#equitablegrowth Feed

If you have not already read all of the WCEG's top 12 of 2018, go read them now: Equitable Growth: Top 12 of 2018: "The effects of wealth taxation on wealth accumulation and wealth inequality.... Why macroeconomics should further embrace distributional economics.... The links between stagnating wages and buyer power in U.S. supply chains.... U.S. income growth has been stagnant. To what degree depends on how you measure it.... Income inequality and aggregate demand in the United States.... Presentation: U.S. Inequality and Recent Tax Changes.... The latest research on the efficacy of raising the minimum wage above $10 in six U.S. cities.... Competitive Edge: There is a lot to fix in U.S. antitrust enforcement today.... Labor Day is a time to reflect on reviving workers’ power in the U.S. economy.... Kaldor and Piketty’s facts: The rise of monopoly power in the United States.... How the rise of market power in the United States may explain some macroeconomic puzzles.... Puzzling over U.S. wage growth...

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Stephanie Victoria: "I'm a say this lil story then I'm gon' let'chall get back to tweeting...: Recently, I discovered a grocery story even bougie-er than Whole Foods in my new 'hood. My addition to the list of 'approved negroes after 6PM' recently went through so my neighbors have stopped staring at me & the resident coons only give disapproving looks on trash day instead of their usual 'don't start no trouble' slave talks in the hallway...

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Noah Smith: Unions Did Great Things for the American Working Class: "Politically and economically, unions are sort of an odd duck. They aren’t part of the apparatus of the state, yet they depend crucially on state protections in order to wield their power. They’re stakeholders in corporations, but often have adversarial relationships with management. Historically, unions are a big reason that the working class won many of the protections and rights it now enjoys...

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Paul Krugman: The Economics of Soaking the Rich: "Diminishing marginal utility is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy who makes $1 million an extra thousand and he’ll barely notice it. What this implies for economic policy is that we shouldn’t care what a policy does to the incomes of the very rich. A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction, since they will still be able to buy whatever they want...

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We May Well Not Be at Full Employment Yet...

FRED Graph FRED St Louis Fed

In the context of overall labor-market utilization trends, the rise in the household-survey estimate of the unemployment rate in December relative to November is worth a note:

  • First, the rise in the unemployment rate is due predominately to yet another increase in labor force participation. It's not that people found it harder to find and keep jobs—it's that people who had thought it would be hard concluding that it will be easier, and so starting to look.

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Trade and Distribution: A Multisector Stolper-Samuelson Finger Exercise: Hoisted from 2008

Il Quarto Stato

Hoisted from 2008: Trade and Distribution: A Multisector Stolper-Samuelson Finger Exercise: This argument of an inconsistency between free trade and the well-being of the majority of potential voters rests substantially on the two-factor example of the Stolper-Samuelson result. It does not fare too well when we generalize to a situation in which there are a number of different factors—even if the ownership of the abundant factors of production is very concentrated indeed... https://delong.typepad.com/stolper-samuelson_finger_exercise-1.pdf

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Not Only No Wage But Minimal Investment Boosts from Trump-McConnell-Ryan...

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The so brilliant as to be goddess-like Chye-Ching Huang gets this one, I think, wrong: In response to: Jared Bernstein: "For the [Trump-McConnell-Ryan tax] cuts to have more than near-term growth impacts, they’d have to boost biz investment a lot more than we’ve seen so far, though these are early days. Both WSJ and Slate show “muted” investment results..." She writes: Chye-Ching Huang: "My concern is the frame that "growth' is what we should be focused on. If what we care about is how workers are doing—and GOP lawmakers claimed the 2017 tax law would help workers—we should focus on the metric that directly shows how they're doing! If the claimed point of tax cuts for corporations was to raise wages, we should first and foremost look at real wage rates to assess the results...

But those economists shilling for Trump-McConnell-Ryan committed not just to wage increases, but to a particular mechanism for wage increases: (1) U.S. a small open economy -> (2) tax cuts produce a huge jump in investment -> (3) faster growth -> (4) factor shares revert -> (5) higher wages.

To see whether this argument makes sense we can—and should—look at this causal mechanism at every one of its five steps.

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Would Small Minimum Wage Increases Raise or Have No Effect on Employment?

Il Quarto Stato

That is the current question—would (small) minimum wage increases have no effect on employment because labor-supply curves are steep, or would they boost employment by curbing employers with monopsony power from pushing both wages and employment below their competitive equilibirum values? Yet you would not know it from the very sharp and good-hearted ex-New York Times labor beat reporter Steven Greenhouse. What is he doing? He is, I think, reflexively saying "both sides!": Steven Greenhouse: "Some argue that it's foolish to support a higher minimum because it could reduce employment. But there's a huge debate among economists on this. One school—see David Neumark—finds that a higher minimum reduces employment. The other—see Arin Dube—finds little effect on employment...

Now this is simply wrong. The majority of economists believe that raising the minimum wage from its current level would significantly boost the incomes of the working poor and have little adverse effect on employment. A large minority of economists believe that raising the minimum wage would actually increase employment—that employers currently use their monopsony power to push wages and employment below their competitive equilibrium values, and that a higher minimum wage would reduce their ability to do this and so boost both. The majority and the large minority all, however, agree that there is uncertainty here. It is only a small minority of economists who follow David Neumark on this—who are confident that a higher minimum wage now would have a noticeable negative effect on employment. Thus Steve gets it wrong.

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The Federal Reserve Is Raising Interest Rates Again for Probably All The Wrong Reasons: Last Month Over at Equitable Growth

The Federal Reserve is set to raise interest rates again for probably all the wrong reasons Equitable Growth

Last Month Over at Equitable Growth: The Federal Reserve Is Set to Raise Interest Rates Again for Probably All The Wrong Reasons: The meeting [last month] of the Federal Open Market Committee—the principal policymaking body of the U.S. Federal Reserve system—[was] overwhelmingly likely to raise the benchmark interest rate it controls, the Federal Funds rate. The rate, which governs short-term safe nominal bonds, is likely to go up by one-quarter of a percentage point, from the range of 1.75 percent to 2 percent per year to the range of 2 percent to 2.25 percent per year. That would make it a little more expensive to borrow and spend and a little more attractive to cut spending and save. Thus, there would be a little less spending in the economy, and so a few fewer jobs. Economic growth would be a little slower. The U.S. economy would be a little less resilient in the face of adverse shocks to resources or confidence that might generate a recession. These are all minuses—small minuses from a 25-basis-point increase in the Federal Funds rate, but minuses nonetheless.

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Development and Security

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Not what I said at the Blum Center Development Lunch today: more what I wish I had said—albeit it is still incoherent and disorganized:

Let me begin with three direct responses to points Michael Nacht made. Let me then try to—briefly—propose a framework, perhaps a framework for analysis, perhaps merely a framework for convincing people in the national security community that they should take issues of economic development seriously, and so give large grants so that the Berkeley development community can do more things—things closely related to what we would be doing anyway.

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Note to Self: Books for Econ 210a: Introduction to Economic History (Spring 2019)

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Blum Hall B100: Plaza Level: 2 PM: Bill Janeway: The Digital Revolution and the State: The Great Reversal


Bill Janeway: Doing Capitalism in the Innovation Economy 2.0 https://books.google.com/books?isbn=1108471277: "The innovation economy begins with discovery and culminates in speculation. Over some 250 years, economic growth has been driven by successive processes of trial and error: upstream exercises in research and invention and downstream experiments in exploiting the new economic space opened by innovation...

...Drawing on his professional experiences, William H. Janeway provides an accessible pathway for readers to appreciate the dynamics of the innovation economy. He combines personal reflections from a career spanning forty years in venture capital, with the development of an original theory of the role of asset bubbles in financing technological innovation and of the role of the state in playing an enabling role in the innovation process. Today, with the state frozen as an economic actor and access to the public equity markets only open to a minority, the innovation economy is stalled; learning the lessons from this book will contribute to its renewal...

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The first write-up of the Prisoner's (or is it Prisoners'?) Dilemma: Merrill Flood (1958): Some Experimental Games: "Summary: Two players non-cooperatively choose rows and columns of their payoff matrices in a series of 100 plays of a non-constant sum game. The purpose of this experimental game is to determine which of several theories best describes their behavior. The players, being familiar with zero-sum game theory, happen to choose a poor solution for their non-constant-sum game...

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Prisoner's Dilemma, or Prisoners' Dilemma?: Hoisted from the Archives

Game Theory

Hoisted from the Archives: Prisoner's Dilemma: An extended passage from William Poundstone's (1992) marvelous book Prisoner's Dilemma (New York: Doubleday: 038541580X) https://books.google.com/books?isbn=0307763781. Economists will find it hilarious and thought-provoking. Others will probably find it bizarre and weird. It comes from pp.106-118.

Flood and Dresher devised a simple game where [the Nash equilibrium wasn't such a good outcome for the players].... The researchers wondered if real people playing the game--especially, people who had never heard of Nash or equilibrium points--would be drawn mysteriously to the equilibrium strategy. Flood and Dresher doubted it.

The two researchers ran an experiment that very afternoon. They recruited two friends as guinea pigs, Armen Alchian of UCLA ("AA" below), and RAND's John D. Williams ("JW"). The game was presented purely as a payoff table. The payoffs were:

(AA's payoff, JW's payoff) JW's Strategy 1 [Defect] JW's Strategy 2 [Cooperate]
AA's Strategy 1 [Cooperate] (-1, 2) (1/2, 1)
AA's Strategy 2 [Defect] (0, 1/2) (1, -1)

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The Appalachian and Other Trails


Let's consider the United States in the time of major westward expansion and "Amerindian removal": the century 1760 to 1860 before the Civil War. We have U.S. output-per-worker growth then at about 1.0% per year, in contrast to British output-per-worker growth at about 0.5% per year. We have the U.S. population and labor force growing at 2.5% per year, from 2.5 to 30 million. Our conclusion:

An America penned behind the Appalachians would probably have seen its living standards and productivity levels not growing at 1% per year from 1760 to 1860 but shrinking. For the $ \gamma = 3.0 $ benchmark case, living standards and productivity levels would have shrunk at a pace of -0.325% per year had population growth been the historical 3% per year.

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Over on EconSpark, I think this is wrong: Ben Bernanke: How Important Was The Financial Panic As A Cause Of The Great Recession?: "The collapse of the housing bubble was certainly a primary cause of the Great Recession.  The unwinding of the bubble (1) depressed aggregate demand through its adverse effects on consumer wealth and residential construction, and (2) triggered a financial panic...

The unwinding of the bubble set the table for the financial panic, but it did not trigger it. The bubble had already been unwound before the panic. The triggers of the panic lay elsewhere: in the events in financial markets that produced a sudden, discontinuous boost in the demand for safe assets. One picture I have always found very illuminating is this one:

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Is There Any Reason to Fear Low Interest Rates?

Il Quarto Stato

Paul Krugman tells us: Paul Krugman: @paulkrugman: "The American Economic Association has a new discussion forum set up by Olivier Blanchard. First up is the question of whether low interest rates are leading to excessive risk-taking https://www.aeaweb.org/forum/311/have-low-interest-rates-led-to-excessive-risk-taking..." So I mossed on over and left three comments: one on the forum, one on secular stagnation, and one on whether there is any reason to fear low interest rates:

Is There Any Reason to Fear Low Interest Rates?: Have low interest rates led to excessive risk taking?: I suspect that the right way to make the accurate point that this line of discussion is hunting for is to focus not on the amount of risk but on, rather, who is bearing the risk...

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Larry Summers: The Five Best Books on Globalization: "The Economic Consequences of the Peace https://books.google.com/books?id=AX1EAAAAIAAJ, by John Maynard Keynes; Manias, Panics, and Crashes https://books.google.com/books?isbn=0230365353, by Charles Kindleberger; Globalization and Its Discontents https://books.google.com/books?isbn=0393071073, by Joseph E Stiglitz; Why Globalization Works https://books.google.com/books?isbn=0300102526, by Martin Wolf; and _The Great Convergence https://books.google.com/books?isbn=0674972686, by Richard Baldwin...

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This line of work has become popular, and is very interesting. But I always find myself having a hard time evaluating it, and am puzzled as to how to think about it: Yuriy Gorodnichenko, Debora Revoltella, Jan Svejnar, Christoph Weiss: Dispersion in productivity among European firms: "This column uses firm-level data from all EU countries to explore how the dispersion of resources affects macroeconomic performance...

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Perhaps the biggest hole in growth economics is its inability to properly wrestle with the problem of how to build and entertain the communities of engineering practice that have the externalities that fuel so much of economic growth. The 2% per year rate of growth of labor efficiency seen over the past century comes from somewhere, after all. If it comes from activities like R&D and science that together consume 2% of national income, that is a 60%/year net rate of return on such activities. We badly need to understand more about them: Pierre Azoulay, Erica Fuchs, Anna Goldstein, Michael Kearney: Funding Breakthrough Research: Promises and Challenges of the "ARPA Model": "The Advanced Research Projects Agency (ARPA) model for research funding has... spread...

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If those of us on the left and center are ever going to restart a technocratic debate with those on the right, it will be because thinking on the right becomes dominated by people link Brink Lindsey and his posse, rather then the current crew who are haplessly triangulating between their funders and their political masters: Brink Lindsey: [Welcome to capturedeconomy.com(https://capturedeconomy.com/welcome-to-capturedeconomy-com/): "WA new website dedicated to the problems of 'regulatory capture' and 'rent-seeking'—economist-speak for the pursuit of profits through politics...

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Resources on the Kinds of Uses of Math I Am Trying to Use in Econ 101b This Fall...

School of Athens

Street-Fighting Mathematics and Other Tools

Sanjoy Mahajan: Street-Fighting Mathematics: The Art of Educated Guessing and Opportunistic Problem Solving
George Pólya: How to Solve It: A New Aspect of Mathematical Method https://books.google.com/books?isbn=1400828678
George Pólya: Mathematics and Plausible Reasoning: Induction and Analogy in Mathematics https://books.google.com/books?isbn=0691025096
George Pólya: Mathematics and Plausible Reasoning: Patterns of Plausible Inference https://books.google.com/books?isbn=069102510X Paul Zeitz: _The Art and Craft of Problem Solving https://books.google.com/books?isbn=1118916662

Tools: Uses of Mathematics in Economics
Macro Textbook Chapter 3: Thinking Like an Economist
How to Think Like an Economist (If, That Is, You Wish to...)
Optional Teaching Topic: How to Think Like an Economist... (Provided, That Is, You Wish to...) (Pre-Class? Mid-Class?)

This File: http://delong.typepad.com/teaching_economics/street-fighting-math.html

Friedrich Engels (1843): Outlines of a Critique of Political Economy: Weekend Reading

Friedrich Engels 1820 1895 German socialist directing the Stock Photo 57348937 Alamy

Friedrich Engels (1843): Outlines of a Critique of Political Economy: "The eighteenth century, the century of revolution, also revolutionised economics. But... all the revolutions of this century were one-sided and bogged down in antitheses...

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Hoisted from teh Archives: Joseph Schumpeter on "Liquidationism"

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Today's Economic History: Joseph Schumpeter on "Liquidationism": "Three things strike me while rereading Schumpeter's 1934 "Depressions" (and also his 1927 Explanation of the Business Cycle):

  1. How much smarter Schumpeter is than our modern liquidationists and austerians--he says a great many true things in and amongst the chaff, which is created by his fundamentally mistaken belief that structural adjustment must be triggered by a downturn and a wave of bankruptcies that releases resources into unemployment. How much more fun and useful it would be right now to be debating a Schumpeter right now than the ideologues calling for, say, more austerity for and more unemployment in Greece!

  2. How very strange it is for Schumpeter to be laying out his depressions-cause-structural-change-and-growth theory of business cycles at the very same moment that he is also laying out his entrepreneurs-disrupt-the-circular-flow-and-cause-structural-change-and-growth-theory of enterprise. It is, of course, the second that is correct: Growth comes from entrepreneurs pulling resources into the sectors, enterprises, products, and production methods of the future. It does not come from depressions pushing resources into unemployment. Indeed, as Keynes noted, times of depression and fear of future depression are powerful brakes halting Schumpeterian entrepreneurship: "If effective demand is deficient... the individual enterpriser... is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros.... Hitherto the increment of the world’s wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough..."

  3. How Schumpeter genuinely seems to have no clue at all that the business cycle is a feature of a monetary economy--how very badly indeed he needed to learn, and how he never did learn, what Nick Rowe and company teach today about the effects of monetary stringency on economic coordination.

  4. And, finally, how absolutely bonkers liquidationism and austerianism remain...

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Tail Risks

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Tail risks. Can we afford right now to think about tail risks? Probably not: right now what were our tail risks have become head risks, and given them and our day jobs we are all fully absorbed. But if we are going to be spending even a little time thinking about tail risks, the big worry has to be that something happens to cause the Global North to stop investing, as it did in 2008-2009.

Cast your minds back to ten years and two months ago. Back then people were patting themselves on the back; The United States had wound down from its over-the-top overcommitment to housing construction, and had done so without a recession. The Federal Reserve had handled the unpleasantness of mortage-firm, structured-product, and Bear-Stearns bankruptcy. In doing so the Federal Reserve had effectively guaranteed the unsecured debt of every systemically-important commercial and investment bank in and out of New York. The forecast—at least among those who were not close students of Hyman Minsky, an who had not paid attention to Paul Krugman's The Return of Depression Economics—was for at most a small recession, with the balance of risks such that the major risk to the economy—at least in the minds of the Federal Reserve's Open Market Committee—was an increase in core inflation.

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Weekend Reading: Robert Allen on Japan

Weekend Reading: On Japan: Robert Allen** (2013) Global Economic History: A Very Short Introduction (Very Short Introductions) (Oxford: Oxford University Press: ) https://books.google.com/books?isbn=0199596654: On Japan: "Japan is a particularly interesting case, for it was the first Asian country to catch up with the West...

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As Michael Kades writes, “the stakes are much higher than an ideological battle or technical adjustments to a legal regime” here. We need to understand how anti-trust practice affects the degree of monopoly in the United States and Hal monopoly effects equitable growth and societal well being. We do not. I think that attempting to understand these two issues is the most important analytic issue for policy relevant economic research in the United States today: Michael Kades: Why market competition matters to equitable growth: "At first glance, competition in the U.S. economy may seem far afield of the topic of equitable growth.... What could antitrust enforcement have to do with maintaining a healthy economy?...

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Big Questions for Left Opposition Social Scientists: Cedarbrook Notes


Cedarbrook Notes: Occupy had zero impact on austerity budgets. Mont Pelerin was not important because they gathered by a lake, sang “kumbaya”, and felt a sense of solidarity. We should not pretend defeats were victories.

What can we do? I think there are three levels that we ought to be operating on—all, right now, understanding the world rather than trying to change it: understanding policies, understanding mobilizations, and understanding utopia:

  • The first is understanding the effects of policies: the policies adopted between 1980 and 2007 did not have the results that their advocates expected nor the results that their critics expected. We really do need to figure out how to understand what the social world is rather than what the models—both pro and con—in use during the neoliberal era said the social world was.

  • The second is understanding the vicissitude of mobilization. The standard political center-left plans to promote full employment, progressive taxation and social insurance, upward mobility, and infrastructure and public services—equitable growth—all these are things that should meet with near-universal applause. By contrast, con-game kleptocracy in the interest of plutocracy should not get 60 million votes. Fascism—the belief that you need a strong leader who is a bully, because he is your bully, and he will bully your enemies, who may be corporations, foreigners, people who look or think differently, and who are always the rootless cosmopolites—should not be attractive to a 21st-century electorate on any level. Yet, somehow, it, terrifyingly, is. The same social-science models that failed to adequately track the effects of neoliberal policies failed to predict the seductive attractiveness of 21st century neo-fascism. Thus we have two different levels at which we need to understand the societal world: the effects of neoliberal policies, and the possibilities for mobilization.

  • The third is the question of what our Utopia is. How will our different view of the social world change our goals for a good society? Our utopia will almost surely still include full employment, progressive taxation and social insurance, upward mobility, and lots of infrastructure. But it will also include other and deeper objectives—objectives that have not been on the New Deal and social democratic bucket lists.

These three tracks all need to be pushed forward. But they also very much need to be three tracks. And they need to be three different tracks.