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Contra Raghu Rajan: Economic Stimulus Has Not Failed, It Has Not Been Tried (on a Large Enough Scale)

Hoisted from the Archives from 2013: Contra Raghu Rajan: Economic Stimulus Has Not Failed, It Has Not Been Tried (on a Large Enough Scale): "Back in 2007 I would have said that every macroeconomist who has done any homework at all believes that coordinated monetary and fiscal expansion together increase at least the flow of nominal GDP. Now comes the very smart Raghu Rajan to say, apparently, not so.... From my perspective... Raghu is... saying that if we were to undertake more aggressive coordinated monetary and fiscal expansion we would hit the inflation wall sooner than I think likely--that the difficulties of retraining and readjustment mean that the division of the increase in the flow of spending would soon shift to 100% inflation, 0% extra production. Perhaps it will. But we have not gotten there yet. We are still in a world where the flow of nominal GDP in the North Atlantic is some six percentage points below its pre-2008 trend. Fix that trend of nominal GDP first via coordinated monetary and fiscal expansion, and then we will examine the division at the margin of PY into P and Y, and talk…...

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Orlando Letelier (1976): The ‘Chicago Boys’ in Chile: Economic Freedom’s Awful Toll: Hoisted from the Archives

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Orlando Letelier (1976): The ‘Chicago Boys’ in Chile: Economic Freedom’s Awful Toll: 'It would seem to be a common-sensical sort of observation that economic policies are conditioned by and at the same time modify the social and political situation where they are put into practice. Economic policies, therefore, are introduced in order to alter social structures. If I dwell on these considerations, therefore, it is because the necessary connection between economic policy and its sociopolitical setting appears to be absent from many analyses of the current situation in Chile. To put it briefly, the violation of human rights, the system of institutionalized brutality, the drastic control and suppression of every form of meaningful dissent is discussed (and often condemned) as a phenomenon only indirectly linked, or indeed entirely, unrelated, to the classical unrestrained “free market” policies that have been enforced by the military junta. This failure to connect has been particularly characteristic of private and public financial institutions, which have publicly praised and supported the economic policies adopted by the Pinochet government, while regretting the “bad international image” the junta has gained from its “incomprehensible” persistence in torturing, jailing and persecuting all its critics...

...A recent World Bank decision to grant a $33 million loan to the junta was justified by its President, Robert McNamara, as based on purely “technical” criteria, implying no particular relationship to the present political and social conditions in the country. The same line of justification has been followed by American private banks which, in the words of a spokesman for a business consulting firm, “have been falling all over one another to make loans.”

But probably no one has expressed this attitude better than the U.S. Secretary of the Treasury. After a visit to Chile, during which he discussed human rights violations by the military government, William Simon congratulated Pinochet for bringing “economic freedom” to the Chilean people. This particularly convenient concept of a social system in which “economic freedom” and political terror coexist without touching each other, allows these financial spokesmen to support their concept of “freedom” while exercising their verbal muscles in defense of human rights.

The usefulness of the distinction has been particularly appreciated by those who have generated the economic policies now being carried out in Chile. In Newsweek of June 14, Milton Friedman, who is the intellectual architect and unofficial adviser for the team of economists now running the Chilean economy, stated: “In spite of my profound disagreement with the authoritarian political system of Chile, I do not consider it as evil for an econ omist to render technical economic advice to the Chilean Government, any more than I would regard it as evil for a physician to give technical medical advice to the Chilean Government to help end a medical plague.”

It is curious that the man who wrote a book, Capitalism and Freedom, to drive home the argument that only classical economic liberalism can support political democracy can now so easily disentangle economics from politics when the economic theories he advocates coincide with an absolute restriction of every type of democratic freedom. One would logically expect that if those who curtail private enterprise are held responsible for the effects of their measures in the political sphere, those who impose unrestrained “economic freedom” would also be held responsible when the imposition of this policy is inevitably accompanied by massive repression, hunger, unemployment and the permanence of a brutal police state.

The Economic Prescription & Chile’s Reality: The economic plan now being carried out in Chile realizes an historic aspiration of a group of Chilean economists, most of them trained at Chicago University by Milton Friedman and Arnold Harberger. Deeply involved in the preparation of the coup, the “Chicago boys,” as they are known in Chile, convinced the generals that they were prepared to supplement the brutality, which the military possessed, with the intellectual assets it lacked.

The U.S. Senate Select Committee on Intelligence has disclosed that “CIA collaborators” helped plan the economic measures that Chile’s junta enacted imme diately after seizing power. Committee witnesses maintain that some of the “Chicago boys” received CIA funds for such research efforts as a 300-page economic blueprint that was given to military leaders before the coup. It is therefore understandable that after seizing power they were, as The Wall Street Journal put it, “champing to be unleashed” on the Chilean economy.

Their first approach to the situation was gradual; only after a year of relative confusion did they decide to implement without major modification the theoretical model they had been taught at Chicago. The occasion merited a visit to Chile by Mr. Friedman himself who, along with his associate, Professor Harberger, made a series of well-publicized appearances to promote a “shock treatment” for the Chilean economy—something that Friedman emphatically described as “the only medicine. Absolutely. There is no other. There is no other long-term solution.”

These are the basic principles of the economic model offered by Friedman and his followers and adopted by the Chilean junta: that the only possible framework for economic development is one within which the private sector can freely operate; that private enterprise is the most efficient form of economic organization and that, therefore, the private sector should be the predominant factor in the economy. Prices should fluctuate freely in accordance with the laws of competition. Inflation, the worst enemy of economic progress, is the direct result of monetary expansion and can be eliminated only by a drastic reduction of government spending.

Except in present-day Chile, no government in the world gives private enterprise an absolutely free hand. That is so because every economist (except Friedman and his followers) has known for decades that, in the real life of capitalism, there is no such thing as the perfect competition described by classical liberal economists. In March 1975, in Santiago, a newsman dared suggest to Friedman that even in more advanced capitalist countries, as for example the United States, the government applies various types of controls on the economy. Mr. Friedman answered: “I have always been against it, I don’t approve of them. I believe we should not apply them. I am against economic intervention by the government, in my own country, as well as in Chile or anywhere else.”

This is not the place to evaluate the general validity of the postulates advanced by Friedman and the Chicago School. I want to concentrate only on what happens when their model is applied to a country like Chile. Here Friedman’s theories are especially objectionable—from an economic as well as a moral point of view—because they propose a total free market policy in a framework of extreme inequality among the economic agents involved: inequality between monopolistic and small and medium entrepreneurs; inequality between the owners of capital and those who own only their capacity to work, etc. Similar situations would exist if the model were applied to any other underdeveloped, dependent economy.

It is preposterous to speak about free competition in Chile. The economy there is highly monopolized. An academic study, made during President Frei’s regime, pointed out that in 1966 “284 enterprises controlled each and every one of the subdivisions of Chilean economic activities. In the industrial sector, 144 enterprises con trolled each and every one of the subsectors. In turn, within each of ‘these 144 manufacturing enterprises which constituted the core of the industrial sector, a few shareholders controlled management: in more than 50 percent of the enterprises, the ten largest shareholders owned between 90 and 100 percent of the capital.”

On the other hand, studies also conducted during the pre-Allende period demonstrated the extent to which the Chilean economy has been dominated by foreign-based multinationals. As Barnet and Müller put it in Global Reach, “In pre-Allende Chile, 51 percent of the largest 160 firms were effectively controlled by global corporations. In each of the seven key industries of the economy one to three firms controlled at least 51 percent of the production. Of the top twenty-two global corporations operating in the country, nineteen either operated free of all competi tion or shared the market with other oligopolists.”

From 1971 to 1973, most of the monopolistic and oligopolistic industries were nationalized and transferred to the public sector. However, the zeal with which the military dictatorship has dismantled state participation in the economy and transferred industries to foreign ownership suggests that levels of concentration and mo nopolization are now at least as high as they were before the Popular Unity (Allende) Government.

An International Monetary Fund Report of May 1976 points out:

The process of returning to the private sector the vast majority of the enterprises which over the previous fifteen years, but especially in 1971-73, had become part of the public sector continued [during 1975]…. At the end of 1973 the Public Development Corpo ration (CORFO) had a total of 492 enterprises, includ ing eighteen commercial banks…. Of this total, 253 enterprises…have been returned to their former owners. Among the other 239 enterprises…104 (among them ten banks) have been sold; sixteen (including two banks) have already been adjudicated, with the completion of the transfer procedure being a matter of weeks; the sale of another twenty-one is being negotiated bilaterally with groups of potential buyers.

Competitive bidding is still to be solicited for the remaining enterprises. Ob viously the buyers are always a small number of powerful economic interests who have been adding these enter prises to the monopolistic or oligopolistic structures with in which they operate. At the same time, a considerable number of industries have been sold to transnational corporations, among them the national tire industry (INSA), bought by Firestone for an undisclosed sum, and one of the main paper pulp industries (Celulosa Forestal Arauco), bought by Parsons & Whittemore.

There are many other examples to show that, as far as competition goes, Mr. Friedman’s prescription does not yield the economic effects implicit in his theoretical model. In the first half of 1975, as part of the process of lifting regulations from the economy, the price of milk was exempted from control. With what result? The price to the consumer rose 40 percent and the price paid to the producer dropped 22 percent. There are more than 10,000 milk producers in Chile but only two milk processing companies, which control the market. More than 80 percent of Chilean paper production and all of certain types of paper come from one enterprise—the Compañia Manufacturera de Papeles y Cartones, controlled by the Alessandri interests—which establishes prices without fear of competition. More than fifteen foreign brands are offered in the Chilean home appliances market, but they are all in the hands of only three companies, which assemble them in Chile and determine their retail prices.

Of course, any of the followers of the Chicago School would say that, with the liberalization of the interna tional market, as prescribed by the model, Chilean monopolies and oligopolies would be exposed to competition from abroad. However, that does not happen. Chile so lacks foreign currency that it cannot import what it needs, of even the most essential goods. Still more important is the fact that foreign enterprises are not interested in sending to Chile goods which could compete with those, manufactured by their own Chilean subsidiaries. Besides, in Chile the economic interests which control the manu facturing industry also control the financial apparatus and import activities. These groups are not disposed to compete with themselves. In short, the application of Friedman’s theories to the real world of Chile means that the industrialists can freely “compete” at whatever price levels they choose.

Other aspects of the brand of economics taught at the University of Chicago are conveniently ignored by the junta’s economic advisers. One is the importance of wage contracts freely negotiated between employers and workers; another is the efficiency of the market as an instrument to allocate resources in the economy. It is sardonic to mention the right of the workers to negotiate in a country where the Central Workers’ Federation has been outlawed and where salaries are established by the junta’s decree. It may also seem grotesque to speak of the market as the most effective instrument for allocating resources when it is widely known that there are practi cally no productive investments in the economy because the most profitable “investment” is speculation. Under the slogan “We must create a capital market in Chile,” selected private groups enjoying the junta’s protection have been authorized to establish so-called “financieras,” which engaged in the most outrageous financial specula tions. Their abuses have been so flagrant that even Orlando Saez, former president of the Chilean Indus trialists’ Association and a staunch supporter of the coup, could not refrain from protesting. “It is not pos sible,” he said, “to continue with the financial chaos that dominates in Chile. It is necessary to channel into productive investments the millions and millions of finan cial resources that are now being used in wild-cat specu lative operations before the very eyes of those who don’t even have a job.”

But the crux of Friedman’s prescription, as the junta never ceases to emphasize, is control of inflation. It should, according to the junta, enlist “the vigorous efforts of all Chileans.” Professor Harberger declared categori cally in April 1975: “I can see no excuses for not stop ping inflation: its origins are well known; government deficits and monetary expansion have to be stopped. I know you are going to ask me about unemployment; if the government deficits were reduced by half, still the rate of unemployment would not increase more than 1 percent.” According to the junta’s official figures, between April and December 1975, the government deficit was reduced by approxi mately the 50 percent that Harberger recommended. In the same period, unemployment rose six times as much as he had predicted. The remedy he continues to advocate consists of reducing government spending, which will reduce the amount of currency in circulation. This will result in a contraction of demand, which in turn will bring about a general reduction of prices. Thus inflation would be defeated. Professor Harberger does not say explicitly who would have to lower their standard of living to bear the casts of the cure.

Without a doubt, excessive monetary expansion con stitutes an important inflationary factor in any economy. However, inflation in Chile (or any underdeveloped country) is a far more complex problem than the one presupposed by the mechanical models of the monetarist theorists. The followers of the Chicago School seem to forget, for example, that the monopolistic structure of the Chilean economy allows the dominant firms to maintain prices in the face of falling demand. They also forget the role that so-called inflationary expectations play in generating price increases. In Chile, inflationary expecta tions have lately been approximating 15 percent per month. Looking ahead, firms prepare for rising costs by raising their own prices. This continuous price “leap-frogging” feeds a general inflationary spiral. On the other hand, in such an inflationary climate, no one with liquid assets wants to hold them. Powerful interest groups, operating without government control, can thus manipulate the financial apparatus. They create institutions to absorb any available money and use it in various forms of speculation, which thrive on and propel inflation.

The Economic Results: Three years have passed since this experiment began in Chile and sufficient information is available to con clude that Friedman’s Chilean disciples failed—at least in their avowed and measurable objectives—and particu larly in their attempts .to control inflation. But they have succeeded, at least temporarily, in their broader purpose: to secure the economic and political power of a small dominant class by effecting a massive transfer of wealth from the lower and middle classes to a select group of monopolists and financial speculators.

The empirical proof of the economic failure is over whelming. On April 24, 1975, after the last known visit of Messrs. Friedman and Harberger to Chile, the junta’s Minister of Finance, Jorge Cauas, said: “The Hon. junta have asked me to formulate and carry out an economic program primarily directed to eradicate inflation. To gether with a numerous group of technicians, we have presented to the Chilean authorities a program of eco nomic revival which has been approved and is begin ning. The principal objective of this program is to stop inflation in the remainder of 1975.” (The “group of technicians” is obviously Friedman and company.)

By the end of 1975 Chile’s annual rate of inflation had reached 341 percent—that is, the highest rate of inflation in the world. Consumer prices increased that same year by an average 375 percent; wholesale prices rose by 440 percent. Analyzing the causes of Chilean inflation in 1975, a recent report of the International Monetary Fund (IMF) says: “The cutback in government spending, with its adverse effects on employment, in housing, and public works, went significantly further than programmed in order to accommodate the large credit demands of the private sector.” Later on it states:

Overall monetary management remained expansionary in 1975. Moreover, continued high inflationary expectations and the public’s attendant unwillingness to increase its real cash balances greatly complicated the implementation of the monetary program.

Referring to private organizations which have begun to operate without any control, the report adds that the “financieras” have been allowed to operate beside the commercial banking system and at interest rates up to 59 percent higher than the maximum permissible banking rate. According to the same source, the “financieras” were operating in 1975 at an interest rate of 14 percent a month, or 168 percent a year; they obtained loans in New York at 10 percent to 12 percent a year.

The implementation of the Chicago model has not achieved a significant reduction of monetary expansion. It has, however, brought about a merciless reduction of the income of wage earners and a dramatic increase in unemployment; at the same time it has increased the amount of currency in circulation by means of loans and transfers to big firms, and by granting to private financial institutions the power to create money. As James Petras, an American political scientist, puts it: “The very social classes on which the junta depends are the main instrumentalities of the inflation.”

Concentration of wealth is not the marginal outcome of a difficult situation, but the base for a social project. The inflationary process, which the junta’s policies stimulated immediately after the coup, was slightly reduced in 1975 as compared to the unbelievable rate of 375.9 percent in 1974. Such a minor reduction, however, does not indicate any substantial approach to stabilization and seems on the whole utterly irrelevant to the majority of Chileans who must endure the total collapse of their economy. This situation recalls the story of a Latin Amer ican dictator at the beginning of this century. When his advisers came to tell him that the country was suffer ing from a very serious educational problem, he ordered all public schools closed. Now, more than seventy years into this century, there still remain disciples of the anec dotal dictator who think that the way to eradicate pov erty in Chile is to kill the poor people.

The exchange rate depreciations and the cutbacks in governmental expenditures have produced a depression which, in less than three years, has slowed the country’s rate of development to what it was twelve years ago. Real Gross Domestic Product (GDP) contracted during 1975, by nearly 15 percent to its lowest level since 1969, while, according to the IMF, real national income “dropped by as much as 26 percent, leaving real per capita income below its level ten years earlier.” The decline in the overall 1975 GDP reflects an 8.1 percent drop in the min ing sector, a 27 percent decline in the manufacturing indus tries and a 35 percent drop in construction. Petroleum extrac tion declined by an estimated 11 percent, while transport, storage and communications declined 15.3 percent, and com merce fell 21.5 percent. In the agricultural sector production appears virtually stagnant in 1975-76, with only an 0.4 percent variation from the previous agricultural year.

This stagnation has been caused by a combination of factors, including the con tinued rise in the cost of imported fertilizers and pesticides. The use of fertilizer dropped by an estimated 40 percent in 1975-76. The increase in import prices also accounted for the decline in production of pork and poultry, which are almost entirely dependent on imported feed. The re turn to the former owners of several million hectares of farm land that had been expropriated and transferred to peasant organizations under the 1967 Agrarian Re form Law, has also reduced agricultural production. As of the end of 1975 almost 60 percent of all agricultural es tates affected by the land reform—equivalent to about 24 percent of total expropriated land—has been subject to the junta’s decisions. Of this total, 40 percent of the agricul tural enterprises (75 percent of the physical acreage and more than 50 percent of the irrigated land) have entirely reverted to former owners.

In the external sector of the economy, the results have been equally disastrous. In 1975 the value of exports dropped 28 percent, from $2.13 billion to $1.53 billion, and the value of imports dropped 18 percent, from $2.24 billion to $1.81 billion, thus showing a trade deficit of $280 million. Imports of foodstuffs dropped from $561 mil lion in 1974, to $361 million in 1975. In the same period domestic food production declined, causing a drastic reduction in food for the masses of the popula tion. Concurrently, the outstanding external public debt repayable in foreign currency increased from $3.60 bil lion on December 31, 1974, to $4.31 billion on Decem ber 31, 1975. This accentuated Chile’s dependence on ex ternal sources of financing, especially from the United States. The junta’s policies have burdened Chile with one of the highest per capita foreign debts in the world. In the years to come the nation will have to allocate more than 34 percent of its projected exports earnings to the pay ment of external debts.

But the most dramatic result of the economic policies has been the rise in unemployment. Before the coup, unemployment in Chile was 3.1 percent, one of the lowest in the Western Hemisphere. By the end of 1974, the jobless rate had climbed beyond 10 percent in the Santiago metro politan area and was also higher in several other sections of the country. Official junta and IMF figures show that by the end of 1975 unemployment in the Santiago metro politan area had reached 18.7 percent; the corresponding figure in other parts of the country was more than 22 percent; and in specific sectors, such as the construction industry, it had reached almost 40 percent. Unemployment has con tinued to climb in 1976 and, according to the most conservative estimates, in July approximately 2.5 million Chileans (about one-fourth of the population) had no income at all; they survive thanks to the food and cloth ing distributed by church and other humanitarian organi zations. The attempts by religious and other institutions to ease the economic desperation of thousands of Chilean families have been made, in most cases, under the sus picion and hostile actions of the secret police.

The inhuman conditions under which a high percentage of the Chilean population lives is reflected most dramati cally by substantial increases in malnutrition, infant mortality and the appearance of thousands of beggars on the streets of Chilean cities. It forms a picture of hunger and deprivation never seen before in Chile. Families re ceiving the “minimum wage” cannot purchase more than 1,000 calories and 15 grams of protein per person per day. That is less than half the minimum satisfactory level of consumption established by the World Health Organization. It is, in short, slow starvation. Infant mortality, reduced significantly during the Allende years, jumped a dramatic 18 percent during the first year of the military government, according to figures provided by the U.N. Economic Commission for Latin America. To deflect criticism from within its own ranks against the brutal consequences of layoffs, the junta in 1975 established a token “minimum employment program.” However, it covers only 3 percent of the labor force, and pays salaries amounting to less than $30—a month!

Although the economic policies have more mercilessly affected the working classes, the general debacle has sig nificantly touched the middle-class as well. At the same time, medium-size national enterprises have had their expectations destroyed by the reduction in demand, and have been engulfed and destroyed by the monopolies against which they were supposed to compete. Because of the collapse of the automobile industry, hundreds of machine shops and small industries which acted as sub contractors have faced bankruptcy. Three major textile firms (FIAD, Tomé Oveja and Bellavista) are working three days a week; several shoe companies, among them Calzados Bata, have had to close. Ferriloza, one of the main producers of consumer durables, recently declared itself bankrupt. Facing this situation, Raul Sahli, the new president of the Chilean Industrialists’ Association, and himself linked to big monopolies, declared earlier in the year: “The social market economy should be applied in all its breadth. If there are industrialists who complain because of this, let them go to hell. I won’t defend them.” He is so quoted by André Gunder Frank in a “Second Open Letter to Milton Friedman and Arnold Harberger,” April 1976.

The nature of the economic prescription and its results can be most vividly stated by citing the pattern of domestic income distribution. In 1972, the Popular Unity Govern ment employees and workers received 62.9 percent of the total national income; 37.1 percent went to the propertied sector. By 1974 the share of the wage earners had been reduced to 38.2 percent, while the participation of property had in creased to 61.8 percent. During 1975, “average real wages are estimated to have declined by almost 8 percent,” according to the International Monetary Fund. It is probable that these regressive trends in income distribution have con tinued during 1976. What it means is that during the last three years several billions of dollars were taken from the pockets of wage earners and placed in those of capi talists and landowners. These are the economic results of the application in Chile of the prescription proposed by Friedman and his group.

A Rationale for Power: The economic policies of the Chilean junta and its re sults have to be placed in the context of a wide counter revolutionary process that aims to restore to a small minority the economic, social and political control it gradually lost over the last thirty years, and particularly in the years of the Popular Unity Government.

Until September 11, 1973, the date of the coup, Chilean society had been characterized by the increasing participation of the working class and its political parties in economic and social decision making. Since about 1900, employing the mechanisms of representative democ racy, workers had steadily gained new economic, social and political power. The election of Salvador Allende as President of Chile was the culmination of this process. For the first time in history a society attempted to build socialism by peaceful means. During Allende’s time in office, there was a marked improvement in the conditions of employment, health, housing, land tenure and education of the masses. And as this occurred, the privileged do mestic groups and the dominant foreign interests perceived themselves to be seriously threatened.

They have failed to destroy the consciousness of the Chilean people. The economic plan has had to be enforced. Despite strong financial and political pressure from abroad and efforts to manipulate the attitudes of the middle class by propaganda, popular support for the Allende government increased significantly between 1970 and 1973. In March 1973, only five months before the military coup, there were Congressional elections in Chile. The political parties of the Popular Unity increased their share of the votes by more than 7 percentage points over their totals in the Presidential election of 1970. This was the first time in Chilean history that the political parties supporting the administration in power gained votes dur ing a midterm election. The trend convinced the national bourgeoisie and its foreign supporters that they would be unable to recoup their privileges through the democratic process. That is why they resolved to destroy the demo cratic system and the institutions of the state, and, through an alliance with the military; to seize power by force.

In such a context, concentration of wealth is no acci dent, but a rule; it is not the marginal outcome of a difficult situation—as they would like the world to believe—but the base for a social project; it is not an economic liability but a temporary political success. Their real failure is not their apparent inability to redistribute wealth or to generate a more even path of development (these are not their priorities) but their inability to convince the majority of Chileans that their policies are reasonable and necessary. In short, they have failed to destroy the consciousness of the Chilean people. The economic plan has had to be enforced, and in the Chilean context that could be done only by the killing of thousands, the estab lishment of concentration camps all over the country, the jailing of more than 100,000 persons in three years, the closing of trade unions and neighborhood organizations, and the prohibition of all political activities and all forms of free expression.

While the “Chicago boys” have provided an appearance of technical respectability to the laissez-faire dreams and political greed of the old landowning oligarchy and upper bourgeoisie of monopolists and financial speculators, the military has applied the brutal force required to achieve those goals. Repression for the majorities and “economic freedom” for small privileged groups are in Chile two sides of the same coin.

There is, therefore, an inner harmony between the two central priorities announced by the junta after the coup in 1973: the “destruction of the Marxist cancer” (which has come to mean not only the repression of the political parties of the Left but also the destruction of all labor organizations democratically elected and all opposition, including Christian-Democrats and church organizations), the establishment of a free “private economy” and the control of inflation à la Friedman.

It is nonsensical, consequently, that those who inspire, support or finance that economic policy should try to present their advocacy as restricted to “technical consid erations,” while pretending to reject the system of terror it requires to succeed.


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Ricardo's Big Idea, and Its Vicissitudes: Hoisted from the Archives

Hoisted from the Archives: Ricardo's Big Idea, and Its Vicissitudes https://www.bradford-delong.com/2017/10/ricardos-big-idea-and-its-vicissitudes-inet-edinburgh-comparative-advantage-panel.html:

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Ricardo's Big Idea, and Its Vicissitudes

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Hoisted from the Archives: From Eight Years Ago: The Way the World Looked to Me in the Summer of 2011

Hoisted from the Archives: The Way the World Looked to Me in the Summer of 2011: Back in the summer of 2009, Barack Obama had five economic policy principals on the Treasury Bench:

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Perhaps. And Sometimes: Hoisted from the Archives from 2010

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Hoisted from the Archives: Perhaps. And Sometimes https://www.cato-unbound.org/2010/09/16/j-bradford-delong/perhaps-sometimes: In 542 AD the late Roman (early Byzantine?) Emperor Justinian I wrote to his Praetorian Prefect concerning the army — trained and equipped and paid for by the Roman State to control the barbarians and to “increase the state.” Justinian was, Peter Sarris reports in his Economy and Society in the Age of Justinian, upset that:

certain individuals had been daring to draw away soldiers and foederati from their duties, occupying such troops entirely with their own private business…. The emperor… prohibit[ed] such individuals from drawing to themselves or diverting troops… having them in their household… on their property or estates…. [A]ny individual who, after thirty days, continues to employ soldiers to meet his private needs and does not return them to their units will face confiscation of property… “and those soldiers and foederati who remain in paramonar attendance upon them… will not only be deprived of their rank, but also undergo punishments up to and including capital punishment.

Justinian is worried because what is going on in the country he rules is not legible to him. Soldiers — soldiers whom he has trained, equipped, and paid for — have been hired away from their frontier duties by the great landlords of the Empire and employed on their estates and in the areas they dominate as bully-boys. One such great landlord was Justinian’s own sometime Praefectus Praetorio per Orientem Flavius Apion, to whom one of Flavius’s tenants and debtors, one Anoup, wrote:

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Income and Wealth Distribution, or, Watching Professional Republicans Sell Their Souls Back in 1992: Hoisted from the Archives

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I have long wanted an undergraduate to write a senior thesis about this episode. I have never found one to advise to do so:

Hoisted from the Archives: The income distribution came on to the stage that is America's public sphere between February 14 and December 12, 1992. And the rhetoric of "X% of gains in per capita income over years Y-Z went to the top W%-iles of the income distribution" became a one in American political-economic discourse over that time period as well. Over those ten months then-New York Times economics reporter Sylvia Nasar wrote eight stories about income inequality in America. All of them were pitched at a high substantive and intellectual level—they would have fit into the New York Times's later Upshot (which has recently refocused at a less analytically-substantive level as concerned with "politics, policy, and everyday life"). This was, needless to say, very unusual for the New York Times.

Sylvia's first story addressed the peculiar fact that the "80's Boom", as Reagan Republicans and the New York Times called it, had seen the poverty rate not diminish but rise. Sylvia attributed that rise to union-busting, and a growing disparity between high- and low-wage jobs springing from a decline in relative manufacturing employment and possibly from boosted high-wage white-collar productivity from computerization. Her second story, on March 5, took a turn. Instead of continuing to investigate the causes of rising poverty and wage stagnation in a decade of supposed boom, it focused on "who had reaped the gains" from "the prosperity of the last decade and a half". It highlighted the "Krugman calculation". It began:

Populist politicians, economists and ordinary citizens have long suspected that the rich have been getting richer. What is making people sit up now is recent evidence that the richest 1 percent of American families appears to have reaped most of the gains from the prosperity of the last decade and a half. An outsized 60 percent of the growth in the average after-tax income of all American families between 1977 and 1989—and an even heftier three-fourths of the gain in average pretax income—went to the wealthiest 660,000 families, each of which had an annual income of at least $310,000 a year...

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Equitable Growth Worthy Reads from October 4, 2018

stacks and stacks of books

Worthy Reads at Equitable Growth

  1. One thing making me hopeful for our future is that as our technological powers and capabilities grow, our ideas of what people need to be fully included members of society grow as well to keep pace. Just think of how high-speed computer access is becoming something that it is obvious that all Americans—and especially all American children—very much need to have. The fact that we—or some of us, at least—think that the failure of us to make sure this is provided is a "gap" is something I at least, in historical perspective, find very heartening: Delaney Crampton: Why Accessibility To High-Quality Broadband Matters To U.S. Schoolchildren: "Nearly 5 million households with school-aged children in the United States lack high-quality broadband access at home... 31.4 percent of households earning an annual income lower than $50,000 with school-aged children... 40 percent of those with annual incomes lower than $25,000...

  2. One might, naively, think that the economies of scale that companies like Wal-Mart possess should redound to the benefit of workers as well as consumers. More efficiencies from economies of scale should leave a bigger pie for everyone else, which would be shared, right? Apparently not. When a business earns more by selling to large buyers, its workers wages appear not to go up but to go down. Something to watch very closely. Sharon Nunn sends us to Nathan Wilmers: Sharon Nunn: Big Businesses Push Down Prices, and Perhaps Wages: "As large firms... command increasing market share in the retail industry, they narrow the field of buyers for companies that make and move consumer products.... [Nathan] Wilmers found that since the late 1970s... a 10% increase in [corporate] earnings that depend on larger buyers is associated with a 1.2% decline in wage growth...

  3. Heather Boushey said wise things about distributional national accounts before the U.S. Congress's Joint Economic Committee: Heather Boushey: Testimony Before the Joint Economic Committee: "The U.S. Bureau of Economic Analysis releases a new estimate of quarterly or annual GDP growth every month. Distributional national accounts would add to this release an estimate that disaggregates the topline number and tells us what growth was experienced by low-, middle-, and high-income Americans. Academics have already constructed such a measure. The so-called DINA dataset constructed by economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman...

  4. I was tremendously disappointed to find myself trapped in Berkeley and so I missed: Ellora Derenoncourt, David Grusky, Trevon Logan, and Kimberly Adams: Research on Tap: Economic mobility—The Impact of Race and Place: "Place-based disparities and structural barriers based on race shape economic outcomes...

  5. This may well be the most interesting working paper we released last month: "wages certainly matter for outcomes like sleep and happiness, but schedules in our data matter much more": Daniel Schneider and Kristen Harknett: Consequences of Routine Work Schedule Instability for Worker Health and Wellbeing: "Research... has overwhelmingly focused on the economic dimension of precarity, epitomized by low and stagnant wages. But the rise in precarious work has also involved a major shift in the temporal dimension of work such that many workers now experience routine instability in their work schedules...

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Hoisted from the Archives from 2006: Tightwad Hill

Tightwad Hill: Stanford Week: "Many of the great rivalries are fundamentally class rivalries - the "big-city" university v the land grant agriculture college. This is what fuels Alabama/Auburn, or Oregon/OSU. Some are even about religion (BYU/Utah) or fashion (USC/UCLA). Cal/Stanford is the only great rivalry that's fundamentally about ideology.... The ideology at play here is authoritarianism. Cal teaches its own to question authority by imposing a faceless, soul-crushing bureaucracy upon its students.... Four years at Berkeley feels like a Kafka novel-you come out with a perhaps too-healthy skepticism of professors, administrators, Presidents and the like. Stanford is a school next to a mall and some golf courses that is populated by cheerful authority figures who want to like you. They serve as your counselor, and help you choose your classes. They arrange comfy dorm rooms, and social events with your fellow fascinating students drawn from all parts of the country. They want you to succeed, because you're one of them-the few, the proud, the elites. Isn't it grand? You exit Stanford feeling really, really good about yourself. You exit Berkeley happy to have survived the experience. Berkeley is exhilirating; Stanford is pleasant. Both sets of alumni run the world, but only one group of alumni feels entitled to...

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Hoisted from the Archives: From 2007: Your One-Stop Shop for All Your 70th Anniversary Leftist Sectarian Polemic Blogging Needs

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Hoisted from the Archives: From 2007: Your One-Stop Shop for All Your 70th Anniversary Leftist Sectarian Polemic Blogging Needs https://delong.typepad.com/sdj/2007/03/your_onestop_sh.html: In anticipation of the 70th anniversary of the bloody Stalinist suppression of the Partido Obrero de Unificación Marxista in the Barcelona May Days, we are--thanks to Jacob Levy--proud to bring you the latest in sectarian Marxist polemics blogging. First, we have Eric Hobsbawm declaring that George Orwell was a Traitor to Humanity by telling the truth about what he saw in Spain:

Eric Hobsbawm: "Writers supported [the Republican cause in] Spain... Hemingway, Malraux, Bernanos and virtually all the notable contemporary young British poets-Auden, Spender, Day Lewis, MacNeice did. Spain was the experience that was central to their lives between 1936 and 1939.... Polemics about the civil war [within the Left]... have never ceased since 1939. This was not so while the war was still continuing, although such incidents as the banning of the dissident Marxist Poum party and the murder of its leader Andrés Nin caused some international protest. Plainly a number of foreign volunteers... were shocked by... the behaviour of the Russians and much else...

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Unstructured Procrastination: Hoisted from the Archives

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Hoisted from the Archives (2005): Unstructured Procrastination https://www.bradford-delong.com/2005/08/unstructured_pr.html: I usually am quite good at structured procrastination—working not on the thing that is most immediate and imminent on my calendar, but on the priority #3 or #4 that is actually more important in the long run and that excites me at the moment. But today this system has broken down. I have done something nobody should ever do: I have spent an hour thinking about Louis Althusser.

It's all Michael Berube's fault, but its worth it, for (highlighted below) he has the best paragraph on Louis Althusser ever written. The rest is (or ought to be) silence:

Michael Berube: "The otherwise incomprehensible question of why anyone would think it necessary to devise a 'structuralist Marxism'. Structuralism is so antipathetic to all questions of hermeneutics and historicity that one might imagine the desire for a structuralist Marxism to be something like a hankering for really spicy ice cream. And yet, in the work of Louis Althusser, spicy ice cream is exactly what we have. I don’t like it myself. But because it’s an important byway in the history of ice cream...

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Hoisted from the Archives: John Holbo (2010): If Those Women Were Really Oppressed, Someone Would Have Tended to Have Freed Them by Then

stacks and stacks of books

John Holbo (2010): If Those Women Were Really Oppressed, Someone Would Have Tended to Have Freed Them by Then http://crookedtimber.org/2010/04/13/if-those-women/: "Having made one non-libertarian-related post, I can now say, with a good conscience, that Bryan Caplan has responded to his critics. It is a wonder to behold.... A lot of the trouble here obviously rotates around the issue of systematic social oppression. Caplan barrels straight through like so: 'there’s a fundamental human right to non-violently pressure and refuse to associate with others'.... Caplan doesn’t notice that, even if he’s right about this fundamental human right, he’s no longer even defending the proposition that women were more free in the 1880’s, never mind successfully defending it. He’s defending the proposition that there is a fundamental right, which can be exercised, systematically, to make women much less free, that was better protected in the 1880’s. So if women value this libertarian right more than freedom, they might rationally prefer that sort of society. But even so, they should hardly regard themselves as more free, for enjoying this right. Rather, they should regard themselves as (rationally) sacrificing liberty, a lesser value, for love of libertarianism, a higher value and separate jar of pickles altogether...

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Hoisted from the Archives: Department of "Huh!?": Raghu Rajan Is a Member of the Pain Caucus, and I Don't Understand Why...

stacks and stacks of books

Department of "Huh!?": Back in 2010, there were a great many people for whom I had immense respect who were members of the Pain Caucus. And I still cannot follow what they were thinking at all. Construction had already shrunk fully by late 2007. It remains a great mystery—was it just a Chicago echo chamber in which people did not look at data?:

Raghu Rajan Is a Member of the Pain Caucus, and I Don't Understand Why...: Raghu Rajan: "this recession is not a 'usual' recession. It followed a period of ultra-low interest rates when interest sensitive segments of the economy got a tremendous boost. The United States had far too much productive capacity devoted to durable goods and houses, because consumers could obtain financing for them easily. With households recovering slowly from the overhang of debt resulting from the binge, and with lenders extremely risk averse, it is unrealistic to expect households to spend beyond their means again, and unwise to try to tempt them to do so...

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Monday Smackdown/Hoisted from the Archives: Paul Krugman: March of the Peacocks

I was hissed at a Pete Buttigieg fundraiser in August when I said that the Obama presidency had been disappointing. But I do believe this is right, and I think this taking your eye off the good-policy ball in order to strut about peacocking was a major thing that went wrong:

Paul Krugman (2010): March of the Peacocks: "Last week, the Center for American Progress, a think tank with close ties to the Obama administration, published an acerbic essay about the difference between true deficit hawks and showy 'deficit peacocks'. You can identify deficit peacocks, readers were told, by the way they pretend that our budget problems can be solved with gimmicks like a temporary freeze in nondefense discretionary spending. One week later, in the State of the Union address, President Obama proposed a temporary freeze in nondefense discretionary spending. Wait, it gets worse. To justify the freeze, Mr. Obama used language that was almost identical to widely ridiculed remarks early last year by John Boehner, the House minority leader. Boehner then: 'American families are tightening their belt, but they don’t see government tightening its belt.' Obama now: 'Families across the country are tightening their belts and making tough decisions. The federal government should do the same.' What’s going on here? The answer, presumably, is that Mr. Obama’s advisers believed he could score some political points by doing the deficit-peacock strut. I think they were wrong, that he did himself more harm than good. Either way, however, the fact that anyone thought such a dumb policy idea was politically smart is bad news because it’s an indication of the extent to which we’re failing to come to grips with our economic and fiscal problems...

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Hoisted from the Archives: Why Everybody Should Be Short Louis Althusser and His Intellectual Children

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Hoisted from the Archives: Why Everybody Should Be Short Louis Althusser and His Intellectual Children https://delong.typepad.com/sdj/2007/06/why_everybody_s.html: William Lazonick (1982), "Discussion of Resnick and Wolff, Feiner, Jensen, and Weiss," +Journal of Economic History_, 42:1 (March), pp. 83-85 http://links.jstor.org/sici?sici=0022-0507%28198203%2942%3A1%3C83%3ADORAWF%3E2.0.CO%3B2-G: "I find the title of this session—'Marxist Approaches to Economic History'—to be inappropriate.... First, what we have heard here are not "approaches" but one approach repeated four times.... Second... the approach presented here... relates not to economic history... not even an approach to the actual study of social history.... It is philosophical thinking about how one might develop an analytical framework for studying feudalism, capitalism, and so on...

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Hoisted from the Archives: David Glasner Says That I Am More of a Hayekian than I Think I Am...

stacks and stacks of books

David Glasner: Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be | Uneasy Money: "Recently Brad DeLong expounded on the extent to which the earnings that accrue to individuals do not correspond to the contributions total output that can be ascribed to the personal efforts of those individuals or the contributions made by resources owned by thoe people. Here’s DeLong: 'Pascal Lamy: “When the wise man points at the moon, the fool looks at the finger…”

...Perhaps in the end the problem is that people want to pretend that they are filling a valuable role in the societal division of labor, and are receiving no more than they earn–than they contribute. But that is not the case. The value–the societal dividend–is in the accumulated knowledge of humanity and in the painfully constructed networks that make up our value chains. A “contribution” theory of what a proper distribution of income might be can only be made coherent if there are constant returns to scale in the scarce, priced, owned factors of production. Only then can you divide the pile of resources by giving to each the marginal societal product of their work and of the resources that they own. That, however, is not the world we live in.

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Hoisted from the Archives: In the interest of keeping our eye on the ball in FinReg, let me present Alan Blinder stating that incentives in banks that are too big to fail simply must be totally and completely broken and misaligned:

Alan Blinder (2005): On Raghuram Rajan: "I’d like to defend Raghu a little bit against the unremitting attack he is getting here for not being a sufficiently good Chicago economist.... The way a lot of these funds operate, you can become richer than Croesus on the upside, and on the downside you just get your salary. These are extremely convex returns. I’ve wondered for years why this is so. You don’t need to have public regulatory concerns to worry about it.... I remember a discussion I had with... one of the principals of the LTCM, while it was riding high. He agreed with me that the skewed incentives are a problem. But they weren’t solving it.... What can make it a systemic problem is herding, which Raghu mentioned, or bigness, which is related to the discussion that Fraga raised, and so on. If you are very close to the capital—for example, if the trader is the capitalist—then you have internalized the problem. So, it may be that bigness has a lot to do with whatever systemic concerns we have. Thus, I’d draw a distinction between the giant organizations and the smaller hedge funds. Whether that thinking leads to a regulatory cure, I don’t know. In other domains, we know, bigness has been dealt with in a regulatory way...

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Sixteen Worthy Reads for August 30, 2018

Worthy Reads at Equitable Growth:

  1. IMHO, this is closely akin to William Julius Wilson's "the declining significance of race"—i.e., the rising significance of class: Robert Manduca: How rising U.S. income inequality exacerbates racial economic disparities: "In 1968... median African American family income was 57 percent of the median white American family income. In 2016, the ratio was 56 percent. The utter lack of progress is striking...

  2. How much of this correlation is causal? And how much is associational? I do not think we really know, in spite of studies of the build-out of broadband in France. The U.S. is a very different country. Nevertheless, I for one think that it is long past time to put universal broadband in the same bucket as basic sanitation and rural electrification—as something that is part of the citizens' share of being an American: Delaney Crampton: Why accessibility to broadband matters in reducing economic inequality in the United States: "A strong correlation between household income and in-home connectivity—a pattern that persists across both rural and economically depressed urban communities...

  3. Austin Clemens: Schumer and Heinrich Introduced a Bill to Create New Measures of Economic Growth: "Very excited.... @HBoushey and I have written extensively about the need to track growth not just for the economy as a whole but for Americans at every point along the income curve...

  4. Kate Bahn sends us to NPR's Planet Money: Kate Bahn: My Girl Joan Robinson: "My girl Joan Robinson is discussed in this episode of @planetmoney on underrated economists https://www.npr.org/sections/money/2018/08/22/641002632/the-underrated-economists...

  5. Newly-arrived at Equitable Growth, Will McGrew retweets Matthew Yglesias quoting Ryan Cooper: Will McGrew: Matthew Yglesias: "Ryan Cooper: 'There was no skills gap, nor an innovation shortage, nor an explosion of stay-at-home dads. There was a collapse in aggregate demand that was left to rot, while a lot of people who should have known better made things worse...'

  6. Equitable Growth alumnus Nick Bunker reminds us of this WCEG working paper from a year and a half ago: Emmanuel Saez, Thomas Piketty, and Gabriel Zucman: Economic growth in the United States: A tale of two countries: "We combine tax, survey, and national accounts data to build a new series on the distribution of national income...

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John Cochrane Prostitutes Himself to Republican Politicians Department: Monday Smackdown/Hoisted from 2015

Clowns (ICP)

Noah Smith: John Cochrane Smackdown: "John writes: 'My surprise in reading Noah is that he provided no alternative numbers. If you don't think Free Market Nirvana will have 4% growth, at least for a decade as we remove all the level inefficiencies, how much do you think it will produce, and how solid is that evidence?...' I don't really feel I need to produce an alternative to a number that was made up as a political talking point. Why 4 percent? Why not 5? Why not 8? Why not 782 percent? Where do we get the number for how good we can expect Free Market Nirvana to be? Is it from the sum of point estimates from a bunch of different meta-analyses of research on various free-market policies? No. It was something Jeb Bush tossed out in a conference call because it was 'a nice round number', after James Glassman had suggested '3 or 3.5'. You want me to give you an alternative number, using the same rigorous methodology? Sure, how about 3.1. Wait, no. 3.3. There we go. 3.3 sounds good. Rolls off the tongue..."

I must say, Cochrane here reminds me of one of my most favorite quotes from tank economist Paul M. Sweezy:

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Twenty Worthy Reads at Equitable Growth and Elsewhere... August 23

Worthy Reads at Equitable Growth:

  1. Antitrust law and policy is probably the most "relatively autonomous" piece of our whole legal system. The laws as enacted by Congress and signed by the President change rarely and slowly. How those laws are enforced—and how business is then conducted in the shadow of the possibility of resort to the courts for antitrust cases—changes much more radically and substantially. It is a dance of intellectual fashion, some serious benefit-cost analysis, and a great deal of lobbying and lobbying-funded motivated reasoning. My view is that the answers to the three questions Michael Kades suggests the FTC examine are: yes, no, and no, respectively. But it is very good that the FTC is thinking about this: Michael Kades: In re: Competition and Consumer Protection in the 21st Century: "Equitable Growth suggests that the hearings include the following three topics: 1. Is monopoly power prevalent in the U.S. economy?...

  2. Paul Krugman writes: "As Greg Leiserson of the Washington Center for Equitable Growth points out, 'every month in which wage rates are not sharply higher than they would have been absent the legislation, and investment returns are not sharply lower, is a month in which the benefits of those corporate tax cuts accrue primarily to shareholders'. A tax cut that might significantly raise wages during, say, Cynthia Nixon’s second term in the White House, but yields big windfalls for stock owners with only trivial wage gains for the next five or 10 years, is not what we were promised..." See Greg Leiserson: Assessing the economic effects of the Tax Cuts and Jobs Act: "Key takeaways: An assessment... should focus on the impact... on wage rates... [on] the return on business investment, and... [on] future federal budget deficits, as these will determine the impact... and the fiscal sustainability of the law....

  3. Very much worth listening to: Heather Boushey, Helaine Olen, and Katie Denis: Americans vs. vacation: "Half of American workers didn’t take all the paid vacation days they were entitled to in 2017. Why are so many of us unwilling or unable to take the vacation days that we’ve earned?...

  4. This was the first working paper the WCEG published. It did not get the attention it deserved then. So why not hoist it?: Arindrajit Dube and Ben Zipperer: Pooling multiple case studies using synthetic controls: An application to minimum wage policiesh: "We assess the employment and wage effects minimum wage increases between 1979 and 2013 by pooling 29 synthetic control case studies...

  5. Darrick Hamilton is asking the right questions. And he might have the right answers. But I suspect not. Yes, there is something very deep in America's culture that discourages public responsibility for the conditions of poor and especially poor black Americans, to the country's shame. Adam Smith wrote in 1776 that: "no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity... that they who feed, clothe, and lodge... the people, should... be themselves tolerably well fed, clothed, and lodged..." We today can replace his "greater part" with "substantial part", and it is still true. But I suspect that the health gaps between high-status, high-income, and high-wealth African Americans and their white peers have other origins—not that I know what those other origins are, mind you: Darrick Hamilton: Post-racial rhetoric, racial health disparities, and health disparity consequences of stigma, stress, and racism: "High achieving black Americans, as measured by education, still exhibit large health disparities...


Elsewhere than Equitable Growth:

  1. Encyclopedia of Chicago (1899): Mr. Dooley Explains Our "Common Hurtage": "In the late 1890s, Finley Peter Dunne's newspaper columns in Irish dialect brought to life a fictional Bridgeport bartender, Mr. Dooley...

  2. Economist: Why is macroeconomics so hard to teach?: "Mr Rowe remained... 'fairly low down the totem pole' as a researcher. But he became a thunderbird at conveying macroeconomic intuition...

  3. Noah Smith wonders if he can make a supply-and-demand argument to people who are allergic to "supply and demand" with a spoonful of sugar. He has three types of housing: newly-built yuppie fishtanks, old housing that can switch between working-class and yuppie, and newly-built "affordable housing" unattractive to yuppies: Noah Smith: YIMBYism explained without "supply and demand": "YIMBYism is the idea that cities need to build more housing in order to relieve upward pressure on rents...

  4. Dick Schmalensee: Handicapping the Highstakes Race to Net-Zero: "Economists argue that a broadly applicable incentive-based system... could reduce emissions at a much lower total cost than any alternative regime. Incentives to reduce emissions could be produced directly by a tax on emissions or through... cap-and-trade system. But the argument for relying primarily on financial incentives has historically not been very persuasive.... Even in California and the European Union, where cap-and-trade systems for CO₂ have been established, so-called “ancillary” or “belt-and-suspenders” policies that target particular sectors or sources have also been deployed...

  5. EG: Yuriy Gorodnichenko, Debora Revoltella, Jan Svejnar, Christoph Weiss: Dispersion in productivity among European firms: "This column uses firm-level data from all EU countries to explore how the dispersion of resources affects macroeconomic performance...

  6. 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...

  7. This is the most hopeful take on American productivity growth relative stagnation I have seen. I thought it was coherent and might well be right 20 years ago. I think it is coherent and might possibly be right today. But is that just a vain hope?: Michael van Biema and Bruce Greenwald (1997): Managing Our Way to Higher Service-Sector Productivity: "What electricity, railroads, and gasoline power did for the U.S. economy between roughly 1850 and 1970, computer power is widely expected to do for today’s information-based service economy...

  8. Potsdam this year is 7F warmer than it averaged in the century before 1980. Berkeley is now Santa Barbara: Stefan Rahmstorf: Europe’s freak weather, explained: "Naive.... The smoothed curve shows... global warming... the scattering of the grey bars... random variations of the weather.... Slightly more than half of the 4.3 degrees would be due to global warming, the rest to weather. That... likely underestimates the contribution of climate change...

  9. Thiemo Fetzer: Did Austerity Cause Brexit?: "The rise of popular support for... UKIP... strongly and causally associated with an individual’s or an area’s exposure to austerity since 2010...

  10. Interesting. The question is always: do you make money by devoting effort to selling them things they will be happy they bought, or do you make money by devoting effort to selling them things they will be unhappy they bought—by grifting them? And what determines the balance of providing value vs. deception in selling commodities aimed at different income classes? I am not sure they have it right here. I am sure that this is very important: James T. Hamilton and Fiona Morgan: Poor Information: How Economics Affects the Information Lives of Low-Income Individuals: "How information is produced for, acquired by, and utilized by low-income individuals...

  11. I concur with Noah Smith here that the biggest dangers of machine learning, etc., are not on the labor but on the consumer side. They won't make us obsolete as producers. They could make us easier to grift as customers: Noah Smith: Artificial Intelligence Still Isn’t All That Smart: "Machine learning will revolutionize white-collar jobs in much the same way that engines, electricity and machine tools revolutionized blue-collar jobs...

  12. We keep looking for thoughtful intellectual voices on political economy and equitable growth to the right of the intellectual center of gravity of our organization. But they turn out to be remarkably hard to find, as we are learning again this week. Suggestions for interlocutors are very welcome: John Holbo: Do The Nordic Codetermination Moonwalk: "Amused: 'Matthew Yglesias: 'Every conservative institution in America appears to be simultaneously maintaining that @SenWarren’s codetermination proposal is economically ruinous but that Nordic countries, which have codetermination, are free market success stories'...

  13. Claudia Sahm: Alice in Wonderland: "One year ago today, Alice Wu’s research about sexism at an online economics forum made the news...

  14. Kimberly Adams: The disturbing parallels between modern accounting and the business of slavery: "The common narrative is that today's modern management techniques were developed in the factories in England and the industrialized North.... According to... Caitlin Rosenthal, that narrative is wrong...

  15. Really surprised that there is no evidence of boom-bust asymmetry here. I am going to have to dig into what reasonable alternatives are and how much power they have here: Adam M. Guren, Alisdair McKay, Emi Nakamura, and Jon Steinsson: Housing Wealth Effects: The long View: "We exploit systematic differences in city-level exposure to regional house price cycles...


What Is This "White" You Speak of, Kemosabe?: Hoisted from the Archives

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Hoisted from the Archives: _What Is This "White" You Speak of, Kemosabe?: One way to look at Nixon's 'Silent Majority' strategy was that it involved the redefinition of lots of people as 'white'—people who wouldn't have been 'white' even thirty years before, back when they were seen as not-quite-real-American ethnic immigrants living in ghettos and serving the corrupt Democratic political machines against which the Republicans fought—probably entangled in organized crime, too.

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Worthy Reads at Equitable Growth and Elsewhere... August 16, 2018

Worthy Reads at Equitable Growth...

  1. An excellent piece from Marinescu, Dinan, and Hovenkamp: one of our working papers laying out how the analysis of how antitrust policy should be done given that compensated firms face their counter parties not just in the product but in labor markets. I think this is the most important thing I have seen out of our shop here at Equitable Growth this week*Ioana Marinescu, James G. Dinan, and Herbert Hovenkamp*: Anticompetitive mergers in labor markets: "Increased market concentration in labor markets threatens to facilitate coordinated interaction among employers that could lead to lower output and wage suppression in employment markets...

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

  3. The analysis of rising inequality and its effects in the United States and elsewhere over the past generation has suffered from a relative downplaying of the role of the family and how income gets earned and then transformed Into well-being. Central to this is the rapidly changing economic role of women in the workforce, but that is not all of it. We need more and better analyses of her public policy needs to shift in the context of changing family structure and rising inequality. Elizabeth Jacobs presents some of our thinking about how Equitable Growth is and will be trying to support this effort: Elizabeth Jacobs: Rethinking 20th century policies to support 21st century families: "...As a raft of research illustrates, economic growth is increasingly concentrating at the top...

  4. Our Kate Bahn Reminds us: Kate Bahn: "This needs to be screamed from the rooftops.... We cannot have a substantive conversation about how tight the labor market is without examining demographic disparities..." ands sends us to Equitable Growth alumnus John Schmitt quoting Janelle Jones at: Laura Maggi: Despite Drop in Black Unemployment, Significant Disparities Remain: "The African-American unemployment rate... low—compared to historic numbers. In July, it was 6.6 percent...

  5. Not to put the pressure on or anything, but I expect very good things from our Equitable Growth grant to: Matthew Staiger: Parental Resources And The Career Choices of Young Workers: "With a specific focus on the impact of parental resources on entrepreneurship and job mobility...

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Looking Backwards from This Week at 24, 16, 8, 4, 2, 1, 1/2, and 1/4 Years Ago (August 7-August 13, 2019)

stacks and stacks of books

MUST OF THE MUSTS: J. Bradford De Long and Lawrence H. Summers: Equipment Investment and Economic Growth: "We use disaggregated data from the United Nations International Comparison Project and the Penn World Table to examine the association between different components of investment and economic growth over 1960–85. We find that producers’ machinery and equipment has a very strong association with growth: in our cross section of nations each percent of GDP invested in equipment raises GDP growth rate by 1/3 of a percentage point per year. This is a much stronger association than can be found between any of the other components. We interpret this association as revealing that the marginal product of equipment is about 30 percent per year. The cross nation pattern of equipment prices, quantities, and growth is consistent with the belief that countries with rapid growth have favorable supply conditions for machinery and equipment. The pattern is not consistent with the belief that some third factor both pushes up the rate of growth and increases the demand for machinery and equipment...

 

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A Year Ago on Equitable Growth: Fifteen Worthy Reads On and Off Equitable Growth for August 9, 2018

stacks and stacks of books

Worthy Reads from Equitable Growth and Friends:

  1. J. Bradford DeLong: The Ahistorical Federal Reserve: "Economic developments over the past 20 years have taught–or ought to have taught–the US Federal Reserve four lessons. Yet the Fed’s current policy posture raises the question of whether it has internalized any of them.... The proper inflation target... should be 4% per year.... The two slope[s of] the Phillips Curve... are smaller.... Yield-curve inversion... monetary policy is too tight.... Principal shocks have not been inflationary...

  2. Mark Paul, Khaing Zaw, Darrick Hamilton, and William Darity Jr.: Returns in the labor market: A nuanced view of penalties at the intersection of race and gender - Equitable Growth: "Multiple identities cannot readily be disaggregated in an additive fashion. Instead, the penalties associated with the combination of two or more socially marginalized identities interact in multiplicative or quantitatively nuanced ways...

  3. Raymond Fisman, Keith Gladstone, Ilyana Kuziemko, and Suresh Naidu: Do Americans want to tax capital? Evidence from online surveys: "Our regression results yield roughly linear desired tax rates on income of about 14 percent... positive desired wealth taxation... three percent when the source of wealth is inheritance, far higher than the 0.8 percent rate when wealth is from savings.... These tax rates are consistent with reasonable parameterizations of recent theoretical optimal wealth tax formulae...

  4. Equitable Growth: #JOLTS: "The quit rate... historically high level.... The ratio of unemployment-to-job openings trended upward slightly in June to just under 1.0.... The Beveridge Curve continues to be at levels similar to those in the expansion of the early 2000s...

  5. Bridget Ansel and Heather Boushey (2017): Modernizing U.S. Labor Standards for 21st-Century Families: "Boosting women’s economic outcomes [via] paid family leave, fair scheduling, and combatting wage discrimination...

Continue reading "A Year Ago on Equitable Growth: Fifteen Worthy Reads On and Off Equitable Growth for August 9, 2018" »


DeLong Smackdown: Why I Was Wrong Over 2006-2010...

Smackdown/Hoisted: Why I Was Wrong...: Calculated Risk issued an invitation:

Calculated Risk: Hoocoodanode?: Earlier today, I saw Greg "Bush economist" Mankiw was a little touchy about a Krugman blog comment. My reaction was that Mankiw has some explaining to do. A key embarrassment for the economics profession in general, and Bush economists Greg Mankiw and Eddie Lazear in particular, is how they missed the biggest economic story of our times.... This was a typical response from the right (this is from a post by Professor Arnold Kling) in August 2006:

Apparently, the echo chamber of left-wing macro pundits has pronounced a recession to be imminent. For example, Nouriel Roubini writes, "Given the recent flow of dismal economic indicators, I now believe that the odds of a U.S. recession by year end have increased from 50% to 70%." For these pundits, the most dismal indicator is that we have a Republican Administration. They have been gloomy for six years now...

Sure Roubini was early (I thought so at the time), but show me someone who has been more right! And this brings me to Krugman's column:

... Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories? Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world? Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?

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Looking Backwards from This Week at 24, 20, 16, 12, 8, 4, 2, 1, 1/2, and 1/4 Years Ago (July 31-August 6, 2019)

stacks and stacks of books

MUST OF THE MUSTS: James M. Buchanan: The "Social" Efficiency of Education: You have to be able to hold in your mind two things at once in order to understand economist James M. Buchanan: (1) He was a total loon: a strong believer in the de Maistrean trinity of Patriarchy, Orthodoxy, Autocracy as necessary for society—essential Noble Lies; a man who in 1970 wanted to shut down America's universities as teachers of evil, and regretted the failure of nerve that made that impossible; a man who saw Martin Luther King Jr. as a teacher of evil—whose response to the Civil Rights movement and its peaceful civil disobedience campaign was not Edmund Burke's "to make us love our country, our country must be lovely", but rather: how dare MLK claim that an African American should be "openly encouraged to use his own conscience"—rather than shutting up and accepting his subservient Jim Crow position in society! (2) A man who saw things that other economists did not and would not have without him...

 

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A Now-Extended Non-Sokratic Dialogue on Website Design: Hoisted from the Archives

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Hoisted from the Archives: A Now-Extended Non-Sokratic Dialogue on Website Design: What I, at least, regard as an interesting discussion in the comments to my A Very Brief Sokratic Dialogue on Website Redesign: From that post:

Platon: Five requirements?

Sokrates: Yes.... The stream... so... who want to either read what is new or to treat the site as a weblog--that is, have a sustained engagement and conversation with the website considered as a Turing-class hivemind--can do so.... The front-end... to give each piece of content a visually-engaging and subhead-teaser informative welcome mat.... The syndication... to propagate the front-end cards out to Twitter and Facebook.... The stock... a pathway... by which people can pull things written in the past... relevant... to their concerns today.... The grammar: The visually-interesting and subhead-teaser front-end... needs to lead the people who would want to and enjoy engaging with the content to actually do so.... [But,] as William Goldman says, nobody knows anything.

Platon: Is there anybody whose degree of not-knowingness is even slightly less than the degree of not-knowingness of the rest of us?...

Sokrates: My guess... http://www.vox.com--Ezra Klein and Melissa Bell and company--are most likely to be slightly less not-knowing than the rest of us....

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Monday Smackdown: Fafblog: Condi Rice Complains to Customer Service!

Monday Smackdown/Hoisted from the Archives: We Miss Fafblog: Condi Rice Complains to Customer Service!: Not even Fafblog can deal with the Bush administration at the appropriate level. However, it is trying. Here Fafnir interviews Condi Rice:

RICE: First of all, we don't send prisoners off to be tortured, Fafnir. We just transport prisoners to countries where torture happens to be legal and where they happen to end up getting tortured.

FB: Well that explains everything then! It's all just a wacky misunderstanding, like that episode a Three's Company where Jack sends Janet off to Uzbekistan to get boiled alive by the secret police.

RICE: I'd also like to point out that whenever we send a prisoner to a country that routinely tortures prisoners, that country promises us NOT to torture them.

FB: And then they get tortured anyway!

RICE: Yes, they do! It's very strange.

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A Year Ago on Equitable Growth: Twenty Worthy Reads On and Off Equitable Growth for August 2, 2018

stacks and stacks of books

Worthy Reads from Equitable Growth and Its Network:

  1. Anybody looking back at economic history cannot help but note that female physical autonomy and its absence has played an absolutely huge role. Kate Bahn and company are pulling together the evidence that this is not just history—that it still matters a lot in America today: Kate Bahn: Understanding the link between bodily autonomy and economic opportunity across the United States: "All of these connective threads are examined in a forthcoming paper of mine...

  2. Seattle is pursuing (a version of) social democracy in one metropolitan area. In the 2010s we learned from some of our laboratories of democracy (cough, Kansas, Wisconsin) what really not to do. Will Seattle provide a model for what we should do?: Hilary Wething: Seattle: Paid Sick Leave And Workers’ Earnings Dynamics: "Utilize administrative data from Washington state to study the impact of Seattle’s paid sick time ordinance on:...

  3. Let me welcome Will McGrew, who sends us to a very insightful study of government failure and bureaucratic blockage in the New Orleans school system. Since we economists do not have an effective grammar of government failure, there is a tendency (on my part at least) to somewhat overlook it: Will McGrew: "A timely and necessary piece from Haley Correll: quality public schools should be available to all kids in New Orleans, not just those whose parents have the time, information, and resources to navigate the complex application system..."

  4. In my opinion, Arindrajit Dube is one of the best economists around in figuring out what we should control for and why in order to achieve real econometric identification. The contrasting pole is simply to throw in a bunch of controls until you have produced the numbers you want. In my view, we do not teach what should be controlled for and how enough, so people pick it up on the fly. Arindrajit has picked it up, and is a master: Arindrajit Dube: Minimum wages and the distribution of family incomes in the United States: "I find that a 10 percent increase in the minimum wage reduces poverty among the nonelderly population by 2.1 percent and 5.3 percent across the range of specifications in the long run...

  5. Lyndon Johnson said: "You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, 'You are free to compete with all the others,' and still justly believe that you have been completely fair. Thus it is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates.... It is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates.... Equal opportunity is essential, but not enough." However, one of our problems is that that does not seem to be working for even those African-Americans who can and do walk through all of our society's formal and status gates to opportunity: Khaing Zaw, Jhumpa Bhattacharya, Anne Price, Darrick Hamilton, and William Darity, Jr.: A College Degree and Marriage Fail to Yield Significant Wealth Gains for Black Women: "[In] the story of the American Dream... a college education is viewed as a key driver of upward mobility and the primary vehicle to eradicate racial differences...

Continue reading "A Year Ago on Equitable Growth: Twenty Worthy Reads On and Off Equitable Growth for August 2, 2018" »


Monday Smackdown/Hoisted from the Archives: Four Huge Mistakes in One Short Piece by John Taylor

Smackdown

Hoisted from the Archives: Four huge mistakes in this here by John Taylor:

  1. That the low-interest rate economy of 2004-2007 was in an inflationary boom, rather than an economy that barely managed to reach any definition of "full employment" even though supercharged boy three things—low interest rates, expansionary fiscal policy, plus a huge irrationally-exuberant asset-price bubble.

  2. That low interest rates since 2007 represent a discretionary choice by central banks, rather than reflecting the fact that any central bank wanting to avoid permanent depression must accommodate itself to the low level fo the Wicksellian neutral interest rate.

  3. That as of 2017 interest rates were about to normalize.

$. That the Republican policy package of regulatory rollback and tax cuts for the rich would provide a large boost to investment spending and, through that channel, productivity growth.

None of those have panned out as intellectual bets.

Yet John Taylor today exhibits no visible curiosity as to why they did not.

This strongly suggests to me that none of them were meant seriously in the first place—that it was always disinformation, and never an analytical judgment, and thus subject to revision as knowledge advanced:

John Taylor (March 2017): Sluggish Future: Policy Is The Problem: "Secular stagnation... raises inconsistencies and doubts. Low policy interest rates set by monetary authorities... before the financial crisis were associated with a boom characterized by rising inflation and declining unemployment—not by the slack economic conditions and high unemployment of secular stagnation. The evidence runs contrary to the view that the equilibrium real interest rate—that is, the real rate of return required to keep the economy’s output equal to potential output—was low prior to the crisis. And the fact that central banks have chosen low policy rates since the crisis casts doubt on the notion that the equilibrium real interest rate just happened to be low. Indeed, in recent months, long-term interest rates have increased with expectations of normalization of monetary policy.... The United States needs another dose of structural reform—including regulatory, tax, budget, and monetary—to provide incentives to increase capital investment and bring new ideas into practice.... There is hope for yet another convincing swing in the policy-performance cycle to add to the empirical database...

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Annual Celebration of the John Bell Hood-Max von Gallwitz Society!

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Hoisted from the Archives: The John Bell Hood-Max von Gallwitz Society!: Dedicated to celebrating the memory of two field commanders who may well have been the worst in history. Drink a toast to John Bell Hood on the 7/28 anniversary of his defeat at Ezra Church:

Hood... moved his troops out to oppose the Union army... planned to intercept them and catch them completely by surprise.... Unfortunately for Hood... Howard had predicted such a maneuver based on his knowledge of Hood from their time together.... His troops were already waiting in their trenches when Hood reached them. The Confederate army also had not done enough reconnaisance... and made an uncoordinated attack.... In all, about 3,642 men were casualties; 3,000 on the Confederate side and 642 on the Union side...

And drink a toast as well to Max von Gallwitz—perhaps the only Imperial German commander who could have turned the Somme into a draw!...

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A Year Ago on Equitable Growth: Fifteen Worthy Reads On and Off Equitable Growth for July 26, 2018

stacks and stacks of books

TOP MUST REMEMBER: What I call 'Bob Rubin's End-of-Meeting Questions'. Ask them! They really work!: Annie Duke: Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts: "In fact, questioning what you see or hear can get you eaten. For survival-essential skills, type I errors (false positives) were less costly than type II errors (false negatives). In other words, better to be safe than sorry, especially when considering whether to believe that the rustling in the grass is a lion. We didn’t develop a high degree of skepticism when our beliefs were about things we directly experienced, especially when our lives were at stake...

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Karl Marx, First Real Business Cycle Theorist: Hoisted from the Archives

J Bradford DeLong s Awesome Presentation On The History Of The Bank Bailout Business Insider

Hoisted from the Archives: Nine years ago: Karl Marx, First Real Business Cycle Theorist: We see the affinity between Karl Marx and the Pain Caucus in his notes on crises in Theories of Surplus Value. Negative supply shocks and missed collective guesses on what the extent of the market will be in the future create overaccumulation and overproduction. Marx is very clear that the monetary crisis theorists--like John Stuart Mill--must be wrong, and that the system cannot run itself without crises.

In Marx this is one of the reasons why the system is abominable and must be overthrown. For the Pain Caucus the conclusion is opposite: because the system is good crises must be suffered.

Karl Marx:

Theories of Surplus-Value, Chapter 17: "When speaking of the destruction of capital through crises, one must distinguish between two factors...

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Monday Smackdown/Hoisted from the Archives: Scott Sumner Knew Better than to Do This!

Smackdown

Hoisted from 2011: Sumner really knew better than to do this, and really ought to have restrained himself:

Scott Sumner: A Slightly Off-Center Perspective on Monetary Problems: "They are both basically saying: 'if we hold nominal spending constant, fiscal policy can’t fix it.'... [I]t’s really rather sad when people like Krugman and Brad DeLong keep insisting that these guys don’t understand basic macro principles.... I don’t know for sure that Fama was using the same implicit assumption... [but] I think it quite likely that Fama was also cutting corners.... Lots of brilliant people talking past each other.... Welcome to elite macroeconomics, circa 2011.... If I was going to assign blame I’d single out Krugman/DeLong for rudeness and Fama/Cochrane for poor communication skills...

Me:

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A Year Ago on Equitable Growth: Twenty Worthy Reads from the Past Week or so: July 19, 2018

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TOP MUST REMEMBER: Here is the website for Zucman, Wier, and Torslavon's work on missing profits from tax avoidance and tax evasion (yes, I have decided I should spend some time occasionally listing paper authors in reverse alphabetical order): Gabriel Zucman et al.: The Missing Profits of Nations: [Working paper][1], June 2018. [Online appendix][2], June 2018. [Presentation slides][3], June 2018...


Worthy Reads on and from Equitable Growth:

  1. Here is the website for Zucman, Wier, and Torslavon's work on missing profits from tax avoidance and tax evasion (yes, I have decided I should spend some time occasionally listing paper authors in reverse alphabetical order): Gabriel Zucman et al.: The Missing Profits of Nations: [Working paper][1], June 2018. [Online appendix][2], June 2018. [Presentation slides][3], June 2018...

  2. I have not yet welcomed the extremely sharp Kate Bahn to Equitable Growth: Equitable Growth: Kate Bahn: "Her areas of research include gender, race, and ethnicity in the labor market, care work, and monopsonistic labor markets.... She was an economist at the Center for American Progress. Bahn also serves as the executive vice president and secretary for the International Association for Feminist Economics.... She received her doctorate in economics from the New School... and her Bachelor of Arts... from Hampshire...

  3. Wealth inequality measures have been grossly understating concentration because of tax evasion and tax avoidance in tax havens: Annette Alstadsæter, Niels Johannesen, and GabrielZucman: Who owns the wealth in tax havens? Macro evidence and implications for global inequality: "This paper estimates the amount of household wealth owned by each country in offshore tax havens...

  4. The "optimal tax" literature in economics has always been greatly distorted by the fact that models simple enough to solve bring with them lots of baggage that leads to misleading—and usually anti-egalitarian and anti-equitable growth—conclusions that would not follow if we had better control over our theories. Here Saez and Stantcheva make significant progress in resolving this problem: Emmanuel Saez and Stefanie Stantcheva: A simpler theory of optimal capital taxation: "We first consider a simple model with utility functions linear in consumption and featuring heterogeneous utility for wealth..

  5. Very much worth reading from Equitable Growth alum Nick Bunker: Nick Bunker: Puzzling over U.S. wage growth: "Hiring has not been particularly strong during this recovery...

Continue reading "A Year Ago on Equitable Growth: Twenty Worthy Reads from the Past Week or so: July 19, 2018" »


Risks of Debt: The Real Flaw in Reinhart-Rogoff: Hoisted from the Archives

There never was a 90% cliff. And most of the downward slope in teh scatter came not from debt accumulation but from growth that had been slow for other reasons. See Owen Zidar (2013): Debt to GDP & Future Economic Growth:

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Hoisted from the Archives: Risks of Debt: The Real Flaw in Reinhart-Rogoff: 2013: A country that spends and spends and spends and spends and does not tax sufficiently will eventually run into debt-generated trouble. Its nominal interest rates will rise as bondholders fear inflation. Its business leaders will hunker down and try to move their wealth out of the corporations they run for fear of high future taxes on business. Real interest rates will rise because of policy uncertainty, and make many investments that are truly socially productive unprofitable. When inflation takes hold, the web of the division of labor will shrink from a global web he'd together by thin monetary ties to a very small web solidified by social bonds of trust and obligation—and a small division of labor means low productivity. All of this is bound to happen. Eventually. If a government spends and spends and spends but does not tax sufficiently.

But can this happen as long as interest rates remain low? As long as stock prices remain buoyant? As long as inflation remains subdued. My faction of economists—including Larry Summers, Laura Tyson, Paul Krugman, and many many others—believe that it will not...

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The Fed now seems to be saying: "We misjudged the situation late last year. We are going to reverse our policy. But not quite yet." And I do not understand the frame of mind in which that is a coherent system of thought. I wish they would explain: Tim Duy: Rate Cut On The Way: "The Fed turned... dovish... basically announcing a July rate cut as clearly as they could without taking out an ad in the Wall Street Journal... increased 'uncertainties'... 'muted inflation pressures'.... The proximity to the lower bound coupled with low inflation was always going to lead the Fed to err on the side of a rate cut. It just took them some time to find their way there.... The dot plot was far more dovish than I anticipated.... Eight participants expecting lower rates.... Forecasts were dovish as well.... Market participants have priced in a 100% change of a rate hike in July. The 2 year treasury yield is also begging the Fed to cut rates.... It would take some spectacular data to call the July cut into question.... It would be exceedingly difficult to pull back on a rate cut now. Nor is there any reason to...

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Hoisted from Six Years Ago: To Steal a Line from Leon Trotsky: "Every Man Has a Right to Be Stupid, but John Cochrane Abuses the Privilege..."

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Hoisted from the Archives: Stupidity Is a Willed Choice Files: John Cochrane: Reading Paul Krugman calls to mind that I never reacted to John Cochrane's July 2012 failure to mark his beliefs to market and, instead, doubling down on his claim that the biggest risk the U.S. economy faces is that of becoming "Argentina" "quickly".

I must say that if I had been opining stridently about issues of public policy without doing my homework five years ago, and if between then and now events had developed in directions strongly contrary to my expectations, I would not double down on what I had thought then--I would rather try hard to do my homework and to mark my beliefs to market.

And if I were going to criticize people for not citing my work, I would not claim that a sentence they wrote which comes immediately after a four-paragraph quote from me as an example, and I would have read their explanation of why they think expansionary fiscal policy right now does not raise the risks of "fiscal dominance" rather than remain in ignorance of it.

But to each his own!

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Hoisted from the Archives: John Cochrane's Claim in Late 2008 That a Recession Would Be a Good Thing Deserves Some Kind of Award...

Hoisted from the Archives: The fact is that by the end of 2007 the construction sector had rebalanced: there was no excess of people pounding nails in Nevada—even if you did believe the false theory that recessions have recessions do the "necessary work of rebalancing", there was no rebalancing work to be done after 2007. Even a quarter-competent Schumpeterian who kept even half an eye on the data should have been able to recognize that...

More than Two Decades of Macroeconomic History Through the Lens of Four Key Components of Aggregate Demand


To: @johnmlippert: If I may beg a small slice of your attention...

I am tracking down John Cochrane's claims that (i) in your December 23, 2008 article you were "only... on a hunt for embarrassing quotes", (ii) he had "spent about 10 hours patiently trying to explain some basics" to you, and (iii) you took him out of proper context when you wrote: "'We should have a recession', Cochrane said in November, speaking to students and said in November, speaking to students and investors in a conference room.... 'People who spend their lives pounding nails in Nevada need something else to do'."

Do you by chance remember the larger context of Cochrane's "pounding nails" comment, and do you have any idea why he now claims that you took him out of context? Or what he thinks the proper context would have been?

I would be grateful for any light you can shed on this.

Yours,

Brad DeLong brad.delong@gmail.com


John M. Lippert: "Hi Professor DeLong.

Thanks for your note. Professor Cochrane’s complaint is something of which I became aware several months after we published our story in 2008.... The bottom line is that Bloomberg did not respond to Cochrane’s comments. He never sent them to us, despite my request that he do so.

When we became aware of his complaint, we saw no reason to make a correction. Cochrane made the ‘pounding nails’ comment at a Chicago Booth forum at the Gleacher Center in downtown Chicago in November 2008. It was part of an ongoing lecture series, as I recall. It was kind of a big event, with a couple hundred people. So they may have a recording that you can access.

Good luck with your inquiries.

Tks,

John Lippert

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The Intergenerational Burden of the Debt: Nick Rowe Tempts Fate Weblogging: Hoisted from the Archives

Cursor and 30 Year Treasury Inflation Indexed Security Constant Maturity FRED St Louis Fed

Until secular stagnation ends—until the yield on U.S. government debt exceeds the growth rate of the economy—worry about reducing of even stabilizing the debt-to-GDP ratio of a country like the U.S. that has assume running room via financial repression to stabilize demand for its debt is premature. Thus the takeaway is this: It would be much more productive right now to worry about how do we maintain normal levels of net investment in a high government debt post-interest rate normalization environment than to propose sending the economy back into recession in order to reduce government debt accumulation. Recession and high unemployment in the short- and medium-run are problems. Low investment in the medium- and long-run are problems. Government debt is a tool to avoid the first and a source of risk of the second. But it is better to keep your mind focused on the things that are real problems:

Hoisted from the Archives: The Intergenerational Burden of the Debt: Nick Rowe Tempts Fate Weblogging...: Nick Rowe:

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Economists Think of Most Lawyers Like Cats Think of Small Birds: Hoisted from the Archives

Hoisted from the Archives: Economists Think of Most Lawyers the Way Cats Think of Small Birds: June 13, 2002: I find that right-wingers Glenn Reynolds, Tom Maguire, and company have elevated me to the high and mighty rank of Democratic Party Hack. Alas! The real ideological partisans scorn me: I have too great a tendency to think about what I should say and then say what I think, rather than to simply jerk my knee and line up in my assigned place on some ideology- or patronage-based team.... Reynolds and company want very badly to say something critical about... Paul Krugman. Unfortunately for them, Krugman's recent column has nothing to take exception to.... So since they can't argue substance, they decide to try to argue procedure.

I can imagine what they thought: "Paul Krugman quotes Brad DeLong! And he doesn't say that DeLong was Deputy Assistant Secretary of the Treasury in the Clinton administration!! That's 'material nondisclosure'!!! Krugman has done a bad thing!!!!" Never you mind that this isn't an issue on which there is any partisan dispute, and thus that 'disclosure' of the partisan allegiance of one's sources is not relevant. To an economist like me this style of—let's be polite, and call it "lawyerlike"—discourse is sad.... Try your best to make the listener forget what the big issue is (in this case, is Krugman right?)--and, instead, argue that there is something wrong with your adversary's procedure. This is, I think, the reason that we economists regard most lawyers like cats regard small birds: Flighty things. Unable to keep their minds focused on what matters. And our lawful prey.

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Hoisted from Eleven Years Ago: Poverty Traps: The High Price of Investment Goods in Poor Countries

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Hoisted from Eleven Years Ago: Poverty Traps: The High Price of Investment Goods in Poor Countries http://www.bradford-delong.com/2007/06/poverty-traps-t.html:Here is how Larry Summers and I formulated it back in the early 1990s, and I believe that we were correct:

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DeLong Smackdown Watch: Yield Curve: Hoisted from the Archives from 2006

Ooh boy. Was I wrong in 2006. I am not betting against the yield curve again:

From 2006: DeLong Smackdown Watch: Yield Curve: Worthwhile Canadian Initiative thinks I'm wrong when I write: Yes, we should be worrying about the US yield curve: This inversion of the yield curve, however, is generated not by domestic investors' thinking that a recession is on the way, but by foreign central banks' desires to keep buying lots of dollar-denominated bonds in order to keep their currencies from appreciating. Thus while an inverted yield curve is usually a sign that a bunch of people are trading bonds on their belief that a recession is likely, that is not what is going on in this case...

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A Year Ago on Equitable Growth: Twenty Worthy Must- and Should-Reads from the Past Week or so: June 7, 2018

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Worthy Readings at Equitable Growth:

  1. That monetary policy is best which avoids creating needless unemployment while still maintaining confidence in the value of the unit of account. Yet surprisingly little thought has been devoted to figuring out which monetary policy jumps the highest with respect to this objective: Nick Bunker: Getting on the level with the Fed’s targeting of prices: "John Williams’s move to New York is a sign that the Federal Reserve may soon reconsider its target for monetary policy. It’s not clear whether a new target would emerge from such a process or how radical a change current members of the FOMC would consider. The current inflation targeting structure may have gotten the U.S. economy to where it is, but it took some time. A quicker recovery from the next recession would be to the benefit of everyone in the U.S. economy. So, a rethink is needed. Hopefully it’s coming soon..."

  2. I think "top 20%" is wrong. The fact that most of percentiles 80%-97% perceive themselves as having catastrophically lost the game of relative status vis-a-vis percentiles 98% and 99%—and that most of percentiles 98% and 99% perceive themselves as having catastrophically lost the game of relative status vis-a-vis the 99.9%, and most of the 99.9% perceive themselves as having catastrophically lost the game of relative status vis-a-vis 99.99% makes arguing that they have in some sense succeeded in realizing a dream that they now hoard a hard argument to make: Richard Reeves: Equitable Growth in Conversation_: "Dream hoarders... are the people at the top... the winners of the inequality divide... the top 20 percent roughly of the income distribution. That means they earn healthy six-figure household incomes, with average incomes of about $200,000 a year..."

  3. There was a lot of noise about how giving repatriated profits a tax break would boost investment in America. As near as I can see it, none of it was well-founded at all: Kimberly Clausing: Equitable Growth in Conversation: "We are distorting repatriation decisions by having this repatriation tax. But I don’t think we’re dramatically changing the investments found in the United States. The companies that have profits abroad can borrow against them to finance any desired investment. And some of the money isn’t really truly abroad—it’s invested in U.S. assets..."

  4. This web page at Slate has the wrong headline. It should be: "Education Won’t Solve Inequality: Not without workers’ power too". Sigh. On the substance, blaming increasing inequality on "Skill Biased Technical Change" was always a non-sequitur. Given the way the models were set up, SBTC was a residual: anything that diminished worker bargaining power was going to be labeled "SBTC" regardless of what it really was: Kate Bahn: Study: Unions increasingly represent educated workers: "Herbst, Kuziemko, and Naidu throws a wrench in the SBTC [Skill-Biased Technical Change] explanation of rising inequality. They find that the education level of union members also followed a U-shape curve from 1936–2016..."

  5. Looking forward to what we can learn from this BLS initiative: Kate Bahn: New data on contingent workers in the United States: "On Thursday, June 7, the U.S. Bureau of Labor Statistics will release data from its freshly collected Contingent Worker Supplement. It’s important for policymakers and economists alike to know what to look for ahead of Thursday’s data release..."

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Joseph Schumpeter on "Liquidationism": Hoisted from the Archives

Il Quarto Stato

Hoisted from the Archives: Joseph Schumpeter on "Liquidationism": Hoisted from the Archives: "The problems presented by periods of depression may be grouped as follows: First, removal of extra economic injuries to the economic mechanism: Mostly impossible on political grounds. Second, relief: Not only imperative on moral and social grounds, but also an important means to keep up the current of economic life and to steady demand, although no cure for fundamental cases. Third, remedies: The chief difficulty of which lies in the fact that depressions are not simply evils, which we might attempt to suppress, but—perhaps undesirable—forms of something which has to be done, namely, adjustment to previous economic change. Most of what would be effective in remedying a depression would be equally effective in preventing this adjustment. This is especially true of inflation, which would, if pushed far enough, undoubtedly turn depression in to the sham prosperity so familiar from European postwar [i.e., World War I] experience, but which, if it be carried to that point, would, in the end, lead to a collapse worse than the one it was called in to remedy...

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A Year Ago on Equitable Growth: Twenty Must- and Should-Reads from the Week of May 31, 2018 for si...

stacks and stacks of books

Five Worthy on Equitable Growth:

  1. From two years ago: a minimum wage meta-analysis: Arindrajit Dube and Ben Zipperer: Pooling multiple case studies using synthetic controls: An application to minimum wage policies | Equitable Growth

  2. Worth reading from last October: Darrick Hamilton: Post-racial rhetoric, racial health disparities, and health disparity consequences of stigma, stress, and racism | Equitable Growth

  3. Also worth reading from last October: Papers from our co-hosted antitrust symposium: Michael Kades: Unlocking Antitrust Enforcement: New Yale symposium examines proposals to make antitrust enforcement more effective | Equitable Growth

  4. Nick Bunker gathers scattered threads and sets out the issues: Nick Bunnker: Puzzling over U.S. wage growth

  5. As I say, this is exactly the kind of debate we should be hosting and encouraging: Jesse Rothstein: Inequality of Educational Opportunity? Schools as Mediators of the Intergenerational Transmission of Income: "Chetty et al. (2014b) show that children from low-income families achieve higher adult incomes... in some commuting zones (CZs) than in others...

 

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Interview: "NAFTA Is Just Not a Big Deal for the U.S.": Hoisted from the Archives from 2017

Shenzhen skyline 2015 Google Search

Joseph Ford Cotto: J. Bradford DeLong says "NAFTA is just not a big deal for the U.S.", explains why: "Support for Bernie Sanders and the Donald did not rise out of nowhere, after all. In such turbulent waters as these, it is important to seek the guidance of a wise, seasoned captain. Insofar as the sea of dollars and cents is concerned, J. Bradford DeLong is just that fellow. He is "a professor of economics at UC Berkeley, a weblogger for the Washington Center for Equitable Growth http://equitablegrowth.org/blog, a research associate of the National Bureau of Economic Research, and former deputy assistant secretary of the U.S. Treasury in the Clinton administration .... He also writes the weblog Grasping Reality: http://bradford-delong.com," as DeLong's U.C.B. biography explains. Dr. DeLong recently spoke with me about many topics relative to our nation's economy. Some of our conversation is included below....

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

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

FRED Graph FRED St Louis Fed

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A Year Ago on Equitable Growth: Twenty Worthy Reads from the Week Before May 24, 2018

Hoisted From the Archives**: Worth Reading from A Year Ago

Five Things Worthy at Equitable Growth:

  1. Austin Clemens and Heather Boushey: Disaggregating growth: "NIPA... were a radical advance in economic measurement when they were instituted.... The lack of data on how income is distributed is especially glaring now in the face of rapidly increasing economic inequality.... Instead of revolutionizing GDP, U.S. policymakers should evolutionize it... add an explicitly distributional component to GDP..."

  2. Hold it! Why does the spread of Microsoft Office shift workers away from "non routine analytic" and toward "routine cognitive and routine manual" tasks?: Enghin Atalay et al.: New technologies and the labor market: "Most new technologies are associated with an increase in nonroutine analytic tasks, and a decrease in nonroutine interactive, routine cognitive, and routine manual tasks.... Through the lens of the model, the arrival of ICTs broadly shifts workers away from routine tasks, which increases the college premium. A notable exception is the Microsoft Office suite, which has the opposite set of effects..."

  3. And I do think that grappling with the work and legacy of John Kenneth Galbraith is a very important but rarely operated railway line within economics. So I put a signpost to it here: Brad DeLong: Galbraithian economics: Countervailing power edition | Equitable Growth

  4. Is this a worthwhile and successful way of doing something roughly aligned with but substantially different from not only Mark Thoma but also Liz Hipple: Weekend Reading: a weekly post... with links to articles that touch on economic inequality and growth...? Brad DeLong: Worthy reads on equitable growth, May 10-17, 2018

  5. Jacob Robbins: How the rise of market power in the United States may explain some macroeconomic puzzles: "Surprising... facts about... growth and rising... inequality.... 1. Financial wealth has increased... despite no real increase in... investment.... 2. The financial value of many firms now is permanently higher than the cost of their assets.... 3. These more valuable firms haven’t invested more.... 4. The average rate of return on capital has stayed steady while interest rates have dropped. 5. The share of income going to labor... has declined.... The driving force behind them is an increase in monopoly power together with a decline in interest rates...

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"Neoliberalisms", Left and Right: Hoisted from the Archives

stacks and stacks of books

Hoisted from the Archives: From 2015: _"Neoliberalisms", Left and Right: Today's best piece I have read on the internet is by the extremely sharp John Quiggin: The Last Gasp of (US) [Left-]Neoliberalism: "US neoliberalism is... closer to Blair’s Third Way than to Thatcher....

...[US] neoliberalism maintained and even extended ‘social liberalism’, in the US sense of support for equal marriage, reproductive choice and so on. In economic terms, its central claim was that the goals of the New Deal... could best be pursued through market-friendly policies that would earn the support of the financial sector.... [The] signature issues for US neoliberals were free trade, cuts in ‘entitlement’ spending, and school reform... a ‘grand bargain’, in which Republicans would accept minimal increases in taxation in return for the abandonment of most of the Democratic program. The Clinton administration was explicitly neoliberal.... And, while Obama’s 2008 election campaign was masterfully ambiguous, his first Administration neoliberal through and through.... But developments since then, including the global financial crisis, the failure of school reform and increasing awareness of entrenched inequality have destroyed the appeal of neoliberalism...

I think that John Quiggin is largely correct—if you correct "abandonment" to "reconfiguration".

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