J. Bradford DeLong's Blog, page 261

Comment of the Day: Ebenezer Scrooge: The Great American ...

Comment of the Day: Ebenezer Scrooge: The Great American Tax Heist Turns One: No Longer Live at Project Syndicate: "If I were in an unusually forgiving mood, I would say that many on the list are financial economists, not macroeconomists. Non-Dunning-Krueger people are stupidest when opining on a field near, but not precisely with, their own expertise. (xkcd's "Physicists" cartoon is particularly on point.) But I'm not in an unusually forgiving mood. Many on the list are macroeconomists, and financial economics is just a little bit too close to '80's-style lawn economics to be taken seriously...

#shouldread #commentofhteday

Jon Schwarz: The 10 Most Awful Articles in the Weekly Sta...

Jon Schwarz: The 10 Most Awful Articles in the Weekly Standard���s Short Life VII: "'Are Syria���s Chemical Weapons Iraq���s Missing WMD? Obama���s Director of Intelligence Thought So' by Mark Hemingway, 2017: It was inevitable that someone on the right would be stupid enough to write this, and the Weekly Standard would be the magazine��stupid enough to publish it.... The CIA spent $1 billion investigating Iraq���s WMD programs, and found��no evidence this happened...

#shouldread #journamalism #orangehairedbaboons #moralresponsibility

Jon Schwarz: The 10 Most Awful Articles in the Weekly Sta...

Jon Schwarz: The 10 Most Awful Articles in the Weekly Standard���s Short Life VI: "'Campus Disrupter' by Naomi Schaefer Riley, 2018. It���s hard to remember in the age of Trump, but conservatives used to be fixated on the fear that American universities were no longer teaching the classics of Western civilization. This article is one of several��of this type published by��the Weekly Standard. Whatever the merits of the Western classics, read this from Book II, Chapter XXXI of Machiavelli���s ���Discourses on Livy.�����Then��think about the Iraq War and ask yourself whether William Kristol, who has a Harvard Ph.D. in government, has ever actually read��these old books.... 'A Prince, therefore, ought to go slowly in undertaking an enterprise upon the representations of an exile, for most of the times he will be left either with shame or very grave injury'...

#shouldread #journamalism #orangehairedbaboons #moralresponsibility

We Are with Her!

Looking Forward to Four Two More Years During Which Most if Not All of America's Potential for Human Progress Is Likely to Be Wasted:


With each passing day Donald Trump looks more and more like Silvio Berlusconi
Bunga-bunga governance
With a number of unlikely and unforeseen disasters
And a major drag on the country

Except in states where his policies are neutralized.

Nevertheless, remember: WE ARE WITH HER!

#workingmemory
#socialjustice
#politics
#moralresponsibility

Fairly Recently: Must- and Should-Reads, and Writings... (December 24, 2018)

Note to Self: America's Equities Are Worth 20% Less than They Were Worth Three Months Ago...

The Great American Tax Heist Turns One: No Longer Live at Project Syndicate: Let me hammer this point again: the failure of any of Barro, Bhagwati, Boskin, Calomiris, Cogan, Holtz-Eakin, Hubbard, Lazear, Lindsey, Mankiw, Rosen, Shultz, Taylor, and a hundred-odd others to write about���or even express curiosity about why���their confident predictions of a year ago that the Trump-McConnell-Ryan corporate tax cut would generate a huge investment boom���that silence speaks very loudly about the genre in which they viewed their forecasts back at the time...

For the Weekend: Mary J Blige: Real Love

Weekend Watching: Barry Eichengreen: The Economic Consequences of Mr. Trump

Jon Schwarz: The 10 Most Awful Articles in the Weekly Standard���s Short Life V: "'Breaking the Climate Spell' by Rupert Darwell, 2017. The Weekly Standard has published dozens upon dozens��of articles ridiculing anyone who believes climate change is real and a serious problem. But perhaps their best work on the subject is this.... 'Trump is breaking the spell of inevitability of the transition to renewable energy', Darwell writes excitedly. 'The impression of irresistible momentum has been one of the most potent tools in enforcing compliance with the climate catechism. Like socialism, the clean-energy transition will fail because it doesn���t work'. Don���t get mad, snowflakes, that���s just science... #journamalism #orangehairedbaboons #moralresponsibility

If the Fed had had a 4%/year inflation target for the past decade, odds are that right now the Federal Reserve would be in a situation without great workers. But it hasn't, and it isn't: Mohamed A. El-Erian: Fed Rate Hike: Powell Tries to Balance Growth and Volatility: "Fed���s No-Win.... Powell increasingly must��make the best of factors mostly outside his��control, increasing fears of a policy mistake... #monetarypolicy

Narayana Kocherlakota: The Fed���s Risky Plan to Boost Unemployment - Bloomberg: "The Fed is planning to raise its interest-rate target above its long-run level of around 2.8��percent. We can actually see this happening in the Fed���s rate forecasts for the next three years.... The Fed is planning to eliminate over a million jobs �����and put millions more at risk �����in order to avoid a tiny deviation from its inflation target. I���ll leave it for readers to judge whether this is a desirable gamble... #monetarypolicy

It was a huge mistake for the Federal Reserve to nearly invest the yield curve in 2007. In fact, I cannot think of any reason why a central bank with inflation not well above target would ever seek or tolerate such a near-inverted yield curve: Joe Rennison: Yield Curve Hits New Cycle Low in Wake of Fed Meeting: "The difference between two- and 10-year Treasury yields, a common permutation of the so-called yield curve, sank below 10 basis points for only the second time this year, and hit 9.87 basis points in morning trading on Thursday. It���s the lowest level for the measure since June 2007...

Popehat: Alan Dershowitz Is Lying To You: "Trading on his reputation as a legal titan, he's offering normative views (what the law should be) as descriptive views (what the law is.)... Alan Dershowitz, in describing the Special Counsel investigation, is posing as a subject-matter expert but acting like an advocate���and a dishonest one... #orengehairedbabooons

Josh Chafetz: "Never tweet is looking better and better as life advice: "'The entire party supports Trump, which is why we are considering canceling a party primary to make sure he doesn't lose it.' https://www.washingtonexaminer.com/news/campaigns/south-carolina-gop-could-scrap-2020-primary-to-protect-trump. Special shout-out to all the people who thought... [this] was a sincere statement of my own views. Keep doing what you do. You make this website the wondrous place. Never tweet is looking better and better as life advice... #journamalism #orangehairedbaboons

Matthew Yglesias: Paul Ryan���s Farewell Address: Transcript Shows Nonsense on Poverty: "Leaving Congress with a legacy of empty words.... A perfect capstone to Ryan���s career: Rich people get tax cuts; poor people get pious words and misleading rhetoric.... It���s important... to correctly understand the hierarchy of Ryan���s priorities. Ideas to help the poor, like the EITC, need to take a back seat to deficit concerns. Tax cuts for the rich, however, are worth doing even when they increase the deficit. And when it comes time to cut the deficit, the best way to do it is to take away poor people���s health insurance. Under the circumstances, America���s struggling families should feel lucky that Ryan never really got around to implementing his vision for their future... #orangehairedbaboons

The Fed ought to pursue a symmetric 4%/year inflation target. It cannot even successfully communicate and pursue a 2%/year symmetric inflation target. And Tim Duy is an unhappy camper: Tim Duy: Fed Hikes Rates, Market Tumbles: "The implication here is that there is substantial downside risk to the economy. So much that the Fed is reducing its forecasts across the board. So much so that the Fed anticipates they will fall short of their inflation target yet again. And yet they continue to hike rates and signal more rate hikes to come. It is an unnecessarily and explicit hawkish message that is an artifact of a communications strategy that only made sense when you could reasonably promise zero rates for an extended period... #monetarypolicy

Antonio Fatas: How low is low for Chinese GDP growth? ~ Antonio Fatas on the Global Economy: "The deceleration of GDP growth rates in China can be seen as a natural evolution of the economy as it follows its convergence path, in particular if we use recent decades in South Korea as a benchmark...

Barry Ritholtz: Transcript: Bethany McLean (Enron & Fracking): "I was na��ve then. I never would���ve guessed that a company could be so riddled with overstatements and outright fraud as Enron was.... The piece was skeptical... pointed out problems in Enron���s business... lack of cash flow... burgeoning debt load... nobody understood how this company actually made its money. But if you would ask me at that time that I���would be bankrupt in six months or nine months, I would have said 'What? No'...

James Montier: The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns: "Clinical studies have found one group of people who perceive reality the way it truly is. These are the clinically depressed, which is of course why they are clinically depressed! This leaves us with an unenviable choice���either be happy and deluded, or sad and accurate...

Karl Smith is correct: to solve the "skills gap", create an economy in which companies have an incentive to solve the "skills gap": Karl Smith: @karlbykarlsmith: "Meh. Turn demand up to 11, watch gap solve itself..." Noah Smith: @Noahpinion: "YESSSSS..." : Joe Nocera: How to Turn a Community College into an Economic Engine: "Bridging the skills gap starts with a conversation between community colleges and employers... #labormarkets #equitablegrowth

Ernie Tedeschi: Unemployment Looks Like 2000 Again. But Wage Growth Doesn���t: "Trying to solve an economic mystery: This is, to put it mildly, a mystery. If workers are as scarce as the unemployment rate and many other measures suggest, employers should be raising wages to compete for them...#labormarkets #equitablegrowth

Binyamin Appelbaum : "As the old saying goes, there are no efficient market hypothesists in foxholes. They gave a guy a Nobel Prize for writing that financial markets are efficient. I'll never find that not funny." *Noah Smith: "EMH is the best investing advice you or most people will ever receive."... *Brad DeLong: EMH is a reasonable theory of short run returns. It is a lousy theory of values. And it is an even lousy her theory of price movements. Fans and co���s inability to distinguish between those three at all was what convinced me they were morons... #twitter #economicsgonewrong #finance

WTF?!?!? Paul Krugman: "This is amazing.: It's as if Mnuchin was trying to create a panic over something nobody was worried about until this release. Alternatively, Mnuchin could just be an idiot. Not just me... #finance #orangehairedbaboons

And a happy Feast of Sunreturn to you too: Brendan Greeley: There's No Process Left at the White House: "Literally on the night before Christmas, after determining that a thing that is not a problem is not a problem, the Secretary of the Treasury of the United States of America is convening the President's Working Group on Financial Markets, an organisation that doesn't really exist. It doesn't have an office, or legal authority, or even employees. There's an executive order from 1988 that says the president can tell several department and agency heads to get together and talk... Whatever the working group used to periodically do, it's been replaced since the financial crisis by the formal work of the Financial Stability Oversight Council. Mr Mnuchin could just as easily call on the order of the garter to take up arms and defend the realm. He's throwing glitter on a football. This isn't how any of this is done... #oranghairedbaboons

Note to Self: America's Equities Are Worth 20% Less than They Were Worth Three Months Ago...

Note to Self: America's equities are worth 20% less than they were worth three months ago. Needless to say, the only change in fundamentals between then and now is... that now investors in the stock market are no longer as optimistic or risk tolerant. Risk-free rates going forward are the same. Expected future productivity levels are the same. The curvature of individuals' utility functions as their wealth increase is the same...

Worth noting is that the Campbell-Shiller CAPE is 26. Worth noting is that that CAPE assumes that we have 2009-10-class earnings collapse once a decade. Assuming that a 2009-10 is a once-in-fifty years episode gets you to an adjusted CAPE of 23.5:

That is its average for the past 40 years. And given that nominal interest rates and real interest rates are secularly low, we would expect to see a CAPE higher than average. A CAPE of 23.5 gives us an expected forward real return of 4.3%/year in the absence of future changes in valuation ratios, and what other asset class is offering anywhere near that? A valuation ratio below the generational historical average, no competing prospects in other asset classes, and a batshit incompetent and insane American president���well, we understand why the adjusted CAPE is only 23.5, what we do not understand is why it was 28.2 three months ago...

#notetoself #finance #highlighted

And a happy Feast of Sunreturn to you too: Brendan Greele...

And a happy Feast of Sunreturn to you too: Brendan Greeley: There's No Process Left at the White House: "Literally on the night before Christmas, after determining that a thing that is not a problem is not a problem, the Secretary of the Treasury of the United States of America is convening the President's Working Group on Financial Markets, an organisation that doesn't really exist. It doesn't have an office, or legal authority, or even employees. There's an executive order from 1988 that says the president can tell several department and agency heads to get together and talk... Whatever the working group used to periodically do, it's been replaced since the financial crisis by the formal work of the Financial Stability Oversight Council. Mr Mnuchin could just as easily call on the order of the garter to take up arms and defend the realm. He's throwing glitter on a football. This isn't how any of this is done...

...Alphaville has no idea why the White House is doing any of this, but we suspect and in fact fear that there isn't even a sinister reason. We fear that there's no process left in the White House at all, no one to tell the president how anything works, or how he might even carry out bad decisions. On economic policy as with national security policy, there may now just be a guy, sitting alone in a room, thinking things up and telling other people to go and do them....

#shouldread #oranghairedbaboons

WTF?!?!?Paul Krugman: "This is amazing.: It's as if M...

WTF?!?!?

Paul Krugman: "This is amazing.: It's as if Mnuchin was trying to create a panic over something nobody was worried about until this release. Alternatively, Mnuchin could just be an idiot. Not just me...

...You know, nobody seriously trying to think about the economic risks is envisioning a replay of 2008; the problems now are much less bank-centered, much more about trade and lack of monetary space. But *maybe Mnuchin doesn't know that���and maybe nobody in the admin does. We should take seriously the possibility that we're looking at an economic team as clueless as their boss���and that they'll respond to real problems by firing off off-point tweets from various golf courses.

#shouldread

The Great American Tax Heist Turns One: No Longer Live at Project Syndicate

Let me hammer this point again: the failure of any of Barro, Bhagwati, Boskin, Calomiris, Cogan, Holtz-Eakin, Hubbard, Lazear, Lindsey, Mankiw, Rosen, Shultz, Taylor, and a hundred-odd others to write about���or even express curiosity about why���their confident predictions of a year ago that the Trump-McConnell-Ryan corporate tax cut would generate a huge investment boom���that silence speaks very loudly about the genre in which they viewed their forecasts back at the time:

A year ago there were a substantial number of economists who were assuring us that the Trump-McConnell-Ryan corporate tax cut was not just a giveaway to rich stockholders but would provide a sustained and substantial boost to investment in America that would boost productivity by:

Barro, Boskin, Cogan, Holtz-Eakin, Hubbard, Lindsey, Rosen, Shultz, and Taylor said "3% to 4%... if achieved over a decade, the... increase in... annual... growth would be about 0.4%..."

Hubbard, Lindsay, Holtz-Eakin, and a fourth (who is either Lazear or Mankiw) said, according to Sen Susan Collins (R-ME), by enough to raise tax collections enough to keep the deficit from going up by much.

Miller, Calomiris, Bhagwati, and a hundred-odd others said by enough to raise tax collections enough to keep the deficit from going up at all���and boost annual growth by 0.4%.

Barro, endorsed by Boskin, doubling down and claiming not 4% but 7% as the long-run boost to productivity and prosperity���and boost annual growth by 0.4%.

And Kevin Hassett and Greg Mankiw told us that these productivity gains would primarily boost wages not profits���because the relevant model was not one in which the tax cut raised after tax profit and interest rates but rather one in which foreigners would flood America with savings, lending to and investing in this country on a large scale to finance the bulk of this surge and investment.

These were primarily long-run predictions, and, of course, the long-run is not here yet.

But the long-run only arrives when the succession of short-runs cooperates, and these economists nailed their long-run prediction to the short run by claiming we would see higher investment in America strong enough to boost growth by 0.4%/year���that is 80 billion dollars per year���more than we would have seen otherwise. And to gain that boost to productivity from higher investment spending would require roughly an extra 800 billion in higher annual investment���a jump from its current 17.5 percent to about 21.5 percent of GDP.

We do not know what growth this year and next year would have been otherwise. But we can look at investment in America: Has it jumped up by 800 billion dollars this year, and is it projected to stay at the same jumped-up level next year? The answer is: no.

And we can look at investment by foreigners in America���although we already know that it could not have financed any material part of an 800 billion surge in annual investment in America because there was no such surge in investment. Indeed, there has been no such surge in investment in America.

Back when all these 100-odd economists from Barro through Taylor were setting out their claims, these drew sharp dissents from not just economists associated with former Democratic administrations but from scorekeepers like the Tax Policy Center whose entire model of operations rests on pleasing not politicians and donors but rather making the best forecasts they can. The disagreements in turn drew an anguished cry from reporter Binyamin Applebaum:

I am not sure there is a defensible case for the discipline of macroeconomics if they can���t at least agree on the ground rules for evaluating tax policy. What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement? How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? How are ordinary people, let alone members of Congress, supposed to figure out which tenured professors are the serious economists?...

I think we can now answer Applebaum's question. The 100-odd economists from Boskin to Taylor made analyses and offered predictions. These analyses have proven wrong. These predications have proven false. To anybody engaged in an intellectual discipline, it is very interesting when you get something wrong���it is a sign that you have something to learn. And so, in every intellectual discipline, you try to learn it: you study it, analyze it, debate about it, in the hope of making yourself smarter���if, that is, you see yourself as a thinker.

There has been none of that.

There has been silence.

There has been silence because the absence of the promised 800 billion surge in investment in America this year continued through next year and beyond is not something anybody is surprised to see. A model in which investment in America can easily and rapidly jump up (or down) as foreigners flood or reverse large-scale investment in America is not a useful model. Individuals do not substantially boost or curb their savings as tax changes boost or reduce after-tax profit rates. Yes, a higher profit rate makes savings more profitable. But a higher profit rate also makes the income from your past savings higher, and so reduces the need to save. The two roughly balance out. And those writing opens and releasing studies boosting last year's Trump-McConnell-Ryan corporate tax cut knew this, or ought to have known this. And they see no need to study this year why their forecasts made last year were wrong because they already knew.

So I say to Binyamin Applebaum, and to other reporters who wrote up���much less critically then they should have���what the corporate tax cut-boosting economists from Barro to Taylor and company were saying last year: remember: "fool me once, shame on you; fool me twice, shame on me".

 

This File as html:

Edit the html file: https://www.typepad.com/site/blogs/6a00e551f08003883400e551f080068834/post/6a00e551f080038834022ad3a613e3200d/edit

Github: https://github.com/braddelong/NOTEBOOK-Macro-and-Macro-Policy/blob/master/A_Year_After_the_Corporate_Tax_Cut.ipynb

nbviewer: http://nbviewer.jupyter.org/github/braddelong/NOTEBOOK-Macro-and-Macro-Policy/blob/master/A_Year_After_the_Corporate_Tax_Cut.ipynb

#macro #economicgrowth #fiscalpolicy #highighted #orangehairedbaboons #moralrsponsibility #highlighted

The EMH account of mean-reversion in asset values is "unf...

The EMH account of mean-reversion in asset values is "unforecastable, unmotivated, unexplained time-varying required rates of return". The EMH account of large swing in asset values is "rapid, unforecastable, unmotivated, unexplained shifts in time-varying required rates of return". It's not a theory: it's an academic grift: Comment of the Day; Charles Steindel: Binyamin Appelbaum: "As the old saying goes, there are no efficient market hypothesists in foxholes. They gave a guy a Nobel Prize for writing that financial markets are efficient. I'll never find that not funny: "That's the point. (Fluctuations in) returns for all practical purposes (any set investment horizon, particularly shorter ones) aren't predictable. But levels of prices can be way out of whack. The resolution is that we just don't know when sanity will be restored. Another way to say it is that over a sufficiently long horizon the average level of prices is about equal to the value assumed by efficient markets. Just means prices fluctuate (a lot!) around that efficient value...

commentoftheday #economicsgonewrong