J. Bradford DeLong's Blog, page 280

William Darity (2005): Africa, Europe, and the Origins of...

William Darity (2005): Africa, Europe, and the Origins of Uneven Development: The Role of Slavery: "The economic foundations of the Atlantic slave trade and [its]... role in generating European and American... growth...

...Conversely the devastating effects... on Africa, and its continuing effects.... The linkage between historical and contemporary patterns of inequality provides support for the reparations movement...

#shouldread

A very interesting study of what appears to be highly suc...

A very interesting study of what appears to be highly successful job search assistance in Nevada: Day Manoli, Marios Michaelides, and Ankur Patel: Long-Term Effects of Job-Search Assistance: Experimental Evidence Using Administrative Tax Data: "Administrative tax data... examine the long-term effects of an experimental job-search assistance program operating in Nevada in 2009...

...The program required randomly-selected unemployed workers who had just started collecting unemployment insurance (UI) benefits to undergo an eligibility review and receive personalized job-counseling services. The program led to substantial short-term reductions in UI receipt, and to persistent, long-term increases in employment and earnings. The program also affected participants��� family outcomes, including total income, tax filing, tax liability, and home ownership. These findings show that job-search assistance programs may produce substantial long-term effects for participants and their families...

#shouldread

Paul Romer (1989): Endogenous Technological Change: "Grow...

Paul Romer (1989): Endogenous Technological Change: "Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good...

...Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth...

#shouldread
#economicgrowth
#riseoftherobots

William D. Nordhaus (1996): Do Real-Output and Real-Wage ...

William D. Nordhaus (1996): Do Real-Output and Real-Wage Measures Capture Reality? The History of Lighting Suggests Not: "During periods of major technological change, the construction of accurate price indexes that capture the impact of new technologies on living standards is beyond the practical capability of official statistical agencies. The essential difficulty arises for the obvious but usually overlooked reason that most of the goods we consume today were not produced a century ago...

...We travel in vehicles that were not yet invented that are powered by fuels not yet produced, communicate through devices not yet manufactured, enjoy cool air on the hottest days1are entertained by electronic wizardry that was not dreamed of, and receive medical treatments that were unheard of. If we are to obtain accurate estimates of the growth of real incomes over the last century, we must somehow construct price indexes that account for the vast changes in the quality and range of goods and services that we consume, that somehow compare the services of horse with automobile, of Pony Express with facsimile machine, of carbon paper with photocopier, of dark and lonely nights with nights spent watching television, and of brain surgery with magnetic resonance imaging.
Making a complete reckoning of the impact of new and improved consumer goods on our living standards is an epic task.

The present study takes a small step in that direction by exploring the potential bias in estimating prices and output in a single area-lighting...

#shouldread
#economicgrowth
#riseoftherobots

One thing making me hopeful for our future is that as our...

One thing making me hopeful for our future is that as our technological powers and capabilities grow, our ideas of what people need to be fully included members of society grow as well to keep pace. Just think of how high-speed computer access is becoming something that it is obvious that all Americans���and especially all American children���very much need to have. The fact that we���or some of us, at least���think that the failure of us to make sure this is provided is a "gap" is something I at least, in historical perspective, find very heartening Delaney Crampton: Why Accessibility To High-Quality Broadband Matters To U.S. Schoolchildren: "Nearly 5 million households with school-aged children in the United States lack high-quality broadband access at home... 31.4 percent of households earning an annual income lower than $50,000 with school-aged children... 40 percent of those with annual incomes lower than $25,000...

...Alexsandr Yankelevich... Bianca Reisdorf and William Dutton... Mitchell Shapiro... internet-related skills have become increasingly important.... Increasingly, homework demands the use of the internet, with 94 percent of school districts serving low-income populations reporting that some of their teachers assign internet-based homework, including 73 percent of high schoolers reporting the need to use the internet outside of school daily. And when 40 percent of households with school-aged children and incomes lower than $25,000 lack broadband at home, low-income students face significant obstacles completing homework and applying to colleges, and are often forced to miss extracurricular activities that help enhance college admissions and going on to obtain a college degree. This is why academics must continue to study the effects of individuals who lack access to high-quality broadband in order to provide policymakers with more evidence about the links between the homework gap and economic inequality....

#shouldread #economicgrowth #moralphilosophy

Fairly Recently: Must- and Should-Reads, and Writings... (November 12, 2018)

Economists' Models: Analysis Pumps or Filing Systems? And Do Countries with Reserve Currencies Need to Fear Solvency Crises?

Note to Self: Why isn't the first rule of Federal Reserve policy "thou shalt not come even close to inverting the yield curve!"?

Weekend Reading: The Riot Act of 1714

Weekend Reading: John Maynard Keynes on the Baneful Consequences of Ricardo's Rhetorical Victory Over Malthus

Hoisted from the Archives: Robert Skidelsky vs. Niall Ferguson: John Maynard Keynes Is Not Kesha (Also, the U.S. Is Not Greece, and 2013 Is Not 1923)

Hoisted from the Archives: Niall Ferguson Is Wrong to Say That He Is Doubly Stupid: Why Did Keynes Write "In the Long Run We Are All Dead"? Weblogging

"In the Long Run We Are All Dead" in Context...

Note to Self: I had thought that the question of where the sun will be in the sky so you know where to erect the sunshades was a solved problem���a problem solved in 3000 BC by the Babylonians. Apparently not...

Hoisted From the Archives: The Grand Strategy of the United States of America: From 2003

What is the counterfactual here? The demand factors they are talking about here are all microeconomic and not macroeconomic factors. Thus it seems to me that���unless they are assuming that the Federal Reserve is a potted plants���they affect the distribution of employment but not its overall magnitude. Remember! The economy is a general equilibrium system!: Katharine G. Abraham and Melissa Kearney: The Secular Decline in Us Employment over the Past Two Decades: "This column reviews the evidence on the main causes of the secular decline in employment since the turn of the century. Labour demand factors���notably import competition from China and the rise of industrial robots���emerge as the key drivers. Some labour supply and institutional factors also have contributed to the decline, but to a lesser extent... #labormarket

Friedrich Engels (1843): Outlines of a Critique of Political Economy: "According to the economists, the production costs of a commodity consist of... rent... capital with its profit, and the wages for the labour.... A third factor which the economist does not think about���I mean the mental element of invention, of thought...

Nick Rowe: Bicycle Disequilibrium Theory: "Suppose you need a bicycle to get to work. Suppose bicycles are a common property resource, because bike locks don't work. Every night the workers deposit their bicycles in the bike bank, and in the morning it's first come first served. And suppose that sometimes there aren't enough bicycles to go around. So sometimes the level of employment is determined by the number of bicycles, and not by all the usual stuff. Any individual can always get a bicycle in the morning, simply by getting up early enough. But in aggregate they can't. Fallacy of composition. A theory of when workers wake up might be interesting, and useful for microeconomists wanting to understand the distribution of employment, but it won't help us understand what determines the aggregate level of employment... #monetaryeconomics

Joseph Schumpeter on the Ricardian and Keynesian vices. The echo of bdsm practices���le vice anglais���that you hear is intentional on Schumpeter's part, as is his feminization of Keynesians, and the misogyny. Schumpeter was a very smart but very interesting man: Joseph Schumpeter (1953): History of Economic Analysis https://books.google.com/books?isbn=1134838700: "Ricardo���s��� interest was in the clear-cut result of direct, practical significance. In order to get this he... piled one simplifying assumption upon another until... the desire results emerged almost as tautologies... It is an excellent theory that can never be refuted and lacks nothing save sense. The habit of applying results of this character to the solution of practical problems we shall call the Ricardian Vice... #books #schumpeter #keynes #economicsgoneright #economicsgonewrong #historyofeconomicthought

The New York Times is a sad, sad thing: Kevin Drum: Hey David: It Wasn���t ���We��� Who Screwed the Working Class: "I get so tired sometimes. Here is David Brooks today...

Ian Buruma (2001): : "According to Cannadine, race was not everything in the British Raj. It was not even the main point. Class was the main point. Class, status, and rank were more important than skin color, the shape of one's eyes, or the dimensions of one's skull. A Sultan, a Nizam, or a Pasha was equal to British royalty...

Shane White (2015): The Story of Wall Street's First Black Millionaire: "Jeremiah Hamilton made white clients do his bidding. He bought insurance policies on ships he purposely destroyed. And in 1875, he died the richest black American...

Joseph Schumpeter (1953): History of Economic Analysis https://books.google.com/books?isbn=1134838700

Angus Deaton: The U.S. Can No Longer Hide From Its Deep Poverty Problem: "According to the World Bank, 769 million people lived on less than $1.90 a day in 2013; they are the world���s very poorest. Of these, 3.2 million live in the United States, and 3.3 million in other high-income countries (most in Italy, Japan and Spain)... #poverty #equitablegrowth

Back at the end of the nineteenth century the quest for better economic statistics was a bipartisan, bi-ideology, bi-analytic approach effort. Liberals and conservatives, reactionaries and social democrats, socialists and centrists in America all thought that good statistics would reveal that America matched their images of it and would show that their policies were good ones. We need to recover that: Austin Clemens: In an age of inequality, aggregate and mean economic statistics don't tell us enough: "I have argued that we should disaggregate the reporting of GDP growth so we can understand who prospers when the economy grows. But we don���t need to stop there. As income inequality increases and we increasingly see two Americas���one for rich and one for everyone else���it is more important than ever to see more granular breakdowns...

Anybody looking back at economic history cannot help but note that female physical autonomy and its absence has played an absolutely huge role. Kate Bahn and company are pulling together the evidence that this is not just history���that it still matters a lot in America today: Kate Bahn: Understanding the link between bodily autonomy and economic opportunity across the United States: "All of these connective threads are examined in a forthcoming paper of mine... #gender

12.Marshall Berman: All That's Solid Melts into Air http://delong.typepad.com/files/berman_marshall_all_that_is_solid_melts_into_air_the_experience_of_modernity.pdf

Simon J��ger, Benjamin Schoefer, Samuel G. Young, Josef Zweim��ller: Wages and the Value of Nonemployment : "Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages... #labormarket

What is the counterfactual here? The demand factors they ...

What is the counterfactual here? The demand factors they are talking about here are all microeconomic and not macroeconomic factors. Thus it seems to me that���unless they are assuming that the Federal Reserve is a potted plants���they affect the distribution of employment but not its overall magnitude. Remember! The economy is a general equilibrium system!: Katharine G. Abraham and Melissa Kearney: The Secular Decline in Us Employment over the Past Two Decades: "This column reviews the evidence on the main causes of the secular decline in employment since the turn of the century. Labour demand factors���notably import competition from China and the rise of industrial robots���emerge as the key drivers. Some labour supply and institutional factors also have contributed to the decline, but to a lesser extent...

...Despite the cyclical recovery, the employment rate among non-elderly adults in the US���60.3% as of August 2018���remains low by historical standards and in comparison to other rich countries. This reflects a secular downward trend in employment that began decades ago for men, and about two decades ago for women. Explanations for this decline abound, including declines in manufacturing employment due to global competition and automation (e.g. Charles et al. 2018), growing reliance on the social safety net (Eberstadt 2016, Council of Economic Advisers 2018), and increased opioid use (Krueger 2017), among other potential factors.������

In a recent paper (Abraham and Kearney 2018), we have evaluated the evidence about the main causes of the secular decline in US employment between 1999 and 2016.1��We first establish the importance of within-group employment rate declines in driving the overall reduction, then consider a wide set of potential explanatory factors for the long-term downward trend. These are the structural issues that will need to be confronted if the decline in employment is to be reversed....

Our critical review of the evidence put forward in over 150 studies identifies labour demand factors as key drivers of the decline in employment between 1999 and 2016. Some labour supply and institutional factors also have contributed to the decline, though to a lesser extent...

#shouldread #labormarket

Friedrich Engels (1843): Outlines of a Critique of Politi...

Friedrich Engels (1843): Outlines of a Critique of Political Economy: "According to the economists, the production costs of a commodity consist of... rent... capital with its profit, and the wages for the labour.... A third factor which the economist does not think about���I mean the mental element of invention, of thought...

...alongside the physical element of sheer labour. What has the economist to do with inventiveness? Have not all inventions fallen into his lap without any effort on his part? Has one of them cost him anything? Why then should he bother about them in the calculation of production costs? Land, capital and labour are for him the conditions of wealth, and he requires nothing else. Science is no concern of his. What does it matter to him that he has received its gifts through Berthollet, Davy, Liebig, Watt, Cartwright, etc.���gifts which have benefited him and his production immeasurably? He does not know how to calculate such things; the advances of science go beyond his figures. But in a rational order which has gone beyond the division of interests as it is found with the economist, the mental element certainly belongs among the elements of production and will find its place, too, in economics among the costs of production. And here it is certainly gratifying to know that the promotion of science also brings its material reward; to know that a single achievement of science like James Watt���s steam-engine has brought in more for the world in the first fifty years of its existence than the world has spent on the promotion of science since the beginning of time...

#shouldread

Note to Self Why isn't the first rule of Federal Reserve ...

Note to Self Why isn't the first rule of Federal Reserve policy "thou shalt not come even close to inverting the yield curve!"?

#notetoself #monetarypolicy #finance

Economists' Models: Analysis Pumps or Filing Systems? And Do Countries with Reserve Currencies Need to Fear Solvency Crises?

I believe that there are four issues in this Summers-Krugman-Rogoff-Blanchard et al.-DeLong internet discussion of three years ago:

As far as we economists are concerned, are our models analysis pumps, or are they merely filing systems to remind us of experiential wisdom? In other words: Are our models to be taken seriously when they lead us to a conclusion that the great and good believe is unserious?

Do economies with exorbitant privilege in which the key leveraged financial institutions have little foreign-currency debt need to fear banking and government solvency crises?

Can economies with exorbitant privilege in which the key leveraged financial institutions have little foreign-currency debt rely on their abilty to print their way to liquidity in an emergency and on market participants' recognition of that ability?

Can economists build models and conduct analyses assuming that business expectations are reasonable things, and will not push the economy to a position that is not close to a self-consistent near rational expectations equilibrium?

As near as I can see:

Larry Summers says: filing systems, yes, no, no.
Paul Krugman says: analysis pumps, no, yes, yes.
I say" both, no, yes, no.

I think I should, sometime over the past three years, have written a really good piece about these questions based on the ten items below. But I regret that I have not:

Lawrence Summers (2015): My Views and the Fed���s Views on Secular Stagnation: "Why is the Fed making these mistakes if indeed they are mistakes? It is not because its leaders are not thoughtful or open minded or concerned with growth and employment.�� Rather I suspect it is because of an excessive commitment to existing models and modes of thought.�� Usually it takes disaster to shatter orthodoxy.�� We can all hope that either my worries prove misplaced or the Fed shows itself to be less in the thrall of orthodoxy than it has been of late...

Brad DeLong (2015): Musings on the Current Episteme of the Federal Reserve...: "The... errors that the Federal Reserve is currently making... are the result of an excessive commitment to some current modes of thought-.... But... are models properly idea-generating machines... or merely filing systems?... If you give even minor weight to the first... the line of work into the economics of the liquidity trap that I see as well-represented by Krugman's (1999) "Thinking About the Liquidity Trap" tells us, very strongly, that the Federal Reserve is on the wrong track intellectually right now...

Paul Krugman (2015): Respectable Radicalism: "Brad DeLong... argues... Larry has it wrong, that the Fed���s problem is not an 'excessive commitment to existing models'.... The case that the risks of hiking too soon and too late are deeply asymmetric comes right out of IS-LM with a zero lower bound.... I think I understand how being an official, surrounded by men (and some but not many women) who seem knowledgeable in the ways of the world, can create a conviction that you and your colleagues know more than is in the textbooks.... But in a world of zero-lower-bound macroeconomics... theory and history are much more important than market savvy...

Lawrence Summers (2016): Thoughts on Delong and Krugman Blogs: "Delong and... Krugman... disagree with my assertion that it reflects an excessive attachment to existing models and modes of thought.... On the supply side... if I believed strongly in the vertical long run Phillips curve with a NAIRU around five percent and in inflation expectations responsiveness to a heated up labor market, I would see a reasonable case for the monetary tightening that has taken place.... The disagreement does, it seems to me , come down to the Fed���s attachment to the standard Phillips curve mode of thought...

Lawrence Summers (2016): Thoughts on Delong and Krugman Blogs: "A desire to be ���sound��� also influences policy.�� I am not nearly as hostile to this as Paul. I think... market thought is I think right and simple model based thought is I think dangerously wrong is Paul���s own Mundell-Fleming lecture on confidence crises in countries that have their own currencies. Paul asserts that a damaging confidence crisis in a liquidity trap country without large foreign debts is impossible because if one developed the currency would depreciate generating an export surge...

Brad DeLong (2016): MOAR Musings on Whether We Consciously Know More or Less than What Is in Our Models...: "Summers presents as an example of his contention that we know more than is in our models���that our models are more a filing system, and more a way of efficiently conveying part of what we know, than they are an idea-generating mechanism���Paul Krugman's... contention that floating exchange-rate countries that can borrow in their own currency should not fear capital flight in a liquidity trap. Summers points to Olivier Blanchard et al.'s empirical finding that capital outflows do indeed appear to be not expansionary but contractionary...

Paul Krugman (2013): Currency R��gimes, Capital Flows, and Crises: "Several commentators... have suggested that a sudden stop of capital inflows provoked by concerns over sovereign debt would inevitably lead to a banking crisis.... If correct, this would certainly undermine the optimism I have expressed about how such a scenario would play out. The question we need to ask here is why, exactly, we should believe that a sudden stop leads to a banking crisis. The argument seems to be that banks would take large losses on their holdings of government bonds. But why, exactly? A country that borrows in its own currency can���t be forced into default, and we���ve just seen that it can���t even be forced to raise interest rates. So there is no reason the domestic-currency value of the country���s bonds should plunge. The foreign-currency value of those bonds may indeed fall sharply thanks to currency depreciation, but this is only a problem for the banks if they have large liabilities denominated in foreign currency.... The historical example that comes nearest to the kind of crisis so widely envisaged���France in the 1920s���involved a very steep currency depreciation, but did not involve a banking crisis...

Ken Rogoff (2013): Britain Should Not Take Its Credit Status for Granted: "Debt panglossians are far too confident that the UK���s credit status is bulletproof, and too dismissive of the risks... about pension liabilities or existential threats to the banking system that could require massive injections of cash to fix.... Last but not least, what about the UK���s serial dependence on International Monetary Fund bailouts from the mid-1950s until the mid-1970s? This is hardly a country with an indestructible credit status...

Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, and Marcos Chamon (2015): Macro Effects of Capital Inflows: Capital Type Matters: "Some scholars view capital inflows as contractionary, but many policymakers view them as expansionary. Evidence supports the policymakers. This column introduces an analytic framework that knits together the two views. For a given policy rate, bond inflows lead to currency appreciation and are contractionary, while non-bond inflows lead to an appreciation but also to a decrease in the cost of borrowing, and thus may be expansionary...

*John Maynard Keynes * (1936): The General Theory of Employment, Interest and Money: Chapter 12. The State of Long-Term Expectation: "Enterprise.... Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come. Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die.... This means... that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent;���it is the mere consequence of upsetting the delicate balance of spontaneous optimism. In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends...

#highlighted #finance #macroeconomics #krugman #rogoff #blanchard #cognitive #economicsgoneright #economicsgonewrong