From the past. Worth highlighting. Why? Because when the nest recession comes, the usual suspects will once gain start claiming the the should not do anything to shorten or cushion it. And the usual suspects will once again be wrong: **Paul Krugman** (2008): _[Hangover Theorists](https://krugman.blogs.nytimes.com/2008/12/27/hangover-theorists/)_: "Somehow I missed this: via Steve Levitt, John Cochrane explaining that recessions are _good_ for you.... The basic idea is that a recession, even a depression, is somehow a necessary thing, part of the process of 'adapting the structure of production'. We have to get those people who were pounding nails in Nevada into other places and occupation, which is why unemployment has to be high in the housing bubble states for a while. The trouble... is twofold: 1. It doesn’t explain why there isn’t mass unemployment when bubbles are growing as well as shrinking—why didn’t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business? 2. It doesn’t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble.... The current slump is affecting some non-housing-bubble states as or more severely as the epicenters of the bubble.... Unemployment is up everywhere. And while the... Continue reading

**Note to Self**: Trying (without much success) to gain some intuition with respect to what Gini coefficient _mean_: ---- #equitablegrowth #incomeinequality #notetoself Continue reading

**Josiah Ober**: _[The Greeks and the Rational: The Discovery of Practical Reasons](http://www.classics.berkeley.edu/people/sather/josiah-ober)_: "September 19 Lecture 1. Gyges’ Choice: Rationality and Visibility. September 26 Lecture 2. Glaucon’s Dilemma: Origins of Social Order. Lecture 3. Deioces’ Ultimatum: How to Choose a King. Lecture 4. Cleisthenes’ Wager: Democratic Rationality. Lecture 5. Melos’ Prospects: Rational Domination. Lecture 6. Agamemnon’s Cluelessness: Reason and Eudaimonia... >...After earning his PhD in History at the University of Michigan in 1980, Professor Ober took up positions at Montana State University (1980-1990) and Princeton University (1990-2006) before joining the faculty at Stanford, where he is currently Constantine Mitsotakis Professor in the School of Humanities and Sciences, with a joint appointment in Classics and Political Science as well as a courtesy appointment in Philosophy. This transdisciplinary position well reflects the ambitious reach of Professor Ober’s scholarship, which ranges from ancient Greece to the contemporary world and across political and economic theory, cultural studies, philosophy, and the history of democratic institutions. >Professor Ober is the author of about 85 articles and a very long list of game-changing books, including _Mass and Elite in Democratic Athens_ (Princeton, 1989), which won the Goodwin Award (for “best book of the year”) of the Society for... Continue reading

I never understood why so many people were desperate to interpret financial crises as things that destroyed firms' abilities to produce rather than things that made people want to hoard their cash. Yes, a numbers of firms are short of cash and need trade credit. But most healthy firms do not: **Felipe Benguria and Alan M. Taylor**: _[After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade](https://www.nber.org/papers/w25790)_: "Are financial crises a negative shock to demand or a negative shock to supply?... Arguments for monetary and fiscal stimulus usually interpret such events as demand-side shortfalls. Conversely, arguments for tax cuts and structural reform often proceed from supply-side frictions.... simple small open economy... deleveraging shocks that impose binding credit constraints on households and/or firms.... Household deleveraging shocks are mainly demand shocks, contract imports, leave exports largely unchanged, and depreciate the real exchange rate. Firm deleveraging shocks are mainly supply shocks, contract exports, leave imports largely unchanged, and appreciate the real exchange rate.... Empirical analysis reveals a clear picture: after a financial crisis event we find the dominant pattern to be that imports contract, exports hold steady or even rise, and the real exchange rate depreciates. History shows that,... Continue reading

I confess that I am a profound skeptic about deep negative nominal interest rates. A slightly higher inflation target and policies to fight the asset price configuration called "secular stagnation" would largely obviate the need, and leave behind a problem easily and straightforwardly dealt with via expansionary fiscal policy. And we really do not know how such an institutional reconfiguration would actually work. Confronted with a choice between known and understood policies that would work, and new ones with unknown side effects and effects that might, I do not undertstand the enthusiasm for the second: **Ruchir Agarwal and Miles Kimball**: _[Enabling Deep Negative Rates to Fight Recessions: A Guide](https://www.imf.org/en/Publications/WP/Issues/2019/04/29/Enabling-Deep-Negative-Rates-A-Guide-46598)_: "we (i) survey approaches to enable deep negative rates... (ii) establish... enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms... are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use... ---- #noted Continue reading

I think Kevin Drum is wrong here: if Trump were merely a race-baiter, he could turn it and and off—and would, for tactical effectiveness reasons. He can't turn it off. The _Washington Post_ of course has bigger problems: it's not a "branding crisis": **Kevin Drum**: _[Here’s How Donald Trump Can Fix His Racist Branding Problem](https://www.motherjones.com/kevin-drum/2019/08/heres-how-donald-trump-can-fix-his-racist-branding-problem/)_: "The Washington Post has a headline today that makes you go hmmm: 'Trump Vexed by Branding Crisis: How to Shed the Label of "Racist".' I think we all have a pretty good idea of how Trump could avoid being called a racist. He could stop saying racist stuff all the time. Easy peasy. For my money, I probably wouldn’t call Trump a racist.... I’d call him a race-baiter... someone who may or may not be personally racist but is perfectly happy to make money or win political office by appealing to racists.... Race-baiters the most dangerous of them all. Fox News is far worse than their viewers and Donald Trump is far worse than his base. Those are the people to fight, not the yahoos who yell 'Send them back!' at Trump rallies. Without Trump, they’d just be sitting at home and occasionally telling off-color... Continue reading

Four hours spent so far, and I am only 160 pages into Thomas Pikietty's _Capital et Ideologie_ ... I can no longer claim to "read French" in anything other than a menus-and-street-signs sense... ---- #books #economichistory #equitablegrowth #noted #politicaleconomy Continue reading

Telling lies about what the law has been in the past in the hope of persuading people that this is how the law should be in the future: this is a very strange mode of rhetoric indeed... I suppose we owe this to Sir Edward Coke: "I am afraid we should get rid of a great deal of what is considered law in Westminster hall, if what Lord Coke says without authority is not law..."—William Best (1824). ---- #cognitive #moralresponsibility #neofascism #noted #orangehairedbaboons Continue reading

**David Glasner**: _[Wherein Hayek Agrees with DeLong that Just Because You’re Rich, It Doesn’t Mean You Deserve to Be | Uneasy Money](https://uneasymoney.com/2017/01/05/wherein-hayek-agrees-with-delong-that-just-because-youre-rich-it-doesnt-mean-you-deserve-to-be/)_: "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... Continue reading

**Gary Forsythe**: _[A Critical History of Early Rome](https://delong.typepad.com/forsythe-rome.pdf)_: "Beloch (1926, 602) estimated that at the end of the Latin War Roman territory had grown to 5,289 square kilometers, which is about three and a half times his estimate of 1,510 square kilometers for the size of the Roman state in 396 B.C., following the conquest and annexation of Veii. Under the Varronian year 332 B.C., Livy (8.17.10) records that the Romans concluded a treaty with Alexander, the king of Epirus and the uncle of Alexander the Great, who had crossed over into southern Italy at the request of Tarentum in order to defend the Greek cities from the expanding pressure of Oscan-speaking people.15 The only major military operations conducted by the Romans during these years were directed against the Volscian town of Privernum (Livy 8.20–21). This minor war, however, offers perhaps the first clear picture of Roman stan- dard methods and thoroughness in dealing with resistance. After putting up a valiant effort against Rome for a few years, Privernum was finally cap- tured in 329 B.C., and the principal leader of the resistance, Vitruvius Vaccus, was apprehended and executed, while the senators of Privernum were sentenced to live north of... Continue reading

Tim Duy believes that the Fed will cut interest rates fast enough and far enough to avoid a recession, and that that—rather than a recession—is the scenario driving the current inversion of the yield curve. After the recent declines in interest rates, I would give that only a 50-50 chance of being true. Equilibria are fragile, and multiple. At an equity P/E of 20, a 100 basis-point fall in the very long bond rate should carry with it a 20% increase in equity value, holding risk adjusted expected future cash flows constant. Yet the S&P composite has not moved since late October. That is a hell of a large fall in risk adjusted expected future cash flows: **Tim Duy**: _[On Rising Recession Probabilities](https://blogs.uoregon.edu/timduyfedwatch/2019/08/12/on-rising-recession-probabilities/)_: "My interpretation is that market participants have correctly anticipated the Fed’s reaction function with the expectation of substantial easing in the months ahead hence creating the inversion on the short end. This easing will be sufficient to derail impending recessionary threats. If the Fed’s easing was expected to be insufficient, I would expect that the 10s2s spread would be inverted. Consequently, at this point I still do not expect a recession in the near year. Under my... Continue reading

I would like to say that the very sharp Rana Foroohar is wrong here, that global recession probabilities are low. The problem is that we live in a world of multiple equilibria, and so—if enough people are now thinking like she is thinking—she may well be right: **Rana Foroohar**: _[Braced for the Global Downturn](https://www.ft.com/content/70f043c2-b9f3-11e9-8a88-aa6628ac896c)_: "Well-meaning central bankers cannot offset the impact of an erratic US president on the real economy.... Last week’s market volatility... at heart, it’s about the inability of the Federal Reserve to convince us that its July rate cut was merely 'insurance'... Any number of indicators now show... [that] the global downturn has already begun. Asset prices will undoubtedly begin to reflect this, and possibly quite soon.... 'US equities are at the second most expensive period in 150 years', says Mr Lindahl. 'Prices must fall'. I don’t think it’s a question of whether we’ll see a crash—the question is why we haven’t seen one yet... ---- #noted Continue reading

**Comment of the Day**: _[Ebenezer Scrooge](https://www.bradford-delong.com/2019/03/comment-of-the-day-6.html?cid=6a00e551f0800388340240a44c8d5b200c#comment-6a00e551f0800388340240a44c8d5b200c)_: "I've never met an absolute property right. Every damned one of them has an exception. Even a person's right to their own labor—the inalienable right guaranteed by the 13th Amendment—is subject to the draft, imprisonment, and covenants not to compete. Non-allodial rights in real estate are conditional on paying taxes and subject to takings. (While on takings, not all takings are compensated.) Copyright is subject to fair use. Property rights of use ('enjoyment', in the Hegelian trichotomy) are subject to many restrictions—consider all the things you could do with a baseball bat that would result in jail time. Property rights of exclusion or alienation I'll leave as an exercise to the reader. Etc., etc. The proper term is 'strong' property right.... ---- #commentoftheday Continue reading

**Brad DeLong, Reed Hundt, and Joshua Cohen**: _[Neoliberalism and Its Discontents](https://www.commonwealthclub.org/events/archive/podcast/neoliberalism-and-its-discontents)_: "At the end of the Carter administration and throughout the Reagan Revolution, belief in the power of markets became America's preferred economic policy doctrine. President Bill Clinton all but announced the triumph of free markets when he declared that 'the era of big government is over'. President Barack Obama faced the worst economic crisis since the Great Depression and pushed a recovery plan that was more limited than many had hoped, seeming to protect the very sectors that had created it.... In his new book, _A Crisis Wasted_, Reed Hundt... makes the argument that Obama missed an opportunity to push for a new progressive era of governance, a miscalculation that ultimately hobbled his administration.... A very special conversation between Hundt and DeLong about the limits of, and challenges to, free-market economics... in conversation with Joshua Cohen, co-editor of Boston Review... ---- #noted #highlighted #neoliberalism #politicaleconomy #longform Continue reading

**Frederick Douglass** (1870): _[The Cause of Death of Robert E. Lee](https://thereconstructionera.com/frederick-douglass-identifies-the-cause-of-death-of-robert-e-lee-in-1870/)_: "We are beginning to get at the cause of General Lee's death. Jeff. Davis says, that 'he died of a broken heart'; and one journal has declared, that he died being sadly depressed at the condition of the country, that he could stand it no longer. From which we are to infer, that the liberation of four millions of slaves and their elevation to manhood, and to the enjoyment of their civil and political rights, was more than he could stand, and so he died... ---- #noted Continue reading

Moral fault attaches to anyone who supports the _New York Times_. That is all. ---- #noted Continue reading

**Note to Self**: [30-Year Treasury bonds continue astonishingly, bizarrely low](https://fred.stlouisfed.org/series/DGS30): It is no longer the case that they are at their lowest levels ever, but this from Dan Alpert still makes immense sense: **Dan Alpert**: _["We awake this morning](https://twitter.com/DanielAlpert/status/1161235480052228097)_ to an all-time low yield on 30 year US Treasury bond: 2.107%. This is nearly 40 basis points below the average interest rate on all marketable treasury securities . It is time to borrow and invest in infrastructure #LockItIn: ---- #notetoself #fiscalpolicy #macroeonomics Continue reading

Being poor—and, more so, being poorer than you had expected you would be and having to retrench—stresses you out and makes you unhappy. Blanchflower and Clark decompose the children-make-you-unhappy fact in Europe into a "poverty" and an "other" component, and what they report makes a slot of sense: Children in a well-funcioning family setting are a source of profound happiness, and poverty in particular and stress in general are sources of profound unhappiness: **David G. Blanchflower and Andrew E. Clark**: _[Children, Unhappiness and Family Finances: Evidence from One Million Europeans](https://www.nber.org/papers/w25597?sy=597)_: "The common finding of a zero or negative correlation between the presence of children and parental well-being continues to generate research interest.... One million observations on Europeans from ten years of Eurobarometer surveys.... Children are expensive, and controlling for financial difficulties turns almost all of our estimated child coefficients positive.... Marital status matters. Kids do not raise happiness for singles, the divorced, separated or widowed... ---- #noted Continue reading

Let me direct your attention to one of the WCEG's young whippersnapper grantees writing smart things: **Samir Sonti**: _[The Politics of Inflation](https://equitablegrowth.org/people/samir-sonti/)_: "amir Sonti studies 20th century U.S. labor and economic history. Sonti’s dissertation focuses on the politics of inflation in the United States from the 1930s to the 1980s. He received a bachelor of arts degree in political science and a bachelor of science degree in economics from the University of Pennsylvania... ---- #noted Continue reading

**Weekend Reading**: Leo Strauss gives a cheer for his right-wing principles: fascist, authoritarian, imperial. I wonder what form his critique of the Nazi regime from those principles actually took?: **Leo Strauss**: _[Paris, May 19, 1933: "Dear Mr. Löwith](https://delong.typepad.com/sdj/2006/07/leo_strauss_giv.html)_: On your behalf I have in the meantime made the necessary overture to Groethuysen, who is in London. Besides this I had occasion to speak with Van Sickle, the head of the Rockefeller Foundation, and informed him about you, your situation, your work and your interests. He made a note of your name, so I am sure he will remember it when he comes across it in Fehling’s letter. As concerns me, I will receive the second year. Berlin recommended me, and that was decisive. I will also spend my second year in Paris, and I will attempt in this time to undertake something that will make my further work possible. Clearly I have major “competition”: the entire German-Jewish intellectual proletariat is assembled here. It’s terrible—I’d rather just run back to Germany. But here’s the catch. Of course I can’t opt for just any other country-one doesn’t choose a homeland and, above all, a mother tongue, and in any event I will... Continue reading

I used to push back against those who said that, with Trump administration immigration policy, the cruelty is the point. I can no longer do so. In Guatemala, Maria Isabel Bueso would die quickly for lack of cutting-edge treatments: **Farida Jhabvala Romero**: _[Feds to Reconsider Case of Bay Area Woman Getting Lifesaving Treatment Who Faces Deportation](https://www.kqed.org/news/11771386/advocating-for-my-own-life-bay-area-woman-getting-lifesaving-care-faces-deportation)_: "Maria Isabel Bueso has overcome many challenges as a result of the debilitating genetic disease she was born with that eventually left her confined to a wheelchair, breathing through a device and reliant upon weekly treatments to survive. She trained to become a dance teacher and now is an instructor, and she graduated summa cum laude from California State University, East Bay—where she set up a scholarship fund for students with disabilities. She also advocates for people with her disease and other rare illnesses, traveling to Washington, D.C., to lobby for medical research. Now, Bueso is fighting for her life once more. Immigration authorities previously told her and her family to leave the U.S. by mid-September—or face deportation to her home country of Guatemala... ---- #noted #orangehairedbaboons Continue reading

**Melissa Etheridge and Serena Ryder**: _[The Sing-off!](https://www.youtube.com/watch?v=WLL__jmX2Ws)_: ---- #fortheweekend #music Continue reading

**Nikita Khrushchev** (1959): _[On Peaceful Coexistence](https://www.foreignaffairs.com/articles/united-states/1959-10-01/peaceful-coexistence)_: "The socialist states are ruled by the working people themselves.... To them war spells grief and tears, death, devastation and misery. Ordinary people have no need for war.... Peaceful coexistence does not mean merely living side by side... with the constantly remaining threat of [war] breaking out in the future. Peaceful coexistence can and should develop into peaceful competition for the purpose of satisfying man's needs in the best possible way.... Let us try out in practice whose system is better, let us compete without war. This is much better than competing in who will produce more arms and who will smash whom. We stand and always will stand for such competition as will help to raise the well-being of the people to a higher level.... We Communists believe that the idea of Communism will ultimately be victorious throughout the world, just as it has been victorious in our country, in China and in many other states.... We may argue, we may disagree with one another. The main thing is to keep to the positions of ideological struggle, without resorting to arms in order to prove that one is right.... With military techniques what... Continue reading

**Weekend Reading: Charles Kindleberger**: _[Anatomy of a Typical Financial Crisis](https://www.bradford-delong.com/2009/01/charles-kindleberger-anatomy-of-a-typical-financial-crisis.html?asset_id=6a00e551f080038834010536ad8b18970c)_: From Charlie Kindleberger, A Financial History of Western Europe: >p. 90 ff: No discretion was allowed in the issuance of bank notes, however.... Sir Robert Peel, the Prime Minister, first contemplated allowing a relaxing power in the 1844 legislation, but ultimately decided against it.... Peel protected himself... in a letter from Windsor Castle, written on 4 June 1844: "My confidence is unshaken that we have taken all the precautions which legislation can prudently take against a recurrence of a pecuniary crisis. It may occur in spite of our precautions; and if it does and if it be necessary to assume a grave responsibility, I dare say men will be found willing to assume such a responsibility (BPP 1847 [1969], Vol. 2, p. xxix)"... >The difficulty in making the note issue inelastic... is that it became inelastic at all times, when the requirement in an internal financial crisis is that money be freely available... >The Bank of England came to the rescue of the South Sea Company... belatedly, and at a punishing price... to dispose of a dangerous rival. Its recognition of its responsibilities in preventing, or at least mitigating, financial... Continue reading

**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](https://www.bradford-delong.com/2010/05/alan-blinder-on-raghuram-rajan-in-2005.html)_: "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... Continue reading