Grasping Reality on TypePad, by Brad DeLong

UPDATE: For 2020-11-26: Now headed for 3000 deaths per day average for the week ending December 10. We have so screwed ourselves:

https://www.icloud.com/keynote/0bCYYctIKV9_4ICVqtSe5qItQ

https://research.stlouisfed.org/dashboard/56322

DeLongToday: We 10:00/07:00 EDT/PDT http://delongtoday.com

What can we say about the economy? That depends on the course of the coronavirus plague. So what can we say about the coronavirus plague? We can say, it turns out, little that is good. (22 minutes).

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

A slow recovery from the coronavirus recession will be a societal policy choice. But I think that it is a societal policy choice that we are going to make. Adam Ozimek is trying to push back the tide, and it is a tide:

Adam Ozimek: '[Labor market] matching matters https://twitter.com/ModeledBehavior/status/1269979410947506177. The argument from the G[reat ]R[ecession] was never that recovery could happen overnight, but that it could have happened significantly faster...

Nick Bunker: May 2020 Jobs Day Preview: Tracking the Spread of the Coronavirus Shock https://www.hiringlab.org/2020/06/02/may-2020-jobs-day-preview/#sendgrid_mc_email_subscribe: ‘The coronavirus has devastated the US economy, leading to the destruction of over 21 million payroll jobs since February.... The concentration of job losses so far is unsurprising, with the leisure and hospitality sector seeing total employment drop by almost 50%. Employment in the utilities sector has barely fallen, losing less than 1% of jobs. If the cumulative employment drop starts to pile up in utilities or other indirectly affected sectors, that could mean that more of the aggregate job loss is due to a systematic, economy-wide shock rather than a sector-specific one. Cumulative job loss will also put the eventual jobs recovery in a fuller context.... Hopes for a V-shaped recovery were already fleeting, but if more and more employers are shedding jobs, they might be gone for good. Elsewhere in the report, I’ll be looking for the answers to these questions: * Will unemployment due to reasons other than temporary layoff start to rise, as job loss becomes permanent? * Will employers continue to reduce work hours and shift more workers to involuntary part-time work? * How much further will the drop in the labor force participation rate hold down the rise in the unemployment rate?…

#forecasting #labormarket #macro #noted #2020-06-02

From: [email protected]
Subject: Your Squawk Box segment this Thursday, January 2: Please get to the studio at UC Berkley by 6:40am est
Body: The anchors will be Joe and Becky. You’ll share the segment with Shermichael Singleton, political consultant, contributor at The Hill. The discussion will be about "running against the Trump economy". Trump has had the best 3 year performance out of every president since Reagan, since being elected. How does one run against this? Who has the potential to compete? Can Trump keep it up, how? Please send thoughts and talking points.

• Jump in the S&P over the past eight years from 1300 to 2600 3200 [1]

  • A 1.5x 1.8x in the valuation ratio
  • A 1.16x due to inflation
  • A 1.15x due to an increase in the fundamental earning power underpinning each share of stock
    • All of that is due to buybacks. None of that is due to greater business earning power
    • Thus the optimism with respect to the valuation ratio—even given limited opportunities to earn money elsewhere—somewhat puzzles me
    • Plus there is the joker in the deck: will the wage share remain depressed indefinitely?
    • Usually I'm a "150% of your net worth in stocks" guy
    • Now we are moving money out, and I'm a "50% of your net worth in stocks" guy

• The talk I hear about the "strong Trump economy" makes no allowance for the difficulty of the dive he has faced relative to that that other presidents face...

  • Trump was handed very good cards
  • Taking account of the difficulty of the dive, I think you have to say that:
    • The Clinton economy turned out much better than expected (due to good policy)
    • The Obama economy turned out better than expected (due to good but inadequate policy)
    • The Trump economy has turned out as expected—but with extra damage done by the trade war, which has on net hurt manufacturing and agriculture, and with no investment boom
    • The Reagan economy turned out somewhat worse than expected—policy incoherence between the tax cutter, the defense spenders, and Paul Volcker really stomped the entire economy over 1981-3 and the Midwest over 1981-1987.
    • The George H.W. Bush economy turned out worse than expected—they took their eye off the ball on the S&L crisis
    • The George W. Bush administration really _ _ the pooch...

• It looks like we have dodged a recession...

  • We have had a manufacturing recession, but domestic manufacturing is no longer an important enough sector for a manufacturing recession to bring down the economy as a whole...
  • The Trump economy is very weak in productivity growth and the wage share, and those are very worrisome for long-term trends.

• The most striking aspect of the political situation is the strong divergence between Trump's good unemployment and inflation numbers and his lousy approval numbers

  • Yet perhaps what should surprise me the most is that his approval numbers are so high
  • Policy incoherence while you insult people on Twitter would not have seemed to me to be a governing strategy that many Americans would approve of...
  • It's not just not doing your job...
  • It's undignified
  • Yet he has his fans—and very few of them are beneficiaries of his tax cut, and there are no beneficiaries of his trade war or his foreign-born sliming...
    • Perhaps all his fans think they will benefit from his tax cut?
    • Recall John Steinbeck: "We didn’t have any self-admitted proletarians. Everyone was a temporarily embarrassed capitalist..."
    • A new paper out by Alberto Alesina and Stephanie Stantcheva on how Americans think there is much more and Europeans think there is substantially less upward mobility than in fact there is—and how in real life there is more in Europe than in America

My rule-of-thumb, the result of my degree in forecasting from Parker Brothers University, is that the best estimate of the current state of the labor market is to average the ADP number that came out this morning with the BLS number that will come out on Friday. And my rule-of-thumb is that the BLS number is likely to be 1/3 of the way from the current trend to the ADP number. With the current trend at about 130,000 jobs per month, and with today’s ADP number at 70,000, I now think that the economy added only 90,000 payroll jobs last month. I think that is enough of a warning light that it ought to trigger another Federal Reserve rate cut, given the tail risk generated by the chaos monkey in Washington:

ADP: November Employment Report http://www.adpemploymentreport.com/2019/November/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-November2019-Final-Press-Release.pdf:

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.

Should-Read: If the Federal Reserve's 2%/year PCE (2.5%/year CPI) inflation target were appropriate, there would no be only a weak case for the proposition that the Federal Reserve is following an inappropriately tight monetary policy. Unfortunately, the Federal Reserve's current inflation target is not appropriate: the zero lower bound, and the Federal Reserve's limited power and willingness to do "what it takes" at the zero lower bound, means that a 2%/year PCE inflation target is almost surely inappropriately low. It runs enormous risks of prolonged, deep recession for no countervailing gain. Hence even with today's inflation number, I still say that there is a strong case for the proposition that the Federal Reserve is following an inappropriately tight monetary policy: Katia Dmitrieva: U.S. Consumer Prices Top Forecasts, Sending Markets Tumbling: "Core gauge advances 0.3% from prior month, above projections. Apparel index rises 1.7%, most in almost three decades...

Over at Equitable Growth: Must- and Should-Reads:

• Nick Bunker: Markups, macroeconomics, and the changing U.S. economy: "Over the past several decades, the U.S. economy experienced changes in key economic metrics that don’t bode well for the welfare of most people... http://equitablegrowth.org/equitablog/value-added/markups-macroeconomics-and-the-changing-u-s-economy/
• Nick Bunker: JOLTS Day Graphs: July 2017 Report Edition | Equitable Growth: "The Beveridge Curve in July looks to be very close to its pre-recession trend: http://equitablegrowth.org/equitablog/jolts-day-graphs-july-2017-report-edition/
• Joseph E. Stiglitz: Where Modern Macroeconomics Went Wrong: "This paper provides a critique of the DSGE models that have come to dominate macroeconomics during the past quarter-century... http://www.nber.org/papers/w23795
• Matthew Kahn: Does Culture Matter? The Case of Academic Economics: "I stumbled across this very interesting (and depressing) post by Claudia Sahm... http://greeneconomics.blogspot.com/2017/09/does-culture-matter-case-of-academic.html
• Barbara Biasi and Petra Moser: Effects of Copyrights on Science: Evidence from the WWII Book Republication Program: "In 1942, the American Book Republication Program (BRP) allowed US publishers to reprint exact copies of German-owned science books... https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2542879
• Caroline Freund and Dario Sidhu: Manufacturing and the 2016 Election: An Analysis of US Presidential Election Data: "Much of the public discourse and media analysis of the surprise outcome of the 2016 US presidential election has emphasized the role of manufacturing workers... ..." https://piie.com/system/files/documents/wp17-7.pdf
• Peter A. Hall and David Soskice, eds. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage: "The institutional differences that characterize the ‘varieties of capitalism’ found among the developed economies... http://www.oxfordscholarship.com/view/10.1093/0199247757.001.0001/acprof-9780199247752
• Bin Yu: Three principles for data science: predictability, stability, and computability: "September 12, 2017 :: 4:10pm to 5:00pm :: 190 Doe Library" https://bids.berkeley.edu/events/three-principles-data-science-predictability-stability-and-computability
• Austin Clemens: Previewing tomorrow’s annual income and poverty report: "'Income and Poverty in the United States', on Tuesday... http://equitablegrowth.org/equitablog/value-added/previewing-tomorrows-annual-income-and-poverty-report/
• Michael Boskin (March 6, 2009): Obama's Radicalism Is Killing the Dow: "our new president's policies are designed to radically re-engineer the market-based U.S. economy... https://www.wsj.com/articles/SB123629969453946717
• Diane Coyle: Inequality, revisited: "Recently I’ve been dipping into The Contradictions of Capital in the 21st Century: The Piketty Opportunity, edited by Pat Hudson and Keith Tribe... http://www.enlightenmenteconomics.com/blog/index.php/2017/09/inequality-revisited/
• Pedro Nicolaci da Costa: Fed may pause rate hikes if inflation weakness persists: "The Federal Reserve is embarking on an annual summer ritual: Downgrading its overly optimistic forecasts for economic growth... http://www.businessinsider.com/fed-may-pause-rate-hikes-if-inflation-weakness-persists-2017-7
• Keven Drum: Here's Why I Never Warmed Up to Bernie Sanders: "As Bill Scher points out, the revolution that Bernie called for didn't show up...
• David Glasner: Milton Friedman Says that the Rate of Interest Is NOT the Price of Money: Don’t Listen to Him!: "Friedman’s repeated claims that the rate of interest is not the price of money... https://uneasymoney.com/2017/09/07/milton-friedman-says-that-the-rate-of-interest-is-not-the-price-of-money-dont-listen-to-him/
• Amanda Bayer and Cecilia Elena Rouse: Diversity in the Economics Profession: A New Attack on an Old Problem: "The economics profession includes disproportionately few women and members of historically underrepresented racial and ethnic minority groups... https://www.aeaweb.org/articles?id=10.1257/jep.30.4.221
• Frank Pasquale (2011): Economic Policy for the Worried Wealthy: "Why is the austerity movement so powerful in the US?... https://concurringopinions.com/archives/2011/04/economic-policy-for-the-worried-wealthy.html
• Noah Smith: Realism in macroeconomic modeling: "Ljungqvist and Sargent are trying to solve the Shimer Puzzle... http://noahpinionblog.blogspot.com/2017/09/realism-in-macroeconomic-modeling.html
• Ann Marie Marciarille: Men First: "The New York Times had quite an interesting article... on cancer biopsy laboratory error rates... http://www.marciarille.com/2017/06/men-first.html

Must-Read: Forecaster Beven: Hurricane Irma Forecast Discussion: "The hurricane is currently being steered by the subtropical ridge to the north.... After 48 h, a mid- to upper-level trough digging into the eastern United States is expected to create a break in the ridge and allow Irma to turn northward... http://www.nhc.noaa.gov/text/refresh/MIATCDAT1+shtml/070257.shtml?

Over at Equitable Growth: Must- and Should-Reads:

• Open Letter from 1,470 Economists on Immigration http://equitablegrowth.org/equitablog/open-letter-from-1470-economists-including-me-on-immigration/
• Yes: The CBO’s Growth Forecasts Are Not Unreasonable… http://equitablegrowth.org/equitablog/yes-the-cbos-growth-forecasts-are-not-unreasonable/
• Jonathan Chait: Australia’s PM Slowly Realizes Trump Is a Complete Idiot: "Trump in his private negotiations is every bit as mentally limited as he appears to be in public... http://nymag.com/daily/intelligencer/2017/08/australias-pm-slowly-realizes-trump-is-a-complete-idiot.html
• Duncan Black: Mama I Don't Want To Die: "I was too pessimistic about Obamacare... http://www.eschatonblog.com/2017/07/mama-i-dont-want-to-die.html
• Kevin Drum: Afghanistan Plan Killed Because ‘21’ Closed For Remodeling 30 Years Ago. This Is Not a Joke: "Consensus reality is that the run-down 21 Club closed for two months after it changed ownership... http://www.motherjones.com/kevin-drum/2017/08/afghanistan-plan-killed-because-21-closed-for-remodeling-30-years-ago-this-is-not-a-joke/
• Caroline Freund and Christine McDaniel: The U.S. Needs to Invest in Minds, Not Miners: "Otherwise the job market will leave a lot of men behind... https://www.bloomberg.com/view/articles/2017-07-06/the-u-s-needs-to-invest-in-minds-not-miners
• Joe Pompeo and Hadas Gold: Gerry Baker to staff: Criticism of Wall Street Journal's Trump coverage is 'fake news': "He said there's been 'a lot of nonsense appearing in the media about how unreliable our reporting is'... http://www.politico.com/media/story/2017/02/gerry-baker-defends-wsj-trump-coverage-004931
• **Steve Horwitz: MacLean on Nutter and Buchanan on Universal Education: "Finding examples of misleading, incorrect, and outright butchered quotes and citations in Nancy MacLean’s new book... http://bleedingheartlibertarians.com/2017/06/maclean-nutter-buchanan-universal-education/

Must-Read: The smart and honest Simon Johnson likes the Trumpists' and Cogan, Hubbard, Taylor, and Warsh's 3%/year real national product fake forecasts even less than I do:

Simon Johnson: Trump’s Growth Charade by Simon Johnson - Project Syndicate: "Officials in President Donald Trump’s administration frequently talk about getting annual economic growth in the United States back above 3%... https://www.project-syndicate.org/commentary/trump-administration-growth-assumption-by-simon-johnson-2017-07

Must-Read: The Federal Funds rate is currently bouncing around between 0.82 and 0.91%. When the Federal Reserve embarked on its tightening cycle in December 2015, its median expectation was that by now it would have raised the Federal Funds rate to between 2.25 and 2.50%—that it would have undertaken 9 25 basis point interest rate hikes rather than three. Its expectation was that, even after those nine hikes, PCE core inflation would be running at 1.9% per year rather than the 1.5% per year that the smart money currently sees.

A policy significantly looser than they thought they were embarking on. And inflation outcomes noticeably worse, in the sense of falling below target, than they anticipated even with the tighter policies they thought they would adopt.

Yet I have very little sense of how the Federal Reserve is adjusting its thinking to its forecasting overoptimism for 2016 and now for 2017. Nor do I have any great sense of how the Federal Reserve is dealing with the fact that it has now been overoptimistic in forecasting 2017, 2016, 2015, 2014, 2013, 2012, 2011, 2010, 2009, and 2008:

Gavyn Davies: The Fed’s Lowflation Dilemma: "The [last] two months together have left core CPI inflation 0.4 percentage points lower than expected... https://www.ft.com/content/b165f756-e4bf-3a70-880f-74474f6538fa

Should-Read: Chad Stone: Donald Trump's Indefensible Economic Growth Forecasts: "The 1.1 percentage point gap between the Trump annual growth forecast over the next decade and CBO's is the largest on record and much larger than any since the Reagan-Bush era... https://www.usnews.com/opinion/economic-intelligence/articles/2017-05-26/donald-trumps-indefensible-economic-growth-forecasts

Over at Equitable Growth: Must- and Should-Reads:

• Nick Bunker: Should policymakers worry about the level of debt or the pace of credit growth?: "Other research on the impact of debt and credit on economic output has emphasized the role of household debt... http://equitablegrowth.org/equitablog/should-policymakers-worry-about-the-level-of-debt-or-the-pace-of-credit-growth/
• Henry Farrell: The Thousand Day Reich: The Double Movement: "A simple Polanyian account of Trump and right wing populism would explain it... http://crookedtimber.org/2017/05/01/the-thousand-day-reich-the-double-movement/#comment-708419
• Arthur Goldhammer: The Piketty Phenomenon: "I will discuss anticipations of the book’s reception... show that even the most optimistic forecasts failed to predict the extent of the Piketty phenomenon... http://amzn.to/2pynukp
• Suresh Naidu: A Political Economy Take on W/Y: "The full political-economy equilibrium... lets us see the determinants of the wealth/income ratio... http://amzn.to/2pynukp
• UC Berkeley: Haas Institute for a Fair and Inclusive Society: Othering & Belonging: "How Do We Think About, Talk About, and Give Birth to a World Where All Belong?_: "The Othering & Belonging Conference is a dynamic gathering over 2.5 days... http://conference.otheringandbelonging.org/
• Mark Thoma: The Demand for Education: "One of the most rewarding parts of deciding to go online 12 years ago... http://economistsview.typepad.com/economistsview/2017/03/the-demand-for-education.html
• Sarah Kliff: Trump doesn't know what's in his health bill
• Jeremy Cliffe: On Twitter: Today's FAZ Report on May's Disastrous Dinner with Juncker https://twitter.com/JeremyCliffe/status/858810953353367552: "Today's FAZ report on May's disastrous dinner with Juncker...

(Late) Monday Smackdown: This, from eight years ago, still seems to me to be highly, highly unprofessional:

Robert Lucas (2009): In defence of the dismal science http://www.economist.com/node/14165405: "Fama tested the predictions of the EMH.... These tests could have come out either way...

...but they came out very favourably. His empirical work was novel and carefully executed.... [The] flood of criticism which has served mainly to confirm the accuracy of the hypothesis.... Exceptions and “anomalies”... for the purposes of macroeconomic analysis and forecasting... are too small to matter.

The main lesson we should take away from the EMH for policymaking purposes is the futility of trying to deal with crises and recessions by finding central bankers and regulators who can identify and puncture bubbles. If these people exist, we will not be able to afford them...

Over at Equitable Growth: Must- and Should-Reads:

• Robert Waldmann: Marking My Beliefs To Market: UK Violent Crime: "The lead causes crime hypothesis...
• Wing Thye Woo: China’s Growth Odyssey: "Former World Bank Chief Economist Justin Yifu Lin is sanguine...
• Colin Camerer: On "Rational Expectations" and John Muth: "Rational expectations pioneer John Muth in 1984...
• Nick Timiraos: Trump Team’s Growth Forecasts Far Rosier Than Those of CBO, Private Economists: "While there are often disparities between the White House and independent agencies on growth projections, they are rarely this large...
• Caitlin Macneal: Perry Didn't Fully Understand Role Of Energy Secretary At First: "Former Texas Gov. Rick Perry did not realize exactly what the position of energy secretary entails...
• Robert Waldmann: Buchanan, Smith, and Krugman: "There is no reason why macroeconomists can't work on empirical microeconomics while also using old Keynesian models for forecasting and policy advice...
• James Kwak: Health Care and John D. Rockefeller’s Dog: "Few people actually want to live in a world where health care is distributed by a free market...
• Kevin Drum: Charts of the Day: If Only Every State Could Be As "Out of Control" As California: "I feel like someone ought to defend the honor of California against our president, so why not me? Here you go...
• Ruy Teixeira: The Optimistic Leftist: "A new utopian vision for the left’s emerging coalition will... include...

Must-Read: Note that in its rosy scenario Trump is not exceptional--for a Republican. Similar claims were made by Hassett, Hubbard, Mankiw, and Taylor on behalf of Mitt Romney back in 2012. Rosy scenario, and subsequently having to explain--in 1988, in 1992, in 2008, and 2020--why their projections back during the campaign and in the transition were such b.s.

And, yes, Hassett, Hubbard, Mankiw, and Taylor would have been making excuses last year had Romney won in 2012:

Nick Timiraos: Trump Team’s Growth Forecasts Far Rosier Than Those of CBO, Private Economists: "While there are often disparities between the White House and independent agencies on growth projections, they are rarely this large...

Must-Read: Whether Britain's BREXIT vote would bring on a more-or-less immediate recession depended on whether markets and the Bank of England could and would drop the value of the pound far enough to boost exports enough to offset the shock to investment in Britain. There was a risk that they would or could not--enough of a risk that I thought that avoiding a post-vote recession was a tail possibility. But a more than 20% fall in the value of the pound turns out to have been enough to do the job:

However, is there any other high card in the hole that can make use forecast that British economic growth in the five years post-vote will be as fast as or faster than in the counterfactual in which the BREXIT vote went the other way? Yes--if Britain reverses itself and abandons the BREXIT project. Otherwise? I cannot see any. Untangling value chains is expensive. And the untangling will end with less productive value chains than Britain has now. You can argue--and I do--for a less financialized Britain in which government does much more to nurture and support communities of engineering practice and excellence. But BREXIT looks to me like a uniquely stupid and destructive way to set about such a policy shift. And I cannot imagine the clowns who run Britain's Conservative and Unionist Party today having any clue as to how to accomplish such.

So put me on record as strongly supporting Britain's Office of Budgetary Responsibility against all of its enemies and critics--including the extremely sharp [William Munchau[]:

Simon Wren-Lewis: Hitting Back: "A reaction to reading this [by Wolfgang Munchau][]...

Must-Read: The fact that Nate Silver and http://fivethirtyeight.com choose to express their forecast as a pseudo-Bayesian win probability and relies on an underlying model in which uncertainty is necessarily symmetric has, I think, substantially impeded communication about the state of the presidential election. So let me endorse this attempt by Matthew Yglesias to bring clarity:

Matthew Yglesias: Nate Silver’s model underrates Clinton’s odds: "Even if you buy Silver’s main modeling assumptions (and I largely do)...

...there’s considerable evidence outside the realm of things captured by poll aggregators that leads me to believe that if the polls are wrong, they are more likely to be underestimating Clinton’s support than overstating it....

Today in Team Bedwetting: Nate Silver and company's http://fivethirtyeight.com has its morning forecasts:

Question: Just what information is there in the "polls-plus" forecast? What does it implicitly assume that Donald Trump will say and do in the next three months to double--double!--his chances relative to what the random drift of the polls under the impact of event and randomness would predict?

And how reasonable is this implicit assumption about what Trump will say and do?

Live from Data Journalism: Matthew Yglesias is perplexed:

Was anyone on the @FiveThirtyEight staff *really* prepared to place an even-money bet on Trump last weekend when the polls narrowed?

— Matthew Yglesias (@mattyglesias) August 3, 2016

I don’t really understand the metaphysical status of a forecast that has this much volatility. pic.twitter.com/XK71ts9YwU

— Matthew Yglesias (@mattyglesias) August 3, 2016

Live from (Ω,𝓕,𝑷): Real poll-aggregation election forecasts!

538 is up and running: FiveThirtyEight: 2016 Election Forecast:

Over at Equitable Growth: Consider Olivier Blanchard and Daniel Leigh: Growth Forecast Errors and Fiscal Multipliers:

This strongly suggests to me that of the 7%-points by which Greek growth fell below IMF estimates in 2010-2011, 5%-points of that were due to the fiscal consolidation that the IMF had forecast would be imposed on Greece. Consider that the IMF had already expected the Greek economy under baseline to shrink by 4%-points, and for fiscal consolidation to shrink the Greek economy by 3%-points, and we have 4/5 of the damage to the Greek economy--relative to a counterfactual forecast under some zero-spending-austerity baseline was due to austerity.

I find this hard to square with the very-sharp Olivier Blanchard's contribution of today: READ MOAR

Must-Read: Mark me down as one of those people who never understood what the Federal Reserve saw in the data or the forecast to make an end-of-2016 short-term safe nominal interest rate of 3%/year appropriate in the first place. It seemed to me to indicate a dangerous degree of unrealistic groupthink around the FOMC table and among the senior staff. It now strongly looks as though by the end of 2016 the Federal Reserve will have undershot all three of its inflation, its growth, and its employment targets for nine straight years:

Liz McCormick: Memo to Bond Market From Fed: You Were Right on Interest Rates: "Federal Reserve policymakers are coming around to the bond market's wisdom...

Over at Equitable Growth--The Equitablog

• FEBRUARY 2012 VERSION: Budgeting and Macroeconomic Policy: A Primer: The Honest Broker
• Long-Run Real GDP Forecasts: The Hopeless Task of Trying to Pierce the Veil of Time and Ignorance Weblogging: Focus
• I Am Beginning to Think That the Backlash Against the Skills-Gap Story of Wage Inequality Has Gone Too Far...: Focus
• Must-Read: Òscar Jordà, Moritz Schularick, and Alan Taylor: Monetary Policy and Housing Prices: Lessons from 140 Years
• Must-Read: Paul Krugman: Phantom Phiscal Crises
• Must-Watch: Elizabeth Warren, Elijah Cummings, et al.: Middle Class Prosperity Project Forum
• Must-Read: David Howell: Links Between Institutions and Shared Growth
• Must-Read: Mark Thoma: The Best Investment the U.S. Could Make Is Affordable Higher Education

Plus:

• Things to Read at Lunchtime on February 25, 2014

Must- and Shall-Reads:

• Daniel Kuehn: "It's misleading to say the wage gap is a myth by pointing at occupational controls. It is much sounder to follow Goldin's lead in her AEA presidential address and treat them as clues for understanding the various factors driving a very non-mythical wage gap..."
• Matthew Yglesias: Obama's newest plan might drive investment advisers out of business. Good
• Eric Alterman: Inequality and One City: Bill de Blasio and the New York Experiment, Year One
• Koichi Hamada: "The belief that monetary policy does not matter is not just “the most dangerous idea in Federal Reserve economic history," as the economists Christina and David Romer have noted; it is exceedingly hazardous to any economy. Europe faces enough serious risks already; it should not needlessly add to them."
• Jason Furman, Ron Shadbegian, and Jim Stock: "TA one-decade delay in addressing climate change would lead to about a 40% increase in the net present value cost of addressing climate change.... Uncertainty and the possibility of tipping points provide a motivation for more action as a form of insurance against worse outcomes..."
• Justin Fox: "It was once believed that the rise of index investing would make markets less efficient and thus create new opportunities for active money managers... [but] perhaps the opposite is true.... Josh Brown, summing up... Larry Swedroe and Andrew Berkin.... '[W]ith all the unskilled investors departing, pros will be left to square off against only other pros. The lack of retail punters and their harvestable mistakes cuts off one of the most reliable historical sources of alpha for sharp-eyed managers...'"
• Janet Yellen: Semiannual Monetary Policy Report to the Congress--February 24, 2015
• Jason Furman: Brief history of middle-class economics
• Kathy Ruffing: Disability Insurance: An Essential Part of Social Security
• Bruce Bartlett: The Coming Crisis: America's Dangerous Debt
• David Howell: The links between institutions and shared growth
• Mark Thoma: The Best Investment the U.S. Could Make Is Affordable Higher Education
• Òscar Jordà, Moritz Schularick, and Alan Taylor: Monetary Policy and Housing Prices: Lessons from 140 Years
• Elizabeth Warren, Elijah Cummings, et al.: Middle Class Prosperity Project Forum
• Paul Krugman: Phantom Phiscal Crises - NYTimes.com

And Over Here:

Over at Equitable Growth: OK: Now that I am awake and coherent and caffeinated, we may resume...

I draw somewhat different conclusions from the wavering track of potential GDP since 1990 than do the viri illustres Steve Cecchetti and Kermit Schoenholtz:

First, I think that monetary policymakers should not be looking at potential output and the output gap at all. They should be looking at the labor market. You can determine whether monetary policy is such as to accord with people's previous expectations and thus balance supply and demand in the labor market much more easily than you can track whether actual production and demand are above or below what your retrospective estimate of potential output will turn out to be.

Over at Equitable Growth: I had always thought that dynamic scoring was a bad idea because it leads to a ratchet--Democrats when they are in power claim deficit reduction from a stronger economy if their policies are enacted , and then Republicans when they are in power claim deficit reduction from a stronger economy if they undo what the Democrats did. You have no chance of getting policy-effect forecasts that are unbiased on average if you allow the party in power to shape CBO's estimates of macroeconomic impacts.

The vir clarissimus Robert Lynch has a good look at all the other issues in this can of worms: READ MOAR

Over at Equitable Growth: I was writing a piece about the rather strange belief I hear that the failure of the U.S. economy to fall into a recession in 2013-2014 demonstrates that fiscal multipliers are relatively small. But Robert Waldmann did it first, and better than I was doing:

Menzie Chinn: Wisconsin Forecasted to Lag Further Behind Minnesota, and Kansas travels its own path...

...Bruce Bartlett brings my attention to this article noting Minnesota’s economic performance. This reminded me to check on the Philadelphia Fed’s forecast.... The cumulative growth gap between Minnesota and Wisconsin (relative to 2011M01) is forecasted to grow--rather than shrink--over the past six months.... The cumulative growth gap between Kansas and the Nation is also forecasted to rise, from the current gap of 2.7%, to 3.2%, in just the next six months...

The blue states have shot themselves in the foot with respect to overall economic growth--although not with respect to growth in per-capita income, and definitely not with respect to growth in per-capita wealth--via excessive NIMBYism. (And, I would argue, via blowback from Republican state-level tax-limitation initiatives like Proposition 13 and Proposition 2 1/2: with development population growth make the lives of state and local government officials harder and not easier, you greatly diminish the political voices for American pro-development boosterism. Blame Howard Jarvis for the fact that people from Texas cannot afford to move to the better-paying jobs waiting for them in California.)

Now the red states are shooting themselves in the foot definitely with respect to growth in per-capita income, definitely definitely with respect to growth in per-capita wealth, and now--perhaps--respect to the pace of overall economic growth as well. It will be interesting to see how much of a drag this "We don't need no infrastructure/We don't need no Medicaid expansion/No common core in the classroom/Biologists! Leave them kids alone!" red-state political equilibrium exerts on the regional distribution of economic activity over the next decade. Will it be enough to offset the Hispanic population influx and the continued transition to the full air-conditioning equilibrium?

Over at Equitable Growth--The Equitablog

• Nick Bunker: Weekend reading - Washington Center for Equitable Growth
• Heather Boushey and Nick Bunker: A sobering report from the U.S. labor market - Washington Center for Equitable Growth Heather Boushey, Nick Bunker
• Evening Must-Read: Robert Waldmann (2012): Beveridge Curve Loops - Washington Center for Equitable Growth
• Afternoon Must-Read: Chris Blattman: What The Economist should have read before suggesting that US slavery wasn't always so bad - Washington Center for Equitable Growth
• On Bloomberg TV @ 3 PM EDT, Apparently... - Washington Center for Equitable Growth
• Lunchtime Must-Read: Noah Smith: Job Shortage or Stagnation Vacation? - Washington Center for Equitable Growth
• More in the Pick-Up Internet Symposium: Why the Love of Hard Money? - Washington Center for Equitable Growth
• Morning Must-Read: Murat Tasci and Jessica Ice: Reassessing the Beveridge Curve “Shift” Four Years Later - Washington Center for Equitable Growth

Plus:

• Things to Read on the Evening of September 5, 2014 - Washington Center for Equitable Growth

Must- and Shall-Reads:

• Core-Econ: Teaching economics as if the last three decades had happened
• Tony Yates: A mauling Minsky moment: comment on Martin Wolf
• Andre Sapir and Guntram Wolff: #eu2do
• Nolan McCarty, Keith T. Poole, and Howard Rosenthal (2006): Polarized America: The Dance of Ideology and Unequal Riches
• John V. Duca and Jason L. Saving: Income Inequality and Political Polarization: Time Series Evidence Over Nine Decades

1. Murat Tasci and Jessica Ice: Reassessing the Beveridge Curve “Shift” Four Years Later: "Early on in the current recovery, economists and policymakers were worried about a potential shift in the Beveridge curve.... Job vacancies were rising, but the unemployment rate was not declining, fueling a debate about a structural problem in the labor markets. Exactly four years ago, we... argued that it was too early to call what had happened a shift.... We concluded that the Beveridge curve behavior we were seeing in this recovery was typical of recoveries in general, and that the curve would likely follow its historical business-cycle pattern going forward, erasing any evidence of a shift. Well, four years later, we have 16 more quarterly data points to inform us.... It is safe to say that what seemed like a shift in the Beveridge curve ended up being another manifestation of the 'normal' dynamics of unemployment and vacancies in the United States..."

2. Noah Smith: Job Shortage or Stagnation Vacation?: "Are Americans working less because the government is paying them not to work? A large number of people seem to think this. Obviously the idea is popular on the right--recall Mitt Romney’s infamous '47 percent' speech in 2012. But a surprising number... have picked up the idea.... Casey Mulligan.... Kurt Mitman.... Jordan Weissmann.... Economists... like simple stories... like effects that they understand... the idea that taxes are an incentive not to work is a simple, uncontroversial idea....But... if government programs are paying people not to work, then that should put upward pressure on real wages.... But when we look at the data, that’s not what we see happening.... When you break up the wage data by percentile, it looks even worse for the vacation thesis.... Economics 101 says that when the price of something and the quantity produced both fall, demand, not supply, has fallen. In America, the price of labor and the quantity of labor have both fallen and stayed low since 2009. That is a hint that the government’s welfare programs are having only a minimal impact on the number of Americans with jobs. Whatever caused us to stagnate for five years and counting, it probably wasn’t welfare."

3. Chris Blattman: What The Economist should have read before suggesting that US slavery wasn't always so bad: "Here’s the jawdropping finale: 'Slave owners surely had a vested interest in keeping their “hands” ever fitter and stronger to pick more cotton. Some of the rise in productivity could have come from better treatment. Unlike Mr Thomas, Mr Baptist has not written an objective history of slavery. Almost all the blacks in his book are victims, almost all the whites villains. This is not history; it is advocacy.' What could have shed light on this, had The Economist writer bothered to read?... Violence and pain work better in labor markets where people have really poor options, and are easily controlled, like children or the least educated. You see this in child labor during British industrialization, or even in child soldiering in Uganda.... Adults will tend to escape if you use violence, so slavery and serfdom work best when the overlords control the legal system or can hunt you down. You see this with servants in 19th century Britain or with European feudalism and US slavery. When you make it harder for employers to use force, wages go up. You see this in 19th century Puerto Rico coffee growing, or in the Emirates today. It’s not unusual to see a mix.... And when you turn the entire system against them, yes, whipped people work harder.... Suresh Naidu... yes, rewards can be a substitute for violence, but in a coercive labor market, better pay or food is just service to your larger evil plan to enslave more people more profitably.... Places in Peru and Bolivia with forced labor several hundred years ago are now poorer than other parts of the country.... Racially hostile attitudes also get passed down generation to generation in the US.... Is anyone else feeling depressed and hopeless?"

4. djw: The predatory, broken municipal governments of St. Louis County: "[Radley] Balko is doing some extraordinary and important work here: '"She was crying as I explained the situation to her", Voss says. "So then I started to cry as I explained it her. One of the really frustrating things about what’s happening here is that this system is breaking good people. These are people just trying to get by, just trying to take care of their families". Voss’s eyes well up as he talks about Bolden. This isn’t just an attorney defending his client. It’s a guy who is concerned about what’s happening to another human being. Bolden is a single black woman with four kids. She has several tattoos. It’s easy to see how cops might target her, or court officials might dismiss her. But Voss points out that she had already earned an associate’s degree in medical assistance. And while dealing with all of the arrests and the harassment, she earned another in paralegal studies. The Foristell warrant stemmed from a speeding ticket in 2011. As mentioned before, Bolden didn’t show up in court because she didn’t have the money to pay it and feared they’d put her jail. It’s a common and unfortunate misconception among St. Louis County residents, especially those who don’t have an attorney to tell them otherwise. A town can’t put you in jail for lacking the money to pay a fine. But you can be jailed not appearing in court to tell the judge you can’t pay.... While in jail, she missed a job interview. She fell behind in her paralegal studies. When she finally got her day in court, she was told to change out of her jail jumpsuit into the same clothes she had worn for three days straight, and that had been sitting in a bag for the previous two weeks.' It’s long, but read the whole thing. I confess I was actually surprised when the 'three outstanding warrants per household' in Ferguson fact first came to light; it’s now clear in St. Louis County, this is par for the course, and there are far worse examples–the extremely misleadingly named 'Country Club Hills' has 26 outstanding warrants per resident... a long piece filled with rage-inducing anecdotes.... In the short run, a democratic revival is clearly and badly needed, and one simply has to hope that perhaps this moment of sunshine on these governments will produce something of that sort..."

5. Kent Daniel and Tobias J. Moskowitz: Momentum Crashes: "Despite their strong positive average returns across numerous asset classes, momentum strategies can experience infrequent and persistent strings of negative returns. These momentum crashes are partly forecastable. They occur in “panic” states – following market declines and when market volatility is high – and are contemporaneous with market rebounds. We show that the low ex-ante expected returns in panic states are consistent with a conditionally high premium attached to the option-like payoffs of past losers. An implementable dynamic momentum strategy based on forecasts of momentum’s mean and variance approximately doubles the alpha and Sharpe Ratio of a static momentum strategy, and is not explained by other factors. These results are robust across multiple time periods, international equity markets, and other asset classes."

6. Myles Udland: Fidelity Reviewed Which Investors Did Best And What They Found Was Hilarious: "If you want good investment performance, forget you have an account.... O'Shaughnessy relays one anecdote from an employee who recently joined his firm that really makes your head spin. O'Shaughnessy: 'Fidelity had done a study as to which accounts had done the best at Fidelity. And what they found was...' Ritholtz: 'They were dead.' O'Shaughnessy: '...No, that's close though! They were the accounts people who forgot they had an account at Fidelity.'... Due to our behavioral biases, we often find ourselves buying high and selling low..."

7. Robert Waldmann (2012): "Here we go a second time. Neither the Beveridge curve nor the quasi-Beveridge curve show how much employment can increase without 'truly massive and successful public active labor market policies to better match workers to jobs'. It is more useful to look at the matching function showing hires as a function of vacancies and unemployed workers (or, to be quasi-, the peak minus the current employment to population ratio). If the matching function is stable, then the lowest sustainable unemployment rate is stable. However when there is a recession the Beveridge curve will show a huge ugly (as you graph it) clockwise pattern causing alarmed reports of worsened matching. It looked much worse in the UK in the late 90s just before the UK switched from being a high unemployment to low unemployment country."

And Over Here:

Menzie Chinn: Wisconsin Forecasted to Lag Further Behind Minnesota, and Kansas travels its own path...

...Bruce Bartlett brings my attention to this article noting Minnesota’s economic performance. This reminded me to check on the Philadelphia Fed’s forecast.... The cumulative growth gap between Minnesota and Wisconsin (relative to 2011M01) is forecasted to grow--rather than shrink--over the past six months.... The cumulative growth gap between Kansas and the Nation is also forecasted to rise, from the current gap of 2.7%, to 3.2%, in just the next six months...

Simon Wren-Lewis: On Macroeconomic Forecasting: "Macroeconomic forecasts produced with macroeconomic models...

...tend to be little better than intelligent guesswork. That is not an opinion--it is a fact.... The sad news is that this situation has not changed since I was involved in forecasting around 30 years ago. During the years before the Great Recession (the Great Moderation) forecasts might have appeared to get better, but that was because most economies became less volatile. As is well known, the Great Recession was completely missed.... Does that mean that macroeconomics is not making any progress?... [This] raises an obvious question: why do people still use often elaborate models to forecast?... Why use the combination of a macroeconomic model and judgement to do so, rather than intelligent guesswork?...

Suppose that it is December 2020, current forecasts are for a year-2022 level of real GDP of $19.5 trillion without policy changes. Suppose further that you have just moved to Washington to work for the newly-chosen President-Elect as Special Assistant to the Chief Economist of the Office of Management and Budget.

Your boss, the Director of Office of Management and Budget, has asked you to assume that the economy would be producing at potential output come 2022 if it had a real GDP then of $21 trillion, and has asked you to come up with a plan to "get the economy moving again" and restore American production to potential output so that it can once again be, as Ronald Reagan liked to say, "morning in America". In the income-expenditure framework...

Suppose that the Federal Reserve disagrees with your boss, the Director of Office of Management and Budget.

20140402 Econ 2 Problem Set 5.pdf

A.Suppose that it is December 2020, current forecasts are for a year-2022 level of real GDP of $19.5 trillion without policy changes. Suppose further that you have just moved to Washington to work for the newly-chosen President-Elect as Special Assistant to the Chief Economist of the Office of Management and Budget. Suppose still further that the short-term safe interest rates the Federal Reserve controls are still very close to zero and that the Federal Reserve has promised to keep them very close to zero until at least 2023. Suppose still further that risk spreads on interest rates of different assets are at normal levels.

Over at the Washington Center for Equitable Growth: The Launch of fivethirtyeight.com and Climate Change Disaster Weblogging: (Trying to Be) The Honest Broker for the Week of March 29, 2014: I confess that I had forgotten about the existence of Roger Pielke, Jr.--the last trace I can find of him in my Augmented Memory Packs dates to February, 2010[1] when Google sent me off to:

http://fabiusmaximus.com/2014/03/25/nate-silver-climate-pielke-66723/

and I read:

Nate Silver goes from hero to goat, convicted by the Left of apostasy: Pity Nate Silver. Hero of the Left for his successful take-down of GOP’s election forecasts, shooting down their delusions about Romney’s chances of victory. Good Leftists like Brad DeLong and Paul Krugman heaped praises on Silver, catapulting him into a sweet gig at ESPN. The poor guy thought the applause was for his use of numbers in pursuit in truth, when it was purely tribal. Their applause were just tribal grunts — we good, they bad — in effect chanting: “Two legs good. Four legs bad.” Right out of the box at his new venture, ESPN’s FiveThirtyEight, Silver committed apostasy, and the Left reacted with the fury true believers mete out to their betrayers. He posted “Disasters Cost More Than Ever — But Not Because of Climate Change” by Roger Pielke, Jr....

Since, as I said, I had forgotten about the existence of Roger Pielke, Jr., I was somewhat annoyed at being told that my applause for Silver had just been a "tribal grunt". So I asked: READ MOAR

Suppose that it is December 2020, current forecasts are for a year-2022 level of real GDP of $19.5 trillion without policy changes. Suppose further that you have just moved to Washington to work for the newly-chosen President-Elect as Special Assistant to the Chief Economist of the Office of Management and Budget. Suppose still further that the short-term safe interest rates the Federal Reserve controls are still very close to zero and that the Federal Reserve has promised to keep them very close to zero until at least 2023. Suppose still further that risk spreads on interest rates of different assets are at normal levels.

Suppose that it is June 2015 and you are working in New York forecasting the 2016 economy for Medium-Sized Hedge Fund Named After a Local Geographic Feature. Your bosses want you to inform them about the likely shape of the economy in 2016--not just the total level of real GDP Y, but the levels of consumption spending C, investment spending I, government purchases G, and exports X. Your baseline forecasts--which you get via a painfully-expensive subscription to Mississippi Valley Forecasters--are that for 2016 real GDP (measured in dollars of 2009 purchasing power) and its components will be:

• X: Exports: $2.3T
• G: Government Purchases: $3.0T
• I: Investment Spending: $2.9T
• C: Consumption of Domestically-Produced Commodities: $8.9T
• Y: TOTAL: $17.1T

Suppose that you believe the marginal propensity to consume c_y= 0.6667.

Suppose that the aggregate supply curve for 2016 is given by:

• P = 1.10 for Y < $18.9T (2009)
• P > 1.10 for Y = $18.9T (2009)
• No possibility of Y > $18.9T (2009)

With the price level in 2015 being 1.08, so that expected inflation over the year from 2015 and 2016 is 1.85%.

You are working in New York forecasting the 2016 economy for Medium-Sized Hedge Fund Named After a Local Geographic Feature. Your bosses want you to inform them about the likely shape of the economy in 2016--not just the total level of real GDP Y, but the levels of consumption spending C, investment spending I, government purchases G, and exports X. Your baseline forecasts--which you get via a painfully-expensive subscription to Larry Meyer and company's Macroeconomic Advisors http://www.macroadvisers.com/tag/larry-meyer/--are that for 2016 real GDP (measured in dollars of 2009 purchasing power) and its components will be:

• X: Exports: $2.3T (2009)
• G: Government Purchases: $3.0T (2009)
• I: Investment Spending: $2.9T (2009)
• C: Consumption of Domestically-Produced Commodities: $8.9T (2009)
• Y: TOTAL: $17.1T (2009)

and your estimate of the marginal propensity to consume c_y=0.667.

Over at Equitable Growth--The Equitablog

• Washington Center for Equitable Growth | Mt.Gox Site Disappears, Bitcoin Future in Doubt
• Washington Center for Equitable Growth | Afternoon Must-Read: Evan Soltas: To Say Unions Are Essential to Reduce Inequality Is a Counsel of Despair
• Washington Center for Equitable Growth | Yes, Christina Romer and Jared Bernstein Were Far on the Pessimistic (and Correct) Side of Forecast Consensus in December 2008. Why Do You Ask?
• Washington Center for Equitable Growth | Department of: “We Stand Ready to Help the Chinese Leadership with Their North Korea Problem”
• Washington Center for Equitable Growth | Department of “Huh?!”: How You Play Your Hand Determines What Hand You Hold Weblogging
• Washington Center for Equitable Growth | Morning Must-Read: Elizabeth Nolan Brown: Weak Government Regulations Made Me Do It, Legal Sea Foods CEO Claims
• Washington Center for Equitable Growth | Morning Must-Read: Daniel Kuehn: Bryan Caplan on the College Premium
• Washington Center for Equitable Growth | Morning Must-Read: Joe Deaux: The Story of the Federal Reserve the Day After Lehman Brothers Collapsed

Plus:

• Washington Center for Equitable Growth | Things to Read on the Morning of February 26, 2014

And:

Over at the Washington Center for Equitable Growth: One of the many, many interesting things in the Federal Reserve's 2008 transcripts is the staff briefing materials for the mid-December FOMC meeting, which include:

Over at the Washington Center for Equitable Growth: I Am Sorry. What Was Tim Geithner Looking at in January 2008?: Saturday Focus: February 22, 2014: "Steven Perlberg:

Tim Geithner January 2008 FOMC Minutes: “The World Is Still Looking Pretty Good”: “In January 2008–right as the U.S. economy entered a recession–the former Federal Reserve Vice Chairman (and later Treasury Secretary) was still very optimistic….

Here’s Geithner:

You know, we have the implausible kind of Goldilocks view of the world, which is it’s going to be a little slower, taking some of the edge off inflation risk, without being so slow that it’s going to amplify downside risks to growth in the United States. That may be too optimistic, but the world still is looking pretty good. Central banks in a lot of places are starting to soften their link to the dollar so that they can get more freedom to direct monetary policy to respond to inflation pressure. That’s a good thing. U.S. external imbalances are adjusting at a pace well ahead of expectations. That’s all good, I think. As many people pointed out, the fact that we don’t have a lot of imbalances outside of housing coming into this slowdown is helpful. There’s a little sign of incipient optimism on the productivity outlook or maybe a little less pessimism that we’re in a much slower structural productivity growth outlook than before. The market is building an expectation for housing prices that is very, very steep. That could be a source of darkness or strength, but some people are starting to call the bottom ahead, and that’s the first time. It has been a long time since we’ve seen any sense that maybe the turn is ahead. It seems unlikely, but maybe they’re right. In the financial markets, I think it is true that there is some sign that the process of repair is starting. Having said that, though, I think it is quite dark still out there…. Like everyone else, we have revised down our growth forecast. We expect very little growth, if any, in the first half of the year before policy starts to bring growth back up to potential....

What was he looking at in January 2008 to say that? READ MORE

Was it Larry Meyer or somebody else who said that the Chicago turn in graduate macroeconomics in the 1980s had made him rich--by destroying the inflow into the profession of people competent to compete with him in the private-sector microeconomic forecasting business? A nice piece from Matthew Yglesias this morning:

Matthew Yglesias: Freshwater macroeconomics has failed the market test.:

One curiosity that economists seem too polite to note is that... 'freshwater' macroeconomics that focuses heavily on the idea of a "real" business cycle and disparages the notion of either fiscal or monetary stimulus... flopped in the marketplace... [but] lives, instead, sheltered from market forces at a variety of Midwestern nonprofit[s].... Stephen Williamson, a proponent of freshwater views, reminded me of this recently when he contended that macroeconomics is divided into schools of thought primarily because there's no money at stake. In financial economics, according to Williamson, "All the Wall Street people care about is making money, so good science gets rewarded." But in macroeconomics you have all kinds of political entrepreneurs looking for hucksters who'll back their theory....

It seems very important to freshwater types to contend that their saltwater antagonists aren't just mistaken or even stupid but actually fraudulent in their views (see Robert Lucas on 'schlock economics' or John Cochrane saying Robert Shiller is trying to take the science out of economics)... politically-motivated cheap talk....

Paul Krugman reminds me of Noah Smith in July 2012:

Noah Smith: Noahpinion: Inflation predictions are hard, especially about inflation:

Back in 2009 [John] Cochrane predicted inflation, it hasn't happened yet, and DeLong made fun of Cochrane for that fact. Cochrane... [responds] The inflation prediction was (and is) a statement about risks, not a time-specific forecast.... This is a very fair retort. Predictions are not necessarily forecasts...

Naughty, naughty Noah!

• Joe Weisenthal: Bersani's First Priority: Get Out Of The Austerity Cage: "Bersani… is… attempting to form a government… [and] has a good first priority: 'Michael McKee…. First priority: get out of "austerity cage."' The idea of loosening the austerity cage is growing a bit more popular in Europe. Yesterday Bloomberg reported that EU Commissioner Olli Rehn said it may be appropriate to loosen some deficit targets."

• Steve Benen: A tale of two falsehoods: "Education Secretary Arne Duncan and House Speaker John Boehner both… made claims that were not true…. Duncan acknowledged that he'd made a mistake, apologized, and set the record straight…. Boehner told NBC, "[T]here's no plan from Senate Democrats or the White House to replace the sequester." This, too, was fact-checked and also proven to be incorrect…. Boehner's office actually doubled-down on the lie, saying the falsehood is true if Republicans are allowed to change the meaning of basic words [like 'plan' and 'replace']"

• Timothy Burke: The reality of MOOCs is something hypesters remain defiantly unacquainted with: "Digitization in higher education has already often been a powerful, transformative force…. MOOCs… may pretty much kill off preceding forms of for-profit online education, most of which make even the most half-assed MOOC look good by comparison…. MOOCs do their business out in the open…. The University of Phoenix and its ilk made it impossible for to see who was teaching, what their qualifications or skill as a teacher might be, or what a class was like until you were signed on as a paying customer…. [E]ven if they don’t succeed in being either the magic edu-topia or devilish capitalist plot… they… [bring] academics into contact with a wider range of the public… [like] Wikipedia, digital culture, crowdsourcing and so on…. MOOCs aren’t the best or most generative way I can think of to open classrooms and subject expertise to different kinds of feedback and pressure, but they are A way for that to happen. Yes, that means that Thomas Friedman’s latest blandulations have some validity to them, but roughly for the same reason that it’s possible to think that an astrological forecast has some truth in it: throw enough conventional wisdom and irrefutable fortune-cookie sloganeering at the wall and some of it’s bound to stick."

I see that over at Naked Capitalism, the commenters are talking about John N. Grey, whose try for the Stupidest Man Alive prize was his statement that:

Financial markets are moved by contagion and hysteria. Mesmer and Charcot are better guides to the new economy than Hayek or Keynes...

I very much doubt that John N. Gray has ever read a word written by John Maynard Keynes. But it is never too late!

So it is time to once again, give the mike to John Maynard Keynes, and reprint the excellent Chapter 12, "The State of Long-Term Expectation" from The General Theory of Employment, Interest and Money:

WE have seen in the previous chapter that the scale of investment depends on the relation between the rate of interest and the schedule of the marginal efficiency of capital corresponding to different scales of current investment, whilst the marginal efficiency of capital depends on the relation between the supply price of a capital-asset and its prospective yield. In this chapter we shall consider in more detail some of the factors which determine the prospective yield of an asset.

The considerations upon which expectations of prospective yields are based are partly existing facts... partly future events which can only be forecasted... future changes in the type and quantity of the stock of capital-assets and in the tastes of the consumer, the strength of effective demand from time to time during the life of the investment under consideration, and the changes in the wage-unit in terms of money.... We may sum [these] up... as being the state of long-term expectation....

It would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain.... For this reason the facts of the existing situation enter, in a sense disproportionately, into the formation of our long-term expectations; our usual practice being to take the existing situation and to project it into the future, modified only to the extent that we have more or less definite reasons for expecting a change....

The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention. But economists have not analysed it carefully.... Our conclusions must mainly depend upon the actual observation of markets and business psychology.... The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing; or even five years hence. In fact, those who seriously attempt to make any such estimate are often so much in the minority that their behaviour does not govern the market....

Worth Reading:

• Kate Mackenzie: Tackling the two-headed monster of efficient markets theory and the principal-agent problem

• Jonathan Portes Writes to the Financial Times About All the Very Serious People Who Are Ruining Europe

• Rajiv Sethi: Remembering Albert Hirschman

• Mark Carney: "From our perspective, thresholds exhaust the guidance options available to a central bank operating under flexible inflation targeting. If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP (NGDP)-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting. This is because doing so would add 'history dependence' to monetary policy. Under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses on the path of nominal GDP…"

• Peter Orszag: Fiscal Cliff May Unbuild America

A "box" that is three pages of small print long, mind you…

The authors of this box are Olivier Blanchard and Daniel Leigh:

Box 1.1. are We Underestimating Short-term Fiscal Multipliers? With many economies in fiscal consolidation mode, a debate has been raging about the size of fiscal multipliers. The smaller the multipliers, the less costly the fiscal consolidation. At the same time, activity has disappointed in a number of economies undertaking fiscal consolidation. So a natural question is whether the negative short-term effects of fiscal cutbacks have been larger than expected because fiscal multipliers were underestimated.

This box sheds light on these issues using international evidence. The main finding, based on data for 28 economies, is that the multipliers used in generating [IMF] growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.