J. Bradford DeLong's Blog, page 231

Fairly Recently: Must- and Should-Reads, and Writings... (February 18, 2019)

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The Market: As an Institution, Its Pros, and Its Cons: People... want to enter into reciprocal gift-exchange relationships.... We devised property as a way of constructing expectations of trust.... We devised money as a substitute for trust.... And so, on the back of these human propensities... we have constructed a largely-peaceful global 7.4B-strong highly-productive societal division of labor... #berkeley #economics #marketfailure #marketsuccess #economicinstitutions 2019-02-18

Modes of Market Failure: At lunch last week Richard Thaler was skeptical that I had managed to identify ten different modes of market failure. I admit that this list has a little too much of the Borges-List Nature, but I do think it holds up. What do you think?: The Market Economy: Modes of Failure: Markets can go wrong��badly wrong. They can... #berkeley #economics #marketfailure 2019-02-18

Still Haunted by the Shadow of the Greater Recession... #presentations #greatrecession #macro #economicgrowth #economichistory #economics #finance #monetaryeconomics 2019-02-16

Hoisted from the Archives: Note: The Ten Americans Who Did the Most to Win the Cold War: "Harry Dexter White... George Kennan... George Marshall... Arthur Vandenberg... Paul Hoffman... Dean Acheson... Harry S Truman:... Dwight D. Eisenhower... Gerald Ford... George Shultz... #hoistedfromthearchives #politics #security #history 2019-02-15

I don't know about this "global middle class from 10 to 100 dollars a day" stuff. That seems much too low to me...: Homi Kharas and Kristofer Hamel: A global tipping point: Half the world is now middle class or wealthier

Wikipedia: European Research Group

Randy Wray: Modern Money Theory: How I Came to MMT and What I Include in MMT

Wikipedia: Steven van Zandt

Deepak Hegde, Kyle Herkenhoff, and Chenqi Zhu: Patent Publication and Technology Spillovers: "Invention disclosure through patents (i) increases technology spillovers at the extensive and intensive margins (ii) increases overlap between distant but related patents and decreases overlap between similar patents (iii) lowers average inventive step, originality, and scope of new patents (iv) decreases patent abandonments and (v) increases patenting...

6.Wikipedia: Valle de Bravo

DIY Cookie Butter Recipe

Wikipedia: Hohenzollern-Hechingen

Wikipedia: House of La Fayette

Wikipedia: Celestial Emporium of Benevolent Knowledge

History Matters: Eight Hours for What We Will!

Octavia

I confess I do not understand the Brexiteers. Consider Clive Crook these days at all. It used to be the case��before George W. Bush's "victories" in the 2000 election and in the Iraq War��that I disagreed with him but that his arguments were coherent and made sense. Ever since then, however, he seems to have lost coherence. And now there seems to be no reason. He says that the Britain-EU relationship is a very valuable thing "achieved to great mutual advantage" but had the drawback that it did not allow Britain to throw citizens of other EU countries out when it wishied. In this case one would think the Theresa May deal would be an acceptable thing, because that is what it delvers. But no. Let's try to follow his thought, and fail: Clive Crook: The European Union Could Also Use a Brexit Policy: "Europe could have avoided Brexit altogether... agreed to the request for modest concessions on free movement of people... David Cameron made.... Europe wasn��t really saying it couldn��t be done; it was merely refusing to do it. The result of that intransigence was the referendum and Brexit...

On how to do microfoundations right: Atif Mian: In Conversation with Heather Boushey: "Our number of theories is much larger than the number of observations we have, which is a limiting factor of macroeconomics just from an empirical standpoint.... This is where I feel micro data comes in.... Let me just give you one quick example.... The 2000s... you see credit going up, you see aggregate income going up as well.... If it were higher incomes that were driving credit growth, then since income growth is concentrated in the top 1 percent, we should really expect the top 1 percent to borrow a lot more.... Yet that clearly was not the case. So, even a basic breakdown of the data along a more micro level starts to give you a lot more insights than you might be able to deduce from just looking at the macro aggregates...

Is employer-side monopsony the reason the effective labor demand appears to be so inelastic when incresaes in the minimum wage are concerned? Or are we just not being creative enough? And why does the idea that, in America today, minimum-wage increases are "job killers" continue to have rhetorical purchase?: Doruk Cengiz, Arindrajit Dube, Attila Lindner, and Ben Zipperer: The Effect of Minimum Wages on Low-Wage Jobs: Evidence from the United States Using a Bunching Estimator: "Infer[ring] the employment effect of a minimum wage increase by comparing the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it... using 138 prominent state-level minimum wage changes between 1979 and 2016. We find that the overall number of low-wage jobs remained essentially unchanged over five years following the increase. At the same time, the direct effect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution...

Simon Wren-Lewis: The Tory Party Lost Its Way from 2010, Not 2016: "'I have had it up to here with the Conservative party.' So writes a one time editor of the Spectator, Matthew d'Ancona. It is a good read: for example 'a chilling populism is now creeping into the language of mainstream Toryism: the language of treachery, snarling tribalism and impatience with anything that smacks of prudence, compromise or caution'. He is talking about Brexit of course, and he is entirely right. What he misses, in my view, was that this problem did not begin with the EU referendum, but six years earlier, with the Tory ��modernisers��, Cameron and Osborne...

Yes, it looks lie the world economy is now entering a recession��one that the U.S. is so far escaping: Brad Setser: China's Slowdown and the World Economy: "China, it now seems, has entered into a real slump.... China's total imports remained pretty strong though until the last couple of months. But they have now turned down. Sharply.... China (still) isn��t that important a market for the rest of the world��s manufactures. China��s overall imports (of goods) are significant, at around $2 trillion. But about a third are commodities, about a third are parts for re-export (think $800 billion of processing imports vs. exports of around $2.4 trillion), and a bit less than a third are imports of manufactures that China actually uses at home.... A fall in Chinese auto demand has a big impact on Chinese domestic output (most Chinese cars are made in China, with largely Chinese parts, thanks to China��s tariff wall), a measurable impact on the profits of some foreign firms with successful Chinese JVs, a modest impact on German exports and, at the margin, a measurable impact on global growth in oil demand...

Endorse: for the upper middle class who own stocks, Jack Bogle was the greatest philanthropist of this or any age. He could have claimed to have alpha magic and collected a vast fortune, but he worked for his clients and the public instead: Barry Ritholtz: Remembering Jack Bogle: "Warren Buffett.... 'The person who has done the most for American investors... Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds... [has] amassed only a tiny percentage of the wealth that has typically flowed to managers who have��promised their investors large rewards while delivering them nothing��or... less than nothing.... Jack was frequently mocked by the investment-management industry. Today,��however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their��savings than they otherwise would have earned. He is a hero to them and to me'...

Wise words about how we think we understand things and underestimate uncertainty. What I am not clear about is whether modern tools of communications are truly a source of disruption, or whether it was just that from 1952 to 2007 all of the big surprises (e.g., fall of the Berlin Wall) were good ones: Charlie Stross: Someone Please Cancel 2019 Already?: "The event horizon in politics in a democracy is no more than... the maximum time between elections.... Consider Germany in January 1934, and how outlandish and dystopian the situation would have sounded if you'd described it to a German citizen in January 1929. (30% unemployment! A dictator and a state of emergency! Concentration camps! Anti-Jewish laws!)... The value proposition of democracy is that it provides for a peaceful transfer....But when you get a faction, party, or regime that no longer subscribes to the idea of democracy and refuses to back down gracefully, you get back the old problems... pressure for change builds up and when it erupts the effects can be devastating and unpleasant��especially, as we've had a crash-course reminder... when the tools of communication make it really easy for dangerous demagogues to draw a following...

Dunning-Kruegerrands, and Dunning-Kruegerranderss: Paul Krugman: "Both Ferguson and Taylor signed the infamous letter declaring that Bernanke's policies would produce runaway inflation. Ferguson also, also infamously, fell for bogus claims that inflation was really much higher than reported. You might think that such experiences would make people wonder, at least a bit, about whether they understood monetary economics as well as they thought they did. (Yes, I've made mistakes��and promptly owned up to them. They haven't.) But no. I'm on record as saying that crypto is a mishmash of technobabble and libertarian derp. But I guess that I should add that it's also a giant draw for sufferers from Dunning-Kruger syndrome...

CERN: W3 Servers: "Note: this page is here for historical interest only; the content hasn't been updated since late 1992...

This is, as best as I can tell, wrong: I had thought that it was not Khrushchev but Kennedy who cut the backroom deal��and that the deal was secret only because Kennedy thought he needed to hide it from people like, well, Niall Ferguson. Before the Cuban missile crisis the U.S. had missiles in Turkey threatening Russia with no Russian counterbalance, and the U.S. had already supported one invasion of Cuba to overthrow Castro. After the Cuban missile crisis the U.S. had pledged not to invade or support an invasion of Cuba to overthrow Castro, and neither America nor Russia had IRBMs threatening the other. This does not look like successful "brinksmanship" to me. This looks like both Kennedy and Khrushchev cooperating to defuse the crisis against the opposition of their own hawks��that both realized that they had an overwhelming common interest in not pulling too tightly on the ends they he'd of the Knot of War. Am I wrong? Niall Ferguson: Brexitian Rhapsody Going on Far too Long: "Dulles['s] brinkmanship meant that the United States must be willing to threaten nuclear war.... This high-stakes approach was much criticised by liberals, who feared nuclear Armageddon more than they feared the consequences of appeasing the Soviet Union. Yet Eisenhower��s Democrat successor, John F Kennedy, gave a masterclass in brinkmanship during the Cuban Missile Crisis of 1962. When Kennedy learnt that the Soviets were installing nuclear missiles on Cuba, he decided to impose a naval blockade to halt further Soviet shipments of military hardware to the island. In a television address, he issued an ultimatum, demanding the withdrawal of missiles. In case Moscow did not comply, Kennedy ordered the preparation of an invasion force.... Kennedy��s brinkmanship paid off. The Soviet leader Nikita Khrushchev was sufficiently intimidated to cut a secret back-channel deal, whereby he agreed to withdraw the Soviet missiles from Cuba if the Americans withdrew theirs from Turkey...

Josh Micah Marshall (2002): The real Whitewater Shocker: "People at the highest levels of the Bush administration found out about the Whitewater referral and started in motion a series of actions intended to speed up the handling of it.... Edie Holiday, the secretary to the Cabinet... then-Attorney General William Barr... then-White House counsel C. Boyden Gray.... Washington is replete with rules prohibiting or discouraging contact.... And most cover inappropriate contact between the political side of the executive branch and the law enforcement side of the executive branch... political appointees trying to use their influence over the executive law enforcement agencies for political gain...

The Philips Curve was always properly used as a heuristic framework for thinking about issues, not as a machine for generating certainty-equivalent forecasts to use in month-to-month policy decisions: Jeanna Smialek: RIP Phillips Curve? The Fed's Wonky Guidestar May Be Dimming: Fed has been moving from tight labor-brings-inflation logic. They��re now waiting for actual, not anticipated, price gains...

Michelle Klieger: Is Trump Playing Trade War Checkers, While Xi Plays Chess?: "Trade talks starting to look like a familiar trap.... Break it, Restore the Status Quo, Claim��Victory. Looking at the last few weeks, the biggest trade headlines were about auto tariffs, soybeans, and liquefied natural gas (LNG) sales and biotechnology approvals... easy wins China was hoping to give the United States to end the trade war. These concessions make great headlines and don��t cost China much if anything. If this is all we get out of the talks in January, then Trump played right into China��s hand. Trump didn��t get stronger intellectual property protection for American companies. He did not get China to end or change its Made in China 2025 campaign. He did not reduce the trade deficit. And foreign companies are still discriminated against under Chinese law. So what was achieved?...

Patrick Skinner: @SkinnerPm: "Shift ended with one of the worst calls. But what I remember is a call at a diner where a neighbor struggling with serious mental issues wouldn��t/couldn��t pay her $18 bill. Easiest call I handled all day. And best $28 bucks I spent in ages (ex waiter, tip big & tip big often...) Theresa... says ��I��m guessing it wasn��t you eating at (name of random place in my precinct)�� when she does the checking account.... We��re very fortunate & it��s not often & it saves money overall by avoiding dumb jail for truly truly struggling neighbors.... Plus it��s nicer...

#noted #weblogs

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Published on February 18, 2019 16:41

The Market: As an Institution, Its Pros, and Its Cons

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The Market as an Institution: ��The Market�� as an Institution:

We start from what look like to us deep truths of human psychology

People are acquisitive
People engage in reciprocity��i.e., want to enter into reciprocal gift-exchange relationships

In which they are neither cheaters nor saps
With those they trust��

We devised property as a way of constructing expectations of trust��

We devised money as a substitute for trust��

And so, on the back of these human propensities for acquisition and for trusted gift-exchange, we have constructed a largely-peaceful global 7.4B-strong highly-productive societal division of labor:

Built on assigning things to owners��who thus have both the responsibility for stewardship and the incentive to be good stewards��
And on very large-scale webs of win-win exchange��
Mediated and regulated by market prices...

This is a very valuable and important societal institution��

Economics is the study of how it��what we usually call ��the market��works��
In analyzing the market as an institution, we need to cover:

The success of the market
The failures of the market

Plus there is the peculiar domain of ��macroeconomics��

The political-economic-sociological-historical context of the market
The impact of a market economy on the other institutions and practices of society

Three Aspects of Market Success: The market failure-free competitive market in equilibrium, from the perspective of a utilitarian seeking to achieve the greatest-good-of-the-greatest-number, accomplishes the following goals. It:

produces at a scale that exhausts all possible win-win exchanges��and is ��efficient�� in that sense.

allocates the roles of producers and sellers to those who can make and sell them in a way least costly to society��s overall resources��to those with the lowest opportunity cost.

rations the commodities produced to those with the greatest willingness-to-pay��to those who, by the money standard, "need" (or rather want) them "the most" (by being willing to give up the most in terms of other societally-valued things in order to use or possess them).

Ten Modes of Market Failure: Markets can go wrong��badly wrong. They can:

not fail, but be failed by governments, that do not properly structure and support them��or that break them via quotas, price floors/ceilings, etc.

be out-of-equilibrium

possess actors have market power

be afflicted��if that is the word��by non-rivalry (increasing returns to scale; natural monopolies)

suffer externalities (in production and in consumption, positive and negative; closely related to non-excludibility)

suffer from information lack or asymmetry

suffer from maldistributions��for the market will only see you if you have a willingness to pay, which is predicated on an ability to pay��

suffer from non-excludability (public goods, etc.)

suffer from miscalculations and behavioral biases

suffer from failures of aggregate demand...

#berkeley #economics #highlighted #marketfailure #marketsuccess #economicinstitutions

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Published on February 18, 2019 16:26

Modes of Market Failure

Berkeley png

At lunch last week Richard Thaler was skeptical that I had managed to identify ten different modes of market failure. I admit that this list has a little too much of the Borges-List Nature, but I do think it holds up. What do you think?: The Market Economy: Modes of Failure: Markets can go wrong��badly wrong. They can:

not fail, but be failed by governments, that do not properly structure and support them��or that break them via quotas, price floors/ceilings, etc....

be out-of-equilibrium...

possess actors have market power...

be afflicted��if that is the word��by non-rivalry (increasing returns to scale; natural monopolies)...

suffer externalities (in production and in consumption, positive and negative; closely related to non-excludibility)...

suffer from information lack or asymmetry...

suffer from maldistributions��for the market will only see you if you have a willingness to pay, which is predicated on an ability to pay��

suffer from non-excludability (public goods, etc.)...

suffer from miscalculations and behavioral biases...

suffer from failures of aggregate demand...

#berkeley #economics #highlighted #marketfailure

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Published on February 18, 2019 16:24

Patrick Skinner: @SkinnerPm: "Shift ended with one of the...

Patrick Skinner: @SkinnerPm: "Shift ended with one of the worst calls. But what I remember is a call at a diner where a neighbor struggling with serious mental issues wouldn��t/couldn��t pay her $18 bill. Easiest call I handled all day. And best $28 bucks I spent in ages (ex waiter, tip big & tip big often...) Theresa... says ��I��m guessing it wasn��t you eating at (name of random place in my precinct)�� when she does the checking account.... We��re very fortunate & it��s not often & it saves money overall by avoiding dumb jail for truly truly struggling neighbors.... Plus it��s nicer...

#noted

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Published on February 18, 2019 08:27

It is long past time to stop pretending that Trump has co...

It is long past time to stop pretending that Trump has coherent policy goals that he can attain. And, on trade, having conspicuously folded on NAFTRA, he has no leverage in any dispute he gins up with China: Michelle Klieger: Is Trump Playing Trade War Checkers, While Xi Plays Chess?: "Trade talks starting to look like a familiar trap.... Break it, Restore the Status Quo, Claim��Victory. Looking at the last few weeks, the biggest trade headlines were about auto tariffs, soybeans, and liquefied natural gas (LNG) sales and biotechnology approvals... easy wins China was hoping to give the United States to end the trade war. These concessions make great headlines and don��t cost China much if anything. If this is all we get out of the talks in January, then Trump played right into China��s hand. Trump didn��t get stronger intellectual property protection for American companies. He did not get China to end or change its Made in China 2025 campaign. He did not reduce the trade deficit. And foreign companies are still discriminated against under Chinese law. So what was achieved?...

#noted

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Published on February 18, 2019 07:26

Michelle Klieger: Is Trump Playing Trade War Checkers, Wh...

Michelle Klieger: Is Trump Playing Trade War Checkers, While Xi Plays Chess?: "Trade talks starting to look like a familiar trap.... Break it, Restore the Status Quo, Claim��Victory. Looking at the last few weeks, the biggest trade headlines were about auto tariffs, soybeans, and liquefied natural gas (LNG) sales and biotechnology approvals... easy wins China was hoping to give the United States to end the trade war. These concessions make great headlines and don��t cost China much if anything. If this is all we get out of the talks in January, then Trump played right into China��s hand. Trump didn��t get stronger intellectual property protection for American companies. He did not get China to end or change its Made in China 2025 campaign. He did not reduce the trade deficit. And foreign companies are still discriminated against under Chinese law. So what was achieved?...

#noted

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Published on February 18, 2019 07:26

The Philips Curve was always properly used as a heuristic...

The Philips Curve was always properly used as a heuristic framework for thinking about issues, not as a machine for generating certainty-equivalent forecasts to use in month-to-month policy decisions: Jeanna Smialek: RIP Phillips Curve? The Fed's Wonky Guidestar May Be Dimming: Fed has been moving from tight labor-brings-inflation logic. They��re now waiting for actual, not anticipated, price gains...

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Published on February 18, 2019 07:26

Josh Micah Marshall (2002): The real Whitewater Shocker: ...

Josh Micah Marshall (2002): The real Whitewater Shocker: "People at the highest levels of the Bush administration found out about the Whitewater referral and started in motion a series of actions intended to speed up the handling of it.... Edie Holiday, the secretary to the Cabinet... then-Attorney General William Barr... then-White House counsel C. Boyden Gray.... Washington is replete with rules prohibiting or discouraging contact.... And most cover inappropriate contact between the political side of the executive branch and the law enforcement side of the executive branch... political appointees trying to use their influence over the executive law enforcement agencies for political gain...

#noted

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Published on February 18, 2019 06:12