J. Bradford DeLong's Blog, page 300

Jerome H. Powell: Monetary Policy in a Changing Economy: ...

Jerome H. Powell: Monetary Policy in a Changing Economy: "Analysts talk about... u* (pronounced "u star") is the natural rate of unemployment, r* ("r star") is the neutral real rate of interest, and ��* ("pi star") is the inflation objective. According to the conventional thinking, policymakers should navigate by these stars...

...In that sense, they are very much akin to celestial stars.... Navigating by the stars can sound straightforward. Guiding policy by the stars in practice, however, has been quite challenging of late because our best assessments of the location of the stars have been changing significantly...

#shouldread

A Baker's Dozen of Fairly-Recent Links...

Peter Norvig: A Concrete Introduction to Probability (using Python)
James Gorman: Parrots Think They���re So Smart. Now They���re Bartering Tokens for Food
Paul Moses: Tackling the Wrong Problem : "Pope Benedict XVI���s Removal of Bishop William Morris...
Weekend Reading: John Maynard Keynes on the "Euthanasia of the Rentier"
Rachel Feintzig: Tax Change Helps Executives Afford Pricier Planes : "The recent changes to the tax code are giving business executives a new perk: the opportunity to deduct the entirety of a corporate-jet purchase.... The price of a new or used airplane purchased by a company can be a 100% write-off against its earnings. That is a major change...
Robert Farley: The Queen Elizabeth Class Battleships Were Among the Best Ever Built. What If They Never Happened?
Erik Bergl��f: The Evolution of Globalization : "Around the turn of the century, critics of trade and capital-market liberalization had good reason to worry that emerging and developing economies would fall further behind the developing world. But the opposite happened, and now the world must worry about the trajectory of advanced economies and the fraying of multilateral arrangements...
Adair Turner: Japan���s Successful Economic Model by Adair Turner : "Japan���s GDP growth lags most other developed economies, and will likely continue to do so as the population slowly declines. But what matters for human welfare is GDP per capita, and on this front, the country excels...
Very, very, very, very smart: Brad Setser: Three Sudden Stops and a Surge : "Fundamentally, the crisis was a crisis of confidence in the health of the balance sheets of the great financial houses of the United States and Europe.... The line between banks and shadow banks was thin, it turned out...
Martin Sandbu: Salzburg Changes Nothing : "[May] far from giving up on Chequers, will be prepared to make further concessions on the specifics to gain agreement from the EU27 on the plan���s basic principle.... Britain... will have to sign up to a permanent customs union with the EU in all but name, and accept the full force of European jurisdiction in everything to do with production and trade.... It would be a good deal for the EU for its regulatory authority to be accepted by such a big third country...
Tim Duy: Fed Interest-Rate Debate Misses the Bigger Picture : "It���s better to let economic conditions dictate when to pause the monetary tightening process...
Olla Cocina : "Downtown San Jose Mexican Restaurant in the historic San Pedro Square...
Benjamin Wittes: Brett Kavanaugh Bears the Burden of Proof : "The question isn���t whether he can win confirmation���it���s whether he can defend against the charge he faces in a manner that is both persuasive and honorable...




#mightread

Paul Krugman: @paulkrugman: "The Kavanaugh mess has struc...

Paul Krugman: @paulkrugman: "The Kavanaugh mess has structural roots. Rs needed someone who was both ideologically reliable and at no risk of developing a conscience when it came to defending Trump against rule of law. So it had to be a bad person, which meant good odds of nasty stuff surfacing...

#shouldread

Why are they sticking with Kavanaugh? Because the pool of...

Why are they sticking with Kavanaugh? Because the pool of "Federalist Society approved judges who also think the president is essentially unaccountable... is rather thin". There are two agendas here���that of the Federalist Society and that of the Orange-Haired Baboon. If not, the Republicans would not have wedged themselves into this position���they would have said: "OK. Amy Barrett". Anyone sane would have long ago decided that Amy Barrett is the right swing vote to repeal Roe: Mike the Mad Biologist: Several Thoughts On Kavanaugh: "There���s a misunderstanding about the letter of support by the ���Kavanaugh 65.��� It was meant to defang the charge that he was a drunken pig.... They didn���t think attempted sexual assault allegations were coming, though they probably should have...

...This is yet another reason why you need diversity among your advisors: with a more diverse crew, some of them would have thought he���s an entitled asshole. Merrick Garland wasn���t accused of sexual assault. Neither was Neil Gorsuch���and I think he���s an awful judge. But when you limit yourself to the subset of Federalist Society approved judges who also think the president is essentially unaccountable, the talent pool is rather thin...

#shouldread
#moralresponsibility
#orangehairedbaboons

Very, very, very, very smart: Brad Setser: Three Sudden S...

Very, very, very, very smart: Brad Setser: Three Sudden Stops and a Surge: "Fundamentally, the crisis was a crisis of confidence in the health of the balance sheets of the great financial houses of the United States and Europe.... The line between banks and shadow banks was thin, it turned out...

...Think of it this way: The marginal borrower who needed financing was a U.S. household taking out a home equity line of credit. And the global creditor willing to buy dollar assets and finance the U.S. external deficit was an Asian (or Gulf) central bank resisting the appreciation of their own currency. But central banks, by and large, didn���t want to take the risk of lending to U.S. households.... The huge gross flows���the big bank inflows and outflows in others, the large corporate bond purchases���in the run up to the U.S. crisis were the visible traces that these complex chains of financial intermediation left in the balance of payments data. There was a signal there. And that signal was, by and large, missed. The conventional wisdom at the time was that these large flows indicated that a global financial system was dispersing the risk associated with funding the U.S. housing bubble globally, reducing the risk any correction posed to the U.S. financial system.��We learned the hard way that wasn���t really true. The complicated chains of financial intermediation needed to use in some deep sense central bank money to fund subprime mortgages were actually quite fragile. And the weakest link in the chain was the ability and willingness of private investors to take credit risk....

Note: This initially started in part as a review of Adam Tooze's Crashed. But I quickly realized it wasn't much of a review.�� Probably because I lack the necessary distance from the events (and or at least the flows) described in his book. Crashed is by far the best account of the "transatlantic" angle of the 2008 banking and credit crisis that I have read: it fully��deserves all the accolades it has received...

#shouldread
#globalization
#finance

I think that this is 100% right: Anatole Kaletsky: Why th...

I think that this is 100% right: Anatole Kaletsky: Why the US Would Lose A Trade War with China: "In handicapping the US-China conflict, Keynesian demand management is a better guide than comparative advantage.... China can avoid any damage at all from US tariffs simply by responding with a full-scale Keynesian stimulus...

...By applying the martial arts principle of turning an opponent���s strength against him, China should easily win the tariff contest.... From a Keynesian perspective... when an economy is operating at or near its maximum capacity, tariffs will merely raise prices and add to the upward pressure on US interest rates. This clearly applies to the US economy today.... With little spare capacity available, the new investment and hiring required to replace Chinese goods would be at the cost of other business decisions that were more profitable before the tariff war with China. So, unless US businesses are sure the tariffs will continue for many years, they will neither invest nor hire new workers to compete with China....

Well-informed Chinese businesses... will not cut their export prices to absorb the cost of US tariffs.... leav[ing] US importers to pay the tariffs and pass on the cost to US consumers... or to US shareholders through lower profits. Thus, the tariffs will not be ���punitive��� for China, as Trump seems to believe.... Chinese exporters may experience modest losses as other producers take advantage of the US tariffs to undercut them. But this should have no effect on Chinese growth, employment, or corporate profits if demand management is used to offset the loss of exports. The Chinese government has already started to boost domestic consumption and investment by easing monetary policy and cutting taxes. But China���s stimulus measures have so far been cautious, as they should be considering the negligible impact that US tariffs have had on Chinese exports. If, however, evidence starts to emerge of export weakness, China can and should compensate with additional steps to boost domestic demand....

Now that the US has presented the battle over Trump���s tariffs as the opening skirmish in a geopolitical Cold War. It is simply inconceivable that Xi would attach higher priority to credit management than to winning the tariff war and thereby demonstrating the futility of a US containment strategy against China.
This raises the question of how Trump will react when his tariffs start to hurt US businesses and voters, while China and the rest of the world shrug them off. The probable answer is that Trump will follow the precedent of his conflicts with North Korea, the European Union, and Mexico. He will ���make a deal��� that fails to achieve his stated objectives but allows him to boast of a ���win��� and justify the verbal belligerence that inspires his supporters....

#shouldread
#globalization
#orangehairedbaboons

Republicans Today: The Aristocrats!

The aristocrats! Sign a letter supporting Brett Kavanaugh as a man of good character, get falsely smeared as the real perp in his attempted rape case. Republicans! Josh Marshall: My Take on Where We Are With Kavanaugh #5 (A Very Bad Night for Kavanaugh): "Ed Whelan, a key player in DC���s conservative judicial establishment, posted a lengthy twitter thread in which he made a highly conjectural argument that... Prof. Blasey Ford���s alleged attacker was actually a classmate of Kavanaugh���s named Chris Garrett.... Garrett is now a middle school teacher in Georgia and had actually signed a letter which a number of Kavanaugh���s classmates sent to the Senate in July attesting to Kavanaugh���s character. Blasey Ford put out a statement tonight stating categorically that she knew both Kavanaugh and Garrett at the time and that there is no way she could have mistaken one for the other...

...It���s worth stepping back and contemplating just how wild and reckless an action this was. There���s really no way for me to capture the zaniness of Whelan���s argument.... Whelan... pointed the finger at a man who is not a public figure in any way and argued that he was likely the one who attempted to rape Blasey Ford.... Whelan is not some random on Twitter or an eccentric but little known activist. He is close friends with Kavanaugh and Leonard Leo, the head of the Federalist Society, the group that chooses and then organizes the confirmation strategies for these nominees. Whelan is also close to Don McGahn, the White House Counsel who is formally in charge of shepherding Kavanaugh���s nomination....

On its face this was a crazy stunt. But there���s more here. Over the last few days I had been noticing Whelan���s cryptic comments that he had big news coming that would definitively exonerate Kavanaugh.... He predicted that Sen. Feinstein would literally apologize to Kavanaugh���s family for the false accusation. A number of Republican staffers and conservative legal academics had chimed in on these tweets, telling people to watch out for what Whelan had coming and certainly implying that they knew some of the details.... Tonight, in response to Whelan���s tweet thread, The Washington Post published a story that without quite saying it explicitly strongly suggested that Whelan had developed his libelous theory in conjunction with the advisors spearheading Kavanaugh���s nomination. I���m going to quote from a key passage....

Amid the maneuvering, the nomination was roiled further late Thursday by incendiary tweets from a prominent Kavanaugh friend and supporter who publicly identified another high school classmate of Kavanaugh���s as Ford���s possible attacker. Ed Whelan, a former clerk to the late justice Antonin Scalia and president of the Ethics and Public Policy Center, pointed to floor plans, online photographs and other information to suggest a location for the house party in suburban Maryland that Ford described. He also named and posted photographs of the classmate he suggested could be responsible. Ford dismissed Whelan���s theory in a statement late Thursday: ���I knew them both, and socialized with��� the other classmate, Ford said, adding that she had once visited him in the hospital. ���There is zero chance that I would confuse them.��� Republicans on Capitol Hill and White House officials immediately sought to distance themselves from Whelan���s claims and said they were not aware of his plans to identify the former classmate, now a middle school teacher, who could not be reached for comment and did not answer the door at his house Thursday night.

Whelan did not respond to requests for comment. He had told people around him that he had spent several days putting together the theory and thought it was more convincing than her story, according to two friends who had talked to him. Whelan has been involved in helping to advise Kavanaugh���s confirmation effort and is close friends with both Kavanaugh and Leonard Leo, the head of the Federalist Society who has been helping to spearhead the nomination. Kavanaugh and Whelan also worked together in the Bush administration. Kavanaugh and his allies have been privately discussing a defense that would not question whether an incident involving Ford happened, but instead would raise doubts that the attacker was Kavanaugh, according to a person familiar with the discussions....

It is very, very hard to believe that Kavanaugh and his top advisors did not at least know the outlines of Whelan���s theory. If that���s true, it���s big, big trouble and shows a level of recklessness and irresponsibility that shouldn���t have Kavanaugh sitting as a judge on any court.... Whelan is part of Kavanaugh���s confirmtion advisor team at the highest levels. Kavanaugh and his advisors have been working on a defense theory like the one Whelan tweeted about. Conservative political and legal circles have been buzzing about the goods Whelan was about to unload for the last couple days. Are we really supposed to believe Whelan never mentioned any of this to Kavanaugh or Leo? That this was the first they ever heard of it?....

A number of Whelan���s ideological comrades had been playing up his hints of what was coming. So was Senator Hatch���s Communications Director, Matt Whitlock..... At a bare minimum we know that one of Kavanaugh���s top advisors constructed a bizarre conspiracy theory which accused a presumably innocent middle school teacher in Georgia of an attempted rape more than thirty years ago.... Evidence... strongly suggests that Kavanaugh���s top advisors and Kavanaugh himself were at least aware of this reckless scheme and likely played some part in developing it....

How did all this happen tonight? How did a respected lawyer take such a reckless step? My best guess is this. It is highly likely that Whelan and his associates spent the last two or three days shopping this story to reporters. The Times Maggie Haberman first retweeted Whalen���s thread and then deleted those retweets. She then said that Whelan���s theory was ���something Kavanaugh allies had privately said could be the case for days.���... This new development... both undermines his claims of innocence and much more clearly suggests a streak of recklessness and deception that could prove deeply, perhaps fatally damaging...

#shouldread

I Had Not Known That Brett Kavanaugh Was a Rapper!: For the Weekend

Shaggy: "It wasn't me..."

Isabel Z. Mart��nez, Michael Siegenthaler, and Emmanuel S...

Isabel Z. Mart��nez, Michael Siegenthaler, and Emmanuel Saez: The Myth of Intertemporal Labour Supply Substitution: "Macroeconomists tend to assume that people work more when their wages are temporarily higher...

...and that this is a key driver of employment fluctuations. This column examines how income tax holidays in Swiss cantons, which exempted earnings from income taxation for one or two years, affected the labour supply of Swiss workers.����People did not work more during the tax holiday, but the self-employed and high earners shifted earnings into the tax holiday years. The findings suggest that intertemporal labour supply responses are too small to be a key explanation why recessions lead to large falls in employment...

#shouldread

A very interesting paper. My first reaction is that the e...

A very interesting paper. My first reaction is that the effect of salt iodization is just too large���that iodine deficiency in utero is highly unlikely to rob you of 11% of your lifetime income. Thus I suspect that something has gone wrong with the identification. But I cannot figure out what. Great kudos to Nguyen and company for being willing to put this out there for us to look at: Achyuta Adhvaryu, Steven Bednar, Anant Nyshadham, Teresa Molina, Quynh Nguyen: When It Rains It Pours: The Long-run Economic Impacts of Salt Iodization in the United States: "In 1924, The Morton Salt Company began nationwide distribution of iodine-fortified salt...

...Access to iodine, a key determinant of cognitive ability, rose sharply. We compare outcomes for cohorts exposed in utero with those of slightly older, unexposed cohorts, across states with high versus low baseline iodine deficiency. Income increased by 11%; labor force participation rose 0.68 percentage points; and full-time work went up 0.9 percentage points due to increased iodine availability. These impacts were largely driven by changes in the economic outcomes of young women. In later adulthood, both men and women had higher family incomes due to iodization...."

#shouldread