J. Bradford DeLong's Blog, page 287

Interesting. The question is always: do you make money by...

Interesting. The question is always: do you make money by devoting effort to selling them things they will be happy they bought, or do you make money by devoting effort to selling them things they will be unhappy they bought���by grifting them? And what determines the balance of providing value vs. deception in selling commodities aimed at different income classes? I am not sure they have it right here. I am sure that this is very important: James T. Hamilton and Fiona Morgan: Poor Information: How Economics Affects the Information Lives of Low-Income Individuals: "How information is produced for, acquired by, and utilized by low-income individuals...

...Low values placed on changing decisions by those with less income translate through supply and demand into lower quantities and qualities of content created for their benefit. The geography of poverty may mean less accountability journalism in poor communities. Behavioral economics helps explain the particularly challenging choice architectures and cognitive loads faced by decision makers with low incomes. When companies target individuals with low literacy rates and education, fraud and deception can leave them worse off. In government information policies aimed at redistribution, subsidies often flow to intermediaries rather than the intended beneficiaries. Many central research questions about the information lives of low-income individuals remain open, though policies and programs taking these economic factors into account can aid in their decision making...

#shouldread
#behavioral
#riseoftherobots

Github: Licenses: "GNU LGPLv3: Permissions of this copyle...

Github: Licenses: "GNU LGPLv3: Permissions of this copyleft license are conditioned on making available complete source code of licensed works and modifications under the same license or the GNU GPLv3. Copyright and license notices must be preserved. Contributors provide an express grant of patent rights. However, a larger work using the licensed work through interfaces provided by the licensed work may be distributed under different terms and without source code for the larger work...

#shouldread
#riseoftherobots
#intellectualproperty
#opensource

The Federal Reserve Is Raising Interest Rates Again for Probably All The Wrong Reasons: Last Month Over at Equitable Growth

Last Month Over at Equitable Growth: The Federal Reserve Is Set to Raise Interest Rates Again for Probably All The Wrong Reasons: The meeting [last month] of the Federal Open Market Committee���the principal policymaking body of the U.S. Federal Reserve system���[was] overwhelmingly likely to raise the benchmark interest rate it controls, the Federal Funds rate. The rate, which governs short-term safe nominal bonds, is likely to go up by one-quarter of a percentage point, from the range of 1.75 percent to 2 percent per year to the range of 2 percent to 2.25 percent per year. That would make it a little more expensive to borrow and spend and a little more attractive to cut spending and save. Thus, there would be a little less spending in the economy, and so a few fewer jobs. Economic growth would be a little slower. The U.S. economy would be a little less resilient in the face of adverse shocks to resources or confidence that might generate a recession. These are all minuses���small minuses from a 25-basis-point increase in the Federal Funds rate, but minuses nonetheless.

Offsetting these minuses is supposed to be a plus: Raising the Federal Funds rate by 25 basis points is supposed to lessen the chances of a disruptive upward outbreak of inflation. But I really do not see this plus as valuable enough to offset even these small minuses.

This particular widely anticipated move, however, will not shake the economy in any way because it is already baked into the cake, in the sense that economic and financial decision-makers have already taken it into account and readjusted their portfolios and plans assuming it will come to pass. It is a continuation of the existing policy, another step on a well-marked path. The relevant question is: Is this the best policy path?

The Federal Reserve is on this policy path right now because the typical member of the Federal Open Market Committee believes that:

The current 2 percent per year inflation rate is appropriate and is a good choice for the Federal Reserve���s target.
The unemployment rate at 3.9 percent is already so low that employers are having a hard time finding workers without offering wages that would accelerate inflation.
With actual and expected inflation around 2 percent per year, the ���neutral��� Federal Funds rate is roughly 2.9 percent per year.
When the Federal Funds rate is at the ���neutral��� rate, monetary policy is not putting pressure on the economy for either excess supply or excess demand in the labor market���it is not causing employers to have an increasingly hard time finding workers without offering them wages that would accelerate inflation, nor is it causing workers to have an increasingly hard time finding jobs and sit pointlessly and destructively idle.
Thus it is important that the Federal Reserve be moving the Federal Funds rate without hesitation from its current 1.75 percent to 2 percent per year range toward the ���neutral��� of about 2.9 percent per year.
It is likely that the Federal Reserve should then keep raising the Federal Funds rate higher: The unemployment rate at 3.9 percent is probably too low to be sustainable without eventually generating rising inflation.

Of these six beliefs, the fourth is essentially a definition of what the ���neutral��� Federal Funds rate is, so the fifth and sixth beliefs then follow from the first three beliefs. That���s how the Federal Reserve arrived at the decision that its primary mission is to stabilize inflation at a low level and not to seek higher employment levels when doing so would conflict with that mission.

The problem���or, at least, the problem as I see it���is that the Fed���s first three beliefs are all extremely debatable, especially the belief that 2 percent per year is a proper inflation target, which is surely erroneous. I, at least, see it as surely erroneous because, as Jeffrey Frankel put it late last month: ���In the past, the Fed has moderated recessions by cutting short-term interest rates by around 500 basis points. But, with those rates currently standing at only 2 percent, such a move is impossible.���

Thus, successful recession-fighting would turn on the competence, ability, and willingness of others to use the budget of the federal government to keep the economy on an even keel when the next recession comes. Yet there is unpleasant stabilization policy arithmetic that suggests a lack of ability by the federal government to do so and an even more unpleasant failure to learn the lessons of 2008���2018 that produced a lack of willingness to do so. The only feasible plan to repair the situation would be for the Federal Reserve to raise its inflation target from 2 percent per year to 4 percent per year���because the costs to the economy in the long run from returning to the inflation rates of the 1990s would be vastly less than the consequences of accepting the crippling of the ability to fight recessions.

But the Federal Reserve does not see it that way.

I, at least, see the notion that the unemployment rate at 3.9 percent is already so low that employers are having a hard time finding workers without offering wages that would accelerate inflation as not surely erroneous but probably wrong. I think this for two reasons. First, while the unemployment rate is especially low today, the share of working age adults ages 25 to 54 with jobs is not especially high. And as Adam Ozimek of Moody���s reiterated yet again earlier this month, the employment share of workers ages 25 to 54 and other wider measures of labor-market slack that see no high labor pressure in the economy right now have done a better job of capturing the reality of inflationary pressures over the past generation. Second, the higher wage growth that we would be seeing in a high labor-pressure economy is not there. Employers are not yet willing to offer workers wages higher than last year���s level plus inflation plus productivity growth. Wage pressure is still markedly weaker than it was at the last business cycle peak in 2007.

But the Federal Reserve does not see it that way.

And I, at least, see the belief that the current Federal Funds rate is a full 1 percentage point lower than ���neutral��� as debatable. I would just note, as current Federal Reserve Chair Jerome Powell does, that the Federal Open Market Committee has steadily lowered its estimate of the ���neutral��� rate by fully 1.5 percentage points over the past five years. And I would also note that history shows us that there is a lot of momentum in the trajectory of the Committee���s estimates of the structure of the economy: The way to bet is that a process of revision in one direction or the other will continue. It is a committee, after all.

I could well be wrong. But I think it is more likely than not that 10 years from today, those on the Committee will wish that they would have cut interest rates this week rather than raise them.

#equitablegrowth
#monetarypolicy
#highlighted

Macroeconomics: The Future

Macroeconomics: The Future https://www.icloud.com/keynote/0ysTdN41E5B7qCmwuB35WJtOQ 2018-10-19

#singularity
#greatfilter
#economicgrowth
#macro
#higlhighted

DeLong Fall 2018 Teaching Schedule

Email delong@econ.berkeley.edu for an appointment outside of office hours...

View at: https://www.icloud.com/numbers/0fSxKotxqSU27JCPbCUVOXLdg

https://www.icloud.com/numbers/0fSxKotxqSU27JCPbCUVOXLdg

Why Is Donald Trump Waging a Trade War? DeLong FAQ

DeLong FAQ: Why Is Donald Trump Waging a Trade War? You ask: who are the people who would want to see this U.S.-China trade war happen? We have been unable to find any. Usually pressure to wage a trade war bubbles up from powerful economic groups that are or that believe they are being gravely injured by imports. Usually there are large advertisements in the New York Times and the Washington Post saying that it is time for the country to get behind the president, who is trying to keep other countries from taking unfair advantage of Americans.

We have not had any of that this time. There has been no mobilization of economic interests that favor a trade war.

In large part, there has been no mobilization because the costs of trade war are high relative to benefits. The economies are deeply intertwined at the industrial and sub-industrial level because it has become so cheap and so profitable to send plans and goods across the Pacific, and huge numbers of people have taken advantage of it.

There are people who will cheer a trade war. With them, however, they are cheering not because they see it as making America or their part of America richer happens. It is, instead, much more cheering the local sports team of your municipality when it wins a victory���they have won something, and so you cheer for them. However, what it would mean or what it would take for Trump to ���win��� this trade war is unclear.

Viewed as an economic policy I think, as I have said before, that the only people who seem to believe in this trade war are Donald Trump, Peter Navarro, and Trade Representative Robert Lighthizer���and I have a hard time believing that Lighthizer believes what he finds himself saying.

Certainly the Republicans in Congress have major, major disagreements with the policy. They have been quiet. I believe they have been quiet because they accept the principal that to make the president of your party look weak or stupid is to put your side���s majority and possibly your seat at risk. That is not how it is is supposed to work. Political scientists have a lot to think about in terms of the foundations of their understanding of the American government.

I hope that after this November Republicans in Congress will decide that their electoral future requires that they be much more representatives of the people than cheerleaders for Trump, and that we will see a 25th Amendment remedy. I do not expect this hope to be realized. I think the chances are pretty good that we will have an informal, silent coup���like when Howard Baker became effective acting president during the second Reagan administration. But I will probably be wrong.

This is not a situation I ever expected the United States to be in.

It is now more than two years since then-IMF Deputy Managing Director Min Zhu asked me what we people in the United States are going to do to fix our broken political system. I had no good answer to him then. I have no good answer for him now.

#globalization
#orangehairedbaboons
#delongfaq

Some Fairly-Recent Must- and Should-Reads...

Daniel Schneider and Kristen Harknett: Consequences of Routine Work Schedule Instability for Worker Health and Wellbeing: "The rise in precarious work has also involved a major shift in the temporal dimension of work, a fundamental and under-appreciated manifestation of the risk shift from ���rms... #labormarket #equitablegrowth

Is there any intellectual and moral crime against journalism a New York Times employee can commit that will get him bounced? It appears not: Tom Friedman: Saudi Arabia���s Arab Spring, at Last: "The most significant reform process underway anywhere in the Middle East today is in Saudi Arabia... its own Arab Spring... led from the top down by the country���s 32-year-old crown prince, Mohammed bin Salman.... If it succeeds, it will not only change the character of Saudi Arabia but the tone and tenor of Islam across the globe. Only a fool would predict its success���but only a fool would not root for it... #journamalism

Wikipedia: Aztec Myth: "Ometeotl gave birth to four children, the four Tezcatlipocas, who each preside over one of the four cardinal directions.[citation needed] Over the West presides the White Tezcatlipoca, Quetzalcoatl, the god of light, mercy and wind. Over the South presides the Blue Tezcatlipoca, Huitzilopochtli, the god of war. Over the East presides the Red Tezcatlipoca, Xipe Totec, the god of gold, farming and Spring time. And over the North presides the Black Tezcatlipoca, also called simply Tezcatlipoca, the god of judgment, night, deceit, sorcery and the Earth... #security

Lisa D. Cook is worried that the quantity of Big Data cannot compensate for its low quality. Statistics gives us lots of power with representative random samples. Nothing can give us power without the tools to do what representativeness does: Lisa D. Cook: @drlisadcook: "'Without taking data quality into account, population inferences with Big Data are subject to a Big Data Paradox... #statistics #riseoftherobots

Suresh Naidu, Eric A. Posner, and E. Glen Weyl: Antitrust Remedies for Labor Market Power: "Labor market power has contributed to wage inequality and economic stagnation... #monopoly

Vijay Govindarajan, Shivaram Rajgopal, and Anup Srivastava: Why We Need to Update Financial Reporting for the Digital Era: "The market caps of just four companies, Apple, Alphabet, Amazon, and Microsoft, now exceed $3 trillion... #finance

Scott Jaschik: Author discusses his new book on anti-intellectualism and fascism: "A country that is not fascist may still experience fascist politics... efforts to divide society and demonize groups.... How Fascism Works by Jason Stanley... #books #neofascism

Matt O'Brien: Inequality is worse than we know. The super-rich really do avoid a lot of taxes: "On the legal end of the spectrum... companies shift their profits to show up in low-tax jurisdictions.... According to Berkeley economist Gabriel Zucman and his co-researchers... as much as 40 percent of all multinational profits and 50 percent of U.S. ones... #inequality #equitablegrowth

A search model that (a) produces the right cyclical elasticity of wages but (b) does not produce the right cyclical volatility of employment has the wrong microfoundations. It is producing the right cyclical elasticity of wages because it is producing the wrong cyclical volatility of employment. Thus I think this approach is pretty much tapped out: Christopher A Pissarides: The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?: "An equilibrium search model... focus on the model���s failure to match the observed cyclical volatility of unemployment... #labormarket #monetaryeconomics

Martin Wolf: How To Avoid the Next Financial Crisis: "The proximate explanations for the huge shortfalls in output were collapses in investment.... This weak investment must also help explain low rates of innovation, which is particularly visible in directly-hit countries. New technology is often embodied in new equipment... #greatrecession #finance

I endorse Steve Teles here���except that I have a hard time calling any book that I learned as much as I learned from MacLean's Democracy in Chains "very poor". MacLean should engage Teles and Farrell on the merits. And she can: When Farrell and Teles rule out-of-order James Buchanan's memos on the grounds that "correspondence with... donors... is inherently problematic... as a guide to underlying intent..." they are guilty of strongly motivated reasoning. Perhaps your claims to donors that you are in the business of trying to create an ideological, extremist, and partisan movement to roll back the New Deal and destroy the "Labor Monopoly Movement" are "problematic". Perhaps your claims to liberal scholars that you are in the business of honest intellectual inquiry are "problematic". MacLean ignores the second. Teles and Farrell ignore the first. IMHO, MacLean is closer to right on this point. But MacLean's unwillingness to engage the substance here and elsewhere is, I think, characterized as simply stupid at best: Steve Teles: A Response to Nancy MacLean: "Wearing my scholar���s hat, I came to the same impression as Professors Berman, Farrell and Burns���that Prof. MacLean had written a very poor piece of scholarship... #publicchoice

Economic agents as harried triage nurses grabbing for an immediate diagnosis from the salient features of the case in front of them; Nicola Gennaioli and Andrei Shleifer: Diagnostic Expectations: "Diagnostic expectations are represented by a linear combination of the rational expectations of ��������+1 held at ���� and at ���� ��� 1.... It is not that decision-makers compute rational expectations and combine them.... Rather, oversampling representative future states yields the linear combination in (4). This formula reflects a ���kernel of truth��� logic: diagnostic expectations differ from rational expectations by a shift in the direction of the information received at ����, given by [��������(��������+1) ��� �����������1(��������+1)]... #expectations #economicsgoneright

It is not going to happen. The throne is not going to be kept warm. The American century-and-a-half of potential and century of actual global diplomatic preeminence is over. The question is whether there will be no hegemony, a Chinese hegemony, or an inner alliance of western Europe plus Canada, Japan, and Australia that set the pace: Dan Froomkin: Daalder and Lindsay Say: U.S. Allies Should Keep The Global Leadership 'Throne' Warm For Trump's Successor: "Ivo H. Daalder, who served as Barack Obama���s ambassador to NATO, and James M. Lindsay, a senior vice president of the Council on Foreign Relations, are out with a new book:��The Empty Throne: America���s Abdication of Global Leadership. They outline their plan for an interregnum in a companion piece entitled��The Committee to Save the World Order��published by Foreign Affairs... #security

Marshall Berman: All That's Solid Melts into Air https://delong.typepad.com/files/berman_marshall_all_that_is_solid_melts_into_air_the_experience_of_modernity.pdf
Karen S. Freeman: How to View Web Pages on Apple Watch in Watchos 5 : "Yes, you can access web pages on your Apple Watch now...
Wikipedia: Darien scheme
Caroline M. Yoachim: Carnival Nine : #sciencefiction
James Nicoll: The Company of Strangers : "The Ginger��Star���Leigh��Brackett, Skaith, book��1... #sciencefiction
Steven Pulvirent: A Week On The Wrist: Apple Watch Series 4 : "The future of the Apple Watch is coming into focus���and I like what I'm starting to see...
William Poundstone: Prisoner's Dilemma https://books.google.com/books?isbn=0307763781 #books
Merrill M. Flood: Experimental Games
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...
Paul Romer (2015): Economic Growth : "Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas...
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...
William D. Nordhaus (2007): A Review of the Stern Review on the Economics of Climate Change : "How much and how fast should we react to the threat of global warming? The Stern Review argues that the damages from climate change are large, and that nations should undertake sharp and immediate reductions in greenhouse gas emissions...
Nick Stern et al.: The Stern Review: The Economics of Climate Change .

Wall of Shame:

Morgan Gstalter: McConnell: Midterms could be 'a Category 3, 4 or 5' storm for GOP: "'We know the wind is going to be in our face. We don���t know whether it���s going to be a Category 3, 4 or 5'...

Matthew Yglesias: "The highbrow intellectual leaders of the modern conservative movement explicitly conceptualized it as a white nationalist undertaking. Trump is true to this legacy and his intra-movement critics are the innovators...

Eight years of Governor Sam Brownback has seen Kansas lose 8% of its jobs relative to the national average. Now Kansas is Ground Zero for Trump's trade war. Joshua Green: Chinese Sorghum Tariffs Will Hit Hard in Trump-friendly Kansas: "Trump���s Trade War Hits Another Red State: What���s the matter with Kansas? It���ll be hardest hit by new Chinese tariffs...

Will Wilkinson: The DACA and immigration debates are about whether Latinos are ���real Americans���: "Challenging the idea that Latino Americans can be truly American undercuts the very idea of America...

Just when you think the mainstream media could not sink any lower into misogyny and stupidity, it's the Atlantic Monthly!: Scott Lemieux: Are you provoked yet?: "Both James Bennet and Fred Hiatt have been asked to hold David Bradley���s beer...

Ezra Klein: @ezraklein on Twitter: "I don���t know what the [New York] Times should���ve done with Thrush. But I watched the efforts to plant oppo and smear @lkmcgann in the aftermath of her reporting. Anyone who thinks coming forward with these experiences is easy, even now, is wrong. I am beyond proud to be her colleague..."

Yes, this is as bad a violation of academic standards as it looks: Henry Farrell: The public choice of public choice: "Now this... 'financial ties to the Charles Koch Foundation... [but] George Mason University has cited its academic independence.

The Brexiters never had a plan for what they would do if they won the referendum. And they still do not have a plan. I do not see a road other than "transitional" arrangements that keep things as they are without the UK having any voice in Brussels���"transitional" arrangements that will keep getting indefinitely extended: Robert Hutton: Stuck In the Middle: These Are Theresa May's Four Brexit Options: "Her inner Brexit Cabinet has rejected her proposed customs relationship with the European Union...

Gabrielle Coppola: Trump���s TPP Pullout May Have Cost Missouri Its Harley Factory: "Harley-Davidson Inc.���s chief executive officer said he may have kept a plant open in Missouri if the U.S. had stayed in the Trans-Pacific Partnership, the free-trade agreement that President Donald Trump withdrew from last year...

WTF happened to Brendan Nyhan? The braineater has eaten his brain: Josh Marshall: "There are several problems with this logic.: The first is that you are applying jury trial standards to what are political questions. You are also applying statutory standards where they do not exist. As a factual matter the obstruction question is not in doubt...

Shame on the Editors of Vanity Fair!: Highlighted/Hoisted from Two Years Ago

It is not going to happen. The throne is not going to be ...

It is not going to happen. The throne is not going to be kept warm. The American century-and-a-half of potential and century of actual global diplomatic preeminence is over. The question is whether there will be no hegemony, a Chinese hegemony, or an inner alliance of western Europe plus Canada, Japan, and Australia that set the pace: Dan Froomkin: Daalder and Lindsay Say: U.S. Allies Should Keep The Global Leadership 'Throne' Warm For Trump's Successor: "Ivo H. Daalder, who served as Barack Obama���s ambassador to NATO, and James M. Lindsay, a senior vice president of the Council on Foreign Relations, are out with a new book:��The Empty Throne: America���s Abdication of Global Leadership. They outline their plan for an interregnum in a companion piece entitled��The Committee to Save the World Order��published by Foreign Affairs...

...The authors express despair over Trump���s assault on the agreements and protocols developed to ���prevent the dog-eat-dog geopolitical competition that triggered World War II.��� But they waste no time hoping for Trump to come around. Instead, they propose that the ���Committee to Save the World Order��� take the U.S.���s traditional seat (throne) for the interim and keep it warm while the regular occupant is off carousing with dictators and launching trade wars. The group, which the authors nickname the ���G-9���, would consist of France, Germany, Italy, the United Kingdom, and the EU in Europe; Australia,��Japan, and South Korea in Asia; and Canada in North America...

#shouldread
#security

The Nobel-Like Prize in Economic Science, 2018

Wikipedia claims of Alfred Nobel: "���After reading a premature obituary which condemned him for profiting from the sales of arms, he bequeathed his fortune to institute the Nobel Prizes������ 7lt;��� Story too good to check!

https://www.icloud.com/keynote/0-NNOL90b0OPNJ05uisAMQPBw

#economics
#berkeley
#highlighted

Economic agents as harried triage nurses grabbing for an ...

Economic agents as harried triage nurses grabbing for an immediate diagnosis from the salient features of the case in front of them; Nicola Gennaioli and Andrei Shleifer: Diagnostic Expectations: "Diagnostic expectations are represented by a linear combination of the rational expectations of ��������+1 held at ���� and at ���� ��� 1:

It is not that decision-makers compute rational expectations and combine them.... Rather, oversampling representative future states yields the linear combination in (4). This formula reflects a ���kernel of truth��� logic: diagnostic expectations differ from rational expectations by a shift in the direction of the information received at ����, given by [��������(��������+1) ��� �����������1(��������+1)]...

#shouldread
#expectatiobs
#economicsgoneright