J. Bradford DeLong's Blog, page 206

Brad DeLong: "Job Guarantee" vs. "Functional Finance":J...

Brad DeLong: "Job Guarantee" vs. "Functional Finance":

Job Guarantee: "Our policy is for the government to run a deficit to offer low-quality make-work low-pay jobs that suck"

Functional Finance: "Our policy is for the government to run a deficit so that the labor market is in balance with employers getting the most value for their money possible and workers getting the most money for their time and energy possible with unemployment reduced to a 'frictional' level'

Job Guarantee is really stupid on many levels. Functional Finance is really smart. Put me down for Functional Finance, Alex, and make it a true daily double...

#commentoftheday #notetoself

This is, I think, wrong: it was not eugenics that shrank ...

This is, I think, wrong: it was not eugenics that shrank the number of full Spartiates���it was assortative mating that increased land-wealth inequality and so pushed many children of Spartiates below the required property-ownership bar. This means, among other things, that the right strategy for Athens in the second half of the 400s BC was the appeasement of Sparta by every means possible. It was weakening itself generation by generation: Sarah Bond: This Is Not Sparta: "In a recent article within the ancient history journal Historia, historian Timothy Doran addresses the evidence for the use of eugenics in ancient Sparta. In the fourth century BCE the number of elite Spartan citizens had declined sharply, from about 8,000 adult males around 480 BCE to around 1,000 in the mid-fourth century. Doran attributes the dwindling of the Spartan population to their 'cultural, eugenic, and racial exclusivity' that kept marginalized groups from becoming part of Sparta as its numbers decreased. Citizenship was notoriously hard to achieve and was predicated on ideas of purity and lineage...

#noted

Many Democrats have been saying "at its core, ObamaCare i...

Many Democrats have been saying "at its core, ObamaCare is a Republican idea from the Heritage Foundation!" and Scott Lemieux has been saying "Republicans have always hated the idea of making health care affordable to those who cannot pay through the nose in a broken adversely-selected market!" The many Democrats have said that by ignoring its Heritage Foundation roots Scott is making ObamaCare appear to be a more extreme-lefty plan than it is. Scott has been saying that by pushing the "ObamaCare = HeritageCare and RomneyCare" line the many Democrats have been feeding the myth that Reepublicans are actually in favor of getting more people health care. Can't we agree that ObamaCare does have Heritage roots but that the Heritage Plan was never intended to be a serious policy proposal? Can't we agree that the fact that the core of ObamaCare was a compromise that Mitt Romney felt he could accept is a sign that it is not a lefty plan? Can't we all just get along?: Scott Lemieux: You Ever Think They're Not Acting?: "As long as John Roberts remains the median vote of the Court���not a trivial condition!���this suit has virtually no chance of actually destroying the ACA, but is handing Democrats a nice political gift. The 'we support healthcare reform, just not this healthcare reform' con Republicans have been running for decades���with lots of inexplicable help from liberals���is finally over...

#noted

Ian Dunt: Indicative Votes: A People's Vote Just Became M...

Ian Dunt: Indicative Votes: A People's Vote Just Became Much More Likely: "This was a very good night for the People's Vote campaign.... Oliver Letwin... made it clear that it would be a multi-stage process... [with] a further day... which would move from finding the options with substantial support and see if any of them could secure a majority.... The government whipped against it, in a last-gasp attempt to kill off the process, and they failed.... There were surprisingly clear answers about what kinds of propositions might be able to secure support.... The hardline Brexit options fell hard.... Soft Brexit did surprisingly badly. Labour's alternate plan, which does not specify a model, fell by 237-307.... Two propositions stood out.... Ken Clarke's proposal for the UK to stay in the customs union fell by just 264 votes to 272.... Margaret Beckett's motion calling for a confirmatory public vote on whatever deal was passed fell by 268 votes to 295... a far tighter margin than expected and also the single largest positive vote for any Brexit option so far.... The question now becomes which options are brought back to be decided on on Monday. Logically, it should be customs union membership and a second referendum, but Letwin may want to include one or two more. There is also a question about the voting system.... It's only been 48 hours since the Letwin amendment was passed. And already the Brexit debate is changing beyond all recognition...

#noted

Adam Tooze: Is This the End of The American Century?: Ame...

Adam Tooze: Is This the End of The American Century?: America Pivots: "It is a gross exaggeration to talk of an end to the American world order. The two pillars of its global power���military and financial���are still firmly in place. What has ended is any claim on the part of American democracy to provide a political model. This is certainly a historic break.... Trump has forever personified the sleaziness, cynicism and sheer stupidity that dominates much of American political life. What we are facing is a radical disjunction between the continuity of basic structures of power and their political legitimation. If America���s president mounted on a golf buggy is a suitably ludicrous emblem of our current moment, the danger is that it suggests far too pastoral a scenario: American power trundling to retirement across manicured lawns. That is not our reality. Imagine instead the president and his buggy careening around the five-acre flight deck of a $13 billion, Ford-class, nuclear-powered aircraft carrier engaged in ���dynamic force deployment��� to the South China Sea. That better captures the surreal revival of great-power politics that hangs over the present. Whether this turns out to be a violent and futile rearguard action, or a new chapter in the age of American world power, remains to be seen...

#noted

Still only Greg Mankiw out of professional Republican eco...

Still only Greg Mankiw out of professional Republican economists publicly opposed to Steve Moore to the Fed. Still only Ross Douthat among professional Republican non-economists publicly opposed to the Fed: Catherine Rampell: Stephen Moore Says He���s No Trump Sycophant. But He Sure Sounds Like One: "He says that Trump has a rockin��� bod and deserves a Nobel Prize: Stephen Moore... 'I don���t think anybody can reasonably say I am a sycophant for Trump, because I���m not'. Come. On. Moore has spent the past three years serving as surrogate, spin doctor and sycophant.... Moore has... abandoned many of the other issues in his 'economic philosophy'.... Once a warrior for free trade, Moore now regularly defends Trump���s tariffs. Until recently a champion of undocumented immigrants, he now rails against them.... Previously an inflation truther who warned that official government statistics were hiding the dangerous hyperinflation just around the corner, he is suddenly a deflation truther.... Consider the personal flattery.... The president is 'very charismatic', 'clever', 'gutsy' and 'the greatest marketer of modern times'.... 'What a showman! What a gifted orator'... 'looks like a football player, in incredible, great shape'... 'in all seriousness... Donald Trump deserves the 2018 Nobel Prize in Economics'...

#noted

Modern Dan Drezner Is Much Better...

Dan Drezner: The Worst Piece Of Conventional Wisdom You Will Read This Year: "OK, so, a few things.... Stagflation in the 1970s was caused primarily by an inward shift of the aggregate supply curve due to a surge in commodity prices, particularly energy. Some central banks responded with accommodating monetary policies that accelerated inflation even further. Fiscal policy was an innocent bystander to this whole shebang. So I honestly don���t know what the hell Kinsley is talking about...

...More importantly, the current macroeconomic climate is really, really different from the 1970s. Inflation was a Big Bad��Problem during that decade. It is not a problem right now. If inflation were spiking, then a genuine debate could be had on macroeconomic policy options. But that���s not the case.

In his final paragraphs, Kinsley has managed to epitomize the exact critique that Krugman has served up.

The irony of this whole thing is that the Congressional Budget Office���s recent figures put the lie to Kinsey���s hidden assumption that the federal budget deficit is getting bigger and bigger. Right now it���s shrinking at the fastest rate in postwar economic history.... Kinsley et al. are acting as if the current fiscal climate demands immediate budgetary actions. And it doesn���t���it really, really doesn���t.

Look, I think Paul Krugman has a few policy blind spots. His method of argumentation alienates as many people as it attracts. But he���s not wrong when he���s talking about austerity. In his response, Michael Kinsley has managed to embody the conventional wisdom in Washington���and in doing so, embody every policy caricature of Paul Krugman���s worldview.

Am I missing anything?...

#monetarypolicy #publicsphere #journamalism #orangehairedbaboons

So, Professor Drezner, We Meet Again. And THIS TIME THE ADVANTAGE IS MINE!

Dan Drezner appears to mourn for the days when I was his nemesis: Dan Drezner (2005): So How Do Mexicans View African-Americans?: "While Latino critics in the United States have their hands full combating discrimination in the Star Wars movies (link via Glenn Reynolds), Latinos south of the border have a slightly bigger problem.... dealing with their own racial prejudices. Traci Carl explains for the Associated Press: 'President Vicente Fox reversed course Monday and apologized for saying that Mexicans in the United States do the work that blacks won't....' An intriguing angle about this story is the ability of Jackson and Sharpton to go global with... that thing they do (though in this case they have a pretty valid point). Readers are heartily encouraged to predict the next world leader who will be required to mau-mau kowtow to Jackson and Sharpton for something they say. I think it's a toss-up between Silvio Berlusconi and Vladimir Putin.... UPDATE: Brad DeLong objects to this post without saying why he objects. From his comments section, I gather it was my use of the phrase 'mau-mau', which some argue is a racially offensive term. Wikipedia backs them up (though they treat it as a noun and I used it as a verb)���so let me take the opportunity to apologize for using the term...

Let me say that I read Drezner's piece in 2005 as an exercise in politics according to Karl Schmitt: that Drezner is following Schmitt's advice that one's first move when engaging in politics is to focus on identifying your enemies, and all else follows from that. Here the point of Drezner's piece is to assure (reassure?) his audience that his enemies are "Jackson and Sharpton... that thing they do", which is to confront white politicians who are then "required to mau-mau kowtow to Jackson and Sharpton for something they say..." And he defines them as his enemies even though "they have a pretty valid point".

I am glad Drezner no longer does this.

#publicsphere #politics

James Montier will soon have an answer to his question wh...

James Montier will soon have an answer to his question why people hate MMT. MMT is about to hate James Montier too: James Montier: Why Does Everyone Hate MMT?: "Many of the negative articles I���ve read about MMT use the tried and tested method of setting up a straw man purely for the purposes of knocking him down. So, to avoid confusion, I will lay out a simple and straightforward description of what MMT is.... (4) Functional finance, not sound finance. Fiscal policy is much more potent than monetary policy. Fiscal policy should be aimed at generating full employment while maintaining low inflation...

"Functional finance" is a doctrine originated and set out by Abba Lerner: that the most important task of the government is not to balance its budget but instead to buy enough things, especially enough of the time, skill, and energy of works on public projects, to get the economy to full employment. Lerner's doctrine was that the real constraint is not what we can finance but what we can produce, and that there is always a way to finance a production and employment goal as long as that goal is feasible. When I said that "functional finance" is at the core of MMT, I got immediately smacked down by one of the gurus:

Randall Wray: MMT Responds to Brad DeLong���s Challenge: "My powerpoint slide from the year 2000... laid out the various strands of thought incorporated in MMT up to that point.... Notably missing was reference to functional finance.... We ALREADY had our full employment policy: the Job Guarantee (also called employer of last resort, public service employment and buffer stock employment). It was from the very beginning THE central stabilizing component of MMT.... We have never relied the simplistic version of Functional Finance...

If Abba Lerner were here, he might ask: "How is saying that the most important task of the government is to buy enough things to get the economy to full employment different from saying that the most important task of the government is to employ enough people to get the economy to full employment?" I do not think that question has a good answer.

Perhaps the key to the eagerness of Wray to dismiss me (and James Montier) for saying that MMT is Lerner+ is sociological. Perhaps MMT is not model-based ("IS-LM with a near-vertical IS curve") and not idea-based ("Functional Finance") so that it can be guru-based.

#economicsgonewrong

Why Isn't the Federal Reserve Buying Recession Insurance?: No Longer Fresh at Project Syndicate

No Longer Fresh at Project Syndicate: The Fed Should Buy Recession Insurance: The next global downturn may well not be yet at hand: odds that the North Atlantic as a whole will be in recession in a year are now down to about one-fourth. German growth may well be positive this quarter. China might be rebounding this quarter. The U.S. is definitely slowing to 1% growth or so this quarter, but it is not yet clear that this slowdown will be more than a blip.

But if the next downturn is at hand, North Atlantic central banks do not have the policy room they would need to effectively fight it. Short-term safe interest rates in the U.S. are at 2.4%/year. If a recession does come, the Federal Reserve will wish that it could drop U.S. rates by the standard 5%-points. It cannot. Euro and yen rates are still at the zero lower bound, thus no effective help in recession-fighting can be expected from the ECB or the Bank of Japan.

Thus, looking forward, the big risk facing the Federal Reserve is not the upside risk that inflation will begin spiraling upward and the Federal Reserve will be unable to raise interest rates in a timely fashion to stabilize the economy. The big risk is the downside risk that the North Atlantic will be in recession in a year, that fiscal policy will not be mobilized to fight that recession, and the Federal Reserve will once again find itself at the zero lower bound, wishing that it could lower interest rates, and nearly helpless to even try to control the economy.

When you face an asymmetric risk, the natural response is���or ought to be���to try to buy insurance to cover that risk. What does that mean for the Federal Reserve today? What are its options?

The Federal Reserve's first option is the one that it is taking���not buying insurance at all. As Federal Reserve Chair Jay Powell declared on CBS on March 10: "Inflation is muted and our policy rate we think is in an appropriate place.... Patient means that we don���t feel any hurry to change our interest rate policy.... What���s happened in the last 90 or so days is that we���ve seen increasing evidence of the global economy slowing down.... We���re going to wait and see how those conditions evolve before we make any changes to our interest-rate policy.... The outlook for the U.S. economy is favorable. The principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit...���

The Federal Reserve's second option is to try to compensate for its possible inability to engage in more expansionary policy in a year if it turns out to be needed by engaging in more expansionary policy no. If growth recovers and strengthens���as more likely than not it will���there is no harm done. As long as inflation expectations are well-anchored���and they are���a looser monetary policy than the after-the-fact ideal one year can be fully and cheaply offset by a tighter monetary policy in the following year. But if growth does not recover and strengthen, and if the North Atlantic does fall into recession, the Federal Reserve in a year will greatly regret as it frantically cuts interest rates at the end of this year that it did not get ahead of the curve and preemptively cut them today.

The Federal Reserve's third option is to purchase recession insurance not by cutting interest rates today but by clearly and aggressively explaining how it would effectively fight a recession, should one come over the course of the next year. In order to do that, it would need to explain how things would be different if the economy were at the lower bound from 2020 on than they were when the economy was at the lower bound in the period starting in 2010. Back then Ben Bernanke's monetary policy���and his pleas to Republican legislators and austerians to put the interest of the country above scoring partisan points and aggressively pursue fiscal policy���were completely ineffective in generating growth faster than the previous trend. As a result, recover was anemic and unsatisfactory.

A credible plan to make things work differently should the Federal Reserve wind up back at the zero lower bound in 2020, 2021, or thereafter might well boost business confidence and make Federal Reserve policies more effective. It would at least reassure those who might be starting to pull back out fo a few that aggregate demand will be weak in 2020.

But this third would require an aggressive intellectual and communications effort that we do not see.

Instead, the Federal Reserve is pursuing the first option: it is not being insurance, And that is unwise.

#highlighted #monetarypolicy