and obsequious toadying to political masters on the other?...

2. Comment of the Day: Cervantes: Yes, There Are Individual Economists Worth Paying Respect to. But Is Economics Worth Paying Respect to?: "The introductory economics course... 1) Propound a list of assumptions which are not true; 2) Develop an elaborate theory of how the world would be were the assumptions true; 3) Forget that the assumptions are false and carry on...

3. Commonwealth Club: Annual Economic Forecast Event (January 25, 2019): Relevant Files

4. Some Great Past First-Year Berkeley Economic History Course Papers

5. Note to Self: In response to EconSpark: Ben Bernanke: "How important was the financial panic as a cause of the Great Recession?": From 2005 through the end of 2007 the housing bubble breaks—and real housing investment relative to potential real GDP falls by 3.3%-points of real potential GDP. Yet there is no recession. Expenditure is smoothly switched from residential investment to exports and non-residential investment. Consumption is not noticeably weak in spite of the impact of diminished housing wealth on households. Thus my belief that if the financial crisis had been managed—if the Bagehot Rule had been followed, and if there had been authorities to lend freely at a penalty rate on collateral that was good in normal times—and if 2008 had passed without a crash, then our proves would have been over. It was not the case that the economy in November 2008 "needed a recession" as John Cochrane liked to claim, "because people pounding nails in Nevada needed to find something else to do"...

6. Adrian Wooldridge Is... the Vicar of Bray!: Hoisted from the Archives: "The Illustrious House of Hannover,/And Protestant succession,/To these I lustily will swear,/Whilst they can keep possession:/For in my Faith, and Loyalty,/I never once will faulter,/But George, my lawful king shall be,/Except the Times shou'd alter"...

Arkady Martine: The Mysterious Discipline of Narratologists: Why We Need Stories to Make Sense | Tor.com: "Cognitive narratology.... All of those little functional devices—how do they get processed? How do different humans react differently to them? Why did medieval Byzantine historians put obviously fake trope events—like emperors riding bravely into battles they weren’t even present for—into histories the writers swore were true and reported fact? How come readers say they feel ‘cheated’ when an author doesn’t write the ending they expected? Why, for that matter, is it so hard for human beings right now in 2019 to recognize and understand information that contradicts a narrative they believe in very strongly? In short, I started thinking about why we want stories to make sense. At the heart of cognitive narratology—really, at the heart of the whole mysterious discipline of narratologists—is a concept called the ‘storyworld’. It was named by the cognitive narratologist David Herman, and it is both intuitively simple and has deep consequences for thinking about how people engage with narratives...

Bloomberg View: Theresa May Gives the EU a Brexit Ultimatum: "Perhaps May is hoping that the ticking clock... will... get a majority... on board with her original bargain, maybe with some cosmetic embellishments.... The prime minister would be asking Parliament to affirm an agreement that it first rejected by a historic margin, that she herself had then ripped up in an effort to run out the clock, and that has no redeeming qualities or benefits of its own. And this, by the way, is her best-case scenario. Eventually, reality will intrude.... May should concede that no prime minister could willingly accept a no-deal exit, and that the Brexit countdown must be stopped. Parliament should debate alternatives that the EU could realistically accept. And the government should start planning to give the public another say...

Philip Stephens: The EU Cannot Rescue Britain from Brexit Chaos: "I had intended to address a slightly sheepish plea to Britain’s European partners. Even at this late hour, the EU27 should show forbearance with the Brexit shenanigans.... My shaky resolve collapsed after Theresa May’s latest swerve. The EU could now be forgiven for simply throwing Britain overboard. The prime minister’s embrace of her party’s hardline Brexiters was breathtaking in its cynicism. Only weeks ago she was immovable about the arrangements in the EU withdrawal agreement for the border between Northern Ireland and the Irish Republic. Now she promises to try to rewrite them to suit the prejudices of her party. What of the Belfast Agreement, the treaty underpinning peace on the island of Ireland? It ranks second, it seems, to appeasement of Brexiters such as Boris Johnson and Jacob Rees-Mogg...

The Federal Reserve turns on a dime. I wish that rates were lower as they pursue a hifher inflation target than 2%/year, but they appear to have decided that they, after all, really o not wish to invert the yield curve. That makes this a brighter day then I had expected. Tim Duy: Setting The Doves Free: "The statement was more dovish than I anticipated; I did not think they would want to take rate hikes off the table to this degree. I forgot that the Fed often turns their story later than I think they should, but when they turn, they turn quickly.... The Fed believes they will maintain a larger than expected balance sheet.... The bar for raising rates seems high now and apparently hinges on the inflation boogeyman to finally show his face.... This sounds like the rate hike cycle is over–or largely over–as long as the economy eases as expected...

Ryan Avent: The Really Wild Thing About the Post Is the Suggestion That Arguments Like That Made by Saez And Zucman Are Un-Economic. What an Indictment of Economics: "I think Mankiw's argument here is mistaken, but... I'm not sure what good economics is if it can't evaluate arguments like S&Z's. 'We understand how best to do tax, though we can't say anything about the effects of tax regimes on long-run political stability', is one hell of a position...

Hoisted from the Archives: Adrian Wooldridge Is... the Vicar of Bray!:

"The Illustrious House of Hannover,
And Protestant succession,
To these I lustily will swear,
Whilst they can keep possession:
For in my Faith, and Loyalty,
I never once will faulter,
But George, my lawful king shall be,
Except the Times shou'd alter."

Larry Kudlow (January 16, 2008): “Banks are taking significant steps to repair their balance sheets. Even though some people might not be happy with the speed, the reality is things are improving...

#noted

Back in the mid-1990s I thought that George H.W. Bush was below replacement as a Republican President. Three things, especially, disappointed me. "Read my lips: no new taxes" was destructive. The attacks on Clinton for "demonstrating against his country on foreign soil" were classless. And his ostentatious pre-firing of advisors who had served him well and to the best of their ability—that was simply graceless and classless: R.W. Apple (October 12, 1992): The 1992 Campaign: The Debate; Bush Stresses His Experience But 2 Rivals Cite Economic Lag: "White House officials said later that if he was re-elected Mr. Bush planned to dismiss his three top economic advisers, as demanded for months by Republican conservatives outraged over tax increases. They are Nicholas F. Brady, the Treasury Secretary; Richard G. Darman, the budget director, and Michael J. Boskin, the top White House economist...

WTF?????. How? Working through the investment channel, boosting growth by 0.5%/year requires boosting the growth rate of the 60 trillion dollar capital stock by 1.5%/year, which requires a permanent one-time upward jump in investment of 4.5% of national income—of 900 billion a year. We are not getting that. Are there other channels Manki regars as "reaonable"? What are they?: Greg Mankiw: The Bad Economics Behind Trump's Policies: "One might reasonably argue that Trump’s tax cuts will increase growth over the next decade by as much as half a percentage point per year...

Shachar Kariv: The Best Talk On Behavioral Economics: "Fundamental trade-offs... risk vs. return; today vs. tomorrow; personal well-being vs. the well-being of others; what kind of investor should go to a financial advisor; why people should list their goals, constraints, and preferences to arrive at sensible solutions to their problems; the difference between risk aversion and loss aversion; what is 'ambiguity aversion' and why risk profiling in the financial advisory industry is 'completely broken'; what is home bias and why emerging market investing frightens people beyond objective considerations of risk; why your financial advisor may be more important than your personal physician (and which financial advisors you should run away from)...

Jared Bernstein: No Correlation Between Top Tax Rates and Growth Rates: "In a piece in WaPo today, I note in passing that there’s no persistent correlation between top tax rates and growth rates across the US time series, nor in oft-cited international data from Saez et al...

Bijan Parsia: Blocked on Twitter: "Noted author and literary journalist Ron Rosenbaum... made a mistake: https://twitter.com/RonRosenbaum1/status/1079006088522067969. The thread is hilarious: https://twitter.com/maxkennerly/status/1078777955562729472?s=21.... Ron did not handle this well.... I decided to jump in but to do so without mockery and with some attempt at sympathy: https://twitter.com/bparsia/status/1079073455725862913?s=21 In particular: https://twitter.com/bparsia/status/1079080278155579392?s=21 Welp, Ron did not like this and went down the insult trail until he blocked me.... Note that one move I made that definitely didn’t help was not giving him any way of being right. Of course, there is in fact no way for him to be right but it’s even harder for people to get out of those situations without a way of feeling that they were right about something...

Note to Self In response to EconSpark: Ben Bernanke: "How important was the financial panic as a cause of the Great Recession?"

One picture I have always found very illuminating is this one:

Real exports, real private nonresidential fixed investment, real residential fixed investment, real government purchases, all as deviations from their 2007:IV shares of real potential GDP.

Adam Tooze attributes to me the idea that many of the problems fo the past decade stem from the fact that we had "the wrong crisis"—and that we then in large part reacted to the crisis we had expected but did not in fact have. But I think this point is more Matt's than mine: Matthew Yglesias (2012): The Crisis We Should Have Had: "The US economy from 2002-2006... someday soon, the capital flows would come to an end... the value of the dollar would crash, restraining inflation would require high interest rates, and the US economy would feature a period of painful restructuring.... Sections of Tyler Cowen’s The Great Stagnation are about the crisis we should have had... Spence’s The Next Convergence... Stiglitz’ recent Vanity Fair article... Mandel’s piece on the myth of American productivity.... I can name others.... An awful lot of the Obama agenda has been about efforts to address the crisis we should have had. That’s why long-term fiscal austerity is important and why there was no “holy crap the economy’s falling apart, let’s forget about comprehensive reform of the health, energy, and education sectors” moment back in 2009...

Bob Wescott: Seven Insights into Queueing Theory: "The slower the service center, the lower the maximum utilization you should plan for at peak load. The slowest computer resource is going to contribute the most to overall transaction response time increases...

Adam Gurri: The Minefield of Prejudice: "One common approach for discrediting an opponent’s ideas without engaging with them on their merits is to attempt to place them in an unsavory history.... Recent projects in this spirit include Thomas Leonard’s Illiberal Reformers, about the ideological allegiance of the early progressive economists to the principles of eugenics, and Nancy MacLean’s Democracy in Chains.... History of this kind is important, but to think that it is in itself discrediting is mistaken.... Investigating the histories of frameworks is important precisely because we aren’t in a position to align ourselves with something entirely pure. It is therefore imperative that we wrestle with the potential dangers in how our ideas and other alignments prejudice us, and 'genealogy' of Nietzsche’s sort can be an invaluable tool.... We are not the third-person omniscient narrators of our lives.... Scrutinizing the sources of our orientation is an important way we can learn more about our prejudices...

Otto English: Brexit has become a Doomsday Cult: "But May’s ardour is as nothing next to Mystic Mogg and his followers, who seem ever more bent on a 'Branch Davidian' path, unsullied by the compromises of reality. Redemption is attainable–if only everyone could see things their way. The true path has been corrupted by concession–only a mythical ‘No Deal’ Brexit will fulfil the destiny of the great flight from Dunkirk. Planet Brexit can be reached, the spaceship is coming, we simply have to extract the metal bits from our bras and check that we have set our watches correctly. Beyond parliament rank and file converts remain... in thrall.... They stand on the pavements outside Westminster, shouting meaningless platitudes 'WTO rules' or 'Leave Means Leave'–and waiting for the Brexit Clarions to appear...

Alice Dreger: Why I Escaped the ‘Intellectual Dark Web’: "Pissing off progressives isn’t intellectual progress. Conventional wisdom says that if a staff writer for The New York Times wants to feature you in a story about brave intellectuals, you reply, 'Yes, please!'... But every time that Times writer, Bari Weiss, called to talk with me about the 'Intellectual Dark Web' and my supposed membership in it, I just started laughing.... Why was I laughing? The idea that I was part of a cool group made me think there was at least some kind of major attribution error going on.... I’m all for bringing intellectualism to the masses, but like a lot of academics, I value ambivalence itself, along with intellectual humility. Yet these values seem in direct opposition to the kind of cocksure strutting that is the favored dance move of the IDW.... Professors, listen to me: You don’t want to be in this dark-web thing, even if it comes with an awesome trading-card photo. You are in the right place. Carry on...

• Marc Dordal i Carreras (2015): “U.S. Banking Panics and the Credit Channel: Evidence from 1870-1904” http://delong.typepad.com/econ_history_marc_dordal.pdf
• Daniel Gross (2016): “Scale versus Scope in the Diffusion of New Technology: Evidence from the Farm Tractor”, Harvard Business School Working Paper, No. 16-108 https://delong.typepad.com/gross-scale.pdf
• Petra Moser (2005): “How Do Patent Laws Influence Innovation?: Evidence from Nineteenth-Century World Fairs”, The American Economic Review, Volume 95, Number 4, September 2005, pp. 1214-1236 https://delong.typepad.com/w9909.pdf
• Jacob P. Weber (2018): "Patterns in British Height: 1770-1845” https://delong.typepad.com/jacob-p.-weber-heightpaperfinal-x.pdf

Yes, some of these have been highly revised since they were submitted for a grade. Why do you ask? :-)

Charlie Warzel: "A Honeypot For Assholes": Inside Twitter’s 10-Year Failure To Stop Harassment: "For nearly its entire existence, Twitter has not just tolerated abuse and hate speech—it’s virtually been optimized to accommodate it. With public backlash at an all-time high and growth stagnating, what is the platform that declared itself 'the free speech wing of the free speech party' to do? BuzzFeed News talks to the people who’ve been trying to figure this out for a decade...

Note to Self: Trying and failing to gain conceptual clarity about and work my way through the algebra involved in a minor point in Blanchard's excellent and stimulating presidential address: Public Debt and Low Interest Rates: https://nbviewer.jupyter.org/github/braddelong/WS2019/blob/master/Thinking_About_Blanchard%27s_Presidential_Address....ipynb?flushcache=true...

Commonwealth Club: Annual Economic Forecast

Short-Run Economic Forecast: The Economic Forecast: Commonwealth Club Non-Public Event Opening Statement

Talking Points and Snippets from Commonwealth Club January 25, 2019 Forecast Event

General Talking Points: Commonwealth Club Talking Points (January 25, 2019): Forecasting and Steve Moore Edition

Comment of the Day: Cervantes: Yes, There Are Individual Economists Worth Paying Respect to. But Is Economics Worth Paying Respect to?: "When I took the introductory economics course—and it was actually a graduate course, required for an interdisciplinary social science degree—the procedure was: 1) Propound a list of assumptions which are not true; 2) Develop an elaborate theory of how the world would be were the assumptions true; 3) Forget that the assumptions are false and carry on describing an alternate reality. I saw immediately that this was complete bullshit but the instructor was adamant...

Blush. To be one of fifteen good economists name-checked by Larry Summers genuinely makes my day—nay, makes my week.

But this gets into a topic I have been worrying at for a long time now. And so let me try once again to say what needs to be said, for I do have to admit that, contrary to what Larry maintains, Fareed Zakaria does have a point when he says that "events have hammered... nails into the coffin of traditional economics" and that, while the question mark at the end is important, it is time to speak of "the end of economics?". Yes, there are very many good economists worth listening to. But does economics as a whole have any claim to authority, or is it better for outsiders' first reaction to be to dismiss its claims as some combination of ideology on the one hand and obsequious toadying to political masters on the other?

Open right now on my virtual desktop, as has been true about 5% of the time over the past fourteen months, is an article forecasting the economic effects of the 2017 Trump-McConnell-Ryan tax cut by nine academic economists: Robert J. Barro, Michael J. Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence B. Lindsey, Harvey S. Rosen, George P. Shultz and John. B. Taylor: How Tax Reform Will Lift the Economy: We believe the Republican bills could boost GDP 3% to 4% long term by reducing the cost of capital. It is, bluntly, unprofessional.

Fareed Zakaria: The End of Economics?: "In the three decades since the end of the Cold War, economics has enjoyed a kind of intellectual hegemony. In the three decades since the end of the Cold War, economics has enjoyed a kind of intellectual hegemony... first among equals in the social sciences... dominated most policy agendas as well.... That hegemony is now over.... In October 2008, Greenspan, a lifelong libertarian, admitted that 'the whole intellectual edifice… collapsed in the summer of last year'...

Larry Summers: Has economics failed us? Hardly: "My friend Fareed Zakaria... writing... “The End of Economics?,” doubting the relevance and utility of economics and economists. Because Fareed is so thoughtful and echoes arguments that are frequently made, he deserves a considered response. Fareed ignores large bodies of economic thought, fails to recognize that economists have been the sources of most critiques of previous economic thinking, tilts at straw men and offers little alternative to economic approaches to public policy...

Comment of the Day: Donald Pretari: "Libertarians have always been divided on inheritance. If you think that freedom is important because it lets humans express their free wills, then why respect the non-existent wills of dead people? Jim Buchanan, the public choice theorist who suffered at the hands of Nancy Maclean and supposedly ties the whole libertarian right together, advocated an 100% inheritance tax. Robert Nozick switched towards one later in his life. Thomas Jefferson thought similarly. 'Even' Adam Smith was against unlimited rights of bequest...

1. U.S. Recession No Longer Improbable: No Longer Fresh at Project Syndicate: For the first time in nine years, Americans and investors in America need to be prepared for not a probable but rather a not improbable economic downturn—and for the likelihood that should such a downturn come, it will be a deep and prolonged one...

2. Note to Self: Time to taunt people on the other coast?...

3. Commonwealth Club: Annual Economic Forecast: FRI, JAN 25 / 12:00 PM :: The Commonwealth Club :: 110 The Embarcadero :: Taube Family Auditorium :: San Francisco, 94105: With changes to taxes, trade wars with China and other countries, health care in flux, housing prices continuing to rise, continued governmental gridlock as well as international challenges to the United States, what does all of this mean for your business, your investments and the overall economy for 2019?...

4. Note to Self: The Two Best Books I Read in 2018: John Carreyrou: Bad Blood.... Adam Tooze: Crashed...

5. Note to Self: Write a Project Syndicate column about these, someday: "Anastas Mikoyan and Boris Ushumirskiy: The Book of Tasty and Healthy Food. Anya Von Bremzen: Mastering the Art of Soviet Cooking: A Memoir of Food and Longing...

6. Hoisted from the Archives from 2005: Kevin Drum: The Wall Street Journal Editorial Page Is More of a Joke than Ever: "Reagan produced the slowest growth in... any decade since World War II. That's a real supply side triumph. Welcome to the Journal, Steve. You guys deserve each other...

7. Hoisted from the Archives from 2010: If You Did Not Think UCLA Law Professor Steve Bainbridge Had Lost His Mind—or Perhaps Had No Mind to Lose—You Do Now...: I genuinely thought this was a joke when I first saw it. But, no, people who deal with him every week have persuaded me UCLA law professor Steve Bainbridge really does think Paris Hilton is the tenth worst American of all time...

8. Hoisted from the Archives from 2016: Ben White: "Ben White: Morning Money: "Larry Kudlow and Steve Moore... [were] confident he and Kudlow could help nudge Trump away from his protectionist trade policies.... Moore noted that Trump has largely stopped talking about big tariffs on Chinese goods...

9. Watch Me at the Commonwealth Club Annual Economic Forecast!

10. Commonwealth Club Talking Points (January 25, 2019): Forecasting and Steve Moore Edition: The Shutdown: Let's review the bidding: Pelosi, Ryan, McCarthy, Schumer, McConnell, Trump reached a deal...

11. Hoisted from the Archives: The Kansas Republican Governance Experiment. Or Is That "Governance 'Experiment'"? Or Is That "'Governance' Experiment"?: Nothing like this was seen before.... It is only under Brownback that it has been down, down, down, down. You can argue how much of it is hostility to immigrants and strangers. How much of it is the profoundly un-Christian cast of a "Christian" government, and how much of it is the collapse of public services. But it has been effective. My friend Dan Davies says that the best proof that there is a skill and art of management comes from the fact that nobody doubts that there is such a thing as gross mismanagement...

12. Note to Self: The Heritage Foundation, the Club for Growth, and Stephen Moore Have No Principles Whatsoever. Why Do You Ask?: Now that Stephen Moore has signed up with Donald Trump, he is opposed to the Trans Pacific Partnership.... But... short months ago... Larry Kudlow, Arthur Laffer, and Stephen Moore (2015): "TPP Good For Both Sides Of The Pacific...

13. The Economic Forecast: Commonwealth Club Non-Public Event Opening Statement: Some people think the Federal Reserve is about to back off. Some people think that this time really is different—that the bond market is spooking at shadows this time. Give each of these a 25% chance of being right, and you have to say that there is a 50% chance the U.S. will be in recession in a year and a half...

14. Note to Self: How is it that Charlie Sykes, author of the appallingly-bad Profscam, is now one of the best-in-breed conservative? How did this happen?: The Bulwark—Conservatism Conserved...

15. Talking Points and Snippets from Commonwealth Club January 25, 2019 Forecast Event: The Shutdown: Let's review the bidding: Pelosi, Ryan, McCarthy, Schumer, McConnell, Trump reached a deal. Deal passes Senate unanimously. Trump watches "Fox and Friends". Trump announces he won't sign the deal. Paul Ryan—desperate not to embarrass Trump more—won't let the House vote on the deal...

Next to nobody ever thought it would be a good idea for the British economy. Next to nobody wanted to govern a ship of state headed for the Brexit iceberg—they merely wanted to gain narrow career advantage by showing that they would stand up for Britain. Yet those claiming to support Brexit remain busy removing the brakes that could bring Britain to a not-disastrous policy outcome: Nick Crafts: Brexit: Blame It on the Banking Crisis: "Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that they are in fact closely connected. The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote. The implication is that the economic costs of the banking crisis are much larger than is usually supposed...

As Karl Marx wrote in the middle of the nineteenth century: Imbalances in pre-capitalist economies do not produce aggregate demand crises and collapses. Why don't they? Because Pharaoh can always command that another pyramid be built, the king can always set out on another crusade, and the bishop can always build another cathedral. The expenditures that provide employment for those not producing the consumption-goods-in-demand only have to make profit-and-loss sense under the capitalist mode of production. Capitalist economies suffer Hayek-Minsky crises when deluded financial markets suddenly recognize that they have been overoptimistic, have over invested, and need to shift investment-goods production back down not to normal but way below normal. And the collapse comes as near-universal bankruptcy and financial disruption prevents any such smooth expenditure-shifting. That Hayek-Minsky overinvestment crisis is what Paul Krugman, I, and other China-pessimists haver been fearing for two decades now. But perhaps socialism with Chinese characteristics is insufficiently capitalist for that Hayek-Minsky logic to apply, and Paul and I and others should have been paying more attention to Uncle Karl: Paul Krugman: Will China’s Economy Hit a Great Wall?: "I issued a warning.... The Chinese economy... is, I wrote, 'emerging as a danger spot'.... Unfortunately, the other day was more than 6 years ago. And it’s not just me. Many people have been predicting a China crisis for a long time, and it has kept on not happening. But now China seems to be stumbling again. Is this the moment when all the prophecies of big trouble in big China finally come true? Honestly, I have no idea. On one side, China’s problems are real. On the other, the Chinese government... has repeatedly shown its ability and willingness to do whatever it takes...

The disjunction between market-community and policymakers beliefs is the feature of the situation that makes me most worried about the business cycle outlook. Market oesrrvers understanding how and what the Federal Reserve believe, but are right now betting that events will give it a shock and force it to reverse policy. Such confidence that reality will give a shock that olicymakers will not be able to ignore is worrisome: Muhammed El-Erian: Why Fed and Markets Don't Agree on Prospects for Interest Rates: "The markets, anticipating no hikes this year and cuts thereafter, estimate the fed funds rate in 2020 a full percentage point below the median of the central bank's dots.... There simply isn’t enough data as yet to point with a high degree of confidence to a dominating explanation or combination of explanations... historically based analytical models may not be sufficiently structurally robust to capture this moment...

I think that this does not get what is going on, exactly. It's the Gingrich Rule and the Trump Rule. The Gingrich Rule is this: if the president of your party is not a success and not perceived to be a success, you might well lose your congressional seat at the next election. Those who follow the Gingrich Rule thus have one focus when the presidency is held by the opposite party: make the president look like a failure—and to hell with the well-being of the country. And those who follow the Gingrich Rule thus have one focus when the presidency is held by your own party: make the president look like a success—and to hell with the well-being of the country. But what if—as is the case with Trump—nothing you do can make him look like a success? Well, you might still squeak through if your voter base has a heavy partisan advantage as long as the party loyalists support you. And that means you have to at least appear to support the president, and make sure that the president never gets mad enough at you to make you a target. Want to understand Republican legislators right now? It's these two rules: (1) Try to make Trump look like a success. (2) Try not to make Trump mad at you. This is, however, not fear of Trump—it's fear of the voters you need in your corner next November—fear that the moderates will conclude that you are a loser because Trump looks like a loser, and fear that the base will conclude that you are a loser because you are not loyal enough to Trump. Actually, I would be surprised if we did not have a lot of Republican Senators refusing to run in 2020: it's much better for your future lobbying career to retire than to lose. Lamar Alexander (R-Tennessee), Shelley Moore Capito (R-West Virginia), Bill Cassidy (R-Louisiana), Susan Collins (R-Maine), John Cornyn (R-Texas), Tom Cotton (R-Arkansas), Steve Daines (R-Montana), Mike Enzi (R-Wyoming), Joni Ernst (R-Iowa), Cory Gardner (R-Colorado), Lindsey Graham (R-South Carolina), Cindy Hyde-Smith (R-Mississippi), James Inhofe (R-Oklahoma), Jon Kyl (R-Arizona), Mitch McConnell (R-Kentucky), David Perdue (R-GA), Jim Risch (R-Idaho), Pat Roberts (R-Kansas), Mike Rounds (R-South Dakota), Ben Sasse (R-Nebraska), Dan Sullivan (R-Alaska), Thom Tillis (R-North Carolina), take note: A.B. Stoddard: Trump's Loyal Senate Republicans: "Republican officeholders would rather cross the voters than cross Trump, even as the bottom is falling out on the numbers.... John Cornyn... up for re-election next year... complained about the damage being done by the shutdown, saying that it’s 'Outrageous that federal prosecutors at Department of Justice and investigators at FBI, who we depend on to enforce the law are missing paychecks because of shutdown'. Yet after years of expressing scepticism about the efficacy of a border wall, he tells the Washington Post that he now won’t vote for a bill to reopen government without wall funding because, he said, 'the president won’t sign it'.... McConnell... could put spending bills that have passed the House... up for a vote on the Senate floor. But since the bills might pass, embarrassing Trump and risking a presidential veto, he won’t. What’s driving this partisan unity is not ideological solidarity, but fear.... When Murkowski was asked by the Post if she believed her GOP colleagues were afraid of the president she replied, 'I think some are, absolutely'...

Leonidas Montes: Friedman’s Two visits to Chile in Context : "The Mont Pèlerin Society Meeting opened with a reception and dinner on Sunday, November 15, the same day the Friedmans arrived to Chile. During the last day of the meeting, on Thursday November 19, one presenter celebrated the condition of an authoritarian government in Chile that permitted the implementation of a free market economy. La Segunda reported that Friedman emphatically intervened during this presentation arguing that the same reforms could be implemented under a constitutional o parliamentary democracy. It is also reported that he received an applause and ovation from the public (La Segunda Thursday 19, 1981 and see also Hoy, November 25, 1981, p. 27).61...

Bad actors acting badly. A century ago the authors and distributors of the Protocols of the Elders of Zion has theological and political motives—they saw their lies as buttressing what they saw as the essential institutions of orthodoxy and autocracy—rather than just seeking to make a buck. Which is worse?: Hannes Grassegger: The Plot Against George Soros: "The Unbelievable Story Of The Plot Against George Soros: How [the] two Jewish American political consultants [Arthur Finkelstein and George Eli Birnbaum] helped create the world’s largest anti-Semitic conspiracy theory...

Dietz Vollrath: The Deep Roots of Development: "Institutions versus geography?... Compare... Melissa Dell’s paper on the mining mita in Peru... forced labor... to provide work in the Potosi silver mine for Spain. Dell established in her paper that areas today that were once inside the mita have lower development levels.... Marcella Alsan’s paper on the effect of the TseTse fly on African development. She builds a measure of the natural geographic range of the TseTse fly.... Both... show that aspects of development are persistently affected by deep roots... the mita... continues to cast a shadow... historical shocks have persistent effects.... In Alsan, the deep root is the range of the TseTse fly, which affected how ethnic groups within Africa subsisted, with effects on the role of women and type of agriculture...

Jennifer Ouelette: Economists Calculate the True Value of Facebook to Its Users in New Study: "Facebook users required more than $1000 to deactivate their account for one year...

Note to Self: How is it that Charlie Sykes, author of the appallingly-bad Profscam, is now one of the best-in-breed conservative? How did this happen?: The BulwarkConservatism Conserved...

Jeffrey A. Sachs: The SJWs Are Winning and You're All Just Going to Have to Deal With It: A thread: "Reading this @JohnHMcWhorter piece is an exercise in vertigo. The central claim is that "third wave anti-racism" (i.e. the broad nexus of PC, social justice, and ID politics) is doomed to failure. That the aims are good, but strategically it's a dead end. This is a common view among centrist liberals and libertarians: 'Yes, racism and sexism are serious problems and must be addressed, but the SJW Left is going about it all wrong. In fact, its tactics are actually making these problems worse, not better'...

My read is that (1) Putin has something on Trump that Trump regards as either highly embarrassing or fatal (although what it could be is at this stage hard to imagine: what could embarrass Trump? what could lead McDonnell and company to stop defending Trump?); (2) Putin has said that he will keep quiet as long as Trump is "agreeable"; (3) Putin has left it up to Trump to define what "agreeable" is; (4) Trump is neither sophisticated nor wise as he attempts to do Putin's bidding: Edward Luce: The Unpalatable Truth About Trump’s Embrace of the Russian Bear: "Otherwise cautious former CIA directors, senior retired generals and other seasoned operatives talk of Russian kompromat as the best explanation for Mr Trump’s actions.... That judgment has hardened in the past three weeks. On top of the FBI’s inquiry are reports that Mr Trump has repeatedly tried to withdraw the US from Nato.... All of which presents the US public with a horribly binary choice. On the one hand, Mr Trump claims... [he] is the victim of a vast leftwing conspiracy... [and] the FBI and other branches of government had betrayed their oaths by working for one political faction. On the other hand... America’s commander-in-chief is working for a foreign adversary. Either account would break all historic precedent. The question is which of the two is less unlikely...

Forecasting: Because of the shutdown, we are flying much more blind than we would like to be. We are not getting the normal data flow. Thus there is more than the usual level of uncertainty. Given that:

• I believe there is something like an 80 percent probability that Europe is now in a small recession.
• The Chinese government continues to say that all is well.
• But somehow six percent fewer cars were bought in China in late 2018 than in late 2017.
• Over the past half century the reliable recession signal has been yield-curve inversion—since 1965 eight inversion signals: one false (1998), one near-recession (1966), and six recessions.
• There have been no recessions not signaled by a yield-curve inversion.
• The Federal Reserve currently plans are to invert the yield curve in June.
• Neither Steve Moore nor I understand why the Fed thinks that this is a good thing to do.

In the last yield-curve inversion, in 2006, they were worried about an inflationary spiral breaking out because of rising oil prices—they should not have been worrying about it, but they were. In the yield-curve inversion before that, in 2000, they were worried about the dot-com bubble. There is nothing like either of those going on now.

Some people think the Federal Reserve is about to back off. Some people think that this time really is different—that the bond market is spooking at shadows this time. Give each of these a 25% chance of being right, and you have to say that there is a 50% chance the U.S. will be in recession in a year and a half. We hope the recession, if it comes, will be a small one. We hope we will, somehow, dodge the bullet and not have a recession.

But, at least as I see it, that is the forecast: a 50% chance of 1.5%-2.5% growth over the next year and a half, and a 50% chance of negative growth.

If you want a more precise forecast, my advice is to consult your Magic-8 Ball.

Because of the shutdown, we are flying much more blind than we would like to be. We are not getting the normal data flow. Thus there is more than the usual level of uncertainty.

Given that:

• I believe there is something like an 80 percent probability that Europe is now in a small recession.
• The Chinese government continues to say that all is well.
• But somehow six percent fewer cars were bought in China in late 2018 than in late 2017.
• Over the past half century the reliable recession signal has been yield-curve inversion—since 1965 eight inversion signals: one false (1998), one near-recession (1966), and six recessions.
• There have been no recessions not signaled by a yield-curve inversion.
• The Federal Reserve currently plans are to invert the yield curve in June.
• Neither Steve Moore nor I understand why the Fed thinks that this is a good thing to do.

Note to Self: The Heritage Foundation, the Club for Growth, and Stephen Moore Have No Principles Whatsoever. Why Do You Ask?: Now that Stephen Moore has signed up with Donald Trump, he is opposed to the Trans Pacific Partnership.... On Trish Regan's show with him, he made four points about TPP: 1. The agreement is long, and has lots of pages in it. 2. The agreement does not commit the Asians to stop copying our intellectual property. 3. The agreement does allow the U.S. to impose retaliatory penalties on other signatories if they do copy our intellectual property, but they will copy anyway. 4. The agreement is unlike NAFTA, which is a good thing. But... short months ago...

Jared Bernstein (2016): Kansas and the Myth Of Trickle-Down Tax Cuts: "The ongoing supply-side tax cut experiment in Kansas.... Brownback was persuaded by some of the same folks now advising Trump to sharply cut state income taxes and to fully exempt pass-through income.... Not only did the growth that was supposed to offset the revenue losses fail to appear, but the Kansas economy appears to be doing notably worse than it was before the cuts.... Needless to say, this reality has had almost no perceptible impact on the cuts’ architects.... Steve Moore, a key trickler that pushed the plan in Kansas, didn’t see that coming: 'Sometimes it was legitimate, and sometimes it was a gaming of the tax system to pay the zero rate, so that loophole has to be closed', he said. 'Unless you have some rules about this, people really will shift income and they’ll find ways to legally avoid paying tax, and that was never the intention'. Who’d a thunk it? Moore is now a Trump adviser, and while pass-through income isn’t zeroed out in the Trump plan, it is taxed at very favorable 15 percent rate...

Hoisted from the Archives: The Kansas Republican Governance Experiment. Or Is That "Governance 'Experiment'"? Or Is That "'Governance' Experiment"?: Nothing like this was seen before.... It is only under Brownback that it has been down, down, down, down. You can argue how much of it is hostility to immigrants and strangers. How much of it is the profoundly un-Christian cast of a "Christian" government, and how much of it is the collapse of public services. But it has been effective. My friend Dan Davies says that the best proof that there is a skill and art of management comes from the fact that nobody doubts that there is such a thing as gross mismanagement. Similarly, the best proof that there is such a thing as good technocratic government leading to shared prosperity and equitable growth is... Brownback, and his acolytes and supporters, in Kansas:

The Shutdown: Let's review the bidding: Pelosi, Ryan, McCarthy, Schumer, McConnell, Trump reached a deal. Deal passes Senate unanimously. Trump watches "Fox and Friends". Trump announces he won't sign the deal. Paul Ryan—desperate not to embarrass Trump more—won't let the House vote on the deal. Ryan goes out and Pelosi gets in on January 4, and Pelosi passes the deal through the House. But because it is a new congressional session, the Senate's approval has expired. And McConnell—desperate not to embarrass Trump more—is now holding things up in the Senate.

From Pelosi and Schumer's standpoint, the big problem is this: they reach a new deal with Trump, Fox and Friends finds some reason to slag it, Trump backs out again.

The right, rational response to this situation is for Pelosi, McCarthy, Schumer, and McConnell to strike deals and then pass them with veto-proof majorities. But McCarthy and McConnell are too scared of Trump and not concerned enough about the well-being of the country to do that.

2.5 million people aren't getting their paychecks and 800,000 are getting very little work done. That's about a 0.5%—10 billion over the past month—hit to the economy. We won't see that because of oddities in the how the public sector is folded into official statistics, but it is there. Will there be a multiplier applied to it? In a year I will have the data so that then I will be able to look back and tell you. I cannot tell you now...

https://www.youtube.com/watch?v=Gj398AqszD0

#highlighted #economics #equitablegrowth

ProGrowthLiberal (2015): Stephen Moore Tries to Claim There Is a "Debate" About North Carolina Employment Statistics: "Stephen Moore has another silly parade of disinformation.... Moore wants to claim employment has soared... says there was a 'debate' about how many people dropped out of the workforce. Paul Krugman addressed this last year:

Employment in North Carolina hasn’t actually shown any upward bump. Here’s employment in NC and the nation as a whole.... There has been a sharp drop in the NC labor force, probably in large part because workers who could no longer get unemployment benefits—which require that you search actively for work—gave up on what they knew was a hopeless quest. The point is that to the extent that there has been a distinctive drop in North Carolina’s measured unemployment rate, it has to do with reduced job search rather than increased employment....

And Moore wants to say there was a debate?.... I guess the Wall Street Journal will publish even the dumbest of dishonesty....