Paulus: COVID Was Never “Under Control”—Noted
Mitchell: Bold Policies to Ensure Broad-Based Recovery—Noted

Campbell: Relative Prices and Hysteresis: Evidence from US Manufacturing—Noted

It was from economic and technological historians like Nate Rosenberg, David Hounshell, and my own great great uncle Abbott Payson Usher’s works that I first learned about the crucial importance of externalities from communities of engineering practice in fueling industrial-age economic growth. Here we have the smart Doug Campbell showing the importance of such factors in slowing US economic growth in the past generation in America, where the political system prioritized tax cuts for the rich and financialization above other concerns:

Douglas Campbell: Relative Prices and Hysteresis: Evidence from US Manufacturing ‘A central tenet of economics is that prices matter. A corollary is that in a world with sunk costs, historical prices can affect current economic outcomes. There exists a large theoretical literature on exchange rate hysteresis, but recent empirical treatments are scarce. To fill the gap, I employ new measures of real exchange rates (RERs) to study the impact of large, temporary RER shocks on the US manufacturing sector. To identify a causal impact of RER movements on manufacturing, I test whether sectors more exposed to international trade respond differently when relative prices appreciate. I also compare the US experience to Canada’s in the mid-2000s, when high oil prices and a falling US dollar led to an equally sharp appreciation of the Canadian dollar. I find that temporary RER shocks have a surprisingly persistent impact on employment, output, and productivity in relatively more open manufacturing sectors, and that the magnitude of the shock in the early 2000s was large enough to have played a role in the onset of secular stagnation, lending support to the Bernanke Hypothesis… #noted #2020-06-24