J. Bradford DeLong's Blog, page 163

Ajay Agrawal, Joshua S. Gans, and Avi Goldfarb: Artificia...

Ajay Agrawal, Joshua S. Gans, and Avi Goldfarb: Artificial Intelligence: The Ambiguous Labor Market Impact of Automating Prediction: "Artificial intelligence does not fit easily into existing analyses of the effect of automation on labor markets. The reasons are threefold. First, prediction is always strictly complementary to other tasks���namely decision-related tasks. Those tasks can be existing or newly possible because of better prediction. Second, better prediction improves decisions���whether taken by labor or capital���by enabling more nuanced decisions through the reduction of uncertainty. Finally, it is not yet possible to say whether the net impact on decision tasks���whether existing or new��� is likely to favor labor or capital. We have found important examples of both, and there is no obvious reason for a particular bias to emerge. Thus, we caution on drawing broad inferences from the research on factory automation (for example, Acemoglu and Restrepo 2017; Autor and Salomons 2018) in forecasting the net near-term consequences of artificial intelligence for labor markets...

#noted

Kevin Hjortsh��j O'Rourke, Ahmed Rahman, and Alan M. Tayl...

Kevin Hjortsh��j O'Rourke, Ahmed Rahman, and Alan M. Taylor: Trade, Technology, and the Great Divergence: "Why did per capita income divergence occur so dramatically during the 19th Century, rather than at the outset of the Industrial Revolution? How were some countries able to reverse this trend during the globalization of the late 20th Century?... Endogenous biased technological change and intercontinental trade. An Industrial Revolution begins as a sequence of more unskilled-labor-intensive innovations in both regions. We show that the subsequent co-evolution of trade and directed technologies can create a delayed but inevitable divergence in demographics and living standards���the peripheral region increasingly specializes in production that worsens its terms of trade and spurs even greater fertility increases and educational declines. Allowing for technological diffusion between regions can mitigate and even reverse divergence, spurring a reversal of fortune for peripheral regions...

#noted

*Stephen G. Cecchetti and Kermit L. Schoenholtz *: The Br...

*Stephen G. Cecchetti and Kermit L. Schoenholtz *: The Brave New World of Monetary Policy Operations: "An analysis by Fed economists in early 2017 assumed that by 2022, reserve demand would stabilize at roughly $100 billion. However, just two years later, in March 2019, a Fed survey concluded that banks were likely to want well over $1 trillion in reserves. What accounts for this gap?...

...The answer is liquidity regulations. Today, banks must hold significant liquid assets to back various sorts of short-term liabilities. The details of the Liquidity Coverage Ratio (LCR) are complex, but the basics are simple: banks need to hold some combination of reserves and U.S. Treasury securities to guard against deposit outflows in times of stress. That is, prior to going to the Fed to borrow, these new regulations envision that banks will use the liquid assets they have on hand to meet withdrawals.

...In practice, it turns out that banks prefer to hold reserves than securities to insure against the possibility of outflows. There are several reasons for this. First, if securities���even U.S. Treasuries���are sold quickly, it can drive prices down (something that banks��� own liquidity stress tests may assume). Second, everyone finds out when someone is selling securities under stress. If a bank uses reserves to meet withdrawals, only the Fed knows. The mix of liquidity considerations and the stigma from large Treasury sales makes reserves very attractive...

#noted

Eric Rauchway: "This, by @EliotACohen on the problems wit...

Eric Rauchway: "This, by @EliotACohen on the problems with DARKEST HOUR, is right, but one could go much further. I should be the target audience for a movie like DARKEST HOUR. I teach WW2 and I believe that next to Soviet manpower and American machinery, British stubbornness was a key to Allied victory. But this movie presents Churchill as an insecure boor who is nevertheless right about the need to oppose Nazism, and for Britain to defeat Nazism it was necessary only for friends to indulge his boorishness, bolster him in his insecurity, and opponents to yield to his dazzling rhetoric. This is wrong...

...We can see how and why it is wrong by looking at two apparently minor historical inaccuracies in the movie which, when we consider them, open up to reveal major problems in the narrative.

1) Churchill moving into 10 Downing Street upon becoming PM. It���s the occasion for a completely cringeworthy scene where Churchill���s family gather around and say haha, pop is an abusive bastard whom we���ve all enabled but now it���s going to be worth it! (I paraphrase, but not much.) Churchill didn���t move into number 10 on becoming PM. He remained in Admiralty House until mid-June. Roy Jenkins points out this was, in part, out of consideration for the toppled Neville Chamberlain. In DARKEST HOUR, Churchill moves immediately into no. 10, and also later in the war cabinet rooms literally makes Chamberlain move seats. He is, as I say, a boor. In real life, Churchill was careful of Chamberlain and showed diplomacy, because in real life Churchill was not a fool and understood politics.

2) Churchill talking to FDR on the telephone. That telephone didn���t yet exist. Churchill and FDR were communicating by encoded telegram���and had been, rather against protocol, since before Churchill became PM. In real life, during the time covered by DARKEST HOUR, they had to suspend these telegraphic communications because the Brits discovered a US code clerk had been leaking them to Nazi agents. They put that code clerk in jail, and tried very hard to keep the episode secret, because both FDR and Churchill knew that FDR had been defying the spirit of US neutrality law by assisting Britain. Both of them knew that FDR had been straining the law and political common sense (remember, in 1940 he was running for a unique 3rd term as president) by assisting Britain. But in the film, the (historically impossible) conversation makes it seem as if FDR was resisting offering aid to Britain.....

The movie has to get Dunkirk wrong also, making it seem like it���s the result of some mystical synergy between Churchill and the seagoing British people. It wasn���t���Nolan got that right���it was largely a British military operation. Something like 2/3 of the soldiers rescued off Dunkirk went off on a Royal Navy ship, not a civilian craft. But it wouldn���t suit the movie���s politics to show the Royal Navy functioning; the institutions all have to be against Churchill until he shouts elegantly at them.

>Finally (yes, this thread is a mess, but it���s a thread, what do you want) there���s the core matter of Churchill���s great speeches and the reactions to them. Churchill didn���t write the best of these speeches all himself.... The speech wasn���t greeted with tumultuous applause, but with murmurs, doubt, and less appreciation than (one MP noted) many of Chamberlain���s speeches. Again, as @RichardToye notes, it made Britons depressed, grave, sad, sick, serious���despite appreciating the quality of the language

#noted

Fairly Recently: Must- and Should-Reads, and Writings... (June 19, 2019)

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

Weekly Forecasting Update: June 14, 2019

Talking Points: On the Federal Reserve: For Bloomberg: June 19, 2019

Note to Self: I don't understand what's being asked here: Yes, Susan is right; yes, the index-number problem rears its ugly head; yes, there are absolute numbers and there are employment shares; yes, there is manufacturing; yes, there is non-computer manufacturing; yes, there are traditional blue-collar occupations...

On TV: Jerome Powell should have cut rates today: "Brad DeLong, economics professor at the University of California Berkeley, joins BNN Bloomberg to discuss his take on the Fed rate decision to leave interest rates unchanged...

Weekend Reading: History and Myth

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..."

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: Economists Think of Most Lawyers Like Cats Think of Small Birds

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

For the Weekend: Pam Jakiela: Taking Preferences Seriously, Not Literally

For the Weekend: "Wicked Sick"

Weekend Reading: Reda Cherif and Fuad Hasanov: Principles of Industrial Policy

Liveblogging: The Anglo-Saxon Chronicle: The Slightly Later Church, and the Flavian and Antonine Empire

Liveblogging: The Anglo-Saxon Chronicle: The Early Church and the Roman Empire

Liveblogging: The Anglo-Saxon Chronicle: Life of Jesus

Liveblogging: The Anglo-Saxon Chronicle: Julius Caesar

A Year Ago on Equitable Growth: Twenty Worthy Reads from Around June 21, 2018

Fareed Zakaria: The Self-Destruction of American Power: "One is struck by the ways in which Washington���from an unprecedented position���mishandled its hegemony and abused its power, losing allies and emboldening enemies. And now, under the Trump administration, the United States seems to have lost interest, indeed lost faith, in the ideas and purpose that animated its international presence for three-quarters of a century...

Christina Romer (1994): The End of Economic History?: "Perhaps more than any particular finding or direct implication, the fact that the debate about stabilization and the new data collection efforts are being carried out by a mixture of economic historians and macroeconomists is the most desirable development of all. As with all of the other recent developments in economic history that have been discussed here, the bringing together of researchers with different perspectives has not only stimulated exciting research, it has also meant that the lessons of history have been incorporated into other fields. In this way, the end of economic history has really been just the beginning of better and richer economics...

AlphaChat: Jay Shambaugh on Tools to Fight the Next Recession: "The economist and Brookings Institution senior fellow talks to FT contributor Megan Greene about the fiscal policies that lawmakers could arrange now that would automatically kick in when some of the early signs of a slowdown start to appear...

Ed Nawotka: Daunt Relishes Challenge of Leading B&N: "Daunt said his priority with B&N is not to cut costs, but to find a way to arrest the decline in sales and return the company to growth, much as he did at Waterstones. The key, he said, will be investment.... Above all, Daunt expressed calm about the transition, and advocated for patience...

Charles Petzold (2008): The Annotated Turing: A Guided Tour through Alan Turing's Historic Paper on Computability and the Turing Machine (Indianapolis: John Wiley: 9780470229057) #books

Joanna Ossinger: JPMorgan Shows Where Huge Risks From Fed, G-20 Are Underpriced: "Stocks may correct if Fed isn���t dovish enough: Panigirtzoglou. Cross-asset measures show little volatility risk premium...

Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves, and Kris James Mitchener: Public Debt Through the Ages: "Periods when debt-to-GDP ratios rose explosively as a result of wars, depressions and financial crises also have a long history. Many of these episodes resulted in debt-management problems resolved through debasements and restructurings. Less widely appreciated are successful debt consolidation episodes.... We analyze the economic and political circumstances that made these successful debt consolidation episodes possible...

Josefin Meyer, Carmen M. Reinhart, and Christoph Trebesch: Sovereign Bonds since Waterloo: "220,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering 91 countries.... Returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns averaged 7% annually across two centuries, including default episodes, major wars, and global crises... an excess return of around 4% above US or UK government bonds... are hard to reconcile with canonical theoretical models and with the degree of credit risk.... Full repudiation is rare; the median haircut is below 50%...

Olivier Blanchard and Takeshi Tashiro: Fiscal Policy Options for Japan

DS100: Principles and Techniques of Data Science #book

Barry Ritholtz: Buy Yourself a F--king Latte: "A Latte a Day Isn���t Going to Ruin Your Retirement. If spending $5 a day on fancy coffee puts your retirement at risk, you���ve got bigger problem...

Larry Summers: The Economist Who Helped Me Find My Calling: "Working for [Feldstein], I saw what I had not seen in the classroom: that rigorous and close statistical analysis of data can provide better answers to economic questions, and possibly better lives for millions of people. A doctor can treat a patient. An economist, through research or policy advice, can improve life for a population. Marty was appointed president of the NBER in 1977���a position he held for more than 30 years. The NBER became my professional home and occasionally my literal home as I slept near its computer terminals.... Marty was a magnet for talent.... Marty cared about people���s economic analysis, not their political affiliation. That is why he mentored stars like Jeffrey Sachs and Raj Chetty, who disagreed with him on many questions...

China Digital Space: Grass-Mud Horse: "Mascot of Chinese netizens fighting for free expression, symbolizing defiance of Internet censorship. The grass-mud horse, whose name sounds nearly the same as "f--- your mother" (c��o n�� m�� ���������), was originally created to skirt government censorship.... The Communist Party is often described as the 'mother' of the people, so saying 'f--- your mother' also suggests 'f--- the Party'...

When "Prince of Whales: suddenly shows up in my timeline, only one thing can possibly be gong on: Darth: "���� u know it wasn���t even a typo: he really thinks it is prince of whales: https://delong.typepad.com/.a/6a00e551f0800388340240a4b31ac9200b-pi

Bloomberg: U.K. Tory Prime Minister Candidates Unprepared for Brexit Reality: "Irresponsible tax and spending promises predominated. Implausible approaches to Brexit were aired, along with nonchalant talk of defaulting on public debts. Cocaine proved unexpectedly salient. One thing nearly all the candidates had in common was a refusal to accept the precarious position the next party leader will be in.... A chaotic no-deal exit on Halloween. Alarmingly, most of the candidates��have suggested that they���d be okay with that last option. In doing so, they seem to be following May���s playbook of keeping the worst-case scenario on the table for negotiating purposes. If that tactic ever made sense, it���s now doubly wrongheaded. For starters... imposing the most damaging version of a policy that about half the country already despises, and one that Parliament has already explicitly rejected.... If the Tory candidates recognize the urgency of confronting hard truths, they���re showing few signs of it...

Uncertainty���fear that Brexit will be badly handled���is "killing investment and market sentiment toward the U.K", says Marcus Ashworth. Therefore, says Marcus Ashworth, let's choose a Prime inister���Boris Johnson���guaranteed to handle Brexit as badly as possible. And Ashworth is one of the smartest, most reasonable, and most coherent of the Brexziteers. And he's an incoherent, unreasonable, and rather dim nutter: Marcus Ashworth: Boris Johnson Is Underpriced By the Financial Markets: "Sterling could well get a lift if the former Mayor of London becomes prime minister.... The fact that several of the candidates to replace her are seemingly happy to let Britain crash out of the European Union without an agreement (with bookies��� favorite Boris Johnson foremost among them) has spooked foreign exchange traders. But plenty of people would welcome some kind of clarity.... It���s the uncertainty that���s killing investment and market sentiment toward the U.K. The flipside of this is the sense that people just want to get Brexit done...

That the Conservative Party appears to want a no-deal Brexit is as bad and destructive as the Republican Party wanting Donald Trump for president: Martin Wolf: No-Deal Brexit Would Be a Lunacy Wrapped Up in a Stupidity: "AThe cost to Britain���s economy and its standing in the world would be immense.... It will be disruptive. Nobody knows quite how disruptive.... EU co-operation... would be limited.... The jump from being a full EU member to this very different status is sure to be disorderly. This is why standard trade agreements have long transition periods.... The long-run costs of being without any deal with the EU would be substantial.... For such reasons, no deal could not possibly be the end of negotiations, but a shift to new ones from a far weaker position.... The EU knows that no deal would weigh more heavily on the UK.... Leaving the EU without a deal would impair the UK���s credibility as a partner for everybody...

How Lenny Mendonca actually found time to teach this course while coordinating California's economic development plans is beyond me: but he is a very, very high-energy person: Lenny Mendonca: Business and Public Policy Perspectives on US Inequality: "Inequality in the United States���Definition and Facts. Inequality in the United States���Why Do Businesses and MBA Students Care? Housing and Transportation. Place-Based Policies. Race and Inequality. Opportunity and Early Education. Higher Education. Immigration (and Effects on Other American Workers). Low-wage Workers. Tax Policy���The 1%. Work in the Future and Universal Basic Income...

Eric Chyn, Samantha Gold, and Justine S. Hastings: The Returns to Early-Life Interventions for Very Low Birth Weight Children: "Administrative data from Rhode Island... regression discontinuity design... 1,500-gram threshold for Very Low Birth Weight (VLBW) status.... Threshold crossing causes more intense in-hospital care, in line with prior studies. Threshold crossing also causes a 0.34 standard deviation increase in test scores in elementary and middle school, a 17.1 percentage point increase in the probability of college enrollment, and 66,997 decrease in social program expenditures by age 14. We explore potential mechanisms driving these impacts...

Trouble in the Making? The Future of Manufacturing-Led Development

Doug Jones: My Handaxe: "People... have some mental machinery for thinking about physical space.... The cognitive psychology of space gets retooled for thinking about close and distant social relationships, or time ahead and behind.... Barbara Tversky���s just-published Mind in Motion: How Action Shapes Thought��seems to make the argument at greater length; I���m looking forward to reading it. For a while most of the evidence of repurposing spatial cognition for more abstract relationships came from linguistics, but there���s now some corroboration from neurology...

Rana Foroohar: Big Tech Is America���s New ���Railroad Problem���: "Companies that rule the internet pose a monopoly threat the US has long grappled with...

The New York Times decides to mark Father's Day by misogynistic wife-slagging! As I said, moral fault attaches to those who support or work for the New York Times: Ana Mardoll: "Obviously they want rage clicks, but this is such a fascinating misuse of a common phrase. 'More than their fair share"' necessarily implies that someone else is slacking. Since marriages often have only two people in them, that leaves... the wife... New York Times Opinion: "On Father���s Day, the honor of dads must be defended, says @DouthatNYT. Yes, fathers spend less time doing household chores. But when you add up housework, paid work and childcare, married fathers today are doing even more than their fair share...

Adam Kotsko's mode of discourse is well outside my normal wheelhouse, but I do think that this is important. It is generally a mistake in America to think that religious arguments will persuade anyone of anything political or moral. In America, at least, religion tends to act as a righteousness multiplier rather than a set of principles and ideas that can be used for persuasion and to get people to think reflectively: Adam Kotsko: The Political Theology of Trump: "This brings us to a scriptural parallel that evangelicals themselves have drawn with Trump: Cyrus the Great, the Persian Emperor who allowed Israelite priestly elites to settle back in the Promised Land.... The Prophet Isaiah sings this pagan ruler���s praises, even calling him God���s ���anointed���... ���Messiah��� in Hebrew or ���Christ��� in Greek���and promising divine assistance in his ongoing conquest.... IT���S THE BIBLICAL VERSION of 'only Nixon can go to China'. Only a pagan ruler who knows nothing of the God of Israel... can restore the righteous remnant to the Promised Land.... The use of an ignorant, pagan ruler makes the divine agency unmistakable from the Israelite perspective. How could it be more clear that God is really controlling events when his purpose is fulfilled without the involvement of any conscious human intention? My mom suggested that something similar was at play on that painful phone call the morning after the election, when she wondered aloud whether the improbable events that made Trump President against the American people���s will spoke of a divine intention.... There is not much that any of us can do to convince evangelical Trump supporters that their anointed one is an antichrist...

Jemima Kelly: Facebook���s Libra: Blockchain, but without the Blocks or Chain: "This is just one of a series of Alphaville posts on Libra coin, which we are calling Breaking the Zuck Buck, in which we will seek to show how nonsensical, pointless, stupid, risky, badly thought-out and blockchainless the whole thing is...

Berkeley Economics: Economics CIP Code Update and FAQs | Department of Economics: "(5) What are the practical effects of this change for domestic students? For international students? The reclassification of Economics as a STEM major may enhance research and funding opportunities, job market placement and diversity and growth in the field that can be associated with other STEM majors. For international students, the STEM classification increases accessibility to US job opportunities with an extension of work visas, etc. This was not an available option with our current general economics CIP code.... (6) As an international student, how will this impact my Optional Practical Training (OPT)? OPT is work authorization available to F-1 international students who have been full-time students for at least two consecutive semesters and who plan to seek employment in the United States in their fields of study. On March 11, 2016, the U.S. Department of Homeland Security (DHS) published a new STEM Final Rule, with effective date May 10, 2016. Eligible students may now apply for a 24 Month STEM Extension up to 90 days prior to the expiration of their OPT Employment Authorization Document (EAD). Our CIP code approval qualifies our degree programs as a STEM related field of study for the Optional Practical Training (OPT) extension for employment of 24 months. For further information about your OPT options, please consult with the Berkeley International Office (BIO)...

Equitable Growth: Interview with Kyle Moore, Dissertation Scholar: "Research on racial stratification and stress-related morbidity among older Americans. See his bio on Equitable Growth's website for more information https://equitablegrowth.org/people/kyle-moore/

Wikipedia: Nik Kershaw : "Kershaw came to prominence in the early 1980s as a solo artist, releasing eight singles that entered the Top 40 charts in the UK during the 1980s, including 'Wouldn't It Be Good', 'Dancing Girls', 'I Won't Let the Sun Go Down on Me', 'Human Racing', 'The Riddle', 'Wide Boy', 'Don Quixote' and 'When a Heart Beats'...

2.Bobby Womack: If You Think You're Lonely Now

The Chainsmokers: Paris (Sofia Karlberg Cover)

Nik Kershaw: Wouldn't It Be Good | (Wouldn't It BeGgood extended 12" mix_

Cannonball: Dinner Menu

Wikipedia: Doctor Zhivago (Miniseries)

Ian Hay: The First Hundred Thousand #book

Apple: Connect and Use Your AirPods: "Use your iPhone to set up your AirPods...

#noted #weblogs

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..."

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!

Cochrane:

The Grumpy Economist: Krugman, Delong and Inflation: Yes, I've been worried for some time that our current debt could lead to inflation. And yes, that inflation has so far not happened���. Well, they made fun of Friedman when he said in 1968 that inflation was coming. They made fun of Greenspan when he said in 1996 that stocks seemed awfully high, and stocks went up for a few more years.

I gotta interrupt: Friedman in the late 1960s was right. He���correctly���saw inflation rising because he had theory and evidence on supply and demand in the labor market. But Greenspan in 1996 was wrong: since late 1996 the S&P 500 has produced a very healthy real return of 5.6%/year 6.2%/year.

Does Cochrane know this?

Has he looked at the numbers?

Back in 1996 I agreed with Greenspan. I worried too that the market was overvalued. We thought this for a bunch of reasons. We were wrong.

Why does the fact that our worries were wrong then make Cochrane's worries right now?

Cochrane continues:

They made fun of Shiller when he said in 2005 that house prices looked awfully high, and they went up for a few more years. Greek interest rates were really low in 2007���

I gotta interrupt again: Who are the "they" who were making fun of Shiller when he said that house prices looked awfully high and that expected returns from housing were negative, as it looked like the housing bubble would collapse over the medium term? Was one of them John Cochrane, denying that expected returns on a positive-beta asset like housing could ever be negative?

The facts don���t support the theory that prices are high because people always expect a ���greater fool��� to pay a still higher price���. The ���irrational��� camp points to puzzling surveys���. But surveys are easy to misinterpret: ���Expect��� and ���risk��� in casual conversation have very different meanings than ���conditional mean and variance��� in our models. And economics was meant to explain behavior, not self-perception. Rats in mazes do a good job of obeying the laws of economics, but they���re not so good at responding to surveys���.

Market swings are all about financial frictions, not mass risk aversion or psychology���. Variation in price ratios corresponds to discount-rate variation, not to changes in expected cash flows or the ability to find a greater fool. The challenge is to understand that discount-rate variation. A focused debate, based on clear facts and explicit theories, is real progress.

If Cochrane now agrees with Shiller ca. 2005 on the housing bubble, and repudiates his claim from two years ago that "the facts don���t support the theory that prices are high because people always expect a 'greater fool'", then he should say so more clearly.

And do note that, from my perspective at least, Cochrane is simply incoherent: what Cochrane calls "discount-rate variation" is not an alternative to expecting ex ante to find a greater fool and failing ex post, rather, what Cochrane calls "discount-rate variation" is a subclass of when people ex ante expect to find a greater fool and fail ex post.

Cochrane continues:

The Federal Government has about 15 trillion of formal Federal debt outstanding. It has uncountable trillions more unfunded promises and credit guarantees. Right now it takes in about 1.5 trillion and spends about 3 trillion a year. We must, by arithmetic, either pay off this debt, default on it, or inflate it away���. The only hope for paying it off is to return promptly to strong long-run growth, and to reform entitlements. Doubling Federal revenues by raising income tax rates on "the rich," or by cutting discretionary spending by more than 1.5 trillion per year, forever, seem unlikely. That's arithmetic too.

But Cochrane's arithmetic is fake.

As he was writing, the nominal debt was growing not by 1.5 trillion/year but by 1.0 trillion/year. The amount of excess debt being issued over what was sustainable at a constant debt-to-annual GDP ratio was 500 billion/year. Of that, 300 billion/year was a transitory cyclical component caused by the depressed economy. The numbers he was putting out were more than seven times the size of the real numbers--that's the real arithmetic. And forecasts then were for a debt-to-annual-GDP ratio stabilizing for the rest of the 2010s even without large additional policy change. That was the real arithmetic. Not a 1.5 trillion/year gap, but a $200 billion/year gap, or less.

But Cochrane, apparently, did not look at the numbers.

He did not know the real arithmetic of the debt and the deficit.

And so he wrote:

I'm not optimistic. Growth economics is unanimous: You get such growth only from higher productivity, and from letting new innovative competitors dethrone established interests. That's not where our economy is going. Keynesian stimulus doesn't give 10 or 20 years of sustained growth, even in Krugman's "model."��� I happen to dislike inflation. Krugman and DeLong are all for it���

I am? I note no citations from Cochrane to anything I have ever said or written here.

Cochrane continues:

They must have been smoking better weed in the 1970s.�� But I notice that lots of people seem to agree with them. So, it seems to me that inflate it away, and print money to pay the bills,�� remains a decent possibility.�� That's arithmetic. I wonder which part of arithmetic Krugman would have me abandon.

What Chicago does "know" is scholarship. DeLong cites a transcription from discussion at a long ago conference���. At Chicago, we take a little time to research what people actually have to say before calling them��� less than "half-intelligent" (DeLong).�� You know what I think of that. Why you continue to read these guys is a mystery to me���

Let's roll the videotape, from March 2009: John Cochrane:

The danger now is inflation.��And I would say it's a greater danger than most of the other people have said.�� Our danger now is a run on Treasury debt.��It's not just can the Fed soak this stuff back up again, but can it soak this enormous amount of debt back up again when people don't want either money or Treasury bills or anything labeled "U.S. Government."��

The danger is not 1932; the danger is Argentina, a massive run from Treasury debt.��And then monetary policy will not be able to do anything.�� You can fool around with interest rates all you want.��When people don't want Treasury bills or money you're stuck���.

The system is much more resilient than it was because of deregulation. Back in the Great Depression��� if the Bailey Savings and Loan goes under, there is no way that JP Morgan, financed by an equity infusion from the sovereign wealth fund of Kuwait can come in and take over and start lending.��You're just stuck. Well, we're not in that situation anymore���.

Policy is chaotic. Who would invest in this climate?��It's not about toxic assets; it's about who wants to go in on a deal with Darth Vadar [sic], who can change his mind at any moment?�� That's the uncertainty that's keeping things from getting going and that's what's slowing the rebuilding of financial markets.��We're facing growth-destroying marginal tax rates, an excuse for the government takeover of large and completely unrelated sectors, class warfare, vindictive ex post taxations���.

My great hope is that the bounce-back will be quick before the quack medicine can be said to have worked.��(Chuckles.)�� Just as we sort of���as people think that this insane idea of fiscal stimulus���which I'll go on with later if I get a chance���came from Roosevelt's experience with no reason why it should work, there is a danger of thinking all of the crazy stuff they're doing now will have caused the bounce-back���

I quote four paragraphs. I snark. And Cochrane counter-snarks, complaining that I did not "research what... [he] actually had to say"?

If what Cochrane is saying with his "what Chicago does 'know' is scholarship��� research what people actually have to say before calling them��� less than 'half-intelligent'" is that he repudiates his March 2009 presentation at the ill-done Council on Foreign Relations conference, I would welcome that and agree: It was very ill-done.

He said an awful lot of things that were simply wrong, and confused, in a very short space.

But, if that is indeed what he is doing, he needs to be more explicit.

Cochrane:

I view inflation is a danger, not a forecast. The popping of "bubbles" is hard to predict. We're sitting on an earthquake fault. When or if it goes is anyone's guess. I also pointed out that inflation can come quickly, as it surprised the Keyensians [sic] of the 1970s, and as its quick disappearance surprised them again in the 1980s when the US returned to growth-oriented policies.

Again: it took 8 years and one huge oil shock for expected inflation to rise from 1966's 2% to 1974's 5%, and 14 years and two huge oil shocks for it to breach 10%���if that is what Cochrane means by "quickly", that come 2027 we ought to have done something to get our long-run fiscal house in order, I would certainly agree. And I would point out that perhaps we already have���if the ACA implementation proceeds as we hope, we will come 2027 find that we have no long-run budget problem. If "we have until the mid-2020s is what Cochrane means by "quickly", he needs to say so--and I would agree.

And again: the reduction in expected inflation from 9% in 1981 to 5% by 1985 was, given the size of the 1982 recession, about what the standard forecasting models of the time were predicting. Who are the "Keynesians" who were surprised by this? Cochrane doesn't say���interesting citation practices once again���

Cochrane concludes with:

You can't repeal arithmetic. That which is unsustainable cannot last.

I wish I could agree.

It would be very nice of what was unsustainable could not last.

It would be very nice if false prediction followed by doubling down and repeating false predictions led to some kind of intellectual bankruptcy, followed by some form of liquidation/takeover process--or at least a rebalancing. I know that I have been surprised by a number of things over the past five years (most notably how very resistant to any form of downward movement nominal wages have turned out to be), and I have tried to mark my beliefs to market: moving from 5% Austrian, 5% RBC, 30% Keynesian, 60% monetarist to 1% Austrian, 1% RBC, 70% Keynesian, 28% monetarist.

But I think John Stuart Mill had the decisive counter:

What was affirmed by Cicero of all things with which philosophy is conversant, may be asserted without scruple of the subject of political economy--that there is no opinion so absurd as not to have been maintained by some person of reputation. There even appears to be on this subject a peculiar tenacity of error--a perpetual principle of resuscitation in slain absurdity���

#hoistedfromthearchives #economicsgonewrong #orangehairedbaboons #highlighted


This File: https://www.bradford-delong.com/2019/06/hoisted-from-six-years-ago-to-steal-a-line-from-leon-trotsky-every-man-has-a-right-to-be-stupid-but-john-cochrane-abuses.html

Edit This File: https://www.typepad.com/site/blogs/6a00e551f08003883400e551f080068834/post/6a00e551f0800388340240a483684e200d/edit

Economics Gone Wrong: https://www.bradford-delong.com/economics-gone-wrong.html

Liveblogging: The Anglo-Saxon Chronicle: The Slightly Later Church, and the Flavian and Antonine Empire

The Anglo-Saxon Chronicle (J.A. Giles and J. Ingram trans.): The Slightly Later Church, and the Flavian and Antonine Empire: "A.D. 81. This year Titus came to the empire, after Vespasian, who said that he considered the day lost in which he did no good...

...A.D. 83. This year Domitian, the brother of Titus, assumed the government.

A.D. 84. This year John the evangelist in the island Patmos wrote the book called "The Apocalypse".

A.D. 90. This year Simon, the apostle, a relation of Christ, was crucified: and John the evangelist rested at Ephesus.

A.D. 92. This year died Pope Clement.

A.D. 110. This year Bishop Ignatius suffered.

A.D. 116. This year Hadrian the Caesar began to reign.

A.D. 145. This year Marcus Antoninus and Aurelius his brother succeeded to the empire.

A.D. 167. This year Eleutherius succeeded to the popedom, and held it fifteen years; and in the same year Lucius, king of the Britons, sent and begged baptism of him. And he soon sent it him, and they continued in the true faith until the time of Diocletian...

#liveblogging #history #anglosaxonchronicle

Equitable Growth: Interview with Kyle Moore, Dissertation...

Equitable Growth: Interview with Kyle Moore, Dissertation Scholar: "Research on racial stratification and stress-related morbidity among older Americans. See his bio on Equitable Growth's website for more information https://equitablegrowth.org/people/kyle-moore/...

#noted

Liveblogging: The Anglo-Saxon Chronicle: The Early Church and the Roman Empire

The Anglo-Saxon Chronicle (J.A. Giles and J. Ingram trans.): The Early Church and the Roman Empire: "A.D. 34. This year was St. Paul converted, and St. Stephen stoned...

...A.D. 35. This year the blessed Peter the apostle settled an episcopal see in the city of Antioch.

A.D. 37. This year Pilate slew himself with his own hand.

A.D. 39. This year Caius undertook the empire.

A.D. 44. This year the blessed Peter the apostle settled an episcopal see at Rome; and James, the brother of John, was slain by Herod.

A.D. 45. This year died Herod, who slew James one year ere his own death.

A.D. 46. This year Claudius, the second of the Roman emperors who invaded Britain, took the greater part of the island into his power, and added the Orkneys to rite dominion of the Romans. This was in the fourth year of his reign. And in the same year happened the great famine in Syria which Luke mentions in the book called "The Acts of the Apostles". After Claudius Nero succeeded to the empire, who almost lost the island Britain through his incapacity.

A.D. 47. This year Mark, the evangelist in Egypt beginneth to write the gospel.

A.D. 50. This year Paul was sent bound to Rome.

A.D. 62. This year James, the brother of Christ, suffered.

A.D. 63. This year Mark the evangelist departed this life.

A.D. 69. This year Peter and Paul suffered.

A.D. 70. This year Vespasian undertook the empire.

A.D. 71. This year Titus, son of Vespasian, slew in Jerusalem eleven hundred thousand Jews...

#liveblogging #history #anglosaxonchronicle

Jemima Kelly: Facebook���s Libra: Blockchain, but without...

Jemima Kelly: Facebook���s Libra: Blockchain, but without the Blocks or Chain: "This is just one of a series of Alphaville posts on Libra coin, which we are calling Breaking the Zuck Buck, in which we will seek to show how nonsensical, pointless, stupid, risky, badly thought-out and blockchainless the whole thing is...

#noted