J. Bradford DeLong's Blog, page 273

Sam Bell: "Curiously, the Wall Street Journal editorial p...

Sam Bell: "Curiously, the Wall Street Journal editorial page no longer so enthusiastic about running down the balance sheet or hiking interest rates... and is suddenly interested in prime age epop... https://www.wsj.com/articles/the-feds-welcome-rethink-1543450104 #WelcomeToThePartyYouAreADecadeLate

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The Federal Reserve's public view of the likely path of t...

The Federal Reserve's public view of the likely path of the economy now lacks coherence. This is a bad thing. It may mean that the Federal Reserve's private view of the likely path of the economy now lacks coherence, in which case policy will lack coherence. It certainly means that market participants can no longer plan on the Federal Reserve having a known coherent view of the economy: Joe Gagnon: Tension Remains at the Heart of the Fed���s Forecast: "The Federal Open Market Committee (FOMC, or Fed) surprised no one at its September meeting by raising the target for the federal funds rate a quarter of a percentage point to a range of 2.00 to 2.25 percent. The FOMC has been tightening monetary conditions very slowly since late 2015...

...The only notable change in the FOMC���s policy statement was the dropping of a sentence that characterized Fed policy as ���accommodative.���... The FOMC raised its projection of GDP growth in the near term but otherwise made little change to its projections besides extending them to 2021. The projections show the unemployment rate roughly a percentage point below its long-run level through late 2021, yet inflation remains firmly fixed at 2.1 percent. These projections seem to defy the standard Phillips curve model of inflation that says inflation should increase as long as unemployment is below its long-run, or natural, rate. When asked about this tension, Chair Powell stated that the effect of low unemployment on inflation is likely to be very small because inflation expectations are anchored so strongly. He said that it might take a very long time to return to the natural rate of unemployment.... It strains credulity that a 1 percentage point gap between the unemployment rate and its natural rate would be expected to have essentially no effect on inflation over more than three years....

In the press conference, a reporter asked Chair Powell about the FOMC's view on the supply-side impacts of the tax reform passed last December. Powell said he hopes it raises the economy's potential growth rate a lot, but the FOMC projections show no upward revisions in long-run growth. Last fall the White House argued that the tax reform would raise the economy's growth rate from 2 percent to "3 percent or more" over the next 10 years. Between September 2017 and September 2018, the median FOMC projection of long-run growth was unchanged at 1.8 percent and the range across all FOMC participants narrowed from 1.5 to 2.2 percent to 1.7 to 2.1 percent. Not a single FOMC participant, including Chair Powell, projects growth in 2021 and beyond above 2.1 percent...

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I have never understood this argument. And���to my knowle...

I have never understood this argument. And���to my knowledge���there is no underlying model behind it at all. What is the mechanism by which raising interest rates now so you can lower them later beats keeping interest rates the same now and then lowering them later if both ultimately wind up at the same place?: Martin Feldstein: Raise Rates Today to Fight a Recession Tomorrow: "As I have argued in these pages since 2013, the Fed should have begun raising the fed-funds rate several years earlier. Doing so would have prevented the recent sharp increases in the prices of equities and other assets, which will collapse when long-term interest rates rise...

...Declining asset prices could destroy a substantial amount of household wealth and push the economy into recession. Unfortunately it is not possible to turn back the clock and prevent the overvaluation of assets and the resulting risk of recession. But I believe that the Fed is raising rates today so that it will be in a better position to offset a future economic decline.... There is a significant risk that the U.S. economy will slide into recession in the next few years.... Bloated asset prices will likely collapse, dragging industry down with them. The price-earnings ratio of the S&P 500 is nearly 40% above its historic average. As long-term interest rates return to normal levels, demand for equities and other assets will decline rapidly. A return of share prices today to their historic price-earnings ratios would wipe out nearly $8 trillion of household wealth. The resulting decline in consumer spending and the related fall in business activity would be enough to push the economy into recession.... Tthe Fed is right to increase the short-term rate now so that it will have as much ammunition as possible when the next downturn comes...

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Scott Lemieux: A Randroid Fraud Departs In A Cloud of Pur...

Scott Lemieux: A Randroid Fraud Departs In A Cloud of Pure Bulls---: "In order to facilitate his agenda of upper-class tax cuts, increasing funding for an already bloated military, and trying to strip healthcare from tens of millions of people, Ryan actively covered up for an unprecedentedly corrupt and unfit president and the ratf---ing campaign that helped put him in office. So...

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Bradley L. Hardy, Trevon D. Logan, and John Parman: The H...

Bradley L. Hardy, Trevon D. Logan, and John Parman: The Historical Role of Race and Policy for Regional Inequality: "Contemporary racial inequality can be thought of as the product of a long historical process with at least two reinforcing sets of policies: First are the policies governing the spatial distribution of the black population, and second are the policies that had a disparate impact on black individuals because of their locations...

...Understanding current black���white gaps in income, wealth, and education requires understanding the complex relationship between regional inequality, race, and policies at the local, state, and national levels. In this chapter we outline the ways that the spatial distribution of the black population has evolved over time and the ways that spatial distribution has interacted with policy to, at times, reduce and exacerbate levels of inequality. Recognizing the ways that past policies explicitly stymied black economic mobility and how current policies have explicitly or inadvertently done the same provides a basis for understanding how to craft future policies to reduce racial inequalities. Furthermore, recognizing the interconnection of discrimination and the spatial distribution of the black population is important for understanding certain components of regional and spatial inequality...

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Paul Krugman writes: "As Greg Leiserson of the Washington...

Paul Krugman writes: "As Greg Leiserson of the Washington Center for Equitable Growth points out, 'every month in which wage rates are not sharply higher than they would have been absent the legislation, and investment returns are not sharply lower, is a month in which the benefits of those corporate tax cuts accrue primarily to shareholders'. A tax cut that might significantly raise wages during, say, Cynthia Nixon���s second term in the White House, but yields big windfalls for stock owners with only trivial wage gains for the next five or 10 years, is not what we were promised..." See Greg Leiserson: Assessing the economic effects of the Tax Cuts and Jobs Act: "Key takeaways: An assessment... should focus on the impact... on wage rates... [on] the return on business investment, and... [on] future federal budget deficits, as these will determine the impact... and the fiscal sustainability of the law...

...A central challenge... will be determining the counterfactual.... Today, the law���s corporate tax cuts are primarily benefitting shareholders. Wage rates would need to increase about 1 percent above the level that would have prevailed absent the law to shift the benefits of the corporate tax cuts from shareholders to workers���more if revenue-raising provisions of the new law scheduled to take effect in the future are delayed or repealed. There is no indication that anything of this scale has yet occurred.... The best estimates... suggest... that only a small portion of these corporate tax cuts will be shifted to workers from shareholders even without taking the effects of rising federal budget deficits into account, and most of those gains will accrue to more highly paid workers. The increase in budget deficits and the resulting increase in U.S. government debt due to the new law will require offsetting fiscal policies. The net impact of the tax legislation on the public will thus reflect the combination of the effects of the tax cuts as enacted and these future as-yet-unspecified fiscal policy changes, as well as any impacts from rising budget deficits and federal debt in the interim...

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Hoisted from the Archives (December 20, 2010): Can't Anybody in Obama's Inner Circle Play This Game?

Hoisted from the Archives: Can't Anybody in Obama's Inner Circle Play This Game?: When people in the White House ask me whether I think Obama's SOTU address should be about tax reform or Social Security reform (i.e., 2/3 Social Security benefit cuts, 1/3 tax increases offered by the administration--and God alone knows what happens after that), I want to say: Why not make the SOTU address about jobs and economic recovery?...

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The Business-Cycle History of the Past Thirty Years Through the Lens of Aggregate Demand: Four Components of Multiplier-Driving Spending

As Paul Krugman says at every opportunity, if you knew nothing of macro after 1975���if you were just armed with sticky-price IS-LM���you would have done an excellent job at understanding the U.S. economy since 2008. I want to point out that this holds true for more than the past ten years: this holds true for the past thirty years as well:

Business Investment, Residential Construction, Government Purchases, Exports

All as Shares of Nominal Potential GDP

All as Percentage-Point Deviations from 2007QI Values...

 

Generating a High-Investment High-Productivity Growth Economy: The Clinton-Deficit-Reduction Program

 

The Collapse of the Dot-Com Boom

 

The Housing Bubble-Led Recovery

 

Managing the Collapse of the Housing Bubble

 

The Financial Crisis and the Great Recession

 

Not-So-Covery Summer

 

Drift and Austerity

 

Declaring the New Normal to Be Victory

#macro #monetarypolicy #monetarytheory #fiscalpolicy #highlighted

EG Barry Ritholtz: How to Use Behavioral Finance in Asset...

EG Barry Ritholtz: How to Use Behavioral Finance in Asset Management, Part I: "Annual Mea Culpas: I learned this from Ray Dalio about a decade ago: every year I make a list of what I got wrong and what I learned from the experience.... Acknowledging your mistakes...

...Counterfactuals / inversions: Finally, pulling a page from Charlie Munger at Berkshire Hathaway, we have all taught ourselves to invert. The counter-factual way of thinking avoids a variety of heuristic and psychological errors. It helps with debunking nonsense. It allows us to recognize how the element of chance and randomness plays into large complex systems like the economy and markets; it helps you to consider possible alternative outcomes to different situations. In terms of managing risk, it lets you consider extreme or unusual possibilities that might never have entered your mind without the counter-factual...

#shouldread #finance #behavioral

Paul Krugman: "The funny part Kevin Hassett touted that s...

Paul Krugman: "The funny part Kevin Hassett touted that slight blip upward in the first quarter as proof of tax-cut success.: "We've seen a plunge in foreign direct investment���that is, investment that involves control, rather than just being part of a portfolio. Also a plunge in US investment abroad, although that was an accounting reshuffle with little real meaning.... Kevin Hassett touted that slight blip upward in the first quarter as proof of tax-cut success; also failed to understand what the repatriation of earnings was about https://www.marketwatch.com/story/white-house-advisor-foreign-investment-is-skyrocketing-even-with-harley-davidsons-move-overseas-2018-06-26. Gotta say that Mr. Dow 36K doesn't disappoint. All of us are wrong sometimes, but he manages to be wrong every single time, about everything. Trump's kind of guy...

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