J. Bradford DeLong's Blog, page 142

Moraga homes "starting in the low 2,000,000s". This is nu...

Moraga homes "starting in the low 2,000,000s". This is nuts! When's the crash? Bella Vista: Summer Hill Homes:

#noted

Comment of the Day: Robert Waldmann: "I disagreed with th...

Comment of the Day: Robert Waldmann: "I disagreed with that analysis in 1980. So did Solow. The argument was gradually reducing inflation was possible, would work fine, and wouldn't cause such a severe recession. I still think that. But why are the 70s so memorable? (For us, obviously, our teens are memorable.) Krugman thinks they are remembered with horror because they were very bad for investors. Also it was part of a general ideological shift. But it is amazing how inflation around 10% (mostly a transfer which can be avoided with indexed contracts not a welfare loss) had such a huge effect on policy and academic economics and the great recession had such a small effect. I think it is very hard to reconcile this with the idea that economics is a science or that policymakers have well defined objectives and models. Also, it is clear that a bit of suffering for me and people I know has more effect than huge suffering of people of another social class. You didn't explain where the 2% target came from or why a 4% target is rejected. I don't think you can. Given the liquidity trap it makes no sense (as you and Larry Summers argued decades ago)...

Comment of the Day: Charles Steindel: in reply to Robert Waldmann: "You are precisely right about the 70's (I wuz there). Even with the big 73-75 recession it was essentially a period of strong growth; a lot of jobs created as our generation flooded the labor market. A major reason for the runup in inflation, as has been fairly well-documented (by Athanasios Orphanides), was the unexpected drop in productivity growth���that led to overestimates of how much tightening of policy would reduce inflation. A key issue examined by some in that era was the real cost of the inflation. At least as I saw it careful analysis suggested little (of course, some misallocation of resources reflecting the non-indexed tax code, but that is a fairly straightforward matter to correct). I was amused a few years ago when Olivier Blanchard may have been apparently implicitly relying on that line of reasoning in suggesting higher inflation targets; I got that message back then from the long paper Stan Fischer and Franco Modigliani wrote and it could be Olivier heard it the same as I did...

#commentoftheday

Note to Self: Playing with Sargent-Stachurski QuantEcon h...

Note to Self: Playing with Sargent-Stachurski QuantEcon http://quantecon.org: I have long been annoyed with the standard presentation of the Solow Growth Model because the state variable k���capital per effective worker���is not observable in the real world, while the capital-output ratio �� is. Moreover, the steady-state capital-output ratio has an easy to remember and intuitive description: it is the savings rate divided by the economy's steady-state investment requirements. Capital per effective worker has no such intuitive description. Plus the capital-output ratio exhibits exponential convergence to the steady-state. Capital per effective worker does not:

#economicgrowth #notetoself

Barbara Biasi: School Finance Equalisation Increases Inte...

Barbara Biasi: School Finance Equalisation Increases Intergenerational Mobility: "Rates of intergenerational mobility vary widely��across the US. This column investigates the effects of reducing differences in revenues and expenditures across school districts within each state on students��� intergenerational income mobility, using school finance reforms passed in 20 US states between 1986 and 2004. Equalisation has a large effect on mobility, especially for low-income students. The effect acts through a reduction in the gap in inputs and in college attendance between low-income and high-income districts...

#noted

Another passage from To the Finland Station (pp. 431-2): ...

Another passage from To the Finland Station (pp. 431-2): Edmund Wilson: Leon Trotsky: "We who of recent years have seen the State that Trotsky helped to build in a phase combining the butcheries of the Robespierre Terror with the corruption and reaction of the Directory, and Trotsky himself figuring dramatically in the role of Gracchus Babeuf, may be tempted to endow him with qualities which actually he does not possess and with principles which he has expressly repudiated. We have seen the successor of Lenin undertake a fabulous rewriting of the whole history of the Revolution in order to cancel out Trotsky's part; pursue Trotsky from country to country, persecuting even his children and hounding them to their deaths; and at last, in faked trials and confessions more degrading to the human spirit than the frank fiendishness of Ivan the Terrible, try to pin upon Trotsky the blame of all the mutinies, mistakes and disasters that have harassed his administration���till he has made the world conscious of Trotsky as the accuser of Stalin's own bad conscience, as if the Soviet careerists of the thirties were unable to deny the socialist ideal without trying to annihilate the moral authority of this one homeless and hunted man. It is not Trotsky alone who has created his role: his enemies have given it a reality that no mere self-dramatization could have compassed. And as the fires of the Revolution have died down in the Soviet Union at a time when the systems of thought of the West were already in an advanced state of decadence, he has shown forth like a veritable pharos, rotating a long shaft of light on the seas and the reefs all around...

#noted

http://fold.cm

Joe Weisenthal: "Imagine the level of privilege that is t...

Joe Weisenthal: "Imagine the level of privilege that is thinking you're entitled to a positive real rate of return without taking any risk. In all seriousness, it's interesting that a lot of hard money types who rail against socialism also think that 'savers' (people who have accumulated capital over time) deserve free money for just holding their money in a bank. Something else that's interesting to me is that virtually 100% of the people who blast low Fed rates for causing inequality are themselves from the upper echelons of society...

Matt Busigin: "The extent to which your 2019 twitter feed looks like my 2011/2012 twitter feed is almost spooky (link: https://twitter.com/mbusigin/status/220273621254418432)...

Joe Weisenthal: "If I'm just 7 years behind you, then that's pretty good...

Matthew C. Klein: Positive real rates make a lot more sense if you think of them as compensation for forgoing consumption during periods when resource scarcity limit overall spending���just not the world we live in now...

Greg Ip: "A lot of non-wealthy, non-hard money types, many retired, are upset they can't get a real return on T-Bills and bank deposits like they could for most of recorded history. I'm not saying they're right, but they're not speaking from privilege or hypocrisy...

Brad DeLong: They got their interest when bond prices exploded upwards. They may not be speaking from privilege or hypocrisy, but they are ignorant, thoughtless, and easily-grifted morons...

Matthew C. Klein: "Depends on their duration...

Brad DeLong All right. Then they missed out on their interest because they let Fox News grift them into buying overpriced gold funds & gold bullion. Their foul. Not our tent, not our circus, not our clowns, not our monkeys, not our problem...

Jacob Robbins: "True. About half of treasury returns post-2000 are from capital gains, 25% post-1980. Compare this with pre-1980, where inflation wiped out coupon yields and rising interest rates led to capital losses on bonds...

#noted #twitter

From the Twitterverse: Dave Weigel: "'Nobody's plan will ...

From the Twitterverse: Dave Weigel: "'Nobody's plan will change' is an electoral suicide note. It hands the power to Aetna and Blue Cross etc to change their plans, raise their prices, while the party in power absorbs blame...

Brad DeLong: Your good private insurance options are going away: each year finds you choosing between still-narrower networks & yet-higher premiums, both with more bureaucratic hassles. the public option gives you a lifeboat to escape from the private-insurance ship rapidly taking on water...

XLProfessor: "'We aren't going to force anyone to switch to Medicare, but we are going to offer people the choice and are confident that over time, pretty much everyone will want to'...

Richard Yeselson: "If the 'universal, but still incremental, so not quite totally de-commodified single payer transition' candidates want to intelligently and honestly own their PO position, below is what to say���anything else is being cynical or stupid...

#noted #twitter

From the Twitterverse: Florian Ederer: "This tremendously...

From the Twitterverse: Florian Ederer: "This tremendously bold claim about the degree and pervasiveness of competition in Jaffe et al (2019) is rather unusual for a recent economics textbook:

Justin Wolfers: "It���s indefensible...

Brad DeLong: I confess that it had never occurred to me that someone would adopt affinity fraud as a marketing strategy for a textbook. Yet another piece of evidence that I have an inadequate imagination, I guess...

#twitter #noted

What Is the Federal Reserve Thinking Right Now?

The Federal Reserve is not an intelligence: it does not think. Individual members of the Federal Open Market Committee, however, do think. And the center of gravity of their individual thoughts now runs something like this:

1980-1985 was a disaster: 3 x 6 x 0.5 = 9%-point-years of lost jobs for Americans, jobs that would not have been lost had the Federal Reserve done its proper job and kept inflation under control in the 1970s:

Inflation exploded in the 1970s because of demand-pull: the Federal Reserve let employment get above full employment, and outgo workers and firms rapidly concluded that this was a permanent situation in which they had to act first to boost their incomes:

We cannot let this happen again: hence three times since 2010���in 2013, 2016, and 2018���we have used our policy tools of rates, quantities, and jawboning to push interest rates higher because we thought we were rapidly closing in on the full employment point at which inflation would start to move up substantially:

All three times we were wrong: we were not rapidly closing in on the full employment point at which inflation would start to move up substantially.

Now the inverted yield curve tells us that the market thinks that we have overdone interest rate increases, and will be substantially cutting rates by 100 basis points over the next two years:

The market could be right and it could be wrong. An inverted yield curve has been a reliable warning signal in the past, but the world is different now, and perhaps that matters. However, failing to begin to validate market expectations now would shake confidence and raise uncertainty. We have no warrant for believing that our models are more knowledgeable right now than the market. And there is pronounced asymmetry here: we can always deal with too-high inflation via tighter money, but it is not obvious what we could do to fix the situation if a negative demand shock were to push the prime-age employment rate down two or four percentage-points.

Hence we will validate market expectations and drop our policy rates by 25 basis points at our next meeting. What will follow that... will be data-dependent...

#forecasting #highlighted #macro #monetarypolicy




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For the Weekend: Ian Richardson on Working with Alec Guinness

For the Weekend: Ian Richardson on Working with Alec Guinnesse:

#fortheweekend