J. Bradford DeLong's Blog, page 245
January 26, 2019
Next to nobody ever thought it would be a good idea for t...
Next to nobody ever thought it would be a good idea for the British economy. Next to nobody wanted to govern a ship of state headed for the Brexit iceberg���they merely wanted to gain narrow career advantage by showing that they would stand up for Britain. Yet those claiming to support Brexit remain busy removing the brakes that could bring Britain to a not-disastrous policy outcome: Nick Crafts: Brexit: Blame It on the Banking Crisis: "Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that��they are in fact closely connected.��The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote.��The implication is that the economic costs of the banking crisis are much larger than is usually supposed...
#noted
As Karl Marx wrote in the middle of the nineteenth centur...
As Karl Marx wrote in the middle of the nineteenth century: Imbalances in pre-capitalist economies do not produce aggregate demand crises and collapses. Why don't they? Because Pharaoh can always command that another pyramid be built, the king can always set out on another crusade, and the bishop can always build another cathedral. The expenditures that provide employment for those not producing the consumption-goods-in-demand only have to make profit-and-loss sense under the capitalist mode of production. Capitalist economies suffer Hayek-Minsky crises when deluded financial markets suddenly recognize that they have been overoptimistic, have over invested, and need to shift investment-goods production back down not to normal but way below normal. And the collapse comes as near-universal bankruptcy and financial disruption prevents any such smooth expenditure-shifting. That Hayek-Minsky overinvestment crisis is what Paul Krugman, I, and other China-pessimists haver been fearing for two decades now. But perhaps socialism with Chinese characteristics is insufficiently capitalist for that Hayek-Minsky logic to apply, and Paul and I and others should have been paying more attention to Uncle Karl: Paul Krugman: Will China���s Economy Hit a Great Wall?: "I issued a warning.... The Chinese economy... is, I wrote, 'emerging as a danger spot'.... Unfortunately, the other day was more than 6 years ago. And it���s not just me. Many people have been predicting a China crisis for a long time, and it has kept on not happening. But now China seems to be stumbling again. Is this the moment when all the prophecies of big trouble in big China finally come true? Honestly, I have no idea. On one side, China���s problems are real. On the other, the Chinese government... has repeatedly shown its ability and willingness to do whatever it takes...
...But maybe this is another example of Dornbusch���s Law.... The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.... The fundamental problem with the Chinese economy is that it���s highly unbalanced: It has extremely high levels of investment, seemingly without enough domestic consumption to justify that investment. You might be tempted to say this doesn���t matter, that China can just export its surplus production to other countries. But while there was a period from the mid-2000s to the early 2010s when China ran huge trade surpluses, those days are past.... So China really can���t keep investing 40-plus percent of GDP. It needs to shift over to higher consumption, which it could do by returning more profits from state-owned enterprises to the public, strengthening the social safety net, and so on. But it keeps not doing that. Instead, the Chinese government has been piling on loans to businesses and state-owned enterprises, pushing the SOEs to spend more, and so on. Basically it has kept investment going despite low returns.... However, if this sounds like a compelling case, bear in mind that it���s the same case I and others made in 2011. So apply appropriate skepticism...
#noted
The disjunction between market-community and policymakers...
The disjunction between market-community and policymakers beliefs is the feature of the situation that makes me most worried about the business cycle outlook. Market oesrrvers understanding how and what the Federal Reserve believe, but are right now betting that events will give it a shock and force it to reverse policy. Such confidence that reality will give a shock that olicymakers will not be able to ignore is worrisome: Muhammed El-Erian: Why Fed and Markets Don't Agree on Prospects for Interest Rates: "The markets, anticipating no hikes this year and cuts thereafter, estimate the fed funds rate in 2020 a full percentage point below the median of the central bank's dots.... There simply isn���t enough data as yet to point with a high degree of confidence to a dominating explanation or combination of explanations... historically based analytical models may not be sufficiently structurally robust to capture this moment...
...Investors should take away three messages: We are in a period of inherently greater economic, policy and financial uncertainty, instability and unpredictability; the main risks to the U.S. economy are less organic than political, external and financial; and the risks of a policy mistake and/or market accident are increasing. All of this calls for well-constructed tail protection and readily available cash to exploit the possibility of subsequent technical overshoots...
#noted
I think that this does not get what is going on, exactly....
I think that this does not get what is going on, exactly. It's the Gingrich Rule and the Trump Rule. The Gingrich Rule is this: if the president of your party is not a success and not perceived to be a success, you might well lose your congressional seat at the next election. Those who follow the Gingrich Rule thus have one focus when the presidency is held by the opposite party: make the president look like a failure���and to hell with the well-being of the country. And those who follow the Gingrich Rule thus have one focus when the presidency is held by your own party: make the president look like a success���and to hell with the well-being of the country. But what if���as is the case with Trump���nothing you do can make him look like a success? Well, you might still squeak through if your voter base has a heavy partisan advantage as long as the party loyalists support you. And that means you have to at least appear to support the president, and make sure that the president never gets mad enough at you to make you a target. Want to understand Republican legislators right now? It's these two rules: (1) Try to make Trump look like a success. (2) Try not to make Trump mad at you. This is, however, not fear of Trump���it's fear of the voters you need in your corner next November���fear that the moderates will conclude that you are a loser because Trump looks like a loser, and fear that the base will conclude that you are a loser because you are not loyal enough to Trump. Actually, I would be surprised if we did not have a lot of Republican Senators refusing to run in 2020: it's much better for your future lobbying career to retire than to lose. Lamar Alexander (R-Tennessee), Shelley Moore Capito (R-West Virginia), Bill Cassidy (R-Louisiana), Susan Collins (R-Maine), John Cornyn (R-Texas), Tom Cotton (R-Arkansas), Steve Daines (R-Montana), Mike Enzi (R-Wyoming), Joni Ernst (R-Iowa), Cory Gardner (R-Colorado), Lindsey Graham (R-South Carolina), Cindy Hyde-Smith (R-Mississippi), James Inhofe (R-Oklahoma), Jon Kyl (R-Arizona), Mitch McConnell (R-Kentucky), David Perdue (R-GA), Jim Risch (R-Idaho), Pat Roberts (R-Kansas), Mike Rounds (R-South Dakota), Ben Sasse (R-Nebraska), Dan Sullivan (R-Alaska), Thom Tillis (R-North Carolina), take note: A.B. Stoddard: Trump's Loyal Senate Republicans: "Republican officeholders would rather cross the voters than cross Trump, even as the bottom is falling out on the numbers.... John Cornyn... up for re-election next year... complained about the damage being done by the shutdown, saying that it���s 'Outrageous that federal prosecutors at Department of Justice and investigators at FBI, who we depend on to enforce the law are missing paychecks because of shutdown'. Yet after years of expressing scepticism about the efficacy of a border wall, he tells the Washington Post that he now won���t vote for a bill to reopen government without wall funding because, he said, 'the president won���t sign it'.... McConnell... could put spending bills that have passed the House... up for a vote on the Senate floor. But since the bills might pass, embarrassing Trump and risking a presidential veto, he won���t. What���s driving this partisan unity is not ideological solidarity, but fear.... When Murkowski was asked by the Post if she believed her GOP colleagues were afraid of the president she replied, 'I think some are, absolutely'...
#noted #moralresponsibility #orangehairedbaboons #politics
Leonidas Montes: Friedman���s Two visits to Chile in Cont...
Leonidas Montes: Friedman���s Two visits to Chile in Context : "The Mont Pe��lerin Society Meeting opened with a reception and dinner on Sunday, November 15, the same day the Friedmans arrived to Chile. During the last day of the meeting, on Thursday November 19, one presenter celebrated the condition of an authoritarian government in Chile that permitted the implementation of a free market economy. La Segunda reported that Friedman emphatically intervened during this presentation arguing that the same reforms could be implemented under a constitutional o parliamentary democracy. It is also reported that he received an applause and ovation from the public (La Segunda Thursday 19, 1981 and see also Hoy, November 25, 1981, p. 27).61...
#noted
January 25, 2019
Note to Self: The Heritage Foundation, the Club for Growt...
Note to Self: The Heritage Foundation, the Club for Growth, and Stephen Moore Have No Principles Whatsoever. Why Do You Ask?: Now that Stephen Moore has signed up with Donald Trump, he is opposed to the Trans Pacific Partnership.... On Trish Regan's show with him, he made four points about TPP: 1. The agreement is long, and has lots of pages in it. 2. The agreement does not commit the Asians to stop copying our intellectual property. 3. The agreement does allow the U.S. to impose retaliatory penalties on other signatories if they do copy our intellectual property, but they will copy anyway. 4. The agreement is unlike NAFTA, which is a good thing. But... short months ago...
Larry Kudlow, Arthur Laffer, and Stephen Moore (2015): TPP Good For Both Sides Of The Pacific: Passage of this law would allow the completion of the Trans-Pacific Partnership, a free-trade agreement that would cover most of our Asian trading partners (excluding China). The U.S.-Asia trade zone would rival the European Union in size. It would be good for both sides of the Pacific.... The protectionist arguments have been consistently wrong: Employment won���t decline, wages won���t drop, foreigners won���t exploit children and there won���t be a giant sucking sound coming out of Mexico due to freer trade...
Stephen Moore (2015): The GOP's Growing Rift on Trade: Here���s my big worry right now, as you follow what���s happened in the last year or so and especially in the last six weeks or so. I���m very nervous that Republicans are becoming a kind of ���close the border��� party���close the border to people, close the border to goods and services. And that���s bad economics. It���s terrible economics. And that���s the wrong direction. I worry that the party is going down this Pat Buchanan wing of the party���that���s now the Donald Trump wing���is ascendant. There���s now becoming a rift within the party between the ���build the wall��� party and the���I think���the party Reagan [built]...
Stephen Moore and Larry Kudlow(2015): Donald Trump's Protectionism Is Worrisome: The last American president who was a trade protectionist was Republican Herbert Hoover. Obviously, Hoover���s economic strategy didn���t turn out so well--either for the nation or for the GOP. Does Trump aspire to be a 21st-century Hoover, with a modernized platform of the 1930 Smoot-Hawley tariff, which collapsed the banking system and helped send the U.S. and the world economy into a decade-long depression? We can���t help wondering whether the recent panic in world financial markets is in part a result of the Trump assault on free trade.......
#notetoself #orangehairedbaboons
Jared Bernstein (2016): Kansas and the Myth Of Trickle-Do...
Jared Bernstein (2016): Kansas and the Myth Of Trickle-Down Tax Cuts: "The ongoing supply-side tax cut experiment in Kansas.... Brownback was persuaded by some of the same folks now advising Trump to sharply cut state income taxes and to fully exempt pass-through income.... Not only did the growth that was supposed to offset the revenue losses fail to appear, but the Kansas economy appears to be doing notably worse than it was before the cuts.... Needless to say, this reality has had almost no perceptible impact on the cuts��� architects.... Steve Moore, a key trickler that pushed the plan in Kansas, didn���t see that coming: 'Sometimes it was legitimate, and sometimes it was a gaming of the tax system to pay the zero rate, so that loophole has to be closed', he said. 'Unless you have some rules about this, people really will shift income and they���ll find ways to legally avoid paying tax, and that was never the intention'. Who���d a thunk it? Moore is now a Trump adviser, and while pass-through income isn���t zeroed out in the Trump plan, it is taxed at very favorable 15 percent rate...
#noted
Hoisted from the Archives: The Kansas Republican Governan...
Hoisted from the Archives: The Kansas Republican Governance Experiment. Or Is That "Governance 'Experiment'"? Or Is That "'Governance' Experiment"?: Nothing like this was seen before.... It is only under Brownback that it has been down, down, down, down. You can argue how much of it is hostility to immigrants and strangers. How much of it is the profoundly un-Christian cast of a "Christian" government, and how much of it is the collapse of public services. But it has been effective. My friend Dan Davies says that the best proof that there is a skill and art of management comes from the fact that nobody doubts that there is such a thing as gross mismanagement. Similarly, the best proof that there is such a thing as good technocratic government leading to shared prosperity and equitable growth is... Brownback, and his acolytes and supporters, in Kansas:
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Ben Casselman et al.: THE KANSAS EXPERIMENT IS BAD NEWS FOR TRUMP���S TAX CUTS: "The most interesting policy news of the week may have come from 1,000 miles away, in Topeka, Kansas https://fivethirtyeight.com/features/the-kansas-experiment-is-bad-news-for-trumps-tax-cuts/?ex_cid=trumpbeat...
...The Kansas state legislature on Tuesday voted to override Gov. Sam Brownback���s veto and roll back 1.2 billion dollars of tax cuts over two years. The vote marked a bipartisan repudiation of what Brownback had described as an ���experiment��� in a particular brand of anti-tax fiscal conservatism. The failure of that experiment has implications beyond Kansas because Brownback���s approach was meant to be a model for conservatives elsewhere, including in Washington. (It was drafted with the help of prominent conservative thinkers, including former Ronald Reagan adviser Arthur Laffer and Heritage Foundation economist Stephen Moore.) Brownback���s version was particularly radical: He aimed to push personal income taxes to zero and exempted certain kinds of businesses, known as ���pass-through��� entities, from taxes entirely.... Brownback and his supporters predicted that cutting taxes would create jobs and spur entrepreneurship while boosting government revenue. That isn���t what happened...
#hoistedfromthearchives #orangehairedbaboons #brownback
Commonwealth Club Talking Points (January 25, 2019): Forecasting and Steve Moore Edition
The Shutdown: Let's review the bidding: Pelosi, Ryan, McCarthy, Schumer, McConnell, Trump reached a deal. Deal passes Senate unanimously. Trump watches "Fox and Friends". Trump announces he won't sign tghe deal. Paul Ryan���desperate not to embarrass Trump more���won't let the House vote on the deal. Ryan goes out and Pelosi gets in on January 4, and Pelosi passes the deal through the House. But because it is a new congressional session, the Senate's approval has expired. And McConnell���desperate not to embarrass Trump more���is now holding things up in the Senate.
From Pelosi and Schumer's standpoint, the big problem is this: they reach a new deal with Trump, Fox and Friends finds some reason to slag it, Trump backs out again.
The right, rational response to this situation is for Pelosi, McCarthy, Schumer, and McConnell to strike deals and then pass them with veto-proof majorities. But McCarthy and McConnell are too scared of Trump and not concerned enough about the well-being of the country to do that.
2.5 million people aren't getting their paychecks and 800,000 are getting very little work done. That's about a 0.5%���10 billion over the past month���hit to the economy. We won't see that because of oddities in the how the public sector is folded into official statistics, but it is there. Will there be a multiplier applied to it? In a year I will have the data so that then I will be able to look back and tell you. I cannot tell you now...
GDP Forecast: Because of the shutdown we are now largely flying blind���we are not getting the dataflow that we would have normally gotten over the past month. There is an 80% probability that Europe is in a small recession. The Chinese government says China is not in recession but somehow 6% fewer cars were bought in China in late 2018 than in late 2017.
The reliable recession signal is yield-curve inversion signals in 1966, 1969, 1974, 1978, 1989, 1998, 2000, 2006���8 in the last half-century or so. 1966 was followed by a near-recession. 1998 was a false alarm. Otherwise���yield curve inversion calls it, 6 of 8, with no unforecast recessions. The Federal Reserve's current plans are to invert the yield curve in June, and we do not undertstand why they are doing this���then they did this in 1989 and in 2006 they were worried about inflaiton, when they did this in 2000 they were worried about the stock price bubble, but nothing like that is relevant now.
There are people saying that the Fed will back off, and there are people saying that this time it really is different. Give each of those a 25% chance, and you got to say there is a 50% chance the U.S. will be in recession in a year and a half. We hope it will be a small one. We hope that somehow we will dodge the bullet...
Deficit: Back when interest rates were high, people like me convinced Democratic legislators to move heaven and earth to reduce the deficit. It required votes they saw as tough and unpopular, and those votes contributed to some of them losing their seats. Their appetite is gone. And the need is gone too���you need to reduce the deficit when, as they were in the 1980s and 1990s, interest rates are high or when there is a good chance that interest rates are soon going to become high. That is not where we are. The deficit is a problem���it would be nice to have a lower fiscal deficit with its effects on employment balanced by lower interest rates���but it's not one of our biggest twenty problems, and won't be until we can see a future of much higher interest rates...
Tax Reform of 2017?: Four times since 1980 Presidents have sold tax bills as things that will boost investment in America and generate a lot of supply-side economic growth. Reagan 1981, Clinton 1993, Bush 2001, and now Trump 2017. Adjusted for the effects of the short-run business cycle, investment in America fell after Reagan 1981 and Bush 2001 and rose sharply after Clinton 1993.
It looks like Trump 2017 is going to be a lot more like Reagan 1981 and Busch 2001. The jump in cycle-adjusted investment as a share of production is not jumping up. The people with models are not forecasting any jump���in fact, the people with models were never forecasting any jump. The boosters without models���the John Taylors, the Mike Boskins, the John Cochranes���who were forecasting a big jump a year ago are now all very, very quiet. The people who track financial flows are now saying that any boost to U.S. production is going to be outweighed by lower taxes collected on profits earned by foreigners who have invested in America.
If you and yours are each making more than 500,000 a year and are going to keep on making that, you are winners. If not, you are losers...
Trade War?: Not yet hurting much���unless you are a steel user or a soybean farmer here in the United States, or Microsoft (it looks like China's response has just been to ban its search engine Bing).
Is it hurting China? China appears to be reacting by snarfing up U.S. intellectual property to a much greater extent. They wanted to do this anyway, but were unwilling to start a fight to do it���but now that they are in a fight they are happy to proceed. Why is the Trump administration doing this? I think the answer is that Trump is not a wise man, that Navarro is a delusional man, and that Lighthizer is a corrupt man. I tell you, what the people who are wise, reality-based, and uncorrupt in the Trump administration really wish right now is that Trump had signed the TPP���then we would be negotiating with China over IP issues with 11 other countries backing us up and willing to impose penalties on China for misbehavior. As it is, we are going it alone.
California Real Estate?: God, what a mess...
After Howard Jarvis and Prop 13, the fact that property taxes were capped meant that local governments started looking at developments with fear: where are we going to find the money to provide services to all of these projects? The switch from local governments being boosters to local governments being NIMBYists has been the biggest governance disaster to afflict California in the past generation. If you own property, it's great. If you can easily get permits, it's great. Otherwise���we really need to fix this.
It doesn't look like tax reform is going to have big effects, however...
Employment? California will not have a jobs shortage or a job quality problem over the net decade. We will and we already have a housing problem.
The country as a whole, however, may well have a job quality problem. David Autor has a three-part classification of where the new jobs will come from, as "shop floor" jobs ebb away: frontier, wealth, and "last mile". Frontier jobs will, by and large, be good: people taking advantage of technology to do new things and to do things better. Wealth jobs���serving the wealthy���will be more important as people and as heirs and heiresses begin spending more out of the great wealth accumulations of the past generation in lots of ways (for example: tourism, housing, and personal enrichment���including funding things like the Commonwealth Club. So we like those). It's "last mile" jobs���the husks left behind because the real work has been automated and computerized and there is only a small, boring part left���that's the problem. The hope is that unemployment stays low enough that even those trapped in these "last mile" jobs have bargaining power. And that���keeping unemployment low���is, I think, the best way to deal with the employment problem...
California Jobs?: It's a race between tech employment generation and housing construction. If we can make housing construction win, it's a huge win for everyone. If not, we have problems...
#publicsphere #highlighted #berkeley #economics #equitablegrowth #economicgrowth
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