Grasping Reality on TypePad, by Brad DeLong

• How did "Evangelicals" miss the memo that God saves you later only if you save the image of God in your neighbor today?.... It's not the white working class who have been totally grifted by Trump—it's those who call themselves "Evangelicals":
   

Hoisted from 2012: Brad DeLong: Why Next to No Political Reaction to the Second Gilded Age?: Oh dear, that's a really tough question. So let me make it tougher by sharpening it and give it historical context. During the Gilded Age of the 1890s and 1900s you had strong political movements saying "something is going remarkably wrong with this, this isn’t the country we thought we were going to live in". The way that the historian—I'm blanking—Ray Ginger? Harley Shaiken: Yes, Ray Ginger. Brad DeLong: Ray Ginger put it in two absolutely brilliant books—Altgeld’s America and The Age of Excess—even the Republicans thought that they wanted to live in Abe Lincoln’s America, where when you are young you split wood into fence rails and go to law school at night and when you are middle-aged you become a lawyer and get rich and when you are old you enter politics and save the Union and free the slaves. They wanted to live in that kind of world, of upward mobility, in which opportunity is wide open even to the son of a penniless and not very successful rural farmer. But by 1890 they discovered that they weren’t living in Abe Lincoln's America at all...

Ah, yes. There is a distinct asymmetry between economists who are Democrats and economists who are Republicans: Saddest of all were Ron McKinnon and Jagdish Bhagwati...: Paul Krugman: "Thinking about Trump's attempt to bully the Fed, I found myself remembering the open letter by a who's who of conservative economists (plus some 'economists') accusing Ben Bernanke of 'currency debasement'. Four years later, Bloomberg went to ask signatories why they were wrong; none of them—not one—would admit having been wrong..."

Douglas Holtz-Eakin, on November 24, 2010, trying to claim that the letter was not the partisan political attack that it was:

The letter... does not say... anything...that might be genuinely politicizing the Fed.... [T]he issue became “political” the moment that the QE II defenders asserted that it was a political attack. It is disappointing that when presented with a serious critique by academics, think tank analysts, and market participants the immediate response is “it must be a conservative attack on the Fed.” Note that implicitly this also carries the message: “I’d never consider that conservatives have ideas or that I might learn something from them.” So sad...

Immediately pre-undermined by Kevin Hassett the day before:

I see this argument a bunch of places. Here it is from the sharp Felix Salmon. But I think it is wrong: Felix Salmon: Why the Fed Was Right to Hike: "When interest rates stay very low for an extended period of time, that has the effect of creating asset bubbles like the credit and housing boom of the mid-2000s.... If your stocks, bonds and real estate holdings were worth the same today, relative to GDP, that they were worth in 1995, they would have to crash in value by 33%, or $43 trillion. That's more than enough to trigger another financial crisis...

Note to Self: America's equities are worth 20% less than they were worth three months ago. Needless to say, the only change in fundamentals between then and now is... that now investors in the stock market are no longer as optimistic or risk tolerant. Risk-free rates going forward are the same. Expected future productivity levels are the same. The curvature of individuals' utility functions as their wealth increase is the same...

Let me hammer this point again: the failure of any of Barro, Bhagwati, Boskin, Calomiris, Cogan, Holtz-Eakin, Hubbard, Lazear, Lindsey, Mankiw, Rosen, Shultz, Taylor, and a hundred-odd others to write about—or even express curiosity about why—their confident predictions of a year ago that the Trump-McConnell-Ryan corporate tax cut would generate a huge investment boom—that silence speaks very loudly about the genre in which they viewed their forecasts back at the time:

A year ago there were a substantial number of economists who were assuring us that the Trump-McConnell-Ryan corporate tax cut was not just a giveaway to rich stockholders but would provide a sustained and substantial boost to investment in America that would boost productivity by:

• Barro, Boskin, Cogan, Holtz-Eakin, Hubbard, Lindsey, Rosen, Shultz, and Taylor said "3% to 4%... if achieved over a decade, the... increase in... annual... growth would be about 0.4%..."

• Hubbard, Lindsay, Holtz-Eakin, and a fourth (who is either Lazear or Mankiw) said, according to Sen Susan Collins (R-ME), by enough to raise tax collections enough to keep the deficit from going up by much.

• Miller, Calomiris, Bhagwati, and a hundred-odd others said by enough to raise tax collections enough to keep the deficit from going up at all—and boost annual growth by 0.4%.

• Barro, endorsed by Boskin, doubling down and claiming not 4% but 7% as the long-run boost to productivity and prosperity—and boost annual growth by 0.4%.

And Kevin Hassett and Greg Mankiw told us that these productivity gains would primarily boost wages not profits—because the relevant model was not one in which the tax cut raised after tax profit and interest rates but rather one in which foreigners would flood America with savings, lending to and investing in this country on a large scale to finance the bulk of this surge and investment.

I was profoundly embarrassed by and ashamed of the Swedish Nobel Committee and of being an economist when they awarded the Nobel Prize to Eugene Fama.

You see, the economists who cheerled for the Trump-McConnell-Ryan tax cut and claimed it would rapidly and permanently boost annual investment in America by 800 billion had arguments—bad arguments. The economists who condemned Benanke's quantitative easing and claimed it would soon lead to high inflation and a debased dollar had arguments—bad arguments. I do not think any of them made those bad arguments in good faith: the failure of those in either group to acknowledge that they got a big one wrong and to engage in Bayeisan updating is interesting: that silence speaks volumes.

But Fama and the others who claimed a decade ago that, while private decision to spend more boosted employment and production, public decisions to spend more—fiscal stimulus—not only would not, but could not possibly ever boost employment and production... they had no argument at all.

What do I mean? This. This is why I am embarrassed and ashamed: Hoisted from Ten Years Ago: Fama's Fallacy, Take I: Eugene Fama Rederives the "Treasury View": A Guestpost from Montagu Norman, former Governor of the Bank of England:

Today: The dirty little secret is that serious legal arguments are those that lawyers pretend to take seriously. If enough Republican hacks decide to pretend that Judge Reed O'Connor is serious, he becomes serious. My forecast? The Fifth Circuit narrowly upholds O'Connor, and then it goes down 8-1 in the Supreme Court—unless one of the Democratic justices dies or retires before the decision is announced, it which case O'Connor is upheld 5-3.

Jack Balkin wants to maintain two positions at once:

1. "The lesson of Sebelius is that if you give enough very smart lawyers enough time to work on a legal problem, they can come up with creditable arguments for many (but not all) legal positions, even if, when the task started, the position seemed hopeless..."

2. "I am most certainly not saying that legal argument and legal craft are mere disguises for political ideology or that they have no independent significance. I have been trained as a lawyer and I express opinions about the quality of legal arguments all the time. It is my job to do so. Thus, whether lawyers are willing to support a given claim depends on their perception of the quality of the legal reasoning and the quality of the legal arguments that can be advanced for it..."

But the second means almost nothing if "creditable" arguments can be constructed for nearly everything, and the task of law professors is then to retrospectively justify whatever the judges pick. The first means little if the legal community does have strong standards for what is a strong argument. How to resolve this? By noting that whatever gets five votes on the Supreme Court is retrospectively turned into the strongest arguments. And Supreme Court justices are very good at convincing themselves that what upholds their ideology and partisan position is in fact the best-argued and best-crafted.

Jack Balkin: Texas v. U.S: Off the Wall and On the Wall in the Age of Trump: "The judge's arguments are not even close to being persuasive given existing legal precedents. Does that mean that the position is 'off-the-wall'?... Asking whether a legal claim is 'off-the-wall' is a question of whether it is a reasonable claim, or at least one on which reasonable minds can differ.... But the perceived quality of legal reasoning and legal arguments are not exogenous from social influence...

Attempting to pass the crown of Chief Neoliberal Shill on to me, Noah Smith has an excellent Twitter thread that cites me: Noah Smith: "Here is a thread about neoliberalism. At the beginning of this year I was elected "Chief Neoliberal Shill", but the true Chief Neoliberal Shill has always been Brad @delong. In 1999, he wrote the following neoliberal manifesto: https://t.co/QQCBFHjgYR. DeLong's case for neoliberalism is basically: It's not about YOU, rich-country person. It's about people in poor countries. Neoliberalism, he says, is the best (only?) way for the world to recover from the inequalities generated by colonialism and unequal industrialization.... Obviously, lots of people toss around the word 'neoliberalism', using it to mean anything from Obama-style centrism to Ayn Rand-style feudalist libertarianism. But I like DeLong's version best. Neoliberalism as the most expeditious antidote to colonialism.

The "neoliberalism" I was talking about then is a relatively distant cousin (but was a cousin) of what people are calling "neoliberalism" today...

And Miniver Cheevy has formatted my argument of 1999:

Miniver Cheevy: : DeLong's Principles Of Neoliberalism: "Neoliberalism is many things. It is:

• a counsel of despair with respect to the possibility of social democracy today (outside of the global economy’s industrial core).
• a counsel of hope with respect to the prospects for rapid market-generated economic development outside the global economy’s industrial core—if governments adopt market-conforming policies.
• a bet that improvements in transportation and communication—the shrinking world—“globalization”—gives us today an extraordinary opportunity to rapidly reduce global inequality by incorporating more and more people and more and more more regions into the global economy.
• the only live utopian program in the world today...

Time has passed: a year's worth of water under the bridge. But I have not become less angry at and disappointed with how the Republican economists behaved in what my Project Syndicate editors call the Great American Tax Heist of last December:

Live at Project Syndicate: The Great American Tax Heist Turns One: Last December, Republicans relied on the support of conservative economists who predicted that the party's corporate tax cuts would boost productivity and investment in the United States substantially. The forecasts were wrong, and the silence of those who made them suggests that they knew it all along....

Critics of the “Tax Cuts and Jobs Act” described it as a cynical handout for wealthy shareholders. But a substantial number of economists came out in support of it.... One prominent group, most of whom served in previous Republican administrations, predicted in The Wall Street Journal that the tax cuts would boost long-run GDP by 3-4%, with an “associated increase” of about 0.4% “in the annual rate of GDP growth” over the next decade. And in an open letter to Congress, a coterie of over 100 economists asserted that “the macroeconomic feedback generated by the [tax cuts]” would be “more than enough to compensate for the static revenue loss,” implying that the bill would be deficit-neutral over time... Read MOAR at Project Syndicate

We expect that this will take you 90 minutes—but we will not kick you out after that time span... Open book, open devices, open internet—everything except conversing interactively with another Turing-Class entity... Do your work in your bluebook... Be calm: from your performance in the course so far, we are confident that you have (largely) got this...

Good luck!

Write your name, your section number, and your section leader on the front and at the top of the first page of your bluebook.

Make the first page of your bluebook an answer page for parts A and B so that we can quickly grade the exam—on that page write "A1:", "A2:", "A3:...", etc., and "B1:", "B2:", "B3:", etc., on successive rows of the page, and then write the answer you pick or the quantity you calculate next to each label...

Solow Growth Model

We have the Solow Growth Model (SGM) system of equations:

$ \frac{d\left(L_t\right)}{dt} = nL_t $ :: labor-force growth equation
$ \frac{d\left(E_t\right)}{dt} = gE_t $ :: efficiency-of-labor growth equation
$ \frac{d\left(K_t\right)}{dt} = sY_t - \delta{K_t} $ :: capital-stock growth equation
$ Y_t = \left(K_t\right)^{\alpha}\left(L_tE_t\right)^{1-\alpha} $ :: production function

Here is one difference between a Clinton Administration and a Trump Administration. The Clinton administration of 1993-2001 sold its 1993 deficit-reduction reconciliation bill as a phased-in five-year plan to boost American economic growth and American incomes. By raising taxes and by cutting government spending relative to the then-projected baseline—half of the cuts coming from the military, half of the cuts coming from the social insurance programs—Clinton sought to redirect 1%-point of GDP's worth of funds each year for five consecutive years from funding the government debt to funding productive private investment.

Over the five years as the program was being phased in, this boost in investment was projected by the administration—i.e., by me and others—to be a supply-side economic stimulus raising the rate of growth of potential output and boosting the rate of economic growth and thus of American incomes by 0.2%-points per year. Thereafter, once it was fully phased in, the program was projected by the administration—i.e., by me and others—to boost investment relative to the baseline by 4%-points of national product and so boost the rate of potential output growth and thus of American incomes relative to bas3eline by 0.4%-points per year. The program was supposed to make the U.S. 1% richer after 5 years; 3% richer after 10 years; 5% richer after 15 years, and so on.

It worked. Investment grew. Growth accelerated. Income rose relative to the baseline.

Hoisted from the Archives: How an Economy Can Live Beyond Its Means on Its Wits: P.J. Grigg attacking John Maynard Keynes:

I distrust utterly those economists who have with great but deplorable ingenuity taught that it is not only possible but praiseworthy for a whole country to live beyond its mens on its wits and who, in Mr. Shaw's description, teach that it is possible to make a community rich by calling a penny tuppence—in short who have sought to make economics a vade mecum for political spivs...

Confront economists' theories of depressions and what (if anything) the government should do about them and you find yourself immediately confronted with what look to be at least seven different theories:

2018-12-08

We begin with Adam Tooze laying out the issues:

Adam Tooze: Italy: How Does the E.U. Think This Is Going to End?: "Over the past 10 years, Italy’s gross domestic product per capita has fallen... unique among large advanced economies...

...More than 32 percent of Italy’s young people are unemployed. The gloom, disappointment and frustration are undeniable. For the commission to declare that this is a time for austerity flies in the face of a reality that for many Italians is closer to a personal and national emergency....

The two parties that make up the current Italian government, the League and the Five Star Movement, were elected in March to address this crisis. The League is xenophobic; Five Star is erratic and zany. But the economic programs on which they campaigned are hardly outlandish.... The Italian government’s budget forecasts are optimistic. But others, including the Bank of Italy and the Peterson Institute of International Economics, warn that Italy is caught in a trap: Anxieties about debt sustainability mean that any stimulus has the perverse effect of driving up interest rates, squeezing bank lending and reducing growth...

What would have to be the case for a stimulus to have this perverse effect—to actually manage to not boost the economy but rather squeeze bank lending and reduce growth?

Our Filing System: The Basic IS Framework

Back in the late 1990s Paul Krugman concluded that workings of the macroeconomy had changed: that we had started to see The Return of Depression Economics https://books.google.com/books?isbn=039304839X. He was right. This meant that the economic analytical tools that had been forged in order to understand the Great Depression of the 1930s had become the right place to start any analysis of what was going on in the business cycle. And so it has proven to be for the past twenty years,

Therefore we start with John Hick's 1937 IS-Equation, from his article "Mr. Keynes and the 'Classics': A Suggested Interpretation" https://tinyurl.com/20181208a-delong. The variable we place on the left-hand side is aggregate demand AD. The variable we place on the right-hand side is the long-term risky real interest rate r. In between are a large host of parameters drawn from the macroeconomy's behavioral relationships and from salient features of the macroeconomic environment and macroeconomic policy. We identity aggregate demand AD with national income and product Y, arguing that the inventory-adjustment mechanism will make the two equal at the macroeconomy's short-run sticky-price Keynesian equilibrium within a few quarters of a year.

Then we have not so much a model of the macroeconomy as a filing system for factors that we can and need to model, thus:

To simplify notation, we will typically use "$\Delta$" to stand for changes in economic quantities generated by shifts in the economic policy and in the economic environment, and we will drop terms that are zero.

Applying Our Filing System to Italy Today

For the problem of understanding Italy today, the pieces of this equation that matter are:

The change in national income and product ${\Delta}Y$ equals the change in aggregate demand ${\Delta}Y$ equals the sum of:

• the multiplier $\mu$ times the change in government purchases ${\Delta}G$
• the multiplier $\mu$ times the foreign propensity to purchase our exports $x_f$ times the change in exchange speculator optimism or pessimism about the long-run soundness of the currency ${\Delta}{\epsilon}_o$
• the multiplier $\mu$ times the foreign propensity to purchase our exports $x_f$ times the sensitivity of the exchange rate to interest rates ${\epsilon}_r$ times the change in the interest rate in the rest of the eurozone ${\Delta}r^f$
• the multiplier $\mu$ times the sum of the interest sensitivity of investment $I_r$ plus the product of the foreign propensity to purchase our exports $x_f$ and the sensitivity of the exchange rate to interest rates ${\epsilon}_r$ all times the change in the interest rate ${\Delta}r$

Now we need an extra equation: a country with a freely-floating exchange rate $\epsilon$:

the change in the exchange rate Δε is equal to the change in exchange speculator optimism or pessimism about the long-run soundness of the currency Δε_o minus the sensitivity of the exchange rate to interest rates ε_r all times the change in the interest rate Δr. But Italy does not have a freely-floating exchange rate: Italy is in the eurozone. So

$ {\Delta}{\epsilon} = 0 $

therefore:

And the rewritten relevant parts of the IS equation are:

$ {\Delta}Y = \mu{\Delta}G - \frac{{\mu}I_r}{\epsilon_r}\Delta\epsilon_o -{\mu}I_r{\Delta}r^f $

Thus the change ${\Delta}Y$ in national income and product that follows a fiscal expansion with higher government purchases ${\Delta}G$ will be positive as long as:

$ {\Delta}G > \frac{I_r}{\epsilon_r}\Delta\epsilon_o + I_r{\Delta}r^f $

The shift to more expansionary fiscal policy will indeed boost demand, production, and employment unless this equation fails to hold.

Conclusion

What conclusions can we draw from this equation?

First, we conclude that taking on unsustainable debt—or rather debt perceived as unsustainable—could indeed fail to boost demand, production, and employment if the reaction Δε_o to ΔG is too large. The natural thing, therefore, would be for the IMF and the European Union to step in with short-term support and guarantees to ensure that the market reaction Δε_o coupled with a longer-term structural adjustment program to guarantee that debt repayment will in fact take place.

Second, that the European Union—which controls Δr^f—could assist by switching to an easier money-tighter fiscal policy mix itself and so creating a negative value for Δr^f.

Why would the European Union want to assist in these ways? Well, it wants a prosperous Italy, doesn't it? And it wants an Italy that stays in the eurozone, doesn't it? why would the IMF want to assist in these ways? Well, that is its job, isn't it?

If the past ten years ought to have taught the Great and Good of Europe anything, it is that ensuring prosperity, growth, and high employmennt is job #1. Figuring out how to dot the financial i's and cross the financial t's is distinctly secondary. But, as Adam Tooze writes, instead the Great and Good of Europe seem to wish to "hold the line on debt and deficits" without offering anything "positive in exchange, such as a common European investment and growth strategy or a more cooperative approach to the refugee question". He calls this, with great understatement, "a high-risk and negative strategy".

I cannot see how anyone can disagree.

#highlighted #globalization #eurozone #monetarypolicy

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From a year ago. Not a transcript but much more what I wish I had said—that is, heavily edited and revised to increase clarity, decrease stupidity, and file a little bit of the ragged stream-of-consciousness rough edges off.

Nevertheless, holds up very nicely, no?

Needless to say, the backdrop here is not the view from the Berkeley Northgate TV studio:

but this is the view from the conference room in which I am holding pre-exam-week office hours:

Unfortunately, the view of the Golden Gate to the left of the frame is blocked by three tall pine trees that have no reason to live, and the peak of Mount Tamalpais is hidden by the salmon-and-white apartment building on the right.

People over the nexzt three months trying to decide between jobs at Berkeley and at universities with larger endowments take norte..

How Powell May Approach Regulation If Named Fed Chair: From 2017-11-01: Anchor: Do you think that's concerning or do you think it's refreshing that Powell comes from the private sector?

As Paul Krugman says at every opportunity, if you knew nothing of macro after 1975—if you were just armed with sticky-price IS-LM—you would have done an excellent job at understanding the U.S. economy since 2008. I want to point out that this holds true for more than the past ten years: this holds true for the past thirty years as well:

Business Investment, Residential Construction, Government Purchases, Exports

All as Shares of Nominal Potential GDP

All as Percentage-Point Deviations from 2007QI Values...

Blum Center: Why did you decide to become an economist?: I would say that it was a long, slow process. As I look back, some milestones stand out:

• Back when I was a child, my best friend Michael Froomkin’s father Joseph Froomkin was an economist—he always seemed to have very interesting and smart things to say that came at the world from a different and very insightful perspective than others.
• When I was 12, I think, at the American Academy of Arts and Sciences meeting I got to spend a day playing with the “World Dynamics” global economic-ecological model. The model, I now think, was very wrong—we are certainly not on any of the trajectories it forecast. But the idea that you could do such a thing was very interesting.
• When 1982 came around and I graduated from college, the unemployment rate was heading for 11%: my classmates weren’t having as easy a time getting jobs, and so staying in school seemed attractive.
• Becoming a lawyer seemed to involve too much proofreading of documents, becoming a lab scientist seemed to involve too much moving of small volumes of liquid from one test tube to another...

Contra Tim Duy, The Lack of Federal Reserve Maneuvering Room Is Very Worrisome...

This, by the every sharp Tim Duy, strikes me as simply wrong: Contrary to what he says, the Fed has room to combat the next crisis only if the next crisis is not really a crisis, but only a small liquidity hiccup in the financial markets. Anything bigger, and the Federal Reserve will be helpless, and hapless.

Look at the track of the interest rate the Federal Reserve controls—the short safe nominal interest rate:

In the past third of a century, by my count the Federal Reserve has decided six times that it needs to reduce interest rates in order to raise asset prices and try to lift contractionary pressure off of the economy—that is, once every five and a half years. Call these: 1985, 1987, 1991, 1998, 2000, and 2007.

A short version of my review of Adam Tooze's excellent Crashed: How a Decade of Financial Crises Changed the World: No Longer Fresh at Project Syndicate: Blame the Economists?: Ever since the 2008 financial crash and subsequent Great Recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure: BERKELEY—Now that we are witnessing what looks like the historic decline of the West, it is worth asking what role economists might have played in the disasters of the past decade. From the end of World War II until 2007, Western political leaders at least acted as if they were interested in achieving full employment, price stability, an acceptably fair distribution of income and wealth, and an open international order in which all countries would benefit from trade and finance. True, these goals were always in tension, such that we sometimes put growth incentives before income equality, and openness before the interests of specific workers or industries. Nevertheless, the general thrust of policymaking was toward all four objectives. Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar... Read MOAR at Project Syndicate

Comment of the Day: in response to Brad DeLong: On Twitter: For whom was the decline and fall of the western Roman Empire that commenced with the Antonine Plague a decline https://t.co/FdZeNjvtCr: Carlos Noreña: @carlosfnorena: "Yes, bad for all of those sectors, and devastating in systemic terms for this large-scale political economy. I also agree with Jongman that what he calls the "resilience" of the Roman central state was remarkable..." I respond: Perhaps my problem is that I am too much a Malthusian-Ricardian to see history straight, but...

Review of Capitalism in America: A History by Alan Greenspan and Adrian Wooldridge: The world as a whole is much richer than it was three centuries ago. And the United States of America is the richest land of all. For nearly two centuries its unique dynamic of economic growth has made America, as Leon Trotsky put it after his brief residence in New York, “the furnace where the future is being forged.” Alan Greenspan and Adrian Wooldridge’s “Capitalism in America: A History” argues that it is the American love and embrace of capitalism, the resulting entrepreneurial business culture, and the creative destruction inherent in the capitalist-market system that have given America its special, unique edge in economic wealth. In America, successful entrepreneurs, innovators, organizers and promoters have become not just well-off but heroes.... While it is no surprise that Greenspan and Wooldridge have produced this book, they are, I think, broadly correct in their argument... Read MOAR at the Washington Post

I believe that there are four issues in this Summers-Krugman-Rogoff-Blanchard et al.-DeLong internet discussion of three years ago:

1. As far as we economists are concerned, are our models analysis pumps, or are they merely filing systems to remind us of experiential wisdom? In other words: Are our models to be taken seriously when they lead us to a conclusion that the great and good believe is unserious?

2. Do economies with exorbitant privilege in which the key leveraged financial institutions have little foreign-currency debt need to fear banking and government solvency crises?

3. Can economies with exorbitant privilege in which the key leveraged financial institutions have little foreign-currency debt rely on their abilty to print their way to liquidity in an emergency and on market participants' recognition of that ability?

4. Can economists build models and conduct analyses assuming that business expectations are reasonable things, and will not push the economy to a position that is not close to a self-consistent near rational expectations equilibrium?

As near as I can see:

1. Larry Summers says: filing systems, yes, no, no.
2. Paul Krugman says: analysis pumps, no, yes, yes.
3. I say" both, no, yes, no.

I think I should, sometime over the past three years, have written a really good piece about these questions based on the ten items below. But I regret that I have not:

Was the Great Recession More Damaging Than the Great Depression?: ...Your parents’—more likely your grandparents’—Great Depression opened with the then-biggest-ever stock market crash, continued with the largest-ever sustained decline in GDP, and ended with a near-decade of subnormal production and employment. Yet 11 years after the 1929 crash, national income per worker was 10 percent above its 1929 level. The next year, 12 years after, it was 28 percent above its 1929 level. The economy had fully recovered. And then came the boom of World War II, followed by the “thirty glorious years” of post-World War II prosperity. The Great Depression was a nightmare. But the economy then woke up—and it was not haunted thereafter.

Our “Great Recession” opened in 2007 with what appeared to be a containable financial crisis. The economy subsequently danced on a knife-edge of instability for a year. Then came the crash — in stock market values, employment and GDP. The experience of the Great Depression, however, gave policymakers the knowledge and running room to keep our depression-in-the-making an order of magnitude less severe than the Great Depression. That’s all true. But it’s not the whole story. The Great Recession has cast a very large shadow on America’s future prosperity. We are still haunted by it... Read MOAR at Project Syndicate

Fresh at Project Syndicate: Blame the Economists?: Ever since the 2008 financial crash and subsequent Great Recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure: BERKELEY—Now that we are witnessing what looks like the historic decline of the West, it is worth asking what role economists might have played in the disasters of the past decade. From the end of World War II until 2007, Western political leaders at least acted as if they were interested in achieving full employment, price stability, an acceptably fair distribution of income and wealth, and an open international order in which all countries would benefit from trade and finance. True, these goals were always in tension, such that we sometimes put growth incentives before income equality, and openness before the interests of specific workers or industries. Nevertheless, the general thrust of policymaking was toward all four objectives. Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar... Read MOAR at Project Syndicate

#projectsyndicate #economicsgonewrong #economicsgoneright #monetarypolicy #finance #politicaleconomy

nbviewer: http://nbviewer.jupyter.org/github/braddelong/LSF18E101B/blob/master/Introducing_the_Sticky-Price_Model.ipynb
keynote: https://www.icloud.com/keynote/0qRLX6e9_4BiKw0vSfHxb9B7w

#MRE #Macro #flexprice 

nbviewer: http://nbviewer.jupyter.org/github/braddelong/LSF18E101B/blob/master/Equilibrium_in_the_Flexprice_Model.ipynb
keynote: https://www.icloud.com/keynote/0eT-yTiDbnFJG75PcmVtFrsRg
keynote: https://www.icloud.com/keynote/0qCkpCxn5-A4wblAeoqJj7-GQ

#MRE #Macro #flexprice 

Slides, and slides and text...

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keynote: https://www.icloud.com/keynote/0qPkVy4AgrnNRIMq3I7HCoN-w

Author: Sigh Yet More Cleaning Up After the Cockroaches: Archive Entry From Brad DeLong's Webjournal: "A normal person, reading Jonathan Weisman in the Washington Post on June 8, would conclude (i) that Steven Moore is an economist, and (ii) that Kevin Hassett, Eric Engen, Glenn Hubbard, Greg Mankiw, and many other economists are 'reevaluating' the view that budget deficits are a significant minus for the economy, believe that 'the argument against deficits is more about self-righteous moralism than economics', and broadly agree with Richard Cheney's declaration that 'deficits don't matter'...

Monday Smackdown: What Tobin Harshaw of the New York Times claims he wants to be remembered for. From 2007. No quality control at the New York Times whatsoever. Let us take him at his word, and remember him for this:

Hoisted from 2007: As you may recall, last Friday there was a lot of discussion about revisions to the GISS global warming series of estimated average temperatures in the United States—a revision that changed the hottest year to date in the U.S. from 1998 (which in the old data was 1/100 of a degree hotter than 1934) to 1934 (which in the new data is 2/100 of a degree hotter than 1998) https://delong.typepad.com/sdj/2007/08/why-oh-why-ca-1.html. One surprising thing was that the New York Times's Opinionator weblog https://opinionator.blogs.nytimes.com/... went way overboard on the story:

Among global warming Cassandras, the fact that 1998 was the “hottest year on record” has always been an article of faith.... James Hansen, the climate scientist who has long accused the Bush administration of trying to “silence” him.... [A] Y2K bug played havoc with some of the numbers.... Michael Ashe... explains.... "The changes are truly astounding. The warmest year on record is now 1934. 1998 (long trumpeted by the media as recordbreaking) moves to second place.... [T]he effect on the U.S. global warming propaganda machine could be huge...

This surprised me: "effect... huge," "havoc," the scare quotes around "silence," "data meltdown," et cetera seemed very out of place for a three-one-hundredths of a degree shift--either complete mendacity or total innumeracy, or both.... The Opinionato... Tobin Harshaw, wh... [had] also served as an enthusiastic stenographer for last Friday's Stupidest Man Alive nominee, Tom Nugent of National Review, who slipped a decimal points and wrote a totally off-the-rails piece... overestimating how much money such a tax might raise by a factor of ten. It seemed that Harshaw had failed to do the slightest amount of quantitative due diligence on either story before he committed fingers to keyboard and thus electrons to the nöosphere.... So I called Toby Harshaw.... It seems to me that he and the New York Times have much bigger problems than simple innumeracy:

Brad DeLong: Good afternoon. I'm Brad DeLong, an economics professor calling from UC Berkeley. I read your Cassandra post about global warming data revisions, and had a couple of questions. Can you help me out?

Tobin Harshaw: Certainly.

Brad DeLong: Did you eyeball the data--either in a graph or a table--before you wrote your "Cassandra" post about GISS global warming data revisions?

Tobin Harshaw: Are you writing something about this?

Brad DeLong: I will be, yes.

Tobin Harshaw: Then no, I cannot speak to you. You will have to speak to our public relations department.

Brad DeLong: Why won't you talk to me?

Tobin Harshaw: Because I am not authorized to speak to the press.

Brad DeLong: Because?

Tobin Harshaw: Because that is our policy. Our policy is that editorial staff are not allowed to speak to the press.

Brad DeLong: Seriously? Why is that your policy?

Tobin Harshaw: I am not authorized.

As Published: Self-Fulfilling Financial Crises: Many mistaken assumptions about the 2008 financial crisis remain in circulation. As long as policymakers believe the crisis was rooted in the housing bubble rather than human psychology, another crisis will be inevitable. | My Earlier Draft: The 2008 financial crisis and subsequent recession left the Global North 10% poorer than it otherwise would have been, based on 2005 forecasts. For those hoping to understand this episode better, for a while now I have been recommending four very good books on and about the financial crisis of 2008 and what has followed—the catastrophes that have left the Global North 10% poorer now than we confidently forecasted back in 2005 that we would be today. They are:

1. Kindleberger's Manias, Panics, and Crashes https://books.google.com/books?isbn=0230365353,
2. Reinhart and Rogoff's This Time It's Different https://books.google.com/books?isbn=0691152640,
3. Martin Wolf's The Shifts and the Shocks https://books.google.com/books?isbn=1101608447, and
4. Barry Eichengreen's Hall of Mirrors https://books.google.com/books?isbn=0190621079.

Now I want to add on a fifth book: Nicola Gennaioli and Andrei Shleifer's A Crisis of Beliefs: Investor Psychology and Financial Fragility https://books.google.com/books?isbn=0691184925. (Full disclosure: Shleifer was my roommate in college and graduate school; to this day, I credit him more than anybody else with whatever positive skills or reputation as an economist I may have.)

No Longer Fresh at Project Syndicate: For Whom the Climate Bell Tolls: As I began my first lecture this fall here at the University of California at Berkeley, I immediately realized that I was too hot: I desperately wanted to take off my professorial tweed jacket.

A tweed jacket is, in many ways, a wonderful albeit peculiar costume. For one thing, it is the closest thing you can get to Gore-Tex if all you have for raw material is a sheep. Thus it is perfect for a cloudy climate with frequent fog and drizzle. For another, it is surprisingly warming—wet or dry—for its weight. Hence in the world as it was before central heating, it—and the rest of what we today think of male formal and semi-formal attire—were effective and comfortable garb in the Oxfords and Cambridges, in the Edinburghs and Londons, in the Bristols and Norwiches where they were originally devised.

Blame the British Empire for the spread of these garments around the globe.

Hoisted from the Archives (October 2008): The Wrong Financial Crisis: Catastrophic failures of risk management throughout the entire banking sector multiplied a relatively minor collapse in housing prices into a paralysis of the global finance system not seen since the Great Depression. To fix it, governments should embark on a coordinated fiscal and monetary expansion and a coordinated bank recapitalisation:

All of us from Lawrence Summers to John Taylor were expecting a very different financial crisis. We were expecting the ‘Balance of Financial Terror’ between Asia and America to collapse and produce chaos. We are not having that financial crisis. Instead we are having a very different financial crisis. Catastrophic failures of risk management throughout the entire banking sector caused a relatively minor collapse in housing prices to freeze up global finance to a degree that has not been seen since the Great Depression.

Next time I give a "general macro-finance" talk, I should give this one—updated, of course. But how much updating is needed>: “Unknown Unknowns”: High Public Debt Levels and Other Sources of Risk in Today’s Macroeconomic Environment (NEEDS REVISION) https://www.icloud.com/keynote/0_py01Y-ZrGddLKba8Rl2r9eQ

It's alternative title is: Confusion: High Public Debt Levels and Other Sources of Risk in Today’s Macroeconomic Environment:

Interesting from:

• Paul Krugman: Notes on Global Convergence https://twitter.com/delong/status/1053754235362275328
• Dev Patel, Justin Sandefur, and Arvind Subramanian: Everything You Know about Cross-Country Convergence Is (Now) Wrong
• Paul Johnson and Chris Papageorgiou: What Remains of Cross-Country Convergence?

Paul Krugman: Notes on Global Convergence: "I take a short break from our national crisis. Political anxiety will resume shortly.... In the 1970s... development economics... was mostly non-development economics...

...True, we were already seeing a growth takeoff in smaller East Asian economies, but few saw this as a trend.... Something happened.... It’s a good guess that it has something to do with hyperglobalization.... But we don’t really know even that.... At any given time, not all countries have that mysterious “IT” that lets them make effective use of the backlog of advanced technology developed since the Industrial Revolution. Over time, however, the set of countries that have IT seems to be widening. Once a country acquires IT growth can be rapid... because best practice is so far ahead.... The frontier keeps moving out.... Japan’s postwar growth was vastly faster... countries catching up... in the late 19th century; Korea’s growth... faster than Japan’s had been; China’s growth faster still. The IT theory also... explains... middle-income countries grow [ing]faster than either poor or rich countries. Countries that are still very poor... haven’t got IT; countries that are already rich are already at the technological frontier.... In between are countries that acquired IT not too long ago.... The result is a world in which inequality among countries is declining if you look from the middle upward, but rising if you look from the middle down.... a story of diminishing Western exceptionalism, as the club of countries that can take full advantage of modern technology expands...

Hmmm... One of us, probably me. seems confused...

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.

Macroeconomics: The Future https://www.icloud.com/keynote/0ysTdN41E5B7qCmwuB35WJtOQ 2018-10-19

1. Daniel Schneider and Kristen Harknett: Consequences of Routine Work Schedule Instability for Worker Health and Wellbeing: "The rise in precarious work has also involved a major shift in the temporal dimension of work, a fundamental and under-appreciated manifestation of the risk shift from firms... #labormarket #equitablegrowth

2. Is there any intellectual and moral crime against journalism a New York Times employee can commit that will get him bounced? It appears not: Tom Friedman: Saudi Arabia’s Arab Spring, at Last: "The most significant reform process underway anywhere in the Middle East today is in Saudi Arabia... its own Arab Spring... led from the top down by the country’s 32-year-old crown prince, Mohammed bin Salman.... If it succeeds, it will not only change the character of Saudi Arabia but the tone and tenor of Islam across the globe. Only a fool would predict its success—but only a fool would not root for it... #journamalism

3. Wikipedia: Aztec Myth: "Ometeotl gave birth to four children, the four Tezcatlipocas, who each preside over one of the four cardinal directions.[citation needed] Over the West presides the White Tezcatlipoca, Quetzalcoatl, the god of light, mercy and wind. Over the South presides the Blue Tezcatlipoca, Huitzilopochtli, the god of war. Over the East presides the Red Tezcatlipoca, Xipe Totec, the god of gold, farming and Spring time. And over the North presides the Black Tezcatlipoca, also called simply Tezcatlipoca, the god of judgment, night, deceit, sorcery and the Earth... #security

4. Lisa D. Cook is worried that the quantity of Big Data cannot compensate for its low quality. Statistics gives us lots of power with representative random samples. Nothing can give us power without the tools to do what representativeness does: Lisa D. Cook: @drlisadcook: "'Without taking data quality into account, population inferences with Big Data are subject to a Big Data Paradox... #statistics #riseoftherobots

5. Suresh Naidu, Eric A. Posner, and E. Glen Weyl: Antitrust Remedies for Labor Market Power: "Labor market power has contributed to wage inequality and economic stagnation... #monopoly

6. Vijay Govindarajan, Shivaram Rajgopal, and Anup Srivastava: Why We Need to Update Financial Reporting for the Digital Era: "The market caps of just four companies, Apple, Alphabet, Amazon, and Microsoft, now exceed $3 trillion... #finance

7. Scott Jaschik: Author discusses his new book on anti-intellectualism and fascism: "A country that is not fascist may still experience fascist politics... efforts to divide society and demonize groups.... How Fascism Works by Jason Stanley... #books #neofascism

8. Matt O'Brien: Inequality is worse than we know. The super-rich really do avoid a lot of taxes: "On the legal end of the spectrum... companies shift their profits to show up in low-tax jurisdictions.... According to Berkeley economist Gabriel Zucman and his co-researchers... as much as 40 percent of all multinational profits and 50 percent of U.S. ones... #inequality #equitablegrowth

9. A search model that (a) produces the right cyclical elasticity of wages but (b) does not produce the right cyclical volatility of employment has the wrong microfoundations. It is producing the right cyclical elasticity of wages because it is producing the wrong cyclical volatility of employment. Thus I think this approach is pretty much tapped out: Christopher A Pissarides: The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?: "An equilibrium search model... focus on the model’s failure to match the observed cyclical volatility of unemployment... #labormarket #monetaryeconomics

10. Martin Wolf: How To Avoid the Next Financial Crisis: "The proximate explanations for the huge shortfalls in output were collapses in investment.... This weak investment must also help explain low rates of innovation, which is particularly visible in directly-hit countries. New technology is often embodied in new equipment... #greatrecession #finance

11. I endorse Steve Teles here—except that I have a hard time calling any book that I learned as much as I learned from MacLean's Democracy in Chains "very poor". MacLean should engage Teles and Farrell on the merits. And she can: When Farrell and Teles rule out-of-order James Buchanan's memos on the grounds that "correspondence with... donors... is inherently problematic... as a guide to underlying intent..." they are guilty of strongly motivated reasoning. Perhaps your claims to donors that you are in the business of trying to create an ideological, extremist, and partisan movement to roll back the New Deal and destroy the "Labor Monopoly Movement" are "problematic". Perhaps your claims to liberal scholars that you are in the business of honest intellectual inquiry are "problematic". MacLean ignores the second. Teles and Farrell ignore the first. IMHO, MacLean is closer to right on this point. But MacLean's unwillingness to engage the substance here and elsewhere is, I think, characterized as simply stupid at best: Steve Teles: A Response to Nancy MacLean: "Wearing my scholar’s hat, I came to the same impression as Professors Berman, Farrell and Burns—that Prof. MacLean had written a very poor piece of scholarship... #publicchoice

12. Economic agents as harried triage nurses grabbing for an immediate diagnosis from the salient features of the case in front of them; Nicola Gennaioli and Andrei Shleifer: Diagnostic Expectations: "Diagnostic expectations are represented by a linear combination of the rational expectations of 𝜔_𝑡+1 held at 𝑡 and at 𝑡 − 1.... It is not that decision-makers compute rational expectations and combine them.... Rather, oversampling representative future states yields the linear combination in (4). This formula reflects a “kernel of truth” logic: diagnostic expectations differ from rational expectations by a shift in the direction of the information received at 𝑡, given by [𝔼𝑡(𝜔𝑡+1) − 𝔼𝑡−1(𝜔𝑡+1)]... #expectations #economicsgoneright

13. It is not going to happen. The throne is not going to be kept warm. The American century-and-a-half of potential and century of actual global diplomatic preeminence is over. The question is whether there will be no hegemony, a Chinese hegemony, or an inner alliance of western Europe plus Canada, Japan, and Australia that set the pace: Dan Froomkin: Daalder and Lindsay Say: U.S. Allies Should Keep The Global Leadership 'Throne' Warm For Trump's Successor: "Ivo H. Daalder, who served as Barack Obama’s ambassador to NATO, and James M. Lindsay, a senior vice president of the Council on Foreign Relations, are out with a new book: The Empty Throne: America’s Abdication of Global Leadership. They outline their plan for an interregnum in a companion piece entitled The Committee to Save the World Order published by Foreign Affairs... #security

Wikipedia claims of Alfred Nobel: "“After reading a premature obituary which condemned him for profiting from the sales of arms, he bequeathed his fortune to institute the Nobel Prizes…” 7lt;— Story too good to check!

https://www.icloud.com/keynote/0-NNOL90b0OPNJ05uisAMQPBw