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May 2019

May 31, 2019: No Significant Changes: Weekly Forecasting Update

The right response to almost all economic data releases is: Next to nothing has changed with respect to the forecast—your view of the economic forecast today is different from what it was last week, last month, or three months ago in only minor ways. About the only news these past three weeks is an 0.7%-point decrease in our estimate in what production will be over April-June, driven by a reduction in estimated durable goods orders and capacity utilization. This might be an impact o Trump's trade war, plus Trump's attempts to add a trad ar with Mexico to the mix:

Federal Reserve Bank of New York: Nowcasting Report: "May 31, 2019.... The New York Fed Staff Nowcast stands at 1.5% for 2019:Q2. News from this week's data releases increased the nowcast for 2019:Q2 by 0.1 percentage point...


Key Points:

Specifically, it is still the case that:

  • The Trump-McConnell-Ryan tax cut has been a complete failure at boosting the American economy through increased investment in America.
    • But it has been a success in making the rich richer and thus America more unequal.
    • And it delivered a short-term demand-side Kerynesian fiscal stimulus to growth that has now ebbed.
  • U.S. potential economic growth continues to be around 2%/year.
  • There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating.
  • There are still no signs of interest rate normalization: secular stagnation continues to reign.
  • There are still no signs the the U.S. is at "overfull employment" in any meaningful sense.

  • A change from 3 months ago: The U.S. grew at 3.2%/year in the first quarter of 2019—1.6%-points higher than had been nowcast—but the growth number you want to put in your head in assessing the strength of the economy is the 1.6%/year number that had been nowcast. The falling-apart of Trump's trade negotiating strategy with China will harm Americans and may disrupt value chains, and the might be becoming visible in the data flow.

  • Changes from 1 month ago: Industrial production appears to be falling as new durable goods orders come in below expectations. Industrial production may have peaked last December:
    Industrial Production Index FRED St Louis Fed

  • A change from 1 week ago: Trump has now added a possible trade war with Mexico to the mix...

  • Over the past 20 years: United States manufacturers are ordering no more in the way of the nominal value of capital goods than they order two decades ago. Deflators here are very hazardous, but I believe that translates to a zero increase in real orders as well. This is unprecedented for the U.S. economy: nothing like it has happened before:
    Manufacturers New Orders Durable Goods FRED St Louis Fed

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Duncan Black: The New York Times Defense Force: "One of the more amusing yet horrifying things is how the New York Times Defense Force springs into action on twitter every time there's some legitimate criticism of something published in that hell 'zine.... It's always that angry unhinged partisans who do NOT UNDERSTAND JOURNALISM are picking on a poor defenseless reporter.... Class privilege is a hell of a thing. No one needs a newsless misleading puff piece about your friend Hope Hicks, Maggie. Literally no one in the country cares except your future book publishers. We get it. It's a beat sweetener. PR in exchange for information for your book.... Why they only respond this way to criticism from The Left is an exercise left for you, dear readers...

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Twitter Thread: Will Wilkinson: @willwilkinson: "IMO, the issue is whether America can EVER evolve an EGALITARIAN shared sense of pluralistic identity, which it's never had. It has ALWAYS had a pluralistic imperial identity, which involves an ethno-nationalist imperial/settler ruling class dominating enslaved/occupied subjects. Imperial/settler ruling classes always propagate narratives of 'unifying' national identity, which legitimates its own cultural/political dominance and casts demands for association on the terms of pluralistic equality as 'divisive' threats to social order...

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Michael Hiltzik: A Devastating Analysis of the Tax Cut Shows It’s Done Virtually No Economic Good: "You may remember all the glowing predictions made for the December 2017 tax cuts by congressional Republicans and the Trump administration: Wages would soar for the rank-and-file, corporate investments would surge, and the cuts would pay for themselves. The nonpartisan Congressional Research Service has just published a deep dive into the economic impact of the cuts in their first year, and emerges from the water with a different picture. The CRS finds that the cuts have had virtually no effect on wages, haven’t contributed to a surge in investment, and haven’t come close to paying for themselves. Nor have they delivered a cut to the average taxpayer...

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Belle Waring: Uses and Abuses of Tarps: Weekend Reading

Gulag map jpg 769×464

Belle Waring: Uses and Abuses of Tarps: "It took me so long to find this quote. I remembered that it was Solovki, yes! And that Maxim Gorky was the visitor! And the tortures with the logs, and being staked out for the mosquitoes, and rolling the prisoners down the stairs, and the brave boy who told all, all! to Gorky and was left behind to be shot the moment Gorky’s ship left the horizon empty and barren! And the tarps. But could I find the quote? I damn sure could not. I was in the position of Edward Gorey’s Mr. Earbrass who starts up in the night having thought of the perfect lines for an epigraph: 'His mind’s eye sees them quoted on the bottom third of a right-hand page in a (possibly) olive-bound book he read at least five years ago. When he does find them, it will be a great nuisance if no clue is given to their authorship'...

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Comment of the Day: As Dan Davies says, finance works with criminal penalties for material misrepresentations, and works better. Would not politics also work better with such?: Graydon: "Remember that in this case, Boris made the public lie in an official capacity, was told by the relevant governmental body that it was a lie—the statistics authority officially informed the official persona of the officeholder that no, no, that's not correct; that is not close to correct—and the official persona went right on making the lie in public in ways the court refuses to find obviously immaterial. There's not much 'chilling speech' there; there's an obligation on office-holders to act in the public interest. It's unusual to use a court to hold them to it, but it's not obviously wrong to use a court to hold them to it, any more than it would be wrong to charge someone with taking bribes to act contrary to the public interest while holding a public office...


As Dan Davies says, finance works with criminal penalties for material misrepresentations, and works better. Would not politics also work better with such?: Sarah Provan: Boris Johnson Faces Trial over Brexit Campaign Claim: "Johnson must attend court for a preliminary hearing, District Judge Margot Coleman has ruled. Mr Johnson behaved in an 'irresponsible and dishonest' way when he claimed during the 2016 Brexit vote that the UK sent £350m a week to the EU, a London court was told last week by lawyers representing a campaigner who wants to pursue a private criminal prosecution against the former foreign secretary. 'The allegations which have been made are unproven accusations and I do not make any findings of fact', wrote Judge Coleman. 'Having considered all the relevant factors I am satisfied that this is a proper case to issue the summons as requested for the three offences as drafted.'...

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Joshua Gans: An Old Result on Automation and Wages: "Herbert Simon... The Shape of Automation for Men and Management.... Simon starts wondering what happened to the horses and the jobs they held. He argues that the problem with horses was that their existence depended on market forces. In other words, when the demand for horses fell, soon after supply went down—that is something that doesn’t necessarily happen for labour.... If a production technique is employed in equilibrium, the value of output will equal the sum of labour and capital costs. If the price of the good is 1 then: w * a + (1 + r) * b = 1.... Now suppose there was a new production process with coefficients (a’, b’) such that w * a’ + (1 + r) * b’ < 1.... Producers would expand their production.... The pie will be increased but who will get what?... Suppose a’ < a but b’ = b. Then it must be that w’ > w. In other words, reduce the labour requirement in production and labour captures more and, indeed, all of the value arising from this technological change.... Second, suppose that a’ = a but b’ < b. So capital is more productively efficient. So long as the rate of interest does not change (which it won’t if it is set by consumption level savings preferences), then once again w’ > w!... To quote Simon, 'so long as the rate of interest remains constant, an advance in technology can only produce a rising level of real wages. The only route through which technological advance could lower real wages would be by increasing the capital coefficient (the added cost being compensated by a larger decline in the labor coefficient), thereby creating a scarcity of capital and pushing interest rates sharply upward'...

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Fairly Recently: Must- and Should-Reads, and Writings... (May 28, 2019)


  1. (23013): Mourning the Death of James Buchanan: "Daniel Kuehn gets it right, I think, on the significance of the career of the late Nobel Prize-winning economist James Buchanan: 'He got a lot right, with public choice and constitutional economics. He also got a lot quite wrong, particularly his take on the political economy of the Keynesian revolution. But he certainly was a talented and productive economist well deserving of his Nobel prize.' I would go somewhat further: he got a lot right that desperately needed to be gotten right and that nobody else would have gotten right in his absence. He made a difference in economics at more than the margin, which is something you can say of very few economists... | Six Faces of Right-Wing Chain-Forging Economist James Buchanan...

  2. Abigail Adams (1776): Letter to John Adams: "What sort of Defence Virginia can make against our common Enemy?... I have sometimes been ready to think that the passion for Liberty cannot be Eaquelly Strong in the Breasts of those who have been accustomed to deprive their fellow Creatures of theirs. Of this I am certain that it is not founded upon that generous and christian principal of doing to others as we would that others should do unto us...

  3. James Buchanan (1997): Has Economics Lost Its Way?

  4. Dierdre McCloskey: Review of Buchanan, "Better than Plowing"

  5. Wikipedia: Étienne Maurice Gérard: "1er Comte Gérard (4 April 1773–17 April 1852) was a French general, statesman and Marshal of France. He served under a succession of French governments including the ancien regime monarchy, the Revolutionary governments, the Restorations, the July Monarchy, the First and Second Republics, and the First Empire (and arguably the Second), becoming Prime Minister briefly in 1834...

  6. Wikipedia: List of American and British defectors in the Korean War

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Peng Dehaui (February 24, 1952): To the Zhou Enlai-Chaired Central Military Commission: "You have this and that problem. You should go to the front and see with your own eyes what food and clothing the soldiers have! Not to speak of the casualties! For what are they giving their lives? We have no aircraft. We have only a few guns. Transports are not protected. More and more soldiers are dying of starvation. Can't you overcome some of your difficulties?...

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From Total Industrial to Limited War: An Outtake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century 1870-2016"

Preview of From Total Industrial to Limited War An Outtake from Slouching Towards Utopia An Economic

Total Industrial War

A total industrial war sees a state taking control of an economy and society via bureaucracy, mobilizing most young and some old men into its armed forces, and then hurling as much as it can of men, metal, and nitrogen-based explosives at an enemy so using up more than half of society’s productive potential in works of destruction. What is the point? The first aim is to keep the adversary from doing the same to you. The next aim varies: to establish for Germany a proper place in the sun and control of enough land and resources to support a very large and prosperous population; to establish for Japan an empire—a Greater East Asia Co-Prosperity Sphere—like those European powers had established in the 1800s; to end Hitler’s régime; to reform Germany’s politics and somehow transform it into a peaceful democracy; to end all wars; to keep imperial Germany from turning Russia into a puppet semi-colony; to end the encirclement of Germany by a hostile Russia and a hostile France; to demonstrate that Austria-Hungary can destroy Serbia in retaliation for its state-sponsored assassination of Austria-Hungary’s crown prince; to preserve the balance of power on the European continent; to demonstrate that one’s treaty promises are credible by preserving the independence and neutrality of Belgium as guaranteed by the provisions of the 1839 Treaty of London; to preserve the Union that is the United States of America; to end slavery on the North American continent; “that government of the people, by the people, for the people, shall not perish from the earth”.

Some of these secondary war aims are worth five years of death, destruction, temporary mass poverty, and strict rationing. Most are not.

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George C. Herring and Richard H. Immerman (1984): "The Day We Didn't Go to War" Revisited: "Eisenhower's position is... characteristically elusive.... As early as 1951 he had entered in his diary, 'I am convinced that no military victory is possible in that kind of theater [Indochina].'... Like Dulles, he seems never to have been persuaded that the plan would work, and he was equally opposed to intervention in any form in the absence of satisfactory military and political agreements with France. In the week after Ely's departure, VULTURE was not discussed seriously at the top levels.... Eisenhower and Dulles agreed that the United States should go in only as part of a genuinely collective effort and that United States ground forces must not become bogged down in Asia...

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Douglas MacArthur (March 23, 1951): Ceasefire Communique: "Of even greater significance than our tactical successes has been the clear revelation that this new enemy, Red China, of such exaggerated and vaunted military power, lacks the industrial capability to provide adequately many critical items necessary to the conduct of modern war.... Formerly his great numerical potential might well have filled this gap but with the development of existing methods of mass destruction numbers alone do not offset the vulnerability inherent in such deficiencies.... These military weaknesses have been clearly and definitely revealed since Red China entered upon its undeclared war in Korea. Even under the inhibitions which now restrict the activity of the United Nations forces and the corresponding military advantages which accrue to Red China, it has been shown its complete inability to accomplish by force of arms the conquest of Korea. The enemy, therefore must by now be painfully aware that a decision of the United Nations to depart from its tolerant effort to contain the war to the area of Korea, through an expansion of our military operations to its coastal areas and interior bases, would doom Red China to the risk of imminent military collapse. These basic facts being established, there should be no insuperable difficulty in arriving at decisions on the Korean problem...

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Comment of the Day: Cosma Shalizi: "Young doesn't give a table of sample sizes, but he does give a table of average maximum 'leverages', which is something like 0.25 for the two most influential observations. This matters, because regression asymptomatics are basically about the limit where leverage goes to zero (rather than sample size to infinity as such). If two observations (or clusters) are driving 1/4 of the estimate, asymptotics are irrelevant. (Young does a lot with the bootstrap to show that the pre-asymptotics aren't great either.)...

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Daniel Seligson and Anne McCants: Economic Performance Through Time: A Dynamical Theory: "The central problems of Development Economics are the explanation of the gross disparities in the global distribution, D, of economic performance, E , and its persistence, P . Douglass North argued, epigrammatically, that institutions, I, are the rules of the game, meaning that I determines or at least constrains E. This promised to explain D. 65,000 citations later, the central problems remain unsolved. North’s institutions, IN, are informal, slowly changing cultural norms as well as roads, guilds, and formal legislation that may change overnight. This definition, mixing the static and the dynamic, is unsuited for use in a necessarily time-dependent theory of developing economies. We offer here a suitably precise definition of I, a dynamical theory of economic development, a new measure of the economy, an explanation of P, a bivariate model that explains half of D, and a critical reconsideration of North’s epigram...

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Let us be clear: any of the members of the FOMC who marked up their estimate of 2019 growth because of the strong first quarter is an under briefed moron, who does not belong on any forecasting or policy body: Tim Duy: Fed Sticking With "Patient" Policy Stance | Tim Duy's Fed Watch: "The minutes of the April/May FOMC meeting revealed that participants were generally comfortable maintaining the 'patient' policy stance initiated in January. While some policymakers recognized that special factors boosted the first quarter growth numbers, the mood was fairly optimistic: 'For this year as a whole, a number of participants mentioned that they had marked up their projections for real GDP growth, reflecting, in part, the strong first-quarter reading. Participants cited continuing strength in labor market conditions, improvements in consumer confidence and in financial conditions, or diminished downside risks both domestically and abroad, as factors likely to support solid growth over the remainder of the year...

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That your grandfather Governor John Buchanan campaigned against federal voting rights acts, raised the poll tax, and established pensions for Confederate veterans—that all that goes unmentioned in the context of "I have shared in the emotional damage imposed by discrimination...", "From that day forward I have shared in the emotional damage imposed by discrimination..." and "'fairness' assumed for me a central normative position..." demonstrates either an absolutely stunning lack of self-awareness or a conscious intellectual judo move to distract attention from the racial politics of the white southern establishment: James Buchanan (2009): Karen Ilse Horn, ed, "Roads to Wisdom: Conversations with Ten Nobel Laureates in Economics" "What did the Navy teach you?... I experienced overt discrimination for being a non-Easterner, a nonestablishmentarian. In the whole group of 600 boys, there were only about twenty who were graduates of Yale, Harvard, Princeton—all Ivy League. By the end of this first boot camp period, they had to select midshipman officers. Out of the 20 boys from the establishment universities, 12 or 13 were picked, against a background of a total of 600. It was overtly discriminatory towards those of us who were not members of the establishment...

James Buchanan (2009): Better than Plowing: "From that day forward I have shared in the emotional damage imposed by discrimination, in any form, and 'fairness' assumed for me a central normative position decades before I came to discuss principles of justice professionally and philosophically...

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Comment of the Day: Charles Steindel: "One interesting thing in this material was Buchanan's groaning about how he was discriminated against in Navy Officer training relative to Yankee Ivy Leaguers. Herman Wouk's recent passing stirred me to reflect on this process. As was mildly fictionalized in the Caine Mutiny, Work was outstripped in his training class by none other than Jim Tobin. Yes, both Wouk and Tobin were northern 'Ivy Leaguers' (Wouk Columbia and Tobin Harvard). But the Jew from New York and the Irish kid from Illinois would surely not have seen themselves as more on the 'inside' than Buchanan who, after all, had the same name as (an admittedly wildly unsuccessful) US President...

IMHO, what Buchanan is complaining about is this: Harvard and Columbia could and did turn people like Wouk and Tobin into effective WASPs by teaching them to turn down the accent and soft-pedal the Blarney and the Yiddishkeit. Middle Tennessee State Teachers College and the University of Tennessee were not in that business at all.

Now after spending World War II out in Hawaii on Admiral Spruance's staff and marrying Anne Bakke, a Norwegian-American nurse and then getting your Ph.D. in 1948 at the University of Chicago—after that you don't have to identify as a southerner, a governor's grandson, from a family whose land had been "ruined" by the Civil War (actually, land is hard to ruin: livestock, buildings, orchards, and most of all slaves can no longer be yours afterwards, but the lady is still there); you could identify as whitish-bread American meritocrat—like Wouk and Tobin—who happened to have been born in the shallow south. I don't know whether he thought that would have been a theft of his identity, or whether he would have taken that road if his first jobs had been in Vermont and Wisconsin rather than Florida and Virginia.

Or maybe his complaints about discrimination against him were a con, an intellectual judo move: I'm not an oppressive white establishment southerner—I'm being oppressed!

When one reads "From that day forward I have shared in the emotional damage imposed by discrimination..." and "'fairness' assumed for me a central normative position...", one does expect it to be followed by "and so I marched with King". One does not expect it to be accompanied by "and so I worked hard to devise plans whereby Virginia's public-school tax collars could be diverted to segregation academies..." It's hard for me to see to contemplate such a total lack of awareness of self and context to make "I have shared in the emotional damage imposed by discrimination..." anything other than an intellectual judo move...

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Rather than saying, with Stigler, that industrial policy is too dangerous because it is too vulnerable to rent-seeking, more economists should be writing papers like this: Reda Cherif and Fuad Hasanov: The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy: "Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability...

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Robert Heilbroner (1996): The Embarrassment of Economics: Weekend Reading

Anybody who has spent any time looking at the data knows that it is in the boom, not in the depression, that the work of sectoral readjustment is done. Indeed, that work cannot be done in the depression. In the depression nothing is profitable. So how could entrepreneurs possibly judge then what will be profitable when the depression is past? They must wait for the boom to see:

Joseph schumpeter business cycle graph Google Search

Robert Heilbroner (1996): The Embarrassment of Economics: Schumpeter arrived in his famous riding habit and great cloak, of which he divested himself in a grand gesture. He greeted us in a typically Schumpeterian way: "Gentlemen, a depression is for capitalism like a good, cold douche." The remark shocked us...

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James Buchanan (1997): Has Economics Lost Its Way?: Hoisted from the Archives

Hoisted from the Archives: This serves as a good index of how much Milton Friedman's redefinition of "neutral monetary policy" to mean "whatever monetary policy keeps nominal GDP on its trend growth path" led people prone to motivated reasoning in a laissez-faire direction completely and horribly astray. It also serves as an example of an astonishing failure to mark one's beliefs to market. Never mind that the rough constant of M2 velocity before 1980 had been an obvious example of Goodhart's Law, and never mind that even before 1980 forecasts of the state of the economy one and two years out based on M2 were inferior to other forecasts, by 1997 James Buchanan had just seen a remarkable five-year 30% runup in M2 velocity. and the complete ditching of monetary aggregates not just as targets but even as indicators by Alan Greenspan in favor of a neo-Wicksellian "neutral interest rate" approach that had nothing whatsoever to do with an "effective monetary constitution" of any type:

FRED Graph FRED St Louis Fed

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Fairly Recently: Must- and Should-Reads, and Writings... (May 25, 2019)


  1. Rob Beschizza: Reporters Who Quote Ums And Ahs Only Make Themselves Look Bad: "Journalists sometimes use a version of the facts to support faleshoods. Check out the following, posted by Daily Mail reporter David Martosko, quoting a teenager on Trump's use of the racist 'Pocahontas' slur.... Martosko wanted to establish here was that the teen—and perhaps by implication young Warren supporters in general—is confused and foolish. He did this by including all the ums and ahs of speech, filler terms... and extraneous commas. Most people saw this 'verbatim' text for what it was, and Martosko was thoroughly ratioed by readers.... Most of us talk just as the teen did, when challenged to speak extemporaneously. This can be true of even polished and well-prepared speakers. Listen to politicans and pundits on cable news panels, with an ear for the fillers, and you might be surprised.... We don't usually judge speakers for it because our brains correctly interpret it as meaningless filler.... Reporters usually remove speech disfluency when they quote subjects. In fact, it is generally considered unethical and unprofessional for editors not to remove the ums and ahs and filler terms...

  2. Eliza Mackintosh: Finland Is Winning the War on Fake News. Other Nations Want the Blueprint

  3. Julian Matthews: A Cognitive Scientist Explains Why Humans Are So Susceptible to Fake News and Misinformation » Nieman Journalism Lab: "We might like to think of our memory as an archivist that carefully preserves events, but sometimes it’s more like a storyteller...

  4. Andrew Carnegie: Steelmaking: "The eighth wonder of the world is this: two pounds of iron-stone purchased on the shores of lake Superior and transported to Pittsburgh; two pounds of coal mined in Connellsville and manufactured into coke and brought to Pittsburgh; one half pound of limestone mined east of the Alleghenies and brought to Pittsburgh; a little manganese ore, mined in Virginia and brought to Pittsburgh. And these four and one half pounds of material manufactured into one pound of solid steel and sold for one cent. That’s all that need be said about the steel business...

  5. Sam Biddle: Facebook’s Work With Phone Carriers Alarms Legal Experts: "From these eight categories alone, a third party could learn an extraordinary amount about patterns of users’ daily life, and although the document claims that the data collected through the program is 'aggregated and anonymized', academic studies have found time and again that so-called anonymized user data can be easily de-anonymized. Today, such claims of anonymization and aggregation are essentially boilerplate...

  6. Khoi Vinh: ‘John Wick: Chapter 3–Parabellum’ Review: "A film creates a compelling fantasy world and fans clamor for more. So sequels build that world out, they show more of its mechanics, its people, its history... the inevitable outcome is bureaucracy...

  7. Joe Wiggins: Why Are Other Investors So Biased? | Behavioural Investment: "If you ask a fund manager why they believe that their investment philosophy can generate excess returns, they will almost inevitably state that they are seeking to exploit the behavioural biases exhibited by other investors that create pricing inefficiencies.  It is somewhat puzzling therefore that if you question the same fund manager about how they seek to address their own biases the response is either entirely unconvincing or evasive...

  8. Ben Steverman: The Wealth Detective Who Finds the Hidden Money of the Super Rich: "Thirty-two-year-old French economist Gabriel Zucman scours spreadsheets to find secret offshore accounts...

  9. Arindrajit Dube: Econ 333 : "Income Inequality & Policy Alternatives...

  10. Wikipedia: Barbarian: "The case has been made that [Rosa] Luxemburg had remembered a passage from the Erfurt Program, written in 1892 by Karl Kautsky, and mistakenly attributed it to Engels: 'As things stand today capitalist civilization cannot continue; we must either move forward into socialism or fall back into barbarism'...

  11. Douglas B. Harris (1997): Dwight Eisenhower and the New Deal: The Politics of Preemption

  12. Brian Warren: Mac Open Web

  13. Gavin Kennedy (2010): What Adam Smith Actually Identified as the Appropriate Roles for 18-century Governments

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Tremendously depressing. We have a huge problem here. Absolutely brilliant by Alwyn Young on the replication crisis in economics. In empirical practice, instrumental variables appears to be a very weak crutch indeed. this reinforce my judgment that it is almost always better to write down the causal structure, present the correlations, and then provide a map given the correlations and given reasonable assumptions about the possible organization for the causal network from causes to effects: Alwyn Young: Consistency without Inference: Instrumental Variables in Practical Application: "I use Monte Carlo simulations, the jackknife and multiple forms of the bootstrap... 1359 instrumental variables regressions in 31 papers.... Non-iid error processes adversely affect the size and power of IV estimates, while increasing the bias of IV relative to OLS, producing a very low ratio of power to size and mean squared error that is almost always larger than biased OLS. Weak instrument pre-tests based upon F-statistics are found to be largely uninformative.... Statistically significant IV results generally depend upon only one or two observations or clusters, excluded instruments often appear to be irrelevant, there is little statistical evidence that OLS is biased, and IV confidence intervals almost always include OLS point estimates...

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Over at Equitable Growth. From last March: The brilliant Bhash Mazumder in conversation with Liz Hipple. He is right in his stress on siblings as an excellent test strip for measuring and understanding inequality in one easy-to-calculate number: Liz Hipple: In Conversation with Bhash Mazumder: "The sibling approach... boils everything down into one number by saying, what are all of the things that two siblings shared growing up? How much does that determine their overall outcomes?... That’s an important measure that we haven’t studied a lot. In the United States, there has been some research on sibling correlations, which I’ve contributed to a little bit, that suggests there’s much less intergenerational mobility in U.S. society than in other countries.... There is something about the nature of our society causing family background characteristics to strongly influence children’s long-run outcomes, thereby reinforcing inequalities...

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Brussels takes control

Europe's negotiating position on Brexit is that Little England (1) will not get any special deals—must pick from the same menu of closeness-of-association positions as Canada, Turkey, Switzerland, and Scandinavia have—and (2) will not gain the EU's blessing for breaking the Good Friday agreement. After a no-deal Brexit crash out, that will still be the EU's negotiating position. So why haven't there been enough Conservative MPs to end this farce yet?:

Chris Cook: Brussels Takes Control: "The EU’s initial response to the referendum result said: 'Any agreement, which will be concluded with the United Kingdom as a third country, will have to reflect the interests of both sides and be balanced in terms of rights and obligations'. A few days on, it added: 'Access to the single market requires acceptance of all four freedoms'. This reflects a belief in what the EU is actually for. Those who know her have learned that when Merkel, who grew up on the far side of the Iron Curtain, says freedom of movement of people is a fundamental principle, it pays to take her seriously.... The statement was also intended to ram home the basic principle that the EU insists rights be balanced by obligations.... This has created fixed grooves that third countries must fall into. In return for unfettered access to its internal markets, they have to tick certain boxes. When the UK Treasury modelled possible outcomes of the Brexit negotiations before the referendum, it presented a discreet menu of options... Switzerland’s... Turkey’s... Canada’s... found the same likely range of options. This formula–'no cherry-picking'–was most clearly set out in a diagram released to modest fanfare in late 2017 by Michel Barnier, the EU’s chief Brexit negotiator. It became known as the 'staircase' diagram:

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Rosa Luxemburg (1916): The Junius Pamphlet: "In the midst of this witches’ sabbath a catastrophe of world-historical proportions has happened: International Social Democracy has capitulated. To deceive ourselves about it, to cover it up, would be the most foolish, the most fatal thing the proletariat could do.... The fall of the socialist proletariat in the present world war is unprecedented. It is a misfortune for humanity. But socialism will be lost only if the international proletariat fails to measure the depth of this fall, if it refuses to learn from it. The last forty-five year period in the development of the modern labor movement now stands in doubt. What we are experiencing in this critique is a closing of accounts for what will soon be half a century of work at our posts...

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Language, opposable thumbs, and erect posture—those are the three keys to the kingdom: Doug Jones: Four Legs Good, Two Legs Better: "With Ardipithecus Radius (about 4.5 million years ago) we have the strongest evidence so far that hominins have adopted bipedalism.... Even... she had a somewhat diverging big toe, and arms and hands well-adapted for suspension, suggesting she was bipedal on the ground, but still spent a lot of time in trees.... Bipedalism allowed ancestral dinosaurs to overcome the tight coupling of locomotion and respiration that prevents sprawling lizards from breathing while they run. But human bipedalism, with no counterbalancing tail, is different. As far as we know it evolved only once...

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Rosa Luxemburg (1916): The Junius Pamphlet: "The Crisis of Social Democracy.... Socialism is the first popular movement in world history that has set itself the goal of bringing human consciousness, and thereby free will, into play in the social actions of mankind. For this reason, Friedrich Engels designated the final victory of the socialist proletariat a leap of humanity from the animal world into the realm of freedom.... Friedrich Engels once said: 'Bourgeois society stands at the crossroads, either transition to socialism or regression into barbarism'. What does “regression into barbarism” mean to our lofty European civilization?... This world war is a regression into barbarism. The triumph of imperialism leads to the annihilation of civilization..... We face the choice... either the triumph of imperialism and the collapse of all civilization as in ancient Rome, depopulation, desolation, degeneration–a great cemetery...

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May 24, 2019: Weekly Forecasting Update

The right response to almost all economic data releases is: Next to nothing has changed with respect to the forecast—your view of the economic forecast today is different from what it was last week, last month, or three months ago in only minor ways. About the only news these past two weeks is an 0.8%-point decrease in our estimate in what production will be over April-June, driven by a reduction in estimated durable goods orders and capacity utilization. This might be an impact o Trump's trade war.

Federal Reserve Bank of New York: Nowcasting Report: May 24, 2019: "The New York Fed Staff Nowcast stands at 1.4% for 2019:Q2. News from this week's data releases decreased the nowcast for 2019:Q2 by 0.4 percentage point. Negative surprises from the Advance Durable Goods Report drove most of the decrease...


Key Points:

Specifically, it is still the case that:

  • The Trump-McConnell-Ryan tax cut:
    • To the extent that it was supposed to boost the American economy by boosting the supply side through increased investment in America, has been a complete failure.
      • To the extent that it was supposed to make America more unequal, has succeeded.
      • Delivered a substantial short-term demand-side fiscal stimulus to growth that has now ebbed.
        • (A 3.2%/year rate of growth of final sales to domestic purchasers over the seven quarters starting in January 2017,
        • pushing the level of Gross National Income up from 2.0%/year from this demand-side stimulus.)
  • U.S. potential economic growth continues to be around 2%/year.
  • There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating.
  • There are still no signs of interest rate normalization: secular stagnation continues to reign.
  • There are still no signs the the U.S. is at "overfull employment" in any meaningful sense.

  • A change from 3 months ago: The Federal Reserve's abandonment of its focus on policies that are likely to keep PCE chain inflation at 2%/year or lower does not mean that it is preparing to do anything to avoid or moderate the next recession.

  • Changes from 1 month ago: The U.S. grew at 3.2%/year in the first quarter of 2019—1.6%-points higher than had been nowcast—but the growth number you want to put in your head in assessing the strength of the economy is the 1.6%/year number that had been nowcast. The falling-apart of Trump's trade negotiating strategy with China will harm Americans and may disrupt value chains, and the might be becoming visible in the data flow.

  • A change from 1 week ago: Industrial production appears to be falling as new durable goods orders come in below expectations. Industrial production may have peaked last December:
    Manufacturers New Orders Durable Goods FRED St Louis Fed

  • Over the past 20 years: United States manufacturers are ordering no more in the way of the nominal value of capital goods than they ordered two decades ago. Deflators here are very hazardous, but I believe that translates to a zero increase in real orders as well. This is unprecedented for the U.S. economy: nothing like it has happened before.

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Dwight D. Eisenhower (1954): Letter to Edgar Newton Eisenhower: Weekend Reading

Dwight D. Eisenhower (1954): Letter to Edgar Newton Eisenhower: "The Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it. The political processes of our country are such that if a rule of reason is not applied in this effort, we will lose everything–even to a possible and drastic change in the Constitution. This is what I mean by my constant insistence upon “moderation” in government. Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid...


John Maynard Keynes (1926): From "The End of Laissez-Faire": Weekend Reading

School of Athens

John Maynard Keynes (1926): from The end of Laissez-Faire: "The early nineteenth century... harmonised the conservative individualism of Locke, Hume, Johnson, and Burke with the socialism and democratic egalitarianism of Rousseau, Paley, Bentham, and Godwin.... The idea of a divine harmony between private advantage and the public good is already apparent in Paley. But it was the economists who gave the notion a good scientific basis.... To the philosophical doctrine that the government has no right to interfere, and the divine that it has no need to interfere, there is added a scientific proof that its interference is inexpedient.... The principle of laissez-faire had arrived to harmonise individualism and socialism.... The political philosopher could retire in favour of the business man.... Thus the ground was fertile for a doctrine that, whether on divine, natural, or scientific grounds, state action should be narrowly confined and economic life left, unregulated so far as may be, to the skill and good sense of individual citizens actuated by the admirable motive of trying to get on in the world.... By the time that the influence of Paley and his like was waning, the innovations of Darwin were shaking the foundations of belief..... Survival of the fittest could be regarded as a vast generalisation of the Ricardian economics. Socialist interferences became, in the light of this grander synthesis, not merely inexpedient, but impious, as calculated to retard the onward movement of the mighty process by which we ourselves had risen like Aphrodite out of the primeval slime of ocean...

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Martin Wolf: The US-China Conflict Challenges The World: "Historic allies of the US... would stand beside it..... Yet these are not normal circumstances. Under Donald Trump, the US has become a rogue superpower, hostile, among many other things, to the fundamental norms of a trading system based on multilateral agreement and binding rules.... We are also seeing a big shift in conservative thinking.... The US no longer sees why it should be a 'responsible stakeholder'.... Some might conclude that the high costs mean that the conflict cannot be sustained, particularly if stock markets are disrupted. An alternative and more plausible outcome is that Mr Trump and China’s Xi Jinping are 'strongmen' leaders who cannot be seen to yield...

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Adam Smith: An Inquiry Into the Nature and Causes of The Wealth Of Nations: "The first duty of the sovereign... protecting the society from... other independent societies... by means of a military force.... The second duty... of protecting... every member... from the injustice or oppression of every other member.... The third... of erecting and maintaining... institutions and... public works... in the highest degree advantageous... [but] of such a nature, that the profit could never repay the expense to any individual, or small number of individuals.... [These] works and institutions... are chiefly for facilitating the commerce of the society, and... promoting the instruction of the people.... Of the public Works and Institutions for facilitating the Commerce of the Society.... Of the Expense of the Institution for the Education of Youth.... Of the Expense of the Institutions for the Instruction of People of all Ages... chiefly those for religious instruction...

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Gavin Kennedy: What Adam Smith Actually Identified as the Appropriate Roles for 18-Century Governments: "Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’ (WN464); Sterling marks on plate and stamps on linen and woollen cloth (WN138–9); enforcement of contracts by a system of justice (WN720); wages to be paid in money, not goods; regulations of paper money in banking (WN437)...

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Historical Nonfarm Unemployment Statistics

Historical Nonfarm Unemployment Statistics: An updated graph that Claudia Goldin had me make two and a half decades ago. The nonfarm unemployment rate since 1869:

2016 04 05 Historical Nonfarm Unemployment Estimates numbers

Then it was 1890-1990, now it is 1869-2015, thanks to:

  • J.R. Vernon (1994):
  • C.D. Romer (1986):
  • BLS (2015):

with spreadsheet at:

The assumption–debateable–is that “unemployment” is not a farm thing–that in the rural south or in the midwest or on the prairie you can always find a place of some sort as a hired hand, and that “unemployment” is a town- and city-based nonfarm phenomenon.

I confess I do not understand how anyone can look at this series and think that calculating stable and unchanging autocorrelations and innovation variances is a reasonable first-cut thing to do.

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Another old piece, but more true than ever. On the left, the talking heads the media puts on the TV as economists are economists. On the right, they are grifters who play economists on TV. My recent encounter with Steve Moore at the San Francisco Commonwealth Club has erased any doubts I might have had:

Paul Krugman (2015): On Econoheroes: "I gather that some readers didn’t get what I was driving at in declaring that Joe Stiglitz and yours truly are the left’s 'econoheroes', but the likes of Stephen Moore and Art Laffer play that role on the right.... What I meant—I thought this was obvious—is that Joe and I do tend to get quoted, invoked, etc. on a frequent basis in liberal media and by liberals in general, usually with (excessive) approbation. And the thing is that while there are people playing a comparable role in right-wing discussion, they tend not to be highly cited or even competent...

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Ben Thompson: China, Leverage, and Values: "Tim Culpan declared at Bloomberg that The Tech Cold War Has Begun.... 'We can now expect China to redouble efforts to roll out a homegrown smartphone operating system, design its own chips, develop its own semiconductor technology (including design tools and manufacturing equipment), and implement its own technology standards. This can only accelerate the process of creating a digital iron curtain that separates the world into two distinct, mutually exclusive technological spheres...

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Fairly Recently: Must- and Should-Reads, and Writings... (May 21, 2019)


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Robo-Apocalypse? Not in Your Lifetime: Live at Project Syndicate

Robo Apocalypse Not in Your Lifetime by J Bradford DeLong Project Syndicate

Live at Project Syndicate: Robo-Apocalypse? Not in Your Lifetime: "Will the imminent “rise of the robots” threaten all future human employment? The most thoughtful discussion of that question can be found in MIT economist David H. Autor’s 2015 paper, “Why Are There Still so Many Jobs?”, which considers the problem in the context of Polanyi’s Paradox. Given that “we can know more than we can tell,” the twentieth-century philosopher Michael Polanyi observed, we shouldn’t assume that technology can replicate the function of human knowledge itself. Just because a computer can know everything there is to know about a car doesn’t mean it can drive it. This distinction between tacit knowledge and information bears directly on the question of what humans will be doing to produce economic value in the future... Read MOAR at Project Syndicate

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:I. W. Gabriel Selassie: Abram Lincoln Harris Jr. (1899-1963): "Abram Lincoln Harris, Jr., the grandson of slaves, was the first nationally recognized black economist... a Marxist.... The Black Worker was recognized as the foundation for future economic histories and assessments of the black condition. The Negro as Capitalist argued that non-racial economic reforms were the key to solving black fiscal woes. He also argued that capitalism was morally bankrupt and that employing race consciousness as a strategic way to enlighten a public was self-defeating.  W.E.B. DuBois described Harris as one of the 'Young Turks' who challenged the then existing historical theories about blacks in a capitalist society while insisting upon using modern social scientific methods to further his analyses of African American life...

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Abram L. Harris (1961): Countervailing Power, Monopoly, and Public Polic: "Combine theoretical analysis in a survey of the ideas of some leading economists who have dealt with the problem of market imperfections and monopoly along with discussions of the early trust movement.... A technical mastery of theoretical economics is not a prerequisite. One main purpose of the course is to stimulate undergraduate interest in theoretical economics, the history of economic ideas, and the relation of these ideas to current economic policy issues. The course should be open to beginning majors in economics, students who are undecided about a major in the social sciences, and to those who are just curious.... The Concept of “Countervailing Power”: Old wine in new bottles? Chamberlain... Adam Smith, John Stuart Mill, and Alfred Marshall.... John Bates Clarke and his student, Thorstein Veblen.... The Standard Oil and U. S. Steel cases and federal anti-trust legislation. Recent anti-trust cases: administrative interpretation and application of federal legislation. Marx’s thesis concerning industrial concentration.... The extent and measurement of industrial concentration.... A term essay will be required of all students who take the course for credit. The essay may take the form of a review, e.g., Berle’s Twentieth Century Capitalist Revolution, Mason’s The Corporation in Modern Society, Chamberlain’s Labor Union Monopoly or may deal with some topic... selected by the student in consultation.... P.S. The content of the course may appear be heavy and, probably, cannot be entirely covered in a single quarter. The layout will have, no doubt, to be tailored as we proceed to give the course for the first time...


Irwin Collier: Chicago. Monopoly Course Proposal by Abram Harris with George Stigler's (Dis)approval, 1961: "[TO:] Al Rees, Chairman [DEPARTMENT:] Economics [FROM:] George J. Stigle [IN RE:] propose 200 level course in the College by Abram L. Harris. Dear Al: This new course of Abe Harris arouses no enthusiasm on my part. It sounds like a protracted bull session, in which large ideas are neither carefully analysed nor empirically tested. Even if this is a correct prediction, it leaves open the question of our listing it. Abe is a nice guy, only about 3 years from retirement, and it serves no good purpose to hurt his feelings. My own inclination would be (1) to list it, with explicit proviso that it is only for as long as he teaches it, and (2) advise our majors to forget it...

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Graydon: "If you're an authoritarian, you want people to do what you say...

...You necessarily hate this fact-checking, quantified analysis stuff, and you want to make sure anybody who tries that shit winds up starving in a ditch somewhere. People are supposed to do what you say, not waste time and money producing creative excuses. There are no legitimate excuses. You do what you are told to do, whatever it takes. Nothing is important except getting it done and admitting the boss was right.

I sometimes wonder if academia suffers terribly from not having to work for that person.

I mean, yeah, you don't want to work for that person, and you really don't, in a social-health systemic-utility sense, want that person in charge of anything ever, but all the academic analysis I see doesn't believe in that person, and they're ubiquitous. They make a lot of decisions, about the economy and people's lives. They mostly succeed with the starving-in-a-ditch part, too...

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Against Raj Chetty et al.'s belief that school quality—rather than the fabric of society—is a key mechanism creating and blocking possibilities for upward mobility: Jesse Rothstein (2017): Inequality of Educational Opportunity? Schools as Mediators of the Intergenerational Transmission of Income: "Commuting zones (CZs) with stronger intergenerational income transmission tend to have stronger transmission of parental income...

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Scott Alexander: Who By Very Slow Decay: "After a while of this, your doctors will call a meeting with your family and very gingerly raise the possibility of going to 'comfort care only', which means they disconnect the machines and stop the treatments and put you on painkillers so that you die peacefully. Your family will start yelling at the doctors, asking how the hell these quacks were ever allowed to practice when for God’s sake they’re trying to kill off Grandma just so they can avoid doing a tiny bit of work. They will demand the doctors find some kind of complicated surgery that will fix all your problems, add on new pills to the thirteen you’re already being force-fed every day, call in the most expensive consultants from Europe, figure out some extraordinary effort that can keep you living another few days...

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It is not at all clear to me that quantum computers will ever be practical devices for anything other than simulating quantum-mechanical systems, at which I agree they will have an enormous edge over classical devices. Although "simulating" is perhaps the wrong word: "mirroring" or "modeling" would be better. As Scott Aaronson rightly says, they will be useful for broader purposes only to the extent that the interference properties can be harnessed for our use, as in Childs et al.:

Scott Aaronson: Quantum Computing, Capabilities and Limits: "Every quantum algorithm is... trying to choreograph things in such a way that for each wrong answer to your computational problem... the paths... cancel each other out, whereas the paths leading to the right answer should all be ‘in phase’ with each other.... If you can mostly arrange for that to happen, then when you measure the state of your quantum computer, then you will see the right answer with a large probability.... So nature... gives you a very bizarre ‘hammer’....People always want to... [say] the quantum computer just tries all of the possible answers at once. Bt the truth is that if you want to see an advantage, you have to exploit... interference...

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Made me want to very much read a book I had not gotten to. Now I have. It's excellent. I endorse Noah's review:

Noah Smith: Book Review: The Revolt of the Public, by Martin Gurri: "Social media, Gurri asserts, has both empowered and emboldened the public, freeing it from the control of centralized, hierarchical push-media.... The public's goal is negation-denunciation of respected leaders, derailment of political programs, overthrow of parties or governments, discrediting of institutions, etc.... The usefulness of this book is in drawing parallels between a bunch of things that might seem unrelated.... If Gurri is right, these things are fundamentally about a technology-social media-and the way it changes power relations between the public and elites, then we can expect today's explosions of anger to be followed by others tomorrow, and then others the day after tomorrow, and on and on and on. Gurri may not convince you-in fact, if he does, you're probably not enough of a skeptic-but he will give you a new framework with which to usefully think about the political chaos of the modern world...

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