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A better question is why we did not protest more vigorously the Fed's allowing the market to correctly predict that it would permit the price level to fall below its target trend and that it would fail to rapidly restore full employment after the crisis?
**George Akerlof**: _[Why Economists Failed to...
**George Akerlof**: _[Why Economists Failed to Predict the Financial Crisis](https://www.youtube.com/watch?v=_-c8XwiByY8#action=share)_: >... ---- #shouldread
As long as the Federal reserve can buy stuff with money it creates, it is impossible to understand what restricted "monetary space" could mean. And unless one thinks that there are no activities with NPV > 0 when interest rates are zero and many inputs have marginal costs < their market prices (even if not zero), restricted "fiscal space" is hard to conceptualize, too. Of course both the Fed and the US Congress could decide to impose another recession of indefinite depth and duration as they did in 2008 is possible but that should not be called lick of fiscal/monetary "space" but just stupidity.
Tail Risks
Tail risks. Can we afford right now to think about tail risks? Probably not: right now what were our tail risks have become head risks, and given them and our day jobs we are all fully absorbed. But if we are going to be spending even a little time thinking about tail risks, the big worry has t...
RE: https://democracyjournal.org/arguments/taxing-for-equitable-growth/
This is the best discussion of tax reform that would promote both growth and less inequality I have seen.
Here is my comment made on the site.
"I think this is on the right track, but I differ on the treatment of investment income. First, the value of the capital gain should be indexed and impute corporate profits (not taxed per se) to owners. Second, we should introduce the principle of taxing consumption rather than income. Income reinvested could be exempt with rates adjusted to ensure roughly equal collections. Third, we could replace the wage tax for funding safety net expenditures with a VAT plus a much higher EITC and Child Tax Credit to offset the effects of the VAT on low income people."
Some Fairly-Recent Must- and Should-Reads...
1. **Daniel Schneider and Kristen Harknett**: _[Consequences of Routine Work Schedule Instability for Worker Health and Wellbeing](https://equitablegrowth.org/working-papers/schedule-instability-and-unpredictability/?mod=article_inline)_: "The rise in precarious work has also involved a major shi...
Oh that the EU had remained a customs union without having adopted the Euro! And having adopted the Euro, that private lenders had not forgotten that not having an independent currency INCREASES country risk, that sovereign risk is a real thing. And in having hit a currency crisis, the ECB had juiced up inflation enough to allow real devaluations in PIGS without falls in nominal prices.
An interesting paper saying that Glick and Rose's...
An interesting paper saying that Glick and Rose's findings are not robust. I am generally pro-customs unions. I was taught when I was knee-high to a grasshopper that the _Zollverein_ was a big deal. And I have always been impressed by the scale of cross-state trade in the U.S., which dwarfs cross...
How do YEARS of the Fed failing to keep the price level growing at a constant rate (and allowing the market to correctly expect that the failure would continue) count as the SECOND biggest mistake.
Following the pattern of the Bank of England, the...
Following the pattern of the Bank of England, the United States's regional Federal Reserve Banks are quasi-governmental corporations with special charters, missions, and governance structures created by the central government. This provides them with an unusual degree of autonomy. For example, th...
For me the key quandary is why Barbarossa and why the declaration of war on the US after Pearl Harbor? Would US resources have been mobilized for a war in Europe if Germany had decided to sit on its West continental empire?
Weekend Reading: Stephen Fritz on Robert Citino's "Death Death of the Wehrmacht: The German Campaigns of 1942"
**Stephen Fritz** (2008): _[On Citino, 'Death of the Wehrmacht: The German Campaigns of 1942'](https://networks.h-net.org/node/35008/reviews/45387/fritz-citino-death-wehrmacht-german-campaigns-1942)_: "Continuing his examination of the German way of war, Robert Citino has produced a cogently ar...
This is "lack of monetary space" only if policy makers CHOSE to rely almost exclusively on the short term interest rate to carry out their mandate to keep prices rising at the target rate and preserve maximum employment. The Fed could have continued to purchase longer term assets but prematurely chose not to. The Fed chose rather to treat 2% inflation as a ceiling instead of a target even when employment was below any reasonable definition of "full."
See: here is another study that finds a _lot_ of...
See: here is another study that finds a _lot_ of hysteresis—an ungodly amount: **Christina D. Romer and David H. Romer**: _[Why Some Times Are Different: Macroeconomic Policy and the Aftermath of Financial Crises](http://www.nber.org/papers/w23931)_: "Analysis based on a new measure of financial ...
One way that a bad trade policy could be LESS damaging in a supply chain world is that it could be more self limiting. What makes bad trade policy possible in a final goods only world? The advantage to the owners and (maybe) workers) of the "protected" industry is easily felt by the beneficiaries but all the losses are diffused. There is a collective action problem in organizing resistance. With many crosscutting supply chains more of the damage falls in large discrete chunks on well organised groups. http://documents.worldbank.org/curated/en/254711468780269367/Best-practices-in-trade-policy-reform
Supply Chains and Trade War
Paul Krugman: Supply Chains and Trade War (Very Wonkish): ...last month the IGM Forum weighed in on the issue of supply chains and trade war — the issue that the current trade war, unlike previous trade conflicts, is taking place in a world where much trade consists, not of shipments of consume...
Not all of this uncertainty is necessarily due to threats of disruptive tariffs. The deficit increase resulting from the Republicans' "Tax Cuts for the Rich and Deficits Act of 2017" are also a brake on long term growth.
Although the results are not too bad yet, we should still reverse these harmful policies. The economy will be better off with lower deficits (ideally a surplus) during periods of near full employment achieved with more progressive taxation and freer trade achieved through multilateral agreements.
Are Tariff Worries Cutting into Business Investment?
David Altig, Nick Bloom, Steven J. Davis, Brent Meyer, and Nick Parker at the Atlanta Fed's macroblog: Are Tariff Worries Cutting into Business Investment?: "Nobody's model does a very good job of how uncertainty and hits to confidence affect behavior," says Deutsche Bank's Peter Hooper in a re...
This could also become the vehicle for negotiating with China over appropriating of intellectual property.
Links (7/30/18)
Why One Quarter’s Growth Tells Us Nothing - Paul Krugman A la recherche of the roots of US inequality “exceptionalism” - globalinequality Checking phones in lectures can cost half a grade in exams - EurekAlert What Is the White House Whispering to the Fed? - Narayana Kocherlakota The decline of...
I would amend Mankiw's prescription for what the Fed should have done to say that it should have lent to Lehman or whoever else needed bailing out but on terms that extinguished the equity of the existing shareholders whose mistakes required the bailout.
However the much bigger mistake was not to have made clear at the very beginning that Fed policy would not not allow (would do whatever it took to prevent) a fall in employment and the price level (roughly speaking this means an NGDP target but it needed only to have reaffirmed its own mandate) Instead it did not zero out ST interest rates until December and announced LIMITED QE's that left markets uncertain about the ability and willingness of the FED to comply with its mandate. Forward guidance that it would NOT force ST rates negative and the payment of interest on reserves compounded and were the vectors of the error.
Links (7/30/18)
Why One Quarter’s Growth Tells Us Nothing - Paul Krugman A la recherche of the roots of US inequality “exceptionalism” - globalinequality Checking phones in lectures can cost half a grade in exams - EurekAlert What Is the White House Whispering to the Fed? - Narayana Kocherlakota The decline of...
Timothy Lee is right about the Fed policy in 2008-present but that just shows that the Fed had the wrong objective function. It should have been targeting a price level growth path and demonstrating to markets that it would be as vigorous ("whatever it takes") at correcting downward deviations from the targeted rate of growth path as upward deviations. How close we were/are to full employment had nothing to do with it.
Public Sphere/Journamalism: Some Fairly Recent Must- and Should-Reads
* I think that this is a very important thing to remember. The Fed View—and the zero-marginal-product workers view—and a lot of other pessimistic views about the economy's non-inflationary speed limit for recovery and growth were totally, catastrophically wrong over the past decade. The people ...
It depended on what your definition of "raven,""next," "I," and "see" is. :)
**Note to Self**: Positive Logicism: Is the...
**Note to Self**: Positive Logicism: Is the question "are all ravens black?" or "what are the odds that the next raven I see will be black?"?
The VoxEU article "The missing profits of nations" on the effects of shifting corporate profits around to avoid taxation is just one more example of the basic mistake we make in trying to tax business instead of their owners. The only tax obligation of businesses ought to be to tell taxing authorities who their owners are and where to find them. Owners would pay tax on the imputed profits wherever they were booked.
Links (7/23/18)
Why Was the 20th Century Not a Chinese Century? - Brad DeLong Improving Labor Market for Workers with the Least Schooling - macroblog Artificial Intelligence, Economics, and Industrial Organization - Hal Varian The State of New Keynesian Economics: A Partial Assessment - Jordi Gali Trump and C...
I think "followed a strong dollar policy" is somewhat misleading. The "strong dollar" is the result of capital inflow that comes from a) the USG debt' role as de facto riskless asset for the world and b) fiscal deficits during periods of near full employment. Whether these results are for good or ill depends on the returns on the investment financed with the capital inflows.
Links (7/20/18)
How Did the Gold Standard Work? - The Everyday Economist The case for supporting renewable electricity - VoxEU Why is real wage growth anemic? It’s not because of a skills shortage - EPI Policy Failure in AT&T-Time Warner and American Express - ProMarket Nobel Symposium on Money and Banking Day...
Suggested amendments to the NeoLiberal card:
1. The market is always right except about externalities, collective consumption, and when market power and informational asymmetries are important.
2. If you think #1 is wrong, consider regulatory capture.
3. The market is inescapable and so has to be factored into the design of second best polities.
4. If you think #3 is wrong, consider the political economy of widely shared benefits and concentrates costs and vice versa.
5. The market giveth and the market taketh away so a progressive tax/benefit system needeth to take back and give back.
6. Not everyone who crieth "market, market" shall enter into the pareto optimum.
Don't Like My Neoliberal Party Card? I Have Others!
Don't like the others? I have my neoliberal party card: We are all of many parties and cliques—unless, that is, we are misanthropes, or reflexively contrarian trolls (but I repeat myself): we think in groups, composed of those who think enough like us that we can understand them and yet differ...
Unemployment insurance should indeed be reformed but along somewhat different lines that Taylor suggests.
a) It should not be funded by a wage tax; that just reduces the incentive of an employer to hire someone in the first place. Fund it with a Federal consumption tax, as we should be using to fund SS and Medicare benefits
b) It should be available to anyone that has lost full time work.
c) The length of time it should be available should depend on the state of the economy, not an arbitrary length of time.
Links (7/13/18)
For Trump, Failure Is the Only Option - Paul Krugman The Economic Consequences of Trump’s Trade War - Barry Eichengreen Gender Issues: Relatively Recent and Worth Reading... - Brad DeLong Time invested in the past dictates willingness to wait for rewards - EurekAlert Declining responsivenes...
Maybe the problem is that Brad's spoofy card did not mention imperfect competition, externalities, collective consumption, and regulatory capture in point 1 and did not mention progressive taxation to finance policies that redistribute consumption downward in point 5.
**Cedar Brook Notes**: The principal use of...
**Cedar Brook Notes**: The principal use of “neoliberalism” as a word is to erase the difference between the Mussolini-love of Ludwig von Mises and center-left technocratic economists who want to get the incidence of policies right. Why? So you can then have more freedom to propose policies tha...
Pinkety's comment about "multicultural" exchanges:
"This means that the migratory flow was below 0.2% per annum in the 1990s, before rising to almost 0.2% per annum since 2010. These flows may seem minuscule and, in a way, they are: the globalization of the years 1990-2018 is primarily financial and commercial and has never reached the levels of migration observed in the 1870-1914 period.
The difference however is that the new migratory flows lead to greater multicultural exchanges involving people of different cultural origins (whereas in the past the migratory flows were primarily internal to the North Atlantic)"
is off base with respect to US inflows. There was probably a far larger cultural "gap" between Russian Jews or Sicilian peasant immigrants and the WASP residents of 1890' US than between a Honduran or Mexican immigrant and residents of the US today.
Links (7/11/18)
Brexit Meets Gravity - Paul Krugman What determines value? - Growth Economics On class separation - Stumbling and Mumbling Taxing the Intangible Economy - Roger Farmer Trump, Tariffs, Tofu and Tax Cuts - Paul Krugman How To Avoid a Trade War - Dani Rodrik Europe, migrants and trade - Thom...
Brad Sester:
Why should the US China trade balance be an objective to be "adjusted" in a right or wrong way? Now getting China not to use trade and investment restrictions to force technology transfers is a worth objective, but does not depend on the status of the trade balance.
Links (6/28/18)
The value of late-in-life health care spending - MIT News The Great Soybean Conspiracy - Paul Krugman Uses and Abuses of Economic Formalism - Paul Krugman Can the Income-Expenditure Discrepancy Improve Forecasts? - FRBSF The career cost of children: career and fertility trade-offs - Microec...
The error of both the "left" and the "right" on regulation and fraud checking in welfare and voting is in not balancing the costs and benefits. Neither has to be excessive to maintain trust.
Nicole Cliffe on John Carreyrou on Theranos and Elizabeth Holmes: Bad Blood: Weekend Reading
**Nicole Cliffe**: _[Theranos](https://twitter.com/Nicole_Cliffe/status/1002547781729333250)_: [Bad Blood](https://books.google.com/books/about/Bad_Blood.html?id=CcJFDwAAQBAJ), by John Carreyrou >What a healthy and sustainable industry... >> >The most amazing thing about the Theranos book is h...
It would be rather unfair for an econ. professor to completely specify the framework that a student should use to argue for or against open borders. He can reasonably require that the student be aware of and address the issues thrown up by "rootless cosmopolite neoclassical economics" as they come to an anti-open borders conclusion. But an anti-open borders argument based on second best optimization or sophisticated micro-distributional grounds might give a student scope for displaying skills that a simple income maximizing "pro" argument does not.
Not all conservatives are Milo. Very few...
Not all conservatives are Milo. Very few conservatives are Milo, in fact: **Rakesh Bhandari**: _["Some conservative Cal students have falsely complained](https://twitter.com/postdiscipline/status/1001542768877957120)_ that they are penalized by GSI's or Profs for their political views. One studen...
But to even offer that referendum would call into question the decision to trigger Art 50 before negotiating. It is very difficult to untell a lie.
British governance appears at least as bad today...
British governance appears at least as bad today as American governance even though they are not helmed by an unstable and corrupt kleptocrat: **Simon Wren-Lewis**: [Delusions of National Power](https://mainlymacro.blogspot.co.uk/2018/05/delusions-of-national-power.html): "Inevitable that the UK ...
You are right; they ought to be the same. In practice the "inflation" target became an inflation rate ceiling target. There was never any effort to return th price level to its pre-crisis trend line.
The politics of this departure of the Fed from its Congressional mandate have not been adequately examined.
Price Level Targeting with Evolving Credibility
This is by Seppo Honkapohja and Kaushik Mitra (very wonkish): Price Level Targeting with Evolving Credibility, by Seppo Honkapohja and Kaushik Mitra: Abstract We examine global dynamics under learning in a nonlinear New Keynesian model when monetary policy uses price-level targeting and compare...
While a higher target would be good, more important is to define the target as a price level trend target and not an inflation rate ceiling as the "prices" half of the Fed's dual mandate. And even with a higher price level target the main problem will be "pressure on the Federal Reserve... from substantial numbers of economists and politicians practicing bad economics and motivated partisan reasoning."
Now That John Williams Is President of the New York Fed, He Really Should Convene a Blue Ribbon Commission on What the Inflation Target Should Be
**From June 2017**: [Fed Up Rethink 2% Inflation Target Blue-Ribbon Commission Conference Call](http://www.bradford-delong.com/2017/06/my-sections-as-delivered-fed-up-rethink-2-inflation-target-blue-ribbon-commission-conference-call.html): I hear four arguments for not changing the 2%/year infl...
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