J. Bradford DeLong's Blog, page 323

As I often say, academic freedom is not "free speech". Un...

As I often say, academic freedom is not "free speech". Universities are safe spaces for people to learn, for scholars to grow, and for ideas to be propounded and evaluated. You can argue���as Ernst Kantorowicz did, and as I more than half believe���that grownup full members of a university are their own sovereign judges of this propounding-and-evaluating business: that they are under an obligation to think as hard as they can and to argue fairly and fully for what they believe to be the truth, and that the sole sovereign judges of whether they have met this responsibility are their consciences day and their gods. And that makes it very, very important indeed to draw a clear line between those who can and those who cannot fulfill this responsibility: Dani Rodrik: No to Academic Normalization of Trump by Dani Rodrik: "Those who have served the current US president are necessarily tainted by the experience. While they should not be barred from speaking... they should be accorded none of the trappings of institutional esteem such as fellowships, named lectures, and keynote speeches...

...The University of Virginia recently faced a storm of protest after its Miller Center of Public Affairs appointed President Donald Trump���s former Director of Legislative Affairs, Marc Short, to a one-year position as Senior Fellow. Two faculty members severed ties with the center, and a petition to reverse the decision has gathered nearly 4,000 signatures. A similar protest erupted at my home institution last year, when Corey Lewandowski, a one-time campaign manager for Trump, was appointed a fellow at Harvard���s Institute of Politics.... There is the danger of normalizing and legitimizing what can only be described as an odious presidency. Trump violates on a daily basis the norms on which liberal democracy rests. He undermines freedom of the media and independence of the judiciary, upholds racism and sectarianism, and promotes prejudice. He blithely utters one falsehood after another. Those who serve with him are necessarily tainted by the experience. Trump���s close associates and political appointees are his enablers���regardless of their personal merits and how much they try to disassociate themselves from Trump���s utterances. Qualities like ���intelligence,��� ���effectiveness,��� ���integrity,��� and ���collegiality������words used by Miller Center Director William J. Antholis to justify Short���s appointment���have little to commend them when they are deployed to advance an illiberal political agenda. The stain extends beyond political operatives and covers economic policymakers as well. Trump���s cabinet members and high-level appointees share collective responsibility for propping up a shameful presidency. They deserve opprobrium not merely because they hold cranky views on, say, the trade deficit or economic relations with China, but also, and more importantly, because their continued service makes them fully complicit in Trump���s behavior....

Clear rules of engagement are necessary. The most important principle to uphold is the distinction between hearing someone and honoring someone.... This means no honorific titles (fellow, senior fellow), no named lectures, no keynote speeches headlining conferences or events. While individual faculty members and student groups should be free to invite Trump appointees to speak on campus, as a rule such invitations should not be issued by senior university officers. And lectures and presentations should always provide an opportunity for vigorous questioning and debate. Without two-way interaction, there is no learning or understanding; there is only preaching. Administration officials who simply want to make a statement and escape searching interrogation should not be welcome.

Students and faculty who sympathize with Trump may perceive such practices as discriminatory. But there is no conflict between encouraging free speech and exchange of views, which these rules are meant to support, and the university making its own values clear. Like other organizations, universities have the right to determine their practices in accordance with their values. These practices may diverge from what specific subgroups within them would like to see, either because there are contending values or because there are differences on the practicalities of how to realize them.... Universities should uphold both free inquiry and the values of liberal democracy. The first calls for unhindered exchange and interaction with Trumpist views. The second requires that the engagement be carefully calibrated, with not even a semblance of honor or recognition bestowed on those serving an administration that so grossly violates liberal democratic norms.

#shouldread
#universities
#academicfreedom
#moralresponsibility
#orangehairedbaboons

Alexander Hamilton's Constitutional Convention Speech, 18 June 1787: Weekend Reading

James Madison: [Alexander Hamilton's Constitutional Convention Speech, 18 June 1787]](https://founders.archives.gov/documen...): "Mr. Hamilton, had been hitherto silent on the business before the Convention, partly from respect to others whose superior abilities age and experience rendered him unwilling to bring forward ideas dissimilar to theirs...

... and partly from his delicate situation with respect to his own State, to whose sentiments as expressed by his Colleagues, he could by no means accede. The crisis however which now marked our affairs, was too serious to permit any scruples whatever to prevail over the duty imposed on every man to contribute his efforts for the public safety and happiness.

He was obliged therefore to declare himself unfriendly to both plans.

He was particularly opposed to that from N. Jersey, being fully convinced, that no amendment of the Confederation, leaving the States in possession of their Sovereignty could possibly answer the purpose. On the other hand he confessed he was much discouraged by the amazing extent of Country in expecting the desired blessings from any general sovereignty that could be substituted. As to the powers of the Convention, he thought the doubts started on that subject had arisen from distinctions and reasonings too subtle.

A federal Govt. he conceived to mean an association of independent Communities into one. Different Confederacies have different powers, and exercise them in different ways. In some instances the powers are exercised over collective bodies; in others over individuals, as in the German Diet���& among ourselves in cases of piracy. Great latitude therefore must be given to the signification of the term. The plan last proposed departs itself from the federal idea, as understood by some, since it is to operate eventually on individuals. He agreed moreover with the Honble gentleman from Va. (Mr. R.) that we owed it to our Country, to do on this emergency whatever we should deem essential to its happiness. The States sent us here to provide for the exigences of the Union. To rely on and propose any plan not adequate to these exigences, merely because it was not clearly within our powers, would be to sacrifice the means to the end.

It may be said that the States can not ratify a plan not within the purview of the article of Confederation providing for alterations and amendments. But may not the States themselves in which no constitutional authority equal to this purpose exists in the Legislatures, have had in view a reference to the people at large. In the Senate of N. York, a proviso was moved, that no act of the Convention should be binding untill it should be referred to the people and ratified; and the motion was lost by a single voice only, the reason assigned agst. it being, that it might possibly be found an inconvenient shackle.

The great question is what provision shall we make for the happiness of our Country? He would first make a comparative examination of the two plans���prove that there were essential defects in both���and point out such changes as might render a national one, efficacious.

The great and essential principles necessary for the support of Government are:

An active and constant interest in supporting it. This principle does not exist in the States in favor of the federal Govt. They have evidently in a high degree, the esprit de corps. They constantly pursue internal interests adverse to those of the whole. They have their particular debts���their particular plans of finance &c. All these when opposed to, invariably prevail over the requisitions and plans of Congress.

The love of power. Men love power. The same remarks are applicable to this principle. The States have constantly shewn a disposition rather to regain the powers delegated by them than to part with more, or to give effect to what they had parted with. The ambition of their demagogues is known to hate the controul of the Genl. Government. It may be remarked too that the Citizens have not that anxiety to prevent a dissolution of the Genl. Govt. as of the particular Govts. A dissolution of the latter would be fatal; of the former would still leave the purposes of Govt. attainable to a considerable degree. Consider what such a State as Virga. will be in a few years, a few compared with the life of nations. How strongly will it feel its importance and self-sufficiency?

An habitual attachment of the people. The whole force of this tie is on the side of the State Govt. Its sovereignty is immediately before the eyes of the people: its protection is immediately enjoyed by them. From its hand distributive justice, and all those acts which familiarize and endear Govt. to a people, are dispensed to them.

Force, by which may be understood a coertion of laws or coertion of arms. Congs. have not the former except in few cases. In particular States, this coercion is nearly sufficient; tho��� he held it in most cases, not entirely so. A certain portion of military force is absolutely necessary in large communities. Masss. is now feeling this necessity and making provision for it. But how can this force be exerted on the States collectively. It is impossible. It amounts to a war between the parties. Foreign powers also will not be idle spectators. They will interpose, the confusion will increase, and a dissolution of the Union will ensue.

Influence. he did not mean corruption, but a dispensation of those regular honors and emoluments, which produce an attachment to the Govt. Almost all the weight of these is on the side of the States; and must continue so as long as the States continue to exist. All the passions then we see, of avarice, ambition, interest, which govern most individuals, and all public bodies, fall into the current of the States, and do not flow in the stream of the Genl. Govt. The former therefore will generally be an overmatch for the Genl. Govt. and render any confederacy, in its very nature precarious.

Theory is in this case fully confirmed by experience. The Amphyctionic Council had it would seem ample powers for general purposes. It had in particular the power of fining and using force agst. delinquent members. What was the consequence.?Their decrees were mere signals of war. The Phocian war is a striking example of it. Philip at length taking advantage of their disunion, and insinuating himself into their Councils, made himself master of their fortunes.

The German Confederacy affords another lesson. The authority of Charlemagne seemed to be as great as could be necessary. The great feudal chiefs however, exercising their local sovereignties, soon felt the spirit and found the means of, encroachments, which reduced the imperial authority to a nominal sovereignty. The Diet has succeeded, which tho��� aided by a Prince at its head, of great authority independently of his imperial attributes, is a striking illustration of the weakness of Confederated Governments.

Other examples instruct us in the same truth. The Swiss cantons have scarce any Union at all, and have been more than once at war with one another.

How then are all these evils to be avoided? only by such a compleat sovereignty in the general Governmt. as will turn all the strong principles and passions above mentioned on its side. Does the scheme of N. Jersey produce this effect? Does it afford any substantial remedy whatever? On the contrary, it labors under great defects, and the defect of some of its provisions will destroy the efficacy of others. It gives a direct revenue to Congs. but this will not be sufficient. The balance can only be supplied by requisitions: which experience proves can not be relied on. If States are to deliberate on the mode, they will also deliberate on the object of the supplies, and will grant or not grant as they approve or disapprove of it. The delinquency of one will invite and countenance it in others.

Quotas too must in the nature of things be so unequal as to produce the same evil. To what standard will you resort? Land is a fallacious one. Compare Holland with Russia: France or Engd. with other countries of Europe. Pena. with N. Carola. will the relative pecuniary abilities in those instances, correspond with the relative value of land. Take numbers of inhabitants for the rule and make like comparison of different countries, and you will find it to be equally unjust. The different degrees of industry and improvement in different Countries render the first object a precarious measure of wealth. Much depends too on situation. Cont. N. Jersey and N. Carolina, not being commercial States and contributing to the wealth of the commercial ones, can never bear quotas assessed by the ordinary rules of proportion. They will and must fail in their duty, their example will be followed, and the Union itself be dissolved.

Whence then is the national revenue to be drawn? from Commerce? even from exports which notwithstanding the common opinion are fit objects of moderate taxation, from excise, &c &c. These tho��� not equal, are less unequal than quotas. Another destructive ingredient in the plan, is that equality of suffrage which is so much desired by the small States. It is not in human nature that Va. and the large States should consent to it, or if they did that they shd. long abide by it. It shocks too much the ideas of Justice, and every human feeling. Bad principles in a Govt. tho slow are sure in their operation, and will gradually destroy it.

A doubt has been raised whether Congs. at present have a right to keep Ships or troops in time of peace. He leans to the negative. Mr. Ps. plan provides no remedy.

If the powers proposed were adequate, the organization of Congs. is such that they could never be properly and effectually exercised. The members of Congs. being chosen by the States and subject to recall, represent all the local prejudices. Should the powers be found effectual, they will from time to time be heaped on them, till a tyrannic sway shall be established. The general power whatever be its form if it preserves itself, must swallow up the State powers. Otherwise it will be swallowed up by them. It is agst. all the principles of a good Government to vest the requisite powers in such a body as Congs. Two Sovereignties can not co-exist within the same limits. Giving powers to Congs. must eventuate in a bad Govt. or in no Govt.

The plan of N. Jersey therefore will not do.

What then is to be done? Here he was embarrassed. The extent of the Country to be governed, discouraged him. The expence of a general Govt. was also formidable; unless there were such a diminution of expence on the side of the State Govts. as the case would admit. If they were extinguished, he was persuaded that great ��conomy might be obtained by substituting a general Govt. He did not mean however to shock the public opinion by proposing such a measure. On the other hand he saw no other necessity for declining it. They are not necessary for any of the great purposes of commerce, revenue, or agriculture.

Subordinate authorities he was aware would be necessary. There must be district tribunals: corporations for local purposes. But cui bono, the vast and expensive apparatus now appertaining to the States. The only difficulty of a serious nature which occurred to him, was that of drawing representatives from the extremes to the center of the Community. What inducements can be offered that will suffice? The moderate wages for the 1st. branch would only be a bait to little demagogues. Three dollars or thereabouts he supposed would be the utmost. The Senate he feared from a similar cause, would be filled by certain undertakers who wish for particular offices under the Govt. This view of the subject almost led him to despair that a Republican Govt. could be established over so great an extent.

He was sensible at the same time that it would be unwise to propose one of any other form.

In his private opinion he had no scruple in declaring, supported as he was by the opinions of so many of the wise and good, that the British Govt. was the best in the world: and that he doubted much whether any thing short of it would do in America. He hoped Gentlemen of different opinions would bear with him in this, and begged them to recollect the change of opinion on this subject which had taken place and was still going on. It was once thought that the power of Congs. was amply sufficient to secure the end of their institution. The error was now seen by every one. The members most tenacious of republicanism, he observed, were as loud as any in declaiming agst. the vices of democracy. This progress of the public mind led him to anticipate the time, when others as well as himself would join in the praise bestowed by Mr. Neckar on the British Constitution, namely, that it is the only Govt. in the world ���which unites public strength with individual security.���

In every community where industry is encouraged, there will be a division of it into the few and the many. Hence separate interests will arise. There will be debtors and creditors &c. Give all power to the many, they will oppress the few. Give all power to the few, they will oppress the many. Both therefore ought to have power, that each may defend itself agst. the other. To the want of this check we owe our paper money, instalment laws &c.

To the proper adjustment of it the British owe the excellence of their Constitution.

Their house of Lords is a most noble institution. Having nothing to hope for by a change, and a sufficient interest by means of their property, in being faithful to the national interest, they form a permanent barrier agst. every pernicious innovation, whether attempted on the part of the Crown or of the Commons. No temporary Senate will have the firmness eno��� to answer the purpose. The Senate (of Maryland) which seems to be so much appealed to, has not yet been sufficiently tried. Had the people been unanimous and eager, in the late appeal to them on the subject of a paper emission they would have yielded to the torrent. Their acquiescing in such an appeal is a proof of it.

Gentlemen differ in their opinions concerning the necessary checks, from the different estimates they form of the human passions. They suppose seven years a sufficient period to give the senate an adequate firmness, from not duly considering the amazing violence and turbulence of the democratic spirit. When a great object of Govt. is pursued, which seizes the popular passions, they spread like wild fire, and become irresistable. He appealed to the gentlemen from the N. England States whether experience had not there verified the remark.

As to the Executive, it seemed to be admitted that no good one could be established on Republican principles. Was not this giving up the merits of the question: for can there be a good Govt. without a good Executive? The English model was the only good one on this subject. The Hereditary interest of the King was so interwoven with that of the Nation, and his personal emoluments so great, that he was placed above the danger of being corrupted from abroad���and at the same time was both sufficiently independent and sufficiently controuled, to answer the purpose of the institution at home.

One of the weak sides of Republics was their being liable to foreign influence and corruption. Men of little character, acquiring great power become easily the tools of intermedling Neibours. Sweeden was a striking instance. The French and English had each their parties during the late Revolution which was effected by the predominant influence of the former.

What is the inference from all these observations? That we ought to go as far in order to attain stability and permanency, as republican principles will admit:

Let one branch of the Legislature hold their places for life or at least during good behaviour.
Let the Executive also be for life.

He appealed to the feelings of the members present whether a term of seven years, would induce the sacrifices of private affairs which an acceptance of public trust would require, so so as to ensure the services of the best Citizens. On this plan we should have in the Senate a permanent will, a weighty interest, which would answer essential purposes.

But is this a Republican Govt., it will be asked?

Yes if all the Magistrates are appointed, and vacancies are filled, by the people, or a process of election originating with the people. He was sensible that an Executive constituted as he proposed would have in fact but little of the power and independence that might be necessary. On the other plan of appointing him for 7 years, he thought the Executive ought to have but little power. He would be ambitious, with the means of making creatures; and as the object of his ambition wd. be to prolong his power, it is probable that in case of a war, he would avail himself of the emergence, to evade or refuse a degradation from his place.

An Executive for life has not this motive for forgetting his fidelity, and will therefore be a safer depository of power. It will be objected probably, that such an Executive will be an elective Monarch, and will give birth to the tumults which characterize that form of Govt. He wd. reply that Monarch is an indefinite term. It marks not either the degree or duration of power. If this Executive Magistrate wd. be a monarch for life���the other propd. by the Report from the Comtte of the whole, wd. be a monarch for seven years. The circumstance of being elective was also applicable to both.

It had been observed by judicious writers that elective monarchies wd. be the best if they could be guarded agst. the tumults excited by the ambition and intrigues of competitors. He was not sure that tumults were an inseparable evil. He rather thought this character of Elective Monarchies had been taken rather from particular cases than from general principles. The election of Roman Emperors was made by the Army. In Poland the election is made by great rival princes with independent power, and ample means, of raising commotions. In the German Empire, the appointment is made by the Electors and Princes, who have equal motives and means, for exciting cabals and parties. Might not such a mode of election be devised among ourselves as will defend the community agst. these effects in any dangerous degree?

Having made these observations he would read to the Committee a sketch of a plan which he shd. prefer to either of those under consideration. He was aware that it went beyond the ideas of most members. But will such a plan be adopted out of doors? In return he would ask will the people adopt the other plan? At present they will adopt neither. But he sees the Union dissolving or already dissolved���he sees evils operating in the States which must soon cure the people of their fondness for democracies���he sees that a great progress has been already made and is still going on in the public mind. He thinks therefore that the people will in time be unshackled from their prejudices; and whenever that happens, they will themselves not be satisfied at stopping where the plan of Mr. R. wd. place them, but be ready to go as far at least as he proposes.

He did not mean to offer the paper he had sketched as a proposition to the Committee. It was meant only to give a more correct view of his ideas, and to suggest the amendments which he should probably propose to the plan of Mr. R. in the proper stages of its future discussion. He read his sketch in the words following: towit....

On these several articles he entered into explanatory observations corresponding with the principles of his introductory reasoning...

#shouldread

Ten Years Ago: A Federal Reserve Not Understanding the Situation at All

Occurrences in August 5, 2008, FOMC Meeting Transcript:

322: Inflation

029: Liquidity

029: Spreads

028: Unemployment

011: Crisis

001: Solvency

000: Minsky

000: Lehman

000: Bear-Stearns

A Federal Reserve looking in exactly the wrong direction ten years ago: Federal Reserve: FOMC Meeting Transcript: BERNANKE: "On inflation, I do have concerns, as everyone else does.... We will continue to see that high level of prices being passed through into the core...

...but I would argue that if���and this is a very big ���if������commodity prices do begin to stabilize within the general range of what we see now, I think that the inflation concerns will moderate over time because they will have lost essentially their driving force.... I want to be very clear: I think that containing inflation is enormously important, and I think it is our first responsibility. We need to watch this very carefully. I think there will be continued pressures even if commodity prices don���t rise, but I do think there is also a chance that we will see a moderation of this problem going forward....

There has been a lot of discussion about the appropriate withdrawal of stimulus. Again, I don���t think I accept the idea that we are currently in an extremely stimulative situation. However, if financial markets were to normalize, for example, that would lead to a more stimulative situation. I would like to say just a word about that. That is to say that the speed at which we remove the accommodation���and I think it is clear we do have to do that relatively soon���should depend to some extent on how inflation evolves...

#shouldread

It wasn't just right-wing politicians who "reframed the c...

It wasn't just right-wing politicians who "reframed the crisis as the result of out-of-control fiscal policy rather than the product of an out-of-control financial sector". I keep coming back and back again to the moment in January 2010 when Barack Obama cut us technocrats who knew what needed to be done off at the knees: "families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I'm proposing specific steps to pay for the $1 trillion that it took to rescue the economy last year. Starting in 2011, we are prepared to freeze government spending for three years..." Martin Wolf reviews Adam Tooz's book Crashed: Martin Wolf: What really went wrong in the 2008 financial crisis?: "'There is a striking similarity between the questions we ask about 1914 and 2008', writes Adam Tooze...

...���How does a great moderation end? How do huge risks build up that are little understood and barely controllable?���.���.���.���How do the passions of popular politics shape elite decision-making? Is there any route to international and domestic order? Can we achieve perpetual stability and peace? Does law offer the answer? Or must we rely on the balance of terror and the judgment of technicians and generals?��� With these questions, Tooze... finishes his monumental narrative history of 10 years that have reshaped our world....

It does not provide the answers. Instead, Crashed gives readers a detailed and superbly researched account of the origins and consequences of the wave of financial crises that emanated from the core of the global financial system from 2007. The prose is clear. The scholarship remarkable. Even people who have followed this story closely will learn a great deal.... The book examines ���the struggle to contain the crisis in three interlocking zones of deep private financial integration: the transatlantic dollar-based financial system, the eurozone and the post-Soviet sphere of eastern Europe���. This implosion ���entangled both public and private finances in a doom loop���. The failures of banks forced ���scandalous government intervention to rescue private oligopolists���. The Federal Reserve even acted to provide liquidity to banks in other countries....

Tooze concludes... ���In its own terms... the response patched together by the US Treasury and the Fed was remarkably successful.��� Yet the success of these technocrats, first with support from the Democratic Congress at the end of the administration of George W Bush, and then under a Democratic president, brought the Democrats no political benefits. The adamantine opposition of the Republican party to all efforts to deal sensibly with the aftermath of (or learn from) the crisis reaped the political rewards. Ultimately, their deliberate fomenting of rage led to the election in 2016 of Donald Trump, described here as an ���erratic, narcissistic nationalist���....

Given the scale of the crisis, no alternative to a comprehensive state-backed rescue existed. And, given that this was a dollar-based financial system, it had to be led by the Americans. Moreover, because political pressure had already mobilised against fiscal policy action by as early as 2010, central banks, not elected representatives, had to take most of the needed action.... The scale and nature of the required response had significant political consequences. The public was enraged by the size of support for the banks and, even worse, by the payment of the bonuses apparently due to the bankers....

Perhaps most startlingly, conservative politicians in the US, the UK and Germany successfully reframed the crisis as the result of out-of-control fiscal policy rather than the product of an out-of-control financial sector.... At the same time, the financial crisis really had left most countries permanently poorer than had been expected. People were in aggregate worse off. That misery did need to be shared out. The question always was: how.... Resistance to necessary and just debt restructuring, particularly in Greece and Ireland, notably by the ECB, under Jean-Claude Trichet, is just one, albeit crucial, part of this story. Still more important was the failure to force the recapitalisation of the European banking system.... Yet another part of this story is the divergence between an increasingly exasperated US and a recalcitrant Germany over how to handle the crisis.... The eurozone struggled through. But it was a close-run thing....

Tooze���s remark that ���the optimistic dogma under which democracy and markets were seen as necessary complements���the mantra of the aftermath of the cold war���was dead....��� US power dealt with the crisis. German power shaped the eurozone���s response. Rightwing politics reimagined a financial crisis as a fiscal one. A similar politics also shifted the emphasis from the dangers of economic insecurity and inequality to the threat from immigration. The crisis has, alas, awoken the sleeping ogres of fear and hatred. How, if at all, will liberal democracy survive the age of Trump, Brexit, Putin and Xi? That is the biggest question raised by this transformative decade...

#shouldread

Also see Alan Taylor: Nick Bunker: Understanding the impo...

Also see Alan Taylor: Nick Bunker: Understanding the importance of household credit in high-income economies: "Atif Mian... and Amir Sufi... pulling together the evidence for what they call the ���credit-driven household demand channel���...

...Mian and Sufi present the case for the importance of changes in the flow of credit to households in understanding the overall cycle of the economy.... The channel played out in Europe and in the United States during the 1980s and 1990s, as well as in the first decade of the 21st century.... The expansion of credit to households is due to forces unrelated to changes in technological growth or income growth for households.... So, why do lenders increase the supply of credit in these cases?... Mian and Sufi point toward the ���global savings glut��� and higher economic inequality.... The second pillar relates to ���household demand.��� Credit could expand, but its impact on demand and the business cycle depends on where that credit ultimately flows. If it ends up going toward businesses, then that might spur investment and increase productivity growth and the long-run potential of the economy. But what Mian and Sufi, along with their co-authors, find is that in high-income countries, the credit doesn���t go to business but rather to households. The result is that households increase their demand, boosting housing prices, inflation, wages, and employment in nontradable industries such as construction....

The researchers��� third pillar holds that household a credit-and demand-driven boom creates the conditions that will make the inevitable recession particularly painful. Once credit starts drying up, the increased indebtedness of households means that consumption in the economy drops dramatically. The higher wages in the nontradeable sector (such as construction) make it harder for the labor market to adjust to this reduced amount of demand. The severity of and potential response to the recession is due to the forces that created the boom before it. In this way, the credit-driven household demand channel means economists and policymakers have to consider both the expansion and the recession together.

What would paying attention to this new channel entail for policy? First, policymakers should be vigilant about increases in household debt. Large increases in household debt, particularly over a short period of time, appear to be a good indicator of a looming recession and a nasty recession. Secondly, a breakdown in the channel may explain why the very low interest rates since the Great Recession haven���t been as stimulative as many expected. If the previous boom was due to credit-driven demand and households are still trying to recover from the last run up in household debt or if the financial sector isn���t as willing to lend, then trying to use credit to boost demand might not be so effective.

The Great Recession revived interest in the sources of fluctuations in the economy. In this new paper, Mian and Sufi present a new approach to this question that puts households and credit at the heart of the story. It���s a story well worth paying attention to...

#shouldread

The desperate attempt to justify World War I reached into...

The desperate attempt to justify World War I reached into even Sherlock Holmes: Arthur Conan Doyle (1917): His Last Bow: "There's an east wind coming all the same, such a wind as never blew on England yet. It will be cold and bitter, Watson, and a good many of us may wither before its blast. But it's God's own wind none the less, and a cleaner, better, stronger land will lie in the sunshine when the storm has cleared..."

#books
#worldwari

Marti Sandbu: EuroTragedy: A Drama in Nine Acts, by Ashok...

Marti Sandbu: EuroTragedy: A Drama in Nine Acts, by Ashoka Mody: "Writing about the euro... doing justice to the technicalities threatens to kill any narrative, while simplified storytelling risks misguided analysis. Ashoka Mody���s... is an ambitious attempt to avoid this trap...

....The sweeping chronology of the euro is well told. With evident passion.... He has such a good eye for what is economically important that his observations trump much of the conventional analysis he echoes. He shows that the roots of European economic underperformance and political disquiet have little to do with the fact of monetary union itself.... He highlights governance failures such as corruption and the extreme unwillingness of European governments to clean up and restructure their banking systems....

Mody is on surer ground when he slams policymakers for inappropriate macroeconomic policy choices: excessive fiscal tightening and insufficiently loose monetary policy. And he nails the biggest policy error of them all: the insistence that euro member states could not default on their own debt, or allow their banks to default on senior bondholders. The most original parts of his book are the reasoned explanations of why debt restructuring of both sovereigns and banks should have been embraced early in the crisis and should be made a regular tool in future crises....

Even wrong policy choices are just that: choices, which could have been made differently. The hallmark of tragedy is that protagonists are compelled to self-destructive action. The euro���s leaders have no such lofty excuse. Nothing in the euro compelled them to keep monetary policy tight, prematurely end fiscal stimulus, or fail to write down debts. A disaster, perhaps, but no tragedy...

#shouldread

I am being told that George Borjas still does not underst...

I am being told that George Borjas still does not understand���or at least says he does not understand���the force of this critique. Can that possibly be true?: Michael A. Clemens and Jennifer Hunt: The Labor Market Effects of Refugee Waves: Reconciling Conflicting Results: "The fraction of blacks
is much higher in the post- than pre-Boatlift years in Borjas���s Miami sample...

...while there is no such difference in Card���s Miami sample... nor in the control cities favored by either Card or Borjas.... Reasons for the compositional change... the 1980 arrival of black Haitians with less than high school and improved survey coverage of low-wage black males.... Because both... had lower wages than other workers with less than high school, this compositional change tends to produce a spurious fall in average wages for workers with less than high school. Our reanalysis of Borjas���s sample with an adjustment for the share of blacks yields results similar to those of Card (1990) and Peri and Yasenov (2017): little to no wage impact of the Mariel Boatlift is discernable....

Second, we show that the Borjas and Monras (2017) applications of instrumental variables... give[s] similar results to the original studies after a specification correction.... The instrument used by Borjas and Monras... gives results that can be reproduced with a placebo instrument... [of] white noise.... This is a consequence of spurious correlation between the instrument and the endogenous variable introduced by applying a common divisor to both (Bazzi and Clemens 2013). The problem is addressed with a specification correction that builds on Kronmal���s (1993), after which otherwise identical methods give the same results as the original instrumental-variable studies...

#shouldread

Comment of the Day: Graydon: "What you're seeing is an ac...

Comment of the Day: Graydon: "What you're seeing is an active ethnogenesis; Trump's base are recreating themselves as something that's not 'Americans'...

...because America (at least claims to) believe in something other than no free press, no rights for women, ethnic cleansing to establish a white ethnostate, and so on. It's near enough the Confederacy with an authoritarian central government. What tends to be forgotten is that the Union was an act of ethnogenesis, too; people had to make up a unitary power to explain to themselves why they were fighting. It's part of why promoting someone Lieutenant General was such a big deal; they had to change the founding myth. There's several attempted ethnogenesis efforts going on; there's a real sense in which the non-Trump political factions need to pick one and push it consciously...

#commentoftheday

The wise Ian Buruma on the Trumpists' attempts to constru...

The wise Ian Buruma on the Trumpists' attempts to construct a global Fascist International: Ian Buruma: Steve Bannon���s European Adventure: "The reputed mastermind of Donald Trump���s presidential campaign has launched a full-scale effort to unite Europe's right-wing forces and bring down the European Union...

...After being cast out of the White House and Breitbart News.... Bannon sees this effort as part of a ���war��� between... the white, Christian, patriotic ���real people��� (in the words of his British supporter, Nigel Farage) and the cosmopolitan globalist elites. In the media, at least, Bannon is taken seriously. It would seem to be a tall order for this permanently disheveled American media blowhard and promoter of cranky ideas about cyclical cataclysms to change the history of Europe. Despite meeting such right-wing luminaries as Hungary���s strongman Viktor Orb��n, Italy���s Deputy Prime Minister Matteo Salvini, and Boris Johnson, the clownish former British foreign secretary, all of whom wish him well, Bannon has almost no experience in European politics. He stunned a sympathetic audience in Prague by ranting against ���unfair competition��� from foreign countries that use cheap labor. Much of the Czech Republic���s GDP comes from exports, for just that reason.

But the main problem facing Bannon���s effort is that right-wing populist leaders are a disparate bunch.... What they all have in common, however, is reliance on animus, sometimes directed at Muslims, sometimes at any kind of immigrants, very often against the EU, and always against the liberal elites���whom British Prime Minister Theresa May described as ���citizens of nowhere.��� There is something conspiratorial about this animus, a notion that the common man is at the mercy of a shadowy network of string-pullers that rules the world. In the days when Stalin identified enemies of the people as ���rootless cosmopolitans��� (meaning Jews), the headquarters of this omnipotent global network was thought to be New York, with branch offices in London and Paris. Now it is located in Brussels.... The sinister globalist elite, represented by George Soros and other liberals whom they accuse of promoting human rights, compassion for refugees, and religious tolerance to further their own interests. They are the ones who are supposedly swamping Christian lands with aliens. They are stabbing Western civilization in the back...

#shouldread