J. Bradford DeLong's Blog, page 18

The Limits of American Recovery: Project Syndicate

https://www.icloud.com/keynote/0NS1CC0oX3WwfiGNVGIuNYsGA https://www.project-syndicate.org/commentary/us-economy-recovery-by-j-bradford-delong-2020-10

.#covid #forecasting #highlighted #macro #projectsyndicate #2020-10-12




The Limits of American Recovery: Project Syndicate

While most of the Global North has reached a state of cautious optimism after confronting COVID-19 head on, the United States continues to stand out for its persistently high rates of death and infection. This public-health failure, and the political dysfunction underpinning it, will remain a drag on economic performance.

BERKELEY ���The United States is home to 4% of the world���s population but 21% of confirmed COVID-19 deaths; it accounts for 25% of the Global North���s population but 50% of its excess mortalities (deaths from all causes above the usual rate) registered during the pandemic.

Moreover, America���s current cumulative cases per million are almost four times higher than in the European Union (though the latter itself appears to be experiencing a second wave). While the US continues to lose around 1,000 people to COVID-19 each day, the EU���s daily death toll is closer to 300, and Asian countries in the Global North are losing almost nobody. And no, this is not a continental North American problem: Canada loses only around ten people per day to the virus.

After so many months of failure to confront the pandemic, America���s world-leading fatality and infection rates are no longer a surprise. The question is what the current trajectory of the pandemic means for the US economic recovery.

The first thing to bear in mind is that a recovery from the initial pandemic-induced depression earlier in the year is already around 60% complete. After falling from 80.5% in February to 69.7% in April, the employment rate for prime-age workers (25-54 years old) climbed back to 75.3% in August. As of the time of this writing in late September, it has probably increased to around 76.5%. But, for comparison, that is around where prime-age employment was at the nadir of the 2008-09 Great Recession.

A second point to note is that the recovery experienced so far may represent all that the US will get for now. Just because the economy has recovered by 60% doesn���t mean that it will get all the way back to 100%. After all, the current recovery is unfolding in the shadow of the recovery from the 2008 financial crisis and Great Recession, which was also a period of zero-lower-bound interest rates.

It is worth remembering that this previous recovery did not feature a recovery in production, which remained as far below its pre-crisis trend as it had been when the unemployment rate was at its peak. As employment recovered slowly after the Great Recession, productivity continued to lag ever-further behind.��But, because there was a persistent lag in output, too, this lack of productivity growth allowed for employment eventually to recover.

One lesson of recent history, then, is that modern market economies after a crisis seem to require not just the standard contributions of entrepreneurial capitalism but also an additional boost from another spending channel to drive production back up to its previous trend. But when interest rates are already near zero, such stimulus cannot come from further monetary easing ��� as indeed it did not after the Great Recession. Worse, it is becoming increasingly unlikely that stimulus in the future will come from expansionary fiscal policy ��� the obvious alternative to interest-rate cuts ��� owing to debt concerns and political gridlock.

Yet another cause for fear is the prevalence of the virus itself. The average of 1,000 COVID-19 daily deaths being recorded each week implies that there are 10,000 symptomatic cases emerging every day. That is enough to worry anyone who ventures out of her house. With such a persistently high risk of contracting the virus, US consumers will continue to be much more cautious than their counterparts in Japan, Canada, or Germany when it comes to returning to semi-normal economic activities like dining out or air travel.

As such, even if America could stage a rapid recovery and restore employment to its previous levels, the justifiable fears of US consumers would pose a significant hurdle to sustained growth, as would the glaring absence of business investment in today���s economic climate.

That leaves only the government to serve as an engine of recovery. But the US government is currently led by President Donald Trump, a leader who has consistently failed every test posed by the pandemic. Making matters worse, his closest advisers apparently regard high unemployment and waves of small-business bankruptcies as salutary developments that will strengthen American���s work ethic in the long run.

As for the Democratic presidential contender, Joe Biden, it remains to be seen whether he will accept the federal government���s role as employer of last resort. In the meantime, while the rest of the Global North is well on its way to recovery, America will remain mired in political acrimony, economic malaise, and potentially an even deeper existential crisis after Election Day on November 3.

Volcker Disinflation Denialism from Gene Fama������Noted

https://www.icloud.com/keynote/0n4PwgGO6FAEEAqRG6I72oXtg https://github.com/braddelong/public-files/blob/master/grasping-reality/fama-volcker-disinflation-denialism.pdf

.#noted #2020-10-11

Someone who wishes me ill reminds me today that Eugene Fama regularly flunks the Turing Test.

Perhaps I should, rather, say that he is a blank slate, or a Bourbon: Prince Charles de Talleyrand-Perigord said, famously, that the Bourbons of France had ���learnt nothing and forgotten nothing������learnt nothing about the world, and forgotten nothing of the privilege and deferences to which they believed they were entitled, in spite of the fact that they too had lived through the years of the French Revolution and the Napoleonic Empire.

40 years after the Volcker disinflation, and Gene Frame is still claiming that the ability of central banks to shake and transform intertemporal price structures and so massively affect the economy is a trick. Perhaps done, somehow, with mirrors?

There is something for someone to write about how obliviousness and a total refusal to mark your beliefs to market is a road to career success, and intellectual influence. A very strange road. But a road, nonetheless:

Gene Fama: Inflation Is Out of the Control of Central Banks https://themarket.ch/english/inflation-is-totally-out-of-the-control-of-central-banks-ld.2476: ���Frankly.... This is just posturing. Actually, the central banks don���t do anything real...

...They are issuing one form of debt to buy another form of debt. If you are an old Modigliani���Miller person the way I am, you think that���s a neutral activity: You���re issuing short-term debt to buy long-term debt or vice-versa. That���s not something that should have any real effects....

When we look at it systematically, we don���t see a big effect of Fed actions on real activity or on stock prices or on anything else. That���s why I use to say that the business of central banks is like pornography: In essence, it���s just entertainment and it doesn���t have any real effects���

The best short response is from Paul Romer:

Paul Romer: The Trouble with Macroeconomics https://github.com/braddelong/public-files/blob/master/readings/article-romer-macro.pdf https://web.archive.org/web/20160914200257/https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf: ���If you want a clean test of the claim that monetary policy does not matter, the Volcker deflation is the episode to consider...

...Recall that the Federal Reserve has direct control over the monetary base, which is equal to currency plus bank reserves. The Fed can change the base by buying or selling securities���.

August 1979��� Volcker took over as Chairman���. In month 2, Volcker took the unusual step of holding a press conference to announce changes that the Fed would adopt in its operating procedures.��� Fed officials expected that the change would cause a ���prompt increase in the Fed Funds rate��� and would ���dampen inflationary forces in the economy.������

The Fed aimed for a nominal Fed Funds rate that was roughly 500 basis points higher than the prevailing inflation rate, departing from this goal only during the first recession. High real interest rates decreased output and increased unemployment. The rate of inflation fell, either because the combination of higher unemployment and a bigger output gap caused it to fall or because the Fed���s actions changed expectations.

If the Fed can cause a 500 basis point change in interest rates, it is truly absurd to wonder if monetary policy is important. Faced with the data in figure 2, the only way to remain faithful to dogma that it is not important is to argue that despite what people at the Fed thought, it was actually an imaginary shock that increased real fed funds rate���

Merrittocracy for 2020-10-12: American Political Economy in the Fall of 2020

What is the state of America's political economy now in the fall of 2020?

https://www.icloud.com/keynote/0_P3LUekmZdA6DQN660lR_GEQ

.#highlighted #interview #merrittocracy #politicaleconomy #2020-10-12

Krugman: KrugmanToday: Why the 2017 Tax Cut Did Not Work���Noted

This is very much worth watching���very much subscribing for:

https://www.icloud.com/keynote/0d2ynI15JBBHNdu1j90_0i1pQ

.#noted #2020-10-11

Karmin & al.: Patriarchal Y-Chromosome Bottleneck���Noted

Out-of-Africa explosion 50KY ago, & patriarchal collapse of male (but not female) effective population size 8KY ago���

https://www.icloud.com/keynote/0TSPFIGJUsBJHWm0UMAqLe6UQ

.#noted #2020-10-11

Philanthrocapitalism: DevEng 215 2020-10-08

https://www.icloud.com/keynote/0IS373XctkfIDo6Py2-Upe9pQ

https://github.com/braddelong/public-files/blob/master/deveng-215-2020-10-08.pptx

This incorporates-by-reference the readings & lectures from week 7 of Joeva Rock's Fall 2020 instantiation of GPP 115...

.#berkeley #economicdevelopment #economics #equitablegrowth #politicaleconomy #teaching #2020-10-08

DeLongToday: Warning Clip from Last Week

DeLongToday: We 10:00/07:00 EDT/PDT http://delongtoday.com

.#delongtoday #economics #forecasting #politicaleconomy #2020-10-05

Boushey: The New Employment Data���Noted

This is significantly better in terms of the employment report than I was expecting to see. It heartens me about the economy for the third quarter and maybe the fourth. But it depresses me about 2021, as it seems to indicate a lot of the country���s decision makers are not taking the virus as seriously as they should Perhaps this week will change their minds:

Heather Boushey: New Employment Data https://twitter.com/HBoushey/status/1312007393480511490: ���The economy added 661,000 jobs in September.... We are still down 10.7 million jobs.... People searching for work for 27 weeks or more rose by 781,000 to 2.4 million. Regular unemployment benefits end after 26 weeks. Congress will need to act to extend the # of weeks for these benefits.... Given that the pandemic isn't over, the change in this # concerns me: "22.7 percent of employed people teleworked in September because of the coronavirus pandemic, down from 24.3 percent in August." Employers brought folks back to work in September: Of those who are no longer unemployed, 1.5 million of them had been on temporary layoff. Yet, at the same time, 345,000 people transitioned from temporary to permanent layoff���

.#noted #2020-10-05

The Great Depression in Context: The World Economy in the 20th Century: Module 5 Intro Video

Link to Interactive Recording: https://share.mmhmm.app/674d81473029474195eb45ef0445a2c3 5:37

Link to pptx with rough transcript: https://github.com/braddelong/public-files/blob/master/econ-115-module-5-2.0-intro-video.pptx
Watch: Franklin Delano Roosevelt (1933): Inaugural Address https://www.c-span.org/video/?5792-1/president-roosevelt-1933-inaugural-address https://avalon.law.yale.edu/20th_century/froos1.asp

The 50 years before 1914 had indeed, as Keynes put it, been an economic El Dorado for the globe.

Yes, within countries inequality was high and rising���but you could argue that that inequality was not very damaging, because the upper class was small and its habits of sober Victorian thrift were essential to the accumulation and investment that were driving human progress forward.

Yes, between economies inequality was rapidly rising. But you could argue that that was a temporary phenomenon: one that would soon be reversed as industrialization spread.

Yes, there was colonialism and imperialism. But you could argue that those brought with them the opportunities of globalization; the enormous bounty of modern machine technologies; and the cultural patterns of thrift, enterprise, rationalism, and fundamental equality that could not be transmitted from their northwest European epicenter to the rest of the human race in any other practical way.

It might not have been crazy before World War I to think that ���disturbance��� was unnecessary, and in fact counterproductive: The peaceful evolution of economy, polity, and society was a current carrying humanity toward the shores of utopia. Interference with the market economy, with rule by tradition and wealth tempered by some democratic currents, and with Eurocentric domination was thought, in the consensus of the smug, likely to do more harm than good���lead to death, poverty, and tyranny. Look at the Paris commune of 1871. Or the Jacobin reign-of-terror dictatorship of 1793. Or the military-nationalistic dictatorship of Napoleon I.

But the war came.

And, afterwards, stable prosperity and growth that rewarded the sacrifices and produced a Land Fit for Heroes did not. Even as of 1929 the system seemed bankrupt. And then came the Great Depresion of 1929-1933. Unemployment in Germany rose to ��� of the labor force. Unemployment in America rose to ��. Rulers in the global north desperately clawed back to what they thought was a stable, peaceful, rapidly-growing order. But it did not work. The rulers in their attempt to restore the Old Order had not delivered���instead, they delivered mass poverty, uncertainty, and fear. They had no vision.

Newly-inaugurated Franklin Delano Roosevelt dismissed the Old Order and its supporters on March4, 1933, at the nadir of the Great Depression:

We are stricken by no plague of locusts.��� Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply���. The rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish. The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit���

And behind this and amplifying the effects of the shock that was the Great Depression, there was the big problem identified by Karl Polanyi. The only rights that the market economy vindicates are property rights, and that vindication is only worth anything to you if the market also decides that your property is valuable. But people believe they have other rights: To the local community they expect and deserve; to a level of income commensurate with their effort and, again, what they deserve; to stability in their lives; plus not to have to watch the undeserving get good things. But the market economy will vindicate these Polanyian rights only if and only as long as it is profitable to do so.

If the Polanyian rights are not vindicated by a society, a polity, an economy, then people will react���demand new governor, and new modes and orders. And this can go in unexpected and unpredicted ways.

In the global north, World War I had cracked confidence in the pre-WWI order. The failure to reestablish peaceful progress and keep war-time promises broke it. And then the great depression smashed it. People everywhere were looking for new answers. And they found them. Or, at least, they thought they had found them.

 

.#economichistory #highlighted #slouchingtowardsutopia #tceh 2020-10-04

Globalization for Development Engineers

DevEng 215 Week 6 https://bcourses.berkeley.edu/courses/1497096

https://github.com/braddelong/public-files/blob/master/deveng-215-2020-10-01.pptx

Incorporate by reference: https://bcourses.berkeley.edu/courses/1497095/modules#module_2202193

deveng-215-2020-10-01

#berkeley #blumcenter #development #deveng215 #economicdevelopment #equitablegrowth #politicaleconomy #teaching #2020-10-01